Intel 2014 Annual Report Download - page 87

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INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Convertible Debentures
In 2009, we issued $2.0 billion of 2009 junior subordinated convertible debentures due 2039 (2009 debentures). In 2005, we
issued $1.6 billion of 2005 junior subordinated convertible debentures due 2035 (2005 debentures). Both the 2009 and 2005
debentures pay a fixed rate of interest semiannually.
2009
Debentures
2005
Debentures
Annual stated coupon interest rate .................................................... 3.25% 2.95%
Annual effective interest rate ......................................................... 7.20% 6.45%
The effective interest rate is based on the rate, at inception, for a similar instrument that does not have a conversion feature.
2009 Debentures
The 2009 debentures have a contingent interest component that requires us to pay interest based on certain thresholds or for
certain events, commencing on August 1, 2019. After such date, if the 10-day average trading price of $1,000 principal amount of
the bond immediately preceding any six-month interest period is less than or equal to $650 or greater than or equal to $1,500, we
are required to pay contingent 0.25% or 0.50% annual interest, respectively. The fair value of the related contingent interest
embedded derivative was $8 million as of December 27, 2014 ($10 million as of December 28, 2013).
The 2009 debentures are convertible, subject to certain conditions. Holders can surrender the 2009 debentures for conversion if
the closing price of Intel common stock has been at least 130% of the conversion price then in effect for at least 20 trading days
during the 30 consecutive trading-day period ending on the last trading day of the preceding fiscal quarter. We will settle any
conversion of the 2009 debentures in cash up to the face value, and any amount in excess of face value will be settled in cash or
stock at our option. On or after August 5, 2019, we can redeem, for cash, all or part of the 2009 debentures for the principal
amount, plus any accrued and unpaid interest, if the closing price of Intel common stock has been at least 150% of the
conversion price then in effect for at least 20 trading days during any 30 consecutive trading-day period. In addition, if certain
events occur in the future, the indentures governing the 2009 debentures provide that each holder of the debentures can, for a
pre-defined period of time, require us to repurchase the holder’s debentures for the principal amount plus any accrued and unpaid
interest. The 2009 debentures are subordinated in right of payment to any existing and future senior debt and to the other
liabilities of our subsidiaries. We have concluded that the 2009 debentures are not conventional convertible debt instruments and
that the embedded stock conversion options qualify as derivatives. In addition, we have concluded that the embedded conversion
options would be classified in stockholders’ equity if they were freestanding derivative instruments. As such, the embedded
conversion options are not accounted for separately as derivative liabilities.
2005 Debentures
The 2005 debentures have a contingent interest component that requires us to pay interest based on certain thresholds or for
certain events. If the 10-day average trading price of $1,000 principal amount of the bond immediately preceding any six-month
interest period is less than or equal to $800 or greater than or equal to $1,300, we are required to pay contingent 0.25% or 0.40%
annual interest, respectively. As of December 27, 2014, we met the upside contingent interest threshold. For the six-month
interest period beginning December 15, 2014, we will accrue and pay contingent interest in the amount of 0.40% per annum of
the average trading price for the 10 trading days immediately preceding the first day of the interest period. The fair value of the
related contingent interest embedded derivative was $4 million as of December 27, 2014 ($9 million as of December 28, 2013).
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