Quarterly report pursuant to Section 13 or 15(d)

Acquisitions

v3.5.0.2
Acquisitions
 6 Months Ended
Jul. 02, 2016
Acquisitions [Abstract]  
Acquisitions [Text Block]
Note 8: Acquisitions
Altera Corporation
On December 28, 2015, we completed the acquisition of Altera, a global semiconductor company that designs and sells programmable semiconductors and related products. We acquired all outstanding shares of Altera common stock and, subject to certain exceptions, each share of Altera common stock underlying vested stock option awards, restricted stock unit awards (RSUs) and performance-based restricted stock unit awards in exchange for cash. The acquired company operates as the Programmable Solutions Group (PSG) and continues to design and sell programmable logic devices (PLDs), which incorporate field-programmable gate arrays (FPGAs) and complex programmable logic devices (CPLDs), and highly integrated System-on-Chip (SoC) devices. This acquisition is expected to expand our reach within the compute continuum, as the combination of our leading-edge products and manufacturing process with Altera's leading FPGA technology is expected to enable new classes of platforms that meet customer needs in the data center and Internet of Things market segments. As we develop future platforms, the integration of PLDs into our platform solutions is expected to improve the overall performance and lower the cost of ownership for our customers. For further information, see "Note 23: Operating Segments Information."
Total consideration to acquire Altera was $14.5 billion (net of $2.0 billion of cash and cash equivalents acquired) and comprised the following:
(In Millions)
 
 
Cash, net of cash acquired
 
$
14,401

Share-based awards assumed
 
50

Total
 
$
14,451



The preliminary fair values of the assets acquired and liabilities assumed by major class in the acquisition of Altera were recognized as follows:
(In Millions)
 
 
Short-term investments
 
$
182

Receivables
 
368

Inventory
 
555

Other current assets
 
123

Property, plant & equipment
 
312

Goodwill
 
5,433

Identified intangible assets
 
7,566

Other long-term investments and assets
 
2,495

Deferred income
 
(336
)
Other liabilities
 
(263
)
Long-term debt
 
(1,535
)
Deferred tax liabilities
 
(449
)
Total
 
$
14,451


The allocation of purchase consideration to assets and liabilities is not yet finalized. The preliminary allocation of the purchase price was based upon estimates and assumptions that are subject to change within the measurement period (up to one year from the acquisition date). The primary areas of the preliminary purchase price allocation that are not yet finalized are certain tax matters, identification of contingencies, and goodwill.
The preliminary goodwill of $5.4 billion arising from the acquisition is attributed to the expected synergies and other benefits that will be generated by combining Intel and Altera. Substantially all of the goodwill recognized is not expected to be deductible for tax purposes. For further information on the assignment of preliminary goodwill for the acquisition, see “Note 9: Goodwill.”
The identified intangible assets assumed in the acquisition of Altera were recognized as follows based upon their fair values as of December 28, 2015:
 
 
Fair Value
(In Millions)
 
Weighted Average Estimated Useful Life
(In Years)
Developed technology
 
$
5,757

 
9
Customer relationships
 
1,121

 
12
Brands
 
87

 
6
Identified intangible assets subject to amortization
 
6,965

 
 
In-process research and development
 
601

 
 
Identified intangible assets not subject to amortization
 
601

 
 
Total identified intangible assets
 
$
7,566

 
 


Acquired developed technology represents the fair value of Altera products that have reached technological feasibility and are a part of Altera’s product offerings, as opposed to in-process research and development which represents the fair value of products that have not reached technological feasibility. Customer relationships represent the fair values of the underlying relationships and agreements with Altera’s customers. Brands represent the fair value of Altera's master brand and product brand names.
Other 2016 Acquisitions
During the first six months of 2016, in addition to the Altera acquisition, we completed five acquisitions qualifying as business combinations in exchange for aggregate consideration (net of cash acquired) of $230 million, most of which was cash. Substantially all of the consideration was allocated to goodwill and identifiable intangible assets. For information on goodwill by operating segment, see “Note 9: Goodwill” and for information on the classification of intangible assets, see "Note 10: Identified Intangible Assets." These acquisitions, both individually and in aggregate, were not significant to our operations.
Actual and Pro Forma Results of Acquirees
Net revenue and net income attributable to all acquisitions completed during the first six months of 2016 have been included in our consolidated condensed statements of income from their respective acquisition dates to the period ending July 2, 2016. The Altera acquisition was significant to our consolidated condensed results of operations, and these results are reported as the Programmable Solutions Group in "Note 23: Operating Segments Information."
The unaudited pro forma financial results combine the historical results of Intel and Altera for 2016 and 2015 along with the historical results of other businesses acquired during 2016. The results include the effects of pro forma adjustments as if the businesses acquired in 2016 were acquired at the beginning of Intel's 2015 fiscal year. The pro forma results for the three months ended June 27, 2015 include a non-recurring inventory valuation adjustment of $161 million. The pro forma results for the six months ended June 27, 2015 include non-recurring adjustments of $387 million for the inventory valuation adjustment, $64 million for deferred income (net of the impact of cost of goods sold) and $94 million for other acquisition-related transaction costs, all of which reduce pro forma net income.
The pro forma financial results presented below do not include any anticipated synergies or other expected benefits of the acquisitions. This is presented for informational purposes only and is not indicative of future operations or results that would have been achieved had the acquisitions been completed as of the beginning of our 2015 fiscal year.
 
 
Three Months Ended
 
Six Months Ended
(In Millions, Except Per Share Amounts)
 
Jul 2,
2016
 
Jun 27,
2015
 
Jul 2,
2016
 
Jun 27,
2015
Net revenue
 
$
13,533

 
$
13,609

 
$
27,334

 
$
26,727

Net income
 
$
1,458

 
$
2,381

 
$
3,855

 
$
3,980

Diluted earnings per share
 
$
0.30

 
$
0.48

 
$
0.79

 
$
0.81