Annual report pursuant to Section 13 and 15(d)

Acquisitions & Divestitures

v3.6.0.2
Acquisitions & Divestitures
 12 Months Ended
Dec. 31, 2016
Business Combinations [Abstract]  
Acquisitions and Divestitures [Text Block]
Note 10: Acquisitions and Divestitures
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, RSUs, and performance-based RSU awards in exchange for cash. The acquired company operates as 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 enables 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 4: Operating Segments and Geographic 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 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 and equipment
 
312

Goodwill
 
5,448

Identified intangible assets
 
7,566

Other long-term investments and assets
 
2,515

Deferred income
 
(351
)
Other liabilities
 
(283
)
Long-term debt
 
(1,535
)
Deferred tax liabilities
 
(449
)
Total
 
$
14,451


The goodwill of $5.4 billion arising from the acquisition is attributed to the expected benefit 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 goodwill for the acquisition, see “Note 11: 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, and in-process research and development 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 Acquisitions
During 2016, in addition to the Altera acquisition, we completed 11 acquisitions qualifying as business combinations in exchange for aggregate consideration (net of cash acquired) of $1.1 billion, most of which was cash. Substantially all of the consideration was allocated to goodwill and identifiable intangible assets.
During 2015, we completed eight acquisitions qualifying as business combinations in exchange for aggregate consideration (net of cash acquired) of $1.0 billion, a substantial majority of which was cash consideration. Substantially all of the consideration was allocated to goodwill and other intangible assets, such as acquisition-related developed technology and acquisition-related customer relationships. Included in these acquisitions is our acquisition of Lantiq Semiconductor (Lantiq), intended to extend Intel's success in cable home gateways into DSL and fiber markets. We acquired Lantiq in the second quarter of 2015 for net cash consideration of $345 million, substantially all of which was allocated to goodwill and intangible assets, such as acquisition-related developed technology and acquisition-related customer relationships. The operating results of Lantiq are included in our CCG operating segment.
During 2014, we completed eight acquisitions qualifying as business combinations in exchange for aggregate consideration of $963 million, substantially all cash consideration. A substantial majority of the consideration was allocated to goodwill and acquisition-related developed technology intangible assets. Included in these acquisitions is our acquisition of the Axxia Networking Business (Axxia business) of Broadcom Limited (formerly Avago Technologies), intended to accelerate growth in the mobile wireless base station business. We acquired the Axxia business in the fourth quarter of 2014 for net cash consideration of $650 million, substantially all of which was allocated to goodwill and acquisition-related developed technology intangible assets. The operating results of the Axxia business are included in our DCG operating segment.
Other acquisitions (excluding Altera) completed in 2016, 2015, and 2014, both individually and in the aggregate, were not significant to our results of operations. For information on the assignment of goodwill to our operating segments, see "Note 11: Goodwill" and for information on the classification of intangible assets, see "Note 12: Identified Intangible Assets."
Actual and Pro Forma Results of Acquirees
Net revenue and net income attributable to all acquisitions completed during 2016 have been included in our consolidated statements of income from their respective acquisition dates to the year ended December 31, 2016. The Altera acquisition was significant to our consolidated results of operations, and these results are reported as PSG in "Note 4: Operating Segments and Geographic 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 year ended December 26, 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 unaudited 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.
Years Ended
(Unaudited, In Millions, Except Per Share Amounts)
 
Dec 31,
2016
 
Dec 26,
2015
Net revenue
 
$
59,486

 
$
56,906

Net income
 
$
10,788

 
$
10,510

Diluted earnings per share
 
$
2.21

 
$
2.15


Planned Divestiture of Intel Security Group
On September 7, 2016, we announced a definitive agreement with TPG VII Manta Holdings, L.P. (TPG) to transfer certain assets and liabilities relating to ISecG to a newly formed, jointly owned, separate cybersecurity company. The new company will be called McAfee, LLC. (McAfee) following transaction close, which is expected in the second quarter of 2017.
Under the terms of the agreement, Intel will transfer certain assets and liabilities relating to ISecG, a transaction valued at approximately $4.2 billion, for consideration of approximately $3.1 billion and a 49% ownership interest in McAfee. Intel will finance approximately $2.2 billion of the consideration until the debt can be refinanced and repaid by McAfee and TPG. TPG will own a 51% ownership interest in McAfee.
The carrying amounts of the major classes of ISecG assets and liabilities held for sale included the following:
(In Millions)
 
Dec 31,
2016
Accounts receivable
 
$
407

Goodwill
 
3,600

Identified intangible assets
 
966

Other assets
 
214

Total assets held for sale
 
$
5,187

 
 
 
Deferred income
 
$
1,554

Other liabilities
 
366

Total liabilities held for sale
 
$
1,920


In addition to total assets and liabilities held for sale are currency translation adjustments totaling $507 million. This amount, classified as other comprehensive income, is associated with currency charges on the carrying values of ISecG goodwill and identified intangible assets. Upon transaction close, we will charge this amount against the expected gain.
We ceased recording depreciation and amortization on property, plant and equipment and identified intangible assets, respectively, as of the date the assets triggered held for sale accounting.