XML 110 R21.htm IDEA: XBRL DOCUMENT

Financing arrangements

12 Months Ended

Dec. 31, 2011

14. Financing arrangements

The carrying values and the fixed contractual coupon rates of our long-term borrowings were as follows as of December 31, 2011 and 2010 (in millions):


	2011		2010
0.125% convertible notes due 2011 (0.125% 2011 Convertible Notes)	$	—	$	2,488
0.375% convertible notes due 2013 (0.375% 2013 Convertible Notes)		2,346		2,213
1.875% notes due 2014 (1.875% 2014 Notes)		1,000		—
4.85% notes due 2014 (4.85% 2014 Notes)		1,000		1,000
2.30% notes due 2016 (2.30% 2016 Notes)		748		—
2.50% notes due 2016 (2.50% 2016 Notes)		999		—
5.85% notes due 2017 (5.85% 2017 Notes)		1,099		1,099
6.15% notes due 2018 (6.15% 2018 Notes)		499		499
4.375% euro denominated notes due 2018 (4.375% 2018 euro Notes)		714		—
5.70% notes due 2019 (5.70% 2019 Notes)		998		998
4.50% notes due 2020 (4.50% 2020 Notes)		300		300
3.45% notes due 2020 (3.45% 2020 Notes)		897		897
4.10% notes due 2021 (4.10% 2021 Notes)		998		—
3.875% notes due 2021 (3.875% 2021 Notes)		1,745		—
5.50% pound sterling denominated notes due 2026 (5.50% 2026 pound sterling Notes)		739		—
6.375% notes due 2037 (6.375% 2037 Notes)		899		899
6.90% notes due 2038 (6.90% 2038 Notes)		499		499
6.40% notes due 2039 (6.40% 2039 Notes)		996		996
5.75% notes due 2040 (5.75% 2040 Notes)		697		696
4.95% notes due 2041 (4.95% 2041 Notes)		595		595
5.15% notes due 2041 (5.15% 2041 Notes)		2,232		—
5.65% notes due 2042 (5.65% 2042 Notes)		1,244		—
Other notes, including our zero-coupon convertible notes		184		183

Total debt		21,428		13,362
Less current portion		(84)		(2,488)

Total noncurrent debt	$	21,344	$	10,874

Debt repayments

In February 2011, our 0.125% 2011 Convertible Notes became due, and we repaid the $2.5 billion aggregate principal amount. As 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. The total aggregate amount repaid, including the amount related to the debt discount of $643 million resulting from the bifurcation, is included in Cash flows from financing activities in the Consolidated Statement of Cash Flows. No debt was due or repaid in 2010, and we repaid $1.0 billion aggregate principal amount of notes with a fixed interest rate of 4.00% in 2009.

Debt issuances

We issued debt securities in various offerings during the three years ended December 31, 2011, including:

•

In 2011, we issued $10.5 billion aggregate principal amount of notes, comprised of the 1.875% 2014 Notes, the 2.30% 2016 Notes, the 2.50% 2016 Notes, the 4.375% 2018 euro Notes (€550 million aggregate principal amount), the 4.10% 2021 Notes, the 3.875% 2021 Notes, the 5.50% 2026 pound sterling Notes (£475 million aggregate principal amount), the 5.15% 2041 Notes and the 5.65% 2042 Notes.

•

In 2010, we issued $2.5 billion aggregate principal amount of notes, comprised of the 4.50% 2020 Notes, the 3.45% 2020 Notes, the 5.75% 2040 Notes and the 4.95% 2041 Notes.

•

In 2009, we issued $2.0 billion aggregate principal amount of notes, comprised of the 5.70% 2019 Notes and the 6.40% 2039 Notes.

Debt issuance costs incurred in connection with these debt offerings in 2011, 2010 and 2009 totaled $55 million, $17 million and $13 million, respectively. These debt issuance costs are being amortized over the respective lives of the notes, and the related charge is included in Interest expense, net, in the Consolidated Statements of Income.

All of our debt issuances other than our 0.375% 2013 Convertible Notes and Other notes may be redeemed at any time at our option, in whole or in part, at the principal amount of the notes being redeemed plus accrued interest and a make-whole amount, as defined. In addition, except with respect to our 0.375% 2013 Convertible Notes, the 4.85% 2014 Notes and Other notes, in the event of a change in control triggering event, as defined, we may be required to purchase for cash all or a portion of these debt issuances at a price equal to 101% of the principal amount of the notes plus accrued interest.

Convertible Notes

In 2006, we issued $5.0 billion principal amount of convertible notes at par. While outstanding, the notes are convertible into shares of our common stock upon the occurrence of specified events. In February 2011, $2.5 billion principal amount of the convertible notes (the 0.125% 2011 Convertible Notes) became due and were repaid in full. While outstanding, the conversion rate on the 0.125% 2011 Convertible Notes was 12.5247 shares per $1,000 principal amount of notes, which represented a conversion price of approximately $79.84 per share. The conversion rate on the $2.5 billion principal amount of convertible notes, which mature in February 2013 (the 0.375% 2013 Convertible Notes), was 12.7473 shares per $1,000 principal amount of notes at December 31, 2011, which represents a conversion price of approximately $78.45 per share. This conversion rate is adjusted as we make specified types of distributions, including paying cash dividends on our common stock, or enter into 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.

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, 2011 and 2010 (in millions):


	Liability component						Equity component
0.375% 2013 Convertible Notes	Principal balance		Unamortized discount		Net carrying amount		Net carrying amount
December 31, 2011	$	2,500	$	154	$	2,346	$	829
December 31, 2010	$	2,500	$	287	$	2,213	$	829

Other

Other notes include zero-coupon convertible notes due in 2032 with a carrying value of $84 million and $83 million at December 31, 2011 and 2010, respectively, and notes due in 2097 with a carrying value of $100 million.

Interest rate swaps

To achieve a desired mix of fixed and floating interest rate debt, we enter into interest rate swap contracts that effectively convert 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 qualify and are designated as fair value hedges. The effective interest rates on these notes after giving effect to the related interest rate swap contracts and the notional amounts of these interest rate swap contracts were as follows as of December 31, 2011 and 2010 (dollar amounts in millions):


		Notional amount
	Effective interest rate	2011		2010
4.85% 2014 Notes	LIBOR + 0.3%	$	1,000	$	1,000
5.85% 2017 Notes	LIBOR + 2.5%		1,100		1,100
6.15% 2018 Notes	LIBOR + 1.8%		500		500
5.70% 2019 Notes	LIBOR + 2.6%		1,000		1,000

		$	3,600	$	3,600

Cross currency swaps

In order to hedge our exposure to foreign currency exchange rate risk associated with our pound sterling denominated long-term notes issued in 2011, we entered into cross currency swap contracts. These cross currency swap contracts qualify and are designated as cash flow hedges. Under the terms of these contracts, we receive interest payments in pounds sterling at a fixed rate of 5.5% on £475 million and pay interest in U.S. dollars at a fixed rate of 5.8% on $748 million, the aggregate notional amounts paid to/received from the counterparties upon exchange of currencies at the inception of these contracts. We will pay U.S. dollars to and receive pounds sterling from the counterparties at the maturity of the contracts for the same notional amounts. The terms of these contracts correspond to the related hedged notes, effectively converting the interest payments and principal repayment on these notes from pounds sterling to U.S. dollars.

Shelf registration statements and other facilities

As of December 31, 2011, we have a commercial paper program that allows us to issue up to $2.5 billion of unsecured commercial paper to fund our working capital needs. At December 31, 2011 and 2010, we had no amounts outstanding under our commercial paper program.

In December 2011, we entered into a $2.5 billion syndicated, unsecured, revolving credit agreement which is available for general corporate purposes or as a liquidity backstop to our commercial paper program. The commitments under the revolving credit agreement may be increased by up to $500 million with the agreement of the banks. Each bank which is a party to the agreement has an initial commitment term of five years. This term may be extended for up to two additional one-year periods with the agreement of the banks. Annual commitment fees for this agreement are 0.1% based on our current credit rating. We would be charged interest at LIBOR plus 0.9% for any amounts borrowed under this facility. As of December 31, 2011, no amounts were outstanding under this facility. In connection with the new revolving credit agreement we terminated our prior $2.3 billion revolving credit agreement that was scheduled to expire in November 2012.

In March 2011, we filed a shelf registration statement with the U.S. Securities and Exchange Commission to replace an existing shelf registration statement that was scheduled to expire in April 2011. This shelf registration statement allows us to issue unspecified amounts of debt securities; common stock; preferred stock; warrants to purchase debt securities, common stock, preferred stock or depository shares; rights to purchase common stock or preferred stock; securities purchase contracts; securities purchase units; and depository shares. Under this shelf registration statement, all of the securities available for issuance may be offered from time to time with terms to be determined at the time of issuance. This shelf registration statement expires in March 2014.

In 1997, we established a $400 million medium-term note program under which medium-term debt securities may be offered from time to time with terms to be determined at the time of issuance. As of December 31, 2011 and 2010, no securities were outstanding under this medium-term note program.

Certain of our financing arrangements contain non-financial covenants. In addition, our revolving credit agreement includes a financial covenant with respect to the level of our borrowings in relation to our equity, as defined. We were in compliance with all applicable covenants under these arrangements as of December 31, 2011.

Contractual maturities of long-term debt obligations

The aggregate contractual maturities of all long-term debt obligations due subsequent to December 31, 2011, are as follows (in millions):


Maturity date	Amount
2012⁽¹⁾	$	84
2013⁽²⁾		2,500
2014		2,000
2015		—
2016		1,750
Thereafter		15,312

Total	$	21,646

⁽¹⁾	This amount represents the accreted value of our zero-coupon convertible notes due in 2032 which will be redeemed on March 1, 2012.

⁽²⁾	This amount represents the principal amount for our 0.375% 2013 Convertible Notes after full accretion of the debt discount.

Interest costs

Interest costs are expensed as incurred, except to the extent such interest is related to construction in progress, in which case interest is capitalized. Interest expense, net, for the years ended December 31, 2011, 2010 and 2009, was $610 million, $604 million and $578 million, respectively. Interest costs capitalized for the years ended December 31, 2011, 2010 and 2009, were $22 million, $33 million and $32 million, respectively. Interest paid, net of interest rate swaps, during the years ended December 31, 2011, 2010 and 2009, totaled $446 million, $323 million and $293 million, respectively.

- Definition

The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants.

+ References+ Details