Intel 2008 Annual Report Download

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INTEL CORP
FORM 10-K
(Annual Report)
Filed 02/23/09 for the Period Ending 12/27/08
Address 2200 MISSION COLLEGE BLVD
RNB-4-151
SANTA CLARA, CA 95054
Telephone 4087658080
CIK 0000050863
Symbol INTC
SIC Code 3674 - Semiconductors and Related Devices
Industry Semiconductors
Sector Technology
Fiscal Year 12/31
http://www.edgar-online.com
© Copyright 2009, EDGAR Online, Inc. All Rights Reserved.
Distribution and use of this document restricted under EDGAR Online, Inc. Terms of Use.

Table of contents

  • Page 1
    ...12/27/08 Address 2200 MISSION COLLEGE BLVD RNB-4-151 SANTA CLARA, CA 95054 4087658080 0000050863 INTC 3674 - Semiconductors and Related Devices Semiconductors Technology 12/31 Telephone CIK Symbol SIC Code Industry Sector Fiscal Year http://www.edgar-online.com © Copyright 2009, EDGAR Online, Inc...

  • Page 2
    Table of Contents

  • Page 3
    ... period from to . Commission File Number 000-06217 INTEL CORPORATION (Exact name of registrant as specified in its charter) Delaware State or other jurisdiction of incorporation or organization 2200 Mission College Boulevard, Santa Clara, California (Address of principal executive offices...

  • Page 4
    ...a shell company (as defined in Rule 12b-2 of the Act). Yes 3 No  Aggregate market value of voting and non-voting common equity held by non-affiliates of the registrant as of June 27, 2008, based upon the closing price of the common stock as reported by The NASDAQ Global Select Market* on such...

  • Page 5
    ... Matters to a Vote of Security Holders 1 16 23 23 23 23 PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Item 6. Selected Financial Data Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations...

  • Page 6
    ... preeminent provider of semiconductor chips and platforms for the worldwide digital economy. 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 we update annually, outlining...

  • Page 7
    ..., chipset, motherboard, memory, wired or wireless connectivity device, or software. Platforms based on our latest generation Intel Core microarchitecture integrate a memory controller into each microprocessor and connect processors and other components with a high-speed interconnect. We refer to...

  • Page 8
    ... basic building blocks for modular communications platforms and include advanced, fully programmable processors used in networking equipment to rapidly manage and direct data moving across networks and the Internet. Network and server storage products include small-business and home-network memory...

  • Page 9
    ... desktop market segment. For business desktop PCs, we offer the Intel ® Core TM 2 Duo processor with vPro TM technology and the Intel ® Core TM 2 Quad processor with vPro TM technology, which are designed to provide increased security and manageability, energy-efficient performance, and lower cost...

  • Page 10
    ... Chipsets designed to be used with 45nm Intel Core 2 Duo and Intel Core 2 Quad processors, helping to improve mainstream desktop system performance, energy efficiency, and video and sound quality. • Desktop motherboards that support a new generation of Intel ® vPro TM technology for business...

  • Page 11
    ... was from the sale of products that make up our Intel Centrino and Intel Centrino 2 processor technologies. These technologies are designed to provide high performance with improved multitasking, power-saving features to improve battery life, smaller form factors, wireless network connectivity, and...

  • Page 12
    ... company that we formed with Micron Technology, Inc. We currently purchase 49% of the manufactured output of IMFT. Assembly and test of NAND flash memory products is performed by Micron and other external subcontractors. See "Note 6: Equity Method and Cost Method Investments" in Part II, Item...

  • Page 13
    ..., consumer electronics, and graphics. As part of our R&D efforts, we plan to introduce a new microarchitecture for our mobile, desktop, and Intel Xeon processors approximately every two years and ramp the next generation of silicon process technology in the intervening years. We refer to this...

  • Page 14
    ... protection, nor is there a limit on the time horizon under which price protection is granted. The right of return granted generally consists of a stock rotation program in which distributors are able to exchange certain products based on the number of qualified purchases made by the distributor...

  • Page 15
    ... and Intel Core 2 processors with vPro technology. 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...

  • Page 16
    ... on offering innovative products and worldwide support for our customers at competitive prices, including providing improved energy-efficient performance, enhanced security, manageability, and integrated solutions. We believe that our platform strategy provides us with a competitive advantage. We...

  • Page 17
    ... strategic investment in Clearwire Communications, LLC (Clearwire LLC). During the fourth quarter of 2008, Clearwire Corporation and Sprint Nextel Corporation combined their respective WiMAX businesses in conjunction with additional capital contributions from Intel and other investors to form a new...

  • Page 18
    ...cooperative advertising programs with certain customers to promote our brands and to 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...

  • Page 19
    ... fabrication building in Arizona. We have been purchasing wind power and other forms of renewable energy at some of our major sites for several years. At the beginning of 2008, we announced plans to purchase renewable energy certificates under a multi-year contract. The purchase placed Intel at...

  • Page 20
    ...- present, Executive VP, Chief Sales and Marketing Officer • 2006 - 2008, Executive VP, GM of Sales and Marketing Group, Chief Sales and Marketing Officer • 2005 - 2006, Executive VP, GM of Mobility Group • 2001 - 2005, Executive VP, GM of Intel Communications Group • Member of Autodesk, Inc...

  • Page 21
    ... extreme volatility in credit, fixed income, and equity markets. There could be a number of follow-on effects from the credit crisis on Intel's business, including insolvency of key suppliers, resulting in product delays; inability of customers to obtain credit to finance purchases of our products...

  • Page 22
    ... still defining their strategic direction to more mature companies with established revenue streams and business models. The success of these companies is dependent on product development, market acceptance, operational efficiency, and other key business factors. The companies in which we invest may...

  • Page 23
    ...the fixed costs and investments associated with a particular product, and as a result can harm our financial results. Our global operations subject us to risks that may harm our results of operations and financial condition. We have sales offices, R&D, manufacturing, and assembly and test facilities...

  • Page 24
    ... us or our customers alleged patent, copyright, trademark, or other intellectual property rights to technologies that are important to our business. As described in "Note 24: Contingencies" in Part II, Item 8 of this Form 10-K, we are currently engaged in a number of litigation matters involving...

  • Page 25
    ...and turnover rates; • changes in product demand and the business environment, including changes related to the current uncertainty in global economic conditions; and • changes in the fair value of certain long-lived assets. In order to compete, we must attract, retain, and motivate key employees...

  • Page 26
    ... of Contents Our failure to comply with applicable environmental laws and regulations worldwide could harm our business and results of operations. The manufacturing and assembling and testing of our products require the use of hazardous materials that are subject to a broad array of EHS laws and...

  • Page 27
    ... on the investment we make; • we may not be able to retain key personnel of the acquired business; or • we may experience difficulty in integrating new employees, business systems, and technology. When we decide to sell assets or a business, we may encounter difficulty in finding or completing...

  • Page 28
    ... China. Our assembly and test facilities are located overseas, specifically in Malaysia, China, Costa Rica, and the Philippines. We are building a new assembly and test facility in Vietnam that is expected to begin production in 2010. In addition, we have sales and marketing offices worldwide. These...

  • Page 29
    ...'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 of this Form 10-K. In 2008, during...

  • Page 30
    ... stockholder return on our common stock with the cumulative total return of the Dow Jones Technology Index and the Standard & Poor's (S&P) 500 Index for the five fiscal years ended December 27, 2008. The graph and table assume that $100 was invested on December 26, 2003 (the last day of trading for...

  • Page 31
    ...(R) beginning in fiscal year 2006. See "Note 2: Accounting Policies" and "Note 19: Employee Equity Incentive Plans" in Part II, Item 8 of this Form 10-K. The ratio of earnings to fixed charges for each of the five years in the period ended December 27, 2008 was as follows: 2008 2007 2006 2005 2004...

  • Page 32
    ...or other business combinations that had not been completed as of February 18, 2009. Overview Our goal is to be the preeminent provider of semiconductor chips and platforms for the worldwide digital economy. Our primary component-level products include microprocessors, chipsets, and flash memory. Net...

  • Page 33
    ... than the cost basis of our investments. From a financial condition perspective, we ended 2008 with an investment portfolio valued at $14.5 billion, consisting of cash and cash equivalents and marketable debt instruments included in trading assets and short- and long-term investments. In addition...

  • Page 34
    ...support our key business initiatives. Our investments, including those made through our Intel Capital program, generally focus 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...

  • Page 35
    ... of customers for reliable, non-volatile, low-cost, high-density memory. The strategy for our Digital Home Group is to offer products and solutions, including SoC designs, for use in consumer electronics devices designed to access and share Internet, broadcast, optical media, and personal content...

  • Page 36
    ... research, as well as personal healthcare. In support of this strategy, we are focusing on the design of technology solutions and platforms for the digital hospital and consumer/home health products. The strategy for our Software and Services Group is to promote Intel architecture as the platform...

  • Page 37
    ... sell NAND products to Intel and Micron at manufacturing cost. Our NAND Solutions Group operating segment purchases 49% of these NAND products from IMFT and sells them to our customers. As a result, we generate cash flows from our investments in IMFT, IMFS, and our intangible assets related to the...

  • Page 38
    ... number of factors, including NOR products and services lines within the flash memory market segment, comparable companies' sizes, growth rates, and other relevant factors. Changes in management estimates to the unobservable inputs in our valuation models would change the valuation of the investment...

  • Page 39
    ... judgment and is based on a number of factors, including comparable companies' sizes, growth rates, products and services lines, development stage, and other relevant factors. The income approach includes the use of a discounted cash flow model, which requires the following significant estimates...

  • Page 40
    ...the number of days each individual instrument trades and the average weekly trading volume in relation to the total outstanding amount of the issued instrument. • Determining which model-derived valuations to use in determining fair value requires management judgment. When observable market prices...

  • Page 41
    ... 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...

  • Page 42
    ... reviewed in the inventory valuation process include a review of the customer base, the stage of the product life cycle of our products, consumer confidence, and customer acceptance of our products, as well as an assessment of the selling price in relation to the product cost. If our demand...

  • Page 43
    ... consolidated statements of income data as a percentage of net revenue for the periods indicated: 2008 (Dollars in Millions, Except Per Share Amounts) Dollars % of Revenue 2007 Dollars % of Revenue 2006 Dollars % of Revenue Net revenue Cost of sales Gross margin Research and development Marketing...

  • Page 44
    ... due to the divestiture of our NOR flash memory business. We derived most of our overall gross margin dollars and operating profit in 2008 and 2007 from the sale of microprocessors in the Digital Enterprise Group and Mobility Group operating segments. See "Business Outlook" for a discussion of gross...

  • Page 45
    ... microprocessor inventory that had been previously written off. Partially offsetting these increases were higher chipset unit costs and approximately $500 million of higher start-up costs, primarily related to our 45nm process technology. In 2007, we began including share-based compensation in...

  • Page 46
    ... market conditions. These actions, which are expected to take place beginning in 2009, include closing two assembly and test facilities in Malaysia, one facility in the Philippines, and one facility in China; stopping production at a 200mm wafer fabrication facility in Oregon; and ending production...

  • Page 47
    ...processor business. We determined the fair market value of the asset grouping using an average of the results from using the cost approach and market approach valuation techniques. During 2007, we incurred an additional $54 million in asset impairment charges as a result of market conditions related...

  • Page 48
    2008 $ 57 $ - $ 57 42

  • Page 49
    ... decline in the NOR flash memory market segment. Our equity method losses were primarily related to Numonyx ($87 million in 2008) and the old Clearwire Corporation ($184 million 2008 and $104 million in 2007). See "Note 6: Equity Method and Cost Method Investments" in Part II, Item 8 of this Form 10...

  • Page 50
    ... charges on our investment in Micron reflect the difference between our cost basis and the fair value of our investment in Micron at the end of the second and third quarters of 2008, and were principally based on our assessment of Micron's financial results and the competitive environment. Net gains...

  • Page 51
    ...No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities-Including an amendment of FASB Statement No. 115" (SFAS No. 159), in 2008, the related cash flows for marketable debt instruments classified as trading assets are now included in investing activities. For 2007 compared to...

  • Page 52
    ...sale debt instruments limited to $44 million during 2008. In addition, we continue to be able to invest in high-quality investments. However, we have seen a reduction in the volume of available commercial paper from certain market segments. As a result, our investments in short-term government funds...

  • Page 53

  • Page 54
    ... into the market price of the financial instrument. When fair value is determined using pricing models, such as a discounted cash flow model, the issuer's credit risk and/or Intel's credit risk is factored into the calculation of the fair value, as appropriate. During 2008, the valuation of our...

  • Page 55
    ...data; quoted market prices for similar instruments; or pricing models, such as a discounted cash flow model, with all significant inputs derived from or corroborated with observable market data. Non-binding market consensus prices are based on the proprietary valuation models of pricing providers or...

  • Page 56
    ... In measuring the fair value of our investment in Micron, our valuation reflected a discount from the quoted market price of Micron's stock, due to our investment being in a form of rights exchangeable into unregistered Micron stock. As of December 27, 2008, our portfolio of assets measured at fair...

  • Page 57
    ... tax credits. Other long-term liabilities in the table above include the short-term portion of other long-term liabilities. Expected contributions to our U.S. and non-U.S. pension plans and other postretirement benefit plans of $67 million to be made during 2009 are also included; however, funding...

  • Page 58
    ... have several agreements with Micron related to intellectual property rights, and R&D funding related to NAND flash manufacturing and IMFT. See "Note 6: Equity Method and Cost Method Investments" in Part II, Item 8 of this Form 10-K. Off-Balance-Sheet Arrangements As of December 27, 2008, with the...

  • Page 59
    ...the tightening of credit markets, as well as future economic conditions; our goals and strategies; new product introductions; plans to cultivate new businesses; divestitures or investments; revenue; pricing; gross margin and costs; capital spending; depreciation; R&D expenses; marketing, general and...

  • Page 60
    ... Israeli shekel. We have established balance sheet and forecasted transaction currency risk management programs to protect against fluctuations in fair value and the volatility of future cash flows caused by changes in exchange rates. We generally utilize currency forward contracts and, to a lesser...

  • Page 61
    Table of Contents The marketable equity securities included in trading assets are held to generate returns that seek to offset changes in liabilities related to the equity and other market risks of certain deferred compensation arrangements. The gains and losses from changes in fair value of these ...

  • Page 62
    ... FINANCIAL STATEMENTS Page Consolidated Statements of Income Consolidated Balance Sheets Consolidated Statements of Cash Flows Consolidated Statements of Stockholders' Equity Notes to Consolidated Financial Statements Reports of Ernst & Young LLP, Independent Registered Public Accounting...

  • Page 63
    ... of Contents INTEL CORPORATION CONSOLIDATED STATEMENTS OF INCOME Three Years Ended December 27, 2008 (In Millions, Except Per Share Amounts) 2008 2007 2006 Net revenue Cost of sales Gross margin Research and development Marketing, general and administrative Restructuring and asset impairment...

  • Page 64
    Table of Contents INTEL CORPORATION CONSOLIDATED BALANCE SHEETS December 27, 2008 and December 29, 2007 (In Millions, Except Par Value) 2008 2007 Assets Current assets: Cash and cash equivalents Short-term investments Trading assets Accounts receivable, net of allowance for doubtful accounts of ...

  • Page 65
    ... from government grants Excess tax benefit from share-based payment arrangements Additions to long-term debt Repayment of notes payable Proceeds from sales of shares through employee equity incentive plans Repurchase and retirement of common stock Payment of dividends to stockholders Net cash used...

  • Page 66

  • Page 67
    ... comprehensive income Proceeds from sales of shares through employee equity incentive plans, net excess tax benefit, and other Share-based compensation Repurchase and retirement of common stock Cash dividends declared ($0.5475 per share) Balance as of December 27, 2008 5,919 $ - - 6,245 $ - - 127...

  • Page 68
    ... Financial Accounting Standards (SFAS) No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities-Including an amendment of FASB Statement No. 115" (SFAS No. 159), we have classified cash flows from certain trading assets as cash flows from investing activities beginning in 2008...

  • Page 69
    ...INTEL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Trading Assets Investments that we designate as trading assets are reported at fair value, with gains or losses resulting from changes in fair value recognized in earnings. Our trading asset investments include: • Marketable...

  • Page 70
    ...specific adverse conditions related to the financial health of and business outlook for the investee, including industry and sector performance, changes in technology, operational and financing cash flow factors, and changes in the investee's credit rating. • Non-marketable equity investments when...

  • Page 71
    ... CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Derivative Financial Instruments Our primary objective for holding derivative financial instruments is to manage currency exchange rate risk and interest rate risk, and to a lesser extent, equity market risk and commodity price...

  • Page 72
    ... for our products could change in the near term and result in additional inventory write-offs, which would negatively impact our gross margin. 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...

  • Page 73
    .... The right of return granted generally consists of a stock rotation program in which distributors are able to exchange certain products based on the number of qualified purchases made by the distributor. Under the price protection program, we give distributors credits for the difference between...

  • Page 74
    ... Contents INTEL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Advertising Cooperative advertising programs reimburse customers for marketing activities for certain of our products, subject to defined criteria. We accrue cooperative advertising obligations and record the costs...

  • Page 75
    ... periods prior to fiscal year 2008; therefore, all trading asset activity for prior periods will continue to be presented as operating activities on the statement of cash flows. Staff Accounting Bulletin No. 110 (SAB 110) issued by the U.S. Securities and Exchange Commission (SEC) was effective for...

  • Page 76
    67

  • Page 77
    ... year 2009. Note 3: Fair Value Our financial instruments are carried at fair value, except for cost basis loan participation notes, equity method and cost method investments, and most of our long-term debt. SFAS No. 157 defines fair value as the price that would be received from selling an asset...

  • Page 78
    ... fair value: Level 1. Quoted prices in active markets for identical assets or liabilities. Level 1 assets and liabilities consist of certain of our money market fund deposits and marketable debt and equity instruments, including equity securities offsetting deferred compensation, that are traded in...

  • Page 79
    ... Commercial paper Bank time deposits Money market fund deposits Floating-rate notes Corporate bonds Asset-backed securities Municipal bonds Marketable equity securities Equity securities offsetting deferred compensation Derivative assets Total assets measured at fair value Liabilities Long-term...

  • Page 80
    ... (Level 3) for 2008: Fair Value Measurements Using Significant Unobservable Inputs (Level 3) Other Other Current and Other Short-Term Trading Long-Term Long-Term Accrued Long-Term Investments Assets Investments Assets Liabilities Debt (In Millions) Total Gains (Losses) Balance as of December 29...

  • Page 81
    ... cost basis of our investment. The impairment charge was included in gains (losses) on equity method investments, net on the consolidated statements of income. We determine the fair value of our investment in Clearwire LLC primarily using the quoted prices for its parent company, the new Clearwire...

  • Page 82
    ...our investments in the wireless connectivity market segment was based on the income approach to determine the value of the investee's spectrum licenses, transmission towers, and customer lists. Note 4: Trading Assets Trading assets outstanding at fiscal year-ends were as follows: 2008 Net Unrealized...

  • Page 83
    ... our cash investment of $1.0 billion. Our pre-existing investment in Clearwire Corporation (old Clearwire Corporation) was converted into shares of the new company (new Clearwire Corporation) and the additional capital contribution of $1.0 billion was invested in Clearwire Communications, LLC...

  • Page 84
    ... of Contents INTEL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) included in marketable equity securities. Our investment in Clearwire LLC is accounted for under the equity method and included within other long-term assets. As a result of the formation of the new Clearwire...

  • Page 85
    ... shares of the new Clearwire Corporation and is recorded as a marketable equity security. For further discussion, see "Note 5: Available-for-Sale Investments." Our equity method investments are classified in other long-term assets on the consolidated balance sheets. The carrying value of our equity...

  • Page 86
    ... are classified within other long-term assets. During 2008, IMFT returned $298 million to Intel, and that amount is reflected as a return of equity method investment within investing activities on the consolidated statements of cash flows. As part of the initial capital contribution to IMFT, we paid...

  • Page 87
    ... cash calls could increase our investment balance and the related exposure to loss. Finally, as we are currently committed to purchasing 49% of IMFT's production output and production-related services, we may be required to purchase products at a cost in excess of realizable value. Micron and Intel...

  • Page 88
    ... Contents INTEL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Clearwire LLC In the fourth quarter of 2008, we invested $1.0 billion in Clearwire LLC, a wholly owned subsidiary of the new Clearwire Corporation. For further discussion, see "Note 5: Available-for-Sale Investments...

  • Page 89
    ... of Contents INTEL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) As of December 27, 2008, approximately $37 million was included in accounts receivable, net for supply and service agreements related to the manufacture and assembly and test of NOR flash memory products by Intel...

  • Page 90
    ... statement line item most closely associated with the economic underlying, primarily in interest and other, net, except for equity-related gains or losses, which we primarily record in gains (losses) on other equity investments, net. Interest Rate Risk Our primary objective for holding investments...

  • Page 91
    Table of Contents INTEL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Our equity market risk management programs include: • Equity derivatives with hedge accounting designation that utilize equity options, swaps, or forward contracts to hedge the equity market risk of ...

  • Page 92
    ... 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. During 2008, we completed two acquisitions qualifying as business combinations in exchange for aggregate net cash consideration of...

  • Page 93
    ... to Marvell Technology Group, Ltd. for a cash purchase price of $600 million plus the assumption of certain liabilities. We included the operating results associated with the divested assets of our communications and application processor business in the Mobility Group operating segment. Intel and...

  • Page 94
    ...During 2008, we completed a reorganization that transferred the revenue and costs associated with a portion of the Digital Home Group's consumer PC components business to the Digital Enterprise Group. We reassigned $123 million of goodwill from the Digital Home Group to the Digital Enterprise Group...

  • Page 95
    ...life of four years. All of our identified intangible assets are subject to amortization. We recorded the amortization of identified intangible assets on the consolidated statements of income as follows: intellectual property assets generally in cost of sales; acquisition-related developed technology...

  • Page 96
    ...processor business. We determined the fair market value of the asset grouping using an average of the results from using the cost approach and market approach valuation techniques. During 2007, we incurred an additional $54 million in asset impairment charges as a result of market conditions related...

  • Page 97
    ... did not have outstanding commercial paper as of December 27, 2008. There were no borrowings under our commercial paper program during 2007. Our commercial paper was rated A-1+ by Standard & Poor's and P-1 by Moody's as of December 27, 2008. Long-Term Debt Our long-term debt at fiscal year-ends was...

  • Page 98
    ... NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) In 2005, we issued $1.6 billion of 2.95% junior subordinated convertible debentures (the debentures) due 2035. The debentures are convertible, subject to certain conditions, into shares of our common stock at an initial conversion rate of 31...

  • Page 99
    ... 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 U.S. Profit Sharing...

  • Page 100
    ...INTEL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 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...

  • Page 101
    ... CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The following table summarizes the amounts recognized on the consolidated balance sheet as of December 27, 2008: (In Millions) U.S. Pension Benefits Non-U.S. Pension Benefits Postretirement Medical Benefits Other long-term assets...

  • Page 102
    ... Periodic Benefit Cost The net periodic benefit cost for the plans included the following components: U.S. Pension Benefits 2008 2007 2006 Non-U.S. Pension Benefits 2008 2007 2006 Postretirement Medical Benefits 2008 2007 2006 (In Millions) Service cost Interest cost Expected return on plan assets...

  • Page 103
    ...to market conditions, such as volatility and liquidity concerns, to minimize market risk. The expected long-term rate of return for the U.S. plan assets is 4.5%. The asset allocation for our U.S. Pension Plan at the end of fiscal years 2008 and 2007, and the target allocation rate for 2009, by asset...

  • Page 104
    ... projects with other companies. In addition, we have various contractual commitments with Micron, IMFT, and IMFS (see "Note 6: Equity Method and Cost Method Investments"). Note 19: Employee Equity Incentive Plans Our equity incentive plans are broad-based, long-term retention programs intended to...

  • Page 105
    ... grant. Equity awards granted to key officers, senior-level employees, and key employees in 2008 may have delayed vesting beginning 2 to 5 years from the date of grant, and options expire 7 to 10 years from the date of grant. The 2006 Stock Purchase Plan allows eligible employees to purchase shares...

  • Page 106
    ... to vest are net of estimated future forfeitures. As of December 27, 2008, there was $937 million in unrecognized compensation costs related to restricted stock units granted under our equity incentive plans. We expect to recognize those costs over a weighted average period of 1.4 years. 97

  • Page 107
    ... the closing price of Intel common stock on December 27, 2008, as reported on The NASDAQ Global Select Market*, for all in-the-money options outstanding. Options outstanding that are expected to vest are net of estimated future option forfeitures. Options with a fair value of $459 million completed...

  • Page 108
    ... portion of our purchases in 2008 and 2007 was executed under privately negotiated forward purchase agreements. Restricted Stock Unit Withholdings We issue restricted stock units as part of our equity incentive plans. For the majority of restricted stock units granted, the number of shares issued on...

  • Page 109
    ...TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Note 21: Earnings Per Share We computed our basic and diluted earnings per common share as follows: (In Millions, Except Per Share Amounts) 2008 2007 2006 Net income Weighted average common shares outstanding-basic Dilutive effect of employee equity...

  • Page 110
    ... that did not occur. The estimated net prior service cost, actuarial loss, and transition obligation for the defined benefit plan that will be amortized from accumulated other comprehensive income (loss) into net periodic benefit cost during fiscal year 2009 are $4 million, $28 million, and zero...

  • Page 111
    ...) 2008 2007 2006 Statutory federal income tax rate Increase (reduction) in rate resulting from: Non-U.S. income taxed at different rates Settlements Research and development tax credits Domestic manufacturing deduction benefit Deferred tax asset valuation allowance-unrealized losses Export sales...

  • Page 112
    ... components of our deferred tax assets and liabilities at fiscal year-ends were as follows: (In Millions) 2008 2007 Deferred tax assets Accrued compensation and other benefits Deferred income Share-based compensation Inventory Unrealized losses on equity investments and derivatives State credits...

  • Page 113
    ... prior periods Increases in balances related to tax positions taken during current period December 27, 2008 $ 1,896 (1,243) - 106 (26) 61 $ 794 (51) - 72 (187) 116 $ 744 During 2007, the U.S. Internal Revenue Service (IRS) closed its examination of our tax returns for the years 1999 through 2002...

  • Page 114
    ... Sales & Service, Ltd. v. Intel Corporation and Intel Kabushiki Kaisha, and Related Consumer Class Actions and Government Investigations A number of proceedings, described below, generally challenge certain of our competitive practices, contending generally that we improperly condition price...

  • Page 115

  • Page 116
    ...include taking no action, imposing a monetary fine, and/or ordering Intel to modify or terminate certain marketing and pricing practices. The EC's rules provide that the maximum monetary fine could equal 10% of Intel's global turnover for all products and services for the prior fiscal year. Any such...

  • Page 117
    .... 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...

  • Page 118
    ..., Mobility Group, NAND Solutions Group, Digital Home Group, Digital Health Group, and Software and Services Group. In the second quarter of 2008, we completed a reorganization that transferred the revenue and costs associated with a portion of the Digital Home Group's consumer PC components business...

  • Page 119
    ... and related chipsets by the Digital Home Group, and NOR flash memory products. In the second quarter of 2008, we completed the divestiture of our NOR flash memory assets to Numonyx. At that time, we entered into supply and service agreements to provide products, services, and support to...

  • Page 120
    ... was from the sale of microprocessors, chipsets, and other components by the Digital Enterprise Group and Mobility Group operating segments. Geographic revenue information for the three years ended December 27, 2008 is based on the location of the customer. Revenue from unaffiliated customers was as...

  • Page 121
    Table of Contents INTEL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Net property, plant and equipment by country was as follows: (In Millions) 2008 2007 2006 United States Israel Ireland Other countries Total property, plant and equipment, net $11,224 2,965 1,536 1,819 $17...

  • Page 122
    ... 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 27, 2008 and December 29, 2007, and the related consolidated statements of income, stockholders' equity, and cash...

  • Page 123
    ... with the standards of the Public Company Accounting Oversight Board (United States), the 2008 consolidated financial statements of Intel Corporation and our report dated February 17, 2009 expressed an unqualified opinion thereon. /s/ Ernst & Young LLP San Jose, California February 17, 2009 113

  • Page 124
    ..., see "Note 6: Equity Method and Cost Method Investments" and "Note 5: Available-for-Sale Investments," respectively, in the Notes to Consolidated Financial Statements of this Form 10-K. Intel's common stock (symbol INTC) trades on The NASDAQ Global Select Market* and is quoted in the Wall Street...

  • Page 125
    ... over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting...

  • Page 126
    ...and Related Transactions" is incorporated by reference in this section. ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES The information appearing in our 2009 Proxy Statement under the headings "Report of the Audit Committee" and "Proposal 2: Ratification of Selection of Independent Registered Public...

  • Page 127
    ... made or at any other time, and investors should not rely on them as statements of fact. Intel, Intel logo, Intel Inside, Intel Atom, Celeron, Intel Centrino, Intel Core, Intel vPro, Intel Xeon, Itanium, and Pentium are trademarks of Intel Corporation in the U.S. and other countries. * Other names...

  • Page 128
    117

  • Page 129
    Table of Contents INTEL CORPORATION SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS December 27, 2008, December 29, 2007, and December 30, 2006 (In Millions) Balance at Beginning of Year Additions Charged (Credited) to Expenses Net (Deductions) Recoveries Balance at End of Year Allowance for ...

  • Page 130
    ... of Notice of Grant of Restricted Stock Units Form of Intel Corporation Nonqualified Stock Option Agreement under the 2004 Equity Incentive Plan Standard Terms and Conditions relating to Restricted Stock Units granted to U.S. employees under the Intel Corporation 2004 Equity Incentive Plan Standard...

  • Page 131

  • Page 132
    ... File Number Exhibit Filing Date Filed Herewith 10.14** Standard Terms and Conditions relating to Non-Qualified Stock Options granted to U.S. employees on and after February 1, 2006 under the Intel Corporation 2004 Equity Incentive Plan (other than grants made under the SOP Plus or ELTSOP programs...

  • Page 133
    ... Terms and Conditions relating to Nonqualified Stock Options granted to U.S. employees on and after May 17, 2006 under the Intel Corporation 2006 Equity Incentive Plan (for grants under the ELTSOP Program) International Nonqualified Stock Option Agreement under the 2006 Equity Incentive Plan...

  • Page 134
    ... (Cayman) L.P., PK Flash, LLC, and Francisco Partners Parallel Fund II L.P., dated March 30, 2008 Statement Setting Forth the Computation of Ratios of Earnings to Fixed Charges Intel Corporation Subsidiaries Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm Certification of...

  • Page 135
    .... INTEL CORPORATION Registrant By: /s/ STACY J. SMITH Stacy J. Smith Vice President, Chief Financial Officer, and Principal Accounting Officer February 20, 2009 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on...

  • Page 136
    ... period beginning on February 20, 2009, Section 5(a) of the Intel Corporation 2006 Stock Purchase Plan is amended in its entirety to read as follows: "(a) An Employee who is eligible to participate in the Plan in accordance with its terms on a Commencement Date shall automatically receive...

  • Page 137
    ...exceeds the reduced maximum rate of contribution, in which case the rate of contribution shall continue at the reduced maximum rate of contribution. Notwithstanding the foregoing, to the extent necessary to comply with Section 423(b)(8) of the Code for a given calendar year, the Committee may reduce...

  • Page 138
    ... 2008 FORM 10-K STATEMENT SETTING FORTH THE COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES FOR INTEL CORPORATION (In Millions, Except Ratios) Dec. 25, 2004 Dec. 31, 2005 Years Ended Dec. 30, 2006 Dec. 29, 2007 Dec. 27, 2008 Earnings 1 Adjustments: Add - Fixed charges Subtract - Capitalized...

  • Page 139
    .... Intel Overseas Funding Corporation Intel Products (M) Sdn. Bhd. Intel Semiconductor Limited Intel Technology Phils., Inc. Intel Technology Sdn. Berhad Mission College Investments Ltd. Costa Rica Delaware, U.S. Hong Kong Cayman Islands Denmark England and Wales Israel California, U.S. California...

  • Page 140
    ...consolidated financial statements and schedule of Intel Corporation, and the effectiveness of internal control over financial reporting of Intel Corporation, included in this Annual Report (Form 10-K) for the year ended December 27, 2008. /s/ Ernst & Young LLP San Jose, California February 17, 2009

  • Page 141
    ...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...

  • Page 142
    ...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...

  • Page 143
    ... presents, in all material respects, the financial condition and results of operations 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...