Intel 2008 Annual Report Download - page 98

Table of Contents
INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In 2005, we issued $1.6 billion of 2.95% junior subordinated convertible debentures (the debentures) due 2035. The
debentures are convertible, subject to certain conditions, into shares of our common stock at an initial conversion rate of
31.7162 shares of common stock per $1,000 principal amount of debentures, representing an initial effective conversion price
of approximately $31.53 per share of common stock. Holders can surrender the debentures for conversion at any time. The
conversion rate will be subject to adjustment for certain events outlined in the indenture governing the debentures (the
indenture), but will not be adjusted for accrued interest. In addition, the conversion rate will increase for a holder who elects to
convert the debentures in connection with certain share exchanges, mergers, or consolidations involving Intel, as described in
the indenture. The debentures, which pay a fixed rate of interest semiannually, have a contingent interest component that will
require us to pay interest based on certain thresholds and for certain events commencing on December 15, 2010, as outlined in
the indenture. The maximum amount of contingent interest that will accrue is 0.40% per year. The fair value of the related
embedded derivative was not significant as of December 27, 2008 or December 29, 2007.
We can settle any conversion or repurchase of the debentures in cash or stock at our option. On or after December 15, 2012,
we can redeem, for cash, all or part of the debentures for the principal amount, plus any accrued and unpaid interest, 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 any 30 consecutive trading-day period prior to the date on which we provide notice of redemption. If certain events
occur in the future, the indenture provides 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 debentures are
subordinated in right of payment to our existing and future senior debt and to the other liabilities of our subsidiaries. We
concluded that the debentures are not conventional convertible debt instruments and that the embedded stock conversion
option qualifies as a derivative under SFAS No. 133. In addition, in accordance with EITF 00-19, “Accounting for Derivative
Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock,” we have concluded that the embedded
conversion option would be classified in stockholders’ equity if it were a freestanding instrument. As such, the embedded
conversion option is not accounted for separately as a derivative.
In 2005, we guaranteed repayment of principal and interest on bonds issued by the Industrial Development Authority of the
City of Chandler, Arizona, which constitutes an unsecured general obligation for Intel. The aggregate principal amount,
including the premium, of the bonds issued in 2005 (2005 Arizona bonds) was $160 million. The bonds are due in 2035 and
bear interest at a fixed rate of 4.375% until 2010. The 2005 Arizona bonds are subject to mandatory tender on November 30,
2010, at which time we can re-market the bonds as either fixed-rate bonds for a specified period or as variable-rate bonds until
their final maturity on December 1, 2035.
In 2007, we guaranteed repayment of principal and interest on bonds issued by the Industrial Development Authority of the
City of Chandler, Arizona, which constitute an unsecured general obligation for Intel. The aggregate principal amount of the
bonds issued in December 2007 (2007 Arizona bonds) is $125 million due in 2037, and the bonds bear interest at a fixed rate
of 5.3%. The 2007 Arizona bonds are subject to mandatory tender, at our option, on any interest payment date beginning on or
after December 1, 2012 until their final maturity on December 1, 2037. Upon such tender, we can re-market the bonds as
either fixed-rate bonds for a specified period or as variable-rate bonds until their final maturity. We also entered into an
interest rate swap agreement, from a fixed rate to a floating LIBOR-based return. At the beginning of the first quarter of 2008,
we elected the provisions of SFAS No. 159 for the 2007 Arizona bonds, and we record these bonds at fair value. For further
discussion, see “Note 3: Fair Value.”
We have euro borrowings that we made in connection with financing manufacturing facilities and equipment in Ireland. We
invested the proceeds in euro-denominated loan participation notes of similar maturity to reduce currency and interest rate
exposures. During 2008, we retired $96 million in euro borrowings prior to their maturity dates through the simultaneous
settlement of an equivalent amount of investments in loan participation notes.
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