Debt



					June 4, 2015						August 28, 2014
Instrument⁽¹⁾	Stated Rate		Effective Rate		Current		Long-Term		Total		Current		Long-Term		Total
Capital lease obligations⁽²⁾	N/A		N/A		$	325	$	530	$	855	$	323	$	588	$	911
MMJ creditor installment payments	N/A		6.25	%	154		669		823		192		939		1,131
1.258% senior notes	1.258	%	1.97	%	92		278		370		92		324		416
2022 senior notes	5.875	%	6.14	%	—		600		600		—		600		600
2023 senior notes	5.250	%	5.43	%	—		1,000		1,000		—		—		—
2024 senior notes	5.250	%	5.38	%	—		550		550		—		—		—
2025 senior notes	5.500	%	5.56	%	—		1,150		1,150		—		1,150		1,150
2026 senior notes	5.625	%	5.73	%	—		450		450		—		—		—
2031B convertible senior notes	1.875	%	6.98	%	—		—		—		362		—		362
2032C convertible senior notes⁽³⁾	2.375	%	5.95	%	—		198		198		—		314		314
2032D convertible senior notes⁽³⁾	3.125	%	6.33	%	—		151		151		—		288		288
2033E convertible senior notes⁽³⁾	1.625	%	4.50	%	276		—		276		278		—		278
2033F convertible senior notes⁽³⁾	2.125	%	4.93	%	270		—		270		265		—		265
2043G convertible senior notes	3.000	%	6.76	%	—		646		646		—		636		636
Other notes payable	2.241	%	2.40	%	31		181		212		126		116		242
					$	1,148	$	6,403	$	7,551	$	1,638	$	4,955	$	6,593


⁽¹⁾	We have either the obligation or the option to pay cash for the principal amount due upon conversion for all of our convertible notes. Since it is our current intent to settle in cash the principal amount of all of our convertible notes upon conversion, the dilutive effect of such notes on earnings per share is computed under the treasury stock method.


⁽²⁾	Weighted-average imputed rate of 3.8% and 4.3% as of June 4, 2015 and August 28, 2014, respectively.

⁽³⁾

Since the closing price of our common stock for at least 20 trading days in the 30 trading day period ending on March 31, 2015 exceeded 130% of the conversion price per share, holders had the right to convert their notes at any time during the calendar quarter ended June 30, 2015. The closing price of our common stock also exceeded the thresholds for the calendar quarter ended June 30, 2015; therefore, these notes are convertible by the holders through September 30, 2015. The 2033 Notes are classified as current because the terms of these notes require us to pay cash for the principal amount of any converted notes.

2015 Debt Activity

In the first nine months of 2015, we consummated a number of transactions with respect to our debt, including conversions and settlements, repurchases, the issuances of non-convertible senior notes, and the early repayment of a note. As a result, we recognized losses of $18 million and $48 million in the third quarter and first nine months of 2015, respectively. The following table presents the effect of each of the actions in the first nine months of 2015:



	Increase (Decrease) in Principal			Increase (Decrease) in Carrying Value			Increase (Decrease) in Cash			(Decrease) in Equity			(Loss) Gain⁽¹⁾
Conversions and settlements:
2031B Notes	$	(114	)	$	(362	)	$	(389	)	$	—		$	(24	)
2033E Notes	(7		)	(7		)	(19		)	(15		)	2
	(121		)	(369		)	(408		)	(15		)	(22		)

Repurchases:
2032C Notes	(139		)	(122		)	(415		)	(283		)	(10		)
2032D Notes	(166		)	(141		)	(492		)	(341		)	(11		)
	(305		)	(263		)	(907		)	(624		)	(21		)

Issuances:
2023 Notes	1,000			1,000			988			—			—
2024 Notes	550			550			545			—			—
2026 Notes	450			450			446			—			—
	2,000			2,000			1,979			—			—

Early repayment of note	(121		)	(120		)	(122		)	—			(5		)

	$	1,453		$	1,248		$	542		$	(639	)	$	(48	)


⁽¹⁾	Included in other non-operating expense.

Conversions and Settlements: During the first nine months of 2015, we had the following debt conversions and settlements:

2031B Notes – On July 23, 2014, we called for the redemption of our remaining 2031B Notes effective on August 22, 2014. Prior to such effective date, substantially all of the holders of our 2031B Notes exercised their option to convert their notes and, in each case, we elected to settle the amount due upon conversion entirely in cash.

2033E Notes – During the first nine months of 2015, holders converted a portion of our 2033E Notes, and we elected to settle the amounts due upon conversion entirely in cash.

As a result of our elections to settle the amounts due upon conversion in cash, each of the settlement obligations became derivative debt liabilities subject to mark-to-market accounting treatment. Under the terms of the indentures for the above notes, cash settlement amounts for these derivative debt liabilities were determined based on the shares underlying the converted notes multiplied by the volume-weighted-average price of our common stock over a period of 20 consecutive trading days. Therefore, at the dates of our election to settle the conversion in cash, we reclassified the fair values of the equity components of each of the converted notes from additional capital to derivative debt liabilities within current debt in our consolidated balance sheet.

Repurchases: During the first nine months of 2015, we repurchased portions of our 2032C Notes and 2032D Notes. The liability and equity components of the repurchased notes had previously been stated separately within debt and additional capital in our consolidated balance sheet. As a result, our accounting for the repurchased notes affected debt and equity.

Issuance: On April 30, 2015, we issued $550 million in principal amount of 2024 Notes due January 2024 and $450 million in principal amount of 2026 Notes due January 2026. On February 3, 2015, we issued $1.00 billion in principal amount of 2023 Notes due August 2023. Issuance costs for these notes totaled $21 million.

These notes contain covenants that, among other things, limit, in certain circumstances, our ability and/or the ability of our domestic restricted subsidiaries (which are generally subsidiaries in the U.S. in which we own at least 80% of the voting stock) to (1) create or incur certain liens and enter into sale and lease-back transactions, (2) create, assume, incur, or guarantee certain additional secured indebtedness and unsecured indebtedness of certain of our domestic restricted subsidiaries, and (3) consolidate with or merge with or into, or convey, transfer or lease all or substantially all of our assets, to another entity. These covenants are subject to a number of limitations, exceptions, and qualifications.

Cash Redemption at Our Option: We have the option to redeem these notes; however, the applicable redemption price will be determined as follows:



	Redemption Period Requiring Payment of:		Redemption Up To 35% Using Cash Proceeds From An Equity Offering⁽³⁾:
	Make-Whole⁽¹⁾	Premium⁽²⁾	Date	Specified Price
2023 Notes	Prior to Feb. 1, 2018	On or after Feb. 1, 2018	Prior to Feb. 1, 2018	105.250	%
2024 Notes	Prior to May 1, 2018	On or after May 1, 2018	Prior to May 1, 2018	105.250	%
2026 Notes	Prior to May 1, 2020	On or after May 1, 2020	Prior to May 1, 2018	105.625	%


⁽¹⁾	If we redeem prior to the applicable date, the price is principal plus a make-whole premium equal to the present value of the remaining scheduled interest payments as described in the applicable indenture, together with accrued and unpaid interest.


⁽²⁾	If we redeem on or after the applicable date, the price is principal plus a premium which declines over time as specified in the applicable indenture, together with accrued and unpaid interest.


⁽³⁾	If we redeem prior to the applicable date with net cash proceeds of one or more equity offerings, the price is equal to the amount specified above, together with accrued and unpaid interest, subject to a maximum redemption of 35% of the aggregate principal amount of the respective note being redeemed.

Early Repayment of Note: On October 17, 2014, we repaid a note prior to its scheduled maturity.

2014 Debt Activity

Throughout 2014, we reduced the dilutive effects of our convertible notes by exchanging portions of these notes with less-dilutive convertible notes, or by converting or repurchasing portions of these notes using cash generated from operations and proceeds from issuing non-convertible debt. In the first nine months of 2014, we incurred losses related to these activities as follows:


•	$49 million (which included $38 million in non-operating expense and $11 million of interest expense from the payment of a make-whole premium) from the exchange of an aggregate principal amount of $440 million of 2027 Notes, 2031A Notes, and 2031B Notes into 2043G Notes;


•	$121 million (which included $115 million in non-operating expense and $6 million of interest expense from the payment of a make-whole premium) from the conversion of $770 million of aggregate principal amount of 2014 Notes, 2027 Notes, and 2031A Notes; and


•	$18 million in non-operating expense from the cash repurchase of $263 million of aggregate principal amount of 2031B Notes, 2032C Notes, and 2032D Notes.

Convertible Notes With Debt and Equity Components

As of June 4, 2015, the trading price of our common stock was higher than the conversion prices of our 2032 Notes and our 2033 Notes. As a result, the conversion values were in excess of principal amounts for such notes. The following table summarizes our convertible notes outstanding as of June 4, 2015:



	Holder Put Date⁽¹⁾	Outstanding Principal		Underlying Shares	Conversion Price Per Share		Conversion Price Per Share Threshold⁽²⁾		Conversion Value in Excess of Principal⁽³⁾
2032C Notes	May 2019	$	224	23	$	9.63	$	12.52	$	403
2032D Notes	May 2021	177		18	9.98		12.97		302
2033E Notes	February 2018	293		27	10.93		14.21		430
2033F Notes	February 2020	300		27	10.93		14.21		441
2043G Notes⁽⁴⁾	November 2028	1,025		35	29.16		37.91		—
		$	2,019	130					$	1,576


⁽¹⁾	The terms of our convertible notes give holders the right to require us to repurchase all or a portion of their notes at a date prior to the contractual maturities of the notes.

⁽²⁾

Holders have the right to convert all or a portion of their notes at a date prior to the contractual maturity if, during any calendar quarter, the closing price of our common stock for at least 20 trading days in the 30 consecutive trading days ending on the last trading day of the preceding calendar quarter is more than 130% of the conversion price. The closing price of our common stock exceeded the thresholds for the calendar quarter ended June 30, 2015 for our 2032 Notes and 2033 Notes; therefore, those notes are convertible by the holders through September 30, 2015.


⁽³⁾	Based on our closing share price of $26.99 as of June 4, 2015.


⁽⁴⁾	The original principal amount of $820 million accretes up to $917 million at the holder put date in November 2028 and $1.03 billion at maturity in 2043.

We amortize any initial debt discount or imputed interest over the period from issuance of the notes through the earliest date that holders can require us to repurchase all or a portion of their notes (see "Holder Put Date" in the table above). As a result, the period of amortization can be significantly shorter than the contractual maturity.

Capital Lease Obligations

In the third quarter of 2015, we recorded a capital lease obligation of $37 million, which related to an equipment sale-leaseback transaction, at a weighted-average effective interest rate of 2.8%, payable in periodic installments through May 2019. In the first nine months of 2015, we recorded capital lease obligations aggregating $324 million, including $291 million related to equipment sale-leaseback transactions, at a weighted-average effective interest rate of 3.2%, payable in periodic installments through May 2019.

Other Notes Payable

On March 13, 2015, we borrowed $47 million under a two-year note, collateralized by certain property, plant, and equipment. The note is payable in equal quarterly installments, plus interest at a variable rate equal to the 90-day Taipei Interbank Offered Rate ("TAIBOR") plus 1.65% per annum.

Available Facilities

Revolving Credit Facilities: On February 12, 2015, we terminated our unused $255 million senior secured three-year revolving credit facility and entered into a senior secured five-year revolving credit facility. Under this credit facility, we can draw up to the lesser of $750 million or 80% of the net outstanding balance of certain trade receivables, as defined in the facility agreement. Any amounts drawn are collateralized by a security interest in such trade receivables. The revolving credit facility contains customary covenants and conditions, including as a funding condition the absence of any event or circumstance that has a material adverse effect on certain of our operations, assets, prospects, business, or condition, and including negative covenants that limit or restrict our ability to create liens on, or dispose of, the collateral securing the obligations under this facility. Interest is payable on any outstanding principal balance at a variable rate equal to the London Interbank Offered Rate ("LIBOR") plus an applicable margin ranging between 1.75% to 2.25%, depending upon the utilized portion of the facility. On April 16, 2015, we drew $75 million under this facility at an interest rate equal to 2.15% per annum. As of June 4, 2015, $75 million of principal was outstanding under this facility and $518 million was available to us to be drawn.

On December 2, 2014, we terminated our unused $153 million senior secured three-year revolving credit facility and entered into a senior secured five-year revolving credit facility, collateralized by a security interest in certain trade receivables and inventory. The credit facility has an aggregate revolving commitment which is subject to certain adjustments, including an availability block that effectively limits the maximum amount we could draw to $540 million. Additionally, the maximum amount we could draw may decrease further if the value, as defined, of our trade receivables and inventory collateralizing the credit facility decreases below a specified threshold. The revolving credit facility contains customary covenants and conditions, including as a funding condition the absence of any event or circumstance that has a material adverse effect on our business or financial condition. Generally, interest is payable on any outstanding principal balance at a variable rate not to exceed LIBOR plus an applicable margin ranging between 1.25% to 1.75%, depending upon the utilized portion of the facility. On April 16, 2015, we drew $50 million under this facility at an interest rate equal to 1.65% per annum. As of June 4, 2015, $50 million of principal was outstanding under this facility and $343 million was available to us to be drawn.

Other Facilities: On April 14, 2015, our IMFT venture entered into a commitment letter and progress payment agreement to obtain financing collateralized by semiconductor production equipment. Subject to customary conditions, IMFT can draw up to $275 million under these agreements prior to March 31, 2016. Amounts drawn will be made subject to a five-year loan, with equal quarterly payments beginning three months after such amounts are made subject to the loan, which payments reflect an implicit interest rate equal to the three-year swap rate plus 1.64% per annum. As of June 4, 2015, IMFT had not utilized any amounts under this facility.

On May 28, 2015, we entered into a term loan agreement to obtain financing collateralized by certain property, plant, and equipment. Subject to customary conditions, we can draw up to 6.90 billion New Taiwan dollars or an equivalent amount in U.S. dollars (approximately $225 million as of June 4, 2015). As of June 4, 2015, we had not drawn any amounts under this facility and subsequent to the third quarter of 2015, on June 18, 2015, we drew $40 million under this arrangement. Subsequent draws must occur by December 18, 2015. Amounts drawn will be made subject to a three-year loan, with equal quarterly principal payments beginning six months after the initial draw. Amounts drawn in New Taiwan dollars will accrue interest at a variable rate equal to the three-month TAIBOR plus a margin not to exceed 2.0%. Amounts drawn in U.S. dollars will accrue interest at a variable rate equal to the three-month LIBOR plus a margin not to exceed 2.2%.

Contractual Maturities

As of June 4, 2015, debt maturities and future minimum lease payments under capital lease obligations were as follows:



	Notes Payable			Capital Lease Obligations
Remainder of 2015	$	62		$	83
2016	305			346
2017	270			170
2018	545			129
2019	501			90
2020 and thereafter	5,541			107
Unamortized discounts and interest, respectively	(528		)	(70		)
	$	6,696		$	855