Amgen 2007 Annual Report Download - page 150

AMGEN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
the 2017 Notes and the 2037 Notes at a price equal to 101% of the principal amount of the notes plus accrued in-
terest. A total of $3.2 billion of the net proceeds raised from the issuance of these notes were used to repurchase
shares of our common stock under a block trade entered into in May 2007.
2011 and 2013 Convertible Notes
In February 2006, we issued $2.5 billion principal amount of convertible notes due in 2011 (the “2011 Con-
vertible Notes”) and $2.5 billion principal amount of convertible notes due in 2013 (the “2013 Convertible
Notes”) in a private placement. The 2011 Convertible Notes and the 2013 Convertible Notes were issued at par
and pay interest at a rate of 0.125% and 0.375%, respectively. The 2011 Convertible Notes and the 2013 Con-
vertible Notes may be convertible based on an initial conversion rate of 12.5247 shares and 12.5814 shares,
respectively, per $1,000 principal amount of notes (which represents an initial conversion price of approximately
$79.84 and $79.48 per share, respectively). These conversion rates will be adjusted if we make specified types of
distributions or enter into certain other transactions in respect to our common stock. The 2011 Convertible Notes
and the 2013 Convertible Notes may only be converted: (i) during any calendar quarter if the closing price of our
common stock exceeds 130% of the respective 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) one month prior to the respective maturity date. Upon conversion, a holder would re-
ceive 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) to the
extent the conversion value exceeds the principal amount of the note, shares of our common stock, cash or a
combination of common stock and cash, at our option (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
100% of the principal amount of the notes plus accrued and unpaid interest, if any. Debt issuance costs totaled
approximately $89 million and are being amortized over the life of the notes using the effective interest method.
In connection with issuance of these convertible notes, a total of $3.0 billion of our common stock was re-
purchased under our stock repurchase program. Also concurrent with the issuance of the 2011 Convertible Notes
and the 2013 Convertible Notes, we purchased convertible note hedges in private transactions. The convertible
note hedges allow us to receive shares of our common stock and/or cash from the counterparties to the trans-
actions 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 2011 Convertible Notes and the 2013 Convertible Notes upon conversion.
These transactions will terminate at the earlier of the maturity dates of the related notes or the first day none of
the related notes remain outstanding due to conversion or otherwise. The cost of the convertible note hedges ag-
gregated approximately $1.5 billion. The net proceeds received from the issuance of the 2011 and 2013
Convertible Notes, the repurchase of our common stock and the purchase of the convertible note hedges was
$439 million.
Also concurrent with the issuance of the 2011 Convertible Notes and the 2013 Convertible Notes, we sold
warrants to acquire shares of our common stock at an exercise price of $107.90 per share in a private placement.
Pursuant to these transactions, warrants for approximately 31.3 million shares of our common stock may be set-
tled in May 2011 and warrants for approximately 31.5 million shares of our common stock may be settled in May
2013 (the “settlement dates”). If the average price of our common stock during a defined period ending on or
about the respective settlement dates exceeds the exercise price of the warrants, the warrants will be net settled,
at our option, in cash or shares of our common stock. Proceeds received from the issuance of the warrants totaled
approximately $774 million.
Because we have the choice of settling the convertible note hedges and warrants in cash or shares of our
stock, and these contracts meet all of the applicable criteria for equity classification as outlined in EITF No.
00-19, “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s
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