Amgen 2011 Annual Report Download - page 155

AMGEN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
certain other transactions with respect to our common stock. The 0.375% 2013 Convertible Notes may only be
converted: (i) during any calendar quarter if the closing price of our common stock exceeds 130% of the then
conversion price per share during a defined period at the end of the previous quarter, (ii) if we make specified
distributions to holders of our common stock or specified corporate transactions occur or (iii) within one month
prior to the maturity date. Upon conversion, a holder would receive the conversion value equal to the conversion
rate multiplied by the volume weighted-average price of our common stock during a specified period following
the conversion date. The conversion value will be paid in: (i) cash equal to the lesser of the principal amount of
the note or the conversion value, as defined, and (ii) cash, shares of our common stock, or a combination of cash
and shares of our common stock, at our option, to the extent the conversion value exceeds the principal amount
of the note (the excess conversion value). In addition, upon a change in control, as defined, the holders may
require us to purchase for cash all or a portion of their notes for the principal amount of the notes plus accrued
interest. As of December 31, 2011, the 0.375% 2013 Convertible Notes were not convertible. While outstanding,
the 0.125% 2011 Convertible Notes had terms similar to the 0.375% 2013 Convertible Notes.
Concurrent with the issuance of the 0.375% 2013 Convertible Notes, we purchased a convertible note
hedge. The convertible note hedge allows us to receive shares of our common stock and/or cash from the
counterparty to the transaction equal to the amounts of common stock and/or cash related to the excess
conversion value that we would issue and/or pay to the holders of the 0.375% 2013 Convertible Notes upon
conversion. This convertible note hedge will terminate at the earlier of the maturity of the 0.375% 2013
Convertible Notes or the first day none of these notes remain outstanding due to conversion or otherwise. We
also purchased a convertible note hedge with similar terms in connection with the issuance of the 0.125% 2011
Convertible Notes, which terminated unexercised when these notes were repaid.
Also concurrent with the issuance of the 0.375% 2013 Convertible Notes, we sold warrants to acquire
31.5 million shares of our common stock in May 2013 (the settlement date) at an exercise price of $107.90 per
share. If the average price of our common stock during a defined period ending on or about the settlement date
exceeds the exercise price of the warrants, the warrants will be net settled, at our option, in cash or shares of our
common stock. In connection with the issuance of the 0.125% 2011 Convertible Notes, we sold warrants to
purchase 31.3 million shares of our stock on similar terms, which expired unexercised in May 2011.
Because the convertible note hedges and warrants can be settled at our option in cash or shares of our
common stock, and these contracts meet all of the applicable criteria for equity classification under the applicable
accounting standards, the cost of the convertible note hedges and net proceeds from the sale of the warrants are
classified in Stockholders’ equity in the Consolidated Balance Sheets. In addition, because both of these
contracts are classified in Stockholders’ equity and are indexed to our common stock, they are not accounted for
as derivatives.
As required for cash settleable convertible notes, the debt and equity components of the 0.375% 2013
Convertible Notes were bifurcated and accounted for separately. The resulting discounted carrying value of the
debt is being accreted back to the principal amount through the scheduled maturity date, resulting in the
recognition of non-cash interest expense. After giving effect to this bifurcation, the effective interest rate on this
borrowing is 6.35%. For the years ended December 31, 2011, 2010 and 2009, total interest expense for the
0.375% 2013 Convertibles Notes was $143 million, $134 million, and $127 million, respectively, including
non-cash interest expense of $133 million, $125 million, and $118 million, respectively. While outstanding, the
0.125% 2011 Convertible Notes were accounted for in the same manner, resulting in an effective interest rate of
6.24%. For the years ended December 31, 2011, 2010 and 2009, total interest expense for the 0.125% 2011
Convertible Notes was $13 million, $149 million, and $140 million, respectively, including non-cash interest
expense of $12 million, $146 million, and $136 million, respectively.
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