Debt and Financing Arrangements

12 Months Ended

Jun. 30, 2011

Debt and Financing Arrangements

Debt and Financing Arrangements

Note 8. Debt and Financing Arrangements

	2011			2010
	(In millions)
Floating Rate Notes $1.5 billion face amount, due in 2012	$	1,500		$	—
0.875% Convertible Senior Notes $1.15 billion face amount, due in 2014	1,026			982
5.765% Debentures $1.0 billion face amount, due in 2041	1,008			—
4.479% Debentures $750 million face amount, due in 2021	756			—
5.45% Notes $700 million face amount, due in 2018	700			700
5.375% Debentures $600 million face amount, due in 2035	587			587
5.935% Debentures $500 million face amount, due in 2032	495			495
6.625% Debentures $298 million face amount, due in 2029	296			296
8.375% Debentures $295 million face amount, due in 2017	292			292
7.5% Debentures $282 million face amount, due in 2027	281			281
6.95% Debentures $250 million face amount, due in 2097	246			246
7.0% Debentures $246 million face amount, due in 2031	244			244
7.125% Debentures $243 million face amount, due in 2013	243			243
6.45% Debentures $215 million face amount, due in 2038	215			215
6.75% Debentures $200 million face amount, due in 2027	197			197
8.125% Debentures $103 million face amount, due in 2012	103			103
4.70% Debentures $1.75 billion face amount, due in 2041	—			1,750
5.87% Debentures $196 million face amount, due in 2010	—			191
8.875% Debentures $102 million face amount, due in 2011	—			102
Other	255			250
Total long-term debt including current maturities	8,444			7,174
Current maturities	(178		)	(344		)
Total long-term debt	$	8,266		$	6,830

In June 2008, the Company issued $1.75 billion of Equity Units, which were a combination of debt and a forward contract for the holder to purchase the Company’s common stock.  The debt and equity instruments were deemed to be separate instruments as the investor may transfer or settle the equity instrument separately from the debt instrument.

On March 30, 2011, the Company initiated a remarketing of the $1.75 billion 4.7% debentures underlying the Equity Units into two tranches:  $0.75 billion principal amount of 4.479% notes due in 2021 and $1.0 billion principal amount of 5.765% debentures due in 2041.  As a result of the remarketing, the Company was required to use the “if-converted” method of calculating diluted earnings per share with respect to the forward contracts for the quarter ended March 31, 2011 (see Note 9).  The Company incurred early extinguishment of debt charges of $8 million as a result of the debt remarketing.

The forward purchase contracts underlying the Equity Units were settled on June 1, 2011, for 44 million shares of the Company’s common stock in exchange for receipt of $1.75 billion in cash.

On February 11, 2011, the Company issued $1.5 billion in aggregate principal amount of floating rate notes due on August 13, 2012.  Interest on the notes accrues at a floating rate of three-month LIBOR reset quarterly plus 0.16% and is paid quarterly.  As of June 30, 2011, the interest rate on the notes was 0.42%.

In March 2010, the Company repurchased an aggregate principal amount of $500 million of its outstanding debentures in accordance with its announced tender offers, resulting in charges on early extinguishment of debt of $75 million, which consisted of $71 million in premium and other related expenses and $4 million in write-off of debt issuance costs.

In February 2007, the Company issued $1.15 billion principal amount of convertible senior notes due in 2014 (the Notes) in a private placement.  The Notes were issued at par and bear interest at a rate of 0.875% per year, payable semiannually.  The Notes are convertible based on an initial conversion rate of 22.8423 shares per $1,000 principal amount of Notes (which is equal to a conversion price of approximately $43.78 per share).  The Notes may be converted, subject to adjustment, only under the following circumstances: 1) during any calendar quarter beginning after March 31, 2007, if the closing price of the Company’s common stock for at least 20 trading days in the 30 consecutive trading days ending on the last trading day of the immediately preceding quarter is more than 140% of the applicable conversion price per share, which is $1,000 divided by the then applicable conversion rate, 2) during the five consecutive business day period immediately after any five consecutive trading day period (the note measurement period) in which the average of the trading price per $1,000 principal amount of Notes was equal to or less than 98% of the average of the product of the closing price of the Company’s common stock and the conversion rate at each date during the note measurement period, 3) if the Company makes specified distributions to its common stockholders or specified corporate transactions occur, or 4) at any time on or after January 15, 2014, through the business day preceding the maturity date.  Upon conversion, a holder would receive an amount in cash equal to the lesser of 1) $1,000 and 2) the conversion value, as defined.  If the conversion value exceeds $1,000, the Company will deliver, at the Company’s election, cash or common stock or a combination of cash and common stock for the conversion value in excess of $1,000.  If the Notes are converted in connection with a change in control, as defined, the Company may be required to provide a make-whole premium in the form of an increase in the conversion rate, subject to a stated maximum amount.  In addition, in the event of a change in control, the holders may require the Company to purchase all or a portion of their Notes at a purchase price equal to 100% of the principal amount of the Notes, plus accrued and unpaid interest, if any.  In accordance with ASC Topic 470-20, the Company recognized the Notes proceeds received in 2007 as long-term debt of $853 million and equity of $297 million.  The discount on the long-term debt is being amortized over the life of the Notes using the effective interest method. Discount amortization expense of $43 million, $40 million, and $39 million for 2011, 2010, and 2009, respectively, were included in interest expense related to the Notes.

Concurrent with the issuance of the Notes, the Company purchased call options in private transactions at a cost of $300 million.  The purchased call options allow the Company to receive shares of its common stock and/or cash from the counterparties equal to the amounts of common stock and/or cash related to the excess of the current market price of the Company’s common stock over the exercise price of the purchased call options.  In addition, the Company sold warrants in private transactions to acquire, subject to customary anti-dilution adjustments, 26.3 million shares of its common stock at an exercise price of $62.56 per share and received proceeds of $170 million.  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, at the Company’s option, in cash or shares of common stock.  The purchased call options and warrants are intended to reduce the potential dilution upon future conversions of the Notes by effectively increasing the initial conversion price to $62.56 per share.  The net cost of the purchased call options and warrant transactions of $130 million was recorded as a reduction of shareholders’ equity.

As of June 30, 2011, none of the conditions permitting conversion of the Notes had been satisfied.  In addition, as of June 30, 2011, the market price of the Company’s common stock was not greater than the exercise price of the purchased call options or warrants.  As of June 30, 2011, no share amounts related to the conversion of the Notes or exercise of the warrants are included in diluted average shares outstanding.

At June 30, 2011, the fair value of the Company’s long-term debt exceeded the carrying value by $842 million, as estimated using quoted market prices or discounted future cash flows based on the Company’s current incremental borrowing rates for similar types of borrowing arrangements.

The aggregate maturities of long-term debt for the five years after June 30, 2011, are $178 million, $1.8 billion, $1.1 billion, $28 million, and $17 million, respectively.

At June 30, 2011, the Company had pledged certain property, plant, and equipment with a carrying value of $344 million as security for certain long-term debt obligations.

At June 30, 2011, the Company had lines of credit totaling $6.9 billion, of which $5.7 billion were unused.  The weighted average interest rates on short-term borrowings outstanding at June 30, 2011 and 2010, were 0.65% and 2.29%, respectively.  Of the Company’s total lines of credit, $4.6 billion support a commercial paper borrowing facility, against which there was $620 million of commercial paper outstanding at June 30, 2011.

The Company’s credit facilities and certain debentures require the Company to comply with specified financial and non-financial covenants including maintenance of minimum tangible net worth as well as limitations related to incurring liens, secured debt, and certain other financing arrangements.  The Company is in compliance with these covenants as of June 30, 2011.

The Company has outstanding standby letters of credit and surety bonds at June 30, 2011 and 2010, totaling $620 million and $459 million, respectively.

On July 1, 2011, the Company entered into a 364-day accounts receivable securitization facility.  The facility provides the Company with up to $1.0 billion in liquidity.  Under the facility, the Company’s U.S.-originated trade accounts receivable are sold to a wholly-owned bankruptcy-remote entity which then sells an undivided interest in the receivable as a collateral for any borrowings under the facility.  Any borrowings under the facility will be recorded as secured borrowings.  As of August 24, 2011, the Company had not used the facility.  This facility expands the Company’s access to liquidity through efficient use of its balance sheet assets.