Amgen 2012 Annual Report Download - page 131

F-32
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 could be settled at our option in cash or shares of our common stock, and
these contracts met 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.
Because these convertible notes were cash settleable, their debt and equity components were bifurcated and accounted for
separately. The discounted carrying value of the debt component resulting from the bifurcation was accreted back to the principal
amount over the period the notes were outstanding, resulting in the recognition of non-cash interest expense. The total aggregate
amount repaid, including the amount related to the debt discount, is included in Cash flows from financing activities in the
Consolidated Statement of Cash Flows. After giving effect to this bifurcation, the effective interest rate on the 0.375% 2013
Convertible Notes was 6.35%. For the years ended December 31, 2012, 2011 and 2010, total interest expenses for the 0.375%
2013 Convertibles Notes were $151 million, $143 million and $134 million, respectively, including non-cash interest expenses of
$142 million, $133 million and $125 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 and 2010, total
interest expenses for the 0.125% 2011 Convertible Notes were $13 million and $149 million, respectively, including non-cash
interest expenses of $12 million and $146 million, respectively.
The principal balance, unamortized discount and net carrying amount of the liability and equity components of our 0.375%
2013 Convertible Notes were as follows as of December 31, 2012 and 2011 (in millions):
Liability component Equity component
0.375% 2013 Convertible Notes Principal balance Unamortized discount Net carrying amount Net carrying amount
December 31, 2012 $ 2,500 $ 12 $ 2,488 $ 829
December 31, 2011 $ 2,500 $ 154 $ 2,346 $ 829
Other
Other notes include our notes due in 2097 with carrying value of $100 million, debt assumed in the acquisition of MN with
a carrying value of $9 million at December 31, 2012, and the zero-coupon convertible notes due in 2032 which had a carrying
value of $84 million at December 31, 2011.
Interest rate swaps
To achieve a desired mix of fixed and floating interest rate debt, we entered into interest rate swap contracts that effectively
converted a fixed-rate interest coupon for certain of our debt issuances to a floating London Interbank Offered Rate (LIBOR)-
based coupon over the life of the respective note. These interest rate swap contracts qualified and were designated as fair value
hedges. As of December 31, 2011, we had interest rate swap contracts with aggregate notional amounts of $3.6 billion with respect
to our 4.85% 2014 Notes, 5.85% 2017 Notes, 6.15% 2018 Notes and 5.70% 2019 Notes. While outstanding, the rates on these
swaps ranged from LIBOR plus 0.3% to LIBOR plus 2.6%. Due to historically low interest rates, we terminated all of these swap
contracts in May 2012. See Note 17, Derivative instruments.
Cross-currency swaps
In order to hedge our exposure to foreign currency exchange rate risk associated with certain of our long-term notes
denominated in foreign currencies, we entered into cross-currency swap contracts. The terms of these contracts effectively convert
the interest payments and principal repayment on our 2.125% 2019 euro Notes, 5.50% 2026 pound sterling Notes and 4.00% 2029
pound sterling Notes from euros/pounds sterling to U.S. dollars. These cross-currency swap contracts have been designated as
cash flow hedges. For information regarding the terms of these contracts, see Note 17, Derivative instruments.