NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — Unaudited
Note 1: Basis of Presentation
We prepared our interim consolidated condensed financial statements that accompany these notes in conformity with U.S. generally accepted accounting principles, consistent in all material respects with those applied in our Annual Report on Form 10-K for the year ended
December 28, 2013
. We have reclassified certain prior period amounts to conform to current period presentation.
We have made estimates and judgments affecting the amounts reported in our consolidated condensed financial statements and the accompanying notes. The actual results that we experience may differ materially from our estimates. The interim financial information is unaudited, but reflects all normal adjustments that are, in our opinion, necessary to provide a fair statement of results for the interim periods presented. This interim information should be read in conjunction with the consolidated financial statements in our Annual Report on Form 10-K for the year ended
December 28, 2013
.
Note 2: Recent Accounting Standards
In May 2014, the Financial Accounting Standards Board issued a new standard to achieve a consistent application of revenue recognition within the U.S., resulting in a single revenue model to be applied by reporting companies under U.S. generally accepted accounting principles. Under the new model, recognition of revenue occurs when a customer obtains control of promised goods or services in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, the new standard requires that reporting companies disclose the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The new standard is effective for us beginning in the first quarter of 2017; early adoption is prohibited. The new standard is required to be applied retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying it recognized at the date of initial application. We have not yet selected a transition method nor have we determined the impact of the new standard on our consolidated condensed financial statements.
Note 3: Fair Value
Fair value is the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining fair value, we consider the principal or most advantageous market in which we would transact, and we consider assumptions that market participants would use when pricing the asset or liability. Our financial assets are measured and recorded at fair value, except for equity method investments, cost method investments, cost method loans receivable, and reverse repurchase agreements with original maturities greater than approximately three months. Most of our liabilities are not measured and recorded at fair value.
Fair Value Hierarchy
The three levels of inputs that may be used to measure fair value are as follows:
Level 1.
Quoted prices in active markets for identical assets or liabilities.
Level 2.
Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in less active markets, or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated with observable market data for substantially the full term of the assets or liabilities. Level 2 inputs also include non-binding market consensus prices that can be corroborated with observable market data, as well as quoted prices that were adjusted for security-specific restrictions.
Level 3.
Unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of assets or liabilities. Level 3 inputs also include non-binding market consensus prices or non-binding broker quotes that we were unable to corroborate with observable market data.
INTEL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — Unaudited (Continued)
Assets and Liabilities Measured and Recorded at Fair Value on a Recurring Basis
Assets and liabilities measured and recorded at fair value on a recurring basis at the end of each period were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 28, 2014
|
|
December 28, 2013
|
|
|
Fair Value Measured and Recorded at Reporting Date Using
|
|
|
|
Fair Value Measured and Recorded at Reporting Date Using
|
|
|
(In Millions)
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt
|
|
$
|
40
|
|
|
$
|
685
|
|
|
$
|
—
|
|
|
$
|
725
|
|
|
$
|
154
|
|
|
$
|
1,920
|
|
|
$
|
—
|
|
|
$
|
2,074
|
|
Financial institution instruments
|
|
97
|
|
|
1,134
|
|
|
—
|
|
|
1,231
|
|
|
887
|
|
|
1,190
|
|
|
—
|
|
|
2,077
|
|
Government debt
|
|
—
|
|
|
197
|
|
|
—
|
|
|
197
|
|
|
—
|
|
|
269
|
|
|
—
|
|
|
269
|
|
Reverse repurchase agreements
|
|
—
|
|
|
168
|
|
|
—
|
|
|
168
|
|
|
—
|
|
|
400
|
|
|
—
|
|
|
400
|
|
Short-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt
|
|
218
|
|
|
907
|
|
|
31
|
|
|
1,156
|
|
|
274
|
|
|
1,374
|
|
|
19
|
|
|
1,667
|
|
Financial institution instruments
|
|
195
|
|
|
2,162
|
|
|
—
|
|
|
2,357
|
|
|
194
|
|
|
2,895
|
|
|
—
|
|
|
3,089
|
|
Government debt
|
|
227
|
|
|
751
|
|
|
—
|
|
|
978
|
|
|
183
|
|
|
1,033
|
|
|
—
|
|
|
1,216
|
|
Trading assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset-backed securities
|
|
—
|
|
|
948
|
|
|
75
|
|
|
1,023
|
|
|
—
|
|
|
684
|
|
|
4
|
|
|
688
|
|
Corporate debt
|
|
2,315
|
|
|
829
|
|
|
—
|
|
|
3,144
|
|
|
2,161
|
|
|
628
|
|
|
—
|
|
|
2,789
|
|
Financial institution instruments
|
|
1,133
|
|
|
903
|
|
|
—
|
|
|
2,036
|
|
|
1,188
|
|
|
418
|
|
|
—
|
|
|
1,606
|
|
Government debt
|
|
1,708
|
|
|
1,860
|
|
|
—
|
|
|
3,568
|
|
|
1,625
|
|
|
1,733
|
|
|
—
|
|
|
3,358
|
|
Other current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative assets
|
|
—
|
|
|
171
|
|
|
—
|
|
|
171
|
|
|
48
|
|
|
309
|
|
|
—
|
|
|
357
|
|
Loans receivable
|
|
—
|
|
|
631
|
|
|
—
|
|
|
631
|
|
|
—
|
|
|
103
|
|
|
—
|
|
|
103
|
|
Marketable equity securities
|
|
5,927
|
|
|
117
|
|
|
—
|
|
|
6,044
|
|
|
6,221
|
|
|
—
|
|
|
—
|
|
|
6,221
|
|
Other long-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset-backed securities
|
|
—
|
|
|
—
|
|
|
8
|
|
|
8
|
|
|
—
|
|
|
—
|
|
|
9
|
|
|
9
|
|
Corporate debt
|
|
868
|
|
|
282
|
|
|
19
|
|
|
1,169
|
|
|
228
|
|
|
270
|
|
|
27
|
|
|
525
|
|
Financial institution instruments
|
|
273
|
|
|
349
|
|
|
—
|
|
|
622
|
|
|
90
|
|
|
402
|
|
|
—
|
|
|
492
|
|
Government debt
|
|
215
|
|
|
170
|
|
|
—
|
|
|
385
|
|
|
259
|
|
|
188
|
|
|
—
|
|
|
447
|
|
Other long-term assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative assets
|
|
—
|
|
|
8
|
|
|
30
|
|
|
38
|
|
|
—
|
|
|
7
|
|
|
29
|
|
|
36
|
|
Loans receivable
|
|
—
|
|
|
171
|
|
|
—
|
|
|
171
|
|
|
—
|
|
|
702
|
|
|
—
|
|
|
702
|
|
Total assets measured and recorded at fair value
|
|
$
|
13,216
|
|
|
$
|
12,443
|
|
|
$
|
163
|
|
|
$
|
25,822
|
|
|
$
|
13,512
|
|
|
$
|
14,525
|
|
|
$
|
88
|
|
|
$
|
28,125
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other accrued liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities
|
|
$
|
—
|
|
|
$
|
283
|
|
|
$
|
—
|
|
|
$
|
283
|
|
|
$
|
—
|
|
|
$
|
372
|
|
|
$
|
—
|
|
|
$
|
372
|
|
Other long-term liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities
|
|
—
|
|
|
13
|
|
|
—
|
|
|
13
|
|
|
—
|
|
|
50
|
|
|
—
|
|
|
50
|
|
Total liabilities measured and recorded at fair value
|
|
$
|
—
|
|
|
$
|
296
|
|
|
$
|
—
|
|
|
$
|
296
|
|
|
$
|
—
|
|
|
$
|
422
|
|
|
$
|
—
|
|
|
$
|
422
|
|
Government debt includes instruments such as non-U.S. government bonds, U.S. agency securities, and U.S. Treasury securities. Financial institution instruments include instruments such as commercial paper, floating and fixed rate bonds, money market fund deposits, and time deposits.
INTEL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — Unaudited (Continued)
During the
first six months
of
2014
, we transferred approximately
$365 million
of corporate debt, financial institution instruments, government debt, and marketable equity securities from Level 1 to Level 2 of the fair value hierarchy, primarily based on reduced market activity for the underlying securities. During the
first six months
of
2014
, we transferred approximately
$345 million
of corporate debt, government debt, and financial institution instruments from Level 2 to Level 1 of the fair value hierarchy, primarily based on greater market activity for the underlying securities (
$255 million
of corporate debt, financial institution instruments, and government debt during the
first six months
of
2013
). Our policy is to reflect transfers between the fair value hierarchy levels at the beginning of the quarter in which a change in circumstances resulted in the transfer.
Investments in Debt Instruments
Debt instruments reflected in the preceding table include investments such as asset-backed securities, corporate debt, financial institution instruments, government debt, and reverse repurchase agreements classified as cash equivalents. We classify our debt instruments as Level 2 when we use 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 the debt investments using our own models, such as a discounted cash flow model, or non-binding market consensus prices based on the proprietary valuation models of pricing providers or brokers. We corroborate non-binding market consensus prices with observable market data using statistical models when observable market data exists, quoted market prices for similar instruments, or pricing models such as a discounted cash flow model. These valuation models incorporate a number of inputs, including non-binding and binding broker quotes; observable market prices for identical or similar securities; and the internal assumptions of pricing providers or brokers that use observable market inputs and unobservable market inputs that we consider to be not significant. The discounted cash flow model uses observable market inputs, such as LIBOR-based yield curves, currency spot and forward rates, and credit ratings. All significant inputs are derived from or corroborated with observable market data.
The fair values of debt instruments classified as Level 3
are generally derived from discounted cash flow models, performed either by us or our pricing providers, using inputs that we are unable to corroborate with observable market data. We monitor and review the inputs and results of these valuation models to ensure the fair value measurements are reasonable and consistent with market experience in similar asset classes.
Fair Value Option for Loans Receivable
We elected the fair value option for loans receivable when the interest rate or currency exchange rate risk was hedged at inception with a related derivative instrument. As of
June 28, 2014
, the fair value of our loans receivable for which we elected the fair value option did not significantly differ from the contractual principal balance based on the contractual currency. Loans receivable are classified within other current assets and other long-term assets. Fair value is determined using a discounted cash flow model, with all significant inputs derived from or corroborated with observable market data. Gains and losses from changes in fair value on the loans receivable and related derivative instruments, as well as interest income, are recorded in interest and other, net. During all periods presented, changes in the fair value of our loans receivable were largely offset by changes in the related derivative instruments, resulting in an insignificant net impact on our consolidated condensed statements of income. Gains and losses attributable to changes in credit risk are determined using observable credit default spreads for the issuer or comparable companies; these gains and losses were insignificant during all periods presented. We did not elect the fair value option for loans receivable when the interest rate or currency exchange rate risk was not hedged at inception with a related derivative instrument. Loans receivable not measured and recorded at fair value are included in the "Financial Instruments Not Recorded at Fair Value on a Recurring Basis" section that follows.
Assets Measured and Recorded at Fair Value on a Non-Recurring Basis
Our non-marketable equity investments, marketable equity method investments, and non-financial assets, such as intangible assets and property, plant and equipment, are recorded at fair value only if an impairment charge is recognized.
Some of our non-marketable equity investments have been measured and recorded at fair value due to events or circumstances that significantly impacted the fair value of those investments, resulting in other-than-temporary impairment charges. We classified these investments as Level 3 because the valuations used unobservable inputs that were significant to the fair value measurements and required management judgment due to the absence of quoted market prices. Impairment charges recognized on non-marketable equity investments held as of
June 28, 2014
, were
$37 million
during the
second
quarter of
2014
and
$75 million
during the
first six months
of
2014
(
$60
INTEL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — Unaudited (Continued)
million
during the
second
quarter of
2013
and
$74 million
during the
first six months
of
2013
on non-marketable equity investments held as of
June 29, 2013
).
Financial Instruments Not Recorded at Fair Value on a Recurring Basis
On a quarterly basis, we measure the fair value of our grants receivable, cost method loans receivable, non-marketable cost method investments, reverse repurchase agreements with original maturities greater than approximately three months, and indebtedness carried at amortized cost; however, the assets are recorded at fair value only when an impairment charge is recognized. The carrying amounts and fair values of financial instruments not recorded at fair value on a recurring basis at the end of each period were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 28, 2014
|
(In Millions)
|
|
Carrying
Amount
|
|
Fair Value Measured Using
|
|
Fair Value
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Grants receivable
|
|
$
|
680
|
|
|
$
|
—
|
|
|
$
|
688
|
|
|
$
|
—
|
|
|
$
|
688
|
|
Loans receivable
|
|
$
|
250
|
|
|
$
|
—
|
|
|
$
|
250
|
|
|
$
|
—
|
|
|
$
|
250
|
|
Non-marketable cost method investments
|
|
$
|
1,781
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,639
|
|
|
$
|
2,639
|
|
Reverse repurchase agreements
|
|
$
|
385
|
|
|
$
|
—
|
|
|
$
|
385
|
|
|
$
|
—
|
|
|
$
|
385
|
|
Long-term debt
|
|
$
|
13,180
|
|
|
$
|
11,344
|
|
|
$
|
2,800
|
|
|
$
|
—
|
|
|
$
|
14,144
|
|
NVIDIA Corporation cross-license agreement liability
|
|
$
|
391
|
|
|
$
|
—
|
|
|
$
|
398
|
|
|
$
|
—
|
|
|
$
|
398
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 28, 2013
|
(In Millions)
|
|
Carrying
Amount
|
|
Fair Value Measured Using
|
|
Fair Value
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Grants receivable
|
|
$
|
416
|
|
|
$
|
—
|
|
|
$
|
481
|
|
|
$
|
—
|
|
|
$
|
481
|
|
Loans receivable
|
|
$
|
267
|
|
|
$
|
—
|
|
|
$
|
250
|
|
|
$
|
17
|
|
|
$
|
267
|
|
Non-marketable cost method investments
|
|
$
|
1,270
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,105
|
|
|
$
|
2,105
|
|
Reverse repurchase agreements
|
|
$
|
400
|
|
|
$
|
—
|
|
|
$
|
400
|
|
|
$
|
—
|
|
|
$
|
400
|
|
Short-term debt
|
|
$
|
24
|
|
|
$
|
—
|
|
|
$
|
24
|
|
|
$
|
—
|
|
|
$
|
24
|
|
Long-term debt
|
|
$
|
13,165
|
|
|
$
|
10,937
|
|
|
$
|
2,601
|
|
|
$
|
—
|
|
|
$
|
13,538
|
|
NVIDIA Corporation cross-license agreement liability
|
|
$
|
587
|
|
|
$
|
—
|
|
|
$
|
597
|
|
|
$
|
—
|
|
|
$
|
597
|
|
The fair value of our grants receivable is determined using a discounted cash flow model, which discounts future cash flows using an appropriate yield curve. As of
June 28, 2014
and
December 28, 2013
, the carrying amount of our grants receivable was classified within other current assets and other long-term assets, as applicable.
The carrying amount and fair value of loans receivable exclude loans measured and recorded at a fair value of
$802 million
as of
June 28, 2014
(
$805 million
as of
December 28, 2013
). The fair value of our loans receivable and reverse repurchase agreements, including those held at fair value, is determined using a discounted cash flow model. All significant inputs in the models are derived from or corroborated with observable market data, such as LIBOR-based yield curves, currency spot and forward rates, and credit ratings. The credit quality of these assets remains high, with credit ratings of
A+/A1 or better
for
the substantial majority
of our loans receivable and
the majority
of our reverse repurchase agreements as of
June 28, 2014
.
As of
June 28, 2014
and
December 28, 2013
, the unrealized loss position of our non-marketable cost method investments was insignificant. Our non-marketable cost method investments are valued using the market and income approaches. The market approach includes the use of financial metrics and ratios of comparable public companies. The selection of comparable companies requires management judgment and is based on a number of factors, including comparable companies’ sizes, growth rates, industries, and development stages. The income approach includes the use of a discounted cash flow model, which requires significant estimates regarding investees’ revenue, costs, and discount rates based on the risk profile of comparable companies. Estimates of revenue and costs are developed using available market, historical, and forecast data. The valuation of these non-marketable cost method investments also takes into account variables such as conditions reflected in the capital markets, recent financing activities by the investees, the investees’ capital structure, the terms of the investees’ issued interests, and the level of marketability of the investments.
INTEL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — Unaudited (Continued)
The carrying amount and fair value of short-term debt exclude drafts payable.
Our long-term debt recognized at amortized cost is comprised of our senior notes and our convertible debentures. The fair value of our senior notes is determined using active market prices, and is therefore classified as Level 1. The fair value of our convertible debentures is determined using discounted cash flow models with observable market inputs, and takes into consideration variables such as interest rate changes, comparable securities, subordination discount, and credit-rating changes, and is therefore classified as Level 2.
The NVIDIA Corporation (NVIDIA) cross-license agreement liability in the preceding table was incurred as a result of entering into a long-term patent cross-license agreement with NVIDIA in January 2011. We agreed to make payments to NVIDIA over six years. As of
June 28, 2014
and
December 28, 2013
, the carrying amount of the liability arising from the agreement was classified within other accrued liabilities and other long-term liabilities, as applicable. The fair value is determined using a discounted cash flow model, which discounts future cash flows using our incremental borrowing rates.
Note 4: Cash and Investments
Cash and investments at the end of each period were as follows:
|
|
|
|
|
|
|
|
|
|
(In Millions)
|
|
Jun 28,
2014
|
|
Dec 28,
2013
|
Available-for-sale investments
|
|
$
|
14,872
|
|
|
$
|
18,086
|
|
Cash
|
|
728
|
|
|
854
|
|
Equity method investments
|
|
1,489
|
|
|
1,038
|
|
Loans receivable
|
|
1,052
|
|
|
1,072
|
|
Non-marketable cost method investments
|
|
1,781
|
|
|
1,270
|
|
Reverse repurchase agreements
|
|
553
|
|
|
800
|
|
Trading assets
|
|
9,771
|
|
|
8,441
|
|
Total cash and investments
|
|
$
|
30,246
|
|
|
$
|
31,561
|
|
Available-for-Sale Investments
Available-for-sale investments at the end of each period were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 28, 2014
|
|
December 28, 2013
|
(In Millions)
|
|
Adjusted Cost
|
|
Gross Unrealized Gains
|
|
Gross Unrealized Losses
|
|
Fair Value
|
|
Adjusted Cost
|
|
Gross Unrealized Gains
|
|
Gross Unrealized Losses
|
|
Fair Value
|
Asset-backed securities
|
|
$
|
10
|
|
|
$
|
—
|
|
|
$
|
(2
|
)
|
|
$
|
8
|
|
|
$
|
11
|
|
|
$
|
—
|
|
|
$
|
(2
|
)
|
|
$
|
9
|
|
Corporate debt
|
|
3,034
|
|
|
18
|
|
|
(2
|
)
|
|
3,050
|
|
|
4,254
|
|
|
15
|
|
|
(3
|
)
|
|
4,266
|
|
Financial institution instruments
|
|
4,206
|
|
|
5
|
|
|
(1
|
)
|
|
4,210
|
|
|
5,654
|
|
|
5
|
|
|
(1
|
)
|
|
5,658
|
|
Government debt
|
|
1,561
|
|
|
—
|
|
|
(1
|
)
|
|
1,560
|
|
|
1,932
|
|
|
1
|
|
|
(1
|
)
|
|
1,932
|
|
Marketable equity securities
|
|
3,296
|
|
|
2,748
|
|
|
—
|
|
|
6,044
|
|
|
3,340
|
|
|
2,881
|
|
|
—
|
|
|
6,221
|
|
Total available-for-sale investments
|
|
$
|
12,107
|
|
|
$
|
2,771
|
|
|
$
|
(6
|
)
|
|
$
|
14,872
|
|
|
$
|
15,191
|
|
|
$
|
2,902
|
|
|
$
|
(7
|
)
|
|
$
|
18,086
|
|
Government debt includes instruments such as non-U.S. government bonds, U.S. agency securities, and U.S. Treasury securities. Financial institution instruments include instruments such as commercial paper, floating and fixed rate bonds, money market fund deposits, and time deposits.
Time deposits were primarily issued by institutions outside the U.S. as of
June 28, 2014
and
December 28, 2013
.
For information on the unrealized holding gains (losses) on available-for-sale investments reclassified out of accumulated other comprehensive income (loss) into the consolidated condensed statements of income, see "
Note 20: Other Comprehensive Income (Loss)
."
INTEL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — Unaudited (Continued)
We sold available-for-sale investments for proceeds of
$322 million
in the
second
quarter of
2014
and
$496 million
in the
first six months
of
2014
(
$294 million
in the
second
quarter of
2013
and
$598 million
in the
first six months
of
2013
). The gross realized gains on sales of available-for-sale investments were
$69 million
in the
second
quarter of
2014
and
$136 million
in the
first six months
of
2014
.
The amortized cost and fair value of available-for-sale debt investments, by contractual maturity, as of
June 28, 2014
, were as follows:
|
|
|
|
|
|
|
|
|
|
(In Millions)
|
|
Cost
|
|
Fair Value
|
Due in 1 year or less
|
|
$
|
6,293
|
|
|
$
|
6,313
|
|
Due in 1–2 years
|
|
1,266
|
|
|
1,265
|
|
Due in 2–5 years
|
|
884
|
|
|
885
|
|
Instruments not due at a single maturity date
|
|
368
|
|
|
365
|
|
Total
|
|
$
|
8,811
|
|
|
$
|
8,828
|
|
Instruments not due at a single maturity date in the preceding table primarily include corporate debt, financial institution instruments, and government debt.
Equity Method Investments
IM Flash Technologies, LLC
Micron Technology, Inc. (Micron) and Intel formed IM Flash Technologies, LLC (IMFT) in 2007 to manufacture NAND flash memory products for Micron and Intel. During 2012, we amended the operating agreement for IMFT and entered into agreements with Micron that modified our joint venture relationship. The amended operating agreement extended the term of IMFT to 2024, unless earlier terminated under certain terms and conditions, and provides that IMFT may manufacture certain emerging memory technologies in addition to NAND flash memory. Additionally, the amended agreement provides for certain rights that, beginning in 2015, will enable us to sell to Micron, or enable Micron to purchase from us, our interest in IMFT. If Intel exercises this right, Micron would set the closing date of the transaction within two years following such election and could elect to receive financing from Intel for one to two years. The agreements with Micron include a supply agreement for Micron to supply us with NAND flash memory products. The agreements also extend and expand our NAND joint development program with Micron to include emerging memory technologies.
As of
June 28, 2014
, we own a
49%
interest in IMFT. The carrying value of our investment was
$699 million
as of
June 28, 2014
(
$646 million
as of
December 28, 2013
) and is classified within other long-term assets.
IMFT is a variable interest entity. All costs of the IMFT joint venture will be passed on to Micron and Intel pursuant to our purchase agreements. Intel's portion of IMFT costs, primarily related to product purchases and production-related services, was approximately
$100 million
in the
second
quarter of
2014
and approximately
$205 million
in the
first six months
of
2014
(approximately
$100 million
in the
second
quarter of
2013
and approximately
$200 million
in the
first six months
of
2013
). The amount due to IMFT for product purchases and services provided was approximately
$95 million
as of
June 28, 2014
(approximately
$75 million
as of
December 28, 2013
).
IMFT depends on Micron and Intel for any additional cash needs. Our known maximum exposure to loss approximated the carrying value of our investment balance in IMFT, which was
$699 million
as of
June 28, 2014
. Except for the amount due to IMFT for product purchases and services, we did not have any additional liabilities recognized on our consolidated condensed balance sheets in connection with our interests in this joint venture as of
June 28, 2014
. Our potential future losses could be higher than the carrying amount of our investment, as Intel and Micron are liable for other future operating costs or obligations of IMFT. Future cash calls could also increase our investment balance and the related exposure to loss. In addition, because we are currently committed to purchasing
49%
of IMFT’s production output and production-related services, we may be required to purchase products at a cost in excess of realizable value.
We have determined that we do not have the characteristics of a consolidating investor in the variable interest entity and, therefore, we account for our interest in IMFT using the equity method of accounting.
INTEL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — Unaudited (Continued)
Cloudera, Inc.
During the second quarter of 2014, we invested in Cloudera, Inc. (Cloudera). Our fully-diluted ownership interest in Cloudera is
18%
as of
June 28, 2014
. Our investment is accounted for under the equity and cost methods of accounting and is classified within other long-term assets. As of
June 28, 2014
, the carrying value of our equity method investment was
$288 million
and of our cost method investment was
$454 million
.
Trading Assets
As of
June 28, 2014
and
December 28, 2013
, all of our trading assets were marketable debt instruments. Net
losses
related to trading assets still held at the reporting date were
$11 million
in the
second
quarter of
2014
and net
gains
were
$54 million
in the
first six months
of
2014
(net
gains
of
$50 million
in the
second
quarter of
2013
and net
losses
of
$32 million
in the
first six months
of
2013
). Net
gains
on the related derivatives were
$9 million
in the
second
quarter of
2014
and net
losses
of
$56 million
in the
first six months
of
2014
(net
losses
of
$50 million
in the
second
quarter of
2013
and net
gains
of
$34 million
in the
first six months
of
2013
).
Note 5: Inventories
We compute inventory cost on a first-in, first-out basis. Costs incurred to manufacture our products are included in the valuation of inventory beginning in the quarter in which a product meets the technical criteria to qualify for sale to customers. Prior to qualification for sale, costs that do not meet the criteria for research and development are included in cost of sales in the period incurred. Inventories at the end of each period were as follows:
|
|
|
|
|
|
|
|
|
|
(In Millions)
|
|
Jun 28,
2014
|
|
Dec 28,
2013
|
Raw materials
|
|
$
|
503
|
|
|
$
|
458
|
|
Work in process
|
|
2,071
|
|
|
1,998
|
|
Finished goods
|
|
1,369
|
|
|
1,716
|
|
Total inventories
|
|
$
|
3,943
|
|
|
$
|
4,172
|
|
Note 6: 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, commodity price risk, and credit risk. We also enter into master netting arrangements with counterparties when possible to mitigate credit risk in derivative transactions. A master netting arrangement may allow counterparties to net settle amounts owed to each other as a result of multiple, separate derivative transactions. Generally our master netting agreements allow for net settlement in case of certain triggering events such as bankruptcy or default of one of the counterparties to the transaction. We may also elect to exchange cash collateral with certain of our counterparties on a regular basis. For presentation on our consolidated condensed balance sheets, we do not offset fair value amounts recognized for derivative instruments under master netting arrangements.
Currency Exchange Rate Risk
We are exposed to currency exchange rate risk and generally hedge our exposures with currency forward contracts, currency interest rate swaps, or currency options. Substantially all of our revenue is transacted in U.S. dollars. However, a significant amount of our operating expenditures and capital purchases is incurred in or exposed to other currencies, primarily the euro, the Japanese yen, the Israeli shekel, and the Chinese yuan. We have established balance sheet and forecasted transaction currency risk management programs to protect against fluctuations in fair value and the volatility of the functional currency equivalent of future cash flows caused by changes in exchange rates. Our non-U.S.-dollar-denominated investments in debt instruments and loans receivable are generally hedged with offsetting currency forward contracts or currency interest rate swaps. We may also hedge currency risk arising from funding foreign currency denominated forecasted investments. These programs reduce, but do not eliminate, the impact of currency exchange movements.
INTEL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — Unaudited (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), and we reclassify it into earnings in the same period or periods in which the hedged transaction affects earnings, and in the same line item on the consolidated condensed statements of income as the impact of the hedged transaction.
|
|
|
•
|
Currency derivatives without hedge accounting designation
that utilize currency forward contracts or currency interest rate swaps to economically hedge the functional currency equivalent cash flows of recognized monetary assets and liabilities, non-U.S.-dollar-denominated debt instruments classified as trading assets, and hedges of non-U.S.-dollar-denominated loans receivable recognized at fair value. The majority of these instruments mature within 12 months. Changes in the functional currency equivalent cash flows of the underlying assets and liabilities are approximately offset by the changes in fair value of the related derivatives. We record net gains or losses in the line item on the consolidated condensed statements of income most closely associated with the related exposures, primarily in interest and other, net, except for equity-related gains or losses, which we primarily record in gains (losses) on equity investments, net.
|
Interest Rate Risk
Our primary objective for holding investments in debt instruments is to preserve principal while maximizing yields. We generally swap the returns on our investments in fixed-rate debt instruments with remaining maturities longer than six months into U.S. dollar three-month LIBOR-based returns, unless management specifically approves otherwise. These swaps are settled at various interest payment times involving cash payments at each interest and principal payment date, with the majority of the contracts having quarterly payments.
Our interest rate risk management programs include:
|
|
•
|
Interest rate derivatives with cash flow hedge accounting designation
that utilize interest rate swap agreements to modify the interest characteristics of debt instruments. For these derivatives, we report the after-tax gain or loss from the effective portion of the hedge as a component of accumulated other comprehensive income (loss), and we reclassify it into earnings in the same period or periods in which the hedged transaction affects earnings, and in the same line item on the consolidated condensed statements of income as the impact of the hedged transaction.
|
|
|
•
|
Interest rate derivatives without hedge accounting designation
that utilize interest rate swaps and currency interest rate swaps in economic hedging transactions, including hedges of non-U.S.-dollar-denominated debt instruments classified as trading assets and hedges of non-U.S.-dollar-denominated loans receivable recognized at fair value. Floating interest rates on the swaps generally reset on a quarterly basis. Changes in fair value of the debt instruments classified as trading assets and loans receivable recognized at fair value are generally offset by changes in fair value of the related derivatives, both of which are recorded in interest and other, net.
|
Equity Market Risk
Our investments include marketable equity securities and equity derivative instruments. We typically do not attempt to reduce or eliminate our equity market exposure through hedging activities at the inception of our investments. Before we enter into hedge arrangements, we evaluate legal, market, and economic factors, as well as the expected timing of disposal to determine whether hedging is appropriate. Our equity market risk management program may include equity derivatives with or without hedge accounting designation that utilize warrants, equity options, or other equity derivatives.
We recognize changes in the fair value of such derivatives in gains (losses) on equity investments, net.
We also utilize total return swaps to offset changes in liabilities related to the equity market risks of certain deferred compensation arrangements. Gains and losses from changes in fair value of these total return swaps are generally offset by the losses and gains on the related liabilities
, both of which are recorded in cost of sales and operating expenses.
Commodity Price Risk
We operate facilities that consume commodities, and have established forecasted transaction risk management programs to protect against fluctuations in fair value and the volatility of future cash flows caused by changes in commodity prices, such as those for natural gas. These programs reduce, but do not always eliminate, the impact of commodity price movements.
INTEL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — Unaudited (Continued)
Our commodity price risk management program includes commodity derivatives with cash flow hedge accounting designation that utilize commodity swap contracts to hedge future cash flow exposures to the variability in commodity prices. These instruments generally mature within 12 months. For these derivatives, we report the after-tax gain (loss) from the effective portion of the hedge as a component of accumulated other comprehensive income (loss) and reclassify it into earnings in the same period or periods in which the hedged transaction affects earnings, and in the same line item on the consolidated condensed statements of income as the impact of the hedged transaction.
Volume of Derivative Activity
Total gross notional amounts for outstanding derivatives (recorded at fair value) at the end of each period were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Millions)
|
|
Jun 28,
2014
|
|
Dec 28,
2013
|
|
Jun 29,
2013
|
Currency forwards
|
|
$
|
12,212
|
|
|
$
|
13,404
|
|
|
$
|
12,105
|
|
Currency interest rate swaps
|
|
4,908
|
|
|
4,377
|
|
|
3,632
|
|
Embedded debt derivatives
|
|
3,600
|
|
|
3,600
|
|
|
3,600
|
|
Interest rate swaps
|
|
1,318
|
|
|
1,377
|
|
|
1,257
|
|
Total return swaps
|
|
1,040
|
|
|
914
|
|
|
817
|
|
Other
|
|
61
|
|
|
67
|
|
|
77
|
|
Total
|
|
$
|
23,139
|
|
|
$
|
23,739
|
|
|
$
|
21,488
|
|
The gross notional amounts for currency forwards and currency interest rate swaps (presented by currency) at the end of each period were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Millions)
|
|
Jun 28,
2014
|
|
Dec 28,
2013
|
|
Jun 29,
2013
|
British pound sterling
|
|
$
|
505
|
|
|
$
|
549
|
|
|
$
|
428
|
|
Chinese yuan
|
|
1,498
|
|
|
1,116
|
|
|
547
|
|
Euro
|
|
5,942
|
|
|
6,874
|
|
|
6,291
|
|
Israeli shekel
|
|
1,995
|
|
|
2,244
|
|
|
1,886
|
|
Japanese yen
|
|
3,188
|
|
|
4,116
|
|
|
3,771
|
|
Malaysian ringgit
|
|
844
|
|
|
506
|
|
|
422
|
|
Swiss franc
|
|
1,460
|
|
|
1,189
|
|
|
1,206
|
|
Other
|
|
1,688
|
|
|
1,187
|
|
|
1,186
|
|
Total
|
|
$
|
17,120
|
|
|
$
|
17,781
|
|
|
$
|
15,737
|
|
INTEL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — Unaudited (Continued)
Fair Value of Derivative Instruments in the Consolidated Condensed Balance Sheets
The fair value of our derivative instruments at the end of each period were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 28, 2014
|
|
December 28, 2013
|
(In Millions)
|
|
Other
Current
Assets
|
|
Other
Long-Term
Assets
|
|
Other
Accrued
Liabilities
|
|
Other
Long-Term
Liabilities
|
|
Other
Current
Assets
|
|
Other
Long-Term
Assets
|
|
Other
Accrued
Liabilities
|
|
Other
Long-Term
Liabilities
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency forwards
|
|
$
|
51
|
|
|
$
|
—
|
|
|
$
|
32
|
|
|
$
|
5
|
|
|
$
|
114
|
|
|
$
|
1
|
|
|
$
|
118
|
|
|
$
|
2
|
|
Other
|
|
—
|
|
|
—
|
|
|
2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total derivatives designated as hedging instruments
|
|
$
|
51
|
|
|
$
|
—
|
|
|
$
|
34
|
|
|
$
|
5
|
|
|
$
|
114
|
|
|
$
|
1
|
|
|
$
|
118
|
|
|
$
|
2
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency forwards
|
|
$
|
25
|
|
|
$
|
—
|
|
|
$
|
55
|
|
|
$
|
—
|
|
|
$
|
66
|
|
|
$
|
—
|
|
|
$
|
63
|
|
|
$
|
—
|
|
Currency interest rate swaps
|
|
93
|
|
|
8
|
|
|
174
|
|
|
—
|
|
|
124
|
|
|
6
|
|
|
163
|
|
|
29
|
|
Interest rate swaps
|
|
2
|
|
|
—
|
|
|
20
|
|
|
—
|
|
|
5
|
|
|
—
|
|
|
28
|
|
|
—
|
|
Total return swaps
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
48
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Other
|
|
—
|
|
|
30
|
|
|
—
|
|
|
8
|
|
|
—
|
|
|
29
|
|
|
—
|
|
|
19
|
|
Total derivatives not designated as hedging instruments
|
|
$
|
120
|
|
|
$
|
38
|
|
|
$
|
249
|
|
|
$
|
8
|
|
|
$
|
243
|
|
|
$
|
35
|
|
|
$
|
254
|
|
|
$
|
48
|
|
Total derivatives
|
|
$
|
171
|
|
|
$
|
38
|
|
|
$
|
283
|
|
|
$
|
13
|
|
|
$
|
357
|
|
|
$
|
36
|
|
|
$
|
372
|
|
|
$
|
50
|
|
INTEL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — Unaudited (Continued)
Amounts Offset in the Consolidated Condensed Balance Sheets
The gross amounts of our derivative instruments and reverse repurchase agreements subject to master netting arrangements with various counterparties and cash and non-cash collateral posted under such agreements at the end of each period were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 28, 2014
|
|
|
|
|
|
|
|
|
Gross Amounts Not Offset in the Balance Sheet
|
|
|
(In Millions)
|
|
Gross Amounts Recognized
|
|
Gross Amounts Offset in the Balance Sheet
|
|
Net Amounts Presented in the Balance Sheet
|
|
Financial Instruments
|
|
Cash and Non-Cash Collateral Received or Pledged
|
|
Net Amount
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative assets subject to master netting arrangements
|
|
$
|
157
|
|
|
$
|
—
|
|
|
$
|
157
|
|
|
$
|
(112
|
)
|
|
$
|
(8
|
)
|
|
$
|
37
|
|
Reverse repurchase agreements
|
|
553
|
|
|
—
|
|
|
553
|
|
|
—
|
|
|
(553
|
)
|
|
—
|
|
Total assets
|
|
$
|
710
|
|
|
$
|
—
|
|
|
$
|
710
|
|
|
$
|
(112
|
)
|
|
$
|
(561
|
)
|
|
$
|
37
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities subject to master netting arrangements
|
|
$
|
280
|
|
|
$
|
—
|
|
|
$
|
280
|
|
|
$
|
(112
|
)
|
|
$
|
(142
|
)
|
|
$
|
26
|
|
Total liabilities
|
|
$
|
280
|
|
|
$
|
—
|
|
|
$
|
280
|
|
|
$
|
(112
|
)
|
|
$
|
(142
|
)
|
|
$
|
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 28, 2013
|
|
|
|
|
|
|
|
|
Gross Amounts Not Offset in the Balance Sheet
|
|
|
(In Millions)
|
|
Gross Amounts Recognized
|
|
Gross Amounts Offset in the Balance Sheet
|
|
Net Amounts Presented in the Balance Sheet
|
|
Financial Instruments
|
|
Cash and Non-Cash Collateral Received or Pledged
|
|
Net Amount
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative assets subject to master netting arrangements
|
|
$
|
325
|
|
|
$
|
—
|
|
|
$
|
325
|
|
|
$
|
(158
|
)
|
|
$
|
(3
|
)
|
|
$
|
164
|
|
Reverse repurchase agreements
|
|
800
|
|
|
—
|
|
|
800
|
|
|
—
|
|
|
(800
|
)
|
|
—
|
|
Total assets
|
|
$
|
1,125
|
|
|
$
|
—
|
|
|
$
|
1,125
|
|
|
$
|
(158
|
)
|
|
$
|
(803
|
)
|
|
$
|
164
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities subject to master netting arrangements
|
|
$
|
401
|
|
|
$
|
—
|
|
|
$
|
401
|
|
|
$
|
(158
|
)
|
|
$
|
(32
|
)
|
|
$
|
211
|
|
Total liabilities
|
|
$
|
401
|
|
|
$
|
—
|
|
|
$
|
401
|
|
|
$
|
(158
|
)
|
|
$
|
(32
|
)
|
|
$
|
211
|
|
INTEL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — Unaudited (Continued)
Derivatives in Cash Flow Hedging Relationships
The before-tax gains (losses), attributed to the effective portion of cash flow hedges, recognized in other comprehensive income (loss) for each period were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
(In Millions)
|
|
Jun 28,
2014
|
|
Jun 29,
2013
|
|
Jun 28,
2014
|
|
Jun 29,
2013
|
Currency forwards
|
|
$
|
5
|
|
|
$
|
47
|
|
|
$
|
40
|
|
|
$
|
(189
|
)
|
Other
|
|
(1
|
)
|
|
—
|
|
|
(3
|
)
|
|
1
|
|
Total
|
|
$
|
4
|
|
|
$
|
47
|
|
|
$
|
37
|
|
|
$
|
(188
|
)
|
Gains and losses on derivative instruments in cash flow hedging relationships related to hedge ineffectiveness and amounts excluded from effectiveness testing, were insignificant during all periods presented in the preceding tables. Additionally, for all periods presented, there was an insignificant impact on results of operations from discontinued cash flow hedges, which arises when forecasted transactions are probable of not occurring.
For information on the unrealized holding gains (losses) on derivatives reclassified out of accumulated other comprehensive income into the consolidated condensed statements of income, see "
Note 20: Other Comprehensive Income (Loss)
."
Derivatives Not Designated as Hedging Instruments
The effects of derivative instruments not designated as hedging instruments on the consolidated condensed statements of income for each period were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
(In Millions)
|
|
Location of Gains (Losses)
Recognized in Income on Derivatives
|
|
Jun 28,
2014
|
|
Jun 29,
2013
|
|
Jun 28,
2014
|
|
Jun 29,
2013
|
Currency forwards
|
|
Interest and other, net
|
|
$
|
(7
|
)
|
|
$
|
(6
|
)
|
|
$
|
(22
|
)
|
|
$
|
50
|
|
Currency interest rate swaps
|
|
Interest and other, net
|
|
26
|
|
|
(44
|
)
|
|
(28
|
)
|
|
56
|
|
Interest rate swaps
|
|
Interest and other, net
|
|
(4
|
)
|
|
3
|
|
|
(4
|
)
|
|
3
|
|
Total return swaps
|
|
Various
|
|
45
|
|
|
(19
|
)
|
|
58
|
|
|
29
|
|
Other
|
|
Gains (losses) on equity investments, net
|
|
1
|
|
|
5
|
|
|
2
|
|
|
7
|
|
Total
|
|
|
|
$
|
61
|
|
|
$
|
(61
|
)
|
|
$
|
6
|
|
|
$
|
145
|
|
Note 7: Acquisitions
During the
first six months
of
2014
, we completed
four
acquisitions qualifying as business combinations in exchange for aggregate net cash consideration of
$137 million
, most of which was allocated to goodwill. For information on the assignment of goodwill to our operating segments, see “
Note 9: Goodwill
.” The completed acquisitions in the
first six months
of
2014
, both individually and in the aggregate, were not significant to our results of operations.
Note 8: Divestitures
During the first quarter of 2014, we completed the divestiture of our Intel Media assets, a business division dedicated to the development of cloud TV products and services, to Verizon Communications Inc. As a result of the transaction, we received aggregate net cash consideration of
$150 million
, presented within investing activities on the consolidated condensed statements of cash flows, and recognized a gain within interest and other, net on the consolidated condensed statements of income.
INTEL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — Unaudited (Continued)
Note 9: Goodwill
Goodwill activity for the
first six months
of
2014
was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Millions)
|
|
Dec 28,
2013
|
|
Additions Due to Acquisitions
|
|
Transfers
|
|
Effect of Exchange Rate Fluctuations and Other
|
|
Jun 28,
2014
|
PC Client Group
|
|
$
|
3,058
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,058
|
|
Data Center Group
|
|
1,831
|
|
|
8
|
|
|
138
|
|
|
—
|
|
|
1,977
|
|
Internet of Things Group
|
|
—
|
|
|
—
|
|
|
428
|
|
|
—
|
|
|
428
|
|
Mobile and Communications Group
|
|
—
|
|
|
19
|
|
|
631
|
|
|
—
|
|
|
650
|
|
Other Intel architecture operating segments
|
|
1,075
|
|
|
—
|
|
|
(1,075
|
)
|
|
—
|
|
|
—
|
|
Software and services operating segments
|
|
4,549
|
|
|
—
|
|
|
(140
|
)
|
|
(2
|
)
|
|
4,407
|
|
All other
|
|
—
|
|
|
101
|
|
|
18
|
|
|
(18
|
)
|
|
101
|
|
Total
|
|
$
|
10,513
|
|
|
$
|
128
|
|
|
$
|
—
|
|
|
$
|
(20
|
)
|
|
$
|
10,621
|
|
In the first quarter of 2014, we formed the Internet of Things Group and we changed our organizational structure to align with our critical objectives, which included the addition of Mobile and Communication Group as a reportable operating segment. For further information, see "
Note 22: Operating Segments Information
." Due to this reorganization, goodwill was allocated from our prior reporting units to our new reporting units, as shown in the preceding table within "transfers." The allocation was based on the fair value of each business group within its original reporting unit relative to the fair value of that reporting unit.
INTEL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — Unaudited (Continued)
Note 10: Identified Intangible Assets
Identified intangible assets at the end of each period were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 28, 2014
|
(In Millions)
|
|
Gross Assets
|
|
Accumulated
Amortization
|
|
Net
|
Acquisition-related developed technology
|
|
$
|
2,924
|
|
|
$
|
(1,982
|
)
|
|
$
|
942
|
|
Acquisition-related customer relationships
|
|
1,759
|
|
|
(966
|
)
|
|
793
|
|
Acquisition-related trade names
|
|
65
|
|
|
(50
|
)
|
|
15
|
|
Licensed technology and patents
|
|
3,088
|
|
|
(1,088
|
)
|
|
2,000
|
|
Identified intangible assets subject to amortization
|
|
7,836
|
|
|
(4,086
|
)
|
|
3,750
|
|
Acquisition-related trade names
|
|
817
|
|
|
—
|
|
|
817
|
|
Other intangible assets
|
|
130
|
|
|
—
|
|
|
130
|
|
Identified intangible assets not subject to amortization
|
|
947
|
|
|
—
|
|
|
947
|
|
Total identified intangible assets
|
|
$
|
8,783
|
|
|
$
|
(4,086
|
)
|
|
$
|
4,697
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 28, 2013
|
(In Millions)
|
|
Gross Assets
|
|
Accumulated
Amortization
|
|
Net
|
Acquisition-related developed technology
|
|
$
|
2,922
|
|
|
$
|
(1,691
|
)
|
|
$
|
1,231
|
|
Acquisition-related customer relationships
|
|
1,760
|
|
|
(828
|
)
|
|
932
|
|
Acquisition-related trade names
|
|
65
|
|
|
(44
|
)
|
|
21
|
|
Licensed technology and patents
|
|
3,093
|
|
|
(974
|
)
|
|
2,119
|
|
Identified intangible assets subject to amortization
|
|
7,840
|
|
|
(3,537
|
)
|
|
4,303
|
|
Acquisition-related trade names
|
|
818
|
|
|
—
|
|
|
818
|
|
Other intangible assets
|
|
29
|
|
|
—
|
|
|
29
|
|
Identified intangible assets not subject to amortization
|
|
847
|
|
|
—
|
|
|
847
|
|
Total identified intangible assets
|
|
$
|
8,687
|
|
|
$
|
(3,537
|
)
|
|
$
|
5,150
|
|
For identified intangible assets that are subject to amortization, we recorded amortization expense on the consolidated condensed statements of income as follows: amortization of acquisition-related developed technology and licensed technology and patents is included in cost of sales, amortization of acquisition-related customer relationships and trade names is included in amortization of acquisition-related intangibles, and amortization of other intangible assets is recorded as a reduction of revenue.
Amortization expenses for each period were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
(In Millions)
|
|
Jun 28,
2014
|
|
Jun 29,
2013
|
|
Jun 28,
2014
|
|
Jun 29,
2013
|
Acquisition-related developed technology
|
|
$
|
147
|
|
|
$
|
140
|
|
|
$
|
293
|
|
|
$
|
280
|
|
Acquisition-related customer relationships
|
|
69
|
|
|
68
|
|
|
139
|
|
|
138
|
|
Acquisition-related trade names
|
|
3
|
|
|
2
|
|
|
6
|
|
|
5
|
|
Licensed technology and patents
|
|
71
|
|
|
69
|
|
|
139
|
|
|
135
|
|
Other intangible assets
|
|
—
|
|
|
—
|
|
|
—
|
|
|
103
|
|
Total amortization expenses
|
|
$
|
290
|
|
|
$
|
279
|
|
|
$
|
577
|
|
|
$
|
661
|
|
INTEL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — Unaudited (Continued)
Based on identified intangible assets that are subject to amortization as of
June 28, 2014
, we expect future amortization expenses for each period to be as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Millions)
|
|
Remainder of 2014
|
|
2015
|
|
2016
|
|
2017
|
|
2018
|
Acquisition-related developed technology
|
|
$
|
287
|
|
|
$
|
304
|
|
|
$
|
212
|
|
|
$
|
63
|
|
|
$
|
41
|
|
Acquisition-related customer relationships
|
|
130
|
|
|
251
|
|
|
233
|
|
|
141
|
|
|
29
|
|
Acquisition-related trade names
|
|
3
|
|
|
9
|
|
|
3
|
|
|
—
|
|
|
—
|
|
Licensed technology and patents
|
|
135
|
|
|
252
|
|
|
237
|
|
|
200
|
|
|
159
|
|
Total future amortization expenses
|
|
$
|
555
|
|
|
$
|
816
|
|
|
$
|
685
|
|
|
$
|
404
|
|
|
$
|
229
|
|
Note 11: Other Long-Term Assets
Other long-term assets at the end of each period were as follows:
|
|
|
|
|
|
|
|
|
|
(In Millions)
|
|
Jun 28,
2014
|
|
Dec 28,
2013
|
Equity method investments
|
|
$
|
1,489
|
|
|
$
|
1,038
|
|
Non-marketable cost method investments
|
|
1,781
|
|
|
1,270
|
|
Non-current deferred tax assets
|
|
512
|
|
|
434
|
|
Loans receivable
|
|
421
|
|
|
952
|
|
Prepayments for property, plant and equipment
|
|
533
|
|
|
521
|
|
Other
|
|
1,390
|
|
|
1,274
|
|
Total other long-term assets
|
|
$
|
6,126
|
|
|
$
|
5,489
|
|
During the
first six months
of
2014
, we received equipment that was prepaid in 2010 and 2011. Upon receipt of the equipment, we transferred
$121 million
from other long-term assets to property, plant and equipment. We recognized the prepayments within operating activities in the consolidated condensed statement of cash flows when we paid for the equipment in 2010 and 2011, and the receipt of the equipment is reflected as a non-cash transaction in the current period.
INTEL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — Unaudited (Continued)
Note 12: Restructuring and Asset Impairment Charges
In response to the current business environment, beginning in the third quarter of 2013, management has approved several restructuring actions including targeted workforce reductions and the exit of certain businesses and facilities. These actions include the wind down of our 200 millimeter wafer fabrication facility in Massachusetts and the closure of our assembly and test facility in Costa Rica, which we expect to cease production in the first quarter of 2015 and the end of 2014, respectively. These targeted reductions will enable the company to better align our resources in areas providing the greatest benefit in the changing market.
Restructuring and asset impairment charges for each period were as follows
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
(In Millions)
|
|
Jun 28,
2014
|
|
Jun 29,
2013
|
|
Jun 28,
2014
|
|
Jun 29,
2013
|
Employee severance and benefit arrangements
|
|
$
|
72
|
|
|
$
|
—
|
|
|
$
|
209
|
|
|
$
|
—
|
|
Asset impairments and other restructuring charges
|
|
9
|
|
|
—
|
|
|
9
|
|
|
—
|
|
Total restructuring and asset impairment charges
|
|
$
|
81
|
|
|
$
|
—
|
|
|
$
|
218
|
|
|
$
|
—
|
|
The restructuring and asset impairment activity for
first six months
of
2014
was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Millions)
|
|
Employee Severance and Benefits
|
|
Asset Impairments and Other
|
|
Total
|
Accrued restructuring balance as of December 28, 2013
|
|
$
|
183
|
|
|
$
|
—
|
|
|
$
|
183
|
|
Additional accruals
|
|
197
|
|
|
9
|
|
|
206
|
|
Adjustments
|
|
12
|
|
|
—
|
|
|
12
|
|
Cash payments
|
|
(223
|
)
|
|
—
|
|
|
(223
|
)
|
Non-cash settlements
|
|
—
|
|
|
(2
|
)
|
|
(2
|
)
|
Accrued restructuring balance as of June 28, 2014
|
|
$
|
169
|
|
|
$
|
7
|
|
|
$
|
176
|
|
We recorded the additional accruals and adjustments as restructuring and asset impairment charges in the consolidated condensed statements of income and within the “all other” operating segments category. The charges incurred during the
first six months
of
2014
included
$209 million
related to employee severance and benefit arrangements, which impacted approximately
3,500
employees
.
Substantially all of the accrued restructuring balance as of
June 28, 2014
relates to employee severance and benefits, which are expected to be paid within the next 12 months, and was recorded as a current liability within accrued compensation and benefits in the consolidated condensed balance sheets.
Since the third quarter of 2013,
we have incurred a total of
$458 million
in restructuring and asset impairment charges. These charges included a total of
$410 million
related to employee severance and benefit arrangements for approximately
7,400
employees, and
$48 million
in asset impairment charges and other restructuring charges.
We may incur additional charges in the future for employee severance and benefit arrangements, as well as facility-related or other exit activities, as we continue to align our resources to meet the needs of the business.
Note 13: Deferred Income
Deferred income at the end of each period was as follows:
|
|
|
|
|
|
|
|
|
|
(In Millions)
|
|
Jun 28,
2014
|
|
Dec 28,
2013
|
Deferred income on shipments of components to distributors
|
|
$
|
951
|
|
|
$
|
852
|
|
Deferred income from software and services
|
|
1,220
|
|
|
1,244
|
|
Current deferred income
|
|
2,171
|
|
|
2,096
|
|
Non-current deferred income from software and services
|
|
481
|
|
|
506
|
|
Total deferred income
|
|
$
|
2,652
|
|
|
$
|
2,602
|
|
We classify non-current deferred income from the software and services in other long-term liabilities.
INTEL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — Unaudited (Continued)
Note 14: Retirement Benefit Plans
During the second quarter of 2014, we communicated to employees our intent to freeze future benefit accruals in the U.S. Intel Minimum Pension Plan to all employees at or above a specific grade level, and generally covering all highly compensated employees in the plan. This change is contingent on receiving a favorable private letter ruling (PLR) from the Internal Revenue Service (IRS), which we filed for in January 2014. If a favorable PLR is received, the effective date of the change is anticipated to be January 1, 2015. The consolidated condensed financial statements do not include any adjustments for this transaction due to the uncertainties regarding the ruling request with the IRS. We do not expect that such changes will have a significant impact on our consolidated condensed financial statements.
Note 15: Employee Equity Incentive Plans
Our equity incentive plans are broad-based, long-term programs intended to attract and retain talented employees and align stockholder and employee interests.
Under the 2006 Equity Incentive Plan (the 2006 Plan),
719 million
shares of common stock are available for issuance as equity awards to employees and non-employee directors through June 2016. A maximum of
517 million
of these shares of common stock can be awarded as non-vested shares (restricted stock) or non-vested share units (restricted stock units). As of
June 28, 2014
,
259 million
shares of common stock remained available for future grant under the 2006 Plan.
The 2006 Stock Purchase Plan allows eligible employees to purchase shares of our common stock at
85%
of the value of our common stock on specific dates. Rights to purchase shares of common stock are granted during the first and third quarters of each year. Under the 2006 Stock Purchase Plan, stockholders made
373 million
shares of common stock available for issuance through August 2016. As of
June 28, 2014
,
206 million
shares of common stock were available for issuance under the 2006 Stock Purchase Plan.
Share-Based Compensation
We recognized
$303 million
of share-based compensation in the
second
quarter of
2014
and
$586 million
for the
first six months
of
2014
(
$292 million
in the
second
quarter of
2013
and
$587 million
for the
first six months
of
2013
).
We estimate the fair value of restricted stock unit awards with time-based vesting using the value of our common stock on the date of grant, reduced by the present value of dividends expected to be paid on our common stock prior to vesting. We estimate the fair value of market-based restricted stock units using a Monte Carlo simulation model on the date of grant. We based the weighted average estimated value 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, for each period as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
Jun 28,
2014
|
|
Jun 29,
2013
|
|
Jun 28,
2014
|
|
Jun 29,
2013
|
Estimated values
|
|
$
|
24.81
|
|
|
$
|
21.43
|
|
|
$
|
24.91
|
|
|
$
|
21.44
|
|
Risk-free interest rate
|
|
0.5
|
%
|
|
0.2
|
%
|
|
0.5
|
%
|
|
0.2
|
%
|
Dividend yield
|
|
3.4
|
%
|
|
3.8
|
%
|
|
3.4
|
%
|
|
3.8
|
%
|
Volatility
|
|
22
|
%
|
|
23
|
%
|
|
23
|
%
|
|
25
|
%
|
INTEL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — Unaudited (Continued)
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 stock granted under our stock purchase plan. We based the weighted average estimated value of employee stock option grants and rights granted under the stock purchase plan, as well as the weighted average assumptions used in calculating the fair value, on estimates at the date of grant, for each period as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options
|
|
Stock Purchase Plan
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
Six Months Ended
|
|
|
Jun 28,
2014
|
|
Jun 29,
2013
|
|
Jun 28,
2014
|
|
Jun 29,
2013
|
|
Jun 28,
2014
|
|
Jun 29,
2013
|
Estimated values
|
|
$
|
3.63
|
|
|
$
|
3.23
|
|
|
$
|
3.61
|
|
|
$
|
3.11
|
|
|
$
|
4.94
|
|
|
$
|
4.26
|
|
Expected life (in years)
|
|
4.7
|
|
|
5.2
|
|
|
5.1
|
|
|
5.2
|
|
|
0.5
|
|
|
0.5
|
|
Risk-free interest rate
|
|
1.6
|
%
|
|
0.8
|
%
|
|
1.7
|
%
|
|
0.8
|
%
|
|
0.1
|
%
|
|
0.1
|
%
|
Dividend yield
|
|
3.4
|
%
|
|
3.8
|
%
|
|
3.6
|
%
|
|
3.9
|
%
|
|
3.7
|
%
|
|
4.3
|
%
|
Volatility
|
|
22
|
%
|
|
25
|
%
|
|
23
|
%
|
|
25
|
%
|
|
21
|
%
|
|
22
|
%
|
R
estricted Stock Unit Awards
Information with respect to outstanding restricted stock unit (RSU) activity in the
first six months
of
2014
was as follows:
|
|
|
|
|
|
|
|
|
|
|
Number of
RSUs
(In Millions)
|
|
Weighted Average
Grant-Date
Fair Value
|
December 28, 2013
|
|
113.3
|
|
|
$
|
22.47
|
|
Granted
|
|
52.6
|
|
|
$
|
24.91
|
|
Vested
|
|
(39.2
|
)
|
|
$
|
22.33
|
|
Forfeited
|
|
(5.4
|
)
|
|
$
|
22.68
|
|
June 28, 2014
|
|
121.3
|
|
|
$
|
23.56
|
|
The aggregate fair value of awards that vested in the
first six months
of
2014
was
$1.0 billion
, which represents the market value of our common stock on the date that the restricted stock units vested. The grant-date fair value of awards that vested in
first six months
of
2014
was
$875 million
. The number of restricted stock units vested includes shares of common stock that we withheld on behalf of employees to satisfy the minimum statutory tax withholding requirements. Restricted stock units that are expected to vest are net of estimated future forfeitures.
As of
June 28, 2014
,
3.7 million
of the outstanding restricted stock units were market-based restricted stock units.
Stock Option Awards
Information with respect to outstanding stock option activity in the
first six months
of
2014
was as follows:
|
|
|
|
|
|
|
|
|
|
|
Number of
Options
(In Millions)
|
|
Weighted Average
Exercise Price
|
December 28, 2013
|
|
153.0
|
|
|
$
|
21.10
|
|
Granted
|
|
0.6
|
|
|
$
|
25.34
|
|
Exercised
|
|
(40.3
|
)
|
|
$
|
19.64
|
|
Cancelled and forfeited
|
|
(2.2
|
)
|
|
$
|
23.64
|
|
Expired
|
|
(9.8
|
)
|
|
$
|
27.04
|
|
June 28, 2014
|
|
101.3
|
|
|
$
|
21.08
|
|
Options exercisable as of:
|
|
|
|
|
December 28, 2013
|
|
111.5
|
|
|
$
|
20.25
|
|
June 28, 2014
|
|
77.1
|
|
|
$
|
20.24
|
|
INTEL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — Unaudited (Continued)
During the
first six months
of
2014
, the aggregate intrinsic value of stock option exercises was
$293 million
, which represents the difference between the exercise price and the value of our common stock at the time of exercise.
Stock Purchase Plan
Employees purchased
10.7 million
shares of common stock in the
first six months
of
2014
for
$212 million
(
11.1 million
shares of common stock in the
first six months
of
2013
for
$200 million
) under the 2006 Stock Purchase Plan.
Note 16: Common Stock Repurchases
Common Stock Repurchase Program
We have an ongoing authorization, originally approved by our Board of Directors in 2005, and subsequently amended, to repurchase up to
$45 billion
in shares of our common stock in open market or negotiated transactions.
As of
June 28, 2014
,
$490 million
remained available for repurchase under the existing repurchase authorization limit.
In July 2014, the Board of Directors authorized an increase of
$20 billion
to our common stock repurchase program.
During the
second
quarter of
2014
, we repurchased
75.8 million
shares of common stock at a cost of
$2.2 billion
(
23.3 million
shares of common stock at a cost of
$550 million
during the
second
quarter of
2013
). During the
first six months
of
2014
, we repurchased
97.9 million
shares of common stock at a cost of
$2.7 billion
(
48.5 million
shares of common stock at a cost of
$1.1 billion
in the
first six months
of
2013
). We have repurchased
4.5 billion
shares of common stock at a cost of
$94 billion
since the program began in 1990.
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 of common stock issued on the date the restricted stock units vest is net of the minimum statutory withholding requirements that we pay in cash to the appropriate taxing authorities on behalf of our employees.
In our consolidated condensed financial statements, we also treat shares of common stock withheld for tax purposes on behalf of our employees in connection with the vesting of restricted stock units as common stock repurchases because they reduce the number of shares that would have been issued upon vesting. These withheld shares of common stock are not considered common stock repurchases under our authorized common stock repurchase plan
. During the
first six months
of
2014
, we withheld
11.3 million
shares of common stock to satisfy
$299 million
(
12.3 million
shares of common stock to satisfy
$272 million
during the
first six months
of
2013
) of employees’ tax obligations.
Note 17: Gains (Losses) on Equity Investments, Net
The components of gains (losses) on equity investments, net for each period were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
(In Millions)
|
|
Jun 28,
2014
|
|
Jun 29,
2013
|
|
Jun 28,
2014
|
|
Jun 29,
2013
|
Share of equity method investee losses, net
|
|
$
|
(14
|
)
|
|
$
|
(19
|
)
|
|
$
|
(25
|
)
|
|
$
|
(42
|
)
|
Impairment charges
|
|
(37
|
)
|
|
(60
|
)
|
|
(75
|
)
|
|
(77
|
)
|
Gains on sales, net
|
|
76
|
|
|
10
|
|
|
147
|
|
|
14
|
|
Dividends
|
|
53
|
|
|
45
|
|
|
53
|
|
|
45
|
|
Other, net
|
|
17
|
|
|
35
|
|
|
43
|
|
|
45
|
|
Total gains (losses) on equity investments, net
|
|
$
|
95
|
|
|
$
|
11
|
|
|
$
|
143
|
|
|
$
|
(15
|
)
|
INTEL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — Unaudited (Continued)
Note 18: Interest and Other, Net
The components of interest and other, net for each period were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
(In Millions)
|
|
Jun 28,
2014
|
|
Jun 29,
2013
|
|
Jun 28,
2014
|
|
Jun 29,
2013
|
Interest income
|
|
$
|
38
|
|
|
$
|
26
|
|
|
$
|
73
|
|
|
$
|
49
|
|
Interest expense
|
|
(49
|
)
|
|
(60
|
)
|
|
(86
|
)
|
|
(133
|
)
|
Other, net
|
|
(6
|
)
|
|
(3
|
)
|
|
108
|
|
|
(3
|
)
|
Total interest and other, net
|
|
$
|
(17
|
)
|
|
$
|
(37
|
)
|
|
$
|
95
|
|
|
$
|
(87
|
)
|
Interest expense in the preceding table is net of
$63 million
of interest capitalized in the
second
quarter of
2014
and
$140 million
of interest capitalized in the
first six months
of
2014
(
$67 million
in the
second
quarter of
2013
and
$121 million
in the
first six months
of
2013
).
During the first quarter of 2014, we completed the divestiture of our Intel Media assets. As a result of the transaction, we recognized a gain within "other, net" in the preceding table. For further information, see "
Note 8: Divestitures
."
Note 19: Earnings Per Share
We computed our basic and diluted earnings per common share for each period as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
(In Millions, Except Per Share Amounts)
|
|
Jun 28,
2014
|
|
Jun 29,
2013
|
|
Jun 28,
2014
|
|
Jun 29,
2013
|
Net income available to common stockholders
|
|
$
|
2,796
|
|
|
$
|
2,000
|
|
|
$
|
4,726
|
|
|
$
|
4,045
|
|
Weighted average common shares outstanding—basic
|
|
4,981
|
|
|
4,978
|
|
|
4,977
|
|
|
4,963
|
|
Dilutive effect of employee equity incentive plans
|
|
68
|
|
|
67
|
|
|
72
|
|
|
72
|
|
Dilutive effect of convertible debt
|
|
74
|
|
|
61
|
|
|
71
|
|
|
58
|
|
Weighted average common shares outstanding—diluted
|
|
5,123
|
|
|
5,106
|
|
|
5,120
|
|
|
5,093
|
|
Basic earnings per common share
|
|
$
|
0.56
|
|
|
$
|
0.40
|
|
|
$
|
0.95
|
|
|
$
|
0.82
|
|
Diluted earnings per common share
|
|
$
|
0.55
|
|
|
$
|
0.39
|
|
|
$
|
0.92
|
|
|
$
|
0.79
|
|
We computed basic earnings per common share using net income available to common stockholders and the weighted average number of common shares outstanding during the period. We computed diluted earnings per common share using net income available to common stockholders and the weighted average number of common shares outstanding plus potentially dilutive common shares outstanding during the period. Net income available to participating securities was insignificant for all periods presented.
Potentially dilutive common shares from employee incentive plans are determined by applying the treasury stock method to the assumed exercise of outstanding stock options, the assumed vesting of outstanding restricted stock units, and the assumed issuance of common stock under the stock purchase plan. Potentially dilutive common shares are determined by applying the if-converted method for our 2005 junior subordinated convertible debentures. However, as our 2009 junior subordinated convertible debentures (2009 debentures) require settlement of the principal amount of the debt in cash upon conversion, with the conversion premium paid in cash or stock at our option, potentially dilutive common shares are determined by applying the treasury stock method.
During the
second
quarter of
2014
, we excluded
9 million
outstanding stock options and restricted stock units from the computation of diluted earnings per common share because these would have been antidilutive (
51 million
for the
second
quarter of
2013
). During the
first six months
of
2014
, we excluded
21 million
outstanding stock options and restricted stock units from the computation of diluted earnings per common share because these would have been antidilutive (
56 million
for the
first six months
of
2013
). These options could potentially be included in the diluted earnings per common share calculation in the future if the average market value of the common shares increases and is greater than the exercise price of these options.
In the
second
quarter of
2014
and in the
second
quarter of
2013
, we included our 2009 debentures in the calculation of diluted earnings per common share because the average market price was above the conversion price. We could potentially exclude the 2009 debentures in the future if the average market price is below the conversion price.
INTEL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — Unaudited (Continued)
Note 20: Other Comprehensive Income (Loss)
The changes in accumulated other comprehensive income (loss) by component and related tax effects in the
first six months
of
2014
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Millions)
|
|
Unrealized Holding Gains (Losses) on Available-for-Sale Investments
|
|
Deferred Tax Asset Valuation Allowance
|
|
Unrealized Holding Gains (Losses) on Derivatives
|
|
Prior Service Credits (Costs)
|
|
Actuarial Gains (Losses)
|
|
Foreign Currency Translation Adjustment
|
|
Total
|
December 28, 2013
|
|
$
|
1,882
|
|
|
$
|
67
|
|
|
$
|
4
|
|
|
$
|
(14
|
)
|
|
$
|
(602
|
)
|
|
$
|
(94
|
)
|
|
$
|
1,243
|
|
Other comprehensive income before reclassifications
|
|
(13
|
)
|
|
—
|
|
|
38
|
|
|
(50
|
)
|
|
(10
|
)
|
|
(7
|
)
|
|
(42
|
)
|
Amounts reclassified out of accumulated other comprehensive income (loss)
|
|
(121
|
)
|
|
—
|
|
|
(18
|
)
|
|
2
|
|
|
19
|
|
|
—
|
|
|
(118
|
)
|
Tax effects
|
|
48
|
|
|
(4
|
)
|
|
(9
|
)
|
|
5
|
|
|
(4
|
)
|
|
1
|
|
|
37
|
|
Other comprehensive income (loss)
|
|
(86
|
)
|
|
(4
|
)
|
|
11
|
|
|
(43
|
)
|
|
5
|
|
|
(6
|
)
|
|
(123
|
)
|
June 28, 2014
|
|
$
|
1,796
|
|
|
$
|
63
|
|
|
$
|
15
|
|
|
$
|
(57
|
)
|
|
$
|
(597
|
)
|
|
$
|
(100
|
)
|
|
$
|
1,120
|
|
INTEL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — Unaudited (Continued)
The amounts reclassified out of accumulated other comprehensive income (loss) into the consolidated condensed statements of income, with presentation location, for each period were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Before Taxes Impact
(In Millions)
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
Comprehensive Income Components
|
|
Jun 28,
2014
|
|
Jun 29,
2013
|
|
Jun 28,
2014
|
|
Jun 29,
2013
|
|
Location
|
Unrealized holding gains (losses) on available-for-sale investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(4
|
)
|
|
$
|
—
|
|
|
$
|
(2
|
)
|
|
$
|
3
|
|
|
Interest and other, net
|
|
|
62
|
|
|
8
|
|
|
123
|
|
|
9
|
|
|
Gains (losses) on equity investments, net
|
|
|
58
|
|
|
8
|
|
|
121
|
|
|
12
|
|
|
|
Unrealized holding gains (losses) on derivatives:
|
|
|
|
|
|
|
|
|
|
|
Currency forwards
|
|
(7
|
)
|
|
(28
|
)
|
|
(5
|
)
|
|
(28
|
)
|
|
Cost of sales
|
|
|
10
|
|
|
5
|
|
|
18
|
|
|
8
|
|
|
Research and development
|
|
|
3
|
|
|
(3
|
)
|
|
5
|
|
|
(4
|
)
|
|
Marketing, general and administrative
|
Other instruments
|
|
—
|
|
|
1
|
|
|
—
|
|
|
1
|
|
|
Cost of sales
|
|
|
6
|
|
|
(25
|
)
|
|
18
|
|
|
(23
|
)
|
|
|
Amortization of pension and postretirement benefit components:
|
|
|
|
|
|
|
|
|
|
|
Prior service credits (costs)
|
|
(1
|
)
|
|
(1
|
)
|
|
(2
|
)
|
|
(2
|
)
|
|
|
Actuarial gains (losses)
|
|
(9
|
)
|
|
(26
|
)
|
|
(19
|
)
|
|
(51
|
)
|
|
|
|
|
(10
|
)
|
|
(27
|
)
|
|
(21
|
)
|
|
(53
|
)
|
|
|
Total amounts reclassified out of accumulated other comprehensive income (loss)
|
|
$
|
54
|
|
|
$
|
(44
|
)
|
|
$
|
118
|
|
|
$
|
(64
|
)
|
|
|
The amortization of pension and postretirement benefit components are included in the computation of net periodic benefit cost. For further information, see the "Retirement Benefit Plans" note in Part II, Item 8 of our Annual Report on Form 10-K for the year ended
December 28, 2013
.
We estimate that we will reclassify approximately
$12 million
(before taxes) of net derivative losses included in accumulated other comprehensive income (loss) into earnings within the next 12 months.
Note 21: Contingencies
Legal Proceedings
We are a party to various legal proceedings, including those noted in this section. Although management at present believes that the ultimate outcome of these proceedings, individually and in the aggregate, will not materially harm our financial position, results of operations, cash flows, or overall trends, legal proceedings and related government investigations are subject to inherent uncertainties, and unfavorable rulings or other events could occur. Unfavorable resolutions could include substantial monetary damages. In addition, in matters for which injunctive relief or other conduct remedies are sought, unfavorable resolutions could include an injunction or other order prohibiting us from selling one or more products at all or in particular ways, precluding particular business practices, or requiring other remedies. Were unfavorable outcomes to occur, the possibility exists for a material adverse impact on our business, results of operations, financial position, and overall trends. We might also conclude that settling one or more such matters is in the best interests of our stockholders, employees, and customers, and any such settlement could include substantial payments. Except as specifically described below, we have not concluded that settlement of any of the legal proceedings noted in this section is appropriate at this time.
INTEL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — Unaudited (Continued)
A number of proceedings generally have challenged and continue to challenge certain of our competitive practices. The allegations in these proceedings vary and are described in more detail in the following paragraphs. In general, they contend that we improperly conditioned price rebates and other discounts on our microprocessors on exclusive or near-exclusive dealing by some of our customers; and they allege that our software compiler business unfairly preferred Intel
®
microprocessors over competing microprocessors and that, through the use of our compilers and other means, we have caused the dissemination of inaccurate and misleading benchmark results concerning our microprocessors. Based on the procedural posture of the various remaining competition matters, which we describe in subsequent paragraphs, our investment of resources to explain and defend our position has declined as compared to the period 2005-2011. Nonetheless, certain of the matters remain active, and these challenges could continue for a number of years, potentially requiring us to invest additional resources. We believe that we compete lawfully and that our marketing, business, intellectual property, and other challenged practices benefit our customers and our stockholders, and we will continue to conduct a vigorous defense in the remaining proceedings.
Government Competition Matters and Related Consumer Class Actions
In 2001, the European Commission (EC) commenced an investigation regarding claims by Advanced Micro Devices, Inc. (AMD) that we used unfair business practices to persuade customers to buy our microprocessors. We received numerous requests for information and documents from the EC and we responded to each of those requests. The EC issued a Statement of Objections in July 2007 and held a hearing on that Statement in March 2008. The EC issued a Supplemental Statement of Objections in July 2008.
In May 2009, the EC issued a decision finding that we had violated Article 82 of the EC Treaty and Article 54 of the European Economic Area Agreement. In general, the EC found that we violated Article 82 (later renumbered as Article 102 by a new treaty) by offering alleged
“
conditional rebates and payments
”
that required our customers to purchase all or most of their x86 microprocessors from us. The EC also found that we violated Article 82 by making alleged
“
payments to prevent sales of specific rival products.
”
The EC imposed a fine in the amount of
€1.06 billion
(
$1.447 billion
as of May 2009), which we subsequently paid during the third quarter of 2009, and ordered us to
“
immediately bring to an end the infringement referred to in
”
the EC decision. The EC decision contained no specific direction on whether or how we should modify our business practices. Instead, the decision stated that we should
“
cease and desist
”
from further conduct that, in the EC
'
s opinion, would violate applicable law. We took steps, which are subject to the EC
'
s ongoing review, to comply with that decision pending appeal. We had discussions with the EC to better understand the decision and to explain changes to our business practices.
We appealed the EC decision to the Court of First Instance (which has been renamed the General Court) in July 2009. The hearing of our appeal took place in July 2012. In June 2014, the General Court rejected our appeal in its entirety. We have until late August 2014 to file any appeal to the European Court of Justice.
At least 82 separate class-action lawsuits 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 the allegations made in a now-settled lawsuit filed against us by AMD in June 2005 in the U.S. District Court for the District of Delaware (AMD litigation). Like the AMD litigation, these class-action lawsuits allege that we engaged in various actions in violation of the Sherman Act and other laws by, among other things: providing discounts and rebates to our manufacturer and distributor customers conditioned on exclusive or near-exclusive dealing that allegedly unfairly interfered with AMD
'
s ability to sell its microprocessors; interfering with certain AMD product launches; and interfering with AMD
'
s participation in certain industry standards-setting groups. The class actions allege various consumer injuries, including that consumers in various states have been injured by paying higher prices for computers containing our microprocessors. We dispute these class-action claims and intend to defend the lawsuits vigorously.
INTEL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — Unaudited (Continued)
All of the federal class actions and the Kansas and Tennessee state court class actions have been transferred by the Multidistrict Litigation Panel to the U.S. District Court in Delaware for all pre-trial proceedings and discovery (MDL proceedings). The Delaware district court appointed a Special Master to address issues in the MDL proceedings, as assigned by the court. In January 2010, the plaintiffs in the Delaware action filed a motion for sanctions for our alleged failure to preserve evidence. This motion largely copies a motion previously filed by AMD in the AMD litigation, which has settled. The plaintiffs in the MDL proceedings also moved for certification of a class of members who purchased certain personal computers containing products sold by us. In July 2010, the Special Master issued a Report and Recommendation (Report) denying the motion to certify a class. The MDL plaintiffs filed objections to the Special Master
'
s Report, and a hearing on those objections was held in March 2011. In September 2012, the court ruled that an evidentiary hearing would be necessary to enable the court to rule on the objections to the Special Master
'
s Report, to resolve the motion to certify the class, and to resolve a separate motion to exclude certain testimony and evidence from the MDL plaintiffs
'
expert. The hearing occurred in July 2013, and we are awaiting the court's decision on the class certification issues.
All California class actions have been consolidated in 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 district court rules on the similar motion in the MDL proceedings. Given the procedural posture and the nature of these cases, including the fact that the Delaware district court has not determined whether the matters before it may proceed as a class action, we are unable to make a reasonable estimate of the potential loss or range of losses, if any, arising from these matters.
In re High Tech Employee Antitrust Litigation
Between May and July 2011, former employees of Intel, Adobe Systems Incorporated, Apple Inc., Google Inc., Intuit Inc., Lucasfilm Ltd., and Pixar filed antitrust class action lawsuits in the California Superior Courts alleging that these companies had entered into a conspiracy to suppress the compensation of their employees. The lawsuits were removed to the United States District Court for the Northern District of California, and in September 2011 the plaintiffs filed a consolidated amended complaint, captioned
In re High Tech Employee Antitrust Litigation
. The plaintiffs’ allegations reference the 2009 and 2010 investigation by the Department of Justice (DOJ) into employment practices in the technology industry, as well as the DOJ’s complaints and subsequent stipulated final judgments with the seven companies named as defendants in the lawsuits. The plaintiffs allege that the defendants entered into certain unlawful agreements not to cold call employees of particular other defendants and that there was an overarching conspiracy among the defendants. Plaintiffs assert one such agreement specific to Intel, namely that Intel and Google entered into an agreement starting in 2005, not to cold call each other's employees. Plaintiffs
assert claims under Section 1 of the Sherman Antitrust Act and Section 4 of the Clayton Antitrust Act and seek a declaration that the defendants
’
alleged actions violated the antitrust laws, damages trebled as provided for by law under the Sherman Act or Clayton Act, restitution and disgorgement, and attorneys
’
fees and costs.
In October 2013, the court certified a class consisting of approximately
65,000
current or former employees of the seven defendants and set the matter for trial in late May 2014. The so-called “technical class” consists of a group of current and former technical, creative, and research and development employees at each of the defendants. In January 2014, Intel filed a motion for summary judgment, which the court denied in March 2014.
In April 2014, Intel, Adobe, Apple, and Google reached an agreement with plaintiffs to settle this lawsuit, which is subject to court approval. We continue to dispute the plaintiffs’ claims, but have agreed to settle to avoid the uncertainties, expenses, and diversion of resources from continued litigation. Our operating expenses for the first quarter of 2014 reflect an accrual for this proceeding, and we believe reasonably possible losses in excess of the accrual amount are not material to our financial statements.
In re Intel Corporation Shareholder Derivative Litigation
In March 2014, the Police Retirement System of St. Louis filed a stockholder derivative action in the Superior Court of California in Santa Clara County against the members of our Board of Directors, certain former Board members, and a current officer. The complaint alleges that the defendants breached their duties to the company by participating in, or allowing, alleged antitrust violations, as described in the
In re High Tech Employee Antitrust
Litigation
. In March 2014, a second plaintiff, Barbara Templeton, filed a substantially similar derivative suit in the same court. In May 2014, another substantially similar shareholder derivative action was filed by a third plaintiff, Robert Achermann. The three actions have been consolidated by the court into one case, captioned
In re Intel Corporation Shareholder Derivative Litigation
, and a consolidated complaint was filed in July 2014.
INTEL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — Unaudited (Continued)
Lehman Brothers Holdings Inc. and Lehman Brothers OTC Derivatives Inc. v. Intel
In May 2013, Lehman Brothers OTC Derivatives Inc. (LOTC) and Lehman Brothers Holdings Inc. (LBHI) filed an adversary complaint in the United States Bankruptcy Court in the Southern District of New York asserting claims against us arising from a 2008 contract between Intel and LOTC. Under the terms of the 2008 contract, we prepaid
$1.0 billion
to LOTC, in exchange for which LOTC was required to deliver to us on or before September 29, 2008, quantities of Intel common stock and cash determined by a formula set forth in the contract. LOTC's performance under the contract was secured by
$1.0 billion
of cash collateral. Under the terms of the contract, LOTC was obligated to deliver approximately
50 million
shares of our common stock to us on September 29, 2008. LOTC failed to deliver any Intel common stock or cash, and we exercised our right of set-off against the
$1.0 billion
collateral. LOTC and LBHI acknowledge in their complaint that we were entitled to set off our losses against the collateral, but they assert that we withheld collateral in excess of our losses that should have been returned to LOTC. The complaint asserts a claim for breach of contract, a claim for “turnover” under section 542(a) of the Bankruptcy Code, and a claim for violation of the automatic stay under section 362(a)(3) of the Bankruptcy Code. The complaint does not expressly quantify the amount of damages claimed but does assert multiple theories of damages that impliedly seek up to
$312 million
of alleged excess collateral, plus interest based on LOTC's claimed cost of borrowing. In June 2013, we filed a motion to dismiss plaintiffs' bankruptcy claims and for a determination that the breach of contract claim is “non-core” under the Bankruptcy Code. The bankruptcy court granted our motion in its entirety in December 2013. In May 2014, the United States District Court for the Southern District of New York denied our request that it withdraw its reference of plaintiff's adversary complaint to the bankruptcy court. Given the procedural posture and the nature of this case, including that discovery is still in process, we are unable to make a reasonable estimate of the potential loss or range of losses, if any, that might arise from this matter. We believe that we acted in a manner consistent with our contractual rights, and we intend to defend against any claim to the contrary.
McAfee, Inc. Shareholder Litigation
On August 19, 2010, we announced that we had agreed to acquire all of the common stock of McAfee, Inc. (McAfee) for
$48.00
per share. Four McAfee shareholders filed putative class-action lawsuits in Santa Clara County, California Superior Court challenging the proposed transaction. The cases were ordered consolidated in September 2010. Plaintiffs filed an amended complaint that named former McAfee board members, McAfee and Intel as defendants, and alleged that the McAfee board members breached their fiduciary duties and that McAfee and Intel aided and abetted those breaches of duty. The complaint requested rescission of the merger agreement, such other equitable relief as the court may deem proper, and an award of damages in an unspecified amount. In June 2012, the plaintiffs’ damages expert asserted that the value of a McAfee share for the purposes of assessing damages should be
$62.08
.
In January 2012, the court certified the action as a class action, appointed the Central Pension Laborers’ Fund to act as the class representative, and scheduled trial to begin in January 2013. In March 2012, defendants filed a petition with the California Court of Appeal for a writ of mandate to reverse the class certification order; the petition was denied in June 2012. In March 2012, at defendants’ request, the court held that plaintiffs were not entitled to a jury trial, and ordered a bench trial. In April 2012, plaintiffs filed a petition with the California Court of Appeal for a writ of mandate to reverse that order, which the court of appeal denied in July 2012. In August 2012, defendants filed a motion for summary judgment. The trial court granted that motion in November 2012, and entered final judgment in the case in February 2013. In April 2013, plaintiffs filed a notice of appeal. Because the resolution of the appeal may materially impact the scope and nature of the proceeding, we are unable to make a reasonable estimate of the potential loss or range of losses, if any, arising from this matter. We dispute the class-action claims and intend to continue to defend the lawsuit vigorously.
X2Y Attenuators, LLC v. Intel et al
In May 2011, X2Y Attenuators, LLC (X2Y) filed a patent infringement lawsuit in the U.S. District Court for the Western District of Pennsylvania and a complaint with the U.S. International Trade Commission (ITC) pursuant to Section 337 of the Tariff Act of 1930 against us and two of our customers, Apple and Hewlett-Packard Company, alleging infringement of five patents. X2Y subsequently added a sixth patent to both actions. The district court action was stayed pending resolution of the ITC proceeding. X2Y alleged that at least Intel
®
Core™
and Intel
®
Xeon
®
processor families infringe the asserted patents. X2Y also requested that the ITC issue permanent exclusion and cease-and-desist orders to, among other things, prohibit us from importing these microprocessors and Apple and Hewlett-Packard Company products that incorporate these microprocessors into the United States. In the stayed district court action, X2Y seeks unspecified damages, including enhanced damages for alleged willful infringement, and injunctive relief.
INTEL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — Unaudited (Continued)
In June 2012, the Administrative Law Judge issued an initial determination granting X2Y’s motion to partially terminate the ITC investigation with respect to three of the asserted patents. The Administrative Law Judge held a hearing on the remaining three patents in August 2012 and issued an initial determination in December 2012. In the initial determination, the Administrative Law Judge found that Intel, Apple, and Hewlett-Packard Company have not violated Section 337 of the Tariff Act of 1930 because they have not infringed any of the asserted claims of the three patents, and ruled that the asserted claims of two of the patents were invalid. In December 2012, the parties filed petitions for review of the initial determination by the ITC. In February 2013, the ITC determined to review in part the initial determination. On review, the ITC determined to terminate the investigation with a finding of no violation. In April 2013, X2Y filed a notice of appeal with the U.S. Court of Appeals for the Federal Circuit. In July 2014, the Federal Circuit affirmed the ITC's finding that Intel's microprocessors did not infringe the X2Y patents. Given the procedural posture and nature of the cases, including the fact that discovery regarding X2Y’s claimed damages has not commenced in the stayed district court action, we are unable to make a reasonable estimate of the potential loss or range of losses, if any, arising from these matters. We dispute the claims and intend to defend against X2Y's claims vigorously.
Note 22: Operating Segments Information
Our operating segments in effect as of
June 28, 2014
include:
|
|
|
|
• PC Client Group
|
|
• All other
|
• Data Center Group
|
|
• Non-Volatile Memory Solutions Group
|
• Internet of Things Group
|
|
• Netbook Group
|
• Mobile and Communications Group
|
|
• New Devices Group
|
• Software and services operating segments
|
|
|
• McAfee
|
|
|
• Software and Services Group
|
|
|
In the first three months of 2014, we formed the Internet of Things Group, which includes platforms and software-optimized for the Internet of Things market segment. Additionally, we changed our organizational structure to align with our critical objectives, which changed information that our Chief Operating Decision Maker (CODM) reviews for purposes of allocating resources and assessing performance. After the reorganization, we have nine operating segments: PC Client Group (PCCG), Data Center Group (DCG), Internet of Things Group (IOTG), Mobile and Communication Group (MCG), McAfee, Software and Services Group, Non-Volatile Memory Solutions Group, Netbook Group, and New Devices Group. All prior-period amounts have been adjusted retrospectively to reflect these operating segment changes, as well as other minor reorganizations.
The CODM is our Chief Executive Officer. The CODM allocates resources to and assesses the performance of each operating segment using information about its revenue and operating income (loss).
PCCG, DCG, and MCG are our reportable operating segments. IOTG and the aggregated “software and services operating segments” as shown in the preceding operating segment list, do not meet the quantitative thresholds to qualify as reportable operating segments; however, we have elected to disclose the results of these non-reportable operating segments. Our Non-Volatile Memory Solutions Group, Netbook Group, and New Devices Group operating segments do not meet the quantitative thresholds to qualify as reportable segments and their combined results are included within the “all other” category.
INTEL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — Unaudited (Continued)
Revenue for our reportable and aggregated non-reportable operating segments is primarily related to the following product lines:
|
|
•
|
PC Client Group
. Includes platforms designed for the notebook (including Ultrabook
™
devices and 2 in 1 systems) and the desktop (including all-in-ones and high-end enthusiast PCs); wireless and wired connectivity products; as well as home gateway and set-top box components.
|
|
|
•
|
Data Center Group.
Includes platforms designed for the server, workstation, networking, and storage computing market segments.
|
|
|
•
|
Internet of Things Group.
Includes platforms designed for embedded market segments including retail, transportation, industrial, and buildings and home, along with a broad range of other market segments.
|
|
|
•
|
Mobile and Communications Group.
Includes platforms designed for the tablet and smartphone market segments; and mobile communications components such as baseband processors, radio frequency transceivers, Wi-Fi,
Bluetooth
®
technology, global navigation satellite systems, and power management chips.
|
|
|
•
|
Software and services operating segments.
Includes software products for endpoint security, network and content security, risk and compliance, and consumer and mobile security from our McAfee business, and software products and services that promote Intel
architecture as the platform of choice for software development.
|
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.
The “all other” category includes revenue, expenses, and charges such as:
|
|
•
|
results of operations from our Non-Volatile Memory Solutions Group, Netbook Group, and New Devices Group;
|
|
|
•
|
amounts included within restructuring and asset impairment charges;
|
|
|
•
|
a portion of profit-dependent compensation and other expenses not allocated to the operating segments;
|
|
|
•
|
divested businesses for which discrete operating results are not regularly reviewed by our CODM;
|
|
|
•
|
results of operations of startup businesses that support our initiatives, including our foundry business; and
|
|
|
•
|
acquisition-related costs, including amortization and any impairment of acquisition-related intangibles and goodwill.
|
The CODM does not evaluate operating segments using discrete asset information. Operating segments do not record inter-segment revenue. 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 for these differences, the accounting policies for segment reporting are the same as for Intel as a whole.
INTEL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — Unaudited (Continued)
Net revenue and operating income (loss) for each period were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
(In Millions)
|
|
Jun 28,
2014
|
|
Jun 29,
2013
|
|
Jun 28,
2014
|
|
Jun 29,
2013
|
Net revenue:
|
|
|
|
|
|
|
|
|
PC Client Group
|
|
$
|
8,667
|
|
|
$
|
8,160
|
|
|
$
|
16,608
|
|
|
$
|
16,214
|
|
Data Center Group
|
|
3,509
|
|
|
2,944
|
|
|
6,596
|
|
|
5,721
|
|
Internet of Things Group
|
|
539
|
|
|
434
|
|
|
1,021
|
|
|
799
|
|
Mobile and Communications Group
|
|
51
|
|
|
292
|
|
|
207
|
|
|
696
|
|
Software and services operating segments
|
|
548
|
|
|
534
|
|
|
1,101
|
|
|
1,054
|
|
All other
|
|
517
|
|
|
447
|
|
|
1,062
|
|
|
907
|
|
Total net revenue
|
|
$
|
13,831
|
|
|
$
|
12,811
|
|
|
$
|
26,595
|
|
|
$
|
25,391
|
|
Operating income (loss):
|
|
|
|
|
|
|
|
|
PC Client Group
|
|
$
|
3,734
|
|
|
$
|
2,646
|
|
|
$
|
6,536
|
|
|
$
|
5,134
|
|
Data Center Group
|
|
1,817
|
|
|
1,302
|
|
|
3,134
|
|
|
2,446
|
|
Internet of Things Group
|
|
155
|
|
|
123
|
|
|
278
|
|
|
190
|
|
Mobile and Communications Group
|
|
(1,124
|
)
|
|
(761
|
)
|
|
(2,053
|
)
|
|
(1,464
|
)
|
Software and services operating segments
|
|
8
|
|
|
(1
|
)
|
|
1
|
|
|
(7
|
)
|
All other
|
|
(746
|
)
|
|
(590
|
)
|
|
(1,542
|
)
|
|
(1,061
|
)
|
Total operating income
|
|
$
|
3,844
|
|
|
$
|
2,719
|
|
|
$
|
6,354
|
|
|
$
|
5,238
|
|