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 2, 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 July 2, 1994 Class Outstanding at July 2, 1994 Common Stock, $.001 par value 412.7 million
No. 242273-001 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. 2, Jun. 26, Jul. 2, Jun. 26, 1994 1993 1994 1993 ---------- ---------- --------- --------- Net revenues $2,770 $2,130 $5,430 $4,153 Costs and expenses: Cost of sales 1,156 766 2,280 1,484 Research and development 279 240 544 464 Marketing, general and administrative 363 280 707 542 ------- ------- ------- -------- Operating costs and expenses 1,798 1,286 3,531 2,490 ------- ------- ------ ------- Operating income 972 844 1,899 1,663 Interest expense (9) (6) (20) (19) Interest and other income, net 46 36 101 73 --------- ------- -------- --------- Income before provision for taxes 1,009 874 1,980 1,717 Provision for taxes 369 305 723 600 ------- ------- ------ ------- Net income $ 640 $ 569 $ 1,257 $ 1,117 ======= ======= ======= ======= Earnings per common and common equivalent share $ 1.46 $ 1.30 $ 2.86 $ 2.53 ======= ======= ======= ======= Cash dividends declared per common share $ 0.06 $ 0.05 $ 0.11 $ 0.10 ======= ======= ======== ======= Weighted average number of common and common equivalent shares outstanding 437 439 440 441 ======== ======== ======== =======
(See Notes to Consolidated Condensed Financial Statements.) 2 PART I - (CONTINUED) ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
Intel Corporation Consolidated Condensed Balance Sheets Jul. 2, Dec. 25, (in millions) 1994 1993 ---------- ---------- (unaudited) ASSETS Current assets: Cash and cash equivalents $ 1,012 $ 1,659 Short-term investments 1,308 1,477 Accounts receivable, net 1,588 1,448 Inventories: Raw materials 309 216 Work in process 531 321 Finished goods 357 301 --------- --------- 1,197 838 -------- --------- Deferred tax assets 336 310 Other current assets 85 70 ---------- ---------- Total current assets 5,526 5,802 -------- -------- Property, plant and equipment, at cost 7,319 6,313 Less: Accumulated depreciation (2,673) (2,317) -------- --------- Property, plant and equipment, net 4,646 3,996 Long-term investments 1,947 1,416 Other assets 167 130 ---------- ---------- TOTAL ASSETS $12,286 $11,344 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Short-term debt $ 539 $ 399 Long-term debt redeemable within one year -- 98 Accounts payable 543 427 Accrued compensation and benefits 434 544 Other accrued liabilities 445 374 Deferred income on shipments to distributors 246 200 Income taxes payable 398 391 ---------- --------- Total current liabilities 2,605 2,433 --------- -------- Long-term debt 303 426 ---------- --------- Deferred tax liabilities 326 297 ---------- --------- Put warrants 724 688 ---------- --------- Stockholders' equity: Preferred stock -- -- Common stock and Capital in excess of par value 2,245 2,194 Retained earnings 6,083 5,306 --------- --------- Total stockholders' equity 8,328 7,500 --------- --------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $12,286 $11,344 ======= =======
(See Notes to Consolidated Condensed Financial Statements.) 3 PART I - (CONTINUED) ITEM 1. FINANCIAL STATEMENTS (CONTINUED) Intel Corporation Consolidated Condensed Statements of Cash Flows (unaudited, in millions)
Six Months Ended ---------------- Jul. 2, Jun. 26, 1994 1993 ---- ---- Cash flows provided by (used for) operating activities: Net income $ 1,257 $ 1,117 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 473 317 Net loss on retirements of property, plant and equipment 18 17 Amortization of debt discount 9 8 Change in deferred tax assets and liabilities 3 16 Changes in assets and liabilities: (Increase) in accounts receivable (140) (251) (Increase) in inventories (359) (76) (Increase) in other assets (52) (73) Increase in accounts payable 116 54 (Decrease) in accrued compensation and benefits (110) (25) Increase (decrease) in income taxes payable 7 (24) Tax benefit from employee stock plans 26 32 Increase in other liabilities 113 113 ------- ------- Total adjustments 104 108 ------- ------- Net cash provided by operating activities 1,361 1,225 ------- ------- Cash flows provided by (used for) investment activities: Additions to property, plant and equipment (1,141) (816) Purchases of long-term, available-for-sale investments (634) (303) Sales of available-for-sale investments 9 -- Other (increase) decrease in available-for-sale investments 263 (273) ------- ------- Net cash (used for) investment activities (1,503) (1,392) Cash flows provided by (used for) financing activities: (Decrease) in short-term debt, net (30) (41) Additions to long-term debt 38 59 Retirement of long-term debt (98) -- Proceeds from sales of shares through employee stock plans and other 79 66 Proceeds from sale of Step-Up Warrants, net -- 287 Proceeds from sales of Put Warrants 65 51 Repurchase and retirement of common stock (517) (339) Payment of dividends to stockholders (42) (42) ------- ------- Net cash (used for) provided by financing activities (505) 41 ------- ------- Net (decrease) in cash and cash equivalents $ (647) $ (126) ======= ======= Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 31 $ 12 Income taxes $ 687 $ 576
Certain 1993 amounts have been reclassified to conform to the 1994 presentation. (See Notes to Consolidated Condensed Financial Statements.) 4 PART I - (CONTINUED) ITEM 1. FINANCIAL STATEMENTS (CONTINUED) INTEL CORPORATION, NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS 1. The accompanying interim consolidated condensed financial statements 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 Six Months Ended ------------------ ---------------- Jul. 2, Jun. 26, Jul. 2, Jun. 26, 1994 1993 1994 1993 ---------- ---------- -------- --------- Interest income $ 44 $ 35 $ 96 $ 70 Foreign currency gains (losses) 3 (2) 7 (1) Other income (loss) (1) 3 (2) 4 ---- ---- ----- ---- Total $ 46 $ 36 $ 101 $ 73 ==== ==== ===== ====
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 will be paid on September 1, 1994 to stockholders of record on August 1, 1994. 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. Unrealized gains and losses on these swaps are offset by unrealized gains and losses on their underlying investment or debt. 5 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 July 2, 1994 includes the $169 million current outstanding balance, net of unamortized discount, of zero coupon notes. The full $187 million principal amount of these notes is due May 15, 1995. 9. As part of the stock repurchase program authorized by the Board of Directors, the Company repurchased and retired 820,000 shares in Q1 1994 at a cost of $52 million. During Q2 1994, the Company repurchased and retired an additional 7.8 million shares at a cost of $465 million. As of July 2, 1994, after reserving shares to cover outstanding put warrants, approximately 5.4 million shares remained available for repurchase under the authorization. (Refer to Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operations, for subsequent events). 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 two 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 ======= ====== =======
The amount related to the Company's potential buyback obligation has been reclassified from Stockholders' Equity and recorded as Put Warrants. The 12.3 million put warrants outstanding at July 2, 1994 expire on various dates between July 1994 and July 1995 and have exercise prices ranging from $50.00 to $65.00 per share. There is no dilutive effect on earnings per share for the periods presented. (Refer to Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operations, for subsequent activity). 6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS - SECOND QUARTER OF 1994 COMPARED TO SECOND QUARTER OF 1993 Intel Corporation posted record revenues and earnings in Q2 1994 -- the eighth consecutive quarter in which it has done so. Revenues in Q2 1994 increased by 30% compared to Q2 1993. Higher volumes of advanced members of the Intel486(TM) and Pentium(TM) processor families, partially offset by lower average selling prices for these processors following normal price maturity curves, and increased sales of integrated products were responsible for most of the overall growth in revenues. Cost of sales rose more rapidly than revenues, growing by 51% from Q2 1993 to Q2 1994. The $390 million growth was driven by increased unit volumes, including a greater proportion of integrated and flash memory products in the product mix, and higher factory start-up costs related to new microprocessor production processes. As a result of the shift in mix, lower average selling prices for microprocessors, and the typically lower yields and higher costs associated with ramping new factory production processes, gross margin declined from 64% to 58%. Sales of the Intel486 CPU family of microprocessors continue to comprise a majority of the Company's revenues and a substantial majority of its gross margin. Research and development expenses and marketing and administrative expenses rose by a total of $122 million, or 23%, between these periods. Personnel-related spending, including headcount and profit dependent expenses, and expenditures for advertising and microprocessor development programs accounted for most of this growth. Interest and other income increased by $10 million, largely as a result of higher investment balances and rates in Q2 1994 compared to the year-earlier period. Interest expense over this period increased by $3 million, mainly because of higher rates on borrowings. The provision for taxes grew by $64 million, or 21%, primarily due to increased pretax income and, to a lesser extent, an increase in the effective tax rate from 35.0% for Q2 1993 to 36.5% for Q2 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 SIX MONTHS OF 1994 COMPARED TO FIRST SIX MONTHS OF 1993 Revenues for the first half of 1994 grew by 31% compared to the same period one year earlier. Higher volumes of members of the Pentium and Intel486 processor families, partially offset by lower average selling prices following a normal price maturity curve, and increased sales of integrated products drove the overall revenue growth. Cost of sales grew by 54% or $796 million. Higher unit volumes, including greater proportions of lower-margin products such as memories and integrated products, and increased factory startup costs fueled the growth in cost of sales. As a result of the shift in product mix, lower average selling prices for microprocessors, and the typically lower yields and higher costs associated with ramping new factory production processes, gross margin declined from 64% in the first half of 1993 to 58% in 1994. Expenses increased by a combined 24%. Personnel-related spending, including headcount and profit dependent expenses, and expenditures for advertising and microprocessor development programs accounted for most of this growth. The $123 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. 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) RESULTS OF OPERATIONS - FIRST SIX MONTHS OF 1994 COMPARED TO FIRST SIX MONTHS OF 1993 (CONTINUED) Interest income rose by $28 million, or 38%, as both investment balances and average rates increased. Interest expense was essentially flat over this period, as the effects of higher rates and balances were offset by higher construction-related interest capitalization. Fiscal 1994 is a 53-week year for Intel. The first six months of 1994 consisted of 27 weeks, compared to 26 in 1993. The additional week had no significant effect on the Company's results of operations. FINANCIAL CONDITION The Company's financial condition remains strong. As of July 2, 1994, total cash and short- and long-term investments had decreased by $285 million from the end of 1993, due in large part to activity in the Company's stock repurchase program (see below). In addition to a $4.27 billion portfolio of cash and investments, the Company's 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 filed in 1993. The Company funded most of its investment needs during the first half of 1994 with cash generated from operations, which totaled $1.36 billion. The Company invested $1.14 billion for property, plant and equipment during the first half of 1994, as part of a planned 1994 budget of $2.4 billion. Most of this spending was directed toward increased capacity and new microprocessor production processes. Inventory levels increased substantially during the first half of 1994, as the Company ramped production to meet anticipated shipments of advanced microprocessors at various levels of integration. Key financing activities during the first six 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 8.6 million shares at an aggregate cost of $517 million during the first two quarters of 1994 (7.8 million shares in Q2 1994). The Company also sold 10.5 million put warrants in private placements during this period, receiving proceeds of $65 million, while 13.0 million put warrants expired unexercised. On July 20, 1994, the Board approved an increase of up to 15 million shares in the Company's stock repurchase program. As of August 12, 1994, 20.6 million shares remained available for repurchase under the authorization, after reserving shares to cover 11.5 million outstanding put warrants. In Q2 1994, the Board also declared a quarterly dividend of $.06 per share (an increase of $.01 per share) payable September 1 to stockholders of record on August 1. Subsequent to Q2 1994, the Company announced plans to sell certain assets related to its programmable logic business to Altera Corporation for a price of approximately $50 million in cash and stock. The sale, which is subject to government approval, is expected to be completed on October 1, 1994 and accordingly is expected to be accounted for in Q3 1994. 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. 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) OUTLOOK Future trends for revenue and profitability remain difficult to predict, despite the solid financial results described in this report. 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 the continued availability of subcontractor-supplied memory products; and ongoing litigation involving Intel intellectual property. In recent periods Intel has lowered prices on its microprocessors quarterly. In Q3 1994, however, some microprocessor prices were reduced in two steps, with a price reduction at the beginning of the quarter and a second reduction on August 1, 1994. Revenues from the Company's flash memory business grew from 1993 to 1994, but not at the rates expected. Intel and the Nippon Steel Semiconductor Corporation (NPNX) recently announced an agreement to end a long-term 1991 flash memory subcontracting agreement in 1995, earlier than previously planned. After ramping down production at NPNX, the Company believes that it will have adequate inventory and capacity to meet present and anticipated future demands for flash with the options it has available to it. The Company believes that its Intel486 and Pentium microprocessor families will follow normal price maturity curves, but some distortion could occur if imitation products enter the market in significant volume or alternative architectures gain market acceptance. The Company continues to work toward its challenging goal to ship 6-7 million Pentium processors in 1994; however, achieving this will be dependent upon a number of business factors including a rapid manufacturing ramp, market demand during the second half of 1994, and microprocessor product mix. 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, which the Company considers vital to continued success, is also expected to remain at high levels during the remainder of 1994 and for the foreseeable future. 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. 9 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 Report on Form 10-Q for the quarter ended April 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 AMD filed a petition with the United States Supreme Court for certiorari with respect to the Court of Appeals for the Ninth Circuit's decision on December 28, 1993 to lift the stay of the Intel386 copyright infringement suit. AMD's petition was denied on June 10, 1994, and the Intel386 case may now proceed. No pretrial or trial dates have been scheduled. A trial on the in-circuit-emulation microcode was conducted from May 16, 1994 through June 1, 1994. Post-trial briefing is completed and Intel expects a decision in the third quarter of 1994. Advanced Micro Devices, Inc. ("AMD") v. Intel Corporation U.S. District Court for the Northern District of California (C91-20541) - Antitrust Suit The case was transferred to Judge Robert Aguilar and the October 1994 trial date was vacated. On March 25, 1994, AMD filed an Amended Complaint asserting claims virtually identical to those raised in the original complaint. Intel moved to dismiss portions of AMD's amended complaint based upon the Court's prior rulings in the case. A hearing on Intel's motion is scheduled for August 26, 1994. No pre-trial or trial dates have been scheduled. ITEM 2. CHANGES IN SECURITIES As described in Item 4, below, the stockholders of the Registrant approved an advisory proposal to redeem, or vote on, the Company's Rights Agreement with the Harris Trust and Savings Bank (as successor Rights Agent). In July 1994, Intel's Board of Directors voted to redeem the Common Stock Purchase Rights effective August 1, 1994 with a one-time payment of $.005 per share payable on September 1, 1994 to stockholders of record on August 1, 1994. Reference is made to Exhibit 4.3 of the Registrant's 1993 Annual Report on Form 10-K for a more complete description of the Common Stock Purchase Rights. 10 PART II - OTHER INFORMATION, CONTINUED ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS At Intel Corporation's Annual Meeting of Stockholders held on May 4, 1994, the following proposals were adopted by the margins indicated.
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 361,066,964 1,072,346 W. Chen 361,193,903 945,407 A. Grove 361,068,935 1,070,375 J. Guzy 361,171,937 967,373 G. Moore 361,086,448 1,052,862 M. Palevsky 361,190,767 948,543 A. Rock 361,081,040 1,058,270 J. Shaw 361,172,686 966,624 L. Vadasz 360,997,566 1,141,744 D. Yoffie 361,079,367 1,059,943 C. Young 361,190,396 948,914
NUMBER OF SHARES VOTED FOR VOTED AGAINST ABSTAINED NO VOTE ---------- ------------- --------- ---------- 2. To approve the amendment and restatement of the Company's 1984 Stock Option Plan. 289,741,788 60,032,274 1,434,969 10,930,278 3. To approve the amendment and restatement of the Company's 1988 Executive Long Term Stock Option Plan. 331,038,150 18,522,788 1,648,294 10,930,078 4. To approve the Company's Executive Officer Bonus Plan. 343,048,275 8,887,503 2,477,207 7,726,324 5. To take action on a stockholder proposal requesting the redemption of, or vote on, the Company's Common Stock Purchase Rights. 173,366,866 133,435,490 4,018,405 51,318,548 6. To ratify the appointment of the accounting firm of Ernst & Young as independent auditors for Intel for the current year. 341,972,536 14,552,447 892,074 4,722,253
11 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. (b) Reports on Form 8-K. No reports on Form 8-K were filed with the Securities and Exchange Commission during the quarter ended July, 2 1994. 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 12, 1994 By: /s/ Andy D. Bryant ---------------------------- Andy D. Bryant Vice President and Chief Financial and Principal Accounting Officer 13