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UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
FORM 10-K
(Mark One)
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ANNUAL REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For
the fiscal year ended December 27, 2008.
or
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TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For
the transition period from
to
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Commission File Number
000-06217
INTEL CORPORATION
(Exact name of registrant as specified in its charter)
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Delaware
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94-1672743
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State or other jurisdiction of
incorporation or organization
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(I.R.S. Employer
Identification No.)
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2200 Mission College Boulevard, Santa Clara, California
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95054-1549
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(Address of principal executive offices)
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(Zip Code)
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Registrants telephone number, including area code
(408) 765-8080
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class
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Name of each exchange on which registered
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Common stock, $0.001 par value
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The NASDAQ Global Select Market*
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Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the
registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities
Act. Yes x No o
Indicate by check mark if the
registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the
Act. Yes o No x
Indicate by check mark whether the
registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for
the past
90 days. Yes x No o
Indicate by check mark 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. o
Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the
definitions of large accelerated filer,
accelerated filer and smaller reporting
company in
Rule 12b-2
of the Exchange Act.
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Large accelerated
filer x
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Accelerated
filer o
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Non-accelerated
filer o
(Do not check if a smaller
reporting company)
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Smaller reporting
company o
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Indicate by check mark whether the
registrant is a shell company (as defined in
Rule 12b-2
of the
Act). Yes o No x
Aggregate market value of voting
and non-voting common equity held by non-affiliates of the
registrant as of June 27, 2008, based upon the closing
price of the common stock as reported by The NASDAQ Global
Select Market* on such date, was approximately
$120.9 billion
5,562 million shares of common stock outstanding as of
February 6, 2009
DOCUMENTS
INCORPORATED BY REFERENCE
Portions of the registrants
Proxy Statement related to its 2009 Annual Stockholders
Meeting to be filed subsequentlyPart III of this
Form 10-K.
INTEL
CORPORATION
FORM 10-K
FOR THE
FISCAL YEAR ENDED DECEMBER 27, 2008
INDEX
PART I
ITEM 1. BUSINESS
Industry
We are the worlds largest
semiconductor chip maker, based on revenue. We develop advanced
integrated digital technology products, primarily integrated
circuits, for industries such as computing and communications.
Integrated circuits are semiconductor chips etched with
interconnected electronic switches. We also develop platforms,
which we define as integrated suites of digital computing
technologies that are designed and configured to work together
to provide an optimized user computing solution compared to
components that are used separately. Our goal is to be the
preeminent provider of semiconductor chips and platforms for the
worldwide digital economy.
We were incorporated in California
in 1968 and reincorporated in Delaware in 1989. Our Internet
address is www.intel.com. On this web site, we publish
voluntary reports, which we update annually, outlining our
performance with respect to corporate responsibility, including
environmental, health, and safety compliance.
We use our Investor Relations web
site, www.intc.com, as a channel for routine distribution
of important information, including news releases, analyst
presentations, and financial information. We post filings as
soon as reasonably practicable after they are electronically
filed with, or furnished to, the U.S. Securities and
Exchange Commission (SEC), including our annual, quarterly, and
current reports on
Forms 10-K,
10-Q, and
8-K; our
proxy statements; and any amendments to those reports or
statements. All such postings and filings are available on our
Investor Relations web site free of charge. In addition, this
web site allows investors and other interested persons to sign
up to automatically receive
e-mail
alerts when we post news releases and financial information on
our web site. The SEC also maintains a web site,
www.sec.gov, that contains reports, proxy and information
statements, and other information regarding issuers that file
electronically with the SEC. The content on any web site
referred to in this
Form 10-K
is not incorporated by reference into this
Form 10-K
unless expressly noted.
Products
We strive to design and
manufacture computing and communications components and
platforms with improved overall performance
and/or
improved energy efficiency. Improved overall performance can
include faster processing performance and other improved
capabilities, such as multithreading and multitasking.
Performance can also be improved through enhanced connectivity,
storage, security, manageability, utilization, reliability, ease
of use, and interoperability among devices. Improved
energy-efficient performance is achieved by balancing
performance factors with lower power consumption. Lower power
consumption may extend utilization time for battery-powered form
factors and reduce system heat output, thereby providing power
savings and reducing the total cost of ownership.
We offer products at various
levels of integration, to allow our customers flexibility in
creating computing and communications systems.
Components
Microprocessors
A microprocessorthe central
processing unit (CPU) of a computer systemprocesses system
data and controls other devices in the system, acting as the
brains of the computer. We offer microprocessors
with one or multiple processor cores designed for desktops,
nettops, workstations, servers, embedded products,
communications products, notebooks, netbooks, mobile Internet
devices (MIDs), and consumer electronics. The following are
characteristics of our microprocessors:
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Multi-core microprocessors contain
two or more processor cores, which can enable improved
multitasking and energy-efficient performance by distributing
computing tasks across multiple cores.
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Cache is a memory that can be
located directly on the microprocessor, permitting quicker
access to frequently used data and instructions. Incorporating
additional amounts
and/or
levels of cache can enable higher performance.
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Our microprocessors can also
include integrated memory controllers, which increase the speed
of data transfer from cache and system memory.
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1
During 2008, we introduced a new
microarchitecture based on our 45-nanometer (nm) Hi-k metal gate
silicon process technology (latest generation
Intel®
Coretm
microarchitecture). Microarchitecture refers to the layout,
density, and logical design of a microprocessor. The latest
generation Intel Core microarchitecture incorporates features
designed to increase performance and energy efficiency, such as:
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Feature
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Performance Enhancement
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Intel®
QuickPath Technology
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Utilizes an integrated memory controller to allow faster memory
access than a standard front side bus
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Intel®
Turbo Boost Technology
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Increases processor frequency when applications demand more
performance
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Intel®
Hyper-Threading Technology
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Allows each processor core to process two software tasks or
threads simultaneously
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During 2008, we also introduced
the
Intel®
Atomtm
processor family. These low-power processors are specifically
designed for embedded solutions, MIDs, consumer electronics, and
two new classes of simple and affordable Internet-focused
computers called netbooks and nettops.
Chipsets
The chipset operates as the
nervous system in a PC or other computing device,
sending data between the microprocessor and input, display, and
storage devices, such as the keyboard, mouse, monitor, hard
drive, and CD or DVD drive. We offer chipsets designed for
desktops, nettops, workstations, servers, embedded products,
communications products, notebooks, netbooks, MIDs, and consumer
electronics. The following are functions of chipsets:
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Chipsets perform essential logic
functions, such as balancing the performance of the system and
removing bottlenecks.
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Chipsets extend the graphics,
audio, video, and other capabilities of many systems.
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Chipsets may also control access
between the CPU and system memory.
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Motherboards
We offer motherboard products
designed for our desktop, workstation, and server platforms. A
motherboard is the principal board within a system, and
typically contains the CPU, chipset, memory, and other
components. The motherboard also has connectors for attaching
devices to the bus, which is the subsystem that transfers data
between various components of a computer.
Wired and
Wireless Connectivity
We offer wired and wireless
connectivity products, including network adapters and embedded
wireless cards, based on industry-standard protocols used to
translate and transmit data across networks. Wireless
connectivity products based on WiFi technology allow users to
wirelessly connect to high-speed local area networks, typically
within a close range. We have also developed wireless
connectivity products for both mobile and fixed networks based
on WiMAX, a standards-based wireless technology providing
high-speed broadband connectivity, which links users and
networks up to several miles apart.
Platforms
We offer platforms that
incorporate various components and technologies. A platform
typically includes a microprocessor, chipset, and enabling
software, and may include additional hardware, services, and
support. In developing our platforms, we may include components
made by other companies. A component is one of any number of
software or hardware features that may be incorporated into a
computer, handheld device, or other computing system, including
a microprocessor, chipset, motherboard, memory, wired or
wireless connectivity device, or software. Platforms based on
our latest generation Intel Core microarchitecture integrate a
memory controller into each microprocessor and connect
processors and other components with a high-speed interconnect.
We refer to certain platform brands within our product offerings
as processor technologies.
2
Microprocessor
and Platform Technologies
We offer features to improve
microprocessor and platform capabilities that can enhance system
performance and user experience. For example, we offer
technologies that can help information technology managers
diagnose, fix, and protect enabled systems that are plugged into
a power source and connected to a network, even if a computer is
turned off or has a failed hard drive or operating system.
Additional features can enable virtualization, in which a single
computer system can function as multiple virtual systems by
running multiple operating systems and applications.
Virtualization can consolidate workloads and provide increased
security and management capabilities. To take advantage of these
and other features that we offer, a computer system must have a
microprocessor that supports a chipset and BIOS (basic
input/output system) that use the technology, and software that
is optimized for the technology. Performance will vary depending
on the system hardware and software used.
Additional
Product Offerings
NAND flash memory
is a specialized type
of memory component primarily used in memory cards, digital
audio players, and system-level applications, such as
solid-state drives used to store data and program code. NAND
flash memory retains information even when the power is off, and
provides faster access to data than traditional hard drives.
Flash memory does not have any moving parts, unlike a device
such as a rapidly spinning disk drive, allowing flash memory to
be more tolerant of bumps and shocks.
Communications infrastructure
products are the basic
building blocks for modular communications platforms and include
advanced, fully programmable processors used in networking
equipment to rapidly manage and direct data moving across
networks and the Internet.
Network and server storage
products include
small-business and
home-network
memory systems built for performance, security, and
manageability. These products allow data storage resources to be
added to either of the two most prevalent types of networking
technology: Ethernet or Fibre Channel.
Software products
primarily help enable
the creation of applications with software development tools
designed to complement our latest hardware technologies.
Revenue
by Major Operating Segment
Net revenue for our major
operating segments, the Digital Enterprise Group (DEG) and the
Mobility Group (MG), presented as a percentage of our
consolidated net revenue, was as follows:
Percentage
of Revenue
(Dollars
in Millions)
3
Revenue from sales of
microprocessors for our major operating segments, presented as a
percentage of our consolidated net revenue, was as follows:
Percentage
of Revenue
(Dollars
in Millions)
Below, we discuss the key products
and processor technologies, including some key introductions, of
our major operating segments. For a discussion of our strategy,
see Strategy in Part II, Item 7 of this Form
10-K.
Digital
Enterprise Group
The Digital Enterprise Group
offers products that are incorporated into desktop and nettop
computers, enterprise computing servers and workstations, a
broad range of embedded applications, and other products that
help make up the infrastructure for the Internet. DEGs
products include microprocessors and related chipsets and
motherboards designed for the desktop and enterprise computing
market segments; microprocessors and chipsets for embedded
applications; components for communications infrastructure
equipment, such as network processors; wired connectivity
devices; and products for network and server storage.
Desktop
Market Segment
Our current desktop microprocessor
offerings include the:
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Intel®
Coretm
i7 processor Extreme Edition
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Intel®
Pentium®
Dual-Core processor
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Intel®
Coretm
i7 processor
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Intel®
Celeron®
Dual-Core processor
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Intel®
Coretm2
Extreme processor
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Intel®
Celeron®
processor
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Intel®
Coretm2
Quad processor
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Intel®
Atomtm
processor
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Intel®
Coretm2
Duo processor
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Most of these Intel Core
microarchitecture-based processors are manufactured using our
45nm Hi-k metal gate silicon technology (45nm process
technology). We offer desktop microprocessors at a variety of
price/performance points, from the high-end Intel Core i7
processor Extreme Editiona quad-core processor based on
our latest generation Intel Core microarchitecture designed for
processor-intensive tasks in demanding multitasking
environmentsto the Intel Celeron processor designed to
provide value, quality, and reliability for basic computing
needs. In addition, we offer the Intel Atom processor designed
for low-power and affordable Internet-focused devices. The
related chipsets for our desktop microprocessor offerings
primarily include
Intel®
4 Series Express Chipsets,
Intel®
3 Series Express Chipsets, and
Intel®
900 Series Express Chipsets.
We also offer processor
technologies based on our microprocessors, chipsets, and
motherboard products that are optimized for the desktop market
segment. For business desktop PCs, we offer the
Intel®
Coretm2
Duo processor with
vProtm
technology and the
Intel®
Coretm2
Quad processor with
vProtm
technology, which are designed to provide increased security and
manageability, energy-efficient performance, and lower cost of
ownership.
4
Our new product offerings in 2008
and early 2009 include:
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The Intel Core i7 processor
family, including the Intel Core i7 processor Extreme Edition,
based on our latest generation Intel Core microarchitecture, and
designed for high-performance, power-efficient computing.
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Intel Atom processors designed for
low-power and affordable Internet-focused devices.
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Intel 4 Series Express Chipsets
designed to be used with 45nm Intel Core 2 Duo and Intel Core 2
Quad processors, helping to improve mainstream desktop system
performance, energy efficiency, and video and sound quality.
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Desktop motherboards that support
a new generation of
Intel®
vProtm
technology for business desktop PCs with enhanced manageability
and security features.
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Enterprise
Market Segment
Our current server and workstation
microprocessor offerings include the
Intel®
Xeon®
processor and the
Intel®
Itanium®
processor. Our Intel Xeon processor family of products supports
a range of entry-level to high-end technical and commercial
computing applications such as IP data centers. Compared to our
Intel Xeon processor family, our Intel Itanium processor family
generally supports an even higher level of reliability and
computing performance for data processing, handling high
transaction volumes, and other compute-intensive applications
for enterprise-class servers, as well as supercomputing
solutions. Servers, which usually have multiple microprocessors
or cores working together, manage large amounts of data, direct
data traffic, perform complex transactions, and control central
functions in local and wide area networks and on the Internet.
Workstations typically offer higher performance than standard
desktop PCs and are used for applications such as engineering
design, digital content creation, and high-performance computing.
Our new product offerings in 2008
and early 2009 include:
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Low-voltage Quad-Core Intel Xeon
processors based on our 45nm process technology.
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Intel Xeon processors designed to
reduce the use of environmentally sensitive materials.
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Intel Xeon processors with up to
six processing cores and 16 megabytes (MB) of shared cache
memory. These processors are built using our 45nm process
technology, and are designed for high-end servers with up to 16
processor sockets.
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Embedded
and Communications Market Segments
We offer microprocessors and
chipsets for embedded applications, and componentssuch as
network processorsfor communications infrastructure
equipment.
Our new product offerings in 2008
and early 2009 include:
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Quad-Core and Dual-Core Intel Xeon
processors for embedded market segments, based on our 45nm
process technology. These processors are designed for storage,
router, security, medical, communications, and other
high-performance, memory-intensive applications.
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Intel Atom processors designed for
embedded applications such as in-vehicle
information/entertainment systems, portable
point-of-sale
retail devices, and industrial robotics.
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A new category of highly
integrated, purpose-built System on Chip (SoC) products designed
for embedded security, storage, communications, and industrial
robotic applications. SoC products integrate core processing
functionality with specific components, such as graphics, audio,
and video, onto a single chip with reduced power consumption and
size. These SoC products are based on
Intel®
architecture.
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Mobility
Group
The Mobility Group offers products
including microprocessors and related chipsets designed for the
notebook and netbook market segments, wireless connectivity
products, and energy-efficient products designed for the MID and
ultra-mobile PC market segments. We also offer
Intel®
Centrino®
and
Intel®
Centrino®
2 processor technologies based on our microprocessors, chipsets,
and wireless network connections.
Our current mobile microprocessor
offerings include the:
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Intel®
Coretm2
Extreme mobile processor
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Intel®
Celeron®
Dual-Core processor
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Intel®
Coretm2
Quad mobile processor
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Intel®
Celeron®
M processor
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Intel®
Coretm2
Duo mobile processor
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Intel®
Celeron®
processor
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Intel®
Coretm2
Solo mobile processor
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Intel®
Atomtm
processor
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5
We offer mobile microprocessors
for notebooks at a variety of price/performance points, from the
Intel Core 2 Extreme mobile processor designed for gaming to the
Intel Celeron processor designed to provide value, quality, and
reliability for basic computing needs. In addition, we offer the
Intel Atom processor designed for netbooks, MIDs, and
ultra-mobile PCs. We offer these processors in various packaging
options, giving our customers flexibility for a wide range of
system designs for notebook PCs and other mobile computing
devices. The related chipsets for our mobile microprocessor
offerings primarily include Mobile
Intel®
4 Series Express Chipsets and Mobile
Intel®
900 Series Express Chipsets.
In 2008, the majority of the
revenue in the MG operating segment was from the sale of
products that make up our Intel Centrino and Intel Centrino 2
processor technologies. These technologies are designed to
provide high performance with improved multitasking,
power-saving features to improve battery life, smaller form
factors, wireless network connectivity, and improved boot times
compared to similar microprocessors that do not incorporate our
Intel Centrino and Intel Centrino 2 processor technologies.
Intel®
Centrino®
with
vProtm
technology and
Intel®
Centrino®
2 with
vProtm
technology include the features of Intel Centrino and Intel
Centrino 2 processor technologies, respectively, and are
designed to provide mobile business PCs with increased security,
manageability, and energy-efficient performance.
Our new product offerings in 2008
and early 2009 include:
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Intel Core 2 Quad mobile
processors, designed to handle complex compute and visualization
tasks on notebook workstations.
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Intel Centrino 2 processor
technology and Intel Centrino 2 with vPro technology, designed
to deliver higher performance, longer battery life, faster
wireless connectivity, and enhanced manageability and security
capabilities compared to earlier versions of Intel Centrino
processor technology. These platforms are based on new versions
of Intel Core 2 Duo mobile processors.
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Mobile Intel 4 Series Express
Chipsets designed to be used with 45nm Intel Core 2 Duo and
Intel Core 2 Quad mobile processors.
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Intel Atom processors specifically
designed for MIDs and netbooks.
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Other
Products
NAND
Solutions Group
We offer NAND flash memory
products primarily used in memory cards and system-level
applications, such as solid-state drives. Our solid-state
drives, available in densities ranging from 1 gigabyte (GB) to
160 GB, are designed to enable faster boot times, lower power
consumption, increase reliability, improve performance, and
weigh less than standard hard disk drives. Components for our
NAND flash memory products are manufactured by IM Flash
Technologies, LLC (IMFT) using 34nm or 50nm process technology.
See Note 6: Equity Method and Cost Method
Investments in Part II, Item 8 of this Form
10-K.
Our new product offerings in 2008
and early 2009 include:
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80-GB and 160-GB solid-state
drives based on NAND flash technology, designed for laptop and
desktop computers.
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High-performance, 32-GB and 64-GB
solid-state drives based on NAND flash technology, designed for
use in servers, workstations, and storage systems.
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Digital
Home Group
The Digital Home Group offers
products, including SoC designs, for use in consumer electronics
devices designed to access and share Internet, broadcast,
optical media, and personal content through a variety of linked
digital devices within the home. In addition, we offer
components for consumer electronics devices such as digital TVs,
high-definition media players, and set-top boxes, which receive,
decode, and convert incoming data signals.
Digital
Health Group
The Digital Health Group offers
technology-enabled products for healthcare providers as well as
for use in personal healthcare. In 2008, we introduced the
Intel®
Health Guide, a personal health system designed to allow
clinicians to remotely monitor and manage patients care
through an online interface.
6
Manufacturing
and Assembly and Test
As of December 27, 2008, 70% of
our wafer fabrication, including microprocessors and chipsets,
was conducted within the U.S. at our facilities in Arizona,
Oregon, Massachusetts, New Mexico, and California. The remaining
30% of our wafer fabrication was conducted outside the U.S. at
our facilities in Ireland and Israel.
As of December 27, 2008, we
primarily manufactured our products in wafer fabrication
facilities at the following locations:
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Products
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Wafer Size
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Process Technology
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Locations
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Microprocessors
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300mm
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45nm
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Arizona, New Mexico, Israel
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Chipsets and microprocessors
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300mm
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65nm
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Ireland, Arizona, Oregon
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Chipsets, microprocessors, and other products
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300mm
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90nm
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Ireland
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Chipsets
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200mm
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130nm
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Oregon, Massachusetts, Arizona, California
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NOR flash memory
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200mm
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65nm130nm
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Ireland
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Chipsets
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200mm
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180nm and above
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Ireland
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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 a 300mm wafer fabrication facility
in China. Subsequent to the end of 2008, management approved
plans to restructure some of our manufacturing and assembly and
test operations, and align our manufacturing and assembly and
test capacity to current market conditions. These actions, which
are expected to take place beginning in 2009, include stopping
production at a 200mm wafer fabrication facility in Oregon and
ending production at our 200mm wafer fabrication facility in
California.
As of December 27, 2008, the
substantial majority of our microprocessors were manufactured on
300mm wafers using our 45nm process technology. In the second
half of 2009, we expect to begin manufacturing microprocessors
using our 32nm process technology. As we move to each succeeding
generation of manufacturing process technology, we incur
significant
start-up
costs to prepare each factory for manufacturing. However,
continuing to advance our process technology provides benefits
that we believe justify these costs. The benefits of moving to
each succeeding generation of manufacturing process technology
can include using less space per transistor, reducing heat
output from each transistor,
and/or
increasing the number of integrated features on each chip. These
advancements can result in microprocessors that are higher
performing, consume less power,
and/or cost
less to manufacture.
To augment capacity, we use
third-party manufacturing companies (foundries) to manufacture
wafers for certain components, including networking and
communications products. In addition, we primarily use
subcontractors to manufacture board-level products and systems,
and purchase certain communications networking products from
external vendors, principally in the Asia-Pacific region.
Our NAND flash memory products are
manufactured by IMFT, a NAND flash memory manufacturing company
that we formed with Micron Technology, Inc. We currently
purchase 49% of the manufactured output of IMFT. Assembly and
test of NAND flash memory products is performed by Micron and
other external subcontractors. See Note 6: Equity Method
and Cost Method Investments in Part II, Item 8 of this
Form 10-K.
During the second quarter of 2008,
we completed the divestiture of our NOR flash memory business in
exchange for an ownership interest in Numonyx B.V. We entered
into supply and services agreements that involved the
manufacture and the assembly and test of NOR flash memory
products for Numonyx through 2008. In the fourth quarter of
2008, we agreed with Numonyx to extend certain supply and
service agreements through the end of 2009. In addition, we are
leasing a wafer fabrication facility located in Israel to
Numonyx. That facility is not shown in our above listing of
wafer fabrication facilities. See Note 6: Equity Method
and Cost Method Investments in Part II, Item 8 of this
Form 10-K.
Following the manufacturing
process, the majority of our components are subject to assembly
and test. We perform our components assembly and test at
facilities in Malaysia, China, Costa Rica, and the Philippines.
We are building a new assembly and test facility in Vietnam that
is expected to begin production in 2010. To augment capacity, we
use subcontractors to perform assembly of certain products,
primarily chipsets and networking and communications products.
The restructuring plans described above include closing two
assembly and test facilities in Malaysia, one facility in the
Philippines, and one facility in China, and are expected to take
place beginning in 2009.
7
Our employment practices are
consistent with, and we expect our suppliers and subcontractors
to abide by, local country law. In addition, we impose a minimum
employee age requirement as well as progressive environmental,
health, and safety (EHS) requirements, regardless of local law.
We have thousands of suppliers,
including subcontractors, providing our various materials and
service needs. We set expectations for supplier performance and
reinforce those expectations with periodic assessments. We
communicate those expectations to our suppliers regularly and
work with them to implement improvements when necessary. We
seek, where possible, to have several sources of supply for all
of these materials and resources, but we may rely on a single or
limited number of suppliers, or upon suppliers in a single
country. In those cases, we develop and implement plans and
actions to reduce the exposure that would result from a
disruption in supply. We have entered into long-term contracts
with certain suppliers to ensure a portion of our silicon supply.
Our products 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. See Risk Factors in Part I,
Item 1A of this Form
10-K.
Research
and Development
We are committed to investing in
world-class technology development, particularly in the design
and manufacture of integrated circuits. Research and development
(R&D) expenditures in 2008 were $5.7 billion ($5.8 billion
in fiscal year 2007 and $5.9 billion in fiscal year 2006).
Our R&D activities are
directed toward developing the technology innovations that we
believe will deliver our next generation of products and
platforms, which will in turn enable new form factors and new
usage models for businesses and consumers. Our R&D
activities range from design and development of products, to
developing and refining manufacturing processes, to researching
future technologies and products.
We are focusing our R&D
efforts on advanced computing, communications, and wireless
technologies as well as energy efficiency by developing new
microarchitectures, advancing our silicon manufacturing process
technology, delivering the next generation of microprocessors
and chipsets, improving our platform initiatives, and developing
software solutions and tools to support our technologies. Our
R&D efforts enable new levels of performance and address
areas such as scalability for multi-core architectures, energy
efficiency, system manageability and security, ease of use, and
new communications capabilities. In addition, we are making
significant R&D investments in growth areas such as SoC,
MIDs, embedded applications, consumer electronics, and graphics.
As part of our R&D efforts,
we plan to introduce a new microarchitecture for our mobile,
desktop, and Intel Xeon processors approximately every two years
and ramp the next generation of silicon process technology in
the intervening years. We refer to this as our
tick-tock technology development cadence. 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 about every two years. Our leadership in silicon
technology has also helped to expand on the advances anticipated
by Moores Law by bringing new capabilities into silicon
and producing new products and platforms optimized for a wider
variety of applications. In 2008, we introduced a new
microarchitecture using our 45nm process technology. We are
currently developing 32nm process technology, our
next-generation process technology, and expect to begin
manufacturing products using that technology in the second half
of 2009.
Our R&D model is based on a
global organization that emphasizes a collaborative approach to
identifying and developing new technologies, leading standards
initiatives, and influencing regulatory policy to accelerate the
adoption of new technologies. Our R&D initiatives are
performed by various business groups within the company, and we
centrally manage key cross-business group product initiatives to
align and prioritize our R&D activities across these
groups. In addition, we may augment our R&D initiatives by
investing in companies or entering into agreements with
companies that have similar R&D focus areas. For example,
we have an agreement with Micron for joint development of NAND
flash memory technologies.
8
Employees
As of December 27, 2008, we
had approximately 83,900 employees worldwide, with more
than 50% of these employees located in the U.S. Worldwide,
we had approximately 86,300 employees as of
December 29, 2007 and 94,100 as of December 30, 2006.
Sales and
Marketing
Customers
We sell our products primarily to
original equipment manufacturers (OEMs) and original design
manufacturers (ODMs). ODMs provide design
and/or
manufacturing services to branded and unbranded private-label
resellers. In addition, we sell our products to other
manufacturers, including makers of a wide range of industrial
and communications equipment. Our customers also include PC and
network communications products users who buy PC components and
our other products through distributor, reseller, retail, and
OEM channels throughout the world. In certain instances, we have
entered into supply agreements to continue to manufacture and
sell products of divested business lines to acquiring companies
during certain transition periods.
Our worldwide reseller sales
channel consists of thousands of indirect customers who are
systems builders that purchase Intel microprocessors and other
products from our distributors. We have a boxed processor
program that allows distributors to sell Intel microprocessors
in small quantities to these systems-builder customers; boxed
processors are also available in direct retail outlets.
In 2008, Hewlett-Packard Company
accounted for 20% of our net revenue (17% in 2007) and Dell
Inc. accounted for 18% of our net revenue (18% in 2007). No
other customer accounted for more than 10% of our net revenue.
For information about revenue and operating income by operating
segment, and revenue from unaffiliated customers by geographic
region/country, see Results of Operations in
Part II, Item 7 and Note 25: Operating
Segment and Geographic Information in Part II,
Item 8 of this
Form 10-K.
Sales
Arrangements
Our products are sold or licensed
through sales offices throughout the world. Sales of our
products are typically made via purchase orders that contain
standard terms and conditions covering matters such as pricing,
payment terms, and warranties, as well as indemnities for issues
specific to our products, such as patent and copyright
indemnities. From time to time, we may enter into additional
agreements with customers covering, for example, changes from
our standard terms and conditions, new product development and
marketing, private-label branding, and other matters. Most of
our sales are made using electronic and web-based processes that
allow the customer to review inventory availability and track
the progress of specific goods ordered. Pricing on particular
products may vary based on volumes ordered and other factors. We
also offer discounts, rebates, and other incentives to customers
to increase acceptance of our products and technology.
Our products are typically shipped
under terms that transfer title to the customer, even in
arrangements for which the recognition of revenue and related
costs of sales is deferred. Our standard terms and conditions of
sale typically provide that payment is due at a later date,
generally 30 days after shipment, delivery, or the
customers use of the product. Our credit department sets
accounts receivable and shipping limits for individual customers
to control credit risk to Intel arising from outstanding account
balances. We assess credit risk through quantitative and
qualitative analysis, and from this analysis, we establish
credit limits and determine whether we will seek to use one or
more credit support devices, such as obtaining some form of
third-party guaranty or standby letter of credit, or obtaining
credit insurance for all or a portion of the account balance if
necessary. Credit losses may still be incurred due to
bankruptcy, fraud, or other failure of the customer to pay. For
information about our allowance for doubtful receivables, see
Schedule IIValuation and Qualifying
Accounts in Part IV of this
Form 10-K.
Most of our sales to distributors
are made under agreements allowing for price protection on
unsold merchandise and a right of return on stipulated
quantities of unsold merchandise. Under the price protection
program, we give distributors credits for the difference between
the original price paid and the current price that we offer. On
most products, there is no contractual limit on the amount of
price protection, nor is there a limit on the time horizon under
which price protection is granted. The right of return granted
generally consists of a stock rotation program in which
distributors are able to exchange certain products based on the
number of qualified purchases made by the distributor. Although
we have the option to grant credit for, repair, or replace
defective product, there is no contractual limit on the amount
of credit granted to a distributor.
9
Distribution
Typically, distributors handle a
wide variety of products, including those that compete with our
products, and fill orders for many customers. We also utilize
third-party sales representatives who generally do not offer
directly competitive products but may carry complementary items
manufactured by others. Sales representatives do not maintain a
product inventory; instead, their customers place orders
directly with us or through distributors.
Backlog
We do not believe that backlog as
of any particular date is meaningful, as our sales are made
primarily pursuant to standard purchase orders for delivery of
products. Only a small portion of our orders is non-cancelable,
and the dollar amount associated with the non-cancelable portion
is not significant.
Seasonal
Trends
Our microprocessor sales generally
have followed a seasonal trend. Historically, our sales have
been higher in the second half of the year than in the first
half of the year. Consumer purchases of PCs have historically
been higher in the second half of the year, primarily due to
back-to-school and holiday demand. In addition, purchases from
businesses have also historically tended to be higher in the
second half of the year. This seasonal trend did not occur in
2008, and there can be no assurance that it will resume in the
future.
Marketing
Our corporate marketing objectives
are to build a strong Intel corporate brand that connects with
consumers, and have a limited set of product brands for our
advanced microprocessors and related technologies. Our intention
is to have a limited number of meaningful and valuable brands in
our portfolio to aid in making informed choices and making
technology purchase decisions easier for both businesses and
consumers. The Intel Core i7, Intel Core 2 Extreme, Intel Core 2
Quad, Intel Core 2 Duo, Intel Atom, Pentium, Celeron, Intel
Xeon, and Itanium trademarks make up our processor brands.
Microprocessors are at the center of our most advanced processor
technologies, which include Intel Centrino processor technology
and Intel Core 2 processors with vPro technology.
We promote brand awareness and
generate demand through our own direct marketing as well as
co-marketing programs. Our direct marketing activities include
television, print and web-based advertising, as well as press
relations, consumer and trade events, and industry and consumer
communications. We market to consumer and business audiences,
and focus on building awareness and generating demand for
increased performance, power efficiency, and new capabilities.
Purchases by customers often allow
them to participate in cooperative advertising and marketing
programs such as the Intel
Inside®
Program. This program broadens the reach of our brands beyond
the scope of our own direct advertising. Through the Intel
Inside Program, certain customers are licensed to place Intel
logos on computers containing our microprocessors and processor
technologies, and to use our brands in marketing activities. The
program includes a market development component that accrues
funds based on purchases and partially reimburses the OEMs for
marketing activities for products featuring Intel brands,
subject to the OEMs meeting defined criteria. These marketing
activities primarily include television, web-based marketing,
and print; and in the beginning of 2008, we increased our focus
on web-based marketing. We have also entered into joint
marketing arrangements with certain customers.
Competition
The semiconductor industry is
dynamic, characterized by rapid advances in technology and
frequent product introductions. As unit volumes of a product
grow, production experience is accumulated and costs typically
decrease, further competition develops, and prices decline. The
life cycle of our products is very short, sometimes less than a
year. These short product life cycles and other factors lead to
frequent negotiations with our OEM customers, which typically
are large, sophisticated buyers who are also operating in very
competitive environments. Our ability to compete depends on our
ability to navigate this environment, by improving our products
and processes faster than our competitors, anticipating changing
customer requirements, developing and launching new products and
platforms, pricing our products competitively, and reducing
average unit costs. See Risk Factors in Part I,
Item 1A of this
Form 10-K.
10
Our products compete primarily
based on performance, features, price, quality, reliability,
brand recognition, and availability. We are focused on offering
innovative products and worldwide support for our customers at
competitive prices, including providing improved
energy-efficient performance, enhanced security, manageability,
and integrated solutions. We believe that our platform strategy
provides us with a competitive advantage. We offer platforms
that incorporate various components designed and configured to
work together to provide an optimized user computing solution
compared to components that are used separately.
Our 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. Some of our
competitors may have development agreements with other
companies, and in some cases our competitors may also be our
customers or suppliers. Product offerings may cross over into
multiple product categories, providing us with new opportunities
but also resulting in more competition. It may be difficult for
us to compete in market segments in which our competitors have
established products and brand recognition.
We believe that our network of
manufacturing facilities and assembly and test facilities gives
us a competitive advantage. This network enables us to have more
direct control over our processes, quality control, product
cost, volume, timing of production, and other factors. These
facilities require significant up-front capital spending, and
many of our competitors do not own such facilities because they
may not be able to afford to do so or because their business
models involve the use of third-party 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. Advanced Micro Devices, Inc. (AMD) intends to
sell an interest in its manufacturing operations.
A group of foundries and assembly
and test subcontractors offers their services to companies that
do not own facilities or to companies needing additional
capacity. These foundries and subcontractors may also offer
intellectual property, design services, and other goods and
services to our competitors. A disadvantage of our approach
compared to fabless semiconductor companies is that it is more
difficult for us to reduce our costs in the short term. Also,
competitors who outsource their manufacturing and assembly and
test operations can significantly reduce their capital
expenditures.
We plan to continue to cultivate
new businesses and work with the computing and communications
industries through standards bodies, trade associations, OEMs,
ODMs, and independent software and operating system vendors to
help align the industry to offer products that take advantage of
the latest market trends and usage models. We frequently
participate in industry initiatives designed to discuss and
agree upon technical specifications and other aspects of
technologies that could be adopted as standards by
standards-setting organizations. Our competitors may also
participate in the same initiatives and specification
development. Our participation does not ensure that any
standards or specifications adopted by these organizations will
be consistent with our product planning.
Microprocessors
We continue to be largely
dependent on the success of our microprocessor business. Our
ability to compete depends on our ability to deliver new
microprocessor products with improved overall performance and
improved energy-efficient performance at competitive prices.
Some of our microprocessor competitors, such as AMD, market
software-compatible products that compete with our processors.
We also face competition from companies offering rival
architecture designs, such as Cell Broadband Engine Architecture
developed jointly by International Business Machines Corporation
(IBM), Sony Corporation, and Toshiba Corporation; Power
Architecture* offered by IBM; ARM architecture developed by ARM
Limited; and Scalable Processor Architecture (SPARC*) offered by
Sun Microsystems, Inc. NVIDIA has developed a programming
interface to attempt to expand the use of its graphics
processors to accomplish general-purpose computing functions
typically performed by a microprocessor in highly parallel
applications.
The following is a list of our
main microprocessor competitors by market segment:
|
|
|
|
|
Desktop: AMD and VIA
|
|
|
Mobile: AMD and VIA
|
|
|
Enterprise: AMD, IBM, and Sun
Microsystems
|
|
|
Embedded: AMD, Freescale
Semiconductor, Inc., and VIA
|
In addition, our Intel Atom
processor family competes against processors offered by AMD and
VIA, and from companies using rival architectures, such as ARM
and MIPS.
11
Chipsets
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 AMD (including chipsets marketed under the ATI
Technologies, Inc. brand), NVIDIA, Silicon Integrated Systems
Corporation, and VIA.
We also compete with companies
offering graphics components and other special-purpose products
used in the desktop, mobile, and enterprise market segments. One
aspect of our business model is to incorporate improved
performance and advanced properties into our microprocessors and
chipsets, for which demand may increasingly be affected by
competition from companies, such as NVIDIA and AMD (including
products marketed under the ATI Technologies, Inc. brand), whose
business models are based on incorporating improved performance
into dedicated chipsets and other components, such as graphics
controllers.
Flash
Memory
Our NAND flash memory products
currently compete with NOR and NAND products primarily
manufactured by Hynix Semiconductor Inc., Micron, Numonyx,
Samsung Electronics Co., Ltd., SanDisk Corporation, Spansion
Inc., and Toshiba.
Connectivity
We offer products designed for
wired and wireless connectivity; the communications
infrastructure, including network processors; and networked
storage. Our WiFi and WiMAX products currently compete with
products manufactured by Atheros Communications, Inc., Broadcom,
QUALCOMM, and other smaller companies.
Competition
Lawsuits and Government Investigations
We are currently a party to a
variety of lawsuits and government investigations involving our
competitive practices. See Note 24:
Contingencies in Part II, Item 8 of this
Form 10-K.
Acquisitions
and Strategic Investments
During 2008, we completed two
acquisitions qualifying as business combinations. See
Note 11: Acquisitions in Part II,
Item 8 of this
Form 10-K.
Also, we completed the divestiture of our NOR flash memory
business in exchange for an ownership interest in Numonyx.
Additionally, in 2008, we made a
significant strategic investment in Clearwire Communications,
LLC (Clearwire LLC). During the fourth quarter of 2008,
Clearwire Corporation and Sprint Nextel Corporation combined
their respective WiMAX businesses in conjunction with additional
capital contributions from Intel and other investors to form a
new company that retained the name Clearwire Corporation. The
additional capital contributions included our cash investment of
$1.0 billion. Our pre-existing investment in Clearwire
Corporation (old Clearwire Corporation) was converted into
shares of the new company (new Clearwire Corporation), and the
additional capital contribution of $1.0 billion was
invested in Clearwire LLC, a wholly owned subsidiary of the new
Clearwire Corporation. For further discussion of our equity
method investment in Clearwire LLC, see Note 6:
Equity Method and Cost Method Investments in Part II,
Item 8 of this
Form 10-K.
12
Intellectual
Property and Licensing
Intellectual property rights that
apply to our various products and services include patents,
copyrights, trade secrets, trademarks, and maskwork rights. We
maintain a program to protect our investment in technology by
attempting to ensure respect for our intellectual property
rights. The extent of the legal protection given to different
types of intellectual property rights varies under different
countries legal systems. We intend to license our
intellectual property rights where we can obtain adequate
consideration. See Competition in Part I,
Item 1, Risk Factors in Part I,
Item 1A, and Note 24: Contingencies in
Part II, Item 8 of this
Form 10-K.
We have filed and obtained a
number of patents in the U.S. and other countries. While our
patents are an important element of our success, our business as
a whole is not significantly dependent on any one patent. We and
other companies in the computing, telecommunications, and
related high-technology fields typically apply for and receive,
in the aggregate, tens of thousands of overlapping patents
annually in the U.S. and other countries. We believe that the
duration of the applicable patents that we are granted is
adequate relative to the expected lives of our products. Because
of the fast pace of innovation and product development, our
products are often obsolete before the patents related to them
expire, and sometimes are obsolete before the patents related to
them are even granted. As we expand our product offerings into
new industries, we also seek to extend our patent development
efforts to patent such product offerings. Established
competitors in existing and new industries, as well as companies
that purchase and enforce patents and other intellectual
property, may already have patents covering similar products.
There is no assurance that we will be able to obtain patents
covering our own products, or that we will be able to obtain
licenses from such companies on favorable terms or at all.
The majority of the software that
we distribute, including software embedded in our component- and
system-level products, is entitled to copyright protection. To
distinguish Intel products from our competitors products,
we have obtained certain trademarks and trade names for our
products, and we maintain cooperative advertising programs with
certain customers to promote our brands and to identify products
containing genuine Intel components. We also protect certain
details about our processes, products, and strategies as trade
secrets, keeping confidential the information that we believe
provides us with a competitive advantage. We have ongoing
programs designed to maintain the confidentiality of such
information.
Compliance
with Environmental, Health, and Safety Regulations
Our compliance efforts focus on
monitoring regulatory and resource trends and setting
company-wide performance targets for key resources and
emissions. These targets address several parameters, including
product design; chemical, energy, and water use; climate change;
waste recycling; and emissions.
Intel focuses on reducing natural
resource use, the solid and chemical waste by-products of our
manufacturing processes, and the environmental impact of our
products. We currently use a variety of materials in our
manufacturing process that have the potential to adversely
impact the environment and are subject to a variety of EHS laws
and regulations. For example, lead and halogenated materials
(such as certain flame retardants and plastics) have been used
by the electronics industry for decades. Finding suitable
replacements has been a technical challenge for the industry,
and we have worked for years with our suppliers and others in
the industry to develop lead-free and halogen-free solutions.
We work with the U.S.
Environmental Protection Agency (EPA), non-governmental
organizations, OEMs, and retailers to help manage
e-waste
(which includes electronic products nearing the end of their
useful lives) and promote recycling. The European Union requires
producers of certain electrical and electronic equipment to
develop programs that allow consumers to return products for
recycling. Many states in the U.S. have similar
e-waste
take-back laws. The inconsistency of many
e-waste
take-back laws and the lack of local
e-waste
management options in many areas pose a challenge for our
compliance efforts. To mitigate these problems, we work with our
distributors to provide recycling options for our products.
13
Intel seeks to reduce our global
greenhouse gas emissions by investing in energy conservation
projects in our factories and working with suppliers to improve
energy efficiency. We take a holistic approach to power
management, addressing the challenge at the silicon, package,
circuit, micro/macro architecture, platform, and software
levels. We recognize that climate change may cause general
economic risk. For additional information on the risks of
climate change, see Risk Factors in Item 1A of
this
Form 10-K.
We routinely monitor energy costs to understand the long-range
impacts that rising costs may have on our business. We see the
potential for higher energy costs driven by climate change
regulations. This could include items applied to utilities that
are passed along to customers, such as carbon taxes or costs
associated with emission cap and trade programs or renewable
portfolio standards. In particular, regulations associated with
the Western Climate Initiative could have an impact on our
company, because a number of our large manufacturing facilities
are located in the western United States. Similarly, our
operations in Ireland are already subject to the European
Unions mandatory cap and trade scheme for global-warming
emissions. All of our sites also may be impacted by utility
programs directed by legislation, regulatory, or other pressures
that are targeted to pass costs through to users.
We maintain business recovery
plans that are intended to ensure our ability to recover from
natural disasters or other events that can be disruptive to our
business. Many of our operations are located in semi-arid
regions, such as Israel and the southwestern United States. Some
climate change scenarios predict that such regions can become
even more vulnerable to prolonged droughts due to climate
change. We have had an aggressive water conservation program in
place for many years. We believe that our water conservation and
recovery programs will help reduce our risk if water
availability becomes more constrained in the future. We further
maintain long-range plans to identify potential future water
conservation actions that we can take.
We are committed to sustainability
and take a leadership position in promoting voluntary
environmental initiatives and working proactively with
governments, environmental groups, and industry to promote
global environmental sustainability. We believe that technology
will be fundamental to finding solutions to the worlds
environmental challenges, and we are joining forces with
industry, business, and governments to find and promote ways
that technology can be used as a tool to combat climate change.
For several years, we have been
evaluating green design standards and incorporating
green building concepts and practices into the construction of
our buildings. We are in the process of obtaining Leadership in
Energy and Environmental Design (LEED) certification for an
office building under construction in Israel and a newly
constructed fabrication building in Arizona. We have been
purchasing wind power and other forms of renewable energy at
some of our major sites for several years. At the beginning of
2008, we announced plans to purchase renewable energy
certificates under a multi-year contract. The purchase placed
Intel at the top of the EPAs Green Power Partnership for
2008. The purchase was intended to help stimulate the market for
green power, leading to additional generating capacity and,
ultimately, lower costs.
14
Executive
Officers of the Registrant
The following sets forth certain
information with regard to our executive officers as of
February 20, 2009 (ages are as of December 27, 2008):
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Craig R. Barrett, age 69
|
2005 present,
|
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Chairman of the Board
|
1998 2005,
|
|
Chief Executive Officer
|
Member of Intel Board of Directors since
1992
|
Joined Intel 1974
|
|
Paul S. Otellini, age 58
|
2005 present,
|
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President, Chief Executive Officer
|
2002 2005,
|
|
President, Chief Operating Officer
|
Member of Intel Board of Directors since
2002
|
Member of Google, Inc. Board of Directors
|
Joined Intel 1974
|
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Andy D. Bryant, age 58
|
2007 present,
|
|
Executive VP, Finance and Enterprise Services, Chief
Administrative Officer
|
2001 2007,
|
|
Executive VP, Chief Financial and Enterprise Services Officer
|
Member of Columbia Sportswear Company
and
McKesson Corporation Board of Directors
|
Joined Intel 1981
|
|
Stacy J. Smith, age 46
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2007 present,
|
|
VP, Chief Financial Officer
|
2006 2007,
|
|
VP, Assistant Chief Financial Officer
|
2004 2006,
|
|
VP of Finance and Enterprise Services, Chief Information Officer
|
2002 2004,
|
|
VP of Sales and Marketing Group, General Manager (GM) of Europe,
Middle East, and Africa
|
Joined Intel 1988
|
|
Sean M. Maloney, age 52
|
2008 present,
|
|
Executive VP, Chief Sales and Marketing Officer
|
2006 2008,
|
|
Executive VP, GM of Sales and Marketing Group, Chief Sales and
Marketing Officer
|
2005 2006,
|
|
Executive VP, GM of Mobility Group
|
2001 2005,
|
|
Executive VP, GM of Intel Communications Group
|
Member of Autodesk, Inc. Board of
Directors
|
Joined Intel 1982
|
|
|
|
David Perlmutter, age 55
|
2007 present,
|
|
Executive VP, GM of Mobility Group
|
2005 2007,
|
|
Senior VP, GM of Mobility Group
|
2005
|
|
VP, GM of Mobility Group
|
2000 2005,
|
|
VP, GM of Mobile Platforms Group
|
Joined Intel 1980
|
|
Arvind Sodhani, age 54
|
2007 present,
|
|
Executive VP of Intel, President of Intel Capital
|
2005 2007,
|
|
Senior VP of Intel, President of Intel Capital
|
1990 2005,
|
|
VP, Treasurer
|
Joined Intel 1981
|
|
Robert J. Baker, age 53
|
2001 present,
|
|
Senior VP, GM of Technology and Manufacturing Group
|
Joined Intel 1979
|
|
Patrick P. Gelsinger, age 47
|
2005 present,
|
|
Senior VP, GM of Digital Enterprise Group
|
2002 2005,
|
|
Senior VP, Chief Technology Officer
|
Joined Intel 1979
|
|
William M. Holt, age 56
|
2006 present,
|
|
Senior VP, GM of Technology and Manufacturing Group
|
2005 2006,
|
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VP, Co-GM of Technology and Manufacturing Group
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1999 2005,
|
|
VP, Director of Logic Technology Development
|
Joined Intel 1974
|
|
D. Bruce Sewell, age 50
|
2005 present,
|
|
Senior VP, General Counsel
|
2004 2005,
|
|
VP, General Counsel
|
2001 2004,
|
|
VP of Legal and Government Affairs, Deputy General Counsel
|
Joined Intel 1995
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|
Thomas M. Kilroy, age 51
|
2005 present,
|
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VP, GM of Digital Enterprise Group
|
2003 2005,
|
|
VP of Sales and Marketing Group,
Co-President
of Intel Americas
|
Joined Intel 1990
|
15
ITEM 1A. RISK
FACTORS
Fluctuations
in demand for our products may harm our financial results and
are difficult to forecast.
Current uncertainty in global
economic conditions poses a risk to the overall economy, as
consumers and businesses have deferred and may continue to defer
purchases in response to tighter credit and less discretionary
spending, which negatively affect product demand and other
related matters. If demand for our products fluctuates as a
result of economic conditions or for other reasons, our revenue
and gross margin could be harmed. Important factors that could
cause demand for our products to fluctuate include:
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changes in business and economic
conditions, including a downturn in the semiconductor industry
and/or the
overall economy;
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changes in consumer confidence
caused by changes in market conditions, including changes in the
credit market, expectations for inflation, and energy prices;
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changes in the level of
customers components inventory;
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competitive pressures, including
pricing pressures, from companies that have competing products,
chip architectures, manufacturing technologies, and marketing
programs;
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changes in customer product needs;
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strategic actions taken by our
competitors; and
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market acceptance of our products.
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If product demand decreases, our
manufacturing 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, if product demand decreases or we fail to forecast
demand accurately, we could be required to write off inventory
or record under-utilization charges, which would have a negative
impact on our gross margin. Factory-planning decisions may
shorten the useful lives of long-lived assets, including
facilities and equipment, and cause us to accelerate
depreciation. In the long term, if product demand increases, we
may not be able to add manufacturing or assembly and test
capacity fast enough to meet market demand. These changes in
demand for our products, and changes in our customers
product needs, could have a variety of negative effects on our
competitive position and our financial results, and, in certain
cases, may reduce our revenue, increase our costs, lower our
gross margin percentage, or require us to recognize impairments
of our assets.
The
recent financial crisis could negatively affect our business,
results of operations, and financial condition.
The recent financial crisis
affecting the banking system and financial markets and the going
concern threats to financial institutions have resulted in a
tightening in the credit markets; a low level of liquidity in
many financial markets; and extreme volatility in credit, fixed
income, and equity markets. There could be a number of follow-on
effects from the credit crisis on Intels business,
including insolvency of key suppliers, resulting in product
delays; inability of customers to obtain credit to finance
purchases of our products
and/or
customer insolvencies; counterparty failures negatively
impacting our treasury operations; increased expense or
inability to obtain short-term financing of Intels
operations from the issuance of commercial paper; and increased
impairment charges due to declines in the fair values of
marketable debt or equity investments. The current volatility in
the financial markets and overall economic uncertainty increase
the risk that the actual amounts realized in the future on our
debt and equity investments will differ significantly from the
fair values currently assigned to them.
The
semiconductor industry and our operations are characterized by a
high percentage of costs that are fixed or difficult to reduce
in the short term, and by product demand that is highly variable
and subject to significant downturns that may harm our business,
results of operations, and financial condition.
The semiconductor industry and our
operations are characterized by high costs, such as those
related to facility construction and equipment, R&D, and
employment and training of a highly skilled workforce, that are
either fixed or difficult to reduce in the short term. At the
same time, demand for our products is highly variable and there
have been downturns, often in connection with maturing product
cycles as well as downturns in general economic market
conditions, such as the current economic environment. These
downturns have been characterized by reduced product demand,
manufacturing overcapacity and resulting excess capacity
charges, high inventory levels, and lower average selling
prices. The combination of these factors may cause our revenue,
gross margin, cash flow, and profitability to vary significantly
in both the short and long term.
16
We
operate in intensely competitive industries, and our failure to
respond quickly to technological developments and incorporate
new features into our products could harm our ability to
compete.
We operate in intensely
competitive industries that experience rapid technological
developments, changes in industry standards, changes in customer
requirements, and frequent new product introductions and
improvements. If we are unable to respond quickly and
successfully to these developments, we may lose our competitive
position, and our products or technologies may become
uncompetitive or obsolete. To compete successfully, we must
maintain a successful R&D effort, develop new products and
production processes, and improve our existing products and
processes at the same pace or ahead of our competitors. We may
not be able to develop and market these new products
successfully, the products we invest in and develop may not be
well received by customers, and products developed and new
technologies offered by others may affect demand for our
products. These types of events could have a variety of negative
effects on our competitive position and our financial results,
such as reducing our revenue, increasing our costs, lowering our
gross margin percentage, and requiring us to recognize
impairments on our assets.
We may
be subject to litigation proceedings that could harm our
business.
We may be subject to legal claims
or regulatory matters involving stockholder, consumer,
competition, and other issues on a global basis. As described in
Note 24: Contingencies in Part II,
Item 8 of this
Form 10-K,
we are currently engaged in a number of litigation matters,
particularly with respect to competition. Litigation is subject
to inherent uncertainties, and unfavorable rulings could occur.
An unfavorable ruling could include monetary damages or, in
cases for which injunctive relief is sought, an injunction
prohibiting us from manufacturing or selling one or more
products. If we were to receive an unfavorable ruling in a
matter, our business and results of operations could be
materially harmed.
We
invest in companies for strategic reasons and may not realize a
return on our investments.
We make investments in companies
around the world to further our strategic objectives and support
our key business initiatives. Such investments include equity or
debt instruments of public or private companies, and many of
these instruments are non-marketable at the time of our initial
investment. These companies range from early-stage companies
that are often still defining their strategic direction to more
mature companies with established revenue streams and business
models. The success of these companies is dependent on product
development, market acceptance, operational efficiency, and
other key business factors. The companies in which we invest may
fail because they may not be able to secure additional funding,
obtain favorable investment terms for future financings, or take
advantage of liquidity events such as public offerings, mergers,
and private sales. The current economic environment may increase
the risk of failure for many of the companies in which we invest
due to limited access to credit and reduced frequency of
liquidity events. If any of these private companies fail, we
could lose all or part of our investment in that company. If we
determine that an other-than-temporary decline in the fair value
exists for an equity investment in a public or private company
in which we have invested, we write down the investment to its
fair value and recognize the related write-down as an investment
loss. The majority of our non-marketable equity investment
portfolio balance is concentrated in companies in the flash
memory market segment and wireless connectivity market segment,
and declines in these market segments or changes in
managements plans with respect to our investments in these
market segments could result in significant impairment charges,
impacting gains/losses on equity method investments and
gains/losses on other equity investments.
Furthermore, when the strategic
objectives of an investment have been achieved, or if the
investment or business diverges from our strategic objectives,
we may decide to dispose of the investment. Our non-marketable
equity investments in private companies are not liquid, and we
may not be able to dispose of these investments on favorable
terms or at all. The occurrence of any of these events could
harm our results of operations. Additionally, for cases in which
we are required under equity method accounting to recognize a
proportionate share of another companys income or loss,
such income and loss may impact our earnings. Gains or losses
from equity securities could vary from expectations depending on
gains or losses realized on the sale or exchange of securities,
gains or losses from equity method investments, and impairment
charges related to debt instruments as well as equity and other
investments.
Our
results of operations could vary as a result of the methods,
estimates, and judgments that we use in applying our accounting
policies.
The methods, estimates, and
judgments that we use in applying our accounting policies have a
significant impact on our results of operations (see
Critical Accounting Estimates in Part II,
Item 7 of this
Form 10-K).
Such methods, estimates, and judgments are, by their nature,
subject to substantial risks, uncertainties, and assumptions,
and factors may arise over time that lead us to change our
methods, estimates, and judgments. Changes in those methods,
estimates, and judgments could significantly affect our results
of operations. The current volatility in the financial markets
and overall economic uncertainty increase the risk that the
actual amounts realized in the future on our debt and equity
investments will differ significantly from the fair values
currently assigned to them.
17
Fluctuations
in the mix of products sold may harm our financial
results.
Because of the wide price
differences among and within 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 and gross
margin. Our financial results also depend in part on the mix of
other products that we sell, such as chipsets, flash memory, and
other semiconductor products. In addition, more recently
introduced products tend to have higher associated costs because
of initial overall development and production ramp. Fluctuations
in the mix and types of our products may also affect the extent
to which we are able to recover the fixed costs and investments
associated with a particular product, and as a result can harm
our financial results.
Our
global operations subject us to risks that may harm our results
of operations and financial condition.
We have sales offices, R&D,
manufacturing, and assembly and test facilities in many
countries, and as a result, we are subject to risks 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, harm our results of
operations and financial condition, including:
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security concerns, such as armed
conflict and civil or military unrest, crime, political
instability, and terrorist activity;
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health concerns;
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natural disasters;
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inefficient and limited
infrastructure and disruptions, such as large-scale outages or
interruptions of service from utilities or telecommunications
providers and supply chain interruptions;
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differing employment practices and
labor issues;
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local business and cultural
factors that differ from our normal standards and practices;
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regulatory requirements and
prohibitions that differ between jurisdictions; and
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restrictions on our operations by
governments seeking to support local industries, nationalization
of our operations, and restrictions on our ability to repatriate
earnings.
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In addition, although most of our
products are sold in U.S. dollars, we incur a significant amount
of certain types of expenses, such as payroll, utilities, tax,
and marketing expenses, as well as certain investing and
financing activities, in local currencies. Our hedging programs
reduce, but do not entirely eliminate, the impact of currency
exchange rate movements, and therefore fluctuations in exchange
rates could harm our business operating results and financial
condition. In addition, changes in tariff and import regulations
and in U.S. and
non-U.S.
monetary policies may harm our operating results and financial
condition by increasing our expenses and reducing our revenue.
Varying tax rates in different jurisdictions could harm our
operating results and financial condition by increasing our
overall tax rate.
We maintain a program of insurance
coverage for various types of property, casualty, and other
risks. We place our insurance coverage with various carriers in
numerous jurisdictions. The types and amounts of insurance that
we obtain vary from time to time and from location to location,
depending on availability, cost, and our decisions with respect
to risk retention. The policies are subject to deductibles and
exclusions that result in our retention of a level of risk on a
self-insurance basis. Losses not covered by insurance may be
substantial and may increase our expenses, which could harm our
results of operations and financial condition. In addition, the
recent financial crisis could pose solvency risks for our
insurers, which could reduce our coverage if one or more of our
insurance providers is unable to pay a claim.
Failure
to meet our production targets, resulting in undersupply or
oversupply of products, may harm our business and results of
operations.
Production of integrated circuits
is a complex process. Disruptions in this process can result
from interruptions in our processes, errors, and difficulties in
our development and implementation of new processes; defects in
materials; disruptions in our supply of materials or resources;
and disruptions at our fabrication and assembly and test
facilities due to, for example, accidents, maintenance issues,
or unsafe working conditionsall of which could affect the
timing of production ramps and yields. We may not be successful
or efficient in developing or implementing new production
processes. The occurrence of any of the foregoing may result in
our failure to meet or increase production as desired, resulting
in higher costs or substantial decreases in yields, which could
affect our ability to produce sufficient volume to meet specific
product demand. The unavailability or reduced availability of
certain products could make it more difficult to implement our
platform strategy. We may also experience increases in yields. A
substantial increase in yields could result in higher inventory
levels and the possibility of resulting excess capacity charges
as we slow production to reduce inventory levels. The occurrence
of any of these events could harm our business and results of
operations.
18
We may
have difficulties obtaining the resources or products we need
for manufacturing, assembling and testing our products, or
operating other aspects of our business, which could harm our
ability to meet demand for our products and may increase our
costs.
We have thousands of suppliers
providing various materials that we use in the production of our
products and other aspects of our business, and we seek, where
possible, to have several sources of supply for all of those
materials. However, we may rely on a single or a limited number
of suppliers, or upon suppliers in a single country, for these
materials. The inability of such suppliers to deliver adequate
supplies of production materials or other supplies could disrupt
our production processes or could make it more difficult for us
to implement our business strategy. In addition, production
could be disrupted by the unavailability of the resources used
in production, such as water, silicon, electricity, and gases.
The unavailability or reduced availability of the materials or
resources that we use in our business may require us to reduce
production of products or may require us to incur additional
costs in order to obtain an adequate supply of those materials
or resources. The occurrence of any of these events could harm
our business and results of operations.
Costs
related to product defects and errata may harm our results of
operations and business.
Costs associated with unexpected
product defects and errata (deviations from published
specifications) due to, for example, unanticipated problems in
our manufacturing processes, include:
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writing off the value of inventory
of defective products;
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disposing of defective products
that cannot be fixed;
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recalling defective products that
have been shipped to customers;
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providing product replacements
for, or modifications to, defective products; and/or
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defending against litigation
related to defective products.
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These costs could be substantial
and may therefore increase our expenses and lower our gross
margin. In addition, our reputation with our customers or users
of our products could be damaged as a result of such product
defects and errata, and the demand for our products could be
reduced. These factors could harm our financial results and the
prospects for our business.
We may
be subject to claims of infringement of third-party intellectual
property rights, which could harm our business.
From time to time, third parties
may assert against us or our customers alleged patent,
copyright, trademark, or other intellectual property rights to
technologies that are important to our business. As described in
Note 24: Contingencies in Part II,
Item 8 of this
Form 10-K,
we are currently engaged in a number of litigation matters
involving intellectual property rights. We may be subject to
intellectual property infringement claims from certain
individuals and companies who have acquired patent portfolios
for the sole purpose of asserting such claims against other
companies. Any claims that our products or processes infringe
the intellectual property rights of others, regardless of the
merit or resolution of such claims, could cause us to incur
significant costs in responding to, defending, and resolving
such claims, and may divert the efforts and attention of our
management and technical personnel from our business. As a
result of such intellectual property infringement claims, we
could be required or otherwise decide that it is appropriate to:
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pay third-party infringement
claims;
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discontinue manufacturing, using,
or selling particular products subject to infringement claims;
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discontinue using the technology
or processes subject to infringement claims;
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develop other technology not
subject to infringement claims, which could be time-consuming
and costly or may not be possible; and/or
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license technology from the third
party claiming infringement, which license may not be available
on commercially reasonable terms.
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The occurrence of any of the
foregoing could result in unexpected expenses or require us to
recognize an impairment of our assets, which would reduce the
value of our assets and increase expenses. In addition, if we
alter or discontinue our production of affected items, our
revenue could be harmed.
19
We may
not be able to enforce or protect our intellectual property
rights, which may harm our ability to compete and harm our
business.
Our ability to enforce our
patents, copyrights, software licenses, and other intellectual
property rights is subject to general litigation risks, as well
as uncertainty as to the enforceability of our intellectual
property rights in various countries. When we seek to enforce
our rights, we are often subject to claims that the intellectual
property right is invalid, is otherwise not enforceable, or is
licensed to the party against whom we are asserting a claim. In
addition, our assertion of intellectual property rights often
results in the other party seeking to assert alleged
intellectual property rights of its own against us. If we are
not ultimately successful in defending ourselves against these
claims in litigation, we may not be able to sell a particular
product or family of products due to an injunction, or we may
have to pay damages that could, in turn, harm our results of
operations. In addition, governments may adopt regulations or
courts may render decisions requiring compulsory licensing of
intellectual property to others, or governments may require that
products meet specified standards that serve to favor local
companies. Our inability to enforce our intellectual property
rights under these circumstances may harm our competitive
position and our business.
Our
licenses with other companies and our participation in industry
initiatives may allow other companies, including our
competitors, to use our patent rights.
Companies in the semiconductor
industry often rely on the ability to license patents from each
other in order to compete. Many of our competitors have broad
licenses or cross-licenses with us, and under current case law,
some of 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.
Changes
in our decisions with regard to restructuring and efficiency
efforts, and other factors, could affect our results of
operations and financial condition.
Factors that could cause actual
results to differ materially from our expectations with regard
to restructuring actions include:
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timing and execution of plans and
programs that may be subject to local labor law requirements,
including consultation with appropriate work councils;
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changes in assumptions related to
severance and postretirement costs;
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future dispositions;
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new business initiatives and
changes in product roadmap, development, and manufacturing;
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changes in employment levels and
turnover rates;
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changes in product demand and the
business environment, including changes related to the current
uncertainty in global economic conditions; and
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changes in the fair value of
certain long-lived assets.
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In
order to compete, we must attract, retain, and motivate key
employees, and our failure to do so could harm our results of
operations.
In order to compete, we must
attract, retain, and motivate executives and other key
employees. Hiring and retaining qualified executives,
scientists, engineers, technical staff, and sales
representatives are critical to our business, and competition
for experienced employees in the semiconductor industry can be
intense. To help attract, retain, and motivate qualified
employees, we use share-based incentive awards such as employee
stock options and non-vested share units (restricted stock
units). If the value of such stock awards does not appreciate as
measured by the performance of the price of our common stock, or
if our share-based compensation otherwise ceases to be viewed as
a valuable benefit, our ability to attract, retain, and motivate
employees could be weakened, which could harm our results of
operations.
20
Our
failure to comply with applicable environmental laws and
regulations worldwide could harm our business and results of
operations.
The manufacturing and assembling
and testing of our products require the use of hazardous
materials that are subject to a broad array of EHS laws and
regulations. Our failure to comply with any of these applicable
laws or regulations could result in:
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regulatory penalties, fines, and
legal liabilities;
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suspension of production;
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alteration of our fabrication and
assembly and test processes; and
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curtailment of our operations or
sales.
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In addition, our failure to manage
the use, transportation, emissions, discharge, storage,
recycling, or disposal of hazardous materials could subject us
to increased costs or future liabilities. Existing and future
environmental laws and regulations could also require us to
acquire pollution abatement or remediation equipment, modify our
product designs, or incur other expenses associated with such
laws and regulations. Many new materials that we are evaluating
for use in our operations may be subject to regulation under
existing or future environmental laws and regulations that may
restrict our use of one or more of such materials in our
manufacturing, assembly and test processes, or products. Any of
these restrictions could harm our business and results of
operations by increasing our expenses or requiring us to alter
our manufacturing and assembly and test processes.
Climate
change poses both regulatory and physical risks that could harm
our results of operations or affect the way we conduct our
business.
In addition to the possible direct
economic impact that climate change could have on us, climate
change mitigation programs and regulation can increase our
costs. For example, the cost of perfluorocompounds (PFCs), a gas
that we use in our manufacturing, could increase over time under
some climate-change-focused emissions trading programs that may
be imposed by government regulation. If the use of PFCs is
prohibited, we would need to obtain substitute materials that
may cost more or be less available for our manufacturing
operations. We also see the potential for higher energy costs
driven by climate change regulations. Our costs could increase
if utility companies pass on their costs, such as those
associated with carbon taxes, emission cap and trade programs,
or renewable portfolio standards. While we maintain business
recovery plans that are intended to allow us to recover from
natural disasters or other events that can be disruptive to our
business, we cannot be sure that our plans will fully protect us
from all such disasters or events. Many of our operations are
located in semi-arid regions, such as Israel and the
southwestern United States. Some scenarios predict that these
regions may become even more vulnerable to prolonged droughts
due to climate change.
Changes
in our effective tax rate may harm our results of
operations.
A number of factors may increase
our future effective tax rates, including:
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the jurisdictions in which profits
are determined to be earned and taxed;
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the resolution of issues arising
from tax audits with various tax authorities;
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changes in the valuation of our
deferred tax assets and liabilities;
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adjustments to income taxes upon
finalization of various tax returns;
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increases in expenses not
deductible for tax purposes, including write-offs of acquired
in-process research and development and impairments of goodwill
in connection with acquisitions;
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changes in available tax credits;
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changes in tax laws or the
interpretation of such tax laws, and changes in generally
accepted accounting principles; and
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our decision to repatriate
non-U.S. earnings
for which we have not previously provided for U.S. taxes.
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Any significant increase in our
future effective tax rates could reduce net income for future
periods.
21
Interest
and other, net could be harmed by macroeconomic and other
factors.
Factors that could cause interest
and other, net in our consolidated statements of income to
fluctuate include:
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fixed-income, equity, and credit
market volatility, such as that which is being experienced in
the current global economic environment;
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fluctuations in foreign currency
exchange rates;
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fluctuations in interest rates;
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changes in our cash and investment
balances; and
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changes in our hedge accounting
treatment.
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Our
acquisitions, divestitures, and other transactions could disrupt
our ongoing business and harm our results of
operations.
In pursuing our business strategy,
we routinely conduct discussions, evaluate opportunities, and
enter into agreements regarding possible investments,
acquisitions, divestitures, and other transactions, such as
joint ventures. Acquisitions and other transactions involve
significant challenges and risks, including risks that:
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we may not be able to identify
suitable opportunities at terms acceptable to us;
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the transaction may not advance
our business strategy;
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we may not realize a satisfactory
return on the investment we make;
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we may not be able to retain key
personnel of the acquired business; or
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we may experience difficulty in
integrating new employees, business systems, and technology.
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When we decide to sell assets or a
business, we may encounter difficulty in finding or completing
divestiture opportunities or alternative exit strategies on
acceptable terms in a timely manner, and the agreed terms and
financing arrangements could be renegotiated due to changes in
business or market conditions. These circumstances could delay
the accomplishment of our strategic objectives or cause us to
incur additional expenses with respect to businesses that we
want to dispose of, or we may dispose of a business at a price
or on terms that are less favorable than we had anticipated,
resulting in a loss on the transaction.
If we do enter into agreements
with respect to acquisitions, divestitures, or other
transactions, we may fail to complete them due to:
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failure to obtain required
regulatory or other approvals;
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intellectual property or other
litigation;
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difficulties that we or other
parties may encounter in obtaining financing for the
transaction; or
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other factors.
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Further, acquisitions,
divestitures, and other transactions require substantial
management resources and have the potential to divert our
attention from our existing business. These factors could harm
our business and results of operations.
22
ITEM 1B. UNRESOLVED
STAFF COMMENTS
Not applicable.
ITEM 2. PROPERTIES
As of December 27, 2008, our
major facilities consisted of:
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(Square Feet in Millions)
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United States
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Other Countries
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Total
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Owned
facilities1
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27.2
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16.8
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44.0
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Leased
facilities2
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1.7
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2.8
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4.5
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Total facilities
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28.9
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19.6
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48.5
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1 |
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Leases on portions of the land used for these facilities
expire at varying dates through 2062. |
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Leases expire at varying dates through 2028 and generally
include renewals at our option. |
Our principal executive offices
are located in the U.S. The majority of our wafer
fabrication activities are also located in the U.S. Outside
the U.S., we have wafer fabrication at our facilities in Ireland
and Israel. In addition, we are building a new wafer fabrication
facility in China. Our assembly and test facilities are located
overseas, specifically in Malaysia, China, Costa Rica, and the
Philippines. We are building a new assembly and test facility in
Vietnam that is expected to begin production in 2010. In
addition, we have sales and marketing offices worldwide. These
facilities are generally located near major concentrations of
users.
We have placed for sale certain
facilities (see Note 15: Restructuring and Asset
Impairment Charges in Part II, Item 8 of this
Form 10-K).
Additionally, subsequent to the end of 2008, management approved
plans to restructure some of our manufacturing and assembly and
test operations, and align our manufacturing and assembly and
test capacity to current market conditions. These actions, which
are expected to take place beginning in 2009, include closing
two assembly and test facilities in Malaysia, one facility in
the Philippines, and one facility in China; stopping production
at a 200mm wafer fabrication facility in Oregon; and ending
production at our 200mm wafer fabrication facility in
California. Except for these facilities, we believe that our
existing facilities are suitable and adequate. We recorded
under-utilization charges in the fourth quarter of 2008 as a
result of our decision to reduce our facility loadings at
certain facilities, due to a significant decrease in demand. We
expect to continue to have under-utilization charges in 2009;
however, we do plan to utilize the productive capacity of these
facilities in the future.
We do not identify or allocate
assets by operating segment. For information on net property,
plant and equipment by country, see Note 25:
Operating Segment and Geographic Information in
Part II, Item 8 of this
Form 10-K.
ITEM 3. LEGAL
PROCEEDINGS
For a discussion of legal
proceedings, see Note 24: Contingencies in
Part II, Item 8 of this
Form 10-K.
ITEM 4. SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
23
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.
In 2008, during the first quarter
we paid a cash dividend of $0.1275 per common share, and during
the second, third, and fourth quarters we paid a cash dividend
of $0.14 per common share, for a total of $0.5475 for the year
($0.1125 each quarter during 2007 for a total of $0.45 for the
year). We have paid a cash dividend in each of the past 65
quarters. In January 2009, our Board of Directors declared a
cash dividend of $0.14 per common share for the first quarter of
2009. The dividend is payable on March 1, 2009 to stockholders
of record on February 7, 2009.
As of February 6, 2009, there were
approximately 180,000 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
We have an ongoing authorization,
amended in November 2005, from our Board of Directors to
repurchase up to $25 billion in shares of our common stock in
open market or negotiated transactions. As of December 27, 2008,
$7.4 billion remained available for repurchase under the
existing repurchase authorization. A portion of our purchases in
2008 was executed under privately negotiated forward purchase
agreements. In the third quarter of 2008, we executed a forward
purchase agreement with Lehman Brothers OTC Derivatives Inc.
(Lehman Brothers) in which we prepaid $1.0 billion and received
an equivalent $1.0 billion of cash collateral from Lehman
Brothers. However, in the fourth quarter, Lehman Brothers failed
to deliver shares of Intel common stock, and we foreclosed on
the $1.0 billion collateral.
Common stock repurchases under our
authorized plan in each quarter of 2008 were as follows (in
millions, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
|
|
|
|
Average
|
|
|
Purchased
|
|
|
|
Total
|
|
|
Price
|
|
|
as Part of
|
|
|
|
Number
|
|
|
Paid
|
|
|
Publicly
|
|
|
|
of Shares
|
|
|
Per
|
|
|
Announced
|
|
Period
|
|
Purchased
|
|
|
Share
|
|
|
Plans
|
|
|
December 30, 2007March 29, 2008
|
|
|
121.9
|
|
|
$
|
20.51
|
|
|
|
121.9
|
|
March 30, 2008June 28, 2008
|
|
|
108.8
|
|
|
$
|
22.98
|
|
|
|
108.8
|
|
June 29, 2008September 27, 2008
|
|
|
93.4
|
|
|
$
|
22.67
|
|
|
|
93.4
|
|
September 28, 2008December 27, 2008
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
324.1
|
|
|
$
|
21.96
|
|
|
|
324.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We did not make any common stock
repurchases under our authorized plan during the fourth quarter
of 2008.
For the majority of restricted
stock units granted, the number of shares issued on the date the
restricted stock units vest is net of the statutory withholding
requirements that we pay on behalf of our employees. These
withheld shares are not included in the common stock repurchase
totals in the tables above. For further discussion, see
Note 20: Common Stock Repurchases in Part II, Item 8
of this Form
10-K.
24
Stock
Performance Graph
The line graph below compares the
cumulative total stockholder return on our common stock with the
cumulative total return of the Dow Jones Technology Index and
the Standard & Poors (S&P) 500 Index for the
five fiscal years ended December 27, 2008. The graph and table
assume that $100 was invested on December 26, 2003 (the last day
of trading for the fiscal year ended December 27, 2003) in each
of our common stock, the Dow Jones Technology Index, and the
S&P 500 Index, and that all dividends were reinvested.
Cumulative total stockholder returns for our common stock, the
Dow Jones Technology Index, and the S&P 500 Index are based
on our fiscal year.
Comparison
of Five-Year Cumulative Return for Intel,
the Dow Jones Technology Index, and the S&P 500
Index
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
Intel Corporation
|
|
$
|
100
|
|
|
$
|
76
|
|
|
$
|
81
|
|
|
$
|
67
|
|
|
$
|
91
|
|
|
$
|
49
|
|
Dow Jones Technology Index
|
|
$
|
100
|
|
|
$
|
103
|
|
|
$
|
107
|
|
|
$
|
117
|
|
|
$
|
137
|
|
|
$
|
76
|
|
S&P 500 Index
|
|
$
|
100
|
|
|
$
|
112
|
|
|
$
|
118
|
|
|
$
|
137
|
|
|
$
|
145
|
|
|
$
|
88
|
|
25
|
|
ITEM
6.
|
SELECTED
FINANCIAL DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Millions, Except Per Share Amounts)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
20051
|
|
|
20041
|
|
|
Net revenue
|
|
$
|
37,586
|
|
|
$
|
38,334
|
|
|
$
|
35,382
|
|
|
$
|
38,826
|
|
|
$
|
34,209
|
|
Gross margin
|
|
$
|
20,844
|
|
|
$
|
19,904
|
|
|
$
|
18,218
|
|
|
$
|
23,049
|
|
|
$
|
19,746
|
|
Research and development
|
|
$
|
5,722
|
|
|
$
|
5,755
|
|
|
$
|
5,873
|
|
|
$
|
5,145
|
|
|
$
|
4,778
|
|
Operating income
|
|
$
|
8,954
|
|
|
$
|
8,216
|
|
|
$
|
5,652
|
|
|
$
|
12,090
|
|
|
$
|
10,130
|
|
Net income
|
|
$
|
5,292
|
|
|
$
|
6,976
|
|
|
$
|
5,044
|
|
|
$
|
8,664
|
|
|
$
|
7,516
|
|
Earnings per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.93
|
|
|
$
|
1.20
|
|
|
$
|
0.87
|
|
|
$
|
1.42
|
|
|
$
|
1.17
|
|
Diluted
|
|
$
|
0.92
|
|
|
$
|
1.18
|
|
|
$
|
0.86
|
|
|
$
|
1.40
|
|
|
$
|
1.16
|
|
Weighted average diluted shares outstanding
|
|
|
5,748
|
|
|
|
5,936
|
|
|
|
5,880
|
|
|
|
6,178
|
|
|
|
6,494
|
|
Dividends per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Declared
|
|
$
|
0.5475
|
|
|
$
|
0.45
|
|
|
$
|
0.40
|
|
|
$
|
0.32
|
|
|
$
|
0.16
|
|
Paid
|
|
$
|
0.5475
|
|
|
$
|
0.45
|
|
|
$
|
0.40
|
|
|
$
|
0.32
|
|
|
$
|
0.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Millions)
|
|
Dec. 27, 2008
|
|
|
Dec. 29, 2007
|
|
|
Dec. 30, 2006
|
|
|
Dec. 31, 2005
|
|
|
Dec. 25, 2004
|
|
|
Property, plant and equipment, net
|
|
$
|
17,544
|
|
|
$
|
16,918
|
|
|
$
|
17,602
|
|
|
$
|
17,111
|
|
|
$
|
15,768
|
|
Total assets
|
|
$
|
50,715
|
|
|
$
|
55,651
|
|
|
$
|
48,368
|
|
|
$
|
48,314
|
|
|
$
|
48,143
|
|
Long-term debt
|
|
$
|
1,886
|
|
|
$
|
1,980
|
|
|
$
|
1,848
|
|
|
$
|
2,106
|
|
|
$
|
703
|
|
Stockholders equity
|
|
$
|
39,088
|
|
|
$
|
42,762
|
|
|
$
|
36,752
|
|
|
$
|
36,182
|
|
|
$
|
38,579
|
|
Additions to property, plant and equipment
|
|
$
|
5,197
|
|
|
$
|
5,000
|
|
|
$
|
5,860
|
|
|
$
|
5,871
|
|
|
$
|
3,843
|
|
Employees (in thousands)
|
|
|
83.9
|
|
|
|
86.3
|
|
|
|
94.1
|
|
|
|
99.9
|
|
|
|
85.0
|
|
|
|
|
1 |
|
We started recognizing the provisions of SFAS No. 123(R)
beginning in fiscal year 2006. See Note 2: Accounting
Policies and Note 19: Employee Equity Incentive
Plans in Part II, Item 8 of this Form
10-K. |
The ratio of earnings to fixed
charges for each of the five years in the period ended December
27, 2008 was as follows:
|
|
|
|
|
|
|
|
|
2008
|
|
2007
|
|
2006
|
|
2005
|
|
2004
|
|
51x
|
|
72x
|
|
50x
|
|
169x
|
|
107x
|
Fixed charges consist of interest
expense, capitalized interest, and the estimated interest
component of rent expense.
26
|
|
ITEM
7.
|
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
Our Managements Discussion
and Analysis of Financial Condition and Results of Operations
(MD&A) is provided in addition to the accompanying
consolidated financial statements and notes to assist readers in
understanding our results of operations, financial condition,
and cash flows. MD&A is organized as follows:
|
|
|
|
|
Overview. Discussion
of our business and overall analysis of financial and other
highlights affecting the company in order to provide context for
the remainder of MD&A.
|
|
|
Strategy. Overall
strategy and the strategy for our operating segments.
|
|
|
Critical Accounting
Estimates. Accounting
estimates that we believe are important to understanding the
assumptions and judgments incorporated in our reported financial
results and forecasts.
|
|
|
Results of
Operations. Analysis
of our financial results comparing 2008 to 2007 and comparing
2007 to 2006.
|
|
|
Liquidity and Capital
Resources. An
analysis of changes in our balance sheets and cash flows, and
discussion of our financial condition including the credit
quality of our investment portfolio and potential sources of
liquidity.
|
|
|
Fair
value. Discussion
of the methodologies used in the valuation of our financial
instruments.
|
|
|
Contractual Obligations and
Off-Balance-Sheet
Arrangements. Overview
of contractual obligations and contingent liabilities and
commitments outstanding as of December 27, 2008, including
expected payment schedule, and explanation of off-balance-sheet
arrangements.
|
|
|
Business
Outlook. Our
expectations for selected financial items for the 2009 fiscal
year.
|
The various sections of this
MD&A contain a number of forward-looking statements. Words
such as expects, goals,
plans, believes, continues,
may, and variations of such words and similar
expressions are intended to identify such forward-looking
statements. In addition, any statements that refer to
projections of our future financial performance, our anticipated
growth and trends in our businesses, and other characterizations
of future events or circumstances are forward-looking
statements. Such statements are based on our current
expectations and could be affected by the uncertainties and risk
factors described throughout this filing and particularly in the
Business Outlook section (see also Risk
Factors in Part I, Item 1A of this Form
10-K). Our
actual results may differ materially, and these
forward-looking
statements do not reflect the potential impact of any
divestitures, mergers, acquisitions, or other business
combinations that had not been completed as of February 18, 2009.
Overview
Our goal is to be the preeminent
provider of semiconductor chips and platforms for the worldwide
digital economy. Our primary component-level products include
microprocessors, chipsets, and flash memory.
Net revenue, gross margin,
operating income, and net income for 2008 and 2007 were as
follows:
|
|
|
|
|
|
|
|
|
(In Millions)
|
|
2008
|
|
|
2007
|
|
|
Net revenue
|
|
$
|
37,586
|
|
|
$
|
38,334
|
|
Gross margin
|
|
$
|
20,844
|
|
|
$
|
19,904
|
|
Operating income
|
|
$
|
8,954
|
|
|
$
|
8,216
|
|
Net income
|
|
$
|
5,292
|
|
|
$
|
6,976
|
|
The slowing of the worldwide
economy resulted in a weak fourth quarter. The pace of the
revenue decline in the fourth quarter was dramatic and resulted
from reduced demand and inventory contraction across the supply
chain. The 19% sequential decline from the third quarter of 2008
to the fourth quarter of 2008 was only the second time in the
last 20 years that our fourth-quarter revenue fell below our
third-quarter revenue. It is unclear when a turnaround may
occur, and there remains a high degree of uncertainty around
demand, which may continue to decline. However, we believe that
our competitive position, manufacturing process technologies,
cash flow from operations, and balance sheet remain strong, and
that we are well positioned to manage through this economic
downturn.
We continue to invest in our
leading-edge technologies and growth initiatives in order to
strengthen our competitive position and enter new market
segments. We have a strong belief that technology companies
successfully emerge from recessions with tomorrows
products, not todays products. In 2008, we introduced the
Intel Atom processor family, which is designed to enable new
mobile Internet form factors at attractive system price points.
Our product offerings continue to strengthen, with the launch of
our new microarchitecture, code-named Nehalem, in
the fourth quarter of 2008. Additionally, we expect to begin
manufacturing products using our next-generation 32nm process
technology in the second half of 2009, which we believe will
increase performance and energy efficiency, and lower product
costs.
27
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Our gross margin toward the end of
the year was impacted by approximately $250 million of factory
under-utilization charges as well as inventory write-offs on
computing-related products, which were primarily demand-related.
The under-utilization charges were a result of our decision to
reduce factory loadings at the end of the fourth quarter in
response to the drop-off in demand. As a result, factory
under-utilization
charges are expected to increase significantly in the first
quarter, impacting our gross margin. We also expect our gross
margin to be negatively impacted as our
start-up
costs associated with our 32nm process technology increase and
as we transition 32nm design resources from research and
development to manufacturing. Additionally, changes in demand
levels and pricing of products could impact inventory
write-offs, mix, and unit costs, creating additional variability
in margin. Despite reducing our factory loadings, we increased
our inventory in the fourth quarter of 2008 due to lower than
expected demand and inventory reductions in the supply chain. We
expect further reduction in the supply chain inventory levels in
the first quarter of 2009 as our customers manage their business
through the current economic uncertainty. Subsequent to the end
of 2008, management approved plans to restructure some of our
manufacturing and assembly and test operations, and align our
manufacturing and assembly and test capacity to current market
conditions. These actions, which are expected to take place
beginning in 2009, include closing two assembly and test
facilities in Malaysia, one facility in the Philippines, and one
facility in China; stopping production at a 200mm wafer
fabrication facility in Oregon; and ending production at our
200mm wafer fabrication facility in California.
We continue to focus on our
commitment to efficiency and controlling spending. We have
reduced our headcount by over 2,000 from the end of 2007 and
nearly 20,000 from our highest levels during 2006. During 2008,
we had additional divestitures of non-strategic businesses and
divested our NOR flash memory business. Also, in a joint
decision with Micron, we discontinued the supply of NAND flash
memory from a 200mm facility within the IMFT manufacturing
network, which resulted in restructuring charges of $215 million.
In the fourth quarter of 2008, we
made a $1.0 billion investment in Clearwire LLC, adding to our
pre-existing investments. However, we recorded an impairment of
our investments in the new Clearwire Corporation and Clearwire
LLC of $938 million, primarily due to the fair value being
significantly lower than the cost basis of our investments.
From a financial condition
perspective, we ended 2008 with an investment portfolio valued
at $14.5 billion, consisting of cash and cash equivalents and
marketable debt instruments included in trading assets and
short- and long-term investments. In addition, we generated
$10.9 billion in cash from operations in 2008. The credit
quality of our investment portfolio remains high during this
difficult credit environment, with other-than-temporary
impairments on our available-for-sale investments in debt
instruments limited to $44 million during 2008. In addition, we
continue to be able to invest in high-quality investments.
However, we have seen a reduction in the volume of available
commercial paper from certain market segments. As a result, our
investments in short-term government funds have increased, which
will reduce our average investment return. Despite the
tightening of the credit markets, we continue to be able to
access funds through the credit markets, including through the
issuance of commercial paper. With the exception of a limited
amount of investments for which we have recognized
other-than-temporary impairments, we have not seen significant
liquidation delays, and for those that have matured we have
received the full par value of our original debt investments.
For additional details on our investment portfolio, see
Liquidity and Capital Resources.
During 2008, we repurchased $7.1
billion of stock through our stock repurchase program and paid
$3.1 billion to stockholders as dividends. In the fourth quarter
of 2008, we did not repurchase additional stock, as we felt that
it was better to conserve cash, given the economic environment.
In January 2009, our Board of Directors declared a dividend of
$0.14 per common share for the first quarter of 2009.
28
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Strategy
Our goal is to be the preeminent
provider of semiconductor chips and platforms for the worldwide
digital economy. As part of our overall strategy to compete in
each relevant market segment, we use our core competencies in
the design and manufacture of integrated circuits, as well as
our financial resources, global presence, and brand recognition.
We believe that we have the scale, capacity, and global reach to
establish new technologies and respond to customers needs
quickly.
Some of our key focus areas are
listed below:
|
|
|
|
|
Customer
Orientation. Our
strategy focuses on developing our next generation of products
based on the needs and expectations of our customers. In turn,
our products help enable the design and development of new form
factors and usage models for businesses and consumers. We offer
platforms that incorporate various components designed and
configured to work together to provide an optimized user
computing solution compared to components that are used
separately.
|
|
|
Architecture and
Platforms. We are
developing integrated platform solutions by moving the memory
controller and graphics functionality from the chipset to the
microprocessor. This platform repartitioning is designed to
provide improved performance due to higher integration, lower
power consumption, and reduced platform size. In addition, we
are focusing on improved
energy-efficient
performance for computing and communications systems and
devices. Improved energy-efficient performance involves
balancing improved performance with lower power consumption. We
continue to develop multi-core microprocessors with an
increasing number of cores, which enable improved multitasking
and energy efficiency. We are also focusing on the development
of a new highly scalable, many-core architecture aimed at
parallel processing. This architecture will initially be used in
developing discrete graphics processors designed for gaming and
media creation. Over time, this architecture may be utilized in
the development of products for scientific and professional
workstations as well as high-performance computing applications.
|
|
|
Silicon and Manufacturing
Technology
Leadership. Our
strategy for developing microprocessors with improved
performance is to synchronize the introduction of a new
microarchitecture with improvements in silicon process
technology. We plan to introduce a new microarchitecture
approximately every two years and ramp the next generation of
silicon process technology in the intervening years. This
coordinated schedule allows us to develop and introduce new
products based on a common microarchitecture quickly, without
waiting for the next generation of silicon process technology.
We refer to this as our tick-tock technology
development cadence.
|
|
|
Strategic
Investments. We
make equity investments in companies around the world that we
believe will generate returns, further our strategic objectives,
and support our key business initiatives. Our investments,
including those made through our Intel Capital program,
generally focus on investing in companies and initiatives to
stimulate growth in the digital economy, create new business
opportunities for Intel, and expand global markets for our
products. Our current investments focus on the following areas:
advancing flash memory products, enabling mobile wireless
devices, advancing the digital home, enhancing the digital
enterprise, advancing high-performance communications
infrastructures, and developing the next generation of silicon
process technologies. Our focus areas and investment activities
tend to develop and change over time due to rapid advancements
in technology and changes in the economic climate.
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Business Environment and
Software. We
believe that we are well positioned in the technology industry
to help drive innovation, foster collaboration, and promote
industry standards that will yield innovation and improved
technologies for users. We plan to continue to cultivate new
businesses and work to encourage the industry to offer products
that take advantage of the latest market trends and usage
models. We frequently participate in industry initiatives
designed to discuss and agree upon technical specifications and
other aspects of technologies that could be adopted as standards
by standards-setting organizations. In addition, we work
collaboratively with other companies to protect digital content
and the consumer. Lastly, through our Software and Services
Group (SSG), we help enable and advance the computing ecosystem
by providing development tools and support to help software
developers create software applications and operating systems
that take advantage of our platforms.
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We believe that the proliferation
of the Internet, including user demand for premium content and
rich media, drives the need for greater performance in PCs and
servers. A growing number of older PCs are increasingly
incapable of handling the tasks that users demand, such as
streaming video, uploading photos, and online gaming. As these
tasks become even more demanding and require more computing
power, we believe that users will need and want to buy new PCs
to perform everyday tasks on the Internet. We also believe that
increased Internet traffic creates a need for greater server
infrastructure, including server products optimized for
energy-efficient performance.
29
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
The trend of mobile microprocessor
unit growth outpacing the growth in desktop microprocessor units
has continued, and shipments of our mobile microprocessors
exceeded our desktop microprocessors for the first time in the
second quarter of 2008. We believe that the demand for mobile
microprocessors will result in the increased development of
products with form factors and uses that require low-power
microprocessors.
Our silicon and manufacturing
technology leadership allows us to develop low-power
microprocessors for new uses and form factors. We believe that
these low-power microprocessors give us the ability to extend
Intel architecture and drive growth in new market segments,
including a growing number of products that require processors
specifically designed for embedded solutions, MIDs, consumer
electronics devices, nettops, and netbooks. We believe that the
common elements for products in these new market segments are
low power consumption and the ability to access the Internet. We
also offer, and are continuing to develop, SoC products that
integrate core processing functionality with specific
components, such as graphics, audio, and video, onto a single
chip to form a purpose-built solution. This integration reduces
cost, power consumption, and size.
Strategy
by Operating Segment
We completed a reorganization in
the second quarter of 2008 that transferred the revenue and
costs associated with a portion of the Digital Home Groups
consumer PC components business to the Digital Enterprise Group.
The Digital Home Group now focuses on the consumer electronics
components business. The strategy by operating segment presented
below is based on the new organizational structure.
The strategy for our Digital
Enterprise Group (DEG) is to offer computing and
communications products for businesses, service providers, and
consumers. DEG products are incorporated into desktop and nettop
computers, enterprise computer servers and workstations, and
products that make up the infrastructure for the Internet. We
also offer products for embedded designs, such as industrial
equipment,
point-of-sale
systems, telecommunications, panel PCs, in-vehicle
information/entertainment systems, and medical equipment. Our
strategy for the desktop computing market segment is to offer
products that provide increased manageability, security, and
energy-efficient performance while at the same time lowering
total cost of ownership for businesses. For consumers in the
desktop computing market segment, we also focus on the design of
components for high-end enthusiast PCs and mainstream PCs with
rich audio and video capabilities. Our strategy for the nettop
computing market segment is to offer products that enable
affordable, Internet-focused devices with small form factors.
Our strategy for the enterprise computing market segment is to
offer products that provide energy-efficient performance and
virtualization technology for server, workstation, and storage
platforms. We are also increasing our focus on products designed
for
high-performance
computing, data centers, and blade server systems. Our strategy
for the embedded computing market segment is to drive Intel
architecture as an embedded solution by delivering long life
cycle support, architectural scalability, and platform
integration.
The strategy for our
Mobility Group is to offer notebook PC products
designed to improve performance, battery life, and wireless
connectivity, as well as to allow for the design of smaller,
lighter, and thinner form factors. We are also increasing our
focus on products designed for the business and consumer
environments by offering technologies that provide increased
manageability and security, and we continue to invest in the
build-out of WiMAX. We also offer, and are continuing to
develop, products that enable mobile devices to deliver digital
content and the Internet to users in new ways, including
products for MIDs and netbooks.
The strategy for our NAND
Solutions Group is to offer advanced NAND flash memory
products, focusing on system-level solutions for Intel
architecture platforms such as solid-state drives. Additionally,
we offer NAND products used in memory cards. In support of our
strategy to provide advanced flash memory products, we continue
to focus on the development of innovative products designed to
address the needs of customers for reliable, non-volatile,
low-cost, high-density memory.
The strategy for our Digital
Home Group is to offer products and solutions, including
SoC designs, for use in consumer electronics devices designed to
access and share Internet, broadcast, optical media, and
personal content through a variety of linked digital devices
within the home. We are focusing on the design of components for
consumer electronics devices, such as digital TVs,
high-definition media players, and set-top boxes, which receive,
decode, and convert incoming data signals.
30
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
The strategy for our Digital
Health Group is to design and deliver technology-enabled
products and explore global business opportunities in healthcare
information technology and healthcare research, as well as
personal healthcare. In support of this strategy, we are
focusing on the design of technology solutions and platforms for
the digital hospital and consumer/home health products.
The strategy for our
Software and Services Group is to promote Intel
architecture as the platform of choice for software and
services. SSG works with the worldwide software and services
ecosystem by providing software products, engaging with
developers, and driving strategic software investments.
Critical
Accounting Estimates
The methods, estimates, and
judgments that we use in applying our accounting policies have a
significant impact on the results that we report in our
financial statements. Some of our accounting policies require us
to make difficult and subjective judgments, often as a result of
the need to make estimates regarding matters that are inherently
uncertain. Our most critical accounting estimates include:
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the valuation of non-marketable
equity investments and the determination of other-than-temporary
impairments, which impact gains (losses) on equity method
investments, net, or gains (losses) on other equity investments,
net when we record impairments;
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the valuation of investments in
debt instruments and the determination of other-than-temporary
impairments, which impact our investment portfolio balance when
we assess fair value, and interest and other, net when we record
impairments of
available-for-sale
debt instruments;
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the assessment of recoverability
of long-lived assets, which primarily impacts gross margin or
operating expenses when we record asset impairments or
accelerate their depreciation;
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the recognition and measurement of
current and deferred income taxes (including the measurement of
uncertain tax positions), which impact our provision for taxes;
and
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the valuation of inventory, which
impacts gross margin.
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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 those 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 Investments
The carrying value of our
non-marketable equity investment portfolio, excluding equity
derivatives, totaled $4.1 billion as of December 27,
2008 ($3.4 billion as of December 29, 2007). The
majority of the balance as of December 27, 2008 was
concentrated in companies in the flash memory market segment and
wireless connectivity market segment. Our flash memory market
segment investments include our investment in IMFT of
$1.7 billion ($2.2 billion as of December 29,
2007), our investment in IM Flash Singapore, LLP (IMFS) of
$329 million ($146 million as of December 29,
2007), and our investment in Numonyx of $484 million. Our
wireless connectivity market segment investments include our
non-marketable investment in Clearwire LLC of $238 million
(see Note 5: Available-for-Sale Investments in
Part II, Item 8 of this
Form 10-K
for information on our additional marketable equity investment
in the new Clearwire Corporation of $148 million). In
addition, we regularly invest in non-marketable equity
instruments of private companies, which range from early-stage
companies that are often still defining their strategic
direction to more mature companies with established revenue
streams and business models. For additional information, see
Note 6: Equity Method and Cost Method
Investments in Part II, Item 8 of this
Form 10-K.
Our non-marketable equity
investments are recorded using adjusted historical cost basis or
the equity method of accounting, depending on the facts and
circumstances of each investment (see Note 2:
Accounting Policies in Part II, Item 8 of this
Form 10-K).
Our
non-marketable
equity investments are classified in other long-term assets on
the consolidated balance sheets.
31
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Non-marketable equity investments
are inherently risky, and a number of the companies in which we
invest are likely to fail. Their success is dependent on product
development, market acceptance, operational efficiency, and
other key business factors. Depending on their future prospects,
the companies may not be able to raise additional funds when
needed or they may receive lower valuations, with less favorable
investment terms than in previous financings, and our
investments would likely become impaired. Additionally, the
current financial markets are extremely volatile and there has
been a tightening of the credit markets, which could negatively
affect the prospects of the companies we invest in, their
ability to raise additional capital, and the likelihood of our
being able to realize value in our investments through liquidity
events such as initial public offerings, mergers, and private
sales. For further information about our investment portfolio
risks, including those specific to our investments in the flash
memory market segment and wireless connectivity market segment,
see Risk Factors in Part I, Item 1A of
this
Form 10-K.
We review our investments
quarterly for indicators of impairment; however, for
non-marketable equity investments, the impairment analysis
requires significant judgment to identify events or
circumstances that would significantly harm the fair value of
the investment. The indicators that we use to identify those
events or circumstances primarily include:
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the investees revenue and
earnings trends relative to predefined milestones and overall
business prospects;
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the technological feasibility of
the investees products and technologies;
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the general market conditions in
the investees industry or geographic area, including
adverse regulatory or economic changes;
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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
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the investees receipt of
additional funding at a lower valuation.
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Investments that we identify as
having an indicator of impairment are subject to further
analysis to determine if the fair value of the investment is
below our carrying value. If the fair value of the investment is
below our carrying value, we determine if the investment is
other than temporarily impaired based on the severity and
duration of the impairment. If the investment is considered to
be other than temporarily impaired, we write down the investment
to its fair value. Beginning in the first quarter of 2008, the
assessment of fair value for non-marketable investments is based
on the provisions of Statement of Financial Accounting Standards
(SFAS) No. 157, Fair Value Measurements
(SFAS No. 157), as amended. With the exception of
Clearwire LLC, we classified our impaired non-marketable
investments as Level 3, as we use unobservable inputs to
the valuation methodology that are significant to the fair value
measurement, and the valuation requires management judgment due
to the absence of quoted market prices and inherent lack of
liquidity. We classified our investment in Clearwire LLC as
Level 2, as the unobservable inputs to the valuation
methodology were not significant to the fair value measurement.
See Note 3: Fair Value in Part II,
Item 8 of this
Form 10-K.
Impairments of non-marketable
equity investments were $1.2 billion in 2008. Over the past
12 quarters, including the fourth quarter of 2008, impairments
of non-marketable equity investments have ranged from
$10 million to $896 million per quarter.
The following is a discussion of
the methods, estimates, and judgments that management uses in
our analysis to determine if our
non-marketable
equity investments are other than temporarily impaired.
IMFT/IMFS
IMFT and IMFS are variable
interest entities that are designed to manufacture and sell NAND
products to Intel and Micron at manufacturing cost. Our NAND
Solutions Group operating segment purchases 49% of these NAND
products from IMFT and sells them to our customers. As a result,
we generate cash flows from our investments in IMFT, IMFS, and
our intangible assets related to the NAND product designs
through our NAND Solutions Group business. Therefore, we
determine the fair value of our investments in IMFT and IMFS
using the income approach, based on a weighted average of
multiple discounted cash flow scenarios of our NAND Solutions
Group business.
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MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
The discounted cash flow scenarios
require the use of unobservable inputs, including assumptions of
projected revenues (including product volume, product mix, and
average selling prices), expenses, capital spending, and other
costs, as well as a discount rate. Estimates of projected
revenues, expenses, capital spending, and other costs are
developed by IMFT, IMFS, and Intel using historical data and
available market data. Management also determines how multiple
discounted cash flow scenarios are weighted in the fair value
determination. Additionally, the development of several inputs
used in our income model (such as discount rate and tax rate)
requires the selection of comparable companies within the NAND
flash memory market segment. The selection of comparable
companies requires management judgment and is based on a number
of factors, including NAND products and services lines within
the flash memory market segment, comparable companies
sizes, growth rates, and other relevant factors. Based on our
fair value determination, the fair value of our investment in
IMFT and IMFS approximated carrying value as of
December 27, 2008.
Changes in management estimates to
the unobservable inputs would change the valuation of the
investment. The estimates for the projected revenue and discount
rate are the assumptions that most significantly affect the fair
value determination. For example, the impact of a 5% decline in
projected revenue in each of our cash flow scenarios could
result in a decline in the fair value of our investment of up to
approximately $300 million. The impact of a one percentage
point increase in the discount rate would result in a decline in
the fair value of our investment of approximately
$225 million.
The fair value determined by the
income approach is compared to the carrying value of our
investments in IMFT and IMFS and our intangible asset related to
the NAND product designs that we purchased from Micron as part
of the formation of IMFT. We did not have an
other-than-temporary impairment on our investments in IMFT and
IMFS in 2008, 2007, or 2006.
Numonyx
We determine the fair value of our
investment in Numonyx using a combination of the income approach
and the market approach. The income approach includes the use of
a weighted average of multiple discounted cash flow scenarios of
Numonyx, which requires the use of unobservable inputs,
including assumptions of projected revenues, expenses, capital
spending, and other costs, as well as a discount rate calculated
based on the risk profile of the flash memory market segment.
Estimates of projected revenues, expenses, capital spending, and
other costs are developed by Numonyx and Intel. The market
approach includes using financial metrics and ratios of
comparable public companies, such as projected revenues,
expenses, and other costs. The selection of comparable companies
used in the market approach requires management judgment and is
based on a number of factors, including NOR products and
services lines within the flash memory market segment,
comparable companies sizes, growth rates, and other
relevant factors.
Changes in management estimates to
the unobservable inputs in our valuation models would change the
valuation of the investment. The estimated projected revenue is
the assumption that most significantly affects the fair value
determination. For example, the impact of a 5% decline in
projected revenue to each of our models and cash flow scenarios
could result in a decline in the fair value of our investment of
up to approximately $140 million. Management judgment is
involved in determining how the income approach and the market
approach are weighted in the fair value determination. Our fair
value determination was more heavily weighted toward the market
approach due to the comparability of similar companies in the
market and the availability of market-based data. Increasing the
relative weighting of the income approach would have resulted in
a decline in the fair value of our investment by approximately
$30 million.
We recorded a $250 million
impairment charge on our investment in Numonyx during the third
quarter of 2008 to write down our investment to its fair value.
Estimates for revenue, earnings, and future cash flows were
revised lower due to a general decline in the NOR flash memory
market segment.
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MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Clearwire
LLC
We determine the fair value of our
investment in Clearwire LLC primarily using the quoted prices of
its parent company, the new Clearwire Corporation. The effects
of adjusting the quoted price for premiums that we believe
market participants would consider for Clearwire LLC, such as
tax benefits and voting rights associated with our investment,
were mostly offset by the effects of discounts to the fair
value, such as those due to transfer restrictions, lack of
liquidity, and differences in dividend rights that are included
in the value of the new Clearwire Corporation stock. During the
fourth quarter of 2008, we recorded a $762 million
impairment charge on our investment in Clearwire LLC to write
down our investment to its fair value, primarily due to the fair
value being significantly lower than the cost basis of our
investment.
In addition, during the fourth
quarter of 2008, we recorded a $176 million impairment
charge on our available-for-sale marketable investment in the
new Clearwire Corporation due to the fair value being
significantly lower than the cost basis of our investment.
Other
Non-Marketable Equity Investments
We determine the fair value of our
other non-marketable equity investments using the market
approach and/or the income approach. 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,
products and services lines, development stage, and other
relevant factors. The income approach includes the use of a
discounted cash flow model, which requires the following
significant estimates for the investee: revenue, based on
assumed market segment size and assumed market segment share;
estimated costs; and appropriate discount rates based on the
risk profile of comparable companies. Estimates of market
segment size, market segment share, and costs are developed by
the investee
and/or Intel
using historical data and available market data. The valuation
of our other non-marketable investments also takes into account
movements of the equity and venture capital markets, recent
financing activities by the investees, changes in the interest
rate environment, the investees capital structure,
liquidation preferences for the investees capital, and
other economic variables. The valuation of some of our
investments in the wireless connectivity market segment was
based on the income approach to determine the value of the
investees spectrum licenses, transmission towers, and
customer lists.
We recorded a total of
$200 million of impairment charges in 2008 on our other
non-marketable equity investments. Over the past 12 quarters,
including the fourth quarter of 2008, impairments of our other
non-marketable equity investments have ranged from
$10 million to $134 million per quarter.
Investments
in Debt Instruments
Fair
Value
In the current market environment,
the assessment of the fair value of debt instruments can be
difficult and subjective. The volume of trading activity of
certain debt instruments has declined, and the rapid changes
occurring in todays financial markets can lead to changes
in the fair value of financial instruments in relatively short
periods of time. SFAS No. 157 establishes three levels
of inputs that may be used to measure fair value (see
Note 3: Fair Value in Part II, Item 8
of this
Form 10-K).
Each level of input has different levels of subjectivity and
difficulty involved in determining fair value.
Level 1 instruments represent
quoted prices in active markets. Therefore, determining fair
value for Level 1 instruments does not require significant
management judgment, and the estimation is not difficult.
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MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Level 2 instruments include
observable inputs other than Level 1 prices, such as quoted
prices for identical instruments in markets with insufficient
volume or infrequent transactions (less active markets), issuer
credit ratings, non-binding market consensus prices that can be
corroborated with observable market data, 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, or quoted prices for similar assets or liabilities.
These Level 2 instruments require more management judgment
and subjectivity compared to Level 1 instruments, including:
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Determining which instruments are
most similar to the instrument being priced requires management
to identify a sample of similar securities based on the coupon
rates, maturity, issuer, credit rating, and instrument type, and
subjectively select an individual security or multiple
securities that are deemed most similar to the security being
priced.
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Determining whether a market is
considered active requires management judgment. Our assessment
of an active market for our marketable debt instruments
generally takes into consideration activity during each week of
the one-month period prior to the valuation date of each
individual instrument, including the number of days each
individual instrument trades and the average weekly trading
volume in relation to the total outstanding amount of the issued
instrument.
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Determining which model-derived
valuations to use in determining fair value requires management
judgment. When observable market prices for identical securities
or similar securities are not available, we price our marketable
debt instruments using
non-binding
market consensus prices that are corroborated with observable
market data or pricing models, such as discounted cash flow
models, with all significant inputs derived from or corroborated
with observable market data.
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Level 3 instruments include
unobservable inputs to the valuation methodology that are
significant to the measurement of fair value of assets or
liabilities. The determination of fair value for Level 3
instruments requires the most management judgment and
subjectivity. Most of our marketable debt instruments classified
as Level 3 are valued using a non-binding market consensus
price or a non-binding broker quote, both of which we
corroborate with unobservable data. Non-binding market consensus
prices are based on the proprietary valuation models of pricing
providers or brokers. These valuation models incorporate a
number of inputs, including non-binding and binding broker
quotes; observable market prices for identical
and/or
similar securities; and the internal assumptions of pricing
providers or brokers that use observable market inputs, and to a
lesser degree non-observable market inputs. Adjustments to the
fair value of instruments priced using non-binding market
consensus prices and non-binding broker quotes, and classified
as Level 3, were not significant in 2008.
Other-Than-Temporary
Impairment
After determining the fair value
of our available-for-sale debt instruments, gains or losses on
these investments are recorded to other comprehensive income,
until either the investment is sold or we determine that the
decline in value is other-than-temporary. Determining whether
the decline in fair value is other-than-temporary requires
management judgment based on the specific facts and
circumstances of each investment. For investments in debt
instruments, these judgments primarily consider: the financial
condition and liquidity of the issuer, the issuers credit
rating, and any specific events that may cause us to believe
that the debt instrument will not mature and be paid in full;
and our ability and intent to hold the investment to maturity.
Given the current market conditions, these judgments could prove
to be wrong, and companies with relatively high credit ratings
and solid financial conditions may not be able to fulfill their
obligations. In addition, if management decides not to hold an
investment until maturity, it may result in the recognition of
an other-than-temporary impairment.
As of December 27, 2008, our
investments included $11.3 billion of available-for-sale
debt instruments. During 2008, we recognized $44 million in
impairment charges on our available-for-sale debt instruments.
As of December 27, 2008, our cumulative unrealized losses
related to debt instruments classified as available-for-sale
were approximately $215 million (approximately
$55 million as of December 29, 2007). As of
December 27, 2008, this amount included approximately
$170 million of unrecognized losses that could be
recognized in the future if our other-than-temporary assessment
changes.
35
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Long-Lived
Assets
We assess the impairment of
long-lived assets when events or changes in circumstances
indicate that the carrying value of the assets or the asset
grouping may not be recoverable. Factors that we consider in
deciding when to perform an impairment review include
significant under-performance of a business or product line in
relation to expectations, significant negative industry or
economic trends, and significant changes or planned changes in
our use of the assets. We measure the recoverability of assets
that will continue to be used in our operations by comparing the
carrying value of the asset grouping to our estimate of the
related total future undiscounted net cash flows. If an asset
groupings carrying value is not recoverable through the
related undiscounted cash flows, the asset grouping is
considered to be impaired. The impairment is measured by
comparing the difference between the asset groupings
carrying value 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, we accelerate the rate of depreciation
over the assets new, shorter useful lives. Over the past
12 quarters, including the fourth quarter of 2008, impairments
and accelerated depreciation of long-lived assets ranged from
$1 million to $320 million per quarter. For further
discussion on these asset impairment charges, see
Note 15: Restructuring and Asset Impairment
Charges in Part II, Item 8 of this
Form 10-K.
Long-lived assets such as
goodwill; intangible assets; and property, plant and equipment
are considered non-financial assets, and are measured at fair
value only when indicators of impairment exist. The accounting
and disclosure provisions of SFAS No. 157 are
effective for these assets beginning in the first quarter of
2009. For further discussion, see Note 2: Accounting
Policies in Part II, Item 8 of this
Form 10-K.
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, benefits, and deductions, 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, as well as the
interest and penalties related to uncertain tax positions.
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 we will ultimately recover a majority of the deferred tax
assets. 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. In 2008, we recorded gross additional valuation
allowances of approximately $270 million, primarily related
to our anticipated inability to take the full tax benefit of
impairment charges. Changes in managements plans with
respect to holding or disposing of investments could affect our
future provision for taxes.
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MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
The calculation of our tax
liabilities involves dealing with uncertainties in the
application of complex tax regulations. In accordance with
Financial Accounting Standards Board (FASB) Interpretation
No. 48, Accounting for Uncertainty in Income
Taxesan interpretation of SFAS No. 109,
and related guidance, we recognize liabilities for uncertain tax
positions based on a two-step process. The first step is to
evaluate the tax position for recognition by determining if the
weight of available evidence indicates that it is more likely
than not that the position will be sustained on audit, including
resolution of related appeals or litigation processes, if any.
If we determine that a tax position will more likely than not be
sustained on audit, the second step requires us to estimate and
measure the tax benefit as the largest amount that is more than
50% likely to be realized upon ultimate settlement. It is
inherently difficult and subjective to estimate such amounts, as
we have to determine the probability of various possible
outcomes. We reevaluate these uncertain tax positions on a
quarterly basis. This evaluation is based on factors including,
but not limited to, changes in facts or circumstances, changes
in tax law, settled and effectively settled issues under audit,
and new audit activity. Such a change in recognition or
measurement would result in the recognition of a tax benefit or
an additional charge to the tax provision.
Inventory
The valuation of inventory
requires us to estimate obsolete or excess inventory as well as
inventory that is not of saleable quality. The determination of
obsolete or excess inventory requires us to estimate the future
demand for our products. The estimate of future demand is
compared to work in process and finished goods inventory levels
to determine the amount, if any, of obsolete or excess
inventory. As of December 27, 2008, we had total
work-in-process
inventory of $1,577 million and total finished goods
inventory of $1,559 million. The demand forecast is
included in the development of our short-term manufacturing
plans to enable consistency between inventory valuation and
build decisions. Product-specific facts and circumstances
reviewed in the inventory valuation process include a review of
the customer base, the stage of the product life cycle of our
products, consumer confidence, and customer acceptance of our
products, as well as an assessment of the selling price in
relation to the product cost. If our demand forecast for
specific products is greater than actual demand and we fail to
reduce manufacturing output accordingly, or if we fail to
forecast the demand accurately, we could be required to write
off inventory, which would negatively impact our gross margin.
Recent
Accounting Pronouncements and Accounting Changes
For a description of accounting
changes and recent accounting pronouncements, including the
expected dates of adoption and estimated effects, if any, on our
consolidated financial statements, see Note 2:
Accounting Policies in Part II, Item 8 of this Form
10-K.
37
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Results
of Operations
The following table sets forth
certain consolidated statements of income data as a percentage
of net revenue for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
(Dollars in Millions, Except Per Share Amounts)
|
|
Dollars
|
|
|
Revenue
|
|
|
Dollars
|
|
|
Revenue
|
|
|
Dollars
|
|
|
Revenue
|
|
Net revenue
|
|
$
|
37,586
|
|
|
|
100.0
|
%
|
|
$
|
38,334
|
|
|
|
100.0
|
%
|
|
$
|
35,382
|
|
|
|
100.0
|
%
|
Cost of sales
|
|
|
16,742
|
|
|
|
44.5
|
%
|
|
|
18,430
|
|
|
|
48.1
|
%
|
|
|
17,164
|
|
|
|
48.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
20,844
|
|
|
|
55.5
|
%
|
|
|
19,904
|
|
|
|
51.9
|
%
|
|
|
18,218
|
|
|
|
51.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
5,722
|
|
|
|
15.2
|
%
|
|
|
5,755
|
|
|
|
15.0
|
%
|
|
|
5,873
|
|
|
|
16.6
|
%
|
Marketing, general and administrative
|
|
|
5,458
|
|
|
|
14.6
|
%
|
|
|
5,417
|
|
|
|
14.2
|
%
|
|
|
6,138
|
|
|
|
17.3
|
%
|
Restructuring and asset impairment charges
|
|
|
710
|
|
|
|
1.9
|
%
|
|
|
516
|
|
|
|
1.3
|
%
|
|
|
555
|
|
|
|
1.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
8,954
|
|
|
|
23.8
|
%
|
|
|
8,216
|
|
|
|
21.4
|
%
|
|
|
5,652
|
|
|
|
16.0
|
%
|
Gains (losses) on equity method investments, net
|
|
|
(1,380
|
)
|
|
|
(3.7
|
)%
|
|
|
3
|
|
|
|
|
%
|
|
|
2
|
|
|
|
|
%
|
Gains (losses) on other equity investments, net
|
|
|
(376
|
)
|
|
|
(1.0
|
)%
|
|
|
154
|
|
|
|
0.4
|
%
|
|
|
212
|
|
|
|
0.6
|
%
|
Interest and other, net
|
|
|
488
|
|
|
|
1.3
|
%
|
|
|
793
|
|
|
|
2.1
|
%
|
|
|
1,202
|
|
|
|
3.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before taxes
|
|
|
7,686
|
|
|
|
20.4
|
%
|
|
|
9,166
|
|
|
|
23.9
|
%
|
|
|
7,068
|
|
|
|
20.0
|
%
|
Provision for taxes
|
|
|
2,394
|
|
|
|
6.3
|
%
|
|
|
2,190
|
|
|
|
5.7
|
%
|
|
|
2,024
|
|
|
|
5.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
5,292
|
|
|
|
14.1
|
%
|
|
$
|
6,976
|
|
|
|
18.2
|
%
|
|
$
|
5,044
|
|
|
|
14.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$
|
0.92
|
|
|
|
|
|
|
$
|
1.18
|
|
|
|
|
|
|
$
|
0.86
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following graphs set forth
revenue information of geographic regions for the periods
indicated:
Geographic
Breakdown of Revenue
Our net revenue was
$37.6 billion in 2008, a decrease of 2% compared to 2007.
Higher revenue from the sale of microprocessors and chipsets was
more than offset by the impacts of divestitures and lower
revenue from the sale of motherboards. Revenue from the sale of
NOR flash memory and cellular baseband products declined
approximately $1.7 billion, primarily as a result of
divestiture of these businesses. Revenue in the Americas region
decreased 4% in 2008 compared to 2007. Revenue in the
Asia-Pacific, Europe, and Japan regions remained approximately
flat in 2008 compared to 2007.
38
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Although net revenue for 2008
declined only slightly from 2007, net revenue for the fourth
quarter of 2008 declined 19% from the third quarter as customers
reduced inventory levels to keep pace with the dramatic decline
in end-user demand that occurred over the course of the quarter.
It is unclear when a turnaround may occur, and there remains a
high degree of uncertainty around demand, which may continue to
decline.
Our overall gross margin dollars
for 2008 were $20.8 billion, an increase of
$940 million, or 5%, compared to 2007. Our overall gross
margin percentage increased to 55.5% in 2008 from 51.9% in 2007.
The increase in gross margin percentage was primarily
attributable to the gross margin percentage increase in the
Digital Enterprise Group operating segment. In addition, our
gross margin percentage increased due to the divestiture of our
NOR flash memory business. We derived most of our overall gross
margin dollars and operating profit in 2008 and 2007 from the
sale of microprocessors in the Digital Enterprise Group and
Mobility Group operating segments. See Business
Outlook for a discussion of gross margin expectations.
Our net revenue was
$38.3 billion in 2007, an increase of 8% compared to 2006.
Higher microprocessor unit sales were partially offset by lower
microprocessor average selling prices. Higher mobile chipset
unit sales also contributed to the increase in net revenue.
Lower NOR flash memory revenue in 2007 compared to 2006 was
mostly offset by the ramp of our NAND flash memory business. The
decrease in NOR flash memory revenue was due to a significant
decline in average selling prices. Lower royalty revenue was
offset by higher unit sales. Revenue in the Asia-Pacific region
increased 11% and revenue in the Europe region increased 10% in
2007 compared to 2006, and revenue in the Americas region and
Japan increased 3% in 2007 compared to 2006.
Our overall gross margin dollars
for 2007 were $19.9 billion, an increase of
$1.7 billion, or 9%, compared to 2006. Our overall gross
margin percentage was relatively flat at 51.9% in 2007 compared
to 51.5% in 2006. The gross margin percentage increase in the
Digital Enterprise Group operating segment was mostly offset by
a decrease in the gross margin percentage in the Mobility Group
operating segment and costs associated with the ramp of our NAND
flash memory business. We derived most of our overall gross
margin dollars and operating profit in 2007 and 2006 from the
sale of microprocessors in the Digital Enterprise Group and
Mobility Group operating segments.
Digital
Enterprise Group
The revenue and operating income
for the Digital Enterprise Group (DEG) for the three years ended
December 27, 2008 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Millions)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Microprocessor revenue
|
|
$
|
16,078
|
|
|
$
|
15,945
|
|
|
$
|
15,248
|
|
Chipset, motherboard, and other revenue
|
|
|
4,554
|
|
|
|
5,359
|
|
|
|
5,437
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue
|
|
$
|
20,632
|
|
|
$
|
21,304
|
|
|
$
|
20,685
|
|
Operating income
|
|
$
|
6,462
|
|
|
$
|
5,295
|
|
|
$
|
3,299
|
|
Net revenue for the DEG operating
segment decreased by $672 million, or 3%, in 2008 compared
to 2007. Microprocessors within DEG include those designed for
the desktop and enterprise computing market segments as well as
embedded microprocessors. The increase in microprocessor revenue
was due to higher enterprise microprocessor average selling
prices and higher embedded microprocessor unit sales, partially
offset by lower desktop microprocessor unit sales. The decrease
in chipset, motherboard, and other revenue was primarily due to
lower motherboard unit sales and lower revenue from the sale of
communications products. In addition, lower chipset average
selling prices were partially offset by higher chipset unit
sales.
Operating income increased by
$1.2 billion, or 22%, in 2008 compared to 2007. The
increase in operating income was primarily due to lower desktop
microprocessor and chipset unit costs. Lower
start-up
costs of approximately $350 million and lower operating
expenses were partially offset by sales in 2007 of desktop
microprocessors that had previously been written off and higher
write-offs of desktop microprocessor inventory in 2008.
39
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
For 2007, net revenue for the DEG
operating segment increased by $619 million, or 3%,
compared to 2006. The increase in microprocessor revenue was due
to higher microprocessor unit sales and higher enterprise
average selling prices. These increases were partially offset by
lower desktop average selling prices in a competitive pricing
environment. The decrease in chipset, motherboard, and other
revenue was due to lower motherboard unit sales as well as a
decrease in communications infrastructure revenue, which was
primarily due to divestitures of certain communications
infrastructure businesses that were completed in 2006 and 2007.
Partially offsetting these decreases was higher chipset revenue.
Operating income increased by
$2.0 billion, or 61%, in 2007 compared to 2006. The
increase in operating income was primarily due to lower desktop
microprocessor unit costs and lower operating expenses, and to a
lesser extent, sales of desktop microprocessor inventory that
had been previously written off. Partially offsetting these
increases were higher chipset unit costs and approximately
$500 million of higher
start-up
costs, primarily related to our 45nm process technology. In
2007, we began including share-based compensation in the
computation of operating income (loss) for each operating
segment and adjusted the 2006 operating segment results to
reflect this change.
Mobility
Group
The revenue and operating income
for the Mobility Group (MG) for the three years ended
December 27, 2008 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Millions)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Microprocessor revenue
|
|
$
|
11,439
|
|
|
$
|
10,660
|
|
|
$
|
9,212
|
|
Chipset and other revenue
|
|
|
4,209
|
|
|
|
4,021
|
|
|
|
3,097
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue
|
|
$
|
15,648
|
|
|
$
|
14,681
|
|
|
$
|
12,309
|
|
Operating income
|
|
$
|
5,199
|
|
|
$
|
5,611
|
|
|
$
|
4,602
|
|
Net revenue for the MG operating
segment increased by $967 million, or 7%, in 2008 compared
to 2007. The increase in microprocessor revenue was due to
significantly higher microprocessor unit sales, which were
partially offset by significantly lower microprocessor average
selling prices. A portion of the increase in microprocessor unit
sales, as well as a portion of the decrease in average selling
prices, was due to the ramp of Intel Atom processors. The
increase in chipset and other revenue was primarily due to
significantly higher chipset unit sales, which were partially
offset by lower revenue from the sale of cellular baseband
products. We are winding down the sales from the manufacturing
agreement entered into as part of the divestiture of the
cellular baseband business.
Operating income decreased by
$412 million, or 7%, in 2008 compared to 2007. The decrease
in operating income was primarily due to higher operating
expenses, which were partially offset by lower microprocessor
unit costs.
For 2007, net revenue for the MG
operating segment increased by $2.4 billion, or 19%,
compared to 2006. The increase in microprocessor revenue was due
to a significant increase in unit sales, partially offset by
significantly lower average selling prices. The increase in
chipset and other revenue was due to higher unit sales of
chipsets and, to a lesser extent, higher revenue from sales of
cellular baseband products. In the fourth quarter of 2006, we
sold certain assets of the business line that included
application and cellular baseband processors used in handheld
devices; however, in 2007 we continued to manufacture and sell
those products as part of a manufacturing and transition
services agreement.
Operating income increased by
$1.0 billion, or 22%, in 2007 compared to 2006. The
increase in operating income was primarily due to higher
revenue. Lower microprocessor unit costs were more than offset
by approximately $330 million of higher
start-up
costs, primarily related to our 45nm process technology. Lower
unit costs on wireless connectivity and cellular baseband
products were offset by higher chipset unit costs. Operating
expenses were higher in 2007 compared to 2006; however,
operating expenses as a percentage of revenue decreased in 2007
compared to 2006.
40
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Operating
Expenses
Operating expenses for the three
years ended December 27, 2008 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Millions)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Research and development
|
|
$
|
5,722
|
|
|
$
|
5,755
|
|
|
$
|
5,873
|
|
Marketing, general and administrative
|
|
$
|
5,458
|
|
|
$
|
5,417
|
|
|
$
|
6,138
|
|
Restructuring and asset impairment charges
|
|
$
|
710
|
|
|
$
|
516
|
|
|
$
|
555
|
|
Research and
Development. R&D
spending was flat in 2008 compared to 2007 and decreased
$118 million, or 2%, in 2007 compared to 2006. In 2008
compared to 2007, we had lower product development expenses
resulting from our divested businesses and slightly lower
profit-dependent compensation. These decreases were offset by
higher process development costs as we transition from
manufacturing
start-up
costs related to our 45nm process technology to research and
development of our next-generation 32nm process technology. The
decrease in 2007 compared to 2006 was primarily due to lower
process development costs as we transitioned from R&D to
manufacturing using our 45nm process technology, partially
offset by higher profit-dependent compensation.
Marketing, General and
Administrative. Marketing,
general and administrative expenses were flat in 2008 compared
to 2007 and decreased $721 million, or 12%, in 2007
compared to 2006. In 2008 compared to 2007, we had higher legal
expenses that were offset by lower profit-dependent compensation
and lower advertising expenses. The decrease in 2007 compared to
2006 was primarily due to lower headcount, lower share-based
compensation, and lower cooperative advertising expenses,
partially offset by higher profit-dependent compensation.
R&D, combined with marketing,
general and administrative expenses, were 30% of net revenue in
2008, 29% of net revenue in 2007, and 34% of net revenue in 2006.
Restructuring and Asset
Impairment
Charges. The
following table summarizes restructuring and asset impairment
charges by plan for the three years ended December 27, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Millions)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
2008 NAND plan
|
|
$
|
215
|
|
|
$
|
|
|
|
$
|
|
|
2006 efficiency program
|
|
|
495
|
|
|
|
516
|
|
|
|
555
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total restructuring and asset impairment charges
|
|
$
|
710
|
|
|
$
|
516
|
|
|
$
|
555
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We may incur additional
restructuring charges in the future for employee severance and
benefit arrangements, and facility-related or other exit
activities. Subsequent to the end of 2008, management approved
plans to restructure some of our manufacturing and assembly and
test operations, and align our manufacturing and assembly and
test capacity to current market conditions. These actions, which
are expected to take place beginning in 2009, include closing
two assembly and test facilities in Malaysia, one facility in
the Philippines, and one facility in China; stopping production
at a 200mm wafer fabrication facility in Oregon; and ending
production at our 200mm wafer fabrication facility in
California. Our outlook for the first quarter of 2009 is for
additional restructuring and asset impairment charges of
$160 million.
2008 NAND
Plan
In the fourth quarter of 2008,
management approved a plan with Micron to discontinue the supply
of NAND flash memory from the 200mm facility within the IMFT
manufacturing network. The agreement resulted in a
$215 million restructuring charge, primarily related to the
IMFT 200mm supply agreement. The restructuring charge resulted
in a reduction of our investment in IMFT of $184 million, a
cash payment to Micron of $24 million, and other cash
payments of $7 million.
41
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
2006
Efficiency Program
The following table summarizes
charges for the 2006 efficiency program for the three years
ended December 27, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Millions)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Employee severance and benefit arrangements
|
|
$
|
151
|
|
|
$
|
289
|
|
|
$
|
238
|
|
Asset impairments
|
|
|
344
|
|
|
|
227
|
|
|
|
317
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total restructuring and asset impairment charges
|
|
$
|
495
|
|
|
$
|
516
|
|
|
$
|
555
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In the third quarter of 2006,
management approved several actions recommended by our structure
and efficiency task force as part of a restructuring plan
designed to improve operational efficiency and financial
results. Some of these activities have involved cost savings or
other actions that did not result in restructuring charges, such
as better utilization of assets, reduced spending, and
organizational efficiencies. The efficiency program has included
targeted headcount reductions for various groups within the
company, which we have met through employee attrition and
terminations. Business divestures have further reduced headcount.
During 2006, we completed the
divestiture of three businesses. For further discussion, see
Note 12: Divestitures in Part II,
Item 8 of this
Form 10-K.
In connection with the divestiture of certain assets of our
communications and application processor business, we recorded
impairment charges of $103 million related to the
write-down of manufacturing tools to their fair value, less the
cost to dispose of the assets. We determined the fair value
using a market-based valuation technique. In addition, as a
result of both this divestiture and a subsequent assessment of
our worldwide manufacturing capacity operations, we placed for
sale our fabrication facility in Colorado Springs, Colorado.
This plan resulted in an impairment charge of $214 million
to write down to fair value the land, building, and equipment
asset grouping that has been principally used to support our
communications and application processor business. We determined
the fair market value of the asset grouping using an average of
the results from using the cost approach and market approach
valuation techniques.
During 2007, we incurred an
additional $54 million in asset impairment charges as a
result of market conditions related to the Colorado Springs
facility. Also, we recorded land and building write-downs
related to certain facilities in Santa Clara, California.
In addition, we incurred $85 million in asset impairment
charges related to assets that we sold in conjunction with the
divestiture of our NOR flash memory business. We determined the
impairment charges based on the fair value, less selling costs,
that we expected to receive upon completion of the divestiture.
During 2008, we incurred
additional asset impairment charges related to the Colorado
Springs facility, based on market conditions. Also, we incurred
$275 million in additional asset impairment charges related
to assets that we sold in conjunction with the divestiture of
our NOR flash memory business. We determined the impairment
charges using the revised fair value of the equity and note
receivable that we received upon completion of the divestiture,
less selling costs. The lower fair value was primarily a result
of a decline in the outlook for the flash memory market segment.
For further information on this divestiture, see
Note 12: Divestitures in Part II,
Item 8 of this
Form 10-K.
The following table summarizes the
restructuring and asset impairment activity for the 2006
efficiency program during 2007 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee Severance
|
|
|
|
|
|
|
|
(In Millions)
|
|
and Benefits
|
|
|
Asset Impairments
|
|
|
Total
|
|
Accrued restructuring balance as of December 30, 2006
|
|
$
|
48
|
|
|
$
|
|
|
|
$
|
48
|
|
Additional accruals
|
|
|
299
|
|
|
|
227
|
|
|
|
526
|
|
Adjustments
|
|
|
(10
|
)
|
|
|
|
|
|
|
(10
|
)
|
Cash payments
|
|
|
(210
|
)
|
|
|
|
|
|
|
(210
|
)
|
Non-cash settlements
|
|
|
|
|
|
|
(227
|
)
|
|
|
(227
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued restructuring balance as of December 29, 2007
|
|
$
|
127
|
|
|
$
|
|
|
|
$
|
127
|
|
Additional accruals
|
|
|
167
|
|
|
|
344
|
|
|
|
511
|
|
Adjustments
|
|
|
(16
|
)
|
|
|
|
|
|
|
(16
|
)
|
Cash payments
|
|
|
(221
|
)
|
|
|
|
|
|
|
(221
|
)
|
Non-cash settlements
|
|
|
|
|
|
|
(344
|
)
|
|
|
(344
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued restructuring balance as of December 27, 2008
|
|
$
|
57
|
|
|
$
|
|
|
|
$
|
57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
We recorded the additional
accruals, net of adjustments, as restructuring and asset
impairment charges. The remaining accrual as of
December 27, 2008 was related to severance benefits that we
recorded within accrued compensation and benefits.
From the third quarter of 2006
through the fourth quarter of 2008, we incurred a total of
$1.6 billion in restructuring and asset impairment charges
related to this program. These charges included a total of
$678 million related to employee severance and benefit
arrangements for approximately 11,900 employees, of which
10,800 employees had left the company as of
December 27, 2008. A substantial majority of these employee
terminations affected employees within manufacturing,
information technology, and marketing. Of the employee severance
and benefit charges incurred as of December 27, 2008, we
had paid $621 million. The restructuring and asset
impairment charges also included $888 million in asset
impairment charges.
We estimate that employee
severance and benefit charges from the third quarter of 2006 to
the fourth quarter of 2008 will result in gross annual savings
of approximately $1.1 billion, a portion of which we began
to realize in the third quarter of 2006. We are realizing these
savings within marketing, general and administrative expenses;
cost of sales; and R&D.
Share-Based
Compensation
Share-based compensation totaled
$851 million in 2008, $952 million in 2007, and
$1.4 billion in 2006. Share-based compensation was included
in cost of sales and operating expenses. The decrease in
share-based compensation from 2006 to 2007 was a result of fewer
equity awards vesting in 2007 compared to 2006.
As of December 27, 2008,
unrecognized share-based compensation costs and the weighted
average periods over which the costs are expected to be
recognized were as follows:
|
|
|
|
|
|
|
|
|
Unrecognized
|
|
|
|
|
|
Share-Based
|
|
|
Weighted
|
|
|
Compensation
|
|
|
Average
|
(Dollars in Millions)
|
|
Costs
|
|
|
Period
|
Stock options
|
|
$
|
335
|
|
|
1.2 years
|
Restricted stock units
|
|
$
|
937
|
|
|
1.4 years
|
Stock purchase plan
|
|
$
|
18
|
|
|
1 month
|
Gains
(Losses) on Equity Method Investments, Net
Net losses on equity method
investments were $1.4 billion in 2008 compared to a net
gain of $3 million in 2007. We recognized higher impairment
charges and higher equity method losses in 2008 compared to
2007. Impairment charges in 2008 included a $762 million
impairment charge recognized on our investment in Clearwire LLC
and a $250 million impairment charge recognized on our
investment in Numonyx. We recognized the impairment charge on
our investment in Clearwire LLC to write down our investment to
its fair value, primarily due to the fair value being
significantly lower than the cost basis of our investment. The
impairment charge on our investment in Numonyx was due to a
general decline in the NOR flash memory market segment. Our
equity method losses were primarily related to Numonyx
($87 million in 2008) and the old Clearwire
Corporation ($184 million 2008 and $104 million in
2007). See Note 6: Equity Method and Cost Method
Investments in Part II, Item 8 of this
Form 10-K.
Net gains on equity method
investments were flat in 2007 compared to 2006. Approximately
$110 million of income recognized in 2007 due to the
reorganization of one of our investments was offset by higher
equity method losses, primarily from our investment in the old
Clearwire Corporation. Equity method losses were not significant
in 2006.
43
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Gains
(Losses) on Other Equity Investments, Net
Gains (losses) on other equity
investments, net were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Millions)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Impairment charges
|
|
$
|
(455
|
)
|
|
$
|
(92
|
)
|
|
$
|
(72
|
)
|
Gains on sales
|
|
|
60
|
|
|
|
204
|
|
|
|
151
|
|
Other, net
|
|
|
19
|
|
|
|
42
|
|
|
|
133
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gains (losses) on other equity investments, net
|
|
$
|
(376
|
)
|
|
$
|
154
|
|
|
$
|
212
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net losses on other equity
investments were $376 million in 2008 compared to a net gain of
$154 million in 2007. We recognized higher impairment charges
and lower gains on sales in 2008 compared to 2007. Impairment
charges in 2008 included a $176 million impairment charge
recognized on our investment in the new Clearwire Corporation
and $97 million of impairment charges on our investment in
Micron. The impairment charge on our investment in the new
Clearwire Corporation was due to the fair value being
significantly lower than the cost basis of our investment. The
impairment charges on our investment in Micron reflect the
difference between our cost basis and the fair value of our
investment in Micron at the end of the second and third quarters
of 2008, and were principally based on our assessment of
Microns financial results and the competitive environment.
Net gains on other equity
investments were $154 million in 2007 compared to $212 million
in 2006. During 2007, we recognized lower gains on third-party
merger transactions and higher impairment charges, partially
offset by higher gains on sales of equity investments. Net gains
on equity investments in 2006 included a gain of $103 million on
the sale of a portion of our investment in Micron, which was
sold for $275 million.
Interest
and Other, Net
The components of interest and
other, net were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Millions)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Interest income
|
|
$
|
592
|
|
|
$
|
804
|
|
|
$
|
636
|
|
Interest expense
|
|
|
(8
|
)
|
|
|
(15
|
)
|
|
|
(24
|
)
|
Other, net
|
|
|
(96
|
)
|
|
|
4
|
|
|
|
590
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest and other, net
|
|
$
|
488
|
|
|
$
|
793
|
|
|
$
|
1,202
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other, net decreased
to $488 million in 2008 compared to $793 million in 2007. The
decrease was due to lower interest income and fair value losses
that we experienced in 2008 on our trading assets. Interest
income was lower in 2008 compared to 2007 as a result of lower
interest rates, partially offset by higher average investment
balances.
Interest and other, net decreased
to $793 million in 2007 compared to $1.2 billion in 2006,
primarily due to lower divestiture gains, partially offset by
higher interest income resulting primarily from higher average
investment balances, and to a lesser extent higher interest
rates. Results for 2006 included net gains of $612 million for
three divestitures. See Note 12: Divestitures in
Part II, Item 8 of this Form
10-K.
Provision
for Taxes
Our effective income tax rate was
31.1% in 2008 (23.9% in 2007 and 28.6% in 2006). The rate
increased in 2008 compared to 2007, primarily due to the
recognition of a valuation allowance on our deferred tax assets
due to the uncertainty of realizing tax benefits related to
impairments of our equity investments. In addition, the rate
increased in 2008 compared to 2007, due to the reversal of
previously accrued taxes of $481 million (including $50 million
of accrued interest) related to settlements with the U.S.
Internal Revenue Service (IRS) in the first and second quarters
of 2007. Our effective income tax rate was lower in 2007
compared to 2006, primarily due to the settlements with the IRS.
44
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Liquidity
and Capital Resources
Cash, short-term investments,
marketable debt instruments included in trading assets, and debt
at the end of each period were as follows:
|
|
|
|
|
|
|
|
|
|
|
Dec. 27,
|
|
|
Dec. 29,
|
|
(Dollars in Millions)
|
|
2008
|
|
|
2007
|
|
|
Cash, short-term investments, and marketable debt instruments
included in trading assets
|
|
$
|
11,544
|
|
|
$
|
14,871
|
|
Short-term and long-term debt
|
|
$
|
1,988
|
|
|
$
|
2,122
|
|
Debt as % of stockholders equity
|
|
|
5.1
|
%
|
|
|
5.0
|
%
|
In summary, our cash flows were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Millions)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Net cash provided by operating activities
|
|
$
|
10,926
|
|
|
$
|
12,625
|
|
|
$
|
10,632
|
|
Net cash used for investing activities
|
|
|
(5,865
|
)
|
|
|
(9,926
|
)
|
|
|
(4,988
|
)
|
Net cash used for financing activities
|
|
|
(9,018
|
)
|
|
|
(1,990
|
)
|
|
|
(6,370
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
$
|
(3,957
|
)
|
|
$
|
709
|
|
|
$
|
(726
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Activities
Cash provided by operating
activities is net income adjusted for certain non-cash items and
changes in certain assets and liabilities. For 2008 compared to
2007, the $1.7 billion decrease in cash provided by operating
activities was primarily due to the $1.7 billion decrease in net
income, while total adjustments to reconcile net income to cash
provided by operating activities, including net changes in
assets and liabilities, were approximately flat.
Inventories as of December 27,
2008 increased compared to December 29, 2007, due to higher
chipset and microprocessor inventories partially offset by lower
inventories of other products. As of December 27, 2008, our
other accrued liabilities included $447 million in customer
credit balances, which were reclassified from accounts
receivable. Accounts receivable as of December 27, 2008
decreased significantly compared to December 29, 2007, due to a
significant decline in revenue during the last month in the
fourth quarter of 2008. Customer credit balances were not
significant as of December 29, 2007. For 2008, our two largest
customers accounted for 38% of our net revenue (35% in 2007). In
2008, one of these customers accounted for 20% of our net
revenue (17% in 2007), and another customer accounted for 18% of
our net revenue (18% in 2007). Additionally, these two largest
customers accounted for 46% of our accounts receivable as of
December 27, 2008 (35% as of December 29, 2007).
Due to the adoption of SFAS No.
159, The Fair Value Option for Financial Assets and
Financial LiabilitiesIncluding an amendment of FASB
Statement No. 115 (SFAS No. 159), in 2008, the related
cash flows for marketable debt instruments classified as trading
assets are now included in investing activities.
For 2007 compared to 2006, the
increase in cash provided by operating activities was primarily
due to higher net income. Changes to working capital in 2007
from 2006 were approximately flat, with a decrease in inventory
levels compared to an increase in 2006, offset by higher
purchases of trading assets exceeding maturities.
Investing
Activities
Investing cash flows consist
primarily of capital expenditures, net investment purchases,
maturities, and disposals.
The decrease in cash used for
investing activities in 2008 compared to 2007 was primarily due
to a decrease in purchases of available-for-sale debt
investments. In addition, due to the adoption of SFAS No. 159 in
2008, the related cash flows for marketable debt instruments
classified as trading assets were included in investing
activities for 2008, and previously they had been included in
operating activities. Our investments in non-marketable equity
investments were higher in 2008 and included $1.0 billion for an
ownership interest in Clearwire LLC.
45
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Our capital expenditures were $5.2
billion in 2008 ($5.0 billion in 2007 and $5.9 billion in 2006).
Capital expenditures for fiscal year 2009 are currently expected
to be flat to slightly down from our 2008 expenditures. Capital
expenditures during fiscal year 2009 are expected to be funded
by cash flows from operating activities.
The increase in cash used in
investing activities in 2007 compared to 2006 was primarily due
to higher purchases of available-for-sale investments. Lower
capital spending was mostly offset by lower proceeds from
divestitures.
Financing
Activities
Financing cash flows consist
primarily of repurchases and retirement of common stock, payment
of dividends to stockholders, and proceeds from the sale of
shares through employee equity incentive plans.
The higher cash used in financing
activities in 2008 compared to 2007 was primarily due to an
increase in repurchases and retirement of common stock, and
lower proceeds from the sale of shares pursuant to employee
equity incentive plans. During 2008, we repurchased $7.2 billion
of common stock compared to $2.8 billion in 2007. As of December
27, 2008, $7.4 billion remained available for repurchase under
the existing repurchase authorization of $25 billion. We base
our level of common stock repurchases on internal cash
management decisions, and this level may fluctuate. Proceeds
from the sale of shares through employee equity incentive plans
totaled $1.1 billion in 2008 compared to $3.1 billion in 2007,
as a result of a lower volume of employee exercises of stock
options. Our dividend payment was $3.1 billion in 2008, higher
than the $2.6 billion in 2007, due to increases in quarterly
cash dividends per common share. On January 23, 2009, our Board
of Directors declared a cash dividend of $0.14 per common share
for the first quarter of 2009.
The lower cash used in financing
activities in 2007 compared to 2006 was primarily due to an
increase in proceeds from the sale of shares through employee
equity incentive plans and a decrease in repurchases and
retirement of common stock.
Liquidity
Cash generated by operations is
used as our primary source of liquidity. As of December 27,
2008, we also had an investment portfolio valued at $14.5
billion, consisting of cash and cash equivalents and marketable
debt instruments included in trading assets and short- and
long-term investments.
Our investment policy requires all
investments with original maturities of up to 6 months to be
rated at least
A-1/P-1 by
Standard & Poors/Moodys, and specifies a higher
minimum rating for investments with longer maturities. For
instance, investments with maturities of greater than three
years require a minimum rating of AA-/Aa3 at the time of
investment. Government regulations imposed on investment
alternatives of our
non-U.S.
subsidiaries, or the absence of A rated counterparties in
certain countries, result in some minor exceptions.
Substantially all of our investments in debt instruments are
with A/A2 or better rated issuers, and the majority of the
issuers are rated
AA-/Aa2 or better. Additionally, we limit the amount of credit
exposure to any one counterparty based on our analysis of that
counterpartys relative credit standing. As of December 27,
2008, the total credit exposure to any single counterparty did
not exceed $500 million.
Credit rating criteria for
derivative instruments are similar to those for other
investments. The amounts subject to credit risk related to
derivative instruments are generally limited to the amounts, if
any, by which a counterpartys obligations exceed our
obligations with that counterparty, because we enter into master
netting arrangements with counterparties when possible to
mitigate credit risk in derivative transactions subject to
International Swaps and Derivatives Association, Inc. (ISDA)
agreements.
The credit quality of our
investment portfolio remains high during this difficult credit
environment, with other-than-temporary impairments on our
available-for-sale debt instruments limited to $44 million
during 2008. In addition, we continue to be able to invest in
high-quality investments. However, we have seen a reduction in
the volume of available commercial paper from certain market
segments. As a result, our investments in short-term government
funds have increased, which will reduce our average investment
return. With the exception of a limited amount of investments
for which we have recognized other-than-temporary impairments,
we have not seen significant liquidation delays, and for those
that have matured we have received the full par value of our
original debt investments. We have the intent and ability to
hold our debt investments that have unrealized losses in
accumulated other comprehensive income for a sufficient period
of time to allow for recovery of the principal amounts invested,
which may occur at or near the maturity of those investments.
46
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
As of December 27, 2008, $10.2
billion of our portfolio had a remaining maturity of less than
one year. As of December 27, 2008, our cumulative unrealized
losses, net of corresponding hedging activities, related to debt
instruments classified as trading assets were approximately $145
million (approximately $25 million as of December 29, 2007). As
of December 27, 2008, our cumulative unrealized losses related
to debt instruments classified as available-for-sale were
approximately $215 million (approximately $55 million as of
December 29, 2007). Substantially all of our unrealized losses
can be attributed to fair value fluctuations in an unstable
credit environment that resulted in a decrease in the market
liquidity for debt instruments.
Our portfolio included $1.1
billion of asset-backed securities as of December 27, 2008.
Approximately half of these securities were collateralized by
first-lien mortgages or credit card debt. The remaining
asset-backed securities were collateralized by student loans or
auto loans. During 2008, our asset-backed securities experienced
net unrealized fair value declines totaling $131 million, of
which $108 million was recognized in our consolidated statements
of income. As of December 27, 2008, the expected weighted
average remaining maturity was less than two years.
We continually monitor the credit
risk in our portfolio and mitigate our credit and interest rate
exposures in accordance with the policies approved by our Board
of Directors. We intend to continue to closely monitor future
developments in the credit markets and make appropriate changes
to our investment policy as deemed necessary. Based on our
ability to liquidate our investment portfolio and our expected
operating cash flows, we do not anticipate any liquidity
constraints as a result of either the current credit environment
or potential investment fair value fluctuations.
Our commercial paper program
provides another potential source of liquidity. We have an
ongoing authorization from our Board of Directors to borrow up
to $3.0 billion, including through the issuance of commercial
paper. Maximum borrowings under our commercial paper program
during 2008 were approximately $1.3 billion, although no
commercial paper remained outstanding as of December 27, 2008.
Our commercial paper was rated
A-1+ by
Standard & Poors and
P-1 by
Moodys as of December 27, 2008. Despite the tightening of
the credit markets, we continue to be able to access funds
through the credit markets, including through the issuance of
commercial paper. We also have an automatic shelf registration
statement on file with the SEC pursuant to which we may offer an
unspecified amount of debt, equity, and other securities.
We believe that we have the
financial resources needed to meet business requirements for the
next 12 months, including capital expenditures for the expansion
or upgrading of worldwide manufacturing and assembly and test
capacity, working capital requirements, and potential dividends,
common stock repurchases, and acquisitions or strategic
investments.
Fair
Value
Beginning in the first quarter of
2008, the assessment of fair value for our financial instruments
was based on the provisions of SFAS No. 157. SFAS No. 157
establishes a fair value hierarchy that requires an entity to
maximize the use of observable inputs and minimize the use of
unobservable inputs when measuring fair value. Observable inputs
are obtained from independent sources and can be validated by a
third party, whereas unobservable inputs reflect assumptions
regarding what a third party would use in pricing an asset or
liability. A financial instruments categorization within
the fair value hierarchy is based on the lowest level of input
that is significant to the fair value measurement.
Credit risk is factored into the
valuation of financial instruments that we measure at fair value
on a recurring basis. When fair value is determined using
observable market prices, the credit risk is incorporated into
the market price of the financial instrument. When fair value is
determined using pricing models, such as a discounted cash flow
model, the issuers credit risk
and/or
Intels credit risk is factored into the calculation of the
fair value, as appropriate. During 2008, the valuation of our
liabilities measured at fair value as well as our derivative
instruments in a current or potential net liability position
were not impacted by changes in our credit risk. The credit
ratings of certain of our counterparties have deteriorated.
However, the deterioration of these credit ratings did not have
a significant impact on the valuation of either our marketable
debt instruments or derivative instruments in a current or
potential net asset position.
47
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
When values are determined using
inputs that are both unobservable and significant to the values
of the instruments being measured, we classify those instruments
as Level 3 under the SFAS No. 157 hierarchy. As of December 27,
2008, our financial instruments measured at fair value on a
recurring basis included $15.0 billion of assets, of which $1.7
billion (11%) were classified as Level 3. In addition, our
financial instruments measured at fair value on a recurring
basis included $421 million of liabilities, of which $147
million (35%) were classified as Level 3. During 2008, we
transferred approximately $680 million of assets from Level 3 to
Level 2. These assets primarily consisted of floating-rate notes
that were transferred from Level 3 to Level 2 due to a greater
availability of observable market data
and/or
non-binding market consensus prices to value or corroborate the
value of our instruments. During 2008, we recognized an
insignificant amount of losses on the assets that were
transferred from Level 3 to Level 2.
During 2008, the Level 3 assets
and liabilities that are measured at fair value on a recurring
basis experienced net unrealized fair value declines totaling
$160 million. Of these declines, $111 million was recognized in
our consolidated statements of income. We believe that the
remaining $49 million, included in other comprehensive income,
represents a temporary decline in the fair value of
available-for-sale investments. During 2008, we did not
experience any significant realized gains (losses) related to
the Level 3 assets or liabilities in our portfolio.
Marketable
Debt Instruments
As of December 27, 2008, our
assets measured at fair value on a recurring basis included
$14.2 billion of marketable debt instruments. Of these
instruments, approximately $525 million was classified as Level
1, approximately $12.0 billion as Level 2, and approximately
$1.6 billion as Level 3.
When available, we use observable
market prices for identical securities to value our marketable
debt instruments. If observable market prices are not available,
we use non-binding market consensus prices that we seek to
corroborate with observable market data, if available, or
non-observable market data. When prices from multiple sources
are available for a given instrument, we use observable market
quotes to price our instruments, in lieu of prices from other
sources.
Our balance of marketable debt
instruments that are measured at fair value on a recurring basis
and classified as Level 1 was classified as such due to the
usage of observable market prices for identical securities that
are traded in active markets. Marketable debt instruments in
this category generally include certain of our floating-rate
notes, corporate bonds, and money market fund deposits.
Management judgment was required to determine our policy that
defines the levels at which sufficient volume and frequency of
transactions are met for a market to be considered active. Our
assessment of an active market for our marketable debt
instruments generally takes into consideration activity during
each week of the one-month period prior to the valuation date of
each individual instrument, including the number of days each
individual instrument trades and the average weekly trading
volume in relation to the total outstanding amount of the issued
instrument.
Approximately 10% of our balance
of marketable debt instruments that are measured at fair value
on a recurring basis and classified as Level 2 was classified as
such due to the usage of observable market prices for identical
securities that are traded in less active markets. When
observable market prices for identical securities are not
available, we price our marketable debt instruments using:
non-binding market consensus prices that are corroborated with
observable market data; quoted market prices for similar
instruments; or pricing models, such as a discounted cash flow
model, with all significant inputs derived from or corroborated
with observable market data. Non-binding market consensus prices
are based on the proprietary valuation models of pricing
providers or brokers. These valuation models incorporate a
number of inputs, including non-binding and binding broker
quotes; observable market prices for identical
and/or
similar securities; and the internal assumptions of pricing
providers or brokers that use observable market inputs and to a
lesser degree non-observable market inputs. We corroborate the
non-binding market consensus prices with observable market data
using statistical models when observable market data exists. The
discounted cash flow model uses observable market inputs, such
as LIBOR-based yield curves, currency spot and forward rates,
and credit ratings. Approximately 45% of our balance of
marketable debt instruments that are measured at fair value on a
recurring basis and classified as Level 2 was classified as such
due to the usage of a discounted cash flow model, approximately
40% due to the usage of non-binding market consensus prices that
are corroborated with observable market data, and approximately
5% due to the usage of quoted market prices for similar
instruments. Marketable debt instruments classified as Level 2
generally include commercial paper, bank time deposits,
municipal bonds, certain of our money market fund deposits, and
a majority of floating-rate notes and corporate bonds.
48
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Our marketable debt instruments
that are measured at fair value on a recurring basis and
classified as Level 3 were classified as such due to the
lack of observable market data to corroborate either the
non-binding market consensus prices or the non-binding broker
quotes. When observable market data is not available, we
corroborate the non-binding market consensus prices and
non-binding broker quotes using unobservable data, if available.
Marketable debt instruments in this category generally include
asset-backed securities and certain of our floating-rate notes
and corporate bonds. All of our investments in asset-backed
securities were classified as Level 3, and substantially
all of them were valued using non-binding market consensus
prices that we were not able to corroborate with observable
market data due to the lack of transparency in the market for
asset-backed securities.
Money
Market Fund Deposits
As of December 27, 2008, our
marketable debt instruments included $422 million of money
market fund deposits. Of these money market fund deposits,
$373 million was classified as Level 1 and
$49 million was classified as Level 2.
Equity
Securities
As of December 27, 2008, our
portfolio of assets measured at fair value on a recurring basis
included $352 million of marketable equity securities. Of
these securities, $308 million was classified as
Level 1 because the valuations were based on quoted prices
for identical securities in active markets. Our assessment of an
active market for our marketable equity securities generally
takes into consideration activity during each week of the
one-month period prior to the valuation date for each individual
security, including the number of days each individual equity
security trades and the average weekly trading volume in
relation to the total outstanding shares of that security. The
fair values of our investments in the new Clearwire Corporation
($148 million) and VMware, Inc. ($137 million)
constituted most of the fair values of the marketable equity
securities that we classified as Level 1. Our investment in
VMware was reclassified from Level 2 to Level 1 during
2008, due to the expiration of our transfer restriction on
VMware stock.
The remaining marketable equity
securities ($44 million) were classified as Level 2
because their valuations were either based on quoted prices for
identical securities in less active markets or adjusted for
security-specific restrictions. The fair value of our investment
in Micron ($42 million) constituted substantially all of
the fair values of the marketable equity securities that we
classified as Level 2. In measuring the fair value of our
investment in Micron, our valuation reflected a discount from
the quoted market price of Microns stock, due to our
investment being in a form of rights exchangeable into
unregistered Micron stock.
As of December 27, 2008, our
portfolio of assets measured at fair value on a recurring basis
included $299 million of equity securities offsetting
deferred compensation. All of these securities were classified
as Level 1, because their valuations were based on quoted
prices for identical securities in active markets.
49
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Contractual
Obligations
The following table summarizes our
significant contractual obligations as of December 27, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
|
|
|
Less Than
|
|
|
|
|
|
|
|
|
More Than
|
|
(In Millions)
|
|
Total
|
|
|
1 Year
|
|
|
13 Years
|
|
|
35 Years
|
|
|
5 Years
|
|
Operating lease obligations
|
|
$
|
350
|
|
|
$
|
106
|
|
|
$
|
130
|
|
|
$
|
68
|
|
|
$
|
46
|
|
Capital purchase
obligations1
|
|
|
2,862
|
|
|
|
2,782
|
|
|
|
80
|
|
|
|
|
|
|
|
|
|
Other purchase obligations and
commitments2
|
|
|
1,180
|
|
|
|
492
|
|
|
|
554
|
|
|
|
9
|
|
|
|
125
|
|
Long-term debt
obligations3
|
|
|
3,382
|
|
|
|
80
|
|
|
|
272
|
|
|
|
108
|
|
|
|
2,922
|
|
Other long-term
liabilities3,
4, 5
|
|
|
645
|
|
|
|
260
|
|
|
|
157
|
|
|
|
98
|
|
|
|
130
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total6
|
|
$
|
8,419
|
|
|
$
|
3,720
|
|
|
$
|
1,193
|
|
|
$
|
283
|
|
|
$
|
3,223
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Capital purchase obligations represent commitments for the
construction or purchase of property, plant and equipment. They
were not recorded as liabilities on our consolidated balance
sheet as of December 27, 2008, as we had not yet received
the related goods or taken title to the property. |
|
2 |
|
Other purchase obligations and commitments include payments
due under various types of licenses, agreements to purchase raw
materials or other goods, as well as payments due under
non-contingent funding obligations. Funding obligations include,
for example, agreements to fund various projects with other
companies. |
|
3 |
|
Amounts represent total anticipated cash payments, including
anticipated interest payments that are not recorded on the
consolidated balance sheets and the short-term portion of the
obligation. Any future settlement of convertible debt would
reduce anticipated interest and/or principal payments. Amounts
exclude fair value adjustments such as discounts or premiums
that affect the amount recorded on the consolidated balance
sheets. |
|
4 |
|
We are unable to reliably estimate the timing of future
payments related to uncertain tax positions; therefore,
$736 million of income taxes payable has been excluded from
the table above. However, long-term income taxes payable,
included on our consolidated balance sheet, includes these
uncertain tax positions, reduced by the associated federal
deduction for state taxes and
non-U.S. tax
credits. |
|
5 |
|
Other long-term liabilities in the table above include the
short-term portion of other long-term liabilities. Expected
contributions to our U.S. and
non-U.S.
pension plans and other postretirement benefit plans of
$67 million to be made during 2009 are also included;
however, funding projections beyond 2009 are not practical to
estimate. |
|
6 |
|
Total generally excludes contractual obligations already
recorded on the consolidated balance sheet as current
liabilities. |
Contractual obligations for
purchases of goods or services generally include agreements that
are enforceable and legally binding on Intel and that specify
all significant terms, including fixed or minimum quantities to
be purchased; fixed, minimum, or variable price provisions; and
the approximate timing of the transaction. The table above also
includes agreements to purchase raw materials that have
cancellation provisions requiring little or no payment. The
amounts under such contracts are included in the table above
because management believes that cancellation of these contracts
is unlikely and expects to make future cash payments according
to the contract terms or in similar amounts for similar
materials. For other obligations with cancellation provisions,
the amounts included in the table above were limited to the
non-cancelable portion of the agreement terms
and/or the
minimum cancellation fee.
We have entered into certain
agreements for the purchase of raw materials or other goods that
specify minimum prices and quantities based on a percentage of
the total available market or based on a percentage of our
future purchasing requirements. Due to the uncertainty of the
future market and our future purchasing requirements,
obligations under these agreements are not included in the table
above. We estimate our obligation under these agreements as of
December 27, 2008 to be approximately as follows: less than
one year$309 million; one to three
years$315 million; three to five yearszero;
more than five yearszero. 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.
50
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
milestone-based co-marketing agreements, contingent
funding/payment obligations, and milestone-based equity
investment funding. These arrangements are not considered
contractual obligations until the milestone is met by the third
party. As of December 27, 2008, assuming that all future
milestones are met, additional required payments would be
approximately $150 million.
For the majority of restricted
stock units granted, the number of shares issued on the date the
restricted stock units vest is net of the statutory withholding
requirements paid by Intel on behalf of our employees. The
obligation to pay the relative taxing authority is not included
in the table above, as the amount is contingent upon continued
employment. In addition, the amount of the obligation is
unknown, as it is based in part on the market price of our
common stock when the awards vest.
The expected timing of payments of
the obligations above are estimates based on current
information. Timing of payments and actual amounts paid may be
different, depending on the time of receipt of goods or
services, or changes to
agreed-upon
amounts for some obligations. 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.
We have a contractual obligation
to purchase the output of IMFT and IMFS in proportion to our
investments, currently 49% in each of these ventures. However,
IMFS is in its construction phase and has had no production to
date. See Note 6: Equity Method and Cost Method
Investments in Part II, Item 8 of this
Form 10-K.
Additionally, we have entered into various contractual
commitments in relation to our investments in IMFT and IMFS.
Some of these commitments are with Micron, and some are directly
with IMFT or IMFS. The following are the significant contractual
commitments:
|
|
|
|
|
Subject to certain conditions,
Intel and Micron each agreed to contribute up to approximately
$1.7 billion for IMFS in the three years following the
initial capital contribution. Of that amount, as of
December 27, 2008, our remaining commitment was
approximately $1.3 billion. However, the construction of
the IMFS fabrication facility has been placed on hold.
|
|
|
We also have several agreements
with Micron related to intellectual property rights, and
R&D funding related to NAND flash manufacturing and IMFT.
See Note 6: Equity Method and Cost Method
Investments in Part II, Item 8 of this
Form 10-K.
|
Off-Balance-Sheet
Arrangements
As of December 27, 2008, with
the exception of a guarantee for the repayment of
$275 million in principal of the payment obligations of
Numonyx under its senior credit facility, as well as accrued
unpaid interest, expenses of the lenders, and penalties, we did
not have any significant off-balance-sheet arrangements, as
defined in Item 303(a)(4)(ii) of SEC
Regulation S-K.
See Note 6: Equity Method and Cost Method
Investments in Part II, Item 8 of this
Form 10-K.
51
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Business
Outlook
Our future results of operations
and the topics of other forward-looking statements contained in
this
Form 10-K,
including this MD&A, involve a number of risks and
uncertaintiesin particular, current economic uncertainty,
including the tightening of credit markets, as well as future
economic conditions; our goals and strategies; new product
introductions; plans to cultivate new businesses; divestitures
or investments; revenue; pricing; gross margin and costs;
capital spending; depreciation; R&D expenses; marketing,
general and administrative expenses; potential impairment of
investments; our effective tax rate; pending legal proceedings;
net gains (losses) from equity investments; and interest and
other, net. The current uncertainty in global economic
conditions makes it particularly difficult to predict product
demand and other related matters, and makes it more likely that
our actual results could differ materially from our
expectations. In addition to the various important factors
discussed above, a number of other important factors could cause
actual results to differ materially from our expectations. See
the risks described in Risk Factors in Part I,
Item 1A of this
Form 10-K.
Our expectations for 2009 are as
follows:
|
|
|
|
|
Total
Spending. We
expect spending on R&D, plus marketing, general and
administrative expenses, in 2009 to be between
$10.4 billion and $10.6 billion. This expectation for
our total spending in 2009 is lower than our 2008 spending by
approximately 6% due to targeted spending reductions, lower
spending for revenue and profit-dependent items, and the
standard shift between R&D and cost of sales spending as we
ramp our new 32nm process technology.
|
|
|
Research and Development
Spending. Approximately
$5.4 billion.
|
|
|
Capital
Spending. We
expect capital spending in 2009 to be flat to slightly down from
capital spending in 2008 of $5.2 billion. We expect capital
spending for 2009 to primarily consist of investments in 32nm
process technology.
|
|
|
Depreciation. Approximately
$4.8 billion, plus or minus $100 million.
|
|
|
Tax
Rate. Approximately
27%. The estimated effective tax rate is based on tax law in
effect as of December 27, 2008 and expected income.
|
Status of
Business Outlook
We expect that our corporate
representatives will, from time to time, meet privately with
investors, investment analysts, the media, and others, and may
reiterate the forward-looking statements contained in the
Business Outlook section and elsewhere in this
Form 10-K,
including any such statements that are incorporated by reference
in this
Form 10-K.
At the same time, we will keep this
Form 10-K
and our most current business outlook publicly available on our
Investor Relations web site at www.intc.com. The public
can continue to rely on the business outlook published on the
web site as representing our current expectations on matters
covered, unless we publish a notice stating otherwise. The
statements in the Business Outlook and other
forward-looking statements in this
Form 10-K
are subject to revision during the course of the year in our
quarterly earnings releases and SEC filings and at other times.
From the close of business on
February 27, 2009 until our quarterly earnings release is
published, presently scheduled for April 14, 2009, we will
observe a quiet period. During the quiet period, the
Business Outlook and other forward-looking
statements first published in our
Form 8-K
filed on January 15, 2009, as reiterated or updated as
applicable, in this
Form 10-K,
should be considered historical, speaking as of prior to the
quiet period only and not subject to update. During the quiet
period, our representatives will not comment on our business
outlook or our financial results or expectations. The exact
timing and duration of the routine quiet period, and any others
that we utilize from time to time, may vary at our discretion.
52
|
|
ITEM 7A.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
We are exposed to financial market
risks, primarily changes in currency exchange rates, interest
rates, and equity prices. We use derivative financial
instruments primarily to manage currency exchange rate risk and
interest rate risk, and to a lesser extent, equity market risk
and commodity price risk. All of the potential changes noted
below are based on sensitivity analyses performed on our
financial positions as of December 27, 2008 and
December 29, 2007. Actual results may differ materially.
Currency
Exchange Rates
We generally hedge currency risks
of
non-U.S.-dollar-denominated
investments in debt instruments 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 a
negligible net exposure.
A majority of our revenue,
expense, and capital purchasing activities are transacted in
U.S. dollars. However, certain operating expenditures and
capital purchases are incurred in or exposed to other
currencies, primarily the 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 future cash
flows caused by changes in exchange rates. We generally utilize
currency forward contracts and, to a lesser extent, currency
options in these hedging programs. Our hedging programs reduce,
but do not always entirely eliminate, the impact of currency
exchange rate movements (see Risk Factors in
Part I, Item 1A of this
Form 10-K).
We considered the historical trends in currency exchange rates
and determined that it was reasonably possible that a weighted
average adverse change of 20% in currency exchange rates could
be experienced in the near term. Such an adverse change, after
taking into account hedges and offsetting positions, would have
resulted in an adverse impact on income before taxes of less
than $55 million at the end of 2008 (less than
$35 million at the end of 2007, using a weighted average
adverse change of 15% in currency exchange rates). The weighted
average adverse change increased from the end of 2007 to the end
of 2008, due to a higher relative weighting of more volatile
currencies.
Interest
Rates
We are exposed to interest rate
risk related to our investment portfolio and debt issuances. The
primary objective of our investments in debt instruments is to
preserve principal while maximizing yields. To achieve this
objective, the returns on our investments in debt instruments
are generally based on three-month LIBOR, or, if the maturities
are longer than three months, the returns are generally swapped
into U.S. dollar three-month LIBOR-based returns. The
current financial markets are extremely volatile. A hypothetical
1.0% decrease 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 $135 million as of December 27, 2008 and
$80 million as of December 29, 2007. The hypothetical
1.0% interest rate decrease would have resulted in an increase
in the fair value of our debt issuances of approximately
$150 million as of December 27, 2008 and would have
resulted in an increase in the fair value of our investment
portfolio of approximately $15 million as of
December 27, 2008 (an increase in the fair value of our
debt issuances of approximately $95 million as of
December 29, 2007 and an increase in the fair value of our
investment portfolio of approximately $15 million as of
December 29, 2007). The fluctuations in fair value of our
debt issuances and investment portfolio reflect only the direct
impact of the change in interest rates. Other economic
variables, such as equity market fluctuations and changes in
relative credit risk, could result in a significantly higher
decline in our net investment portfolio. For further information
on how credit risk is factored into the valuation of our
investment portfolio and debt issuances, see Fair
Value in Part II, Item 7 of this
Form 10-K.
Equity
Prices
Our marketable equity investments
include marketable equity securities and equity derivative
instruments such as warrants and options. To the extent that our
marketable equity securities have strategic value, we typically
do not attempt to reduce or eliminate our equity market exposure
through hedging activities; however, for our investments in
strategic equity derivative instruments, including warrants, we
may enter into transactions to reduce or eliminate the equity
market risks. For securities that we no longer consider
strategic, we evaluate legal, market, and economic factors in
our decision on the timing of disposal and whether it is
possible and appropriate to hedge the equity market risk.
53
The marketable equity securities
included in trading assets are held to generate returns that
seek to offset changes in liabilities related to the equity and
other market risks of certain deferred compensation
arrangements. The gains and losses from changes in fair value of
these equity securities are offset by the gains and losses on
the related liabilities. Assuming a decline in market prices of
approximately 25%, our net exposure to loss was approximately
$40 million as of December 27, 2008 and approximately
$20 million as of December 29, 2007.
As of December 27, 2008, the
fair value of our available-for-sale marketable equity
securities and our equity derivative instruments, including
hedging positions, was $362 million ($1.0 billion as
of December 29, 2007). Our investments in the new Clearwire
Corporation, VMware, and Micron constituted 90% of our
marketable equity securities as of December 27, 2008, and
were carried at a fair market value of $148 million,
$137 million, and $42 million, respectively. The
current equity markets are extremely volatile. Assuming a loss
of 60% in market prices, and after reflecting the impact of
hedges and offsetting positions, the aggregate value of our
marketable equity investments could decrease by approximately
$220 million, based on the value as of December 27,
2008 (a decrease in value of $565 million, based on the
value as of December 29, 2007 using an assumed loss of
55%). The increase in the assumed loss percentage from
December 29, 2007 to December 27, 2008 is due to a
higher relative weighting of more volatile investments.
Many of the same factors that
could result in an adverse movement of equity market prices
affect our non-marketable equity investments, although we cannot
always quantify the impact directly. The current financial
markets are extremely volatile and there has been a tightening
of the credit markets, which could negatively affect the
prospects of the companies we invest in, their ability to raise
additional capital, and the likelihood of our being able to
realize value in our investments through liquidity events such
as initial public offerings, mergers, and private sales. These
types of investments involve a great deal of risk, and there can
be no assurance that any specific company will grow or become
successful; consequently, we could lose all or part of our
investment. Our non-marketable equity investments, excluding
investments accounted for under the equity method, had a
carrying amount of $1.0 billion as of December 27,
2008 ($805 million as of December 29, 2007). As of
December 27, 2008, the carrying amount of our
non-marketable equity method investments was $3.0 billion
($2.6 billion as of December 29, 2007). Most of the
balance as of December 27, 2008 was concentrated in
companies in the flash memory market segment and wireless
connectivity market segment. Our flash memory market segment
investments include our investment of $1.7 billion in IMFT
($2.2 billion as of December 29, 2007),
$329 million in IMFS ($146 million as of
December 29, 2007), and $484 million in Numonyx. Our
wireless connectivity market segment investments include our
non-marketable equity method investment in Clearwire LLC of
$238 million. See Note 6: Equity Method and Cost
Method Investments in Part II, Item 8 of this
Form 10-K.
54
|
|
ITEM 8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
|
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
Page
|
|
|
|
|
|
56
|
|
|
|
|
|
57
|
|
|
|
|
|
58
|
|
|
|
|
|
59
|
|
|
|
|
|
60
|
|
|
|
|
|
112
|
|
|
|
|
|
114
|
55
INTEL
CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Years Ended December 27, 2008
|
|
|
|
|
|
|
|
|
|
(In Millions, Except Per Share Amounts)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Net revenue
|
|
$
|
37,586
|
|
|
$
|
38,334
|
|
|
$
|
35,382
|
|
Cost of sales
|
|
|
16,742
|
|
|
|
18,430
|
|
|
|
17,164
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
20,844
|
|
|
|
19,904
|
|
|
|
18,218
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
5,722
|
|
|
|
5,755
|
|
|
|
5,873
|
|
Marketing, general and administrative
|
|
|
5,458
|
|
|
|
5,417
|
|
|
|
6,138
|
|
Restructuring and asset impairment charges
|
|
|
710
|
|
|
|
516
|
|
|
|
555
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
11,890
|
|
|
|
11,688
|
|
|
|
12,566
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
8,954
|
|
|
|
8,216
|
|
|
|
5,652
|
|
Gains (losses) on equity method investments, net
|
|
|
(1,380
|
)
|
|
|
3
|
|
|
|
2
|
|
Gains (losses) on other equity investments, net
|
|
|
(376
|
)
|
|
|
154
|
|
|
|
212
|
|
Interest and other, net
|
|
|
488
|
|
|
|
793
|
|
|
|
1,202
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before taxes
|
|
|
7,686
|
|
|
|
9,166
|
|
|
|
7,068
|
|
Provision for taxes
|
|
|
2,394
|
|
|
|
2,190
|
|
|
|
2,024
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
5,292
|
|
|
$
|
6,976
|
|
|
$
|
5,044
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share
|
|
$
|
0.93
|
|
|
$
|
1.20
|
|
|
$
|
0.87
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share
|
|
$
|
0.92
|
|
|
$
|
1.18
|
|
|
$
|
0.86
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
5,663
|
|
|
|
5,816
|
|
|
|
5,797
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
5,748
|
|
|
|
5,936
|
|
|
|
5,880
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying
notes.
56
INTEL
CORPORATION
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
December 27, 2008 and December 29, 2007
|
|
|
|
|
|
|
(In Millions, Except Par Value)
|
|
2008
|
|
|
2007
|
|
Assets
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
3,350
|
|
|
$
|
7,307
|
|
Short-term investments
|
|
|
5,331
|
|
|
|
5,490
|
|
Trading assets
|
|
|
3,162
|
|
|
|
2,566
|
|
Accounts receivable, net of allowance for doubtful accounts of
$17 ($27 in 2007)
|
|
|
1,712
|
|
|
|
2,576
|
|
Inventories
|
|
|
3,744
|
|
|
|
3,370
|
|
Deferred tax assets
|
|
|
1,390
|
|
|
|
1,186
|
|
Other current assets
|
|
|
1,182
|
|
|
|
1,390
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
19,871
|
|
|
|
23,885
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
17,544
|
|
|
|
16,918
|
|
Marketable equity securities
|
|
|
352
|
|
|
|
987
|
|
Other long-term investments
|
|
|
2,924
|
|
|
|
4,398
|
|
Goodwill
|
|
|
3,932
|
|
|
|
3,916
|
|
Other long-term assets
|
|
|
6,092
|
|
|
|
5,547
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
50,715
|
|
|
$
|
55,651
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and stockholders equity
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Short-term debt
|
|
$
|
102
|
|
|
$
|
142
|
|
Accounts payable
|
|
|
2,390
|
|
|
|
2,361
|
|
Accrued compensation and benefits
|
|
|
2,015
|
|
|
|
2,417
|
|
Accrued advertising
|
|
|
807
|
|
|
|
749
|
|
Deferred income on shipments to distributors
|
|
|
463
|
|
|
|
625
|
|
Other accrued liabilities
|
|
|
2,041
|
|
|
|
2,277
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
7,818
|
|
|
|
8,571
|
|
|
|
|
|
|
|
|
|
|
Long-term income taxes payable
|
|
|
736
|
|
|
|
785
|
|
Deferred tax liabilities
|
|
|
46
|
|
|
|
411
|
|
Long-term debt
|
|
|
1,886
|
|
|
|
1,980
|
|
Other long-term liabilities
|
|
|
1,141
|
|
|
|
1,142
|
|
Commitments and contingencies (Notes 18 and 24)
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Preferred stock, $0.001 par value, 50 shares
authorized; none issued
|
|
|
|
|
|
|
|
|
Common stock, $0.001 par value, 10,000 shares
authorized; 5,562 issued and outstanding (5,818 in
2007) and capital in excess of par value
|
|
|
12,944
|
|
|
|
11,653
|
|
Accumulated other comprehensive income (loss)
|
|
|
(393
|
)
|
|
|
261
|
|
Retained earnings
|
|
|
26,537
|
|
|
|
30,848
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
39,088
|
|
|
|
42,762
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
50,715
|
|
|
$
|
55,651
|
|
|
|
|
|
|
|
|
|
|
See accompanying
notes.
57
INTEL
CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Years Ended December 27, 2008
|
|
|
|
|
|
|
|
|
|
(In Millions)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Cash and cash equivalents, beginning of year
|
|
$
|
7,307
|
|
|
$
|
6,598
|
|
|
$
|
7,324
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows provided by (used for) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
5,292
|
|
|
|
6,976
|
|
|
|
5,044
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
4,360
|
|
|
|
4,546
|
|
|
|
4,654
|
|
Share-based compensation
|
|
|
851
|
|
|
|
952
|
|
|
|
1,375
|
|
Restructuring, asset impairment, and net loss on retirement of
assets
|
|
|
795
|
|
|
|
564
|
|
|
|
635
|
|
Excess tax benefit from share-based payment arrangements
|
|
|
(30
|
)
|
|
|
(118
|
)
|
|
|
(123
|
)
|
Amortization of intangibles
|
|
|
256
|
|
|
|
252
|
|
|
|
258
|
|
(Gains) losses on equity method investments, net
|
|
|
1,380
|
|
|
|
(3
|
)
|
|
|
(2
|
)
|
(Gains) losses on other equity investments, net
|
|
|
376
|
|
|
|
(154
|
)
|
|
|
(212
|
)
|
(Gains) losses on divestitures
|
|
|
(59
|
)
|
|
|
(21
|
)
|
|
|
(612
|
)
|
Deferred taxes
|
|
|
(790
|
)
|
|
|
(443
|
)
|
|
|
(325
|
)
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading assets
|
|
|
193
|
|
|
|
(1,429
|
)
|
|
|
324
|
|
Accounts receivable
|
|
|
260
|
|
|
|
316
|
|
|
|
1,229
|
|
Inventories
|
|
|
(395
|
)
|
|
|
700
|
|
|
|
(1,116
|
)
|
Accounts payable
|
|
|
29
|
|
|
|
102
|
|
|
|
7
|
|
Accrued compensation and benefits
|
|
|
(569
|
)
|
|
|
354
|
|
|
|
(435
|
)
|
Income taxes payable and receivable
|
|
|
(834
|
)
|
|
|
(248
|
)
|
|
|
(60
|
)
|
Other assets and liabilities
|
|
|
(189
|
)
|
|
|
279
|
|
|
|
(9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total adjustments
|
|
|
5,634
|
|
|
|
5,649
|
|
|
|
5,588
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
10,926
|
|
|
|
12,625
|
|
|
|
10,632
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows provided by (used for) investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to property, plant and equipment
|
|
|
(5,197
|
)
|
|
|
(5,000
|
)
|
|
|
(5,860
|
)
|
Acquisitions, net of cash acquired
|
|
|
(16
|
)
|
|
|
(76
|
)
|
|
|
|
|
Purchases of available-for-sale investments
|
|
|
(6,479
|
)
|
|
|
(11,728
|
)
|
|
|
(5,272
|
)
|
Maturities and sales of available-for-sale investments
|
|
|
7,993
|
|
|
|
8,011
|
|
|
|
7,147
|
|
Purchases of trading assets
|
|
|
(2,676
|
)
|
|
|
|
|
|
|
|
|
Maturities and sales of trading assets
|
|
|
1,766
|
|
|
|
|
|
|
|
|
|
Investments in non-marketable equity investments
|
|
|
(1,691
|
)
|
|
|
(1,459
|
)
|
|
|
(1,722
|
)
|
Return of equity method investment
|
|
|
316
|
|
|
|
|
|
|
|
|
|
Proceeds from divestitures
|
|
|
85
|
|
|
|
32
|
|
|
|
752
|
|
Other investing activities
|
|
|
34
|
|
|
|
294
|
|
|
|
(33
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used for investing activities
|
|
|
(5,865
|
)
|
|
|
(9,926
|
)
|
|
|
(4,988
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows provided by (used for) financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in short-term debt, net
|
|
|
(40
|
)
|
|
|
(39
|
)
|
|
|
(114
|
)
|
Proceeds from government grants
|
|
|
182
|
|
|
|
160
|
|
|
|
69
|
|
Excess tax benefit from share-based payment arrangements
|
|
|
30
|
|
|
|
118
|
|
|
|
123
|
|
Additions to long-term debt
|
|
|
|
|
|
|
125
|
|
|
|
|
|
Repayment of notes payable
|
|
|
|
|
|
|
|
|
|
|
(581
|
)
|
Proceeds from sales of shares through employee equity incentive
plans
|
|
|
1,105
|
|
|
|
3,052
|
|
|
|
1,046
|
|
Repurchase and retirement of common stock
|
|
|
(7,195
|
)
|
|
|
(2,788
|
)
|
|
|
(4,593
|
)
|
Payment of dividends to stockholders
|
|
|
(3,100
|
)
|
|
|
(2,618
|
)
|
|
|
(2,320
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used for financing activities
|
|
|
(9,018
|
)
|
|
|
(1,990
|
)
|
|
|
(6,370
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
(3,957
|
)
|
|
|
709
|
|
|
|
(726
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year
|
|
$
|
3,350
|
|
|
$
|
7,307
|
|
|
$
|
6,598
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the year for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest, net of amounts capitalized of $86 in 2008 ($57 in 2007
and $60 in 2006)
|
|
$
|
6
|
|
|
$
|
15
|
|
|
$
|
25
|
|
Income taxes, net of refunds
|
|
$
|
4,007
|
|
|
$
|
2,762
|
|
|
$
|
2,432
|
|
See accompanying
notes.
58
INTEL
CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
and Capital
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
in Excess of Par Value
|
|
|
Other
|
|
|
|
|
|
|
|
Three Years Ended December 27, 2008
|
|
Number of
|
|
|
|
|
|
Comprehensive
|
|
|
Retained
|
|
|
|
|
(In Millions, Except Per Share Amounts)
|
|
Shares
|
|
|
Amount
|
|
|
Income (Loss)
|
|
|
Earnings
|
|
|
Total
|
|
Balance as of December 31, 2005
|
|
|
5,919
|
|
|
$
|
6,245
|
|
|
$
|
127
|
|
|
$
|
29,810
|
|
|
$
|
36,182
|
|
Components of comprehensive income, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,044
|
|
|
|
5,044
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
26
|
|
|
|
|
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,070
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustment for initially applying SFAS No. 158, net of
tax1
|
|
|
|
|
|
|
|
|
|
|
(210
|
)
|
|
|
|
|
|
|
(210
|
)
|
Proceeds from sales of shares through employee equity incentive
plans, net excess tax benefit, and other
|
|
|
73
|
|
|
|
1,248
|
|
|
|
|
|
|
|
|
|
|
|
1,248
|
|
Share-based compensation
|
|
|
|
|
|
|
1,375
|
|
|
|
|
|
|
|
|
|
|
|
1,375
|
|
Repurchase and retirement of common stock
|
|
|
(226
|
)
|
|
|
(1,043
|
)
|
|
|
|
|
|
|
(3,550
|
)
|
|
|
(4,593
|
)
|
Cash dividends declared ($0.40 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,320
|
)
|
|
|
(2,320
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 30, 2006
|
|
|
5,766
|
|
|
|
7,825
|
|
|
|
(57
|
)
|
|
|
28,984
|
|
|
|
36,752
|
|
Cumulative-effect adjustments, net of
tax1:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adoption of EITF
06-02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(181
|
)
|
|
|
(181
|
)
|
Adoption of FIN 48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
181
|
|
|
|
181
|
|
Components of comprehensive income, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,976
|
|
|
|
6,976
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
318
|
|
|
|
|
|
|
|
318
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,294
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sales of shares through employee equity incentive
plans, net excess tax benefit, and other
|
|
|
165
|
|
|
|
3,170
|
|
|
|
|
|
|
|
|
|
|
|
3,170
|
|
Share-based compensation
|
|
|
|
|
|
|
952
|
|
|
|
|
|
|
|
|
|
|
|
952
|
|
Repurchase and retirement of common stock
|
|
|
(113
|
)
|
|
|
(294
|
)
|
|
|
|
|
|
|
(2,494
|
)
|
|
|
(2,788
|
)
|
Cash dividends declared ($0.45 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,618
|
)
|
|
|
(2,618
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 29, 2007
|
|
|
5,818
|
|
|
|
11,653
|
|
|
|
261
|
|
|
|
30,848
|
|
|
|
42,762
|
|
Components of comprehensive income, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,292
|
|
|
|
5,292
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
(654
|
)
|
|
|
|
|
|
|
(654
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,638
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sales of shares through employee equity incentive
plans, net excess tax benefit, and other
|
|
|
72
|
|
|
|
1,132
|
|
|
|
|
|
|
|
|
|
|
|
1,132
|
|
Share-based compensation
|
|
|
|
|
|
|
851
|
|
|
|
|
|
|
|
|
|
|
|
851
|
|
Repurchase and retirement of common stock
|
|
|
(328
|
)
|
|
|
(692
|
)
|
|
|
|
|
|
|
(6,503
|
)
|
|
|
(7,195
|
)
|
Cash dividends declared ($0.5475 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,100
|
)
|
|
|
(3,100
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 27, 2008
|
|
|
5,562
|
|
|
$
|
12,944
|
|
|
$
|
(393
|
)
|
|
$
|
26,537
|
|
|
$
|
39,088
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
For further discussion of the adjustments recorded at the
beginning of fiscal years 2006 and 2007, see Accounting
Changes in Note 2: Accounting
Policies. |
See accompanying
notes.
59
INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1:
Basis of Presentation
We have a 52- or 53-week fiscal
year that ends on the last Saturday in December. Fiscal year
2008, a 52-week year, ended on December 27, 2008. Fiscal
year 2007, a 52-week year, ended on December 29, 2007.
Fiscal year 2006, a 52-week year, ended on December 30,
2006. The next 53-week year will end on December 31, 2011.
Our consolidated financial
statements include the accounts of Intel Corporation and our
wholly owned subsidiaries. Intercompany accounts and
transactions have been eliminated. We use the equity method to
account for equity investments in instances in which we own
common stock or similar interests (as described by the Emerging
Issues Task Force (EITF) Issue
No. 02-14,
Whether an Investor Should Apply the Equity Method of
Accounting to Investments Other Than Common Stock), and
have the ability to exercise significant influence, but not
control, over the investee.
The U.S. dollar is the
functional currency for Intel and our subsidiaries; therefore,
we do not have a translation adjustment recorded through
accumulated other comprehensive income (loss). Monetary accounts
denominated in
non-U.S. currencies,
such as cash or payables to vendors, have been remeasured to the
U.S. dollar.
In accordance with the adoption of
Statement of Financial Accounting Standards (SFAS) No. 159,
The Fair Value Option for Financial Assets and Financial
LiabilitiesIncluding an amendment of FASB Statement
No. 115 (SFAS No. 159), we have classified
cash flows from certain trading assets as cash flows from
investing activities beginning in 2008. For further discussion,
see Accounting Changes in Note 2:
Accounting Policies.
As of December 27, 2008, our
other accrued liabilities included $447 million in customer
credit balances. Customer credit balances were not significant
as of December 29, 2007.
Note 2:
Accounting Policies
Use of
Estimates
The preparation of financial
statements in conformity with U.S. generally accepted
accounting principles requires us to make estimates and
judgments that affect the amounts reported in our consolidated
financial statements and the accompanying notes. The accounting
estimates that require our most significant, difficult, and
subjective judgments include:
|
|
|
|
|
the valuation of non-marketable
equity investments and the determination of other-than-temporary
impairments;
|
|
|
the valuation of investments in
debt instruments and the determination of other-than-temporary
impairments;
|
|
|
the assessment of recoverability
of long-lived assets;
|
|
|
the recognition and measurement of
current and deferred income taxes (including the measurement of
uncertain tax positions); and
|
|
|
the valuation of inventory.
|
The actual results that we
experience may differ materially from our estimates.
Cash
and Cash Equivalents
We consider all liquid
available-for-sale debt instruments with original maturities
from the date of purchase of approximately three months or less
as cash and cash equivalents.
60
INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Trading
Assets
Investments that we designate as
trading assets are reported at fair value, with gains or losses
resulting from changes in fair value recognized in earnings. Our
trading asset investments include:
|
|
|
|
|
Marketable debt instruments
when the interest rate
or foreign exchange rate risk is hedged at inception by a
related derivative instrument. We record the gains or losses of
these investments arising from changes in fair value due to
interest rate and currency market fluctuations and credit market
volatility, offset by losses or gains on the related derivative
instruments, in interest and other, net. We also designate
certain floating-rate securitized financial instruments,
primarily asset-backed securities purchased after
December 30, 2006, as trading assets.
|
|
|
Equity securities offsetting
deferred compensation
when the investments
seek to offset changes in liabilities related to equity and
other market risks of certain deferred compensation
arrangements. We offset the gains or losses from changes in fair
value of these equity securities against losses or gains on the
related liabilities and include them in interest and other, net.
|
|
|
Marketable equity securities
when we deem the
investments not to be strategic in nature at the time of
original classification, and generally have the ability and
intent to mitigate equity market risk through the sale or the
use of derivative instruments. For these marketable equity
securities, we include gains or losses from changes in fair
value, primarily offset by losses or gains on related derivative
instruments, in gains (losses) on other equity investments, net.
|
Debt
Instrument Investments
We classify available-for-sale
debt instruments with original maturities at the date of
purchase greater than approximately three months and remaining
maturities less than one year as short-term investments. We
classify available-for-sale debt instruments with remaining
maturities greater than one year as other long-term investments.
We account for cost basis loan participation notes at amortized
cost and classify them as short-term investments and other
long-term investments based on stated maturities.
Available-for-Sale
Investments
Investments that we designate as
available-for-sale are reported at fair value, with unrealized
gains and losses, net of tax, recorded in accumulated other
comprehensive income (loss). We determine the cost of the
investment sold based on the specific identification method. Our
available-for-sale investments include:
|
|
|
|
|
Marketable debt instruments
when the interest rate
and foreign currency risks are not hedged at inception of the
investment or when our designation for trading assets is not
met. We hold these debt instruments to generate a return
commensurate with three-month LIBOR. We record the interest
income and realized gains and losses on the sale of these
instruments in interest and other, net.
|
|
|
Marketable equity securities
when the investments
are considered strategic in nature at the time of original
classification or there are barriers to mitigating equity market
risk through the sale or use of derivative instruments at the
time of original classification. We acquire these equity
investments for the promotion of business and strategic
objectives. To the extent that these investments continue to
have strategic value, we typically do not attempt to reduce or
eliminate the inherent equity market risks through hedging
activities. We record the realized gains or losses on the sale
or exchange of marketable equity securities in gains (losses) on
other equity investments, net.
|
Non-Marketable
and Other Equity Investments
We account for non-marketable and
other equity investments under either the cost or equity method
and include them in other long-term assets. Our non-marketable
and other equity investments include:
|
|
|
|
|
Equity method investments
when we have the
ability to exercise significant influence, but not control, over
the investee. We record equity method adjustments in gains
(losses) on equity method investments, net, and may do so with
up to a one-quarter lag. Equity method adjustments include: our
proportionate share of investee income or loss, gains or losses
resulting from investee capital transactions, adjustments to
recognize certain differences between our carrying value and our
equity in net assets of the investee at the date of investment,
impairments, and other adjustments required by the equity
method. Equity method investments include marketable and
non-marketable investments.
|
|
|
Non-marketable cost method
investments when the
equity method does not apply. We record the realized gains or
losses on the sale of non-marketable cost method investments in
gains (losses) on other equity investments, net.
|
61
INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Other-Than-Temporary
Impairment
All of our available-for-sale
investments and non-marketable and other equity 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, for the following investments:
|
|
|
|
|
Marketable equity securities
when the resulting fair
value is significantly below cost basis
and/or the
significant decline has lasted for an extended period of time.
The evaluation that we use to determine whether a marketable
equity security is other than temporarily impaired is based on
the specific facts and circumstances present at the time of
assessment, which include the consideration of general market
conditions, the duration and extent to which the fair value is
below cost, and our intent and ability to hold the investment
for a sufficient period of time to allow for recovery in value
in the foreseeable future. We also consider specific adverse
conditions related to the financial health of and business
outlook for the investee, including industry and sector
performance, changes in technology, operational and financing
cash flow factors, and changes in the investees credit
rating.
|
|
|
Non-marketable equity
investments when events
or circumstances are identified that would significantly harm
the fair value of the investment and the fair value is
significantly below cost basis
and/or the
significant decline has lasted for an extended period of time.
The indicators that we use to identify those events and
circumstances include:
|
|
|
|
|
|
the investees revenue and
earning trends relative to predefined 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. If an investee obtains
additional funding at a valuation lower than our carrying
amount, or a new round of equity funding is required for the
investee to remain in business and the new round of equity does
not appear imminent, it is presumed that the investment is other
than temporarily impaired, unless specific facts and
circumstances indicate otherwise.
|
|
|
|
|
|
Marketable debt instruments
when the fair value is
significantly below amortized cost
and/or the
significant decline has lasted for an extended period of time
and we do not have the intent and ability to hold the investment
for a sufficient period of time to allow for recovery in the
foreseeable future. The evaluation that we use to determine
whether a marketable debt instrument is other than temporarily
impaired is based on the specific facts and circumstances
present at the time of assessment, which include the
consideration of the financial condition and liquidity of the
issuer, the issuers credit rating, specific events that
may cause us to believe that the debt instrument will not mature
and be paid in full, and the duration and extent to which the
fair value is below cost.
|
Investments that we identify 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 down the investment
to its fair value. We record impairment charges for:
|
|
|
|
|
marketable equity securities and
non-marketable cost method investments in gains (losses) on
other equity investments, net;
|
|
|
non-marketable and marketable
equity method investments in gains (losses) on equity method
investments, net; and
|
|
|
marketable debt instruments in
interest and other, net.
|
62
INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
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. Our derivative financial
instruments are recorded at fair value and are included in other
current assets, other long-term assets, other accrued
liabilities, or other long-term liabilities. Derivative
instruments recorded as assets totaled $173 million as of
December 27, 2008 ($118 million as of
December 29, 2007). Derivative instruments recorded as
liabilities totaled $299 million as of December 27,
2008 ($130 million as of December 29, 2007). For
further discussion of our derivative instruments, see
Note 8: Derivative Financial Instruments.
Our accounting policies for
derivative financial instruments are based on whether they meet
the criteria for designation as cash flow or fair value hedges.
A designated hedge of the exposure to variability in the future
cash flows of an asset or a liability, or of a forecasted
transaction, is referred to as a cash flow hedge. A designated
hedge of the exposure to changes in fair value of an asset or a
liability, or of an unrecognized firm commitment, is referred to
as a fair value hedge. The criteria for designating a derivative
as a hedge include the assessment of the instruments
effectiveness in risk reduction, matching of the derivative
instrument to its underlying transaction, and the probability
that the underlying transaction will occur. For derivatives with
cash flow hedge accounting designation, we report the after-tax
gain or loss from the effective portion of the hedge as a
component of accumulated other comprehensive income (loss) and
reclassify it into earnings in the same period or periods in
which the hedged transaction affects earnings, and within the
same income statement line item as the impact of the hedged
transaction. For derivatives with fair value hedge accounting
designation, we recognize gains or losses from the change in
fair value of these derivatives, as well as the offsetting
change in the fair value of the underlying hedged item, in
earnings. Derivatives that we designate as hedges are classified
in the consolidated statements of cash flows in the same section
as the underlying item, primarily within cash flows from
operating activities.
We recognize gains and losses from
changes in fair values of derivatives that are not designated as
hedges for accounting purposes within the income statement line
item most closely associated with the economic underlying,
primarily in interest and other, net, except for equity-related
gains or losses, which we primarily record in gains (losses) on
other equity investments, net. Derivatives not designated as
hedges are classified in cash flows from operating activities.
As part of our strategic
investment program, we also acquire equity derivative
instruments, such as warrants and equity conversion rights
associated with debt instruments, which we do not designate as
hedging instruments. We recognize the gains or losses from
changes in fair values of these equity derivative instruments in
gains (losses) on other equity investments, net.
Measurement
of Effectiveness
|
|
|
|
|
Effectiveness for forwards
is generally measured
by comparing the cumulative change in the fair value of the
hedge contract with the cumulative change in the present value
of the forecasted cash flows of the hedged item. For currency
forward contracts used in cash flow hedging strategies related
to capital purchases, forward points are excluded, and
effectiveness is measured using spot rates to value both the
hedge contract and the hedged item. For currency forward
contracts used in cash flow hedging strategies related to
operating expenditures, forward points are included and
effectiveness is measured using forward rates to value both the
hedge contract and the hedged item.
|
|
|
Effectiveness for currency
options and equity options with hedge accounting designation
is generally measured
by comparing the cumulative change in the fair value of the
hedge contract with the cumulative change in the fair value of
an option instrument representing the hedged risks in the hedged
item for cash flow hedges. For fair value hedges, time value is
excluded and effectiveness is measured based on spot rates to
value both the hedge contract and the hedged item.
|
|
|
Effectiveness for interest rate
swaps is generally
measured by comparing the change in fair value of the hedged
item with the change in fair value of the interest rate swap.
|
If a cash flow hedge were
discontinued because it was no longer probable that the original
hedged transaction would 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. Any ineffective
portion of both cash flow and fair value hedges, as well as
amounts excluded from the assessment of effectiveness, is
recognized in earnings in interest and other, net.
63
INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Securities
Lending
We may enter 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 our consolidated balance sheets. Cash
collateral is recorded as an asset with a corresponding
liability. For lending agreements collateralized by securities,
we do not record the collateral as an asset or a liability,
unless the collateral is repledged.
Inventories
We compute inventory cost on a
currently adjusted standard basis (which approximates actual
cost on an average or
first-in,
first-out basis). 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. It is reasonably possible that our estimate of
future demand for our products could change in the near term and
result in additional inventory write-offs, which would
negatively impact our gross margin. 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)
|
|
2008
|
|
|
2007
|
|
|
Raw materials
|
|
$
|
608
|
|
|
$
|
507
|
|
Work in process
|
|
|
1,577
|
|
|
|
1,460
|
|
Finished goods
|
|
|
1,559
|
|
|
|
1,403
|
|
|
|
|
|
|
|
|
|
|
Total inventories
|
|
$
|
3,744
|
|
|
$
|
3,370
|
|
|
|
|
|
|
|
|
|
|
Property,
Plant and Equipment
Property, plant and equipment, net
at fiscal year-ends was as follows:
|
|
|
|
|
|
|
|
|
(In Millions)
|
|
2008
|
|
|
2007
|
|
|
Land and buildings
|
|
$
|
16,546
|
|
|
$
|
15,267
|
|
Machinery and equipment
|
|
|
28,812
|
|
|
|
27,754
|
|
Construction in progress
|
|
|
2,730
|
|
|
|
3,031
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48,088
|
|
|
|
46,052
|
|
Less: accumulated depreciation
|
|
|
(30,544
|
)
|
|
|
(29,134
|
)
|
|
|
|
|
|
|
|
|
|
Total property, plant and equipment, net
|
|
$
|
17,544
|
|
|
$
|
16,918
|
|
|
|
|
|
|
|
|
|
|
We state property, plant and
equipment at cost, less accumulated depreciation. We compute
depreciation for financial reporting purposes using the
straight-line method over the following estimated useful lives:
machinery and equipment, 2 to 4 years; buildings, 4 to 40 years.
We regularly perform reviews if facts and circumstances indicate
that the carrying amount of assets may not be recoverable or
that the useful life is shorter than we had originally
estimated. We assess the recoverability of our assets held for
use by comparing the projected undiscounted net cash flows
associated with the related asset or group of assets over their
remaining estimated useful 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 we
determine that the useful lives are shorter than we had
originally estimated, we depreciate the net book value of the
assets over the newly determined remaining useful lives. For a
discussion of restructuring-related asset impairment charges,
see Note 15: Restructuring and Asset Impairment
Charges.
We identify property, plant and
equipment as held for sale when it meets the criteria of SFAS
No. 144, Accounting for Impairment or Disposal of
Long-Lived Assets. We reclassify held for sale assets to
other current assets and cease recording depreciation.
64
INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
We capitalize interest on
borrowings related to eligible capital expenditures. We add
capitalized interest to the cost of qualified assets and
amortize it over the estimated useful lives of the assets. We
record capital-related government grants earned as a reduction
to property, plant and equipment.
Goodwill
We record goodwill when the
purchase price of an acquisition exceeds the estimated fair
value of the net identified tangible and intangible assets
acquired. Each year during the fourth quarter, we perform 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, we make an allocation of our manufacturing and
assembly and test assets because of the interchangeable nature
of our manufacturing and assembly and test capacity. We base
this allocation on each reporting units relative
percentage utilization of the manufacturing and assembly and
test assets. In the event that an individual business within a
reporting unit is divested, we allocate goodwill to that
business based on its fair value relative to its reporting unit.
For further discussion of goodwill, see Note 13:
Goodwill.
Identified
Intangible Assets
Intellectual property assets
primarily represent rights acquired under technology licenses
and are generally amortized on a straight-line basis over the
periods of benefit, ranging from 3 to 17 years. We amortize
acquisition-related developed technology on a straight-line
basis over approximately 4 years. We amortize other intangible
assets over 4 years. We classify all identified intangible
assets within other long-term assets. 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. For further
discussion of identified intangible assets, see Note 14:
Identified Intangible Assets.
We perform a quarterly review of
identified intangible assets to determine if facts and
circumstances indicate that the useful life is shorter than we
had originally estimated or that the carrying amount of assets
may not be recoverable. If such facts and circumstances exist,
we assess the recoverability of identified intangible assets by
comparing the projected undiscounted net cash flows associated
with the related asset or group of assets over their remaining
lives against their respective carrying amounts. Impairments, if
any, are based on the excess of the carrying amount over the
fair value of those assets.
Product
Warranty
We generally sell products with a
limited warranty on product quality and a limited
indemnification for customers against intellectual property
infringement claims related to our products. We accrue for known
warranty and indemnification issues if a loss is probable and
can be reasonably estimated, and accrue 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.
Revenue
Recognition
We recognize 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. We record
pricing allowances, including discounts based on contractual
arrangements with customers, when we recognize revenue as a
reduction to both accounts receivable and net revenue. Because
of frequent sales price reductions and rapid technology
obsolescence in the industry, we defer the revenue and related
costs of sales from sales made to distributors under agreements
allowing price protection
and/or right
of return until the distributors sell the merchandise. The right
of return granted generally consists of a stock rotation program
in which distributors are able to exchange certain products
based on the number of qualified purchases made by the
distributor. Under the price protection program, we give
distributors credits for the difference between the original
price paid and the current price that we offer. We record the
net deferred income from sales to distributors on our balance
sheet as deferred income on shipments to distributors. We
include shipping charges billed to customers in net revenue, and
include the related shipping costs in cost of sales.
65
INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Advertising
Cooperative advertising programs
reimburse customers for marketing activities for certain of our
products, subject to defined criteria. We accrue cooperative
advertising obligations and record the costs at the same time
that the related revenue is recognized. We record cooperative
advertising costs as marketing, general and administrative
expenses to the extent that an advertising benefit separate from
the revenue transaction can be identified and the fair value of
that advertising benefit received is determinable. We record any
excess in cash paid over the fair value of the advertising
benefit received as a reduction in revenue. Advertising costs
recorded within marketing, general and administrative expenses
were $1.86 billion in 2008 ($1.90 billion in 2007 and $2.32
billion in 2006).
Employee
Equity Incentive Plans
We have employee equity incentive
plans, which are described more fully in Note 19: Employee
Equity Incentive Plans. Effective January 1, 2006, we
adopted the provisions of SFAS No. 123 (revised 2004),
Share-Based Payment (SFAS No. 123(R)). SFAS No.
123(R) requires employee equity awards to be accounted for under
the fair value method. Accordingly, we measure share-based
compensation at the grant date based on the fair value of the
award.
Under the modified prospective
method of adoption for SFAS No. 123(R), the compensation cost
that we recognized beginning in 2006 includes compensation cost
for all equity incentive awards granted prior to but not yet
vested as of January 1, 2006, based on the grant-date fair value
estimated in accordance with the original provisions of SFAS No.
123, and compensation cost for all equity incentive awards
granted subsequent to January 1, 2006, based on the grant-date
fair value estimated in accordance with the provisions of SFAS
No. 123(R). We use the straight-line attribution method to
recognize share-based compensation over the service period of
the award. Upon exercise, cancellation, forfeiture, or
expiration of stock options, or upon vesting or forfeiture of
restricted stock units, we eliminate deferred tax assets for
options and restricted stock units with multiple vesting dates
for each vesting period on a
first-in,
first-out basis as if each vesting period were a separate award.
Accounting
Changes
Fiscal
Year 2006
Effective at the end of fiscal
year 2006, we adopted the provisions of SFAS No. 158,
Employers Accounting for Defined Benefit Pension and
Other Postretirement Plansan amendment of FASB Statements
No. 87, 88, 106, and 132(R) (SFAS No. 158). SFAS No. 158
requires that the funded status of defined-benefit
postretirement plans be recognized on our consolidated balance
sheets and that changes in the funded status be reflected in
other comprehensive income. SFAS No. 158 also requires that the
measurement date of the plans funded status be the same as
our fiscal year-end. Prior to adopting the provisions of SFAS
No. 158, the measurement date for all
non-U.S.
plans was our fiscal year-end, and the measurement date for the
U.S. plan was November. Therefore, the change in measurement
date had an insignificant impact on the projected benefit
obligation and accumulated other comprehensive income (loss).
Upon adoption of SFAS No. 158 in 2006, we recorded an
adjustment, net of tax, of $210 million to accumulated other
comprehensive income (loss).
Fiscal
Year 2007
In fiscal year 2007, we adopted
EITF Issue No.
06-2,
Accounting for Sabbatical Leave and Other Similar Benefits
Pursuant to FASB Statement No. 43 (EITF
06-2). EITF
06-2
requires companies to accrue the cost of these compensated
absences over the service period. We adopted EITF
06-2 through
a cumulative-effect adjustment, resulting in an additional
liability of $280 million, additional deferred tax assets of $99
million, and a reduction in retained earnings of $181 million at
the beginning of 2007.
We also adopted Financial
Accounting Standards Board (FASB) Interpretation No. 48,
Accounting for Uncertainty in Income Taxesan
interpretation of FASB Statement No. 109 (FIN 48), and
related guidance in fiscal year 2007. For further discussion,
see Note 23: Taxes.
66
INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Fiscal
Year 2008
In the first quarter of 2008, we
adopted SFAS No. 157, Fair Value Measurements (SFAS
No. 157), for all financial assets and financial liabilities,
and for all non-financial assets and non-financial liabilities
recognized or disclosed at fair value in the financial
statements on a recurring basis (at least annually). SFAS No.
157 defines fair value, establishes a framework for measuring
fair value, and enhances fair value measurement disclosure. The
adoption of SFAS No. 157 did not have a significant impact on
our consolidated financial statements, and the resulting fair
values calculated under SFAS No. 157 after adoption were not
significantly different from the fair values that would have
been calculated under previous guidance. For further details on
our fair value measurements, see Note 3: Fair Value.
In February 2008, the FASB issued
FASB Staff Position (FSP)
157-1,
Application of FASB Statement No. 157 to FASB Statement
No. 13 and Other Accounting Pronouncements That Address Fair
Value Measurements for Purposes of Lease Classification or
Measurement under Statement 13 (FSP
157-1), and
FSP 157-2,
Effective Date of FASB Statement No. 157 (FSP
157-2). FSP
157-1 amends
SFAS No. 157 to remove certain leasing transactions from its
scope and was effective upon initial adoption of SFAS No. 157.
FSP 157-2
delays the effective date of SFAS No. 157 for all non-financial
assets and non-financial liabilities (for further details, see
Recent Accounting Pronouncements below).
In October 2008, the FASB issued
FSP 157-3,
Determining the Fair Value of a Financial Asset When the
Market for That Asset Is Not Active (FSP
157-3). FSP
157-3
clarifies the application of SFAS No. 157 in a market that is
not active, and addresses application issues such as the use of
internal assumptions when relevant observable data does not
exist, the use of observable market information when the market
is not active, and the use of market quotes when assessing the
relevance of observable and unobservable data. FSP
157-3 is
effective for all periods presented in accordance with SFAS No.
157. The adoption of FSP
157-3 did
not have a significant impact on our consolidated financial
statements or the fair values of our financial assets and
liabilities.
In the first quarter of 2008, we
adopted SFAS No. 159. SFAS No. 159 permits companies to choose
to measure certain financial instruments and other items at fair
value using an
instrument-by-instrument
election. The standard requires unrealized gains and losses to
be reported in earnings for items measured using the fair value
option. For further discussion, see Note 3: Fair
Value.
SFAS No. 159 also requires cash
flows from purchases, sales, and maturities of trading
securities to be classified based on the nature and purpose for
which the securities were acquired. We assessed the nature and
purpose of our trading assets and determined that our marketable
debt instruments will be classified on the statement of cash
flows as investing activities, as they are held with the purpose
of generating returns. Our equity securities offsetting deferred
compensation will continue to be classified as operating
activities, as they are maintained to offset changes in
liabilities related to the equity market risk of certain
deferred compensation arrangements. SFAS No. 159 does not allow
for retrospective application to periods prior to fiscal year
2008; therefore, all trading asset activity for prior periods
will continue to be presented as operating activities on the
statement of cash flows.
Staff Accounting Bulletin No. 110
(SAB 110) issued by the U.S. Securities and Exchange Commission
(SEC) was effective for us beginning in the first quarter of
2008. SAB 110 amends the SECs views discussed in Staff
Accounting Bulletin No. 107 (SAB 107) regarding the use of the
simplified method in developing estimates of the expected lives
of share options in accordance with SFAS No. 123(R). The
amendment, in part, allowed the continued use, subject to
specific criteria, of the simplified method in estimating the
expected lives of share options granted after December 31, 2007.
We will continue to use the simplified method until we have the
historical data necessary to provide reasonable estimates of
expected lives in accordance with SAB 107, as amended by SAB 110.
Recent
Accounting Pronouncements
In December 2007, the FASB issued
SFAS No. 141 (revised 2007), Business Combinations
(SFAS No. 141(R)). Under SFAS No. 141(R), an entity is required
to recognize the assets acquired, liabilities assumed,
contractual contingencies, and contingent consideration at their
fair value on the acquisition date. It further requires that
acquisition-related costs be recognized separately from the
acquisition and expensed as incurred, restructuring costs
generally be expensed in periods subsequent to the acquisition
date, and changes in accounting for deferred tax asset valuation
allowances and acquired income tax uncertainties after the
measurement period impact income tax expense. In addition,
acquired in-process research and development is capitalized as
an intangible asset and amortized over its estimated useful
life. The adoption of SFAS No. 141(R) will change our accounting
treatment for business combinations on a prospective basis
beginning in the first quarter of fiscal year 2009.
67
INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
In February 2008, the FASB issued
FSP 157-2,
which delayed the effective date of SFAS No. 157 for all
non-financial assets and non-financial liabilities, except for
items that are recognized or disclosed at fair value in the
financial statements on a recurring basis (at least annually),
until the beginning of the first quarter of fiscal year 2009.
The adoption of SFAS No. 157 for non-financial assets and
non-financial liabilities that are not measured at fair value on
a recurring basis is not expected to have a significant impact
on our consolidated financial statements.
In March 2008, the FASB issued
SFAS No. 161, Disclosures about Derivative Instruments and
Hedging Activitiesan amendment of FASB Statement No.
133 (SFAS No. 161). The standard requires additional
quantitative disclosures (provided in tabular form) and
qualitative disclosures for derivative instruments. The required
disclosures include how derivative instruments and related
hedged items affect an entitys financial position,
financial performance, and cash flows; the relative volume of
derivative activity; the objectives and strategies for using
derivative instruments; the accounting treatment for those
derivative instruments formally designated as the hedging
instrument in a hedge relationship; and the existence and nature
of credit-risk-related contingent features for derivatives. SFAS
No. 161 does not change the accounting treatment for derivative
instruments. SFAS No. 161 is effective for us beginning in the
first quarter of fiscal year 2009.
In May 2008, the FASB issued FSP
Accounting Principles Board (APB) Opinion
14-1,
Accounting for Convertible Debt Instruments That May Be
Settled in Cash upon Conversion (Including Partial Cash
Settlement) (FSP APB
14-1). FSP
APB 14-1
requires recognition of both the liability and equity components
of convertible debt instruments with cash settlement features.
The debt component is required to be recognized at the fair
value of a similar instrument that does not have an associated
equity component. The equity component is recognized as the
difference between the proceeds from the issuance of the note
and the fair value of the liability. FSP APB
14-1 also
requires an accretion of the resulting debt discount over the
expected life of the debt. Retrospective application to all
periods presented is required. This standard is effective for us
beginning in the first quarter of fiscal year 2009 and will
change the accounting for our junior subordinated convertible
debentures issued in 2005. The adoption of FSP APB
14-1 is
expected to result in a decrease in our long-term debt of
approximately $700 million; an increase in our deferred tax
liability of approximately $275 million; an increase in our
stockholders equity of approximately $450 million; and an
increase in our net property, plant and equipment of
approximately $25 million as of the beginning of the first
quarter of fiscal year 2009. The adoption of FSP APB
14-1 will
not result in a change to our prior-period consolidated
statements of income, as the interest associated with our debt
issuances is capitalized and added to the cost of qualified
assets.
In December 2008, the FASB issued
FSP 132(R)-1, Employers Disclosures about
Postretirement Benefit Plan Assets (FSP 132(R)-1). FSP
132(R)-1 requires additional disclosures for plan assets of
defined benefit pension or other postretirement plans. The
required disclosures include a description of our investment
policies and strategies, the fair value of each major category
of plan assets, the inputs and valuation techniques used to
measure the fair value of plan assets, the effect of fair value
measurements using significant unobservable inputs on changes in
plan assets, and the significant concentrations of risk within
plan assets. FSP 132(R)-1 does not change the accounting
treatment for postretirement benefits plans. FSP 132(R)-1 is
effective for us for fiscal year 2009.
Note 3:
Fair Value
Our financial instruments are
carried at fair value, except for cost basis loan participation
notes, equity method and cost method investments, and most of
our long-term debt. SFAS No. 157 defines fair value as 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, such
as inherent risk, transfer restrictions, and risk of
non-performance.
68
INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Our financial instruments carried
at fair value are detailed in the tables below, and the carrying
values of our trading assets and available-for-sale investments
for 2008 and 2007 are detailed in Note 4: Trading
Assets and Note 5: Available-for-Sale
Investments. The fair value of our cost basis loan
participation notes approximated the carrying value as of
December 27, 2008 (the fair value exceeded the carrying
value by approximately $50 million as of December 29,
2007). We did not hold any marketable equity method investments
as of December 27, 2008; however, as of December 29,
2007, the fair value of our marketable equity method investment
exceeded the carrying value by $14 million. The fair value
of our non-marketable equity investments exceeded the carrying
value by approximately $300 million as of December 27,
2008 and included gross unrealized losses of approximately
$100 million, a majority of which were in a continuous
unrealized loss position for less than 12 months. The fair
value of our non-marketable equity investments exceeded the
carrying value by approximately $600 million as of
December 29, 2007. The fair value of these investments
takes into account the movements of the equity and venture
capital markets as well as changes in the interest rate
environment, and other economic variables.
The fair value of our long-term
debt was approximately $280 million lower than the carrying
value as of December 27, 2008 (the fair value exceeded the
carrying value by approximately $65 million as of
December 29, 2007). The fair value of our long-term debt
takes into consideration credit rating changes, equity price
movements, interest rate changes, and other economic variables.
Fair
Value Hierarchy
SFAS No. 157 establishes
three levels of inputs that may be used to measure fair value:
Level 1. Quoted
prices in active markets for identical assets or liabilities.
Level 1 assets and
liabilities consist of certain of our money market fund deposits
and marketable debt and equity instruments, including equity
securities offsetting deferred compensation, that are traded in
an active market with sufficient volume and frequency of
transactions.
Level 2. Observable
inputs other than Level 1 prices, such as quoted prices for
similar assets or liabilities, quoted prices in markets with
insufficient volume or infrequent transactions (less active
markets), or model-derived valuations in which all significant
inputs are observable or can be derived principally from or
corroborated with observable market data for substantially the
full term of the assets or liabilities.
Level 2 assets consist of
certain of our marketable debt and equity instruments with
quoted market prices that are traded in less active markets or
priced using a quoted market price for similar instruments.
Level 2 assets also include marketable debt instruments
priced using non-binding market consensus prices that can be
corroborated with observable market data, marketable equity
securities with security-specific restrictions that would
transfer to the buyer, as well as debt instruments and
derivative contracts priced using inputs that are observable in
the market or can be derived principally from or corroborated
with observable market data. Marketable debt instruments in this
category generally include commercial paper, bank time deposits,
municipal bonds, certain of our money market fund deposits, and
a majority of floating-rate notes and corporate bonds.
Level 3. Unobservable
inputs to the valuation methodology that are significant to the
measurement of the fair value of assets or liabilities.
Level 3 assets and
liabilities include marketable debt instruments, non-marketable
equity investments, derivative contracts, and company-issued
debt whose values are determined using inputs that are both
unobservable and significant to the values of the instruments
being measured. Level 3 assets also include marketable debt
instruments that are priced using non-binding market consensus
prices or non-binding broker quotes that we were unable to
corroborate with observable market data. Marketable debt
instruments in this category generally include asset-backed
securities and certain of our floating-rate notes and corporate
bonds.
69
INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Assets/Liabilities
Measured at Fair Value on a Recurring Basis
Assets and liabilities measured at
fair value on a recurring basis, excluding accrued interest
components, consisted of the following types of instruments as
of December 27, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
|
|
|
|
|
|
|
|
|
|
Active Markets
|
|
|
Significant Other
|
|
|
Significant
|
|
|
|
|
|
|
for Identical
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
|
|
|
Instruments
|
|
|
Inputs
|
|
|
Inputs
|
|
|
|
|
(In Millions)
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Total
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial paper
|
|
$
|
|
|
|
$
|
4,387
|
|
|
$
|
|
|
|
$
|
4,387
|
|
Bank time deposits
|
|
|
|
|
|
|
633
|
|
|
|
|
|
|
|
633
|
|
Money market fund deposits
|
|
|
373
|
|
|
|
49
|
|
|
|
|
|
|
|
422
|
|
Floating-rate notes
|
|
|
126
|
|
|
|
5,997
|
|
|
|
392
|
|
|
|
6,515
|
|
Corporate bonds
|
|
|
26
|
|
|
|
594
|
|
|
|
163
|
|
|
|
783
|
|
Asset-backed securities
|
|
|
|
|
|
|
|
|
|
|
1,083
|
|
|
|
1,083
|
|
Municipal bonds
|
|
|
|
|
|
|
383
|
|
|
|
|
|
|
|
383
|
|
Marketable equity securities
|
|
|
308
|
|
|
|
44
|
|
|
|
|
|
|
|
352
|
|
Equity securities offsetting deferred compensation
|
|
|
299
|
|
|
|
|
|
|
|
|
|
|
|
299
|
|
Derivative assets
|
|
|
|
|
|
|
158
|
|
|
|
15
|
|
|
|
173
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets measured at fair value
|
|
$
|
1,132
|
|
|
$
|
12,245
|
|
|
$
|
1,653
|
|
|
$
|
15,030
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
$
|
|
|
|
$
|
|
|
|
$
|
122
|
|
|
$
|
122
|
|
Derivative liabilities
|
|
|
|
|
|
|
274
|
|
|
|
25
|
|
|
|
299
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities measured at fair value
|
|
$
|
|
|
|
$
|
274
|
|
|
$
|
147
|
|
|
$
|
421
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets and liabilities measured
and recorded at fair value on a recurring basis, excluding
accrued interest components, were presented on our consolidated
balance sheets as of December 27, 2008 as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
|
|
|
|
|
|
|
|
|
|
Active Markets
|
|
|
Significant Other
|
|
|
Significant
|
|
|
|
|
|
|
for Identical
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
|
|
|
Instruments
|
|
|
Inputs
|
|
|
Inputs
|
|
|
|
|
(In Millions)
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Total
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
336
|
|
|
$
|
2,772
|
|
|
$
|
|
|
|
$
|
3,108
|
|
Short-term investments
|
|
|
149
|
|
|
|
4,953
|
|
|
|
227
|
|
|
|
5,329
|
|
Trading assets
|
|
|
328
|
|
|
|
2,020
|
|
|
|
814
|
|
|
|
3,162
|
|
Other current assets
|
|
|
|
|
|
|
158
|
|
|
|
3
|
|
|
|
161
|
|
Marketable equity securities
|
|
|
308
|
|
|
|
44
|
|
|
|
|
|
|
|
352
|
|
Other long-term investments
|
|
|
11
|
|
|
|
2,298
|
|
|
|
597
|
|
|
|
2,906
|
|
Other long-term assets
|
|
|
|
|
|
|
|
|
|
|
12
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets measured at fair value
|
|
$
|
1,132
|
|
|
$
|
12,245
|
|
|
$
|
1,653
|
|
|
$
|
15,030
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other accrued liabilities
|
|
$
|
|
|
|
$
|
236
|
|
|
$
|
25
|
|
|
$
|
261
|
|
Long-term debt
|
|
|
|
|
|
|
|
|
|
|
122
|
|
|
|
122
|
|
Other long-term liabilities
|
|
|
|
|
|
|
38
|
|
|
|
|
|
|
|
38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities measured at fair value
|
|
$
|
|
|
|
$
|
274
|
|
|
$
|
147
|
|
|
$
|
421
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
70
INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
All of our long-term debt was
eligible for the fair value option allowed by
SFAS No. 159 as of the effective date of the standard;
however, we elected the fair value option only for the bonds
issued in 2007 by the Industrial Development Authority of the
City of Chandler, Arizona (2007 Arizona bonds). In connection
with the 2007 Arizona bonds, we entered into an interest rate
swap agreement that effectively converts the fixed rate
obligation on the bonds to a floating LIBOR-based rate. As a
result, changes in the fair value of this debt are primarily
offset by changes in the fair value of the interest rate swap
agreement, without the need to apply the hedge accounting
provisions of SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities
(SFAS No. 133). We elected not to adopt
SFAS No. 159 for our Arizona bonds issued in 2005,
since the bonds were carried at amortized cost and were not
eligible to apply the hedge accounting provisions of
SFAS No. 133 due to the use of non-derivative hedging
instruments. The 2007 Arizona bonds are included within the
long-term debt balance on our consolidated balance sheets. As of
December 27, 2008 and December 29, 2007, no other
long-term debt instruments were similar to the instrument for
which we have elected the SFAS No. 159 fair value
treatment.
The fair value of the 2007 Arizona
bonds approximated its carrying value at the time we elected the
fair value option under SFAS No. 159. As such, we did
not record a cumulative-effect adjustment to the beginning
balance of retained earnings or to the deferred tax liability.
As of December 27, 2008, the fair value of the 2007 Arizona
bonds did not significantly differ from the contractual
principal balance. The fair value of the 2007 Arizona bonds was
determined using inputs that are observable in the market or
that can be derived from or corroborated with observable market
data as well as significant unobservable inputs. Gains and
losses on the 2007 Arizona bonds are recorded in interest and
other, net on the consolidated statements of income. We
capitalize interest associated with the 2007 Arizona bonds. We
add capitalized interest to the cost of qualified assets and
amortize it over the estimated useful lives of the assets.
The table below presents a
reconciliation for all assets and liabilities measured at fair
value on a recurring basis, excluding accrued interest
components, using significant unobservable inputs
(Level 3) for 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using Significant Unobservable Inputs
(Level 3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
Current and
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
Short-Term
|
|
|
Trading
|
|
|
Long-Term
|
|
|
Long-Term
|
|
|
Accrued
|
|
|
Long-Term
|
|
|
Total Gains
|
|
(In Millions)
|
|
Investments
|
|
|
Assets
|
|
|
Investments
|
|
|
Assets
|
|
|
Liabilities
|
|
|
Debt
|
|
|
(Losses)
|
|
Balance as of December 29, 2007
|
|
$
|
798
|
|
|
$
|
1,004
|
|
|
$
|
771
|
|
|
$
|
18
|
|
|
$
|
(15
|
)
|
|
$
|
(125
|
)
|
|
|
|
|
Transfers from long-term to
short-term investments
|
|
|
229
|
|
|
|
|
|
|
|
(229
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gains or losses (realized and unrealized):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in earnings
|
|
|
|
|
|
|
(83
|
)
|
|
|
(22
|
)
|
|
|
4
|
|
|
|
(13
|
)
|
|
|
3
|
|
|
|
(111
|
)
|
Included in other comprehensive income
|
|
|
1
|
|
|
|
|
|
|
|
(50
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(49
|
)
|
Purchases, sales, issuances, and settlements, net
|
|
|
(631
|
)
|
|
|
(12
|
)
|
|
|
543
|
|
|
|
(10
|
)
|
|
|
3
|
|
|
|
|
|
|
|
|
|
Transfers in (out) of Level 3
|
|
|
(170
|
)
|
|
|
(95
|
)
|
|
|
(416
|
)
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 27, 2008
|
|
$
|
227
|
|
|
$
|
814
|
|
|
$
|
597
|
|
|
$
|
15
|
|
|
$
|
(25
|
)
|
|
$
|
(122
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amount of total gains or losses for the period included in
earnings attributable to the changes in unrealized gains or
losses related to assets and liabilities still held as of
December 27, 2008
|
|
$
|
|
|
|
$
|
(83
|
)
|
|
$
|
(22
|
)
|
|
$
|
4
|
|
|
$
|
(13
|
)
|
|
$
|
3
|
|
|
$
|
(111
|
)
|
71
INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Gains and losses (realized and
unrealized) included in earnings for the year ended
December 27, 2008 are reported in interest and other, net
and gains (losses) on other equity investments, net on the
consolidated statements of income, as follows:
|
|
|
|
|
|
|
|
|
|
|
Level 3
|
|
|
|
2008
|
|
|
|
|
|
|
Gains (Losses)
|
|
|
|
Interest and
|
|
|
on Other Equity
|
|
(In Millions)
|
|
Other, Net
|
|
|
Investments, Net
|
|
Total gains (losses) included in earnings
|
|
$
|
(115
|
)
|
|
$
|
4
|
|
Change in unrealized gains (losses) related to assets and
liabilities still held as of December 27, 2008
|
|
$
|
(115
|
)
|
|
$
|
4
|
|
Assets/Liabilities
Measured at Fair Value on a Non-recurring Basis
The following table presents the
financial instruments that were measured at fair value on a
non-recurring basis as of December 27, 2008, and the gains
(losses) recorded during 2008 on those assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measured Using
|
|
|
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
Significant
|
|
|
|
|
|
Total Gains
|
|
|
|
Carrying
|
|
|
Active Markets
|
|
|
Other
|
|
|
Significant
|
|
|
(Losses) for 12
|
|
|
|
Value as of
|
|
|
for Identical
|
|
|
Observable
|
|
|
Unobservable
|
|
|
Months Ended
|
|
|
|
December 27,
|
|
|
Instruments
|
|
|
Inputs
|
|
|
Inputs
|
|
|
December 27,
|
|
(In Millions)
|
|
2008
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
2008
|
|
Clearwire Communications, LLC
|
|
$
|
238
|
|
|
$
|
|
|
|
$
|
238
|
|
|
$
|
|
|
|
$
|
(762
|
)
|
Numonyx
B.V.1
|
|
$
|
484
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
503
|
|
|
$
|
(250
|
)
|
Other non-marketable equity investments
|
|
$
|
84
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
84
|
|
|
$
|
(200
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gains (losses) for assets held as of December 27,
2008
|
|
|
|
$
|
(1,212
|
)
|
|
|
|
|
|
|
|
Gains (losses) for assets no longer held
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
Total gains (losses) for
non-recurring measurement
|
|
|
|
$
|
(1,212
|
)
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Our carrying value as of December 27, 2008 did not equal
our fair value measurement at the time of impairment due to the
subsequent recognition of equity method adjustments. |
A portion of our non-marketable
equity investments were measured at fair value during 2008 due
to events or circumstances we identified that significantly
impacted the fair value of these investments, resulting in
other-than-temporary impairment charges.
During the fourth quarter of 2008,
we recorded a $762 million impairment charge on our
investment in Clearwire Communications, LLC (Clearwire
LLC) to write down our investment to its fair value,
primarily due to the fair value being significantly lower than
the cost basis of our investment. The impairment charge was
included in gains (losses) on equity method investments, net on
the consolidated statements of income. We determine the fair
value of our investment in Clearwire LLC primarily using the
quoted prices for its parent company, the new Clearwire
Corporation. The effects of adjusting the quoted price for
premiums that we believe market participants would consider for
Clearwire LLC, such as tax benefits and voting rights associated
with our investment, were mostly offset by the effects of
discounts to the fair value, such as those due to transfer
restrictions, lack of liquidity, and differences in dividend
rights that are included in the value of the new Clearwire
Corporation stock. We classified our investment in Clearwire LLC
as Level 2, as the unobservable inputs to the valuation
methodology were not significant to the measurement of fair
value. For additional information about Clearwire, see
Note 6: Equity Method and Cost Method
Investments.
72
INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
We recorded a $250 million
impairment charge on our investment in Numonyx B.V. during the
third quarter of 2008 to write down our investment to its fair
value. Estimates for revenue, earnings, and future cash flows
were revised lower due to a general decline in the NOR flash
memory market segment. We measure the fair value of our
investment in Numonyx using a combination of the income approach
and the market approach. The income approach included the use of
a weighted average of multiple discounted cash flow scenarios of
Numonyx, which required the use of unobservable inputs,
including assumptions of projected revenue, expenses, capital
spending, and other costs, as well as a discount rate calculated
based on the risk profile of the flash memory market segment.
The market approach included using financial metrics and ratios
of comparable public companies. The impairment charge was
included in gains (losses) on equity method investments, net on
the consolidated statements of income.
We also measured other
non-marketable equity investments at fair value during 2008 when
we recognized other-than-temporary impairment charges. We
classified these impaired non-marketable equity investments as
Level 3, as we use unobservable inputs to the valuation
methodology that are significant to the fair value measurement,
and the valuation requires management judgment due to the
absence of quoted market prices and inherent lack of liquidity.
We calculated these fair value measurements using the market
approach
and/or the
income approach. 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, products and services
lines, development stage, and other relevant factors. The income
approach includes the use of a discounted cash flow model, which
requires the following significant estimates for the investee:
revenue, based on assumed market segment size and assumed market
segment share; estimated costs; and appropriate discount rates
based on the risk profile of comparable companies. Estimates of
market segment size, market segment share, and costs are
developed by the investee
and/or Intel
using historical data and available market data. The valuation
of our other non-marketable equity investments also takes into
account movements of the equity and venture capital markets,
recent financing activities by the investees, changes in the
interest rate environment, the investees capital
structure, liquidation preferences for the investees
capital, and other economic variables. The valuation of some of
our investments in the wireless connectivity market segment was
based on the income approach to determine the value of the
investees spectrum licenses, transmission towers, and
customer lists.
Note 4:
Trading Assets
Trading assets outstanding at
fiscal year-ends were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
Net
|
|
|
|
|
|
Net
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
Unrealized
|
|
|
|
|
(In Millions)
|
|
Gains (Losses)
|
|
|
Fair Value
|
|
|
Gains (Losses)
|
|
|
Fair Value
|
|
Marketable debt instruments
|
|
$
|
(96
|
)
|
|
$
|
2,863
|
|
|
$
|
51
|
|
|
$
|
2,074
|
|
Equity securities offsetting deferred compensation
|
|
|
(41
|
)
|
|
|
299
|
|
|
|
163
|
|
|
|
492
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total trading assets
|
|
$
|
(137
|
)
|
|
$
|
3,162
|
|
|
$
|
214
|
|
|
$
|
2,566
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net losses on marketable debt
instruments that we classified as trading assets held at the
reporting date were $132 million in 2008 (gains of
$19 million in 2007 and $31 million in 2006). Our net
losses in 2008 on marketable debt instruments that we classified
as trading assets held at the reporting date included
$87 million of losses related to asset-backed securities.
Net losses on the related derivatives were $5 million in
2008 (losses of $37 million in 2007 and $22 million in
2006). We maintain certain equity securities within our trading
assets portfolio 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 $332 million in 2008 ($483 million in
2007) and are included in other accrued liabilities. Net
losses on equity securities offsetting deferred compensation
arrangements still held at the reporting date were
$209 million in 2008 (gains of $28 million in 2007 and
$45 million in 2006).
73
INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Note 5:
Available-for-Sale Investments
Available-for-sale investments as
of December 27, 2008 and December 29, 2007 were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Adjusted
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
|
|
|
Adjusted
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
|
|
(In Millions)
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Fair Value
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Fair Value
|
|
Floating-rate notes
|
|
$
|
6,321
|
|
|
$
|
3
|
|
|
$
|
(127
|
)
|
|
$
|
6,197
|
|
|
$
|
6,254
|
|
|
$
|
3
|
|
|
$
|
(31
|
)
|
|
$
|
6,226
|
|
Commercial paper
|
|
|
2,329
|
|
|
|
3
|
|
|
|
|
|
|
|
2,332
|
|
|
|
4,981
|
|
|
|
|
|
|
|
|
|
|
|
4,981
|
|
Non-U.S.
government securities
|
|
|
816
|
|
|
|
1
|
|
|
|
|
|
|
|
817
|
|
|
|
118
|
|
|
|
|
|
|
|
|
|
|
|
118
|
|
Bank time
deposits1
|
|
|
606
|
|
|
|
2
|
|
|
|
|
|
|
|
608
|
|
|
|
1,891
|
|
|
|
1
|
|
|
|
|
|
|
|
1,892
|
|
Corporate bonds
|
|
|
488
|
|
|
|
4
|
|
|
|
(12
|
)
|
|
|
480
|
|
|
|
610
|
|
|
|
2
|
|
|
|
(8
|
)
|
|
|
604
|
|
Money market fund deposits
|
|
|
419
|
|
|
|
|
|
|
|
|
|
|
|
419
|
|
|
|
1,824
|
|
|
|
1
|
|
|
|
|
|
|
|
1,825
|
|
Marketable equity securities
|
|
|
393
|
|
|
|
2
|
|
|
|
(43
|
)
|
|
|
352
|
|
|
|
421
|
|
|
|
616
|
|
|
|
(50
|
)
|
|
|
987
|
|
Asset-backed securities
|
|
|
374
|
|
|
|
|
|
|
|
(43
|
)
|
|
|
331
|
|
|
|
937
|
|
|
|
|
|
|
|
(23
|
)
|
|
|
914
|
|
Domestic government securities
|
|
|
159
|
|
|
|
|
|
|
|
|
|
|
|
159
|
|
|
|
121
|
|
|
|
|
|
|
|
|
|
|
|
121
|
|
Repurchase agreements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
150
|
|
|
|
|
|
|
|
|
|
|
|
150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available-for-sale investments
|
|
$
|
11,905
|
|
|
$
|
15
|
|
|
$
|
(225
|
)
|
|
$
|
11,695
|
|
|
$
|
17,307
|
|
|
$
|
623
|
|
|
$
|
(112
|
)
|
|
$
|
17,818
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying
|
|
|
|
|
|
|
|
|
|
|
|
Carrying
|
|
(In Millions)
|
|
|
|
|
|
|
|
|
|
|
Amount
|
|
|
|
|
|
|
|
|
|
|
|
Amount
|
|
Available-for-sale investments
|
|
$
|
11,695
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
17,818
|
|
Investments in loan participation notes (cost basis)
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
111
|
|
Cash on hand
|
|
|
242
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
253
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
11,957
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
18,182
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported as (In Millions)
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
Cash and cash equivalents
|
|
$
|
3,350
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,307
|
|
Short-term investments
|
|
|
5,331
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,490
|
|
Marketable equity securities
|
|
|
352
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
987
|
|
Other long-term investments
|
|
|
2,924
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,398
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
11,957
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
18,182
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Bank time deposits were primarily issued by institutions
outside the U.S. in 2008 and 2007. |
During the fourth quarter of 2008,
Clearwire Corporation and Sprint Nextel Corporation combined
their respective WiMAX businesses in conjunction with additional
capital contributions from Intel and other investors to form a
new company that retained the name Clearwire Corporation. The
additional capital contributions included our cash investment of
$1.0 billion. Our pre-existing investment in Clearwire
Corporation (old Clearwire Corporation) was converted into
shares of the new company (new Clearwire Corporation) and the
additional capital contribution of $1.0 billion was
invested in Clearwire Communications, LLC (Clearwire LLC), a
wholly owned subsidiary of the new Clearwire Corporation. Our
investment in the new Clearwire Corporation is accounted for as
an available-for-sale investment and
74
INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
included in marketable equity
securities. Our investment in Clearwire LLC is accounted for
under the equity method and included within other long-term
assets. As a result of the formation of the new Clearwire
Corporation, our total ownership percentage decreased from 22%
to 13%, resulting in a loss upon dilution of $34 million,
which we recorded to gains (losses) on equity method
investments, net. For further discussion of our equity method
investment in Clearwire LLC, see Note 6: Equity
Method and Cost Method Investments.
We sold available-for-sale
investments, primarily marketable debt instruments, for proceeds
of approximately $1.2 billion in 2008. The gross realized
gains on sales of available-for-sale investments totaled
$38 million and were primarily related to our sales of
marketable equity securities. Impairment charges recognized on
available-for-sale investments were $354 million in 2008.
The impairment charges in 2008 were primarily related to a
$176 million impairment charge on our investment in the new
Clearwire Corporation and $97 million of impairment charges
on our investment in Micron Technology, Inc. Gross realized
losses on sales were insignificant during 2008.
We sold available-for-sale
investments for proceeds of approximately $1.7 billion in
2007 and $2.0 billion in 2006. The gross realized gains on
our sales totaled $138 million in 2007 and
$135 million in 2006. The gain in 2006 included a gain of
$103 million from the sale of a portion of our investment
in Micron. We realized gains on third-party merger transactions
that were insignificant during 2007 and $79 million during
2006. Our recognized impairment charges on available-for-sale
investments as well as gross realized losses on sales were
insignificant during 2007 and 2006.
The available-for-sale investments
that were in a continuous unrealized loss position as of
December 27, 2008, aggregated by length of time that
individual securities have been in a continuous loss position,
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 Months
|
|
|
12 Months or Greater
|
|
|
Total
|
|
|
|
Gross
|
|
|
|
|
|
Gross
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
Unrealized
|
|
|
|
|
(In Millions)
|
|
Losses
|
|
|
Fair Value
|
|
|
Losses
|
|
|
Fair Value
|
|
|
Losses
|
|
|
Fair Value
|
|
Floating-rate notes
|
|
$
|
(67
|
)
|
|
$
|
2,771
|
|
|
$
|
(60
|
)
|
|
$
|
1,651
|
|
|
$
|
(127
|
)
|
|
$
|
4,422
|
|
Marketable equity securities
|
|
|
(43
|
)
|
|
|
322
|
|
|
|
|
|
|
|
|
|
|
|
(43
|
)
|
|
|
322
|
|
Asset-backed securities
|
|
|
|
|
|
|
|
|
|
|
(43
|
)
|
|
|
312
|
|
|
|
(43
|
)
|
|
|
312
|
|
Corporate bonds
|
|
|
(4
|
)
|
|
|
168
|
|
|
|
(8
|
)
|
|
|
127
|
|
|
|
(12
|
)
|
|
|
295
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(114
|
)
|
|
$
|
3,261
|
|
|
$
|
(111
|
)
|
|
$
|
2,090
|
|
|
$
|
(225
|
)
|
|
$
|
5,351
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The available-for-sale investments
in a continuous unrealized loss position as of December 29,
2007 were as follows:
|
|
|
|
|
|
|
|
|
|
|
Less than
12 Months1
|
|
|
|
Gross
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
(In Millions)
|
|
Losses
|
|
|
Fair Value
|
|
Floating-rate notes
|
|
$
|
(31
|
)
|
|
$
|
4,626
|
|
Asset-backed securities
|
|
|
(23
|
)
|
|
|
914
|
|
Corporate bonds
|
|
|
(8
|
)
|
|
|
157
|
|
Marketable equity securities
|
|
|
(50
|
)
|
|
|
129
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(112
|
)
|
|
$
|
5,826
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Investments that were in a continuous unrealized loss
position for 12 months or greater were not significant as
of December 29, 2007. |
As of December 27, 2008, the
unrealized losses on our available-for-sale investments
represented an insignificant amount in relation to our total
available-for-sale portfolio. Substantially all of our
unrealized losses on our available-for-sale marketable debt
instruments can be attributed to fair value fluctuations in an
unstable credit environment that resulted in a decrease in the
market liquidity for debt instruments. As of December 27,
2008, a substantial majority of our available-for-sale
investments in asset-backed securities in an unrealized loss
position were rated AA-/Aa2 or better, and the majority of our
available-for-sale investments in floating-rate notes and
corporate bonds in an unrealized loss position were rated
AA-/Aa2 or better. With the exception of a limited amount of
investments for which we have recognized other-than-temporary
impairments, we have not seen significant liquidation delays,
and for those that have matured we have
75
INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
received the full par value of our original debt investments. We
have the intent and ability to hold our debt investments that
have unrealized losses in accumulated other comprehensive income
for a sufficient period of time to allow for recovery of the
principal amounts invested, which may occur at or near the
maturity of those investments. The substantial majority of the
$43 million of unrealized losses for marketable equity
securities was attributed to the fair value decline of our
investment in Micron. We believe that the unrealized losses in
all of the above investments are temporary and that these losses
do not represent a need for an other-than-temporary impairment,
based on our evaluation of available evidence as of
December 27, 2008.
The amortized cost and fair value
of available-for-sale investments as of December 27, 2008,
by contractual maturity, were as follows:
|
|
|
|
|
|
|
|
|
(In Millions)
|
|
Cost
|
|
|
Fair Value
|
|
Due in 1 year or less
|
|
$
|
8,024
|
|
|
$
|
7,999
|
|
Due in 12 years
|
|
|
1,542
|
|
|
|
1,513
|
|
Due in 25 years
|
|
|
1,162
|
|
|
|
1,094
|
|
Due after 5 years
|
|
|
11
|
|
|
|
10
|
|
Instruments not due at a single maturity date
|
|
|
793
|
|
|
|
750
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
11,532
|
|
|
$
|
11,366
|
|
|
|
|
|
|
|
|
|
|
Instruments not due at a single
maturity date include asset-backed securities and money market
fund deposits.
Note 6:
Equity Method and Cost Method Investments
Equity
Method Investments
Equity method investments as of
December 27, 2008 and December 29, 2007 were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
Carrying
|
|
|
Ownership
|
|
|
Carrying
|
|
|
Ownership
|
|
(In Millions, Except Percentages)
|
|
Value
|
|
|
Percentage
|
|
|
Value
|
|
|
Percentage
|
|
IM Flash Technologies, LLC
|
|
$
|
1,742
|
|
|
|
49
|
%
|
|
$
|
2,224
|
|
|
|
49
|
%
|
IM Flash Singapore, LLP
|
|
|
329
|
|
|
|
49
|
%
|
|
|
146
|
|
|
|
49
|
%
|
Numonyx B.V.
|
|
|
484
|
|
|
|
45
|
%
|
|
|
|
|
|
|
|
%
|
Clearwire Communications,
LLC1
|
|
|
238
|
|
|
|
8
|
%
|
|
|
|
|
|
|
|
%
|
Old Clearwire
Corporation2
|
|
|
|
|
|
|
|
%
|
|
|
508
|
|
|
|
22
|
%
|
Other equity method investments
|
|
|
239
|
|
|
|
|
|
|
|
227
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,032
|
|
|
|
|
|
|
$
|
3,105
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Represents our interest in the Clearwire LLC holding company,
as a percentage of the consolidated new Clearwire
Corporation. |
|
2 |
|
Our pre-existing investment in the old Clearwire Corporation
was converted into shares of the new Clearwire Corporation and
is recorded as a marketable equity security. For further
discussion, see Note 5: Available-for-Sale
Investments. |
Our equity method investments are
classified in other long-term assets on the consolidated balance
sheets. The carrying value of our equity method investments,
categorized as non-marketable and marketable equity method
investments, as of December 27, 2008 and December 29,
2007, were as follows:
|
|
|
|
|
|
|
|
|
(In Millions)
|
|
2008
|
|
|
2007
|
|
Non-marketable equity method investments
|
|
$
|
3,032
|
|
|
$
|
2,597
|
|
Marketable equity method investment
|
|
|
|
|
|
|
508
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,032
|
|
|
$
|
3,105
|
|
|
|
|
|
|
|
|
|
|
76
INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Net losses on equity method
investments were $1.4 billion in 2008 (net gains of
$3 million in 2007 and $2 million in 2006), including
equity method impairment charges of $1.1 billion in 2008
($28 million in 2007 and $7 million in 2006). During
2008, we recognized a $762 million impairment charge on our
investment in Clearwire LLC (for information on the impairment
of our available-for-sale investment in the new Clearwire
Corporation, see Note 7: Gains (Losses) on Other Equity
Investments, Net) and a $250 million impairment
charge on our investment in Numonyx. Equity method losses on our
investment in the old Clearwire Corporation were
$184 million in 2008 and $104 million in 2007, and
equity method losses on our investment in Numonyx were
$87 million in 2008. In addition, the net gain on equity
method investments in 2007 included approximately
$110 million of income due to the reorganization of one of
our investments. Equity method losses were not significant in
2006.
Summarized
Financial Information of Equity Method Investees
The following is the aggregated
summarized financial information of our equity method investees,
which includes summary results of operations information for
fiscal years 2008, 2007, and 2006 and summary balance sheet
information as of December 27, 2008 and December 29,
2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Millions)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Operating results:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue
|
|
$
|
3,456
|
|
|
$
|
1,484
|
|
|
$
|
403
|
|
Gross margin
|
|
$
|
444
|
|
|
$
|
67
|
|
|
$
|
(13
|
)
|
Operating income (loss)
|
|
$
|
(702
|
)
|
|
$
|
(490
|
)
|
|
$
|
(76
|
)
|
Net income (loss)
|
|
$
|
(932
|
)
|
|
$
|
(674
|
)
|
|
$
|
(63
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Dec. 27,
|
|
|
Dec. 29,
|
|
(In Millions)
|
|
2008
|
|
|
2007
|
|
Balance sheet:
|
|
|
|
|
|
|
|
|
Current assets
|
|
$
|
3,257
|
|
|
$
|
2,013
|
|
Non-current assets
|
|
$
|
7,322
|
|
|
$
|
5,703
|
|
Current liabilities
|
|
$
|
1,316
|
|
|
$
|
653
|
|
Non-current liabilities
|
|
$
|
2,469
|
|
|
$
|
1,150
|
|
Redeemable preferred stock
|
|
$
|
50
|
|
|
$
|
83
|
|
Minority interest
|
|
$
|
10
|
|
|
$
|
13
|
|
Summarized financial information
for our equity method investees is presented on the basis of up
to a one-quarter lag and is included for the periods in which we
held an equity method ownership interest. Summarized financial
information for Clearwire Corporation is presented as of
September 30, 2008, and does not reflect any changes that
have occurred as a result of Clearwire Corporation and Sprint
Nextel Corporation combining their respective WiMAX businesses
in the fourth quarter of 2008.
IMFT/IMFS
Micron and Intel formed IM Flash
Technologies, LLC (IMFT) in January 2006 and IM Flash Singapore,
LLP (IMFS) in February 2007. We established these joint ventures
to manufacture NAND flash memory products for Micron and Intel.
Intel owns a 49% interest in each of these ventures. Our
investments were $1.7 billion in IMFT and $329 million
in IMFS as of December 27, 2008 ($2.2 billion in IMFT
and $146 million in IMFS as of December 29, 2007). Our
investments in these ventures are classified within other
long-term assets. During 2008, IMFT returned $298 million
to Intel, and that amount is reflected as a return of equity
method investment within investing activities on the
consolidated statements of cash flows.
As part of the initial capital
contribution to IMFT, we paid $615 million in cash and
issued $581 million in non-interest-bearing notes. During
2006, we paid the entire balance of $581 million to settle
the non-interest-bearing notes, which has been reflected as a
financing activity on the consolidated statements of cash flows.
At inception, Micron contributed assets valued at
$995 million and $250 million in cash in exchange for
a 51% interest. In addition, we contributed approximately
$1.3 billion over the past three years pursuant to the
terms of the original agreement.
77
INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Initial production from IMFT began
in early 2006. Our portion of IMFT costs, primarily related to
product purchases and
start-up,
was approximately $1.1 billion during 2008 (approximately
$790 million during 2007 and $300 million during
2006). The amount due to IMFT for product purchases and services
provided was approximately $190 million as of
December 27, 2008 and approximately $130 million as of
December 29, 2007. Costs that Intel and Micron have
incurred for product and process development related to IMFT are
generally split evenly between Intel and Micron and are
generally classified in research and development.
In the fourth quarter of 2008,
management approved a plan with Micron to discontinue the supply
of NAND flash memory from the 200mm facility within the IMFT
manufacturing network. The agreement resulted in a
$215 million restructuring charge primarily related to the
IMFT 200mm supply agreement. The restructuring charge resulted
in a reduction of our investment in IMFT of $184 million, a
cash payment to Micron of $24 million, and other cash
payments of $7 million.
Subject to certain conditions, we
originally agreed to contribute up to approximately
$1.7 billion for IMFS in the three years following the
initial capital contributions, of which our maximum remaining
commitment was approximately $1.3 billion as of
December 27, 2008. However, the construction of the IMFS
fabrication facility has been placed on hold.
IMFT and IMFS are each governed by
a Board of Managers, with Micron and Intel initially appointing
an equal number of managers to each of the boards. The number of
managers appointed by each party adjusts depending on the
parties ownership interests. These ventures will operate
until 2016 but are subject to prior termination under certain
terms and conditions.
These joint ventures are variable
interest entities as defined by FASB Interpretation
No. 46(R), Consolidation of Variable Interest
Entities (FIN 46(R)), because all costs of the joint
ventures will be passed on to Micron and Intel through our
purchase agreements. IMFT and IMFS are dependent upon Micron and
Intel for any additional cash requirements. Our known maximum
exposure to loss approximated our investment balances as of
December 27, 2008, which were $1.7 billion in IMFT and
$329 million in IMFS ($2.2 billion in IMFT and
$146 million in IMFS as of December 29, 2007). As of
December 27, 2008, except for the amount due to IMFT and
IMFS for product purchases and services, we did not incur any
additional liabilities in connection with our interests in these
joint ventures. In addition to the potential loss of our
existing investments, our actual losses could be higher, as
Intel and Micron are liable for other future operating costs
and/or
obligations of IMFT and IMFS. In addition, future cash calls
could increase our investment balance and the related exposure
to loss. Finally, as we are currently committed to purchasing
49% of IMFTs production output and production-related
services, we may be required to purchase products at a cost in
excess of realizable value.
Micron and Intel are also
considered related parties under the provisions of
FIN 46(R). As a result, the primary beneficiary is the
entity that is most closely associated with the joint ventures.
To make that determination, we reviewed several factors. The
most important factors were consideration of the size and nature
of the joint ventures operations relative to Micron and
Intel, and which party had the majority of economic exposure
under the purchase agreements. Based on those factors, we have
determined that Micron is most closely associated with the joint
ventures; therefore, we account for our interests using the
equity method of accounting and do not consolidate these joint
ventures.
The fair value of our investment
in IMFT and IMFS approximated carrying value as of
December 27, 2008 and is included within other long-term
assets. We determine the fair value of our investments in IMFT
and IMFS and related intangible assets using the income
approach, based on a weighted average of multiple discounted
cash flow scenarios of our NAND Solutions Group business. The
assumptions that most significantly affect the fair value
determination are the estimates for the projected revenue and
discount rate. It is reasonably possible that the estimates used
in our valuation as of December 27, 2008 could change in
the near term and result in an impairment of our investments.
Based on our valuation as of December 27, 2008, a 5%
decline in projected revenue in each of our cash flow scenarios
would result in a decline in the fair value of our investment of
up to approximately $300 million, and a one percentage
point increase in the discount rate would result in a decline in
the fair value of our investment by approximately
$225 million.
In connection with an agreement
between Intel and Apple, Inc. to supply a portion of the NAND
flash memory output that we will purchase from IMFT, Apple
provided a refundable $250 million pre-payment to Intel. In
the fourth quarter of 2008, the NAND flash memory supply
agreement was terminated, and the remaining portion of the
pre-payment of $167 million was refunded to Apple.
78
INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Clearwire
LLC
In the fourth quarter of 2008, we
invested $1.0 billion in Clearwire LLC, a wholly owned
subsidiary of the new Clearwire Corporation. For further
discussion, see Note 5: Available-for-Sale
Investments. Our investment in Clearwire LLC is accounted
for under the equity method of accounting, and our proportionate
share of the income or loss is recognized on a one-quarter lag.
As such, we did not record equity method adjustments during 2008
related to Clearwire LLC. The cost basis of this investment was
initially $17 per share, based on the transaction agreement
entered into in the second quarter of 2008. During the fourth
quarter of 2008, we recorded a $762 million impairment
charge on our investment in Clearwire LLC to write down our
investment to its fair value of $238 million. The
impairment charge is included in gains (losses) on equity method
investments, net on the consolidated statements of income. For
further discussion, see Note 3: Fair Value.
Numonyx
In the second quarter of 2008, we
divested our NOR flash memory business in exchange for a 45.1%
ownership interest in Numonyx. For further discussion, see
Note 12: Divestitures. Our initial ownership
interest, comprising common stock and a note receivable, was
recorded at $821 million. Our investment is accounted for
under the equity method of accounting, and our proportionate
share of the income or loss is recognized on a one-quarter lag.
During 2008, we recorded $87 million of equity method
losses and a $250 million impairment charge on our
investment in Numonyx within gains (losses) on equity method
investments, net. For further discussion, see Note 3:
Fair Value.
As of December 27, 2008, our
investment balance in Numonyx was $484 million and is
included within other long-term assets. The carrying amount of
our investment in Numonyx is approximately $400 million
below our share of the book value of the net assets of Numonyx.
Most of this difference has been assigned to specific Numonyx
long-lived assets, and our proportionate share of Numonyx income
or loss will be adjusted to recognize this difference over the
estimated remaining useful lives of those long-lived assets.
Additional terms of our investment
in Numonyx include:
|
|
|
|
|
We are leasing a facility in
Israel to Numonyx for a period of up to 24 years under a
fully paid, up-front operating lease. Upon completion of the
divestiture, we recorded $82 million of deferred income
representing the value of the prepaid operating lease. The
deferred income will generally offset the related depreciation
over the lease term.
|
|
|
We entered into supply and service
agreements that involve the manufacture and the assembly and
test of NOR flash memory products for Numonyx through 2008. The
fair value of these agreements was $110 million and was
recorded in other accrued liabilities upon completion of the
transaction. This amount was recognized during 2008, primarily
as a reduction of cost of sales. In the fourth quarter of 2008,
we agreed with Numonyx to extend certain supply and service
agreements through the end of 2009.
|
|
|
We entered into a transition
services agreement that involves providing certain services,
such as information technology, supply chain, and finance
support, to Numonyx for up to one year. The reimbursement from
Numonyx for these services offsets the related cost of sales and
operating expenses.
|
|
|
Numonyx entered into an unsecured,
four-year senior credit facility of up to $550 million,
comprising a $450 million term loan and a $100 million
revolving loan. Intel and STMicroelectronics N.V. have each
provided the lenders with a guarantee of 50% of the payment
obligations of Numonyx under the senior credit facility. A
demand on our guarantee can be triggered if Numonyx is unable to
meet its obligations under the credit facility. Acceleration of
the obligations of Numonyx under the credit facility could be
triggered by a monetary default of Numonyx or, in certain
circumstances, by events affecting the creditworthiness of
STMicroelectronics. This guarantee is within the scope of FASB
Interpretation No. 45, Guarantors Accounting
and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others. The maximum amount
of future undiscounted payments that we could be required to
make under the guarantee is $275 million plus accrued
interest, expenses of the lenders, and penalties. As of
December 27, 2008, the carrying amount of the liability
associated with the guarantee was $79 million and is
included in other accrued liabilities.
|
|
|
Our note receivable is
subordinated to the senior credit facility and the preferential
payout of Francisco Partners L.P., and will be deemed
extinguished in liquidation events that generate proceeds
insufficient to repay the senior credit facility and Francisco
Partners preferential payout.
|
79
INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
As of December 27, 2008,
approximately $37 million was included in accounts
receivable, net for supply and service agreements related to the
manufacture and assembly and test of NOR flash memory products
by Intel on behalf of Numonyx. As of December 27, 2008,
approximately $111 million was included in other current
assets for amounts due to Intel from Numonyx, primarily for
services performed under transition services agreements.
Cost
Method Investments
Our non-marketable cost method
investments are classified in other long-term assets on the
consolidated balance sheets. The carrying value of our
non-marketable cost method investments was $1.0 billion as
of December 27, 2008 and $805 million as of
December 29, 2007. We recognized impairment charges on
non-marketable cost method investments of $135 million in
2008 ($90 million in 2007 and $71 million in 2006).
Note 7:
Gains (Losses) on Other Equity Investments, Net
Gains (losses) on other equity
investments, net includes gains (losses) on our equity
investments that were not accounted for under the equity method
of accounting, and were as follows for the three years ended
December 27, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Millions)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Impairment charges
|
|
$
|
(455
|
)
|
|
$
|
(92
|
)
|
|
$
|
(72
|
)
|
Gains on sales
|
|
|
60
|
|
|
|
204
|
|
|
|
151
|
|
Other, net
|
|
|
19
|
|
|
|
42
|
|
|
|
133
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gains (losses) on other equity investments, net
|
|
$
|
(376
|
)
|
|
$
|
154
|
|
|
$
|
212
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment charges for 2008
included a $176 million impairment charge recognized on our
available-for-sale investment in the new Clearwire Corporation
and $97 million of impairment charges on our investment in
Micron (for information on the impairment of our equity method
investment in Clearwire LLC, see Note 6: Equity
Method and Cost Method Investments). The impairment charge
on our investment in the new Clearwire Corporation was due to
the fair value being significantly lower than the cost basis of
our investment. The impairment charges on our investment in
Micron reflect the difference between our cost basis and the
fair value of our investment in Micron at the end of the second
and third quarters of 2008, and were principally based on our
assessment of Microns financial results and the
competitive environment, particularly for NAND flash memory
products.
Note 8:
Derivative Financial Instruments
Our primary objective for holding
derivative financial instruments is to manage currency exchange
rate risk and interest rate risk, and to a lesser extent, equity
market risk and commodity price risk.
We currently do not enter into
derivative instruments to manage credit risk; however, we manage
our exposure to credit risk through our policies. We generally
enter into derivative transactions with high-credit-quality
counterparties and, by policy, limit the amount of credit
exposure to any one counterparty based on our analysis of that
counterpartys relative credit standing. The amounts
subject to credit risk related to derivative instruments are
generally limited to the amounts, if any, by which a
counterpartys obligations exceed our obligations with that
counterparty, because we enter into master netting arrangements
with counterparties when possible to mitigate credit risk in
derivative transactions subject to International Swaps and
Derivatives Association, Inc. (ISDA) agreements. A master
netting arrangement may allow counterparties to net settle
amounts owed to each other as a result of multiple, separate
transactions.
Currency
Exchange Rate Risk
A majority of our revenue,
expense, and capital purchasing activities are transacted in
U.S. dollars. However, certain operating expenditures and
capital purchases are incurred in or exposed to other
currencies, primarily the 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 future cash
flows caused by changes in exchange rates. These programs
reduce, but do not always entirely eliminate, the impact of
currency exchange movements.
80
INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
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) in
stockholders equity and reclassify it into earnings in the
same period or periods in which the hedged transaction affects
earnings, and within the same line item on the consolidated
statements of income as the impact of the hedged transaction.
|
|
|
Currency derivatives with fair
value hedge accounting
designation that
utilize currency forward contracts and currency options to hedge
the fair value exposure of recognized
foreign-currency-denominated assets or liabilities, or
previously unrecognized firm commitments. For fair value hedges,
we recognize gains or losses in earnings to offset fair value
changes in the hedged transaction. As of December 27, 2008
and December 29, 2007, we did not have any derivatives
designated as foreign currency fair value hedges.
|
|
|
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 and
non-U.S.-dollar-denominated
debt instruments classified as trading assets. The maturity of
these instruments generally occurs within 12 months, except
for derivatives associated with certain long-term equity-related
investments that generally mature within five years. Changes in
the
U.S.-dollar-equivalent
cash flows of the underlying assets and liabilities are
approximately offset by the changes in fair values of the
related derivatives. We record net gains or losses in the income
statement line item most closely associated with the economic
underlying, primarily in interest and other, net, except for
equity-related gains or losses, which we primarily record in
gains (losses) on other equity investments, net.
|
Interest
Rate Risk
Our primary objective for holding
investments in debt instruments is to preserve principal while
maximizing yields. We generally swap the returns on our
investments in fixed-rate debt instruments with remaining
maturities longer than six months into U.S. dollar
three-month LIBOR-based returns unless management specifically
approves otherwise.
Our interest rate risk management
programs include:
|
|
|
|
|
Interest rate derivatives with
cash flow hedge accounting designation
that utilize interest
rate swap agreements to modify the interest characteristics of
some of our investments. For these derivatives, we report the
after-tax gain or loss from the effective portion of the hedge
as a component of accumulated other comprehensive income (loss)
and reclassify it into earnings in the same period or periods in
which the hedged transaction affects earnings, and within the
same income statement line item as the impact of the hedged
transaction.
|
|
|
Interest rate derivatives with
fair value hedge accounting designation
that utilize interest
rate swap agreements to hedge the fair values of debt
instruments. We recognize the gains or losses from the changes
in fair value of these instruments, as well as the offsetting
change in the fair value of the hedged long-term debt, in
interest expense. As of December 27, 2008 and
December 29, 2007, we did not have any interest rate
derivatives designated as fair value hedges.
|
|
|
Interest rate derivatives
without hedge accounting designation
that utilize interest
rate swaps and currency interest rate swaps in economic hedging
transactions, including hedges of
non-U.S.-dollar-denominated
debt instruments classified as trading assets. Floating interest
rates on the swaps are reset on a monthly, quarterly, or
semiannual basis. Changes in fair value of the debt instruments
classified as trading assets are generally offset by changes in
fair value of the related derivatives, both of which are
recorded in interest and other, net.
|
Equity
Market Risk
Our marketable investments include
marketable equity securities and equity derivative instruments
such as warrants and options. To the extent that our marketable
equity securities have strategic value, we typically do not
attempt to reduce or eliminate our market exposure; however, for
our investments in strategic equity derivative instruments,
including warrants, we may enter into transactions to reduce or
eliminate the market risks. For securities that we no longer
consider strategic, we evaluate legal, market, and economic
factors in our decision on the timing of disposal and whether it
is possible and appropriate to hedge the equity market risk.
81
INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Our equity market risk management
programs include:
|
|
|
|
|
Equity derivatives with hedge
accounting designation
that utilize equity
options, swaps, or forward contracts to hedge the equity market
risk of marketable equity securities when these investments are
not considered to have strategic value. These derivatives are
generally designated as fair value hedges. We recognize the
gains or losses from the change in fair value of these equity
derivatives, as well as the offsetting change in the fair value
of the underlying hedged equity securities, in gains (losses) on
other equity investments, net. As of December 27, 2008 and
December 29, 2007, we did not have any equity derivatives
designated as fair value hedges.
|
|
|
Equity derivatives without
hedge accounting designation
that utilize equity
derivatives, such as warrants, equity options, or other equity
derivatives. We recognize changes in the fair value of such
derivatives in gains (losses) on other equity investments, net.
|
Commodity
Price Risk
We operate facilities that consume
commodities, and we have established forecasted transaction risk
management programs to protect against fluctuations in fair
value and the volatility of future cash flows caused by changes
in commodity prices, such as those for natural gas. These
programs reduce, but do not always entirely eliminate, the
impact of commodity price movements.
Our commodity price risk
management program includes:
|
|
|
|
|
Commodity derivatives with cash
flow hedge accounting
designation that
utilize commodity swap contracts to hedge future cash flow
exposures to the variability in commodity prices. These
instruments generally mature within 12 months. For these
derivatives, we report the after-tax gain (loss) from the
effective portion of the hedge as a component of accumulated
other comprehensive income (loss) in stockholders equity
and reclassify it into earnings in the same period or periods in
which the hedged transaction affects earnings, and within the
same line item on the consolidated statements of income as the
impact of the hedged transaction.
|
Credit
Risk
We typically do not hold
derivative instruments for the purpose of managing credit risk,
since we limit the amount of credit exposure to any one
counterparty and generally enter into derivative transactions
with high-credit-quality counterparties. As of December 27,
2008 and December 29, 2007, our credit risk management
program did not include credit derivatives.
Note 9:
Concentrations of Credit Risk
Financial instruments that
potentially subject us to concentrations of credit risk consist
principally of investments in debt instruments, derivative
financial instruments, and trade receivables. We also enter into
master netting arrangements with counterparties when possible to
mitigate credit risk in derivative transactions subject to ISDA
agreements.
We generally place investments
with high-credit-quality counterparties and, by policy, limit
the amount of credit exposure to any one counterparty based on
our analysis of that counterpartys relative credit
standing. Substantially all of our investments in debt
instruments are with A/A2 or better rated issuers, and the
majority of the issuers are rated AA-/Aa2 or better. Our
investment policy requires all investments with original
maturities of up to six months to be rated at least
A-1/P-1 by
Standard & Poors/Moodys, and specifies a
higher minimum rating for investments with longer maturities.
For instance, investments with maturities of greater than three
years require a minimum rating of AA-/Aa3 at the time of
investment. Government regulations imposed on investment
alternatives of our
non-U.S. subsidiaries,
or the absence of A rated counterparties in certain countries,
result in some minor exceptions. Credit rating criteria for
derivative instruments are similar to those for other
investments. The amounts subject to credit risk related to
derivative instruments are generally limited to the amounts, if
any, by which a counterpartys obligations exceed our
obligations with that counterparty. As of December 27,
2008, the total credit exposure to any single counterparty did
not exceed $500 million. We obtain and secure available
collateral from counterparties against obligations, including
securities lending transactions, when we deem it appropriate.
82
INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
A substantial majority of our
trade receivables are derived from sales to original equipment
manufacturers and original design manufacturers. We also have
accounts receivable derived from sales to industrial and retail
distributors. Our two largest customers accounted for 38% of net
revenue for 2008 and 35% of net revenue for 2007 and 2006.
Additionally, these two largest customers accounted for 46% of
our accounts receivable as of December 27, 2008 and 35% of
our accounts receivable as of December 29, 2007. We believe
that the receivable balances from these largest customers do not
represent a significant credit risk based on cash flow
forecasts, balance sheet analysis, and past collection
experience.
We have adopted credit policies
and standards intended to accommodate industry growth and
inherent risk. We believe that credit risks are moderated by the
financial stability of our major customers. We assess credit
risk through quantitative and qualitative analysis, and from
this analysis, we establish credit limits and determine whether
we will seek to use one or more credit support devices, such as
obtaining some form of third-party guaranty or standby letter of
credit, or obtaining credit insurance for all or a portion of
the account balance if necessary.
We continually monitor the credit
risk in our portfolio and mitigate our credit and interest rate
exposures in accordance with the policies approved by our Board
of Directors. We intend to continue to closely monitor future
developments in the credit markets and make appropriate changes
to our investment policies as deemed necessary.
Note 10:
Interest and Other, Net
The components of interest and
other, net were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Millions)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Interest income
|
|
$
|
592
|
|
|
$
|
804
|
|
|
$
|
636
|
|
Interest expense
|
|
|
(8
|
)
|
|
|
(15
|
)
|
|
|
(24
|
)
|
Other, net
|
|
|
(96
|
)
|
|
|
4
|
|
|
|
590
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest and other, net
|
|
$
|
488
|
|
|
$
|
793
|
|
|
$
|
1,202
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During 2006, we realized gains of
$612 million for three completed divestitures included
within other, net in the table above. For further
discussion, see Note 12: Divestitures.
Note 11:
Acquisitions
Consideration for acquisitions
that qualify as business combinations 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. During 2008, we completed two acquisitions
qualifying as business combinations in exchange for aggregate
net cash consideration of $16 million, plus certain
liabilities. We allocated all of this consideration to goodwill.
See Note 13: Goodwill for the goodwill
allocation by reportable operating segment.
During 2007, we completed one
acquisition qualifying as a business combination in exchange for
net cash consideration of $76 million, plus certain
liabilities. We allocated a substantial majority of this
consideration to goodwill. The acquired business and related
goodwill was recorded within the all other category for segment
reporting purposes. During 2006, we did not complete any
acquisitions qualifying as business combinations.
83
INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Note 12:
Divestitures
During the first quarter of 2008,
we completed the divestiture of a portion of the
telecommunications-related assets of our optical platform
division that were included in the Digital Enterprise Group
operating segment. Consideration for the divestiture was
approximately $85 million, including $75 million in
cash and common shares of the acquiring company with an
estimated value of $10 million at the date of purchase. We
entered into an agreement with the acquiring company to provide
certain manufacturing and transition services for a limited time
that has since been completed. During the first quarter of 2008,
as a result of this divestiture, we recorded a net gain of
$39 million within interest and other, net. During the
second quarter of 2008, we completed the sale of the remaining
portion of our optical platform division for common shares of
the acquiring company with an estimated value of
$27 million at the date of purchase. Overall, approximately
100 employees of our optical products business became
employees of the acquiring company.
During the second quarter of 2008,
we completed the divestiture of our NOR flash memory business.
We exchanged certain NOR flash memory assets and certain assets
associated with our phase change memory initiatives with Numonyx
for a note receivable with a contractual amount of
$144 million and a 45.1% ownership interest in the form of
common stock, together valued at $821 million. We retain
certain rights to intellectual property included within the
divestiture. Approximately 2,500 employees of our NOR flash
memory business became employees of Numonyx. STMicroelectronics
contributed certain assets to Numonyx for a note receivable with
a contractual amount of $156 million and a 48.6% ownership
interest in the form of common stock. Francisco Partners paid
$150 million in cash in exchange for the remaining 6.3%
ownership interest in the form of preferred stock and a note
receivable with a contractual amount of $20 million. In
addition, they received a payout right that is preferential
relative to the investments of Intel and STMicroelectronics. We
did not incur a gain or loss upon completion of the transaction
in the second quarter of 2008, as we had recorded asset
impairment charges in quarters prior to deal closure. For
further discussion, see Note 15: Restructuring and
Asset Impairment Charges. Subsequent to the divestiture,
in the third quarter of 2008 we recorded a $250 million
impairment charge on our investment in Numonyx within gains
(losses) on equity method investments. For further discussion on
our investment and the terms of the divestiture, see
Note 6: Equity Method and Cost Method
Investments.
During the third quarter of 2006,
we completed the divestiture of our media and signaling business
and associated assets that were included in the Digital
Enterprise Group operating segment. We received $75 million
in cash consideration. Approximately 375 employees of our
media and signaling business became employees of the acquiring
company. As a result of this divestiture, we recorded a
reduction of goodwill of $4 million. Additionally, we
recorded a net gain of $52 million within interest and
other, net.
During the third quarter of 2006,
we completed the divestiture of certain product lines and
associated assets of our optical networking components business
that were included in the Digital Enterprise Group operating
segment. Consideration for the divestiture was
$115 million, including $86 million in cash, and
shares of the acquiring company with an estimated value of
$29 million. Approximately 55 employees of our optical
networking components business became employees of the acquiring
company. As a result of this divestiture, we recorded a
reduction of goodwill of $6 million. Additionally, we
recorded a net gain of $77 million within interest and
other, net.
During the fourth quarter of 2006,
we completed the divestiture of certain assets of our
communications and application processor business to Marvell
Technology Group, Ltd. for a cash purchase price of
$600 million plus the assumption of certain liabilities. We
included the operating results associated with the divested
assets of our communications and application processor business
in the Mobility Group operating segment. Intel and Marvell also
entered into an agreement whereby we provided certain
manufacturing and transition services to Marvell. Approximately
1,300 employees of our communications and application
processor business who were involved in a variety of functions,
including engineering, product testing and validation,
operations, and marketing, became employees of Marvell. As a
result of this divestiture, we recorded a reduction of goodwill
of $2 million. Additionally, we recorded a net gain of
$483 million within interest and other, net.
84
INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Note 13:
Goodwill
Goodwill activity attributed to
reportable operating segments for the years ended
December 27, 2008 and December 29, 2007 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Digital
|
|
|
|
|
|
|
|
|
|
|
|
|
Enterprise
|
|
|
Mobility
|
|
|
|
|
|
|
|
(In Millions)
|
|
Group
|
|
|
Group
|
|
|
All Other
|
|
|
Total
|
|
December 30, 2006
|
|
$
|
3,390
|
|
|
$
|
248
|
|
|
$
|
223
|
|
|
$
|
3,861
|
|
Addition
|
|
|
|
|
|
|
|
|
|
|
60
|
|
|
|
60
|
|
Other
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 29, 2007
|
|
|
3,385
|
|
|
|
248
|
|
|
|
283
|
|
|
|
3,916
|
|
Additions
|
|
|
9
|
|
|
|
|
|
|
|
9
|
|
|
|
18
|
|
Transfer
|
|
|
123
|
|
|
|
|
|
|
|
(123
|
)
|
|
|
|
|
Other
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 27, 2008
|
|
$
|
3,515
|
|
|
$
|
248
|
|
|
$
|
169
|
|
|
$
|
3,932
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During 2008, we completed a
reorganization that transferred the revenue and costs associated
with a portion of the Digital Home Groups consumer PC
components business to the Digital Enterprise Group. We
reassigned $123 million of goodwill from the Digital Home
Group to the Digital Enterprise Group as a result of the
reorganization. We reassigned goodwill to the Digital Enterprise
Group based on the relative fair value of the business
transferred to the estimated fair value of the Digital Home
Group reporting unit before the reorganization. The remaining
goodwill associated with the Digital Home Group reporting unit
is included in the all other category. During 2008, we completed
two acquisitions that resulted in goodwill of $18 million.
During 2007, we completed one acquisition that resulted in
goodwill of $60 million. For further discussion, see
Note 11: Acquisitions.
After completing our annual
impairment reviews during the fourth quarter of 2008, 2007, and
2006, we concluded that goodwill was not impaired in any year.
Note 14:
Identified Intangible Assets
We classify identified intangible
assets within other long-term assets. Identified intangible
assets consisted of the following as of December 27, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
(In Millions)
|
|
Gross Assets
|
|
|
Amortization
|
|
|
Net
|
|
Intellectual property assets
|
|
$
|
1,206
|
|
|
$
|
(582
|
)
|
|
$
|
624
|
|
Acquisition-related developed technology
|
|
|
22
|
|
|
|
(8
|
)
|
|
|
14
|
|
Other intangible assets
|
|
|
340
|
|
|
|
(203
|
)
|
|
|
137
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total identified intangible assets
|
|
$
|
1,568
|
|
|
$
|
(793
|
)
|
|
$
|
775
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During 2008, we acquired
intellectual property assets for $68 million with a
weighted average life of 10 years.
85
INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Identified intangible assets
consisted of the following as of December 29, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
(In Millions)
|
|
Gross Assets
|
|
|
Amortization
|
|
|
Net
|
|
Intellectual property assets
|
|
$
|
1,158
|
|
|
$
|
(438
|
)
|
|
$
|
720
|
|
Acquisition-related developed technology
|
|
|
19
|
|
|
|
(3
|
)
|
|
|
16
|
|
Other intangible assets
|
|
|
360
|
|
|
|
(136
|
)
|
|
|
224
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total identified intangible assets
|
|
$
|
1,537
|
|
|
$
|
(577
|
)
|
|
$
|
960
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During 2007, we acquired
intellectual property assets for $170 million with a
weighted average life of 11 years. The majority of the
intellectual property assets acquired represented the fair value
of assets capitalized as a result of a settlement agreement with
Transmeta Corporation. Pursuant to the agreement, we agreed to
pay Transmeta a total of $250 million in exchange for a
technology license and other consideration. The present value of
the settlement was $236 million of which $113 million
was charged to cost of sales. The charge to cost of sales
related to the portion of the license attributable to certain
product sales through the third quarter of 2007. The remaining
$123 million represented the value of the intellectual
property assets capitalized and is being amortized to cost of
sales over the assets remaining useful lives.
During 2007, we acquired
acquisition-related developed technology for $15 million
with a weighted average life of four years, and recorded other
intangible assets of $40 million with a weighted average
life of four years.
All of our identified intangible
assets are subject to amortization. We recorded the amortization
of identified intangible assets on the consolidated statements
of income as follows: intellectual property assets generally in
cost of sales; acquisition-related developed technology in
marketing, general and administrative; and other intangible
assets as either a reduction of revenue or marketing, general
and administrative.
Amortization expenses for the
three years ended December 27, 2008 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Millions)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Intellectual property assets
|
|
$
|
164
|
|
|
$
|
159
|
|
|
$
|
178
|
|
Acquisition-related developed technology
|
|
$
|
5
|
|
|
$
|
1
|
|
|
$
|
20
|
|
Other intangible assets
|
|
$
|
87
|
|
|
$
|
92
|
|
|
$
|
59
|
|
Based on identified intangible
assets recorded as of December 27, 2008, and assuming that
the underlying assets will not be impaired in the future, we
expect amortization expenses for each period to be as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Millions)
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
Intellectual property assets
|
|
$
|
142
|
|
|
$
|
132
|
|
|
$
|
79
|
|
|
$
|
68
|
|
|
$
|
51
|
|
Acquisition-related developed technology
|
|
$
|
5
|
|
|
$
|
5
|
|
|
$
|
4
|
|
|
$
|
|
|
|
$
|
|
|
Other intangible assets
|
|
$
|
124
|
|
|
$
|
13
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Note 15:
Restructuring and Asset Impairment Charges
The following table summarizes
restructuring and asset impairment charges by plan for the three
years ended December 27, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Millions)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
2008 NAND plan
|
|
$
|
215
|
|
|
$
|
|
|
|
$
|
|
|
2006 efficiency program
|
|
|
495
|
|
|
|
516
|
|
|
|
555
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total restructuring and asset impairment charges
|
|
$
|
710
|
|
|
$
|
516
|
|
|
$
|
555
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
86
INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
We may incur additional
restructuring charges in the future for employee severance and
benefit arrangements, and facility-related or other exit
activities. Subsequent to the end of 2008, management approved
plans to restructure some of our manufacturing and assembly and
test operations, and align our manufacturing and assembly and
test capacity to current market conditions. These actions, which
are expected to take place beginning in 2009, include closing
two assembly and test facilities in Malaysia, one facility in
the Philippines, and one facility in China; stopping production
at a 200mm wafer fabrication facility in Oregon; and ending
production at our 200mm wafer fabrication facility in California.
2008
NAND Plan
In the fourth quarter of 2008,
management approved a plan with Micron to discontinue the supply
of NAND flash memory from the 200mm facility within the IMFT
manufacturing network. The agreement resulted in a
$215 million restructuring charge, primarily related to the
IMFT 200mm supply agreement. The restructuring charge resulted
in a reduction of our investment in IMFT of $184 million, a
cash payment to Micron of $24 million, and other cash
payments of $7 million.
2006
Efficiency Program
The following table summarizes
charges for the 2006 efficiency program for the three years
ended December 27, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Millions)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Employee severance and benefit arrangements
|
|
$
|
151
|
|
|
$
|
289
|
|
|
$
|
238
|
|
Asset impairments
|
|
|
344
|
|
|
|
227
|
|
|
|
317
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
495
|
|
|
$
|
516
|
|
|
$
|
555
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In the third quarter of 2006,
management approved several actions recommended by our structure
and efficiency task force as part of a restructuring plan
designed to improve operational efficiency and financial
results. Some of these activities have involved cost savings or
other actions that did not result in restructuring charges, such
as better utilization of assets, reduced spending, and
organizational efficiencies. The efficiency program has included
targeted headcount reductions for various groups within the
company, which we have met through employee attrition and
terminations. Business divestures have further reduced our
headcount.
During 2006, we completed the
divestiture of three businesses. For further discussion, see
Note 12: Divestitures. In connection with the
divestiture of certain assets of our communications and
application processor business, we recorded impairment charges
of $103 million related to the write-down of manufacturing
tools to their fair value, less the cost to dispose of the
assets. We determined the fair value using a market-based
valuation technique. In addition, as a result of both this
divestiture and a subsequent assessment of our worldwide
manufacturing capacity operations, we placed for sale our
fabrication facility in Colorado Springs, Colorado. This plan
resulted in an impairment charge of $214 million to write
down to fair value the land, building, and equipment asset
grouping that has been principally used to support our
communications and application processor business. We determined
the fair market value of the asset grouping using an average of
the results from using the cost approach and market approach
valuation techniques.
During 2007, we incurred an
additional $54 million in asset impairment charges as a
result of market conditions related to the Colorado Springs
facility. Also, we recorded land and building write-downs
related to certain facilities in Santa Clara, California.
In addition, we incurred $85 million in asset impairment
charges related to assets that we sold in conjunction with the
divestiture of our NOR flash memory business. We determined the
impairment charges based on the fair value, less selling costs,
that we expected to receive upon completion of the divestiture.
During 2008, we incurred
additional asset impairment charges related to the Colorado
Springs facility, based on market conditions. Also, we incurred
$275 million in additional asset impairment charges related
to assets that we sold in conjunction with the divestiture of
our NOR flash memory business. We determined the impairment
charges using the revised fair value of the equity and note
receivable that we received upon completion of the divestiture,
less selling costs. The lower fair value was primarily a result
of a decline in the outlook for the flash memory market segment.
For further information on this divestiture, see
Note 12: Divestitures.
87
INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The following table summarizes the
restructuring and asset impairment activity for the 2006
efficiency program during 2007 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee Severance
|
|
|
|
|
|
|
|
(In Millions)
|
|
and Benefits
|
|
|
Asset Impairments
|
|
|
Total
|
|
Accrued restructuring balance as of December 30, 2006
|
|
$
|
48
|
|
|
$
|
|
|
|
$
|
48
|
|
Additional accruals
|
|
|
299
|
|
|
|
227
|
|
|
|
526
|
|
Adjustments
|
|
|
(10
|
)
|
|
|
|
|
|
|
(10
|
)
|
Cash payments
|
|
|
(210
|
)
|
|
|
|
|
|
|
(210
|
)
|
Non-cash settlements
|
|
|
|
|
|
|
(227
|
)
|
|
|
(227
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued restructuring balance as of December 29, 2007
|
|
$
|
127
|
|
|
$
|
|
|
|
$
|
127
|
|
Additional accruals
|
|
|
167
|
|
|
|
344
|
|
|
|
511
|
|
Adjustments
|
|
|
(16
|
)
|
|
|
|
|
|
|
(16
|
)
|
Cash payments
|
|
|
(221
|
)
|
|
|
|
|
|
|
(221
|
)
|
Non-cash settlements
|
|
|
|
|
|
|
(344
|
)
|
|
|
(344
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued restructuring balance as of December 27, 2008
|
|
$
|
57
|
|
|
$
|
|
|
|
$
|
57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We recorded the additional
accruals, net of adjustments, as restructuring and asset
impairment charges. The remaining accrual as of
December 27, 2008 was related to severance benefits that we
recorded within accrued compensation and benefits.
From the third quarter of 2006
through the fourth quarter of 2008, we incurred a total of
$1.6 billion in restructuring and asset impairment charges
related to this program. These charges included a total of
$678 million related to employee severance and benefit
arrangements for approximately 11,900 employees, and
$888 million in asset impairment charges.
Note 16:
Borrowings
Short-Term
Debt
Short-term debt included
non-interest-bearing drafts payable of $100 million and the
current portion of long-term debt of $2 million as of
December 27, 2008 (drafts payable of $140 million and
the current portion of long-term debt of $2 million as of
December 29, 2007). We have an ongoing authorization from
our Board of Directors to borrow up to $3.0 billion,
including through the issuance of commercial paper. Maximum
borrowings under our commercial paper program during 2008 were
approximately $1.3 billion. We did not have outstanding
commercial paper as of December 27, 2008. There were no
borrowings under our commercial paper program during 2007. Our
commercial paper was rated
A-1+ by
Standard & Poors and
P-1 by
Moodys as of December 27, 2008.
Long-Term
Debt
Our long-term debt at fiscal
year-ends was as follows:
|
|
|
|
|
|
|
|
|
(In Millions)
|
|
2008
|
|
|
2007
|
|
Junior subordinated convertible debentures due 2035 at 2.95%
|
|
$
|
1,587
|
|
|
$
|
1,586
|
|
2005 Arizona bonds due 2035 at 4.375%
|
|
|
158
|
|
|
|
159
|
|
2007 Arizona bonds due 2037 at 5.3%
|
|
|
122
|
|
|
|
125
|
|
Euro debt due 20092017 at 7%
|
|
|
20
|
|
|
|
111
|
|
Other debt
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,888
|
|
|
|
1,982
|
|
Less: current portion of long-term debt
|
|
|
(2
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
$
|
1,886
|
|
|
$
|
1,980
|
|
|
|
|
|
|
|
|
|
|
88
INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
In 2005, we issued
$1.6 billion of 2.95% junior subordinated convertible
debentures (the debentures) due 2035. The debentures are
convertible, subject to certain conditions, into shares of our
common stock at an initial 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
can 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 (the
indenture), 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
share exchanges, mergers, or consolidations involving Intel, as
described in the indenture. The debentures, which pay a fixed
rate of interest semiannually, have a contingent interest
component that will require us to pay interest based on certain
thresholds and for certain events commencing on
December 15, 2010, as outlined in the indenture. The
maximum amount of contingent interest that will accrue is 0.40%
per year. The fair value of the related embedded derivative was
not significant as of December 27, 2008 or
December 29, 2007.
We can settle any conversion or
repurchase of the debentures in cash or stock at our option. On
or after December 15, 2012, we can redeem, for cash, all or
part of the debentures for the principal amount, plus any
accrued and unpaid interest, if the closing price of Intel
common stock has been at least 130% of the conversion price then
in effect for at least 20 trading days during any 30 consecutive
trading-day
period prior to the date on which we provide notice of
redemption. If certain events occur in the future, the indenture
provides that each holder of the debentures can, for a
pre-defined period of time, require us to repurchase the
holders debentures for the principal amount plus any
accrued and unpaid interest. The debentures are subordinated in
right of payment to our existing and future senior debt and to
the other liabilities of our subsidiaries. We concluded that the
debentures are not conventional convertible debt instruments and
that the embedded stock conversion option qualifies as a
derivative under SFAS No. 133. In addition, in
accordance with
EITF 00-19,
Accounting for Derivative Financial Instruments Indexed
to, and Potentially Settled in, a Companys Own
Stock, we have concluded that the embedded conversion
option would be classified in stockholders equity if it
were a freestanding instrument. As such, the embedded conversion
option is not accounted for separately as a derivative.
In 2005, we guaranteed repayment
of principal and interest on bonds issued by the Industrial
Development Authority of the City of Chandler, Arizona, which
constitutes an unsecured general obligation for Intel. The
aggregate principal amount, including the premium, of the bonds
issued in 2005 (2005 Arizona bonds) was $160 million. The
bonds are due in 2035 and bear interest at a fixed rate of
4.375% until 2010. The 2005 Arizona bonds are subject to
mandatory tender on November 30, 2010, at which time we can
re-market the bonds as either fixed-rate bonds for a specified
period or as variable-rate bonds until their final maturity on
December 1, 2035.
In 2007, we guaranteed repayment
of principal and interest on bonds issued by the Industrial
Development Authority of the City of Chandler, Arizona, which
constitute an unsecured general obligation for Intel. The
aggregate principal amount of the bonds issued in December 2007
(2007 Arizona bonds) is $125 million due in 2037, and the
bonds bear interest at a fixed rate of 5.3%. The 2007 Arizona
bonds are subject to mandatory tender, at our option, on any
interest payment date beginning on or after December 1,
2012 until their final maturity on December 1, 2037. Upon
such tender, we can re-market the bonds as either fixed-rate
bonds for a specified period or as variable-rate bonds until
their final maturity. We also entered into an interest rate swap
agreement, from a fixed rate to a floating LIBOR-based return.
At the beginning of the first quarter of 2008, we elected the
provisions of SFAS No. 159 for the 2007 Arizona bonds,
and we record these bonds at fair value. For further discussion,
see Note 3: Fair Value.
We have euro borrowings that we
made in connection with financing manufacturing facilities and
equipment in Ireland. We invested the proceeds in
euro-denominated loan participation notes of similar maturity to
reduce currency and interest rate exposures. During 2008, we
retired $96 million in euro borrowings prior to their
maturity dates through the simultaneous settlement of an
equivalent amount of investments in loan participation notes.
89
INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
As of December 27, 2008, our
aggregate debt maturities were as follows (in millions):
|
|
|
|
|
Year Payable
|
|
|
|
2009
|
|
$
|
2
|
|
2010
|
|
|
160
|
|
2011
|
|
|
2
|
|
2012
|
|
|
2
|
|
2013
|
|
|
2
|
|
2014 and thereafter
|
|
|
1,723
|
|
|
|
|
|
|
Total
|
|
$
|
1,891
|
|
|
|
|
|
|
Note 17:
Retirement Benefit Plans
Profit
Sharing Plans
We provide tax-qualified profit
sharing retirement plans for the benefit of eligible employees,
former employees, and retirees in the U.S. and certain
other countries. The plans are designed to provide employees
with an accumulation of funds for retirement on a tax-deferred
basis and provide for annual discretionary employer
contributions. Our Chief Executive Officer (CEO) determines the
amounts to be contributed to the U.S. Profit Sharing Plan
under delegation of authority from our Board of Directors,
pursuant to the terms of the Profit Sharing Plan. As of
December 27, 2008, approximately 75% of our
U.S. Profit Sharing Fund was invested in equities, and
approximately 25% was invested in fixed-income instruments. Most
assets are managed by external investment managers.
For the benefit of eligible
U.S. employees, we also provide a non-tax-qualified
supplemental deferred compensation plan for certain highly
compensated employees. This plan is designed to permit certain
discretionary employer contributions and to permit employee
deferral of a portion of salaries in excess of certain tax
limits and deferral of bonuses. This plan is unfunded.
We expensed $289 million for
the qualified and non-qualified U.S. profit sharing
retirement plans in 2008 ($302 million in 2007 and
$313 million in 2006). In the first quarter of 2009, we
funded $276 million for the 2008 contribution to the
qualified U.S. Profit Sharing Plan.
Contributions that we make to the
U.S. Profit Sharing Plan on behalf of our employees vest
based on the employees years of service. Vesting occurs
after two years of service in 20% annual increments until the
employee is 100% vested after six years, or earlier if the
employee reaches age 60.
Pension
and Postretirement Benefit Plans
U.S. Pension
Benefits. We
provide 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 U.S. Profit Sharing Plan. If the pension benefit
exceeds the participants balance in the U.S. 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. If we do not continue to contribute to, or
significantly reduce contributions to, the U.S. Profit
Sharing Plan, the projected benefit obligation of the
U.S. defined-benefit plan could increase significantly. The
significant decrease in the fair value of the U.S. Profit
Sharing Plan assets during 2008 contributed to an increase in
the projected benefit obligation of the
U.S. defined-benefit plan.
Non-U.S. Pension
Benefits. We also
provide defined-benefit pension plans in certain other
countries. Consistent with the requirements of local law, we
deposit funds for certain plans with insurance companies, with
third-party trustees, or into government-managed accounts,
and/or
accrue for the unfunded portion of the obligation. The
assumptions used in calculating the obligation for the
non-U.S. plans
depend on the local economic environment.
90
INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Postretirement Medical
Benefits. Upon
retirement, eligible U.S. employees are credited with a
defined dollar amount based on years of service. These credits
can be used to pay all or a portion of the cost to purchase
coverage in an Intel-sponsored medical plan. If the available
credits are not sufficient to pay the entire cost of the
coverage, the remaining cost is the responsibility of the
retiree.
Funding
Policy. Our
practice is to fund the various pension plans in amounts
sufficient to meet the minimum requirements of U.S. federal
laws and regulations or applicable local laws and regulations.
Additional funding may be provided as deemed appropriate. The
assets of the various plans are invested in corporate equities,
corporate debt instruments, 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 customs, and market circumstances, the
liabilities of a plan may exceed qualified plan assets. We
accrue for all such liabilities.
Benefit
Obligation and Plan Assets
The changes in the benefit
obligations and plan assets for the plans described above were
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Pension
|
|
|
Non-U.S. Pension
|
|
|
Postretirement
|
|
|
|
Benefits
|
|
|
Benefits
|
|
|
Medical Benefits
|
|
(In Millions)
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Change in projected benefit obligation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning benefit obligation
|
|
$
|
291
|
|
|
$
|
345
|
|
|
$
|
794
|
|
|
$
|
686
|
|
|
$
|
213
|
|
|
$
|
204
|
|
Service cost
|
|
|
14
|
|
|
|
18
|
|
|
|
64
|
|
|
|
70
|
|
|
|
12
|
|
|
|
12
|
|
Interest cost
|
|
|
16
|
|
|
|
17
|
|
|
|
42
|
|
|
|
37
|
|
|
|
12
|
|
|
|
11
|
|
Plan participants contributions
|
|
|
|
|
|
|
|
|
|
|
10
|
|
|
|
10
|
|
|
|
3
|
|
|
|
3
|
|
Actuarial (gain) loss
|
|
|
244
|
|
|
|
(31
|
)
|
|
|
(157
|
)
|
|
|
(59
|
)
|
|
|
(60
|
)
|
|
|
(11
|
)
|
Currency exchange rate changes
|
|
|
|
|
|
|
|
|
|
|
13
|
|
|
|
77
|
|
|
|
|
|
|
|
|
|
Plan amendments
|
|
|
|
|
|
|
(25
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan
curtailments1
|
|
|
|
|
|
|
|
|
|
|
(20
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan
settlements1
|
|
|
|
|
|
|
|
|
|
|
(27
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefits paid to plan participants
|
|
|
(23
|
)
|
|
|
(33
|
)
|
|
|
(28
|
)
|
|
|
(27
|
)
|
|
|
(7
|
)
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending projected benefit obligation
|
|
$
|
542
|
|
|
$
|
291
|
|
|
$
|
691
|
|
|
$
|
794
|
|
|
$
|
173
|
|
|
$
|
213
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Pension
|
|
|
Non-U.S. Pension
|
|
|
Postretirement
|
|
|
|
Benefits
|
|
|
Benefits
|
|
|
Medical Benefits
|
|
(In Millions)
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning fair value of plan assets
|
|
$
|
227
|
|
|
$
|
245
|
|
|
$
|
548
|
|
|
$
|
447
|
|
|
$
|
1
|
|
|
$
|
1
|
|
Actual return on plan assets
|
|
|
(6
|
)
|
|
|
15
|
|
|
|
(132
|
)
|
|
|
20
|
|
|
|
(1
|
)
|
|
|
(1
|
)
|
Employer contributions
|
|
|
105
|
|
|
|
|
|
|
|
80
|
|
|
|
52
|
|
|
|
5
|
|
|
|
4
|
|
Plan participants contributions
|
|
|
|
|
|
|
|
|
|
|
10
|
|
|
|
10
|
|
|
|
3
|
|
|
|
3
|
|
Currency exchange rate changes
|
|
|
|
|
|
|
|
|
|
|
22
|
|
|
|
49
|
|
|
|
|
|
|
|
|
|
Plan
settlements1
|
|
|
|
|
|
|
|
|
|
|
(43
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefits paid to participants
|
|
|
(23
|
)
|
|
|
(33
|
)
|
|
|
(28
|
)
|
|
|
(30
|
)
|
|
|
(7
|
)
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending fair value of plan
assets2
|
|
$
|
303
|
|
|
$
|
227
|
|
|
$
|
457
|
|
|
$
|
548
|
|
|
$
|
1
|
|
|
$
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
2008 curtailments and settlements were primarily related to
the divestiture of our NOR flash memory business for employees
at our Israel and Philippines facilities. |
|
2 |
|
As of December 27, 2008, our plan financial assets and
liabilities were valued using the provisions of
SFAS No. 157. |
91
INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The following table summarizes the
amounts recognized on the consolidated balance sheet as of
December 27, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Pension
|
|
|
Non-U.S. Pension
|
|
|
Postretirement
|
|
(In Millions)
|
|
Benefits
|
|
|
Benefits
|
|
|
Medical Benefits
|
|
Other long-term assets
|
|
$
|
|
|
|
$
|
39
|
|
|
$
|
|
|
Accrued compensation and benefits
|
|
|
|
|
|
|
(4
|
)
|
|
|
(4
|
)
|
Other long-term liabilities
|
|
|
(239
|
)
|
|
|
(269
|
)
|
|
|
(168
|
)
|
Accumulated other comprehensive loss (income)
|
|
|
307
|
|
|
|
167
|
|
|
|
(49
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized
|
|
$
|
68
|
|
|
$
|
(67
|
)
|
|
$
|
(221
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes the
amounts recorded to accumulated other comprehensive income
(loss) before taxes, as of December 27, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Pension
|
|
|
Non-U.S. Pension
|
|
|
Postretirement
|
|
(In Millions)
|
|
Benefits
|
|
|
Benefits
|
|
|
Medical Benefits
|
|
Net prior service cost
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(16
|
)
|
Net actuarial gain (loss)
|
|
|
(307
|
)
|
|
|
(165
|
)
|
|
|
65
|
|
Reclassification adjustment of transition obligation
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined benefit plans, net
|
|
$
|
(307
|
)
|
|
$
|
(167
|
)
|
|
$
|
49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes the
amounts recognized on the consolidated balance sheet as of
December 29, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Pension
|
|
|
Non-U.S. Pension
|
|
|
Postretirement
|
|
(In Millions)
|
|
Benefits
|
|
|
Benefits
|
|
|
Medical Benefits
|
|
Other long-term assets
|
|
$
|
|
|
|
$
|
53
|
|
|
$
|
|
|
Accrued compensation and benefits
|
|
|
|
|
|
|
(6
|
)
|
|
|
(10
|
)
|
Other long-term liabilities
|
|
|
(64
|
)
|
|
|
(293
|
)
|
|
|
(202
|
)
|
Accumulated other comprehensive loss
|
|
|
49
|
|
|
|
146
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized
|
|
$
|
(15
|
)
|
|
$
|
(100
|
)
|
|
$
|
(197
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in the aggregate data in
the following tables are the amounts applicable to our pension
plans, with accumulated benefit obligations in excess of plan
assets, as well as plans with projected benefit obligations in
excess of plan assets. Amounts related to such plans were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Pension
|
|
|
Non-U.S. Pension
|
|
|
|
Benefits
|
|
|
Benefits
|
|
(In Millions)
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Plans with accumulated benefit obligations in excess of plan
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated benefit obligations
|
|
$
|
|
|
|
$
|
|
|
|
$
|
447
|
|
|
$
|
155
|
|
Plan assets
|
|
$
|
|
|
|
$
|
|
|
|
$
|
255
|
|
|
$
|
31
|
|
Plans with projected benefit obligations in excess of plan
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligations
|
|
$
|
542
|
|
|
$
|
291
|
|
|
$
|
531
|
|
|
$
|
573
|
|
Plan assets
|
|
$
|
303
|
|
|
$
|
227
|
|
|
$
|
258
|
|
|
$
|
274
|
|
92
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
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
Discount rate
|
|
|
6.7
|
%
|
|
|
5.6
|
%
|
|
|
5.6
|
%
|
|
|
5.5
|
%
|
|
|
6.8
|
%
|
|
|
5.6
|
%
|
Rate of compensation increase
|
|
|
5.0
|
%
|
|
|
5.0
|
%
|
|
|
3.5
|
%
|
|
|
4.5
|
%
|
|
|
|
|
|
|
|
|
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
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
Discount rate
|
|
|
5.6
|
%
|
|
|
5.5
|
%
|
|
|
5.2
|
%
|
|
|
5.2
|
%
|
|
|
5.6
|
%
|
|
|
5.5
|
%
|
Expected return on plan assets
|
|
|
5.1
|
%
|
|
|
5.6
|
%
|
|
|
6.5
|
%
|
|
|
6.2
|
%
|
|
|
|
|
|
|
|
|
Rate of compensation increase
|
|
|
5.0
|
%
|
|
|
5.0
|
%
|
|
|
4.3
|
%
|
|
|
4.5
|
%
|
|
|
|
|
|
|
|
|
For the U.S. plans, we
developed the discount rate by calculating the benefit payment
streams by year to determine when benefit payments will be due.
We then matched the benefit payment streams by year to the AA
corporate bond rates to match the timing and amount of the
expected benefit payments and discounted back to the measurement
date to determine the appropriate discount rate. For the
non-U.S. plans,
we used two approaches to develop the discount rate. In certain
countries, we used a model consisting of a theoretical bond
portfolio for which the timing and amount of cash flows
approximates the estimated benefit payments of our pension
plans. In other countries, we analyzed current market long-term
bond rates and matched the bond maturity with the average
duration of the pension liabilities. We consider several factors
in developing the asset return assumptions for the U.S. and
non-U.S. plans.
We analyzed rates of return relevant to the country where each
plan is in effect and the investments applicable to the plan,
expectations of future returns, local actuarial projections, and
the projected long-term rates of return from 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)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Service cost
|
|
$
|
14
|
|
|
$
|
18
|
|
|
$
|
4
|
|
|
$
|
64
|
|
|
$
|
70
|
|
|
$
|
51
|
|
|
$
|
12
|
|
|
$
|
6
|
|
|
$
|
12
|
|
Interest cost
|
|
|
16
|
|
|
|
17
|
|
|
|
13
|
|
|
|
42
|
|
|
|
37
|
|
|
|
27
|
|
|
|
12
|
|
|
|
11
|
|
|
|
10
|
|
Expected return on plan assets
|
|
|
(11
|
)
|
|
|
(10
|
)
|
|
|
(12
|
)
|
|
|
(39
|
)
|
|
|
(29
|
)
|
|
|
(15
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of prior service cost
|
|
|
|
|
|
|
(25
|
)
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
4
|
|
|
|
4
|
|
|
|
4
|
|
Recognized net actuarial loss
|
|
|
1
|
|
|
|
7
|
|
|
|
|
|
|
|
6
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recognized curtailment
gains1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recognized settlement
losses1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$
|
20
|
|
|
$
|
7
|
|
|
$
|
5
|
|
|
$
|
86
|
|
|
$
|
90
|
|
|
$
|
63
|
|
|
$
|
28
|
|
|
$
|
21
|
|
|
$
|
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
2008 curtailments and settlements were primarily related to
the divestiture of our NOR flash memory business for employees
at our Israel and Philippines facilities. |
93
INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
U.S.
Plan Assets
In general, the investment
strategy for U.S. plan assets is to assure that the pension
assets are available to pay benefits as they come due and to
minimize market risk. When deemed appropriate, we may invest a
portion of the fund 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 U.S. plan assets are
managed to remain within the target allocation ranges listed
below. As of December 27, 2008, our plan assets were not
within our target allocation due to market volatility. At times
our allocation will temporarily fall outside the target
allocation range, as we re-allocate plan assets due to market
conditions, such as volatility and liquidity concerns, to
minimize market risk. The expected long-term rate of return for
the U.S. plan assets is 4.5%.
The asset allocation for our
U.S. Pension Plan at the end of fiscal years 2008 and 2007,
and the target allocation rate for 2009, by asset category, are
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of Plan Assets
|
Asset Category
|
|
Target Allocation
|
|
2008
|
|
2007
|
Equity securities
|
|
|
10%20%
|
|
|
|
7.5
|
%
|
|
|
15.0
|
%
|
Debt instruments
|
|
|
80%90%
|
|
|
|
92.5
|
%
|
|
|
85.0
|
%
|
Non-U.S.
Plan Assets
The investments of the
non-U.S. plans
are managed by insurance companies, third-party trustees, or
pension funds, consistent with regulations or market practice of
the country where the assets are invested. The investment
manager makes investment decisions within the guidelines set by
us or local regulations. The investment manager evaluates
performance by comparing the actual rate of return to the return
on other similar assets. Investments managed by qualified
insurance companies or pension funds under standard contracts
follow local regulations, and we are not actively involved in
their investment strategies. In general, the investment strategy
is designed to accumulate a diversified portfolio among markets,
asset classes, or individual securities in order to reduce
market risk and assure that the pension assets are available to
pay benefits as they come due. The average expected long-term
rate of return for the
non-U.S. plan
assets is 6.6%.
The asset allocation for our
non-U.S. plans,
excluding assets managed by qualified insurance companies, at
the end of fiscal years 2008 and 2007, and the target allocation
rate for 2009, by asset category, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of Plan Assets
|
Asset Category
|
|
Target Allocation
|
|
2008
|
|
2007
|
Equity securities
|
|
|
64.0%
|
|
|
|
64.0
|
%
|
|
|
67.0
|
%
|
Debt instruments
|
|
|
12.0%
|
|
|
|
12.0
|
%
|
|
|
8.0
|
%
|
Other
|
|
|
24.0%
|
|
|
|
24.0
|
%
|
|
|
25.0
|
%
|
Investment assets managed by
qualified insurance companies are invested as part of the
insurance companies general fund. We do not have control
over the target allocation of those investments. Those
investments made up 36% of total
non-U.S. plan
assets in 2008 (31% in 2007).
Funding
Expectations
Under applicable law for the
U.S. Pension Plan, we are not required to make any
contributions during 2009. Our expected funding for the
non-U.S. plans
during 2009 is approximately $62 million. We expect
employer contributions to the postretirement medical benefits
plan to be approximately $5 million during 2009.
94
INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Estimated
Future Benefit Payments
We expect the benefits to be paid
through 2018 from the U.S. and
non-U.S. pension
plans and other postretirement benefit plans to be approximately
$75 million annually.
Note 18:
Commitments
A portion of our capital equipment
and certain facilities is under operating leases that expire at
various dates through 2028. Additionally, portions of our land
are under leases that expire at various dates through 2062.
Rental expense was $141 million in 2008 ($154 million
in 2007 and $160 million in 2006).
Minimum rental commitments under
all non-cancelable leases with an initial term in excess of one
year were as follows as of December 27, 2008 (in millions):
|
|
|
|
|
Year Payable
|
|
|
|
2009
|
|
$
|
106
|
|
2010
|
|
|
75
|
|
2011
|
|
|
55
|
|
2012
|
|
|
44
|
|
2013
|
|
|
24
|
|
2014 and thereafter
|
|
|
46
|
|
|
|
|
|
|
Total
|
|
$
|
350
|
|
|
|
|
|
|
Commitments for construction or
purchase of property, plant and equipment totaled
$2.9 billion as of December 27, 2008
($2.3 billion as of December 29, 2007). Other purchase
obligations and commitments totaled $1.2 billion as of
December 27, 2008 ($1.7 billion as of
December 29, 2007). Other purchase obligations and
commitments include payments due under various types of
licenses, agreements to purchase raw material or other goods, as
well as payments due under non-contingent funding obligations.
Funding obligations include, for example, agreements to fund
various projects with other companies. In addition, we have
various contractual commitments with Micron, IMFT, and IMFS (see
Note 6: Equity Method and Cost Method
Investments).
Note 19:
Employee Equity Incentive Plans
Our equity incentive plans are
broad-based, long-term retention programs intended to attract
and retain talented employees and align stockholder and employee
interests.
In May 2007, stockholders approved
an extension of the 2006 Equity Incentive Plan (the 2006 Plan).
Stockholders approved 119 million additional shares for
issuance, increasing the total shares of common stock available
for issuance as equity awards to employees and non-employee
directors to 294 million shares. Of this amount, we
increased the maximum number of shares to be awarded as
non-vested shares (restricted stock) or non-vested share units
(restricted stock units) to 168 million shares. The
approval also extended the expiration date of the 2006 Plan to
June 2010. The 2006 Plan allows for time-based,
performance-based, and market-based vesting for equity incentive
awards. As of December 27, 2008, we had not issued any
performance-based or market-based equity incentive awards. As of
December 27, 2008, 174 million shares remained
available for future grant under the 2006 Plan. We may assume
the equity incentive plans and the outstanding equity awards of
certain acquired companies. Once they are assumed, we do not
grant additional shares under these plans.
We began issuing restricted stock
units in 2006. We issue shares on the date that the restricted
stock units vest. The majority of shares issued are net of the
statutory withholding requirements that we pay on behalf of our
employees. As a result, the actual number of shares issued will
be less than the number of restricted stock units granted. Prior
to vesting, restricted stock units do not have dividend
equivalent rights, do not have voting rights, and the shares
underlying the restricted stock units are not considered issued
and outstanding.
95
INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Equity awards granted to employees
in 2008 under our equity incentive plans generally vest over
4 years from the date of grant, and options expire
7 years from the date of grant. Equity awards granted to
key officers, senior-level employees, and key employees in
2008 may have delayed vesting beginning 2 to 5 years
from the date of grant, and options expire 7 to 10 years
from the date of grant.
The 2006 Stock Purchase Plan
allows eligible employees to purchase shares of our common stock
at 85% of the value of our common stock on specific dates. Under
the 2006 Stock Purchase Plan, we made 240 million shares of
common stock available for issuance through August 2011. As of
December 27, 2008, 188 million shares were available
for issuance under the 2006 Stock Purchase Plan.
Share-Based
Compensation
Effective January 1, 2006, we
adopted the provisions of SFAS No. 123(R), as
discussed in Note 2: Accounting Policies.
Share-based compensation recognized in 2008 was
$851 million ($952 million in 2007 and
$1,375 million in 2006).
In accordance with
SFAS No. 123(R), we adjust share-based compensation on
a quarterly basis for changes to our estimate of expected equity
award forfeitures based on our review of recent forfeiture
activity and expected future employee turnover. We recognize the
effect of adjusting the forfeiture rate for all expense
amortization after January 1, 2006 in the period that we
change the forfeiture estimate. The effect of forfeiture
adjustments in 2006, 2007, and 2008 was not significant.
The total share-based compensation
cost capitalized as part of inventory as of December 27,
2008 was $46 million ($41 million as of
December 29, 2007 and $72 million as of
December 30, 2006). During 2008, the tax benefit that we
realized for the tax deduction from option exercises and other
awards totaled $147 million ($265 million in 2007 and
$139 million in 2006).
We estimate the fair value of
restricted stock unit awards using the value of our common stock
on the date of grant, reduced by the present value of dividends
expected to be paid on our common stock prior to vesting. We
based the weighted average estimated values of restricted stock
unit grants, as well as the weighted average assumptions that we
used in calculating the fair value, on estimates at the date of
grant, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Estimated values
|
|
$
|
19.94
|
|
|
$
|
21.13
|
|
|
$
|
18.70
|
|
Risk-free interest rate
|
|
|
2.1
|
%
|
|
|
4.7
|
%
|
|
|
4.9
|
%
|
Dividend yield
|
|
|
2.6
|
%
|
|
|
2.0
|
%
|
|
|
2.0
|
%
|
We use the Black-Scholes option
pricing model to estimate the fair value of options granted
under our equity incentive plans and rights to acquire common
stock granted under our stock purchase plan. We based the
weighted average estimated values of employee stock option
grants and rights granted under the stock purchase plan, as well
as the weighted average assumptions used in calculating these
values, on estimates at the date of grant, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options
|
|
|
Stock Purchase Plan
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Estimated values
|
|
$
|
5.74
|
|
|
$
|
5.79
|
|
|
$
|
5.21
|
|
|
$
|
5.32
|
|
|
$
|
5.18
|
|
|
$
|
4.56
|
|
Expected life (in years)
|
|
|
5.0
|
|
|
|
5.0
|
|
|
|
4.9
|
|
|
|
.5
|
|
|
|
.5
|
|
|
|
.5
|
|
Risk-free interest rate
|
|
|
3.0
|
%
|
|
|
4.5
|
%
|
|
|
4.9
|
%
|
|
|
2.1
|
%
|
|
|
5.2
|
%
|
|
|
5.0
|
%
|
Volatility
|
|
|
37
|
%
|
|
|
26
|
%
|
|
|
27
|
%
|
|
|
35
|
%
|
|
|
28
|
%
|
|
|
29
|
%
|
Dividend yield
|
|
|
2.7
|
%
|
|
|
2.0
|
%
|
|
|
2.0
|
%
|
|
|
2.5
|
%
|
|
|
2.0
|
%
|
|
|
2.1
|
%
|
96
INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
We base the expected volatility on
implied volatility, because we have determined that implied
volatility is more reflective of market conditions and a better
indicator of expected volatility than historical volatility. We
use the simplified method of calculating expected life described
in SAB 107, as amended by SAB 110, due to significant
differences in the vesting terms and contractual life of current
option grants compared to our historical grants.
Restricted
Stock Unit Awards
Information with respect to
outstanding restricted stock unit activity is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Number of
|
|
|
Grant-Date
|
|
|
Aggregate
|
|
(In Millions, Except Per Share Amounts)
|
|
Shares
|
|
|
Fair Value
|
|
|
Fair
Value1
|
|
December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
30.0
|
|
|
$
|
18.70
|
|
|
|
|
|
Vested
|
|
|
|
|
|
|
|
|
|
$
|
|
|
Forfeited
|
|
|
(2.6
|
)
|
|
$
|
18.58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 30, 2006
|
|
|
27.4
|
|
|
$
|
18.71
|
|
|
|
|
|
Granted
|
|
|
32.8
|
|
|
$
|
21.13
|
|
|
|
|
|
Vested2
|
|
|
(5.9
|
)
|
|
$
|
18.60
|
|
|
$
|
131
|
|
Forfeited
|
|
|
(3.2
|
)
|
|
$
|
19.38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 29, 2007
|
|
|
51.1
|
|
|
$
|
20.24
|
|
|
|
|
|
Granted
|
|
|
32.9
|
|
|
$
|
19.94
|
|
|
|
|
|
Vested2
|
|
|
(12.1
|
)
|
|
$
|
19.75
|
|
|
$
|
270
|
|
Forfeited
|
|
|
(4.6
|
)
|
|
$
|
20.12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 27, 2008
|
|
|
67.3
|
|
|
$
|
20.18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected to vest as of December 27,
20083
|
|
|
60.5
|
|
|
$
|
20.20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Represents the value of Intel common stock on the date that
the restricted stock units vest. On the grant date, the fair
value for these vested awards was $239 million in 2008 and
$111 million in 2007. |
|
2 |
|
The number of restricted stock units vested includes shares
that we withheld on behalf of employees to satisfy the statutory
tax withholding requirements. |
|
3 |
|
Restricted stock units that are expected to vest are net of
estimated future forfeitures. |
As of December 27, 2008,
there was $937 million in unrecognized compensation costs
related to restricted stock units granted under our equity
incentive plans. We expect to recognize those costs over a
weighted average period of 1.4 years.
97
INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Stock
Option Awards
Options outstanding that have
vested and are expected to vest as of December 27, 2008 are
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
Aggregate
|
|
|
|
Number of
|
|
|
Weighted
|
|
|
Remaining
|
|
|
Intrinsic
|
|
|
|
Shares
|
|
|
Average
|
|
|
Contractual Term
|
|
|
Value1
|
|
|
|
(In Millions)
|
|
|
Exercise Price
|
|
|
(In Years)
|
|
|
(In Millions)
|
|
Vested
|
|
|
517.0
|
|
|
$
|
28.78
|
|
|
|
3.0
|
|
|
$
|
5
|
|
Expected to
vest2
|
|
|
88.1
|
|
|
$
|
21.88
|
|
|
|
4.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
605.1
|
|
|
$
|
27.77
|
|
|
|
3.3
|
|
|
$
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Amounts represent the difference between the exercise price
and $14.18, the closing price of Intel common stock on
December 27, 2008, as reported on The NASDAQ Global Select
Market*, for all in-the-money options outstanding. |
|
2 |
|
Options outstanding that are expected to vest are net of
estimated future option forfeitures. |
Options with a fair value of
$459 million completed vesting during 2008. As of
December 27, 2008, there was $335 million in
unrecognized compensation costs related to stock options granted
under our equity incentive plans. We expect to recognize those
costs over a weighted average period of 1.2 years.
Additional information with
respect to stock option activity is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Number of
|
|
|
Average
|
|
|
Aggregate Intrinsic
|
|
(In Millions, Except Per Share Amounts)
|
|
Shares
|
|
|
Exercise Price
|
|
|
Value1
|
|
December 31, 2005
|
|
|
899.9
|
|
|
$
|
26.71
|
|
|
|
|
|
Grants
|
|
|
52.3
|
|
|
$
|
20.04
|
|
|
|
|
|
Exercises
|
|
|
(47.3
|
)
|
|
$
|
12.83
|
|
|
$
|
364
|
|
Cancellations and forfeitures
|
|
|
(65.4
|
)
|
|
$
|
28.07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 30, 2006
|
|
|
839.5
|
|
|
$
|
26.98
|
|
|
|
|
|
Grants
|
|
|
24.6
|
|
|
$
|
22.63
|
|
|
|
|
|
Exercises
|
|
|
(132.8
|
)
|
|
$
|
19.78
|
|
|
$
|
552
|
|
Cancellations and forfeitures
|
|
|
(65.4
|
)
|
|
$
|
31.97
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 29, 2007
|
|
|
665.9
|
|
|
$
|
27.76
|
|
|
|
|
|
Grants
|
|
|
24.9
|
|
|
$
|
20.81
|
|
|
|
|
|
Exercises
|
|
|
(33.6
|
)
|
|
$
|
19.42
|
|
|
$
|
101
|
|
Cancellations and forfeitures
|
|
|
(42.8
|
)
|
|
$
|
31.14
|
|
|
|
|
|
Expirations
|
|
|
(2.4
|
)
|
|
$
|
22.84
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 27, 2008
|
|
|
612.0
|
|
|
$
|
27.70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 30, 2006
|
|
|
567.6
|
|
|
$
|
28.66
|
|
|
|
|
|
December 29, 2007
|
|
|
528.2
|
|
|
$
|
29.04
|
|
|
|
|
|
December 27, 2008
|
|
|
517.0
|
|
|
$
|
28.78
|
|
|
|
|
|
|
|
|
1 |
|
Amounts represent the difference between the exercise price
and the value of Intel common stock at the time of exercise. |
98
INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The following table summarizes
information about options outstanding as of December 27,
2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding Options
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
Exercisable Options
|
|
|
|
Number of
|
|
|
Remaining
|
|
|
Weighted
|
|
|
Number of
|
|
|
Weighted
|
|
|
|
Shares
|
|
|
Contractual Life
|
|
|
Average
|
|
|
Shares
|
|
|
Average
|
|
Range of Exercise Prices
|
|
(In Millions)
|
|
|
(In Years)
|
|
|
Exercise Price
|
|
|
(In Millions)
|
|
|
Exercise Price
|
|
$0.05$15.00
|
|
|
0.6
|
|
|
|
3.4
|
|
|
$
|
5.26
|
|
|
|
0.6
|
|
|
$
|
5.26
|
|
$15.01$20.00
|
|
|
86.5
|
|
|
|
4.4
|
|
|
$
|
18.37
|
|
|
|
64.7
|
|
|
$
|
18.40
|
|
$20.01$25.00
|
|
|
274.5
|
|
|
|
3.6
|
|
|
$
|
22.53
|
|
|
|
211.0
|
|
|
$
|
22.67
|
|
$25.01$30.00
|
|
|
122.2
|
|
|
|
4.1
|
|
|
$
|
27.23
|
|
|
|
116.2
|
|
|
$
|
27.25
|
|
$30.01$35.00
|
|
|
48.9
|
|
|
|
1.7
|
|
|
$
|
31.35
|
|
|
|
45.2
|
|
|
$
|
31.33
|
|
$35.01$40.00
|
|
|
20.0
|
|
|
|
1.6
|
|
|
$
|
38.43
|
|
|
|
20.0
|
|
|
$
|
38.43
|
|
$40.01$72.88
|
|
|
59.3
|
|
|
|
1.4
|
|
|
$
|
59.85
|
|
|
|
59.3
|
|
|
$
|
59.85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
612.0
|
|
|
|
3.4
|
|
|
$
|
27.70
|
|
|
|
517.0
|
|
|
$
|
28.78
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
These options will expire if they
are not exercised by specific dates through January 2018. Option
exercise prices for options exercised during the three-year
period ended December 27, 2008 ranged from $0.05 to $27.27.
Stock
Purchase Plan
Approximately 72% of our employees
were participating in our stock purchase plan as of
December 27, 2008. Employees purchased 25.9 million
shares in 2008 for $453 million under the 2006 Stock
Purchase Plan (26.1 million shares for $428 million in
2007). Employees purchased 26.0 million shares in 2006 for
$436 million under the now expired 1976 Stock Participation
Plan. As of December 27, 2008, there was $18 million
in unrecognized compensation costs related to rights to acquire
common stock under our stock purchase plan. We expect to
recognize those costs over a weighted average period of one
month.
Note 20:
Common Stock Repurchases
Common
Stock Repurchase Program
We have an ongoing authorization,
amended in November 2005, from our Board of Directors to
repurchase up to $25 billion in shares of our common stock
in open market or negotiated transactions. During 2008, we
repurchased 324 million shares of common stock at a cost of
$7.1 billion (111 million shares at a cost of
$2.75 billion during 2007 and 226 million shares at a
cost of $4.6 billion during 2006). We have repurchased and
retired 3.3 billion shares at a cost of approximately
$67 billion since the program began in 1990. As of
December 27, 2008, $7.4 billion remained available for
repurchase under the existing repurchase authorization. A
portion of our purchases in 2008 and 2007 was executed under
privately negotiated forward purchase agreements.
Restricted
Stock Unit Withholdings
We issue restricted stock units as
part of our equity incentive plans. For the majority of
restricted stock units granted, the number of shares issued on
the date the restricted stock units vest is net of the statutory
withholding requirements that we pay on behalf of our employees.
During 2008, we withheld 3.5 million shares
(1.7 million shares during 2007) to satisfy
$78 million ($38 million during 2007) of
employees tax obligations. Although shares withheld are
not issued, they are treated as common stock repurchases for
accounting and disclosure purposes, as they reduce the number of
shares that would have been issued upon vesting.
99
INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Note 21:
Earnings Per Share
We computed our basic and diluted
earnings per common share as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Millions, Except Per Share Amounts)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Net income
|
|
$
|
5,292
|
|
|
$
|
6,976
|
|
|
$
|
5,044
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstandingbasic
|
|
|
5,663
|
|
|
|
5,816
|
|
|
|
5,797
|
|
Dilutive effect of employee equity incentive plans
|
|
|
34
|
|
|
|
69
|
|
|
|
32
|
|
Dilutive effect of convertible debt
|
|
|
51
|
|
|
|
51
|
|
|
|
51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstandingdiluted
|
|
|
5,748
|
|
|
|
5,936
|
|
|
|
5,880
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share
|
|
$
|
0.93
|
|
|
$
|
1.20
|
|
|
$
|
0.87
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share
|
|
$
|
0.92
|
|
|
$
|
1.18
|
|
|
$
|
0.86
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We computed our basic earnings per
common share using net income and the weighted average number of
common shares outstanding during the period. We computed diluted
earnings per common share using net income and the weighted
average number of common shares outstanding plus potentially
dilutive common shares outstanding during the period.
Potentially dilutive common shares are determined by applying
the treasury stock method to the assumed exercise of outstanding
stock options, the assumed vesting of outstanding restricted
stock units, and the assumed issuance of common stock under the
stock purchase plan, and applying the if-converted method for
the assumed conversion of debt.
For 2008, we excluded
484 million outstanding weighted average stock options
(417 million in 2007 and 693 million in
2006) from the calculation of diluted earnings per common
share because the exercise prices of these stock options were
greater than or equal to the average market value of the common
shares. These options could be included in the calculation in
the future if the average market value of the common shares
increases and is greater than the exercise price of these
options.
Note 22:
Comprehensive Income
The components of total
comprehensive income were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Millions)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Net income
|
|
$
|
5,292
|
|
|
$
|
6,976
|
|
|
$
|
5,044
|
|
Other comprehensive income (loss)
|
|
|
(654
|
)
|
|
|
318
|
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
$
|
4,638
|
|
|
$
|
7,294
|
|
|
$
|
5,070
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100
INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The components of other
comprehensive income (loss) and related tax effects were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
Before
|
|
|
|
|
|
Net of
|
|
|
Before
|
|
|
|
|
|
Net of
|
|
|
Before
|
|
|
|
|
|
Net of
|
|
(In Millions)
|
|
Tax
|
|
|
Tax
|
|
|
Tax
|
|
|
Tax
|
|
|
Tax
|
|
|
Tax
|
|
|
Tax
|
|
|
Tax
|
|
|
Tax
|
|
Change in unrealized holding gain (loss) on investments
|
|
$
|
(764
|
)
|
|
$
|
279
|
|
|
$
|
(485
|
)
|
|
$
|
420
|
|
|
$
|
(155
|
)
|
|
$
|
265
|
|
|
$
|
94
|
|
|
$
|
(33
|
)
|
|
$
|
61
|
|
Less: adjustment for (gain) loss on investments included
in net income
|
|
|
34
|
|
|
|
(12
|
)
|
|
|
22
|
|
|
|
(85
|
)
|
|
|
31
|
|
|
|
(54
|
)
|
|
|
(75
|
)
|
|
|
27
|
|
|
|
(48
|
)
|
Change in unrealized holding gain (loss) on derivatives
|
|
|
(23
|
)
|
|
|
8
|
|
|
|
(15
|
)
|
|
|
80
|
|
|
|
(21
|
)
|
|
|
59
|
|
|
|
59
|
|
|
|
(22
|
)
|
|
|
37
|
|
Less: adjustment for amortization of (gain) loss on
derivatives included in net income
|
|
|
(58
|
)
|
|
|
21
|
|
|
|
(37
|
)
|
|
|
(55
|
)
|
|
|
16
|
|
|
|
(39
|
)
|
|
|
9
|
|
|
|
(3
|
)
|
|
|
6
|
|
Change in prior service costs
|
|
|
5
|
|
|
|
(2
|
)
|
|
|
3
|
|
|
|
4
|
|
|
|
(1
|
)
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in actuarial loss
|
|
|
(220
|
)
|
|
|
78
|
|
|
|
(142
|
)
|
|
|
106
|
|
|
|
(22
|
)
|
|
|
84
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum pension liability
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(36
|
)
|
|
|
6
|
|
|
|
(30
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive income (loss)
|
|
$
|
(1,026
|
)
|
|
$
|
372
|
|
|
$
|
(654
|
)
|
|
$
|
470
|
|
|
$
|
(152
|
)
|
|
$
|
318
|
|
|
$
|
51
|
|
|
$
|
(25
|
)
|
|
$
|
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The components of accumulated
other comprehensive income (loss), net of tax, were as follows:
|
|
|
|
|
|
|
|
|
(In Millions)
|
|
2008
|
|
|
2007
|
|
Accumulated net unrealized holding gain (loss) on
available-for-sale investments
|
|
$
|
(139
|
)
|
|
$
|
324
|
|
Accumulated net unrealized holding gain on derivatives
|
|
|
48
|
|
|
|
100
|
|
Accumulated net prior service costs
|
|
|
(10
|
)
|
|
|
(13
|
)
|
Accumulated net actuarial losses
|
|
|
(290
|
)
|
|
|
(148
|
)
|
Accumulated transition obligation
|
|
|
(2
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
Total accumulated other comprehensive income (loss)
|
|
$
|
(393
|
)
|
|
$
|
261
|
|
|
|
|
|
|
|
|
|
|
For 2008, we reclassified
$37 million of net deferred holding gains on derivatives
from accumulated other comprehensive income (loss) to cost of
sales and operating expenses related to our
non-U.S.-currency
capital purchase and operating cost hedging programs (gains of
$39 million in 2007 and losses of $6 million in 2006).
We estimate that we will reclassify less than $15 million
of net derivative losses included in other accumulated
comprehensive income (loss) into earnings within the next
12 months. 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 cash flow
hedges. Additionally, for all periods presented, there was not a
significant impact on results of operations from discontinued
cash flow hedges as a result of forecasted transactions that did
not occur.
The estimated net prior service
cost, actuarial loss, and transition obligation for the defined
benefit plan that will be amortized from accumulated other
comprehensive income (loss) into net periodic benefit cost
during fiscal year 2009 are $4 million, $28 million,
and zero, respectively.
101
INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Note 23:
Taxes
Income before taxes and the
provision for taxes consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Millions)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Income before taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
$
|
6,117
|
|
|
$
|
6,520
|
|
|
$
|
4,532
|
|
Non-U.S.
|
|
|
1,569
|
|
|
|
2,646
|
|
|
|
2,536
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income before taxes
|
|
$
|
7,686
|
|
|
$
|
9,166
|
|
|
$
|
7,068
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
2,781
|
|
|
$
|
1,865
|
|
|
$
|
1,997
|
|
State
|
|
|
(38
|
)
|
|
|
111
|
|
|
|
15
|
|
Non-U.S.
|
|
|
345
|
|
|
|
445
|
|
|
|
337
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,088
|
|
|
|
2,421
|
|
|
|
2,349
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(668
|
)
|
|
|
(140
|
)
|
|
|
(305
|
)
|
Other
|
|
|
(26
|
)
|
|
|
(91
|
)
|
|
|
(20
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(694
|
)
|
|
|
(231
|
)
|
|
|
(325
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total provision for taxes
|
|
$
|
2,394
|
|
|
$
|
2,190
|
|
|
$
|
2,024
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
31.1
|
%
|
|
|
23.9
|
%
|
|
|
28.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The difference between the tax
provision at the statutory federal income tax rate and the tax
provision as a percentage of income before income taxes was as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Percentages)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Statutory federal income tax rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
Increase (reduction) in rate resulting from:
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-U.S.
income taxed at different rates
|
|
|
(4.2
|
)
|
|
|
(4.7
|
)
|
|
|
(4.3
|
)
|
Settlements
|
|
|
(0.5
|
)
|
|
|
(5.3
|
)
|
|
|
|
|
Research and development tax credits
|
|
|
(1.4
|
)
|
|
|
(1.3
|
)
|
|
|
(0.8
|
)
|
Domestic manufacturing deduction benefit
|
|
|
(1.7
|
)
|
|
|
(1.1
|
)
|
|
|
(0.9
|
)
|
Deferred tax asset valuation allowanceunrealized losses
|
|
|
3.4
|
|
|
|
|
|
|
|
|
|
Export sales benefit
|
|
|
|
|
|
|
|
|
|
|
(2.1
|
)
|
Other
|
|
|
0.5
|
|
|
|
1.3
|
|
|
|
1.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax rate
|
|
|
31.1
|
%
|
|
|
23.9
|
%
|
|
|
28.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During 2008, income tax benefits
attributable to equity-based compensation transactions that were
allocated to stockholders equity totaled $8 million
($123 million in 2007 and $126 million in 2006).
102
INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
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 our deferred tax assets and liabilities at fiscal
year-ends were as follows:
|
|
|
|
|
|
|
|
|
(In Millions)
|
|
2008
|
|
|
2007
|
|
|
Deferred tax assets
|
|
|
|
|
|
|
|
|
Accrued compensation and other benefits
|
|
$
|
529
|
|
|
$
|
472
|
|
Deferred income
|
|
|
160
|
|
|
|
222
|
|
Share-based compensation
|
|
|
669
|
|
|
|
542
|
|
Inventory
|
|
|
602
|
|
|
|
438
|
|
Unrealized losses on equity investments and derivatives
|
|
|
762
|
|
|
|
116
|
|
State credits and net operating losses
|
|
|
138
|
|
|
|
133
|
|
Investment in foreign subsidiaries
|
|
|
50
|
|
|
|
32
|
|
Other, net
|
|
|
337
|
|
|
|
326
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,247
|
|
|
|
2,281
|
|
Valuation allowance
|
|
|
(358
|
)
|
|
|
(133
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
$
|
2,889
|
|
|
$
|
2,148
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities
|
|
|
|
|
|
|
|
|
Property, plant and equipment
|
|
$
|
(507
|
)
|
|
$
|
(609
|
)
|
Licenses and intangibles
|
|
|
(54
|
)
|
|
|
(137
|
)
|
Unrealized gains on investments and derivatives
|
|
|
|
|
|
|
(227
|
)
|
Other, net
|
|
|
(207
|
)
|
|
|
(119
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
$
|
(768
|
)
|
|
$
|
(1,092
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
2,121
|
|
|
$
|
1,056
|
|
|
|
|
|
|
|
|
|
|
Reported as:
|
|
|
|
|
|
|
|
|
Current deferred tax assets
|
|
$
|
1,390
|
|
|
$
|
1,186
|
|
Non-current deferred tax
assets1
|
|
|
777
|
|
|
|
281
|
|
Non-current deferred tax liabilities
|
|
|
(46
|
)
|
|
|
(411
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred taxes
|
|
$
|
2,121
|
|
|
$
|
1,056
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Included within other long-term assets on the consolidated
balance sheets. |
We had state tax credits of
$158 million as of December 27, 2008 that will expire
between 2009 and 2019. The net deferred tax asset valuation
allowance was $358 million as of December 27, 2008
compared to $133 million as of December 29, 2007. The
valuation allowance is based on our assessment that it is more
likely than not that certain deferred tax assets will not be
realized in the foreseeable future. $258 million of the
valuation allowance as of December 27, 2008 was related to
investment asset impairments, and the remaining
$100 million of the valuation allowance was related to
unrealized state credit carry forwards.
As of December 27, 2008,
U.S. deferred income taxes have not been provided for on a
cumulative total of approximately $7.5 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.
We currently intend to reinvest those earnings in operations
outside the U.S.
Effective at the beginning of the
first quarter of 2007, we adopted the provisions of FIN 48.
As a result of the implementation of FIN 48, we reduced the
liability for net unrecognized tax benefits by
$181 million, and accounted for the reduction as a
cumulative effect of a change in accounting principle that
resulted in an increase to retained earnings of
$181 million.
103
INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Long-term income taxes payable
include uncertain tax positions, reduced by the associated
federal deduction for state taxes and
non-U.S. tax
credits, and may also include other long-term tax liabilities
that are not uncertain but have not yet been paid.
The aggregate changes in the
balance of gross unrecognized tax benefits were as follows:
|
|
|
|
|
(In Millions)
|
|
|
|
Beginning balance as of December 31, 2006 (date of
adoption)
|
|
$
|
1,896
|
|
Settlements and effective settlements with tax authorities and
related remeasurements
|
|
|
(1,243
|
)
|
Lapse of statute of limitations
|
|
|
|
|
Increases in balances related to tax positions taken during
prior periods
|
|
|
106
|
|
Decreases in balances related to tax positions taken during
prior periods
|
|
|
(26
|
)
|
Increases in balances related to tax positions taken during
current period
|
|
|
61
|
|
|
|
|
|
|
December 29, 2007
|
|
$
|
794
|
|
Settlements and effective settlements with tax authorities and
related remeasurements
|
|
|
(51
|
)
|
Lapse of statute of limitations
|
|
|
|
|
Increases in balances related to tax positions taken during
prior periods
|
|
|
72
|
|
Decreases in balances related to tax positions taken during
prior periods
|
|
|
(187
|
)
|
Increases in balances related to tax positions taken during
current period
|
|
|
116
|
|
|
|
|
|
|
December 27, 2008
|
|
$
|
744
|
|
|
|
|
|
|
During 2007, the
U.S. Internal Revenue Service (IRS) closed its examination
of our tax returns for the years 1999 through 2002, resolving
issues related to the tax benefits for export sales as well as a
number of other issues. Additionally, we reached a settlement
with the IRS for years 2003 through 2005 with respect to the tax
benefits for export sales. In connection with the
$739 million settlement with the IRS, we reversed long-term
income taxes payable, which resulted in a $276 million tax
benefit in 2007.
Also during 2007, we effectively
settled with the IRS on several other matters related to the
audit for the 2003 and 2004 tax years, despite the fact that the
IRS audit for those years remains open. The result of
effectively settling those positions and the process of
re-evaluating, based on all available information and certain
required remeasurements, was a reduction of $389 million in
the balance of our gross unrecognized tax benefits,
$155 million of which resulted in a tax benefit in 2007.
If the remaining balance of
$744 million of unrecognized tax benefits as of
December 27, 2008 ($794 million as of
December 29, 2007) were realized in a future period,
it would result in a tax benefit of $590 million and a
reduction of the effective tax rate ($661 million as of
December 29, 2007).
During all years presented, we
recognized interest and penalties related to unrecognized tax
benefits within the provision for taxes on the consolidated
statements of income. Therefore, no change was necessary upon
adoption of FIN 48. In 2008, we recognized $6 million
in interest and penalties. In 2007, we recognized a net benefit
of $142 million, primarily due to the reversal of accrued
interest and penalties related to the settlement activity
described above. As of December 27, 2008, we had
$153 million of accrued interest and penalties related to
unrecognized tax benefits ($115 million as of
December 29, 2007).
During 2008, we reached a
settlement with the IRS and several state tax authorities
related to prior years resulting in payments of $51 million and
a decrease in balances related to tax positions taken during
prior periods of $103 million.
Although the timing of the
resolution
and/or
closure on audits is highly uncertain, it is reasonably possible
that the balance of gross unrecognized tax benefits could
significantly change in the next 12 months. Given the
number of years remaining subject to examination and the number
of matters being examined, we are unable to estimate the full
range of possible adjustments to the balance of gross
unrecognized tax benefits. However, we can reasonably expect a
minimum reduction of $80 million of our existing gross
unrealized tax benefits upon settlement or effective settlement
with the various tax authorities, the closure of certain audits,
and the lapse of statute of limitations.
104
INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
We file U.S. federal,
U.S. state, and
non-U.S. tax
returns. For U.S. state and
non-U.S. tax
returns, we are generally no longer subject to tax examinations
for years prior to 1996. For U.S. federal tax returns, we
are no longer subject to tax examination for years prior to 2003.
Note 24:
Contingencies
Legal
Proceedings
We are currently a party to
various legal proceedings, including those noted in this
section. While management presently believes that the ultimate
outcome of these proceedings, individually and in the aggregate,
will not materially harm the companys financial position,
cash flows, or overall trends in results of operations, legal
proceedings are subject to inherent uncertainties, and
unfavorable rulings could occur. An unfavorable ruling could
include money damages or, in matters for which injunctive relief
or other conduct remedies are sought, an injunction prohibiting
us from selling one or more products at all or in particular
ways. Were unfavorable final outcomes to occur, there exists the
possibility of a material adverse impact on our business,
results of operation, financial position, and overall trends.
Except as may be otherwise indicated, the outcomes in these
matters are not reasonably estimable.
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
A number of proceedings, described
below, generally challenge certain of our competitive practices,
contending generally that we improperly condition price rebates
and other discounts on our microprocessors on exclusive or near
exclusive dealing by some of our customers. We believe that we
compete lawfully and that our marketing practices benefit our
customers and our stockholders, and we will continue to
vigorously defend ourselves. The distractions caused by
challenges to our business practices, however, are undesirable,
and the legal and other costs associated with defending our
position have been and continue to be significant. We assume, as
should investors, that these challenges could continue for a
number of years and may require the investment of substantial
additional management time and substantial financial resources
to explain and defend our position. While management presently
believes that the ultimate outcome of these proceedings,
individually and in the aggregate, will not materially harm the
companys financial position, cash flows, or overall trends
in results of operations, these litigation matters and the
related government investigations are subject to inherent
uncertainties, and unfavorable rulings could occur. An
unfavorable ruling could include substantial money damages and,
in matters in which injunctive relief or other conduct remedies
are sought, an injunction or other order prohibiting us from
selling one or more products at all or in particular ways. Were
unfavorable final outcomes to occur, our business, results of
operation, financial position, and overall trends could be
materially harmed.
In June 2005, AMD filed a
complaint in the United States District Court for the District
of Delaware alleging that we and our Japanese subsidiary engaged
in various actions in violation of the Sherman Act and the
California Business and Professions Code, including, among other
things, providing discounts and rebates to our manufacturer and
distributor customers conditioned on exclusive or near exclusive
dealing that allegedly unfairly interfered with AMDs
ability to sell its microprocessors, interfering with certain
AMD product launches, and interfering with AMDs
participation in certain industry standards-setting groups.
AMDs complaint seeks unspecified treble damages, punitive
damages, an injunction requiring Intel to cease any conduct
found to be unlawful, and attorneys fees and costs. We
have answered the complaint, denying the material allegations
and asserting various affirmative defenses. The discovery
cut-off of the AMD litigation is set for May 1, 2009. In
February 2007, we reported to the Court that we had discovered
certain lapses in our retention of electronic documents. We then
stipulated to a court order requiring us to further investigate
and report on those lapses, as well as develop a plan to
remediate the issues. We completed the investigation and
provided detailed information to the Court and AMD throughout
2007 and 2008. The Court also approved our remediation plan,
which is now almost completed. The Court granted our request for
an order to permit discovery against AMD in order to investigate
its retention practices, including potential lapses in
AMDs retention of electronic documents. The parties have
largely completed document discovery and are in the process of
taking depositions of current and former employees and of third
parties. The AMD litigation currently is scheduled for trial to
commence on February 15, 2010.
AMDs Japanese subsidiary
also filed suits in the Tokyo High Court and the Tokyo District
Court against our Japanese subsidiary, asserting violations of
Japans Antimonopoly Law and alleging damages in each suit
of approximately $55 million, plus various other costs and
fees. Proceedings in those matters are ongoing.
105
INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
In addition, at least 82 separate
class actions have been filed in the U.S. District Courts
for the Northern District of California, Southern District of
California, District of Idaho, District of Nebraska, District of
New Mexico, District of Maine, and District of Delaware, as well
as in various California, Kansas, and Tennessee state courts.
These actions generally repeat AMDs allegations and assert
various consumer injuries, including that consumers in various
states have been injured by paying higher prices for computers
containing our microprocessors. All of the federal class actions
and the Kansas and Tennessee state court class actions have been
or will be consolidated by the Multidistrict Litigation Panel to
the District of Delaware and are being coordinated for pre-trial
purposes with the AMD litigation. The putative class in the
coordinated actions has moved for class certification, which we
are in the process of opposing. All California class actions
have been consolidated to the Superior Court of California in
Santa Clara County. The plaintiffs in the California
actions have moved for class certification, which we are in the
process of opposing. At our request, the Court in the California
actions has agreed to delay ruling on this motion until after
the Delaware Federal Court rules on the similar motion in the
coordinated actions.
We dispute AMDs claims and
the
class-action
claims, and intend to defend the lawsuits vigorously.
We are also subject to certain
antitrust regulatory inquiries. In 2001, the European Commission
(EC) commenced an investigation regarding claims by AMD that we
used unfair business practices to persuade clients to buy our
microprocessors. The EC sent us a Statement of Objections (SO)
in July 2007 alleging that certain Intel marketing and pricing
practices amounted to an abuse of a dominant position that
infringed European law. The SO recognized that such allegations
are preliminary, not final, conclusions. We responded to those
allegations in January 2008, and a hearing was held in March
2008. In February 2008, the EC initiated an inspection of
documents at our Feldkirchen, Germany offices. We also received
additional requests for information from the EC. On
July 17, 2008, the EC sent us a Supplementary Statement of
Objections (SSO) alleging that certain Intel marketing and
pricing practices amounted to an abuse of a dominant position
that infringed European law. The SSO recognizes that such
allegations are preliminary, not final, conclusions.
In October 2008, we filed an
appeal with the Court of First Instance (CFI) in Europe related
to procedural rulings of the EC concerning Intels response
to the SSO. In the appeal, we asked the CFI to overrule EC
decisions that limit the evidence available to Intel and that we
believe will hinder Intels ability to conduct a fair and
effective defense against the allegations contained in the SSO.
On January 27, 2009, the CFI rejected Intels appeal,
ruling that Intels requests were inadmissible and would
not be considered by the Court at this time. Intel filed a
response to the SSO on February 5, 2009.
On December 19, 2008, Intel
received a Letter of Fact from the EC, which
included additional evidentiary material related to the original
SO that the EC provided to Intel as a courtesy and
not because of any obligation to do so. In addition,
the EC stated that it cannot be excluded at this stage of
the procedure that the [EC] may adopt a decision adverse
to Intel pursuant to Article 7 of the Council Regulation on
the implementation of the rules on competition laid down in
Articles 81 and 82 of the EC Treaty. The ECs letter
outlined certain alleged evidence that the EC may rely on in
reaching any such decision.
With respect to both the SO and
the SSO, the options available to the EC include taking no
action, imposing a monetary fine,
and/or
ordering Intel to modify or terminate certain marketing and
pricing practices. The ECs rules provide that the maximum
monetary fine could equal 10% of Intels global turnover
for all products and services for the prior fiscal year. Any
such decision would be subject to appeal. Intel lacks sufficient
information to predict the ECs future course of action,
and both the outcome and the range of any potential actions by
the EC are not reasonably estimable.
In June 2005, we received an
inquiry from the Korea Fair Trade Commission (KFTC) requesting
documents from our Korean subsidiary related to marketing and
rebate programs that we entered into with Korean PC
manufacturers. In February 2006, the KFTC initiated an
inspection of documents at our offices in Korea. In September
2007, the KFTC served us an Examination Report alleging that
sales to two customers during parts of 20022005 violated
Koreas Monopoly Regulation and Fair Trade Act. In December
2007, we submitted our written response to the KFTC. In February
2008, the KFTCs examiner submitted a written reply to our
response. In March, we submitted a further response. In April,
we participated in a pre-hearing conference before the KFTC, and
we participated in formal hearings in May and June 2008. In June
2008, the KFTC announced its intent to fine us approximately
$25 million for providing discounts to Samsung Electronics
Co., Ltd. and TriGem Computer Inc. On November 7, 2008, the
KFTC issued a final written decision concluding that
Intels discounts had violated Korean antitrust law and
imposing a fine on Intel of approximately $20 million,
which Intel paid in January 2009. On December 9, 2008,
Intel appealed this decision by filing a lawsuit in the Seoul
High Court seeking to overturn the KFTCs decision. That
lawsuit is pending.
106
INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
In January 2008, we received a
subpoena from the Attorney General of the State of New York
requesting documents and information to assist in its
investigation of whether there have been any agreements or
arrangements establishing or maintaining a monopoly in the sale
of microprocessors in violation of federal or New York antitrust
laws. We continue to cooperate and provide requested information
in connection with this investigation.
In June 2008, the
U.S. Federal Trade Commission announced a formal
investigation into our sales practices. We continue to cooperate
and provide requested information in connection with this
investigation.
We dispute any claims made in
these investigations that Intel has acted unlawfully. We intend
to cooperate with and respond to these investigations as
appropriate, and we expect that these matters will be acceptably
resolved.
Intel
Corporation v. Commonwealth Scientific and Industrial
Research Organisation (CSIRO)
In May 2005, Intel filed a lawsuit
in the United States District Court for the Northern District of
California against CSIRO, an Australian research institute.
CSIRO had sent letters to Intel customers claiming that products
compliant with the IEEE 802.11a and 802.11g standards infringe
CSIROs U.S. Patent No. 5,487,069 (the 069
patent). Intels lawsuit seeks a declaration that the CSIRO
patent is invalid and that no Intel product infringes it. Dell
Inc. is a co-declaratory judgment plaintiff with Intel;
Microsoft Corporation, Netgear Inc., and Hewlett-Packard Company
filed a similar, separate lawsuit against CSIRO. In its amended
answer, CSIRO claimed that various Intel products that practice
the IEEE 802.11a, 802.11g,
and/or draft
802.11n standards infringe the 069 patent. Trial is set
for April 13, 2009. CSIROs complaint seeks, among
other remedies, injunctive relief and damages. CSIRO has stated
in pre-trial proceedings that it intends to seek damages in the
form of a royalty for alleged infringement in an amount that, if
CSIRO prevailed on its claims against all defendants, could
result in a judgment against Intel in excess of
$400 million. In a separate lawsuit (in which Intel is not
involved) against a third-party vendor of wireless networking
products based on the same patent at issue in the Intel
litigation, pending in the United States District Court for the
Eastern District of Texas, the Court granted CSIROs
motions for summary judgment on the issues of validity and
infringement, and granted a permanent injunction in favor of
CSIRO. In September 2008, the United States Court of Appeals for
the Federal Circuit affirmed in part and reversed in part that
ruling, concluding that the patent was infringed by the
third-parties products, but that the District Court erred
in concluding, as a matter of law, that the patent is valid.
Intel disputes CSIROs claims and intends to defend the
lawsuit vigorously.
Barbaras
Sales, et al. v. Intel Corporation, Gateway Inc.,
Hewlett-Packard Company and HPDirect, Inc.
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 us an Illinois-only class of
certain end-use purchasers of certain Pentium 4 processors or
computers containing these microprocessors. In January 2005, the
Court granted a motion filed jointly by the plaintiffs and Intel
that stayed the proceedings in the trial court pending
discretionary appellate review of the Courts class
certification order. In July 2006, the Illinois Appellate Court,
Fifth District, vacated the trial courts class
certification order. The Appellate Court instructed the trial
court to reconsider whether California law should apply.
However, in August 2006, the Illinois Supreme Court agreed to
review the Appellate Courts decision. In November 2007,
the Illinois Supreme Court issued its opinion finding in favor
of Intel on two issues. First, on the issue of whether Illinois
or California law applies to the claims of Illinois residents
for goods purchased in Illinois, the Court found that Illinois
law applies, rejecting the Appellate Courts finding of a
nationwide class based on application of the California law.
Second, on the issue of whether any class should be certified in
this case at all, the Court held that no class should be
certified, reversing the trial courts finding of an
Illinois-only class based on Illinois law. The case was remanded
to the trial court, and in March 2008 an order was entered
dismissing the case with prejudice based on our motion to
dismiss.
107
INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Frank T.
Shum v. Intel Corporation, Jean-Marc Verdiell and
LightLogic, Inc.
Intel acquired LightLogic, Inc. in
May 2001. Frank Shum has sued Intel, LightLogic, and
LightLogics founder, Jean-Marc Verdiell, claiming that
much of LightLogics intellectual property is based on
alleged inventions that Shum conceived while he and Verdiell
were partners at Radiance Design, Inc. Shum has alleged claims
for fraud, breach of fiduciary duty, fraudulent concealment, and
breach of contract. Shum also seeks alleged correction of
inventorship of seven patents acquired by Intel as part of the
LightLogic acquisition. In January 2005, the U.S. District
Court for the Northern District of California denied Shums
inventorship claim, and thereafter granted Intels motion
for summary judgment on Shums remaining claims. In August
2007, the United States Court of Appeals for the Federal Circuit
vacated the District Courts rulings and remanded the case
for further proceedings. In October 2008, the District Court
granted Intels motion for summary judgment on Shums
claims for breach of fiduciary duty and fraudulent concealment,
but denied Intels motion on Shums remaining claims.
A jury trial on Shums remaining claims took place in
November and December 2008. In pre-trial proceedings and at
trial, Shum requested monetary damages against the defendants in
amounts ranging from $31 million to $931 million, and
his final request to the jury was for as much as
$175 million. Following deliberations, the jury was unable
to reach a verdict on most of the claims. With respect to
Shums claim that he is the proper inventor on certain
LightLogic patents now assigned to Intel, the jury agreed with
Shum on some of those claims. But the jury was unable to reach a
verdict on the breach of contract, fraud, or unjust enrichment
claims. All parties have filed post-trial motions, which the
Court is currently considering. Intel disputes Shums
claims and intends to defend the lawsuit vigorously.
Martin
Smilow v. Craig R. Barrett et al. & Intel Corporation;
Christine Del Gaizo v. Paul S. Otellini et al. & Intel
Corporation
In February 2008, Martin Smilow,
an Intel stockholder, filed a putative derivative action in the
United States District Court for the District of Delaware
against members of our Board of Directors. The complaint alleges
generally that the Board allowed the company to violate
antitrust and other laws, as described in AMDs antitrust
lawsuits against us, and that those Board-sanctioned activities
have harmed the company. The complaint repeats many of
AMDs allegations and references various investigations by
the European Community, Korean Fair Trade Commission, and
others. In February 2008, a second plaintiff, Evan Tobias, filed
a derivative suit in the same court against the Board containing
many of the same allegations as in the Smilow suit. On
July 30, 2008, the District Court entered an order
directing Smilow and Tobias to file a single, consolidated
complaint by August 7, 2008 and directing us to respond
within 30 days thereafter. An amended consolidated
complaint was filed on August 7, 2008. On June 27,
2008, a third plaintiff, Christine Del Gaizo, filed a derivative
suit in the Santa Clara County Superior Court against the
Board, a former director of the Board, and six of our officers,
containing many of the same allegations as in the Smilow and
Tobias suits. On August 27, 2008, the parties in the
California derivative suit entered into a stipulation to stay
the action pending further order of the Court, and the Court
entered an order to that effect on September 2, 2008. We
deny the allegations and intend to defend the lawsuits
vigorously. On September 5, 2008, all of the defendants in
the Delaware derivative action filed a motion to dismiss the
complaint. Briefing on the defendants motion is complete
and a ruling is expected in early 2009.
Note 25:
Operating Segment and Geographic Information
As of December 27, 2008, our
operating segments included the Digital Enterprise Group,
Mobility Group, NAND Solutions Group, Digital Home Group,
Digital Health Group, and Software and Services Group.
In the second quarter of 2008, we
completed a reorganization that transferred the revenue and
costs associated with a portion of the Digital Home Groups
consumer PC components business to the Digital Enterprise Group.
The Digital Home Group now focuses on the consumer electronics
components business. We adjusted our historical results to
reflect this reorganization. Prior-period amounts have also been
adjusted retrospectively to reflect other minor reorganizations.
108
INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The Chief Operating Decision Maker
(CODM), as defined by SFAS No. 131, Disclosures
about Segments of an Enterprise and Related Information
(SFAS No. 131), is our President and CEO. 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.
We report the financial results of
the following operating segments:
|
|
|
|
|
Digital Enterprise
Group. Includes
microprocessors and related chipsets and motherboards designed
for the desktop (including high-end enthusiast PCs), nettop, and
enterprise computing market segments; microprocessors and
related chipsets for embedded applications; communications
infrastructure components such as network processors and
communications boards; wired connectivity devices; and products
for network and server storage.
|
|
|
Mobility
Group. Includes
microprocessors and related chipsets designed for the notebook
and netbook market segments, wireless connectivity products, and
products designed for the ultra-mobile market segment, which
includes mobile Internet devices. In the fourth quarter of 2006,
we completed the sale of certain assets of our communications
and application processor business lines to Marvell. Related to
the sale, we entered into a manufacturing and transition
services agreement with Marvell. As a result, our sales of
application and cellular baseband processors in 2007 and 2008
were only to Marvell.
|
The NAND Solutions Group, Digital
Home Group, Digital Health Group, and Software and Services
Group operating segments do not meet the quantitative thresholds
for reportable segments as defined by SFAS No. 131 and
are included within the all other category.
We have sales and marketing,
manufacturing, finance, and administration groups. Expenses for
these groups are generally allocated to the operating segments,
and the expenses are included in the operating results reported
below. Additionally, in the first quarter of 2007, we started
including share-based compensation in the computation of
operating income (loss) for each operating segment and adjusted
prior results to reflect this change. Revenue for the all other
category is primarily related to the sale of NAND flash memory
products, microprocessors and related chipsets by the Digital
Home Group, and NOR flash memory products. In the second quarter
of 2008, we completed the divestiture of our NOR flash memory
assets to Numonyx. At that time, we entered into supply and
service agreements to provide products, services, and support to
Numonyx following the close of the transaction. Revenue and
expenses related to the supply and service agreements are
included in the all other category. For further information on
Numonyx, see Note 6: Equity Method and Cost Method
Investments.
The all other category includes
certain corporate-level operating expenses and charges. These
expenses and charges include:
|
|
|
|
|
a portion of profit-dependent
bonuses and other expenses not allocated to the operating
segments;
|
|
|
results of operations of seed
businesses that support our initiatives;
|
|
|
acquisition-related costs,
including amortization and any impairment of acquisition-related
intangibles and goodwill;
|
|
|
charges for purchased in-process
research and development; and
|
|
|
amounts included within
restructuring and asset impairment charges.
|
With the exception of goodwill, we
do not identify or allocate assets by operating segment, nor
does the CODM evaluate operating segments using discrete asset
information. Operating segments do not record inter-segment
revenue, and, accordingly, there is none to be reported. We do
not allocate gains and losses from equity investments, interest
and other income, or taxes to operating segments. Although the
CODM uses operating income to evaluate the segments, operating
costs included in one segment may benefit other segments. Except
as discussed above, the accounting policies for segment
reporting are the same as for Intel as a whole.
109
INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Operating segment net revenue and
operating income (loss) for the three years ended
December 27, 2008 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Millions)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Net revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
Digital Enterprise Group
|
|
|
|
|
|
|
|
|
|
|
|
|
Microprocessor revenue
|
|
$
|
16,078
|
|
|
$
|
15,945
|
|
|
$
|
15,248
|
|
Chipset, motherboard, and other revenue
|
|
|
4,554
|
|
|
|
5,359
|
|
|
|
5,437
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,632
|
|
|
|
21,304
|
|
|
|
20,685
|
|
Mobility Group
|
|
|
|
|
|
|
|
|
|
|
|
|
Microprocessor revenue
|
|
|
11,439
|
|
|
|
10,660
|
|
|
|
9,212
|
|
Chipset and other revenue
|
|
|
4,209
|
|
|
|
4,021
|
|
|
|
3,097
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,648
|
|
|
|
14,681
|
|
|
|
12,309
|
|
All other
|
|
|
1,306
|
|
|
|
2,349
|
|
|
|
2,388
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue
|
|
$
|
37,586
|
|
|
$
|
38,334
|
|
|
$
|
35,382
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
Digital Enterprise Group
|
|
$
|
6,462
|
|
|
$
|
5,295
|
|
|
$
|
3,299
|
|
Mobility Group
|
|
|
5,199
|
|
|
|
5,611
|
|
|
|
4,602
|
|
All other
|
|
|
(2,707
|
)
|
|
|
(2,690
|
)
|
|
|
(2,249
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating income
|
|
$
|
8,954
|
|
|
$
|
8,216
|
|
|
$
|
5,652
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In 2008, one customer accounted
for 20% of our net revenue (17% in 2007 and 16% in 2006), while
another customer accounted for 18% of our net revenue (18% in
2007 and 19% in 2006). The majority of the revenue from 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 27, 2008 is based on the
location of the customer. Revenue from unaffiliated customers
was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Millions)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Asia-Pacific (geographic region/country)
|
|
|
|
|
|
|
|
|
|
|
|
|
Taiwan
|
|
$
|
9,868
|
|
|
$
|
8,606
|
|
|
$
|
7,200
|
|
China (including Hong Kong)
|
|
|
4,974
|
|
|
|
5,295
|
|
|
|
4,969
|
|
Other Asia-Pacific
|
|
|
4,202
|
|
|
|
5,531
|
|
|
|
5,308
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,044
|
|
|
|
19,432
|
|
|
|
17,477
|
|
Americas (geographic region/country)
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
|
5,462
|
|
|
|
6,015
|
|
|
|
5,486
|
|
Other Americas
|
|
|
1,981
|
|
|
|
1,700
|
|
|
|
2,026
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,443
|
|
|
|
7,715
|
|
|
|
7,512
|
|
Europe
|
|
|
7,116
|
|
|
|
7,262
|
|
|
|
6,587
|
|
Japan
|
|
|
3,983
|
|
|
|
3,925
|
|
|
|
3,806
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue
|
|
$
|
37,586
|
|
|
$
|
38,334
|
|
|
$
|
35,382
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from unaffiliated
customers outside the U.S. totaled $32,124 million in
2008 ($32,319 million in 2007 and $29,896 million in
2006).
110
INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Net property, plant and equipment
by country was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Millions)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
United States
|
|
$
|
11,224
|
|
|
$
|
10,647
|
|
|
$
|
11,558
|
|
Israel
|
|
|
2,965
|
|
|
|
2,473
|
|
|
|
1,183
|
|
Ireland
|
|
|
1,536
|
|
|
|
2,076
|
|
|
|
2,860
|
|
Other countries
|
|
|
1,819
|
|
|
|
1,722
|
|
|
|
2,001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total property, plant and equipment, net
|
|
$
|
17,544
|
|
|
$
|
16,918
|
|
|
$
|
17,602
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net property, plant and equipment
outside the U.S. totaled $6,320 million in 2008
($6,271 million in 2007 and $6,044 million in 2006).
111
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 27, 2008 and December 29, 2007, and the
related consolidated statements of income, stockholders
equity, and cash flows for each of the three years in the period
ended December 27, 2008. 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 27, 2008 and December 29,
2007, and the consolidated results of its operations and its
cash flows for each of the three years in the period ended
December 27, 2008, in conformity with U.S. generally
accepted accounting principles. Also, in our opinion, the
related financial statement schedule, when considered in
relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set
forth therein.
As discussed in Notes 2 and
23 to the consolidated financial statements, Intel Corporation
changed its method of accounting for sabbatical leave as of
December 31, 2006, its method of accounting for uncertain
tax positions as of December 31, 2006, and its method of
accounting for its defined benefit pension and other
postretirement plans during 2006.
We also have audited, in
accordance with the standards of the Public Company Accounting
Oversight Board (United States), Intel Corporations
internal control over financial reporting as of
December 27, 2008, based on criteria established in
Internal ControlIntegrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
and our report dated February 17, 2009 expressed an
unqualified opinion thereon.
/s/ Ernst & Young LLP
San Jose, California
February 17, 2009
112
REPORT OF
ERNST & YOUNG LLP, INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
The Board of Directors and Stockholders, Intel
Corporation
We have audited Intel
Corporations internal control over financial reporting as
of December 27, 2008, 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 included in the
accompanying Management Report on Internal Control Over
Financial Reporting. Our responsibility is to express an opinion
on 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, assessing the risk that a material weakness exists,
testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk, and performing such
other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable
basis for our opinion.
A 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, Intel Corporation
maintained, in all material respects, effective internal control
over financial reporting as of December 27, 2008, based on
the COSO criteria.
We also have audited, in
accordance with the standards of the Public Company Accounting
Oversight Board (United States), the 2008 consolidated financial
statements of Intel Corporation and our report dated
February 17, 2009 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
San Jose, California
February 17, 2009
113
INTEL
CORPORATION
FINANCIAL INFORMATION BY QUARTER (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 For Quarter Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Millions, Except Per Share Amounts)
|
|
December 27
|
|
|
September 27
|
|
|
June 28
|
|
|
March 29
|
|
|
Net revenue
|
|
$
|
8,226
|
|
|
$
|
10,217
|
|
|
$
|
9,470
|
|
|
$
|
9,673
|
|
Gross margin
|
|
$
|
4,369
|
|
|
$
|
6,019
|
|
|
$
|
5,249
|
|
|
$
|
5,207
|
|
Net income
|
|
$
|
234
|
1
|
|
$
|
2,014
|
|
|
$
|
1,601
|
|
|
$
|
1,443
|
|
Basic earnings per common share
|
|
$
|
0.04
|
1
|
|
$
|
0.36
|
|
|
$
|
0.28
|
|
|
$
|
0.25
|
|
Diluted earnings per common share
|
|
$
|
0.04
|
1
|
|
$
|
0.35
|
|
|
$
|
0.28
|
|
|
$
|
0.25
|
|
Dividends per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Declared
|
|
$
|
|
|
|
$
|
0.28
|
|
|
$
|
|
|
|
$
|
0.2675
|
|
Paid
|
|
$
|
0.14
|
|
|
$
|
0.14
|
|
|
$
|
0.14
|
|
|
$
|
0.1275
|
|
Market price range common
stock2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
$
|
18.73
|
|
|
$
|
24.52
|
|
|
$
|
25.00
|
|
|
$
|
26.66
|
|
Low
|
|
$
|
12.23
|
|
|
$
|
18.50
|
|
|
$
|
20.69
|
|
|
$
|
18.63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 For Quarter Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Millions, Except Per Share Amounts)
|
|
December 29
|
|
|
September 29
|
|
|
June 30
|
|
|
March 31
|
|
|
Net revenue
|
|
$
|
10,712
|
|
|
$
|
10,090
|
|
|
$
|
8,680
|
|
|
$
|
8,852
|
|
Gross margin
|
|
$
|
6,226
|
|
|
$
|
5,171
|
|
|
$
|
4,075
|
|
|
$
|
4,432
|
|
Net income
|
|
$
|
2,271
|
|
|
$
|
1,791
|
|
|
$
|
1,278
|
3
|
|
$
|
1,636
|
3
|
Basic earnings per common share
|
|
$
|
0.39
|
|
|
$
|
0.31
|
|
|
$
|
0.22
|
3
|
|
$
|
0.28
|
3
|
Diluted earnings per common share
|
|
$
|
0.38
|
|
|
$
|
0.30
|
|
|
$
|
0.22
|
3
|
|
$
|
0.28
|
3
|
Dividends per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Declared
|
|
$
|
|
|
|
$
|
0.225
|
|
|
$
|
|
|
|
$
|
0.225
|
|
Paid
|
|
$
|
0.1125
|
|
|
$
|
0.1125
|
|
|
$
|
0.1125
|
|
|
$
|
0.1125
|
|
Market price range common
stock2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
$
|
27.98
|
|
|
$
|
26.33
|
|
|
$
|
24.29
|
|
|
$
|
22.30
|
|
Low
|
|
$
|
24.37
|
|
|
$
|
23.10
|
|
|
$
|
19.13
|
|
|
$
|
18.86
|
|
|
|
|
1 |
|
During the fourth quarter of 2008, we recorded a total of
$938 million in impairment charges related to our Clearwire
investments. $762 million was related to our investment in
Clearwire LLC and $176 million was related to our
investment in the new Clearwire Corporation. For further
information, see Note 6: Equity Method and Cost
Method Investments and Note 5:
Available-for-Sale Investments, respectively, in the Notes
to Consolidated Financial Statements of this
Form 10-K. |
|
2 |
|
Intels common stock (symbol INTC) trades on The NASDAQ
Global Select Market* and is quoted in the Wall Street
Journal and other newspapers. Intels common stock also
trades on The Swiss Exchange. As of December 27, 2008,
there were approximately 180,000 registered holders of common
stock. All stock prices are closing prices per The NASDAQ Global
Select Market. |
|
3 |
|
In connection with IRS settlements reached in 2007, we
recorded a $326 million tax benefit (including
$50 million of accrued interest) in the first quarter of
2007 and a $155 million tax benefit in the second quarter
of 2007. For further information, see Note 23:
Taxes in the Notes to Consolidated Financial Statements of
this
Form 10-K.
We did not have any significant settlements and related tax
benefits in the third and fourth quarters of 2007. |
114
|
|
ITEM 9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
|
Not applicable.
|
|
ITEM 9A.
|
CONTROLS
AND PROCEDURES
|
Evaluation
of Disclosure Controls and Procedures
Based on managements
evaluation (with the participation of our CEO and Chief
Financial Officer (CFO)), as of the end of the period covered by
this report, our CEO and CFO have concluded that our disclosure
controls and procedures (as defined in
Rules 13a-15(e)
and
15d-15(e)
under the Securities Exchange Act of 1934, as amended (the
Exchange Act)), are effective to provide reasonable assurance
that information required to be disclosed by us in reports that
we file or submit under the Exchange Act is recorded, processed,
summarized, and reported within the time periods specified in
SEC rules and forms, and is accumulated and communicated to
management, including our principal executive officer and
principal financial officer, as appropriate, to allow timely
decisions regarding required disclosure.
Changes
in Internal Control Over Financial Reporting
There were no changes to our
internal control over financial reporting (as defined in
Rules 13a-15(f)
and
15d-15(f)
under the Exchange Act) that occurred during the period covered
by this report that have materially affected, or are reasonably
likely to materially affect, our internal control over financial
reporting.
Management
Report on Internal Control Over Financial Reporting
Our management is responsible for
establishing and maintaining adequate internal control over
financial reporting (as defined in
Rules 13a-15(f)
and
15d-15(f)
under the Exchange Act) to provide reasonable assurance
regarding the reliability of our financial reporting and the
preparation of financial statements for external purposes in
accordance with U.S. generally accepted accounting
principles.
Management assessed our internal
control over financial reporting as of December 27, 2008,
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 elements such as the design and operating
effectiveness of key financial reporting controls, process
documentation, accounting policies, and our overall control
environment.
Based on our assessment,
management has concluded that our internal control over
financial reporting was effective as of the end of the fiscal
year to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of 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.
Our independent registered public
accounting firm, Ernst & Young LLP, 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
Our management, including the CEO
and CFO, does not expect that our disclosure controls or our
internal control over financial reporting will prevent or detect
all error and all fraud. A control system, no matter how well
designed and operated, can provide only reasonable, not
absolute, assurance that the control 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, 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.
115
PART III
|
|
ITEM 10.
|
DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
|
The information in our 2009 Proxy
Statement regarding directors and executive officers appearing
under the headings Proposal 1: Election of
Directors and Other MattersSection 16(a)
Beneficial Ownership Reporting Compliance is incorporated
by reference in this section. The information under the heading
Executive Officers of the Registrant in Part I,
Item 1 of this
Form 10-K
is also incorporated by reference in this section. In addition,
the information under the heading Corporate
Governance in our 2009 Proxy Statement is incorporated by
reference in this section.
The Intel Code of Conduct (Code)
is our code of ethics document applicable to all employees,
including all officers, and including our independent directors,
who are not employees of the company, with regard to their
Intel-related activities. The Code incorporates our guidelines
designed to deter wrongdoing and to promote honest and ethical
conduct and compliance with applicable laws and regulations. The
Code also incorporates our expectations of our employees that
enable us to provide accurate and timely disclosure in our
filings with the SEC and other public communications. In
addition, the Code incorporates guidelines pertaining to topics
such as complying with applicable laws, rules, and regulations;
reporting Code violations; and maintaining accountability for
adherence to the Code.
The full text of our Code is
published on our Investor Relations web site at
www.intc.com. We intend to disclose future amendments to
certain provisions of our Code, or waivers of such provisions
granted to executive officers and directors, on the web site
within four business days following the date of such amendment
or waiver.
|
|
ITEM 11.
|
EXECUTIVE
COMPENSATION
|
The information appearing in our
2009 Proxy Statement under the headings Director
Compensation, Compensation Discussion and
Analysis, Report of the Compensation
Committee, and Executive Compensation is
incorporated by reference in this section.
|
|
ITEM 12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
|
The information appearing in our
2009 Proxy Statement under the heading Security Ownership
of Certain Beneficial Owners and Management is
incorporated by reference in this section.
Information regarding shares
authorized for issuance under equity compensation plans approved
and not approved by stockholders in our 2009 Proxy Statement
under the heading Proposal 3: Approval of Amendment
and Extension of the 2006 Equity Incentive Plan is
incorporated by reference in this section.
|
|
ITEM 13.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
|
The information appearing in our
2009 Proxy Statement under the headings Corporate
Governance and Certain Relationships and Related
Transactions is incorporated by reference in this section.
|
|
ITEM 14.
|
PRINCIPAL
ACCOUNTING FEES AND SERVICES
|
The information appearing in our
2009 Proxy Statement under the headings Report of the
Audit Committee and Proposal 2: Ratification of
Selection of Independent Registered Public Accounting Firm
is incorporated by reference in this section.
116
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 in this section of this
Form 10-K.
3. Exhibits: The exhibits
listed in the accompanying index to exhibits are filed or
incorporated by reference as part of this
Form 10-K.
Certain of the agreements filed as
exhibits to this
Form 10-K
contain representations and warranties by the parties to the
agreements that have been made solely for the benefit of the
parties to the agreement. These representations and warranties:
|
|
|
|
|
may have been qualified by
disclosures that were made to the other parties in connection
with the negotiation of the agreements, which disclosures are
not necessarily reflected in the agreements;
|
|
|
may apply standards of materiality
that differ from those of a reasonable investor; and
|
|
|
were made only as of specified
dates contained in the agreements and are subject to later
developments.
|
Accordingly, these representations
and warranties may not describe the actual state of affairs as
of the date they were made or at any other time, and investors
should not rely on them as statements of fact.
Intel, Intel logo, Intel
Inside, Intel Atom, Celeron, Intel Centrino, Intel Core,
Intel vPro, Intel Xeon, Itanium, and Pentium are trademarks
of Intel Corporation in the U.S. and other
countries.
|
|
|
* |
|
Other names and brands may be claimed as the property of
others. |
117
INTEL
CORPORATION
SCHEDULE IIVALUATION AND QUALIFYING
ACCOUNTS
December 27, 2008, December 29, 2007, and
December 30, 2006
(In Millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
Charged
|
|
|
Net
|
|
|
|
|
|
|
Beginning of
|
|
|
(Credited)
|
|
|
(Deductions)
|
|
|
Balance at
|
|
|
|
Year
|
|
|
to Expenses
|
|
|
Recoveries
|
|
|
End of Year
|
|
Allowance for doubtful
receivables1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
$
|
27
|
|
|
$
|
(4
|
)
|
|
$
|
(6
|
)
|
|
$
|
17
|
|
2007
|
|
$
|
32
|
|
|
$
|
(6
|
)
|
|
$
|
1
|
|
|
$
|
27
|
|
2006
|
|
$
|
64
|
|
|
$
|
(19
|
)
|
|
$
|
(13
|
)
|
|
$
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation allowance for deferred tax assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
$
|
133
|
|
|
$
|
267
|
|
|
$
|
(42
|
)
|
|
$
|
358
|
|
2007
|
|
$
|
87
|
|
|
$
|
46
|
|
|
$
|
|
|
|
$
|
133
|
|
2006
|
|
$
|
86
|
|
|
$
|
6
|
|
|
$
|
(5
|
)
|
|
$
|
87
|
|
|
|
|
1 |
|
Deductions represent uncollectible accounts written off, net
of recoveries. |
118
INDEX TO
EXHIBITS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incorporated by Reference
|
|
|
Exhibit
|
|
|
|
|
|
|
|
|
|
Filing
|
|
Filed
|
Number
|
|
Exhibit Description
|
|
Form
|
|
File Number
|
|
Exhibit
|
|
Date
|
|
Herewith
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3
|
.1
|
|
|
Intel Corporation Third Restated Certificate of Incorporation of
Intel Corporation dated May 17, 2006
|
|
|
8-K
|
|
|
|
000-06217
|
|
|
|
3.1
|
|
|
|
5/22/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3
|
.2
|
|
|
Intel Corporation Bylaws, as amended on November 12, 2008
|
|
|
8-K
|
|
|
|
000-06217
|
|
|
|
3.1
|
|
|
|
11/13/08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4
|
.2.1
|
|
|
Indenture for the Registrants 2.95% Junior Subordinated
Convertible Debentures due 2035 issued by Intel Corporation to
Citibank N.A., dated as of December 16, 2005 (the
Convertible Note Indenture)
|
|
|
10-K
|
|
|
|
000-06217
|
|
|
|
4.2
|
|
|
|
2/27/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4
|
.2.2
|
|
|
Indenture dated as of March 29, 2006 between Intel
Corporation and Citibank, N.A. (the Open-Ended
Indenture)
|
|
|
S-3ASR
|
|
|
|
333-132865
|
|
|
|
4.4
|
|
|
|
3/30/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4
|
.2.3
|
|
|
First Supplemental Indenture to Convertible Note Indenture,
dated as of July 25, 2007
|
|
|
10-K
|
|
|
|
000-06217
|
|
|
|
4.2.3
|
|
|
|
2/20/08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4
|
.2.4
|
|
|
First Supplemental Indenture to Open-Ended Indenture, dated as
of December 3, 2007
|
|
|
10-K
|
|
|
|
000-06217
|
|
|
|
4.2.4
|
|
|
|
2/20/08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.1**
|
|
|
Intel Corporation 1984 Stock Option Plan, as amended and
restated effective July 16, 1997
|
|
|
10-Q
|
|
|
|
333-45395
|
|
|
|
10.1
|
|
|
|
8/11/98
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.2
|
|
|
Intel Corporation 1997 Stock Option Plan, as amended and
restated effective July 16, 1997
|
|
|
10-K
|
|
|
|
000-06217
|
|
|
|
10.7
|
|
|
|
3/11/03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.3**
|
|
|
Intel Corporation 2004 Equity Incentive Plan, effective
May 19, 2004
|
|
|
10-Q
|
|
|
|
000-06217
|
|
|
|
10.3
|
|
|
|
8/2/04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.4**
|
|
|
Notice of Grant of Non-Qualified Stock Option under the Intel
Corporation 2004 Equity Incentive Plan
|
|
|
10-Q
|
|
|
|
000-06217
|
|
|
|
10.7
|
|
|
|
8/2/04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.5**
|
|
|
Standard Terms and Conditions Relating to Non-Qualified Stock
Options granted to U.S. employees on and after May 19, 2004
under the Intel Corporation 2004 Equity Incentive Plan
|
|
|
10-Q
|
|
|
|
000-06217
|
|
|
|
10.5
|
|
|
|
8/2/04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.6**
|
|
|
Standard International Non-Qualified Stock Option Agreement
under the Intel Corporation 2004 Equity Incentive Plan
|
|
|
10-Q
|
|
|
|
000-06217
|
|
|
|
10.6
|
|
|
|
8/2/04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.7**
|
|
|
Intel Corporation Non-Employee Director Non-Qualified Stock
Option Agreement under the Intel Corporation 2004 Equity
Incentive Plan
|
|
|
10-Q
|
|
|
|
000-06217
|
|
|
|
10.4
|
|
|
|
8/2/04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.8**
|
|
|
Form of ELTSOP Non-Qualified Stock Option Agreement under the
Intel Corporation 2004 Equity Incentive Plan
|
|
|
8-K
|
|
|
|
000-06217
|
|
|
|
10.1
|
|
|
|
10/12/04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.9**
|
|
|
Intel Corporation 2004 Equity Incentive Plan, as amended and
restated, effective May 18, 2005
|
|
|
8-K
|
|
|
|
000-06217
|
|
|
|
10.1
|
|
|
|
5/20/05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.10**
|
|
|
Form of Notice of Grant of Restricted Stock Units
|
|
|
8-K
|
|
|
|
000-06217
|
|
|
|
10.5
|
|
|
|
2/9/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.11**
|
|
|
Form of Intel Corporation Nonqualified Stock Option Agreement
under the 2004 Equity Incentive Plan
|
|
|
10-K
|
|
|
|
000-06217
|
|
|
|
10.16
|
|
|
|
2/27/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.12**
|
|
|
Standard Terms and Conditions relating to Restricted Stock Units
granted to U.S. employees under the Intel Corporation 2004
Equity Incentive Plan
|
|
|
10-Q
|
|
|
|
000-06217
|
|
|
|
10.2
|
|
|
|
5/8/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.13**
|
|
|
Standard International Restricted Stock Unit Agreement under the
2004 Equity Incentive Plan
|
|
|
10-Q
|
|
|
|
000-06217
|
|
|
|
10.4
|
|
|
|
5/8/06
|
|
|
|
|
|
119
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incorporated by Reference
|
|
|
Exhibit
|
|
|
|
|
|
|
|
|
|
Filing
|
|
Filed
|
Number
|
|
Exhibit Description
|
|
Form
|
|
File Number
|
|
Exhibit
|
|
Date
|
|
Herewith
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.14**
|
|
|
Standard Terms and Conditions relating to Non-Qualified Stock
Options granted to U.S. employees on and after February 1,
2006 under the Intel Corporation 2004 Equity Incentive Plan
(other than grants made under the SOP Plus or ELTSOP
programs)
|
|
|
10-Q
|
|
|
|
000-06217
|
|
|
|
10.6
|
|
|
|
5/8/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.15**
|
|
|
Standard Terms and Conditions relating to Restricted Stock Units
granted to U.S. employees under the Intel Corporation 2004
Equity Incentive Plan (for grants under the ELTSOP Program)
|
|
|
10-Q
|
|
|
|
000-06217
|
|
|
|
10.9
|
|
|
|
5/8/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.16**
|
|
|
Standard International Restricted Stock Unit Agreement under the
2004 Equity Incentive Plan (for grants under the ELTSOP Program)
|
|
|
10-Q
|
|
|
|
000-06217
|
|
|
|
10.11
|
|
|
|
5/8/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.17**
|
|
|
Terms and Conditions relating to Nonqualified Stock Options
granted to U.S. employees on and after February 1, 2006
under the Intel Corporation 2004 Equity Incentive Plan for
grants formerly known as ELTSOP Grants
|
|
|
10-Q
|
|
|
|
000-06217
|
|
|
|
10.13
|
|
|
|
5/8/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.18**
|
|
|
Standard International Nonqualified Stock Option Agreement under
the 2004 Equity Incentive Plan (for grants after
February 1, 2006 under the ELTSOP Program)
|
|
|
10-Q
|
|
|
|
000-06217
|
|
|
|
10.15
|
|
|
|
5/8/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.19**
|
|
|
Amendment of Stock Option and Restricted Stock Unit Agreements
with the Elimination of Leave of Absence Provisions
|
|
|
10-Q
|
|
|
|
000-06217
|
|
|
|
10.5
|
|
|
|
5/2/08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.20**
|
|
|
Intel Corporation 2006 Equity Incentive Plan, as amended and
restated, effective May 17, 2006
|
|
|
8-K
|
|
|
|
000-06217
|
|
|
|
10.1
|
|
|
|
5/22/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.21**
|
|
|
Form of Notice of GrantRestricted Stock Units
|
|
|
8-K
|
|
|
|
000-06217
|
|
|
|
10.13
|
|
|
|
7/6/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.22**
|
|
|
Form of Notice of GrantNonqualified Stock Options
|
|
|
8-K
|
|
|
|
000-06217
|
|
|
|
10.24
|
|
|
|
7/6/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.23**
|
|
|
Standard Terms and Conditions relating to Restricted Stock Units
granted to U.S. employees on and after May 17, 2006 under
the Intel Corporation 2006 Equity Incentive Plan (for grants
under the standard program)
|
|
|
8-K
|
|
|
|
000-06217
|
|
|
|
10.1
|
|
|
|
7/6/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.24**
|
|
|
Standard International Restricted Stock Unit Agreement under the
2006 Equity Incentive Plan (for grants under the standard
program after May 17, 2006)
|
|
|
8-K
|
|
|
|
000-06217
|
|
|
|
10.2
|
|
|
|
7/6/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.25**
|
|
|
Terms and Conditions relating to Restricted Stock Units granted
on and after May 17, 2006 to U.S. employees under the Intel
Corporation 2006 Equity Incentive Plan (for grants under the
ELTSOP Program)
|
|
|
8-K
|
|
|
|
000-06217
|
|
|
|
10.7
|
|
|
|
7/6/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.26**
|
|
|
International Restricted Stock Unit Agreement under the 2006
Equity Incentive Plan (for grants under the ELTSOP program after
May 17, 2006)
|
|
|
8-K
|
|
|
|
000-06217
|
|
|
|
10.8
|
|
|
|
7/6/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.27**
|
|
|
Intel Corporation 2006 Equity Incentive Plan Terms and
Conditions Relating to Restricted Stock Units Granted to Paul S.
Otellini on April 17, 2008 under the Intel Corporation 2006
Equity Incentive Plan (under the ELTSOP RSU Program)
|
|
|
8-K
|
|
|
|
000-06217
|
|
|
|
99.1
|
|
|
|
4/17/08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.28**
|
|
|
Standard Terms and Conditions relating to Non-Qualified Stock
Options granted to U.S. employees on and after May 17, 2006
under the Intel Corporation 2006 Equity Incentive Plan (for
grants under the standard program)
|
|
|
8-K
|
|
|
|
000-06217
|
|
|
|
10.14
|
|
|
|
7/6/06
|
|
|
|
|
|
120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incorporated by Reference
|
|
|
Exhibit
|
|
|
|
|
|
|
|
|
|
Filing
|
|
Filed
|
Number
|
|
Exhibit Description
|
|
Form
|
|
File Number
|
|
Exhibit
|
|
Date
|
|
Herewith
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.29**
|
|
|
Standard International Nonqualified Stock Option Agreement under
the 2006 Equity Incentive Plan (for grants under the standard
program after May 17, 2006)
|
|
|
8-K
|
|
|
|
000-06217
|
|
|
|
10.15
|
|
|
|
7/6/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.30**
|
|
|
Form of Stock Option Agreement with Continued Post-Retirement
Exercisability
|
|
|
10-Q
|
|
|
|
000-06217
|
|
|
|
10.3
|
|
|
|
5/2/08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.31**
|
|
|
Terms and Conditions relating to Nonqualified Stock Options
granted to U.S. employees on and after May 17, 2006 under
the Intel Corporation 2006 Equity Incentive Plan (for grants
under the ELTSOP Program)
|
|
|
8-K
|
|
|
|
000-06217
|
|
|
|
10.19
|
|
|
|
7/6/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.32**
|
|
|
International Nonqualified Stock Option Agreement under the 2006
Equity Incentive Plan (for grants after May 17, 2006 under
the ELTSOP Program)
|
|
|
8-K
|
|
|
|
000-06217
|
|
|
|
10.20
|
|
|
|
7/6/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.33**
|
|
|
Amendment of Stock Option and Restricted Stock Unit Agreements
with the Elimination of Leave of Absence Provisions and the
Addition of the Ability to Change the Grant Agreement as Laws
Change
|
|
|
10-Q
|
|
|
|
000-06217
|
|
|
|
10.6
|
|
|
|
5/2/08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.34**
|
|
|
Form of Non-Employee Director Restricted Stock Unit Agreement
under the 2006 Equity Incentive Plan (for RSUs granted after
May 17, 2006)
|
|
|
8-K
|
|
|
|
000-06217
|
|
|
|
10.2
|
|
|
|
7/14/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.35**
|
|
|
Terms and Conditions Relating to Nonqualified Options Granted to
Paul Otellini on January 18, 2007 under the Intel
Corporation 2006 Equity Incentive Plan
|
|
|
10-K
|
|
|
|
000-06217
|
|
|
|
10.42
|
|
|
|
2/26/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.36**
|
|
|
Intel Corporation 2006 Equity Incentive Plan As Amended and
Restated effective May 16, 2007
|
|
|
8-K
|
|
|
|
000-06217
|
|
|
|
10.1
|
|
|
|
5/16/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.37**
|
|
|
Intel Corporation 2007 Executive Officer Incentive Plan,
effective as of January 1, 2007
|
|
|
8-K
|
|
|
|
000-06217
|
|
|
|
10.2
|
|
|
|
5/16/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.38**
|
|
|
Intel Corporation Deferral Plan for Outside Directors, effective
July 1, 1998
|
|
|
10-K
|
|
|
|
333-45395
|
|
|
|
10.6
|
|
|
|
3/26/99
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.39**
|
|
|
Intel Corporation Sheltered Employee Retirement Plan Plus, as
amended and restated effective January 1, 2006
|
|
|
S-8
|
|
|
|
333-141905
|
|
|
|
99.1
|
|
|
|
4/5/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.40**
|
|
|
First Amendment to the Intel Corporation Sheltered Employee
Retirement Plan Plus, executed November 6, 2007
|
|
|
10-K
|
|
|
|
000-06217
|
|
|
|
10.37
|
|
|
|
2/20/08
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.41**
|
|
|
Second Amendment to the Intel Corporation Sheltered Employee
Retirement Plan Plus, executed November 6, 2007
|
|
|
10-K
|
|
|
|
000-06217
|
|
|
|
10.38
|
|
|
|
2/20/08
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.42**
|
|
|
Form of Indemnification Agreement with Directors and Executive
Officers
|
|
|
10-K
|
|
|
|
000-06217
|
|
|
|
10.15
|
|
|
|
2/22/05
|
|
|
|
|
|
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|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.43**
|
|
|
Listed Officer Compensation
|
|
|
10-Q
|
|
|
|
000-06217
|
|
|
|
10.1
|
|
|
|
5/3/07
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.44**
|
|
|
Intel Corporation 2006 Stock Purchase Plan, effective
May 17, 2006
|
|
|
S-8
|
|
|
|
333-135178
|
|
|
|
99.1
|
|
|
|
6/21/06
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.45**
|
|
|
Amendment to the Intel Corporation 2006 Stock Purchase Plan,
effective February 20, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
X
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.46**
|
|
|
Summary of Intel Corporation Non-Employee Director Compensation
|
|
|
8-K
|
|
|
|
000-06217
|
|
|
|
10.1
|
|
|
|
7/14/06
|
|
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|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.47**
|
|
|
Intel Corporation 2006 Deferral Plan for Outside Directors,
effective November 15, 2006
|
|
|
10-K
|
|
|
|
000-06217
|
|
|
|
10.41
|
|
|
|
2/26/07
|
|
|
|
|
|
121
|
|
|
|
|
|
|
|
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|
|
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|
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|
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|
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|
|
Incorporated by Reference
|
|
|
Exhibit
|
|
|
|
|
|
|
|
|
|
Filing
|
|
Filed
|
Number
|
|
Exhibit Description
|
|
Form
|
|
File Number
|
|
Exhibit
|
|
Date
|
|
Herewith
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.48
|
|
|
Form of Asset Transfer Agreement By and Between Newco and Intel
Corporation
|
|
|
10-Q
|
|
|
|
000-06217
|
|
|
|
10.3
|
|
|
|
8/6/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.49
|
|
|
Asset Transfer Agreement By and Between Numonyx Holdings B.V.,
Numonyx B.V., and Intel Corporation, dated as of March 30,
2008
|
|
|
10-Q
|
|
|
|
000-06217
|
|
|
|
10.2
|
|
|
|
5/2/08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.50
|
|
|
Master Agreement By and Between STMicroelectronics N.V., Intel
Corporation, Redwood Blocker S.A.R.L., and Francisco
Partners II (Cayman) L.P., dated May 22, 2007
|
|
|
10-Q
|
|
|
|
000-06217
|
|
|
|
10.4
|
|
|
|
8/6/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.51
|
|
|
Letter Agreement dated December 22, 2007 extending
termination date of the Master Agreement
|
|
|
8-K
|
|
|
|
000-06217
|
|
|
|
99.1
|
|
|
|
12/26/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.52
|
|
|
Amended and Restated Master Agreement By and Between
STMicroelectronics N.V., Intel Corporation, Redwood Blocker
S.A.R.L., Francisco Partners II (Cayman) L.P., PK Flash,
LLC, and Francisco Partners Parallel Fund II L.P., dated
March 30, 2008
|
|
|
10-Q
|
|
|
|
000-06217
|
|
|
|
10.1
|
|
|
|
5/2/08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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. |
122
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
Stacy J. Smith
Vice President, Chief Financial Officer, and
Principal Accounting Officer
February 20, 2009
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 20, 2009
|
|
/s/ James
D. Plummer
James
D. Plummer
Director
February 20, 2009
|
|
|
|
/s/ Charlene
Barshefsky
Charlene
Barshefsky
Director
February 20, 2009
|
|
/s/ David
S. Pottruck
David
S. Pottruck
Director
February 20, 2009
|
|
|
|
/s/ Carol
A. Bartz
Carol
A. Bartz
Director
February 20, 2009
|
|
/s/ Jane
E. Shaw
Jane
E. Shaw
Director
February 20, 2009
|
|
|
|
/s/ Susan
L. Decker
Susan
L. Decker
Director
February 20, 2009
|
|
/s/ Stacy
J. Smith
Stacy
J. Smith
Vice President, Chief Financial Officer, and
Principal Accounting Officer
February 20, 2009
|
|
|
|
/s/ Reed
E. Hundt
Reed
E. Hundt
Director
February 20, 2009
|
|
/s/ John
L. Thornton
John
L. Thornton
Director
February 20, 2009
|
|
|
|
/s/ Paul
S. Otellini
Paul
S. Otellini
President, Chief Executive Officer, Director, and
Principal Executive Officer
February 20, 2009
|
|
/s/ David
B. Yoffie
David
B. Yoffie
Director
February 20, 2009
|
123