Microsoft 2012 Annual Report Download - page 64

Download and view the complete annual report

Please find page 64 of the 2012 Microsoft annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 87

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87

Convertible Debt
In June 2010, we issued $1.25 billion of zero coupon convertible unsecured debt due on June 15, 2013 in a private
placement offering. Proceeds from the offering were $1.24 billion, net of fees and expenses, which were capitalized.
Initially, each $1,000 principal amount of notes was convertible into 29.94 shares of Microsoft common stock at a
conversion price of $33.40 per share. The conversion ratio is adjusted periodically for dividends in excess of the initial
dividend threshold as defined in the debt agreement. As of June 30, 2012, the net carrying amount of our convertible debt
was $1.2 billion and the unamortized discount was $19 million.
Prior to March 15, 2013, the notes will be convertible, only in certain circumstances, into cash and, if applicable, cash,
shares of Microsoft’s common stock, or a combination thereof, at our election. On or after March 15, 2013, the notes will
be convertible at any time. Upon conversion, we will pay cash up to the aggregate principal amount of the notes and pay
or deliver cash, shares of our common stock, or a combination of cash and shares of our common stock, at our election.
Because the convertible debt may be wholly or partially settled in cash, we are required to separately account for the
liability and equity components of the notes in a manner that reflects our nonconvertible debt borrowing rate when interest
costs are recognized in subsequent periods. The net proceeds of $1.24 billion were allocated between debt for $1.18
billion and stockholders’ equity for $58 million with the portion in stockholders’ equity representing the fair value of the
option to convert the debt.
In connection with the issuance of the notes, we entered into capped call transactions with certain option counterparties
who are initial purchasers of the notes or their affiliates. The capped call transactions are expected to reduce potential
dilution of earnings per share upon conversion of the notes. Under the capped call transactions, we purchased from the
option counterparties capped call options that in the aggregate relate to the total number of shares of our common stock
underlying the notes, with a strike price equal to the conversion price of the notes and with an initial cap price equal to
$37.16, which is adjusted periodically to mirror any adjustments to the conversion price. The purchased capped calls were
valued at $40 million and recorded to stockholders’ equity.
Debt Service
Maturities of our long-term debt for each of the next five years and thereafter are as follows:
(In millions)
Year Ending June 30,
2013
$
1,250
2014
3,000
2015
0
2016
2,500
2017
0
Thereafter
5,250
Total
$
12,000
Cash paid for interest on our debt for fiscal years 2012, 2011, and 2010 was $344 million, $197 million, and $145 million,
respectively.