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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the quarterly period ended October 1, 1994
OR
_____ Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from ________ to _______
Commission File Number 0-6217
INTEL CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 94-1672743
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2200 Mission College Boulevard; Santa Clara, California 95052-8119
(Address of principal executive offices) (Zip Code)
(408) 765-8080
(Registrant's telephone number, including area code)
N/A
(Former name, former address, and former fiscal year,
if changed since last report.)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such requirements
for the past 90 days. Yes___X___ No_______
Shares outstanding of the Registrant's common stock as of October 1, 1994
Class Outstanding at October 1, 1994
Common Stock, $.001 par value 414.4 million
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Intel Corporation
Consolidated Condensed Statements of Income (unaudited)
(in millions, except per share amounts)
Three Months Ended Nine Months Ended
Oct. 1, Sept. 25, Oct. 1, Sept. 25,
1994 1993 1994 1993
------ ------ ------ ------
Net revenues $2,863 $2,240 $8,293 $6,393
Costs and expenses:
Cost of sales 1,273 833 3,553 2,317
Research and development 282 244 826 708
Marketing, general and
administrative 338 293 1,045 835
------ ------ ------ ------
Operating costs and expenses 1,893 1,370 5,424 3,860
------ ------ ------ ------
Operating income 970 870 2,869 2,533
Interest expense (16) (13) (36) (31)
Interest and other income, net 84 42 185 114
------ ------ ------ ------
Income before provision for taxes 1,038 899 3,018 2,616
Provision for taxes 379 315 1,102 915
------ ------ ------ ------
Net income $ 659 $ 584 $1,916 $1,701
====== ====== ====== ======
Earnings per common and
common equivalent share $ 1.52 $ 1.33 $ 4.37 $ 3.86
====== ====== ====== ======
Cash dividends declared per
common share $ 0.06 $ 0.05 $ 0.17 $ 0.15
====== ====== ====== ======
Weighted average number of common
and common equivalent shares
outstanding 434 440 438 441
====== ====== ====== ======
(See Notes to Consolidated Condensed Financial Statements.)
PART I - (continued)
Item 1. Financial Statements (Continued)
Intel Corporation
Consolidated Condensed Balance Sheets Oct. 1, Dec. 25,
(in millions) 1994 1993
------ ------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $1,186 $1,659
Short-term investments 1,105 1,477
Accounts receivable, net 1,909 1,448
Inventories:
Raw materials 347 216
Work in process 668 321
Finished goods 363 301
------ ------
1,378 838
------ ------
Deferred tax assets 355 310
Other current assets 122 70
------ ------
Total current assets 6,055 5,802
------ ------
Property, plant and equipment, at cost 7,819 6,313
Less: Accumulated depreciation (2,914) (2,317)
------ ------
Property, plant and equipment, net 4,905 3,996
Long-term investments 2,113 1,416
Other assets 199 130
------ ------
TOTAL ASSETS $13,272 $11,344
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt $ 640 $ 399
Long-term debt redeemable within one year -- 98
Accounts payable 500 427
Accrued compensation and benefits 509 544
Other accrued liabilities 490 374
Deferred income on shipments to distributor 264 200
Income taxes payable 393 391
------ ------
Total current liabilities 2,796 2,433
------ ------
Long-term debt 392 426
------ ------
Deferred tax liabilities 345 297
------ ------
Put warrants 687 688
------ ------
Stockholders' equity:
Preferred stock -- --
Common stock and Capital in excess
of par value 2,334 2,194
Retained earnings 6,718 5,306
------ ------
Total stockholders' equity 9,052 7,500
------ ------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $13,272 $11,344
======= =======
(See Notes to Consolidated Condensed Financial Statements.)
PART I - (continued)
Item 1. Financial Statements (Continued)
Intel Corporation
Consolidated Condensed Statements of Cash Flows (unaudited, in millions)
Nine Months Ended
Oct. 1, Sept. 25,
1994 1993
------ ------
Cash flows provided by (used for) operating activities:
Net income $1,916 $1,701
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 746 494
Net loss on retirements of property, plant and equipment 26 26
Amortization of debt discount 16 13
Change in deferred tax assets and liabilities 3 70
Changes in assets and liabilities:
(Increase) in accounts receivable (461) (408)
(Increase) in inventories (540) (188)
(Increase) in other assets (121) (66)
Increase in accounts payable 73 112
(Decrease) increase in accrued compensation and benefits (35) 21
Increase (decrease) in income taxes payable 2 (29)
Tax benefit from employee stock plans 50 55
Increase in other liabilities 176 123
------ ------
Total adjustments (65) 223
------ ------
Net cash provided by operating activities 1,851 1,924
------ ------
Cash flows provided by (used for) investment activities:
Additions to property, plant and equipment (1,681) (1,304)
Purchases of long-term, available-for-sale investments (868) (639)
Sales of long-term, available-for-sale investments 9 --
Maturities and other changes in available-for-sale investments, net 534 (565)
------ ------
Net cash (used for) investment activities (2,006) (2,508)
Cash flows provided by (used for) financing activities:
Increase in short-term debt, net 64 138
Additions to long-term debt 127 75
Retirement of long-term debt (98) --
Proceeds from sales of shares through employee
stock plans and other 139 124
Proceeds from sale of Step-Up Warrants, net -- 287
Proceeds from sales of put warrants 65 55
Repurchase and retirement of common stock (546) (341)
Redemption of Common Stock purchase rights (2) --
Payment of dividends to stockholders (67) (63)
------ ------
Net cash (used for) provided by financing activities (318) 275
------ ------
Net (decrease) in cash and cash equivalents $(473) $(309)
====== ======
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 45 $ 23
Income taxes $1,047 $ 819
Certain 1993 amounts have been reclassified to conform to the 1994 presentation.
(See Notes to Consolidated Condensed Financial Statements.)
PART I - (continued)
Item 1. Financial Statements (Continued)
Intel Corporation, Notes to Consolidated Condensed Financial Statements
1. The accompanying interim consolidated condensed financial statements of
Intel Corporation ("Intel," the "Company" or the "Registrant") have been
prepared in conformity with generally accepted accounting principles,
consistent in all material respects with those applied in the Annual Report
on Form 10-K for the year ended December 25, 1993. The interim financial
information is unaudited, but reflects all normal adjustments which are, in
the opinion of management, necessary to provide a fair statement of results
for the interim periods presented.
2. Interest and other income includes (in millions):
Three Months Ended Nine Months Ended
Oct. 1, Sept. 25, Oct. 1, Sept. 25,
1994 1993 1994 1993
------ ------ ------ ------
Interest income $ 59 $ 40 $155 $109
Foreign currency gains 3 1 10 --
Other income 22 1 20 5
------ ------ ------ ------
Total $ 84 $ 42 $ 185 $ 114
====== ====== ====== ======
Other income for the three months and nine months ended October 1, 1994
includes approximately $18 million related to the settlement of various
insurance claims.
3. Earnings per common and common equivalent share as presented on the face of
the statements of income represent primary earnings per share. Dual
presentation of primary and fully diluted earnings per share has not been
made because the differences are insignificant.
4. At Intel's Annual Meeting of Stockholders in May 1994, stockholders approved
an advisory proposal to redeem the Common Stock Purchase Rights issued in
1989. In July 1994, the Company's Board of Directors voted to redeem the
Rights. A one-time payment of $.005 per share was paid on September 1, 1994
to common stockholders of record on August 1, 1994 to redeem the rights.
5. In Q1 1994, the Company adopted accounting for investments pursuant to
Statement of Financial Accounting Standards (FAS) No. 115, effective as of
the beginning of fiscal 1994. This adoption had no effect on the Company's
financial statements. Under FAS No. 115, all of the Company's Short- and
Long-term Investments are classified as available-for-sale as of the balance
sheet date and are reported at cost, which approximates fair value. Debt
securities either have a short period of time to maturity, are at floating
rates, or are swapped to floating rates with interest rate swaps. Equity
securities are either fully hedged or have no material unrealized gains or
losses. Gross unrealized gains and losses for the portfolio as a whole are
also not material.
6. The Company enters into forward contracts, options and swaps to hedge
currency, market and interest rate exposures. None of these instruments is
intended to be used for trading purposes.
Intel uses interest rate and equity swaps to hedge the interest rate and
market risks of its investment and debt portfolios. A substantial majority
of the Company's net long-term fixed rate investments and debt are swapped
to floating rates. All of the Company's swaps are tied to investments and
debt with similar maturities and the swaps change in value along with the
underlying investments and debt. Unrealized gains and losses on these swaps
are offset by unrealized gains and losses on their underlying investment or
debt.
PART I - (continued)
Item 1. Financial Statements (Continued)
Intel Corporation, Notes to Consolidated Condensed Financial Statements
6. (Continued)
Intel hedges substantially all of its identifiable foreign currency
accounting exposures. The Company uses currency forward contracts, currency
options and currency swaps to hedge its net foreign currency assets and
liabilities and its firm purchase commitments. The Company also periodically
may purchase options to hedge certain forecasted transactions for which it
does not have a firm commitment. Most of these foreign currency instruments
are for periods of less than one year. Any gains and losses on currency
forwards and currency swaps are recognized in accordance with FAS No. 52.
The amount of any deferred hedging gains and losses on them is not material.
7. During Q1 1994, the Company called and repurchased all of its outstanding
8 1/8% notes, which were due in 1997. The principal amount of the
repurchased notes was $98 million.
8. Short-term debt as of October 1, 1994 includes $174 million of zero coupon
notes, net of unamortized discount of $13 million. The full principal amount
of these notes is due May 15, 1995.
9. In July 1994, the Board of Directors approved an increase of up to 15
million shares in the Company's stock repurchase program, to a maximum
authorized total of 55 million shares. During the first three quarters of
1994, the Company repurchased and retired 9.1 million shares at an aggregate
cost of $546 million. As of October 1, 1994, after reserving shares to
cover outstanding put warrants, approximately 20.7 million shares of common
stock remained available for repurchase under the authorization.
10. In a series of private placements during the 1991-1994 period, the Company
sold put warrants that entitle the holder of each warrant to sell one share
of Common Stock to the Company, at a specified price, if the holder
exercises the warrant. Activity during the first three quarters of 1994 is
summarized as follows:
Put Warrants Outstanding
------------------------
Cumulative Proceeds Number Potential
(In millions) Received Of Warrants Obligation
----------------------------------------------------------------------------------
December 25, 1993 $ 118 14.8 $ 688
Sales 10 1.5 92
Expirations -- (2.0) (98)
------ ------ ------
April 2, 1994 128 14.3 682
Sales 55 9.0 529
Expirations -- (11.0) (487)
------ ------ ------
July 2, 1994 183 12.3 724
Expirations -- (0.8) (37)
------ ------ ------
October 1, 1994 $ 183 11.5 $ 687
====== ====== ======
The amount related to the Company's potential buyback obligation has been
reclassified from Stockholders' Equity and recorded as Put Warrants. The
11.5 million put warrants outstanding at October 1, 1994 expire on various
dates between October 1994 and July 1995 and have exercise prices ranging
from $55.00 to $65.00 per share. There is no material dilutive effect on
earnings per share for the periods presented.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations - Third Quarter of 1994 Compared to Third Quarter of 1993
- -------------------------------------------------------------------------------
Revenues for Q3 1994 increased by 28% compared to Q3 1993. Higher volumes of
microprocessors, namely the Pentium(TM) family of processors and newer, more
advanced members of the Intel486(TM) family of microprocessors, were responsible
for most of the overall growth in revenues. This volume growth was partially
offset by lower average selling prices for certain microprocessors. Also showing
significant growth between these periods were sales of integrated (board and
system) products, chipsets and flash memory.
Revenues from certain members of the Intel486 microprocessor family declined
due to lower prices and a shift in market demand toward the Company's newest
microprocessors.
Cost of sales rose more rapidly than revenues, growing by 53% from Q3 1993 to Q3
1994, driven by increased unit volumes; a mix shift, including a greater
proportion of integrated products; and costs associated with ramping new factory
production processes. These factors, together with price reductions for certain
microprocessor products, caused gross margin to decline from 63% in Q3 1993 to
56% in Q3 1994.
Gross margin for Q3 1994 also includes $27 million from the sale of the
Company's programmable logic device assets to Altera Corporation in a
transaction completed on October 1, 1994.
Sales of the Intel486 family of microprocessors continue to comprise a majority
of the Company's revenues and a substantial majority of its gross margin. A
significant and growing portion of the Company's revenues and margins are
derived from sales of the Pentium processor family.
Research and development expenses and marketing, general and administrative
expenses rose by a total of $83 million, or 15%, between these periods. Expenses
for microprocessor development and strategic marketing programs, including
related headcount growth, accounted for most of the increase.
Interest and other income increased by $42 million or 100%, due primarily to
$18 million from the settlement of certain insurance cases, together with higher
average interest rates on investments. Higher average rates also resulted in a
$3 million increase in interest expense between these periods. The Company
enters into forward contracts, options and swaps as part of an ongoing program
to hedge currency, market and interest rate exposures. Gains and losses on these
instruments are offset by their underlying hedged transactions; as a result,
there was no net impact on the Company's financial results in Q3 1993 or
Q3 1994.
The provision for taxes grew by $64 million, or 20%, primarily due to increased
pretax income and, to a lesser extent, an increase in the effective tax rate
from 35.0% for Q3 1993 to 36.5% for Q3 1994. The higher rate for 1994 reflects
changes in the federal tax law and the diminishing impact of certain tax
benefits.
Results of Operations-
- ---------------------
First Nine Months of 1994 Compared to First Nine Months of 1993
- ---------------------------------------------------------------
Revenues for the first nine months of 1994 grew by 30% compared to the same
period in 1993. Higher volumes of members of the Pentium processor family,
increased revenues from integrated products, higher volumes of members of the
Intel486 microprocessor family and increased sales of flash memory, chipsets and
other semiconductors drove the growth in revenues. Lower average selling prices
for certain microprocessors partially offset the revenue impact of higher
microprocessor unit volumes.
Cost of sales grew by 53% or $1.24 billion. Higher unit volumes, including
greater proportions of lower-margin products such as integrated products and
memories, and increased factory startup costs fueled the growth in cost of
sales. Lower average selling prices for certain microprocessors, the typically
lower yields and higher costs associated with ramping new factory production
processes, and the shift in product mix led to a decline in gross margin from
64% in the first nine months of 1993 to 57% in 1994.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Results of Operations - First Nine Months of 1994 Compared to
First Nine Months of 1993 (continued)
Sales of members of the Intel486 family of microprocessors comprised a majority
of the Company's revenues and a substantial majority of its gross margin during
the first nine months of 1994. A growing portion of the Company's revenues and
margins were derived from sales of members of the Pentium processor family.
Research and development expenses and marketing, general and administrative
expenses increased by a combined 21%. Personnel-related spending, including
headcount and profit dependent expenses, and expenditures for strategic
marketing and microprocessor development programs accounted for most of this
growth.
The $187 million increase in the provision for taxes is the result of higher
pretax income and, to a lesser degree, an increase in the effective tax rate
from 35.0% in 1993 to 36.5% in 1994.
Interest and other income rose by $71 million, or 62%, mainly as a result of
higher average interest rates and balances and the Q3 1994 settlement of certain
insurance cases. Interest expense increased by $5 million, as the effects of
higher average borrowings and rates were partially offset by increased
construction-related interest capitalization. The Company enters into forward
contracts, options and swaps as part of an ongoing program to hedge currency,
market and interest rate exposures. Gains and losses on these instruments are
offset by their underlying hedges transactions; as a result, there was no net
impact on the Company's financial results in 1993 or 1994.
Fiscal 1994 is a 53-week year for Intel. The first nine months of 1994
consisted of 40 weeks, compared to 39 in 1993. The additional week had no
significant effect on the Company's results of operations.
Financial Condition
Intel's financial condition remains strong. As of October 1, 1994, the Company
had a cash and investments portfolio of $4.40 billion, compared to $4.55 billion
at the end of 1993. The Company's other sources of liquidity include credit
lines and commercial paper borrowing arrangements that exceed $1.5 billion in
the aggregate. The Company also retains the authority to issue an aggregate of
approximately $1.4 billion in debt, equity and other securities under a
consolidated SEC shelf registration.
The Company funded most of its investment needs during the nine months of 1994
with cash generated from operations, which totaled $1.85 billion.
As part of a planned 1994 budget of $2.4 billion, the Company invested $1.68
billion for property, plant and equipment during the first nine months of 1994.
Most of this spending was directed toward increased manufacturing capacity and
new microprocessor production processes.
Inventory levels, particularly work in process, increased significantly during
the first nine months of 1994, as the Company ramped production to meet expected
demand for advanced microprocessors at various levels of integration. Control
over finished goods inventories remains good. The sharp increase in accounts
receivable over this period is due in large part to strong September billings.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Financial Condition (continued)
Key financing activities during the first nine months of 1994 included the
redemption of $98 million in long-term notes in Q1 1994. In addition, as part of
the ongoing stock repurchase program authorized by the Board of Directors, the
Company bought back 9.1 million shares at an aggregate cost of $546 million
during the first nine months of 1994 (510,000 shares in Q3 1994). The board
approved an increase in the program authorization, to a total of 55 million
shares, in July 1994. The Company also sold 10.5 million put warrants in private
placements during this period, receiving proceeds of $65 million, while 13.8
million put warrants expired unexercised. Early in Q4 1994, 1.0 million put
warrants were exercised by holders for $65 million and the Company sold an
additional 1.0 million put warrants for $6 million. As of November 9, 1994,
approximately 19.7 million shares remained available for repurchase under the
authorization, after reserving shares to cover 11.5 million outstanding put
warrants.
Cash flow from operations and available sources of liquidity are considered
adequate for planned capital expenditure programs, working capital requirements,
and quarterly cash dividend payouts.
Outlook
Future trends for revenue and profitability remain difficult to predict,
despite the strong financial results described above. Among the risks and
uncertainties that continue to face the Company are business conditions and
growth in the personal computer industry and the economy in general; competitive
factors, including rival chip architectures, imitators of the Company's key
microprocessors, and price pressures for semiconductors and integrated
products; manufacturing capacity; and ongoing litigation involving Intel
intellectual property.
The Company believes that its Intel486 and Pentium microprocessor families
will follow normal price maturity curves, but some distortion could occur as
imitation products enter the market in significant volume or alternative
architectures gain market acceptance. Early in the year, the Company set a
challenging goal to ship 6-7 million Pentium processors in 1994. The Company
expects to be within a few weeks of meeting this goal as it exits 1994. The
outlook for Pentium processor shipments in Q4 1994 and future periods remains
dependent upon a number of business factors including a rapid manufacturing
ramp and market demand, including microprocessor product mix.
Gross margin percentage has trended downward during 1993 and 1994, although
gross margin dollar contribution has generally (except for Q3 1994) continued to
grow. Cost of sales has grown faster than revenues as the result of higher unit
volumes, including new microprocessors manufactured at factories still early in
their production ramps; changes in product mix; and costs associated with
initiating production at new factories. These factors are likely to continue to
impact the amount and variability of cost of sales and the Company expects a
lower gross margin percentage in Q4 1994 compared to Q3 1994.
The Company plans to invest a total of $2.4 billion for property, plant and
equipment in 1994. Spending on strategic marketing and technology development
programs is also expected to remain at high levels during the remainder of 1994
and for the foreseeable future. The Company expects operating expenses as a
percentage of revenue in Q4 1994 to remain about the same as in Q3 1994.
However, marketing, general and administrative expenses are likely to grow in Q4
1994 due to the remaining portion of an $80 million Pentium processor
merchandising campaign launched in Q3 1994.
Intel believes that it has the product offerings and competitive resources
needed for continued success, but revenue and profitability trends cannot be
precisely determined at this time.
PART II - OTHER INFORMATION
- ---------------------------
Item 1. Legal Proceedings
A. Litigation
Reference is made to Item 3, Legal Proceedings, in the Registrant's Annual
Report on Form 10-K for the year ended December 25, 1993, and Item 1, Legal
Proceedings, in the Registrant's Quarterly Reports on Form 10-Q for the
quarters ended April 2, 1994 and July 2, 1994, for descriptions of the
following proceedings:
Intel v. Advanced Micro Devices, Inc. ("AMD")
U.S. District Court for the Northern District of California
(C92-20039, C93-20301) - Intel386(TM)/Intel486(TM) Copyright Infringement Suit
On October 11, 1994, Judge Trumbull ruled that AMD is not licensed to copy or
distribute the Company's ICE(TM) (in-circuit emulator) microcode. On October
21, 1994 the Court granted an injunction which prohibits AMD from shipping on
an interim basis products which contain infringing code, except under certain
conditions, and from shipping any products which contain infringing code after
January 15, 1995.
Advanced Micro Devices, Inc. ("AMD") v. Intel Corporation
U.S. District Court for the Northern District of California
(C91-20541) - Antitrust Suit
A hearing was held August 26, 1994 on Intel's motion to dismiss portions of
AMD's amended complaint which was filed on March 25, 1994. At the hearing,
Judge Aguilar reinstated certain AMD allegations (based upon a new Ninth Circuit
case), but dismissed other AMD claims. A March 1997 trial date has been
scheduled.
PART II - OTHER INFORMATION (continued)
- ---------------------------------------
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11.1 Statement re: computation of earnings per share.
12.1 Statement setting forth the computation of ratios of earnings to
fixed charges.
27 Financial Data Schedule.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed with the Securities and Exchange
Commission during the quarter ended October 1, 1994.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INTEL CORPORATION
(Registrant)
Date: November 9, 1994 By: /s/Andy D. Bryant
----------------------
Andy D. Bryant
Vice President and
Chief Financial and
Principal Accounting Officer