Other non-current liabilities in millions of CHF
2007 2006
Deferred income 243 163
Other long-term liabilities 480 422
Total other non-current liabilities 723 585
27. Debt
Debt: recognised liabilities in millions of CHF
2007 2006
Debt instruments 6,294 7,378
Amounts due to banks and other financial institutions 130 493
Genentech leasing obligations3 305 219
Finance lease obligations12 9 19
Other borrowings 128 134 Total debt 6,866 8,243 Reported as – Long-term debt 3,834 6,199 – Short-term debt 3,032 2,044 Total debt 6,866 8,243
Debt: repayment terms in millions of CHF
2007 2006
Within one year 3,032 2,044
Between one and two years 584 2,207
Between two and three years 576 624
Between three and four years 25 600
Between four and five years 3 23
More than five years 2,646 2,745
Total debt 6,866 8,243
The fair value of the debt instruments is 6.2 billion Swiss francs (2006: 7.7 billion Swiss francs) and the fair value of total debt is 6.8 billion Swiss francs (2006: 8.6 billion Swiss francs). This is calculated based on the observable market prices of the debt instruments or the present value of the future cash flows on the instrument, discounted at a market rate of interest for instruments with similar credit status, cash flows and maturity periods.
There are no pledges on the Group’s assets in connection with debt.
Amounts due to banks and other financial institutions
These amounts are denominated in various currencies, notably in euros, and the average interest rate was 5.8%. The average interest rate in 2006 was 6.1%, when the balance was primarily denominated in Canadian dollars, Swiss francs, South African rand and Brazilian real. Repayment dates are up to five years and 105 million Swiss francs (2006: 442 million Swiss francs) are due within one year.
Roche Group
Debt instruments
Recognised liabilities and effective interest rates of debt instruments in millions of CHF
Effective
interest rate 2007 2006
European Medium Term Note programme
4% bonds due 9 October 2008, principal 750 million euros 4.16% 1,240 1,204
5.375% bonds due 29 August 2023, principal 250 million pounds sterling 5.46% 553 590
3.25% fully redeemed on 2 October 2007, principal 750 million US dollars 3.28% – 916
Swiss franc bonds
‘Rodeo’ 1.75% due 20 March 2008, principal 1 billion Swiss francs 3.00% 998 992
US dollar bonds
‘Chameleon’ 6.75% due 6 July 2009, principal 487 million US dollars 6.77% 568 618
Zero coupon US dollar exchangeable notes
‘LYONs V’ fully redeemed on 25 July 2007 (principal 2006: 869 million US dollars) 4.14% – 627
Genentech Senior Notes
4.40% Senior Notes due 15 July 2010, principal 500 million US dollars 4.53% 569 596
4.75% Senior Notes due 15 July 2015, principal 1 billion US dollars 4.87% 1,127 1,222
5.25% Senior Notes due 15 July 2035, principal 500 million US dollars 5.39% 564 611
Genentech commercial paper
Notes due at various dates until 22 January 2008, principal 600 million US dollars 4.46% 675 –
Japanese yen convertible bonds issued by Chugai
‘Series 6 Chugai Pharmaceutical Unsecured Convertible Bonds’ 1.05% due 30 September 2008, principal amount of 42 million Japanese yen
(2006: 151 billion Japanese yen) 1.05% – 2
Total debt instruments 6,294 7,378
Unamortised discount included in carrying value of debt instruments in millions of CHF
2007 2006
Sterling bonds 8 9
Zero coupon US dollar exchangeable notes – 434
Total unamortised discount 8 443
Fair Value Option
In 2005 the Group applied the Fair Value Option on three of its outstanding debt instruments on which the Group had been applying fair value hedge accounting in the past. These debt instruments are the ‘European Medium Term Note programme’ Euro bonds, the ‘Chameleon’ US dollar bonds and the ‘Rodeo’ Swiss franc bonds. The Fair Value Option treatment is based on the elimination of an accounting mismatch which had been recognised between the hedging swaps (reported at fair value) and the hedged bonds (reported at amortised cost). The difference between the carrying value and the principal amount for these debt instruments totals 12 million Swiss francs (2006: 14 million Swiss francs).
Roche Group Notes to the Roche Group Consolidated Financial Statements
Issuance of new debt instruments – 2007
Genentech commercial paper program:In October 2007 Genentech established a commercial paper program under which it can issue up to 1 billion US dollars of unsecured commercial paper notes. Maturities under the program generally vary from overnight to five weeks and cannot exceed 397 days. As at 31 December 2007 unsecured commercial paper notes with a principal amount of 600 million US dollars and an interest rate of 4.46% were outstanding. The cash proceeds on issue were equivalent to 719 million Swiss francs. Genentech intends to use the proceeds for general corporate purposes.
Repayments, redemptions and conversions of debt instruments – 2007
Conversion and redemption of ‘LYONs V’ US dollar exchangeable notes: On 22 June 2007 the Group announced that it would exercise its option to call these notes for redemption on 25 July 2007 at the original issue amount plus accrued original issue discount (‘OID’). In the period to 24 July 2007 notes with a principal amount of 848 million US dollars were converted into 4.5 million non-voting equity securities and the remaining notes were redeemed for cash on 25 July 2007. A total of 324 million Swiss francs were recorded to equity, which consists of the 1,008 million Swiss francs of cash used to purchase the non-voting equity securities used in the conversion and redemption, less the 622 million Swiss francs carrying value of the converted bonds and the related tax effects of 62 million Swiss francs. There was no gain or loss recorded in the income statement upon the conversion and redemption.
Redemption of European Medium Term Note programme US dollar bonds: On the due date of 2 October 2007 the Group redeemed these bonds with a principal value of 750 million US dollars at the original issue amount plus accrued original issue discount (‘OID’). The cash outflow was 900 million Swiss francs. There was no gain or loss recorded in the income statement upon the redemption.
Partial conversion of ‘Series 6 Chugai Pharmaceutical Unsecured Convertible Bonds’: During 2007 bonds with a face value of 0.1 billion Japanese yen (1 million Swiss francs) were converted to shares of Chugai. The Group’s percentage ownership of Chugai was unaffected by this conversion, as the Group has bonds convertible into Chugai shares that mirror those that Chugai has outstanding with third parties. There was no gain or loss recorded in the income statement upon the partial conversion.
Repayments, redemptions and conversions of debt instruments – 2006
Partial conversion of ‘LYONs V’ US dollar exchangeable notes: During 2006 notes with a carrying value of 680 million US dollars (853 million Swiss francs) were converted into 6.3 million non-voting equity securities. The notes called for conversion during 2006 represented 58% of the number of notes outstanding at the start of the year. A total of 354 million Swiss francs were recorded to equity, which consisted of the 1,264 million Swiss francs of cash used to purchase the non-voting equity securities used in the conversion, less the 853 million Swiss francs carrying value of the converted bonds and the related tax effects of 57 million Swiss francs. There was no gain or loss recorded in the income statement upon the partial conversion.
Partial conversion of ‘Series 6 Chugai Pharmaceutical Unsecured Convertible Bonds’:During 2006 bonds with a face value of 0.3 billion Japanese yen (3 million Swiss francs) were converted to shares of Chugai. The Group’s percentage ownership of Chugai was unaffected by this conversion, as the Group has bonds convertible into Chugai shares that mirror those that Chugai has outstanding with third parties. There was no gain or loss recorded in the income statement upon the partial conversion.
Cash outflows from repayments, redemptions and conversions of debt instruments in millions of CHF
2007 2006
‘LYONs V’ US dollar exchangeable notes (1,008) (1,264)
European Medium Term Note programme US dollar bonds (900) –
Total cash outflows from repayments and redemptions during the year (1,908) (1,264)
Roche Group
Terms of outstanding convertible debt instruments
‘Series 6 Chugai Pharmaceutical Unsecured Convertible Bonds’: Each bond of JPY 1,000,000 par value is convertible into 1,311 shares of Chugai. Conversion is at the option of the bondholder and may be made at any time up to 29 September 2008. The bonds will be redeemable at maturity on 30 September 2008 at the issue price. If the bonds outstanding at 31 December 2007 were all converted it would require 55 thousand Chugai shares to meet the obligation. The Group’s percentage ownership in Chugai would not be affected by any conversion, as the Group has bonds convertible into Chugai shares that mirror those that Chugai has outstanding with third parties.