Intel 2012 Annual Report Download - page 80

74
Convertible Debentures
In 2009, we issued $2.0 billion of junior subordinated convertible debentures (the 2009 debentures). In 2005, we issued
$1.6 billion of junior subordinated convertible debentures (the 2005 debentures). Both the 2009 and 2005 debentures pay
a fixed rate of interest semiannually.
2009
Debentures
2005
Debentures
Annual coupon interest rate......................................................................................
3.25%
2.95%
Annual effective interest rate ....................................................................................
7.20%
6.45%
Maximum amount of contingent interest that will accrue per year............................
0.50%
0.40%
The effective interest rate is based on the rate for a similar instrument that does not have a conversion feature.
Both the 2009 and 2005 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 for the 2009 debentures. As of December 29,
2012, we have not met any of the thresholds or events related to the 2005 debentures. The fair values of the related
embedded derivatives were $6 million and zero as of December 29, 2012 for the 2009 and 2005 debentures, respectively
($10 million and zero as of December 31, 2011 for the 2009 and 2005 debentures, respectively).
Both the 2009 and 2005 debentures are convertible, subject to certain conditions, into shares of our common stock.
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. Holders can surrender the 2005 debentures for conversion
at any time. We will settle any conversion or repurchase 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. However, we can settle any conversion or
repurchase of the 2005 debentures 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 prior to the date on which we provide notice of redemption. We can redeem, for cash,
all or part of the 2005 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 indentures governing the 2009 and 2005 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. Both the 2009 and 2005 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 both the 2009 and 2005 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
derivatives.
2009 Debentures
2005 Debentures
(In Millions, Except Per Share Amounts)
Dec. 29,
2012
Dec. 31,
2011
Dec. 29,
2012
Dec. 31,
2011
Outstanding principal................................................................................
$ 2,000
$ 2,000
$ 1,600
$ 1,600
Equity component carrying amount..........................................................
$ 613
$ 613
$ 466
$ 466
Unamortized discount...............................................................................
$ 922
$ 933
$ 656
$ 669
Net debt carrying amount .........................................................................
$ 1,063
$ 1,052
$ 932
$ 919
Conversion rate (shares of common stock per $1,000 principal amount
of debentures) ......................................................................................
45.05
44.55
33.86
32.94
Effective conversion price (per share of common stock)..........................
$ 22.20
$ 22.45
$ 29.53
$ 30.36
In the preceding table, the remaining amortization periods for the unamortized discounts for the 2009 and 2005
debentures are approximately 27 and 23 years, respectively, as of December 29, 2012.
The conversion rate adjusts for certain events outlined in the indentures governing the 2009 and 2005 debentures, such
as quarterly dividend distributions in excess of $0.14 and $0.10 per share for the 2009 and 2005 debentures, respectively,
but it does not adjust for accrued interest. In addition, the conversion rate will increase for a holder of either the 2009 or
2005 debentures who elects to convert the debentures in connection with certain share exchanges, mergers, or
consolidations involving Intel.