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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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 2, 1994
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO .
COMMISSION FILE NUMBER 0-6217
INTEL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 94-1672743
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
2200 Mission College Boulevard; Santa Clara,
California 95052-8119
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(408) 765-8080
(Registrant's telephone number, including area code)
N/A
(Former name, former address, and former fiscal year, if changed since last
report.)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
requirements for the past 90 days. Yes X No
Shares outstanding of the Registrant's common stock
as of April 2, 1994
Class Outstanding at April 2, 1994
Common Stock, $.001 par value 419.6 million
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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
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APR. MAR.
2, 27,
1994 1993
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Net revenues............................................. $2,660 $2,023
Costs and expenses:
Cost of sales.......................................... 1,124 718
Research and development............................... 265 224
Marketing, general and administrative.................. 344 262
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Operating costs and expenses............................. 1,733 1,204
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Operating income......................................... 927 819
Interest expense......................................... (11) (13 )
Interest and other income, net........................... 55 37
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Income before provision for taxes........................ 971 843
Provision for taxes...................................... 354 295
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Net income............................................... $ 617 $ 548
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Earnings per common and common equivalent share.......... $ 1.40 $ 1.24
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Cash dividends declared per common share................. $ 0.05 $ 0.05
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Weighted average number of common and common equivalent
shares outstanding..................................... 442 443
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(See Notes to Consolidated Condensed Financial Statements.)
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PART I -- (continued)
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
Intel Corporation
Consolidated Condensed Balance Sheets
(in millions)
DEC.
APR. 2, 25,
1994 1993
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(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents........................................ $ 1,422 $ 1,659
Short-term investments........................................... 1,465 1,477
Accounts receivable, net......................................... 1,531 1,448
Inventories:
Raw materials................................................. 287 216
Work in process............................................... 402 321
Finished goods................................................ 300 301
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989 838
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Deferred tax assets.............................................. 321 310
Other current assets............................................. 92 70
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Total current assets............................................... 5,820 5,802
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Property, plant and equipment, at cost............................. 6,774 6,313
Less: Accumulated depreciation..................................... (2,479) (2,317)
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Property, plant and equipment, net................................. 4,295 3,996
Long-term investments.............................................. 1,636 1,416
Other assets....................................................... 175 130
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TOTAL ASSETS....................................................... $11,926 $11,344
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt.................................................. $ 397 $ 399
Long-term debt redeemable within one year........................ -- 98
Accounts payable................................................. 524 427
Accrued compensation and benefits................................ 339 544
Other accrued liabilities........................................ 386 374
Deferred income on shipments to distributors..................... 223 200
Income taxes payable............................................. 492 391
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Total current liabilities.......................................... 2,361 2,433
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Long-term debt..................................................... 429 426
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Deferred tax liabilities........................................... 312 297
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Put warrants....................................................... 682 688
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Stockholders' equity:
Preferred stock.................................................. -- --
Common stock and Capital in excess of par value.................. 2,253 2,194
Retained earnings................................................ 5,889 5,306
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Total stockholders' equity......................................... 8,142 7,500
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY......................... $11,926 $11,344
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(See Notes to Consolidated Condensed Financial Statements.)
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PART I -- (continued)
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
Intel Corporation
Consolidated Condensed Statements of Cash Flows (unaudited, in millions)
THREE MONTHS ENDED
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MAR.
APR. 2, 27,
1994 1993
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Cash flows provided by (used for) operating activities:
Net income......................................................... $ 617 $ 548
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation..................................................... 233 152
Net loss on retirements of property, plant and equipment......... 6 11
Amortization of debt discount.................................... 5 4
Change in deferred tax assets and liabilities.................... 4 9
Changes in assets and liabilities:
(Increase) in accounts receivable............................. (83) (171)
(Increase) decrease in inventories............................ (151) 8
(Increase) in other assets.................................... (67) (67)
Increase in accounts payable.................................. 97 43
Decrease in accrued compensation and benefits................. (205) (121)
Increase in income taxes payable.............................. 101 51
Tax benefit from employee stock plans......................... 16 20
Increase in other liabilities................................. 35 44
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Total adjustments............................................. (9) (17)
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Net cash provided by operating activities.......................... 608 531
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Cash flows provided by (used for) investment activities:
Additions to property, plant and equipment....................... (538) (368)
Purchases of long-term, available-for-sale investments........... (239) (121)
Sales of available-for-sale investments.......................... -- --
Other decrease (increase) in available-for-sale investments...... 31 (184)
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Net cash (used for) investment activities.......................... (746) (673)
Cash flows provided by (used for) financing activities:
(Decrease) in short-term debt, net............................... (4) (24)
Additions to long-term debt...................................... -- 58
Retirement of long-term debt..................................... (98) --
Proceeds from sales of shares through employee stock plans and
other......................................................... 66 51
Proceeds from sale of Step-Up Warrants, net...................... -- 287
Proceeds from sales of Put Warrants.............................. 10 --
Repurchase and retirement of common stock........................ (52) --
Payment of dividends to stockholders............................. (21) (21)
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Net cash (used for) provided by financing activities............... (99) 351
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Net (decrease) increase in cash and cash equivalents............... $(237) $ 209
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Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest...................................................... $ 16 $ 9
Income taxes.................................................. $ 233 $ 214
Certain 1993 amounts have been reclassified to conform to the 1994 presentation.
(See Notes to Consolidated Condensed Financial Statements.)
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PART I -- (continued)
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
Intel Corporation, Notes to Consolidated Condensed Financial Statements
1. The accompanying interim consolidated condensed financial statements have
been prepared in conformity with generally accepted accounting principles,
consistent in all material respects with those applied in the Annual Report
on Form 10-K for the year ended December 25, 1993. The interim financial
information is unaudited, but reflects all normal adjustments which are, in
the opinion of management, necessary to provide a fair statement of results
for the interim periods presented.
2. Interest and other income includes (in millions):
THREE MONTHS ENDED
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APR. 2, MAR. 27,
1994 1993
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Interest income............................................. $52 $ 35
Foreign currency gains...................................... 4 1
Other income (loss)......................................... (1) 1
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Total....................................................... $55 $ 37
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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. In Q1 1994, the Company adopted accounting for investments pursuant to
Statement of Financial Accounting Standards (FAS) No. 115, effective as of
the beginning of fiscal 1994. This adoption had no effect on the Company's
financial statements. Under FAS 115, all of the Company's Short-and Long-
term Investments are classified as available-for-sale as of the balance
sheet date and are reported at cost, which approximates fair value. Debt
securities either have a short period of time to maturity, are at floating
rates, or are swapped to floating rates with interest rate swaps. Equity
securities are either fully hedged or have no material unrealized gains or
losses. Gross unrealized gains and losses for the portfolio as a whole are
also not material.
5. On March 15, 1994, the Company called all of its outstanding 8-1/8% notes,
which were due in 1997. The principal amount of the repurchased notes was
$98 million.
6. In 1990, the Board of Directors authorized the repurchase of up to 40
million shares of the Company's Common Stock in open market or negotiated
transactions. The Company repurchased and retired 6.4 million and 7.3
million shares in 1990 and 1993, respectively. During the first quarter of
1994, the Company repurchased and retired an additional 820,000 shares at a
cost of $52 million. As of April 2, 1994, after reserving shares to cover
outstanding put warrants, approximately 11.2 million shares remained
available for repurchase under the authorization. (Refer to Item 1,
Management's Discussion and Analysis of Financial Condition and Results of
Operations, for subsequent activity).
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PART I -- (CONTINUED)
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
INTEL CORPORATION, NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
7. In a series of private placements in 1991, 1992, 1993 and 1994, 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 Q1 1994 is summarized as follows:
PUT WARRANTS OUTSTANDING
CUMULATIVE ----------------------------
PROCEEDS NUMBER POTENTIAL
(IN MILLIONS) RECEIVED OF WARRANTS OBLIGATION
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December 25, 1993....................... $118 14.8 $688
Sales................................... 10 1.5 92
Expirations............................. -- (2.0) (98)
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April 2, 1994........................... $128 14.3 $682
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The amount related to the Company's potential buyback obligation has been
reclassified from Stockholders' Equity and recorded as Put Warrants. The
14.3 million put warrants outstanding at April 2, 1994 expire on various
dates between April 1994 and February 1995 and have exercise prices ranging
from $31.50 to $65.00 per share. There is no dilutive effect on earnings per
share for the periods presented. (Refer to Item 1, Management's Discussion
and Analysis of Financial Condition and Results of Operations, for
subsequent activity).
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS -- FIRST QUARTER OF 1994 COMPARED TO FIRST QUARTER OF 1993
Intel Corporation set new records for both revenues and net income in Q1
1994 -- the seventh consecutive quarter in which it has done so. Q1 1994
revenues of $2.66 billion were 31% higher than in the same period one year ago.
Higher volumes of advanced microprocessors, particularly the IntelDX2(TM) and
Pentium(TM) processors, drove most of the overall growth. These increased
volumes were partially offset by lower average selling prices for the
Inte1486(TM) microprocessor family following a normal price maturity curve.
Higher sales of integrated products, including branded products and
microprocessor boards, flash memory, and embedded controllers also contributed
to the increase in revenues, while sales of the Inte1386(TM) CPU family of
microprocessors declined.
Cost of sales grew faster than revenues, increasing by $406 million, or 57%.
Higher product volumes, including a greater proportion of flash memory and
integrated products in the product mix, and increased factory start-up costs
related to new microprocessor production processes were the primary factors in
this growth. As a result of the mix change and the typically lower yields and
higher costs associated with ramping new factory production processes, gross
margin declined from 65% to 58%.
Sales of the Inte1486 CPU family of microprocessors continue to comprise a
majority of the Company's revenues and a substantial majority of its gross
margin.
Research and development expenses and marketing and administrative expenses rose
by a combined $123 million, or 25%, between these periods. Personnel related
spending, including headcount and profit dependent expenses, and expenditures
for microprocessor development and advertising programs accounted for most of
this growth.
Interest and other income increased by $18 million, largely because of higher
investment balances and rates in Q1 1994 compared to the year-earlier period.
Interest expense decreased slightly over this period.
The provision for taxes grew by $59 million, mainly due to greater pretax income
and, to a lesser extent, an increase in the effective tax rate from 35.0% for Q1
1993 to 36.5% for Q1 1994. The higher rate for 1994 is the result of changes in
the federal tax law and the diminishing impact of certain tax benefits.
Fiscal 1994 is a 53-week year for Intel. Q1 1994 was 14 weeks long, compared to
13 weeks in Q1 1993. The additional week had no significant effect on the
Company's results of operations.
FINANCIAL CONDITION
The Company's financial condition remains strong. As of April 2, 1994, total
cash and short-and long-term investments were essentially unchanged from the end
of 1993. In addition to a $4.52 billion portfolio of cash and investments, the
Company's sources of liquidity include credit lines and commercial paper
borrowing arrangements that exceed $1.5 billion in the aggregate. The Company
also retains the authority to issue an aggregate of approximately $1.4 billion
in debt, equity and other securities under a consolidated SEC shelf registration
filed in 1993.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
FINANCIAL CONDITION, CONTINUED
The Company funded most of its investment needs during Q1 1994 with cash
generated from operations, which totaled $608 million for the quarter.
The Company invested $538 million in Q1 1994, as part of a planned 1994 budget
of $2.4 billion, for property, plant and equipment. Most of this spending was
directed toward increased capacity and new production processes for
microprocessor manufacturing.
Financing activities during the first quarter of 1994 included the redemption of
$98 million in long-term notes. In addition, as part of the ongoing stock
repurchase program authorized by the Board of Directors, the Company bought back
820,000 shares in Q1 1994 at an aggregate cost of $52 million. The Company also
sold 1.5 million put warrants in private placements during the quarter,
receiving proceeds of $10 million, while 2.0 million put warrants expired
unexercised.
Subsequent to the end of Q1 1994, the Company engaged in more stock repurchase
activity, buying back 6.3 million shares of stock at a total cost of $376
million and selling 9.0 million put warrants for proceeds of $56 million. An
additional 10.0 million put warrants expired unexercised. The Company had a
potential put warrant obligation of $756 million as of May 12, 1994 to
repurchase 13.3 million shares. As of May 12, 1994, 5.9 million shares remained
available for repurchase under the authorization, after reserving shares to
cover outstanding put warrants.
Cash flow from operations and available sources of liquidity are expected to be
sufficient for planned capital expenditure programs, working capital
requirements, and quarterly cash dividend payouts. The Board of Directors
recently declared a quarterly dividend of $0.06 payable September 1, 1994,
representing an increase of $0.01 compared to the previous rate.
OUTLOOK
Future trends for revenue and profitability continue to be difficult to predict,
despite the strong financial results described in this report. Risks and
uncertainties facing the Company include business conditions and growth in the
personal computer industry and the general economy; competitive factors,
including rival chip architectures, imitators of the Company's key
microprocessors, and price pressures for standard semiconductors and integrated
products; manufacturing capacity and the continued availability of
subcontractor-supplied memory products; and ongoing litigation involving Intel
intellectual property.
The Company continues to believe that its Inte1486 microprocessor family will
follow a normal price maturity curve, but some distortion could occur if
imitation products enter the market in significant volume or alternative
architectures gain market acceptance. The Company's challenging goal is to ship
6-7 million Pentium processors in 1994; however, achieving this will be
dependent upon a number of business factors including a rapid manufacturing
ramp, availability of related peripheral chips, strong market demand, and
microprocessor product mix.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
OUTLOOK, CONTINUED
In February 1994, the Company dismissed certain patent infringement claims
against Cyrix Corporation relating to Intel's '338 patent, and granted Cyrix
certain licenses. Cyrix dismissed its antitrust claims against the Company.
Remaining issues include: (1) whether IBM can provide patent immunity to Cyrix
under the terms of the Intel/IBM patent cross license when it provides foundry
services to Cyrix; and (2) whether SGS-Thompson can use its affiliates to
provide patent immunity under the Intel/SGS-Thompson cross license when those
affiliates provide foundry services to Cyrix. IBM also announced its intent to
manufacture and sell on the open market the Cyrix-designed imitations.
The Company plans to invest $2.4 billion for property, plant and equipment in
1994 and recently announced plans for a new fabrication facility in Arizona,
spending for which will occur primarily after 1994. Spending on strategic
marketing and technology development programs, which the Company considers vital
to continued success, is also expected to remain at high levels in upcoming
quarters. An ongoing Pentium processor marketing and advertising campaign, which
was begun in Q1 1994, will contribute to expected higher marketing and general
and administrative spending during Q2 1994.
Factory start-up costs and a strategically desirable broadening of the Company's
manufacturing mix to include more non-microprocessor products has caused the
Company's gross margin percentage to trend downward in recent quarters. These
factors are likely to continue to affect gross margin in the near term.
Intel believes that it has the product offerings and competitive resources
needed for continued success, but revenue and profitability trends cannot be
precisely determined at this time.
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PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
A. Litigation
Reference is made to Item 3, Legal Proceedings, in the Registrant's Annual
Report on Form 10-K for the year ended December 25, 1993 for a description of
the following proceeding:
Intel v. Advanced Micro Devices, Inc. ("AMD")
U.S. District Court for the Northern District of California
(C92-20039, C93-20301) -- Inte1386(TM)/Inte1486(TM) Copyright Infringement Suit
A trial on the in-circuit-emulation microcode contained on Inte1386 and Inte1486
microprocessors is expected in May 1994.
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PART II -- OTHER INFORMATION, continued
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.2 Intel Corporation 1984 Stock Option Plan, as amended and restated.
10.6 Intel Corporation 1988 Stock Option 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.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed with the Securities and Exchange Commission
during the quarter ended April 2, 1994.
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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 12, 1994 By: /s/ ANDY D. BRYANT
Andy D. Bryant
Vice President and
Chief Financial and
Principal Accounting Officer
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