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. 26, 2015

Debt Disclosure [Abstract]

Borrowings [Text Block]

Note 15: Borrowings

Short-Term Debt

Our short-term debt at the end of each period was as follows:



(In Millions)	Dec 26, 2015			Dec 27, 2014
Drafts payable	$	41		$	16
Commercial paper	—			500
Current portion of long-term debt	2,602			1,088
Less: debt issuance costs associated with the current portion of long-term debt	(9		)	(8		)
Total short-term debt	$	2,634		$	1,596

We have an ongoing authorization from our Board of Directors to borrow up to $5.0 billion, which our Board of Directors increased in 2015 from $3.0 billion, under our commercial paper program. Maximum borrowings under our commercial paper program in 2015 were $900 million ($2.4 billion in 2014). We had no outstanding commercial paper as of December 26, 2015 ($500 million as of December 27, 2014). Our commercial paper was rated A-1+ by Standard & Poor’s and P-1 by Moody’s as of December 26, 2015.

On December 21, 2015 we entered into a short-term credit facility to borrow up to $5.0 billion in order to facilitate the settlement of our acquisition of Altera. There were no borrowings outstanding under this credit facility as of December 26, 2015 and it was closed in January 2016.

Long-Term Debt

Our indebtedness is carried at amortized cost plus applicable hedge adjustments. Our long-term debt at the end of each period was as follows:



(In Millions)	Maturity Date	Stated Interest Rate		Dec 26, 2015			Dec 27, 2014
Fourth quarter 2015 debt issuance of $915 million
Senior notes	December 2045	4.70	%	$	908		$	—
Fourth quarter 2015 Australian dollar-denominated debt issuance of A$800 million
Senior notes¹	December 2019	3.25	%	181			—
Senior notes¹	December 2022	4.00	%	397			—
Third quarter 2015 debt issuance of $1.0 billion
Senior notes	August 2045	4.90	%	1,009			—
Third quarter 2015 debt issuance of $7.0 billion
Senior notes	July 2020	2.45	%	1,748			—
Senior notes	July 2022	3.10	%	996			—
Senior notes	July 2025	3.70	%	2,247			—
Senior notes	July 2045	4.90	%	1,998			—
2012 debt issuance of $6.2 billion
Senior notes	December 2017	1.35	%	2,999			2,998
Senior notes	December 2022	2.70	%	1,492			1,495
Senior notes	December 2032	4.00	%	744			744
Senior notes	December 2042	4.25	%	924			924
2011 debt issuance of $5.0 billion
Senior notes	October 2016	1.95	%	1,499			1,499
Senior notes	October 2021	3.30	%	1,997			1,997
Senior notes	October 2041	4.80	%	1,490			1,490
2009 debt issuance of $2.0 billion
Junior subordinated convertible debentures	August 2039	3.25	%	1,103			1,088
2005 debt issuance of $1.6 billion
Junior subordinated convertible debentures	December 2035	2.95	%	975			960
Long-term debt				22,707			13,195
Less: current portion of long-term debt				(2,602		)	(1,088		)
Less: debt issuance costs				(69		)	(48		)
Total long-term debt				$	20,036		$	12,059


¹	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 6: Derivative Financial Instruments."

Senior Notes

During 2015, we issued a total of $9.5 billion aggregate principal amount of senior unsecured notes to fund a portion of the cash consideration for our acquisition of Altera. The acquisition of Altera closed on December 28, 2015, subsequent to our fiscal 2015 year-end. For more information on the closing of our Altera acquisition, see "Note 8: Acquisitions."

All of our senior notes pay a fixed rate of interest semiannually. A portion of our fixed coupon payments related to our senior notes have been swapped for floating rate coupon payments. For more information on our interest rate swaps, see "Note 6: Derivative Financial Instruments." We may redeem the notes prior to their maturity at our option at specified redemption prices and subject to certain restrictions. 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.

Convertible Debentures

In 2009 and 2005, we issued junior subordinated convertible debentures due 2039 (2009 debentures) and 2035 (2005 debentures), respectively. 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 $13 million as of December 26, 2015 ($8 million as of December 27, 2014).

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 26, 2015, we did not meet either contingent interest threshold. The fair value of the related contingent interest embedded derivative was $4 million as of December 26, 2015 ($4 million as of December 27, 2014).

The 2005 debentures are convertible into shares of our common stock. Holders can surrender the 2005 debentures for conversion at any time. We can settle any conversion of the 2005 debentures in cash or stock at our option. The 2005 debentures will become redeemable 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. Once this condition has been met, we can redeem, for cash, all or part of the 2005 debentures for the principal amount, plus any accrued and unpaid interest. In addition, if certain events occur in the future, the indentures governing the 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. The 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 the 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 derivative liabilities.



	2009 Debentures				2005 Debentures
(In Millions, Except Per Share Amounts)	Dec 26, 2015		Dec 27, 2014		Dec 26, 2015		Dec 27, 2014
Outstanding principal	$	2,000	$	2,000	$	1,600	$	1,600
Equity component (including temporary equity) carrying amount	$	613	$	613	$	466	$	466
Unamortized discount	$	897	$	912	$	625	$	640
Net debt carrying amount	$	1,103	$	1,088	$	975	$	960
Conversion rate (shares of common stock per $1,000 principal amount of debentures)	46.58		46.06		35.82		34.95
Effective conversion price (per share of common stock)	$	21.47	$	21.71	$	27.92	$	28.61

In the preceding table, the remaining amortization periods for the unamortized discounts for the 2009 and 2005 debentures are approximately 24 and 20 years, respectively, as of December 26, 2015.

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.

During the fourth quarter of 2015, 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 2016. As a result, the $1.1 billion carrying amount of the 2009 debentures was classified as short-term debt on our consolidated balance sheet as of December 26, 2015 ($1.1 billion as of December 27, 2014). The excess of the amount of cash payable if converted over the carrying amount of the 2009 debentures of $897 million has been classified as temporary equity on our consolidated balance sheet as of December 26, 2015 ($912 million as of December 27, 2014). 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.

Debt Maturities

Our aggregate debt maturities based on outstanding principal as of December 26, 2015, by year payable, were as follows:



(In Millions)
2016	$	1,500
2017	3,000
2018	—
2019	181
2020	1,750
2021 and thereafter	17,845
Total	$	24,276

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