e10vk
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
FORM
10-K
(Mark One)
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ANNUAL REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For the fiscal year ended December 30, 2006.
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TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For the transition period from
to
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Commission File Number
000-06217
INTEL CORPORATION
(Exact name of registrant as specified in its charter)
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Delaware
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94-1672743
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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2200 Mission College Boulevard,
Santa Clara, California
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95054-1549
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(Address of principal executive
offices)
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(Zip Code)
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Registrants telephone number, including area code (408)
765-8080
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class
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Name of each exchange on which registered
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Common stock, $0.001 par value
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The NASDAQ Global Select Market*
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Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes x No o
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or 15(d) of the
Act. Yes o No x
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90
days. Yes x No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation
S-K
(§229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrants
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form
10-K or any
amendment to this Form
10-K. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, or a non-accelerated
filer. See definition of accelerated filer and large
accelerated filer in Rule
12b-2 of the
Exchange Act. (Check one):
Large accelerated filer
x Accelerated
filer o Non-accelerated
filer o
Indicate by check mark whether the registrant is a shell company
(as defined in Rule
12b-2 of the
Act). Yes o No x
Aggregate market value of voting and non-voting common equity
held by non-affiliates of the registrant as of June 30, 2006,
based upon the closing price of the common stock as reported by
The NASDAQ Global Select Market* on such date, was approximately
$106.0 billion
5,767 million shares of common stock outstanding as of February
16, 2007
DOCUMENTS INCORPORATED BY REFERENCE
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(1) |
Portions of the registrants Proxy Statement relating to
its 2007 Annual Stockholders Meeting, to be filed
subsequentlyPart III.
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INTEL
CORPORATION
FORM
10-K
FOR THE FISCAL YEAR ENDED DECEMBER 30, 2006
INDEX
PART
I
ITEM
1. BUSINESS
Industry
We are the worlds largest semiconductor chip maker, based
on revenue. We develop advanced integrated digital technology
platforms and components, primarily integrated circuits, for the
computing and communications industries. Integrated circuits are
semiconductor chips etched with interconnected electronic
switches. Our goal is to be the preeminent provider of
semiconductor chips and platform solutions to the worldwide
digital economy. We offer products at various levels of
integration, allowing our customers flexibility to create
advanced computing and communications systems and products.
We believe that end users, original equipment manufacturers,
third-party vendors, and service providers of computing and
communications systems and devices want platform products. We
define a platform as a collection of technologies that are
designed to work together to provide a better end-user solution
than if the ingredients were used separately. Our platforms
consist of various products based on: standards and initiatives;
hardware and software that may include technologies such as
Hyper-Threading Technology (HT Technology),
Intel®
Virtualization Technology
(Intel®
VT), and
Intel®
Active Management Technology
(Intel®
AMT); and services. In developing our platforms, we may include
ingredients sold by other companies.
Intels products include chips, boards, and other
semiconductor products that are the building blocks integral to
computers, servers, handheld devices, and networking and
communications products. Our component-level products consist of
integrated circuits used to process information, including
microprocessors, chipsets, and flash memory.
We also believe that users of computing and communications
systems and devices want improved overall performance
and/or
improved energy-efficient performance. Improved overall
performance can include faster processing performance and other
improved capabilities such as multithreading and multitasking.
Performance can also be improved through enhanced connectivity,
security, manageability, utilization, reliability, ease of use,
and interoperability among devices. Improved energy-efficient
performance involves balancing the addition of these types of
improved performance factors with the power consumption of the
platform. Lower power consumption may reduce system heat output,
thereby providing power savings, and reducing the total cost of
ownership for the end user.
Our customers include:
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original equipment manufacturers (OEMs) and original design
manufacturers (ODMs) who make computer systems, handheld
devices, and telecommunications and networking communications
equipment;
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PC and network communications products users (including
individuals, large and small businesses, and service providers)
who buy PC components and board-level products, as well as our
networking, communications, and storage products, through
distributor, reseller, retail, and OEM channels throughout the
world; and
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other manufacturers, including makers of a wide range of
industrial and communications equipment.
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We were incorporated in California in 1968 and reincorporated in
Delaware in 1989. Our Internet address is www.intel.com.
On this Web site, we publish voluntary reports, which are
updated annually, outlining our performance with respect to
corporate responsibility, including environmental, health, and
safety compliance (these voluntary reports are not incorporated
by reference into this Form
10-K). On
our Investor Relations Web site, located at www.intc.com,
we post the following filings as soon as reasonably practicable
after they are electronically filed with or furnished to the
U.S. Securities and Exchange Commission (SEC): our annual report
on Form
10-K, our
quarterly reports on Form
10-Q, our
current reports on Form
8-K, our
proxy statement related to our annual stockholders
meeting, and any amendments to those reports or statements. All
such filings are available on our Investor Relations Web site
free of charge. The content on any Web site referred to in this
Form 10-K is
not incorporated by reference into this Form
10-K unless
expressly noted.
Products
Our products currently include microprocessors; chipsets;
motherboards; flash memory; wired and wireless connectivity
products; communications infrastructure components, including
network processors; and products for networked storage.
1
A microprocessor is the central processing unit (CPU) of
a computer system. It processes system data and controls other
devices in the system, acting as the brains of the
computer. The following aspects of microprocessor design impact
overall platform performance:
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Multi-core processors. Multi-core processors contain
two or more processor cores, which enable improved multitasking
and energy-efficient performance. Our dual-core microprocessors
include the
Intel®
Coretm2
Duo,
Intel®
Coretm2
Extreme,
Intel®
Coretm
Duo,
Intel®
Pentium® D,
Dual-Core
Intel®
Xeon®
processor family, and Dual-Core
Intel®
Itanium®
processors. Our quad-core microprocessors include the Quad-Core
Intel®
Xeon®,
Intel®
Coretm2
Quad, and
Intel®
Coretm2
Extreme quad-core processors.
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Microarchitecture design of the CPU. Microprocessor
design architectures are commonly categorized by the number of
bits (the smallest unit of information processed on a computer)
that the processor can handle at one time. Currently,
microprocessors are designed to process 32 bits or 64 bits of
information at one time. Microprocessors with 64-bit processing
capability can address significantly more memory than 32-bit
microprocessors. The
Intel®
Coretm,
Intel®
Pentium®,
Intel®
Celeron®,
and
Intel®
Xeon®
branded products are based on our 32-bit architecture (IA-32),
while
Intel®
Itanium®
branded products are based on our
64-bit
architecture
(IA-64).
Another way to provide
64-bit
processing capability is for processors based on
32-bit
architecture to have 64-bit address extensions. The majority of
our microprocessors are equipped with
Intel®
64 architecture, which provides 64-bit address extensions,
supporting both 32-bit and 64-bit software applications.
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Clock speed. Clock speed is the rate at which a
microprocessors internal logic operates and is a measure
of a microprocessors performance. Clock speed is measured
in units of hertz, or cycles processed per second. One megahertz
(MHz) equals one million cycles processed per second, and one
gigahertz (GHz) equals one billion cycles processed per second.
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Speed of memory access. Cache is a memory that can
be located directly on the microprocessor, permitting quicker
access to frequently used data and instructions. Some of our
microprocessors have additional levels of
cachesecond-level (L2) cache and third-level (L3)
cacheto enable higher levels of performance.
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Speed of communication between the CPU and the
chipset. A bus carries data between parts of the
system. A faster bus allows for faster data transfer into and
out of the processor, enabling increased performance.
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Amount and type of memory storage. Memory storage is
measured in bytes (8 bits), with 1,024 bytes equaling a kilobyte
(KB), 1.049 million bytes equaling a megabyte (MB), and 1.074
billion bytes equaling a gigabyte (GB).
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In addition to the performance factors discussed above, our
Intel®
Coretm
microarchitecture provides other enhanced features that can
increase performance or energy efficiency, including the
following:
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Feature
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Performance Enhancement
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Intel®
Advanced Smart Cache
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Allows one core to utilize the
entire cache
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Intel®
Intelligent Power Capability
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Optimizes energy by managing the
runtime power consumption of each core
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Intel®
Wide Dynamic Execution
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Enables each core to complete up
to four full instructions simultaneously
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Intel®
Smart Memory Access
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Optimizes the use of available
data bandwidth from the memory subsystem and hides memory latency
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Intel®
Advanced Digital Media Boost
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Increases the execution speed for
instructions used widely in multimedia and graphics applications
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Other microprocessor capabilities can also enhance system
performance or user experience. For example, we offer
microprocessors with Intels HT Technology, which allows
each processor core to process two threads of instructions
simultaneously. This capability can provide benefits in one of
two ways: it helps to run multithreaded software,
which is designed to execute different parts of a program
simultaneously, or it helps to run multiple software programs
simultaneously in a multitasking environment. Other technologies
include Intel AMT, which helps information technology managers
diagnose, fix, and protect enabled systems that are plugged in
and connected to a network, even if a computer is turned off or
has a failed hard drive or operating system; and Intel VT, which
provides increased security and management capabilities through
the use of virtual partitions that isolate user environments,
for example, by enabling a platform to run multiple operating
systems and allowing for the system to isolate viruses from
applications within other partitions. To take advantage of these
features, a computer system must have a microprocessor that
supports: a chipset and BIOS (basic input/output system) that
use, and software that is optimized for, the technology.
Performance also will vary depending on the system hardware and
software used.
Microprocessors are also used in embedded designs such as
industrial equipment,
point-of-sale
systems, panel PCs, automotive information/entertainment
systems, and medical equipment.
2
Our microprocessor sales generally have followed a seasonal
trend; however, there can be no assurance that this trend will
continue. Historically, our sales of microprocessors have been
higher in the second half of the year than in the first half of
the year. Consumer purchases of PCs have been higher in the
second half of the year, primarily due to
back-to-school
and holiday demand. In addition, purchases from businesses have
tended to be higher in the second half of the year.
The chipset operates as the PCs nervous
system, sending data between the microprocessor and input,
display, and storage devices, such as the keyboard, mouse,
monitor, hard drive, and CD or DVD drive. Chipsets perform
essential logic functions, such as balancing the performance of
the system and removing bottlenecks. Chipsets also extend the
graphics, audio, video, and other capabilities of many systems
based on our microprocessors. Finally, chipsets control the
access between the CPU and main memory. We offer chipsets
compatible with a variety of industry-accepted bus
specifications, such as the Accelerated Graphics Port (AGP)
specification, the Peripheral Components Interconnect (PCI)
local bus specification, and the PCI Express* local bus
specification. PCI Express significantly increases the data
transfer rate of the original PCI specification, thereby
improving the graphics and input/output bandwidth and enabling
an improved multimedia experience. We believe that our customers
also want memory architecture alternatives, and as a result, we
offer chipsets supporting double data rate (DDR) and DDR2
(second-generation, faster DDR memory), dynamic random access
memory (DRAM), synchronous DRAM (SDRAM), and fully buffered dual
in-line memory module (FB-DIMM).
A motherboard is the principal board within a system. A
motherboard has connectors for attaching devices to the bus, and
typically contains the CPU, memory, and the chipset. We
currently offer motherboard products designed for our desktop,
server, and workstation platforms, thereby providing a more
complete range of solutions for our customers looking for
Intel®-based
solutions. We provide our OEM customers with the flexibility to
make purchases at the board or at the component level.
Flash memory is a specialized type of memory component
used to store user data and program code; it retains this
information even when the power is off, and provides faster
access to data than traditional hard drives. Flash memory has no
moving parts, unlike devices such as rapidly spinning hard
drives, allowing flash memory to be more tolerant of bumps and
shocks. A common measure of flash memory performance is the
density of the product. Density refers to the amount of
information the product is capable of storing. Flash memory is
based on either NOR or NAND architecture. NOR flash memory, with
its fast access or read capabilities, has
traditionally been used to store executable code. We offer NOR
flash memory products such as Intel
StrataFlash®
wireless memory for mobile phone designs. In addition to product
offerings for cellular customers, we offer NOR flash memory
products that meet the needs of other market segments, such as
the embedded market segment. The embedded market segment
includes set-top boxes, networking products, DVD players, DSL
and cable modems, and other devices. NAND flash memory is slower
in reading data but faster in writing data. We offer NAND flash
memory products that are designed primarily for memory cards,
digital audio players, and cellular phones. Our NAND flash
memory products are manufactured by IM Flash Technologies, LLC
(IMFT), a company we formed with Micron Technology, Inc. in
January 2006. For further discussion of our equity investment in
IMFT, see Note 17: Venture in Part II, Item 8 of
this Form
10-K.
We offer wired and wireless connectivity products based
on industry-standard technologies used to translate and transmit
data in packets across networks. We offer products for the
traditional local area network (LAN) environment, as well as for
the wireless LAN (WLAN), metropolitan area network (MAN), and
networked storage market segments. For the LAN and MAN market
segments, we offer products at multiple levels of integration to
provide a low-cost solution with increased speed and signal
transmission distance (commonly referred to as
reach). Gigabit Ethernet networks allow the
transmission of one billion individual bits of information per
second, and 10-Gigabit Ethernet networks transmit 10 billion
bits of information per second. By contrast, Fast Ethernet
networks transmit 100 million bits of information per second
(Mbps, or megabits per second). Our wireless connectivity
products are based on either the 802.11 or 802.16 industry
standard. The 802.11 communication standard refers to a family
of specifications commonly known as WiFi technology. These
specifications describe the bandwidth and frequency of the
over-the-air
interface between a wireless client and a base station, or
between two wireless clients. We also have developed and are
developing wireless connectivity products for both mobile and
fixed networks based on the 802.16 industry standard, commonly
known as WiMAX, which is short for Worldwide Interoperability
for Microwave Access. WiMAX is a standards-based wireless
technology providing high-speed,
last-mile
broadband connectivity that makes it possible to wirelessly
connect end users to networks, as well as networks to other
networks, up to several miles apart.
Communications infrastructure products include network
processors, communications boards, and optical transponders that
are basic building blocks for modular communications platforms.
These products include advanced, programmable processors used in
networking equipment to rapidly manage and direct data moving
across the Internet and corporate networks. Our modular
communications platforms are based on telecommunication industry
standards, such as Advanced Telecom Computing Architecture
(AdvancedTCA*) systems and carrier-grade servers, allowing for
communications and media services to be managed independently
from the network itself. Unlike proprietary systems platforms,
modular communications platforms are standards-based solutions
that offer network infrastructure builders flexible, low-cost,
low power consumption options for designing their networks. We
also offer embedded processors that can be used for modular
communications platform applications.
3
Our network processor products offer low power consumption and
high-performance processing for a wide range of Internet devices.
We offer networked storage products that allow storage
resources to be added to either of the two most prevalent types
of networking technology: Ethernet or Fibre Channel.
We also have entered into agreements to manufacture and assemble
and test application and cellular baseband processors and other
products related to product lines that were divested in 2006.
These arrangements are expected to continue during a transition
period until the acquiring companies arrange for other
manufacturing resources. For further discussion of our
divestitures, see Note 14: Acquisitions and
Divestitures in Part II, Item 8 of this Form
10-K.
Our operating segments as of December 30, 2006 included the
Digital Enterprise Group, Mobility Group, Flash Memory Group,
Digital Home Group, Digital Health Group, and Channel Platforms
Group. Each operating segments major products and
platforms, including some key introductions, are discussed
below. For a discussion of our strategy, see
Managements Discussion and Analysis of Financial
Condition and Results of Operations in Part II, Item 7 of
this Form
10-K.
Digital
Enterprise Group
The Digital Enterprise Group (DEG)s products are
incorporated into desktop computers, enterprise computing
servers, workstations, and the infrastructure for the Internet.
DEGs products include microprocessors and related chipsets
and motherboards designed for the desktop and enterprise
computing market segments; communications infrastructure
components such as network processors, communications boards,
and embedded processors; wired connectivity devices; and
products for network and server storage.
Net revenue for the DEG operating segment made up 56% of our
consolidated net revenue in 2006 (65% in 2005 and 72% in 2004).
Revenue from sales of microprocessors within the DEG operating
segment represented 41% of consolidated net revenue in 2006 (50%
in 2005 and 57% in 2004).
Desktop
Market Segment
We develop platforms based on our microprocessors, chipsets, and
motherboard products that are optimized for use in the desktop
market segment. For high-end desktop platforms, we offer the
Intel Core 2 Quad processor, the Intel Core 2 Duo
processor, the Intel Pentium D processor, and the
Intel®
Pentium® 4
processor supporting HT Technology. For lower price-point
desktop platforms, we offer the
Intel®
Celeron® D
and Intel Celeron processors. We also offer chipsets designed
and optimized for use in desktop platforms.
In 2006 and early 2007, we introduced the following products:
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Processor
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Cores
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Clock Speed
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Front Side Bus
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Cache
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Intel®
Pentium®
4 processors 631, 641, 651, and 661
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1
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Up to 3.60 GHz
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800 MHz
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2 MB of L2
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Intel®
Coretm
Duo processor
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2
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Up to 2.16 GHz
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667 MHz
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2 MB of L2
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Intel®
Coretm2
Duo processor
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2
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Up to 2.66 GHz
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1066 MHz
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Up to 4 MB of shared L2
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Intel®
Coretm2
Quad processor
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4
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2.4 GHz
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1066 MHz
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8 MB of shared L2
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Our Intel Core 2 Duo and Intel Core 2 Quad processors are based
on the new Intel Core microarchitecture. Microprocessors based
on the Intel Core microarchitecture are designed for
energy-efficient performance and are manufactured using our
65-nanometer process technology. The Intel Core Duo and
Pentium 4 processors are based on the Intel
NetBurst®
microarchitecture, an earlier generation of Intel
microarchitecture.
In June 2006, we launched the
Intel®
965 Express Chipset family, which is designed to increase
overall system performance through the optimization of available
bandwidth and reduction of memory latency. This chipset is
designed for desktop PC platforms and is also available as part
of our
Intel®
Viivtm
and
Intel®
vProtm
technology-based platforms.
In September 2006, we introduced Intel vPro technology-based
platforms for business desktop PCs. Intel vPro technology-based
platforms are designed to provide increased security and
manageability, energy-efficient performance, and lower cost of
ownership. Platforms based on Intel vPro technology include the
Intel Core 2 Duo processor, the
Intel®
Q965 Express Chipset, and the
Intel®
82566DM Gigabit Network Connection. Intel vPro technology also
features Intel VT and Intel AMT.
4
Enterprise
Market Segment
We develop platforms based on our microprocessors, chipsets, and
motherboard products that are optimized for use in the
enterprise market segment, which includes entry-level to
high-end servers and workstations. Servers, which often have
multiple microprocessors working together, manage large amounts
of data, direct traffic, perform complex transactions, and
control central functions in local and wide area networks and on
the Internet. Workstations typically offer higher performance
than standard desktop PCs, and are used for applications such as
engineering design, digital content creation, and
high-performance computing.
Our Intel Xeon processor family of products supports a range of
entry-level to high-end technical and commercial computing
applications. In comparison to our Intel Xeon processor family,
our Intel Itanium processor family, which is based on IA-64 and
includes the
Intel®
Itanium® 2
processor, generally supports an even higher level of
reliability and computing performance for data processing, the
handling of high transaction volumes and other compute-intensive
applications for enterprise-class servers, as well as
supercomputing solutions.
In 2006 and early 2007, we introduced the following products:
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Processor
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Cores
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Clock Speed
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Front Side Bus
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Cache
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Dual-Core
Intel®
Xeon®
processors Low Voltage and Ultra Low Voltage
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2
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Up to 2.0 GHz
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667 MHz
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2 MB of L2
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Dual-Core
Intel®
Xeon®
processor 5000 series
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2
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Up to 3.73 GHz
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667 MHz or 1066 MHz
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4 MB of shared L2
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Dual-Core
Intel®
Xeon®
processor 5100 series
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2
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Up to 3.0 GHz
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1066 MHz or 1333 MHz
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4 MB of shared L2
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Dual-Core
Intel®
Xeon®
processor 7100 series
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2
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Up to 3.5 GHz
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667 MHz or 800 MHz
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Up to 16 MB of shared L3
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Dual-Core
Intel®
Xeon®
processor 3000 series
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2
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Up to 2.66 GHz
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Up to 1066 MHz
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Up to 4 MB of shared L3
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Quad-Core
Intel®
Xeon®
processor 5300 series
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4
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Up to 2.66 GHz
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1066 MHz or 1333 MHz
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8 MB of shared L2
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Quad-Core
Intel®
Xeon®
processor 3200 series
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4
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Up to 2.4 GHz
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1066 MHz
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8 MB of shared L2
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Dual-Core
Intel®
Itanium®
2 processor 9000 series
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2
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Up to 1.6 GHz
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400 MHz or 533 MHz
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Up to 24 MB of shared L3
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Our Intel Xeon processor 5100 series, Intel Xeon processor 3000
series, Quad-Core Intel Xeon processor 5300 series, and
Quad-Core Intel Xeon processor 3200 series are based on the new
Intel Core microarchitecture and are manufactured using our
65-nanometer process technology. The Intel Xeon processor 7100
series and Intel Xeon processor 5000 series are based on the
Intel NetBurst microarchitecture and are manufactured using our
65-nanometer process technology.
In March 2006, we launched the
Intel®
5000X Chipset family. This chipset is designed for workstations
and supports the Intel Xeon 5000 series and Intel Xeon 5100
series of processors. The Intel 5000X Chipset family supports
FB-DIMM memory at 533 MHz and 667 MHz, and dual independent
buses at 1066 MHz and 1333 MHz, for faster application
response and greater memory capacity for data-intensive
applications.
Communications
Infrastructure Products
In February 2006, we introduced three new Intel Core Duo
processors for embedded market segments. These processors are
supported by the mobile
Intel®
945GM Express Chipset offered by the Mobility Group. These Intel
Core Duo processors run at speeds of up to 2.0 GHz, support
a 667-MHz
bus, and include 2 MB of L2 cache.
Networked
Storage Products
In March 2006, we introduced the
Intel®
Entry Storage System SS4000-E, an Intel
XScale®
processor-based platform designed to provide
easy-to-use,
affordable storage for small and mid-size business environments.
In September 2006, we introduced the
Intel®
IOP34x family of storage processors designed to provide
high-speed input/output (I/O) for both external storage products
and embedded systems. Based on the Intel XScale
microarchitecture, these processors are designed to improve
overall system performance by offloading I/O processing
functions from the host CPU.
5
Mobility
Group
The Mobility Groups products currently include
microprocessors and related chipsets designed for the notebook
market segment and wireless connectivity products. In 2006, the
Mobility Groups products also included cellular baseband
processors and application processors. In the fourth quarter of
2006, we sold certain assets of our communications and
application processor business line to Marvell Technology Group,
Ltd. The divestiture of these assets included the cellular
baseband processor and application processor product lines.
These product lines are based on Intel XScale technology and are
designed for wireless handheld devices such as handsets, PDAs,
and mobile phones. Intel and Marvell entered into an agreement
whereby we are providing certain manufacturing and transition
services to Marvell for a limited time. For further discussion
of our divestitures, see Note 14: Acquisitions and
Divestitures in Part II, Item 8 of this Form
10-K.
Net revenue for the Mobility Group operating segment made up 35%
of our consolidated net revenue in 2006 (29% in 2005 and 20% in
2004). Revenue from sales of microprocessors within the Mobility
Group represented 26% of consolidated net revenue in 2006 (22%
in 2005 and 17% in 2004).
We offer mobile computing microprocessors at a variety of
price/performance points, allowing our customers to meet the
demands of a wide range of notebook PC designs. These notebook
designs include transportable notebooks, which provide
desktop-like features such as higher performance processors,
full-size keyboards, larger screens, and multiple drives;
thin-and-light
models, including those optimized for wireless networking; and
ultra-portable designs. Within the ultra-portable design
category, we provide specialized low-voltage processors targeted
for the mini-notebook market segment, and ultra-low-voltage
processors targeted for the
sub-notebook
and tablet market segments of notebook PCs weighing less than 3
pounds and measuring 1 inch or less in height. For high-end
mobility platforms, we offer the Intel Core 2 Duo, Intel
Core Duo,
Intel®
Coretm
Solo, and
Intel®
Pentium® M
processors. For lower price-point mobile platforms, we offer the
Intel®
Celeron® M
and Mobile
Intel®
Celeron®
processors.
In 2006, a substantial majority of the revenue in the Mobility
Group operating segment was from sales of products that make up
Intel®
Centrino®
and
Intel®
Centrino®
Duo mobile technology. Intel Centrino mobile technology consists
of either the Intel Core Solo and the mobile
Intel®
945 Express Chipset, or the Intel Pentium M processor and the
mobile
Intel®
915 Express Chipset; and an Intel wireless network connection.
Intel Centrino mobile technology is designed to provide high
performance, improved battery life, small form factor, and
wireless connectivity. The Intel Centrino Duo mobile technology
platform expands on the capabilities of Intel Centrino mobile
technology with improved multitasking performance, power-saving
features to further improve battery life, and a more flexible
wireless network connection. Intel Centrino Duo mobile
technology consists of either the Intel Core 2 Duo or the
Intel Core Duo processor together with the mobile Intel 945
Express Chipset and the
Intel®
PRO/Wireless 3945ABG Network Connection. Intel Centrino Duo and
Intel Centrino mobile technology both enable users to take
advantage of wireless capabilities at work and at home, with the
installation of the appropriate base-station equipment, as well
as at thousands of wireless hotspots installed
around the world.
In July 2006, we introduced the first mobile processors based on
the new Intel Core microarchitecture. Intel Core 2 Duo
mobile processors are designed for energy-efficient, 32- and
64-bit mobile computing. Based on our 65-nanometer process
technology, these processors run at speeds of up to
2.33 GHz, support a
667-MHz bus,
include up to 4 MB of shared L2 cache, and operate at
1.3 volts.
In October 2006, we introduced the
Intel®
WiMAX Connection 2250, our first dual-mode WiMAX chip, which
supports both mobile and fixed networks and is designed for
building cost-effective WiMAX modems.
In January 2007, we introduced the
Intel®
Next-Gen
Wireless-N
network connection. This product is based on the draft 802.11n
WiFi specification and is designed to provide faster performance
over a longer range than existing Intel products.
Flash
Memory Group
The Flash Memory Group provides advanced flash memory products
for a variety of digital devices. Net revenue for the Flash
Memory Group operating segment made up 6% of our consolidated
net revenue in 2006 (6% in 2005 and 7% in 2004). In 2006, most
of the revenue in the Flash Memory Group was derived from our
NOR flash memory products.
6
NOR Flash
Memory
We develop NOR flash memory products for cellular phones and
embedded form factors. We offer a broad range of memory
densities, leading-edge packaging technology, and
high-performance functionality. Intel StrataFlash wireless
memory, designed for mobile phones, allows two bits of data to
be stored in each NOR memory cell for higher storage capacity
and lower cost. In addition to product offerings for cellular
customers, we offer NOR flash memory products that meet the
needs of other market segments, such as the embedded market
segment. The embedded market segment includes set-top boxes,
networking products, DVD players, DSL and cable modems, and
other devices.
Intel StrataFlash wireless memory is available in the
Intel®
Stacked Chip Scale Package as well as in the Intel ultra-thin
stacked chip-scale packaging. Intel Strata Flash wireless memory
allows up to five ultra-thin memory chips to be stacked in one
package, delivering greater memory capacity and lower power
consumption in a smaller package. With heights as low as 1
millimeter, the package allows manufacturers to increase memory
density and provide features such as camera capabilities, games,
and e-mail
in relatively thin cell phones. Our higher density flash
products generally incorporate stacked RAM
and/or NAND
flash, which in some instances we purchase from third-party
vendors.
In August 2006, we introduced NOR flash memory products designed
for the emerging low-cost cell phone market segment. These
products feature cost-efficient NOR flash memory in densities
ranging from 32 megabits (Mb) to 256 Mb, with optional RAM
in a multi-chip package. They are configured to work with
low-cost, single-chip baseband and radio frequency solutions
from leading chipset suppliers.
In September 2006, we began shipping
Intel®
Serial Flash Memory (S33) products designed for the NOR embedded
market segment. These offerings include densities ranging from
16 Mb to 64 Mb. Intel Serial Flash Memory offers smaller
packages compared to traditional NOR flash memory.
In December 2006, we began shipping our first NOR flash memory
products using our 65-nanometer process technology. These
products have 1-gigabit (Gb) densities and are designed for the
high-end cell phone market segment.
NAND
Flash Memory
We develop NAND flash memory products for use primarily in
memory cards, digital audio players, and cellular phones. In
February 2006, we began shipping our first NAND flash memory
products. These products are currently available in densities of
up to 4 Gb, and in stacked packaging, in densities of up to
16 Gb. Additionally, we offer multi-level cell NAND flash
memory products. Our NAND flash products are manufactured by
IMFT using either 72- or 90-nanometer process technology.
Digital
Home Group
The Digital Home Group designs and delivers products and
platforms for consumer products such as PCs, digital TVs, and
networked media devices that meet the demands of consumers
through a variety of linked digital devices within the home for
the enjoyment of digital media and other content. In January
2006, we began offering Intel Viiv technology-based platforms
for use in the digital home. In addition, we offer products for
demodulation and tuner applications as well as processors and
chipsets for embedded consumer electronics designs such as
digital televisions, digital video recorders, and set-top boxes.
PCs based on Intel Viiv technology are designed to make it
easier to download, manage, and share the growing amount of
digital programming available worldwide, and view that
programming on a choice of TVs, PCs, or handheld products. Intel
Viiv technology-based systems are designed to provide easier
connectivity and interoperability with consumer electronics
devices compared to traditional PCs. Platforms based on Intel
Viiv technology include one of the following processors: Intel
Core 2 Duo, Intel Core 2 Extreme, Intel Core 2
Extreme quad-core, Intel Core Duo, Intel Pentium D, or
Pentium®
Processor Extreme Edition; as well as a chipset; a network
connectivity device; and enabling softwareall optimized to
work together in the digital home environment.
In July 2006, we introduced the first digital home processor
based on the new Intel Core microarchitecture. The Intel
Core 2 Extreme processor X6800 is designed for gaming PCs,
runs at a speed of 2.93 GHz, supports a
1066-MHz
bus, and includes 4 MB of shared L2 cache.
In November 2006, we introduced the Intel Core 2 Extreme
quad-core processor QX6700, the first quad-core desktop
processor designed for gaming PCs. This processor runs at a
speed of 2.66 GHz, supports a
1066-MHz
bus, includes 8 MB of shared L2 cache, and supports 64-bit
extensions and Intel VT.
7
Digital
Health Group
The Digital Health Group focuses on the digital hospital and
consumer/home health products. The Digital Health Group is
developing products but currently does not have any discrete
product offerings.
Channel
Platforms Group
The Channel Platforms Group tailors mainstream platforms to meet
local market requirements, and develops and enables unique
solutions to meet the needs of users in the developing world.
Manufacturing
and Assembly and Test
As of year-end 2006, 68% of our wafer manufacturing, including
microprocessor, chipset, NOR flash memory, and communications
silicon fabrication, was conducted within the U.S. at our
facilities in Arizona, New Mexico, Oregon, Massachusetts,
California, and
Colorado1.
Outside the U.S., 32% of our manufacturing was conducted at our
facilities in Ireland and Israel.
As of December 2006, we primarily manufactured our products in
the wafer fabrication facilities described below:
|
|
|
|
|
|
|
|
|
Wafer
|
|
Process
|
|
|
Products
|
|
Size
|
|
Technology
|
|
Locations
|
Microprocessors
|
|
300mm
|
|
65nm
|
|
Ireland, Arizona, Oregon
|
Microprocessors, chipsets, and
communications infrastructure
|
|
300mm
|
|
90nm
|
|
New Mexico, Ireland
|
NOR flash memory
|
|
200mm
|
|
65nm
|
|
California, Israel
|
NOR flash memory and
communications infrastructure
|
|
200mm
|
|
90nm
|
|
Israel, California
|
Chipsets, NOR flash memory, and
other products
|
|
200mm
|
|
130nm
|
|
New Mexico, Oregon,
Massachusetts,
Arizona, Ireland,
Colorado1
|
Chipsets and other products
|
|
200mm
|
|
180nm and above
|
|
Ireland, Israel
|
|
|
|
1 |
|
Management placed for sale our Colorado fabrication facility.
For further discussion, see Note 11: Restructuring and
Asset Impairment Charges in Part II, Item 8 of this Form
10-K. |
We expect to increase the capacity of certain facilities listed
above through additional investments in capital equipment. In
addition to our current facilities, we are building facilities
in Arizona and Israel that, in 2007 and 2008 respectively, are
expected to begin wafer fabrication for microprocessors on 300mm
wafers using 45-nanometer technology.
As of year-end 2006, the majority of our microprocessors were
manufactured on 300mm wafers using our 65-nanometer process
technology. In 2007, we expect to begin manufacturing
microprocessors on our 45-nanometer process technology, the next
generation of advanced high-volume production process technology
beyond our 65-nanometer process technology. As we move to each
succeeding generation of manufacturing process technology, we
incur significant
start-up
costs to prepare each factory for manufacturing. However,
continuing to advance our process technology provides benefits
that we believe justify these costs. These benefits can include
utilizing less space per transistor, which decreases the size of
the chip
and/or
enables us to increase the number of integrated features on each
chip; reducing heat output from each transistor; and improving
power efficiency. These advancements can result in higher
performing microprocessors, products that consume less power,
and/or
products that cost less to manufacture. To augment capacity in
the U.S. and internationally, we use third-party manufacturing
companies (foundries) to manufacture wafers for certain
components, including chipset, networking, and communications
products.
Our NAND flash memory products are manufactured by IMFT, a NAND
flash memory manufacturing company that we formed with Micron.
We currently purchase 49% of the manufactured output of IMFT.
See Note 17: Venture in Part II, Item 8 of this Form
10-K.
We primarily use subcontractors to manufacture board-level
products and systems, and purchase certain communications
networking products from external vendors, primarily in the
Asia-Pacific region. We also manufacture microprocessor- and
networking-related board-level products, primarily in Malaysia.
8
Following the manufacturing process, the majority of our
components are subject to assembly and test. We perform a
substantial majority of our components assembly and test at
facilities in Malaysia, the Philippines, China, and Costa Rica.
We plan to continue investing in new assembly and test
technologies as well as increasing the capacity of our existing
facilities and building new facilities to keep pace with our
microprocessor, chipset, flash memory, and communications
technology improvements. In line with these plans, we plan to
build a new assembly and test facility in Vietnam, which is
expected to begin production in 2009. This facility will have
greater square footage than our current facilities, which will
enable us to take advantage of greater efficiencies of scale. To
augment capacity, we use subcontractors to perform assembly of
certain products, primarily flash memory, chipsets, and
networking and communications products. Assembly and test of
NAND flash memory products manufactured by IMFT is performed by
Micron and other external subcontractors.
Our performance expectations for business integrity; ethics; and
environmental, health, and safety compliance are the same,
regardless of whether our supplier and subcontractor operations
are based in the U.S. or elsewhere. Our employment practices are
consistent with, and we expect our suppliers and subcontractors
to abide by, local country law. In addition, we impose a minimum
employee age requirement regardless of local law.
We have thousands of suppliers, including subcontractors,
providing our various materials and service needs. We set
expectations for supplier performance and reinforce those
expectations with periodic assessments. We communicate those
expectations to our suppliers regularly and work with them to
implement improvements when necessary. We seek, where possible,
to have several sources of supply for all of these materials and
resources, but we may rely on a single or limited number of
suppliers, or upon suppliers in a single country. In those
cases, we develop and implement plans and actions to reduce the
exposure that would result from a disruption in supply.
Our products typically are produced at multiple Intel facilities
at various sites around the world, or by subcontractors who have
multiple facilities. However, some products are produced in only
one Intel or subcontractor facility, and we seek to implement
actions and plans to reduce the exposure that would result from
a disruption at any such facility. On a worldwide basis, we
regularly evaluate our key infrastructure, systems, services,
and suppliers, both internally and externally, to seek to
identify significant vulnerabilities as well as areas of
potential business impact if a disruptive event were to occur.
Once vulnerability is identified, we assess the risks, and as we
consider it to be appropriate, we initiate actions intended to
reduce the risks and their potential impact. However, there can
be no assurance that we have identified all significant risks or
that we can mitigate all identified risks with reasonable
effort. See Risk Factors in Part I, Item 1A of this
Form 10-K.
We maintain a program of insurance coverage for various types of
property, casualty, and other risks. We place our insurance
coverage with various carriers in numerous jurisdictions. The
policies are subject to deductibles and exclusions that result
in our retention of a level of risk on a self-insurance basis.
The types and amounts of insurance obtained vary from time to
time and from location to location, depending on availability,
cost, and our decisions with respect to risk retention. Our
worldwide risk and insurance programs are regularly evaluated to
seek to obtain the most favorable terms and conditions.
Research
and Development
We continue to be committed to investing in world-class
technology development, particularly in the area of the design
and manufacture of integrated circuits. Research and development
(R&D) expenditures in 2006 amounted to $5.9 billion ($5.1
billion in fiscal year 2005 and $4.8 billion in fiscal year
2004). The increase in R&D expenditures was primarily due to
share-based compensation effects of $487 million. See Note
3: Employee Equity Incentive Plans in Part II, Item 8 of
this Form
10-K.
Our R&D activities are directed toward developing
innovations that we believe will deliver the next generation of
products and platforms, which will in turn enable new form
factors and new usage models for businesses and consumers. We
are focusing our R&D efforts on advanced computing,
communications, and wireless technologies by developing new
microarchitectures, advancing our silicon manufacturing process
technology, delivering the next generation of microprocessors
and chipsets, improving our platform initiatives, and developing
software solutions and tools to support our technologies. In
line with these efforts, we plan to introduce a new
microarchitecture approximately every two years and ramp the
next generation of silicon process technology in the intervening
years. Our R&D efforts enable new levels of performance and
address areas such as scalability for multi-core architectures,
system manageability, energy efficiency, digital content
protection, and new communication capabilities. Our leadership
in silicon technology has enabled us to make Moores
Law a reality. Moores Law predicted that transistor
density on integrated circuits would double about every two
years. Our leadership in silicon technology helps to continue to
make Moores Law a reality while also bringing new
capabilities into silicon and producing new products and
platforms optimized for a wider variety of applications. We have
completed development of our 45-nanometer process technology,
and we expect to begin manufacturing products using our
45-nanometer process technology in the second half of 2007. In
the area of wireless communications, our initiatives focus on
delivering the technologies that will enable improved wireless
capabilities, including expanding and proliferating WiMAX
technologies and products.
9
We do not expect that all of our research and product
development projects will result in products that are ultimately
released for sale. We may terminate research
and/or
product development before completion or decide not to
manufacture and sell a developed product for a variety of
reasons. For example, we may decide that a product might not be
sufficiently competitive in the relevant market segment, or for
technological or marketing reasons, we may decide to offer a
different product instead.
Our R&D model is based on a global organization that
emphasizes a collaborative approach in identifying and
developing new technologies, leading standards initiatives, and
influencing regulatory policy to accelerate the adoption of new
technologies. Our R&D initiatives are performed by various
business groups within the company, and we centrally manage key
cross-business group product initiatives to align and prioritize
our R&D activities across these groups. In addition, we may
augment our R&D initiatives by investing in companies that
are focused on the same areas as our research and development.
We also work with a worldwide network of academic and industry
researchers, scientists, and engineers in the computing and
communications fields. Our network of technology professionals
allows us, as well as others in our industry, to benefit from
development initiatives in a variety of areas, eventually
leading to innovative technologies for users. We believe that we
are well positioned in the technology industry to help drive
innovation, foster collaboration, and promote industry standards
that will yield innovative and improved technologies for users.
We have an agreement with Micron for joint development of NAND
flash memory technologies. Costs incurred by Intel and Micron
for process development are generally split evenly. As the owner
of the product designs, Intel assumes the cost for product
development and licenses certain product designs to Micron on a
royalty-bearing basis.
We perform a majority of our R&D in the U.S. We have been
increasing our product development outside the U.S. and have
activities at various locations, primarily within Israel,
Malaysia, India, China, and Russia. We also maintain R&D
facilities in the U.S. focused on developing and improving
manufacturing processes, as well as facilities in the U.S.,
Malaysia, and the Philippines dedicated to improvements in
assembly and test processes.
Employees
In September 2006, we announced a restructuring plan that
included expected headcount reductions, primarily through
workforce reductions, attrition, and targeted divestitures.
These actions have resulted in headcount reductions during 2006.
See Results of Operations within
Managements Discussion and Analysis of Financial
Condition and Results of Operations in Part II, Item 7 of
this Form
10-K for
further details regarding our restructuring actions. As of
December 30, 2006, we had approximately 94,100 employees
worldwide, with more than 50% of these employees located in the
U.S. As of December 31, 2005, we had approximately 99,900
employees worldwide.
Sales and
Marketing
Most of our products are sold or licensed through sales offices
located near major concentrations of users, throughout the
Asia-Pacific, Americas, Europe, and Japan regions. Our business
relies on continued sales growth in both mature and emerging
markets.
Sales of our products are typically made via purchase orders
that contain standard terms and conditions covering matters such
as pricing, payment terms, and warranties, as well as
indemnities for issues specific to our products, such as patent
and copyright indemnities. From time to time, we may enter into
additional agreements with customers covering, for example,
changes from our standard terms and conditions, new product
development and marketing, private-label branding, and other
matters. Most of our sales are made using electronic and
web-based processes that allow the customer to review inventory
availability and track the progress of specific goods under
order. Pricing on particular products may vary based on volumes
ordered and other factors.
We sell our products to OEMs and ODMs. ODMs provide design
and/or
manufacturing services to branded and unbranded private-label
resellers. We also sell our products to industrial and retail
distributors. In certain instances, we have entered into supply
agreements to continue to manufacture and sell products within
divested business lines to acquiring companies during certain
transition periods. In 2006, Dell Inc. accounted for 19% of our
net revenue, and Hewlett-Packard Company accounted for 16% of
our net revenue. No other customer accounted for more than 10%
of our net revenue. For information about revenue and operating
profit by operating segment, and revenue from unaffiliated
customers by geographic region/country, see Note 20:
Operating Segment and Geographic Information in Part II,
Item 8 of this Form
10-K and
Managements Discussion and Analysis of Financial
Condition and Results of Operations in Part II, Item 7 of
this Form
10-K.
10
Typically, distributors handle a wide variety of products,
including those that compete with our products, and fill orders
for many customers. Most of our sales to distributors are made
under agreements allowing for price protection on unsold
merchandise and a right of return on stipulated quantities of
unsold merchandise. We also utilize third-party sales
representatives who generally do not offer directly competitive
products but may carry complementary items manufactured by
others. Sales representatives do not maintain a product
inventory; instead, their customers place orders directly with
us or through distributors.
Our worldwide reseller sales channel consists of thousands of
indirect customers who are systems builders and purchase Intel
microprocessors and other products from our distributors. We
have a boxed processor program that allows
distributors to sell Intel microprocessors in small quantities
to these systems-builder customers; boxed processors are also
made available in direct retail outlets.
Our corporate marketing focus is on multi-core microprocessors,
which include Intel Core 2 Duo, Intel Core 2 Extreme,
and Intel Core 2 Quad processors. These processors are at
the center of Intels most advanced platforms, which
include Intel Centrino mobile technology, Intel vPro technology,
and Intel Viiv technology. The Intel Core 2 Quad, Intel
Core 2 Extreme, Intel Core 2 Duo, Itanium, Intel Xeon,
Pentium, and Celeron trademarks make up our processor brands. We
promote brand awareness and generate demand through our own
direct marketing as well as co-marketing programs. Our direct
marketing activities include television, print and web-based
advertising, as well as press relations, consumer and trade
events, and industry and consumer communications. We market to
consumer and business audiences and focus on building awareness
and generating demand for increased performance, power
efficiency, and new capabilities.
Purchases by customers often allow them to participate in
cooperative advertising and marketing programs such as the Intel
Inside®
program. Through the Intel Inside program, certain customers are
licensed to place Intel logos on computers containing our
microprocessors and our other technology, and to use our brands
in marketing activities. The program includes a market
development component that accrues funds based on purchases and
partially reimburses the OEMs for marketing activities for
products featuring Intel brands, subject to the OEMs meeting
defined criteria. This program broadens the reach of our brands
beyond the scope of our own direct advertising. In addition, it
provides us with the opportunity to do joint marketing with
certain customers.
Our products are typically shipped under terms that transfer
title to the customer, even in arrangements for which the
recognition of revenue on the sale is deferred. Our standard
terms and conditions of sale typically provide that payment is
due at a later date, generally 30 days after shipment, delivery,
or the customers use of the product. Our credit department
sets accounts receivable and shipping limits for individual
customers for the purpose of controlling credit risk to Intel
arising from outstanding account balances. We assess credit risk
through quantitative and qualitative analysis, and from this
analysis, we establish credit limits and determine whether we
will seek to use one or more credit support devices, such as
obtaining some form of third-party guaranty or standby letter of
credit, or obtaining credit insurance for all or a portion of
the account balance. Credit losses may still be incurred due to
bankruptcy, fraud, or other failure of the customer to pay. See
Schedule IIValuation and Qualifying Accounts
in Part IV of this Form
10-K for
information about our allowance for doubtful receivables.
Backlog
We do not believe that backlog as of any particular date is
meaningful, as our sales are made primarily pursuant to standard
purchase orders for delivery of products. Only a small portion
of our orders are non-cancelable, and the dollar amount
associated with the non-cancelable portion is not significant.
Competition
Our products compete primarily on the basis of performance,
features, quality, brand recognition, price, and availability.
Our ability to compete depends on our ability to provide
innovative products and worldwide support for our customers at
competitive prices, including providing improved
energy-efficient performance, enhanced security, reduced heat
output, manageability, and integrated solutions. In addition to
our various computing, networking, and communications products,
we offer platforms that incorporate various components, which
bring together a collection of technologies that we believe
create a better end-user solution than if the ingredients were
used separately.
11
The semiconductor industry is characterized by rapid advances in
technology and new product introductions. As unit volumes of a
particular product grow, production experience is accumulated
and costs typically decrease, further competition develops, and
as a result, prices decline. The life cycle of our products is
very short, sometimes less than a year. Our ability to compete
depends on our ability to improve our products and processes
faster than our competitors, anticipate changing customer
requirements, and develop and launch new products and platforms,
while reducing our average per unit costs. When we believe it is
appropriate, we will take various steps, including introducing
new products and platforms, discontinuing older products,
reducing prices, and offering rebates and other incentives, to
increase acceptance of our latest products and to be competitive
within each relevant market segment. Our products compete with
products developed for similar or rival architectures and with
products based on the same or rival standards. We cannot predict
which competing standards will become the prevailing standards
in the market segments in which we compete. See Risk
Factors in Part I, Item 1A of this Form
10-K.
Many companies compete with us in the various computing,
networking, and communications market segments, and are engaged
in the same basic business activities, including research and
development. Worldwide, these competitors range in size from
large established multinational companies with multiple product
lines to smaller companies and new entrants to the marketplace
that compete in specialized market segments. Some of our
competitors may have development agreements with other
companies, and in some cases our competitors may also be our
customers
and/or
suppliers. Product offerings may cross over into multiple
product categories, offering us new opportunities but also
resulting in more competition. It may be difficult for us to
compete in market segments where our competitors have
established products and brand recognition.
We believe that our network of manufacturing facilities and
assembly and test facilities gives us a competitive advantage.
This network enables us to have more direct control over our
processes, quality control, product cost, volume, timing of
production, and other factors. These facilities require
significant up-front capital spending, and many of our
competitors do not own such facilities because they cannot
afford to do so or because their business models involve the use
of third-party facilities for manufacturing and assembly and
test. These fabless semiconductor companies include
Broadcom Corporation, NVIDIA Corporation, QUALCOMM Incorporated,
and VIA Technologies, Inc. (VIA). Some of our competitors own
portions of such facilities through investment or joint-venture
arrangements with other companies. There is a group of
third-party manufacturing companies (foundries) and assembly and
test subcontractors that offers their services to companies
without owned facilities or companies needing additional
capacity. These foundries and subcontractors may also offer
intellectual property, design services, and other goods and
services to our competitors. Competitors who outsource their
manufacturing and assembly and test operations can significantly
reduce their capital expenditures.
We plan to continue to cultivate new businesses and work with
the computing and communications industries through standards
bodies, trade associations, OEMs, ODMs, and independent software
and operating system vendors to help align the industry to offer
products that take advantage of the latest market trends and
usage models. These efforts include helping to build out the
infrastructure for wireless network connectivity. We are also
working with these industries to develop software applications
and operating systems that take advantage of our platforms
through programs such as the
Intel®
Software Partner Program, which provides opportunities that help
companies develop, market, and sell solutions that take
advantage of the latest Intel platforms and technologies. We
frequently participate in industry initiatives designed to
discuss and agree upon technical specifications and other
aspects of technologies that could be adopted as standards by
standards-setting organizations. In addition, we work
collaboratively with other companies to protect digital content
and the consumer by developing content protection specifications
such as the Digital Transmission Content Protection (DTCP)
specification. DTCP defines a secure protocol for protecting
audio and video entertainment content from illegal copying,
intercepting, and tampering as it moves across digital
interfaces such as Universal Serial Bus (USB) and
IP-based
home networks. Our competitors may also participate in the same
initiatives and specification development. Our participation
does not ensure that any standards or specifications adopted by
these organizations will be consistent with our product
planning. We continuously evaluate our product offerings and the
timing of their introductions, taking into account factors such
as customer requirements and availability of infrastructure to
take advantage of product features, performance, and maturity of
application software for each type of product in the relevant
market segments.
Companies in the semiconductor industry often rely on the
ability to license patents from each other in order to compete
in todays markets. Many of our competitors have broad
cross-licenses or licenses with us, and under current case law,
some such licenses may permit these competitors to pass our
patent rights on to others. If one of these licensees becomes a
foundry, our competitors might be able to avoid our patent
rights in manufacturing competing products. In addition to
licensing our patents to competitors, we participate in some
industry organizations that are engaged in the development of
standards or specifications and may require us to license our
patents to other companies that adopt such industry standards or
specifications, even when such organizations do not adopt the
standards or specifications proposed by Intel. Any Intel patents
that may be subject to the licensing policies of such
organizations due to our participation in such initiatives might
not, in some situations, be available for us to enforce against
others who might be infringing those patents. See Risk
Factors in Part I, Item 1A of this Form
10-K.
12
We continue to be largely dependent on the success of our
microprocessor business. Our ability to compete depends on our
ability to deliver new microprocessor products with improved
overall performance
and/or
improved energy-efficient performance at competitive prices.
Many of our competitors, including Advanced Micro Devices, Inc.
(AMD), our primary microprocessor competitor, market
software-compatible products that compete with our processors.
We also face competition from companies offering rival
microarchitecture designs, such as Cell Broadband Engine
Architecture developed jointly by International Business
Machines Corporation (IBM), Sony Corporation, and Toshiba
Corporation. Our desktop processors compete with products
offered by AMD, IBM, and VIA, among others. Our mobile
microprocessor products compete with products offered by AMD,
IBM, Transmeta Corporation, and VIA, among others. Our server
processors compete with software-compatible products offered by
AMD and with products based on rival architectures, including
the Service-Oriented Architecture (SOA) offered by IBM and the
Scalable Processor Architecture (SPARC*) offered by Sun
Microsystems, Inc.
Our chipsets compete in the various market segments against
different types of chipsets that support either our
microprocessor products or rival microprocessor products.
Competing chipsets are produced by companies such as ATI
Technologies, Inc. (recently acquired by AMD), NVIDIA, Silicon
Integrated Systems Corporation (SIS), and VIA. We also compete
with companies offering graphics components and other
special-purpose products used in the desktop, mobile, and server
market segments. One aspect of our business model is to
incorporate improved performance and advanced properties into
our microprocessors and chipsets, the demand for which may
increasingly be affected by competition from companies, such as
NVIDIA, whose business models are based on incorporating
improved performance into dedicated chipsets and other
components, such as graphics controllers.
Our NOR and NAND flash memory products currently compete with
the products of other companies, such as Hynix Semiconductor
Inc., Micron, Samsung Electronics Co., Ltd., Spansion Inc.,
STMicroelectronics NV, and Toshiba.
We offer products designed for wired and wireless connectivity;
for the communications infrastructure, including network
processors; and for networked storage. These products currently
compete against offerings from companies such as Applied Micro
Circuits Corporation, AMD, Broadcom, Freescale Semiconductor,
Inc., IBM, OpNext, Inc., Sun Microsystems, and VIA.
We also offer platforms for the desktop, mobile, and server
market segments that integrate components that enable targeted
usage models. We believe that our platform offerings give us a
competitive advantage. Our platforms are designed to meet the
specific needs of end users and are optimized to deliver
increased security and manageability, energy-efficient
performance, and other innovative solutions embedded into our
microprocessors. With AMDs acquisition of ATI
Technologies, we anticipate increased platform competition in
various market segments.
Acquisitions
and Strategic Investments
During 2006, the company did not complete any acquisitions
qualifying as business combinations. In 2006, Intel formed IMFT,
a NAND flash memory manufacturing company, with Micron. Intel
invested $1.3 billion in return for a 49% interest. See
Note 17: Venture in Part II, Item 8 of this Form
10-K. Also
during 2006, Intel paid $600 million for an investment in
Clearwire Corporation. Clearwire builds and operates
next-generation wireless broadband networks. See Note 7:
Investments in Part II, Item 8 of this Form
10-K.
Intellectual
Property and Licensing
Intellectual property rights that apply to our various products
and services include patents, copyrights, trade secrets,
trademarks, and maskwork rights. We maintain an active program
to protect our investment in technology by attempting to ensure
respect for our intellectual property rights. The extent of the
legal protection given to different types of intellectual
property rights varies under different countries legal
systems. We intend to license our intellectual property rights
where we can obtain adequate consideration. See
Competition in Part I, Item 1 of this Form
10-K;
Legal Proceedings in Part I, Item 3 of this
Form 10-K;
and Risk Factors in Part I, Item 1A of
this Form
10-K.
13
We have filed and obtained a number of patents in the U.S. and
abroad. While our patents are an important element of our
success, our business as a whole is not materially dependent on
any one patent. We and other companies in the computing,
telecommunications, and related high-technology fields typically
apply for and receive, in the aggregate, tens of thousands of
overlapping patents annually in the U.S. and other countries. We
believe that the duration of the applicable patents we are
granted is adequate relative to the expected lives of our
products. Because of the fast pace of innovation and product
development, our products are often obsolete before the patents
related to them expire, and sometimes are obsolete before the
patents related to them are even granted. As we expand our
product offerings into new industries, such as consumer
electronics, we also seek to extend our patent development
efforts to patent such product offerings. Established
competitors in existing and new industries, as well as companies
that purchase and enforce patents and other intellectual
property, may already have patents covering similar products.
There is no assurance that we will be able to obtain patents
covering our own products, or that we will be able to obtain
licenses from such companies on favorable terms or at all.
The large majority of the software we distribute, including
software embedded in our component and system-level products, is
entitled to copyright protection.
To distinguish Intel products from our competitors
products, we have obtained certain trademarks and trade names
for our products, and we maintain cooperative advertising
programs with certain customers to promote our brands and to
identify products containing genuine Intel components.
We also protect certain details about our processes, products,
and strategies as trade secrets, keeping confidential the
information that we believe provides us with a competitive
advantage. We have ongoing programs designed to maintain the
confidentiality of such information.
Compliance
with Environmental, Health, and Safety Regulations
Intel is committed to achieving high standards of environmental
quality and product safety, and strives to provide a safe and
healthy workplace for our employees, contractors, and the
communities in which we do business. We have environmental,
health, and safety (EHS) policies and expectations that apply to
our global operations. Each of Intels worldwide production
facilities is registered to the International Organization for
Standardization (ISO) 14001 environmental management system
standard. Intels internal EHS auditing program addresses
not only compliance but also business risk and management
systems. We focus on minimizing and properly managing hazardous
materials used in our facilities and products. We monitor
regulatory and resource trends and set company-wide short- and
long-term performance targets for key resources and emissions.
These targets address several parameters, including energy and
water use, climate change, waste recycling, and emissions. For
example, we continue to take action to achieve our global energy
reduction goal by investing in energy conservation projects in
our factories and working with suppliers of manufacturing tools
to improve energy efficiency. Intel also is focused on
developing innovative solutions to improve the energy efficiency
of our products and those of our customers. Intel has taken a
holistic approach to power management, addressing the challenge
at all levels, including the silicon, package, circuit,
micro/macro architecture, platform, and software levels.
The production of Intel products requires the use of hazardous
materials that are subject to a broad array of EHS laws and
regulations. Intel actively monitors the materials used in the
production of our products. Intel has specific restrictions on
the content of certain hazardous materials in our products, as
well as those of our suppliers and outsourced manufacturers and
subcontractors. Intel continues to make efforts to reduce
hazardous materials in our products to position us to meet
various environmental restrictions on product content throughout
the world. As Intel continues to advance process technology, the
materials, technologies, and products themselves become
increasingly complex. Our evaluations of materials for use in
R&D and production take into account EHS considerations.
Compliance with these complex laws and regulations, as well as
internal voluntary programs, is integrated into Intels
design for EHS programs.
Intel is committed to the protection of human rights and the
environment throughout its supply chain. Intel expects suppliers
to understand and fully comply with all EHS and related laws and
regulations. In addition, suppliers are expected to abide by
Intels policies, such as its Corporate Business Principles
and the Electronics Industry Code of Conduct; maintain
progressive employment practices; and comply with other
applicable laws including, at a minimum, those covering
non-discrimination in the terms and conditions of employment,
child labor, minimum wages, employee benefits, and work hours.
14
Executive
Officers of the Registrant
The following sets forth certain information with regard to the
executive officers of Intel as of February 23, 2007 (ages are as
of December 30, 2006):
Craig R. Barrett (age 67) has been a director of Intel since
1992 and Chairman of the Board since 2005. Prior to that, Dr.
Barrett was Chief Executive Officer from 1998 to 2005; President
from 1997 to 2002; Chief Operating Officer from 1993 to 1997;
and Executive Vice President from 1990 to 1997.
Paul S. Otellini (age 56) has been a director of Intel since
2002 and President and Chief Executive Officer since 2005. Prior
to that, Mr. Otellini was Chief Operating Officer from 2002
to 2005; Executive Vice President and General Manager, Intel
Architecture Group, from 1998 to 2002; Executive Vice President
and General Manager, Sales and Marketing Group, from 1996 to
1998; and Senior Vice President and General Manager, Sales and
Marketing Group, from 1994 to 1996.
Andy D. Bryant (age 56) has been Executive Vice President and
Chief Financial and Enterprise Services Officer since 2001, and
was Senior Vice President and Chief Financial and Enterprise
Services Officer from 1999 to 2001. Prior to that, Mr. Bryant
was Senior Vice President and Chief Financial Officer in 1999,
and Vice President and Chief Financial Officer from 1994 to 1999.
Sean M. Maloney (age 50) has been Executive Vice President and
General Manager, Sales and Marketing Group, and Chief Sales and
Marketing Officer since July 2006. Prior to that, Mr. Maloney
was Executive Vice President and General Manager, Mobility
Group, from 2005 to 2006; Executive Vice President and General
Manager, Intel Communications Group, from 2001 to 2005;
Executive Vice President and Director, Sales and Marketing
Group, in 2001; Senior Vice President and Director, Sales and
Marketing Group, from 1999 to 2001; Vice President and Director,
Sales and Marketing Group, from 1998 to 1999; and Vice
President, Sales, and General Manager, Asia-Pacific Operations,
from 1995 to 1998.
Robert J. Baker (age 51) has been Senior Vice President and
General Manager, Technology and Manufacturing Group, since 2001,
and was Vice President and General Manager, Components
Manufacturing, from 2000 to 2001. Prior to that, Mr. Baker
managed Fab Sort Manufacturing from 1999 to 2000 and
Microprocessor Components Manufacturing from 1996 to 1999.
Patrick P. Gelsinger (age 45) has been Senior Vice President and
General Manager, Digital Enterprise Group, since 2005. Prior to
that, Mr. Gelsinger was Chief Technology Officer from 2001 to
2005; Chief Technology Officer, Computing Group, from 2000 to
2001; and Vice President and General Manager, Desktop Products
Group, from 1996 to 2000.
David Perlmutter (age 53) has been Senior Vice President and
General Manager, Mobility Group, since 2005. Prior to that, Mr.
Perlmutter was Vice President and General Manager, Mobility
Group, in 2005; Vice President and General Manager, Mobile
Platforms Group, from 2000 to 2005; and Vice President,
Microprocessor Group, and General Manager, Basic Microprocessor
Division and Intel Israel Development Center, from 1996 to 2000.
D. Bruce Sewell (age 48) has been Senior Vice President and
General Counsel since 2005. Prior to that, Mr. Sewell was Vice
President and General Counsel in 2005; Vice President, Legal and
Government Affairs and Deputy General Counsel from 2001 to 2004;
and served in a variety of senior legal positions at Intel from
1995 to 2001.
Arvind Sodhani (age 52) has been Senior Vice President of Intel
and President of Intel Capital since 2005. Prior to that, Mr.
Sodhani was Senior Vice President and Treasurer of Intel in
2005; Vice President and Treasurer from 1990 to 2005; and
Treasurer from 1988 to 1990.
William M. Holt (age 54) has been Senior Vice President and
General Manager, Technology and Manufacturing Group, since
November 2006. Prior to that, Mr. Holt was Vice President and
Co-General Manager, Technology and Manufacturing Group, from
2005 to November 2006, and Vice President and Director, Logic
Technology Development, from 1999 to 2005.
Thomas M. Kilroy (age 49) has been Vice President and General
Manager, Digital Enterprise Group, since 2005. Prior to that,
Mr. Kilroy was Vice President, Sales and Marketing Group,
and Co-President of Intel Americas, Inc. from 2003 to 2005; Vice
President, Sales and Marketing Group, and General Manager,
Communication Sales Organization, in 2003; and Vice President,
Sales and Marketing Group, and General Manager, Reseller Channel
Operation, from 2000 to 2003.
15
ITEM
1A. RISK FACTORS
Fluctuations
in demand for our products may adversely affect our financial
results and are difficult to forecast.
If demand for our products fluctuates, our revenue and gross
margin could be adversely affected. Important factors that could
cause demand for our products to fluctuate include:
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competitive pressures from companies that have competing
products, chip architectures, and manufacturing technologies
including product offerings, marketing programs, and pricing
pressures;
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changes in customer product needs;
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changes in the level of customers component inventory;
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changes in business and economic conditions, including a
downturn in the semiconductor industry;
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strategic actions taken by our competitors; and/or
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market acceptance of our products.
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If demand for our products is reduced, our manufacturing
and/or
assembly and test capacity could be under-utilized, and we may
be required to record an impairment on our long-lived assets
including facilities and equipment, as well as intangible
assets, which would increase our expenses. In addition, factory
planning decisions may shorten the useful lives of long-lived
assets including facilities and equipment and cause us to
accelerate depreciation. In the long term, if demand for our
products increases, we may not be able to add manufacturing
and/or
assembly and test capacity fast enough to meet market demand.
These changes in demand for our products, and changes in our
customers product needs, could have a variety of negative
effects on our competitive position and our financial results,
and, in certain cases, may reduce our revenue, increase our
costs, lower our gross margin percentage, or require us to
recognize impairments of our assets. In addition, if demand for
our products is reduced or we fail to accurately forecast
demand, we could be required to write down inventory, which
would have a negative impact on our gross margin.
The
semiconductor industry and our operations are characterized by a
high percentage of costs that are fixed or otherwise difficult
to reduce in the short term, and by product demand that is
highly variable and subject to significant downturns that may
adversely affect our business, results of operations, and
financial condition.
The semiconductor industry and our operations are characterized
by high costs, such as those related to facility construction
and equipment, research and development, and employment and
training of a highly skilled workforce, that are either fixed or
difficult to reduce in the short term. At the same time, demand
for our products is highly variable and there have been
downturns, often in connection with maturing product cycles as
well as downturns in general economic market conditions. These
downturns have been characterized by reduced product demand,
manufacturing overcapacity, high inventory levels, and lower
average selling prices. The combination of these factors may
cause our revenue, gross margin, cash flow, and profitability to
vary significantly in both the short and long term.
We
operate in intensely competitive industries, and our failure to
respond quickly to technological developments and incorporate
new features into our products could have an adverse effect on
our ability to compete.
We operate in intensely competitive industries that experience
rapid technological developments, changes in industry standards,
changes in customer requirements, and frequent new product
introductions and improvements. If we are unable to respond
quickly and successfully to these developments, we may lose our
competitive position, and our products or technologies may
become uncompetitive or obsolete. To compete successfully, we
must maintain a successful R&D effort, develop new products
and production processes, and improve our existing products and
processes at the same pace or ahead of our competitors. We may
not be able to successfully develop and market these new
products, the products we invest in and develop may not be well
received by customers, and products developed and new
technologies offered by others may affect the demand for our
products. These types of events could have a variety of negative
effects on our competitive position and our financial results,
such as reducing our revenue, increasing our costs, lowering our
gross margin percentage, and requiring us to recognize
impairments of our assets.
Fluctuations
in the mix of products sold may adversely affect our financial
results.
Because of the wide price differences among mobile, desktop, and
server microprocessors, the mix and types of performance
capabilities of microprocessors sold affect the average selling
price of our products and have a substantial impact on our
revenue. Our financial results also depend in part on the mix of
other products we sell, such as chipsets, flash memory, and
other semiconductor products. In addition, more recently
introduced products tend to have higher associated costs because
of initial overall development costs and higher
start-up
costs. Fluctuations in the mix and types of our products may
also affect the extent to which we are able to recover our fixed
costs and investments that are associated with a particular
product, and as a result can negatively impact our financial
results.
16
Our
global operations subject us to risks that may negatively affect
our results of operations and financial condition.
We have sales offices, research and development, manufacturing,
and assembly and test facilities in many countries, and as a
result, we are subject to risks associated with doing business
globally. Our global operations may be subject to risks that may
limit our ability to manufacture, assemble and test, design,
develop, or sell products in particular countries, which could
in turn have an adverse effect on our results of operations and
financial condition, including:
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security concerns, such as armed conflict and civil or military
unrest, crime, political instability, and terrorist activity;
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health concerns;
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natural disasters;
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inefficient and limited infrastructure and disruptions, such as
large-scale outages or interruptions of service from utilities
or telecommunications providers and supply chain interruptions;
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differing employment practices and labor issues;
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local business and cultural factors that differ from our normal
standards and practices;
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regulatory requirements and prohibitions that differ between
jurisdictions; and/or
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restrictions on our operations by governments seeking to support
local industries, nationalization of our operations, and
restrictions on our ability to repatriate earnings.
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In addition, although most of our products are priced and paid
for in U.S. dollars, a significant amount of certain types of
expenses, such as payroll, utilities, tax, and marketing
expenses, are paid in local currencies. Our hedging programs
reduce, but do not always entirely eliminate, the impact of
currency exchange rate movements, and therefore fluctuations in
exchange rates, including those caused by currency controls,
could negatively impact our business operating results and
financial condition by resulting in lower revenue or increased
expenses. In addition, changes in tariff and import regulations
and to U.S. and
non-U.S.
monetary policies may also negatively impact our revenue in
those affected countries. Varying tax rates in different
jurisdictions could negatively impact our overall tax rate.
Failure
to meet our production targets, resulting in undersupply or
oversupply of products, may adversely impact our business and
results of operations.
Production of integrated circuits is a complex process.
Disruptions in this process can result from difficulties in our
development and implementation of new processes, errors, and
interruptions in the processes; defects in materials; and
disruptions in our supply of materials or resourcesall of
which could affect the timing of production ramps and yields.
Furthermore, we may not be successful or efficient in developing
or implementing new production processes. The occurrence of any
of the foregoing may result in our failure to increase
production as desired, resulting in higher costs or substantial
decreases in yields, which could impact our ability to produce
sufficient volume to meet specific product demand. Furthermore,
the unavailability or reduced availability of certain products
could make it more difficult to implement our platform strategy.
We may also experience increases in yields. A substantial
increase in yields could result in higher inventory levels and
the possibility of resulting excess capacity charges as we slow
production to reduce inventory levels. The occurrence of any of
these events could adversely impact our business and results of
operations.
We may
have difficulties obtaining the resources or products we need
for manufacturing or assembling our products or operating other
aspects of our business, which could adversely affect our
ability to meet demand for our products and may increase our
costs.
We have thousands of suppliers providing various materials that
we use in production of our products and other aspects of our
business, and we seek, where possible, to have several sources
of supply for all of these materials. However, we may rely on a
single or a limited number of suppliers, or upon suppliers in a
single country, for these materials. The inability of such
suppliers to deliver adequate supplies of production materials
or other supplies could disrupt our production processes or
could make it more difficult for us to implement our platform
strategy. In addition, production could be disrupted by the
unavailability of the resources used in production, such as
water, silicon, electricity, and gases. The unavailability or
reduced availability of the materials or resources we use in our
business may require us to reduce production of products or may
require us to incur additional costs in order to obtain an
adequate supply of these materials or resources. The occurrence
of any of these events could adversely impact our business and
results of operations.
Costs
related to product defects and errata may have an adverse impact
on our results of operations and business.
Costs associated with unexpected product defects and errata
(deviations from published specifications) include, for example,
the costs of:
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writing down the value of inventory of defective products;
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disposing of defective products that cannot be fixed;
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recalling defective products that have been shipped to customers;
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providing product replacements for or modifications to defective
products; and/or
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defending against litigation related to defective products.
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These costs could be substantial and may therefore increase our
expenses and adversely affect our gross margin. In addition, our
reputation with our customers or end users of our products could
be damaged as a result of such product defects and errata, and
the demand for our products could be reduced. These factors
could negatively impact our financial results and the prospects
for our business.
17
We may
be subject to claims of infringement of third-party intellectual
property rights, which could adversely affect our
business.
From time to time, third parties may assert against us or our
customers alleged patent, copyright, trademark, and other
intellectual property rights to technologies that are important
to our business. We may be subject to intellectual property
infringement claims from certain individuals and companies who
have acquired patent portfolios for the sole purpose of
asserting such claims against other companies. Any claims that
our products or processes infringe the intellectual property
rights of others, regardless of the merit or resolution of such
claims, could cause us to incur significant costs in responding
to, defending, and resolving such claims, and may divert the
efforts and attention of our management and technical personnel
away from our business. As a result of such intellectual
property infringement claims, we could be required or otherwise
decide it is appropriate to:
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pay third-party infringement claims;
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discontinue manufacturing, using, or selling particular products
subject to infringement claims;
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discontinue using the technology or processes subject to
infringement claims;
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develop other technology not subject to infringement claims,
which could be time-consuming and costly or may not be possible;
and/or
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license technology from the third party claiming infringement,
which license may not be available on commercially reasonable
terms.
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The occurrence of any of the foregoing could result in
unexpected expenses or require us to recognize an impairment of
our assets, which would reduce the value of our assets and
increase expenses. In addition, if we alter or discontinue our
production of affected items, our revenue could be negatively
impacted.
We may
be subject to litigation proceedings that could adversely affect
our business.
In addition to the litigation risks mentioned above, we may be
subject to legal claims or regulatory matters involving
stockholder, consumer, antitrust, and other issues. As described
in Legal Proceedings in Part I, Item 3 of this Form
10-K, we are
currently engaged in a number of litigation matters. Litigation
is subject to inherent uncertainties, and unfavorable rulings
could occur. An unfavorable ruling could include monetary
damages or, in cases for which injunctive relief is sought, an
injunction prohibiting Intel from manufacturing or selling one
or more products. Were an unfavorable ruling to occur, there
exists the possibility of a material adverse impact on business
and results of operations for the period in which the ruling
occurred or future periods.
We may
not be able to enforce or protect our intellectual property
rights, which may harm our ability to compete and adversely
affect our business.
Our ability to enforce our patents, copyrights, software
licenses, and other intellectual property is subject to general
litigation risks, as well as uncertainty as to the
enforceability of our intellectual property rights in various
countries. When we seek to enforce our rights, we are often
subject to claims that the intellectual property right is
invalid, is otherwise not enforceable, or is licensed to the
party against whom we are asserting a claim. In addition, our
assertion of intellectual property rights often results in the
other party seeking to assert alleged intellectual property
rights of its own against us, which may adversely impact our
business in the manner discussed above. If we are not ultimately
successful in defending ourselves against these claims in
litigation, we may not be able to sell a particular product or
family of products, due to an injunction, or we may have to pay
material amounts of damages, which could in turn negatively
affect our results of operations. In addition, governments may
adopt regulations or courts may render decisions requiring
compulsory licensing of intellectual property to others, or
governments may require that products meet specified standards
that serve to favor local companies. Our inability to enforce
our intellectual property rights under these circumstances may
negatively impact our competitive position and our business.
Our
licenses with other companies and our participation in industry
initiatives may allow other companies, including competitors, to
use our patent rights.
Companies in the semiconductor industry often rely on the
ability to license patents from each other in order to compete.
Many of our competitors have broad licenses or cross-licenses
with us, and under current case law, some of these licenses may
permit these competitors to pass our patent rights on to others.
If one of these licensees becomes a foundry, our competitors
might be able to avoid our patent rights in manufacturing
competing products. In addition, our participation in industry
initiatives may require us to license our patents to other
companies that adopt certain industry standards or
specifications, even when such organizations do not adopt
standards or specifications proposed by us. As a result, our
patents implicated by our participation in industry initiatives
might not be available for us to enforce against others who
might otherwise be deemed to be infringing those patents, our
costs of enforcing our licenses or protecting our patents may
increase, and the value of our intellectual property may be
impaired.
18
Changes
in our decisions with regard to our announced restructuring and
efficiency project, and other factors, could affect our results
of operations and financial condition.
Factors that could cause actual results to differ materially
from our expectations with regard to our announced restructuring
include:
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timing and execution of plans and programs that may be subject
to local labor law requirements, including consultation with
appropriate works councils;
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assumptions related to severance and post-retirement costs;
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future acquisitions, dispositions, or investments;
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new business initiatives and changes in product roadmap,
development, and manufacturing;
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changes in employment levels and turnover rates;
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assumptions related to product demand and the business
environment; and/or
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assumptions related to the fair value of certain property, plant
and equipment.
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In
order to compete, we must attract, retain, and motivate key
employees, and our failure to do so could have an adverse effect
on our results of operations.
In order to compete, we must attract, retain, and motivate
executives and other key employees, including those in
managerial, technical, sales, marketing, and support positions.
Hiring and retaining qualified executives, scientists,
engineers, technical staff, and sales representatives are
critical to our business, and competition for experienced
employees in the semiconductor industry can be intense. To help
attract, retain, and motivate qualified employees, we use
share-based incentive awards such as employee stock options and
non-vested share units (restricted stock units). If the value of
such stock awards does not appreciate as measured by the
performance of the price of our common stock
and/or if
our other share-based compensation otherwise ceases to be viewed
as a valuable benefit, our ability to attract, retain, and
motivate employees could be adversely impacted, which could
negatively affect our results of operations.
Our
results of operations could vary as a result of the methods,
estimates, and judgments we use in applying our accounting
policies.
The methods, estimates, and judgments we use in applying our
accounting policies have a significant impact on our results of
operations (see Critical Accounting Estimates in
Part II, Item 7 of this Form
10-K). Such
methods, estimates, and judgments are, by their nature, subject
to substantial risks, uncertainties, and assumptions, and
factors may arise over time that lead us to change our methods,
estimates, and judgments. Changes in those methods, estimates,
and judgments could significantly affect our results of
operations. In particular, the calculation of share-based
compensation expense under Statement of Financial Accounting
Standards (SFAS) No. 123 (revised 2004), Share-Based
Payment (SFAS No. 123(R)), requires us to use valuation
methodologies (which were not developed for use in valuing
employee stock options and restricted stock units) and a number
of assumptions, estimates, and conclusions regarding matters
such as expected forfeitures, expected volatility of our share
price, the expected dividend rate with respect to our common
stock, and the exercise behavior of our employees. Furthermore,
there are no means, under applicable accounting principles, to
compare and adjust our expense if and when we learn about
additional information that may affect the estimates that we
previously made, with the exception of changes in expected
forfeitures of share-based awards. Factors may arise over time
that lead us to change our estimates and assumptions with
respect to future share-based compensation arrangements,
resulting in variability in our share-based compensation expense
over time. Changes in forecasted share-based compensation
expense could impact our gross margin percentage; research and
development expenses; marketing, general and administrative
expenses; and our tax rate.
Our
failure to comply with applicable environmental laws and
regulations worldwide could adversely impact our business and
results of operations.
The manufacture and assembly and testing of our products require
the use of hazardous materials that are subject to a broad array
of environmental, health, and safety laws and regulations. Our
failure to comply with any of these applicable laws or
regulations could result in:
|
|
|
|
|
regulatory penalties, fines, and legal liabilities;
|
|
|
suspension of production;
|
|
|
alteration of our fabrication and assembly and test processes;
and/or
|
|
|
curtailment of our operations or sales.
|
In addition, our failure to properly manage the use,
transportation, emission, discharge, storage, recycling, or
disposal of hazardous materials could subject us to increased
costs or future liabilities. Existing and future environmental
laws and regulations could also require us to acquire pollution
abatement or remediation equipment, modify our product designs,
or incur other expenses associated with such laws and
regulations. Many new materials that we are evaluating for use
in our operations may be subject to regulation under existing or
future environmental laws and regulations that may restrict our
use of certain materials in our manufacturing, assembly and test
processes, or products. Any of these consequences could
adversely impact our business and results of operations by
increasing our expenses
and/or
requiring us to alter our manufacturing and assembly and test
processes.
19
Changes
in our effective tax rate may have an adverse effect on our
results of operations.
Our
future effective tax rates may be adversely affected by a number
of factors including:
|
|
|
|
|
the jurisdictions in which profits are determined to be earned
and taxed;
|
|
|
the resolution of issues arising from tax audits with various
tax authorities;
|
|
|
changes in the valuation of our deferred tax assets and
liabilities;
|
|
|
adjustments to estimated taxes upon finalization of various tax
returns;
|
|
|
increases in expenses not deductible for tax purposes, including
write-offs of acquired in-process research and development and
impairment of goodwill in connection with acquisitions;
|
|
|
changes in available tax credits;
|
|
|
changes in share-based compensation expense;
|
|
|
changes in tax laws or the interpretation of such tax laws and
changes in generally accepted accounting principles; and/or
|
|
|
the repatriation of
non-U.S.
earnings for which we have not previously provided for U.S.
taxes.
|
Any significant increase in our future effective tax rates could
adversely impact net income for future periods. In addition, the
U.S. Internal Revenue Service (IRS) and other tax authorities
regularly examine our income tax returns. The IRS has proposed
adjustments or issued formal assessments related to amounts
reflected on certain of our tax returns as a tax benefit for our
export sales. See Note 19: Contingencies in Part II,
Item 8 of this Form
10-K. Our
results of operations could be adversely impacted if these
assessments or any other assessments resulting from the
examination of our income tax returns by the IRS or other taxing
authorities are not resolved in our favor.
We
invest in companies for strategic reasons and may not realize a
return on our investments.
We make investments in companies around the world to further our
strategic objectives and support our key business initiatives.
Such investments include investments in equity securities of
public companies and investments in non-marketable equity
securities of private companies, which range from early-stage
companies that are often still defining their strategic
direction to more mature companies whose products or
technologies may directly support an Intel product or
initiative. The success of these companies is dependent on
product development, market acceptance, operational efficiency,
and other key business success factors. The private companies in
which we invest may fail because they may not be able to secure
additional funding, obtain favorable investment terms for future
financings, or take advantage of liquidity events such as
initial public offerings, mergers, and private sales. If any of
these private companies fail, we could lose all or part of our
investment in that company. If we determine that an
other-than-temporary
decline in the fair value exists for the equity securities of
the public and private companies in which we invest, we write
down the investment to its fair value and recognize the related
write-down as an investment loss. Furthermore, when the
strategic objectives of an investment have been achieved, or if
the investment or business diverges from our strategic
objectives, we may decide to dispose of the investment. Our
investments in non-marketable equity securities of private
companies are not liquid, and we may not be able to dispose of
these investments on favorable terms or at all. The occurrence
of any of these events could negatively affect our results of
operations.
ITEM
1B. UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM
2. PROPERTIES
At December 30, 2006, our major facilities consisted of:
|
|
|
|
|
|
|
|
|
|
(Square Feet in Millions)
|
|
United States
|
|
Other Countries
|
|
Total
|
Owned
facilities1
|
|
|
27.9
|
|
|
13.2
|
|
|
41.1
|
Leased
facilities2
|
|
|
2.2
|
|
|
3.4
|
|
|
5.6
|
|
|
|
|
|
|
|
|
|
|
Total facilities
|
|
|
30.1
|
|
|
16.6
|
|
|
46.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Leases on portions of the land used for these facilities
expire at varying dates through 2062. |
|
2 |
|
These leases expire at varying dates through 2021 and
generally include renewals at our option. |
20
Our principal executive offices are located in the U.S. The
majority of our wafer fabrication and research and development
activities are also located within the U.S. Outside the U.S., we
have wafer fabrication at our facilities in Ireland and Israel.
The majority of our assembly and test facilities are located
overseas, specifically in Malaysia, the Philippines, China, and
Costa Rica. In addition, we have sales and marketing offices
located worldwide. These facilities are generally located near
major concentrations of users. We also plan to build a new
assembly and test facility in Vietnam, which is expected to
begin production in 2009. This facility will have more square
footage than our current assembly and test facilities, which
will enable us to take advantage of greater efficiencies of
scale.
With the exception of our fabrication facility in Colorado,
which we have placed for sale (see Note 11:
Restructuring and Asset Impairment Charges in Part II,
Item 8 of this Form
10-K), we
believe that our existing facilities are suitable and adequate
for our present purposes and that the productive capacity in
such facilities is substantially being utilized or we have plans
to utilize it.
We do not identify or allocate assets by operating segment. For
information on net property, plant and equipment by country, see
Note 20: Operating Segment and Geographic
Information in Part II, Item 8 of this Form
10-K.
ITEM
3. LEGAL PROCEEDINGS
In connection with the regular examination of Intels tax
returns for the years 1999 through 2005, the IRS formally
assessed, in 2005 and 2006, certain adjustments to the amounts
reflected by Intel on those returns as a tax benefit for its
export sales. The company does not agree with these adjustments
and has appealed the assessments. If the IRS prevails in its
position, Intels federal income tax due for 1999 through
2005 would increase by approximately $2.2 billion, plus
interest. In addition, the IRS will likely make a similar claim
for 2006, and if the IRS prevails, income tax due for 2006 would
increase by approximately $200 million, plus interest.
Although the final resolution of the adjustments is uncertain,
based on currently available information, management believes
that the ultimate outcome will not have a material adverse
effect on the companys financial position, cash flows, or
overall trends in results of operations. There is the
possibility of a material adverse impact on the results of
operations for the period in which the matter is ultimately
resolved, if it is resolved unfavorably, or in the period in
which an unfavorable outcome becomes probable and reasonably
estimable.
Intel currently is a party to various legal proceedings,
including those noted below. While management presently believes
that the ultimate outcome of these proceedings, individually and
in the aggregate, will not have a material adverse effect on our
financial position, cash flows, or overall trends in results of
operations, litigation is subject to inherent uncertainties, and
unfavorable rulings could occur. An unfavorable ruling could
include monetary damages or, in cases for which injunctive
relief is sought, an injunction prohibiting Intel from selling
one or more products. Were an unfavorable ruling to occur, there
exists the possibility of a material adverse impact on the
business or results of operations for the period in which the
ruling occurs or future periods.
Advanced Micro Devices, Inc. (AMD) and AMD International
Sales & Service, Ltd. v. Intel Corporation
and Intel Kabushiki Kaisha, and Related Consumer Class
Actions and Government Investigations
In June 2005, AMD filed a complaint in the United States
District Court for the District of Delaware alleging that Intel
and Intels Japanese subsidiary engaged in various actions
in violation of the Sherman Act and the California Business and
Professions Code, including providing secret and discriminatory
discounts and rebates and intentionally interfering with
prospective business advantages of AMD. AMDs complaint
seeks unspecified treble damages, punitive damages, an
injunction, and attorneys fees and costs. Subsequently,
AMDs Japanese subsidiary also filed suits in the Tokyo
High Court and the Tokyo District Court against Intels
Japanese subsidiary, asserting violations of Japans
Antimonopoly Law and alleging damages of approximately $55
million, plus various other costs and fees. At least 78 separate
class actions, generally repeating AMDs allegations and
asserting various consumer injuries, including that consumers in
various states have been injured by paying higher prices for
Intel microprocessors, have been filed in the U.S. District
Courts for the Northern District of California, Southern
District of California, and the District of Delaware, as well as
in various California, Kansas, and Tennessee state courts. All
the federal class actions have been consolidated by the
Multidistrict Litigation Panel to the District of Delaware. All
California class actions have been consolidated to the Superior
Court of California in Santa Clara County. Intel disputes
AMDs claims and the
class-action
claims, and intends to defend the lawsuits vigorously.
21
Intel is also subject to certain antitrust regulatory inquiries.
In 2001, the European Commission commenced an investigation
regarding claims by AMD that Intel used unfair business
practices to persuade clients to buy Intel microprocessors. In
June 2005, Intel received an inquiry from the Korea Fair Trade
Commission requesting documents from Intels Korean
subsidiary related to marketing and rebate programs that Intel
entered into with Korean PC manufacturers. Intel is cooperating
with these agencies in their investigations and expects that
these matters will be acceptably resolved.
Barbaras Sales, et al. v. Intel Corporation, Gateway
Inc., Hewlett-Packard Company and HPDirect, Inc.
Third Judicial Circuit Court, Madison County, Illinois
In June 2002, various plaintiffs filed a lawsuit in the Third
Judicial Circuit Court, Madison County, Illinois, against Intel,
Gateway Inc., Hewlett-Packard Company, and HPDirect, Inc.
alleging that the defendants advertisements and statements
misled the public by suppressing and concealing the alleged
material fact that systems containing Intel Pentium 4
processors are less powerful and slower than systems containing
Intel®
Pentium® III
processors and a competitors microprocessors. In July
2004, the court certified against Intel an Illinois-only class
of certain end-use purchasers of certain Pentium 4
processors or computers containing such microprocessors. In
January 2005, the Circuit Court granted a motion filed jointly
by the plaintiffs and Intel that stayed the proceedings in the
trial court pending discretionary appellate review of the
Circuit Courts class certification order. In July 2006,
the Illinois Appellate Court, Fifth District, vacated the
Circuit Courts class certification order, and remanded the
case to the Circuit Court with instructions to reconsider its
class certification ruling. In August 2006, the Illinois Supreme
Court agreed to review the Appellate Courts decision, and
that review is pending. The plaintiffs seek unspecified damages,
and attorneys fees and costs. The company disputes the
plaintiffs claims and intends to defend the lawsuit
vigorously.
AmberWave Systems Corporation v. Intel Corporation
United States District Court for the District of Delaware
Beginning in May 2005, Intel and AmberWave Systems Corporation
filed a series of lawsuits against each other that were
consolidated into actions in the United States District Court
for the District of Delaware. AmberWave claimed that certain
Intel semiconductor manufacturing processes infringed six
AmberWave patents related to semiconductor fabrication.
AmberWave sought damages, treble damages for alleged willful
infringement, an injunction, and attorneys fees. Intel
disputed AmberWaves allegations and defended the lawsuits
vigorously. In 2007, Intel and AmberWave entered into a license
agreement under which, among other terms, Intel agreed to make
certain payments to AmberWave, and AmberWave agreed to license
AmberWaves patent portfolio to Intel. The parties agreed
to jointly dismiss the actions with prejudice.
Transmeta Corporation v. Intel Corporation
United States District Court for the District of Delaware
In October 2006, Transmeta Corporation filed a lawsuit in the
United States District Court for the District of Delaware.
Transmeta alleges that Intels P6, Pentium 4,
Pentium M, Intel Core, and Intel Core 2 processors
infringe 10 Transmeta patents alleged to cover computer
architecture and power-efficiency technologies. In December
2006, Transmeta filed an amended complaint alleging that
Intels processors infringe an eleventh Transmeta patent.
Intel filed counterclaims against Transmeta alleging that
Transmetas Crusoe, Efficeon, and Efficeon 2 families
of microprocessors infringe seven Intel patents. Transmeta seeks
damages, treble damages, an injunction, and attorneys
fees. Intel disputes Transmetas allegations of
infringement and intends to defend the lawsuits vigorously.
|
|
ITEM
4.
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
|
None.
22
PART
II
|
|
ITEM
5.
|
MARKET
FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
|
Information regarding the market price range of Intel common
stock and dividend information may be found in Financial
Information by Quarter (Unaudited) in Part II, Item 8 of
this Form
10-K.
Additional information concerning dividends may be found in the
following sections of this Form
10-K:
Selected Financial Data in Part II, Item 6 and
Consolidated Statements of Cash Flows and
Consolidated Statements of Stockholders Equity
in Part II, Item 8.
In each quarter during 2006, we paid a cash dividend of $0.10
per common share, for a total of $0.40 for the year ($0.08 each
quarter during 2005 for a total of $0.32 for the year). We have
paid a cash dividend in each of the past 57 quarters. In January
2007, our Board of Directors declared a cash dividend of $0.1125
per common share for the first quarter of 2007. The dividend is
payable on March 1, 2007 to stockholders of record on February
7, 2007.
As of February 16, 2007, there were approximately 195,000
registered holders of record of Intels common stock. A
substantially greater number of holders of Intel common stock
are street name or beneficial holders, whose shares
are held of record by banks, brokers, and other financial
institutions.
Issuer
Purchases of Equity Securities (In Millions, Except Per Share
Amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Dollar Value
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
of Shares
|
|
|
|
|
|
|
Average
|
|
|
Purchased
|
|
|
That May
|
|
|
|
Total
|
|
|
Price
|
|
|
as Part of
|
|
|
Yet Be
|
|
|
|
Number
|
|
|
Paid
|
|
|
Publicly
|
|
|
Purchased
|
|
|
|
of Shares
|
|
|
Per
|
|
|
Announced
|
|
|
Under the
|
|
Period
|
|
Purchased
|
|
|
Share
|
|
|
Plans
|
|
|
Plans
|
|
|
October 1, 2006October 28,
2006
|
|
|
0.4
|
|
|
$
|
21.36
|
|
|
|
0.4
|
|
|
$
|
17,411
|
|
October 29, 2006November 25,
2006
|
|
|
6.8
|
|
|
$
|
20.95
|
|
|
|
6.8
|
|
|
$
|
17,270
|
|
November 26, 2006December
30, 2006
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
17,270
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
7.2
|
|
|
$
|
20.98
|
|
|
|
7.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The company has an ongoing authorization, as amended in November
2005, from the Board of Directors to repurchase up to $25
billion in shares of Intels common stock in open-market or
negotiated transactions.
23
Stock
Performance Graph
The line graph below compares the cumulative total stockholder
return on our common stock with the cumulative total return of
the Dow Jones Technology Index and the Standard &
Poors 500 Index for the five fiscal years ended December
30, 2006. The graph and table assume that $100 was invested on
December 28, 2001 (the last day of trading for the fiscal year
ended December 29, 2001) in each of our common stock, the Dow
Jones Technology Index, and the S&P 500 Index, and that all
dividends were reinvested. Dow Jones and Company, Inc. and
Standard & Poors Compustat Services, Inc. furnished
this data. Cumulative total stockholder returns for our common
stock, the Dow Jones Technology Index, and the S&P 500 Index
are based on our fiscal year.
Comparison
of Five-Year Cumulative Return for Intel, the Dow Jones
Technology Index, and the S&P 500 Index
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2001
|
|
|
2002
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
Intel Corporation
|
|
$
|
100
|
|
|
$
|
52
|
|
|
$
|
100
|
|
|
$
|
76
|
|
|
$
|
82
|
|
|
$
|
67
|
|
Dow Jones Technology Index
|
|
$
|
100
|
|
|
$
|
61
|
|
|
$
|
90
|
|
|
$
|
92
|
|
|
$
|
95
|
|
|
$
|
105
|
|
S&P 500 Index
|
|
$
|
100
|
|
|
$
|
77
|
|
|
$
|
98
|
|
|
$
|
110
|
|
|
$
|
115
|
|
|
$
|
134
|
|
24
|
|
ITEM
6.
|
SELECTED
FINANCIAL DATA
|
Five Years Ended December 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research &
|
|
|
Operating
|
|
|
|
|
(In Millions)
|
|
Net Revenue
|
|
|
Gross Margin
|
|
|
Development
|
|
|
Income
|
|
|
Net Income
|
|
|
2006
|
|
$
|
35,382
|
|
|
$
|
18,218
|
|
|
$
|
5,873
|
|
|
$
|
5,652
|
|
|
$
|
5,044
|
|
2005
|
|
$
|
38,826
|
|
|
$
|
23,049
|
|
|
$
|
5,145
|
|
|
$
|
12,090
|
|
|
$
|
8,664
|
|
2004
|
|
$
|
34,209
|
|
|
$
|
19,746
|
|
|
$
|
4,778
|
|
|
$
|
10,130
|
|
|
$
|
7,516
|
|
2003
|
|
$
|
30,141
|
|
|
$
|
17,094
|
|
|
$
|
4,360
|
|
|
$
|
7,533
|
|
|
$
|
5,641
|
|
2002
|
|
$
|
26,764
|
|
|
$
|
13,318
|
|
|
$
|
4,034
|
|
|
$
|
4,382
|
|
|
$
|
3,117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
Diluted
|
|
|
Weighted Average
|
|
|
Dividends
|
|
|
Dividends
|
|
|
|
|
|
|
Earnings Per
|
|
|
Earnings
|
|
|
Diluted Shares
|
|
|
Declared
|
|
|
Paid Per
|
|
|
Share-Based
|
|
(In Millions, Except Per Share Amounts)
|
|
Share
|
|
|
Per Share
|
|
|
Outstanding
|
|
|
Per Share
|
|
|
Share
|
|
|
Compensation1
|
|
|
2006
|
|
$
|
0.87
|
|
|
$
|
0.86
|
|
|
|
5,880
|
|
|
$
|
.40
|
|
|
$
|
.40
|
|
|
$
|
1,375
|
|
2005
|
|
$
|
1.42
|
|
|
$
|
1.40
|
|
|
|
6,178
|
|
|
$
|
.32
|
|
|
$
|
.32
|
|
|
$
|
|
|
2004
|
|
$
|
1.17
|
|
|
$
|
1.16
|
|
|
|
6,494
|
|
|
$
|
.16
|
|
|
$
|
.16
|
|
|
$
|
|
|
2003
|
|
$
|
0.86
|
|
|
$
|
0.85
|
|
|
|
6,621
|
|
|
$
|
.08
|
|
|
$
|
.08
|
|
|
$
|
|
|
2002
|
|
$
|
0.47
|
|
|
$
|
0.46
|
|
|
|
6,759
|
|
|
$
|
.08
|
|
|
$
|
.08
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to
|
|
|
|
|
|
|
Net Investment in
|
|
|
|
|
|
|
|
|
|
|
|
Property,
|
|
|
Employees at
|
|
|
|
Property, Plant
|
|
|
|
|
|
Long-Term
|
|
|
Stockholders
|
|
|
Plant &
|
|
|
Year-End
|
|
(In Millions, Except Employees)
|
|
& Equipment
|
|
|
Total Assets
|
|
|
Debt
|
|
|
Equity
|
|
|
Equipment
|
|
|
(In Thousands)
|
|
|
2006
|
|
$
|
17,602
|
|
|
$
|
48,368
|
|
|
$
|
1,848
|
|
|
$
|
36,752
|
|
|
$
|
5,779
|
|
|
|
94.1
|
|
2005
|
|
$
|
17,111
|
|
|
$
|
48,314
|
|
|
$
|
2,106
|
|
|
$
|
36,182
|
|
|
$
|
5,818
|
|
|
|
99.9
|
|
2004
|
|
$
|
15,768
|
|
|
$
|
48,143
|
|
|
$
|
703
|
|
|
$
|
38,579
|
|
|
$
|
3,843
|
|
|
|
85.0
|
|
2003
|
|
$
|
16,661
|
|
|
$
|
47,143
|
|
|
$
|
936
|
|
|
$
|
37,846
|
|
|
$
|
3,656
|
|
|
|
79.7
|
|
2002
|
|
$
|
17,847
|
|
|
$
|
44,224
|
|
|
$
|
929
|
|
|
$
|
35,468
|
|
|
$
|
4,703
|
|
|
|
78.7
|
|
|
|
|
1 |
|
We began recognizing the provisions of SFAS No. 123(R)
beginning in fiscal year 2006. See Note 2: Accounting
Policies and Note 3: Employee Equity Incentive
Plans in Part II, Item 8 of this Form
10-K. |
The ratio of earnings to fixed charges for each of the five
years in the period ended December 30, 2006 was as follows:
|
|
|
|
|
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
2003
|
|
2002
|
|
50x
|
|
169x
|
|
107x
|
|
72x
|
|
32x
|
Fixed charges consist of interest expense, the estimated
interest component of rent expense, and capitalized interest.
25
|
|
ITEM
7.
|
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
We begin Managements Discussion and Analysis of Financial
Condition and Results of Operations (MD&A) by discussing
Intels overall strategy and the strategy for our major
operating segments to give the reader an overview of the goals
of our business and the direction in which our business and
products are moving. The Strategy section is
followed by a discussion of the Critical Accounting
Estimates that we believe are important to understanding
the assumptions and judgments incorporated in our reported
financial results. We then discuss our Results of
Operations beginning with an Overview,
followed by a comparison of 2006 to 2005, and 2005 to 2004.
Following the analysis of our results, we provide an analysis of
changes in our balance sheets and cash flows, and discuss our
financial condition in the section entitled Liquidity and
Capital Resources followed by a discussion of our
Contractual Obligations, Off-Balance-Sheet
Arrangements, and Equity Incentive Plans. We
then conclude this MD&A with our Business
Outlook section, discussing our outlook for 2007.
This MD&A should be read in conjunction with the other
sections of this Form
10-K,
including Part I, Item 1: Business; Part II,
Item 6: Selected Financial Data; and Part II,
Item 8: Financial Statements and Supplementary Data.
The various sections of this MD&A contain a number of
forward-looking statements. Words such as expects,
goals, plans, believes,
continues, may, and variations of such
words and similar expressions are intended to identify such
forward-looking statements. In addition, any statements that
refer to projections of our future financial performance, our
anticipated growth and trends in our businesses, and other
characterizations of future events or circumstances are
forward-looking statements. Such statements are based on our
current expectations and could be affected by the uncertainties
and risk factors described throughout this filing and
particularly in the Business Outlook section (see
also Risk Factors in Part I, Item 1A of this Form
10-K). Our
actual results may differ materially, and these forward-looking
statements do not reflect the potential impact of any
divestitures, mergers, acquisitions, or other business
combinations that had not been completed as of February 21, 2007.
Strategy
Our goal is to be the preeminent provider of semiconductor chips
and platform solutions to the worldwide digital economy. As part
of our overall strategy to compete in each relevant market
segment, we use our core competencies in the design and
manufacture of integrated circuits, as well as our financial
resources, global presence, and brand recognition.
Our strategy focuses on taking customer needs into account in
developing the next generation of products and platforms that
will enable new form factors and new usage models for businesses
and consumers. We believe that end users, OEMs, third-party
vendors, and service providers of computing and communications
systems and devices want platform products. We define a platform
as a collection of technologies that are designed to work
together to provide a better end-user solution than if the
ingredients were used separately. Our platforms consist of
various products based on standards and initiatives; hardware
and software that may include technologies such as HT
Technology, Intel VT, and Intel AMT; and services. In developing
our platforms, we may include ingredients sold by other
companies. The success of our strategy to offer platform
solutions is dependent on our ability to select and incorporate
ingredients that customers value, and to market the platforms
effectively. We have a tiered brand strategy that addresses our
customer needs within various market price points.
We also believe that users of computing and communications
systems and devices want improved overall performance
and/or
improved energy-efficient performance. Improved overall
performance can include faster processing performance and other
improved capabilities such as multithreading and multitasking.
Performance can also be improved through enhanced connectivity,
security, manageability, utilization, reliability, ease of use,
and interoperability among devices. Improved energy-efficient
performance involves balancing the addition of these types of
improved performance factors with the power consumption of the
platform. Lower power consumption may reduce system heat output,
provide power savings, and reduce the total cost of ownership
for the end user. It is our goal to incorporate these
improvements in our various products and platforms to meet
end-user demands. In line with these efforts, we are focusing on
further development of multi-core microprocessors. Multi-core
microprocessors contain two or more processor cores, which
enable improved multitasking and energy-efficient performance.
Our strategy for developing processors with improved performance
is to synchronize the introduction of new microarchitecture with
improvements in silicon process technology. We plan to introduce
a new microarchitecture approximately every two years and ramp
the next generation of silicon process technology in the
intervening years. This coordinated schedule allows us to
develop and introduce new products based on a common
microarchitecture quickly, without waiting for the next
generation of silicon process technology.
26
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
We make equity investments in companies around the world to
further our strategic objectives and support our key business
initiatives, including investments through our Intel Capital
program. We generally focus on investing in companies and
initiatives to stimulate growth in the digital economy, create
new business opportunities for Intel, and expand global markets
for our products. The investments may support, among other
things, Intel product initiatives, emerging trends in the
technology industry, or worldwide Internet deployment. We invest
in companies that develop software, hardware, or services
supporting our technologies. Our current investment focus areas
include helping to enable mobile wireless devices, advance the
digital home, provide access to premium digital content, enhance
the digital enterprise, advance high-performance communications
infrastructures, and develop the next generation of silicon
production technologies. Our focus areas tend to develop and
change over time due to rapid advancements in technology.
We plan to continue to cultivate new businesses and work with
the computing, communications, and consumer electronics
industries through standards bodies, trade associations, OEMs,
ODMs, and independent software and operating system vendors, to
encourage the industry to offer products that take advantage of
the latest market trends and usage models. These efforts include
helping to expand the infrastructure for wireless connectivity,
including wireless broadband. We also provide development tools
and support to help software developers create software
applications and operating systems that take advantage of our
platforms. We frequently participate in industry initiatives
designed to discuss and agree upon technical specifications and
other aspects of technologies that could be adopted as standards
by standards-setting organizations. In addition, we work
collaboratively with other companies to protect digital content
and the consumer.
Digital
Enterprise Group
The Digital Enterprise Group (DEG) designs and delivers
computing and communications platforms for businesses, service
providers, and consumers. DEG products are incorporated into
desktop computers, enterprise computer servers, workstations,
and the infrastructure for the Internet. DEG platforms for
businesses are designed to increase employee productivity and
reduce total cost of ownership. We develop these platforms based
on our processors, chipsets, board-level products, wired
connectivity products, and products for network and server
storage. The processors that DEG offers are designed for various
market segments, and include microprocessors that are optimized
for use in the desktop and server computing market segments;
products designed for the communications infrastructure,
including network processors and communications boards; and
products for the embedded market segment. End-user products for
the embedded market segment include products such as industrial
equipment,
point-of-sale
systems, panel PCs, automotive information/entertainment
systems, and medical equipment. Consumer desktop platforms that
are designed and marketed specifically for the digital home are
offered by the Digital Home Group.
Our strategy for the desktop computing market segment is to
introduce platforms with improved energy-efficient performance,
tailored to the needs of different market segments. Our primary
platform for business desktop PCs is the Intel vPro
technology-based platform. Platforms based on Intel vPro
technology currently include the Intel Core 2 Duo processor, the
Intel Q965 Express Chipset, and the Intel 82566DM Gigabit
Network Connection. For high-end desktop platforms, we offer the
Intel Core 2 Quad processor, the Intel Core 2 Duo processor, the
Intel Pentium D processor, and the Intel Pentium 4 processor
supporting HT Technology. For lower price-point desktop
platforms, we offer the Intel Celeron D processor and the Intel
Celeron processor. We also offer chipsets designed and optimized
for use in desktop platforms.
Our strategy for the enterprise computing market segment is to
provide platforms that increase end-user value in the areas of
performance, energy efficiency, utilization, manageability,
reliability, and security for entry-level to high-end servers
and workstations. Our Intel Xeon processor family of products
supports a range of entry-level to high-end technical and
commercial computing applications. These products have been
enhanced with Intel 64 architecture, our 64-bit extension
technology. Compared to our Intel Xeon processor family, our
Intel Itanium processor family, which is based on Intels
64-bit architecture and includes the Intel Itanium 2
processor, generally supports an even higher level of
reliability and computing performance for data processing, the
handling of high transaction volumes, and other
compute-intensive applications for enterprise-class servers, as
well as supercomputing solutions. We also offer chipsets,
network controllers, direct-attached storage I/O controllers,
and RAID (redundant array of independent disks) solutions
designed and optimized for use in both server and workstation
platforms.
27
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
For the communications infrastructure, we deliver products that
are basic building blocks for modular communications platforms.
These products include advanced programmable network processors,
based on Intel XScale technology, used to manage and direct data
moving across the Internet and corporate networks. The agreement
to sell certain assets of the communications and application
processor business and license rights to Intel XScale technology
does not impact the communication infrastructure product
offerings within DEG. See Note 14: Acquisitions and
Divestitures in Part II, Item 8 of this Form
10-K. We
also offer embedded microprocessors that can be used for modular
communications platform applications.
Mobility
Group
The Mobility Group designs and delivers platforms for notebook
PCs and other mobile devices. The Mobility Groups products
currently include microprocessors and related chipsets designed
for the notebook market segment and wireless connectivity
products.
Our strategy for notebook PCs is to deliver platforms designed
to optimize performance, battery life, form factor, and wireless
connectivity. For high-end mobility platforms, we offer the
Intel Core 2 Duo, the Intel Core Duo, the Intel Core Solo, and
the Intel Pentium M processors. For lower price-point mobile
platforms, we offer the Intel Celeron M and the Mobile Intel
Celeron processors. We also offer
Intel®
Express Chipsets, with and without integrated graphics
capability, which are designed for the notebook market segment.
Additionally, we offer wireless connectivity solutions based on
the Institute of Electrical and Electronics Engineers (IEEE)
802.11 industry standard as well the IEEE 802.16 industry
standard, commonly known as WiMAX. The primary platforms offered
by the Mobility Group are the Intel Centrino Duo mobile
technology platform and the Intel Centrino mobile technology
platform. The Intel Centrino mobile technology consists of a
mobile processor and a mobile chipset as well as a wireless
network connection that together are designed to improve
performance, battery life, form factor, and wireless
connectivity. The Intel Centrino Duo mobile technology platform,
launched in January 2006, expands on the capabilities of Intel
Centrino by increasing multitasking performance and includes
power-saving features to further improve battery life, and
contains a flexible network connection.
We are also developing energy-efficient platforms for the
ultra-mobile market segment that are designed primarily for
mobile consumption of digital content and Internet access.
Flash
Memory Group
The strategy for the Flash Memory Group is to provide advanced
flash memory products for cellular phones, memory cards, digital
audio players, and embedded form factors. We offer a broad range
of memory densities, leading-edge packaging technology, and
high-performance functionality. In support of our strategy, we
offer NOR flash memory products such as Intel StrataFlash
wireless memory for advanced mobile phone designs. In addition
to product offerings for cellular customers, we offer NOR flash
memory products that meet the needs of other market segments,
such as the embedded market segment. The embedded market segment
includes set-top boxes, networking products, DVD players, DSL
and cable modems, and other devices. With the formation of IMFT,
a NAND flash memory manufacturing company, with Micron in
January 2006, we have been selling products manufactured by IMFT
that are currently being used in memory cards, digital audio
players, and cellular phones.
We offer a variety of stacked memory products, including
products based on our NOR flash, as well as our NOR flash plus
RAM and/or
NAND flash, which in some instances we purchase from third-party
vendors. Stacking of memory products refers to packaging several
memory chips together.
In the second quarter of 2006, we announced changes to the
organizational structure within the Flash Memory Group operating
segment, designed to consolidate NOR manufacturing, research and
development, and product support into the Flash Memory Group.
These organizational changes were designed to give the Flash
Memory Group more flexibility by giving it greater control over
its own cost structure and allowing for better management of
product development and manufacturing. These changes do not
change the revenue or costs attributed to the Flash Memory Group
operating segment.
28
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Digital
Home Group
The strategy for the Digital Home Group is to design and deliver
products and platforms for consumer products such as PCs,
digital TVs, and networked media devices that meet the demands
of consumers through a variety of linked digital devices within
the home for the enjoyment of digital media and other content.
We are focusing on the design of components for
consumer-optimized digital home PCs and other living-room
entertainment platforms and applications. We offer Intel Viiv
technology-based platforms for use in the digital home. PCs
based on Intel Viiv technology are designed to transform how
consumers manage, share, and enjoy a broad and growing
assortment of movies, programs, music, games, and photos.
Platforms based on Intel Viiv technology include one of the
following processors: Intel Core 2 Duo, Intel Core 2
Extreme, Intel Core 2 Extreme quad-core, Intel Core Duo, Intel
Pentium D, or Pentium Processor Extreme Edition; as well as a
chipset; a network connectivity device; and enabling
softwareall optimized to work together in the digital home
environment. In addition, we offer products for demodulation and
tuner applications as well as processors and chipsets for
embedded consumer electronics designs such as digital
televisions, digital video recorders, and set-top boxes.
Digital
Health Group
The strategy for the Digital Health Group is to design and
deliver technology-enabled products and explore global business
opportunities in healthcare information technology, healthcare
research, diagnostics, and productivity, as well as personal
healthcare. In support of this strategy, the Digital Health
Group is focusing on the design of technology solutions and
platforms for the digital hospital and consumer/home health
products. Specifically, the Digital Health Group is focusing on
the development of a new category of technology-enabled products
and services for home healthcare, including products and
services for the elderly and caregivers. The Digital Health
Group is also working with standards organizations to advance
standards and policies to enable innovation and interoperability
across the healthcare ecosystem.
Channel
Platforms Group
The strategy for the Channel Platforms Group is to expand
Intels worldwide presence and success in global markets by
growing both the broad channel as well as local OEMs. The
Channel Platforms Group tailors mainstream platforms to meet
local market requirements, and develops and enables unique
solutions to meet the needs of users in the developing world.
Critical
Accounting Estimates
The methods, estimates, and judgments we use in applying our
accounting policies have a significant impact on the results we
report in our financial statements, which we discuss under the
heading Results of Operations following this section
of our MD&A. Some of our accounting policies require us to
make difficult and subjective judgments, often as a result of
the need to make estimates of matters that are inherently
uncertain. Our most critical accounting estimates include the
valuation of non-marketable equity securities, which impacts net
gains (losses) on equity securities when we record impairments;
the recognition and measurement of current and deferred income
tax assets and liabilities, which impact our tax provision; the
assessment of recoverability of long-lived assets, which
primarily impacts gross margin or operating expenses when we
record asset impairments or accelerate their depreciation; the
valuation of inventory, which impacts gross margin; and the
valuation and recognition of share-based compensation, which
impact gross margin, research and development expenses, and
marketing, general and administrative expenses. Below, we
discuss these policies further, as well as the estimates and
judgments involved. We also have other policies that we consider
key accounting policies, such as those for revenue recognition,
including the deferral of revenue on sales to distributors;
however, these policies typically do not require us to make
estimates or judgments that are difficult or subjective.
Non-Marketable
Equity Securities
We typically invest in non-marketable equity securities of
private companies, which range from early-stage companies that
are often still defining their strategic direction to more
mature companies whose products or technologies may directly
support an Intel product or initiative. At December 30, 2006,
the carrying value of our portfolio of strategic investments in
non-marketable equity securities, excluding equity derivatives,
totaled $2.8 billion ($561 million at December 31, 2005), which
includes our investments in IMFT and Clearwire.
29
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Investments in non-marketable equity securities are inherently
risky, and a number of these companies are likely to fail. Their
success is dependent on product development, market acceptance,
operational efficiency, and other key business success factors.
In addition, depending on their future prospects and market
conditions, they may not be able to raise additional funds when
needed or they may receive lower valuations, with less favorable
investment terms than in previous financings, and the
investments would likely become impaired.
We review our investments quarterly for indicators of
impairment; however, for non-marketable equity securities, the
impairment analysis requires significant judgment to identify
events or circumstances that would likely have a significant
adverse effect on the fair value of the investment. The
indicators that we use to identify those events or circumstances
include (a) the investees revenue and earnings trends
relative to predefined milestones and overall business
prospects; (b) the technological feasibility of the
investees products and technologies; (c) the general
market conditions in the investees industry or geographic
area, including adverse regulatory or economic changes; (d)
factors related to the investees ability to remain in
business, such as the investees liquidity, debt ratios,
and the rate at which the investee is using its cash; and (e)
the investees receipt of additional funding at a lower
valuation.
Investments identified as having an indicator of impairment are
subject to further analysis to determine if the investment is
other than temporarily impaired, in which case the investment is
written down to its impaired value and a new cost basis is
established. When an investee is not considered viable from a
financial or technological point of view, we write off the
investment, since we consider the estimated fair value to be
nominal. If an investee obtains additional funding at a
valuation lower than our carrying amount or requires a new round
of equity funding to stay in operation and the new funding does
not appear imminent, we presume that the investment is other
than temporarily impaired, unless specific facts and
circumstances indicate otherwise. Impairments of investments in
our portfolio of non-marketable equity securities were $79
million in 2006 ($103 million in 2005 and $115 million in 2004).
Over the past 12 quarters, impairments of investments in our
portfolio of non-marketable equity securities have ranged
between $10 million and $41 million per quarter.
Income
Taxes
We must make certain estimates and judgments in determining
income tax expense for financial statement purposes. These
estimates and judgments occur in the calculation of tax credits,
tax benefits, and deductions, such as the tax benefit for export
sales, and in the calculation of certain tax assets and
liabilities, which arise from differences in the timing of
recognition of revenue and expense for tax and financial
statement purposes. Significant changes to these estimates may
result in an increase or decrease to our tax provision in a
subsequent period.
We must assess the likelihood that we will be able to recover
our deferred tax assets. If recovery is not likely, we must
increase our provision for taxes by recording a valuation
allowance against the deferred tax assets that we estimate will
not ultimately be recoverable. We believe that a substantial
majority of the deferred tax assets recorded on our consolidated
balance sheets will ultimately be recovered. However, should
there be a change in our ability to recover our deferred tax
assets, our tax provision would increase in the period in which
we determined that the recovery was not probable.
In addition, the calculation of our tax liabilities involves
dealing with uncertainties in the application of complex tax
regulations. We recognize liabilities for anticipated tax audit
issues in the U.S. and other tax jurisdictions based on our
estimate of whether, and the extent to which, additional tax
payments are probable. If we ultimately determine that payment
of these amounts is unnecessary, we reverse the liability and
recognize a tax benefit during the period in which we determine
that the liability is no longer necessary. This may occur for a
variety of reasons, such as the expiration of the statute of
limitations on a particular tax return or the signing of a final
settlement agreement with the relative tax authority. We record
an additional charge in our provision for taxes in the period in
which we determine that the recorded tax liability is less than
we expect the ultimate assessment to be.
In June 2006, the Financial Accounting Standards Board (FASB)
issued FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxesan interpretation of SFAS No.
109. The provisions are effective beginning in the first
quarter of 2007. See Note 2: Accounting Policies in
Part II, Item 8 of this Form
10-K for
further discussion.
30
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Long-Lived
Assets
We assess long-lived assets for impairment when events or
changes in circumstances indicate that the carrying value of the
assets or the asset grouping may not be recoverable. Factors
that we consider in deciding when to perform an impairment
review include significant under-performance of a business or
product line in relation to expectations, significant negative
industry or economic trends, and significant changes or planned
changes in our use of the assets. Recoverability of assets that
will continue to be used in our operations is measured by
comparing the carrying amount of the asset grouping to our
estimate of the related total future undiscounted net cash
flows. If an asset groupings carrying value is not
recoverable through the related undiscounted cash flows, the
asset grouping is considered to be impaired. The impairment is
measured by the difference between the asset groupings
carrying amount and its fair value.
Impairments of long-lived assets are determined for groups of
assets related to the lowest level of identifiable independent
cash flows. Due to our asset usage model and the interchangeable
nature of our semiconductor manufacturing capacity, we must make
subjective judgments in determining the independent cash flows
that can be related to specific asset groupings. In addition, as
we make manufacturing process conversions and other factory
planning decisions, we must make subjective judgments regarding
the remaining useful lives of assets, primarily process-specific
semiconductor manufacturing tools and building improvements.
When we determine that the useful lives of assets are shorter
than we had originally estimated, and there are sufficient cash
flows to support the carrying value of the assets, we accelerate
the rate of depreciation charges in order to fully depreciate
the assets over their new shorter useful lives. Impairments and
accelerated depreciation of long-lived assets were approximately
$335 million during 2006 (approximately $20 million in 2005 and
$50 million in 2004). The amount in 2006 included $317 million
of asset impairment charges related to our communications and
application processor business. For further discussion on these
asset impairment charges, see Note 11: Restructuring and
Asset Impairment Charges in Part II, Item 8 of this Form
10-K.
Inventory
The valuation of inventory requires us to estimate obsolete or
excess inventory as well as inventory that is not of saleable
quality. The determination of obsolete or excess inventory
requires us to estimate the future demand for our products.
During the second quarter of 2006, we completed a demand
forecast accuracy analysis. As a result, the demand horizon now
includes additional weeks of the demand forecast period for
certain products, compared to prior years, and continues to
include a review of product-specific facts and circumstances.
This change did not have a significant impact on gross margin in
2006. The demand forecast is also a direct input in the
development of our short-term manufacturing plans, to help
enable consistency between inventory valuation and build
decisions. Product-specific facts and circumstances reviewed in
the inventory valuation process include a review of the customer
base, the stage of the product life cycle of our products,
consumer confidence, and customer acceptance of our products as
well as an assessment of the selling price in relation to the
product cost. If our demand forecast for specific products is
greater than actual demand and we fail to reduce manufacturing
output accordingly, or if we fail to accurately forecast the
demand, we could be required to write down additional inventory,
which would have a negative impact on our gross margin.
Share-Based
Compensation
In the first quarter of 2006, we adopted SFAS No. 123(R), which
requires the measurement at fair value and recognition of
compensation expense for all share-based payment awards. Total
share-based compensation during 2006 was $1.4 billion.
Determining the appropriate fair-value model and calculating the
fair value of employee stock options and rights to purchase
shares under stock purchase plans at the date of grant requires
judgment. We use the Black-Scholes option pricing model to
estimate the fair value of these share-based awards consistent
with the provisions of SFAS No. 123(R). Option pricing models,
including the Black-Scholes model, also require the use of input
assumptions, including expected volatility, expected life,
expected dividend rate, and expected risk-free rate of return.
The assumptions for expected volatility and expected life are
the two assumptions that significantly affect the grant date
fair value. The expected dividend rate and expected risk-free
rate of return are not significant to the calculation of fair
value.
31
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
We use implied volatility based on options freely traded in the
open market, as we believe implied volatility is more reflective
of market conditions and a better indicator of expected
volatility than historical volatility. In determining the
appropriateness of implied volatility, we considered: the volume
of market activity of freely traded options, and determined that
there was sufficient market activity; the ability to reasonably
match the input variables of options freely traded to those of
options granted by the company, such as the date of grant and
the exercise price, and determined that the input assumptions
were comparable; and the length of term of freely traded options
used to derive implied volatility, which is generally one to two
years, and determined that the length of term was sufficient. We
use the simplified calculation of expected life described in the
SECs Staff Accounting Bulletin 107, due to changes in the
vesting terms and contractual life of current option grants
compared to our historical grants. If we determined that another
method used to estimate expected volatility or expected life was
more reasonable than our current methods, or if another method
for calculating these input assumptions was prescribed by
authoritative guidance, the fair value calculated for
share-based awards could change significantly. Higher volatility
and longer expected lives result in an increase to share-based
compensation determined at the date of grant. The effect that
changes in the volatility and the expected life would have on
the weighted average fair value of grants and the increase in
total fair value during 2006 was as follows:
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
Weighted Average
|
|
|
Increase in Total
|
|
|
|
Fair Value Per
|
|
|
Fair
Value1
|
|
|
|
Share
|
|
|
(In Millions)
|
|
|
As reported
|
|
$
|
5.21
|
|
|
|
|
|
Hypothetical:
|
|
|
|
|
|
|
|
|
Increase expected volatility by 5
percentage
points2
|
|
$
|
5.92
|
|
|
$
|
36
|
|
Increase expected life by 1 year
|
|
$
|
5.68
|
|
|
$
|
24
|
|
|
|
|
1 |
|
Amounts represent the hypothetical increase in the total fair
value determined at the date of grant, which would be amortized
over the service period, net of estimated forfeitures. |
|
2 |
|
For example, an increase from 27% reported volatility for
2006 to a hypothetical 32% volatility. |
In addition, SFAS No. 123(R) requires us to develop an estimate
of the number of share-based awards that will be forfeited due
to employee turnover. Quarterly changes in the estimated
forfeiture rate can have a significant effect on reported
share-based compensation, as the cumulative effect of adjusting
the rate for all expense amortization after January 1, 2006 is
recognized in the period the forfeiture estimate is changed. We
estimate and adjust forfeiture rates based on a quarterly review
of recent forfeiture activity and expected future employee
turnover. If a revised forfeiture rate is higher than the
previously estimated forfeiture rate, an adjustment is made that
will result in a decrease to the expense recognized in the
financial statements. If a revised forfeiture rate is lower than
the previously estimated forfeiture rate, an adjustment is made
that will result in an increase to the expense recognized in the
financial statements. These adjustments affect our gross margin;
research and development expenses; and marketing, general and
administrative expenses. The effect of forfeiture adjustments in
2006 was insignificant. Cumulative adjustments are recorded to
the extent that the related expense is recognized in the
financial statements, beginning with implementation in the first
quarter of 2006. Therefore, we expect the potential impact from
cumulative forfeiture adjustments to increase in future periods.
The expense that we recognize in future periods could also
differ significantly from the current period
and/or our
forecasts due to adjustments in the assumed forfeiture rates.
Results
of Operations
Overview
Fiscal year 2006 was a challenging year driven by a strong
competitive environment. Lower microprocessor average selling
prices significantly impacted our revenue and gross margin. Our
gross margin toward the end of the year was also impacted by
higher unit costs resulting from the ramp of dual-core
microprocessors and charges from the under-utilization of our
90-nanometer facilities. Factory under-utilization charges are
expected to continue to impact our gross margin during the first
quarter of 2007, and
start-up
costs associated with our 45-nanometer process technology are
expected to impact our gross margin during the first half of
2007. We continued to see a mix shift in microprocessor revenue
from desktop to mobile and ended the year with fourth-quarter
mobile microprocessor revenue surpassing desktop microprocessor
revenue for the first time. Results for 2006 included
share-based compensation charges of $1.4 billion, gains on
divestitures of $612 million, and restructuring and asset
impairment charges of $555 million.
32
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Our spending is trending lower going into 2007 as a result of
our ongoing program to improve operational efficiency and reduce
ongoing costs across the company. Through ongoing attrition,
divestitures, and employee terminations, we ended the year with
our employee headcount at 94,100, down from 102,500 at mid-year,
and expect our headcount to continue to decline to 92,000 by the
middle of 2007. We recognized $238 million in restructuring
charges related to employee severance and benefit arrangements.
In addition, we have taken actions to focus on our core
businesses and have completed three divestitures. We recognized
$103 million in tool impairments associated with one of the
divestitures. In addition, we have placed for sale a fabrication
facility in Colorado that resulted in an impairment charge of
$214 million. Overall, our ongoing program to improve
operational efficiency and results is expected to generate cost
savings of $2 billion in 2007, and $3 billion in 2008,
of which an estimated $600 million in gross annual savings
is a result of current-year restructuring charges related to
employee severance and benefit arrangements. A portion of the
overall cost savings, such as better utilization of assets,
reduced spending, and organizational efficiencies, will not
result in restructuring charges.
Outstanding new products, leadership in manufacturing
technology, comprehensive cost savings, and disciplined
execution have built a foundation for 2007. We continue to drive
technology advancements, and in 2006 we ramped our
65-nanometer
process technology, introduced the Intel Core microarchitecture,
and ended the year with dual-core microprocessors accounting for
over half of our fourth-quarter shipments. Additionally, in the
fourth quarter, we began shipping quad-core microprocessors.
Looking forward to 2007, we expect to launch our next generation
of Intel Centrino mobile technology later in the first half of
2007, and microprocessors using
45-nanometer
process technology are scheduled for production in the second
half of 2007.
From a financial condition perspective, we ended the year with
$8.9 billion in cash and short-term investments, and returned
$4.6 billion to stockholders through stock repurchases and
$2.3 billion as dividends in 2006.
The following table sets forth certain consolidated statements
of income data as a percentage of net revenue for the periods
indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
(Dollars in Millions, Except Per Share Amounts)
|
|
Dollars
|
|
|
Revenue
|
|
|
Dollars
|
|
|
Revenue
|
|
|
Dollars
|
|
|
Revenue
|
|
Net revenue
|
|
$
|
35,382
|
|
|
|
100.0
|
%
|
|
$
|
38,826
|
|
|
|
100.0
|
%
|
|
$
|
34,209
|
|
|
|
100.0
|
%
|
Cost of sales
|
|
|
17,164
|
|
|
|
48.5
|
%
|
|
|
15,777
|
|
|
|
40.6
|
%
|
|
|
14,463
|
|
|
|
42.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
18,218
|
|
|
|
51.5
|
%
|
|
|
23,049
|
|
|
|
59.4
|
%
|
|
|
19,746
|
|
|
|
57.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
5,873
|
|
|
|
16.6
|
%
|
|
|
5,145
|
|
|
|
13.3
|
%
|
|
|
4,778
|
|
|
|
14.0
|
%
|
Marketing, general and
administrative
|
|
|
6,096
|
|
|
|
17.2
|
%
|
|
|
5,688
|
|
|
|
14.7
|
%
|
|
|
4,659
|
|
|
|
13.6
|
%
|
Restructuring and asset impairment
charges
|
|
|
555
|
|
|
|
1.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of
acquisition-related intangibles and costs
|
|
|
42
|
|
|
|
0.1
|
%
|
|
|
126
|
|
|
|
0.3
|
%
|
|
|
179
|
|
|
|
0.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
5,652
|
|
|
|
16.0
|
%
|
|
|
12,090
|
|
|
|
31.1
|
%
|
|
|
10,130
|
|
|
|
29.6
|
%
|
Gains (losses) on equity
securities, net
|
|
|
214
|
|
|
|
0.6
|
%
|
|
|
(45
|
)
|
|
|
(0.1
|
)%
|
|
|
(2
|
)
|
|
|
|
|
Interest and other, net
|
|
|
1,202
|
|
|
|
3.4
|
%
|
|
|
565
|
|
|
|
1.5
|
%
|
|
|
289
|
|
|
|
0.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before taxes
|
|
|
7,068
|
|
|
|
20.0
|
%
|
|
|
12,610
|
|
|
|
32.5
|
%
|
|
|
10,417
|
|
|
|
30.5
|
%
|
Provision for taxes
|
|
|
2,024
|
|
|
|
5.7
|
%
|
|
|
3,946
|
|
|
|
10.2
|
%
|
|
|
2,901
|
|
|
|
8.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
5,044
|
|
|
|
14.3
|
%
|
|
$
|
8,664
|
|
|
|
22.3
|
%
|
|
$
|
7,516
|
|
|
|
22.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common
share
|
|
$
|
0.86
|
|
|
|
|
|
|
$
|
1.40
|
|
|
|
|
|
|
$
|
1.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Effective January 1, 2006, the company adopted the provisions of
SFAS No. 123(R), which is discussed in Note 2: Accounting
Policies in Part II, Item 8 of this Form
10-K. The
following table summarizes the effects of share-based
compensation resulting from the application of SFAS No. 123(R):
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Millions)
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Cost of sales
|
|
$
|
349
|
|
|
$
|
|
|
|
$
|
|
|
Research and development
|
|
|
487
|
|
|
|
|
|
|
|
|
|
Marketing, general and
administrative
|
|
|
539
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation
effects in income before taxes
|
|
|
1,375
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
|
(388
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net share-based compensation
effects in net income
|
|
$
|
987
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth revenue information of geographic
regions for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
(Dollars in Millions)
|
|
Revenue
|
|
|
Total
|
|
|
Revenue
|
|
|
Total
|
|
|
Revenue
|
|
|
Total
|
|
|
Asia-Pacific
|
|
$
|
17,477
|
|
|
|
49
|
%
|
|
$
|
19,330
|
|
|
|
50
|
%
|
|
$
|
15,380
|
|
|
|
45
|
%
|
Americas
|
|
|
7,512
|
|
|
|
21
|
%
|
|
|
7,574
|
|
|
|
19
|
%
|
|
|
7,965
|
|
|
|
23
|
%
|
Europe
|
|
|
6,587
|
|
|
|
19
|
%
|
|
|
8,210
|
|
|
|
21
|
%
|
|
|
7,755
|
|
|
|
23
|
%
|
Japan
|
|
|
3,806
|
|
|
|
11
|
%
|
|
|
3,712
|
|
|
|
10
|
%
|
|
|
3,109
|
|
|
|
9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
35,382
|
|
|
|
100
|
%
|
|
$
|
38,826
|
|
|
|
100
|
%
|
|
$
|
34,209
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our net revenue was $35.4 billion in 2006, a decrease of 9%
compared to 2005. Substantially all of the decrease was due to
significantly lower average selling prices of microprocessors.
Fiscal year 2006 was a
52-week
fiscal year in contrast to fiscal year 2005, which was a
53-week
fiscal year.
Revenue in the Asia-Pacific region decreased 10% and revenue in
the Europe region decreased 20% compared to 2005. These
decreases were slightly offset by revenue in Japan, which
increased slightly compared to 2005. Revenue in the Americas
region was approximately flat compared to 2005. Mature and
emerging markets both declined in 2006 compared to 2005. The
decrease within mature markets occurred in the Europe and
Asia-Pacific regions, and a substantial majority of the decrease
within the emerging markets occurred in the Europe and
Asia-Pacific regions.
Our overall gross margin dollars for 2006 were $18.2 billion, a
decrease of $4.8 billion, or 21%, compared to 2005. Our overall
gross margin percentage decreased to 51.5% in 2006 from 59.4% in
2005. The gross margin percentage for the Digital Enterprise
Group and the Mobility Group were both lower in 2006 compared to
2005. A mix shift of our total revenue to the Mobility Group,
which has a higher gross margin percentage, slightly offset
these decreases to the overall gross margin. A substantial
majority of our overall gross margin dollars in 2006 and 2005
was derived from the sale of microprocessors. The 2006 gross
margin included the impact of $349 million of share-based
compensation, which we began recognizing in 2006. The 2005 gross
margin was affected by a litigation settlement agreement with
MicroUnity, Inc. in which we recorded a $140 million charge to
cost of sales, of which $110 million was allocated to the
Digital Enterprise Group and $30 million was allocated to the
Mobility Group. See Business Outlook later in this
section for a discussion of gross margin expectations.
Our net revenue for 2005 was $38.8 billion, an increase of $4.6
billion, or 13.5%, compared to 2004. This increase was primarily
due to higher revenue from sales of mobile microprocessors and
higher chipset revenue. Fiscal year 2005 was a
53-week
fiscal year in contrast to fiscal year 2004, which was a
52-week
fiscal year.
34
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
In 2005, the Asia-Pacific regions revenue was
approximately 50% of our total revenue, and it was our fastest
growing region, increasing 26% compared to 2004 and reflecting
the movement of more of our customers PC supply chains to
Asia. This movement in the supply chain negatively affected our
sales in the Americas region, which decreased 5% compared to
2004. Japan revenue increased 19% and Europe revenue increased
6% during 2005 compared to 2004. We saw growth in both mature
and emerging markets in 2005 compared to 2004.
Overall gross margin dollars for 2005 were $23.0 billion, an
increase of $3.3 billion, or 17%, compared to 2004. Our overall
gross margin percentage increased to 59.4% in 2005 from 57.7% in
2004. The overall gross margin percentage was positively
affected by a mix shift of our total revenue to the Mobility
Group, which has a higher gross margin percentage. The gross
margin percentages for the Digital Enterprise Group and Flash
Memory Group were higher and the gross margin percentage for the
Mobility Group was lower in 2005 compared to 2004. A substantial
majority of our overall gross margin dollars in 2005 and 2004
was derived from the sale of microprocessors. As a result of a
litigation settlement agreement with MicroUnity, we recorded a
$140 million charge to cost of sales in 2005, of which $110
million was allocated to the Digital Enterprise Group and $30
million was allocated to the Mobility Group. The 2004 gross
margin was affected by a litigation settlement with Intergraph
Corporation in which we recorded a $162 million charge to cost
of sales, of which $120 million was allocated to the Digital
Enterprise Group and $42 million was allocated to the Mobility
Group.
Digital
Enterprise Group
The revenue and operating income for the Digital Enterprise
Group (DEG) for the three years ended December 30, 2006 were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Millions)
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Microprocessor revenue
|
|
$
|
14,606
|
|
|
$
|
19,412
|
|
|
$
|
19,426
|
|
Chipset, motherboard, and other
revenue
|
|
|
5,270
|
|
|
|
5,725
|
|
|
|
5,352
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue
|
|
$
|
19,876
|
|
|
$
|
25,137
|
|
|
$
|
24,778
|
|
Operating income
|
|
$
|
4,267
|
|
|
$
|
9,020
|
|
|
$
|
8,856
|
|
Net revenue for the DEG operating segment decreased
significantly, by $5.3 billion, or 21%, in 2006 compared to
2005. The decline in net revenue was mostly due to a significant
decline in microprocessor revenue, and to a lesser extent, a
decline in chipset, motherboard, and other revenue. The
significant decline in microprocessor revenue was due to lower
average selling prices and unit sales of desktop
microprocessors. Enterprise microprocessor revenue increased in
2006. The decline in chipset, motherboard, and other revenue was
due equally to lower chipset revenue and motherboard revenue.
Microprocessors within DEG include microprocessors designed for
the desktop and enterprise computing market segments, previously
included within the former Intel Architecture business operating
segment, as well as embedded microprocessors. Revenue from
network processors, which are based on our Intel XScale
technology, is included in chipset, motherboard, and other
revenue above.
Operating income decreased significantly by $4.8 billion, or
53%, in 2006 compared to 2005. Substantially all of the decrease
was due to the revenue decline. Higher microprocessor unit
costs, along with $210 million of higher factory
under-utilization charges, were offset by approximately $540
million of lower
start-up
costs. Unit costs were higher in 2006 compared to 2005 due
primarily to a mix shift to dual-core microprocessors. Results
for 2005 included a charge related to a settlement agreement
with MicroUnity.
For 2005, revenue for the DEG operating segment was
approximately flat compared to 2004. Revenue from sales of
microprocessors was approximately flat, with slightly higher
unit sales being offset by slightly lower average selling
prices. Revenue from sales of server microprocessors in 2005 was
negatively affected by the highly competitive server market.
Chipset, motherboard, and other revenue was higher, primarily
due to higher average selling prices of chipsets.
Operating income was also approximately flat, at $9.0 billion in
2005 compared to $8.9 billion in 2004. The operating income for
DEG was positively affected by lower microprocessor unit costs
and higher chipset revenue. These improvements were offset by
approximately $380 million of higher
start-up
costs in 2005, primarily related to our 65-nanometer process
technology. Products based on our
65-nanometer
process technology began shipping in the fourth quarter of 2005.
Although revenue was flat, operating expenses increased in 2005,
which negatively affected operating income. Both periods were
negatively affected by litigation settlement agreements. Results
for 2005 included a charge related to a settlement agreement
with MicroUnity, and results for 2004 included a charge related
to a settlement agreement with Intergraph.
35
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Mobility
Group
The revenue and operating income for the Mobility Group (MG) for
the three years ended December 30, 2006 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Millions)
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Microprocessor revenue
|
|
$
|
9,212
|
|
|
$
|
8,704
|
|
|
$
|
5,667
|
|
Chipset and other revenue
|
|
|
3,097
|
|
|
|
2,427
|
|
|
|
1,314
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue
|
|
$
|
12,309
|
|
|
$
|
11,131
|
|
|
$
|
6,981
|
|
Operating income
|
|
$
|
4,993
|
|
|
$
|
5,334
|
|
|
$
|
2,832
|
|
Net revenue for the MG operating segment increased by $1.2
billion, or 11%, in 2006 compared to 2005. Microprocessor
revenue increased by $508 million, or 6%, in 2006 compared to
2005, while chipsets and other revenue increased by $670
million, or 28%, in 2006 compared to 2005. The increase in
microprocessor revenue was due to higher unit sales, largely
offset by lower average selling prices. The majority of the
increase in chipset and other revenue was due to higher revenue
from sales of chipsets, and to a lesser extent, higher revenue
from sales of wireless connectivity products. Sales of these
products increased primarily due to the Intel Centrino Duo
mobile technology platform. Revenue from application and
cellular baseband processors is included in chipset and
other revenue above. In the fourth quarter of 2006, we
divested certain assets of the business line that included
application and cellular baseband processors used in handheld
devices. See Note 14: Acquisitions and Divestitures
in Part II, Item 8 of this Form
10-K.
Operating income decreased by $341 million, or 6%, in 2006
compared to 2005. The decline was primarily caused by higher
operating expenses. The effects of higher revenue were offset by
higher unit costs for microprocessors.
Start-up
costs were approximately $170 million lower in 2006 compared to
2005.
For 2005, revenue for the MG operating segment increased by
$4.15 billion, or 59%, compared to 2004. This increase was
primarily due to significantly higher revenue from sales of
microprocessors, which increased $3.0 billion, or 54%, in 2005
compared to 2004, reflecting the continued growth in the
notebook market segment. Increased use of microprocessors
designed specifically for mobile platforms in notebook computers
also contributed to the higher revenue. The higher revenue from
sales of microprocessors was due to significantly higher unit
sales, partially offset by lower average selling prices,
primarily due to higher unit sales of the Celeron M processor,
our value mobile processor. Revenue from sales of chipsets and
wireless connectivity products also increased significantly in
2005 compared to 2004, primarily due to the success of Intel
Centrino mobile technology.
Operating income increased to $5.3 billion in 2005 from $2.8
billion in 2004. The significant increase in operating income
was primarily due to higher revenue. In addition, operating
expenses for the MG operating segment did not increase as fast
as revenue, and microprocessor unit costs were lower. These
increases in operating income were partially offset by
approximately $170 million of higher
start-up
costs in 2005, primarily related to our 65-nanometer process
technology.
Flash
Memory Group
The revenue and operating loss for the Flash Memory Group (FMG)
for the three years ended December 30, 2006 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Millions)
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Net Revenue
|
|
$
|
2,163
|
|
|
$
|
2,278
|
|
|
$
|
2,285
|
|
Operating income
(loss)
|
|
$
|
(555
|
)
|
|
$
|
(154
|
)
|
|
$
|
(149
|
)
|
Net revenue for the FMG operating segment decreased by $115
million, or 5%, in 2006 compared to 2005. This decrease was
primarily due to lower average selling prices, partially offset
by higher royalty receipts. In 2006, we began shipping NAND
flash memory products manufactured by IMFT. Operating loss
increased to $555 million in 2006, from $154 million in 2005.
The increase was primarily due to higher costs related to our
new NAND flash memory business. Lower revenue for our NOR flash
business was offset by lower unit costs and lower
start-up
costs.
36
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
For 2005, revenue for the FMG operating segment remained
approximately flat at $2.3 billion compared to 2004. Revenue was
positively affected by higher unit sales and negatively affected
by lower average selling prices. Operating loss remained
approximately flat in 2005 at $154 million, compared to $149
million in 2004. The operating loss was positively affected by
lower unit costs and negatively affected by higher operating
expenses.
Share-Based
Compensation
Share-based compensation totaled $1.4 billion in 2006, compared
to zero in 2005 and 2004. We adopted SFAS No. 123(R) under the
modified prospective transition method, effective beginning in
the first quarter of 2006. Prior to adoption of SFAS No. 123(R),
we accounted for our equity incentive plans under the intrinsic
value recognition and measurement principles of Accounting
Principles Board (APB) Opinion No. 25, Accounting for
Stock Issued to Employees (APB No. 25) and related
interpretations. Accordingly, no share-based compensation, other
than insignificant amounts of acquisition-related share-based
compensation, was recognized in net income.
As of December 30, 2006, unrecognized share-based compensation
costs and the weighted average period over which the costs are
expected to be recognized were as follows:
|
|
|
|
|
|
|
|
|
Unrecognized
|
|
|
|
|
|
Share-Based
|
|
|
Weighted
|
|
|
Compensation
|
|
|
Average
|
|
|
Costs
|
|
|
Period
|
|
Stock options
|
|
$
|
1.1 billion
|
|
|
1.1 years
|
Restricted stock units
|
|
$
|
380 million
|
|
|
1.8 years
|
Stock purchase plan
|
|
$
|
19 million
|
|
|
1 month
|
Share-based compensation charges are included in the all
other category for segment reporting purposes.
Operating
Expenses
Operating expenses for the three years ended December 30, 2006
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Millions)
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Research and development
(includes share-based
compensation of $487 million in 2006 and zero in 2005 and 2004)
|
|
$
|
5,873
|
|
|
$
|
5,145
|
|
|
$
|
4,778
|
|
Marketing, general and
administrative
(includes share-based
compensation of $539 million in 2006 and zero in 2005 and 2004)
|
|
$
|
6,096
|
|
|
$
|
5,688
|
|
|
$
|
4,659
|
|
Restructuring and asset
impairment charges
|
|
$
|
555
|
|
|
$
|
|
|
|
$
|
|
|
Amortization of
acquisition-related intangibles and costs
|
|
$
|
42
|
|
|
$
|
126
|
|
|
$
|
179
|
|
Research and Development. Research and development
spending increased $728 million, or 14%, in 2006 compared to
2005, and increased $367 million, or 8%, in 2005 compared to
2004. The increase in 2006 compared to 2005 was primarily due to
share-based compensation of $487 million, and to a lesser
extent, higher development costs driven by our next-generation
45-nanometer manufacturing process technology. Lower
profit-dependent compensation expenses partially offset these
increases. The increase in 2005 compared to 2004 was primarily
due to higher headcount and profit-dependent compensation
expenses, partially offset by lower expenses related to
development for our 65-nanometer manufacturing process
technology. Fiscal year 2005 included 53 weeks.
Marketing, General and Administrative. Marketing,
general and administrative expenses increased $408 million, or
7%, in 2006 compared to 2005, and increased $1.0 billion, or
22%, in 2005 compared to 2004. The increase in 2006 compared to
2005 was primarily due to share-based compensation of $539
million, and to a lesser extent, higher headcount. Partially
offsetting these increases were lower marketing program spending
and lower profit-dependent compensation expenses. The increase
in 2005 compared to 2004 was primarily due to higher marketing
program spending, higher headcount, and higher profit-dependent
compensation expenses as well as the extra work week.
37
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Research and development along with marketing, general and
administrative expenses were 34% of net revenue in 2006 and 28%
of net revenue in 2005 and 2004.
Restructuring and Asset Impairment Charges. We are
undertaking a restructuring plan designed to improve operational
efficiency and financial results. In the third quarter of 2006,
management approved several actions related to this plan that
were recommended by the companys structure and efficiency
task force. A portion of these activities involves cost savings
or other actions that do not result in restructuring charges,
such as better utilization of assets, reduced spending, and
organizational efficiencies. The efficiency program includes
headcount targets for various groups within the company, and we
expect these targets to be met through ongoing employee
attrition, divestitures, and employee terminations.
During 2006, we incurred $238 million of restructuring charges
related to employee severance and benefit arrangements for
approximately 4,800 employees, of which approximately 4,100
employees had left the company as of December 30, 2006. A
substantial majority of these employee terminations occurred
within marketing, manufacturing, information technology, and
human resources. Additionally, we completed the divestiture of
the assets of three businesses in 2006 concurrently with the
ongoing execution of the efficiency program. See Note 14:
Acquisitions and Divestitures in Part II, Item 8 of this
Form 10-K
for further details. In connection with the divestiture of
certain assets of the communications and application processor
business, we recorded impairment charges of $103 million related
to the write-down of manufacturing tools to their fair value,
less the cost to dispose of the assets. The fair value was
determined using a market-based valuation technique. In
addition, as a result of both this divestiture and a subsequent
assessment of our worldwide manufacturing capacity operations,
management placed for sale its fabrication facility in Colorado
Springs, Colorado. This plan resulted in an impairment charge of
$214 million to write down to fair value the land, building, and
equipment asset grouping that has been principally used to
support the communications and application processor business.
The fair market value of the asset grouping was determined using
various valuation techniques.
The following table summarizes the restructuring and asset
impairment activity for 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee Severance
|
|
|
|
|
|
|
|
(In Millions)
|
|
and Benefit
|
|
|
Asset Impairment
|
|
|
Total
|
|
|
Accrued restructuring balance
as of December 31, 2005
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Additional accruals
|
|
|
238
|
|
|
|
317
|
|
|
|
555
|
|
Adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash payments
|
|
|
(190
|
)
|
|
|
|
|
|
|
(190
|
)
|
Non-cash settlements
|
|
|
|
|
|
|
(317
|
)
|
|
|
(317
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued restructuring balance
as of December 30, 2006
|
|
$
|
48
|
|
|
$
|
|
|
|
$
|
48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The restructuring and asset impairment charges above have been
reflected separately as restructuring and asset impairment
charges on the consolidated statements of income. The
restructuring accrual balance relates to severance benefits that
are expected to be paid within the next 12 months. As such, the
restructuring accrual is recorded as a current liability within
accrued compensation and benefits on the consolidated balance
sheets. No restructuring charges were incurred in 2005 or 2004.
We expect to record additional employee severance and benefit
charges of approximately $50 million in the first quarter of
2007. In addition, we may incur charges in the future under this
restructuring for facility-related or other exit activities.
We estimate that the current-year employee severance and benefit
charges will result in gross annual savings of approximately
$600 million. We expect these savings to be realized in
approximately equal amounts within cost of sales; research and
development; and marketing, general and administrative expenses.
See Note 11: Restructuring and Asset Impairment
Charges in Part II, Item 8 of this Form
10-K. See
also the risks described in Risk Factors in Part I,
Item 1A of this Form
10-K.
Amortization of Acquisition-Related Intangibles and
Costs. Amortization of acquisition-related intangibles
and costs was $42 million in 2006 ($126 million in 2005 and $179
million in 2004). The decreased amortization each year compared
to the previous year was primarily due to a portion of the
intangibles related to prior acquisitions becoming fully
amortized.
38
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Gains
(losses) on Equity Securities, Interest and Other, and Provision
for Taxes
Gains (losses) on equity securities, net; interest and other,
net; and provision for taxes for the three years ended December
30, 2006 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Millions)
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Gains on equity securities
|
|
$
|
293
|
|
|
$
|
163
|
|
|
$
|
115
|
|
Impairment charges
|
|
|
(79
|
)
|
|
|
(208
|
)
|
|
|
(117
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains (losses) on equity
securities, net
|
|
$
|
214
|
|
|
$
|
(45
|
)
|
|
$
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other,
net
|
|
$
|
1,202
|
|
|
$
|
565
|
|
|
$
|
289
|
|
Provision for taxes
|
|
$
|
(2,024
|
)
|
|
$
|
(3,946
|
)
|
|
$
|
(2,901
|
)
|
During 2006, the gains on equity securities of $293 million
included the gain of $103 million on the sale of a portion of
our investment in Micron, which was sold for $275 million.
During 2005, impairment charges of $208 million included a $105
million impairment charge on our investment in Micron. The
impairment was principally based on our assessment during the
second quarter of 2005 of Microns financial results and
the fact that the market price of Microns stock had been
below our cost basis for an extended period of time, as well as
the competitive pricing environment for DRAM products. During
2004, the net losses on equity securities of $2 million included
impairments of $117 million, primarily on non-marketable
equity securities.
Interest and other, net increased to $1.2 billion in 2006
compared to $565 million in 2005, reflecting net gains of $612
million for three completed divestitures (see Note 14:
Acquisitions and Divestitures in Part II, Item 8 of this
Form 10-K)
and higher interest income as a result of higher interest rates,
partially offset by lower cash balances. Interest and other, net
increased to $565 million in 2005 compared to $289 million in
2004, reflecting higher interest income as a result of higher
interest rates. Interest and other, net for 2004 also included
approximately $60 million of gains associated with terminating
financing arrangements for manufacturing facilities and
equipment in Ireland.
Our effective income tax rate was 28.6% in 2006 (31.3% in 2005
and 27.8% in 2004). The rate decreased in 2006 compared to 2005
primarily due to a higher percentage of our profits being
derived from lower tax jurisdictions. In addition, the rate for
2005 included an increase to the tax provision of approximately
$265 million as a result of the decision to repatriate
non-U.S.
earnings under the American Jobs Creation Act of 2004. Partially
offsetting the decrease in the effective tax rate was the impact
of share-based compensation. The phasing out of the tax benefit
for export sales only slightly increased the effective tax rate
compared to the prior year, given the decrease in income before
taxes. Our effective income tax rate was higher in 2005 compared
to 2004, due to the decision to repatriate
non-U.S.
earnings, which were partially offset by the reversal of
previously accrued items. The tax rate for 2004 included a
$195 million reduction to the tax provision, primarily from
additional benefits for export sales along with state tax
benefits for divestitures, as well as the reversal of previously
accrued taxes, primarily related to the closing of a state
income tax audit.
Liquidity
and Capital Resources
Our financial condition remains strong. Cash, short-term
investments, fixed income debt instruments included in trading
assets, and debt at the end of each period were as follows:
|
|
|
|
|
|
|
|
|
|
|
December 30,
|
|
|
December 31,
|
|
(Dollars In Millions)
|
|
2006
|
|
|
2005
|
|
|
Cash, short-term investments, and
fixed-income debt instruments included in trading assets
|
|
$
|
9,552
|
|
|
$
|
12,409
|
|
Short-term and long-term debt
|
|
$
|
2,028
|
|
|
$
|
2,419
|
|
Debt as % of stockholders
equity
|
|
|
5.5
|
%
|
|
|
6.7
|
%
|
39
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
In summary, our cash flows were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Millions)
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Net cash provided by operating
activities
|
|
$
|
10,620
|
|
|
$
|
14,823
|
|
|
$
|
13,119
|
|
Net cash used for investing
activities
|
|
|
(4,907
|
)
|
|
|
(6,362
|
)
|
|
|
(5,032
|
)
|
Net cash used for financing
activities
|
|
|
(6,439
|
)
|
|
|
(9,544
|
)
|
|
|
(7,651
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash
and cash equivalents
|
|
$
|
(726
|
)
|
|
$
|
(1,083
|
)
|
|
$
|
436
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Activities
Cash provided by operating activities is net income adjusted for
certain non-cash items and changes in assets and liabilities.
For 2006 compared to 2005, the largest contributing factors to
the decrease in cash provided by operating activities were due
to lower net income, lower net maturities of trading assets, and
changes in the amount of estimated tax payments, partially
offset by a decrease in accounts receivable balances. Fiscal
year 2006 included share-based compensation charges of
approximately $1.4 billion. For 2005 compared to 2004, the
majority of the increase in cash provided by operating
activities was from higher net maturities of trading assets and
higher net income, partially offset by an increase in accounts
receivable balances.
Inventories as of December 30, 2006 increased compared to
December 31, 2005, as we continued to ramp new, higher cost
products, primarily related to microprocessors on our
65-nanometer process technology and associated chipsets on our
90-nanometer process technology. Accounts receivable as of
December 30, 2006 decreased compared to December 31,
2005, primarily driven by lower revenue and higher cash
collections. For 2006 and 2005, our two largest customers
accounted for 35% of net revenue, with one of these customers
accounting for 19% of revenue and another customer accounting
for 16%. Additionally, these two largest customers accounted for
52% of net accounts receivable at December 30, 2006 (42% at
December 31, 2005).
Investing
Activities
Investing cash flows consist primarily of capital expenditures
and payments for investments acquired, partially offset by
proceeds from investment maturities and sales. The decrease in
cash used in investing activities in 2006 compared to 2005 was
primarily due to higher net maturities and sales of
available-for-sale
investments. We also received $752 million for the sale of three
completed divestitures (see Note 14: Acquisitions and
Divestitures in Part II, Item 8 of this Form
10-K).
Additionally, during 2006 we sold a portion of our investment in
Micron for $275 million. Partially offsetting these impacts, we
paid $600 million in cash for our equity investment in Clearwire
and $615 million in cash for our equity investment in IMFT. In
addition to the $615 million paid in cash, our initial
investment in IMFT of $1.2 billion included the issuance of $581
million in notes (reflected as a financing activity). In
addition, we made a capital contribution of $128 million to
IMFT. Other investing activities for 2006 included the purchase
of intellectual property assets from Micron, concurrent with the
formation of IMFT, for $230 million. For 2005 compared to 2004,
the higher cash used in investing activities resulted from
capital spending, primarily driven by investments in
65-nanometer production equipment.
Financing
Activities
Financing cash flows consist primarily of repurchases and
retirement of common stock and payment of dividends to
stockholders. The lower cash used in financing activities in
2006 compared to 2005 was primarily due to a decrease in
repurchases and retirement of common stock, partially offset by
additions to long-term debt in 2005 of $1.7 billion. For
2006, we repurchased 226 million shares of common stock for $4.6
billion compared to 418 million shares for $10.6 billion in
2005. At December 30, 2006, $17.3 billion remained available for
repurchase under existing repurchase authorizations. Our
dividend payments were $2.3 billion in 2006, which is higher
than the $2.0 billion paid in 2005, due to an increase from
$0.08 to $0.10 in cash dividends per common share effective for
the first quarter of 2006. On January 18, 2007, our Board of
Directors declared a cash dividend of $0.1125 per common share
effective the first quarter of 2007. Additional financing
activities for 2006 included proceeds from the sale of shares
pursuant to employee equity incentive plans of $1.0 billion
($1.2 billion during 2005). For 2005 compared to 2004, the
higher cash used in financing activities was primarily due to an
increase in repurchases and retirements of common stock,
partially offset by cash received from the issuance of long-term
debt.
40
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Liquidity
During 2006, our level of cash declined, as our cash provided by
operations was less than our cash used for investing and
financing activities. Cash generated by operations is used as
our primary source of liquidity. Another potential source of
liquidity is authorized borrowings, including commercial paper,
of $3.0 billion. There were no borrowings under our commercial
paper program during 2006. We also have an automatic shelf
registration on file with the SEC pursuant to which we may offer
an indeterminate amount of debt, equity, and other securities.
We believe that we have the financial resources needed to meet
business requirements for the next 12 months, including capital
expenditures for the expansion or upgrading of worldwide
manufacturing and assembly and test capacity, working capital
requirements, the dividend program, potential stock repurchases,
potential future acquisitions or strategic investments, and cash
payments associated with our structure and efficiency program.
Contractual
Obligations
The following table summarizes our significant contractual
obligations at December 30, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
|
|
|
Less than
|
|
|
|
|
|
|
|
|
More than
|
|
(In Millions)
|
|
Total
|
|
|
1 year
|
|
|
13 years
|
|
|
35 years
|
|
|
5 years
|
|
|
Operating lease obligations
|
|
$
|
384
|
|
|
$
|
114
|
|
|
$
|
138
|
|
|
$
|
57
|
|
|
$
|
75
|
|
Capital purchase
obligations1
|
|
|
3,276
|
|
|
|
3,152
|
|
|
|
124
|
|
|
|
|
|
|
|
|
|
Other purchase obligations and
commitments2
|
|
|
1,778
|
|
|
|
1,122
|
|
|
|
520
|
|
|
|
136
|
|
|
|
|
|
Long-term debt
obligations3
|
|
|
3,377
|
|
|
|
66
|
|
|
|
132
|
|
|
|
282
|
|
|
|
2,897
|
|
Other long-term
liabilities3
|
|
|
1,041
|
|
|
|
71
|
|
|
|
330
|
|
|
|
214
|
|
|
|
426
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total4
|
|
$
|
9,856
|
|
|
$
|
4,525
|
|
|
$
|
1,244
|
|
|
$
|
689
|
|
|
$
|
3,398
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Capital purchase obligations represent commitments for the
construction or purchase of property, plant and equipment. They
were not recorded as liabilities on our consolidated balance
sheet as of December 30, 2006, as we had not yet received the
related goods or taken title to the property. Capital purchase
obligations increased from $2.7 billion at December 31, 2005 to
$3.3 billion at December 30, 2006, primarily due to purchase
obligations for capital equipment related to our next-generation
45-nanometer
process technology. |
|
2 |
|
Other purchase obligations and commitments include agreements
to purchase raw materials or other goods as well as payments due
under various types of licenses and non-contingent funding
obligations. Funding obligations include, for example,
agreements to fund various projects with other companies. |
|
3 |
|
Amounts represent total anticipated cash payments, including
anticipated interest payments that are not recorded on the
consolidated balance sheets and the short-term portion of the
obligation. Any future settlement of convertible debt would
reduce anticipated interest
and/or
principal payments. Amounts exclude fair value adjustments such
as discounts or premiums that affect the amount recorded on the
consolidated balance sheets. |
|
4 |
|
Total does not include contractual obligations already
recorded on the consolidated balance sheet as current
liabilities (except for the short-term portion of the long-term
debt and other long-term liabilities) or certain purchase
obligations, which are discussed below. |
Contractual obligations for purchases of goods or services
generally include agreements that are enforceable and legally
binding on Intel and that specify all significant terms,
including fixed or minimum quantities to be purchased; fixed,
minimum, or variable price provisions; and the approximate
timing of the transaction. The table above also includes
agreements to purchase raw materials that have cancellation
provisions requiring little or no payment. The amounts under
such contracts are included in the table above because
management believes that cancellation of these contracts is
unlikely and expects to make future cash payments according to
the contract terms or in similar amounts for similar materials.
For other obligations with cancellation provisions, the amounts
included in the table above were limited to the non-cancelable
portion of the agreement terms, and/or the minimum cancellation
fee.
41
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
We have entered into certain agreements for the purchase of raw
materials or other goods that specify minimum prices, and
quantities that are based on a percentage of the total available
market or based on a percentage of our future purchasing
requirements. Due to the uncertainty of the future market and
our future purchasing requirements, obligations under these
agreements are not included in the table above. We estimate our
obligation under these agreements as of December 30, 2006 to be
approximately as follows: less than one year$175 million;
one to three years$600 million; three to five
years$400 million; more than five yearszero. Our
purchase orders for other products are based on our current
manufacturing needs and are fulfilled by our vendors within
short time horizons. In addition, some of our purchase orders
represent authorizations to purchase rather than binding
agreements.
Contractual obligations that are contingent upon the achievement
of certain milestones are not included in the table above. These
obligations include milestone-based co-marketing agreements,
contingent funding obligations, and milestone-based equity
investment funding. These arrangements are not considered
contractual obligations until the milestone is met by the third
party. As of December 30, 2006, assuming that all future
milestones are met, additional required payments would be
approximately $254 million.
For the majority of restricted stock units granted, the number
of shares issued on the date the restricted stock units vest is
net of the statutory withholding requirements that are paid by
Intel on behalf of its employees. The obligation to pay the
relative taxing authority is not included in the table above, as
the amount is contingent upon continued employment. In addition,
the amount of the obligation is unknown, as it is based in part
on the market price of our common stock when the awards vest.
The expected timing of payments of the obligations above are
estimates based on current information. Timing of payments and
actual amounts paid may be different, depending on the time of
receipt of goods or services, or changes to
agreed-upon
amounts for some obligations. Amounts disclosed as contingent or
milestone-based obligations are dependent on the achievement of
the milestones or the occurrence of the contingent events and
can vary significantly.
We currently have a contractual obligation to purchase the
output of IMFT in proportion to our investment in IMFT, which is
currently 49%. See Note 17: Venture in Part II, Item
8 of this Form
10-K.
Additionally, we have entered into various contractual
commitments in relation to our investment in IMFT. Some of these
commitments are with Micron, and some are directly with IMFT.
The following are the significant contractual commitments:
|
|
|
|
|
Subject to certain conditions, Intel and Micron each agreed to
contribute approximately an additional $1.4 billion in the three
years following the initial capital contributions, of which we
have contributed $128 million as of December 30, 2006. Of the
remaining obligation of $1.3 billion, we contributed $258
million in January 2007. This amount has been included in the
table above under other purchase obligations and
commitments.
|
|
|
As part of our agreement with Micron related to IMFT, we may
enter into agreements to make additional capital contributions
for new fabrication facilities, and in November 2006, we
announced our intention to form a new venture with Micron to add
an additional NAND flash memory fabrication facility in
Singapore.
|
|
|
We also have several agreements with Micron related to
intellectual property rights, and research and development
funding related to NAND flash manufacturing and IMFT.
|
Off-Balance-Sheet
Arrangements
As of December 30, 2006, we did not have any significant
off-balance-sheet arrangements, as defined in Item 303(a)(4)(ii)
of SEC Regulation
S-K.
Employee
Equity Incentive Plans
Our equity incentive programs are broad-based, long-term
retention programs that are intended to attract and retain
talented employees and align stockholder and employee interests.
In May 2006, stockholders approved the 2006 Equity Incentive
Plan (the 2006 Plan). The 2006 Plan replaced the 2004 Equity
Incentive Plan, which was terminated early. Under the 2006 Plan,
175 million shares of common stock were made available for
issuance as equity awards to employees and non-employee
directors through June 2008, of which a maximum of 80 million
shares can be awarded as restricted stock or restricted stock
units. Additionally, in May 2006, stockholders approved the 2006
Stock Purchase Plan. Under the 2006 Stock Purchase Plan, 240
million shares of common stock were made available for issuance
through August 2011. The 1976 Stock Participation Plan and all
remaining shares available for issuance thereunder were
cancelled as of the plans expiration in August 2006.
42
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Our goal has been to keep the potential incremental dilution
related to our equity incentive plans to a long-term average of
less than 2% annually. The dilution percentage is calculated
using the equity-based awards granted during the period, net of
awards cancelled due to employees leaving the company and
expired stock options, divided by the total outstanding shares
at the beginning of the year. For purposes of this disclosure,
equity-based awards include stock option grants and restricted
stock unit grants, but exclude rights granted under the stock
purchase plan and awards assumed in connection with acquisitions.
Equity-based awards granted to employees, including officers,
and non-employee directors from 2002 through 2006 are summarized
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Shares in Millions)
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
2002
|
|
|
Total equity-based awards granted
|
|
|
82
|
|
|
|
119
|
|
|
|
115
|
|
|
|
110
|
|
|
|
174
|
|
Less: equity-based awards cancelled
|
|
|
(67
|
)
|
|
|
(38
|
)
|
|
|
(32
|
)
|
|
|
(40
|
)
|
|
|
(44
|
)
|
Net equity-based awards granted
|
|
|
15
|
|
|
|
81
|
|
|
|
83
|
|
|
|
70
|
|
|
|
130
|
|
Dilution %net equity-based
awards granted as % of outstanding
shares1
|
|
|
0.2
|
%
|
|
|
1.3
|
%
|
|
|
1.3
|
%
|
|
|
1.1
|
%
|
|
|
1.9
|
%
|
Equity-based awards granted to
listed
officers2
as % of total equity-based awards granted
|
|
|
1.6
|
%
|
|
|
1.4
|
%
|
|
|
1.1
|
%
|
|
|
2.4
|
%
|
|
|
1.7
|
%
|
Equity-based awards granted to
listed
officers2
as % of outstanding
shares1
|
|
|
<0.1
|
%
|
|
|
<0.1
|
%
|
|
|
<0.1
|
%
|
|
|
<0.1
|
%
|
|
|
<0.1
|
%
|
Cumulative equity-based awards
held by listed
officers2
as % of total equity-based awards outstanding
|
|
|
1.9
|
%
|
|
|
1.9
|
%
|
|
|
2.1
|
%
|
|
|
2.1
|
%
|
|
|
2.1
|
%
|
Share-based
compensation3
recognized for listed
officers2
as a % of total share-based compensation
recognized3
|
|
|
1.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Outstanding shares as of the beginning of each period. |
|
2 |
|
For all years presented, excluding 2004, listed
officers includes our Chief Executive Officer, our Chief
Financial Officer, and the three other most highly compensated
executive officers serving at the end of the years presented.
For 2004, listed officers also includes an officer
who retired in January 2005. |
|
3 |
|
Includes amounts recognized in the financial statements for
stock options and restricted stock units according to the
provisions of SFAS No. 123(R), which was adopted in the first
quarter of 2006. |
In accordance with a policy established by the Compensation
Committee of the Board of Directors, total equity-based awards
granted to the listed officers may not exceed 5% of total
equity-based awards granted in any year. During 2006,
equity-based awards granted to listed officers amounted to 1.6%
of the grants made to all employees. All equity-based awards to
executive officers are determined by the Compensation Committee.
All members of the Compensation Committee are independent
directors, as defined in the applicable rules for issuers traded
on The NASDAQ Global Select Market*.
For additional information regarding equity incentive plans and
the activity for the past three years, see Note 3:
Employee Equity Incentive Plans in Part II, Item 8 of this
Form 10-K.
Information regarding our equity incentive plans should be read
in conjunction with the information appearing under the heading
Compensation Discussion and Analysis and
Proposal 3: Approval of Amendment and Extension of the
2006 Equity Incentive Plan in our 2007 Proxy Statement,
which is incorporated by reference into this Form
10-K.
Business
Outlook
Our future results of operations and the other forward-looking
statements contained in this Form
10-K,
including this MD&A, involve a number of risks and
uncertaintiesin particular, the statements regarding our
goals and strategies, new product introductions, plans to
cultivate new businesses, future economic conditions, revenue,
pricing, gross margin and costs, capital spending, depreciation
and amortization, research and development expenses, potential
impairment of investments, the tax rate, and pending tax and
legal proceedings. Our future results of operations may also be
affected by the amount, type, and valuation of the share-based
awards granted as well as the amount of awards cancelled due to
employees leaving the company and the timing of award exercises
by employees. We are in the midst of a structure and efficiency
program which may result in several actions that could have an
impact on expense levels and gross margin. In addition to the
various important factors discussed above, a number of other
important factors could cause actual results to differ
materially from our expectations. See the risks described in
Risk Factors in Part I, Item 1A of this Form
10-K.
43
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Our financial results are substantially dependent on sales of
microprocessors. Revenue is partly a function of the mix of
types and performance capabilities of microprocessors sold, as
well as the mix of chipsets, flash memory, and other
semiconductor products sold, all of which are difficult to
forecast. Because of the wide price differences among mobile,
desktop, and server microprocessors, the mix of types and
performance levels of microprocessors sold affects the average
selling price that we will realize and has a large impact on our
revenue and gross margin. Revenue is affected by the timing of
new Intel product introductions and the demand for and market
acceptance of our products, as well as actions taken by our
competitors, including new product offerings, marketing
programs, and pricing pressures, and our reaction to such
actions. Microprocessor revenue is also dependent on the
availability of other parts of the platform, including chipsets,
motherboards, operating system software, and application
software. Revenue is also subject to demand fluctuations and the
impact of economic conditions in various geographic regions.
Our gross margin expectation for 2007 is 50% plus or minus a few
points. The 50% midpoint is slightly lower compared to our 2006
gross margin of 51.5%, primarily due to expected higher
start-up
costs for microprocessors and chipsets, partially offset by
lower unit costs on microprocessors. The gross margin percentage
could vary significantly from expectations based on changes in
revenue levels; product mix and pricing; capacity utilization;
changes in unit costs; excess or obsolete inventory;
manufacturing yields; the timing and execution of the
manufacturing ramp and associated costs, including
start-up
costs; and impairments of long-lived assets, including
manufacturing, assembly and test, and intangible assets.
We have continued to expand our semiconductor manufacturing and
assembly and test capacity over the last few years, and we
continue to plan capacity based on our overall strategy and the
acceptance of our products in specific market segments. We
currently expect that capital spending in 2007 will be
approximately $5.5 billion, plus or minus $200 million, compared
to $5.8 billion in 2006. Capital spending is expected to be
lower in 2007 compared to 2006, primarily due to continued
efficiency efforts, partially offset by higher spending on
capital equipment, related to our next-generation, 45-nanometer
process technology. This capital-spending plan is dependent on
expectations regarding production efficiencies and delivery
times of various machinery and equipment, and construction
schedules. If the demand for our products does not grow and
continue to move toward higher performance products in the
various market segments, revenue and gross margin would be
adversely affected, manufacturing
and/or
assembly and test capacity would be under-utilized, and the rate
of capital spending could be reduced. We could be required to
record an impairment of our manufacturing or assembly and test
equipment
and/or
facilities, or factory planning decisions may cause us to record
accelerated depreciation. In addition, if demand for our
products is reduced or we fail to accurately forecast demand, we
could be required to write down inventory, which would have a
negative impact on our gross margin. However, in the long term,
revenue and gross margin may also be affected if we do not add
capacity fast enough to meet market demand.
Depreciation for 2007 is expected to be approximately $4.8
billion, plus or minus $100 million, compared to $4.7 billion in
2006.
Spending on research and development, plus marketing, general
and administrative expenses (total spending) in 2007 is expected
to be approximately $10.7 billion. The expectation for total
spending in 2007 is significantly lower than our 2006 spending
of $12.0 billion. We continue to focus on controlling our total
spending through cost-saving actions. Expenses, particularly
certain marketing and compensation expenses, vary depending on
the level of demand for our products, the level of revenue and
profits, and impairments of long-lived assets. Research and
development spending in 2007 is expected to be approximately
$5.4 billion.
The tax rate for 2007 is expected to be approximately 30%. The
estimated effective tax rate is based on tax law in effect at
December 30, 2006 and current expected income. The tax rate may
also be affected by the closing of acquisitions or divestitures;
the jurisdiction in which profits are determined to be earned
and taxed; changes in estimates of credits, benefits, and
deductions; the resolution of issues arising from tax audits
with various tax authorities; and the ability to realize
deferred tax assets.
We believe that we have the product offerings, facilities,
personnel, and competitive and financial resources for continued
business success, but future revenue, costs, gross margin, and
profits are all influenced by a number of factors, including
those discussed above, all of which are inherently difficult to
forecast.
44
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Status of
Business Outlook
We expect that our corporate representatives will, from time to
time, meet privately with investors, investment analysts, the
media, and others, and may reiterate the forward-looking
statements contained in the Business Outlook section
and elsewhere in this Form
10-K,
including any such statements that are incorporated by reference
in this Form
10-K. At the
same time, we will keep this Form
10-K and our
most current business outlook publicly available on our Investor
Relations Web site at www.intc.com. The public can
continue to rely on the business outlook published on the Web
site as representing our current expectations on matters
covered, unless we publish a notice stating otherwise. The
statements in the Business Outlook and other
forward-looking statements in this Form
10-K are
subject to revision during the course of the year in our
quarterly earnings releases and SEC filings and at other times.
From the close of business on March 2, 2007 until our quarterly
earnings release is published, presently scheduled for April 17,
2007, we will observe a quiet period. During the
quiet period, the Business Outlook and other
forward-looking statements first published in our Form
8-K filed on
January 16, 2007, as reiterated or updated as applicable, in
this Form
10-K, should
be considered historical, speaking as of prior to the quiet
period only and not subject to update. During the quiet period,
our representatives will not comment on the business outlook or
our financial results or expectations. The exact timing and
duration of the routine quiet period, and any others that we
utilize from time to time, may vary at our discretion.
45
ITEM
7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
We are exposed to financial market risks, including changes in
currency exchange rates, interest rates, and marketable equity
security prices. We use derivative financial instruments
primarily to mitigate these risks and as part of our strategic
investment program. All of the potential changes noted below are
based on sensitivity analyses performed on our financial
positions at December 30, 2006 and December 31, 2005. Actual
results may differ materially.
Currency
Exchange Rates
We generally hedge currency risks of
non-U.S.-dollar-denominated
investments in debt securities with offsetting currency
borrowings, currency forward contracts, or currency interest
rate swaps. Gains and losses on these
non-U.S.-currency
investments would generally be offset by corresponding losses
and gains on the related hedging instruments, resulting in
negligible net exposure.
A substantial majority of our revenue, expense, and capital
purchasing activities are transacted in U.S. dollars. However,
we do incur certain operating costs in other currencies. To
protect against reductions in value and the volatility of future
cash flows caused by changes in currency exchange rates, we have
established balance sheet and forecasted transaction risk
management programs. Currency forward contracts and currency
options are generally utilized in these hedging programs. Our
hedging programs reduce, but do not always entirely eliminate,
the impact of currency exchange rate movements. We considered
the historical trends in currency exchange rates and determined
that it was reasonably possible that adverse changes in exchange
rates of 20% for all currencies could be experienced in the near
term. Such adverse changes, after taking into account hedges and
offsetting positions, would have resulted in an adverse impact
on income before taxes of less than $30 million at the end of
2006 and 2005.
Interest
Rates
The primary objective of our investments in debt securities is
to preserve principal while maximizing yields. To achieve this
objective, the returns on our investments in fixed-rate debt are
generally based on the three-month LIBOR, or, if longer term,
are generally swapped into U.S. dollar three-month LIBOR-based
returns. In addition to fixed-rate debt investments, in 2005 we
issued debt. See Note 6: Borrowings in Part II, Item
8 of this Form
10-K for
additional information. We considered the historical volatility
of the interest rates experienced in prior years and the
duration of our investment portfolio and debt issuances, and
determined that it was reasonably possible that an adverse
change of 80 basis points (0.80%), approximately 15% of the rate
at December 30, 2006 (18% of the rate at December 31, 2005),
could be experienced in the near term. A hypothetical 0.80%
decrease in interest rates, after taking into account hedges and
offsetting positions, would have resulted in a decrease in the
fair value of our net investment position of approximately $50
million as of December 30, 2006 and $10 million as of December
31, 2005. The increase in exposure to an adverse fair value
change from December 31, 2005 to December 30, 2006 was primarily
driven by a decrease in the price of our common stock, which
increased the sensitivity of the fair value of our convertible
debt to adverse changes in interest rates.
Equity
Security Prices
We have a portfolio of strategic equity investments that
includes marketable strategic equity securities and derivative
equity instruments such as warrants and options, as well as
non-marketable equity investments. We invest in companies that
develop software, hardware, or services supporting our
technologies. Our current investment focus areas include helping
to enable mobile wireless devices, advance the digital home,
provide access to premium digital content, enhance the digital
enterprise, advance high-performance communications
infrastructures, and develop the next generation of silicon
production technologies. Our focus areas tend to develop and
change over time due to rapid advancements in technology.
Our total marketable portfolio includes marketable strategic
equity securities as well as marketable equity securities
classified as trading assets. To the extent that our marketable
portfolio of investments continues to have strategic value, we
typically do not attempt to reduce or eliminate our market
exposure. For securities that we no longer consider strategic,
we evaluate legal, market, and economic factors in our decision
on the timing of disposal and whether it is possible and
appropriate to hedge the equity market risk. We may or may not
enter into transactions to reduce or eliminate the market risks
of our investments in strategic equity derivatives, including
warrants.
The marketable equity securities included in trading assets, as
well as certain equity derivatives, are held to generate returns
that generally offset changes in liabilities related to the
equity market risk of certain deferred compensation
arrangements. The gains and losses from changes in fair value of
these equity securities are generally offset by the gains and
losses on the related liabilities, resulting in a net exposure
of less than $10 million as of both December 30, 2006 and
December 31, 2005, assuming a reasonably possible decline in
market prices of approximately 10% in the near term.
46
As of December 30, 2006, the fair value of our portfolio of
marketable strategic equity investments and equity derivative
instruments, including hedging positions, was $427 million
($574 million as of December 31, 2005). To assess the
market price sensitivity of these equity securities, we analyzed
the historical movements over the past several years of
high-technology stock indices that we considered appropriate.
However, our marketable strategic equity portfolio is
substantially concentrated in one company as of
December 30, 2006, which will affect the portfolios
price volatility. We currently have an investment in Micron with
a fair value of $236 million at December 30, 2006, or
55% of the total marketable strategic equity portfolio value
including equity derivative instruments. During 2006, we sold a
portion of our investment in Micron. Based on the analysis of
the high-technology stock indices and the historical volatility
of Microns stock, we estimated that it was reasonably
possible that the prices of the stocks in our marketable
strategic equity portfolio could experience a loss of 30% in the
near term (40% as of December 31, 2005). This estimate is not
necessarily indicative of future performance, and actual results
may differ materially.
Assuming a loss of 30% in market prices, and after reflecting
the impact of hedges and offsetting positions, our marketable
strategic equity portfolio could decrease in value by
approximately $134 million, based on the value of the portfolio
as of December 30, 2006 (a decrease in value of approximately
$245 million, based on the value of the portfolio as of December
31, 2005 using an assumed loss of 40%).
Our strategic investments in non-marketable equity securities
are affected by many of the same factors that could result in an
adverse movement of equity market prices, although the impact
cannot be directly quantified. Such a movement and the
underlying economic conditions would negatively affect the
prospects of the companies we invest in, their ability to raise
additional capital, and the likelihood of our being able to
realize our investments through liquidity events such as initial
public offerings, mergers, or private sales. These types of
investments involve a great deal of risk, and there can be no
assurance that any specific company will grow or become
successful; consequently, we could lose all or part of our
investment. At December 30, 2006, our strategic investments in
non-marketable equity securities had a carrying amount of $2.8
billion ($561 million as of December 31, 2005). The carrying
amount of these investments approximated fair value as of
December 30, 2006 and December 31, 2005. As of December 30,
2006, our non-marketable equity securities portfolio was
concentrated in two companies: IMFT and Clearwire. IMFT is a
manufacturer of NAND flash memory, with a carrying amount of
$1.3 billion, or 46% of the total value of the non-marketable
equity securities portfolio at December 30, 2006. See Note
17: Venture in Part II, Item 8 of this Form
10-K. The
terms of our investment in IMFT contain contractual conditions
that restrict our ability to sell the investment. Clearwire
builds and operates next-generation wireless broadband networks.
Our investment has a carrying amount of $613 million, or 22% of
the total value of the non-marketable equity securities
portfolio at December 30, 2006. See Note 7:
Investments in Part II, Item 8 of this Form
10-K.
47
|
|
ITEM
8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
|
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
Page
|
|
|
|
49
|
|
|
|
|
|
50
|
|
|
|
|
|
51
|
|
|
|
|
|
52
|
|
|
|
|
|
53
|
|
|
|
|
|
89
|
|
|
|
|
|
91
|
48
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Years Ended December 30, 2006
|
|
|
|
|
|
|
|
|
|
(In Millions, Except Per Share Amounts)
|
|
20061
|
|
|
2005
|
|
|
2004
|
|
|
Net revenue
|
|
$
|
35,382
|
|
|
$
|
38,826
|
|
|
$
|
34,209
|
|
Cost of sales
|
|
|
17,164
|
|
|
|
15,777
|
|
|
|
14,463
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
18,218
|
|
|
|
23,049
|
|
|
|
19,746
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
5,873
|
|
|
|
5,145
|
|
|
|
4,778
|
|
Marketing, general and
administrative
|
|
|
6,096
|
|
|
|
5,688
|
|
|
|
4,659
|
|
Restructuring and asset impairment
charges
|
|
|
555
|
|
|
|
|
|
|
|
|
|
Amortization of
acquisition-related intangibles and costs
|
|
|
42
|
|
|
|
126
|
|
|
|
179
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
12,566
|
|
|
|
10,959
|
|
|
|
9,616
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
5,652
|
|
|
|
12,090
|
|
|
|
10,130
|
|
Gains (losses) on equity
securities, net
|
|
|
214
|
|
|
|
(45
|
)
|
|
|
(2
|
)
|
Interest and other, net
|
|
|
1,202
|
|
|
|
565
|
|
|
|
289
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before taxes
|
|
|
7,068
|
|
|
|
12,610
|
|
|
|
10,417
|
|
Provision for taxes
|
|
|
2,024
|
|
|
|
3,946
|
|
|
|
2,901
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
5,044
|
|
|
$
|
8,664
|
|
|
$
|
7,516
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common
share
|
|
$
|
0.87
|
|
|
$
|
1.42
|
|
|
$
|
1.17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common
share
|
|
$
|
0.86
|
|
|
$
|
1.40
|
|
|
$
|
1.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares
outstanding
|
|
|
5,797
|
|
|
|
6,106
|
|
|
|
6,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares
outstanding, assuming dilution
|
|
|
5,880
|
|
|
|
6,178
|
|
|
|
6,494
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Cost of sales and operating expenses for the year ended
December 30, 2006 include share-based compensation. See
Note 2: Accounting Policies and Note 3:
Employee Equity Incentive Plans. |
See accompanying notes.
49
INTEL
CORPORATION
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
December 30, 2006 and December 31, 2005
|
|
|
|
|
|
|
(In Millions, Except Par Value)
|
|
2006
|
|
|
2005
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
6,598
|
|
|
$
|
7,324
|
|
Short-term investments
|
|
|
2,270
|
|
|
|
3,990
|
|
Trading assets
|
|
|
1,134
|
|
|
|
1,458
|
|
Accounts receivable, net of
allowance for doubtful accounts of $32 ($64 in 2005)
|
|
|
2,709
|
|
|
|
3,914
|
|
Inventories
|
|
|
4,314
|
|
|
|
3,126
|
|
Deferred tax assets
|
|
|
997
|
|
|
|
1,149
|
|
Other current assets
|
|
|
258
|
|
|
|
233
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
18,280
|
|
|
|
21,194
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment,
net
|
|
|
17,602
|
|
|
|
17,111
|
|
Marketable strategic equity
securities
|
|
|
398
|
|
|
|
537
|
|
Other long-term
investments
|
|
|
4,023
|
|
|
|
4,135
|
|
Goodwill
|
|
|
3,861
|
|
|
|
3,873
|
|
Other long-term
assets
|
|
|
4,204
|
|
|
|
1,464
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
48,368
|
|
|
$
|
48,314
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and
stockholders equity
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Short-term debt
|
|
$
|
180
|
|
|
$
|
313
|
|
Accounts payable
|
|
|
2,256
|
|
|
|
2,249
|
|
Accrued compensation and benefits
|
|
|
1,644
|
|
|
|
2,110
|
|
Accrued advertising
|
|
|
846
|
|
|
|
1,160
|
|
Deferred income on shipments to
distributors
|
|
|
599
|
|
|
|
632
|
|
Other accrued liabilities
|
|
|
1,192
|
|
|
|
810
|
|
Income taxes payable
|
|
|
1,797
|
|
|
|
1,960
|
|
|
|
|
|
|
|
|
|
|
Total current
liabilities
|
|
|
8,514
|
|
|
|
9,234
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
1,848
|
|
|
|
2,106
|
|
Deferred tax
liabilities
|
|
|
265
|
|
|
|
703
|
|
Other long-term
liabilities
|
|
|
989
|
|
|
|
89
|
|
Commitments and contingencies
(Notes 18 and 19)
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Preferred stock, $0.001 par value,
50 shares authorized; none issued
|
|
|
|
|
|
|
|
|
Common stock, $0.001 par value,
10,000 shares authorized; 5,766 issued and outstanding (5,919 in
2005) and capital in excess of par value
|
|
|
7,825
|
|
|
|
6,245
|
|
Accumulated other comprehensive
income (loss)
|
|
|
(57
|
)
|
|
|
127
|
|
Retained earnings
|
|
|
28,984
|
|
|
|
29,810
|
|
|
|
|
|
|
|
|
|
|
Total stockholders
equity
|
|
|
36,752
|
|
|
|
36,182
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
stockholders equity
|
|
$
|
48,368
|
|
|
$
|
48,314
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
50
INTEL
CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Years Ended December 30, 2006
|
|
|
|
|
|
|
|
|
|
(In Millions)
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Cash and cash equivalents,
beginning of year
|
|
$
|
7,324
|
|
|
$
|
8,407
|
|
|
$
|
7,971
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows provided by (used for)
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
5,044
|
|
|
|
8,664
|
|
|
|
7,516
|
|
Adjustments to reconcile net
income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
4,654
|
|
|
|
4,345
|
|
|
|
4,590
|
|
Share-based compensation
|
|
|
1,375
|
|
|
|
|
|
|
|
|
|
Restructuring, asset impairment,
and net loss on retirement of assets
|
|
|
635
|
|
|
|
74
|
|
|
|
91
|
|
Excess tax benefit from
share-based payment arrangements
|
|
|
(123
|
)
|
|
|
|
|
|
|
|
|
Amortization of intangibles and
other acquisition-related costs
|
|
|
258
|
|
|
|
250
|
|
|
|
299
|
|
(Gains) losses on equity
securities, net
|
|
|
(214
|
)
|
|
|
45
|
|
|
|
2
|
|
(Gains) on divestitures
|
|
|
(612
|
)
|
|
|
|
|
|
|
|
|
Deferred taxes
|
|
|
(325
|
)
|
|
|
(413
|
)
|
|
|
(207
|
)
|
Tax benefit from employee equity
incentive plans
|
|
|
|
|
|
|
351
|
|
|
|
344
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading assets
|
|
|
324
|
|
|
|
1,606
|
|
|
|
(468
|
)
|
Accounts receivable
|
|
|
1,217
|
|
|
|
(914
|
)
|
|
|
(39
|
)
|
Inventories
|
|
|
(1,116
|
)
|
|
|
(500
|
)
|
|
|
(101
|
)
|
Accounts payable
|
|
|
7
|
|
|
|
303
|
|
|
|
283
|
|
Income taxes payable
|
|
|
(60
|
)
|
|
|
797
|
|
|
|
378
|
|
Other assets and liabilities
|
|
|
(444
|
)
|
|
|
215
|
|
|
|
431
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total adjustments
|
|
|
5,576
|
|
|
|
6,159
|
|
|
|
5,603
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating
activities
|
|
|
10,620
|
|
|
|
14,823
|
|
|
|
13,119
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows provided by (used for)
investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to property, plant and
equipment
|
|
|
(5,779
|
)
|
|
|
(5,818
|
)
|
|
|
(3,843
|
)
|
Acquisitions, net of cash acquired
|
|
|
|
|
|
|
(191
|
)
|
|
|
(53
|
)
|
Purchases of
available-for-sale
investments
|
|
|
(5,272
|
)
|
|
|
(8,475
|
)
|
|
|
(16,618
|
)
|
Maturities and sales of
available-for-sale
investments
|
|
|
7,147
|
|
|
|
8,433
|
|
|
|
15,633
|
|
Purchases and investments in
non-marketable equity securities
|
|
|
(1,722
|
)
|
|
|
(193
|
)
|
|
|
(137
|
)
|
Net proceeds from divestitures
|
|
|
752
|
|
|
|
|
|
|
|
|
|
Other investing activities
|
|
|
(33
|
)
|
|
|
(118
|
)
|
|
|
(14
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used for investing
activities
|
|
|
(4,907
|
)
|
|
|
(6,362
|
)
|
|
|
(5,032
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows provided by (used for)
financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in short-term
debt, net
|
|
|
(114
|
)
|
|
|
126
|
|
|
|
24
|
|
Excess tax benefit from
share-based payment arrangements
|
|
|
123
|
|
|
|
|
|
|
|
|
|
Additions to long-term debt
|
|
|
|
|
|
|
1,742
|
|
|
|
|
|
Repayments and retirement of debt
|
|
|
|
|
|
|
(19
|
)
|
|
|
(31
|
)
|
Repayment of notes payable
|
|
|
(581
|
)
|
|
|
|
|
|
|
|
|
Proceeds from sales of shares
through employee equity incentive plans
|
|
|
1,046
|
|
|
|
1,202
|
|
|
|
894
|
|
Repurchase and retirement of
common stock
|
|
|
(4,593
|
)
|
|
|
(10,637
|
)
|
|
|
(7,516
|
)
|
Payment of dividends to
stockholders
|
|
|
(2,320
|
)
|
|
|
(1,958
|
)
|
|
|
(1,022
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used for financing
activities
|
|
|
(6,439
|
)
|
|
|
(9,544
|
)
|
|
|
(7,651
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash
and cash equivalents
|
|
|
(726
|
)
|
|
|
(1,083
|
)
|
|
|
436
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end
of year
|
|
$
|
6,598
|
|
|
$
|
7,324
|
|
|
$
|
8,407
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash
flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the year for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest, net of amounts
capitalized of $60 in 2006
|
|
$
|
25
|
|
|
$
|
27
|
|
|
$
|
52
|
|
Income taxes, net of refunds
|
|
$
|
2,432
|
|
|
$
|
3,218
|
|
|
$
|
2,392
|
|
See accompanying notes.
51
INTEL
CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition-
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Related
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
and Capital
|
|
|
Unearned
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
in Excess of Par Value
|
|
|
Stock
|
|
|
Compre-
|
|
|
|
|
|
|
|
Three Years Ended December 30, 2006
|
|
Number of
|
|
|
|
|
|
Compen-
|
|
|
hensive
|
|
|
Retained
|
|
|
|
|
(In Millions, Except Per Share Amounts)
|
|
Shares
|
|
|
Amount
|
|
|
sation
|
|
|
Income (Loss)
|
|
|
Earnings
|
|
|
Total
|
|
|
Balance at December 27,
2003
|
|
|
6,487
|
|
|
$
|
6,754
|
|
|
$
|
(20
|
)
|
|
$
|
96
|
|
|
$
|
31,016
|
|
|
$
|
37,846
|
|
Components of comprehensive
income, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,516
|
|
|
|
7,516
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
56
|
|
|
|
|
|
|
|
56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,572
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sales of shares
through employee equity incentive plans, tax benefit of $789
(including reclassification of $445 related to prior years), and
other
|
|
|
67
|
|
|
|
1,683
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,683
|
|
Amortization of
acquisition-related unearned stock compensation, net of
adjustments
|
|
|
|
|
|
|
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
16
|
|
Repurchase and retirement of
common stock
|
|
|
(301
|
)
|
|
|
(2,294
|
)
|
|
|
|
|
|
|
|
|
|
|
(5,222
|
)
|
|
|
(7,516
|
)
|
Cash dividends declared ($0.16 per
share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,022
|
)
|
|
|
(1,022
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 25,
2004
|
|
|
6,253
|
|
|
|
6,143
|
|
|
|
(4
|
)
|
|
|
152
|
|
|
|
32,288
|
|
|
|
38,579
|
|
Components of comprehensive
income, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,664
|
|
|
|
8,664
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(25
|
)
|
|
|
|
|
|
|
(25
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,639
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sales of shares
through employee equity incentive plans, tax benefit of $351,
and other
|
|
|
84
|
|
|
|
1,553
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,553
|
|
Assumption of acquisition-related
stock options and amortization of acquisition-related unearned
stock compensation, net of adjustments
|
|
|
|
|
|
|
2
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
6
|
|
Repurchase and retirement of
common stock
|
|
|
(418
|
)
|
|
|
(1,453
|
)
|
|
|
|
|
|
|
|
|
|
|
(9,184
|
)
|
|
|
(10,637
|
)
|
Cash dividends declared ($0.32 per
share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,958
|
)
|
|
|
(1,958
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31,
2005
|
|
|
5,919
|
|
|
|
6,245
|
|
|
|
|
|
|
|
127
|
|
|
|
29,810
|
|
|
|
36,182
|
|
Components of comprehensive
income, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,044
|
|
|
|
5,044
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26
|
|
|
|
|
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,070
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustment for initially applying
SFAS No. 158, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(210
|
)
|
|
|
|
|
|
|
(210
|
)
|
Proceeds from sales of shares
through employee equity incentive plans, net excess tax benefit,
and other
|
|
|
73
|
|
|
|
1,248
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,248
|
|
Share-based compensation
|
|
|
|
|
|
|
1,375
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,375
|
|
Repurchase and retirement of
common stock
|
|
|
(226
|
)
|
|
|
(1,043
|
)
|
|
|
|
|
|
|
|
|
|
|
(3,550
|
)
|
|
|
(4,593
|
)
|
Cash dividends declared ($0.40 per
share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,320
|
)
|
|
|
(2,320
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 30,
2006
|
|
|
5,766
|
|
|
$
|
7,825
|
|
|
$
|
|
|
|
$
|
(57
|
)
|
|
$
|
28,984
|
|
|
$
|
36,752
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
52
Note 1:
Basis of Presentation
Intel Corporation has a 52- or
53-week
fiscal year that ends on the last Saturday in December. Fiscal
year 2006, a
52-week
year, ended on December 30, 2006. Fiscal year 2005, a
53-week
year, ended on December 31, 2005. Fiscal year 2004 was a
52-week year
that ended on December 25, 2004. The next
53-week year
will end on December 31, 2011.
The consolidated financial statements include the accounts of
Intel and its wholly owned subsidiaries. Intercompany accounts
and transactions have been eliminated. The company uses the
equity method to account for equity investments in instances in
which the company owns common stock or similar interests (as
described by the Emerging Issues Task Force (EITF) Issue
No. 02-14, Whether an Investor Should Apply the
Equity Method of Accounting to Investments Other Than Common
Stock) and has the ability to exercise significant
influence, but not control, over the investee.
The U.S. dollar is the functional currency for Intel and its
significant subsidiaries; therefore, there is no translation
adjustment recorded through accumulated other comprehensive
income (loss). Monetary accounts denominated in
non-U.S.
currencies, such as cash or payables to vendors, have been
remeasured to the U.S. dollar.
Note 2:
Accounting Policies
Use of
Estimates
The preparation of financial statements in conformity with U.S.
generally accepted accounting principles requires management to
make estimates and judgments that affect the amounts reported in
the financial statements and accompanying notes. The accounting
estimates that require managements most significant,
difficult, and subjective judgments include the valuation of
non-marketable equity securities; the recognition and
measurement of current and deferred income tax assets and
liabilities; the assessment of recoverability of long-lived
assets; the valuation of inventory; and the valuation and
recognition of share-based compensation. The actual results
experienced by the company may differ from managements
estimates. Certain amounts reported in previous periods have
been reclassified to conform to the current presentation.
Cash
and Cash Equivalents
The company considers all highly liquid debt securities with
insignificant interest rate risk and with original maturities
from the date of purchase of approximately three months or less
as cash and cash equivalents.
Trading
Assets
Investments designated as trading assets are reported at fair
value, with gains or losses resulting from changes in fair value
recognized currently in earnings. The companys trading
asset investments include:
|
|
|
|
|
Marketable debt securities when the interest rate or
foreign exchange rate risk is hedged at inception by a related
derivative. The gains or losses of these investments arising
from changes in fair value due to interest rate and currency
market fluctuations, offset by losses or gains on the related
derivative instruments, are included in interest and other, net.
|
|
|
Equity securities offsetting deferred compensation when
the investments seek to offset changes in liabilities related to
equity and other market risks of certain deferred compensation
arrangements. The gains or losses from changes in fair value of
these equity securities are offset by losses or gains on the
related liabilities and are included in interest and other, net.
|
|
|
Marketable equity securities when the company deems the
investments not to be strategic in nature at the time of
original classification, and has the ability and intent to
mitigate equity market risk through the sale or the use of
derivative instruments. For these marketable equity securities,
gains or losses from changes in fair value, primarily offset by
losses or gains on related derivative instruments, are included
in gains (losses) on equity securities, net.
|
53
INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Debt
Instrument Investments
Debt instruments with original maturities at the date of
purchase greater than approximately three months and remaining
maturities less than one year are classified as short-term
investments. Debt instruments with remaining maturities greater
than one year are classified as other long-term investments.
Available-for-Sale
Investments
Investments designated as
available-for-sale
are reported at fair value, with unrealized gains and losses,
net of tax, recorded in accumulated other comprehensive income
(loss). The cost of securities sold is based on the specific
identification method. The companys
available-for-sale
investments include:
|
|
|
|
|
Marketable debt securities when the interest rate and
foreign currency risks are not hedged at inception of the
investment. These debt securities are held to generate a return
commensurate with three-month LIBOR. The interest income and
realized gains and losses on the sale of these securities are
recorded in interest and other, net.
|
|
|
Marketable equity securities when the investments are
considered strategic in nature at the time of original
classification. The company acquires these equity investments
for the promotion of business and strategic objectives. To the
extent that these investments continue to have strategic value,
the company typically does not attempt to reduce or eliminate
the inherent equity market risks through hedging activities. The
realized gains or losses on the sale or exchange of marketable
equity securities are recorded in gains (losses) on equity
securities, net.
|
Non-Marketable
Investments
Non-marketable equity securities are accounted for at historical
cost or, if Intel has the ability to exercise significant
influence, but not control, over the investee, using the equity
method of accounting. Intels proportionate share of
investee income or loss are accounted for under the equity
method. Other equity method adjustments, as well as gains or
losses on the sale or exchange of these investments, are
recorded in interest and other, net. Gains or losses on the sale
or exchange of non-marketable equity securities, which are not
subject to the equity method of accounting, are recorded in
gains (losses) on equity securities, net. Non-marketable equity
securities are included in other long-term assets. Certain other
non-marketable investments, such as cost basis loan
participation notes, are accounted for at amortized cost and are
classified as short-term investments and other long-term
investments.
Other-Than-Temporary
Impairment
All of the companys
available-for-sale
investments, non-marketable equity securities, and other
investments are subject to a periodic impairment review.
Investments are considered to be impaired when a decline in fair
value is judged to be
other-than-temporary,
for the following investments:
|
|
|
|
|
Marketable equity securities when the resulting fair
value is significantly below cost basis
and/or has
lasted for an extended period of time. The evaluation that Intel
uses to determine whether a marketable equity security is
impaired is based on the specific facts and circumstances
present at the time of assessment, which include the
consideration of general market conditions, the duration and
extent to which the fair value is less than cost, and the
companys intent and ability to hold the investment for a
sufficient period of time to allow for recovery in value. The
company also considers specific adverse conditions related to
the financial health of and business outlook for the investee,
including industry and sector performance, changes in
technology, operational and financing cash flow factors, and
changes in the investees credit rating.
|
|
|
Non-marketable investments when events or circumstances
are identified that would likely have a significant adverse
effect on the fair value of the investment. The indicators that
Intel uses to identify those events and circumstances include
(a) the investees revenue and earning trends relative to
predefined milestones and overall business prospects; (b) the
technological feasibility of the investees products and
technologies; (c) the general market conditions in the
investees industry or geographic area, including adverse
regulatory or economic changes; (d) factors related to the
investees ability to remain in business, such as the
investees liquidity, debt ratios, and the rate at which
the investee is using its cash; and (e) the investees
receipt of additional funding at a lower valuation. If an
investee obtains additional funding at a valuation lower than
Intels carrying amount or a new round of equity funding is
required to stay in operation, and the new round of equity does
not appear imminent, it is presumed that the investment is other
than temporarily impaired, unless specific facts and
circumstances indicate otherwise.
|
54
INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
|
|
|
Marketable debt securities when a significant decline in
the issuers credit quality is likely to have a significant
adverse effect on the fair value of the investment.
|
Investments identified as having an indicator of impairment are
subject to further analysis to determine if the investment is
other than temporarily impaired, in which case the investment is
written down to its impaired value and a new cost basis is
established. For investments in non-marketable equity securities
that are not considered viable from a financial or technological
point of view, the entire investment is written down, since the
estimated fair value is considered to be nominal. Impairment
charges are recorded in gains (losses) on equity securities, net
for equity investments or in interest and other, net for debt
security investments.
Fair
Values of Financial Instruments
The carrying value of cash equivalents approximates fair value
due to the short period of time to maturity. Fair values of
short-term investments, trading assets, long-term investments,
marketable strategic equity securities, certain non-marketable
investments, short-term debt, long-term debt, swaps, currency
forward contracts, currency options, equity options, and
warrants are based on quoted market prices or pricing models
using current market data when available. Debt securities are
generally valued using discounted cash flows in a yield-curve
model based on LIBOR. Equity options and warrants are priced
using option pricing models. The companys financial
instruments are recorded at fair value or amounts that
approximate fair value except for cost basis loan participation
notes and debt. Estimated fair values are managements
estimates; however, when there is no readily available market
data, the estimated fair values may not necessarily represent
the amounts that could be realized in a current transaction, and
these fair values could change significantly.
For certain non-marketable investments, such as non-marketable
equity securities, management believes that the carrying value
of the portfolio approximated the fair value at December 30,
2006 and December 31, 2005. For the companys cost basis
loan participation notes, the fair value exceeds the carrying
value by approximately $55 million as of December 30,
2006. Management believes that the carrying value of the cost
basis loan participation notes approximated fair value as of
December 31, 2005. These fair value estimates take into
account the movements of the equity and venture capital markets
as well as changes in the interest rate environment, and other
economic variables.
The carrying value of the companys long-term debt was $1.8
billion, and management believes that the fair value was
approximately $1.7 billion as of December 30, 2006.
Management believes that the carrying value of the
companys long-term debt approximated fair value as of
December 31, 2005. These fair value estimates take into
consideration credit rating changes, equity price movements,
interest rate changes, and other economic variables.
Derivative
Financial Instruments
The companys primary objective for holding derivative
financial instruments is to manage currency, interest rate, and
certain equity market risks. The companys derivative
financial instruments are recorded at fair value and are
included in other current assets, other long-term assets, other
accrued liabilities, or other long-term liabilities. Derivative
instruments recorded as assets totaled $117 million at
December 30, 2006 ($87 million at December 31, 2005).
Derivative instruments recorded as liabilities totaled
$62 million at December 30, 2006 ($65 million at
December 31, 2005). The companys accounting policies
for these instruments are based on whether they meet the
criteria for designation as cash flow or fair value hedges. A
hedge of the exposure to variability in the future cash flows of
an asset or a liability, or of a forecasted transaction, is
referred to as a cash flow hedge. A designated hedge of the
exposure to changes in fair value of an asset or a liability, or
of an unrecognized firm commitment, is referred to as a fair
value hedge. The criteria for designating a derivative as a
hedge include the assessment of the instruments
effectiveness in risk reduction, matching of the derivative
instrument to its underlying transaction, and the probability of
occurrence of the underlying transaction. Gains and losses from
changes in fair values of derivatives that are not designated as
hedges for accounting purposes are recognized within the same
line item on the consolidated statements of income as the
underlying item, and generally offset changes in fair values of
related assets or liabilities.
As part of its strategic investment program, the company also
acquires equity derivative instruments, such as warrants and
equity conversion rights associated with debt instruments, which
are not designated as hedging instruments. The gains or losses
from changes in fair values of these equity instrument
derivatives are recognized in gains (losses) on equity
securities, net.
55
INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Through the use of derivative financial instruments, the company
manages the following risks:
Currency
Risk
The company transacts business in various currencies other than
the U.S. dollar and has established balance sheet and
forecasted transaction risk management programs to protect
against fluctuations in fair value and volatility of future cash
flows caused by changes in exchange rates. The forecasted
transaction risk management program includes anticipated
transactions such as operating costs and capital purchases.
These programs reduce, but do not always entirely eliminate, the
impact of currency exchange movements. The companys
currency risk management programs include:
|
|
|
|
|
Currency derivatives with cash flow hedge accounting
designation which 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. The maturity of these instruments will generally
occur within 12 months. For these derivatives, the after-tax
gain or loss from the effective portion of the hedge is reported
as a component of accumulated other comprehensive income (loss)
in stockholders equity and is reclassified into earnings
in the same period or periods in which the hedged transaction
affects earnings, and within the same line item on the
consolidated statements of income as the impact of the hedged
transaction.
|
|
|
Currency derivatives with fair value hedge accounting
designation which utilize currency forward contracts and
currency options to hedge the fair value exposure of recognized
foreign currency denominated assets or liabilities, or
previously unrecognized firm commitments. For fair value hedges,
gains or losses are recognized in earnings to offset fair value
changes in the hedged transaction. As of December 30, 2006 and
December 31, 2005, the company did not have any derivatives
designated as foreign currency fair value hedges.
|
|
|
Currency derivatives without hedge accounting designation
which utilize currency forward contracts or currency
interest rate swaps to economically hedge the functional
currency equivalent cash flows of recognized monetary assets,
including
non-U.S.-dollar-denominated
debt securities and recognized monetary assets and liabilities.
The maturity of these instruments will generally occur within 12
months, except for derivatives associated with certain long-term
equity-related investments that will generally mature within
five years. Changes in the
U.S.-dollar
equivalent cash flows of the underlying assets and liabilities
are approximately offset by the changes in fair values of the
related derivatives. Net gains or losses are recorded within the
line item on the consolidated statements of income that is most
closely associated with the economic underlying, primarily in
interest and other, net, except for equity-related gains or
losses, which are primarily recorded in gains (losses) on equity
securities, net.
|
Interest
Rate Risk
The companys primary objective for holding investments in
debt securities is to preserve principal while maximizing
yields. The returns on the companys investments in
fixed-rate debt securities with durations longer than three
months are generally swapped into U.S. dollar three-month
LIBOR-based returns. The companys interest rate risk
management programs include:
|
|
|
|
|
Interest rate derivatives with cash flow hedge accounting
designation which utilize interest rate swap agreements to
modify the interest characteristics of some of the
companys investments. For these derivatives, the after-tax
gain or loss from the effective portion of the hedge is reported
as a component of accumulated other comprehensive income (loss)
and is reclassified into earnings in the same period or periods
in which the hedged transaction affects earnings, and within the
same line item on the consolidated statements of income as the
impact of the hedged transaction.
|
|
|
Interest rate derivatives with fair value hedge accounting
designation which utilize interest rate swap agreements to
hedge the fair values of debt instruments. The gains or losses
from the changes in fair value of these instruments, as well as
the offsetting change in the fair value of the hedged long-term
debt, are recognized in interest expense. At December 30, 2006
and December 31, 2005, the company did not have any interest
rate derivatives designated as fair value hedges.
|
|
|
Interest rate derivatives without hedge accounting
designation which utilize interest rate swaps and currency
interest rate swaps in economic hedging transactions, including
hedges of
non-U.S.-dollar-denominated
debt securities classified as trading assets. The floating
interest rates on the swaps are reset on a monthly, quarterly,
or semiannual basis. Changes in fair value of the debt
securities classified as trading assets are generally offset by
changes in fair value of the related derivatives, resulting in a
negligible net impact that is recorded in interest and other,
net.
|
56
INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Equity
Market Risk
The company may elect to mitigate equity risk using the
following equity market risk management programs:
|
|
|
|
|
Equity derivatives with hedge accounting designation
which utilize equity options, swaps, or forward contracts to
hedge the equity market risk of marketable equity securities,
when these investments are not considered to have strategic
value. These derivatives are generally designated as fair value
hedges. The gains or losses from the change in fair value of
these equity derivatives, as well as the offsetting change in
the fair value of the underlying hedged equity securities, are
recognized currently in gains (losses) on equity securities,
net. As of December 30, 2006, the company did not have any
equity derivatives designated as fair value hedges.
|
|
|
Equity derivatives without hedge accounting designation
which utilize equity derivatives, such as warrants, options,
or other equity derivatives. Changes in the fair value of such
derivatives are recognized in gains (losses) on equity
securities, net. Certain equity securities within the trading
asset portfolio are maintained to generate returns that seek to
offset changes in liabilities related to the equity market risk
of certain deferred compensation arrangements, and gains and
losses are recorded in interest and other, net.
|
Measurement
of Effectiveness
|
|
|
|
|
Effectiveness for forwards is generally measured by
comparing the cumulative change in the fair value of the hedge
contract with the cumulative change in the present value of the
forecasted cash flows of the hedged item. For currency forward
contracts used in cash flow hedging strategies related to
long-term capital purchases, forward points are excluded and
effectiveness is measured using spot rates to value both the
hedge contract and the hedged item.
|
|
|
Effectiveness for currency options and equity options with
hedge accounting designation is generally measured by
comparing the cumulative change in the fair value of the hedge
contract with the cumulative change in the fair value of an
option instrument representing the hedged risks in the hedged
item for cash flow hedges. For fair value hedges, time value is
excluded and effectiveness is measured based on spot rates to
value both the hedge contract and the hedged item.
|
|
|
Effectiveness for interest rate swaps is generally
measured by comparing the change in fair value of the hedged
item with the change in fair value of the interest rate swap.
|
Any ineffective portion of the hedges, as well as amounts
excluded from the assessment of effectiveness, are recognized
currently in earnings in interest and other, net.
If a cash flow hedge were discontinued because it was no longer
probable that the original hedged transaction would occur as
anticipated, the unrealized gain or loss on the related
derivative would be reclassified into earnings. Subsequent gains
or losses on the related derivative instrument would be
recognized in income in each period until the instrument
matures, is terminated, is re-designated as a qualified hedge,
or is sold. For all periods presented, the portion of hedging
instruments gains or losses excluded from the assessment
of effectiveness and the ineffective portions of hedges had an
insignificant impact on earnings for both cash flow and fair
value hedges.
Securities
Lending
From time to time, the company enters into securities lending
agreements with financial institutions, generally to facilitate
hedging and certain investment transactions. Selected securities
may be loaned, secured by collateral in the form of cash or
securities. The loaned securities continue to be carried as
investment assets on the consolidated balance sheets. Cash
collateral is recorded as an asset with a corresponding
liability. For lending agreements collateralized by securities,
the collateral is not recorded as an asset or a liability,
unless the collateral is repledged.
57
INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Inventories
Inventory cost is computed on a currently adjusted standard
basis (which approximates actual cost on an average or
first-in,
first-out basis). The valuation of inventory requires the
company to estimate obsolete or excess inventory as well as
inventory that is not of saleable quality. The determination of
obsolete or excess inventory requires the company to estimate
the future demand for its products. Inventory in excess of
saleable amounts is not valued, and the remaining inventory is
valued at the lower of cost or market. During the second quarter
of 2006, the company completed a demand forecast accuracy
analysis. As a result, the demand horizon now includes
additional weeks of the demand forecast period for certain
products, compared to prior years, and continues to include a
review of product-specific facts and circumstances. This change
did not have a significant impact on gross margin in 2006.
Inventories at fiscal year-ends were as follows:
|
|
|
|
|
|
|
|
|
(In Millions)
|
|
2006
|
|
|
2005
|
|
|
Raw materials
|
|
$
|
608
|
|
|
$
|
409
|
|
Work in process
|
|
|
2,044
|
|
|
|
1,662
|
|
Finished goods
|
|
|
1,662
|
|
|
|
1,055
|
|
|
|
|
|
|
|
|
|
|
Total inventories
|
|
$
|
4,314
|
|
|
$
|
3,126
|
|
|
|
|
|
|
|
|
|
|
Property,
Plant and Equipment
Property, plant and equipment, net at fiscal year-ends was as
follows:
|
|
|
|
|
|
|
|
|
(In Millions)
|
|
2006
|
|
|
2005
|
|
|
Land and buildings
|
|
$
|
14,544
|
|
|
$
|
13,938
|
|
Machinery and equipment
|
|
|
29,829
|
|
|
|
27,297
|
|
Construction in progress
|
|
|
2,711
|
|
|
|
2,897
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47,084
|
|
|
|
44,132
|
|
Less: accumulated depreciation
|
|
|
(29,482
|
)
|
|
|
(27,021
|
)
|
|
|
|
|
|
|
|
|
|
Total property, plant and
equipment, net
|
|
$
|
17,602
|
|
|
$
|
17,111
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment is stated at cost. Depreciation is
computed for financial reporting purposes principally using the
straight-line method over the following estimated useful lives:
machinery and equipment, 2 to 4 years; buildings, 4 to 40 years.
Reviews are regularly performed if facts and circumstances exist
that indicate that the carrying amount of assets may not be
recoverable or that the useful life is shorter than originally
estimated. The company assesses the recoverability of its assets
held for use by comparing the projected undiscounted net cash
flows associated with the related asset or group of assets over
their remaining lives against their respective carrying amounts.
Impairment, if any, is based on the excess of the carrying
amount over the fair value of those assets. If assets are
determined to be recoverable, but the useful lives are shorter
than originally estimated, the net book value of the assets is
depreciated over the newly determined remaining useful lives.
See Note 11: Restructuring and Asset Impairment
Charges for further discussion of asset impairment charges
recorded in 2006.
Property, plant and equipment is identified as held for sale
when it meets the held for sale criteria of Statement of
Financial Accounting Standards (SFAS) No. 144, Accounting
for Impairment or Disposal of Long-Lived Assets. The
company ceases recording depreciation on assets that are
classified as held for sale.
The company capitalizes interest on borrowings during the active
construction period of major capital projects. Capitalized
interest is added to the cost of qualified assets and is
amortized over the estimated useful lives of the assets.
58
INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Goodwill
Goodwill is recorded when the purchase price of an acquisition
exceeds the estimated fair value of the net identified tangible
and intangible assets acquired. The company performs an annual
impairment review for each reporting unit using a fair value
approach. Reporting units may be operating segments as a whole
or an operation one level below an operating segment, referred
to as a component. In determining the carrying value of the
reporting unit, an allocation of the companys
manufacturing and assembly and test assets must be made because
of the interchangeable nature of the companys
manufacturing and assembly and test capacity. This allocation is
based on each reporting units relative percentage
utilization of the manufacturing and assembly and test assets.
For further discussion of goodwill, see Note 15:
Goodwill.
Identified
Intangible Assets
Intellectual property assets primarily represent rights acquired
under technology licenses and are generally amortized on a
straight-line basis over periods ranging from 2 to 17 years.
Acquisition-related developed technology is amortized on a
straight-line basis over periods ranging from 4 to 6 years.
Other intangible assets include acquisition-related customer
lists and
workforce-in-place,
which are amortized on a straight-line basis, and customer
supply agreements, which are amortized based on product volume.
Other intangible assets are amortized over periods ranging from
2 to 6 years. All identified intangible assets are classified
within other long-term assets on the consolidated balance
sheets. In the quarter following the period in which identified
intangible assets become fully amortized, the fully amortized
balances are removed from the gross asset and accumulated
amortization amounts. For further discussion of identified
intangible assets, see Note 16: Identified Intangible
Assets.
The company performs a quarterly review of its identified
intangible assets to determine if facts and circumstances exist
which indicate that the useful life is shorter than originally
estimated or that the carrying amount of assets may not be
recoverable. If such facts and circumstances do exist, the
company assesses the recoverability of identified intangible
assets by comparing the projected undiscounted net cash flows
associated with the related asset or group of assets over their
remaining lives against their respective carrying amounts.
Impairment, if any, is based on the excess of the carrying
amount over the fair value of those assets.
Product
Warranty
The company generally sells products with a limited warranty of
product quality and a limited indemnification of customers
against intellectual property infringement claims related to the
companys products. The company accrues for known warranty
and indemnification issues if a loss is probable and can be
reasonably estimated, and accrues for estimated incurred but
unidentified issues based on historical activity. The accrual
and the related expense for known issues were not significant
during the periods presented. Due to product testing and the
short time typically between product shipment and the detection
and correction of product failures, and considering the
historical rate of payments on indemnification claims, the
accrual and related expense for estimated incurred but
unidentified issues were not significant during the periods
presented.
Revenue
Recognition
The company recognizes net revenue when the earnings process is
complete, as evidenced by an agreement with the customer,
transfer of title, and acceptance, if applicable, as well as
fixed pricing and probable collectibility. Pricing allowances,
including discounts based on contractual arrangements with
customers, are recorded when revenue is recognized as a
reduction to both accounts receivable and revenue. Because of
frequent sales price reductions and rapid technology
obsolescence in the industry, sales made to distributors under
agreements allowing price protection
and/or right
of return are deferred until the distributors sell the
merchandise. Shipping charges billed to customers are included
in net revenue, and the related shipping costs are included in
cost of sales.
59
INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Advertising
Cooperative advertising programs reimburse customers for
marketing activities for certain of the companys products,
subject to defined criteria. Cooperative advertising obligations
are accrued and the costs are recorded at the same time the
related revenue is recognized. Cooperative advertising costs are
recorded as marketing, general and administrative expense to the
extent that an advertising benefit separate from the revenue
transaction can be identified and the cash paid does not exceed
the fair value of that advertising benefit received. Any excess
of cash paid over the fair value of the advertising benefit
received is recorded as a reduction in revenue. All other
advertising costs are recorded as marketing, general and
administrative expense as incurred. Advertising expense was $2.3
billion in 2006 ($2.6 billion in 2005 and $2.1 billion in 2004).
Employee
Equity Incentive Plans
The company has employee equity incentive plans, which are
described more fully in Note 3: Employee Equity Incentive
Plans. Effective January 1, 2006, the company adopted the
provisions of SFAS No. 123 (revised 2004), Share-Based
Payment (SFAS No. 123(R)). SFAS No. 123(R) requires
employee equity awards to be accounted for under the fair value
method. Accordingly, share-based compensation is measured at the
grant date, based on the fair value of the award. Prior to
January 1, 2006, the company accounted for awards granted under
its equity incentive plans using the intrinsic value method
prescribed by Accounting Principles Board (APB) Opinion No. 25,
Accounting for Stock Issued to Employees (APB No.
25), and related interpretations, and provided the required pro
forma disclosures prescribed by SFAS No. 123, Accounting
for Stock-Based Compensation (SFAS No. 123), as amended.
The exercise price of options is equal to the market price of
Intel common stock (defined as the average of the high and low
trading prices reported by The NASDAQ Global Select Market*) on
the date of grant. Additionally, the stock purchase plan was
deemed non-compensatory under APB No. 25. Accordingly, no
share-based compensation, other than insignificant amounts of
acquisition-related compensation, was recognized on the
consolidated financial statements prior to 2006.
Under the modified prospective method of adoption for SFAS No.
123(R), the compensation cost recognized by the company
beginning in 2006 includes (a) compensation cost for all equity
incentive awards granted prior to, but not yet vested as of
January 1, 2006, based on the grant-date fair value estimated in
accordance with the original provisions of SFAS No. 123, and (b)
compensation cost for all equity incentive awards granted
subsequent to January 1, 2006, based on the grant-date fair
value estimated in accordance with the provisions of SFAS No.
123(R). The company uses the straight-line attribution method to
recognize share-based compensation costs over the service period
of the award. Upon exercise, cancellation, forfeiture, or
expiration of stock options, or upon vesting or forfeiture of
restricted stock units, deferred tax assets for options and
restricted stock units with multiple vesting dates are
eliminated for each vesting period on a
first-in,
first-out basis as if each vesting period was a separate award.
To calculate the excess tax benefits available as of the date of
adoption for use in offsetting future tax shortfalls, the
company followed the alternative transition method discussed in
Financial Accounting Standards Board (FASB) Staff Position No.
123(R)-3.
Recent
Accounting Pronouncements
In September 2006, the FASB issued SFAS No. 157, Fair
Value Measurements (SFAS No. 157). The purpose of SFAS No.
157 is to define fair value, establish a framework for measuring
fair value, and enhance disclosures about fair value
measurements. The measurement and disclosure requirements are
effective for the company beginning in the first quarter of
fiscal year 2008. The company is currently evaluating the impact
that SFAS No. 157 will have on its consolidated financial
statements.
In February 2007, the FASB issued SFAS No. 159, The
Fair Value Option for Financial Assets and Financial
Liabilities (SFAS No. 159). SFAS No. 159 permits
companies to choose to measure certain financial instruments and
certain other items at fair value. The standard requires that
unrealized gains and losses on items for which the fair value
option has been elected be reported in earnings. SFAS
No. 159 is effective for the company beginning in the first
quarter of fiscal year 2008, although earlier adoption is
permitted. The company is currently evaluating the impact that
SFAS No. 159 will have on its consolidated financial
statements.
60
INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In June 2006, the FASB issued FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxesan
interpretation of FASB Statement No. 109 (FIN 48). The
interpretation contains a two-step approach to recognizing and
measuring uncertain tax positions accounted for in accordance
with SFAS No. 109, Accounting for Income Taxes. The
first step is to evaluate the tax position for recognition by
determining if the weight of available evidence indicates that
it is more likely than not that the position will be sustained
on audit, including resolution of related appeals or litigation
processes, if any. The second step is to measure the tax benefit
as the largest amount which is more than 50% likely of being
realized upon ultimate settlement. The company is still
assessing the impacts of the adoption of FIN 48. Based on a
preliminary analysis, management believes that adoption will
result in recording an increase to retained earnings of between
$150 million and $300 million in the first quarter of
2007. However, the final analysis will be completed in the first
quarter of 2007.
In June 2006, the FASB ratified the EITF consensus on EITF Issue
No. 06-2,
Accounting for Sabbatical Leave and Other Similar Benefits
Pursuant to FASB Statement No. 43 (EITF
06-2). EITF
06-2
requires companies to accrue the cost of such compensated
absences over the requisite service period. The company
currently accrues the cost of compensated absences for
sabbatical programs when the eligible employee completes the
requisite service period, which is seven years of service. The
company is required to apply the provisions of EITF
06-2 at the
beginning of fiscal year 2007. EITF
06-2 allows
for adoption through retrospective application to all prior
periods or through a cumulative-effect adjustment to retained
earnings. The company intends to adopt
EITF 06-2
through a cumulative-effect adjustment and estimates that the
adoption will result in an additional liability of approximately
$275 million and a reduction to retained earnings of
approximately $175 million in the first quarter of 2007.
Note 3:
Employee Equity Incentive Plans
In May 2006, stockholders approved the 2006 Equity Incentive
Plan (the 2006 Plan). Under the 2006 Plan, 175 million
shares of common stock were made available for issuance as
equity awards to employees and non-employee directors through
June 2008, of which a maximum of 80 million shares can be
awarded as non-vested shares (restricted stock) or non-vested
share units (restricted stock units). The 2006 Plan allows for
time-based, performance-based, and market-based vesting for
equity incentive awards. The 2004 Equity Incentive Plan (the
2004 Plan) was terminated upon stockholder approval of the 2006
Plan. Shares previously authorized for issuance under the 2004
Plan are no longer available for future grants, although options
previously granted under the 2004 Plan remain outstanding. As of
December 30, 2006, 162 million shares remain available for
future grant under the 2006 Plan. Intel may assume the equity
incentive plans and the outstanding equity awards of certain
acquired companies. Once assumed, Intel does not grant
additional stock under these plans.
The company began issuing restricted stock units in the second
quarter of 2006. Shares are issued on the date the restricted
stock units vest. The majority of shares issued are net of the
statutory withholding requirements that are paid by Intel on
behalf of its employees. As a result, the actual number of
shares issued will be less than the number of restricted stock
units granted. Prior to vesting, restricted stock units do not
have dividend equivalent rights, do not have voting rights, and
the shares underlying the restricted stock units are not
considered issued and outstanding.
Awards granted to employees in 2006 under the companys
equity incentive plans generally vest over 4 years and expire 7
years from the date of grant. Awards granted to key officers,
senior-level employees, and key employees may have delayed
vesting beginning 3 to 6 years from the date of grant and
expire 7 to 10 years from the date of grant.
In May 2006, stockholders approved the 2006 Stock Purchase Plan
under which eligible employees may purchase shares of
Intels common stock at 85% of the market price at
specific, predetermined dates. Under the 2006 Stock Purchase
Plan, 240 million shares of common stock were made available for
issuance through August 2011. The 1976 Stock Participation Plan
and all remaining shares available for issuance thereunder were
cancelled as of the plans expiration in August 2006.
61
INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Share-Based
Compensation
Effective January 1, 2006, the company adopted the provisions of
SFAS No. 123(R), as discussed in Note 2: Accounting
Policies. The following table summarizes the effects of
share-based compensation resulting from the application of SFAS
No. 123(R):
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Millions, Except Per Share Amounts)
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Cost of sales
|
|
$
|
349
|
|
|
$
|
|
|
|
$
|
|
|
Research and development
|
|
|
487
|
|
|
|
|
|
|
|
|
|
Marketing, general and
administrative
|
|
|
539
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation
effects in income before taxes
|
|
|
1,375
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
|
(388
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net share-based compensation
effects in net income
|
|
$
|
987
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation
effects on basic earnings per common share
|
|
$
|
0.17
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation
effects on diluted earnings per common share
|
|
$
|
0.17
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation
effects on cash flow from operations
|
|
$
|
(123
|
)
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation
effects on cash flow from financing activities
|
|
$
|
123
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In accordance with SFAS No. 123(R), the company adjusts
share-based compensation on a quarterly basis for changes to the
estimate of expected equity award forfeitures based on a review
of recent forfeiture activity and expected future employee
turnover. The effect of adjusting the forfeiture rate for all
expense amortization after January 1, 2006 is recognized in the
period the forfeiture estimate is changed. The effect of
forfeiture adjustments in 2006 was insignificant.
The total share-based compensation cost capitalized as part of
inventory as of December 30, 2006 was $72 million. The amount
that the company would have capitalized to inventory as of
December 31, 2005, if it had applied the provisions of SFAS No.
123(R) retrospectively, was $66 million. Under the provisions of
SFAS No. 123(R), $66 million has been recorded as a credit to
common stock and capital in excess of par value. During 2006,
the tax benefit realized for the tax deduction from option
exercises and other awards totaled $139 million.
Pro forma information required under SFAS No. 123(R) for periods
prior to fiscal year 2006, as if the company had applied the
fair value recognition provisions of SFAS No. 123 to options
granted under the companys equity incentive plans and
rights to acquire stock granted under the companys stock
purchase plan, is as follows:
|
|
|
|
|
|
|
|
|
(In Millions, Except Per Share Amounts)
|
|
2005
|
|
|
2004
|
|
|
Net income, as reported
|
|
$
|
8,664
|
|
|
$
|
7,516
|
|
Less: total share-based
compensation determined under the fair value method for all
awards, net of tax
|
|
|
1,262
|
|
|
|
1,271
|
|
|
|
|
|
|
|
|
|
|
Pro forma net income
|
|
$
|
7,402
|
|
|
$
|
6,245
|
|
|
|
|
|
|
|
|
|
|
Reported basic earnings per common
share
|
|
$
|
1.42
|
|
|
$
|
1.17
|
|
|
|
|
|
|
|
|
|
|
Pro forma basic earnings per
common share
|
|
$
|
1.21
|
|
|
$
|
0.98
|
|
|
|
|
|
|
|
|
|
|
Reported diluted earnings per
common share
|
|
$
|
1.40
|
|
|
$
|
1.16
|
|
|
|
|
|
|
|
|
|
|
Pro forma diluted earnings per
common share
|
|
$
|
1.20
|
|
|
$
|
0.97
|
|
|
|
|
|
|
|
|
|
|
62
INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Share-based compensation recognized in 2006 as a result of the
adoption of SFAS No. 123(R), as well as pro forma disclosures
according to the original provisions of SFAS No. 123 for periods
prior to the adoption of SFAS No. 123(R), use the Black-Scholes
option pricing model for estimating the fair value of options
granted under the companys equity incentive plans and
rights to acquire stock granted under the companys stock
purchase plan. The weighted average estimated values of employee
stock option grants and rights granted under the stock purchase
plan, as well as the weighted average assumptions that were used
in calculating such values during 2006, 2005, and 2004, were
based on estimates at the date of grant as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options
|
|
|
Stock Purchase Plan
|
|
|
|
2006
|
|
|
20051
|
|
|
20041
|
|
|
2006
|
|
|
20051
|
|
|
20041
|
|
|
Estimated values
|
|
$
|
5.21
|
|
|
$
|
6.02
|
|
|
$
|
10.79
|
|
|
$
|
4.56
|
|
|
$
|
5.78
|
|
|
$
|
6.38
|
|
Expected life (in years)
|
|
|
4.9
|
|
|
|
4.7
|
|
|
|
4.2
|
|
|
|
.5
|
|
|
|
.5
|
|
|
|
.5
|
|
Risk-free interest rate
|
|
|
4.9
|
%
|
|
|
3.9
|
%
|
|
|
3.0
|
%
|
|
|
5.0
|
%
|
|
|
3.2
|
%
|
|
|
1.4
|
%
|
Volatility
|
|
|
27
|
%
|
|
|
26
|
%
|
|
|
50
|
%
|
|
|
29
|
%
|
|
|
23
|
%
|
|
|
30
|
%
|
Dividend yield
|
|
|
2.0
|
%
|
|
|
1.4
|
%
|
|
|
.6
|
%
|
|
|
2.1
|
%
|
|
|
1.3
|
%
|
|
|
.6
|
%
|
|
|
|
1 |
|
Estimated values and assumptions used in the calculation of
fair value prior to the adoption of SFAS No. 123(R). |
In 2005, the company reevaluated the assumptions used to
estimate the value of options granted under the companys
equity incentive plans and rights to acquire stock granted under
the companys stock purchase plan. Beginning in 2005, the
company based the expected volatility on implied volatility, as
management determined that implied volatility is more reflective
of market conditions and a better indicator of expected
volatility than historical volatility. Additionally, beginning
in 2005, the company based the expected life of options granted
on the simplified calculation of expected life, described in the
U.S. Securities and Exchange Commissions Staff Accounting
Bulletin 107, due to changes in the vesting terms and
contractual life of current option grants compared to the
companys historical grants. No adjustments to the 2004
input assumptions were made.
Share-based compensation related to restricted stock unit awards
is calculated based on the market price of Intel common stock on
the date of grant, reduced by the present value of dividends
expected to be paid on Intel common stock prior to vesting of
the restricted stock unit. The weighted average estimated values
of restricted stock unit grants, as well as the weighted average
assumptions that were used in calculating the fair value during
2006, were based on estimates at the date of grant, as follows:
|
|
|
|
|
|
|
2006
|
|
|
Estimated values
|
|
$
|
18.70
|
|
Risk-free interest rate
|
|
|
4.9
|
%
|
Dividend yield
|
|
|
2.0
|
%
|
Stock
Option Awards
Options outstanding that have vested and are expected to vest as
of December 30, 2006 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Remaining
|
|
|
|
|
|
|
Number of
|
|
|
Average
|
|
|
Contractual
|
|
|
Aggregate Intrinsic
|
|
|
|
Shares
|
|
|
Exercise
|
|
|
Term
|
|
|
Value1
|
|
|
|
(In Millions)
|
|
|
Price
|
|
|
(In Years)
|
|
|
(In Millions)
|
|
|
Vested
|
|
|
567.6
|
|
|
$
|
28.66
|
|
|
|
4.0
|
|
|
$
|
272
|
|
Expected to vest
|
|
|
248.4
|
|
|
$
|
23.50
|
|
|
|
5.9
|
|
|
|
90
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
816.0
|
|
|
$
|
27.09
|
|
|
|
4.5
|
|
|
$
|
362
|
|
|
|
|
1 |
|
These amounts represent the difference between the exercise
price and $20.25, the closing price of Intel stock on December
29, 2006, as reported on The NASDAQ Global Select Market*, for
all
in-the-money
options outstanding. |
63
INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Options outstanding that are expected to vest are net of
estimated future option forfeitures in accordance with the
provisions of SFAS No. 123(R). Options with a fair value of
$1.8 billion completed vesting during 2006. As of December 30,
2006, there was $1.1 billion of unrecognized compensation costs
related to stock options granted under the companys equity
incentive plans. The unrecognized compensation cost is expected
to be recognized over a weighted average period of 1.1 years.
Additional information with respect to stock option plan
activity is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Aggregate
|
|
|
|
Number of
|
|
|
Average
|
|
|
Intrinsic
|
|
(In Millions, Except Per Share Amounts)
|
|
Shares
|
|
|
Exercise Price
|
|
|
Value1
|
|
|
December 27, 2003
|
|
|
850.1
|
|
|
$
|
25.54
|
|
|
|
|
|
Grants
|
|
|
114.7
|
|
|
$
|
26.23
|
|
|
|
|
|
Exercises
|
|
|
(48.4
|
)
|
|
$
|
10.89
|
|
|
|
|
|
Cancellations and forfeitures
|
|
|
(32.5
|
)
|
|
$
|
30.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 25, 2004
|
|
|
883.9
|
|
|
$
|
26.26
|
|
|
|
|
|
Grants
|
|
|
118.9
|
|
|
$
|
23.36
|
|
|
|
|
|
Exercises
|
|
|
(64.5
|
)
|
|
$
|
12.65
|
|
|
|
|
|
Cancellations and forfeitures
|
|
|
(38.4
|
)
|
|
$
|
29.80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2005
|
|
|
899.9
|
|
|
$
|
26.71
|
|
|
|
|
|
Grants
|
|
|
52.3
|
|
|
$
|
20.04
|
|
|
|
|
|
Exercises
|
|
|
(47.3
|
)
|
|
$
|
12.83
|
|
|
$
|
364
|
|
Cancellations and forfeitures
|
|
|
(65.4
|
)
|
|
$
|
28.07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 30, 2006
|
|
|
839.5
|
|
|
$
|
26.98
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 25, 2004
|
|
|
397.5
|
|
|
$
|
23.83
|
|
|
|
|
|
December 31, 2005
|
|
|
469.2
|
|
|
$
|
29.16
|
|
|
|
|
|
December 30, 2006
|
|
|
567.6
|
|
|
$
|
28.66
|
|
|
|
|
|
|
|
|
1 |
|
Represents the difference between the exercise price and the
value of Intel stock at the time of exercise. |
The following table summarizes information about options
outstanding at December 30, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding Options
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Exercisable Options
|
|
|
|
|
|
|
Remaining
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
Number of
|
|
|
Contractual
|
|
|
Average
|
|
|
Number of
|
|
|
Average
|
|
|
|
Shares
|
|
|
Life
|
|
|
Exercise
|
|
|
Shares
|
|
|
Exercise
|
|
Range of Exercise Prices
|
|
(In Millions)
|
|
|
(In Years)
|
|
|
Price
|
|
|
(In Millions)
|
|
|
Price
|
|
|
$0.05$15.00
|
|
|
1.9
|
|
|
|
6.8
|
|
|
$
|
7.96
|
|
|
|
1.8
|
|
|
$
|
7.90
|
|
$15.01$20.00
|
|
|
191.1
|
|
|
|
4.1
|
|
|
$
|
18.45
|
|
|
|
130.3
|
|
|
$
|
18.35
|
|
$20.01$25.00
|
|
|
334.0
|
|
|
|
5.0
|
|
|
$
|
22.57
|
|
|
|
191.1
|
|
|
$
|
22.12
|
|
$25.01$30.00
|
|
|
146.5
|
|
|
|
5.8
|
|
|
$
|
27.22
|
|
|
|
89.9
|
|
|
$
|
26.92
|
|
$30.01$35.00
|
|
|
62.4
|
|
|
|
3.5
|
|
|
$
|
31.38
|
|
|
|
51.1
|
|
|
$
|
31.29
|
|
$35.01$40.00
|
|
|
25.5
|
|
|
|
3.4
|
|
|
$
|
38.42
|
|
|
|
25.3
|
|
|
$
|
38.42
|
|
$40.01$87.90
|
|
|
78.1
|
|
|
|
3.1
|
|
|
$
|
59.46
|
|
|
|
78.1
|
|
|
$
|
59.46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
839.5
|
|
|
|
4.6
|
|
|
$
|
26.98
|
|
|
|
567.6
|
|
|
$
|
28.66
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
These options will expire if not exercised by specific dates
through February 2015. Option exercise prices for options
exercised during the three-year period ended December 30, 2006
ranged from $0.01 to $33.60.
64
INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Restricted
Stock Unit Awards
Information with respect to restricted stock units as of
December 30, 2006 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
Aggregate
|
|
|
|
Number of
|
|
|
Grant-Date Fair
|
|
|
Fair
|
|
(In Millions, Except Per Share Amounts)
|
|
Shares
|
|
|
Value
|
|
|
Value1
|
|
|
Outstanding at December 31,
2005
|
|
|
|
|
|
$
|
|
|
|
|
|
|
Granted
|
|
|
30.0
|
|
|
$
|
18.70
|
|
|
|
|
|
Vested
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
Forfeited
|
|
|
(2.6
|
)
|
|
$
|
18.58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 30,
2006
|
|
|
27.4
|
|
|
$
|
18.71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Represents the value of Intel stock on the date that the
restricted stock units vest. |
As of December 30, 2006, there was $380 million of unrecognized
compensation costs related to restricted stock units granted
under the companys equity incentive plans. The
unrecognized compensation cost is expected to be recognized over
a weighted average period of 1.8 years.
Stock
Purchase Plan
Approximately 75% of the companys employees were
participating in the Stock Purchase Plan as of December 30,
2006. Employees purchased 26.0 million shares in 2006 (19.6
million in 2005 and 18.4 million in 2004) for $436 million ($387
million in 2005 and $367 million in 2004) under the
now-expired 1976 Stock Participation Plan. The first purchase
under the 2006 Stock Purchase Plan occurred in the first quarter
of 2007. As of December 30, 2006, there was $19 million of
unrecognized compensation costs related to rights to acquire
stock under the companys stock purchase plan. The
unrecognized compensation cost is expected to be recognized over
a weighted average period of one month.
Note 4:
Earnings Per Share
The computation of the companys basic and diluted earnings
per common share is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Millions, Except Per Share Amounts)
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Net income
|
|
$
|
5,044
|
|
|
$
|
8,664
|
|
|
$
|
7,516
|
|
Weighted average common shares
outstanding
|
|
|
5,797
|
|
|
|
6,106
|
|
|
|
6,400
|
|
Dilutive effect of employee equity
incentive plans
|
|
|
32
|
|
|
|
70
|
|
|
|
94
|
|
Dilutive effect of convertible debt
|
|
|
51
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares
outstanding, assuming dilution
|
|
|
5,880
|
|
|
|
6,178
|
|
|
|
6,494
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common
share
|
|
$
|
0.87
|
|
|
$
|
1.42
|
|
|
$
|
1.17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common
share
|
|
$
|
0.86
|
|
|
$
|
1.40
|
|
|
$
|
1.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share is computed using net income and
the weighted average number of common shares outstanding during
the period. Diluted earnings per common share is computed using
net income and the weighted average number of common shares
outstanding, assuming dilution. Weighted average common shares
outstanding, assuming dilution includes potentially dilutive
common shares outstanding during the period. Potentially
dilutive common shares include the assumed exercise of stock
options, assumed vesting of restricted stock units, and assumed
issuance of stock under the stock purchase plan using the
treasury stock method, as well as the assumed conversion of debt
using the if-converted method.
65
INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For 2006, 693 million of the companys outstanding stock
options (372 million in 2005 and 357 million in 2004) were
excluded from the calculation of diluted earnings per common
share because the exercise prices of these stock options were
greater than or equal to the average market value of the common
shares. These options could be included in the calculation in
the future if the average market value of the common shares
increases and is greater than the exercise price of these
options.
Note 5:
Common Stock Repurchase Program
The company has an ongoing authorization, as amended in November
2005, from the Board of Directors to repurchase up to
$25 billion in shares of Intels common stock in open
market or negotiated transactions. During 2006, the company
repurchased 226 million shares of common stock at a cost of $4.6
billion (418 million shares at a cost of $10.6 billion during
2005 and 301 million shares at a cost of $7.5 billion
during 2004). Since the program began in 1990, the company has
repurchased and retired 2.8 billion shares at a cost of
approximately $57 billion. As of December 30, 2006, $17.3
billion remained available for repurchase under the existing
repurchase authorization.
Note 6:
Borrowings
Short-Term
Debt
Short-term debt included non-interest-bearing drafts payable of
$178 million and the current portion of long-term debt of $2
million as of December 30, 2006 (drafts payable of $295 million
and the current portion of long-term debt of $18 million as of
December 31, 2005). The company also has the ability to borrow
under the companys commercial paper program, which has a
pre-authorized limit of $3.0 billion. During 2006, there
were no borrowings under the companys commercial paper
program, and maximum borrowings reached $150 million during
2005. No commercial paper was outstanding as of December 30,
2006 or December 31, 2005. The companys commercial paper
was rated
A-1+ by
Standard & Poors and
P-1 by
Moodys at December 30, 2006.
Long-Term
Debt
Long-term debt at fiscal year-ends was as follows:
|
|
|
|
|
|
|
|
|
(In Millions)
|
|
2006
|
|
|
2005
|
|
|
Junior subordinated convertible
debentures due 2035 at 2.95%
|
|
$
|
1,586
|
|
|
$
|
1,585
|
|
Euro debt due 20072018 at
7%11%
|
|
|
103
|
|
|
|
378
|
|
Arizona bonds adjustable 2010, due
2035 at 4.375%
|
|
|
160
|
|
|
|
160
|
|
Other debt
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,850
|
|
|
|
2,124
|
|
Less: current portion of long-term
debt
|
|
|
(2
|
)
|
|
|
(18
|
)
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
$
|
1,848
|
|
|
$
|
2,106
|
|
|
|
|
|
|
|
|
|
|
In 2005, the company issued $1.6 billion of 2.95% junior
subordinated convertible debentures (the debentures) due 2035.
The debentures are initially convertible, subject to certain
conditions, into shares of the companys common stock at a
conversion rate of 31.7162 shares of common stock per $1,000
principal amount of debentures, representing an initial
effective conversion price of approximately $31.53 per
share of common stock. Holders may surrender the debentures for
conversion at any time. The conversion rate will be subject to
adjustment for certain events outlined in the indenture
governing the debentures, but will not be adjusted for accrued
interest. In addition, the conversion rate will increase for a
holder who elects to convert the debentures in connection with
certain share exchanges, mergers, or consolidations involving
Intel, as described in the indenture governing the debentures.
The debentures, which pay a fixed rate of interest semiannually,
have a contingent interest component that will require the
company to pay interest based on certain thresholds and for
certain events commencing on December 15, 2010, as outlined in
the indenture. The maximum amount of contingent interest that
will accrue is 0.40% per year. The fair value of the related
embedded derivative was not significant at December 30, 2006 or
December 31, 2005.
66
INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The company may settle any conversion or repurchase of the
debentures in cash or stock at the companys option. On or
after December 15, 2012, the company may redeem all or part
of the debentures for the principal amount plus any accrued and
unpaid interest if the closing price of the companys
common stock has been at least 130% of the conversion price then
in effect for at least 20 trading days during any 30 consecutive
trading-day
period prior to the date on which the company provides notice of
redemption. If certain events occur in the future, the indenture
provides that each holder of the debentures may, for a
pre-defined period of time, require the company to repurchase
the holders debentures for the principal amount plus any
accrued and unpaid interest. The debentures are subordinated in
right of payment to the companys existing and future
senior debt and to the other liabilities of the companys
subsidiaries. The company concluded that the debentures are not
conventional convertible debt instruments and that the embedded
stock conversion option qualifies as a derivative under SFAS No.
133, Accounting for Derivative Instruments and Hedging
Activities. In addition, in accordance with EITF
00-19,
Accounting for Derivative Financial Instruments Indexed
to, and Potentially Settled in, a Companys Own
Stock, the company has concluded that the embedded
conversion option would be classified in stockholders
equity if it were a freestanding instrument. As such, the
embedded conversion option is not accounted for separately as a
derivative.
The company has Euro borrowings, which were made in connection
with the financing of manufacturing facilities and equipment in
Ireland. The company has invested the proceeds in
Euro-denominated loan participation notes of similar maturity to
reduce currency and interest rate exposures. During 2006, the
company retired approximately $300 million of the Euro
borrowings (approximately $280 million during 2005) prior to
their maturity dates through the simultaneous settlement of an
equivalent amount of investments in loan participation notes.
The company has guaranteed repayment of principal and interest
on bonds issued by the Industrial Development Authority of the
City of Chandler, Arizona (the Arizona bonds), which constitute
an unsecured general obligation of the company. The aggregate
principal amount, including the premium, of the Arizona bonds
issued in 2005 is $160 million due 2035, and the bonds bear
interest at a fixed rate of 4.375% until 2010. The Arizona bonds
are subject to mandatory tender on November 30, 2010, at which
time, at the companys option, the bonds can be re-marketed
as either fixed-rate bonds for a period of a specified duration
or as variable-rate bonds until their final maturity on December
1, 2035.
At December 30, 2006, aggregate debt maturities were as follows:
2007$2 million; 2008$2 million; 2009$2
million; 2010$160 million; 2011$2 million; and
thereafter$1,682 million.
Note 7:
Investments
Trading
Assets
Trading assets outstanding at fiscal year-ends were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
|
Net
|
|
|
|
|
|
Net
|
|
|
|
|
|
|
Unrealized
|
|
|
Estimated
|
|
|
Unrealized
|
|
|
Estimated
|
|
(In Millions)
|
|
Gains
|
|
|
Fair Value
|
|
|
Gains (Losses)
|
|
|
Fair Value
|
|
|
Marketable debt securities
|
|
$
|
40
|
|
|
$
|
684
|
|
|
$
|
(1
|
)
|
|
$
|
1,095
|
|
Equity securities offsetting
deferred compensation
|
|
|
138
|
|
|
|
450
|
|
|
|
93
|
|
|
|
363
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total trading assets
|
|
$
|
178
|
|
|
$
|
1,134
|
|
|
$
|
92
|
|
|
$
|
1,458
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gains for the period on marketable debt securities
classified as trading assets held at the reporting date were $31
million in 2006 (losses of $47 million in 2005 and gains of $80
million in 2004). Net losses on the related derivatives were $22
million in 2006 (gains of $52 million in 2005 and losses of $77
million in 2004). Certain equity securities within the trading
asset portfolio are maintained to generate returns that seek to
offset changes in liabilities related to the equity market risk
of certain deferred compensation arrangements. These deferred
compensation liabilities were $416 million in 2006 ($316 million
in 2005), and are included in other accrued liabilities on the
consolidated balance sheets. Net gains for the period on equity
securities offsetting deferred compensation arrangements still
held at the reporting date were $45 million in 2006 ($15 million
in 2005 and $29 million in 2004).
67
INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Available-for-Sale
Investments
Available-for-sale
investments at December 30, 2006 and December 31, 2005 were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Adjusted
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Estimated
|
|
|
Adjusted
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Estimated
|
|
(In Millions)
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Fair Value
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Fair Value
|
|
|
Commercial paper
|
|
$
|
4,956
|
|
|
$
|
4
|
|
|
$
|
|
|
|
$
|
4,960
|
|
|
$
|
4,898
|
|
|
$
|
|
|
|
$
|
(1
|
)
|
|
$
|
4,897
|
|
Floating rate notes
|
|
|
3,508
|
|
|
|
4
|
|
|
|
|
|
|
|
3,512
|
|
|
|
5,428
|
|
|
|
1
|
|
|
|
(1
|
)
|
|
|
5,428
|
|
Asset-backed securities
|
|
|
1,633
|
|
|
|
3
|
|
|
|
|
|
|
|
1,636
|
|
|
|
1,143
|
|
|
|
1
|
|
|
|
|
|
|
|
1,144
|
|
Bank time
deposits1
|
|
|
1,029
|
|
|
|
1
|
|
|
|
|
|
|
|
1,030
|
|
|
|
1,264
|
|
|
|
|
|
|
|
|
|
|
|
1,264
|
|
Corporate bonds
|
|
|
563
|
|
|
|
1
|
|
|
|
(1
|
)
|
|
|
563
|
|
|
|
464
|
|
|
|
1
|
|
|
|
|
|
|
|
465
|
|
Repurchase agreements
|
|
|
450
|
|
|
|
|
|
|
|
|
|
|
|
450
|
|
|
|
585
|
|
|
|
|
|
|
|
|
|
|
|
585
|
|
Marketable strategic equity
securities
|
|
|
233
|
|
|
|
165
|
|
|
|
|
|
|
|
398
|
|
|
|
376
|
|
|
|
161
|
|
|
|
|
|
|
|
537
|
|
Money market fund deposits
|
|
|
157
|
|
|
|
|
|
|
|
|
|
|
|
157
|
|
|
|
58
|
|
|
|
|
|
|
|
|
|
|
|
58
|
|
Non-U.S.
government securities
|
|
|
149
|
|
|
|
|
|
|
|
|
|
|
|
149
|
|
|
|
459
|
|
|
|
|
|
|
|
|
|
|
|
459
|
|
Domestic government securities
|
|
|
116
|
|
|
|
|
|
|
|
|
|
|
|
116
|
|
|
|
553
|
|
|
|
|
|
|
|
(3
|
)
|
|
|
550
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
available-for-sale
investments
|
|
$
|
12,794
|
|
|
$
|
178
|
|
|
$
|
(1
|
)
|
|
$
|
12,971
|
|
|
$
|
15,228
|
|
|
$
|
164
|
|
|
$
|
(5
|
)
|
|
$
|
15,387
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying
|
|
|
|
|
|
|
|
|
|
|
|
Carrying
|
|
(In Millions)
|
|
|
|
|
|
|
|
|
|
|
Amount
|
|
|
|
|
|
|
|
|
|
|
|
Amount
|
|
|
Available-for-sale
investments
|
|
$
|
12,971
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
15,387
|
|
Investments in loan participation
notes (cost basis)
|
|
|
103
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
373
|
|
Cash on hand
|
|
|
215
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
226
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
13,289
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
15,986
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported as (In Millions)
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
Cash and cash equivalents
|
|
$
|
6,598
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,324
|
|
Short-term investments
|
|
|
2,270
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,990
|
|
Marketable strategic equity
investments
|
|
|
398
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
537
|
|
Other long-term investments
|
|
|
4,023
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,135
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
13,289
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
15,986
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Bank time deposits were primarily issued by institutions in
the U.S. in 2005 and by institutions outside the U.S. in
2006. |
The aggregate of individual unrealized investment losses that
had been outstanding for 12 months or more were not significant
as of December 30, 2006 and December 31, 2005. Management does
not believe that any of the unrealized losses represented an
other-than-temporary
impairment based on its evaluation of available evidence as of
December 30, 2006 and December 31, 2005.
The company sold
available-for-sale
securities for proceeds of approximately $2.0 billion in 2006.
The gross realized gains on these sales totaled $135 million,
which included a gain of $103 million, with proceeds of $275
million, from the sale of a portion of the companys
investment in Micron Technology, Inc. The company realized gains
on third-party merger transactions of $79 million during 2006.
The recognized impairment losses on
available-for-sale
investments as well as gross realized losses on sales were
insignificant during 2006.
68
INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The company sold available-for sale securities for proceeds of
approximately $1.7 billion in 2005 and $1.1 billion in 2004. The
gross realized gains on these sales totaled $96 million in 2005
and $52 million in 2004. The company recognized impairment
losses on
available-for-sale
investments of $105 million in 2005 and $2 million in 2004. The
impairment in 2005 represented an impairment charge of $105
million on the companys investment in Micron reflecting
the difference between the cost basis of the investment and the
price of Microns stock at the end of the second quarter of
2005. The gross realized losses on sales, and gains on
third-party merger transactions, were insignificant during 2005
and 2004.
The amortized cost and estimated fair value of
available-for-sale
and loan participation investments in debt securities at
December 30, 2006, by contractual maturity, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
|
|
(In Millions)
|
|
Cost
|
|
|
Fair Value
|
|
|
Due in 1 year or less
|
|
$
|
8,134
|
|
|
$
|
8,149
|
|
Due in 12 years
|
|
|
1,744
|
|
|
|
1,756
|
|
Due in 25 years
|
|
|
900
|
|
|
|
926
|
|
Due after 5 years
|
|
|
96
|
|
|
|
107
|
|
Securities not due at a single
maturity date
|
|
|
1,790
|
|
|
|
1,793
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
12,664
|
|
|
$
|
12,731
|
|
|
|
|
|
|
|
|
|
|
Securities not due at a single maturity date include
asset-backed securities and money market fund deposits.
Non-Marketable
Equity Securities
Non-marketable equity securities consist of both equity method
and cost basis investments. At December 30, 2006, the carrying
values of equity method and cost basis investments were $2.0
billion and $733 million, respectively. During 2006, the
companys non-marketable investments primarily consisted of
its investments in IM Flash Technologies, LLC (IMFT) and
Clearwire Corporation, which were both accounted for under the
equity method. At December 31, 2005, the carrying values of
equity method and cost basis investments were $59 million
and $502 million, respectively. The company recognized
impairment losses on non-marketable equity securities of
$79 million in 2006 ($103 million in 2005 and $115 million
in 2004).
During 2006, Intel and Micron formed IMFT, a NAND flash memory
manufacturing company, and invested $1.3 billion. See Note
17: Venture for further information.
During 2006, Intel paid $600 million in cash for an investment
in Clearwire. Clearwire builds and operates next-generation
wireless broadband networks. Intels total investment in
Clearwire is $613 million as of December 30, 2006, which
includes a previous investment. This investment is part of
Intels strategy to support the development and deployment
of WiMAX networks. Intels investment in Clearwire is
classified within other long-term assets on the consolidated
balance sheet. Intel accounts for its investment in Clearwire,
which represents an ownership interest of approximately 27%,
using the equity method of accounting; and its proportionate
share of loss will continue to be recorded on a one-quarter lag
within interest and other, net on the consolidated statements of
income. At the date of acquisition, the carrying value of
Intels investment in Clearwire exceeded its share of the
book value of Clearwires assets by $261 million (split
between equity method goodwill and the excess of fair value over
book value), of which $52 million is being amortized with a
weighted average remaining life of approximately 19 years. The
remaining basis difference represents equity method goodwill and
our share of the excess of fair value over book value of
Clearwires assets having indefinite useful lives. In
accordance with SFAS No. 142, Goodwill and Other
Intangible Assets, and APB Opinion No. 18, The
Equity Method of Accounting for Investments in Common
Stock (APB No. 18), this equity method goodwill is
not being amortized. Intel regularly reviews the carrying value
of the investment for impairment in accordance with APB No. 18.
During 2006, there were no impairment charges related to the
companys investment in Clearwire.
69
INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 8:
Concentrations of Credit Risk
Financial instruments that potentially subject the company to
concentrations of credit risk consist principally of investments
in debt securities, derivative financial instruments, and trade
receivables.
Intel generally places its investments with high-credit-quality
counterparties and, by policy, limits the amount of credit
exposure to any one counterparty based on Intels analysis
of that counterpartys relative credit standing.
Investments in debt securities with original maturities of
greater than six months consist primarily of A and A2 or better
rated financial instruments and counterparties. Investments with
original maturities of up to six months consist primarily of
A-1 and
P-1 or
better rated financial instruments and counterparties.
Government regulations imposed on investment alternatives of
Intels
non-U.S.
subsidiaries, or the absence of A and A2 rated counterparties in
certain countries, result in some minor exceptions, which are
reviewed and approved annually by the Finance Committee of the
Board of Directors. Credit rating criteria for derivative
instruments are similar to those for investments. The amounts
subject to credit risk related to derivative instruments are
generally limited to the amounts, if any, by which a
counterpartys obligations exceed the obligations of Intel
with that counterparty. At December 30, 2006, the total credit
exposure to any single counterparty did not exceed $350 million.
Intels practice is to obtain and secure available
collateral from counterparties against obligations, including
securities lending transactions, whenever Intel deems
appropriate.
A substantial majority of the companys trade receivables
are derived from sales to original equipment manufacturers and
original design manufacturers of computer systems, handheld
devices, and networking and communications equipment. The
company also has accounts receivable derived from sales to
industrial and retail distributors. The companys two
largest customers accounted for 35% of net revenue for 2006,
2005, and 2004. At December 30, 2006, the two largest customers
accounted for 52% of net accounts receivable (42% of net
accounts receivable at December 31, 2005). Management believes
that the receivable balances from these largest customers do not
represent a significant credit risk based on cash flow
forecasts, balance sheet analysis, and past collection
experience.
The company has adopted credit policies and standards intended
to accommodate industry growth and inherent risk. Management
believes that credit risks are moderated by the financial
stability of the companys end customers and diverse
geographic sales areas. To assess the credit risk of
counterparties, a quantitative and qualitative analysis is
performed. From this analysis, credit limits are established and
a determination is made as to whether one or more credit support
devices, such as obtaining some form of third-party guarantee or
standby letter of credit, or obtaining credit insurance, for all
or a portion of the account balance is necessary.
Note 9:
Interest and Other, Net
The components of interest and other, net were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Millions)
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
Interest income
|
|
$
|
636
|
|
|
$
|
577
|
|
|
$
|
301
|
|
Interest expense
|
|
|
(24
|
)
|
|
|
(19
|
)
|
|
|
(50
|
)
|
Other, net
|
|
|
590
|
|
|
|
7
|
|
|
|
38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,202
|
|
|
$
|
565
|
|
|
$
|
289
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During 2006, the company realized gains of $612 million for
three completed divestitures, included within other, net, in the
table above. See Note 14: Acquisitions and
Divestitures for further information.
During 2004, the company recognized $60 million of gains in
other, net associated with terminating financing arrangements
for manufacturing facilities and equipment in Ireland (see
Note 6: Borrowings). Gains associated with
terminating similar financing arrangements recognized in 2006
and 2005 were insignificant.
70
INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 10:
Comprehensive Income
The components of comprehensive income and related tax effects
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Millions)
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
Net income
|
|
$
|
5,044
|
|
|
$
|
8,664
|
|
|
$
|
7,516
|
|
Change in net unrealized holding
gain on investments, net of tax of $(33), $(60), and $(17) in
2006, 2005, and 2004, respectively
|
|
|
61
|
|
|
|
101
|
|
|
|
31
|
|
Less: adjustment for net gain on
investments included in net income, net of tax of $27, $22, and
$15 in 2006, 2005, and 2004, respectively
|
|
|
(48
|
)
|
|
|
(38
|
)
|
|
|
(29
|
)
|
Change in net unrealized holding
gain or loss on derivatives, net of tax of $(22), $25, and $(34)
in 2006, 2005, and 2004, respectively
|
|
|
37
|
|
|
|
(42
|
)
|
|
|
63
|
|
Less: adjustment for amortization
of net gain or loss on derivatives included in net income, net
of tax of $(3), $22, and $4 in 2006, 2005, and 2004, respectively
|
|
|
6
|
|
|
|
(38
|
)
|
|
|
(8
|
)
|
Minimum pension liability, net of
tax of $6 in 2006 and $5 in 2005
|
|
|
(30
|
)
|
|
|
(8
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive
income
|
|
$
|
5,070
|
|
|
$
|
8,639
|
|
|
$
|
7,572
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The components of accumulated other comprehensive income (loss),
net of tax, were as follows:
|
|
|
|
|
|
|
|
|
(In Millions)
|
|
2006
|
|
|
2005
|
|
Accumulated net unrealized holding
gain on
available-for-sale
investments
|
|
$
|
113
|
|
|
$
|
100
|
|
Accumulated net unrealized holding
gain on derivatives
|
|
|
80
|
|
|
|
37
|
|
Accumulated minimum pension
liability
|
|
|
|
|
|
|
(10
|
)
|
Accumulated net prior service costs
|
|
|
(16
|
)
|
|
|
|
|
Accumulated net actuarial losses
|
|
|
(232
|
)
|
|
|
|
|
Accumulated transition obligation
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total accumulated other
comprehensive income (loss)
|
|
$
|
(57
|
)
|
|
$
|
127
|
|
|
|
|
|
|
|
|
|
|
The adjustment for initially applying SFAS No. 158,
Employers Accounting for Defined Benefit Pension and
Other Postretirement Plansan amendment of FASB Statements
No. 87, 88, 106, and 132(R) (SFAS No. 158), net of tax,
was recorded to accumulated other comprehensive income (loss)
for $210 million as of December 30, 2006. See Note 13:
Retirement Benefit Plans.
The estimated net prior service cost, actuarial loss, and
transition obligation for the defined benefit plan that will be
amortized from accumulated other comprehensive income (loss)
into net periodic benefit cost during fiscal year 2007 is $4
million, $16 million, and zero, respectively.
For 2006, $6 million of net deferred holding losses on
derivatives were reclassified from accumulated other
comprehensive income (loss) to cost of sales and operating
expense related to the companys
non-U.S.-currency
capital purchase and operating cost hedging programs (gains of
$38 million in 2005 and gains of $8 million in 2004). The
company estimates that less than $35 million of net derivative
gains included in accumulated other comprehensive income (loss)
will be reclassified into earnings within the next 12 months.
For all periods presented, the portion of hedging
instruments gains or losses excluded from the assessment
of effectiveness and the ineffective portions of hedges had an
insignificant impact on earnings for both cash flow and fair
value hedges. Additionally, for all periods presented, there was
no significant impact on results of operations from discontinued
cash flow hedges as a result of forecasted transactions that did
not occur.
71
INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 11:
Restructuring and Asset Impairment Charges
Intel is undertaking a restructuring plan designed to improve
operational efficiency and financial results. In the third
quarter of 2006, management approved several actions related to
this plan that were recommended by the companys structure
and efficiency task force. A portion of these activities
involves cost savings or other actions that do not result in
restructuring charges, such as better utilization of assets,
reduced spending, and organizational efficiencies. The
efficiency program includes headcount targets for various groups
within the company, and we expect these targets to be met
through ongoing employee attrition, divestitures, and employee
terminations as detailed below.
During 2006, Intel incurred restructuring charges related to
employee severance and benefit arrangements for approximately
4,800 employees. A substantial majority of these employee
terminations occurred within marketing, manufacturing,
information technology, and human resources. Additionally, Intel
completed the divestiture of the assets of three businesses in
2006 concurrently with the ongoing execution of the efficiency
program. See Note 14: Acquisitions and Divestitures
for further details. In connection with the divestiture of
certain assets of the communications and application processor
business, the company recorded impairment charges of $103
million related to the write-down of manufacturing tools to
their fair value, less the cost to dispose of the assets. The
fair value was determined using a market-based valuation
technique. In addition, as a result of both this divestiture and
a subsequent assessment of Intels worldwide manufacturing
capacity operations, management placed for sale its fabrication
facility in Colorado Springs, Colorado. This plan resulted in an
impairment charge of $214 million to write down to fair value
the land, building, and equipment asset grouping that has been
principally used to support the communications and application
processor business. The fair value of the asset grouping was
determined using various valuation techniques.
The following table summarizes the restructuring and asset
impairment activity for 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee Severance
|
|
|
|
|
|
|
|
(In Millions)
|
|
and Benefits
|
|
|
Asset Impairment
|
|
|
Total
|
|
Accrued restructuring balance
as of December 31, 2005
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Additional accruals
|
|
|
238
|
|
|
|
317
|
|
|
|
555
|
|
Adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash payments
|
|
|
(190
|
)
|
|
|
|
|
|
|
(190
|
)
|
Non-cash settlements
|
|
|
|
|
|
|
(317
|
)
|
|
|
(317
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued restructuring balance
as of December 30, 2006
|
|
$
|
48
|
|
|
$
|
|
|
|
$
|
48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The restructuring and asset impairment charges above have been
reflected separately as restructuring and asset impairment
charges on the consolidated statements of income. All amounts
have been recorded within the all other category for
segment reporting purposes, as segment managers are not held
accountable for restructuring charges, and the segment-level
evaluation within the companys budget and planning process
does not include restructuring charges. The remaining accrual as
of December 30, 2006 is related to severance benefits that are
expected to be paid within the next 12 months. As such, the
restructuring accrual is recorded as a current liability within
accrued compensation and benefits on the consolidated balance
sheets. In addition, Intel may incur charges in the future under
this restructuring for employee severance and benefit
arrangements, and facility-related or other exit activities.
72
INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 12:
Provision for Taxes
Income before taxes and the provision for taxes consisted of the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Millions)
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
Income before taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
$
|
4,532
|
|
|
$
|
10,397
|
|
|
$
|
7,422
|
|
Non-U.S.
|
|
|
2,536
|
|
|
|
2,213
|
|
|
|
2,995
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income before
taxes
|
|
$
|
7,068
|
|
|
$
|
12,610
|
|
|
$
|
10,417
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
1,997
|
|
|
$
|
3,546
|
|
|
$
|
2,787
|
|
State
|
|
|
15
|
|
|
|
289
|
|
|
|
(69
|
)
|
Non-U.S.
|
|
|
337
|
|
|
|
524
|
|
|
|
390
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,349
|
|
|
|
4,359
|
|
|
|
3,108
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(305
|
)
|
|
|
(360
|
)
|
|
|
(128
|
)
|
Other
|
|
|
(20
|
)
|
|
|
(53
|
)
|
|
|
(79
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(325
|
)
|
|
|
(413
|
)
|
|
|
(207
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total provision for
taxes
|
|
$
|
2,024
|
|
|
$
|
3,946
|
|
|
$
|
2,901
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
28.6
|
%
|
|
|
31.3
|
%
|
|
|
27.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The difference between the tax provision at the statutory
federal income tax rate and the tax provision attributable to
income before income taxes was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Percentages)
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
Statutory federal income tax rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
Increase (reduction) in rate
resulting from:
|
|
|
|
|
|
|
|
|
|
|
|
|
State taxes, net of federal
benefits
|
|
|
0.8
|
|
|
|
1.3
|
|
|
|
(0.4
|
)
|
Non-U.S.
income taxed at different rates
|
|
|
(4.3
|
)
|
|
|
(2.0
|
)
|
|
|
(2.5
|
)
|
Export sales benefit
|
|
|
(2.1
|
)
|
|
|
(2.8
|
)
|
|
|
(4.8
|
)
|
Repatriation of prior years
permanently reinvested earnings
|
|
|
|
|
|
|
1.8
|
|
|
|
|
|
Share-based compensation
|
|
|
0.7
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
(1.5
|
)
|
|
|
(2.0
|
)
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax rate
|
|
|
28.6
|
%
|
|
|
31.3
|
%
|
|
|
27.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During 2006, the tax benefit realized for the tax deduction from
option exercises and other awards totaled $139 million. The tax
benefit from employee equity incentive plans was $351 million
for 2005 and $344 million for 2004.
The American Jobs Creation Act of 2004 (the Jobs Act) created a
temporary incentive for U.S. corporations to repatriate
accumulated income earned abroad by providing an 85%
dividends-received deduction for certain dividends from
controlled
non-U.S.
corporations. During 2005, the companys Chief Executive
Officer and Board of Directors approved a domestic reinvestment
plan, under which the company repatriated $6.2 billion in
earnings outside the U.S. pursuant to the Jobs Act. The company
recorded additional tax expense in 2005 of approximately $265
million ($0.04 per common share, assuming dilution) related to
this decision to repatriate
non-U.S.
earnings.
73
INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
During 2004, in connection with preparing and filing its 2003
federal tax return and preparing its state tax returns, the
company reduced its 2004 tax provision by $195 million. This
reduction in the 2004 tax provision was primarily driven by tax
benefits for export sales and state tax benefits for
divestitures that exceeded the amounts originally estimated in
connection with the 2003 provision. Also during 2004, the
company reversed previously accrued taxes related primarily to
the closing of a state income tax audit that reduced the tax
provision for 2004 by $62 million.
The U.S. Internal Revenue Service (IRS) has formally assessed
certain adjustments to the amounts reflected by the company in
its tax returns as a tax benefit for export sales for the years
1999 through 2005. See Note 19: Contingencies for a
discussion of these matters.
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amount of assets and
liabilities for financial reporting purposes and the amounts for
income tax purposes. Significant components of the
companys deferred tax assets and liabilities at fiscal
year-ends were as follows:
|
|
|
|
|
|
|
|
|
(In Millions)
|
|
2006
|
|
|
2005
|
|
|
Deferred tax assets
|
|
|
|
|
|
|
|
|
Accrued compensation and other
benefits
|
|
$
|
284
|
|
|
$
|
212
|
|
Accrued advertising
|
|
|
|
|
|
|
170
|
|
Deferred income
|
|
|
217
|
|
|
|
241
|
|
Share-based compensation
|
|
|
385
|
|
|
|
|
|
Inventory valuation
|
|
|
268
|
|
|
|
251
|
|
Impairment losses on equity
investments
|
|
|
89
|
|
|
|
93
|
|
State credits and net operating
losses
|
|
|
115
|
|
|
|
107
|
|
Intercompany profit in inventory
|
|
|
133
|
|
|
|
105
|
|
Unremitted earnings of
non-U.S.
subsidiaries
|
|
|
54
|
|
|
|
161
|
|
Other, net
|
|
|
272
|
|
|
|
273
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,817
|
|
|
|
1,613
|
|
Valuation allowance
|
|
|
(87
|
)
|
|
|
(86
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax
assets
|
|
$
|
1,730
|
|
|
$
|
1,527
|
|
|
|
|
|
|
|
|
|
|
Deferred tax
liabilities
|
|
|
|
|
|
|
|
|
Depreciation
|
|
$
|
(530
|
)
|
|
$
|
(806
|
)
|
Accrued advertising
|
|
|
(66
|
)
|
|
|
|
|
Unrealized gains on investments
|
|
|
(149
|
)
|
|
|
(123
|
)
|
Other, net
|
|
|
(111
|
)
|
|
|
(117
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax
liabilities
|
|
$
|
(856
|
)
|
|
$
|
(1,046
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax
assets
|
|
$
|
874
|
|
|
$
|
481
|
|
|
|
|
|
|
|
|
|
|
Reported as:
|
|
|
|
|
|
|
|
|
Current deferred tax assets
|
|
$
|
997
|
|
|
$
|
1,149
|
|
Current deferred tax
liabilities1
|
|
|
(8
|
)
|
|
|
|
|
Non-current deferred tax
assets2
|
|
|
150
|
|
|
|
35
|
|
Non-current deferred tax
liabilities
|
|
|
(265
|
)
|
|
|
(703
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred taxes
|
|
$
|
874
|
|
|
$
|
481
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Included in the other accrued liabilities line item on the
consolidated balance sheets. |
|
2 |
|
Included in the other long-term assets line item on the
consolidated balance sheets. |
74
INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The company had state tax credits of $138 million at December
30, 2006 that will expire between 2009 and 2020. The net
deferred tax asset valuation allowance was $87 million at
December 30, 2006, relatively flat compared to $86 million at
December 31, 2005. The valuation allowance is based on
managements assessments that it is more likely than not
that certain deferred tax assets will not be realized in the
foreseeable future. The valuation allowance is composed of
unrealized state capital loss carry forwards and unrealized
state credit carry forwards of $79 million, and operating loss
of non-U.S.
subsidiaries of $8 million.
During 2004, the company reclassified $445 million from deferred
tax liabilities to common stock and capital stock in excess of
par value. The balance sheet reclassification represented the
tax benefit attributable to certain prior-year stock option
exercises by
non-U.S. employees
and had no impact on the accompanying statement of cash flows.
As of December 30, 2006, U.S. income taxes were not provided for
on a cumulative total of approximately $4.9 billion of
undistributed earnings for certain
non-U.S.
subsidiaries. Determination of the amount of unrecognized
deferred tax liability for temporary differences related to
investments in these
non-U.S.
subsidiaries that are essentially permanent in duration is not
practicable. The company currently intends to reinvest these
earnings in operations outside the U.S.
Note 13:
Retirement Benefit Plans
Profit
Sharing Plans
The company provides tax-qualified profit sharing retirement
plans for the benefit of eligible employees, former employees,
and retirees in the U.S. and certain other countries. The plans
are designed to provide employees with an accumulation of funds
for retirement on a tax-deferred basis and provide for annual
discretionary employer contributions. Amounts to be contributed
to the U.S. Profit Sharing Plan are determined by the Chief
Executive Officer of the company under delegation of authority
from the Board of Directors, pursuant to the terms of the
U.S. Profit Sharing Plan. As of December 30, 2006,
approximately 80% of the assets of the U.S. Profit Sharing Plan
had been allocated to domestic and international equities index
funds, and approximately 20% had been allocated to a
fixed-income fund. All assets are managed by external investment
managers, consistent with the plans investment policy.
For the benefit of eligible U.S. employees, the company also
provides a non-tax-qualified supplemental deferred compensation
plan for certain highly compensated employees. This plan is
designed to permit certain discretionary employer contributions
and to permit employee deferral of a portion of salaries in
excess of certain tax limits and deferral of bonuses. This plan
is unfunded.
The company expensed $313 million for the qualified and
non-qualified U.S. profit sharing retirement plans in 2006 ($355
million in 2005 and $323 million in 2004). The company funded
$303 million for the 2006 contribution to the
U.S. qualified Profit Sharing Plan and $11 million for the
supplemental deferred compensation plan for certain highly
compensated employees.
Contributions made by the company to the U.S. Profit Sharing
Plan on behalf of the employees vest based on the
employees years of service. Vesting begins after three
years of service in 20% annual increments until the employee is
100% vested after seven years, or earlier if the employee
reaches age 60.
75
INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Pension
and Postretirement Benefit Plans
Effective for fiscal year 2006, the company adopted the
provisions of SFAS No. 158. SFAS No. 158 requires that the
funded status of defined-benefit postretirement plans be
recognized on the companys consolidated balance sheets,
and changes in the funded status be reflected in comprehensive
income. SFAS No. 158 also requires the measurement date of the
plans funded status to be the same as the companys
fiscal year-end. Although the measurement date provision was not
required to be adopted until fiscal year 2008, the company
early-adopted this provision for fiscal year 2006. The
measurement date for all
non-U.S.
plans was the companys fiscal year-end, and the
measurement date for the U.S. plan was November. Therefore, the
change in measurement date had an insignificant impact on the
projected benefit obligation and accumulated other comprehensive
income (loss). The incremental effect of applying SFAS No. 158
on individual line items on the consolidated balance sheet as of
December 30, 2006 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Before
|
|
|
|
|
|
After
|
|
|
|
Application of
|
|
|
|
|
|
Application of
|
|
(In Millions)
|
|
SFAS No. 158
|
|
|
Adjustments
|
|
|
SFAS No. 158
|
|
|
Deferred tax assets
|
|
$
|
933
|
|
|
$
|
64
|
|
|
$
|
997
|
|
Other long-term assets
|
|
$
|
4,213
|
|
|
$
|
(9
|
)
|
|
$
|
4,204
|
|
Accrued compensation and benefits
|
|
$
|
1,950
|
|
|
$
|
(306
|
)
|
|
$
|
1,644
|
|
Other long-term liabilities
|
|
$
|
418
|
|
|
$
|
571
|
|
|
$
|
989
|
|
Accumulated other comprehensive
income (loss)
|
|
$
|
153
|
|
|
$
|
(210
|
)
|
|
$
|
(57
|
)
|
U.S. Pension Benefits. The company provides a
tax-qualified defined-benefit pension plan for the benefit of
eligible employees and retirees in the U.S. The plan provides
for a minimum pension benefit that is determined by a
participants years of service and final average
compensation (taking into account the participants social
security wage base), reduced by the participants balance
in the Profit Sharing Plan. If the pension benefit exceeds the
participants balance in the Profit Sharing Plan, the
participant will receive a combination of pension and profit
sharing amounts equal to the pension benefit. However, the
participant will receive only the benefit from the Profit
Sharing Plan if that benefit is greater than the value of the
pension benefit. If the company does not continue to contribute
to, or significantly reduces contributions to, the Profit
Sharing Plan, the U.S. defined-benefit plan projected benefit
obligation could increase significantly. The U.S.
defined-benefit plan projected benefit obligation for prior
years has been adjusted to remove the effects of estimated
assumed future profit sharing contributions and return on
investments. This change did not significantly impact results of
operations; however, the beginning benefit obligation for 2005
was adjusted by $80 million.
In 2005, the company received a favorable determination letter
from the IRS approving an amendment to the U.S. defined-benefit
plan that was filed during 2004. Effective for the plan year
ended 2005, the amendment allows for a portion of the
supplemental deferred compensation plan liability, for certain
highly compensated employees, to be included with the U.S.
defined-benefit plan under Section 415 of the Internal Revenue
Code. The amendment increased the projected benefit obligation
and accumulated benefit obligation by approximately $199
million. In 2005, the company funded the U.S. defined-benefit
plan related to this amendment in accordance with applicable
funding laws.
Non-U.S.
Pension Benefits. The company also provides
defined-benefit pension plans in certain other countries.
Consistent with the requirements of local law, the company
deposits funds for certain of these plans with insurance
companies, third-party trustees, or into government-managed
accounts,
and/or
accrues for the unfunded portion of the obligation. The
assumptions used in calculating the obligation for the
non-U.S.
plans depend on the local economic environment.
Postretirement Medical Benefits. Upon retirement,
eligible U.S. employees are credited with a defined dollar
amount based on years of service. These credits can be used to
pay all or a portion of the cost to purchase coverage in an
Intel-sponsored medical plan. If the available credits are not
sufficient to pay the entire cost of the coverage, the remaining
cost is the responsibility of the retiree.
Funding Policy. The companys practice is to
fund the various pension plans in amounts at least sufficient to
meet the minimum requirements of U.S. federal laws and
regulations or applicable local laws and regulations. The assets
of the various plans are invested in corporate equities,
corporate debt securities, government securities, and other
institutional arrangements. The portfolio of each plan depends
on plan design and applicable local laws. Depending on the
design of the plan, local customs, and market circumstances, the
liabilities of a plan may exceed qualified plan assets. The
company accrues for all such liabilities.
76
INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Benefit
Obligation and Plan Assets
The changes in the benefit obligations and plan assets for the
plans described above were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Post-
|
|
|
|
|
Non-
|
|
retirement
|
|
|
U.S. Pension
|
|
U.S. Pension
|
|
Medical
|
|
|
Benefits
|
|
Benefits
|
|
Benefits
|
(In Millions)
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
Change in projected benefit
obligation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning benefit obligation
|
|
$
|
317
|
|
|
$
|
122
|
|
|
$
|
473
|
|
|
$
|
327
|
|
|
$
|
193
|
|
|
$
|
177
|
|
Service cost
|
|
|
4
|
|
|
|
2
|
|
|
|
50
|
|
|
|
31
|
|
|
|
12
|
|
|
|
10
|
|
Interest cost
|
|
|
13
|
|
|
|
2
|
|
|
|
27
|
|
|
|
18
|
|
|
|
10
|
|
|
|
10
|
|
Plan participants
contributions
|
|
|
|
|
|
|
|
|
|
|
9
|
|
|
|
7
|
|
|
|
3
|
|
|
|
3
|
|
Actuarial (gain) loss
|
|
|
13
|
|
|
|
(7
|
)
|
|
|
115
|
|
|
|
146
|
|
|
|
(8
|
)
|
|
|
(2
|
)
|
Currency exchange rate changes
|
|
|
|
|
|
|
|
|
|
|
43
|
|
|
|
(44
|
)
|
|
|
|
|
|
|
|
|
Plan amendments
|
|
|
|
|
|
|
199
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefits paid to plan participants
|
|
|
(2
|
)
|
|
|
(1
|
)
|
|
|
(31
|
)
|
|
|
(12
|
)
|
|
|
(6
|
)
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending projected benefit
obligation
|
|
$
|
345
|
|
|
$
|
317
|
|
|
$
|
686
|
|
|
$
|
473
|
|
|
$
|
204
|
|
|
$
|
193
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Post-
|
|
|
|
|
Non-
|
|
retirement
|
|
|
U.S. Pension
|
|
U.S. Pension
|
|
Medical
|
|
|
Benefits
|
|
Benefits
|
|
Benefits
|
(In Millions)
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
Change in plan
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning fair value of plan assets
|
|
$
|
226
|
|
|
$
|
39
|
|
|
$
|
340
|
|
|
$
|
240
|
|
|
$
|
2
|
|
|
$
|
4
|
|
Actual return on plan assets
|
|
|
12
|
|
|
|
1
|
|
|
|
41
|
|
|
|
41
|
|
|
|
(1
|
)
|
|
|
|
|
Employer contributions
|
|
|
9
|
|
|
|
187
|
|
|
|
60
|
|
|
|
96
|
|
|
|
3
|
|
|
|
1
|
|
Plan participants
contributions
|
|
|
|
|
|
|
|
|
|
|
9
|
|
|
|
7
|
|
|
|
3
|
|
|
|
2
|
|
Currency exchange rate changes
|
|
|
|
|
|
|
|
|
|
|
28
|
|
|
|
(32
|
)
|
|
|
|
|
|
|
|
|
Benefits paid to participants
|
|
|
(2
|
)
|
|
|
(1
|
)
|
|
|
(31
|
)
|
|
|
(12
|
)
|
|
|
(6
|
)
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending fair value of plan
assets
|
|
$
|
245
|
|
|
$
|
226
|
|
|
$
|
447
|
|
|
$
|
340
|
|
|
$
|
1
|
|
|
$
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes the amounts recognized on the
consolidated balance sheet as of December 30, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Pension
|
|
|
Non-U.S.
Pension
|
|
|
Postretirement
|
|
(In Millions)
|
|
Benefits
|
|
|
Benefits
|
|
|
Medical Benefits
|
|
|
Other long-term assets
|
|
$
|
|
|
|
$
|
44
|
|
|
$
|
|
|
Accrued compensation and benefits
|
|
|
|
|
|
|
(6
|
)
|
|
|
(9
|
)
|
Other long-term liabilities
|
|
|
(100
|
)
|
|
|
(277
|
)
|
|
|
(194
|
)
|
Accumulated other comprehensive
loss
|
|
|
91
|
|
|
|
208
|
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized
|
|
$
|
(9
|
)
|
|
$
|
(31
|
)
|
|
$
|
(182
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
77
INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table summarizes the amounts recorded to
accumulated other comprehensive income (loss) before taxes, as
of December 30, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Pension
|
|
|
Non-U.S.
Pension
|
|
|
Postretirement
|
|
(In Millions)
|
|
Benefits
|
|
|
Benefits
|
|
|
Medical Benefits
|
|
Net prior service cost
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(25
|
)
|
Net actuarial gain (loss)
|
|
|
(91
|
)
|
|
|
(206
|
)
|
|
|
4
|
|
Reclassification adjustment of
transition obligation
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined benefit plans,
net
|
|
$
|
(91
|
)
|
|
$
|
(208
|
)
|
|
$
|
(21
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes the funding status as of December
31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Pension
|
|
|
Non-U.S.
Pension
|
|
|
Postretirement
|
|
(In Millions)
|
|
Benefits
|
|
|
Benefits
|
|
|
Medical Benefits
|
|
Ending funded status
|
|
$
|
(91
|
)
|
|
$
|
(133
|
)
|
|
$
|
(191
|
)
|
Unrecognized transition obligation
|
|
|
|
|
|
|
2
|
|
|
|
|
|
Unrecognized net actuarial loss
|
|
|
78
|
|
|
|
112
|
|
|
|
4
|
|
Unrecognized prior service cost
|
|
|
|
|
|
|
|
|
|
|
29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized
|
|
$
|
(13
|
)
|
|
$
|
(19
|
)
|
|
$
|
(158
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes the amounts recognized on the
consolidated balance sheet as of December 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Pension
|
|
|
Non-U.S.
Pension
|
|
|
Postretirement
|
|
(In Millions)
|
|
Benefits
|
|
|
Benefits
|
|
|
Medical Benefits
|
|
|
Other long-term assets
|
|
$
|
|
|
|
$
|
58
|
|
|
$
|
|
|
Accrued compensation and benefits
|
|
|
(13
|
)
|
|
|
(93
|
)
|
|
|
(158
|
)
|
Accumulated other comprehensive
loss
|
|
|
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized
|
|
$
|
(13
|
)
|
|
$
|
(19
|
)
|
|
$
|
(158
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes the accumulated benefit
obligations as of December 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Pension
|
|
|
Non-U.S.
Pension
|
|
|
Postretirement
|
|
(In Millions)
|
|
Benefits
|
|
|
Benefits
|
|
|
Medical Benefits
|
|
|
Accumulated benefit obligation
|
|
$
|
226
|
|
|
$
|
310
|
|
|
$
|
193
|
|
Included in the aggregate data in the tables below are the
amounts applicable to the companys pension plans with
accumulated benefit obligations in excess of plan assets, as
well as plans with projected benefit obligations in excess of
plan assets. Amounts related to such plans were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
U.S. Pension
|
|
U.S. Pension
|
|
|
Benefits
|
|
Benefits
|
(In Millions)
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
Plans with accumulated benefit
obligations in excess of plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated benefit obligations
|
|
$
|
|
|
|
$
|
|
|
|
$
|
330
|
|
|
$
|
98
|
|
Plan assets
|
|
$
|
|
|
|
$
|
|
|
|
$
|
211
|
|
|
$
|
13
|
|
Plans with projected benefit
obligations in excess of plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligations
|
|
$
|
345
|
|
|
$
|
317
|
|
|
$
|
494
|
|
|
$
|
323
|
|
Plan assets
|
|
$
|
245
|
|
|
$
|
226
|
|
|
$
|
211
|
|
|
$
|
146
|
|
78
INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Assumptions
Weighted-average actuarial assumptions used to determine benefit
obligations for the plans were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Post-
|
|
|
|
|
Non-
|
|
retirement
|
|
|
U.S. Pension
|
|
U.S. Pension
|
|
Medical
|
|
|
Benefits
|
|
Benefits
|
|
Benefits
|
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
Discount rate
|
|
|
5.5
|
%
|
|
|
5.4
|
%
|
|
|
5.3
|
%
|
|
|
5.4
|
%
|
|
|
5.5
|
%
|
|
|
5.6
|
%
|
Rate of compensation increase
|
|
|
5.0
|
%
|
|
|
5.0
|
%
|
|
|
4.6
|
%
|
|
|
4.0
|
%
|
|
|
|
|
|
|
|
|
For the postretirement medical benefit plan, an increase in the
assumed healthcare cost trend rate of one percentage point each
year would not have a significant impact on the benefit
obligation because the plan provides defined credits that the
retiree can use to pay all or a portion of the cost to purchase
medical coverage.
Weighted-average actuarial assumptions used to determine costs
for the plans were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Post-
|
|
|
|
|
Non-
|
|
retirement
|
|
|
U.S. Pension
|
|
U.S. Pension
|
|
Medical
|
|
|
Benefits
|
|
Benefits
|
|
Benefits
|
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
Discount rate
|
|
|
5.4
|
%
|
|
|
5.6
|
%
|
|
|
5.4
|
%
|
|
|
5.9
|
%
|
|
|
5.6
|
%
|
|
|
5.6
|
%
|
Expected return on plan assets
|
|
|
5.6
|
%
|
|
|
8.0
|
%
|
|
|
6.0
|
%
|
|
|
6.3
|
%
|
|
|
|
|
|
|
|
|
Rate of compensation increase
|
|
|
5.0
|
%
|
|
|
5.0
|
%
|
|
|
4.2
|
%
|
|
|
3.5
|
%
|
|
|
|
|
|
|
|
|
For the U.S. plan, the discount rate was developed by
calculating the benefit payment streams by year to determine
when benefit payments will be due. The benefit payment streams
were then matched by year to U.S. Treasury zero coupon strips to
match the timing and amount of the expected benefit payments.
The company adjusted the zero coupon rate by a historical credit
risk spread, and discounted it back to the measurement date to
determine the appropriate discount rate. For the
non-U.S.
plans, the discount rate was developed by analyzing long-term
bond rates and matching the bond maturity with the average
duration of the pension liabilities. Several factors are
considered in developing the asset return assumptions for the
U.S. and
non-U.S.
plans. The company analyzed rates of return relevant to the
country where each plan is in effect and the investments
applicable to the plan; expectations of future returns; local
actuarial projections; and the projected rates of return from
investment managers. The expected long-term rate of return shown
for the
non-U.S.
plan assets is weighted to reflect each countrys relative
portion of the
non-U.S.
plan assets.
Net
Periodic Benefit Cost
The net periodic benefit cost for the plans included the
following components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-U.S.
Pension
|
|
|
Postretirement
|
|
|
|
U.S. Pension Benefits
|
|
|
Benefits
|
|
|
Medical Benefits
|
|
(In Millions)
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
Service cost
|
|
$
|
4
|
|
|
$
|
4
|
|
|
$
|
4
|
|
|
$
|
51
|
|
|
$
|
31
|
|
|
$
|
29
|
|
|
$
|
12
|
|
|
$
|
11
|
|
|
$
|
15
|
|
Interest cost
|
|
|
13
|
|
|
|
2
|
|
|
|
2
|
|
|
|
27
|
|
|
|
18
|
|
|
|
16
|
|
|
|
10
|
|
|
|
10
|
|
|
|
11
|
|
Expected return on plan assets
|
|
|
(12
|
)
|
|
|
(3
|
)
|
|
|
(2
|
)
|
|
|
(15
|
)
|
|
|
(18
|
)
|
|
|
(14
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of prior service cost
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
4
|
|
|
|
4
|
|
Recognized net actuarial loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit
cost
|
|
$
|
5
|
|
|
$
|
3
|
|
|
$
|
5
|
|
|
$
|
63
|
|
|
$
|
31
|
|
|
$
|
31
|
|
|
$
|
26
|
|
|
$
|
25
|
|
|
$
|
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
79
INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
U.S.
Plan Assets
In general, the investment strategy followed for U.S. plan
assets is designed to assure that the pension assets are
available to pay benefits as they come due and minimize market
risk. When deemed appropriate, a portion of the fund may be
invested in futures contracts for the purpose of acting as a
temporary substitute for an investment in a particular equity
security. The fund does not engage in speculative futures
transactions. The expected long-term rate of return for the U.S.
plan assets is 5.6%.
The asset allocation for the companys U.S. Pension Plan at
the end of fiscal years 2006 and 2005, and the target allocation
rate for 2007, by asset category, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of Plan Assets
|
Asset Category
|
|
Target Allocation
|
|
2006
|
|
2005
|
Equity securities
|
|
|
10%20%
|
|
|
|
14.0%
|
|
|
15.0%
|
Debt securities
|
|
|
80%90%
|
|
|
|
86.0%
|
|
|
85.0%
|
Non-U.S.
Plan Assets
The non-U.S.
plans investments are managed by insurance companies,
third-party trustees, or pension funds consistent with
regulations or market practice of the country where the assets
are invested. The investment manager makes investment decisions
within the guidelines set by Intel or local regulations.
Performance is evaluated by comparing the actual rate of return
to the return on other similar assets. Investments that are
managed by qualified insurance companies or pension funds under
standard contracts follow local regulations, and Intel is not
actively involved in the investment strategy. In general, the
investment strategy followed is designed to accumulate a
diversified portfolio among markets, asset classes, or
individual securities in order to reduce market risk and assure
that the pension assets are available to pay benefits as they
come due. The average expected long-term rate of return for the
non-U.S.
plan assets is 6.0%.
The asset allocation for the companys
non-U.S.
plans, excluding assets managed by qualified insurance
companies, at the end of fiscal years 2006 and 2005, and the
target allocation rate for 2007, by asset category, are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of Plan Assets
|
Asset Category
|
|
Target Allocation
|
|
2006
|
|
2005
|
Equity securities
|
|
|
68.0%
|
|
|
|
68.0%
|
|
|
67.0%
|
Debt securities
|
|
|
8.0%
|
|
|
|
8.0%
|
|
|
21.0%
|
Other
|
|
|
24.0%
|
|
|
|
24.0%
|
|
|
12.0%
|
Investment assets that are managed by qualified insurance
companies are invested as part of the insurance companies
general fund. Intel does not have control over the target
allocation of these investments. These investments made up 31%
of total
non-U.S.
plan assets in 2006 (30% in 2005).
Funding
Expectations
No contributions are required during 2007 under applicable law
for the U.S. Pension Plan. The company intends to make voluntary
contributions so that assets are not less than the accumulated
benefit obligation at the end of the year. Expected funding for
the
non-U.S. plans
during 2007 is approximately $58 million. Employer contributions
to the postretirement medical benefits plan are expected to be
approximately $10 million during 2007.
Estimated
Future Benefit Payments
The total benefits to be paid from the U.S. and
non-U.S.
pension plans and other postretirement benefit plans are not
expected to exceed $90 million in any year through 2016.
80
INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 14:
Acquisitions and Divestitures
Business
Combinations
Consideration for acquisitions that qualify as business
combinations includes the cash paid and the value of any options
assumed, less any cash acquired, and excludes contingent
employee compensation payable in cash and any debt assumed.
During 2006, the company did not complete any acquisitions
qualifying as business combinations. During 2005, the company
completed three acquisitions qualifying as business combinations
in exchange for aggregate net cash consideration of $177
million, plus certain liabilities. Most of this consideration
was allocated to goodwill and related to businesses within the
all other category for segment reporting purposes.
During 2004, the company completed one acquisition qualifying as
a business combination in exchange for net cash consideration of
approximately $33 million, plus certain liabilities. The
operating results since the date of acquisition of the
businesses acquired are included in the segment that completed
the acquisition.
Development-Stage
Operations
An acquisition of a development-stage operation does not qualify
as a business combination under SFAS No. 141, Business
Combinations, and purchase consideration for such an
acquisition is not allocated to goodwill.
Workforce-in-place
related to an acquisition of a development-stage operation
qualifies as an identified intangible asset.
During 2006 and 2004, the company did not complete any
development-stage operation acquisitions. During 2005, the
company acquired a development-stage operation in exchange for
total net cash consideration of $19 million, most of which was
allocated to workforce-in-place. The operating results of this
acquisition since the date of acquisition are included in the
segment completing the acquisition, for segment reporting
purposes.
Divestitures
During 2006, the company completed three divestitures.
In September 2006, the company completed the divestiture of its
media and signaling business and associated assets that were
included in the Digital Enterprise Group operating segment. The
company received $75 million in cash consideration. Intel also
entered into a transition service agreement whereby Intel is
providing operational support and manufacturing to the acquiring
company for a limited time. By the completion of the transition
service agreement, approximately 375 employees of Intels
media and signaling business are expected to become employees of
the acquiring company. As a result of this divestiture, the
company recorded a reduction of goodwill for $4 million.
Additionally, a net gain of $52 million was recorded within
interest and other, net.
In September 2006, the company completed the divestiture of
certain product lines and associated assets of its optical
networking components business that were included in the Digital
Enterprise Group operating segment. Consideration for the
divestiture was $115 million, including $86 million in cash, and
shares of the acquiring company with an estimated value of $29
million. Approximately 55 employees of Intels optical
networking components business became employees of the acquiring
company during the term of the transition service agreement. As
a result of this divestiture, the company recorded a reduction
of goodwill of $6 million. Additionally, a net gain of $77
million was recorded within interest and other, net.
In November 2006, the company completed the divestiture of
certain assets of the communications and application processor
business to Marvell Technology Group, Ltd. for a cash purchase
price of $600 million, plus the assumption of certain
liabilities. The operating results associated with the divested
assets of the communications and application processor business
were included in the Mobility Group operating segment. Intel and
Marvell also entered into an agreement whereby Intel is
providing certain manufacturing and transition services to
Marvell. Approximately 1,300 employees of Intels
communications and application processor business involved in a
variety of functions, including engineering, product testing and
validation, operations, and marketing became employees of
Marvell. As a result of this divestiture, the company recorded a
reduction of goodwill of $2 million. Additionally, a net gain of
$483 million was recorded within interest and other, net.
81
INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 15:
Goodwill
Goodwill activity attributed to operating segments for the years
ended December 30, 2006 and December 31, 2005 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intel
|
|
|
Intel
|
|
|
Digital
|
|
|
|
|
|
|
|
|
|
|
|
|
Communications
|
|
|
Architecture
|
|
|
Enterprise
|
|
|
|
|
|
|
|
|
|
|
(In Millions)
|
|
Group
|
|
|
Business
|
|
|
Group
|
|
|
Mobility Group
|
|
|
All Other
|
|
|
Total
|
|
|
December 25, 2004
|
|
$
|
3,186
|
|
|
$
|
533
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
3,719
|
|
Transfer
|
|
|
(3,186
|
)
|
|
|
(533
|
)
|
|
|
3,403
|
|
|
|
258
|
|
|
|
58
|
|
|
|
|
|
Additions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
165
|
|
|
|
165
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
(3
|
)
|
|
|
(8
|
)
|
|
|
|
|
|
|
(11
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2005
|
|
$
|
|
|
|
$
|
|
|
|
$
|
3,400
|
|
|
$
|
250
|
|
|
$
|
223
|
|
|
$
|
3,873
|
|
Divestitures
|
|
|
|
|
|
|
|
|
|
|
(10
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
(12
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 30, 2006
|
|
$
|
|
|
|
$
|
|
|
|
$
|
3,390
|
|
|
$
|
248
|
|
|
$
|
223
|
|
|
$
|
3,861
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During 2006, the company completed three divestitures, which
resulted in a reduction of $12 million in goodwill. See
Note 14: Acquisitions and Divestitures for further
details.
During 2005, the company completed three acquisitions for total
purchase consideration, net of cash acquired, of $177 million,
plus liabilities assumed, which resulted in goodwill of $165
million. The operating results of the acquired companies have
been reported in the all other category from the
date of acquisition.
During the first quarter of 2005, the company reorganized its
business groups to bring all major product groups in line with
the companys strategy to design and deliver technology
platforms. Due to this reorganization of the companys
business groups during the first quarter of 2005, goodwill was
allocated to the new reporting units based on the estimated fair
value of each business group within its original reporting unit
relative to the estimated fair value of that reporting unit. In
the fourth quarter of 2005, the company added the Flash Memory
Group (FMG). As the flash products group was a separate
reporting unit in the Mobility Group, with no goodwill assigned,
the transfer of the flash products group to FMG did not change
the goodwill recorded within the operating segments. The
majority of the all other category goodwill is
included in the Digital Home Group operating segment, which is
also a reporting unit.
During 2006, 2005, and 2004, the company concluded that goodwill
was not impaired.
Note 16:
Identified Intangible Assets
Identified intangible assets are classified within other
long-term assets on the consolidated balance sheets and
consisted of the following as of December 30, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
(In Millions)
|
|
Gross Assets
|
|
|
Amortization
|
|
|
Net
|
|
|
Intellectual property assets
|
|
$
|
1,143
|
|
|
$
|
(434
|
)
|
|
$
|
709
|
|
Acquisition-related developed
technology
|
|
|
4
|
|
|
|
(2
|
)
|
|
|
2
|
|
Other intangible assets
|
|
|
349
|
|
|
|
(73
|
)
|
|
|
276
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total identified intangible
assets
|
|
$
|
1,496
|
|
|
$
|
(509
|
)
|
|
$
|
987
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During 2006, the company acquired intellectual property assets
for $293 million with a weighted average life of seven years.
Additionally, during 2006, there were $300 million in additions
to other intangible assets with a weighted average life of four
years.
82
INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Identified intangible assets consisted of the following as of
December 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
(In Millions)
|
|
Gross Assets
|
|
|
Amortization
|
|
|
Net
|
|
|
Intellectual property assets
|
|
$
|
976
|
|
|
$
|
(382
|
)
|
|
$
|
594
|
|
Acquisition-related developed
technology
|
|
|
300
|
|
|
|
(275
|
)
|
|
|
25
|
|
Other intangible assets
|
|
|
112
|
|
|
|
(77
|
)
|
|
|
35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total identified intangible
assets
|
|
$
|
1,388
|
|
|
$
|
(734
|
)
|
|
$
|
654
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During 2005, the company acquired intellectual property assets
for $209 million with a weighted average life of nine years. The
majority of the intellectual property assets acquired
represented the value of assets capitalized as a result of a
settlement agreement with MicroUnity, Inc. Pursuant to the
agreement, Intel agreed to pay MicroUnity a total of $300
million, of which $140 million was charged to cost of sales, in
exchange for a technology license. The charge to cost of sales
related to the portion of the license attributable to certain
product sales through the third quarter of 2005. The remaining
$160 million represented the value of the intellectual property
assets capitalized and is being amortized over the assets
remaining useful lives.
All of the companys identified intangible assets are
subject to amortization. Amortization of intellectual property
assets was $178 million in 2006 ($123 million in 2005 and
$120 million in 2004). The amortization of an intellectual
property asset is generally included in cost of sales on the
consolidated statements of income. Amortization of
acquisition-related developed technology was $20 million
for 2006 ($86 million for 2005 and $122 million for
2004) and is included in amortization of acquisition-related
intangibles and costs on the consolidated statements of income.
Amortization of other intangible assets was $59 million in 2006
($32 million in 2005 and $28 million in 2004). The
amortization of other intangible assets is recorded as either
amortization of acquisition-related intangibles and costs or as
a reduction of revenue on the consolidated statements of income.
Based on identified intangible assets recorded at December 30,
2006, and assuming no subsequent impairment of the underlying
assets, the annual amortization expense for each period is
expected to be as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Millions)
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
Intellectual property assets
|
|
$
|
152
|
|
|
$
|
142
|
|
|
$
|
115
|
|
|
$
|
103
|
|
|
$
|
52
|
|
Acquisition-related developed
technology
|
|
$
|
1
|
|
|
$
|
1
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Other intangible assets
|
|
$
|
80
|
|
|
$
|
85
|
|
|
$
|
111
|
|
|
$
|
|
|
|
$
|
|
|
Note 17:
Venture
During January 2006, Micron and Intel formed IMFT, a company
that manufactures NAND flash memory products for Micron and
Intel. Initial production from IMFT began in early 2006.
As part of the initial capital contribution to IMFT, Intel paid
$615 million in cash and issued $581 million in
non-interest-bearing notes in exchange for a 49% interest.
During 2006, Intel paid the entire balance of $581 million
toward the non-interest-bearing notes, which has been reflected
as a financing activity on the consolidated statement of cash
flows. At inception, in exchange for a 51% interest, Micron
contributed assets valued at $995 million and $250 million in
cash. Intel is currently committed to purchasing 49% of
IMFTs production output and production-related services.
During 2006, the purchased products and services from IMFT were
approximately $300 million and the related payable as of
December 30, 2006 was not significant.
IMFT is governed by a Board of Managers, with Intel and Micron
initially appointing an equal number of managers to the Board of
Managers. The number of managers appointed by each party adjusts
depending on the parties ownership interests in IMFT. IMFT
will operate until 2015, but is subject to prior termination
under certain terms and conditions.
83
INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Subject to certain conditions, Intel and Micron each agreed to
contribute an additional $1.4 billion in the three years
following the initial capital contributions, of which Intel had
contributed $128 million as of December 30, 2006. In January
2007, Intel made an additional capital contribution to IMFT of
$258 million.
IMFT is a variable interest entity as defined by FASB
Interpretation No. 46(R), Consolidation of Variable
Interest Entities (revised December 2003)an interpretation
of ARB No. 51 (FIN 46(R)), because all positive and
negative variances in IMFTs cost structure are passed on
to Intel and Micron through their purchase agreement with IMFT.
Micron and Intel are considered related parties under the
provisions of FIN 46(R), and Intel has determined that Intel is
not the primary beneficiary of IMFT. Intel accounts for its
interest in IMFT using the equity method of accounting.
Intels proportionate share of income or losses from its
investment in IMFT is recorded in interest and other, net.
Intels maximum exposure to loss as a result of its
involvement with IMFT is $1.3 billion as of December 30,
2006, which represents Intels investment. Intels
investment in IMFT is classified within other long-term assets
on the consolidated balance sheet.
Concurrent with the formation of IMFT, Intel paid Micron $270
million for product designs developed by Micron as well as
certain other intellectual property. Intel owns the rights with
respect to all product designs and licensed the designs to
Micron. Micron paid Intel $40 million to license these
initial product designs and will pay additional royalties on new
product designs. Intel recorded its net investment in this
technology of $230 million as an identified intangible asset,
which is included in the intellectual property asset
classification. The identified intangible asset will be
amortized into cost of sales over its expected five-year life.
Costs incurred by Intel and Micron for product and process
development related to IMFT are generally split evenly between
Intel and Micron and are classified as research and development
on the consolidated statements of income.
Intel has entered into a long-term supply agreement with Apple
Inc. to supply a portion of the NAND flash memory output that
Intel will purchase from IMFT through December 31, 2010. In
January 2006, Apple pre-paid a refundable $250 million to Intel
that will be applied to purchases of NAND flash memory by Apple
beginning in 2008. Intel has classified the $250 million as
other long-term liabilities on the consolidated balance sheet.
Note 18:
Commitments
The company leases a portion of its capital equipment and
certain of its facilities under operating leases that expire at
various dates through 2021. Additionally, the company leases
portions of its land that expire at various dates through 2062.
Rental expense was $160 million in 2006 ($150 million in
2005 and $136 million in 2004). Minimum rental commitments under
all non-cancelable leases with an initial term in excess of one
year are payable as follows: 2007$114 million;
2008$80 million; 2009$58 million;
2010$33 million; 2011$24 million; 2012 and
beyond$75 million. Commitments for construction or
purchase of property, plant and equipment increased from $2.7
billion at December 31, 2005 to $3.3 billion at December 30,
2006, primarily due to purchase obligations for capital
equipment related to our next-generation 45-nanometer process
technology. Other purchase obligations and commitments as of
December 30, 2006 totaled $1.8 billion. Other purchase
obligations and commitments include agreements to purchase raw
material or other goods as well as payments due under various
types of licenses and non-contingent funding obligations.
Funding obligations include, for example, agreements to fund
various projects with other companies. In addition, the company
has various contractual commitments related to the IMFT venture
with Micron (see Note 17: Venture).
Note 19:
Contingencies
Tax
Matters
In connection with the regular examination of Intels tax
returns for the years 1999 through 2005, the IRS formally
assessed, in 2005 and 2006, certain adjustments to the amounts
reflected by Intel on those returns as a tax benefit for its
export sales. The company does not agree with these adjustments
and has appealed the assessments. If the IRS prevails in its
position, Intels federal income tax due for 1999 through
2005 would increase by approximately $2.2 billion, plus
interest. In addition, the IRS will likely make a similar claim
for 2006, and if the IRS prevails, income tax due for 2006 would
increase by approximately $200 million, plus interest.
84
INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Although the final resolution of the adjustments is uncertain,
based on currently available information, management believes
that the ultimate outcome will not have a material adverse
effect on the companys financial position, cash flows, or
overall trends in results of operations. There is the
possibility of a material adverse impact on the results of
operations for the period in which the matter is ultimately
resolved, if it is resolved unfavorably, or in the period in
which an unfavorable outcome becomes probable and reasonably
estimable.
Legal
Proceedings
Intel currently is a party to various legal proceedings,
including those noted below. While management presently believes
that the ultimate outcome of these proceedings, individually and
in the aggregate, will not have a material adverse effect on the
companys financial position, cash flows, or overall trends
in results of operations, litigation is subject to inherent
uncertainties, and unfavorable rulings could occur. An
unfavorable ruling could include monetary damages or, in cases
for which injunctive relief is sought, an injunction prohibiting
Intel from selling one or more products. Were an unfavorable
ruling to occur, there exists the possibility of a material
adverse impact on the business or results of operations for the
period in which the ruling occurs or future periods.
In June 2005, Advanced Micro Devices, Inc. (AMD) filed a
complaint in the United States District Court for the District
of Delaware alleging that Intel and Intels Japanese
subsidiary engaged in various actions in violation of the
Sherman Act and the California Business and Professions Code,
including providing secret and discriminatory discounts and
rebates and intentionally interfering with prospective business
advantages of AMD. AMDs complaint seeks unspecified treble
damages, punitive damages, an injunction, and attorneys
fees and costs. Subsequently, AMDs Japanese subsidiary
also filed suits in the Tokyo High Court and the Tokyo District
Court against Intels Japanese subsidiary, asserting
violations of Japans Antimonopoly Law and alleging damages
of approximately $55 million, plus various other costs and fees.
At least 78 separate class actions, generally repeating
AMDs allegations and asserting various consumer injuries,
including that consumers in various states have been injured by
paying higher prices for Intel microprocessors, have been filed
in the U.S. District Courts for the Northern District of
California, Southern District of California, and the District of
Delaware, as well as in various California, Kansas, and
Tennessee state courts. All the federal class actions have been
consolidated by the Multidistrict Litigation Panel to the
District of Delaware. All California class actions have been
consolidated to the Superior Court of California in Santa Clara
County. Intel disputes AMDs claims and the
class-action
claims, and intends to defend the lawsuits vigorously.
Intel is also subject to certain antitrust regulatory inquiries.
In 2001, the European Commission commenced an investigation
regarding claims by AMD that Intel used unfair business
practices to persuade clients to buy Intel microprocessors. In
June 2005, Intel received an inquiry from the Korea Fair Trade
Commission requesting documents from Intels Korean
subsidiary related to marketing and rebate programs that Intel
entered into with Korean PC manufacturers. Intel is cooperating
with these agencies in their investigations and expects that
these matters will be acceptably resolved.
In June 2002, various plaintiffs filed a lawsuit in the Third
Judicial Circuit Court, Madison County, Illinois, against Intel,
Gateway Inc., Hewlett-Packard Company, and HPDirect, Inc.
alleging that the defendants advertisements and statements
misled the public by suppressing and concealing the alleged
material fact that systems containing Intel Pentium 4
processors are less powerful and slower than systems containing
Intel Pentium
III
processors and a competitors microprocessors. In July
2004, the court certified against Intel an Illinois-only class
of certain end-use purchasers of certain Pentium 4
processors or computers containing such microprocessors. In
January 2005, the Circuit Court granted a motion filed jointly
by the plaintiffs and Intel that stayed the proceedings in the
trial court pending discretionary appellate review of the
Circuit Courts class certification order. In July 2006,
the Illinois Appellate Court, Fifth District, vacated the
Circuit Courts class certification order and remanded the
case to the Circuit Court with instructions to reconsider its
class certification ruling. In August 2006, the Illinois Supreme
Court agreed to review the Appellate Courts decision, and
that review is pending. The plaintiffs seek unspecified damages
and attorneys fees and costs. The company disputes the
plaintiffs claims and intends to defend the lawsuit
vigorously.
Beginning in May 2005, Intel and AmberWave Systems Corporation
filed a series of lawsuits against each other that were
consolidated into actions in the United States District Court
for the District of Delaware. AmberWave claimed that certain
Intel semiconductor manufacturing processes infringed six
AmberWave patents related to semiconductor fabrication.
AmberWave sought damages, treble damages for alleged willful
infringement, an injunction, and attorneys fees. Intel
disputed AmberWaves allegations and defended the lawsuits
vigorously. In 2007, Intel and AmberWave entered into a license
agreement under which, among other terms, Intel agreed to make
certain payments to AmberWave, and AmberWave agreed to license
AmberWaves patent portfolio to Intel. The parties agreed
to jointly dismiss the actions with prejudice.
85
INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In October 2006, Transmeta Corporation filed a lawsuit in the
United States District Court for the District of Delaware.
Transmeta alleges that Intels P6, Pentium 4, Pentium M,
Intel Core, and Intel Core 2 processors infringe 10 Transmeta
patents alleged to cover computer architecture and
power-efficiency technologies. In December 2006, Transmeta filed
an amended complaint alleging that Intels processors
infringe an eleventh Transmeta patent. Intel filed counterclaims
against Transmeta alleging that Transmetas Crusoe,
Efficeon, and Efficeon 2 families of microprocessors infringe
seven Intel patents. Transmeta seeks damages, treble damages, an
injunction, and attorneys fees. Intel disputes
Transmetas allegations of infringement and intends to
defend the lawsuits vigorously.
Note 20:
Operating Segment and Geographic Information
The companys operating segments included the Digital
Enterprise Group, Mobility Group, Flash Memory Group, Digital
Home Group, Digital Health Group, and Channel Platforms Group as
of December 30, 2006. Prior-period amounts have been adjusted
retrospectively to reflect reorganizations.
The Chief Operating Decision Maker (CODM), as defined by SFAS
No. 131, Disclosures about Segments of an Enterprise and
Related Information (SFAS No. 131), is the companys
President and Chief Executive Officer (CEO). The CODM allocates
resources to and assesses the performance of each operating
segment using information about its revenue and operating income
(loss) before interest and taxes.
The company reports the financial results of the following
operating segments:
|
|
|
|
|
Digital Enterprise Group. Includes microprocessors
and related chipsets and motherboards designed for the desktop
and enterprise computing market segments; communications
infrastructure components such as network processors,
communications boards, and embedded processors; wired
connectivity devices; and products for network and server
storage.
|
|
|
Mobility Group. Includes microprocessors and related
chipsets designed for the notebook computing market segment; and
wireless connectivity products. The operating results associated
with the divested assets of the communications and application
processor business were included in the Mobility Group operating
segment through the date of the divestiture.
|
|
|
Flash Memory Group. Includes NOR flash memory
products designed for cellular phones and embedded form factors;
and NAND flash memory products manufactured by IMFT that are
designed for memory cards, digital audio players, and cellular
phones.
|
The Flash Memory Group, Digital Home Group, Digital Health
Group, and Channel Platforms Group operating segments do not
meet the quantitative thresholds for reportable segments as
defined by SFAS No. 131. However, the Flash Memory Group is
reported separately, as management believes that this
information is useful to the reader. The Digital Home Group,
Digital Health Group, and Channel Platforms Group operating
segments are included within the all other category.
The company has sales and marketing, manufacturing, finance, and
administration groups. Expenses of these groups are generally
allocated to the operating segments and are included in the
operating results reported below. Revenue for the all
other category primarily relates to microprocessors and
related chipsets sold by the Digital Home Group. In addition to
the operating results for the Digital Home Group, Digital Health
Group, and Channel Platforms Group operating segments, the
all other category includes certain corporate-level
operating expenses, including a portion of profit-dependent
bonus and other expenses not allocated to the operating
segments; results of operations of seed businesses that support
the companys initiatives; acquisition-related costs,
including amortization and impairment of acquisition-related
intangibles and goodwill; charges for purchased in-process
research and development; share-based compensation charges; and
amounts included within restructuring and asset impairment
charges on the consolidated statements of income.
With the exception of goodwill, the company does not identify or
allocate assets by operating segment, nor does the CODM evaluate
operating segments using discrete asset information. Operating
segments do not record inter-segment revenue, and, accordingly,
there is none to be reported. The company does not allocate
interest and other income, interest expense, or taxes to
operating segments. Although the CODM uses operating income to
evaluate the segments, operating costs included in one segment
may benefit other segments. Except as discussed above, the
accounting policies for segment reporting are the same as for
the company as a whole.
86
INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Operating segment net revenue and operating income (loss) for
the three years ended December 30, 2006 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Millions)
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Net revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
Digital Enterprise
Group
|
|
|
|
|
|
|
|
|
|
|
|
|
Microprocessor revenue
|
|
$
|
14,606
|
|
|
$
|
19,412
|
|
|
$
|
19,426
|
|
Chipset, motherboard, and other
revenue
|
|
|
5,270
|
|
|
|
5,725
|
|
|
|
5,352
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,876
|
|
|
|
25,137
|
|
|
|
24,778
|
|
Mobility Group
|
|
|
|
|
|
|
|
|
|
|
|
|
Microprocessor revenue
|
|
|
9,212
|
|
|
|
8,704
|
|
|
|
5,667
|
|
Chipset and other revenue
|
|
|
3,097
|
|
|
|
2,427
|
|
|
|
1,314
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,309
|
|
|
|
11,131
|
|
|
|
6,981
|
|
Flash Memory Group
|
|
|
2,163
|
|
|
|
2,278
|
|
|
|
2,285
|
|
All other
|
|
|
1,034
|
|
|
|
280
|
|
|
|
165
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue
|
|
$
|
35,382
|
|
|
$
|
38,826
|
|
|
$
|
34,209
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
(loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
Digital Enterprise Group
|
|
$
|
4,267
|
|
|
$
|
9,020
|
|
|
$
|
8,856
|
|
Mobility Group
|
|
|
4,993
|
|
|
|
5,334
|
|
|
|
2,832
|
|
Flash Memory Group
|
|
|
(555
|
)
|
|
|
(154
|
)
|
|
|
(149
|
)
|
All other
|
|
|
(3,053
|
)
|
|
|
(2,110
|
)
|
|
|
(1,409
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating
income
|
|
$
|
5,652
|
|
|
$
|
12,090
|
|
|
$
|
10,130
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In 2006, 2005, and 2004, one customer accounted for 19% of the
companys net revenue and another customer accounted for
16%. The majority of the revenue from these customers was from
the sale of microprocessors, chipsets, and other components by
the Digital Enterprise Group and Mobility Group operating
segments.
Geographic revenue information for the three years ended
December 30, 2006 is based on the location of the customer.
Property, plant and equipment information is based on the
physical location of the assets at the end of each of the fiscal
years. Revenue from unaffiliated customers by geographic
region/country was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Millions)
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Asia-Pacific
|
|
|
|
|
|
|
|
|
|
|
|
|
Taiwan
|
|
$
|
7,200
|
|
|
$
|
7,225
|
|
|
$
|
5,391
|
|
China
|
|
|
4,969
|
|
|
|
5,347
|
|
|
|
4,651
|
|
Other Asia-Pacific
|
|
|
5,308
|
|
|
|
6,758
|
|
|
|
5,338
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,477
|
|
|
|
19,330
|
|
|
|
15,380
|
|
Americas
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
|
5,486
|
|
|
|
5,662
|
|
|
|
6,563
|
|
Other Americas
|
|
|
2,026
|
|
|
|
1,912
|
|
|
|
1,402
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,512
|
|
|
|
7,574
|
|
|
|
7,965
|
|
Europe
|
|
|
6,587
|
|
|
|
8,210
|
|
|
|
7,755
|
|
Japan
|
|
|
3,806
|
|
|
|
3,712
|
|
|
|
3,109
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
35,382
|
|
|
$
|
38,826
|
|
|
$
|
34,209
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from unaffiliated customers outside the U.S. totaled
$29,896 million in 2006 ($33,164 million in 2005 and $27,646
million in 2004).
87
INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Net property, plant and equipment by country was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Millions)
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
United States
|
|
$
|
11,558
|
|
|
$
|
11,211
|
|
|
$
|
11,265
|
|
Ireland
|
|
|
2,860
|
|
|
|
3,192
|
|
|
|
2,365
|
|
Other countries
|
|
|
3,184
|
|
|
|
2,708
|
|
|
|
2,138
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total property, plant and
equipment, net
|
|
$
|
17,602
|
|
|
$
|
17,111
|
|
|
$
|
15,768
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net property, plant and equipment outside the U.S. totaled
$6,044 million in 2006 ($5,900 million in 2005 and $4,503
million in 2004).
88
REPORT OF
ERNST & YOUNG LLP, INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
The Board of Directors and Stockholders, Intel
Corporation
We have audited the accompanying consolidated balance sheets of
Intel Corporation as of December 30, 2006 and December 31, 2005,
and the related consolidated statements of income,
stockholders equity, and cash flows for each of the three
years in the period ended December 30, 2006. Our audits also
included the financial statement schedule listed in the Index at
Part IV, Item 15. These financial statements and schedule are
the responsibility of the companys management. Our
responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Intel Corporation at December 30, 2006 and
December 31, 2005, and the consolidated results of its
operations and its cash flows for each of the three years in the
period ended December 30, 2006, in conformity with U.S.
generally accepted accounting principles. Also, in our opinion,
the related financial statement schedule, when considered in
relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set
forth therein.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
effectiveness of Intel Corporations internal control over
financial reporting as of December 30, 2006, based on criteria
established in Internal ControlIntegrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated February 20, 2007 expressed
an unqualified opinion thereon.
As discussed in Notes 2 and 13 to the consolidated financial
statements, on January 1, 2006, the company adopted Statement of
Financial Accounting Standards No. 123 (revised 2004),
Share-Based Payment and during 2006, the
company adopted Statement of Financial Accounting Standards No.
158, Employers Accounting for Defined Benefit
Pension and Other Postretirement Plans, an amendment of FASB
Statements No. 87, 88, 106 and 132(R).
/s/ Ernst & Young LLP
San Jose, California
February 20, 2007
89
REPORT OF
ERNST & YOUNG LLP, INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
The Board of Directors and Stockholders, Intel
Corporation
We have audited managements assessment, included in the
accompanying Management Report on Internal Control Over
Financial Reporting, that Intel Corporation maintained effective
internal control over financial reporting as of December 30,
2006, based on criteria established in Internal
ControlIntegrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (the COSO
criteria). Intel Corporations management is responsible
for maintaining effective internal control over financial
reporting and for its assessment of the effectiveness of
internal control over financial reporting. Our responsibility is
to express an opinion on managements assessment and an
opinion on the effectiveness of the companys internal
control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, evaluating
managements assessment, testing and evaluating the design
and operating effectiveness of internal control, and performing
such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable
basis for our opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance of
records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, managements assessment that Intel
Corporation maintained effective internal control over financial
reporting as of December 30, 2006, is fairly stated, in all
material respects, based on the COSO criteria. Also, in our
opinion, Intel Corporation maintained, in all material respects,
effective internal control over financial reporting as of
December 30, 2006, based on the COSO criteria.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
2006 consolidated financial statements of Intel Corporation and
our report dated February 20, 2007 expressed an unqualified
opinion thereon.
/s/ Ernst & Young LLP
San Jose, California
February 20, 2007
90
INTEL
CORPORATION
FINANCIAL INFORMATION BY QUARTER (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 For Quarter
Ended1
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Millions, Except Per Share Amounts)
|
|
December 30
|
|
|
September 30
|
|
|
July 1
|
|
|
April 1
|
|
Net revenue
|
|
$
|
9,694
|
|
|
$
|
8,739
|
|
|
$
|
8,009
|
|
|
$
|
8,940
|
|
Gross margin
|
|
$
|
4,810
|
|
|
$
|
4,294
|
|
|
$
|
4,171
|
|
|
$
|
4,943
|
|
Net income
|
|
$
|
1,501
|
|
|
$
|
1,301
|
|
|
$
|
885
|
|
|
$
|
1,357
|
|
Basic earnings per share
|
|
$
|
0.26
|
|
|
$
|
0.23
|
|
|
$
|
0.15
|
|
|
$
|
0.23
|
|
Diluted earnings per share
|
|
$
|
0.26
|
|
|
$
|
0.22
|
|
|
$
|
0.15
|
|
|
$
|
0.23
|
|
Dividends per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Declared
|
|
$
|
|
|
|
$
|
0.20
|
|
|
$
|
|
|
|
$
|
0.20
|
|
Paid
|
|
$
|
0.10
|
|
|
$
|
0.10
|
|
|
$
|
0.10
|
|
|
$
|
0.10
|
|
Market price range common
stock2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
$
|
22.33
|
|
|
$
|
20.77
|
|
|
$
|
20.11
|
|
|
$
|
26.47
|
|
Low
|
|
$
|
20.08
|
|
|
$
|
17.10
|
|
|
$
|
16.86
|
|
|
$
|
19.46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 For Quarter Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Millions, Except Per Share Amounts)
|
|
December 31
|
|
|
October 1
|
|
|
July 2
|
|
|
April 2
|
|
|
Net revenue
|
|
$
|
10,201
|
|
|
$
|
9,960
|
|
|
$
|
9,231
|
|
|
$
|
9,434
|
|
Gross margin
|
|
$
|
6,300
|
|
|
$
|
5,948
|
|
|
$
|
5,203
|
|
|
$
|
5,598
|
|
Net income
|
|
$
|
2,453
|
|
|
$
|
1,995
|
|
|
$
|
2,038
|
|
|
$
|
2,178
|
|
Basic earnings per share
|
|
$
|
0.41
|
|
|
$
|
0.33
|
|
|
$
|
0.33
|
|
|
$
|
0.35
|
|
Diluted earnings per share
|
|
$
|
0.40
|
|
|
$
|
0.32
|
|
|
$
|
0.33
|
|
|
$
|
0.35
|
|
Dividends per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Declared
|
|
$
|
|
|
|
$
|
0.16
|
|
|
$
|
|
|
|
$
|
0.16
|
|
Paid
|
|
$
|
0.08
|
|
|
$
|
0.08
|
|
|
$
|
0.08
|
|
|
$
|
0.08
|
|
Market price range common
stock2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
$
|
27.43
|
|
|
$
|
28.71
|
|
|
$
|
27.70
|
|
|
$
|
25.11
|
|
Low
|
|
$
|
22.65
|
|
|
$
|
23.83
|
|
|
$
|
22.12
|
|
|
$
|
21.99
|
|
|
|
|
1 |
|
The company adopted the provisions of SFAS No. 123(R) in
fiscal year 2006. Results for fiscal year 2005 do not include
the effects of share-based compensation. For further
information, see Note 2: Accounting Policies and
Note 3: Employee Equity Incentive Plans in the Notes
to Consolidated Financial Statements. |
|
2 |
|
Intels common stock (symbol INTC) trades on The NASDAQ
Global Select Market* and is quoted in the Wall Street
Journal and other newspapers. Intels common stock also
trades on The Swiss Exchange. At December 30, 2006, there were
approximately 195,000 registered holders of common stock. All
stock prices are closing prices per The NASDAQ Global Select
Market. |
91
|
|
ITEM 9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
|
Not applicable.
ITEM
9A. CONTROLS AND PROCEDURES
Attached as exhibits to this Form
10-K are
certifications of Intels Chief Executive Officer (CEO) and
Chief Financial Officer (CFO), which are required in accordance
with Rule
13a-14 of
the Securities Exchange Act of 1934, as amended (the Exchange
Act). This Controls and Procedures section includes
information concerning the controls and controls evaluation
referred to in the certifications. Part II, Item 8 of this Form
10-K sets
forth the report of Ernst & Young LLP, our independent
registered public accounting firm, regarding its audit of
Intels internal control over financial reporting and of
managements assessment of internal control over financial
reporting set forth below in this section. This section should
be read in conjunction with the certifications and the Ernst
& Young report for a more complete understanding of the
topics presented.
Evaluation
of Disclosure Controls and Procedures
We conducted an evaluation of the effectiveness of the design
and operation of our disclosure controls and
procedures (Disclosure Controls) as of the end of the
period covered by this Form
10-K. The
controls evaluation was conducted under the supervision and with
the participation of management, including our CEO and CFO.
Disclosure Controls are controls and procedures designed to
reasonably assure that information required to be disclosed in
our reports filed under the Exchange Act, such as this Form
10-K, is
recorded, processed, summarized, and reported within the time
periods specified in the SECs rules and forms. Disclosure
Controls are also designed to reasonably assure that such
information is accumulated and communicated to our management,
including the CEO and CFO, as appropriate to allow timely
decisions regarding required disclosure. Our quarterly
evaluation of Disclosure Controls includes an evaluation of some
components of our internal control over financial reporting, and
internal control over financial reporting is also separately
evaluated on an annual basis for purposes of providing the
management report, which is set forth below.
The evaluation of our Disclosure Controls included a review of
the controls objectives and design, the companys
implementation of the controls, and their effect on the
information generated for use in this Form
10-K. In the
course of the controls evaluation, we reviewed identified data
errors, control problems, or acts of fraud, and sought to
confirm that appropriate corrective actions, including process
improvements, were being undertaken. This type of evaluation is
performed on a quarterly basis so that the conclusions of
management, including the CEO and CFO, concerning the
effectiveness of the Disclosure Controls can be reported in our
periodic reports on Form
10-Q and
Form 10-K.
Many of the components of our Disclosure Controls are also
evaluated on an ongoing basis by our Internal Audit Department
and by other personnel in our Finance and Enterprise Services
organization. The overall goals of these various evaluation
activities are to monitor our Disclosure Controls, and to modify
them as necessary. Our intent is to maintain the Disclosure
Controls as dynamic systems that change as conditions warrant.
Based on the controls evaluation, our CEO and CFO have concluded
that, as of the end of the period covered by this Form
10-K, our
Disclosure Controls were effective to provide reasonable
assurance that information required to be disclosed in our
Exchange Act reports is recorded, processed, summarized, and
reported within the time periods specified by the SEC, and that
material information related to Intel and its consolidated
subsidiaries is made known to management, including the CEO and
CFO, particularly during the period when our periodic reports
are being prepared.
Management
Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting to provide
reasonable assurance regarding the reliability of our financial
reporting and the preparation of financial statements for
external purposes in accordance with U.S. generally accepted
accounting principles. Internal control over financial reporting
includes those policies and procedures that (i) pertain to the
maintenance of records that in reasonable detail accurately and
fairly reflect the transactions and dispositions of the assets
of the company; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of
financial statements in accordance with U.S. generally accepted
accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of
management and directors of the company; and (iii) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
92
Management assessed our internal control over financial
reporting as of December 30, 2006, the end of our fiscal year.
Management based its assessment on criteria established in
Internal ControlIntegrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway
Commission. Managements assessment included evaluation of
elements such as the design and operating effectiveness of key
financial reporting controls, process documentation, accounting
policies, and our overall control environment. This assessment
is supported by testing and monitoring performed by both our
Internal Audit organization and our Finance and Enterprise
Services organization.
Based on our assessment, management has concluded that our
internal control over financial reporting was effective as of
the end of the fiscal year to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statements for external reporting
purposes in accordance with U.S. generally accepted accounting
principles. We reviewed the results of managements
assessment with the Audit Committee of our Board of Directors.
In addition, on a quarterly basis we evaluate any changes to our
internal control over financial reporting to determine if
material changes occurred.
Our independent registered public accounting firm, Ernst &
Young LLP, audited managements assessment and
independently assessed the effectiveness of the companys
internal control over financial reporting. Ernst & Young has
issued an attestation report concurring with managements
assessment, which is included at the end of Part II, Item 8 of
this Form
10-K.
Inherent
Limitations on Effectiveness of Controls
The companys management, including the CEO and CFO, does
not expect that our Disclosure Controls or our internal control
over financial reporting will prevent or detect all error and
all fraud. A control system, no matter how well designed and
operated, can provide only reasonable, not absolute, assurance
that the control systems objectives will be met. The
design of a control system must reflect the fact that there are
resource constraints, and the benefits of controls must be
considered relative to their costs. Further, because of the
inherent limitations in all control systems, no evaluation of
controls can provide absolute assurance that misstatements due
to error or fraud will not occur or that all control issues and
instances of fraud, if any, within the company have been
detected. These inherent limitations include the realities that
judgments in decision-making can be faulty and that breakdowns
can occur because of simple error or mistake. Controls can also
be circumvented by the individual acts of some persons, by
collusion of two or more people, or by management override of
the controls. The design of any system of controls is based in
part on certain assumptions about the likelihood of future
events, and there can be no assurance that any design will
succeed in achieving its stated goals under all potential future
conditions. Projections of any evaluation of controls
effectiveness to future periods are subject to risks. Over time,
controls may become inadequate because of changes in conditions
or deterioration in the degree of compliance with policies or
procedures.
ITEM
9B. OTHER INFORMATION
None.
93
PART
III
|
|
ITEM
10.
|
DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
|
The information regarding Directors and Executive Officers
appearing under the headings Proposal 1: Election of
Directors and Other MattersSection 16(a)
Beneficial Ownership Reporting Compliance of our 2007
Proxy Statement is incorporated by reference in this section.
The information under the heading Executive Officers of
the Registrant in Part I, Item 1 of this Form
10-K is also
incorporated by reference in this section. In addition, the
information included under the heading Corporate
Governance of our 2007 Proxy Statement is incorporated by
reference in this section.
Intel has, for many years, maintained a set of Corporate
Business Principles that incorporate our code of ethics
applicable to all employees, including all officers, and
including our independent directors, who are not employees of
the company, with regard to their Intel-related activities. The
Corporate Business Principles incorporate our guidelines
designed to deter wrongdoing and to promote honest and ethical
conduct and compliance with applicable laws and regulations.
They also incorporate our expectations of our employees that
enable us to provide accurate and timely disclosure in our
filings with the SEC and other public communications. In
addition, they incorporate Intel guidelines pertaining to topics
such as complying with applicable laws, rules, and regulations;
reporting of code violations; and maintaining accountability for
adherence to the code.
The full text of our Corporate Business Principles is published
on our Investor Relations Web site at www.intc.com. We
intend to disclose future amendments to certain provisions of
our Corporate Business Principles, or waivers of such provisions
granted to executive officers and directors, on this Web site
within four business days following the date of such amendment
or waiver.
|
|
ITEM
11.
|
EXECUTIVE
COMPENSATION
|
The information appearing under the headings Director
Compensation, Report of the Compensation
Committee, Compensation Discussion and
Analysis, and Executive Compensation of our
2007 Proxy Statement is incorporated by reference in this
section.
|
|
ITEM
12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
|
The information appearing in our 2007 Proxy Statement under the
heading Security Ownership of Certain Beneficial Owners
and Management is incorporated by reference in this
section.
Information regarding shares authorized for issuance under
equity compensation plans approved by stockholders and not
approved by stockholders in our 2007 Proxy Statement under the
heading Proposal 3: Approval of Amendment and Extension of
the 2006 Equity Incentive Plan is incorporated by
reference in this section.
|
|
ITEM
13.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
|
The information appearing in our 2007 Proxy Statement under the
heading Certain Relationships and Related
Transactions and Corporate Governance is
incorporated by reference in this section.
|
|
ITEM
14.
|
PRINCIPAL
ACCOUNTING FEES AND SERVICES
|
The information appearing in our 2007 Proxy Statement under the
headings Report of the Audit Committee and
Proposal 2: Ratification of Selection of Independent
Registered Public Accounting Firm is incorporated by
reference in this section.
94
PART
IV
|
|
ITEM
15.
|
EXHIBITS
AND FINANCIAL STATEMENT SCHEDULES
|
1. Financial Statements: See Index to Consolidated
Financial Statements in Part II, Item 8 of this Form
10-K.
2. Financial Statement Schedule: See Schedule
IIValuation and Qualifying Accounts in this section
of this Form
10-K.
3. Exhibits: The exhibits listed in the accompanying index
to exhibits are filed or incorporated by reference as part of
this Form
10-K.
Intel, the Intel logo, Intel Inside, Celeron, Intel Centrino,
Intel Core, Intel Core Duo, Intel Core 2 Duo, Intel Core 2 Quad,
Intel NetBurst, Intel StrataFlash, Intel Viiv, Intel vPro, Intel
Xeon, Intel XScale, Itanium, and Pentium are trademarks or
registered trademarks of Intel Corporation or its subsidiaries
in the United States and other countries.
|
|
|
* |
|
Other names and brands may be claimed as the property of
others. |
95
INTEL
CORPORATION
SCHEDULE IIVALUATION AND QUALIFYING ACCOUNTS
December 30, 2006, December 31, 2005, and December 25, 2004
(In Millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
Charged
|
|
|
|
|
|
|
|
|
|
Beginning of
|
|
|
(Credited)
|
|
|
|
|
|
Balance at
|
|
|
|
Year
|
|
|
to Expenses
|
|
|
Deductions
|
|
|
End of Year
|
|
Allowance for doubtful
receivables1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
$
|
64
|
|
|
$
|
(19
|
)
|
|
$
|
13
|
|
|
$
|
32
|
|
2005
|
|
$
|
43
|
|
|
$
|
35
|
|
|
$
|
14
|
|
|
$
|
64
|
|
2004
|
|
$
|
55
|
|
|
$
|
4
|
|
|
$
|
16
|
|
|
$
|
43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation allowance for deferred
tax asset
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
$
|
86
|
|
|
$
|
6
|
|
|
$
|
5
|
|
|
$
|
87
|
|
2005
|
|
$
|
75
|
|
|
$
|
11
|
|
|
$
|
|
|
|
$
|
86
|
|
2004
|
|
$
|
|
|
|
$
|
75
|
|
|
$
|
|
|
|
$
|
75
|
|
|
|
|
1 |
|
Deductions represent uncollectible accounts written off, net
of recoveries. |
96
INDEX TO
EXHIBITS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incorporated by Reference
|
|
|
Exhibit
|
|
|
|
|
|
|
|
|
|
Filing
|
|
Filed
|
Number
|
|
Exhibit Description
|
|
Form
|
|
File Number
|
|
Exhibit
|
|
Date
|
|
Herewith
|
|
3
|
.1
|
|
Intel Corporation Third Restated
Certificate of Incorporation of Intel Corporation dated
May 17, 2006
|
|
|
8-K
|
|
|
|
000-06217
|
|
|
|
3.1
|
|
|
|
5/22/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3
|
.2
|
|
Intel Corporation Bylaws, as
amended on January 17, 2007
|
|
|
8-K
|
|
|
|
000-06217
|
|
|
|
3.1
|
|
|
|
1/18/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4
|
.1
|
|
Registration Rights Agreement
|
|
|
10-K
|
|
|
|
000-06217
|
|
|
|
4.1
|
|
|
|
2/27/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4
|
.2
|
|
Indenture
|
|
|
10-K
|
|
|
|
000-06217
|
|
|
|
4.2
|
|
|
|
2/27/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.1**
|
|
Intel Corporation 2004 Equity
Incentive Plan, as amended and restated, effective May 18,
2005
|
|
|
8-K
|
|
|
|
000-06217
|
|
|
|
10.1
|
|
|
|
5/20/05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.2**
|
|
Standard Terms and Conditions
Relating to Non-Qualified Stock Options granted to
U.S. employees on and after May 19, 2004 under the
Intel Corporation 2004 Equity Incentive Plan
|
|
|
10-Q
|
|
|
|
000-06217
|
|
|
|
10.5
|
|
|
|
8/2/04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.3**
|
|
Notice of Grant of Non-Qualified
Stock Option under the Intel Corporation 2004 Equity Incentive
Plan
|
|
|
10-Q
|
|
|
|
000-06217
|
|
|
|
10.7
|
|
|
|
8/2/04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.4**
|
|
Standard International
Non-Qualified Stock Option Agreement under the Intel Corporation
2004 Equity Incentive Plan
|
|
|
10-Q
|
|
|
|
000-06217
|
|
|
|
10.6
|
|
|
|
8/2/04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.5**
|
|
Intel Corporation Non-Employee
Director Non-Qualified Stock Option Agreement under the Intel
Corporation 2004 Equity Incentive Plan
|
|
|
10-Q
|
|
|
|
000-06217
|
|
|
|
10.4
|
|
|
|
8/2/04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.6**
|
|
Form of ELTSOP Non-Qualified Stock
Option Agreement under the Intel Corporation 2004 Equity
Incentive Plan
|
|
|
8-K
|
|
|
|
000-06217
|
|
|
|
10.1
|
|
|
|
10/12/04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.7
|
|
Intel Corporation 1997 Stock
Option Plan, as amended and restated effective July 16, 1997
|
|
|
10-K
|
|
|
|
000-06217
|
|
|
|
10.7
|
|
|
|
3/11/03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.8**
|
|
Intel Corporation 1988 Executive
Long Term Stock Option Plan, as amended and restated effective
July 16, 1997
|
|
|
10-Q
|
|
|
|
333-45395
|
|
|
|
10.2
|
|
|
|
8/11/98
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.9**
|
|
Intel Corporation 1984 Stock
Option Plan, as amended and restated effective July 16, 1997
|
|
|
10-Q
|
|
|
|
333-45395
|
|
|
|
10.1
|
|
|
|
8/11/98
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.10**
|
|
Form of Notice of Grant of
Restricted Stock Units
|
|
|
8-K
|
|
|
|
000-06217
|
|
|
|
10.5
|
|
|
|
2/9/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.11**
|
|
Form of Intel Corporation
Nonqualified Stock Option Agreement under the 2004 Equity
Incentive Plan
|
|
|
10-K
|
|
|
|
000-06217
|
|
|
|
10.16
|
|
|
|
2/27/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.12**
|
|
Intel Corporation Executive
Officer Incentive Plan, as amended and restated effective
May 18, 2005
|
|
|
8-K
|
|
|
|
000-06217
|
|
|
|
10.2
|
|
|
|
5/20/05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.13**
|
|
Description of Bonus Terms under
the Executive Officer Incentive Plan
|
|
|
10-Q
|
|
|
|
000-06217
|
|
|
|
10.2
|
|
|
|
8/2/04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.14**
|
|
Intel Corporation Deferral Plan
for Outside Directors, effective July 1, 1998
|
|
|
10-K
|
|
|
|
333-45395
|
|
|
|
10.6
|
|
|
|
3/26/99
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.15**
|
|
Intel Corporation Sheltered
Employee Retirement Plan Plus, as amended and restated effective
July 15, 1996
|
|
|
S-8
|
|
|
|
033-63489
|
|
|
|
4.1
|
|
|
|
7/17/96
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.16**
|
|
Form of Indemnification Agreement
with Directors and Executive Officers
|
|
|
10-K
|
|
|
|
000-06217
|
|
|
|
10.15
|
|
|
|
2/22/05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.17**
|
|
Summary of Intel Corporation
Non-Employee Director Compensation
|
|
|
8-K
|
|
|
|
000-06217
|
|
|
|
10.1
|
|
|
|
7/25/05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.18**
|
|
Named Executive Officer
Compensation
|
|
|
10-Q
|
|
|
|
000-06217
|
|
|
|
10.1
|
|
|
|
5/11/05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.19**
|
|
Listed Officer Compensation
|
|
|
10-Q
|
|
|
|
000-06217
|
|
|
|
10.1
|
|
|
|
5/8/06
|
|
|
|
|
|
97
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incorporated by Reference
|
|
|
Exhibit
|
|
|
|
|
|
|
|
|
|
Filing
|
|
Filed
|
Number
|
|
Exhibit Description
|
|
Form
|
|
File Number
|
|
Exhibit
|
|
Date
|
|
Herewith
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.20**
|
|
Standard Terms and Conditions
relating to Restricted Stock Units granted to
U.S. employees under the Intel Corporation 2004 Equity
Incentive Plan
|
|
|
10-Q
|
|
|
|
000-06217
|
|
|
|
10.2
|
|
|
|
5/8/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.21**
|
|
Standard International Restricted
Stock Unit Agreement under the 2004 Equity Incentive Plan
|
|
|
10-Q
|
|
|
|
000-06217
|
|
|
|
10.4
|
|
|
|
5/8/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.22**
|
|
Standard Terms and Conditions
relating to Non-Qualified Stock Options granted to
U.S. employees on and after February 1, 2006 under the
Intel Corporation 2004 Equity Incentive Plan (other than grants
made under the SOP Plus or ELTSOP programs)
|
|
|
10-Q
|
|
|
|
000-06217
|
|
|
|
10.6
|
|
|
|
5/8/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.23**
|
|
Standard Terms and Conditions
relating to Restricted Stock Units granted to
U.S. employees under the Intel Corporation 2004 Equity
Incentive Plan (for grants under the ELTSOP Program)
|
|
|
10-Q
|
|
|
|
000-06217
|
|
|
|
10.9
|
|
|
|
5/8/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.24**
|
|
Standard International Restricted
Stock Unit Agreement under the 2004 Equity Incentive Plan (for
grants under the ELTSOP Program)
|
|
|
10-Q
|
|
|
|
000-06217
|
|
|
|
10.11
|
|
|
|
5/8/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.25**
|
|
Terms and Conditions relating to
Nonqualified Stock Options granted to U.S. employees on and
after February 1, 2006 under the Intel Corporation 2004
Equity Incentive Plan for grants formerly known as ELTSOP Grants
|
|
|
10-Q
|
|
|
|
000-06217
|
|
|
|
10.13
|
|
|
|
5/8/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.26**
|
|
Standard International
Nonqualified Stock Option Agreement under the 2004 Equity
Incentive Plan (for grants after February 1, 2006 under the
ELTSOP Program)
|
|
|
10-Q
|
|
|
|
000-06217
|
|
|
|
10.15
|
|
|
|
5/8/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.27**
|
|
Intel Corporation 2006 Equity
Incentive Plan, as amended and restated, effective May 17,
2006
|
|
|
8-K
|
|
|
|
000-06217
|
|
|
|
10.1
|
|
|
|
5/22/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.28**
|
|
Intel Corporation 2006 Stock
Purchase Plan, Effective May 17, 2006
|
|
|
S-8
|
|
|
|
333-135178
|
|
|
|
99.1
|
|
|
|
6/21/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.29**
|
|
Standard Terms and Conditions
relating to Restricted Stock Units granted to
U.S. employees on and after May 17, 2006 under the
Intel Corporation 2006 Equity Incentive Plan (for grants under
the standard program)
|
|
|
8-K
|
|
|
|
000-06217
|
|
|
|
10.1
|
|
|
|
7/6/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.30**
|
|
Standard International Restricted
Stock Unit Agreement under the 2006 Equity Incentive Plan (for
grants under the standard program after May 17, 2006)
|
|
|
8-K
|
|
|
|
000-06217
|
|
|
|
10.2
|
|
|
|
7/6/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.31**
|
|
Terms and Conditions relating to
Restricted Stock Units granted on and after May 17, 2006 to
U.S. employees under the Intel Corporation 2006 Equity
Incentive Plan (for grants under the ELTSOP Program)
|
|
|
8-K
|
|
|
|
000-06217
|
|
|
|
10.7
|
|
|
|
7/6/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.32**
|
|
International Restricted Stock
Unit Agreement under the 2006 Equity Incentive Plan (for grants
under the ELTSOP program after May 17, 2006)
|
|
|
8-K
|
|
|
|
000-06217
|
|
|
|
10.8
|
|
|
|
7/6/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.33**
|
|
Form of Notice of
Grant Restricted Stock Units
|
|
|
8-K
|
|
|
|
000-06217
|
|
|
|
10.13
|
|
|
|
7/6/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.34**
|
|
Standard Terms and Conditions
relating to Non-Qualified Stock Options granted to
U.S. employees on and after May 17, 2006 under the
Intel Corporation 2006 Equity Incentive Plan (for grants under
the standard program)
|
|
|
8-K
|
|
|
|
000-06217
|
|
|
|
10.14
|
|
|
|
7/6/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.35**
|
|
Standard International
Nonqualified Stock Option Agreement under the 2006 Equity
Incentive Plan (for grants under the standard program after
May 17, 2006)
|
|
|
8-K
|
|
|
|
000-06217
|
|
|
|
10.15
|
|
|
|
7/6/06
|
|
|
|
|
|
98
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incorporated by Reference
|
|
|
Exhibit
|
|
|
|
|
|
|
|
|
|
Filing
|
|
Filed
|
Number
|
|
Exhibit Description
|
|
Form
|
|
File Number
|
|
Exhibit
|
|
Date
|
|
Herewith
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.36**
|
|
Terms and Conditions relating to
Nonqualified Stock Options granted to U.S. employees on and
after May 17, 2006 under the Intel Corporation 2006 Equity
Incentive Plan (for grants under the ELTSOP Program)
|
|
|
8-K
|
|
|
|
000-06217
|
|
|
|
10.19
|
|
|
|
7/6/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.37**
|
|
International Nonqualified Stock
Option Agreement under the 2006 Equity Incentive Plan (for
grants after May 17, 2006 under the ELTSOP Program)
|
|
|
8-K
|
|
|
|
000-06217
|
|
|
|
10.20
|
|
|
|
7/6/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.38**
|
|
Form of Notice of
Grant Nonqualified Stock Options
|
|
|
8-K
|
|
|
|
000-06217
|
|
|
|
10.24
|
|
|
|
7/6/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.39**
|
|
Summary of Intel Corporation
Non-Employee Director Compensation
|
|
|
8-K
|
|
|
|
000-06217
|
|
|
|
10.1
|
|
|
|
7/14/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.40**
|
|
Form of Non-Employee Director
Restricted Stock Unit Agreement under the 2006 Equity Incentive
Plan (for RSUs granted after May 17, 2006)
|
|
|
8-K
|
|
|
|
000-06217
|
|
|
|
10.2
|
|
|
|
7/14/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.41**
|
|
Intel Corporation 2006 Deferral
Plan for Outside Directors, Effective November 15, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
X
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.42**
|
|
Terms and Conditions Relating to
Nonqualified Options Granted to Paul Otellini on
January 18, 2007 under the Intel Corporation 2006 Equity
Incentive Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
X
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
|
.1
|
|
Statement Setting Forth the
Computation of Ratios of Earnings to Fixed Charges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
X
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
|
.1
|
|
Intel subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
X
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
|
.1
|
|
Consent of Ernst & Young
LLP, Independent Registered Public Accounting Firm
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X
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31
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.1
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Certification of Chief Executive
Officer Pursuant to
Rule 13a-14(a)
of the Securities Exchange Act of 1934, as amended (the Exchange
Act)
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31
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.2
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Certification of Chief Financial
Officer and Principal Accounting Officer Pursuant to
Rule 13a-14(a)
of the Exchange Act
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X
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32
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.1
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Certification of the Chief
Executive Officer and the Chief Financial Officer and Principal
Accounting Officer Pursuant to
Rule 13a-14(b)
of the Exchange Act and 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002
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X
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** |
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Management contracts or compensation plans or arrangements in
which directors or executive officers are eligible to
participate. |
99
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
INTEL CORPORATION
Registrant
Andy D. Bryant
Executive Vice President, Chief Financial and Enterprise
Services Officer and Principal Accounting Officer
February 23, 2007
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the
dates indicated.
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/s/ Craig
R. Barrett
Craig
R. Barrett
Chairman of the Board and Director
February 23, 2007
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/s/ Paul
S. Otellini
Paul
S. Otellini
President, Chief Executive Officer, Director and
Principal Executive Officer
February 23, 2007
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/s/ Charlene
Barshefsky
Charlene
Barshefsky
Director
February 23, 2007
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/s/ James
D. Plummer
James
D. Plummer
Director
February 23, 2007
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/s/ Andy
D. Bryant
Andy
D. Bryant
Executive Vice President, Chief Financial and Enterprise
Services Officer and Principal Accounting Officer
February 23, 2007
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/s/ David
S. Pottruck
David
S. Pottruck
Director
February 23, 2007
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/s/ Susan
L. Decker
Susan
L. Decker
Director
February 23, 2007
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/s/ Jane
E. Shaw
Jane
E. Shaw
Director
February 23, 2007
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/s/ D.
James Guzy
D.
James Guzy
Director
February 23, 2007
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/s/ John
L. Thornton
John
L. Thornton
Director
February 23, 2007
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/s/ Reed
E. Hundt
Reed
E. Hundt
Director
February 23, 2007
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/s/ David
B. Yoffie
David
B. Yoffie
Director
February 23, 2007
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100