Intel Corporation Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Borrowings

Borrowings

12 Months Ended

Dec. 29, 2018

SHORT-TERM DEBT



(In Millions)	Dec 29, 2018		Dec 30, 2017
Commercial paper and drafts payable	$	500	$	37
Current portion of long-term debt	761		1,739
Total short-term debt	$	1,261	$	1,776

Our current portion of long-term debt includes our 2009 junior subordinated convertible debentures due 2039, as well as debt classified as short-term based on contractual maturity.

We have an ongoing authorization from our Board of Directors to borrow up to $10.0 billion under our commercial paper program.

LONG-TERM DEBT



	December 29, 2018				December 30, 2017
(In Millions)	Effective Interest Rate	Amount			Amount
Floating-rate senior notes:
Three-month LIBOR plus 0.08%, due May 2020	2.29%	$	700		$	700
Three-month LIBOR plus 0.35%, due May 2022	2.56%	800			800
Fixed-rate senior notes:
2.50%, due November 2018	—%	—			600
3.25%, due December 2019¹	2.11%	177			194
1.85%, due May 2020	1.89%	1,000			1,000
2.45%, due July 2020	2.49%	1,750			1,750
1.70%, due May 2021	1.79%	500			500
3.30%, due October 2021	3.67%	2,000			2,000
2.35%, due May 2022	2.67%	750			750
3.10%, due July 2022	3.47%	1,000			1,000
4.00%, due December 2022¹	2.89%	389			428
2.70%, due December 2022	3.06%	1,500			1,500
4.10%, due November 2023	3.22%	400			400
2.88%, due May 2024	3.03%	1,250			1,250
2.70%, due June 2024	2.79%	600			600
3.70%, due July 2025	4.16%	2,250			2,250
2.60%, due May 2026	2.62%	1,000			1,000
3.15%, due May 2027	3.21%	1,000			1,000
4.00%, due December 2032	3.70%	750			750
4.80%, due October 2041	4.49%	802			802
4.25%, due December 2042	3.87%	567			567
4.90%, due July 2045	4.56%	772			772
4.70%, due December 2045	3.45%	915			915
4.10%, due May 2046	3.72%	1,250			1,250
4.10%, due May 2047	3.59%	1,000			1,000
4.10%, due August 2047	2.91%	640			640
3.73%, due December 2047	3.90%	1,967			1,967
Oregon and Arizona bonds:
2.40% - 2.70%, due December 2035 - 2040	2.49%	423			—
Junior subordinated convertible debentures:
3.25%, due August 2039²	3.42%	988			2,000
Total senior notes and other borrowings		27,140			28,385
Unamortized premium/discount and issuance costs		(891		)	(1,357		)
Hedge accounting fair value adjustments		(390		)	(252		)
Long-term debt		25,859			26,776
Current portion of long-term debt		(761		)	(1,739		)
Total long-term debt		$	25,098		$	25,037

To manage foreign currency risk associated with the Australian-dollar-denominated notes issued in 2015, we entered into currency interest rate swaps with an aggregate notional amount of $577 million, which effectively converted these notes to U.S.-dollar-denominated notes. For further discussion on our currency interest rate swaps, see "Note 18: Derivative Financial Instruments." Principal and unamortized discount/issuance costs for the Australian-dollar-denominated notes in the table above were calculated using foreign currency exchange rates as of December 29, 2018 and December 30, 2017.


²	Effective interest rate for the year ended December 30, 2017 was 4.03%.

The fair value of our convertible debentures is determined using discounted cash flow models with observable market inputs, and takes into consideration variables such as interest rate changes, comparable instruments, subordination discount, and credit-rating changes. As of December 29, 2018 and December 30, 2017, the fair value of short- and long-term debt (excluding commercial paper and drafts payable) was $27.1 billion and $29.4 billion, respectively. These liabilities are classified as Level 2 within the fair value hierarchy, based on the nature of the fair value inputs.

Senior Notes

During 2017, we issued a total of $7.7 billion aggregate principal amount of senior notes, which excludes the private placement of $2.0 billion of senior notes issued in December 2017, as discussed in the following paragraph. We used the net proceeds from the offerings of the notes for general corporate purposes, which included refinancing of outstanding debt and repurchase of shares of our common stock. Additionally, we redeemed our $1.0 billion, 4.90% senior notes due August 2045.

In December 2017, we completed exchange and cash offers for our outstanding 4.80% senior notes due 2041, 4.25% senior notes due 2042, and 4.90% senior notes due 2045 (Old Notes). As a result of the exchange offer, we issued in a private placement $2.0 billion principal amount of 3.73% senior notes due 2047 and paid $293 million cash in exchange for $1.9 billion aggregate principal amount of the Old Notes. As a result of the cash offer, we paid $518 million to repurchase $425 million aggregate principal amount and recognized a $93 million loss on the extinguishment of the Old Notes.

Our floating-rate senior notes pay interest quarterly and our fixed-rate senior notes pay interest semiannually. As of December 29, 2018 and December 30, 2017, the total principal amount of our fixed-rate senior notes that was converted to variable-rate indebtedness using interest rate swaps was $20.0 billion and $12.9 billion, respectively. We may redeem the fixed-rate notes prior to their maturity at our option at specified redemption prices and subject to certain restrictions. The obligations under the notes rank equally in right of payment with all of our other existing and future senior unsecured indebtedness and will effectively rank junior to all liabilities of our subsidiaries.

Oregon and Arizona Bonds

During the third quarter of 2018, we remarketed $423 million principal of bonds issued by the Industrial Development Authority of the City of Chandler, Arizona (the Arizona bonds) and the State of Oregon Business Development Commission (the Oregon bonds). The bonds are our unsecured general obligations in accordance with loan agreements we entered into with the Industrial Development Authority of the City of Chandler, Arizona and the State of Oregon Business Development Commission. The bonds mature between 2035 and 2040 and carry interest rates of 2.40% - 2.70%. Each series of the Arizona bonds and the Oregon bonds is subject to mandatory tender in August 2023, at which time we can remarket the bonds as either fixed-rate bonds for a specified period, or as variable-rate bonds until another fixed-rate period is selected or their final maturity date.

Convertible Debentures

In 2009, we issued junior subordinated convertible debentures due 2039 (2009 debentures), which pay a fixed rate of interest semiannually. In 2018, we paid $2.4 billion in cash to satisfy conversion obligations for $1.0 billion in principal, resulting in a cumulative loss of $260 million in interest and other, net and $1.6 billion as a reduction to stockholders' equity related to the conversion feature.

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 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 indenture governing the 2009 debentures 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 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 and are not accounted for separately as derivative liabilities.

During the fourth quarter of 2018, the closing stock price conversion right condition of the 2009 debentures continued to be met and the debentures will be convertible at the option of the holders during the first quarter of 2019. As a result, the $569 million carrying amount of the 2009 debentures was classified as short-term debt on our consolidated balance sheet as of December 29, 2018 ($1.1 billion as of December 30, 2017). The excess of the amount required to be settled in cash if converted over the carrying amount of the 2009 debentures of $419 million has been classified as temporary equity on our consolidated balance sheet as of December 29, 2018 ($866 million as of December 30, 2017). In future periods, if the closing stock price conversion right condition is no longer met, all outstanding 2009 debentures would be reclassified to long-term debt and the temporary equity would be reclassified to stockholders’ equity on our consolidated balance sheet.



	2009 Debentures
(In Millions, Except Per Share Amounts)	Dec 29, 2018		Dec 30, 2017
Outstanding principal	$	988	$	2,000
Unamortized discount¹	$	419	$	866
Net debt carrying amount	$	569	$	1,134
Conversion rate (shares of common stock per $1,000 principal amount of debentures)	49.01		48.37
Effective conversion price (per share of common stock)	$	20.40	$	20.68


¹	The unamortized discounts for the 2009 debentures are amortized over the remaining life of the debt.

The conversion rate adjusts for certain events outlined in the indentures governing the 2009 debentures, such as quarterly dividend distributions in excess of $0.14 per share, but it does not adjust for accrued interest. In addition, the conversion rate will increase for a holder of the 2009 debentures who elects to convert the debentures in connection with certain share exchanges, mergers, or consolidations involving Intel.

Debt Maturities

Our aggregate debt maturities, excluding commercial paper and drafts payable, based on outstanding principal as of December 29, 2018, by year payable, were as follows:



(In Millions)	2019		2020		2021		2022		2023		2024 and thereafter		Total
	$	177	$	3,450	$	2,500	$	4,439	$	400	$	16,174	$	27,140

In the preceding table, the 2009 debentures are classified based on their stated maturity date, regardless of their classification on the consolidated balance sheet.