Debt

Debt obligations

Our total borrowings as of September 29, 2012, and December 31, 2011, were composed of the following:



	As of
	September 29, 2012			December 31, 2011
	(In millions)
Senior notes:
$850 million 6.375% notes due 2012(1)	$	—		$	44.6
$575 million 2.5% convertible notes due 2013(2)	575.0			575.0
€500 million 0.0% convertible note due 2013(3)	672.0			—
CAD 900 million 5.0% notes due 2015	914.9			881.2
CAD 500 million 3.95% Series A notes due 2017	508.4			489.6
$300 million 2.0% notes due 2017(4)	300.0			—
$500 million 3.5% notes due 2022(4)	500.0			—
$1.1 billion 5.0% notes due 2042(4)	1,100.0			—
€120 million term loan due 2016(5)	120.5			—
Other long-term debt	0.6			—
Credit facilities(6)	—			—
Less: unamortized debt discounts and other(7)	(22.5		)	(30.8		)
Total long-term debt (including current portion)	4,668.9			1,959.6
Less: current portion of long-term debt	(1,230.8		)	(44.7		)
Total long-term debt	$	3,438.1		$	1,914.9

Short-term borrowings	$	27.8		$	2.2
Current portion of long-term debt	1,230.8			44.7
Current portion of long-term debt and short-term borrowings	$	1,258.6		$	46.9


(1)	During the second quarter of 2012, we repaid the remaining outstanding portion of our $850 million 6.375% 10-year notes that were due in May 2012.

(2)

The original conversion price for each $1,000 aggregate principal amount of notes was $54.76 per share of our Class B common stock, which represented a 25% premium above the stock price on the day of issuance of the notes and corresponded to the initial conversion ratio of 18.263 shares per each $1,000 aggregate principal amount of notes. The conversion ratio and conversion price are subject to adjustments for certain events and provisions, as defined in the indenture. As of March 2012, our conversion price and ratio are $52.79 and 18.9441 shares, respectively. Currently, the convertible debt's if-converted value does not exceed the principal.

During the third quarters of 2012 and 2011, we incurred additional non-cash interest expense of $4.5 million and $4.4 million, respectively. For the first three quarters of 2012 and 2011, the amounts were $13.5 million and $13.1 million, respectively. We also incurred interest expense related to the 2.5% convertible coupon rate of $3.6 million during both the third quarters of 2012 and 2011. For both of the first three quarters of 2012 and 2011, interest expense incurred was $10.8 million. The combination of non-cash and cash interest resulted in an effective interest rate of 5.78% and 5.86% for the third quarters of 2012 and 2011, respectively. The effective interest rates for the first three quarters of 2012 and 2011 were 5.79% and 5.87%, respectively. In relation to this issuance, paid in capital in the equity section of our balance sheet includes $103.9 million, ($64.2 million net of tax), representing the equity component of the convertible debt. Further, as of September 29, 2012, and December 31, 2011, $15.4 million and $28.9 million, respectively, of the unamortized debt discount and other balance relates to our $575 million convertible debt. We expect to record additional non-cash interest expense of approximately $4.6 million in 2012 and $10.8 million in 2013, thereby increasing the carrying value of the convertible debt to its $575 million face value at maturity in July 2013.

(3)

On June 15, 2012, we issued a €500 million Zero Coupon Senior Unsecured Convertible Note due 2013 (the ''Convertible Note'') to the Seller in conjunction with the closing of the Acquisition. The Convertible Note matures on December 31, 2013, and is a senior unsecured obligation guaranteed by MCBC. The Seller may exercise a put right with respect to the Convertible Note beginning on March 14, 2013, (the “First Redemption Date”) and ending on December 19, 2013, for the greater of the principal amount of the Convertible Note or the aggregate cash value of 12,894,044 shares of our Class B Common Stock, as adjusted for certain corporate events. The Convertible Note's embedded conversion feature was determined to meet the definition of a derivative required to be bifurcated and separately accounted for at fair value with changes in fair value recorded in earnings. At issuance, we recorded a liability of $15.2 million related to the conversion feature. The Convertible Note was issued at a discount of $1.3 million, which will be recognized as interest expense over the period from issuance to the First Redemption Date.

The carrying value of the Convertible Note and fair value of the conversion feature at September 29, 2012, were $642.2 million and $29.0 million, respectively. We recognized an unrealized loss of $8.2 million and $13.8 million during the third quarter and first three quarters of 2012, respectively, related to changes in the fair value of the conversion feature. During the third quarter and first three quarters of 2012, we recognized $0.4 million and $0.5 million, respectively, in non-cash interest expense related to amortization of the debt discount. The non-cash interest, excluding the change in fair value of the convertible feature, resulted in an effective interest rate of 0.25% for the third quarter and first three quarters of 2012, respectively. See Note 14, "Derivative Instruments and Hedging Activities" for further discussion of the derivative.

(4)

On May 3, 2012, we issued $1.9 billion of senior notes with portions maturing in 2017, 2022 and 2042. The 2017 senior notes were issued in an initial aggregate principal amount of $300 million at 2.0% interest and will mature on May 1, 2017. The 2022 senior notes were issued in an initial aggregate principal amount of $500 million at 3.5% interest and will mature on May 1, 2022. The 2042 senior notes were issued in an initial aggregate principal amount of $1.1 billion at 5.0% interest and will mature on May 1, 2042. The issuance resulted in total proceeds to us, before expenses, of $1,880.7 million, net of underwriting fees and discounts of $14.7 million and $4.6 million, respectively. Total debt issuance costs capitalized in connection with these senior notes, including the $14.7 million of underwriting fees, are approximately $18.0 million and will be amortized over the life of the notes. The issuance adds a number of guarantors to these debt securities as well as to our existing senior obligations, pursuant to requirements of our existing senior debt obligation agreements. These new guarantors consist principally of the U.K. operating entity. See Note 17, "Supplemental Guarantor Information" for further discussion and guarantor financial information reflective of this change.

Concurrent with the announcement of the Acquisition, we entered into a bridge loan agreement, which we terminated upon the issuance of the $1.9 billion senior notes. In connection with the issuance and subsequent termination of the bridge loan, we incurred costs of $13.0 million recorded in Other expense in the second quarter of 2012. See Note 8, "Other Income and Expense."

Our risk management policy prohibits speculating on specific events, including the direction of interest rates. In advance of our issuance of the $1.9 billion senior notes, we systematically removed a portion of our interest rate market risk by entering into Treasury Locks. This resulted in an increase in the certainty of our yield to maturity when issuing the notes. In the second quarter of 2012, we recognized a cash loss of $39.2 million on settlement of the Treasury Locks recorded in Interest expense. See Note 14, "Derivative Instruments and Hedging Activities" for further discussion.

(5)

On April 3, 2012, we entered into a term loan agreement (the ''Term Loan Agreement'') that provides for a 4-year term loan facility of $300 million, composed of one $150 million borrowing and one Euro-denominated borrowing equal to $150 million at issuance (or €120 million borrowing) both of which were funded upon close of the Acquisition on June 15, 2012. The Term Loan Agreement requires quarterly principal repayments equal to 2.5% of the initial principal obligation, commencing on September 30, 2012, with the remaining 62.5% principal balance due at the June 15, 2016 maturity date. The obligations under the Term Loan Agreement are our general unsecured obligations. The Term Loan Agreement contains customary events of default, specified representations and warranties and covenants, including, among other things, covenants that limit our and our subsidiaries' ability to incur certain additional priority indebtedness, create or permit liens on assets or engage in mergers or consolidations. Debt issuance costs capitalized in connection with the Term Loan Agreement will be amortized over the life of the debt and total approximately $3 million.

During the third quarter of 2012, we repaid the $150 million borrowing and made principal repayments of €26.0 million on the remaining €120 million borrowing.

During the third quarter of 2012, we designated the €120 million term loan as a net investment hedge of our Central European operations. See Note 14, "Derivative Instruments and Hedging Activities" for further discussion.


(6)	On September 10, 2012, we entered into a revolving credit agreement ("Euro Credit Agreement") to support the operations of our Central Europe segment. The Euro Credit Agreement provides for a 1-year revolving credit facility of €150 million on an uncommitted basis.

On April 3, 2012, we entered into a revolving credit agreement (the ''Credit Agreement''). The Credit Agreement provides for a 4-year revolving credit facility of $300 million that was subsequently amended to increase the borrowing limit to $550 million. The Credit Agreement contains customary events of default and specified representations and warranties and covenants, including, among other things, covenants that limit our subsidiaries' ability to incur certain additional priority indebtedness, create or permit liens on assets, or engage in mergers or consolidations.

In the second quarter of 2011, we entered into an agreement for a 4-year revolving multicurrency credit facility of $400 million, which provides a $100 million sub-facility available for the issuance of letters of credit.

In relation to the credit facilities issued in the second quarter and third quarter of 2012, we incurred $5.1 million and $0.4 million, of total issuance costs and up-front fees, respectively, which are being amortized over the terms of each respective facility. There were no outstanding borrowings on these credit facilities as of September 29, 2012.


(7)	In addition to the unamortized debt discount on the $575 million convertible notes, we have unamortized debt discounts on the additional debt balances of $7.1 million and $1.9 million as of September 29, 2012, and December 31, 2011, respectively.

Debt Fair Value Measurements

We utilize market approaches to estimate the fair value of certain outstanding borrowings by discounting anticipated future cash flows derived from the contractual terms of the obligations and observable market interest and foreign exchange rates. As of September 29, 2012, and December 31, 2011, the fair value of our outstanding long-term debt (including current portion) was $5,025.9 million and $2,133.6 million, respectively. Our $575 million convertible notes and $1.9 billion senior notes are valued based on quoted prices in active markets and would be classified as Level 1 in the fair value hierarchy. These notes had a combined fair value of $2,708.1 million and $608.5 million, as of September 29, 2012, and December 31, 2011, respectively. All other senior notes and the Convertible Note are valued based on significant observable inputs and would be classified as Level 2 in the fair value hierarchy. The fair value measurement of the conversion feature embedded in the Convertible Note includes significant unobservable inputs and is classified as Level 3 in the fair value hierarchy. These instruments had a fair value of $2,317.2 million and $1,525.1 million, as of September 29, 2012, and December 31, 2011, respectively. See Note 14, "Derivative Instruments and Hedging Activities" for further discussion regarding the fair value of the conversion feature related to the Convertible Note. The carrying values of all other outstanding long-term borrowings and our short-term borrowings approximate their fair values.

Other

Under the terms of some of our debt facilities, we must comply with certain restrictions. These include restrictions on priority indebtedness (certain threshold percentages of secured consolidated net tangible assets), leverage thresholds, liens, and restrictions on certain types of sale lease-back transactions. As of September 29, 2012, we were in compliance with all of these restrictions.