Intel 2005 Annual Report Download - page 42

Table of Contents
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Financial Condition
Our financial condition remains strong. At December 31, 2005, cash, short-term investments and fixed income debt instruments included in trading
assets totaled $12.4 billion, down from $16.8 billion at December 25, 2004. At December 31, 2005, total short-term and long-term debt was
$2.4 billion and represented 6.7% of stockholders’ equity (at December 25, 2004, total debt was $904 million and represented 2.3% of stockholders’
equity).
Cash provided by operating activities is net income adjusted for certain non-cash items and changes in assets and liabilities. For 2005, cash provided
by operating activities was $14.8 billion, compared to $13.1 billion in 2004 and $11.5 billion in 2003. In 2005 compared to 2004, the majority of the
increase in cash provided by operating activities was from maturities of trading assets in excess of purchases and higher net income. In 2004 compared
to 2003, the majority of the increase in cash provided by operating activities was due to higher net income. Income taxes payable increased compared
to 2004 due to timing of estimated payments and the impact of repatriation under the Jobs Act. Accounts receivable increased in 2005 compared to
2004, primarily due to higher revenue and a higher proportion of sales occurring at the end of the fourth quarter. Accounts receivable was
approximately flat in 2004 compared to 2003. For 2005, our two largest customers accounted for 35% of net revenue, with one of these customers
accounting for 19% of revenue and another customer accounting for 16%. For 2004, our two largest customers accounted for 35% of net revenue (34%
of net revenue for 2003). Additionally, these two largest customers accounted for 42% of net accounts receivable at December 31, 2005 (34% at
December 25, 2004 and 31% at December 27, 2003). Inventories in 2005 increased compared to 2004 levels, primarily due to ramping of new
products. Inventories were approximately flat in 2004 compared to 2003 levels.
Investing cash flows consist primarily of capital expenditures, the proceeds from investment maturities and payment for investments acquired. We
used $6.4 billion in net cash for investing activities during 2005, compared to $5.0 billion during 2004 and $7.1 billion during 2003. The higher cash
used in investing activities in 2005 compared to 2004 resulted from capital spending, primarily driven by investments in 65-nanometer production
equipment. Capital spending was $5.8 billion in 2005 ($3.8 billion in 2004 and $3.7 billion in 2003). Capital spending for 2006 is expected to be
$6.9 billion, plus or minus $200 million, primarily driven by investments in 300mm, 45-nanometer production equipment. During 2005, we also paid
$191 million in cash for acquisitions, net of cash acquired. Other investing activities included intellectual property assets acquired as a result of a
settlement agreement with MicroUnity for $160 million. The higher net purchases of available-for-sale investments in 2004 compared to 2005 were
due to improved corporate credit profiles that facilitated a slight shift in our portfolio of investments in debt securities to longer term maturities. The
higher cash used in investing activities in 2003 compared to 2004 also 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 that year.
Financing cash flows consist primarily of repurchases and retirement of common stock, payment of dividends to stockholders and additions to long-
term debt. We used $9.5 billion in net cash for financing activities in 2005 compared to $7.7 billion in 2004 and $3.9 billion in 2003. During 2005, our
Board of Directors amended the company’s ongoing authorization to repurchase up to $25 billion in shares of Intel’s common stock in open market or
negotiated transactions, and in 2005 we purchased 418 million shares of common stock for $10.6 billion (301 million shares for $7.5 billion in 2004
and 176 million shares for $4.0 billion in 2003). At December 31, 2005, $21.9 billion remained available for repurchase under existing repurchase
authorizations. Payment of dividends was $2.0 billion in 2005 ($1.0 billion in 2004 and $524 million in 2003) due to an increase in the quarterly cash
dividend from $0.04 per share to $0.08 per share effective beginning in the first quarter of 2005. On January 19, 2006, our Board of Directors declared
a cash dividend of $0.10 per share effective the first quarter of 2006. The dividend is payable on March 1, 2006 to stockholders of record on
February 7, 2006. Additions to long-
term debt included $1.6 billion in proceeds from the issuance of 2.95% junior subordinated convertible debentures
(the debentures) due 2035. The proceeds from the debentures are available for general corporate purposes, as well as to purchase shares of Intel
common stock. Additions to long-
term debt also included $160 million in 4.375% bonds issued by the Industrial Development Authority of the City of
Chandler, Arizona (the Arizona bonds) due 2035. The proceeds from the issuance of the Arizona bonds will be used to finance the costs of acquisition,
construction and installation of certain industrial sewage and wastewater treatment facilities and solid waste disposal facilities as part of our
semiconductor manufacturing plant located in the City of Chandler, Arizona. Financing sources of cash during 2005 also included $1.2 billion in
proceeds from the sale of shares pursuant to employee equity incentive plans ($894 million in 2004 and $967 million in 2003).
During January 2006, Micron and Intel formed IMFT. As part of the initial capital contribution to IMFT, Intel paid $500 million in cash in January
2006, issued $581 million in notes, and owes an additional $115 million in cash in exchange for a 49% interest in IMFT.
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