Short-term debt


Notes to Financial Statements

NOTE 12 — DEBT

Short-term Debt

During fiscal year 2011, we repaid $1.0 billion of commercial paper, leaving zero outstanding.

On November 5, 2010, our $1.0 billion 364-day credit facility expired. This facility served as a back-up for our commercial paper program. No amounts were drawn against the credit facility during any of the periods presented.

Long-term Debt

As of June 30, 2011, the total carrying value and estimated fair value of our long-term debt, including convertible debt, were $11.9 billion and $12.1 billion, respectively. This is compared to a carrying value and estimated fair value of $4.9 billion and $5.2 billion, respectively, as of June 30, 2010. The estimated fair value is based on quoted prices for our publicly-traded debt as of June 30, 2011 and 2010, as applicable.

Maturities of long-term debt for each of the next five years and thereafter are as follows:

 

(In millions)       


Year Ending June 30,       

2012

   $ 0   

2013

     1,250   

2014

     3,000   

2015

     0   

2016

     2,500   

Thereafter

     5,250   


Total

   $   12,000   
    


 

Cash paid for interest on our debt for fiscal years 2011 and 2010 was $197 million and $145 million, respectively. No cash was paid for debt interest for fiscal year 2009.

The components of long-term debt, the associated interest rates, and the semi-annual interest record and payment dates were as follows as of June 30, 2011:

 

Due Date    Face Value    

Stated
Interest

Rate

    

Effective
Interest

Rate

    

Interest

Record Date

   

Interest

Pay Date

   

Interest

Record Date

   

Interest

Pay Date

 


     (In millions)                                        
Notes                                             

September 27, 2013

   $ 1,000        0.875%         1.000%         March 15        March 27        September 15        September 27   

June 1, 2014

     2,000        2.950%         3.049%         May 15        June 1        November 15        December 1   

September 25, 2015

     1,750        1.625%         1.795%         March 15        March 25        September 15        September 25   

February 8, 2016

     750        2.500%         2.642%         February 1        February 8        August 1        August 8   

June 1, 2019

     1,000        4.200%         4.379%         May 15        June 1        November 15        December 1   

October 1, 2020

     1,000        3.000%         3.137%         March 15        April 1        September 15        October 1   

February 8, 2021

     500        4.000%         4.082%         February 1        February 8        August 1        August 8   

June 1, 2039

     750        5.200%         5.240%         May 15        June 1        November 15        December 1   

October 1, 2040

     1,000        4.500%         4.567%         March 15        April 1        September 15        October 1   

February 8, 2041

     1,000        5.300%         5.361%         February 1        February 8        August 1        August 8   


                                                 

Total

     10,750                                                     
Convertible Debt                                             

June 15, 2013

     1,250        0.000%         1.849%                                    

Total unamortized discount

     (79                                                  


                                                 

Total

   $   11,921                                                     
    


                                                 

The components of long-term debt, the associated interest rates, and the semi-annual interest record and payment dates were as follows as of June 30, 2010:

 

Due Date    Face Value    

Stated
Interest

Rate

   

Effective
Interest

Rate

   

Interest

Record Date

   

Interest

Pay Date

   

Interest

Record Date

   

Interest

Pay Date

 


     (In millions)                                      
Notes                                           

June 1, 2014

   $   2,000        2.950%        3.049%        May 15        June 1        November 15        December 1   

June 1, 2019

     1,000        4.200%        4.379%        May 15        June 1        November 15        December 1   

June 1, 2039

     750        5.200%        5.240%        May 15        June 1        November 15        December 1   


                                               

Total

     3,750                                                   
Convertible Debt                                           

June 15, 2013

     1,250        0.000%        1.849%                                   

Total unamortized discount

     (61                                                


                                               

Total

   $ 4,939                                                   
    


                                               

Notes

The Notes are senior unsecured obligations and rank equally with our other unsecured and unsubordinated debt outstanding.

 

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.

Each $1,000 principal amount of notes is convertible into 29.94 shares of Microsoft common stock at a conversion price of $33.40 per share. As of June 30, 2011, the net carrying amount of our convertible debt was $1.2 billion and the unamortized discount was $38 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 a cap price equal to $37.16. The purchased capped calls were valued at $40 million and recorded to stockholders’ equity.