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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
For the quarterly period ended
June 29, 2019
Or
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
For the transition period from                  to                 
Commission File Number 000-06217
A001INTELLOGOCOLORA19.JPG
INTEL CORPORATION
(Exact name of registrant as specified in its charter)
 
Delaware
 
 
94-1672743
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
2200 Mission College Boulevard,
Santa Clara,
California
 
95054-1549
(Address of principal executive offices)
 
(Zip Code)
(408) 765-8080
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common stock, $0.001 par value
INTC
Nasdaq Global Select Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes      No  ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes      No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer
Accelerated filer  
Non-accelerated filer 
Smaller reporting company 
Emerging growth company  
¨
¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No 
As of June 29, 2019, the registrant had outstanding 4,430 million shares of common stock.



TABLE OF CONTENTS
THE ORGANIZATION OF OUR QUARTERLY REPORT ON FORM 10-Q
The order and presentation of content in our Quarterly Report on Form 10-Q (Form 10-Q) differs from the traditional U.S. Securities and Exchange Commission (SEC) Form 10-Q format. We believe that our format improves readability and better presents how we organize and manage our business. See "Form 10-Q Cross-Reference Index" within Other Key Information for a cross-reference index to the traditional SEC Form 10-Q format.
The preparation of consolidated financial statements is in conformity with U.S. generally accepted accounting principles (GAAP). We have included key metrics that we use to measure our business, some of which are non-GAAP measures. See these "Non-GAAP Financial Measures" within Other Key Information.
 
 
 
Page
FORWARD-LOOKING STATEMENTS
1
A QUARTER IN REVIEW
2
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS AND SUPPLEMENTAL DETAILS
 
 
Consolidated Condensed Statements of Income
3
 
Consolidated Condensed Statements of Comprehensive Income
4
 
Consolidated Condensed Balance Sheets
5
 
Consolidated Condensed Statements of Cash Flows
6
 
Consolidated Condensed Statements of Stockholders' Equity
7
 
Notes to Consolidated Condensed Financial Statements
8
 
 
 
 
MANAGEMENT'S DISCUSSION AND ANALYSIS (MD&A)
 
 
Overview
21
 
Revenue, Gross Margin, and Operating Expenses
22
 
Business Unit Trends and Results
25
 
Other Consolidated Results of Operations
31
 
Liquidity and Capital Resources
32
 
Quantitative and Qualitative Disclosures about Market Risk
33
 
 
 
 
OTHER KEY INFORMATION
 
 
Risk Factors
34
 
Controls and Procedures
35
 
Non-GAAP Financial Measures
35
 
Issuer Purchases of Equity Securities
36
 
Exhibits
37
 
Form 10-Q Cross-Reference Index
38





Table of Contents


FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements that involve a number of risks and uncertainties. Words such as "anticipates," "expects," "intends," "goals," "plans," "believes," "seeks," "estimates," "continues," "may," "will," "would," "should," "could," and variations of such words and similar expressions are intended to identify such forward-looking statements. In addition, any statements that refer to projections of our future financial performance, our anticipated growth and trends in our businesses, projected growth of markets relevant to our businesses, future products and technology and the expected availability and benefits of such products and technology, expected timing and impact of acquisitions, divestitures, and other significant transactions, expected completion of restructuring activities, uncertain events or assumptions, and other characterizations of future events or circumstances are forward-looking statements. Such statements are based on management's expectations as of the date of this filing and involve many risks and uncertainties that could cause our actual results to differ materially from those expressed or implied in our forward-looking statements. Such risks and uncertainties include those described throughout this report and our Annual Report on Form 10-K for the year ended December 29, 2018, particularly the "Risk Factors" sections of such reports. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. Readers are urged to carefully review and consider the various disclosures made in this Form 10-Q and in other documents we file from time to time with the SEC that disclose risks and uncertainties that may affect our business. The forward-looking statements in this Form 10-Q do not reflect the potential impact of any divestitures, mergers, acquisitions, or other business combinations that had not been completed as of the date of this filing. In addition, the forward-looking statements in this Form 10-Q are made as of the date of this filing, including expectations based on third-party information and projections that management believes to be reputable, and Intel does not undertake, and expressly disclaims any duty, to update such statements, whether as a result of new information, new developments, or otherwise, except to the extent that disclosure may be required by law.
INTEL UNIQUE TERMS
We use specific terms throughout this document to describe our business and results. Below are key terms and how we define them:
PLATFORM PRODUCTS
 
A microprocessor (processor or central processing unit (CPU)) and chipset, a stand-alone System-on-Chip (SoC), or a multichip package, based on Intel® architecture. Platform products, or platforms, are primarily used in solutions sold through the Client Computing Group (CCG), Data Center Group (DCG), and Internet of Things Group (IOTG) segments.
 
 
 
ADJACENT PRODUCTS
 
All of our non-platform products for CCG, DCG, and IOTG, such as modem, Ethernet and silicon photonics, as well as Mobileye, Non-Volatile Memory Solutions Group (NSG), and Programmable Solutions Group (PSG) products. Combined with our platform products, adjacent products form comprehensive platform solutions to meet customer needs.
 
 
 
PC-CENTRIC BUSINESS
 
Our CCG business, including both platform and adjacent products.
 
 
 
DATA-CENTRIC BUSINESSES
 
Our DCG, Internet of Things (IOTG and Mobileye), NSG, PSG, and all other businesses.
Intel, the Intel logo, Intel Optane, Thunderbolt, Xeon, 3D NAND and 3D XPoint are trademarks of Intel Corporation or its subsidiaries in the U.S. and/or other countries.
* Other names and brands may be claimed as the property of others.


A002INTELLOGOFOOTERA01.JPG  
 
1

Table of Contents


A QUARTER IN REVIEW
Total revenue of $16.5 billion declined year over year as our data-centric businesses were down 7%; this was partially offset by 1% growth in our PC-centric business. Data-centric revenue was down compared to a year ago as cloud customers absorbed capacity, data center total addressable market (TAM) for the quarter contracted in the enterprise and government market segment, China demand weakened, and NAND pricing remained under pressure. Our PC-centric business was up driven by average selling price (ASP) strength with richer commercial segment mix and modem growth. PC client volume declined on small core supply constraint partially offset by sales pull-ins by customers in anticipation of tariff impacts. Lower platform unit sales and further margin compression on memory products resulted in lower gross margins and operating income, which was partially offset by executing the quarter with continued operating margin leverage. In the first six months we generated $12.5 billion of cash flow from operations and returned $8.4 billion to stockholders, including $2.8 billion in dividends and $5.6 billion in buybacks.
REVENUE
 
OPERATING INCOME
 
DILUTED EPS
 PC-CENTRIC $B  DATA-CENTRIC $B
 
GAAP $B   NON-GAAP $B
 
GAAP   NON-GAAP
C01QIRREVENUE.JPG C02QIROPINCOME.JPG C03QIREPS.JPG
 
 
 
 
 
$16.5B
 
 
 
$4.6B
 
$5.1B
 
$0.92
 
$1.06
GAAP
 
 
 
GAAP
 
non-GAAP1
 
GAAP
 
non-GAAP1
down $457M or 3% from Q2 2018
 
down $656M or 12% from Q2 2018
 
down $460M or 8% from Q2 2018
 
down $0.13 or 12% from Q2 2018
 
up $0.02 or 2% from Q2 2018
 
 
 
 
 
 
 
 
 
Declines in data-centric businesses generally, partially offset by growth in PC-centric business and Internet of Things
 
Lower gross margin from decrease in platform unit sales and NAND pricing degradation, partially offset by CPU ASP strength
 
Impact from lower platform volume, and NAND pricing pressure, partially offset by the receipt of McAfee, Inc. dividend, as well as lower shares outstanding
BUSINESS SUMMARY
We have maintained an intense, company-wide focus on improving execution while accelerating innovation. We began shipping our 10 nanometer (nm)-based 10th generation Intel® Core processors, code-named Ice Lake. These processors feature a new core architecture and are expected to deliver increased graphics performance and artificial intelligence and new levels of integrated connectivity for thin-and-light laptops and 2-in-1s. We also shared more details about our Project Athena platform innovation program to help the PC ecosystem create advanced laptops that meet ambitious key experience indicators in performance, responsiveness, battery life, form factor, and artificial intelligence.
At our 2019 Investor Meeting, we shared details on our 7nm process technology and the expected performance gains resulting from a combination of technical innovations across six pillars process and packaging, architecture, memory, interconnect, security, and software giving insight into the design and engineering model steering our product development.
DCG experienced challenges as cloud customers absorbed capacity and the enterprise and government TAM declined. NSG declined as industry-wide pricing pressure for NAND intensified. However, demand for edge compute drove double digit revenue growth for Mobileye and IOTG.
PC-centric growth was driven by strength in our commercial market segment, as well as adjacencies led by modem. Platform volumes declined in the first half of 2019 compared to first half of 2018 as we experienced small core supply constraints. We continued to invest in capacity expansion for 14nm production, improving our supply in the second half of 2019.
In July, we signed an agreement to divest the majority of our smartphone modem business, including certain employees, intellectual property, equipment and leases. The transaction enables us to increase the focus of our 5G efforts on the broader opportunity to modernize network and edge infrastructure, and is expected to close in the fourth quarter of 2019. We also acquired Barefoot Networks, an emerging leader in Ethernet switch silicon and software for use in data center.
1 See "Non-GAAP Financial Measures" within Other Key Information.


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2

Table of Contents


CONSOLIDATED CONDENSED STATEMENTS OF INCOME
 
 
Three Months Ended
 
Six Months Ended
(In Millions, Except Per Share Amounts; Unaudited)
 
Jun 29,
2019
 
Jun 30,
2018
 
Jun 29,
2019
 
Jun 30,
2018
Net revenue
 
$
16,505

 
$
16,962

 
$
32,566

 
$
33,028

Cost of sales
 
6,627

 
6,543

 
13,599

 
12,878

Gross margin
 
9,878

 
10,419

 
18,967

 
20,150

Research and development
 
3,438

 
3,371

 
6,770

 
6,682

Marketing, general and administrative
 
1,589

 
1,725

 
3,122

 
3,625

Restructuring and other charges
 
184

 

 
184

 

Amortization of acquisition-related intangibles
 
50

 
50

 
100

 
100

Operating expenses
 
5,261

 
5,146

 
10,176

 
10,407

Operating income
 
4,617

 
5,273

 
8,791

 
9,743

Gains (losses) on equity investments, net
 
170

 
(203
)
 
604

 
440

Interest and other, net
 
(63
)
 
459

 
(124
)
 
357

Income before taxes
 
4,724

 
5,529

 
9,271

 
10,540

Provision for taxes
 
545

 
523

 
1,118

 
1,080

Net income
 
$
4,179

 
$
5,006

 
$
8,153

 
$
9,460

Earnings per share – basic
 
$
0.94

 
$
1.08

 
$
1.82

 
$
2.03

Earnings per share – diluted
 
$
0.92

 
$
1.05

 
$
1.79

 
$
1.98

Weighted average shares of common stock outstanding:
 
 
 
 
 
 
 
 
Basic
 
4,466

 
4,649

 
4,479

 
4,661

Diluted
 
4,523

 
4,747

 
4,543

 
4,768

See accompanying notes.

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  Consolidated Condensed Statements of Income
3



Table of Contents


CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME
 
 
Three Months Ended
 
Six Months Ended
(In Millions; Unaudited)
 
Jun 29,
2019
 
Jun 30,
2018
 
Jun 29,
2019
 
Jun 30,
2018
Net income
 
$
4,179

 
$
5,006

 
$
8,153

 
$
9,460

Changes in other comprehensive income, net of tax:
 
 
 
 
 
 
 
 
Net unrealized holding gains (losses) on derivatives
 
151

 
(293
)
 
253

 
(174
)
Actuarial valuation and other pension benefits (expenses), net
 
8

 
(122
)
 
17

 
26

Translation adjustments and other
 
32

 
9

 
82

 
(13
)
Other comprehensive income (loss)
 
191

 
(406
)
 
352

 
(161
)
Total comprehensive income
 
$
4,370

 
$
4,600

 
$
8,505

 
$
9,299

See accompanying notes.

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  Consolidated Condensed Statements of Comprehensive Income
4


Table of Contents


CONSOLIDATED CONDENSED BALANCE SHEETS
(In Millions)
 
Jun 29,
2019
 
Dec 29,
2018
 
 
(unaudited)
 
 
Assets
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
2,867

 
$
3,019

Short-term investments
 
2,414

 
2,788

Trading assets
 
6,663

 
5,843

Accounts receivable
 
6,233

 
6,722

Inventories
 
8,696

 
7,253

Other current assets
 
2,366

 
3,162

Total current assets
 
29,239

 
28,787

Property, plant and equipment, net of accumulated depreciation of $69,227 ($65,342 as of December 29, 2018)
 
51,377

 
48,976

Equity investments
 
4,629

 
6,042

Other long-term investments
 
3,577

 
3,388

Goodwill
 
24,583

 
24,513

Identified intangible assets, net
 
11,249

 
11,836

Other long-term assets
 
6,105

 
4,421

Total assets
 
$
130,759

 
$
127,963

 
 
 
 
 
Liabilities, temporary equity, and stockholders’ equity
 
 
 
 
Current liabilities:
 
 
 
 
Short-term debt
 
$
3,726

 
$
1,261

Accounts payable
 
4,682

 
3,824

Accrued compensation and benefits
 
2,554

 
3,622

Other accrued liabilities
 
8,743

 
7,919

Total current liabilities

19,705

 
16,626

Debt
 
25,089

 
25,098

Contract liabilities
 
1,558

 
2,049

Income taxes payable, non-current
 
4,847

 
4,897

Deferred income taxes
 
1,783

 
1,665

Other long-term liabilities
 
2,583

 
2,646

Contingencies (Note 12)
 

 

Temporary equity
 
247

 
419

Stockholders’ equity:
 
 
 
 
Preferred stock
 

 

Common stock and capital in excess of par value, 4,430 issued and outstanding (4,516 issued and outstanding as of December 29, 2018)
 
25,140

 
25,365

Accumulated other comprehensive income (loss)
 
(622
)
 
(974
)
Retained earnings
 
50,429

 
50,172

Total stockholders’ equity
 
74,947

 
74,563

Total liabilities, temporary equity, and stockholders’ equity
 
$
130,759

 
$
127,963

See accompanying notes.

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  Consolidated Condensed Balance Sheets
5


Table of Contents


CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
 
 
Six Months Ended
(In Millions; Unaudited)
 
Jun 29,
2019
 
Jun 30,
2018
Cash and cash equivalents, beginning of period
 
$
3,019

 
$
3,433

Cash flows provided by (used for) operating activities:
 
 
 
 
Net income
 
8,153

 
9,460

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Depreciation
 
4,379

 
3,536

Share-based compensation
 
859

 
820

Amortization of intangibles
 
800

 
782

(Gains) losses on equity investments, net
 
(100
)
 
(401
)
Changes in assets and liabilities:
 
 
 
 
Accounts receivable
 
490

 
369

Inventories
 
(1,443
)
 
(303
)
Accounts payable
 
431

 
274

Accrued compensation and benefits
 
(1,012
)
 
(884
)
Customer deposits and prepaid supply agreements
 
(444
)
 
1,580

Income taxes
 
(15
)
 
(1,133
)
Other assets and liabilities
 
448

 
(403
)
Total adjustments
 
4,393

 
4,237

Net cash provided by operating activities
 
12,546

 
13,697

Cash flows provided by (used for) investing activities:
 
 
 
 
Additions to property, plant and equipment
 
(6,875
)
 
(7,440
)
Purchases of available-for-sale debt investments
 
(1,721
)
 
(1,578
)
Maturities of available-for-sale debt investments
 
1,903

 
1,720

Purchases of trading assets
 
(4,498
)
 
(6,501
)
Maturities and sales of trading assets
 
3,808

 
7,691

Sales of equity investments
 
1,331

 
215

Other investing
 
42

 
(91
)
Net cash used for investing activities
 
(6,010
)
 
(5,984
)
Cash flows provided by (used for) financing activities:
 
 
 
 
Increase (decrease) in short-term debt, net
 
996

 
1,991

Issuance of long-term debt, net of issuance costs
 
601

 

Repayment of debt and debt conversion
 
(1,033
)
 
(1,169
)
Proceeds from sales of common stock through employee equity incentive plans
 
305

 
320

Repurchase of common stock
 
(5,579
)
 
(5,807
)
Payment of dividends to stockholders
 
(2,828
)
 
(2,800
)
Other financing
 
850

 
(1,067
)
Net cash provided by (used for) financing activities
 
(6,688
)
 
(8,532
)
Net increase (decrease) in cash and cash equivalents
 
(152
)
 
(819
)
Cash and cash equivalents, end of period
 
$
2,867

 
$
2,614

 
 
 
 
 
Supplemental disclosures of noncash investing activities and cash flow information:
 
 
 
 
Acquisition of property, plant, and equipment included in accounts payable and accrued liabilities
 
$
2,678

 
$
2,789

Cash paid during the period for:
 
 
 
 
Interest, net of capitalized interest
 
$
243

 
$
209

Income taxes, net of refunds
 
$
1,112

 
$
2,196

See accompanying notes.

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Table of Contents


CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY
 
 
Common Stock and Capital in Excess of Par Value
 
Accumulated Other Comprehensive Income (Loss)
 
Retained Earnings
 
Total
(In Millions, Except Per Share Amounts)
 
Shares
 
Amount
 
 
 
Three Months Ended
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance as of March 30, 2019
 
4,477

 
$
25,346

 
$
(813
)
 
$
49,128

 
$
73,661

Net income
 

 

 

 
4,179

 
4,179

Other comprehensive income (loss)
 

 

 
191

 

 
191

Employee equity incentive plans and other
 
28

 
31

 

 

 
31

Share-based compensation
 

 
471

 

 

 
471

Temporary equity reduction
 

 
28

 

 

 
28

Convertible debt
 

 
(120
)
 

 

 
(120
)
Repurchase of common stock
 
(67
)
 
(381
)
 

 
(2,764
)
 
(3,145
)
Restricted stock unit withholdings
 
(7
)
 
(235
)
 

 
(114
)
 
(349
)
Balance as of June 29, 2019
 
4,430

 
$
25,140

 
$
(622
)
 
$
50,429

 
$
74,947

 
 
 
 
 
 
 
 
 
 
 
Balance as of March 31, 2018
 
4,660

 
$
26,430

 
$
(683
)
 
$
44,418

 
$
70,165

Net income
 

 

 

 
5,006

 
5,006

Other comprehensive income (loss)
 

 

 
(406
)
 

 
(406
)
Employee equity incentive plans and other¹
 
31

 
110

 

 

 
110

Share-based compensation
 

 
372

 

 

 
372

Temporary equity reduction
 

 
147

 

 

 
147

Convertible debt
 

 
(563
)
 

 

 
(563
)
Non-controlling interest
 

 
(375
)
 

 

 
(375
)
Repurchase of common stock
 
(76
)
 
(424
)
 

 
(3,589
)
 
(4,013
)
Restricted stock unit withholdings
 
(8
)
 
(227
)
 

 
(169
)
 
(396
)
Balance as of June 30, 2018
 
4,607

 
$
25,470

 
$
(1,089
)
 
$
45,666

 
$
70,047

 
 
 
 
 
 
 
 
 
 
 
Six Months Ended
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance as of December 29, 2018
 
4,516

 
$
25,365

 
$
(974
)
 
$
50,172

 
$
74,563

Net income
 

 

 

 
8,153

 
8,153

Other comprehensive income (loss)
 

 

 
352

 

 
352

Employee equity incentive plans and other
 
39

 
403

 

 

 
403

Share-based compensation
 

 
860

 

 

 
860

Temporary equity reduction
 

 
173

 

 

 
173

Convertible debt
 

 
(712
)
 

 

 
(712
)
Repurchase of common stock
 
(117
)
 
(659
)
 

 
(4,936
)
 
(5,595
)
Restricted stock unit withholdings
 
(8
)
 
(290
)
 

 
(131
)
 
(421
)
Cash dividends declared ($0.63 per share)
 

 

 

 
(2,829
)
 
(2,829
)
Balance as of June 29, 2019
 
4,430

 
$
25,140

 
$
(622
)
 
$
50,429

 
$
74,947

 
 
 
 
 
 
 
 
 
 
 
Balance as of December 30, 2017
 
4,687

 
$
26,074

 
$
862

 
$
42,083

 
$
69,019

Adjustment for change in accounting principle
 

 

 
(1,790
)
 
2,424

 
634

Opening balance as of December 31, 2017
 
4,687

 
26,074

 
(928
)
 
44,507

 
69,653

Net income
 

 

 

 
9,460

 
9,460

Other comprehensive income (loss)
 

 

 
(161
)
 

 
(161
)
Employee equity incentive plans and other¹
 
46

 
433

 

 

 
433

Share-based compensation
 

 
825

 

 

 
825

Temporary equity reduction
 

 
212

 

 

 
212

Convertible debt
 

 
(770
)
 

 

 
(770
)
Non-controlling interest
 

 
(375
)
 

 

 
(375
)
Repurchase of common stock
 
(117
)
 
(649
)
 

 
(5,319
)
 
(5,968
)
Restricted stock unit withholdings
 
(9
)
 
(280
)
 

 
(181
)
 
(461
)
Cash dividends declared ($0.60 per share)
 

 

 

 
(2,801
)
 
(2,801
)
Balance as of June 30, 2018
 
4,607

 
$
25,470

 
$
(1,089
)
 
$
45,666

 
$
70,047

1 
Includes approximately $375 million of non-controlling interest activity due to our acquisition of Mobileye in 2017, which was eliminated in 2018 due to the purchase of remaining shares.
See accompanying notes.

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  Consolidated Condensed Statements of Stockholders' Equity
7



Table of Contents


NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE 1 :
BASIS OF PRESENTATION
We prepared our interim consolidated condensed financial statements that accompany these notes in conformity with GAAP, consistent in all material respects with those applied in our Annual Report on Form 10-K for the fiscal year ended December 29, 2018 (2018 Form 10-K), except for changes associated with leases as detailed in "Note 2: Recent Accounting Standards and Accounting Policies." We have reclassified certain prior period amounts to conform to current period presentation.
We have made estimates and judgments affecting the amounts reported in our consolidated condensed financial statements and the accompanying notes. The actual results that we experience may differ materially from our estimates. The interim financial information is unaudited, and reflects all normal adjustments that are, in our opinion, necessary to provide a fair statement of results for the interim periods presented. This report should be read in conjunction with the consolidated financial statements in our 2018 Form 10-K.
NOTE 2 :
RECENT ACCOUNTING STANDARDS AND ACCOUNTING POLICIES

We assess the adoption impacts of recently issued accounting standards by the Financial Accounting Standards Board on our financial statements and below describe impacts from newly adopted standards, as well as material updates to our previous assessments, if any, from our 2018 Form 10-K.
ACCOUNTING STANDARDS ADOPTED
Leases
Standard/Description: This new lease accounting standard requires that we recognize leased assets and corresponding liabilities on the balance sheet and provide enhanced disclosure of lease activity.
Effective Date and Adoption Considerations: Effective in the first quarter of 2019. The standard was adopted applying the modified retrospective approach at the beginning of the period of adoption. Our leased assets and corresponding liabilities exclude non-lease components.
Effect on Financial Statements or Other Significant Matters: Within the opening balances for the fiscal year beginning December 30, 2018, we recognized leased assets and corresponding liabilities in other long-term assets of $706 million, which includes $81 million of previously recognized prepaid land use rights, as well as corresponding accrued liabilities of $180 million and other long-term liabilities of $445 million.
Accounting Policy Updates and Disclosures: We determine if an arrangement is a lease at inception, and classify it as finance or operating. Leased assets and corresponding liabilities are recognized based on the present value of the lease payments over the lease term. Our lease terms may include options to extend when it is reasonably certain that we will exercise that option. We have lease agreements with lease and non-lease components, and the non-lease components are accounted for separately and not included in our leased assets and corresponding liabilities. Leases primarily consist of real property, and, to a lesser extent, certain machinery and equipment.
We recognized leased assets in other long-term assets of $684 million and corresponding accrued liabilities of $178 million, and other long-term liabilities of $426 million as of June 29, 2019. Our leases have remaining lease terms of 1 to 9 years, some of which may include options to extend the leases for up to 39 years. The weighted average remaining lease term was 5.0 years, and the weighted average discount rate was 3.6% as of June 29, 2019.
For the six months ended June 29, 2019, lease expense was $94 million. In accordance with the new leases standard, discounted and undiscounted lease payments under non-cancelable leases as of June 29, 2019, excluding non-lease components, are as follows:
(In Millions)
 
Remainder of 2019
 
2020
 
2021
 
2022
 
2023
 
2024 and Thereafter
 
Total
Lease payments
 
$
93

 
$
173

 
$
122

 
$
96

 
$
70

 
$
107

 
$
661

Present value of lease payments
 
 
 
 
 
 
 
 
 
 
 
 
 
$
604


A002INTELLOGOFOOTERA01.JPG   FINANCIAL STATEMENTS
  Notes to Financial Statements
8





Lease expense was $231 million in 2018 ($264 million in 2017). Prior to our adoption of the new leases standard, future minimum lease payments as of December 29, 2018, which were undiscounted and included lease and non-lease components, were as follows:
(In Millions)
 
2019
 
2020
 
2021
 
2022
 
2023
 
2024 and Thereafter
 
Total
Minimum rental commitments under all non-cancelable leases
 
$
229

 
$
181

 
$
133

 
$
101

 
$
70

 
$
121

 
$
835


NOTE 3 :
OPERATING SEGMENTS

We manage our business through the following operating segments:
Client Computing Group (CCG)
Data Center Group (DCG)
Internet of Things Group (IOTG)
Mobileye
Non-Volatile Memory Solutions Group (NSG)
Programmable Solutions Group (PSG)
All Other
We offer platform products that incorporate various components and technologies, including a microprocessor and chipset, a stand-alone SoC, or a multichip package. A platform product may be enhanced by additional hardware, software, and services offered by Intel. Platform products are used in various form factors across our CCG, DCG, and IOTG operating segments. We derive a substantial majority of our revenue from platform products, which are our principal products and considered as one class of product.
CCG and DCG are our reportable operating segments. IOTG, Mobileye, NSG, and PSG do not meet the quantitative thresholds to qualify as reportable operating segments; however, we have elected to disclose the results of these non-reportable operating segments. Our Internet of Things portfolio, presented as Internet of Things, is comprised of IOTG and Mobileye operating segments.
The “all other” category includes revenue, expenses, and charges such as:
results of operations from non-reportable segments not otherwise presented;
historical results of operations from divested businesses;
results of operations of start-up businesses that support our initiatives, including our foundry business;
amounts included within restructuring and other charges;
a portion of employee benefits, compensation, and other expenses not allocated to the operating segments; and
acquisition-related costs, including amortization and any impairment of acquisition-related intangibles and goodwill.
The Chief Operating Decision Maker (CODM), which is our Chief Executive Officer (CEO), does not evaluate operating segments using discrete asset information. Operating segments do not record inter-segment revenue. We do not allocate gains and losses from equity investments, interest and other income, or taxes to operating segments. Although the CODM uses operating income to evaluate the segments, operating costs included in one segment may benefit other segments. Except for these differences, the accounting policies for segment reporting are the same as for Intel as a whole.



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  Notes to Financial Statements
9





Net revenue and operating income (loss) for each period were as follows:
 
 
Three Months Ended
 
Six Months Ended
(In Millions)
 
Jun 29,
2019
 
Jun 30,
2018
 
Jun 29,
2019
 
Jun 30,
2018
Net revenue:
 
 
 
 
 
 
 
 
Client Computing Group
 
 
 
 
 
 
 
 
Platform
 
$
7,925

 
$
8,065

 
$
15,749

 
$
15,680

Adjacent
 
916

 
663

 
1,678

 
1,268

 
 
8,841

 
8,728

 
17,427

 
16,948

Data Center Group
 
 
 
 
 
 
 
 
Platform
 
4,553

 
5,100

 
9,035

 
9,924

Adjacent
 
430

 
449

 
850

 
859

 
 
4,983

 
5,549

 
9,885

 
10,783

Internet of Things
 
 
 
 
 
 
 
 
IOTG
 
986

 
880

 
1,896

 
1,720

Mobileye
 
201

 
173

 
410

 
324

 
 
1,187

 
1,053

 
2,306

 
2,044

 
 
 
 
 
 
 
 
 
Non-Volatile Memory Solutions Group
 
940

 
1,079

 
1,855

 
2,119

Programmable Solutions Group
 
489

 
517

 
975

 
1,015

All other
 
65

 
36

 
118

 
119

Total net revenue
 
$
16,505

 
$
16,962

 
$
32,566

 
$
33,028

 
 
 
 
 
 
 
 
 
Operating income (loss):
 
 
 
 
 
 
 
 
Client Computing Group
 
$
3,737

 
$
3,234

 
$
6,809

 
$
6,025

Data Center Group
 
1,800

 
2,737

 
3,641

 
5,339

 
 
 
 
 
 
 
 
 
Internet of Things
 
 
 
 
 
 
 
 
IOTG
 
294

 
243

 
545

 
470

Mobileye
 
53

 
44

 
121

 
54

 
 
347

 
287

 
666

 
524

 
 
 
 
 
 
 
 
 
Non-Volatile Memory Solutions Group
 
(284
)
 
(65
)
 
(581
)
 
(146
)
Programmable Solutions Group
 
52

 
101

 
141

 
198

All other
 
(1,035
)
 
(1,021
)
 
(1,885
)
 
(2,197
)
Total operating income
 
$
4,617

 
$
5,273

 
$
8,791

 
$
9,743



A002INTELLOGOFOOTERA01.JPG   FINANCIAL STATEMENTS
  Notes to Financial Statements
10





Disaggregated net revenue for each period was as follows:
 
 
Three Months Ended
 
Six Months Ended
(In Millions)
 
Jun 29,
2019
 
Jun 30,
2018
 
Jun 29,
2019
 
Jun 30,
2018
Platform revenue
 
 
 
 
 
 
 
 
Desktop platform
 
$
2,767

 
$
2,954

 
$
5,653

 
$
5,861

Notebook platform
 
5,136

 
5,086

 
10,063

 
9,775

DCG platform
 
4,553

 
5,100

 
9,035

 
9,924

IOTG platform
 
891

 
745

 
1,716

 
1,464

Other platform1
 
22

 
25

 
33

 
44

 
 
13,369

 
13,910

 
26,500

 
27,068

 
 
 
 
 
 
 
 
 
Adjacent revenue2
 
3,136

 
3,052

 
6,066

 
5,960

Total revenue
 
$
16,505

 
$
16,962

 
$
32,566

 
$
33,028


1 
Includes our tablet and service provider revenue.
2 
Includes all of our non-platform products for CCG, DCG, and IOTG such as modem, Ethernet, and silicon photonics, as well as Mobileye, NSG, and PSG products.
Planned divestiture of smartphone modem business
On July 25, 2019, we signed a definitive agreement to sell the majority of our smartphone modem business. We will continue to meet current customer commitments for our existing 4G smartphone modem product line. We expect to close the transaction, which will include certain employees, intellectual property, equipment and leases, in the fourth quarter of 2019. We expect to record a gain on divestiture of approximately $500 million, net of tax.
NOTE 4 :
EARNINGS PER SHARE

We computed basic earnings per share of common stock based on the weighted average number of shares of common stock outstanding during the period. We computed diluted earnings per share of common stock based on the weighted average number of shares of common stock outstanding plus potentially dilutive shares of common stock outstanding during the period.
 
 
Three Months Ended
 
Six Months Ended
(In Millions, Except Per Share Amounts)
 
Jun 29,
2019
 
Jun 30,
2018
 
Jun 29,
2019
 
Jun 30,
2018
Net income available to common stockholders
 
$
4,179

 
$
5,006

 
$
8,153

 
$
9,460

Weighted average shares of common stock outstanding – basic
 
4,466

 
4,649

 
4,479

 
4,661

Dilutive effect of employee equity incentive plans
 
40

 
52

 
46

 
59

Dilutive effect of convertible debt
 
17

 
46

 
18

 
48

Weighted average shares of common stock outstanding – diluted
 
4,523

 
4,747

 
4,543

 
4,768

Earnings per share – basic
 
$
0.94

 
$
1.08

 
$
1.82

 
$
2.03

Earnings per share – diluted
 
$
0.92

 
$
1.05

 
$
1.79

 
$
1.98

Potentially dilutive shares of common stock from employee equity incentive plans are determined by applying the treasury stock method to the assumed exercise of outstanding stock options, the assumed vesting of outstanding restricted stock units (RSUs), and the assumed issuance of common stock under the stock purchase plan. Our convertible debentures due 2039 (2009 debentures) require settlement of the principal amount of the debt in cash upon conversion. Since the conversion premium is paid in cash or stock at our option, we determined the potentially dilutive shares of common stock by applying the treasury stock method.
In all periods presented, securities which would have been anti-dilutive are insignificant and are excluded from the computation of diluted earnings per share. In all periods presented, we included our 2009 debentures in the calculation of diluted earnings per share of common stock because the average market price was above the conversion price. We could potentially exclude the 2009 debentures in the future if the average market price is below the conversion price.

A002INTELLOGOFOOTERA01.JPG   FINANCIAL STATEMENTS
  Notes to Financial Statements
11





NOTE 5 :
CONTRACT LIABILITIES

(In Millions)
 
Jun 29,
2019
 
Dec 29,
2018
Prepaid supply agreements
 
$
2,143

 
$
2,587

Other
 
162

 
122

Total contract liabilities
 
$
2,305

 
$
2,709


Contract liabilities are primarily related to partial prepayments received from customers on long-term supply agreements towards future NSG product delivery. As new prepaid supply agreements are entered into and performance obligations are negotiated, this component of the contract liability balance will increase, and as customers purchase product and utilize their prepaid balances, the balance will decrease. The short-term portion of prepayments from supply agreements is reported on the consolidated condensed balance sheets within other accrued liabilities.
The following table shows the changes in contract liability balances relating to prepaid supply agreements during the first six months of 2019:
(In Millions)
 
 
Prepaid supply agreements balance as of December 29, 2018
 
$
2,587

Prepaids utilized
 
(444
)
Prepaid supply agreements balance as of June 29, 2019
 
$
2,143


NOTE 6 :
OTHER FINANCIAL STATEMENT DETAILS

INVENTORIES
(In Millions)
 
Jun 29,
2019
 
Dec 29,
2018
Raw materials
 
$
808

 
$
813

Work in process
 
5,612

 
4,511

Finished goods
 
2,276

 
1,929

Total inventories
 
$
8,696

 
$
7,253


INTEREST AND OTHER, NET
The components of interest and other, net for each period were as follows:
 
 
Three Months Ended
 
Six Months Ended
(In Millions)
 
Jun 29,
2019
 
Jun 30,
2018
 
Jun 29,
2019
 
Jun 30,
2018
Interest income
 
$
125

 
$
108

 
$
260

 
$
199

Interest expense
 
(135
)
 
(116
)
 
(273
)
 
(228
)
Other, net
 
(53
)
 
467

 
(111
)
 
386

Total interest and other, net
 
$
(63
)
 
$
459

 
$
(124
)
 
$
357


Interest expense in the preceding table is net of $120 million of interest capitalized in the second quarter of 2019 and $245 million in the first six months of 2019 ($126 million in the second quarter of 2018 and $239 million in the first six months of 2018). In the second quarter of 2018, we completed the divestiture of Wind River, and recognized a pre-tax gain of $494 million.
NOTE 7 :
RESTRUCTURING AND OTHER CHARGES
A restructuring program was approved in the second quarter of 2019 to align our workforce with the planned exit of the smartphone modem business. We expect these actions to be substantially complete by end of 2019.


A002INTELLOGOFOOTERA01.JPG   FINANCIAL STATEMENTS
  Notes to Financial Statements
12





Restructuring and other charges by type for the 2019 Restructuring Program for the period were as follows:
 
 
Three Months Ended
 
Six Months Ended
(In Millions)
 
Jun 29,
2019
 
Jun 30,
2018
 
Jun 29,
2019
 
Jun 30,
2018
Employee severance and benefit arrangements
 
$
168

 
$

 
$
168

 
$

Asset impairment and other charges
 
16

 

 
16

 

Total restructuring and other charges
 
$
184

 
$

 
$
184

 
$


NOTE 8 :
INVESTMENTS

DEBT INVESTMENTS
Trading Assets
Net gains related to trading assets still held at the reporting date were $99 million in the second quarter of 2019 and $117 million in the first six months of 2019 ($326 million of net losses in the second quarter of 2018 and $214 million in the first six months of 2018). Net losses on the related derivatives were $102 million in the second quarter of 2019 and $104 million in the first six months of 2019 (net gains of $316 million in the second quarter of 2018 and $221 million in the first six months of 2018).
Available-for-Sale Debt Investments
 
 
June 29, 2019
 
December 29, 2018
(In Millions)
 
Adjusted Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Fair Value
 
Adjusted Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Fair Value
Corporate debt
 
$
3,160

 
$
45

 
$
(4
)
 
$
3,201

 
$
3,068

 
$
2

 
$
(28
)
 
$
3,042

Financial institution
instruments
 
3,034

 
18

 
(1
)
 
3,051

 
3,076

 
3

 
(11
)
 
3,068

Government debt
 
903

 
6

 

 
909

 
1,069

 
1

 
(9
)
 
1,061

Total available-for-sale debt investments
 
$
7,097

 
$
69

 
$
(5
)
 
$
7,161

 
$
7,213

 
$
6

 
$
(48
)
 
$
7,171


Government debt includes instruments such as non-U.S. government bonds and U.S. agency securities. Financial institution instruments include instruments issued or managed by financial institutions in various forms such as commercial paper, fixed and floating rate bonds, money market fund deposits, and time deposits. Substantially all time deposits were issued by institutions outside the U.S. as of June 29, 2019 and December 29, 2018.
The fair value of available-for-sale debt investments, by contractual maturity, as of June 29, 2019, was as follows:
(In Millions)
 
Fair Value
Due in 1 year or less
 
$
3,174

Due in 1–2 years
 
733

Due in 2–5 years
 
2,722

Due after 5 years
 
122

Instruments not due at a single maturity date
 
410

Total
 
$
7,161


EQUITY INVESTMENTS
(In Millions)
 
Jun 29,
2019
 
Dec 29,
2018
Marketable equity securities
 
$
197

 
$
1,440

Non-marketable equity securities
 
3,134

 
2,978

Equity method investments
 
1,298

 
1,624

Total
 
$
4,629


$
6,042



A002INTELLOGOFOOTERA01.JPG   FINANCIAL STATEMENTS
  Notes to Financial Statements
13





The components of gains (losses) on equity investments, net for each period were as follows:
 
 
Three Months Ended
 
Six Months Ended
(In Millions)
 
Jun 29,
2019
 
Jun 30,
2018
 
Jun 29,
2019
 
Jun 30,
2018
Ongoing mark-to-market adjustments on marketable equity securities
 
$
(179
)
 
$
(235
)
 
$
74

 
$
371

Observable price adjustments on non-marketable equity securities
 
8

 
24

 
16

 
148

Impairments
 
(39
)
 
(26
)
 
(62
)
 
(43
)
Sale of equity investments and other¹
 
380

 
34

 
576

 
(36
)
Total gains (losses) on equity investments, net
 
$
170

 
$
(203
)
 
$
604

 
$
440


1 Sale of equity investments and other includes realized gains (losses) on sales of non-marketable equity investments, our share of equity method investee gains (losses) and distributions, and initial fair value adjustments recorded upon a security becoming marketable.
Gains and losses for our marketable and non-marketable equity securities during the period were as follows:
 
 
Three Months Ended
 
Six Months Ended
(In Millions)
 
Jun 29,
2019
 
Jun 30,
2018
 
Jun 29,
2019
 
Jun 30,
2018
Net gains (losses) recognized during the period on equity securities
 
$
(178
)
 
$
(133
)
 
$
84

 
$
592

Less: Net (gains) losses recognized during the period on equity securities sold during the period
 
(33
)
 
(11
)
 
(258
)
 
(49
)
Unrealized gains (losses) recognized during the reporting period on equity securities still held at the reporting date
 
$
(211
)
 
$
(144
)
 
$
(174
)
 
$
543


IM Flash Technologies, LLC
IM Flash Technologies, LLC (IMFT) was formed in 2006 by Micron Technology, Inc. (Micron) and Intel to jointly develop NAND flash memory and 3D XPoint™ technology products. IMFT is an unconsolidated variable interest entity and all costs of IMFT are passed on to Micron and Intel through sale of products or services in proportional share of ownership. As of June 29, 2019, we own a 49% interest in IMFT. Our portion of IMFT costs was approximately $224 million in the second quarter of 2019 and approximately $356 million in the first six months of 2019 (approximately $144 million in the second quarter of 2018 and $227 million in the first six months of 2018).
IMFT depends on Micron and Intel for any additional cash needs to be provided in the form of cash calls or member debt financing (MDF). Extensions of MDF may be converted to a capital contribution at the lender's request, or may be repaid upon availability of funds. During the first six months of 2019, IMFT repaid $316 million of MDF to Intel. The carrying balance of our equity method investment in IMFT as of June 29, 2019 is $1.3 billion.
In January 2019, Micron exercised its right to call our interest in IMFT. The sale of our non-controlling interest in IMFT to Micron is expected to close on October 31, 2019. We will continue to purchase product manufactured at the IMFT facility for a period of up to one year following the close date.
ASML Holding N.V.
As of December 29, 2018, Intel owned $1.1 billion in ASML Holding N.V. (ASML). We have fully sold our equity investment in ASML.
NOTE 9 :
BORROWINGS
During the first six months of 2019, we received proceeds of $601 million in aggregate from the sale of bonds issued by the Industrial Development Authority of the City of Chandler, Arizona (the Arizona bonds) and the State of Oregon Business Development Commission (the Oregon bonds). The bonds are our unsecured general obligations in accordance with loan agreements we entered into with the Industrial Development Authority of the City of Chandler, Arizona and the State of Oregon Business Development Commission. The bonds mature in 2049 and carry an interest rate of 5.0%. The Arizona bonds and the Oregon bonds are subject to mandatory tender in June 2024 and March 2022, respectively, at which time we can re-market the bonds as either fixed-rate bonds for a specified period or as variable-rate bonds until another fixed-rate period is selected or until their final maturity date.

A002INTELLOGOFOOTERA01.JPG   FINANCIAL STATEMENTS
  Notes to Financial Statements
14





NOTE 10 :
FAIR VALUE
For information about our fair value policies, and methods and assumptions used in estimating the fair value of our financial assets and liabilities, see "Note 2: Accounting Policies" and "Note 16: Fair Value" in our 2018 Form 10-K.
ASSETS AND LIABILITIES MEASURED AND RECORDED AT FAIR VALUE ON A RECURRING BASIS
 
 
June 29, 2019
 
December 29, 2018
 
 
Fair Value Measured and
Recorded at Reporting Date Using
 
 
Fair Value Measured and
Recorded at Reporting Date Using
 
(In Millions)
 
Level 1
 
Level 2
 
Level 3
 
Total
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash equivalents:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Corporate debt
 
$

 
$
417

 
$

 
$
417

 
$

 
$
262

 
$

 
$
262

Financial institution instruments¹
 
410

 
343

 

 
753

 
550

 
183

 

 
733

Reverse repurchase agreements
 

 
1,300