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: January 16, 2007
(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-4c))
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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 and fiscal year
ended December 30, 2006 and forward-looking statements relating to 2007 as
presented in a press release of January 16, 2007. 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as amended, except to the extent that such information is superseded by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 developed the 2006 annual budget including 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 2006 budget and
planning process commenced with a segment-level evaluation which excluded
share-based compensation, and culminated with the preparation of a
consolidated annual and/or quarterly budget that included these non-GAAP
financial measures. This budget, once finalized and approved, served 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
was determined through the budgeting process exclusive of share-based
compensation, and our tax strategies were 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 was not discussed nor considered when assessing and
determining gross margin or the appropriate level of budgeted expenses for
research and development, and marketing, general and administrative
expenses. Accordingly, such amounts were excluded from the budgeted
operating income, net income, and earnings per share. GAAP-basis financial
statements which include the effects of share-based compensation were only
reviewed and analyzed in 2006 for purposes of external reporting where
GAAP-basis financial statements are necessary.
Under our 2006 budget and planning process, consistent with our practice
prior to the adoption of SFAS No. 123(R), management did not consider the
effects of share-based compensation when seeking to reduce unit costs with
the goal of increasing gross margin. When assessing the level of research
and development efforts, consistent with our practice prior to the adoption
of SFAS No. 123(R), management did not consider the effects of share-based
compensation. When making decisions about project spending, administrative
budgets, or marketing programs, management did not consider the effects of
share-based compensation.
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In addition to using the budget process for planning and resource
allocation, on a quarterly basis we analyze the performance of our business
in 2006 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 2006 business outlook which we communicated to investors.
Consistent with our practice prior to the adoption of SFAS No. 123(R), the
company's share-based compensation plans 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 were not
held accountable for share-based compensation charges in 2006, and these
charges did not impact their business unit's operating income (loss).
Accordingly, share-based compensation charges have been excluded from the
company's measure of segment profitability (operating income) in 2006.
Therefore, when evaluating segment operating income, management and the
Board of Directors excluded share-based compensation.
Currently, 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
2006 profit-dependent cash incentives, the company applied 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 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 2006 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.
Management believes providing 2006 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 evaluated 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
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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.
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 point of gross margin, $119 million
of research and development expenses, $121 million of marketing, general
and administrative expenses, $334 million reduction in total operating
income, $236 million reduction in total net income, and a $0.04 reduction
in diluted earnings per share for the quarter ended December 30, 2006,
compared to zero for all such measures in the quarter ended December 31,
2005. 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. Share-based compensation represents: 1.0 point of gross margin, $487
million of research and development expenses, $539 million of marketing,
general and administrative expenses, $1,375 million reduction in total
operating income, $987 million reduction in total net income, and a $0.17
reduction in diluted earnings per share for the year ended December 30,
2006, compared to zero for all such measures in the year ended December 31,
2005.
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 were 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 in 2006.
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
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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.
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
December 30, 2006, was 94,100 persons. The company's workforce is expected
to be further reduced to approximately 92,000 by the middle of 2007.
The company recorded restructuring and asset impairment charges of $457
million in the fourth quarter of 2006 ($555 million for 2006).
In connection with the divestiture in the fourth quarter of 2006 of certain
assets of our communications and application processor business, the
company recorded non-cash impairment costs of $103 million for tools and
related installation costs in the fourth quarter.
Separately, in response to the divestiture and a subsequent assessment of
Intel's worldwide manufacturing capacity operations, on January 12, 2007,
Intel Corporation approved a plan to place for sale its fabrication
facility in Colorado Springs, Colorado. The assets subject to this
impairment were principally used in support of the communications and
application processor business.
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Although the company is in the process of completing the valuation of land,
buildings and equipment at the facility, the company expects aggregate
non-cash land, building and equipment write-downs of approximately $214
million, and this estimate was recorded in the fourth quarter of 2006.
The company currently expects to incur additional charges related to
employee severance and benefit arrangements of approximately $50 million in
the first quarter of 2007, which includes the impacts of our ongoing
Efficiency Plan and expected severance charges related to the sale of the
Colorado Springs facility. This facility currently has approximately 1000
employees. For these employees, plans regarding employee termination
benefits will depend in part on the terms of any sales transaction
regarding the facility.
The exact timing of charges from employee severance and benefit
arrangements and the related cash outflows, as well as the estimated cost
ranges by category type, has 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.
Additional, presently undetermined, charges related to the Efficiency Plan
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 Efficiency Plan
reflects the Corporation's intention only.
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 planned
sale of the Colorado Springs facility, 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 to any
projections of charges or other financial items; any statements of the
plans, strategies and objectives of management for future operations,
including the timing and execution of the planned sale of the Colorado
Springs facility or any restructuring plan; benefit program changes and the
extent of employees impacted by planned sale of the Colorado Springs
facility or the restructuring; and any statements or assumptions underlying
any of the foregoing; the extent or timing of cost savings, use of cost
savings, revenue or profitability improvements, or other financial items;
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 September 30,
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: January 16, 2007 By:/s/ Andy D. Bryant
-------------------------------------
Andy D. Bryant
Executive Vice President,
Chief Financial and Enterprise
Services Officer and Principal
Accounting Officer
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