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 March 30, 1996
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 filing requirements for the past 90 days. Yes _X_ No___
Shares outstanding of the Registrant's common stock:
Class Outstanding at March 30, 1996
Common Stock, $.001 par value 822.4 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
March 30, April 1,
1996 1995
-------------------------
Net revenues $ 4,644 $ 3,557
Costs and expenses:
Cost of sales 2,421 1,609
Research and development 401 294
Marketing, general and
administrative 517 387
------- -------
Operating costs and expenses 3,339 2,290
------- -------
Operating income 1,305 1,267
Interest expense (5) (7)
Interest and other income, net 76 156
------- -------
Income before provision for taxes 1,376 1,416
Provision for taxes 482 527
------- -------
Net income $ 894 $ 889
======= =======
Earnings per common and
common equivalent share $ 1.02 $ 1.02
======= =======
Cash dividends declared per
common share $ 0.04 $ 0.03
======= =======
Weighted average number of common
and common equivalent shares
outstanding 880 872
======= =======
(See Notes to Consolidated Condensed Financial Statements.)
PAGE 3
PART I - (continued)
Item 1. Financial Statements (Continued)
Intel Corporation
Consolidated Condensed Balance Sheets
March 30, Dec. 30,
(in millions) 1996 1995
-------------------------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 1,955 $ 1,463
Short-term investments 1,470 995
Accounts receivable, net 3,101 3,116
Inventories:
Raw materials 435 674
Work in process 655 707
Finished goods 454 623
------- -------
1,544 2,004
------- -------
Deferred tax assets 411 408
Other current assets 151 111
------- -------
Total current assets 8,632 8,097
------- -------
Property, plant and equipment,
at cost 12,535 11,792
Less: Accumulated depreciation (4,671) (4,321)
------- -------
Property, plant and equipment, net 7,864 7,471
Long-term investments 1,430 1,653
Other assets 293 283
------- -------
TOTAL ASSETS $18,219 $17,504
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt $ 426 $ 346
Accounts payable 761 864
Accrued compensation and benefits 457 758
Accrued advertising 254 218
Other accrued liabilities 365 328
Deferred income on shipments to
distributors 326 304
Income taxes payable 921 801
------- -------
Total current liabilities 3,510 3,619
------- -------
Long-term debt 398 400
Deferred tax liabilities 676 620
Put warrants 734 725
Stockholders' equity:
Preferred stock -- --
Common stock and capital in excess
of par value 2,646 2,583
Retained earnings 10,255 9,557
------- -------
Total stockholders' equity 12,901 12,140
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $18,219 $17,504
======= =======
(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)
Three Months Ended
March 30, April 1,
1996 1995
-------------------------
Cash flows provided by (used for)
operating activities:
Net income $ 894 $ 889
Adjustments to reconcile net income
to net cash provided
by operating activities:
Depreciation 411 305
Net loss on retirements of property,
plant and equipment 28 31
Amortization of debt discount -- 5
Change in deferred tax assets and
liabilities 48 41
Changes in assets and liabilities:
Decrease (increase) in accounts
receivable 15 (362)
Decrease (increase) in inventories 460 (155)
(Increase) in other assets (25) (170)
(Decrease) increase in accounts payable (103) 139
(Decrease) in accrued compensation and
benefits (301) (177)
Increase in income taxes payable 120 292
Tax benefit from employee stock plans 18 21
Purchases of trading assets (75) --
Increase (decrease) in other
liabilities 95 (124)
------- -------
Total adjustments 691 (154)
------- -------
Net cash provided by operating
activities 1,585 735
------- -------
Cash flows provided by (used for)
investing activities:
Additions to property, plant and
equipment (832) (793)
Purchases of long-term, available-
for-sale investments (11) (76)
Sales of long-term, available-for-sale
investments -- 67
Maturities and other changes in
available-for-sale
investments, net (174) 126
------- -------
Net cash (used for) investing
activities (1,017) (676)
Cash flows provided by (used for)
financing activities:
Increase in short-term debt, net 80 117
Additions to long-term debt -- 12
Retirement of long-term debt -- --
Proceeds from sales of shares through
employee stock plans and other 93 81
Proceeds from sales of put warrants 18 16
Repurchase and retirement of common
stock (234) (150)
Payment of dividends to stockholders (33) (25)
------- -------
Net cash (used for) provided by financing
activities (76) 51
------- -------
Net increase in cash and cash
equivalents $ 492 $ 110
======= =======
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Interest $ 9 $ 25
Income taxes $ 286 $ 173
Certain 1995 amounts have been reclassified to conform to the 1996
presentation.
(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 30, 1995. 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 30, 1995.
2. Interest and other income includes (in millions):
Three Months Ended
March 30, April. 1,
1996 1995
-------------------------
Interest income $ 80 $ 74
Foreign currency gains 7 6
Other income (expense), net (11) 76
------- -------
Total $ 76 $ 156
======= =======
Other income for the three months ended April 1, 1995 included
approximately $58 million from 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 Technologies, 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. The Company's available-for-sale investments are reported at fair
value, with unrealized gains and losses, net of tax, recorded in
stockholders' equity. Realized gains or losses and declines in value, if
any, judged to be other than temporary on available-for-sale securities are
reported in other income or expense. Beginning in the first quarter of
1996, the Company purchased securities classified as trading assets. The
Company's trading assets ($75 million at March 30, 1996) are held to
generate returns to offset changes in certain liabilities related to
deferred compensation arrangements. The trading assets consist of
marketable equity securities and are stated at fair value. Both realized
and unrealized gains and losses are included in other income or expense and
generally offset the change in the deferred compensation liability which is
also included in other income or expense.
5. 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 and interest
rate market exposures of underlying assets, liabilities and other
obligations. The Company does not use derivative financial instruments for
speculative or trading purposes. The Company's accounting policies for
these instruments are based on the Company's designation of such
instruments as hedging transactions. The criteria the Company uses for
designating an instrument as a hedge include its effectiveness in risk
reduction and one-to-one matching of derivative instruments to underlying
transactions. Gains and losses on currency forward contracts, and options
that are designated and effective as hedges of anticipated transactions,
for which a firm commitment has been attained, are deferred and recognized
in income in the same period that the underlying transactions are settled.
PAGE 6
PART I - (continued)
Item 1. Financial Statements (Continued)
Intel Corporation, Notes to Consolidated Condensed Financial Statements
(continued)
Gains and losses on currency forward contracts, options and swaps
that are designated and effective as hedges of existing transactions are
recognized in income in the same period as losses and gains on the
underlying transactions are recognized and generally offset. Gains and
losses on options hedging investments in non-marketable instruments are
deferred and recognized in income in the same period as the hedges mature
or when the underlying transaction is sold, whichever comes first. Income
or expense on swaps is accrued as an adjustment to the yield of the related
investments or debt they hedge.
6. During the first quarter of 1996, the Company repurchased 4.1
million shares of Common Stock under the Company's authorized repurchase
program at a cost of $234 million, including 1.8 million shares at a cost
of $108 million upon the exercise of put warrants. As of March 30, 1996,
after reserving shares to cover the outstanding put warrants, approximately
26.1 million shares remained available under the repurchase program (total
authorization of 110 million shares) authorized by the Board of Directors.
(See Item 2. Management's Discussion and Analysis for subsequent activity.)
7. In a series of private placements during the 1991-1996 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 quarter of 1996 is
summarized as follows:
Put Warrants Outstanding
------------------------
Cumulative Proceeds Number Potential
(In millions) Received Of Warrants Obligation
- ---------------------------------------------------------------------------
December 30, 1995 $ 279 12.0 $ 725
Sales 18 3.0 175
Exercises (1.8) (108)
Expirations -- (1.5) (58)
----- ----- -----
March 30, 1996 $ 297 11.7 $ 734
===== ===== =====
The amount related to the Company's potential buyback obligation has
been reclassified from Stockholders' Equity and recorded as put warrants.
The 11.7 million put warrants outstanding on March 30, 1996 expire on
various dates between May 1996 and February 1997 and have exercise prices
ranging from $56 to $68 per share, with an average exercise price of $62.
There is no material dilutive effect on earnings per share for the periods
presented. (See Item 2. Management's Discussion and Analysis for subsequent
activity.)
8. On March 29, 1995, Thorn EMI North America Inc. brought suit in
Federal Court in Delaware against Intel alleging that certain Intel
manufacturing processes infringe a U.S. patent. In April 1996, the
plaintiff filed documents with the Federal Court in Delaware indicating
that in addition to an injunction it plans to seek damages, if it prevails,
equal to between one (1) and one and one half (1 1/2) percent of Intel's
net revenues derived from sales of Intel486(, Pentiumr and Pentiumr Pro
microprocessors. Trial of the plaintiff's claims against Intel is presently
set for June 1996. The Company believes this lawsuit to be without merit
and will defend the case vigorously. Although the ultimate outcome of this
lawsuit cannot be determined at this time, management, including internal
counsel, continues to believe that the ultimate outcome will not have a
material adverse effect on Intel's financial position or overall trends in
results of operations. This estimate of the potential impact on the Company
could change in the future.
PAGE 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations - First Quarter of 1996 Compared to First Quarter of
1995
Revenues for Q1 1996 increased by 31% compared to Q1 1995. Higher volumes
of the rapidly ramping Pentiumr processor family, partially offset by lower
prices, and increased sales of related board level products drove the
overall growth in revenues. Revenues from the Intel486( microprocessor
family declined substantially, primarily due to a major shift in market
demand toward the Company's more advanced microprocessors. Chipsets and
flash memory also showed significant revenue growth between these periods.
Cost of sales rose by 50% from Q1 1995 to Q1 1996, primarily due to
increased unit volumes. Gross margin declined from 55% in Q1 1995 to 48%
in Q1 1996 due primarily to increased sales of Pentium processor related
board level products at lower margins, factory start up costs and
inventory reserves, including continuing reserves related to inventories
of certain purchased components.
A majority and growing portion of the Company's revenues, and a substantial
majority of its gross margin, are derived from sales of the Pentium
processor family including related board level products. Although sales of
the Intel486 microprocessor family represented a significant portion of Q1
1995 revenues and gross margin, revenues and gross margin for these
products were negligible for Q1 1996.
Research and development expenses and marketing, general and administrative
expenses rose by a total of $237 million, or 35%, from Q1 1995 to Q1 1996.
Spending for internal product and process development programs, personnel
related spending and Intel Insider and other advertising and marketing
expenses accounted for most of the increase.
Interest and other income for Q1 1996 decreased by $80 million over the
prior year due primarily to the pre-tax gains in Q1 1995 of $58 million
from 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.
The $2 million decrease in interest expense between Q1 1995 and Q1 1996 is
primarily the result of lower weighted average borrowing balances.
The Company utilizes investments and corresponding interest rate swaps to
preserve principal while enhancing the yield on its investment portfolio
without significantly increasing risk, and uses forward contracts, options
and swaps to hedge foreign currency, equity and interest rate market
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 Q1 1996 or Q1 1995 from
hedging activities.
The provision for taxes decreased by $45 million, or 9%, primarily due to a
decrease in the effective tax rate from 37.2% for Q1 1995 to 35% for Q1
1996. The lower rate for 1996 is due primarily to a change in the
geographic mix of earnings.
Financial Condition
The Company's financial condition remains very strong. As of March 30,
1996, Intel's portfolio of cash and investments totaled $4.86 billion, up
from $4.11 billion at December 30, 1995. The Company's other sources of
liquidity include credit lines and commercial paper borrowing arrangements
that exceed $1.8 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 quarter of
1996 with cash generated from operations, which totaled $1.59 billion.
Major uses of cash during the first quarter of 1996 included capital
spending of $832 million for property, plant and equipment, primarily for
microprocessor manufacturing capacity.
PAGE 8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Financial Condition (continued)
Inventory levels, particularly raw material and finished goods, decreased
significantly during the first quarter of 1996, primarily attributable to
the sell-through of purchased parts inventory and lower costs of
manufacturing in Q1 1996.
The Company's five largest customers accounted for approximately 31% of net
revenues for the three month period ended March 30, 1996. At March 30,
1996, these customers accounted for approximately 24% of net accounts
receivable. During Q3 1995, a portion of the receivable balance from one of
the five largest customers in Q3 1995 was converted into a loan. The total
amount receivable from this customer was approximately $356 million at
March 30, 1996. During early Q2 1996, this customer paid off substantial
portions of its accounts receivable and loan receivable so that as of May
10, 1996, the total amount receivable from this customer was approximately
$113 million.
Key financing activities in the first quarter of 1996 included the
repurchase of 4.1 million shares of Common Stock for $234 million as part
of the Company's authorized stock repurchase program, including 1.8 million
shares for $108 million upon the exercise of outstanding put warrants. The
Company also sold 3 million put warrants, receiving proceeds of $18
million, while 1.5 million previously outstanding put warrants expired
unexercised. Through May 10, 1996, the Company repurchased 2 million shares
of its Common Stock, issued 3 million put warrants and 2 million put
warrants expired unexercised. As of May 10, 1996, Intel had the potential
obligation to repurchase 12.7 million shares of Common Stock at an
aggregate cost of $810 million under outstanding put warrants. The exercise
price of these warrants ranges from $56 to $69 per share, with an average
exercise price of $63.50 per share. As of May 10, 1996, 23.1 million shares
remained available for repurchase under the repurchase authorization, after
reserving shares to cover outstanding put warrants.
Management considers cash flow from operations and available sources of
liquidity to be adequate to meet business requirements in the foreseeable
future, including planned capital expenditure programs, working capital
requirements, the put warrant obligation and the dividend program.
Outlook
The statements contained in this Outlook are based on current expectations.
These statements are forward looking and actual results may differ
materially.
Although the Company's book-to-bill ratio was below 1.0 for Q1 1996, the
Company expects revenue for the second quarter of 1996 to be approximately
equal to the first quarter revenue of $4.6 billion. The Company believes
that many customers will continue to place orders for immediate delivery
("turns"), consistent with the first quarter. In a turns environment,
however, customer order patterns are inherently difficult to predict.
Revenue is also a function of the distribution of microprocessor speed and
performance levels, which is difficult to forecast. Because of the large
price difference between the highest and lowest performance
microprocessors, this distribution affects the average price Intel will
realize and has a large impact on Intel's revenues.
Intel's strategy has been and continues to be to introduce ever higher
performance microprocessors and work with the software industry to develop
compelling applications that can take advantage of this higher performance,
thus driving demand toward the newer products. In line with this strategy,
the Company is on track to position the 120-MHz and 133-MHz Pentium
processors as the entry-level processors in the fourth quarter of 1996. If
the market demand does not continue to grow and move rapidly toward higher
performance products, revenue may be impacted, the manufacturing capacity
installed might be under-utilized and capital spending may be slowed. The
Company may continue to reduce microprocessor prices aggressively and
systematically to bring its technology to market.
PAGE 9
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Outlook (continued)
The Company expects gross margin percentage in the second quarter to be
somewhere above 50 percent. Revenue from motherboard sales is expected to
decline about an equal amount to microprocessor sales increases in the
second quarter because more customers are choosing to purchase motherboards
without DRAMs. Intel's gross margin percentage varies depending in part on
the mix of microprocessors and related motherboards within a product family
because motherboards generally have lower gross margin percentages than
microprocessors. Various other factors, including unit volumes and costs
and yield issues, sell-through of purchased components, processor speed mix
and mix of shipments of other semiconductors will also continue to affect
the amount of cost of sales and the variability of gross margin
percentages.
To implement its strategy, Intel continues to build capacity to produce
high-performance microprocessors and other products. The Company currently
expects capital expenditures for 1996 to be about $4 billion. This spending
plan is dependent upon delivery times of various machines and construction
schedules for new facilities.
Spending on research and development and marketing, general and
administrative expenses is expected to increase about 6 percent in the
second quarter of 1996 from the $918 million in the first quarter of 1996.
Expense projections in the second quarter of 1996 incorporate salary
increases and expected increases in marketing and research and development
and are subject to changes based on utilization of cooperative marketing
programs by customers.
The Company's future results of operations and the other forward looking
statements contained in this outlook involve a number of risks and
uncertainties. In addition to the factors discussed above, among the other
factors that could cause actual results to differ materially are the
following: business conditions and growth in the personal computer industry
and general economy; change in customer order patterns, including timing of
delivery; competitive factors, such as rival chip architectures, competing
software-compatible microprocessors, acceptance of new products and price
pressures; availability of third party component products at reasonable
prices; risk of nonpayment of customer receivables; risk of inventory
obsolescence due to shifts in market demand; timing of software industry
product introductions; continued success in technological advances,
including the manufacturing ramp; excess or shortage of manufacturing
capacity; risks associated with foreign operations; changes in the mix of
microprocessor speeds and related motherboards; costs and yield issues
associated with initiating production at new factories; and litigation
involving intellectual property and consumer issues.
Intel believes that it has the product offerings, facilities, personnel,
and competitive and financial resources for continued business success, but
future revenues, costs, margins, product mix and profits are all influenced
by a number of factors, as discussed above.
PAGE 10
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 30, 1995 for a description
of the following legal proceeding.
Thorn EMI North America, Inc.
vs. Intel, DEL (C95-199)
On March 29, 1995, Thorn EMI North America Inc. brought suit in Federal
Court in Delaware against Intel alleging that certain Intel manufacturing
processes infringe a U.S. patent. In April 1996, the plaintiff filed
documents with the Federal Court in Delaware indicating that in addition to
an injunction it plans to seek damages, if it prevails, equal to between
one (1) and one and one half (1 1/2) percent of Intel's net revenues
derived from sales of Intel486(, Pentiumr and Pentiumr Pro microprocessors.
Trial of the plaintiff's claims against Intel is presently set for June
1996. The Company believes this lawsuit to be without merit and will defend
the case vigorously. Although the ultimate outcome of this lawsuit cannot
be determined at this time, management, including internal counsel,
continues to believe that the ultimate outcome will not have a material
adverse effect on Intel's financial position or overall trends in results
of operations. This estimate of the potential impact on the Company could
change in the future.
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 March 30, 1996.
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: May 13, 1996 By:/s/Andy D. Bryant
-----------------
Andy D. Bryant
Vice President and
Chief Financial and
Principal Accounting Officer