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 July 1, 1995
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 July 1, 1995
Class Outstanding at July 1, 1995
Common Stock, $.001 par value 823.5 million
Page 2
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 Six Months Ended
------------------ ----------------
Jul. 1, Jul. 2, Jul. 1, Jul. 2,
1995 1994 1995 1994
-------- -------- -------- --------
Net revenues $ 3,894 $ 2,770 $ 7,451 $ 5,430
Costs and expenses:
Cost of sales 1,805 1,156 3,414 2,280
Research and development 316 279 610 544
Marketing, general and
administrative 447 363 834 707
-------- -------- -------- --------
Operating costs and expenses 2,568 1,798 4,858 3,531
-------- -------- -------- --------
Operating income 1,326 972 2,593 1,899
Interest expense (10) (9) (17) (20)
Interest and other income, net 83 46 239 101
-------- -------- -------- --------
Income before provision for taxes 1,399 1,009 2,815 1,980
Provision for taxes 520 369 1,047 723
-------- -------- -------- --------
Net income $ 879 $ 640 $ 1,768 $ 1,257
======== ======== ======== ========
Earnings per common and
common equivalent share $ 0.99 $ 0.73 $ 2.01 $ 1.43
======== ======== ======== ========
Cash dividends declared per
common share $ 0.04 $ 0.03 $ 0.07 $0.055
======== ======== ======== ========
Weighted average number of common
and common equivalent shares
outstanding 888 874 880 879
======== ======== ======== ========
(See Notes to Consolidated Condensed Financial Statements.)
Page 3
PART I - (continued)
Item 1. Financial Statements (Continued)
Intel Corporation
Consolidated Condensed Balance Sheets Jul. 1, Dec. 31,
(in millions) 1995 1994
-------- --------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 1,023 $ 1,180
Short-term investments 965 1,230
Accounts receivable, net 2,884 1,978
Inventories:
Raw materials 556 345
Work in process 619 528
Finished goods 352 296
-------- --------
1,527 1,169
-------- --------
Deferred tax assets 474 552
Other current assets 131 58
-------- --------
Total current assets 7,004 6,167
-------- --------
Property, plant and equipment, at cost 9,977 8,516
Less: Accumulated depreciation (3,657) (3,149)
-------- --------
Property, plant and equipment, net 6,320 5,367
Long-term investments 1,920 2,127
Other assets 229 155
-------- --------
TOTAL ASSETS $15,473 $13,816
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt $ 507 $ 517
Accounts payable 736 575
Accrued compensation and benefits 540 588
Other accrued liabilities 556 646
Deferred income on shipments to distributors 294 269
Income taxes payable 740 429
-------- --------
Total current liabilities 3,373 3,024
-------- --------
Long-term debt 411 392
Deferred tax liabilities 422 389
Put warrants 600 744
Stockholders' equity:
Preferred stock -- --
Common stock and capital in excess
of par value 2,395 2,306
Retained earnings 8,272 6,961
-------- --------
Total stockholders' equity 10,667 9,267
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $15,473 $13,816
======== ========
(See Notes to Consolidated Condensed Financial Statements.)
Page 4
PART I - (continued)
Item 1. Financial Statements (Continued)
Intel Corporation
Consolidated Condensed Statements of Cash Flows (unaudited, in millions)
Six Months Ended
----------------
Jul. 1, Jul. 2,
1995 1994
-------- --------
Cash flows provided by (used for) operating activities:
Net income $ 1,768 $ 1,257
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 622 473
Net loss on retirements of property, plant and equipment 39 18
Amortization of debt discount 9 9
Change in deferred tax assets and liabilities 111 3
Changes in assets and liabilities:
(Increase) in accounts receivable (906) (140)
(Increase) in inventories (358) (359)
(Increase) in other assets (147) (52)
Increase in accounts payable 161 116
(Decrease) in accrued compensation and benefits (48) (110)
Increase in income taxes payable 311 7
Tax benefit from employee stock plans 69 26
(Decrease) increase in other liabilities (73) 113
-------- --------
Total adjustments (210) 104
-------- --------
Net cash provided by operating activities 1,558 1,361
-------- --------
Cash flows provided by (used for) investment activities:
Additions to property, plant and equipment (1,614) (1,141)
Purchases of long-term, available-for-sale investments (98) (634)
Sales of long-term, available-for-sale investments 44 9
Maturities and other changes in available-for-sale
investments, net 536 263
-------- --------
Net cash (used for) investment activities (1,132) (1,503)
Cash flows provided by (used for) financing activities:
(Decrease) in short-term debt, net (19) (30)
Additions to long-term debt -- 38
Retirement of long-term debt -- (98)
Proceeds from sales of shares through employee
stock plans and other 120 79
Proceeds from sales of put warrants 16 65
Repurchase and retirement of common stock (650) (517)
Payment of dividends to stockholders (50) (42)
-------- --------
Net cash (used for) financing activities (583) (505)
-------- --------
Net (decrease) in cash and cash equivalents $ (157) $ (647)
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 50 $ 31
Income taxes $ 556 $ 687
(See Notes to Consolidated Condensed Financial Statements.)
Page 5
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 31, 1994. 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. The interim
financial statements should be read in connection with the financial
statements in the Company's Annual Report on Form 10-K for the year
ended December 31, 1994.
2. Interest and other income includes (in millions):
Three Months Ended Six Months Ended
------------------ ----------------
Jul. 1, Jul. 2, Jul. 1, Jul. 2,
1995 1994 1995 1994
------- ------- ------- -------
Interest income $ 75 $ 44 $ 149 $ 96
Foreign currency gains 4 3 10 7
Other income (loss) 4 (1) 80 (2)
------- ------- ------- -------
Total $ 83 $ 46 $ 239 $ 101
======= ======= ======= =======
Other income for the six months ended July 1, 1995 includes $58 million for the
settlement of all ongoing litigation with Advanced Micro Devices, Inc. and $23
million from the sale of a portion of the Company's interest in VLSI
Technology, Inc.
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. As more fully described in the Company's Annual Report, Intel enters
into derivative financial instruments to reduce financial market risks.
These instruments are used to hedge foreign currency, equity market and
interest rate exposures of underlying assets, liabilities and other
obligations. The Company follows accounting policies for these
instruments based on the Company's designation as a hedging transaction.
The criteria the Company uses for designating an instrument as a hedge
include its effectiveness in risk reduction and one-to-one matching to
underlying transactions. Gains and losses on foreign currency forwards
and options that are designated and effective as hedges of anticipated
transactions are deferred and recognized in income in the same period as
the hedged transactions. Gains and losses on foreign currency forwards,
options, and swaps that are designated and effective as hedges of
existing transactions are recorded on the balance sheet or recognized
in income in the same period as the hedged transactions. Income or
expense on swaps is accrued as an adjustment to the yield of the
related investments or debt they hedge. Gains and losses on any
instruments not meeting the above criteria are recognized in income in
the current period.
5. During the second quarter of 1995, the Company repurchased and retired
9.0 million shares of Common Stock at an aggregate cost of $500 million.
As of July 1, 1995, after reserving shares to cover outstanding put
warrants, approximately 29.3 million shares of Common Stock remained
available under the repurchase program (total authorization of 110
million shares) authorized by the Board of Directors.
Page 6
PART I - (continued)
Item 1. Financial Statements (continued)
Intel Corporation, Notes to Consolidated Condensed Financial Statements
6. In a series of private placements during the 1991-1995 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 half of 1995
is summarized as follows:
Put Warrants Outstanding
------------------------
Cumulative Proceeds Number Potential
(In millions) Received of Warrants Obligation
-------------------------------------------------------------------------------
December 31, 1994 $ 194 25 $ 744
Sales 16 7 258
Expirations -- (6) (181)
------ ------ ------
April 1, 1995 210 26 821
Expirations -- (8) (221)
------ ------ ------
July 1, 1995 $ 210 18 $ 600
====== ====== ======
The amount related to the Company's potential buyback obligation has been
reclassified from stockholders' equity and recorded as put warrants. The 18
million put warrants outstanding at July 1, 1995 expire on various dates
between July 1995 and February 1996 and have exercise prices ranging from
$27.50 to $38.12 per share. There is no material dilutive effect on earnings
per share for the periods presented.
7. On April 27, 1995 the Board of Directors of Intel Corporation declared
a two for one stock split effected in the form of a stock distribution
paid on June 16, 1995 to stockholders of record as of May 19, 1995. All
share and per share amounts reported herein have been adjusted to
reflect the effects of this split. In addition, the Board of Directors
declared an increased cash dividend (on a post split basis) of $0.04 per
share payable on September 1, 1995 to stockholders of record on August
1, 1995.
Page 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations - Second Quarter of 1995 Compared to
Second Quarter of 1994
Revenues for Q2 1995 increased by 41% compared to Q2 1994. Higher volumes of
the rapidly ramping Pentium(R) processor family, partially offset by lower
prices, and increased sales of associated board level products drove the
overall growth in revenues. Revenues from the Intel486(TM) microprocessor
family declined due to lower prices and a shift in market demand toward the
Company's more advanced microprocessors. Chipsets and flash memory also showed
significant growth between these periods.
Cost of sales rose by 56% from Q2 1994 to Q2 1995, primarily due to increased
unit volumes, including higher proportions of board level products. Lower
prices for certain microprocessor products, as well as the higher proportion of
board products sold, contributed to the decline in gross margin percentage from
58% in Q2 1994 to 54% in Q2 1995.
A significant and growing portion of the Company's revenues, and a majority of
its gross margin, are derived from sales of the Pentium processor family.
During Q2 1995 revenues from sales of the Pentium processor family exceeded
revenues from sales of the Intel486 family of Microprocessors. Sales of the
Intel486 microprocessor family represent a significant but declining portion of
the Company's revenues and margins.
Research and development expenses and marketing, general and administrative
expenses rose by a total of $121 million, or 19%, from Q2 1994 to Q2 1995.
Spending for internal microprocessor development programs and personnel-related
expenses accounted for most of the increase.
Interest and other income increased by $37 million due primarily to higher
average interest rates.
The slight increase in interest expense between Q2 1994 and Q2 1995 is
primarily the result of higher average borrowing balances, offset by higher
construction related interest capitalization.
The Company enters into investments and corresponding interest rate swaps to
preserve principal while enhancing the yield on its investment portfolio
without significantly increasing risk, and enters into forward contracts,
options and swaps to hedge currency, market and interest rate exposures. Gains
and losses on these instruments are generally offset by those on the underlying
hedged transactions; as a result, there was no net impact on the Company's
financial results in either Q2 1994 or Q2 1995.
The provision for taxes grew by $151 million, or 41%, primarily due to
increased pretax income and, to a lesser extent, an increase in the effective
tax rate from 36.5% for Q2 1994 to 37.2% for Q2 1995. The higher rate for 1995
reflects primarily the diminishing impact of certain tax benefits due to
increased profitability.
Results of Operations - First Half of 1995 Compared to First Half of 1994
Revenues for the first half of 1995 increased by 37% compared to the first half
of 1994. Higher volumes of the rapidly ramping Pentium processor family,
partially offset by lower prices, and increased sales of associated board level
products drove the overall growth in revenues. Revenues from the Intel486
microprocessor family declined due to lower prices and a shift in market demand
toward the Company's more advanced microprocessors. Chipsets and flash memory
also showed significant growth between these periods.
Cost of sales rose by 50% from the first half of 1994 to the first half of
1995, primarily due to increased unit volumes, including higher proportions of
board level products. Lower prices for certain microprocessor products, as
well as the higher proportion of board products sold, contributed to the
decline in gross margin percentage from 58% for the first half of 1994 to 54%
for the first half of 1995.
Page 8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Results of Operations - First Half of 1995 Compared to First Half of 1994
(continued)
A significant and growing portion of the Company's revenues, and a majority of
its gross margin, are derived from sales of the Pentium processor family.
During the first half of 1995 revenues from sales of the Pentium processor
family exceeded revenues from sales of the Intel486 family of Microprocessors.
Sales of the Intel486 microprocessor family represent a significant but
declining portion of the Company's revenues and margins.
Research and development expenses and marketing, general and administrative
expenses rose by a total of $193 million, or 15%, from the first half of 1994
to the first half of 1995. Spending for internal microprocessor development
programs and personnel-related expenses accounted for most of the increase.
Interest and other income increased by $138 million or 137%. Other income for
Q1 1995 included $58 million related to the settlement of litigation with
Advanced Micro Devices, Inc. and $23 million from the sale of a portion of
Intel's interest in VLSI Technology, Inc. Higher interest rates in 1995 were
also a factor in the overall increase in interest and other income.
The decrease in interest expense between the first half of 1994 and the first
half of 1995 is the result of higher construction-related interest
capitalization and offset by higher average borrowing balances.
The Company enters into investments and corresponding interest rate swaps to
preserve principal while enhancing the yield on its investment portfolio
without significantly increasing risk, and enters into forward contracts,
options and swaps to hedge currency, market and interest rate exposures.
Gains and losses on these instruments are generally offset by those on the
underlying hedged transactions; as a result, there was no net impact on the
Company's financial results in either the first half of 1994 or the first half
of 1995.
The provision for taxes grew by $324 million, or 45%, primarily due to
increased pretax income and, to a lesser extent, an increase in the effective
tax rate from 36.5% for the first half of 1994 to 37.2% for the first half of
1995. The higher rate for 1995 reflects primarily the diminishing impact of
certain tax benefits due to increased profitability.
FINANCIAL CONDITION
The Company's financial condition remains strong. As of July 1, 1995, Intel's
portfolio of cash and investments totaled $3.9 billion, down from $4.5 billion
at December 31, 1994. The Company's other sources of liquidity include credit
lines and commercial paper borrowing arrangements that exceed $1.7 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 SEC
shelf registration statements.
The Company funded most of its investment needs during the first half of 1995
with cash generated from operations, which totaled $1.56 billion. Major uses of
cash during the first half of 1995 included capital spending of $1.61 billion
for property plant, and equipment, primarily for microprocessor manufacturing
capacity.
Inventory levels, particularly raw material and work in process, increased
significantly during the first half of 1995, as the Company replenished
inventories written down in Q4 1994 in connection with the floating point
divide problem in the Pentium processor. The increase in accounts receivable
over this period is due primarily to strong June billings. During the period
from January 1 to July 1, 1995, the Company experienced an increase in its
concentration of credit risk due to increasing trade receivables derived from
sales to manufacturers of micro-computer systems. No single customer accounted
for 10% or more of net revenues during the three and six month period ended
July 1, 1995. The Company's 10 largest customers accounted for approximately
49% and 47% of net revenues for the three and six month periods ended July 1,
1995, respectively. At July 1, 1995, these customers accounted for
approximately 47% of net accounts receivable.
Page 9
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
FINANCIAL CONDITION (continued)
Key financing activities in the first half of 1995 included the repurchase of
13 million shares of Common Stock for $650 million as part of the Company's
authorized stock repurchase program (9 million shares in Q2 1995 for $500
million). Subsequent to the end of Q2 1995, the Company repurchased 3.9 million
shares of Common Stock at a total cost of $259 million. Early in Q3 1995, 7.5
million put warrants expired unexercised. As of August 9, 1995, Intel had the
potential obligation to repurchase 17.5 million shares of Common Stock at an
aggregate cost of $794 million under outstanding put warrants. As of August 9,
1995, 26.4 million shares remained available for repurchase under the
repurchase authorization, after reserving shares to cover outstanding put
warrants. In addition, during the quarter, the Company redeemed the $187
million in face value of zero coupon notes which matured May 15, 1995.
Management considers cash flow from operations and available sources of
liquidity to be 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. The Company continues to
face many risks and uncertainties, including business conditions and growth in
the personal computer industry and general economy; competitive factors, such
as rival chip architectures, imitative microprocessors, and price pressures;
risk of non-payment of accounts receivable due to the increased concentration;
manufacturing capacity; and litigation involving intellectual property.
Management continues to monitor orders and the substantial and growing accounts
receivable balances with its largest customers.
As part of its strategic goal to double performance at major system price
points, the Company may continue to cut microprocessor prices aggressively and
systematically. Future distortion of price maturity curves could occur as
imitation products enter the market in significant volume or alternative
architectures gain market acceptance. The outlook for Pentium processor
shipments in 1995 remains dependent on several business factors, including
continued success in the manufacturing ramp, availability of other components
to build personal computers, and market demand, including microprocessor
product mix.
The Company expects gross margin percentage to remain in the low 50's range in
Q3 1995. Over the longer term, various factors, including higher unit volumes;
changes in product mix; and costs and yield issues associated with initiating
production at new factories will continue to affect the amount and variability
of cost of sales in future quarters.
The Company recently increased its 1995 capital investment budget from an
earlier estimate of $3.2 billion to $3.5 billion. The Company has increased its
planned 1995 capital spending for manufacturing due to anticipated demand
growth for the Company's microprocessor products. Spending on strategic
marketing and technology development programs is also expected to grow from Q2
1995 to Q3 1995.
Intel believes that it has the product offerings and competitive resources
needed for continued success, but precise revenue and profitability trends
cannot be predicted at this time.
Page 10
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Reference is made to Item 3. Legal Proceedings, in the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1994 for a description of
the following legal proceeding:
CONSUMER CLASS ACTION SUITS
Machtinger vs. Intel, Cook Co. Circuit Court, IL (94-C-7300)
Anthony Uzzo & Co. vs. Intel, Santa Clara Co. Superior Court (CV745729)
Liberty Bell Equip. vs. Intel, Santa Clara Co. Superior Court (CV745803)
Sloane vs. Intel, Santa Clara Co. Superior Court (CV745876)
Klein vs. Intel, Santa Clara Co. Superior Court (CV745895)
Scalzo vs. Intel, Santa Clara Co. Superior Court (CV745924)
Rep. Electronic Products vs. Intel and Dell,
Wayne Co. Circuit Court, MI (94-435132CK)
Fingold vs. Intel, Santa Clara Co. Superior Court (CV746031)
Lees et al vs. Intel, Camden Co. Superior Court, NJ (L 11508 94)
Kurtz, Orman vs. Intel, Santa Clara Co. Superior Court (CV746116)
Data Technology Services vs. Intel, U.S.D.C., Dist. of CO (94-N-2886)
Carney vs. Intel, Santa Clara Co. Superior Court (CV746128)
On June 22, 1995, the court approved the substantive provisions of the
previously-entered settlement and reserved judgment on an attorneys' fees
issue. The settlement becomes final once the appeal period has run or any
appeals have been decided.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At Intel Corporation's Annual Meeting of Stockholders held on April 28, 1995,
the following proposals were adopted or rejected by the margins indicated. Due
to the fact that the vote was held prior to the effective date of the two for
one stock split, the following results are presented on a pre-split basis.
NUMBER OF SHARES
----------------
VOTED FOR WITHHELD
--------- --------
1. To elect a board of directors to hold office
until the next annual meeting of stockholders
and until their respective successors, if any,
have been elected or appointed.
C. Barrett 360,965,257 463,914
W. Chen 360,971,261 457,910
A. Grove 360,969,578 459,593
J. Guzy 360,968,272 460,898
G. Moore 360,981,161 448,010
M. Palevsky 360,883,075 546,096
A. Rock 360,975,864 453,306
J. Shaw 360,982,236 446,935
L. Vadasz 360,969,538 459,632
D. Yoffie 360,954,248 474,923
C. Young 360,969,438 459,733
Page 11
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (CONTINUED)
Number of Shares
Voted For Voted Against Abstained No Vote
--------- ------------- --------- -------
2. To ratify the appointment of the
accounting firm of Ernst & Young, LLP
as independent auditors for the Company
for the current year. 360,634,257 266,146 528,768 0
3. To approve the amendment and
restatement of the Company's
Executive Officer Bonus Plan. 334,027,571 14,182,363 2,010,256 11,208,980
4. To take action on a stockholder proposal
requesting that the Company institute
an executive compensation review in
addition to the current review. 11,537,063 298,897,737 5,918,469 45,075,901
5. To take action on a stockholder proposal
requesting that the Company formally
adopt a policy allowing third parties and
community organizations to perform
inspections of the Company's facilities
and assess the Company's management
of environmental, health and safety
issues. 14,155,944 277,689,983 24,508,342 45,724,901
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 First Amendment dated July 19, 1995 to Intel Corporation 1984 Stock
Option as amended and restated effective May 4, 1994.
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.
Page 12
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: August 10, 1995 By: \s\ Andy D. Bryant
----------------------------
Andy D. Bryant
Vice President and
Chief Financial and
Principal Accounting Officer