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Borrowings and Credit Arrangements

12 Months Ended

Dec. 31, 2019

NOTE E – CONTRACTUAL OBLIGATIONS AND COMMITMENTS

Borrowings and Credit Arrangements

We had total debt of $10.008 billion as of December 31, 2019 and $7.056 billion as of December 31, 2018. The debt maturity schedule for our long-term debt obligations is presented below:



	Issuance Date	Maturity Date	As of December 31,						Stated Interest Rate
(in millions, except interest rates)	Issuance Date	Maturity Date	2019			2018			Stated Interest Rate
January 2020 Notes	December 2009	January 2020	$	—		$	850		6.000%
May 2020 Notes	May 2015	May 2020	—			600			2.850%
May 2022 Notes	May 2015	May 2022	500			500			3.375%
August 2022 Term Loan	August 2019	August 2022	1,000			—
October 2023 Notes	August 2013	October 2023	244			450			4.125%
March 2024 Notes	February 2019	March 2024	850			—			3.450%
May 2025 Notes	May 2015	May 2025	523			750			3.850%
March 2026 Notes	February 2019	March 2026	850			—			3.750%
December 2027 Notes	November 2019	December 2027	1,011			—			0.625%
March 2028 Notes	February 2018	March 2028	434			1,000			4.000%
March 2029 Notes	February 2019	March 2029	850			—			4.000%
November 2035 Notes (1)	November 2005	November 2035	350			350			7.000%
March 2039 Notes	February 2019	March 2039	750			—			4.550%
January 2040 Notes	December 2009	January 2040	300			300			7.375%
March 2049 Notes	February 2019	March 2049	1,000			—			4.700%
Unamortized Debt Issuance Discount and Deferred Financing Costs		2020 - 2049	(83		)	(29		)
Unamortized Gain on Fair Value Hedges		2020-2023	7			26
Finance Lease Obligation (2)		Various	6			6
Long-term debt			$	8,592		$	4,803

Note: The table above does not include unamortized amounts related to interest rate contracts designated as cash flow hedges.


(1)	Corporate credit rating improvements may result in a decrease in the adjusted interest rate on our November 2035 Notes to the extent that our lowest credit rating is above BBB- or Baa3. The interest rates on our November 2035 Notes will be permanently reinstated to the issuance rate if the lowest credit ratings assigned to these senior notes is either A- or A3 or higher.


(2)	Effective January 1, 2019, we adopted FASB ASC Topic 842, which requires that we recognize finance lease obligations in our consolidated balance sheets. As of December 31, 2018, these leases were referred to as capital lease obligations in accordance with FASB ASC Topic 840. Please refer to Note A – Significant Accounting Policies for additional information.

Revolving Credit Facility

On December 19, 2018, we entered into a $2.750 billion revolving credit facility (the 2018 Facility) with a global syndicate of commercial banks and terminated our previous $2.250 billion revolving credit facility (the 2017 Facility), which was scheduled to mature in August 2022. The 2018 Facility will mature on December 19, 2023 with one-year extension options subject to certain conditions. Eurodollar and multicurrency loans bear interest at the Eurocurrency Rate determined for the interest period plus the applicable margin, based on our corporate credit ratings (1.02 percent as of December 31, 2019). ABR loans bear interest at ABR plus the applicable margin of up to 0.40 percent, based on our corporate credit ratings. Under the credit agreement for the 2018 Facility (the 2018 Credit Agreement), we are required to pay a facility fee (0.11 percent as of December 31, 2019) based on our credit ratings and the total amount of revolving credit commitment, regardless of usage of the 2018 Facility. This facility provides backing for the commercial paper program described below. The 2018 Credit Agreement for the 2018 Facility requires that we comply with certain covenants, including financial covenants as described below. There were no amounts borrowed under our current or prior revolving credit facilities as of December 31, 2019 or December 31, 2018.

Term Loans

On December 5, 2019, we entered into a $700 million term loan credit agreement scheduled to mature on December 3, 2020 (2020 Term Loan). The 2020 Term Loan bears interest at an annual rate of LIBOR plus a margin of 0.65%. In addition, we pay customary expenses. The credit agreement contains covenants, as described below, and also contains customary events of default, which may result in the acceleration of any outstanding commitments. As of December 31, 2019, we had $700 million outstanding under the 2020 Term Loan, which is presented within Current debt obligations on our consolidated balance sheet. We used the proceeds from the 2020 Term Loan to repay a portion of the Two-Year Delayed Draw Term Loan, described below. In January 2020, we repaid $300 million of the outstanding balance of the 2020 Term Loan with proceeds from our commercial paper program.

On February 25, 2019, upon the closing of our senior notes offering in aggregate principal amount of $4.300 billion described below, we terminated the $1.000 billion Term Loan Credit Agreement, entered into on August 20, 2018 and amended on December 19, 2018 (August 2019 Term Loan). The August 2019 Term Loan was scheduled to mature on August 19, 2019. As of December 31, 2018, we had $1.000 billion outstanding under our August 2019 Term Loan, which is presented within Current debt obligations on our consolidated balance sheet.

On December 19, 2018, we entered into a $2.000 billion senior unsecured delayed-draw term loan facility consisting of a $1.000 billion two-year delayed draw term loan credit facility maturing in two years from the date of the closing of our acquisition of BTG (Two-Year Delayed Draw Term Loan) and a $1.000 billion three-year delayed draw term loan credit facility maturing in three years from the date of the closing of our acquisition of BTG (Three-Year Delayed Draw Term Loan). In 2019, we used the proceeds from the Two-Year and Three-Year Delayed Draw Term Loan facilities to refinance the Bridge Facility, as described below, and fund a portion of our acquisition of BTG. On November 27, 2019, we repaid $200 million of the Two-Year Delayed Draw Term Loan with proceeds from the sale of the Zytiga-related royalty interests obtained through the acquisition of BTG and extinguished the facility. On December 5, 2019, we repaid the remaining $800 million with proceeds from the 2020 Term Loan and commercial paper and terminated the Two-Year Delayed Draw Term Loan. Borrowings of the Three-Year Delayed Draw Term Loan are available in U.S. dollars and bear interest at LIBOR or a base rate in each case plus an applicable margin based on our public debt ratings (1.13 percent as of December 31, 2019). The facility contains customary events of default, which may result in the acceleration of any outstanding commitments. As of December 31, 2018, we had no amounts borrowed under the Two-Year Delayed Draw Term Loan or the Three-Year Delayed Draw Term Loan. As of December 31, 2019, we had $1.000 billion outstanding under the Three-Year Delayed Draw Term Loan.

Debt Covenants

As of and through December 31, 2019, we were in compliance with all the required covenants related to our debt obligations.

All existing credit arrangements described above require that we maintain certain financial covenants, as follows:



	Covenant Requirement as of December 31, 2019	Actual as of December 31, 2019
Maximum leverage ratio (1)	4.75 times	3.83 times

(1) Ratio of total debt to consolidated EBITDA, as defined by the credit agreements, for the preceding four consecutive fiscal quarters.

Our covenants require that we maintain a maximum leverage ratio of 3.75 times, provided, however, that for the two consecutive fiscal quarters ended immediately following the consummation of a Qualified Acquisition, as defined by each agreement, the maximum leverage ratio shall be 4.75 times, and then subject to a step-down for each succeeding fiscal quarter end to 4.50 times, 4.25 times, 4.00 times and then back to 3.75 times for each fiscal quarter end thereafter. On August 19, 2019, we announced the closing of our acquisition of BTG, a Qualified Acquisition, and our maximum leverage ratio was 4.75 times as of December 31, 2019. Refer to Note B – Acquisitions and Strategic Investments for more information.

Our covenants provide for an exclusion from the calculation of consolidated EBITDA, as defined by the agreements, through maturity, of any non-cash charges and up to $500 million in restructuring charges and restructuring-related expenses related to our current or future restructuring plans. As of December 31, 2019, we had $270 million of the restructuring charge exclusion remaining. In addition, any cash litigation payments (net of any cash litigation receipts), as defined by the agreements, are excluded from the calculation of consolidated EBITDA, as defined by the agreements, provided that the sum of any excluded net cash litigation payments does not exceed $2.624 billion in the aggregate. As of December 31, 2019, we had $1.199 billion of the litigation exclusion remaining.

Any inability to maintain compliance with these covenants could require us to seek to renegotiate the terms of our credit facility or seek waivers from compliance with these covenants, both of which could result in additional borrowing costs. Further, there

can be no assurance that our lenders would agree to such new terms or grant such waivers on terms acceptable to us. In this case, all credit facility commitments would terminate, and any amounts borrowed under the facility would become immediately due and payable. Furthermore, any termination of our credit facility may negatively impact the credit ratings assigned to our commercial paper program which may impact our ability to refinance any then outstanding commercial paper as it becomes due and payable.

Commercial Paper

Our commercial paper program is backed by the 2018 Facility, as discussed above. Outstanding commercial paper directly reduces borrowing capacity under the 2018 Facility.



	As of December 31,
(in millions, except maturity and yield)	2019			2018
Commercial paper outstanding	$	711		$	1,248
Maximum borrowing capacity	2,750			2,750
Borrowing capacity available	2,039			1,502
Weighted average maturity	55 days			27 days
Weighted average yield	2.21		%	3.04		%

Senior Notes

We had senior notes outstanding of $7.661 billion as of December 31, 2019 and $4.800 billion as of December 31, 2018.

In November 2019, we completed an offering of €900 million (approximately $1.000 billion) in aggregate principal amount of 0.625% senior notes due in 2027. The Euro-denominated debt principal is a nonderivative instrument designated as a net investment hedge of our net investments in certain of our Euro functional entities. Refer to Note D – Hedging Activities and Fair Value Measurements for additional information. We used a portion of the net proceeds from our November 2019 senior notes offering to repay certain outstanding principal amounts of our senior notes including $206 million of our $450 million 4.125% senior notes due 2023, $566 million of our $1.000 billion 4.000% senior notes due 2028 and $227 million of our $750 million 3.850% senior notes due 2025 and pay accrued and unpaid interest, premiums, fees and expenses in connection with the transaction. In 2019, we incurred associated debt extinguishment charges of $86 million presented in Other, net on our consolidated statements of operations.

In February 2019, we completed an offering of $4.300 billion in aggregate principal amount of senior notes comprised of $850 million of 3.450% senior notes due March 2024, $850 million of 3.750% senior notes due March 2026, $850 million of 4.000%

senior notes due March 2029, $750 million of 4.550% senior notes due March 2039 and $1.000 billion of 4.700% senior notes due March 2049. We used a portion of the net proceeds from the offering to repay the $850 million plus accrued interest and premium of our 6.000% senior notes due in January 2020, the $600 million plus accrued interest and premium of our 2.850% senior notes due in May 2020 and the $1.000 billion plus accrued interest of our August 2019 Term Loan. In 2019, the remaining proceeds were used to finance a portion of our acquisition of BTG.

In February 2018, we completed an offering of $1.000 billion in aggregate principal amount of 4.000% senior notes, due March 2028. We used a portion of the net proceeds from the offering to repay the $600 million plus accrued interest of our 2.650% senior notes due in October 2018, which were classified as short-term debt as of December 31, 2017. The remaining proceeds were used to repay a portion of our outstanding commercial paper.

Our senior notes were issued in public offerings, are redeemable prior to maturity and are not subject to sinking fund requirements. Our senior notes are unsecured, unsubordinated obligations and rank on parity with each other. These notes are effectively junior to liabilities of our subsidiaries (see Other Arrangements below).

Our $7.311 billion of senior notes issued in 2009, 2013, 2015, 2018 and 2019 contain a change-in-control provision, which provides that each holder of the senior notes may require us to repurchase all or a portion of the notes at a price equal to 101 percent of the aggregate repurchased principal, plus accrued and unpaid interest, if a rating event, as defined in the indenture, occurs as a result of a change-in-control, as defined in the indenture. Any other credit rating changes may impact our borrowing cost, but do not require us to repay any borrowings.

Bridge Facility

On February 25, 2019, upon the closing of our senior notes offering in aggregate principal amount of $4.300 billion described above, we terminated the Bridge Facility entered into on November 20, 2018. The termination was pursuant to the terms of the Bridge Facility, which required full termination upon the refinancing of the January 2020 Notes and May 2020 Notes discussed above. There were no amounts borrowed under the Bridge Facility as of December 31, 2018.

Other Arrangements

We have accounts receivable factoring programs in certain European countries and with commercial banks in Japan which include promissory notes discounting programs. We account for our factoring programs as sales under FASB ASC Topic 860, Transfers and Servicing. We have no retained interest in the transferred receivables, other than collection and administration, and once sold, the accounts receivable are no longer available to satisfy creditors in the event of bankruptcy. Amounts de-recognized for accounts and notes receivable, which are excluded from Trade accounts receivable, net in the accompanying consolidated balance sheets, are aggregated by contract denominated currency below (in millions):



	As of December 31, 2019				As of December 31, 2018
Factoring Arrangements	Amount De-recognized		Weighted Average Interest Rate		Amount De-recognized		Weighted Average Interest Rate
Euro denominated	$	171	1.4	%	$	165	2.7	%
Yen denominated	226		0.6	%	195		0.9	%

BTG Revolving Credit Facility

After closing our acquisition of BTG, we terminated BTG's revolving credit facility with a borrowing capacity of £150 million (or approximately $184 million based on the exchange rate at termination on August 27, 2019), which contained an option to increase the facility by £150 million and was scheduled to expire in November 2020. The termination was effective on August 27, 2019, and there were no amounts outstanding at the time of close of the acquisition.

Other Contractual Obligations and Commitments

We had outstanding letters of credit of $105 million as of December 31, 2019 and $111 million as of December 31, 2018, which consisted primarily of bank guarantees and collateral for workers' compensation insurance arrangements. As of December 31, 2019 and December 31, 2018, none of the beneficiaries had drawn upon the letters of credit or guarantees, accordingly, we have not recognized a related liability for our outstanding letters of credit in our consolidated balance sheets as of December 31, 2019 and December 31, 2018.

Future minimum purchase obligations as of December 31, 2019 were as follows (in millions):



Fiscal Year	Unrecorded Purchase Obligations
2020	$	334
2021	20
2022	7
2023	3
2024	1
Thereafter	1
	$	366

The amounts in the table above with respect to purchase obligations relate primarily to non-cancellable inventory commitments and capital expenditures entered in the normal course of business.