INTEL CORP
10-Qs and 10-Ks
PROXIES
Table of Contents
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
FORM
10-K
(Mark One)
| x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
or
| o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number
000-06217
INTEL CORPORATION
(Exact name of registrant as specified in its charter)
| Delaware | 94-1672743 | |
|
State or other jurisdiction of
incorporation or organization |
(I.R.S. Employer
Identification No.) |
|
| 2200 Mission College Boulevard, Santa Clara, California | 95054-1549 | |
|
(Address of principal executive offices)
|
(Zip Code) |
Registrant’s telephone number, including area code
(408)
765-8080
Securities registered pursuant to Section 12(b) of the Act:
|
Title of each class
|
Name of each exchange on which registered
|
|
|
Common stock, $0.001 par value
|
The NASDAQ Global Select Market* |
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the
registrant is a well-known seasoned issuer, as defined in Rule
405 of the Securities
Act. Yes
x
No
o
Indicate by check mark if the
registrant is not required to file reports pursuant to Section
13 or Section 15(d) of the
Act. Yes
o
No
x
Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90
days. Yes
x
No
o
Indicate by check mark whether the
registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation
S-T
(§232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant
was required to submit and post such
files). Yes
x
No
o
Indicate by check mark if
disclosure of delinquent filers pursuant to Item 405 of
Regulation
S-K
(§229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant’s
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form
10-K
or any
amendment to this Form
10-K.
o
Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the
definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting
company” in Rule
12b-2
of the
Exchange Act.
|
Large accelerated
filer
x
|
Accelerated filer o |
Non-accelerated
filer
o
(Do not check if a smaller reporting company) |
Smaller reporting company o |
Indicate by check mark whether the
registrant is a shell company (as defined in Rule
12b-2
of the
Act). Yes
o
No
x
Aggregate market value of voting
and non-voting common equity held by non-affiliates of the
registrant as of June 26, 2009, based upon the closing price of
the common stock as reported by The NASDAQ Global Select Market*
on such date, was
$91.1 billion
5,524 million shares of common stock outstanding as of February
5, 2010
DOCUMENTS
INCORPORATED BY REFERENCE
Portions of the registrant’s
Proxy Statement related to its 2010 Annual Stockholders’
Meeting to be filed subsequently—Part III of this
Form 10-K.
INTEL
CORPORATION
FORM
10-K
FOR THE
FISCAL YEAR ENDED DECEMBER 26, 2009
INDEX
Table of Contents
PART
I
| ITEM 1. | BUSINESS |
Industry
We are the world’s largest
semiconductor chip maker, based on revenue. We develop advanced
integrated digital technology products, primarily integrated
circuits, for industries such as computing and communications.
Integrated circuits are semiconductor chips etched with
interconnected electronic switches. We also develop platforms,
which we define as integrated suites of digital computing
technologies that are designed and configured to work together
to provide an optimized user computing solution compared to
components that are used separately. Our goal is to be the
preeminent provider of semiconductor chips and platforms for the
worldwide digital economy.
We were incorporated in California
in 1968 and reincorporated in Delaware in 1989. Our Internet
address is
www.intel.com
. On this web site, we publish
voluntary reports, which we update annually, outlining our
performance with respect to corporate responsibility, including
environmental, health, and safety (EHS) compliance.
We use our Investor Relations web
site,
www.intc.com
, as a routine channel for distribution
of important information, including news releases, analyst
presentations, and financial information. We post filings as
soon as reasonably practicable after they are electronically
filed with, or furnished to, the U.S. Securities and Exchange
Commission (SEC), including our annual and quarterly reports on
Forms
10-K
and
10-Q
(including related filings in XBRL format) and current reports
on Form
8-K;
our proxy statements; and any amendments to those reports or
statements. All such postings and filings are available on our
Investor Relations web site free of charge. In addition, our web
site allows investors and other interested persons to sign up to
automatically receive
e-mail
alerts when we post news releases and financial information. The
SEC also maintains a web site,
www.sec.gov
, that contains
reports, proxy and information statements, and other information
regarding issuers that file electronically with the SEC. The
content on any web site referred to in this Form
10-K
is not
incorporated by reference into this Form
10-K
unless
expressly noted.
Company
Organization
At the end of 2009, we reorganized
our business to better align our major product groups around the
core competencies of
Intel
®
architecture and our manufacturing operations. After the
reorganization, we have nine operating segments:
| • | PC Client Group. Delivering a high-quality computing and Internet experience through Intel architecture-based products and platforms, primarily for notebooks, netbooks, and desktops. | |
| • | Data Center Group. Delivering server, storage, and workstation platforms for small, medium, and large enterprises. | |
| • | Embedded and Communications Group. Delivering Intel architecture-based products as solutions for embedded applications through long life-cycle support, software and architectural scalability, and platform integration. | |
| • | Digital Home Group. Delivering Intel architecture-based products for next-generation consumer electronics devices with interactive Internet content and traditional broadcast programming. | |
| • | Ultra-Mobility Group. Building a business in the next-generation handheld market segment with low-power Intel architecture-based products. | |
| • | NAND Solutions Group. Delivering advanced NAND flash memory products for use in a variety of devices. | |
| • | Wind River Software Group. A wholly owned subsidiary delivering device software optimization products to the embedded and handheld market segments, serving a variety of hardware architectures. | |
| • | Software and Services Group. Delivering software products and services, in addition to promoting Intel architecture as the platform of choice for software development. | |
| • | Digital Health Group. Delivering technology-enabled products that are designed to reduce healthcare costs and connect people and information to improve patient care and safety. |
1
Table of Contents
Products
We design and manufacture
computing and communications components, such as
microprocessors, chipsets, motherboards, and wireless and wired
connectivity products, as well as platforms that incorporate
these components. We strive to optimize the overall performance
improvements of our products by balancing increased performance
capabilities with improved energy efficiency. Increased
performance can include faster processing performance and other
improved capabilities, such as multithreading and multitasking.
Performance can also be improved through enhanced connectivity,
storage, security, manageability, utilization, reliability, ease
of use, and interoperability among devices. Improved energy
efficiency is achieved by lowering power consumption in relation
to performance capabilities, which may extend utilization time
for battery-powered form factors and reduce system heat output,
thereby providing power savings and reducing the total cost of
ownership.
We offer products at various
levels of integration, to allow our customers flexibility in
creating computing and communications systems. The substantial
majority of our revenue is from the sale of microprocessors and
chipsets.
Components
Microprocessors
A microprocessor—the central
processing unit (CPU) of a computer system—processes system
data and controls other devices in the system, acting as the
“brains” of the computer. We offer microprocessors
with one or multiple processor cores designed for notebooks,
netbooks, desktops, servers, workstations, storage products,
embedded applications, communications products, consumer
electronics devices, and handhelds. The following are
characteristics of our microprocessors:
| • | Multi-core microprocessors contain two or more processor cores, which can enable improved multitasking and energy-efficient performance by distributing computing tasks across multiple cores. | |
| • | Cache is memory that can be located directly on the microprocessor. Incorporating additional amounts and/or levels of cache can enable higher performance by permitting quicker access to frequently used data and instructions. | |
| • | Some of our microprocessors also include an integrated memory controller or an integrated memory controller and integrated graphics functionality. Both an integrated memory controller and integrated graphics functionality can increase the speed at which data is transferred between system components. |
Most of our microprocessors are
based on the latest generation
Intel
®
Core
tm
microarchitecture and are manufactured using our
45-nanometer
(nm) Hi-k metal gate silicon process technology (45nm process
technology) or our 32nm second-generation Hi-k metal gate
silicon process technology (32nm process technology). These
technologies are the first to use Hi-k metal gate transistors,
which increase performance while simultaneously reducing the
leakage of currents. Microarchitecture refers to the layout,
density, and logical design of a microprocessor. The latest
generation Intel Core microarchitecture incorporates features
designed to increase performance and energy efficiency, such as:
| • | Intel ® Turbo Boost Technology , which increases processor frequency when applications demand more performance; and | |
| • | Intel ® Hyper-Threading Technology , which allows each processor core to process two software tasks or threads simultaneously. |
We also offer, and are continuing
to develop, System on Chip (SoC) products that integrate our
core processing functionalities with other system components,
such as graphics, audio, and video, onto a single chip to form a
purpose-built solution. SoC products are designed to provide
improved performance due to higher integration, lower power
consumption, and smaller form factors.
Chipsets
The chipset operates as the
“nervous system” in a PC or other computing device,
sending data between the microprocessor and input, display, and
storage devices, such as the keyboard, mouse, monitor, hard
drive or solid-state drive, and CD, DVD, or Blu-ray* drive. We
offer chipsets designed for notebooks, netbooks, desktops,
servers, workstations, storage products, embedded applications,
communications products, consumer electronics devices, and
handhelds. Chipsets extend the audio, video, and other
capabilities of many systems and perform essential logic
functions, such as balancing the performance of the system and
removing bottlenecks. Some chipsets may also include graphics
functionality or graphics functionality and a memory controller,
for use with our microprocessors that do not integrate those
system components.
2
Table of Contents
Motherboards
We offer motherboard products
designed for our desktop, server, and workstation platforms. A
motherboard is the principal board within a system, and
typically contains the microprocessor, chipset, memory, and
other components. The motherboard also has connectors for
attaching devices to the bus, which is the subsystem that
transfers data between various components of a computer.
Wireless
and Wired Connectivity
We offer wireless and wired
connectivity products, including network adapters and embedded
wireless cards, based on industry-standard protocols used to
translate and transmit data across networks. Wireless
connectivity products based on WiFi technology allow users to
wirelessly connect to high-speed local area networks, typically
within a close range. We have also developed wireless
connectivity products for both mobile and fixed networks based
on WiMAX, a standards-based wireless technology providing
high-speed broadband connectivity that can link users and
networks up to several miles apart.
Platforms
A platform typically includes a
microprocessor, chipset, and enabling software, and may include
additional hardware, services, and support. In developing our
platforms, we may include components made by other companies.
Platforms based on our latest generation Intel Core
microarchitecture using our 32nm process technology integrate a
memory controller and graphics functionality into each
microprocessor, and connect the microprocessor and other
components with a high-speed interconnect. We refer to certain
platform brands within our product offerings as processor
technologies.
Microprocessor
and Platform Technologies
We offer features to improve
microprocessor and platform capabilities that can enhance system
performance and user experience. For example, we offer
technologies that can help information technology managers
maintain, manage, and protect enabled systems that are plugged
into a power source and connected to a network, even if a
computer is turned off or has a failed hard drive or operating
system. Additional features can enable virtualization, in which
a single computer system can function as multiple virtual
systems by running multiple operating systems and applications.
Virtualization can consolidate workloads and provide increased
security and management capabilities. To take advantage of these
and other features that we offer, a computer system must have a
microprocessor that supports a chipset and BIOS (basic
input/output system) that use the technology, and software that
is optimized for the technology. Performance will vary depending
on the system hardware and software used.
Additional
Product Offerings
NAND flash
memory
is a
specialized type of memory component primarily used in portable
memory storage devices, digital camera memory cards, solid-state
drives, and other devices. NAND flash memory retains information
even when the power is off, and provides faster access to data
than traditional hard drives. Because flash memory does not have
any moving parts, it tolerates bumps and shocks better than
devices such as rapidly spinning disk drives.
Network
processors
are
advanced, fully programmable processors used in networking
equipment to rapidly manage and direct data moving across
networks and the Internet.
Software
products
include
operating systems, middleware, and tools used to develop, run,
and manage a wide variety of enterprise, consumer, embedded, and
handheld devices. In addition, we offer software development
tools, designed to complement our latest hardware technologies,
that help enable the creation of applications.
Healthcare
products
are
technology-enabled devices for healthcare providers and personal
healthcare that are designed to connect people and information
to improve patient care and safety.
3
Table of Contents
Revenue
by Major Operating Segment
Net revenue for the PC Client
Group (PCCG) operating segment, the Data Center Group (DCG)
operating segment, and the other Intel architecture operating
segments (Other IA) is presented as a percentage of our
consolidated net revenue. Other IA includes the Embedded and
Communications Group, the Digital Home Group, and the
Ultra-Mobility Group operating segments.
Percentage
of Revenue
(Dollars in Millions)
(Dollars in Millions)
Revenue from sales of
microprocessors within the PCCG operating segment represented
57% of our consolidated net revenue in 2009 (57% in 2008 and 55%
in 2007), and revenue from sales of microprocessors within the
DCG operating segment represented 15% of our consolidated net
revenue in 2009 (14% in 2008 and 13% in 2007).
Below, we discuss the key products
and processor technologies, including some key introductions, of
our operating segments. For a discussion of our strategy, see
“Strategy” in Part II, Item 7 of this Form
10-K.
PC
Client Group
The PC Client Group (PCCG) offers
microprocessors and related chipsets designed for the notebook,
netbook, and desktop market segments. In addition, PCCG offers
motherboards designed for the desktop market segment, and
wireless connectivity products.
Notebooks
and Netbooks
Our current notebook and netbook
microprocessor offerings include the:
|
• Intel
®
Core
tm
i7 processor Extreme Edition
|
• Intel ® Core tm 2 Duo mobile processor | |
|
• Intel
®
Core
tm
i7 mobile processor
|
• Intel ® Core tm 2 Solo processor | |
|
• Intel
®
Core
tm
i5 mobile processor
|
• Intel ® Celeron ® D processor | |
|
• Intel
®
Core
tm
i3 mobile processor
|
• Intel ® Celeron ® M processor | |
|
• Intel
®
Core
tm
2
Extreme mobile processor
|
• Intel ® Celeron ® processor | |
|
• Intel
®
Core
tm
2
Quad mobile processor
|
• Intel ® Atom tm processor |
We offer microprocessors for
notebooks at a variety of price and performance points, from the
Intel Core i7 processor Extreme Edition—a quad-core
processor based on our latest generation Intel Core
microarchitecture designed for
processor-intensive
tasks in demanding multitasking environments—to the Intel
Celeron processor, designed to provide value, quality, and
reliability for basic computing needs. In addition, we offer the
Intel Atom processor, designed for netbooks. We offer these
processors in various packaging options, including
ultra-low-voltage
processors designed for ultra-thin laptop computers, giving our
customers flexibility for a wide range of system designs for
notebook PCs. The related chipsets for our notebook and netbook
microprocessor offerings primarily include Mobile
Intel
®
5 Series Express Chipsets, Mobile
Intel
®
4 Series Express Chipsets, Mobile
Intel
®
900 Series Express Chipsets, and the
Intel
®
NM10 Express Chipset. In addition, we offer wireless
connectivity products based on WiFi and WiMAX technologies.
4
Table of Contents
We also offer processor
technologies designed to provide high performance with improved
multitasking; and power-saving features to improve battery life,
wireless network connectivity, and boot times, and to enable
smaller form factors. The
Intel
®
Core
tm
i5
vPro
tm
processor and the
Intel
®
Core
tm
i7
vPro
tm
processor are designed to provide business notebook PCs with
increased security, manageability, upgradeability, and
energy-efficient performance.
Our new product offerings in 2009
and early 2010 include:
| • | Intel Core i7 mobile processors, Intel Core i5 mobile processors, and Intel Core i3 mobile processors, the latest of which are manufactured using our 32nm process technology and include integrated high-definition graphics functionality. These processors are supported by the new Mobile Intel 5 Series Express Chipset family. | |
| • | Intel ® Centrino ® Wireless adapters, designed to offer high-speed and reliable connectivity, and consistent coverage, while consuming minimal power. | |
| • | An Intel Atom processor with integrated graphics functionality designed to enable improved performance and smaller, more energy-efficient netbooks. This processor is supported by the new, low-power Intel NM10 Express Chipset. | |
| • | The Intel Core i7 processor Extreme Edition, based on our latest generation Intel Core microarchitecture, and designed for demanding applications such as high-performance gaming, high-definition content creation, and video encoding and editing. | |
| • | Ultra-low-voltage processors and a chipset designed for ultra-thin laptop computers. |
Desktops
Our current desktop microprocessor
offerings include the:
|
• Intel
®
Core
tm
i7 processor Extreme Edition
|
• Intel ® Core tm 2 Quad processor | |
|
• Intel
®
Core
tm
i7 processor
|
• Intel ® Core tm 2 Duo processor | |
|
• Intel
®
Core
tm
i5 processor
|
• Intel ® Pentium ® processor | |
|
• Intel
®
Core
tm
i3 processor
|
• Intel ® Celeron ® processor | |
|
• Intel
®
Core
tm
2
Extreme processor
|
• Intel ® Atom tm processor |
We offer desktop microprocessors
at a variety of price/performance points, from the high-end
Intel Core i7 processor Extreme Edition—a quad-core
processor based on our latest generation Intel Core
microarchitecture, designed for processor-intensive tasks in
demanding multitasking environments—to the Intel Celeron
processor, designed to provide value, quality, and reliability
for basic computing needs. In addition, we offer the Intel Atom
processor, designed for low-power and affordable
Internet-focused devices. The related chipsets for our desktop
microprocessor offerings primarily include
Intel
®
5 Series Express Chipsets,
Intel
®
4 Series Express Chipsets,
Intel
®
3 Series Express Chipsets, and the
Intel
®
NM10 Express Chipset.
We also offer processor
technologies based on our microprocessors, chipsets, and
motherboard products that are optimized for the desktop market
segment. For business desktop PCs, we offer the
Intel
®
Core
tm
2
Duo processor with
vPro
tm
technology, the
Intel
®
Core
tm
2
Quad processor with
vPro
tm
technology, the
Intel
®
Core
tm
i5
vPro
tm
processor, and the
Intel
®
Core
tm
i7
vPro
tm
processor, which are designed to provide manageability,
upgradeability, energy-efficient performance, increased
security, and lower cost of ownership.
Our new product offerings in 2009
and early 2010 include:
| • | Intel Core i7 processors, Intel Core i5 processors, and Intel Core i3 processors, the latest of which are manufactured using our 32nm process technology and include integrated high-definition graphics functionality. These processors are supported by the new Intel 5 Series Express Chipset family. | |
| • | An Intel Atom processor with integrated graphics functionality designed to enable improved performance and smaller, more energy-efficient entry-level desktops. This processor is supported by the new, low-power Intel NM10 Express Chipset. |
Data
Center Group
The Data Center Group (DCG) offers
products that are incorporated into servers, storage,
workstations, and other products that help make up the
infrastructure for data center and cloud computing environments.
DCG’s products include microprocessors and related
chipsets, and motherboards and wired connectivity devices.
5
Table of Contents
Our current server, workstation,
and storage microprocessor offerings include the
Intel
®
Xeon
®
processor and the
Intel
®
Itanium
®
processor. Our Intel Xeon processor family of products supports
a range of entry-level to high-end technical and commercial
computing applications such as Internet Protocol data centers.
Compared to our Intel Xeon processor family, our Intel Itanium
processor family generally supports an even higher level of
reliability and computing performance for data processing,
handling high transaction volumes, and other
compute-intensive
applications for enterprise-class servers, as well as
supercomputing solutions. Servers, which usually have multiple
microprocessors or cores working together, manage large amounts
of data, direct data traffic, perform complex transactions, and
control central functions in local and wide area networks and on
the Internet. Workstations typically offer higher performance
than standard desktop PCs and are used for applications such as
engineering design, digital content creation, and
high-performance computing. With the large growth in digital
content, external storage systems, such as storage area network
(SAN) and network-attached storage (NAS), require higher
bandwidth and improved processing performance.
Our new product offerings in 2009
and early 2010 include:
| • | Quad-core Intel Itanium processors with enhanced scalability and reliability features, designed for mission-critical computing. | |
| • | Dual- and quad-core Intel Xeon processors based on our latest generation Intel Core microarchitecture, including multiple quad-core Intel Xeon processors designed for use in entry-level servers for small businesses and educational settings. | |
| • | Server motherboards that offer a higher degree of integrated components. |
Other
Intel Architecture Operating Segments
Embedded
and Communications Group
The Embedded and Communications
Group (ECG) offers highly scalable microprocessors, including
Intel Atom processors, and chipsets for a growing number of
embedded applications across numerous market segments, including
industrial, medical, and in-vehicle infotainment. In addition,
ECG offers network processors.
Our new product offerings in 2009
and early 2010 include:
| • | Embedded Intel Core i7 processors, Intel Core i5 processors, and Intel Core i3 processors, all using our 32nm process technology and with integrated high-definition graphics functionality. These processors are supported by the new Mobile Intel 5 Series Express Chipset family. | |
| • | Low-power Intel Xeon processors based on our latest generation Intel Core microarchitecture, designed for use in thermally constrained environments common to communications infrastructure products such as wireline phones and fax machines. | |
| • | Intel Atom processors designed for in-vehicle infotainment systems, media phones, and other industrial applications. |
Ultra-Mobility
Group
The Ultra-Mobility Group offers
energy-efficient Intel Atom processors and related chipsets
designed for mobile Internet devices (MIDs) within the handheld
market segment.
Digital
Home Group
The Digital Home Group offers
products for use in consumer electronics devices designed to
access and share Internet, broadcast, optical media (CD, DVD, or
Blu-ray), and personal content through a variety of linked
digital devices within the home. In addition, we offer
components for consumer electronics devices such as digital TVs,
high-definition media players, and set-top boxes, which receive,
decode, and convert incoming data signals. In 2009, we
introduced the
Intel
®
Atom
tm
processor CE4100, a SoC media processor designed to bring
Internet content and services to digital televisions, DVD
players, and advanced set-top boxes.
6
Table of Contents
Other
Operating Segments
NAND
Solutions Group
The NAND Solutions Group offers
NAND flash memory products primarily used in portable memory
storage devices, digital camera memory cards, solid-state
drives, and other devices. Our solid-state drives, available in
densities ranging from 2 gigabytes (GB) to 160 GB, weigh less
than standard hard disk drives and are designed to enable faster
boot times, lower power consumption, increased reliability, and
improved performance. Our NAND flash memory products are
manufactured by IM Flash Technologies, LLC (IMFT). See
“Note 11:
Non-Marketable
Equity Investments” in Part II, Item 8 of this Form
10-K.
In
2009, we introduced 80-GB and 160-GB solid-state drives based on
34nm NAND flash technology, designed for laptop and desktop
computers.
Wind
River Software Group
The Wind River Software Group
develops and licenses device software optimization products,
including operating systems, for the needs of customers in the
embedded and handheld market segments.
Manufacturing
and Assembly and Test
As of December 26, 2009, 64% of
our wafer fabrication, including microprocessors and chipsets,
was conducted within the U.S. at our facilities in Arizona,
Oregon, New Mexico, and Massachusetts. The remaining 36% of our
wafer fabrication was conducted outside the U.S. at our
facilities in Ireland and Israel.
As of December 26, 2009, we
primarily manufactured our products in wafer fabrication
facilities at the following locations:
| Products | Wafer Size | Process Technology | Locations | |||||
|
Microprocessors
|
300mm | 32nm | Oregon | |||||
|
Microprocessors
|
300mm | 45nm | Israel, New Mexico, Arizona | |||||
|
Chipsets and microprocessors
|
300mm | 65nm | Arizona, Ireland | |||||
|
Chipsets and other products
|
300mm | 90nm | Ireland | |||||
|
Chipsets and other products
|
200mm | 130nm and above | Massachusetts, Oregon, Ireland | |||||
In addition to our current
facilities, we are building a 300mm wafer fabrication facility
in China that is expected to begin production on chipsets using
our 65nm process technology in late 2010 or early 2011.
As of December 26, 2009, the
substantial majority of our microprocessors were manufactured on
300mm wafers using our 45nm process technology. In the second
half of 2009, we began manufacturing microprocessors using our
32nm process technology. As we move to each succeeding
generation of manufacturing process technology, we incur
significant
start-up
costs to prepare each factory for manufacturing. However,
continuing to advance our process technology provides benefits
that we believe justify these costs. The benefits of moving to
each succeeding generation of manufacturing process technology
can include using less space per transistor, reducing heat
output from each transistor,
and/or
increasing the number of integrated features on each chip. These
advancements can result in microprocessors that are higher
performing, consume less power,
and/or
cost
less to manufacture.
We use third-party manufacturing
companies (foundries) to manufacture wafers for certain
components, including networking and communications products. In
addition, we primarily use subcontractors to manufacture
board-level products and systems, and purchase certain
communications networking products from external vendors in the
Asia-Pacific region.
Our NAND flash memory products are
manufactured by IMFT, a NAND flash memory manufacturing company
that we formed with Micron Technology, Inc. Our NAND flash
memory products are manufactured by IMFT using 34nm or 50nm
process technology, and we expect to offer NAND flash memory
products using 25nm process technology during the second quarter
of 2010. We purchase 49% of the manufactured output of IMFT as
of December 26, 2009. Assembly and test of NAND flash memory
products is performed by Micron and other external
subcontractors. See “Note 11: Non-Marketable Equity
Investments” in Part II, Item 8 of this Form
10-K.
During 2008, we completed the
divestiture of our NOR flash memory business in exchange for an
ownership interest in Numonyx B.V. We are leasing a wafer
fabrication facility located in Israel to Numonyx. That facility
is not shown in our above listing of wafer fabrication
facilities.
7
Table of Contents
Following the manufacturing
process, the majority of our components are subject to assembly
and test. We perform our components assembly and test at
facilities in Malaysia, China, and Costa Rica. We are building a
new assembly and test facility in Vietnam that is expected to
begin production in the second half of 2010. To augment
capacity, we use subcontractors to perform assembly of certain
products, primarily chipsets and networking and communications
products.
Our employment practices are
consistent with, and we expect our suppliers and subcontractors
to abide by, local country law. In addition, we impose a minimum
employee age requirement as well as progressive EHS
requirements, regardless of local law.
We have thousands of suppliers,
including subcontractors, providing our various materials and
service needs. We set expectations for supplier performance and
reinforce those expectations with periodic assessments. We
communicate those expectations to our suppliers regularly and
work with them to implement improvements when necessary. We
seek, where possible, to have several sources of supply for all
of these materials and resources, but we may rely on a single or
limited number of suppliers, or upon suppliers in a single
country. In those cases, we develop and implement plans and
actions to reduce the exposure that would result from a
disruption in supply. We have entered into long-term contracts
with certain suppliers to ensure a portion of our silicon supply.
Our products are typically
produced at multiple Intel facilities at various sites around
the world, or by subcontractors who have multiple facilities.
However, some products are produced in only one Intel or
subcontractor facility, and we seek to implement actions and
plans to reduce the exposure that would result from a disruption
at any such facility. See “Risk Factors” in Part I,
Item 1A of this Form
10-K.
Research
and Development
We are committed to investing in
world-class technology development, particularly in the design
and manufacture of integrated circuits. Research and development
(R&D) expenditures in 2009 were $5.7 billion ($5.7 billion
in 2008 and $5.8 billion in 2007).
Our R&D activities are
directed toward developing the technology innovations that we
believe will deliver our next generation of products and
platforms, which will in turn enable new form factors and new
usage models for businesses and consumers. Our R&D
activities range from designing and developing products, to
developing and refining manufacturing processes, to researching
future technologies and products.
We are focusing our R&D
efforts on advanced computing technologies, developing new
microarchitectures, advancing our silicon manufacturing process
technology, delivering the next generation of microprocessors
and chipsets, improving our platform initiatives, and developing
software solutions and tools to support our technologies. Our
R&D efforts enable new levels of performance and address
areas such as energy efficiency, scalability for multi-core
architectures, system manageability and security, and ease of
use. We continue to make significant R&D investments in the
development of SoCs to enable growth in areas such as handhelds
(including MIDs and smartphones), embedded applications, and
consumer electronics. In addition, we continue to make
significant investments in graphics and wireless technologies.
As part of our R&D efforts,
we plan to introduce a new microarchitecture for our notebook,
desktop, and Intel Xeon processors approximately every two years
and ramp the next generation of silicon process technology in
the intervening years. We refer to this as our
“tick-tock” technology development cadence. In 2009,
we started manufacturing microprocessors using our new 32nm
second-generation Hi-k metal gate silicon process technology,
and we expect to introduce a new microarchitecture using our
32nm process technology in 2010. We are currently developing
22nm process technology, our next-generation process technology,
and expect to begin manufacturing products using that technology
in 2011. Our leadership in silicon technology has enabled us to
make “Moore’s Law” a reality. Moore’s Law
predicted that transistor density on integrated circuits would
double about every two years. Our leadership in silicon
technology has also helped expand on the advances anticipated by
Moore’s Law by bringing new capabilities into silicon and
producing new products and platforms optimized for a wider
variety of applications.
Our R&D model is based on a
global organization that emphasizes a collaborative approach to
identifying and developing new technologies, leading standards
initiatives, and influencing regulatory policies to accelerate
the adoption of new technologies. Our R&D initiatives are
performed by various business groups within the company, and we
centrally manage key cross-business group product initiatives to
align and prioritize our R&D activities across these
groups. In addition, we may augment our R&D initiatives by
investing in companies or entering into agreements with
companies that have similar R&D focus areas. For example,
we have an agreement with Micron for joint development of NAND
flash memory technologies.
8
Table of Contents
Employees
As of December 26, 2009, we had
79,800 employees worldwide, with 55% of those employees located
in the U.S.
Sales and
Marketing
Customers
We sell our products primarily to
original equipment manufacturers (OEMs) and original design
manufacturers (ODMs). ODMs provide design
and/or
manufacturing services to branded and unbranded private-label
resellers. In addition, we sell our products to other
manufacturers, including makers of a wide range of industrial
and communications equipment. Our customers also include PC and
network communications products users who buy PC components and
our other products through distributor, reseller, retail, and
OEM channels throughout the world. In certain instances, we have
entered into supply agreements to continue to manufacture and
sell products of divested business lines to acquiring companies
during certain transition periods.
Our worldwide reseller sales
channel consists of thousands of indirect customers, systems
builders that purchase Intel microprocessors and other products
from our distributors. We have a boxed processor program that
allows distributors to sell Intel microprocessors in small
quantities to these systems-builder customers; boxed processors
are also available in direct retail outlets.
In 2009, Hewlett-Packard Company
accounted for 21% of our net revenue (20% in 2008 and 17% in
2007) and Dell Inc. accounted for 17% of our net revenue (18% in
2008 and 2007). No other customer accounted for more than 10% of
our net revenue. For information about revenue and operating
income by operating segment, and revenue from unaffiliated
customers by geographic region/country, see “Results of
Operations” in Part II, Item 7 and “Note 29: Operating
Segment and Geographic Information” in Part II, Item 8 of
this Form
10-K.
Sales
Arrangements
Our products are sold or licensed
through sales offices throughout the world. Sales of our
products are typically made via purchase orders that contain
standard terms and conditions covering matters such as pricing,
payment terms, and warranties, as well as indemnities for issues
specific to our products, such as patent and copyright
indemnities. From time to time, we may enter into additional
agreements with customers covering, for example, changes from
our standard terms and conditions, new product development and
marketing, private-label branding, and other matters. Most of
our sales are made using electronic and web-based processes that
allow the customer to review inventory availability and track
the progress of specific goods ordered. Pricing on particular
products may vary based on volumes ordered and other factors. We
also offer discounts, rebates, and other incentives to customers
to increase acceptance of our products and technology.
Our products are typically shipped
under terms that transfer title to the customer, even in
arrangements for which the recognition of revenue and related
costs of sales is deferred. Our standard terms and conditions of
sale typically provide that payment is due at a later date,
generally 30 days after shipment or delivery. Our credit
department sets accounts receivable and shipping limits for
individual customers to control credit risk to Intel arising
from outstanding account balances. We assess credit risk through
quantitative and qualitative analysis, and from this analysis,
we establish credit limits and determine whether we will seek to
use one or more credit support devices, such as obtaining some
form of third-party guaranty or standby letter of credit, or
obtaining credit insurance for all or a portion of the account
balance if necessary. Credit losses may still be incurred due to
bankruptcy, fraud, or other failure of the customer to pay. For
information about our allowance for doubtful receivables, see
“Schedule II—Valuation and Qualifying Accounts”
in Part IV of this Form
10-K.
Most of our sales to distributors
are made under agreements allowing for price protection on
unsold merchandise and a right of return on stipulated
quantities of unsold merchandise. Under the price protection
program, we give distributors credits for the difference between
the original price paid and the current price that we offer. On
most products, there is no contractual limit on the amount of
price protection, nor is there a limit on the time horizon under
which price protection is granted. The right of return granted
generally consists of a stock rotation program in which
distributors are able to exchange certain products based on the
number of qualified purchases made by the distributor. Although
we have the option to grant credit for, repair, or replace
defective products, there is no contractual limit on the amount
of credit granted to a distributor.
9
Table of Contents
Distribution
Typically, distributors handle a
wide variety of products, including those that compete with our
products, and fill orders for many customers. We also utilize
third-party sales representatives who generally do not offer
directly competitive products but may carry complementary items
manufactured by others. Sales representatives do not maintain a
product inventory; instead, their customers place orders
directly with us or through distributors. Several distribution
warehouses are located in close proximity to key customers.
Backlog
We do not believe that backlog as
of any particular date is meaningful, as our sales are made
primarily pursuant to standard purchase orders for delivery of
products. Only a small portion of our orders is non-cancelable,
and the dollar amount associated with the non-cancelable portion
is not significant.
Seasonal
Trends
Our microprocessor sales generally
have followed a seasonal trend. Historically, our sales have
been higher in the second half of the year than in the first
half of the year. Consumer purchases of PCs have historically
been higher in the second half of the year, primarily due to
back-to-school
and holiday demand. In addition, purchases from businesses have
also historically tended to be higher in the second half of the
year.
Marketing
Our corporate marketing objectives
are to build a strong Intel corporate brand that connects with
consumers, and have a limited number of meaningful and valuable
brands in our portfolio to aid businesses and consumers in
making informed choices and to make technology purchase
decisions easier for them. The Intel Core processor family and
the Intel Atom, Intel Pentium, Intel Celeron, Intel Xeon, and
Intel Itanium trademarks make up our processor brands.
We promote brand awareness and
generate demand through our own direct marketing as well as
co-marketing programs. Our direct marketing activities include
television, print, and web-based advertising, as well as press
relations, consumer and trade events, and industry and consumer
communications. We market to consumer and business audiences,
and focus on building awareness and generating demand for
increased performance, power efficiency, and new capabilities.
Purchases by customers often allow
them to participate in cooperative advertising and marketing
programs such as the Intel
Inside
®
Program. This program broadens the reach of our brands beyond
the scope of our own direct advertising. Through the Intel
Inside Program, certain customers are licensed to place Intel
logos on computers containing our microprocessors and processor
technologies, and to use our brands in marketing activities. The
program includes a market development component that accrues
funds based on purchases and partially reimburses the OEMs for
marketing activities for products featuring Intel brands,
subject to the OEMs meeting defined criteria. These marketing
activities primarily include television, print, and an increased
focus on web-based marketing. We have also entered into joint
marketing arrangements with certain customers.
Competition
The semiconductor industry is
dynamic, characterized by rapid advances in technology and
frequent product introductions. As unit volumes of a product
grow, production experience is accumulated and costs typically
decrease, further competition develops, and prices decline. The
life cycle of our products is very short, sometimes less than a
year. These short product life cycles and other factors lead to
frequent negotiations with our OEM customers, which typically
are large, sophisticated buyers who are also operating in very
competitive environments. Our ability to compete depends on our
ability to navigate this environment, by improving our products
and processes faster than our competitors, anticipating changing
customer requirements, developing and launching new products and
platforms, pricing our products competitively, and reducing
average unit costs. See “Risk Factors” in Part I, Item
1A of this Form
10-K.
Our products compete primarily
based on performance, features, price, quality, reliability,
brand recognition, and availability. We are focused on offering
innovative products and worldwide support for our customers at
competitive prices, including providing improved
energy-efficient performance, enhanced security, manageability,
and integrated solutions. We believe that our platform strategy
provides us with a competitive advantage. We offer platforms
that incorporate various components designed and configured to
work together to provide an optimized user computing solution
compared to components that are used separately.
10
Table of Contents
We believe that our network of
manufacturing facilities and assembly and test facilities gives
us a competitive advantage. This network enables us to have more
direct control over our processes, quality control, product
cost, volume, timing of production, and other factors. These
facilities require significant up-front capital spending and
therefore make it difficult for us to reduce our costs in the
short-term. Many of our competitors do not own such facilities
because they may not be able to afford to do so or because their
business models involve the use of third-party foundries and
assembly and test subcontractors for manufacturing and assembly
and test. The third-party foundries and subcontractors may also
offer intellectual property, design services, and other goods
and services to our competitors. These “fabless
semiconductor companies” include Broadcom Corporation,
NVIDIA Corporation, QUALCOMM Incorporated, and VIA Technologies,
Inc. (VIA). Some of our competitors own portions of such
facilities through investment or joint-venture arrangements with
other companies.
We plan to continue to cultivate
new businesses and work with the computing and communications
industries through standards bodies, trade associations, OEMs,
ODMs, and independent software and operating system vendors to
help align the industry to offer products that take advantage of
the latest market trends and usage models. We frequently
participate in industry initiatives designed to discuss and
agree upon technical specifications and other aspects of
technologies that could be adopted as standards by
standards-setting organizations. Our competitors may also
participate in the same initiatives and specification
development. Our participation does not ensure that any
standards or specifications adopted by these organizations will
be consistent with our product planning.
Microprocessors
We continue to be largely
dependent on the success of our microprocessor business. Our
ability to compete depends on our ability to deliver new
microprocessor products with increased performance capabilities
and improved energy-efficient performance at competitive prices.
Some of our microprocessor competitors, such as Advanced Micro
Devices, Inc. (AMD), market software-compatible products that
compete with our processors. We also face competition from
companies offering rival architecture designs, such as Cell
Broadband Engine Architecture developed jointly by International
Business Machines Corporation (IBM), Sony Corporation, and
Toshiba Corporation; Power Architecture* offered by IBM; ARM*
architecture developed by ARM Limited; and Scalable Processor
Architecture (SPARC*) offered by Sun Microsystems, Inc. (a
subsidiary of Oracle Corporation). In addition, NVIDIA is
seeking to position its graphics processors to compete with
microprocessors, by shifting some of a microprocessor’s
workload to its graphics processor.
While AMD has been our primary
competitor in the market segments for microprocessors used in
notebooks, desktops, and servers, QUALCOMM and other companies
using ARM-based designs are our primary competitors in the
growing market segment for microprocessors used in handhelds,
including smartphones and MIDs. Our ability to compete with
QUALCOMM and other competitors in this market segment depends on
our ability to design and produce high-performance,
energy-efficient microprocessors at competitive prices. It also
requires us to develop a software ecosystem that appeals to end
users and software developers. We have taken a number of steps
to build this software ecosystem, including developing the
Moblin
tm
-based
operating system and subsequently combining it with Nokia
Corporation’s Maemo* software platform to create MeeGo*, a
Linux-based software platform that will run on multiple hardware
platforms; acquiring Wind River Systems, Inc.; and creating the
Intel
®
Atom
tm
Developer Program. In addition, in 2009 we entered into product
development collaborations with LG Electronics, Inc. and Nokia.
The following is a list of our
main microprocessor competitors by market segment:
| • | Notebook: AMD and VIA | |
| • | Netbook: AMD, NVIDIA, QUALCOMM, and VIA | |
| • | Desktop: AMD and VIA | |
| • | Server/Workstation: AMD, IBM, and Sun Microsystems | |
| • | Embedded: AMD, Freescale Semiconductor, Inc., and Texas Instruments Incorporated | |
| • | Handheld: QUALCOMM |
Chipsets
Our chipsets compete with chipsets
produced by companies such as AMD (including chipsets marketed
under the ATI Technologies, Inc. brand), Broadcom, NVIDIA,
Silicon Integrated Systems Corporation, and VIA. We also compete
with companies offering graphics components and other
special-purpose products used in the notebook, netbook, desktop,
and server market segments. One aspect of our business model is
to incorporate improved performance and advanced properties into
our microprocessors and chipsets, for which demand may
increasingly be affected by competition from companies whose
business models are based on dedicated chipsets and other
components, such as graphics controllers.
11
Table of Contents
Flash
Memory
Our NAND flash memory products
currently compete with NAND products primarily manufactured by
Hynix Semiconductor Inc., Micron, Samsung Electronics Co., Ltd.,
SanDisk Corporation, and Toshiba.
Connectivity
We offer products designed for
wireless and wired connectivity; the communications
infrastructure, including network processors; and networked
storage. Our WiFi and WiMAX products currently compete with
products manufactured by Atheros Communications, Inc., Broadcom,
QUALCOMM, and other smaller companies.
Competition
Lawsuits and Government Matters
We are currently a party to a
variety of lawsuits and government matters involving our
competitive practices. See “Note 28: Contingencies” in
Part II, Item 8 of this Form
10-K.
Acquisitions
and Strategic Investments
During 2009, we completed the
acquisition of Wind River Systems, Inc., a vendor of software
for embedded devices. The objective of the acquisition of Wind
River Systems was to enable the introduction of products for the
embedded and handheld market segments, resulting in benefits for
our existing operations. See “Note 15: Acquisitions”
in Part II, Item 8 of this Form
10-K.
Intellectual
Property and Licensing
Intellectual property rights that
apply to our various products and services include patents,
copyrights, trade secrets, trademarks, and maskwork rights. We
maintain a program to protect our investment in technology by
attempting to ensure respect for our intellectual property
rights. The extent of the legal protection given to different
types of intellectual property rights varies under different
countries’ legal systems. We intend to license our
intellectual property rights where we can obtain adequate
consideration. See “Competition” earlier in this
section, “Risk Factors” in Part I, Item 1A, and
“Note 28: Contingencies” in Part II, Item 8 of this
Form
10-K.
We have filed and obtained a
number of patents in the U.S. and other countries. While our
patents are an important element of our success, our business as
a whole is not significantly dependent on any one patent. We and
other companies in the computing, telecommunications, and
related high-technology fields typically apply for and receive,
in the aggregate, tens of thousands of overlapping patents
annually in the U.S. and other countries. We believe that the
duration of the applicable patents that we are granted is
adequate relative to the expected lives of our products. Because
of the fast pace of innovation and product development, our
products are often obsolete before the patents related to them
expire, and sometimes are obsolete before the patents related to
them are even granted. As we expand our product offerings into
new industries, we also seek to extend our patent development
efforts to patent such product offerings. Established
competitors in existing and new industries, as well as companies
that purchase and enforce patents and other intellectual
property, may already have patents covering similar products.
There is no assurance that we will be able to obtain patents
covering our own products, or that we will be able to obtain
licenses from such companies on favorable terms or at all.
The majority of the software that
we distribute, including software embedded in our component- and
system-level products, is entitled to copyright protection. To
distinguish Intel products from our competitors’ products,
we have obtained certain trademarks and trade names for our
products, and we maintain cooperative advertising programs with
certain customers to promote our brands and to identify products
containing genuine Intel components. We also protect certain
details about our processes, products, and strategies as trade
secrets, keeping confidential the information that we believe
provides us with a competitive advantage. We have ongoing
programs designed to maintain the confidentiality of such
information.
Compliance
with Environmental, Health, and Safety Regulations
Our compliance efforts focus on
monitoring regulatory and resource trends and setting
company-wide performance targets for key resources and
emissions. These targets address several parameters, including
product design; chemical, energy, and water use; climate change;
waste recycling; and emissions.
12
Table of Contents
Intel focuses on reducing natural
resource use, the solid and chemical waste by-products of our
manufacturing processes, and the environmental impact of our
products. We currently use a variety of materials in our
manufacturing process that have the potential to adversely
impact the environment and are subject to a variety of EHS laws
and regulations. For example, lead and halogenated materials
(such as certain flame retardants and plastics) have been used
by the electronics industry for decades. Finding suitable
replacements has been a technical challenge for the industry,
and we have worked for years with our suppliers and others in
the industry to develop lead-free and halogen-free solutions.
We work with the U.S.
Environmental Protection Agency (EPA), non-governmental
organizations, OEMs, and retailers to help manage
e-waste
(which includes electronic products nearing the end of their
useful lives) and promote recycling. The European Union (EU)
requires producers of certain electrical and electronic
equipment to develop programs that allow consumers to return
products for recycling. Many states in the U.S. have similar
e-waste
take-back laws. The inconsistency of many
e-waste
take-back laws and the lack of local
e-waste
management options in many areas pose a challenge for our
compliance efforts. To mitigate these problems, we communicate
with our distributors to determine available options for
complying with
e-waste
laws.
Intel seeks to reduce our global
greenhouse gas emissions by investing in energy conservation
projects in our factories and working with suppliers to improve
energy efficiency. We take a holistic approach to power
management, addressing the challenge at the silicon, package,
circuit, micro/macro architecture, platform, and software
levels. We recognize that climate change may cause general
economic risk. For further information on the risks of climate
change, see “Risk Factors” in Part I, Item 1A of this
Form
10-K.
We routinely monitor energy costs to understand the long-range
impacts that rising costs may have on our business. We see the
potential for higher energy costs driven by climate change
regulations. This could include items applied to utilities that
are passed along to customers, such as carbon taxes or costs
associated with emission cap and trade programs or renewable
portfolio standards. In particular, regulations associated with
the Western Climate Initiative could have an impact on our
company, because a number of our large manufacturing facilities
are located in the western U.S. Proposed regulations by the EPA
could impact our ability to obtain modifications in a timely
manner for existing air permits at our manufacturing facilities
in the U.S. Similarly, our operations in Ireland are already
subject to the EU’s mandatory cap and trade scheme for
global-warming emissions. All of our sites also may be impacted
by utility programs directed by legislation or regulatory or
other pressures that are targeted to pass costs through to users.
We maintain business recovery
plans that are intended to ensure our ability to recover from
natural disasters or other events that can be disruptive to our
business. Many of our operations are located in semi-arid
regions, such as Israel and the southwestern U.S. Some climate
change scenarios predict that such regions can become even more
vulnerable to prolonged droughts. We have had an aggressive
water conservation program in place for many years. We believe
that our water conservation and recovery programs will help
reduce our risk if water availability becomes more constrained
in the future. We further maintain long-range plans to identify
potential future water conservation actions that we can take.
We are committed to sustainability
and take a leadership position in promoting voluntary
environmental initiatives and working proactively with
governments, environmental groups, and industry to promote
global environmental sustainability. We believe that technology
will be fundamental to finding solutions to the world’s
environmental challenges, and we are joining forces with
industry, business, and governments to find and promote ways
that technology can be used as a tool to combat climate change.
For several years, we have been
evaluating “green” design standards and incorporating
green building concepts and practices into the construction of
our buildings. We are in the process of obtaining Leadership in
Energy and Environmental Design (LEED) certification for an
office building under construction in Israel and a newly
constructed fabrication building in Arizona. We have been
purchasing wind power and other forms of renewable energy at
some of our major sites for several years. At the beginning of
2008, we announced plans to purchase renewable energy
certificates under a multi-year contract. The purchase placed
Intel at the top of the EPA’s Green Power Partnership for
2008 and 2009. The purchase was intended to help stimulate the
market for green power, leading to additional generating
capacity and, ultimately, lower costs.
13
Table of Contents
Executive
Officers of the Registrant
The following sets forth certain
information with regard to our executive officers as of February
22, 2010 (ages are as of December 26, 2009):
|
Robert J. Baker
, age 54
|
||
|
• 2001 – present,
|
Senior VP, General Manager (GM), Technology and Manufacturing Group | |
|
• Joined Intel 1979
|
||
|
Andy D. Bryant
, age 59
|
||
|
• 2009 – present,
|
Executive VP, Technology, Manufacturing, and Enterprise Services, Chief Administrative Officer | |
|
• 2007 – 2009,
|
Executive VP, Finance and Enterprise Services, Chief Administrative Officer | |
|
• 2001 – 2007,
|
Executive VP, Chief Financial and Enterprise Services Officer | |
|
• Member of Columbia Sportswear Company
Board of Directors
|
||
|
• Member of McKesson Corporation Board of
Directors
|
||
|
• Joined Intel 1981
|
||
|
William M. Holt
, age 57
|
||
|
• 2006 – present,
|
Senior VP, GM, Technology and Manufacturing Group | |
|
• 2005 – 2006,
|
VP, Co-GM, Technology and Manufacturing Group | |
|
• 1999 – 2005,
|
VP, Director, Logic Technology Development | |
|
• Joined Intel 1974
|
||
|
Thomas M. Kilroy
, age 52
|
||
|
• 2010 – present,
|
Senior VP, GM, Sales and Marketing Group | |
|
• 2009 – 2010,
|
VP, GM, Sales and Marketing Group | |
|
• 2005 – 2009,
|
VP, GM, Digital Enterprise Group | |
|
• 2003 – 2005,
|
VP, Sales and Marketing Group,
Co-President of Intel Americas |
|
|
• Joined Intel 1990
|
||
|
Sean M. Maloney
, age 53
|
||
|
• 2009 – present,
|
Executive VP, GM, Intel Architecture Group | |
|
• 2008 – 2009,
|
Executive VP, Chief Sales and Marketing Officer | |
|
• 2006 – 2008,
|
Executive VP, GM, Sales and Marketing Group, Chief Sales and Marketing Officer | |
|
• 2005 – 2006,
|
Executive VP, GM, Mobility Group | |
|
• 2001 – 2005,
|
Executive VP, GM, Intel Communications Group | |
|
• Member of Autodesk, Inc. Board of
Directors
|
||
|
• Member of Clearwire Corporation Board of
Directors
|
||
|
• Joined Intel 1982
|
||
|
A. Douglas Melamed
, age 64
|
||
|
• 2009 – present,
|
Senior VP, General Counsel | |
|
• 2001 – 2009,
|
Partner, Wilmer Cutler Pickering Hale and Dorr LLP | |
|
• Joined Intel 2009
|
||
|
Paul S. Otellini
, age 59
|
||
|
• 2005 – present,
|
President, Chief Executive Officer | |
|
• 2002 – 2005,
|
President, Chief Operating Officer | |
|
• Member of Intel Board of Directors since
2002
|
||
|
• Member of Google, Inc. Board of Directors
|
||
|
• Joined Intel 1974
|
||
|
David Perlmutter
, age 56
|
||
|
• 2009 – present,
|
Executive VP, GM, Intel Architecture Group | |
|
• 2007 – 2009,
|
Executive VP, GM, Mobility Group | |
|
• 2005 – 2007,
|
Senior VP, GM, Mobility Group | |
|
• 2005
|
VP, GM, Mobility Group | |
|
• 2000 – 2005,
|
VP, GM, Mobile Platforms Group | |
|
• Joined Intel 1980
|
||
|
Stacy J. Smith
, age 47
|
||
|
• 2010 – present,
|
Senior VP, Chief Financial Officer | |
|
• 2007 – 2010,
|
VP, Chief Financial Officer | |
|
• 2006 – 2007,
|
VP, Assistant Chief Financial Officer | |
|
• 2004 – 2006,
|
VP, Finance and Enterprise Services, Chief Information Officer | |
|
• 2002 – 2004,
|
VP, Sales and Marketing Group, GM, Europe, Middle East, and Africa | |
|
• Joined Intel 1988
|
||
|
Arvind Sodhani
, age 55
|
||
|
• 2007 – present,
|
Executive VP of Intel, President of Intel Capital | |
|
• 2005 – 2007,
|
Senior VP of Intel, President of Intel Capital | |
|
• 1990 – 2005,
|
VP, Treasurer | |
|
• Joined Intel 1981
|
||
14
Table of Contents
| ITEM 1A. | RISK FACTORS |
Fluctuations
in demand for our products may harm our financial results and
are difficult to forecast.
If demand for our products
fluctuates as a result of economic conditions or for other
reasons, our revenue and profitability could be harmed.
Important factors that could cause demand for our products to
fluctuate include:
| • | changes in business and economic conditions, including downturns in the semiconductor industry and/or the overall economy; | |
| • | changes in consumer confidence caused by changes in market conditions, including changes in the credit market, expectations for inflation, and energy prices; | |
| • | changes in the level of customers’ components inventories; | |
| • | competitive pressures, including pricing pressures, from companies that have competing products, chip architectures, manufacturing technologies, and marketing programs; | |
| • | changes in customer product needs; | |
| • | strategic actions taken by our competitors; and | |
| • | market acceptance of our products. |
If product demand decreases, our
manufacturing or assembly and test capacity could be
underutilized, and we may be required to record an impairment on
our long-lived assets, including facilities and equipment as
well as intangible assets, which would increase our expenses. In
addition, if product demand decreases or we fail to forecast
demand accurately, we could be required to write off inventory
or record underutilization charges, which would have a negative
impact on our gross margin. Factory-planning decisions may
shorten the useful lives of long-lived assets, including
facilities and equipment, and cause us to accelerate
depreciation. In the long term, if product demand increases, we
may not be able to add manufacturing or assembly and test
capacity fast enough to meet market demand. These changes in
demand for our products, and changes in our customers’
product needs, could have a variety of negative effects on our
competitive position and our financial results, and, in certain
cases, may reduce our revenue, increase our costs, lower our
gross margin percentage, or require us to recognize impairments
of our assets.
Litigation
or regulatory proceedings could harm our business.
We may be subject to legal claims
or regulatory matters involving stockholder, consumer,
competition, and other issues on a global basis. As described in
“Note 28: Contingencies” in Part II, Item 8 of this
Form
10-K,
we are currently engaged in a number of litigation and
regulatory matters, particularly with respect to competition.
Litigation and regulatory proceedings are subject to inherent
uncertainties, and unfavorable rulings could occur. An
unfavorable ruling could include monetary damages or, in cases
for which injunctive relief is sought, an injunction prohibiting
us from manufacturing or selling one or more products,
precluding particular business practices, or requiring other
remedies, such as compulsory licensing of intellectual property.
If we were to receive an unfavorable ruling in a matter, our
business and results of operations could be materially harmed.
The
semiconductor industry and our operations are characterized by a
high percentage of costs that are fixed or difficult to reduce
in the short term, and by product demand that is highly variable
and subject to significant downturns that may harm our business,
results of operations, and financial condition.
The semiconductor industry and our
operations are characterized by high costs, such as those
related to facility construction and equipment, R&D, and
employment and training of a highly skilled workforce, that are
either fixed or difficult to reduce in the short term. At the
same time, demand for our products is highly variable and there
have been downturns, often in connection with maturing product
cycles as well as downturns in general economic market
conditions. These downturns have been characterized by reduced
product demand, manufacturing overcapacity and resulting
underutilization charges, high inventory levels, and lower
average selling prices. The combination of these factors may
cause our revenue, gross margin, cash flow, and profitability to
vary significantly in both the short and long term.
15
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We
operate in intensely competitive industries, and our failure to
respond quickly to technological developments and incorporate
new features into our products could harm our ability to
compete.
We operate in intensely
competitive industries that experience rapid technological
developments, changes in industry standards, changes in customer
requirements, and frequent new product introductions and
improvements. If we are unable to respond quickly and
successfully to these developments, we may lose our competitive
position, and our products or technologies may become
uncompetitive or obsolete. To compete successfully, we must
maintain a successful R&D effort, develop new products and
production processes, and improve our existing products and
processes at the same pace or ahead of our competitors. Our
R&D efforts are aimed at solving increasingly complex
problems, and we do not expect that all of our projects will be
successful. If our R&D efforts are unsuccessful, our future
results of operations could be materially harmed. We may not be
able to develop and market these new products successfully, the
products we invest in and develop may not be well received by
customers, and products developed and new technologies offered
by others may affect demand for our products. These types of
events could have a variety of negative effects on our
competitive position and our financial results, such as reducing
our revenue, increasing our costs, lowering our gross margin
percentage, and requiring us to recognize impairments on our
assets.
We
invest in companies for strategic reasons and may not realize a
return on our investments.
We make investments in companies
around the world to further our strategic objectives and support
our key business initiatives. Such investments include equity or
debt instruments of public or private companies, and many of
these instruments are non-marketable at the time of our initial
investment. These companies range from early-stage companies
that are often still defining their strategic direction to more
mature companies with established revenue streams and business
models. The success of these companies is dependent on product
development, market acceptance, operational efficiency, and
other key business factors. The companies in which we invest may
fail because they may not be able to secure additional funding,
obtain favorable investment terms for future financings, or take
advantage of liquidity events such as public offerings, mergers,
and private sales. If any of these private companies fail, we
could lose all or part of our investment in that company. If we
determine that an
other-than-temporary
decline in the fair value exists for an equity or debt
investment in a public or private company in which we have
invested, we write down the investment to its fair value and
recognize the related
write-down
as an investment loss. We have significant investments in
companies in the flash memory market segment, and declines in
this market segment or changes in management’s plans with
respect to our investments in this market segment could result
in significant impairment charges, impacting gains (losses) on
equity method investments and gains (losses) on other equity
investments.
Furthermore, when the strategic
objectives of an investment have been achieved, or if the
investment or business diverges from our strategic objectives,
we may decide to dispose of the investment. Our non-marketable
equity investments in private companies are not liquid, and we
may not be able to dispose of these investments on favorable
terms or at all. The occurrence of any of these events could
harm our results. Additionally, for cases in which we are
required under equity method accounting to recognize a
proportionate share of another company’s income or loss,
such income or loss may impact our earnings. Gains or losses
from equity securities could vary from expectations depending on
gains or losses realized on the sale or exchange of securities,
gains or losses from equity method investments, and impairment
charges related to debt instruments as well as equity and other
investments.
Our
results of operations could vary as a result of the methods,
estimates, and judgments that we use in applying our accounting
policies.
The methods, estimates, and
judgments that we use in applying our accounting policies have a
significant impact on our results of operations (see
“Critical Accounting Estimates” in Part II, Item 7 of
this Form
10-K).
Such
methods, estimates, and judgments are, by their nature, subject
to substantial risks, uncertainties, and assumptions, and
factors may arise over time that lead us to change our methods,
estimates, and judgments. Changes in those methods, estimates,
and judgments could significantly affect our results of
operations.
Fluctuations
in the mix of products sold may harm our financial
results.
Because of the wide price
differences among and within notebook, netbook, desktop, and
server microprocessors, the mix and types of performance
capabilities of microprocessors sold affect the average selling
price of our products and have a substantial impact on our
revenue and gross margin. Our financial results also depend in
part on the mix of other products that we sell, such as
chipsets, flash memory, and other semiconductor products. In
addition, more recently introduced products tend to have higher
associated costs because of initial overall development and
production ramp. Fluctuations in the mix and types of our
products may also affect the extent to which we are able to
recover the fixed costs and investments associated with a
particular product, and as a result can harm our financial
results.
16
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Our
global operations subject us to risks that may harm our results
of operations and financial condition.
We have sales offices, R&D,
manufacturing, and assembly and test facilities in many
countries, and as a result, we are subject to risks that may
limit our ability to manufacture, assemble and test, design,
develop, or sell products in particular countries, which could,
in turn, harm our results of operations and financial condition,
including:
| • | security concerns, such as armed conflict and civil or military unrest, crime, political instability, and terrorist activity; | |
| • | health concerns; | |
| • | natural disasters; | |
| • | inefficient and limited infrastructure and disruptions, such as large-scale outages or interruptions of service from utilities or telecommunications providers and supply chain interruptions; | |
| • | differing employment practices and labor issues; | |
| • | local business and cultural factors that differ from our normal standards and practices; | |
| • | regulatory requirements and prohibitions that differ between jurisdictions; and | |
| • | restrictions on our operations by governments seeking to support local industries, nationalization of our operations, and restrictions on our ability to repatriate earnings. |
In addition, although
substantially all of our products are sold in U.S. dollars, we
incur a significant amount of certain types of expenses, such as
payroll, utilities, tax, and marketing expenses, as well as
conduct certain investing and financing activities, in local
currencies. Our hedging programs reduce, but do not entirely
eliminate, the impact of currency exchange rate movements, and
therefore fluctuations in exchange rates could harm our results
of operations and financial condition. In addition, changes in
tariff and import regulations and in U.S. and
non-U.S.
monetary policies may harm our results of operations and
financial condition by increasing our expenses and reducing our
revenue. Varying tax rates in different jurisdictions could harm
our results of operations and financial condition by increasing
our overall tax rate.
We maintain a program of insurance
coverage for various types of property, casualty, and other
risks. We place our insurance coverage with various carriers in
numerous jurisdictions. However, there is a risk that one or
more of our insurance providers may be unable to pay a claim.
The types and amounts of insurance that we obtain vary from time
to time and from location to location, depending on
availability, cost, and our decisions with respect to risk
retention. The policies are subject to deductibles and
exclusions that result in our retention of a level of risk on a
self-insurance basis. Losses not covered by insurance may be
substantial and may increase our expenses, which could harm our
results of operations and financial condition.
Failure
to meet our production targets, resulting in undersupply or
oversupply of products, may harm our business and results of
operations.
Production of integrated circuits
is a complex process. Disruptions in this process can result
from interruptions in our processes, errors, and difficulties in
our development and implementation of new processes; defects in
materials; disruptions in our supply of materials or resources;
and disruptions at our fabrication and assembly and test
facilities due to, for example, accidents, maintenance issues,
or unsafe working conditions—all of which could affect the
timing of production ramps and yields. We may not be successful
or efficient in developing or implementing new production
processes. The occurrence of any of the foregoing may result in
our failure to meet or increase production as desired, resulting
in higher costs or substantial decreases in yields, which could
affect our ability to produce sufficient volume to meet specific
product demand. The unavailability or reduced availability of
certain products could make it more difficult to implement our
platform strategy. We may also experience increases in yields. A
substantial increase in yields could result in higher inventory
levels and the possibility of resulting underutilization charges
as we slow production to reduce inventory levels. The occurrence
of any of these events could harm our business and results of
operations.
We may
have difficulties obtaining the resources or products we need
for manufacturing, assembling and testing our products, or
operating other aspects of our business, which could harm our
ability to meet demand for our products and may increase our
costs.
We have thousands of suppliers
providing various materials that we use in the production of our
products and other aspects of our business, and we seek, where
possible, to have several sources of supply for all of those
materials. However, we may rely on a single or a limited number
of suppliers, or upon suppliers in a single country, for these
materials. The inability of such suppliers to deliver adequate
supplies of production materials or other supplies could disrupt
our production processes or could make it more difficult for us
to implement our business strategy. In addition, production
could be disrupted by the unavailability of the resources used
in production, such as water, silicon, electricity, and gases.
Future environmental regulations could restrict the supply or
increase the cost of certain of the materials that we currently
use in our business. The unavailability or reduced availability
of the materials or resources that we use in our business may
require us to reduce production of products or may require us to
incur additional costs in order to obtain an adequate supply of
those materials or resources. The occurrence of any of these
events could harm our business and results of operations.
17
Table of Contents
Costs
related to product defects and errata may harm our results of
operations and business.
Costs associated with unexpected
product defects and errata (deviations from published
specifications) due to, for example, unanticipated problems in
our manufacturing processes, include:
| • | writing off the value of inventory of defective products; | |
| • | disposing of defective products that cannot be fixed; | |
| • | recalling defective products that have been shipped to customers; | |
| • | providing product replacements for, or modifications to, defective products; and/or | |
| • | defending against litigation related to defective products. |
These costs could be substantial
and may therefore increase our expenses and lower our gross
margin. In addition, our reputation with our customers or users
of our products could be damaged as a result of such product
defects and errata, and the demand for our products could be
reduced. These factors could harm our financial results and the
prospects for our business.
We may
be subject to claims of infringement of third-party intellectual
property rights, which could harm our business.
Third parties may assert against
us or our customers alleged patent, copyright, trademark, or
other intellectual property rights to technologies that are
important to our business. As described in “Note 28:
Contingencies” in Part II, Item 8 of this Form
10-K,
we are
currently engaged in a number of litigation matters involving
intellectual property rights. We may be subject to intellectual
property infringement claims from certain individuals and
companies who have acquired patent portfolios for the sole
purpose of asserting such claims against other companies. Any
claims that our products or processes infringe the intellectual
property rights of others, regardless of the merit or resolution
of such claims, could cause us to incur significant costs in
responding to, defending, and resolving such claims, and may
divert the efforts and attention of our management and technical
personnel from our business. As a result of such intellectual
property infringement claims, we could be required or otherwise
decide that it is appropriate to:
| • | pay third-party infringement claims; | |
| • | discontinue manufacturing, using, or selling particular products subject to infringement claims; | |
| • | discontinue using the technology or processes subject to infringement claims; | |
| • | develop other technology not subject to infringement claims, which could be time-consuming and costly or may not be possible; and/or | |
| • | license technology from the third party claiming infringement, which license may not be available on commercially reasonable terms. |
The occurrence of any of the
foregoing could result in unexpected expenses or require us to
recognize an impairment of our assets, which would reduce the
value of our assets and increase expenses. In addition, if we
alter or discontinue our production of affected items, our
revenue could be harmed.
We may
not be able to enforce or protect our intellectual property
rights, which may harm our ability to compete and harm our
business.
Our ability to enforce our
patents, copyrights, software licenses, and other intellectual
property rights is subject to general litigation risks, as well
as uncertainty as to the enforceability of our intellectual
property rights in various countries. When we seek to enforce
our rights, we are often subject to claims that the intellectual
property right is invalid, is otherwise not enforceable, or is
licensed to the party against whom we are asserting a claim. In
addition, our assertion of intellectual property rights often
results in the other party seeking to assert alleged
intellectual property rights of its own or assert other claims
against us, which could harm our business. If we are not
ultimately successful in defending ourselves against these
claims in litigation, we may not be able to sell a particular
product or family of products due to an injunction, or we may
have to pay damages that could, in turn, harm our results of
operations. In addition, governments may adopt regulations, and
governments or courts may render decisions, requiring compulsory
licensing of intellectual property to others, or governments may
require that products meet specified standards that serve to
favor local companies. Our inability to enforce our intellectual
property rights under these circumstances may harm our
competitive position and our business.
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We may
be subject to intellectual property theft or misuse, which could
result in third-party claims and harm our business and results
of operations.
We regularly face attempts by
others to gain unauthorized access through the Internet to our
information technology systems by, for example, masquerading as
authorized users or surreptitious introduction of software.
These attempts, which might be the result of industrial or other
espionage, or actions by hackers seeking to harm the company,
its products, or end users, are sometimes successful. One recent
and sophisticated incident occurred in January 2010 around the
same time as the recently publicized security incident reported
by Google. We seek to detect and investigate these security
incidents and to prevent their recurrence, but in some cases we
might be unaware of an incident or its magnitude and effects.
The theft and/or unauthorized use or publication of our trade
secrets and other confidential business information as a result
of such an incident could adversely affect our competitive
position and reduce marketplace acceptance of our products; the
value of our investment in R&D, product development, and
marketing could be reduced; and third parties might assert
against us or our customers claims related to resulting losses
of confidential or proprietary information or end-user data
and/or system reliability. Our business could be subject to
significant disruption, and we could suffer monetary and other
losses, including the cost of product recalls and returns and
reputational harm, in the event of such incidents and claims.
Our
licenses with other companies and our participation in industry
initiatives may allow other companies, including our
competitors, to use our patent rights.
Companies in the semiconductor
industry often rely on the ability to license patents from each
other in order to compete. Many of our competitors have broad
licenses or cross-licenses with us, and under current case law,
some of the licenses may permit these competitors to pass our
patent rights on to others. If one of these licensees becomes a
foundry, our competitors might be able to avoid our patent
rights in manufacturing competing products. In addition, our
participation in industry initiatives may require us to license
our patents to other companies that adopt certain industry
standards or specifications, even when such organizations do not
adopt standards or specifications proposed by us. As a result,
our patents implicated by our participation in industry
initiatives might not be available for us to enforce against
others who might otherwise be deemed to be infringing those
patents, our costs of enforcing our licenses or protecting our
patents may increase, and the value of our intellectual property
may be impaired.
Decisions
about the scope of operations of our business could affect our
results of operations and financial condition.
Changes in the business
environment could lead to changes in our decisions about the
scope of operations of our business, and these changes could
result in restructuring and asset impairment charges. Factors
that could cause actual results to differ materially from our
expectations with regard to changing the scope of our operations
include:
| • | timing and execution of plans and programs that may be subject to local labor law requirements, including consultation with appropriate work councils; | |
| • | changes in assumptions related to severance and postretirement costs; | |
| • | future divestitures; | |
| • | new business initiatives and changes in product roadmap, development, and manufacturing; | |
| • | changes in employment levels and turnover rates; | |
| • | changes in product demand and the business environment; and | |
| • | changes in the fair value of certain long-lived assets. |
Our
acquisitions, divestitures, and other transactions could disrupt
our ongoing business and harm our results of
operations.
In pursuing our business strategy,
we routinely conduct discussions, evaluate opportunities, and
enter into agreements regarding possible investments,
acquisitions, divestitures, and other transactions, such as
joint ventures. Acquisitions and other transactions involve
significant challenges and risks, including risks that:
| • | we may not be able to identify suitable opportunities at terms acceptable to us; | |
| • | the transaction may not advance our business strategy; | |
| • | we may not realize a satisfactory return on the investment we make; | |
| • | we may not be able to retain key personnel of the acquired business; or | |
| • | we may experience difficulty in integrating new employees, business systems, and technology. |
When we decide to sell assets or a
business, we may encounter difficulty in finding or completing
divestiture opportunities or alternative exit strategies on
acceptable terms in a timely manner, and the agreed terms and
financing arrangements could be renegotiated due to changes in
business or market conditions. These circumstances could delay
the accomplishment of our strategic objectives or cause us to
incur additional expenses with respect to businesses that we
want to dispose of, or we may dispose of a business at a price
or on terms that are less favorable than we had anticipated,
resulting in a loss on the transaction.
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If we do enter into agreements
with respect to acquisitions, divestitures, or other
transactions, we may fail to complete them due to:
| • | failure to obtain required regulatory or other approvals; | |
| • | intellectual property or other litigation; | |
| • | difficulties that we or other parties may encounter in obtaining financing for the transaction; or | |
| • | other factors. |
Further, acquisitions,
divestitures, and other transactions require substantial
management resources and have the potential to divert our
attention from our existing business. These factors could harm
our business and results of operations.
In
order to compete, we must attract, retain, and motivate key
employees, and our failure to do so could harm our results of
operations.
In order to compete, we must
attract, retain, and motivate executives and other key
employees. Hiring and retaining qualified executives,
scientists, engineers, technical staff, and sales
representatives are critical to our business, and competition
for experienced employees in the semiconductor industry can be
intense. To help attract, retain, and motivate qualified
employees, we use share-based incentive awards such as employee
stock options and non-vested share units (restricted stock
units). If the value of such stock awards does not appreciate as
measured by the performance of the price of our common stock, or
if our share-based compensation otherwise ceases to be viewed as
a valuable benefit, our ability to attract, retain, and motivate
employees could be weakened, which could harm our results of
operations.
Our
failure to comply with applicable environmental laws and
regulations worldwide could harm our business and results of
operations.
The manufacturing and assembling
and testing of our products require the use of hazardous
materials that are subject to a broad array of EHS laws and
regulations. Our failure to comply with any of those applicable
laws or regulations could result in:
| • | regulatory penalties, fines, and legal liabilities; | |
| • | suspension of production; | |
| • | alteration of our fabrication and assembly and test processes; and | |
| • | curtailment of our operations or sales. |
In addition, our failure to manage
the use, transportation, emissions, discharge, storage,
recycling, or disposal of hazardous materials could subject us
to increased costs or future liabilities. Existing and future
environmental laws and regulations could also require us to
acquire pollution abatement or remediation equipment, modify our
product designs, or incur other expenses associated with such
laws and regulations. Many new materials that we are evaluating
for use in our operations may be subject to regulation under
existing or future environmental laws and regulations that may
restrict our use of one or more of such materials in our
manufacturing, assembly and test processes, or products. Any of
these restrictions could harm our business and results of
operations by increasing our expenses or requiring us to alter
our manufacturing and assembly and test processes.
Climate
change poses both regulatory and physical risks that could harm
our results of operations or affect the way we conduct our
business.
In addition to the possible direct
economic impact that climate change could have on us, climate
change mitigation programs and regulations can increase our
costs. For example, the cost of perfluorocompounds (PFCs), a gas
that we use in our manufacturing, could increase over time under
some climate-change-focused emissions trading programs that may
be imposed by government regulation. If the use of PFCs is
prohibited, we would need to obtain substitute materials that
may cost more or be less available for our manufacturing
operations. In addition, air quality permit requirements for our
manufacturing operations could become more burdensome and cause
delays in our ability to modify our facilities. We also see the
potential for higher energy costs driven by climate change
regulations. Our costs could increase if utility companies pass
on their costs, such as those associated with carbon taxes,
emission cap and trade programs, or renewable portfolio
standards. While we maintain business recovery plans that are
intended to allow us to recover from natural disasters or other
events that can be disruptive to our business, we cannot be sure
that our plans will fully protect us from all such disasters or
events. Many of our operations are located in semi-arid regions,
such as Israel and the southwestern U.S. Some scenarios predict
that these regions may become even more vulnerable to prolonged
droughts due to climate change.
20
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Changes
in our effective tax rate may harm our results of
operations.
A number of factors may increase
our future effective tax rates, including:
| • | the jurisdictions in which profits are determined to be earned and taxed; | |
| • | the resolution of issues arising from tax audits with various tax authorities; | |
| • | changes in the valuation of our deferred tax assets and liabilities, and changes in deferred tax valuation allowances; | |
| • | adjustments to income taxes upon finalization of various tax returns; | |
| • | increases in expenses not deductible for tax purposes, including write-offs of acquired in-process research and development and impairments of goodwill in connection with acquisitions; | |
| • | changes in available tax credits; | |
| • | changes in tax laws or the interpretation of such tax laws, and changes in U.S. generally accepted accounting principles; and | |
| • | our decision to repatriate non-U.S. earnings for which we have not previously provided for U.S. taxes. |
Any significant increase in our
future effective tax rates could reduce net income for future
periods.
Interest
and other, net could be harmed by macroeconomic and other
factors.
Factors that could cause interest
and other, net in our consolidated statements of operations to
fluctuate include:
| • | fixed-income, equity, and credit market volatility; | |
| • | fluctuations in foreign currency exchange rates; | |
| • | fluctuations in interest rates; | |
| • | changes in our cash and investment balances; and | |
| • | changes in our hedge accounting treatment. |
| ITEM 1B. | UNRESOLVED STAFF COMMENTS |
Not applicable.
| ITEM 2. | PROPERTIES |
As of December 26, 2009, our major
facilities consisted of:
|
(Square Feet in Millions)
|
United States | Other Countries | Total | |||||||||
|
Owned
facilities
1
|
25.8 | 18.7 | 44.5 | |||||||||
|
Leased
facilities
2
|
1.7 | 2.8 | 4.5 | |||||||||
|
Total facilities
|
27.5 | 21.5 | 49.0 | |||||||||
| 1 | Leases on portions of the land used for these facilities expire at varying dates through 2062. | |
| 2 | Leases expire at varying dates through 2028 and generally include renewals at our option. |
Our principal executive offices
are located in the U.S. The majority of our wafer fabrication
activities are also located in the U.S. Outside the U.S., we
have wafer fabrication at our facilities in Ireland and Israel.
In addition, we are building a new wafer fabrication facility in
China that is expected to begin production in late 2010 or early
2011. Our assembly and test facilities are located in Malaysia,
China, and Costa Rica. We are building a new assembly and test
facility in Vietnam that is expected to begin production in the
second half of 2010. In addition, we have sales and marketing
offices worldwide. These facilities are generally located near
major concentrations of users.
With the exception of certain
facilities placed for sale
and/or
facilities included in our restructuring actions, we believe
that our facilities detailed above are suitable and adequate for
our present purposes (see “Note 19: Restructuring and Asset
Impairment Charges” in Part II, Item 8 of this Form
10-K).
Additionally, the productive capacity in our facilities is
substantially being utilized or we have plans to utilize it.
We do not identify or allocate
assets by operating segment. For information on net property,
plant and equipment by country, see “Note 29: Operating
Segment and Geographic Information” in Part II, Item 8 of
this Form
10-K.
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Table of Contents
| ITEM 3. | LEGAL PROCEEDINGS |
For a discussion of legal
proceedings, see “Note 28: Contingencies” in Part II,
Item 8 of this Form
10-K.
| ITEM 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS |
None.
PART
II
| ITEM 5. | MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
Information regarding the market
price range of Intel common stock and dividend information may
be found in “Financial Information by Quarter
(Unaudited)” in Part II, Item 8 of this Form
10-K.
As of February 5, 2010, there were
175,000 registered holders of record of Intel’s common
stock. A substantially greater number of holders of Intel common
stock are “street name” or beneficial holders, whose
shares are held of record by banks, brokers, and other financial
institutions.
Issuer
Purchases of Equity Securities
We have an ongoing authorization,
amended in November 2005, from our Board of Directors to
repurchase up to $25 billion in shares of our common stock in
open market or negotiated transactions. As of December 26, 2009,
$5.7 billion remained available for repurchase under the
existing repurchase authorization.
Common stock repurchases under our
authorized plan in each quarter of 2009 were as follows (in
millions, except per share amounts):
|
Total Number of
|
||||||||||||
|
Shares Purchased
|
||||||||||||
|
Total Number of
|
Average Price
|
as Part of Publicly
|
||||||||||
|
Period
|
Shares Purchased | Paid Per Share | Announced Plans | |||||||||
|
December 28, 2008–March 28, 2009
|
— | $ | — | — | ||||||||
|
March 29, 2009–June 27, 2009
|
— | $ | — | — | ||||||||
|
June 28, 2009–September 26, 2009
|
88.2 | $ | 18.95 | 88.2 | ||||||||
|
September 27, 2009–December 26, 2009
|
— | $ | — | — | ||||||||
|
Total
|
88.2 | $ | 18.95 | 88.2 | ||||||||
Our purchases in 2009 were
executed in privately negotiated transactions.
For the majority of restricted
stock units granted, the number of shares issued on the date the
restricted stock units vest is net of the minimum statutory
withholding requirements that we pay in cash to the appropriate
taxing authorities on behalf of our employees. These withheld
shares are not included in the common stock repurchase totals in
the table above. For further discussion, see “Note 24:
Common Stock Repurchases” in Part II, Item 8 of this Form
10-K.
22
Table of Contents
Stock Performance
Graph
The line graph below compares the
cumulative total stockholder return on our common stock with the
cumulative total return of the Dow Jones U.S. Technology Index*
and the Standard & Poor’s S&P 500* Index for
the five years ended December 26, 2009. The graph and table
assume that $100 was invested on December 23, 2004 (the last day
of trading for the year ended December 25, 2004) in each of our
common stock, the Dow Jones U.S. Technology Index, and the
S&P 500 Index, and that all dividends were reinvested.
Cumulative total stockholder returns for our common stock, the
Dow Jones U.S. Technology Index, and the S&P 500 Index are
based on our fiscal year.
Comparison
of Five-Year Cumulative Return for Intel,
the Dow Jones U.S. Technology Index*, and the S&P 500* Index
the Dow Jones U.S. Technology Index*, and the S&P 500* Index
| 2004 | 2005 | 2006 | 2007 | 2008 | 2009 | |||||||||||||||||||
|
Intel Corporation
|
$ | 100 | $ | 107 | $ | 89 | $ | 120 | $ | 65 | $ | 97 | ||||||||||||
|
Dow Jones U.S. Technology Index
|
$ | 100 | $ | 104 | $ | 114 | $ | 134 | $ | 73 | $ | 125 | ||||||||||||
|
S&P 500 Index
|
$ | 100 | $ | 105 | $ | 122 | $ | 129 | $ | 78 | $ | 103 | ||||||||||||
23
Table of Contents
| ITEM 6. | SELECTED FINANCIAL DATA |
|
(In Millions, Except Per Share Amounts)
|
2009 | 2008 | 2007 | 2006 | 2005 1 | |||||||||||||||
|
Net revenue
|
$ | 35,127 | $ | 37,586 | $ | 38,334 | $ | 35,382 | $ | 38,826 | ||||||||||
|
Gross margin
|
$ | 19,561 | $ | 20,844 | $ | 19,904 | $ | 18,218 | $ | 23,049 | ||||||||||
|
Research and development
|
$ | 5,653 | $ | 5,722 | $ | 5,755 | $ | 5,873 | $ | 5,145 | ||||||||||
|
Operating income
|
$ | 5,711 | $ | 8,954 | $ | 8,216 | $ | 5,652 | $ | 12,090 | ||||||||||
|
Net income
|
$ | 4,369 | $ | 5,292 | $ | 6,976 | $ | 5,044 | $ | 8,664 | ||||||||||
|
Earnings per common share
|
||||||||||||||||||||
|
Basic
|
$ | 0.79 | $ | 0.93 | $ | 1.20 | $ | 0.87 | $ | 1.42 | ||||||||||
|
Diluted
|
$ | 0.77 | $ | 0.92 | $ | 1.18 | $ | 0.86 | $ | 1.40 | ||||||||||
|
Weighted average diluted common shares outstanding
|
5,645 | 5,748 | 5,936 | 5,880 | 6,178 | |||||||||||||||
|
Dividends per common share
|
||||||||||||||||||||
|
Declared
|
$ | 0.56 | $ | 0.5475 | $ | 0.45 | $ | 0.40 | $ | 0.32 | ||||||||||
|
Paid
|
$ | 0.56 | $ | 0.5475 | $ | 0.45 | $ | 0.40 | $ | 0.32 | ||||||||||
|
Net cash provided by operating activities
|
$ | 11,170 | $ | 10,926 | $ | 12,625 | $ | 10,632 | $ | 14,851 | ||||||||||
|
Additions to property, plant and equipment
|
$ | 4,515 | $ | 5,197 | $ | 5,000 | $ | 5,860 | $ | 5,871 | ||||||||||
|
(Dollars in Millions)
|
Dec. 26, 2009 | Dec. 27, 2008 2 | Dec. 29, 2007 2 | Dec. 30, 2006 2 | Dec. 31, 2005 2 | |||||||||||||||
|
Property, plant and equipment, net
|
$ | 17,225 | $ | 17,574 | $ | 16,938 | $ | 17,614 | $ | 17,114 | ||||||||||
|
Total assets
|
$ | 53,095 | $ | 50,472 | $ | 55,664 | $ | 48,372 | $ | 48,309 | ||||||||||
|
Long-term debt
|
$ | 2,049 | $ | 1,185 | $ | 1,269 | $ | 1,128 | $ | 1,377 | ||||||||||
|
Stockholders’ equity
|
$ | 41,704 | $ | 39,546 | $ | 43,220 | $ | 37,210 | $ | 36,640 | ||||||||||
|
Employees (in thousands)
|
79.8 | 83.9 | 86.3 | 94.1 | 99.9 | |||||||||||||||
| 1 | Beginning in 2006, we adopted new standards that changed the accounting for employee equity incentive plans requiring the recognition of share-based compensation. | |
| 2 | As adjusted due to changes to the accounting for convertible debt instruments. See “Note 3: Accounting Changes” in Part II, Item 8 of this Form 10-K. |
The ratio of earnings to fixed
charges for each of the five years in the period ended December
26, 2009 was as follows:
| 2009 | 2008 | 2007 | 2006 | 2005 | ||||
|
44x
|
51x | 72x | 50x | 169x |
Fixed charges consist of interest
expense, capitalized interest, and the estimated interest
component of rental expense.
24
Table of Contents
| ITEM 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Our Management’s Discussion
and Analysis of Financial Condition and Results of Operations
(MD&A) is provided in addition to the accompanying
consolidated financial statements and notes to assist readers in
understanding our results of operations, financial condition,
and cash flows. MD&A is organized as follows:
| • | Overview. Discussion of our business and overall analysis of financial and other highlights affecting the company in order to provide context for the remainder of MD&A. | |
| • | Strategy. Overall strategy and the strategy for our major market segments. | |
| • | Critical Accounting Estimates. Accounting estimates that we believe are most important to understanding the assumptions and judgments incorporated in our reported financial results and forecasts. | |
| • | Results of Operations. Analysis of our financial results comparing 2009 to 2008 and comparing 2008 to 2007. At the end of 2009, we reorganized our business to better align our major product groups around the core competencies of Intel architecture and our manufacturing operations. The analysis of our major operating segments’ financial results reflects this reorganization and prior-period analysis, and amounts have been adjusted retrospectively. | |
| • | Business Outlook. Our expectations for selected financial items for 2010. | |
| • | Liquidity and Capital Resources. An analysis of changes in our balance sheets and cash flows, and discussion of our financial condition and potential sources of liquidity. | |
| • | Fair Value of Financial Instruments. Discussion of the methodologies used in the valuation of our financial instruments. | |
| • | Contractual Obligations and Off-Balance-Sheet Arrangements. Overview of contractual obligations and contingent liabilities and commitments outstanding as of December 26, 2009, including expected payment schedule, and explanation of off-balance-sheet arrangements. |
The various sections of this
MD&A contain a number of forward-looking statements. Words
such as “expects,” “goals,”
“plans,” “believes,” “continues,”
“may,” “will,” and variations of such words
and similar expressions are intended to identify such
forward-looking statements. In addition, any statements that
refer to projections of our future financial performance, our
anticipated growth and trends in our businesses, and other
characterizations of future events or circumstances are
forward-looking statements. Such statements are based on our
current expectations and could be affected by the uncertainties
and risk factors described throughout this filing and
particularly in the “Business Outlook” section (see
also “Risk Factors” in Part I, Item 1A of this Form
10-K).
Our
actual results may differ materially, and these
forward-looking
statements do not reflect the potential impact of any
divestitures, mergers, acquisitions, or other business
combinations that had not been completed as of February 22, 2010.
Overview
Our goal is to be the preeminent
provider of semiconductor chips and platforms for the worldwide
digital economy. Our primary component-level products include
microprocessors, chipsets, and flash memory. To better align our
major product groups around the core competencies of Intel
architecture and our manufacturing operations, we completed the
reorganization of our business in the fourth quarter of 2009.
Net revenue, gross margin, operating income, and net income for
the fourth and third quarters of 2009, and fiscal year 2009 and
2008 were as follows:
| Three Months Ended | Twelve Months Ended | |||||||||||||||
|
Dec. 26,
|
Sept. 26,
|
Dec. 26,
|
Dec. 27,
|
|||||||||||||
|
(In Millions)
|
2009 | 2009 | 2009 | 2008 | ||||||||||||
|
Net revenue
|
$ | 10,569 | $ | 9,389 | $ | 35,127 | $ | 37,586 | ||||||||
|
Gross margin
|
$ | 6,840 | $ | 5,404 | $ | 19,561 | $ | 20,844 | ||||||||
|
Operating income
|
$ | 2,497 | $ | 2,579 | $ | 5,711 | $ | 8,954 | ||||||||
|
Net income
|
$ | 2,282 | $ | 1,856 | $ | 4,369 | $ | 5,292 | ||||||||
We started the year in one of the
deepest recessions in our history and emerged from it with
better products and technology in a strengthening market.
Compared to the first quarter of 2008, revenue was down 26% in
the first quarter of 2009, with the second and third quarters
down 15% and 8%, respectively, compared to the second and third
quarters of 2008. However, our fourth quarter results reflected
a strengthening demand across all regions and all product
categories, driven primarily by the notebook market segment.
Fourth quarter revenue of $10.6 billion was up 13% compared to
the third quarter, nearly twice the seasonal average, and up 28%
compared to the fourth quarter of 2008.
25
Table of Contents
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
The launch of our microprocessor
products using 32nm process technology was strong in the fourth
quarter and was one of the contributors to the increase in our
overall microprocessor average selling prices compared to the
third quarter. Our server products also had a strong quarter,
and we saw a demand shift toward higher end products, which also
contributed to the increase in our average selling prices.
Despite these fourth quarter increases, our microprocessor
average selling prices in 2009 were lower than in 2008, driven
primarily by decreases in average selling prices in the notebook
and desktop market segments.
With the launch of our 32nm
products and fourth quarter record shipments of microprocessor
units, we are entering 2010 in a strong competitive position as
we continue delivering improvements in our product offerings
through the “tick-tock” manufacturing process
technology and product development cadence. Additionally, our
Intel Atom processors and related chipsets continue their strong
ramp, with revenue having increased nearly $900 million in 2009
compared to 2008.
We believe our total inventory
levels of $2.9 billion, though up compared to the third quarter
of 2009, are appropriate based on our forecasts. We believe that
OEM component inventories are roughly flat compared to the third
quarter and below levels at the end of 2008. Additionally, our
distributors’ inventories are down compared to the third
quarter.
Our fourth quarter gross margin
percentage of 64.7% set a new quarterly record. The fourth
quarter gross margin percentage compared to the third quarter
was positively impacted by lower inventory write-offs, higher
microprocessor average selling prices and unit sales, the lack
of excess capacity charges, and improving unit costs. In the
first quarter of 2010, we expect our gross margin percentage to
decrease due to higher unit costs as we continue to ramp our
32nm products, as well as seasonally lower microprocessor unit
sales and lower microprocessor average selling prices.
In the fourth quarter of 2009, we
made a $1.25 billion payment to AMD as part of a settlement to
end all outstanding litigation between the companies, including
antitrust litigation and cross-license patent disputes. Also in
the fourth quarter of 2009, the New York Attorney General and
the U.S. Federal Trade Commission filed antitrust suits against
Intel. For further information on our litigation matters, see
“Note 28: Contingencies” in Part II, Item 8 of this
Form
10-K.
From a financial condition
perspective, we ended 2009 with an investment portfolio of $13.9
billion, consisting of cash and cash equivalents, debt
instruments included in trading assets, and short-term
investments. During 2009, we generated $11.2 billion in cash
from operations despite paying the €1.06 billion ($1.447
billion) European Commission fine recorded in the second quarter
of 2009, and the AMD settlement recorded in the fourth quarter
of 2009. During 2009, we issued $2.0 billion of convertible debt
and utilized the proceeds from the convertible debt to
repurchase $1.7 billion of common stock through our common stock
repurchase program. In addition, during 2009 we returned $3.1
billion to stockholders through dividends. In January 2010, our
Board of Directors declared a dividend of $0.1575 per common
share for the first quarter of 2010, an increase of 12.5%
compared to our fourth quarter dividend.
In February 2010, we signed a
definitive agreement with Micron and Numonyx under which Micron
agreed to acquire Numonyx in an
all-stock
transaction. For further information, see “Note 11:
Non-Marketable Equity Investments” in Part II,
Item 8 of this
Form 10-K.
26
Table of Contents
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Strategy
Our goal is to be the preeminent
provider of semiconductor chips and platforms for the worldwide
digital economy. As part of our overall strategy to compete in
each relevant market segment, we use our core competencies in
the design and manufacture of integrated circuits, as well as
our financial resources, global presence, brand recognition, and
software development. We believe that we have the scale,
capacity, and global reach to establish new technologies and
respond to customers’ needs quickly.
Some of our key focus areas are
listed below:
| • | Customer Orientation. Our strategy focuses on developing our next generation of products based on the needs and expectations of our customers. In turn, our products help enable the design and development of new form factors and usage models for businesses and consumers. We offer platforms that incorporate various components designed and configured to work together to provide an optimized computing solution compared to components that are used separately. | |
| • | Architecture and Platforms. We are focusing on improved energy-efficient performance for computing and communications systems and devices. Improved energy-efficient performance involves balancing improved performance with lower power consumption. We continue to develop multi-core microprocessors with an increasing number of cores, which enable improved multitasking and energy efficiency. In addition, to meet the demands of new and evolving netbook, consumer electronics, and various embedded market segments, we offer and are continuing to develop SoC products that are designed to provide improved performance due to higher integration, lower power consumption, and smaller form factors. | |
| • | Silicon and Manufacturing Technology Leadership. Our strategy for developing microprocessors with improved performance is to synchronize the introduction of a new microarchitecture with improvements in silicon process technology. We plan to introduce a new microarchitecture approximately every two years and ramp the next generation of silicon process technology in the intervening years. This coordinated schedule allows us to develop and introduce new products based on a common microarchitecture quickly, without waiting for the next generation of silicon process technology. We refer to this as our “tick-tock” technology development cadence. In keeping with this cadence, we expect to introduce a new microarchitecture using our 32nm process technology in 2010. | |
| • | Strategic Investments. We make investments in companies around the world that we believe will generate financial returns, further our strategic objectives, and support our key business initiatives. Our investments, including those made through our Intel Capital program, generally focus on investing in companies and initiatives to stimulate growth in the digital economy, create new business opportunities for Intel, and expand global markets for our products. Our current investments primarily focus on the following areas: advancing flash memory products, enabling mobile wireless devices, advancing the digital home, enhancing the digital enterprise, advancing high-performance communications infrastructures, and developing the next generation of silicon process technologies. | |
| • | Business Environment and Software. We believe that we are well positioned in the technology industry to help drive innovation, foster collaboration, and promote industry standards that will yield innovation and improved technologies for users. We plan to continue to cultivate new businesses and work to encourage the industry to offer products that take advantage of the latest market trends and usage models. We frequently participate in industry initiatives designed to discuss and agree upon technical specifications and other aspects of technologies that could be adopted as standards by standards-setting organizations. Through our Software and Services Group, we help enable and advance the computing ecosystem by providing development tools and support to help software developers create software applications and operating systems that take advantage of our platforms. Lastly, we believe that the software expertise of our Wind River Software Group in the embedded and handheld market segments will expedite our growth strategy in these market segments. |
We believe that the proliferation
of the Internet, including user demand for premium content and
rich media, drives the need for greater performance in PCs and
servers. Older PCs are increasingly incapable of handling the
tasks that businesses and individual consumers demand, such as
streaming video, web conferencing, online gaming, and other
memory-intensive applications. As these tasks become even more
demanding and require more computing power, we believe that
businesses and individual consumers will need and want to buy
new PCs. We also believe that increased Internet traffic and the
increasing use of cloud computing, in which a group of linked
servers provide a variety of applications and data to users over
the Internet, create a need for greater server infrastructure,
including server products optimized for energy-efficient
performance and virtualization.
27
Table of Contents
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
We believe that the trend of
mobile microprocessor unit growth outpacing the growth in
desktop microprocessor units will continue and that the demand
for mobile microprocessors will result in the increased
development of products with form factors and uses that require
low-power
microprocessors. We also believe that these products will result
in demand that is incremental to that of microprocessors
designed for notebook and desktop computers, as a growing number
of households have multiple devices for different computing
functions. Our silicon and manufacturing technology leadership
allows us to develop low-power microprocessors for these and
other new uses and form factors. We believe that Intel Atom
processors give us the ability to extend Intel architecture and
drive growth in new market segments, including a growing number
of products that require processors specifically designed for
embedded applications, handhelds, consumer electronics devices,
and netbooks. We expect that our Intel Atom Developer Program
will spur new applications that run on products using Intel Atom
processors, which will expedite our growth strategy in these new
market segments. The common elements for products in these new
market segments are low power consumption and the ability to
access the Internet.
We are also focusing on the
development of a new highly scalable, many-core architecture
aimed at parallel processing, the simultaneous use of multiple
cores to execute a computing task. This architecture will
initially be used as a software development platform for
graphics and throughput computing (the need for large amounts of
computing performance consistently over a long period of time).
Over time, this architecture may be utilized in the development
of products for scientific and professional workstations as well
as high-performance computing applications.
In addition, we offer, and are
continuing to develop, advanced NAND flash memory products,
focusing on system-level solutions for Intel architecture
platforms such as solid-state drives. In support of our strategy
to provide advanced flash memory products, we continue to focus
on the development of innovative products designed to address
the needs of customers for reliable, non-volatile, low-cost,
high-density
memory.
Strategy
by Major Market Segment
The strategy for our
PC
Client Group
operating segment is to offer products that
are incorporated into notebook, netbook, and desktop computers
for consumers and businesses. Our strategy for the notebook
computing market segment is to offer notebook PC products
designed to improve performance, battery life, and wireless
connectivity, as well as to allow for the design of smaller,
lighter, and thinner form factors. We are also increasing our
focus on notebook products designed to offer technologies that
provide increased manageability and security, and we continue to
invest in the build-out of WiMAX. Our strategy for the netbook
computing market segment is to offer products that enable
affordable, Internet-focused devices with small form factors.
Our strategy for the desktop computing market segment is to
offer products that provide increased manageability, security,
and energy-efficient performance while lowering total cost of
ownership for businesses. For consumers in the desktop computing
market segment, we also focus on the design of components for
high-end enthusiast PCs and mainstream PCs with rich audio and
video capabilities.
The strategy for our
Data
Center Group
operating segment is to offer products that
provide leading performance, energy-efficiency, and
virtualization technology for server, workstation, and storage
platforms. We are also increasing our focus on products designed
for
high-performance
and mission-critical computing, cloud computing services, and
emerging markets. In addition, we offer wired connectivity
devices that are incorporated into products that make up the
infrastructure for the Internet.
The strategies for our
other
Intel architecture operating segments
include:
| • | driving Intel architecture as a solution for embedded applications by delivering long life-cycle support, software and architectural scalability, and platform integration; | |
| • | continuing to develop and offer products that enable handhelds to deliver digital content and the Internet to users in new ways; and | |
| • | offering products and solutions for use in consumer electronics devices designed to access and share Internet, broadcast, optical media, and personal content through a variety of linked digital devices within the home. |
28
Table of Contents
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Critical
Accounting Estimates
The methods, estimates, and
judgments that we use in applying our accounting policies have a
significant impact on the results that we report in our
consolidated financial statements. Some of our accounting
policies require us to make difficult and subjective judgments,
often as a result of the need to make estimates regarding
matters that are inherently uncertain. Our most critical
accounting estimates include:
| • | the valuation of non-marketable equity investments and the determination of other-than-temporary impairments, which impact gains (losses) on equity method investments, net, or gains (losses) on other equity investments, net when we record impairments; | |
| • | the assessment of recoverability of long-lived assets, which primarily impacts gross margin or operating expenses when we record asset impairments or accelerate their depreciation; | |
| • | the recognition and measurement of current and deferred income taxes (including the measurement of uncertain tax positions), which impact our provision for taxes; and | |
| • | the valuation of inventory, which impacts gross margin. |
Below, we discuss these policies
further, as well as the estimates and judgments involved.
Non-Marketable
Equity Investments
We regularly invest in
non-marketable equity instruments of private companies, which
range from early-stage companies that are often still defining
their strategic direction to more mature companies with
established revenue streams and business models. The carrying
value of our non-marketable equity investment portfolio,
excluding equity derivatives, totaled $3.4 billion as of
December 26, 2009 ($4.1 billion as of December 27, 2008). The
majority of this balance as of December 26, 2009 was
concentrated in companies in the flash memory market segment.
Our flash memory market segment investments include our
investment in IMFT and IM Flash Singapore, LLP (IMFS) of $1.6
billion ($2.1 billion as of December 27, 2008). For further
information, see “Note 11: Non-Marketable Equity
Investments” in Part II, Item 8 of this Form
10-K.
Our non-marketable equity
investments are recorded using adjusted cost basis or the equity
method of accounting, depending on the facts and circumstances
of each investment (see “Note 2: Accounting Policies”
in Part II, Item 8 of this Form
10-K).
Our
non-marketable equity investments are classified in other
long-term assets on the consolidated balance sheets.
Non-marketable equity investments
are inherently risky, and a number of the companies in which we
invest could fail. Their success is dependent on product
development, market acceptance, operational efficiency, and
other key business factors. Depending on their future prospects,
the companies may not be able to raise additional funds when the
funds are needed or they may receive lower valuations, with less
favorable investment terms than in previous financings, and our
investments would likely become impaired. Additionally,
financial markets and credit markets are volatile, which could
negatively affect the prospects of the companies we invest in,
their ability to raise additional capital, and the likelihood of
our being able to realize value in our investments through
liquidity events such as initial public offerings, mergers, and
private sales. For further information about our investment
portfolio risks, see “Risk Factors” in Part I, Item 1A
of this Form
10-K.
We determine the fair value of our
non-marketable equity investments quarterly for disclosure
purposes; however, the investments are recorded at fair value
only when an impairment charge is recognized. We determine the
fair value of our non-marketable equity investments using the
market and income approaches. The market approach includes the
use of financial metrics and ratios of comparable public
companies, such as projected revenues, earnings, and comparable
performance multiples. The selection of comparable companies
requires management judgment and is based on a number of
factors, including comparable companies’ sizes, growth
rates, industries, development stages, and other relevant
factors. The income approach includes the use of a discounted
cash flow model, which may include one or multiple discounted
cash flow scenarios and requires the following significant
estimates for the investee: revenue, based on assumed market
segment size and assumed market segment share; expenses, capital
spending, and other costs; and discount rates based on the risk
profile of comparable companies. Estimates of market segment
size, market segment share, expenses, capital spending, and
other costs are developed by the investee
and/or
Intel
using historical data and available market data. The valuation
of our non-marketable investments also takes into account
variables such as conditions reflected in the capital markets,
recent financing activities by the investees, the
investees’ capital structure, and differences in seniority
and rights associated with the investees’ capital.
29
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MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
For non-marketable equity
investments, the measurement of fair value requires significant
judgment and includes quantitative and qualitative analysis of
identified events or circumstances that impact the fair value of
the investment, such as:
| • | the investee’s revenue and earnings trends relative to pre-defined milestones and overall business prospects; | |
| • | the technological feasibility of the investee’s products and technologies; | |
| • | the general market conditions in the investee’s industry or geographic area, including adverse regulatory or economic changes; | |
| • | factors related to the investee’s ability to remain in business, such as the investee’s liquidity, debt ratios, and the rate at which the investee is using its cash; and | |
| • | the investee’s receipt of additional funding at a lower valuation. |
If the fair value of an investment
is below our carrying value, we determine if the investment is
other than temporarily impaired based on our quantitative and
qualitative analysis, which includes assessing the severity and
duration of the impairment and the likelihood of recovery before
disposal. If the investment is considered to be other than
temporarily impaired, we write down the investment to its fair
value. Impairments of non-marketable equity investments were
$221 million in 2009. Over the past 12 quarters, including the
fourth quarter of 2009, impairments of non-marketable equity
investments ranged from $11 million to $896 million per quarter.
This range included impairments of $896 million during the
fourth quarter of 2008, primarily related to a $762 million
impairment charge on our investment in Clearwire Communications,
LLC (Clearwire LLC).
IMFT/IMFS
IMFT and IMFS are variable
interest entities that are designed to manufacture and sell NAND
products to Intel and Micron at manufacturing cost. We determine
the fair value of our investment in IMFT/IMFS using the income
approach based on a weighted average of multiple discounted cash
flow scenarios of our NAND Solutions Group business, which
requires the use of unobservable inputs. Unobservable inputs
that require us to make our most difficult and subjective
judgments are the estimates for projected revenue and discount
rate. Changes in management estimates for these unobservable
inputs have the most significant effect on the fair value
determination. We did not have an
other-than-temporary
impairment on our investment in IMFT/IMFS in 2009, 2008, or
2007. It is reasonably possible that the estimates used in the
fair value determination could change in the near term, which
could result in an impairment of our investment.
Long-Lived
Assets
We assess the impairment of
long-lived assets when events or changes in circumstances
indicate that the carrying value of the assets or the asset
grouping may not be recoverable. Factors that we consider in
deciding when to perform an impairment review include
significant under-performance of a business or product line in
relation to expectations, significant negative industry or
economic trends, and significant changes or planned changes in
our use of the assets. We measure the recoverability of assets
that will continue to be used in our operations by comparing the
carrying value of the asset grouping to our estimate of the
related total future undiscounted net cash flows. If an asset
grouping’s carrying value is not recoverable through the
related undiscounted cash flows, the asset grouping is
considered to be impaired. The impairment is measured by
comparing the difference between the asset grouping’s
carrying value and its fair value. Fair value is the price that
would be received from selling an asset in an orderly
transaction between market participants at the measurement date.
Long-lived
assets such as goodwill; intangible assets; and property, plant
and equipment are considered non-financial assets, and are
recorded at fair value only when an impairment charge is
recognized.
Impairments of long-lived assets
are determined for groups of assets related to the lowest level
of identifiable independent cash flows. Due to our asset usage
model and the interchangeable nature of our semiconductor
manufacturing capacity, we must make subjective judgments in
determining the independent cash flows that can be related to
specific asset groupings. In addition, as we make manufacturing
process conversions and other factory planning decisions, we
must make subjective judgments regarding the remaining useful
lives of assets, primarily process-specific semiconductor
manufacturing tools and building improvements. When we determine
that the useful lives of assets are shorter than we had
originally estimated, we accelerate the rate of depreciation
over the assets’ new, shorter useful lives. Over the past
12 quarters, including the fourth quarter of 2009, impairments
and accelerated depreciation of long-lived assets ranged from
$40 million to $300 million per quarter. For further discussion
on these asset impairment charges, see “Note 19:
Restructuring and Asset Impairment Charges” in Part II,
Item 8 of this Form
10-K.
30
Table of Contents
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Income
Taxes
We must make estimates and
judgments in determining income tax expense for financial
statement purposes. These estimates and judgments occur in the
calculation of tax credits, benefits, and deductions, and in the
calculation of certain tax assets and liabilities that arise
from differences in the timing of recognition of revenue and
expense for tax and financial statement purposes, as well as the
interest and penalties related to uncertain tax positions.
Significant changes in these estimates may result in an increase
or decrease to our tax provision in a subsequent period.
We must assess the likelihood that
we will be able to recover our deferred tax assets. If recovery
is not likely, we must increase our provision for taxes by
recording a valuation allowance against the deferred tax assets
that we estimate will not ultimately be recoverable. We believe
that we will ultimately recover a majority of the deferred tax
assets recorded on our consolidated balance sheets. However,
should there be a change in our ability to recover our deferred
tax assets, our tax provision would increase in the period in
which we determined that the recovery was not likely. Recovery
of a portion of our deferred tax assets is impacted by
management’s plans with respect to holding or disposing of
certain investments; therefore, changes in management’s
plans with respect to holding or disposing of investments could
affect our future provision for taxes.
The calculation of our tax
liabilities involves dealing with uncertainties in the
application of complex tax regulations. We recognize liabilities
for uncertain tax positions based on a two-step process. The
first step is to evaluate the tax position for recognition by
determining if the weight of available evidence indicates that
it is more likely than not that the position will be sustained
on audit, including resolution of related appeals or litigation
processes, if any. If we determine that a tax position will more
likely than not be sustained on audit, the second step requires
us to estimate and measure the tax benefit as the largest amount
that is more than 50% likely to be realized upon ultimate
settlement. It is inherently difficult and subjective to
estimate such amounts, as we have to determine the probability
of various possible outcomes. We
re-evaluate
these uncertain tax positions on a quarterly basis. This
evaluation is based on factors such as changes in facts or
circumstances, changes in tax law, new audit activity, and
effectively settled issues. Determining whether an uncertain tax
position is effectively settled requires judgment. Such a change
in recognition or measurement would result in the recognition of
a tax benefit or an additional charge to the tax provision.
Inventory
The valuation of inventory
requires us to estimate obsolete or excess inventory as well as
inventory that is not of saleable quality. The determination of
obsolete or excess inventory requires us to estimate the future
demand for our products. The estimate of future demand is
compared to
work-in-process
and finished goods inventory levels to determine the amount, if
any, of obsolete or excess inventory. As of December 26, 2009,
we had total
work-in-process
inventory of $1,469 million and total finished goods inventory
of $1,029 million. The demand forecast is included in the
development of our short-term manufacturing plans to enable
consistency between inventory valuation and build decisions.
Product-specific facts and circumstances reviewed in the
inventory valuation process include a review of the customer
base, the stage of the product life cycle of our products,
consumer confidence, and customer acceptance of our products, as
well as an assessment of the selling price in relation to the
product cost. If our demand forecast for specific products is
greater than actual demand and we fail to reduce manufacturing
output accordingly, we could be required to write off inventory,
which would negatively impact our gross margin.
In order to determine what costs
can be included in the valuation of inventory, we must determine
normal capacity at our manufacturing and assembly and test
facilities, based on historical loadings of wafers compared to
total available capacity. If the factory loadings are below the
established normal capacity level, a portion of our
manufacturing overhead costs would not be included in the cost
of inventory, and therefore would be recognized as cost of sales
in that period, which would negatively impact our gross margin.
We refer to these costs as excess capacity charges. Over the
past 12 quarters, excess capacity charges ranged from zero to
$680 million per quarter.
Accounting
Changes and Recent Accounting Standards
For a description of accounting
changes and recent accounting standards, including the expected
dates of adoption and estimated effects, if any, on our
consolidated financial statements, see “Note 3: Accounting
Changes” and “Note 4: Recent Accounting
Standards” in Part II, Item 8 of this Form
10-K.
31
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MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Results
of Operations
The following table sets forth
certain consolidated statements of operations data as a
percentage of net revenue for the periods indicated:
| 2009 | 2008 | 2007 | ||||||||||||||||||||||
|
% of
|
% of
|
% of
|
||||||||||||||||||||||
|
(Dollars in Millions, Except Per Share Amounts)
|
Dollars | Revenue | Dollars | Revenue | Dollars | Revenue | ||||||||||||||||||
|
Net revenue
|
$ | 35,127 | 100.0 | % | $ | 37,586 | 100.0 | % | $ | 38,334 | 100.0 | % | ||||||||||||
|
Cost of sales
|
15,566 | 44.3 | % | 16,742 | 44.5 | % | 18,430 | 48.1 | % | |||||||||||||||
|
Gross margin
|
19,561 | 55.7 | % | 20,844 | 55.5 | % | 19,904 | 51.9 | % | |||||||||||||||
|
Research and development
|
5,653 | 16.1 | % | 5,722 | 15.2 | % | 5,755 | 15.0 | % | |||||||||||||||
|
Marketing, general and administrative
|
7,931 | 22.6 | % | 5,452 | 14.6 | % | 5,401 | 14.1 | % | |||||||||||||||
|
Restructuring and asset impairment charges
|
231 | 0.6 | % | 710 | 1.9 | % | 516 | 1.3 | % | |||||||||||||||
|
Amortization of acquisition-related intangibles
|
35 | 0.1 | % | 6 | — | % | 16 | 0.1 | % | |||||||||||||||
|
Operating income
|
5,711 | 16.3 | % | 8,954 | 23.8 | % | 8,216 | 21.4 | % | |||||||||||||||
|
Gains (losses) on equity method investments, net
|
(147 | ) | (0.4 | )% | (1,380 | ) | (3.7 | )% | 3 | — | % | |||||||||||||
|
Gains (losses) on other equity investments, net
|
(23 | ) | (0.1 | )% | (376 | ) | (1.0 | )% | 154 | 0.4 | % | |||||||||||||
|
Interest and other, net
|
163 | 0.4 | % | 488 | 1.3 | % | 793 | 2.1 | % | |||||||||||||||
|
Income before taxes
|
5,704 | 16.2 | % | 7,686 | 20.4 | % | 9,166 | 23.9 | % | |||||||||||||||
|
Provision for taxes
|
1,335 | 3.8 | % | 2,394 | 6.3 | % | 2,190 | 5.7 | % | |||||||||||||||
|
Net income
|
$ | 4,369 | 12.4 | % | $ | 5,292 | 14.1 | % | $ | 6,976 | 18.2 | % | ||||||||||||
|
Diluted earnings per common share
|
$ | 0.77 | $ | 0.92 | $ | 1.18 | ||||||||||||||||||
The following graphs set forth
revenue information of geographic regions for the periods
indicated:
Geographic
Breakdown of Revenue
Our net revenue for 2009 decreased
7% compared to 2008. Average selling prices for microprocessors
and chipsets decreased and microprocessor and chipset unit sales
increased, compared to 2008, primarily due to the ramp of Intel
Atom processors and chipsets, which generally have lower average
selling prices than our other microprocessor and chipset
products. Revenue from the sale of NOR flash memory products and
communications products declined $740 million, primarily as a
result of business divestitures. Additionally, an increase in
revenue from the sale of NAND flash memory products was mostly
offset by a decrease in revenue from the sale of wireless
connectivity products.
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MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Revenue in the Asia-Pacific region
increased 2% compared to 2008, while revenue in the Europe,
Japan, and Americas regions decreased by 26%, 15%, and 4%,
respectively, compared to 2008.
Our overall gross margin dollars
for 2009 decreased $1.3 billion, or 6%, compared to 2008. Our
overall gross margin percentage increased slightly to 55.7% in
2009 from 55.5% in 2008. The slight increase in gross margin
percentage was primarily attributable to the gross margin
percentage increases in the NAND Solutions Group and Data Center
Group operating segments offset by the gross margin percentage
decrease in the PC Client Group operating segment. We derived a
substantial majority of our overall gross margin dollars in
2009, and most of our overall gross margin dollars in 2008, from
the sales of microprocessors in the PC Client Group and Data
Center Group operating segments. See “Business
Outlook” for a discussion of gross margin expectations.
Our net revenue for 2008 decreased
2% compared to 2007. Higher revenue from the sale of
microprocessors and chipsets was more than offset by the impacts
of divestitures and lower revenue from the sale of motherboards.
Revenue from the sale of NOR flash memory and cellular baseband
products declined $1.7 billion, primarily as a result of
divestiture of these businesses. Revenue in the Americas region
decreased 4% in 2008 compared to 2007. Revenue in the
Asia-Pacific, Europe, and Japan regions remained approximately
flat in 2008 compared to 2007.
Our overall gross margin dollars
for 2008 were $20.8 billion, an increase of $940 million, or 5%,
compared to 2007. Our overall gross margin percentage increased
to 55.5% in 2008 from 51.9% in 2007. The increase in gross
margin percentage was primarily attributable to the gross margin
percentage increase in the PC Client Group operating segment
and, to a lesser extent, the gross margin percentage increase in
the Data Center Group operating segment. In addition, our gross
margin percentage increased due to the divestiture of our NOR
flash memory business. We derived most of our overall gross
margin dollars in 2008 and 2007 from the sale of microprocessors
in the PC Client Group and Data Center Group operating segments.
PC
Client Group
The revenue and operating income
for the PC Client Group (PCCG) for the three years ended
December 26, 2009 were as follows:
|
(In Millions)
|
2009 | 2008 | 2007 | |||||||||
|
Microprocessor revenue
|
$ | 19,914 | $ | 21,516 | $ | 21,053 | ||||||
|
Chipset, motherboard, and other revenue
|
6,261 | 6,450 | 6,077 | |||||||||
|
Net revenue
|
$ | 26,175 | $ | 27,966 | $ | 27,130 | ||||||
|
Operating income
|
$ | 7,585 | $ | 9,419 | $ | 8,535 | ||||||
Net revenue for the PCCG operating
segment decreased by $1.8 billion, or 6%, in 2009 compared to
2008. Microprocessors and chipsets within PCCG include those
designed for the notebook, netbook, and desktop computing market
segments. The decrease in microprocessor revenue was primarily
due to lower notebook microprocessor average selling prices, and
lower desktop microprocessor unit sales and average selling
prices. These decreases were partially offset by a significant
increase in netbook microprocessor unit sales due to the ramp of
Intel Atom processors. The decrease in chipset, motherboard, and
other revenue was primarily due to lower chipset average selling
prices and lower unit sales of wireless connectivity products,
partially offset by higher chipset unit sales.
Operating income decreased by $1.8
billion, or 19%, in 2009 compared to 2008. The decrease was
primarily due to lower revenue and approximately $810 million of
higher factory underutilization charges, partially offset by
lower chipset and microprocessor unit costs.
For 2008, net revenue for the PCCG
operating segment increased slightly by $836 million, or 3%,
compared to 2007. The increase in microprocessor revenue was
primarily due to significantly higher notebook microprocessor
unit sales, partially offset by significantly lower notebook
microprocessor average selling prices. In addition, lower
desktop microprocessor unit sales were partially offset by the
ramp of Intel Atom processors. The increase in chipset,
motherboard, and other revenue was primarily due to higher
chipset unit sales, partially offset by lower desktop
motherboard unit sales.
Operating income increased by $884
million, or 10%, in 2008 compared to 2007. The increase in
operating income was primarily due to lower microprocessor and
chipset unit costs, partially offset by lower desktop
microprocessor and chipset revenue and higher operating
expenses. In addition, approximately $230 million of lower
start-up
costs were offset by sales in 2007 of desktop microprocessors
that had previously been written off, and higher write-offs of
desktop microprocessor inventory in 2008.
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MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Data
Center Group
The revenue and operating income
for the Data Center Group (DCG) for the three years ended
December 26, 2009 were as follows:
|
(In Millions)
|
2009 | 2008 | 2007 | |||||||||
|
Microprocessor revenue
|
$ | 5,301 | $ | 5,126 | $ | 4,796 | ||||||
|
Chipset, motherboard, and other revenue
|
1,149 | 1,464 | 1,659 | |||||||||
|
Net revenue
|
$ | 6,450 | $ | 6,590 | $ | 6,455 | ||||||
|
Operating income
|
$ | 2,299 | $ | 2,135 | $ | 2,105 | ||||||
Net revenue for the DCG operating
segment decreased slightly by $140 million, or 2%, in 2009
compared to 2008. The increase in microprocessor revenue was due
to higher microprocessor average selling prices, partially
offset by lower microprocessor unit sales. The decrease in
chipset, motherboard, and other revenue was primarily due to
lower chipset average selling prices.
Operating income increased by $164
million, or 8%, in 2009 compared to 2008. The increase in
operating income was primarily due to higher microprocessor
revenue and lower operating expenses, partially offset by
approximately $150 million of higher
start-up
costs as well as lower chipset revenue.
For 2008, net revenue for the DCG
operating segment increased slightly by $135 million, or 2%,
compared to 2007. The increase in microprocessor revenue was due
to higher microprocessor average selling prices. The decrease in
chipset, motherboard, and other revenue was primarily due to
lower motherboard unit sales.
Operating income was flat in 2008
compared to 2007. Higher revenue was mostly offset by higher
operating expenses.
Other
Intel Architecture Operating Segments
The revenue and operating income
for the other Intel architecture operating segments (Other IA)
for the three years ended December 26, 2009 were as follows:
|
(In Millions)
|
2009 | 2008 | 2007 | |||||||||
|
Net revenue
|
$ | 1,402 | $ | 1,763 | $ | 1,908 | ||||||
|
Operating income (loss)
|
$ | (179 | ) | $ | (63 | ) | $ | 47 | ||||
Net revenue for the Other IA
operating segments decreased by $361 million, or 20%, in 2009
compared to 2008, and operating loss for the Other IA operating
segments increased by $116 million in 2009 compared to 2008. The
changes were primarily due to lower revenue from the sale of
communications products within the Embedded and Communications
Group (ECG), primarily as a result of business divestitures.
For 2008, net revenue for the
Other IA operating segments decreased by $145 million, or 8%,
compared to 2007. The decrease was primarily due to lower
revenue from the sale of communications products within ECG,
primarily as a result of business divestitures, partially offset
by higher ECG microprocessor unit sales. Operating income (loss)
decreased by $110 million in 2008 compared to 2007. The decrease
was primarily due to higher operating expenses within the
Ultra-Mobility Group and, to a lesser extent, within the Digital
Home Group.
34
Table of Contents
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Operating
Expenses
Operating expenses for the three
years ended December 26, 2009 were as follows:
|
(In Millions)
|
2009 | 2008 | 2007 | |||||||||
|
Research and development
|
$ | 5,653 | $ | 5,722 | $ | 5,755 | ||||||
|
Marketing, general and administrative
|
$ | 7,931 | $ | 5,452 | $ | 5,401 | ||||||
|
Restructuring and asset impairment charges
|
$ | 231 | $ | 710 | $ | 516 | ||||||
|
Amortization of acquisition-related intangibles
|
$ | 35 | $ | 6 | $ | 16 | ||||||
Research and
Development.
R&D
spending was flat in 2009 compared to 2008, and was flat in 2008
compared to 2007. In 2009 compared to 2008, we had lower process
development costs as we transitioned from R&D to
manufacturing using our 32nm process technology. This decrease
was offset by higher profit-dependent compensation expenses. In
2008 compared to 2007, we had lower product development expenses
resulting from our divested businesses and slightly lower
profit-dependent compensation. These decreases were offset by
higher process development costs as we transitioned from
manufacturing
start-up
costs related to our 45nm process technology to R&D of our
32nm process technology.
Marketing, General and
Administrative.
Marketing,
general and administrative expenses increased $2.5 billion, or
45%, in 2009 compared to 2008, and were flat in 2008 compared to
2007. The increase in 2009 compared to 2008 was due to the
charge of $1.447 billion incurred as a result of the fine
imposed by the European Commission (EC) and the $1.25 billion
payment to AMD as part of a settlement agreement (see “Note
28: Contingencies” in Part II, Item 8 of this Form
10-K).
To a
lesser extent, we had higher profit-dependent compensation
expenses that were partially offset by lower advertising
expenses, including cooperative advertising expenses. In 2008
compared to 2007, we had higher legal expenses that were offset
by lower profit-dependent compensation and lower advertising
expenses.
R&D, combined with marketing,
general and administrative expenses, were 39% of net revenue in
2009, 30% of net revenue in 2008, and 29% of net revenue in 2007.
Restructuring and Asset
Impairment
Charges.
The
following table summarizes restructuring and asset impairment
charges by plan for the three years ended December 26, 2009:
|
(In Millions)
|
2009 | 2008 | 2007 | |||||||||
|
2009 restructuring program
|
$ | 215 | $ | — | $ | — | ||||||
|
2008 NAND plan
|
— | 215 | — | |||||||||
|
2006 efficiency program
|
16 | 495 | 516 | |||||||||
|
Total restructuring and asset impairment charges
|
$ | 231 | $ | 710 | $ | 516 | ||||||
2009
Restructuring Program
In the first quarter of 2009,
management approved plans to restructure some of our
manufacturing and assembly and test operations. These plans
included closing two assembly and test facilities in Malaysia,
one facility in the Philippines, and one facility in China;
stopping production at a 200mm wafer fabrication facility in
Oregon; and ending production at our 200mm wafer fabrication
facility in California. We do not expect significant future
charges related to the 2009 plan. The following table summarizes
charges for the 2009 restructuring plan during 2009:
|
(In Millions)
|
2009 | |||
|
Employee severance and benefit arrangements
|
$ | 208 | ||
|
Asset impairments
|
7 | |||
|
Total restructuring and asset impairment charges
|
$ | 215 | ||
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Table of Contents
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
The following table summarizes the
restructuring and asset impairment activity for the 2009
restructuring plan during 2009:
|
Employee
|
||||||||||||
|
Severance
|
Asset
|
|||||||||||
|
(In Millions)
|
and Benefits | Impairments | Total | |||||||||
|
Accrued restructuring balance as of December 27, 2008
|
$ | — | $ | — | $ | — | ||||||
|
Additional accruals
|
223 | 7 | 230 | |||||||||
|
Adjustments
|
(15 | ) | — | (15 | ) | |||||||
|
Cash payments
|
(182 | ) | — | (182 | ) | |||||||
|
Non-cash settlements
|
— | (7 | ) | (7 | ) | |||||||
|
Accrued restructuring balance as of December 26, 2009
|
$ | 26 | $ | — | $ | 26 | ||||||
The net charges above include $208
million that relate to employee severance and benefit
arrangements for 6,500 employees, of which 5,400 employees had
left the company as of December 26, 2009. Most of these employee
actions occurred within manufacturing.
We estimate that these employee
severance and benefit charges will result in gross annual
savings of approximately $290 million. The substantial majority
of the savings will be realized within cost of sales.
2008 NAND
Plan
In the fourth quarter of 2008,
management approved a plan with Micron to discontinue the supply
of NAND flash memory from the 200mm facility within the IMFT
manufacturing network. The agreement resulted in a $215 million
restructuring charge, primarily related to the IMFT 200mm supply
agreement. The restructuring charge resulted in a reduction of
our investment in IMFT/IMFS of $184 million, a cash payment to
Micron of $24 million, and other cash payments of $7 million.
The 2008 NAND plan was completed at the end of 2008.
2006
Efficiency Program
In the third quarter of 2006,
management approved several actions as part of a restructuring
plan designed to improve operational efficiency and financial
results. The following table summarizes charges for the 2006
efficiency program for the three years ended December 26, 2009:
|
(In Millions)
|
2009 | 2008 | 2007 | |||||||||
|
Employee severance and benefit arrangements
|
$ | 8 | $ | 151 | $ | 289 | ||||||
|
Asset impairments
|
8 | 344 | 227 | |||||||||
|
Total restructuring and asset impairment charges
|
$ | 16 | $ | 495 | $ | 516 | ||||||
During 2006, as part of our
assessment of our worldwide manufacturing capacity operations,
we placed for sale our fabrication facility in Colorado Springs,
Colorado. As a result of placing the facility for sale, in 2006
we recorded a $214 million impairment charge to write down to
fair value the land, building, and equipment. We incurred $54
million in additional asset impairment charges as a result of
market conditions related to the Colorado Springs facility
during 2007 and additional charges in 2008. We sold the Colorado
Springs facility in 2009.
In addition, during 2007 we
recorded land and building write-downs related to certain
facilities in Santa Clara, California. We also incurred $85
million in asset impairment charges related to assets that we
sold in conjunction with the divestiture of our NOR flash memory
business in 2007 and an additional $275 million in 2008. We
determined the impairment charges based on the fair value, less
selling costs, that we expected to receive upon completion of
the divestiture in 2007, and determined the impairment charges
using the revised fair value of the equity and note receivable
that we received upon completion of the divestiture, less
selling costs, in 2008. For further information on this
divestiture, see “Note 16: Divestitures” in Part II,
Item 8 of this Form
10-K.
36
Table of Contents
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
The following table summarizes the
restructuring and asset impairment activity for the 2006
efficiency program during 2008 and 2009:
|
Employee
|
||||||||||||
|
Severance
|
Asset
|
|||||||||||
|
(In Millions)
|
and Benefits | Impairments | Total | |||||||||
|
Accrued restructuring balance as of December 29, 2007
|
$ | 127 | $ | — | $ | 127 | ||||||
|
Additional accruals
|
167 | 344 | 511 | |||||||||
|
Adjustments
|
(16 | ) | — | (16 | ) | |||||||
|
Cash payments
|
(221 | ) | — | (221 | ) | |||||||
|
Non-cash settlements
|
— | (344 | ) | (344 | ) | |||||||
|
Accrued restructuring balance as of December 27, 2008
|
$ | 57 | $ | — | $ | 57 | ||||||
|
Additional accruals
|
18 | 8 | 26 | |||||||||
|
Adjustments
|
(10 | ) | — | (10 | ) | |||||||
|
Cash payments
|
(65 | ) | — | (65 | ) | |||||||
|
Non-cash settlements
|
— | (8 | ) | (8 | ) | |||||||
|
Accrued restructuring balance as of December 26, 2009
|
$ | — | $ | — | $ | — | ||||||
We recorded the additional
accruals, net of adjustments, as restructuring and asset
impairment charges. The 2006 efficiency plan is complete.
From the third quarter of 2006
through 2009, we incurred a total of $1.6 billion in
restructuring and asset impairment charges related to this
program. These charges included a total of $686 million related
to employee severance and benefit arrangements for 11,300
employees. A substantial majority of these employee actions
affected employees within manufacturing, information technology,
and marketing. The restructuring and asset impairment charges
also included $896 million in asset impairment charges.
We estimate that the total
employee severance and benefit charges incurred as part of the
2006 efficiency program result in gross annual savings of
approximately $1.1 billion. We are realizing these savings
within marketing, general and administrative; cost of sales; and
R&D.
Amortization of
acquisition-related
intangibles.
The
increase of $29 million was due to amortization of intangibles
primarily related to the acquisition of Wind River Systems
completed in the third quarter of 2009. See “Note 15:
Acquisitions” in Part II, Item 8 of this Form
10-K.
Share-Based
Compensation
Share-based compensation totaled
$889 million in 2009, $851 million in 2008, and $952 million in
2007. Share-based compensation was included in cost of sales and
operating expenses.
As of December 26, 2009,
unrecognized share-based compensation costs and the weighted
average periods over which the costs are expected to be
recognized were as follows:
|
Unrecognized
|
||||||
|
Share-Based
|
Weighted
|
|||||
|
Compensation
|
Average
|
|||||
|
(Dollars in Millions)
|
Costs | Period | ||||
|
Stock options
|
$ | 282 | 1.3 years | |||
|
Restricted stock units
|
$ | 1,196 | 1.4 years | |||
|
Stock purchase plan
|
$ | 9 | 1 month | |||
37
Table of Contents
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Gains
(Losses) on Equity Method Investments, Net
Gains (losses) on equity method
investments, net were as follows:
|
(In Millions)
|
2009 | 2008 | 2007 | |||||||||
|
Equity method losses, net
|
$ | (131 | ) | $ | (316 | ) | $ | (103 | ) | |||
|
Impairment charges
|
(42 | ) | (1,077 | ) | (28 | ) | ||||||
|
Other, net
|
26 | 13 | 134 | |||||||||
|
Total gains (losses) on equity method investments, net
|
$ | (147 | ) | $ | (1,380 | ) | $ | 3 | ||||
Impairment charges in 2008
included a $762 million impairment charge recognized on our
investment in Clearwire LLC and a $250 million impairment charge
recognized on our investment in Numonyx. We recognized the
impairment charge on our investment in Clearwire LLC to write
down our investment to its fair value, primarily due to the fair
value being significantly lower than the cost basis of our
investment in the fourth quarter of 2008. The impairment charge
on our investment in Numonyx was due to a general decline in
2008 in the NOR flash memory market segment. Our equity method
losses were primarily related to Numonyx ($31 million in 2009
and $87 million in 2008), Clearwire LLC ($27 million in 2009),
and Clearwire Corporation ($184 million in 2008 and $104 million
in 2007). See “Note 11:
Non-Marketable
Equity Investments” in Part II, Item 8 of this Form
10-K.
During
2007, we recognized $110 million of income due to the
reorganization of one of our investments, included within
“Other, net” in the table above.
Gains
(Losses) on Other Equity Investments, Net
Gains (losses) on other equity
investments, net were as follows:
|
(In Millions)
|
2009 | 2008 | 2007 | |||||||||
|
Impairment charges
|
$ | (179 | ) | $ | (455 | ) | $ | (92 | ) | |||
|
Gains on sales, net
|
55 | 60 | 204 | |||||||||
|
Other, net
|
101 | 19 | 42 | |||||||||
|
Total gains (losses) on other equity investments, net
|
$ | (23 | ) | $ | (376 | ) | $ | 154 | ||||
Impairment charges in 2008
included a $176 million impairment charge recognized on our
investment in Clearwire Corporation and $97 million of
impairment charges on our investment in Micron. The impairment
charge on our investment in Clearwire Corporation was due to the
fair value being significantly lower than the cost basis of our
investment at the end of the fourth quarter of 2008. The
impairment charges on our investment in Micron reflected the
difference between our cost basis and the fair value of our
investment in Micron at the end of the second and third quarters
of 2008. In addition, we recognized higher gains on equity
derivatives in 2009 compared to 2008.
Interest
and Other, Net
The components of interest and
other, net were as follows:
|
(In Millions)
|
2009 | 2008 | 2007 | |||||||||
|
Interest income
|
$ | 168 | $ | 592 | $ | 804 | ||||||
|
Interest expense
|
(1 | ) | (8 | ) | (15 | ) | ||||||
|
Other, net
|
(4 | ) | (96 | ) | 4 | |||||||
|
Total interest and other, net
|
$ | 163 | $ | 488 | $ | 793 | ||||||
We recognized lower interest
income in 2009 compared to 2008 as a result of lower interest
rates. The average interest rate earned during 2009 decreased by
2.4 percentage points compared to 2008. In addition, lower gains
on divestitures (zero in 2009 and $59 million in 2008) were more
than offset by $70 million of fair value gains in 2009 on our
trading assets, compared to $130 million of fair value losses in
2008.
38
Table of Contents
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Interest and other, net decreased
in 2008 compared to 2007 due to lower interest income and fair
value losses that we experienced in 2008 on our trading assets.
Interest income was lower in 2008 compared to 2007 as a result
of lower interest rates, partially offset by higher average
investment balances. The average interest rate earned during
2008 decreased by 1.9 percentage points compared to 2007.
Provision
for Taxes
Our provision for taxes and
effective tax rate were as follows:
|
(Dollars in Millions)
|
2009 | 2008 | 2007 | |||||||||
|
Income before taxes
|
$ | 5,704 | $ | 7,686 | $ | 9,166 | ||||||
|
Provision for taxes
|
$ | 1,335 | $ | 2,394 | $ | 2,190 | ||||||
|
Effective tax rate
|
23.4 | % | 31.1 | % | 23.9 | % | ||||||
We generated a higher percentage
of our profits from lower tax jurisdictions in 2009 compared to
2008. In addition, the 2009 tax rate was positively impacted by
the reversal of previously accrued taxes of $366 million on
settlements, effective settlements, and related remeasurements
of various uncertain tax positions compared to a reversal of
$103 million for such matters in 2008. These impacts were
partially offset by the recognition of the EC fine of $1.447
billion with no associated tax benefit. In addition, our 2008
effective tax rate was negatively impacted by the recognition of
a valuation allowance on our deferred tax assets due to the
uncertainty of realizing tax benefits related to impairments of
our equity investments.
Our effective income tax rate
increased in 2008 compared to 2007, primarily due to the
recognition of a valuation allowance on our deferred tax assets
due to the uncertainty of realizing tax benefits related to
impairments of our equity investments. In addition, the rate
increased in 2008 compared to 2007, due to the reversal of
previously accrued taxes of $481 million (including $50 million
of accrued interest) related to settlements with the U.S.
Internal Revenue Service (IRS) in the first and second quarters
of 2007.
Business
Outlook
Our future results of operations
and the topics of other forward-looking statements contained in
this Form
10-K,
including this MD&A, involve a number of risks and
uncertainties—in particular:
| • | changes in business and economic conditions; | |
| • | revenue and pricing; | |
| • | gross margin and costs; | |
| • | pending legal proceedings; | |
| • | our effective tax rate (including changes in unrecognized tax positions); | |
| • | marketing, general and administrative expenses; | |
| • | our goals and strategies; | |
| • | new product introductions; |
| • | plans to cultivate new businesses; | |
| • | R&D expenses; | |
| • | divestitures or investments; | |
| • | net gains (losses) from equity investments; | |
| • | interest and other, net; | |
| • | capital spending; | |
| • | depreciation; and | |
| • | impairment of investments. |
In addition to the various
important factors discussed above, a number of other important
factors could cause actual results to differ materially from our
expectations. See the risks described in “Risk
Factors” in Part I, Item 1A of this Form
10-K.
Our expectations for 2010 are as
follows:
| • | Gross Margin Percentage. 61%, plus or minus three points. The 61% midpoint is higher than our 2009 gross margin of 55.7%, primarily due to lower manufacturing period costs, mostly factory underutilization charges. In addition, we expect lower unit costs and higher unit sales, partially offset by lower average selling prices. | |
| • | Total Spending. We expect spending on R&D, plus marketing, general and administrative expenses, in 2010 to be approximately $11.8 billion, plus or minus $100 million, compared to $13.6 billion in 2009. Total spending in 2009 included charges of $1.447 billion incurred as a result of the fine imposed by the EC and $1.25 billion as a result of our legal settlement with AMD. | |
| • | Research and Development Spending. Approximately $6.2 billion compared to $5.7 billion in 2009. | |
| • | Capital Spending. Approximately $4.8 billion, plus or minus $100 million, compared to $4.5 billion in 2009. | |
| • | Depreciation. Approximately $4.4 billion, plus or minus $100 million, compared to $4.7 billion in 2009. | |
| • | Tax Rate. Approximately 30%, compared to 23% in 2009. The estimated effective tax rate is based on tax law in effect as of December 26, 2009 and expected income. |
39
Table of Contents
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Status of
Business Outlook
We expect that our corporate
representatives will, from time to time, meet privately with
investors, investment analysts, the media, and others, and may
reiterate the forward-looking statements contained in the
“Business Outlook” section and elsewhere in this Form
10-K,
including any such statements that are incorporated by reference
in this Form
10-K.
At the
same time, we will keep this Form
10-K
and our
most current business outlook publicly available on our Investor
Relations web site at
www.intc.com
. The public can
continue to rely on the business outlook published on the web
site as representing our current expectations on matters
covered, unless we publish a notice stating otherwise. The
statements in the “Business Outlook” section and other
forward-looking statements in this Form
10-K
are
subject to revision during the course of the year in our
quarterly earnings releases and SEC filings and at other times.
From the close of business on
February 26, 2010 until our quarterly earnings release is
published, presently scheduled for April 13, 2010, we will
observe a “quiet period.” During the quiet period, the
“Business Outlook” section and other forward-looking
statements first published in our Form
8-K
filed on
January 14, 2010, as reiterated or updated as applicable in this
Form
10-K,
should be considered historical, speaking as of prior to the
quiet period only and not subject to update. During the quiet
period, our representatives will not comment on our business
outlook or our financial results or expectations. The exact
timing and duration of the routine quiet period, and any others
that we utilize from time to time, may vary at our discretion.
40
Table of Contents
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Liquidity
and Capital Resources
|
(Dollars in Millions)
|
Dec. 26, 2009 | Dec. 27, 2008 | ||||||
|
Cash and cash equivalents, debt instruments included in trading
assets, and short-term investments
|
$ | 13,920 | $ | 11,544 | ||||
|
Loans receivable and other long-term investments
|
$ | 4,528 | $ | 2,924 | ||||
|
Short-term and long-term debt
|
$ | 2,221 | $ | 1,287 | ||||
|
Debt as % of stockholders’ equity
|
5.3 | % | 3.3 | % | ||||
Sources
and Uses of Cash
(In Millions)
(In Millions)
In summary, our cash flows were as
follows:
|
(In Millions)
|
2009 | 2008 | 2007 | |||||||||
|
Net cash provided by operating activities
|
$ | 11,170 | $ | 10,926 | $ | 12,625 | ||||||
|
Net cash used for investing activities
|
(7,965 | ) | (5,865 | ) | (9,926 | ) | ||||||
|
Net cash used for financing activities
|
(2,568 | ) | (9,018 | ) | (1,990 | ) | ||||||
|
Net increase (decrease) in cash and cash equivalents
|
$ | 637 | $ | (3,957 | ) | $ | 709 | |||||
41
Table of Contents
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Operating
Activities
Cash provided by operating
activities is net income adjusted for certain non-cash items and
changes in certain assets and liabilities. For 2009 compared to
2008, the $244 million increase in cash provided by operating
activities was primarily due to changes in assets and
liabilities, partially offset by lower net income. Income taxes
paid, net of refunds in 2009 compared to 2008 were
$3.1 billion lower on lower income before taxes and timing
of payments.
Changes in assets and liabilities
for 2009 compared to 2008 included the following:
| • | Inventories decreased due to lower chipset and raw materials inventory. | |
| • | Accounts payable decreased due to timing of payments, despite higher production spending. | |
| • | Accounts receivable increased due to higher revenue and a higher proportion of sales at the end of the fourth quarter of 2009. | |
| • | Accrued compensation and benefits increased due to higher accrued profit-dependent compensation. |
For 2009 and 2008, our two largest
customers accounted for 38% of our net revenue, with one of
these customers accounting for 21% of our net revenue in 2009
(20% in 2008), and another customer accounting for 17% of our
net revenue in 2009 (18% in 2008). These two largest customers
accounted for 41% of our accounts receivable as of December 26,
2009 and December 27, 2008.
For 2008 compared to 2007, the
$1.7 billion decrease in cash provided by operating activities
was primarily due to the $1.7 billion decrease in net income,
while total adjustments to reconcile net income to cash provided
by operating activities, including net changes in assets and
liabilities, were approximately flat. Effective 2008, cash flows
related to marketable debt instruments classified as trading
assets are included in investing activities.
Investing
Activities
Investing cash flows consist
primarily of capital expenditures, net investment purchases,
maturities, disposals, and cash used for acquisitions.
The increase in cash used for
investing activities in 2009 compared to 2008 was primarily due
to an increase in net purchases of
available-for-sale
investments and trading assets, and higher cash paid for
acquisitions. These increases were partially offset by a
decrease in investments in non-marketable equity investments.
Our investments in non-marketable equity investments in 2008
included $1.0 billion for an ownership interest in Clearwire LLC.
Our capital expenditures were $4.5
billion in 2009 ($5.2 billion in 2008 and $5.0 billion in 2007).
Capital expenditures for 2010 are currently expected to be
higher than our 2009 expenditures and are expected to be funded
by cash flows from operating activities.
The decrease in cash used in
investing activities in 2008 compared to 2007 was primarily due
to a decrease in purchases of
available-for-sale
debt investments. In addition, the related cash flows for
marketable debt instruments classified as trading assets were
included in investing activities for 2008, and previously they
had been included in operating activities.
Financing
Activities
Financing cash flows consist
primarily of repurchases and retirement of common stock, payment
of dividends to stockholders, issuance of long-term debt, and
proceeds from the sale of shares through employee equity
incentive plans.
42
Table of Contents
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
The decrease in cash used in
financing activities in 2009 compared to 2008 was primarily due
to a decrease in repurchases and retirement of common stock and
the issuance of long-term debt, partially offset by lower
proceeds from sales of shares through employee equity incentive
plans. We used the majority of the proceeds from the 2009
issuance of long-term debt to repurchase and retire common
stock. During 2009, we repurchased $1.8 billion of common stock
compared to $7.2 billion in 2008. As of December 26, 2009, $5.7
billion remained available for repurchase under the existing
repurchase authorization of $25 billion. We base our level of
common stock repurchases on internal cash management decisions,
and this level may fluctuate. Proceeds from the sale of shares
through employee equity incentive plans totaled $400 million in
2009 compared to $1.1 billion in 2008 as a result of a lower
volume of employee exercises of stock options. Our total
dividend payments in 2009 remained flat from 2008 at $3.1
billion. We have paid a cash dividend in each of the past 69
quarters. In January 2010, our Board of Directors declared a
cash dividend of $0.1575 per common share for the first quarter
of 2010. The dividend is payable on March 1, 2010 to
stockholders of record on February 7, 2010.
The higher cash used in financing
activities in 2008 compared to 2007 was primarily due to an
increase in repurchases and retirement of common stock, and
lower proceeds from the sale of shares pursuant to employee
equity incentive plans.
Liquidity
Cash generated by operations is
used as our primary source of liquidity. As of December 26,
2009, cash and cash equivalents, debt instruments included in
trading assets, and short-term investments totaled $13.9
billion. In addition to the $13.9 billion, we have $4.5 billion
in loans receivable and other long-term investments that we
include when assessing our investment portfolio.
The credit quality of our
investment portfolio remains high, with credit-related
other-than-temporary
impairment losses on our
available-for-sale
debt instruments limited to less than $55 million cumulatively
since the beginning of 2008. In addition, we continue to be able
to invest in high-credit-quality investments. Substantially all
of our investments in debt instruments are with A/A2 or better
rated issuers, and a substantial majority of the issuers are
rated AA-/Aa3 or better.
As of December 26, 2009,
cumulative unrealized gains, net of corresponding hedging
activities, related to debt instruments classified as trading
assets, and cumulative unrealized gains related to debt
instruments classified as available-for-sale, were
insignificant. As of December 27, 2008, our cumulative
unrealized losses, net of corresponding hedging activities,
related to debt instruments classified as trading assets were
$145 million. As of December 27, 2008, our cumulative unrealized
losses related to debt instruments classified as
available-for-sale
were $215 million.
Our commercial paper program
provides another potential source of liquidity. We have an
ongoing authorization from our Board of Directors to borrow up
to $3.0 billion, including through the issuance of commercial
paper. Maximum borrowings under our commercial paper program
during 2009 were $610 million, although no commercial paper
remained outstanding as of December 26, 2009. Our commercial
paper was rated
A-1+
by
Standard & Poor’s and
P-1
by
Moody’s as of December 26, 2009. We also have an automatic
shelf registration statement on file with the SEC pursuant to
which we may offer an unspecified amount of debt, equity, and
other securities.
We believe that we have the
financial resources needed to meet business requirements for the
next 12 months, including capital expenditures for worldwide
manufacturing and assembly and test, working capital
requirements, and potential dividends, common stock repurchases,
and acquisitions or strategic investments.
Fair
Value of Financial Instruments
Fair value is the price that would
be received from selling an asset or paid to transfer a
liability in an orderly transaction between market participants
at the measurement date. When determining fair value, we
consider the principal or most advantageous market in which we
would transact, and we consider assumptions that market
participants would use when pricing the asset or liability. See
“Note 5: Fair Value” in Part II, Item 8 of this Form
10-K.
Credit risk is factored into the
valuation of financial instruments that we measure and record at
fair value on a recurring basis. When fair value is determined
using observable market prices, the credit risk is incorporated
into the market price of the financial instrument. When fair
value is determined using pricing models, such as a discounted
cash flow model, the issuer’s credit risk
and/or
Intel’s credit risk is factored into the calculation of the
fair value, as appropriate.
43
Table of Contents
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Marketable
Debt Instruments
As of December 26, 2009, our
assets measured and recorded at fair value on a recurring basis
included $17.5 billion of marketable debt instruments. Of these
instruments, $657 million was classified as Level 1, $15.8
billion as Level 2, and $1.1 billion as Level 3.
When available, we use observable
market prices for identical securities to value our marketable
debt instruments. If observable market prices are not available,
we use non-binding market consensus prices that we seek to
corroborate with observable market data, if available, or
unobservable market data. When prices from multiple sources are
available for a given instrument, we use observable market
quotes to price our instruments, in lieu of prices from other
sources.
Our balance of marketable debt
instruments that are measured and recorded at fair value on a
recurring basis and classified as Level 1 was classified as such
due to the usage of observable market prices for identical
securities that are traded in active markets. Marketable debt
instruments in this category generally include certain of our
corporate bonds, government bonds, and money market fund
deposits. Management judgment was required to determine the
levels at which sufficient volume and frequency of transactions
are met for a market to be considered active. Our assessment of
an active market for our marketable debt instruments generally
takes into consideration activity during each week of the
one-month period prior to the valuation date of each individual
instrument, including the number of days each individual
instrument trades and the average weekly trading volume in
relation to the total outstanding amount of the issued
instrument.
Approximately 10% of our balance
of marketable debt instruments that are measured and recorded at
fair value on a recurring basis and classified as Level 2 was
classified as such due to the usage of observable market prices
for identical securities that are traded in less active markets.
When observable market prices for identical securities are not
available, we price our marketable debt instruments using
non-binding
market consensus prices that are corroborated with observable
market data; quoted market prices for similar instruments; or
pricing models, such as a discounted cash flow model, with all
significant inputs derived from or corroborated with observable
market data.
Non-binding
market consensus prices are based on the proprietary valuation
models of pricing providers or brokers. These valuation models
incorporate a number of inputs, including non-binding and
binding broker quotes; observable market prices for identical
and/or
similar securities; and the internal assumptions of pricing
providers or brokers that use observable market inputs and, to a
lesser degree, unobservable market inputs. We corroborate the
non-binding market consensus prices with observable market data
using statistical models when observable market data exists. The
discounted cash flow model uses observable market inputs, such
as LIBOR-based yield curves, currency spot and forward rates,
and credit ratings. Approximately 40% of our balance of
marketable debt instruments that are measured and recorded at
fair value on a recurring basis and classified as Level 2 was
classified as such due to the usage of non-binding market
consensus prices that are corroborated with observable market
data, and approximately 50% due to the usage of a discounted
cash flow model. Marketable debt instruments classified as Level
2 generally include commercial paper, bank time deposits,
municipal bonds, certain of our money market fund deposits, and
a majority of corporate bonds and government bonds.
Our marketable debt instruments
that are measured and recorded at fair value on a recurring
basis and classified as Level 3 were classified as such due to
the lack of observable market data to corroborate either the
non-binding market consensus prices or the non-binding broker
quotes. When observable market data is not available, we
corroborate the non-binding market consensus prices and
non-binding broker quotes using unobservable data, if available.
Marketable debt instruments in this category generally include
asset-backed securities and certain of our corporate bonds. All
of our investments in asset-backed securities were classified as
Level 3, and substantially all of them were valued using
non-binding market consensus prices that we were not able to
corroborate with observable market data due to the lack of
transparency in the market for asset-backed securities.
Equity
Securities
As of December 26, 2009, our
portfolio of assets measured and recorded at fair value on a
recurring basis included $773 million of marketable equity
securities. Of these securities, $676 million was classified as
Level 1 because the valuations were based on quoted prices for
identical securities in active markets. Our assessment of an
active market for our marketable equity securities generally
takes into consideration activity during each week of the
one-month period prior to the valuation date for each individual
security, including the number of days each individual equity
security trades and the average weekly trading volume in
relation to the total outstanding shares of that security. The
remaining marketable equity securities of $97 million were
classified as Level 2 because their valuations were either based
on quoted prices for identical securities in less active markets
or adjusted for security-specific restrictions.
44
Table of Contents
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Contractual
Obligations
The following table summarizes our
significant contractual obligations as of December 26, 2009:
| Payments Due by Period | ||||||||||||||||||||
|
Less Than
|
More Than
|
|||||||||||||||||||
|
(In Millions)
|
Total | 1 Year | 1–3 Years | 3–5 Years | 5 Years | |||||||||||||||
|
Operating lease obligations
|
$ | 349 | $ | 102 | $ | 149 | $ | 60 | $ | 38 | ||||||||||
|
Capital purchase
obligations
1
|
1,836 | 1,760 | 76 | — | — | |||||||||||||||
|
Other purchase obligations and
commitments
2
|
866 | 290 | 403 | 48 | 125 | |||||||||||||||
|
Long-term debt
obligations
3
|
7,253 | 284 | 238 | 238 | 6,493 | |||||||||||||||
|
Other long-term
liabilities
4,
5
|
593 | 230 | 153 | 97 | 113 | |||||||||||||||
|
Total
6
|
$ | 10,897 | $ | 2,666 | $ | 1,019 | $ | 443 | $ | 6,769 | ||||||||||
| 1 | Capital purchase obligations represent commitments for the construction or purchase of property, plant and equipment. They were not recorded as liabilities on our consolidated balance sheets as of December 26, 2009, as we had not yet received the related goods or taken title to the property. Capital purchase obligations decreased from $2.9 billion as of December 27, 2008 to $1.8 billion as of December 26, 2009, primarily due to the timing of the ramp of our latest silicon process technology. | |
| 2 | Other purchase obligations and commitments include payments due under various types of licenses and agreements to purchase raw materials or other goods, as well as payments due under non-contingent funding obligations. Funding obligations include, for example, agreements to fund various projects with other companies. | |
| 3 | Amounts represent principal and interest cash payments over the life of the debt obligations, including anticipated interest payments that are not recorded on our consolidated balance sheets. Any future settlement of convertible debt would impact our cash payments. | |
| 4 | We are unable to reliably estimate the timing of future payments related to uncertain tax positions; therefore, $193 million of long-term income taxes payable has been excluded from the table above. However, long-term income taxes payable, included on our consolidated balance sheets, included these uncertain tax positions, reduced by the associated federal deduction for state taxes and U.S. tax credits arising from non-U.S. income. | |
| 5 | Amounts represent future cash payments to satisfy other long-term liabilities recorded on our consolidated balance sheets, including the short-term portion of these long-term liabilities. Expected contributions to our U.S. and non-U.S. pension plans and other postretirement benefit plans of $60 million to be made during 2010 are also included; however, funding projections beyond 2010 are not practical to estimate. | |
| 6 | Total generally excludes contractual obligations already recorded on our consolidated balance sheets as current liabilities. |
Contractual obligations for
purchases of goods or services generally include agreements that
are enforceable and legally binding on Intel and that specify
all significant terms, including fixed or minimum quantities to
be purchased; fixed, minimum, or variable price provisions; and
the approximate timing of the transaction. The table above also
includes agreements to purchase raw materials that have
cancellation provisions requiring little or no payment. The
amounts under such contracts are included in the table above
because management believes that cancellation of these contracts
is unlikely and expects to make future cash payments according
to the contract terms or in similar amounts for similar
materials. For other obligations with cancellation provisions,
the amounts included in the table above were limited to the
non-cancelable portion of the agreement terms
and/or
the
minimum cancellation fee.
We have entered into certain
agreements for the purchase of raw materials or other goods that
specify minimum prices and quantities based on a percentage of
the total available market or based on a percentage of our
future purchasing requirements. Due to the uncertainty of the
future market and our future purchasing requirements,
obligations under these agreements are not included in the table
above. We estimate our obligation under these agreements as of
December 26, 2009 to be approximately as follows: less than one
year—$364 million; one to three years—$3 million; more
than three years—zero. Our purchase orders for other
products are based on our current manufacturing needs and are
fulfilled by our vendors within short time horizons. In
addition, some of our purchase orders represent authorizations
to purchase rather than binding agreements.
45
Table of Contents
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Contractual obligations that are
contingent upon the achievement of certain milestones are not
included in the table above. These obligations include
contingent funding/payment obligations and milestone-based
equity investment funding. These arrangements are not considered
contractual obligations until the milestone is met by the third
party. Assuming that all future milestones are met, additional
required payments related to these obligations were not
significant as of December 26, 2009.
For the majority of restricted
stock units granted, the number of shares issued on the date the
restricted stock units vest is net of the minimum statutory
withholding requirements that we pay in cash to the appropriate
taxing authorities on behalf of our employees. The obligation to
pay the relative taxing authority is not included in the table
above, as the amount is contingent upon continued employment. In
addition, the amount of the obligation is unknown, as it is
based in part on the market price of our common stock when the
awards vest.
We have a contractual obligation
to purchase the output of IMFT in proportion to our investments,
49% as of December 26, 2009. We also have several agreements
with Micron related to intellectual property rights, and
R&D funding related to NAND flash manufacturing and IMFT.
The obligation to purchase our proportion of IMFT’s
inventory was $100 million as of December 26, 2009. See
“Note 11: Non-Marketable Equity Investments” in Part
II, Item 8 of this Form
10-K.
The expected timing of payments of
the obligations above are estimates based on current
information. Timing of payments and actual amounts paid may be
different, depending on the time of receipt of goods or
services, or changes to
agreed-upon
amounts for some obligations.
Off-Balance-Sheet
Arrangements
As of December 26, 2009, with the
exception of a guarantee for the repayment of $275 million in
principal of the payment obligations of Numonyx under its senior
credit facility, as well as accrued unpaid interest, expenses of
the lenders, and penalties, we did not have any significant
off-balance-sheet arrangements, as defined in Item 303(a)(4)(ii)
of SEC Regulation
S-K.
In
February 2010, we signed a definitive agreement with Micron and
Numonyx under which Micron agreed to acquire Numonyx in an
all-stock transaction. The senior credit facility that is
supported by Intel’s guarantee is expected to be repaid in
full following the closing of this transaction. See “Note
11: Non-Marketable Equity Investments” in Part II, Item 8
of this Form
10-K.
46
Table of Contents
| ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
We use derivative financial
instruments primarily to manage currency exchange rate and
interest rate risk, and to a lesser extent, equity market and
commodity price risk. All of the potential changes noted below
are based on sensitivity analyses performed on our financial
positions as of December 26, 2009 and December 27, 2008. Actual
results may differ materially.
Currency
Exchange Rates
We generally hedge currency risks
of
non-U.S.-dollar-denominated
investments in debt instruments and loans receivable with
offsetting currency forward contracts, currency options, or
currency interest rate swaps. Gains and losses on these
non-U.S.-currency
investments would generally be offset by corresponding losses
and gains on the related hedging instruments, resulting in a
negligible net exposure to loss.
Substantially all of our revenue
and a majority of our expense and capital purchasing activities
are transacted in U.S. dollars. However, certain operating
expenditures and capital purchases are incurred in or exposed to
other currencies, primarily the Japanese yen, the euro, and the
Israeli shekel. We have established balance sheet and forecasted
transaction currency risk management programs to protect against
fluctuations in fair value and the volatility of future cash
flows caused by changes in exchange rates. We generally utilize
currency forward contracts and, to a lesser extent, currency
options in these hedging programs. Our hedging programs reduce,
but do not always entirely eliminate, the impact of currency
exchange rate movements (see “Risk Factors” in Part I,
Item 1A of this Form
10-K).
We
considered the historical trends in currency exchange rates and
determined that it was reasonably possible that a weighted
average adverse change of 20% in currency exchange rates could
be experienced in the near term. Such an adverse change, after
taking into account hedges and offsetting positions, would have
resulted in an adverse impact on income before taxes of less
than $40 million as of December 26, 2009 (less than $55 million
as of December 27, 2008).
Interest
Rates
We are exposed to interest rate
risk related to our investment portfolio and debt issuances. The
primary objective of our investments in debt instruments is to
preserve principal while maximizing yields. To achieve this
objective, the returns on our investments in debt instruments
are generally based on the
U.S.-dollar
three-month LIBOR. A hypothetical decrease in interest rates of
1.0% would have resulted in an increase in the fair value of our
debt issuances of approximately $205 million as of December 26,
2009 (an increase of approximately $150 million as of December
27, 2008). A hypothetical decrease in interest rates of up to
1.0% would have resulted in an increase in the fair value of our
investment portfolio of approximately $10 million as of December
26, 2009 (an increase of approximately $15 million as of
December 27, 2008). These hypothetical decreases in interest
rates, after taking into account hedges and offsetting
positions, would have resulted in a decrease in the fair value
of our net investment position of approximately $195 million as
of December 26, 2009 and $135 million as of December 27, 2008.
The fluctuations in fair value of our debt issuances and
investment portfolio reflect only the direct impact of the
change in interest rates. Other economic variables, such as
equity market fluctuations and changes in relative credit risk,
could result in a significantly higher decline in our net
investment portfolio. For further information on how credit risk
is factored into the valuation of our investment portfolio and
debt issuances, see “Fair Value of Financial
Instruments” in Part II, Item 7 of this Form
10-K.
Equity
Prices
Our marketable equity investments
include marketable equity securities and equity derivative
instruments such as warrants and options. To the extent that our
marketable equity securities have strategic value, we typically
do not attempt to reduce or eliminate our equity market exposure
through hedging activities; however, for our investments in
strategic equity derivative instruments, including warrants, we
may enter into transactions to reduce or eliminate the equity
market risks. For securities that we no longer consider
strategic, we evaluate legal, market, and economic factors in
our decision on the timing of disposal and whether it is
possible and appropriate to hedge the equity market risk.
We hold derivative instruments
that seek to offset changes in liabilities related to the equity
market risks of certain deferred compensation arrangements. The
gains and losses from changes in fair value of these derivatives
are designed to offset the gains and losses on the related
liabilities, resulting in an insignificant net exposure to loss.
47
Table of Contents
As of December 26, 2009, the fair
value of our marketable equity securities and our equity
derivative instruments, including hedging positions, was $805
million ($362 million as of December 27, 2008). Our marketable
equity securities include our investments in Clearwire
Corporation and Micron, carried at a fair market value of $250
million and $148 million, respectively, as of December 26, 2009.
To determine reasonably possible decreases in the market value
of our marketable equity investments, we analyzed the expected
market price sensitivity of our marketable equity investment
portfolio. Assuming a loss of 50% in market prices, and after
reflecting the impact of hedges and offsetting positions, the
aggregate value of our marketable equity investments could
decrease by approximately $405 million, based on the value as of
December 26, 2009 (a decrease in value of approximately $220
million, based on the value as of December 27, 2008 using an
assumed loss of 60%). The decrease in the assumed loss
percentage from December 27, 2008 to December 26, 2009 is due to
lower expected overall equity market volatility.
Many of the same factors that
could result in an adverse movement of equity market prices
affect our non-marketable equity investments, although we cannot
always quantify the impact directly. Financial markets and
credit markets are volatile, which could negatively affect the
prospects of the companies we invest in, their ability to raise
additional capital, and the likelihood of our being able to
realize value in our investments through liquidity events such
as initial public offerings, mergers, and private sales. These
types of investments involve a great deal of risk, and there can
be no assurance that any specific company will grow or become
successful; consequently, we could lose all or part of our
investment. Our non-marketable equity investments, excluding
investments accounted for under the equity method, had a
carrying amount of $939 million as of December 26, 2009 ($1.0
billion as of December 27, 2008). As of December 26, 2009, the
carrying amount of our non-marketable equity method investments
was $2.5 billion ($3.0 billion as of December 27, 2008). A
substantial majority of this balance as of December 26, 2009 was
concentrated in companies in the flash memory market segment.
Our flash memory market segment investments include our
investment of $1.6 billion in IMFT/IMFS ($2.1 billion as of
December 27, 2008) and $453 million in Numonyx ($484 million as
of December 27, 2008).
In February 2010, we signed a
definitive agreement with Micron and Numonyx under which Micron
agreed to acquire Numonyx in an all-stock transaction. The value
of the Micron common stock that we would receive upon the
closing of the transaction is subject to equity market risk. For
further information, see “Note 11: Non-Marketable
Equity Investments” in Part II, Item 8 of this
Form 10-K.
48
Table of Contents
| ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
| Page | ||
| 50 | ||
| 51 | ||
| 52 | ||
| 53 | ||
| 54 | ||
| 111 | ||
| 113 |
49
Table of Contents
INTEL
CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
CONSOLIDATED STATEMENTS OF OPERATIONS
|
Three Years Ended December 26, 2009
|
||||||||||||
|
(In Millions, Except Per Share Amounts)
|
2009 | 2008 | 2007 | |||||||||
|
Net revenue
|
$ | 35,127 | $ | 37,586 | $ | 38,334 | ||||||
|
Cost of sales
|
15,566 | 16,742 | 18,430 | |||||||||
|
Gross margin
|
19,561 | 20,844 | 19,904 | |||||||||
|
Research and development
|
5,653 | 5,722 | 5,755 | |||||||||
|
Marketing, general and administrative
|
7,931 | 5,452 | 5,401 | |||||||||
|
Restructuring and asset impairment charges
|
231 | 710 | 516 | |||||||||
|
Amortization of acquisition-related intangibles
|
35 | 6 | 16 | |||||||||
|
Operating expenses
|
13,850 | 11,890 | 11,688 | |||||||||
|
Operating income
|
5,711 | 8,954 | 8,216 | |||||||||
|
Gains (losses) on equity method investments, net
|
(147 | ) | (1,380 | ) | 3 | |||||||
|
Gains (losses) on other equity investments, net
|
(23 | ) | (376 | ) | 154 | |||||||
|
Interest and other, net
|
163 | 488 | 793 | |||||||||
|
Income before taxes
|
5,704 | 7,686 | 9,166 | |||||||||
|
Provision for taxes
|
1,335 | 2,394 | 2,190 | |||||||||
|
Net income
|
$ | 4,369 | $ | 5,292 | $ | 6,976 | ||||||
|
Basic earnings per common share
|
$ | 0.79 | $ | 0.93 | $ | 1.20 | ||||||
|
Diluted earnings per common share
|
$ | 0.77 | $ | 0.92 | $ | 1.18 | ||||||
|
Weighted average common shares outstanding:
|
||||||||||||
|
Basic
|
5,557 | 5,663 | 5,816 | |||||||||
|
Diluted
|
5,645 | 5,748 | 5,936 | |||||||||
See accompanying notes.
50
Table of Contents
INTEL
CORPORATION
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED BALANCE SHEETS
|
December 26, 2009 and December 27, 2008
|
||||||||
|
(In Millions, Except Par Value)
|
2009 | 2008 1 | ||||||
|
Assets
|
||||||||
|
Current assets:
|
||||||||
|
Cash and cash equivalents
|
$ | 3,987 | $ | 3,350 | ||||
|
Short-term investments
|
5,285 | 5,331 | ||||||
|
Trading assets
|
4,648 | 3,162 | ||||||
|
Accounts receivable, net of allowance for doubtful accounts of
$19 ($17 in 2008)
|
2,273 | 1,712 | ||||||
|
Inventories
|
2,935 | 3,744 | ||||||
|
Deferred tax assets
|
1,216 | 1,390 | ||||||
|
Other current assets
|
813 | 1,182 | ||||||
|
Total current assets
|
21,157 | 19,871 | ||||||
|
Property, plant and equipment, net
|
17,225 | 17,574 | ||||||
|
Marketable equity securities
|
773 | 352 | ||||||
|
Other long-term investments
|
4,179 | 2,924 | ||||||
|
Goodwill
|
4,421 | 3,932 | ||||||
|
Other long-term assets
|
5,340 | 5,819 | ||||||
|
Total assets
|
$ | 53,095 | $ | 50,472 | ||||
|
Liabilities and stockholders’ equity
|
||||||||
|
Current liabilities:
|
||||||||
|
Short-term debt
|
$ | 172 | $ | 102 | ||||
|
Accounts payable
|
1,883 | 2,390 | ||||||
|
Accrued compensation and benefits
|
2,448 | 2,015 | ||||||
|
Accrued advertising
|
773 | 807 | ||||||
|
Deferred income on shipments to distributors
|
593 | 463 | ||||||
|
Other accrued liabilities
|
1,636 | 1,901 | ||||||
|
Income taxes payable
|
86 | 140 | ||||||
|
Total current liabilities
|
7,591 | 7,818 | ||||||
|
Long-term income taxes payable
|
193 | 736 | ||||||
|
Long-term debt
|
2,049 | 1,185 | ||||||
|
Long-term deferred tax liabilities
|
555 | 46 | ||||||
|
Other long-term liabilities
|
1,003 | 1,141 | ||||||
|
Commitments and contingencies (Notes 22 and 28)
|
||||||||
|
Stockholders’ equity:
|
||||||||
|
Preferred stock, $0.001 par value, 50 shares authorized; none
issued
|
— | — | ||||||
|
Common stock, $0.001 par value, 10,000 shares authorized; 5,523
issued and outstanding (5,562 in 2008) and capital in excess of
par value
|
14,993 | 13,402 | ||||||
|
Accumulated other comprehensive income (loss)
|
393 | (393 | ) | |||||
|
Retained earnings
|
26,318 | 26,537 | ||||||
|
Total stockholders’ equity
|
41,704 | 39,546 | ||||||
|
Total liabilities and stockholders’ equity
|
$ | 53,095 | $ | 50,472 | ||||
| 1 | As adjusted due to changes to the accounting for convertible debt instruments. See “Note 3: Accounting Changes.” |
See accompanying
notes.
51
Table of Contents
INTEL
CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
Three Years Ended December 26, 2009
|
||||||||||||
|
(In Millions)
|
2009 | 2008 | 2007 | |||||||||
|
Cash and cash equivalents, beginning of year
|
$ | 3,350 | $ | 7,307 | $ | 6,598 | ||||||
|
Cash flows provided by (used for) operating activities:
|
||||||||||||
|
Net income
|
4,369 | 5,292 | 6,976 | |||||||||
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
||||||||||||
|
Depreciation
|
4,744 | 4,360 | 4,546 | |||||||||
|
Share-based compensation
|
889 | 851 | 952 | |||||||||
|
Restructuring, asset impairment, and net loss on retirement of
assets
|
368 | 795 | 564 | |||||||||
|
Excess tax benefit from share-based payment arrangements
|
(9 | ) | (30 | ) | (118 | ) | ||||||
|
Amortization of intangibles and other acquisition-related costs
|
308 | 256 | 252 | |||||||||
|
(Gains) losses on equity method investments, net
|
147 | 1,380 | (3 | ) | ||||||||
|
(Gains) losses on other equity investments, net
|
23 | 376 | (154 | ) | ||||||||
|
(Gains) losses on divestitures
|
— | (59 | ) | (21 | ) | |||||||
|
Deferred taxes
|
271 | (790 | ) | (443 | ) | |||||||
|
Changes in assets and liabilities:
|
||||||||||||
|
Trading assets
|
299 | 193 | (1,429 | ) | ||||||||
|
Accounts receivable
|
(535 | ) | 260 | 316 | ||||||||
|
Inventories
|
796 | (395 | ) | 700 | ||||||||
|
Accounts payable
|
(506 | ) | 29 | 102 | ||||||||
|
Accrued compensation and benefits
|
247 | (569 | ) | 354 | ||||||||
|
Income taxes payable and receivable
|
110 | (834 | ) | (248 | ) | |||||||
|
Other assets and liabilities
|
(351 | ) | (189 | ) | 279 | |||||||
|
Total adjustments
|
6,801 | 5,634 | 5,649 | |||||||||
|
Net cash provided by operating activities
|
11,170 | 10,926 | 12,625 | |||||||||
|
Cash flows provided by (used for) investing activities:
|
||||||||||||
|
Additions to property, plant and equipment
|
(4,515 | ) | (5,197 | ) | (5,000 | ) | ||||||
|
Acquisitions, net of cash acquired
|
(853 | ) | (16 | ) | (76 | ) | ||||||
|
Purchases of
available-for-sale
investments
|
(8,655 | ) | (6,479 | ) | (11,728 | ) | ||||||
|
Maturities and sales of
available-for-sale
investments
|
7,756 | 7,993 | 8,011 | |||||||||
|
Purchases of trading assets
|
(4,186 | ) | (2,676 | ) | — | |||||||
|
Maturities and sales of trading assets
|
2,543 | 1,766 | — | |||||||||
|
Loans receivable
|
(343 | ) | — | — | ||||||||
|
Investments in non-marketable equity investments
|
(250 | ) | (1,691 | ) | (1,459 | ) | ||||||
|
Return of equity method investment
|
449 | 316 | — | |||||||||
|
Proceeds from divestitures
|
— | 85 | 32 | |||||||||
|
Other investing activities
|
89 | 34 | 294 | |||||||||
|
Net cash used for investing activities
|
(7,965 | ) | (5,865 | ) | (9,926 | ) | ||||||
|
Cash flows provided by (used for) financing activities:
|
||||||||||||
|
Increase (decrease) in short-term debt, net
|
(87 | ) | (40 | ) | (39 | ) | ||||||
|
Proceeds from government grants
|
— | 182 | 160 | |||||||||
|
Excess tax benefit from share-based payment arrangements
|
9 | 30 | 118 | |||||||||
|
Issuance of long-term debt
|
1,980 | — | 125 | |||||||||
|
Proceeds from sales of shares through employee equity incentive
plans
|
400 | 1,105 | 3,052 | |||||||||
|
Repurchase and retirement of common stock
|
(1,762 | ) | (7,195 | ) | (2,788 | ) | ||||||
|
Payment of dividends to stockholders
|
(3,108 | ) | (3,100 | ) | (2,618 | ) | ||||||
|
Net cash used for financing activities
|
(2,568 | ) | (9,018 | ) | (1,990 | ) | ||||||
|
Net increase (decrease) in cash and cash equivalents
|
637 | (3,957 | ) | 709 | ||||||||
|
Cash and cash equivalents, end of year
|
$ | 3,987 | $ | 3,350 | $ | 7,307 | ||||||
|
Supplemental disclosures of cash flow information:
|
||||||||||||
|
Cash paid during the year for:
|
||||||||||||
|
Interest, net of amounts capitalized of $86 in 2009 ($86 in 2008
and $57 in 2007)
|
$ | 4 | $ | 6 | $ | 15 | ||||||
|
Income taxes, net of refunds
|
$ | 943 | $ | 4,007 | $ | 2,762 | ||||||
See accompanying notes.
52
Table of Contents
INTEL
CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
|
Common Stock
|
||||||||||||||||||||
|
and Capital
|
Accumulated
|
|||||||||||||||||||
| in Excess of Par Value |
Other
|
|||||||||||||||||||
|
Three Years Ended December 26, 2009
|
Number of
|
Comprehensive
|
Retained
|
|||||||||||||||||
|
(In Millions, Except Per Share Amounts)
|
Shares | Amount | Income (Loss) | Earnings | Total | |||||||||||||||
|
Balance as of December 30, 2006 (prior to adoption of
convertible debt accounting standards)
|
5,766 | $ | 7,825 | $ | (57 | ) | $ | 28,984 | $ | 36,752 | ||||||||||
|
Cumulative-effect adjustment, net of
tax
1
:
|
||||||||||||||||||||
|
Adoption of convertible debt accounting standards
|
— | 458 | — | — | 458 | |||||||||||||||
|
Balance as of December 30, 2006 (post-adoption of convertible
debt accounting standards)
|
5,766 | 8,283 | (57 | ) | 28,984 | 37,210 | ||||||||||||||
|
Cumulative-effect adjustments, net of
tax
1
:
|
||||||||||||||||||||
|
Adoption of sabbatical leave accounting standards
|
— | — | — | (181 | ) | (181 | ) | |||||||||||||
|
Adoption of uncertain tax positions accounting standards
|
— | — | — | 181 | 181 | |||||||||||||||
|
Components of comprehensive income, net of tax:
|
||||||||||||||||||||
|
Net income
|
— | — | — | 6,976 | 6,976 | |||||||||||||||
|
Other comprehensive income (loss)
|
— | — | 318 | — | 318 | |||||||||||||||
|
Total comprehensive income
|
7,294 | |||||||||||||||||||
|
Proceeds from sales of shares through employee equity incentive
plans, net excess tax benefit, and other
|
165 | 3,170 | — | — | 3,170 | |||||||||||||||
|
Share-based compensation
|
— | 952 | — | — | 952 | |||||||||||||||
|
Repurchase and retirement of common stock
|
(113 | ) | (294 | ) | — | (2,494 | ) | (2,788 | ) | |||||||||||
|
Cash dividends declared ($0.45 per common share)
|
— | — | — | (2,618 | ) | (2,618 | ) | |||||||||||||
|
Balance as of December 29, 2007
|
5,818 | 12,111 | 261 | 30,848 | 43,220 | |||||||||||||||
|
Components of comprehensive income, net of tax:
|
||||||||||||||||||||
|
Net income
|
— | — | — | 5,292 | 5,292 | |||||||||||||||
|
Other comprehensive income (loss)
|
— | — | (654 | ) | — | (654 | ) | |||||||||||||
|
Total comprehensive income
|
4,638 | |||||||||||||||||||
|
Proceeds from sales of shares through employee equity incentive
plans, net excess tax benefit, and other
|
72 | 1,132 | — | — | 1,132 | |||||||||||||||
|
Share-based compensation
|
— | 851 | — | — | 851 | |||||||||||||||
|
Repurchase and retirement of common stock
|
(328 | ) | (692 | ) | — | (6,503 | ) | (7,195 | ) | |||||||||||
|
Cash dividends declared ($0.5475 per common share)
|
— | — | — | (3,100 | ) | (3,100 | ) | |||||||||||||
|
Balance as of December 27, 2008
|
5,562 | 13,402 | (393 | ) | 26,537 | 39,546 | ||||||||||||||
|
Components of comprehensive income, net of tax:
|
||||||||||||||||||||
|
Net income
|
— | — | — | 4,369 | 4,369 | |||||||||||||||
|
Other comprehensive income (loss)
|
— | — | 786 | — | 786 | |||||||||||||||
|
Total comprehensive income
|
5,155 | |||||||||||||||||||
|
Proceeds from sales of shares through employee equity incentive
plans, net tax deficiency, and other
|
55 | 381 | — | — | 381 | |||||||||||||||
|
Issuance of convertible debt
|
— | 603 | — | — | 603 | |||||||||||||||
|
Share-based compensation
|
— | 889 | — | — | 889 | |||||||||||||||
|
Repurchase and retirement of common stock
|
(94 | ) | (282 | ) | — | (1,480 | ) | (1,762 | ) | |||||||||||
|
Cash dividends declared ($0.56 per common share)
|
— | — | — | (3,108 | ) | (3,108 | ) | |||||||||||||
|
Balance as of December 26, 2009
|
5,523 | $ | 14,993 | $ | 393 | $ | 26,318 | $ | 41,704 | |||||||||||
| 1 | For further discussion of the cumulative-effect adjustments, see “Note 3: Accounting Changes.” |
See accompanying notes.
53
Table of Contents
INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1:
Basis of Presentation
We have a 52- or 53-week fiscal
year that ends on the last Saturday in December. Fiscal years
2009, 2008, and 2007 were all 52-week years. Our consolidated
financial statements include the accounts of Intel Corporation
and our wholly owned subsidiaries. Intercompany accounts and
transactions have been eliminated. We use the equity method to
account for equity investments in instances in which we own
common stock or similar interests, and have the ability to
exercise significant influence, but not control, over the
investee. The U.S. dollar is the functional currency for Intel
and our subsidiaries; therefore, we do not have a translation
adjustment recorded through accumulated other comprehensive
income (loss).
Customer credit balances are
included in other accrued liabilities and were $293 million as
of December 26, 2009 ($447 million as of December 27, 2008).
We have evaluated subsequent
events through the date that the financial statements were
issued on February 22, 2010.
Note 2:
Accounting Policies
Use of
Estimates
The preparation of consolidated
financial statements in conformity with U.S. generally accepted
accounting principles requires us to make estimates and
judgments that affect the amounts reported in our consolidated
financial statements and the accompanying notes. The accounting
estimates that require our most significant, difficult, and
subjective judgments include:
| • | the valuation of non-marketable equity investments and the determination of other-than-temporary impairments; | |
| • | the assessment of recoverability of long-lived assets; | |
| • | the recognition and measurement of current and deferred income taxes (including the measurement of uncertain tax positions); and | |
| • | the valuation of inventory. |
The actual results that we
experience may differ materially from our estimates.
Trading
Assets
Marketable debt instruments are
designated as trading assets when the interest rate or foreign
exchange rate risk is hedged at inception with a related
derivative instrument. Investments designated as trading assets
are reported at fair value. The gains or losses of these
investments arising from changes in fair value due to interest
rate and currency market fluctuations and credit market
volatility, offset by losses or gains on the related derivative
instruments, are recorded in interest and other, net. We also
designate certain floating-rate securitized financial
instruments, primarily asset-backed securities purchased after
December 30, 2006, as trading assets.
During 2009, we sold our equity
securities offsetting deferred compensation and entered into
derivative instruments that seek to offset changes in
liabilities related to these deferred compensation arrangements.
Gains or losses from changes in fair value of these equity
securities were offset against losses or gains on the related
liabilities and included in interest and other, net. See
“Note 8: Derivative Financial Instruments” for further
information on our equity market risk management programs.
Available-for-Sale
Investments
We consider all liquid
available-for-sale
debt instruments with original maturities from the date of
purchase of approximately three months or less to be cash and
cash equivalents.
Available-for-sale
debt instruments with original maturities at the date of
purchase greater than approximately three months and remaining
maturities of less than one year are classified as short-term
investments.
Available-for-sale
debt instruments with remaining maturities beyond one year are
classified as other long-term investments.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Investments that we designate as
available-for-sale
are reported at fair value, with unrealized gains and losses,
net of tax, recorded in accumulated other comprehensive income
(loss), except as noted in the
“Other-Than-Temporary
Impairment” section below. We determine the cost of the
investment sold based on the specific identification method. Our
available-for-sale
investments include:
| • | Marketable debt instruments when the interest rate and foreign currency risks are not hedged at inception of the investment or when our designation for trading assets is not met. We hold these debt instruments to generate a return commensurate with the U.S.-dollar three-month LIBOR. We record the interest income and realized gains and losses on the sale of these instruments in interest and other, net. | |
| • | Marketable equity securities when the investments are considered strategic in nature at the time of original classification or there are barriers to mitigating equity market risk through the sale or use of derivative instruments at the time of original classification. We acquire these equity investments for the promotion of business and strategic objectives. To the extent that these investments continue to have strategic value, we typically do not attempt to reduce or eliminate the equity market risks through hedging activities. We record the realized gains or losses on the sale or exchange of marketable equity securities in gains (losses) on other equity investments, net. |
Non-Marketable
Equity Investments
Our non-marketable equity
investments are included in other long-term assets. We account
for non-marketable equity investments for which we do not have
control over the investee as:
| • | Equity method investments when we have the ability to exercise significant influence, but not control, over the investee. Gains (losses) on equity method investments, net may be recorded with up to a one-quarter lag. | |
| • | Cost method investments when the equity method does not apply. We record the realized gains or losses on the sale of non-marketable cost method investments in gains (losses) on other equity investments, net. |
Other-Than-Temporary
Impairment
All of our
available-for-sale
investments and non-marketable equity investments are subject to
a periodic impairment review. Investments are considered
impaired when the fair value is below the investment’s cost
basis/amortized cost. Impairments affect earnings as follows:
| • | Marketable debt instruments when the fair value is below amortized cost and (1) we intend to sell the instrument, (2) it is more likely than not that we will be required to sell the instrument before recovery of its amortized cost basis, or (3) we do not expect to recover the entire amortized cost basis of the instrument (that is, a credit loss exists). Other-than-temporary impairments are separated into amounts representing credit losses, which are recognized in earnings, and amounts related to all other factors, which are recognized in other comprehensive income (loss). | |
| • | Marketable equity securities based on the specific facts and circumstances present at the time of assessment, which include the consideration of general market conditions, the duration and extent to which the fair value is below cost, and our intent and ability to hold the investment for a sufficient period of time to allow for recovery in value in the foreseeable future. We also consider specific adverse conditions related to the financial health of, and business outlook for, the investee, which may include industry and sector performance, changes in technology, operational and financing cash flow factors, and changes in the investee’s credit rating. We record other-than-temporary impairment charges on marketable equity securities in gains (losses) on other equity investments, net. | |
| • | Non-marketable equity investments based on our assessment of the severity and duration of the impairment, and qualitative and quantitative analysis, including: |
| • | the investee’s revenue and earning trends relative to pre-defined milestones and overall business prospects; | |
| • | the technological feasibility of the investee’s products and technologies; | |
| • | the general market conditions in the investee’s industry or geographic area, including adverse regulatory or economic changes; | |
| • | factors related to the investee’s ability to remain in business, such as the investee’s liquidity, debt ratios, and the rate at which the investee is using its cash; and | |
| • | the investee’s receipt of additional funding at a lower valuation. |
We record
other-than-temporary
impairment charges in gains (losses) on equity method
investments, net for non-marketable equity method investments
and in gains (losses) on other equity investments, net for
non-marketable cost method investments.
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INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Derivative
Financial Instruments
Our primary objective for holding
derivative financial instruments is to manage currency exchange
rate and interest rate risk, and to a lesser extent, equity
market and commodity price risk. Our derivative financial
instruments are recorded at fair value and are included in other
current assets, other long-term assets, other accrued
liabilities, or other long-term liabilities.
Our accounting policies for
derivative financial instruments are based on whether they meet
the criteria for designation as cash flow or fair value hedges.
A designated hedge of the exposure to variability in the future
cash flows of an asset or a liability, or of a forecasted
transaction, is referred to as a cash flow hedge. A designated
hedge of the exposure to changes in fair value of an asset or a
liability, or of an unrecognized firm commitment, is referred to
as a fair value hedge. The criteria for designating a derivative
as a hedge include the assessment of the instrument’s
effectiveness in risk reduction, matching of the derivative
instrument to its underlying transaction, and the assessment of
the probability that the underlying transaction will occur. For
derivatives with cash flow hedge accounting designation, we
report the after-tax gain or loss from the effective portion of
the hedge as a component of accumulated other comprehensive
income (loss) and reclassify it into earnings in the same period
or periods in which the hedged transaction affects earnings, and
within the same line item on the consolidated statements of
operations as the impact of the hedged transaction. For
derivatives with fair value hedge accounting designation, we
recognize gains or losses from the change in fair value of these
derivatives, as well as the offsetting change in the fair value
of the underlying hedged item, in earnings. Derivatives that we
designate as hedges are classified in the consolidated
statements of cash flows in the same section as the underlying
item, primarily within cash flows from operating activities.
We recognize gains and losses from
changes in fair values of derivatives that are not designated as
hedges for accounting purposes within the line item on the
consolidated statements of operations most closely associated
with the economic underlying, primarily in interest and other,
net. As part of our strategic investment program, we also
acquire equity derivative instruments, such as warrants and
equity conversion rights associated with debt instruments, that
we do not designate as hedging instruments. We recognize the
gains or losses from changes in fair values of these equity
derivative instruments in gains (losses) on other equity
investments, net. Gains and losses from derivatives not
designated as hedges are classified in cash flows from operating
activities.
Measurement
of Effectiveness
| • | Effectiveness for forwards is generally measured by comparing the cumulative change in the fair value of the hedge contract with the cumulative change in the present value of the forecasted cash flows of the hedged item. For currency forward contracts used in cash flow hedging strategies related to capital purchases, forward points are excluded, and effectiveness is measured using spot rates to value both the hedge contract and the hedged item. For currency forward contracts used in cash flow hedging strategies related to operating expenditures, forward points are included and effectiveness is measured using forward rates to value both the hedge contract and the hedged item. | |
| • | Effectiveness for currency options and equity options with hedge accounting designation is generally measured by comparing the cumulative change in the intrinsic value of the hedge contract with the cumulative change in the intrinsic value of an option instrument representing the hedged risks in the hedged item for cash flow hedges. For cash flow and fair value hedges, time value is excluded and effectiveness is measured based on spot rates to value both the hedge contract and the hedged item. | |
| • | Effectiveness for interest rate swaps and commodity swaps is generally measured by comparing the change in fair value of the hedged item with the change in fair value of the swap. |
If a cash flow hedge is
discontinued because it is no longer probable that the original
hedged transaction will occur as anticipated, the unrealized
gain or loss on the related derivative is reclassified into
earnings. Subsequent gains or losses on the related derivative
instrument are recognized in interest and other, net in each
period until the instrument matures, is terminated, is
re-designated as a qualified hedge, or is sold. Ineffective
portions of cash flow hedges and fair value hedges, as well as
amounts excluded from the assessment of effectiveness, are
recognized in earnings in interest and other, net. For further
discussion of our derivative instruments, see “Note 8:
Derivative Financial Instruments.”
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CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Loans
Receivable
We make loans to third parties
that are classified within other current assets or other
long-term assets. We may elect the fair value option for loans
when the interest rate or foreign exchange rate risk is hedged
at inception with a related derivative instrument. We record the
gains or losses on these loans arising from changes in fair
value due to interest rate, currency market fluctuations, and
credit market volatility, offset by losses or gains on the
related derivative instruments, in interest and other, net.
Loans that are denominated in U.S. dollars and have a
floating-rate coupon are carried at amortized cost. We measure
interest income for all loans receivable using the interest
method, which is based on the effective yield of the loans
rather than the stated coupon rate.
Inventories
We compute inventory cost on a
currently adjusted standard basis (which approximates actual
cost on an average or
first-in,
first-out basis). Inventories at year-ends were as follows:
|
(In Millions)
|
2009 | 2008 | ||||||
|
Raw materials
|
$ | 437 | $ | 608 | ||||
|
Work in process
|
1,469 | 1,577 | ||||||
|
Finished goods
|
1,029 | 1,559 | ||||||
|
Total inventories
|
$ | 2,935 | $ | 3,744 | ||||
Property,
Plant and Equipment
Property, plant and equipment, net
at year-ends was as follows:
|
(In Millions)
|
2009 | 2008 1 | ||||||
|
Land and buildings
|
$ | 16,687 | $ | 16,557 | ||||
|
Machinery and equipment
|
28,339 | 28,831 | ||||||
|
Construction in progress
|
2,796 | 2,730 | ||||||
|
Total property, plant and equipment, gross
|
47,822 | 48,118 | ||||||
|
Less:
accumulated depreciation
|
(30,597 | ) | (30,544 | ) | ||||
|
Total property, plant and equipment, net
|
$ | 17,225 | $ | 17,574 | ||||
| 1 | As adjusted due to changes to the accounting for convertible debt instruments. See “Note 3: Accounting Changes.” |
We compute depreciation for
financial reporting purposes using the straight-line method over
the following estimated useful lives: machinery and equipment, 2
to 4 years; buildings, 4 to 40 years.
We capitalize interest on
borrowings related to eligible capital expenditures. Capitalized
interest is added to the cost of qualified assets and amortized
over the estimated useful lives of the assets. We record
capital-related government grants earned as a reduction to
property, plant and equipment.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Goodwill
We record goodwill when the
purchase price of an acquisition exceeds the fair value of the
net tangible and intangible assets as of the date of
acquisition. We perform a quarterly review of goodwill for
indicators of impairment. During the fourth quarter of each
year, we perform an impairment review for each reporting unit
using a fair value approach. We do not identify manufacturing
and assembly and test assets with individual reporting units
because of the interchangeable nature of our manufacturing and
assembly and test assets. In determining the carrying value of
the reporting unit, we make an allocation of our manufacturing
and assembly and test assets based on each reporting unit’s
relative percentage utilization of the manufacturing and
assembly and test assets. For further discussion of goodwill,
see “Note 17: Goodwill.”
Identified
Intangible Assets
Intellectual property assets
primarily represent rights acquired under technology licenses
and are generally amortized on a straight-line basis over the
periods of benefit, ranging from 3 to 17 years. We amortize
acquisition-related developed technology based on economic
benefit over the estimated useful life, ranging from 4 to 7
years. We amortize other intangible assets over periods ranging
from 4 to 7 years. We amortize acquisition-related in-process
research and development over the estimated useful life once the
research and development efforts are completed. In the quarter
following the period in which identified intangible assets
become fully amortized, the fully amortized balances are removed
from the gross asset and accumulated amortization amounts.
We perform a quarterly review of
identified intangible assets to determine if facts and
circumstances indicate that the useful life is shorter than we
had originally estimated or that the carrying amount of assets
may not be recoverable. If such facts and circumstances exist,
we assess the recoverability of identified intangible assets by
comparing the projected undiscounted net cash flows associated
with the related asset or group of assets over their remaining
lives against their respective carrying amounts. Impairments, if
any, are based on the excess of the carrying amount over the
fair value of those assets. If the useful life is shorter than
originally estimated, we accelerate the rate of amortization and
amortize the remaining carrying value over the new shorter
useful life.
For further discussion of
identified intangible assets, see “Note 18: Identified
Intangible Assets.”
Product
Warranty
The vast majority of our products
are sold with a limited warranty on product quality and a
limited indemnification for customers against intellectual
property infringement claims related to our products. The
accrual and the related expense for known issues were not
significant during the periods presented. Due to product
testing, the short time typically between product shipment and
the detection and correction of product failures, and the
historical rate of payments on indemnification claims, the
accrual and related expense for estimated incurred but
unidentified issues were not significant during the periods
presented.
Revenue
Recognition
We recognize net product revenue
when the earnings process is complete, as evidenced by an
agreement with the customer, transfer of title, and acceptance,
if applicable, as well as fixed pricing and probable
collectability. We record pricing allowances, including
discounts based on contractual arrangements with customers, when
we recognize revenue as a reduction to both accounts receivable
and net revenue. Because of frequent sales price reductions and
rapid technology obsolescence in the industry, we defer product
revenue and related costs of sales from sales made to
distributors under agreements allowing price protection
and/or
right
of return until the distributors sell the merchandise. The right
of return granted generally consists of a stock rotation program
in which distributors are able to exchange certain products
based on the number of qualified purchases made by the
distributor. Under the price protection program, we give
distributors credits for the difference between the original
price paid and the current price that we offer. We record the
net deferred income from product sales to distributors on our
balance sheet as deferred income on shipments to distributors.
We include shipping charges billed to customers in net revenue,
and include the related shipping costs in cost of sales.
Sales of software, primarily
through our Wind River Software Group, are made through term
licenses that are generally 12 months in length, or perpetual
licenses. Revenue is generally recognized ratably over the
course of the license.
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CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Advertising
Cooperative advertising programs
reimburse customers for marketing activities for certain of our
products, subject to defined criteria. We accrue cooperative
advertising obligations and record the costs at the same time
that the related revenue is recognized. We record cooperative
advertising costs as marketing, general and administrative
expenses to the extent that an advertising benefit separate from
the revenue transaction can be identified and the fair value of
that advertising benefit received is determinable. We record any
excess in cash paid over the fair value of the advertising
benefit received as a reduction in revenue. Advertising costs,
including direct marketing costs, recorded within marketing,
general and administrative expenses were $1.39 billion in 2009
($1.86 billion in 2008 and $1.90 billion in 2007).
Employee
Equity Incentive Plans
We have employee equity incentive
plans, which are described more fully in “Note 23: Employee
Equity Incentive Plans.” We use the straight-line
attribution method to recognize share-based compensation over
the service period of the award. Upon exercise, cancellation,
forfeiture, or expiration of stock options, or upon vesting or
forfeiture of restricted stock units, we eliminate deferred tax
assets for options and restricted stock units with multiple
vesting dates for each vesting period on a
first-in,
first-out basis as if each vesting period were a separate award.
Note 3:
Accounting Changes
2007
In 2007, we adopted standards that
required companies to accrue the cost of compensated absences
for sabbatical leave over the service period. We adopted these
standards through a cumulative-effect adjustment at the
beginning of 2007, resulting in an additional liability of $280
million, additional deferred tax assets of $99 million, and a
reduction to retained earnings of $181 million. We also adopted
standards that changed the accounting for uncertain tax
positions. For further discussion, see “Note 27:
Taxes.”
2008
In the first quarter of 2008, we
adopted new standards for fair value measurements for all
financial assets and liabilities recognized or disclosed at fair
value in the consolidated financial statements on a recurring
basis (at least annually). The standards defined fair value,
established a framework for measuring fair value, and enhanced
fair value measurement disclosures. The adoption of these new
standards did not have a significant impact on our consolidated
financial statements, and the resulting fair values calculated
after adoption were not significantly different from the fair
values that would have been calculated under previous guidance.
As discussed below, we adopted the fair value measurement
standards for our non-financial assets and liabilities in the
first quarter of 2009. For further discussion of our fair value
measurements, see “Note 5: Fair Value.”
In the fourth quarter of 2008, we
adopted new standards that clarified the application of fair
value in a market that is not active, and addressed application
issues such as the use of internal assumptions when relevant
observable data does not exist, the use of observable market
information when the market is not active, and the use of market
quotes when assessing the relevance of observable and
unobservable data. The adoption of these new standards did not
have a significant impact on our consolidated financial
statements or the fair values of our financial assets and
liabilities.
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CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In the first quarter of 2008, we
adopted new standards that permitted companies to choose to
measure certain financial instruments and other items at fair
value using an
instrument-by-instrument
election. The new standards required unrealized gains and losses
to be reported in earnings for items measured using the fair
value option. For further discussion, see “Note 5: Fair
Value.” These new standards also required cash flows from
purchases, sales, and maturities of trading securities to be
classified based on the nature and purpose for which the
securities were acquired. We assessed the nature and purpose of
our trading assets and determined that our marketable debt
instruments will be classified on the statement of cash flows as
investing activities, as they are held with the purpose of
generating returns. Activity related to equity securities
offsetting deferred compensation remained classified as
operating activities, as they were maintained to offset changes
in liabilities related to the equity market risk of certain
deferred compensation arrangements. These standards did not
allow for retrospective application to periods prior to 2008;
therefore, all trading asset activity for prior periods will
continue to be presented as operating activities on the
statement of cash flows.
In the first quarter of 2008,
amended views of the U.S. Securities and Exchange Commission
(SEC) on the use of the simplified method in developing
estimates of the expected lives of share options became
effective for us. The amendment, in part, allowed the continued
use, subject to specific criteria, of the simplified method in
estimating the expected lives of share options granted after
December 31, 2007. We will continue to use the simplified method
until we have the historical data necessary to provide
reasonable estimates of expected lives.
2009
In the first quarter of 2009, we
adopted new standards that changed the accounting for
convertible debt instruments with cash settlement features. As
of adoption, these new standards applied to our junior
subordinated convertible debentures issued in 2005 (the 2005
debentures). Under the previous standards, our 2005 debentures
were recognized entirely as a liability at historical value. In
accordance with adopting these new standards, we retrospectively
recognized both a liability and an equity component of the 2005
debentures at fair value. The liability component is recognized
as the fair value of a similar instrument that does not have a
conversion feature at issuance. The equity component, which is
the value of the conversion feature at issuance, is recognized
as the difference between the proceeds from the issuance of the
2005 debentures and the fair value of the liability component,
after adjusting for the deferred tax impact. The 2005 debentures
were issued at a coupon rate of 2.95%, which was below that of a
similar instrument that did not have a conversion feature
(6.45%). Therefore, the valuation of the debt component, using
the income approach, resulted in a debt discount. The debt
discount is reduced over the expected life of the debt, which is
also the stated life of the debt. These new standards are also
applicable in accounting for our convertible debt issued during
2009. See “Note 20: Borrowings” for further discussion.
As a result of applying these new
standards retrospectively to all periods presented, we
recognized the following incremental effects on individual line
items on the consolidated balance sheets:
| December 27, 2008 | ||||||||||||
|
Before
|
After
|
|||||||||||
|
(In Millions)
|
Adoption | Adjustments | Adoption | |||||||||
|
Property, plant and equipment, net
|
$ | 17,544 | $ | 30 | $ | 17,574 | ||||||
|
Other long-term
assets
1
|
$ | 6,092 | $ | (273 | ) | $ | 5,819 | |||||
|
Long-term debt
|
$ | 1,886 | $ | (701 | ) | $ | 1,185 | |||||
|
Common stock and capital in excess of par value
|
$ | 12,944 | $ | 458 | $ | 13,402 | ||||||
| 1 | Primarily related to the adjustment made to the net deferred tax asset. |
The adoption of these new
standards did not result in a change to our prior-period
consolidated statements of operations, as the interest
associated with our debt issuances is capitalized and added to
the cost of qualified assets. The adoption of these new
standards did not result in a significant change to depreciation
expense or earnings per common share for 2009.
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CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In the first quarter of 2009, we
adopted revised standards for business combinations. These
revised standards generally require an entity to recognize the
assets, liabilities, contingencies, and contingent consideration
at their fair value on the acquisition date. For circumstances
in which the acquisition-date fair value for a contingency
cannot be determined during the measurement period and it is
concluded that it is probable that an asset or liability exists
as of the acquisition date and the amount can be reasonably
estimated, a contingency is recognized as of the acquisition
date based on the estimated amount. It further requires that
acquisition-related costs be recognized separately from the
acquisition and expensed as incurred, restructuring costs
generally be expensed in periods subsequent to the acquisition
date, and changes in estimates for accounting of deferred tax
asset valuation allowances and acquired income tax uncertainties
that occur subsequent to the measurement period be reflected in
income tax expense (benefit). In addition, acquired in-process
research and development is capitalized as an intangible asset.
These new standards became applicable to business combinations
on a prospective basis beginning in the first quarter of 2009.
Our acquisitions completed during 2009 have been accounted for
using these revised standards. See “Note 15:
Acquisitions.”
In the first quarter of 2009, we
adopted new standards that specify the way in which fair value
measurements should be made for
non-financial
assets and non-financial liabilities that are not measured and
recorded at fair value on a recurring basis, and specify
additional disclosures related to these fair value measurements.
The adoption of these new standards did not have a significant
impact on our consolidated financial statements.
In the second quarter of 2009, we
adopted new standards that provide guidance on how to determine
the fair value of assets and liabilities when the volume and
level of activity for the asset/liability have significantly
decreased. These new standards also provide guidance on
identifying circumstances that indicate a transaction is not
orderly. In addition, we are required to disclose in interim and
annual periods the inputs and valuation techniques used to
measure fair value and a discussion of changes in valuation
techniques. The adoption of these new standards did not have a
significant impact on our consolidated financial statements.
In the second quarter of 2009, we
adopted new standards for the recognition and measurement of
other-than-temporary
impairments for debt securities that replaced the pre-existing
“intent and ability” indicator. These new standards
specify that if the fair value of a debt security is less than
its amortized cost basis, an
other-than-temporary
impairment is triggered in circumstances in which (1) an entity
has an intent to sell the security, (2) it is more likely than
not that the entity will be required to sell the security before
recovery of its amortized cost basis, or (3) the entity does not
expect to recover the entire amortized cost basis of the
security (that is, a credit loss exists).
Other-than-temporary
impairments are separated into amounts representing credit
losses, which are recognized in earnings, and amounts related to
all other factors, which are recognized in other comprehensive
income (loss). The adoption of these new standards did not have
a significant impact on our consolidated financial statements.
See “Note 7:
Available-for-Sale
Investments” for further discussion.
In the third quarter of 2009, we
adopted amended standards for the fair value measurement of
liabilities. These amended standards clarify that in
circumstances in which a quoted price in an active market for
the identical liability is not available, we are required to use
the quoted price of the identical liability when traded as an
asset, quoted prices for similar liabilities, or quoted prices
for similar liabilities when traded as assets. If these quoted
prices are not available, we are required to use another
valuation technique, such as an income approach or a market
approach. These amended standards became effective for us
beginning in the fourth quarter of 2009 and did not have a
significant impact on our consolidated financial statements.
Note 4:
Recent Accounting Standards
In June 2009, the Financial
Accounting Standards Board (FASB) issued new standards for the
accounting for transfers of financial assets. These new
standards eliminate the concept of a qualifying special-purpose
entity; remove the scope exception from applying the accounting
standards that address the consolidation of variable interest
entities to qualifying
special-purpose
entities; change the standards for
de-recognizing
financial assets; and require enhanced disclosure. These new
standards are effective for us beginning in the first quarter of
2010, and are not expected to have a significant impact on our
consolidated financial statements.
In June 2009, the FASB issued
amended standards for determining whether to consolidate a
variable interest entity. These amended standards eliminate a
mandatory quantitative approach to determine whether a variable
interest gives the entity a controlling financial interest in a
variable interest entity in favor of a qualitatively focused
analysis, and require an ongoing reassessment of whether an
entity is the primary beneficiary. These amended standards are
effective for us beginning in the first quarter of 2010 and are
not expected to have a significant impact on our consolidated
financial statements.
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INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In October 2009, the FASB issued
new standards for revenue recognition with multiple
deliverables. These new standards impact the determination of
when the individual deliverables included in a multiple-element
arrangement may be treated as separate units of accounting.
Additionally, these new standards modify the manner in which the
transaction consideration is allocated across the separately
identified deliverables by no longer permitting the residual
method of allocating arrangement consideration. These new
standards are required to be adopted in the first quarter of
2011; however, early adoption is permitted. We do not expect
these new standards to significantly impact our consolidated
financial statements.
In October 2009, the FASB issued
new standards for the accounting for certain revenue
arrangements that include software elements. These new standards
amend the scope of pre-existing software revenue guidance by
removing from the guidance non-software components of tangible
products and certain software components of tangible products.
These new standards are required to be adopted in the first
quarter of 2011; however, early adoption is permitted. We do not
expect these new standards to significantly impact our
consolidated financial statements.
In January 2010, the FASB issued
amended standards that require additional fair value
disclosures. These amended standards require disclosures about
inputs and valuation techniques used to measure fair value as
well as disclosures about significant transfers, beginning in
the first quarter of 2010. Additionally, these amended standards
require presentation of disaggregated activity within the
reconciliation for fair value measurements using significant
unobservable inputs (Level 3), beginning in the first quarter of
2011. We do not expect these new standards to significantly
impact our consolidated financial statements.
Note 5:
Fair Value
Fair value is the price that would
be received from selling an asset or paid to transfer a
liability in an orderly transaction between market participants
at the measurement date. When determining fair value, we
consider the principal or most advantageous market in which we
would transact, and we consider assumptions that market
participants would use when pricing the asset or liability. Our
financial instruments are measured and recorded at fair value,
except for equity method investments, cost method investments,
cost method loans receivable, and most of our liabilities.
Fair
Value Hierarchy
The three levels of inputs that
may be used to measure fair value are as follows:
Level
1.
Quoted prices
in active markets for identical assets or liabilities.
Level
2.
Observable
inputs other than Level 1 prices, such as quoted prices for
similar assets or liabilities, quoted prices in markets with
insufficient volume or infrequent transactions (less active
markets), or model-derived valuations in which all significant
inputs are observable or can be derived principally from or
corroborated with observable market data for substantially the
full term of the assets or liabilities. Level 2 inputs also
include non-binding market consensus prices that can be
corroborated with observable market data, as well as quoted
prices that were adjusted for security-specific restrictions.
Level
3.
Unobservable
inputs to the valuation methodology that are significant to the
measurement of the fair value of assets or liabilities. Level 3
inputs also include non-binding market consensus prices or
non-binding broker quotes that we were unable to corroborate
with observable market data.
62
Table of Contents
INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Assets/Liabilities
Measured and Recorded at Fair Value on a Recurring
Basis
Assets and liabilities measured
and recorded at fair value on a recurring basis, excluding
accrued interest components, consisted of the following types of
instruments as of December 26, 2009 and December 27, 2008:
| December 26, 2009 | December 27, 2008 | |||||||||||||||||||||||||||||||
|
Fair Value Measured and Recorded at
|
Fair Value Measured and Recorded at
|
|||||||||||||||||||||||||||||||
| Reporting Date Using | Reporting Date Using | |||||||||||||||||||||||||||||||
|
(In Millions)
|
Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||||||
|
Assets
|
||||||||||||||||||||||||||||||||
|
Commercial paper
|
$ | — | $ | 6,326 | $ | — | $ | 6,326 | $ | — | $ | 4,387 | $ | — | $ | 4,387 | ||||||||||||||||
|
Corporate bonds
|
579 | 3,894 | 369 | 4,842 | 152 | 5,987 | 555 | 6,694 | ||||||||||||||||||||||||
|
Government
bonds
1
|
17 | 3,549 | — | 3,566 | — | 604 | — | 604 | ||||||||||||||||||||||||
|
Bank time deposits
|
— | 1,582 | — | 1,582 | — | 633 | — | 633 | ||||||||||||||||||||||||
|
Marketable equity securities
|
676 | 97 | — | 773 | 308 | 44 | — | 352 | ||||||||||||||||||||||||
|
Asset-backed securities
|
— | — | 754 | 754 | — | — | 1,083 | 1,083 | ||||||||||||||||||||||||
|
Municipal bonds
|
— | 390 | — | 390 | — | 383 | — | 383 | ||||||||||||||||||||||||
|
Loans receivable
|
— | 249 | — | 249 | — | — | — | — | ||||||||||||||||||||||||
|
Derivative assets
|
— | 137 | 31 | 168 | — | 158 | 15 | 173 | ||||||||||||||||||||||||
|
Money market fund deposits
|
61 | 17 | — | 78 | 373 | 49 | — | 422 | ||||||||||||||||||||||||
|
Equity securities offsetting deferred compensation
|
— | — | — | — | 299 | — | — | 299 | ||||||||||||||||||||||||
|
Total assets measured and recorded at fair value
|
$ | 1,333 | $ | 16,241 | $ | 1,154 | $ | 18,728 | $ | 1,132 | $ | 12,245 | $ | 1,653 | $ | 15,030 | ||||||||||||||||
|
Liabilities
|
||||||||||||||||||||||||||||||||
|
Derivative liabilities
|
$ | — | $ | 161 | $ | 65 | $ | 226 | $ | — | $ | 274 | $ | 25 | $ | 299 | ||||||||||||||||
|
Long-term debt
|
— | — | 123 | 123 | — | — | 122 | 122 | ||||||||||||||||||||||||
|
Total liabilities measured and recorded at fair value
|
$ | — | $ | 161 | $ | 188 | $ | 349 | $ | — | $ | 274 | $ | 147 | $ | 421 | ||||||||||||||||
| 1 | Includes bonds issued or deemed to be guaranteed by non-U.S. governments, Federal Deposit Insurance Company (FDIC)-insured corporate bonds, U.S. agency securities, and U.S. Treasury securities. |
63
Table of Contents
INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The tables below present
reconciliations for all assets and liabilities measured and
recorded at fair value on a recurring basis, excluding accrued
interest components, using significant unobservable inputs
(Level 3) for 2009 and 2008:
|
Fair Value Measured and Recorded Using
|
||||||||||||||||||||||||||||
| Significant Unobservable Inputs (Level 3) | ||||||||||||||||||||||||||||
|
Government
|
Corporate
|
Asset-Backed
|
Derivative
|
Derivative
|
Long-Term
|
Total Gains
|
||||||||||||||||||||||
|
(In Millions)
|
Bonds | Bonds | Securities | Assets | Liabilities | Debt | (Losses) | |||||||||||||||||||||
|
Balance as of December 27, 2008
|
$ | — | $ | 555 | $ | 1,083 | $ | 15 | $ | (25 | ) | $ | (122 | ) | ||||||||||||||
|
Total gains or losses (realized and unrealized):
|
||||||||||||||||||||||||||||
|
Included in
earnings
1
|
— | 4 | 25 | (2 | ) | 18 | (1 | ) | 44 | |||||||||||||||||||
|
Included in other comprehensive income (loss)
|
1 | 36 | 20 | — | — | — | 57 | |||||||||||||||||||||
|
Purchases, sales, issuances, and settlements, net
|
300 | 279 | (374 | ) | 18 | — | — | |||||||||||||||||||||
|
Transfers in and/or out of Level 3
|
(301 | ) 2 | (505 | ) 2 | — | — | (58 | ) | — | |||||||||||||||||||
|
Balance as of December 26, 2009
|
$ | — | $ | 369 | $ | 754 | $ | 31 | $ | (65 | ) | $ | (123 | ) | ||||||||||||||
|
Changes in unrealized gains or losses included in earnings
related to assets and liabilities still held as of December 26,
2009
1
|
$ | — | $ | — | $ | 53 | $ | — | $ | 18 | $ | (1 | ) | $ | 70 | |||||||||||||
| 1 | Gains and losses (realized and unrealized) included in earnings are primarily reported in interest and other, net on the consolidated statements of operations. | |
| 2 | Transferred from Level 3 to Level 2 due to a greater availability of observable market data and/or non-binding market consensus prices to value or corroborate the value of these instruments. |
|
Fair Value Measured and Recorded Using
|
||||||||||||||||||||||||
| Significant Unobservable Inputs (Level 3) | ||||||||||||||||||||||||
|
Corporate
|
Asset-Backed
|
Derivative
|
Derivative
|
Long-Term
|
Total Gains
|
|||||||||||||||||||
|
(In Millions)
|
Bonds | Securities | Assets | Liabilities | Debt | (Losses) | ||||||||||||||||||
|
Balance as of December 29, 2007
|
$ | 733 | $ | 1,840 | $ | 18 | $ | (15 | ) | $ | (125 | ) | ||||||||||||
|
Total gains or losses (realized and unrealized):
|
||||||||||||||||||||||||
|
Included in
earnings
1
|
3 | (108 | ) | 4 | (13 | ) | 3 | (111 | ) | |||||||||||||||
|
Included in other comprehensive income (loss)
|
(26 | ) | (23 | ) | — | — | — | (49 | ) | |||||||||||||||
|
Purchases, sales, issuances, and settlements, net
|
526 | (626 | ) | (10 | ) | 3 | — | |||||||||||||||||
|
Transfers in and/or out of Level 3
|
(681 | ) 2 | — | 3 | — | — | ||||||||||||||||||
|
Balance as of December 27, 2008
|
$ | 555 | $ | 1,083 | $ | 15 | $ | (25 | ) | $ | (122 | ) | ||||||||||||
|
Changes in unrealized gains or losses included in earnings
related to assets and liabilities still held as of December 27,
2008
1
|
$ | 3 | $ | (108 | ) | $ | 4 | $ | (13 | ) | $ | 3 | $ | (111 | ) | |||||||||
| 1 | Gains and losses (realized and unrealized) included in earnings are primarily reported in interest and other, net on the consolidated statements of operations. | |
| 2 | Transferred from Level 3 to Level 2 due to a greater availability of observable market data and/or non-binding market consensus prices to value or corroborate the value of these instruments. |
64
Table of Contents
INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Fair
Value Option for Financial Assets/Liabilities
Under accounting standards issued
in 2008, all of our non-convertible long-term debt was eligible
to be accounted for at fair value. However, we elected this fair
value option only for the bonds issued in 2007 by the Industrial
Development Authority of the City of Chandler, Arizona (2007
Arizona bonds). In connection with the 2007 Arizona bonds, we
entered into a total return swap agreement that effectively
converts the fixed rate obligation on the bonds to a floating
U.S.-dollar
LIBOR-based rate. As a result, changes in the fair value of this
debt are largely offset by changes in the fair value of the
total return swap agreement, without the need to apply hedge
accounting provisions. We did not elect this fair value option
for our Arizona bonds issued in 2005, since the bonds were
carried at amortized cost and were not eligible to apply hedge
accounting provisions due to the use of non-derivative hedging
instruments. The 2007 Arizona bonds are included within the
long-term debt balance on our consolidated balance sheets. As of
December 26, 2009 and December 27, 2008, no other instruments
were similar to the long-term debt instrument for which we
elected fair value treatment.
The fair value of the 2007 Arizona
bonds approximated carrying value at the time that we elected
the fair value option; therefore, we did not record a
cumulative-effect adjustment to the beginning balance of
retained earnings or to the deferred tax liability. As of
December 26, 2009, the fair value of the 2007 Arizona bonds did
not significantly differ from the contractual principal balance.
The fair value of the 2007 Arizona bonds was determined using
inputs that are observable in the market or that can be derived
from or corroborated with observable market data, as well as
unobservable inputs that were significant to the fair value.
Gains and losses on the 2007 Arizona bonds are recorded in
interest and other, net on the consolidated statements of
operations. We capitalize interest associated with the 2007
Arizona bonds. We add capitalized interest to the cost of
qualified assets and amortize it over the estimated useful lives
of the assets.
We elected the fair value option
for loans made in the second quarter of 2009. These loans
receivable are denominated in euros and mature in 2012 and 2013.
In connection with these loans receivable, we entered into a
currency interest rate swap agreement that effectively converts
the euro-denominated fixed-rate loans receivable to a floating
U.S.-dollar
LIBOR-based rate. As a result, changes in the fair value are
largely offset by changes in the fair value of the currency
interest rate swap agreement, without the need to apply hedge
accounting provisions. We made a loan in the fourth quarter of
2009 that is denominated in U.S. dollars and has a floating-rate
coupon. Since the loan matched our investment objectives, we did
not enter into any derivative instruments and did not elect the
fair value option for the loan.
As of December 26, 2009, the fair
value of our loans receivable for which we elected the fair
value option did not significantly differ from the contractual
principal balance. These loans receivable are classified within
other long-term assets. Fair value is determined using a
discounted cash flow model with all significant inputs derived
from or corroborated with observable market data. Gains and
losses from changes in fair value, as well as interest income,
are recorded in interest and other, net on the consolidated
statements of operations. During 2009, gains from fair value
changes of our loans receivable were largely offset by losses
from fair value changes of the currency interest rate swap,
resulting in a negligible net impact on our consolidated
statements of operations. Gains and losses attributable to
changes in credit risk are determined using observable credit
default spreads for comparable companies and were insignificant
during 2009.
65
Table of Contents
INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Assets
Measured and Recorded at Fair Value on a Non-Recurring
Basis
The following table presents the
financial instruments and non-financial assets that were
measured and recorded at fair value on a
non-recurring
basis during 2009, and the gains (losses) recorded during 2009
on those assets:
|
Total Gains
|
||||||||||||||||||||
|
Net Carrying
|
(Losses) for 12
|
|||||||||||||||||||
|
Value as of
|
Fair Value Measured and Recorded Using |
Months Ended
|
||||||||||||||||||
|
(In Millions)
|
Dec. 26, 2009 | Level 1 | Level 2 | Level 3 | Dec. 26, 2009 | |||||||||||||||
|
Non-marketable equity investments
|
$ | 208 | $ | — | $ | — | $ | 211 | $ | (187 | ) | |||||||||
|
Property, plant and equipment
|
$ | 27 | $ | — | $ | 27 | $ | — | $ | (16 | ) | |||||||||
|
Total gains (losses) for assets held as of December 26,
2009
|
$ | (203 | ) | |||||||||||||||||
|
Gains (losses) for non-marketable equity investments no longer
held
|
$ | (34 | ) | |||||||||||||||||
|
Gains (losses) for property, plant and equipment no longer held
|
$ | (136 | ) | |||||||||||||||||
|
Total gains (losses) for recorded
non-recurring
measurement
|
$ | (373 | ) | |||||||||||||||||
The following table presents the
financial instruments that were measured and recorded at fair
value on a non-recurring basis during 2008, and the gains
(losses) recorded during 2008 on those assets:
|
Total Gains
|
||||||||||||||||||||
|
Net Carrying
|
(Losses) for 12
|
|||||||||||||||||||
|
Value as of
|
Fair Value Measured and Recorded Using |
Months Ended
|
||||||||||||||||||
|
(In Millions)
|
Dec. 27, 2008 | Level 1 | Level 2 | Level 3 | Dec. 27, 2008 | |||||||||||||||
|
Clearwire Communications, LLC
|
$ | 238 | $ | — | $ | 238 | $ | — | $ | (762 | ) | |||||||||
|
Numonyx B.V.
|
$ | 484 | $ | — | $ | — | $ | 503 | $ | (250 | ) | |||||||||
|
Other non-marketable equity investments
|
$ | 84 | $ | — | $ | — | $ | 84 | $ | (200 | ) | |||||||||
|
Total gains (losses) for assets held as of December 27,
2008
|
$ | (1,212 | ) | |||||||||||||||||
The carrying value of our impaired
non-marketable equity investments may not equal our fair value
measurement at the time of impairment due to the subsequent
recognition of equity method adjustments.
A portion of our non-marketable
equity investments were measured and recorded at fair value in
2009 and 2008 due to events or circumstances that significantly
impacted the fair value of those investments, resulting in
other-than-temporary
impairment charges.
During 2008, we recorded a $762
million impairment charge on our investment in Clearwire
Communications, LLC (Clearwire LLC) to write down our investment
to its fair value, primarily due to the fair value being
significantly lower than the cost basis of our investment. The
impairment charge was included in gains (losses) on equity
method investments, net. We determine the fair value of our
investment in Clearwire LLC primarily using the quoted prices
for its parent company, Clearwire Corporation. The effects of
adjusting the quoted price for premiums that we believe market
participants would consider for Clearwire LLC, such as tax
benefits and voting rights associated with our investments, were
mostly offset by the effects of discounts to the fair value,
such as those due to transfer restrictions, lack of liquidity,
and differences in dividend rights that are included in the
value of Clearwire Corporation stock. We classified our
investment in Clearwire LLC as Level 2, as the unobservable
inputs to the valuation methodology were not significant to the
measurement of fair value. For further information about
Clearwire LLC and Clearwire Corporation, see “Note 11:
Non-Marketable
Equity Investments.”
66
Table of Contents
INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
We recorded a $250 million
impairment charge on our investment in Numonyx B.V. during 2008
to write down our investment to its fair value. Estimates for
revenue, earnings, and future cash flows were revised lower due
to a general decline in the NOR flash memory market segment in
2008. We measured the fair value of our investment in Numonyx
using a combination of the income approach and the market
approach. The income approach included the use of a weighted
average of multiple discounted cash flow scenarios of Numonyx,
which required the use of unobservable inputs, including
assumptions of projected revenue, expenses, capital spending,
and other costs, as well as a discount rate calculated based on
the risk profile of the flash memory market segment comparable
to our investment in Numonyx. The market approach included the
use of financial metrics and ratios, such as multiples of
revenue and earnings of comparable public companies. The
impairment charge was included in gains (losses) on equity
method investments, net on the consolidated statements of
operations.
We also measured and recorded
other non-marketable equity investments at fair value during
2009 and 2008 when we recognized
other-than-temporary
impairment charges. We classified these measurements as Level 3,
as we used unobservable inputs to the valuation methodologies
that were significant to the fair value measurements, and the
valuations required management judgment due to the absence of
quoted market prices. We calculated these fair value
measurements using the market and income approaches. The market
approach includes the use of financial metrics and ratios of
comparable public companies. The selection of comparable
companies requires management judgment and is based on a number
of factors, including comparable companies’ sizes, growth
rates, industries, development stages, and other relevant
factors. The income approach includes the use of a discounted
cash flow model, which requires the following significant
estimates for the investee: revenue, based on assumed market
segment size and assumed market segment share; costs; and
discount rates based on the risk profile of comparable
companies. Estimates of market segment size, market segment
share, and costs are developed by the investee
and/or
Intel
using historical data and available market data. The valuation
of these non-marketable equity investments also takes into
account variables such as conditions reflected in the capital
markets, recent financing activities by the investees, the
investees’ capital structure, and differences in seniority
and rights associated with the investees’ capital.
Additionally, certain of our
property, plant and equipment were measured and recorded at fair
value during 2009 due to events or circumstances we identified
that indicated that the carrying value of the assets or the
asset grouping was not recoverable, resulting in
other-than-temporary
impairment charges. Most of these asset impairments related to
manufacturing assets.
Financial
Instruments Not Recorded at Fair Value on a Recurring
Basis
We measure our equity method
investments, cost method investments, and cost method loans
receivable at fair value quarterly; however, they are recorded
at fair value only when an impairment charge is recognized. Our
non-financial assets, such as intangible assets and property,
plant and equipment, are measured at fair value when the
carrying amount exceeds the undiscounted cash flows, and are
recorded at fair value only when an impairment charge is
recognized.
Financial instruments that are not
recorded at fair value are measured at fair value quarterly for
disclosure purposes. The carrying amounts and fair values of
financial instruments not recorded at fair value as of December
26, 2009 and December 27, 2008 were as follows:
| 2009 | 2008 | |||||||||||||||
|
Carrying
|
Carrying
|
|||||||||||||||
|
(In Millions)
|
Amount | Fair Value | Amount | Fair Value | ||||||||||||
|
Non-marketable equity investments
|
$ | 3,411 | $ | 5,723 | $ | 4,053 | $ | 4,391 | ||||||||
|
Loans receivable
|
$ | 100 | $ | 100 | $ | — | $ | — | ||||||||
|
Long-term debt
|
$ | 2,083 | $ | 2,314 | $ | 1,065 | $ | 1,030 | ||||||||
The carrying amount and fair value
of loans receivable exclude $249 million of loans measured and
recorded at fair value as of December 26, 2009. The carrying
amount and fair value of long-term debt exclude $123 million of
long-term debt measured and recorded at fair value as of
December 26, 2009 ($122 million as of December 27, 2008). In
addition, the carrying amount and fair value of the current
portion of long-term debt are included in long-term debt in the
table above.
67
Table of Contents
INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Our non-marketable equity
investments include our investment in Numonyx. In February 2010,
we signed a definitive agreement with Micron Technology, Inc.
and Numonyx under which Micron agreed to acquire Numonyx in an
all-stock transaction. The fair value of our investment in
Numonyx was based on management’s assessment as of
December 26, 2009, and therefore the value implied by the
pending sale was not included in that assessment. For further
information, see “Note 11: Non-Marketable Equity
Investments.” As of December 26, 2009, we had
non-marketable equity investments in an unrealized loss position
of $30 million that had a fair value of $205 million (unrealized
loss position of $100 million on non-marketable equity
investments with a fair value of $270 million as of December 27,
2008).
The fair value of our loans
receivable is determined using a discounted cash flow model with
all significant inputs derived from or corroborated with
observable market data. The fair value of our long-term debt
takes into consideration variables such as credit-rating changes
and interest rate changes.
Note 6:
Trading Assets
Trading assets outstanding as of
December 26, 2009 and December 27, 2008 were as follows:
| 2009 | 2008 | |||||||||||||||
|
Net
|
Net
|
|||||||||||||||
|
Unrealized
|
Unrealized
|
|||||||||||||||
|
(In Millions)
|
Gains (Losses) | Fair Value | Gains (Losses) | Fair Value | ||||||||||||
|
Marketable debt instruments
|
$ | 47 | $ | 4,648 | $ | (96 | ) | $ | 2,863 | |||||||
|
Equity securities offsetting deferred compensation
|
— | — | (41 | ) | 299 | |||||||||||
|
Total trading assets
|
$ | 47 | $ | 4,648 | $ | (137 | ) | $ | 3,162 | |||||||
During 2009, we sold our equity
securities offsetting deferred compensation and entered into
derivative instruments that seek to offset changes in
liabilities related to these deferred compensation arrangements.
These deferred compensation liabilities were $511 million as of
December 26, 2009 ($332 million as of December 27, 2008) and are
included in other accrued liabilities. See “Note 8:
Derivative Financial Instruments” for further information
on our equity market risk management programs. Net losses on
equity securities offsetting deferred compensation arrangements
still held at the reporting date were $209 million in 2008
(gains of $28 million in 2007).
Net gains on marketable debt
instruments that we classified as trading assets held at the
reporting date were $91 million in 2009 (losses of $132 million
in 2008 and gains of $19 million in 2007). Net gains on the
related derivatives were $18 million in 2009 (losses of $5
million in 2008 and $37 million in 2007).
68
Table of Contents
INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 7:
Available-for-Sale
Investments
Available-for-sale
investments as of December 26, 2009 and December 27, 2008 were
as follows:
| 2009 | 2008 | |||||||||||||||||||||||||||||||
|
Gross
|
Gross
|
Gross
|
Gross
|
|||||||||||||||||||||||||||||
|
Adjusted
|
Unrealized
|
Unrealized
|
Adjusted
|
Unrealized
|
Unrealized
|
|||||||||||||||||||||||||||
|
(In Millions)
|
Cost | Gains | Losses 1 | Fair Value | Cost | Gains | Losses | Fair Value | ||||||||||||||||||||||||
|
Commercial paper
|
$ | 5,444 | $ | — | $ | — | $ | 5,444 | $ | 3,244 | $ | 4 | $ | — | $ | 3,248 | ||||||||||||||||
|
Corporate bonds
|
3,688 | 38 | (14 | ) | 3,712 | 6,323 | 5 | (139 | ) | 6,189 | ||||||||||||||||||||||
|
Government
bonds
2
|
2,205 | 11 | (1 | ) | 2,215 | 546 | 2 | — | 548 | |||||||||||||||||||||||
|
Bank time
deposits
3
|
1,317 | 1 | — | 1,318 | 606 | 2 | — | 608 | ||||||||||||||||||||||||
|
Marketable equity securities
|
387 | 386 | — | 773 | 393 | 2 | (43 | ) | 352 | |||||||||||||||||||||||
|
Asset-backed securities
|
154 | — | (18 | ) | 136 | 374 | — | (43 | ) | 331 | ||||||||||||||||||||||
|
Money market fund deposits
|
65 | — | — | 65 | 419 | — | — | 419 | ||||||||||||||||||||||||
|
Total
available-for-sale
investments
|
$ | 13,260 | $ | 436 | $ | (33 | ) | $ | 13,663 | $ | 11,905 | $ | 15 | $ | (225 | ) | $ | 11,695 | ||||||||||||||
| 1 | As of December 26, 2009, unrealized non-credit components of other-than-temporary impairments recognized on available-for-sale investments were insignificant. | |
| 2 | Includes bonds issued or deemed to be guaranteed by non-U.S. governments, FDIC-insured corporate bonds, U.S. agency securities, and U.S. Treasury securities. | |
| 3 | Bank time deposits were primarily issued by institutions outside the U.S. as of December 26, 2009 and December 27, 2008. |
As of December 26, 2009, we had
$33 million of gross unrealized losses on
available-for-sale
investments, which included $26 million of gross unrealized
losses related to individual securities that had been in a
continuous loss position for 12 months or more. The
available-for-sale
investments that were in an unrealized loss position as of
December 27, 2008, aggregated by the length of time that
individual securities had been in a continuous loss position,
were as follows:
| 2008 | ||||||||||||||||||||||||
| Less Than 12 Months | 12 Months or Greater | Total | ||||||||||||||||||||||
|
Gross
|
Gross
|
Gross
|
||||||||||||||||||||||
|
Unrealized
|
Unrealized
|
Unrealized
|
||||||||||||||||||||||
|
(In Millions)
|
Losses | Fair Value | Losses | Fair Value | Losses | Fair Value | ||||||||||||||||||
|
Corporate bonds
|
$ | (71 | ) | $ | 2,939 | $ | (68 | ) | $ | 1,778 | $ | (139 | ) | $ | 4,717 | |||||||||
|
Marketable equity securities
|
(43 | ) | 322 | — | — | (43 | ) | 322 | ||||||||||||||||
|
Asset-backed securities
|
— | — | (43 | ) | 312 | (43 | ) | 312 | ||||||||||||||||
|
Total
|
$ | (114 | ) | $ | 3,261 | $ | (111 | ) | $ | 2,090 | $ | (225 | ) | $ | 5,351 | |||||||||
As of December 26, 2009, a
majority of our
available-for-sale
investments in an unrealized loss position were rated AA-/Aa3 or
better. With the exception of a limited number of investments
for which we have recognized
other-than-temporary
impairments, we have not seen significant liquidation delays,
and for those that have matured we have received the full par
value of our original debt investments.
69
Table of Contents
INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The amortized cost and fair value
of
available-for-sale
debt investments as of December 26, 2009, by contractual
maturity, were as follows:
|
(In Millions)
|
Cost | Fair Value | ||||||
|
Due in 1 year or less
|
$ | 8,617 | $ | 8,619 | ||||
|
Due in 1–2 years
|
1,887 | 1,892 | ||||||
|
Due in 2–5 years
|
2,150 | 2,178 | ||||||
|
Instruments not due at a single maturity
date
1
|
219 | 201 | ||||||
|
Total
|
$ | 12,873 | $ | 12,890 | ||||
| 1 | Includes asset-backed securities and money market fund deposits. |
We sold
available-for-sale
investments, primarily marketable equity securities, for
proceeds of $192 million in 2009 ($1.2 billion in 2008 and $1.7
billion in 2007, primarily marketable debt instruments). The
gross realized gains on sales of
available-for-sale
investments totaled $43 million in 2009 ($38 million in 2008 and
$138 million in 2007) and were primarily related to our sales of
marketable equity securities. We recognized gains of $56 million
on third-party merger transactions during 2009 (insignificant
during 2008 and 2007).
Impairment charges recognized on
available-for-sale
investments were $9 million in 2009 ($354 million in 2008 and
insignificant in 2007). The 2008 impairment charges were
primarily related to a $176 million impairment charge on our
investment in Clearwire Corporation and $97 million of
impairment charges on our investment in Micron. Gross realized
losses on sales were $64 million during 2009 (insignificant
during 2008 and 2007) and were primarily related to asset-backed
securities. We had previously recognized
other-than-temporary
impairments totaling $34 million during 2008 and 2009 on these
investments that were sold.
Note 8:
Derivative Financial Instruments
Our primary objective for holding
derivative financial instruments is to manage currency exchange
rate risk and interest rate risk, and to a lesser extent, equity
market risk and commodity price risk. We currently do not hold
derivative instruments for the purpose of managing credit risk
since we limit the amount of credit exposure to any one
counterparty and generally enter into derivative transactions
with
high-credit-quality
counterparties. For further discussion, see “Note 9:
Concentrations of Credit Risk.”
Currency
Exchange Rate Risk
We are exposed to currency
exchange rate risk on our
non-U.S.-dollar-denominated
investments in debt instruments and loans receivable, which are
generally hedged with offsetting currency forward contracts,
currency options, or currency interest rate swaps. Substantially
all of our revenue and a majority of our expense and capital
purchasing activities are transacted in U.S. dollars. However,
certain operating expenditures and capital purchases are
incurred in or exposed to other currencies, primarily the
Japanese yen, the euro, and the Israeli shekel. We have
established balance sheet and forecasted transaction currency
risk management programs to protect against fluctuations in fair
value and the volatility of future cash flows caused by changes
in exchange rates. These programs reduce, but do not always
entirely eliminate, the impact of currency exchange movements.
Our currency risk management
programs include:
| • | Currency derivatives with cash flow hedge accounting designation that utilize currency forward contracts and currency options to hedge exposures to the variability in the U.S.-dollar equivalent of anticipated non-U.S.-dollar-denominated cash flows. These instruments generally mature within 12 months. For these derivatives, we report the after-tax gain or loss from the effective portion of the hedge as a component of accumulated other comprehensive income (loss) and reclassify it into earnings in the same period or periods in which the hedged transaction affects earnings, and within the same line item on the consolidated statements of operations as the impact of the hedged transaction. | |
| • | Currency derivatives without hedge accounting designation that utilize currency forward contracts, currency options, or currency interest rate swaps to economically hedge the functional currency equivalent cash flows of recognized monetary assets and liabilities and non-U.S.-dollar-denominated debt instruments classified as trading assets. The maturity of these instruments generally occurs within 12 months, except for derivatives associated with certain long-term equity-related investments and our loans receivable that generally mature within five years. Changes in the U.S.-dollar-equivalent cash flows of the underlying assets and liabilities are approximately offset by the changes in fair values of the related derivatives. We record net gains or losses in the line item on the consolidated statements of operations most closely associated with the economic underlying, primarily in interest and other, net, except for equity-related gains or losses, which we primarily record in gains (losses) on other equity investments, net. |
70
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INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Interest
Rate Risk
Our primary objective for holding
investments in debt instruments is to preserve principal while
maximizing yields. We generally swap the returns on our
investments in
fixed-rate
debt instruments with remaining maturities longer than six
months into
U.S.-dollar
three-month
LIBOR-based
returns, unless management specifically approves otherwise.
Our interest rate risk management
programs include:
| • | Interest rate derivatives with cash flow hedge accounting designation that utilize interest rate swap agreements to modify the interest characteristics of debt instruments. For these derivatives, we report the after-tax gain or loss from the effective portion of the hedge as a component of accumulated other comprehensive income (loss) and reclassify it into earnings in the same period or periods in which the hedged transaction affects earnings, and within the same line item on the consolidated statements of operations as the impact of the hedged transaction. | |
| • | Interest rate derivatives without hedge accounting designation that utilize interest rate swaps and currency interest rate swaps in economic hedging transactions, including hedges of non-U.S.-dollar-denominated debt instruments classified as trading assets. Floating interest rates on the swaps are reset on a monthly, quarterly, or semiannual basis. Changes in fair value of the debt instruments classified as trading assets are generally offset by changes in fair value of the related derivatives, both of which are recorded in interest and other, net. |
Equity
Market Risk
Our marketable investments include
marketable equity securities and equity derivative instruments.
To the extent that our marketable equity securities have
strategic value, we typically do not attempt to reduce or
eliminate our equity market exposure through hedging activity.
We may enter into transactions to reduce or eliminate the equity
market risks for our investments in strategic equity derivative
instruments, including warrants. For securities that we no
longer consider strategic, we evaluate legal, market, and
economic factors in our decision on the timing of disposal and
whether it is possible and appropriate to hedge the equity
market risk. Our equity market risk management program includes
equity derivatives without hedge accounting designation that
utilize equity derivatives, such as warrants, equity options, or
other equity derivatives. We recognize changes in the fair value
of such derivatives in gains (losses) on other equity
investments, net. We also utilize total return swaps to offset
changes in liabilities related to the equity market risks of
certain deferred compensation arrangements. Gains and losses
from changes in fair value of these total return swaps are
generally offset by the gains and losses on the related
liabilities, both of which are recorded in interest and other,
net.
As of December 27, 2008, we held
equity securities, which were classified as trading assets, to
generate returns that sought to offset changes in liabilities
related to the equity market risk of certain deferred
compensation arrangements. During 2009, we sold these securities
and began utilizing derivative instruments to offset the equity
market risks of these deferred compensation arrangements. The
gains and losses on the derivative instruments are intended to
more closely offset changes in the liabilities related to the
deferred compensation arrangements than our previous method of
investing in equity securities.
Commodity
Price Risk
We operate facilities that consume
commodities, and have established forecasted transaction risk
management programs to protect against fluctuations in fair
value and the volatility of future cash flows caused by changes
in commodity prices, such as those for natural gas. These
programs reduce, but do not always entirely eliminate, the
impact of commodity price movements.
Our commodity price risk
management program includes commodity derivatives with cash flow
hedge accounting designation that utilize commodity swap
contracts to hedge future cash flow exposures to the variability
in commodity prices. These instruments generally mature within
12 months. For these derivatives, we report the
after-tax
gain (loss) from the effective portion of the hedge as a
component of accumulated other comprehensive income (loss) and
reclassify it into earnings in the same period or periods in
which the hedged transaction affects earnings, and within the
same line item on the consolidated statements of operations as
the impact of the hedged transaction.
71
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INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Volume
of Derivative Activity
Total gross notional amounts for
outstanding derivatives (recorded at fair value) as of December
26, 2009 and December 27, 2008 were as follows:
|
(In Millions)
|
2009 | 2008 | ||||||
|
Currency forwards
|
$ | 5,732 | $ | 4,331 | ||||
|
Embedded debt derivative
|
3,600 | 1,600 | ||||||
|
Interest rate swaps
|
1,698 | 1,209 | ||||||
|
Currency interest rate swaps
|
1,577 | 612 | ||||||
|
Total return swaps
|
530 | 125 | ||||||
|
Currency options
|
375 | — | ||||||
|
Other
|
130 | 163 | ||||||
|
Total
|
$ | 13,642 | $ | 8,040 | ||||
The gross notional amounts for
currency forwards, currency interest rate swaps, and currency
options (presented by currency) as of December 26, 2009 and
December 27, 2008 were as follows:
|
(In Millions)
|
2009 | 2008 | ||||||
|
Euro
|
$ | 3,330 | $ | 1,819 | ||||
|
Japanese yen
|
1,764 | 909 | ||||||
|
Israeli shekel
|
707 | 680 | ||||||
|
British pound sterling
|
563 | 366 | ||||||
|
Chinese yuan
|
434 | 491 | ||||||
|
Malaysian ringgit
|
310 | 326 | ||||||
|
Other
|
576 | 352 | ||||||
|
Total
|
$ | 7,684 | $ | 4,943 | ||||
We utilize a rolling hedge
strategy for the majority of our currency forward contracts with
cash flow hedge accounting designation that hedges exposures to
the variability in the
U.S.-dollar
equivalent of anticipated
non-U.S.-dollar-denominated
cash flows. All of our currency forward contracts are single
delivery that are settled at maturity involving one cash-payment
exchange.
We use interest rate swaps and
currency interest rate swaps to hedge interest rate and currency
exchange rate risk components for our
fixed-rate
debt instruments with remaining maturities longer than six
months and for debt instruments denominated in currencies other
than the U.S. dollar. These swaps have multiple deliveries that
are settled at various interest payment times involving cash
payments at each interest and principal payment date, with the
majority of the contracts having quarterly payments.
Credit-Risk-Related
Contingent Features
An insignificant amount of our
derivative instruments contain
credit-risk-related
contingent features, such as provisions that require our debt to
maintain an
investment-grade
credit rating from each of the major
credit-rating
agencies. As of December 26, 2009 and December 27, 2008, we did
not have any derivative instruments with
credit-risk-related
contingent features that were in a significant net liability
position.
72
Table of Contents
INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Fair
Values of Derivative Instruments in the Consolidated Balance
Sheets
The fair values of our derivative
instruments as of December 26, 2009 and December 27, 2008 were
as follows:
| 2009 | 2008 | |||||||||||||||||||||||||||||||
|
Other
|
Other
|
Other
|
Other
|
Other
|
Other
|
Other
|
Other
|
|||||||||||||||||||||||||
|
Current
|
Long-Term
|
Accrued
|
Long-Term
|
Current
|
Long-Term
|
Accrued
|
Long-Term
|
|||||||||||||||||||||||||
|
(In Millions)
|
Assets | Assets | Liabilities | Liabilities | Assets | Assets | Liabilities | Liabilities | ||||||||||||||||||||||||
|
Derivatives designated as hedging instruments
|
||||||||||||||||||||||||||||||||
|
Currency forwards
|
$ | 81 | $ | 1 | $ | 20 | $ | 1 | $ | 83 | $ | — | $ | 122 | $ | 2 | ||||||||||||||||
|
Other
|
1 | — | 4 | — | 1 | — | 4 | — | ||||||||||||||||||||||||
|
Total derivatives designated as hedging instruments
|
$ | 82 | $ | 1 | $ | 24 | $ | 1 | $ | 84 | $ | — | $ | 126 | $ | 2 | ||||||||||||||||
|
Derivatives not designated as hedging instruments
|
||||||||||||||||||||||||||||||||
|
Currency forwards
|
$ | 40 | $ | — | $ | 11 | $ | — | $ | 38 | $ | — | $ | 38 | $ | — | ||||||||||||||||
|
Interest rate swaps
|
— | — | 81 | — | — | — | 62 | — | ||||||||||||||||||||||||
|
Currency interest rate swaps
|
5 | — | 47 | 9 | 38 | — | 25 | — | ||||||||||||||||||||||||
|
Embedded debt derivatives
|
— | — | — | 39 | — | — | — | 36 | ||||||||||||||||||||||||
|
Total return swaps
|
4 | 3 | 4 | — | — | 2 | — | — | ||||||||||||||||||||||||
|
Other
|
5 | 28 | 10 | — | 1 | 10 | 10 | — | ||||||||||||||||||||||||
|
Total derivatives not designated as hedging instruments
|
$ | 54 | $ | 31 | $ | 153 | $ | 48 | $ | 77 | $ | 12 | $ | 135 | $ | 36 | ||||||||||||||||
|
Total derivatives
|
$ | 136 | $ | 32 | $ | 177 | $ | 49 | $ | 161 | $ | 12 | $ | 261 | $ | 38 | ||||||||||||||||
Derivatives
in Cash Flow Hedging Relationships
The before-tax effects of
derivative instruments in cash flow hedging relationships for
the years ended December 26, 2009 and December 27, 2008 were as
follows:
|
Gains (Losses)
|
||||||||||||||||||||||||||||
|
Recognized in
|
Gains (Losses) Recognized in Income
|
|||||||||||||||||||||||||||
|
OCI on Derivatives
|
Gains (Losses) Reclassified from Accumulated
|
on Derivatives (Ineffective Portion and
|
||||||||||||||||||||||||||
| (Effective Portion) | OCI into Income (Effective Portion) | Amount Excluded from Effectiveness Testing) 1 | ||||||||||||||||||||||||||
|
(In Millions)
|
2009 | 2008 | Location | 2009 | 2008 | Location | 2009 | 2008 | ||||||||||||||||||||
|
Currency forwards
|
$ | 43 | $ | 26 | Cost of sales | $ | (12 | ) | $ | 59 | Interest and other, net | $ | 1 | $ | (11 | ) | ||||||||||||
| R&D | (30 | ) | 39 | |||||||||||||||||||||||||
| MG&A | (12 | ) | 6 | |||||||||||||||||||||||||
|
Other
|
(12 | ) | (6 | ) | Cost of sales | (13 | ) | (3 | ) | Interest and other, net | 1 | — | ||||||||||||||||
|
Total
|
$ | 31 | $ | 20 | $ | (67 | ) | $ | 101 | $ | 2 | $ | (11 | ) | ||||||||||||||
| 1 | Gains (losses) related to the ineffective portion of the hedges were insignificant in 2009 and 2008. |
We estimate that we will
reclassify approximately $85 million (before taxes) of net
derivative gains included in other accumulated comprehensive
income (loss) into earnings within the next 12 months. For all
periods presented, there was an insignificant impact on results
of operations from discontinued cash flow hedges as a result of
forecasted transactions that did not occur.
73
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INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Derivatives
Not Designated as Hedging Instruments
The effects of derivative
instruments not designated as hedging instruments on the
consolidated statements of operations for the years ended
December 26, 2009 and December 27, 2008 were as follows:
|
Location of Gains (Losses)
|
||||||||||
|
(In Millions)
|
Recognized in Income on Derivatives | 2009 | 2008 | |||||||
|
Currency forwards
|
Interest and other, net | $ | 37 | $ | 82 | |||||
|
Interest rate swaps
|
Interest and other, net | 15 | (27 | ) | ||||||
|
Currency interest rate swaps
|
Interest and other, net | (7 | ) | 47 | ||||||
|
Total return swaps
|
Interest and other, net | 51 | 2 | |||||||
|
Other
|
Interest and other, net | 2 | (11 | ) | ||||||
|
Other
|
Gains (losses) on other equity investments, net | 17 | (7 | ) | ||||||
|
Total
|
$ | 115 | $ | 86 | ||||||
Note 9:
Concentrations of Credit Risk
Financial instruments that
potentially subject us to concentrations of credit risk consist
principally of investments in debt instruments, derivative
financial instruments, loans receivable, and trade receivables.
We also enter into master netting arrangements with
counterparties when possible to mitigate credit risk in
derivative transactions. A master netting arrangement may allow
counterparties to net settle amounts owed to each other as a
result of multiple, separate derivative transactions.
We generally place investments
with high-credit-quality counterparties and, by policy, limit
the amount of credit exposure to any one counterparty based on
our analysis of that counterparty’s relative credit
standing. Substantially all of our investments in debt
instruments are with
A/A2
or
better rated issuers, and a substantial majority of the issuers
are rated
AA-/Aa3
or
better. Our investment policy requires substantially all
investments with original maturities at the time of investment
of up to six months to be rated at least
A-1/P-1
by
Standard & Poor’s/Moody’s, and specifies a higher
minimum rating for investments with longer maturities. For
instance, investments with maturities of greater than three
years require a minimum rating of
AA-/Aa3
at
the time of investment. Government regulations imposed on
investment alternatives of our
non-U.S.
subsidiaries, or the absence of A rated counterparties in
certain countries, result in some minor exceptions.
Credit-rating
criteria for derivative instruments are similar to those for
other investments. The amounts subject to credit risk related to
derivative instruments are generally limited to the amounts, if
any, by which a counterparty’s obligations exceed our
obligations with that counterparty. As of December 26, 2009, the
total credit exposure to any single counterparty did not exceed
$500 million. We obtain and secure available collateral from
counterparties against obligations, including securities lending
transactions, when we deem it appropriate.
A substantial majority of our
trade receivables are derived from sales to original equipment
manufacturers (OEMs) and original design manufacturers. We also
have accounts receivable derived from sales to industrial and
retail distributors. Our two largest customers accounted for 38%
of net revenue for 2009 and 2008, and 35% of net revenue for
2007. Additionally, these two largest customers accounted for
41% of our accounts receivable as of December 26, 2009 and
December 27, 2008. We believe that the receivable balances from
these largest customers do not represent a significant credit
risk based on cash flow forecasts, balance sheet analysis, and
past collection experience.
We have adopted credit policies
and standards intended to accommodate industry growth and
inherent risk. We believe that credit risks are moderated by the
financial stability of our major customers. We assess credit
risk through quantitative and qualitative analysis, and from
this analysis, we establish credit limits and determine whether
we will seek to use one or more credit support devices, such as
obtaining some form of third-party guaranty or standby letter of
credit, or obtaining credit insurance for all or a portion of
the account balance if necessary.
We continually monitor the credit
risk in our portfolio and mitigate our credit and interest rate
exposures in accordance with the policies approved by our Board
of Directors. We intend to continue to closely monitor future
developments in the credit markets and make appropriate changes
to our investment policies as deemed necessary.
74
Table of Contents
INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 10:
Other Long-Term Assets
Other long-term assets as of
December 26, 2009 and December 27, 2008 were as follows:
|
(In Millions)
|
2009 | 2008 | ||||||
|
Non-marketable equity method investments
|
$ | 2,472 | $ | 3,032 | ||||
|
Non-marketable cost method investments
|
939 | 1,021 | ||||||
|
Identified intangible assets
|
883 | 775 | ||||||
|
Non-current deferred tax
assets
1
|
278 | 511 | ||||||
|
Loans receivable
|
249 | — | ||||||
|
Other
|
519 | 480 | ||||||
|
Total other long-term assets
|
$ | 5,340 | $ | 5,819 | ||||
| 1 | December 27, 2008 balance is as adjusted due to changes to the accounting for convertible debt instruments. See “Note 3: Accounting Changes.” |
Note 11:
Non-Marketable Equity Investments
Equity
Method Investments
Equity method investments as of
December 26, 2009 and December 27, 2008 were as follows:
| 2009 | 2008 | |||||||||||||||
|
Carrying
|
Ownership
|
Carrying
|
Ownership
|
|||||||||||||
|
(In Millions, Except Percentages)
|
Value | Percentage | Value | Percentage | ||||||||||||
|
IMFT/IMFS
|
$ | 1,622 | 49 | % | $ | 2,071 | 49 | % | ||||||||
|
Numonyx B.V.
|
453 | 45 | % | 484 | 45 | % | ||||||||||
|
Clearwire Communications, LLC
|
261 | 7 | % | 238 | 8 | % | ||||||||||
|
Other equity method investments
|
136 | 239 | ||||||||||||||
|
Total
|
$ | 2,472 | $ | 3,032 | ||||||||||||
75
Table of Contents
INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Summarized
Financial Information of Equity Method Investees
The following is the aggregated
summarized financial information of our equity method investees,
which includes summary results of operations information for
2009, 2008, and 2007 and summary balance sheet information as of
December 26, 2009 and December 27, 2008:
|
(In Millions)
|
2009 | 2008 | 2007 | |||||||||
|
Operating results:
|
||||||||||||
|
Net revenue
|
$ | 3,307 | $ | 3,456 | $ | 1,484 | ||||||
|
Gross margin
|
$ | 305 | $ | 444 | $ | 67 | ||||||
|
Operating income (loss)
|
$ | (1,216 | ) | $ | (702 | ) | $ | (490 | ) | |||
|
Net income (loss)
|
$ | (1,302 | ) | $ | (932 | ) | $ | (674 | ) | |||
|
Dec. 26,
|
Dec. 27,
|
|||||||
|
(In Millions)
|
2009 | 2008 | ||||||
|
Balance sheet:
|
||||||||
|
Current assets
|
$ | 3,835 | $ | 3,257 | ||||
|
Non-current assets
|
$ | 11,174 | $ | 7,322 | ||||
|
Current liabilities
|
$ | 1,048 | $ | 1,316 | ||||
|
Non-current liabilities
|
$ | 2,690 | $ | 2,469 | ||||
|
Redeemable preferred stock
|
$ | 16 | $ | 50 | ||||
|
Non-controlling interests
|
$ | 7 | $ | 10 | ||||
Summarized financial information
for our equity method investees is presented on the basis of up
to a one-quarter lag and is included for the periods in which we
held an equity method ownership interest.
IMFT/IMFS
Micron and Intel formed IM Flash
Technologies, LLC (IMFT) in January 2006 and IM Flash Singapore,
LLP (IMFS) in February 2007. We established these joint ventures
to manufacture NAND flash memory products for Micron and Intel.
We own a 49% interest in each of these ventures. Initial
production at the IMFS fabrication facility, including the
purchase and installation of manufacturing equipment, remains on
hold. IMFT and IMFS are each governed by a Board of Managers,
with Micron and Intel initially appointing an equal number of
managers to each of the boards. The number of managers appointed
by each party adjusts depending on the parties’ ownership
interests. These ventures will operate until 2016 but are
subject to prior termination under certain terms and conditions.
These joint ventures are variable
interest entities. All costs of the joint ventures will be
passed on to Micron and Intel through our purchase agreements.
IMFT and IMFS are dependent upon Micron and Intel for any
additional cash requirements. Our known maximum exposure to loss
approximated our investment balance as of December 26, 2009,
which was $1.6 billion in IMFT/IMFS ($2.1 billion as of December
27, 2008). Our investment in these ventures is classified within
other long-term assets. As of December 26, 2009, except for the
amount due to IMFT/IMFS for product purchases and services, we
did not incur any additional liabilities in connection with our
interests in these joint ventures. In addition to the potential
loss of our existing investment, our actual losses could be
higher, as Intel and Micron are liable for other future
operating costs
and/or
obligations of IMFT/IMFS. In addition, future cash calls could
increase our investment balance and the related exposure to
loss. Finally, as we are currently committed to purchasing 49%
of IMFT’s production output and production-related
services, we may be required to purchase products at a cost in
excess of realizable value.
Our portion of IMFT costs,
primarily related to product purchases and
start-up
costs, was $735 million during 2009 ($1.1 billion during 2008
and $790 million during 2007). The amount due to IMFT for
product purchases and services provided was $75 million as of
December 26, 2009 and $190 million as of December 27, 2008.
During 2009, $419 million was returned to Intel by IMFT, which
is reflected as a return of equity method investment within
investing activities on the consolidated statements of cash
flows ($298 million during 2008).
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INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Micron and Intel are considered
related parties under the accounting standards for consolidating
variable interest entities. As a result, the primary beneficiary
is the entity that is most closely associated with the joint
ventures. To make that determination, we reviewed several
factors. The most important factors were consideration of the
size and nature of the joint ventures’ operations relative
to Micron and Intel, and which party had the majority of
economic exposure under the purchase agreements. Based on those
factors, we have determined that we are not most closely
associated with the joint ventures; therefore, we account for
our interests using the equity method of accounting and do not
consolidate these joint ventures.
Numonyx
In 2008, we divested our NOR flash
memory business in exchange for a 45.1% ownership interest in
Numonyx. For further discussion, see “Note 16:
Divestitures.” Our initial ownership interest, comprising
common stock and a note receivable, was recorded at $821
million. Our investment is accounted for under the equity method
of accounting, and our proportionate share of the income or loss
is recognized on a one-quarter lag. During 2009, we recorded $31
million of equity method losses ($87 million in 2008) within
gains (losses) on equity method investments, net. In 2008, we
also recorded a $250 million impairment charge on our investment
in Numonyx within gains (losses) on equity method investments,
net. For further discussion, see “Note 5: Fair Value.”
As of December 26, 2009, our
investment balance in Numonyx was $453 million and is classified
within other long-term assets ($484 million as of December 27,
2008). The carrying amount of our investment in Numonyx as of
December 26, 2009 was $274 million below our share of the book
value of the net assets of Numonyx. Most of this difference has
been assigned to specific Numonyx long-lived assets, and our
proportionate share of Numonyx income or loss will be adjusted
to recognize this difference over the estimated remaining useful
lives of those long-lived assets.
Additional terms of our investment
in Numonyx include:
| • | We are leasing a facility in Israel to Numonyx for a period of up to 24 years under a fully paid, up-front operating lease. Upon completion of the divestiture, we recorded $82 million of deferred income representing the value of the prepaid operating lease. The deferred income will generally offset the related depreciation over the lease term. | |
| • | We entered into supply and service agreements that involve the manufacture and the assembly and test of NOR flash memory products for Numonyx through 2008. The fair value of these agreements was $110 million and was recorded in other accrued liabilities upon completion of the transaction. This amount was recognized during 2008, primarily as a reduction of cost of sales. Subsequently, we agreed with Numonyx to continue certain supply and service agreements, and these agreements ended at the end of 2009. | |
| • | We entered into a transition services agreement that involved providing certain services, such as information technology, supply chain, and finance support, to Numonyx. The reimbursement from Numonyx for these services offset the related cost of sales and operating expenses. Most of the services provided under the agreement ended during 2009. | |
| • | Numonyx entered into an unsecured, four-year senior credit facility of up to $550 million, comprising a $450 million term loan and a $100 million revolving loan. Intel and STMicroelectronics N.V. have each provided the lenders with a guarantee of 50% of the payment obligations of Numonyx under the senior credit facility. A demand on our guarantee can be triggered if Numonyx is unable to meet its obligations under the credit facility. Acceleration of the obligations of Numonyx under the credit facility could be triggered by a monetary default of Numonyx or, in certain circumstances, by events affecting the creditworthiness of STMicroelectronics or Intel. The maximum amount of future undiscounted payments that we could be required to make under the guarantee is $275 million plus accrued interest, expenses of the lenders, and penalties. As of December 26, 2009, the carrying amount of the liability associated with the guarantee was $79 million, unchanged from the amount initially recorded in 2008, and is included in other accrued liabilities. | |
| • | Our note receivable is subordinated to the senior credit facility and the preferential payout of Francisco Partners L.P., and will be deemed extinguished in liquidation events that generate proceeds insufficient to repay the senior credit facility and Francisco Partners’ preferential payout. |
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INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Subsequent to the end of 2009, in February 2010, we signed a
definitive agreement with Micron and Numonyx under which Micron
agreed to acquire Numonyx in an all-stock transaction. Under the
terms of the agreement, Intel, STMicroelectronics, and Francisco
Partners would sell their financial interest in Numonyx for
140 million shares of Micron common stock plus, under
certain circumstances, up to an additional 10 million
shares of Micron common stock.
Clearwire
LLC
In 2008, we invested $1.0 billion
in Clearwire LLC, a wholly owned subsidiary of Clearwire
Corporation. In the fourth quarter of 2009, we invested an
additional $50 million. Our investment in Clearwire LLC is
accounted for under the equity method of accounting, and our
proportionate share of the income or loss is recognized on a
one-quarter lag. During 2009, we recorded $27 million of equity
method losses, which was net of a gain of $37 million as a
result of a dilution of our ownership interest from the
additional investment. Due to the
one-quarter
lag, we did not record equity method adjustments related to
Clearwire LLC during 2008. During 2008, we recorded a $762
million impairment charge on our investment in Clearwire LLC to
write down our investment to its fair value. The impairment
charge was included in gains (losses) on equity method
investments, net. For further discussion, see “Note 5: Fair
Value.”
As of December 26, 2009, our
investment balance in Clearwire LLC was $261 million and is
classified within other long-term assets ($238 million as of
December 27, 2008). As of December 26, 2009, the carrying value
of our investment in Clearwire LLC was $323 million below our
share of the book value of the net assets of Clearwire
Corporation, and a substantial majority of this difference has
been assigned to Clearwire Corporation spectrum assets, a
majority of which have an indefinite life.
Cost
Method Investments
The carrying value of our
non-marketable cost method investments was $939 million as of
December 26, 2009 and $1.0 billion as of December 27, 2008. In
2009, we recognized impairment charges on non-marketable cost
method investments of $179 million within gains (losses) on
other equity investments ($135 million in 2008 and $90 million
in 2007).
Note 12:
Gains (Losses) on Equity Method Investments, Net
Gains (losses) on equity method
investments, net included:
|
(In Millions)
|
2009 | 2008 | 2007 | |||||||||
|
Equity method losses, net
|
$ | (131 | ) | $ | (316 | ) | $ | (103 | ) | |||
|
Impairment charges
|
(42 | ) | (1,077 | ) | (28 | ) | ||||||
|
Other, net
|
26 | 13 | 134 | |||||||||
|
Total gains (losses) on equity method investments, net
|
$ | (147 | ) | $ | (1,380 | ) | $ | 3 | ||||
Note 13:
Gains (Losses) on Other Equity Investments, Net
Gains (losses) on other equity
investments, net included:
|
(In Millions)
|
2009 | 2008 | 2007 | |||||||||
|
Impairment charges
|
$ | (179 | ) | $ | (455 | ) | $ | (92 | ) | |||
|
Gains on sales, net
|
55 | 60 | 204 | |||||||||
|
Other, net
|
101 | 19 | 42 | |||||||||
|
Total gains (losses) on other equity investments, net
|
$ | (23 | ) | $ | (376 | ) | $ | 154 | ||||
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INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 14:
Interest and Other, Net
The components of interest and
other, net were as follows:
|
(In Millions)
|
2009 | 2008 | 2007 | |||||||||
|
Interest income
|
$ | 168 | $ | 592 | $ | 804 | ||||||
|
Interest expense
|
(1 | ) | (8 | ) | (15 | ) | ||||||
|
Other, net
|
(4 | ) | (96 | ) | 4 | |||||||
|
Total interest and other, net
|
$ | 163 | $ | 488 | $ | 793 | ||||||
Note 15:
Acquisitions
Consideration for acquisitions
that qualify as business combinations includes the net cash paid
and the fair value of any vested share-based awards assumed.
During the third quarter of 2009, we completed two acquisitions
qualifying as business combinations for total consideration of
$885 million (net of $59 million cash acquired). Substantially
all of this amount related to the acquisition of Wind River
Systems, Inc., a vendor of software for embedded devices,
completed by acquiring all issued and outstanding Wind River
Systems common shares. The objective of the acquisition of Wind
River Systems was to enable the introduction of products for the
embedded and handheld market segments, resulting in benefits for
our existing operations.
The combined consideration for
acquisitions completed during 2009 was allocated as follows:
|
(In Millions)
|
||||
|
Fair value of net tangible assets acquired
|
$ | 47 | ||
|
Goodwill
|
489 | |||
|
Acquired developed technology
|
148 | |||
|
Other identified intangible assets
|
169 | |||
|
Share-based awards assumed
|
32 | |||
|
Total
|
$ | 885 | ||
During 2008, we completed two
acquisitions qualifying as business combinations in exchange for
aggregate net cash consideration of $16 million, plus certain
liabilities. We allocated all of this consideration to goodwill.
During 2007, we completed one acquisition qualifying as a
business combination in exchange for net cash consideration of
$76 million, plus assumption of certain liabilities. We
allocated a substantial majority of this consideration to
goodwill. During 2008 and 2007, the acquired business and
related goodwill were recorded within the “other operating
segments” category for segment reporting purposes.
The completed acquisitions in
2009, 2008, and 2007 were not significant to our consolidated
results of operations.
Note 16:
Divestitures
During the first quarter of 2008,
we completed the divestiture of a portion of the
telecommunications-related assets of our optical platform
division. Consideration for the divestiture was $85 million,
including $75 million in cash and common shares of the acquiring
company, with an estimated value of $10 million at the date of
purchase. We entered into an agreement with the acquiring
company to provide certain manufacturing and transition services
for a limited time that has since been completed. During the
first quarter of 2008, as a result of this divestiture, we
recorded a net gain of $39 million within interest and other,
net. During the second quarter of 2008, we completed the sale of
the remaining portion of our optical platform division for
common shares of the acquiring company with an estimated value
of $27 million at the date of purchase. Overall, approximately
100 employees of our optical products business became employees
of the acquiring company.
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INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
During the second quarter of 2008,
we completed the divestiture of our NOR flash memory business.
We exchanged certain NOR flash memory assets and certain assets
associated with our phase change memory initiatives with Numonyx
for a note receivable with a contractual amount of $144 million
and a 45.1% ownership interest in the form of common stock,
together valued at $821 million. We retain certain rights to
intellectual property included within the divestiture.
Approximately 2,500 employees of our NOR flash memory business
became employees of Numonyx. STMicroelectronics contributed
certain assets to Numonyx for a note receivable with a
contractual amount of $156 million and a 48.6% ownership
interest in the form of common stock. Francisco Partners paid
$150 million in cash in exchange for the remaining 6.3%
ownership interest in the form of preferred stock and a note
receivable with a contractual amount of $20 million. In
addition, they received a payout right that is preferential
relative to the investments of Intel and STMicroelectronics. We
did not incur a gain or loss upon completion of the transaction
in the second quarter of 2008, as we had recorded asset
impairment charges in quarters prior to deal closure. For
further discussion, see “Note 19: Restructuring and Asset
Impairment Charges.” Subsequent to the divestiture, in the
third quarter of 2008 we recorded a $250 million impairment
charge on our investment in Numonyx within gains (losses) on
equity method investments. In February 2010, we signed a
definitive agreement with Micron and Numonyx under which Micron
agreed to acquire Numonyx in an all-stock transaction. For
further information, see “Note 11: Non-Marketable
Equity Investments.”
Note 17:
Goodwill
At the end of 2009, we reorganized
our business to better align our major product groups around the
core competencies of Intel architecture and our manufacturing
operations. See “Note 29: Operating Segment and Geographic
Information” for further discussion. Due to this
reorganization, goodwill was allocated from our prior operating
segments to our new operating segments, as shown below under
“Transfers.” The allocation was based on the fair
value of each business group within its original operating
segment relative to the fair value of that operating segment.
Goodwill activity for the years
ended December 26, 2009 and December 27, 2008 was as follows:
|
Other Intel
|
||||||||||||||||||||||||||||
|
Digital
|
Architecture
|
Other
|
||||||||||||||||||||||||||
|
Enterprise
|
Mobility
|
PC Client
|
Data Center
|
Operating
|
Operating
|
|||||||||||||||||||||||
|
(In Millions)
|
Group | Group | Group | Group | Segments | Segments | Total | |||||||||||||||||||||
|
Goodwill, net
|
||||||||||||||||||||||||||||
|
December 29, 2007
|
$ | 3,385 | $ | 248 | $ | — | $ | — | $ | — | $ | 283 | $ | 3,916 | ||||||||||||||
|
Additions due to
|
||||||||||||||||||||||||||||
|
business combinations
|
9 | — | — | — | — | 9 | 18 | |||||||||||||||||||||
|
Transfers
|
123 | — | — | — | — | (123 | ) | — | ||||||||||||||||||||
|
Other
|
(2 | ) | — | — | — | — | — | (2 | ) | |||||||||||||||||||
|
December 27, 2008
|
$ | 3,515 | $ | 248 | $ | — | $ | — | $ | — | $ | 169 | $ | 3,932 | ||||||||||||||
|
Additions due to
|
||||||||||||||||||||||||||||
|
business combinations
|
192 | 142 | — | — | — | 155 | 489 | |||||||||||||||||||||
|
Transfers
|
(3,707 | ) | (390 | ) | 2,220 | 1,459 | 507 | (89 | ) | — | ||||||||||||||||||
|
December 26, 2009
|
$ | — | $ | — | $ | 2,220 | $ | 1,459 | $ | 507 | $ | 235 | $ | 4,421 | ||||||||||||||
During 2009, prior to our
reorganization, we completed two acquisitions, including the
acquisition of Wind River Systems (see “Note 15:
Acquisitions” for further discussion). Goodwill recognized
from the Wind River Systems acquisition was assigned to our
Digital Enterprise Group, our Mobility Group, our Digital Home
Group, and our Wind River Software Group based on the relative
expected fair value provided by the acquisition. The assignment
of goodwill to our Digital Enterprise Group, our Mobility Group,
and our Digital Home Group was based on the proportionate
benefits expected to be generated for each group resulting from
enhanced market presence for existing businesses.
During 2008, we completed two
acquisitions that resulted in goodwill of $18 million.
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INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
After completing our annual
impairment reviews during the fourth quarter of 2009, 2008, and
2007, we concluded that goodwill was not impaired in any year.
As of December 26, 2009, accumulated impairment losses in total
were $713 million: $355 million associated with our PC Client
Group, $279 million associated with our Data Center Group, and
$79 million associated with other Intel architecture operating
segments.
Note 18:
Identified Intangible Assets
We classify identified intangible
assets within other long-term assets on the consolidated balance
sheets. Identified intangible assets consisted of the following
as of December 26, 2009:
|
Accumulated
|
||||||||||||
|
(In Millions)
|
Gross Assets | Amortization | Net | |||||||||
|
Intellectual property assets
|
$ | 1,190 | $ | (616 | ) | $ | 574 | |||||
|
Acquisition-related developed technology
|
166 | (34 | ) | 132 | ||||||||
|
Other intangible assets
|
509 | (332 | ) | 177 | ||||||||
|
Total identified intangible assets
|
$ | 1,865 | $ | (982 | ) | $ | 883 | |||||
During 2009, we acquired
intellectual property assets for $99 million with a weighted
average life of six years. During 2009, as a result of our
acquisition of Wind River Systems, we recorded
acquisition-related developed technology for $148 million with a
weighted average life of four years, and additions to other
intangible assets of $169 million with a weighted average life
of seven years. The substantial majority of other intangible
assets recorded were associated with customer relationships and
the Wind River Systems trade name. The remaining amount of other
intangible assets was related to acquired in-process research
and development.
Identified intangible assets
consisted of the following as of December 27, 2008:
|
Accumulated
|
||||||||||||
|
(In Millions)
|
Gross Assets | Amortization | Net | |||||||||
|
Intellectual property assets
|
$ | 1,206 | $ | (582 | ) | $ | 624 | |||||
|
Acquisition-related developed technology
|
22 | (8 | ) | 14 | ||||||||
|
Other intangible assets
|
340 | (203 | ) | 137 | ||||||||
|
Total identified intangible assets
|
$ | 1,568 | $ | (793 | ) | $ | 775 | |||||
During 2008, we acquired
intellectual property assets for $68 million with a weighted
average life of 10 years.
We recorded the amortization of
identified intangible assets on the consolidated statements of
operations as cost of sales, amortization of acquisition-related
intangibles, or a reduction of revenue.
Amortization expenses for the
three years ended December 26, 2009 were as follows:
|
(In Millions)
|
2009 | 2008 | 2007 | |||||||||
|
Intellectual property assets
|
$ | 149 | $ | 164 | $ | 159 | ||||||
|
Acquisition-related developed technology
|
$ | 30 | $ | 5 | $ | 1 | ||||||
|
Other intangible assets
|
$ | 129 | $ | 87 | $ | 92 | ||||||
Based on identified intangible
assets recorded as of December 26, 2009, and assuming that the
underlying assets will not be impaired in the future, we expect
amortization expenses for each period to be as follows:
|
(In Millions)
|
2010 | 2011 | 2012 | 2013 | 2014 | |||||||||||||||
|
Intellectual property assets
|
$ | 147 | $ | 95 | $ | 84 | $ | 67 | $ | 56 | ||||||||||
|
Acquisition-related developed technology
|
$ | 54 | $ | 45 | $ | 24 | $ | 9 | $ | — | ||||||||||
|
Other intangible assets
|
$ | 26 | $ | 21 | $ | 24 | $ | 23 | $ | 20 | ||||||||||
81
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INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 19:
Restructuring and Asset Impairment Charges
The following table summarizes
restructuring and asset impairment charges by plan for the three
years ended December 26, 2009:
|
(In Millions)
|
2009 | 2008 | 2007 | |||||||||
|
2009 restructuring program
|
$ | 215 | $ | — | $ | — | ||||||
|
2008 NAND plan
|
— | 215 | — | |||||||||
|
2006 efficiency program
|
16 | 495 | 516 | |||||||||
|
Total restructuring and asset impairment charges
|
$ | 231 | $ | 710 | $ | 516 | ||||||
2009
Restructuring Program
In the first quarter of 2009,
management approved plans to restructure some of our
manufacturing and assembly and test operations. These plans
included closing two assembly and test facilities in Malaysia,
one facility in the Philippines, and one facility in China;
stopping production at a 200mm wafer fabrication facility in
Oregon; and ending production at our 200mm wafer fabrication
facility in California. We do not expect significant future
charges related to the 2009 plan. The following table summarizes
charges for the 2009 restructuring plan during 2009:
|
(In Millions)
|
2009 | |||
|
Employee severance and benefit arrangements
|
$ | 208 | ||
|
Asset impairments
|
7 | |||
|
Total restructuring and asset impairment charges
|
$ | 215 | ||
The following table summarizes the
restructuring and asset impairment activity for the 2009
restructuring plan during 2009:
|
Employee Severance
|
Asset
|
|||||||||||
|
(In Millions)
|
and Benefits | Impairments | Total | |||||||||
|
Accrued restructuring balance as of December 27, 2008
|
$ | — | $ | — | $ | — | ||||||
|
Additional accruals
|
223 | 7 | 230 | |||||||||
|
Adjustments
|
(15 | ) | — | (15 | ) | |||||||
|
Cash payments
|
(182 | ) | — | (182 | ) | |||||||
|
Non-cash settlements
|
— | (7 | ) | (7 | ) | |||||||
|
Accrued restructuring balance as of December 26, 2009
|
$ | 26 | $ | — | $ | 26 | ||||||
We recorded the additional
accruals, net of adjustments, as restructuring and asset
impairment charges. The remaining accrual as of December 26,
2009 was related to severance benefits that are recorded within
accrued compensation and benefits.
The charges above include $208
million related to employee severance and benefit arrangements
for 6,500 employees.
2008
NAND Plan
In the fourth quarter of 2008,
management approved a plan with Micron to discontinue the supply
of NAND flash memory from the 200mm facility within the IMFT
manufacturing network. The agreement resulted in a $215 million
restructuring charge, primarily related to the IMFT 200mm supply
agreement. The restructuring charge resulted in a reduction of
our investment in IMFT/IMFS of $184 million, a cash payment to
Micron of $24 million, and other cash payments of $7 million.
The 2008 NAND plan was completed at the end of 2008.
82
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INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2006
Efficiency Program
In the third quarter of 2006,
management approved several actions as part of a restructuring
plan designed to improve operational efficiency and financial
results. The following table summarizes charges for the 2006
efficiency program for the three years ended December 26, 2009:
|
(In Millions)
|
2009 | 2008 | 2007 | |||||||||
|
Employee severance and benefit arrangements
|
$ | 8 | $ | 151 | $ | 289 | ||||||
|
Asset impairments
|
8 | 344 | 227 | |||||||||
|
Total
|
$ | 16 | $ | 495 | $ | 516 | ||||||
During 2006, as part of our
assessment of our worldwide manufacturing capacity operations,
we placed for sale our fabrication facility in Colorado Springs,
Colorado. As a result of placing the facility for sale, in 2006
we recorded a $214 million impairment charge to write down to
fair value the land, building, and equipment. We incurred $54
million in additional asset impairment charges as a result of
market conditions related to the Colorado Springs facility
during 2007 and additional charges in 2008. We sold the Colorado
Springs facility in 2009.
In addition, during 2007 we
recorded land and building write-downs related to certain
facilities in Santa Clara, California. We also incurred $85
million in asset impairment charges related to assets that we
sold in conjunction with the divestiture of our NOR flash memory
business in 2007 and an additional $275 million in 2008. We
determined the impairment charges based on the fair value, less
selling costs, that we expected to receive upon completion of
the divestiture in 2007 and determined the impairment charges
based on the revised fair value of the equity and note
receivable that we received upon completion of the divestiture,
less selling costs, in 2008. For further information on this
divestiture, see “Note 16: Divestitures.”
The following table summarizes the
restructuring and asset impairment activity for the 2006
efficiency program during 2008 and 2009:
|
Employee
|
||||||||||||
|
Severance
|
Asset
|
|||||||||||
|
(In Millions)
|
and Benefits | Impairments | Total | |||||||||
|
Accrued restructuring balance as of December 29, 2007
|
$ | 127 | $ | — | $ | 127 | ||||||
|
Additional accruals
|
167 | 344 | 511 | |||||||||
|
Adjustments
|
(16 | ) | — | (16 | ) | |||||||
|
Cash payments
|
(221 | ) | — | (221 | ) | |||||||
|
Non-cash settlements
|
— | (344 | ) | (344 | ) | |||||||
|
Accrued restructuring balance as of December 27, 2008
|
$ | 57 | $ | — | $ | 57 | ||||||
|
Additional accruals
|
18 | 8 | 26 | |||||||||
|
Adjustments
|
(10 | ) | — | (10 | ) | |||||||
|
Cash payments
|
(65 | ) | — | (65 | ) | |||||||
|
Non-cash settlements
|
— | (8 | ) | (8 | ) | |||||||
|
Accrued restructuring balance as of December 26, 2009
|
$ | — | $ | — | $ | — | ||||||
We recorded the additional
accruals, net of adjustments, as restructuring and asset
impairment charges. The 2006 efficiency plan is complete.
From the third quarter of 2006
through 2009, we incurred a total of $1.6 billion in
restructuring and asset impairment charges related to this
program. These charges included a total of $686 million related
to employee severance and benefit arrangements for 11,300
employees, and $896 million in asset impairment charges.
83
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INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 20:
Borrowings
Short-Term
Debt
Short-term debt included the
current portion of long-term debt of $157 million and drafts
payable of $15 million as of December 26, 2009 (drafts payable
of $100 million and the current portion of long-term debt of $2
million as of December 27, 2008). We have an ongoing
authorization from our Board of Directors to borrow up to $3.0
billion, including through the issuance of commercial paper.
Maximum borrowings under our commercial paper program during
2009 were $610 million. We did not have outstanding commercial
paper as of December 26, 2009 and December 27, 2008. Maximum
borrowings under our commercial paper program during 2008 were
$1.3 billion. Our commercial paper was rated
A-1+
by
Standard & Poor’s and
P-1
by
Moody’s as of December 26, 2009.
Long-Term
Debt
Our long-term debt as of December
26, 2009 and December 27, 2008 was as follows:
|
(In Millions)
|
2009 | 2008 1 | ||||||
|
2009 junior subordinated convertible debentures due 2039 at 3.25%
|
$ | 1,030 | $ | — | ||||
|
2005 junior subordinated convertible debentures due 2035 at 2.95%
|
896 | 886 | ||||||
|
2005 Arizona bonds due 2035 at 4.375%
|
157 | 158 | ||||||
|
2007 Arizona bonds due 2037 at 5.3%
|
123 | 122 | ||||||
|
Other debt
|
— | 21 | ||||||
| 2,206 | 1,187 | |||||||
|
Less:
current portion of long-term debt
|
(157 | ) | (2 | ) | ||||
|
Total long-term debt
|
$ | 2,049 | $ | 1,185 | ||||
| 1 | As adjusted due to changes to the accounting for convertible debt instruments. See “Note 3: Accounting Changes.” |
Convertible
Debentures
In 2005, we issued $1.6 billion of
junior subordinated convertible debentures (the 2005 debentures)
due in 2035. In 2009, we issued $2.0 billion of junior
subordinated convertible debentures (the 2009 debentures) due in
2039. Both the 2005 and 2009 debentures pay a fixed rate of
interest semiannually. We capitalized all interest associated
with these debentures during the periods presented.
| 2005 Debentures | 2009 Debentures | |||||||
|
Coupon interest rate
|
2.95 | % | 3.25 | % | ||||
|
Effective interest
rate
1
|
6.45 | % | 7.20 | % | ||||
|
Maximum amount of contingent interest that will accrue per
year
2
|
0.40 | % | 0.50 | % | ||||
| 1 | The effective rate is based on the rate for a similar instrument that does not have a conversion feature. | |
| 2 | Both the 2005 and 2009 debentures 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 and August 1, 2019, for the 2005 and 2009 debentures, respectively, as outlined in the indentures governing the 2005 and 2009 debentures. The fair value of the related embedded derivative was $24 million and $15 million as of December 26, 2009 for the 2005 and 2009 debentures, respectively ($36 million as of December 27, 2008 for the 2005 debentures). |
84
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INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Both the 2005 and 2009 debentures
are convertible, subject to certain conditions, into shares of
our common stock. Holders can surrender the 2005 debentures for
conversion at any time. 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
trading-day
period ending on the last trading day of the preceding fiscal
quarter. We can settle any conversion or repurchase of the 2005
debentures in cash or stock at our option. However, 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. On or
after December 15, 2012, 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. 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. If certain events occur in the future, the
indentures governing the 2005 and 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. Both
the 2005 and 2009 debentures are subordinated in right of
payment to our existing and future senior debt and to the other
liabilities of our subsidiaries. We have concluded that both the
2005 and 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 derivatives.
| 2005 Debentures | 2009 Debentures | |||||||||||
|
Dec. 26,
|
Dec. 27,
|
Dec. 26,
|
||||||||||
|
(In Millions, Except Per Share Amounts)
|
2009 | 2008 | 2009 | |||||||||
|
Outstanding principal
|
$ | 1,600 | $ | 1,600 | $ | 2,000 | ||||||
|
Equity component carrying amount
|
$ | 466 | $ | 466 | $ | 613 | ||||||
|
Unamortized
discount
1
|
$ | 691 | $ | 701 | $ | 953 | ||||||
|
Net debt carrying amount
|
$ | 896 | $ | 886 | $ | 1,030 | ||||||
|
Conversion rate (shares of common stock per $1,000 principal
amount of
debentures)
2
|
32.12 | 31.72 | 44.09 | |||||||||
|
Effective conversion price (per share of common stock)
|
$ | 31.14 | $ | 31.53 | $ | 22.68 | ||||||
| 1 | The remaining amortization periods for the 2005 and 2009 debentures are approximately 26 and 30 years, respectively, as of December 26, 2009. | |
| 2 | The conversion rate adjusts for certain events outlined in the indentures governing the 2005 and 2009 debentures, such as quarterly dividend distributions in excess of $0.10 and $0.14 per share, for the 2005 and 2009 debentures, respectively, but does not adjust for accrued interest. In addition, the conversion rate will increase for a holder of either the 2005 or 2009 debentures who elects to convert the debentures in connection with certain share exchanges, mergers, or consolidations involving Intel, as described in the indentures governing the 2005 and 2009 debentures. |
Arizona
Bonds
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
principal amount, excluding the premium, of the bonds issued in
2005 (2005 Arizona bonds) was $157 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. As such, the 2005
Arizona bonds were classified as short-term debt as of December
26, 2009.
85
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INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 a total return swap agreement that effectively
converts the fixed-rate obligation on the bonds to a floating
U.S.-dollar
LIBOR-based rate. At the beginning of the first quarter of 2008,
we elected to account for the 2007 Arizona bonds at fair value.
For further discussion, see “Note 5: Fair Value.”
As of December 26, 2009, our
aggregate debt maturities based on outstanding principal were as
follows (in millions):
|
Year Payable
|
||||
|
2010
|
$ | 157 | ||
|
2011
|
— | |||
|
2012
|
— | |||
|
2013
|
— | |||
|
2014
|
— | |||
|
2015 and thereafter
|
3,725 | |||
|
Total
|
$ | 3,882 | ||
Substantially all of the
difference between the total aggregate debt maturities above and
the total carrying amount of our debt is due to the equity
component of our convertible debentures.
Note 21:
Retirement Benefit Plans
Profit
Sharing Plans
We provide
tax-qualified
profit sharing retirement plans for the benefit of eligible
employees, former employees, and retirees in the U.S. and
certain other countries. The plans, which are funded by annual
discretionary contributions by Intel, are designed to provide
employees with an accumulation of funds for retirement on a
tax-deferred
basis. Our Chief Executive Officer (CEO) determines the amounts
to be contributed to the U.S. Profit Sharing Plan under
delegation of authority from our Board of Directors, pursuant to
the terms of the Profit Sharing Plan. As of December 26, 2009,
51% of our U.S. Profit Sharing Fund was invested in equities,
and 49% was invested in
fixed-income
instruments. Most assets are managed by external investment
managers.
For the benefit of eligible U.S.
employees, we also provide a
non-tax-qualified
supplemental deferred compensation plan for certain highly
compensated employees. This plan is designed to permit certain
discretionary employer contributions and to permit employee
deferral of a portion of compensation in excess of certain tax
limits. This plan is unfunded.
We expensed $260 million for the
qualified and
non-qualified
U.S. profit sharing retirement plans in 2009 ($289 million in
2008 and $302 million in 2007). In the first quarter of 2010, we
funded $265 million for the 2009 contribution to the qualified
U.S. Profit Sharing Plan.
Pension
and Postretirement Benefit Plans
U.S. Pension Benefits.
We provide a
tax-qualified
defined-benefit pension plan for the benefit of eligible
employees, former employees, and retirees in the U.S. The plan
provides for a minimum pension benefit that is determined by a
participant’s years of service and final average
compensation (taking into account the participant’s social
security wage base), reduced by the participant’s balance
in the U.S. Profit Sharing Plan. If we do not continue to
contribute to, or significantly reduce contributions to, the
U.S. Profit Sharing Plan, the projected benefit obligation of
the U.S.
defined-benefit
plan could increase significantly.
86
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INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Non-U.S.
Pension Benefits.
We
also provide
defined-benefit
pension plans in certain other countries. Consistent with the
requirements of local law, we deposit funds for certain plans
with insurance companies, with
third-party
trustees, or into
government-managed
accounts,
and/or
accrue for the unfunded portion of the obligation. The
assumptions used in calculating the obligation for the
non-U.S.
plans depend on the local economic environment.
Postretirement Medical
Benefits.
Upon
retirement, eligible U.S. employees are credited with a defined
dollar amount based on years of service. These credits can be
used to pay all or a portion of the cost to purchase coverage in
an Intel-sponsored medical plan. If the available credits are
not sufficient to pay the entire cost of the coverage, the
remaining cost is the responsibility of the retiree.
Funding
Policy.
Our
practice is to fund the various pension plans in amounts
sufficient to meet the minimum requirements of U.S. federal laws
and regulations or applicable local laws and regulations.
Additional funding may be provided as deemed appropriate.
Depending on the design of the plan, local customs, and market
circumstances, the liabilities of a plan may exceed qualified
plan assets.
Benefit
Obligation and Plan Assets
The changes in the benefit
obligations and plan assets for the plans described above were
as follows:
|
U.S. Pension
|
Non-U.S. Pension
|
Postretirement
|
||||||||||||||||||||||
| Benefits | Benefits | Medical Benefits | ||||||||||||||||||||||
|
(In Millions)
|
2009 | 2008 | 2009 | 2008 | 2009 | 2008 | ||||||||||||||||||
|
Change in projected benefit obligation:
|
||||||||||||||||||||||||
|
Beginning benefit obligation
|
$ | 542 | $ | 291 | $ | 691 | $ | 794 | $ | 173 | $ | 213 | ||||||||||||
|
Service cost
|
12 | 14 | 47 | 64 | 12 | 12 | ||||||||||||||||||
|
Interest cost
|
35 | 16 | 37 | 42 | 11 | 12 | ||||||||||||||||||
|
Plan participants’ contributions
|
— | — | 9 | 10 | 4 | 3 | ||||||||||||||||||
|
Actuarial (gain) loss
|
(10 | ) | 244 | (74 | ) | (157 | ) | 6 | (60 | ) | ||||||||||||||
|
Currency exchange rate changes
|
— | — | 4 | 13 | — | — | ||||||||||||||||||
|
Plan amendments
|
— | — | (19 | ) | — | — | — | |||||||||||||||||
|
Plan
curtailments
1
|
— | — | (7 | ) | (20 | ) | — | — | ||||||||||||||||
|
Plan
settlements
1
|
— | — | (16 | ) | (27 | ) | — | — | ||||||||||||||||
|
Benefits paid to plan participants
|
(12 | ) | (23 | ) | (19 | ) | (28 | ) | (6 | ) | (7 | ) | ||||||||||||
|
Ending projected benefit obligation
|
$ | 567 | $ | 542 | $ | 653 | $ | 691 | $ | 200 | $ | 173 | ||||||||||||
|
U.S. Pension
|
Non-U.S. Pension
|
Postretirement
|
||||||||||||||||||||||
| Benefits | Benefits | Medical Benefits | ||||||||||||||||||||||
|
(In Millions)
|
2009 | 2008 | 2009 | 2008 | 2009 | 2008 | ||||||||||||||||||
|
Change in plan assets:
|
||||||||||||||||||||||||
|
Beginning fair value of plan assets
|
$ | 303 | $ | 227 | $ | 457 | $ | 548 | $ | 1 | $ | 1 | ||||||||||||
|
Actual return on plan assets
|
20 | (6 | ) | 58 | (132 | ) | (1 | ) | (1 | ) | ||||||||||||||
|
Employer contributions
|
100 | 105 | 54 | 80 | 4 | 5 | ||||||||||||||||||
|
Plan participants’ contributions
|
— | — | 9 | 10 | 4 | 3 | ||||||||||||||||||
|
Currency exchange rate changes
|
— | — | 3 | 22 | — | — | ||||||||||||||||||
|
Plan
settlements
1
|
— | — | (10 | ) | (43 | ) | — | — | ||||||||||||||||
|
Benefits paid to plan participants
|
(12 | ) | (23 | ) | (19 | ) | (28 | ) | (6 | ) | (7 | ) | ||||||||||||
|
Ending fair value of plan assets
|
$ | 411 | $ | 303 | $ | 552 | $ | 457 | $ | 2 | $ | 1 | ||||||||||||
| 1 | 2008 curtailments and settlements were primarily related to the divestiture of our NOR flash memory business for employees at our Israel and Philippines facilities. |
87
Table of Contents
INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table summarizes the
amounts recognized on the consolidated balance sheets as of
December 26, 2009 and December 27, 2008:
|
U.S. Pension
|
Non-U.S. Pension
|
Postretirement
|
||||||||||||||||||||||
| Benefits | Benefits | Medical Benefits | ||||||||||||||||||||||
|
(In Millions)
|
2009 | 2008 | 2009 | 2008 | 2009 | 2008 | ||||||||||||||||||
|
Other long-term assets
|
$ | — | $ | — | $ | 85 | $ | 39 | $ | — | $ | — | ||||||||||||
|
Accrued compensation and benefits
|
— | — | (5 | ) | (4 | ) | (4 | ) | (4 | ) | ||||||||||||||
|
Other long-term liabilities
|
(156 | ) | (239 | ) | (181 | ) | (269 | ) | (194 | ) | (168 | ) | ||||||||||||
|
Accumulated other comprehensive loss (income)
|
268 | 307 | 21 | 167 | (42 | ) | (49 | ) | ||||||||||||||||
|
Net amount recognized
|
$ | 112 | $ | 68 | $ | (80 | ) | $ | (67 | ) | $ | (240 | ) | $ | (221 | ) | ||||||||
The following table summarizes the
amounts recorded to accumulated other comprehensive income
(loss) before taxes, as of December 26, 2009 and December 27,
2008:
|
U.S. Pension
|
Non-U.S. Pension
|
Postretirement
|
||||||||||||||||||||||
| Benefits | Benefits | Medical Benefits | ||||||||||||||||||||||
|
(In Millions)
|
2009 | 2008 | 2009 | 2008 | 2009 | 2008 | ||||||||||||||||||
|
Net prior service cost
|
$ | — | $ | — | $ | 16 | $ | — | $ | (12 | ) | $ | (16 | ) | ||||||||||
|
Net actuarial gain (loss)
|
(268 | ) | (307 | ) | (36 | ) | (165 | ) | 54 | 65 | ||||||||||||||
|
Reclassification adjustment of transition obligation
|
— | — | (1 | ) | (2 | ) | — | — | ||||||||||||||||
|
Defined benefit plans, net
|
$ | (268 | ) | $ | (307 | ) | $ | (21 | ) | $ | (167 | ) | $ | 42 | $ | 49 | ||||||||
As of December 26, 2009, the
accumulated benefit obligation was $270 million for the U.S.
defined-benefit pension plan ($251 million as of December 27,
2008) and $511 million for the
non-U.S.
defined-benefit pension plans ($556 million as of December 27,
2008). Included in the aggregate data in the following tables
are the amounts applicable to our pension plans, with
accumulated benefit obligations in excess of plan assets, as
well as plans with projected benefit obligations in excess of
plan assets. Amounts related to such plans were as follows:
|
U.S. Pension
|
Non-U.S. Pension
|
|||||||||||||||
| Benefits | Benefits | |||||||||||||||
|
(In Millions)
|
2009 | 2008 | 2009 | 2008 | ||||||||||||
|
Plans with accumulated benefit obligations in excess of plan
assets:
|
||||||||||||||||
|
Accumulated benefit obligations
|
$ | — | $ | — | $ | 198 | $ | 447 | ||||||||
|
Plan assets
|
$ | — | $ | — | $ | 68 | $ | 255 | ||||||||
|
Plans with projected benefit obligations in excess of plan
assets:
|
||||||||||||||||
|
Projected benefit obligations
|
$ | 567 | $ | 542 | $ | 258 | $ | 531 | ||||||||
|
Plan assets
|
$ | 411 | $ | 303 | $ | 70 | $ | 258 | ||||||||
Assumptions
Weighted average actuarial
assumptions used to determine benefit obligations for the plans
were as follows:
|
U.S. Pension
|
Non-U.S. Pension
|
Postretirement
|
||||||||||||||||||||||
| Benefits | Benefits | Medical Benefits | ||||||||||||||||||||||
| 2009 | 2008 | 2009 | 2008 | 2009 | 2008 | |||||||||||||||||||
|
Discount rate
|
6.1 | % | 6.7 | % | 5.7 | % | 5.6 | % | 6.3 | % | 6.8 | % | ||||||||||||
|
Rate of compensation increase
|
5.1 | % | 5.0 | % | 3.6 | % | 3.5 | % | n/a | n/a | ||||||||||||||
88
Table of Contents
INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Weighted average actuarial
assumptions used to determine costs for the plans were as
follows:
|
Non-U.S. Pension
|
Postretirement
|
|||||||||||||||||||||||||||||||||||
| U.S. Pension Benefits | Benefits | Medical Benefits | ||||||||||||||||||||||||||||||||||
| 2009 | 2008 | 2007 | 2009 | 2008 | 2007 | 2009 | 2008 | 2007 | ||||||||||||||||||||||||||||
|
Discount rate
|
6.7 | % | 5.6 | % | 5.5 | % | 5.5 | % | 5.2 | % | 5.2 | % | 6.8 | % | 5.6 | % | 5.5 | % | ||||||||||||||||||
|
Expected long-term rate of return on plan assets
|
4.5 | % | 5.1 | % | 5.6 | % | 6.7 | % | 6.5 | % | 6.2 | % | n/a | n/a | n/a | |||||||||||||||||||||
|
Rate of compensation increase
|
5.0 | % | 5.0 | % | 5.0 | % | 3.4 | % | 4.3 | % | 4.5 | % | n/a | n/a | n/a | |||||||||||||||||||||
For the U.S. plans, we developed
the discount rate by calculating the benefit payment streams by
year to determine when benefit payments will be due. We then
matched the benefit payment streams by year to the AA corporate
bond rates to match the timing and amount of the expected
benefit payments and discounted back to the measurement date to
determine the appropriate discount rate. For the
non-U.S.
plans, we used two approaches to develop the discount rate. In
certain countries, we used a model consisting of a theoretical
bond portfolio for which the timing and amount of cash flows
approximated the estimated benefit payments of our pension
plans. In other countries, we analyzed current market long-term
bond rates and matched the bond maturity with the average
duration of the pension liabilities. The expected long-term rate
of return on plan assets assumptions take into consideration
both duration and risk of the investment portfolios, and are
developed through consensus and building-block methodologies.
The consensus methodology includes unadjusted estimates by the
fund manager on future market expectations by broad asset
classes and geography. The building-block approach determines
the rates of return implied by historical risk premiums across
asset classes. In addition, we analyzed rates of return relevant
to the country where each plan is in effect and the investments
applicable to the plan, expectations of future returns, local
actuarial projections, and the projected long-term rates of
return from external investment managers. The expected long-term
rate of return on plan assets shown for the
non-U.S.
plan assets is weighted to reflect each country’s relative
portion of the
non-U.S.
plan assets.
Net
Periodic Benefit Cost
The net periodic benefit cost for
the plans included the following components:
|
Non-U.S. Pension
|
Postretirement
|
|||||||||||||||||||||||||||||||||||
| U.S. Pension Benefits | Benefits | Medical Benefits | ||||||||||||||||||||||||||||||||||
|
(In Millions)
|
2009 | 2008 | 2007 | 2009 | 2008 | 2007 | 2009 | 2008 | 2007 | |||||||||||||||||||||||||||
|
Service cost
|
$ | 12 | $ | 14 | $ | 18 | $ | 47 | $ | 64 | $ | 70 | $ | 12 | $ | 12 | $ | 6 | ||||||||||||||||||
|
Interest cost
|
35 | 16 | 17 | 37 | 42 | 37 | 11 | 12 | 11 | |||||||||||||||||||||||||||
|
Expected return on plan assets
|
(13 | ) | (11 | ) | (10 | ) | (31 | ) | (39 | ) | (29 | ) | — | — | — | |||||||||||||||||||||
|
Amortization of prior service cost
|
— | — | (25 | ) | (4 | ) | — | 1 | 4 | 4 | 4 | |||||||||||||||||||||||||
|
Amortization of transition obligation
|
— | — | — | 1 | — | — | — | — | — | |||||||||||||||||||||||||||
|
Recognized net actuarial loss (gain)
|
22 | 1 | 7 | 8 | 6 | 11 | (4 | ) | — | — | ||||||||||||||||||||||||||
|
Recognized curtailment
gains
1
|
— | — | — | (6 | ) | (4 | ) | — | — | — | — | |||||||||||||||||||||||||
|
Recognized settlement
losses
1
|
— | — | — | 6 | 17 | — | — | — | — | |||||||||||||||||||||||||||
|
Net periodic benefit cost
|
$ | 56 | $ | 20 | $ | 7 | $ | 58 | $ | 86 | $ | 90 | $ | 23 | $ | 28 | $ | 21 | ||||||||||||||||||
| 1 | 2008 curtailments and settlements were primarily related to the divestiture of our NOR flash memory business for employees at our Israel and Philippines facilities. |
89
Table of Contents
INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Fair
Value of Plan Assets
Fair value is the price that would
be received from selling an asset or paid to transfer a
liability in an orderly transaction between market participants
at the measurement date. The three levels of inputs that may be
used to measure fair value of plan assets are as follows:
Level
1.
Quoted prices in
active markets for identical assets.
Level
2.
Observable inputs
other than Level 1 prices, such as quoted prices for similar
assets, quoted prices in markets with insufficient volume or
infrequent transactions (less active markets), or model-derived
valuations in which all significant inputs are observable or can
be derived principally from or corroborated with observable
market data for substantially the full term of the assets. Level
2 inputs also include non-binding market consensus prices that
can be corroborated with observable market data.
Level
3.
Unobservable inputs
to the valuation methodology that are significant to the
measurement of the fair value of assets.
U.S.
Pension Plan Assets
In general, the investment
strategy for U.S. pension plan assets is to maximize
risk-adjusted returns, taking into consideration the investment
horizon and expected volatility, to ensure that there are
sufficient assets available to pay pension benefits as they come
due. When deemed appropriate, we may invest a portion of the
funds in futures contracts for the purpose of acting as a
temporary substitute for an investment in a particular equity
security. The fund does not engage in speculative futures
transactions. The allocation to each asset class will fluctuate
with market conditions, such as volatility and liquidity
concerns, and will typically be rebalanced when outside the
target ranges, which are 80% to 90% for fixed-income debt
instrument investments and 10% to 20% for domestic and
international equity fund investments. The fixed-income debt
instrument portion is invested largely in common collective
trust funds that invest in one- to three-year U.S. government
bonds and investment-grade credit, and to a lesser extent, in
non-U.S.,
asset-backed, and non-investment-grade debt. The expected
long-term
rate of return for the U.S. pension plan assets is 4.5%.
U.S. pension plan assets measured
at fair value on a recurring basis consisted of the following
investment categories as of December 26, 2009:
|
Fair Value Measured at
|
||||||||||||||||
| Reporting Date Using | ||||||||||||||||
|
(In Millions)
|
Level 1 | Level 2 | Level 3 | Total | ||||||||||||
|
Equity securities:
|
||||||||||||||||
|
U.S. Large Cap Stock Fund
|
$ | — | $ | 25 | $ | — | $ | 25 | ||||||||
|
U.S. Small Cap Stock Fund
|
— | 7 | — | 7 | ||||||||||||
|
International Stock Fund
|
— | 31 | — | 31 | ||||||||||||
|
Fixed income:
|
||||||||||||||||
|
U.S.
Treasuries
1
|
— | 182 | — | 182 | ||||||||||||
|
U.S. corporate bonds
|
— | 65 | — | 65 | ||||||||||||
|
Global Bond Fund—Common Collective
Trusts
2
|
— | 53 | — | 53 | ||||||||||||
|
Global Bond
Fund—Other
2
|
15 | 33 | — | 48 | ||||||||||||
|
Total U.S. pension plan assets at fair value
|
$ | 15 | $ | 396 | $ | — | $ | 411 | ||||||||
| 1 | This category represents two common collective trust funds that seek to replicate the performance of the Barclays Capital 1 – 3 Year Treasury Bond Index and Barclays Capital 1 – 3 Year Agency Bond Index over the long term. | |
| 2 | The fund’s target allocation is approximately 50% of assets in government and high-quality corporate bonds and asset-backed securities to mitigate risks related to deflation, 10% in global inflation-indexed bonds to provide protection from inflation, and another 10% in international government and corporate bonds. The residual 30% of the fund is allocated to other fixed-income investments, which may include exposures to the aforementioned sectors as well as emerging markets, high-yield investments, and mortgage-backed securities. |
90
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INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Non-U.S.
Plan Assets
The investments of the
non-U.S.
plans are managed by insurance companies, third-party trustees,
or pension funds, consistent with regulations or market practice
of the country where the assets are invested. The investment
manager makes investment decisions within the guidelines set by
us or local regulations. The investment manager evaluates
performance by comparing the actual rate of return to the return
on other similar assets. Investments managed by qualified
insurance companies or pension funds under standard contracts
follow local regulations, and we are not actively involved in
their investment strategies. For the assets that we have
discretion to set investment guidelines, the assets are invested
in developed country equities and fixed-income debt instruments,
either through index funds or direct investment. In general, the
investment strategy is designed to accumulate a diversified
portfolio among markets, asset classes, or individual securities
in order to reduce market risk and assure that the pension
assets are available to pay benefits as they come due. The
average expected long-term rate of return for the
non-U.S.
plan assets is 6.1%.
Non-U.S.
plan assets measured at fair value on a recurring basis
consisted of the following investment categories as of December
26, 2009:
|
Fair Value Measured at
|
||||||||||||||||
| Reporting Date Using | ||||||||||||||||
|
(In Millions)
|
Level 1 | Level 2 | Level 3 | Total | ||||||||||||
|
Equity securities:
|
||||||||||||||||
|
Global
equities
1
|
$ | 149 | $ | 60 | $ | — | $ | 209 | ||||||||
|
Real estate
|
— | 7 | 14 | 21 | ||||||||||||
|
Non-U.S.
venture capital
|
— | — | 2 | 2 | ||||||||||||
|
Fixed income:
|
||||||||||||||||
|
Non-U.S.
government bonds
|
— | 116 | — | 116 | ||||||||||||
|
Investments held by insurance
companies
2
|
— | 167 | — | 167 | ||||||||||||
|
Insurance
contracts
2
|
— | — | 25 | 25 | ||||||||||||
|
Total assets measured at fair value
|
$ | 149 | $ | 350 | $ | 41 | $ | 540 | ||||||||
|
Cash
|
12 | |||||||||||||||
|
Total
non-U.S.
plan assets at fair value
|
$ | 552 | ||||||||||||||
| 1 | The majority of the assets in this category are invested in a diversified mix of equities of developed countries, including the U.S., and emerging markets throughout the world. | |
| 2 | Investment assets managed by qualified insurance companies are invested as part of the insurance companies’ general fund. We do not have control over the target allocation or visibility of the investment strategies of these investments. Insurance contracts and investments held by insurance companies made up 35% of total non-U.S. plan assets as of December 26, 2009 (36% as of December 27, 2008). |
The table below presents a
reconciliation for the
non-U.S.
plan assets measured at fair value on a recurring basis using
significant unobservable inputs (Level 3) for 2009:
|
Non-U.S.
|
||||||||||||
|
Venture
|
Insurance
|
|||||||||||
|
(In Millions)
|
Real Estate | Capital | Contracts | |||||||||
|
Balance as of December 27, 2008
|
$ | 16 | $ | 4 | $ | 23 | ||||||
|
Realized and unrealized return on plan assets
|
(4 | ) | (2 | ) | 1 | |||||||
|
Purchases, sales, and settlements, net
|
2 | — | 1 | |||||||||
|
Balance as of December 26, 2009
|
$ | 14 | $ | 2 | $ | 25 | ||||||
The target allocation of the
non-U.S.
plan assets that we have control over is 65% equity securities
and 35% fixed-income instruments.
91
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INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Concentration
of Risk
We manage a variety of risks,
including market, credit, and liquidity risks, across our plan
assets through our investment managers. We define a
concentration of risk as an undiversified exposure to one of the
above-mentioned risks that increases the exposure of the loss of
plan assets unnecessarily. We monitor exposure to such risks in
both the U.S. and
non-U.S.
plans by monitoring the magnitude of the risk in each plan and
diversifying our exposure to such risks across a variety of
instruments, markets, and counterparties. As of December 26,
2009, we did not have concentrations of risk in any single
entity, manager, counterparty, sector, industry, or country.
Funding
Expectations
Under applicable law for the U.S.
Pension Plan, we are not required to make any contributions
during 2010. Our expected funding for the
non-U.S.
plans during 2010 is approximately $55 million. We expect
employer contributions to the postretirement medical benefits
plan to be approximately $5 million during 2010.
Estimated
Future Benefit Payments
We expect the benefits to be paid
through 2019 from the U.S. and
non-U.S.
pension plans and other postretirement benefit plans to be on
average approximately $75 million annually.
Note 22:
Commitments
A portion of our capital equipment
and certain facilities are under operating leases that expire at
various dates through 2028. Additionally, portions of our land
are under leases that expire at various dates through 2062.
Rental expense was $120 million in 2009 ($141 million in 2008
and $154 million in 2007).
Minimum rental commitments under
all non-cancelable leases with an initial term in excess of one
year were as follows as of December 26, 2009 (in millions):
|
Year Payable
|
||||
|
2010
|
$ | 102 | ||
|
2011
|
83 | |||
|
2012
|
66 | |||
|
2013
|
40 | |||
|
2014
|
20 | |||
|
2015 and thereafter
|
38 | |||
|
Total
|
$ | 349 | ||
Commitments for construction or
purchase of property, plant and equipment totaled $1.8 billion
as of December 26, 2009 ($2.9 billion as of December 27, 2008),
substantially all of which will be due within the next year.
Other purchase obligations and commitments totaled approximately
$900 million as of December 26, 2009 ($1.2 billion as of
December 27, 2008). Other purchase obligations and commitments
include payments due under various types of licenses, agreements
to purchase raw materials or other goods, and payments due under
non-contingent
funding obligations. Funding obligations include, for example,
agreements to fund various projects with other companies. In
addition, we have various contractual commitments with Micron
and IMFT/IMFS. For further information on these contractual
commitments, see “Note 11: Non-Marketable Equity
Investments.”
92
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INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 23:
Employee Equity Incentive Plans
Our equity incentive plans are
broad-based, long-term retention programs intended to attract
and retain talented employees and align stockholder and employee
interests.
In May 2009, stockholders approved
an extension of the 2006 Equity Incentive Plan (the 2006 Plan).
Stockholders approved 134 million additional shares for
issuance, increasing the total shares of common stock available
for issuance as equity awards to employees and
non-employee
directors to 428 million shares. The approval also extended the
expiration date of the 2006 Plan to June 2012. The maximum
number of shares to be awarded as non-vested shares (restricted
stock) or non-vested share units (restricted stock units)
increased to 253 million shares. As of December 26, 2009, 226
million shares remained available for future grant under the
2006 Plan. We may assume the equity incentive plans and the
outstanding equity awards of certain acquired companies. Once
they are assumed, we do not grant additional shares under these
plans.
Also in May 2009, stockholders
approved an employee stock option exchange program (Option
Exchange) to give employees (not listed officers) the
opportunity to exchange eligible stock options for a lesser
number of new stock options that have approximately the same
fair value as the options surrendered, as of the date of the
exchange. The Option Exchange commenced on September 28, 2009
and expired on October 30, 2009. Eligible options included stock
options granted under any Intel stock option or equity incentive
plan between October 1, 2000 and September 28, 2008 that had an
exercise price above $20.83, which was the 52-week closing-price
high as of October 30, 2009. A total of 217 million eligible
stock options were tendered and cancelled in exchange for 83
million new stock options granted. The new stock options have an
exercise price of $19.04, which is equal to the market price of
Intel common stock (defined as the average of the high and low
trading prices) on October 30, 2009. The new stock options were
issued under the 2006 Plan and are subject to its terms and
conditions. The new stock options vest in equal annual
increments over a four-year period from the date of grant and
will expire seven years from the grant date. Using the
Black-Scholes option pricing model, we determined that the fair
value of the surrendered stock options on a
grant-by-grant
basis was approximately equal, as of the date of the exchange,
to the fair value of the eligible stock options exchanged,
resulting in insignificant incremental share-based compensation.
In 2009, we began issuing
restricted stock units with both a market condition and a
service condition (market-based restricted stock units), which
were referred to in our 2009 Proxy Statement as outperformance
stock units, to a small group of senior officers and
non-employee directors. The number of shares of Intel common
stock to be received at vesting will range from 33% to 200% of
the target amount, based on total stockholder return (TSR) on
Intel common stock measured against the benchmark TSR of a peer
group over a three-year period. TSR is a measure of stock price
appreciation plus any dividends paid in this performance period.
As of December 26, 2009, there were 2 million market-based
restricted stock units outstanding. These market-based
restricted stock units accrue dividend equivalents and vest
three years and one month from the grant date.
In connection with our completed
acquisition of Wind River Systems, we assumed their equity
incentive plans and issued replacement awards in the third
quarter of 2009. The stock options and restricted stock units
issued generally retain the terms and conditions of the
respective plans under which they were originally granted. We
will not grant additional shares under these plans.
Equity awards granted to employees
in 2009 under our equity incentive plans generally vest over 4
years from the date of grant, and options expire 7 years from
the date of grant with the exception of market-based restricted
stock units and replacement awards related to acquisitions.
Equity awards granted to key officers, senior-level employees,
and key employees in 2009 may have delayed vesting beginning 3
to 5 years from the date of grant, and options expire 7 to 10
years from the date of grant.
The 2006 Stock Purchase Plan
allows eligible employees to purchase shares of our common stock
at 85% of the value of our common stock on specific dates. Under
the 2006 Stock Purchase Plan, we made 240 million shares of
common stock available for issuance through August 2011. As of
December 26, 2009, 157 million shares were available for
issuance under the 2006 Stock Purchase Plan.
93
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INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Share-Based
Compensation
Share-based compensation
recognized in 2009 was $889 million ($851 million in 2008 and
$952 million in 2007).
We adjust share-based compensation
on a quarterly basis for changes to our estimate of expected
equity award forfeitures based on our review of recent
forfeiture activity and expected future employee turnover. We
recognize the effect of adjusting the forfeiture rate for all
expense amortization after January 1, 2006 in the period that we
change the forfeiture estimate. The effect of forfeiture
adjustments in 2007, 2008, and 2009 was not significant.
The total share-based compensation
cost capitalized as part of inventory as of December 26, 2009
was $33 million ($46 million as of December 27, 2008 and $41
million as of December 29, 2007). During 2009, the tax benefit
that we realized for the tax deduction from option exercises and
other awards totaled $119 million ($147 million in 2008 and $265
million in 2007).
We estimate the fair value of
restricted stock unit awards with time-based vesting using the
value of our common stock on the date of grant, reduced by the
present value of dividends expected to be paid on our common
stock prior to vesting. We estimate the fair value of
market-based
restricted stock units using a Monte Carlo simulation model on
the date of grant. We based the weighted average estimated
values of restricted stock unit grants, as well as the weighted
average assumptions that we used in calculating the fair value,
on estimates at the date of grant, as follows:
| 2009 | 2008 | 2007 | ||||||||||
|
Estimated values
|
$ | 14.63 | $ | 19.94 | $ | 21.13 | ||||||
|
Risk-free interest rate
|
0.9 | % | 2.1 | % | 4.7 | % | ||||||
|
Dividend yield
|
3.5 | % | 2.6 | % | 2.0 | % | ||||||
|
Volatility
|
46 | % | n/a | n/a | ||||||||
We use the Black-Scholes option
pricing model to estimate the fair value of options granted
under our equity incentive plans and rights to acquire common
stock granted under our stock purchase plan. We based the
weighted average estimated values of employee stock option
grants (excluding stock option grants in connection with the
Option Exchange) and rights granted under the stock purchase
plan, as well as the weighted average assumptions used in
calculating these values, on estimates at the date of grant, as
follows:
| Stock Options | Stock Purchase Plan | |||||||||||||||||||||||
| 2009 | 2008 | 2007 | 2009 | 2008 | 2007 | |||||||||||||||||||
|
Estimated values
|
$ | 4.72 | $ | 5.74 | $ | 5.79 | $ | 4.14 | $ | 5.32 | $ | 5.18 | ||||||||||||
|
Expected life (in years)
|
4.9 | 5.0 | 5.0 | .5 | .5 | .5 | ||||||||||||||||||
|
Risk-free interest rate
|
1.8 | % | 3.0 | % | 4.5 | % | 0.4 | % | 2.1 | % | 5.2 | % | ||||||||||||
|
Volatility
|
46 | % | 37 | % | 26 | % | 44 | % | 35 | % | 28 | % | ||||||||||||
|
Dividend yield
|
3.6 | % | 2.7 | % | 2.0 | % | 3.6 | % | 2.5 | % | 2.0 | % | ||||||||||||
We base the expected volatility on
implied volatility, because we have determined that implied
volatility is more reflective of market conditions and a better
indicator of expected volatility than historical volatility. We
use the simplified method of calculating expected life, due to
significant differences in the vesting terms and contractual
life of current option grants compared to our historical grants.
94
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INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Restricted
Stock Unit Awards
Information with respect to
outstanding restricted stock unit activity is as follows:
|
Weighted
|
||||||||||||
|
Average
|
||||||||||||
|
Number of
|
Grant-Date
|
Aggregate
|
||||||||||
|
(In Millions, Except Per Share Amounts)
|
Shares | Fair Value | Fair Value 1 | |||||||||
|
December 30, 2006
|
27.4 | $ | 18.71 | |||||||||
|
Granted
|
32.8 | $ | 21.13 | |||||||||
|
Vested
2
|
(5.9 | ) | $ | 18.60 | $ | 131 | ||||||
|
Forfeited
|
(3.2 | ) | $ | 19.38 | ||||||||
|
December 29, 2007
|
51.1 | $ | 20.24 | |||||||||
|
Granted
|
32.9 | $ | 19.94 | |||||||||
|
Vested
2
|
(12.1 | ) | $ | 19.75 | $ | 270 | ||||||
|
Forfeited
|
(4.6 | ) | $ | 20.12 | ||||||||
|
December 27, 2008
|
67.3 | $ | 20.18 | |||||||||
|
Granted
|
60.0 | $ | 14.63 | |||||||||
|
Assumed in acquisition
|
1.6 | $ | 17.52 | |||||||||
|
Vested
2
|
(20.1 | ) | $ | 20.24 | $ | 320 | ||||||
|
Forfeited
|
(3.4 | ) | $ | 18.19 | ||||||||
|
December 26, 2009
|
105.4 | $ | 17.03 | |||||||||
|
Expected to vest as of December 26,
2009
3
|
96.2 | $ | 17.10 | |||||||||
| 1 | Represents the value of Intel common stock on the date that the restricted stock units vest. On the grant date, the fair value for these vested awards was $407 million in 2009 ($239 million in 2008 and $111 million in 2007). | |
| 2 | The number of restricted stock units vested includes shares that we withheld on behalf of employees to satisfy the statutory tax withholding requirements. | |
| 3 | Restricted stock units that are expected to vest are net of estimated future forfeitures. |
As of December 26, 2009, there was
$1.2 billion in unrecognized compensation costs related to
restricted stock units granted under our equity incentive plans.
We expect to recognize those costs over a weighted average
period of 1.4 years.
Stock
Option Awards
Options outstanding that have
vested and are expected to vest as of December 26, 2009 are as
follows:
|
Weighted Average
|
||||||||||||||||
|
Number of
|
Weighted
|
Remaining
|
Aggregate
|
|||||||||||||
|
Shares
|
Average
|
Contractual Term
|
Intrinsic
Value
1
|
|||||||||||||
| (In Millions) | Exercise Price | (In Years) | (In Millions) | |||||||||||||
|
Vested
|
297.7 | $ | 28.44 | 2.4 | $ | 166 | ||||||||||
|
Expected to
vest
2
|
140.8 | $ | 18.57 | 6.2 | 280 | |||||||||||
|
Total
|
438.5 | $ | 25.27 | 3.6 | $ | 446 | ||||||||||
| 1 | Amounts represent the difference between the exercise price and $20.33, the closing price of Intel common stock on December 24, 2009, as reported on The NASDAQ Global Select Market*, for all in-the-money options outstanding. | |
| 2 | Options outstanding that are expected to vest are net of estimated future option forfeitures. |
Options with a fair value of $288
million completed vesting during 2009 ($459 million during 2008
and $1.4 billion during 2007). As of December 26, 2009, there
was $282 million in unrecognized compensation costs related to
stock options granted under our equity incentive plans. We
expect to recognize those costs over a weighted average period
of 1.3 years.
95
Table of Contents
INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Additional information with
respect to stock option activity is as follows:
|
Weighted
|
||||||||||||
|
Average
|
Aggregate
|
|||||||||||
|
Number of
|
Exercise
|
Intrinsic
|
||||||||||
|
(In Millions, Except Per Share Amounts)
|
Shares | Price | Value 1 | |||||||||
|
December 30, 2006
|
839.5 | $ | 26.98 | |||||||||
|
Grants
|
24.6 | $ | 22.63 | |||||||||
|
Exercises
|
(132.8 | ) | $ | 19.78 | $ | 552 | ||||||
|
Cancellations and forfeitures
|
(65.4 | ) | $ | 31.97 | ||||||||
|
December 29, 2007
|
665.9 | $ | 27.76 | |||||||||
|
Grants
|
24.9 | $ | 20.81 | |||||||||
|
Exercises
|
(33.6 | ) | $ | 19.42 | $ | 101 | ||||||
|
Cancellations and forfeitures
|
(42.8 | ) | $ | 31.14 | ||||||||
|
Expirations
|
(2.4 | ) | $ | 22.84 | ||||||||
|
December 27, 2008
|
612.0 | $ | 27.70 | |||||||||
|
Grants
2
|
118.5 | $ | 18.01 | |||||||||
|
Assumed in acquisition
|
9.0 | $ | 15.42 | |||||||||
|
Exercises
|
(3.6 | ) | $ | 15.90 | $ | 13 | ||||||
|
Cancellations and forfeitures
|
(29.6 | ) | $ | 28.16 | ||||||||
|
Exchanged
|
(217.4 | ) | $ | 26.75 | ||||||||
|
Expirations
|
(37.6 | ) | $ | 31.92 | ||||||||
|
December 26, 2009
|
451.3 | $ | 25.08 | |||||||||
|
Options exercisable at:
|
||||||||||||
|
December 29, 2007
|
528.2 | $ | 29.04 | |||||||||
|
December 27, 2008
|
517.0 | $ | 28.78 | |||||||||
|
December 26, 2009
|
297.7 | $ | 28.44 | |||||||||
| 1 | Amounts represent the difference between the exercise price and the value of Intel common stock at the time of exercise. | |
| 2 | Includes new stock options granted in connection with the Option Exchange. |
The following table summarizes
information about options outstanding as of December 26, 2009:
| Outstanding Options | Exercisable Options | |||||||||||||||||||
|
Weighted
|
||||||||||||||||||||
|
Average
|
||||||||||||||||||||
|
Remaining
|
Weighted
|
Weighted
|
||||||||||||||||||
|
Number of
|
Contractual
|
Average
|
Number of
|
Average
|
||||||||||||||||
|
Shares
|
Life
|
Exercise
|
Shares
|
Exercise
|
||||||||||||||||
|
Range of Exercise Prices
|
(In Millions) | (In Years) | Price | (In Millions) | Price | |||||||||||||||
|
$0.30–$15.00
|
6.6 | 5.0 | $ | 12.83 | 4.5 | $ | 12.83 | |||||||||||||
|
$15.01–$20.00
|
199.2 | 5.3 | $ | 18.20 | 70.3 | $ | 18.47 | |||||||||||||
|
$20.01–$25.00
|
164.6 | 2.8 | $ | 21.93 | 143.0 | $ | 21.99 | |||||||||||||
|
$25.01–$30.00
|
25.0 | 2.9 | $ | 27.22 | 24.5 | $ | 27.23 | |||||||||||||
|
$30.01–$72.88
|
55.9 | 0.5 | $ | 59.32 | 55.4 | $ | 59.57 | |||||||||||||
|
Total
|
451.3 | 3.7 | $ | 25.08 | 297.7 | $ | 28.44 | |||||||||||||
These options will expire if they
are not exercised by specific dates through January 2019. Option
exercise prices for options exercised during the three-year
period ended December 26, 2009 ranged from $0.05 to $27.27.
96
Table of Contents
INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Stock
Purchase Plan
Approximately 80% of our employees
were participating in our stock purchase plan as of December 26,
2009. Employees purchased 30.9 million shares in 2009 for $344
million under the 2006 Stock Purchase Plan (25.9 million shares
for $453 million in 2008 and 26.1 million shares for $428
million in 2007). As of December 26, 2009, there was $9 million
in unrecognized compensation costs related to rights to acquire
common stock under our stock purchase plan. We expect to
recognize those costs over a weighted average period of one
month.
Note 24:
Common Stock Repurchases
Common
Stock Repurchase Program
We have an ongoing authorization,
amended in November 2005, from our Board of Directors to
repurchase up to $25 billion in shares of our common stock in
open market or negotiated transactions. As of December 26, 2009,
$5.7 billion remained available for repurchase under the
existing repurchase authorization. During 2009, we utilized the
majority of the proceeds from the issuance of the 2009
debentures to repurchase 88.2 million shares of common stock at
a cost of $1.7 billion (for further information on the issuance
of the 2009 debentures, see “Note 20:
Borrowings”). We repurchased 324 million shares at a cost
of $7.1 billion during 2008 and 111 million shares at a cost of
$2.75 billion during 2007. We have repurchased and retired 3.4
billion shares at a cost of $69 billion since the program began
in 1990. Our repurchases in 2009 and a portion of our purchases
in 2008 and 2007 were executed in privately negotiated
transactions.
Restricted
Stock Unit Withholdings
We issue restricted stock units as
part of our equity incentive plans. For the majority of
restricted stock units granted, the number of shares issued on
the date the restricted stock units vest is net of the minimum
statutory withholding requirements that we pay in cash to the
appropriate taxing authorities on behalf of our employees.
During 2009, we withheld 5.8 million shares (3.5 million shares
during 2008 and 1.7 million shares during 2007) to satisfy $92
million ($78 million during 2008 and $38 million during 2007) of
employees’ tax obligations. Although shares withheld are
not issued, they are treated as common stock repurchases in our
consolidated financial statements, as they reduce the number of
shares that would have been issued upon vesting.
Note 25:
Earnings Per Share
We computed our basic and diluted
earnings per common share as follows:
|
(In Millions, Except Per Share Amounts)
|
2009 | 2008 | 2007 | |||||||||
|
Net income available to common
stockholders
1
|
$ | 4,369 | $ | 5,292 | $ | 6,976 | ||||||
|
Weighted average common shares outstanding—basic
|
5,557 | 5,663 | 5,816 | |||||||||
|
Dilutive effect of employee equity incentive plans
|
37 | 34 | 69 | |||||||||
|
Dilutive effect of convertible debt
|
51 | 51 | 51 | |||||||||
|
Weighted average common shares outstanding—diluted
|
5,645 | 5,748 | 5,936 | |||||||||
|
Basic earnings per common share
|
$ | 0.79 | $ | 0.93 | $ | 1.20 | ||||||
|
Diluted earnings per common share
|
$ | 0.77 | $ | 0.92 | $ | 1.18 | ||||||
| 1 | Net income available to participating securities was insignificant in 2009. |
97
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INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
We computed our basic earnings per
common share using net income available to common stockholders
and the weighted average number of common shares outstanding
during the period. We computed diluted earnings per common share
using net income available to common stockholders and the
weighted average number of common shares outstanding plus
potentially dilutive common shares outstanding during the
period. Potentially dilutive common shares from employee
incentive plans are determined by applying the treasury stock
method to the assumed exercise of outstanding stock options, the
assumed vesting of outstanding restricted stock units, and the
assumed issuance of common stock under the stock purchase plan.
Potentially dilutive common shares are determined by applying
the if-converted method for the 2005 debentures. However, as our
2009 debentures require settlement of the principal amount of
the debt in cash upon conversion, with the conversion premium
paid in cash or stock at our option, potentially dilutive common
shares are determined by applying the treasury stock method for
these debentures. For further discussion on the specific
conversion features of our 2005 and 2009 debentures, see
“Note 20: Borrowings.”
For 2009, we excluded 486 million
outstanding weighted average stock options (484 million in 2008
and 417 million in 2007) from the calculation of diluted
earnings per common share because the exercise prices of these
stock options were greater than or equal to the average market
value of the common shares. These options could be included in
the calculation in the future if the average market value of the
common shares increases and is greater than the exercise price
of these options. We also excluded our 2009 debentures from the
calculation of diluted earnings per common share because the
conversion option of these debentures was anti-dilutive. In the
future, we could have potentially dilutive shares if the average
market price is above the conversion price.
Note 26:
Comprehensive Income
The components of total
comprehensive income were as follows:
|
(In Millions)
|
2009 | 2008 | 2007 | |||||||||
|
Net income
|
$ | 4,369 | $ | 5,292 | $ | 6,976 | ||||||
|
Other comprehensive income (loss)
|
786 | (654 | ) | 318 | ||||||||
|
Total comprehensive income
|
$ | 5,155 | $ | 4,638 | $ | 7,294 | ||||||
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INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The components of other
comprehensive income (loss) and related tax effects were as
follows:
| 2009 | 2008 | 2007 | ||||||||||||||||||||||||||||||||||
|
(In Millions)
|
Before Tax | Tax | Net of Tax | Before Tax | Tax | Net of Tax | Before Tax | Tax | Net of Tax | |||||||||||||||||||||||||||
|
Change in unrealized holding gain (loss) on investments
|
$ | 578 | $ | (210 | ) | $ | 368 | $ | (764 | ) | $ | 279 | $ | (485 | ) | $ | 420 | $ | (155 | ) | $ | 265 | ||||||||||||||
|
Less:
adjustment for (gain) loss on investments included
in net income
|
50 | (18 | ) | 32 | 34 | (12 | ) | 22 | (85 | ) | 31 | (54 | ) | |||||||||||||||||||||||
|
Change in deferred tax asset valuation
allowance
1
|
— | 146 | 146 | — | — | — | — | — | — | |||||||||||||||||||||||||||
|
Change in unrealized holding gain (loss) on derivatives
|
75 | (4 | ) | 71 | (23 | ) | 8 | (15 | ) | 80 | (21 | ) | 59 | |||||||||||||||||||||||
|
Less:
adjustment for amortization of (gain) loss on
derivatives included in net income
|
22 | (1 | ) | 21 | (58 | ) | 21 | (37 | ) | (55 | ) | 16 | (39 | ) | ||||||||||||||||||||||
|
Change in prior service costs
|
20 | (7 | ) | 13 | 5 | (2 | ) | 3 | 4 | (1 | ) | 3 | ||||||||||||||||||||||||
|
Change in actuarial loss
|
157 | (23 | ) | 134 | (220 | ) | 78 | (142 | ) | 106 | (22 | ) | 84 | |||||||||||||||||||||||
|
Change in transition obligation
|
1 | — | 1 | — | — | — | — | — | — | |||||||||||||||||||||||||||
|
Total other comprehensive income (loss)
|
$ | 903 | $ | (117 | ) | $ | 786 | $ | (1,026 | ) | $ | 372 | $ | (654 | ) | $ | 470 | $ | (152 | ) | $ | 318 | ||||||||||||||
| 1 | Amount is related to the reversal of a portion of our deferred tax asset valuation allowance attributed to changes in unrealized holding gains on our available-for-sale investments. The amount will be relieved as these investments are sold or mature. |
The components of accumulated
other comprehensive income (loss), net of tax, were as follows:
|
(In Millions)
|
2009 | 2008 | ||||||
|
Accumulated net unrealized holding gain (loss) on
available-for-sale
investments
1
|
$ | 261 | $ | (139 | ) | |||
|
Accumulated net change in deferred tax asset valuation allowance
|
146 | — | ||||||
|
Accumulated net unrealized holding gain on derivatives
|
140 | 48 | ||||||
|
Accumulated net prior service costs
|
3 | (10 | ) | |||||
|
Accumulated net actuarial losses
|
(156 | ) | (290 | ) | ||||
|
Accumulated transition obligation
|
(1 | ) | (2 | ) | ||||
|
Total accumulated other comprehensive income (loss)
|
$ | 393 | $ | (393 | ) | |||
| 1 | As of December 26, 2009, accumulated unrealized non-credit-related other-than-temporary impairment losses on available-for-sale debt instruments were insignificant. |
The estimated net prior service
cost, actuarial loss, and transition obligation for the defined
benefit plan that will be amortized from accumulated other
comprehensive income (loss) into net periodic benefit cost
during 2010 are $2 million, $21 million, and zero, respectively.
99
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INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 27:
Taxes
Income before taxes and the
provision for taxes consisted of the following:
|
(Dollars in Millions)
|
2009 | 2008 | 2007 | |||||||||
|
Income before taxes:
|
||||||||||||
|
U.S.
|
$ | 3,229 | $ | 6,117 | $ | 6,520 | ||||||
|
Non-U.S.
|
2,475 | 1,569 | 2,646 | |||||||||
|
Total income before taxes
|
$ | 5,704 | $ | 7,686 | $ | 9,166 | ||||||
|
Provision for taxes:
|
||||||||||||
|
Current:
|
||||||||||||
|
Federal
|
$ | 604 | $ | 2,781 | $ | 1,865 | ||||||
|
State
|
(2 | ) | (38 | ) | 111 | |||||||
|
Non-U.S.
|
336 | 345 | 445 | |||||||||
|
Total current provision for taxes
|
$ | 938 | $ | 3,088 | $ | 2,421 | ||||||
|
Deferred:
|
||||||||||||
|
Federal
|
355 | (668 | ) | (140 | ) | |||||||
|
Other
|
42 | (26 | ) | (91 | ) | |||||||
|
Total deferred provision for taxes
|
$ | 397 | $ | (694 | ) | $ | (231 | ) | ||||
|
Total provision for taxes
|
$ | 1,335 | $ | 2,394 | $ | 2,190 | ||||||
|
Effective tax rate
|
23.4 | % | 31.1 | % | 23.9 | % | ||||||
The 2009 deferred provision for
income taxes includes $46 million of charges due to a change in
assessment of the realizability of deferred tax assets of
non-U.S.
subsidiaries recognized prior to 2009.
The difference between the tax
provision at the statutory federal income tax rate and the tax
provision as a percentage of income before income taxes
(effective tax rate) was as follows:
|
(In Percentages)
|
2009 | 2008 | 2007 | |||||||||
|
Statutory federal income tax rate
|
35.0 | % | 35.0 | % | 35.0 | % | ||||||
|
Increase (reduction) in rate resulting from:
|
||||||||||||
|
Non-U.S.
income taxed at different rates
|
(12.4 | ) | (4.2 | ) | (4.7 | ) | ||||||
|
European Commission fine
|
8.9 | — | — | |||||||||
|
Settlements, effective settlements, and related remeasurements
|
(6.4 | ) | (1.3 | ) | (5.3 | ) | ||||||
|
Research and development tax credits
|
(2.0 | ) | (1.4 | ) | (1.3 | ) | ||||||
|
Domestic manufacturing deduction benefit
|
(1.5 | ) | (1.7 | ) | (1.1 | ) | ||||||
|
Deferred tax asset valuation allowance — unrealized
losses
|
0.2 | 3.4 | — | |||||||||
|
Other
|
1.6 | 1.3 | 1.3 | |||||||||
|
Effective tax rate
|
23.4 | % | 31.1 | % | 23.9 | % | ||||||
During 2009, net income tax
deficiencies attributable to equity-based compensation
transactions that were allocated to stockholders’ equity
totaled $41 million (net benefits of $8 million in 2008 and $123
million in 2007).
100
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INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Deferred income taxes reflect the
net tax effects of temporary differences between the carrying
amounts of assets and liabilities for financial reporting
purposes and the amounts for income tax purposes. Significant
components of our deferred tax assets and liabilities at
year-ends were as follows:
|
(In Millions)
|
2009 | 2008 1 | ||||||
|
Deferred tax assets
|
||||||||
|
Accrued compensation and other benefits
|
$ | 568 | $ | 529 | ||||
|
Deferred income
|
228 | 160 | ||||||
|
Share-based compensation
|
774 | 669 | ||||||
|
Inventory
|
340 | 602 | ||||||
|
Unrealized losses on investments and derivatives
|
407 | 762 | ||||||
|
State credits and net operating losses
|
187 | 138 | ||||||
|
Investment in foreign subsidiaries
|
129 | 50 | ||||||
|
Capital losses
|
150 | — | ||||||
|
Other, net
|
386 | 337 | ||||||
|
Gross deferred tax assets
|
3,169 | 3,247 | ||||||
|
Valuation allowance
|
(329 | ) | (358 | ) | ||||
|
Total deferred tax assets
|
$ | 2,840 | $ | 2,889 | ||||
|
Deferred tax liabilities
|
||||||||
|
Property, plant and equipment
|
$ | (817 | ) | $ | (507 | ) | ||
|
Convertible debt
|
(708 | ) | (332 | ) | ||||
|
Licenses and intangibles
|
(129 | ) | (54 | ) | ||||
|
Other, net
|
(247 | ) | (141 | ) | ||||
|
Total deferred tax liabilities
|
$ | (1,901 | ) | $ | (1,034 | ) | ||
|
Net deferred tax assets
|
$ | 939 | $ | 1,855 | ||||
|
Reported as:
|
||||||||
|
Current deferred tax assets
|
$ | 1,216 | $ | 1,390 | ||||
|
Non-current deferred tax
assets
2
|
278 | 511 | ||||||
|
Non-current deferred tax liabilities
|
(555 | ) | (46 | ) | ||||
|
Net deferred tax assets
|
$ | 939 | $ | 1,855 | ||||
| 1 | As adjusted due to changes to the accounting for convertible debt instruments. See “Note 3: Accounting Changes.” | |
| 2 | Included within other long-term assets on the consolidated balance sheets. |
The valuation allowance is based
on our assessment that it is more likely than not that certain
deferred tax assets will not be realized in the foreseeable
future. The valuation allowance as of December 26, 2009 included
allowances related to unrealized state credit carry forwards of
$135 million, investment asset impairments of $118 million, and
depreciation expense and other matters related to our
non-U.S.
subsidiaries of $76 million.
As of December 26, 2009, we had
not recognized U.S. deferred income taxes on a cumulative total
of $10.1 billion of undistributed earnings for certain
non-U.S.
subsidiaries. Determining the unrecognized deferred tax
liability related to investments in these
non-U.S.
subsidiaries that are indefinitely reinvested is not
practicable. We currently intend to reinvest those earnings in
operations outside the U.S.
Effective at the beginning of
2007, we adopted standards that changed the accounting for
uncertain tax positions. As a result of the implementation of
these standards, we reduced the liability for net unrecognized
tax benefits by $181 million, and accounted for the reduction as
a cumulative effect of a change in accounting principle that
resulted in an increase to retained earnings of $181 million.
101
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INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Long-term income taxes payable
include uncertain tax positions, reduced by the associated
federal deduction for state taxes and
non-U.S.
tax
credits, and may also include other long-term tax liabilities
that are not uncertain but have not yet been paid.
The aggregate changes in the
balance of gross unrecognized tax benefits were as follows:
|
(In Millions)
|
||||
|
Beginning balance as of December 31, 2006 (date of
adoption)
|
$ | 1,896 | ||
|
Settlements and effective settlements with tax authorities and
related remeasurements
|
(1,243 | ) | ||
|
Increases in balances related to tax positions taken during
prior periods
|
106 | |||
|
Decreases in balances related to tax positions taken during
prior periods
|
(26 | ) | ||
|
Increases in balances related to tax positions taken during
current period
|
61 | |||
|
December 29, 2007
|
$ | 794 | ||
|
Settlements and effective settlements with tax authorities and
related remeasurements
|
(154 | ) | ||
|
Increases in balances related to tax positions taken during
prior periods
|
72 | |||
|
Decreases in balances related to tax positions taken during
prior periods
|
(84 | ) | ||
|
Increases in balances related to tax positions taken during
current period
|
116 | |||
|
December 27, 2008
|
$ | 744 | ||
|
Settlements and effective settlements with tax authorities and
related remeasurements
|
(526 | ) | ||
|
Increases in balances related to tax positions taken during
prior periods
|
28 | |||
|
Decreases in balances related to tax positions taken during
prior periods
|
(58 | ) | ||
|
Increases in balances related to tax positions taken during
current period
|
32 | |||
|
December 26, 2009
|
$ | 220 | ||
During 2007, the U.S. Internal
Revenue Service (IRS) closed its examination of our tax returns
for the years 1999 through 2002, resolving issues related to the
tax benefits for export sales as well as a number of other
issues. Additionally, we reached a settlement with the IRS for
years 2003 through 2005 with respect to the tax benefits for
export sales. In connection with the $739 million settlement
with the IRS, we reversed long-term income taxes payable, which
resulted in a $276 million tax benefit in 2007.
Also during 2007, we effectively
settled with the IRS several other matters related to the audit
for the 2003 and 2004 tax years, despite the fact that the IRS
audit for those years remains open. The result of effectively
settling those positions and the process of re-evaluating, based
on all available information and certain required
remeasurements, was a reduction of $389 million in the balance
of our gross unrecognized tax benefits, $155 million of which
resulted in a tax benefit in 2007.
During 2008, we reached a
settlement with the IRS and certain state tax authorities
related to prior years. The result of the settlements and
related remeasurements was a reduction of $154 million in the
balance of our gross unrecognized tax benefits, $103 million of
which resulted in a tax benefit in 2008.
102
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INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
During 2009, we settled and
effectively settled matters with the IRS and certain state tax
authorities related to tax positions taken during prior periods.
The result of the settlements, effective settlements, and
resulting remeasurements was a reduction of $526 million in the
balance of our gross unrecognized tax benefits, $366 million of
which resulted in a tax benefit in 2009.
If the remaining balance of $220
million of unrecognized tax benefits as of December 26, 2009
($744 million as of December 27, 2008) were realized in a future
period, it would result in a tax benefit of $101 million and a
reduction of the effective tax rate ($590 million as of December
27, 2008).
During all years presented, we
recognized interest and penalties related to unrecognized tax
benefits within the provision for taxes on the consolidated
statements of operations. In 2009, we recognized a net benefit
of $62 million, primarily due to the reversal of accrued
interest and penalties related to settled and effectively
settled matters described above ($6 million of expense in 2008
and a net benefit of $142 million in 2007). As of December 26,
2009, we had $55 million of accrued interest and penalties
related to unrecognized tax benefits ($153 million as of
December 27, 2008).
Although the timing of the
resolution
and/or
closure on audits is highly uncertain, it is reasonably possible
that the balance of gross unrecognized tax benefits could
significantly change in the next 12 months. However, given the
number of years remaining subject to examination and the number
of matters being examined, we are unable to estimate the full
range of possible adjustments to the balance of gross
unrecognized tax benefits.
We had state tax credits of $219
million as of December 26, 2009 that will expire between 2010
and 2020. We file U.S. federal, U.S. state, and
non-U.S.
tax
returns. For U.S. state and
non-U.S.
tax
returns, we are generally no longer subject to tax examinations
for years prior to 1996. For U.S. federal tax returns, we are no
longer subject to tax examination for years prior to 2003.
Note 28:
Contingencies
Legal
Proceedings
We are currently a party to
various legal proceedings, including those noted in this
section. While management presently believes that the ultimate
outcome of these proceedings, individually and in the aggregate,
will not materially harm the company’s financial position,
cash flows, or overall trends in results of operations, legal
proceedings and related government investigations are subject to
inherent uncertainties, and unfavorable rulings could occur. An
unfavorable ruling could include substantial money damages, and
in matters for which injunctive relief or other conduct remedies
are sought, an injunction or other order prohibiting us from
selling one or more products at all or in particular ways,
precluding particular business practices, or requiring other
remedies such as compulsory licensing of intellectual property.
Were unfavorable final outcomes to occur, there exists the
possibility of a material adverse impact on our business,
results of operations, financial position, and overall trends.
Except as may be otherwise indicated, the outcomes in these
matters are not reasonably estimable.
A number of proceedings, described
below, generally challenge certain of our competitive practices,
contending generally that we improperly condition price rebates
and other discounts on our microprocessors on exclusive or
near-exclusive dealing by some of our customers. We believe that
we compete lawfully and that our marketing practices benefit our
customers and our stockholders, and we will continue to
vigorously defend ourselves. While we have settled some of these
matters, the distractions caused by challenges to our business
practices from the remaining matters are undesirable, and the
legal and other costs associated with defending our position
have been and continue to be significant. We assume that these
challenges could continue for a number of years and may require
the investment of substantial additional management time and
substantial financial resources to explain and defend our
position.
103
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INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Advanced Micro Devices, Inc.
(AMD) and AMD International Sales & Service, Ltd. v. Intel
Corporation and Intel Kabushiki Kaisha, and Related Consumer
Class Actions and Government Investigations
In June 2005, AMD filed a
complaint in the United States District Court for the District
of Delaware alleging that we and our Japanese subsidiary engaged
in various actions in violation of the Sherman Act and the
California Business and Professions Code, including, among other
things, providing discounts and rebates to our manufacturer and
distributor customers conditioned on exclusive or near-exclusive
dealing that allegedly unfairly interfered with AMD’s
ability to sell its microprocessors, interfering with certain
AMD product launches, and interfering with AMD’s
participation in certain industry standards-setting groups.
AMD’s complaint sought unspecified treble damages, punitive
damages, an injunction requiring Intel to cease any conduct
found to be unlawful, and attorneys’ fees and costs.
AMD’s Japanese subsidiary also filed suits in the Tokyo
High Court and the Tokyo District Court against our Japanese
subsidiary, asserting violations of Japan’s Antimonopoly
Law and alleging damages in each suit of approximately $55
million, plus various other costs and fees.
On November 12, 2009, Intel
Corporation and AMD announced a comprehensive agreement to end
all outstanding legal disputes between the companies, including
antitrust litigation and patent cross-license disputes. Under
terms of the agreement, AMD and Intel obtained patent rights
from a new five-year cross-license agreement, Intel and AMD gave
up any claims of breach from the previous license agreement, and
Intel paid AMD $1.25 billion. We recorded the related charge
within marketing, general and administrative on the consolidated
statements of operations. Intel also agreed to abide by a set of
business practice provisions. As a result, AMD dropped all
pending litigation, including the case in the U.S. District
Court in Delaware and two cases pending in Japan. AMD also
withdrew all of its regulatory complaints worldwide.
In addition, at least 82 separate
class actions have been filed in the U.S. District Courts for
the Northern District of California, Southern District of
California, District of Idaho, District of Nebraska, District of
New Mexico, District of Maine, and District of Delaware, as well
as in various California, Kansas, and Tennessee state courts.
These actions generally repeat AMD’s allegations and assert
various consumer injuries, including that consumers in various
states have been injured by paying higher prices for computers
containing our microprocessors. All of the federal class actions
and the Kansas and Tennessee state court class actions have been
consolidated by the Multidistrict Litigation Panel to the
District of Delaware. In January 2010, the plaintiffs in the
Delaware action filed a motion for sanctions for Intel’s
failure to preserve evidence. This motion largely copies a
motion previously filed by AMD in the AMD litigation, which has
settled. The putative class in the coordinated actions has moved
for class certification, which we are in the process of
opposing. All California class actions have been consolidated to
the Superior Court of California in Santa Clara County. The
plaintiffs in the California actions have moved for class
certification, which we are in the process of opposing. At our
request, the court in the California actions has agreed to delay
ruling on this motion until after the Delaware Federal Court
rules on the similar motion in the coordinated actions. We
dispute the
class-action
claims, and intend to defend the lawsuits vigorously.
We are also subject to certain
antitrust regulatory inquiries. In 2001, the European Commission
(EC) commenced an investigation regarding claims by AMD that we
used unfair business practices to persuade clients to buy our
microprocessors. Since that time, we have received numerous
requests for information and documents from the EC, and we have
responded to each of those requests. The EC issued a Statement
of Objections in July 2007 and held a hearing on that Statement
in March 2008. The EC issued a Supplemental Statement of
Objections in July 2008.
On May 13, 2009, the EC issued a
decision finding that we had violated Article 82 of the EC
Treaty and Article 54 of the European Economic Area Agreement.
In general, the EC found that we violated Article 82 (later
renumbered as Article 102 by a new treaty) by offering
alleged “conditional rebates and payments” that
required Intel customers to purchase all or most of their x86
microprocessors from us. The EC also found that we violated
Article 82 by making alleged “payments to prevent sales of
specific rival products.” The EC imposed a fine on us in
the amount of €1.06 billion ($1.447 billion as of May 13,
2009), which we paid during the third quarter of 2009, and also
ordered us to “immediately bring to an end the infringement
referred to in” the EC decision. We recorded the related
charge within marketing, general and administrative on the
consolidated statements of operations. We strongly disagree with
the EC’s decision, and we have appealed the decision to the
General Court (formerly the Court of First Instance). The EC
announced that it would actively monitor Intel’s compliance
with its decision. We have taken steps, which are subject to the
EC’s ongoing review, to comply with that decision pending
appeal.
104
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INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In June 2005, we received an
inquiry from the Korea Fair Trade Commission (KFTC) requesting
documents from our Korean subsidiary related to marketing and
rebate programs that we entered into with Korean PC
manufacturers. In February 2006, the KFTC initiated an
inspection of documents at our offices in Korea. In September
2007, the KFTC served us an Examination Report alleging that
sales to two customers during parts of 2002–2005 violated
Korea’s Monopoly Regulation and Fair Trade Act. In December
2007, we submitted our written response to the KFTC. In February
2008, the KFTC’s examiner submitted a written reply to our
response. In March 2008, we submitted a further response. In
April 2008, we participated in a pre-hearing conference before
the KFTC, and we participated in formal hearings in May and June
2008. In June 2008, the KFTC announced its intent to fine us
approximately $25 million for providing discounts to Samsung
Electronics Co., Ltd. and TriGem Computer Inc. In November 2008,
the KFTC issued a final written decision concluding that
Intel’s discounts had violated Korean antitrust law and
imposing a fine on Intel of approximately $20 million, which
Intel paid in January 2009. In December 2008, Intel appealed
this decision by filing a lawsuit in the Seoul High Court
seeking to overturn the KFTC’s decision. The KFTC through
its attorneys filed its answer to Intel’s complaint in
March 2009. Thereafter Intel and the KFTC will provide arguments
to the court in sequential briefs.
In November 2009, the State of New
York filed a lawsuit against Intel in the U.S. District Court
for the District of Delaware. The lawsuit alleges that Intel
violated federal antitrust laws; the New York Donnelly Act,
which prohibits contracts or agreements to monopolize; and the
New York Executive Law, which proscribes underlying violations
of federal and state antitrust laws. The lawsuit alleges that
Intel has engaged in a systematic worldwide campaign of illegal,
exclusionary conduct to maintain its monopoly power and prices
in the market for x86 microprocessors through the use of various
alleged actions, including exclusive or near-exclusive
agreements from large computer makers in exchange for
“loyalty payments” and “bribes,” and other
alleged threats and retaliation. The plaintiff claims that
Intel’s alleged actions harmed consumers, competition, and
innovation. The lawsuit seeks a declaration that Intel’s
alleged actions have violated the federal and New York antitrust
laws and the New York Executive Law, an injunction to prevent
further alleged unlawful acts, unspecified damages in an amount
to be proven at trial, trebled as provided for by law,
restitution, disgorgement, $1 million for each violation of the
Donnelly Act proven by the plaintiff, and attorneys’ fees
and costs. In January 2010, Intel filed its answer. Intel
disagrees with the plaintiff’s allegations and claims, and
intends to conduct a vigorous defense of the lawsuit.
In December 2009, the New York
Attorney General’s staff served a subpoena on Intel. That
subpoena calls for production of documents and information
related to various aspects of Intel’s notebook computer
business, including products that offer graphics capabilities
and/or
potentially compete with graphic processing units (GPUs). It
also calls for production of all documents concerning
Intel’s notebook computer business that Intel previously
produced to other U.S. and foreign antitrust agencies in
connection with their antitrust investigations of Intel.
In June 2008, the U.S. Federal
Trade Commission (FTC) announced a formal investigation into our
sales practices. In June 2009, the FTC staff asked for
additional information and testimony by some Intel witnesses.
During the months that followed, the FTC staff broadened its
inquiry and gave Intel only limited opportunities to address
staff concerns. Settlement discussions were unsuccessful. In
December 2009, three FTC commissioners voted to issue an
administrative complaint alleging that Intel had violated
Section 5 of the FTC Act by engaging in unfair methods of
competition and unfair acts or practices in markets for CPUs and
GPUs. This administrative proceeding will lead to a hearing
before Chief Administrative Law Judge Chappell that is set to
begin in September 2010. Any initial decision rendered by Judge
Chappell can be appealed to the Commissioners by both the FTC
staff supporting the complaint and by Intel. If the FTC
ultimately issues a decision adverse to Intel, that decision can
be appealed to a Federal Circuit of Intel’s choosing. Intel
disagrees with the FTC’s allegations and claims, and
intends to conduct a vigorous defense.
Intel/AMD
Cross-License Agreement
Intel and AMD entered into a
patent cross-license in January 2001. Under that license, Intel
granted AMD a limited license to certain Intel patents, subject
to the terms of that agreement. In October 2008, AMD announced
its intention to form a joint venture called The Foundry Company
(later renamed GlobalFoundries Inc.) with two investment
entities of the Emirate of Abu Dhabi. In March 2009, AMD
announced that it had closed this transaction. AMD has claimed
that GlobalFoundries is entitled to a license to Intel patents
under the 2001 Intel/AMD cross-license. Intel disagreed with
that claim and also claimed that AMD had breached the Intel/AMD
2001 cross-license. In November 2009, Intel and AMD resolved
these disputes as part of a comprehensive settlement and entered
into a new five-year cross-license agreement.
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CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Antitrust
Derivative Litigation and Related Matters
In February 2008, Martin Smilow,
an Intel stockholder, filed a putative derivative action in the
United States District Court for the District of Delaware
against members of our Board of Directors. The complaint alleges
generally that the Board allowed the company to violate
antitrust and other laws, as described in AMD’s antitrust
lawsuits against us, and that those Board-sanctioned activities
have harmed the company. The complaint repeats many of
AMD’s allegations and references various investigations by
the EC, the KFTC, and others. In February 2008, a second
plaintiff, Evan Tobias, filed a derivative suit in the same
court against the Board containing many of the same allegations
as in the Smilow suit. On July 30, 2008, the District Court
entered an order directing Smilow and Tobias to file a single,
consolidated complaint by August 7, 2008 and directing us to
respond within 30 days thereafter. An amended consolidated
complaint was filed on August 7, 2008. In June 2009, the Court
granted the defendants’ motion to dismiss the
plaintiffs’ consolidated complaint, with prejudice.
In June 2008, a third plaintiff,
Christine Del Gaizo, filed a derivative suit in the Santa Clara
County Superior Court against the Board, a former director of
the Board, and six of our officers, containing many of the same
allegations as in the Smilow and Tobias suits. In August 2008,
the parties in the California derivative suit entered into a
stipulation to stay the action pending further order of the
court, and the court entered an order to that effect in
September 2008.
In November 2009, a fourth
plaintiff, Charles Gilman, filed a stockholder derivative suit
in the United States District Court for the District of Delaware
against Intel’s current Board members as well as three
former Board members. Gilman’s complaint makes many of the
same allegations raised in the earlier suits, additionally cites
a number of excerpts from the EC’s ruling, and points to
the settlement of the AMD litigation as supposed evidence of
damage to Intel.
In December 2009, a fifth
plaintiff, Louisiana Municipal Police Employee Retirement System
(LMPERS), filed a stockholder derivative suit in the United
States District Court for the District of Delaware against
Intel’s current Board members as well as three former Board
members. LMPERS’s complaint makes many of the same
allegations raised in the earlier suits, and additionally
incorporates by reference the allegations made in the lawsuit
filed against Intel by the New York Attorney General. In January
2010, Delaware District Court Judge Farnan signed a stipulated
order consolidating the Gilman and LMPERS actions under the name
In re Intel Corp. Derivative Litigation
. Gilman and
LMPERS filed a consolidated complaint in February 2010. We deny
the allegations in all of these derivative suits and intend to
defend the lawsuits vigorously.
Intel stockholders Martin Smilow
and the Rosenfeld Family Foundation filed an action in Delaware
Chancery Court in November 2009 to enforce an inspection demand
that they had previously made pursuant to section 220 of the
Delaware General Corporation Law. Intel denies the allegations
and intends to defend the lawsuit vigorously.
Intel Corporation v.
Commonwealth Scientific and Industrial Research Organisation
(CSIRO)
In May 2005, Intel filed a lawsuit
in the United States District Court for the Northern District of
California against CSIRO, an Australian research institute.
CSIRO had sent letters to Intel customers claiming that products
compliant with the IEEE 802.11a and 802.11g standards infringe
CSIRO’s U.S. Patent No. 5,487,069 (the ’069 patent).
Intel’s lawsuit sought a declaration that the CSIRO patent
is invalid and that no Intel product infringes it. Dell Inc. was
a co-declaratory judgment plaintiff with Intel; Microsoft
Corporation, Netgear Inc., and
Hewlett-Packard
Company filed a similar, separate lawsuit against CSIRO. In its
amended answer, CSIRO claimed that various Intel products
compliant with the IEEE 802.11a, 802.11g,
and/or
draft
802.11n standards infringe the ’069 patent. In 2009, we
entered into a settlement agreement with CSIRO pursuant to
which, among other things, we made payments to CSIRO in exchange
for a license to certain patents. The settlement agreement did
not significantly impact our results of operations or cash flows.
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INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Lehman
Matter
In November 2009, representatives
of Lehman Brothers Holdings Inc. advised Intel informally that
the Lehman bankruptcy estate was considering a claim against
Intel arising from a 2008 forward-share purchase contract. The
transaction at issue was between Intel and Lehman Brothers OTC
Derivatives Inc. (together with its affiliate Lehman Brothers
Holdings Inc., “Lehman”), which entered into a
$1.0 billion forward-purchase agreement to purchase shares
of Intel common stock. Under the terms of the agreement, Intel
provided a $1.0 billion pre-payment to Lehman, in exchange
for which Lehman was required to purchase $1.0 billion in
shares of Intel common stock, calculated at a volume weighted
average price from August 26, 2008 to September 26, 2008. Intel
received an equivalent $1.0 billion of cash collateral from
Lehman. Lehman was obligated to deliver approximately 50 million
shares of Intel common stock to Intel on September 29, 2008.
Lehman failed to deliver any shares of Intel common stock, and
Intel foreclosed on the $1.0 billion collateral. No
specific information has been provided by Lehman regarding the
nature or scope of the potential claims, other than the
assertion that Lehman contends that it suffered damages in a
range between $130 million and $380 million. In February 2010,
Lehman served a subpoena on Intel in connection with this
transaction, but Lehman has not initiated any action against
Intel to date. We believe that Intel acted appropriately under
its agreement with Lehman, in light of Lehman’s bankruptcy
filing, and we intend to defend any claim to the contrary.
Saxon
Innovations, LLC v. Intel Corporation
In August 2008, Saxon Innovations,
LLC filed an action for patent infringement against six personal
computer OEMs (Apple Inc., Gateway, Inc., Acer Inc.,
Hewlett-Packard Company, Dell Inc., and ASUSTeK Computer Inc.)
in the U.S. District Court for the Eastern District of Texas.
The asserted patents are U.S. Patent No. 5,592,555, entitled
“Wireless Communications Privacy Method and System”;
U.S. Patent No. 5,502,689, entitled “Clock Generator
Capable of Shut-Down Mode and Clock Generation Method”;
U.S. Patent No. 5,530,597, entitled “Apparatus and Method
for Disabling Interrupt Masks in Processors or the Like”;
U.S. Patent No. 5,247,621, entitled “System and Method for
Processor Bus Use”; and U.S. Patent No. 5,235,635, entitled
“Keypad Monitor with Keypad Activity-Based
Activation.” The complaint sought unspecified damages and a
permanent injunction. In September 2008, Intel filed an
unopposed motion to intervene in the case. In response, Saxon
Innovations filed a counterclaim against Intel, accusing Intel
of infringing the patents listed above, and asserting two
additional patents against Intel: U.S. Patent No. 5,422,832,
entitled “Variable Thermal Sensor,” and U.S. Patent
No. 5,829,031, entitled “Microprocessor Configured to
Detect a Group of Instructions and to Perform a Specific
Function upon Detection.” In January 2010, we entered into
a settlement agreement with Saxon Innovations pursuant to which,
among other things, we made a payment to Saxon Innovations in
exchange for a license to certain patents. The settlement
agreement did not significantly impact our results of operations
or cash flows.
Frank T. Shum v. Intel
Corporation, Jean-Marc Verdiell, and LightLogic, Inc.
Intel acquired LightLogic, Inc. in
May 2001. Frank Shum has sued Intel, LightLogic, and
LightLogic’s founder, Jean-Marc Verdiell, claiming that
much of LightLogic’s intellectual property is based on
alleged inventions that Shum conceived while he and Verdiell
were partners at Radiance Design, Inc. Shum has alleged claims
for fraud, breach of fiduciary duty, fraudulent concealment, and
breach of contract. Shum also seeks alleged correction of
inventorship of seven patents acquired by Intel as part of the
LightLogic acquisition. In January 2005, the U.S. District Court
for the Northern District of California denied Shum’s
inventorship claim, and thereafter granted Intel’s motion
for summary judgment on Shum’s remaining claims. In August
2007, the United States Court of Appeals for the Federal Circuit
vacated the District Court’s rulings and remanded the case
for further proceedings. In October 2008, the District Court
granted Intel’s motion for summary judgment on Shum’s
claims for breach of fiduciary duty and fraudulent concealment,
but denied Intel’s motion on Shum’s remaining claims.
A jury trial on Shum’s remaining claims took place in
November and December 2008. In pre-trial proceedings and at
trial, Shum requested monetary damages against the defendants in
amounts ranging from $31 million to $931 million, and his final
request to the jury was for as much as $175 million. Following
deliberations, the jury was unable to reach a verdict on most of
the claims. With respect to Shum’s claim that he is the
proper inventor on certain LightLogic patents now assigned to
Intel, the jury agreed with Shum on some of those claims. But
the jury was unable to reach a verdict on the breach of
contract, fraud, or unjust enrichment claims. In April 2009, the
court granted defendants’ motions for judgment as a matter
of law. Shum has appealed that ruling to the United States Court
of Appeals for the Federal Circuit.
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INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Wisconsin
Alumni Research Foundation v. Intel Corporation
In February 2008, the Wisconsin
Alumni Research Foundation filed an action for patent
infringement against Intel in the U.S. District Court for the
Western District of Wisconsin. The complaint generally alleged
that Intel infringed U.S. Patent No. 5,781,752 by making, using,
offering for sale, importing,
and/or
selling certain of Intel’s microprocessors, including the
Intel
®
Core
tm
2
Duo processor family with Smart Memory Access and any other
microprocessor using the same or a similar memory disambiguation
technique. In 2009, we entered into a settlement agreement
pursuant to which, among other things, we made a payment to the
Wisconsin Alumni Research Foundation in exchange for a license
to certain patents. The settlement agreement did not
significantly impact our results of operations or cash flows.
Note 29:
Operating Segment and Geographic Information
At the end of 2009, we reorganized
our business to better align our major product groups around the
core competencies of Intel architecture and our manufacturing
operations. After the reorganization, we have nine operating
segments, including PC Client Group, Data Center Group, Embedded
and Communications Group, Digital Home Group, Ultra-Mobility
Group, NAND Solutions Group, Wind River Software Group, Software
and Services Group, and Digital Health Group. All prior-period
amounts have been adjusted retrospectively to reflect the new
organizational structure.
The Chief Operating Decision Maker
(CODM) is our President and Chief Executive Officer. The CODM
allocates resources to and assesses the performance of each
operating segment using information about its revenue and
operating income (loss).
Our PC Client Group and our Data
Center Group are reportable operating segments. We also
aggregate and disclose the financial results of the following
non-reportable operating segments, whose product lines are based
on Intel architecture: Embedded and Communications Group,
Digital Home Group, and Ultra-Mobility Group. These
non-reportable operating segments are aggregated, as they have
similar economic characteristics and their operations are
similar in nature. These aggregated operating segments do not
meet the quantitative thresholds to qualify as reportable
operating segments; however, we have chosen to disclose the
aggregation of these non-reportable operating segments into the
“other Intel architecture operating segments”
category. Revenue for our reportable and aggregated
non-reportable
operating segments is primarily related to the following product
lines:
| • | PC Client Group. Includes microprocessors and related chipsets and motherboards designed for the desktop (including high-end enthusiast PCs), notebook, and netbook market segments; and wireless connectivity products. | |
| • | Data Center Group. Includes microprocessors and related chipsets and motherboards designed for the server, workstation, and storage computing market segments; and wired network connectivity products. | |
| • | Other Intel architecture operating segments. Includes microprocessors and related chipsets for embedded applications and products designed for the ultra-mobile market segment, which includes various handheld devices; and products for the consumer electronics market segments. |
Our NAND Solutions Group, Wind
River Software Group, Software and Services Group, and Digital
Health Group operating segments do not meet the quantitative
thresholds to qualify as reportable segments and are included
within the “other operating segments” category.
Revenue within the
“corporate” category is primarily related to divested
businesses for which discrete operating results are not reviewed
by our CODM to assess performance and allocate resources. This
includes revenue related to our NOR flash memory and cellular
and handheld businesses, as well as revenue and expenses related
to supply and service agreements that were entered into as part
of these divestitures (see “Note 16: Divestitures”).
We have sales and marketing,
manufacturing, finance, and administration groups. Expenses for
these groups are generally allocated to the operating segments,
and the expenses are included in the operating results reported
below.
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INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
During 2009, we incurred charges
of $1.447 billion (€1.06 billion) as a result of the fine
from the EC and $1.25 billion as a result of our legal
settlement with AMD. For further information, see “Note 28:
Contingencies.” These charges were included in the
“corporate” category, which also includes expenses and
charges such as:
| • | amounts included within restructuring and asset impairment charges; | |
| • | a portion of profit-dependent compensation and other expenses not allocated to the operating segments; | |
| • | results of operations of seed businesses that support our initiatives; and | |
| • | acquisition-related costs, including amortization and any impairment of acquisition-related intangibles and goodwill. |
The CODM does not evaluate
operating segments using discrete asset information. Operating
segments do not record inter-segment revenue, and, accordingly,
there is none to be reported. We do not allocate gains and
losses from equity investments, interest and other income, or
taxes to operating segments. Although the CODM uses operating
income to evaluate the segments, operating costs included in one
segment may benefit other segments. Except as discussed above,
the accounting policies for segment reporting are the same as
for Intel as a whole.
Net revenue and operating income
(loss) for the three years ended December 26, 2009 were as
follows:
|
(In Millions)
|
2009 | 2008 | 2007 | |||||||||
|
Net revenue
|
||||||||||||
|
PC Client Group
|
||||||||||||
|
Microprocessor revenue
|
$ | 19,914 | $ | 21,516 | $ | 21,053 | ||||||
|
Chipset, motherboard, and other revenue
|
6,261 | 6,450 | 6,077 | |||||||||
| 26,175 | 27,966 | 27,130 | ||||||||||
|
Data Center Group
|
||||||||||||
|
Microprocessor revenue
|
5,301 | 5,126 | 4,796 | |||||||||
|
Chipset, motherboard, and other revenue
|
1,149 | 1,464 | 1,659 | |||||||||
| 6,450 | 6,590 | 6,455 | ||||||||||
|
Other Intel architecture operating segments
|
1,402 | 1,763 | 1,908 | |||||||||
|
Other operating segments
|
970 | 579 | 447 | |||||||||
|
Corporate
|
130 | 688 | 2,394 | |||||||||
|
Total net revenue
|
$ | 35,127 | $ | 37,586 | $ | 38,334 | ||||||
|
Operating income (loss)
|
||||||||||||
|
PC Client Group
|
$ | 7,585 | $ | 9,419 | $ | 8,535 | ||||||
|
Data Center Group
|
2,299 | 2,135 | 2,105 | |||||||||
|
Other Intel architecture operating segments
|
(179 | ) | (63 | ) | 47 | |||||||
|
Other operating segments
|
(284 | ) | (1,042 | ) | (864 | ) | ||||||
|
Corporate
|
(3,710 | ) | (1,495 | ) | (1,607 | ) | ||||||
|
Total operating income
|
$ | 5,711 | $ | 8,954 | $ | 8,216 | ||||||
In 2009, one customer accounted
for 21% of our net revenue (20% in 2008 and 17% in 2007), while
another customer accounted for 17% of our net revenue (18% in
2008 and 2007). The majority of the revenue from these customers
was from the sale of microprocessors, chipsets, and other
components by the PC Client Group and the Data Center Group
operating segments.
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INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Geographic revenue information for
the three years ended December 26, 2009 is based on the location
of the customer. Revenue from unaffiliated customers was as
follows:
|
(In Millions)
|
2009 | 2008 | 2007 | |||||||||
|
Asia-Pacific (geographic region/country)
|
||||||||||||
|
Taiwan
|
$ | 10,574 | $ | 9,868 | $ | 8,606 | ||||||
|
China (including Hong Kong)
|
5,835 | 4,974 | 5,295 | |||||||||
|
Other Asia-Pacific
|
2,933 | 4,202 | 5,531 | |||||||||
| 19,342 | 19,044 | 19,432 | ||||||||||
|
Americas (geographic region/country)
|
||||||||||||
|
United States
|
5,280 | 5,462 | 6,015 | |||||||||
|
Other Americas
|
1,838 | 1,981 | 1,700 | |||||||||
| 7,118 | 7,443 | 7,715 | ||||||||||
|
Europe
|
5,278 | 7,116 | 7,262 | |||||||||
|
Japan
|
3,389 | 3,983 | 3,925 | |||||||||
|
Total net revenue
|
$ | 35,127 | $ | 37,586 | $ | 38,334 | ||||||
Revenue from unaffiliated
customers outside the U.S. totaled $29,847 million in 2009
($32,124 million in 2008 and $32,319 million in 2007).
Net property, plant and equipment
by country was as follows:
|
(In Millions)
|
2009 | 2008 1 | 2007 1 | |||||||||
|
United States
|
$ | 11,644 | $ | 11,254 | $ | 10,667 | ||||||
|
Israel
|
2,567 | 2,965 | 2,473 | |||||||||
|
Ireland
|
1,092 | 1,536 | 2,076 | |||||||||
|
Other countries
|
1,922 | 1,819 | 1,722 | |||||||||
|
Total property, plant and equipment, net
|
$ | 17,225 | $ | 17,574 | $ | 16,938 | ||||||
| 1 | As adjusted due to changes to the accounting for convertible debt instruments. See “Note 3: Accounting Changes.” |
Net property, plant and equipment
outside the U.S. totaled $5,581 million in 2009 ($6,320 million
in 2008 and $6,271 million in 2007).
110
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REPORT OF
ERNST & YOUNG LLP, INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
The Board of Directors and Stockholders, Intel
Corporation
We have audited the accompanying
consolidated balance sheets of Intel Corporation as of December
26, 2009 and December 27, 2008, and the related consolidated
statements of operations, stockholders’ equity, and cash
flows for each of the three years in the period ended December
26, 2009. Our audits also included the financial statement
schedule listed in the Index at Part IV, Item 15. These
financial statements and schedule are the responsibility of the
company’s management. Our responsibility is to express an
opinion on these financial statements and schedule based on our
audits.
We conducted our audits in
accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial
statements referred to above present fairly, in all material
respects, the consolidated financial position of Intel
Corporation at December 26, 2009 and December 27, 2008, and the
consolidated results of its operations and its cash flows for
each of the three years in the period ended December 26, 2009,
in conformity with U.S. generally accepted accounting
principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
As discussed in Notes 3 and 27 to
the consolidated financial statements, Intel Corporation changed
its method of accounting for convertible debt instruments with
cash settlement features during 2009, its method of accounting
for sabbatical leave as of December 31, 2006, and its method of
accounting for uncertain tax positions as of December 31, 2006.
We also have audited, in
accordance with the standards of the Public Company Accounting
Oversight Board (United States), Intel Corporation’s
internal control over financial reporting as of December 26,
2009, based on criteria established in Internal
Control—Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission and our
report dated February 22, 2010 expressed an unqualified opinion
thereon.
/s/ Ernst & Young LLP
San Jose, California
February 22, 2010
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REPORT OF
ERNST & YOUNG LLP, INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
The Board of Directors and Stockholders, Intel
Corporation
We have audited Intel
Corporation’s internal control over financial reporting as
of December 26, 2009, based on criteria established in Internal
Control—Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (the COSO
criteria). Intel Corporation’s management is responsible
for maintaining effective internal control over financial
reporting, and for its assessment of the effectiveness of
internal control over financial reporting included in the
accompanying Management Report on Internal Control Over
Financial Reporting. Our responsibility is to express an opinion
on the company’s internal control over financial reporting
based on our audit.
We conducted our audit in
accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about
whether effective internal control over financial reporting was
maintained in all material respects. Our audit included
obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists,
testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk, and performing such
other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable
basis for our opinion.
A company’s internal control
over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for
external purposes in accordance with generally accepted
accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that
(1) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary
to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance
with authorizations of management and directors of the company;
and (3) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a
material effect on the financial statements.
Because of its inherent
limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the
risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies
or procedures may deteriorate.
In our opinion, Intel Corporation
maintained, in all material respects, effective internal control
over financial reporting as of December 26, 2009, based on the
COSO criteria.
We also have audited, in
accordance with the standards of the Public Company Accounting
Oversight Board (United States), the 2009 consolidated financial
statements of Intel Corporation and our report dated February
22, 2010 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
San Jose, California
February 22, 2010
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CORPORATION
FINANCIAL INFORMATION BY QUARTER (UNAUDITED)
FINANCIAL INFORMATION BY QUARTER (UNAUDITED)
|
2009 for Quarter Ended
|
||||||||||||||||
|
(In Millions, Except Per Share Amounts)
|
December 26 | September 26 | June 27 | March 28 | ||||||||||||
|
Net revenue
|
$ | 10,569 | $ | 9,389 | $ | 8,024 | $ | 7,145 | ||||||||
|
Gross margin
|
$ | 6,840 | $ | 5,404 | $ | 4,079 | $ | 3,238 | ||||||||
|
Net income (loss)
|
$ | 2,282 | 1 | $ | 1,856 | $ | (398 | ) 2 | $ | 629 | ||||||
|
Basic earnings (loss) per common share
|
$ | 0.41 | 1 | $ | 0.34 | $ | (0.07 | ) 2 | $ | 0.11 | ||||||
|
Diluted earnings (loss) per common share
|
$ | 0.40 | 1 | $ | 0.33 | $ | (0.07 | ) 2 | $ | 0.11 | ||||||
|
Dividends per common share
|
||||||||||||||||
|
Declared
|
$ | — | $ | 0.28 | $ | — | $ | 0.28 | ||||||||
|
Paid
|
$ | 0.14 | $ | 0.14 | $ | 0.14 | $ | 0.14 | ||||||||
|
Market price range common
stock
3
|
||||||||||||||||
|
High
|
$ | 20.83 | $ | 20.32 | $ | 16.66 | $ | 15.82 | ||||||||
|
Low
|
$ | 18.50 | $ | 15.94 | $ | 14.72 | $ | 12.08 | ||||||||
|
2008 for Quarter Ended
|
||||||||||||||||
|
(In Millions, Except Per Share Amounts)
|
December 27 | September 27 | June 28 | March 29 | ||||||||||||
|
Net revenue
|
$ | 8,226 | $ | 10,217 | $ | 9,470 | $ | 9,673 | ||||||||
|
Gross margin
|
$ | 4,369 | $ | 6,019 | $ | 5,249 | $ | 5,207 | ||||||||
|
Net income
|
$ | 234 | 4 | $ | 2,014 | $ | 1,601 | $ | 1,443 | |||||||
|
Basic earnings per common share
|
$ | 0.04 | 4 | $ | 0.36 | $ | 0.28 | $ | 0.25 | |||||||
|
Diluted earnings per common share
|
$ | 0.04 | 4 | $ | 0.35 | $ | 0.28 | $ | 0.25 | |||||||
|
Dividends per common share
|
||||||||||||||||
|
Declared
|
$ | — | $ | 0.28 | $ | — | $ | 0.2675 | ||||||||
|
Paid
|
$ | 0.14 | $ | 0.14 | $ | 0.14 | $ | 0.1275 | ||||||||
|
Market price range common
stock
3
|
||||||||||||||||
|
High
|
$ | 18.73 | $ | 24.52 | $ | 25.00 | $ | 26.66 | ||||||||
|
Low
|
$ | 12.23 | $ | 18.50 | $ | 20.69 | $ | 18.63 | ||||||||
| 1 | During the fourth quarter of 2009, we recorded a charge of $1.25 billion as a result of a settlement agreement with AMD. For further information, see “Note 28: Contingencies” in the Notes to Consolidated Financial Statements of this Form 10-K. | |
| 2 | During the second quarter of 2009, we recorded a charge of $1.447 billion (€1.06 billion) as a result of the fine imposed by the EC. For further information, see “Note 28: Contingencies” in the Notes to Consolidated Financial Statements of this Form 10-K. | |
| 3 | Intel’s common stock (symbol INTC) trades on The NASDAQ Global Select Market and is quoted in the Wall Street Journal and other newspapers. All stock prices are closing prices per The NASDAQ Global Select Market. | |
| 4 | During the fourth quarter of 2008, we recorded a total of $938 million in impairment charges related to our Clearwire investments. $762 million was related to our investment in Clearwire LLC and $176 million was related to our investment in Clearwire Corporation. For further information, see “Note 11: Non-Marketable Equity Investments” and “Note 7: Available-for-Sale Investments,” respectively, in the Notes to Consolidated Financial Statements of this Form 10-K. |
113
Table of Contents
| ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
Not applicable.
| ITEM 9A. | CONTROLS AND PROCEDURES |
Evaluation
of Disclosure Controls and Procedures
Based on management’s
evaluation (with the participation of our CEO and Chief
Financial Officer (CFO)), as of the end of the period covered by
this report, our CEO and CFO have concluded that our disclosure
controls and procedures (as defined in Rules
13a-15(e)
and
15d-15(e)
under the Securities Exchange Act of 1934, as amended (the
Exchange Act)), are effective to provide reasonable assurance
that information required to be disclosed by us in reports that
we file or submit under the Exchange Act is recorded, processed,
summarized, and reported within the time periods specified in
SEC rules and forms, and is accumulated and communicated to
management, including our principal executive officer and
principal financial officer, as appropriate, to allow timely
decisions regarding required disclosure.
Changes
in Internal Control Over Financial Reporting
There were no changes to our
internal control over financial reporting (as defined in Rules
13a-15(f)
and
15d-15(f)
under the Exchange Act) that occurred during the period covered
by this report that have materially affected, or are reasonably
likely to materially affect, our internal control over financial
reporting.
Management
Report on Internal Control Over Financial Reporting
Our management is responsible for
establishing and maintaining adequate internal control over
financial reporting (as defined in Rules
13a-15(f)
and
15d-15(f)
under the Exchange Act) to provide reasonable assurance
regarding the reliability of our financial reporting and the
preparation of consolidated financial statements for external
purposes in accordance with U.S. generally accepted accounting
principles.
Management assessed our internal
control over financial reporting as of December 26, 2009, the
end of our fiscal year. Management based its assessment on
criteria established in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission. Management’s assessment included
evaluation of elements such as the design and operating
effectiveness of key financial reporting controls, process
documentation, accounting policies, and our overall control
environment.
Based on our assessment,
management has concluded that our internal control over
financial reporting was effective as of the end of the fiscal
year to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of consolidated
financial statements for external reporting purposes in
accordance with U.S. generally accepted accounting principles.
We reviewed the results of management’s assessment with the
Audit Committee of our Board of Directors.
Our independent registered public
accounting firm, Ernst & Young LLP, independently assessed
the effectiveness of the company’s internal control over
financial reporting, as stated in their attestation report,
which is included at the end of Part II, Item 8 of this Form
10-K.
114
Table of Contents
Inherent
Limitations on Effectiveness of Controls
Our management, including the CEO
and CFO, does not expect that our disclosure controls or our
internal control over financial reporting will prevent or detect
all error and all fraud. A control system, no matter how well
designed and operated, can provide only reasonable, not
absolute, assurance that the control system’s objectives
will be met. The design of a control system must reflect the
fact that there are resource constraints, and the benefits of
controls must be considered relative to their costs. Further,
because of the inherent limitations in all control systems, no
evaluation of controls can provide absolute assurance that
misstatements due to error or fraud will not occur or that all
control issues and instances of fraud, if any, have been
detected. The design of any system of controls is based in part
on certain assumptions about the likelihood of future events,
and there can be no assurance that any design will succeed in
achieving its stated goals under all potential future
conditions. Projections of any evaluation of the effectiveness
of controls to future periods are subject to risks. Over time,
controls may become inadequate because of changes in conditions
or deterioration in the degree of compliance with policies or
procedures.
| ITEM 9B. | OTHER INFORMATION |
None.
115
Table of Contents
PART
III
| ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE |
The information in our 2010 Proxy
Statement regarding directors and executive officers appearing
under the headings “Proposal 1: Election of Directors”
and “Other Matters—Section 16(a) Beneficial Ownership
Reporting Compliance” is incorporated by reference in this
section. The information under the heading “Executive
Officers of the Registrant” in Part I, Item 1 of this Form
10-K
is also
incorporated by reference in this section. In addition, the
information under the heading “Corporate Governance”
in our 2010 Proxy Statement is incorporated by reference in this
section.
The Intel Code of Conduct is our
code of ethics document applicable to all employees, including
all officers, and including our independent directors, who are
not employees of the company, with regard to their Intel-related
activities. The Code incorporates our guidelines designed to
deter wrongdoing and to promote honest and ethical conduct and
compliance with applicable laws and regulations. The Code also
incorporates our expectations of our employees that enable us to
provide accurate and timely disclosure in our filings with the
SEC and other public communications. In addition, the Code
incorporates guidelines pertaining to topics such as complying
with applicable laws, rules, and regulations; reporting Code
violations; and maintaining accountability for adherence to the
Code.
The full text of our Code is
published on our Investor Relations web site at
www.intc.com
. We intend to disclose future amendments to
certain provisions of our Code, or waivers of such provisions
granted to executive officers and directors, on the web site
within four business days following the date of such amendment
or waiver.
| ITEM 11. | EXECUTIVE COMPENSATION |
The information appearing in our
2010 Proxy Statement under the headings “Director
Compensation,” “Compensation Discussion and
Analysis,” “Report of the Compensation
Committee,” and “Executive Compensation” is
incorporated by reference in this section.
| ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
The information appearing in our
2010 Proxy Statement under the heading “Security Ownership
of Certain Beneficial Owners and Management” is
incorporated by reference in this section.
116
Table of Contents
Equity
Compensation Plan Information
Information as of December 26,
2009 regarding equity compensation plans approved and not
approved by stockholders is summarized in the following table
(shares in millions):
|
(C)
|
||||||||||||||
|
Number of Shares
|
||||||||||||||
|
(B)
|
Remaining Available
|
|||||||||||||
|
(A)
|
Weighted
|
for Future Issuance
|
||||||||||||
|
Number of Shares to
|
Average
|
Under Equity
|
||||||||||||
|
Be Issued Upon
|
Exercise Price
|
Incentive Plans
|
||||||||||||
|
Exercise of
|
of
|
(Excluding Shares
|
||||||||||||
|
Outstanding Options
|
Outstanding
|
Reflected in
|
||||||||||||
|
Plan Category
|
and Rights | Options 1 | Column A) | |||||||||||
|
Equity incentive plans approved by stockholders
|
376 | .6 2 | $ | 20.68 | 381 | .0 3 | ||||||||
|
Equity incentive plans not approved by
stockholders
4
|
181 | .6 | $ | 31.63 | — | |||||||||
|
Total
|
558 | .2 5 | $ | 25.09 | 381 | .0 | ||||||||
| 1 | The weighted average exercise price does not take into account the shares issuable upon vesting of outstanding restricted stock units, which have no exercise price. | |
| 2 | Includes 102.5 million shares issuable upon vesting of restricted stock units granted under the 2006 Equity Incentive Plan, including a maximum of 3.8 million market-based restricted stock units that could be awarded at the end of the requisite period. Also includes 4.8 million shares issuable upon vesting of restricted stock units granted under the 2004 Equity Incentive Plan. | |
| 3 | Maximum of 253 million shares that can be awarded as restricted stock or restricted stock units under the 2006 Equity Incentive Plan. Amount also includes 157.1 million shares available under our 2006 Stock Purchase Plan. | |
| 4 | Consists of shares available upon exercise of options granted under our 1997 Stock Option Plan, which was not required to be approved by stockholders. The 1997 Stock Option Plan was terminated as to future grants in May 2004. | |
| 5 | Total excludes 350,000 shares issuable under outstanding options, with a weighted average exercise price of $11.33, originally granted under plans that we assumed in connection with acquisitions. |
The 1997 Stock Option Plan (1997
Plan) provided for the granting of stock options to employees
other than officers and directors. The 1997 Plan, which was not
approved by stockholders, was terminated as to future grants
when the 2004 Equity Incentive Plan was approved by stockholders
in May 2004. The 1997 Plan is administered by the Compensation
Committee, which has the power to determine matters related to
outstanding option awards under the 1997 Plan, including
conditions of vesting and exercisability. Options granted under
the 1997 Plan expire no later than ten years from the grant
date. Options granted before 2003 under the 1997 Plan generally
vest in five years, and options granted under the 1997 Plan in
2003 and 2004 generally vest in increments over four or five
years from the date of grant. Grants to key employees may have
delayed vesting, generally beginning six years from the date of
grant.
| ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE |
The information appearing in our
2010 Proxy Statement under the headings “Corporate
Governance” and “Certain Relationships and Related
Transactions” is incorporated by reference in this section.
| ITEM 14. | PRINCIPAL ACCOUNTING FEES AND SERVICES |
The information appearing in our
2010 Proxy Statement under the headings “Report of the
Audit Committee” and “Proposal 2: Ratification of
Selection of Independent Registered Public Accounting Firm”
is incorporated by reference in this section.
117
Table of Contents
PART
IV
| ITEM 15. | EXHIBITS, FINANCIAL STATEMENT SCHEDULES |
1. Financial Statements: See
“Index to Consolidated Financial Statements” in Part
II, Item 8 of this Form
10-K.
2. Financial Statement
Schedule: See “Schedule II—Valuation and Qualifying
Accounts” in this section of this Form
10-K.
3. Exhibits: The exhibits
listed in the accompanying index to exhibits are filed or
incorporated by reference as part of this Form
10-K.
Certain of the agreements filed as
exhibits to this Form
10-K
contain
representations and warranties by the parties to the agreements
that have been made solely for the benefit of the parties to the
agreement. These representations and warranties:
| • | may have been qualified by disclosures that were made to the other parties in connection with the negotiation of the agreements, which disclosures are not necessarily reflected in the agreements; | |
| • | may apply standards of materiality that differ from those of a reasonable investor; and | |
| • | were made only as of specified dates contained in the agreements and are subject to subsequent developments and changed circumstances. |
Accordingly, these representations
and warranties may not describe the actual state of affairs as
of the date that these representations and warranties were made
or at any other time. Investors should not rely on them as
statements of fact.
Intel, Intel logo, Intel
Inside, Intel Atom, Celeron, Intel Centrino, Intel Core, Intel
vPro, Intel Xeon, Itanium, Moblin, and Pentium are trademarks of
Intel Corporation in the U.S. and other countries.
| * | Other names and brands may be claimed as the property of others. |
118
Table of Contents
INTEL
CORPORATION
SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS
SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS
December
26, 2009, December 27, 2008, and December 29, 2007
(In Millions)
(In Millions)
|
Additions
|
||||||||||||||||
|
Balance at
|
Charged
|
Net
|
||||||||||||||
|
Beginning of
|
(Credited)
|
(Deductions)
|
Balance at
|
|||||||||||||
| Year | to Expenses | Recoveries | End of Year | |||||||||||||
|
Allowance for doubtful
receivables
1
|
||||||||||||||||
|
2009
|
$ | 17 | $ | 3 | $ | (1 | ) | $ | 19 | |||||||
|
2008
|
$ | 27 | $ | (4 | ) | $ | (6 | ) | $ | 17 | ||||||
|
2007
|
$ | 32 | $ | (6 | ) | $ | 1 | $ | 27 | |||||||
|
Valuation allowance for deferred tax assets
|
||||||||||||||||
|
2009
|
$ | 358 | $ | 91 | $ | (120 | ) | $ | 329 | |||||||
|
2008
|
$ | 133 | $ | 267 | $ | (42 | ) | $ | 358 | |||||||
|
2007
|
$ | 87 | $ | 46 | $ | — | $ | 133 | ||||||||
| 1 | Deductions represent uncollectible accounts written off, net of recoveries. |
119
Table of Contents
INDEX TO
EXHIBITS
| Incorporated by Reference | |||||||||||||||||||||||||
|
Exhibit
|
Filing
|
Filed
|
|||||||||||||||||||||||
|
Number
|
Exhibit Description
|
Form | File Number | Exhibit | Date | Herewith | |||||||||||||||||||
| 3 | .1 | Intel Corporation Third Restated Certificate of Incorporation of Intel Corporation dated May 17, 2006 | 8-K | 000-06217 | 3.1 | 5/22/06 | |||||||||||||||||||
| 3 | .2 | Intel Corporation Bylaws, as amended on November 12, 2008 | 8-K | 000-06217 | 3.1 | 11/13/08 | |||||||||||||||||||
| 4 | .2.1 | Indenture for the Registrant’s 2.95% Junior Subordinated Convertible Debentures due 2035 between Intel Corporation and Citibank N.A., dated as of December 16, 2005 (the “Convertible Note Indenture”) | 10-K | 000-06217 | 4.2 | 2/27/06 | |||||||||||||||||||
| 4 | .2.2 | Indenture dated as of March 29, 2006 between Intel Corporation and Citibank, N.A. (the “Open-Ended Indenture”) | S-3ASR | 333-132865 | 4.4 | 3/30/06 | |||||||||||||||||||
| 4 | .2.3 | First Supplemental Indenture to Convertible Note Indenture, dated as of July 25, 2007 | 10-K | 000-06217 | 4.2.3 | 2/20/08 | |||||||||||||||||||
| 4 | .2.4 | First Supplemental Indenture to Open-Ended Indenture, dated as of December 3, 2007 | 10-K | 000-06217 | 4.2.4 | 2/20/08 | |||||||||||||||||||
| 4 | .2.5 | Indenture for the Registrant’s 3.25% Junior Subordinated Convertible Debentures due 2039 between Intel Corporation and Wells Fargo Bank, National Association, dated as of July 27, 2009 | 8-K | 000-06217 | 4.1 | 7/27/09 | |||||||||||||||||||
| 10 | .1** | Intel Corporation 1984 Stock Option Plan, as amended and restated effective July 16, 1997 | 10-Q | 333-45395 | 10.1 | 8/11/98 | |||||||||||||||||||
| 10 | .2 | Intel Corporation 1997 Stock Option Plan, as amended and restated effective July 16, 1997 | 10-K | 000-06217 | 10.7 | 3/11/03 | |||||||||||||||||||
| 10 | .3** | Intel Corporation 2004 Equity Incentive Plan, effective May 19, 2004 | 10-Q | 000-06217 | 10.3 | 8/2/04 | |||||||||||||||||||
| 10 | .4** | Notice of Grant of Non-Qualified Stock Option under the Intel Corporation 2004 Equity Incentive Plan | 10-Q | 000-06217 | 10.7 | 8/2/04 | |||||||||||||||||||
| 10 | .5** | Standard Terms and Conditions Relating to Non-Qualified Stock Options granted to U.S. employees on and after May 19, 2004 under the Intel Corporation 2004 Equity Incentive Plan | 10-Q | 000-06217 | 10.5 | 8/2/04 | |||||||||||||||||||
| 10 | .6** | Standard International Non-Qualified Stock Option Agreement under the Intel Corporation 2004 Equity Incentive Plan | 10-Q | 000-06217 | 10.6 | 8/2/04 | |||||||||||||||||||
| 10 | .7** | Intel Corporation Non-Employee Director Non-Qualified Stock Option Agreement under the Intel Corporation 2004 Equity Incentive Plan | 10-Q | 000-06217 | 10.4 | 8/2/04 | |||||||||||||||||||
| 10 | .8** | Form of ELTSOP Non-Qualified Stock Option Agreement under the Intel Corporation 2004 Equity Incentive Plan | 8-K | 000-06217 | 10.1 | 10/12/04 | |||||||||||||||||||
| 10 | .9** | Intel Corporation 2004 Equity Incentive Plan, as amended and restated, effective May 18, 2005 | 8-K | 000-06217 | 10.1 | 5/20/05 | |||||||||||||||||||
| 10 | .10** | Form of Notice of Grant of Restricted Stock Units | 8-K | 000-06217 | 10.5 | 2/9/06 | |||||||||||||||||||
| 10 | .11** | Form of Intel Corporation Nonqualified Stock Option Agreement under the 2004 Equity Incentive Plan | 10-K | 000-06217 | 10.16 | 2/27/06 | |||||||||||||||||||
| 10 | .12** | Standard Terms and Conditions relating to Restricted Stock Units granted to U.S. employees under the Intel Corporation 2004 Equity Incentive Plan | 10-Q | 000-06217 | 10.2 | 5/8/06 | |||||||||||||||||||
120
Table of Contents
| Incorporated by Reference | |||||||||||||||||||||||||
|
Exhibit
|
Filing
|
Filed
|
|||||||||||||||||||||||
|
Number
|
Exhibit Description
|
Form | File Number | Exhibit | Date | Herewith | |||||||||||||||||||
| 10 | .13** | Standard International Restricted Stock Unit Agreement under the 2004 Equity Incentive Plan | 10-Q | 000-06217 | 10.4 | 5/8/06 | |||||||||||||||||||
| 10 | .14** | Standard Terms and Conditions relating to Non-Qualified Stock Options granted to U.S. employees on and after February 1, 2006 under the Intel Corporation 2004 Equity Incentive Plan (other than grants made under the SOP Plus or ELTSOP programs) | 10-Q | 000-06217 | 10.6 | 5/8/06 | |||||||||||||||||||
| 10 | .15** | Standard Terms and Conditions relating to Restricted Stock Units granted to U.S. employees under the Intel Corporation 2004 Equity Incentive Plan (for grants under the ELTSOP Program) | 10-Q | 000-06217 | 10.9 | 5/8/06 | |||||||||||||||||||
| 10 | .16** | Standard International Restricted Stock Unit Agreement under the 2004 Equity Incentive Plan (for grants under the ELTSOP Program) | 10-Q | 000-06217 | 10.11 | 5/8/06 | |||||||||||||||||||
| 10 | .17** | Terms and Conditions relating to Nonqualified Stock Options granted to U.S. employees on and after February 1, 2006 under the Intel Corporation 2004 Equity Incentive Plan for grants formerly known as ELTSOP Grants | 10-Q | 000-06217 | 10.13 | 5/8/06 | |||||||||||||||||||
| 10 | .18** | Standard International Nonqualified Stock Option Agreement under the 2004 Equity Incentive Plan (for grants after February 1, 2006 under the ELTSOP Program) | 10-Q | 000-06217 | 10.15 | 5/8/06 | |||||||||||||||||||
| 10 | .19** | Amendment of Stock Option and Restricted Stock Unit Agreements with the Elimination of Leave of Absence Provisions | 10-Q | 000-06217 | 10.5 | 5/2/08 | |||||||||||||||||||
| 10 | .20** | Intel Corporation 2006 Equity Incentive Plan, as amended and restated, effective May 17, 2006 | 8-K | 000-06217 | 10.1 | 5/22/06 | |||||||||||||||||||
| 10 | .21** | Form of Notice of Grant—Restricted Stock Units | 8-K | 000-06217 | 10.13 | 7/6/06 | |||||||||||||||||||
| 10 | .22** | Form of Notice of Grant—Nonqualified Stock Options | 8-K | 000-06217 | 10.24 | 7/6/06 | |||||||||||||||||||
| 10 | .23** | Standard Terms and Conditions relating to Restricted Stock Units granted to U.S. employees on and after May 17, 2006 under the Intel Corporation 2006 Equity Incentive Plan (for grants under the standard program) | 8-K | 000-06217 | 10.1 | 7/6/06 | |||||||||||||||||||
| 10 | .24** | Standard International Restricted Stock Unit Agreement under the 2006 Equity Incentive Plan (for grants under the standard program after May 17, 2006) | 8-K | 000-06217 | 10.2 | 7/6/06 | |||||||||||||||||||
| 10 | .25** | Terms and Conditions relating to Restricted Stock Units granted on and after May 17, 2006 to U.S. employees under the Intel Corporation 2006 Equity Incentive Plan (for grants under the ELTSOP Program) | 8-K | 000-06217 | 10.7 | 7/6/06 | |||||||||||||||||||
| 10 | .26** | International Restricted Stock Unit Agreement under the 2006 Equity Incentive Plan (for grants under the ELTSOP program after May 17, 2006) | 8-K | 000-06217 | 10.8 | 7/6/06 | |||||||||||||||||||
| 10 | .27** | Intel Corporation 2006 Equity Incentive Plan Terms and Conditions Relating to Restricted Stock Units Granted to Paul S. Otellini on April 17, 2008 under the Intel Corporation 2006 Equity Incentive Plan (under the ELTSOP RSU Program) | 8-K | 000-06217 | 99.1 | 4/17/08 | |||||||||||||||||||
| 10 | .28** | Standard Terms and Conditions relating to Non-Qualified Stock Options granted to U.S. employees on and after May 17, 2006 under the Intel Corporation 2006 Equity Incentive Plan (for grants under the standard program) | 8-K | 000-06217 | 10.14 | 7/6/06 | |||||||||||||||||||
121
Table of Contents
| Incorporated by Reference | |||||||||||||||||||||||||
|
Exhibit
|
Filing
|
Filed
|
|||||||||||||||||||||||
|
Number
|
Exhibit Description
|
Form | File Number | Exhibit | Date | Herewith | |||||||||||||||||||
| 10 | .29** | Standard International Nonqualified Stock Option Agreement under the 2006 Equity Incentive Plan (for grants under the standard program after May 17, 2006) | 8-K | 000-06217 | 10.15 | 7/6/06 | |||||||||||||||||||
| 10 | .30** | Form of Stock Option Agreement with Continued Post-Retirement Exercisability | 10-Q | 000-06217 | 10.3 | 5/2/08 | |||||||||||||||||||
| 10 | .31** | Terms and Conditions relating to Nonqualified Stock Options granted to U.S. employees on and after May 17, 2006 under the Intel Corporation 2006 Equity Incentive Plan (for grants under the ELTSOP Program) | 8-K | 000-06217 | 10.19 | 7/6/06 | |||||||||||||||||||
| 10 | .32** | International Nonqualified Stock Option Agreement under the 2006 Equity Incentive Plan (for grants after May 17, 2006 under the ELTSOP Program) | 8-K | 000-06217 | 10.20 | 7/6/06 | |||||||||||||||||||
| 10 | .33** | Amendment of Stock Option and Restricted Stock Unit Agreements with the Elimination of Leave of Absence Provisions and the Addition of the Ability to Change the Grant Agreement as Laws Change | 10-Q | 000-06217 | 10.6 | 5/2/08 | |||||||||||||||||||
| 10 | .34** | Form of Non-Employee Director Restricted Stock Unit Agreement under the 2006 Equity Incentive Plan (for RSUs granted after May 17, 2006) | 8-K | 000-06217 | 10.2 | 7/14/06 | |||||||||||||||||||
| 10 | .35** | Terms and Conditions Relating to Nonqualified Options Granted to Paul Otellini on January 18, 2007 under the Intel Corporation 2006 Equity Incentive Plan | 10-K | 000-06217 | 10.42 | 2/26/07 | |||||||||||||||||||
| 10 | .36** | Intel Corporation 2006 Equity Incentive Plan As Amended and Restated effective May 16, 2007 | 8-K | 000-06217 | 10.1 | 5/16/07 | |||||||||||||||||||
| 10 | .37** | Intel Corporation 2007 Executive Officer Incentive Plan, effective as of January 1, 2007 | 8-K | 000-06217 | 10.2 | 5/16/07 | |||||||||||||||||||
| 10 | .38** | Intel Corporation Deferral Plan for Outside Directors, effective July 1, 1998 | 10-K | 333-45395 | 10.6 | 3/26/99 | |||||||||||||||||||
| 10 | .39** | Intel Corporation Sheltered Employee Retirement Plan Plus, as amended and restated effective January 1, 2006 | S-8 | 333-141905 | 99.1 | 4/5/07 | |||||||||||||||||||
| 10 | .40** | First Amendment to the Intel Corporation Sheltered Employee Retirement Plan Plus, executed November 6, 2007 | 10-K | 000-06217 | 10.37 | 2/20/08 | |||||||||||||||||||
| 10 | .41** | Second Amendment to the Intel Corporation Sheltered Employee Retirement Plan Plus, executed November 6, 2007 | 10-K | 000-06217 | 10.38 | 2/20/08 | |||||||||||||||||||
| 10 | .42** | Form of Indemnification Agreement with Directors and Executive Officers | 10-K | 000-06217 | 10.15 | 2/22/05 | |||||||||||||||||||
| 10 | .43** | Listed Officer Compensation | 10-Q | 000-06217 | 10.1 | 5/3/07 | |||||||||||||||||||
| 10 | .44** | Intel Corporation 2006 Stock Purchase Plan, effective May 17, 2006 | S-8 | 333-135178 | 99.1 | 6/21/06 | |||||||||||||||||||
| 10 | .45** | Amendment to the Intel Corporation 2006 Stock Purchase Plan, effective February 20, 2009 | 10-K | 000-06217 | 10.45 | 2/23/09 | |||||||||||||||||||
| 10 | .46** | Summary of Intel Corporation Non-Employee Director Compensation | 8-K | 000-06217 | 10.1 | 7/14/06 | |||||||||||||||||||
| 10 | .47** | Intel Corporation 2006 Deferral Plan for Outside Directors, effective November 15, 2006 | 10-K | 000-06217 | 10.41 | 2/26/07 | |||||||||||||||||||
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Table of Contents
| Incorporated by Reference | |||||||||||||||||||||||||
|
Exhibit
|
Filing
|
Filed
|
|||||||||||||||||||||||
|
Number
|
Exhibit Description
|
Form | File Number | Exhibit | Date | Herewith | |||||||||||||||||||
| 10 | .48** | Standard Terms and Conditions relating to Restricted Stock Units granted on and after January 22, 2010 under the Intel Corporation Equity Incentive Plan (standard OSU program) | X | ||||||||||||||||||||||
| 10 | .49** | Intel Corporation Restricted Stock Unit Agreement under the Intel Corporation 2006 Equity Incentive Plan (for RSUs granted after January 22, 2010 under the standard OSU program) | X | ||||||||||||||||||||||
| 10 | .50** | Standard Terms and Conditions relating to Non-Qualified Stock Options granted to A. Douglas Melamed on January 22, 2010 under the Intel Corporation 2006 Equity Incentive Plan (standard option program) | X | ||||||||||||||||||||||
| 10 | .51 | Settlement Agreement Between Advanced Micro Devices, Inc. and Intel Corporation, dated November 11, 2009 | 8-K | 000-06217 | 10.1 | 11/12/09 | |||||||||||||||||||
| 12 | .1 | Statement Setting Forth the Computation of Ratios of Earnings to Fixed Charges | X | ||||||||||||||||||||||
| 21 | .1 | Intel Corporation Subsidiaries | X | ||||||||||||||||||||||
| 23 | .1 | Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm | X | ||||||||||||||||||||||
| 31 | .1 | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended (the Exchange Act) | X | ||||||||||||||||||||||
| 31 | .2 | Certification of Chief Financial Officer and Principal Accounting Officer pursuant to Rule 13a-14(a) of the Exchange Act | X | ||||||||||||||||||||||
| 32 | .1 | Certification of the Chief Executive Officer and the Chief Financial Officer and Principal Accounting Officer pursuant to Rule 13a-14(b) of the Exchange Act and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | X | ||||||||||||||||||||||
| 101 | .INS | XBRL Instance Document | X | ||||||||||||||||||||||
| 101 | .SCH | XBRL Taxonomy Extension Schema Document | X | ||||||||||||||||||||||
| 101 | .CAL | XBRL Taxonomy Extension Calculation Linkbase Document | X | ||||||||||||||||||||||
| 101 | .DEF | XBRL Taxonomy Extension Definition Linkbase Document | X | ||||||||||||||||||||||
| 101 | .LAB | XBRL Taxonomy Extension Label Linkbase Document | X | ||||||||||||||||||||||
| 101 | .PRE | XBRL Taxonomy Extension Presentation Linkbase Document | X | ||||||||||||||||||||||
| ** | Management contracts or compensation plans or arrangements in which directors or executive officers are eligible to participate. |
123
Table of Contents
SIGNATURES
Pursuant to the requirements of
Section 13 or 15(d) of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
INTEL CORPORATION
Registrant
| By: |
/s/
Stacy
J. Smith
|
Stacy J. Smith
Senior Vice President, Chief Financial Officer, and
Principal Accounting Officer
February 22, 2010
Pursuant to the requirements of
the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
|
/s/
Charlene
Barshefsky
Director February 22, 2010 |
/s/
David
S. Pottruck
Director February 22, 2010 |
|
|
/s/
Susan
L. Decker
Director February 22, 2010 |
/s/
Jane
E. Shaw
Chairman of the Board and Director February 22, 2010 |
|
|
/s/
John
J. Donahoe
Director February 22, 2010 |
/s/
Stacy
J. Smith
Senior Vice President, Chief Financial Officer, and Principal Accounting Officer February 22, 2010 |
|
|
/s/
Reed
E. Hundt
Director February 22, 2010 |
/s/
John
L. Thornton
Director February 22, 2010 |
|
|
/s/
Paul
S. Otellini
President, Chief Executive Officer, Director, and Principal Executive Officer February 22, 2010 |
/s/
Frank
D. Yeary
Director February 22, 2010 |
|
|
/s/
James
D. Plummer
Director February 22, 2010 |
/s/
David
B. Yoffie
Director February 22, 2010 |
124
TABLE OF CONTENTS
Part IprintItem 1. BusinessprintItem 1A. Risk FactorsprintItem 1B. Unresolved Staff CommentsprintItem 2. PropertiesprintItem 3. Legal ProceedingsprintItem 4. Submission Of Matters To A Vote Of Security HoldersprintPart IIprintItem 5. Market For Registrant S Common Equity, Related Stockholder Matters and Issuer Purchases Of Equity SecuritiesprintItem 6. Selected Financial DataprintItem 7. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsprintItem 7A. Quantitative and Qualitative Disclosures About Market RiskprintItem 8. Financial Statements and Supplementary DataprintNote 1: Basis Of PresentationprintNote 2: Accounting PoliciesprintNote 3: Accounting ChangesprintNote 4: Recent Accounting StandardsprintNote 5: Fair ValueprintNote 6: Trading AssetsprintNote 7: Available-for-sale InvestmentsprintNote 8: Derivative Financial InstrumentsprintNote 9: Concentrations Of Credit RiskprintNote 10: Other Long-term AssetsprintNote 11: Non-marketable Equity InvestmentsprintNote 12: Gains (losses) on Equity Method Investments, NetprintNote 13: Gains (losses) on Other Equity Investments, NetprintNote 14: Interest and Other, NetprintNote 15: AcquisitionsprintNote 16: DivestituresprintNote 17: GoodwillprintNote 18: Identified Intangible AssetsprintNote 19: Restructuring and Asset Impairment ChargesprintNote 20: BorrowingsprintNote 21: Retirement Benefit PlansprintNote 22: CommitmentsprintNote 23: Employee Equity Incentive PlansprintNote 24: Common Stock RepurchasesprintNote 25: Earnings Per ShareprintNote 26: Comprehensive IncomeprintNote 27: TaxesprintNote 28: ContingenciesprintNote 29: Operating Segment and Geographic InformationprintItem 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureprintItem 9A. Controls and ProceduresprintItem 9B. Other InformationprintPart IIIprintItem 10. Directors, Executive Officers and Corporate GovernanceprintItem 11. Executive CompensationprintItem 12. Security Ownership Of Certain Beneficial Owners and Management and Related Stockholder MattersprintItem 13. Certain Relationships and Related Transactions, and Director IndependenceprintItem 14. Principal Accounting Fees and ServicesprintPart IVprintItem 15. Exhibits, Financial Statement Schedulesprint