Intel 2008 Annual Report Download - page 52

Table of Contents
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Our capital expenditures were $5.2 billion in 2008 ($5.0 billion in 2007 and $5.9 billion in 2006). Capital expenditures for
fiscal year 2009 are currently expected to be flat to slightly down from our 2008 expenditures. Capital expenditures during
fiscal year 2009 are expected to be funded by cash flows from operating activities.
The increase in cash used in investing activities in 2007 compared to 2006 was primarily due to higher purchases of available-
for-sale investments. Lower capital spending was mostly offset by lower proceeds from divestitures.
Financing Activities
Financing cash flows consist primarily of repurchases and retirement of common stock, payment of dividends to stockholders,
and proceeds from the sale of shares through employee equity incentive plans.
The higher cash used in financing activities in 2008 compared to 2007 was primarily due to an increase in repurchases and
retirement of common stock, and lower proceeds from the sale of shares pursuant to employee equity incentive plans. During
2008, we repurchased $7.2 billion of common stock compared to $2.8 billion in 2007. As of December 27, 2008, $7.4 billion
remained available for repurchase under the existing repurchase authorization of $25 billion. We base our level of common
stock repurchases on internal cash management decisions, and this level may fluctuate. Proceeds from the sale of shares
through employee equity incentive plans totaled $1.1 billion in 2008 compared to $3.1 billion in 2007, as a result of a lower
volume of employee exercises of stock options. Our dividend payment was $3.1 billion in 2008, higher than the $2.6 billion in
2007, due to increases in quarterly cash dividends per common share. On January 23, 2009, our Board of Directors declared a
cash dividend of $0.14 per common share for the first quarter of 2009.
The lower cash used in financing activities in 2007 compared to 2006 was primarily due to an increase in proceeds from the
sale of shares through employee equity incentive plans and a decrease in repurchases and retirement of common stock.
Liquidity
Cash generated by operations is used as our primary source of liquidity. As of December 27, 2008, we also had 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.
Our investment policy requires all investments with original maturities of up to 6 months to be rated at least A-1/P-1 by
Standard & Poor’s/Moody’s, and specifies a higher minimum rating for investments with longer maturities. For instance,
investments with maturities of greater than three years require a minimum rating of AA-/Aa3 at the time of investment.
Government regulations imposed on investment alternatives of our non-U.S. subsidiaries, or the absence of A rated
counterparties in certain countries, result in some minor exceptions. Substantially all of our investments in debt instruments
are with A/A2 or better rated issuers, and the majority of the issuers are rated
AA-/Aa2 or better. Additionally, we limit the amount of credit exposure to any one counterparty based on our analysis of that
counterparty’s relative credit standing. As of December 27, 2008, the total credit exposure to any single counterparty did not
exceed $500 million.
Credit rating criteria for derivative instruments are similar to those for other 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 our
obligations with that counterparty, because we enter into master netting arrangements with counterparties when possible to
mitigate credit risk in derivative transactions subject to International Swaps and Derivatives Association, Inc. (ISDA)
agreements.
The credit quality of our investment portfolio remains high during this difficult credit environment, with other-than-temporary
impairments on our available-for-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 have increased, which will reduce our
average investment return. With the exception of a limited amount of investments for which we have recognized other-than-
temporary impairments, we have not seen significant liquidation delays, and for those that have matured we have received the
full par value of our original debt investments. We have the intent and ability to hold our debt investments that have unrealized
losses in accumulated other comprehensive income for a sufficient period of time to allow for recovery of the principal
amounts invested, which may occur at or near the maturity of those investments.
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