e10vk
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 |
For
the fiscal year ended December 31, 2005.
|
|
o |
Transition Report Pursuant to
Section 13 or 15(d) of the Securities Exchange Act of
1934 |
For
the transition period from __________ to__________.
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) |
Registrants telephone number, including area code
(408) 765-8080
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common stock, $0.001 par value
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 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 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 registrants
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. x
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, or a non-accelerated
filer. See definition of accelerated filer and large
accelerated filer in
Rule 12b-2 of the
Exchange Act. (Check one):
Large accelerated
filer x Accelerated
filer o Non-accelerated
filer 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 July 1,
2005, based upon the closing price of the common stock as
reported by The NASDAQ* National Market on such date, was
approximately
$154.9 billion
5,883 million shares of common stock outstanding as of
January 27, 2006
DOCUMENTS INCORPORATED BY REFERENCE
|
|
(1) |
Portions of the registrants Proxy Statement relating to
its 2006 Annual Stockholders Meeting, to be filed
subsequently Part I
and Part III. |
INTEL CORPORATION
FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2005
INDEX
PART I
Industry
We are the worlds largest semiconductor chip maker,
developing advanced integrated digital technology platforms for
the computing and communications industries. Our goal is to be
the preeminent provider of silicon chips and platform solutions
to the worldwide digital economy. We offer products at various
levels of integration, allowing our customers flexibility to
create advanced computing and communications systems and
products.
Intels products include chips, boards and other
semiconductor components that are the building blocks integral
to computers, servers, and networking and communications
products. Our component-level products consist of integrated
circuits used to process information. Our integrated circuits
are silicon chips, known as semiconductors, etched with
interconnected electronic switches.
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 are
updated annually, outlining our performance with respect to
corporate responsibility, including environmental, health and
safety compliance (these voluntary reports are not incorporated
by reference into this
Form 10-K). On our
Investor Relations web site, located at www.intc.com, we
post the following filings as soon as reasonably practicable
after they are electronically filed with or furnished to the
U.S. Securities and Exchange Commission (SEC): our annual
report on
Form 10-K, our
quarterly reports on
Form 10-Q, our
current reports on
Form 8-K, our
proxy statement on Form 14A related to our annual
stockholders meeting and any amendments to those reports
or statements filed or furnished pursuant to Section 13(a)
or 15(d) of the Securities Exchange Act of 1934, as amended. All
such filings are available on our Investor Relations web site
free of charge. 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.
Products
Our products include microprocessors; chipsets; motherboards;
flash memory; wired and wireless connectivity products;
communications infrastructure components, including network
processors; application and cellular baseband processors; and
products for networked storage.
Our customers include:
|
|
|
|
|
original equipment manufacturers (OEMs) and original design
manufacturers (ODMs) who make computer systems, cellular
handsets and handheld computing devices, and telecommunications
and networking communications equipment; |
|
|
|
PC and network communications products users (including
individuals, large and small businesses, and service providers)
who buy PC components and board-level products, as well as our
networking and communications products, through distributor,
reseller, retail and OEM channels throughout the world; and |
|
|
|
other manufacturers, including makers of a wide range of
industrial and communications equipment. |
We believe that the end users of computing and communications
systems and devices want products based on platform solutions.
We define a platform as a collection of technologies that are
designed to work together to provide a better end-user solution
than if the ingredients were used separately. Our platforms
consist of standards and initiatives such as WiFi and WiMAX;
hardware and software that may include technologies such as
Hyper-Threading Technology (HT Technology),
Intel®
Virtualization Technology and
Intel®
Active Management Technology
(Intel®
AMT); and services. In developing our platforms, we may include
ingredients sold by other companies. We also believe that users
of computing and communications systems and devices want
improved overall performance and/or improved performance per
watt. Improved overall performance can include faster processing
performance and/or other improved capabilities such as
multithreading and/or multitasking, connectivity, security,
manageability, reliability, ease of use and/or interoperability
among devices. Improved performance per watt involves balancing
the addition of these types of improved performance capabilities
in relation to the power consumption of the platform. Lower
power consumption may reduce system heat output, provide power
savings and reduce the total cost of ownership for the end user.
1
A microprocessor is the central processing unit
(CPU) of a computer system. It processes system data and
controls other devices in the system, acting as the
brains of the computer. One indicator of a
microprocessors performance is its clock speed, the rate
at which its internal logic operates, which is measured in units
of hertz, or cycles processed per second. One megahertz (MHz)
equals one million cycles processed per second, and one
gigahertz (GHz) equals one billion cycles processed per second.
As computers continue to support more usage models, other
factors are increasingly important to overall platform
performance. For example, microprocessors have historically
contained only one processor core. Recently, we have started
offering dual-core microprocessors, such as the
Intel®
Coretm
Duo processor and the Intel
Pentium®
D processor, which contain two processor cores and deliver more
capabilities in the form of higher system throughput and
simultaneous management of activities while balancing power
requirements. Other examples of factors that are increasingly
important to overall platform performance include the amount and
type of memory storage, the speed of memory access, the
microarchitecture design of the CPU and the speed of
communication between the CPU and the chipset. A faster bus, for
example, allows for faster data transfer into and out of the
processor, enabling increased performance. A bus carries data
between parts of the system. A common way to categorize
microprocessor design architectures is by the number of bits
(the smallest unit of information on a machine) that the
processor can handle at one time. Microprocessors currently are
designed to process 32 bits or 64 bits of information at one
time. Microprocessors with
64-bit processing
capability can address significantly more memory than
32-bit microprocessors.
The
Intel®
Coretm,
Intel®
Pentium®,
Intel®
Celeron®
and
Intel®
Xeon®
branded products are based on our
32-bit architecture
(IA-32), while
Intel®
Itanium®
branded products are based on our
64-bit architecture.
Another way to provide
64-bit processing
capability is for processors based on
32-bit architecture to
have 64-bit address
extensions. Recent product introductions from our Pentium,
Celeron and Intel Xeon product families are typically equipped
with
Intel®
Extended Memory 64 Technology
(Intel®
EM64T), which provides
64-bit address
extensions, supporting both
32-bit and
64-bit software
applications. The memory storage on a chip is measured in bytes
(8 bits), with 1,024 bytes equaling a kilobyte (KB),
1.049 million bytes equaling a megabyte (MB) and
1.074 billion bytes equaling a gigabyte (GB). Cache is a
memory that can be located directly on the microprocessor,
permitting quicker access to frequently used data and
instructions. Some of our microprocessors have additional levels
of cache, second-level (L2) cache and third-level (L3) cache, to
offer higher levels of performance.
Other microprocessor capabilities can also enhance system
performance or user experience by running software more
efficiently. For example, we offer microprocessors with
Intels HT Technology, which allows each processor core to
process two threads of instructions simultaneously. This
capability can provide benefits in one of two ways: it helps to
run multithreaded software, which is designed to
execute different parts of a program simultaneously, or it helps
to run multiple software programs simultaneously in a
multitasking environment. Other technologies include Intel AMT,
which allows information technology managers to diagnose, fix
and protect enabled systems that are plugged in and connected to
a network, even if a computer is turned off or has a failed hard
drive or operating system; and Intel Virtualization Technology,
which enables increased utilization of servers and establishes a
management partition that provides increased security and
management capabilities. To take advantage of these
technologies, a computer system must have a microprocessor that
supports the technology, a chipset and BIOS (basic input/output
system) that use the technology, and software that is optimized
for the technology. Performance also will vary depending on the
system hardware and software used.
Our microprocessor sales generally have followed a seasonal
trend; however, there can be no assurance that this trend will
continue. Historically, our sales of microprocessors have been
higher in the second half of the year than in the first half of
the year. Consumer purchases of PCs have been higher in the
second half of the year, primarily due to
back-to-school and
holiday demand. In addition, technology purchases from
businesses have tended to be higher in the second half of the
year.
The chipset operates as the PCs nervous
system, sending data between the microprocessor and input,
display and storage devices, such as the keyboard, mouse,
monitor, hard drive, and CD or DVD drive. Chipsets perform
essential logic functions, such as balancing the performance of
the system and removing bottlenecks. Chipsets also extend the
graphics, audio, video and other capabilities of many systems
based on our microprocessors. Finally, chipsets control the
access between the CPU and main memory. We offer chipsets
compatible with a variety of industry-accepted bus
specifications, such as the Accelerated Graphics Port
(AGP) specification, the Peripheral Components Interconnect
(PCI) local bus specification and the PCI Express* local
bus specification. PCI Express significantly increases the data
transfer rate of the original PCI specification, thereby
improving the graphics and input/output bandwidth and enabling
an improved multimedia experience. Our customers also want
memory architecture alternatives, and as a result, we offer
chipsets supporting Double Data Rate (DDR) and DDR2
(second-generation, faster DDR memory), Dynamic Random Access
Memory (DRAM) and Synchronous DRAM (SDRAM).
A motherboard is the principal board within a system. A
motherboard has connectors for attaching devices to the bus, and
typically contains the CPU, memory and the chipset. We offer
motherboard products designed for our microprocessors and
chipsets, thereby providing a more complete range of solutions
for our customers looking for
Intel®
architecture-based solutions. Board-level products give our OEM
customers flexibility by enabling them to buy at the board level
rather than only at the component level.
2
Flash memory is a specialized type of memory component
used to store user data and program code; it retains this
information even when the power is off and provides faster
access to data than traditional hard drives. Flash memory has no
moving parts, unlike data that is stored on devices such as
rapidly spinning hard drives, allowing flash memory to be more
tolerant of bumps and shocks. A common measure of flash
performance is the density of the product. Density refers to the
amount of information the product is capable of storing. Flash
memory is based on either NOR or NAND architectures. NOR flash
memory, with its fast read capabilities, has
traditionally been used to store executable code. We offer NOR
flash memory products for advanced mobile phone designs. Our NOR
flash memory is also used in the embedded market segment and is
found in various applications, including set-top boxes,
networking products and other devices including DVD players and
DSL and cable modems. NAND flash memory is slower in reading
data but faster in writing data, and has traditionally been used
in products that either required large storage capacity or fast
write applications, such as digital audio players (including MP3
players), as well as memory cards and digital cameras. We began
selling NAND flash memory products in February 2006. Our NAND
flash memory products are manufactured by IM Flash Technologies,
LLC (IMFT), a company we formed with Micron Technology, Inc. in
January 2006. For further discussion of our equity investment in
IMFT, see Note 16: Venture in Part II,
Item 8 of this
Form 10-K.
We offer wired and wireless connectivity products based
on Ethernet, an industry-standard technology used to translate
and transmit data in packets across networks. We offer products
for the traditional local area network (LAN) environment,
as well as for the wireless LAN (WLAN), metropolitan area
network (MAN) and networked storage market segments. For
the LAN and MAN market segments, we offer products at multiple
levels of integration to provide a low-cost solution with
increased speed and signal transmission distance (commonly
referred to as reach). Gigabit Ethernet networks
allow the transmission of one billion individual bits of
information per second, and 10-Gigabit Ethernet networks
transmit 10 billion bits of information per second. By
contrast, Fast Ethernet networks transmit 100 million bits
of information per second (Mbps, or megabits per second). Our
wireless connectivity products are based on either the 802.11 or
802.16 industry standard. The 802.11 communication standard
refers to a family of specifications commonly known as WiFi
technology. These specifications describe the bandwidth and
frequency of the
over-the-air interface
between a wireless client and a base station, or between two
wireless clients. 802.11a, 802.11b and 802.11g are three
different 802.11 specifications. Compared to products based on
802.11b, products based on 802.11a and 802.11g support a faster
exchange of data. Products based on 802.11g also have a longer
range than those based on 802.11a and allow for improved
compatibility with certain networks. We also have developed and
are developing wireless connectivity solutions for networks
based on the 802.16 industry standard, commonly known as WiMAX,
which is short for Worldwide Interoperability for Microwave
Access. WiMAX is a standards-based wireless technology providing
high-speed, last-mile broadband connectivity that makes it
possible to wirelessly connect networks up to several miles
apart. The current versions of our WiMAX products are used in
high-speed, fixed wireless broadband networks.
Communications infrastructure products include products
such as network processors and optical components. In network
processing, we deliver products that are basic building blocks
for modular communications platforms. These products include
advanced, programmable processors used in networking equipment
to rapidly manage and direct data moving across the Internet and
corporate networks. We also offer embedded processors that can
be used for modular communications platform applications,
industrial equipment,
point-of-sale systems,
panel PCs and automotive information/entertainment systems,
gaming and entertainment systems, and medical equipment.
Unlike proprietary system platforms, modular communications
platforms are standards-based solutions that offer network
infrastructure builders flexible, low-cost, faster
time-to-market options
for designing their networks. Our network processor products are
based on the
Intel®
Internet Exchange Architecture
(Intel®
IXA). At the core of Intel IXA is the Intel
XScale®
microarchitecture, which offers low power consumption and
high-performance processing for a wide range of Internet devices.
Our application processors are also based on Intel XScale
technology, providing the processing capability in data-enabled
mobile phones, PDAs and portable consumer electronics equipment.
We offer cellular baseband processors that are also based
on Intel XScale technology and are designed for multi-mode,
multi-band wireless handheld devices such as handsets, PDAs and
smartphones. These processors support multiple wireless
standards and deliver enhanced voice quality, high-integration
capability and optimized power consumption. Currently, these
processors include a low-power processor, baseband chipset,
integrated on-chip flash memory, Static Random Access Memory
(SRAM) and a digital signal processor.
We offer networked storage products that allow storage
resources to be added in either of the two most prevalent types
of storage networks: Ethernet or Fibre Channel.
Our operating segments are: the Digital Enterprise Group, the
Mobility Group, the Flash Memory Group, the Digital Home Group,
the Digital Health Group and the Channel Platforms Group. In
2005, we announced a number of new products and platforms. Each
operating segments major products and platforms, including
some key introductions, are discussed below.
3
Digital Enterprise Group
The Digital Enterprise Group (DEG) designs and delivers
computing and communications platforms for businesses and
service providers. DEG products are incorporated into desktop
computers, the infrastructure for the Internet and enterprise
computing servers. DEGs products include microprocessors
and related chipsets and motherboards designed for the desktop
(including consumer desktop) and enterprise computing market
segments, communications infrastructure components such as
network processors and embedded microprocessors, wired
connectivity devices, and products for network and server
storage.
Net revenue for the DEG operating segment made up approximately
65% of our consolidated net revenue in 2005 (72% in 2004 and 77%
in 2003). Revenue from sales of microprocessors within the DEG
operating segment represented approximately 50% of consolidated
net revenue in 2005 (57% in 2004 and 60% in 2003).
Desktop Market Segment
We develop platform solutions based on our microprocessors,
chipsets and motherboard products, which are optimized for use
in the desktop market segment. Our strategy is to introduce
platforms with improved performance per watt, tailored to the
needs of different market segments using a tiered branding
approach. Our tiered branding approach focuses on both the
performance market segment, which includes the
Pentium®
4 processor and the Pentium D processor, and the value market
segment, which includes the Celeron processor and the
Celeron®
D processor. In addition, current versions of the Intel Core Duo
processor that were originally designed for mobile form factors
are available for small desktop form factors. Form factor refers
to the physical size and shape of an end product.
In 2005, we launched the Intel Pentium 4 processors 630, 640,
650, 660 and 670 supporting HT Technology, running at speeds
ranging from 3.0 to 3.8 GHz. Each of these processors
supports 64-bit memory addressability through Intel EM64T, has
2 MB of L2 cache and supports an
800-MHz system bus. We
also introduced the
Intel®
Professional Business Platform based on these processors, the
Intel®
945G Express Chipset and an optional
Intel®
PRO/1000 PM Network Connection. The Intel Professional Business
Platform is designed to bring advanced security, management and
collaboration technologies to mainstream business PCs and
includes Intel AMT.
In May 2005, we introduced a desktop PC platform based on
dual-core Pentium D processors 820, 830 and 840, and the
Intel®
945P Express Chipset. These Pentium D processors feature speeds
ranging from 2.80 to 3.20 GHz, 2 MB of L2 cache
(1 MB for each processor core), support for an
800-MHz bus and 64-bit
memory addressability through Intel EM64T. This platform
supports multitasking for multimedia and digital content, along
with support for consumer electronics features such as
surround-sound audio, high-definition video and enhanced
graphics capabilities.
In June 2005, we introduced several Celeron D processors that
support 64-bit memory addressability through Intel EM64T,
enabling 64-bit computing capability for the value PC segment.
The Celeron D processors 326, 331, 336, 341, 346 and 351 run at
speeds ranging from 2.53 to 3.06 GHz, feature 256 KB of L2
cache and support a
533-MHz bus. At the
same time, we also launched the Celeron D processor 350, which
runs at speeds of up to 3.20 GHz, supports a
533-MHz bus and
includes 256 KB of L2 cache, but does not support 64-bit memory
addressability.
In November 2005, we announced desktop processors with
hardware-enabled support for Intel Virtualization Technology.
The Intel Pentium 4 processors 662 and 672 supporting HT
Technology run at speeds of up to 3.80 GHz. Both support an
800-MHz bus, and
feature 2 MB of L2 cache and support 64-bit memory
addressability through Intel EM64T.
In January 2006, we introduced the first desktop processors
manufactured using our 65-nanometer process technology. The
Intel Pentium 4 processors 631, 641, 651 and 661 supporting HT
Technology run at speeds ranging from 3.00 to 3.60 GHz,
feature 2MB of L2 cache and support an
800-MHz bus and 64-bit
memory addressability through Intel EM64T.
Also in January 2006, we introduced the Intel Core Duo
processor, a dual-core processor manufactured using our
65-nanometer process technology. The Intel Core Duo processor
supports a 667-MHz bus,
has 2 MB of L2 cache and runs at speeds of up to
2.16 GHz.
4
Enterprise Market Segment
We develop platform solutions based on our microprocessors,
chipsets and motherboard products that are optimized for use in
the enterprise market segment. Our strategy is to provide
platform solutions at competitive prices relative to performance
as well as to increase
end-user value in the
areas of power management, security and manageability for
entry-level to high-end servers and workstations. Servers are
systems, often with multiple microprocessors working together
that manage large amounts of data, direct 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.
Our Intel Xeon processor family of products supports a wide
range of entry-level to high-end technical and commercial
computing applications for both the workstation and server
market segments. The Intel Xeon processor is designed for
two-way servers, also known as dual-processing
(DP) servers, and workstations. For servers based on four
or more processors, also known as multiprocessing
(MP) servers, we offer the Intel Xeon processor MP. Both
the Intel Xeon processor DP and Intel Xeon processor MP are
available with Intel EM64T and support Hyper-Threading
Technology. Our Itanium processor family, which is based on
64-bit architecture and
includes the
Intel®
Itanium®
2 processor, generally supports an even higher level of
computing performance for data processing, the handling of high
transaction volumes and other compute-intensive applications for
enterprise-class servers, as well as supercomputing solutions.
In February 2005, we introduced a line of Intel Xeon processors
MP with speeds ranging from 3.0 to 3.60 GHz. These
processors feature 2 MB of L2 cache and Intel EM64T.
In conjunction with the release of these processors, we also
introduced the
Intel® IOP333
I/O processor based on Intel XScale technology, designed to
provide greater storage reliability than previous generations.
In March 2005, we launched a four-processor platform targeted at
the mid-tier enterprise market segment. The platform includes
four Intel Xeon processors MP with Intel EM64T, and the
Intel®
E8500 Chipset. The Intel E8500 Chipset is designed for dual-core
processor technology, supports DDR2 system memory and has a
667-MHz dual bus. These
platforms are available in configurations using five different
processors: two of the platforms processors, running at
speeds of up to 3.0 and 3.33 GHz, feature 8 MB of L3
cache; a third processor running at speeds of up to
2.83 GHz has 4 MB of L3 cache; and two value
processors for the platform, at speeds ranging from 3.16 to
3.66 GHz, feature 1 MB of L2 cache.
In September 2005, we introduced two Intel Xeon processors with
2 MB of L2 cache running at speeds ranging from 2.8 to
3.8 GHz. At the same time, we unveiled lower voltage
versions of our Intel Xeon processors, including the Intel Xeon
processor Low Voltage running at speeds of up to 3.0 GHz
and the Intel Xeon processor MV (mid-voltage) running at speeds
of up to 3.20 GHz. All four processors support
Hyper-Threading Technology and feature Intel EM64T.
Also in 2005, we announced our first dual-core Intel Xeon
processors. The first of these processors, announced in October
2005, is designed for dual-processor servers, supports
Hyper-Threading Technology, runs at speeds of up to
2.80 GHz, features 2 MB of L2 cache and has Intel
EM64T. In November 2005, we launched the dual-core Intel Xeon
processor 7000 series, designed for servers with four or more
processors. Processors that are a part of the Intel Xeon
processor 7000 series have up to 4 MB of L2 cache
(2 MB for each processor core) and feature hardware-enabled
support for Intel Virtualization Technology. Intel Xeon
processor 7000 series processors run at speeds of up to
3.0 GHz. These processors fit into platforms using the
Intel E8500 Chipset.
In July 2005, we launched two Itanium 2 processors that support
a 667-MHz bus. These
processors run at speeds of up to 1.66 GHz and feature
either 9 MB or 6 MB of L3 cache.
Communications Infrastructure Products
In February 2005, we introduced three new processors and a
chipset designed for embedded market segments. The
Intel®
Pentium® M
processor 760 runs at speeds of up to 2.0 GHz, supports a
533-MHz bus and
includes 2 MB of L2 cache; the
Intel®
Celeron®
M processor 370 runs at speeds of up to 1.5 GHz, supports a
400-MHz bus and
includes 1 MB of L2 cache; and the Intel Celeron M
processor Ultra Low Voltage 373 runs at speeds of up to
1.0 GHz, supports a
400-MHz bus and
includes 512 KB of L2 cache. The chipset introduced was the
Mobile
Intel®
915GM Express Chipset, which features low-power design and
supports up to 2 GB of DDR2
533-MHz system memory.
In February 2006, we introduced three new Intel Core Duo
processors supported by the Mobile
Intel®
945GM Express Chipset for embedded market segments. These Intel
Core Duo processors run at speeds of up to 2.0 GHz, support
a 667-MHz bus and
include 2 MB of L2 cache.
5
In June 2005, we announced our second generation of Advanced
Telecom Computing Architecture* (AdvancedTCA*) products.
AdvancedTCA is a series of industry-standard specifications for
carrier-grade communications equipment that incorporates
advanced high-speed interconnect technologies, processors and
improved reliability, manageability and serviceability features.
Our AdvancedTCA products include three communications server
blades, or telecom boards, and related technologies designed to
help manufacturers and service providers more easily develop and
build standards-based Internet Protocol Multimedia Subsystem
(IMS) equipment and services. The IMS architecture defines
a set of industry-standard equipment built on modular
communications platforms, such as AdvancedTCA, and allows
communications and media services to be managed independently of
the network itself, enabling service providers to easily add,
remove or scale new services across both fixed and mobile
networks.
Networked Storage Products
In October 2005, we introduced the
Intel®
Storage System SSR212MA, an Intel Xeon processor-based hardware
and software storage platform designed to enable small and
mid-size businesses to build a storage area network based on IP
networking standards.
Mobility Group
The Mobility Group designs and delivers platforms for notebook
PCs and handheld computing and communications devices. The
Mobility Groups products include microprocessors and
related chipsets designed for the notebook market segment,
wireless connectivity products, and application and cellular
baseband processors used in cellular handsets and handheld
computing devices.
Net revenue for the Mobility Group operating segment made up
approximately 29% of our consolidated net revenue in 2005 (20%
in 2004 and 17% in 2003). Revenue from sales of microprocessors
within the Mobility Group represented approximately 22% of
consolidated net revenue in 2005 (17% in 2004 and 14% in 2003).
Notebook Market Segment
We develop platform solutions based on our microprocessors,
chipsets and wireless connectivity products that are optimized
for use in the notebook market segment. Our strategy is to
deliver products with optimized performance, battery life, form
factor and wireless connectivity features that are
important to users of mobile computers.
We offer mobile computing microprocessors at a variety of
price/performance points, allowing our customers to meet the
demands of a wide range of notebook PC designs. These notebook
designs include transportable notebooks, which provide
desktop-like features such as high performance, full-size
keyboards, larger screens and multiple drives; thin-and-light
models, including those optimized for wireless networking; and
ultra-portable designs. Within the ultra-portable design
category, we provide specialized low-voltage processors, which
consume as little as one watt of power on average, and
ultra-low-voltage processors, which consume as little as half a
watt of power on average. Low-voltage processors are targeted
for the mini-notebook market segment, while ultra-low-voltage
processors are targeted for the sub-notebook and tablet market
segments of notebook PCs weighing less than three pounds and
measuring one inch or less in height. Our mobile computing
microprocessors include products such as the
Intel®
Coretm
Solo processor, the Intel Core Duo processor, and the Intel
Pentium M processor. We also offer the Mobile
Intel®
Pentium®
4 processor, and for the value notebook market segment we offer
the Mobile
Intel®
Celeron® M
processor and the Mobile
Intel®
Celeron®
processor.
In 2005, the majority of the revenue in the Mobility Group
operating segment was from sales of products that make up
Intel®
Centrino®
mobile technology. Intel Centrino mobile technology consists of
an Intel Pentium M processor and a mobile chipset as well as a
wireless network connection that together are designed and
optimized specifically for improved performance, battery life,
form factor and wireless connectivity. Intel Centrino mobile
technology enables users to take advantage of wireless
capabilities at work and at home, with the installation of the
appropriate base-station equipment, as well as at thousands of
wireless hotspots installed around the world.
Hotspots provide paid or free wireless network (802.11 WiFi)
service in cafes, hotels, restaurants, retail shops, airports,
trains and other public meeting areas.
In January 2005, we introduced a new version of the Intel
Centrino mobile technology platform. This version of the
platform adds more entertainment and business features compared
to earlier Intel Centrino mobile technology-based notebook PCs,
along with enhanced security support and higher graphics
performance. This version of Intel Centrino mobile technology
includes a chipset from the Mobile
Intel®
915 Express Chipset family, the
Intel®
PRO/ Wireless 2915ABG or 2200BG Wireless LAN component, and the
Intel Pentium M processor with model numbers up to 770. These
processors support a
533-MHz bus, have
2 MB of cache, and run at speeds ranging from 1.6 GHz
to 2.13 GHz. Also available for this platform are the Intel
Pentium M processor Low Voltage 758, which runs at speeds
of up to 1.50 GHz, and the Pentium M processor Ultra Low
Voltage 753, which runs at speeds of up to 1.20 GHz,
both supporting a
400-MHz bus.
6
In January 2006, we launched the
Intel®
Centrino®
Duo mobile technology platform. Intel Centrino Duo mobile
technology contains the new dual-core Intel Core Duo processor
designed to boost multitasking performance, power-saving
features to improve battery life, high-definition entertainment
features and a more flexible network connection. Intel Centrino
Duo mobile technology also includes the Mobile
Intel®
945 Express Chipset and the
Intel®
PRO/ Wireless 3945ABG Network Connection. The Intel Core Duo
processor, which is manufactured using our 65-nanometer process
technology, supports a
667-MHz bus, has
2 MB of L2 cache, and runs at speeds of up to 2.16 GHz.
Also in January 2006, we introduced a new version of the Intel
Centrino mobile technology platform, based on the new Intel Core
Solo processor T1300 that supports a
667-MHz bus, has
2 MB of L2 cache, and runs at speeds of up to
1.66 GHz. The Intel Core Solo is a single-core processor
manufactured using our 65-nanometer process technology.
In 2005, we introduced several versions of the Intel Celeron M
processor running at speeds of up to 1.6 GHz. We also
introduced the Intel Celeron M processor Ultra Low Voltage that
runs at speeds of up to 1.0 GHz. All of these versions of
the Intel Celeron M processor support a
400-MHz bus, have up to
1 MB of L2 cache and offer power management features
designed to lengthen battery life.
Wireless Connectivity Products
In April 2005, we introduced the
Intel®
PRO/ Wireless 5116 Broadband Interface based on the 802.16
standard for WiMAX. We also offer various wireless connectivity
products based on the 802.11 standard for WiFi, such as the
Intel PRO/ Wireless 3945ABG Network Connection.
Cellular Baseband Processors
In September 2005, we launched the
Intel®
PXA 901 cellular baseband processor, an integrated cellular
baseband and application processor. It is designed for wireless
handset applications and advanced communications, including
media applications such as high-quality audio and streaming
video. The Intel PXA 901 cellular baseband processor runs at
speeds of up to 312 MHz and includes the Intel XScale
technology core for applications and the
Intel®
Micro Signal Architecture for digital signal processing. It also
contains
Intel®
Flash Memory and SRAM memory arrays all on one die.
Flash Memory Group
The Flash Memory Group provides advanced NOR flash memory
products designed for cellular phones and embedded form factors
such as set-top boxes, networking products, and other devices
including DVD players and DSL and cable modems. Beginning in
February 2006, the Flash Memory Groups products also
include NAND flash memory products. These NAND flash memory
products, manufactured by IMFT and sold by Intel, are currently
being used in digital audio players. Net revenue for the Flash
Memory Group operating segment made up approximately 6% of our
consolidated net revenue in 2005 (7% in 2004 and 5% in 2003).
Intel
StrataFlash®
wireless memory technology, for advanced mobile phone designs,
allows two bits of data to be stored in each NOR memory cell for
higher storage capacity and lower cost. It is available in the
Intel®
Stacked Chip Scale Package as well as in Intel ultra-thin
stacked chip-scale packaging. This technology allows up to five
ultra-thin memory chips to be stacked in one package, delivering
greater memory capacity and lower power consumption in a smaller
package. With heights as low as 0.8mm, the package allows
manufacturers to increase memory density and provide features
such as camera capabilities, games and
e-mail in relatively
thin cell phones. Our higher density flash products generally
incorporate stacked SRAM and/or NAND flash, which we currently
purchase from third-party vendors.
In February 2005, we began shipping our first NOR flash memory
products using our 90-nanometer process technology. These
offerings include densities ranging from 32 MB to 128 MB and can
be used in next-generation voice plus data cellular
and wireless applications.
In March 2005, we introduced Intel
StrataFlash®
Embedded Memory using our 130-nanometer process technology.
These offerings include densities ranging from 64 MB to 1 GB,
with multiple packaging options, and bring Intels
multi-level-cell flash technology to embedded applications such
as consumer electronics and wired communications.
In November 2005, we began shipping our first multi-level-cell
Intel StrataFlash memory products using our 90-nanometer process
technology. These offerings include densities ranging from 256
MB to 1 GB, with multiple packaging options. The new devices
using our 90-nanometer process technology deliver faster
performance, higher density and lower power consumption than the
previous version, which used our 130-nanometer process
technology.
7
In February 2006, we began shipping our first NAND flash memory
products in densities of up to 2 GB and stacked NAND flash
memory products in densities of up to 8 GB. These products
are manufactured by IMFT using either
75-nanometer process
technology or
90-nanometer process
technology and are used in digital audio players.
Digital Home Group
The Digital Home Group designs and delivers
computing- and
communications-oriented platforms that meet the demands of
consumers as digital content becomes increasingly accessible
through a variety of connected digital devices within the home.
The Digital Home Groups products include microprocessors
and chipsets for home entertainment PCs, and embedded consumer
electronics designs such as digital televisions, video recorders
and set-top boxes.
In April 2005, we introduced the
Intel®
854 Chipset and a development platform for consumer
electronics devices. The Intel 854 Chipset is designed to
support rich graphical user interfaces and works with the Intel
Pentium M, Pentium 4 and Celeron M processors. The
development platform is designed to help developers achieve
faster time-to-market
and enable consumer electronics devices such as
IP-based digital
set-top boxes and digital media recorders to work well together.
In January 2006, we launched
Intel®
Viivtm
technology for use in the digital home. PCs based on Intel Viiv
technology are designed to make it easier to download, manage
and share the growing amount of digital programming available
worldwide, and view it on a choice of TVs, PCs or handheld form
factors. Intel Viiv technology-based systems are designed to
provide easier connectivity and interoperability with consumer
electronics devices compared to traditional PCs. Platforms based
on Intel Viiv technology include the Intel Pentium D, the
Intel®
Pentium®
Processor Extreme Edition or the Intel Core Duo processor, as
well as the
Intel®
945, 955 or 975 Express Chipset, a network connectivity device
and enabling software, all optimized to work together in the
digital home environment.
Digital Health Group
The strategy for the Digital Health Group is to target global
business opportunities in healthcare research, diagnostics and
productivity, as well as personal healthcare. In support of this
strategy, the Digital Health Group is focusing on healthcare
information technologies, personal health products and
bio-medical products. The Digital Health Group currently does
not have any discrete product offerings.
Channel Platforms Group
The strategy for the Channel Platforms Group is to expand on our
worldwide presence and success in global markets by accelerating
channel growth. In addition, the Channel Platforms Group is
developing unique platform solutions designed to meet local
market needs in certain geographies. The Channel Platforms Group
currently does not have any discrete product offerings.
Manufacturing and Assembly and Test
As of year-end 2005, 77% of our wafer manufacturing, including
microprocessor, chipset, NOR flash memory and communications
silicon fabrication, was conducted within the U.S. at our
facilities in New Mexico, Oregon, Arizona, Massachusetts,
Colorado and California. Outside the U.S., nearly 23% of our
wafer manufacturing, including wafer fabrication for
microprocessors, chipsets, NOR flash memory and networking
silicon, was conducted at our facilities in Ireland and Israel.
As of December 2005, we primarily manufactured our products in
the wafer fabrication facilities described in the following
table:
|
|
|
|
|
|
|
Products |
|
Wafer Size |
|
Process Technology |
|
Locations |
|
|
|
|
|
|
|
Microprocessors
|
|
300mm |
|
65nm |
|
Oregon, Arizona, Ireland |
Microprocessors and chipsets
|
|
300mm |
|
90nm |
|
New Mexico, Oregon, Ireland |
NOR flash memory
|
|
200mm |
|
90nm |
|
California, Israel |
Chipsets, NOR flash and other products
|
|
200mm |
|
130nm |
|
New Mexico, Oregon, Arizona, Massachusetts, Ireland, Colorado,
California |
Chipsets and other products
|
|
200mm |
|
180nm, 250nm, 350nm |
|
Ireland, Israel |
We expect to increase the capacity of certain facilities listed
above through additional investments in capital equipment. In
addition to our current facilities, we are building facilities
in Arizona and Israel that are expected to begin wafer
fabrication for microprocessors on 300mm wafers using
45-nanometer technology
after 2006.
8
As of year-end 2005, the majority of our microprocessors were
manufactured on 300mm wafers using our 90-nanometer process
technology. In 2005, we began manufacturing microprocessors on
our 65-nanometer process technology, the next generation beyond
our 90-nanometer process technology. As we move to each
succeeding generation of manufacturing process technology, we
incur significant
start-up costs to get
each factory ready for high-volume manufacturing. However,
continuing to advance our process technology provides added
benefits that we believe justify these costs. These benefits can
include utilizing less space per transistor, which enables us to
put more transistors on an equivalent size chip, decreasing the
size of the chip or allowing us to offer an increased number of
integrated features. These advancements can result in higher
performing microprocessors, products that consume less power
and/or products that cost less to manufacture. To augment
capacity in the U.S. and internationally, we use third-party
manufacturing companies (foundries) to manufacture wafers
for certain components, including networking and communications
products.
In January 2006, we formed IMFT, a NAND flash memory
manufacturing company, with Micron. IMFT manufactures for Intel
and Micron, and we currently purchase 49% of the
manufactured output. See Note 16: Venture in
Part II, Item 8 of this
Form 10-K.
We primarily use subcontractors to manufacture board-level
products and systems, and purchase certain communications
networking products from external vendors, primarily in the
Asia-Pacific region. We also manufacture microprocessor- and
networking-related board-level products, primarily in Malaysia.
Following manufacture, the majority of our components are
subject to assembly in several types of packaging, and to
testing. We perform a substantial majority of our components
assembly and test at facilities in Malaysia, China, the
Philippines and Costa Rica. We plan to continue to invest in new
assembly and test technologies and facilities to keep pace with
our microprocessor, chipset, flash memory and communications
technology improvements. To augment capacity, we use
subcontractors to perform assembly of certain products,
primarily flash memory, chipsets, and networking and
communications products. Assembly and test of NAND flash memory
products manufactured by IMFT in 2006 is performed by Micron.
Our performance expectations for business integrity; ethics; and
environmental, health and safety compliance are the same
regardless of whether our supplier and subcontractor operations
are based in the U.S. or elsewhere. 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 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.
Our products typically are 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. On a worldwide basis, we
regularly review our key infrastructure, systems, services and
suppliers, both internally and externally, to seek to identify
significant vulnerabilities as well as areas of potential
business impact if a disruptive event were to occur. Once a
vulnerability is identified, we assess the risks, and as we
consider it to be appropriate, we initiate actions intended to
reduce the risks and their potential impact. However, there can
be no assurance that we have identified all significant risks or
that we can mitigate all identified risks with reasonable
effort. See Risk Factors in Part I,
Item 1A of this
Form 10-K.
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. The
policies are subject to deductibles and exclusions that result
in our retention of a level of risk on a self-insurance basis.
The types and amounts of insurance obtained vary from time to
time and from location to location depending on availability,
cost and our decisions with respect to risk retention. Our
worldwide risk and insurance programs are regularly evaluated to
seek to obtain the most favorable terms and conditions.
Research and Development
We continue to be committed to investing in world-class
technology development, particularly in the area of the design
and manufacture of integrated circuits. Research and development
(R&D) expenditures in 2005 amounted to $5.1 billion
($4.8 billion in fiscal 2004 and $4.4 billion in
fiscal 2003). Additionally, we increased the number of our
employees engaged in R&D to approximately 29,000 as of
December 2005 compared to approximately 25,000 as of December
2004.
9
Our R&D activities are directed toward developing the
technology innovations that we believe will deliver the next
generation of products and platforms, which will in turn enable
new form factors and new usage models for businesses and
consumers. We are focusing our R&D efforts on advanced
computing, communications and wireless technologies by advancing
our silicon manufacturing process technology, delivering the
next generation of microprocessors and supporting chipsets,
improving our platform initiatives and developing software
solutions and tools to support our technologies. These efforts
will enable new levels of performance and address areas such as
system manageability, power management, digital content
protection and/or communication capabilities. In line with these
efforts, we are currently developing our next-generation
microarchitecture for microprocessors that will improve
performance while lowering power consumption and enhance other
capabilities across multiple platforms. Future generations of
our microprocessors will continue to feature two or more
processor cores on a single chip. Dual- and multi-core
processors complement our efforts to enable more capabilities
and new usage models for users. Our leadership in silicon
technology has enabled us to make Moores Law a
reality. Moores Law predicted that transistor density on
integrated circuits would double every two years. Our leadership
in silicon technology has also helped to expand Moores Law
by bringing new capabilities into silicon and producing new
products and platforms optimized for a wider variety of
applications. In 2005, we began manufacturing microprocessors on
our most advanced 65-nanometer process technology, the next
generation beyond our 90-nanometer process technology. Our
45-nanometer process technology is currently in development, and
we expect to begin manufacturing products using 45-nanometer
process technology in 2007. In the area of wireless
communications, our initiatives focus on delivering the
technologies that will enable an advanced wireless platform,
including 802.16 products (WiMAX). Additionally, we continue to
invest in new packaging and testing processes, as well as
improving existing products and reducing manufacturing costs.
We have an agreement with Micron for joint development of NAND
flash memory technologies. Costs incurred by Intel and Micron
for process development are generally split evenly. As the owner
of the product designs, Intel assumes the cost for product
development. Intel licenses certain product designs to Micron on
a royalty-bearing basis.
We do not expect that all of our research and product
development projects will result in products that are ultimately
released for sale. We may terminate research and/or product
development before completion or decide not to manufacture and
sell a developed product for a variety of reasons. For example,
we may decide that a product might not be sufficiently
competitive in the relevant market segment, or for technological
or marketing reasons, we may decide to offer a different product
instead.
Our R&D model is based on a global organization that
emphasizes a collaborative approach in identifying and
developing new technologies, leading standards initiatives and
influencing regulatory policy to accelerate the adoption of new
technologies. Our R&D initiatives are performed by various
business groups within the company, and we align and prioritize
these initiatives across these business groups. We also work
with a worldwide network of academic and industry researchers,
scientists and engineers in the computing and communications
fields. Our network of technology professionals allows us, as
well as others in our industry, to benefit from development
initiatives in a variety of areas, eventually leading to
innovative technologies for users. We believe that we are well
positioned in the technology industry to help drive innovation,
foster collaboration and promote industry standards that will
yield innovative and improved technologies for users.
We perform a substantial majority of our research and
development of semiconductor components and other products in
the U.S. Outside the U.S., we have been increasing our
product development, and we have activities at various
locations, including Israel, China, India, Russia and Malaysia.
We also maintain R&D facilities in the U.S. focused on
developing and improving manufacturing processes, as well as
facilities in the U.S., Malaysia and the Philippines dedicated
to improvements in assembly and test processes.
Employees
As of December 31, 2005, we employed approximately 99,900
people worldwide, with more than 50% of these employees located
in the U.S.
Sales and Marketing
Most of our products are sold or licensed through sales offices
located near major concentrations of users, throughout the
Americas, Asia-Pacific, Europe and Japan. Our business relies on
continued sales growth in both mature and emerging markets.
10
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 under
order. Pricing on particular products may vary based on volumes
ordered and other factors.
We sell our products to OEMs and ODMs. ODMs provide design
and/or manufacturing services to branded and unbranded
private-label resellers. We also sell our products to industrial
and retail distributors. In 2005, Dell Inc. accounted for
approximately 19% of our total sales, and Hewlett-Packard
Company accounted for approximately 16% of our total sales. No
other customer accounted for more than 10% of our total revenue.
For information about revenue and operating profit by operating
segments, and revenue from unaffiliated customers by geographic
region/country, see Note 19: Operating Segment and
Geographic Information in Part II, Item 8 of
this Form 10-K and
Managements Discussion and Analysis of Financial
Condition and Results of Operations in Part II,
Item 7 of this
Form 10-K.
Typically, distributors handle a wide variety of products,
including those that compete with our products, and fill orders
for many customers. 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. 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.
Our worldwide reseller sales channel consists of thousands of
indirect customers who are systems builders and
purchase Intel microprocessors and other products from our
distributors. These systems builders receive various levels of
technical and marketing services and support directly from
Intel. 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
made available in direct retail outlets.
The Intel corporate and product brand identities were revamped
in early 2006 to signal Intels new business strategy to
deliver customer-focused platform solutions. The changes include
a new Intel logo, tagline (Intel. Leap
ahead.tm)
and signature sound. Our platform solutions brands, which
integrate processors with other innovative hardware and
software, include Intel Centrino mobile technology and Intel
Viiv technology. The Itanium, Intel Xeon, Intel Core, Pentium,
and Intel Celeron 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. Currently, our
direct marketing to the consumer focuses on digital home
entertainment and building awareness and demand for new usage
models and capabilities. For businesses, our marketing to large
enterprises and small to mid-size organizations focuses on
delivery of products and technologies designed for performance
per watt, reliability, manageability and security.
Purchases by customers often allow them to participate in
cooperative advertising and marketing programs such as the Intel
Inside®
program. Through the Intel Inside program, certain customers are
licensed to place Intel logos on computers containing our
microprocessors and our other technology, 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. This program broadens the reach of our brands
beyond the scope of our own direct advertising.
Our products are typically shipped under terms that transfer
title to the customer, even in arrangements for which the
recognition of revenue on the sale is deferred. Our standard
terms and conditions of sale typically provide that payment is
due at a later date, generally 30 days after shipment,
delivery or the customers use of the product. Our credit
department sets accounts receivable and shipping limits for
individual customers for the purpose of controlling 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. Credit losses may still be
incurred due to bankruptcy, fraud or other failure of the
customer to pay. See Schedule IIValuation and
Qualifying Accounts in Part IV of this
Form 10-K for
information about our allowance for doubtful receivables.
11
Backlog
We do not believe that a backlog as of any particular date is
indicative of future results. Our sales are made primarily
pursuant to standard purchase orders for delivery of standard
products. We have some agreements that give a customer the right
to purchase a specific number of products during a specified
time period. Although these agreements do not generally obligate
the customer to purchase any particular number of such products,
some of these agreements do contain billback clauses. Under
these clauses, customers who do not purchase the full volume
agreed upon are liable for billback on previous shipments up to
the price appropriate for the quantity actually purchased. As a
matter of industry practice, billback clauses are difficult to
enforce. The quantities actually purchased by the customer, as
well as the shipment schedules, are frequently revised during
the agreement term to reflect changes in the customers
needs. In light of industry practice and our experience, we do
not believe that such agreements are meaningful for determining
backlog amounts. Only a small portion of our order backlog is
non-cancelable, and the dollar amount associated with the
non-cancelable portion is not significant.
Competition
Our products compete primarily on the basis of performance,
features, quality, brand recognition, price and availability.
Our ability to compete depends on our ability to provide
innovative products and worldwide support for our customers,
including providing enhanced performance per watt, reduced heat
output and integrated solutions. In addition to our various
computing, networking and communications products, we offer
technology platform solutions that incorporate our various
components, which bring together a collection of technologies
that we believe create a better end-user solution than if the
ingredients were used separately.
The semiconductor industry is characterized by rapid advances in
technology and new product introductions. As unit volumes grow,
production experience is accumulated and costs decrease, further
competition develops, and as a result, prices decline. The life
cycle of our products is very short, sometimes less than a year.
Our ability to compete depends on our ability to improve our
products and processes faster than our competitors, anticipate
changing customer requirements, and develop and launch new
products, while reducing our costs. When we believe it is
appropriate, we will take various steps, including introducing
new products and platform solutions, discontinuing older
products, reducing prices, and offering rebates and other
incentives, to increase acceptance of our latest products and to
be competitive within each relevant market segment. Our products
compete with products developed for similar or rival
architectures and with products based on the same or rival
technology standards. We cannot predict which competing
technology standards will become the prevailing standards in the
market segments in which we compete.
Many companies compete with us in the various computing,
networking and communications market segments, and are engaged
in the same basic fields of activity, including research and
development. Worldwide, these competitors range in size from
large established multinational companies with multiple product
lines to smaller companies and new entrants to the marketplace
that compete in specialized market segments. In some cases, our
competitors are also our customers and/or suppliers. Product
offerings may cross over into multiple product categories,
offering us new opportunities but also resulting in more
competitors. In market segments where our competitors have
established products and brand recognition, it may be difficult
for us to compete against them.
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 and timing of
production, and other factors. These types of facilities are
very expensive, and many of our competitors do not own such
facilities, because they cannot afford to do so or because their
business models involve the use of third-party facilities for
manufacturing and assembly and test. 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. There is a group of third-party manufacturing
companies (foundries) and assembly and test subcontractors that
offer their services to companies without owned facilities or
companies needing additional capacity. These foundries and
subcontractors may also offer to our competitors intellectual
property, design services, and other goods and services.
Competitors who outsource their manufacturing and assembly and
test operations can significantly reduce their capital
expenditures.
12
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 align the industry to offer
products that take advantage of the latest market trends and
usage models. These efforts include helping to create the
infrastructure for wireless network connectivity. We are also
working with these industries to develop software applications
and operating systems that take advantage of our platforms. 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. In addition, we work
collaboratively with other companies to protect digital content
and the consumer by developing content protection specifications
such as the Digital Transmission Content Protection (DTCP)
specification. DTCP defines a secure protocol for protecting
audio and video entertainment content from illegal copying,
intercepting and tampering as it moves across digital interfaces
such as Universal Serial Bus (USB) and
IP-based home networks.
Our competitors may also participate in the same initiatives and
specification development, and our participation does not ensure
that any standards or specifications adopted by these
organizations will be consistent with our product planning. We
continuously evaluate all of our product offerings and the
timing of their introduction, taking into account factors such
as customer requirements and availability of infrastructure to
take advantage of product performance and maturity of
applications software for each type of product in the relevant
market segments.
Companies in the semiconductor industry often rely on the
ability to license patents from each other in order to compete
in todays markets. Many of our competitors have broad
cross-licenses or licenses with us, and under current case law,
some such 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 to
licensing our patents to competitors, we participate in some
industry organizations that are engaged in the development of
standards or specifications and may require us to license our
patents to other companies that adopt such industry standards or
specifications, even when such organizations do not adopt the
standards or specifications proposed by Intel. Any Intel patents
implicated by our participation in such initiatives might not,
in some situations, be available for us to enforce against
others who might be infringing those patents.
We continue to be largely dependent on the success of our
microprocessor business. Many of our competitors, including
Advanced Micro Devices, Inc. (AMD), our primary microprocessor
competitor, market software-compatible products that compete
with Intel architecture-based processors. We also face
competition from companies offering rival microprocessor
designs, such as International Business Machines Corporation
(IBM), which is jointly developing a rival architecture design
with Sony Corporation and Toshiba Corporation. Our desktop
processors compete with products offered by AMD, IBM and VIA,
among others. Our mobile microprocessor products compete with
products offered by AMD, IBM, Transmeta Corporation and VIA,
among others. Our server processors compete with
software-compatible products offered by AMD and with products
based on rival architectures, including those offered by IBM and
Sun Microsystems, Inc.
Our chipsets compete in the various market segments against
different types of chipsets that support either our
microprocessor products or rival microprocessor products.
Competing chipsets are produced by companies such as ATI
Technologies, Inc., Broadcom, NVIDIA, Silicon Integrated Systems
Corporation (SIS) and VIA. We also compete with companies
offering graphics components and other special-purpose products
used in the desktop, mobile and server market segments. One
aspect of our business model is to incorporate improved
performance and advanced properties into our microprocessors and
chipsets, the demand for which may increasingly be affected by
competition from companies, such as ATI and NVIDIA, whose
business models are based on incorporating performance into
dedicated chipsets and other components, such as graphics
controllers.
Our NOR flash memory products currently compete with the
products of other companies, such as Samsung Electronics Co.,
Ltd., Spansion Inc., and STMicroelectronics NV. The megabit
demand of the products that make use of flash memory is
increasing, and our NOR flash memory products face increased
competition from companies that manufacture NAND flash memory
products, as OEMs look for opportunities to use NAND flash
memory products with additional random access memory or in
combination with NOR flash memory for executable-code
applications. In January 2006, we formed IMFT, a NAND flash
memory manufacturing company, with Micron that may provide us
with more competitive opportunities with regard to NAND flash
memory products. See Note 16: Venture in
Part II, Item 8 of this
Form 10-K.
We also offer products designed for wired and wireless
connectivity; for the communications infrastructure, including
network processors; and for networked storage. These products
currently compete against offerings from companies such as
Applied Micro Circuits Corporation, AMD, Broadcom, Freescale
Semiconductor, Inc., IBM, Marvell Technology Group Ltd., NMS
Communications Corporation, OpNext, Inc. and Sun Microsystems.
13
Acquisitions and Strategic Investments
During 2005, we completed three acquisitions qualifying as
business combinations in exchange for aggregate net cash
consideration of $177 million, plus certain liabilities.
Also during 2005, we acquired a development-stage operation that
resulted in the recording of
workforce-in-place of
$20 million. An acquisition of a development-stage
operation does not qualify as a business combination. During
2004, we completed one acquisition qualifying as a business
combination in exchange for net cash consideration of
approximately $33 million, plus certain liabilities. In
addition, we entered into certain arrangements in 2004 related
to the hiring of a group of employees that resulted in the
recording of an intangible asset for
workforce-in-place of
$28 million.
We make equity investments in companies around the world to
further our strategic objectives and support our key business
initiatives, including investments through our Intel Capital
program. We 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. The investments may support, among other
things, Intel product initiatives, emerging trends in the
technology industry or worldwide Internet deployment. We invest
in companies that develop software, hardware or services
supporting our technologies. Our current investment focus areas
include helping to enable mobile wireless devices, advance the
digital home, enhance the digital enterprise, advance
high-performance communications infrastructures and develop the
next generation of silicon production technologies. Our focus
areas tend to develop and change over time due to rapid
advancements in technology. Many of our investments are in
private companies, including development-stage companies with
little or no revenue from current product offerings. In January
2006, Intel formed IMFT, a NAND flash memory manufacturing
company, with Micron. Intel invested $1.2 billion in return
for 49% of the equity of IMFT. See Note 16:
Venture 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 an active 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 in Part I, Item 1 of this
Form 10-K;
Legal Proceedings in Part I, Item 3 of
this Form 10-K;
and Risk Factors in Part I, Item 1A of
this Form 10-K.
We have filed and obtained a number of patents in the U.S. and
abroad. While our patents are an important element of our
success, our business as a whole is not materially 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 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, such as consumer
electronics, 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 large majority of the software we distribute, including
software embedded in our component and system-level products, is
entitled to copyright protection. In most circumstances, we
require our customers to enter into a software license before we
provide them with that software.
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
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.
14
Compliance with Environmental, Health and Safety
Regulations
Intel is committed to achieving high standards of environmental
quality and product safety, and strives to provide a safe and
healthy workplace for our employees, our contractors and the
communities in which we do business. We have environmental,
health and safety (EHS) policies and expectations that are
applied to our global operations. Each of Intels worldwide
manufacturing and assembly and test sites is registered to the
International Organization for Standardization (ISO) 14001
environmental management system standard, which requires that a
broad range of environmental management processes and policies
be in place to continually improve environmental performance,
maintain compliance with environmental regulations and
communicate effectively with interested stakeholders.
Intels internal environmental auditing program includes
not only compliance components, but also modules on business
risk, environmental excellence and management systems. We have
internal processes that focus on minimizing and properly
managing hazardous materials used in our facilities and
products. We monitor regulatory and resource trends and set
company-wide short- and long-term performance targets for key
resources and emissions. These targets address several
parameters, including energy and water use, climate change,
waste recycling and emissions. Intel remains on track to achieve
our voluntary commitment to reduce emissions of certain global
warming gases used in manufacturing by 10% from 1995 levels by
2010. Due to Intels increase in manufacturing since 1995,
this will equate to an actual reduction in 2010 of more than 90%
from what Intel would have emitted without the voluntary
reduction. We also continue to take several actions to further
our global energy reduction goal, such as investing in energy
conservation projects in our factories and working with
suppliers of manufacturing tools to improve energy efficiency.
We expect that these actions will result in energy cost savings
and improved efficiency in the use of electricity, natural gas
and water. In addition, we have adopted water needs and reuse
strategies that align with local community expectations
regardless of where we operate. As such, we continue to employ
water use reduction strategies that seek to optimize the balance
between ultra-pure water needs and reuse options for industrial
water.
As Moores Law drives increasing computing power year after
year, managing the power consumption of the PC becomes an
increasing challenge. Intel has been a leader in developing
innovative solutions to address and resolve power challenges. To
be successful, Intel has taken a holistic approach to power
management, addressing the challenge at all levels, including
the silicon, package, circuit, micro/macro architecture,
platform and software levels. A few examples include novel
transistor and chip designs such as strained silicon and sleep
transistors, Enhanced Intel
SpeedStep®
technology for mobile and desktop platforms, and Demand Based
Switching (DBS) technology for server platforms.
The manufacture and assembly and testing of Intel products
requires the use of hazardous materials that are subject to a
broad array of EHS laws and regulations. Intel actively monitors
the hazardous materials that are used in the manufacture and
assembly and testing of our products, particularly materials
that end up in the final product. Intel has developed specific
restrictions on the content of certain hazardous materials in
our products, as well as those of our suppliers and outsourced
manufacturers and subcontractors. Intels efforts to reduce
hazardous substances in our products has positioned us well to
meet the various environmental restrictions on product content
throughout the world, such as the Restriction on Hazardous
Substances (RoHS) directive in the European Union (EU). The RoHS
directive eliminates most uses of lead, cadmium,
hexavalent-chromium, mercury and certain fire retardants in
electronics put on the market after July 1, 2006. Intel
published its lead-free product roadmap in April 2004, and we
already manufacture and ship many products that are RoHS
compliant (e.g., flash memory products; mobile, desktop, and
server CPUs; chipsets; network interface cards; wireless cards;
and RoHS compliant platforms). Intels roadmap is designed
to enable all Intel products sold into the EU to be RoHS
compliant before July 1, 2006. The State of California also
has adopted restrictions on the use of certain materials in
electronic products that are intended to harmonize with the EU
RoHS directive. Those restrictions go into effect in 2007. Other
U.S. states are considering similar legislation. Similarly,
China has promulgated use restrictions on the same substances as
the EU RoHS directive. China has not yet defined either the
scope of affected products or an effective date of the
regulation. Intel is working with Chinas Ministry of
Information Industry to promote consistency between Chinas
use restrictions and the EU RoHS directive.
As Intel continues to advance process technology, the materials,
technologies and products themselves become increasingly
complex. Our evaluations of new materials for use in R&D,
manufacturing, and assembly and test take into account EHS
considerations and are a component of Intels design for
EHS processes. Compliance with these complex laws and
regulations, as well as internal voluntary programs, is
integrated into our manufacturing and assembly and test
processes. To our knowledge, compliance with these laws and
regulations has had no material effect on our operations.
Intel is committed to the protection of human rights and the
environment throughout its supply chain. Intel expects suppliers
to understand and fully comply with all applicable
international, national, state and local laws and regulations,
including, but not limited to, all EHS and related laws and
regulations. In addition, suppliers are expected to abide by all
Intel rules; maintain progressive employment practices; and
comply with all applicable laws including, at a minimum, those
covering non-discrimination in the terms and conditions of
employment, child labor, minimum wages, employee benefits and
work hours.
15
Executive Officers of the Registrant
The following sets forth certain information with regard to the
executive officers of Intel as of February 24, 2006 (ages
are as of December 31, 2005):
Craig R. Barrett (age 66) has been a director of Intel
since 1992 and Chairman of the Board since May 2005. Prior to
that, Dr. Barrett was Chief Executive Officer from 1998 to
2005; President from 1997 to 2002; Chief Operating Officer from
1993 to 1997; and Executive Vice President from 1990 to 1997.
Paul S. Otellini (age 55) has been a director of Intel
since 2002 and President and Chief Executive Officer since May
2005. Prior to that, Mr. Otellini was Chief Operating
Officer from 2002 to May 2005; Executive Vice President and
General Manager, Intel Architecture Group, from 1998 to 2002;
Executive Vice President and General Manager, Sales and
Marketing Group, from 1996 to 1998; and Senior Vice President
and General Manager, Sales and Marketing Group, from 1994 to
1996.
Andy D. Bryant (age 55) has been Executive Vice President
and Chief Financial and Enterprise Services Officer since 2001,
and was Senior Vice President and Chief Financial and Enterprise
Services Officer from 1999 to 2001. Prior to that,
Mr. Bryant was Senior Vice President and Chief Financial
Officer in 1999, and Vice President and Chief Financial Officer
from 1994 to 1999.
Sean M. Maloney (age 49) has been Executive Vice President
and General Manager, Mobility Group, since January 2005. Prior
to that, Mr. Maloney was Executive Vice President and
General Manager, Intel Communications Group, from 2001 to
January 2005; Executive Vice President and Director, Sales and
Marketing Group, in 2001; Senior Vice President and Director,
Sales and Marketing Group, from 1999 to 2001; Vice President and
Director, Sales and Marketing Group, from 1998 to 1999; and Vice
President, Sales, and General Manager, Asia-Pacific Operations,
from 1995 to 1998.
Robert J. Baker (age 50) has been Senior Vice President and
General Manager, Technology and Manufacturing Group, since 2001,
and was Vice President and General Manager, Components
Manufacturing, from 2000 to 2001. Prior to that, Mr. Baker
managed Fab Sort Manufacturing from 1999 to 2000 and
Microprocessor Components Manufacturing from 1996 to 1999.
Patrick P. Gelsinger (age 44) has been Senior Vice
President and General Manager, Digital Enterprise Group, since
January 2005. Prior to that, Mr. Gelsinger was Chief
Technology Officer from 2001 to January 2005; Chief Technology
Officer, Computing Group, from 2000 to 2001; and Vice President
and General Manager, Desktop Products Group, from 1996 to 2000.
Arvind Sodhani (age 51) has been Senior Vice President of
Intel and President of Intel Capital since March 2005. Prior to
that, he was Senior Vice President and Treasurer of Intel from
February to March 2005; Vice President and Treasurer from 1990
to February 2005; and Treasurer from 1988 to 1990.
Anand Chandrasekher (age 42) has been Senior Vice President
and General Manager, Sales and Marketing Group, since November
2005. Prior to that, he was Vice President and Director, Sales
and Marketing Group, from January to November 2005; Vice
President and General Manager, Mobile Platforms Group, from 2001
to January 2005; Vice President and General Manager, Intel
Architecture Marketing Group, from 2000 to 2001; and Vice
President and General Manager, Workstation Platforms Group, from
1997 to 2000.
David Perlmutter (age 52) has been Senior Vice President
and General Manager, Mobility Group, since November 2005. Prior
to that, he was Vice President and General Manager, Mobility
Group, from January to November 2005; Vice President and General
Manager, Mobile Platforms Group, from 2000 to January 2005; and
Vice President, Microprocessor Group, and General Manager, Basic
Microprocessor Division and Intel Israel Development Center,
from 1996 to 2000.
D. Bruce Sewell (age 47) has been Senior Vice
President and General Counsel since November 2005. Prior to
that, he was Vice President and General Counsel from 2004 to
November 2005; Vice President, Legal and Government Affairs and
Deputy General Counsel from 2001 to 2004; and served in a
variety of senior legal positions at Intel from 1995 to 2001.
Thomas M. Kilroy (age 48) has been Vice President and
General Manager, Digital Enterprise Group, since September 2005.
Prior to that, Mr. Kilroy was Vice President, Sales and
Marketing Group, and co-President of Intel Americas, Inc. from
2003 to September 2005; Vice President, Sales and Marketing
Group, and General Manager, Communication Sales Organization,
during 2003; and Vice President, Sales and Marketing Group, and
General Manager, Reseller Channel Operation, from 2000 to 2003.
16
Corporate Governance
Corporate governance is typically defined as the system that
allocates duties and authority among a companys
stockholders, board of directors and management. The
stockholders elect the board and vote on extraordinary matters;
the board is the companys governing body, responsible for
hiring, overseeing and evaluating management, particularly the
Chief Executive Officer (CEO); and management runs the
companys
day-to-day operations.
The Board believes that there should be a substantial majority
of independent directors on the Board. The Board also believes
that it is useful and appropriate to have members of management,
including the CEO, as directors.
The current Board members include nine independent directors and
two members of Intels senior management. The Board members
are Craig R. Barrett, Intels Chairman of the Board;
Ambassador Charlene Barshefsky, Senior International Partner at
the Wilmer Cutler Pickering Hale and Dorr LLP law firm; E. John
P. Browne, Group Chief Executive of BP plc; D. James Guzy,
Chairman of Arbor Company; Reed E. Hundt, Principal, Charles
Ross Partners, LLC; Paul S. Otellini, Intels Chief
Executive Officer and President; James D. Plummer, John M. Fluke
Professor of Electrical Engineering, Frederick E. Terman Dean of
the School of Engineering, Stanford University; David S.
Pottruck, Chairman and Chief Executive Officer of Red Eagle
Ventures, Inc. and Chairman of Eos Airlines; Jane E. Shaw,
retired Chairman and Chief Executive Officer of Aerogen, Inc.;
John L. Thornton, Professor and Director of Global Leadership at
Tsinghua University, Beijing, China; and David B. Yoffie, Max
and Doris Starr Professor of International Business
Administration, Harvard Business School. The Board also has one
Director Emeritus, Gordon E. Moore, who may participate in Board
meetings but does not vote.
Director Changes in 2005. At the 2005 annual meeting,
Andrew S. Grove retired from the Board. Craig R. Barrett
succeeded Dr. Grove as Chairman of the Board, and Paul S.
Otellini succeeded Dr. Barrett as Chief Executive Officer.
In July 2005, the Board elected James D. Plummer to the Board.
Adoption of Majority Vote Standard for Election of
Directors. On January 18, 2006, the Board approved an
amendment to Article III, Section 1 of Intels
Bylaws to require directors to be elected by a majority of the
votes cast with respect to such director in uncontested
elections (number of shares voted for a director
must exceed the number of votes cast against that director). In
a contested election (a situation in which the number of
nominees exceeds the number of directors to be elected), the
standard for election of directors will be a plurality of the
shares represented in person or by proxy at any such meeting and
entitled to vote on the election of directors. If a nominee who
is serving as a director is not elected at the annual meeting,
under Delaware law the director would continue to serve on the
Board as a holdover director. However, under our
Bylaws, any director who fails to be elected must offer to
tender his or her resignation to the Board. The Corporate
Governance and Nominating Committee would then make a
recommendation to the Board whether to accept or reject the
resignation, or whether other action should be taken. The Board
will act on the Corporate Governance and Nominating
Committees recommendation and publicly disclose its
decision and the rationale behind it within 90 days from
the date the election results are certified. The director who
tenders his or her resignation will not participate in the
Boards decision. If a nominee who was not already serving
as a director is not elected at the annual meeting, under
Delaware law that nominee would not become a director and would
not continue to serve on the Board as a holdover
director. In 2006, all nominees for the election of
directors are currently serving on the Board.
For more information on our corporate governance, please see the
sections of our proxy statement for our 2006 Annual
Stockholders Meeting under the headings The Board,
Board Committees and Meetings and Corporate
Governance Guidelines, which are incorporated herein by
reference.
17
ITEM 1A. RISK FACTORS
Fluctuations in demand for our products may adversely
affect our financial results.
If demand for our products fluctuates, our revenue and gross
margin could be adversely affected. Important factors that could
cause demand for our products to fluctuate include:
|
|
|
|
|
changes in customer product needs; |
|
|
changes in the level of customers inventory; |
|
|
changes in business and economic conditions, including a
downturn in the semiconductor industry; |
|
|
competitive pressures from companies that have competing
products, chip architectures and manufacturing technologies; |
|
|
strategic actions taken by our competitors; and |
|
|
market acceptance of our products. |
If demand for our products is reduced, our manufacturing and/or
assembly and test capacity could be under-utilized, 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, factory
planning decisions may cause us to record accelerated
depreciation. In the long term, if demand for our products
increases, we may not be able to add manufacturing and/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 and record impairments of our assets.
The semiconductor industry and our operations are
characterized by a high percentage of costs that are fixed or
otherwise difficult to reduce in the short term, and by product
demand that is highly variable and is subject to significant
downturns that may adversely affect 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, research and development, 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 has experienced
downturns, often in connection with maturing product cycles and
downturns in general economic market conditions. These downturns
have been characterized by reduced product demand, manufacturing
overcapacity, high inventory levels and decreased average
selling prices. The combination of these factors may cause our
revenue, gross margin, cash flow and profitability to vary
significantly both in the short term and over the long term.
We operate in intensely competitive industries, and our
failure to respond quickly to technological developments and
incorporate new features into our products could have an adverse
effect on 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. We may
not be able to successfully develop and market these new
products; 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 the 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 and
record impairments of our assets.
18
Fluctuations in the mix of products sold may adversely
affect our financial results.
Because of the wide price differences among mobile, 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. Our financial results also depend in part on the mix of
other products 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 costs and higher
start-up costs.
Fluctuations in the mix and types of our products may also
affect the extent to which we are able to recover our fixed
costs and investments that are associated with a particular
product, and as a result can negatively impact our financial
results.
Our global operations subject us to risks that may
negatively affect our results of operations and financial
condition.
We have sales offices and research and development,
manufacturing, and assembly and test facilities in many
countries, and as a result, we are subject to risks associated
with doing business globally. Our global operations may be
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 have an adverse effect
on our results of operations and financial condition, including:
|
|
|
|
|
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; |
|
|
security concerns, including crime, political instability,
terrorist activity, armed conflict and civil or military
unrest; 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 most of our products are priced and paid
for in U.S. dollars, a significant amount of certain types
of expenses, such as payroll, utilities, tax and marketing
expenses, are paid in local currencies. Fluctuations in the rate
of exchange between the U.S. dollar and the currencies of
other countries in which we conduct business, and changes in
currency controls with respect to such countries, could
negatively impact our business, operating results and financial
condition by resulting in lower revenue or increased expenses in
such countries. In addition, changes in tariff and import
regulations and to U.S. and
non-U.S. monetary
policies may also negatively impact our revenue in those
affected countries. Varying tax rates in different jurisdictions
could negatively impact our overall tax rate.
Failure to meet our production targets, resulting in
undersupply or oversupply of products, may adversely impact our
business and results of operations.
Manufacturing and assembly and test of integrated circuits is a
complex process. Disruptions in this process can result from
difficulties in our development and implementation of new
processes, errors and interruptions in the processes, defects in
materials and disruptions in our supply of materials or
resources, all of which could affect the timing of production
ramps and yields. Furthermore, 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 increase production as desired, resulting in
higher costs or substantial decreases in yields, which could
impact our ability to produce sufficient volume to meet specific
product demand. Furthermore, 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 excess capacity charges as we slow production to
reduce inventory levels. In addition, higher yields, as well as
other factors, can decrease overall unit costs and may cause us
to revalue our existing inventory on certain products to their
lower replacement cost, which would impact our gross margin in
the quarters in which this revaluation occurs. The occurrence of
any of these events could adversely impact our business and
results of operations.
We may have difficulties obtaining the resources or
products we need for manufacturing or assembling our products or
operating other aspects of our business, which could adversely
affect 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 production of our products and other aspects of our
business, and we seek, where possible, to have several sources
of supply for all of these 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 process or could
make it more difficult for us to implement our platform
strategy. In addition, production could be disrupted by the
unavailability of the resources used in production such as
water, silicon, electricity and gases. The unavailability or
reduced availability of the materials or resources 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 these materials or resources. The occurrence
of any of these events could adversely impact our business and
results of operations.
19
Costs related to product defects and errata may have an
adverse impact on our results of operations and business.
Costs associated with unexpected product defects and errata
(deviations from published specifications) include, for example,
the costs of:
|
|
|
|
|
writing down 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 |
|
|
defending against litigation related to defective products. |
These costs could be substantial and may therefore increase our
expenses and adversely affect our gross margin. In addition, our
reputation with our customers or end 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 negatively impact 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 adversely affect our
business.
From time to time, third parties may assert against us or our
customers alleged patent, copyright, trademark and other
intellectual property rights to technologies that are important
to our business. 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
away from our business. As a result of such intellectual
property infringement claims, we could be required to:
|
|
|
|
|
pay third-party infringement claims; |
|
|
discontinue manufacturing, using or selling the infringing
products; |
|
|
discontinue using the infringing technology or processes; |
|
|
develop non-infringing technology, which could be time-consuming
and costly or may not be possible; or |
|
|
license technology from the third party claiming infringement,
which license may not be available on commercially reasonable
terms or at all. |
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 negatively
impacted.
We may be subject to litigation proceedings that could
adversely affect our business.
In addition to the litigation risks mentioned above, we may be
subject to legal claims or regulatory matters involving
stockholder, consumer, antitrust and other issues. As described
in Legal Proceedings in Part I, Item 3 of
this Form 10-K, we are currently engaged in a number of
litigation matters. Litigation is subject to inherent
uncertainties, and unfavorable rulings could occur. An
unfavorable ruling could include money damages or, in cases for
which injunctive relief is sought, an injunction prohibiting
Intel from manufacturing or selling one or more products. Were
an unfavorable ruling to occur, there exists the possibility of
a material adverse impact on business and results of operations
for the period in which the ruling occurred or future periods.
We may not be able to enforce or protect our intellectual
property rights, which may harm our ability to compete and
adversely affect our business.
Our ability to enforce our patents, copyrights, software
licenses and other intellectual property 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 against us, which may adversely impact our
business in the manner discussed above. 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
material amounts of damages, which could in turn negatively
affect our results of operations. In addition, governments may
adopt regulations 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
negatively impact our competitive position and our business.
20
Our licenses with other companies and our participation in
industry initiatives may allow other companies, including
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 these 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.
In order to compete, we must attract, retain and motivate
key employees, and our failure to do so could have an adverse
effect on our results of operations.
In order to compete, we must attract, retain and motivate
executives and other key employees, including those in
managerial, technical, sales, marketing and support positions.
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
attract, retain and motivate qualified employees, we rely
heavily on stock-based incentive awards such as employee stock
options and restricted stock. If the value of such stock awards
does not appreciate as measured by the performance of the price
of our common stock and/or if our other stock-based compensation
otherwise ceases to be viewed as a valuable benefit, our ability
to attract, retain and motivate our employees could be adversely
impacted, which could negatively affect our results of
operations and/or require us to increase the amount we expend on
cash and other forms of compensation. In addition, our adoption
of Statement of Financial Accounting Standards (SFAS)
No. 123 (revised 2004), Share-Based Payment,
during our first quarter of 2006 will result in significant
additional compensation expense compared to prior periods.
Our results of operations could vary as a result of the
methods, estimates and judgments we use in applying our
accounting policies.
The methods, estimates and judgments 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.
In particular, beginning in our first quarter of 2006, the
calculation of share-based compensation expense under
SFAS No. 123(R) will require us to use valuation
methodologies (which were not developed for use in valuing
employee stock options) and a number of assumptions, estimates
and conclusions regarding matters such as expected forfeitures,
expected volatility of our share price, the expected dividend
rate with respect to our common stock and the exercise behavior
of our employees. Furthermore, there are no means, under
applicable accounting principles, to compare and adjust our
expense if and when we learn of additional information that may
affect the estimates that we previously made, with the exception
of changes in expected forfeitures of share-based awards.
Factors may arise over time that lead us to change our estimates
and assumptions with respect to future share-based compensation
arrangements, resulting in variability in our share-based
compensation expense over time. Changes in forecasted
share-based compensation expense could impact our gross margin
percentage; research and development expenses; marketing,
general and administrative expenses; and our tax rate.
Our failure to comply with applicable environmental laws
and regulations worldwide could adversely impact our business
and results of operations.
The manufacture, assembly and testing of our products require
the use of hazardous materials that are subject to a broad array
of environmental, health and safety laws and regulations. Our
failure to comply with any of these 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; or |
|
|
curtailment of our operations or sales. |
In addition, our failure to properly manage the use,
transportation, emission, 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 certain materials in our manufacturing, assembly and test
processes or products. Any of these consequences could adversely
impact our business and results of operations by increasing our
expenses and/or requiring us to alter our manufacturing
processes.
21
Changes in our effective tax rate may have an adverse
effect on our results of operations.
Our future effective tax rates may be adversely affected by a
number of factors including:
|
|
|
|
|
the jurisdictions in which profits are determined to be earned
and taxed; |
|
|
the repatriation of
non-U.S. earnings
for which we have not previously provided for U.S. taxes; |
|
|
adjustments to estimated 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
impairment of goodwill in connection with acquisitions; |
|
|
changes in available tax credits; |
|
|
changes in share-based compensation expense; |
|
|
changes in the valuation of our deferred tax assets and
liabilities; |
|
|
changes in tax laws or the interpretation of such tax
laws; and |
|
|
the resolution of issues arising from tax audits with various
tax authorities. |
Any significant increase in our future effective tax rates could
adversely impact net income for future periods.
In addition, the U.S. Internal Revenue Service (IRS) and
other tax authorities regularly examine our income tax returns.
The IRS has issued formal assessments related to amounts
reflected on certain of our tax returns as a tax benefit for our
export sales (see Note 18: Contingencies in
Part II, Item 8 of this
Form 10-K). Our
results of operations could be adversely impacted if these
assessments or any other assessments resulting from the
examination of our income tax returns by the IRS or other taxing
authorities are not resolved in our favor.
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 investments in equity securities of
public companies and investments in non-marketable equity
securities of private companies, which range from early-stage
companies that are often still defining their strategic
direction to more mature companies whose products or
technologies may directly support an Intel product or
initiative. The success of these companies (or lack thereof) is
dependent on product development, market acceptance, operational
efficiency and other key business success factors. The private
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 initial 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. In addition, if we
determine that an other-than-temporary decline in the fair value
exists for the equity securities of the public and private
companies in which we invest, we write down the investment to
its fair value and record the related write-down as an
investment loss. 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 investments in non-marketable
equity securities of 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
negatively affect our net income and results of operations.
22
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable.
At December 31, 2005, our major facilities consisted of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Square Feet in Millions) |
|
|
|
United States | |
|
Other Countries | |
|
Total | |
|
|
|
|
| |
|
| |
|
| |
Owned
facilities1 |
|
|
27.0 |
|
|
|
12.9 |
|
|
|
39.9 |
|
Leased
facilities2 |
|
|
2.4 |
|
|
|
3.2 |
|
|
|
5.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total facilities |
|
|
29.4 |
|
|
|
16.1 |
|
|
|
45.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
Leases on portions of the land used for these facilities
expire at varying dates through 2059. |
|
|
2 |
These leases expire at varying dates through 2021 and
generally include renewals at our option. |
Our principal executive offices are located in the U.S. The
majority of our wafer fabrication and research and development
activities are also located at sites within the
U.S. Outside of the U.S., we have wafer fabrication at our
facilities in Ireland and Israel. The majority of our assembly
and test facilities are located overseas, specifically in
Malaysia, China, the Philippines and Costa Rica. In addition, we
have sales and marketing offices located worldwide. These
facilities are generally located near major concentrations of
users.
We believe that our existing facilities are suitable and
adequate for our present purposes and that the productive
capacity in such 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 19: Operating Segment and Geographic
Information in Part II, Item 8 of this
Form 10-K.
|
|
ITEM 3. |
LEGAL PROCEEDINGS |
A. Tax Matters
In connection with the IRSs regular examination of
Intels tax returns for the years 1999 and 2000, the IRS
formally assessed in early 2005 certain adjustments to the
amounts reflected by us on those returns as a tax benefit for
export sales. Also in 2005, the IRS formally assessed similar
adjustments to the amounts reflected by us for the years 2001
and 2002 as a tax benefit for export sales. We do not agree with
these adjustments and have appealed the assessments. If the IRS
prevails in its position, our federal income tax due for 1999
through 2002 would increase by approximately $1.0 billion,
plus interest. The IRS may make similar claims for years
subsequent to 2002 in future audits, and if the IRS prevails,
income tax due for 2003 through 2005 would increase by
approximately $1.2 billion, plus interest.
Although the final resolution of the adjustments is uncertain,
based on currently available information, management believes
that the ultimate outcome will not have a material adverse
effect on our financial position, cash flows or overall trends
in results of operations. There is the possibility of a material
adverse impact on the results of operations of the period in
which the matter is ultimately resolved, if it is resolved
unfavorably, or in the period in which an unfavorable outcome
becomes probable and reasonably estimable.
23
B. Litigation
Intel currently is a party to various legal proceedings,
including those noted below. While management presently believes
that the ultimate outcome of these proceedings, individually and
in the aggregate, will not have a material adverse effect on our
financial position, cash flows or overall trends in results of
operations, litigation is subject to inherent uncertainties, and
unfavorable rulings could occur. An unfavorable ruling could
include money damages or, in cases for which injunctive relief
is sought, an injunction prohibiting Intel from selling one or
more products. Were an unfavorable ruling to occur, there exists
the possibility of a material adverse impact on the business or
results of operations for the period in which the ruling occurs
or future periods.
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 Intel
and Intels Japanese subsidiary engaged in various actions
in violation of the Sherman Act and the California Business and
Professions Code, including providing secret and discriminatory
discounts and rebates and intentionally interfering with
prospective business advantages of AMD. AMDs complaint
seeks unspecified treble damages, punitive damages, an
injunction, and attorneys fees and costs. Subsequently,
AMDs Japanese subsidiary also filed suits in the Tokyo
High Court and the Tokyo District Court against Intels
Japanese subsidiary, asserting violations of Japans
Antimonopoly Law and alleging damages of approximately
$55 million, plus various other costs and fees. At least 79
separate class actions, generally repeating AMDs
allegations and asserting various consumer injuries, including
that consumers in various states have been injured by paying
higher prices for Intel microprocessors, have been filed in the
U.S. District Courts for the Northern District of
California, Southern District of California and the District of
Delaware, as well as in various California, Kansas and Tennessee
state courts. All the federal class actions have been
consolidated by the Multidistrict Litigation Panel to the
District of Delaware. All California class actions have been
consolidated to the Superior Court of California in
Santa Clara County. Intel disputes AMDs claims and
the class-action claims, and intends to defend the lawsuits
vigorously.
Intel is also subject to certain antitrust regulatory inquiries.
In 2001, the European Commission commenced an investigation
regarding claims by AMD that Intel used unfair business
practices to persuade clients to buy Intel microprocessors. In
June 2005, Intel received an inquiry from the Korea Fair Trade
Commission requesting documents from Intels Korean
subsidiary related to marketing and rebate programs that Intel
entered into with Korean PC manufacturers. Intel is cooperating
with these agencies in their investigations and expects that
these matters will be acceptably resolved.
MicroUnity, Inc. v. Intel Corporation, et al.
U.S. District Court, Eastern District of Texas
In March 2004, MicroUnity filed suit against Intel and Dell Inc.
in the Eastern District of Texas. MicroUnity claimed that
Intel®
Pentium® III,
Pentium 4, Pentium M and Itanium 2 processors
infringed seven MicroUnity patents, and that certain Intel
chipsets infringed one MicroUnity patent. MicroUnity sought an
injunction, unspecified damages and attorneys fees against
both Intel and Dell. In October 2005, MicroUnity and Intel
entered into a license agreement whereby Intel agreed to pay
MicroUnity $300 million for a
paid-up license to all
MicroUnity patents and for certain other rights including rights
on behalf of Intel customers. Under the agreement, MicroUnity
dismissed all claims in the lawsuit against Intel and Dell with
prejudice.
Barbaras Sales, et al. v. Intel Corporation,
Gateway Inc., Hewlett-Packard Co. and HPDirect, Inc.
(formerly Deanna Neubauer, et al. v. Intel
Corporation, Gateway Inc., Hewlett-Packard Co. and HPDirect,
Inc.)
Third Judicial Circuit Court, Madison County, Illinois
In June 2002, various plaintiffs filed a lawsuit in the Third
Judicial Circuit Court, Madison County, Illinois, against Intel,
Gateway Inc., Hewlett-Packard Company and HPDirect, Inc.,
alleging that the defendants advertisements and statements
misled the public by suppressing and concealing the alleged
material fact that systems containing Intel Pentium 4 processors
are less powerful and slower than systems containing Intel
Pentium III processors
and a competitors microprocessors. In July 2004, the Court
certified against Intel an Illinois-only class of certain
end-use purchasers of certain Pentium 4 processors or computers
containing such microprocessors. The Court denied
plaintiffs motion for reconsideration of this ruling. In
January 2005, the Court granted a motion filed jointly by the
plaintiffs and Intel that stayed the proceedings in the trial
court pending appellate review of the Courts class
certification order. The plaintiffs seek unspecified damages and
attorneys fees and costs. Intel disputes the
plaintiffs claims and intends to defend the lawsuit
vigorously.
24
|
|
ITEM 4. |
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS |
None.
PART II
|
|
ITEM 5. |
MARKET FOR REGISTRANTS 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.
Additional information concerning dividends may be found in the
following sections of this
Form 10-K:
Selected Financial Data in Part II, Item 6
and Consolidated Statements of Cash Flows and
Consolidated Statements of Stockholders Equity
in Part II, Item 8.
In each quarter during 2005, we paid a cash dividend of
$0.08 per common share, for a total of $0.32 for the year
($0.04 each quarter during 2004 for a total of $0.16 for the
year). We have paid a cash dividend in each of the past 53
quarters. In January 2006, our Board of Directors declared a
cash dividend of $0.10 per common share for the first
quarter of 2006. The dividend is payable on March 1, 2006
to stockholders of record on February 7, 2006.
As of January 27, 2006, there were approximately 220,000
registered holders of record of Intels 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 (In
MillionsExcept Per Share Amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total | |
|
|
|
|
|
|
|
|
|
|
Number of | |
|
Dollar Value | |
|
|
|
|
|
|
|
|
Shares | |
|
of Shares | |
|
|
|
|
|
|
Average | |
|
Purchased | |
|
That May | |
|
|
|
|
Total | |
|
Price | |
|
as Part of | |
|
Yet Be | |
|
|
|
|
Number | |
|
Paid | |
|
Publicly | |
|
Purchased | |
|
|
|
|
of Shares | |
|
per | |
|
Announced | |
|
Under the | |
Period |
|
|
|
Purchased | |
|
Share | |
|
Plans | |
|
Plans | |
|
|
|
|
| |
|
| |
|
| |
|
| |
October 2, 2005October 29, 2005 |
|
|
4.6 |
|
|
$ |
23.62 |
|
|
|
4.6 |
|
|
$ |
24,890 |
|
October 30, 2005November 26, 2005 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
24,890 |
|
November 27, 2005December 31, 2005 |
|
|
113.4 |
|
|
$ |
26.70 |
|
|
|
113.4 |
|
|
$ |
21,863 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
118.0 |
|
|
$ |
26.58 |
|
|
|
118.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We have an ongoing authorization, as amended, from the Board of
Directors to repurchase shares of Intels common stock in
the open market or in negotiated transactions. In November 2005,
the Board of Directors authorized the repurchase of up to
$25 billion in stock on or after October 1, 2005,
which includes the remaining shares available for repurchase
under previous authorizations, which were expressed as share
amounts. We generally do not purchase stock during the
quiet period that we have established in advance of
the publication of our quarterly earnings release. For a
discussion of our quiet periods, see Status of Business
Outlook in Part II, Item 7 of this
Form 10-K.
25
|
|
ITEM 6. |
SELECTED FINANCIAL DATA |
Ten Years Ended December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research & | |
|
Operating | |
|
|
(In Millions) |
|
|
|
Net Revenue | |
|
Gross Margin | |
|
Development | |
|
Income | |
|
Net Income | |
|
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
2005 |
|
$ |
38,826 |
|
|
$ |
23,049 |
|
|
$ |
5,145 |
|
|
$ |
12,090 |
|
|
$ |
8,664 |
|
2004 |
|
$ |
34,209 |
|
|
$ |
19,746 |
|
|
$ |
4,778 |
|
|
$ |
10,130 |
|
|
$ |
7,516 |
|
2003 |
|
$ |
30,141 |
|
|
$ |
17,094 |
|
|
$ |
4,360 |
|
|
$ |
7,533 |
|
|
$ |
5,641 |
|
2002 |
|
$ |
26,764 |
|
|
$ |
13,318 |
|
|
$ |
4,034 |
|
|
$ |
4,382 |
|
|
$ |
3,117 |
|
2001 |
|
$ |
26,539 |
|
|
$ |
13,052 |
|
|
$ |
3,796 |
|
|
$ |
2,256 |
|
|
$ |
1,291 |
|
2000 |
|
$ |
33,726 |
|
|
$ |
21,076 |
|
|
$ |
3,897 |
|
|
$ |
10,395 |
|
|
$ |
10,535 |
|
1999 |
|
$ |
29,389 |
|
|
$ |
17,553 |
|
|
$ |
3,111 |
|
|
$ |
9,767 |
|
|
$ |
7,314 |
|
1998 |
|
$ |
26,273 |
|
|
$ |
14,185 |
|
|
$ |
2,509 |
|
|
$ |
8,379 |
|
|
$ |
6,068 |
|
1997 |
|
$ |
25,070 |
|
|
$ |
15,125 |
|
|
$ |
2,347 |
|
|
$ |
9,887 |
|
|
$ |
6,945 |
|
1996 |
|
$ |
20,847 |
|
|
$ |
11,683 |
|
|
$ |
1,808 |
|
|
$ |
7,553 |
|
|
$ |
5,157 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic | |
|
Diluted | |
|
|
|
|
|
|
|
|
|
|
|
|
Earnings | |
|
Earnings | |
|
Weighted Average | |
|
Dividends | |
|
Dividends | |
|
Net Investment in | |
|
|
|
|
Per | |
|
Per | |
|
Diluted Shares | |
|
Declared | |
|
Paid Per | |
|
Property, Plant | |
(In MillionsExcept Per Share Amounts) |
|
|
|
Share1 | |
|
Share1 | |
|
Outstanding | |
|
Per Share | |
|
Share | |
|
& Equipment | |
|
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
2005 |
|
$ |
1.42 |
|
|
$ |
1.40 |
|
|
|
6,178 |
|
|
$ |
.320 |
|
|
$ |
.320 |
|
|
$ |
17,111 |
|
2004 |
|
$ |
1.17 |
|
|
$ |
1.16 |
|
|
|
6,494 |
|
|
$ |
.160 |
|
|
$ |
.160 |
|
|
$ |
15,768 |
|
2003 |
|
$ |
0.86 |
|
|
$ |
0.85 |
|
|
|
6,621 |
|
|
$ |
.080 |
|
|
$ |
.080 |
|
|
$ |
16,661 |
|
2002 |
|
$ |
0.47 |
|
|
$ |
0.46 |
|
|
|
6,759 |
|
|
$ |
.080 |
|
|
$ |
.080 |
|
|
$ |
17,847 |
|
2001 |
|
$ |
0.19 |
|
|
$ |
0.19 |
|
|
|
6,879 |
|
|
$ |
.080 |
|
|
$ |
.080 |
|
|
$ |
18,121 |
|
2000 |
|
$ |
1.57 |
|
|
$ |
1.51 |
|
|
|
6,986 |
|
|
$ |
.070 |
|
|
$ |
.070 |
|
|
$ |
15,013 |
|
1999 |
|
$ |
1.10 |
|
|
$ |
1.05 |
|
|
|
6,940 |
|
|
$ |
.055 |
|
|
$ |
.055 |
|
|
$ |
11,715 |
|
1998 |
|
$ |
0.91 |
|
|
$ |
0.86 |
|
|
|
7,035 |
|
|
$ |
.025 |
|
|
$ |
.033 |
|
|
$ |
11,609 |
|
1997 |
|
$ |
1.06 |
|
|
$ |
0.97 |
|
|
|
7,179 |
|
|
$ |
.029 |
|
|
$ |
.028 |
|
|
$ |
10,666 |
|
1996 |
|
$ |
0.78 |
|
|
$ |
0.73 |
|
|
|
7,101 |
|
|
$ |
.024 |
|
|
$ |
.023 |
|
|
$ |
8,487 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to | |
|
|
|
|
|
|
|
|
Long-Term | |
|
|
|
Property, | |
|
Employees at | |
|
|
|
|
|
|
Debt & Put | |
|
Stockholders | |
|
Plant & | |
|
Year-End | |
(In MillionsExcept Employees) |
|
|
|
Total Assets | |
|
Warrants2 | |
|
Equity | |
|
Equipment | |
|
(In Thousands) | |
|
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
2005 |
|
$ |
48,314 |
|
|
$ |
2,106 |
|
|
$ |
36,182 |
|
|
$ |
5,818 |
|
|
|
99.9 |
|
2004 |
|
$ |
48,143 |
|
|
$ |
703 |
|
|
$ |
38,579 |
|
|
$ |
3,843 |
|
|
|
85.0 |
|
2003 |
|
$ |
47,143 |
|
|
$ |
936 |
|
|
$ |
37,846 |
|
|
$ |
3,656 |
|
|
|
79.7 |
|
2002 |
|
$ |
44,224 |
|
|
$ |
929 |
|
|
$ |
35,468 |
|
|
$ |
4,703 |
|
|
|
78.7 |
|
2001 |
|
$ |
44,395 |
|
|
$ |
1,050 |
|
|
$ |
35,830 |
|
|
$ |
7,309 |
|
|
|
83.4 |
|
2000 |
|
$ |
47,945 |
|
|
$ |
707 |
|
|
$ |
37,322 |
|
|
$ |
6,674 |
|
|
|
86.1 |
|
1999 |
|
$ |
43,849 |
|
|
$ |
1,085 |
|
|
$ |
32,535 |
|
|
$ |
3,403 |
|
|
|
70.2 |
|
1998 |
|
$ |
31,471 |
|
|
$ |
903 |
|
|
$ |
23,377 |
|
|
$ |
4,032 |
|
|
|
64.5 |
|
1997 |
|
$ |
28,880 |
|
|
$ |
2,489 |
|
|
$ |
19,295 |
|
|
$ |
4,501 |
|
|
|
63.7 |
|
1996 |
|
$ |
23,735 |
|
|
$ |
1,003 |
|
|
$ |
16,872 |
|
|
$ |
3,024 |
|
|
|
48.5 |
|
|
|
1 |
Amortization of goodwill reduced basic earnings per share by
$0.23 in 2001, $0.19 in 2000 and $0.05 in 1999, and reduced
diluted earnings per share by $0.22 in 2001, $0.18 in 2000 and
$0.05 in 1999. As of 2002, goodwill is no longer amortized. |
|
2 |
During 2000, all remaining put warrants outstanding expired
unexercised. |
The ratio of earnings to fixed charges for each of the five
years in the period ended December 31, 2005 was as follows:
|
|
|
|
|
|
|
|
|
2005 |
|
2004 |
|
2003 |
|
2002 |
|
2001 |
|
|
|
|
|
|
|
|
|
169x
|
|
107x |
|
72x |
|
32x |
|
18x |
Fixed charges consist of interest expense, the estimated
interest component of rent expense and capitalized interest.
26
|
|
ITEM 7. |
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS |
We begin Managements Discussion and Analysis of Financial
Condition and Results of Operations (MD&A) with Intels
overall strategy and the strategy for our major operating
segments to give the reader an overview of the goals of our
business and the direction in which our business and products
are moving. The Strategy section is followed by a discussion of
the Critical Accounting Estimates that we believe are important
to understanding the assumptions and judgments incorporated in
our reported financial results. We then discuss our Results of
Operations for 2005 compared to 2004, and for 2004 compared to
2003, beginning with an Overview. Following the analysis of our
results, we provide an analysis of changes in our balance sheet
and cash flows, and discuss our financial commitments in the
sections entitled Financial Condition,
Contractual Obligations and Off-Balance-Sheet
Arrangements. We then conclude this MD&A with our
Business Outlook section, discussing our outlook for 2006.
This MD&A should be read in conjunction with the other
sections of this
Form 10-K,
including Part I, Item 1: Business;
Part II, Item 6: Selected Financial Data;
and Part II, Item 8: Financial Statements and
Supplementary Data. The various sections of this MD&A
contain a number of forward-looking statements, all of which are
based on our current expectations and could be affected by the
uncertainties and risk factors described throughout this filing
and particularly in Part I, Item 1A: Risk
Factors and the Business Outlook section. 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,
2006.
Strategy
Our goal is to be the preeminent provider of silicon chips and
platform solutions to 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 and brand recognition. Our primary focus is on
developing advanced integrated silicon technology solutions.
Our strategy focuses on taking customer needs into account in
developing the next generation of products and platforms that
will enable new form factors and new usage models for businesses
and consumers. We believe that the end users of computing and
communications systems and devices want products based on
platform solutions. We define a platform as a collection of
technologies that are designed to work together to provide a
better end-user solution than if the ingredients were used
separately. Our platforms consist of standards and initiatives
such as WiFi and WiMAX; hardware and software that may include
technologies such as HT Technology, Intel Virtualization
Technology and Intel AMT; and services. In developing our
platforms, we may include ingredients sold by other companies.
The success of our strategy to offer platform solutions is
dependent on our ability to select and incorporate ingredients
that customers value, and to market the platforms effectively.
We also believe that users of computing and communications
systems and devices want improved overall performance and/or
improved performance per watt. Improved overall performance can
include faster processing performance and/or other improved
capabilities such as multithreading and/or multitasking, and
improved connectivity, security, manageability, reliability,
ease of use and/or interoperability among devices. Improved
performance per watt involves balancing the addition of these
types of improved performance factors with the power consumption
of the platform. Lower power consumption may reduce system heat
output, provide power savings, and reduce the total cost of
ownership for the end user. It is our goal to incorporate these
improvements in our various products and platforms to meet
end-user demands. In line with these efforts, we are focusing
our efforts on dual-core microprocessors. Dual-core
microprocessors contain two processor cores, rather than just
one processor core, which enables improved multitasking with
improved performance per watt.
We make equity investments in companies around the world to
further our strategic objectives and support our key business
initiatives, including investments through our Intel Capital
program. We 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. The investments may support, among other
things, Intel product initiatives, emerging trends in the
technology industry or worldwide Internet deployment. We invest
in companies that develop software, hardware or services
supporting our technologies. Our current investment focus areas
include helping to enable mobile wireless devices, advance the
digital home, enhance the digital enterprise, advance
high-performance communications infrastructures and develop the
next generation of silicon production technologies. Our focus
areas tend to develop and change over time due to rapid
advancements in technology.
27
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(Continued)
We plan to continue to cultivate new businesses and work with
the computing, communications and consumer electronics
industries through standards bodies, trade associations, OEMs,
ODMs, and independent software and operating system vendors, to
encourage the industry to offer products that take advantage of
the latest market trends and usage models. These efforts include
helping to expand the infrastructure for wireless connectivity,
including wireless broadband. We also provide development tools
and support to help software developers create software
applications and operating systems that take advantage of our
platform solutions. 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. In
addition, we work collaboratively with other companies to
protect digital content and the consumer.
During the first quarter of 2005, we reorganized our operating
segments to bring all major product groups in line with our
strategy to design and deliver technology platforms. Our
operating segments after the first-quarter reorganization
included the Digital Enterprise Group, the Mobility Group, the
Digital Home Group, the Digital Health Group and the Channel
Platforms Group. In the fourth quarter of 2005, we added the
Flash Memory Group. The Flash Memory Group offers NOR flash
memory products, which were previously reported within the
Mobility Group operating segment, and beginning in 2006, also
offers NAND flash memory products that we purchase from IMFT.
Digital Enterprise Group
The Digital Enterprise Group designs and delivers computing and
communications platforms for businesses and service providers.
DEG products are incorporated into desktop computers, the
infrastructure for the Internet and enterprise computing
servers. DEG platforms for businesses are designed to increase
employee productivity and reduce total cost of ownership. We
develop these platforms based on our processors, chipsets,
board-level products, wired connectivity products, and products
for network and server storage. The processors offered by DEG
are designed for various market segments, and include
microprocessors that are optimized for use in the desktop and
server computing market segments, and products designed for the
communications infrastructure, including network processors and
embedded microprocessors. Although DEGs strategic focus is
on business platform solutions, the group also offers products
marketed to the consumer desktop computing market segment.
Consumer desktop platforms that are designed and marketed
specifically for the digital home are offered by the Digital
Home Group.
Our strategy for the desktop computing market segment is to
introduce platforms with improved performance per watt, tailored
to the needs of different market segments using a tiered
branding approach. For desktop performance platforms, we offer
the Intel Pentium 4 processor supporting
HT Technology, and the Intel Pentium D processor. In
addition, current versions of the Intel Core Duo processor that
were originally designed for mobile form factors are also
available for small desktop form factors. For value desktop
platforms, we offer the Intel Celeron processor and the Intel
Celeron D processor, which are designed to meet the core
computing needs and affordability requirements of
value-conscious PC users. We also offer chipsets designed and
optimized for use in desktop platforms.
Our strategy for the enterprise computing market segment is to
provide competitive price for performance in platforms that
increase end-user value in the areas of power management,
security, and manageability for entry-level to high-end servers
and workstations. Our Intel Xeon processor family of products
supports a range of entry-level to high-end technical and
commercial computing applications. These products have been
enhanced with Intel EM64T, our
64-bit extension
technology. Our Intel Itanium processor family, which is based
on Intels 64-bit architecture and includes the Intel
Itanium 2 processor, generally supports an even higher level of
computing performance for data processing, the handling of high
transaction volumes and other compute-intensive applications for
enterprise-class servers, as well as supercomputing solutions.
We also offer chipsets designed and optimized for use in both
server and workstation platforms.
For the communications infrastructure, we deliver products that
are basic building blocks for modular communications platforms.
These products include advanced programmable network processors,
based on Intel XScale technology, used to manage and direct data
moving across the Internet and corporate networks. We also offer
embedded microprocessors that can be used for modular
communications platform applications as well as for industrial
equipment and
point-of-sale systems.
Mobility Group
The Mobility Group designs and delivers platforms for notebook
PCs and handheld computing and communications devices. The
Mobility Groups products include microprocessors and
related chipsets designed for the notebook market segment,
wireless connectivity products, and application and cellular
baseband processors used in cellular handsets and handheld
computing devices.
28
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(Continued)
Our strategy for notebook PCs is to deliver platforms with
optimized performance, battery life, form factor and wireless
connectivity. For performance mobility users, we offer the Intel
Core Duo processor, the Intel Core Solo and the Intel
Pentium M processor. For value mobile platforms, we offer
the Intel Celeron M processor and the Mobile Intel Celeron
processor. The primary platforms offered by the Mobility Group
are the Intel Centrino mobile technology platform and the Intel
Centrino Duo mobile technology platform. We also offer wireless
connectivity solutions based on the 802.11 industry standard. In
addition, we are developing wireless connectivity solutions for
networks based on the 802.16 industry standard, commonly known
as WiMAX. The current versions of our WiMAX products are used in
high-speed, fixed wireless broadband networks.
Our application and cellular baseband processors utilize Intel
XScale technology. Intel XScale technology provides processing
and multimedia graphics capability for data-enabled mobile
phones and PDAs. We offer application processors sold as
discrete chips or in stacked packaging solutions (stacking an
application processor with memory).
Flash Memory Group
The strategy for the Flash Memory Group is to provide advanced
flash memory products for cellular phones, digital audio players
and embedded form factors. We offer a broad range of memory
densities, leading-edge packaging technology and
high-performance functionality. In support of our strategy, we
offer NOR flash memory products such as Intel StrataFlash
wireless memory for advanced mobile phone designs. In addition
to product offerings for cellular customers, we offer NOR flash
memory products that meet the needs of other market segments,
such as the embedded market segment. The embedded market segment
includes NOR flash memory products found in various
applications, including set-top boxes, networking products, and
other devices including DVD players and DSL and cable modems.
Additionally, in January 2006 we formed IMFT, a NAND flash
memory manufacturing company, with Micron. Products manufactured
by IMFT and sold by Intel are currently being used in digital
audio players.
We offer a variety of stacked memory products, including
products based on our NOR flash, as well as our NOR flash plus
SRAM and/or NAND flash, which we currently purchase from
third-party vendors. Stacking of memory products refers to
packaging several memory chips together.
Digital Home Group
The strategy for the Digital Home Group is to design and deliver
computing- and communications-oriented platforms that meet the
demands of consumers as digital content becomes increasingly
accessible through a variety of connected digital devices within
the home. We are focusing on components for digital home
living-room entertainment applications and PCs designed for the
digital home. We offer Intel Viiv technology-based platforms for
use in the digital home. Platforms based on Intel Viiv
technology include the Intel Pentium D, Pentium Processor
Extreme Edition or Intel Core Duo processor, as well as a
chipset, a network connectivity device and enabling software,
all optimized to work together in the digital home environment.
We also offer microprocessors and chipsets for embedded consumer
electronics designs, such as digital televisions, video
recorders and set-top boxes.
Digital Health Group
The strategy for the Digital Health Group is to target global
business opportunities in healthcare research, diagnostics and
productivity, as well as personal healthcare. In support of this
strategy, the Digital Health Group is focusing on healthcare
information technologies, personal health products and
bio-medical products.
Channel Platforms Group
The strategy for the Channel Platforms Group is to expand on
Intels worldwide presence and success in global markets by
accelerating channel growth. In addition, the Channel Platforms
Group is developing unique platform solutions designed to meet
local market needs in certain geographies.
29
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(Continued)
Critical Accounting Estimates
The methods, estimates and judgments we use in applying our
accounting policies have a significant impact on the results we
report in our financial statements, which we discuss under the
heading Results of Operations following this section
of our MD&A. Some of our accounting policies require us to
make difficult and subjective judgments, often as a result of
the need to make estimates of matters that are inherently
uncertain. Our most critical accounting estimates include the
valuation of non-marketable equity securities, which impacts net
gains (losses) on equity securities when we record impairments;
recognition and measurement of current and deferred income tax
assets and liabilities, which impact our tax provision;
assessment of recoverability of long-lived assets, which
primarily impacts gross margin when we impair manufacturing
assets or accelerate their depreciation; and valuation of
inventory, which impacts gross margin. Below, we discuss these
policies further, as well as the estimates and judgments
involved. We also have other policies that we consider key
accounting policies, such as policies for revenue recognition,
including the deferral of revenue on sales to distributors;
however, these policies typically do not require us to make
estimates or judgments that are difficult or subjective.
Non-Marketable Equity Securities
We typically invest in non-marketable equity securities of
private companies, which range from early-stage companies that
are often still defining their strategic direction to more
mature companies whose products or technologies may directly
support an Intel product or initiative. At December 31,
2005, the carrying value of our portfolio of strategic
investments in non-marketable equity securities, excluding
equity derivatives, totaled $561 million ($507 million
at December 25, 2004).
Investments in non-marketable equity securities are inherently
risky, and a number of these companies are likely to fail. Their
success (or lack thereof) is dependent on product development,
market acceptance, operational efficiency and other key business
success factors. In addition, depending on their future
prospects, they may not be able to raise additional funds when
needed or they may receive lower valuations, with less favorable
investment terms than in previous financings, and the
investments would likely become impaired.
We review our investments quarterly for indicators of
impairment; however, for non-marketable equity securities, the
impairment analysis requires significant judgment to identify
events or circumstances that would likely have a significant
adverse effect on the fair value of the investment. The
indicators that we use to identify those events or circumstances
include (a) the investees revenue and earnings trends
relative to predefined milestones and overall business
prospects, (b) the technological feasibility of the
investees products and technologies, (c) the general
market conditions in the investees industry or geographic
area, including adverse regulatory or economic changes,
(d) factors related to the investees ability to
remain in business, such as the investees liquidity, debt
ratios and the rate at which the investee is using its cash, and
(e) the investees receipt of additional funding at a
lower valuation.
Investments identified as having an indicator of impairment are
subject to further analysis to determine if the investment is
other than temporarily impaired, in which case we write the
investment down to its impaired value. When an investee is not
considered viable from a financial or technological point of
view, we write down the entire investment since we consider the
estimated fair market value to be nominal. If an investee
obtains additional funding at a valuation lower than our
carrying amount or requires a new round of equity funding to
stay in operation and the new funding does not appear imminent,
we presume that the investment is other than temporarily
impaired, unless specific facts and circumstances indicate
otherwise. Impairments of investments in our portfolio of
non-marketable equity securities were approximately
$103 million in 2005 ($115 million in 2004 and
$319 million in 2003).
Income Taxes
We must make certain estimates and judgments in determining
income tax expense for financial statement purposes. These
estimates and judgments occur in the calculation of tax credits,
tax benefits, and deductions such as the tax benefit for export
sales and in the calculation of certain tax assets and
liabilities, which arise from differences in the timing of
recognition of revenue and expense for tax and financial
statement purposes. Significant changes to 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 a substantial
majority of the deferred tax assets recorded on our balance
sheet will ultimately be recovered. 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.
30
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(Continued)
In addition, the calculation of our tax liabilities involves
dealing with uncertainties in the application of complex tax
regulations. We recognize liabilities for anticipated tax audit
issues in the U.S. and other tax jurisdictions based on our
estimate of whether, and the extent to which, additional tax
payments are probable. If we ultimately determine that payment
of these amounts is unnecessary, we reverse the liability and
recognize a tax benefit during the period in which we determine
that the liability is no longer necessary. We record an
additional charge in our provision for taxes in the period in
which we determine that the recorded tax liability is less than
we expect the ultimate assessment to be. For a discussion of
current tax matters, see Note 10: Provision for
Taxes and Note 18: Contingencies in
Part II, Item 8 of this
Form 10-K.
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. Recoverability of assets that
will continue to be used in our operations is measured by
comparing the carrying amount of the asset grouping to our
estimate of the related total future net cash flows. If an asset
groupings carrying value is not recoverable through the
related cash flows, the asset grouping is considered to be
impaired. The impairment is measured by the difference between
the asset groupings carrying amount and its fair value,
based on the best information available, including market prices
or discounted cash flow analysis.
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, and there are sufficient cash
flows to support the carrying value of the assets, we accelerate
the rate of depreciation charges in order to fully depreciate
the assets over their new shorter useful lives. Impairments and
accelerated depreciation of long-lived assets were approximately
$20 million in 2005 (approximately $50 million in 2004
and $220 million in 2003).
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
within specific time horizons, generally six months or less. The
estimates of future demand that we use in the valuation of
inventory are the same as those used in our published revenue
forecasts and are also consistent with the estimates used in our
short-term manufacturing plans. 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 down additional inventory, which would have a negative
impact on our gross margin.
31
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(Continued)
Results of Operations
Overview
2005 was a year of many notable accomplishments for Intel. We
experienced our third year of double-digit growth in annual
revenue, gross margin dollars, operating profit and net income.
The majority of the growth during 2005 was due to the success of
our notebook computing platforms. Our financial position remains
strong, and we generated $14.8 billion in cash flows from
operations in 2005. We were able to return a total of
$12.6 billion to stockholders through our highest level of
stock repurchases and dividends in our companys history.
We also underwent the largest reorganization in our
companys history, which
re-aligned our company
around platform solutions, and we embarked on a massive
rebranding effort. While the first half was strong, our results
for the second half were lower than seasonal. Our results for
the fourth quarter were lower than expected, primarily due to
the strong competitive landscape.
In 2006, we are planning for further growth in revenue and gross
margin dollars, although we expect this growth to be tempered
somewhat from the growth rates of recent years due to the
expectation of some pricing pressure and a sustained competitive
landscape. However, with the introduction of compelling new
platforms and a strong processor roadmap, we believe that we are
positioned well for future growth. Our new platforms include the
recently introduced Intel Centrino Duo mobile technology and our
new platform brand for the digital home, Intel Viiv technology.
We also expect to launch a new microarchitecture in the second
half of 2006 that we believe will deliver
performance-per-watt
leadership in the desktop, mobile and server market segments. In
addition, we are focusing on new business opportunities,
including the introduction of Intel microprocessor-based systems
by Apple Computer, Inc., and our entrance into the NAND flash
memory market through IMFT, the venture we formed in January
2006 with Micron. We anticipate that a fast ramp of our
dual-core microprocessor products on our industry-leading
65-nanometer process
technology will enable and enhance these growth opportunities.
The ramp of our
65-nanometer
microprocessor products will also enable increased chipset
capacity as we transition our chipset production to our
90-nanometer process
technology.
The following table sets forth the consolidated statements of
income and the related percentages of net revenue for the
periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
|
|
| |
|
| |
|
| |
|
|
|
|
|
|
% of | |
|
|
|
% of | |
|
|
|
% of | |
(Dollars in Millions) |
|
|
|
Revenue | |
|
Revenue | |
|
Revenue | |
|
Revenue | |
|
Revenue | |
|
Revenue | |
|
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Net revenue |
|
$ |
38,826 |
|
|
|
100.0 |
% |
|
$ |
34,209 |
|
|
|
100.0 |
% |
|
$ |
30,141 |
|
|
|
100.0 |
% |
Cost of sales |
|
|
15,777 |
|
|
|
40.6 |
% |
|
|
14,463 |
|
|
|
42.3 |
% |
|
|
13,047 |
|
|
|
43.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin |
|
|
23,049 |
|
|
|
59.4 |
% |
|
|
19,746 |
|
|
|
57.7 |
% |
|
|
17,094 |
|
|
|
56.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
|
5,145 |
|
|
|
13.3 |
% |
|
|
4,778 |
|
|
|
14.0 |
% |
|
|
4,360 |
|
|
|
14.5 |
% |
Marketing, general and administrative |
|
|
5,688 |
|
|
|
14.7 |
% |
|
|
4,659 |
|
|
|
13.6 |
% |
|
|
4,278 |
|
|
|
14.2 |
% |
Impairment of goodwill |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
617 |
|
|
|
2.0 |
% |
Amortization and impairment of acquisition-related intangibles
and costs |
|
|
126 |
|
|
|
0.3 |
% |
|
|
179 |
|
|
|
0.5 |
% |
|
|
301 |
|
|
|
1.0 |
% |
Purchased in-process research and development |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
12,090 |
|
|
|
31.1 |
% |
|
|
10,130 |
|
|
|
29.6 |
% |
|
|
7,533 |
|
|
|
25.0 |
% |
Losses on equity securities, net |
|
|
(45 |
) |
|
|
(0.1 |
)% |
|
|
(2 |
) |
|
|
|
|
|
|
(283 |
) |
|
|
(0.9 |
)% |
Interest and other, net |
|
|
565 |
|
|
|
1.5 |
% |
|
|
289 |
|
|
|
0.9 |
% |
|
|
192 |
|
|
|
0.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before taxes |
|
|
12,610 |
|
|
|
32.5 |
% |
|
|
10,417 |
|
|
|
30.5 |
% |
|
|
7,442 |
|
|
|
24.7 |
% |
Provision for taxes |
|
|
3,946 |
|
|
|
10.2 |
% |
|
|
2,901 |
|
|
|
8.5 |
% |
|
|
1,801 |
|
|
|
6.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
8,664 |
|
|
|
22.3 |
% |
|
$ |
7,516 |
|
|
|
22.0 |
% |
|
$ |
5,641 |
|
|
|
18.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(Continued)
The following table sets forth information on our geographic
regions for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
|
|
| |
|
| |
|
| |
|
|
|
|
|
|
% of | |
|
|
|
% of | |
|
|
|
% of | |
(Dollars in Millions) |
|
|
|
Revenue | |
|
Total | |
|
Revenue | |
|
Total | |
|
Revenue | |
|
Total | |
|
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Asia-Pacific |
|
$ |
19,330 |
|
|
|
50 |
% |
|
$ |
15,380 |
|
|
|
45 |
% |
|
$ |
12,161 |
|
|
|
40 |
% |
Europe |
|
|
8,210 |
|
|
|
21 |
% |
|
|
7,755 |
|
|
|
23 |
% |
|
|
6,868 |
|
|
|
23 |
% |
Americas |
|
|
7,574 |
|
|
|
19 |
% |
|
|
7,965 |
|
|
|
23 |
% |
|
|
8,403 |
|
|
|
28 |
% |
Japan |
|
|
3,712 |
|
|
|
10 |
% |
|
|
3,109 |
|
|
|
9 |
% |
|
|
2,709 |
|
|
|
9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
38,826 |
|
|
|
100 |
% |
|
$ |
34,209 |
|
|
|
100 |
% |
|
$ |
30,141 |
|
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our net revenue for 2005 was $38.8 billion, an increase of
$4.6 billion, or 13.5%, compared to 2004. This increase was
primarily due to higher revenue from sales of mobile
microprocessors and higher chipset revenue. Fiscal year 2005 was
a 53-week fiscal year
in contrast to fiscal year 2004, which was a
52-week fiscal year.
Our Asia-Pacific regions revenue was approximately 50% of
our total revenue in 2005 and continues to be our fastest
growing region, increasing 26% compared to 2004 and reflecting
the movement of more of our customers PC supply chains to
Asia. This movement in the supply chain has negatively affected
our sales in the Americas region, which decreased 5% compared to
2004. Japan revenue increased 19% and Europe revenue increased
6% during 2005 compared to 2004. We continued to see growth in
both mature and emerging markets.
Overall gross margin dollars for 2005 were $23.0 billion,
an increase of $3.3 billion, or 17%, compared to 2004. Our
overall gross margin percentage increased to 59.4% in 2005 from
57.7% in 2004. The overall gross margin percentage was
positively affected by a mix shift of our total revenue to the
Mobility Group, which has a higher gross margin percentage. The
gross margin percentages for the Digital Enterprise Group and
Flash Memory Group were higher and the gross margin percentage
for the Mobility Group was lower in 2005 compared to 2004. As a
result of a litigation settlement agreement with MicroUnity, we
recorded a $140 million charge to cost of sales in 2005, of
which $110 million was allocated to the Digital Enterprise
Group and $30 million was allocated to the Mobility Group.
The 2004 gross margin was affected by a litigation settlement
with Intergraph in which we recorded a $162 million charge
to cost of sales, of which $120 million was allocated to
the Digital Enterprise Group and $42 million was allocated
to the Mobility Group. See Business Outlook later in this
section for a discussion of gross margin expectations.
Our net revenue for 2004 was $34.2 billion, an increase of
$4.1 billion, or 13.5%, compared to 2003. This increase was
primarily due to higher net revenue from sales of
microprocessors in the Digital Enterprise Group and the Mobility
Group operating segments.
In 2004, our Asia-Pacific regions revenue made up the
largest portion of our total revenue and increased 26%,
reflecting both growth in local consumption and movement of more
of the production for our customers PC supply chains to
Asia. This movement in the supply chain negatively affected the
Americas region, with a decrease in revenue of 5% in 2004
compared to 2003. Japan revenue increased 15%, and the Europe
regions revenue increased 13% in 2004 compared to 2003.
Overall gross margin dollars for 2004 were $19.7 billion,
an increase of $2.7 billion, or 16%, compared to 2003. Our
overall gross margin percentage increased to 57.7% in 2004 from
56.7% in 2003. As a result of a litigation settlement agreement
with Intergraph, we recorded a $162 million charge to cost
of sales in 2004. The gross margin percentage for the Digital
Enterprise Group operating segment was higher than in 2003, and
the gross margin percentages for the Mobility Group and Flash
Memory Group operating segments were approximately flat compared
to 2003.
33
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(Continued)
Digital Enterprise Group
The revenue and operating income for the Digital Enterprise
Group (DEG) for the three years ended December 31,
2005 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Millions) |
|
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
|
|
| |
|
| |
|
| |
Microprocessor revenue |
|
$ |
19,412 |
|
|
$ |
19,426 |
|
|
$ |
17,991 |
|
Chipset, motherboard and other revenue |
|
|
5,725 |
|
|
|
5,352 |
|
|
|
5,068 |
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
$ |
25,137 |
|
|
$ |
24,778 |
|
|
$ |
23,059 |
|
Operating income |
|
$ |
9,006 |
|
|
$ |
8,851 |
|
|
$ |
8,017 |
|
Revenue for the DEG operating segment was approximately flat
compared to 2004. Revenue from sales of microprocessors was
approximately flat, with slightly higher unit sales being offset
by slightly lower average selling prices. Revenue from sales of
server microprocessors in 2005 was negatively affected by the
highly competitive server market. Chipsets, motherboard and
other revenue was higher, primarily due to higher average
selling prices of chipsets. Microprocessors within DEG include
microprocessors designed for the desktop and enterprise
computing market segments, previously included within the former
Intel Architecture business operating segment, as well as
embedded microprocessors. Revenue from network processors, which
are based on our Intel XScale technology, is included in other
revenue above.
Operating income was also approximately flat, at
$9.0 billion in 2005 compared to $8.85 billion in
2004. The operating income for DEG was positively affected by
lower microprocessor unit costs and higher chipset revenue.
These improvements were offset by approximately
$380 million of higher
start-up costs in 2005,
primarily related to our
65-nanometer process
technology. Products based on our
65-nanometer process
technology began shipping in the fourth quarter of 2005.
Although revenue was flat, operating expenses increased in 2005,
which negatively affected operating income. Both periods were
negatively affected by litigation settlement agreements. Results
for 2005 included a charge related to a settlement agreement
with MicroUnity, and results for 2004 included a charge related
to a settlement agreement with Intergraph.
For 2004, revenue for the DEG operating segment increased by
$1.7 billion, or 7%, compared to 2003. The increase in DEG
revenue was primarily due to higher unit sales of
microprocessors and motherboards. The increase was partially
offset by lower average selling prices for microprocessors
designed for desktop platforms, and lower chipset revenue. We
ramped our 90-nanometer
process technology in 2004 and exited the year with the majority
of microprocessors shipped by the DEG operating segment being
manufactured on this technology.
Operating income increased to $8.85 billion in 2004
compared to $8.0 billion in 2003. The increase was
primarily due to the impact of higher revenue and lower unit
costs for microprocessors, as well as approximately
$160 million of lower manufacturing
start-up costs. These
increases in operating income were partially offset by higher
operating expenses, lower chipset revenue and the negative
impact of reducing the carrying value of ending chipset
inventory to lower current replacement costs. In addition, we
recorded a charge in 2004 related to a settlement agreement with
Intergraph.
34
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(Continued)
Mobility Group
The revenue and operating income for the Mobility Group
(MG) for the three years ended December 31, 2005 were
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Millions) |
|
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
|
|
| |
|
| |
|
| |
Microprocessor revenue |
|
$ |
8,704 |
|
|
$ |
5,667 |
|
|
$ |
4,120 |
|
Chipset, motherboard and other revenue |
|
|
2,427 |
|
|
|
1,314 |
|
|
|
966 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
$ |
11,131 |
|
|
$ |
6,981 |
|
|
$ |
5,086 |
|
Operating income |
|
$ |
5,330 |
|
|
$ |
2,833 |
|
|
$ |
1,743 |
|
Revenue for the MG operating segment increased by
$4.15 billion, or 59%, in 2005 compared to 2004. This
increase was primarily due to significantly higher revenue from
sales of microprocessors, which increased $3.0 billion, or
54%, in 2005 compared to 2004, reflecting the continued growth
in the notebook market segment. Increased use of microprocessors
designed specifically for mobile platforms in notebook computers
also contributed to the higher revenue. The higher revenue from
sales of microprocessors was due to significantly higher unit
sales, partially offset by lower average selling prices,
primarily due to higher unit sales of the Celeron M processor,
our value mobile processor. Revenue from sales of chipsets and
wireless connectivity products also increased significantly in
2005 compared to 2004, primarily due to the success of Intel
Centrino mobile technology. Revenue from application processors,
which are based on Intel XScale technology, increased due to
growth in data-enabled cellular phones, and is included in
chipset, motherboard and other revenue above.
Operating income increased to $5.3 billion in 2005 from
$2.8 billion in 2004. The significant increase in operating
income was primarily due to higher revenue. In addition,
operating expenses for the MG operating segment did not increase
as fast as revenue, and microprocessor unit costs were lower.
These increases in operating income were partially offset by
approximately $170 million of higher
start-up costs in 2005,
primarily related to our
65-nanometer process
technology. Products based on our
65-nanometer process
technology began shipping in the fourth quarter of 2005.
For 2004, revenue for the MG operating segment increased by
$1.9 billion, or 37%, compared to 2003. The increase in MG
revenue was primarily due to substantially higher unit sales of
microprocessors designed for notebooks. The increase in revenue
was primarily due to the success of our Intel Centrino mobile
technology platform, which also resulted in higher sales of
mobile chipset products and wireless connectivity products. We
ramped our 90-nanometer
process technology in 2004 and exited the year with the majority
of microprocessors shipped by the MG operating segment being
manufactured on this technology.
Operating income increased to $2.8 billion in 2004 compared
to $1.7 billion in 2003. The increase was primarily due to
the impact of higher revenue and lower unit costs for
microprocessors. These increases in operating income were
partially offset by higher operating expenses.
35
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(Continued)
Flash Memory Group
The revenue and operating loss for the Flash Memory Group
(FMG) for the three years ended December 31, 2005 were
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Millions) |
|
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
|
|
| |
|
| |
|
| |
Revenue |
|
$ |
2,278 |
|
|
$ |
2,285 |
|
|
$ |
1,608 |
|
Operating income (loss) |
|
$ |
(154 |
) |
|
$ |
(149 |
) |
|
$ |
(152 |
) |
Revenue for the FMG operating segment remained approximately
flat in 2005 at $2.3 billion compared to 2004. Revenue was
positively affected by higher unit sales and negatively affected
by lower average selling prices. Operating loss remained
approximately flat in 2005 at $154 million, compared to
$149 million in 2004. The operating loss was positively
affected by lower unit costs and negatively affected by higher
operating expenses. In 2006, we will continue ramping Intel
StrataFlash products on
90-nanometer process
technology, and plan to grow revenue within the highly
competitive NOR market segment. Additionally, in 2006, FMG will
also include the results of sales of NAND flash memory products.
For 2004, revenue for the FMG operating segment increased
$677 million, or 42%, compared to 2003. The increase in FMG
revenue was primarily due to higher unit sales. Operating loss
remained approximately flat in 2004 at $149 million,
compared to $152 million in 2003. The operating loss was
positively affected by higher revenue, as well as approximately
$100 million from lower inventory write-offs for flash
memory products due to improved demand and sales of NOR flash
memory inventory that had been previously written down. This
positive effect was offset by higher unit costs for flash memory
products, as we sold higher density products, and by the impact
of reducing the carrying value of ending inventory to lower
current replacement costs.
Operating Expenses
Operating expenses for the three years ended December 31,
2005 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Millions) |
|
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
|
|
| |
|
| |
|
| |
Research and development |
|
$ |
5,145 |
|
|
$ |
4,778 |
|
|
$ |
4,360 |
|
Marketing, general and administrative |
|
$ |
5,688 |
|
|
$ |
4,659 |
|
|
$ |
4,278 |
|
Impairment of goodwill |
|
$ |
|
|
|
$ |
|
|
|
$ |
617 |
|
Amortization and impairment of acquisition-related intangibles
and costs |
|
$ |
126 |
|
|
$ |
179 |
|
|
$ |
301 |
|
Purchased in-process research and development |
|
$ |
|
|
|
$ |
|
|
|
$ |
5 |
|
Research and development spending increased $367 million,
or 8%, in 2005 compared to 2004, and increased
$418 million, or 10%, in 2004 compared to 2003. The
increase in 2005 compared to 2004 was primarily due to higher
headcount and profit-dependent compensation expenses, partially
offset by lower expenses related to development for our
next-generation
65-nanometer
manufacturing process technology. In addition, fiscal year 2005
included 53 weeks in contrast to 52 weeks in 2004. The
increase in 2004 compared to 2003 was primarily due to higher
expenses related to development of manufacturing process
technologies, including our
65-nanometer process on
300mm wafers, and higher expenses for product development
programs, as well as higher profit-dependent compensation
expenses.
Marketing, general and administrative expenses increased
$1.0 billion, or 22%, in 2005 compared to 2004, and
increased $381 million, or 9%, in 2004 compared to 2003.
The increase in 2005 was primarily due to higher marketing
program spending, higher headcount and higher profit-dependent
compensation expenses as well as the extra work week. The
increase in 2004 was primarily due to higher cooperative
advertising expenses (as a result of higher revenue from sales
of microprocessors in the DEG and MG operating segments, and
because our customers used a higher percentage of their
available Intel Inside program funds) and increased
profit-dependent compensation expenses. In addition, the
increase was due to higher marketing expenses from additional
marketing programs and increased advertising expenses.
Research and development along with marketing, general and
administrative expenses were 28% of net revenue in 2005 and
2004, and 29% of net revenue in 2003.
36
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(Continued)
Amortization of acquisition-related intangibles and costs was
$126 million in 2005 ($179 million in 2004 and
$301 million in 2003). The decreased amortization each year
compared to the previous year was primarily due to a portion of
the intangibles related to prior acquisitions becoming fully
amortized.
During 2005 and 2004, we completed annual reviews and concluded
that goodwill was not impaired in either year. During 2003,
under the former reporting unit structure, we found indicators
of impairment of goodwill and recorded a
non-cash impairment
charge of $611 million, which was included as a component
of operating income in the all other category for
segment reporting purposes. Under the former reporting
structure, the wireless communications business unit had not
performed as management had expected. It became apparent that
the business was expected to grow more slowly than had
previously been projected. A slower-than-expected rollout of
products and slower-than-expected customer acceptance of the
reporting units products in the cellular baseband
processor business, as well as a delay in the transition to
next-generation phone networks, had pushed out the forecasts for
sales into high-end data cell phones. These factors resulted in
lower growth expectations for the reporting unit and triggered
the goodwill impairment. Also during 2003, the goodwill related
to one of our seed businesses, included in the all
other category, was impaired.
Losses on Equity Securities, Interest and Other, and
Provision for Taxes
Losses on equity securities, net, interest and other, net and
provision for taxes for the three years ended December 31,
2005 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Millions) |
|
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
|
|
| |
|
| |
|
| |
Losses on equity securities, net |
|
$ |
(45 |
) |
|
$ |
(2 |
) |
|
$ |
(283 |
) |
Interest and other, net |
|
$ |
565 |
|
|
$ |
289 |
|
|
$ |
192 |
|
Provision for taxes |
|
$ |
(3,946 |
) |
|
$ |
(2,901 |
) |
|
$ |
(1,801 |
) |
Losses on equity securities, net for 2005 were $45 million
compared to $2 million for 2004. The net loss for 2005
included impairments of $208 million, primarily due to a
$105 million impairment charge on our investment in Micron.
The impairment was principally based on our assessment during
the second quarter of 2005 of Microns financial results
and the fact that the market price of Microns stock had
been below our cost basis for an extended period of time, as
well as the competitive pricing environment for DRAM products.
The net loss for 2004 included impairments of approximately
$117 million, primarily on non-marketable equity
securities. Gains on equity transactions of $163 million
largely offset the impairments for 2005 ($115 million for
2004).
Losses on equity securities, net for 2004 were $2 million
compared to $283 million for 2003. The improvement was
primarily driven by lower impairment charges on investments,
particularly on non-marketable equity securities
($117 million for 2004 and $319 million for 2003). The
decrease in the impairment charges in 2004 reflected the
decrease in the total carrying amount of the non-marketable
equity investment portfolio that had occurred over the previous
couple of years. Both periods had gains on equity transactions
that offset impairments.
Interest and other, net increased to $565 million in 2005
compared to $289 million in 2004, reflecting higher
interest income as a result of higher interest rates. Interest
and other, net increased to $289 million in 2004 compared
to $192 million in 2003, reflecting higher interest income
as a result of higher average investment balances and higher
interest rates. Interest and other, net for 2004 also included
approximately $60 million of gains associated with
terminating financing arrangements for manufacturing facilities
and equipment in Ireland.
Our effective income tax rate was 31.3% in 2005 (27.8% in 2004
and 24.2% in 2003). The rate for 2005 included an increase to
the tax provision of approximately $265 million as a result
of the decision to repatriate foreign earnings under the
American Jobs Creation Act of 2004 (the Jobs Act), which was
partially offset by the reversal of previously accrued items.
The tax rate for 2004 included a $195 million reduction to
the tax provision, primarily from additional benefits for export
sales along with state tax benefits for divestitures, as well as
the reversal of previously accrued taxes, primarily related to
the closing of a state income tax audit. The rate for 2003
included a $758 million reduction to the tax provision
related to divestitures, partially offset by the non-deductible
goodwill impairment charge.
37
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(Continued)
Financial Condition
Our financial condition remains strong. At December 31,
2005, cash, short-term investments and fixed income debt
instruments included in trading assets totaled
$12.4 billion, down from $16.8 billion at
December 25, 2004. At December 31, 2005, total
short-term and long-term debt was $2.4 billion and
represented 6.7% of stockholders equity (at
December 25, 2004, total debt was $904 million and
represented 2.3% of stockholders equity).
Cash provided by operating activities is net income adjusted for
certain non-cash items and changes in assets and liabilities.
For 2005, cash provided by operating activities was
$14.8 billion, compared to $13.1 billion in 2004 and
$11.5 billion in 2003. In 2005 compared to 2004, the
majority of the increase in cash provided by operating
activities was from maturities of trading assets in excess of
purchases and higher net income. In 2004 compared to 2003, the
majority of the increase in cash provided by operating
activities was due to higher net income. Income taxes payable
increased compared to 2004 due to timing of estimated payments
and the impact of repatriation under the Jobs Act. Accounts
receivable increased in 2005 compared to 2004, primarily due to
higher revenue and a higher proportion of sales occurring at the
end of the fourth quarter. Accounts receivable was approximately
flat in 2004 compared to 2003. For 2005, our two largest
customers accounted for 35% of net revenue, with one of these
customers accounting for 19% of revenue and another customer
accounting for 16%. For 2004, our two largest customers
accounted for 35% of net revenue (34% of net revenue for 2003).
Additionally, these two largest customers accounted for 42% of
net accounts receivable at December 31, 2005 (34% at
December 25, 2004 and 31% at December 27, 2003).
Inventories in 2005 increased compared to 2004 levels, primarily
due to ramping of new products. Inventories were approximately
flat in 2004 compared to 2003 levels.
Investing cash flows consist primarily of capital expenditures,
the proceeds from investment maturities and payment for
investments acquired. We used $6.4 billion in net cash for
investing activities during 2005, compared to $5.0 billion
during 2004 and $7.1 billion during 2003. The higher cash
used in investing activities in 2005 compared to 2004 resulted
from capital spending, primarily driven by investments in
65-nanometer production equipment. Capital spending was
$5.8 billion in 2005 ($3.8 billion in 2004 and
$3.7 billion in 2003). Capital spending for 2006 is
expected to be $6.9 billion, plus or minus
$200 million, primarily driven by investments in 300mm,
45-nanometer production equipment. During 2005, we also paid
$191 million in cash for acquisitions, net of cash
acquired. Other investing activities included intellectual
property assets acquired as a result of a settlement agreement
with MicroUnity for $160 million. The higher net purchases
of available-for-sale investments in 2004 compared to 2005 were
due to improved corporate credit profiles that facilitated a
slight shift in our portfolio of investments in debt securities
to longer term maturities. The higher cash used in investing
activities in 2003 compared to 2004 also resulted from higher
net purchases of available-for-sale investments due to improved
corporate credit profiles that facilitated a slight shift in our
portfolio of investments in debt securities to longer term
maturities that year.
Financing cash flows consist primarily of repurchases and
retirement of common stock, payment of dividends to stockholders
and additions to long-term debt. We used $9.5 billion in
net cash for financing activities in 2005 compared to
$7.7 billion in 2004 and $3.9 billion in 2003. During
2005, our Board of Directors amended the companys ongoing
authorization to repurchase up to $25 billion in shares of
Intels common stock in open market or negotiated
transactions, and in 2005 we purchased 418 million shares
of common stock for $10.6 billion (301 million shares
for $7.5 billion in 2004 and 176 million shares for
$4.0 billion in 2003). At December 31, 2005,
$21.9 billion remained available for repurchase under
existing repurchase authorizations. Payment of dividends was
$2.0 billion in 2005 ($1.0 billion in 2004 and
$524 million in 2003) due to an increase in the quarterly
cash dividend from $0.04 per share to $0.08 per share
effective beginning in the first quarter of 2005. On
January 19, 2006, our Board of Directors declared a cash
dividend of $0.10 per share effective the first quarter of
2006. The dividend is payable on March 1, 2006 to
stockholders of record on February 7, 2006. Additions to
long-term debt included $1.6 billion in proceeds from the
issuance of 2.95% junior subordinated convertible debentures
(the debentures) due 2035. The proceeds from the debentures are
available for general corporate purposes, as well as to purchase
shares of Intel common stock. Additions to long-term debt also
included $160 million in 4.375% bonds issued by the
Industrial Development Authority of the City of Chandler,
Arizona (the Arizona bonds) due 2035. The proceeds from the
issuance of the Arizona bonds will be used to finance the costs
of acquisition, construction and installation of certain
industrial sewage and wastewater treatment facilities and solid
waste disposal facilities as part of our semiconductor
manufacturing plant located in the City of Chandler, Arizona.
Financing sources of cash during 2005 also included
$1.2 billion in proceeds from the sale of shares pursuant
to employee equity incentive plans ($894 million in 2004
and $967 million in 2003).
During January 2006, Micron and Intel formed IMFT. As part of
the initial capital contribution to IMFT, Intel paid
$500 million in cash in January 2006, issued
$581 million in notes, and owes an additional
$115 million in cash in exchange for a 49% interest in IMFT.
38
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(Continued)
Another potential source of liquidity is authorized borrowings,
including commercial paper, of $3.0 billion. Maximum
borrowings under our commercial paper program during 2005 were
approximately $150 million, although no commercial paper
was outstanding at the end of the period. We also maintain the
ability to issue an aggregate of $1.4 billion in debt,
equity and other securities under SEC shelf registration
statements.
We believe that we have the financial resources needed to meet
business requirements for the next 12 months, including
capital expenditures for the expansion or upgrading of worldwide
manufacturing and assembly and test capacity, working capital
requirements, the dividend program, potential stock repurchases
and potential future acquisitions or strategic investments.
Contractual Obligations
The following table summarizes our significant contractual
obligations at December 31, 2005, which are expected to
have an effect on our liquidity and cash flows in future periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period | |
|
|
|
|
| |
|
|
|
|
|
|
Less than | |
|
|
|
More than | |
(In Millions) |
|
|
|
Total | |
|
1 year | |
|
13 years | |
|
35 years | |
|
5 years | |
|
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
Operating lease obligations |
|
$ |
434 |
|
|
$ |
114 |
|
|
$ |
141 |
|
|
$ |
77 |
|
|
$ |
102 |
|
Capital purchase
obligations1 |
|
|
2,743 |
|
|
|
2,696 |
|
|
|
47 |
|
|
|
|
|
|
|
|
|
Other purchase obligations and
commitments2 |
|
|
448 |
|
|
|
273 |
|
|
|
175 |
|
|
|
|
|
|
|
|
|
Long-term debt obligations |
|
|
2,124 |
|
|
|
18 |
|
|
|
117 |
|
|
|
204 |
|
|
|
1,785 |
|
Other long-term
liabilities3 |
|
|
144 |
|
|
|
20 |
|
|
|
39 |
|
|
|
23 |
|
|
|
62 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total4 |
|
$ |
5,893 |
|
|
$ |
3,121 |
|
|
$ |
519 |
|
|
$ |
304 |
|
|
$ |
1,949 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
Capital purchase obligations represent commitments for
construction or purchase of property, plant and equipment. They
were not recorded as liabilities on our balance sheet as of
December 31, 2005, as we had not yet received the related
goods or taken title to the property. Capital purchase
obligations remained approximately flat at $2.7 billion at
December 31, 2005 compared to $2.8 billion at
December 25, 2004. These capital purchase obligations
relate primarily to capital equipment for manufacturing process
technology. |
|
|
2 |
Other purchase obligations and commitments include payments
due under various types of licenses and non-contingent funding
obligations. Funding obligations include, for example,
agreements to fund various projects with other companies. |
|
|
3 |
Represents total anticipated cash payments related to other
long-term liability obligations, and may not equal the present
value amount recorded on the balance sheet. |
|
|
4 |
Total does not include contractual obligations already
recorded on the balance sheet as current liabilities (except for
the short-term portion of the long-term debt and other long-term
liabilities) or certain purchase obligations, which are
discussed below. |
Contractual obligations for purchases of goods or services are
defined as 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. Subsequent to year-end 2005, we entered into an
agreement in which we have a contractual obligation to purchase
the output of IMFT initially in proportion to our investment in
IMFT, which is currently 49%. See Note 16:
Venture in Part II, Item 8 of this
Form 10-K.
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. We generally do not have significant agreements for
the purchase of raw materials or other goods specifying minimum
quantities and pre-determined prices that exceed our expected
requirements for three months. Therefore, agreements for the
purchase of raw materials and other goods and services are not
included in the table above. Agreements for outsourced services
generally contain clauses allowing for cancellation without
significant penalty, and are therefore not included in the table
above.
39
MANAGEMENTS 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 obligations and
milestone-based equity investment funding. These arrangements
are not considered contractual obligations until the milestone
is met by the third party. As of December 31, 2005,
assuming that all future milestones are met, additional required
payments would be approximately $39 million. Obligations to
employees and non-employee directors related to our equity
incentive plans are not included in the table above, as these
arrangements do not result in a future cash outflow.
The expected timing of payments of the obligations above is
estimated 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. Amounts disclosed as contingent or
milestone-based obligations are dependent on the achievement of
the milestones or the occurrence of the contingent events and
can vary significantly.
In January 2006, we entered into various contractual commitments
in relation to our investment in IMFT. Some of these commitments
are with Micron, and some are with the newly formed company,
IMFT. The following are the significant contractual commitments
entered into in January 2006:
|
|
|
|
|
As part of the initial capital contribution to IMFT, we paid
$500 million in cash in January 2006, issued
$581 million in notes, and owe an additional
$115 million in cash. Subject to certain conditions, Intel
and Micron will each contribute approximately an additional
$1.4 billion over the next three years. |
|
|
|
As part of our agreement with Micron related to IMFT, subject to
our approval and the approval of Micron, we may be required to
make additional capital contributions to IMFT for new
fabrication facilities. The actual amount and likelihood of
required funding is not known, and is contingent upon the
fabrication facilities capacity requirements of IMFT in the
future. |
|
|
|
We also have several agreements with Micron related to
intellectual property rights, and research and development
funding related to NAND flash manufacturing and IMFT. See
Note 16: Venture in Part II, Item 8
of this Form 10-K.
|
Off-Balance-Sheet Arrangements
As of December 31, 2005, we did not have any significant
off-balance-sheet arrangements, as defined in
Item 303(a)(4)(ii) of SEC
Regulation S-K.
40
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(Continued)
Employee Equity Incentive Plans
Our equity incentive programs are broad-based, long-term
retention programs that are intended to attract and retain
talented employees and align stockholder and employee interests.
Under the 2004 Equity Incentive Plan (the 2004 Plan),
240 million shares of common stock were made available for
issuance during the two-year period ending June 30, 2006.
In May 2005, we obtained stockholder approval to extend the term
of the 2004 Plan by one year, to June 30, 2007, and to make
an additional 130 million shares of common stock available
for issuance as equity awards to employees and non-employee
directors.
Our goal has been to keep the potential incremental dilution
related to our equity incentive programs to a long-term average
of less than 2% annually. The dilution percentage is calculated
using the new option grants for the year, net of options
cancelled due to employees leaving the company and expired
options, divided by the total outstanding shares at the
beginning of the year.
Options granted to employees, including officers, and
non-employee directors from 2001 through 2005 are summarized as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Shares in Millions) |
|
|
|
2005 | |
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
|
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
Total options
granted1 |
|
|
119 |
|
|
|
115 |
|
|
|
110 |
|
|
|
174 |
|
|
|
238 |
|
Less options
cancelled1 |
|
|
(38 |
) |
|
|
(32 |
) |
|
|
(40 |
) |
|
|
(44 |
) |
|
|
(47 |
) |
Net options granted |
|
|
81 |
|
|
|
83 |
|
|
|
70 |
|
|
|
130 |
|
|
|
191 |
|
Net grants as % of outstanding
shares2 |
|
|
1.3 |
% |
|
|
1.3 |
% |
|
|
1.1 |
% |
|
|
1.9 |
% |
|
|
2.8 |
% |
Grants to listed
officers3
as % of total options granted |
|
|
1.4 |
% |
|
|
1.1 |
% |
|
|
2.4 |
% |
|
|
1.7 |
% |
|
|
0.8 |
% |
Grants to listed
officers3
as % of outstanding
shares2 |
|
|
<0.1 |
% |
|
|
<0.1 |
% |
|
|
<0.1 |
% |
|
|
<0.1 |
% |
|
|
<0.1 |
% |
Cumulative options held by listed
officers3
as % of total options outstanding |
|
|
1.9 |
% |
|
|
2.1 |
% |
|
|
2.1 |
% |
|
|
2.1 |
% |
|
|
2.0 |
% |
|
|
|
|
1 |
Excluding options assumed in connection with acquisitions. |
|
|
2 |
Outstanding shares as of the beginning of each period. |
|
|
3 |
For 2005, listed officers are our Chief Executive
Officer and the four other most highly compensated executive
officers serving at the end of 2005. For 2004, listed
officers are those officers plus an officer who retired in
January 2005. For 2001 through 2003, listed officers
are our Chief Executive Officer and each of the four other most
highly compensated executive officers serving at the end of the
years presented. |
In accordance with a policy established by the Compensation
Committee of the Board of Directors, total options granted to
the listed officers may not exceed 5% of total options granted
in any year. During 2005, options granted to listed officers
amounted to 1.4% of the grants made to all employees. All stock
option grants to executive officers are determined by the
Compensation Committee. All members of the Compensation
Committee are independent directors, as defined in the
applicable rules for issuers traded on The NASDAQ Stock Market*.
For additional information regarding equity incentive plans and
the activity for the past three years, see Note 11:
Employee Equity Incentive Plans in Part II,
Item 8 of this
Form 10-K.
Information regarding our equity incentive plans should be read
in conjunction with the information appearing under the heading
Report of the Compensation Committee on Executive
Compensation in our 2006 Proxy Statement, which is
incorporated herein by reference.
In-the-money and
out-of-the-money1
option information as of December 31, 2005 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable | |
|
Unexercisable | |
|
Total | |
|
|
|
|
| |
|
| |
|
| |
|
|
|
|
|
|
Weighted | |
|
|
|
Weighted | |
|
|
|
Weighted | |
|
|
|
|
|
|
Average | |
|
|
|
Average | |
|
|
|
Average | |
(Shares in Millions) |
|
|
|
Shares | |
|
Exercise Price | |
|
Shares | |
|
Exercise Price | |
|
Shares | |
|
Exercise Price | |
|
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
In-the-money |
|
|
241.3 |
|
|
$ |
18.06 |
|
|
|
318.4 |
|
|
$ |
22.34 |
|
|
|
559.7 |
|
|
$ |
20.49 |
|
Out-of-the-money |
|
|
227.9 |
|
|
$ |
40.92 |
|
|
|
112.3 |
|
|
$ |
28.88 |
|
|
|
340.2 |
|
|
$ |
36.95 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total options outstanding |
|
|
469.2 |
|
|
$ |
29.16 |
|
|
|
430.7 |
|
|
$ |
24.04 |
|
|
|
899.9 |
|
|
$ |
26.71 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
Out-of-the-money
options have an exercise price equal to or above $24.96, the
closing price of Intel stock on December 30, 2005, as
reported on The NASDAQ Stock Market*. |
41
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(Continued)
Options granted to listed officers as a group during fiscal 2005
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of | |
|
|
|
|
|
|
|
|
Securities | |
|
Percent of Total | |
|
|
|
|
|
Grant Date | |
Underlying | |
|
Options Granted | |
|
Exercise Price | |
|
|
|
Present | |
Option Grants | |
|
to Employees | |
|
Per Share | |
|
Expiration Date | |
|
Value1 | |
| |
|
| |
|
| |
|
| |
|
| |
|
1,675,000 |
|
|
|
1.4 |
% |
|
$ |
22.63$23.16 |
|
|
|
20122015 |
|
|
$ |
10,553,100 |
|
|
|
|
|
1 |
Represents the estimated present value of stock options at
the date of grant, calculated using the Black-Scholes option
pricing model based on the following assumptions: volatility of
0.27, expected life of 5.5 years, risk-free interest rate
of 4.0% and dividend yield of 1.4%. |
Option exercises during 2005 and option values for listed
officers as a group as of December 31, 2005 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares Underlying Unexercised |
|
Values of Unexercised In-the-Money |
|
|
|
|
Options at December 31, 2005 |
|
Options at December 31, 20051 |
Shares Acquired |
|
|
|
|
|
|
on Exercise |
|
Value Realized |
|
Exercisable |
|
Unexercisable |
|
Exercisable |
|
Unexercisable |
|
|
|
|
|
|
|
|
|
|
|
1,168,000 |
|
$21,037,500 |
|
8,517,800 |
|
8,600,100 |
|
$48,498,800 |
|
$24,554,000 |
|
|
|
|
1 |
These amounts represent the difference between the exercise
price and $24.96, the closing price of Intel stock on
December 30, 2005, as reported on The NASDAQ Stock Market*,
for all in-the-money
options held by listed officers. |
Information as of December 31, 2005 regarding equity
compensation plans approved and not approved by stockholders is
summarized in the following table (shares in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(C) | |
|
|
|
|
|
|
|
|
Number of Shares | |
|
|
|
|
|
|
|
|
Remaining Available | |
|
|
|
|
|
|
|
|
for Future Issuance | |
|
|
|
|
(A) | |
|
(B) | |
|
Under Equity | |
|
|
|
|
Number of Shares to | |
|
Weighted Average | |
|
Incentive Plans | |
|
|
|
|
Be Issued Upon | |
|
Exercise Price of | |
|
(Excluding Shares | |
|
|
|
|
Exercise of | |
|
Outstanding | |
|
Reflected in | |
Plan Category |
|
|
|
Outstanding Options | |
|
Options | |
|
Column A) | |
|
|
|
|
| |
|
| |
|
| |
Equity incentive plans approved by stockholders |
|
|
223.3 |
|
|
$ |
22.58 |
|
|
|
284.91 |
|
Equity incentive plans not approved
by stockholders2 |
|
|
671.6 |
|
|
$ |
28.17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
894.93 |
|
|
$ |
26.77 |
|
|
|
284.9 |
|
|
|
|
|
1 |
Includes 47.9 million shares available under our 1976
Employee Stock Participation Plan. |
|
|
2 |
Consists of shares available 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 when
the 2004 Plan was approved by the stockholders in May 2004. |
|
|
3 |
Total excludes 5.0 million shares issuable under
outstanding options, with a weighted average exercise price of
$16.15, originally granted under plans that we assumed in
connection with acquisitions. |
1997 Stock Option Plan
The 1997 Stock Option Plan (the 1997 Plan) provided for the
grant of stock options to employees other than officers and
directors. This plan, which was not approved by stockholders,
was terminated as to future grants when the 2004 Plan was
approved by the stockholders in May 2004. The 1997 Plan is
administered by the Compensation Committee of the Board of
Directors, which has the power to determine matters relating to
outstanding option awards under the plan, including conditions
of vesting and exercisability. Options granted under the 1997
Plan expire no later than 10 years from the grant date.
Options granted prior to 2003 under this plan generally vest in
five years, and options granted under this plan in 2003 and 2004
generally vest in increments over four or five years from the
date of grant. Certain grants to key employees have delayed
vesting generally beginning six years from the date of grant.
42
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(Continued)
Business Outlook
Non-GAAP Financial Measures
In addition to disclosing financial results calculated in
accordance with U.S. generally accepted accounting
principles (GAAP), the forecasts below contain non-GAAP
financial measures that exclude the effects of share-based
compensation expense and the requirements of
SFAS No. 123(R). Commencing with our first quarter of
2006, we will include non-GAAP financial measures of our
financial results for the reporting period that exclude the
income statement effects of share-based compensation and the
effects of SFAS No. 123(R) upon the number of diluted
shares used in calculating non-GAAP earnings per share. For
further discussion on the requirements of
SFAS No. 123(R), see Recent Accounting
Pronouncements within Note 2: Accounting
Policies in Part II, Item 8 of this
Form 10-K. The
non-GAAP financial measures disclosed should not be considered a
substitute for, or superior to, financial measures calculated in
accordance with GAAP, and the financial results calculated in
accordance with GAAP and reconciliations to those financial
statements should be carefully evaluated. The non-GAAP financial
measures used by us may be calculated differently from, and
therefore may not be comparable to, similarly titled measures
used by other companies.
We will apply the modified prospective method of adoption of
SFAS No. 123(R), under which the effects of
SFAS No. 123(R) will be reflected in our GAAP
financial statement presentations for and after the first
quarter of 2006, but will not be reflected in results for prior
periods. Gross margin, expenses (research and development and
marketing, general and administrative), operating income, income
taxes, net income and earnings per share are the primary
financial measures that management uses for planning and
forecasting future periods affected by shared-based
compensation. Because management will continue to review these
financial measures calculated without taking into account the
effects of the new requirements under SFAS No. 123(R),
upon implementation of SFAS No. 123(R) these financial
measures are treated as non-GAAP financial measures
under SEC rules. Management uses the non-GAAP financial measures
for internal managerial purposes, including as a means to
compare
period-to-period
results on both a segment basis and consolidated basis, and as a
means to evaluate our results on a consolidated basis compared
to those of other companies. In addition, management uses
certain of these measures when publicly providing
forward-looking statements on expectations regarding future
consolidated-basis financial results.
Our share-based compensation programs are established and
managed on a corporate-wide basis, including specification of
grant types and amount ranges for employees by category and
grade. Following implementation of SFAS No. 123(R),
segment managers will not be held accountable for share-based
compensation charges impacting their business units
operating income (loss), and accordingly share-based
compensation charges will be excluded from our measure of
segment profitability (operating income). Therefore, the review
of segment results by management and the Board of Directors will
exclude share-based compensation.
Additionally, management and the Board of Directors will
continue to compare our historical consolidated results of
operations (revenue; gross margin; research and development;
marketing, general and administrative expenses; operating
income; net income; and earnings per share), excluding
share-based compensation, to financial information prepared on
the same basis during our budget and planning process, to assess
the business and to compare consolidated results to the
objectives identified by us. Our budget and planning process
commences with a segment-level evaluation which, as noted
above, excludes share-based compensation and culminates
with the preparation of a consolidated annual and/or quarterly
budget that includes these non-GAAP financial measures (gross
margin; research and development expenses; marketing, general
and administrative expenses; operating income; income tax
expense; net income; and earnings per share). This budget, once
finalized and approved, serves as the basis for allocation of
resources and management of operations. While share-based
compensation is a significant expense affecting our results of
operations, management excludes share-based compensation from
our consolidated budget and planning process to facilitate
period-to-period
comparisons and to assess changes in gross margin dollar, net
income and earnings per share targets in relation to changes in
forecasted revenue.
Profit-dependent cash-incentive pay to employees, including
senior management, also is calculated using formulae that
incorporate our annual results (operating income and/or earnings
per share) excluding share-based compensation expense. For
example, for 2006 the executive compensation cash incentive plan
formula measures earnings per share as the greater of our
operating income or our net income divided by weighted average
diluted common shares outstanding, in both cases excluding the
effects of share-based compensation.
We disclose this information to the public to enable investors
to more easily assess our performance on the same basis applied
by management and to ease comparison on both a GAAP and non-GAAP
basis among other companies that separately identify share-based
compensation expenses. In particular, as we begin to apply
SFAS No. 123(R), we believe that it is useful to
investors to understand how the expenses and other adjustments
associated with the application of SFAS No. 123(R) are
being reflected on our income statements.
43
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(Continued)
Although these non-GAAP financial measures adjust expense and
diluted share items to exclude the accounting treatment of
share-based compensation, they should not be viewed as a pro
forma presentation reflecting the elimination of the underlying
share-based compensation programs, as those programs are an
important element of our compensation structure, and GAAP
indicate that all forms of share-based payments should be valued
and included as appropriate in results of operations. Management
takes into consideration this aspect of the non-GAAP financial
measures by evaluating the dilutive effect of our share-based
compensation arrangements on our basic and diluted earnings per
share calculations and by reviewing other quantitative and
qualitative information regarding our share-based compensation
arrangements, including the information provided under the
heading Employee Equity Incentive Plans earlier in
the Managements Discussion and Analysis
section of this Form 10-K.
2006 Outlook
Our future results of operations and the other forward-looking
statements contained in this filing, including this MD&A,
involve a number of risks and uncertainties in particular,
the statements regarding our goals and strategies, new product
introductions, plans to cultivate new businesses, future
economic conditions, revenue, pricing, gross margin and costs,
capital spending, depreciation and amortization, research and
development expenses, potential impairment of investments, the
tax rate, and pending tax and legal proceedings. Our future
results of operations may also be affected by the amount, type,
and valuation of the share-based awards granted as well as the
amount of awards forfeited due to employee turnover. In addition
to the various important factors discussed above, a number of
other 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 and
elsewhere in this
Form 10-K.
Revenue for 2006 is expected to be 6% to 9% higher than the
total in 2005 of $38.8 billion. Our financial results,
particularly our revenue, are substantially dependent on sales
of microprocessors. Revenue is partly a function of the mix of
types and performance capabilities of microprocessors sold, as
well as the mix of chipsets, flash memory and other
semiconductor products sold, all of which are difficult to
forecast. Because of the wide price differences among mobile,
desktop and server microprocessors, the mix of types and
performance levels of microprocessors sold affects the average
selling price that we will realize and has a large impact on our
revenue and gross margin. Microprocessor revenue is also
dependent on the availability of other parts of the platform,
including chipsets, motherboards, operating system software and
application software. Revenue is also subject to demand
fluctuations and the impact of economic conditions in various
geographic regions.
Our gross margin expectation for 2006 is 57% plus or minus a few
points. Excluding the effects of share-based compensation of
approximately 1%, our gross margin expectation for 2006 is 58%,
plus or minus a few points. On a GAAP basis, the 57% midpoint is
lower compared to our 2005 gross margin of 59.4%. In addition to
the recognition of share-based compensation, we will begin to
recognize start-up
costs related to IMFT in 2006. We also expect higher unit costs
and slightly lower average selling prices for microprocessors.
We expect these negative effects to our margin in 2006 to be
partially offset by lower
start-up costs on
microprocessors and chipsets.
Our gross margin varies primarily with revenue levels.
Variability of other factors will also continue to affect cost
of sales and the gross margin percentage, including variations
in inventory valuation, such as variations related to the timing
of qualifying products for sale; unit costs and yield issues
associated with production at our factories; excess or obsolete
inventory; timing and execution of the production ramp and
associated costs, including start-up costs; manufacturing or
assembly and test capacity utilization; the reusability of
factory equipment; impairment of long-lived assets, including
manufacturing, assembly and test, and intangible assets; and the
valuation of stock options and other equity awards, which
affects the amount of share-based compensation included in cost
of sales.
We have significantly expanded our semiconductor manufacturing
and assembly and test capacity over the last few years, and we
continue to plan capacity based on the assumed continued success
of our overall strategy and the acceptance of our products in
specific market segments. We currently expect that capital
spending in 2006 will be approximately $6.9 billion, plus
or minus $200 million, compared to $5.8 billion in
2005. Most of the projected increase will be spent on
construction and capital equipment related to our
next-generation, 45-nanometer process technology. This
capital-spending plan is dependent on expectations regarding
production efficiencies and delivery times of various machinery
and equipment, and construction schedules. If the demand for our
products does not grow and continues to move toward higher
performance products in the various market segments, revenue and
gross margin would be adversely affected, manufacturing and/or
assembly and test capacity would be under-utilized, and the rate
of capital spending could be reduced. We could be required to
record an impairment of our manufacturing or assembly and test
equipment and/or facilities, or factory planning decisions may
cause us to record accelerated depreciation. However, in the
long term, revenue and gross margin may also be affected if we
do not add capacity fast enough to meet market demand.
44
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(Continued)
Depreciation for 2006 is expected to be approximately
$4.7 billion, plus or minus $100 million, compared to
$4.3 billion in 2005.
Our industry is characterized by very short product life cycles,
and our continued success is dependent on technological
advancement, including developing and implementing new processes
and strategic products for specific market segments. We consider
it imperative to maintain a strong research and development
program, and our spending for research and development in 2006
is expected to be approximately $6.5 billion, compared to
$5.1 billion in 2005. Excluding the effects of share-based
compensation of approximately $500 million, spending for
research and development in 2006 is expected to be approximately
$6.0 billion.
Our spending for marketing, general and administrative expenses
in 2006 is expected to be approximately $6.6 billion,
compared to $5.7 billion in 2005. Excluding the effects of
share-based compensation of approximately $600 million,
spending for marketing, general and administrative in 2006 is
expected to be approximately $6.0 billion. Expenses,
particularly certain marketing and compensation expenses, vary
depending on the level of demand for our products and the level
of revenue and profit.
Based on acquisitions completed through February 22, 2006,
we expect amortization of acquisition-related intangibles and
costs to be approximately $40 million in 2006.
At the end of 2005, we held non-marketable equity securities
with a carrying value of $561 million. Our non-marketable
equity securities include investments through our Intel Capital
program. The program seeks to invest in companies and businesses
that can succeed and have an impact on their market segment.
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. However, our investments in non-marketable equity
securities are not liquid, and there can be no assurance that we
will be able to dispose of these investments on favorable terms
or at all.
We expect our tax rate to be approximately 32% for 2006,
compared to 31.3% in 2005. The estimated effective tax rate is
based on tax law in effect at December 31, 2005 and current
expected income, and assumes that we will continue to receive
the tax benefit for export sales. See Note 10:
Provision for Taxes and Note 18:
Contingencies in Part II, Item 8 of this
Form 10-K. The tax
rate may also be affected by the closing of acquisitions or
divestitures; the jurisdiction in which profits are determined
to be earned and taxed; changes in estimates of credits,
benefits and deductions, including changes in the deductions
related to share-based compensation; the resolution of issues
arising from tax audits with various tax authorities; and the
ability to realize deferred tax assets.
We believe that we have the product offerings, facilities,
personnel, and competitive and financial resources for continued
business success, but future revenue, costs, gross margin and
profits are all influenced by a number of factors, including
those discussed above, all of which are inherently difficult to
forecast.
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 (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 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 March 3, 2006 until our
quarterly earnings release is published, presently scheduled for
April 19, 2006, we will observe a quiet period.
During the quiet period, the Business Outlook and other
forward-looking statements first published in our earnings
release on January 17, 2006, 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 the 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.
45
|
|
ITEM 7A. |
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
We are exposed to financial market risks, including changes in
currency exchange rates, interest rates and marketable equity
security prices. To mitigate these risks, we may utilize
derivative financial instruments, among other strategies. We do
not use derivative financial instruments for speculative
purposes. All of the potential changes noted below are based on
sensitivity analyses performed on our financial positions at
December 31, 2005 and December 25, 2004. Actual
results may differ materially.
Currency Exchange Rates
We generally hedge currency risks of
non-U.S.-dollar-denominated
investments in debt securities with offsetting currency
borrowings, currency forward contracts 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
negligible net exposure.
A substantial majority of our revenue, expense and capital
purchasing activities are transacted in U.S. dollars.
However, we do incur certain operating costs in other
currencies, primarily the Euro and certain other European and
Asian currencies. To protect against reductions in value and the
volatility of future cash flows caused by changes in currency
exchange rates, we have established balance sheet and forecasted
transaction risk management programs. Currency forward contracts
and currency options are generally utilized in these hedging
programs. Our hedging programs reduce, but do not always
entirely eliminate, the impact of currency exchange rate
movements. We considered the historical trends in currency
exchange rates and determined that it was reasonably possible
that adverse changes in exchange rates of 20% for all currencies
could be experienced in the near term. Such adverse changes,
after taking into account hedges and offsetting positions, would
have resulted in an adverse impact on income before taxes of
less than $30 million at the end of 2005 and 2004.
Interest Rates
The primary objective of our investments in debt securities is
to preserve principal while maximizing yields, without
significantly increasing risk. To achieve this objective, the
returns on our investments in fixed-rate debt securities are
generally based on three-month LIBOR, or, if longer term, are
generally swapped to U.S. dollar LIBOR-based returns. In
addition to investments, in 2005 we issued additional debt. We
considered the historical volatility of the interest rates
experienced in prior years and the duration of our investment
portfolio and debt issuances, and determined that it was
reasonably possible that an adverse change of 80 basis
points (0.80%), approximately 18% of the rate at the end of
2005, could be experienced in the near term. A hypothetical
0.80% increase 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 $10 million and $20 million as of the
end of 2005 and 2004, respectively.
Marketable Equity Security Prices
We have a portfolio of strategic equity investments that
includes marketable strategic equity securities and derivative
equity instruments such as warrants and options, as well as
non-marketable equity investments, which are discussed further
below. We invest in companies that develop software, hardware or
services supporting our technologies. These investments help
advance our overall goal to be the preeminent provider of
silicon chips and platform solutions to the worldwide digital
economy. Our current investment focus areas include helping to
enable mobile wireless devices, advance the digital home,
enhance the digital enterprise, advance high-performance
communications infrastructures and develop the next generation
of silicon production technologies. Our focus areas tend to
develop and change over time due to rapid advancements in the
technology field.
Our total marketable portfolio includes marketable strategic
equity securities as well as marketable equity securities
classified as trading assets. To the extent that our marketable
portfolio of investments continues to have strategic value, we
typically do not attempt to reduce or eliminate our market
exposure. 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 may or may not
enter into transactions to reduce or eliminate the market risks
of our investments in strategic equity derivatives, including
warrants.
The marketable equity securities included in trading assets, as
well as certain equity derivatives, are held to generate returns
that generally offset changes in liabilities related to the
equity market risk of certain deferred compensation
arrangements. The gains and losses from changes in fair value of
these equity securities are generally offset by the gains and
losses on the related liabilities, resulting in a net exposure
of less than $10 million as of both December 31, 2005
and December 25, 2004, assuming a reasonably possible
decline in market prices of approximately 11% in the near term.
46
As of December 31, 2005, the fair value of our portfolio of
marketable strategic equity investments and equity derivative
instruments, including hedging positions, was $574 million
($662 million as of December 25, 2004). To assess the
market price sensitivity of these equity securities, we analyzed
the historical movements over the past several years of
high-technology stock indices that we considered appropriate.
However, our marketable strategic equity portfolio is
substantially concentrated in one company as of
December 31, 2005, which will affect the portfolios
price volatility. We currently have an investment in Micron with
a fair value of $451 million, or 79% of the total
marketable strategic equity portfolio value including equity
derivative instruments at December 31, 2005. During 2005,
we recognized an impairment charge of $105 million related
to our investment in Micron reflecting the difference between
the cost basis of the investment and the price of Microns
stock at the end of the second quarter. The impairment was
principally based on our assessment during the second quarter of
2005 of Microns financial results and the fact that the
market price of Microns stock had been below our cost
basis for an extended period of time, as well as the competitive
pricing environment for DRAM products. The investment in Micron
is part of our strategy to support the development and supply of
DRAM products. Based on the analysis of the high-technology
stock indices and the historical volatility of Microns
stock, we estimated that it was reasonably possible that the
prices of the stocks in our marketable strategic equity
portfolio could experience a loss of 40% in the near term (45%
as of the end of 2004). The assumed loss percentage used in 2005
was lower than the assumed loss percentage in 2004 due to the
differences in the concentrations of investments at the end of
each year. This estimate is not necessarily indicative of future
performance, and actual results may differ materially.
Assuming a loss of 40% in market prices, and after reflecting
the impact of hedges and offsetting positions, our marketable
strategic equity portfolio could decrease in value by
approximately $245 million, based on the value of the
portfolio as of December 31, 2005 (a decrease in value of
approximately $300 million, based on the value of the
portfolio as of December 25, 2004 using an assumed loss of
45%). At December 25, 2004, our marketable strategic equity
portfolio was substantially concentrated in two companies. The
fair value of our investment in Micron was approximately
$400 million, or 60% of the total marketable portfolio
value including equity derivative instruments at
December 25, 2004. In addition, the fair value of our
investment in Elpida Memory, Inc. was approximately
$212 million, or 32% of the portfolio at December 25,
2004. We sold our investment in Elpida during 2005.
Non-Marketable Equity Securities
Our strategic investments in non-marketable equity securities
are affected by many of the same factors that could result in an
adverse movement of equity market prices, although the impact
cannot be directly quantified. Such a movement and the
underlying economic conditions would 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 our investments through liquidity events such as initial
public offerings, mergers or 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. At December 31, 2005, our strategic investments
in non-marketable equity securities had a carrying amount of
$561 million ($507 million as of December 25,
2004). The carrying amount of these investments approximated
fair value as of December 31, 2005 and December 24,
2004. No investment in our non-marketable equity securities
portfolio was individually significant as of December 31,
2005 or December 25, 2004.
47
ITEM 8. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
Page | |
|
|
| |
|
|
|
49 |
|
|
|
|
|
50 |
|
|
|
|
|
51 |
|
|
|
|
|
52 |
|
|
|
|
|
53 |
|
|
|
|
|
81 |
|
|
|
|
|
83 |
|
48
INTEL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Years Ended December 31, 2005 |
|
|
|
|
|
|
|
|
|
|
(In MillionsExcept Per Share Amounts) |
|
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
|
|
|
|
| |
|
| |
|
| |
|
|
Net revenue |
|
$ |
38,826 |
|
|
$ |
34,209 |
|
|
$ |
30,141 |
|
|
|
Cost of sales |
|
|
15,777 |
|
|
|
14,463 |
|
|
|
13,047 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin |
|
|
23,049 |
|
|
|
19,746 |
|
|
|
17,094 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
|
5,145 |
|
|
|
4,778 |
|
|
|
4,360 |
|
|
|
Marketing, general and administrative |
|
|
5,688 |
|
|
|
4,659 |
|
|
|
4,278 |
|
|
|
Impairment of goodwill |
|
|
|
|
|
|
|
|
|
|
617 |
|
|
|
Amortization and impairment of acquisition-related intangibles
and costs |
|
|
126 |
|
|
|
179 |
|
|
|
301 |
|
|
|
Purchased in-process research and development |
|
|
|
|
|
|
|
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
10,959 |
|
|
|
9,616 |
|
|
|
9,561 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
12,090 |
|
|
|
10,130 |
|
|
|
7,533 |
|
|
|
Losses on equity securities, net |
|
|
(45 |
) |
|
|
(2 |
) |
|
|
(283 |
) |
|
|
Interest and other, net |
|
|
565 |
|
|
|
289 |
|
|
|
192 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before taxes |
|
|
12,610 |
|
|
|
10,417 |
|
|
|
7,442 |
|
|
|
Provision for taxes |
|
|
3,946 |
|
|
|
2,901 |
|
|
|
1,801 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
8,664 |
|
|
$ |
7,516 |
|
|
$ |
5,641 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share |
|
$ |
1.42 |
|
|
$ |
1.17 |
|
|
$ |
0.86 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share |
|
$ |
1.40 |
|
|
$ |
1.16 |
|
|
$ |
0.85 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding |
|
|
6,106 |
|
|
|
6,400 |
|
|
|
6,527 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding, assuming
dilution |
|
|
6,178 |
|
|
|
6,494 |
|
|
|
6,621 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
49
INTEL CORPORATION
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
December 31, 2005 and December 25, 2004 |
|
|
|
|
|
|
(In MillionsExcept Par Value) |
|
|
|
2005 | |
|
2004 | |
|
|
|
|
| |
|
| |
Assets |
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
7,324 |
|
|
$ |
8,407 |
|
Short-term investments |
|
|
3,990 |
|
|
|
5,654 |
|
Trading assets |
|
|
1,458 |
|
|
|
3,111 |
|
Accounts receivable, net of allowance
for doubtful accounts of $64 ($43 in 2004) |
|
|
3,914 |
|
|
|
2,999 |
|
Inventories |
|
|
3,126 |
|
|
|
2,621 |
|
Deferred tax assets |
|
|
1,149 |
|
|
|
979 |
|
Other current assets |
|
|
233 |
|
|
|
287 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
21,194 |
|
|
|
24,058 |
|
|
|
|
|
|
|
|
Property, plant and equipment, net |
|
|
17,111 |
|
|
|
15,768 |
|
Marketable strategic equity securities |
|
|
537 |
|
|
|
656 |
|
Other long-term investments |
|
|
4,135 |
|
|
|
2,563 |
|
Goodwill |
|
|
3,873 |
|
|
|
3,719 |
|
Deferred taxes and other assets |
|
|
1,464 |
|
|
|
1,379 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
48,314 |
|
|
$ |
48,143 |
|
|
|
|
|
|
|
|
|
Liabilities and stockholders equity |
Current liabilities: |
|
|
|
|
|
|
|
|
Short-term debt |
|
$ |
313 |
|
|
$ |
201 |
|
Accounts payable |
|
|
2,249 |
|
|
|
1,943 |
|
Accrued compensation and benefits |
|
|
2,110 |
|
|
|
1,858 |
|
Accrued advertising |
|
|
1,160 |
|
|
|
894 |
|
Deferred income on shipments to
distributors |
|
|
632 |
|
|
|
592 |
|
Other accrued liabilities |
|
|
810 |
|
|
|
1,355 |
|
Income taxes payable |
|
|
1,960 |
|
|
|
1,163 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
9,234 |
|
|
|
8,006 |
|
|
|
|
|
|
|
|
Long-term debt |
|
|
2,106 |
|
|
|
703 |
|
Deferred tax liabilities |
|
|
703 |
|
|
|
855 |
|
Other long-term liabilities |
|
|
89 |
|
|
|
|
|
Commitments and contingencies (Notes 17 and 18) |
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
|
|
Preferred stock, $0.001 par value,
50 shares authorized; none issued |
|
|
|
|
|
|
|
|
Common stock, $0.001 par value,
10,000 shares authorized; 5,919 issued and outstanding
(6,253 in 2004)
and capital in excess of
par value |
|
|
6,245 |
|
|
|
6,143 |
|
Acquisition-related unearned stock
compensation |
|
|
|
|
|
|
(4 |
) |
Accumulated other comprehensive income |
|
|
127 |
|
|
|
152 |
|
Retained earnings |
|
|
29,810 |
|
|
|
32,288 |
|
|
|
|
|
|
|
|
Total stockholders equity |
|
|
36,182 |
|
|
|
38,579 |
|
|
|
|
|
|
|
|
Total liabilities and
stockholders equity |
|
$ |
48,314 |
|
|
$ |
48,143 |
|
|
|
|
|
|
|
|
See accompanying notes.
50
INTEL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Years Ended December 31, 2005 |
|
|
|
|
|
|
|
|
(In Millions) |
|
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
|
|
| |
|
| |
|
| |
Cash and cash equivalents, beginning of year |
|
$ |
8,407 |
|
|
$ |
7,971 |
|
|
$ |
7,404 |
|
|
|
|
|
|
|
|
|
|
|
Cash flows provided by (used for) operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
8,664 |
|
|
|
7,516 |
|
|
|
5,641 |
|
Adjustments to reconcile net income to
net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation |
|
|
4,345 |
|
|
|
4,590 |
|
|
|
4,651 |
|
Impairment of
goodwill |
|
|
|
|
|
|
|
|
|
|
617 |
|
Amortization
and impairment of intangibles and other acquisition-related costs |
|
|
250 |
|
|
|
299 |
|
|
|
419 |
|
Purchased
in-process research and development |
|
|
|
|
|
|
|
|
|
|
5 |
|
Losses on
equity securities, net |
|
|
45 |
|
|
|
2 |
|
|
|
283 |
|
Net loss on
retirements and impairments of property, plant and equipment |
|
|
74 |
|
|
|
91 |
|
|
|
217 |
|
Deferred taxes |
|
|
(413 |
) |
|
|
(207 |
) |
|
|
391 |
|
Tax benefit
from employee equity incentive plans |
|
|
351 |
|
|
|
344 |
|
|
|
216 |
|
Changes in
assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Trading
assets |
|
|
1,606 |
|
|
|
(468 |
) |
|
|
(698 |
) |
Accounts
receivable |
|
|
(914 |
) |
|
|
(39 |
) |
|
|
(430 |
) |
Inventories |
|
|
(500 |
) |
|
|
(101 |
) |
|
|
(245 |
) |
Accounts
payable |
|
|
303 |
|
|
|
283 |
|
|
|
116 |
|
Accrued
compensation and benefits |
|
|
296 |
|
|
|
295 |
|
|
|
276 |
|
Income
taxes payable |
|
|
797 |
|
|
|
378 |
|
|
|
(361 |
) |
Other
assets and liabilities |
|
|
(81 |
) |
|
|
136 |
|
|
|
417 |
|
|
|
|
|
|
|
|
|
|
|
Total
adjustments |
|
|
6,159 |
|
|
|
5,603 |
|
|
|
5,874 |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
14,823 |
|
|
|
13,119 |
|
|
|
11,515 |
|
|
|
|
|
|
|
|
|
|
|
Cash flows provided by (used for) investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Additions to property, plant and
equipment |
|
|
(5,818 |
) |
|
|
(3,843 |
) |
|
|
(3,656 |
) |
Acquisitions, net of cash acquired |
|
|
(191 |
) |
|
|
(53 |
) |
|
|
(61 |
) |
Purchases of available-for-sale
investments |
|
|
(8,475 |
) |
|
|
(16,618 |
) |
|
|
(11,662 |
) |
Maturities and sales of
available-for-sale investments |
|
|
8,433 |
|
|
|
15,633 |
|
|
|
8,488 |
|
Other investing activities |
|
|
(311 |
) |
|
|
(151 |
) |
|
|
(199 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash used for investing activities |
|
|
(6,362 |
) |
|
|
(5,032 |
) |
|
|
(7,090 |
) |
|
|
|
|
|
|
|
|
|
|
Cash flows provided by (used for) financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in short-term debt,
net |
|
|
126 |
|
|
|
24 |
|
|
|
(152 |
) |
Additions to long-term debt |
|
|
1,742 |
|
|
|
|
|
|
|
|
|
Repayments and retirement of debt |
|
|
(19 |
) |
|
|
(31 |
) |
|
|
(137 |
) |
Proceeds from sales of shares through
employee equity incentive plans |
|
|
1,202 |
|
|
|
894 |
|
|
|
967 |
|
Repurchase and retirement of common
stock |
|
|
(10,637 |
) |
|
|
(7,516 |
) |
|
|
(4,012 |
) |
Payment of dividends to stockholders |
|
|
(1,958 |
) |
|
|
(1,022 |
) |
|
|
(524 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash used for financing activities |
|
|
(9,544 |
) |
|
|
(7,651 |
) |
|
|
(3,858 |
) |
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
|
(1,083 |
) |
|
|
436 |
|
|
|
567 |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year |
|
$ |
7,324 |
|
|
$ |
8,407 |
|
|
$ |
7,971 |
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information: |
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the year for: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest |
|
$ |
27 |
|
|
$ |
52 |
|
|
$ |
59 |
|
Income taxes,
net of refunds |
|
$ |
3,218 |
|
|
$ |
2,392 |
|
|
$ |
1,567 |
|
See accompanying notes.
51
INTEL CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock | |
|
Acquisition- | |
|
|
|
|
|
|
|
|
|
|
and Capital | |
|
Related | |
|
Accumulated | |
|
|
|
|
|
|
|
|
in Excess of Par Value | |
|
Unearned | |
|
Other | |
|
|
|
|
|
|
|
|
| |
|
Stock | |
|
Compre- | |
|
|
|
|
Three Years Ended December 31, 2005 |
|
|
|
Number of | |
|
|
|
Compen- | |
|
hensive | |
|
Retained | |
|
|
(In MillionsExcept Per Share Amounts) |
|
|
|
Shares | |
|
Amount | |
|
sation | |
|
Income | |
|
Earnings | |
|
Total | |
|
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Balance at December 28, 2002 |
|
|
6,575 |
|
|
$ |
7,641 |
|
|
$ |
(63 |
) |
|
$ |
43 |
|
|
$ |
27,847 |
|
|
$ |
35,468 |
|
Components of comprehensive income, net
of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,641 |
|
|
|
5,641 |
|
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
53 |
|
|
|
|
|
|
|
53 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,694 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sales of shares through
employee equity incentive plans, tax
benefit of $216 and other |
|
|
88 |
|
|
|
1,183 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,183 |
|
Amortization of acquisition-related
unearned stock compensation, net of
adjustments |
|
|
|
|
|
|
(6 |
) |
|
|
43 |
|
|
|
|
|
|
|
|
|
|
|
37 |
|
Repurchase and retirement of common stock |
|
|
(176 |
) |
|
|
(2,064 |
) |
|
|
|
|
|
|
|
|
|
|
(1,948 |
) |
|
|
(4,012 |
) |
Cash dividends declared ($0.08 per share) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(524 |
) |
|
|
(524 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 27, 2003 |
|
|
6,487 |
|
|
|
6,754 |
|
|
|
(20 |
) |
|
|
96 |
|
|
|
31,016 |
|
|
|
37,846 |
|
Components of comprehensive income, net
of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,516 |
|
|
|
7,516 |
|
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
56 |
|
|
|
|
|
|
|
56 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,572 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sales of shares through
employee equity incentive plans, tax
benefit of $789 (including
reclassification of $445 related
to prior years) and other |
|
|
67 |
|
|
|
1,683 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,683 |
|
Amortization of acquisition-related
unearned stock compensation, net of
adjustments |
|
|
|
|
|
|
|
|
|
|
16 |
|
|
|
|
|
|
|
|
|
|
|
16 |
|
Repurchase and retirement of common stock |
|
|
(301 |
) |
|
|
(2,294 |
) |
|
|
|
|
|
|
|
|
|
|
(5,222 |
) |
|
|
(7,516 |
) |
Cash dividends declared ($0.16 per share) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,022 |
) |
|
|
(1,022 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 25, 2004 |
|
|
6,253 |
|
|
|
6,143 |
|
|
|
(4 |
) |
|
|
152 |
|
|
|
32,288 |
|
|
|
38,579 |
|
Components of comprehensive income, net
of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,664 |
|
|
|
8,664 |
|
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(25 |
) |
|
|
|
|
|
|
(25 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,639 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sales of shares through
employee equity incentive plans, tax
benefit of $351 and other |
|
|
84 |
|
|
|
1,553 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,553 |
|
Assumption of acquisition-related stock
options and amortization of
acquisition-related unearned stock
compensation, net of adjustments |
|
|
|
|
|
|
2 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
6 |
|
Repurchase and retirement of common stock |
|
|
(418 |
) |
|
|
(1,453 |
) |
|
|
|
|
|
|
|
|
|
|
(9,184 |
) |
|
|
(10,637 |
) |
Cash dividends declared ($0.32 per share) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,958 |
) |
|
|
(1,958 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2005 |
|
|
5,919 |
|
|
$ |
6,245 |
|
|
$ |
|
|
|
$ |
127 |
|
|
$ |
29,810 |
|
|
$ |
36,182 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
52
INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1: Basis of Presentation
Intel Corporation has a 52- or
53-week fiscal year
that ends on the last Saturday in December. Fiscal year 2005, a
53-week year, ended on
December 31, 2005. Fiscal year 2004 was a
52-week year that ended
on December 25, and fiscal year 2003, also a
52-week year, ended on
December 27. The next
53-week year will end
on December 31, 2011.
The consolidated financial statements include the accounts of
Intel and its wholly owned subsidiaries. Intercompany accounts
and transactions have been eliminated. Equity investments over
which the company exercises significant influence but does not
have control and equity investments in variable interest
entities for which the company is not the primary beneficiary
are accounted for using the equity method. The United States
(U.S.) dollar is the functional currency for the company,
and therefore there is no translation adjustment recorded
through accumulated other comprehensive income. Monetary
accounts denominated in
non-U.S. currencies,
such as cash or payables to vendors, have been remeasured to the
U.S. dollar.
Note 2: Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with
U.S. generally accepted accounting principles requires
management to make estimates and judgments that affect the
amounts reported in the financial statements and accompanying
notes. The accounting estimates that require managements
most significant, difficult and subjective judgments include the
valuation of non-marketable equity securities; the recognition
and measurement of current and deferred income tax assets and
liabilities; the assessment of recoverability of long-lived
assets; and the valuation of inventory. The actual results
experienced by the company may differ from managements
estimates.
Cash and Cash Equivalents
Highly liquid debt securities with insignificant interest rate
risk and with original maturities from the date of purchase of
generally three months or less are classified as cash and cash
equivalents.
Investments
Trading Assets. Trading assets are stated at fair value,
with gains or losses resulting from changes in fair value
recognized currently in earnings. The company may elect to
classify a portion of its marketable debt securities as trading
assets. For these debt instruments, gains or losses from changes
in fair value due to interest rate and currency market
fluctuations, offset by losses or gains on related derivatives,
are included in interest and other, net. Also included in
trading assets is a marketable equity portfolio held to generate
returns that seek to offset changes in liabilities related to
the equity market risk of certain deferred compensation
arrangements. Gains or losses from changes in fair value of
these equity securities, offset by losses or gains on the
related liabilities, are included in interest and other, net.
The company also uses fixed-income investments and derivative
instruments to seek to offset the remaining portion of the
changes in the deferred compensation liabilities. In addition, a
portion of the companys marketable equity securities may
from time to time be classified as trading assets, if the
company no longer deems the investments to be strategic in
nature at the time of trading asset designation, and has the
ability and intent to mitigate equity market risk through sale
or the use of derivative instruments. For these marketable
equity securities, gains or losses from changes in fair value,
primarily offset by losses or gains on related derivative
instruments, are included in gains (losses) on equity
securities, net.
Available-for-Sale Investments. Investments designated as
available-for-sale include marketable debt and equity
securities. Investments designated as available-for-sale are
reported at fair value, with unrealized gains and losses, net of
tax, recorded in accumulated other comprehensive income. The
cost of securities sold is based on the specific identification
method. Realized gains and losses on the sale of debt securities
are recorded in interest and other, net. Realized gains or
losses on the sale or exchange of equity securities and declines
in value judged to be other-than-temporary are recorded in gains
(losses) on equity securities, net.
Debt securities with original maturities greater than
approximately three months and remaining maturities less than
one year are classified as short-term investments. Debt
securities with remaining maturities greater than one year are
classified as long-term investments.
53
INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The company acquires certain equity investments for the
promotion of business and strategic objectives, and to the
extent that these investments continue to have strategic value,
the company typically does not attempt to reduce or eliminate
the inherent equity market risks through hedging activities. The
marketable portion of these investments is included in
marketable strategic equity securities.
Non-Marketable Equity Securities and Other Investments.
Non-marketable equity securities and other investments are
accounted for at historical cost or, if Intel has significant
influence over the investee, using the equity method of
accounting. Intels proportionate share of income or losses
from investments accounted for under the equity method, and any
gain or loss on disposal, are recorded in interest and other,
net. Gains or losses on the sale or exchange of all other
non-marketable equity securities are recorded in gains (losses)
on equity securities, net. Non-marketable equity securities and
other investments are included in other assets, except for cost
basis loan participation notes, which are classified as
short-term and other long-term investments.
Other-Than-Temporary Impairment. All of the
companys available-for-sale investments, non-marketable
equity securities and other investments are subject to a
periodic impairment review. Investments are considered to be
impaired when a decline in fair value is judged to be
other-than-temporary. This determination requires significant
judgment. Marketable equity securities are evaluated for
impairment if the decline in fair value below cost basis is
significant and/or has lasted for an extended period of time.
The evaluation Intel uses to determine whether to impair a
marketable equity security is based on the specific facts and
circumstances present at that time, and includes the
consideration of general market conditions, the duration and
extent to which the fair value is less than cost, and the
companys intent and ability to hold the investment for a
sufficient period of time to allow for recovery. The company
also considers specific adverse conditions related to the
financial health of and business outlook for the investee,
including industry and sector performance, changes in
technology, operational and financing cash flow factors, and
rating agency actions. For non-marketable equity securities, the
impairment analysis requires the identification of events or
circumstances that would likely have a significant adverse
effect on the fair value of the investment. The indicators that
Intel uses to identify those events and circumstances include
the investees revenue and earnings trends relative to
pre-defined milestones and overall business prospects; the
technological feasibility of the investees products and
technologies; the general market conditions in the
investees industry or geographic area, including adverse
regulatory or economic changes; factors related to the
investees ability to remain in business, such as the
investees liquidity, debt ratios and the rate at which the
investee is using its cash; and the investees receipt of
additional funding at a lower valuation. Investments identified
as having an indicator of impairment are subject to further
analysis to determine if the investment is other than
temporarily impaired, in which case the investment is written
down to its impaired value. When an investee is not considered
viable from a financial or technological point of view, the
entire investment is written down, since the estimated fair
market value is considered to be nominal. If an investee obtains
additional funding at a valuation lower than Intels
carrying amount or requires a new round of equity funding to
stay in operation, and the new funding does not appear imminent,
it is presumed that the investment is other than temporarily
impaired, unless specific facts and circumstances indicate
otherwise. Once a decline in fair value is determined to be
other-than-temporary, an impairment charge is recorded in gains
(losses) on equity securities, net and a new cost basis in the
investment is established.
Securities Lending
From time to time, the company enters into securities lending
agreements with financial institutions, generally to facilitate
hedging and certain investment transactions. Selected securities
may be loaned, secured by collateral in the form of cash or
securities. The loaned securities continue to be carried as
investment assets on the balance sheet. Cash collateral is
recorded as an asset with a corresponding liability. For lending
agreements collateralized by securities, the collateral is not
recorded as an asset or a liability, unless the collateral is
repledged.
54
INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Fair Values of Financial Instruments
The carrying value of cash equivalents approximates fair value
due to the short period of time to maturity. Fair values of
short-term investments, trading assets, long-term investments,
marketable strategic equity securities, certain non-marketable
investments, short-term debt, long-term debt, swaps, currency
forward contracts, currency options, equity options and warrants
are based on quoted market prices or pricing models using
current market data. Debt securities are generally valued using
discounted cash flows in a yield-curve model based on LIBOR.
Equity options and warrants are priced using an option pricing
model. For the companys portfolio of non-marketable equity
securities, management believes that the carrying value of the
portfolio approximates the fair value at December 31, 2005
and December 25, 2004. This estimate takes into account the
market movements of the equity and venture capital markets, the
impairment analyses performed and the related impairments
recorded over the last few years. All of the companys
financial instruments are recorded at fair value except for
non-marketable investments, including cost basis loan
participation notes, and debt. Management believes that the
differences between the estimated fair values and carrying
values of these financial instruments were not significant at
December 31, 2005 and December 25, 2004. Estimated
fair values are managements estimates; however, when there
is no readily available market, the estimated fair values may
not necessarily represent the amounts that could be realized in
a current transaction, and these fair values could change
significantly.
Derivative Financial Instruments
The companys primary objective for holding derivative
financial instruments is to manage currency, interest rate and
some equity market risks. The companys derivative
instruments are recorded at fair value and are included in other
current assets, other assets or other accrued liabilities.
Derivative instruments recorded as assets totaled
$87 million at December 31, 2005 ($117 million at
December 25, 2004). Derivative instruments recorded as
liabilities totaled $65 million at December 31, 2005
($179 million at December 25, 2004). The
companys accounting policies for certain of these
instruments are based on whether they meet the companys
criteria for designation as cash flow or fair value hedges. A
hedge of the exposure to variability in the 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. As of December 31, 2005, the company did not
have any fair value hedges. The criteria for designating a
derivative as a hedge include the instruments
effectiveness in risk reduction, matching of the derivative
instrument to its underlying transaction and the probability of
occurrence of the underlying transaction. Gains and losses from
changes in fair values of derivatives that are not designated as
hedges for accounting purposes are recognized currently in
earnings, and generally offset changes in the values of related
assets or liabilities.
As part of its strategic investment program, the company also
acquires equity derivative instruments, such as warrants and
equity conversion rights associated with debt instruments, which
are not designated as hedging instruments. The gains or losses
from changes in fair values of these equity derivatives are
recognized in gains (losses) on equity securities, net.
Currency Risk. The company transacts business in various
currencies other than the U.S. dollar, primarily the Euro
and certain other European and Asian currencies. The company has
established balance sheet and forecasted transaction risk
management programs to protect against fluctuations in fair
value and volatility of future cash flows caused by changes in
exchange rates. The forecasted transaction risk management
program includes anticipated transactions such as operating
costs and capital purchases. The company uses currency forward
contracts, currency options, currency interest rate swaps, and
currency investments and borrowings in these risk management
programs. These programs reduce, but do not always entirely
eliminate, the impact of currency exchange movements.
Currency forward contracts and currency options that are used to
hedge exposures to variability in the
U.S.-dollar equivalent
of anticipated
non-U.S.-dollar-denominated
cash flows are designated as cash flow hedges. The durations of
these instruments are generally less than 12 months. For
these derivatives, the after-tax gain or loss from the effective
portion of the hedge is reported as a component of other
comprehensive income in stockholders equity and is
reclassified into earnings in the same period or periods in
which the hedged transaction affects earnings, and within the
same income statement line item as the impact of the hedged
transaction.
Currency interest rate swaps and currency forward contracts are
used to offset the currency risk of investments in
non-U.S.-dollar-denominated
debt securities classified as trading assets, as well as other
assets and liabilities denominated in various currencies. The
durations of these instruments are generally less than
12 months, except for derivatives hedging certain long-term
equity-related investments, which are generally five years or
less. Changes in fair value of the underlying assets and
liabilities are generally offset by the changes in fair value of
the related derivatives, with the resulting net gain or loss, if
any, recorded in interest and other, net or gains (losses) on
equity securities, net.
55
INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Interest Rate Risk. The companys primary objective
for holding investments in debt securities is to preserve
principal while maximizing yields without significantly
increasing risk. To achieve this objective, the returns on the
companys investments in fixed-rate debt securities are
generally based on three-month LIBOR or, if longer term, are
generally swapped to U.S. dollar LIBOR-based returns, using
interest rate swaps and currency interest rate swaps in
transactions that are not designated as hedges for accounting
purposes. The floating interest rates on the swaps are reset on
a monthly, quarterly or semiannual basis. Changes in fair value
of the debt securities classified as trading assets are
generally offset by changes in fair value of the related
derivatives, resulting in negligible net impact recorded in
interest and other, net.
The company may also enter into interest rate swap agreements to
modify the interest characteristics of a portion of its
outstanding long-term debt. These transactions would likely be
designated as fair value hedges. The gains or losses from the
changes in fair value of the interest rate swaps, as well as the
offsetting change in the hedged fair value of the long-term
debt, would be recognized in interest expense.
Equity Market Risk. The company may enter into
transactions designated as fair value hedges using equity
options, swaps or forward contracts to hedge the equity market
risk of marketable securities in its portfolio of strategic
equity investments once the securities are no longer considered
to have strategic value. The gain or loss from the change in
fair value of these equity derivatives, as well as the
offsetting change in hedged fair value of the underlying equity
securities, would be recognized currently in gains (losses) on
equity securities, net. The company may use equity derivatives
in transactions not designated as hedges to offset the change in
fair value of certain equity securities classified as trading
assets. The company may or may not enter into transactions to
reduce or eliminate the market risks of its investments in
strategic equity derivatives, including warrants.
Measurement of Effectiveness of Hedge Relationships. For
most currency forward contracts, effectiveness is measured by
comparing the cumulative change in the hedge contract with the
cumulative change in the hedged item. For currency forward
contracts used in cash flow hedging strategies related to
long-term 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 options and
equity options accounted for as cash flow hedges, effectiveness
is measured by comparing the cumulative change in the hedge
contract with the cumulative change in the hedged item. For
currency options and equity options accounted for as 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. For interest rate swaps, effectiveness is measured
by comparing the change in fair value of the hedged item with
the change in fair value of the interest rate swap.
Any ineffective portion of the hedges, as well as amounts
excluded from the assessment of effectiveness, are recognized
currently in earnings within the same income statement line item
as the underlying hedged transaction. If a cash flow hedge were
to be discontinued because it is not probable that the original
hedged transaction will occur as anticipated, the unrealized
gain or loss on the related derivative would be reclassified
into earnings. Subsequent gains or losses on the related
derivative instrument would be recognized in income in each
period until the instrument matures, is terminated, is
re-designated as a qualified hedge or is sold.
For all periods presented, the portion of hedging
instruments gains or losses excluded from the assessment
of effectiveness and the ineffective portions of hedges had an
insignificant impact on earnings for both cash flow and fair
value hedges. For all periods presented, there was no
significant impact on results of operations from discontinued
cash flow hedges as a result of forecasted transactions that did
not occur. For 2005, $38 million of net deferred gains were
reclassified from accumulated other comprehensive income to cost
of sales or operating expense related to the companys
non-U.S. currency
capital purchase hedging program and operating cost hedging
program ($8 million in 2004 and $1 million in 2003).
The company estimates that less than $10 million of net
derivative losses included in other comprehensive income will be
reclassified into earnings within the next 12 months.
Inventories
Inventory cost is computed on a currently adjusted standard
basis (which approximates actual cost on an average or
first-in, first-out
basis). Inventory is determined to be saleable based on a demand
forecast within a specific time horizon, generally six months or
less. Inventory in excess of saleable amounts is not valued and
the remaining inventory is valued at the lower of cost or
market. Inventories at fiscal year-ends were as follows:
|
|
|
|
|
|
|
|
|
|
|
(In Millions) |
|
|
|
2005 | |
|
2004 | |
|
|
|
|
| |
|
| |
Raw materials |
|
$ |
409 |
|
|
$ |
388 |
|
Work in process |
|
|
1,662 |
|
|
|
1,418 |
|
Finished goods |
|
|
1,055 |
|
|
|
815 |
|
|
|
|
|
|
|
|
Total inventories |
|
$ |
3,126 |
|
|
$ |
2,621 |
|
|
|
|
|
|
|
|
56
INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Property, Plant and Equipment
Property, plant and equipment, net at fiscal year-ends was as
follows:
|
|
|
|
|
|
|
|
|
|
|
(In Millions) |
|
|
|
2005 | |
|
2004 | |
|
|
|
|
| |
|
| |
Land and buildings |
|
$ |
13,938 |
|
|
$ |
13,277 |
|
Machinery and equipment |
|
|
27,297 |
|
|
|
24,561 |
|
Construction in progress |
|
|
2,897 |
|
|
|
1,995 |
|
|
|
|
|
|
|
|
|
|
|
|
|
44,132 |
|
|
|
39,833 |
|
Less accumulated depreciation |
|
|
(27,021 |
) |
|
|
(24,065 |
) |
|
|
|
|
|
|
|
Total property, plant and equipment, net |
|
$ |
17,111 |
|
|
$ |
15,768 |
|
|
|
|
|
|
|
|
Property, plant and equipment is stated at cost. Depreciation is
computed for financial reporting purposes principally using the
straight-line method over the following estimated useful lives:
machinery and equipment, 24 years; buildings,
440 years. Reviews are regularly performed if facts
and circumstances exist which indicate that the carrying amount
of assets may not be recoverable or that the useful life is
shorter than originally estimated. The company assesses the
recoverability of its assets held for use 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. Impairment, if any,
is based on the excess of the carrying amount over the fair
value of those assets. If assets are determined to be
recoverable, but the useful lives are shorter than originally
estimated, the net book value of the assets is depreciated over
the newly determined remaining useful lives.
Goodwill
Goodwill is recorded when the purchase price of an acquisition
exceeds the estimated fair value of the net identified tangible
and intangible assets acquired. The company performs an
impairment review for each reporting unit using a fair value
approach. Reporting units may be operating segments as a whole
or an operation one level below an operating segment, referred
to as a component. In determining the carrying value of the
reporting unit, an allocation of the companys
manufacturing and assembly and test assets must be made because
of the interchangeable nature of the companys
manufacturing and assembly and test capacity. This allocation is
based on each reporting units relative percentage
utilization of the manufacturing and assembly and test assets.
For further discussion of goodwill, see Note 14:
Goodwill.
Identified Intangible Assets
Acquisition-related intangibles include developed technology and
customer lists that are amortized on a straight-line basis over
periods ranging from
26 years. Also
included in acquisition-related intangibles is
workforce-in-place
related to acquisitions that did not qualify as business
combinations. Intellectual property assets primarily represent
rights acquired under technology licenses and are amortized over
the periods of benefit, ranging from
210 years,
generally on a straight-line basis. All identified
intangible assets are classified within other assets on the
balance sheet. 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.
The company performs a quarterly review of its identified
intangible assets to determine if facts and circumstances exist
which indicate that the useful life is shorter than originally
estimated or that the carrying amount of assets may not be
recoverable. If such facts and circumstances do exist, the
company assesses 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.
Impairment, if any, is based on the excess of the carrying
amount over the fair value of those assets.
Product Warranty
The company generally sells products with a limited warranty of
product quality and a limited indemnification of customers
against intellectual property infringement claims related to the
companys products. The company accrues for known warranty
and indemnification issues if a loss is probable and can be
reasonably estimated, and accrues for estimated incurred but
unidentified issues based on historical activity. The accrual
and the related expense for known issues were not significant
during the periods presented. Due to product testing and the
short time typically between product shipment and the detection
and correction of product failures, and considering 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.
57
INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Revenue Recognition
The company recognizes net 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 collectibility. Pricing allowances,
including discounts based on contractual arrangements with
customers, are recorded when revenue is recognized as a
reduction to both accounts receivable and revenue. Because of
frequent sales price reductions and rapid technology
obsolescence in the industry, sales made to distributors under
agreements allowing price protection and/or right of return are
deferred until the distributors sell the merchandise. Shipping
charges billed to customers are included in net revenue, and the
related shipping costs are included in cost of sales.
Advertising
Cooperative advertising programs reimburse customers for
marketing activities for certain of the companys products,
subject to defined criteria. Cooperative advertising obligations
are accrued and the costs expensed at the same time the related
revenue is recognized. All other advertising costs are expensed
as incurred. Cooperative advertising expenses are recorded as
marketing, general and administrative expense to the extent that
an advertising benefit separate from the revenue transaction can
be identified and the cash paid does not exceed the fair value
of that advertising benefit received. Any excess of cash paid
over the fair value of the advertising benefit received is
recorded as a reduction in revenue. Advertising expense was
$2.6 billion in 2005 ($2.1 billion in 2004 and
$1.8 billion in 2003).
Employee Equity Incentive Plans
The company has employee equity incentive plans, which are
described more fully in Note 11: Employee Equity
Incentive Plans. During the three years ended
December 31, 2005, the company accounted for its equity
incentive plans under the intrinsic value recognition and
measurement principles of Accounting Principles Board (APB)
Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations. The exercise price
of options is equal to the market price of Intel common stock
(defined as the average of the high and low trading prices
reported by The NASDAQ Stock Market*) on the date of grant.
Accordingly, no share-based compensation, other than
insignificant amounts of acquisition-related share-based
compensation, was recognized in net income.
The table below illustrates the effect on net income and
earnings per share as if the company had applied the fair value
recognition provisions of Statement of Financial Accounting
Standards (SFAS) No. 123, Accounting for Stock-Based
Compensation, to options granted under the companys
equity incentive plans and rights to acquire stock granted under
the companys Stock Participation Plan. For purposes of
this pro forma disclosure, the value of the options and rights
to acquire stock granted under the companys Stock
Participation Plan are estimated using a Black-Scholes option
pricing model and amortized ratably over the vesting periods.
Because the estimated value is determined as of the date of
grant, the actual value ultimately realized by the employee may
be significantly different.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Millions Except Per Share Amounts) |
|
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
|
|
| |
|
| |
|
| |
Net income, as reported |
|
$ |
8,664 |
|
|
$ |
7,516 |
|
|
$ |
5,641 |
|
Less: total share-based compensation determined under the fair
value method for all awards, net of tax |
|
|
1,262 |
|
|
|
1,271 |
|
|
|
991 |
|
|
|
|
|
|
|
|
|
|
|
Pro forma net income |
|
$ |
7,402 |
|
|
$ |
6,245 |
|
|
$ |
4,650 |
|
|
|
|
|
|
|
|
|
|
|
Reported basic earnings per common share |
|
$ |
1.42 |
|
|
$ |
1.17 |
|
|
$ |
0.86 |
|
|
|
|
|
|
|
|
|
|
|
Pro forma basic earnings per common share |
|
$ |
1.21 |
|
|
$ |
0.98 |
|
|
$ |
0.71 |
|
|
|
|
|
|
|
|
|
|
|
Reported diluted earnings per common share |
|
$ |
1.40 |
|
|
$ |
1.16 |
|
|
$ |
0.85 |
|
|
|
|
|
|
|
|
|
|
|
Pro forma diluted earnings per common share |
|
$ |
1.20 |
|
|
$ |
0.97 |
|
|
$ |
0.71 |
|
|
|
|
|
|
|
|
|
|
|
In 2005, the company recognized net additional pro forma
compensation expense and related tax effects of
$69 million, reflecting a detailed analysis of option
grants and vesting provisions and a revised estimate of
forfeitures. The company periodically adjusts pro forma
compensation expense for changes to the estimate of expected
forfeitures based on actual forfeiture experience. The company
recognized additional pro forma compensation expense and related
tax effects totaling $58 million in 2004 because actual
forfeitures were lower than previous estimates. In 2003, the
company reversed previously recognized pro forma compensation
expense and related tax effects totaling $190 million
because actual forfeitures were higher than previous estimates.
58
INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The companys equity incentive plans provide for
retirement-related acceleration of vesting for a portion of
certain employee stock options based on the employees age
and years of service under two retirement programs. For this pro
forma disclosure, the company recognizes any remaining
unamortized expense related to a retirement-accelerated option
in the period of the retirement. For awards granted or modified
after the adoption of SFAS No. 123 (revised 2004),
Share-Based Payment, in the first quarter of 2006,
the company will be required to amortize the expense over a
shorter service period, based on the current or expected
retirement eligibility of the employee. Had the company applied
the new amortization policy under SFAS No. 123(R)
retrospectively, there would not have been a significant effect
on the pro forma results reported for the periods presented.
The weighted average estimated values of employee stock option
grants and rights granted under the Stock Participation Plan, as
well as the weighted average assumptions that were used in
calculating such values during 2005, 2004 and 2003, were based
on estimates at the date of grant as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options |
|
Stock Purchase Plan |
|
|
|
|
|
|
|
2005 |
|
2004 |
|
2003 |
|
2005 |
|
2004 |
|
2003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average estimated fair value of grant
|
|
$ |
6 |
.02 |
|
$ |
10 |
.79 |
|
$ |
9 |
.02 |
|
$ |
5 |
.78 |
|
$ |
6 |
.38 |
|
$ |
5 |
.65 |
Expected life (in years)
|
|
|
4 |
.7 |
|
|
4 |
.2 |
|
|
4 |
.4 |
|
|
|
.5 |
|
|
|
.5 |
|
|
|
.5 |
Risk-free interest rate
|
|
|
3 |
.9% |
|
|
3 |
.0% |
|
|
2 |
.2% |
|
|
3 |
.2% |
|
|
1 |
.4% |
|
|
1 |
.1% |
Volatility
|
|
|
|
.26 |
|
|
|
.50 |
|
|
|
.54 |
|
|
|
.23 |
|
|
|
.30 |
|
|
|
.50 |
Dividend yield
|
|
|
1 |
.4% |
|
|
|
.6% |
|
|
|
.4% |
|
|
1 |
.3% |
|
|
|
.6% |
|
|
|
.4% |
In light of Staff Accounting Bulletin (SAB) 107 of the
U.S. Securities and Exchange Commission (SEC), issued in
the first quarter of 2005, the company reevaluated the
assumptions used to estimate the value of employee stock options
granted. Management determined that implied volatility is more
reflective of market conditions and a better indicator of
expected volatility than historical volatility. Additionally, in
2005, the company began using the simplified calculation of
expected life, described in SAB 107, due to changes in the
vesting terms and contractual life of current option grants
compared to the companys historical grants. Management
believes that this calculation provides a reasonable estimate of
expected life for the companys employee stock options. No
adjustments to the 2004 and 2003 input assumptions have been
made.
Recent Accounting Pronouncements
In December 2004, the Financial Accounting Standards Board
(FASB) issued SFAS No. 123(R).
SFAS No. 123(R) requires employee share-based equity
awards to be accounted for under the fair value method, and
eliminates the ability to account for these instruments under
the intrinsic value method prescribed by APB Opinion No. 25
and allowed under the original provisions of
SFAS No. 123. SFAS No. 123(R) requires the
use of an option pricing model for estimating fair value, which
is then amortized to expense over the service periods. If the
company had applied the provisions of SFAS No. 123(R)
to the financial statements for 2005, net income would have been
reduced by approximately $1.3 billion.
SFAS No. 123(R) allows for either prospective
recognition of compensation expense or retrospective
recognition. In the first quarter of 2006, the company began to
apply the prospective recognition method and implemented the
provisions of SFAS
No. 123(R).
|
|
Note 3: |
Earnings Per Share |
The shares used in the computation of the companys basic
and diluted earnings per common share were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Millions) |
|
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
|
|
| |
|
| |
|
| |
Weighted average common shares outstanding |
|
|
6,106 |
|
|
|
6,400 |
|
|
|
6,527 |
|
Dilutive effect of employee stock options |
|
|
70 |
|
|
|
94 |
|
|
|
94 |
|
Dilutive effect of convertible debt |
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding, assuming
dilution |
|
|
6,178 |
|
|
|
6,494 |
|
|
|
6,621 |
|
|
|
|
|
|
|
|
|
|
|
59
INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Basic earnings per common share is computed using net income and
the weighted average number of common shares outstanding during
the period. Diluted earnings per common share is computed using
net income and the weighted average number of common shares
outstanding and potentially dilutive common shares outstanding
during the period. Potentially dilutive common shares include
the assumed exercise of stock options using the treasury stock
method, as well as the assumed conversion of debt using the
if-converted method. The if-converted method also requires that
net income be adjusted for the interest expense from convertible
debt, net of tax, recognized in the income statement in the
period. In 2005, interest expense related to convertible debt
was capitalized, although insignificant. The above calculations
are prescribed by SFAS No. 128, Earnings per
Share.
For 2005, 372 million of the companys outstanding
stock options were excluded 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, and therefore their inclusion would
have been anti-dilutive (357 million in 2004 and
418 million in 2003). These options could be dilutive in
the future if the average market value of the common shares
increases and is greater than the exercise price of these
options. The dilutive effect of convertible debt in 2005 was
minimized by the timing of the related debt issuance. See
Note 5: Borrowings.
|
|
Note 4: |
Common Stock Repurchase Program |
The company has an ongoing authorization, as amended in November
2005, from the Board of Directors to repurchase up to
$25 billion in shares of Intels common stock in open
market or negotiated transactions. The recent authorization
includes the remaining shares available for repurchase under
previous authorizations, which were expressed as share amounts.
During 2005, the company repurchased 418 million shares of
common stock at a cost of $10.6 billion (301 million
shares at a cost of $7.5 billion during 2004 and
176 million shares at a cost of $4.0 billion during
2003). Since the program began in 1990, the company has
repurchased and retired 2.6 billion shares at a cost of
approximately $52 billion. As of December 31, 2005,
$21.9 billion remained available for repurchase under the
existing repurchase authorization.
Short-Term Debt
Short-term debt included non-interest-bearing drafts payable of
$295 million and the current portion of long-term debt of
$18 million as of December 31, 2005 (drafts payable of
$168 million and the current portion of long-term debt of
$33 million as of December 25, 2004). The company also
borrows under a commercial paper program. Maximum borrowings
under the companys commercial paper program reached
approximately $150 million during 2005 ($550 million
during 2004), and did not exceed authorized borrowings of
$3.0 billion during either period. No commercial paper was
outstanding as of December 31, 2005 or December 25,
2004. The companys commercial paper is rated
A-1+ by
Standard & Poors and
P-1 by Moodys.
Long-Term Debt
Long-term debt at fiscal year-ends was as follows:
|
|
|
|
|
|
|
|
|
|
|
(In Millions) |
|
|
|
2005 | |
|
2004 | |
|
|
|
|
| |
|
| |
Junior subordinated convertible debentures due 2035 at 2.95% |
|
$ |
1,585 |
|
|
$ |
|
|
Euro debt due 20062018 at 2.6%11% |
|
|
378 |
|
|
|
735 |
|
Arizona bonds adjustable 2010, due 2035 at 4.375% |
|
|
160 |
|
|
|
|
|
Other debt |
|
|
1 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
2,124 |
|
|
|
736 |
|
Less current portion of long-term debt |
|
|
(18 |
) |
|
|
(33 |
) |
|
|
|
|
|
|
|
Total long-term debt |
|
$ |
2,106 |
|
|
$ |
703 |
|
|
|
|
|
|
|
|
60
INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In December 2005, the company issued $1.6 billion of 2.95%
junior subordinated convertible debentures (the debentures) due
2035. The debentures are initially convertible, subject to
certain conditions, into shares of the companys common
stock at a conversion rate of 31.7162 shares of common
stock per $1,000 principal amount of debentures, representing an
initial effective conversion price of approximately
$31.53 per share of common stock. Holders may surrender the
debentures for conversion at any time. The conversion rate will
be subject to adjustment for certain events outlined in the
indenture governing the debentures but will not be adjusted for
accrued interest. In addition, the conversion rate will increase
for a holder who elects to convert the debentures in connection
with certain changes. The debentures, which pay a fixed rate of
interest semiannually beginning on June 15, 2006, have a
contingent interest component that will require the company to
pay interest based on certain thresholds and for certain events
commencing on December 15, 2010, as outlined in the
indenture governing the debentures. The maximum amount of
contingent interest that will accrue is 0.40% per year. The
fair value of the related embedded derivatives was not
significant at December 31, 2005. The company may settle
any conversions of the debentures in cash or stock at the
companys option. On or after December 15, 2012, the
company may redeem all or part of the debentures for the
principal amount plus any accrued and unpaid interest if the
closing price of the companys 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 the company provides notice of
redemption. If certain change events occur in the future, the
indenture provides that each holder of the debentures may, for a
pre-defined period of time, require the company to repurchase
the holders debentures for the principal amount plus any
accrued and unpaid interest. The company may pay the repurchase
price in cash or in shares of the companys common stock.
In addition, on or prior to June 12, 2006, the company may
redeem all or part of the debentures for cash at a premium if
certain U.S. federal tax legislation, regulations or rules
are enacted or are issued. The debentures are subordinated in
right of payment to the companys existing and future
senior debt and to the other liabilities of the companys
subsidiaries. The debentures will be used to provide funds for
general corporate purposes. The company may also use a portion
of the proceeds to purchase shares of Intel common stock.
The company has guaranteed repayment of principal and interest
on bonds issued by the Industrial Development Authority of the
City of Chandler, Arizona (the Arizona bonds), which constitute
an unsecured general obligation of the company. The aggregate
principal amount, including premium, of the Arizona bonds issued
December 2005 is $160 million due 2035, and the bonds will
bear interest at a fixed rate of 4.375% until 2010. The Arizona
bonds are subject to mandatory tender on November 30, 2010,
at which time, at the companys option, the bonds can be
re-marketed as either fixed-rate bonds for a period of a
specified duration or as variable-rate bonds until their final
maturity on December 1, 2035. The proceeds from the
issuance of these bonds will be used to provide funds to finance
the costs of acquisition, construction and installation of
certain industrial sewage and wastewater treatment facilities
and solid waste disposal facilities as part of the
companys semiconductor manufacturing plant located in the
City of Chandler, Arizona.
The company has Euro borrowings made in connection with the
financing of manufacturing facilities and equipment in Ireland.
The company invested the proceeds in Euro-denominated loan
participation notes of similar maturity to hedge currency and
interest rate exposures. During 2005, the company retired
approximately $280 million of the Euro borrowings
(approximately $270 million during 2004) prior to their
maturity dates through the simultaneous settlement of an
equivalent amount of investments in loan participation notes
(see Note 8: Interest and Other, Net).
As of December 31, 2005, aggregate debt maturities were as
follows: 2006$18 million; 2007$20 million;
2008$97 million; 2009$20 million;
2010$184 million; and
thereafter$1.8 billion.
Note 6: Investments
Trading Assets
Trading assets outstanding at fiscal year-ends were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
|
|
| |
|
| |
|
|
|
|
Net | |
|
|
|
Net | |
|
|
|
|
|
|
Unrealized | |
|
Estimated | |
|
Unrealized | |
|
Estimated | |
(In Millions) |
|
|
|
Gains (Losses) | |
|
Fair Value | |
|
Gains | |
|
Fair Value | |
|
|
|
|
| |
|
| |
|
| |
|
| |
Debt instruments |
|
$ |
(1 |
) |
|
$ |
1,095 |
|
|
$ |
187 |
|
|
$ |
2,772 |
|
Equity securities offsetting deferred compensation |
|
|
93 |
|
|
|
363 |
|
|
|
81 |
|
|
|
339 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total trading assets |
|
$ |
92 |
|
|
$ |
1,458 |
|
|
$ |
268 |
|
|
$ |
3,111 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
61
INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Net gains (losses) for the period on fixed-income debt
instruments classified as trading assets still held at the
reporting date were $(47) million in 2005 ($80 million
in 2004 and $208 million in 2003). Net gains (losses) on
the related derivatives were $52 million in 2005
($(77) million in 2004 and $(192) million in 2003).
These amounts were included in interest and other, net in the
consolidated statements of income.
Certain equity securities within the trading asset portfolio are
maintained to generate returns that seek to offset changes in
liabilities related to the equity market risk of certain
deferred compensation arrangements. These deferred compensation
liabilities were $316 million in 2005 ($458 million in
2004), and are included in other accrued liabilities on the
consolidated balance sheets. The decrease in 2005 was primarily
related to an amendment of the companys
U.S. defined-benefit plan, which resulted in a transfer of
deferred compensation liabilities to the plan (see
Note 12: Retirement Benefit Plans). Net gains
for the period on equity securities offsetting deferred
compensation arrangements still held at the reporting date were
$15 million in 2005 and were included within interest and
other, net in the consolidated statements of income
($29 million in 2004 and $52 million in 2003).
Prior to 2004, the company held certain other marketable equity
securities that were included in trading assets. Net gains for
the period on these equity security trading assets still held at
the reporting date were $77 million in 2003. Net losses on
the related derivatives were $84 million in 2003. These
gains and losses were included within losses on equity
securities, net in the consolidated statements of income.
Available-for-Sale Investments
Available-for-sale investments at December 31, 2005 were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross | |
|
Gross | |
|
|
|
|
|
|
Adjusted | |
|
Unrealized | |
|
Unrealized | |
|
Estimated | |
(In Millions) |
|
|
|
Cost | |
|
Gains | |
|
Losses | |
|
Fair Value | |
|
|
|
|
| |
|
| |
|
| |
|
| |
Floating rate notes |
|
$ |
5,428 |
|
|
$ |
1 |
|
|
$ |
(1 |
) |
|
$ |
5,428 |
|
Commercial paper |
|
|
4,898 |
|
|
|
|
|
|
|
(1 |
) |
|
|
4,897 |
|
Bank time
deposits1 |
|
|
1,322 |
|
|
|
|
|
|
|
|
|
|
|
1,322 |
|
Asset-backed securities |
|
|
1,143 |
|
|
|
1 |
|
|
|
|
|
|
|
1,144 |
|
Repurchase agreements |
|
|
585 |
|
|
|
|
|
|
|
|
|
|
|
585 |
|
Corporate bonds |
|
|
464 |
|
|
|
1 |
|
|
|
|
|
|
|
465 |
|
Non-U.S. government securities |
|
|
459 |
|
|
|
|
|
|
|
|
|
|
|
459 |
|
Marketable strategic equity securities |
|
|
376 |
|
|
|
161 |
|
|
|
|
|
|
|
537 |
|
U.S. government securities |
|
|
343 |
|
|
|
|
|
|
|
(3 |
) |
|
|
340 |
|
Preferred stock and other equity |
|
|
210 |
|
|
|
|
|
|
|
|
|
|
|
210 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available-for-sale investments |
|
$ |
15,228 |
|
|
$ |
164 |
|
|
$ |
(5 |
) |
|
$ |
15,387 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying | |
|
|
|
|
|
|
|
|
|
|
Amount | |
|
|
|
|
|
|
|
|
|
|
| |
Available-for-sale investments |
|
$ |
15,387 |
|
Cost basis investments in loan participation notes |
|
|
373 |
|
Cash on hand |
|
|
226 |
|
|
|
|
|
Total |
|
$ |
15,986 |
|
|
|
|
|
Reported as: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
7,324 |
|
Short-term investments |
|
|
3,990 |
|
Marketable strategic equity investments |
|
|
537 |
|
Other long-term investments |
|
|
4,135 |
|
|
|
|
|
Total |
|
$ |
15,986 |
|
|
|
|
|
|
|
|
|
1 |
Bank time deposits were mostly issued by
U.S. institutions in 2005 and by institutions outside the
U.S. in 2004. |
62
INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Available-for-sale investments at December 25, 2004 were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross | |
|
Gross | |
|
|
|
|
|
|
Adjusted | |
|
Unrealized | |
|
Unrealized | |
|
Estimated | |
(In Millions) |
|
|
|
Cost | |
|
Gains | |
|
Losses | |
|
Fair Value | |
|
|
|
|
| |
|
| |
|
| |
|
| |
Commercial paper |
|
$ |
7,992 |
|
|
$ |
|
|
|
$ |
(4 |
) |
|
$ |
7,988 |
|
Floating rate notes |
|
|
2,697 |
|
|
|
|
|
|
|
(1 |
) |
|
|
2,696 |
|
Bank time
deposits1 |
|
|
1,866 |
|
|
|
|
|
|
|
|
|
|
|
1,866 |
|
Non-U.S. government securities |
|
|
985 |
|
|
|
|
|
|
|
|
|
|
|
985 |
|
Corporate bonds |
|
|
794 |
|
|
|
|
|
|
|
|
|
|
|
794 |
|
Marketable strategic equity securities |
|
|
589 |
|
|
|
118 |
|
|
|
(51 |
) |
|
|
656 |
|
Asset-backed securities |
|
|
472 |
|
|
|
|
|
|
|
|
|
|
|
472 |
|
U.S. government securities |
|
|
405 |
|
|
|
|
|
|
|
|
|
|
|
405 |
|
Preferred stock and other equity |
|
|
200 |
|
|
|
|
|
|
|
|
|
|
|
200 |
|
Repurchase agreements |
|
|
196 |
|
|
|
|
|
|
|
|
|
|
|
196 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available-for-sale investments |
|
$ |
16,196 |
|
|
$ |
118 |
|
|
$ |
(56 |
) |
|
$ |
16,258 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying | |
|
|
|
|
|
|
|
|
|
|
Amount | |
|
|
|
|
|
|
|
|
|
|
| |
Available-for-sale investments |
|
$ |
16,258 |
|
Cost basis investments in loan participation notes |
|
|
723 |
|
Cash on hand |
|
|
299 |
|
|
|
|
|
Total |
|
$ |
17,280 |
|
|
|
|
|
Reported as: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
8,407 |
|
Short-term investments |
|
|
5,654 |
|
Marketable strategic equity investments |
|
|
656 |
|
Other long-term investments |
|
|
2,563 |
|
|
|
|
|
Total |
|
$ |
17,280 |
|
|
|
|
|
|
|
|
|
1 |
Bank time deposits were mostly issued by
U.S. institutions in 2005 and by institutions outside the
U.S. in 2004. |
The duration of the unrealized losses on available-for-sale
investments at December 31, 2005 and December 25, 2004
did not exceed 12 months. The companys unrealized
losses of $51 million on investments in marketable
strategic equity securities at December 25, 2004 related
primarily to the companys investment in Micron Technology,
Inc. The unrealized losses were due to market-price movements.
Management does not believe that any of the unrealized losses
represented an other-than-temporary impairment based on its
evaluation of available evidence as of December 31, 2005
and December 25, 2004. However, during 2005, the company
took an impairment charge on its investment in Micron for
$105 million reflecting the difference between the cost
basis of the investment and the price of Microns stock at
the end of the second quarter of 2005. The impairment was
principally based on managements assessment of
Microns financial results and the fact that the market
price of Microns stock had been below the companys
cost basis for an extended period of time, as well as the
competitive pricing environment for Dynamic Random Access Memory
(DRAM) products. The investment in Micron is part of the
companys strategy to support the development and supply of
DRAM products.
The company sold available-for-sale securities with a fair value
at the date of sale of $1.7 billion in 2005
($1.1 billion in 2004 and $865 million in 2003). The
gross realized gains on these sales totaled $96 million in
2005 ($52 million in 2004 and $16 million in 2003).
For all periods presented, gross realized losses on sales, and
gains on shares exchanged in third-party merger transactions
were insignificant. The company recognized impairment losses on
available-for-sale investments of $105 million in 2005
($2 million in 2004 and none in 2003).
63
INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The amortized cost and estimated fair value of
available-for-sale and loan participation investments in debt
securities at December 31, 2005, by contractual maturity,
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated | |
(In Millions) |
|
|
|
Cost | |
|
Fair Value | |
|
|
|
|
| |
|
| |
Due in 1 year or less |
|
$ |
10,661 |
|
|
$ |
10,660 |
|
Due in 12 years |
|
|
2,038 |
|
|
|
2,038 |
|
Due in 25 years |
|
|
976 |
|
|
|
974 |
|
Due after 5 years |
|
|
197 |
|
|
|
197 |
|
Asset-backed securities not due at a single maturity date |
|
|
1,143 |
|
|
|
1,144 |
|
|
|
|
|
|
|
|
Total |
|
$ |
15,015 |
|
|
$ |
15,013 |
|
|
|
|
|
|
|
|
Non-Marketable Equity Securities
Non-marketable equity securities consist of both cost basis and
equity method investments. At December 31, 2005, the
carrying values of cost basis and equity method investments were
$502 million and $59 million, respectively
($449 million and $58 million at December 25,
2004). The company recognized impairment losses on
non-marketable equity securities of $103 million in 2005
($115 million in 2004 and $319 million in 2003).
Note 7: Concentrations of Credit Risk
Financial instruments that potentially subject the company to
concentrations of credit risk consist principally of investments
in debt securities, derivative financial instruments and trade
receivables.
Intel generally places its investments with high-credit-quality
counterparties and, by policy, limits the amount of credit
exposure to any one counterparty based on Intels analysis
of that counterpartys relative credit standing.
Investments in debt securities with original maturities of
greater than six months consist primarily of A and A2 or better
rated financial instruments and counterparties. Investments with
original maturities of up to six months consist primarily of
A-1 and
P-1 or better rated
financial instruments and counterparties. Government regulations
imposed on investment alternatives of Intels
non-U.S. subsidiaries,
or the absence of A and A2 rated counterparties in certain
countries, result in some minor exceptions, which are reviewed
and approved annually by the Finance Committee of the Board of
Directors. Credit rating criteria for derivative instruments are
similar to those for investments. The amounts subject to credit
risk related to derivative instruments are generally limited to
the amounts, if any, by which a counterpartys obligations
exceed the obligations of Intel with that counterparty. At
December 31, 2005, the total credit exposure to any single
counterparty did not exceed $365 million. Intels
practice is to obtain and secure available collateral from
counterparties against obligations, including securities lending
transactions, whenever Intel deems appropriate.
The majority of the companys trade receivables are derived
from sales to original equipment manufacturers and original
design manufacturers of computer systems, cellular handsets and
handheld computing devices, and networking and communications
equipment. The company also has accounts receivable derived from
sales to industrial and retail distributors. The companys
two largest customers accounted for 35% of net revenue for 2005
and 2004, and 34% of net revenue for 2003. At December 31,
2005, the two largest customers accounted for 42% of net
accounts receivable (34% of net accounts receivable at
December 25, 2004). Management believes 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.
The company has adopted credit policies and standards intended
to accommodate industry growth and inherent risk. Management
believes that credit risks are moderated by the financial
stability of the companys end customers and diverse
geographic sales areas. To assess the credit risk of
counterparties, a quantitative and qualitative analysis is
performed. From this analysis, credit limits are established and
a determination is made as to whether one or more credit support
devices, such as obtaining some form of third-party guarantee or
standby letter of credit, or obtaining credit insurance, for all
or a portion of the account balance is necessary.
64
INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 8: Interest and Other, Net
The components of interest and other, net were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Millions) |
|
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
|
|
| |
|
| |
|
| |
Interest income |
|
$ |
577 |
|
|
$ |
301 |
|
|
$ |
248 |
|
Interest expense |
|
|
(19 |
) |
|
|
(50 |
) |
|
|
(62 |
) |
Other, net |
|
|
7 |
|
|
|
38 |
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
565 |
|
|
$ |
289 |
|
|
$ |
192 |
|
|
|
|
|
|
|
|
|
|
|
During 2004, the company recognized $60 million of gains in
other, net associated with terminating financing arrangements
for manufacturing facilities and equipment in Ireland (see
Note 5: Borrowings). Gains associated with
terminating similar financing arrangements recognized in 2005
were insignificant.
Note 9: Comprehensive Income
The components of comprehensive income and related tax effects
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Millions) |
|
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
|
|
| |
|
| |
|
| |
Net income |
|
$ |
8,664 |
|
|
$ |
7,516 |
|
|
$ |
5,641 |
|
Change in net unrealized holding gain on investments, net of tax
of $(60), $(17) and $(18) in 2005,
2004 and 2003, respectively |
|
|
101 |
|
|
|
31 |
|
|
|
33 |
|
Less: adjustment for net gain on investments included in net
income, net of tax of $22, $15 and $5
in 2005, 2004 and 2003, respectively |
|
|
(38 |
) |
|
|
(29 |
) |
|
|
(11 |
) |
Change in net unrealized holding gain on derivatives, net of tax
of $25, $(34) and $(15) in 2005, 2004
and 2003, respectively |
|
|
(42 |
) |
|
|
63 |
|
|
|
27 |
|
Less: adjustment for amortization of net gain on derivatives
included in net income, net of tax
of $22 in 2005 and $4 in 2004 |
|
|
(38 |
) |
|
|
(8 |
) |
|
|
(1 |
) |
Minimum pension liability, net of tax of $5 in 2005 and $(2) in
2003 |
|
|
(8 |
) |
|
|
(1 |
) |
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
8,639 |
|
|
$ |
7,572 |
|
|
$ |
5,694 |
|
|
|
|
|
|
|
|
|
|
|
The components of accumulated other comprehensive income, net of
tax, were as follows:
|
|
|
|
|
|
|
|
|
|
|
(In Millions) |
|
|
|
2005 | |
|
2004 | |
|
|
|
|
| |
|
| |
Accumulated net unrealized holding gain on available-for-sale
investments |
|
$ |
100 |
|
|
$ |
37 |
|
Accumulated net unrealized holding gain on derivatives |
|
|
37 |
|
|
|
117 |
|
Accumulated minimum pension liability |
|
|
(10 |
) |
|
|
(2 |
) |
|
|
|
|
|
|
|
Total accumulated other comprehensive income |
|
$ |
127 |
|
|
$ |
152 |
|
|
|
|
|
|
|
|
65
INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 10: Provision for Taxes
Income before taxes and the provision for taxes consisted of the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Millions) |
|
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
|
|
| |
|
| |
|
| |
Income before taxes: |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
|
$ |
10,397 |
|
|
$ |
7,422 |
|
|
$ |
5,705 |
|
Non-U.S. |
|
|
2,213 |
|
|
|
2,995 |
|
|
|
1,737 |
|
|
|
|
|
|
|
|
|
|
|
Total income before taxes |
|
$ |
12,610 |
|
|
$ |
10,417 |
|
|
$ |
7,442 |
|
|
|
|
|
|
|
|
|
|
|
Provision for taxes: |
|
|
|
|
|
|
|
|
|
|
|
|
Current: |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
3,546 |
|
|
$ |
2,787 |
|
|
$ |
808 |
|
State |
|
|
289 |
|
|
|
(69 |
) |
|
|
223 |
|
Non-U.S. |
|
|
524 |
|
|
|
390 |
|
|
|
379 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,359 |
|
|
|
3,108 |
|
|
|
1,410 |
|
|
|
|
|
|
|
|
|
|
|
Deferred: |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
|
(360 |
) |
|
|
(128 |
) |
|
|
420 |
|
Other |
|
|
(53 |
) |
|
|
(79 |
) |
|
|
(29 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(413 |
) |
|
|
(207 |
) |
|
|
391 |
|
|
|
|
|
|
|
|
|
|
|
Total provision for taxes |
|
$ |
3,946 |
|
|
$ |
2,901 |
|
|
$ |
1,801 |
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate |
|
|
31.3 |
% |
|
|
27.8 |
% |
|
|
24.2 |
% |
|
|
|
|
|
|
|
|
|
|
The tax benefit from employee equity incentive plans was
$351 million for 2005 ($344 million for 2004 and
$216 million for 2003).
The difference between the tax provision at the statutory
federal income tax rate and the tax provision attributable to
income before income taxes was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Percentages) |
|
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
|
|
| |
|
| |
|
| |
Statutory federal income tax rate |
|
|
35.0 |
% |
|
|
35.0 |
% |
|
|
35.0 |
% |
Increase (reduction) in rate resulting from: |
|
|
|
|
|
|
|
|
|
|
|
|
State taxes, net of federal benefits |
|
|
1.3 |
|
|
|
(0.4 |
) |
|
|
1.9 |
|
Non-U.S. income taxed at different rates |
|
|
(2.0 |
) |
|
|
(2.5 |
) |
|
|
(2.8 |
) |
Non-deductible acquisition-related costs and
goodwill impairments |
|
|
|
|
|
|
0.1 |
|
|
|
3.1 |
|
Tax benefit related to divestitures |
|
|
|
|
|
|
|
|
|
|
(10.2 |
) |
Export sales benefit |
|
|
(2.8 |
) |
|
|
(4.8 |
) |
|
|
(2.5 |
) |
Repatriation of prior years permanently
reinvested earnings |
|
|
1.8 |
|
|
|
|
|
|
|
|
|
Other |
|
|
(2.0 |
) |
|
|
0.4 |
|
|
|
(0.3 |
) |
|
|
|
|
|
|
|
|
|
|
Income tax rate |
|
|
31.3 |
% |
|
|
27.8 |
% |
|
|
24.2 |
% |
|
|
|
|
|
|
|
|
|
|
The American Jobs Creation Act of 2004 (the Jobs Act) created a
temporary incentive for U.S. corporations to repatriate
accumulated income earned abroad by providing an 85%
dividends-received deduction for certain dividends from
controlled
non-U.S. corporations.
During 2005, the companys Chief Executive Officer and
Board of Directors approved a domestic reinvestment plan, under
which the company repatriated $6.2 billion in earnings
outside the U.S. pursuant to the Jobs Act. The company
recorded additional tax expense in 2005 of approximately
$265 million ($0.04 per common share, assuming
dilution) related to this decision to repatriate
non-U.S. earnings.
This repatriation increased the companys effective rate
for 2005 by approximately 2.1 percentage points, to 31.3%.
The majority of this increase, 1.8%, is reflected as a separate
line item in the rate reconciliation table above, representing
the rate effect of the repatriation of prior years
permanently reinvested earnings. The remainder represents the
rate effect of the repatriation of the current years
earnings and is included in the rate reconciliation table as
part of
Non-U.S income
taxed at different rates.
66
INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
During 2004, in connection with preparing and filing its 2003
federal tax return and preparing its state tax returns, the
company reduced its 2004 tax provision by $195 million.
This reduction in the 2004 tax provision was primarily driven by
tax benefits for export sales and state tax benefits for
divestitures that exceeded the amounts originally estimated in
connection with the 2003 provision. Also during 2004, the
company reversed previously accrued taxes related primarily to
the closing of a state income tax audit that reduced the tax
provision for 2004 by $62 million.
The company reduced its tax provision for 2003 by approximately
$758 million due to the tax benefits related to the sale of
certain businesses and assets through the sale of stock of
acquired companies (see Note 13: Acquisitions and
Divestitures).
The U.S. Internal Revenue Service (IRS) formally assessed
certain adjustments to the amounts reflected by the company in
its tax returns for the years 1999 through 2002. See
Note 18: Contingencies for a discussion of
these matters.
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amount of assets and
liabilities for financial reporting purposes and the amounts for
income tax purposes. Significant components of the
companys deferred tax assets and liabilities at fiscal
year-ends were as follows:
|
|
|
|
|
|
|
|
|
|
|
(In Millions) |
|
|
|
2005 | |
|
2004 | |
|
|
|
|
| |
|
| |
Deferred tax assets |
|
|
|
|
|
|
|
|
Accrued compensation and other benefits |
|
$ |
212 |
|
|
$ |
265 |
|
Accrued advertising |
|
|
170 |
|
|
|
115 |
|
Deferred income |
|
|
241 |
|
|
|
232 |
|
Inventory valuation |
|
|
251 |
|
|
|
193 |
|
Impairment losses on equity investments |
|
|
93 |
|
|
|
110 |
|
State credits and net operating losses |
|
|
107 |
|
|
|
107 |
|
Intercompany profit in inventory |
|
|
105 |
|
|
|
82 |
|
Unremitted earnings of non-U.S. subsidiaries |
|
|
161 |
|
|
|
5 |
|
Other, net |
|
|
273 |
|
|
|
92 |
|
|
|
|
|
|
|
|
|
|
|
1,613 |
|
|
|
1,201 |
|
Valuation allowance |
|
|
(86 |
) |
|
|
(75 |
) |
|
|
|
|
|
|
|
Total deferred tax assets |
|
$ |
1,527 |
|
|
$ |
1,126 |
|
|
|
|
|
|
|
|
Deferred tax liabilities |
|
|
|
|
|
|
|
|
Depreciation |
|
$ |
(806 |
) |
|
$ |
(894 |
) |
Unrealized gains on investments |
|
|
(123 |
) |
|
|
(82 |
) |
Other, net |
|
|
(117 |
) |
|
|
(26 |
) |
|
|
|
|
|
|
|
Total deferred tax liabilities |
|
$ |
(1,046 |
) |
|
$ |
(1,002 |
) |
|
|
|
|
|
|
|
Net deferred tax assets |
|
$ |
481 |
|
|
$ |
124 |
|
|
|
|
|
|
|
|
Reported as: |
|
|
|
|
|
|
|
|
Current deferred tax assets |
|
$ |
1,149 |
|
|
$ |
979 |
|
Non-current deferred tax
assets1 |
|
|
35 |
|
|
|
|
|
Non-current deferred tax liabilities |
|
|
(703 |
) |
|
|
(855 |
) |
|
|
|
|
|
|
|
Net deferred taxes |
|
$ |
481 |
|
|
$ |
124 |
|
|
|
|
|
|
|
|
|
|
|
|
1 |
Included in the Deferred taxes and other assets
line item on the consolidated balance sheet. |
The net deferred tax asset valuation allowance increased
$11 million to $86 million at December 31, 2005
based on managements assessments that it is more likely
than not that certain deferred tax assets will not be realized
in the foreseeable future. The valuation allowance is composed
of unrealized state capital loss carry forwards and unrealized
state credit carry forwards of $74 million, and operating
loss of
non-U.S. subsidiaries
of $12 million.
67
INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
During 2004, the company reclassified $445 million from
deferred tax liabilities to common stock and capital stock in
excess of par value. The balance sheet reclassification
represented the tax benefit attributable to certain prior-year
stock option exercises by
non-U.S. employees
and had no impact on the accompanying statement of cash flows.
U.S. income taxes were not provided for on a cumulative
total of approximately $3.7 billion of undistributed
earnings for certain
non-U.S. subsidiaries.
Determination of the amount of unrecognized deferred tax
liability for temporary differences related to investments in
these
non-U.S. subsidiaries
that are essentially permanent in duration is not practicable.
The company currently intends to reinvest these earnings in
operations outside the U.S.
Note 11: Employee Equity Incentive Plans
Stock Option Plans
Under the 2004 Equity Incentive Plan (the 2004 Plan), options to
purchase shares may be granted to all employees and non-employee
directors. Beginning in 2006, the company will also issue
restricted stock units to employees and non-employee directors
under the 2004 Plan. The company may use other types of equity
incentive awards, such as stock units and stock appreciation
rights under the 2004 Plan. The 2004 Plan also allows for
performance-based vesting for equity incentive awards. In May
2005, the company obtained stockholder approval to extend the
term of the 2004 Plan by one year, to June 30, 2007, and to
make an additional 130 million shares of common stock
available for issuance. Including this extension, the company
has made a total of 370 million shares of common stock
available for issuance under the 2004 Plan. The Intel
Corporation 1984 Stock Option Plan expired in May 2004, and the
Intel Corporation 1997 Stock Option Plan was terminated upon
stockholder approval of the 2004 Plan. As of December 31,
2005, substantially all of the companys employees were
participating in one of the stock option plans. Options granted
by the company under the 2004 Plan generally expire seven years
from the grant date. Options granted under the companys
previous stock option plans generally expire 10 years from
the grant date. Options granted in 2005 to existing and newly
hired employees generally vest over a four-year period from the
date of grant. Certain grants to key employees have delayed
vesting, generally beginning six years from the date of grant.
Intel may also assume the stock option plans and the outstanding
options of certain acquired companies. Once assumed, Intel does
not grant additional stock under these plans. Additional
information with respect to stock option plan activity is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding Options | |
|
|
|
|
|
|
| |
|
|
|
|
Shares | |
|
|
|
Weighted | |
|
|
|
|
Available for | |
|
Number of | |
|
Average | |
(Shares in Millions) |
|
|
|
Grant | |
|
Shares | |
|
Exercise Price | |
|
|
|
|
| |
|
| |
|
| |
December 28, 2002 |
|
|
921.8 |
|
|
|
845.4 |
|
|
$ |
25.31 |
|
Grants |
|
|
(109.9 |
) |
|
|
109.9 |
|
|
$ |
20.22 |
|
Exercises |
|
|
|
|
|
|
(63.7 |
) |
|
$ |
10.08 |
|
Cancellations |
|
|
40.0 |
|
|
|
(41.5 |
) |
|
$ |
30.49 |
|
Reduction in shares available for grant |
|
|
(325.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 27, 2003 |
|
|
526.9 |
|
|
|
850.1 |
|
|
$ |
25.54 |
|
Grants |
|
|
(114.7 |
) |
|
|
114.7 |
|
|
$ |
26.23 |
|
Exercises |
|
|
|
|
|
|
(48.4 |
) |
|
$ |
10.89 |
|
Cancellations |
|
|
11.5 |
|
|
|
(32.5 |
) |
|
$ |
30.00 |
|
Expiration of 1984 Stock Option Plan |
|
|
(143.2 |
) |
|
|
|
|
|
|
|
|
Cancellation of 1997 Stock Option Plan |
|
|
(300.1 |
) |
|
|
|
|
|
|
|
|
Adoption of 2004 Equity Incentive Plan |
|
|
240.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 25, 2004 |
|
|
220.4 |
|
|
|
883.9 |
|
|
$ |
26.26 |
|
Grants |
|
|
(118.6 |
) |
|
|
118.9 |
1 |
|
$ |
23.36 |
1 |
Exercises |
|
|
|
|
|
|
(64.5 |
) |
|
$ |
12.65 |
|
Cancellations |
|
|
5.2 |
|
|
|
(38.4 |
) |
|
$ |
29.80 |
|
Additional shares approved for issuance |
|
|
130.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2005 |
|
|
237.0 |
|
|
|
899.9 |
|
|
$ |
26.71 |
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at: |
|
|
|
|
|
|
|
|
|
|
|
|
December 27, 2003 |
|
|
|
|
|
|
327.5 |
|
|
$ |
20.53 |
|
December 25, 2004 |
|
|
|
|
|
|
397.5 |
|
|
$ |
23.83 |
|
December 31, 2005 |
|
|
|
|
|
|
469.2 |
|
|
$ |
29.16 |
|
|
|
|
|
1 |
Includes options assumed in connection with an
acquisition. |
68
INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The range of option exercise prices for options outstanding at
December 31, 2005 was $0.05 to $87.90. This range reflects
the impact of options assumed with acquired companies in
addition to the fluctuating price of Intel common stock.
The following table summarizes information about options
outstanding at December 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding Options | |
|
Exercisable Options | |
|
|
|
|
| |
|
| |
|
|
|
|
|
|
Weighted | |
|
|
|
|
|
|
|
|
|
|
Average | |
|
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 | |
|
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
$0.05$15.00 |
|
|
29.0 |
|
|
|
1.0 |
|
|
$ |
8.38 |
|
|
|
28.6 |
|
|
$ |
8.40 |
|
$15.01$20.00 |
|
|
176.3 |
|
|
|
4.6 |
|
|
$ |
18.22 |
|
|
|
124.6 |
|
|
$ |
18.34 |
|
$20.01$25.00 |
|
|
354.4 |
|
|
|
6.1 |
|
|
$ |
22.61 |
|
|
|
88.0 |
|
|
$ |
20.80 |
|
$25.01$30.00 |
|
|
160.4 |
|
|
|
7.0 |
|
|
$ |
27.23 |
|
|
|
68.6 |
|
|
$ |
26.79 |
|
$30.01$40.00 |
|
|
95.6 |
|
|
|
4.6 |
|
|
$ |
33.45 |
|
|
|
77.1 |
|
|
$ |
33.78 |
|
$40.01$87.90 |
|
|
84.2 |
|
|
|
4.3 |
|
|
$ |
59.45 |
|
|
|
82.3 |
|
|
$ |
59.39 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
899.9 |
|
|
|
5.5 |
|
|
$ |
26.71 |
|
|
|
469.2 |
|
|
$ |
29.16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
These options will expire if not exercised by specific dates
through February 2015. Option exercise prices for options
exercised during the three-year period ended December 31,
2005 ranged from $0.01 to $33.60.
Stock Participation Plan
In addition to the employee equity incentive plans, the company
has a Stock Participation Plan under which eligible employees
may purchase shares of Intels common stock at 85% of the
average of the high and low stock price reported on The NASDAQ
Stock Market at specific, predetermined dates. Approximately 70%
of the companys employees were participating in the Stock
Participation Plan as of December 31, 2005. Of the
944 million shares authorized to be issued under the plan,
47.9 million shares remained available for issuance at
December 31, 2005. Employees purchased 19.6 million
shares in 2005 (18.4 million in 2004 and 23.8 million
in 2003) for $387 million ($367 million in 2004 and
$328 million in 2003).
|
|
Note 12: |
Retirement Benefit Plans |
Profit Sharing Plans
The company provides 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
are designed to provide employees with an accumulation of funds
for retirement on a tax-deferred basis and provide for annual
discretionary employer contributions. Amounts to be contributed
to the U.S. Profit Sharing Plan are determined by the Chief
Executive Officer of the company under delegation of authority
from the Board of Directors, pursuant to the terms of the Profit
Sharing Plan. As of December 31, 2005, approximately 90% of
the assets of the U.S. Profit Sharing Plan had been
allocated to domestic and international equity index funds and
approximately 10% had been allocated to a fixed income fund. All
assets are managed by an outside fund manager, consistent with
the investment policy.
The company also provides a non-qualified profit sharing
retirement plan (SERPLUS) for the benefit of eligible employees
in the U.S. This plan is designed to permit certain
discretionary employer contributions and to permit employee
deferral of a portion of salaries in excess of certain tax
limits and deferral of bonuses. This plan is unfunded.
The company expensed $355 million for the qualified and
non-qualified U.S. profit sharing retirement plans in 2005
($323 million in 2004 and $302 million in 2003). The
company expects to fund approximately $320 million for the
2005 contribution to the U.S. qualified Profit Sharing Plan
and less than $10 million for SERPLUS.
Contributions made by the company to the U.S. Profit
Sharing Plan on behalf of the employees vest based on the
employees years of service. Vesting begins after three
years of service in 20% annual increments until the employee is
100% vested after seven years, or earlier if the employee
reaches age 60.
69
INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Pension and Postretirement Benefit Plans
U.S. Pension Benefits. The company provides a
tax-qualified defined-benefit pension plan for the benefit of
eligible employees and retirees in the U.S. The plan
provides for a minimum pension benefit that is determined by a
participants years of service and final average
compensation (taking into account the participants social
security wage base), reduced by the participants balance
in the Profit Sharing Plan. If the pension benefit exceeds the
participants balance in the Profit Sharing Plan, the
participant will receive a combination of pension and profit
sharing amounts equal to the pension benefit. However, the
participant will receive only the benefit from the Profit
Sharing Plan if that benefit is greater than the value of the
pension benefit. The U.S. defined-benefit plans
projected benefit obligation assumes future contributions to the
Profit Sharing Plan, and if the company does not continue to
contribute to or significantly reduces contributions to the
Profit Sharing Plan, the U.S. defined-benefit plan
projected benefit obligation could increase significantly.
Historically, the company has contributed 8% to 12.5% of
participants eligible compensation to the Profit Sharing
Plan on an annual basis. The benefit obligation and related
assets under this plan have been measured as of
November 30, 2005.
In 2005, the company received a favorable determination letter
from the IRS approving an amendment to the
U.S. defined-benefit plan that was filed during 2004.
Effective for the plan year ended 2005, the amendment allows for
a portion of the SERPLUS liability to be included with the
U.S. defined-benefit plan under Section 415 of the
Internal Revenue Code. The amendment increased the projected
benefit obligation and accumulated benefit obligation by
approximately $199 million. The company has funded the
U.S. defined-benefit plan related to this amendment in
accordance with applicable funding laws in 2005, and this has
been reflected as employer contributions in the change in plan
assets table below.
Non-U.S. Pension
Benefits. The company also provides defined-benefit pension
plans in certain other countries. Consistent with the
requirements of local law, the company deposits funds for
certain of these plans with insurance companies, third-party
trustees, or into government-managed accounts, and/or accrues
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. The benefit
obligations and related assets under these plans have been
measured as of December 31, 2005.
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. The companys practice is to fund
the various pension plans in amounts at least sufficient to meet
the minimum requirements of U.S. federal laws and
regulations or applicable local laws and regulations. The assets
of the various plans are invested in corporate equities,
corporate debt securities, government securities and other
institutional arrangements. The portfolio of each plan depends
on plan design and applicable local laws. Depending on the
design of the plan, local custom and market circumstances, the
minimum liabilities of a plan may exceed qualified plan assets.
The company accrues for all such liabilities.
Benefit Obligation and Plan Assets
The changes in the benefit obligations, plan assets and funded
status for the plans described above were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Pension | |
|
Non-U.S. Pension | |
|
Postretirement | |
|
|
|
|
Benefits | |
|
Benefits | |
|
Medical Benefits | |
|
|
|
|
| |
|
| |
|
| |
(In Millions) |
|
|
|
2005 | |
|
2004 | |
|
2005 | |
|
2004 | |
|
2005 | |
|
2004 | |
|
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Change in projected benefit obligation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning benefit obligation |
|
$ |
42 |
|
|
$ |
49 |
|
|
$ |
327 |
|
|
$ |
306 |
|
|
$ |
177 |
|
|
$ |
178 |
|
Service cost |
|
|
2 |
|
|
|
2 |
|
|
|
31 |
|
|
|
29 |
|
|
|
10 |
|
|
|
15 |
|
Interest cost |
|
|
2 |
|
|
|
2 |
|
|
|
18 |
|
|
|
16 |
|
|
|
10 |
|
|
|
12 |
|
Plan participants contributions |
|
|
|
|
|
|
|
|
|
|
7 |
|
|
|
6 |
|
|
|
3 |
|
|
|
2 |
|
Actuarial (gain) loss |
|
|
(7 |
) |
|
|
(10 |
) |
|
|
146 |
|
|
|
(40 |
) |
|
|
(2 |
) |
|
|
(26 |
) |
Currency exchange rate changes |
|
|
|
|
|
|
|
|
|
|
(44 |
) |
|
|
17 |
|
|
|
|
|
|
|
|
|
Plan amendments |
|
|
199 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefits paid to plan participants |
|
|
(1 |
) |
|
|
(1 |
) |
|
|
(12 |
) |
|
|
(7 |
) |
|
|
(5 |
) |
|
|
(4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending projected benefit obligation |
|
$ |
237 |
|
|
$ |
42 |
|
|
$ |
473 |
|
|
$ |
327 |
|
|
$ |
193 |
|
|
$ |
177 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
70
INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Pension | |
|
Non-U.S. Pension | |
|
Postretirement | |
|
|
|
|
Benefits | |
|
Benefits | |
|
Medical Benefits | |
|
|
|
|
| |
|
| |
|
| |
(In Millions) |
|
|
|
2005 | |
|
2004 | |
|
2005 | |
|
2004 | |
|
2005 | |
|
2004 | |
|
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Change in plan assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning fair value of plan assets |
|
$ |
39 |
|
|
$ |
30 |
|
|
$ |
240 |
|
|
$ |
195 |
|
|
$ |
4 |
|
|
$ |
2 |
|
Actual return on plan assets |
|
|
1 |
|
|
|
3 |
|
|
|
41 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
Employer contributions |
|
|
187 |
|
|
|
7 |
|
|
|
96 |
|
|
|
31 |
|
|
|
1 |
|
|
|
4 |
|
Plan participants contributions |
|
|
|
|
|
|
|
|
|
|
7 |
|
|
|
6 |
|
|
|
2 |
|
|
|
2 |
|
Currency exchange rate changes |
|
|
|
|
|
|
|
|
|
|
(32 |
) |
|
|
11 |
|
|
|
|
|
|
|
|
|
Benefits paid to participants |
|
|
(1 |
) |
|
|
(1 |
) |
|
|
(12 |
) |
|
|
(7 |
) |
|
|
(5 |
) |
|
|
(4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending fair value of plan assets |
|
$ |
226 |
|
|
$ |
39 |
|
|
$ |
340 |
|
|
$ |
240 |
|
|
$ |
2 |
|
|
$ |
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Pension | |
|
Non-U.S. Pension | |
|
Postretirement | |
|
|
|
|
Benefits | |
|
Benefits | |
|
Medical Benefits | |
|
|
|
|
| |
|
| |
|
| |
(In Millions) |
|
|
|
2005 | |
|
2004 | |
|
2005 | |
|
2004 | |
|
2005 | |
|
2004 | |
|
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Funded status: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending funded status |
|
$ |
(11 |
) |
|
$ |
(3 |
) |
|
$ |
(133 |
) |
|
$ |
(87 |
) |
|
$ |
(191 |
) |
|
$ |
(173 |
) |
Unrecognized transition obligation |
|
|
|
|
|
|
|
|
|
|
2 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
Unrecognized net actuarial (gain) loss |
|
|
(2 |
) |
|
|
5 |
|
|
|
112 |
|
|
|
(3 |
) |
|
|
4 |
|
|
|
6 |
|
Unrecognized prior service cost |
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
29 |
|
|
|
33 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized |
|
$ |
(13 |
) |
|
$ |
3 |
|
|
$ |
(19 |
) |
|
$ |
(88 |
) |
|
$ |
(158 |
) |
|
$ |
(134 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amounts recognized on the balance sheet for the plans
described above were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Pension | |
|
Non-U.S. Pension | |
|
Postretirement | |
|
|
|
|
Benefits | |
|
Benefits | |
|
Medical Benefits | |
|
|
|
|
| |
|
| |
|
| |
(In Millions) |
|
|
|
2005 | |
|
2004 | |
|
2005 | |
|
2004 | |
|
2005 | |
|
2004 | |
|
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Amounts recognized in the balance sheet: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid benefit cost |
|
$ |
|
|
|
$ |
3 |
|
|
$ |
58 |
|
|
$ |
40 |
|
|
$ |
|
|
|
$ |
|
|
Accrued benefit liability |
|
|
(13 |
) |
|
|
|
|
|
|
(93 |
) |
|
|
(131 |
) |
|
|
(158 |
) |
|
|
(134 |
) |
Deferred tax asset |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income |
|
|
|
|
|
|
|
|
|
|
16 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized |
|
$ |
(13 |
) |
|
$ |
3 |
|
|
$ |
(19 |
) |
|
$ |
(88 |
) |
|
$ |
(158 |
) |
|
$ |
(134 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accumulated benefit obligations for the plans were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Pension | |
|
Non-U.S. Pension | |
|
Postretirement | |
|
|
|
|
Benefits | |
|
Benefits | |
|
Medical Benefits | |
|
|
|
|
| |
|
| |
|
| |
(In Millions) |
|
|
|
2005 | |
|
2004 | |
|
2005 | |
|
2004 | |
|
2005 | |
|
2004 | |
|
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Accumulated benefit obligation |
|
$ |
226 |
|
|
$ |
38 |
|
|
$ |
310 |
|
|
$ |
222 |
|
|
$ |
193 |
|
|
$ |
177 |
|
Included in the aggregate data in the tables below are the
aggregate amounts applicable to the companys 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) |
|
|
|
2005 | |
|
2004 | |
|
2005 | |
|
2004 | |
|
|
|
|
| |
|
| |
|
| |
|
| |
Plans with accumulated benefit obligations in excess of plan
assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated benefit obligations |
|
$ |
|
|
|
$ |
|
|
|
$ |
98 |
|
|
$ |
70 |
|
Plan assets |
|
$ |
|
|
|
$ |
|
|
|
$ |
13 |
|
|
$ |
18 |
|
|
Plans with projected benefit obligations in excess of plan
assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligations |
|
$ |
237 |
|
|
$ |
42 |
|
|
$ |
323 |
|
|
$ |
296 |
|
Plan assets |
|
$ |
226 |
|
|
$ |
39 |
|
|
$ |
146 |
|
|
$ |
205 |
|
71
INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 | |
|
|
| |
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2005 | |
|
2004 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Discount rate
|
|
|
5.4 |
% |
|
|
5.6 |
% |
|
|
5.4 |
% |
|
|
5.9 |
% |
|
|
5.6 |
% |
|
|
5.6 |
% |
Expected return on plan assets
|
|
|
5.6 |
% |
|
|
8.0 |
% |
|
|
6.1 |
% |
|
|
6.3 |
% |
|
|
|
|
|
|
|
|
Rate of compensation increase
|
|
|
5.0 |
% |
|
|
5.0 |
% |
|
|
4.0 |
% |
|
|
3.5 |
% |
|
|
|
|
|
|
|
|
Future profit sharing contributions
|
|
|
8.0 |
% |
|
|
8.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the postretirement medical benefit plan, an increase in the
assumed healthcare cost trend rate of one percentage point each
year would not have a significant impact on the benefit
obligation because the plan provides defined credits that the
retiree can use to pay all or a portion of the cost to purchase
medical coverage.
Weighted-average actuarial assumptions used to determine costs
for the plans were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Pension | |
|
Non-U.S. Pension | |
|
Postretirement | |
|
|
Benefits | |
|
Benefits | |
|
Medical Benefits | |
|
|
| |
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2005 | |
|
2004 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Discount rate
|
|
|
5.6 |
% |
|
|
6.0 |
% |
|
|
5.9 |
% |
|
|
5.9 |
% |
|
|
5.6 |
% |
|
|
6.0 |
% |
Expected return on plan assets
|
|
|
8.0 |
% |
|
|
8.0 |
% |
|
|
6.3 |
% |
|
|
6.3 |
% |
|
|
|
|
|
|
|
|
Rate of compensation increase
|
|
|
5.0 |
% |
|
|
5.0 |
% |
|
|
3.5 |
% |
|
|
3.5 |
% |
|
|
|
|
|
|
|
|
Future profit sharing contributions
|
|
|
8.0 |
% |
|
|
8.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the U.S. plan, the discount rate was developed by
calculating the benefit payment streams by year to determine
when benefit payments will be due. The benefit payment streams
were then matched by year to U.S. Treasury zero coupon
strips to match the timing and amount of the expected benefit
payments. The company adjusted the zero coupon rate by a
historical credit risk spread, and discounted it back to the
measurement date to determine the appropriate discount rate. For
the
non-U.S. plans,
the discount rate was developed by analyzing long-term bond
rates and matching the bond maturity with the average duration
of the pension liabilities. Several factors are considered in
developing the asset return assumptions for the U.S. and
non-U.S. plans.
The company analyzed rates of return relevant to the country
where each plan is in effect and the investments applicable to
the plan. Additional analysis was performed in order to reflect
expectations of future returns. The company analyzed local
actuarial projections as well as the projected rates of return
from investment managers. The expected long-term rate of return
shown for the
non-U.S. plan
assets is weighted to reflect each countrys 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) |
|
|
|
2005 | |
|
2004 | |
|
2003 | |
|
2005 | |
|
2004 | |
|
2003 | |
|
2005 | |
|
2004 | |
|
2003 | |
|
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Service cost |
|
$ |
4 |
|
|
$ |
4 |
|
|
$ |
7 |
|
|
$ |
31 |
|
|
$ |
29 |
|
|
$ |
27 |
|
|
$ |
11 |
|
|
$ |
15 |
|
|
$ |
12 |
|
Interest cost |
|
|
2 |
|
|
|
2 |
|
|
|
2 |
|
|
|
18 |
|
|
|
16 |
|
|
|
18 |
|
|
|
10 |
|
|
|
11 |
|
|
|
10 |
|
Expected return on plan assets |
|
|
(3 |
) |
|
|
(2 |
) |
|
|
(2 |
) |
|
|
(18 |
) |
|
|
(14 |
) |
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of prior service cost |
|
|
|
|
|
|
1 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4 |
|
|
|
4 |
|
|
|
4 |
|
Recognized net actuarial loss |
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost |
|
$ |
3 |
|
|
$ |
5 |
|
|
$ |
9 |
|
|
$ |
31 |
|
|
$ |
31 |
|
|
$ |
45 |
|
|
$ |
25 |
|
|
$ |
31 |
|
|
$ |
26 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
72
INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
U.S. Plan Assets
In general, the investment strategy followed for U.S. plan
assets is designed to assure that the pension assets are
available to pay benefits as they come due and minimize market
risk. When deemed appropriate, a portion of the fund may be
invested 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 expected long-term rate of return for the
U.S. plan assets is 5.6%.
The asset allocation for the companys U.S. Pension
Plan at the end of fiscal 2005 and 2004, and the target
allocation rate for 2006, by asset category, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of Plan Assets |
|
|
|
|
|
|
|
Asset Category |
|
|
|
Target Allocation1 |
|
2005 |
|
2004 |
|
|
|
|
|
|
|
|
|
Equity securities |
|
13.0% |
|
15.0% |
|
100.0% |
Debt securities |
|
87.0% |
|
85.0% |
|
|
|
|
|
|
1 |
The companys investment policy was revised in 2005 to
invest a larger portion of the U.S. plan assets in debt
securities, which is consistent with the companys goal of
minimizing market risk and paying benefits as they come due. |
Non-U.S. Plan
Assets
The
non-U.S. plans
investments 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 Intel or local regulations. Performance is
evaluated by comparing the actual rate of return to the return
of other similar assets. Investments that are managed by
qualified insurance companies or pension funds under standard
contracts follow local regulations, and Intel is not actively
involved in the investment strategy. In general, the investment
strategy followed 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%.
The asset allocation for the companys
non-U.S. plans,
excluding assets managed by qualified insurance companies, at
the end of fiscal 2005 and 2004, and the target allocation rate
for 2006, by asset category, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of Plan Assets |
|
|
|
|
|
|
|
Asset Category |
|
|
|
Target Allocation |
|
2005 |
|
2004 |
|
|
|
|
|
|
|
|
|
Equity securities |
|
67.0% |
|
67.0% |
|
79.0% |
Debt securities |
|
21.0% |
|
21.0% |
|
13.0% |
Other |
|
12.0% |
|
12.0% |
|
8.0% |
Investments that are managed by qualified insurance companies
are invested as part of the insurance companies general
fund. Intel does not have control over the target allocation of
these investments. These investments made up 30% of total
non-U.S. plan
assets in 2005 (35% in 2004).
Funding Expectations
No further contributions are required during 2006 under
applicable law for the U.S. Pension Plan. The company
intends to make voluntary contributions so that assets are not
less than the accumulated benefit obligation at the end of the
year. Expected funding for the
non-U.S. plans
during 2006 is approximately $55 million. Employer
contributions to the postretirement medical benefits plan are
expected to be approximately $5 million during 2006.
Estimated Future Benefit Payments
The total benefits to be paid from the U.S. and
non-U.S. pension
plans and other postretirement benefit plans are not expected to
exceed $60 million in any year through 2015.
73
INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 13: Acquisitions and Divestitures
Business Combinations
All of the companys acquisitions that qualified as
business combinations have been accounted for using the purchase
method of accounting. Consideration includes the cash paid and
the value of any options assumed, less any cash acquired, and
excludes contingent employee compensation payable in cash and
any debt assumed. The company accounts for the intrinsic value
of stock options assumed related to future services as unearned
compensation within stockholders equity.
During 2005, the company completed three acquisitions qualifying
as business combinations in exchange for aggregate net cash
consideration of $177 million, plus certain liabilities.
Most of this consideration was allocated to goodwill and related
to businesses within the all other category for
segment reporting purposes. During 2004, the company completed
one acquisition qualifying as a business combination in exchange
for net cash consideration of approximately $33 million,
plus certain liabilities. The company also completed one
acquisition in 2003 qualifying as a business combination in
exchange for net cash consideration of $21 million, plus
certain liabilities. The operating results since the date of
acquisition of the businesses acquired are included in the
segment that completed the acquisition.
Development-Stage Operations
An acquisition of a development-stage operation does not qualify
as a business combination under SFAS No. 141,
Business Combinations, and purchase consideration
for such an acquisition is not allocated to goodwill.
Workforce-in-place
qualifies as an identified intangible asset for an acquisition
of a development-stage operation.
During 2005, the company acquired a development-stage operation
in exchange for total net cash consideration of
$19 million, which resulted in the recording of
workforce-in-place of
$20 million. During 2004, there were no acquisitions
qualifying as development-stage operations. During 2003, the
company acquired a development-stage operation in exchange for
total net cash consideration of approximately $40 million,
all of which was allocated to
workforce-in-place. The
operating results of these acquisitions are included in the
segment completing the acquisition, as appropriate, for segment
reporting purposes.
Divestitures
During 2003, the company recognized approximately
$758 million in tax benefits related to sales of the stock
of certain previously acquired companies, primarily DSP
Communications, Inc. (DSP), Dialogic Corporation and Xircom,
Inc. A net benefit of approximately $420 million was
recognized on the divestiture of a portion of the intellectual
property assets of DSP, through the sale of the stock of DSP. A
benefit of approximately $200 million was recognized on the
divestiture of a portion of the assets, primarily real estate,
of Dialogic, through the sale of the stock of Dialogic, and a
benefit of approximately $125 million was recognized
related to the sale of a wireless WAN business, through the sale
of the stock of Xircom. The pre-tax gains and losses on these
sales for financial statement or book purposes were not
significant. The company was able to recognize tax losses
because the tax basis in the entities exceeded the book basis,
as the goodwill allocated to the transactions for financial
statement purposes was less than the amount the company could
effectively deduct for tax purposes.
Note 14: Goodwill
During the first quarter of 2005, the company reorganized its
business groups to bring all major product groups in line with
the companys strategy to design and deliver technology
platforms (see Note 19: Operating Segment and
Geographic Information). Due to this reorganization of the
companys business groups during the first quarter of 2005,
goodwill was allocated to the new reporting units based on the
estimated fair value of each business group within its original
reporting unit relative to the estimated fair value of that
reporting unit. In the fourth quarter of 2005, the company added
the Flash Memory Group (FMG). As the flash products group was a
separate reporting unit in MG, with no goodwill assigned, the
transfer of the flash products group to FMG did not change the
goodwill recorded within the operating segments. The majority of
the all other category goodwill is included in the
Digital Home Group operating segment, which is also a reporting
unit.
74
INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Goodwill attributed to operating segments for the years ended
December 25, 2004 and December 31, 2005 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intel | |
|
Intel | |
|
Digital | |
|
|
|
|
|
|
|
|
|
|
Communications | |
|
Architecture | |
|
Enterprise | |
|
|
|
|
|
|
|
|
|
|
Group | |
|
Business | |
|
Group | |
|
Mobility Group | |
|
All Other | |
|
Total | |
(In Millions) |
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 27, 2003 |
|
$ |
3,638 |
|
|
$ |
67 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
3,705 |
|
Transfer |
|
|
(466 |
) |
|
|
466 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions |
|
|
29 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29 |
|
Other |
|
|
(15 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 25, 2004 |
|
|
3,186 |
|
|
|
533 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,719 |
|
Transfer |
|
|
(3,186 |
) |
|
|
(533 |
) |
|
|
3,403 |
|
|
|
258 |
|
|
|
58 |
|
|
|
|
|
Additions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
165 |
|
|
|
165 |
|
Other |
|
|
|
|
|
|
|
|
|
|
(3 |
) |
|
|
(8 |
) |
|
|
|
|
|
|
(11 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2005 |
|
$ |
|
|
|
$ |
|
|
|
$ |
3,400 |
|
|
$ |
250 |
|
|
$ |
223 |
|
|
$ |
3,873 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During 2005, the company completed three acquisitions for total
purchase consideration, net of cash acquired, of
$177 million, plus liabilities assumed, which resulted in
goodwill of $165 million. The operating results of the
acquired companies have been reported in the all
other category from the date of acquisition.
During 2005 and 2004, the company completed its annual reviews
and concluded that goodwill was not impaired in either year.
During 2003, under the former reporting unit structure, the
company found indicators of impairment of goodwill and recorded
a non-cash impairment charge of $611 million, which was
included as a component of operating income in the all
other category for segment reporting purposes. Under the
former reporting structure, the wireless communications business
unit had not performed as management had expected. It became
apparent that the business was expected to grow more slowly than
had previously been projected. A slower-than-expected rollout of
products and slower-than-expected customer acceptance of the
reporting units products in the cellular baseband
processor business, as well as a delay in the transition to
next-generation phone networks, had pushed out the forecasts for
sales into high-end data cell phones. These factors resulted in
lower growth expectations for the reporting unit and triggered
the goodwill impairment. Also during 2003, the goodwill related
to one of the companys small seed businesses, included in
the all other category, was impaired.
Note 15: Identified Intangible Assets
Identified intangible assets are classified within other assets
on the balance sheet and consisted of the following as of
December 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated | |
|
|
(In Millions) |
|
|
|
Gross Assets | |
|
Amortization | |
|
Net | |
|
|
|
|
| |
|
| |
|
| |
Intellectual property assets |
|
$ |
976 |
|
|
$ |
(382 |
) |
|
$ |
594 |
|
Acquisition-related developed technology |
|
|
300 |
|
|
|
(275 |
) |
|
|
25 |
|
Other acquisition-related intangibles |
|
|
112 |
|
|
|
(77 |
) |
|
|
35 |
|
|
|
|
|
|
|
|
|
|
|
Total identified intangible assets |
|
$ |
1,388 |
|
|
$ |
(734 |
) |
|
$ |
654 |
|
|
|
|
|
|
|
|
|
|
|
Intellectual property assets primarily represent technology
licenses. During 2005, the company acquired intellectual
property assets for $209 million with a weighted average
life of nine years. The majority of the intellectual property
assets acquired represented the value of assets capitalized as a
result of a settlement agreement with MicroUnity, Inc. (see
Note 18: Contingencies). Pursuant to the
agreement, Intel agreed to pay MicroUnity a total of
$300 million, of which $140 million was charged to
cost of sales, in exchange for a technology license. The charge
to cost of sales related to the portion of the license
attributable to certain product sales through the third quarter
of 2005. The remaining $160 million represented the value
of the intellectual property assets capitalized and is being
amortized over the assets remaining useful lives.
Other acquisition-related intangibles include items such as
workforce-in-place and
customer lists. In 2005, the company acquired a
development-stage operation related to the hiring of a group of
employees, which resulted in the recording of
workforce-in-place of
$20 million with an estimated useful life of two years.
75
INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Identified intangible assets as of December 25, 2004
consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated | |
|
|
(In Millions) |
|
|
|
Gross Assets | |
|
Amortization | |
|
Net | |
|
|
|
|
| |
|
| |
|
| |
Intellectual property assets |
|
$ |
799 |
|
|
$ |
(285 |
) |
|
$ |
514 |
|
Acquisition-related developed technology |
|
|
631 |
|
|
|
(514 |
) |
|
|
117 |
|
Other acquisition-related intangibles |
|
|
91 |
|
|
|
(45 |
) |
|
|
46 |
|
|
|
|
|
|
|
|
|
|
|
Total identified intangible assets |
|
$ |
1,521 |
|
|
$ |
(844 |
) |
|
$ |
677 |
|
|
|
|
|
|
|
|
|
|
|
During 2004, the company acquired intellectual property assets
for $250 million with a weighted average life of eight
years. The majority of the intellectual property assets acquired
in 2004 related to a cross-license agreement for cash
consideration of $143 million. Also included was the value
of assets capitalized as a result of a settlement agreement with
Intergraph Corporation. Intel and Intergraph entered into a
settlement agreement, pursuant to which Intel agreed to pay
Intergraph a total of $225 million, and Intergraph agreed
to dismiss certain pending litigation, granted license rights in
favor of Intel and Intels customers, and covenanted not to
sue any Intel customer for products that include an Intel
microprocessor, Intel chipset and Intel motherboard. As a result
of the settlement agreement, Intel recorded a $162 million
charge to cost of sales in the first quarter of 2004. The
remaining $63 million represented the value of intellectual
property assets capitalized and is being amortized over the
assets remaining useful lives.
In 2004, the company acquired $18 million in developed
technology in connection with an acquisition qualifying as a
business combination with an estimated useful life of four years
(see Note 13: Acquisitions and Divestitures).
Also in 2004, the company entered into certain arrangements
related to the hiring of a group of employees that resulted in
the recording of
workforce-in-place of
$28 million with an estimated useful life of three years.
All of the companys identified intangible assets are
subject to amortization. Amortization of intellectual property
assets was $123 million in 2005 ($120 million in 2004
and $118 million in 2003). The amortization of an
intellectual property asset is generally included in either cost
of sales or research and development. Amortization of
acquisition-related intangibles and costs was $126 million
for 2005 ($179 million for 2004 and $301 million for
2003).
Based on identified intangible assets recorded at
December 31, 2005, and assuming no subsequent impairment of
the underlying assets, the annual amortization expense for each
period, excluding acquisition-related stock compensation and
other acquisition-related costs, is expected to be as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Millions) |
|
|
|
2006 | |
|
2007 | |
|
2008 | |
|
2009 | |
|
2010 | |
|
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
Intellectual property assets |
|
$ |
129 |
|
|
$ |
99 |
|
|
$ |
89 |
|
|
$ |
62 |
|
|
$ |
50 |
|
Acquisition-related intangibles |
|
$ |
42 |
|
|
$ |
17 |
|
|
$ |
1 |
|
|
$ |
|
|
|
$ |
|
|
Note 16: Venture
During January 2006, Micron and Intel formed IM Flash
Technologies, LLC (IMFT), a company that manufactures NAND flash
memory. IMFT will manufacture products for Micron and Intel.
Initial production from IMFT began in early 2006. Production
will take place in manufacturing facilities located in Idaho,
Virginia and Utah.
As part of the initial capital contribution to IMFT, Intel paid
$500 million in cash, issued $581 million in notes,
and owes an additional $115 million in cash in exchange for
a 49% interest. In exchange for a 51% interest, Micron
contributed assets valued at $995 million and
$250 million in cash. Intel is currently committed to
purchasing 49% of IMFTs production output and
production-related services.
IMFT will be governed by a Board of Managers, with the parties
initially appointing an equal number of managers to the Board of
Managers. The number of managers appointed by each party adjusts
depending upon the parties ownership interests in IMFT.
IMFT will operate until 2015, but is subject to prior
termination under certain terms and conditions.
Subject to certain conditions, Intel and Micron will each
contribute approximately an additional $1.4 billion over
the next three years. As part of Intels agreement with
Micron related to IMFT, subject to the approval of Intel and
Micron, Intel may be required to make additional capital
contributions to IMFT for new fabrication facilities.
76
INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
IMFT is a variable interest entity as defined by FASB
Interpretation No. 46(R), Consolidation of Variable
Interest Entities (FIN 46), because all positive and
negative variances in IMFTs cost structure are passed on
to Intel and Micron through their purchase agreement with IMFT.
Micron and Intel are considered related parties under the
provisions of FIN 46, and Intel has determined that Intel
is not the primary beneficiary of IMFT. Accordingly, Intel will
account for its interest in IMFT using the equity method of
accounting. Intels maximum exposure to loss as a result of
its involvement with IMFT is $1.2 billion as of January
2006, which represents Intels initial investment.
Intels investment in IMFT will be classified in other
assets on the balance sheet.
Concurrent with the formation of IMFT, Intel paid Micron
$270 million for product designs developed by Micron as
well as certain other intellectual property. Intel owns the
rights with respect to all product designs and will license the
designs to Micron. Micron paid Intel $40 million to license
these initial product designs and will pay additional royalties
on new product designs. Intel has reflected its net investment
in this technology of $230 million as an identified
intangible asset. The identified intangible asset will be
amortized into cost of sales over its expected five-year life.
Costs incurred by Intel and Micron for product and process
development related to IMFT are generally split evenly between
Intel and Micron and will be classified as research and
development.
Additionally, Intel has entered into a long-term supply
agreement with Apple Computer, Inc. to supply a significant
portion of the NAND flash memory output that Intel will purchase
from IMFT through December 31, 2010. In January 2006, Apple
pre-paid $250 million to Intel that will be applied to
purchases of NAND flash memory by Apple beginning in 2008.
Note 17: Commitments
The company leases a portion of its capital equipment and
certain of its facilities under operating leases that expire at
various dates through 2021. Additionally, the company leases
portions of its land that expire at various dates through 2059.
Rental expense was $150 million in 2005 ($136 million
in 2004 and $149 million in 2003). Minimum rental
commitments under all non-cancelable leases with an initial term
in excess of one year are payable as follows:
2006$114 million; 2007$79 million;
2008$62 million; 2009$47 million;
2010$30 million; 2011 and
beyond$102 million. Commitments for construction or
purchase of property, plant and equipment remained approximately
flat at $2.7 billion at December 31, 2005 compared to
$2.8 billion at December 25, 2004. These capital
purchase obligations relate primarily to capital equipment for
manufacturing process technology. Other commitments as of
December 31, 2005 totaled $448 million. Other
commitments include payments due under various types of licenses
and non-contingent funding obligations. Funding obligations
include, for example, agreements to fund various projects with
other companies. In addition, in January 2006, the company
entered into various contractual commitments related to the IMFT
venture with Micron (see Note 16: Venture).
Note 18: Contingencies
Tax Matters
In connection with the IRSs regular examination of
Intels tax returns for the years 1999 and 2000, the IRS
formally assessed in early 2005 certain adjustments to the
amounts reflected by Intel on those returns as a tax benefit for
its export sales. Also in 2005, the IRS formally assessed
similar adjustments to the amounts reflected by Intel for the
years 2001 and 2002 as a tax benefit for export sales. The
company does not agree with these adjustments and has appealed
the assessments. If the IRS prevails in its position,
Intels federal income tax due for 1999 through 2002 would
increase by approximately $1.0 billion, plus interest. The
IRS may make similar claims for years subsequent to 2002 in
future audits, and if the IRS prevails, income tax due for 2003
through 2005 would increase by approximately $1.2 billion,
plus interest.
Although the final resolution of the adjustments is uncertain,
based on currently available information, management believes
that the ultimate outcome will not have a material adverse
effect on the companys financial position, cash flows or
overall trends in results of operations. There is the
possibility of a material adverse impact on the results of
operations of the period in which the matter is ultimately
resolved, if it is resolved unfavorably, or in the period in
which an unfavorable outcome becomes probable and reasonably
estimable.
77
INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Legal Proceedings
In June 2005, Advanced Micro Devices, Inc. (AMD) filed a
complaint in the United States District Court for the District
of Delaware alleging that Intel and Intels Japanese
subsidiary engaged in various actions in violation of the
Sherman Act and the California Business and Professions Code,
including providing secret and discriminatory discounts and
rebates and intentionally interfering with prospective business
advantages of AMD. AMDs complaint seeks unspecified treble
damages, punitive damages, an injunction and attorneys
fees and costs. Subsequently, AMDs Japanese subsidiary
also filed suits in the Tokyo High Court and the Tokyo District
Court against Intels Japanese subsidiary, asserting
violations of Japans Antimonopoly Law and alleging damages
of approximately $55 million, plus various other costs and
fees. At least 79 separate class actions, generally repeating
AMDs allegations and asserting various consumer injuries,
including that consumers in various states have been injured by
paying higher prices for Intel microprocessors, have been filed
in the U.S. District Courts for the Northern District of
California, Southern District of California and the District of
Delaware, as well as in various California, Kansas and Tennessee
state courts. All the federal class actions have been
consolidated by the Multidistrict Litigation Panel to the
District of Delaware. All California class actions have been
consolidated to the Superior Court of California in
Santa Clara County. Intel disputes AMDs claims and
the class-action claims, and intends to defend the lawsuits
vigorously.
Intel is also subject to certain antitrust regulatory inquiries.
In 2001, the European Commission commenced an investigation
regarding claims by AMD that Intel used unfair business
practices to persuade clients to buy Intel microprocessors. In
June 2005, Intel received an inquiry from the Korea Fair Trade
Commission requesting documents from Intels Korean
subsidiary related to marketing and rebate programs that Intel
entered into with Korean PC manufacturers. Intel is cooperating
with these agencies in their investigations and expects that
these matters will be acceptably resolved.
In March 2004, MicroUnity, Inc. filed suit against Intel and
Dell Inc. in the Eastern District of Texas. MicroUnity claimed
that
Intel®
Pentium® III,
Pentium® 4,
Pentium® M
and
Itanium® 2
processors infringed seven MicroUnity patents, and that certain
Intel chipsets infringed one MicroUnity patent. MicroUnity
sought an injunction, unspecified damages and attorneys
fees against both Intel and Dell. In October 2005, MicroUnity
and Intel entered into a license agreement whereby Intel agreed
to pay MicroUnity $300 million for a
paid-up license to all
MicroUnity patents and for certain other rights including rights
on behalf of Intel customers. Under the agreement, MicroUnity
dismissed all claims in the lawsuit against Intel and Dell with
prejudice.
In June 2002, various plaintiffs filed a lawsuit in the Third
Judicial Circuit Court, Madison County, Illinois, against Intel,
Gateway Inc., Hewlett-Packard Company and HPDirect, Inc.,
alleging that the defendants advertisements and statements
misled the public by suppressing and concealing the alleged
material fact that systems containing Intel Pentium 4 processors
are less powerful and slower than systems containing Intel
Pentium III processors
and a competitors microprocessors. In July 2004, the Court
certified against Intel an Illinois-only class of certain
end-use purchasers of certain Pentium 4 processors or computers
containing such microprocessors. The Court denied
plaintiffs motion for reconsideration of this ruling. In
January 2005, the Court granted a motion filed jointly by the
plaintiffs and Intel that stayed the proceedings in the trial
court pending appellate review of the Courts class
certification order. The plaintiffs seek unspecified damages and
attorneys fees and costs. Intel disputes the
plaintiffs claims and intends to defend the lawsuit
vigorously.
The company is currently a party to various claims and legal
proceedings, including those noted above. If management believes
that a loss arising from these matters is probable and can
reasonably be estimated, the company records the amount of the
loss, or the minimum estimated liability when the loss is
estimated using a range, and no point within the range is more
probable than another. As additional information becomes
available, any potential liability related to these matters is
assessed and the estimates are revised, if necessary. Based on
currently available information, management believes that the
ultimate outcome of these matters, individually and in the
aggregate, will not have a material adverse effect on the
companys financial position, cash flows or overall trends
in results of operations. However, litigation is subject to
inherent uncertainties, and unfavorable rulings could occur. An
unfavorable ruling could include monetary damages or, in cases
where injunctive relief is sought, an injunction prohibiting
Intel from selling one or more products. If an unfavorable
ruling were to occur, there exists the possibility of a material
adverse impact on the business results of operations for the
period in which the ruling occurs, or future periods.
78
INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 19: Operating Segment and Geographic Information
During the first quarter of 2005, the company reorganized its
operating segments to bring all major product groups in line
with the companys strategy to design and deliver
technology platforms. The operating segments after the
first-quarter
reorganization included the Digital Enterprise Group, the
Mobility Group, the Digital Home Group, the Digital Health Group
and the Channel Platforms Group. In the fourth quarter of 2005,
the company added the Flash Memory Group. The Digital Enterprise
Group and the Mobility Group are reportable operating segments.
The Flash Memory Group, Digital Home Group, Digital Health Group
and Channel Platforms Group operating segments do not meet the
quantitative thresholds for reportable segments as defined by
SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information. However, the Flash
Memory Group is reported separately, as management believes that
this information is useful to the reader. The Digital Home
Group, Digital Health Group and Channel Platforms Group
operating segments are included within the all other
category. All
prior-period amounts
have been adjusted retrospectively to reflect the new
organizational structure and certain minor reorganizations
effected through the fourth quarter of 2005.
The Chief Operating Decision Maker (CODM), as defined by
SFAS No. 131, is the companys President and
Chief Executive Officer (CEO), Paul S. Otellini. The CODM
allocates resources to and assesses the performance of each
operating segment using information about its revenue and
operating income (loss) before interest and taxes.
The Digital Enterprise Group operating segments products
include microprocessors and related chipsets and motherboards
designed for the desktop (including consumer desktop) and
enterprise computing market segments, communications
infrastructure components such as network processors and
embedded microprocessors, wired connectivity devices, and
products for network and server storage. The Mobility Group
operating segments products include microprocessors and
related chipsets designed for the notebook computing market
segment, wireless connectivity products, and application and
cellular baseband processors used in cellular handsets and
handheld computing devices. The Flash Memory Group operating
segments products include NOR flash memory products
designed for cellular phones and embedded form factors such as
set-top boxes, networking products, and other devices including
DVD players and DSL and cable modems. Beginning in 2006, the
Flash Memory Groups products will also include NAND flash
memory products manufactured by IMFT. Revenue for the all
other category primarily consists of microprocessors and
related chipsets sold by the Digital Home Group.
In addition to these operating segments, the company has sales
and marketing, manufacturing, finance and administration groups.
Expenses of these groups are generally allocated to the
operating segments and are included in the operating results
reported below. In addition to the operating results for the
Digital Home Group, Digital Health Group and Channel Platforms
Group operating segments, the all other category
includes certain corporate-level operating expenses, including a
portion of profit-dependent bonus and other expenses not
allocated to the operating segments. All other also
includes the results of operations of seed businesses that
support the companys initiatives. Finally, all
other includes acquisition-related costs, including
amortization and any impairments of acquisition-related
intangibles and goodwill, and charges for purchased in-process
research and development. In 2003, acquisition-related costs
included a goodwill impairment charge of $611 million for
the remaining goodwill balance related to the former Wireless
Communications and Computing Group operating segment.
The company does not identify or allocate assets by operating
segment, nor does the CODM evaluate operating segments using
discrete asset information. Operating segments do not record
intersegment revenue, and, accordingly, there is none to be
reported. The company does not allocate interest and other
income, interest expense 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 the company
as a whole.
79
INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Net revenue and operating income or loss for operating segments
for the three years ended December 31, 2005 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Millions) |
|
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
|
|
| |
|
| |
|
| |
Net revenue |
|
|
|
|
|
|
|
|
|
|
|
|
Digital Enterprise Group |
|
|
|
|
|
|
|
|
|
|
|
|
Microprocessor revenue |
|
$ |
19,412 |
|
|
$ |
19,426 |
|
|
$ |
17,991 |
|
Chipset, motherboard and
other revenue |
|
|
5,725 |
|
|
|
5,352 |
|
|
|
5,068 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,137 |
|
|
|
24,778 |
|
|
|
23,059 |
|
Mobility Group |
|
|
|
|
|
|
|
|
|
|
|
|
Microprocessor revenue |
|
|
8,704 |
|
|
|
5,667 |
|
|
|
4,120 |
|
Chipset, motherboard and
other revenue |
|
|
2,427 |
|
|
|
1,314 |
|
|
|
966 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,131 |
|
|
|
6,981 |
|
|
|
5,086 |
|
Flash Memory Group |
|
|
2,278 |
|
|
|
2,285 |
|
|
|
1,608 |
|
All other |
|
|
280 |
|
|
|
165 |
|
|
|
388 |
|
|
|
|
|
|
|
|
|
|
|
Total net
revenue |
|
$ |
38,826 |
|
|
$ |
34,209 |
|
|
$ |
30,141 |
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
Digital Enterprise Group |
|
$ |
9,006 |
|
|
$ |
8,851 |
|
|
$ |
8,017 |
|
Mobility Group |
|
|
5,330 |
|
|
|
2,833 |
|
|
|
1,743 |
|
Flash Memory Group |
|
|
(154 |
) |
|
|
(149 |
) |
|
|
(152 |
) |
All other |
|
|
(2,092 |
) |
|
|
(1,405 |
) |
|
|
(2,075 |
) |
|
|
|
|
|
|
|
|
|
|
Total
operating income |
|
$ |
12,090 |
|
|
$ |
10,130 |
|
|
$ |
7,533 |
|
|
|
|
|
|
|
|
|
|
|
In 2005, one customer accounted for 19% of the companys
net revenue (19% in 2004 and 2003) while another customer
accounted for 16% in 2005 (16% in 2004 and 15% in 2003). The
majority of the revenue from both of these customers was from
the sale of microprocessors, chipsets, and other components by
the Digital Enterprise Group and Mobility Group operating
segments.
Geographic revenue information for the three years ended
December 31, 2005 is based on the location of the customer.
Property, plant and equipment information is based on the
physical location of the assets at the end of each of the fiscal
years.
Revenue from unaffiliated customers by geographic region/country
was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Millions) |
|
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
|
|
| |
|
| |
|
| |
Asia-Pacific |
|
|
|
|
|
|
|
|
|
|
|
|
Taiwan |
|
$ |
7,225 |
|
|
$ |
5,391 |
|
|
$ |
4,405 |
|
China |
|
|
5,347 |
|
|
|
4,651 |
|
|
|
3,679 |
|
Other Asia-Pacific |
|
|
6,758 |
|
|
|
5,338 |
|
|
|
4,077 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,330 |
|
|
|
15,380 |
|
|
|
12,161 |
|
Europe |
|
|
8,210 |
|
|
|
7,755 |
|
|
|
6,868 |
|
Americas |
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
|
5,662 |
|
|
|
6,563 |
|
|
|
7,644 |
|
Other Americas |
|
|
1,912 |
|
|
|
1,402 |
|
|
|
759 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,574 |
|
|
|
7,965 |
|
|
|
8,403 |
|
Japan |
|
|
3,712 |
|
|
|
3,109 |
|
|
|
2,709 |
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
$ |
38,826 |
|
|
$ |
34,209 |
|
|
$ |
30,141 |
|
|
|
|
|
|
|
|
|
|
|
Revenue from unaffiliated customers outside the
U.S. totaled $33,164 million in 2005
($27,646 million in 2004 and $22,497 million in 2003).
Net property, plant and equipment by country was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Millions) |
|
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
|
|
| |
|
| |
|
| |
United States |
|
$ |
11,211 |
|
|
$ |
11,265 |
|
|
$ |
12,483 |
|
Ireland1 |
|
|
3,192 |
|
|
|
2,365 |
|
|
|
2,392 |
|
Other
countries1 |
|
|
2,708 |
|
|
|
2,138 |
|
|
|
1,786 |
|
|
|
|
|
|
|
|
|
|
|
Total property, plant and equipment, net |
|
$ |
17,111 |
|
|
$ |
15,768 |
|
|
$ |
16,661 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
Net property, plant and equipment outside the
U.S. totaled $5,900 million in 2005
($4,503 million in 2004 and $4,178 million in
2003). |
80
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 31, 2005 and
December 25, 2004, and the related consolidated statements
of income, stockholders equity, and cash flows for each of
the three years in the period ended December 31, 2005. 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
companys 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 31,
2005 and December 25, 2004, and the consolidated results of
its operations and its cash flows for each of the three years in
the period ended December 31, 2005, 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.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
effectiveness of Intel Corporations internal control over
financial reporting as of December 31, 2005, based on
criteria established in Internal ControlIntegrated
Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission and our report dated February 21,
2006 expressed an unqualified opinion thereon.
/s/ ERNST & YOUNG LLP
San Jose, California
February 21, 2006
81
REPORT OF ERNST & YOUNG LLP, INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders, Intel
Corporation
We have audited managements assessment, included in the
accompanying Management Report on Internal Control Over
Financial Reporting, that Intel Corporation maintained effective
internal control over financial reporting as of
December 31, 2005, based on criteria established in
Internal ControlIntegrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
(the COSO criteria). Intel Corporations management is
responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness
of internal control over financial reporting. Our responsibility
is to express an opinion on managements assessment and an
opinion on the effectiveness of the companys 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, evaluating
managements assessment, testing and evaluating the design
and operating effectiveness of internal control, 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 companys 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 companys
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
companys 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, managements assessment that Intel
Corporation maintained effective internal control over financial
reporting as of December 31, 2005, is fairly stated, in all
material respects, based on the COSO criteria. Also, in our
opinion, Intel Corporation maintained, in all material respects,
effective internal control over financial reporting as of
December 31, 2005, based on the COSO criteria.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
2005 consolidated financial statements of Intel Corporation and
our report dated February 21, 2006 expressed an unqualified
opinion thereon.
/s/ ERNST & YOUNG LLP
San Jose, California
February 21, 2006
82
INTEL CORPORATION
FINANCIAL INFORMATION BY QUARTER (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In MillionsExcept Per Share Amounts) |
|
|
|
|
|
|
|
|
|
|
2005 For Quarter Ended |
|
|
|
December 31 | |
|
October 1 | |
|
July 2 | |
|
April 2 | |
|
|
|
|
| |
|
| |
|
| |
|
| |
Net revenue |
|
$ |
10,201 |
|
|
$ |
9,960 |
|
|
$ |
9,231 |
|
|
$ |
9,434 |
|
Gross margin |
|
$ |
6,300 |
|
|
$ |
5,948 |
|
|
$ |
5,203 |
|
|
$ |
5,598 |
|
Net
income1 |
|
$ |
2,453 |
|
|
$ |
1,995 |
|
|
$ |
2,038 |
|
|
$ |
2,178 |
|
Basic earnings per
share1 |
|
$ |
0.41 |
|
|
$ |
0.33 |
|
|
$ |
0.33 |
|
|
$ |
0.35 |
|
Diluted earnings per
share1 |
|
$ |
0.40 |
|
|
$ |
0.32 |
|
|
$ |
0.33 |
|
|
$ |
0.35 |
|
Dividends per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Declared |
|
$ |
|
|
|
$ |
0.16 |
|
|
$ |
|
|
|
$ |
0.16 |
|
Paid |
|
$ |
0.08 |
|
|
$ |
0.08 |
|
|
$ |
0.08 |
|
|
$ |
0.08 |
|
Market price range common
stock2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High |
|
$ |
27.43 |
|
|
$ |
28.71 |
|
|
$ |
27.70 |
|
|
$ |
25.11 |
|
Low |
|
$ |
22.65 |
|
|
$ |
23.83 |
|
|
$ |
22.12 |
|
|
$ |
21.99 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In MillionsExcept Per Share Amounts) |
|
|
|
|
|
|
|
|
|
|
2004 For Quarter Ended |
|
|
|
December 25 | |
|
September 25 | |
|
June 26 | |
|
March 27 | |
|
|
|
|
| |
|
| |
|
| |
|
| |
Net revenue |
|
$ |
9,598 |
|
|
$ |
8,471 |
|
|
$ |
8,049 |
|
|
$ |
8,091 |
|
Gross margin |
|
$ |
5,377 |
|
|
$ |
4,719 |
|
|
$ |
4,780 |
|
|
$ |
4,870 |
|
Net
income3 |
|
$ |
2,123 |
|
|
$ |
1,906 |
|
|
$ |
1,757 |
|
|
$ |
1,730 |
|
Basic earnings per
share3 |
|
$ |
0.34 |
|
|
$ |
0.30 |
|
|
$ |
0.27 |
|
|
$ |
0.27 |
|
Diluted earnings per
share3 |
|
$ |
0.33 |
|
|
$ |
0.30 |
|
|
$ |
0.27 |
|
|
$ |
0.26 |
|
Dividends per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Declared |
|
$ |
|
|
|
$ |
0.08 |
|
|
$ |
|
|
|
$ |
0.08 |
|
Paid |
|
$ |
0.04 |
|
|
$ |
0.04 |
|
|
$ |
0.04 |
|
|
$ |
0.04 |
|
Market price range common
stock2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High |
|
$ |
24.80 |
|
|
$ |
27.60 |
|
|
$ |
28.99 |
|
|
$ |
34.24 |
|
Low |
|
$ |
19.68 |
|
|
$ |
19.72 |
|
|
$ |
25.73 |
|
|
$ |
26.16 |
|
|
|
1 |
Net income for the quarter ended October 1, 2005
included an additional tax expense of approximately
$250 million related to the decision to repatriate
non-U.S. earnings,
decreasing both basic and diluted earnings per share by
$0.04 per share. Net income for the quarter ended
July 2, 2005 included $125 million of reversals of
previously accrued tax items, primarily related to an increase
in estimated research and development tax credits from prior
years, increasing both basic and diluted earnings per share by
$0.02. |
|
2 |
Intels common stock (symbol INTC) trades on The NASDAQ
Stock Market* and is quoted in the Wall Street Journal
and other newspapers. Intels common stock also trades on
The Swiss Exchange. At December 31, 2005, there were
approximately 220,000 registered holders of common stock. All
stock prices are closing prices per The NASDAQ Stock Market. |
|
3 |
Net income for the quarter ended September 25, 2004
included $195 million in tax benefits related to export
sales and state tax benefits for divestitures that exceeded the
amounts originally estimated in connection with the 2003
provision, increasing both basic and diluted earnings per share
by $0.03. Net income for the quarter ended June 26, 2004
included $62 million in tax benefits related to the
reversal of previously accrued taxes related primarily to the
closing of a state income tax audit, increasing both basic and
diluted earnings per share by $0.01. |
83
|
|
ITEM 9. |
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE |
Not applicable.
ITEM 9A. CONTROLS AND
PROCEDURES
Attached as exhibits to this
Form 10-K are
certifications of Intels Chief Executive Officer
(CEO) and Chief Financial Officer (CFO), which are required
in accordance with
Rule 13a-14 of the
Securities Exchange Act of 1934, as amended (the Exchange Act).
This Controls and Procedures section includes
information concerning the controls and controls evaluation
referred to in the certifications. Part II, Item 8 of
this Form 10-K
sets forth the report of Ernst & Young LLP, our
independent registered public accounting firm, regarding its
audit of Intels internal control over financial reporting
and of managements assessment of internal control over
financial reporting set forth below in this section. This
section should be read in conjunction with the certifications
and the Ernst & Young report for a more complete
understanding of the topics presented.
Evaluation of Disclosure Controls and Procedures
We conducted an evaluation of the effectiveness of the design
and operation of our disclosure controls and
procedures (Disclosure Controls) as of the end of the
period covered by this
Form 10-K. The
controls evaluation was conducted under the supervision and with
the participation of management, including our CEO and CFO.
Disclosure Controls are controls and procedures designed to
reasonably assure that information required to be disclosed in
our reports filed under the Exchange Act, such as this
Form 10-K, is
recorded, processed, summarized and reported within the time
periods specified in the SECs rules and forms. Disclosure
Controls are also designed to reasonably assure that such
information is accumulated and communicated to our management,
including the CEO and CFO, as appropriate to allow timely
decisions regarding required disclosure. Our quarterly
evaluation of Disclosure Controls includes an evaluation of some
components of our internal control over financial reporting, and
internal control over financial reporting is also separately
evaluated on an annual basis for purposes of providing the
management report which is set forth below.
The evaluation of our Disclosure Controls included a review of
the controls objectives and design, the companys
implementation of the controls and their effect on the
information generated for use in this
Form 10-K. In the
course of the controls evaluation, we reviewed identified data
errors, control problems or acts of fraud and sought to confirm
that appropriate corrective actions, including process
improvements, were being undertaken. This type of evaluation is
performed on a quarterly basis so that the conclusions of
management, including the CEO and CFO, concerning the
effectiveness of the Disclosure Controls can be reported in our
periodic reports on
Form 10-Q and
Form 10-K. Many of
the components of our Disclosure Controls are also evaluated on
an ongoing basis by our Internal Audit Department and by other
personnel in our Finance and Enterprise Services organization.
The overall goals of these various evaluation activities are to
monitor our Disclosure Controls, and to modify them as
necessary. Our intent is to maintain the Disclosure Controls as
dynamic systems that change as conditions warrant.
Based upon the controls evaluation, our CEO and CFO have
concluded that, as of the end of the period covered by this
Form 10-K, our
Disclosure Controls were effective to provide reasonable
assurance that information required to be disclosed in our
Exchange Act reports is recorded, processed, summarized and
reported within the time periods specified by the SEC, and that
material information related to Intel and its consolidated
subsidiaries is made known to management, including the CEO and
CFO, particularly during the period when our periodic reports
are being prepared.
Management Report on Internal Control Over Financial
Reporting
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting to provide
reasonable assurance regarding the reliability of our financial
reporting and the preparation of financial statements for
external purposes in accordance with U.S. generally accepted
accounting principles. Internal control over financial reporting
includes those policies and procedures that (i) pertain to
the maintenance of records that in reasonable detail accurately
and fairly reflect the transactions and dispositions of the
assets of the company; (ii) provide reasonable assurance
that transactions are recorded as necessary to permit
preparation of financial statements in accordance with U.S.
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 (iii) provide reasonable assurance regarding prevention
or timely detection of unauthorized acquisition, use or
disposition of the companys assets that could have a
material effect on the financial statements.
84
Management assessed our internal control over financial
reporting as of December 31, 2005, the end of our fiscal
year. Management based its assessment on criteria established in
Internal ControlIntegrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway
Commission. Managements assessment included evaluation of
such elements as the design and operating effectiveness of key
financial reporting controls, process documentation, accounting
policies and our overall control environment. This assessment is
supported by testing and monitoring performed by both our
Internal Audit organization and our Finance and Enterprise
Services organization.
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 financial statements for external reporting
purposes in accordance with U.S. generally accepted accounting
principles. We reviewed the results of managements
assessment with the Audit Committee of our Board of Directors.
In addition, on a quarterly basis we evaluate any changes to our
internal control over financial reporting to determine if
material changes occurred.
Our independent registered public accounting firm,
Ernst & Young LLP, audited managements assessment
and independently assessed the effectiveness of the
companys internal control over financial reporting.
Ernst & Young has issued an attestation report
concurring with managements assessment, which is included
at the end of Part II, Item 8 of this
Form 10-K.
Inherent Limitations on Effectiveness of Controls
The companys 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 systems 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, within the company have been
detected. These inherent limitations include the realities that
judgments in decision-making can be faulty and that breakdowns
can occur because of simple error or mistake. Controls can also
be circumvented by the individual acts of some persons, by
collusion of two or more people, or by management override of
the controls. 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 controls
effectiveness 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.
85
PART III
|
|
ITEM 10. |
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT |
The information regarding Directors and Executive Officers
appearing under the headings Proposal 1: Election of
Directors and Other MattersSection 16(a)
Beneficial Ownership Reporting Compliance of our 2006
Proxy Statement 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 included under the heading The Board, Board
Committees and Meetings of our 2006 Proxy Statement
identifying the audit committee financial expert who
serves on the Audit Committee of our Board of Directors and the
process by which stockholders may recommend candidates for the
Board of Directors to the Corporate Governance and Nominating
Committee is incorporated by reference in this section. There
were no changes to the process by which stockholders may
recommend candidates for the Board of Directors during 2005.
Intel has, for many years, maintained a set of Corporate
Business Principles that incorporate our code of ethics
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
Corporate Business Principles incorporate our guidelines
designed to deter wrongdoing and to promote honest and ethical
conduct and compliance with applicable laws and regulations.
They also incorporate 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, they incorporate Intel guidelines pertaining to topics
such as environmental, health and safety compliance; diversity
and non-discrimination; supplier expectations; privacy; and
business continuity.
The full text of our Corporate Business Principles is published
on our Investor Relations web site at www.intc.com. We
intend to disclose future amendments to certain provisions of
our Corporate Business Principles, or waivers of such provisions
granted to executive officers and directors, on this web site
within four business days following the date of such amendment
or waiver.
|
|
ITEM 11. |
EXECUTIVE COMPENSATION |
The information appearing under the headings
Directors Compensation, Stock Price
Performance Graph, Report of the Compensation
Committee on Executive Compensation, Compensation
Committee Interlocks and Insider Participation and
Executive Compensation of our 2006 Proxy Statement
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 2006 Proxy Statement under the
heading Security Ownership of Certain Beneficial Owners
and Management is incorporated by reference in this
section.
See Employee Equity Incentive Plans in Part II,
Item 7 of this
Form 10-K
regarding shares authorized for issuance under equity
compensation plans approved by stockholders and not approved by
stockholders. For descriptions of our equity incentive plans,
see Employee Equity Incentive Plans in Part II,
Item 7 and Note 11: Employee Equity Incentive
Plans in Part II, Item 8 of this
Form 10-K.
|
|
ITEM 13. |
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS |
The information appearing in our 2006 Proxy Statement under the
heading Certain Relationships and Related
Transactions is incorporated by reference in this section.
|
|
ITEM 14. |
PRINCIPAL ACCOUNTING FEES AND SERVICES |
The information appearing in our 2006 Proxy Statement under the
headings Report of the Audit Committee and
Proposal 4: Ratification of Selection of Independent
Registered Public Accounting Firm is incorporated by
reference in this section.
86
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 IIValuation and Qualifying
Accounts 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.
|
Intel, the Intel logo, Intel. Leap ahead., Intel Inside,
Celeron, Centrino, Intel Core, Intel SpeedStep, Intel
StrataFlash, Intel Viiv, Intel Xeon, Intel XScale, Itanium, and
Pentium are trademarks or registered trademarks of Intel
Corporation or its subsidiaries in the United States and other
countries.
*Other names and brands may be claimed as the property of
others.
87
INTEL CORPORATION
SCHEDULE IIVALUATION AND QUALIFYING ACCOUNTS
December 31, 2005, December 25, 2004 and
December 27, 2003
(In Millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions | |
|
|
|
|
|
|
Balance at | |
|
Charged to | |
|
|
|
|
|
|
Beginning of | |
|
Costs and | |
|
|
|
Balance at | |
|
|
Year | |
|
Expenses | |
|
Deductions | |
|
End of Year | |
|
|
| |
|
| |
|
| |
|
| |
Allowance for doubtful
receivables1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
$ |
43 |
|
|
$ |
35 |
|
|
$ |
14 |
|
|
$ |
64 |
|
2004
|
|
$ |
55 |
|
|
$ |
4 |
|
|
$ |
16 |
|
|
$ |
43 |
|
2003
|
|
$ |
57 |
|
|
$ |
14 |
|
|
$ |
16 |
|
|
$ |
55 |
|
|
Valuation allowance for deferred tax asset
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
$ |
75 |
|
|
$ |
11 |
|
|
$ |
|
|
|
$ |
86 |
|
2004
|
|
$ |
|
|
|
$ |
75 |
|
|
$ |
|
|
|
$ |
75 |
|
2003
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
1 |
Deductions represent uncollectible accounts written off, net
of recoveries. |
88
INDEX TO EXHIBITS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incorporated by Reference |
|
|
|
|
|
|
|
|
|
Exhibit |
|
|
|
|
|
Filing |
|
Filed |
Number |
|
Exhibit Description |
|
Form |
|
File Number |
|
Exhibit |
|
Date |
|
Herewith |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3 |
.1 |
|
Intel Corporation Second Restated Certificate of Incorporation
filed March 13, 2003 |
|
|
10-Q |
|
|
|
000-06217 |
|
|
|
3.1 |
|
|
|
5/7/03 |
|
|
|
|
|
|
|
3 |
.2 |
|
Intel Corporation Bylaws, as amended on January 18, 2006 |
|
|
8-K |
|
|
|
000-06217 |
|
|
|
3.1 |
|
|
|
1/19/06 |
|
|
|
|
|
|
|
4 |
.1 |
|
Registration Rights Agreement between Intel Corporation and
J.P. Morgan Securities Inc. dated December 16, 2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
X |
|
|
|
4 |
.2 |
|
Indenture issued by Intel Corporation to Citibank N.A., dated as
of December 16, 2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
X |
|
|
|
10 |
.1** |
|
Intel Corporation 2004 Equity Incentive Plan, as amended and
restated, effective May 18, 2005 |
|
|
8-K |
|
|
|
000-06217 |
|
|
|
10.1 |
|
|
|
5/20/05 |
|
|
|
|
|
|
|
10 |
.2** |
|
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 |
.3** |
|
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 |
.4** |
|
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 |
.5** |
|
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 |
.6** |
|
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 |
.7 |
|
Intel Corporation 1997 Stock Option Plan, as amended and
restated effective July 16, 1997 |
|
|
10-K |
|
|
|
000-06217 |
|
|
|
10.7 |
|
|
|
3/11/03 |
|
|
|
|
|
|
|
10 |
.8** |
|
Intel Corporation 1988 Executive Long Term Stock Option Plan, as
amended and restated effective July 16, 1997 |
|
|
10-Q |
|
|
|
333-45395 |
|
|
|
10.2 |
|
|
|
8/11/98 |
|
|
|
|
|
|
|
10 |
.9** |
|
Intel Corporation 1984 Stock Option Plan, as amended and
restated effective July 16, 1997 |
|
|
10-Q |
|
|
|
333-45395 |
|
|
|
10.1 |
|
|
|
8/11/98 |
|
|
|
|
|
|
|
10 |
.10** |
|
Standard Terms and Conditions Relating to Restricted Stock Units
granted under the Intel Corporation 2004 Equity Incentive Plan |
|
|
8-K |
|
|
|
000-06217 |
|
|
|
10.1 |
|
|
|
2/9/06 |
|
|
|
|
|
|
|
10 |
.11** |
|
Form of Intel Corporation Restricted Stock Unit Agreement under
the 2004 Equity Incentive Plan |
|
|
8-K |
|
|
|
000-06217 |
|
|
|
10.2 |
|
|
|
2/9/06 |
|
|
|
|
|
|
|
10 |
.12** |
|
Standard Terms and Conditions Relating to Restricted Stock Units
granted under the Intel Corporation 2004 Equity Incentive Plan
(for grants under the ELTSOP Program) |
|
|
8-K |
|
|
|
000-06217 |
|
|
|
10.3 |
|
|
|
2/9/06 |
|
|
|
|
|
|
|
10 |
.13** |
|
Form of Intel Corporation Restricted Stock Unit Agreement under
the 2004 Equity Incentive Plan (for grants under the ELTSOP
Program) |
|
|
8-K |
|
|
|
000-06217 |
|
|
|
10.4 |
|
|
|
2/9/06 |
|
|
|
|
|
|
|
10 |
.14** |
|
Form of Notice of Grant of Restricted Stock Units |
|
|
8-K |
|
|
|
000-06217 |
|
|
|
10.5 |
|
|
|
2/9/06 |
|
|
|
|
|
|
|
10 |
.15** |
|
Standard Terms and Conditions Relating to Non-Qualified Stock
Options granted on and after January 18, 2006 under the
Intel Corporation 2004 Equity Incentive Plan (other than grants
made under the SOP Plus or ELTSOP Programs) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
X |
|
|
|
10 |
.16** |
|
Form of Intel Corporation Nonqualified Stock Option Agreement
under the 2004 Equity Incentive Plan |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
X |
|
89
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incorporated by Reference |
|
|
|
|
|
|
|
|
|
Exhibit |
|
|
|
|
|
Filing |
|
Filed |
Number |
|
Exhibit Description |
|
Form |
|
File Number |
|
Exhibit |
|
Date |
|
Herewith |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10 |
.17** |
|
Terms and Conditions relating to Nonqualified Stock Options
granted on and after January 18, 2006 under the Intel
Corporation 2004 Equity Incentive Plan for grants formerly known
as ELTSOP Grants |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
X |
|
|
|
10 |
.18** |
|
Form of Intel Corporation Nonqualified Stock Option Agreement
under the 2004 Equity Incentive Plan (for grants after
January 18, 2006 under the ELTSOP Program) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
X |
|
|
|
10 |
.19** |
|
Intel Corporation Executive Officer Incentive Plan, as amended
and restated effective May 18, 2005 |
|
|
8-K |
|
|
|
000-06217 |
|
|
|
10.2 |
|
|
|
5/20/05 |
|
|
|
|
|
|
|
10 |
.20** |
|
Description of Bonus Terms under the Executive Officer Incentive
Plan |
|
|
10-Q |
|
|
|
000-06217 |
|
|
|
10.2 |
|
|
|
8/2/04 |
|
|
|
|
|
|
|
10 |
.21** |
|
Intel Corporation Deferral Plan for Outside Directors, effective
July 1, 1998 |
|
|
10-K |
|
|
|
333-45395 |
|
|
|
10.6 |
|
|
|
3/26/99 |
|
|
|
|
|
|
|
10 |
.22** |
|
Intel Corporation Special Deferred Compensation Plan |
|
|
S-8 |
|
|
|
333-45395 |
|
|
|
4.1 |
|
|
|
2/2/98 |
|
|
|
|
|
|
|
10 |
.23** |
|
Intel Corporation Sheltered Employee Retirement Plan Plus, as
amended and restated effective July 15, 1996 |
|
|
S-8 |
|
|
|
033-63489 |
|
|
|
4.1.1 |
|
|
|
7/17/96 |
|
|
|
|
|
|
|
10 |
.24** |
|
Form of Indemnification Agreement with Directors and Executive
Officers |
|
|
10-K |
|
|
|
000-06217 |
|
|
|
10.15 |
|
|
|
2/22/05 |
|
|
|
|
|
|
|
10 |
.25** |
|
Summary of Intel Corporation non-Employee Director Compensation |
|
|
8-K |
|
|
|
000-06217 |
|
|
|
10.1 |
|
|
|
7/25/05 |
|
|
|
|
|
|
|
10 |
.26** |
|
Named Executive Officer Compensation |
|
|
10-Q |
|
|
|
000-06217 |
|
|
|
10.1 |
|
|
|
5/11/05 |
|
|
|
|
|
|
|
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 |
|
**Management contracts or compensation plans or arrangements
in which directors or executive officers are eligible to
participate.
90
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 |
|
|
|
|
|
Andy D. Bryant |
|
Executive Vice President, Chief Financial Officer |
|
and Principal Accounting Officer |
|
February 24, 2006 |
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/ Craig R. Barrett
Craig R. Barrett
Chairman of the Board and Director
February 24, 2006 |
|
|
|
/s/ Paul S. Otellini
Paul S. Otellini
President, Chief Executive Officer, Director and
Principal Executive Officer
February 24, 2006 |
|
/s/ Charlene Barshefsky
Charlene Barshefsky
Director
February 24, 2006 |
|
|
|
/s/ James D. Plummer
James D. Plummer
Director
February 24, 2006 |
|
/s/ E. John P. Browne
E. John P. Browne
Director
February 24, 2006 |
|
|
|
/s/ David S. Pottruck
David S. Pottruck
Director
February 24, 2006 |
|
/s/ Andy D. Bryant
Andy D. Bryant
Executive Vice President, Chief Financial Officer and
Principal Accounting Officer
February 24, 2006 |
|
|
|
/s/ Jane E. Shaw
Jane E. Shaw
Director
February 24, 2006 |
|
/s/ D. James Guzy
D. James Guzy
Director
February 24, 2006 |
|
|
|
/s/ John L. Thornton
John L. Thornton
Director
February 24, 2006 |
|
/s/ Reed E. Hundt
Reed E. Hundt
Director
February 24, 2006 |
|
|
|
/s/ David B. Yoffie
David B. Yoffie
Director
February 24, 2006 |
91