|
|
ITEM 7.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
Our Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is provided in addition to the accompanying consolidated financial statements and notes to assist readers in understanding our results of operations, financial condition, and cash flows. MD&A is organized as follows:
|
|
•
|
Overview
. Discussion of our business and overall analysis of financial and other highlights affecting the company in order to provide context for the remainder of MD&A.
|
|
|
•
|
Critical Accounting Estimates
. Accounting estimates that we believe are most important to understanding the assumptions and judgments incorporated in our reported financial results and forecasts.
|
|
|
•
|
Results of Operations
. Analysis of our financial results comparing
2016
to
2015
and comparing
2015
to
2014
.
|
|
|
•
|
Liquidity and Capital Resources
. Analysis of changes in our balance sheets and cash flows, and discussion of our financial condition and potential sources of liquidity.
|
|
|
•
|
Contractual Obligations and Off-Balance-Sheet Arrangements
.
Overview of contractual obligations, contingent liabilities, commitments, and off-balance-sheet arrangements outstanding as of
December 31, 2016
, including expected payment schedule.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Overview
(Dollars in Billions, Except Per Share Amounts)
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
We achieved record revenue of
$59.4 billion
in
2016
, up
$4.0 billion
, or
7%
, from
2015
. The increase was driven by the inclusion of PSG and growth in the DCG, CCG, and IOTG businesses. Net income for
2016
was
$10.3 billion
, and cash flow from operations was
$21.8 billion
.
|
|
•
|
CCG revenue was
$32.9 billion
,
up
2%
, with platform volume
down
10%
and platform average selling prices
up
11%
. DCG revenue was
$17.2 billion
,
up
8%
, with platform volume
up
8%
and platform average selling prices
down
1%
.
|
|
|
•
|
Gross margin dollars were
$36.2 billion
,
up
$1.5 billion
from
2015
. Gross margin of
60.9%
was
down 1.7 points
from
2015
. The gross margin percentage point decrease was driven primarily by Altera and other amortization of acquisition-related charges, lower NSG gross margin, higher factory start-up costs (primarily on 10nm), higher product warranty and intellectual property charges, and CCG non-platform products. The decrease was partially offset by lower platform unit costs, platform volume, and higher platform average selling prices.
|
|
|
•
|
R&D and MG&A totaled
$21.1 billion
,
up 5%
from a year ago. R&D and MG&A were
35.6%
of revenue in 2016, down approximately 1 point from 2015.
|
|
|
•
|
Restructuring and other charges were
$1.9 billion
, primarily driven by our 2016 Restructuring Program.
|
|
|
•
|
Earnings per share of
$2.12
were
down
21 cents
, or
9%
from a year ago. This decrease was primarily driven by higher restructuring and other charges, higher spending, and higher amortization of acquisition-related intangibles. The decrease was partially offset by platform volume and higher platform average selling prices.
|
|
|
•
|
Record cash flow from operations in
2016
was approximately
$21.8 billion
. During
2016
, we acquired Altera and other smaller acquisitions for
$15.5 billion
. We purchased
$9.6 billion
in capital assets, paid
$4.9 billion
in dividends, and repurchased
$2.6 billion
in stock. We issued
$2.8 billion
of long-term debt and assumed
$1.5 billion
as part of the Altera acquisition.
|
2016 has been a transformative year for Intel. We have made strides to move from a PC centric company to one that is powering the cloud and billions of smart, connected devices.
We are building on our strong position in client computing and are investing for growth in the data center, Internet of Things market segments, and disruptive differentiated memory technology. To accelerate our transformation, in
Q2 2016
, we announced the 2016 Restructuring Program, which is on track to reduce our headcount and generate savings.
We are reallocating these savings to our growth segments, such as the data center and Internet of Things, and are continuing to invest in areas that extend our leadership in Moore's Law and expand market opportunities in areas such as memory and autonomous driving.
In Q1 2016, we completed the acquisition of Altera, a global semiconductor company that designs and sells programmable semiconductors and related products, and subsequently formed PSG. We have worked to integrate Altera throughout 2016 and the business continues to deliver new products and to grow. In September 2016, to further accelerate our transformation and focus our business on core strategic areas, we announced the planned divestiture of ISecG.
Our Business Outlook for
Q1 2017
and full year
2017
includes, where applicable, our current expectations for revenue, gross margin percentage, spending (R&D plus MG&A), and capital expenditures. We publish our Business Outlook in our quarterly earnings release. Our Business Outlook and any updates thereto are publicly available on our Investor Relations website,
www.intc.com
. This Business Outlook is not incorporated by reference in this Form 10-K. We expect that our corporate representatives will, from time to time, meet publicly or privately with investors and others, and may reiterate the forward-looking statements contained in the Business Outlook or in this Form 10-K. The statements in the Business Outlook and 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. The forward-looking statements in the Business Outlook will be effective through the close of business on
March 17, 2017
, unless updated earlier. From the close of business on
March 17, 2017
until our quarterly earnings release is published, currently scheduled for
April 27, 2017
, 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 26, 2017
, and other forward-looking statements disclosed in the company's news releases and filings with the SEC, as reiterated or updated as applicable in this Form 10-K, should be considered historical, speaking as of prior to the quiet period only and not subject to update. During the quiet period, our representatives will not comment on our Business Outlook or our financial results or expectations. The exact timing and duration of the routine quiet period, and any others that we utilize from time to time, may vary at our discretion.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Critical Accounting Estimates
The methods, estimates, and judgments that we use in applying our accounting policies have a significant impact on our financial position and the results that we report in our consolidated financial statements. Some of these policies require us to make subjective estimates and apply judgment regarding matters that are inherently uncertain.
Our most critical accounting estimates include:
|
|
•
|
the valuation of inventory, which impacts gross margin;
|
|
|
•
|
the determination of useful lives for our property, plant and equipment and the timing of when depreciation should begin, which impacts our gross margin, R&D expenses, and to a lesser extent MG&A expenses;
|
|
|
•
|
the determination of other-than-temporary impairments for non-marketable equity investments requires the use of estimates about their valuations, which impacts gains or losses on equity investments, net;
|
|
|
•
|
the valuation and the allocation of purchase price paid for assets acquired and liabilities assumed in connection with our acquisitions, which impacts our gross margin and operating expenses in periods subsequent to the acquisition;
|
|
|
•
|
the evaluation of recoverability of long-lived assets (property, plant and equipment; identified intangibles; and goodwill), which impacts gross margin or operating expenses when we record impairments or accelerate their depreciation or amortization;
|
|
|
•
|
the recognition and measurement of current and deferred income taxes (including the measurement of uncertain tax positions), which impact our provision for taxes as well as tax-related assets and liabilities; and
|
|
|
•
|
the recognition and measurement of loss contingencies, which impact gross margin or operating expenses when we recognize a loss contingency, revise the estimate for a loss contingency, or record an asset impairment.
|
Refer to "
Note 2: Accounting Policies
" in Part II, Item 8 of this Form 10-K for further information on our critical accounting estimates and policies.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Results of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
(In Millions, Except Per Share Amounts)
|
|
December 31, 2016
|
|
December 26, 2015
|
|
December 27, 2014
|
|
Dollars
|
|
% of Net
Revenue
|
|
Dollars
|
|
% of Net
Revenue
|
|
Dollars
|
|
% of Net
Revenue
|
Net revenue
|
|
$
|
59,387
|
|
|
100.0
|
%
|
|
$
|
55,355
|
|
|
100.0
|
%
|
|
$
|
55,870
|
|
|
100.0
|
%
|
Cost of sales
|
|
23,196
|
|
|
39.1
|
%
|
|
20,676
|
|
|
37.4
|
%
|
|
20,261
|
|
|
36.3
|
%
|
Gross margin
|
|
36,191
|
|
|
60.9
|
%
|
|
34,679
|
|
|
62.6
|
%
|
|
35,609
|
|
|
63.7
|
%
|
Research and development
|
|
12,740
|
|
|
21.5
|
%
|
|
12,128
|
|
|
21.9
|
%
|
|
11,537
|
|
|
20.6
|
%
|
Marketing, general and administrative
|
|
8,397
|
|
|
14.0
|
%
|
|
7,930
|
|
|
14.3
|
%
|
|
8,136
|
|
|
14.6
|
%
|
Restructuring and other charges
|
|
1,886
|
|
|
3.2
|
%
|
|
354
|
|
|
0.6
|
%
|
|
295
|
|
|
0.5
|
%
|
Amortization of acquisition-related intangibles
|
|
294
|
|
|
0.5
|
%
|
|
265
|
|
|
0.5
|
%
|
|
294
|
|
|
0.5
|
%
|
Operating income
|
|
12,874
|
|
|
21.7
|
%
|
|
14,002
|
|
|
25.3
|
%
|
|
15,347
|
|
|
27.5
|
%
|
Gains (losses) on equity investments, net
|
|
506
|
|
|
0.9
|
%
|
|
315
|
|
|
0.6
|
%
|
|
411
|
|
|
0.7
|
%
|
Interest and other, net
|
|
(444
|
)
|
|
(0.8
|
)%
|
|
(105
|
)
|
|
(0.2
|
)%
|
|
43
|
|
|
0.1
|
%
|
Income before taxes
|
|
12,936
|
|
|
21.8
|
%
|
|
14,212
|
|
|
25.7
|
%
|
|
15,801
|
|
|
28.3
|
%
|
Provision for taxes
|
|
2,620
|
|
|
4.4
|
%
|
|
2,792
|
|
|
5.1
|
%
|
|
4,097
|
|
|
7.4
|
%
|
Net income
|
|
$
|
10,316
|
|
|
17.4
|
%
|
|
$
|
11,420
|
|
|
20.6
|
%
|
|
$
|
11,704
|
|
|
20.9
|
%
|
Diluted earnings per share of common stock
|
|
$
|
2.12
|
|
|
|
|
$
|
2.33
|
|
|
|
|
$
|
2.31
|
|
|
|
Our net revenue in
2016
increased
by
$4.0 billion
, or
7%
, compared to
2015
. Our results in
2016
reflected the inclusion of PSG from the newly acquired Altera and an extra work week, compared to
2015
. The higher revenue was also driven by higher unit sales from our DCG platform and higher average selling prices from our notebook and desktop platforms.
Our net revenue in
2015
decreased by
$515 million
, or
1%
, compared to
2014
. The decrease in revenue was due to challenging macroeconomic conditions, particularly in the first half of the year, and higher PC demand in
2014
driven by the Microsoft Windows XP* refresh. The decrease in revenue was partially offset by higher platform average selling prices on desktop and DCG platforms, higher DCG platform unit sales, along with higher NSG revenue.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Our overall gross margin percentage was
60.9%
in
2016
, down from
62.6%
in
2015
, and down from
63.7%
in
2014
. We derived most of our overall gross margin dollars from the sale of platforms in the CCG and DCG operating segments. Our overall gross margin dollars in
2016
increased
by
$1.5 billion
, or
4%
, compared to
2015
, and in
2015
decreased
by
$930 million
, or
3%
, compared to
2014
. The following results drove the change in gross margin by approximately the amounts indicated:
|
|
|
|
|
|
(In Millions)
|
|
Gross Margin Reconciliation
|
$
|
36,191
|
|
|
2016 Gross Margin
|
1,830
|
|
|
Higher gross margin from platform revenue
|
1,150
|
|
|
PSG gross margin from acquisition of Altera
|
935
|
|
|
Lower platform unit cost
|
(1,045
|
)
|
|
Altera and other acquisition-related charges
|
(690
|
)
|
|
Lower NSG gross margin
|
(645
|
)
|
|
Higher factory start-up costs, primarily driven by the ramp of our 10nm process technology
|
(315
|
)
|
|
Period charges associated with product warranty and intellectual property agreements
|
292
|
|
|
Other
|
$
|
34,679
|
|
|
2015 Gross Margin
|
(1,965
|
)
|
|
Higher platform unit cost, primarily driven by the ramp of our 14nm process technology
|
400
|
|
|
Lower factory start-up costs, primarily driven by the ramp of our 14nm process technology
|
205
|
|
|
Lower production costs primarily on our 14nm products, which were treated as period charges in 2014, partially offset by higher pre-qualification product costs on 14nm products
|
430
|
|
|
Other
|
$
|
35,609
|
|
|
2014 Gross Margin
|
Client Computing Group
Segment Product Overview
The CCG operating segment is responsible for all aspects of the client computing continuum, which includes platforms that are incorporated in notebook, 2 in 1 systems, desktop computers for consumers and businesses, tablets, and phones. These platforms may be further enhanced by features such as Intel
®
vPro™ technology, a solution designed for better manageability, security, and business and consumer user experiences. In addition, CCG offers home gateway products and set-top box components, and focuses on a broad range of wireless connectivity options that combine Intel
®
WiFi technology with our cellular mobile communication technologies. We have an array of innovative wired solutions such as Thunderbolt™ technology and client Ethernet solutions.
In 2016, we released the 7th generation Intel Core processor family for use in notebooks and desktops. These processors use 14nm transistors and our Tri-Gate transistor technology. Our Tri-Gate transistor technology extends Moore’s Law, providing improved performance and energy efficiency. In combination, these enhancements can provide significant power savings and performance gains when compared to previous-generation processors.
Notebook.
Our strategy for the notebook computing market segment is to offer notebook technologies designed to bring exciting new user experiences to life and improve performance, battery life, wireless connectivity, manageability, and security. In addition, we design for innovative smaller, lighter, and thinner form factors.
We have worked to help our customers develop advancements of personal computing devices, which include 2 in 1 systems. These computers combine the energy-efficient performance and capabilities of today’s notebooks and tablets with enhanced graphics and improved user interfaces such as touch and voice in thin, light form factors that are highly responsive and secure, and that can seamlessly connect to the Internet. We believe the renewed innovation in the PC industry that we fostered will continue with the further enhancements and capabilities of 2 in 1 systems.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Desktop.
Our strategy for the desktop computing market segment is to offer exciting new user experiences and products that provide increased manageability, security, and energy-efficient performance. We also focus on lowering the total cost of ownership for businesses. The desktop computing market segment includes all-in-one products, which combine traditionally separate desktop components into one form factor. Additionally, all-in-one computers have transformed into portable and flexible form factors that offer users increased portability and new multi-user applications and uses. For desktop consumers, we also focus on the design of products for high-end enthusiast PCs and mainstream PCs with rapidly increasing audio and media capabilities.
Operating Results
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016 compared to 2015
|
|
2015 compared to 2014
|
Years Ended
(In Millions)
|
|
Dec 31,
2016
|
|
Dec 26,
2015
|
|
Dec 27,
2014
|
|
%
Change
|
|
%
Change
|
Platform revenue
|
|
$
|
30,751
|
|
|
$
|
30,680
|
|
|
$
|
33,235
|
|
|
—
|
%
|
|
(8
|
)%
|
Other revenue
|
|
2,157
|
|
|
1,539
|
|
|
1,637
|
|
|
40
|
%
|
|
(6
|
)%
|
Net revenue
|
|
$
|
32,908
|
|
|
$
|
32,219
|
|
|
$
|
34,872
|
|
|
2
|
%
|
|
(8
|
)%
|
Operating income
|
|
$
|
10,646
|
|
|
$
|
8,166
|
|
|
$
|
10,327
|
|
|
30
|
%
|
|
(21
|
)%
|
CCG platform unit sales
|
|
|
|
|
|
|
|
(10
|
)%
|
|
(11
|
)%
|
CCG platform average selling prices
|
|
|
|
|
|
|
|
|
|
|
11
|
%
|
|
4
|
%
|
Our CCG platform average selling prices
increased
in
2016
compared to
2015
, driven by a richer mix of our high-performance notebook and desktop platforms, while our CCG platform unit sales decreased due to lower demand in the PC market. In
2015
compared to
2014
, our CCG platform unit sales decreased due to challenging macroeconomic conditions in the first half of the year and higher PC demand in
2014
driven by the Microsoft Windows XP refresh. The following results drove the changes in CCG revenue:
|
|
|
|
|
|
(In Millions)
|
|
Revenue Reconciliation
|
$
|
32,908
|
|
|
2016 CCG Revenue
|
618
|
|
|
Higher CCG non-platform revenue
|
389
|
|
|
Higher notebook platform average selling prices, up 2%
|
279
|
|
|
Higher desktop platform average selling prices, up 2%
|
222
|
|
|
Higher mobile platform revenue, primarily from reduction of cash consideration to our customers
|
(663
|
)
|
|
Lower desktop platform unit sales, down 6%
|
(156
|
)
|
|
Other
|
$
|
32,219
|
|
|
2015 CCG Revenue
|
(2,304
|
)
|
|
Lower desktop platform unit sales, down 16%
|
(1,695
|
)
|
|
Lower notebook platform unit sales, down 9%
|
760
|
|
|
Higher desktop platform average selling prices, up 6%
|
300
|
|
|
Higher notebook platform average selling prices, up 2%
|
272
|
|
|
Higher tablet platform average selling prices
|
14
|
|
|
Other
|
$
|
34,872
|
|
|
2014 CCG Revenue
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
The following results drove changes in CCG operating income by approximately the amounts indicated:
|
|
|
|
|
|
(In Millions)
|
|
Operating Income Reconciliation
|
$
|
10,646
|
|
|
2016 CCG Operating Income
|
1,250
|
|
|
Lower CCG platform unit cost
|
905
|
|
|
Lower CCG operating expense
|
625
|
|
|
Higher gross margin from CCG platform revenue
1
|
(645
|
)
|
|
Higher factory start-up costs, primarily driven by the ramp of our 10nm process technology
|
345
|
|
|
Other
|
$
|
8,166
|
|
|
2015 CCG Operating Income
|
(2,060
|
)
|
|
Higher CCG platform unit costs
|
(1,565
|
)
|
|
Lower gross margin from CCG platform revenue
2
|
435
|
|
|
Lower factory start-up costs, primarily driven by the ramp of our 14nm process technology
|
430
|
|
|
Lower production costs primarily on our 14nm products, treated as period charges in 2014
|
375
|
|
|
Lower operating expense
|
224
|
|
|
Other
|
$
|
10,327
|
|
|
2014 CCG Operating Income
|
|
|
1
|
Higher gross margin from higher CCG platform revenue was driven by higher average selling prices on notebook and desktop platforms, offset by lower desktop and notebook platform unit sales.
|
|
|
2
|
Lower gross margin from lower CCG platform revenue was driven by lower desktop and notebook platform unit sales, partially offset by higher average selling prices on desktop, notebook, and tablet platforms.
|
Data Center Group
Segment Product Overview
The DCG operating segment offers platforms designed to provide leading energy-efficient performance for all server, network, and storage applications. In addition, DCG focuses on lowering the total cost of ownership on other specific workload-optimizations for the enterprise, cloud service providers, and communications service provider market segments. In 2016, we launched the following platforms with an array of functionalities and advancements:
|
|
•
|
Intel
®
Xeon
®
processor E5 v4 family, the foundation for high performing clouds and delivers energy-efficient performance for server, network, and storage workloads.
|
|
|
•
|
Intel Xeon processor E7 v4 family, targeted at platforms requiring four or more CPUs; this processor family delivers high performance and is optimized for real-time analytics and in-memory computing, along with industry-leading reliability, availability, and serviceability.
|
|
|
•
|
Intel
®
Xeon Phi™ product family, formerly code-named Knights Landing, with up to 72 high-performance Intel processor cores, integrated memory and fabric, and a common software programming model with Intel Xeon processors. The Intel Xeon Phi product family is designed for highly parallel compute and memory bandwidth-intensive workloads. Intel Xeon Phi processors are positioned to increase the performance of supercomputers, enabling trillions of calculations per second, and to address emerging data analytics and artificial intelligence solutions.
|
In 2017, we expect to release our next generation of Intel Xeon processors for compute, storage, and network; a next-generation Intel Xeon Phi processor optimized for deep learning; and a suite of single-socket products, including next-generation Intel Xeon E3 processors, next-generation Intel Atom processors, and next-generation Intel Xeon-D processors for dense solutions.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Operating Results
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016 compared to 2015
|
|
2015 compared to 2014
|
Years Ended
(In Millions)
|
|
Dec 31,
2016
|
|
Dec 26,
2015
|
|
Dec 27,
2014
|
|
% Change
|
|
% Change
|
Platform revenue
|
|
$
|
15,895
|
|
|
$
|
14,856
|
|
|
13,341
|
|
|
7
|
%
|
|
11
|
%
|
Other revenue
|
|
1,341
|
|
|
1,125
|
|
|
1,055
|
|
|
19
|
%
|
|
7
|
%
|
Net revenue
|
|
$
|
17,236
|
|
|
$
|
15,981
|
|
|
14,396
|
|
|
8
|
%
|
|
11
|
%
|
Operating income
|
|
$
|
7,520
|
|
|
$
|
7,847
|
|
|
7,380
|
|
|
(4
|
)%
|
|
6
|
%
|
DCG platform unit sales
|
|
|
|
|
|
|
|
8
|
%
|
|
8
|
%
|
DCG platform average selling prices
|
|
|
|
|
|
|
|
(1
|
)%
|
|
3
|
%
|
Our DCG platform revenue increased, primarily due to growth in the cloud service provider and communication service provider market segments. The following results drove the changes in DCG revenue:
|
|
|
|
|
|
(In Millions)
|
|
Revenue Reconciliation
|
$
|
17,236
|
|
|
2016 DCG Revenue
|
1,149
|
|
|
Higher DCG platform unit sales
|
106
|
|
|
Other
|
$
|
15,981
|
|
|
2015 DCG Revenue
|
1,023
|
|
|
Higher DCG platform unit sales
|
493
|
|
|
Higher DCG platform average selling prices
|
69
|
|
|
Other
|
$
|
14,396
|
|
|
2014 DCG Revenue
|
The following results drove the changes in DCG operating income by approximately the amounts indicated:
|
|
|
|
|
|
(In Millions)
|
|
Operating Income Reconciliation
|
$
|
7,520
|
|
|
2016 DCG Operating Income
|
930
|
|
|
Higher gross margin from DCG platform revenue
|
(655
|
)
|
|
Higher DCG operating expense
|
(335
|
)
|
|
Higher DCG platform unit costs
|
(215
|
)
|
|
Period charges associated with product warranty and intellectual property agreements
|
(52
|
)
|
|
Other
|
$
|
7,847
|
|
|
2015 DCG Operating Income
|
1,415
|
|
|
Higher gross margin from DCG platform revenue
|
(725
|
)
|
|
Higher DCG operating expense
|
(223
|
)
|
|
Other
|
$
|
7,380
|
|
|
2014 DCG Operating Income
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Internet of Things Group
Segment Product Overview
The IOTG operating segment offers platforms designed for retail, transportation, industrial, video, buildings and smart cities, and a broad range of other market segments. In addition, IOTG focuses on establishing an end-to-end manageable architecture that captures actionable information resulting from connected "things." In
2016
, we announced the following platforms:
|
|
•
|
SoFIA 3G-R SoC, the first IOTG product with an integrated modem and connectivity;
|
|
|
•
|
Next-generation Intel Atom processor family, formerly code-named Apollo Lake; and
|
|
|
•
|
7th generation Intel Core processor family, formerly code-named Kaby Lake.
|
Operating Results
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016 compared to 2015
|
|
2015 compared to 2014
|
Years Ended
(In Millions)
|
|
Dec 31,
2016
|
|
Dec 26,
2015
|
|
Dec 27,
2014
|
|
% Change
|
|
% Change
|
Platform revenue
|
|
$
|
2,290
|
|
|
$
|
1,976
|
|
|
$
|
1,814
|
|
|
16
|
%
|
|
9
|
%
|
Other revenue
|
|
348
|
|
|
322
|
|
|
328
|
|
|
8
|
%
|
|
(2
|
)%
|
Net revenue
|
|
$
|
2,638
|
|
|
$
|
2,298
|
|
|
$
|
2,142
|
|
|
15
|
%
|
|
7
|
%
|
Operating income
|
|
$
|
585
|
|
|
$
|
515
|
|
|
$
|
583
|
|
|
14
|
%
|
|
(12
|
)%
|
The operating income for the IOTG operating segment
increased
by
$70 million
in
2016
compared to
2015
, driven by higher gross margin from IOTG revenue primarily due to
higher IOTG platform unit sales
and
higher IOTG platform average selling prices
.
The increase in revenue was partially offset by higher IOTG operating expense.
The operating income for the IOTG operating segment
decreased
by
$68 million
in
2015
compared to
2014
, driven by higher IOTG operating expenses, partially offset by higher gross margin from IOTG revenue. The higher revenue was primarily due to
higher IOTG platform unit sales
, partially offset by
lower IOTG platform average selling prices
.
Non-Volatile Memory Solutions Group
Segment Product Overview
The NSG operating segment offers NAND flash memory primarily used in solid-state drives. NAND flash memory products are manufactured by IMFT and Micron. Our 3D NAND products are manufactured in our Dalian, China fabrication facility utilizing 16nm process technology. In
2017
, we expect to release our jointly developed 3D XPoint technology, which combines the performance, density, power, non-volatility, and cost advantages of existing NAND with conventional memories like DRAM.
Operating Results
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016 compared to 2015
|
|
2015 compared to 2014
|
Years Ended
(In Millions)
|
|
Dec 31,
2016
|
|
Dec 26,
2015
|
|
Dec 27,
2014
|
|
% Change
|
|
% Change
|
Net revenue
|
|
$
|
2,576
|
|
|
$
|
2,597
|
|
|
2,146
|
|
|
(1
|
)%
|
|
21
|
%
|
Operating income (loss)
|
|
$
|
(544
|
)
|
|
$
|
239
|
|
|
255
|
|
|
(328
|
)%
|
|
(6
|
)%
|
The operating income for the NSG operating segment
decreased
by
$783 million
in
2016
to an operating loss compared to
2015
, driven by lower revenue resulting from lower average selling prices on competitive pricing pressures, offset by higher volume. Decrease in operating income was also impacted by higher costs on the ramp of our 3D NAND flash memory in our Dalian, China facility, and higher spending on 3D XPoint technology, and partially offset by lower unit costs.
The operating income for the NSG operating segment
decreased
by
$16 million
in
2015
compared to
2014
, driven by higher volume on market growth and improved unit cost, offset by lower average selling prices on competitive pricing pressures.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Intel Security Group
Segment Product Overview
The ISecG operating segment offers McAfee
®
software security products designed to deliver innovative solutions that secure computers, mobile devices, and networks around the world from the latest malware and emerging online threats. These products are designed for the protection of consumers, small businesses, and enterprise market segment customers. In
2016
, we launched our next generation of converged endpoint suites, which include cloud-based workloads and further enable new architecture for greater effectiveness.
During
Q3 2016
, we announced our decision to divest ISecG. The operating results of ISecG will be reported as continued operations until the close of the transaction. For further information, see "
Note 10: Acquisitions and Divestitures
."
Operating Results
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016 compared to 2015
|
|
2015 compared to 2014
|
Years Ended
(In Millions)
|
|
Dec 31,
2016
|
|
Dec 26,
2015
|
|
Dec 27,
2014
|
|
% Change
|
|
% Change
|
Net revenue
|
|
$
|
2,161
|
|
|
$
|
1,985
|
|
|
$
|
2,010
|
|
|
9
|
%
|
|
(1
|
)%
|
Operating income
|
|
$
|
400
|
|
|
$
|
213
|
|
|
$
|
164
|
|
|
88
|
%
|
|
30
|
%
|
The operating income for the ISecG operating segment
increased
in
2016
compared to
2015
, driven by higher revenue and lower operating expenses.
Programmable Solutions Group
Segment Product Overview
The PSG operating segment was created in
Q1 2016
, subsequent to the acquisition of Altera. PSG offers Altera
®
products and consists of FPGAs—including SoC FPGAs, which incorporate hard embedded processor cores—and complex programmable logic devices (CPLDs) for a broad range of market segments including communications, data center, industrial, military, and automotive. FPGAs and CPLDs are standard semiconductor integrated circuits, or chips, that our customers program to desired logic and processing functions in their electronic systems. In
2016
, PSG launched the Intel
®
Stratix
®
10 FPGA product.
Operating Results
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016 compared to 2015
|
Years Ended
(In Millions)
|
|
Dec 31,
2016
|
|
Dec 26,
2015
|
|
% Change
|
Net revenue
|
|
$
|
1,669
|
|
|
$
|
—
|
|
|
—
|
%
|
Operating loss
|
|
$
|
(104
|
)
|
|
$
|
—
|
|
|
—
|
%
|
The operating loss for the PSG operating segment was driven by acquisition-related charges, primarily deferred revenue write-down and inventory valuation adjustment. Due to the revaluation of deferred revenue to fair value, we excluded revenue of
$99 million
and associated costs that would have created
$64 million
of operating income in
2016
. Additionally, we incurred approximately
$387 million
of additional cost of sales charges during the period that would have been excluded from the operating results in
2016
if the acquired inventory had not been remeasured to fair value upon acquisition and then sold to end customers, resulting in zero margin on that inventory for the period.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
(In Millions)
|
|
Dec 31,
2016
|
|
Dec 26,
2015
|
|
Dec 27,
2014
|
Research and development (R&D)
|
|
$
|
12,740
|
|
|
$
|
12,128
|
|
|
$
|
11,537
|
|
Marketing, general and administrative (MG&A)
|
|
$
|
8,397
|
|
|
$
|
7,930
|
|
|
$
|
8,136
|
|
R&D and MG&A as percentage of net revenue
|
|
35.6
|
%
|
|
36.2
|
%
|
|
35.2
|
%
|
Restructuring and other charges
|
|
$
|
1,886
|
|
|
$
|
354
|
|
|
$
|
295
|
|
Amortization of acquisition-related intangibles
|
|
$
|
294
|
|
|
$
|
265
|
|
|
$
|
294
|
|
Research and Development
R&D spending
increased
by
$612 million
, or
5%
, in
2016
compared to
2015
. The
increase
was driven by the addition of PSG expenses from the acquisition of Altera, higher investment, net of 2016 restructuring program savings, in strategically important areas such as servers, Internet of Things, new devices, and memory, as well as higher process development costs for our new 7nm process technology. These increases were partially offset by lower depreciation expense due to a change at the beginning of fiscal year 2016 to the estimated useful life of our machinery and equipment in our wafer fabrication facilities.
R&D spending
increased
by
$591 million
, or
5%
, in
2015
compared to
2014
. The
increase
was due to higher investment in our products—primarily server, Internet of Things, and new devices—as well as expenses of newly acquired entities and higher process development costs for our 10nm process technology. This
increase
was partially offset by lower profit-dependent compensation and savings from the implementation of efficiencies within our CCG operating segment.
Marketing, General and Administrative
MG&A expenses
increased
by
$467 million
, or
6%
, in
2016
compared to
2015
. This increase was primarily due to PSG expenses from the acquisition of Altera.
MG&A expenses
decreased
by
$206 million
in
2015
compared to
2014
. This decrease was due to lower profit-dependent compensation as well as lower expenses from businesses that have been divested.
Restructuring and Other Charges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
(In Millions)
|
|
Dec 31,
2016
|
|
Dec 26,
2015
|
|
Dec 27,
2014
|
2016 Restructuring Program
|
|
$
|
1,823
|
|
|
$
|
—
|
|
|
$
|
—
|
|
2015 Restructuring Program
|
|
—
|
|
|
264
|
|
|
—
|
|
2013 Restructuring Program
|
|
—
|
|
|
90
|
|
|
295
|
|
Other charges
|
|
63
|
|
|
—
|
|
|
—
|
|
Total restructuring and other charges
|
|
$
|
1,886
|
|
|
$
|
354
|
|
|
$
|
295
|
|
2016 Restructuring Program
. In Q2 2016, our management approved and commenced the 2016 Restructuring Program to accelerate our transformation from a PC company to one that powers the cloud and billions of smart, connected computing devices.
Under this program, we are in the process of closing certain facilities and reducing headcount globally to align our operations with evolving business needs by investing in our growth businesses and improving efficiencies. We expect these actions to be substantially completed by
Q2 2017.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Restructuring actions related to this program that were approved in 2016 are expected to impact approximately
15,000
employees.
We estimate that the charges incurred to date as part of the 2016 restructuring program will result in net annual headcount savings of approximately
$1.6 billion
as we re-balance our workforce. On an annual basis, we expect
$1.4 billion
of these savings will reduce our R&D and MG&A spending, and the remainder will reduce our cost of sales. We began to realize these savings in Q2 2016 and expect to fully realize these savings by
Q2 2017
.
We are reallocating these savings to our growth segments, such as the data center and Internet of Things, and are continuing to invest in areas that extend our leadership in Moore's Law and expand market opportunities in areas such as memory and autonomous driving.
For further information on the 2016 Restructuring Program, see "
Note 7: Restructuring and Other Charges
" in Part II, Item 8 of this Form 10-K.
2015 Restructuring Program
. During 2015, management approved and commenced implementation of restructuring actions, primarily targeted workforce reductions, as we adjusted resources from areas of disinvestment to areas of investment. This program was completed in 2015.
2013 Restructuring Program
.
During 2013,
management approved and commenced implementation of several restructuring actions, including targeted workforce reductions and the exit of certain businesses and facilities. These actions included the wind down of our 200mm wafer fabrication facility in Massachusetts
and the closure of our assembly and test facility in Costa Rica
.
This program was completed
in 2015.
Other Charges.
Other charges consist primarily of expenses associated with the planned divestiture of ISecG that was announced
in Q3 2016.
Share-Based Compensation
Share-based compensation totaled
$1.4 billion
in
2016
(
$1.3 billion
in
2015
and
$1.1 billion
in
2014
). Share-based compensation was included in cost of sales and operating expenses.
As of
December 31, 2016
, unrecognized share-based compensation costs and the weighted average periods over which the costs are expected to be recognized were as follows:
|
|
|
|
|
|
|
|
(Dollars in Millions)
|
|
Unrecognized
Share-Based
Compensation
Costs
|
|
Weighted
Average
Period
|
Restricted stock units
|
|
$
|
1,903
|
|
|
1.2 years
|
Stock Purchase Plan
|
|
$
|
13
|
|
|
2 months
|
Gains (Losses) on Equity Investments and Interest and Other, Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
(In Millions)
|
|
Dec 31,
2016
|
|
Dec 26,
2015
|
|
Dec 27,
2014
|
Gains (losses) on equity investments, net
|
|
$
|
506
|
|
|
$
|
315
|
|
|
$
|
411
|
|
Interest and other, net
|
|
$
|
(444
|
)
|
|
$
|
(105
|
)
|
|
$
|
43
|
|
We recognized higher net gains on equity investments in
2016
compared to
2015
primarily due to gains of
$407 million
related to sales of a portion of our interest in ASML.
We recognized lower net gains on equity investments in
2015
compared to
2014
due to lower gains on sales of equity investments partially offset by higher gains on third-party merger transactions.
We recognized a higher interest and other, net loss in
2016
compared to
2015
primarily due to higher interest expense from debt issued or acquired in 2015 and 2016 as well as lower capitalized interest due to lower eligible capital expenditures in 2016.
We recognized an interest and other, net loss in
2015
compared to a net gain in
2014
primarily due to higher interest expense, which resulted from the issuance of senior unsecured notes during 2015. For further information on these transactions, see "
Note 14: Borrowings
" in part II, Item 8 of this Form 10-K.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Provision for Taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
(Dollars in Millions)
|
|
Dec 31,
2016
|
|
Dec 26,
2015
|
|
Dec 27,
2014
|
Income before taxes
|
|
$
|
12,936
|
|
|
$
|
14,212
|
|
|
$
|
15,801
|
|
Provision for taxes
|
|
$
|
2,620
|
|
|
$
|
2,792
|
|
|
$
|
4,097
|
|
Effective tax rate
|
|
20.3
|
%
|
|
19.6
|
%
|
|
25.9
|
%
|
The majority of the
increase
in our effective tax rate in
2016
compared to
2015
was driven by
one-time items and our 2015 decision to indefinitely reinvest some of our prior years' non-U.S. earnings, partially offset by higher proportion of our income in lower tax jurisdictions.
Most of the
decrease
in our effective tax rate in
2015
compared to
2014
was driven by
one-time items, a higher proportion of our income from lower tax jurisdictions, and our decision to indefinitely reinvest certain prior years' non-U.S. earnings, which positively impacted our effective income tax rate.
Liquidity and Capital Resources
We consider the following when assessing our liquidity and capital resources:
|
|
|
|
|
|
|
|
|
|
(Dollars in Millions)
|
|
Dec 31,
2016
|
|
Dec 26,
2015
|
Cash and cash equivalents, short-term investments, and trading assets
|
|
$
|
17,099
|
|
|
$
|
25,313
|
|
Other long-term investments
|
|
$
|
4,716
|
|
|
$
|
1,891
|
|
Loans receivable and other
|
|
$
|
996
|
|
|
$
|
1,170
|
|
Reverse repurchase agreements with original maturities greater than three months
|
|
$
|
250
|
|
|
$
|
1,000
|
|
Unsettled trade liabilities and other
|
|
$
|
119
|
|
|
$
|
99
|
|
Short-term and long-term debt
|
|
$
|
25,283
|
|
|
$
|
22,670
|
|
Temporary equity
|
|
$
|
882
|
|
|
$
|
897
|
|
Debt as percentage of permanent stockholders’ equity
|
|
38.2
|
%
|
|
37.1
|
%
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Sources and Uses of Cash
(In Millions)
In summary, our cash flows for each period were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
(In Millions)
|
|
Dec 31,
2016
|
|
Dec 26,
2015
|
|
Dec 27,
2014
|
Net cash provided by operating activities
|
|
$
|
21,808
|
|
|
$
|
19,017
|
|
|
$
|
20,418
|
|
Net cash used for investing activities
|
|
(25,817
|
)
|
|
(8,183
|
)
|
|
(9,905
|
)
|
Net cash provided by (used for) financing activities
|
|
(5,739
|
)
|
|
1,912
|
|
|
(13,611
|
)
|
Effect of exchange rate fluctuations on cash and cash equivalents
|
|
—
|
|
|
1
|
|
|
(15
|
)
|
Net increase (decrease) in cash and cash equivalents
|
|
$
|
(9,748
|
)
|
|
$
|
12,747
|
|
|
$
|
(3,113
|
)
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Operating Activities
Cash
provided by
operating activities is net income adjusted for certain non-cash items and changes in assets and liabilities.
For
2016
compared to
2015
, the
$2.8 billion
increase
in cash provided by operating activities was due to adjustments for non-cash items and changes in working capital, partially offset by lower net income. The adjustments for non-cash items were higher in 2016 primarily due to restructuring and other charges and the change in deferred taxes, partially offset by lower depreciation expense. Income taxes paid, net of refunds, in
2016
compared to
2015
were
$2.6 billion
lower
due to bonus depreciation on capital assets placed in service, as well as timing of certain tax payments and refunds.
For
2015
compared to
2014
, the
$1.4 billion
decrease
in cash provided by operating activities was due to changes in working capital, adjustments for non-cash items, and lower net income. The adjustments for non-cash items were lower due primarily to deferred taxes, partially offset by higher depreciation.
Investing Activities
Investing cash flows consist primarily of capital expenditures; investment purchases, sales, maturities, and disposals; and proceeds from divestitures and cash used for acquisitions. Our capital expenditures were
$9.6 billion
in
2016
(
$7.3 billion
in
2015
and
$10.1 billion
in
2014
).
The
increase
in cash used for investing activities in
2016
compared to
2015
was primarily due to our completed acquisition of Altera, net purchases of trading assets in
2016
compared to net sales of trading assets in
2015
, and higher capital expenditures in 2016. This increase was partially offset by lower investments in non-marketable equity investments and collection of loans receivable and reverse repurchase agreements.
The
decrease
in cash used for investing activities in
2015
compared to
2014
was primarily due to cash generated by net trading asset activity and lower capital expenditures during
2015
. This activity was partially offset by net available-for-sale activity (which was cash flow neutral in
2015
compared to a source of cash in
2014
) and higher investments in non-marketable equity investments during
2015
.
Financing Activities
Financing cash flows consist primarily of repurchases of common stock, payment of dividends to stockholders, issuance and repayment of short-term and long-term debt, and proceeds from the sale of shares of common stock through employee equity incentive plans.
Cash was
used for
financing activities in
2016
compared to cash provided by financing activities in
2015
, primarily due to lower proceeds from debt issuances and the repayment of
$1.5 billion
of debt in 2016. These amounts were partially offset by repayment of commercial paper in
2015
and fewer repurchases of common stock under our authorized stock repurchase program.
We have an ongoing authorization, originally approved by our Board of Directors in 2005, and subsequently amended, to repurchase up to
$65.0 billion
in shares of our common stock in the open market or negotiated transactions. During
2016
, we repurchased
$2.6 billion
of common stock under our authorized common stock repurchase program, compared to
$3.0 billion
in
2015
. As of
December 31, 2016
,
$6.8 billion
remained available for repurchasing common stock under the existing repurchase authorization limit. We base our level of common stock repurchases on internal cash management decisions, and this level may fluctuate. Proceeds from the sale of common stock through employee equity incentive plans totaled
$1.1 billion
in
2016
compared to
$866 million
in
2015
. Our total dividend payments were
$4.9 billion
in
2016
compared to
$4.6 billion
in
2015
. We have paid a cash dividend in each of the past
97
quarters. In January
2017
, our Board of Directors declared a cash dividend of
$0.26
per share of common stock for Q1
2017
. The dividend is payable on March 1,
2017
to stockholders of record on February 7,
2017
.
Cash was provided by financing activities in
2015
compared to cash used by financing activities in
2014
, primarily due to the issuance of long-term debt in
2015
and fewer repurchases of common stock under our authorized stock repurchase program in
2015
compared to
2014
. This activity was partially offset by lower proceeds from the sales of common stock in
2015
and repayments of short-term debt in
2015
compared to borrowings in
2014
.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Liquidity
Cash generated by operations is our primary source of liquidity. We maintain a diverse investment portfolio that we continually analyze based on issuer, industry, and country. When assessing our sources of liquidity we include investments as shown in the Liquidity and Capital Resources table.
Substantially all
of our investments in debt instruments and financing receivables are in investment-grade securities.
Other potential sources of liquidity include our commercial paper program and our automatic shelf registration statement on file with the SEC, pursuant to which we may offer an unspecified amount of debt, equity, and other securities. Under our commercial paper program, we have an ongoing authorization from our Board of Directors to borrow up to
$5.0 billion
.
No
commercial paper remained outstanding as of
December 31, 2016
. On December 21, 2015, we entered into a short-term credit facility to borrow up to
$5.0 billion
to facilitate the settlement of our acquisition of Altera. Under this credit facility we borrowed
$4.0 billion
, and the facility was closed in January 2016. In Q2 2016, we issued
$2.8 billion
aggregate principal amount of senior unsecured notes to refinance existing indebtedness, including our
1.95%
senior notes due
2016
and a portion of our
1.35%
senior notes due
2017
.
As of
December 31, 2016
,
$13.6 billion
of our
$17.1 billion
of cash and cash equivalents, short-term investments, and trading assets was held by our non-U.S. subsidiaries. Of the
$13.6 billion
held by our non-U.S. subsidiaries, approximately
$1.5 billion
was available for use in the U.S. without incurring additional U.S. income taxes in excess of the amounts already accrued in our financial statements as of
December 31, 2016
. The remaining amount of non-U.S. cash and cash equivalents, short-term investments, and trading assets has been indefinitely reinvested and, therefore, no U.S. current or deferred taxes have been accrued. This amount is earmarked for near-term investment in our operations outside the U.S. and future acquisitions of non-U.S. entities. We believe our U.S. sources of cash and liquidity are sufficient to meet our business needs in the U.S., and do not expect that we will need to repatriate the funds we have designated as indefinitely reinvested outside the U.S. Under current tax laws, should our plans change and we were to choose to repatriate some or all of the funds we have designated as indefinitely reinvested outside the U.S., such amounts would be subject to U.S. income taxes and applicable non-U.S. income and withholding taxes.
We believe we have sufficient financial resources to meet our business requirements in the next 12 months, including capital expenditures for worldwide manufacturing and assembly and test; working capital requirements; and potential dividends, common stock repurchases, acquisitions, and strategic investments.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Contractual Obligations
Significant contractual obligations as of
December 31, 2016
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
(In Millions)
|
|
Total
|
|
Less Than
1 Year
|
|
1–3 Years
|
|
3–5 Years
|
|
More Than
5 Years
|
Operating lease obligations
|
|
$
|
1,226
|
|
|
$
|
229
|
|
|
$
|
342
|
|
|
$
|
233
|
|
|
$
|
422
|
|
Capital purchase obligations
1
|
|
7,529
|
|
|
5,646
|
|
|
1,882
|
|
|
1
|
|
|
—
|
|
Other purchase obligations and commitments
2
|
|
3,038
|
|
|
1,825
|
|
|
1,154
|
|
|
59
|
|
|
—
|
|
Long-term debt obligations
3
|
|
42,020
|
|
|
4,391
|
|
|
2,459
|
|
|
5,854
|
|
|
29,316
|
|
Other long-term liabilities
4, 5
|
|
1,763
|
|
|
841
|
|
|
707
|
|
|
114
|
|
|
101
|
|
Total
6
|
|
$
|
55,576
|
|
|
$
|
12,932
|
|
|
$
|
6,544
|
|
|
$
|
6,261
|
|
|
$
|
29,839
|
|
|
|
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 sheets as of
December 31, 2016
, as we had not yet received the related goods or taken title to the property.
|
|
|
2
|
Other purchase obligations and commitments include payments due under various types of licenses and agreements to purchase goods or services, as well as payments due under non-contingent funding obligations.
|
|
|
3
|
Amounts represent principal and interest cash payments over the life of the debt obligations, including anticipated interest payments that are not recorded on our consolidated balance sheets. Debt obligations are
classified based on their stated maturity date, regardless of their classification on the consolidated balance sheet
s. Any future settlement of convertible debt would impact our cash payments.
|
|
|
4
|
We are unable to reliably estimate the timing of future payments related to uncertain tax positions; therefore,
$125 million
of long-term income taxes payable has been excluded from the preceding table. However, long-term income taxes payable, recorded on our consolidated balance sheets, included these uncertain tax positions, reduced by the associated federal deduction for state taxes and U.S. tax credits arising from non-U.S. income taxes.
|
|
|
5
|
Amounts represent future cash payments to satisfy other long-term liabilities recorded on our consolidated balance sheets, including the short-term portion of these long-term liabilities. Expected required contributions to our U.S. and non-U.S. pension plans and other postretirement benefit plans of
$36 million
to be made during
2017
are also included; however, funding projections beyond
2017
are not practicable to estimate. Derivative instruments are excluded from the preceding table, as they do not represent the amounts that may ultimately be paid.
|
|
|
6
|
Total excludes contractual obligations already recorded on our consolidated balance sheets as current liabilities, except for the short-term portions of long-term debt obligations and other long-term liabilities.
|
The expected timing of payments of the obligations in the preceding table is estimated based on current information. Timing of payments and actual amounts paid may be different, depending on the time of receipt of goods or services, or changes to agreed-upon amounts for some obligations.
Contractual obligations for purchases of goods or services included in "Other purchase obligations and commitments" in the preceding table 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. For obligations with cancellation provisions, the amounts included in the preceding table were limited to the non-cancelable portion of the agreement terms or the minimum cancellation fee.
We have entered into certain agreements for the purchase of raw materials that specify minimum prices and quantities based on a percentage of the total available market or based on a percentage of our future purchasing requirements. Due to the uncertainty of the future market and our future purchasing requirements, as well as the non-binding nature of these agreements, obligations under these agreements have been excluded from the preceding table. 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.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Contractual obligations that are contingent upon the achievement of certain milestones have been excluded from the preceding table. These obligations include milestone-based co-marketing agreements, contingent funding or payment obligations, and milestone-based equity investment funding (excluding investment funding that is pending regulatory approval). These arrangements are not considered contractual obligations until the milestone is met by the counterparty. As of
December 31, 2016
, assuming that all future milestones are met, excluding the ASML milestones mentioned below, the additional required payments would be approximately
$694 million
.
During 2012, we entered into a series of agreements with
ASML intended to accelerate the development of EUV lithography, certain of which were amended in 2014. Under the amended agreements,
Intel agreed to provide R&D funding totaling
€829 million
over five years and committed to advance purchase orders for a specified number of tools from ASML.
Our remaining obligation, contingent upon ASML achieving certain milestones, is approximately
€193 million
, or
$202 million
, as of
December 31, 2016
. As our obligation is contingent upon ASML achieving certain milestones, we have excluded this obligation from
the preceding table.
For the majority of RSUs granted, the number of shares of common stock issued on the date the RSUs vest is net of the minimum statutory withholding requirements that we pay in cash to the appropriate taxing authorities on behalf of our employees.
The obligation to pay the relevant taxing authority is excluded from the preceding table, 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.
During 2014, we entered into a series of agreements with Tsinghua Unigroup Ltd. (Tsinghua Unigroup), an operating subsidiary of Tsinghua Holdings Co. Ltd., to, among other things, jointly develop Intel architecture- and communications-based solutions for phones. Subject to regulatory approvals and other closing conditions, we have also agreed to invest up to
9.0 billion
Chinese yuan (approximately
$1.5 billion
as of the date of the agreement) for a minority stake of approximately
20%
of Beijing UniSpreadtrum Technology Ltd. (UniSpreadtrum). During 2015, we invested
$966 million
to complete the first phase of the equity investment. The second phase of the investment will require additional funding of approximately
$500 million
; however, as our obligation is contingent upon regulatory approvals and other closing conditions, it has been excluded from the preceding table.
Off-Balance-Sheet Arrangements
As of
December 31, 2016
, we did not have any significant off-balance-sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.
|
|
ITEM 8.
|
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
|
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
|
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Page
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|
|
|
|
|
|
|
|
|
|
Basis
|
|
|
|
|
|
|
|
Performance & Operations
|
|
|
|
|
|
|
|
|
|
|
|
Investments, Long-term Assets & Debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk Management & Other
|
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|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders of Intel Corporation
We have audited the accompanying consolidated balance sheets of Intel Corporation as of
December 31, 2016
and
December 26, 2015
, and the related consolidated statements of income, comprehensive income, stockholders' equity, and cash flows for each of the three years in the period ended
December 31, 2016
. 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 Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Intel Corporation at
December 31, 2016
and
December 26, 2015
, and the consolidated results of its operations and its cash flows for each of the three years in the period ended
December 31, 2016
, 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), Intel Corporation's internal control over financial reporting as of
December 31, 2016
, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (
2013 framework
) and our report dated
February 17, 2017
expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
San Jose, California
February 17, 2017
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders of Intel Corporation
We have audited Intel Corporation’s internal control over financial reporting as of
December 31, 2016
, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (
2013 framework
) (the COSO criteria). Intel Corporation’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s 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 company’s 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 company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Intel Corporation maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2016
, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
2016
consolidated financial statements of Intel Corporation and our report dated
February 17, 2017
, expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
San Jose, California
February 17, 2017
INTEL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
(In Millions, Except Per Share Amounts)
|
|
Dec 31,
2016
|
|
Dec 26,
2015
|
|
Dec 27,
2014
|
Net revenue
|
|
$
|
59,387
|
|
|
$
|
55,355
|
|
|
$
|
55,870
|
|
Cost of sales
|
|
23,196
|
|
|
20,676
|
|
|
20,261
|
|
Gross margin
|
|
36,191
|
|
|
34,679
|
|
|
35,609
|
|
Research and development
|
|
12,740
|
|
|
12,128
|
|
|
11,537
|
|
Marketing, general and administrative
|
|
8,397
|
|
|
7,930
|
|
|
8,136
|
|
Restructuring and other charges
|
|
1,886
|
|
|
354
|
|
|
295
|
|
Amortization of acquisition-related intangibles
|
|
294
|
|
|
265
|
|
|
294
|
|
Operating expenses
|
|
23,317
|
|
|
20,677
|
|
|
20,262
|
|
Operating income
|
|
12,874
|
|
|
14,002
|
|
|
15,347
|
|
Gains (losses) on equity investments, net
|
|
506
|
|
|
315
|
|
|
411
|
|
Interest and other, net
|
|
(444
|
)
|
|
(105
|
)
|
|
43
|
|
Income before taxes
|
|
12,936
|
|
|
14,212
|
|
|
15,801
|
|
Provision for taxes
|
|
2,620
|
|
|
2,792
|
|
|
4,097
|
|
Net income
|
|
$
|
10,316
|
|
|
$
|
11,420
|
|
|
$
|
11,704
|
|
Basic earnings per share of common stock
|
|
$
|
2.18
|
|
|
$
|
2.41
|
|
|
$
|
2.39
|
|
Diluted earnings per share of common stock
|
|
$
|
2.12
|
|
|
$
|
2.33
|
|
|
$
|
2.31
|
|
Weighted average shares of common stock outstanding:
|
|
|
|
|
|
|
Basic
|
|
4,730
|
|
|
4,742
|
|
|
4,901
|
|
Diluted
|
|
4,875
|
|
|
4,894
|
|
|
5,056
|
|
See accompanying notes.
INTEL CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
(In Millions)
|
|
Dec 31,
2016
|
|
Dec 26,
2015
|
|
Dec 27,
2014
|
Net income
|
|
$
|
10,316
|
|
|
$
|
11,420
|
|
|
$
|
11,704
|
|
Other comprehensive income (loss), net of tax:
|
|
|
|
|
|
|
Change in net unrealized holding gains (losses) on available-for-sale investments
|
|
415
|
|
|
(710
|
)
|
|
577
|
|
Change in deferred tax asset valuation allowance
|
|
(8
|
)
|
|
(18
|
)
|
|
(41
|
)
|
Change in net unrealized holding gains (losses) on derivatives
|
|
7
|
|
|
157
|
|
|
(427
|
)
|
Change in net prior service (costs) credits
|
|
—
|
|
|
7
|
|
|
(33
|
)
|
Change in actuarial valuation
|
|
(364
|
)
|
|
128
|
|
|
(402
|
)
|
Change in net foreign currency translation adjustment
|
|
(4
|
)
|
|
(170
|
)
|
|
(251
|
)
|
Other comprehensive income (loss)
|
|
46
|
|
|
(606
|
)
|
|
(577
|
)
|
Total comprehensive income
|
|
$
|
10,362
|
|
|
$
|
10,814
|
|
|
$
|
11,127
|
|
See accompanying notes.
INTEL CORPORATION
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
(In Millions, Except Par Value)
|
|
Dec 31,
2016
|
|
Dec 26,
2015
|
Assets
|
|
|
|
|
Current assets:
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
5,560
|
|
|
$
|
15,308
|
|
Short-term investments
|
|
3,225
|
|
|
2,682
|
|
Trading assets
|
|
8,314
|
|
|
7,323
|
|
Accounts receivable, net of allowance for doubtful accounts of $37 ($40 in 2015)
|
|
4,690
|
|
|
4,787
|
|
Inventories
|
|
5,553
|
|
|
5,167
|
|
Assets held for sale
|
|
5,210
|
|
|
71
|
|
Other current assets
|
|
2,956
|
|
|
2,982
|
|
Total current assets
|
|
35,508
|
|
|
38,320
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
36,171
|
|
|
31,858
|
|
Marketable equity securities
|
|
6,180
|
|
|
5,960
|
|
Other long-term investments
|
|
4,716
|
|
|
1,891
|
|
Goodwill
|
|
14,099
|
|
|
11,332
|
|
Identified intangible assets, net
|
|
9,494
|
|
|
3,933
|
|
Other long-term assets
|
|
7,159
|
|
|
8,165
|
|
Total assets
|
|
$
|
113,327
|
|
|
$
|
101,459
|
|
|
|
|
|
|
Liabilities, temporary equity, and stockholders’ equity
|
|
|
|
|
Current liabilities:
|
|
|
|
|
Short-term debt
|
|
$
|
4,634
|
|
|
$
|
2,634
|
|
Accounts payable
|
|
2,475
|
|
|
2,063
|
|
Accrued compensation and benefits
|
|
3,465
|
|
|
3,138
|
|
Accrued advertising
|
|
810
|
|
|
960
|
|
Deferred income
|
|
1,718
|
|
|
2,188
|
|
Liabilities held for sale
|
|
1,920
|
|
|
56
|
|
Other accrued liabilities
|
|
5,280
|
|
|
4,607
|
|
Total current liabilities
|
|
20,302
|
|
|
15,646
|
|
|
|
|
|
|
Long-term debt
|
|
20,649
|
|
|
20,036
|
|
Long-term deferred tax liabilities
|
|
1,730
|
|
|
954
|
|
Other long-term liabilities
|
|
3,538
|
|
|
2,841
|
|
Commitments and Contingencies (Note 20)
|
|
|
|
|
Temporary equity
|
|
882
|
|
|
897
|
|
Stockholders’ equity:
|
|
|
|
|
Preferred stock, $0.001 par value, 50 shares authorized; none issued
|
|
—
|
|
|
—
|
|
Common stock, $0.001 par value, 10,000 shares authorized; 4,730 shares issued and outstanding (4,725 issued and outstanding in 2015) and capital in excess of par value
|
|
25,373
|
|
|
23,411
|
|
Accumulated other comprehensive income (loss)
|
|
106
|
|
|
60
|
|
Retained earnings
|
|
40,747
|
|
|
37,614
|
|
Total stockholders’ equity
|
|
66,226
|
|
|
61,085
|
|
Total liabilities, temporary equity, and stockholders’ equity
|
|
$
|
113,327
|
|
|
$
|
101,459
|
|
See accompanying notes.
INTEL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
(In Millions)
|
|
Dec 31,
2016
|
|
Dec 26,
2015
|
|
Dec 27,
2014
|
Cash and cash equivalents, beginning of period
|
|
$
|
15,308
|
|
|
$
|
2,561
|
|
|
$
|
5,674
|
|
Cash flows provided by (used for) operating activities:
|
|
|
|
|
|
|
Net income
|
|
10,316
|
|
|
11,420
|
|
|
11,704
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
Depreciation
|
|
6,266
|
|
|
7,821
|
|
|
7,380
|
|
Share-based compensation
|
|
1,444
|
|
|
1,305
|
|
|
1,148
|
|
Excess tax benefit from share-based payment arrangements
|
|
(121
|
)
|
|
(159
|
)
|
|
(122
|
)
|
Restructuring and other charges
|
|
1,886
|
|
|
354
|
|
|
295
|
|
Amortization of intangibles
|
|
1,524
|
|
|
890
|
|
|
1,169
|
|
(Gains) losses on equity investments, net
|
|
(432
|
)
|
|
(263
|
)
|
|
(354
|
)
|
Deferred taxes
|
|
257
|
|
|
(1,270
|
)
|
|
(703
|
)
|
Changes in assets and liabilities:
1
|
|
|
|
|
|
|
Accounts receivable
|
|
65
|
|
|
(355
|
)
|
|
(861
|
)
|
Inventories
|
|
119
|
|
|
(764
|
)
|
|
(98
|
)
|
Accounts payable
|
|
182
|
|
|
(312
|
)
|
|
(249
|
)
|
Accrued compensation and benefits
|
|
(1,595
|
)
|
|
(711
|
)
|
|
4
|
|
Income taxes payable and receivable
|
|
1,382
|
|
|
386
|
|
|
(286
|
)
|
Other assets and liabilities
|
|
515
|
|
|
675
|
|
|
1,391
|
|
Total adjustments
|
|
11,492
|
|
|
7,597
|
|
|
8,714
|
|
Net cash provided by operating activities
|
|
21,808
|
|
|
19,017
|
|
|
20,418
|
|
Cash flows provided by (used for) investing activities:
|
|
|
|
|
|
|
Additions to property, plant and equipment
|
|
(9,625
|
)
|
|
(7,326
|
)
|
|
(10,105
|
)
|
Acquisitions, net of cash acquired
|
|
(15,470
|
)
|
|
(913
|
)
|
|
(934
|
)
|
Purchases of available-for-sale investments
|
|
(9,269
|
)
|
|
(8,259
|
)
|
|
(7,007
|
)
|
Sales of available-for-sale investments
|
|
3,852
|
|
|
2,090
|
|
|
1,227
|
|
Maturities of available-for-sale investments
|
|
5,654
|
|
|
6,168
|
|
|
8,944
|
|
Purchases of trading assets
|
|
(12,237
|
)
|
|
(11,485
|
)
|
|
(14,397
|
)
|
Maturities and sales of trading assets
|
|
10,907
|
|
|
13,372
|
|
|
13,165
|
|
Investments in loans receivable and reverse repurchase agreements
|
|
(223
|
)
|
|
(2,550
|
)
|
|
(150
|
)
|
Collection of loans receivable and reverse repurchase agreements
|
|
911
|
|
|
2,116
|
|
|
117
|
|
Investments in non-marketable equity investments
|
|
(963
|
)
|
|
(2,011
|
)
|
|
(1,377
|
)
|
Other investing
|
|
646
|
|
|
615
|
|
|
612
|
|
Net cash used for investing activities
|
|
(25,817
|
)
|
|
(8,183
|
)
|
|
(9,905
|
)
|
Cash flows provided by (used for) financing activities:
|
|
|
|
|
|
|
Increase (decrease) in short-term debt, net
|
|
(15
|
)
|
|
(474
|
)
|
|
235
|
|
Excess tax benefit from share-based payment arrangements
|
|
121
|
|
|
159
|
|
|
122
|
|
Issuance of long-term debt, net of issuance costs
|
|
2,734
|
|
|
9,476
|
|
|
—
|
|
Repayment of debt
|
|
(1,500
|
)
|
|
—
|
|
|
—
|
|
Proceeds from sales of common stock through employee equity incentive plans
|
|
1,108
|
|
|
866
|
|
|
1,660
|
|
Repurchase of common stock
|
|
(2,587
|
)
|
|
(3,001
|
)
|
|
(10,792
|
)
|
Restricted stock unit withholdings
|
|
(464
|
)
|
|
(442
|
)
|
|
(332
|
)
|
Payment of dividends to stockholders
|
|
(4,925
|
)
|
|
(4,556
|
)
|
|
(4,409
|
)
|
Collateral associated with repurchase of common stock
|
|
—
|
|
|
325
|
|
|
(325
|
)
|
Increase (decrease) in liability due to collateral associated with repurchase of common stock
|
|
—
|
|
|
(325
|
)
|
|
325
|
|
Other financing
|
|
(211
|
)
|
|
(116
|
)
|
|
(95
|
)
|
Net cash provided by (used for) financing activities
|
|
(5,739
|
)
|
|
1,912
|
|
|
(13,611
|
)
|
Effect of exchange rate fluctuations on cash and cash equivalents
|
|
—
|
|
|
1
|
|
|
(15
|
)
|
Net increase (decrease) in cash and cash equivalents
|
|
(9,748
|
)
|
|
12,747
|
|
|
(3,113
|
)
|
Cash and cash equivalents, end of period
|
|
$
|
5,560
|
|
|
$
|
15,308
|
|
|
$
|
2,561
|
|
Supplemental disclosures:
|
|
|
|
|
|
|
Acquisition of property, plant and equipment included in accounts payable and accrued liabilities
|
|
$
|
979
|
|
|
$
|
392
|
|
|
$
|
985
|
|
Cash paid during the year for:
|
|
|
|
|
|
|
Interest, net of capitalized interest and interest rate swap payments/receipts
|
|
$
|
682
|
|
|
$
|
186
|
|
|
$
|
167
|
|
Income taxes, net of refunds
|
|
$
|
877
|
|
|
$
|
3,439
|
|
|
$
|
4,639
|
|
|
|
1
|
The impact of assets and liabilities reclassified as held for sale was not considered in the changes in assets and liabilities within cash flows from operating activities. See "
Note 10: Acquisitions and Divestitures
" for additional information.
|
See accompanying notes.
INTEL CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock and Capital
in Excess of Par Value
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
|
Retained
Earnings
|
|
Total
|
(In Millions, Except Per Share Amounts)
|
|
Number of
Shares
|
|
Amount
|
|
Balance as of December 28, 2013
|
|
4,967
|
|
|
$
|
21,536
|
|
|
$
|
1,243
|
|
|
$
|
35,477
|
|
|
$
|
58,256
|
|
Components of comprehensive income, net of tax:
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
—
|
|
|
—
|
|
|
—
|
|
|
11,704
|
|
|
11,704
|
|
Other comprehensive income (loss)
|
|
—
|
|
|
—
|
|
|
(577
|
)
|
|
—
|
|
|
(577
|
)
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
11,127
|
|
Proceeds from sales of common stock through employee equity incentive plans, net tax benefit, and other
|
|
125
|
|
|
1,787
|
|
|
—
|
|
|
—
|
|
|
1,787
|
|
Share-based compensation
|
|
—
|
|
|
1,140
|
|
|
—
|
|
|
—
|
|
|
1,140
|
|
Temporary equity reclassification
|
|
—
|
|
|
(912
|
)
|
|
—
|
|
|
—
|
|
|
(912
|
)
|
Repurchase of common stock
|
|
(332
|
)
|
|
(1,438
|
)
|
|
—
|
|
|
(9,354
|
)
|
|
(10,792
|
)
|
Restricted stock unit withholdings
|
|
(12
|
)
|
|
(332
|
)
|
|
—
|
|
|
—
|
|
|
(332
|
)
|
Cash dividends declared ($0.90 per share of common stock)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(4,409
|
)
|
|
(4,409
|
)
|
Balance as of December 27, 2014
|
|
4,748
|
|
|
21,781
|
|
|
666
|
|
|
33,418
|
|
|
55,865
|
|
Components of comprehensive income, net of tax:
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
—
|
|
|
—
|
|
|
—
|
|
|
11,420
|
|
|
11,420
|
|
Other comprehensive income (loss)
|
|
—
|
|
|
—
|
|
|
(606
|
)
|
|
—
|
|
|
(606
|
)
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
10,814
|
|
Proceeds from sales of common stock through employee equity incentive plans, net excess tax benefit, and other
|
|
87
|
|
|
1,076
|
|
|
—
|
|
|
—
|
|
|
1,076
|
|
Share-based compensation
|
|
—
|
|
|
1,314
|
|
|
—
|
|
|
—
|
|
|
1,314
|
|
Temporary equity reclassification
|
|
—
|
|
|
15
|
|
|
—
|
|
|
—
|
|
|
15
|
|
Repurchase of common stock
|
|
(96
|
)
|
|
(453
|
)
|
|
—
|
|
|
(2,548
|
)
|
|
(3,001
|
)
|
Restricted stock unit withholdings
|
|
(14
|
)
|
|
(322
|
)
|
|
—
|
|
|
(120
|
)
|
|
(442
|
)
|
Cash dividends declared ($0.96 per share of common stock)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(4,556
|
)
|
|
(4,556
|
)
|
Balance as of December 26, 2015
|
|
4,725
|
|
|
23,411
|
|
|
60
|
|
|
37,614
|
|
|
61,085
|
|
Components of comprehensive income, net of tax:
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
—
|
|
|
—
|
|
|
—
|
|
|
10,316
|
|
|
10,316
|
|
Other comprehensive income (loss)
|
|
—
|
|
|
—
|
|
|
46
|
|
|
—
|
|
|
46
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
10,362
|
|
Proceeds from sales of common stock through employee equity incentive plans, net excess tax benefit, and other
|
|
101
|
|
|
1,307
|
|
|
—
|
|
|
—
|
|
|
1,307
|
|
Share-based compensation
|
|
—
|
|
|
1,438
|
|
|
—
|
|
|
—
|
|
|
1,438
|
|
Temporary equity reclassification
|
|
—
|
|
|
15
|
|
|
—
|
|
|
—
|
|
|
15
|
|
Repurchase of common stock
|
|
(81
|
)
|
|
(412
|
)
|
|
—
|
|
|
(2,180
|
)
|
|
(2,592
|
)
|
Restricted stock unit withholdings
|
|
(15
|
)
|
|
(386
|
)
|
|
—
|
|
|
(78
|
)
|
|
(464
|
)
|
Cash dividends declared ($1.04 per share of common stock)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(4,925
|
)
|
|
(4,925
|
)
|
Balance as of December 31, 2016
|
|
4,730
|
|
|
$
|
25,373
|
|
|
$
|
106
|
|
|
$
|
40,747
|
|
|
$
|
66,226
|
|
See accompanying notes.
INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1: Basis of Presentation
We have a 52- or 53-week fiscal year that ends on the last Saturday in December. Fiscal year
2016
was a 53-week fiscal year, and the first quarter of 2016 was a 14-week quarter. Fiscal years
2015
and
2014
were 52-week years. Our consolidated financial statements include the accounts of Intel Corporation (Intel) and our subsidiaries. We have eliminated intercompany accounts and transactions. We have reclassified certain prior period amounts to conform to current period presentation.
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles (U.S. GAAP) requires us to make estimates and judgments that affect the amounts reported in our consolidated financial statements and the accompanying notes. The actual results that we experience may differ materially from our estimates.
During our 2015 annual assessment of the useful lives of our property, plant and equipment, we determined that the estimated useful lives of machinery and equipment in our wafer fabrication facilities should be increased from
4
to
5
years based on the lengthening of the process technology cadence resulting in longer node transitions on both 14 nanometer (nm) and 10nm products. We have also increased the re-use of machinery and tools across each generation of process technology. This change in estimate was applied prospectively, effective at the beginning of 2016. During
2016
, this change increased our operating income by approximately
$1.3 billion
, our net income by approximately
$950 million
, and our diluted earnings per share by approximately
$0.19
.
Note 2: Accounting Policies
Revenue Recognition
We recognize net product revenue when the earnings process is complete, as evidenced by an agreement, delivery has occurred, pricing is deemed fixed, and collection is considered probable. We record pricing allowances, including discounts based on contractual arrangements with customers, when we recognize revenue as a reduction to both accounts receivable and net revenue. Because of frequent sales price reductions and rapid technology obsolescence in our industry, we defer product revenue and related costs of sales from component sales made to distributors under agreements allowing price protection or right of return until the distributors sell the merchandise. The right of return granted generally consists of a stock rotation program in which distributors are able to exchange certain products based on the number of qualified purchases made by the distributor. Under the price protection program, we give distributors credits for the difference between the original price paid and the current price that we offer. We include shipping charges billed to customers in net revenue, and include the related shipping costs in cost of sales.
Revenue from license agreements on our McAfee products generally includes service and support agreements for which the related revenue is deferred and recognized ratably over the performance period in which services are provided. Revenue derived from online subscription products is deferred and recognized ratably over the performance period. Professional services revenue is recognized as services are performed or, if required, upon customer acceptance. For arrangements with multiple elements, including software licenses, maintenance, and/or services, revenue is allocated across the separately identified deliverables and may be recognized or deferred. When vendor-specific objective evidence does not exist for undelivered elements such as maintenance and support, the entire arrangement fee is recognized ratably over the performance period. Direct costs, such as costs related to revenue-sharing and royalty arrangements associated with license arrangements, as well as component costs associated with product revenue and sales commissions, are deferred and recognized over the same period that the related revenue is recognized.
INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Inventories
We compute inventory cost on a first-in, first-out basis. We apply judgment in the valuation of our inventory which includes the following critical accounting estimates.
Intel has a product development life cycle that corresponds with substantive engineering milestones. These engineering milestones are regularly and consistently applied in assessing the point at which our activities, and associated costs, change in nature from research and development (R&D) to cost of sales. This impacts the timing of when manufacturing costs can be capitalized as inventory. For a product to be manufactured in high volumes and sold to our customers under our standard warranty, it must meet our rigorous technical quality specifications. This milestone is known as product release qualification (PRQ). We have identified PRQ as the point at which the costs incurred to manufacture our products are included in the valuation of inventory. Prior to PRQ, costs that do not meet the criteria for R&D are included in cost of sales in the period incurred. If the point at which we estimate that inventory meets PRQ criteria changes in the future, the timing and recognition of the manufacturing costs would shift between R&D and costs of sales.
To determine which manufacturing overhead costs can be included in the valuation of inventory, we must determine what normal capacity levels are at our manufacturing and assembly and test facilities, based on historical loadings compared to total available capacity. If the factory loadings are below the established normal capacity level, a portion of our manufacturing overhead costs would not be included in the cost of inventory; therefore, it would be recognized as cost of sales in that period, which would negatively impact our gross margin. We refer to these costs as excess capacity charges.
Inventory is valued at the lower of cost or market, based upon assumptions about future demand and market conditions. Product-specific facts and circumstances reviewed in the inventory valuation process include a review of our customer base, the stage of the product life cycle of our products, and an assessment of selling price in relation to product cost. Inventory reserves
increased
by approximately
$270 million
in
2016
compared to
2015
.
The valuation of inventory also requires us to estimate obsolete and excess inventory, as well as inventory that is not of saleable quality. The demand forecast is utilized in the development of our short-term manufacturing plans to enable consistency between inventory valuations and build decisions. The estimate of future demand is compared to work-in-process and finished goods inventory levels to determine the amount, if any, of obsolete or excess inventory. If our demand forecast for specific products is greater than actual demand and we fail to reduce manufacturing output accordingly, we could be required to write off inventory, which would negatively impact our gross margin.
Property, Plant and Equipment
We compute depreciation using the straight-line method over the estimated useful life of the assets and we capitalize interest on borrowings related to eligible capital expenditures. Capitalized interest is added to the cost of qualified assets and depreciated together with that asset cost. We record capital-related government grants earned as a reduction to property, plant and equipment.
We apply judgment in the valuation of our property, plant and equipment, which includes the following critical accounting estimates.
|
|
•
|
The estimated economic useful lives of our property, plant and equipment can materially impact our depreciation expense. Accordingly, at least annually, we evaluate the period over which we expect to recover the economic value of these assets, considering factors such as the process technology cadence between node transitions and re-use of machinery and tools across each generation of process technology. We had a change in estimate in 2016 related to the useful lives of machinery and equipment in our wafer fabrication facilities. For further information, see "
Note 1: Basis of Presentation
."
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As we make manufacturing process conversions and other factory planning decisions, we use assumptions involving the use of management judgments regarding the remaining useful lives of assets, primarily process-specific semiconductor manufacturing tools and building improvements. When we determine that the useful lives of assets are shorter than we had originally estimated, we accelerate the rate of depreciation to reflect the assets’ new, shorter useful lives.
INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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•
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We assess property, plant and equipment 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. We measure the recoverability of assets that we will continue to use in our operations by comparing the carrying value of the asset grouping to our estimate of the related total future undiscounted net cash flows arising from the use of that asset grouping. If an asset grouping carrying value is not recoverable through the related undiscounted cash flows, the asset grouping is considered to be impaired. We measure the impairment by comparing the difference between the asset grouping carrying value and its fair value.
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We have certain facilities, included within construction in progress, being held in a safe state and not currently in use that we have plans to place into service at a future date. The time at which these assets are placed into service depends on our existing manufacturing capacity, market demand for our products, and where we are in the transition of products on our roadmap. Management makes judgments about the timing of when these facilities will be readied for their intended use and placed into service for the manufacturing of our products. Depreciation is not recognized on these assets and they are not eligible for capitalized interest when construction is on hold.
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Fair Value
Fair value is the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining fair value, we consider the principal or most advantageous market in which we would transact, and we consider assumptions that market participants would use when pricing the asset or liability. Our financial assets are measured and recorded at fair value, except for cost method investments, cost method loans receivable, equity method investments, grants receivable, and reverse repurchase agreements with original maturities greater than three months.
The three levels of inputs that may be used to measure fair value are:
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Level 1.
Quoted prices in active markets for identical assets or liabilities. We evaluate security-specific market data when determining whether a market is active.
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•
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Level 2.
Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in less active markets, or model-derived valuations. All significant inputs used in our valuations, such as discounted cash flows, are observable or can be derived principally from or corroborated with observable market data for substantially the full term of the assets or liabilities. We use LIBOR-based yield curves, currency spot and forward rates, and credit ratings as significant inputs in our valuations. Level 2 inputs also include non-binding market consensus prices as well as quoted prices that were adjusted for security-specific restrictions. When we use non-binding market consensus prices, we corroborate them with quoted market prices for similar instruments or compare them to output from internally developed pricing models such as a discounted cash flow models.
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Level 3.
Unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of assets or liabilities. We monitor and review the inputs and results of these valuation models to help ensure the fair value measurements are reasonable and consistent with market experience in similar asset classes. Level 3 inputs also include non-binding market consensus prices or non-binding broker quotes that we were unable to corroborate with observable market data.
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Our policy is to reflect transfers between the fair value hierarchy levels at the beginning of the period.
Cash Equivalents
We consider all highly liquid debt investments with original maturities from the date of purchase of three months or less as cash equivalents. Cash equivalents can include investments such as corporate debt, financial institution instruments, government debt, and reverse repurchase agreements.
INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Trading Assets
Marketable debt instruments are generally designated as trading assets when a market risk is economically hedged at inception with a related derivative instrument, or when the marketable debt instrument itself is used to economically hedge currency exchange rate risk from remeasurement. Investments designated as trading assets are reported at fair value. The gains or losses on these investments arising from changes in fair value due to interest rate and currency market fluctuations and credit market volatility, largely offset by losses or gains on the related derivative instruments and balance sheet remeasurement, are recorded in interest and other, net. We also designate certain floating-rate securitized financial instruments, primarily asset-backed securities, as trading assets.
Available-for-Sale Investments
Available-for-sale investments are classified within cash and cash equivalents, short-term investments, or long-term investments based on the remaining maturity of the investment.
Investments designated as available-for-sale are reported at fair value, with unrealized gains or losses, net of tax, recorded in accumulated other comprehensive income (loss), except as noted in the "Other-Than-Temporary Impairment" section. We determine the cost of the investment sold based on an average cost basis at the individual security level. Our available-for-sale investments include:
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Marketable debt instruments
when the interest rate and foreign currency risks are not hedged at the inception of the investment or when our criteria for designation as trading assets are not met. We record the interest income and realized gains or losses on the sale of these instruments in interest and other, net.
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Marketable equity securities
when there is no plan to sell or hedge the investment at the time of original classification. We acquire these equity investments to promote business and strategic objectives. We record the realized gains or losses on the sale or exchange of marketable equity securities in gains (losses) on equity investments, net.
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Non-Marketable and Other Equity Investments
We regularly invest in non-marketable equity instruments of private companies, which range from early-stage companies that are often still defining their strategic direction to more mature companies with established revenue streams and business models. The carrying value of our non-marketable equity investment portfolio, excluding equity derivatives, totaled
$4.4 billion
as of
December 31, 2016
(
$4.5 billion
as of
December 26, 2015
).
Our non-marketable equity and other equity investments are included in other long-term assets. We account for non-marketable equity and other equity investments for which we do not have control over the investee as:
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Equity method investments
when we have the ability to exercise significant influence, but not control, over the investee. Equity method investments include marketable and non-marketable investments. Our proportionate share of the income or loss is recognized on a one-quarter lag and is recorded in gains (losses) on equity investments, net.
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•
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Non-marketable cost method investments
when the equity method does not apply.
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Significant judgment is required to identify whether an impairment exists in the valuation of our non-marketable equity investments portfolio, and therefore we consider this a critical accounting estimate. Our quarterly analysis considers both qualitative and quantitative factors that may have a significant impact on the investee's fair value. Qualitative analysis of our investments involves understanding the financial performance and near-term prospects of the investee, changes in general market conditions in the investee’s industry or geographic area, and the management and governance structure of the investee. Quantitative assessments of the fair value of our investments are developed using the market and income approaches. The market approach includes the use of comparable financial metrics of private and public companies and recent financing rounds. The income approach includes the use of a discounted cash flow model, which requires significant estimates regarding the investees' revenue, costs, and discount rates. Our assessment of these factors in determining whether an impairment exists could change in the future due to new developments or changes in applied assumptions.
INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Other-Than-Temporary Impairment
Our available-for-sale investments and non-marketable and other equity investments are subject to a periodic impairment review. Impairments affect earnings as follows:
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Marketable debt instruments
when the fair value is below amortized cost and we intend to sell the instrument, or when it is more likely than not that we will be required to sell the instrument before recovery of its amortized cost basis, or when we do not expect to recover the entire amortized cost basis of the instrument (that is, a credit loss exists). When we do not expect to recover the entire amortized cost basis of the instrument, we separate other-than-temporary impairments into amounts representing credit losses, which are recognized in interest and other, net, and amounts not related to credit losses, which are recognized in other comprehensive income (loss).
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Marketable equity securities
include the consideration of general market conditions, the duration and extent to which the fair value is below cost, and our ability and intent to hold the investment for a sufficient period of time to allow for recovery of value in the foreseeable future. We also consider specific adverse conditions related to the financial health of, and the business outlook for, the investee, which may include industry and sector performance, changes in technology, operational and financing cash flow factors, and changes in the investee’s credit rating. We record other-than-temporary impairments on marketable equity securities and marketable equity method investments in gains (losses) on equity investments, net.
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Non-marketable equity investments
based on our assessment of the severity and duration of the impairment, and qualitative and quantitative analysis of the operating performance of the investee; adverse changes in market conditions and the regulatory or economic environment; changes in operating structure or management of the investee; additional funding requirements; and the investee’s ability to remain in business. Impairments of non-marketable equity investments were
$184 million
in
2016
(
$166 million
in
2015
and
$140 million
in
2014
).
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We record other-than-temporary impairments for non-marketable cost method investments and equity method investments in gains (losses) on equity investments, net.
Derivative Financial Instruments
Our primary objective for holding derivative financial instruments is to manage currency exchange rate risk and interest rate risk, and, to a lesser extent, equity market risk, commodity price risk, and credit risk.
We may enter into master netting arrangements to mitigate credit risk in derivative transactions by permitting net settlement of transactions with the same counterparty.
A master netting arrangement may allow counterparties to net settle amounts owed to each other as a result of multiple, separate derivative transactions. We may also enter into collateral security arrangements with certain of our counterparties to exchange cash collateral when the net fair value of certain derivative instruments fluctuates from contractually established thresholds. For presentation on our consolidated balance sheets, we do not offset fair value amounts recognized for derivative instruments under master netting arrangements. Our derivative financial instruments are presented at fair value on a gross basis and are included in other current assets, other long-term assets, other accrued liabilities, or other long-term liabilities.
Cash Flow Hedges
We may use foreign currency contracts, such as currency forwards and currency interest rate swaps, to hedge exposures for the following items:
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variability in the U.S.-dollar equivalent of non-U.S.-dollar-denominated cash flows associated with our forecasted operating and capital purchases spending; and
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•
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coupon and principal payments for our non-U.S.-dollar-denominated indebtedness.
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We may use commodity derivatives to hedge future cash flow exposures to the variability in commodity prices as well as interest rate contracts, such as treasury rate lock agreements or interest rate swaps, to hedge the variability in cash flows driven by interest rate risk for our future or existing indebtedness.
INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The after-tax gains or losses from the effective portion of a cash flow hedge is reported as a component of accumulated other comprehensive income (loss) and reclassified into earnings in the same period or periods in which the hedged transaction affects earnings, and in the same line item on the consolidated statements of income as the impact of the hedge transaction. For foreign currency contracts hedging our capital purchases, forward points are excluded from the hedge effectiveness assessment. For options, time value is generally excluded from the hedge effectiveness assessment. Ineffective portions of cash flow hedges, as well as amounts excluded from the hedge effectiveness assessment, are recognized in earnings in interest and other, net. If the cash flow hedge transactions become probable not to occur, the corresponding amounts deferred in accumulated other comprehensive income (loss) would be immediately reclassified to interest and other, net. These derivatives are classified in the consolidated statements of cash flows in the same section as the underlying item.
Fair Value Hedges
We may use interest rate contracts, such as interest rate swaps, to hedge against changes in the fair value on certain of our fixed-rate indebtedness attributable to the changes in the benchmark interest rate. The gains or losses on these hedges, as well as the offsetting losses or gains related to the changes in the fair value of the underlying hedged item attributable to the hedged risk, are recognized in earnings in the current period, primarily in interest and other, net. These derivatives are classified in the consolidated statements of cash flows in the same section as the underlying item, primarily within cash flows from financing activities.
Non-Designated Hedges
We may use foreign currency contracts to economically hedge the functional currency equivalent cash flows of recognized monetary assets and liabilities, non-U.S.-dollar-denominated debt instruments classified as trading assets, and non-U.S.-dollar-denominated loans receivables recognized at fair value. We may also use interest rate contracts to hedge interest rate risk related to our U.S.-dollar-denominated fixed-rate debt instruments classified as trading assets.
The change in fair value of these derivatives is recorded through earnings in the line item on the consolidated statements of income to which the derivatives most closely relate, primarily in interest and other, net. Changes in the fair value of the underlying assets and liabilities associated with the hedged risk are generally offset by the changes in the fair value of the related derivatives.
We may use total return swaps to offset changes in liabilities related to the equity market risks of certain deferred compensation arrangements. Gains or losses from changes in fair value of total return swaps are generally offset by the losses or gains on the related deferred compensation liabilities, both of which are recorded in cost of sales and operating expenses. Deferred compensation liabilities are included in other accrued liabilities.
We may use warrants, equity options, or other equity derivatives as part of our equity market risk management program. We recognize changes in the fair value of such derivatives in gains (losses) on equity investments, net.
These types of derivatives are either classified in the consolidated statements of cash flows within cash flows from operating activities or investing activities, depending on the activity the exposure is most closely associated with.
Securities Lending
We may enter into securities lending agreements with financial institutions, generally to facilitate hedging and certain investment and financing transactions. Selected securities may be loaned, secured by collateral in the form of cash or securities. The loaned securities continue to be carried as investment assets on our consolidated balance sheets. For lending agreements collateralized by cash and cash equivalents, collateral is recorded as an asset with a corresponding liability. For lending agreements collateralized by other securities, we do not record the collateral as an asset or a liability, unless the collateral is repledged.
Loans Receivable
We may enter into loan transactions with third parties. These loans are classified within other current assets or other long-term assets. We may elect the fair value option when the interest rate or foreign currency exchange rate risk is economically hedged at the inception of the loan with a related derivative instrument. When the fair value option is not elected, the loans are carried at amortized cost. We measure interest income for all loans receivable using the interest method, which is based on the effective yield of the loans rather than the stated coupon rate.
INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Credit Risk
Financial instruments that potentially subject us to concentrations of credit risk consist principally of investments in debt instruments, derivative financial instruments, loans receivable, reverse repurchase agreements, and trade receivables.
We may enter into master netting arrangements to mitigate credit risk in derivative transactions by permitting net settlement of transactions with the same counterparty.
We generally place investments with high-credit-quality counterparties and, by policy, we limit the amount of credit exposure to any one counterparty based on our analysis of that counterparty’s relative credit standing. As required per our investment policy,
substantially all
of our investments in debt instruments and financing receivables are in investment-grade instruments. Credit-rating criteria for derivative instruments are similar to those for other investments. Due to master netting arrangements, the amounts subject to credit risk related to derivative instruments are generally limited to the amounts, if any, by which the counterparty’s obligations exceed our obligations with that counterparty. As of
December 31, 2016
, our total credit exposure to any single counterparty, excluding money market funds invested in U.S. treasury and U.S. agency securities and reverse repurchase agreements collateralized by treasury and agency securities, did not exceed
$700 million
. To further reduce credit risk, we obtain and secure available collateral from counterparties against obligations, including securities lending transactions, when we deem it appropriate.
A substantial majority
of our trade receivables are derived from sales to original equipment manufacturers and original design manufacturers. We also have accounts receivable derived from sales to industrial and communications equipment manufacturers in the computing and communications industries. We believe that the net accounts receivable balances from our three largest customers (
31%
in
2016
) do not represent a significant credit risk, based on cash flow forecasts, balance sheet analysis, and past collection experience. For more information about the customers that represent our accounts receivable balance, see "
Note 4: Operating Segments and Geographic Information
" in Part II, Item 8 of this Form 10-K.
We have adopted credit policies and standards intended to accommodate industry growth and inherent risk. We believe that credit risks are moderated by the financial stability of our major customers.
We assess credit risk through quantitative and qualitative analysis. From this analysis, we establish shipping and credit limits, and determine whether we will seek to use one or more credit support protection devices, such as obtaining a parent guarantee, standby letter of credit, or credit insurance.
Business Combinations
We allocate the purchase price paid for assets acquired and liabilities assumed in connection with our acquisitions based on their estimated fair values at the time of acquisition. We consider this a critical accounting estimate because it involves a number of assumptions, estimates, and judgments that could materially affect the timing or amounts recognized in our financial statements. The most subjective areas include determining the fair value of the following:
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intangible assets, including valuation methodology, estimations of future cash flows, and discount rates, as well as the estimated useful life of the intangible assets;
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•
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deferred tax assets and liabilities, uncertain tax positions, and tax-related valuation allowances, which are initially estimated as of the acquisition date;
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•
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inventory; property, plant and equipment; pre-existing liabilities or legal claims; deferred revenue; and contingent consideration, each as may be applicable; and
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•
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goodwill as measured as the excess of consideration transferred over the net of the acquisition date fair values of the assets acquired and the liabilities assumed.
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Our assumptions and estimates are based upon comparable market data and information obtained from our management and the management of the acquired companies. We allocate goodwill to the reporting units of the business that are expected to benefit from the business combination.
INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Goodwill
Application of the goodwill impairment test is considered a critical accounting estimate, including the identification of reporting units, assignment of assets and liabilities to reporting units, assignment of goodwill to reporting units, and determination of fair value for each reporting unit.
We perform an annual impairment assessment of goodwill in the fourth quarter of each year, or more frequently if indicators of potential impairment exist, which includes evaluating qualitative and quantitative factors to assess the likelihood of an impairment of a reporting unit’s goodwill. The reporting unit’s carrying value used in an impairment test represents the assignment of various assets and liabilities, excluding certain corporate assets and liabilities, such as cash, investments, and debt. For reporting units in which this assessment concludes that it is more likely than not that the fair value is more than its carrying value, goodwill is not considered impaired and we are not required to perform the two-step goodwill impairment test.
Qualitative factors considered in this assessment include industry and market considerations, overall financial performance, and other relevant events and factors affecting the reporting unit. Additionally, as part of this assessment, we may perform a quantitative analysis to support the qualitative factors above by applying sensitivities to assumptions and inputs used in measuring a reporting unit’s fair value. For reporting units in which the impairment assessment concludes that it is more likely than not that the fair value is less than its carrying value, we perform the first step of the goodwill impairment test, which compares the fair value of the reporting unit to its carrying value. If the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit, then we must perform the second step of the goodwill impairment test to determine the implied fair value of the reporting unit’s goodwill.
Our goodwill impairment test considers both the income method and the market method to estimate a reporting unit’s fair value. The income method is based on a discounted future cash flow approach that uses the following major assumptions and inputs: revenue, based on assumed market segment growth rates and our assumed market segment share; estimated costs; and appropriate discount rates based on a reporting unit's weighted average cost of capital as determined by considering the observable weighted average cost of capital of comparable companies. Our estimates of market segment growth, our market segment share, and costs are based on historical data, various internal estimates, and a variety of external sources. The same estimates are also used in our business planning and forecasting process. We test the reasonableness of the inputs and outcomes of our discounted cash flow analysis against available comparable market data. The market method is based on financial multiples and transaction prices of comparable companies. Although there were no specific qualitative indicators of impairment for our reporting units, we elected to perform a step 1 impairment test in the fourth quarter of
2016
. These reporting units were all deemed to have fair values that substantially exceeded their carrying value.
Upon any reorganization of our operating segments, we re-evaluate our reporting units and, if necessary, reassign goodwill using a relative fair value approach.
Identified Intangible Assets
We amortize all acquisition-related intangible assets that are subject to amortization over their estimated useful life based on economic benefit. Acquisition-related in-process R&D assets represent the fair value of incomplete R&D projects that had not reached technological feasibility as of the date of acquisition; initially, these are classified as "in-process research and development" that are not subject to amortization. Once these R&D projects are completed, the asset balances are transferred from "in-process research and development" to "acquisition-related developed technology" and are subject to amortization from this point forward. The asset balances relating to projects that are abandoned after acquisition are impaired and expensed to R&D.
We perform a quarterly review of significant finite–lived identified intangible assets to determine whether facts and circumstances indicate that the useful life is shorter than we had originally estimated or that the carrying amount of assets may not be recoverable. We consider the assumptions and estimates used to determine future values and remaining useful lives of our intangible and other long-lived assets a critical accounting estimate. They can be affected by various factors, including external factors such as industry and economic trends, and internal factors such as changes in our business strategy and our forecasts for specific product lines.
Our annual impairment assessment occurs in the fourth quarter of each year for indefinite-lived intangible assets, or more frequently if indicators of potential impairment exist, to determine whether it is more likely than not that the carrying value of the assets may not be recoverable. If necessary, a quantitative impairment test is performed to compare the fair value of the indefinite–lived intangible asset with its carrying value. Impairments, if any, are based on the excess of the carrying amount over the fair value of those assets.
INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Advertising
Cooperative advertising programs reimburse customers for marketing activities for certain of our products. We accrue cooperative advertising obligations and record the costs at the same time that the related revenue is recognized. We record cooperative advertising costs as marketing, general and administrative (MG&A) expenses to the extent that an advertising benefit separate from the revenue transaction can be identified and the fair value of that advertising benefit received is determinable. We record any excess in cash paid to customers over the fair value of the advertising benefit we receive as a reduction in revenue. Advertising costs, including direct marketing costs, recorded within MG&A expenses were
$1.8 billion
in
2016
(
$1.8 billion
in
2015
and
$1.8 billion
in
2014
).
Employee Equity Incentive Plans
We use the straight-line attribution method to recognize share-based compensation over the service period of the award. Upon exercise, cancellation, forfeiture, or expiration of stock options, or upon vesting or forfeiture of restricted stock units (RSUs), we eliminate deferred tax assets for options and RSUs with multiple vesting dates for each vesting period on a first-in, first-out basis as if each vesting period were a separate award.
Income Taxes
We compute the provision for income taxes using the asset and liability method, under which deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for operating losses and tax credit carryforwards. We measure deferred tax assets and liabilities using the currently enacted tax rates that apply to taxable income in effect for the years in which those tax assets are expected to be realized or settled.
We apply judgment in the recognition and measurement of current and deferred income taxes which includes the following critical accounting estimates. We assess the likelihood that we will be able to recover our deferred tax assets. If recovery is not likely, we must increase our provision for taxes by recording a valuation allowance against the deferred tax assets that we estimate will not ultimately be recoverable. We believe that we will ultimately recover the deferred tax assets recorded on our consolidated balance sheets. Recovery of a portion of our deferred tax assets is impacted by management’s plans with respect to holding or disposing of certain investments; therefore, changes in management’s plans with respect to holding or disposing of investments could affect our future provision for taxes.
We use a two-step process to recognize liabilities for uncertain tax positions. The first step is to evaluate the tax position for recognition by determining whether, based on the technical merits of the position, the weight of available evidence indicates that it is more likely than not that the position will be sustained on examination by the taxing authorities, including resolution of related appeals or litigation processes, if any. If we determine that a tax position will more likely than not be sustained on examination, the second step requires us to estimate and measure the tax benefit as the largest amount that is more than
50%
likely to be realized upon ultimate settlement. We consider many factors when evaluating and estimating our tax positions and tax benefits, which may require periodic adjustments and may not accurately forecast actual outcomes. We recognize interest and penalties related to unrecognized tax benefits within the provision for taxes on the consolidated statements of income. Determining whether an uncertain tax position is effectively settled requires judgment. Such a change in recognition or measurement would result in the recognition of a tax benefit or an additional charge to the tax provision.
We have not recognized U.S. deferred income taxes on certain undistributed non-U.S. earnings because we plan to indefinitely reinvest such earnings outside the U.S. Remittances of non-U.S. earnings are based on estimates and judgments of projected cash flow needs, as well as the working capital and investment requirements of our non-U.S. and U.S. operations. Material changes in our estimates of cash, working capital, and investment needs in various jurisdictions could require repatriation of indefinitely reinvested non-U.S. earnings, which would be subject to U.S. income taxes and applicable non-U.S. income and withholding taxes.
Loss Contingencies
We are subject to loss contingencies, including various legal and regulatory proceedings, asserted and potential claims, liabilities related to repair or replacement of parts in connection with product defects, as well as product warranties and potential asset impairments that arise in the ordinary course of business. An estimated loss from such contingencies is recognized as a charge to income if it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Judgment is required in both the determination of probability and the determination as to whether a loss is reasonably estimable as a critical accounting estimate. We review the status of each significant matter quarterly and we may revise our estimates.
INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 3: Recent Accounting Standards
Accounting Standards Adopted
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Standard/Description
|
Effective Date and Adoption Considerations
|
Effect on Financial Statements or Other Significant Matters
|
Income Taxes - Balance Sheet Classification of Deferred Taxes
. This amended standard requires that we classify all deferred tax assets and liabilities as non-current on the balance sheet instead of separating deferred taxes into current and non-current.
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This amended standard was early adopted in the first quarter of 2016 on a retrospective basis.
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As a result of the adoption, we made the following adjustments to the consolidated 2015 balance sheet: a $2.0 billion decrease to current deferred tax assets, a $430 million increase to non-current deferred tax assets, a $21 million decrease to current deferred tax liabilities, and a decrease of $1.6 billion to non-current deferred tax liabilities.
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Accounting Standards Not Yet Adopted
|
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Standard/Description
|
Effective Date and Adoption Considerations
|
Effect on Financial Statements or Other Significant Matters
|
Revenue Recognition - Contracts with Customers.
This standard was issued to achieve a consistent application of revenue recognition within the U.S., resulting in a single revenue model to be applied by reporting companies under U.S. GAAP. Under the new model, recognition of revenue occurs when a customer obtains control of promised goods or services in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, the new standard requires that reporting companies disclose the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.
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Effective in the first quarter of 2018.
We plan to adopt the standard retrospectively with the cumulative effect of initially applying it recognized at the date of initial application ("modified retrospective" approach).
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Our assessment has identified a change in revenue recognition timing on our component sales made to distributors. We expect to recognize revenue when we deliver to the distributor rather than deferring recognition until the distributor sells the components.
On the date of initial application, we will remove the deferred net revenue on component sales made to distributors through a cumulative adjustment to retained earnings. We expect the revenue deferral, historically recognized in the following period, to be offset by the acceleration of revenue recognition as control of the product transfers to our customer.
Our assessment has also identified a change in expense recognition timing related to payments we make to our customers for distinct services they perform as part of cooperative advertising programs. We expect to recognize the expense for cooperative advertising in the period the marketing activities occur. We currently recognize the expense in the period the customer is entitled to participate in the program, which coincides with the period of sale.
On the date of initial adoption, we will capitalize the expense of cooperative advertising not performed through a cumulative adjustment to retained earnings. We expect the recognition of capitalized advertising to offset the deceleration in expense recognition until the marketing services are performed.
We will continue our assessment, operate parallel systems and processes, as well as finalize our evaluation of any changes to our accounting policies and disclosures. This excludes our planned divestiture of Intel Security Group (ISecG).
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Financial Instruments - Recognition and Measurement.
Requires changes to the accounting for financial instruments that primarily affect equity investments, financial liabilities measured using the fair value option, and the presentation and disclosure requirements for such instruments.
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Effective in the first quarter of 2018.
Certain elements of the new standard are required to be adopted using a modified-retrospective approach through a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. Other elements will be adopted prospectively.
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We expect marketable equity securities, previously classified as available-for-sale equity investments, to be measured and recorded at fair value and all unrealized gains or losses previously recorded in accumulated other comprehensive income (loss) will be recorded in earnings.
We are continuing to assess the overall impacts of the new standard, including the impact to our significant accounting policies with regard to non-marketable equity securities classified as cost method investments.
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INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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Standard/Description
|
Effective Date and Adoption Considerations
|
Effect on Financial Statements or Other Significant Matters
|
Income Taxes - Intra-Entity Asset Transfers Other Than Inventory
. This accounting standard update is aimed at recognizing the income tax consequences of intra-entity transfers of assets other than inventory when they occur. This removes the exception to postpone recognition until the asset has been sold to an outside party.
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Effective in the first quarter of 2018.
The standard update is required to be applied on a modified retrospective basis through a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption.
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We have not yet determined the impact of the new standard.
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Leases
. This new lease accounting standard requires that we recognize lease assets and liabilities on the balance sheet.
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Effective in the first quarter of 2019.
The new standard must be adopted using a modified retrospective transition that includes certain optional practical expedients.
|
We expect the valuation of right of use assets and lease liabilities, previously described as operating leases, to be the present value of our forecasted future lease commitments. We are continuing to assess the overall impacts of the new standard, including the discount rate to be applied in these valuations.
|
Note 4: Operating Segments and Geographic Information
Our operating segments as of
December 31, 2016
included:
|
|
|
|
•
Client Computing Group (CCG)
|
|
•
Intel Security Group (ISecG)
|
•
Data Center Group (DCG)
|
|
•
Programmable Solutions Group (PSG)
|
•
Internet of Things Group (IOTG)
|
|
•
All Other
|
•
Non-Volatile Memory Solutions Group (NSG)
|
|
•
New Technology Group (NTG)
|
During the first quarter of
2016
, we formed PSG as a result of our acquisition of Altera Corporation (Altera). For further information, see "
Note 10: Acquisitions and Divestitures
." All prior-period amounts have been retrospectively adjusted to reflect the way we internally manage and monitor segment performance starting in fiscal year
2016
.
In the third quarter of
2016
, we announced our planned divestiture of ISecG, which we expect to complete in the second quarter of
2017
. For further information, see "
Note 10: Acquisitions and Divestitures
."
The Chief Operating Decision Maker (CODM) is our 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).
We manage our business activities primarily based on a product segmentation basis. We derive a substantial majority of our revenue from platforms, which is our principal product and source of revenue across our CCG, DCG, and IOTG operating segments.
CCG and DCG are our reportable operating segments. IOTG, NSG, ISecG, and PSG do not meet the quantitative thresholds to qualify as reportable operating segments; however, we have elected to disclose the results of these non-reportable operating segments. The NTG operating segment does not meet the quantitative thresholds to qualify as a reportable segment and NTG results are included within the "all other" category.
We have sales and marketing, manufacturing, engineering, finance, and administration groups. Expenses for these groups are generally allocated to the operating segments.
The "all other" category includes revenue and expenses such as:
|
|
•
|
results of operations from NTG;
|
|
|
•
|
amounts included within restructuring and other charges;
|
|
|
•
|
a portion of employee benefits, compensation, and other expenses not allocated to the operating segments;
|
|
|
•
|
divested businesses for which discrete operating results are not regularly reviewed by our CODM;
|
|
|
•
|
results of operations of start-up businesses that support our initiatives, including our foundry business; and
|
|
|
•
|
acquisition-related costs, including amortization and any impairment of acquisition-related intangibles and goodwill.
|
INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The CODM does not evaluate operating segments using discrete asset information. Based on the interchangeable nature of our manufacturing and assembly and test assets, most of the related depreciation expense is not directly identifiable within our operating segments, as it is included in overhead cost pools and subsequently absorbed into inventory as each product passes through our manufacturing process. As our products are then sold across multiple operating segments, it is impracticable to determine the total depreciation expense included as a component of each operating segment’s operating income (loss) results. Operating segments do not record inter-segment revenue. We do not allocate gains and losses from equity investments, interest and other income, or taxes to operating segments. Although the CODM uses operating income to evaluate the segments, operating costs included in one segment may benefit other segments. Except for these differences, the accounting policies for segment reporting are the same as for Intel as a whole.
Net revenue and operating income (loss) for each period were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
(In Millions)
|
|
Dec 31,
2016
|
|
Dec 26,
2015
|
|
Dec 27,
2014
|
Net revenue:
|
|
|
|
|
|
|
Client Computing Group
|
|
|
|
|
|
|
Platform
|
|
$
|
30,751
|
|
|
$
|
30,680
|
|
|
$
|
33,235
|
|
Other
|
|
2,157
|
|
|
1,539
|
|
|
1,637
|
|
|
|
32,908
|
|
|
32,219
|
|
|
34,872
|
|
Data Center Group
|
|
|
|
|
|
|
Platform
|
|
15,895
|
|
|
14,856
|
|
|
13,341
|
|
Other
|
|
1,341
|
|
|
1,125
|
|
|
1,055
|
|
|
|
17,236
|
|
|
15,981
|
|
|
14,396
|
|
Internet of Things Group
|
|
|
|
|
|
|
Platform
|
|
2,290
|
|
|
1,976
|
|
|
1,814
|
|
Other
|
|
348
|
|
|
322
|
|
|
328
|
|
|
|
2,638
|
|
|
2,298
|
|
|
2,142
|
|
Non-Volatile Memory Solutions Group
|
|
2,576
|
|
|
2,597
|
|
|
2,146
|
|
Intel Security Group
|
|
2,161
|
|
|
1,985
|
|
|
2,010
|
|
Programmable Solutions Group
|
|
1,669
|
|
|
—
|
|
|
—
|
|
All other
|
|
199
|
|
|
275
|
|
|
304
|
|
Total net revenue
|
|
$
|
59,387
|
|
|
$
|
55,355
|
|
|
$
|
55,870
|
|
|
|
|
|
|
|
|
Operating income (loss):
|
|
|
|
|
|
|
Client Computing Group
|
|
$
|
10,646
|
|
|
$
|
8,166
|
|
|
$
|
10,327
|
|
Data Center Group
|
|
7,520
|
|
|
7,847
|
|
|
7,380
|
|
Internet of Things Group
|
|
585
|
|
|
515
|
|
|
583
|
|
Non-Volatile Memory Solutions Group
|
|
(544
|
)
|
|
239
|
|
|
255
|
|
Intel Security Group
|
|
400
|
|
|
213
|
|
|
164
|
|
Programmable Solutions Group
|
|
(104
|
)
|
|
—
|
|
|
—
|
|
All other
|
|
(5,629
|
)
|
|
(2,978
|
)
|
|
(3,362
|
)
|
Total operating income
|
|
$
|
12,874
|
|
|
$
|
14,002
|
|
|
$
|
15,347
|
|
For
2016
, our three largest customers accounted for
38%
of our net revenue, with Dell Inc. (Dell) accounting for
15%
, Lenovo Group Limited (Lenovo) accounting for
13%
, and HP Inc. accounting for
10%
. These three customers accounted for
31%
of our accounts receivable as of
December 31, 2016
. Hewlett-Packard Company, our largest customer in 2014, separated into HP Inc. and Hewlett Packard Enterprise Company on November 1, 2015. In 2015, Hewlett-Packard Company, HP Inc., and Hewlett Packard Enterprise Company collectively accounted for
18%
of our net revenue (
18%
in
2014
), Dell accounted for
15%
(
16%
in
2014
), and Lenovo accounted for
13%
(
12%
in
2014
). Combined, these customers accounted for
46%
of our net revenue in 2015 (
46%
in
2014
) and
49%
of our accounts receivable as of
December 26, 2015
. Substantially all of the revenue from these customers was from the sale of platforms and other components by the CCG and DCG operating segments.
INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Net revenue by country as presented below is based on the billing location of the customer. Revenue from unaffiliated customers for each period was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
(In Millions)
|
|
Dec 31,
2016
|
|
Dec 26,
2015
|
|
Dec 27,
2014
|
China (including Hong Kong)
|
|
$
|
13,977
|
|
|
$
|
11,679
|
|
|
$
|
11,197
|
|
United States
|
|
12,957
|
|
|
11,121
|
|
|
9,828
|
|
Singapore
|
|
12,780
|
|
|
11,544
|
|
|
11,573
|
|
Taiwan
|
|
9,953
|
|
|
10,661
|
|
|
8,955
|
|
Other countries
|
|
9,720
|
|
|
10,350
|
|
|
14,317
|
|
Total net revenue
|
|
$
|
59,387
|
|
|
$
|
55,355
|
|
|
$
|
55,870
|
|
Net property, plant and equipment by country at the end of each period was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Millions)
|
|
Dec 31,
2016
|
|
Dec 26,
2015
|
|
Dec 27,
2014
|
United States
|
|
$
|
23,598
|
|
|
$
|
22,611
|
|
|
$
|
24,020
|
|
Ireland
|
|
4,865
|
|
|
5,789
|
|
|
5,433
|
|
Israel
|
|
3,923
|
|
|
1,661
|
|
|
1,957
|
|
Other countries
|
|
3,785
|
|
|
1,797
|
|
|
1,828
|
|
Total property, plant and equipment, net
|
|
$
|
36,171
|
|
|
$
|
31,858
|
|
|
$
|
33,238
|
|
Note 5: Earnings Per Share
We computed our basic and diluted earnings per share of common stock for each period as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
(In Millions, Except Per Share Amounts)
|
|
Dec 31,
2016
|
|
Dec 26,
2015
|
|
Dec 27,
2014
|
Net income available to common stockholders
|
|
$
|
10,316
|
|
|
$
|
11,420
|
|
|
$
|
11,704
|
|
Weighted average shares of common stock outstanding—basic
|
|
4,730
|
|
|
4,742
|
|
|
4,901
|
|
Dilutive effect of employee incentive plans
|
|
53
|
|
|
64
|
|
|
75
|
|
Dilutive effect of convertible debt
|
|
92
|
|
|
88
|
|
|
80
|
|
Weighted average shares of common stock outstanding—diluted
|
|
4,875
|
|
|
4,894
|
|
|
5,056
|
|
Basic earnings per share of common stock
|
|
$
|
2.18
|
|
|
$
|
2.41
|
|
|
$
|
2.39
|
|
Diluted earnings per share of common stock
|
|
$
|
2.12
|
|
|
$
|
2.33
|
|
|
$
|
2.31
|
|
We computed basic earnings per share of common stock based on the weighted average number of shares of common stock outstanding during the period. We computed diluted earnings per share of common stock based on the weighted average number of shares of common stock outstanding plus potentially dilutive shares of common stock outstanding during the period.
Potentially dilutive shares of common stock from employee incentive plans are determined by applying the treasury stock method to the assumed exercise of outstanding stock options, the assumed vesting of outstanding RSUs, and the assumed issuance of common stock under the stock purchase plan. Potentially dilutive shares of common stock for our 2005 debentures are determined by applying the if-converted method. However, as our 2009 debentures require settlement of the principal amount of the debt in cash upon conversion, with the conversion premium paid in cash or stock at our option, potentially dilutive shares of common stock are determined by applying the treasury stock method.
In all years presented,
potentially dilutive securities whose effect would have been antidilutive are insignificant and are excluded from the computation of diluted earnings per share.
In all years presented, we
included
our 2009 debentures in the calculation of diluted earnings per share of common stock because the average market price was above the conversion price. We could potentially exclude the 2009 debentures in the future if the average market price is below the conversion price.
INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 6: Other Financial Statement Details
Inventories
|
|
|
|
|
|
|
|
|
|
(In Millions)
|
|
Dec 31,
2016
|
|
Dec 26,
2015
|
Raw materials
|
|
$
|
695
|
|
|
$
|
532
|
|
Work in process
|
|
3,190
|
|
|
2,893
|
|
Finished goods
|
|
1,668
|
|
|
1,742
|
|
Total inventories
|
|
$
|
5,553
|
|
|
$
|
5,167
|
|
Property, Plant and Equipment
|
|
|
|
|
|
|
|
|
|
(In Millions)
|
|
Dec 31,
2016
|
|
Dec 26,
2015
|
Land and buildings
|
|
$
|
26,627
|
|
|
$
|
25,578
|
|
Machinery and equipment
|
|
52,608
|
|
|
48,459
|
|
Construction in progress
|
|
10,870
|
|
|
9,359
|
|
Total property, plant and equipment, gross
|
|
90,105
|
|
|
83,396
|
|
Less:
accumulated depreciation
|
|
(53,934
|
)
|
|
(51,538
|
)
|
Total property, plant and equipment, net
|
|
$
|
36,171
|
|
|
$
|
31,858
|
|
Substantially all
of our depreciable property, plant and equipment assets were depreciated over the following estimated useful lives: machinery and equipment,
2
to
5
years, and buildings,
10
to
25
years. The balance in construction in progress that is on hold and held in a safe state was approximately $
2.2 billion
as of
December 31, 2016
(approximately $
3.4 billion
as of
December 26, 2015
).
Deferred Income
|
|
|
|
|
|
|
|
|
|
(In Millions)
|
|
Dec 31,
2016
|
|
Dec 26,
2015
|
Deferred income on shipments of components to distributors
|
|
$
|
1,475
|
|
|
$
|
920
|
|
Deferred income from software, services, and other
|
|
243
|
|
|
1,268
|
|
Current deferred income
|
|
1,718
|
|
|
2,188
|
|
Non-current deferred income from software, services, and other
|
|
65
|
|
|
530
|
|
Total deferred income
|
|
$
|
1,783
|
|
|
$
|
2,718
|
|
We classify non-current deferred income from software, services, and other within other long-term liabilities on the consolidated balance sheets.
We reclassified the carrying amounts of current and non-current deferred income associated with ISecG as liabilities held for sale. For further information, see "
Note 10: Acquisitions and Divestitures
."
Other Accrued Liabilities
Other accrued liabilities include deferred compensation liabilities of
$1.5 billion
as of
December 31, 2016
(
$1.3 billion
as of
December 26, 2015
).
INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Gains (Losses) on Equity Investments, Net
The components of gains (losses) on equity investments, net for each period were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
(In Millions)
|
|
Dec 31,
2016
|
|
Dec 26,
2015
|
|
Dec 27,
2014
|
Share of equity method investee losses, net
|
|
$
|
(38
|
)
|
|
$
|
(95
|
)
|
|
$
|
(69
|
)
|
Impairments
|
|
(187
|
)
|
|
(185
|
)
|
|
(146
|
)
|
Gains on sales, net
|
|
562
|
|
|
145
|
|
|
422
|
|
Dividends
|
|
74
|
|
|
52
|
|
|
57
|
|
Other, net
|
|
95
|
|
|
398
|
|
|
147
|
|
Total gains (losses) on equity investments, net
|
|
$
|
506
|
|
|
$
|
315
|
|
|
$
|
411
|
|
Interest and Other, Net
The components of interest and other, net for each period were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
(In Millions)
|
|
Dec 31,
2016
|
|
Dec 26,
2015
|
|
Dec 27,
2014
|
Interest income
|
|
$
|
222
|
|
|
$
|
124
|
|
|
$
|
141
|
|
Interest expense
|
|
(733
|
)
|
|
(337
|
)
|
|
(192
|
)
|
Other, net
|
|
67
|
|
|
108
|
|
|
94
|
|
Total interest and other, net
|
|
$
|
(444
|
)
|
|
$
|
(105
|
)
|
|
$
|
43
|
|
Interest expense in the preceding table is net of
$135 million
of interest capitalized in
2016
(
$258 million
in
2015
and
$276 million
in
2014
).
Note 7: Restructuring and Other Charges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
(In Millions)
|
|
Dec 31,
2016
|
|
Dec 26,
2015
|
|
Dec 27,
2014
|
2016 Restructuring Program
|
|
$
|
1,823
|
|
|
$
|
—
|
|
|
$
|
—
|
|
2015 Restructuring Program
|
|
—
|
|
|
264
|
|
|
—
|
|
2013 Restructuring Program
|
|
—
|
|
|
90
|
|
|
295
|
|
Other charges
|
|
63
|
|
|
—
|
|
|
—
|
|
Total restructuring and other charges
|
|
$
|
1,886
|
|
|
$
|
354
|
|
|
$
|
295
|
|
2016 Restructuring Program
In the second quarter of 2016, our management approved and commenced the 2016 Restructuring Program to accelerate our transformation from a PC company to one that powers the cloud and billions of smart, connected computing devices.
Under this program, we are in the process of closing certain facilities and reducing headcount globally to align our operations with evolving business needs by investing in our growth businesses and improving efficiencies. We expect these actions to be substantially completed by
the second quarter of 2017.
Restructuring and other charges by type for the 2016 Restructuring Program were as follows:
|
|
|
|
|
|
Years Ended
(In Millions)
|
|
Dec 31,
2016
|
Employee severance and benefit arrangements
|
|
$
|
1,737
|
|
Pension settlement charges
|
|
57
|
|
Asset impairment and other charges
|
|
29
|
|
Total restructuring and other charges
|
|
$
|
1,823
|
|
INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Restructuring and other activity for the 2016 Restructuring Program in 2016 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Millions)
|
|
Employee Severance and Benefits
|
|
Asset Impairments and Other
|
|
Total
|
Accrued restructuring balance as of December 26, 2015
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Additional accruals
|
|
1,556
|
|
|
29
|
|
|
1,585
|
|
Adjustments
|
|
92
|
|
|
—
|
|
|
92
|
|
Cash payments
|
|
(1,063
|
)
|
|
—
|
|
|
(1,063
|
)
|
Non-cash settlements
|
|
—
|
|
|
(19
|
)
|
|
(19
|
)
|
Accrued restructuring balance as of December 31, 2016
|
|
$
|
585
|
|
|
$
|
10
|
|
|
$
|
595
|
|
We recorded the additional accruals as restructuring and other charges in the consolidated statements of income and within the “all other” operating segments category.
Substantially all
of the accrued restructuring balance as of
December 31, 2016
is expected to be paid within the next 12 months, and was recorded within accrued compensation and benefits on the consolidated balance sheets.
The other charges associated with the program were recorded as an increase to our pension liability and are not included in our accrued restructuring balance.
Restructuring actions related to this program that were approved in 2016 are expected to impact approximately
15,000
employees.
2015 Restructuring Program
During 2015, management approved and commenced implementation of restructuring actions, primarily targeted workforce reductions, as we adjusted resources from areas of disinvestment to areas of investment. This program was completed in 2015.
2013 Restructuring Program
During 2013,
management approved and commenced implementation of several restructuring actions, including targeted workforce reductions and the exit of certain businesses and facilities. These actions included the wind down of our 200mm wafer fabrication facility in Massachusetts
and the closure of our assembly and test facility in Costa Rica
.
This program was completed
in 2015.
Other Charges
Other charges consist primarily of expenses associated with the planned divestiture of ISecG that was announced
in the third quarter of 2016.
INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 8: Income Taxes
Income Tax Provision
Income before taxes and the provision for taxes consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
(In Millions)
|
|
Dec 31,
2016
|
|
Dec 26,
2015
|
|
Dec 27,
2014
|
Income before taxes:
|
|
|
|
|
|
|
U.S.
|
|
$
|
6,957
|
|
|
$
|
8,800
|
|
|
$
|
11,565
|
|
Non-U.S.
|
|
5,979
|
|
|
5,412
|
|
|
4,236
|
|
Total income before taxes
|
|
12,936
|
|
|
14,212
|
|
|
15,801
|
|
Provision for taxes:
|
|
|
|
|
|
|
Current:
|
|
|
|
|
|
|
Federal
|
|
1,319
|
|
|
2,828
|
|
|
3,374
|
|
State
|
|
13
|
|
|
40
|
|
|
38
|
|
Non-U.S.
|
|
756
|
|
|
842
|
|
|
969
|
|
Total current provision for taxes
|
|
2,088
|
|
|
3,710
|
|
|
4,381
|
|
Deferred:
|
|
|
|
|
|
|
Federal
|
|
658
|
|
|
(862
|
)
|
|
(263
|
)
|
Other
|
|
(126
|
)
|
|
(56
|
)
|
|
(21
|
)
|
Total deferred provision for taxes
|
|
532
|
|
|
(918
|
)
|
|
(284
|
)
|
Total provision for taxes
|
|
$
|
2,620
|
|
|
$
|
2,792
|
|
|
$
|
4,097
|
|
Effective tax rate
|
|
20.3
|
%
|
|
19.6
|
%
|
|
25.9
|
%
|
The difference between the tax provision at the statutory federal income tax rate and the tax provision as a percentage of income before income taxes (effective tax rate) for each period was as follows:
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
Dec 31,
2016
|
|
Dec 26,
2015
|
|
Dec 27,
2014
|
Statutory federal income tax rate
|
|
35.0
|
%
|
|
35.0
|
%
|
|
35.0
|
%
|
Increase (reduction) in rate resulting from:
|
|
|
|
|
|
|
Non-U.S. income taxed at different rates
|
|
(11.7
|
)
|
|
(7.9
|
)
|
|
(6.1
|
)
|
Research and development tax credits
|
|
(2.3
|
)
|
|
(1.7
|
)
|
|
(1.7
|
)
|
Domestic manufacturing deduction benefit
|
|
(1.4
|
)
|
|
(2.0
|
)
|
|
(2.1
|
)
|
Settlements, effective settlements, and related remeasurements
|
|
(0.1
|
)
|
|
(2.9
|
)
|
|
—
|
|
Other
|
|
0.8
|
|
|
(0.9
|
)
|
|
0.8
|
|
Effective tax rate
|
|
20.3
|
%
|
|
19.6
|
%
|
|
25.9
|
%
|
The majority of the
increase
in our effective tax rate in
2016
compared to
2015
was driven by
one-time items and our 2015 decision to indefinitely reinvest some of our prior years' non-U.S. earnings, partially offset by higher proportion of our income in lower tax jurisdictions.
Most of the
decrease
in our effective tax rate in
2015
compared to
2014
was driven by
one-time items, a higher proportion of our income from lower tax jurisdictions, and our decision to indefinitely reinvest certain prior years' non-U.S. earnings, which positively impacted our effective income tax rate.
Income in certain non-U.S. countries is fully exempt from income taxes for a limited period of time due to eligible activities and certain capital investment actions. These full tax exemptions expire at various dates through
2023
; however, the exemptions in certain countries are eligible for renewal.
In
2016
, the tax benefit attributable to tax holidays was
$77 million
(
$85 million
for
2015
and
$166 million
for
2014
) with a
$0.02
impact on diluted earnings per share (
$0.02
for
2015
and
$0.03
for
2014
).
During
2016
, net income tax
benefits
attributable to equity-based compensation transactions that were allocated to stockholders’ equity totaled
$154 million
(net
benefits
of
$172 million
in
2015
and net
benefits
of
$103 million
in
2014
).
INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Deferred and Current Income Taxes
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts for income tax purposes. Significant components of our deferred tax assets and liabilities at the end of each period were as follows:
|
|
|
|
|
|
|
|
|
|
(In Millions)
|
|
Dec 31,
2016
|
|
Dec 26,
2015
|
Deferred tax assets:
|
|
|
|
|
Accrued compensation and other benefits
|
|
$
|
1,182
|
|
|
$
|
931
|
|
Share-based compensation
|
|
373
|
|
|
424
|
|
Deferred income
|
|
596
|
|
|
694
|
|
Inventory
|
|
1,044
|
|
|
598
|
|
State credits and net operating losses
|
|
846
|
|
|
613
|
|
Other, net
|
|
1,187
|
|
|
760
|
|
Gross deferred tax assets
|
|
5,228
|
|
|
4,020
|
|
Valuation allowance
|
|
(953
|
)
|
|
(701
|
)
|
Total deferred tax assets
|
|
4,275
|
|
|
3,319
|
|
Deferred tax liabilities:
|
|
|
|
|
Property, plant and equipment
|
|
(1,574
|
)
|
|
(505
|
)
|
Licenses and intangibles
|
|
(1,036
|
)
|
|
(563
|
)
|
Convertible debt
|
|
(1,098
|
)
|
|
(1,042
|
)
|
Unrealized gains on investments and derivatives
|
|
(940
|
)
|
|
(717
|
)
|
Investment in non-U.S. subsidiaries
|
|
—
|
|
|
(37
|
)
|
Other, net
|
|
(450
|
)
|
|
(358
|
)
|
Total deferred tax liabilities
|
|
(5,098
|
)
|
|
(3,222
|
)
|
Net deferred tax assets (liabilities)
|
|
(823
|
)
|
|
97
|
|
|
|
|
|
|
Reported as:
|
|
|
|
|
Deferred tax assets
|
|
907
|
|
|
1,051
|
|
Deferred tax liabilities
|
|
(1,730
|
)
|
|
(954
|
)
|
Net deferred tax assets (liabilities)
|
|
$
|
(823
|
)
|
|
$
|
97
|
|
Deferred tax assets are included within other long-term assets on the consolidated balance sheets.
The valuation allowance as of
December 31, 2016
included allowances related to unrealized state credit carryforwards of
$839 million
and matters related to our non-U.S. subsidiaries of
$114 million
.
As of
December 31, 2016
, our federal, state, and non-U.S. net operating loss carryforwards for income tax purposes were
$321 million
,
$116 million
, and
$378 million
, respectively. The
majority
of the non-U.S. net operating loss carryforwards have no expiration date. The remaining non-U.S., as well as the U.S. federal and state net operating loss carryforwards, expire at various dates through
2037
. A significant amount of the net operating loss carryforwards in the U.S. relates to acquisitions and, as a result, is limited in the amount that can be recognized in any one year. The non-U.S. net operating loss carryforwards include
$215 million
that is not likely to be recovered and has been reduced by a valuation allowance.
As of
December 31, 2016
, we had not recognized U.S. deferred income taxes on a cumulative total of
$46.4 billion
of undistributed earnings and other basis differences for certain non-U.S. subsidiaries which includes the impact of the Altera acquisition. Determining the unrecognized deferred tax liability in these non-U.S. subsidiaries that are indefinitely reinvested is not practicable. We currently intend to indefinitely reinvest those earnings and other basis differences in operations outside the U.S.
Current income taxes receivable of
$86 million
as of
December 31, 2016
(
$468 million
as of
December 26, 2015
) is included in other current assets. Current income taxes payable of
$329 million
as of
December 31, 2016
(
$272 million
as of
December 26, 2015
) is included in other accrued liabilities.
INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Long-term income taxes payable of
$125 million
as of
December 31, 2016
(
$114 million
as of
December 26, 2015
) is included in other long-term liabilities, which includes uncertain tax positions, reduced by the associated federal deduction for state taxes and non-U.S. tax credits, and may also include other long-term tax liabilities that are not uncertain but have not yet been paid.
Uncertain Tax Positions
The aggregate changes in the balance of gross unrecognized tax benefits for each period were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
(In Millions)
|
|
Dec 31,
2016
|
|
Dec 26,
2015
|
|
Dec 27,
2014
|
Beginning gross unrecognized tax benefits
|
|
$
|
101
|
|
|
$
|
577
|
|
|
$
|
207
|
|
Settlements and effective settlements with tax authorities
and related remeasurements
|
|
(11
|
)
|
|
(452
|
)
|
|
(220
|
)
|
Lapse of statute of limitations
|
|
(16
|
)
|
|
—
|
|
|
—
|
|
Increases in balances related to tax positions taken during prior periods
|
|
81
|
|
|
4
|
|
|
173
|
|
Decreases in balances related to tax positions taken during prior periods
|
|
(11
|
)
|
|
(34
|
)
|
|
(1
|
)
|
Increases in balances related to tax positions taken during current period
|
|
10
|
|
|
6
|
|
|
418
|
|
Ending gross unrecognized tax benefits
|
|
$
|
154
|
|
|
$
|
101
|
|
|
$
|
577
|
|
The related tax benefit for settlements, effective settlements, and remeasurements is
insignificant
for
2016
(
$419 million
in
2015
and
insignificant
in
2014
).
If the remaining balance of
$154 million
of unrecognized tax benefits as of
December 31, 2016
(
$101 million
as of
December 26, 2015
) were recognized in a future period, it would result in a tax benefit of
$87 million
(
insignificant
as of
December 26, 2015
) and a reduction in the effective tax rate. Interest, penalties and accrued interest related to unrecognized tax benefits were insignificant in periods presented
Our tax policy is to comply with the laws, regulations, and filing requirements of all jurisdictions in which we conduct business. We regularly engage in discussions and negotiations with tax authorities regarding tax matters in various jurisdictions. Although the timing of the resolutions and/or closures of audits is highly uncertain, it is reasonably possible that certain U.S. federal and non-U.S. tax audits may be concluded within the next 12 months, which could significantly increase or decrease the balance of our gross unrecognized tax benefits. However, the estimated impact of income tax expense and net income is not expected to be significant.
We file federal, state, and non-U.S. tax returns. For non-U.S. tax returns, we are generally no longer subject to tax examinations for years prior to
2002
. For federal and state tax returns, we are no longer subject to tax examination for years prior to
2004
. We have filed petitions before the U.S. Tax Court relating to the treatment of stock-based compensation expense in an inter-company cost-sharing transaction for certain pre-acquisition Altera tax years; the outcome of those appeals is pending in the U.S. Court of Appeals for the Ninth Circuit.
INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 9: Investments
Available-for-Sale Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
December 26, 2015
|
(In Millions)
|
|
Adjusted
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Fair
Value
|
|
Adjusted
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Fair
Value
|
Corporate debt
|
|
$
|
3,847
|
|
|
$
|
4
|
|
|
$
|
(14
|
)
|
|
$
|
3,837
|
|
|
$
|
4,169
|
|
|
$
|
3
|
|
|
$
|
(11
|
)
|
|
$
|
4,161
|
|
Financial institution instruments
|
|
6,098
|
|
|
5
|
|
|
(11
|
)
|
|
6,092
|
|
|
11,140
|
|
|
1
|
|
|
(2
|
)
|
|
11,139
|
|
Government debt
|
|
1,581
|
|
|
—
|
|
|
(8
|
)
|
|
1,573
|
|
|
748
|
|
|
—
|
|
|
(1
|
)
|
|
747
|
|
Marketable equity securities
|
|
2,818
|
|
|
3,363
|
|
|
(1
|
)
|
|
6,180
|
|
|
3,254
|
|
|
2,706
|
|
|
—
|
|
|
5,960
|
|
Total available-for-sale investments
|
|
$
|
14,344
|
|
|
$
|
3,372
|
|
|
$
|
(34
|
)
|
|
$
|
17,682
|
|
|
$
|
19,311
|
|
|
$
|
2,710
|
|
|
$
|
(14
|
)
|
|
$
|
22,007
|
|
Government debt includes instruments such as non-U.S. government bonds and U.S. agency securities. Financial institution instruments include instruments issued or managed by financial institutions in various forms, such as commercial paper, fixed and floating-rate bonds, money market fund deposits, and time deposits.
Most
time deposits were issued by institutions outside the U.S. as of
December 31, 2016
(substantially all as of
December 26, 2015
).
During
2016
, we sold available-for-sale investments for proceeds of
$4.1 billion
, (
$2.2 billion
in
2015
and
$1.7 billion
in
2014
). The gross realized gains on sales of available-for-sale investments were
$538 million
in
2016
(
$133 million
in
2015
and
$136 million
in
2014
).
The fair value of available-for-sale debt investments, by contractual maturity, as of
December 31, 2016
were as follows:
|
|
|
|
|
|
(In Millions)
|
|
Fair Value
|
Due in 1 year or less
|
|
$
|
4,866
|
|
Due in 1–2 years
|
|
1,956
|
|
Due in 2–5 years
|
|
2,760
|
|
Instruments not due at a single maturity date
|
|
1,920
|
|
Total
|
|
$
|
11,502
|
|
Equity Method Investments
Equity method investments, classified within other long-term assets, at the end of each period were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
December 26, 2015
|
(Dollars In Millions)
|
|
Carrying
Value
|
|
Ownership
Percentage
|
|
Carrying
Value
|
|
Ownership
Percentage
|
IM Flash Technologies, LLC
|
|
$
|
849
|
|
|
49
|
%
|
|
$
|
872
|
|
|
49
|
%
|
Cloudera, Inc.
|
|
225
|
|
|
16
|
%
|
|
256
|
|
|
17
|
%
|
Other equity method investments
|
|
254
|
|
|
|
|
462
|
|
|
|
Total
|
|
$
|
1,328
|
|
|
|
|
$
|
1,590
|
|
|
|
INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
IM Flash Technologies, LLC
Since the inception of IM Flash Technologies, LLC (IMFT) in 2006, Micron Technology, Inc. (Micron) and Intel have jointly developed NAND flash memory and, most recently, 3D XPoint technology products. Intel also purchases jointly developed products directly from Micron under certain supply agreements.
The IMFT operating agreement, most recently amended in January 2016, continues through 2024 unless earlier terminated under certain terms and conditions, and provides for certain buy-sell rights of the joint venture. Intel has the right to cause Micron to buy our interest in IMFT. If we exercise this right, Micron would set the closing date of the transaction within two years following such election and could elect to receive financing from us for one to two years. Subsequent to our put right, and commencing in January 2019, Micron has the right to call our interest in IMFT with the closing date to be effective within one year.
IMFT is a variable interest entity, and all costs of IMFT are passed on to Micron and Intel through sale of products or services in proportional share of ownership. Our portion of IMFT costs, primarily related to product purchases and production-related services, was approximately
$400 million
in
2016
(approximately
$400 million
in
2015
and approximately
$400 million
in
2014
). The amount due to IMFT for product purchases and services provided was approximately
$95 million
as of
December 31, 2016
(approximately
$20 million
as of
December 26, 2015
). IMFT returned
$71 million
to Intel in
2016
, which is reflected within investing activities on the consolidated statements of cash flows (
none
in
2015
and
$6 million
in
2014
).
IMFT depends on Micron and Intel for any additional cash needs. Our known maximum exposure to loss approximated the carrying value of our investment balance in IMFT, which was
$849 million
as of
December 31, 2016
. Except for the amount due to IMFT for product purchases and production-related services, we did not have any additional liabilities recognized on our consolidated balance sheets in connection with our interests in this joint venture as of
December 31, 2016
. Our potential future losses could be higher than the carrying amount of our investment, as Intel and Micron are liable for other future operating costs or obligations of IMFT. Future cash calls could also increase our investment balance and the related exposure to loss. In addition, because we are currently committed to purchasing
49%
of IMFT’s production output and production-related services, we may be required to purchase products at a cost in excess of realizable value.
We have determined that we do not have the characteristics of a consolidating investor in the variable interest entity and, therefore, we account for our interest in IMFT using the equity method of accounting.
Cloudera, Inc.
Our investment in Cloudera, Inc. (Cloudera) is accounted for under the equity and cost methods of accounting based on the rights associated with different instruments we own, and is classified within other long-term assets. The carrying value of our equity method investment was
$225 million
and of our cost method investment was
$454 million
as of
December 31, 2016
(
$256 million
for our equity method investment and
$454 million
for our cost method investment as of
December 26, 2015
).
Non-m
arke
table Cost Method Investments
The carrying value of our non-marketable cost method investments was
$3.1 billion
as of
December 31, 2016
(
$2.9 billion
as of
December 26, 2015
), of which
$454 million
and
$966 million
related to our cost method investments in Cloudera and Beijing UniSpreadtrum Technology Ltd. (UniSpreadtrum), respectively. In
2016
, we recognized impairments of
$178 million
on non-marketable cost method investments (
$164 million
in
2015
and
$130 million
in
2014
).
Beijing UniSpreadtrum Technology Ltd.
During 2014, we entered into a series of agreements with Tsinghua Unigroup Ltd. (Tsinghua Unigroup), an operating subsidiary of Tsinghua Holdings Co. Ltd., to, among other things, jointly develop Intel architecture- and communications-based solutions for phones
. We agreed to invest up to
9.0 billion
Chinese yuan (approximately
$1.5 billion
as of the date of the agreement) for a minority stake of approximately
20%
of UniSpreadtrum, a holding company under Tsinghua Unigroup. During 2015, we invested
$966 million
to complete the first phase of the equity investment and accounted for our interest using the cost method of accounting.
INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Trading Assets
Net
losses
related to trading assets still held at the reporting date were
$295 million
in
2016
(net
losses
of
$152 million
in
2015
and net
losses
of
$530 million
in
2014
). Net
gains
on the related derivatives were
$300 million
in
2016
(net
gains
of
$137 million
in
2015
and
$525 million
in
2014
).
Note 10: Acquisitions and Divestitures
Altera Corporation
On December 28, 2015, we completed the acquisition of Altera, a global semiconductor company that designs and sells programmable semiconductors and related products. We acquired all outstanding shares of Altera common stock and, subject to certain exceptions, each share of Altera common stock underlying vested stock option awards, RSUs, and performance-based RSU awards in exchange for cash. The acquired company operates as PSG and continues to design and sell programmable logic devices (PLDs), which incorporate field-programmable gate arrays (FPGAs) and complex programmable logic devices (CPLDs), and highly integrated System-on-Chip (SoC) devices. This acquisition is expected to expand our reach within the compute continuum, as the combination of our leading-edge products and manufacturing process with Altera's leading FPGA technology enables new classes of platforms that meet customer needs in the data center and Internet of Things market segments. As we develop future platforms, the integration of PLDs into our platform solutions is expected to improve the overall performance and lower the cost of ownership for our customers. For further information, see "
Note 4: Operating Segments and Geographic Information
."
Total consideration to acquire Altera was
$14.5 billion
(net of
$2.0 billion
of cash and cash equivalents acquired) and comprised the following:
|
|
|
|
|
|
(In Millions)
|
|
|
Cash, net of cash acquired
|
|
$
|
14,401
|
|
Share-based awards assumed
|
|
50
|
|
Total
|
|
$
|
14,451
|
|
The fair values of the assets acquired and liabilities assumed by major class in the acquisition of Altera were recognized as follows:
|
|
|
|
|
|
(In Millions)
|
|
|
Short-term investments
|
|
$
|
182
|
|
Receivables
|
|
368
|
|
Inventory
|
|
555
|
|
Other current assets
|
|
123
|
|
Property, plant and equipment
|
|
312
|
|
Goodwill
|
|
5,448
|
|
Identified intangible assets
|
|
7,566
|
|
Other long-term investments and assets
|
|
2,515
|
|
Deferred income
|
|
(351
|
)
|
Other liabilities
|
|
(283
|
)
|
Long-term debt
|
|
(1,535
|
)
|
Deferred tax liabilities
|
|
(449
|
)
|
Total
|
|
$
|
14,451
|
|
The goodwill of
$5.4 billion
arising from the acquisition is attributed to the expected benefit and other benefits that will be generated by combining Intel and Altera. Substantially all of the goodwill recognized is not expected to be deductible for tax purposes. For further information on the assignment of goodwill for the acquisition, see “
Note 11: Goodwill
.”
INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The identified intangible assets assumed in the acquisition of Altera were recognized as follows based upon their fair values as of December 28, 2015:
|
|
|
|
|
|
|
|
|
|
Fair Value
(In Millions)
|
|
Weighted Average Estimated Useful Life
(In Years)
|
Developed technology
|
|
$
|
5,757
|
|
|
9
|
Customer relationships
|
|
1,121
|
|
|
12
|
Brands
|
|
87
|
|
|
6
|
Identified intangible assets subject to amortization
|
|
6,965
|
|
|
|
In-process research and development
|
|
601
|
|
|
|
Identified intangible assets not subject to amortization
|
|
601
|
|
|
|
Total identified intangible assets
|
|
$
|
7,566
|
|
|
|
Acquired developed technology represents the fair value of Altera products that have reached technological feasibility and are a part of Altera’s product offerings, and in-process research and development represents the fair value of products that have not reached technological feasibility. Customer relationships represent the fair values of the underlying relationships and agreements with Altera’s customers. Brands represent the fair value of Altera's master brand and product brand names.
Other Acquisitions
During
2016
, in addition to the Altera acquisition, we completed
11
acquisitions qualifying as business combinations in exchange for aggregate consideration (net of cash acquired) of
$1.1 billion
,
most
of which was
cash
.
Substantially all
of the consideration was allocated to goodwill and identifiable intangible assets.
During
2015
, we completed
eight
acquisitions qualifying as business combinations in exchange for aggregate consideration (net of cash acquired) of
$1.0 billion
, a
substantial majority
of which was cash consideration.
Substantially all
of the consideration was allocated to goodwill and other intangible assets, such as acquisition-related developed technology and acquisition-related customer relationships. Included in these acquisitions is our acquisition of Lantiq Semiconductor (Lantiq), intended to extend Intel's success in cable home gateways into DSL and fiber markets. We acquired Lantiq in the second quarter of 2015 for net cash consideration of
$345 million
,
substantially all
of which was allocated to goodwill and intangible assets, such as acquisition-related developed technology and acquisition-related customer relationships. The operating results of Lantiq are included in our CCG operating segment.
During
2014
, we completed
eight
acquisitions qualifying as business combinations in exchange for aggregate consideration of
$963 million
, substantially all cash consideration.
A substantial majority
of the consideration was allocated to goodwill and acquisition-related developed technology intangible assets. Included in these acquisitions is our acquisition of the Axxia Networking Business (Axxia business) of Broadcom Limited (formerly Avago Technologies), intended to accelerate growth in the mobile wireless base station business. We acquired the Axxia business in the fourth quarter of 2014 for net cash consideration of
$650 million
,
substantially all
of which was allocated to goodwill and acquisition-related developed technology intangible assets. The operating results of the Axxia business are included in our DCG operating segment.
Other acquisitions (excluding Altera) completed in 2016, 2015, and 2014, both individually and in the aggregate, were not significant to our results of operations. For information on the assignment of goodwill to our operating segments, see "
Note 11: Goodwill
" and for information on the classification of intangible assets, see "
Note 12: Identified Intangible Assets
."
Actual and Pro Forma Results of Acquirees
Net revenue and net income attributable to all acquisitions completed during
2016
have been included in our consolidated statements of income from their respective acquisition dates to the year ended
December 31, 2016
. The Altera acquisition was significant to our consolidated results of operations, and these results are reported as PSG in "
Note 4: Operating Segments and Geographic Information
."
INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The unaudited pro forma financial results combine the historical results of Intel and Altera for 2016 and 2015 along with the historical results of other businesses acquired during 2016. The results include the effects of pro forma adjustments as if the businesses acquired in 2016 were acquired at the beginning of Intel's 2015 fiscal year. The pro forma results for the year ended
December 26, 2015
include non-recurring adjustments of
$387 million
for the inventory valuation adjustment,
$64 million
for deferred income (net of the impact of cost of goods sold) and
$94 million
for other acquisition-related transaction costs, all of which reduce pro forma net income.
The unaudited pro forma financial results presented below do not include any anticipated synergies or other expected benefits of the acquisitions. This is presented for informational purposes only and is not indicative of future operations or results that would have been achieved had the acquisitions been completed as of the beginning of our 2015 fiscal year.
|
|
|
|
|
|
|
|
|
|
Years Ended
(Unaudited, In Millions, Except Per Share Amounts)
|
|
Dec 31,
2016
|
|
Dec 26,
2015
|
Net revenue
|
|
$
|
59,486
|
|
|
$
|
56,906
|
|
Net income
|
|
$
|
10,788
|
|
|
$
|
10,510
|
|
Diluted earnings per share
|
|
$
|
2.21
|
|
|
$
|
2.15
|
|
Planned Divestiture of Intel Security Group
On September 7, 2016, we announced a definitive agreement with TPG VII Manta Holdings, L.P. (TPG) to transfer certain assets and liabilities relating to ISecG to a newly formed, jointly owned, separate cybersecurity company. The new company will be called McAfee, LLC. (McAfee) following transaction close, which is expected in the second quarter of 2017.
Under the terms of the agreement, Intel will transfer certain assets and liabilities relating to ISecG, a transaction valued at approximately
$4.2 billion
, for consideration of approximately
$3.1 billion
and a
49%
ownership interest in McAfee. Intel will finance approximately
$2.2 billion
of the consideration until the debt can be refinanced and repaid by McAfee and TPG. TPG will own a
51%
ownership interest in McAfee.
The carrying amounts of the major classes of ISecG assets and liabilities held for sale included the following:
|
|
|
|
|
|
(In Millions)
|
|
Dec 31,
2016
|
Accounts receivable
|
|
$
|
407
|
|
Goodwill
|
|
3,600
|
|
Identified intangible assets
|
|
966
|
|
Other assets
|
|
214
|
|
Total assets held for sale
|
|
$
|
5,187
|
|
|
|
|
Deferred income
|
|
$
|
1,554
|
|
Other liabilities
|
|
366
|
|
Total liabilities held for sale
|
|
$
|
1,920
|
|
In addition to total assets and liabilities held for sale are currency translation adjustments totaling
$507 million
. This amount, classified as other comprehensive income, is associated with currency charges on the carrying values of ISecG goodwill and identified intangible assets. Upon transaction close, we will charge this amount against the expected gain.
We ceased recording depreciation and amortization on property, plant and equipment and identified intangible assets, respectively, as of the date the assets triggered held for sale accounting.
INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 11: Goodwill
Goodwill activity for each period was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Millions)
|
|
Dec 26,
2015
|
|
Acquisitions
|
|
Transfers
|
|
Other
|
|
Dec 31,
2016
|
Client Computing Group (CCG)
|
|
$
|
4,078
|
|
|
$
|
65
|
|
|
$
|
213
|
|
|
$
|
—
|
|
|
$
|
4,356
|
|
Data Center Group (DCG)
|
|
2,404
|
|
|
2,831
|
|
|
177
|
|
|
—
|
|
|
5,412
|
|
Internet of Things Group (IOTG)
|
|
428
|
|
|
659
|
|
|
36
|
|
|
—
|
|
|
1,123
|
|
Intel Security Group (ISecG)
|
|
3,599
|
|
|
—
|
|
|
—
|
|
|
(3,599
|
)
|
|
—
|
|
Software and Services Group (SSG)
|
|
441
|
|
|
—
|
|
|
(441
|
)
|
|
—
|
|
|
—
|
|
Programmable Solutions Group (PSG)
|
|
—
|
|
|
2,490
|
|
|
—
|
|
|
—
|
|
|
2,490
|
|
All other
|
|
382
|
|
|
321
|
|
|
15
|
|
|
—
|
|
|
718
|
|
Total
|
|
$
|
11,332
|
|
|
$
|
6,366
|
|
|
$
|
—
|
|
|
$
|
(3,599
|
)
|
|
$
|
14,099
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Millions)
|
|
Dec 27,
2014
|
|
Acquisitions
|
|
Transfers
|
|
Other
|
|
Dec 26,
2015
|
Client Computing Group (CCG)
|
|
$
|
3,708
|
|
|
$
|
370
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
4,078
|
|
Data Center Group (DCG)
|
|
2,376
|
|
|
28
|
|
|
—
|
|
|
—
|
|
|
2,404
|
|
Internet of Things Group (IOTG)
|
|
428
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
428
|
|
Intel Security Group (ISecG)
|
|
3,777
|
|
|
—
|
|
|
—
|
|
|
(178
|
)
|
|
3,599
|
|
Software and Services Group (SSG)
|
|
459
|
|
|
10
|
|
|
—
|
|
|
(28
|
)
|
|
441
|
|
All other
|
|
113
|
|
|
269
|
|
|
—
|
|
|
—
|
|
|
382
|
|
Total
|
|
$
|
10,861
|
|
|
$
|
677
|
|
|
$
|
—
|
|
|
$
|
(206
|
)
|
|
$
|
11,332
|
|
ISecG goodwill has been reclassified to assets held for sale on the consolidated balance sheet. This reclassification of goodwill is presented within the "Other" column in the preceding table. For further information, see "
Note 10: Acquisitions and Divestitures
."
During the first quarter of 2016, we completed the acquisition of Altera and formed PSG. The goodwill recognized from this acquisition was allocated among PSG, DCG, and IOTG based on the relative fair value provided by the acquisition, which reflected the estimated synergistic value generated within DCG and IOTG by incorporating Altera's intellectual property into Intel's future process technology and products. For further information, see "
Note 10: Acquisitions and Divestitures
."
We previously disclosed the goodwill for ISecG and SSG as part of the aggregated software and services operating segments. During the first quarter of 2016, we elected to separately disclose the results of ISecG and determined SSG was no longer an operating segment; accordingly, its goodwill was re-allocated to other operating segments based on the relative fair value. Additionally, we formed NTG, which includes products designed for wearables, cameras, drones, and other market segments. The substantial majority of goodwill under "all other" is attributable to NTG, the remainder of which is unallocated from acquisitions completed in 2016. For further information, see "
Note 4: Operating Segments and Geographic Information
."
During the fourth quarters of
2016
,
2015
, and
2014
, we completed our annual impairment assessments and we concluded that goodwill was not impaired in any of these years. The accumulated impairment losses as of
December 31, 2016
were
$719 million
:
$365 million
associated with CCG,
$275 million
associated with DCG, and
$79 million
associated with IOTG.
INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 12: Identified Intangible Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
(In Millions)
|
|
Gross
Assets
|
|
Accumulated
Amortization
|
|
Net
|
Acquisition-related developed technology
|
|
$
|
7,405
|
|
|
$
|
(1,836
|
)
|
|
$
|
5,569
|
|
Acquisition-related customer relationships
|
|
1,449
|
|
|
(260
|
)
|
|
1,189
|
|
Acquisition-related brands
|
|
87
|
|
|
(21
|
)
|
|
66
|
|
Licensed technology and patents
|
|
3,285
|
|
|
(1,423
|
)
|
|
1,862
|
|
Identified intangible assets subject to amortization
|
|
12,226
|
|
|
(3,540
|
)
|
|
8,686
|
|
In-process research and development
|
|
808
|
|
|
—
|
|
|
808
|
|
Identified intangible assets not subject to amortization
|
|
808
|
|
|
—
|
|
|
808
|
|
Total identified intangible assets
|
|
$
|
13,034
|
|
|
$
|
(3,540
|
)
|
|
$
|
9,494
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 26, 2015
|
(In Millions)
|
|
Gross
Assets
|
|
Accumulated
Amortization
|
|
Net
|
Acquisition-related developed technology
|
|
$
|
2,928
|
|
|
$
|
(2,276
|
)
|
|
$
|
652
|
|
Acquisition-related customer relationships
|
|
1,738
|
|
|
(1,219
|
)
|
|
519
|
|
Acquisition-related brands
|
|
59
|
|
|
(55
|
)
|
|
4
|
|
Licensed technology and patents
|
|
3,017
|
|
|
(1,200
|
)
|
|
1,817
|
|
Identified intangible assets subject to amortization
|
|
7,742
|
|
|
(4,750
|
)
|
|
2,992
|
|
Acquisition-related brands
|
|
767
|
|
|
—
|
|
|
767
|
|
In-process research and development
|
|
102
|
|
|
—
|
|
|
102
|
|
Other intangible assets
|
|
72
|
|
|
—
|
|
|
72
|
|
Identified intangible assets not subject to amortization
|
|
941
|
|
|
—
|
|
|
941
|
|
Total identified intangible assets
|
|
$
|
8,683
|
|
|
$
|
(4,750
|
)
|
|
$
|
3,933
|
|
Identified intangible assets associated with our divestiture of ISecG were reclassified to assets held for sale on the consolidated balance sheet and were not reflected in the
December 31, 2016
table above. For further information, see "
Note 10: Acquisitions and Divestitures
."
As a result of our acquisition of Altera during the first quarter of 2016, we recorded
$7.6 billion
of identified intangible assets. For further information about these acquired identified intangible assets, see "
Note 10: Acquisitions and Divestitures
."
As a result of our acquisitions and purchases of licensed technology and patents, identified intangible assets recorded for each period and their respective estimated weighted average useful lives were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
December 26, 2015
|
|
|
Gross
Assets
(In Millions)
|
|
Estimated Useful Life
(In Years)
|
|
Gross
Assets
(In Millions)
|
|
Estimated Useful Life
(In Years)
|
Acquisition-related developed technology
|
|
$
|
5,842
|
|
|
9
|
|
$
|
238
|
|
|
6
|
Acquisition-related customer relationships
|
|
$
|
1,148
|
|
|
12
|
|
$
|
110
|
|
|
11
|
Acquisition-related brands
|
|
$
|
87
|
|
|
6
|
|
$
|
—
|
|
|
n/a
|
Licensed technology and patents
|
|
$
|
342
|
|
|
12
|
|
$
|
176
|
|
|
7
|
During
2016
, we acquired in-process R&D assets of
$713 million
that were not subject to amortization. All intangible assets acquired during
2015
were not subject to amortization.
INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As of
December 31, 2016
, the estimated useful life of our acquisition-related brands is
six years
. The estimated useful life ranges for substantially all other identified intangible assets that are subject to amortization were as follows:
|
|
|
|
|
|
(In Years)
|
|
Estimated
Useful Life Range
|
Acquisition-related developed technology
|
|
4
|
–
|
9
|
Acquisition-related customer relationships
|
|
6
|
–
|
12
|
Licensed technology and patents
|
|
2
|
–
|
17
|
Amortization expenses recorded in the consolidated statements of income for each period were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
(In Millions)
|
|
Location
|
|
Dec 31,
2016
|
|
Dec 26,
2015
|
|
Dec 27,
2014
|
Acquisition-related developed technology
|
|
Cost of sales
|
|
$
|
937
|
|
|
$
|
343
|
|
|
$
|
600
|
|
Acquisition-related customer relationships
|
|
Amortization of acquisition-related intangibles
|
|
270
|
|
|
258
|
|
|
284
|
|
Acquisition-related brands
|
|
Amortization of acquisition-related intangibles
|
|
24
|
|
|
7
|
|
|
10
|
|
Licensed technology and patents
|
|
Cost of sales
|
|
293
|
|
|
282
|
|
|
275
|
|
Total amortization expenses
|
|
|
|
$
|
1,524
|
|
|
$
|
890
|
|
|
$
|
1,169
|
|
Based on identified intangible assets that are subject to amortization as of
December 31, 2016
, we expect future amortization expense for the next five years to be as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Millions)
|
|
2017
|
|
2018
|
|
2019
|
|
2020
|
|
2021
|
Acquisition-related developed technology
|
|
$
|
804
|
|
|
$
|
787
|
|
|
$
|
785
|
|
|
$
|
753
|
|
|
$
|
715
|
|
Acquisition-related customer relationships
|
|
137
|
|
|
122
|
|
|
122
|
|
|
120
|
|
|
120
|
|
Acquisition-related brands
|
|
14
|
|
|
13
|
|
|
13
|
|
|
13
|
|
|
13
|
|
Licensed technology and patents
|
|
279
|
|
|
230
|
|
|
218
|
|
|
193
|
|
|
177
|
|
Total future amortization expenses
|
|
$
|
1,234
|
|
|
$
|
1,152
|
|
|
$
|
1,138
|
|
|
$
|
1,079
|
|
|
$
|
1,025
|
|
INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 13: Other Long-Term Assets
|
|
|
|
|
|
|
|
|
|
(In Millions)
|
|
Dec 31,
2016
|
|
Dec 26,
2015
|
Equity method investments
|
|
$
|
1,328
|
|
|
$
|
1,590
|
|
Non-marketable cost method investments
|
|
3,098
|
|
|
2,933
|
|
Non-current deferred tax assets
|
|
907
|
|
|
1,051
|
|
Pre-payments for property, plant and equipment
|
|
347
|
|
|
623
|
|
Loans receivable
|
|
236
|
|
|
642
|
|
Grants receivable
|
|
63
|
|
|
318
|
|
Reverse repurchase agreements
|
|
250
|
|
|
350
|
|
Other
|
|
930
|
|
|
658
|
|
Total other long-term assets
|
|
$
|
7,159
|
|
|
$
|
8,165
|
|
During
2016
, we received and transferred
$326 million
of equipment from pre-payments for property, plant and equipment to property, plant and equipment.
The majority
of the equipment was prepaid in
2013 and 2014
. We recognized the pre-payments within operating activities in the consolidated statement of cash flows when we paid for the equipment, and the receipt of the equipment is reflected as a non-cash transaction in the current period.
Note 14: Borrowings
Short-Term Debt
|
|
|
|
|
|
|
|
|
|
(In Millions)
|
|
Dec 31,
2016
|
|
Dec 26,
2015
|
Drafts payable
|
|
$
|
25
|
|
|
$
|
41
|
|
Current portion of long-term debt
|
|
4,618
|
|
|
2,602
|
|
Less: debt issuance costs associated with the current portion of long-term debt
|
|
(9
|
)
|
|
(9
|
)
|
Total short-term debt
|
|
$
|
4,634
|
|
|
$
|
2,634
|
|
Our current portion of long-term debt includes our 2009 junior subordinated convertible debentures due 2039, our acquired Altera senior notes due 2017, and our 2012 senior notes due 2017.
We have an ongoing authorization from our Board of Directors to borrow up to
$5.0 billion
under our commercial paper program. We had
no
commercial paper outstanding for all periods presented.
INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Long-Term Debt
Our indebtedness is carried at amortized cost net of applicable hedge adjustments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Millions)
|
|
Maturity Date
|
|
Stated Interest Rate
|
|
Dec 31,
2016
|
|
Dec 26,
2015
|
Second quarter 2016 debt issuance of $2.8 billion
|
|
|
|
|
|
|
|
|
Senior notes
|
|
May 2021
|
|
1.70%
|
|
$
|
499
|
|
|
$
|
—
|
|
Senior notes
|
|
May 2026
|
|
2.60%
|
|
983
|
|
|
—
|
|
Senior notes
|
|
May 2046
|
|
4.10%
|
|
1,243
|
|
|
—
|
|
First quarter 2016 acquired Altera debt of $1.5 billion
|
|
|
|
|
|
|
|
|
Senior notes
|
|
May 2017
|
|
1.75%
|
|
501
|
|
|
—
|
|
Senior notes
|
|
November 2018
|
|
2.50%
|
|
604
|
|
|
—
|
|
Senior notes
|
|
November 2023
|
|
4.10%
|
|
424
|
|
|
—
|
|
Fourth quarter 2015 debt issuance of $915 million
|
|
|
|
|
|
|
|
|
Senior notes
|
|
December 2045
|
|
4.70%
|
|
894
|
|
|
908
|
|
Fourth quarter 2015 Australian-dollar-denominated debt issuance of A$800 million
|
|
|
|
|
|
|
|
|
Senior notes
1
|
|
December 2019
|
|
3.25%
|
|
180
|
|
|
181
|
|
Senior notes
1
|
|
December 2022
|
|
4.00%
|
|
394
|
|
|
397
|
|
Third quarter 2015 debt issuance of $1.0 billion
|
|
|
|
|
|
|
|
|
Senior notes
|
|
August 2045
|
|
4.90%
|
|
995
|
|
|
1,009
|
|
Third quarter 2015 debt issuance of $7.0 billion
|
|
|
|
|
|
|
|
|
Senior notes
|
|
July 2020
|
|
2.45%
|
|
1,749
|
|
|
1,748
|
|
Senior notes
|
|
July 2022
|
|
3.10%
|
|
987
|
|
|
996
|
|
Senior notes
|
|
July 2025
|
|
3.70%
|
|
2,148
|
|
|
2,247
|
|
Senior notes
|
|
July 2045
|
|
4.90%
|
|
1,999
|
|
|
1,998
|
|
2012 debt issuance of $6.2 billion
|
|
|
|
|
|
|
|
|
Senior notes
|
|
December 2017
|
|
1.35%
|
|
2,999
|
|
|
2,999
|
|
Senior notes
|
|
December 2022
|
|
2.70%
|
|
1,480
|
|
|
1,492
|
|
Senior notes
|
|
December 2032
|
|
4.00%
|
|
745
|
|
|
744
|
|
Senior notes
|
|
December 2042
|
|
4.25%
|
|
924
|
|
|
924
|
|
2011 debt issuance of $5.0 billion
|
|
|
|
|
|
|
|
|
Senior notes
|
|
October 2016
|
|
1.95%
|
|
—
|
|
|
1,499
|
|
Senior notes
|
|
October 2021
|
|
3.30%
|
|
1,988
|
|
|
1,997
|
|
Senior notes
|
|
October 2041
|
|
4.80%
|
|
1,491
|
|
|
1,490
|
|
2009 debt issuance of $2.0 billion
|
|
|
|
|
|
|
|
|
Junior subordinated convertible debentures
|
|
August 2039
|
|
3.25%
|
|
1,118
|
|
|
1,103
|
|
2005 debt issuance of $1.6 billion
|
|
|
|
|
|
|
|
|
Junior subordinated convertible debentures
|
|
December 2035
|
|
2.95%
|
|
992
|
|
|
975
|
|
Long-term debt
|
|
|
|
|
|
25,337
|
|
|
22,707
|
|
Less: current portion of long-term debt
|
|
|
|
|
|
(4,618
|
)
|
|
(2,602
|
)
|
Less: debt issuance costs
|
|
|
|
|
|
(70
|
)
|
|
(69
|
)
|
Total long-term debt
|
|
|
|
|
|
$
|
20,649
|
|
|
$
|
20,036
|
|
|
|
1
|
To manage foreign currency risk associated with the Australian-dollar-denominated notes issued in 2015, we entered into currency interest rate swaps with an aggregate notional amount of
$577 million
, which effectively converted these notes to U.S.-dollar-denominated notes. For further discussion on our currency interest rate swaps, see "
Note 17: Derivative Financial Instruments
."
|
INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Senior Notes
During the second quarter of 2016, we issued a total of
$2.8 billion
aggregate principal amount of senior unsecured notes to refinance existing indebtedness, including our
1.95%
senior notes due
2016
and a portion of our
1.35%
senior notes due
2017
.
During the first quarter of 2016, in connection with our completed acquisition of Altera, we acquired a total of
$1.5 billion
aggregate principal amount of senior unsecured notes.
During 2015, we issued a total of
$9.5 billion
aggregate principal amount of senior unsecured notes to fund a portion of the cash consideration for our acquisition of Altera. For more information on our Altera acquisition, see "
Note 10: Acquisitions and Divestitures
."
All of our senior notes pay a fixed rate of interest semiannually. We may redeem the notes prior to their maturity at our option at specified redemption prices and subject to certain restrictions. The obligations under the notes rank equally in right of payment with all of our other existing and future senior unsecured indebtedness and will effectively rank junior to all liabilities of our subsidiaries.
Convertible Debentures
In 2009 and 2005, we issued junior subordinated convertible debentures due 2039 (2009 debentures) and 2035 (2005 debentures), respectively. Both the 2009 and 2005 debentures pay a fixed rate of interest semiannually.
|
|
|
|
|
|
|
|
|
|
2009
Debentures
|
|
2005
Debentures
|
Annual stated coupon interest rate
|
|
3.25
|
%
|
|
2.95
|
%
|
Annual effective interest rate
|
|
7.20
|
%
|
|
6.45
|
%
|
The effective interest rate is based on the rate, at inception, for a similar instrument that does not have a conversion feature.
2009 Debentures.
The 2009 debentures have a contingent interest component that requires us to pay interest based on certain thresholds or for certain events, commencing on August 1, 2019. After such date, if the
10
-day
average
trading price of
$1,000
principal amount of the bond immediately preceding any
six
-month interest period is less than or equal to
$650
or greater than or equal to
$1,500
, we are required to pay contingent
0.25%
or
0.50%
annual interest, respectively.
The 2009 debentures are convertible, subject to certain conditions. Holders can surrender the 2009 debentures for conversion if the closing price of Intel common stock has been at least
130%
of the conversion price then in effect for at least
20
trading days during the
30
consecutive trading-day period ending on the last trading day of the preceding fiscal quarter. We will settle any conversion of the 2009 debentures in cash up to the face value, and any amount in excess of face value will be settled in cash or stock at our option. On or after August 5, 2019, we can redeem, for cash, all or part of the 2009 debentures for the principal amount, plus any accrued and unpaid interest, if the closing price of Intel common stock has been at least
150%
of the conversion price then in effect for at least
20
trading days during any
30
consecutive trading-day period. In addition, if certain events occur in the future, the indenture governing the 2009 debentures provides that each holder of the debentures can, for a pre-defined period of time, require us to repurchase the holder’s debentures for the principal amount plus any accrued and unpaid interest. The 2009 debentures are subordinated in right of payment to any existing and future senior debt and to the other liabilities of our subsidiaries. We have concluded that the 2009 debentures are not conventional convertible debt instruments and that the embedded stock conversion options qualify as derivatives. In addition, we have concluded that the embedded conversion options would be classified in stockholders’ equity if they were freestanding derivative instruments and are not accounted for separately as derivative liabilities.
INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
During the fourth quarter of
2016
, the closing stock price conversion right condition of the 2009 debentures continued to be met and the debentures will be convertible at the option of the holders during the first quarter of
2017
. As a result, the
$1.1 billion
carrying amount of the 2009 debentures was classified as short-term debt on our consolidated balance sheet as of
December 31, 2016
(
$1.1 billion
as of
December 26, 2015
). The excess of the amount of cash payable if converted over the carrying amount of the 2009 debentures of
$882 million
has been classified as temporary equity on our consolidated balance sheet as of
December 31, 2016
(
$897 million
as of
December 26, 2015
). In future periods, if the closing stock price conversion right condition is no longer met, all outstanding 2009 debentures would be reclassified to long-term debt and the temporary equity would be reclassified to stockholders’ equity on our consolidated balance sheet.
2005 Debentures.
The 2005 debentures have a contingent interest component that requires us to pay interest based on certain thresholds or for certain events. If the
10
-day
average
trading price of
$1,000
principal amount of the bond immediately preceding any
six
-month interest period is less than or equal to
$800
or greater than or equal to
$1,300
, we are required to pay contingent
0.25%
or
0.40%
annual interest, respectively. As of
December 31, 2016
, we
met
the upside contingent interest threshold for the
six
-month interest payment period from December 15, 2016 to June 15, 2017.
The 2005 debentures are convertible into shares of our common stock. Holders can surrender the 2005 debentures for conversion at any time. We can settle any conversion of the 2005 debentures in cash or stock at our option. The 2005 debentures become redeemable if the closing price of Intel common stock has been at least
130%
of the conversion price then in effect for at least
20
trading days during any
30
consecutive trading-day period. During the fourth quarter of
2016
, the closing stock price redemption right condition of the 2005 debentures was met and we have the option to redeem, for cash, all or part of the 2005 debentures for the principal amount, plus any accrued and unpaid interest. We currently do not intend to redeem any of the 2005 debentures. In addition, if certain events occur in the future, the indenture governing the 2005 debentures provides that each holder of the debentures can, for a pre-defined period of time, require us to repurchase the holder’s debentures for the principal amount plus any accrued and unpaid interest. The 2005 debentures are subordinated in right of payment to any existing and future senior debt and to the other liabilities of our subsidiaries. We have concluded that the 2005 debentures are not conventional convertible debt instruments and that the embedded stock conversion options qualify as derivatives. In addition, we have concluded that the embedded conversion options would be classified in stockholders’ equity if they were freestanding derivative instruments and not accounted for separately as derivative liabilities.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 Debentures
|
|
2005 Debentures
|
(In Millions, Except Per Share Amounts)
|
|
Dec 31,
2016
|
|
Dec 26,
2015
|
|
Dec 31,
2016
|
|
Dec 26,
2015
|
Outstanding principal
|
|
$
|
2,000
|
|
|
$
|
2,000
|
|
|
$
|
1,600
|
|
|
$
|
1,600
|
|
Equity component (including temporary equity) carrying amount
|
|
$
|
613
|
|
|
$
|
613
|
|
|
$
|
466
|
|
|
$
|
466
|
|
Unamortized discount
1
|
|
$
|
882
|
|
|
$
|
897
|
|
|
$
|
608
|
|
|
$
|
625
|
|
Net debt carrying amount
|
|
$
|
1,118
|
|
|
$
|
1,103
|
|
|
$
|
992
|
|
|
$
|
975
|
|
Conversion rate (shares of common stock per $1,000 principal amount of debentures)
|
|
47.72
|
|
|
46.58
|
|
|
36.20
|
|
|
35.82
|
|
Effective conversion price (per share of common stock)
|
|
$
|
20.95
|
|
|
$
|
21.47
|
|
|
$
|
27.62
|
|
|
$
|
27.92
|
|
|
|
1
|
The unamortized discounts for the 2009 and 2005 debentures are amortized over the remaining life of the debt.
|
The conversion rate adjusts for certain events outlined in the indentures governing the 2009 and 2005 debentures, such as quarterly dividend distributions in excess of
$0.14
and
$0.10
per share for the 2009 and 2005 debentures, respectively, but it does not adjust for accrued interest. In addition, the conversion rate will increase for a holder of either the 2009 or 2005 debentures who elects to convert the debentures in connection with certain share exchanges, mergers, or consolidations involving Intel.
INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Debt Maturities
Our aggregate debt maturities based on outstanding principal as of
December 31, 2016
, by year payable, were as follows:
|
|
|
|
|
|
(In Millions)
|
|
|
2017
|
|
$
|
3,500
|
|
2018
|
|
600
|
|
2019
|
|
180
|
|
2020
|
|
1,750
|
|
2021
|
|
2,500
|
|
2022 and thereafter
|
|
18,492
|
|
Total
|
|
$
|
27,022
|
|
In the preceding table, the 2009 debentures are
classified based on their stated maturity date, regardless of their classification on the consolidated balance sheet
.
INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 15: Fair Value
Assets and Liabilities Measured and Recorded at Fair Value on a Recurring Basis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
December 26, 2015
|
|
|
Fair Value Measured and
Recorded at Reporting Date Using
|
|
Total
|
|
Fair Value Measured and
Recorded at Reporting Date Using
|
|
Total
|
(In Millions)
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt
|
|
$
|
—
|
|
|
$
|
498
|
|
|
$
|
—
|
|
|
$
|
498
|
|
|
$
|
—
|
|
|
$
|
1,829
|
|
|
$
|
—
|
|
|
$
|
1,829
|
|
Financial institution instruments
|
|
1,920
|
|
|
811
|
|
|
—
|
|
|
2,731
|
|
|
8,238
|
|
|
1,277
|
|
|
—
|
|
|
9,515
|
|
Government debt
|
|
—
|
|
|
332
|
|
|
—
|
|
|
332
|
|
|
—
|
|
|
130
|
|
|
—
|
|
|
130
|
|
Reverse repurchase agreements
|
|
—
|
|
|
768
|
|
|
—
|
|
|
768
|
|
|
—
|
|
|
2,368
|
|
|
—
|
|
|
2,368
|
|
Short-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt
|
|
391
|
|
|
941
|
|
|
6
|
|
|
1,338
|
|
|
336
|
|
|
764
|
|
|
20
|
|
|
1,120
|
|
Financial institution instruments
|
|
119
|
|
|
1,484
|
|
|
—
|
|
|
1,603
|
|
|
145
|
|
|
927
|
|
|
—
|
|
|
1,072
|
|
Government debt
|
|
71
|
|
|
213
|
|
|
—
|
|
|
284
|
|
|
65
|
|
|
425
|
|
|
—
|
|
|
490
|
|
Trading assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset-backed securities
|
|
—
|
|
|
80
|
|
|
7
|
|
|
87
|
|
|
—
|
|
|
275
|
|
|
94
|
|
|
369
|
|
Corporate debt
|
|
2,237
|
|
|
610
|
|
|
—
|
|
|
2,847
|
|
|
1,744
|
|
|
564
|
|
|
—
|
|
|
2,308
|
|
Financial institution instruments
|
|
973
|
|
|
671
|
|
|
—
|
|
|
1,644
|
|
|
930
|
|
|
701
|
|
|
—
|
|
|
1,631
|
|
Government debt
|
|
2,063
|
|
|
1,673
|
|
|
—
|
|
|
3,736
|
|
|
1,107
|
|
|
1,908
|
|
|
—
|
|
|
3,015
|
|
Other current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative assets
|
|
—
|
|
|
382
|
|
|
—
|
|
|
382
|
|
|
32
|
|
|
412
|
|
|
1
|
|
|
445
|
|
Loans receivable
|
|
—
|
|
|
326
|
|
|
—
|
|
|
326
|
|
|
—
|
|
|
137
|
|
|
—
|
|
|
137
|
|
Marketable equity securities
|
|
6,180
|
|
|
—
|
|
|
—
|
|
|
6,180
|
|
|
5,891
|
|
|
69
|
|
|
—
|
|
|
5,960
|
|
Other long-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt
|
|
1,126
|
|
|
869
|
|
|
6
|
|
|
2,001
|
|
|
407
|
|
|
801
|
|
|
4
|
|
|
1,212
|
|
Financial institution instruments
|
|
663
|
|
|
1,095
|
|
|
—
|
|
|
1,758
|
|
|
171
|
|
|
381
|
|
|
—
|
|
|
552
|
|
Government debt
|
|
681
|
|
|
276
|
|
|
—
|
|
|
957
|
|
|
79
|
|
|
48
|
|
|
—
|
|
|
127
|
|
Other long-term assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative assets
|
|
—
|
|
|
31
|
|
|
9
|
|
|
40
|
|
|
—
|
|
|
30
|
|
|
10
|
|
|
40
|
|
Loans receivable
|
|
—
|
|
|
236
|
|
|
—
|
|
|
236
|
|
|
—
|
|
|
342
|
|
|
—
|
|
|
342
|
|
Total assets measured and recorded at fair value
|
|
16,424
|
|
|
11,296
|
|
|
28
|
|
|
27,748
|
|
|
19,145
|
|
|
13,388
|
|
|
129
|
|
|
32,662
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other accrued liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities
|
|
—
|
|
|
371
|
|
|
—
|
|
|
371
|
|
|
2
|
|
|
210
|
|
|
—
|
|
|
212
|
|
Other long-term liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities
|
|
—
|
|
|
179
|
|
|
33
|
|
|
212
|
|
|
—
|
|
|
33
|
|
|
—
|
|
|
33
|
|
Total liabilities measured and recorded at fair value
|
|
$
|
—
|
|
|
$
|
550
|
|
|
$
|
33
|
|
|
$
|
583
|
|
|
$
|
2
|
|
|
$
|
243
|
|
|
$
|
—
|
|
|
$
|
245
|
|
For the year ended
December 31, 2016
, we transferred approximately
$300 million
of assets from Level 1 to Level 2 of the fair value hierarchy and approximately
$255 million
of assets from Level 2 to Level 1 (
$628 million
of assets from Level 1 to Level 2 and
$403 million
from Level 2 to Level 1 during
2015
). These transfers were based on changes in market activity for the underlying instruments.
Fair Value Option for Loans Receivable
As of
December 31, 2016
and
December 26, 2015
, the fair value of our loans receivable for which we elected the fair value option
did not significantly
differ from the contractual principal balance based on the contractual currency.
INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Assets Measured and Recorded at Fair Value on a Non-Recurring Basis
Our non-marketable equity investments; marketable equity method investments; and non-financial assets, such as intangible assets and property, plant and equipment; are recorded at fair value only if an impairment is recognized.
We classified non-marketable equity investments as Level 3. Impairments recognized on non-marketable equity investments held as of
December 31, 2016
were
$153 million
in
2016
(
$160 million
in
2015
on non-marketable equity investments held as of
December 26, 2015
and
$128 million
in
2014
on non-marketable equity investments held as of
December 27, 2014
).
Financial Instruments Not Recorded at Fair Value on a Recurring Basis
The carrying amounts and fair values of financial instruments not recorded at fair value on a recurring basis at the end of each period were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
Carrying
Amount
|
|
Fair Value Measured Using
|
|
Fair Value
|
(In Millions)
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Grants receivable
|
|
$
|
361
|
|
|
$
|
—
|
|
|
$
|
362
|
|
|
$
|
—
|
|
|
$
|
362
|
|
Loans receivable
|
|
$
|
265
|
|
|
$
|
—
|
|
|
$
|
265
|
|
|
$
|
—
|
|
|
$
|
265
|
|
Non-marketable cost method investments
|
|
$
|
3,098
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,890
|
|
|
$
|
3,890
|
|
Reverse repurchase agreements
|
|
$
|
250
|
|
|
$
|
—
|
|
|
$
|
250
|
|
|
$
|
—
|
|
|
$
|
250
|
|
Short-term debt
|
|
$
|
4,609
|
|
|
$
|
3,006
|
|
|
$
|
2,114
|
|
|
$
|
—
|
|
|
$
|
5,120
|
|
Long-term debt
|
|
$
|
20,649
|
|
|
$
|
12,171
|
|
|
$
|
9,786
|
|
|
$
|
—
|
|
|
$
|
21,957
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 26, 2015
|
|
|
Carrying
Amount
|
|
Fair Value Measured Using
|
|
Fair Value
|
(In Millions)
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Grants receivable
|
|
$
|
593
|
|
|
$
|
—
|
|
|
$
|
600
|
|
|
$
|
—
|
|
|
$
|
600
|
|
Loans receivable
|
|
$
|
315
|
|
|
$
|
—
|
|
|
$
|
315
|
|
|
$
|
—
|
|
|
$
|
315
|
|
Non-marketable cost method investments
|
|
$
|
2,933
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,904
|
|
|
$
|
3,904
|
|
Reverse repurchase agreements
|
|
$
|
1,000
|
|
|
$
|
—
|
|
|
$
|
1,000
|
|
|
$
|
—
|
|
|
$
|
1,000
|
|
Short-term debt
|
|
$
|
2,593
|
|
|
$
|
1,513
|
|
|
$
|
1,563
|
|
|
$
|
—
|
|
|
$
|
3,076
|
|
Long-term debt
|
|
$
|
20,036
|
|
|
$
|
14,058
|
|
|
$
|
6,835
|
|
|
$
|
—
|
|
|
$
|
20,893
|
|
NVIDIA Corporation cross-license agreement liability
|
|
$
|
199
|
|
|
$
|
—
|
|
|
$
|
200
|
|
|
$
|
—
|
|
|
$
|
200
|
|
The carrying amount and fair value of short-term debt exclude drafts payable. The fair value of our 2009 and 2005 convertible debentures is determined using discounted cash flow models with observable market inputs, and takes into consideration variables such as interest rate changes, comparable instruments, subordination discount, and credit-rating changes.
INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 16: Other Comprehensive Income (Loss)
The changes in accumulated other comprehensive income (loss) by component and related tax effects for each period were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Millions)
|
|
Unrealized Holding Gains (Losses) on Available-for-Sale Investments
|
|
Deferred Tax Asset Valuation Allowance
|
|
Unrealized Holding Gains (Losses) on Derivatives
|
|
Prior Service Credits (Costs)
|
|
Actuarial Gains (Losses)
|
|
Foreign Currency Translation Adjustment
|
|
Total
|
December 27, 2014
|
|
$
|
2,459
|
|
|
$
|
26
|
|
|
$
|
(423
|
)
|
|
$
|
(47
|
)
|
|
$
|
(1,004
|
)
|
|
$
|
(345
|
)
|
|
$
|
666
|
|
Other comprehensive income (loss) before reclassifications
|
|
(999
|
)
|
|
—
|
|
|
(298
|
)
|
|
(2
|
)
|
|
73
|
|
|
(187
|
)
|
|
(1,413
|
)
|
Amounts reclassified out of accumulated other comprehensive income (loss)
|
|
(93
|
)
|
|
—
|
|
|
522
|
|
|
10
|
|
|
67
|
|
|
—
|
|
|
506
|
|
Tax effects
|
|
382
|
|
|
(18
|
)
|
|
(67
|
)
|
|
(1
|
)
|
|
(12
|
)
|
|
17
|
|
|
301
|
|
Other comprehensive income (loss)
|
|
(710
|
)
|
|
(18
|
)
|
|
157
|
|
|
7
|
|
|
128
|
|
|
(170
|
)
|
|
(606
|
)
|
December 26, 2015
|
|
1,749
|
|
|
8
|
|
|
(266
|
)
|
|
(40
|
)
|
|
(876
|
)
|
|
(515
|
)
|
|
60
|
|
Other comprehensive income (loss) before reclassifications
|
|
1,170
|
|
|
—
|
|
|
(26
|
)
|
|
—
|
|
|
(680
|
)
|
|
(4
|
)
|
|
460
|
|
Amounts reclassified out of accumulated other comprehensive income (loss)
|
|
(530
|
)
|
|
—
|
|
|
38
|
|
|
—
|
|
|
170
|
|
|
—
|
|
|
(322
|
)
|
Tax effects
|
|
(225
|
)
|
|
(8
|
)
|
|
(5
|
)
|
|
—
|
|
|
146
|
|
|
—
|
|
|
(92
|
)
|
Other comprehensive income (loss)
|
|
415
|
|
|
(8
|
)
|
|
7
|
|
|
—
|
|
|
(364
|
)
|
|
(4
|
)
|
|
46
|
|
December 31, 2016
|
|
$
|
2,164
|
|
|
$
|
—
|
|
|
$
|
(259
|
)
|
|
$
|
(40
|
)
|
|
$
|
(1,240
|
)
|
|
$
|
(519
|
)
|
|
$
|
106
|
|
INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The amounts reclassified out of accumulated other comprehensive income (loss) into the consolidated statements of income for each period were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Before Taxes Impact for Years Ended
(In Millions)
|
|
|
Comprehensive Income Components
|
|
Dec 31,
2016
|
|
Dec 26,
2015
|
|
Dec 27,
2014
|
|
Location
|
Unrealized holding gains (losses) on available-for-sale investments:
|
|
|
|
|
|
|
|
|
|
|
$
|
530
|
|
|
$
|
91
|
|
|
$
|
132
|
|
|
Gains (losses) on equity investments, net
|
|
|
—
|
|
|
2
|
|
|
10
|
|
|
Interest and other, net
|
|
|
530
|
|
|
93
|
|
|
142
|
|
|
|
Unrealized holding gains (losses) on derivatives:
|
|
|
|
|
|
|
|
|
Foreign currency contracts
|
|
(65
|
)
|
|
(290
|
)
|
|
(31
|
)
|
|
Cost of sales
|
|
|
7
|
|
|
(177
|
)
|
|
18
|
|
|
Research and development
|
|
|
5
|
|
|
(46
|
)
|
|
2
|
|
|
Marketing, general and administrative
|
|
|
10
|
|
|
—
|
|
|
—
|
|
|
Gains (losses) on equity investments, net
|
Other instruments
|
|
—
|
|
|
—
|
|
|
(2
|
)
|
|
Cost of sales
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
Gains (losses) on equity investments, net
|
|
|
4
|
|
|
(9
|
)
|
|
—
|
|
|
Interest and other, net
|
|
|
(38
|
)
|
|
(522
|
)
|
|
(13
|
)
|
|
|
Amortization of pension and postretirement benefit components:
|
|
|
|
|
|
|
|
|
Prior service credits (costs)
|
|
—
|
|
|
(10
|
)
|
|
(6
|
)
|
|
|
Actuarial gains (losses)
|
|
(170
|
)
|
|
(67
|
)
|
|
(37
|
)
|
|
|
|
|
(170
|
)
|
|
(77
|
)
|
|
(43
|
)
|
|
|
Total amounts reclassified out of accumulated other comprehensive income (loss)
|
|
$
|
322
|
|
|
$
|
(506
|
)
|
|
$
|
86
|
|
|
|
The amortization of pension and postretirement benefit components are included in the computation of net periodic benefit cost. For further information, see "
Note 18: Retirement Benefit Plans
." The estimated net prior service costs and net actuarial losses for the defined-benefit plans that will be amortized from accumulated other comprehensive income (loss) into net periodic benefit cost during
2017
are
$8 million
and
$79 million
, respectively.
We estimate that we will reclassify approximately
$198 million
(before taxes) of net derivative
losses
included in accumulated other comprehensive income (loss) into earnings within the next 12 months.
INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 17: Derivative Financial Instruments
Volume of Derivative Activity
Total gross notional amounts for outstanding derivatives (recorded at fair value) at the end of each period were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Millions)
|
|
Dec 31,
2016
|
|
Dec 26,
2015
|
|
Dec 27,
2014
|
Foreign currency contracts
|
|
$
|
17,960
|
|
|
$
|
16,721
|
|
|
$
|
21,024
|
|
Interest rate contracts
|
|
14,228
|
|
|
8,812
|
|
|
4,947
|
|
Other
|
|
1,340
|
|
|
1,122
|
|
|
1,105
|
|
Total
|
|
$
|
33,528
|
|
|
$
|
26,655
|
|
|
$
|
27,076
|
|
During the fourth quarter of 2014, we entered into
$1.5 billion
of forward contracts to hedge our anticipated equity funding of the UniSpreadtrum investment. The hedges were designated as cash flow hedges and the related gains and losses attributable to changes in the spot rates were recognized in accumulated other comprehensive income (loss). Hedge gains and losses attributable to changes in the forward rates were recognized in interest and other, net. During 2015, we discontinued cash flow hedge accounting treatment for
$478 million
of forward contracts since we could no longer assert that funding is probable to occur within the initially specified timeline. Hedge losses accumulated in other comprehensive income and subsequently released to interest and other, net, related to these de-designated forward contracts were insignificant.
During 2016 and 2015, we entered into
$4.7 billion
and
$4.4 billion
, respectively, of interest rate swaps to hedge against changes in the fair value attributable to the benchmark interest rates related to
$9.1 billion
of our outstanding senior notes. These hedges were designated as fair value hedges. During 2015, we entered into
$577 million
of currency interest rate swaps to hedge against the variability in the U.S.-dollar equivalent of coupon and principal payments associated with our non-U.S.-dollar-denominated indebtedness. These hedges were designated as cash flow hedges.
Fair Value of Derivative Instruments in the Consolidated Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
December 26, 2015
|
(In Millions)
|
|
Assets
1
|
|
Liabilities
2
|
|
Assets
1
|
|
Liabilities
2
|
Derivatives designated as hedging instruments
|
|
|
|
|
|
|
|
|
Foreign currency contracts
3
|
|
$
|
21
|
|
|
$
|
252
|
|
|
$
|
30
|
|
|
$
|
85
|
|
Interest rate contracts
|
|
3
|
|
|
187
|
|
|
1
|
|
|
14
|
|
Total derivatives designated as hedging instruments
|
|
24
|
|
|
439
|
|
|
31
|
|
|
99
|
|
Derivatives not designated as hedging instruments
|
|
|
|
|
|
|
|
|
Foreign currency contracts
4
|
|
374
|
|
|
114
|
|
|
408
|
|
|
115
|
|
Interest rate contracts
|
|
15
|
|
|
30
|
|
|
2
|
|
|
29
|
|
Other
|
|
9
|
|
|
—
|
|
|
44
|
|
|
2
|
|
Total derivatives not designated as hedging instruments
|
|
398
|
|
|
144
|
|
|
454
|
|
|
146
|
|
Total derivatives
|
|
$
|
422
|
|
|
$
|
583
|
|
|
$
|
485
|
|
|
$
|
245
|
|
|
|
1
|
Derivative assets are recorded as other assets, current and non-current in the consolidated balance sheets.
|
|
|
2
|
Derivative liabilities are recorded as other liabilities, current and non-current in the consolidated balance sheets.
|
|
|
3
|
The substantial majority of these instruments mature within
12 months
.
|
|
|
4
|
The majority of these instruments mature within
12 months
.
|
INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Amounts Offset in the Consolidated Balance Sheets
The gross amounts of our derivative instruments and reverse repurchase agreements subject to master netting arrangements with various counterparties, and cash and non-cash collateral posted under such agreements at the end of each period were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
Gross Amounts Not Offset in the Balance Sheet
|
|
|
(In Millions)
|
|
Gross Amounts Recognized
|
|
Gross Amounts Offset in the Balance Sheet
|
|
Net Amounts Presented in the Balance Sheet
|
|
Financial Instruments
|
|
Cash and Non-Cash Collateral Received or Pledged
|
|
Net Amount
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative assets subject to master netting arrangements
|
|
$
|
433
|
|
|
$
|
—
|
|
|
$
|
433
|
|
|
$
|
(368
|
)
|
|
$
|
(42
|
)
|
|
$
|
23
|
|
Reverse repurchase agreements
|
|
1,018
|
|
|
—
|
|
|
1,018
|
|
|
—
|
|
|
(1,018
|
)
|
|
—
|
|
Total assets
|
|
1,451
|
|
|
—
|
|
|
1,451
|
|
|
(368
|
)
|
|
(1,060
|
)
|
|
23
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities subject to master netting arrangements
|
|
588
|
|
|
—
|
|
|
588
|
|
|
(368
|
)
|
|
(201
|
)
|
|
19
|
|
Total liabilities
|
|
$
|
588
|
|
|
$
|
—
|
|
|
$
|
588
|
|
|
$
|
(368
|
)
|
|
$
|
(201
|
)
|
|
$
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 26, 2015
|
|
|
|
|
|
|
|
|
Gross Amounts Not Offset in the Balance Sheet
|
|
|
(In Millions)
|
|
Gross Amounts Recognized
|
|
Gross Amounts Offset in the Balance Sheet
|
|
Net Amounts Presented in the Balance Sheet
|
|
Financial Instruments
|
|
Cash and Non-Cash Collateral Received or Pledged
|
|
Net Amount
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative assets subject to master netting arrangements
|
|
$
|
482
|
|
|
$
|
—
|
|
|
$
|
482
|
|
|
$
|
(201
|
)
|
|
$
|
(188
|
)
|
|
$
|
93
|
|
Reverse repurchase agreements
|
|
3,368
|
|
|
—
|
|
|
3,368
|
|
|
—
|
|
|
(3,368
|
)
|
|
—
|
|
Total assets
|
|
3,850
|
|
|
—
|
|
|
3,850
|
|
|
(201
|
)
|
|
(3,556
|
)
|
|
93
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities subject to master netting arrangements
|
|
242
|
|
|
—
|
|
|
242
|
|
|
(201
|
)
|
|
(27
|
)
|
|
14
|
|
Total liabilities
|
|
$
|
242
|
|
|
$
|
—
|
|
|
$
|
242
|
|
|
$
|
(201
|
)
|
|
$
|
(27
|
)
|
|
$
|
14
|
|
We obtain and secure available collateral from counterparties against obligations, including securities lending transactions and reverse repurchase agreements, when we deem it appropriate.
INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Derivatives in Cash Flow Hedging Relationships
The before-tax net gains or losses attributed to the effective portion of cash flow hedges, recognized in other comprehensive income (loss), were
$26 million
net
losses
in
2016
(
$298 million
net
losses
in
2015
and
$589 million
net
losses
in
2014
).
Substantially all
of our cash flow hedges are foreign currency contracts for all periods presented.
Gains or losses on derivative instruments in cash flow hedging relationship related to hedge ineffectiveness and amounts excluded from effectiveness testing were
insignificant
during all periods presented.
For information on the unrealized holding gains (losses) on derivatives reclassified out of accumulated other comprehensive income into the consolidated statements of income, see "
Note 16: Other Comprehensive Income (Loss)
."
Derivatives in Fair Value Hedging Relationships
The effects of derivative instruments designated as fair value hedges, recognized in interest and other, net for each period were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains (Losses)
Recognized in Statement of Income on
Derivatives
|
Years Ended
(In Millions)
|
|
Dec 31,
2016
|
|
Dec 26,
2015
|
|
Dec 27,
2014
|
Interest rate contracts
|
|
$
|
(171
|
)
|
|
$
|
(13
|
)
|
|
$
|
—
|
|
Hedged items
|
|
171
|
|
|
13
|
|
|
—
|
|
Total
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
There was
no
ineffectiveness during
all periods presented in the preceding table.
Derivatives Not Designated as Hedging Instruments
The effects of derivative instruments not designated as hedging instruments on the consolidated statements of income for each period were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
(In Millions)
|
|
Location of Gains (Losses)
Recognized in Income on Derivatives
|
|
Dec 31,
2016
|
|
Dec 26,
2015
|
|
Dec 27,
2014
|
Foreign currency contracts
|
|
Interest and other, net
|
|
$
|
388
|
|
|
$
|
296
|
|
|
$
|
600
|
|
Interest rate contracts
|
|
Interest and other, net
|
|
8
|
|
|
(8
|
)
|
|
(3
|
)
|
Other
|
|
Various
|
|
113
|
|
|
(38
|
)
|
|
62
|
|
Total
|
|
$
|
509
|
|
|
$
|
250
|
|
|
$
|
659
|
|
INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 18: Retirement Benefit Plans
Retirement Contribution Plans
We provide tax-qualified retirement contribution 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. Employees hired prior to January 1, 2011 are eligible for and receive discretionary employer contributions in the U.S. Intel Retirement Contribution Plan. Employees hired on or after January 1, 2011 receive discretionary employer contributions in the Intel 401(k) Savings Plan, which are participant-directed. Our CEO determines the annual discretionary employer contribution amounts for the U.S. Intel Retirement Contribution Plan and the Intel 401(k) Savings Plan under delegation of authority from our Board of Directors, pursuant to the terms of the plans. Effective January 1, 2015, the U.S. Intel Retirement Contribution plan assets and future discretionary employer contributions are participant-directed.
For the benefit of eligible U.S. employees, we also provide a non-tax-qualified supplemental deferred compensation plan for certain highly compensated employees. This plan is designed to permit certain discretionary employer contributions and to permit employees to defer a portion of compensation in addition to their Intel 401(k) Savings Plan deferrals. This plan is unfunded.
We expensed
$326 million
for the qualified and non-qualified U.S. retirement contribution plans in
2016
(
$337 million
in
2015
and
$286 million
in
2014
). In the first quarter of
2017
, we funded
$314 million
for the
2016
contributions to the qualified U.S. retirement contribution plans.
Pension and Postretirement Benefit Plans
U.S. Pension Benefits.
For employees hired prior to January 1, 2011, we provide a tax-qualified defined-benefit pension plan, the U.S. Intel Minimum Pension Plan, for eligible employees, former employees, and retirees in the U.S. Beginning on January 1, 2015, future benefit accruals in the U.S. Intel Minimum Pension Plan were frozen to all employees at or above a specific grade level, and generally covering all highly compensated employees in the plan. Beginning in 2016, the impacted employees received discretionary employer contributions in the Intel 401(k) Savings Plan, instead of the U.S. Intel Retirement Contribution Plan. This change was contingent on receiving a favorable private letter ruling from the U.S. Internal Revenue Service (IRS), which we received in October 2014. As a result, our projected benefit obligation was reduced by
$1.1 billion
in 2014, most of which was also included as a change in actuarial valuation on the consolidated statements of comprehensive income.
The U.S. Intel Minimum Pension Plan benefit is determined by a participant’s years of service and final average compensation, as defined by the plan document. The plan generates a minimum pension benefit if the participant's U.S. Intel Minimum Pension Plan benefit exceeds the annuitized value of the employee's U.S. Intel Retirement Contribution Plan benefit. If participant balances in the U.S. Intel Retirement Contribution Plan do not grow sufficiently, the projected benefit obligation of the U.S. Intel Minimum Pension Plan could increase significantly. Consistent with applicable law, assets of the U.S. Intel Minimum Pension Plan are held in trust, solely for the benefit of plan participants, and are not available for general corporate purposes.
Non-U.S. Pension Benefits.
We also provide defined-benefit pension plans in certain other countries, most significantly Ireland, Germany, and Israel. Consistent with the requirements of local law, we deposit funds for certain plans with insurance companies, with third-party trustees, or into government-managed accounts, and/or accrue for the unfunded portion of the obligation.
U.S. Postretirement Medical Benefits.
Upon retirement, eligible U.S. employees who were hired prior to January 1, 2014 are credited with a defined dollar amount, based on years of service, into a U.S. Sheltered Employee Retirement Medical Account (SERMA). These credits can be used to pay all or a portion of the cost to purchase coverage in the retiree’s choice of medical plan. If the available credits are not sufficient to pay the entire cost of the coverage, the remaining cost is the retiree’s responsibility. Employees hired on or after January 1, 2014 are not eligible to earn a SERMA benefit.
Funding Policy.
Our practice is to fund the various pension plans in amounts sufficient to meet the minimum requirements of applicable local laws and regulations. Additional funding may be provided as deemed appropriate. Funding for the U.S. postretirement medical benefits plan is discretionary under applicable laws and regulations; additional funding may be provided as deemed appropriate. Depending on the design of the plan, local customs, and market circumstances, the liabilities of a plan may exceed qualified plan assets.
INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Benefit Obligation and Plan Assets
The vested benefit obligation for a defined benefit pension plan is the actuarial present value of the vested benefits to which the employee is currently entitled based on the employee's expected date of separation or retirement. The changes in the projected benefit obligations and fair value of plan assets at the end of each period for the plans described above were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Pension Benefits
|
|
Non-U.S. Pension
Benefits
|
|
U.S. Postretirement
Medical Benefits
|
(In Millions)
|
|
Dec 31,
2016
|
|
Dec 26,
2015
|
|
Dec 31,
2016
|
|
Dec 26,
2015
|
|
Dec 31,
2016
|
|
Dec 26,
2015
|
Beginning projected benefit obligation
|
|
$
|
990
|
|
|
$
|
892
|
|
|
$
|
2,140
|
|
|
$
|
2,423
|
|
|
$
|
560
|
|
|
$
|
546
|
|
Service cost
|
|
17
|
|
|
18
|
|
|
113
|
|
|
128
|
|
|
26
|
|
|
30
|
|
Interest cost
|
|
43
|
|
|
33
|
|
|
63
|
|
|
63
|
|
|
23
|
|
|
21
|
|
Actuarial (gain) loss
|
|
482
|
|
|
126
|
|
|
93
|
|
|
(250
|
)
|
|
(26
|
)
|
|
(21
|
)
|
Currency exchange rate changes
|
|
—
|
|
|
—
|
|
|
(80
|
)
|
|
(190
|
)
|
|
—
|
|
|
—
|
|
Plan settlements
|
|
(162
|
)
|
|
(70
|
)
|
|
(40
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Other
|
|
9
|
|
|
(9
|
)
|
|
(28
|
)
|
|
(34
|
)
|
|
5
|
|
|
(16
|
)
|
Ending projected benefit obligation
|
|
$
|
1,379
|
|
|
$
|
990
|
|
|
$
|
2,261
|
|
|
$
|
2,140
|
|
|
$
|
588
|
|
|
$
|
560
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Pension Benefits
|
|
Non-U.S. Pension
Benefits
|
|
U.S. Postretirement
Medical Benefits
|
(In Millions)
|
|
Dec 31,
2016
|
|
Dec 26,
2015
|
|
Dec 31,
2016
|
|
Dec 26,
2015
|
|
Dec 31,
2016
|
|
Dec 26,
2015
|
Beginning fair value of plan assets
|
|
$
|
627
|
|
|
$
|
623
|
|
|
$
|
1,011
|
|
|
$
|
1,017
|
|
|
$
|
410
|
|
|
$
|
427
|
|
Actual return on plan assets
|
|
41
|
|
|
(4
|
)
|
|
40
|
|
|
42
|
|
|
29
|
|
|
6
|
|
Employer contributions
|
|
289
|
|
|
90
|
|
|
127
|
|
|
72
|
|
|
—
|
|
|
1
|
|
Currency exchange rate changes
|
|
—
|
|
|
—
|
|
|
(26
|
)
|
|
(66
|
)
|
|
—
|
|
|
—
|
|
Plan settlements
|
|
(162
|
)
|
|
(70
|
)
|
|
(40
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Benefits paid to plan participants
|
|
(11
|
)
|
|
—
|
|
|
(73
|
)
|
|
(84
|
)
|
|
(26
|
)
|
|
(17
|
)
|
Other
|
|
(2
|
)
|
|
(12
|
)
|
|
(125
|
)
|
|
30
|
|
|
(4
|
)
|
|
(7
|
)
|
Ending fair value of plan assets
|
|
$
|
782
|
|
|
$
|
627
|
|
|
$
|
914
|
|
|
$
|
1,011
|
|
|
$
|
409
|
|
|
$
|
410
|
|
The amounts recognized on the consolidated balance sheets at the end of each period were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Pension Benefits
|
|
Non-U.S. Pension
Benefits
|
|
U.S. Postretirement
Medical Benefits
|
(In Millions)
|
|
Dec 31,
2016
|
|
Dec 26,
2015
|
|
Dec 31,
2016
|
|
Dec 26,
2015
|
|
Dec 31,
2016
|
|
Dec 26,
2015
|
Other long-term assets
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
15
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Accrued compensation and benefits
|
|
—
|
|
|
—
|
|
|
(4
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Other long-term liabilities
|
|
(597
|
)
|
|
(363
|
)
|
|
(1,343
|
)
|
|
(1,144
|
)
|
|
(179
|
)
|
|
(150
|
)
|
Accumulated other comprehensive loss (income), before tax
|
|
548
|
|
|
158
|
|
|
1,055
|
|
|
908
|
|
|
12
|
|
|
39
|
|
Net amount recognized
|
|
$
|
(49
|
)
|
|
$
|
(205
|
)
|
|
$
|
(292
|
)
|
|
$
|
(221
|
)
|
|
$
|
(167
|
)
|
|
$
|
(111
|
)
|
The amounts recorded in accumulated other comprehensive income (loss) before taxes at the end of each period were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Pension Benefits
|
|
Non-U.S. Pension
Benefits
|
|
U.S. Postretirement
Medical Benefits
|
(In Millions)
|
|
Dec 31,
2016
|
|
Dec 26,
2015
|
|
Dec 31,
2016
|
|
Dec 26,
2015
|
|
Dec 31,
2016
|
|
Dec 26,
2015
|
Net prior service credit (cost)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(17
|
)
|
|
$
|
(12
|
)
|
|
$
|
(38
|
)
|
|
$
|
(43
|
)
|
Net actuarial gain (loss)
|
|
(548
|
)
|
|
(158
|
)
|
|
(1,038
|
)
|
|
(896
|
)
|
|
26
|
|
|
4
|
|
Accumulated other comprehensive income (loss), before tax
|
|
$
|
(548
|
)
|
|
$
|
(158
|
)
|
|
$
|
(1,055
|
)
|
|
$
|
(908
|
)
|
|
$
|
(12
|
)
|
|
$
|
(39
|
)
|
INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
We use a corridor approach to amortize actuarial gains and losses. Under this approach, net actuarial gains or losses in excess of 10% of the larger of the projected benefit obligation or the fair value of plan assets are amortized on a straight-line basis. The period of amortization is the average remaining service of active participants who are expected to receive benefits under the plans.
As of
December 31, 2016
, the accumulated benefit obligation was
$1.3 billion
for the U.S. Intel Minimum Pension Plan (
$899 million
as of
December 26, 2015
) and
$1.7 billion
for the non-U.S. defined-benefit pension plans (
$1.6 billion
as of
December 26, 2015
). Included in the aggregate data in the following tables are the amounts applicable to our pension plans with accumulated benefit obligations in excess of plan assets, as well as plans with projected benefit obligations in excess of plan assets. Amounts related to such plans at the end of each period were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Pension Benefits
|
|
Non-U.S. Pension
Benefits
|
(In Millions)
|
|
Dec 31,
2016
|
|
Dec 26,
2015
|
|
Dec 31,
2016
|
|
Dec 26,
2015
|
Plans with accumulated benefit obligations in excess of plan assets:
|
|
|
|
|
|
|
|
|
Accumulated benefit obligations
|
|
$
|
1,282
|
|
|
$
|
899
|
|
|
$
|
1,694
|
|
|
$
|
1,239
|
|
Plan assets
|
|
$
|
782
|
|
|
$
|
627
|
|
|
$
|
914
|
|
|
$
|
645
|
|
Plans with projected benefit obligations in excess of plan assets:
|
|
|
|
|
|
|
|
|
Projected benefit obligations
|
|
$
|
1,379
|
|
|
$
|
990
|
|
|
$
|
2,261
|
|
|
$
|
2,079
|
|
Plan assets
|
|
$
|
782
|
|
|
$
|
627
|
|
|
$
|
914
|
|
|
$
|
934
|
|
On a worldwide basis, our pension and postretirement benefit plans were
50%
funded as of
December 31, 2016
. The U.S. Intel Minimum Pension Plan, which accounts for
33%
of the worldwide pension and postretirement benefit obligations, was
57%
funded. Funded status is not indicative of our ability to pay ongoing pension benefits or of our obligation to fund retirement trusts. Required pension funding for U.S. retirement plans is determined in accordance with the Employee Retirement Income Security Act (ERISA), which sets required minimum contributions. Cumulative company funding to the U.S. Intel Minimum Pension Plan currently exceeds the minimum ERISA funding requirements.
Assumptions
Weighted average actuarial assumptions used to determine benefit obligations for the plans at the end of each period were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Pension Benefits
|
|
Non-U.S. Pension
Benefits
|
|
U.S. Postretirement
Medical Benefits
|
|
|
Dec 31,
2016
|
|
Dec 26,
2015
|
|
Dec 31,
2016
|
|
Dec 26,
2015
|
|
Dec 31,
2016
|
|
Dec 26,
2015
|
Discount rate
|
|
4.3
|
%
|
|
4.0
|
%
|
|
2.5
|
%
|
|
3.1
|
%
|
|
4.2
|
%
|
|
4.1
|
%
|
Rate of compensation increase
|
|
3.6
|
%
|
|
3.7
|
%
|
|
3.6
|
%
|
|
3.8
|
%
|
|
n/a
|
|
|
n/a
|
|
Weighted average actuarial assumptions used to determine costs for the plans for each period were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Pension Benefits
|
|
Non-U.S. Pension Benefits
|
|
U.S. Postretirement
Medical Benefits
|
|
|
2016
|
|
2015
|
|
2014
|
|
2016
|
|
2015
|
|
2014
|
|
2016
|
|
2015
|
|
2014
|
Discount rate
|
|
3.7
|
%
|
|
3.8
|
%
|
|
4.6
|
%
|
|
3.1
|
%
|
|
2.8
|
%
|
|
4.0
|
%
|
|
3.8
|
%
|
|
3.9
|
%
|
|
4.6
|
%
|
Expected long-term rate of return on plan assets
|
|
5.6
|
%
|
|
6.1
|
%
|
|
5.4
|
%
|
|
5.5
|
%
|
|
5.7
|
%
|
|
5.7
|
%
|
|
7.0
|
%
|
|
7.4
|
%
|
|
7.4
|
%
|
Rate of compensation increase
|
|
3.7
|
%
|
|
3.8
|
%
|
|
3.8
|
%
|
|
3.8
|
%
|
|
4.0
|
%
|
|
4.1
|
%
|
|
n/a
|
|
|
n/a
|
|
|
n/a
|
|
For the U.S. plans, we developed the discount rate by calculating the benefit payment streams by year to determine when benefit payments will be due. We then matched the benefit payment streams by year to the AA corporate bond rates to match the timing and amount of the expected benefit payments, and discounted back to the measurement date to determine the appropriate discount rate. For the non-U.S. plans, we used two approaches to develop the discount rate. In certain countries, we used a model consisting of a theoretical bond portfolio for which the timing and amount of cash flows approximated the estimated benefit payments of our pension plans. In other countries, we analyzed current market long-term bond rates and matched the bond maturity with the average duration of the pension liabilities.
INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
We establish the long-term expected rate of return by developing a forward-looking, long-term return assumption for each pension fund asset class, taking into account factors such as the expected real return for the specific asset class and inflation. A single, long-term rate of return is then calculated as the weighted average of the target asset allocation percentages and the long-term return assumption for each asset class.
Net Periodic Benefit Cost
In
2016
, the net periodic benefit cost for U.S. pension benefits, non-U.S. pension benefits, and U.S. postretirement medical benefits was
$134 million
(
$26 million
in
2015
and
$36 million
in
2014
),
$225 million
(
$198 million
in
2015
and
$165 million
in
2014
) and
$56 million
(
$26 million
in
2015
and
$17 million
in
2014
), respectively.
The increase in the U.S. net periodic pension benefit cost in 2016 compared to 2015 is primarily attributed to plan settlement and remeasurement in conjunction with our 2016 Restructuring Program. For more information on the 2016 Restructuring Program, see "
Note 7: Restructuring and Other Charges
."
U.S. Pension Plan Assets
In general, the investment strategy for U.S. Intel Minimum Pension Plan assets is to maximize risk-adjusted returns, taking into consideration the investment horizon and expected volatility to help ensure that sufficient assets are available to pay pension benefits as they come due. The allocation to each asset class will fluctuate with market conditions, such as volatility and liquidity concerns, and will typically be rebalanced when outside the target ranges, which were
45%
for equity investments and
55%
for fixed-income investments in
2016
. For
2017
, the expected long-term rate of return for the U.S. Intel Minimum Pension Plan assets is
4.9%
.
U.S. Intel Minimum Pension Plan assets measured at fair value on a recurring basis consisted of the following investment categories at the end of each period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
Dec 26,
2015
|
|
|
Fair Value Measured at Reporting Date Using
|
|
|
|
|
(In Millions)
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Total
|
Equity securities
|
|
$
|
80
|
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
81
|
|
|
$
|
56
|
|
Fixed income
|
|
20
|
|
|
187
|
|
|
51
|
|
|
258
|
|
|
200
|
|
Other investments
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4
|
|
Assets measured by fair value hierarchy
|
|
$
|
100
|
|
|
$
|
188
|
|
|
$
|
51
|
|
|
$
|
339
|
|
|
$
|
260
|
|
Assets measured at net asset value
|
|
|
|
|
|
|
|
436
|
|
|
367
|
|
Cash
|
|
|
|
|
|
|
|
7
|
|
|
—
|
|
Total U.S. pension plan assets at fair value
|
|
|
|
|
|
|
|
$
|
782
|
|
|
$
|
627
|
|
Substantially all
of the fixed income investments in the preceding table are asset-backed securities, corporate debt, and government debt. Government debt includes instruments such as non-U.S. government securities, U.S. agency securities, and U.S. treasury securities.
The assets measured at net asset value are invested in common collective trust funds, limited partnerships, and limited liability companies.
INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Non-U.S. Plan Assets
The investments of the non-U.S. plans are managed by insurance companies, pension funds, or third-party trustees, 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. The investment manager evaluates performance by comparing the actual rate of return to the return on similar assets. Investments managed by qualified insurance companies or pension funds under standard contracts follow local regulations, and we are not actively involved in their investment strategies. For the assets that we have discretion to set investment guidelines, the assets are invested in developed country equity investments and fixed-income investments, either through index funds or direct investment. In general, the investment strategy is designed to accumulate a diversified portfolio among markets, asset classes, or individual securities to reduce market risk and to help ensure that the pension assets are available to pay benefits as they come due. The target allocation of the non-U.S. plan assets that we have control over is
55%
equity investments and
45%
fixed-income investments. For
2017
, the average expected long-term rate of return for the non-U.S. plan assets is
4.3%
.
Non-U.S. plan assets measured at fair value on a recurring basis consisted of the following investment categories at the end of each period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
Dec 26,
2015
|
|
|
Fair Value Measured at Reporting Date Using
|
|
|
|
|
(In Millions)
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Total
|
Equity securities
|
|
$
|
231
|
|
|
$
|
—
|
|
|
$
|
16
|
|
|
$
|
247
|
|
|
$
|
238
|
|
Fixed income
|
|
—
|
|
|
30
|
|
|
16
|
|
|
46
|
|
|
99
|
|
Assets measured by fair value hierarchy
|
|
$
|
231
|
|
|
$
|
30
|
|
|
$
|
32
|
|
|
$
|
293
|
|
|
$
|
337
|
|
Assets measured at net asset value
|
|
|
|
|
|
|
|
608
|
|
|
652
|
|
Cash
|
|
|
|
|
|
|
|
13
|
|
|
22
|
|
Total non-U.S. plan assets at fair value
|
|
|
|
|
|
|
|
$
|
914
|
|
|
$
|
1,011
|
|
Most
of the equity investments in the preceding table are invested in a diversified mix of equities of developed countries, including the U.S., and emerging markets throughout the world.
We have control over the
majority
of the assets measured at net asset value, which are invested in hedge funds, bond index, and equity index funds.
U.S. Postretirement Medical Plan Assets
In general, the investment strategy for U.S. postretirement medical benefits plan assets is to invest primarily in liquid assets, due to the level of expected future benefit payments. The assets are invested solely in a tax-aware global equity portfolio, which is actively managed by an external investment manager. The tax-aware global equity portfolio is composed of a diversified mix of equities in developed countries. For
2017
, the expected long-term rate of return for the U.S. postretirement medical benefits plan assets is
6.5%
. As of
December 31, 2016
,
substantially all
of the U.S. postretirement medical benefits plan assets were invested in exchange-traded equity securities and were measured at fair value using Level 1 inputs.
Concentrations of Risk
We manage a variety of risks, including credit, liquidity, and market risks, across our plan assets through our investment managers. We define a concentration of risk as an undiversified exposure to one of the aforementioned risks that unnecessarily increases the exposure to a loss of plan assets. We monitor exposure to such risks in both the U.S. and non-U.S. plans by monitoring the magnitude of the risk in each plan and diversifying our exposure to such risks across a variety of counterparties, instruments, and markets. As of
December 31, 2016
, we did not have concentrations of risk in any single entity, manager, counterparty, sector, industry, or country.
Funding Expectations
Under applicable law for the U.S. Intel Minimum Pension Plan, we are not required to make any contributions during
2017
. Our expected required funding for the non-U.S. plans during
2017
is approximately
$36 million
.
INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Estimated Future Benefit Payments
Estimated benefit payments over the next 10 fiscal years are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Millions)
|
|
U.S. Pension
Benefits
|
|
Non-U.S.
Pension
Benefits
|
|
U.S.
Postretirement
Medical
Benefits
|
2017
|
|
$
|
80
|
|
|
$
|
23
|
|
|
$
|
29
|
|
2018
|
|
$
|
88
|
|
|
$
|
25
|
|
|
$
|
31
|
|
2019
|
|
$
|
85
|
|
|
$
|
25
|
|
|
$
|
33
|
|
2020
|
|
$
|
85
|
|
|
$
|
28
|
|
|
$
|
35
|
|
2021
|
|
$
|
89
|
|
|
$
|
30
|
|
|
$
|
38
|
|
2022-2026
|
|
$
|
415
|
|
|
$
|
213
|
|
|
$
|
238
|
|
Note 19: Employee Equity Incentive Plans
Our equity incentive plans are broad-based, long-term programs intended to attract and retain talented employees and align stockholder and employee interests.
Under the 2006 Equity Incentive Plan (the 2006 Plan),
753 million
shares of common stock are authorized for issuance as equity awards to employees and non-employee directors through June 2018. As of
December 31, 2016
,
216.5 million
shares of common stock remained available for issuance under the 2006 Plan.
In connection with our completed acquisition of Altera in the first quarter of 2016, we assumed two equity incentive plans with outstanding unvested stock options and RSUs. The assumed stock options and RSUs generally retained the terms and conditions under which they were originally granted. We will not grant additional shares under these assumed plans.
We grant RSUs with both a market condition and a service condition (market-based RSUs), referred to in our Proxy Statement as outperformance stock units (OSUs), to a group of senior officers, employees, and non-employee directors. For OSUs granted in
2016
, the number of shares of our common stock to be received at vesting will range from
0%
to
200%
of the target amount, based on total stockholder return (TSR) on our common stock measured against the benchmark TSR of a peer group over a
three
-year period. TSR is a measure of stock price appreciation plus any dividends paid in this performance period. As of
December 31, 2016
,
6.7 million
OSUs were outstanding. These OSUs accrue dividend equivalents and generally vest three years and one month from the grant date. RSU and option awards generally vest over
four
years from the grant date. Stock options generally expire
seven
years from the date of grant.
The 2006 Stock Purchase Plan allows eligible employees to purchase shares of our common stock at
85%
of the value of our common stock on specific dates. Under the 2006 Stock Purchase Plan,
373 million
shares of common stock are authorized for issuance through August 2021. As of
December 31, 2016
,
164.8 million
shares of common stock remained available for issuance under the 2006 Stock Purchase Plan.
Share-Based Compensation
Share-based compensation recognized in
2016
was
$1.4 billion
(
$1.3 billion
in
2015
and
$1.1 billion
in
2014
).
The total share-based compensation cost capitalized as part of inventory as of
December 31, 2016
was
$44 million
(
$49 million
as of
December 26, 2015
and
$39 million
as of
December 27, 2014
). During
2016
, the tax benefit that we realized for the tax deduction from share-based awards totaled
$616 million
(
$533 million
in
2015
and
$555 million
in
2014
).
We estimate the fair value of RSUs with time-based vesting using the value of our common stock on the date of grant, reduced by the present value of dividends expected to be paid on our shares of common stock prior to vesting. We estimate the fair value of OSUs using a Monte Carlo simulation model on the date of grant.
INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
We use the Black-Scholes option pricing model to estimate the fair value of rights to acquire shares of common stock granted under the 2006 Stock Purchase Plan on the date of the grant. We based the weighted average estimated value of RSU and OSU grants and rights granted under the 2006 Stock Purchase Plan on the weighted average assumptions for each period as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RSUs and OSUs
|
|
Stock Purchase Plan
|
|
|
Dec 31,
2016
|
|
Dec 26,
2015
|
|
Dec 27,
2014
|
|
Dec 31,
2016
|
|
Dec 26,
2015
|
|
Dec 27,
2014
|
Estimated values
|
|
$
|
29.76
|
|
|
$
|
31.63
|
|
|
$
|
25.40
|
|
|
$
|
6.70
|
|
|
$
|
6.56
|
|
|
$
|
5.87
|
|
Risk-free interest rate
|
|
0.9
|
%
|
|
0.6
|
%
|
|
0.5
|
%
|
|
0.5
|
%
|
|
0.1
|
%
|
|
0.1
|
%
|
Dividend yield
|
|
3.3
|
%
|
|
2.9
|
%
|
|
3.3
|
%
|
|
3.2
|
%
|
|
3.1
|
%
|
|
3.2
|
%
|
Volatility
|
|
23
|
%
|
|
27
|
%
|
|
23
|
%
|
|
22
|
%
|
|
25
|
%
|
|
22
|
%
|
Expected life (in years)
|
|
n/a
|
|
|
n/a
|
|
|
n/a
|
|
|
0.5
|
|
|
0.5
|
|
|
0.5
|
|
We base the expected volatility for rights granted under the 2006 Stock Purchase Plan on implied volatility. We base expected volatility for OSUs on historical volatility.
Restricted Stock Unit Awards
RSU activity in
2016
was as follows:
|
|
|
|
|
|
|
|
|
|
|
Number of
RSUs
(In Millions)
|
|
Weighted
Average
Grant-Date
Fair Value
|
December 26, 2015
|
|
107.4
|
|
|
$
|
26.93
|
|
Granted
|
|
53.1
|
|
|
$
|
29.76
|
|
Assumed in acquisition
|
|
7.3
|
|
|
$
|
33.79
|
|
Vested
|
|
(50.0
|
)
|
|
$
|
26.29
|
|
Forfeited
|
|
(11.0
|
)
|
|
$
|
28.10
|
|
December 31, 2016
|
|
106.8
|
|
|
$
|
28.99
|
|
Expected to vest as of December 31, 2016
|
99.9
|
|
|
$
|
28.99
|
|
The aggregate fair value of awards that vested in
2016
was
$1.6 billion
(
$1.5 billion
in
2015
and
$1.1 billion
in
2014
), which represents the market value of our common stock on the date that the RSUs vested. The grant-date fair value of awards that vested in
2016
was
$1.3 billion
(
$1.1 billion
in
2015
and
$949 million
in
2014
). The number of RSUs vested includes shares of common stock that we withheld on behalf of employees to satisfy the minimum statutory tax withholding requirements. RSUs that are expected to vest are net of estimated future forfeitures.
As of
December 31, 2016
, unrecognized compensation costs related to RSUs granted under our equity incentive plans were
$1.9 billion
. We expect to recognize those costs over a weighted average period of
1.2 years
.
Stock Option Awards
As of
December 31, 2016
, options outstanding that have vested and are expected to vest were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Options
(In Millions)
|
|
Weighted
Average
Exercise
Price
|
|
Weighted
Average
Remaining
Contractual
Term
(In Years)
|
|
Aggregate
Intrinsic
Value
(In Millions)
|
Vested
|
|
16.6
|
|
|
$
|
23.81
|
|
|
2.1
|
|
$
|
207
|
|
Expected to vest
|
|
2.9
|
|
|
$
|
23.33
|
|
|
3.3
|
|
$
|
38
|
|
Total
|
|
19.5
|
|
|
$
|
23.74
|
|
|
2.3
|
|
$
|
245
|
|
Aggregate intrinsic value represents the difference between the exercise price and
$36.27
, the closing price of our common stock on
December 30, 2016
, as reported on the NASDAQ Global Select Market, for all in-the-money options outstanding. Options outstanding that are expected to vest are net of estimated future option forfeitures.
INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The aggregate intrinsic value of stock option exercises in
2016
was
$453 million
(
$284 million
in
2015
and
$611 million
in
2014
), which represents the difference between the exercise price and the value of our common stock at the time of exercise. During
2016
,
34.1 million
options were exercised with a weighted average exercise price of
$20.43
. Stock option grants were insignificant in all years during the three-year period ended
December 31, 2016
. As of
December 31, 2016
,
19.6 million
options were outstanding with a weighted average exercise price of
$23.73
(
54.2 million
outstanding with a weighted average exercise price of
$21.65
as of December 26, 2015). The weighted average remaining contractual life of outstanding options is
2.2
years. These options will expire if they are not exercised by specific dates through
May 2023
.
Stock Purchase Plan
Employees purchased
16.5 million
shares of common stock in
2016
for
$415 million
under the 2006 Stock Purchase Plan (
15.8 million
shares of common stock for
$421 million
in
2015
and
19.4 million
shares of common stock for
$393 million
in
2014
). As of
December 31, 2016
,
unrecognized share-based compensation costs related to rights to acquire shares of common stock under our 2006 Stock Purchase Plan totaled
$13 million
. We expect to recognize those costs over a period of approximately
two months
.
INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 20: Commitments and Contingencies
Commitments
Leases
Portions of our capital equipment and certain facilities are under operating leases that expire at various dates through
2058
. Additionally, portions of our real property are under leases that expire at various dates through
2017
. Rental expense was
$282 million
in
2016
(
$253 million
in
2015
and
$257 million
in
2014
).
Minimum rental commitments under all non-cancelable leases with an initial term in excess of one year were as follows as of
December 31, 2016
:
|
|
|
|
|
|
(In Millions)
|
|
|
2017
|
|
$
|
229
|
|
2018
|
|
184
|
|
2019
|
|
158
|
|
2020
|
|
133
|
|
2021
|
|
100
|
|
2022 and thereafter
|
|
422
|
|
Total
|
|
$
|
1,226
|
|
Other Commitments
Commitments for construction or purchase of property, plant and equipment totaled
$7.5 billion
as of
December 31, 2016
(
$5.7 billion
as of
December 26, 2015
), a
substantial majority
of which will be due within the next 12 months. Other purchase obligations and commitments totaled approximately
$3.0 billion
as of
December 31, 2016
(approximately
$4.0 billion
as of
December 26, 2015
).
Other purchase obligations and commitments include payments due under various types of licenses and agreements to purchase goods or services, as well as payments due under non-contingent funding obligations.
In addition, we have various contractual commitments with Micron and IMFT. For further information on these contractual commitments, see "
Note 9: Investments
."
During 2012, we entered into a series of agreements with
ASML Holding N.V. (ASML) intended to accelerate the development of extreme ultraviolet lithography projects and deep ultraviolet immersion lithography projects, including generic developments applicable to both 300mm and 450mm. Certain of these agreements were amended in 2014. Under the amended agreements,
Intel agreed to provide R&D funding totaling
€829 million
over five years and committed to advance purchase orders for a specified number of tools from ASML.
Our remaining obligation, contingent upon ASML achieving certain milestones, is approximately
€193 million
, or
$202 million
, as of
December 31, 2016
. As our obligation is contingent upon ASML achieving certain milestones, we have excluded this obligation from
other purchase obligations and commitments.
Legal Proceedings
We are a party to various legal proceedings, including those noted in this section. Although management at present believes that the ultimate outcome of these proceedings, individually and in the aggregate, will not materially harm our financial position, results of operations, cash flows, or overall trends, legal proceedings and related government investigations are subject to inherent uncertainties, and unfavorable rulings or other events could occur. Unfavorable resolutions could include substantial monetary damages. In addition, in matters for which injunctive relief or other conduct remedies are sought, unfavorable resolutions could include an injunction or other order prohibiting us from selling one or more products at all or in particular ways, precluding particular business practices, or requiring other remedies. An unfavorable outcome may result in a material adverse impact on our business, results of operations, financial position, and overall trends. We might also conclude that settling one or more such matters is in the best interests of our stockholders, employees, and customers, and any such settlement could include substantial payments. Except as specifically described below, we have not concluded that settlement of any of the legal proceedings noted in this section is appropriate at this time.
INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Government Competition Matters and Consumer Class Actions
In 2001, the European Commission (EC) commenced an investigation regarding claims by Advanced Micro Devices, Inc. (AMD) that we used unfair business practices to persuade customers to buy our microprocessors. We received numerous requests for information and documents from the EC and we responded to each of those requests. The EC issued a Statement of Objections in July 2007 and held a hearing on that Statement in March 2008. The EC issued a Supplemental Statement of Objections in July 2008. In May 2009, the EC issued a decision finding that we had violated Article 82 of the EC Treaty and Article 54 of the European Economic Area Agreement. In general, the EC found that we violated Article 82 (later renumbered as Article 102 by a new treaty) by offering alleged "conditional rebates and payments" that required our customers to purchase all or most of their x86 microprocessors from us. The EC also found that we violated Article 82 by making alleged "payments to prevent sales of specific rival products." The EC imposed a fine in the amount of
€1.1 billion
(
$1.4 billion
as of May 2009), which we subsequently paid during the third quarter of 2009, and ordered us to "immediately bring to an end the infringement referred to in" the EC decision.
The EC decision contained no specific direction on whether or how we should modify our business practices. Instead, the decision stated that we should "cease and desist" from further conduct that, in the EC's opinion, would violate applicable law. We took steps, which are subject to the EC's ongoing review, to comply with that decision pending appeal. We had discussions with the EC to better understand the decision and to explain changes to our business practices.
We appealed the EC decision to the Court of First Instance (which has been renamed the General Court) in July 2009. The hearing of our appeal took place in July 2012. In June 2014, the General Court rejected our appeal in its entirety. In August 2014, we filed an appeal with the European Court of Justice. In November 2014, Intervener Association for Competitive Technologies filed comments in support of Intel’s grounds of appeal. The EC and interveners filed briefs in November 2014, we filed a reply in February 2015, and the EC filed a rejoinder in April 2015. The Court of Justice held oral argument in June 2016. In October 2016, Advocate General Wahl, an advisor to the Court of Justice, issued a non-binding advisory opinion which favored Intel on a number of grounds, with the 25-judge grand chamber’s decision expected in the first half of 2017.
At least 82 separate class-action lawsuits were filed in the U.S. District Courts for the Northern District of California, Southern District of California, District of Idaho, District of Nebraska, District of New Mexico, District of Maine, and District of Delaware, as well as in various California, Kansas, and Tennessee state courts. These actions generally repeat the allegations made in a now-settled lawsuit filed against us by AMD in June 2005 in the U.S. District Court for the District of Delaware (AMD litigation). Like the AMD litigation, these class-action lawsuits allege that we engaged in various actions in violation of the Sherman Act and other laws by, among other things: providing discounts and rebates to our manufacturer and distributor customers conditioned on exclusive or near-exclusive dealing that allegedly unfairly interfered with AMD's ability to sell its microprocessors; interfering with certain AMD product launches; and interfering with AMD's participation in certain industry standards-setting groups. The class actions allege various consumer injuries, including that consumers in various states have been injured by paying higher prices for computers containing our microprocessors.
All of the federal and state class actions other than the California class actions were transferred by the Multidistrict Litigation Panel to the U.S. District Court in Delaware for all pre-trial proceedings and discovery (MDL proceedings). The Delaware district court appointed a Special Master to address issues in the MDL proceedings, as assigned by the court. In July 2010, the Special Master denied the MDL plaintiffs' motion to certify a class of members who purchased certain personal computers containing products sold by us. In July 2014, the district court affirmed the Special Master's ruling and issued an order denying the MDL plaintiffs' motion for class certification. In August 2014, plaintiffs filed a petition for interlocutory appeal of the district court's decision with the U.S. Court of Appeals for the Third Circuit, which the Third Circuit denied in October 2014. In December 2014, we filed a motion for summary judgment on the claims of the remaining individual plaintiffs. We subsequently negotiated a settlement of the claims and the case was dismissed in September 2015.
All California class actions were consolidated in the Superior Court of California in Santa Clara County. In March 2008, the plaintiffs in the California actions moved for class certification, which we opposed. In February 2015, the court granted plaintiffs' request for leave to retain a new expert and to amend their previous motion for class certification. In March 2016, the court denied plaintiffs’ amended class certification motion, and plaintiffs filed a motion for reconsideration. The parties subsequently agreed to settle the case, and the lawsuit was dismissed in July 2016.
INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Shareholder Derivative Litigation regarding In re High Tech Employee Antitrust Litigation
In March 2014, the Police Retirement System of St. Louis (PRSSL) filed a shareholder derivative action in the Superior Court of California in Santa Clara County against Intel, certain current and former members of our Board of Directors, and a current officer. The complaint alleges that the defendants breached their duties to the company by participating in, or allowing, purported antitrust violations which were alleged in a now-settled antitrust class action lawsuit captioned In re High Tech Employee Antitrust Litigation claiming that Intel, Adobe Systems Incorporated, Apple Inc., Google Inc., Intuit Inc., Lucasfilm Ltd., and Pixar conspired to suppress their employees’ compensation. In March 2014, a second plaintiff, Barbara Templeton, filed a substantially similar derivative suit in the same court. In May 2014, a third shareholder, Robert Achermann, filed a substantially similar derivative action in the same court. The court consolidated the three actions into one, which is captioned In re Intel Corporation Shareholder Derivative Litigation. Plaintiffs filed a consolidated complaint in July 2014. In August 2015, the court granted our motion to dismiss the consolidated complaint. The plaintiffs thereafter filed a motion for reconsideration and a motion for new trial, both of which the court denied in October 2015. In November 2015, plaintiffs PRSSL and Templeton appealed the court's decision.
In June 2015, the International Brotherhood of Electrical Workers (IBEW) filed a shareholder derivative action in the Chancery Court in Delaware against Intel, certain current and former members of our Board of Directors, and a current officer. The lawsuit makes allegations that are substantially similar to those in the California shareholder derivative litigation described above, but contain additional allegations regarding breach of the duty of disclosure surrounding the In re High Tech Employee Antitrust Litigation and that Intel's 2013 and 2014 proxy statements were false and misleading in that they misrepresented the effectiveness of the Board’s oversight of compliance issues at Intel and the Board’s compliance with Intel’s Code of Conduct and Board of Director Guidelines on Significant Corporate Governance Issues. In October 2015, the court stayed the IBEW lawsuit for six months pending further developments in the California case. In March 2016, Intel and IBEW entered into a stipulated dismissal pursuant to which IBEW dismissed its complaint but may re-file upon the withdrawal or final resolution of the appeal in the PRSSL California shareholder derivative litigation.
In April 2016, John Esposito filed a shareholder derivative action in the Superior Court of California in Santa Clara County against Intel, current members of our Board, and certain former officers and employees. Esposito made a demand on our Board in 2013 to investigate whether our officers or directors should be sued for their participation in the events described in In re High Tech Employee Antitrust Litigation. In November 2015, our Board decided not to take further action on Esposito’s demand based on the recommendation of the Audit Committee of the Board after its investigation of relevant facts and circumstances. Esposito seeks to set aside such decision, and alleges that the Board was not disinterested in making that decision and that the investigation was inadequate. In August 2016, Intel filed a motion to dismiss Esposito’s complaint. In November 2016, the court granted Intel’s motion to dismiss the case, without leave to amend. Esposito may appeal this decision.
McAfee, Inc. Shareholder Litigation
On August 19, 2010, we announced that we had agreed to acquire all of the common stock of McAfee, Inc. (McAfee) for
$48.00
per share. Four McAfee shareholders filed putative class action lawsuits in Santa Clara County, California Superior Court challenging the proposed transaction. The cases were ordered consolidated in September 2010. Plaintiffs filed an amended complaint that named former McAfee board members, McAfee, and Intel as defendants, and alleged that the McAfee board members breached their fiduciary duties and that McAfee and Intel aided and abetted those breaches of duty. The complaint requested rescission of the merger agreement, such other equitable relief as the court may deem proper, and an award of damages in an unspecified amount. In June 2012, the plaintiffs’ damages expert asserted that the value of a McAfee share for the purposes of assessing damages should be
$62.08
.
INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In January 2012, the court certified the action as a class action, appointed the Central Pension Laborers’ Fund to act as the class representative, and scheduled trial to begin in January 2013. In March 2012, defendants filed a petition with the California Court of Appeal for a writ of mandate to reverse the class certification order; the petition was denied in June 2012. In March 2012, at defendants’ request, the court held that plaintiffs were not entitled to a jury trial and ordered a bench trial. In April 2012, plaintiffs filed a petition with the California Court of Appeal for a writ of mandate to reverse that order, which the court of appeal denied in July 2012. In August 2012, defendants filed a motion for summary judgment. The trial court granted that motion in November 2012, and entered final judgment in the case in February 2013. In April 2013, plaintiffs appealed the final judgment. Intel, McAfee, and McAfee’s board of directors filed an opposition to plaintiff’s appeal in December 2014. Because the resolution of the appeal may materially impact the scope and nature of the proceeding, we are unable to make a reasonable estimate of the potential loss or range of losses, if any, arising from this matter. We dispute the class-action claims and intend to continue to defend the lawsuit vigorously.
INTEL CORPORATION
FINANCIAL INFORMATION BY QUARTER (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016 for Quarter Ended
(In Millions, Except Per Share Amounts)
|
|
December 31
|
|
October 1
|
|
July 2
|
|
April 2
|
Net revenue
|
|
$
|
16,374
|
|
|
$
|
15,778
|
|
|
$
|
13,533
|
|
|
$
|
13,702
|
|
Gross margin
|
|
$
|
10,105
|
|
|
$
|
9,983
|
|
|
$
|
7,973
|
|
|
$
|
8,130
|
|
Net income
|
|
$
|
3,562
|
|
|
$
|
3,378
|
|
|
$
|
1,330
|
|
|
$
|
2,046
|
|
Basic earnings per share of common stock
|
|
$
|
0.75
|
|
|
$
|
0.71
|
|
|
$
|
0.28
|
|
|
$
|
0.43
|
|
Diluted earnings per share of common stock
|
|
$
|
0.73
|
|
|
$
|
0.69
|
|
|
$
|
0.27
|
|
|
$
|
0.42
|
|
Dividends per share of common stock:
|
|
|
|
|
|
|
|
|
Declared
|
|
$
|
—
|
|
|
$
|
0.52
|
|
|
$
|
—
|
|
|
$
|
0.52
|
|
Paid
|
|
$
|
0.26
|
|
|
$
|
0.26
|
|
|
$
|
0.26
|
|
|
$
|
0.26
|
|
Market price range common stock
1
:
|
|
|
|
|
|
|
|
|
High
|
|
$
|
38.10
|
|
|
$
|
37.75
|
|
|
$
|
32.99
|
|
|
$
|
35.44
|
|
Low
|
|
$
|
33.61
|
|
|
$
|
32.68
|
|
|
$
|
29.63
|
|
|
$
|
28.22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015 for Quarter Ended
(In Millions, Except Per Share Amounts)
|
|
December 26
|
|
September 26
|
|
June 27
|
|
March 28
|
Net revenue
|
|
$
|
14,914
|
|
|
$
|
14,465
|
|
|
$
|
13,195
|
|
|
$
|
12,781
|
|
Gross margin
|
|
$
|
9,590
|
|
|
$
|
9,111
|
|
|
$
|
8,248
|
|
|
$
|
7,730
|
|
Net income
|
|
$
|
3,613
|
|
|
$
|
3,109
|
|
|
$
|
2,706
|
|
|
$
|
1,992
|
|
Basic earnings per share of common stock
|
|
$
|
0.77
|
|
|
$
|
0.65
|
|
|
$
|
0.57
|
|
|
$
|
0.42
|
|
Diluted earnings per share of common stock
|
|
$
|
0.74
|
|
|
$
|
0.64
|
|
|
$
|
0.55
|
|
|
$
|
0.41
|
|
Dividends per share of common stock:
|
|
|
|
|
|
|
|
|
Declared
|
|
$
|
—
|
|
|
$
|
0.48
|
|
|
$
|
—
|
|
|
$
|
0.48
|
|
Paid
|
|
$
|
0.24
|
|
|
$
|
0.24
|
|
|
$
|
0.24
|
|
|
$
|
0.24
|
|
Market price range common stock
1
:
|
|
|
|
|
|
|
|
|
High
|
|
$
|
35.30
|
|
|
$
|
30.56
|
|
|
$
|
34.46
|
|
|
$
|
37.18
|
|
Low
|
|
$
|
28.76
|
|
|
$
|
25.87
|
|
|
$
|
30.81
|
|
|
$
|
29.89
|
|
|
|
1
|
Intel’s common stock (symbol INTC) trades on the NASDAQ Global Select Market. All stock prices are closing prices per the NASDAQ Global Select Market.
|