INTELCOM
INTCCOM
7ORLDWIDE 'ROWTH
!NNUAL2EPORT
34.2
33.7
36
1.6
1.51
51%
Americas
100
23%
43%
30.1
29.4
26.5 26.8
26.3
27
25.1
1.16
1.2
75
45%
1.05
0.97
20.8
0.86
18
16.2
0.85
23%
0.8
20%
0.73
0.50
0.46
50
AsiaPacific
14%
Europe
27%
27%
23%
25
0.4
9
0.19
Japan
95
96
97
98
99
00
01
02
03
04
0
95
96
97
98
99
00
01
02
Net Revenue
Diluted Earnings per Share†
Dollars in billions
Dollars, adjusted for stock splits
03
04
0
8%
7%
94
99
9%
0
04
Geographic Breakdown
of Revenue
Percent
†
Amortization of goodwill reduced earnings per share
in 2001 by $0.22 ($0.18 in 2000 and $0.05 in 1999).
Goodwill is no longer amortized, beginning in 2002.
Financial Results
We ended 2004 with double-digit revenue gains, and robust
demand for Intel architecture products across all geographies.
®
Our new products, global presence and investments in manufacturing capacity allowed us to post
record revenue for 2004 of $34.2 billion, up 13.5% from 2003. Net income for 2004 was $7.5 billion,
up 33% from 2003. During the year, we paid record cash dividends of $1 billion, announced two
doublings of our cash dividend and used $7.5 billion to repurchase 301 million shares of common
stock. We are optimistic going into 2005 and expect continued growth based on the momentum of our
current products and the introduction of dual-core microprocessors across a range of platforms.‡
8.0
40
38.4
4.8
Machinery and equipment 7.3
Land, buildings and
6.7
improvements
35.6
33.3
4.4
3.9
30.2
4.0
4.0
3.8
6.0
30
28.4
5.0
26.2
3.1
4.7
4.5
19.7 20
4.0
3.6
15.4
3.0
3.7 3.8
2.5
4.0
2.3
3.4
3.0
2.0
1.8
1.3
2.0
10
8.7
1.0
3.5
95
96
97
98
99
00
01
02
03
04
0
95
96
97
98
99
00
01
02
03
Return on Average
Stockholders’ Equity
Capital Additions to Property,
Plant and Equipment
Percent
Dollars in billions
04
0
95
96
97
98
99
00
01
02
Research and Development
03
04
0
†
Dollars in billions
†
Excluding purchased in-process research
and development
Past performance does not guarantee future results.
‡ This Annual Report to Stockholders contains forward-looking statements, and actual results could differ materially. Risk factors that could cause actual results to
differ are set forth in the “Business Outlook” section and throughout Intel’s 2004 Form 10-K, which is included in this Annual Report.
On the cover: Silicon technology from Intel is at the heart of a global digital transformation. We are proud that our silicon products are the building
blocks for innovative products that help improve how people work, play, learn and communicate in our increasingly connected world.
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
È
Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended December 25, 2004.
‘
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 0-06217
INTEL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
94-1672743
(I.R.S. Employer
Identification No.)
2200 Mission College Boulevard, Santa Clara, California
(Address of principal executive offices)
95052-8119
(Zip Code)
Registrant’s telephone number, including area code (408) 765-8080
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common stock, $0.001 par value
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 È No ‘
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will
not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. ‘
Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes È No ‘
Aggregate market value of voting and non-voting common equity held by non-affiliates of the registrant as of June 25, 2004,
based upon the closing price of the common stock as reported by the NASDAQ* National Market on such date, was approximately
$172.9 billion
6,227 million shares of common stock outstanding as of January 28, 2005
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of the registrant’s Proxy Statement relating to its 2005 Annual Stockholders’ Meeting, to be filed subsequently—Part III.
INTEL CORPORATION
FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 25, 2004
INDEX
Page
Item 1.
Item 2.
Item 3.
Item 4.
PART I
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1
21
22
23
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
PART II
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities . . .
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Management’s Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . .
Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . . . . . . . . . . . . . . . . .
Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
23
24
25
43
45
81
81
82
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART III
Directors and Executive Officers of the Registrant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters . . . . . . . . . . . .
Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Principal Accountant Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
83
83
83
83
83
Item 15.
PART IV
Exhibits and Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
84
PART I
ITEM 1.
BUSINESS
Industry
We are the world’s largest semiconductor chip maker, supplying advanced technology solutions for the computing and
communications industries. Our goal is to be the preeminent building block supplier to the worldwide digital economy. We offer
products at various levels of integration, allowing our customers flexibility to create advanced computing and communications systems
and products.
Intel’s products include chips, boards and other semiconductor components that are the building blocks integral to computers,
servers, and networking and communications products. Our component-level products consist of integrated circuits used to process
information. Our integrated circuits are silicon chips, known as semiconductors, etched with interconnected electronic switches.
Developments in semiconductor design and manufacturing continue to make it possible to decrease the size of circuits and transistors
etched into silicon, utilizing less space as a result. This decrease in size enables us to put increased numbers of transistors on an
equivalent size chip, decrease the size of the chip or offer an increased number of integrated features. These advancements can result in
higher performing microprocessors that consume less power and/or products that cost less to manufacture.
We were incorporated in California in 1968 and reincorporated in Delaware in 1989. Our Internet address is www.intel.com. On
this web site, we publish voluntary reports, which are updated annually, outlining our performance with respect to corporate
responsibility and environmental, health and safety compliance (these voluntary reports are not incorporated by reference into this
filing). On our Investor Relations web site, located at www.intc.com, we post the following filings as soon as reasonably practicable
after they are electronically filed with or furnished to the Securities and Exchange Commission: our annual report on Form 10-K, our
quarterly reports on Form 10-Q, our current reports on Form 8-K, our proxy statement on Form 14A related to our annual
stockholders’ meeting and any amendments to those reports or statements filed or furnished pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934, as amended. All such filings on our Investor Relations web site are available free of charge. The
content on any web site referred to in this filing is not incorporated by reference into this filing unless expressly noted otherwise.
Products
Our products include microprocessors; chipsets; motherboards; flash memory; communications infrastructure components,
including network and embedded processors; wired and wireless connectivity products; products for networked storage; application
processors; and cellular baseband chipsets.
Our customers include:
•
original equipment manufacturers (OEMs) and original design manufacturers (ODMs) who make computer systems, cellular
handsets and handheld computing devices, and telecommunications and networking communications equipment;
•
PC and network communications products users (including individuals, large and small businesses, and service providers)
who buy PC components and board-level products, as well as Intel’s networking and communications products, through
distributor, reseller, retail and OEM channels throughout the world; and
•
other manufacturers, including makers of a wide range of industrial and communications equipment.
Our primary focus is on developing advanced integrated silicon technology solutions, which we believe will provide the
performance necessary to help accelerate the convergence of computing and communications capabilities with digital content.
Convergence refers to having computing and communications capabilities in an integrated product solution. We also provide key
components for the networking and communications infrastructure used to connect technology users.
We believe that users of computing and communications devices want improved performance, which includes faster processor
performance and/or improved capabilities such as multithreading or multitasking, lower system power consumption, seamless
connectivity, improved security, reliability, ease of use and interoperability among devices. Our goal is to incorporate features
addressing these capabilities into our various products to meet user demands. We believe that our customers who build computing and
communications systems and devices will benefit if our products incorporating these capabilities are based on a platform solution. We
define a platform as a collection of silicon components and software designed to provide a better user solution when used in
combination than if used separately.
1
For 2004, the company consisted of two product-line operating segments, the Intel Architecture business and the Intel
Communications Group (ICG). Both of our operating segments use their core competencies in the design and manufacture of
integrated circuits, as well as key silicon and platform capabilities, to provide building blocks for technology solutions. The Intel
Architecture business provides advanced technologies to support the desktop, mobile and enterprise computing market segments. ICG
offers products such as flash memory, as well as platform solutions for the wireless handheld computing and communications market
segments. In addition, ICG offers wired and wireless connectivity products and key networking and communications infrastructure
components. In 2004, we combined our communications-related businesses into a single organization, ICG. Previously, these
communications businesses were in two separate product-line operating segments: the former Intel Communications Group and the
Wireless Communications and Computing Group.
In January 2005, we announced a planned reorganization of our business groups to bring all major product groups in line with the
company’s strategy to drive development of complete technology platforms. These new business units include the Mobility Group, the
Digital Enterprise Group, the Digital Home Group, the Digital Health Group and the Channel Platforms Group. We expect this
reorganization to become effective in 2005. Because the reporting period for this Form 10-K is as of December 25, 2004, the business
groups discussed below and the results of operations for our operating segments in this filing are presented under the organizational
structure that existed as of December 25, 2004.
Intel Architecture Business
The Intel Architecture business develops platform solutions based on our microprocessors, chipsets and motherboard products,
which we optimize for use in the desktop, mobile or server computing market segments. The end-user products into which our products
are ultimately integrated are determined by our customers based on how they choose to meet specific user requirements.
Net revenue for the Intel Architecture operating segment made up approximately 85% of our consolidated net revenue in 2004.
Revenue from sales of microprocessors within the Intel Architecture operating segment represented approximately 72% of
consolidated net revenue in 2004. Our microprocessor business generally has followed a seasonal trend; however, there can be no
assurance that this trend will continue. For the past five years, the company’s sales of microprocessors were higher in the second half
of the year than in the first half of the year. Consumer purchases of PCs have been higher in the second half of the year, primarily due
to back-to-school and holiday demand. In addition, technology purchases from businesses have tended to be higher in the second half
of the year.
A microprocessor is the central processing unit (CPU) of a computer system. It processes system data and controls other devices
in the system, acting as the “brains” of the computer. One indicator of microprocessor performance is its clock speed, the rate at which
its internal logic operates, which is measured in units of hertz, or cycles processed per second. One megahertz (MHz) equals one
million cycles processed per second, and one gigahertz (GHz) equals one billion cycles processed per second. As computers continue
to support increased usage models, other factors are becoming increasingly important to overall system performance. Examples include
the amount of memory storage, the speed of memory access, the microarchitecture design of the CPU and the speed of communication
between the CPU and the chipset. A faster bus, for example, allows for faster data transfer into and out of the processor, enabling
increased performance. A bus carries data between parts of the system. A common way to categorize microprocessor design
architectures is by the number of bits (the smallest unit of information on a machine) that the processor can handle at one time.
Microprocessors currently are designed to process 32 bits or 64 bits of information at one time. Microprocessors with 64-bit addressing
capability can address significantly more memory than 32-bit microprocessors. The Intel® Pentium®, Intel® Celeron® and Intel®
Xeon™ branded products are based on our 32-bit architecture (IA-32), while Intel® Itanium® branded products are based on 64-bit
architecture. Another way to provide 64-bit processing capability is for processors based on 32-bit architecture to have 64-bit address
extensions. Certain of our Pentium® 4 and Intel Xeon products have 64-bit address extensions. The memory stored on a chip is
measured in bytes (8 bits), with 1,024 bytes equaling a kilobyte (KB), 1.049 million bytes equaling a megabyte (MB) and 1.074 billion
bytes equaling a gigabyte (GB). Cache is a memory that can be located directly on the microprocessor, permitting quicker access to
frequently used data and instructions. Some of our microprocessors have additional levels of cache, second-level (L2) cache and thirdlevel (L3) cache, to offer higher levels of performance.
2
Other microprocessor capabilities can also enhance system performance or user experience by running software more efficiently.
For example, we currently offer microprocessors with Intel’s Hyper-Threading Technology (HT Technology), which allows a single
processor to process two sets of instructions simultaneously. This capability can provide benefits in one of two ways: it helps to run
“multithreaded” software, which is designed to execute different parts of a program simultaneously, or helps to use multiple software
programs simultaneously in a multitasking environment. To take advantage of HT Technology, a computer system must have a
microprocessor that supports the technology, a chipset and BIOS (basic input/output system) that use the technology and an operating
system that includes optimizations for the technology. Performance will vary depending on the system hardware and software used.
Intel began using a new naming convention for its desktop and mobile microprocessors in the second quarter of 2004, in an effort
to better convey the overall feature set of a processor, beyond just clock speed. Intel desktop and mobile processor brand names are
now accompanied by 3-digit processor numbers that represent the technical features of the product, including design architecture, clock
speed, cache size, bus speed and other technologies. Over time, we expect that these processor numbers will allow end customers to
more easily distinguish among individual processors by taking into account a broader set of features that contribute to the overall user
experience. Currently, the new processor numbers begin with a 3, 5, 6 or 7, according to the processor family to which they belong:
those beginning with a 3 belong to the Intel Celeron processor family; those beginning with a 5 or 6 belong to the Intel Pentium 4
processor family; and those beginning with a 7 belong to the Intel® Pentium® M processor family. In January 2005, we began shipping
our 600 sequence (processor numbers that start with a 6) Pentium 4 processors featuring 2 MB of cache memory.
The chipset operates as the PC’s “nervous system”—sending data from the processor to input, display and storage devices, such
as the keyboard, mouse, monitor, hard drive and CD or DVD drive. Chipsets perform essential logic functions, such as balancing the
performance of the system and removing bottlenecks. Chipsets also extend the graphics, audio, video and other capabilities of many
systems based on our processors. Finally, chipsets control the access between the CPU and main memory. We offer chipsets
compatible with a variety of industry-accepted bus specifications, such as the Accelerated Graphics Port (AGP) specification, the
Peripheral Components Interconnect (PCI) local bus specification and the new PCI Express* local bus specification. PCI Express
significantly increases the data transfer rate of the original PCI specification, thereby improving the graphics and input/output
bandwidth and enabling an improved multimedia experience for the digital home. Our customers also want memory architecture
alternatives, and as a result, we currently offer chipsets supporting Double Data Rate (DDR) and DDR2 (second-generation, faster
DDR memory), Dynamic Random Access Memory (DRAM) and Synchronous DRAM (SDRAM).
A motherboard is the principal board within a system that has connectors for attaching devices to the bus. Typically, the
motherboard contains the CPU, memory and the chipset. We offer motherboard products designed for our microprocessors and
chipsets, thereby offering a more complete range of solutions for customers looking for Intel architecture-based solutions. Board-level
products give our OEM customers flexibility by enabling them to buy at the board level rather than only at the component level.
In 2004, we announced a number of new microprocessor and chipset products tailored to meet the performance, price and formfactor (the physical size and shape of a device) needs of the various computing market segments. Our products, including some key
product introductions, are discussed below.
Desktop Market Segment
We develop platform solutions based on our microprocessors, chipsets and motherboard products, which are optimized for use in
the desktop market segment. Our strategy is to introduce microprocessors and chipsets with improved performance, tailored to the
needs of different market segments using a tiered branding approach. Our desktop processors include products such as the Intel
Pentium 4 processor and the Intel Celeron processor. Additionally, we provide silicon-based products for print imaging and networked
media products.
In 2004, the Intel Pentium 4 processor continued to be our highest sales-volume desktop processor. The Pentium 4 processor is
optimized to deliver high performance across a broad range of business and consumer applications.
In February 2004, we introduced the first microprocessors manufactured using our 90-nanometer (a nanometer is one billionth of
a meter) process technology on 300-millimeter (12-inch) wafers. These Intel Pentium 4 processors supporting HT Technology were
initially available at speeds of up to 3.4 GHz. In June 2004, we added the Pentium 4 processors 520, 530, 540, 550 and 560 supporting
HT Technology, with speeds of up to 3.6 GHz. All of these processors feature 1 MB of L2 cache and support an 800-MHz bus.
3
In February 2004, we also launched a 3.4-GHz version of the Intel® Pentium® 4 processor Extreme Edition, targeted at high-end
PC game enthusiasts and power users. It comes with 2 MB of L3 cache and supports an 800-MHz bus.
In June 2004, we introduced three desktop chipsets designed to be used in conjunction with Pentium 4 processors with HT
Technology. The Intel® 915G, 915P and 925X Express chipsets have DDR2 memory capability and PCI Express, as well as Intel®
High Definition Audio supporting 7.1-channel surround sound. The Intel 915G Express chipset also has the Intel® Graphics Media
Accelerator 900 for improved graphics capabilities. These chipsets incorporate Intel® Matrix Storage Technology, which enhances data
protection for users through integrated support for redundant hard drives.
In June 2004, we introduced Intel® Celeron® D processors 320, 325, 330 and 335 for value desktop systems, with speeds of up to
2.8 GHz. In September 2004, we launched the Intel® Celeron® D processor 340, with a speed of 2.93 GHz. All of these processors
feature 256 KB of L2 cache and support a 533-MHz bus.
In September 2004, we announced the Intel® 910GL Express chipset, which includes the PCI Express bus architecture, Intel High
Definition Audio and the Intel Graphics Media Accelerator 900. The Intel Celeron D processor 340 and the Intel 910GL Express
chipset bring improved performance to value PCs.
In November 2004, we launched a platform based on the 3.46-GHz Pentium 4 processor Extreme Edition supporting HT
Technology and the new Intel® 925XE Express chipset. Designed specifically for high-performance gaming and media enthusiasts, the
platform has a 1066-MHz bus. Like the earlier Intel 915G, 915P and 925X Express chipsets, the Intel 925XE Express chipset includes
Intel High Definition Audio, fast DDR2 memory and PCI Express capabilities.
Mobile Market Segment
We develop platform solutions based on our microprocessors and chipsets, which are optimized for use in the mobile market
segment. Our strategy is to deliver products optimized for some or all of the four mobility vectors: performance, battery life, form
factor and wireless connectivity. Our mobile processors include products such as the Intel Pentium M processor. We also offer the
Mobile Intel® Pentium® 4 processor, and for the value notebook market segment we offer the Mobile Intel® Celeron® M processor and
the Mobile Intel® Celeron® processor.
We offer mobile processors at a variety of price/performance points, allowing our customers to meet the demands of a wide range
of notebook PC designs. These notebook designs include transportable notebooks, which provide desktop-like features such as high
performance, full-size keyboards, larger screens and multiple drives; thin-and-light models, including those optimized for wireless
networking; and ultra-portable designs. Within the ultra-portable design category, we provide specialized low-voltage processors,
which consume as little as one watt of power on average, and ultra-low-voltage processors, which consume as little as half a watt of
power on average. Low-voltage processors are targeted for the mini-notebook market segment, while ultra-low-voltage processors are
targeted for the sub-notebook and tablet market segments of mobile PCs weighing less than three pounds and measuring one inch or
less in height.
For performance mobility users, we offer Intel® Centrino™ mobile technology, designed and optimized specifically for all four
key vectors of mobility. The initial version of Intel Centrino mobile technology consisted of an Intel Pentium M processor (with a 400MHz bus) and a chipset from the Intel® 855 chipset family (both offered by the Intel Architecture business) as well as a wireless
network connection (from ICG) that is based on the 802.11 industry standard. Intel Centrino mobile technology enables users to take
advantage of wireless capabilities at work and at home, with the installation of the appropriate base station equipment, as well as at
thousands of wireless “hotspots” installed around the world. Hotspots provide paid or free wireless local area network (WLAN, or
WiFi) service in cafés, hotels, restaurants, retail shops, airports, trains and other public meeting areas. The 802.11 communication
standard refers to a family of specifications developed for WiFi technology. These specifications describe the speed and frequency of
the over-the-air interface between a wireless client and a base station, or between two wireless clients. 802.11a, 802.11b and 802.11g
are three different 802.11 specifications. Compared to products based on 802.11b, products based on 802.11a allow for a faster
exchange of data. Products based on 802.11g allow for even faster exchange of data than both other forms of WiFi.
In January 2005, we introduced our next version of the Intel Centrino mobile technology platform, formerly code-named
“Sonoma.” The new platform adds more entertainment and business features to Intel Centrino mobile technology-based notebook PCs,
along with enhanced security support and higher graphics performance. The new version of Intel Centrino mobile technology includes
a chipset from the Mobile Intel® 915 Express chipset family, the Intel® PRO/Wireless 2915ABG or 2200BG wireless LAN
components, and the Intel Pentium M processor with model numbers up to 770. These processors support a 533-MHz bus, have 2 MB
of cache, and run at speeds ranging from 1.6 GHz to 2.13 GHz. Also available for this platform are the Low Voltage Intel Pentium M
processor 758 and the Ultra Low Voltage Pentium M processor 753, both supporting a 400-MHz bus.
4
In May and June 2004, we introduced new Intel Pentium M processors built on our 90-nanometer, 300-millimeter (mm) process
technology. These Intel Pentium M processors 715, 725, 735, 745 and 755 feature speeds from 1.5 GHz to 2.0 GHz, include 2 MB of
L2 cache and support a 400-MHz bus. In October 2004, we added the Intel Pentium M processor 765 running at 2.1 GHz, which also
features 2 MB of L2 cache and supports a 400-MHz bus.
In July 2004, we launched the Intel® Pentium® M processor Low Voltage 738 running at 1.4 GHz, the Intel® Pentium® M
processor Ultra Low Voltage 733 running at 1.1 GHz and the Intel® Pentium® M processor Ultra Low Voltage 723 running at 1.0
GHz. These three processors also feature 2 MB of L2 cache and support a 400-MHz bus. In addition, we offer the Intel® Pentium® M
processor Low Voltage running at 1.3 GHz and the Intel® Pentium® M processor Ultra Low Voltage running at 1.1 GHz. These two
processors support a 400-MHz bus and include 1 MB of L2 cache.
In June 2004, we introduced the Mobile Intel Pentium 4 processors 518, 532 and 538 with speeds of up to 3.2 GHz, designed for
portable PC users who want systems with near-desktop features. In September 2004, we launched the Mobile Intel Pentium 4 processor
548, with a speed of 3.33 GHz. All of these processors are built using 90-nanometer process technology, support HT Technology,
include 1 MB of L2 cache and support a 533-MHz bus.
In addition, for the mobile value market segment, we offer the Intel® Celeron® M processor and the Mobile Intel Celeron
processor. In 2004, we introduced several versions of the Intel Celeron M processor for mobile PCs with speeds of up to 1.5 GHz. Two
of these, the Intel Celeron M processors 350 and 360, are built using our 90-nanometer process technology. We also introduced Intel®
Celeron® M processors Ultra Low Voltage at speeds of up to 900 MHz. All of these versions of the Intel Celeron M processor support
a 400-MHz bus, have 512 KB of L2 cache and offer power management features designed to lengthen battery life.
Enterprise Market Segment
We develop platform solutions based on our microprocessors, chipsets and motherboard products that are optimized for use in the
enterprise market segment. Our strategy is to provide processors and chipsets with improved performance, which includes advanced
technology features, as well as competitive price for performance for entry-level to high-end servers and workstations. Servers are
systems, often with multiple microprocessors working together, that manage large amounts of data, direct traffic, perform complex
transactions and control central functions in local and wide area networks and on the Internet. Workstations typically offer higher
performance than standard desktop PCs, and are used for applications such as engineering design, digital content creation and highperformance computing, among other applications. Our Intel Xeon processor family of products supports a wide range of entry-level to
high-end technical and commercial computing applications for both the workstation and server market segments.
The Intel Xeon processor is designed for two-way servers, also known as dual-processing (DP) servers, and workstations. This
product line, based on our IA-32 architecture, was enhanced in 2004 with Intel® Extended Memory 64 Technology. This technology
enables support of both 32-bit and 64-bit operating systems and applications. These processors are available for both workstations and
DP servers. For servers based on four or more processors, also known as multiprocessing (MP) servers, we offer the Intel® Xeon™
processor MP with HT Technology. Our Intel® Itanium® processor family, which is based on 64-bit architecture and includes the
Intel® Itanium® 2 processor, generally supports an even higher level of computing performance for data processing, the handling of
high transaction volumes and other compute-intensive applications for enterprise-class servers, as well as supercomputing solutions.
In March 2004, we introduced the Intel Xeon processor MP at 3.0 GHz. It features 4 MB of L3 cache and is designed for mid-tier
and back-end servers based on four or more processors. We also introduced the Intel Xeon processor MP running at 2.2 GHz and 2.7
GHz with 2 MB of L3 cache.
In June 2004, we introduced several new Intel Xeon processors that incorporate Intel Extended Memory 64 Technology and are
manufactured on our 90-nanometer, 300mm process technology. These processors are available for both workstations and DP servers,
and feature enhanced HT Technology to improve the performance of multithreaded applications. These processors also support
Demand-Based Switching technology to reduce overall power consumption within data centers. These processors are available in
speeds ranging from 2.8 GHz to 3.6 GHz.
Also in 2004, we introduced the Intel® E7525 chipset for Intel Xeon processor-based workstation platforms. The new chipset has
an 800-MHz bus, supports DDR2 memory technology, and integrates several new technologies, including PCI Express, that help
eliminate system bottlenecks by balancing performance between the processor, input/output and memory. Workstation platforms based
on Intel Xeon processors and the new Intel E7525 chipset feature higher performance and lower power consumption than previous
generations of Intel Xeon processor-based workstation platforms.
5
In August 2004, we launched new server platforms based on the 64-bit Intel Xeon processor at 3.6 GHz. These DP-capable
platforms include the new Intel® E7520 and Intel® E7320 chipsets, which support DDR2 memory capability and feature an 800-MHz
bus and PCI Express, as well as the new Intel® 332 Storage I/O Processor, which improves storage performance over previous
generations.
In October 2004, we unveiled the Low Voltage Intel Xeon processor 2.8 GHz, supporting an 800-MHz bus. Featuring Intel
Extended Memory 64 Technology, this processor is aimed specifically at storage applications, such as controllers for storage networks.
In April 2004, we broadened the Itanium 2 processor family with a 1.4-GHz processor, followed by a 1.6-GHz version in May
2004. Both processors feature 3 MB of L3 cache and are designed to enable affordable DP systems.
In November 2004, we further enhanced the Itanium 2 processor lineup with six new processors for MP, DP and low-voltage
(LV) systems. The 1.6-GHz Itanium 2 processor MP features 9 MB or 6 MB of L3 cache. The 1.5-GHz Itanium 2 processor MP has 4
MB of L3 cache, and the Itanium 2 processor DP at 1.6 GHz has 3 MB of L3 cache and is available with support for a 400- or
533-MHz bus. Finally, the Itanium 2 processor LV at 1.3 GHz features 3 MB of L3 cache and is optimized for low-cost systems with
dense form factors.
Intel Communications Group
Within ICG, we are focused on developing component-level products for the wireless handheld computing and communications
market segments. These products include flash memory, applications processors and cellular baseband chipsets. We also are
developing products that we believe will help continue to build out the Internet. These products include communications infrastructure
components, including network and embedded processors; wired and wireless connectivity products; and networked storage
components.
Net revenue for ICG made up approximately 15% of our consolidated net revenue in 2004. Revenue from sales of flash memory
within ICG represented approximately 7% of consolidated net revenue in 2004.
Flash Memory
Flash memory is a specialized type of memory component used to store user data and program code; it retains this information
even when the power is off. Flash memory is based on either NOR or NAND architectures. Our flash memory is based on the NOR
architecture. NOR flash memory, with its fast “read” capabilities, has traditionally been used to store executable code. NAND flash
memory, which is slower in reading data but faster in writing data, has traditionally been used in products that either required large
storage capacity or fast write applications, such as MP3 music players, memory cards and digital cameras. In addition to having
offerings that meet the needs of cellular customers, we offer flash memory products that meet the needs of other market segments, such
as the broad market segment. The broad market segment includes flash memory products found in various applications, including settop boxes, networking products and other devices such as DVD players and DSL cable modems.
Intel StrataFlash® Wireless Memory technology allows two bits of data to be stored in each memory cell, for higher storage
capacity and lower cost. It is available in Intel stacked chip-scale packaging and is being developed in Intel ultra-thin stacked chipscale packaging. This technology allows up to five ultra-thin memory chips to be stacked in one package, delivering greater memory
capacity and lower power consumption in a smaller package. With heights as low as 1.0mm, the package allows manufacturers to
increase memory density and provide features such as camera capabilities, games and e-mail in relatively thin cell phones. Our higher
density flash products generally incorporate stacked Static Random Access Memory (SRAM), which we purchase from third-party
vendors.
Application Processors and Components for Handheld Computing and Communications Devices
In application processing, products based on Intel XScale® technology provide the processing capability in data-enabled mobile
phones and PDAs.
In April 2004, we introduced the Intel® PXA27x family of application processors. Designed for advanced cell phones and PDAs,
the processors integrate Intel® Wireless MMX™ technology for advanced 3D gaming and video, along with Wireless Intel SpeedStep®
Power Manager technology for longer battery life. This processor family is available in a range of clock speeds, from 312 MHz to 624
MHz, and with as much as 64 MB of stacked Intel StrataFlash memory. The Intel® 2700G multimedia accelerator, optimized to
complement the Intel PXA27x processor family, is designed to deliver advanced video and graphics capabilities to enable full-screen
video at full frame rates without sacrificing battery life.
6
We are working toward the convergence of computing and communications in the mobile handheld computing market segment
by developing technology that combines baseband communications features with memory and application processing functionality.
Our “system-in-a-package” processors, which are designed for PDAs, feature an Intel XScale technology-based processor stacked
directly on top of Intel StrataFlash memory chips in a single package. With stacked packaging, manufacturers of handheld devices can
decrease the size of the form factor, as well as help reduce their time-to-market.
We offer baseband chipsets for multi-mode, multi-band wireless handsets. These chipsets support multiple wireless standards and
deliver enhanced voice quality and high-integration capability, with optimized power consumption.
Communications Infrastructure Products
Our communications infrastructure components include products such as network and embedded processors, as well as optical
components. In network processing, we deliver products that are basic building blocks for modular communications platforms. These
products include advanced, programmable processors used in networking equipment to rapidly manage and direct data moving across
the Internet and corporate networks. We also offer embedded processors that can be used for modular communications platform
applications as well as for industrial equipment and point-of-sale systems.
Unlike proprietary system platforms, modular communications platforms are standards-based solutions that offer network
infrastructure builders flexible, low-cost, faster time-to-market options for designing their networks. Our network processor products
are based on the Intel® Internet Exchange Architecture (Intel® IXA). At the core of Intel IXA is the Intel XScale microarchitecture,
which offers low power consumption and high-performance processing for a wide range of Internet devices.
In October 2004, we announced the Intel® IXP460, Intel® IXP465, Intel® IXP2325 and Intel® IXP2350 network processors.
These products are designed for traditional communications applications and for the emerging embedded networking segment. The
Intel IXP2325 and Intel IXP2350 processors are Intel’s first network processors built using our 90-nanometer process technology.
For embedded processors, our product families include the Intel Celeron and Intel® Pentium® III processors, the Intel Pentium M
processor, the Mobile Intel® Pentium® 4 Processor-M and the Intel Pentium 4 processor. We also offer Intel Xeon processors with HT
Technology, providing increased performance for wireless infrastructure equipment.
In June 2004, we introduced the Intel Pentium M processor 745 for the communications infrastructure, designed for a range of
wireline and wireless infrastructure solutions, as well as Advanced Telecommunications Architecture* (ATCA*) board designs. ATCA
is a modular communications platform solution for building standards-based wireless base station equipment and high-speed
interconnect technologies such as PCI Express and Advanced Switching.
Wired and Wireless Connectivity Products
Ethernet is an industry-standard technology used to translate and transmit data in packets across networks. As Ethernet has
expanded from the traditional local area network (LAN) environment into the wireless LAN (WLAN), metropolitan area network
(MAN) and networked storage market segments, we have expanded our product portfolio to address these other market segments. For
the MAN market segment, we offer products at multiple levels of integration to provide a low-cost solution with increased speed and
signal transmission distance (commonly referred to as “reach”). Gigabit Ethernet networks allow the transmission of one billion
individual bits of information per second, and 10-Gigabit Ethernet networks transmit 10 billion bits of information per second. By
contrast, Fast Ethernet networks transmit 100 million bits of information per second (Mbps, or megabits per second).
In May 2004, we introduced a 10-Gigabit Ethernet adapter for servers, the Intel® PRO/10GbE SR Server Adapter, designed to
lower the costs of setting up a scalable, networked data center.
In January 2004, we introduced the Intel PRO/Wireless 2200BG Network Connection, a dual-mode product supporting the
802.11b and 802.11g forms of WiFi. In August 2004, we introduced the Intel® PRO/Wireless 2915ABG Network Connection, which
supports all three current forms of WiFi: 802.11a, b and g. Support for these three wireless technologies enables notebook PCs based
on Intel Centrino mobile technology to establish wireless connections with all currently available WiFi network types.
Networked Storage
In the networked storage market segment, we offer products that allow storage resources to be added in either of the two most
prevalent types of storage networks: Ethernet or Fibre Channel.
7
Manufacturing and Assembly and Test
As of year-end 2004, nearly 70% of our wafer manufacturing, including microprocessor, chipset, flash memory and
communications silicon fabrication, was conducted within the U.S. at our facilities in New Mexico, Oregon, Arizona, Massachusetts,
California and Colorado. Outside the U.S., more than 30% of our wafer manufacturing, including wafer fabrication for
microprocessors, chipsets, flash memory and networking silicon, was conducted at our facilities in Ireland and Israel.
As of December 2004, we manufactured our products in the wafer fabrication facilities described in the following table:
Products
Wafer Size
Process Technology
Locations
Microprocessors . . . . . . . . . . . . . . .
Microprocessors and chipsets . . . . .
Flash memory . . . . . . . . . . . . . . . . .
Chipsets, flash memory and other
products . . . . . . . . . . . . . . . . . . .
300mm
200mm
200mm
90nm
130nm
130nm
New Mexico, Oregon, Ireland
Oregon, Arizona, Massachusetts, California
New Mexico, Ireland
200mm
180nm, 250nm, 350nm
New Mexico, Israel, Colorado, Ireland
In 2004, we continued to transition our microprocessor manufacturing from 200mm (8-inch) wafers to 300mm (12-inch) wafers.
As of year-end 2004, the majority of our microprocessors were manufactured on 300mm wafers. The conversion to 300mm wafers
allows for more efficient use of our capital investment in equipment by providing more than twice as many equivalent chips per wafer
as 200mm wafers. We currently expect two additional facilities to begin wafer fabrication on 300mm wafers in the second half of 2005
or the first half of 2006.
As of year-end 2004, the majority of our microprocessors were manufactured using our 90-nanometer process technology. The
90-nanometer process technology is our most advanced high-volume production process featuring structures smaller than the size of a
virus, the world’s smallest microorganism. As we move to each succeeding generation of manufacturing process technology, we incur
significant start-up costs to get each factory ready for high-volume manufacturing. However, continuing to advance our process
technology provides added benefits that we believe justify these costs. These benefits can include utilizing less space per transistor,
which enables us to put more transistors on an equivalent size chip, decreasing the size of the chip or allowing us to offer an increased
number of integrated features. These advancements can result in higher performing microprocessors, products that consume less power
and/or products that cost less to manufacture. To augment capacity in the U.S. and internationally, we use subcontractors (foundries) to
manufacture wafers for certain components, including networking and communications products.
We primarily use subcontractors to manufacture board-level products and systems, and purchase certain communications
networking products from external vendors, primarily in the Asia-Pacific region. We also manufacture microprocessor- and
networking-related board-level products, primarily in Malaysia.
Following manufacture, the majority of our components are subject to assembly in several types of packaging, and to testing. We
perform a substantial majority of our components assembly and test at facilities in Malaysia, the Philippines, China and Costa Rica.
We plan to continue to invest in new assembly and test technologies and facilities to keep pace with our microprocessor, chipset, flash
memory and communications technology improvements. To augment capacity, we use subcontractors to perform assembly of certain
products, primarily flash memory, chipsets and networking and communications products. Our performance expectations for business
integrity, ethics, and environmental, health and safety compliance are the same regardless of whether our supplier and subcontractor
operations are based in the U.S. or elsewhere. Our employment practices are consistent with, and we expect our suppliers and
subcontractors to abide by, local country law. In addition, we impose a minimum employee age requirement regardless of local law.
We have thousands of suppliers, including subcontractors, providing our various materials and service needs. We set expectations
for supplier performance and reinforce those expectations with periodic assessments. We communicate those expectations to our
suppliers regularly and work with them to implement improvements when necessary. We seek, where possible, to have several sources
of supply for all of these materials and resources, but we may rely on a single or limited number of suppliers, or upon suppliers in a
single country. In those cases, we develop and implement plans and actions to reduce the exposure that would result from a disruption
in supply.
Our products typically are produced at multiple Intel facilities at various sites around the world, or by subcontractors who have
multiple facilities. However, some products are produced in only one Intel or subcontractor facility, and we seek to implement actions
and plans to reduce the exposure that would result from a disruption at any such facility.
8
Manufacturing and assembly and test of integrated circuits is a complex process. Normal risks include errors and interruptions in
the production process, defects in raw materials and disruptions at supplier locations, as well as other risks, all of which can affect the
timing of the production ramps and yields. A substantial decrease in yields would result in higher costs and the possibility of not being
able to produce sufficient volume to meet specific product demand. A substantial increase in yields could result in higher inventory
levels and the possibility of resulting excess capacity charges as we slow production to reduce inventory levels. In addition, higher
yields, as well as other factors, can decrease overall unit costs and may cause us to revalue our existing inventory on certain products to
their lower replacement cost, which would impact our gross margin in the quarters in which this revaluation occurs.
We operate globally, with sales offices and research and development, manufacturing and assembly and test facilities in many
countries, and, as a result, we are subject to risks and factors associated with doing business outside the U.S. Global operations involve
inherent risks that include currency controls and fluctuations, tariff and import regulations, and regulatory requirements that may limit
our or our customers’ ability to manufacture, assemble and test, design, develop or sell products in particular countries. As part of our
site-selection due diligence processes, we assess several criteria, which include the property’s physical characteristics or
constructability, local utility infrastructure, transportation capability, availability of technical workforce, construction and supplier
capabilities, permitting requirements and investment conditions. Employment practices and labor rights issues are incorporated in the
diligence. Evaluations also include ratings for security concerns, which include corruption, terrorism, crime and political instability.
Security concerns alone are sufficient to remove projects from consideration. Regardless of these efforts, if terrorist activity, armed
conflict, civil or military unrest, or political instability occurs in the U.S., Israel or other locations, such events may disrupt production,
logistics, security and communications, and could also result in reduced demand for Intel’s products. The impacts of major health
concerns or possible infrastructure disruptions, such as large-scale outages or interruptions of service from utilities or
telecommunications providers, on Intel, its suppliers, customers or other third parties, could also adversely affect our business and
impact customer order patterns. Business continuity could also be affected if labor issues disrupt our transportation arrangements or
those of our customers or suppliers. On a worldwide basis, we regularly review our key infrastructure, systems, services and suppliers,
both internally and externally, to seek to identify significant vulnerabilities as well as areas of potential business impact if a disruptive
event were to occur. Once identified, we assess the risks, and as we consider them to be appropriate, we initiate actions intended to
reduce the risks and their potential impact. However, there can be no assurance that we have identified all significant risks or that we
can mitigate all identified risks with reasonable effort.
We maintain a program of insurance coverage for various types of property, casualty and other risks. We place our insurance
coverage with various carriers in numerous jurisdictions. The policies are subject to deductibles and exclusions that result in our
retention of a level of risk on a self-insurance basis. The types and amounts of insurance obtained vary from time to time and from
location to location depending on availability, cost and our decisions with respect to risk retention. Our worldwide risk and insurance
programs are regularly evaluated to seek to obtain the most favorable terms and conditions.
For information regarding environmental matters and proceedings related to certain facilities, see “Compliance with
Environmental, Health and Safety Regulations” below in this Item and “Legal Proceedings” in Part I, Item 3 of this Form 10-K.
Research and Development
We remain committed to investing in world-class technology development, particularly in the area of the design and manufacture
of integrated circuits. Our research and development (R&D) activities are directed toward developing the technology innovations,
primarily at the silicon level, that we believe will deliver the next generation of usage models and products. In particular, we are
focused on advanced computing, communications and wireless technologies. Our R&D activities in these areas are increasingly
centered around platforms. In addition, we continue to invest in new manufacturing, packaging and testing processes, as well as
improving existing products and reducing costs. We believe that we are well positioned in the technology industry to help drive
innovation, foster collaboration and promote industry standards that will yield innovative and improved technologies for users.
Our R&D model is based on a global, decentralized organization that emphasizes a collaborative approach in identifying and
developing new technologies, leading standards initiatives and influencing regulatory policy to accelerate the adoption of new
technologies. Our R&D initiatives are performed by various business groups within the company, and we align and prioritize these
initiatives across these business groups. We also work with a worldwide network of academic and industry researchers, scientists and
engineers in the computing and communications fields. A decentralized network of technology professionals allows us, as well as
others in our industry, to benefit from development initiatives in a variety of areas, eventually leading to innovative technologies for
users.
9
We perform a substantial majority of our design and development of semiconductor components and other products in the U.S.
Outside the U.S., we have been increasing our product development, and we have activities at various locations, including Israel, India,
Malaysia, China and Russia. We also maintain R&D facilities in the U.S. that are focused on developing and improving manufacturing
processes, as well as facilities in the U.S., Malaysia and the Philippines that are dedicated to improvements in assembly and test
processes.
We are focusing our R&D efforts on delivering the next generation of microprocessors and on the advancement of our
manufacturing process technology. Future generations of our microprocessors are expected to feature two or more processor cores on a
single chip, rather than just one microprocessor core. These dual- and multi-core processors are expected to complement our efforts to
enable more capabilities, performance and flexibility for users beyond processor speed. Our leadership in silicon technology has
allowed us to continue to deliver on the promise of “Moore’s Law” (doubling the number of transistors on a chip every couple of
years), and also to help expand Moore’s Law, by bringing new capabilities into silicon and producing new products optimized for a
wider variety of applications. We are currently manufacturing the majority of our microprocessors using 90-nanometer process
technology. Our 65-nanometer process technology is currently in development, and we expect to begin manufacturing products using
65-nanometer process technology in 2005. We are also working to increase the size of the cache memory in our microprocessor
products. Larger cache memory allows for faster system performance at equivalent processor speeds by allowing faster data retrieval
for applications that can effectively use additional cache memory.
In addition, we believe that system security and reliability features at the hardware level will facilitate an enhanced computing
experience for users, and we are working to provide these capabilities in future products. In line with these efforts, in January 2005, we
announced that we are accelerating the introduction of our technology code-named “Vanderpool” for desktop platforms. Vanderpool is
a virtualization technology that allows a platform to run multiple operating systems and applications in independent partitions, and will
complement our upcoming introduction of dual-core processors later in 2005. To take advantage of the benefits of Vanderpool, a
computer system must have a microprocessor that supports the technology, a chipset and BIOS that use the technology, an operating
system that includes optimizations for the technology and software applications enabled for the technology. Some of these other
features and applications are currently being developed by third parties.
We also have R&D initiatives in the wireless, networking and communications product areas. Our communications initiatives are
focused on delivering the technologies that will enable an advanced wireless platform, including 802.16 products (WiMax). WiMax is
a wireless broadband access technology that is expected to enable broadband wireless access as an alternative to existing “last mile”
methods such as cable and digital subscriber lines (DSL).
We do not expect that all of our product development projects will result in products that are ultimately released for sale. We may
terminate product development before completion or decide not to manufacture and sell a developed product for a variety of reasons.
For example, we may decide that a product might not be sufficiently competitive in the relevant market segment, or for technological
or marketing reasons, we may decide to offer a different product instead.
Our expenditures for R&D were $4.8 billion in fiscal 2004, $4.4 billion in fiscal 2003 and $4.0 billion in fiscal 2002. We
increased the number of our employees engaged in R&D to approximately 25,000 in December 2004 compared to approximately
23,000 in December 2003.
Employees
As of December 25, 2004, we employed approximately 85,000 people worldwide, with approximately 60% of these employees
located in the U.S.
10
Sales and Marketing
Most of our products are sold or licensed through sales offices located near major concentrations of users, throughout the
Americas, Europe, Asia-Pacific and Japan. Our business relies on continued sales growth in emerging markets and continued business
and consumer investment in technologies that use our products in mature markets.
Sales agreements typically contain standard terms and conditions covering matters such as pricing, payment terms and warranties,
as well as indemnities for issues specific to our products, such as patent and copyright indemnities. From time to time, we may enter
into additional agreements with customers covering, for example, changes from our standard terms and conditions, new product
development and marketing, private-label branding and other matters. Sales of particular products are generally conducted with
purchase orders issued under the sales agreements. Most of Intel’s sales are made using electronic and web-based processes that allow
the customer to review inventory availability and to track the progress of specific goods under order. Pricing on particular products
may vary based on volumes ordered and other factors.
We sell our products to OEMs and ODMs. ODMs provide design and/or manufacturing services to branded and unbranded privatelabel resellers. We also sell our products to industrial and retail distributors. In 2004, Dell Inc. accounted for approximately 19% of our
total sales, and Hewlett-Packard Company accounted for approximately 16% of our total sales. A substantial majority of the sales to these
customers consisted of products from our Intel Architecture business. No other customer accounted for more than 10% of our total
revenue. For information about revenue and operating profit by operating segments and revenue from unaffiliated customers by
geographic region/country, see “Note 19: Operating Segment and Geographic Information” in Part II, Item 8 of this Form 10-K and
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of this Form 10-K.
Typically, distributors handle a wide variety of products, including those that compete with our products, and fill orders for many
customers. Most of our sales to distributors are made under agreements allowing for price protection on unsold merchandise and a right
of return on stipulated quantities of unsold merchandise. We also utilize third-party sales representatives who generally do not offer
directly competitive products but may carry complementary items manufactured by others. Sales representatives do not maintain a
product inventory; instead, their customers place orders directly with us or through distributors.
Our worldwide reseller sales channel consists of thousands of indirect customers who are systems builders and purchase Intel
microprocessors and other products from our distributors. These systems builders receive various levels of technical and marketing
services and support directly from Intel. We have a “boxed processor program” that allows distributors to sell Intel microprocessors in
small quantities to these systems-builder customers; boxed processors are also made available in direct retail outlets.
Our global marketing strategy is designed to associate our brands with advanced technology and innovation. The Intel® brand is
intended to represent technology leadership, innovation, quality and reliability. Our product brands include Itanium, Intel Xeon,
Pentium, Celeron and Intel Centrino, which are all part of our ingredient brand family. We promote brand awareness and generate
demand through our own direct marketing as well as co-marketing programs. Our direct marketing activities include television, print
and web-based advertising, as well as press relations, consumer and trade events, and industry and consumer communications.
Currently, our direct marketing to the consumer focuses on the digital home and building awareness and demand for new usage models
and capabilities. Our marketing directed toward businesses focuses on our continuing to deliver technologies designed for performance
and reliability to enterprise and small to midsize businesses.
Purchases by customers often allow them to participate in cooperative advertising and marketing programs such as the Intel
Inside® program. Through the Intel Inside program, certain customers are licensed to place Intel Inside logos on computers containing
our microprocessors and our other technology, and to use our brands in advertisements. The program includes a market development
component that accrues funds based on purchases and partially reimburses the OEMs for advertisements for products featuring the
Intel Inside brand, subject to the OEMs meeting defined criteria. This program broadens the reach of our brands beyond the scope of
our own direct advertising. Additionally, our reseller sales channel marketing programs are intended to extend the Intel Inside brand
reach to channel customers and the businesses and individuals that purchase computer systems from them.
Our products are typically shipped under terms that transfer title to the customer, even in arrangements for which the recognition
of revenue on the sale is deferred. The sales agreements typically provide that payment is due at a later date, generally 30 days after
shipment, delivery or the customer’s use of the product. Our credit department sets accounts receivable and shipping limits for
individual customers for the purpose of controlling credit risk to Intel arising from outstanding account balances. We assess credit risk
through quantitative and qualitative analysis, and from this analysis, we establish credit limits and determine whether we will seek to
use one or more credit support devices, such as obtaining some form of third-party guaranty or standby letter of credit, or obtaining
credit insurance for all or a portion of the account balance. Credit losses may still be incurred due to bankruptcy, fraud or other failure
11
of the customer to pay. See “Schedule II—Valuation and Qualifying Accounts” on page 85 of this Form 10-K for information about
our allowance for doubtful receivables.
Backlog
We do not believe that a backlog as of any particular date is indicative of future results. Our sales are made primarily pursuant to
standard purchase orders for delivery of standard products. We have some agreements that give a customer the right to purchase a
specific number of products during a specified time period. Although these agreements do not generally obligate the customer to
purchase any particular number of such products, some of these agreements do contain billback clauses. Under these clauses,
customers who do not purchase the full volume agreed upon are liable for billback on previous shipments up to the price appropriate
for the quantity actually purchased. As a matter of industry practice, billback clauses are difficult to enforce. The quantities actually
purchased by the customer, as well as the shipment schedules, are frequently revised during the agreement term to reflect changes in
the customer’s needs. In light of industry practice and our experience, we do not believe that such agreements are meaningful for
determining backlog amounts. We believe that only a small portion of our order backlog is non-cancelable and that the dollar amount
associated with the non-cancelable portion is not significant.
Competition
As part of our overall strategy to compete in each relevant market segment, we use our core competencies in the design and
manufacture of integrated circuits and our financial resources, global presence and brand recognition. Also, under our Intel Capital
program, we make equity investments in companies around the world to further our strategic objectives and support our key business
initiatives. Our products compete, to varying degrees, on the basis of performance (which includes features that can enhance the user
experience), quality, brand recognition, price and availability. Our ability to compete also depends on our ability to provide innovative
platform solutions and worldwide support for our customers.
The semiconductor industry is characterized by rapid advances in technology and new product introductions. As unit volumes
grow, production experience is accumulated and costs decrease, further competition develops, and as a result, prices decline. The life
cycle of our products is very short, sometimes less than a year. Our ability to compete depends on our ability to improve our products
and processes faster than our competitors, anticipate changing customer requirements, and develop and launch new products, while
reducing our costs. When we believe it is appropriate, we will take various steps, including introducing new products and platform
solutions, discontinuing older products, reducing prices, and offering rebates and other incentives, to increase acceptance of our latest
products and to be competitive within each relevant market segment. Our products compete with products developed for similar or
rival architectures and with products based on the same or rival technology standards. We cannot predict which competing technology
standards will become the prevailing standards in the market segments in which we compete.
Many companies compete with us in the various computing, networking and communications market segments, and are engaged
in the same basic fields of activity, including research and development. Worldwide, these competitors range in size from large,
established, multinational companies with multiple product lines to smaller companies and new entrants to the marketplace that
compete in specialized market segments. In some cases, our competitors are also our customers and/or suppliers. With the convergence
in computing and communications products, product offerings will continue to cross over into multiple categories, offering us new
opportunities but also resulting in more competition. In markets where our competitors have established products and brand
recognition, it may be inherently difficult for us to compete against them.
Most of our products, including all of our Intel architecture microprocessors and chipsets, as well as our flash memory and
embedded processors within ICG, are built in our own manufacturing facilities. We believe that our network of manufacturing facilities
and assembly and test facilities gives us a competitive advantage. This network enables us to have more direct control over our
processes, quality control, product cost, volume and timing of production, and other factors. These types of facilities are very
expensive, and many of our competitors do not own such facilities because they cannot afford to do so or because their business
models involve the use of third-party facilities for manufacturing and assembly and test. These “fabless semiconductor companies”
include Broadcom Corporation, NVIDIA Corporation, QUALCOMM Incorporated and VIA Technologies, Inc. Some of our
competitors own portions of such facilities through investment or joint-venture arrangements with other companies. There is a group of
third-party manufacturing companies (foundries) and assembly and test subcontractors that offer their services to companies without
owned facilities or companies needing additional capacity. These foundries and subcontractors may also offer to our competitors
intellectual property, design services, and other goods and services. Competitors who outsource their manufacturing and assembly and
test operations can significantly reduce their capital expenditures.
12
We plan to continue to cultivate new businesses and work with the computing and communications industries through standards
bodies, trade associations, OEMs, ODMs, and independent software and operating system vendors to align the industry to offer
products that take advantage of the latest market trends and usage models. These efforts include helping to create the infrastructure for
wireless network connectivity. We are also working with these industries to develop software applications and operating systems that
take advantage of our microprocessors, chipsets and other next-generation semiconductor devices with higher performance. We
frequently participate in industry initiatives designed to discuss and agree upon technical specifications and other aspects of
technologies that could be adopted as standards by standards-setting organizations. Our competitors may also participate in the same
initiatives, and our participation does not ensure that any standards or specifications adopted by these organizations will be consistent
with our product planning.
Companies in the semiconductor industry often rely on the ability to license patents from each other in order to compete in
today’s markets. Many of our competitors have broad cross-licenses or licenses with us, and under current case law, some such licenses
may permit these competitors to pass our patent rights on to others. If one of these licensees becomes a foundry, our competitors might
be able to avoid our patent rights in manufacturing competing products. In addition to licensing our patents to competitors, our
participation in industry initiatives may require us to license our patents to other companies that adopt certain industry standards or
specifications, even when such organizations do not adopt standards or specifications proposed by Intel. Any Intel patents implicated
by our participation in such initiatives might not, in some situations, be available for us to enforce against others who might be
infringing those patents. We cannot be assured that the patents and licenses on our products will be honored in all regions in which we
compete. In various geographies where our business is growing, we have no assurance about the scope of rights that we can enforce
against others, or that others may assert against us. In addition, in certain regions, governments may adopt regulations or courts may
render decisions requiring compulsory licensing of intellectual property to others, or requiring that products meet specified standards
that serve to favor local companies, negatively impacting Intel’s ability to achieve an economic return for its innovation and
investment.
Intel Architecture Business
We continue to be largely dependent on the success of our microprocessor business. Many of our competitors, including
Advanced Micro Devices, Inc. (AMD), our primary microprocessor competitor, market software-compatible products that are intended
to compete with Intel architecture-based processors. We also face competition from companies offering rival microprocessor designs,
such as International Business Machines Corporation (IBM), which supplies microprocessors to Apple Computer, Inc. IBM is also
jointly developing a rival architecture design with Sony Corporation and Toshiba Corporation. We currently offer desktop, mobile and
server microprocessor products based on our 32-bit architecture; enterprise-class servers and supercomputing product offerings based
on 64-bit architecture; and workstation and server solutions based on the IA-32 architecture with 64-bit extension technology that are
able to run both 32-bit and 64-bit software applications. AMD offers competing microprocessor product offerings for servers,
workstations and desktops that are able to run existing 32-bit and 64-bit software applications. We continuously evaluate all of our
product offerings and the timing of their introduction, taking into account factors such as customer requirements, availability of
infrastructure to take advantage of product performance, and maturity of applications software for each type of processor in the
relevant market segments.
Our desktop processors compete with products offered by AMD, IBM and VIA, among others. Our mobile microprocessor
products compete with products offered by AMD, IBM, Transmeta Corporation and VIA, among others. Our server processors
compete with software-compatible products offered by AMD and with products based on rival architectures, including those offered by
Hewlett-Packard Company, IBM and Sun Microsystems, Inc. Our chipsets compete in the various market segments against different
types of chipsets that support either our microprocessor products or rival microprocessor products. Competing chipsets are produced by
companies such as ATI Technologies, Inc., Broadcom, NVIDIA, Silicon Integrated Systems Corporation (SIS) and VIA. We also
compete with companies offering graphics components and other special-purpose products used in the desktop, mobile and server
market segments. One aspect of our business model is to incorporate higher performance and advanced properties into the
microprocessor and chipset, the demand for which may increasingly be affected by competition from companies, such as ATI and
NVIDIA, whose business models are based on incorporating performance into chipsets and other components, such as graphics
controllers.
13
Intel Communications Group
Within ICG, we are focused on developing component-level products for the wireless handheld computing and communications
market segments. We also are developing products that we believe will help continue to build out the Internet.
Component-level products for the wireless handheld computing and communications market segments include flash memory
products, application processors and cellular baseband chipsets. In our various market segments, our products currently compete with
the products of other companies, such as QUALCOMM, Samsung Electronics Co., Ltd., Spansion LLC (a subsidiary of AMD),
STMicroelectronics NV and Texas Instruments Incorporated. The megabit demand of the products that make use of flash memory is
increasing, and our NOR flash memory products face increased competition from companies that manufacture NAND flash memory
products, as OEMs look for opportunities to use NAND flash memory products with additional random access memory or in
combination with NOR flash memory for executable-code applications. Various digital cellular technologies are used throughout the
cellular communications industry, including but not limited to GSM (Global System for Mobile Communications), GPRS (General
Packet Radio Service), CDMA (Code Division Multiple Access) and WCDMA (Wideband CDMA). Our ability to compete
successfully with our cellular baseband chipsets is dependent on having products available for the most prevalent or widely adopted
digital cellular technology. Our current product offerings are for use in cell phones and PDAs that incorporate the GSM/GPRS cellular
technologies. Our products planned for release in 2005 will be targeted for the WCDMA as well as GSM/GPRS cellular technologies.
In support of the build-out of the Internet, we offer products designed for wired and wireless connectivity; for the
communications infrastructure, including network and embedded processors; and for networked storage. In these areas, we face
competition from both established and emerging companies. Our products currently compete against offerings from companies such as
Applied Micro Circuits Corporation, Atheros Communications, Broadcom, Freescale Semiconductor, Inc., IBM, Marvell
Technology Group Ltd. and Texas Instruments. We cannot predict whether our networking and communications products will continue
to compete successfully with those of our existing competitors or new market entrants.
Acquisitions and Strategic Investments
Our level of new acquisition and strategic investment activity for 2004 and 2003 was substantially lower than in prior years.
During 2004, we completed one acquisition for net cash consideration of approximately $33 million, plus certain liabilities. In addition,
we entered into certain arrangements in 2004 related to the hiring of a group of employees that resulted in the recording of workforcein-place of $28 million in other acquisition-related intangibles within other assets on our balance sheet.
Under our Intel Capital program, we make equity investments in companies around the world to further our strategic objectives
and support our key business initiatives. The Intel Capital program generally focuses on investing in companies and initiatives to
stimulate growth in the digital economy, create new business opportunities for Intel and expand global markets for our products. The
investments may support, among other things, Intel product initiatives, emerging trends in the technology industry or worldwide
Internet deployment. This strategic investment program helps advance our overall mission to be the preeminent supplier of building
blocks to the worldwide digital economy. Many of our investments are in private companies, including development-stage companies
with little or no revenue from current product offerings.
We invest in companies that develop software, hardware or services supporting our technologies. Our current investment focus
areas include enabling mobile wireless devices, helping to advance the digital home, enhancing the digital enterprise, advancing highperformance communications infrastructures and developing the next generation of silicon production technologies. Our focus areas
tend to develop and change over time due to rapid advancements in technology.
Intellectual Property and Licensing
Intellectual property rights that apply to our various products and services include patents, copyrights, trade secrets, trademarks
and maskwork rights. We maintain an active program to protect our investment in technology by attempting to ensure respect for our
intellectual property rights. The extent of the legal protection given to different types of intellectual property rights varies under
different countries’ legal systems. We intend to license our intellectual property rights where we can obtain adequate consideration.
See “Competition” in Part I, Item 1 of this Form 10-K.
14
We have filed and obtained a number of patents in the U.S. and abroad. While our patents are an important element of our
success, our business as a whole is not materially dependent on any one patent. We and other companies in the computing,
telecommunications and related high-technology fields typically apply for and receive, in the aggregate, tens of thousands of patents
annually in the U.S. and other countries. We believe that the duration of the applicable patents we are granted is adequate relative to
the expected lives of our products. Because of the fast pace of innovation and product development, our products are often obsolete
before the patents related to them expire, and sometimes are obsolete before the patents related to them are even granted. As we expand
our product offerings into new industries, such as consumer electronics, we also seek to extend our patent development efforts to patent
such product offerings. Established competitors in these industries, and companies that purchase and enforce patents and other
intellectual property, may already have patents covering similar products. There is no assurance that we will be able to obtain patents
covering our own products, or that we will be able to obtain licenses from such companies on favorable terms or at all.
Much of the software we distribute, including software embedded in our component and system-level products, is entitled to
copyright protection. Under some circumstances, we may require our customers to obtain a software license before we provide them
with that software.
To distinguish genuine Intel products from our competitors’ products, we have obtained certain trademarks and trade names for
our products, and we maintain cooperative advertising programs with certain customers to promote our brands and identify products
containing genuine Intel components.
We also protect certain details about our processes, products and strategies as trade secrets, keeping confidential the information
that we believe provides us with a competitive advantage. We have ongoing programs designed to maintain the confidentiality of such
information.
Our ability to enforce our patents, copyrights, software licenses and other intellectual property is subject to general litigation risks,
as well as uncertainty as to the enforceability of various intellectual property rights in various countries. When we seek to enforce our
rights, we are often subject to claims that the intellectual property right is invalid, is otherwise not enforceable or is licensed to the
party against whom we are asserting a claim. In addition, our assertion of intellectual property rights often results in the other party
seeking to assert alleged intellectual property rights of its own against us. Like many companies in the semiconductor and other hightechnology industries, we receive claims that we may be infringing others’ intellectual property rights from competitors and companies
that purchase and enforce patents and other intellectual property. In addition, our sales agreements often include intellectual property
indemnities, such as patent and copyright indemnities, and our customers may assert claims against us for indemnity when they receive
claims alleging that our customers’ products infringe others’ intellectual property rights. When we receive such claims, we refer them
to our legal counsel, and current claims are in various stages of evaluation and negotiation. If we determine that it is necessary or
desirable, we may seek licenses for certain intellectual property rights. However, we can give no assurance that we will be able to
obtain licenses from any claimant, or that we can accept the terms of any offered licenses. Further, we are not able to resolve every
dispute without litigation, which is typically time-consuming and expensive. If we are not ultimately successful in defending ourselves
against these claims in litigation, we may not be able to sell a particular product or family of products due to an injunction, or we may
have to pay material amounts of damages. See “Legal Proceedings” in Part I, Item 3 of this Form 10-K.
Compliance with Environmental, Health and Safety Regulations
Intel is committed to achieving high standards of environmental quality and product safety, and strives to provide a safe and
healthy workplace for our employees, our contractors and the communities in which we do business. We have environmental, health
and safety (EHS) policies and expectations that are applied to our global operations. Each of Intel’s worldwide manufacturing and
assembly and test sites is certified to the International Organization for Standardization (ISO) 14001 environmental management
system standard, which requires that a broad range of environmental processes and policies be in place to minimize environmental
impact, maintain compliance with environmental regulations and communicate effectively with interested stakeholders. Intel’s internal
environmental auditing program includes not only compliance components, but also modules on business risk, environmental
excellence and management systems. We have internal processes that focus on minimizing and properly managing hazardous materials
used in our facilities and products. We monitor regulatory and resource trends and set company-wide short- and long-term performance
targets for key resources and emissions. These targets address several parameters, including energy and water use, climate change,
waste recycling and emissions. Intel remains on track to achieve our voluntary commitment to reduce emissions of certain global
warming gases by 10% from 1995 levels by 2010. Due to Intel’s increase in manufacturing since 1995, this equates to an actual
reduction in 2004 of more than 90% from what Intel would have emitted without the voluntary reduction. In 2004, the company took
several actions to further its global energy reduction goal, including investing in energy conservation projects that we expect will result
in energy cost savings and reductions in electricity, natural gas and water use.
15
All Intel desktop processors produced in 2004 were capable of taking advantage of the advanced energy-saving features of the
Instantly Available PC platform, which makes it possible to have a high-performance, feature-rich PC that is power efficient when both
active and idle, and remains connected to a network even when powered off. Similarly, the Intel Pentium M processor and Intel
Centrino mobile technology processors were designed specifically for notebook performance and include a variety of energy-saving
features such as:
•
Enhanced Intel SpeedStep technology, which enables the processor to step down to a lower voltage and frequency as the
workload drops, conserving battery power;
•
the ability to turn off parts of the processor’s high-speed memory when not needed, resulting in an overall reduction in
platform power consumption; and
•
lower power consumption in the LCD panel and voltage regulator, which together consume 40% to 50% of platform power.
Intel has also moved to improve the energy efficiency of desktop system power supplies by issuing new energy-efficiency targets
as part of our Power Supply Design Guidelines. Power supply efficiencies for desktop computers improved in 2004. We worked with
industry peers and the U.S. Environmental Protection Agency’s Energy Star* program to integrate Intel power supply efficiency
requirements into new Energy Star specifications for desktop computers. Intel also is working with other vendors, industry groups and
research institutions to develop energy-efficient power supplies.
The manufacture, assembly and testing of Intel products require the use of hazardous materials that are subject to a broad array of
EHS laws and regulations. Intel actively reviews what hazardous materials are used in the manufacture, assembly and testing of our
products, particularly materials that end up in the final product. Intel has developed specific restrictions for the use of hazardous
materials in our products, as well as those of our suppliers and outsourced manufacturers and subcontractors. Intel’s proactive efforts to
reduce the use of hazardous substances have positioned us well to meet environmental restrictions on product content throughout the
world, such as the Restriction on Hazardous Substances (RoHS) directive in the European Union. The RoHS directive eliminates most
uses of lead, cadmium, hexavalent-chromium, mercury and certain fire retardants in electronics placed on the market after July 1, 2006.
If this directive were in effect today, it would impact about 85% of Intel products due to the current use of tin-lead solders. Intel
published its lead-free product road map in April 2004, and we already manufacture and ship some products that are RoHS compliant.
By the end of 2004, the company shipped several million RoHS-compliant flash products as well as our first RoHS-compliant CPUs.
As Intel continues to advance process technology, the materials, technologies and products themselves become increasingly
complex. Our evaluations of new materials for use in R&D, manufacturing, and assembly and test take into account EHS
considerations and are a component of Intel’s design for EHS processes. Many new materials being evaluated for use may be subject to
regulation under existing or future laws and regulations. Failure to comply with any of the applicable laws or regulations could result in
fines, suspension of production, alteration of fabrication and assembly processes, curtailment of operations or sales, and legal liability.
Intel’s failure to properly manage the use, transportation, emission, discharge, storage, recycling or disposal of hazardous materials
could subject the company to future liabilities. Existing or future laws and regulations could require Intel to procure pollution
abatement or remediation equipment, modify product designs, or incur other expenses associated with the laws and regulations. In
addition, restrictions on the use of certain materials in our facilities or products in the future could have a material adverse effect on our
operations. Compliance with these complex laws and regulations, as well as internal voluntary programs, is integrated into our
manufacturing and assembly and test processes. To our knowledge, compliance with these laws and regulations has had no material
effect on our operations. We also refer to the information under the heading “Legal Proceedings” in Part I, Item 3 of this Form 10-K.
16
Executive Officers of the Registrant
The following sets forth certain information with regard to the executive officers of Intel as of February 18, 2005 (ages are as of
December 25, 2004):
Andrew S. Grove (age 68) has been a director of Intel since 1974 and Chairman of the Board since 1997. Dr. Grove was Chief
Executive Officer from 1987 to 1998, President from 1979 to 1997 and Chief Operating Officer from 1976 to 1987.
Craig R. Barrett (age 65) has been a director of Intel since 1992 and Chief Executive Officer since 1998. Prior to that, Dr. Barrett
was President from 1997 to 2002, Chief Operating Officer from 1993 to 1997 and Executive Vice President from 1990 to 1997.
Paul S. Otellini (age 54) has been a director of Intel and President and Chief Operating Officer since 2002. Prior to that, Mr.
Otellini was Executive Vice President and General Manager, Intel Architecture Group, from 1998 to 2002; Executive Vice President
and General Manager, Sales and Marketing Group, from 1996 to 1998; and Senior Vice President and General Manager, Sales and
Marketing Group, from 1994 to 1996.
Andy D. Bryant (age 54) has been Executive Vice President and Chief Financial and Enterprise Services Officer since 2001, and
was Senior Vice President and Chief Financial and Enterprise Services Officer from 1999 to 2001. Prior to that, Mr. Bryant was Senior
Vice President and Chief Financial Officer in 1999, and Vice President and Chief Financial Officer from 1994 to 1999.
Sean M. Maloney (age 48) has been Executive Vice President and General Manager, Mobility Group, since January 2005. Prior to
that, Mr. Maloney was Executive Vice President and General Manager, Intel Communications Group, from 2001 to January 2005;
Executive Vice President and Director, Sales and Marketing Group, in 2001; Senior Vice President and Director, Sales and Marketing
Group, from 1999 to 2001; Vice President and Director, Sales and Marketing Group, from 1998 to 1999; and Vice President, Sales,
and General Manager, Asia-Pacific Operations, from 1995 to 1998.
Robert J. Baker (age 49) has been Senior Vice President and General Manager, Technology and Manufacturing Group, since
2001, and was Vice President and General Manager, Components Manufacturing, from 2000 to 2001. Prior to that, Mr. Baker managed
Fab Sort Manufacturing from 1999 to 2000 and Microprocessor Components Manufacturing from 1996 to 1999.
Sunlin Chou (age 58) has been Senior Vice President and General Manager, Technology and Manufacturing Group, since 1998.
Mr. Chou was Vice President, Technology and Manufacturing Group, from 1988 to 1998.
Patrick P. Gelsinger (age 43) has been Senior Vice President and General Manager, Digital Enterprise Group, since January 2005.
Prior to that, Mr. Gelsinger was Chief Technology Officer from 2001 to January 2005; Chief Technology Officer, Computing Group,
from 2000 to 2001; and Vice President and General Manager, Desktop Products Group, from 1996 to 2000.
Arvind Sodhani (age 50) has been Senior Vice President and Treasurer since February 2005, and was Vice President and
Treasurer from 1990 to February 2005.
Anand Chandrasekher (age 41) has been Vice President and Director, Sales and Marketing Group, since January 2005. Prior to
that, Mr. Chandrasekher was Vice President and General Manager, Mobile Platforms Group, from 2001 to January 2005; Vice
President and General Manager, Intel Architecture Marketing Group, from 2000 to 2001; and Vice President and General Manager,
Workstation Platforms Group, from 1997 to 2000.
John H. F. Miner (age 49) has been a Vice President of Intel Corporation and President of Intel Capital since 2003, and was Vice
President and General Manager of Intel Capital from 2002 to 2003. Prior to that, Mr. Miner was Vice President, New Business Group,
from 2001 to 2003; and Vice President and General Manager, Communications Products Group, from 1999 to 2001.
David Perlmutter (age 51) has been Vice President and General Manager, Mobility Group, since January 2005. Prior to that, Mr.
Perlmutter was Vice President and General Manager, Mobile Platforms Group, from 2000 to January 2005; and Vice President,
Microprocessor Group, and General Manager, Basic Microprocessor Division and Intel Israel Development Center, from 1996 to 2000.
D. Bruce Sewell (age 45) has been Vice President and General Counsel since November 2004, and was Vice President, Legal and
Government Affairs and Deputy General Counsel from 2001 to November 2004. Prior to that, Mr. Sewell served in a variety of senior
legal positions at Intel from 1995 to 2001.
Abhijit Y. Talwalkar (age 40) has been Vice President and General Manager, Digital Enterprise Group, since January 2005. Prior
to that, Mr. Talwalkar was Vice President and General Manager, Enterprise Platforms Group, from 2004 to January 2005; Vice
President and General Manager, Platform Products Group, from 2002 to 2004; Assistant Vice President, Enterprise Platforms Group,
from 2001 to 2002; and Vice President and General Manager, Enterprise Platforms and Solutions Division, from 1999 to 2001.
17
On November 11, 2004, the company announced that the Board of Directors elected Paul S. Otellini as President and Chief
Executive Officer, and Craig R. Barrett as Chairman of the Board, effective as of completion of the Annual Stockholders’ Meeting
scheduled for May 2005. Andrew S. Grove will not stand for reelection as a director at the May Annual Stockholders’ Meeting.
Corporate Governance
Corporate governance is typically defined as the system that allocates duties and authority among a company’s stockholders,
board of directors and management. The stockholders elect the board and vote on extraordinary matters; the board is the company’s
governing body, responsible for hiring, overseeing and evaluating management, particularly the Chief Executive Officer (CEO); and
management runs the company’s day-to-day operations. The Board believes that there should be a substantial majority of independent
directors on the Board. The Board also believes that it is useful and appropriate to have members of management, including the Chief
Executive Officer, as directors.
The Board’s general policy, based on experience, is that the positions of Chairman of the Board and Chief Executive Officer
should be held by separate persons to aid in the Board’s oversight of management. In addition, the Board has an independent director
designated as the Lead Independent Director, who is responsible for coordinating the activities of the other independent directors and
performs various other duties. The general authority and responsibilities of the Lead Independent Director are established in a written
charter adopted by the Board.
The current Board members include eight independent directors and three members of Intel’s senior management. The Board
members are Craig R. Barrett, Intel’s Chief Executive Officer; Ambassador Charlene Barshefsky, Senior International Partner at the
Wilmer Cutler Pickering Hale and Dorr LLP law firm; E. John P. Browne, Group Chief Executive of BP plc; Andrew S. Grove, Intel’s
Chairman of the Board; D. James Guzy, Chairman of Arbor Company; Reed E. Hundt, Principal, Charles Ross Partners; Paul S.
Otellini, Intel’s President and Chief Operating Officer; David S. Pottruck, Managing Director, The Pottruck Group; Jane E. Shaw,
Chairman and Chief Executive Officer of Aerogen, Inc.; John L. Thornton, Professor and Director of Global Leadership at Tsinghua
University, Beijing, China; and David B. Yoffie, Professor of International Business Administration, Harvard Business School. The
Board also has one Director Emeritus, Gordon E. Moore, who may participate in Board meetings but does not vote.
Director Vacancy in 2005. In November 2004, Intel announced that Andrew S. Grove, Chairman of the Board, would not stand
for reelection in May 2005; that Craig R. Barrett would succeed Dr. Grove as Chairman effective following the 2005 Annual Meeting;
and that Paul S. Otellini would succeed Dr. Barrett as Chief Executive Officer at the same time. The Board presently expects to keep
the total number of directors at 11, and the Board’s Corporate Governance and Nominating Committee is considering possible
candidates for the Board seat to be vacated by Dr. Grove. The Board has not yet chosen a candidate, and if it has not done so prior to
distribution of the Proxy Statement for Intel’s 2005 Annual Stockholders’ Meeting, the Board may act to temporarily reduce the size of
the Board to 10 directors effective with the Annual Meeting. In that circumstance, it is the expectation of the Board that it will identify
a director candidate later in 2005 and that the Board will act to expand the Board again to 11 directors at that time and to elect that
person to the Board. The company will make a public announcement if and when that event occurs.
“Independent” Directors. Each of the company’s directors other than Messrs. Grove, Barrett and Otellini qualify as
“independent” in accordance with the published listing requirements of The NASDAQ Stock Market (NASDAQ)*. The NASDAQ
independence definition includes a series of objective tests, such as that the director is not an employee of the company and has not
engaged in various types of business dealings with the company. In addition, as further required by the NASDAQ rules, the Board of
Directors has made an affirmative determination as to each independent director that no relationships exist which, in the opinion of the
Board, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. In making these
determinations, the Board reviewed and discussed information provided by the directors and the company with regard to each
director’s business and personal activities as they may relate to Intel and Intel’s management.
In addition, the members of the Audit Committee of the Board also each qualify as “independent” under special standards
established by the U.S. Securities and Exchange Commission (SEC) for members of audit committees, and the Audit Committee
includes at least one member who is determined by the Board to meet the qualifications of an “audit committee financial expert” in
accordance with SEC rules, including that the person meets the relevant definition of an “independent” director. E. John P. Browne is
the independent director who has been determined to be an audit committee financial expert. Stockholders should understand that this
designation is a disclosure requirement of the SEC related to Mr. Browne’s experience and understanding with respect to certain
accounting and auditing matters. The designation does not impose on Mr. Browne any duties, obligations or liability that are greater
than are generally imposed on him as a member of the Audit Committee and Board of Directors, and his designation as an audit
committee financial expert pursuant to this SEC requirement does not affect the duties, obligations or liability of any other member of
the Audit Committee or Board of Directors.
18
Board Responsibilities and Structure. The primary responsibilities of the Board of Directors are oversight, counseling and
direction to Intel’s management in the long-term interests of Intel and its stockholders. The Board’s detailed responsibilities include:
(a) selecting, regularly evaluating the performance of, and determining the compensation of the Chief Executive Officer and other
senior executives; (b) planning for succession with respect to the position of Chief Executive Officer and monitoring management’s
succession planning for other senior executives; (c) reviewing and, where appropriate, approving Intel’s major financial objectives,
strategic and operating plans and actions; (d) overseeing the conduct of Intel’s business to evaluate whether the business is being
properly managed; and (e) overseeing the processes for maintaining Intel’s integrity with regard to its financial statements and other
public disclosures and compliance with law and ethics. The Chief Executive Officer, working with Intel’s other executive officers, has
the authority and responsibility for managing Intel’s business in a manner consistent with Intel’s standards and practices, and in
accordance with any specific plans, instructions or directions of the Board. The Chief Executive Officer and management are
responsible for seeking the advice and, in appropriate situations, the approval of the Board with respect to extraordinary actions to be
undertaken by Intel.
The Board and its committees meet throughout the year on a set schedule, and also hold special meetings and act by written
consent from time to time as appropriate. Board agendas include regularly scheduled sessions for the independent directors to meet
without management present, and the Board’s Lead Independent Director leads those sessions. The Board has delegated various
responsibilities and authority to different Board committees as generally described below. Committees regularly report on their
activities and actions to the full Board. Board members have access to all Intel employees outside of Board meetings, and the Board
has a program that encourages each director to visit different Intel sites and events worldwide on a regular basis and meet with local
management at those sites and events.
Board Committees and Charters. The Board currently has, and appoints the members of, standing Audit, Compensation,
Corporate Governance and Nominating, Executive and Finance Committees. Each member of the Audit, Compensation, and Corporate
Governance and Nominating Committees is an independent director in accordance with NASDAQ standards described above. Each of
the Board committees has a written charter approved by the Board. Copies of each charter, as well as the charter describing the position
of Lead Independent Director, are posted on the company’s web site at www.intc.com under the “Corporate Governance and Social
Responsibility” section.
The Audit Committee assists the Board in its general oversight of Intel’s financial reporting, internal controls and audit functions,
and is directly responsible for the appointment, retention, compensation and oversight of the work of Intel’s independent auditors.
The Compensation Committee reviews and determines salaries, equity incentives and other matters relating to executive
compensation, and administers Intel’s stock option plans, including reviewing and granting stock options to executive officers. The
Compensation Committee also reviews and approves various other company compensation policies and matters.
The Corporate Governance and Nominating Committee reviews and reports to the Board on a periodic basis with regard to
matters of corporate governance, and determines the compensation to be paid to non-employee directors. The Board has adopted a set
of Guidelines on Significant Corporate Governance Issues, which are posted on the company’s web site at www.intc.com under the
“Corporate Governance and Social Responsibility” section. The Corporate Governance and Nominating Committee reviews and
assesses the effectiveness of the Guidelines, makes recommendations to the Board regarding proposed revisions to the Guidelines, and
makes recommendations to the Board regarding the size and composition of the Board. In addition, the Corporate Governance and
Nominating Committee makes recommendations to the Board regarding the agenda for Intel’s annual stockholders’ meetings, reviews
stockholder proposals and makes recommendations to the Board for action on such proposals.
The Corporate Governance and Nominating Committee is also responsible for reviewing with the Board, from time to time, the
appropriate skills and characteristics required of Board members in the context of the current makeup of the Board. This assessment
includes issues of diversity in numerous factors such as age; understanding of and experience in manufacturing, technology, finance
and marketing; and international experience and culture. These factors, and others as considered useful by the Committee, are reviewed
in the context of an assessment of the perceived needs of the Board at a particular point in time. As a result, the priorities and emphasis
of the Committee and of the Board may change from time to time to take into account changes in business and other trends, and the
portfolio of skills and experience of current and prospective Board members. The Corporate Governance and Nominating Committee
establishes procedures for the nomination process, recommends candidates for election to the Board and also nominates officers for
election by the Board. Consideration of new Board nominee candidates typically involves a series of internal discussions, review of
information concerning candidates and interviews with selected candidates. Candidates for nomination to the Board typically are
suggested by Board members or employees. In 2004, the company did not employ a search firm or pay fees to other third parties in
connection with seeking or evaluating Board nominee candidates. The Corporate Governance and Nominating Committee will
19
consider a candidate proposed by stockholders, and has from time to time received unsolicited candidate proposals from stockholders.
Candidates proposed by stockholders are evaluated by the Committee using the same criteria as for other candidates. As described
above, the Corporate Governance and Nominating Committee is currently engaged in the consideration of candidates for the Board to
succeed to the seat currently held by Dr. Grove.
The Corporate Governance and Nominating Committee also reviews and reports to the Board on a periodic basis with regard to
matters of corporate social responsibility performance, such as environmental, workplace or stakeholder issues, as appropriate, and the
company’s public reporting with regard to these topics. We view our reputation and standing as a socially responsible corporate citizen
as important and employ processes and management systems to seek to maintain that standing. We direct corporate responsibility
efforts across a global network of Intel organizations. We maintain community advisory panels at many of our operating sites and
monitor external trends. We proactively engage with other stakeholders, including socially responsible investors, policy-setting bodies
and non-governmental organizations, to communicate Intel’s views and understand their priorities. Intel voluntarily publishes an
annual Global Citizenship Report in accordance with the Global Reporting Initiative’s (GRI) Sustainability Reporting Guidelines. That
report, in addition to other voluntary disclosures, can be found on the company’s web site at www.intc.com under the “Corporate
Governance and Social Responsibility” section.
The Executive Committee may exercise the authority of the Board between Board meetings, except to the extent that the Board
has delegated authority to another committee or to other persons, and except as limited by Delaware law.
The Finance Committee reviews and recommends matters related to Intel’s capital structure, including the issuance of debt and
equity securities; Intel’s dividend policy and dividend declarations; banking arrangements, including investment of corporate cash; and
management of the corporate debt structure. In addition, the Finance Committee reviews and approves structured finance and other
cash management transactions whose authorization is not otherwise approved by the Board or delegated to Intel’s management.
Board members also sit on the Investment Policy Committee for Intel’s U.S. employee retirement plans. This committee includes
Intel management representatives, and is responsible for adopting and amending investment policies as well as selecting and
monitoring service providers for the plans. The committee also selects the investment alternatives offered under Intel’s 401(k) Savings
Plan.
Attendance at Board, Committee and Annual Stockholders’ Meetings. All directors are expected to attend each meeting of the
Board and the committees on which he or she serves, and are also expected to attend the Annual Stockholders’ Meeting. A list of
Board committees and Board committee members will be available in Intel’s Proxy Statement relating to its 2005 Annual
Stockholders’ Meeting.
The Board does not have a formal policy that limits the number of board seats held by an independent director, but the Board’s
guideline of 100% attendance at meetings reflects the Board’s expectation that each director will meet his or her commitments to the
position. The time commitments of directors vary substantially with regard to their individual involvement with their primary positions
and commercial, charitable and other organizations. The Board believes that a limitation on board seats held by a director will not
adequately express the key functional point about the director’s time commitment to Intel.
Intel has a policy, and an approval process, that generally limits each employee to serving on no more than one company board as
a personal, non-Intel activity. The approval process considers both the time commitment involved and the potential for business
conflicts between Intel and the other company. This policy is applicable to Intel’s three management directors and its other officers.
Stock Ownership Guidelines. Directors and officers are encouraged to be stockholders of the company through their participation
in the company’s stock option and employee stock participation plans. Stock ownership guidelines have been established by the Board
of Directors for independent directors and corporate officers to better ensure that they each maintain an equity stake in the company,
and by doing so appropriately link their interests with those of the other stockholders. These guidelines provide that, within a five-year
period following appointment or election, the covered individuals should attain and hold an investment position (not including
unexercised stock options) of no less than a specified number of shares of Intel stock (for officers, approximating three to five times the
sum of their base salary and annual incentive target, depending on the individual’s scope of responsibilities, and a similar guideline for
independent directors). Directors and officers may not invest in (purchase or otherwise receive, or write) derivatives of Intel securities,
e.g., puts and calls on Intel securities (with limited exceptions) or enter into any “short sales” or “short positions” with respect to Intel
securities. A short position is one in which the person will profit if the market price of Intel securities either remains the same or
decreases. Intel considers it inappropriate and contrary to the interests of Intel and its stockholders for directors and officers to take
investment positions when the person would obtain a personal benefit in such a case.
20
ITEM 2.
PROPERTIES
At December 25, 2004, we owned the major facilities described below (square feet in millions):
No. of
Bldgs.
Location
123
United States(A)
Total Sq. Ft.
27.2
9
12
Ireland
Malaysia(B)
3.1
2.3
16
5
Israel(C)
Philippines(D)
2.0
1.4
China(E)
Costa Rica
India(F)
United Kingdom
Japan
Germany
0.9
0.9
0.5
0.2
0.2
0.1
5
4
2
1
3
1
Use
Executive and administrative offices, wafer fabrication, research and development, sales and
marketing, computer and service functions, and warehousing.
Wafer fabrication, warehousing and administrative offices.
Components assembly and testing, boards and systems manufacturing, research and
development, warehousing and administrative offices.
Wafer fabrication, research and development, warehousing and administrative offices.
Components assembly and testing, warehousing, administrative offices, and research and
development.
Components assembly and testing, research and development, and administrative offices.
Components assembly and testing, warehousing and administrative offices.
Sales and marketing, research and development, and administrative offices.
Sales and marketing and administrative offices.
Sales and marketing and administrative offices.
Sales and marketing and administrative offices.
(A)
Lease on portion of the land used for these facilities expires in 2023.
(B)
Leases on portions of the land used for these facilities expire in 2033 through 2059.
(C)
Leases on portions of the land used for these facilities expire in 2039 through 2045.
(D)
Leases on portions of the land used for these facilities expire in 2046.
(E)
Leases on portions of the land used for these facilities expire in 2046 through 2053.
(F)
Lease on portion of the land used for these facilities expires in 2009.
As of December 25, 2004, we also leased 57 major facilities in the U.S. totaling approximately 2.4 million square feet and 61
facilities in other countries totaling approximately 2.8 million square feet. These leases expire at varying dates through 2021 and
include renewals at our option. Leased facilities in the U.S. decreased during 2004, primarily due to the expiration or termination of
leases on facilities no longer needed, while leased facilities in other countries increased due to expanded operations in certain locations.
We are seeking to sublease approximately 0.5 million square feet of building space. We believe that our existing facilities are suitable
and adequate for our present purposes, and that, except as we have discussed above, the productive capacity in such facilities is
substantially being utilized or we have plans to utilize it. We also have approximately 0.7 million square feet of building space in
various international sites under construction for assembly and testing and research and development purposes. For information
regarding environmental proceedings related to certain facilities, see “Legal Proceedings” in Part I, Item 3 of this Form 10-K.
We do not identify or allocate assets or depreciation by operating segment. For information on net property, plant and equipment
by country, see “Note 19: Operating Segment and Geographic Information” in Part II, Item 8 of this Form 10-K.
21
ITEM 3.
LEGAL PROCEEDINGS
A. Tax Matters
In August 2003, in connection with the U.S. Internal Revenue Service’s (IRS’s) regular examination of Intel’s tax returns for the
years 1999 and 2000, the IRS proposed certain adjustments primarily related to the amounts reflected by Intel on these returns as a tax
benefit for its export sales. In January 2005, the IRS issued formal assessments for these adjustments. The company does not agree
with these adjustments and intends to appeal these assessments. If the IRS prevails in its position, Intel’s federal income tax due for
these years would increase by approximately $600 million, plus interest. The IRS may make similar claims for years subsequent to
2000 in future audits.
Although the final resolution of the adjustments is uncertain, based on currently available information, management believes that
the ultimate outcome will not have a material adverse effect on the company’s financial position, cash flows or overall trends in results
of operations. There is the possibility of a material adverse impact on the results of operations of the period in which the matter is
ultimately resolved, if it is resolved unfavorably, or in the period in which an unfavorable outcome becomes probable and reasonably
estimable.
B. Litigation
Intel currently is a party to various legal proceedings, including those noted below. While management presently believes that the
ultimate outcome of these proceedings, individually and in the aggregate, will not have a material adverse effect on our financial
position, cash flows or overall trends in results of operations, litigation is subject to inherent uncertainties, and unfavorable rulings
could occur. An unfavorable ruling could include money damages or, in cases for which injunctive relief is sought, an injunction
prohibiting Intel from selling one or more products. 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 or future periods.
MicroUnity, Inc. v. Intel Corporation, et al.
U.S. District Court, Eastern District of Texas
In March 2004, MicroUnity, Inc. filed suit against Intel and Dell Inc. in the Eastern District of Texas. MicroUnity claims that
Intel® Pentium® III, Pentium® 4, Pentium® M and Itanium® 2 microprocessors infringe seven MicroUnity patents, and that certain
Intel chipsets infringe one MicroUnity patent. MicroUnity also alleges that Dell products that contain these Intel products infringe the
same patents. At Dell’s request, Intel agreed to indemnify Dell with respect to MicroUnity’s claims against Dell, subject to the terms of
a prior agreement between Intel and Dell. MicroUnity seeks an injunction, unspecified damages and attorneys’ fees against both Intel
and Dell. Intel disputes MicroUnity’s claims and intends to defend the lawsuit vigorously.
Barbara Sales, et al. v. Intel Corporation, Gateway Inc., Hewlett-Packard Co. and HPDirect, Inc.
(formerly Deanna Neubauer, et al. v. Intel Corporation, Gateway Inc., Hewlett-Packard Co. and HPDirect, Inc.)
Third Judicial Circuit Court, Madison County, Illinois
In June 2002, various plaintiffs filed a lawsuit in the Third Judicial Circuit Court, Madison County, Illinois, against Intel,
Gateway Inc., Hewlett-Packard Company and HPDirect, Inc., alleging that the defendants’ advertisements and statements misled the
public by suppressing and concealing the alleged material fact that systems containing Intel Pentium 4 microprocessors are less
powerful and slower than systems containing Intel Pentium III microprocessors and a competitor’s microprocessors. In July 2004, the
Court certified against Intel an Illinois-only class of certain end use purchasers of certain Pentium 4 microprocessors or computers
containing such microprocessors. The Court denied plaintiffs’ motion for reconsideration of this ruling. In January 2005, the Court
granted a motion filed jointly by the plaintiffs and Intel that stayed the proceedings in the trial court pending discretionary appellate
review of the Court’s class certification order. The plaintiffs and Intel thereafter filed a joint application for discretionary appeal of the
trial court’s class certification ruling. The plaintiffs seek unspecified damages, and attorneys’ fees and costs. Intel disputes the
plaintiffs’ claims and intends to defend the lawsuit vigorously.
Japan Fair Trade Commission Investigation
In April 2004, the Japanese Fair Trade Commission (JFTC) commenced an investigation into the sales and marketing activities of
Intel’s Japanese subsidiary, including whether Intel’s Japanese subsidiary unfairly influenced Japanese computer makers to use Intel
microprocessors instead of microprocessors sold by competitors. The JFTC is reviewing documents and information from Intel and
others and has been conducting interviews. Intel understands that the JFTC may make a decision regarding whether, and how, to
proceed during the first quarter of 2005. Intel is cooperating with the JFTC in the investigation.
22
C. Environmental Proceedings
Intel has been named to the California and U.S. Superfund lists for three of our sites and has completed, along with two other
companies, a Remedial Investigation/Feasibility study with the U.S. Environmental Protection Agency (EPA) to evaluate the
groundwater in areas adjacent to one of our former sites. The EPA has issued a Record of Decision with respect to a groundwater
cleanup plan at that site, including expected costs of completion. Under the California and U.S. Superfund statutes, liability for cleanup
of this site and the adjacent area is joint and several. Intel, however, has reached agreement with those same two companies that
significantly limits Intel’s liabilities under the proposed cleanup plan. Also, we have completed extensive studies at our other sites, and
we are engaged in cleanup at several of these sites. In the opinion of management, the potential losses to the company in excess of
amounts already accrued arising out of these matters would not have a material adverse effect on the company’s financial position or
overall trends in results of operations, even if joint and several liability were to be assessed.
The estimate of the potential impact on the financial position, cash flows or overall results of operations for the above tax matters
and legal and environmental proceedings could change in the future.
ITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
Information regarding the market price range of Intel common stock and dividend information may be found in “Financial
Information by Quarter (Unaudited)” in Part II, Item 8 on page 80 of this Form 10-K. Additional information concerning dividends
may be found in the following sections of this Form 10-K: “Selected Financial Data” in Part II, Item 6 and “Consolidated Statements
of Cash Flows” and “Consolidated Statements of Stockholders’ Equity” in Part II, Item 8.
In each quarter during 2004, we paid a cash dividend of $0.04 per common share, for a total of $0.16 for the year ($0.02 each
quarter during 2003 for a total of $0.08 for the year). We have paid a cash dividend in each of the past 49 quarters. On February 2,
2005, our Board of Directors declared a cash dividend of $0.08 per common share for the first quarter of 2005. The dividend is payable
on March 1, 2005 to stockholders of record on February 7, 2005.
As of January 28, 2005, there were approximately 230,000 registered holders of record of Intel’s common stock. A substantially
greater number of holders of Intel common stock are “street name” or beneficial holders, whose shares are held of record by banks,
brokers and other financial institutions.
Issuer Purchases of Equity Securities
Total
Number
of Shares
Purchased
Average
Price
Paid
per
Share
Total
Number of
Shares
Purchased
as Part of
Publicly
Announced
Plans
September 26, 2004–October 23, 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . .
October 24, 2004–November 20, 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . .
November 21, 2004–December 25, 2004 . . . . . . . . . . . . . . . . . . . . . . . . . .
13.3
58.4
17.3
$20.73
$22.41
$24.10
13.3
58.4
17.3
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
89.0
$22.48
89.0
Period
(Shares in Millions)
Maximum
Number
of Shares
That May
Yet Be
Purchased
Under the
Plans
189.2
630.8
613.5
The company has an ongoing authorization, as amended, from the Board of Directors to repurchase shares of Intel’s common
stock in the open market or in negotiated transactions. The company’s authorization is for up to 2.8 billion shares, which includes the
most recent authorization in November 2004 to purchase an additional 500 million shares. We generally do not purchase stock during
the “quiet periods” we have established in advance of the publication of our quarterly Earnings Release and Business Update release.
For a discussion of our quiet periods, see “Status of Business Outlook and Related Risk Factor Statements” in Part II, Item 7 on
page 42 of this Form 10-K.
23
ITEM 6.
SELECTED FINANCIAL DATA
Ten Years Ended December 25, 2004
(In Millions)
Net Revenue
Gross Margin
Research &
Development
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
................................................
................................................
................................................
................................................
................................................
................................................
................................................
................................................
................................................
................................................
34,209
30,141
26,764
26,539
33,726
29,389
26,273
25,070
20,847
16,202
(In Millions—Except Per Share Amounts)
Basic
Earnings
Per Share†
Diluted
Earnings
Per Share†
2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
1.17
0.86
0.47
0.19
1.57
1.10
0.91
1.06
0.78
0.54
19,746
17,094
13,318
13,052
21,076
17,553
14,185
15,125
11,683
8,391
Weighted Average
Diluted Shares
Outstanding
1.16
0.85
0.46
0.19
1.51
1.05
0.86
0.97
0.73
0.50
6,494
6,621
6,759
6,879
6,986
6,940
7,035
7,179
7,101
7,072
(In Millions—Except Employees)
Total Assets
Long-Term
Debt & Put
Warrants
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
†
.............................................
.............................................
.............................................
.............................................
.............................................
.............................................
.............................................
.............................................
.............................................
.............................................
48,143
47,143
44,224
44,395
47,945
43,849
31,471
28,880
23,735
17,504
703
936
929
1,050
707
1,085
903
2,489
1,003
1,125
4,778
4,360
4,034
3,796
3,897
3,111
2,509
2,347
1,808
1,296
Operating
Income
Net Income
$ 10,130
$ 7,533
$ 4,382
$ 2,256
$ 10,395
$ 9,767
$ 8,379
$ 9,887
$ 7,553
$ 5,252
$ 7,516
$ 5,641
$ 3,117
$ 1,291
$ 10,535
$ 7,314
$ 6,068
$ 6,945
$ 5,157
$ 3,566
Dividends
Declared
Per Share
Dividends
Paid Per
Share
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
.160
.080
.080
.080
.070
.055
.025
.029
.024
.019
Stockholders’
Equity
$
$
$
$
$
$
$
$
$
$
38,579
37,846
35,468
35,830
37,322
32,535
23,377
19,295
16,872
12,140
.160
.080
.080
.080
.070
.055
.033
.028
.023
.018
Additions to
Property, Plant
& Equipment
$
$
$
$
$
$
$
$
$
$
Net Investment in
Property, Plant
& Equipment
$
$
$
$
$
$
$
$
$
$
15,768
16,661
17,847
18,121
15,013
11,715
11,609
10,666
8,487
7,471
Employees
at Year-End
(In Thousands)
3,843
3,656
4,703
7,309
6,674
3,403
4,032
4,501
3,024
3,550
85.0
79.7
78.7
83.4
86.1
70.2
64.5
63.7
48.5
41.6
Amortization of goodwill reduced basic earnings per share by $0.23 in 2001, $0.19 in 2000 and $0.05 in 1999, and reduced diluted
earnings per share by $0.22 in 2001, $0.18 in 2000 and $0.05 in 1999. Goodwill is no longer amortized, beginning in 2002.
In addition, the ratio of earnings to fixed charges for each of the five years in the period ended December 25, 2004 was as
follows:
2004
2003
2002
2001
2000
107x
72x
32x
18x
171x
Fixed charges consist of interest expense and the estimated interest component of rent expense.
24
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
We begin Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) with Intel’s overall
strategy and the strategy for our major business units, to give the reader an overview of the goals of our business and the direction in
which our business and products are moving. The strategy section is followed by a discussion of the Critical Accounting Estimates that
we believe are important to understanding the assumptions and judgments incorporated in our reported financial results. Beginning on
page 30, we discuss our Results of Operations for 2004 compared to 2003, and for 2003 compared to 2002, beginning with an
Overview. We then provide an analysis of changes in our balance sheet and cash flows, and discuss our financial commitments in the
sections entitled “Financial Condition,” “Contractual Obligations” and “Off-Balance-Sheet Arrangements.” On page 40, we conclude
this MD&A with our “Business Outlook” section, discussing our outlook for 2005.
This MD&A should be read in conjunction with the other sections of this annual report on Form 10-K, including Part I, “Item 1:
Business”; Part II, “Item 6: Selected Financial Data”; and Part II, “Item 8: Financial Statements and Supplementary Data.” The various
sections of this MD&A contain a number of forward-looking statements, all of which are based on our current expectations and could
be affected by the uncertainties and risk factors described throughout this filing and particularly in the “Business Outlook” section. Our
actual results may differ materially, and these forward-looking statements do not reflect the potential impact of any divestitures,
mergers, acquisitions or other business combinations that had not been completed as of February 16, 2005.
Strategy
Our goal is to be the preeminent building block supplier to the worldwide digital economy. As part of our overall strategy to
compete in each relevant market segment, we use our core competencies in the design and manufacture of integrated circuits and our
financial resources, as well as our global presence and brand recognition. Our global marketing strategy is designed to associate our
brands with advanced technology and innovation. In addition, under our Intel Capital program, we make equity investments in
companies around the world to further our strategic objectives and support our key business initiatives.
Our primary focus is on developing advanced integrated silicon technology solutions, which we believe will provide the
performance necessary to help accelerate the convergence of computing and communications capabilities with digital content.
Convergence refers to combining computing and communications capabilities in an integrated product solution. We believe that
convergence is occurring primarily in three areas: the digital home, the digital enterprise and with mobile Internet users. We also
provide key components for networking and communications infrastructures used to connect technology users.
We believe that users of computing and communications devices want improved performance, which includes faster processing
performance and/or improved capabilities such as multithreading or multitasking, lower system power consumption, seamless
connectivity, improved security, reliability, ease of use and interoperability among devices. It is our goal to incorporate features
addressing these capabilities in our various products to meet user demands. We also believe that our customers who build computing
and communications systems and devices will benefit if our products incorporating these capabilities are based on a platform solution.
We define a platform as a collection of silicon components and software designed to provide a better user solution when used in
combination than if used separately. The success of our strategies to add more features to our microprocessors and offer platform
solutions is dependent on our ability to select and incorporate features that customers value, and to market those features effectively.
We view technology standards as an important way to advance new technologies and foster industry infrastructures or
ecosystems. We work with the industry in various areas to help establish technology standards, ultimately incorporating many of these
standards into our own product offerings.
As we move to each succeeding generation of manufacturing process technology, we use less space per transistor, which enables
us to fit more transistors on an equivalent size chip, decrease the size of the chip or offer an increased number of integrated features.
This decrease in size can also result in faster microprocessors and semiconductor products that consume less power and/or products
that cost less to manufacture.
Under our Intel Capital program, we make equity investments in companies around the world to further our strategic objectives
and support our key business initiatives. The Intel Capital program generally focuses on investing in companies and initiatives to
stimulate growth in the digital economy, create new business opportunities for Intel and expand global markets for our products. The
investments may support, among other things, Intel product initiatives, emerging trends in the technology industry or worldwide
Internet deployment. We invest in companies that develop software, hardware or services supporting our technologies. Our current
investment focus areas include enabling mobile wireless devices, helping to advance the digital home, enhancing the digital enterprise,
advancing high-performance communications infrastructures and developing the next generation of silicon production technologies.
Our focus areas tend to develop and change over time due to rapid advancements in technology.
25
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Both of our operating segments use their core competencies in the design and manufacture of integrated circuits, as well as key
silicon and platform capabilities, to provide building blocks for technology solutions. The Intel Architecture business provides
advanced technologies to support the desktop, mobile and enterprise computing market segments. The Intel Communications Group
(ICG) focuses on flash memory products, wired and wireless connectivity products, application processors, cellular baseband chipsets,
and key components for networking and communications infrastructure devices. In 2004, the company combined its communicationsrelated businesses into a single organization, ICG. Previously, these communications businesses were in two separate product-line
operating segments: the former Intel Communications Group and the Wireless Communications and Computing Group (WCCG).
In January 2005, we announced a planned reorganization of our business groups to bring all major product groups in line with the
company’s strategy to drive development of complete technology platforms. These new business units include the Mobility Group, the
Digital Enterprise Group, the Digital Home Group, the Digital Health Group and the Channel Platforms Group. We expect this
reorganization to become effective in 2005. Because the reporting period for this Form 10-K is as of December 25, 2004, the operating
segments discussed in this MD&A are presented under the organizational structure that existed as of December 25, 2004. Our strategy
discussed in this Form 10-K may undergo some changes as the reorganization takes effect.
Intel Architecture Business
The Intel Architecture business develops platform solutions based on our microprocessors, chipsets and board-level products,
which are optimized for use in the desktop, mobile and server computing market segments. As devices continue to be developed that
take advantage of converged computing and communications capabilities and digital content, our goal is to continue to deliver
processors with improved performance. Intel’s Hyper-Threading Technology (HT Technology), which can enable an improved
multitasking user environment, and Intel® Centrino™ mobile technology, which can enhance the mobile computing experience, are
examples of the features we offer in our products that can improve performance. In addition, we believe that system security and
reliability features at the hardware level will facilitate an enhanced computing experience for users, and we are working to provide
these capabilities in future products.
To deliver processors with the next level of performance, we have focused our efforts on providing dual- and multi-core
microprocessors in the future. Dual- and multi-core microprocessors will incorporate two or more processor cores on a single chip,
rather than just one microprocessor core. These products are expected to complement our effort to enable more capabilities,
performance and flexibility for users beyond processor speed. To deliver processors with the next level of performance in the near
term, we are working to increase the size of the built-in data-storage capacity on the chip, known as cache memory. Larger amounts of
cache memory allow for faster performance at equivalent processor speeds by allowing faster data retrieval for applications that can
effectively use additional cache memory.
For the desktop market segment, our strategy is to introduce microprocessors and chipsets with improved performance tailored to
the needs of different market segments using a tiered branding approach. For the performance desktop market segment, we offer the
Intel® Pentium® 4 processor family of products. For the desktop value market segment, we offer the Intel® Celeron® processor family
of products. Each of these families of products has complementary chipset products.
For the mobile market segment, our strategy is to deliver products optimized for some or all of the four mobility vectors:
performance, battery life, form factor (the physical size and shape of a device) and wireless connectivity. For performance mobility
users, we offer Intel Centrino mobile technology, designed and optimized specifically for the four key vectors of mobility. The newest
version of Intel Centrino mobile technology, formerly code-named “Sonoma,” consists of an Intel® Pentium® M processor and a
chipset from the Mobile Intel® 915 Express chipset family (both offered by the Intel Architecture business) as well as a wireless
connection (from ICG) that is based on the 802.11 industry standard. For portable PC users who want systems with near-desktop
features, including improved performance, larger screens, full-size keyboards and multiple hard drives, we offer the Mobile Intel®
Pentium® 4 processor. In addition, for the mobile value market segment, we offer the Intel® Celeron® M processor and the Mobile
Intel® Celeron® processor.
Our strategy for the enterprise market segment is to provide processors and chipsets with improved performance as well as
competitive price for performance for entry-level to high-end servers and workstations. These products address the needs of various
levels of data processing and compute-intensive applications. Our Intel® Xeon™ processor family of products supports a range of
entry-level to high-end technical and commercial computing applications for the workstation and server market segments. Our Intel®
Itanium® processor family, which includes the Intel® Itanium® 2 processor, generally supports an even higher level of computing
performance for data processing, the handling of high transaction volumes and other compute-intensive applications for enterpriseclass servers, as well as supercomputing solutions.
26
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Intel Communications Group
Within ICG, our strategy is to be the leading supplier of silicon and other component-level communications building blocks for
OEMs and other systems builders. We are focused on developing products for the wireless handheld computing and communications
market segments as well as products that we believe will help continue to build out the Internet.
Component-level products for the wireless handheld computing and communications market segments include flash memory
products, application processors and cellular baseband chipsets. Our strategy for our flash memory products is to offer a broad range of
memory densities, leading-edge packaging technology and high-performance functionality. In addition to having offerings that meet
the needs of cellular customers, we offer flash memory products that meet the needs of other market segments, such as the broad
market segment. The broad market segment includes flash memory products found in various applications, including set-top boxes,
networking products, and other devices such as DVD players and DSL cable modems. In our flash memory product portfolio, we
currently offer NOR flash memory products such as Intel StrataFlash® Wireless Memory, which uses two-bits-per-cell technology to
provide a single-chip solution for fast code execution, with higher storage densities and 1.8-volt operation optimized for advanced
mobile phone designs. In application processing, Intel XScale® technology provides the processing capability in data-enabled mobile
phones and PDAs. Addressing the trend toward convergence in computing and communications, we offer stacked packaging solutions
(stacking an application processor on top of memory) as well as packaging that stacks several memory chips together.
In support of the build-out of the Internet, we offer products designed for wired and wireless connectivity; for the
communications infrastructure, including network and embedded processors; and for networked storage. Our strategy for connectivity
products is to expand our product portfolio in the local area network (LAN) market segment and to address the metropolitan area
network (MAN) and networked storage market segments. Within the LAN and MAN market segments, we are investing in Gigabit
Ethernet and 10-Gigabit Ethernet, as well as wireless technologies based on industry standards for wireless 802.11 (WLAN, or WiFi)
mobile applications and the emerging standard supporting 802.16 (or WiMAX) for broadband connectivity. We currently offer a
variety of wireless connectivity products based on the 802.11 standard for notebook PCs as part of Intel Centrino mobile technology.
For the communications infrastructure, we deliver network processing-related products that are basic building blocks for modular
communications platforms. These products include advanced, programmable processors used to manage and direct data moving across
the Internet and corporate networks. We also offer embedded processors that can be used for modular communications platform
applications as well as for industrial equipment and point-of-sale systems. In the networked storage market segment, we offer products
that allow storage resources to be added in either of the two most prevalent types of storage networks: Ethernet or Fibre Channel.
Critical Accounting Estimates
The methods, estimates and judgments we use in applying our accounting policies have a significant impact on the results we
report in our financial statements, which we discuss under the heading “Results of Operations” following this section of our MD&A.
Some of our accounting policies require us to make difficult and subjective judgments, often as a result of the need to make estimates
of matters that are inherently uncertain. Our most critical accounting estimates include the assessment of recoverability of goodwill,
which impacts goodwill impairments; valuation of non-marketable equity securities, which impacts net gains (losses) on equity
securities when we record impairments; valuation of inventory, which impacts gross margin; assessment of recoverability of long-lived
assets, which primarily impacts gross margin when we impair manufacturing assets or accelerate their depreciation; and recognition
and measurement of current and deferred income tax assets and liabilities, which impact our tax provision. Below, we discuss these
policies further, as well as the estimates and judgments involved. We also have other policies that we consider key accounting policies,
such as for revenue recognition, including the deferral of revenue on sales to distributors; however, these policies do not require us to
make estimates or judgments that are difficult or subjective.
27
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Goodwill. Goodwill is recorded when the purchase price paid for an acquisition exceeds the estimated fair value of the net
identified tangible and intangible assets acquired. We perform an annual review in the fourth quarter of each year, or more frequently if
indicators of potential impairment exist, to determine if the carrying value of the recorded goodwill is impaired. Our impairment
review process compares the fair value of the reporting unit in which goodwill resides to its carrying value. Reporting units may be
operating segments as a whole or an operation one level below an operating segment, referred to as a component. Components are
defined as operations for which discrete financial information is available and reviewed by segment management. The ICG operating
segment is made up of two reporting units: the flash memory reporting unit and the ICG reporting unit. All of the ICG operating
segment goodwill is included in the ICG reporting unit. Our review process uses the income method to estimate the reporting unit’s fair
value and is based on a discounted future cash flow approach that uses the following reporting unit estimates: revenue, based on
assumed market segment growth rates and Intel’s assumed market segment share; estimated costs; and appropriate discount rates based
on the reporting units’ weighted average cost of capital as determined by considering the observable weighted average cost of capital
of comparable companies. Our estimates of market segment growth, our market segment share and costs are based on historical data,
various internal estimates and a variety of external sources, and are developed as part of our routine long-range planning process. The
same estimates are also used in planning for our long-term manufacturing and assembly and test capacity needs as part of our capital
budgeting process and for both long-term and short-term business planning and forecasting. We test the reasonableness of the inputs
and outcomes of our discounted cash flow analysis against available comparable market data. In determining the carrying value of the
reporting unit, we must include an allocation of our manufacturing and assembly and test assets because of the interchangeable nature
of our manufacturing and assembly and test capacity. This allocation is based on each reporting unit’s relative percentage utilization of
our manufacturing and assembly and test assets. During the fourth quarter of 2004, we completed our most recent review and
determined that the fair value of the ICG reporting unit was in excess of its carrying value; therefore, goodwill was not impaired. Our
review of goodwill in 2003 resulted in a $611 million non-cash impairment charge related to the then-existing Wireless
Communications and Computing Group reporting unit. A substantial majority of our remaining recorded goodwill is related to the ICG
reporting unit. The estimates we used in our most recent annual review for the ICG reporting unit assume that we will gain market
segment share in the future and that the communications business will experience a gradual recovery and return to growth from the
current trends. Prior to the combination of our communications-related businesses, our consumer electronics business, which was
previously part of our former ICG operating segment, was moved to our Intel Architecture business. Based on the estimated fair value
of the consumer electronics business relative to the former ICG reporting unit, goodwill of $466 million was transferred to our Intel
Architecture business. In January 2005, we announced a planned reorganization of our business groups that will change the operating
segments where the goodwill resides as well as the reporting units that are used to evaluate goodwill for impairment.
Non-Marketable Equity Securities. Under our Intel Capital program, we typically invest in non-marketable equity securities of
private companies, which range from early-stage companies that are often still defining their strategic direction to more mature
companies whose products or technologies may directly support an Intel product or initiative. At December 25, 2004, the carrying
value of our portfolio of strategic investments in non-marketable equity securities, excluding equity derivatives, totaled $507 million
($665 million at December 27, 2003).
Investments in non-marketable equity securities are inherently risky, and a number of these companies are likely to fail. Their
success (or lack thereof) is dependent on product development, market acceptance, operational efficiency and other key business
success factors. In addition, depending on their future prospects, they may not be able to raise additional funds when needed or they
may receive lower valuations, with less favorable investment terms than in previous financings, and the investments would likely
become impaired. In the current equity market environment, while the availability of additional funding from venture capital sources
has improved, the companies’ ability to take advantage of liquidity events, such as initial public offerings, mergers and private sales,
remains constrained.
We review all of our investments quarterly for indicators of impairment; however, for non-marketable equity securities, the
impairment analysis requires significant judgment to identify events or circumstances that would likely have a significant adverse
effect on the fair value of the investment. The indicators that we use to identify those events or circumstances include (a) the investee’s
revenue and earnings trends relative to predefined milestones and overall business prospects, (b) the technological feasibility of the
investee’s products and technologies, (c) the general market conditions in the investee’s industry or geographic area, including adverse
regulatory or economic changes, (d) factors related to the investee’s ability to remain in business, such as the investee’s liquidity, debt
ratios and the rate at which the investee is using its cash, and (e) the investee’s receipt of additional funding at a lower valuation.
28
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Investments identified as having an indicator of impairment are subject to further analysis to determine if the investment is other
than temporarily impaired, in which case we write the investment down to its impaired value. When an investee is not considered
viable from a financial or technological point of view, we write down the entire investment since we consider the estimated fair market
value to be nominal. If an investee obtains additional funding at a valuation lower than our carrying amount or requires a new round of
equity funding to stay in operation and the new funding does not appear imminent, we presume that the investment is other than
temporarily impaired, unless specific facts and circumstances indicate otherwise. Impairments of investments in our portfolio,
primarily impairments of non-marketable equity securities, were approximately $117 million in 2004 ($319 million in 2003 and $524
million in 2002).
Inventory. The valuation of inventory requires us to estimate obsolete or excess inventory as well as inventory that is not of
saleable quality. The determination of obsolete or excess inventory requires us to estimate the future demand for our products within
specific time horizons, generally six months or less. The estimates of future demand that we use in the valuation of inventory are the
basis for our published revenue forecasts, which are also consistent with our short-term manufacturing plans. If our demand forecast
for specific products is greater than actual demand and we fail to reduce manufacturing output accordingly, we could be required to
write down additional inventory, which would have a negative impact on our gross margin.
Long-Lived Assets. We assess the impairment of long-lived assets when events or changes in circumstances indicate that the
carrying value of the assets or the asset grouping may not be recoverable. Factors that we consider in deciding when to perform an
impairment review include significant under-performance of a business or product line in relation to expectations, significant negative
industry or economic trends, and significant changes or planned changes in our use of the assets. Recoverability of assets that will
continue to be used in our operations is measured by comparing the carrying amount of the asset grouping to our estimate of the related
total future net cash flows. If an asset grouping’s carrying value is not recoverable through the related cash flows, the asset grouping is
considered to be impaired. The impairment is measured by the difference between the asset grouping’s carrying amount and its fair
value, based on the best information available, including market prices or discounted cash flow analysis.
Impairments of long-lived assets are determined for groups of assets related to the lowest level of identifiable independent cash
flows. Due to our asset usage model and the interchangeable nature of our semiconductor manufacturing capacity, we must make
subjective judgments in determining the independent cash flows that can be related to specific asset groupings. In addition, as we make
manufacturing process conversions and other factory planning decisions, we must make subjective judgments regarding the remaining
useful lives of assets, primarily process-specific semiconductor manufacturing tools and building improvements. When we determine
that the useful lives of assets are shorter than we had originally estimated, and there are sufficient cash flows to support the carrying
value of the assets, we accelerate the rate of depreciation charges in order to fully depreciate the assets over their new shorter useful
lives.
Income Taxes. We must make certain estimates and judgments in determining income tax expense for financial statement
purposes. These estimates and judgments occur in the calculation of tax credits, tax benefits and deductions, such as the tax benefit for
export sales, and in the calculation of certain tax assets and liabilities, which arise from differences in the timing of recognition of
revenue and expense for tax and financial statement purposes. Significant changes to these estimates may result in an increase or
decrease to our tax provision in a subsequent period.
We must assess the likelihood that we will be able to recover our deferred tax assets. If recovery is not likely, we must increase
our provision for taxes by recording a valuation allowance against the deferred tax assets that we estimate will not ultimately be
recoverable. We believe that a substantial majority of the deferred tax assets recorded on our balance sheet will ultimately be
recovered. However, should there be a change in our ability to recover our deferred tax assets, our tax provision would increase in the
period in which we determined that the recovery was not likely.
In addition, the calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax regulations.
We recognize liabilities for anticipated tax audit issues in the U.S. and other tax jurisdictions based on our estimate of whether, and the
extent to which, additional tax payments are probable. If we ultimately determine that payment of these amounts is unnecessary, we
reverse the liability and recognize a tax benefit during the period in which we determine that the liability is no longer necessary. We
record an additional charge in our provision for taxes in the period in which we determine that the recorded tax liability is less than we
expect the ultimate assessment to be. For a discussion of current tax matters, see “Note 10: Provision for Taxes” and “Note 18:
Contingencies” in Part II, Item 8 of this Form 10-K.
29
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Results of Operations
Overview
In 2004, we experienced another year of double-digit growth in annual revenue and gross margin dollars. Our Intel Architecture
business contributed most of this growth, largely from higher unit sales of microprocessors. The Intel Architecture business continues
to represent a large percentage of our business, accounting for 85% of our 2004 consolidated net revenue. Within ICG, we saw 28%
growth in revenue, mostly driven by higher unit sales of our flash memory products. In 2004, we also ramped the production of our
90-nanometer process technology on 300-millimeter (mm) wafers, and exited the year with the majority of our processor shipments to
the computing industry based on this technology. We continue to see strength in both our emerging and mature markets. For 2004, we
increased the operating profit in our Intel Architecture business by 17% and reduced the losses slightly in our communications
business. In addition, our business continued to generate significant cash, and we were able to use $7.5 billion to buy back our stock
and pay $1.0 billion in dividends while maintaining our strong financial position.
In 2005, we are planning for further growth in both annual revenue and gross margin dollars, with higher unit sales for
microprocessors. However, we are also expecting higher manufacturing start-up costs related to the ramp of our 65-nanometer process
technology, particularly in the first half of 2005. Growth in sales and profitability depends on our ability to successfully ramp new
products, and to obtain continuing benefits from the productive use of our manufacturing assets. We expect to introduce our first dualcore processors in 2005, as we continue to focus on enabling more capabilities, performance and flexibility for users beyond processor
speed. We also plan to design our products around entire platforms. In line with this platform focus, in January 2005, we announced a
reorganization to align our business groups across our major platform initiatives. Because the reporting period for this Form 10-K is as
of December 25, 2004, the results of operations for all comparative periods, including the comparison of the 2003 to 2002 results, are
presented under the organizational structure that existed as of December 25, 2004.
The following table sets forth certain consolidated statements of income data as a percentage of net revenue for the periods
indicated:
2004
Net revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2003
2002
100.0% 100.0% 100.0%
42.3% 43.3% 50.2%
Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Research and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Marketing, general and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment of goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization and impairment of acquisition-related intangibles and costs . . . . . . . . . . . . . . . . . .
Purchased in-process research and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
57.7%
14.0%
13.6%
—
0.5%
—
56.7%
14.5%
14.2%
2.0%
1.0%
—
49.8%
15.1%
16.2%
—
2.0%
0.1%
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
29.6%
25.0%
16.4%
The following table sets forth information on our geographic regions for the periods indicated:
2004
2003
% of
Total
Revenue
% of
Total
(Dollars in Millions)
Revenue
Americas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asia-Pacific . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Japan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 7,965
15,380
7,755
3,109
23% $ 8,403
45% 12,161
23%
6,868
9%
2,709
28% $ 8,648
40% 10,073
23%
6,139
9%
1,904
32%
38%
23%
7%
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$34,209
100% $30,141
100% $26,764
100%
30
Revenue
2002
% of
Total
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Our net revenue for 2004 was $34.2 billion, an increase of $4.1 billion, or 13.5%, compared to 2003. This increase was primarily
due to higher net revenue from sales of microprocessors in our Intel Architecture business accompanied by higher net revenue for ICG.
Our Asia-Pacific region’s revenue made up the largest portion of our total revenue during 2004 and increased 26%, reflecting
both growth in local consumption and movement of more of the production for our customers’ PC supply chain to Asia. This
movement in the supply chain negatively affected the Americas region, with a decrease in revenue of 5% in 2004 compared to 2003.
Japan revenue increased 15%, and the Europe region’s revenue increased 13% in 2004 compared to 2003.
Overall gross margin dollars were $19.7 billion, an increase of $2.7 billion, or 16%, compared to 2003. Our overall gross margin
percentage increased to 57.7% in 2004 from 56.7% in 2003. The gross margin percentage for the Intel Architecture business was
higher than in 2003, and the gross margin percentage in our communications business was lower than in 2003. See “Business Outlook”
on page 40 of this section for a discussion of gross margin expectations.
Our net revenue for 2003 was $30.1 billion, an increase of 13% compared to 2002. This increase in net revenue was primarily
from our Intel Architecture business, which had increased sales of microprocessors and chipsets. This increase was partially offset by
lower net revenue for ICG.
In 2003, our Asia-Pacific region’s revenue made up the largest portion of our total revenue and increased 21% compared to 2002,
reflecting growth in local consumption and movement of more of the production for our customers’ PC supply chain to Asia. Revenue
in Europe improved, increasing 12%, in 2003 compared to 2002. Japan experienced substantial improvement with increased revenue of
42%, primarily driven by retail sales as well as higher notebook exports by Japanese manufacturers. Revenue from the Americas region
continued to decrease as a percent of our total revenue and declined 3% in 2003 compared to 2002. In 2003, we continued to
experience growth in emerging markets in Asia and Europe, and began to see some evidence of higher technology infrastructure
spending in mature markets in Europe and the U.S.
Our overall gross margin percentage increased to 56.7% for 2003 from 49.8% in 2002. Improved gross margin within the Intel
Architecture business as well as a shift in the total company revenue mix to the higher margin Intel Architecture business contributed
to our improved total gross margin. Improvement in the Intel Architecture gross margin was partially offset by a decline in the gross
margin percentage for ICG.
Intel Architecture Business
The revenue and operating income for the Intel Architecture operating segment for the three years ended December 25, 2004 were
as follows:
(In Millions)
2004
2003
2002
Microprocessor revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Chipset, motherboard and other revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$24,463
4,704
$21,937
4,241
$18,676
3,671
Total revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$29,167
$12,067
$26,178
$10,354
$22,347
$ 6,498
Revenue for the Intel Architecture operating segment increased by $3.0 billion, or 11%, in 2004 compared to 2003. Revenue from
sales of microprocessors increased 12% while revenue from sales of chipsets and motherboards increased 11%. The increase in Intel
Architecture revenue was primarily due to higher unit sales for microprocessors in the computing market segment. Sales of
microprocessors designed for the desktop, mobile and server market segments all increased substantially in 2004. Consistent with this
increase in sales of microprocessors, we also experienced higher unit sales of our chipsets and motherboards in 2004 compared to
2003. We ramped our 90-nanometer process technology in 2004, and exited the year with the majority of our microprocessors shipped
being manufactured on this technology.
Operating income increased to $12.1 billion in 2004 compared to $10.4 billion in 2003. The 17% increase was primarily due to
the impact of higher revenue and lower unit costs for microprocessors, as well as approximately $160 million of lower manufacturing
start-up costs. These increases in operating income were partially offset by higher operating expenses and a $162 million charge in Q1
2004 relating to a settlement agreement with Intergraph Corporation.
31
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
For 2003, revenue for the Intel Architecture operating segment increased by $3.8 billion, or 17%, compared to 2002. Revenue
from sales of microprocessors increased 17% while revenue from sales of chipsets and motherboards increased 16%. The increase in
Intel Architecture revenue was primarily due to significantly higher unit sales and to a lesser extent due to a slightly higher average
selling price for microprocessors, as well as significantly higher unit sales of chipsets in 2003. During 2003, we rapidly ramped the
Intel Centrino mobile technology and the Pentium M processor for mobile computers. We also saw increased sales of Pentium 4
processors with HT Technology and higher sales of Intel Xeon processors in the server market segment.
Operating income increased by $3.9 billion, or 59%, in 2003 compared to 2002. The increase was primarily due to the impact of
higher revenue, lower unit costs for microprocessors and chipsets, and charges for under-utilized factory capacity that were lower than
in 2002 by approximately $150 million. These improvements were partially offset by approximately $390 million of higher start-up
costs in 2003 related to the ramp of 90-nanometer technology on 300mm wafer manufacturing.
Intel Communications Group
The revenue and operating loss for the ICG operating segment for the three years ended December 25, 2004 were as follows:
(In Millions)
Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2004
2003
2002
$5,027
$ (791)
$3,928
$ (824)
$4,288
$ (817)
Revenue increased by $1.1 billion, or 28%, in 2004 compared to 2003, primarily due to higher revenue from higher unit sales of
flash memory products, embedded processing components and wireless connectivity products. Revenue from flash memory products
increased to $2.3 billion in 2004 from $1.6 billion in 2003.
The operating loss decreased to $791 million in 2004 from a loss of $824 million in 2003. Contributing to the lower operating
loss were higher revenue, as well as approximately $100 million from lower inventory write-offs for flash memory products due to
improved demand and sales of flash memory product inventory that had been previously written down. These improvements were
partially offset by higher unit costs for flash memory products as we sold higher density products, as well as the negative impact of
reducing the carrying value of ending inventory to lower current replacement costs. In addition, higher startup costs in 2004 of
approximately $160 million partially offset the decrease in operating loss.
For 2003, revenue decreased by $360 million, or 8%, compared to 2002. The decrease was primarily due to lower unit sales of
flash memory products. Revenue from flash memory products decreased to $1.6 billion in 2003 from $2.1 billion in 2002. In 2003,
revenue for flash memory products was negatively affected by lost business as a result of the pricing strategy on certain products. This
decrease was partially offset by increases in revenue for wireless connectivity products, increases in revenue from sales of application
processors for data-enabled cellular phones and handheld computing devices, and increases in revenue from sales of embedded
processing components.
The operating loss remained relatively flat in 2003 at $824 million, compared to $817 million in 2002. Negative impacts to the
operating results included lower revenue and higher inventory write-offs for flash memory products, and a mix shift to lower margin
wired connectivity products. These negative impacts were offset primarily by a decrease in operating expenses of $160 million in 2003
as we continued our efforts to streamline operations and refocus on our core strategic areas.
32
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Operating Expenses
Operating expenses for the three years ended December 25, 2004 were as follows:
(In Millions)
Research and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Marketing, general and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment of goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization and impairment of acquisition-related intangibles and costs . . . . . . . . . . . . . . .
Purchased in-process research and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2004
2003
2002
$4,778
$4,659
$ —
$ 179
$ —
$4,360
$4,278
$ 617
$ 301
$
5
$4,034
$4,334
$ —
$ 548
$ 20
Research and development spending increased $418 million, or 10%, in 2004 compared to 2003, and increased $326 million, or
8%, in 2003 compared to 2002. This increase in 2004 compared to 2003 was primarily due to higher expenses related to development
for manufacturing process technologies, including the 65-nanometer process on 300mm wafers, and higher expenses for product
development programs in the Intel Architecture business, as well as higher profit-dependent compensation expenses. The increase in
2003 compared to 2002 was primarily due to higher expenses for product development programs in the Intel Architecture business and
higher spending on the development of manufacturing process technologies, including the 65-nanometer process technology, as well as
higher profit-dependent compensation expenses.
Marketing, general and administrative expenses increased $381 million, or 9%, in 2004 compared to 2003. The increase in 2004
was primarily due to higher cooperative advertising expenses (as a result of higher revenue in our Intel Architecture business and
because our customers used a higher percentage of their available Intel Inside® program funds) and increased profit-dependent
compensation expenses. In addition, the increase was due to higher marketing expenses from additional marketing programs and
increased advertising expenses. Marketing, general and administrative expenses were flat in 2003 compared to 2002. In 2003, we
lowered our discretionary spending and other expenses as we reduced headcount and refocused on core strategic areas. This decrease in
expenses was offset by higher marketing expenses due to the launch of the Intel Centrino mobile technology brand in 2003; increased
profit-dependent compensation expenses; and higher expenses related to the Intel Inside cooperative advertising program, primarily
due to higher microprocessor revenue.
Research and development along with marketing, general and administrative expenses were approximately 28% of net revenue in
2004, 29% of net revenue in 2003 and 31% of net revenue in 2002.
Amortization of acquisition-related intangibles and costs was $179 million in 2004, $301 million in 2003 and $548 million in
2002. The decreased amortization each year compared to the previous year was primarily due to a portion of the intangibles related to
prior acquisitions becoming fully amortized.
During the fourth quarter of 2004, we completed our annual impairment review for goodwill and determined that the fair value of
the ICG reporting unit was in excess of its carrying value; therefore goodwill was not impaired. In our 2003 goodwill impairment
review, we found indicators of impairment for the then-existing WCCG reporting unit. At that time, the WCCG business, comprising
primarily flash memory products and cellular baseband chipsets, had not performed as management had expected. In the fourth quarter
of 2003, it became apparent that WCCG was expected to grow more slowly than previously projected. A slower-than-expected rollout
of products and slower-than-expected customer acceptance of our products in the baseband chipset business, as well as a delay in the
transition to next-generation phone networks, had pushed out the forecasts for sales of products for high-end data cell phones. These
factors resulted in lower growth expectations for the reporting unit and triggered a $611 million charge for impairment of goodwill.
Also during 2003, we recorded a $6 million charge for impairment of the goodwill related to one of our seed businesses. Seed
businesses support the company’s strategic initiatives.
33
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Losses on Equity Securities, Interest and Other, and Taxes
Losses on equity securities, net, interest and other, net and taxes for the three years ended December 25, 2004 were as follows:
(In Millions)
Losses on equity securities, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest and other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2004
2003
2002
$ (2)
$ 289
$2,901
$ (283)
$ 192
$1,801
$ (372)
$ 194
$1,087
Losses on equity securities and certain equity derivatives for 2004 were $2 million compared to $283 million for 2003. The
improvement was primarily driven by lower impairment charges on investments, particularly on non-marketable equity securities
(approximately $117 million for 2004 and $319 million for 2003). The decrease in the impairment charges in 2004 reflected the
decrease in the total carrying amount of the non-marketable equity investment portfolio over the past couple of years. The net loss for
2003 also included mark-to-market losses on certain equity securities and equity derivatives offset by gains on equity transactions
completed in 2003.
Losses on equity securities and certain equity derivatives for 2003 decreased to $283 million compared to $372 million for 2002.
The lower net loss for 2003 was primarily due to lower impairment charges. For 2002, the impairment charges of $524 million were
partially offset by net gains of approximately $57 million related to equity securities designated as trading assets and $110 million of
net gains on related equity derivatives. The $57 million in net gains included a gain of approximately $120 million, resulting from the
designation of formerly restricted equity investments as trading assets as they became marketable. The cumulative difference between
their cost and fair market value at the time they became marketable was recorded as a gain in 2002.
Interest and other, net increased to $289 million in 2004 compared to $192 million in 2003, reflecting higher interest income as a
result of higher average investment balances and higher interest rates. Interest and other, net for 2004 also included approximately $60
million of gains associated with terminating financing arrangements for manufacturing facilities and equipment in Ireland.
Our effective income tax rate was 27.8% in 2004, 24.2% in 2003 and 25.9% in 2002. The increase in the rate for 2004 was
primarily due to a higher amount of tax benefits related to divestitures during 2003 partially offset by an increase in the benefit for
export sales. The tax rate for 2004 included a $195 million reduction to the tax provision, primarily from additional benefits for export
sales along with higher than anticipated state tax benefits for divestitures, as well as the reversal of previously accrued taxes of $62
million, primarily related to the closing of a state income tax audit. The rate for 2003 included a $758 million reduction to the tax
provision related to divestitures, partially offset by the non-deductible goodwill impairment charge.
The decrease in the effective tax rate in 2003 compared to 2002 was primarily attributed to the tax benefits of $758 million related
to divestitures that closed during 2003. Although the pre-tax losses on the divestitures for financial statement purposes were not
significant, the company was able to recognize tax losses because the tax basis in the stock of the companies sold exceeded the book
basis. The impact of these benefits was partially offset by the non-deductible goodwill impairment charge recorded in 2003 and a
higher percentage of profits in higher tax jurisdictions.
34
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Financial Condition
Our financial condition remains strong. At December 25, 2004, cash, short-term investments and fixed income debt instruments
included in trading assets totaled $16.8 billion, up from $15.9 billion at December 27, 2003. At December 25, 2004, total short-term
and long-term debt was $904 million and represented approximately 2% of stockholders’ equity. At December 27, 2003, total debt was
$1.2 billion and represented approximately 3% of stockholders’ equity.
Cash provided by operating activities is net income adjusted for certain non-cash items and changes in assets and liabilities. For
2004, cash provided by operating activities was $13.1 billion, compared to $11.5 billion in 2003 and $9.1 billion in 2002. In 2004, the
majority of the increase in cash provided by operating activities was due to higher net income. Working capital sources of cash
included increases in income taxes payable, accrued compensation and benefits, and accounts payable. The increase in income taxes
payable was primarily due to the timing of refunds and higher earnings in 2004 compared to 2003, partially offset by higher estimated
tax payments made for 2004. Accrued compensation and benefits increased, primarily due to higher accruals related to employee
bonuses. Accounts payable was higher, primarily due to the timing of capital expenditures. Accounts receivable was relatively flat in
2004 compared to 2003 and increased in 2003 over 2002 levels, primarily due to higher revenue in 2003. Despite an increase in sales,
the days’ sales outstanding decreased to 34 days at December 2004 compared to 36 days at December 2003 and 34 days at December
2002. The decrease in 2004 was due to a higher proportion of sales occurring at the beginning of the fourth quarter. For 2004, our three
largest customers accounted for approximately 42% of net revenue, with one of these customers accounting for approximately 19% of
revenue and another customer accounting for approximately 16%. For 2003, our three largest customers accounted for approximately
42% of net revenue (38% of net revenue for 2002). Additionally, these three largest customers accounted for approximately 45% of net
accounts receivable at December 25, 2004 (approximately 43% at December 27, 2003 and 39% at December 28, 2002). Inventories
were relatively flat in 2004 compared to 2003 levels but represented increases over 2002, primarily due to ramping of new products at
that time. During 2003, working capital uses of cash also included a decrease in income taxes payable.
Investing cash flows consist primarily of capital expenditures and the proceeds of investments sold and payment for investments
acquired. We used $5.0 billion in net cash for investing activities during 2004, compared to $7.1 billion during 2003 and $5.8 billion
during 2002. The higher cash used in investing activities in 2003 resulted from higher net purchases of available-for-sale investments
due to improved corporate credit profiles that facilitated a slight shift in our portfolio of investments in debt securities to longer term
maturities during that year. Capital expenditures were $3.8 billion, $3.7 billion and $4.7 billion in 2004, 2003 and 2002, respectively,
reflecting a lower investment in capital equipment and construction, primarily for additional microprocessor manufacturing capacity in
recent years. Capital spending for 2005 is expected to be between $4.9 billion and $5.3 billion, primarily driven by investments in
300mm, 65-nanometer production equipment.
Financing cash flows consist primarily of repurchases and retirement of common stock and payment of dividends to stockholders.
We used $7.7 billion in net cash for financing activities in 2004 compared to $3.9 billion in 2003 and 2002. During 2004, our Board of
Directors authorized the repurchase of an additional 500 million shares of common stock under the company’s ongoing stock
repurchase program, and in 2004 we purchased 301 million shares of common stock for $7.5 billion (176 million shares for $4.0 billion
in 2003 and 183 million shares for $4.0 billion in 2002). At December 25, 2004, approximately 614 million shares remained available
for repurchase under existing repurchase authorizations. Payment of dividends was $1.0 billion in 2004 ($524 million in 2003 and
$533 million in 2002) due to an increase in the quarterly cash dividend from $0.02 per share to $0.04 per share effective beginning in
the first quarter of 2004. On February 2, 2005, our Board of Directors declared a cash dividend of $0.08 per common share for the first
quarter of 2005. The dividend is payable on March 1, 2005 to stockholders of record on February 7, 2005. Financing sources of cash
during 2004 were primarily $894 million in proceeds from the sale of shares pursuant to employee equity incentive plans ($967 million
in 2003 and $681 million in 2002).
Another potential source of liquidity is authorized borrowings, including commercial paper, of $3.0 billion. Maximum
borrowings under our commercial paper program during 2004 were approximately $550 million, although no commercial paper was
outstanding at the end of the period. We also maintain the ability to issue an aggregate of approximately $1.4 billion in debt, equity and
other securities under U.S. Securities and Exchange Commission (SEC) shelf registration statements.
We believe that we have the financial resources needed to meet business requirements for the next 12 months, including capital
expenditures for the expansion or upgrading of worldwide manufacturing and assembly and test capacity, working capital
requirements, the dividend program, potential stock repurchases and potential future acquisitions or strategic investments.
35
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Contractual Obligations
The following table summarizes our significant contractual obligations at December 25, 2004, and the effect such obligations are
expected to have on our liquidity and cash flows in future periods. This table excludes amounts already recorded on our balance sheet
as current liabilities at December 25, 2004:
(In Millions)
Total
Operating lease obligations . . . . . . . . . . . . . . . . . . . . . . . . .
Capital purchase obligations1 . . . . . . . . . . . . . . . . . . . . . . . .
Other purchase obligations and commitments2 . . . . . . . . . .
Long-term debt obligations . . . . . . . . . . . . . . . . . . . . . . . . .
$
563
2,752
687
736
Total3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 4,738
Payments Due by Period
Less than
1 year
1–3 years
3–5 years
More than
5 years
$
124
2,532
264
33
$
138
220
406
80
$
79
—
17
171
$
222
—
—
452
$ 2,953
$
844
$
267
$
674
1
Capital purchase obligations represent commitments for construction or purchase of property, plant and equipment. They were
not recorded as liabilities on our balance sheet as of December 25, 2004, as we had not yet received the related goods or taken
title to the property. Capital purchase obligations increased from $1.5 billion at December 27, 2003 to $2.8 billion at
December 25, 2004, primarily due to purchase obligations for capital equipment relating to our next-generation 65-nanometer
process technology.
2
Other purchase obligations and commitments include payments due under various types of licenses and non-contingent funding
obligations. Funding obligations include, for example, agreements to fund various projects with other companies, such as comarketing and co-development initiatives.
3
Total does not include contractual obligations recorded on the balance sheet as current liabilities or certain purchase
obligations, as discussed below.
Contractual obligations for purchases of goods or services are defined as agreements that are enforceable and legally binding on
Intel and that specify all significant terms, including fixed or minimum quantities to be purchased; fixed, minimum or variable price
provisions; and the approximate timing of the transaction. Our purchase orders are based on our current manufacturing needs and are
fulfilled by our vendors within short time horizons. In addition, some of our purchase orders represent authorizations to purchase rather
than binding agreements. We do not have significant agreements for the purchase of raw materials or other goods specifying minimum
quantities and set prices that exceed our expected requirements for three months. Therefore, agreements for the purchase of raw
materials and other goods and services are not included in the table above. Agreements for outsourced services generally contain
clauses allowing for cancellation without significant penalty, and are therefore not included in the table above.
Contractual obligations that are contingent upon the achievement of certain milestones are not included in the table above. These
obligations include contingent funding obligations, milestone-based equity investment funding, and acquisition-related deferred cash
compensation contingent upon future employment. These arrangements are not considered contractual obligations until the milestone is
met by the third party. As of December 25, 2004, assuming all future milestones were met, additional required payments would be
approximately $23 million.
The expected timing of payments of the obligations above is estimated based on current information. Timing of payments and
actual amounts paid may be different, depending on the time of receipt of goods or services, or changes to agreed-upon amounts for
some obligations. Amounts disclosed as contingent or milestone-based obligations are dependent on the achievement of the milestones
or the occurrence of the contingent events and can vary significantly.
Off-Balance-Sheet Arrangements
As of December 25, 2004, we did not have any significant off-balance-sheet arrangements, as defined in Item 303(a)(4)(ii) of
SEC Regulation S-K.
36
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Employee Equity Incentive Plans
Our stock option program is a broad-based, long-term retention program that is intended to attract and retain talented employees
and align stockholder and employee interests. In May 2004, stockholder approval was obtained for the 2004 Equity Incentive Plan (the
2004 Plan). Under the 2004 Plan, 240 million shares of common stock were made available for issuance during the two-year period
ending June 30, 2006. Under the 2004 Plan, options to purchase shares may be granted to all employees and non-employee directors.
We may also use other types of equity incentive awards, such as restricted stock, stock units and stock appreciation rights. The 2004
Plan also allows for performance-based vesting for equity incentive awards. We presently expect to request stockholder approval at our
May 2005 Annual Stockholders’ Meeting to extend the term of the 2004 Plan by one year, to June 30, 2007, and make additional
common shares available for issuance as equity awards to employees and non-employee directors during this period.
We have a goal to keep the potential incremental dilution related to our option program to a long-term average of less than 2%
annually. The dilution percentage is calculated using the new option grants for the year, net of options cancelled due to employees
leaving the company and options expired, divided by the total outstanding shares at the beginning of the year.
Options granted to employees, including officers, and non-employee directors from 2000 through 2004 are summarized as
follows:
(Shares in Millions)
2004
granted1
Total options
..............................................
Less options cancelled1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net options granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net grants as % of outstanding shares2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Grants to listed officers3 as % of total options granted . . . . . . . . . . . . . . . . . . . . . .
Grants to listed officers3 as % of outstanding shares2 . . . . . . . . . . . . . . . . . . . . . . .
Cumulative options held by listed officers3 as % of total options outstanding . . . .
2003
2002
2001
2000
115
110
174
238
163
(32)
(40)
(44)
(47)
(31)
83
70
130
191
132
1.3% 1.1% 1.9% 2.8% 2.0%
1.1% 2.4% 1.7% 0.8% 0.4%
<0.1% <0.1% <0.1% <0.1% <0.1%
2.1% 2.1% 2.1% 2.0% 2.4%
1
Excluding options assumed in connection with acquisitions.
2
Outstanding shares as of the beginning of each period.
3
For 2004, “listed officers” included our Chief Executive Officer and each of the five other most highly compensated executive
officers serving at the end of 2004. One of these listed officers retired in January 2005. For 2000 through 2003, “listed
officers” included our Chief Executive Officer and each of the four other most highly compensated executive officers serving at
the end of the years presented.
In accordance with a policy established by the Compensation Committee of the Board of Directors, total options granted to listed
officers may not exceed 5% of total options granted in any year. During 2004, options granted to listed officers amounted to 1.1% of
the grants made to all employees. All stock option grants to executive officers are made after a review by, and with the approval of, the
Compensation Committee. All members of the Compensation Committee are independent directors, as defined in the applicable rules
for issuers traded on The NASDAQ Stock Market*.
For additional information regarding the equity incentive plans and the activity for the past three years, see “Note 11: Employee
Equity Incentive Plans” in Part II, Item 8 of this Form 10-K. Information regarding our equity incentive plans should be read in
conjunction with the information appearing under the heading “Report of the Compensation Committee on Executive Compensation”
in our 2005 Proxy Statement, which is incorporated by reference.
37
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
In-the-money and out-of-the-money† option information as of December 25, 2004 was as follows:
Exercisable
Weighted
Average
Shares
Exercise Price
(Shares in Millions)
Unexercisable
Weighted
Average
Shares
Exercise Price
Total
Weighted
Average
Exercise Price
Shares
In-the-money . . . . . . . . . . . . . .
Out-of-the-money . . . . . . . . . . .
240.5
157.0
$
$
16.01
35.81
162.6
323.8
$
$
19.35
32.73
403.1
480.8
$
$
17.36
33.73
Total options outstanding . . . .
397.5
$
23.83
486.4
$
28.25
883.9
$
26.26
†
Out-of-the-money options have an exercise price equal to or above $23.54, the closing price of Intel stock at the end of fiscal
2004, as reported on The NASDAQ Stock Market*.
Options granted to listed officers as a group during 2004 were as follows:
Number of
Securities
Underlying
Option Grants
1,210,000
†
Percent of Total
Options Granted
to Employees
1.1%
Exercise Price
Per Share
Expiration Date
$27.00
2014
Potential Realizable Values at Assumed
Annual Rates of Stock Price Appreciation
for Option Term†
5%
10%
$20,542,200
$52,057,900
Represents gains that could accrue for these options, assuming that the market price of Intel common stock appreciates over a
period of 10 years at annualized rates of 5% and 10% from the date of grant. If the stock price does not increase above the
exercise price, the realized value from these options would be zero.
Option exercises during 2004 and option values for listed officers as a group as of December 25, 2004 were as follows:
Shares Acquired
on Exercise
Value Realized
1,604,000
$31,688,800
†
Number of Shares Underlying Unexercised
Options at December 25, 2004
Exercisable
Unexercisable
7,894,100
10,525,500
Values of Unexercised In-the-Money
Options at December 25, 2004†
Exercisable
Unexercisable
$62,308,200
$23,134,800
These amounts represent the difference between the exercise price and $23.54, the closing price of Intel stock at the end of
fiscal 2004, for all in-the-money options held by listed officers.
Information as of December 25, 2004 regarding equity compensation plans approved and not approved by stockholders is
summarized in the following table (shares in millions):
(C)
Number of Shares
Remaining Available
for Future Issuance
Under Equity
Incentive Plans
(Excluding Shares
Reflected in
Column A)
(A)
Number of Shares to
Be Issued Upon
Exercise of
Outstanding Options
(B)
Weighted Average
Exercise Price of
Outstanding
Options
Equity incentive plans approved by stockholders . . . . . . . . .
Equity incentive plans not approved by stockholders2 . . . . .
154.6
722.8
$18.73
$27.97
287.91
—
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
877.43
$26.34
287.9
Plan Category
1
Includes 67.5 million shares available under our 1976 Employee Stock Participation Plan.
2
Consists of shares available under our 1997 Stock Option Plan.
3
Total excludes 6.5 million shares issuable under outstanding options, with a weighted average exercise price of $16.26,
originally granted under plans we assumed in connection with acquisitions. The 1997 Stock Option Plan was terminated as to
future grants when the 2004 Equity Incentive Plan was approved by the stockholders in May 2004.
38
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
1997 Stock Option Plan
The 1997 Stock Option Plan (the 1997 Plan) provided for the grant of stock options to employees other than officers and
directors. This plan, which was not approved by stockholders, was terminated as to future grants when the 2004 Plan was approved by
the stockholders in May 2004. The 1997 Plan is administered by the Compensation Committee of the Board of Directors, which has
the power to determine matters relating to outstanding option awards under the plan, including conditions of vesting and exercisability.
Options granted under the 1997 Plan expire no later than 10 years from the grant date. Options granted under this Plan generally vest
within five years, with some options granted in 2003 and 2004 vesting in increments over four or five years from the date of grant and
certain grants to key employees having delayed vesting generally beginning six years from the date of grant.
39
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Business Outlook
In 2005, we are planning for continued growth in annual revenue and increasing gross margin dollars. We also expect to see
continued growth in the total number of computers using our microprocessors. Further, we expect continued benefit from the
productive use of our 90-nanometer process technology on 300mm wafers. At the same time, we will continue to invest in our next
generation 65-nanometer process technology. Revenue for ICG is largely dependent on our continuing to secure design wins for our
customers’ new and existing products, on supplying the products for these design wins and on OEMs taking the product designs to
production. Demand for our flash memory products is uncertain in the highly competitive cellular handset market segment. Revenue
growth for our flash memory products is largely dependent on customer demand for higher density flash memory and continued user
adoption of new leading-edge cellular handsets. The statements below do not include any impact related to the expensing of stock
options according to Statement of Financial Accounting Standards (SFAS) No. 123R, “Share-Based Payment.” If we had applied
SFAS No. 123R to our results for the year ended December 25, 2004, our gross margin percentage would have been lower by
approximately one percentage point. In addition, the expensing of stock options would increase operating expenses, which include both
R&D expenses and marketing, general and administrative expenses, and would affect the tax rate. See “Note 2: Accounting Policies”
in Part II, Item 8 of this Form 10-K.
Our financial results are substantially dependent on sales of microprocessors and related components by the Intel Architecture
operating segment. Revenue is partly a function of the mix of types and performance capabilities of microprocessors sold, as well as
the mix of related chipsets and motherboards, all of which are difficult to forecast. Because of the wide price differences among
desktop, mobile and server microprocessors, the mix of types and performance levels of microprocessors sold affects the average
selling price that we will realize and has a large impact on our revenue and gross margin. Microprocessor revenue is also dependent on
the availability of other parts of the system platform, including chipsets, motherboards, operating system software and application
software. Revenue is also affected by our sales of other semiconductor and non-semiconductor products, and is subject to the impact of
economic conditions in various geographic regions.
Our gross margin expectation for 2005 is 58% plus or minus a few points. The 58% midpoint is approximately flat compared to
our 2004 gross margin of 57.7%. In the first half of 2005, higher unit volumes for microprocessors and higher factory utilization are
expected to be offset by higher start-up costs related to the ramp of our 65-nanometer process technology. In the second half of 2005,
these start-up costs should decline, and if our business progresses according to typical seasonal patterns, we expect our gross margin
percentage to be higher than in the first half of 2005.
Our gross margin varies primarily with revenue levels, which are dependent on unit volumes and prices, as well as the mix of
types and performance levels of processors sold, and the mix of microprocessors, related chipsets and motherboards, and other
semiconductor and non-semiconductor products. Variability of other factors will also continue to affect cost of sales and the gross
margin percentage, including unit costs and yield issues associated with production at our factories, timing and execution of the
production ramp, excess of manufacturing or assembly and test capacity, the reusability of factory equipment, impairment of
manufacturing or assembly and test assets, excess inventory, inventory obsolescence and variations in inventory valuation.
We have significantly expanded our semiconductor manufacturing and assembly and test capacity over the last few years, and we
continue to plan capacity based on the assumed continued success of our overall strategy and the acceptance of our products in specific
market segments. We currently expect that capital spending will be between $4.9 billion and $5.3 billion in 2005, compared to $3.8
billion in 2004. The midpoint of this range, $5.1 billion, is significantly higher than in 2004. Most of the projected increase will be
spent to ramp capacity on our 65-nanometer process technology in 300mm factories. In fact, 90% of our fab equipment spending is
anticipated to be on 65-nanometer process technology. This capital-spending plan is dependent on expectations regarding production
efficiencies and delivery times of various machinery and equipment, and construction schedules. If the demand for our products does
not grow and continue to move toward higher performance products in the various market segments, revenue and gross margin would
be adversely affected, and manufacturing and/or assembly and test capacity would be under-utilized, and the rate of capital spending
could be reduced. We could be required to record an impairment of our manufacturing or assembly and test equipment and/or facilities,
or factory planning decisions may cause us to record accelerated depreciation. However, in the long term, revenue and gross margin
may also be affected if we do not add capacity fast enough to meet market demand.
Depreciation for 2005 is expected to be approximately $4.4 billion, plus or minus $100 million, compared to $4.6 billion in 2004.
40
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Our industry is characterized by very short product life cycles, and our continued success is dependent on technological
advancement, including developing and implementing new processes and strategic products for specific market segments. Because we
consider it imperative to maintain a strong research and development program, spending for research and development in 2005 is
expected to increase to approximately $5.2 billion from $4.8 billion in 2004.
Based on acquisitions completed through February 16, 2005, we expect amortization of acquisition-related intangibles and costs
to be approximately $120 million in 2005.
At the end of 2004, we held non-marketable equity securities with a carrying value of $507 million. A number of these companies
are likely to fail. Their success (or lack thereof) is dependent upon product development, market acceptance, operational efficiency and
other key business success factors. In addition, depending on their future prospects, they may not be able to raise additional financings
when needed, or they may receive lower valuations with less favorable investment terms than in previous financings, and the
investments would likely become impaired. However, we are not able to determine at the present time which specific investments are
likely to be impaired in the future, or the extent or timing of individual impairments.
Our non-marketable equity securities are part of the Intel Capital program. The program seeks to invest in companies and
businesses that can succeed and have an impact on their market segment. However, these types of investments involve a great deal of
risk, and there can be no assurance that any specific company, whether at an early or mature stage, or somewhere in between, will grow
or will be successful. Consequently, we could lose all or part of our investment. When the strategic objectives of an investment have
been achieved, or if the investment or business diverges from our strategic objectives, we may decide to dispose of the investment.
However, our investments in non-marketable equity securities are not liquid, and there can be no assurance that we will be able to
dispose of these investments on favorable terms or at all.
We currently expect our tax rate to be approximately 31% for 2005. The estimated effective tax rate is based on tax law in effect
at December 25, 2004 and current expected income, and assumes that the company will continue to receive the tax benefit for export
sales. See “Note 10: Provision for Taxes” and “Note 18: Contingencies” in Part II, Item 8 of this Form 10-K. The tax rate expectation
for 2005 does not reflect the impact of any potential repatriation of earnings under the American Jobs Creation Act of 2004 (the Jobs
Act), as we are currently reviewing the provisions of the Jobs Act. If we were to repatriate earnings, our tax expense would increase.
The tax rate may also be affected by the closing of acquisitions or divestitures, the jurisdictions in which profits are determined to be
earned and taxed, changes in estimates of credits and deductions, the resolution of issues arising from tax audits with various tax
authorities, the finalization of various tax returns and changes in our ability to realize deferred tax assets.
We are currently a party to various legal proceedings and claims, including legal proceedings and claims related to taxes and to
allegations of patent infringement. Management does not believe that the ultimate outcome of these legal proceedings and claims will
have a material adverse effect on our financial position, cash flows or overall trends in results of operations. However, litigation is
subject to inherent uncertainties, and unfavorable rulings could occur. An unfavorable ruling could include monetary damages,
invalidation of a patent or group of patents, additional taxes owed or, in cases where injunctive relief is sought, an injunction
prohibiting Intel from selling one or more products. If an unfavorable ruling were to occur in any specific period, there exists the
possibility of a material adverse impact on the results of operations of that period or future periods. Management believes that, given
our current liquidity and cash and investment balances, even an adverse judgment would not have a material impact on cash and
investments or liquidity.
We operate globally, with sales offices and research and development as well as manufacturing and assembly and test facilities in
many countries, and, as a result, we are subject to risks and factors associated with doing business outside the U.S. Global operations
involve inherent risks that include currency controls and fluctuations, tariff and import regulations, and regulatory requirements that
may limit our or our customers’ ability to manufacture, assemble and test, design, develop or sell products in particular countries. If
terrorist activity, armed conflict, civil or military unrest, or political instability occurs in the U.S., Israel or other locations, such events
may disrupt manufacturing, assembly and test, logistics, security and communications, and could also result in reduced demand for our
products. The impacts of major health concerns or possible infrastructure disruptions, such as large-scale outages or interruptions of
service from utilities or telecommunications providers, on Intel, its suppliers, customers or other third parties could also adversely
affect our business and impact customer order patterns. Business continuity could also be affected if labor issues disrupt our
transportation arrangements or those of our customers or suppliers. In addition, we may rely on a single or limited number of suppliers,
or upon suppliers in a single country. On a worldwide basis, we regularly review our key infrastructure, systems, services and
suppliers, both internally and externally, to seek to identify significant vulnerabilities as well as areas of potential business impact if a
disruptive event were to occur. Once identified, we assess the risks, and as we consider it to be appropriate, we initiate actions intended
to reduce the risks and their potential impact. However, there can be no assurance that we have identified all significant risks or that we
can mitigate all identified risks with reasonable effort.
41
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Our future results of operations and the other forward-looking statements contained in this filing, including this MD&A, involve a
number of risks and uncertainties—in particular, the statements regarding our goals and strategies, new product introductions, plans to
cultivate new businesses, market segment share and growth rate assumptions, future economic conditions and recovery in the
communications businesses, revenue, pricing, gross margin and costs, capital spending, depreciation and amortization, research and
development expenses, potential impairment of investments, the tax rate, and pending tax and legal proceedings. In addition to the
various important factors discussed above, a number of other factors could cause actual results to differ materially from our
expectations. Demand for our products, which impacts our revenue and gross margin percentage, is affected by business and economic
conditions, as well as computing and communications industry trends and the development and timing of introduction of compelling
software applications and operating systems that take advantage of the features of our products. Demand for our products is also
affected by changes in customer order patterns, such as changes in the levels of inventory maintained by our customers and the timing
of customer purchases. Intel operates in intensely competitive industries, and our revenue and gross margin could be affected by factors
such as competing chip architectures and manufacturing technologies, competing software-compatible microprocessors, pricing
pressures, actions taken by our competitors and other competitive factors, as well as market acceptance of our new products in specific
market segments, the availability of sufficient inventory to meet demand and the availability of externally purchased components or
materials. Our future revenue is also dependent on continuing technological advancement, including developing and implementing new
processes and strategic products, as well as the timing of new product introductions, sustaining and growing new businesses, and
integrating and operating any acquired businesses. Our results could also be affected by adverse effects associated with product defects
and errata (deviations from published specifications), and by litigation or regulatory matters involving intellectual property or
stockholder, consumer, antitrust and other issues.
We believe that we have the product offerings, facilities, personnel, and competitive and financial resources for continued
business success, but future revenue, costs, gross margins and profits are all influenced by a number of factors, including those
discussed above, all of which are inherently difficult to forecast.
Status of Business Outlook and Related Risk Factor Statements
We expect that our corporate representatives will from time to time meet privately with investors, investment analysts, the media
and others, and may reiterate the forward-looking statements contained in the “Business Outlook” section and elsewhere in this
Form 10-K, including any such statements that are incorporated by reference in this Form 10-K. At the same time, we will keep this
Form 10-K and our then-current Business Outlook publicly available on our Investor Relations web site (www.intc.com). The public
can continue to rely on the Business Outlook published on the web site as representing our current expectations on matters covered,
unless we publish a notice stating otherwise. The statements in the Business Outlook and other forward-looking statements in this
Form 10-K are subject to revision during the course of the year in our quarterly earnings releases and SEC filings, our Mid-Quarter
Business Updates and at other times.
We intend to publish a Mid-Quarter Business Update on March 10, 2005. From the close of business on March 4, 2005 until
publication of the Update, we will observe a “quiet period” during which the Business Outlook and other forward-looking statements
first published in our earnings press release on January 11, 2005, as reiterated or updated as applicable, in this Form 10-K, should be
considered historical, speaking as of prior to the quiet period only and not subject to update. During the quiet period, our
representatives will not comment on the Business Outlook or our financial results or expectations.
A quiet period operating in similar fashion with regard to the Business Outlook and our Form 10-K will begin at the close of
business on March 18, 2005 and will extend until the day that our next quarterly earnings release is published, presently scheduled for
April 19, 2005. We typically have quiet periods twice each quarter, in advance of our Earnings Release and Mid-Quarter Business
Update; however, the exact timing and duration of those routine quiet periods, and any others we utilize from time to time, may vary at
our discretion.
42
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to financial market risks, including changes in currency exchange rates, interest rates and marketable equity
security prices. To mitigate these risks, we may utilize derivative financial instruments, among other strategies. We do not use
derivative financial instruments for speculative purposes. All of the potential changes noted below are based on sensitivity analyses
performed on our financial positions at December 25, 2004. Actual results may differ materially.
Currency Exchange Rates. We generally hedge currency risks of non-U.S.-dollar-denominated investments in debt securities
with offsetting currency borrowings, currency forward contracts or currency interest rate swaps. Gains and losses on these non-U.S.currency investments would generally be offset by corresponding losses and gains on the related hedging instruments, resulting in
negligible net exposure.
A substantial majority of our revenue, expense and capital purchasing activities are transacted in U.S. dollars. However, we do
enter into transactions in other currencies, primarily the Euro and certain other European and Asian currencies. To protect against
reductions in value and the volatility of future cash flows caused by changes in currency exchange rates, we have established balance
sheet and forecasted transaction risk management programs. Currency forward contracts and currency options are generally utilized in
these hedging programs. Our hedging programs reduce, but do not always entirely eliminate, the impact of currency exchange rate
movements. We considered the historical trends in currency exchange rates and determined that it was reasonably possible that adverse
changes in exchange rates of 20% for all currencies could be experienced in the near term. Such adverse changes, after taking into
account hedges and offsetting positions, would have resulted in an adverse impact on income before taxes of less than $30 million and
$10 million at the end of 2004 and 2003, respectively.
Interest Rates. The primary objective of our investments in debt securities is to preserve principal while maximizing yields,
without significantly increasing risk. To achieve this objective, the returns on our investments in fixed rate debt securities are generally
swapped to U.S. dollar LIBOR-based returns. We considered the historical volatility of the three-month LIBOR rate experienced in
prior years and the duration of our investment portfolio, and determined that it was reasonably possible that an adverse change of 80
basis points (0.80%), approximately 31% of the rate at the end of 2004, could be experienced in the near term. A hypothetical 0.80%
increase in interest rates, after taking into account hedges and offsetting positions, would have resulted in a decrease in the fair value of
our investment securities of approximately $20 million and $10 million as of the end of 2004 and 2003, respectively.
Marketable Equity Security Prices. We have a portfolio of strategic equity investments that includes marketable strategic equity
securities and derivative equity instruments such as warrants and options, as well as non-marketable equity investments. We invest in
companies that develop software, hardware and other technologies or provide services supporting our technologies. This strategic
investment program helps advance our overall goal to be the preeminent supplier of building blocks to the worldwide digital economy.
Our current investment focus areas include enabling mobile wireless devices, helping to advance the digital home, enhancing the
digital enterprise, advancing high-performance communications infrastructures and developing the next generation of silicon
production technologies. Our focus areas tend to develop and change over time due to rapid advancements in the technology field.
Included in trading assets is a portfolio of marketable equity securities held to generate returns that generally offset changes in
liabilities related to the equity market risk of certain deferred compensation arrangements. Due to the offset, these securities have been
excluded from the following market price sensitivity analysis.
To the extent that our marketable portfolio of investments continues to have strategic value, we typically do not attempt to reduce
or eliminate our market exposure. For those securities that we no longer consider strategic, we evaluate market and economic factors in
our decision on the timing of disposal and whether it is possible and appropriate to hedge the equity market risk. As of December 25,
2004, the fair value of our portfolio of marketable equity investments and equity derivative instruments, including hedging positions,
was $662 million.
43
To assess the market price sensitivity of our marketable portfolio, we analyzed the historical movements over the past several
years of high-technology stock indices that we considered appropriate. However, our marketable portfolio is substantially concentrated
in two companies, which will affect the marketable portfolio’s price volatility. We currently have an investment in Micron Technology,
Inc. with a fair value of approximately $400 million, or 60% of the total marketable portfolio value including equity derivative
instruments at December 25, 2004. In addition, we have an investment in Elpida Memory, Inc. with a fair value of approximately $212
million, or 32% of the total marketable portfolio value including equity derivative instruments at December 25, 2004. Prior to Elpida’s
public offering, this investment was included in our non-marketable portfolio and therefore excluded from our 2003 market price
sensitivity analysis. The investments in Micron and Elpida are part of our strategy to support the development and supply of Dynamic
Random Access Memory (DRAM) products. Based on the analysis of the high-technology stock indices and the historical volatility of
Micron’s and Elpida’s stock as of December 25, 2004, we estimated that it was reasonably possible that the prices of the stocks in our
portfolio could experience a loss of 45% in the near term (55% as of the end of 2003).
Assuming a loss of 45% in market prices, and after reflecting the impact of hedges and offsetting positions, our portfolio could
decrease in value by approximately $300 million, based on the value of the portfolio as of December 25, 2004. Assuming a loss of 55%
in market prices, and after reflecting the impact of hedges and offsetting positions, our portfolio could decrease in value by
approximately $290 million, based on the value of the portfolio as of December 27, 2003. The assumed loss percentage used in 2004 is
lower than the assumed loss percentage used in 2003 due to the differences in the concentration of investments during each year. This
estimate is not necessarily indicative of future performance, and actual results may differ materially.
Non-Marketable Equity Securities. Our strategic investments in non-marketable equity securities would also be affected by an
adverse movement of equity market prices, although the impact cannot be directly quantified. Such a movement and the related
underlying economic conditions would negatively affect the prospects of the companies we invest in, their ability to raise additional
capital and the likelihood of our being able to realize our investments through liquidity events such as initial public offerings, mergers
and private sales. These types of investments involve a great deal of risk, and there can be no assurance that any specific company will
grow or become successful; consequently, we could lose all or part of our investment. At December 25, 2004, our strategic investments
in non-marketable equity securities had a carrying amount of $507 million. No individual investment in our non-marketable portfolio
was significant as of December 25, 2004.
44
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Consolidated Statements of Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
46
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
47
Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
48
Consolidated Statements of Stockholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
49
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
50
Reports of Ernst & Young LLP, Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
78
Supplemental Data: Financial Information by Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
80
45
INTEL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
Three Years Ended December 25, 2004
(In Millions—Except Per Share Amounts)
2004
2003
2002
Net revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$34,209
14,463
$30,141
13,047
$26,764
13,446
Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
19,746
17,094
13,318
Research and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Marketing, general and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment of goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization and impairment of acquisition-related intangibles and costs . . . . . . . . . . . . . . . . . . . . . . .
Purchased in-process research and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,778
4,659
—
179
—
4,360
4,278
617
301
5
4,034
4,334
—
548
20
Operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9,616
9,561
8,936
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Losses on equity securities, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest and other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10,130
(2)
289
7,533
(283)
192
4,382
(372)
194
Income before taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10,417
2,901
7,442
1,801
4,204
1,087
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 7,516
$ 5,641
$ 3,117
Basic earnings per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1.17
$ 0.86
$ 0.47
Diluted earnings per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1.16
$ 0.85
$ 0.46
Weighted average common shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6,400
6,527
6,651
Weighted average common shares outstanding, assuming dilution . . . . . . . . . . . . . . . . . . . . . . . . .
6,494
6,621
6,759
See accompanying notes.
46
INTEL CORPORATION
CONSOLIDATED BALANCE SHEETS
December 25, 2004 and December 27, 2003
(In Millions—Except Par Value)
2004
Assets
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trading assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable, net of allowance for doubtful accounts of $43 ($55 in 2003) . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2003
$ 8,407 $ 7,971
5,654
5,568
3,111
2,625
2,999
2,960
2,621
2,519
979
969
287
270
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
24,058
22,882
Property, plant and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Marketable strategic equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other long-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
15,768
656
2,563
3,719
1,379
16,661
514
1,866
3,705
1,515
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$48,143
$47,143
Liabilities and stockholders’ equity
Current liabilities:
Short-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued compensation and benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued advertising . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income on shipments to distributors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
201 $ 224
1,943
1,660
1,858
1,559
894
716
592
633
1,355
1,302
1,163
785
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8,006
6,879
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commitments and contingencies (Notes 17 and 18)
Stockholders’ equity:
Preferred stock, $0.001 par value, 50 shares authorized; none issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common stock, $0.001 par value, 10,000 shares authorized; 6,253 issued and outstanding (6,487 in 2003) and
capital in excess of par value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition-related unearned stock compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
703
855
936
1,482
—
—
6,143
(4)
152
32,288
6,754
(20)
96
31,016
Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
38,579
37,846
Total liabilities and stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$48,143
$47,143
See accompanying notes.
47
INTEL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Years Ended December 25, 2004
(In Millions)
Cash and cash equivalents, beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash flows provided by (used for) operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment of goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization and impairment of intangibles and other acquisition-related costs . . . . . . . . . . . . .
Purchased in-process research and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Losses on equity securities, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net loss on retirements and impairments of property, plant and equipment . . . . . . . . . . . . . . . . .
Deferred taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax benefit from employee equity incentive plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in assets and liabilities:
Trading assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued compensation and benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets and liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2004
2003
2002
$ 7,971
$ 7,404
$ 7,970
7,516
5,641
3,117
4,590
—
299
—
2
91
(207)
344
4,651
617
419
5
283
217
391
216
4,676
—
668
20
372
301
110
270
(468)
(39)
(101)
283
295
378
136
(698)
(430)
(245)
116
276
(361)
417
(465)
30
(26)
(226)
107
175
—
Total adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,603
5,874
6,012
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
13,119
11,515
9,129
Cash flows provided by (used for) investing activities:
Additions to property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisitions, net of cash acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases of available-for-sale investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Maturities and sales of available-for-sale investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3,843)
(53)
(16,618)
15,633
(151)
(3,656)
(61)
(11,662)
8,488
(199)
(4,703)
(57)
(6,309)
5,634
(330)
Net cash used for investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5,032)
(7,090)
(5,765)
Cash flows provided by (used for) financing activities:
Increase (decrease) in short-term debt, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additions to long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayments and retirement of debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sales of shares through employee equity incentive plans . . . . . . . . . . . . . . . . . . . . .
Repurchase and retirement of common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payment of dividends to stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
24
—
(31)
894
(7,516)
(1,022)
(152)
—
(137)
967
(4,012)
(524)
(101)
55
(18)
681
(4,014)
(533)
Net cash used for financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(7,651)
(3,858)
(3,930)
Net increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
436
567
Cash and cash equivalents, end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 8,407
$ 7,971
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes, net of refunds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
52 $
59 $
$ 2,392 $ 1,567 $
See accompanying notes.
48
(566)
$ 7,404
66
475
INTEL CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Three Years Ended December 25, 2004
(In Millions—Except Per Share Amounts)
Balance at December 29, 2001 . . . . . . . . . . . . . . . . .
Components of comprehensive income, net of tax:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income . . . . . . . . . . . . . . . . .
Common Stock
and Capital
in Excess of Par Value
Number of
Shares
Amount
AcquisitionRelated
Unearned
Stock
Compensation
Accumulated
Other
Comprehensive
Income
6,690 $
8,833 $
(178) $
—
—
—
—
—
—
25 $
—
18
Retained
Earnings
27,150 $
3,117
—
Total comprehensive income . . . . . . . . . . . . . . . .
Proceeds from sales of shares through employee
equity incentive plans, tax benefit of $270 and
other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of acquisition-related unearned stock
compensation, net of adjustments . . . . . . . . . . . . . .
Repurchase and retirement of common stock . . . . . . . .
Cash dividends declared ($0.08 per share) . . . . . . . . . .
Balance at December 28, 2002 . . . . . . . . . . . . . . . . .
Components of comprehensive income, net of tax:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income . . . . . . . . . . . . . . . . .
Balance at December 27, 2003 . . . . . . . . . . . . . . . . .
Components of comprehensive income, net of tax:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income . . . . . . . . . . . . . . . . .
35,830
3,117
18
3,135
68
—
—
(16)
(2,127)
—
115
—
—
—
—
—
—
(1,887)
(533)
99
(4,014)
(533)
6,575
7,641
(63)
43
27,847
35,468
—
—
—
—
—
—
—
53
5,641
—
5,641
53
—
(183)
—
951
—
Total comprehensive income . . . . . . . . . . . . . . . .
Proceeds from sales of shares through employee
equity incentive plans, tax benefit of $216 and
other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of acquisition-related unearned stock
compensation, net of adjustments . . . . . . . . . . . . . .
Repurchase and retirement of common stock . . . . . . . .
Cash dividends declared ($0.08 per share) . . . . . . . . . .
Total
951
5,694
88
1,183
—
—
—
—
(176)
—
(6)
(2,064)
—
43
—
—
—
—
—
—
(1,948)
(524)
37
(4,012)
(524)
6,487
6,754
(20)
96
31,016
37,846
—
—
—
—
—
—
—
56
7,516
—
7,516
56
Total comprehensive income . . . . . . . . . . . . . . . .
1,183
7,572
Proceeds from sales of shares through employee
equity incentive plans, tax benefit of $789
(including reclassification of $445 related to prior
years) and other . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of acquisition-related unearned stock
compensation, net of adjustments . . . . . . . . . . . . . .
Repurchase and retirement of common stock . . . . . . . .
Cash dividends declared ($0.16 per share) . . . . . . . . . .
67
1,683
—
—
—
(301)
—
—
(2,294)
—
16
—
—
—
—
—
Balance at December 25, 2004 . . . . . . . . . . . . . . . . .
6,253 $
See accompanying notes.
49
6,143 $
(4) $
152 $
—
1,683
—
(5,222)
(1,022)
16
(7,516)
(1,022)
32,288 $
38,579
INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1: Basis of Presentation
Intel Corporation has a 52- or 53-week fiscal year that ends on the last Saturday in December. Fiscal year 2004, a 52-week year,
ended on December 25, 2004. Fiscal year 2003 was a 52-week year that ended on December 27, and fiscal year 2002, also a 52-week
year, ended on December 28. The next 53-week year will end on December 31, 2005.
The consolidated financial statements include the accounts of Intel and its wholly owned subsidiaries. Intel is not involved with
any variable interest entities, as defined by the Financial Accounting Standards Board (FASB) Interpretation No. 46, having a
significant effect on the financial statements. Intercompany accounts and transactions have been eliminated. Partially owned, noncontrolled equity affiliates are accounted for under the equity method. Accounts denominated in non-United States currencies have
been remeasured using the United States (U.S.) dollar as the functional currency. Certain amounts reported in previous years have been
reclassified to conform to the 2004 presentation. During 2004, the company reclassified $445 million from deferred tax liabilities to
common stock and capital stock in excess of par value (see “Note 10: Provision for Taxes”). No amounts related to deferred tax
liabilities were reclassified in the prior-period financial statements.
Note 2: Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. requires
management to make estimates and judgments that affect the amounts reported in the financial statements and accompanying notes.
The accounting estimates that require management’s most difficult and subjective judgments include the assessment of recoverability
of property, plant, and equipment and goodwill; the valuation of non-marketable equity securities and inventory; and the recognition
and measurement of income tax assets and liabilities. The actual results experienced by the company may differ from management’s
estimates.
Cash and Cash Equivalents
Highly liquid debt securities with insignificant interest rate risk and with original maturities from the date of purchase of three
months or less are classified as cash and cash equivalents.
Investments
Trading Assets. Trading assets are stated at fair value, with gains or losses resulting from changes in fair value recognized
currently in earnings. The company may elect to classify a portion of its marketable debt securities as trading assets. For these debt
instruments, gains or losses from changes in fair value due to interest rate and currency market fluctuations, offset by losses or gains on
related derivatives, are included in interest and other, net. Also included in trading assets is a marketable equity portfolio held to
generate returns that seek to offset changes in liabilities related to the equity market risk of certain deferred compensation
arrangements. Gains or losses from changes in fair value of these equity securities, offset by losses or gains on the related liabilities,
are included in interest and other, net. The company also uses fixed income investments and derivative instruments to seek to offset the
remaining portion of the changes in the compensation liabilities. In addition, a portion of the company’s marketable equity securities
may from time to time be classified as trading assets, if the company no longer deems the investments to be strategic in nature at the
time of trading asset designation, and has the ability and intent to mitigate equity market risk through sale or the use of derivative
instruments. For these marketable equity securities, gains or losses from changes in fair value, primarily offset by losses or gains on
related derivative instruments, are included in gains (losses) on equity securities, net.
Available-for-Sale Investments. Investments designated as available-for-sale include marketable debt and equity securities.
Investments that are designated as available-for-sale are reported at fair value, with unrealized gains and losses, net of tax, recorded in
stockholders’ equity. The cost of securities sold is based on the specific identification method. Realized gains and losses on the sale of
debt securities are recorded in interest and other, net. Realized gains or losses on the sale or exchange of equity securities and declines
in value judged to be other than temporary are recorded in gains (losses) on equity securities, net. Marketable equity securities are
presumed to be impaired if the fair value is less than the cost basis continuously for at least six months, absent evidence to the contrary.
Debt securities with original maturities greater than three months and remaining maturities less than one year are classified as
short-term investments. Debt securities with remaining maturities greater than one year are classified as long-term investments.
50
INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The company acquires certain equity investments for the promotion of business and strategic objectives, and to the extent that
these investments continue to have strategic value, the company typically does not attempt to reduce or eliminate the inherent equity
market risks through hedging activities. The marketable portion of these investments is included in marketable strategic equity
securities.
Non-Marketable Equity Securities and Other Investments. Non-marketable equity securities and other investments are accounted
for at historical cost or, if Intel has significant influence over the investee, using the equity method of accounting. Intel’s proportionate
share of income or losses from investments accounted for under the equity method, and any gain or loss on disposal, are recorded in
interest and other, net. Non-marketable equity securities, equity-method investments and certain other investments are included in other
assets. Cost-basis loan participation notes are classified as short-term investments or other long-term investments.
All of the company’s investments are subject to a periodic impairment review; however, for non-marketable equity securities, the
impairment analysis requires significant judgment to identify events or circumstances that would likely have a significant adverse
effect on the fair value of the investment. The indicators Intel uses to identify those events and circumstances include the investee’s
revenue and earnings trends relative to predefined milestones and overall business prospects; the technological feasibility of the
investee’s products and technologies; the general market conditions in the investee’s industry or geographic area, including adverse
regulatory or economic changes; factors about the investee’s ability to remain in business, such as the investee’s liquidity, debt ratios
and the rate at which the investee is using cash; and the investee’s receipt of additional funding at a lower valuation. Investments
identified as having an indicator of impairment are subject to further analysis to determine if the investment is other than temporarily
impaired, in which case the investment is written down to its estimated fair value. When an investee is not considered viable from a
financial or technological point of view, the entire investment is written down, since the estimated fair market value is considered to be
nominal. If an investee obtains additional funding at a valuation lower than Intel’s carrying amount or requires a new round of equity
funding to stay in operation, and the new funding does not appear imminent, it is presumed that the investment is other than
temporarily impaired, unless specific facts and circumstances indicate otherwise. Impairment of non-marketable equity securities is
recorded in gains (losses) on equity securities, net.
Securities Lending
From time to time, the company enters into securities lending agreements with financial institutions, generally to facilitate
hedging transactions. Selected securities may be loaned, secured by collateral in the form of cash or securities. The loaned securities
continue to be carried as investment assets on the balance sheet. Cash collateral is recorded as an asset with a corresponding liability.
For lending agreements collateralized by securities, the collateral is not recorded as an asset or a liability, unless the collateral is
repledged.
Fair Values of Financial Instruments
The carrying value of cash equivalents approximates fair value due to the short period of time to maturity. Fair values of
short-term investments, trading assets, long-term investments, marketable strategic equity securities, certain non-marketable
investments, short-term debt, long-term debt, swaps, currency forward contracts, currency options, equity options and warrants are
based on quoted market prices or pricing models using current market data. Debt securities are generally valued using discounted cash
flows in a yield-curve model based on LIBOR. Equity options and warrants are priced using a Black-Scholes option pricing model. For
the company’s portfolio of non-marketable equity securities, management believes that the carrying value of the portfolio approximates
the fair value at December 25, 2004 and December 27, 2003. This estimate takes into account the market movements of the equity and
venture capital markets over the last few years, the impairment analyses performed and the related impairments recorded during 2004
and 2003. All of the company’s financial instruments are recorded at fair value except for non-marketable investments, including costbasis loan participation notes and debt. Management believes that the differences between the estimated fair values and carrying values
of these financial instruments were not significant at December 25, 2004 and December 27, 2003. Estimated fair values are
management’s estimates; however, when there is no readily available market, the estimated fair values may not necessarily represent
the amounts that could be realized in a current transaction, and these fair values could change significantly.
51
INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Derivative Financial Instruments
The company’s primary objective for holding derivative financial instruments is to manage currency, interest rate and some
equity market risks. The company’s derivative instruments are recorded at fair value and are included in other current assets, other
assets, other accrued liabilities or debt. Derivative instruments recorded as assets totaled $117 million at December 25, 2004 and $134
million at December 27, 2003. Derivative instruments recorded as liabilities totaled $179 million at December 25, 2004 and $178
million at December 27, 2003. The company’s accounting policies for these instruments are based on whether they meet the company’s
criteria for designation as hedging transactions, either as cash flow or fair value hedges. A hedge of the exposure to variability in the
cash flows of an asset or a liability, or of a forecasted transaction, is referred to as a cash flow hedge. A hedge of the exposure to
changes in fair value of an asset or a liability, or of an unrecognized firm commitment, is referred to as a fair value hedge. The criteria
for designating a derivative as a hedge include the instrument’s effectiveness in risk reduction and, in most cases, a one-to-one
matching of the derivative instrument to its underlying transaction. Gains and losses from changes in fair values of derivatives that are
not designated as hedges for accounting purposes are recognized currently in earnings, and generally offset changes in the values of
related assets, liabilities or debt.
As part of its strategic investment program, the company also acquires equity derivative instruments, such as warrants and equity
conversion rights associated with debt instruments, that are not designated as hedging instruments. The gains or losses from changes in
fair values of these equity derivatives are recognized in gains (losses) on equity securities, net.
Currency Risk. The company transacts business in various currencies other than the U.S. dollar, primarily the Euro and certain
other European and Asian currencies. The company has established balance sheet and forecasted transaction risk management
programs to protect against fluctuations in fair value and volatility of future cash flows caused by changes in exchange rates. The
forecasted transaction risk management program includes anticipated transactions such as operating costs and capital purchases. The
company may use currency forward contracts, currency options, currency interest rate swaps, and currency investments and borrowings
in these risk management programs. These programs reduce, but do not always entirely eliminate, the impact of currency exchange
movements.
Currency forward contracts and currency options that are used to hedge exposures to variability in anticipated non-U.S.-dollardenominated cash flows are designated as cash flow hedges. The maturities of these instruments are generally less than 12 months. For
these derivatives, the gain or loss from the effective portion of the hedge is reported as a component of other comprehensive income in
stockholders’ equity and is reclassified into earnings in the same period or periods in which the hedged transaction affects earnings,
and within the same income statement line item as the impact of the hedged transaction. The gain or loss from the ineffective portion of
the hedge in excess of the cumulative change in the present value of future cash flows of the hedged item, if any, is recognized in
interest and other, net during the period of change.
Currency interest rate swaps and currency forward contracts are used to offset the currency risk of non-U.S.-dollar-denominated
debt securities classified as trading assets, as well as other assets and liabilities denominated in various currencies. The maturities of
these instruments are generally less than 12 months, except for derivatives hedging equity investments, which are generally five years
or less. Changes in fair value of the underlying assets and liabilities are generally offset by the changes in fair value of the related
derivatives, with the resulting net gain or loss, if any, recorded in interest and other, net.
Interest Rate Risk. The company’s primary objective for holding investments in debt securities is to preserve principal while
maximizing yields, without significantly increasing risk. To achieve this objective, the returns on the company’s investments in
fixed-rate debt securities are generally swapped to U.S. dollar LIBOR-based returns, using interest rate swaps and currency interest rate
swaps in transactions that are not designated as hedges for accounting purposes. The floating interest rates on the swaps are reset on a
monthly, quarterly or semiannual basis. Changes in fair value of the debt securities classified as trading assets are generally offset by
changes in fair value of the related derivatives, resulting in negligible net impact recorded in interest and other, net.
The company may also enter into interest rate swap agreements to modify the interest characteristics of a portion of its
outstanding long-term debt. These transactions would likely be designated as fair value hedges. The gains or losses from the changes in
fair value of the interest rate swaps, as well as the offsetting change in the hedged fair value of the long-term debt, would be recognized
in interest expense.
52
INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Equity Market Risk. The company may enter into transactions designated as fair value hedges using equity options, swaps or
forward contracts to hedge the equity market risk of marketable securities in its portfolio of strategic equity investments once the
securities are no longer considered to have strategic value. The gain or loss from the change in fair value of these equity derivatives, as
well as the offsetting change in hedged fair value of the underlying equity securities, are recognized currently in gains (losses) on
equity securities, net. The company may use equity derivatives in transactions not designated as hedges to offset the change in fair
value of certain equity securities classified as trading assets. The company may or may not enter into transactions to reduce or
eliminate the market risks of its investments in strategic equity derivatives, including warrants.
Measurement of Effectiveness of Hedge Relationships. For currency forward contracts, effectiveness of the hedge is measured
using spot rates for hedging strategies related to long-term capital purchases, and using forward rates for all other strategies, to value
the forward contract and the underlying hedged transaction. For currency options and equity options accounted for as fair value hedges,
effectiveness is measured by comparing the change in the option’s intrinsic value (the difference between the spot price of the
underlying hedged transaction and the option’s strike price) to the value of the underlying hedged transaction determined based on spot
rates. Changes in time value of these options are not included in the assessment of effectiveness. For currency options and equity
options accounted for as cash flow hedges, effectiveness is measured by comparing the change in the fair market value of the option to
the change in the fair value of the underlying hedged transaction. For interest rate swaps, effectiveness is measured by offsetting the
change in fair value of the underlying hedged transaction with the change in fair value of the interest rate swap.
Any ineffective portion of the hedges, as well as amounts not included in the assessment of effectiveness, are recognized currently
in interest and other, net or in gains (losses) on equity securities, net, depending on the nature of the underlying asset or liability. If a
cash flow hedge were to be discontinued because it is probable that the original hedged transaction will not occur as anticipated, the
unrealized gain or loss on the related derivative would be reclassified into earnings. Subsequent gains or losses on the related derivative
instrument would be recognized in income in each period until the instrument matures, is terminated or is sold.
For all periods presented, the portion of hedging instruments’ gains or losses excluded from the assessment of effectiveness and
the ineffective portions of hedges had an insignificant impact on earnings for both cash flow and fair value hedges. There was no
significant impact on results of operations from discontinued cash flow hedges as a result of forecasted transactions that did not occur.
For all periods presented, less than $15 million of deferred gains or losses were reclassified from accumulated other comprehensive
income to depreciation expense related to the company’s foreign currency capital purchase hedging program. The company estimates
that less than $15 million of net derivative gains included in other comprehensive income or capitalized in property, plant and
equipment will be reclassified into earnings within the next 12 months.
Inventories
Inventory cost is computed on a currently adjusted standard basis (which approximates actual cost on an average or first-in, firstout basis). Inventory is determined to be saleable based on a demand forecast within a specific time horizon, generally six months or
less. Inventory in excess of saleable amounts is not valued, and the remaining inventory is valued at the lower of cost or market.
Inventories at fiscal year-ends were as follows:
(In Millions)
2004
388
1,418
815
2003
Raw materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Work in process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finished goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
333
1,490
696
Total inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2,621
$ 2,519
2004
2003
$ 13,277
24,561
1,995
$ 12,651
24,233
1,808
Property, Plant and Equipment
Property, plant and equipment, net at fiscal year-ends was as follows:
(In Millions)
Land and buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Construction in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total property, plant and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
53
39,833
(24,065)
$ 15,768
38,692
(22,031)
$ 16,661
INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Property, plant and equipment is stated at cost. Depreciation is computed for financial reporting purposes principally using the
straight-line method over the following estimated useful lives: machinery and equipment, 2–4 years; buildings, 4–40 years. Reviews
are regularly performed to determine whether facts and circumstances exist which indicate that the carrying amount of assets may not
be recoverable or that the useful life is shorter than originally estimated. The company assesses the recoverability of its assets held for
use by comparing the projected undiscounted net cash flows associated with the related asset or group of assets over their remaining
lives against their respective carrying amounts. Impairment, if any, is based on the excess of the carrying amount over the fair value of
those assets (see “Note 16: Impairment of Long-Lived Assets”). If assets are determined to be recoverable, but the useful lives are
shorter than originally estimated, the net book value of the assets is depreciated over the newly determined remaining useful lives.
Goodwill
Goodwill is recorded when the purchase price paid for an acquisition exceeds the estimated fair value of the net identified
tangible and intangible assets acquired. The company performs an annual review in the fourth quarter of each year, or more frequently
if indicators of potential impairment exist, to determine if the carrying value of the recorded goodwill is impaired. The impairment
review process compares the fair value of the reporting unit in which goodwill resides to its carrying value. Reporting units may be
operating segments as a whole or an operation one level below an operating segment, referred to as a component. In determining the
carrying value of the reporting unit, an allocation of the company’s manufacturing and assembly and test assets must be made because
of the interchangeable nature of the company’s manufacturing and assembly and test capacity. This allocation is based on each
reporting unit’s relative percentage utilization of the manufacturing and assembly and test assets (see “Note 14: Goodwill”).
Identified Intangible Assets
Acquisition-related intangibles include developed technology, trademarks and customer lists, and are amortized on a straight-line
basis over periods ranging from 2–6 years. Also included in acquisition-related intangibles is workforce-in-place related to acquisitions
that did not qualify as business combinations. Intellectual property assets primarily represent rights acquired under technology licenses
and are amortized over the periods of benefit, ranging from 2–10 years, generally on a straight-line basis. All identified intangible
assets are classified within other assets on the balance sheet. In the quarter following the period in which identified intangible assets
become fully amortized, the fully amortized balances are removed from the gross asset and accumulated amortization amounts.
The company performs a quarterly review of its identified intangible assets to determine if facts and circumstances exist which
indicate that the useful life is shorter than originally estimated or that the carrying amount of assets may not be recoverable. If such
facts and circumstances do exist, the company assesses the recoverability of identified intangible assets by comparing the projected
undiscounted net cash flows associated with the related asset or group of assets over their remaining lives against their respective
carrying amounts. Impairment, if any, is based on the excess of the carrying amount over the fair value of those assets.
Product Warranty
The company generally sells products with a limited warranty of product quality and a limited indemnification of customers
against intellectual property infringement claims related to the company’s products. The company accrues for known warranty and
indemnification issues if a loss is probable and can be reasonably estimated, and accrues for estimated incurred but unidentified issues
based on historical activity. The accrual and the related expense for known issues were not significant during the periods presented.
Due to product testing and the short time between product shipment and the detection and correction of product failures, and
considering the historical rate of payments on indemnification claims, the accrual and related expense for estimated incurred but
unidentified issues were not significant during the periods presented.
Revenue Recognition
The company recognizes net revenue when the earnings process is complete, as evidenced by an agreement with the customer,
transfer of title and acceptance, if applicable, as well as fixed pricing and probable collectibility. Because of frequent sales price
reductions and rapid technology obsolescence in the industry, sales made to distributors under agreements allowing price protection
and/or right of return are deferred until the distributors sell the merchandise. Shipping charges billed to customers are included in net
revenue, and the related shipping costs are included in cost of sales.
54
INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Advertising
Cooperative advertising obligations are accrued and the costs expensed at the same time the related revenue is recognized. All
other advertising costs are expensed as incurred. Cooperative advertising expenses are recorded as marketing, general and
administrative expense to the extent that an advertising benefit separate from the revenue transaction can be identified and the cash
paid does not exceed the fair value of that advertising benefit received. Any excess of cash paid over the fair value of the advertising
benefit received is recorded as a reduction in revenue. Advertising expense was $2.1 billion in 2004 ($1.8 billion in 2003 and $1.7
billion in 2002).
Employee Equity Incentive Plans
The company has employee equity incentive plans, which are described more fully in “Note 11: Employee Equity Incentive
Plans.” Intel accounts for its equity incentive plans under the intrinsic value recognition and measurement principles of APB Opinion
No. 25, “Accounting for Stock Issued to Employees,” and related interpretations. The exercise price of options is equal to the market
price of Intel common stock (defined as the average of the high and low trading prices reported by The NASDAQ Stock Market*) on
the date of grant. Accordingly, no stock-based compensation, other than acquisition-related compensation, is recognized in net income.
The following table illustrates the effect on net income and earnings per share as if the company had applied the fair value recognition
provisions of Statement of Financial Accounting Standards (SFAS) No. 123, “Accounting for Stock-Based Compensation,” as
amended, to options granted under the stock option plans and rights to acquire stock granted under the company’s Stock Participation
Plan, collectively called “options.” For purposes of this pro-forma disclosure, the value of the options is estimated using a
Black-Scholes option pricing model and amortized ratably to expense over the options’ vesting periods. Because the estimated value is
determined as of the date of grant, the actual value ultimately realized by the employee may be significantly different.
(In Millions—Except Per Share Amounts)
2004
2003
2002
Net income, as reported . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: total stock-based employee compensation expense determined under the fair value
method for all awards, net of tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$7,516
$5,641
$3,117
1,271
991
1,170
Pro-forma net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$6,245
$4,650
$1,947
Reported basic earnings per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1.17
$ 0.86
$ 0.47
Pro-forma basic earnings per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 0.98
$ 0.71
$ 0.29
Reported diluted earnings per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1.16
$ 0.85
$ 0.46
Pro-forma diluted earnings per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 0.97
$ 0.71
$ 0.29
It is the company’s policy under SFAS No. 123 to periodically make adjustments to pro-forma compensation expense to reflect
forfeitures. Based on recent forfeiture data, the company recognized additional pro-forma compensation expense and related tax effects
totaling $58 million in 2004. The company reversed previously recognized pro-forma compensation expense and related tax effects
totaling $190 million in 2003 and $87 million in 2002.
SFAS No. 123 requires the use of option pricing models that were not developed for use in valuing employee stock options. The
Black-Scholes option pricing model was developed for use in estimating the fair value of short-lived exchange-traded options that have
no vesting restrictions and are fully transferable. The company’s employee stock options have characteristics significantly different
from those of traded options. In addition, option pricing models require the input of highly subjective assumptions, including the
option’s expected life and the price volatility of the underlying stock, and changes in the subjective input assumptions can materially
affect the fair value estimate of employee stock options.
55
INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The weighted average estimated value of employee stock options granted during 2004 was $10.79 ($9.02 in 2003 and $10.89 in
2002). The value of options granted in 2004, 2003 and 2002 was estimated at the date of grant using the following weighted average
assumptions:
Expected life (in years) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2004
2003
2002
4.2
3.0%
.50
.6%
4.4
2.2%
.54
.4%
6.0
3.7%
.49
.3%
An analysis of historical information is used to determine the company’s assumptions, to the extent that historical information is
relevant based on the terms of the grants being issued in any given period. Options granted in 2004 and 2003 generally vest over four
years, while options granted during 2002 generally vest five years from the date of grant.
Under the Stock Participation Plan, rights to purchase shares are granted during the first and third quarter of each year only. The
estimated weighted average value of rights granted under the Stock Participation Plan during 2004 was $6.38 ($5.65 during 2003 and
$7.23 in 2002). The value of rights granted during 2004, 2003 and 2002 was estimated at the date of grant using the following
weighted average assumptions:
Expected life (in years) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2004
2003
2002
.5
1.4%
.30
.6%
.5
1.1%
.50
.4%
.5
1.8%
.50
.3%
Recent Accounting Pronouncements
In March 2004, the FASB approved the consensus reached on the Emerging Issues Task Force (EITF) Issue No. 03-1, “The
Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments.” The Issue’s objective is to provide
guidance for identifying other-than-temporarily impaired investments. EITF 03-1 also provides new disclosure requirements for
investments that are deemed to be temporarily impaired. In September 2004, the FASB issued a FASB Staff Position (FSP)
EITF 03-1-1 that delays the effective date of the measurement and recognition guidance in EITF 03-1 until further notice. The
disclosure requirements of EITF 03-1 are effective with this annual report for fiscal 2004. Once the FASB reaches a final decision on
the measurement and recognition provisions, the company will evaluate the impact of the adoption of the accounting provisions of
EITF 03-1.
In December 2004, the FASB issued SFAS No. 123R, “Share-Based Payment.” SFAS No. 123R requires employee stock options
and rights to purchase shares under stock participation plans to be accounted for under the fair value method, and eliminates the ability
to account for these instruments under the intrinsic value method prescribed by APB Opinion No. 25, and allowed under the original
provisions of SFAS No. 123. SFAS No. 123R requires the use of an option pricing model for estimating fair value, which is amortized
to expense over the service periods. The requirements of SFAS No. 123R are effective for fiscal periods beginning after June 15, 2005.
If the company had applied the provisions of SFAS No. 123R to the financial statements for the period ending December 25, 2004, net
income would have been reduced by approximately $1.3 billion. SFAS No. 123R allows for either prospective recognition of
compensation expense or retrospective recognition, which may be back to the original issuance of SFAS No. 123 or only to interim
periods in the year of adoption. The company is currently evaluating these transition methods.
Note 3: Earnings Per Share
The shares used in the computation of the company’s basic and diluted earnings per common share were as follows:
(In Millions)
2004
2003
2002
Weighted average common shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dilutive effect of employee stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6,400
94
6,527
94
6,651
108
Weighted average common shares outstanding, assuming dilution . . . . . . . . . . . . . . . . . . . .
6,494
6,621
6,759
56
INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Weighted average common shares outstanding, assuming dilution, include the incremental shares that would be issued upon the
assumed exercise of stock options. For 2004, approximately 357 million of the company’s stock options were excluded from the
calculation of diluted earnings per share because the exercise prices of the stock options were greater than or equal to the average price
of the common shares, and therefore their inclusion would have been anti-dilutive (418 million in 2003 and 387 million in 2002).
These options could be dilutive in the future if the average share price increases and is greater than the exercise price of these options.
Note 4: Common Stock Repurchase Program
The company has an ongoing authorization, as amended, from the Board of Directors to repurchase up to 2.8 billion shares of
Intel’s common stock in open market or negotiated transactions, including the 2004 authorization to purchase an additional 500 million
shares. During 2004, the company repurchased 301 million shares of common stock at a cost of $7.5 billion (176 million shares at a
cost of $4.0 billion during 2003, and 183 million shares at a cost of $4.0 billion during 2002). Since the program began in 1990, the
company has repurchased and retired approximately 2.2 billion shares at a cost of approximately $42 billion. As of December 25,
2004, approximately 614 million shares remained available for repurchase under the existing repurchase authorization.
Note 5: Borrowings
Short-Term Debt
Short-term debt included non-interest-bearing drafts payable of $168 million and the current portion of long-term debt of $33
million as of December 25, 2004 (drafts payable of $143 million and the current portion of long-term debt of $81 million as of
December 27, 2003). The company also borrows under a commercial paper program. Maximum borrowings under the company’s
commercial paper program reached $550 million during 2004 and $30 million during 2003, and did not exceed authorized borrowings
of $3.0 billion. No commercial paper was outstanding as of December 25, 2004 or December 27, 2003. The company’s commercial
paper is rated A-1+ by Standard & Poor’s and P-1 by Moody’s.
Long-Term Debt
Long-term debt at fiscal year-ends was as follows:
(In Millions)
2004
Payable in U.S. dollars:
Zero coupon senior exchangeable notes due 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payable in other currencies:
Euro debt due 2005–2018 at 1.5%–11% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less current portion of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
—
1
2003
$
41
1
735
975
736
(33)
1,017
(81)
$ 703
$ 936
During 2001, the company issued zero coupon senior exchangeable notes (Intel notes) in order to partially mitigate the equity
market risk of Intel’s investment in Samsung Electronics Co., Ltd. convertible notes. The exchange option was accounted for as an
equity derivative and marked-to-market with the fair value recorded in long-term debt. The Intel notes matured in February 2004.
The Euro borrowings were made in connection with the financing of manufacturing facilities and equipment in Ireland, and Intel
has invested the proceeds in Euro-denominated loan participation notes of similar maturity to hedge currency and interest rate
exposures. During 2004, the company retired $273 million of the Euro borrowings prior to their maturity dates through the
simultaneous settlement of an equivalent amount of investments in loan participation notes (see “Note 8: Interest and Other, Net”).
As of December 25, 2004, aggregate debt maturities were as follows: 2005—$33 million; 2006—$39 million; 2007—$41
million; 2008—$128 million; 2009—$43 million; and thereafter—$452 million.
57
INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 6: Investments
Trading Assets
Trading assets outstanding at fiscal year-ends were as follows:
2004
Net
Unrealized
Gains
(In Millions)
2003
Estimated
Fair Value
Net
Unrealized
Gains
Estimated
Fair Value
Debt instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity securities offsetting deferred compensation . . . . . . . . . . .
$
187
81
$
2,772
339
$
174
60
$
2,321
304
Total trading assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
268
$
3,111
$
234
$
2,625
Net holding gains on fixed income debt instruments classified as trading assets were $80 million in 2004, $208 million in 2003
and $79 million in 2002. Net holding losses on the related derivatives were $(77) million in 2004, $(192) million in 2003 and $(75)
million in 2002. These amounts were included in interest and other, net in the consolidated statements of income.
Certain equity securities within the trading asset portfolio are maintained to generate returns that seek to offset changes in
liabilities related to the equity market risk of certain deferred compensation arrangements. These deferred compensation liabilities were
$458 million in 2004 and $427 million in 2003, and are included in other accrued liabilities on the consolidated balance sheets. Net
holding gains (losses) on equity securities offsetting deferred compensation arrangements were $29 million in 2004, $52 million in
2003 and $(64) million in 2002, and were included within interest and other, net in the consolidated statements of income.
Prior to 2004, the company held certain other marketable equity securities which were included in trading assets. Net holding
gains on these equity security trading assets were $77 million in 2003 and $57 million in 2002. The $57 million net gain in 2002
included a gain of $120 million that resulted from the designation of formerly restricted equity investments as trading assets as they
became marketable. The cumulative difference between their cost and fair market value at the time they became marketable was
recorded as a gain in 2002. Net holding gains (losses) on the related derivatives were $(84) million in 2003 and $110 million in 2002.
These gains and losses were included within losses on equity securities, net in the consolidated statements of income.
58
INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Available-for-Sale Investments
Available-for-sale investments at December 25, 2004 were as follows:
Adjusted
Cost
(In Millions)
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair Value
Commercial paper . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Floating rate notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bank time deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Marketable strategic equity securities . . . . . . . . . . . . . . . . . . . . . .
Preferred stock and other equity . . . . . . . . . . . . . . . . . . . . . . . . . .
Other debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
9,024
3,419
1,936
794
589
200
234
$
—
—
—
—
118
—
—
$
(4)
(1)
—
—
(51)
—
—
$
9,020
3,418
1,936
794
656
200
234
Total available-for-sale investments . . . . . . . . . . . . . . . . . . . . . .
$ 16,196
$
118
$
(56)
$ 16,258
Carrying
Amount
Available-for-sale investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost basis investments in loan participation notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash on hand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 16,258
723
299
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 17,280
Reported as:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Marketable strategic equity investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other long-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
8,407
5,654
656
2,563
$ 17,280
Available-for-sale investments at December 27, 2003 were as follows:
Adjusted
Cost
(In Millions)
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair Value
Commercial paper . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bank time deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Floating rate notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Marketable strategic equity securities . . . . . . . . . . . . . . . . . . . . . .
Preferred stock and other equity . . . . . . . . . . . . . . . . . . . . . . . . . .
Other debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
9,948
1,900
1,078
703
467
224
352
$
—
—
—
—
47
9
—
$
(1)
—
—
—
—
—
—
$
9,947
1,900
1,078
703
514
233
352
Total available-for-sale investments . . . . . . . . . . . . . . . . . . . . . .
$ 14,672
$
56
$
(1)
$ 14,727
Carrying
Amount
Available-for-sale investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost basis investments in loan participation notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash on hand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 14,727
985
207
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 15,919
Reported as:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Marketable strategic equity investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other long-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
59
$
7,971
5,568
514
1,866
$ 15,919
INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The duration of the unrealized losses on available-for-sale investments at December 25, 2004 did not exceed 12 months. The
company’s unrealized losses of $51 million on investments in marketable strategic equity securities at December 25, 2004 related
primarily to a $450 million investment in Micron Technology, Inc. The unrealized losses were due to market-price movements.
Management does not believe that any of the unrealized losses represented an other-than-temporary impairment based on its evaluation
of available evidence as of December 25, 2004.
The company sold available-for-sale securities, primarily equity securities, with a fair value at the date of sale of $85 million in
2004, $39 million in 2003 and $114 million in 2002. The gross realized gains on these sales totaled $52 million in 2004, $16 million in
2003 and $15 million in 2002. The company recognized impairment losses on available-for-sale and non-marketable investments of
$117 million in 2004, $319 million in 2003 and $524 million in 2002.
The amortized cost and estimated fair value of available-for-sale and loan participation investments in debt securities at December
25, 2004, by contractual maturity, were as follows:
Cost
Estimated
Fair Value
Due in 1 year or less . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Due in 1–2 years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Due in 2–5 years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Due after 5 years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 13,667
1,375
646
442
$ 13,662
1,375
646
442
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 16,130
$ 16,125
(In Millions)
Note 7: Concentrations of Credit Risk
Financial instruments that potentially subject the company to concentrations of credit risk consist principally of investments in
debt securities, derivative financial instruments and trade receivables.
Intel generally places its investments with high-credit-quality counterparties and, by policy, limits the amount of credit exposure
to any one counterparty based on Intel’s analysis of that counterparty’s relative credit standing. Investments in debt securities with
original maturities of greater than six months consist primarily of A and A2 or better rated financial instruments and counterparties.
Investments with original maturities of up to six months consist primarily of A-1 and P-1 or better rated financial instruments and
counterparties. Government regulations imposed on investment alternatives of Intel’s non-U.S. subsidiaries, or the absence of A and
A2 rated counterparties in certain countries, result in some minor exceptions, which are reviewed and approved annually by the
Finance Committee of the Board of Directors. Credit rating criteria for derivative instruments are similar to those for investments. The
amounts subject to credit risk related to derivative instruments are generally limited to the amounts, if any, by which a counterparty’s
obligations exceed the obligations of Intel with that counterparty. At December 25, 2004, the total credit exposure to any single
counterparty did not exceed $350 million. Intel’s practice is to obtain and secure available collateral from counterparties against
obligations, including securities lending transactions, whenever Intel deems appropriate.
A majority of the company’s trade receivables are derived from sales to original equipment manufacturers and original design
manufacturers of computer systems, cellular handsets and handheld computing devices, and networking and communications
equipment. The company also has accounts receivable derived from sales to industrial and retail distributors. The company’s three
largest customers accounted for approximately 42% of net revenue for 2004 and 2003 (38% of net revenue for 2002). At December 25,
2004, the three largest customers accounted for approximately 45% of net accounts receivable (43% of net accounts receivable at
December 27, 2003). Management believes that the receivable balances from these largest customers do not represent a significant
credit risk based on cash flow forecast, balance sheet analysis and past collection experience.
The company has adopted credit policies and standards intended to accommodate industry growth and inherent risk. Management
believes that credit risks are moderated by the financial stability of the company’s end customers and the diverse geographic sales
areas. To assess the credit risk of counterparties, a quantitative and qualitative analysis is performed. From this analysis, credit limits
are established and a determination is made whether one or more credit support devices, such as obtaining some form of third-party
guarantee or standby letter of credit, or obtaining credit insurance for all or a portion of the account balance, is necessary.
60
INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 8: Interest and Other, Net
The components of interest and other, net were as follows:
(In Millions)
2004
2003
2002
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 301
(50)
38
$ 248
(62)
6
$ 298
(84)
(20)
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 289
$ 192
$ 194
During 2004, the company recognized approximately $60 million of gains in other, net associated with terminating financing
arrangements for manufacturing facilities and equipment in Ireland (see “Note 5: Borrowings”).
Note 9: Comprehensive Income
The components of other comprehensive income and related tax effects were as follows:
(In Millions)
2004
2003
2002
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in net unrealized holding gain on investments, net of tax of $(17), $(18) and $24 in
2004, 2003 and 2002, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: adjustment for net realized gain or loss on investments included in net income, net of
tax of $15, $5 and $(14) in 2004, 2003 and 2002, respectively . . . . . . . . . . . . . . . . . . . . .
Change in net unrealized holding gain on derivatives, net of tax of $(34), $(15) and $(23) in
2004, 2003 and 2002, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: adjustment for amortization of net gain on derivatives included in net income, net of
tax of $4 in 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Minimum pension liability, net of tax of $(2) and $2 in 2003 and 2002, respectively . . . . . .
$7,516
$5,641
$3,117
31
33
(44)
(29)
(11)
25
63
27
43
(8)
(1)
(1)
5
—
(6)
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$7,572
$5,694
$3,135
2004
2003
The components of accumulated other comprehensive income, net of tax, were as follows:
(In Millions)
Accumulated net unrealized holding gain on available-for-sale investments . . . . . . . . . . . . . . . . . . . . . .
Accumulated net unrealized holding gain on derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated minimum pension liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
Total accumulated other comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 152
61
37
117
(2)
$
35
62
(1)
$
96
INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 10: Provision for Taxes
Income before taxes and the provision for taxes consisted of the following:
(Dollars in Millions)
2004
2003
2002
Income before taxes:
U.S. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-U.S. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 7,422
2,995
$ 5,705
1,737
$ 2,165
2,039
Total income before taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$10,417
$ 7,442
$ 4,204
Provision for taxes:
Current:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-U.S. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2,787
(69)
390
$
$
3,108
Deferred:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total provision for taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effective tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
808
223
379
1,410
542
143
292
977
(128)
(79)
420
(29)
91
19
(207)
391
110
$ 1,801
$ 1,087
$ 2,901
27.8%
24.2%
25.9%
The tax benefit from employee stock plans was $344 million for 2004 ($216 million for 2003 and $270 million for 2002).
The difference between the tax provision at the statutory federal income tax rate and the tax provision attributable to income
before income taxes was as follows:
(In Percentages)
2004
Statutory federal income tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase (reduction) in rate resulting from:
State taxes, net of federal benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-U.S. income taxed at different rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-deductible acquisition-related costs and goodwill impairments . . . . . . . . . . . . . .
Tax benefit related to divestitures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Export sales benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
35.0%
Income tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
27.8%
(0.4)
(2.5)
0.1
—
(4.8)
0.4
2003
35.0%
1.9
(2.8)
3.1
(10.2)
(2.5)
(0.3)
24.2%
2002
35.0%
2.2
(5.9)
1.3
(1.8)
(3.0)
(1.9)
25.9%
During 2004, in connection with preparing and filing its 2003 federal tax return and preparing its state tax returns, the company
reduced its 2004 tax provision by $195 million. This reduction in the 2004 tax provision was primarily driven by tax benefits for export
sales and state tax benefits for divestitures that exceeded the amounts originally estimated in connection with the 2003 provision. Also
during 2004, the company reversed previously accrued taxes related primarily to the closing of a state income tax audit that reduced the
tax provision for 2004 by $62 million.
The company reduced its tax provision for 2003 by approximately $758 million due to the tax benefits related to the sale of
certain businesses and assets through the sale of stock of acquired companies ($75 million in 2002). See “Note 13: Acquisitions and
Divestitures.”
In 2001, the U.S. Internal Revenue Service (IRS) commenced an examination of Intel’s tax returns for the years 1999 and 2000.
In August 2003, the IRS proposed certain adjustments primarily related to the amounts reflected by Intel on these returns as a tax
benefit for its export sales (see “Note 18: Contingencies”). Subsequently, in January 2005, the IRS issued formal assessments for these
adjustments. The company does not agree with these adjustments and intends to appeal the assessments.
62
INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes. Significant components of the company’s deferred tax
assets and liabilities at fiscal year-ends were as follows:
(In Millions)
2004
Deferred tax assets (liabilities)
Accrued compensation and other benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued advertising . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquired intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment losses on equity investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventory valuation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized gains on investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
265
115
(26)
232
(894)
110
193
(82)
286
199
(75)
Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2003
$
218
107
(68)
245
(1,272)
106
156
(50)
45
(513)
—
Net deferred tax assets (liabilities) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
124
$ (513)
Reported as:
Current deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
979
(855)
$ 969
(1,482)
Net deferred taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
124
$ (513)
Gross deferred tax assets as of December 25, 2004 were reduced by a valuation allowance of $75 million related to certain state
capital loss carryforwards and state credit carryforwards, as recovery of these assets is not likely. In addition, the company reclassified
$445 million from deferred tax liabilities to common stock and capital stock in excess of par value. The balance sheet reclassification
represented the tax benefit attributable to certain prior-year stock option exercises by non-U.S. employees and had no impact on the
accompanying statement of cash flows.
U.S. income taxes were not provided for on a cumulative total of approximately $7.9 billion of undistributed earnings for certain
non-U.S. subsidiaries. The company currently intends to reinvest these earnings in operations outside the U.S. The American Jobs
Creation Act of 2004 (the Jobs Act) creates a temporary incentive for U.S. corporations to repatriate accumulated income earned
abroad by providing an 85% dividends-received deduction for certain dividends from controlled foreign corporations. The deduction is
subject to a number of limitations, and currently the company is uncertain as to how to interpret numerous provisions in the Jobs Act.
The company is not yet in a position to decide whether, and to what extent, foreign earnings that have not yet been remitted to the U.S.
might be repatriated. Based on the analysis to date, however, it is reasonably possible that as much as $6.0 billion might be repatriated,
with a respective tax liability of up to $475 million. The company expects to be in a position to finalize its analysis by October 2005.
63
INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 11: Employee Equity Incentive Plans
Stock Option Plans
In May 2004, stockholder approval was obtained for the 2004 Equity Incentive Plan (the 2004 Plan). Under the 2004 Plan, 240
million shares of common stock were made available for issuance during the two-year period ending June 30, 2006. Under the 2004
Plan, options to purchase shares may be granted to all employees and non-employee directors. Intel may also use other types of equity
incentive awards, such as restricted stock, stock units and stock appreciation rights. The 2004 Plan also allows for performance-based
vesting for equity incentive awards. The Intel Corporation 1984 Stock Option Plan expired in May 2004, and the Intel Corporation
1997 Stock Option Plan was terminated upon stockholder approval of the 2004 Plan. As of December 25, 2004, substantially all of the
company’s employees were participating in one of the stock option plans. Options granted by the company under the 2004 Plan will
generally expire seven years from the grant date. Options granted under the company’s previous stock option plans generally expire ten
years from the grant date. Options granted in 2004 to existing and newly hired employees generally vest over a four-year period from
the date of grant. Certain grants to key employees have delayed vesting, generally beginning six years from the date of grant. In prior
years, Intel also assumed the stock option plans and the outstanding options of certain acquired companies. No additional stock grants
will be made under these assumed plans. Additional information with respect to stock option plan activity is as follows:
Shares
Available
for Grant
(Shares in Millions)
Outstanding Options
Weighted
Number of
Average
Shares
Exercise Price
December 29, 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Supplemental grant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other grants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cancellations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,054.6
(118.1)
(55.5)
—
40.8
768.5
118.1
55.5
(51.4)
(45.3)
$
$
$
$
$
25.33
20.23
25.43
6.79
33.56
December 28, 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Grants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cancellations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reduction in shares available for grant . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
921.8
(109.9)
—
40.0
(325.0)
845.4
109.9
(63.7)
(41.5)
—
$
$
$
$
25.31
20.22
10.08
30.49
—
December 27, 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Grants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cancellations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expiration of 1984 Stock Option Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cancellation of 1997 Stock Option Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adoption of 2004 Equity Incentive Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . .
526.9
(114.7)
—
11.5
(143.2)
(300.1)
240.0
850.1
114.7
(48.4)
(32.5)
—
—
—
$
$
$
$
25.54
26.23
10.89
30.00
—
—
—
December 25, 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
220.4
883.9
$
26.26
274.0
327.5
397.5
$
$
$
16.57
20.53
23.83
Options exercisable at:
December 28, 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 27, 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 25, 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
In December 2003, the Board of Directors approved a reduction in the number of shares authorized for issuance under the 1997
Stock Option Plan, reducing the number of shares available for issuance by 325 million. In November 2002, a supplemental stock
option grant was given to employees who had previously been granted options in 2001 and 2000 that had exercise prices above the
November 2002 market price. This 2002 supplemental grant was made in order to retain employees, due to competitive market
conditions and a decline in the company’s stock price. These 2002 supplemental stock option grants vest in equal amounts over four
years.
The range of option exercise prices for options outstanding at December 25, 2004 was $0.05 to $87.90. This range reflects the
impact of options assumed with acquired companies in addition to the fluctuating price of Intel common stock.
64
INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table summarizes information about options outstanding at December 25, 2004:
Range of Exercise Prices
Outstanding Options
Weighted
Average
Number of
Contractual
Shares
Life
(In Millions)
(In Years)
Exercisable Options
Weighted
Average
Exercise
Price
Number of
Shares
(In Millions)
Weighted
Average
Exercise
Price
$0.05–$15.00 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$15.01–$20.00 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$20.01–$25.00 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$25.01–$30.00 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$30.01–$40.00 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$40.01–$87.90 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
64.2
197.6
267.7
163.0
101.8
89.6
1.3
5.5
7.0
8.0
5.6
5.3
$
$
$
$
$
$
7.65
18.22
22.32
27.22
33.41
59.27
63.9
117.7
65.1
46.1
72.9
31.8
$
$
$
$
$
$
7.62
18.34
20.82
26.51
33.48
56.84
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
883.9
6.1
$ 26.26
397.5
$ 23.83
These options will expire if not exercised at specific dates through May 2014. Option exercise prices for options exercised during
the three-year period ended December 25, 2004 ranged from $0.01 to $36.47.
Stock Participation Plan
In addition to the employee stock option plans, the company has a Stock Participation Plan under which eligible employees may
purchase shares of Intel’s common stock at 85% of the average of the high and low stock price reported on The NASDAQ Stock
Market at specific, predetermined dates. Approximately 70% of the company’s employees were participating in the Stock Participation
Plan as of December 25, 2004. Of the 944 million shares authorized to be issued under the plan, 67.5 million shares remained available
for issuance at December 25, 2004. Employees purchased 18.4 million shares in 2004 (23.8 million in 2003 and 17.0 million in 2002)
for $367 million ($328 million in 2003 and $338 million in 2002).
Note 12: Retirement Benefit Plans
Profit Sharing Plans
The company provides tax-qualified profit sharing retirement plans for the benefit of eligible employees, former employees and
retirees in the U.S. and certain other countries. The plans are designed to provide employees with an accumulation of funds for
retirement on a tax-deferred basis and provide for annual discretionary employer contributions. Amounts to be contributed to the U.S.
Profit Sharing Plan are determined by the Chief Executive Officer of the company under delegation of authority from the Board of
Directors, pursuant to the terms of the Profit Sharing Plan. As of December 25, 2004, substantially all of the assets of the U.S. Profit
Sharing Plan have been allocated to an equity index fund managed by an outside fund manager, consistent with the investment policy.
The company also provides a non-qualified profit sharing retirement plan for the benefit of eligible employees in the U.S. This
plan is designed to permit certain discretionary employer contributions and to permit employee deferral of a portion of salaries in
excess of certain tax limits and deferral of bonuses. This plan is unfunded.
The company expensed $323 million for the qualified and non-qualified U.S. profit sharing retirement plans in 2004 ($302
million in 2003 and $303 million in 2002). The company expects to fund approximately $315 million for the 2004 contribution to the
U.S. qualified Profit Sharing Plan and to allocate approximately $5 million for the U.S. non-qualified profit sharing retirement plan.
Contributions made by the company to the U.S. Profit Sharing Plan on behalf of the employees vest based on the employee’s
years of service. Vesting begins after three years of service in 20% annual increments until the employee is 100% vested after seven
years, or earlier, if the employee reaches age 60.
65
INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Pension and Postretirement Benefit Plans
U.S. Pension Benefits. The company provides a tax-qualified defined-benefit pension plan for the benefit of eligible employees
and retirees in the U.S. The plan provides for a minimum pension benefit that is determined by a participant’s years of service and final
average compensation (taking into account the participant’s social security wage base), reduced by the participant’s balance in the
Profit Sharing Plan. If the pension benefit exceeds the participant’s balance in the Profit Sharing Plan, the participant will receive a
combination of pension and profit sharing amounts equal to the pension benefit. However, the participant will receive only the benefit
from the Profit Sharing Plan if that benefit is greater than the value of the pension benefit. The U.S. defined-benefit plan’s projected
benefit obligation assumes future contributions to the Profit Sharing Plan, and if the company does not continue to contribute to or
significantly reduces contributions to the Profit Sharing Plan, the U.S. defined-benefit plan projected benefit obligation could increase
significantly. Historically, the company has contributed 8% to 12.5% of participants’ eligible compensation to the Profit Sharing Plan
on an annual basis. The benefit obligation and related assets under this plan have been measured as of November 30, 2004.
Non-U.S. Pension Benefits. The company also provides defined-benefit pension plans in certain other countries. Consistent with
the requirements of local law, the company deposits funds for certain of these plans with insurance companies, third-party trustees, or
into government-managed accounts, and/or accrues for the unfunded portion of the obligation. The assumptions used in calculating the
obligation for the non-U.S. plans depend on the local economic environment. The benefit obligations and related assets under these
plans have been measured as of December 25, 2004.
Postretirement Medical Benefits. Upon retirement, eligible U.S. employees are credited with a defined dollar amount based on
years of service. These credits can be used to pay all or a portion of the cost to purchase coverage in an Intel-sponsored medical plan. If
the available credits are not sufficient to pay the entire cost of the coverage, the remaining cost is the responsibility of the retiree.
Funding Policy. The company’s practice is to fund the various pension plans in amounts at least sufficient to meet the minimum
requirements of U.S. federal laws and regulations or applicable local laws and regulations. The assets of the various plans are invested
in corporate equities, corporate debt securities, government securities and other institutional arrangements. The portfolio of each plan
depends on plan design and applicable local laws. Depending on the design of the plan, local custom and market circumstances, the
minimum liabilities of a plan may exceed qualified plan assets. The company accrues for all such liabilities.
Benefit Obligation and Plan Assets
The changes in the benefit obligations, plan assets and funded status for the plans described above were as follows:
U.S. Pension
Benefits
2004
2003
(In Millions)
Non-U.S. Pension
Benefits
2004
2003
Postretirement
Medical Benefits
2004
2003
Change in projected benefit obligation:
Beginning benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Plan participants’ contributions . . . . . . . . . . . . . . . . . . . . . . . . . .
Actuarial (gain) loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Currency exchange rate changes . . . . . . . . . . . . . . . . . . . . . . . . .
Benefits paid to plan participants . . . . . . . . . . . . . . . . . . . . . . . .
$ 49
2
2
—
(10)
—
(1)
$ 28
5
3
—
14
—
(1)
$ 306
29
16
6
(40)
17
(7)
$ 242
26
18
3
(15)
37
(5)
$ 178
15
12
2
(26)
—
(4)
$ 132
12
10
—
28
—
(4)
Ending projected benefit obligation . . . . . . . . . . . . . . . . . . . . .
$ 42
$ 49
$ 327
$ 306
$ 177
$ 178
66
INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
U.S. Pension
Benefits
2004
2003
(In Millions)
Non-U.S. Pension
Benefits
2004
2003
Postretirement
Medical Benefits
2004
2003
Change in plan assets:
Beginning fair value of plan assets . . . . . . . . . . . . . . . . . . . . . . . .
Actual return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employer contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Plan participants’ contributions . . . . . . . . . . . . . . . . . . . . . . . . . . .
Currency exchange rate changes . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefits paid to participants . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 30
3
7
—
—
(1)
$ 23
2
6
—
—
(1)
$ 195
4
31
6
11
(7)
$ 140
18
15
3
23
(4)
$
2
—
4
2
—
(4)
$
1
—
3
2
—
(4)
Ending fair value of plan assets . . . . . . . . . . . . . . . . . . . . . . . . .
$ 39
$ 30
$ 240
$ 195
$
4
$
2
U.S. Pension
Benefits
2004
2003
(In Millions)
Non-U.S. Pension
Benefits
2004
2003
Postretirement
Medical Benefits
2004
2003
Funded status:
Ending funded status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrecognized transition obligation . . . . . . . . . . . . . . . . . . . . . . . .
Unrecognized net actuarial (gain) loss . . . . . . . . . . . . . . . . . . . . . .
Unrecognized prior service cost . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (3)
—
5
1
$ (19)
—
18
1
$ (87)
2
(3)
—
$(111)
2
32
—
$(173)
—
6
33
$(176)
—
33
36
Net amount recognized . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$ —
$ (88)
$ (77)
$(134)
$(107)
3
The amounts recognized on the balance sheet for the plans described above were as follows:
U.S. Pension
Benefits
2004
2003
(In Millions)
Amounts recognized in the balance sheet:
Prepaid benefit cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued benefit liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive income . . . . . . . . . . . . . . . . . .
Net amount recognized . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-U.S. Pension
Benefits
2004
2003
Postretirement
Medical Benefits
2004
2003
$
3
—
—
—
$ —
—
—
—
$ 40
(131)
1
2
$ 25
(103)
—
1
$ —
(134)
—
—
$ —
(107)
—
—
$
3
$ —
$ (88)
$ (77)
$(134)
$(107)
The accumulated benefit obligations for the plans were as follows:
U.S. Pension
Benefits
2004
2003
(In Millions)
Accumulated benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 38
$ 28
Non-U.S. Pension
Benefits
2004
2003
$ 222
$ 224
Postretirement
Medical Benefits
2004
2003
$ 177
$ 178
Included in the aggregate data in the tables below are the aggregate amounts applicable to the company’s pension plans with
accumulated benefit obligations in excess of plan assets as well as plans with projected benefit obligations in excess of plan assets.
Amounts related to such plans were as follows:
U.S. Pension
Benefits
2004
2003
(In Millions)
Non-U.S. Pension
Benefits
2004
2003
Plans with accumulated benefit obligations in excess of plan assets:
Accumulated benefit obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ —
$ —
$ —
$ —
$ 70
$ 18
$ 148
$ 87
Plans with projected benefit obligations in excess of plan assets:
Projected benefit obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 42
$ 39
$ 49
$ 30
$ 296
$ 205
$ 306
$ 195
67
INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Assumptions
Weighted-average actuarial assumptions used to determine benefit obligations for the plans were as follows:
U.S. Pension
Benefits
2004
2003
Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rate of compensation increase . . . . . . . . . . . . . . . . . . . . . . . . . . .
Future profit sharing contributions . . . . . . . . . . . . . . . . . . . . . . . .
5.6%
8.0%
5.0%
8.0%
6.0%
8.0%
5.0%
6.0%
Non-U.S. Pension
Benefits
2004
2003
5.9%
6.3%
3.5%
—
5.5%
6.7%
3.5%
—
Postretirement
Medical Benefits
2004
2003
5.6%
—
—
—
6.0%
—
—
—
For the postretirement medical benefit plan, an increase in the assumed healthcare cost trend rate of one percentage point each
year would not have a significant impact on the benefit obligation because the plan provides defined credits that the retiree can use to
pay all or a portion of the cost to purchase medical coverage.
Weighted-average actuarial assumptions used to determine costs for the plans were as follows:
U.S. Pension
Benefits
2004
2003
Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rate of compensation increase . . . . . . . . . . . . . . . . . . . . . . . . . . .
Future profit sharing contributions . . . . . . . . . . . . . . . . . . . . . . . .
6.0%
8.0%
5.0%
8.0%
7.0%
8.0%
5.0%
6.0%
Non-U.S. Pension
Benefits
2004
2003
5.9%
6.3%
3.5%
—
5.5%
6.7%
3.5%
—
Postretirement
Medical Benefits
2004
2003
6.0%
—
—
—
7.0%
—
—
—
Several factors are considered in developing the asset return assumptions for the U.S. and non-U.S. plans. The company analyzed
rates of return relevant to the country where each plan is in effect and the investments applicable to the plan. Additional analysis was
performed in order to reflect expectations of future returns. For the U.S. plan, the company analyzed the historical and projected rates
of return of the Standard & Poor’s 500 Index*. For the non-U.S. plans, the company analyzed local actuarial projections as well as the
projected rates of return from investment managers. In addition, the expected long-term rate of return shown for the non-U.S. plan
assets is weighted to reflect each country’s relative portion of the non-U.S. plan assets.
Net Periodic Benefit Cost
The net periodic benefit cost for the plans included the following components:
(In Millions)
2004
U.S. Pension
Benefits
2003
2002
Non-U.S. Pension
Benefits
2004
2003
2002
Postretirement
Medical Benefits
2004
2003
2002
Service cost . . . . . . . . . . . . . . . . . . .
Interest cost . . . . . . . . . . . . . . . . . . .
Expected return on plan assets . . . . .
Amortization of prior service cost . .
Recognized net actuarial loss . . . . . .
$
4
2
(2)
1
—
$
7
2
(2)
1
1
$
6
2
(1)
—
—
$ 29
16
(14)
—
—
$ 27
18
(1)
—
1
$ 22
14
(12)
—
—
$ 15
11
—
4
1
$ 12
10
—
4
—
$ 10
8
—
4
—
Net periodic benefit cost . . . . . . . .
$
5
$
9
$
7
$ 31
$ 45
$ 24
$ 31
$ 26
$ 22
68
INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
U.S. Plan Assets
The company’s U.S. Pension Plan assets at the end of fiscal 2004 and 2003 were 100% allocated to equity securities. The target
allocation for 2005 is expected to remain the same. The long-term rate of return for the equity securities used in these calculations is
assumed to be 8%. In general, the investment strategy followed is designed to assure that the pension assets are available to pay
benefits as they come due and minimize market risk. The U.S. plan assets are invested in equity securities, primarily in large,
diversified domestic and multinational U.S. equities, which seek to match the performance of the S&P 500. When deemed appropriate,
a portion of the fund may be invested in futures contracts for the purpose of acting as a temporary substitute for an investment in a
particular equity security. The fund does not engage in speculative futures transactions.
Non-U.S. Plan Assets
The non-U.S. plans’ investments are managed by insurance companies, third-party trustees or pension funds consistent with
regulations or market practice of the country where the assets are invested. The investment manager makes investment decisions within
the guidelines set by Intel or local regulations. Performance is evaluated by comparing the actual rate of return to the return of other
benchmark funds. Investments that are managed by qualified insurance companies or pension funds under standard contracts follow
local regulations, and Intel is not actively involved in the investment strategy. In general, the investment strategy followed is designed
to accumulate a diversified portfolio among markets, asset classes or individual securities in order to reduce market risk and assure that
the pension assets are available to pay benefits as they come due. The average expected long-term rate of return for the non-U.S. plan
assets is 6.3%.
The asset allocation for the company’s non-U.S. plans, excluding assets managed by qualified insurance companies, at the end of
fiscal 2004 and 2003, and the target allocation rate for 2005, by asset category, are as follows:
Asset Category
Target Allocation
Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
81.0%
13.0%
6.0%
Percentage of Plan Assets
2004
2003
79.0%
13.0%
8.0%
80.0%
12.0%
8.0%
Investments that are managed by qualified insurance companies are invested as part of the insurance companies’ general fund.
Intel does not have control over the target allocation of these investments. These investments made up 35% of total non-U.S. plan
assets in 2004 and 42% in 2003.
Funding Expectations
No further contributions are required during 2005 under applicable law for the U.S. Pension Plan. The company intends to make
voluntary contributions so that assets exceed the accumulated benefit obligation at the end of the year. Expected funding for the
non-U.S. plans during 2005 is $31 million. Employer contributions to the postretirement medical benefits plan are expected to be less
than $1 million during 2005.
Estimated Future Benefit Payments
The total benefits to be paid from the U.S. and non-U.S. pension plans and other postretirement benefit plans, including the
amounts that will be funded from retiree contributions, are not expected to exceed $50 million in any year through 2014.
69
INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 13: Acquisitions and Divestitures
Business Combinations
All of the company’s acquisitions that qualified as business combinations have been accounted for using the purchase method of
accounting. Consideration includes the cash paid and the value of any options assumed, less any cash acquired, and excludes
contingent employee compensation payable in cash and any debt assumed. The company accounts for the intrinsic value of stock
options assumed related to future services as unearned compensation within stockholders’ equity (see “Note 15: Identified Intangible
Assets and Acquisition-Related Unearned Stock Compensation”).
During 2004, the company completed an acquisition qualifying as a business combination in exchange for net cash consideration
of approximately $33 million, plus certain liabilities. During 2003, the company completed one acquisition qualifying as a business
combination in exchange for total cash consideration of approximately $21 million. The operating results of the businesses acquired in
2003 and 2004 have been included in the results of the Intel Communications Group (ICG) operating segment from the date of
acquisition. There were no acquisitions qualifying as business combinations in 2002.
Development-Stage Operations
An acquisition of a development-stage operation does not qualify as a business combination under SFAS No. 141, “Business
Combinations,” and purchase consideration for such an acquisition is not allocated to goodwill. Workforce-in-place qualifies as an
identified intangible asset for an acquisition of a development-stage operation.
During 2003, the company acquired a development-stage operation in exchange for total cash consideration of approximately $40
million, all of which was allocated to workforce-in-place. During 2002, the company acquired three development-stage operations in
exchange for total consideration of approximately $57 million. Approximately $35 million was allocated to acquisition-related
developed technology and $20 million to purchased in-process research and development, with the remaining amount representing the
value of net tangible assets. The operating results of each of these acquisitions since the date of acquisition have been included in the
operating results of the acquiring business unit within either the ICG operating segment or the “all other” category, as appropriate, for
segment reporting purposes.
Divestitures
During 2003, the company recognized approximately $758 million in tax benefits related to sales of the stock of certain
previously acquired companies, primarily DSP Communications, Inc. (DSP), Dialogic Corporation and Xircom, Inc. A net benefit of
approximately $420 million was recognized on the divestiture of a portion of the intellectual property assets of DSP, through the sale
of the stock of DSP. A benefit of approximately $200 million was recognized on the divestiture of a portion of the assets, primarily real
estate, of Dialogic, through the sale of the stock of Dialogic, and a benefit of approximately $125 million was recognized related to the
sale of a wireless WAN business, through the sale of the stock of Xircom. The pre-tax gains and losses on these sales for financial
statement or book purposes were not significant. The company was able to recognize tax losses because the tax basis in the entities
exceeded the book basis, as the goodwill allocated to the transactions for financial statement purposes was less than the amount the
company could effectively deduct for tax purposes. During 2002, the company recognized a $75 million tax benefit related to sales of
the stock of certain previously acquired companies, primarily Ziatech Corporation.
70
INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 14: Goodwill
Goodwill attributed to operating segments for the years ended December 27, 2003 and December 25, 2004 was as follows:
(In Millions)
December 28, 2002 . . . . . . . . . . . . . . . . . . . . . . . .
Impairments . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other adjustments . . . . . . . . . . . . . . . . . . . . . . . . .
Intel
Communications
Group
$
4,255
(611)
3
(9)
December 27, 2003 . . . . . . . . . . . . . . . . . . . . . . . .
Transfer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other adjustments . . . . . . . . . . . . . . . . . . . . . . . . .
December 25, 2004 . . . . . . . . . . . . . . . . . . . . . . . .
Intel
Architecture
Business
$
3,638
(466)
29
(15)
$
3,186
69
—
—
(2)
All Other
$
67
466
—
—
$
533
Total
6
(6)
—
—
$
—
—
—
—
$
—
4,330
(617)
3
(11)
3,705
—
29
(15)
$
3,719
During the first quarter of 2004, the company combined its communications-related businesses, the former Intel Communications
Group (ICG) and the Wireless Communications and Computing Group (WCCG), into a single organization, the Intel Communications
Group (ICG) (see “Note 19: Operating Segment and Geographic Information”). The ICG operating segment is made up of two
reporting units: the flash memory reporting unit and the ICG reporting unit. All of the ICG operating segment goodwill is included in
the ICG reporting unit. Also during the first quarter of 2004, the consumer electronics business, which was previously part of the
former ICG operating segment, was moved into the Intel Architecture business. Based on the estimated fair value of the consumer
electronics business relative to the former ICG reporting unit, goodwill of $466 million was transferred to the Intel Architecture
business.
During the fourth quarter of 2004, the company completed its annual review and determined that the fair value of the ICG
reporting unit was in excess of its carrying value; therefore, goodwill was not impaired. During 2003, the company completed its
impairment review for goodwill for the former ICG and WCCG reporting units and found indicators of impairment for the WCCG
reporting unit. The WCCG business, comprising primarily flash memory products and cellular baseband chipsets, had not performed as
management had expected, and it became apparent that WCCG was expected to grow more slowly than had previously been projected.
A slower-than-expected rollout of products and slower-than-expected customer acceptance of the reporting unit’s products in the
baseband chipset business, as well as a delay in the transition to next-generation phone networks, had pushed out the forecasts for sales
into high-end data cell phones. These factors resulted in lower growth expectations for the reporting unit and triggered the goodwill
impairment. An impairment review requires a two-step process. The first step of the review compares the fair value of the reporting
units with substantial goodwill against their aggregate carrying values, including goodwill. The company estimated the fair value of the
WCCG and ICG reporting units using the income method of valuation, which included the use of estimated discounted cash flows.
Based on the comparison, the carrying value of the WCCG reporting unit exceeded the fair value. Accordingly, the company
performed the second step of the test, comparing the implied fair value of the WCCG reporting unit’s goodwill with the carrying
amount of that goodwill. Based on this assessment, the company recorded a non-cash impairment charge of $611 million in 2003,
which was included as a component of operating income in the “all other” category for segment reporting purposes.
Also during 2003, the goodwill related to one of the company’s small seed businesses, included in the “all other” category, was
impaired. In addition, goodwill in the ICG operating segment decreased, primarily as a result of goodwill allocated to divestitures on a
fair value basis in 2003. During 2004, the company recorded goodwill of $29 million ($3 million in 2003) in connection with a
qualifying business combination. In 2004, as a result of a change in estimate associated with deferred tax assets of certain previous
acquisitions, goodwill in the ICG operating segment decreased.
71
INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 15: Identified Intangible Assets and Acquisition-Related Unearned Stock Compensation
Identified intangible assets acquired during 2004 and 2003 are summarized as follows:
2004
(In Millions)
2003
Weighted
Average
Life
Value
Acquisition-related developed technology . . . . . . . . . . . . . . . .
Other acquisition-related intangibles . . . . . . . . . . . . . . . . . . . . .
Intellectual property assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
18
28
250
Total identified intangible assets . . . . . . . . . . . . . . . . . . . . . .
$
296
4
3
8
Weighted
Average
Life
Value
$
14
40
96
$
150
4
2
5
In 2004, the company entered into certain arrangements related to the hiring of a group of employees which resulted in the
recording of workforce-in-place of $28 million. Also in 2004, the company acquired $18 million in developed technology in
connection with an acquisition qualifying as a business combination (see “Note 13: Acquisitions and Divestitures”).
Of the intellectual property assets acquired in 2004, $63 million represented the value of assets capitalized as a result of payments
under the settlement agreement with Intergraph Corporation related to the lawsuit in Texas (see “Note 18: Contingencies”). The value
of the Intergraph assets was derived from the expected future revenue from Intel microprocessors, Intel chipsets and Intel motherboards
sold in combination. Also during 2004, the company entered into a cross-license agreement for cash consideration of $143 million,
which will be amortized over a period of 10 years.
Identified intangible assets as of December 25, 2004 consisted of the following:
(In Millions)
Gross Assets
Accumulated
Amortization
Acquisition-related developed technology . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other acquisition-related intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intellectual property assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
631
91
799
$
(514)
(45)
(285)
$
117
46
514
Total identified intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
1,521
$
(844)
$
677
Net
Identified intangible assets as of December 27, 2003 consisted of the following:
(In Millions)
Gross Assets
Accumulated
Amortization
Acquisition-related developed technology . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other acquisition-related intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intellectual property assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
994
94
604
$
(772)
(49)
(212)
$
222
45
392
Total identified intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
1,692
$
(1,033)
$
659
Net
Amortization of acquisition-related intangibles and costs included the following:
(In Millions)
2004
2003
2002
Amortization of acquisition-related intangibles . . . . . . . . . . . . . . . . . . . . . . . .
Impairment of acquisition-related intangibles . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of acquisition-related unearned stock compensation . . . . . . . . . .
Other acquisition-related costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
150
—
16
13
$
203
—
39
59
$
246
127
90
85
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
179
$
301
$
548
72
INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Acquisition-related intangible impairments of $127 million in 2002 related to a portion of the developed technology acquired with
the Xircom acquisition and the acquisition of Trillium Digital Systems, Inc. The impaired developed technology of Xircom primarily
related to PC Ethernet cards, whose forecasted revenue declined significantly as the market moved to LAN-on-motherboard
technology. The impaired developed technology of Trillium related primarily to a change in the product roadmap for telephony
operating-systems software that resulted in a significant decline in forecasted revenue for that technology. The amount of the
impairments was determined using a fair-value approach based on discounted future cash flows.
The company records acquisition-related purchase consideration as unearned stock-based compensation in accordance with FASB
Interpretation No. 44, “Accounting for Certain Transactions Involving Stock Compensation.” During 2004 and 2003, the company
recorded no such unearned stock-based compensation. Acquisition-related unearned stock compensation includes the portion of the
purchase consideration related to shares issued contingent upon the continued employment of selected employee stockholders and/or
the completion of specified milestones. The unearned stock-based compensation also includes the intrinsic value of stock options
assumed in connection with business combinations that is earned as the employees provide future services. The compensation is being
recognized over the period earned, and the expense is included in the amortization of acquisition-related intangibles and costs.
Other acquisition-related costs include the amortization of deferred cash payments that represent contingent compensation to
employees related to previous acquisitions. The compensation is being recognized over the period earned. All amortization of
acquisition-related intangibles and costs, including impairments, is included in “all other” for segment reporting purposes.
Amortization of intellectual property assets was $120 million in 2004 ($118 million in 2003 and $120 million in 2002). The
amortization of an intellectual property asset is generally included in either cost of sales or research and development.
Based on the carrying value of identified intangible assets recorded at December 25, 2004, and assuming no subsequent
impairment of the underlying assets, the annual amortization expense is expected to be as follows:
(In Millions)
2005
2006
2007
2008
2009
Acquisition-related intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intellectual property assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$115
$115
$ 35
$106
$ 12
$ 76
$ 1
$67
$ —
$ 39
Note 16: Impairment of Long-Lived Assets
During 2003, the company substantially completed the wind-down of its Intel® Online Services web hosting business. The
company recognized a related $131 million pre-tax charge in cost of sales, of which $106 million was recorded in 2002, and the
remainder was recorded in 2003 due to an increase in the estimate of assets that would no longer be utilized. Approximately $123
million of the charge related to the impairment of the web hosting business’ assets, including leasehold improvements and server
equipment. The amount of the impairment was determined based on discounted future cash flows and comparable market prices. The
remaining $8 million represented the accrual of lease and other exit-related costs. The total charge was reflected in the “all other”
category for segment reporting purposes. For both 2003 and 2002, the operating results of this business were not significant to the
results of the company.
Note 17: Commitments
The company leases a portion of its capital equipment and certain of its facilities under operating leases that expire at various
dates through 2026. Rental expense was $136 million in 2004, $149 million in 2003 and $163 million in 2002. Minimum rental
commitments under all non-cancelable leases with an initial term in excess of one year are payable as follows: 2005—$124 million;
2006—$82 million; 2007—$56 million; 2008—$43 million; 2009—$36 million; 2010 and beyond—$222 million. Commitments for
construction or purchase of property, plant and equipment approximated $2.8 billion at December 25, 2004. Capital purchase
obligations increased from $1.5 billion at December 27, 2003 to $2.8 billion at December 25, 2004, primarily due to purchase
obligations for capital equipment relating to next-generation 65-nanometer process technology. Other commitments as of December
25, 2004 totaled $687 million. Other commitments primarily included payments due under various types of licenses and noncontingent funding obligations, such as co-marketing and co-development initiatives.
73
INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 18: Contingencies
Tax Matters
In August 2003, in connection with the IRS’s regular examination of Intel’s tax returns for the years 1999 and 2000, the IRS
proposed certain adjustments primarily related to the amounts reflected by Intel on these returns as a tax benefit for its export sales. In
January 2005, the IRS issued formal assessments for these adjustments. The company does not agree with these adjustments and
intends to appeal these assessments. If the IRS prevails in its position, Intel’s federal income tax due for these years would increase by
approximately $600 million, plus interest. The IRS may make similar claims for years subsequent to 2000 in future audits.
Although the final resolution of the adjustments is uncertain, based on currently available information, management believes that
the ultimate outcome will not have a material adverse effect on the company’s financial position, cash flows or overall trends in results
of operations. There is the possibility of a material adverse impact on the results of operations of the period in which the matter is
ultimately resolved, if it is resolved unfavorably, or in the period in which an unfavorable outcome becomes probable and reasonably
estimable.
Legal Proceedings
In 1997, Intergraph Corporation filed suit in Federal District Court in Alabama, generally alleging, among other claims, that Intel
infringed certain Intergraph patents. In 2001, Intergraph filed a second suit in the U.S. District Court for the Eastern District of Texas,
alleging that Intel infringed additional Intergraph patents, and seeking an injunction and unspecified damages. In 2002, Intel and
Intergraph entered into a settlement agreement, pursuant to which they agreed to settle the Alabama lawsuit and dismiss it with
prejudice. Pursuant to the 2002 settlement agreement, Intel made a cash payment of $300 million to Intergraph and received a license
under all Intergraph patents, excluding the patents at issue in the Texas case.
Under the 2002 settlement agreement, if the patents in the Texas case were found to be infringed, Intel would pay Intergraph $150
million. If Intergraph prevailed on either patent on appeal, the 2002 settlement agreement provided that Intel would pay Intergraph an
additional $100 million and receive a license for the patents at issue in the case. In 2002, the Texas District Court ruled that Intel
infringed both patents at issue in that case. Pursuant to the settlement agreement, Intel paid Intergraph $150 million. Intel then appealed
the decision. In February 2004, the Court of Appeals for the Federal Circuit found that the District Court had erred, and remanded the
case to the District Court to determine in the first instance whether the patents at issue had been infringed.
In 2002, Intergraph filed suit in the Eastern District of Texas against Dell Inc., Gateway Inc. and Hewlett-Packard Company,
alleging infringement of three of Intergraph’s patents. These three patents are a subset of the patents that were the subject of the
Alabama lawsuit that Intergraph had filed against Intel. In 2003, Dell filed its answer and counterclaim and named Intel as well as
Intergraph in a counterclaim for declaratory judgment.
In March 2004, Intel and Intergraph entered into a second settlement agreement, pursuant to which they agreed to settle the Texas
lawsuit, and Intergraph agreed to dismiss Intergraph’s separate pending litigation against Dell Inc. The Texas case and Intergraph’s
claims against Dell in the Eastern District case were dismissed with prejudice. Pursuant to the 2004 settlement agreement, Intel will
pay Intergraph a total of $225 million, with $125 million paid in April 2004 and $25 million paid in each of the following four
quarters. Also pursuant to the 2004 settlement agreement, Intergraph granted Dell a license under patents filed prior to April 4, 2012 to
sell Dell products, including Dell computer systems that contain Intel microprocessors. The 2004 settlement agreement further
provided that Intergraph is entitled to retain the $150 million previously paid by Intel pursuant to the 2002 settlement agreement, but
that no additional $100 million payment would be required under the 2002 settlement agreement. The 2004 settlement agreement also
includes additional license rights in favor of Intel and Intel’s customers and a covenant by Intergraph not to sue any Intel customer for
products that include Intel microprocessors, Intel chipsets and Intel motherboards in combination. As a result of the 2004 settlement
agreement, Intel recorded a $162 million charge to cost of sales in the first quarter of 2004. The remaining balance of $63 million
represented the value of intellectual property assets acquired as part of the settlement. This balance will be amortized over the assets’
remaining useful lives.
In March 2004, MicroUnity, Inc. filed suit against Intel and Dell Inc. in the Eastern District of Texas. MicroUnity claims that
Intel® Pentium® III, Pentium® 4, Pentium® M and Itanium® 2 microprocessors infringe seven MicroUnity patents, and that certain
Intel chipsets infringe one MicroUnity patent. MicroUnity also alleges that Dell products that contain these Intel products infringe the
same patents. At Dell’s request, Intel agreed to indemnify Dell with respect to MicroUnity’s claims against Dell, subject to the terms of
a prior agreement between Intel and Dell. MicroUnity seeks an injunction, unspecified damages and attorneys’ fees against both Intel
and Dell. Intel disputes MicroUnity’s claims and intends to defend the lawsuit vigorously.
74
INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In June 2002, various plaintiffs filed a lawsuit in the Third Judicial Circuit Court, Madison County, Illinois, against Intel,
Hewlett-Packard Company, HPDirect, Inc. and Gateway Inc., alleging that the defendants’ advertisements and statements misled the
public by suppressing and concealing the alleged material fact that systems containing Intel Pentium 4 microprocessors are less
powerful and slower than systems containing Intel Pentium III microprocessors and a competitor’s microprocessors. In July 2004, the
Court certified against Intel an Illinois-only class of certain end use purchasers of certain Pentium 4 microprocessors or computers
containing such microprocessors. The Court denied plaintiffs’ motion for reconsideration of this ruling. In January 2005, the Court
granted a motion filed jointly by the plaintiffs and Intel that stayed the proceedings in the trial court pending discretionary appellate
review of the Court’s class certification order. The plaintiffs and Intel thereafter filed a joint application for discretionary appeal of the
trial court’s class certification ruling. The plaintiffs seek unspecified damages, and attorneys’ fees and costs. Intel disputes the
plaintiffs’ claims and intends to defend the lawsuit vigorously.
The company is currently a party to various claims and legal proceedings, including those noted above. If management believes
that a loss arising from these matters is probable and can reasonably be estimated, the company records the amount of the loss, or the
minimum estimated liability when the loss is estimated using a range, and no point within the range is more probable than another. As
additional information becomes available, any potential liability related to these matters is assessed and the estimates are revised, if
necessary. Based on currently available information, management believes that the ultimate outcome of these matters, individually and
in the aggregate, will not have a material adverse effect on the company’s financial position, cash flows or overall trends in results of
operations. However, litigation is subject to inherent uncertainties, and unfavorable rulings could occur. An unfavorable ruling could
include monetary damages or an injunction prohibiting Intel from selling one or more products. If an unfavorable ruling were to occur,
there exists the possibility of a material adverse impact on the results of operations of the period in which the ruling occurs, or future
periods.
Intel has been named to the California and U.S. Superfund lists for three of its sites and has completed, along with two other
companies, a Remedial Investigation/Feasibility study with the U.S. Environmental Protection Agency (EPA) to evaluate the
groundwater in areas adjacent to one of its former sites. The EPA has issued a Record of Decision with respect to a groundwater
cleanup plan at that site, including expected costs to complete. Under the California and U.S. Superfund statutes, liability for cleanup
of this site and the adjacent area is joint and several. The company, however, has reached agreement with those same two companies
which significantly limits the company’s liabilities under the proposed cleanup plan. Also, the company has completed extensive
studies at its other sites and is engaged in cleanup at several of these sites. In the opinion of management, the potential losses to the
company arising out of these matters would not have a material adverse effect on the company’s financial position or overall trends in
results of operations, even if joint and several liability were to be assessed.
The estimate of the potential impact on the company’s financial position, cash flows or overall results of operations for the above
tax matters and legal and environmental proceedings could change in the future.
Note 19: Operating Segment and Geographic Information
Beginning in 2004, the company combined its communications-related businesses into a single organization, the Intel
Communications Group (ICG). Previously, these communications businesses were in two separate product-line operating segments:
the former Intel Communications Group and the Wireless Communications and Computing Group (WCCG). The company now
consists of two product-line operating segments: the Intel Architecture business, which is composed of the Desktop Platforms Group,
the Mobile Platforms Group and the Enterprise Platforms Group; and ICG. All prior-period amounts have been restated to reflect the
new presentation as well as certain minor reorganizations effected during 2004.
The company’s Executive Office consists of Chief Executive Officer (CEO) Craig R. Barrett and President and Chief Operating
Officer (COO) Paul S. Otellini. The CEO and COO have joint responsibility as the Chief Operating Decision Maker (CODM), as
defined by SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information.” The CODM allocates resources to
and assesses the performance of each operating segment using information about their revenue and operating profit before interest and
taxes.
The Intel Architecture operating segment’s products include microprocessors and related chipsets and motherboards. Net revenue
for the Intel Architecture operating segment made up approximately 85% of the company’s consolidated net revenue in 2004 (87% in
2003 and 83% in 2002). Revenue from sales of microprocessors within the Intel Architecture operating segment represented 72% of
consolidated net revenue in 2004 (73% in 2003 and 70% in 2002). ICG’s products include flash memory, wired and wireless
75
INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
connectivity products, communications infrastructure components such as network and embedded processors and optical components,
microcontrollers, application and cellular processors used in cellular handsets and handheld computing devices, and cellular baseband
chipsets. The company’s products in both operating segments are sold directly to original equipment manufacturers, and through retail
and industrial distributors as well as reseller channels throughout the world.
In addition to these operating segments, the company has sales and marketing, manufacturing, finance and administration groups.
Expenses of these groups are allocated to the operating segments and are included in the operating results reported below.
The “all other” category includes acquisition-related costs, including amortization and any impairments of acquisition-related
intangibles and goodwill and charges for purchased in-process research and development. In 2003, acquisition-related costs included a
goodwill impairment charge of $611 million for the remaining goodwill balance related to the former WCCG, and in 2002 included a
$127 million impairment of acquisition-related identified intangibles related to prior-year acquisitions. “All other” also includes the
results of operations of seed businesses that support the company’s initiatives, and the results for 2002 included a charge of $106
million related to the wind-down of the Intel Online Services web hosting business. Finally, “all other” includes certain corporate-level
operating expenses, including a portion of profit-dependent bonus and other expenses not allocated to the operating segments.
The company does not identify or allocate assets by operating segment, and does not allocate depreciation as such to the operating
segments, nor does the CODM evaluate operating segments on these criteria. Operating segments do not record intersegment revenue,
and, accordingly, there is none to be reported. The company does not allocate interest and other income, interest expense or taxes to
operating segments. Although the CODM uses operating income to evaluate the segments, operating costs included in one segment
may benefit other segments. Except as discussed above, the accounting policies for segment reporting are the same as for the company
as a whole.
In January 2005, the company announced a planned reorganization of its business groups to bring all major product groups in line
with the company’s strategy to drive development of complete technology platforms. These new business units include the Mobility
Group, the Digital Enterprise Group, the Digital Home Group, the Digital Health Group and the Channel Platforms Group. This
reorganization is expected to become effective in 2005. Because this reporting period is as of December 25, 2004, the operating
segment information below is presented under the organizational structure that existed as of December 25, 2004.
Net revenue and operating income or loss for operating segments for the three years ended December 25, 2004 were as follows:
(In Millions)
Intel Architecture Business
Net revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intel Communications Group
Net revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
All Other
Net revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total
Net revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2004
2003
2002
$ 29,167
$ 12,067
$ 26,178
$ 10,354
$ 22,347
$ 6,498
$ 5,027
$ (791)
$ 3,928
$ (824)
$ 4,288
$ (817)
$
15
$ (1,146)
$
35
$ (1,997)
$
129
$ (1,299)
$ 34,209
$ 10,130
$ 30,141
$ 7,533
$ 26,764
$ 4,382
In 2004, one customer accounted for approximately 19% of the company’s net revenue (19% in 2003 and 16% in 2002) while
another customer accounted for approximately 16% in 2004 (15% in both 2003 and 2002). A substantial majority of the sales to these
customers were products from the Intel Architecture business.
Geographic revenue information for the three years ended December 25, 2004 is based on the location of the customer. Property,
plant and equipment information is based on the physical location of the assets at the end of each of the fiscal years.
76
INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Revenue from unaffiliated customers by geographic region/country was as follows:
(In Millions)
2004
2003
2002
$ 6,563
1,402
$ 7,644
759
$ 7,698
950
7,965
8,403
8,648
5,391
4,651
5,338
4,405
3,679
4,077
2,854
3,199
4,020
15,380
12,161
10,073
..............................................................
7,755
6,868
6,139
Japan† . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,109
2,709
1,904
Total revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$34,209
$30,141
$26,764
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Americas† . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Taiwan†
..............................................................
China† . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Asia-Pacific† . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Europe†
†
Revenue from unaffiliated customers outside the U.S. totaled $27,646 million in 2004 ($22,497 million in 2003 and
$19,066 million in 2002).
Net property, plant and equipment by country was as follows:
(In Millions)
2004
2003
2002
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ireland† . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other countries† . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$11,265
2,365
2,138
$12,483
2,392
1,786
$14,518
1,405
1,924
Total property, plant and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$15,768
$16,661
$17,847
†
Net property, plant and equipment outside the U.S. totaled $4,503 million in 2004 ($4,178 million in 2003 and $3,329
million in 2002).
77
REPORT OF ERNST & YOUNG LLP, INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders, Intel Corporation
We have audited the accompanying consolidated balance sheets of Intel Corporation as of December 25, 2004 and December 27,
2003, and the related consolidated statements of income, stockholders’ equity, and cash flows for each of the three years in the period
ended December 25, 2004. Our audits also included the financial statement schedule listed in the Index at Part IV, Item 15. These
financial statements and schedule are the responsibility of the company’s management. Our responsibility is to express an opinion on
these financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated
financial position of Intel Corporation at December 25, 2004 and December 27, 2003, and the consolidated results of their operations
and their cash flows for each of the three years in the period ended December 25, 2004, in conformity with accounting principles
generally accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to
the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
effectiveness of Intel Corporation’s internal control over financial reporting as of December 25, 2004, based on criteria established in
Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our
report dated February 15, 2005 expressed an unqualified opinion thereon.
San Jose, California
February 15, 2005
78
REPORT OF ERNST & YOUNG LLP, INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders, Intel Corporation
We have audited management’s assessment, included in the accompanying Management Report on Internal Control Over
Financial Reporting, that Intel Corporation maintained effective internal control over financial reporting as of December 25, 2004,
based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (the COSO criteria). Intel Corporation’s management is responsible for maintaining effective internal control
over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to
express an opinion on management’s assessment and an opinion on the effectiveness of the company’s internal control over financial
reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over
financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over
financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal
control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a
reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in
accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect
on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, management’s assessment that Intel Corporation maintained effective internal control over financial reporting as
of December 25, 2004, is fairly stated, in all material respects, based on the COSO criteria. Also, in our opinion, Intel Corporation
maintained, in all material respects, effective internal control over financial reporting as of December 25, 2004, based on the COSO
criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
2004 consolidated financial statements of Intel Corporation and our report dated February 15, 2005 expressed an unqualified opinion
thereon.
San Jose, California
February 15, 2005
79
INTEL CORPORATION
FINANCIAL INFORMATION BY QUARTER (UNAUDITED)
(In Millions—Except Per Share Amounts)
2004 For Quarter Ended
Net revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Basic earnings per share1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted earnings per share1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends per share
Declared . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Market price range common stock2
High . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Low . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(In Millions—Except Per Share Amounts)
2003 For Quarter Ended
Net revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment of goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Basic earnings per share3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted earnings per share3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends per share
Declared . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Market price range common stock2
High . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Low . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 25
September 25
$
$
$
$
$
$
$
$
$
$
8,471
4,719
1,906
0.30
0.30
$
$
$
$
$
— $
0.04 $
0.08
0.04
$
$
27.60
19.72
$
$
$
$
$
$
9,598
5,377
2,123
0.34
0.33
24.80
19.68
$
$
June 26
December 27
September 27
$
$
$
$
$
$
$
$
$
$
$
$
7,833
4,558
—
1,657
0.25
0.25
$
$
$
$
$
$
— $
0.02 $
0.04
0.02
$
$
29.18
20.81
$
$
$
$
$
$
8,741
5,556
611
2,173
0.33
0.33
34.12
27.52
$
$
8,049
4,780
1,757
0.27
0.27
March 27
$
$
$
$
$
8,091
4,870
1,730
0.27
0.26
— $
0.04 $
0.08
0.04
28.99
25.73
$
$
June 28
6,816
3,468
6
896
0.14
0.14
34.24
26.16
March 29
$
$
$
$
$
$
6,751
3,512
—
915
0.14
0.14
— $
0.02 $
0.04
0.02
22.14
16.28
$
$
18.90
15.05
1
Net income for the quarter ended September 25, 2004 included $195 million in tax benefits related to export sales and state tax
benefits for divestitures that exceeded the amounts originally estimated in connection with the 2003 provision, increasing both basic
and diluted earnings per share by $0.03. Net income for the quarter ended June 26, 2004 included $62 million in tax benefits related
to the reversal of previously accrued taxes related primarily to the closing of a state income tax audit, increasing both basic and
diluted earnings per share by $0.01.
2
Intel’s common stock (symbol INTC) trades on The NASDAQ Stock Market* and is quoted in the Wall Street Journal and other
newspapers. Intel’s common stock also trades on The Swiss Exchange. At December 25, 2004, there were approximately 230,000
registered holders of common stock. All stock prices are closing prices per The NASDAQ Stock Market.
3
Net income for the quarter ended December 27, 2003 included $620 million in tax benefits related to divestitures, increasing both
basic and diluted earnings per share by $0.09.
80
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
Not applicable.
ITEM 9A. CONTROLS AND PROCEDURES
Attached as exhibits to this Form 10-K are certifications of Intel’s Chief Executive Officer (CEO) and Chief Financial Officer
(CFO), which are required in accordance with Rule 13a-14 of the Securities Exchange Act of 1934, as amended (the Exchange Act).
This “Controls and Procedures” section includes information concerning the controls and controls evaluation referred to in the
certifications. Part II, Item 8 of this Form 10-K sets forth the report of Ernst & Young LLP, our independent registered public
accounting firm, regarding its audit of Intel’s internal control over financial reporting and of management’s assessment of internal
control over financial reporting set forth below in this section. This section should be read in conjunction with the certifications and the
Ernst & Young report for a more complete understanding of the topics presented.
Evaluation of Disclosure Controls and Procedures
We conducted an evaluation of the effectiveness of the design and operation of our “disclosure controls and procedures”
(Disclosure Controls) as of the end of the period covered by this Form 10-K. The controls evaluation was conducted under the
supervision and with the participation of management, including our CEO and CFO. Disclosure Controls are controls and procedures
designed to reasonably assure that information required to be disclosed in our reports filed under the Exchange Act, such as this Form
10-K, is recorded, processed, summarized and reported within the time periods specified in the U.S. Securities and Exchange
Commission’s (SEC’s) rules and forms. Disclosure Controls are also designed to reasonably assure that such information is
accumulated and communicated to our management, including the CEO and CFO, as appropriate to allow timely decisions regarding
required disclosure. Our quarterly evaluation of Disclosure Controls includes an evaluation of some components of our internal control
over financial reporting, and internal control over financial reporting is also separately evaluated on an annual basis for purposes of
providing the management report which is set forth below.
The evaluation of our Disclosure Controls included a review of the controls’ objectives and design, the company’s
implementation of the controls and the effect of the controls on the information generated for use in this Form 10-K. In the course of
the controls evaluation, we reviewed identified data errors, control problems or acts of fraud and sought to confirm that appropriate
corrective actions, including process improvements, were being undertaken. This type of evaluation is performed on a quarterly basis
so that the conclusions of management, including the CEO and CFO, concerning the effectiveness of the Disclosure Controls can be
reported in our periodic reports on Form 10-Q and Form 10-K. Many of the components of our Disclosure Controls are also evaluated
on an ongoing basis by our Internal Audit Department and by other personnel in our Finance and Enterprise Services organization. The
overall goals of these various evaluation activities are to monitor our Disclosure Controls, and to modify them as necessary. Our intent
is to maintain the Disclosure Controls as dynamic systems that change as conditions warrant.
Based upon the controls evaluation, our CEO and CFO have concluded that, subject to the limitations noted in this Part II,
Item 9A, as of the end of the period covered by this Form 10-K, our Disclosure Controls were effective to provide reasonable
assurance that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported
within the time periods specified by the SEC, and that material information relating to Intel and its consolidated subsidiaries is made
known to management, including the CEO and CFO, particularly during the period when our periodic reports are being prepared.
Management Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting to provide
reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes those policies
and procedures that (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and
dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of
the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets
that could have a material effect on the financial statements.
Management assessed our internal control over financial reporting as of December 25, 2004, the end of our fiscal year.
Management based its assessment on criteria established in Internal Control–Integrated Framework issued by the Committee of
81
Sponsoring Organizations of the Treadway Commission. Management’s assessment included evaluation of such elements as the design
and operating effectiveness of key financial reporting controls, process documentation, accounting policies, and our overall control
environment. This assessment is supported by testing and monitoring performed both by our Internal Audit organization and our
Finance and Enterprise Services organization.
Based on our assessment, management has concluded that our internal control over financial reporting was effective as of the end
of the fiscal year to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external reporting purposes in accordance with generally accepted accounting principles. We reviewed the results of
management’s assessment with the Audit Committee of our Board of Directors.
Our independent registered public accounting firm, Ernst & Young LLP, audited management’s assessment and independently
assessed the effectiveness of the company’s internal control over financial reporting. Ernst & Young has issued an attestation report
concurring with management’s assessment, which is included at the end of Part II, Item 8 of this Form 10-K.
Inherent Limitations on Effectiveness of Controls
The company’s management, including the CEO and CFO, does not expect that our Disclosure Controls or our internal control
over financial reporting will prevent or detect all error and all fraud. A control system, no matter how well designed and operated, can
provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must
reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further,
because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements
due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the company have been detected.
These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because
of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more
people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about
the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all
potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time,
controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or
procedures.
ITEM 9B. OTHER INFORMATION
None.
82
PART III
ITEM 10.
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information regarding Directors and Executive Officers appearing under the headings “Proposal 1: Election of Directors” and
“Other Matters—Section 16(a) Beneficial Ownership Reporting Compliance” of our 2005 Proxy Statement is incorporated by
reference in this section. The information under the heading “Executive Officers of the Registrant” in Part I, Item 1 of this Form 10-K
is also incorporated by reference in this section. In addition, the information included under the heading “Corporate Governance” in
Part I, Item 1 of this Form 10-K identifying the “audit committee financial expert” who serves on the Audit Committee of our Board of
Directors and the process by which stockholders may recommend candidates for the Board of Directors to the Corporate Governance
and Nominating Committee is incorporated by reference in this section. There were no changes to the process by which stockholders
may recommend candidates for the Board of Directors during 2004.
Intel has, for many years, maintained a set of Corporate Business Principles which incorporate our code of ethics applicable to all
employees, including all officers, and including our independent directors, who are not employees of the company, with regard to their
Intel-related activities. The Corporate Business Principles incorporate our guidelines designed to deter wrongdoing and to promote
honest and ethical conduct and compliance with applicable laws and regulations. They also incorporate our expectations of our
employees that enable us to provide accurate and timely disclosure in our filings with the Securities and Exchange Commission and
other public communications. In addition, they incorporate Intel guidelines pertaining to topics such as environmental, health and
safety compliance; diversity and non-discrimination; supplier expectations; privacy; and business continuity.
The full text of our Corporate Business Principles is published on our Investor Relations web site at www.intc.com. We intend to
disclose future amendments to certain provisions of our Corporate Business Principles, or waivers of such provisions granted to
executive officers and directors, on this web site within four business days following the date of such amendment or waiver.
ITEM 11.
EXECUTIVE COMPENSATION
The information appearing under the headings “Directors’ Compensation,” “Employment Contracts and Change of Control
Arrangements,” “Report of the Compensation Committee on Executive Compensation,” “Stock Price Performance Graph,”
“Compensation Committee Interlocks and Insider Participation” and “Executive Compensation” of the 2005 Proxy Statement is
incorporated by reference.
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
The information appearing in our 2005 Proxy Statement under the heading “Security Ownership of Certain Beneficial Owners
and Management” is incorporated by reference.
See “Employee Equity Incentive Plans” in Part II, Item 7 of this Form 10-K regarding shares authorized for issuance under equity
compensation plans approved by stockholders and not approved by stockholders. For descriptions of our equity incentive plans, see
“Employee Equity Incentive Plans” in Part II, Item 7 and “Note 11: Employee Equity Incentive Plans” in Part II, Item 8 of this Form
10-K.
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information appearing in our 2005 Proxy Statement under the heading “Certain Relationships and Related Transactions” is
incorporated by reference.
ITEM 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information appearing in our 2005 Proxy Statement under the headings “Report of the Audit Committee” and “Ratification of
Selection of Independent Registered Public Accounting Firm” is incorporated by reference.
83
PART IV
ITEM 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
1.
Financial Statements: See “Index to Consolidated Financial Statements” in Part II, Item 8 on page 45 of this Form 10-K.
2.
Financial Statement Schedule: See “Schedule II—Valuation and Qualifying Accounts” on page 85 of this Form 10-K.
3.
Exhibits: The exhibits listed in the accompanying index to exhibits are filed or incorporated by reference as part of this
Form 10-K.
Intel, the Intel logo, Intel Inside, Celeron, Intel Centrino, Intel SpeedStep, Intel StrataFlash, Intel Xeon, Intel XScale, Itanium, MMX
and Pentium are trademarks or registered trademarks of Intel Corporation or its subsidiaries in the United States and other countries.
*Other names and brands may be claimed as the property of others.
84
INTEL CORPORATION
SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS
December 25, 2004, December 27, 2003 and December 28, 2002
(In Millions)
Balance at
Beginning of
Year
Additions
Charged to
Costs and
Expenses
Deductions
Balance at
End of Year
Allowance for doubtful receivables†
2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
55 $
57 $
68 $
4 $
14 $
10 $
16 $
16 $
21 $
43
55
57
Valuation allowance for deferred tax asset
2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
— $
— $
— $
75 $
— $
— $
— $
— $
— $
75
—
—
†
Deductions represent uncollectible accounts written off, net of recoveries.
85
INDEX TO EXHIBITS
Incorporated by Reference
Exhibit
Number
Exhibit Description
Form
File Number
Exhibit
Filing
Date
3.1
Intel Corporation Second Restated Certificate of Incorporation filed
March 13, 2003
10-Q 000-06217
3.1
5/7/03
3.2
Intel Corporation Bylaws as amended on November 10, 2004
8-K
3.1
11/15/04
10.1**
Intel Corporation 2004 Equity Incentive Plan, effective May 19, 2004
10-Q 000-06217 10.3
8/2/04
10.2**
Standard Terms and Conditions Relating to Non-Qualified Stock
Options granted to U.S. employees on and after May 19, 2004 under the
Intel Corporation 2004 Equity Incentive Plan
10-Q 000-06217 10.5
8/2/04
10.3**
Notice of Grant of Non-Qualified Stock Option under the Intel
Corporation 2004 Equity Incentive Plan
10-Q 000-06217 10.7
8/2/04
10.4**
Standard International Non-Qualified Stock Option Agreement under the
Intel Corporation 2004 Equity Incentive Plan
10-Q 000-06217 10.6
8/2/04
10.5**
Intel Corporation Non-Employee Director Non-Qualified Stock Option
Agreement under the Intel Corporation 2004 Equity Incentive Plan
10-Q 000-06217 10.4
8/2/04
10.6**
Form of ELTSOP Non-Qualified Stock Option Agreement under the
Intel Corporation 2004 Equity Incentive Plan
8-K
000-06217 10.1
10/12/04
10.7
Intel Corporation 1997 Stock Option Plan, as amended and restated
effective July 16, 1997
10-K 000-06217 10.7
3/11/03
10.8**
Intel Corporation 1988 Executive Long Term Stock Option Plan, as
amended and restated effective July 16, 1997
10-Q 333-45395 10.2
8/11/98
10.9**
Intel Corporation 1984 Stock Option Plan, as amended and restated
effective July 16, 1997
10-Q 333-45395 10.1
8/11/98
10.10** Intel Corporation Executive Officer Incentive Plan, as amended and
restated effective January 1, 2004
10-K 000-06217 10.7
2/23/04
10.11** Description of Bonus Terms under the Executive Officer Incentive Plan
10-Q 000-06217 10.2
8/2/04
10.12** Intel Corporation Deferral Plan for Outside Directors, effective July 1,
1998
10-K 333-45395 10.6
3/26/99
000-06217
10.13** Intel Corporation Special Deferred Compensation Plan
S-8
333-45395
4.1
2/2/98
10.14** Intel Corporation Sheltered Employee Retirement Plan Plus, as amended
and restated effective July 15, 1996
S-8
033-63489 4.1.1
7/17/96
Filed
Herewith
10.15** Form of Indemnification Agreement with Directors and Executive
Officers
X
12.1
Statement Setting Forth the Computation of Ratios of Earnings to Fixed
Charges
X
21.1
Intel subsidiaries
X
23.1
Consent of Ernst & Young LLP, Independent Registered Public
Accounting Firm
X
31.1
Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) of
the Securities Exchange Act of 1934, as amended (the Exchange Act)
X
31.2
Certification of Chief Financial Officer and Principal Accounting
Officer Pursuant to Rule 13a-14(a) of the Exchange Act
X
86
Incorporated by Reference
Exhibit
Number
32.1
Exhibit Description
Form
File Number
Certification of the Chief Executive Officer and the Chief Financial
Officer and Principal Accounting Officer Pursuant to Rule 13a-14(b) of
the Exchange Act and 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
**Compensation plans or arrangements in which directors or executive officers are eligible to participate.
87
Exhibit
Filing
Date
Filed
Herewith
X
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
By: /s/ ANDY D. BRYANT
Andy D. Bryant
Executive Vice President, Chief Financial Officer
and Principal Accounting Officer
February 18, 2005
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the dates indicated.
/s/ CRAIG R. BARRETT
Craig R. Barrett
Chief Executive Officer, Director and
Principal Executive Officer
February 18, 2005
/s/ REED E. HUNDT
Reed E. Hundt
Director
February 18, 2005
/s/ CHARLENE BARSHEFSKY
Charlene Barshefsky
Director
February 18, 2005
/s/ PAUL S. OTELLINI
Paul S. Otellini
President, Chief Operating Officer and Director
February 18, 2005
/s/ E. JOHN P. BROWNE
E. John P. Browne
Director
February 18, 2005
/s/ DAVID S. POTTRUCK
David S. Pottruck
Director
February 18, 2005
/s/ ANDY D. BRYANT
Andy D. Bryant
Executive Vice President, Chief Financial Officer and
Principal Accounting Officer
February 18, 2005
/s/ JANE E. SHAW
Jane E. Shaw
Director
February 18, 2005
/s/ ANDREW S. GROVE
Andrew S. Grove
Chairman of the Board and Director
February 18, 2005
/s/ JOHN L. THORNTON
John L. Thornton
Director
February 18, 2005
/s/ D. JAMES GUZY
D. James Guzy
Director
February 18, 2005
/s/ DAVID B. YOFFIE
David B. Yoffie
Director
February 18, 2005
88
Exhibit 31.1
The following certification includes references to an evaluation of the effectiveness of the design and operation of the company’s
“disclosure controls and procedures” and to certain matters related to the company’s “internal control over financial reporting.”
Item 9A of Part II of this Form 10-K presents the conclusions of the CEO and the CFO about the effectiveness of the company’s
disclosure controls and procedures and internal control over financial reporting based on and as of the date of management’s
evaluations of such controls (relating to Item 4 of the certification), and contains additional information concerning disclosures to the
company’s Audit Committee and independent auditors with regard to deficiencies in internal control over financial reporting and fraud
and related matters (Item 5 of the certification).
CERTIFICATION
I, Craig R. Barrett, certify that:
1.
I have reviewed this annual report on Form 10-K of Intel Corporation;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented
in this report;
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined
in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
5.
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this report is being prepared;
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on
such evaluation; and
d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons
performing the equivalent functions):
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
By: /s/
Date: February 18, 2005
CRAIG R. BARRETT
Craig R. Barrett
Chief Executive Officer
89
Exhibit 31.2
The following certification includes references to an evaluation of the effectiveness of the design and operation of the company’s
“disclosure controls and procedures” and to certain matters related to the company’s “internal control over financial reporting.”
Item 9A of Part II of this Form 10-K presents the conclusions of the CEO and the CFO about the effectiveness of the company’s
disclosure controls and procedures and internal control over financial reporting based on and as of the date of management’s
evaluations of such controls (relating to Item 4 of the certification), and contains additional information concerning disclosures to the
company’s Audit Committee and independent auditors with regard to deficiencies in internal control over financial reporting and fraud
and related matters (Item 5 of the certification).
CERTIFICATION
I, Andy D. Bryant, certify that:
1.
I have reviewed this annual report on Form 10-K of Intel Corporation;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented
in this report;
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined
in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
5.
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this report is being prepared;
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on
such evaluation; and
d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons
performing the equivalent functions):
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
By: /s/
Date: February 18, 2005
ANDY D. BRYANT
Andy D. Bryant
Executive Vice President, Chief Financial Officer and
Principal Accounting Officer
90
Exhibit 32.1
CERTIFICATION
Each of the undersigned hereby certifies, for the purposes of section 1350 of chapter 63 of title 18 of the United States Code, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, in his capacity as an officer of Intel Corporation (Intel), that, to his
knowledge, the Annual Report of Intel on Form 10-K for the period ended December 25, 2004, fully complies with the requirements of
Section 13(a) of the Securities Exchange Act of 1934 and that the information contained in such report fairly presents, in all material
respects, the financial condition and results of operation of Intel. This written statement is being furnished to the Securities and
Exchange Commission as an exhibit to such Form 10-K. A signed original of this statement has been provided to Intel and will be
retained by Intel and furnished to the Securities and Exchange Commission or its staff upon request.
Date: February 18, 2005
By: /s/ CRAIG R. BARRETT
Craig R. Barrett
Chief Executive Officer
Date: February 18, 2005
By: /s/ ANDY D. BRYANT
Andy D. Bryant
Executive Vice President, Chief Financial Officer
and Principal Accounting Officer
91
(You are leaving the Form 10-K and continuing to the Corporate Directory.)
Corporate Directory**
Brian L. Harrison
Shane D. Wall
Glenda M. Dorchak
Vice President
General Manager,
Europe, Middle East, Africa
General Manager,
Channel Software Operation
General Manager,
Consumer Electronics Group
Corporate
Technology Group
Gerald S. Holzhammer
David L. Tennenhouse
Donald J. MacDonald
Director, Research
General Manager,
Digital Home Group
BOARD OF
DIRECTORS
CORPORATE
OFFICERS
Andrew S. Grove
Andrew S. Grove
Chairman of the Board
Chairman of the Board
William M. Holt
Craig R. Barrett
Vice President
Director, Logic Technology
Development
Craig R. Barrett
4
Chief Executive Officer
Chief Executive Officer
Ambassador
Charlene Barshefsky
Paul S. Otellini
5
Senior International Partner
Wilmer Cutler Pickering
Hale and Dorr LLP
E. John P. Browne
1 2
Group Chief Executive
BP plc
An integrated oil company
D. James Guzy
1 3†
Chairman
Arbor Company
A limited partnership
Reed E. Hundt
President and
Chief Operating Officer
Andy D. Bryant
Executive Vice President
Chief Financial and
Enterprise Services Officer
Sean M. Maloney
Executive Vice President
General Manager,
Mobility Group
Robert J. Baker
2† 3
Principal
Charles Ross Partners
Private investor and
business advisory services
Senior Vice President
General Manager,
Technology and
Manufacturing Group
Sunlin Chou
President and
Chief Operating Officer
Senior Vice President
General Manager,
Technology and
Manufacturing Group
David S. Pottruck
Patrick P. Gelsinger
Paul S. Otellini
4
2
Managing Director
The Pottruck Group
A private equity firm
Senior Vice President
General Manager,
Digital Enterprise Group
Jane E. Shaw
Patricia Murray
1† 3
Chairman and
Chief Executive Officer
Aerogen, Inc.
An emerging specialty
pharmaceutical company
John L. Thornton
5†
Professor and
Director of Global Leadership
Tsinghua University (Beijing)
David B. Yoffie
3† 4† 5 6
Max and Doris Starr
Professor of International
Business Administration
Harvard Business School
DIRECTOR
EMERITUS
Gordon E. Moore
Chairman Emeritus
Senior Vice President
Director,
Human Resources
Arvind Sodhani
Senior Vice President
Treasurer
Howard G. Bubb
Vice President
General Manager,
Communications
Infrastructure Group
Louis J. Burns
Vice President
General Manager,
Digital Health Group
Douglas F. Busch
Vice President
Chief Technology Officer,
Digital Health Group
Anand Chandrasekher
Vice President
Director,
Sales and Marketing Group
1
2
3
4
5
6
†
Member of Audit Committee
Member of Compensation
Committee
Member of Corporate
Governance and
Nominating Committee
Member of Executive
Committee
Member of Finance
Committee
Lead Independent Director
Committee Chairman
**As of February 18, 2005
Leslie S. Culbertson
Vice President
Director,
Corporate Finance
Thomas R. Franz
Vice President
General Manager,
Fab/Sort Manufacturing
Eric B. Kim
General Manager,
Consumer Computing Group
Vice President
Director,
Sales and Marketing Group
Abel Weinrib
Deputy Director,
Corporate Technology Group
Finance and
Enterprise Services
John H. F. Miner
Donald M. Whiteside
Vice President
President,
Intel Capital
Director,
Technology Policy and
Standards
James G. Campbell
Sandra K. Morris
Digital Enterprise Group
Assistant Treasurer and
Director, Corporate Credit
Diane M. Bryant
Ravi Jacob
Vice President
General Manager,
Mobility Group Business
Operations and Services
General Manager,
Volume Server Product Line
David Perlmutter
Daniel J. Casaletto
Vice President
General Manager,
Mobility Group
Director,
Massachusetts Design Center
Pamela L. Pollace
Technical Staff
Vice President
Director, Corporate
Communications Group
Robert B. Crooke
D. Bruce Sewell
Vice President
General Counsel
David M. Cowan
General Manager,
Business Client Group
Douglas L. Davis
Corporate Controller
Anthony R. Gosden
Assistant Treasurer,
Acquisitions and
Strategic Investments
John N. Johnson
Director,
Enterprise Production Services
Franklin B. Jones
Director,
Supply Network Capability
Jon A. Olson
Director, Finance
Nanci S. Palmintere
Gidu K. Shroff
General Manager,
Infrastructure Processor
Division
Vice President
Director, Materials
Timothy A. Dunn
Ogden M. Reid
William M. Siu
Vice President
General Manager,
Channel Platforms Group
Stephen L. Smith
Vice President
Director,
Desktop Platform Operations
Edward Y. So
Vice President
Director,
California Technology and
Manufacturing
William A. Swope
Vice President
Director,
Digital Enterprise
Brand Management
Abhijit Y. Talwalkar
General Manager,
Networking and Storage Group
Thomas R. Macdonald
Dianne L. Rudolph
Nimish H. Modi
Chief Information Officer
General Manager,
Enterprise Microprocessor Group
Jacklyn A. Sturm
Prasad L. Rampalli
Stacy J. Smith
Controller, Technology and
Manufacturing Group
Richard G. A. Taylor
Thomas A. Rampone
Janice F. Wilkins
General Manager,
Platform Architecture and
Solutions Division
D. Jeffrey Richardson
General Manager,
Server Platform Group
Richard B. Wirt
Sunil R. Shenoy
Corporate Secretary
Controller, Mobility Group
Director,
End-User Platform Integration
Joseph D. Schutz
Cary I. Klafter
Director,
Human Resources
Legal Services
General Manager,
Advanced Components
Division
Vice President
General Manager,
Digital Enterprise Group
Vice President
Senior Fellow
General Manager,
Software and Solutions Group
Director,
Tax, Licensing and Customs
Director,
Microprocessor Development
General Manager,
Enterprise Microprocessor Group
Digital Home Group
Director, Human Resources
Director, Internal Audit
Intel Capital
Scott C. Darling
Director, Enterprise and
Digital Home Sectors
Claude M. Leglise
Director,
International Sector
Curt J. Nichols
Director,
Digital Home Sector
Deborah S. Conrad
Legal and
Government Affairs
Director, Solutions Market
Development Group
James W. Jarrett
Vice President
General Manager,
Networking and Storage Group
APPOINTED
VICE PRESIDENTS
Kevin M. Corbett
Director,
Worldwide Government Affairs
Chief Technology Officer,
Digital Home Group
Cary I. Klafter
Jai K. Hakhu
Channel
Platforms Group
John E. Davies
Hans G. Geyer
Vice President
General Manager,
Technology Manufacturing
Engineering
L. Wilton Agatstein, Jr.
General Manager,
Reseller Products Group
Director, Solutions Market
Development Group
Director, Corporate Affairs
Suzan A. Miller
Assistant General Counsel
Corporate Directory (continued)
Mobility Group
Gregory R. Pearson
Michael C. Mayberry
Shmuel Arditi
Co-President,
Intel K.K. (Japan)
Director,
Sort/Test Technology
Development
General Manager,
Cellular and Handheld Group
Darin G. Billerbeck
General Manager,
Flash Products Group
Laura G. Crone
Director, Flash Products
Group Operations
Shmuel Eden
General Manager,
Mobile Platforms Group
Ron Friedman
Director,
Microprocessor Design
Gil G. Frostig
Director, Technology
Capabilities and Operations
James A. Johnson
General Manager,
Wireless Networking Group
W. Eric Mentzer
General Manager,
Client Platform Division
Rama K. Shukla
Director,
Platform Program Office
Gadi Singer
Chief Technology Officer,
Mobility Group
Dalibor F. Vrsalovic
General Manager,
Service Providers
Program Office
Randy L. Wilhelm
General Manager,
Wireless Networking Group
Sales and
Marketing Group
John A. Antone
General Manager,
Asia-Pacific
(Sophia) Lee Fang Chew
General Manager,
Reseller Channel Operation
Gerald J. Greeve
General Manager,
Asia-Pacific
Jeffery L. Hoogenboom
Director,
Global Accounts—IBM and
Lenovo
Thomas M. Kilroy
Co-President,
Intel Americas, Inc.
Ann Lewnes
Director,
Partner Marketing
Jeffrey P. McCrea
Co-President,
Intel Americas, Inc.
Christian Morales
General Manager,
Europe, Middle East, Africa
Stuart C. Pann
General Manager,
Customer Fulfillment,
Planning and Logistics
Keith E. Reese
FELLOWS
Richard B. Grove
Corporate
Technology Group
David J. Kuck
General Manager,
Customer Fulfillment,
Planning and Logistics
John McGowan
Shekhar Y. Borkar
Director, Corporate Services
Interim Director,
Microprocessor Technology Lab
Arthur W. Roehm
General Manager,
Assembly/Test
Stephen R. Mooney
James R. OHara
Uri C. Weiser
Director,
Technical Operations
General Manager,
Ireland Operations and
Fab 10/14 Plant Manager
Director, Streaming Media
Architecture Lab
Frank E. Spindler
Sanjay D. Panditji
Director,
Technology Programs
Director,
Systems Technologies
Director,
Systems Technology Lab
Kazumasa Yoshida
Clemente J. Russo
Co-President,
Intel K.K. (Japan)
General Manager,
Systems Manufacturing
Software and
Solutions Group
Babak Sabi
Director,
Corporate Quality Network
John H. Crawford
Renee J. James
Joshua M. Walden
Joel S. Emer
Fab 24 Plant Manager
Director,
Microarchitecture Research
SENIOR FELLOWS
Tryggve Fossum
Corporate
Technology Group
Glenn J. Hinton
Director,
Global Accounts—Dell
Daniel R. Russell
General Manager,
Software and Solutions Group
Jonathan Khazam
General Manager,
Intel Software
Development Products
Technology and
Manufacturing Group
Sohail U. Ahmed
Director, Logic Technology
Development
Gulzar Mohd Ali
Director, I/O Research
Rajendra S. Yavatkar
Director, Itanium® Architecture
Director,
Microarchitecture Development
Stephen S. Pawlowski
Director, Fab Capital
Equipment Development
Director, Platform Architecture,
Planning and Technology
Jean-Marc Verdiell
Maxine Fassberg
Digital Home Group
Fab 18 Plant Manager
Software and
Solutions Group
Steven R. Grant
Richard B. Wirt
Director,
Digital Home Architecture
General Manager,
Software and Solutions Group
Technology and
Manufacturing Group
Mark T. Bohr
Director,
Process Architecture and
Integration
General Manager,
Israel Operations and
Nonvolatile Memory Strategy
Yan A. Borodovsky
Charles H. Korstad
Eugene S. Meieran
Director, Corporate Services
Albert Fazio
Director, Memory Technology
Development
Director,
Computer Aided Design
Research
Robert E. Bruck
Bruce H. Leising
Director, Design Rules and
Tapeout Technology
P. Geoffrey Lowney
Staff Architect
Director,
California Technology and
Manufacturing
Timothy L. Deeter
Justin R. Rattner
Director, Indirect Materials
Stefan K. Lai
Director, I/O Architecture
Paolo A. Gargini
Director,
Itanium® Circuits and
Technology
General Manager,
Assembly/Test
Richard L. Coulson
Director,
IA-32 Microarchitecture
Development
Peter D. MacWilliams
Brian M. Krzanich
Kenneth C. Cadien
Director, Communications
Technology Lab
Kevin C. Kahn
Craig C. Brown
Director,
Corporate Quality Network
Director, Communication
Technology Development
Director,
Transistor Research and
Nanotechnology
Samuel D. Naffziger
Alexander Kornhauser
Gregory E. Atwood
Robert S. Chau
Digital Enterprise Group
Fab 11X Plant Manager
Technology and
Manufacturing Group
Director, Communication
Processor Architecture
Director, Assembly
Technology Development
Timothy G. Hendry
Director, System Performance
Matthew J. Adiletta
Nasser Bozorg-Grayeli
Director, D2 Technology
Development and
D2 Plant Manager
Seckin Unlu
Director,
Innovative Technology
Director,
Corporate Technology Group
Kirk R. Hasserjian
Director,
Parallel and Distributed
Solutions Division
Digital Enterprise Group
Director,
Compiler and Architecture
Advanced Development
General Manager,
Fab/Sort Manufacturing
Director, Compiler Technology
Director,
Advanced Lithography
Director,
Manufacturing Strategic
Support
Ian A. Young
Director,
Advanced Circuits and
Technology Integration
Director, Optical Technology
Director, Technology Strategy
William J. Grundmann
David H. Hwang
Director,
Flash Process Technology
Karl G. Kempf
Director,
Decision Technologies
Shiuh-Wuu Lee
C. Brendan S. Traw
Director,
Advanced Circuit Simulation
Computer-Aided Design
Jose A. Maiz
Intel Capital
Director, Logic Technology
Quality and Reliability
Steven G. Duvall
Neal R. Mielke
Director,
Australia and New Zealand
Strategic Investment
Director, Reliability Methods
Legal and
Government Affairs
David B. Papworth
Director, Microprocessor
Product Development
Mobility Group
Thomas A. Piazza
Director,
Graphics Integrated
Chipset Architecture
Devadas D. Pillai
Director, Enabling
Technologies and Solutions
Valluri R. Rao
Director, Analytical and
Microsystems Technologies
George E. Sery
Director,
Device Technology
Optimization
Peter J. Silverman
Director,
Equipment Technology
Strategy
Software and
Solutions Group
Swaminathan Sivakumar
Boris A. Babayan
Gregory F. Taylor
Director, Architecture
Director, Lithography
Bryant E. Bigbee
Director, Mixed Signal
Circuit Technology
Director, Systems Software
Clair Webb
Director, Circuit Technology
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Intel Around the World
North America
Intel Corporation
Robert Noyce Building
2200 Mission College Boulevard
P.O. Box 58119
Santa Clara, CA 95052-8119
USA
Phone
General information: (408) 765-8080
Customer support: (800) 628-8686
Europe
Intel Corporation (UK) Ltd.
Pipers Way
Swindon
Wiltshire SN3 1RJ
UK
Phone
England: (44) 1793 403 000
France: (33) 1588 77171
Germany: (49) 89 99143 0
Ireland: (353) 1 606 7000
Israel: (972) 2 589 7111
Italy: (39) 02 575 441
Netherlands: (31) 20 659 1800
Asia-Pacific
Intel Semiconductor Ltd.
32/F Two Pacific Place
88 Queensway, Central
Hong Kong, SAR
Phone: (852) 2844 4555
Japan
Intel Kabushiki Kaisha
P.O. Box 300-8603 Tsukuba-gakuen
5-6 Tokodai, Tsukuba-shi
Ibaraki-ken 300-2635
Japan
Phone: (81) 298 47 8511
South America
Intel Semicondutores do Brasil
Av. Dr Chucri Zaidan, 940-10th floor
Market Place Tower II
04583-906
Sao Paulo-SP-Brasil
Phone: (55) 11 3365 5500
For more information
To learn more about Intel Corporation, visit
our site on the Internet at www.intel.com.
For stock information, earnings and
conference webcasts, annual reports, and
corporate governance and historical financial
information, visit www.intc.com.