10Q Document 3.30.2013
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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| | |
| þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| | For the quarterly period ended March 30, 2013. |
Or
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| | |
| ¨ | 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)
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| | |
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) |
(408) 765-8080
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
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 þ No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
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| | | | | | |
Large accelerated filer þ | | Accelerated filer ¨ | | Non-accelerated filer ¨ | | Smaller reporting company ¨ |
| | | | (Do not check if a smaller reporting company) | | |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ
Shares outstanding of the Registrant’s common stock:
|
| | |
Class | | Outstanding as of April 19, 2013 |
Common stock, $0.001 par value | | 4,971 million |
PART I – FINANCIAL INFORMATION
| |
ITEM 1. | FINANCIAL STATEMENTS |
INTEL CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (Unaudited)
|
| | | | | | | | |
| | Three Months Ended |
(In Millions, Except Per Share Amounts) | | Mar 30, 2013 | | Mar 31, 2012 |
Net revenue | | $ | 12,580 |
| | $ | 12,906 |
|
Cost of sales | | 5,514 |
| | 4,641 |
|
Gross margin | | 7,066 |
| | 8,265 |
|
Research and development | | 2,527 |
| | 2,401 |
|
Marketing, general and administrative | | 1,947 |
| | 1,973 |
|
Amortization of acquisition-related intangibles | | 73 |
| | 81 |
|
Operating expenses | | 4,547 |
| | 4,455 |
|
Operating income | | 2,519 |
| | 3,810 |
|
Gains (losses) on equity investments, net | | (26 | ) | | (19 | ) |
Interest and other, net | | (50 | ) | | 23 |
|
Income before taxes | | 2,443 |
| | 3,814 |
|
Provision for taxes | | 398 |
| | 1,076 |
|
Net income | | $ | 2,045 |
| | $ | 2,738 |
|
Basic earnings per common share | | $ | 0.41 |
| | $ | 0.55 |
|
Diluted earnings per common share | | $ | 0.40 |
| | $ | 0.53 |
|
Cash dividends declared per common share | | $ | 0.45 |
| | $ | 0.42 |
|
Weighted average common shares outstanding: | | | | |
Basic | | 4,948 |
| | 4,999 |
|
Diluted | | 5,080 |
| | 5,192 |
|
See accompanying notes.
INTEL CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
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| | | | | | | | |
| | Three Months Ended |
(In Millions) | | Mar 30, 2013 | | Mar 31, 2012 |
Net income | | $ | 2,045 |
| | $ | 2,738 |
|
Other comprehensive income, net of tax: | | | | |
Change in net unrealized holding gains (losses) on available-for-sale investments | | 173 |
| | 166 |
|
Change in net unrealized holding gains (losses) on derivatives | | (156 | ) | | (34 | ) |
Change in net prior service costs | | 1 |
| | 1 |
|
Change in net actuarial losses | | 34 |
| | 16 |
|
Change in net foreign currency translation adjustment | | (63 | ) | | 28 |
|
Other comprehensive income (loss) | | (11 | ) | | 177 |
|
Total comprehensive income | | $ | 2,034 |
| | $ | 2,915 |
|
See accompanying notes.
INTEL CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS (Unaudited)
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| | | | | | | | |
(In Millions) | | Mar 30, 2013 | | Dec 29, 2012 |
Assets | | | | |
Current assets: | | | | |
Cash and cash equivalents | | $ | 5,698 |
| | $ | 8,478 |
|
Short-term investments | | 4,323 |
| | 3,999 |
|
Trading assets | | 7,052 |
| | 5,685 |
|
Accounts receivable, net | | 3,536 |
| | 3,833 |
|
Inventories | | 4,358 |
| | 4,734 |
|
Deferred tax assets | | 2,109 |
| | 2,117 |
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Other current assets | | 1,601 |
| | 2,512 |
|
Total current assets | | 28,677 |
| | 31,358 |
|
| | | | |
Property, plant and equipment, net of accumulated depreciation of $39,023 ($38,063 as of December 29, 2012) | | 28,418 |
| | 27,983 |
|
Marketable equity securities | | 4,698 |
| | 4,424 |
|
Other long-term investments | | 1,309 |
| | 493 |
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Goodwill | | 9,756 |
| | 9,710 |
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Identified intangible assets, net | | 5,807 |
| | 6,235 |
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Other long-term assets | | 4,418 |
| | 4,148 |
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Total assets | | $ | 83,083 |
| | $ | 84,351 |
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| | | | |
Liabilities and stockholders’ equity | | | | |
Current liabilities: | | | | |
Short-term debt | | $ | 88 |
| | $ | 312 |
|
Accounts payable | | 2,654 |
| | 3,023 |
|
Accrued compensation and benefits | | 1,501 |
| | 2,972 |
|
Accrued advertising | | 987 |
| | 1,015 |
|
Deferred income | | 1,901 |
| | 1,932 |
|
Other accrued liabilities | | 4,667 |
| | 3,644 |
|
Total current liabilities |
| 11,798 |
| | 12,898 |
|
| | | | |
Long-term debt | | 13,143 |
| | 13,136 |
|
Long-term deferred tax liabilities | | 3,427 |
| | 3,412 |
|
Other long-term liabilities | | 3,521 |
| | 3,702 |
|
Contingencies (Note 18) | |
| |
|
Stockholders’ equity: | | | | |
Preferred stock | | — |
| | — |
|
Common stock and capital in excess of par value, 4,948 shares issued and outstanding (4,944 as of December 29, 2012) | | 20,098 |
| | 19,464 |
|
Accumulated other comprehensive income (loss) | | (410 | ) | | (399 | ) |
Retained earnings | | 31,506 |
| | 32,138 |
|
Total stockholders’ equity | | 51,194 |
| | 51,203 |
|
Total liabilities and stockholders’ equity | | $ | 83,083 |
| | $ | 84,351 |
|
See accompanying notes.
INTEL CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
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| | | | | | | | |
| | Three Months Ended |
(In Millions) | | Mar 30, 2013 | | Mar 31, 2012 |
Cash and cash equivalents, beginning of period | | $ | 8,478 |
| | $ | 5,065 |
|
Cash flows provided by (used for) operating activities: | | | | |
Net income | | 2,045 |
| | 2,738 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | | | |
Depreciation | | 1,682 |
| | 1,519 |
|
Share-based compensation | | 295 |
| | 274 |
|
Excess tax benefit from share-based payment arrangements | | (1 | ) | | (19 | ) |
Amortization of intangibles | | 382 |
| | 266 |
|
(Gains) losses on equity investments, net | | 26 |
| | 19 |
|
Deferred taxes | | (56 | ) | | (45 | ) |
Changes in assets and liabilities: | | | | |
Accounts receivable | | 293 |
| | (387 | ) |
Inventories | | 372 |
| | (381 | ) |
Accounts payable | | (17 | ) | | 37 |
|
Accrued compensation and benefits | | (1,370 | ) | | (1,450 | ) |
Income taxes payable and receivable | | 257 |
| | 760 |
|
Other assets and liabilities | | 377 |
| | (359 | ) |
Total adjustments | | 2,240 |
| | 234 |
|
Net cash provided by operating activities | | 4,285 |
| | 2,972 |
|
| | | | |
Cash flows provided by (used for) investing activities: | | | | |
Additions to property, plant and equipment | | (2,174 | ) | | (2,974 | ) |
Acquisitions, net of cash acquired | | (98 | ) | | (176 | ) |
Purchases of available-for-sale investments | | (3,475 | ) | | (1,529 | ) |
Sales of available-for-sale investments | | 304 |
| | 333 |
|
Maturities of available-for-sale investments | | 1,711 |
| | 1,827 |
|
Purchases of trading assets | | (5,191 | ) | | (4,303 | ) |
Maturities and sales of trading assets | | 3,558 |
| | 4,567 |
|
Collection of loans receivable | | 8 |
| | 133 |
|
Investments in non-marketable equity investments | | (35 | ) | | (116 | ) |
Return of equity method investments | | 13 |
| | 67 |
|
Purchases of licensed technology and patents | | (33 | ) | | (3 | ) |
Other investing | | 95 |
| | 63 |
|
Net cash used for investing activities | | (5,317 | ) | | (2,111 | ) |
| | | | |
Cash flows provided by (used for) financing activities: | | | | |
Increase (decrease) in short-term debt, net | | (224 | ) | | 115 |
|
Excess tax benefit from share-based payment arrangements | | 1 |
| | 19 |
|
Proceeds from sales of shares through employee equity incentive plans | | 465 |
| | 1,244 |
|
Repurchase of common stock | | (559 | ) | | (1,519 | ) |
Payment of dividends to stockholders | | (1,114 | ) | | (1,049 | ) |
Other financing | | (307 | ) | | (305 | ) |
Net cash used for financing activities | | (1,738 | ) | | (1,495 | ) |
| | | | |
Effect of exchange rate fluctuations on cash and cash equivalents | | (10 | ) | | (2 | ) |
| | | | |
Net increase (decrease) in cash and cash equivalents | | (2,780 | ) | | (636 | ) |
| | | | |
Cash and cash equivalents, end of period | | $ | 5,698 |
| | $ | 4,429 |
|
| | | | |
Supplemental disclosures of cash flow information: | | | | |
Cash paid during the period for: | | | | |
Interest, net of capitalized interest | | $ | — |
| | $ | 9 |
|
Income taxes, net of refunds | | $ | 200 |
| | $ | 376 |
|
See accompanying notes.
INTEL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — Unaudited
Note 1: Basis of Presentation
We prepared our interim consolidated condensed financial statements that accompany these notes in conformity with U.S. generally accepted accounting principles, consistent in all material respects with those applied in our Annual Report on Form 10-K for the year ended December 29, 2012.
We have made estimates and judgments affecting the amounts reported in our consolidated condensed financial statements and the accompanying notes. The actual results that we experience may differ materially from our estimates. The interim financial information is unaudited, but reflects all normal adjustments that are, in our opinion, necessary to provide a fair statement of results for the interim periods presented. This interim information should be read in conjunction with the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 29, 2012.
Note 2: Fair Value
Fair value is the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining fair value, we consider the principal or most advantageous market in which we would transact, and we consider assumptions that market participants would use when pricing the asset or liability. Our financial assets are measured and recorded at fair value, except for equity method investments, cost method investments, cost method loans receivable, and reverse repurchase agreements with original maturities greater than approximately three months. Most of our liabilities are not measured and recorded at fair value.
Fair Value Hierarchy
The three levels of inputs that may be used to measure fair value are as follows:
Level 1. Quoted prices in active markets for identical assets or liabilities.
Level 2. Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in less active markets, or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated with observable market data for substantially the full term of the assets or liabilities. Level 2 inputs also include non-binding market consensus prices that can be corroborated with observable market data, as well as quoted prices that were adjusted for security-specific restrictions.
Level 3. Unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of assets or liabilities. Level 3 inputs also include non-binding market consensus prices or non-binding broker quotes that we were unable to corroborate with observable market data.
INTEL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — Unaudited (Continued)
Investments in Debt Instruments
Debt investments reflected in the following table include investments such as asset-backed securities, bank deposits, commercial paper, corporate bonds, government bonds, money market fund deposits, municipal bonds, and reverse repurchase agreements classified as cash equivalents. When we use observable market prices for identical securities that are traded in less active markets, we classify our debt investments as Level 2. When observable market prices for identical securities are not available, we price our debt investments using non-binding market consensus prices that are corroborated with observable market data; quoted market prices for similar instruments; or pricing models, such as a discounted cash flow model, with all significant inputs derived from or corroborated with observable market data. Non-binding market consensus prices are based on the proprietary valuation models of pricing providers or brokers. These valuation models incorporate a number of inputs, including non-binding and binding broker quotes; observable market prices for identical or similar securities; and the internal assumptions of pricing providers or brokers that use observable market inputs and, to a lesser degree, unobservable market inputs. We corroborate non-binding market consensus prices with observable market data using statistical models when observable market data exists. The discounted cash flow model uses observable market inputs, such as LIBOR-based yield curves, currency spot and forward rates, and credit ratings.
Debt investments that are classified as Level 3 are classified as such due to the lack of observable market data to corroborate either the non-binding market consensus prices or the non-binding broker quotes. When observable market data is not available, we corroborate our fair value measurements using non-binding market consensus prices and non-binding broker quotes from a second source.
INTEL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — Unaudited (Continued)
Assets/Liabilities Measured and Recorded at Fair Value on a Recurring Basis
Assets and liabilities measured and recorded at fair value on a recurring basis consisted of the following types of instruments at the end of each period:
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| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 30, 2013 | | December 29, 2012 |
| | Fair Value Measured and Recorded at Reporting Date Using | | | | Fair Value Measured and Recorded at Reporting Date Using | | |
(In Millions) | | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total |
Assets | | | | | | | | | | | | | | | | |
Cash equivalents: | | | | | | | | | | | | | | | | |
Bank deposits | | $ | — |
| | $ | 1,149 |
| | $ | — |
| | $ | 1,149 |
| | $ | — |
| | $ | 822 |
| | $ | — |
| | $ | 822 |
|
Commercial paper | | — |
| | 2,172 |
| | — |
| | 2,172 |
| | — |
| | 2,711 |
| | — |
| | 2,711 |
|
Corporate bonds | | 12 |
| | 20 |
| | — |
| | 32 |
| | — |
| | — |
| | — |
| | — |
|
Government bonds | | 4 |
| | — |
| | — |
| | 4 |
| | 400 |
| | 66 |
| | — |
| | 466 |
|
Money market fund deposits | | 421 |
| | — |
| | — |
| | 421 |
| | 1,086 |
| | — |
| | — |
| | 1,086 |
|
Reverse repurchase agreements | | — |
| | 1,200 |
| | — |
| | 1,200 |
| | — |
| | 2,800 |
| | — |
| | 2,800 |
|
Short-term investments: | | | | | | | | | | | | | | | | |
Bank deposits | | — |
| | 591 |
| | — |
| | 591 |
| | — |
| | 540 |
| | — |
| | 540 |
|
Commercial paper | | — |
| | 1,854 |
| | — |
| | 1,854 |
| | — |
| | 1,474 |
| | — |
| | 1,474 |
|
Corporate bonds | | 161 |
| | 481 |
| | 16 |
| | 658 |
| | 75 |
| | 292 |
| | 21 |
| | 388 |
|
Government bonds | | 1,050 |
| | 170 |
| | — |
| | 1,220 |
| | 1,307 |
| | 290 |
| | — |
| | 1,597 |
|
Trading assets: | | | | | | | | | | | | | | | | |
Asset-backed securities | | — |
| | — |
| | 171 |
| | 171 |
| | — |
| | — |
| | 68 |
| | 68 |
|
Bank deposits | | — |
| | 266 |
| | — |
| | 266 |
| | — |
| | 247 |
| | — |
| | 247 |
|
Commercial paper | | — |
| | 435 |
| | — |
| | 435 |
| | — |
| | 336 |
| | — |
| | 336 |
|
Corporate bonds | | 1,769 |
| | 421 |
| | — |
| | 2,190 |
| | 482 |
| | 1,109 |
| | — |
| | 1,591 |
|
Government bonds | | 2,452 |
| | 1,287 |
| | — |
| | 3,739 |
| | 1,743 |
| | 1,479 |
| | — |
| | 3,222 |
|
Money market fund deposits | | 102 |
| | — |
| | — |
| | 102 |
| | 18 |
| | — |
| | — |
| | 18 |
|
Municipal bonds | | — |
| | 149 |
| | — |
| | 149 |
| | — |
| | 203 |
| | — |
| | 203 |
|
Other current assets: | | | | | | | | | | | | | | | | |
Derivative assets | | — |
| | 251 |
| | 1 |
| | 252 |
| | 12 |
| | 208 |
| | 1 |
| | 221 |
|
Loans receivable | | — |
| | 197 |
| | — |
| | 197 |
| | — |
| | 203 |
| | — |
| | 203 |
|
Marketable equity securities | | 4,698 |
| | — |
| | — |
| | 4,698 |
| | 4,424 |
| | — |
| | — |
| | 4,424 |
|
Other long-term investments: | | | | | | | | | | | | | | | | |
Asset-backed securities | | — |
| | — |
| | 11 |
| | 11 |
| | — |
| | — |
| | 11 |
| | 11 |
|
Bank deposits | | — |
| | 121 |
| | — |
| | 121 |
| | — |
| | 56 |
| | — |
| | 56 |
|
Corporate bonds | | 140 |
| | 400 |
| | 24 |
| | 564 |
| | 10 |
| | 218 |
| | 26 |
| | 254 |
|
Government bonds | | 224 |
| | 389 |
| | — |
| | 613 |
| | 59 |
| | 113 |
| | — |
| | 172 |
|
Other long-term assets: | | | | | | | | | | | | | | | | |
Derivative assets | | — |
| | 27 |
| | 20 |
| | 47 |
| | — |
| | 20 |
| | 18 |
| | 38 |
|
Loans receivable | | — |
| | 567 |
| | — |
| | 567 |
| | — |
| | 577 |
| | — |
| | 577 |
|
Total assets measured and recorded at fair value | | $ | 11,033 |
| | $ | 12,147 |
| | $ | 243 |
| | $ | 23,423 |
| | $ | 9,616 |
| | $ | 13,764 |
| | $ | 145 |
| | $ | 23,525 |
|
Liabilities | | | | | | | | | | | | | | | | |
Other accrued liabilities: | | | | | | | | | | | | | | | | |
Derivative liabilities | | $ | — |
| | $ | 442 |
| | $ | — |
| | $ | 442 |
| | $ | 1 |
| | $ | 291 |
| | $ | — |
| | $ | 292 |
|
Other long-term liabilities: | | | | | | | | | | | | | | | | |
Derivative liabilities | | — |
| | 33 |
| | — |
| | 33 |
| | — |
| | 20 |
| | — |
| | 20 |
|
Total liabilities measured and recorded at fair value | | $ | — |
| | $ | 475 |
| | $ | — |
| | $ | 475 |
| | $ | 1 |
| | $ | 311 |
| | $ | — |
| | $ | 312 |
|
INTEL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — Unaudited (Continued)
Government bonds include bonds issued or deemed to be guaranteed by government entities. Government bonds include instruments such as non-U.S. government bonds, U.S. agency securities, and U.S. Treasury securities. The underlying assets of most of our reverse repurchase agreements presented in the preceding table are government bonds.
During the first three months of 2013, we purchased $110 million of asset-backed securities and classified these investments as Level 3. During the first three months of 2013, we transferred approximately $615 million of corporate bonds and government bonds from Level 2 to Level 1 of the fair value hierarchy, primarily based on greater market activity for the underlying securities. Our policy is to reflect transfers between the fair value hierarchy levels at the beginning of the quarter in which a change in circumstances resulted in the transfer.
Fair Value Option for Loans Receivable
We elected the fair value option for loans receivable when the interest rate or foreign exchange rate risk was hedged at inception with a related derivative instrument. As of March 30, 2013, the fair value of our loans receivable for which we elected the fair value option did not significantly differ from the contractual principal balance based on the contractual currency. Loans receivable are classified within other current assets and other long-term assets. Fair value is determined using a discounted cash flow model, with all significant inputs derived from or corroborated with observable market data. Gains and losses from changes in fair value on the loans receivable and related derivative instruments, as well as interest income, are recorded in interest and other, net. During all periods presented, changes in the fair value of our loans receivable were largely offset by changes in the related derivative instruments, resulting in an insignificant net impact on our consolidated condensed statements of income. Gains and losses attributable to changes in credit risk are determined using observable credit default spreads for the issuer or comparable companies; these gains and losses were insignificant during all periods presented. We did not elect the fair value option for loans receivable when the interest rate or foreign exchange rate risk was not hedged at inception with a related derivative instrument. Loans receivable not measured and recorded at a fair value are included in the "Financial Instruments Not Recorded at Fair Value on a Recurring Basis" section that follows.
Assets Measured and Recorded at Fair Value on a Non-Recurring Basis
Our non-marketable equity investments, marketable equity method investments, and non-financial assets, such as intangible assets and property, plant and equipment, are recorded at fair value only if an impairment charge is recognized.
A portion of our non-marketable equity investments has been measured and recorded at fair value due to events or circumstances that significantly impacted the fair value of those investments, resulting in other-than-temporary impairment charges. We classified these measurements as Level 3, as we used unobservable inputs to the valuation methodologies that were significant to the fair value measurements, and the valuations required management judgment due to the absence of quoted market prices. Impairment charges recognized on non-marketable equity investments held as of March 30, 2013 were $14 million during the first three months of 2013 (impairment charges recognized on non-marketable equity investments held as of March 31, 2012 were $59 million during the first three months of 2012). The fair value of the non-marketable equity investments impaired during the first three months of 2013 was $19 million at the time of impairment ($11 million for non-marketable equity investments impaired during the first three months of 2012).
INTEL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — Unaudited (Continued)
Financial Instruments Not Recorded at Fair Value on a Recurring Basis
On a quarterly basis, we measure the fair value of our non-marketable cost method investments, indebtedness carried at amortized cost, cost method loans receivable, grants receivable, and reverse repurchase agreements with original maturities greater than approximately three months; however, the assets are recorded at fair value only when an impairment charge is recognized. The carrying amounts and fair values of certain financial instruments not recorded at fair value on a recurring basis at the end of each period were as follows:
|
| | | | | | | | | | | | | | | | | | | | |
| | March 30, 2013 |
(In Millions) | | Carrying Amount | | Fair Value Measured Using | | Fair Value |
Level 1 | | Level 2 | | Level 3 | |
Non-marketable cost method investments | | $ | 1,206 |
| | $ | — |
| | $ | — |
| | $ | 1,843 |
| | $ | 1,843 |
|
Loans receivable | | $ | 191 |
| | $ | — |
| | $ | 150 |
| | $ | 41 |
| | $ | 191 |
|
Reverse repurchase agreements | | $ | 65 |
| | $ | — |
| | $ | 65 |
| | $ | — |
| | $ | 65 |
|
Grants receivable | | $ | 321 |
| | $ | — |
| | $ | 327 |
| | $ | — |
| | $ | 327 |
|
Long-term debt | | $ | 13,143 |
| | $ | 11,467 |
| | $ | 2,743 |
| | $ | — |
| | $ | 14,210 |
|
Short-term debt | | $ | 70 |
| | $ | — |
| | $ | 70 |
| | $ | — |
| | $ | 70 |
|
NVIDIA Corporation cross-license agreement liability | | $ | 578 |
| | $ | — |
| | $ | 593 |
| | $ | — |
| | $ | 593 |
|
|
| | | | | | | | | | | | | | | | | | | | |
| | December 29, 2012 |
(In Millions) | | Carrying Amount | | Fair Value Measured Using | | Fair Value |
Level 1 | | Level 2 | | Level 3 | |
Non-marketable cost method investments | | $ | 1,202 |
| | $ | — |
| | $ | — |
| | $ | 1,766 |
| | $ | 1,766 |
|
Loans receivable | | $ | 199 |
| | $ | — |
| | $ | 150 |
| | $ | 48 |
| | $ | 198 |
|
Reverse repurchase agreements | | $ | 50 |
| | $ | — |
| | $ | 50 |
| | $ | — |
| | $ | 50 |
|
Grants receivable | | $ | 198 |
| | $ | — |
| | $ | 205 |
| | $ | — |
| | $ | 205 |
|
Long-term debt | | $ | 13,136 |
| | $ | 11,442 |
| | $ | 2,926 |
| | $ | — |
| | $ | 14,368 |
|
Short-term debt | | $ | 48 |
| | $ | — |
| | $ | 48 |
| | $ | — |
| | $ | 48 |
|
NVIDIA Corporation cross-license agreement liability | | $ | 875 |
| | $ | — |
| | $ | 890 |
| | $ | — |
| | $ | 890 |
|
As of March 30, 2013 and December 29, 2012, the unrealized loss position of our non-marketable cost method investments was insignificant.
Our non-marketable cost method investments are valued using the market and income approaches. The market approach includes the use of financial metrics and ratios of comparable public companies. The selection of comparable companies requires management judgment and is based on a number of factors, including comparable companies’ sizes, growth rates, industries, and development stages. The income approach includes the use of a discounted cash flow model, which requires significant estimates for investees’ revenue, costs, and discount rates based on the risk profile of comparable companies. Estimates of revenues and costs are developed using available market, historical, and forecast data. The valuation of these non-marketable cost method investments also takes into account variables such as conditions reflected in the capital markets, recent financing activities by the investees, the investees’ capital structure, the terms of the investees’ issued interests, and the lack of marketability of the investments.
The carrying amount and fair value of loans receivable exclude loans measured and recorded at a fair value of $764 million as of March 30, 2013 ($780 million as of December 29, 2012). The carrying amount and fair value of short-term debt exclude drafts payable.
INTEL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — Unaudited (Continued)
The fair value of our loans receivable and reverse repurchase agreements, including those held at fair value, is determined using a discounted cash flow model, with all significant inputs derived from or corroborated with observable market data, such as LIBOR-based yield curves, currency spot and forward rates, and credit ratings. The credit quality of these assets remains high, with credit ratings of A/A2 or better for most of our loans receivable and all of our reverse repurchase agreements as of March 30, 2013. Our long-term debt recognized at amortized cost comprises our senior notes and our convertible debentures. The fair value of our senior notes is determined using active market prices, and it is therefore classified as Level 1. The fair value of our convertible long-term debt is determined using discounted cash flow models with observable market inputs, and it takes into consideration variables such as interest rate changes, comparable securities, subordination discount, and credit-rating changes.
The fair value of our grants receivable is determined using a discounted cash flow model, which discounts future cash flows using an appropriate yield curve. As of March 30, 2013 and December 29, 2012, the carrying amount of our grants receivable was classified within other current assets and other long-term assets, as applicable.
The NVIDIA Corporation cross-license agreement liability in the preceding table was incurred as result of entering into a long-term patent cross-license agreement with NVIDIA in January 2011. We agreed to make payments to NVIDIA over six years. As of March 30, 2013 and December 29, 2012, the carrying amount of the liability arising from the agreement was classified within other accrued liabilities and other long-term liabilities, as applicable. The fair value is determined using a discounted cash flow model, which discounts future cash flows using our incremental borrowing rates.
INTEL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — Unaudited (Continued)
Note 3: Cash and Investments
Cash and investments at the end of each period were as follows: |
| | | | | | | | |
(In Millions) | | Mar 30, 2013 | | Dec 29, 2012 |
Available-for-sale investments | | $ | 14,108 |
| | $ | 14,001 |
|
Cash | | 720 |
| | 593 |
|
Equity method investments | | 962 |
| | 992 |
|
Loans receivable | | 955 |
| | 979 |
|
Non-marketable cost method investments | | 1,206 |
| | 1,202 |
|
Reverse repurchase agreements | | 1,265 |
| | 2,850 |
|
Trading assets | | 7,052 |
| | 5,685 |
|
Total cash and investments | | $ | 26,268 |
| | $ | 26,302 |
|
Available-for-Sale Investments
Available-for-sale investments at the end of each period were as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 30, 2013 | | December 29, 2012 |
(In Millions) | | Adjusted Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value | | Adjusted Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value |
Asset-backed securities | | $ | 12 |
| | $ | — |
| | $ | (1 | ) | | $ | 11 |
| | $ | 14 |
| | $ | — |
| | $ | (3 | ) | | $ | 11 |
|
Bank deposits | | 1,860 |
| | 1 |
| | — |
| | 1,861 |
| | 1,417 |
| | 1 |
| | — |
| | 1,418 |
|
Commercial paper | | 4,025 |
| | 1 |
| | — |
| | 4,026 |
| | 4,184 |
| | 1 |
| | — |
| | 4,185 |
|
Corporate bonds | | 1,250 |
| | 6 |
| | (2 | ) | | 1,254 |
| | 635 |
| | 8 |
| | (1 | ) | | 642 |
|
Government bonds | | 1,838 |
| | — |
| | (1 | ) | | 1,837 |
| | 2,235 |
| | — |
| | — |
| | 2,235 |
|
Marketable equity securities | | 3,355 |
| | 1,346 |
| | (3 | ) | | 4,698 |
| | 3,356 |
| | 1,069 |
| | (1 | ) | | 4,424 |
|
Money market fund deposits | | 421 |
| | — |
| | — |
| | 421 |
| | 1,086 |
| | — |
| | — |
| | 1,086 |
|
Total available-for-sale investments | | $ | 12,761 |
| | $ | 1,354 |
| | $ | (7 | ) | | $ | 14,108 |
| | $ | 12,927 |
| | $ | 1,079 |
| | $ | (5 | ) | | $ | 14,001 |
|
In the preceding table, government bonds include bonds issued or deemed to be guaranteed by government entities. Government bonds include instruments such as non-U.S. government bonds, U.S. agency securities, and U.S. Treasury securities. Bank deposits were primarily issued by institutions outside the U.S. as of March 30, 2013 and December 29, 2012.
The amortized cost and fair value of available-for-sale debt investments as of March 30, 2013, by contractual maturity, were as follows:
|
| | | | | | | | |
(In Millions) | | Cost | | Fair Value |
Due in 1 year or less | | $ | 7,678 |
| | $ | 7,680 |
|
Due in 1–2 years | | 1,113 |
| | 1,116 |
|
Due in 2–5 years | | 182 |
| | 182 |
|
Instruments not due at a single maturity date | | 433 |
| | 432 |
|
Total | | $ | 9,406 |
| | $ | 9,410 |
|
Instruments not due at a single maturity date in the preceding table include asset-backed securities and money market fund deposits.
INTEL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — Unaudited (Continued)
We sold available-for-sale investments for proceeds of $304 million in the first three months of 2013 ($333 million in the first three months of 2012).
For information on the unrealized holding gains (losses) on available-for-sale investments reclassified out of accumulated other comprehensive income into the consolidated condensed statements of income, see "Note 17: Comprehensive Income".
Equity Method Investments
IM Flash Technologies, LLC and IM Flash Singapore, LLP
Micron Technology, Inc. and Intel formed IM Flash Technologies, LLC (IMFT) and IM Flash Singapore, LLP (IMFS) to manufacture NAND flash memory products for Micron and Intel. During the second quarter of 2012, we entered into agreements with Micron that modified our joint venture relationship including an agreement to sell our ownership interest in IMFS. We received $605 million in the second quarter of 2012 from the sale of assets of IMFS and certain assets of IMFT to Micron. As of March 30, 2013, we own a 49% interest in the remaining assets held by IMFT. The carrying value of our investment in IMFT was $629 million as of March 30, 2013 ($642 million as of December 29, 2012) and is classified within other long-term assets.
As part of the agreements to modify our joint venture relationship, we also entered into an amended operating agreement for IMFT. This amended operating agreement extends the term of IMFT to 2024, unless earlier terminated under certain terms and conditions, and provides that IMFT may manufacture certain emerging memory technologies in addition to NAND flash memory. These agreements include a supply agreement for Micron to supply us with NAND flash memory products. We provided approximately $365 million to Micron in the second quarter of 2012, primarily for subsequent product purchases under the supply agreement with Micron. The agreements also extend and expand our NAND joint development program with Micron to include emerging memory technologies. Additionally, the amended agreement provides for certain rights that, beginning in 2015, will enable us to sell to Micron, or enable Micron to purchase from us, our interest in IMFT. If Intel exercises this right, Micron would set the closing date of the transaction within two years following such election and could elect to receive financing from Intel for one to two years.
IMFT is a variable interest entity. All costs of the IMFT joint venture will be passed on to Micron and Intel pursuant to our purchase agreements. Our portion of IMFT costs, primarily related to product purchases and production-related services, was approximately $100 million during the first three months of 2013 (approximately $240 million during the first three months of 2012 for IMFT and IMFS). Subsequent to the sale of our ownership interest in IMFS in the second quarter of 2012, we no longer incur costs related to IMFS. The amount due to IMFT for product purchases and services provided was approximately $95 million as of March 30, 2013 (approximately $90 million as of December 29, 2012). During the first three months of 2013, $13 million was returned to Intel by IMFT, which is reflected as a return of equity method investment within investing activities on the consolidated condensed statements of cash flows ($67 million during the first three months of 2012).
IMFT depends on Micron and Intel for any additional cash needs. Our known maximum exposure to loss approximated the carrying value of our investment balance in IMFT, which was $629 million as of March 30, 2013. Except for the amount due to IMFT for product purchases and services, we did not have any additional liabilities recognized on our consolidated condensed balance sheets in connection with our interests in this joint venture as of March 30, 2013. In addition, our potential future losses could be higher than the carrying amount of our investment, as Intel and Micron are liable for other future operating costs or obligations of IMFT. Future cash calls could also increase our investment balance and the related exposure to loss. In addition, because we are currently committed to purchasing 49% of IMFT’s production output and production-related services, we may be required to purchase products at a cost in excess of realizable value.
Under the accounting standards for consolidating variable interest entities, the consolidating investor is the entity with the power to direct the activities of the venture that most significantly impact the venture’s economic performance and with the obligation to absorb losses or the right to receive benefits from the venture that could potentially be significant to the venture. We have determined that we do not have both of these characteristics and, therefore, we account for our interest in IMFT and our prior interest in IMFS using the equity method of accounting.
INTEL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — Unaudited (Continued)
Trading Assets
As of March 30, 2013 and December 29, 2012, all of our trading assets were marketable debt instruments. Net losses related to trading assets still held at the reporting date were $163 million in the first three months of 2013 (net losses of $20 million in the first three months of 2012). Net gains on the related derivatives were $164 million in the first three months of 2013 (net gains of $28 million in the first three months of 2012).
Note 4: Inventories
Inventories at the end of each period were as follows:
|
| | | | | | | | |
(In Millions) | | Mar 30, 2013 | | Dec 29, 2012 |
Raw materials | | $ | 451 |
| | $ | 478 |
|
Work in process | | 2,129 |
| | 2,219 |
|
Finished goods | | 1,778 |
| | 2,037 |
|
Total inventories | | $ | 4,358 |
| | $ | 4,734 |
|
Note 5: Derivative Financial Instruments
Our primary objective for holding derivative financial instruments is to manage currency exchange rate risk and interest rate risk, and, to a lesser extent, equity market risk and commodity price risk. We currently do not hold derivative instruments for the purpose of managing credit risk as we limit the amount of credit exposure to any one counterparty and generally enter into derivative transactions with high-credit-quality counterparties. We also enter into master netting arrangements with counterparties when possible to mitigate credit risk in derivative transactions. A master netting arrangement may allow counterparties to net settle amounts owed to each other as a result of multiple, separate derivative transactions. For presentation on our consolidated condensed balance sheets, we do not offset fair value amounts recognized for derivative instruments under master netting arrangements.
Currency Exchange Rate Risk
We are exposed to currency exchange rate risk and generally hedge our exposures with currency forward contracts, currency interest rate swaps, or currency options. Substantially all of our revenue is transacted in U.S. dollars. However, a significant amount of our operating expenditures and capital purchases are incurred in or exposed to other currencies, primarily the euro, the Japanese yen, and the Israeli shekel. We have established balance sheet and forecasted transaction currency risk management programs to protect against fluctuations in fair value and the volatility of the functional currency equivalent of future cash flows caused by changes in exchange rates. Our non-U.S.-dollar-denominated investments in debt instruments and loans receivable are generally hedged with offsetting currency forward contracts or currency interest rate swaps. We may also hedge foreign currency risk arising from funding foreign currency denominated forecasted investments. These programs reduce, but do not eliminate, the impact of currency exchange movements.
Our currency risk management programs include:
| |
• | Currency derivatives with cash flow hedge accounting designation that utilize currency forward contracts and currency options to hedge exposures to the variability in the U.S.-dollar equivalent of anticipated non-U.S.-dollar-denominated cash flows. These instruments generally mature within 12 months. For these derivatives, we report the after-tax gain or loss from the effective portion of the hedge as a component of accumulated other comprehensive income (loss), and we reclassify it into earnings in the same period or periods in which the hedged transaction affects earnings, and in the same line item on the consolidated condensed statements of income as the impact of the hedged transaction. |
| |
• | Currency derivatives without hedge accounting designation that utilize currency forward contracts or currency interest rate swaps to economically hedge the functional currency equivalent cash flows of recognized monetary assets and liabilities, non-U.S.-dollar-denominated debt instruments classified as trading assets, and hedges of non-U.S.-dollar-denominated loans receivable recognized at fair value. The majority of these instruments mature within 12 months. Changes in the functional currency equivalent cash flows of the underlying assets and liabilities are approximately offset by the changes in fair value of the related derivatives. We record net gains or losses in the line item on the consolidated condensed statements of income most closely associated with the related exposures, primarily in interest and other, net, except for equity-related gains or losses, which we primarily record in gains (losses) on equity investments, net. |
INTEL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — Unaudited (Continued)
Interest Rate Risk
Our primary objective for holding investments in debt instruments is to preserve principal while maximizing yields. We generally swap the returns on our investments in fixed-rate debt instruments with remaining maturities longer than six months into U.S.-dollar three-month LIBOR-based returns, unless management specifically approves otherwise. These swaps are settled at various interest payment times involving cash payments at each interest and principal payment date, with the majority of the contracts having quarterly payments.
Our interest rate risk management programs include:
| |
• | Interest rate derivatives with cash flow hedge accounting designation that utilize interest rate swap agreements to modify the interest characteristics of debt instruments. For these derivatives, we report the after-tax gain or loss from the effective portion of the hedge as a component of accumulated other comprehensive income (loss), and we reclassify it into earnings in the same period or periods in which the hedged transaction affects earnings, and in the same line item on the consolidated condensed statements of income as the impact of the hedged transaction. |
| |
• | Interest rate derivatives without hedge accounting designation that utilize interest rate swaps and currency interest rate swaps in economic hedging transactions, including hedges of non-U.S.-dollar-denominated debt instruments classified as trading assets and hedges of non-U.S.-dollar-denominated loans receivable recognized at fair value. Floating interest rates on the swaps are reset on a quarterly basis. Changes in fair value of the debt instruments classified as trading assets and hedges of loans receivable recognized at fair value are generally offset by changes in fair value of the related derivatives, both of which are recorded in interest and other, net. |
Equity Market Risk
Our investments include marketable equity securities and equity derivative instruments. We typically do not attempt to reduce or eliminate our equity market exposure through hedging activities. Before we enter into hedge arrangements, we evaluate legal, market, and economic factors, as well as the expected timing of disposal to determine whether hedging is appropriate. Our equity market risk management program may include equity derivatives with or without hedge accounting designation that utilize warrants, equity options, or other equity derivatives. We recognize changes in the fair value of such derivatives in gains (losses) on equity investments, net.
We also utilize total return swaps to offset changes in liabilities related to the equity market risks of certain deferred compensation arrangements. Gains and losses from changes in fair value of these total return swaps are generally offset by the gains and losses on the related liabilities, both of which are recorded in cost of sales and operating expenses.
Commodity Price Risk
We operate facilities that consume commodities, and have established forecasted transaction risk management programs to protect against fluctuations in fair value and the volatility of future cash flows caused by changes in commodity prices, such as those for natural gas. These programs reduce, but do not always eliminate, the impact of commodity price movements.
Our commodity price risk management program includes commodity derivatives with cash flow hedge accounting designation that utilize commodity swap contracts to hedge future cash flow exposures to the variability in commodity prices. These instruments generally mature within 12 months. For these derivatives, we report the after-tax gain (loss) from the effective portion of the hedge as a component of accumulated other comprehensive income (loss) and reclassify it into earnings in the same period or periods in which the hedged transaction affects earnings, and in the same line item on the consolidated condensed statements of income as the impact of the hedged transaction.
INTEL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — Unaudited (Continued)
Volume of Derivative Activity
Total gross notional amounts for outstanding derivatives (recorded at fair value) at the end of each period were as follows:
|
| | | | | | | | | | | | |
(In Millions) | | Mar 30, 2013 | | Dec 29, 2012 | | Mar 31, 2012 |
Currency forwards | | $ | 13,141 |
| | $ | 13,117 |
| | $ | 11,116 |
|
Currency interest rate swaps | | 3,464 |
| | 2,711 |
| | 1,812 |
|
Embedded debt derivatives | | 3,600 |
| | 3,600 |
| | 3,600 |
|
Interest rate swaps | | 1,041 |
| | 1,101 |
| | 1,689 |
|
Total return swaps | | 859 |
| | 807 |
| | 821 |
|
Other | | 82 |
| | 127 |
| | 151 |
|
Total | | $ | 22,187 |
| | $ | 21,463 |
| | $ | 19,189 |
|
The gross notional amounts for currency forwards and currency interest rate swaps (presented by currency) at the end of each period were as follows:
|
| | | | | | | | | | | | |
(In Millions) | | Mar 30, 2013 | | Dec 29, 2012 | | Mar 31, 2012 |
British pound sterling | | $ | 422 |
| | $ | 308 |
| | $ | 523 |
|
Chinese yuan | | 572 |
| | 647 |
| | 803 |
|
Euro | | 6,800 |
| | 5,994 |
| | 3,553 |
|
Israeli shekel | | 1,974 |
| | 2,256 |
| | 1,823 |
|
Japanese yen | | 3,854 |
| | 4,389 |
| | 4,040 |
|
Malaysian ringgit | | 520 |
| | 442 |
| | 914 |
|
Swiss franc | | 1,312 |
| | 657 |
| | 237 |
|
Other | | 1,151 |
| | 1,135 |
| | 1,035 |
|
Total | | $ | 16,605 |
| | $ | 15,828 |
| | $ | 12,928 |
|
INTEL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — Unaudited (Continued)
Fair Values of Derivative Instruments in the Consolidated Condensed Balance Sheets
The fair values of our derivative instruments at the end of each period were as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 30, 2013 | | December 29, 2012 |
(In Millions) | | Other Current Assets | | Other Long-Term Assets | | Other Accrued Liabilities | | Other Long-Term Liabilities | | Other Current Assets | | Other Long-Term Assets | | Other Accrued Liabilities | | Other Long-Term Liabilities |
Derivatives designated as hedging instruments | | | | | | | | | | | | | | | | |
Currency forwards | | $ | 62 |
| | $ | 1 |
| | $ | 261 |
| | $ | 12 |
| | $ | 91 |
| | $ | 2 |
| | $ | 127 |
| | $ | — |
|
Other | | 1 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Total derivatives designated as hedging instruments | | $ | 63 |
| | $ | 1 |
| | $ | 261 |
| | $ | 12 |
| | $ | 91 |
| | $ | 2 |
| | $ | 127 |
| | $ | — |
|
Derivatives not designated as hedging instruments | | | | | | | | | | | | | | | | |
Currency forwards | | $ | 96 |
| | $ | — |
| | $ | 70 |
| | $ | — |
| | $ | 85 |
| | $ | — |
| | $ | 58 |
| | $ | — |
|
Currency interest rate swaps | | 92 |
| | 25 |
| | 74 |
| | 9 |
| | 33 |
| | 18 |
| | 72 |
| | 14 |
|
Embedded debt derivatives | | — |
| | — |
| | — |
| | 12 |
| | — |
| | — |
| | — |
| | 6 |
|
Interest rate swaps | | — |
| | — |
| | 37 |
| | — |
| | — |
| | — |
| | 34 |
| | — |
|
Total return swaps | | — |
| | — |
| | — |
| | — |
| | 11 |
| | — |
| | — |
| | — |
|
Other | | 1 |
| | 21 |
| | — |
| | — |
| | 1 |
| | 18 |
| | 1 |
| | — |
|
Total derivatives not designated as hedging instruments | | $ | 189 |
| | $ | 46 |
| | $ | 181 |
| | $ | 21 |
| | $ | 130 |
| | $ | 36 |
| | $ | 165 |
| | $ | 20 |
|
Total derivatives | | $ | 252 |
| | $ | 47 |
| | $ | 442 |
| | $ | 33 |
| | $ | 221 |
| | $ | 38 |
| | $ | 292 |
| | $ | 20 |
|
Derivatives in Cash Flow Hedging Relationships
The before-tax gains (losses), attributed to the effective portion of cash flow hedges, recognized in other comprehensive income during each period were as follows: |
| | | | | | | | |
| | Three Months Ended |
(In Millions) | | Mar 30, 2013 | | Mar 31, 2012 |
Currency forwards | | $ | (236 | ) | | $ | (74 | ) |
Other | | 1 |
| | — |
|
Total | | $ | (235 | ) | | $ | (74 | ) |
Gains and losses on derivative instruments in cash flow hedging relationships related to hedge ineffectiveness, as well as amounts excluded from effectiveness testing, were insignificant during all periods presented in the preceding tables. Additionally, for all periods presented, there was an insignificant impact on results of operations from discontinued cash flow hedges, which arises when forecasted transactions are probable of not occurring.
For information on the unrealized holding gains (losses) on derivatives reclassified out of accumulated other comprehensive income into the consolidated condensed statements of income, see "Note 17: Comprehensive Income".
INTEL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — Unaudited (Continued)
Derivatives Not Designated as Hedging Instruments
The effects of derivative instruments not designated as hedging instruments on the consolidated condensed statements of income during each period were as follows:
|
| | | | | | | | | | |
| | | | Three Months Ended |
(In Millions) | | Location of Gains (Losses) Recognized in Income on Derivatives | | Mar 30, 2013 | | Mar 31, 2012 |
Currency forwards | | Interest and other, net | | $ | 56 |
| | $ | 15 |
|
Currency interest rate swaps | | Interest and other, net | | 100 |
| | (56 | ) |
Interest rate swaps | | Interest and other, net | | — |
| | 30 |
|
Total return swaps | | Various | | 48 |
| | 59 |
|
Other | | Gains (losses) on equity investments, net | | 2 |
| | (2 | ) |
Total | | | | $ | 206 |
| | $ | 46 |
|
Note 6: Acquisitions
During the first three months of 2013, we completed two acquisitions qualifying as business combinations in exchange for aggregate net cash consideration of $98 million, most of which was allocated to goodwill. For information on the assignment of goodwill by operating segment related to these acquisitions, see “Note 7: Goodwill.” The completed acquisitions in the first three months of 2013, both individually and in the aggregate, were not significant to our results of operations.
Note 7: Goodwill
Goodwill activity in the first three months of 2013 was as follows:
|
| | | | | | | | | | | | | | | | | | | | |
(In Millions) | | PC Client Group | | Data Center Group | | Other Intel Architecture Operating Segments | | Software and Services Operating Segments | | Total |
December 29, 2012 | | $ | 2,962 |
| | $ | 1,839 |
| | $ | 916 |
| | $ | 3,993 |
| | $ | 9,710 |
|
Additions due to acquisitions | | — |
| | — |
| | 75 |
| | 13 |
| | 88 |
|
Transfers | | 22 |
| | (22 | ) | | — |
| | — |
| | — |
|
Effect of exchange rate fluctuations | | — |
| | — |
| | — |
| | (42 | ) | | (42 | ) |
March 30, 2013 | | $ | 2,984 |
| | $ | 1,817 |
| | $ | 991 |
| | $ | 3,964 |
| | $ | 9,756 |
|
In the first three months of 2013, we completed a reorganization that transferred a portion of our wired connectivity business formerly included within the Data Center Group (DCG) to the PC Client Group (PCCG), as the technology from that portion of the business is primarily used for client connectivity. Due to this reorganization, goodwill was transferred from DCG to PCCG. For further information see "Note 19: Operating Segments Information."
INTEL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — Unaudited (Continued)
Note 8: Identified Intangible Assets
Identified intangible assets at the end of each period were as follows:
|
| | | | | | | | | | | | |
| | March 30, 2013 |
(In Millions) | | Gross Assets | | Accumulated Amortization | | Net |
Acquisition-related developed technology | | $ | 2,769 |
| | $ | (1,250 | ) | | $ | 1,519 |
|
Acquisition-related customer relationships | | 1,691 |
| | (614 | ) | | 1,077 |
|
Acquisition-related trade names | | 68 |
| | (36 | ) | | 32 |
|
Licensed technology and patents | | 3,013 |
| | (766 | ) | | 2,247 |
|
Other intangible assets | | 189 |
| | (189 | ) | | — |
|
Identified intangible assets subject to amortization | | 7,730 |
| | (2,855 | ) | | 4,875 |
|
Acquisition-related trade names | | 803 |
| | — |
| | 803 |
|
Other intangible assets | | 129 |
| | — |
| | 129 |
|
Identified intangible assets not subject to amortization | | 932 |
| | — |
| | 932 |
|
Total identified intangible assets | | $ | 8,662 |
| | $ | (2,855 | ) | | $ | 5,807 |
|
|
| | | | | | | | | | | | |
| | December 29, 2012 |
(In Millions) | | Gross Assets | | Accumulated Amortization | | Net |
Acquisition-related developed technology | | $ | 2,778 |
| | $ | (1,116 | ) | | $ | 1,662 |
|
Acquisition-related customer relationships | | 1,712 |
| | (551 | ) | | 1,161 |
|
Acquisition-related trade names | | 68 |
| | (33 | ) | | 35 |
|
Licensed technology and patents | | 2,986 |
| | (699 | ) | | 2,287 |
|
Other intangible assets | | 238 |
| | (86 | ) | | 152 |
|
Identified intangible assets subject to amortization | | 7,782 |
| | (2,485 | ) | | 5,297 |
|
Acquisition-related trade names | | 809 |
| | — |
| | 809 |
|
Other intangible assets | | 129 |
| | — |
| | 129 |
|
Identified intangible assets not subject to amortization | | 938 |
| | — |
| | 938 |
|
Total identified intangible assets | | $ | 8,720 |
| | $ | (2,485 | ) | | $ | 6,235 |
|
For identified intangible assets that are subject to amortization, we recorded amortization expense on the consolidated condensed statements of income as follows: amortization of acquisition-related developed technology and licensed technology and patents is included in cost of sales, amortization of acquisition-related customer relationships and trade names is included in amortization of acquisition-related intangibles, and amortization of other intangible assets is recorded as a reduction of revenue.
Amortization expenses during each period were as follows:
|
| | | | | | | | |
| | Three Months Ended |
(In Millions) | | Mar 30, 2013 | | Mar 31, 2012 |
Acquisition-related developed technology | | $ | 140 |
| | $ | 137 |
|
Acquisition-related customer relationships | | $ | 70 |
| | $ | 78 |
|
Acquisition-related trade names | | $ | 3 |
| | $ | 3 |
|
Licensed technology and patents | | $ | 66 |
| | $ | 48 |
|
Other intangible assets | | $ | 103 |
| | $ | — |
|
INTEL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — Unaudited (Continued)
Based on the identified intangible assets that are subject to amortization as of March 30, 2013, we expect future amortization expense to be as follows:
|
| | | | | | | | | | | | | | | | | | | | |
(In Millions) | | Remainder of 2013 | | 2014 | | 2015 | | 2016 | | 2017 |
Acquisition-related developed technology | | $ | 411 |
| | $ | 527 |
| | $ | 254 |
| | $ | 167 |
| | $ | 47 |
|
Acquisition-related customer relationships | | $ | 202 |
| | $ | 258 |
| | $ | 241 |
| | $ | 223 |
| | $ | 132 |
|
Acquisition-related trade names | | $ | 8 |
| | $ | 10 |
| | $ | 9 |
| | $ | 4 |
| | $ | 1 |
|
Licensed technology and patents | | $ | 205 |
| | $ | 263 |
| | $ | 247 |
| | $ | 233 |
| | $ | 195 |
|
Note 9: Other Long-Term Assets
Other long-term assets at the end of each period were as follows:
|
| | | | | | | | |
(In Millions) | | Mar 30, 2013 | | Dec 29, 2012 |
Equity method investments | | $ | 962 |
| | $ | 992 |
|
Non-marketable cost method investments | | 1,206 |
| | 1,202 |
|
Non-current deferred tax assets | | 367 |
| | 358 |
|
Loans receivable | | 626 |
| | 644 |
|
Other | | 1,257 |
| | 952 |
|
Total other long-term assets | | $ | 4,418 |
| | $ | 4,148 |
|
Note 10: Deferred Income
Deferred income at the end of each period was as follows:
|
| | | | | | | | |
(In Millions) | | Mar 30, 2013 | | Dec 29, 2012 |
Deferred income on shipments of components to distributors | | $ | 705 |
| | $ | 694 |
|
Deferred income from software and services operating segments | | 1,196 |
| | 1,238 |
|
Current deferred income | | 1,901 |
| | 1,932 |
|
Non-current deferred income from software and services operating segments | | 423 |
| | 473 |
|
Total deferred income | | $ | 2,324 |
| | $ | 2,405 |
|
We classify non-current deferred income from the software and services operating segments in other long-term liabilities.
Note 11: Employee Equity Incentive Plans
Our equity incentive plans are broad-based, long-term programs intended to attract and retain talented employees and align stockholder and employee interests.
Under the 2006 Equity Incentive Plan (the 2006 Plan), we made 596 million shares of common stock available for issuance as equity awards to employees and non-employee directors. A maximum of 394 million of these shares can be awarded as non-vested shares (restricted stock) or non-vested share units (restricted stock units). As of March 30, 2013, 240 million shares remained available for future grant under the 2006 Plan.
The 2006 Stock Purchase Plan allows eligible employees to purchase shares of our common stock at 85% of the value of our common stock on specific dates. Rights to purchase shares are granted during the first and third quarters of each year. Under the 2006 Stock Purchase Plan, we made 373 million shares of common stock available for issuance through August 2016. As of March 30, 2013, 226 million shares were available for issuance under the 2006 Stock Purchase Plan.
INTEL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — Unaudited (Continued)
Restricted Stock Unit Awards
Activity with respect to outstanding restricted stock units (RSUs) in the first three months of 2013 was as follows:
|
| | | | | | | |
| | Number of RSUs (In Millions) | | Weighted Average Grant-Date Fair Value (Per RSU) |
December 29, 2012 | | 109.3 |
| | $ | 22.03 |
|
Granted | | 3.4 |
| | $ | 21.52 |
|
Vested | | (3.0 | ) | | $ | 23.66 |
|
Forfeited | | (1.3 | ) | | $ | 22.16 |
|
March 30, 2013 | | 108.4 |
| | $ | 21.97 |
|
As of March 30, 2013, 3.3 million of the outstanding restricted stock units were market-based restricted stock units.
Stock Option Awards
Activity with respect to outstanding stock options in the first three months of 2013 was as follows:
|
| | | | | | | |
| | Number of Options (In Millions) | | Weighted Average Exercise Price (Per Option) |
December 29, 2012 | | 202.8 |
| | $ | 20.20 |
|
Granted | | 4.9 |
| | $ | 21.05 |
|
Exercised | | (15.2 | ) | | $ | 18.68 |
|
Cancelled and forfeited | | (0.7 | ) | | $ | 22.12 |
|
Expired | | (0.9 | ) | | $ | 22.17 |
|
March 30, 2013 | | 190.9 |
| | $ | 20.33 |
|
Options exercisable as of: | | | | |
December 29, 2012 | | 139.8 |
| | $ | 19.76 |
|
March 30, 2013 | | 127.2 |
| | $ | 19.93 |
|
Stock Purchase Plan
Employees purchased 11.1 million shares in the first three months of 2013 for $200 million (10.3 million shares in the first three months of 2012 for $197 million) under the 2006 Stock Purchase Plan.
Note 12: Common Stock Repurchases
Common Stock Repurchase Program
We have an ongoing authorization, since October 2005, as amended, from our Board of Directors to repurchase up to $45 billion in shares of our common stock in open market purchases or negotiated transactions. As of March 30, 2013, $4.8 billion remained available for repurchase under the existing repurchase authorization limit. During the first three months of 2013, we repurchased 25.2 million shares of common stock at a cost of $533 million (56.9 million shares of common stock at a cost of $1.5 billion in the first three months of 2012). We have repurchased 4.3 billion shares at a cost of $89 billion since the program began in 1990.
INTEL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — Unaudited (Continued)
Note 13: Gains (Losses) on Equity Investments, Net
The components of gains (losses) on equity investments, net during each period were as follows:
|
| | | | | | | | |
| | Three Months Ended |
(In Millions) | | Mar 30, 2013 | | Mar 31, 2012 |
Share of equity method investee losses, net | | $ | (23 | ) | | $ | (19 | ) |
Impairment charges | | (17 | ) | | (59 | ) |
Gains on sales, net | | 4 |
| | 30 |
|
Other, net | | 10 |
| | 29 |
|
Total gains (losses) on equity investments, net | | $ | (26 | ) | | $ | (19 | ) |
Note 14: Interest and Other, Net
The components of interest and other, net during each period were as follows:
|
| | | | | | | | |
| | Three Months Ended |
(In Millions) | | Mar 30, 2013 | | Mar 31, 2012 |
Interest income | | $ | 23 |
| | $ | 28 |
|
Interest expense | | (73 | ) | | (31 | ) |
Other, net | | — |
| | 26 |
|
Total interest and other, net | | $ | (50 | ) | | $ | 23 |
|
Interest expense in the preceding table is net of $54 million of interest capitalized in the first three months of 2013 ($50 million in the first three months of 2012