UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 OR 15(d)
of The Securities Exchange Act of 1934
Date of Report: October 17, 2006
(Date of earliest event reported)
INTEL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 000-06217 94-1672743
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(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
2200 Mission College Blvd., Santa Clara, California 95054-1549
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(Address of principal executive offices) (Zip Code)
(408) 765-8080
(Registrant's telephone number, including area code)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions:
[] Written communications pursuant to Rule 425 under the Securities Act
(17 CFR 230.425)
[] Soliciting material pursuant to Rule 14a-12 under the Exchange Act
(17 CFR 240.14a-12)
[] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange
Act (17 CFR 240.14d-2(b))
[] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange
Act (17 CFR 240.13e-4(c))
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Item 2.02 RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Attached hereto as Exhibit 99.1 and incorporated by
reference herein is financial information for Intel
Corporation for the quarter ended September 30, 2006 and
forward-looking statements relating to 2006 and the fourth
quarter of 2006 as presented in a press release of October
17, 2006. The information in this report shall be deemed
incorporated by reference into any registration statement
heretofore or hereafter filed under the Securities Act of
1933, as amended, except to the extent that such
information is superseded by information as of a subsequent
date that is included in or incorporated by reference into
such registration statement. The information in this report
shall not be treated as filed for purposes of the
Securities Exchange Act of 1934, as amended.
In addition to disclosing financial results calculated in
accordance with United States (U.S.) generally accepted
accounting principles (GAAP), the company's earnings
release contains non-GAAP financial measures that exclude
the effects of share-based compensation and the
requirements of Statement of Financial Accounting Standards
No. 123 (revised 2004), "Share-Based Payment" (SFAS No.
123(R)). The non-GAAP financial measures used by management
and disclosed by the company exclude the income statement
effects of all forms of share-based compensation and the
effects of SFAS No. 123(R) upon the number of diluted
common shares used in calculating non-GAAP diluted earnings
per share. The non-GAAP financial measures disclosed by the
company should not be considered a substitute for, or
superior to, financial measures calculated in accordance
with GAAP, and the financial results calculated in
accordance with GAAP and reconciliations to those financial
statements should be carefully evaluated. The non-GAAP
financial measures used by the company may be calculated
differently from, and therefore may not be comparable to,
similarly titled measures used by other companies. The
company has provided reconciliations of the non-GAAP
financial measures to the most directly comparable GAAP
financial measures. The company applied the modified
prospective method of adoption of SFAS No. 123(R), under
which the effects of SFAS No. 123(R) are reflected in the
company's GAAP financial statement presentations for and
after the first quarter 2006, but are not reflected in
results for prior periods.
In managing the company's business on a consolidated basis,
consistent with how we managed the business prior to the
adoption of SFAS No. 123(R), management develops an annual
budget that includes all components of the income
statement, exclusive of share-based compensation. Gross
margin, expenses (research and development and marketing,
general and administrative), operating income, income
taxes, net income and diluted earnings per share (EPS) are
the primary consolidated financial measures management uses
for planning and forecasting future periods that are
affected by share-based compensation. The company's budget
and planning process commences with a segment-level
evaluation which excludes share-based compensation, and
culminates with the preparation of a consolidated annual
and/or quarterly budget that includes these non-GAAP
financial measures. This budget, once finalized and
approved, serves as the basis for the allocation of
resources and management of operations. The number of
full-time equivalent employees working in manufacturing,
research and development, and marketing, general and
administrative related roles is determined through the
budgeting process exclusive of share-based compensation.
Segment managers are not held accountable for share-based
compensation charges and therefore the budget and planning
process, which involves headcount planning, excludes the
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effects of share-based compensation. In addition, our tax
strategies are determined on a consolidated basis exclusive
of the expenses and related tax benefit relating to
share-based compensation. The accounting expense impact of
share-based compensation is not discussed nor considered
when assessing and determining the appropriate level of
budgeted expenses for gross margin, research and
development, and marketing, general and administrative
expenses. Accordingly, such amounts are also excluded from
the budgeted operating income, net income, and earnings per
share. GAAP-basis financial statements which include the
effects of share-based compensation are only reviewed and
analyzed for purposes of external reporting where
GAAP-basis financial statements are necessary.
Under our budget and planning process, consistent with our
practice prior to the adoption of SFAS No. 123(R), when we
seek to reduce unit costs with the goal of increasing gross
margin, management does not consider the effects of
share-based compensation. When assessing the level of
research and development efforts currently or
prospectively, consistent with our practice prior to the
adoption of SFAS No. 123(R), management does not consider
the effects of share-based compensation. When making
decisions about project spending, administrative budgets,
or marketing programs, management does not consider the
effects of share-based compensation.
In addition to using the budget process for planning and
resource allocation, on a quarterly basis we analyze the
performance of our business on a consolidated basis by
comparing our gross margin, expenses (research and
development and marketing, general and administrative),
operating income, net income, and diluted earnings per
share, each excluding share-based compensation, to the
prior period and forecasted amounts developed during the
budget and planning process, also excluding share-based
compensation. We use these quarterly assessments to
evaluate the performance of the business against prior
periods and budget and to develop our business outlook
which we communicate to investors.
Consistent with our practice prior to the adoption of SFAS
No. 123(R), the company's share-based compensation programs
are established and managed on a company-wide basis,
including specification of grant types and amount ranges
for employees by category and grade. Our philosophy
relative to share-based compensation programs is built on
the principle that equity compensation should seek to align
employees' actions and behaviors with stockholders'
interest; be market competitive; be able to attract,
motivate and retain the best employees; and support Intel's
belief in a broad-based approach. Share based compensation
granted to employees is in addition to, not in lieu of,
cash compensation. Accordingly, our share-based
compensation programs are evaluated separately from the
cost of our other compensation programs. Specifically, our
share-based compensation programs are carefully evaluated
from the perspective of the resulting dilution and other
metrics, and not from the resulting expense to be recorded.
For example, our goal has been to keep the potential
incremental dilution related to our equity incentive plans
(stock options and restricted stock units) to a long-term
average of less than 2% annually. The dilution percentage
is calculated using the new equity-based awards, net of
equity-based awards cancelled due to employees leaving the
company and expired stock options, divided by the total
outstanding shares at the beginning of the year. Further,
as noted above, segment managers are not held accountable
for share-based compensation charges, and these charges do
not impact their business unit's operating income (loss).
Accordingly, share-based compensation charges also are
excluded from the company's measure of segment
profitability (operating income). Therefore, when
evaluating segment and operating income, management and the
Board of Directors exclude share-based compensation.
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Operating income and net income, both on a per-share basis,
are calculated excluding share-based compensation for
purposes of evaluating profit-dependent cash incentive
compensation paid to employees, including senior
management. For example, for 2006, the executive
compensation cash incentive plan formula measures EPS as
the greater of (a) Intel's operating income or (b) Intel's
net income (in both cases excluding the effect of
share-based compensation), divided by Intel's weighted
average diluted common shares outstanding, excluding the
effects of share-based compensation. The calculation of
diluted common shares outstanding, excluding the effects of
share-based compensation, excludes the proceeds from the
remaining unamortized share-based compensation, and adjusts
the proceeds from tax benefits by excluding the effects of
share-based compensation. The calculation of diluted common
shares outstanding, excluding the effects of share-based
compensation is similar to the calculation of diluted
common shares outstanding, as reported, prior to the
adoption of SFAS No. 123(R). Accordingly, when budgeting
for the company's profit-dependent cash incentives, the
company applies the formula above to calculate earnings per
share excluding share-based compensation so as to be able
to factor the appropriate amount of profit dependent cash
incentive into the budget.
The company discloses this non-GAAP information to the
public to enable investors to more easily assess the
company's performance on the same basis applied by
management and to ease comparison on both a GAAP and
non-GAAP basis to our prior period results. In particular,
as the company begins to apply SFAS No. 123(R), the company
believes that it is useful to investors to understand how
the expenses and other adjustments associated with the
application of SFAS No. 123(R) are being reflected on the
company's income statements. Management believes gross
margin, excluding share-based compensation, research and
development, excluding share-based compensation, and
marketing, general, and administrative expense, excluding
share-based compensation, are useful information for
investors because the GAAP measure when compared in
isolation with 2005 would indicate a level of increase in
those expenses inconsistent with actual performance. We
believe that the non-GAAP measures serve to provide a
baseline for investors in this first year of adoption to
compare actual results for the current year, excluding
share-based compensation to the prior year GAAP amounts
which exclude share-based compensation. We believe this
comparison also is useful to allow investors to more easily
evaluate our results from a period-to-period comparability
perspective.
Management believes operating income and net income,
excluding share-based compensation, is useful information
to investors because it assists investors in evaluating
operating income and net income consistent with how
management evaluates performance and to understand the
basis for the company's profit dependent cash incentive
plan. Especially in this first year of applying the
provisions of SFAS No. 123(R), we believe operating and net
income as reported in our income statement are not
comparable to prior year period amounts, and may lead
investors to believe business has declined more
significantly than would be caused by actual changes in the
business (as opposed to changes in accounting treatment
between years). When presenting net income, excluding
share-based compensation, we believe it appropriate to
exclude the related tax benefit recognized in the financial
statements for purposes of presenting net income or EPS,
excluding share-based compensation. Providing diluted
earnings per share, excluding share-based compensation
assists investors in evaluating diluted earnings per share
compared to prior periods. Especially in this first year of
applying the provisions of SFAS No. 123(R), we believe
diluted earnings per share as reported in our income
statement is not comparable to prior year amounts.
4
The basis for the company's decision to use these non-GAAP
measures excluding share-based compensation is that
management has determined in this first year of adoption of
SFAS No. 123(R) to continue to evaluate the business on the
same basis as prior to the adoption of SFAS No. 123(R)
until there is greater familiarity with its effects and
until the second year after adoption of SFAS No. 123(R)
when financial information is prepared and presented on a
consistent basis with the prior year. Share-based
compensation represents: 1.2 points of gross margin, $107
million of research and development expenses, $125 million
of marketing, general and administrative expenses, $335
million reduction in total operating income, $248 million
reduction in total net income, and a $0.05 reduction in
diluted earnings per share for the quarter ended September
30, 2006, compared to zero for all such measures in the
quarter ended October 1, 2005. Share-based compensation
represents: 0.8 points of gross margin, $126 million of
research and development expenses, $140 million of
marketing, general and administrative expenses, $332
million reduction in total operating income, $239 million
reduction in total net income, and a $0.04 reduction in
diluted earnings per share for the quarter ended July 1,
2006.
Unlike other forms of compensation, share-based
compensation was not recognized prior to January 1, 2006
when we adopted the provisions of SFAS No. 123(R).
Additionally, when management determines the annual merit
and promotional budget for compensation, the effects of
share-based compensation on the company's financial
statements are not considered. Rather share-based awards
are generally granted via a fixed formula depending on
position and level of the employee. In addition, segment
managers are held accountable for other forms of
compensation, and as such those compensation charges are
included in the segments' results and in the budget and
planning processes of our reporting segments.
A material limitation associated with the use of these
measures as compared to the related GAAP measures is that
they may reduce comparability with other companies who may
use different types of equity incentive awards, or whose
compensation structures may use share-based compensation to
a greater or lesser extent as part of their overall
compensation. These differences may cause our non-GAAP
measures excluding share-based compensation to not be
comparable to other companies' non-GAAP measures excluding
share-based compensation. Other material limitations
associated with the use of these measures as compared to
the GAAP comparable measure include: gross margin,
excluding share-based compensation, does not include all
costs related to the cost of inventory sold during the
period; research and development, excluding share-based
compensation, does not include all costs related to the
research and development needed to bring new products to
the market; marketing, general and administrative expenses
excluding share-based compensation, does not include all
costs related to the marketing, general and administrative
efforts required to manage our company and sell our
products. A material limitation with using operating
income, excluding share-based compensation, net income,
excluding share-based compensation, and diluted earnings
per share, excluding share-based compensation, is that they
do not include all costs typically included in the
presentation of the comparable GAAP measure, and they may
not include all costs related to hiring and retaining
qualified employees.
5
Although these non-GAAP financial measures adjust cost,
expenses and diluted share items to exclude the accounting
treatment of share-based compensation, they should not be
viewed as a pro forma presentation reflecting the
elimination of the underlying share-based compensation
programs. Thus, our non-GAAP presentations are not intended
to present, and should not be used, as a basis for
assessing what our operating results might be if we were to
eliminate our share-based compensation programs. Our equity
incentive plans are an important element of the company's
compensation structure and GAAP indicates that all forms of
share-based payments should be valued and included as
appropriate in results of operations.
Because of the foregoing limitations, management does not
intend to use the non-GAAP financial measures when
assessing the company's performance against that of other
companies. The company manages its share-based compensation
plans in the aggregate against certain metrics rather than
reviewing financial statement impacts by financial
statement line item. Specifically, our goal has been to
keep the potential incremental dilution related to our
equity incentive plans (stock options and restricted stock
units) to a long-term average of less than 2% annually. The
dilution percentage is calculated using the new
equity-based awards, net of equity-based awards cancelled
due to employees leaving the company and expired stock
options, divided by the total outstanding shares at the
beginning of the year.
Item 7.01 Regulation FD Disclosure.
In connection with the company's ongoing program designed
to improve operational efficiency and results, the company
previously announced that it had determined on August 30,
2006 to undertake a number of additional actions
recommended by the company's Structure and Efficiency
Taskforce relating to organizational efficiency, business
processes and programs (collectively, the "Efficiency
Plan").
The company's workforce on July 1, 2006, before these
additional actions began, was 102,500 persons, and on
September 30, 2006, was 99,900 persons. Year-end 2006
employment is expected to be approximately 95,000 persons
and thereafter to continue to be reduced to approximately
92,000 by the middle of 2007.
In connection with the Efficiency Plan, the company
recorded restructuring charges of $98 million in the third
quarter of 2006 and expects to record approximately $125
million of restructuring charges in the fourth quarter of
2006, in each case relating to severance and employee
benefit charges. The company currently expects to incur
additional charges related to employee severance and
benefit arrangements of approximately $120 million in 2007.
Additional, presently undetermined, charges may be incurred
in the 2007, 2008 and 2009 fiscal years. Additional details
will be provided in the company's earnings releases and
Business Outlook statements published quarterly in such
fiscal years.
The exact timing of these charges and the related cash
outflows, as well as the estimated cost ranges by category
type, have not been finalized. This information will be
subject to the finalization of timetables for the
transition of functions, local labor law requirements,
including consultation with appropriate works councils as
well as the statutory severance requirements of the
particular legal jurisdictions impacted, and the amount and
timing of the actual charges may vary due to a variety of
factors including the salary, position and number of years
of service of the affected employees as well as the type
and amount of severance benefits offered to employees. The
Efficiency Plan reflects the Corporation's intention only
and restructuring decisions at certain non-U.S. locations
remain subject to local labor law requirements, including
consultation with appropriate works councils.
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This Form 8-K and attached press release contain
forward-looking statements that involve risks,
uncertainties and assumptions. In addition to the factors
addressed in the attached press release relating to forward
looking statements made in the press release, many factors
could affect the Efficiency Plan and the company's actual
results, and if the risks or uncertainties ever materialize
or the assumptions prove incorrect, the results of the
company may differ materially from those expressed or
implied by such forward-looking statements and assumptions.
All statements other than statements of historical fact are
statements that could be deemed forward-looking statements,
including but not limited to any projections, the extent or
timing of cost savings, charges, use of cost savings,
revenue or profitability improvements, or other financial
items; any statements of the plans, strategies, and
objectives of management for future operations, including
timing and execution of any restructuring plans, retirement
programs, benefit program changes or reorganizations and
extent of employees impacted; any statements concerning the
company's expected competitive position or performance; any
statements of expectation or belief; and any statements of
assumptions underlying any of the foregoing. Intel
presently considers the factors set forth below to be the
important factors that could cause actual results to differ
materially from the company's published expectations:
risks, uncertainties and assumptions including the timing
and execution of plans and programs subject to local labor
law requirements, including consultation with appropriate
works councils; assumptions related to severance and
post-retirement costs; future acquisitions, dispositions,
investments, new business initiatives and changes in
product roadmap, development and manufacturing which may
affect expense and employment levels at the company;
assumptions relating to product demand and the business
environment; and other risk factors that are described from
time to time in the company's Securities and Exchange
Commission reports, including but not limited to the risk
factors described in the company's Quarterly Report on Form
10-Q for the fiscal quarter ended July 1, 2006, and other
reports filed after the company's Annual Report on Form
10-K for the fiscal year ended December 31, 2005. The
company assumes no obligation to update these
forward-looking statements.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
INTEL CORPORATION
(Registrant)
Date: October 17, 2006 By: /s/ Andy D. Bryant
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Andy D. Bryant
Executive Vice President,
Chief Financial and Enterprise Services
Officer and
Principal Accounting Officer
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