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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
September 28, 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
A001INTELLOGOCOLOR_COVER.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 September 28, 2019, the registrant had outstanding 4,350 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 our consolidated condensed 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
22
 
Revenue, Gross Margin, and Operating Expenses
23
 
Business Unit Trends and Results
26
 
Other Consolidated Results of Operations
32
 
Liquidity and Capital Resources
33
 
Quantitative and Qualitative Disclosures about Market Risk
34
 
 
 
 
OTHER KEY INFORMATION
 
 
Risk Factors
35
 
Controls and Procedures
35
 
Non-GAAP Financial Measures
35
 
Issuer Purchases of Equity Securities
37
 
Exhibits
38
 
Form 10-Q Cross-Reference Index
39





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. Unless specifically indicated otherwise, 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 Agilex, Intel Core, 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.


A002INTELLOGO_FOOTER.JPG  
 
1

Table of Contents


A QUARTER IN REVIEW
Third quarter revenue was $19.2 billion as our data-centric businesses grew 6% year over year, offset by the PC-centric business decline of 5%. Data-centric revenue was up compared to a year ago, driven by a strong mix of high-performance Intel® Xeon® processors in our DCG business and growth across all businesses. Our PC-centric business was down on lower year over year platform volume, partially offset by a strong mix of higher performance products as the commercial segment of the PC market remained strong. Lower platform unit sales and margin compression on memory products resulted in lower gross margins and operating income, which was partially offset by platform ASP strength and lower investments in modem. In the first nine months we generated $23.3 billion of cash flow from operations and returned $14.3 billion to stockholders, including $4.2 billion in dividends and $10.1 billion in buybacks.
REVENUE
 
OPERATING INCOME
 
DILUTED EPS
 PC-CENTRIC $B  DATA-CENTRIC $B
 
GAAP $B   NON-GAAP $B
 
GAAP   NON-GAAP
OVERVIEW_REVENUE.JPG OVERVIEW_OPINCOME.JPG OVERVIEW_EPS.JPG
 
 
 
 
 
$19.2B
 
 
 
$6.4B
 
$6.9B
 
$1.35
 
$1.42
GAAP
 
 
 
GAAP
 
non-GAAP1
 
GAAP
 
non-GAAP1
flat in comparison to Q3 2018
 
down $902M or 12% from Q3 2018
 
down $714M or 9% from Q3 2018
 
down $0.03 or 2% from Q3 2018
 
up $0.02 or 1% from Q3 2018
 
 
 
 
 
 
 
 
 
Growth in data-centric businesses with record revenue from DCG, NSG, IOTG and Mobileye, offset by decline in PC-centric business
 
Lower gross margin from decrease in platform unit sales and lower NAND market pricing, partially offset by platform ASP strength
 
Impact from lower platform volume and lower NAND market pricing, partially offset by lower shares outstanding and ASP strength
BUSINESS SUMMARY
We launched the first wave of 10th generation Intel® Core processors, with 11 new 10 nanometer (nm)-based Ice Lake processors that integrate artificial intelligence, graphics, Wi-Fi 6 and Thunderbolt™ 3 all on the SoC. We began shipping our 10nm Intel® Agilex® field programmable gate arrays (FPGAs) to early access program customers.
We experienced growth across all data-centric businesses. DCG grew across all segments, with the cloud and enterprise and government market segments returning to growth. NSG grew with NAND and Intel® Optane™ bit growth, partially offset by lower NAND market pricing. Demand for edge compute drove double digit revenue growth for Mobileye and high single digit growth for IOTG.
PC-centric decline was driven by lower product shipments compared to Q3 2018, when internal inventory was drawn on to meet demand, partially offset by adjacencies growth and ASP strength. We continued to be supply constrained in Q3, particularly at the value-end of the market, as higher than expected PC demand strength continues to outpace our supply despite capacity additions we have made this year.
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.




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
 
Nine Months Ended
(In Millions, Except Per Share Amounts; Unaudited)
 
Sep 28,
2019
 
Sep 29,
2018
 
Sep 28,
2019
 
Sep 29,
2018
Net revenue
 
$
19,190

 
$
19,163

 
$
51,756

 
$
52,191

Cost of sales
 
7,895

 
6,803

 
21,494

 
19,681

Gross margin
 
11,295

 
12,360

 
30,262

 
32,510

Research and development
 
3,208

 
3,428

 
9,978

 
10,110

Marketing, general and administrative
 
1,486

 
1,605

 
4,608

 
5,230

Restructuring and other charges
 
104

 
(72
)
 
288

 
(72
)
Amortization of acquisition-related intangibles
 
50

 
50

 
150

 
150

Operating expenses
 
4,848

 
5,011

 
15,024

 
15,418

Operating income
 
6,447

 
7,349

 
15,238

 
17,092

Gains (losses) on equity investments, net
 
318

 
(75
)
 
922

 
365

Interest and other, net
 
(46
)
 
(132
)
 
(170
)
 
225

Income before taxes
 
6,719

 
7,142

 
15,990

 
17,682

Provision for taxes
 
729

 
744

 
1,847

 
1,824

Net income
 
$
5,990

 
$
6,398

 
$
14,143

 
$
15,858

Earnings per share – basic
 
$
1.36

 
$
1.40

 
$
3.18

 
$
3.42

Earnings per share – diluted
 
$
1.35

 
$
1.38

 
$
3.14

 
$
3.35

Weighted average shares of common stock outstanding:
 
 
 
 
 
 
 
 
Basic
 
4,391

 
4,574

 
4,450

 
4,632

Diluted
 
4,433

 
4,648

 
4,507

 
4,728

See accompanying notes.

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Table of Contents


CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME
 
 
Three Months Ended
 
Nine Months Ended
(In Millions; Unaudited)
 
Sep 28,
2019
 
Sep 29,
2018
 
Sep 28,
2019
 
Sep 29,
2018
Net income
 
$
5,990

 
$
6,398

 
$
14,143

 
$
15,858

Changes in other comprehensive income, net of tax:
 
 
 
 
 
 
 
 
Net unrealized holding gains (losses) on derivatives
 
(115
)
 
(25
)
 
138

 
(199
)
Actuarial valuation and other pension benefits (expenses), net
 
9

 
13

 
26

 
39

Translation adjustments and other
 
6

 
(2
)
 
88

 
(15
)
Other comprehensive income (loss)
 
(100
)
 
(14
)
 
252

 
(175
)
Total comprehensive income
 
$
5,890

 
$
6,384

 
$
14,395

 
$
15,683

See accompanying notes.

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CONSOLIDATED CONDENSED BALANCE SHEETS
(In Millions)
 
Sep 28,
2019
 
Dec 29,
2018
 
 
(unaudited)
 
 
Assets
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
3,935

 
$
3,019

Short-term investments
 
1,849

 
2,788

Trading assets
 
6,241

 
5,843

Accounts receivable
 
6,880

 
6,722

Inventories
 
8,638

 
7,253

Other current assets
 
2,414

 
3,162

Total current assets
 
29,957

 
28,787

Property, plant and equipment, net of accumulated depreciation of $71,183 ($65,342 as of December 29, 2018)
 
53,563

 
48,976

Equity investments
 
4,819

 
6,042

Other long-term investments
 
3,428

 
3,388

Goodwill
 
24,727

 
24,513

Identified intangible assets, net
 
11,019

 
11,836

Other long-term assets
 
6,255

 
4,421

Total assets
 
$
133,768

 
$
127,963

 
 
 
 
 
Liabilities, temporary equity, and stockholders’ equity
 
 
 
 
Current liabilities:
 
 
 
 
Short-term debt
 
$
5,200

 
$
1,261

Accounts payable
 
4,809

 
3,824

Accrued compensation and benefits
 
3,220

 
3,622

Other accrued liabilities
 
11,835

 
7,919

Total current liabilities

25,064

 
16,626

Debt
 
23,707

 
25,098

Contract liabilities
 
1,413

 
2,049

Income taxes payable, non-current
 
4,974

 
4,897

Deferred income taxes
 
1,696

 
1,665

Other long-term liabilities
 
2,506

 
2,646

Contingencies (Note 12)
 

 

Temporary equity
 
166

 
419

Stockholders’ equity:
 
 
 
 
Preferred stock
 

 

Common stock and capital in excess of par value, 4,350 issued and outstanding (4,516 issued and outstanding as of December 29, 2018)
 
25,290

 
25,365

Accumulated other comprehensive income (loss)
 
(722
)
 
(974
)
Retained earnings
 
49,674

 
50,172

Total stockholders’ equity
 
74,242

 
74,563

Total liabilities, temporary equity, and stockholders’ equity
 
$
133,768

 
$
127,963

See accompanying notes.

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CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
 
 
Nine Months Ended
(In Millions; Unaudited)
 
Sep 28,
2019
 
Sep 29,
2018
 
 
 
 
 
Cash and cash equivalents, beginning of period
 
$
3,019

 
$
3,433

Cash flows provided by (used for) operating activities:
 
 
 
 
Net income
 
14,143

 
15,858

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Depreciation
 
6,647

 
5,420

Share-based compensation
 
1,290

 
1,203

Amortization of intangibles
 
1,211

 
1,172

(Gains) losses on equity investments, net
 
(395
)
 
(329
)
Changes in assets and liabilities:
 
 
 
 
Accounts receivable
 
(156
)
 
(449
)
Inventories
 
(1,376
)
 
(362
)
Accounts payable
 
728

 
430

Accrued compensation and benefits
 
(365
)
 
(801
)
Customer deposits and prepaid supply agreements
 
(674
)
 
1,472

Income taxes
 
435

 
(1,057
)
Other assets and liabilities
 
1,769

 
(25
)
Total adjustments
 
9,114

 
6,674

Net cash provided by operating activities
 
23,257

 
22,532

Cash flows provided by (used for) investing activities:
 
 
 
 
Additions to property, plant and equipment
 
(11,547
)
 
(11,291
)
Purchases of available-for-sale debt investments
 
(2,028
)
 
(3,090
)
Sales of available-for-sale debt investments
 
1,198

 
135

Maturities of available-for-sale debt investments
 
1,920

 
2,232

Purchases of trading assets
 
(5,769
)
 
(8,316
)
Maturities and sales of trading assets
 
5,467

 
9,705

Sales of equity investments
 
1,414

 
1,646

Other investing
 
(575
)
 
(440
)
Net cash used for investing activities
 
(9,920
)
 
(9,419
)
Cash flows provided by (used for) financing activities:
 
 
 
 
Increase (decrease) in short-term debt, net
 
835

 
1,707

Issuance of long-term debt, net of issuance costs
 
650

 
423

Repayment of debt and debt conversion
 
(1,478
)
 
(1,928
)
Proceeds from sales of common stock through employee equity incentive plans
 
797

 
545

Repurchase of common stock
 
(10,100
)
 
(8,464
)
Payment of dividends to stockholders
 
(4,214
)
 
(4,173
)
Other financing
 
1,089

 
(1,249
)
Net cash provided by (used for) financing activities
 
(12,421
)
 
(13,139
)
Net increase (decrease) in cash and cash equivalents
 
916

 
(26
)
Cash and cash equivalents, end of period
 
$
3,935

 
$
3,407

 
 
 
 
 
Supplemental disclosures of noncash investing activities and cash flow information:
 
 
 
 
Acquisition of property, plant, and equipment included in accounts payable and accrued liabilities
 
$
2,376

 
$
1,988

Cash paid during the period for:
 
 
 
 
Interest, net of capitalized interest
 
$
312

 
$
316

Income taxes, net of refunds
 
$
1,334

 
$
2,854

See accompanying notes.

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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 June 29, 2019
 
4,430

 
$
25,140

 
$
(622
)
 
$
50,429

 
$
74,947

Net income
 

 

 

 
5,990

 
5,990

Other comprehensive income (loss)
 

 

 
(100
)
 

 
(100
)
Employee equity incentive plans and other
 
13

 
466

 

 

 
466

Share-based compensation
 

 
427

 

 

 
427

Temporary equity reduction
 

 
80

 

 

 
80

Convertible debt
 

 
(278
)
 

 

 
(278
)
Repurchase of common stock
 
(92
)
 
(523
)
 

 
(3,966
)
 
(4,489
)
Restricted stock unit withholdings
 
(1
)
 
(22
)
 

 
(6
)
 
(28
)
Cash dividends declared ($0.63 per share)
 

 

 

 
(2,773
)
 
(2,773
)
Balance as of September 28, 2019
 
4,350

 
$
25,290

 
$
(722
)
 
$
49,674

 
$
74,242

 
 
 
 
 
 
 
 
 
 
 
Balance as of June 30, 2018
 
4,607

 
$
25,470

 
$
(1,089
)
 
$
45,666

 
$
70,047

Net income
 

 

 

 
6,398

 
6,398

Other comprehensive income (loss)
 

 

 
(14
)
 

 
(14
)
Employee equity incentive plans and other
 
8

 
300

 

 

 
300

Share-based compensation
 

 
377

 

 

 
377

Temporary equity reduction
 

 
139

 

 

 
139

Convertible debt
 

 
(497
)
 

 

 
(497
)
Repurchase of common stock
 
(50
)
 
(275
)
 

 
(2,219
)
 
(2,494
)
Restricted stock unit withholdings
 
(1
)
 
(22
)
 

 
(6
)
 
(28
)
Cash dividends declared ($0.60 per share)
 

 

 

 
(2,745
)
 
(2,745
)
Balance as of September 29, 2018
 
4,564

 
$
25,492

 
$
(1,103
)
 
$
47,094

 
$
71,483

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

 
$
25,365

 
$
(974
)
 
$
50,172

 
$
74,563

Net income
 

 

 

 
14,143

 
14,143

Other comprehensive income (loss)
 

 

 
252

 

 
252

Employee equity incentive plans and other
 
52

 
869

 

 

 
869

Share-based compensation
 

 
1,287

 

 

 
1,287

Temporary equity reduction
 

 
253

 

 

 
253

Convertible debt
 

 
(990
)
 

 

 
(990
)
Repurchase of common stock
 
(209
)
 
(1,182
)
 

 
(8,902
)
 
(10,084
)
Restricted stock unit withholdings
 
(9
)
 
(312
)
 

 
(137
)
 
(449
)
Cash dividends declared ($1.26 per share)
 

 

 

 
(5,602
)
 
(5,602
)
Balance as of September 28, 2019
 
4,350

 
$
25,290

 
$
(722
)
 
$
49,674

 
$
74,242

 
 
 
 
 
 
 
 
 
 
 
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
 

 

 

 
15,858

 
15,858

Other comprehensive income (loss)
 

 

 
(175
)
 

 
(175
)
Employee equity incentive plans and other¹
 
54

 
358

 

 

 
358

Share-based compensation
 

 
1,202

 

 

 
1,202

Temporary equity reduction
 

 
351

 

 

 
351

Convertible debt
 

 
(1,267
)
 

 

 
(1,267
)
Repurchase of common stock
 
(167
)
 
(924
)
 

 
(7,538
)
 
(8,462
)
Restricted stock unit withholdings
 
(10
)
 
(302
)
 

 
(187
)
 
(489
)
Cash dividends declared ($1.20 per share)
 

 

 

 
(5,546
)
 
(5,546
)
Balance as of September 29, 2018
 
4,564

 
$
25,492

 
$
(1,103
)
 
$
47,094

 
$
71,483

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 $652 million and corresponding accrued liabilities of $174 million, and other long-term liabilities of $399 million as of September 28, 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 4.8 years, and the weighted average discount rate was 3.4% as of September 28, 2019.
For the nine months ended September 28, 2019, lease expense was $141 million. In accordance with the new leases standard, discounted and undiscounted lease payments under non-cancelable leases as of September 28, 2019, excluding non-lease components, are as follows:
(In Millions)
 
Remainder of 2019
 
2020
 
2021
 
2022
 
2023
 
2024 and Thereafter
 
Total
Lease payments
 
$
44

 
$
178

 
$
125

 
$
96

 
$
71

 
$
108

 
$
622

Present value of lease payments
 
 
 
 
 
 
 
 
 
 
 
 
 
$
573


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  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
 
Nine Months Ended
(In Millions)
 
Sep 28,
2019
 
Sep 29,
2018
 
Sep 28,
2019
 
Sep 29,
2018
Net revenue:
 
 
 
 
 
 
 
 
Client Computing Group
 
 
 
 
 
 
 
 
Platform
 
$
8,379

 
$
9,023

 
$
24,128

 
$
24,703

Adjacent
 
1,330

 
1,211

 
3,008

 
2,479

 
 
9,709

 
10,234

 
27,136

 
27,182

Data Center Group
 
 
 
 
 
 
 
 
Platform
 
5,819

 
5,637

 
14,854

 
15,561

Adjacent
 
564

 
502

 
1,414

 
1,361

 
 
6,383

 
6,139

 
16,268

 
16,922

Internet of Things
 
 
 
 
 
 
 
 
IOTG
 
1,005

 
919

 
2,901

 
2,639

Mobileye
 
229

 
191

 
639

 
515

 
 
1,234

 
1,110

 
3,540

 
3,154

 
 
 
 
 
 
 
 
 
Non-Volatile Memory Solutions Group
 
1,290

 
1,081

 
3,145

 
3,200

Programmable Solutions Group
 
507

 
496

 
1,482

 
1,511

All other
 
67

 
103

 
185

 
222

Total net revenue
 
$
19,190

 
$
19,163

 
$
51,756

 
$
52,191

 
 
 
 
 
 
 
 
 
Operating income (loss):
 
 
 
 
 
 
 
 
Client Computing Group
 
$
4,305

 
$
4,532

 
$
11,114

 
$
10,557

Data Center Group
 
3,115

 
3,082

 
6,756

 
8,421

 
 
 
 
 
 
 
 
 
Internet of Things
 
 
 
 
 
 
 
 
IOTG
 
309

 
321

 
854

 
791

Mobileye
 
67

 
52

 
188

 
106

 
 
376

 
373

 
1,042

 
897

 
 
 
 
 
 
 
 
 
Non-Volatile Memory Solutions Group
 
(499
)
 
160

 
(1,080
)
 
14

Programmable Solutions Group
 
92

 
106

 
233

 
304

All other
 
(942
)
 
(904
)
 
(2,827
)
 
(3,101
)
Total operating income
 
$
6,447

 
$
7,349

 
$
15,238

 
$
17,092



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  Notes to Financial Statements
10





Disaggregated net revenue for each period was as follows:
 
 
Three Months Ended
 
Nine Months Ended
(In Millions)
 
Sep 28,
2019
 
Sep 29,
2018
 
Sep 28,
2019
 
Sep 29,
2018
Platform revenue
 
 
 
 
 
 
 
 
Desktop platform
 
$
2,968

 
$
3,225

 
$
8,621

 
$
9,087

Notebook platform
 
5,393

 
5,774

 
15,456

 
15,549

DCG platform
 
5,819

 
5,637

 
14,854

 
15,561

IOTG platform
 
923

 
855

 
2,639

 
2,319

Other platform1
 
18

 
24

 
51

 
67

 
 
15,121

 
15,515

 
41,621

 
42,583

 
 
 
 
 
 
 
 
 
Adjacent revenue2
 
4,069

 
3,648

 
10,135

 
9,608

Total revenue
 
$
19,190

 
$
19,163

 
$
51,756

 
$
52,191


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. $235 million net assets of the modem business are classified as held for sale. 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
 
Nine Months Ended
(In Millions, Except Per Share Amounts)
 
Sep 28,
2019
 
Sep 29,
2018
 
Sep 28,
2019
 
Sep 29,
2018
Net income available to common stockholders
 
$
5,990

 
$
6,398

 
$
14,143

 
$
15,858

Weighted average shares of common stock outstanding – basic
 
4,391

 
4,574

 
4,450

 
4,632

Dilutive effect of employee equity incentive plans
 
30

 
40

 
41

 
52

Dilutive effect of convertible debt
 
12

 
34

 
16

 
44

Weighted average shares of common stock outstanding – diluted
 
4,433

 
4,648

 
4,507

 
4,728

Earnings per share – basic
 
$
1.36

 
$
1.40

 
$
3.18

 
$
3.42

Earnings per share – diluted
 
$
1.35

 
$
1.38

 
$
3.14

 
$
3.35

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 3.25% junior subordinated 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. We included our 2009 debentures in the calculation of diluted earnings per share of common stock in all periods presented because the average market price was above the conversion price.
Securities which would have been anti-dilutive are insignificant and are excluded from the computation of diluted earnings per share in all periods presented.

A002INTELLOGO_FOOTER.JPG   FINANCIAL STATEMENTS
  Notes to Financial Statements
11





NOTE 5 :
CONTRACT LIABILITIES

(In Millions)
 
Sep 28,
2019
 
Dec 29,
2018
Prepaid supply agreements
 
$
1,913

 
$
2,587

Other
 
180

 
122

Total contract liabilities
 
$
2,093

 
$
2,709


Contract liabilities are primarily related to partial prepayments received from customers on long-term supply agreements towards future NSG product delivery. The timing and amount of future anticipated revenues may vary from our expectations due to changes in supply, demand, and market pricing.
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 nine months of 2019:
(In Millions)
 
 
Prepaid supply agreements balance as of December 29, 2018
 
$
2,587

Prepaids utilized
 
(674
)
Prepaid supply agreements balance as of September 28, 2019
 
$
1,913



NOTE 6 :
OTHER FINANCIAL STATEMENT DETAILS

INVENTORIES
(In Millions)
 
Sep 28,
2019
 
Dec 29,
2018
Raw materials
 
$
803

 
$
813

Work in process
 
5,945

 
4,511

Finished goods
 
1,890

 
1,929

Total inventories
 
$
8,638

 
$
7,253


INTEREST AND OTHER, NET
The components of interest and other, net for each period were as follows:
 
 
Three Months Ended
 
Nine Months Ended
(In Millions)
 
Sep 28,
2019
 
Sep 29,
2018
 
Sep 28,
2019
 
Sep 29,
2018
Interest income
 
$
114

 
$
109

 
$
374

 
$
308

Interest expense
 
(107
)
 
(109
)
 
(381
)
 
(337
)
Other, net
 
(53
)
 
(132
)
 
(163
)
 
254

Total interest and other, net
 
$
(46
)
 
$
(132
)
 
$
(170
)
 
$
225


Interest expense in the preceding table is net of $122 million of interest capitalized in the third quarter of 2019 and $366 million in the first nine months of 2019 ($142 million in the third quarter of 2018 and $381 million in the first nine 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.

A002INTELLOGO_FOOTER.JPG   FINANCIAL STATEMENTS
  Notes to Financial Statements
12





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 in the second quarter of 2020.
Restructuring and other charges by type for the 2019 Restructuring Program for each period were as follows:
 
 
Three Months Ended
 
Nine Months Ended
(In Millions)
 
Sep 28,
2019
 
Sep 28,
2019
Employee severance and benefit arrangements
 
$
40

 
$
208

Asset impairment and other charges
 
64

 
80

Total restructuring and other charges
 
$
104

 
$
288


NOTE 8 :
INVESTMENTS

DEBT INVESTMENTS
Trading Assets
Net losses related to trading assets still held at the reporting date were $75 million in the third quarter of 2019 and net gains were $21 million in the first nine months of 2019 ($4 million of net losses in the third quarter of 2018 and $169 million of net losses in the first nine months of 2018). Net gains on the related derivatives were $81 million in the third quarter of 2019 and net losses were $7 million in the first nine months of 2019 (net losses of $11 million in the third quarter of 2018 and net gains of $159 million in the first nine months of 2018).
Available-for-Sale Debt Investments
 
 
September 28, 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
 
$
3,012

 
$
46

 
$
(1
)
 
$
3,057

 
$
3,068

 
$
2

 
$
(28
)
 
$
3,042

Financial institution
instruments
 
$
3,347

 
$
16

 
$
(1
)
 
$
3,362

 
$
3,076

 
$
3

 
$
(11
)
 
$
3,068

Government debt
 
$
743

 
$
5

 
$

 
$
748

 
$
1,069

 
$
1

 
$
(9
)
 
$
1,061

Total available-for-sale debt investments
 
$
7,102

 
$
67

 
$
(2
)
 
$
7,167

 
$
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 September 28, 2019 and December 29, 2018.
The fair value of available-for-sale debt investments, by contractual maturity, as of September 28, 2019, was as follows:
(In Millions)
 
Fair Value
Due in 1 year or less
 
$
2,638

Due in 1–2 years
 
794

Due in 2–5 years
 
2,509

Due after 5 years
 
125

Instruments not due at a single maturity date
 
1,101

Total
 
$
7,167



A002INTELLOGO_FOOTER.JPG   FINANCIAL STATEMENTS
  Notes to Financial Statements
13





EQUITY INVESTMENTS
(In Millions)
 
Sep 28,
2019
 
Dec 29,
2018
Marketable equity securities
 
$
352

 
$
1,440

Non-marketable equity securities
 
3,287

 
2,978

Equity method investments
 
1,180

 
1,624

Total
 
$
4,819


$
6,042


The components of gains (losses) on equity investments, net for each period were as follows:
 
 
Three Months Ended
 
Nine Months Ended
(In Millions)
 
Sep 28,
2019
 
Sep 29,
2018
 
Sep 28,
2019
 
Sep 29,
2018
Ongoing mark-to-market adjustments on marketable equity securities
 
$
114

 
$
8

 
$
188

 
$
379

Observable price adjustments on non-marketable equity securities
 
84

 
43

 
100

 
191

Impairments
 
(17
)
 
(328
)
 
(79
)
 
(372
)
Sale of equity investments and other¹
 
137

 
202

 
713

 
167

Total gains (losses) on equity investments, net
 
$
318

 
$
(75
)
 
$
922

 
$
365


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
 
Nine Months Ended
(In Millions)
 
Sep 28,
2019
 
Sep 29,
2018
 
Sep 28,
2019
 
Sep 29,
2018
Net gains (losses) recognized during the period on equity securities
 
$
281

 
$
215

 
$
366

 
$
808

Less: Net (gains) losses recognized during the period on equity securities sold during the period
 
(54
)
 
(225
)
 
(321
)
 
(463
)
Unrealized gains (losses) recognized during the reporting period on equity securities still held at the reporting date
 
$
227

 
$
(10
)
 
$
45

 
$
345


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 September 28, 2019, we own a 49% interest in IMFT. Our portion of IMFT costs was approximately $140 million in the third quarter of 2019 and approximately $496 million in the first nine months of 2019 (approximately $97 million in the third quarter of 2018 and $324 million in the first nine 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 nine months of 2019, IMFT repaid $432 million of MDF to Intel. The carrying balance of our equity method investment in IMFT as of September 28, 2019 is $1.1 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.

A002INTELLOGO_FOOTER.JPG   FINANCIAL STATEMENTS
  Notes to Financial Statements
14





NOTE 9 :
BORROWINGS
In the first nine months of 2019, we settled conversion requests for our 2009 debentures totaling $590 million in principal, resulting in a cumulative loss of $148 million recorded in interest and other, net. In the first nine months of 2018, we settled conversion requests for our 2009 debentures totaling $793 million in principal, resulting in a cumulative loss of $211 million.
During the first nine months of 2019, we received proceeds of $648 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.

A002INTELLOGO_FOOTER.JPG   FINANCIAL STATEMENTS
  Notes to Financial Statements
15





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
 
 
September 28, 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
 
$

 
$
329

 
$

 
$
329

 
$

 
$
262

 
$

 
$
262

Financial institution instruments¹
 
1,101

 
460