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 April 1, 1995
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 April 1, 1995
Class Outstanding at April 1, 1995
Common Stock, $.001 par value 828.2 million
PAGE 2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Intel Corporation
Consolidated Condensed Statements of Income (unaudited)
(in millions, except per share amounts)
Three Months Ended
------------------
Apr. 1, Apr. 2,
1995 1994
-------- --------
Net revenues $3,557 $2,660
Costs and expenses:
Cost of sales 1,609 1,124
Research and development 294 265
Marketing, general and
administrative 387 344
------ ------
Operating costs and expenses 2,290 1,733
------ ------
Operating income 1,267 927
Interest expense (7) (11)
Interest and other income, net 156 55
------ ------
Income before provision for taxes 1,416 971
Provision for taxes 527 354
------ ------
Net income $ 889 $ 617
====== ======
Earnings per common and
common equivalent share $ 1.02 $ .70
====== ======
Cash dividends declared per
common share $ 0.03 $0.025
====== ======
Weighted average number of common
and common equivalent shares
outstanding 872 884
====== ======
(See Notes to Consolidated Condensed Financial Statements.)
PAGE 3
PART I - (continued)
Item 1. Financial Statements (Continued)
Intel Corporation
Consolidated Condensed Balance Sheets Apr. 1, Dec. 31,
(in millions) 1995 1994
======== ========
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $1,290 $1,180
Short-term investments 1,220 1,230
Accounts receivable, net 2,340 1,978
Inventories:
Raw materials 420 345
Work in process 637 528
Finished goods 267 296
------- -------
1,324 1,169
------- -------
Deferred tax assets 524 552
Other current assets 126 58
------- -------
Total current assets 6,824 6,167
------- -------
Property, plant and equipment, at cost 9,236 8,516
Less: Accumulated depreciation (3,412) (3,149)
------- -------
Property, plant and equipment, net 5,824 5,367
Long-term investments 2,028 2,127
Other assets 234 155
------- -------
TOTAL ASSETS $14,910 $13,816
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt $ 639 $ 517
Accounts payable 714 575
Accrued compensation and benefits 411 588
Other accrued liabilities 550 646
Deferred income on shipments to distributors 241 269
Income taxes payable 721 429
------- -------
Total current liabilities 3,276 3,024
------- -------
Long-term debt 404 392
Deferred tax liabilities 402 389
Put warrants 821 744
Stockholders' equity:
Preferred stock -- --
Common stock and capital in excess
of par value 2,324 2,306
Retained earnings 7,683 6,961
------- -------
Total stockholders' equity 10,007 9,267
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $14,910 $13,816
======= =======
(See Notes to Consolidated Condensed Financial Statements.)
PAGE 4
PART I - (continued)
Item 1. Financial Statements (Continued)
Intel Corporation
Consolidated Condensed Statements of Cash Flows (unaudited, in millions)
Three Months Ended
------------------
Apr. 1, Apr. 2,
1995 1994
------- -------
Cash flows provided by (used for)
operating activities:
Net income $ 889 $ 617
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation 305 233
Net loss on retirements of property,
plant and equipment 31 6
Amortization of debt discount 5 5
Change in deferred tax assets and liabilities 41 4
Changes in assets and liabilities:
(Increase) in accounts receivable (362) (83)
(Increase) in inventories (155) (151)
(Increase) in other assets (147) (67)
Increase in accounts payable 139 97
(Decrease) in accrued compensation and benefits (177) (205)
Increase in income taxes payable 292 101
Tax benefit from employee stock plans 21 16
(Decrease) increase in other liabilities (124) 35
------- -------
Total adjustments (131) (9)
------- -------
Net cash provided by operating activities 758 608
------- -------
Cash flows provided by (used for) investment
activities:
Additions to property, plant and equipment (793) (538)
Purchases of long-term, available-for-sale
investments (76) (239)
Sales of long-term, available-for-sale investments 44 --
Maturities and other changes in available-for-sale
investments, net 126 31
------- -------
Net cash (used for) investment activities (699) (746)
Cash flows provided by (used for) financing
activities:
Increase in short-term debt, net 117 (4)
Additions to long-term debt 12 --
Retirement of long-term debt -- (98)
Proceeds from sales of shares through employee
stock plans and other 81 66
Proceeds from sales of put warrants 16 10
Repurchase and retirement of common stock (150) (52)
Payment of dividends to stockholders (25) (21)
------- -------
Net cash provided by (used for) financing
activities 51 (99)
------- -------
Net increase (decrease) in cash and cash
equivalents $ 110 $ (237)
======= =======
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 25 $ 16
Income taxes $ 173 $ 233
(See Notes to Consolidated Condensed Financial Statements.)
PAGE 5
PART I - (continued)
Item 1. Financial Statements (Continued)
Intel Corporation, Notes to Consolidated Condensed Financial Statements
1. The accompanying interim consolidated condensed financial statements of
Intel Corporation ("Intel," the "Company" or the "Registrant") have been
prepared in conformity with generally accepted accounting principles,
consistent in all material respects with those applied in the Annual
Report on Form 10-K for the year ended December 31, 1994. 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 31, 1994.
2. Interest and other income includes (in millions):
Three Months Ended
------------------
Apr. 1, Apr. 2,
1995 1994
------- -------
Interest income $ 74 $ 52
Foreign currency gains 6 4
Other income 76 (1)
----- -----
Total $ 156 $ 55
===== =====
Other income for the three months ended April 1, 1995 includes $58 million
for the settlement of all ongoing litigation with Advanced Micro Devices,
Inc. and $23 million from the sale of a portion of the Company's interest
in VLSI Technology, Inc.
3. Earnings per common and common equivalent share as presented on the face
of the statements of income represent primary earnings per share. Dual
presentation of primary and fully diluted earnings per share has not been
made because the differences are insignificant.
4. As more fully described in the Company's Annual Report, Intel enters into
derivative financial instruments to reduce financial market risks. The
Company follows accounting policies for these instruments based on the
Company's designation as a hedge. The criteria the Company uses for
designating an instrument as a hedge include its effectiveness in risk
reduction and one-to-one matching to underlying transactions. Gains and
losses on foreign currency forwards and options that are designated and
effective as hedges of anticipated transactions are deferred and
recognized in income in the same period as the hedged transactions. Gains
and losses on foreign currency forwards, options, and swaps that are
designated and effective as hedges of existing transactions are recorded
on the balance sheet or recognized in income in the same period as the
hedged transactions. Income or expense on swaps is accrued as an
adjustment to the yield of the related investments or debt they hedge.
Gains and losses on any instruments not meeting the above criteria are
recognized in income in the current period.
5. During the first quarter of 1995, the Company repurchased and retired 4.0
million shares of Common Stock at an aggregate cost of $150 million. As of
April 1, 1995, after reserving shares to cover outstanding put warrants,
approximately 30.8 million shares of Common Stock remained available under
the repurchase program (total authorization of 110 million shares)
authorized by the Board of Directors.
PAGE 6
PART I - (continued)
Item 1. Financial Statements (Continued)
Intel Corporation, Notes to Consolidated Condensed Financial Statements
6. In a series of private placements during the 1991-1995 period, the Company
sold put warrants that entitle the holder of each warrant to sell one
share of Common Stock to the Company, at a specified price, if the holder
exercises the warrant. Activity during the first quarter of 1995 is
summarized as follows:
Put Warrants Outstanding
Cumulative ------------------------
Proceeds Number Potential
(In millions) Received Of Warrants Obligation
------------------------------------------------------------------
December 31, 1994 $ 194 25 $ 744
Sales 16 7 258
Expirations -- (6) (181)
----- ----- -----
April 1, 1995 $ 210 26 $ 821
===== ===== =====
The amount related to the Company's potential buyback obligation has been
reclassified from Stockholders' equity and recorded as Put warrants. The
26 million put warrants outstanding at April 1, 1995 expire on various
dates between April 1995 and February 1996 and have exercise prices
ranging from $27.50 to $38.12 per share. There is no material dilutive
effect on earnings per share for the periods presented.
7. On April 27, 1995 the Board of Directors of Intel Corporation declared a
two for one stock split to be effected in the form of a stock
distribution payable on June 16, 1995 to stockholders of record as of May
19, 1995. All share and per share amounts reported herein have been
adjusted to reflect the effects of this split. In addition, the Board of
Directors declared an increased cash dividend (on a post split basis) of
$0.04 per share payable on September 1, 1995 to stockholders of record on
August 1, 1995.
PAGE 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations - First Quarter of 1995 Compared to First Quarter of 1994
- -------------------------------------------------------------------------------
Revenues for Q1 1995 increased by 34% compared to Q1 1994. Higher volumes of
the rapidly ramping Pentium(R) processor family, partially offset by lower
prices, and increased sales of associated board level products drove the
overall growth in revenues. Revenues from the Intel486(TM) microprocessor
family declined due to lower prices and a shift in market demand toward the
Company's more advanced microprocessors. Semiconductor products, namely
chipsets and flash memory, also showed significant growth between these
periods.
Cost of sales rose by 43% from Q1 1994 to Q1 1995, primarily due to increased
unit volumes, including higher proportions of board level products. Lower
prices for certain microprocessor products also contributed to the decline
in gross margin percentage from 58% in Q1 1994 to 55% in Q1 1995.
A significant and growing portion of the Company's revenues, and a majority of
its gross margin, are derived from sales of the Pentium processor family.
During Q1 1995 revenues from sales of the Pentium processor family exceeded
revenues from sales of the Intel486 family of Microprocessors. Sales of the
Intel486 microprocessor family represent a significant but declining portion of
the Company's revenues and margins.
Research and development expenses and marketing, general and administrative
expenses rose by a total of $72 million, or 12%, from Q1 1994 to Q1 1995.
Spending for internal microprocessor development programs and personnel-related
expenses accounted for most of the increase.
Interest and other income increased by $101 million or 184%. Other income for
Q1 1995 included $58 million related to the settlement of litigation with
Advanced Micro Devices, Inc. and $23 million from the sale of a portion of
Intel's interest in VLSI Technology, Inc. Higher interest rates in Q1 1995
were also a factor in the overall increase in interest and other income.
The slight decrease in interest expense between Q1 1994 and Q1 1995 is the
result of higher construction-related interest capitalization, partially offset
by higher rates on borrowings.
The Company enters into investments and corresponding interest rate swaps to
preserve principal while enhancing the yield on its investment portfolio
without increasing risk, and enters into forward contracts, options and swaps
to hedge currency, market and interest rate exposures. Gains and losses on
these instruments are offset by those on the underlying hedged transactions; as
a result, there was no net impact on the Company's financial results in either
Q1 1994 or Q1 1995.
The provision for taxes grew by $173 million, or 49%, primarily due to
increased pretax income and, to a lesser extent, an increase in the effective
tax rate from 36.5% for Q1 1994 to 37.2% for Q1 1995. The higher rate for 1995
reflects primarily the diminishing impact of certain tax benefits due to
increased profitability.
Financial Condition
The Company's financial condition remains strong. As of April 1, 1995, Intel's
portfolio of cash and investments totaled $4.54 billion, essentially unchanged
from December 31, 1994. The Company's other sources of liquidity include
credit lines and commercial paper borrowing arrangements that exceed $1.7
billion in the aggregate. The Company also retains the authority to issue an
aggregate of approximately $1.4 billion in debt, equity and other securities
under SEC shelf registration statements.
The Company funded most of its investment needs during Q1 1995 with cash
generated from operations, which totaled $758 million. Major uses of cash
during Q1 1995 included capital spending of $793 million for property plant
and equipment, primarily for microprocessor manufacturing capacity.
PAGE 8
Financial Condition (continued)
Inventory levels, particularly work in process, increased significantly during
Q1 1995, as the Company replenished inventories written down in Q4 1994 in
connection with the floating point divide problem in the Pentium processor.
The increase in accounts receivable over this period is due primarily to strong
March billings.
Key financing activities in Q1 1995 included the repurchase of 4.0 million
shares of Common Stock for $150 million as part of the Company's authorized
stock repurchase program. Subsequent to the end of Q1 1995, the Company
repurchased 4 million shares of Common Stock at a total cost of $219 million.
Early in Q2 1995, 7.5 million put warrants expired unexercised. As of May 12,
1995, Intel had the potential obligation to repurchase 18.5 million shares of
Common Stock at an aggregate cost of $600 million under outstanding put
warrants.
Cash flow from operations and available sources of liquidity are considered
adequate for planned capital expenditure programs, working capital
requirements, quarterly cash dividend payouts, and the maturity on May 15, 1995
of Intel's $187 million zero coupon notes.
Outlook
Future trends for revenue and profitability remain difficult to predict,
despite the strong financial results described above. The Company continues to
face many risks and uncertainties, including business conditions and growth in
the personal computer industry and general economy; competitive factors, such
as rival chip architectures, imitative microprocessors, and price pressures;
manufacturing capacity; and litigation involving intellectual property.
As part of its strategic goal to double performance at major system price
points, the Company may continue to cut microprocessor prices aggressively and
systematically. Future distortion of price maturity curves could occur as
imitation products enter the market in significant volume or alternative
architectures gain market acceptance. The outlook for Pentium processor
shipments in 1995 remains dependent on several business factors, including
continued success in the manufacturing ramp, availability of other components
to build personal computers, and market demand, including microprocessor
product mix.
The Company expects gross margin percentage to remain in the low 50's range
in Q2 1995. Over the longer term, various factors, including higher unit
volumes; changes in product mix; and costs and yield issues associated with
initiating production at new factories will continue to affect the amount and
variability of cost of sales in future quarters.
The Company recently boosted its 1995 capital investment budget from an
earlier estimate of $2.9 billion to $3.2 billion. The Company has increased
its planned 1995 capital spending for manufacturing due to anticipated demand
growth for the Company's microprocessor products. Spending on strategic
marketing and technology development programs is also expected to grow from
Q1 1995 to Q2 1995.
Intel believes that it has the product offerings and competitive resources
needed for continued success, but precise revenue and profitability trends
cannot be predicted at this time.
PAGE 9
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Reference is made to Item 3. Legal Proceedings, in the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1994 for a description of
legal proceedings.
Item 2. Changes in Securities
On April 27, 1995 the Board of Directors of Intel Corporation declared a two
for one stock split to be effected in the form of a stock distribution payable
on June 16, 1995 to stockholders of record as of May 19, 1995. All share and
per share amounts reported herein have been adjusted to reflect the effects of
this split. In addition, the Board of Directors declared an increased cash
dividend (on a post split basis) of $0.04 per share payable on September 1,
1995 to stockholders of record on August 1, 1995.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.7 Intel Corporation Executive Officer Bonus Plan as amended and restated.
11.1 Statement re: computation of earnings per share.
12.1 Statement setting forth the computation of ratios of earnings to fixed
charges.
27 Financial Data Schedule.
(b) Reports on Form 8-K.
On January 20, 1995, the Registrant filed a report on Form 8-K relating
to the settlement of outstanding legal disputes between Intel
Corporation and Advanced Micro Devices, Inc.
PAGE 10
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INTEL CORPORATION
(Registrant)
Date: May 15, 1995 By: /s/Andy Bryant
Andy D. Bryant
Vice President and
Chief Financial and
Principal Accounting Officer