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 June 26, 1999
OR
--- Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
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Commission file number 0-6217
INTEL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 94-1672743
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2200 Mission College Boulevard, Santa Clara, California 95052-8119
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(Address of principal executive offices) (Zip Code)
(408) 765-8080
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(Registrant's telephone number, including area code)
N/A
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(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 June 26, 1999
Common Stock, $.001 par value 3,308 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 Six Months Ended
----------------------- ------------------------
June 26, June 27, June 26, June 27,
1999 1998 1999 1998
---- ---- ---- ----
Net revenues $ 6,746 $ 5,927 $ 13,849 $ 11,928
Costs and expenses:
Cost of sales 2,771 3,027 5,683 5,776
Research and development 731 623 1,394 1,218
Marketing, general and administrative 924 671 1,815 1,382
Purchased in-process research and development -- -- -- 165
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Operating costs and expenses 4,426 4,321 8,892 8,541
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Operating income 2,320 1,606 4,957 3,387
Interest expense (11) (8) (20) (15)
Interest income and other, net 301 152 657 359
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Income before taxes 2,610 1,750 5,594 3,731
Provision for taxes 861 578 1,846 1,286
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Net income $ 1,749 $ 1,172 $ 3,748 $ 2,445
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Basic earnings per common share $ 0.53 $ 0.35 $ 1.13 $ 0.73
======= ======= ======= =======
Diluted earnings per common share $ 0.51 $ 0.33 $ 1.08 $ 0.69
======= ======= ======= =======
Cash dividends declared per
common share $ -- $ -- $ 0.05 $ 0.015
======= ======= ======= =======
Weighted average common shares outstanding 3,310 3,382 3,317 3,332
Dilutive effect of:
Employee stock options 136 155 145 166
1998 Step-Up Warrants -- -- -- 45
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Weighted average common shares outstanding,
assuming dilution 3,446 3,537 3,462 3,543
======= ======= ======= =======
See Notes to Consolidated Condensed Financial Statements.
2
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
INTEL CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(in millions)
June 26, Dec. 26,
1999 1998
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(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 3,599 $ 2,038
Short-term investments 6,652 5,272
Trading assets 358 316
Accounts receivable, net 3,265 3,527
Inventories:
Raw materials 222 206
Work in process 947 795
Finished goods 594 581
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1,763 1,582
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Deferred tax assets 659 618
Other current assets 177 122
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Total current assets 16,473 13,475
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Property, plant and equipment 21,998 21,068
Less accumulated depreciation 10,586 9,459
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Property, plant and equipment, net 11,412 11,609
Long-term investments 3,453 5,365
Other assets 1,463 1,022
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TOTAL ASSETS $32,801 $31,471
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt $ 135 $ 159
Accounts payable 1,354 1,244
Accrued compensation and benefits 963 1,285
Deferred income on shipments to distributors 499 606
Accrued advertising 505 458
Other accrued liabilities 1,018 1,094
Income taxes payable 643 958
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Total current liabilities 5,117 5,804
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Long-term debt 666 702
Deferred tax liabilities 1,546 1,387
Put warrants -- 201
Stockholders' equity:
Preferred stock -- --
Common stock and capital in excess
of par value 4,819 4,822
Retained earnings 19,523 17,952
Accumulated other comprehensive income 1,130 603
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Total stockholders' equity 25,472 23,377
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $32,801 $31,471
======= =======
See Notes to Consolidated Condensed Financial Statements.
3
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
INTEL CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in millions)
Six Months Ended
----------------
June 26, June 27,
1999 1998
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Cash flows provided by (used for) operating activities:
Net income $ 3,748 $ 2,445
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 1,583 1,304
Net loss on retirements of property, plant and equipment 87 89
Deferred taxes (139) 105
Purchased in-process research and development -- 165
Changes in assets and liabilities:
Accounts receivable 343 337
Inventories (170) 46
Accounts payable 107 (332)
Accrued compensation and benefits (333) (385)
Income taxes payable (316) (993)
Tax benefit from employee stock plans 279 181
Other assets and liabilities (1,014) (489)
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Total adjustments 427 28
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Net cash provided by operating activities 4,175 2,473
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Cash flows provided by (used for) investing activities:
Additions to property, plant and equipment (1,441) (2,206)
Purchase of Shiva Corporation, net of cash acquired (132) --
Purchase of Chips and Technologies, Inc., net of cash acquired, and Digital
Equipment Corporation semiconductor operations -- (946)
Purchases of available-for-sale investments (3,305) (4,528)
Sales of available-for-sale investments 386 46
Maturities and other changes in available-for-sale
investments 4,554 4,717
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Net cash provided by (used for) investing activities 62 (2,917)
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Cash flows provided by (used for) financing activities:
Decrease in short-term debt, net (24) (80)
Additions to long-term debt 27 34
Proceeds from sales of shares through employee stock plans and other 286 259
Proceeds from exercise of 1998 Step-Up Warrants -- 1,620
Proceeds from sales of put warrants -- 27
Repurchase and retirement of common stock (2,798) (3,531)
Payment of dividends to stockholders (167) (100)
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Net cash used for financing activities (2,676) (1,771)
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Net increase (decrease) in cash and cash equivalents $ 1,561 $(2,215)
======= =======
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 20 $ 18
Income taxes $ 2,009 $ 1,989
See Notes to Consolidated Condensed Financial Statements.
Certain 1998 amounts have been reclassified to conform to the 1999 presentation.
4
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
INTEL CORPORATION, NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -
UNAUDITED
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 26, 1998. 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 26, 1998. All share, per
share and warrant amounts have been restated to reflect the effect of the
two-for-one stock split paid on April 11, 1999.
2. As of the second quarter of 1998, the Company adopted a new dividend
declaration schedule which results in the Board of Directors considering
two dividend declarations in the first and third quarters of the year and
no declarations in each of the second and fourth quarters of the year. The
new declaration schedule does not change the Company's historical quarterly
dividend payment schedule. In keeping with this new schedule, the Board of
Directors made two dividend declarations in the first quarter of 1999, and
none in the second quarter. During 1998, the Board of Directors made one
dividend declaration in the first quarter and none in the second quarter.
On July 21, 1999, subsequent to the end of the second quarter, the Board of
Directors declared a dividend of $0.03 per share payable on September 1,
1999 to stockholders of record on August 7, 1999.
3. Interest income and other, net includes (in millions):
Three Months Ended Six Months Ended
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June 26, June 27, June 26, June 27,
1999 1998 1999 1998
----- ----- ----- -----
Interest income $ 148 $ 143 $ 304 $ 303
Foreign currency gains - 3 2 3
Other income, net 153 6 351 53
----- ----- ----- -----
Total $ 301 $ 152 $ 657 $ 359
===== ===== ===== =====
Other income for all periods presented consists primarily of gains on sales
of equity investments.
4. The components of comprehensive income, net of tax, are as follows (in
millions):
Three Months Ended Six Months Ended
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June 26, June 27, June 26, June 27,
1999 1998 1999 1998
---- ---- ---- ----
Net income $ 1,749 $ 1,172 $ 3,748 $ 2,445
Change in net unrealized gain on
available-for-sale investments 260 61 527 158
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Total $ 2,009 $ 1,233 $ 4,275 $ 2,603
======= ======= ======= =======
Accumulated other comprehensive income presented in the accompanying
consolidated condensed balance sheets consists of the accumulated net
unrealized gain on available-for-sale investments.
5. During the first half of 1999, the Company repurchased 46 million shares of
Common Stock under the Company's authorized repurchase program at a cost of
$2.8 billion. As of June 26, 1999 approximately 125.4 million shares
remained available for repurchase under the program.
5
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
INTEL CORPORATION, NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -
UNAUDITED (CONTINUED)
6. In a series of private placements during the 1991-1998 period, the Company
sold put warrants that entitle the holder of each warrant to sell to the
Company, by physical delivery, one share of Common Stock at a specified
price. The remaining 5 million put warrants that were outstanding at
December 26, 1998 expired unexercised in the first quarter of 1999.
7. In the first quarter of 1999, Intel had two reportable segments under the
criteria of Statement of Financial Accounting Standards ("SFAS") No. 131,
"Disclosures about Segments of an Enterprise and Related Information": the
Intel Architecture Business Group and the Computing Enhancement Group.
During the second quarter of 1999, Intel changed the structure of its
internal organization, moving the chipset operation and the graphics chips
operation to the Intel Architecture Business Group from the Computing
Enhancement Group. This change was made to better align the product
planning and marketing strategies of the Company's component operations. As
a result, the second quarter information has been presented with the Intel
Architecture Business Group as the only remaining reportable segment.
Information for prior periods has been restated.
The Intel Architecture Business Group now includes microprocessors,
motherboards and other related board-level products, chipsets, and graphics
chips.
The "all other" category includes revenues and earnings (losses) from
non-reportable operating segments: the remaining embedded processor and
flash memory operations of the Computing Enhancement Group, the Network
Communications Group and the New Business Group. In addition, "all other"
includes certain corporate-level operating expenses (primarily the amount
by which profit-dependent bonus expenses differ from a targeted level
recorded by the segments) and the impact of reserves for deferred income on
shipments to distributors not allocated to operating segments. The income
recognized by the divisions on shipments to distributors is deferred and
reserved at the corporate level until the products are sold by the
distributors. The change in the reserve for deferred income on shipments to
the distributors reflects the difference between shipments to the
distributors and sales made by the distributors.
Information on reportable segments is as follows (in millions):
Three Months Ended Six Months Ended
------------------ ----------------
June 26, June 27, June 26, June 27,
1999 1998 1999 1998
---- ---- ---- ----
INTEL ARCHITECTURE BUSINESS GROUP:
Revenues $ 5,559 $ 5,240 $11,988 $10,655
Operating profit $ 2,305 $ 1,649 $ 5,249 $ 3,509
ALL OTHER:
Revenues $ 1,187 $ 687 $ 1,861 $ 1,273
Operating profit $ 15 $ (43) $ (292) $ (122)
TOTAL:
Revenues $ 6,746 $ 5,927 $13,849 $11,928
Operating profit $ 2,320 $ 1,606 $ 4,957 $ 3,387
8. In February 1999, the Company acquired the outstanding shares of Shiva
Corporation, whose products include remote access and virtual private
networking solutions for the small to medium enterprise market segment and
the remote access needs of campuses and branch offices. The acquisition was
accounted for using the purchase method of accounting with a price of
approximately $185 million ($132 million in net cash). The operating
results subsequent to the acquisition have been included in the "all other"
category for segment reporting purposes as part of the Network
Communications Group.
6
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
INTEL CORPORATION, NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -
UNAUDITED (CONTINUED)
9. In March 1999, the Company announced that it had entered into a definitive
agreement to acquire Level One Communications, Inc. ("Level One"), in a
stock-for-stock merger agreement valued at approximately $2.2 billion.
Level One provides silicon connectivity solutions for high-speed telecom
and networking applications. Under the terms of the agreement, each share
of Level One stock would be exchanged for 0.86 shares of Intel stock. Intel
expects to issue at least 33.7 million shares of its common stock for
currently outstanding shares, but may issue as many as 39.9 million shares
if all vested Level One options and warrants are exercised and Level One's
convertible debt is converted prior to the merger. The completion of this
transaction is subject to a vote of Level One stockholders scheduled for
August 9, 1999, and other conditions customary in a transaction of this
type. This transaction is expected to be accounted for using the purchase
method of accounting.
In June of 1999, the Company announced that it had entered into a
definitive agreement to acquire Dialogic Corporation ("Dialogic") for $44
per share in a cash tender offer, and on July 12, the Company completed
this transaction. The transaction will be accounted for using the purchase
method of accounting, with an approximate purchase price of $830 million,
including the value of options converted to Intel options, and a net cash
purchase price of approximately $670 million. The acquisition is aimed at
expanding the Company's standard high-volume server business in the
networking and telecommunications market segment. Dialogic designs,
manufactures and markets computer hardware and software enabling technology
for computer telephony systems.
Subsequent to the end of the second quarter, the Company acquired privately
held Softcom Microsystems, Inc. ("Softcom") in a cash transaction. The
total purchase price was approximately $150 million. Softcom develops and
markets semiconductor products for original equipment manufacturers in the
networking and communications market segments. Softcom's high-performance
components are designed for networking gear (access devices, routers, and
switches) used to direct voice and data across the Internet as well as
traditional enterprise networks. This transaction will be accounted for
using the purchase method of accounting.
10. In November 1997, Intergraph Corporation ("Intergraph") filed suit in
Federal District Court in Alabama generally alleging that Intel attempted
to coerce Intergraph into relinquishing certain patent rights. The suit
alleges that Intel infringes five Intergraph microprocessor-related patents
and includes alleged violations of antitrust laws and various state law
claims. The suit seeks injunctive relief and unspecified damages, and
further alleges that Intel's infringement is willful and that any damages
awarded should be trebled. The Company received a letter stating that
Intergraph believes that the patent damages will be "several billion
dollars by the time of trial." In addition, Intergraph claims that the
antitrust, unfair competition and tort and contract damages will be
"hundreds of millions of dollars by the time of trial." The Company
disputes Intergraph's claims and intends to defend the lawsuit vigorously.
Intel has also counterclaimed that the Intergraph patents are invalid, and
alleges infringement of seven Intel patents, breach of contract and
misappropriation of trade secrets. In April 1998, the Court ordered Intel
to continue to deal with Intergraph on the same terms as it treats
allegedly similarly situated customers with respect to confidential
information and product supply. Intel's appeal of this order was heard in
December 1998. In June 1998, Intel filed a motion for summary judgment on
Intergraph's patent claims on the grounds that Intel is licensed to use
those patents. In June 1999, the Court granted Intergraph's motion for
summary judgement that the patents asserted by Intergraph are not licensed
to Intel. Intel filed a motion for reconsideration and an alternative
request to certify the decision for appeal.
The Company is currently party to various legal proceedings, including that
noted above. While management, including internal counsel, currently
believes that the ultimate outcome of these proceedings, individually and
in the aggregate, will not have a material adverse effect on the Company's
financial position or overall trends in results of operations, litigation
is subject to inherent uncertainties. Were an unfavorable ruling to occur,
there exists the possibility of a material adverse impact on the net income
of the period in which the ruling occurs.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OPERATING SEGMENT REPORTING
During the second quarter of 1999, Intel changed the structure of its internal
organization, moving the chipset operation and the graphics chips operation to
the Intel Architecture Business Group from the Computing Enhancement Group. This
change was made to better align the product planning and marketing strategies of
the Company's component operations. As a result, the second quarter information
has been presented with the Intel Architecture Business Group as the only
remaining reportable segment. Information for prior periods has been restated.
The Intel Architecture Business Group now includes microprocessors, motherboards
and other related board-level products, chipsets, and graphics chips.
RESULTS OF OPERATIONS - SECOND QUARTER OF 1999 COMPARED TO SECOND QUARTER OF
1998
Intel's net revenues for Q2 1999 increased by 14% compared to Q2 1998. Net
revenues for the Intel Architecture Business Group operating segment increased
6% in Q2 1999 compared to Q2 1998. The increase was primarily due to higher unit
volumes of microprocessors partially offset by lower prices. Within the "all
other" category for operating segment reporting, revenues from sales of
networking products, embedded products, and flash memory grew between these
periods. In addition, the change in deferred income on shipments to
distributors, which is not allocated to operating segments, had a positive
impact on revenues in the "all other" category for Q2 1999 compared to Q2 1998.
The change in the reserve for deferred income on shipments to the distributors
reflects the difference between shipments to the distributors and sales made by
the distributors.
Sales of microprocessors and related board-level products based on the P6
microarchitecture, which are included in the Intel Architecture Business
Group's operations, comprised a majority of Intel's consolidated net revenues
and a substantial majority of gross margin in Q2 1999 and Q2 1998. Sales of
Pentium-Registered Trademark- family microprocessors were not significant in
Q2 1999, but represented a significant although declining portion of Intel's
net revenues and gross margins in Q2 1998.
Cost of sales decreased by 8% in Q2 1999 compared to Q2 1998 primarily due to
lower unit costs for microprocessors in Q2 1999 partially offset by higher unit
sales volumes. In addition, cost of sales in Q2 1998 included unusually high
inventory write-downs. The lower unit costs in Q2 1999 were achieved primarily
through redesigned microprocessor products with lower-cost packaging, including
packaging using fewer purchased components, as well as factory efficiencies and
lower purchase prices on the purchased components. The gross margin percentage
increased to 59% in Q2 1999, up from 49% in Q2 1998. The improvement in gross
margin was primarily a result of lower unit costs in the Intel Architecture
Business Group operating segment in Q2 1999, as well as the absence of the
unusually high inventory write-downs recognized in Q2 1998, partially offset by
the impact of lower prices in Q2 1999. See "Outlook" for a discussion of gross
margin expectations.
Research and development spending increased $108 million, or 17%, in Q2 1999
compared to Q2 1998, primarily due to increased spending on product
development programs. Marketing, general and administrative expenses
increased $253 million, or 38%, in Q2 1999 compared to Q2 1998, primarily due
to the Intel Inside-Registered Trademark- cooperative advertising program,
merchandising spending relating to new product launches and profit-dependent
bonus expenses. Operating expenses were 24.5% of net revenues in Q2 1999 and
21.8% of net revenues in Q2 1998.
Interest and other income increased to $301 million in Q2 1999 compared to $152
million in Q2 1998, primarily due to higher gains on sales of equity
investments.
The Company's effective income tax rate was 33% in Q2 1999 and Q2 1998.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS - FIRST HALF OF 1999 COMPARED TO FIRST HALF OF 1998
Intel's net revenues for the first half of 1999 increased by 16% compared to
the first half of 1998. Net revenues for the Intel Architecture Business
Group operating segment increased 13% in the first half of 1999 compared to
the first half of 1998. The increase was primarily due to higher unit volumes
of microprocessors and a shift in mix toward processors based on the P6
microarchitecture, including the Intel-Registered Trademark- Celeron-TM- and
Pentium-Registered Trademark- III processors. Within the "all other" category
for operating segment reporting, revenues from sales of networking products
and flash memory grew between these periods. In addition, the change in
deferred income on shipments to distributors, which is not allocated to
operating segments, had a positive impact on revenues in the "all other"
category for the first half of 1999 compared to the first half of 1998.
Sales of microprocessors and related board-level products based on the P6
microarchitecture, which are included in the Intel Architecture Business Group's
operations, comprised a majority of Intel's consolidated net revenues and a
substantial majority of gross margin in the first half of 1999. For the first
half of 1998 these sales comprised a majority of Intel's consolidated net
revenues and gross margin. Sales of Pentium family microprocessors were not
significant in the first half of 1999, but represented a significant although
declining portion of Intel's net revenues and gross margins in the first half of
1998.
Cost of sales were essentially flat between the first half of 1999 and the first
half of 1998. In the Intel Architecture Business Group operating segment, lower
unit costs for microprocessors in the first half of 1999, and the absence of the
unusually high inventory write-downs recognized in the first half of 1998, were
offset by higher unit sales volumes in the first half of 1999. Gross margin
increased to 59% in the first half of 1999 from 52% in the first half of 1998
primarily due to the lower unit costs in the Intel Architecture Business Group
operating segment and the absence of the higher inventory write-downs recognized
in the first half of 1998. See "Outlook" for a discussion of gross margin
expectations.
Total spending on research and development was essentially flat between the
first half of 1999 and the first half of 1998. Increases in spending on product
development programs in the first half of 1999 were offset by the absence of the
charge of $165 million for in-process research and development related to the
acquisition of Chips and Technologies, Inc. taken in the first half of 1998.
Marketing, general and administrative expenses increased $433 million, or 31%,
in the first half of 1999 compared to the first half of 1998, primarily due to
the Intel Inside cooperative advertising program, merchandising spending
relating to new product launches and profit-dependent bonus expenses. Operating
expenses were 23.2% of net revenues in first half of 1999 and 21.8% of net
revenues in first half of 1998, excluding the effect of the in-process research
and development charge.
Interest and other income for the first half of 1999 increased by $298 million
over the prior year primarily due to higher gains on sales of equity investments
in the first half of 1999 compared to the first half of 1998.
The Company's effective income tax rate was 33% in the first half of 1999 and
the first half of 1998, excluding the impact of the nondeductible charge related
to the acquisition of Chips and Technologies, Inc. in the first half of 1998.
FINANCIAL CONDITION
The Company's financial condition remains very strong. At June 26, 1999,
total cash, trading assets, and short- and long-term investments totaled
$14.1 billion, up from $13 billion at December 26, 1998.
The major source of cash during the first half of 1999 was cash provided by
operating activities of $4.2 billion. Major uses of cash during the period
included $2.8 billion to repurchase 46 million shares of common stock, capital
spending of $1.4 billion for property, plant and equipment, primarily for
microprocessor manufacturing capacity, and $132 million in net cash paid for the
acquisition of Shiva Corporation. See "Outlook" for a discussion of capital
expenditure expectations in 1999.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
FINANCIAL CONDITION (CONTINUED)
The Company's five largest customers accounted for approximately 45% of net
revenues for the first half of 1999. At June 26, 1999, the five largest
customers accounted for approximately 41% of net accounts receivable.
In March 1999, the Company announced that it had entered into a definitive
agreement to acquire Level One Communications, Inc. ("Level One"), in a
stock-for-stock merger agreement valued at approximately $2.2 billion. Under the
terms of the agreement, each share of Level One stock would be exchanged for
0.86 shares of Intel stock. Intel expects to issue at least 33.7 million shares
of its common stock for currently outstanding shares, but may issue as many as
39.9 million shares if all vested Level One options and warrants are exercised
and Level One's convertible debt is converted prior to the merger. The
completion of this transaction is subject to a vote of Level One stockholders
scheduled for August 9, 1999, and other conditions customary in a transaction of
this type.
In June of 1999, the Company announced that it had entered into a definitive
agreement to acquire Dialogic Corporation ("Dialogic"), for $44 per share in a
cash tender offer and on July 12, the Company completed this transaction. The
net cash purchase price was approximately $670 million.
Subsequent to the end of the second quarter, the Company acquired privately held
Softcom Microsystems, Inc. ("Softcom") in a cash transaction. The total purchase
price was approximately $150 million.
The Company believes that it has the financial resources needed to meet business
requirements for the next twelve months, including potential future acquisitions
or strategic investments, capital expenditures for the expansion or upgrading of
worldwide manufacturing capacity, working capital requirements and the dividend
program.
OUTLOOK
This outlook section contains a number of forward-looking statements, all of
which are based on current expectations. Actual results may differ materially.
These statements do not reflect the potential impact of any mergers or
acquisitions that had not closed as of the end of the second quarter of 1999,
except where the impact of acquisitions is specifically identified.
The Company expects revenue for the third quarter of 1999 to be up slightly from
second quarter revenue of $6.7 billion and the Company expects a strong second
half for 1999. Revenue is partly a function of the mix of microprocessor types
and speeds, motherboards and purchased components, and other semiconductor
products sold, all of which are difficult to forecast. Because of the large
price difference between types of microprocessors, this mix affects the average
price Intel will realize and has a large impact on Intel's net revenues. Revenue
is also subject to the impact of economic conditions in various geographic
regions.
Intel's goal is to be the building block supplier to the Internet economy. Intel
plans to grow its networking business and to cultivate new services businesses
around the Internet. Intel also plans to continue to work with the computing
industry to expand Internet capabilities and product offerings and develop
compelling software applications that can take advantage of higher performance
microprocessors, thus driving demand toward Intel's newer products in each
computing market segment.
Intel's microprocessor strategy is to introduce ever-higher performance
microprocessors tailored for the different segments of the worldwide computing
market, using a tiered branding approach. In line with this strategy, in the
second quarter of 1999 the Company introduced the Pentium III processor at 550
MHz, for the performance desktop and entry-level servers and workstations, and
the Celeron processor at 466 MHz for entry-level PC buyers interested
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
OUTLOOK (CONTINUED)
in a value PC, as well as a new mobile Pentium-Registered Trademark- II
processor at 400 MHz. The Company may continue to take various steps,
including reducing microprocessor prices at such times as it deems
appropriate, in order to increase acceptance of its latest technology and to
remain competitive within each relevant market segment.
The Company expects the gross margin percentage in the third quarter to be up
slightly from 59% in the second quarter. Intel's gross margin expectation for
the full year 1999 is now 60%, plus or minus a few points, up from prior
guidance of 57%, plus or minus a few points. This change in guidance reflects
the positive impact of the Company's ongoing focus on cost improvements and
manufacturing efficiencies. Intel's gross margin percentage in any period varies
depending on the mix of types and speeds of processors sold as well as the mix
of microprocessors and related motherboards and purchased components. The
Company has been developing new packaging formats that use fewer purchased
components than the original Single Edge Contact cartridge that was introduced
with the Pentium II processor. These new packaging formats have reduced costs on
certain microprocessor products and they are expected to continue to have a
positive impact on costs as the transition continues. Intel also expects to see
the benefits of continued productivity improvements on its existing
manufacturing processes during 1999. Various other factors (including unit
volumes, yield issues associated with production at factories, ramp of new
technologies, the reusability of factory equipment, excess or obsolete
inventory, variations in inventory valuation 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.
The Company has expanded semiconductor manufacturing and assembly and test
capacity over the last few years, and continues to plan capacity based on the
assumed continued success of its strategy and the acceptance of its products in
specific market segments. The Company currently expects that capital spending
will decrease to approximately $3 billion in 1999, primarily as a result of
reduced investment for new facilities and improved utilization of equipment.
This spending plan is dependent upon expectations regarding production
efficiencies and delivery times of various machinery and equipment. Depreciation
and amortization is expected to be approximately $3.3 billion for 1999.
Depreciation and amortization for the third quarter of 1999 is expected to be
approximately $810 million.
Spending on research and development and marketing, general and administrative
expenses in the third quarter is expected to be approximately four to six
percent higher than second quarter expenses of $1.7 billion. Expense projections
for the third quarter incorporate expected higher spending associated with
research and development projects.
The Company expects interest and other income to be approximately $275 million
in the third quarter depending on cash balances, interest rates, the Company's
ability to realize expected gains on investments and assuming no unanticipated
items.
The Company currently expects the tax rate to be 33% for 1999. This estimate is
based on current tax law and the current estimate of earnings, and is subject to
change.
The Company expects the Level One acquisition to close in the third quarter,
following the Level One stockholders' meeting on August 9. Intel is currently
gathering the data necessary for determining the value of identifiable
intangible assets, including in-process research and development. Based on a
preliminary analysis, in the third quarter the Company expects to incur a charge
of between $110 million and $330 million for in-process research and
development. In addition, the amount of goodwill and other intangible assets to
be amortized is expected to be between $1.8 billion and $2.0 billion, with an
estimated average useful life of five years.
Subsequent to the end of the second quarter, the acquisitions of Dialogic and
Softcom closed. The Company is early in the process of valuing the identifiable
intangible assets for these transactions and cannot yet provide estimates for
the values of in-process research and development, goodwill and other intangible
assets.
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
OUTLOOK (CONTINUED)
Like many other companies, Intel is subject to risks from the year 2000 computer
programming issue. If internal systems do not correctly recognize and process
date information beyond the year 1999, there could be an adverse impact on the
Company's operations. Two other related issues could also lead to incorrect
calculations or failures: i) some systems' programming assigns special meaning
to certain dates, such as 9/9/99; and ii) the fact that the year 2000 is a leap
year.
Intel established a comprehensive program with dedicated program management and
executive-level sponsorship to deal with year 2000 issues. The Company addressed
its most essential internal systems first and categorized as "critical" or
"priority" those systems whose failure would cause an extended shutdown of all
or part of a factory, could cause personal injury or would have a sustained and
significant detrimental financial impact. The Company's semiconductor
manufacturing and assembly and test ("manufacturing") equipment and systems are
highly automated, incorporating PCs, embedded processors and related software to
control scheduling, inventory tracking, statistical analysis and automated
manufacturing. A significant portion of the Company's year 2000 efforts on
internal systems has been intended to prevent disruption to manufacturing
operations. Intel has also been working with customers and suppliers to test
systems that interface with the Company's internal systems. These activities
have encompassed all major categories of systems in use by the Company,
including network and communications infrastructure, manufacturing, facilities
management, sales, finance and human resources.
At the end of the second quarter of 1999, all of the Company's critical and
priority manufacturing and non-manufacturing systems were determined to be
already year 2000 capable, or necessary remediation (replacements, changes,
upgrades or workarounds) had been determined and unit testing and deployment had
been completed. The Company continues to work on internal systems that were not
categorized as critical or priority, and expects to have work on these systems
substantially completed by the end of the third quarter.
The Company began a comprehensive program of integrated testing of internal
systems in the third quarter of 1998. Integrated systems testing was
substantially complete at the end of the second quarter of 1999; however,
testing will continue through 1999 to ensure continued year 2000 capability as
other changes are made to internal systems and as Intel integrates any
acquisitions.
Intel has also been actively working with suppliers of products and services to
determine the extent to which the suppliers' operations and the products and
services they provide are year 2000 capable, and to monitor their progress
toward year 2000 capability. The Company has made inquiries of its major
suppliers and has received responses to its initial inquiries from 100% of
critical suppliers. Follow-up activities seek to determine whether the supplier
is taking all appropriate steps to fix year 2000 problems and to be prepared to
continue functioning effectively as a supplier in accordance with Intel's
standards and requirements. Contingency plans are being developed to address
issues related to suppliers that are not considered to be making sufficient
progress in becoming year 2000 capable.
The Company is also developing contingency plans to address possible changes in
customer order patterns due to year 2000 issues. As with Intel's suppliers, the
readiness of customers, and their suppliers, to deal with year 2000 issues may
affect their operations and their ability to order and pay for products. Intel
has surveyed its major direct customers about their year 2000 readiness in
critical areas of their operations. The results identified certain key areas to
be addressed by the customers, primarily related to supplier readiness,
including external infrastructure providers, and contingency planning. Intel has
also been communicating information about its own readiness to customers and has
conducted seminars for customers to help communicate the methodologies and
processes used in Intel's year 2000 programs. Communications with customers for
the remainder of 1999 will be primarily aimed at focusing customer attention on
contingency planning.
Intel believes that its most reasonably likely worst-case year 2000 scenarios
would relate to problems with the systems of third parties rather than with the
Company's internal systems or its products. Because the Company has less
12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
OUTLOOK (CONTINUED)
control over assessing and remediating the year 2000 problems of third parties,
the Company believes the risks are greatest with infrastructure (e.g.,
electricity supply and water and sewer service), telecommunications,
transportation supply channels and critical suppliers of materials and services.
The Company's microprocessor production is conducted in a network of domestic
and foreign facilities. Each location relies on local private and governmental
suppliers for electricity, water, sewer and other needed supplies. Failure of an
electricity grid or an uneven supply of power, for example, would be a
worst-case scenario that would completely shut down the affected facilities.
Electrical failure could also shut down airports and other transportation
facilities.
Although most sites have some back-up electrical power, the Company does not
generally maintain its own facilities that would generate sufficient electrical
or water supply for full operations. To the extent possible, the Company is
working with infrastructure suppliers for its manufacturing sites, major
subcontractor sites and relevant transportation hubs to seek to better ensure
continuity of services. Contingency planning regarding major infrastructure
failure generally includes considering increases in inventory levels of specific
products above normal reserve stocks and evaluating the need to locate inventory
geographically. In addition, multiple plants engage in similar tasks in the
Intel system, and although overall capacity would be reduced, it is not expected
that the entire production system would halt due to the unavailability of one or
two facilities.
A worst-case scenario involving a critical supplier of materials would be the
partial or complete shutdown of the supplier and its resulting inability to
provide critical supplies to the Company on a timely basis. The Company does not
maintain the capability to replace most third-party supplies with internal
production. Where efforts to work with critical suppliers to ensure year 2000
capability have not been successful, contingency planning generally emphasizes
the identification of substitute and second-source suppliers, and in certain
situations may include a planned increase in the level of inventory carried. In
an industry characterized by rapid technological change, higher levels of raw
materials and finished goods inventories would involve increased risk of
inventory obsolescence and the potential for write-downs in the value of
inventory.
The Company is not in a position to identify or to avoid all possible scenarios;
however, the Company is currently assessing scenarios and taking steps to
mitigate the impacts of various scenarios if they were to occur. Preliminary
contingency plans for critical business operations were in place by the end of
the second quarter of 1999. In the third quarter it is expected that these plans
will be expanded and refined as the Company learns more about the preparations
and vulnerabilities of third parties regarding year 2000 issues. Testing,
validation and training will take place in the third quarter and into the fourth
quarter. Due to the large number of variables involved, the Company cannot
provide an estimate of the damage it might suffer if any of these scenarios, or
a combination of scenarios, were to occur.
The Company also has a program to assess the capability of its products to
handle the year 2000 date. To assist customers in evaluating their year 2000
issues, the Company has developed a web-enabled database that indicates the
capability of Intel's current products, and certain products no longer being
produced, to handle the year 2000 date. An Intel product, when used in
accordance with its associated documentation, is "Year 2000 Capable" when, upon
installation, it accurately stores, displays, processes, provides and/or
receives data from, into and between 1999 and 2000, and the twentieth and
twenty-first centuries, including leap-year calculations, provided that all
other technology used in combination with the Intel product properly exchanges
date data with it. The database is located on the Company's year 2000 support
Web site and is periodically updated as new products are added to the Company's
inventory.
All Intel processors are "Year 2000 Capable." All Intel micro-controllers
(embedded processors) are also "Year 2000 Capable," with the exception of two
custom microcontroller products sold to a limited number of customers. However,
the assessment of whether a complete system will operate correctly depends on
firmware (BIOS) capability and software design and integration, and for many end
users this will include firmware and software provided by companies other than
Intel.
13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
OUTLOOK (CONTINUED)
As described more fully at the support Web site, Intel offers a "Year 2000
Capable" Limited Warranty on certain of its current products. Except as
specifically provided for in the Limited Warranty, the Company does not believe
it is legally or otherwise responsible for costs incurred by customers related
to ensuring their year 2000 capability. Nevertheless, the Company is incurring
various costs to provide customer support and customer satisfaction services
regarding year 2000 issues, and it is anticipated that these expenditures will
continue through 1999 and thereafter.
Various of the Company's disclosures and announcements concerning its products
and year 2000 programs are intended to constitute "Year 2000 Readiness
Disclosures" as defined in the Year 2000 Information and Readiness Disclosure
Act. This Act provides added protection from liability for certain public and
private statements concerning an entity's year 2000 readiness and the year 2000
readiness of its products and services. It also potentially provides added
protection from liability for certain types of year 2000 disclosures made after
January 1, 1996 and before the date of enactment of the Act.
The Company's year 2000 efforts have been undertaken largely with its existing
personnel. In some instances, consultants have been engaged to provide specific
assessment, remediation or other services. Activities with suppliers and
customers have also involved their staffs and consultants. The Company engaged a
third-party firm to assist with planning and taking the inventory of internal
systems, and engaged another firm to perform an assessment of the overall scope
and schedule of Intel's year 2000 efforts.
The Company currently expects that the total cost of these programs, including
both incremental spending and redeployed resources, will be approximately $105
million. This is lower than the previous estimate of $175 million due to new
lower estimates for the cost of contingency planning efforts as some
uncertainties and perceived risks have been resolved favorably. In addition,
actual costs of internal systems remediation continued to be less than
originally expected, as workarounds were found and the Company was able to
obtain upgrades from suppliers. Approximately $75 million has been spent to
date, of which approximately $33 million was incurred in the first half of 1999.
A majority of the costs incurred to date have been included in cost of sales and
in the calculation of gross margin. The costs remaining to be spent are expected
to be incurred for contingency planning, remediation of internal systems not
categorized as critical or priority, continued testing, customer service,
supplier monitoring and program office management. Spending is expected to
continue, at a declining rate, into the year 2000. Year 2000 costs for
manufacturing and non-manufacturing internal systems are expected to be less
than 10% of the total information technology budget for 1999.
No significant internal systems projects are being deferred due to the year 2000
program efforts. In some instances, the installation schedule of new software
and hardware in the normal course of business is being accelerated to also
afford a solution to year 2000 capability issues. The Company expects that costs
related to accelerated systems replacements will be approximately $15 million in
addition to the total costs noted above. In addition, the estimated costs do not
include any potential costs related to customer or other claims, or potential
amounts related to executing contingency plans, such as costs incurred as a
result of an infrastructure or supplier failure. All expected costs are based on
the current assessment of the programs and are subject to change as the programs
progress.
Based on currently available information, management does not believe that the
year 2000 matters discussed above related to internal systems or products sold
to customers will have a material adverse impact on the Company's financial
condition or overall trends in results of operations; however, it is uncertain
to what extent the Company may be affected by such matters. In addition, there
can be no assurance that the failure to ensure year 2000 capability by a
supplier, customer or another party would not have a material adverse effect on
the Company's financial condition or overall trends in results of operations.
The Company is currently party to various legal proceedings. Although litigation
is subject to inherent uncertainties, management, including internal counsel,
does not believe that the ultimate outcome of these legal proceedings will have
a material adverse effect on the Company's financial position or overall trends
in results of operations. However, were an unfavorable ruling to occur in any
specific period, there exists the possibility of a material adverse
14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
OUTLOOK (CONTINUED)
impact on the results of operations of that period. Management believes, given
the Company's current liquidity and cash and investments balances, that even an
adverse judgment would not have a material impact on cash and investments or
liquidity.
The Company's future results of operations and the other forward-looking
statements contained in this outlook--in particular the statements regarding
revenues, pricing, gross margin, costs and continued productivity improvements,
capital spending, depreciation and amortization, research and development
expenses, marketing and general and administrative expenses, net interest and
other, the tax rate, the year 2000 issue and pending legal proceedings--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: changes in end user demand due to usage of the Internet; changes
in customer order patterns, including changes in customer and channel inventory
levels and changes due to year 2000 issues; competitive factors such as rival
chip architectures and manufacturing technologies, competing software-compatible
microprocessors and acceptance of new products in specific market segments;
timing of introduction and production ramp of platform components; pricing
pressures; continued success in technological advances, including development
and implementation of new processes and strategic products for specific market
segments; development and timing of the introduction of compelling software
applications; execution of the manufacturing ramp, including the transitions to
the Pentium III processor and to the 0.18-micron process technology; effects of
excess or shortage of manufacturing capacity; the ability to grow new businesses
and successfully integrate and operate any acquired businesses; unanticipated
costs or other adverse effects associated with processors and other products
containing errata (deviations from published specifications); impact on the
Company's business due to internal systems or systems of suppliers,
infrastructure providers and other third parties adversely affected by year 2000
problems; claims due to year 2000 issues allegedly related to the Company's
products or year 2000 remediation efforts; and litigation involving anti-trust,
intellectual property, consumer and other issues.
Intel believes that it has the product offerings, facilities, personnel, and
competitive and financial resources for continued business success, but future
net revenues, costs, margins and profits are all influenced by a number of
factors, including those discussed above, all of which are inherently difficult
to forecast.
15
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For financial market risks related to changes in interest rates and foreign
currency exchange rates, reference is made to Part II, Item 7A, Quantitative and
Qualitative Disclosures About Market Risk, in the Registrant's Annual Report on
Form 10-K for the year ended December 26, 1998 and to the subheading "Financial
Market Risks" under the heading "Management's Discussion and Analysis of
Financial Condition and Results of Operations" on page 32 of the Registrant's
1998 Annual Report to Stockholders.
The Company is exposed to equity price risk on the marketable portion of equity
securities included in its portfolio of investments entered into for the
promotion of business and strategic objectives. The Company typically does not
attempt to reduce or eliminate its market exposure on these equity securities.
These investments are generally in companies in the high-technology industry,
and a substantial majority of the market value of the portfolio is in three
sectors: Internet, semiconductor and networking. As of June 26, 1999, five
equity positions constituted approximately 59% of the market value of the
portfolio, of which approximately $620 million, or 24% of the market value of
the portfolio, consisted of an investment in Micron Technology, Inc.
The Company analyzed the historical movements over the past several years of
high-technology stock indices that the Company considered appropriate. Based on
this analysis, the Company estimated that it was reasonably possible that the
prices of the stocks in the Company's portfolio could experience a 30% adverse
change in the near term. Assuming a 30% adverse change, the Company's
available-for-sale securities would decrease in value by approximately $800
million, based on the value of the Company's portfolio as of June 26, 1999. The
portfolio's concentrations in specific companies or sectors may vary over time
and may be different from the compositions of the indices analyzed, and these
factors may affect the portfolio's price volatility. This estimate is not
necessarily indicative of future performance and actual results may differ
materially.
16
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Intergraph Corporation v. Intel
U.S. DISTRICT COURT, NORTHERN DISTRICT OF ALABAMA, NORTHEASTERN DIVISION
(CV-97-N-3023-NE)
In November 1997, Intergraph Corporation ("Intergraph") filed suit in Federal
District Court in Alabama generally alleging that Intel attempted to coerce
Intergraph into relinquishing certain patent rights. The suit alleges that Intel
infringes five Intergraph microprocessor-related patents and includes alleged
violations of antitrust laws and various state law claims. The suit seeks
injunctive relief and unspecified damages, and further alleges that Intel's
infringement is willful and that any damages awarded should be trebled. The
Company received a letter stating that Intergraph believes that the patent
damages will be "several billion dollars by the time of trial." In addition,
Intergraph claims that the antitrust, unfair competition and tort and contract
damages will be "hundreds of millions of dollars by the time of trial." The
Company disputes Intergraph's claims and intends to defend the lawsuit
vigorously. Intel has also counterclaimed that the Intergraph patents are
invalid, and alleges infringement of seven Intel patents, breach of contract and
misappropriation of trade secrets. In April 1998, the Court ordered Intel to
continue to deal with Intergraph on the same terms as it treats allegedly
similarly situated customers with respect to confidential information and
product supply. Intel's appeal of this order was heard in December 1998. In June
1998, Intel filed a motion for summary judgment on Intergraph's patent claims on
the grounds that Intel is licensed to use those patents. In June 1999, the Court
granted Intergraph's motion for summary judgement that the patents asserted by
Intergraph are not licensed to Intel. Intel filed a motion for reconsideration
and an alternative request to certify the decision for appeal. Although
litigation is subject to inherent uncertainties and the ultimate outcome of this
lawsuit cannot be determined at this time, management, including internal
counsel, does not believe that the ultimate outcome will have a material adverse
effect on Intel's financial position or overall trends in results of operations.
17
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At Intel Corporation's Annual Meeting of Stockholders held on May 19, 1999, 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 or until their respective
successors have been elected or appointed.
C. Barrett 2,848,318,318 11,749,408
J. Browne 2,847,598,170 12,469,556
W. Chen 2,848,393,826 11,673,900
A. Grove 2,848,607,348 11,460,378
J. Guzy 2,848,194,060 11,873,666
G. Moore 2,847,728,858 12,338,868
D. Pottruck 2,848,206,150 11,861,576
J. Shaw 2,848,126,626 11,941,100
L. Vadasz 2,847,458,426 12,609,300
D. Yoffie 2,847,932,320 12,135,406
C. Young 2,847,088,940 12,978,786
NUMBER OF SHARES
VOTED
VOTED FOR AGAINST WITHHELD 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. 2,849,438,598 3,180,130 7,448,994 4
ITEM 5. OTHER INFORMATION
On September 16, 1998 the Board of Directors approved an amendment to the
Company's Bylaws to temporarily increase the number of authorized members of the
Board of Directors from 11 to 12. The number of authorized members reverted to
11 following the 1999 Annual Meeting of Stockholders held on May 19, 1999. The
amended and restated Bylaws are attached hereto as Exhibit 3.1.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Intel Corporation Bylaws as amended.
12.1 Statement setting forth the computation of ratios of earnings to fixed charges.
27 Financial Data Schedule.
(b) Reports on Form 8-K
1) On April 14, 1999, Intel filed a report on Form 8-K relating to
financial information for Intel Corporation for the quarter ended
March 27, 1999 and forward-looking statements relating to 1999
and the second quarter of 1999, as presented in a press release
of April 13, 1999.
18
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 2, 1999 By: /s/ Andy D. Bryant
--------------------------
Andy D. Bryant
Senior Vice President,
Chief Financial Officer and
Principal Accounting Officer
19