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Financing Arrangements
12 Months Ended
Apr. 27, 2012
Debt Disclosure [Abstract]  
Financing Arrangements

9. Financing Arrangements

 

Debt consisted of the following:

    April 27, 2012 April 29, 2011
(in millions, except interest rates) Maturity by Fiscal Year  Payable Average Interest Rate Effective Interest Rate  Payable Average Interest Rate Effective Interest Rate
Short-Term Borrowings:                
Commercial paper 2012-2013 $ 950 0.14%  - $ 1,500 0.22%  -
Capital lease obligations 2012-2013   14 3.38%  -   2 7.47%  -
Bank borrowings 2012-2013   200 0.93%  -   222 1.25%  -
Seven-year senior convertible notes 2013   2,200 1.63% 6.03%   -  -  -
Debt discount 2012-2013   (90)  -  -   (1)  -  -
Total Short-Term Borrowings    $ 3,274     $ 1,723    
                 
Long-Term Debt:                
Contingent convertible debentures 2012 $ -  -  - $ 15 1.25%  -
Seven-year senior convertible notes 2013   -  -  -   2,200 1.63% 6.03%
Five-year 2009 senior notes 2014   550 4.50% 4.50%   550 4.50% 4.50%
Five-year 2010 senior notes 2015   1,250 3.00% 3.00%   1,250 3.00% 3.00%
Ten-year 2005 senior notes 2016   600 4.75% 4.76%   600 4.75% 4.76%
Five-year 2011 senior notes 2016   500 2.63% 2.72%   500 2.63% 2.72%
Ten-year 2009 senior notes 2019   400 5.60% 5.61%   400 5.60% 5.61%
Ten-year 2010 senior notes 2020   1,250 4.45% 4.47%   1,250 4.45% 4.47%
Ten-year 2011 senior notes 2021   500 4.13% 4.19%   500 4.13% 4.19%
Ten-year 2012 senior notes 2022   675 3.13% 3.16%   -  -  -
Thirty-year 2009 senior notes 2039   300 6.50% 6.52%   300 6.50% 6.52%
Thirty-year 2010 senior notes 2040   500 5.55% 5.56%   500 5.55% 5.56%
Thirty-year 2012 senior notes 2042   400 4.50% 4.51%   -  -  -
Interest rate swaps 2013-2022   167  -  -   110  -  -
Gains from interest rate swap terminations 2012-2016   102  -  -   68  -  -
Capital lease obligations 2013-2025   165 3.57%  -   32 6.28%  -
Bank borrowings 2013   -  -  -   14 5.60%  -
Debt discount 2012-2013   -  -  -   (177)  -  -
Total Long-Term Debt    $ 7,359     $ 8,112    

Senior Convertible Notes In April 2006, the Company issued $2.200 billion of 1.500 percent Senior Convertible Notes due 2011 (2011 Senior Convertible Notes) and $2.200 billion of 1.625 percent Senior Convertible Notes due 2013 (2013 Senior Convertible Notes) (collectively, the Senior Convertible Notes). The Senior Convertible Notes were issued at par and pay interest in cash semi-annually in arrears on April 15 and October 15 of each year. The 2011 Senior Convertible Notes were repaid in April 2011. The 2013 Senior Convertible Notes are unsecured unsubordinated obligations and rank equally with all other unsecured and unsubordinated indebtedness. The Senior Convertible Notes had an initial conversion price of $56.14 per share. As of April 27, 2012, pursuant to provisions in the indentures relating to the Company's increase of its quarterly dividend to shareholders, the conversion rate for the Senior Convertible Notes is now 18.8218, which correspondingly changed the conversion price per share for the Senior Convertible Notes to $53.13.

  

Concurrent with the issuance of the Senior Convertible Notes, the Company purchased call options on its common stock in private transactions. The call options allow the Company to receive shares of the Company's common stock and/or cash from counterparties equal to the amounts of common stock and/or cash related to the excess conversion value that it would pay to the holders of the 2013 Senior Convertible Notes upon conversion. These call options will terminate upon the earlier of the maturity dates of the related Senior Convertible Notes or the first day all of the related Senior Convertible Notes are no longer outstanding due to conversion or otherwise. The call options, which cost an aggregate $1.075 billion ($699 million net of tax benefit), were recorded as a reduction of shareholders' equity.

 

In separate transactions, the Company sold warrants to issue shares of the Company's common stock at an exercise price of $76.56 per share in private transactions. Pursuant to these transactions, warrants for 41 million shares of the Company's common stock may be settled over a specified period that began in July 2011 and warrants for 41 million shares of the Company's common stock may be settled over a specified period beginning in July 2013 (the settlement dates). If the average price of the Company's 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 settled in shares of the Company's common stock. Proceeds received from the issuance of the warrants totaled approximately $517 million and were recorded as an addition to shareholders' equity. As of April 27, 2012, warrants for 41 million shares of the Company's common stock had expired.

 

Under authoritative guidance, the Company concluded that the purchased call options and sold warrants were indexed to its own stock and should continue to be classified in shareholders' equity and not be separated as a derivative.

 

Authoritative guidance provides that contracts are initially classified as equity if (1) the contract requires physical settlement or net-share settlement, or (2) the contract gives the Company a choice of net-cash settlement or settlement in its own shares (physical settlement or net-share settlement). The settlement terms of the Company's purchased call options and sold warrant contracts provide for net-cash settlement for the particular contract or net-share settlement, depending on the method of settlement, as discussed above, which is at the option of the Company. Based on existing guidance, the purchased call option contracts were recorded as a reduction of equity and the warrants were recorded as an addition to equity as of the trade date. Existing guidance states that a reporting entity shall not consider contracts to be derivative instruments if the contract issued or held by the reporting entity is both indexed to its own stock and classified in shareholders' equity in its statement of financial position. The Company concluded that the purchased call option contracts and the sold warrant contracts should be accounted for in shareholders' equity.

 

The Company accounted for the Senior Convertible Notes in accordance with the authoritative guidance for convertible debt, which requires the proceeds from the issuance of the Senior Convertible Notes to be allocated between a liability component (issued at a discount) and an equity component. The resulting debt discount is amortized over the period the 2013 Senior Convertible Notes are expected to be outstanding as additional non-cash interest expense.

 

The following table provides equity and debt information for the 2013 Senior Convertible Notes under the convertible debt guidance:

 2013 Senior Convertible Notes   
(in millions)April 27,  April 29,      
2012 2011    
Carrying amount of the equity component$547 $547       
             
Principal amount of the Senior Convertible Notes$ 2,200 $ 2,200       
Unamortized discount  (90)   (177)       
Net carrying amount of the debt component$ 2,110 $ 2,023       
             
As of April 27, 2012, the unamortized balance of the debt discount will be amortized over the remaining life of the 2013 Senior Convertible Notes, which is approximately one year. The following table provides interest expense amounts related to the Senior Convertible Notes. 
             
(in millions)2013 Senior Convertible Notes 2011 Senior Convertible Notes 
2012 2011 2012 2011 
Interest cost related to contractual interest coupon$36 $36 $ - $32 
Interest cost related to amortization of the discount 87  82   -  90 
             

Senior Notes Senior Notes are unsecured, senior obligations of the Company and rank equally with all other secured and unsubordinated indebtedness of the Company. The indentures under which the Senior Notes were issued contain customary covenants, all of which the Company remains in compliance with as of April 27, 2012. The Company used the net proceeds from the sale of the Senior Notes primarily for working capital and general corporate purposes, which include the repayment of other indebtedness of the Company.

 

In March 2012, the Company issued two tranches of Senior Notes (collectively, the 2012 Senior Notes) with an aggregate face value of $1.075 billion. The first tranche consisted of $675 million of 3.125 percent Senior Notes due 2022. The second tranche consisted of $400 million of 4.500 percent Senior Notes due 2042. Interest on each series of 2012 Senior Notes is payable semi-annually, on March 15 and September 15 of each year, commencing September 15, 2012. The Company used the net proceeds from the sale of the 2012 Senior Notes for working capital and general corporate purposes.

 

As of April 27, 2012 and April 29, 2011, the Company had interest rate swap agreements designated as fair value hedges of underlying fixed-rate obligations including the Company's $1.250 billion 3.000 percent 2010 Senior Notes due 2015, the $600 million 4.750 percent 2005 Senior Notes due 2015, the Company's $500 million 2.625 percent 2011 Senior Notes due 2016, and the Company's $500 million 4.125 percent 2011 Senior Notes due 2021. Additionally, as of April 27, 2012, the Company had interest rate swap agreements designated as fair value hedges of underlying fixed-rate obligations including the Company's $675 million 3.125 percent 2012 Senior Notes due 2022. As of April 29, 2011, the Company had interest rate swap agreements designated as fair value hedges of underlying fixed-rate obligations including the $2.200 billion 1.625 percent Senior Convertible Notes due 2013, and the $550 million 4.500 percent 2009 Senior Notes due 2014. For additional information regarding the interest rate swap agreements, refer to Note 10.

 

Contingent Convertible Debentures As of April 29, 2011, the Company had $15 million remaining in aggregate principal amount of 1.250 percent Contingent Convertible Debentures, Series B due 2021 (the Debentures) outstanding. Each Debenture was convertible into shares of common stock at an initial conversion price of $61.81 per share. In July 2011, the Company gave notice to the holders of the Debentures of its intent to redeem the Debentures for cash at a price equal to 100% of the principal amount, plus any accrued and unpaid interest, on September 15, 2011 (the Redemption Date). All of the outstanding Debentures were settled for cash on the Redemption Date and no holders converted Debentures into shares of the Company's common stock.

 

Commercial Paper The Company maintains a commercial paper program that allows the Company to have a maximum of $2.250 billion in commercial paper outstanding, with maturities up to 364 days from the date of issuance. As of April 27, 2012 and April 29, 2011, outstanding commercial paper totaled $950 million and $1.500 billion, respectively. During fiscal years 2012 and 2011, the weighted average original maturity of the commercial paper outstanding was approximately 102 and 73 days, respectively, and the weighted average interest rate was 0.15 percent and 0.25 percent, respectively. The issuance of commercial paper reduces the amount of credit available under the Company's existing lines of credit.

 

Bank Borrowings  Bank borrowings consist primarily of borrowings from non-U.S. banks at interest rates considered favorable by management and where natural hedges can be gained for foreign exchange purposes and borrowings from U.S. banks. Approximately $184 million of the $200 million outstanding bank borrowings as of April 27, 2012 were short-term advances to certain subsidiaries under credit agreements with various banks. These advances are guaranteed by the Company.

 

Lines of Credit The Company has committed and uncommitted lines of credit with various banks. The committed lines of credit include a four-year $2.250 billion syndicated credit facility dated December 9, 2010 that will expire on December 9, 2014 (Credit Facility). The Credit Facility provides the Company with the ability to increase its capacity by an additional $500 million at any time during the life of the four-year term of the agreement. The Company can also request the extension of the Credit Facility maturity date for one additional year, at the first and second anniversary of the date of the Credit Facility. The Credit Facility provides backup funding for the commercial paper program, and therefore, the issuance of commercial paper reduces the amount of credit available under the committed lines of credit. As of April 27, 2012 and April 29, 2011, no amounts were outstanding on the committed lines of credit.

 

Interest rates on these borrowings are determined by a pricing matrix, based on the Company's long-term debt ratings assigned by Standard and Poor's Ratings Services and Moody's Investors Service. Facility fees are payable on the credit facilities and are determined in the same manner as the interest rates. The agreements also contain customary covenants, all of which the Company remains in compliance with as of April 27, 2012.

 

Contractual maturities of long-term debt for the next five fiscal years and thereafter, including current portions, capital leases, and $13 million of bank borrowings related to the term loan discussed in Note 16, and excluding the debt discount, the fair value impact of outstanding interest rate swap agreements, and the remaining gains from terminated interest rate swap agreements are as follows:

 

 

(in millions)   
Fiscal Year Obligation
2013 $ 2,227
2014   563
2015   1,263
2016   1,113
2017   30
Thereafter   4,121
Total long-term debt  9,317
Less: Current portion of long-term debt   2,227
Long-term portion of long-term debt $7,090