Intel 2013 Annual Report Download - page 39

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Loss Contingencies
We are subject to various legal and administrative proceedings and asserted and potential claims, as well as
accruals related to repair or replacement of parts in connection with product errata and product warranties that arise
in the ordinary course of business. An estimated loss from such contingencies is recognized as a charge to income
if it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Disclosure
of a loss contingency is required if there is at least a reasonable possibility that a material loss has been incurred.
The outcomes of legal and administrative proceedings and claims, and the estimation of product warranties and
asset impairments, are subject to significant uncertainty. Significant judgment is required in both the determination
of probability and the determination as to whether a loss is reasonably estimable. With respect to estimating the
losses associated with repairing and replacing parts in connection with product errata, we make judgments with
respect to the return rates to our customers, our customers' return rates, and the costs to repair or replace parts. At
least quarterly, we review the status of each significant matter, and we may revise our estimates. These revisions
could have a material impact on our results of operations and financial position.
Accounting Changes
For a description of accounting changes, see “Note 3: Accounting Changes” in Part II, Item 8 of this Form 10-K.
Results of Operations
Certain consolidated statements of income data as a percentage of net revenue for each period were as follows:
2013 2012 2011
(Dollars in Millions, Except Per Share Amounts) Dollars % of Net Revenue Dollars % of Net Revenue Dollars % of Net Revenue
Net revenue $52,708 100.0 % $ 53,341 100.0% $ 53,999 100.0%
Cost of sales 21,187 40.2 % 20,190 37.9% 20,242 37.5%
Gross margin 31,521 59.8 % 33,151 62.1% 33,757 62.5%
Research and development 10,611 20.1 % 10,148 19.0% 8,350 15.4%
Marketing, general and administrative 8,088 15.3 % 8,057 15.1% 7,670 14.2%
Restructuring and asset impairment
charges 240 0.5 % — —% — —%
Amortization of acquisition-related
intangibles 291 0.6 % 308 0.6% 260 0.5%
Operating income 12,291 23.3 % 14,638 27.4% 17,477 32.4%
Gains (losses) on equity investments, net 471 0.9 % 141 0.3% 112 0.2%
Interest and other, net (151) (0.3)% 94 0.2% 192 0.3%
Income before taxes 12,611 23.9 % 14,873 27.9% 17,781 32.9%
Provision for taxes 2,991 5.7 % 3,868 7.3% 4,839 8.9%
Net income $9,620 18.3 % $ 11,005 20.6% $ 12,942 24.0%
Diluted earnings per common share $1.89 $ 2.13 $ 2.39
Our net revenue for 2013 decreased by $633 million, or 1%, compared to 2012. The PCCG and DCG platform unit
sales decreased by 3%. Additionally, lower netbook platform and feature and entry phone component unit sales
contributed to the decrease. These decreases were partially offset by higher PCCG and DCG platform average
selling prices, which were up 2%, as well as higher ISG platform average selling prices.
Our overall gross margin dollars for 2013 decreased by $1.6 billion, or 5%, compared to 2012. The decrease was
due in large part to $1.8 billion of higher factory start-up costs primarily for our next-generation 14nm process
technology. To a lesser extent, lower overall revenue from our Other IA operating segments, primarily in our phone
and mobile component businesses and netbook group, as well as lower PCCG and DCG platform revenue
contributed to the decrease. These decreases were partially offset by higher ISG platform revenue, approximately
$325 million of lower PCCG and DCG platform unit costs, and $221 million of lower excess capacity charges.
Table of Contents
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)