10-Q 1 a10qdocument9282013.htm 10-Q 10Q Document 9.28.2013


UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
 
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
For the quarterly period ended September 28, 2013.
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
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)
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  þ    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).    Yes  þ    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer  þ
 
Accelerated filer  ¨
 
Non-accelerated filer  ¨
 
Smaller reporting company  ¨
 
 
 
 
(Do not check if a smaller reporting company)
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  þ
Shares outstanding of the Registrant’s common stock:
Class
 
Outstanding as of October 18, 2013
Common stock, $0.001 par value
 
4,971 million




PART I – FINANCIAL INFORMATION
ITEM 1.
FINANCIAL STATEMENTS
INTEL CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (Unaudited)
 
 
Three Months Ended
 
Nine Months Ended
(In Millions, Except Per Share Amounts)
 
Sep 28,
2013
 
Sep 29,
2012
 
Sep 28,
2013
 
Sep 29,
2012
Net revenue
 
$
13,483

 
$
13,457

 
$
38,874

 
$
39,864

Cost of sales
 
5,069

 
4,942

 
15,924

 
14,530

Gross margin
 
8,414

 
8,515

 
22,950

 
25,334

Research and development
 
2,742

 
2,605

 
7,785

 
7,519

Marketing, general and administrative
 
1,970

 
1,995

 
6,082

 
6,099

Restructuring and asset impairment charges
 
124

 

 
124

 

Amortization of acquisition-related intangibles
 
74

 
74

 
217

 
233

Operating expenses
 
4,910

 
4,674

 
14,208

 
13,851

Operating income
 
3,504

 
3,841

 
8,742

 
11,483

Gains (losses) on equity investments, net
 
452

 
53

 
437

 
81

Interest and other, net
 
(32
)
 
27

 
(119
)
 
105

Income before taxes
 
3,924

 
3,921

 
9,060

 
11,669

Provision for taxes
 
974

 
949

 
2,065

 
3,132

Net income
 
$
2,950

 
$
2,972

 
$
6,995

 
$
8,537

Basic earnings per common share
 
$
0.59

 
$
0.59

 
$
1.41

 
$
1.71

Diluted earnings per common share
 
$
0.58

 
$
0.58

 
$
1.37

 
$
1.65

Cash dividends declared per common share
 
$
0.45

 
$
0.45

 
$
0.90

 
$
0.87

Weighted average common shares outstanding:
 
 
 
 
 
 
 
 
Basic
 
4,981

 
4,996

 
4,969

 
5,006

Diluted
 
5,100

 
5,153

 
5,095

 
5,181

See accompanying notes.

2



INTEL CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
 
 
Three Months Ended
 
Nine Months Ended
(In Millions)
 
Sep 28,
2013
 
Sep 29,
2012
 
Sep 28,
2013
 
Sep 29,
2012
Net income
 
$
2,950

 
$
2,972

 
$
6,995

 
$
8,537

Other comprehensive income, net of tax:
 
 
 
 
 
 
 
 
Change in net unrealized holding gains (losses) on available-for-sale investments
 
769

 
80

 
1,376

 
137

Change in net deferred tax asset valuation allowance
 
(20
)
 
1

 
(20
)
 
1

Change in net unrealized holding gains (losses) on derivatives
 
70

 
166

 
(37
)
 
103

Change in net prior service costs
 
2

 
1

 
4

 
3

Change in net actuarial losses
 
31

 
18

 
101

 
48

Change in net foreign currency translation adjustment
 
51

 
90

 
23

 
(12
)
Other comprehensive income (loss)
 
903

 
356

 
1,447

 
280

Total comprehensive income
 
$
3,853

 
$
3,328

 
$
8,442

 
$
8,817

See accompanying notes.

3



INTEL CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS (Unaudited)
(In Millions)
 
Sep 28,
2013
 
Dec 29,
2012
Assets
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
4,881

 
$
8,478

Short-term investments
 
6,492

 
3,999

Trading assets
 
7,773

 
5,685

Accounts receivable, net
 
3,719

 
3,833

Inventories
 
4,533

 
4,734

Deferred tax assets
 
2,435

 
2,117

Other current assets
 
1,517

 
2,512

Total current assets
 
31,350

 
31,358

 
 
 
 
 
Property, plant and equipment, net of accumulated depreciation of $41,282 ($38,063 as of December 29, 2012)
 
30,346

 
27,983

Marketable equity securities
 
6,514

 
4,424

Other long-term investments
 
1,583

 
493

Goodwill
 
10,467

 
9,710

Identified intangible assets, net
 
5,434

 
6,235

Other long-term assets
 
4,857

 
4,148

Total assets
 
$
90,551

 
$
84,351

 
 
 
 
 
Liabilities and stockholders’ equity
 
 
 
 
Current liabilities:
 
 
 
 
Short-term debt
 
$
350

 
$
312

Accounts payable
 
2,996

 
3,023

Accrued compensation and benefits
 
2,530

 
2,972

Accrued advertising
 
1,012

 
1,015

Deferred income
 
2,093

 
1,932

Other accrued liabilities
 
4,894

 
3,644

Total current liabilities

13,875

 
12,898

 
 
 
 
 
Long-term debt
 
13,157

 
13,136

Long-term deferred tax liabilities
 
4,384

 
3,412

Other long-term liabilities
 
3,683

 
3,702

Contingencies (Note 19)
 

 

Stockholders’ equity:
 
 
 
 
Preferred stock
 

 

Common stock and capital in excess of par value, 4,973 shares issued and outstanding (4,944 as of December 29, 2012)
 
21,113

 
19,464

Accumulated other comprehensive income (loss)
 
1,048

 
(399
)
Retained earnings
 
33,291

 
32,138

Total stockholders’ equity
 
55,452

 
51,203

Total liabilities and stockholders’ equity
 
$
90,551

 
$
84,351

See accompanying notes.

4



INTEL CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
 
 
 
Nine Months Ended
(In Millions)
 
Sep 28,
2013
 
Sep 29,
2012
Cash and cash equivalents, beginning of period
 
$
8,478

 
$
5,065

Cash flows provided by (used for) operating activities:
 
 
 
 
Net income
 
6,995

 
8,537

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Depreciation
 
5,123

 
4,716

Share-based compensation
 
855

 
830

Restructuring and asset impairment charges
 
124

 

Excess tax benefit from share-based payment arrangements
 
(42
)
 
(139
)
Amortization of intangibles
 
953

 
801

(Gains) losses on equity investments, net
 
(391
)
 
(81
)
Deferred taxes
 
(513
)
 
(42
)
Changes in assets and liabilities:
 
 
 
 
Accounts receivable
 
131

 
(283
)
Inventories
 
205

 
(1,198
)
Accounts payable
 
312

 
232

Accrued compensation and benefits
 
(222
)
 
(588
)
Income taxes payable and receivable
 
873

 
294

Other assets and liabilities
 
335

 
(221
)
Total adjustments
 
7,743

 
4,321

Net cash provided by operating activities
 
14,738

 
12,858

 
 
 
 
 
Cash flows provided by (used for) investing activities:
 
 
 
 
Additions to property, plant and equipment
 
(7,763
)
 
(8,523
)
Acquisitions, net of cash acquired
 
(882
)
 
(568
)
Purchases of available-for-sale investments
 
(10,107
)
 
(6,643
)
Sales of available-for-sale investments
 
864

 
2,142

Maturities of available-for-sale investments
 
5,586

 
4,631

Purchases of trading assets
 
(13,034
)
 
(12,548
)
Maturities and sales of trading assets
 
10,890

 
12,678

Collection of loans receivable
 
124

 
141

Origination of loans receivable
 
(100
)
 
(216
)
Investments in non-marketable equity investments
 
(258
)
 
(358
)
Proceeds from the sale of IM Flash Singapore, LLP assets and certain IM Flash Technologies, LLC assets
 

 
605

Return of equity method investments
 
35

 
137

Purchases of licensed technology and patents
 
(36
)
 
(565
)
Other investing
 
529

 
359

Net cash used for investing activities
 
(14,152
)
 
(8,728
)
 
 
 
 
 
Cash flows provided by (used for) financing activities:
 
 
 
 
Increase (decrease) in short-term debt, net
 
38

 
(191
)
Proceeds from government grants
 

 
38

Excess tax benefit from share-based payment arrangements
 
42

 
139

Proceeds from sales of shares through employee equity incentive plans
 
1,308

 
1,975

Repurchase of common stock
 
(1,899
)
 
(4,090
)
Payment of dividends to stockholders
 
(3,358
)
 
(3,231
)
Other financing
 
(307
)
 
(315
)
Net cash used for financing activities
 
(4,176
)
 
(5,675
)
 
 
 
 
 
Effect of exchange rate fluctuations on cash and cash equivalents
 
(7
)
 

 
 
 
 
 
Net increase (decrease) in cash and cash equivalents
 
(3,597
)
 
(1,545
)
 
 
 
 
 
Cash and cash equivalents, end of period
 
$
4,881

 
$
3,520

 
 
 
 
 
Supplemental disclosures of cash flow information:
 
 
 
 
Cash paid during the period for:
 
 
 
 
Interest, net of capitalized interest
 
$
91

 
$
33

Income taxes, net of refunds
 
$
1,669

 
$
2,906

See accompanying notes.

5



INTEL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — Unaudited
Note 1: Basis of Presentation
We prepared our interim consolidated condensed financial statements that accompany these notes in conformity with U.S. generally accepted accounting principles, consistent in all material respects with those applied in our Annual Report on Form 10-K for the year ended December 29, 2012.
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, but reflects all normal adjustments that are, in our opinion, necessary to provide a fair statement of results for the interim periods presented. This interim information should be read in conjunction with the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 29, 2012.
Note 2: Fair Value
Fair value is the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining fair value, we consider the principal or most advantageous market in which we would transact, and we consider assumptions that market participants would use when pricing the asset or liability. Our financial assets are measured and recorded at fair value, except for equity method investments, cost method investments, cost method loans receivable, and reverse repurchase agreements with original maturities greater than approximately three months. Most of our liabilities are not measured and recorded at fair value.
Fair Value Hierarchy
The three levels of inputs that may be used to measure fair value are as follows:
Level 1. Quoted prices in active markets for identical assets or liabilities.
Level 2. Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in less active markets, or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated with observable market data for substantially the full term of the assets or liabilities. Level 2 inputs also include non-binding market consensus prices that can be corroborated with observable market data, as well as quoted prices that were adjusted for security-specific restrictions.
Level 3. Unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of assets or liabilities. Level 3 inputs also include non-binding market consensus prices or non-binding broker quotes that we were unable to corroborate with observable market data.

6

INTEL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — Unaudited (Continued)


Investments in Debt Instruments
Debt investments reflected in the following table include investments such as asset-backed securities, bank deposits, commercial paper, corporate bonds, government bonds, money market fund deposits, municipal bonds, and reverse repurchase agreements classified as cash equivalents. When we use observable market prices for identical securities that are traded in less active markets, we classify our debt investments as Level 2. When observable market prices for identical securities are not available, we price our debt investments using non-binding market consensus prices that are corroborated with observable market data; quoted market prices for similar instruments; or pricing models, such as a discounted cash flow model, with all significant inputs derived from or corroborated with observable market data. Non-binding market consensus prices are based on the proprietary valuation models of pricing providers or brokers. These valuation models incorporate a number of inputs, including non-binding and binding broker quotes; observable market prices for identical or similar securities; and the internal assumptions of pricing providers or brokers that use observable market inputs and unobservable market inputs that we consider to be not significant. We corroborate non-binding market consensus prices with observable market data using statistical models when observable market data exists. The discounted cash flow model uses observable market inputs, such as LIBOR-based yield curves, currency spot and forward rates, and credit ratings.
Debt investments classified as Level 3, are classified as such because the fair values are generally derived from discounted cash flow models, performed either by us or our pricing providers, using inputs that we are unable to corroborate with observable market data. We monitor and review the inputs and results of these valuation models to ensure the fair value measurements are reasonable and consistent with market experience in similar asset classes.

7

INTEL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — Unaudited (Continued)


Assets/Liabilities Measured and Recorded at Fair Value on a Recurring Basis
Assets and liabilities measured and recorded at fair value on a recurring basis consisted of the following types of instruments at the end of each period: 
 
 
September 28, 2013
 
December 29, 2012
 
 
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:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Bank deposits
 
$

 
$
819

 
$

 
$
819

 
$

 
$
822

 
$

 
$
822

Commercial paper
 

 
2,245

 

 
2,245

 

 
2,711

 

 
2,711

Corporate bonds
 

 

 

 

 

 

 

 

Government bonds
 

 

 

 

 
400

 
66

 

 
466

Money market fund deposits
 
554

 

 

 
554

 
1,086

 

 

 
1,086

Reverse repurchase agreements
 

 
750

 

 
750

 

 
2,800

 

 
2,800

Short-term investments:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Bank deposits
 

 
1,679

 

 
1,679

 

 
540

 

 
540

Commercial paper
 

 
2,413

 

 
2,413

 

 
1,474

 

 
1,474

Corporate bonds
 
453

 
927

 
19

 
1,399

 
75

 
292

 
21

 
388

Government bonds
 
477

 
524

 

 
1,001

 
1,307

 
290

 

 
1,597

Trading assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Asset-backed securities
 

 
533

 
4

 
537

 

 

 
68

 
68

Bank deposits
 

 
110

 

 
110

 

 
247

 

 
247

Commercial paper
 

 
273

 

 
273

 

 
336

 

 
336

Corporate bonds
 
2,160

 
623

 

 
2,783

 
482

 
1,109

 

 
1,591

Government bonds
 
1,879

 
2,031

 

 
3,910

 
1,743

 
1,479

 

 
3,222

Money market fund deposits
 
88

 

 

 
88

 
18

 

 

 
18

Municipal bonds
 

 
72

 

 
72

 

 
203

 

 
203

Other current assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Derivative assets
 

 
255

 
1

 
256

 
12

 
208

 
1

 
221

Loans receivable
 

 
34

 

 
34

 

 
203

 

 
203

Marketable equity securities
 
6,514

 

 

 
6,514

 
4,424

 

 

 
4,424

Other long-term investments:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Asset-backed securities
 

 

 
9

 
9

 

 

 
11

 
11

Bank deposits
 

 
139

 

 
139

 

 
56

 

 
56

Corporate bonds
 
265

 
609

 
39

 
913

 
10

 
218

 
26

 
254

Government bonds
 
235

 
287

 

 
522

 
59

 
113

 

 
172

Other long-term assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Derivative assets
 

 
13

 
23

 
36

 

 
20

 
18

 
38

Loans receivable
 

 
765

 

 
765

 

 
577

 

 
577

Total assets measured and recorded at fair value
 
$
12,625

 
$
15,101

 
$
95

 
$
27,821

 
$
9,616

 
$
13,764

 
$
145

 
$
23,525

Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other accrued liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Derivative liabilities
 
$

 
$
405

 
$

 
$
405

 
$
1

 
$
291

 
$

 
$
292

Other long-term liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Derivative liabilities
 

 
45

 

 
45

 

 
20

 

 
20

Total liabilities measured and recorded at fair value
 
$

 
$
450

 
$

 
$
450

 
$
1

 
$
311

 
$

 
$
312

Government bonds include bonds issued or deemed to be guaranteed by government entities. Government bonds include instruments such as non-U.S. government bonds, U.S. agency securities, and U.S. Treasury securities.

8

INTEL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — Unaudited (Continued)


During the first six months of 2013, we purchased $394 million of asset-backed securities, which were classified as Level 3 investments. In the third quarter of 2013, we observed an increase in market activity which allowed us to determine that there was sufficient observable market data available to reclassify $381 million of asset-backed securities from Level 3 to Level 2 of the fair value hierarchy. Our policy is to reflect transfers between the fair value hierarchy levels at the beginning of the quarter in which a change in circumstances resulted in the transfer.
Fair Value Option for Loans Receivable
We elected the fair value option for loans receivable when the interest rate or foreign exchange rate risk was hedged at inception with a related derivative instrument. As of September 28, 2013, the fair value of our loans receivable for which we elected the fair value option did not significantly differ from the contractual principal balance based on the contractual currency. Loans receivable are classified within other current assets and other long-term assets. Fair value is determined using a discounted cash flow model, with all significant inputs derived from or corroborated with observable market data. Gains and losses from changes in fair value on the loans receivable and related derivative instruments, as well as interest income, are recorded in interest and other, net. During all periods presented, changes in the fair value of our loans receivable were largely offset by changes in the related derivative instruments, resulting in an insignificant net impact on our consolidated condensed statements of income. Gains and losses attributable to changes in credit risk are determined using observable credit default spreads for the issuer or comparable companies; these gains and losses were insignificant during all periods presented. We did not elect the fair value option for loans receivable when the interest rate or foreign exchange rate risk was not hedged at inception with a related derivative instrument. Loans receivable not measured and recorded at a fair value are included in the "Financial Instruments Not Recorded at Fair Value on a Recurring Basis" section that follows.
Assets Measured and Recorded at Fair Value on a Non-Recurring Basis
Our non-marketable equity investments, marketable equity method investments, and non-financial assets, such as intangible assets and property, plant and equipment, are recorded at fair value only if an impairment charge is recognized.
A portion of our non-marketable equity investments has been measured and recorded at fair value due to events or circumstances that significantly impacted the fair value of those investments, resulting in other-than-temporary impairment charges. We classified these measurements as Level 3, as we used unobservable inputs to the valuation methodologies that were significant to the fair value measurements, and the valuations required management judgment due to the absence of quoted market prices. Impairment charges recognized on non-marketable equity investments held as of September 28, 2013 were $23 million during the third quarter of 2013 and $93 million during the first nine months of 2013 (impairment charges recognized on non-marketable equity investments held as of September 29, 2012 were $19 million during the third quarter of 2012 and $88 million during the first nine months of 2012). The fair value of the non-marketable equity investments impaired during the first nine months of 2013 was $33 million at the time of impairment ($51 million for non-marketable equity investments impaired during the first nine months of 2012).

9

INTEL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — Unaudited (Continued)


Financial Instruments Not Recorded at Fair Value on a Recurring Basis
On a quarterly basis, we measure the fair value of our non-marketable cost method investments, indebtedness carried at amortized cost, cost method loans receivable, grants receivable, and reverse repurchase agreements with original maturities greater than approximately three months; however, the assets are recorded at fair value only when an impairment charge is recognized. The carrying amounts and fair values of certain financial instruments not recorded at fair value on a recurring basis at the end of each period were as follows:
 
 
 
September 28, 2013
(In Millions)
 
Carrying
Amount
 
Fair Value Measured Using
 
Fair Value
Level 1  
 
Level 2  
 
Level 3  
 
Non-marketable cost method investments
 
$
1,203

 
$

 
$

 
$
1,952

 
$
1,952

Loans receivable
 
$
175

 
$

 
$
150

 
$
25

 
$
175

Reverse repurchase agreements
 
$
150

 
$

 
$
150

 
$

 
$
150

Grants receivable
 
$
447

 
$

 
$
444

 
$

 
$
444

Long-term debt
 
$
13,157

 
$
10,892

 
$
2,652

 
$

 
$
13,544

Short-term debt
 
$
24

 
$

 
$
24

 
$

 
$
24

NVIDIA Corporation cross-license agreement liability
 
$
584

 
$

 
$
596

 
$

 
$
596

 
 
December 29, 2012
(In Millions)
 
Carrying
Amount
 
Fair Value Measured Using
 
Fair Value
Level 1
 
Level 2
 
Level 3
 
Non-marketable cost method investments
 
$
1,202

 
$

 
$

 
$
1,766

 
$
1,766

Loans receivable
 
$
199

 
$

 
$
150

 
$
48

 
$
198

Reverse repurchase agreements
 
$
50

 
$

 
$
50

 
$

 
$
50

Grants receivable
 
$
198

 
$

 
$
205

 
$

 
$
205

Long-term debt
 
$
13,136

 
$
11,442

 
$
2,926

 
$

 
$
14,368

Short-term debt
 
$
48

 
$

 
$
48

 
$

 
$
48

NVIDIA Corporation cross-license agreement liability
 
$
875

 
$

 
$
890

 
$

 
$
890

As of September 28, 2013 and December 29, 2012, the unrealized loss position of our non-marketable cost method investments was insignificant.
Our non-marketable cost method investments are valued using the market and income approaches. The market approach includes the use of financial metrics and ratios of comparable public companies. The selection of comparable companies requires management judgment and is based on a number of factors, including comparable companies’ sizes, growth rates, industries, and development stages. The income approach includes the use of a discounted cash flow model, which requires significant estimates for investees’ revenue, costs, and discount rates based on the risk profile of comparable companies. Estimates of revenues and costs are developed using available market, historical, and forecast data. The valuation of these non-marketable cost method investments also takes into account variables such as conditions reflected in the capital markets, recent financing activities by the investees, the investees’ capital structure, the terms of the investees’ issued interests, and the lack of marketability of the investments.
The carrying amount and fair value of loans receivable exclude loans measured and recorded at a fair value of $799 million as of September 28, 2013 ($780 million as of December 29, 2012). The carrying amount and fair value of short-term debt exclude drafts payable.

10

INTEL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — Unaudited (Continued)


The fair value of our loans receivable and reverse repurchase agreements, including those held at fair value, is determined using a discounted cash flow model, with all significant inputs derived from or corroborated with observable market data, such as LIBOR-based yield curves, currency spot and forward rates, and credit ratings. The credit quality of these assets remains high, with credit ratings of A/A2 or better for a substantial majority of our loans receivable and all of our reverse repurchase agreements as of September 28, 2013. Our long-term debt recognized at amortized cost is comprised of our senior notes and our convertible debentures. The fair value of our senior notes is determined using active market prices, and it is therefore classified as Level 1. The fair value of our convertible long-term debt is determined using discounted cash flow models with observable market inputs, and it takes into consideration variables such as interest rate changes, comparable securities, subordination discount, and credit-rating changes, and it is therefore classified as Level 2.

The fair value of our grants receivable is determined using a discounted cash flow model, which discounts future cash flows using an appropriate yield curve. As of September 28, 2013 and December 29, 2012, the carrying amount of our grants receivable was classified within other current assets and other long-term assets, as applicable.
The NVIDIA Corporation cross-license agreement liability in the preceding table was incurred as a result of entering into a long-term patent cross-license agreement with NVIDIA in January 2011. We agreed to make payments to NVIDIA over six years. As of September 28, 2013 and December 29, 2012, the carrying amount of the liability arising from the agreement was classified within other accrued liabilities and other long-term liabilities, as applicable. The fair value is determined using a discounted cash flow model, which discounts future cash flows using our incremental borrowing rates.
Note 3: Cash and Investments
Cash and investments at the end of each period were as follows:
(In Millions)
 
Sep 28,
2013
 
Dec 29,
2012
Available-for-sale investments
 
$
18,207

 
$
14,001

Cash
 
513

 
593

Equity method investments
 
985

 
992

Loans receivable
 
974

 
979

Non-marketable cost method investments
 
1,203

 
1,202

Reverse repurchase agreements
 
900

 
2,850

Trading assets
 
7,773

 
5,685

Total cash and investments
 
$
30,555

 
$
26,302

In July 2013, we sold our shares in Clearwire Corporation, which had been accounted for as available-for-sale marketable equity securities, and our interest in Clearwire Communications, LLC (Clearwire LLC), which had been accounted for as an equity method investment. We received proceeds of $142 million on the sale of our shares in Clearwire Corporation and $328 million on the sale of our interest in Clearwire LLC. The proceeds received on the sale of our shares in Clearwire Corporation and our interest in Clearwire LLC are included in "sales of available-for-sale investments" and "other investing", respectively, within investing activities on the consolidated condensed statements of cash flows. During the third quarter of 2013, we recognized gains of $111 million on the sale of our shares in Clearwire Corporation and $328 million on the sale of our interest in Clearwire LLC. The total gain of $439 million on these transactions is included in "gains (losses) on equity investments, net" on the consolidated condensed statements of income.

11

INTEL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — Unaudited (Continued)


Available-for-Sale Investments
Available-for-sale investments at the end of each period were as follows:
 
 
 
September 28, 2013
 
December 29, 2012
(In Millions)
 
Adjusted Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Fair Value
 
Adjusted Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Fair Value
Asset-backed securities
 
$
11

 
$

 
$
(2
)
 
$
9

 
$
14

 
$

 
$
(3
)
 
$
11

Bank deposits
 
2,634

 
4

 
(1
)
 
2,637

 
1,417

 
1

 

 
1,418

Commercial paper
 
4,658

 

 

 
4,658

 
4,184

 
1

 

 
4,185

Corporate bonds
 
2,300

 
15

 
(3
)
 
2,312

 
635

 
8

 
(1
)
 
642

Government bonds
 
1,524

 

 
(1
)
 
1,523

 
2,235

 

 

 
2,235

Marketable equity securities
 
3,329

 
3,186

 
(1
)
 
6,514

 
3,356

 
1,069

 
(1
)
 
4,424

Money market fund deposits
 
555

 

 
(1
)
 
554

 
1,086

 

 

 
1,086

Total available-for-sale investments
 
$
15,011

 
$
3,205

 
$
(9
)
 
$
18,207

 
$
12,927

 
$
1,079

 
$
(5
)
 
$
14,001

In the preceding table, government bonds include bonds issued or deemed to be guaranteed by government entities. Government bonds include instruments such as non-U.S. government bonds, U.S. agency securities, and U.S. Treasury securities. Bank deposits were primarily held by institutions outside the U.S. as of September 28, 2013 and December 29, 2012.
We sold available-for-sale investments for proceeds of $266 million in the third quarter of 2013 and $864 million in the first nine months of 2013 ($1.5 billion in the third quarter of 2012 and $2.1 billion in the first nine months of 2012). The gross realized gains on sales of available-for-sale investments were $134 million in the third quarter of 2013 and $143 million in the first nine months of 2013 ($66 million in the third quarter of 2012 and $110 million in the first nine months of 2012). Gross realized gains on the sale of available-for-sale investments in the third quarter of 2013 were primarily related to the sale of our shares in Clearwire Corporation, previously included as marketable equity securities in the preceding table.
For information on the unrealized holding gains (losses) on available-for-sale investments reclassified out of accumulated other comprehensive income into the consolidated condensed statements of income, see "Note 18: Comprehensive Income".
The amortized cost and fair value of available-for-sale debt investments as of September 28, 2013, by contractual maturity, were as follows:
 
(In Millions)
 
Cost     
 
Fair Value
Due in 1 year or less
 
$
9,130

 
$
9,137

Due in 1–2 years
 
1,129

 
1,137

Due in 2–5 years
 
373

 
372

Instruments not due at a single maturity date
 
1,050

 
1,047

Total
 
$
11,682

 
$
11,693

Instruments not due at a single maturity date in the preceding table include all asset-backed securities, most callable government bonds, and all money market fund deposits.

12

INTEL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — Unaudited (Continued)


Equity Method Investments
IM Flash Technologies, LLC and IM Flash Singapore, LLP
Micron Technology, Inc. and Intel formed IM Flash Technologies, LLC (IMFT) and IM Flash Singapore, LLP (IMFS) to manufacture NAND flash memory products for Micron and Intel. During the second quarter of 2012, we entered into agreements with Micron that modified our joint venture relationship including an agreement to sell our ownership interest in IMFS. We received $605 million in the second quarter of 2012 from the sale of assets of IMFS and certain assets of IMFT to Micron. As of September 28, 2013, we own a 49% interest in the remaining assets held by IMFT. The carrying value of our investment in IMFT was $656 million as of September 28, 2013 ($642 million as of December 29, 2012) and is classified within other long-term assets.
As part of the agreements to modify our joint venture relationship, we also entered into an amended operating agreement for IMFT. This amended operating agreement extends the term of IMFT to 2024, unless earlier terminated under certain terms and conditions, and provides that IMFT may manufacture certain emerging memory technologies in addition to NAND flash memory. These agreements include a supply agreement for Micron to supply us with NAND flash memory products. We provided approximately $365 million to Micron in the second quarter of 2012, primarily for subsequent product purchases under the supply agreement with Micron. The agreements also extend and expand our NAND joint development program with Micron to include emerging memory technologies. Additionally, the amended agreement provides for certain rights that, beginning in 2015, will enable us to sell to Micron, or enable Micron to purchase from us, our interest in IMFT. If Intel exercises this right, Micron would set the closing date of the transaction within two years following such election and could elect to receive financing from Intel for one to two years.
IMFT is a variable interest entity. All costs of the IMFT joint venture will be passed on to Micron and Intel pursuant to our purchase agreements. Intel's portion of IMFT costs, primarily related to product purchases and production-related services, was approximately $80 million during the third quarter of 2013 and approximately $280 million during the first nine months of 2013 (approximately $120 million during the third quarter of 2012 for IMFT and approximately $620 million during the first nine months of 2012 for IMFT and IMFS). Subsequent to the sale of our ownership interest in IMFS in the second quarter of 2012, we no longer incur costs related to IMFS. The amount due to IMFT for product purchases and services provided was approximately $90 million as of September 28, 2013 (approximately $90 million as of December 29, 2012). During the first nine months of 2013, $35 million was returned to Intel by IMFT, which is reflected as a return of equity method investment within investing activities on the consolidated condensed statements of cash flows ($137 million during the first nine months of 2012).
IMFT depends on Micron and Intel for any additional cash needs. Our known maximum exposure to loss approximated the carrying value of our investment balance in IMFT, which was $656 million as of September 28, 2013. Except for the amount due to IMFT for product purchases and services, we did not have any additional liabilities recognized on our consolidated condensed balance sheets in connection with our interests in this joint venture as of September 28, 2013. In addition, our potential future losses could be higher than the carrying amount of our investment, as Intel and Micron are liable for other future operating costs or obligations of IMFT. Future cash calls could also increase our investment balance and the related exposure to loss. In addition, because we are currently committed to purchasing 49% of IMFT’s production output and production-related services, we may be required to purchase products at a cost in excess of realizable value.
Under the accounting standards for consolidating variable interest entities, the consolidating investor is the entity with the power to direct the activities of the venture that most significantly impact the venture’s economic performance and with the obligation to absorb losses or the right to receive benefits from the venture that could potentially be significant to the venture. We have determined that we do not have both of these characteristics and, therefore, we account for our interest in IMFT (and accounted for our prior interest in IMFS) using the equity method of accounting.
Trading Assets
As of September 28, 2013 and December 29, 2012, all of our trading assets were marketable debt instruments. Net gains related to trading assets still held at the reporting date were $96 million in the third quarter of 2013 and $43 million in the first nine months of 2013 (net gains of $50 million in the third quarter of 2012 and $35 million in the first nine months of 2012). Net losses on the related derivatives were $97 million in the third quarter of 2013 and $40 million in the first nine months of 2013 (net losses of $39 million in the third quarter of 2012 and $11 million in the first nine months of 2012).

13

INTEL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — Unaudited (Continued)


Note 4: Inventories
We compute inventory cost on a first-in, first-out basis. Costs incurred to manufacture our products are included in the valuation of inventory beginning in the quarter in which a product meets the technical criteria to qualify for sale to customers. Prior to qualification for sale, costs that do not meet the criteria for research and development are included in cost of sales in the period incurred. Inventories at the end of each period were as follows:
 
(In Millions)
 
Sep 28,
2013
 
Dec 29,
2012
Raw materials
 
$
505

 
$
478

Work in process
 
2,259

 
2,219

Finished goods
 
1,769

 
2,037

Total inventories
 
$
4,533

 
$
4,734


Note 5: Derivative Financial Instruments
Our primary objective for holding derivative financial instruments is to manage currency exchange rate risk and interest rate risk, and, to a lesser extent, equity market risk and commodity price risk. We currently do not hold derivative instruments for the purpose of managing credit risk as we limit the amount of credit exposure to any one counterparty and generally enter into derivative transactions with high-credit-quality counterparties. We also enter into master netting arrangements with counterparties when possible to mitigate credit risk in derivative transactions. A master netting arrangement may allow counterparties to net settle amounts owed to each other as a result of multiple, separate derivative transactions. For presentation on our consolidated condensed balance sheets, we do not offset fair value amounts recognized for derivative instruments under master netting arrangements.
Currency Exchange Rate Risk
We are exposed to currency exchange rate risk and generally hedge our exposures with currency forward contracts, currency interest rate swaps, or currency options. Substantially all of our revenue is transacted in U.S. dollars. However, a significant amount of our operating expenditures and capital purchases are incurred in or exposed to other currencies, primarily the euro, the Japanese yen, and the Israeli shekel. We have established balance sheet and forecasted transaction currency risk management programs to protect against fluctuations in fair value and the volatility of the functional currency equivalent of future cash flows caused by changes in exchange rates. Our non-U.S.-dollar-denominated investments in debt instruments and loans receivable are generally hedged with offsetting currency forward contracts or currency interest rate swaps. We may also hedge foreign currency risk arising from funding foreign currency denominated forecasted investments. These programs reduce, but do not eliminate, the impact of currency exchange movements.
Our currency risk management programs include:
Currency derivatives with cash flow hedge accounting designation that utilize currency forward contracts and currency options to hedge exposures to the variability in the U.S.-dollar equivalent of anticipated non-U.S.-dollar-denominated cash flows. These instruments generally mature within 12 months. For these derivatives, we report the after-tax gain or loss from the effective portion of the hedge as a component of accumulated other comprehensive income (loss), and we reclassify it into earnings in the same period or periods in which the hedged transaction affects earnings, and in the same line item on the consolidated condensed statements of income as the impact of the hedged transaction.
Currency derivatives without hedge accounting designation that utilize currency forward contracts or currency interest rate swaps to economically hedge the functional currency equivalent cash flows of recognized monetary assets and liabilities, non-U.S.-dollar-denominated debt instruments classified as trading assets, and hedges of non-U.S.-dollar-denominated loans receivable recognized at fair value. The majority of these instruments mature within 12 months. Changes in the functional currency equivalent cash flows of the underlying assets and liabilities are approximately offset by the changes in fair value of the related derivatives. We record net gains or losses in the line item on the consolidated condensed statements of income most closely associated with the related exposures, primarily in interest and other, net, except for equity-related gains or losses, which we primarily record in gains (losses) on equity investments, net.

14

INTEL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — Unaudited (Continued)


Interest Rate Risk
Our primary objective for holding investments in debt instruments is to preserve principal while maximizing yields. We generally swap the returns on our investments in fixed-rate debt instruments with remaining maturities longer than six months into U.S.-dollar three-month LIBOR-based returns, unless management specifically approves otherwise. These swaps are settled at various interest payment times involving cash payments at each interest and principal payment date, with the majority of the contracts having quarterly payments.
Our interest rate risk management programs include:
Interest rate derivatives with cash flow hedge accounting designation that utilize interest rate swap agreements to modify the interest characteristics of debt instruments. For these derivatives, we report the after-tax gain or loss from the effective portion of the hedge as a component of accumulated other comprehensive income (loss), and we reclassify it into earnings in the same period or periods in which the hedged transaction affects earnings, and in the same line item on the consolidated condensed statements of income as the impact of the hedged transaction.
Interest rate derivatives without hedge accounting designation that utilize interest rate swaps and currency interest rate swaps in economic hedging transactions, including hedges of non-U.S.-dollar-denominated debt instruments classified as trading assets and hedges of non-U.S.-dollar-denominated loans receivable recognized at fair value. Floating interest rates on the swaps are reset on a quarterly basis. Changes in fair value of the debt instruments classified as trading assets and loans receivable recognized at fair value are generally offset by changes in fair value of the related derivatives, both of which are recorded in interest and other, net.
Equity Market Risk
Our investments include marketable equity securities and equity derivative instruments. We typically do not attempt to reduce or eliminate our equity market exposure through hedging activities at the inception of the investment. Before we enter into hedge arrangements, we evaluate legal, market, and economic factors, as well as the expected timing of disposal to determine whether hedging is appropriate. Our equity market risk management program may include equity derivatives with or without hedge accounting designation that utilize warrants, equity options, or other equity derivatives. We recognize changes in the fair value of such derivatives in gains (losses) on equity investments, net.

We also utilize total return swaps to offset changes in liabilities related to the equity market risks of certain deferred compensation arrangements. Gains and losses from changes in fair value of these total return swaps are generally offset by the gains and losses on the related liabilities, both of which are recorded in cost of sales and operating expenses.
Commodity Price Risk
We operate facilities that consume commodities, and have established forecasted transaction risk management programs to protect against fluctuations in fair value and the volatility of future cash flows caused by changes in commodity prices, such as those for natural gas. These programs reduce, but do not always eliminate, the impact of commodity price movements.
Our commodity price risk management program includes commodity derivatives with cash flow hedge accounting designation that utilize commodity swap contracts to hedge future cash flow exposures to the variability in commodity prices. These instruments generally mature within 12 months. For these derivatives, we report the after-tax gain (loss) from the effective portion of the hedge as a component of accumulated other comprehensive income (loss) and reclassify it into earnings in the same period or periods in which the hedged transaction affects earnings, and in the same line item on the consolidated condensed statements of income as the impact of the hedged transaction.

15

INTEL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — Unaudited (Continued)


Volume of Derivative Activity
Total gross notional amounts for outstanding derivatives (recorded at fair value) at the end of each period were as follows:
 
(In Millions)
 
Sep 28,
2013
 
Dec 29,
2012
 
Sep 29,
2012
Currency forwards
 
$
12,458

 
$
13,117

 
$
10,158

Currency interest rate swaps
 
3,665

 
2,711

 
2,574

Currency options
 

 

 
1,751

Embedded debt derivatives
 
3,600

 
3,600

 
3,600

Interest rate swaps
 
1,269

 
1,101

 
1,132

Total return swaps
 
873

 
807

 
920

Other
 
72

 
127

 
156

Total
 
$
21,937

 
$
21,463

 
$
20,291

The gross notional amounts for currency forwards, currency interest rate swaps, and currency options (presented by currency) at the end of each period were as follows:
 
(In Millions)
 
Sep 28,
2013
 
Dec 29,
2012
 
Sep 29,
2012
British pound sterling
 
$
403

 
$
308

 
$
312

Chinese yuan
 
648

 
647

 
634

Euro
 
5,952

 
5,994

 
6,276

Israeli shekel
 
2,006

 
2,256

 
1,991

Japanese yen
 
3,864

 
4,389

 
3,831

Malaysian ringgit
 
444

 
442

 
340

Swiss franc
 
1,416

 
657

 
174

Other
 
1,390

 
1,135

 
925

Total
 
$
16,123

 
$
15,828

 
$
14,483


16

INTEL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — Unaudited (Continued)



Fair Value of Derivative Instruments in the Consolidated Condensed Balance Sheets
The fair value of our derivative instruments at the end of each period were as follows:
 
 
 
September 28, 2013
 
December 29, 2012
(In Millions)
 
Other
Current
Assets
 
Other
Long-Term
Assets
 
Other
Accrued
Liabilities
 
Other
Long-Term
Liabilities
 
Other
Current
Assets
 
Other
Long-Term
Assets
 
Other
Accrued
Liabilities
 
Other
Long-Term
Liabilities
Derivatives designated as hedging instruments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Currency forwards
 
$
152

 
$
4

 
$
113

 
$

 
$
91

 
$
2

 
$
127

 
$

Other
 

 

 

 

 

 

 

 

Total derivatives designated as hedging instruments
 
$
152

 
$
4

 
$
113

 
$

 
$
91

 
$
2

 
$
127

 
$

Derivatives not designated as hedging instruments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Currency forwards
 
$
29

 
$

 
$
119

 
$

 
$
85

 
$

 
$
58

 
$

Currency interest rate swaps
 
72

 
9

 
141

 
24

 
33

 
18

 
72

 
14

Embedded debt derivatives
 

 

 

 
21

 

 

 

 
6

Interest rate swaps
 
2

 

 
32

 

 

 

 
34

 

Total return swaps
 

 

 

 

 
11

 

 

 

Other
 
1

 
23

 

 

 
1

 
18

 
1

 

Total derivatives not designated as hedging instruments
 
$
104

 
$
32

 
$
292

 
$
45

 
$
130

 
$
36

 
$
165

 
$
20

Total derivatives
 
$
256

 
$
36

 
$
405

 
$
45

 
$
221

 
$
38

 
$
292

 
$
20

Derivatives in Cash Flow Hedging Relationships
The before-tax gains (losses), attributed to the effective portion of cash flow hedges, recognized in other comprehensive income during each period were as follows:
 
 
Three Months Ended
 
Nine Months Ended
(In Millions)
 
Sep 28,
2013
 
Sep 29,
2012
 
Sep 28,
2013
 
Sep 29,
2012
Currency forwards
 
$
84

 
$
190

 
$
(105
)
 
$
75

Other
 
(1
)
 
1

 

 

Total
 
$
83

 
$
191

 
$
(105
)
 
$
75


Gains and losses on derivative instruments in cash flow hedging relationships related to hedge ineffectiveness, as well as amounts excluded from effectiveness testing, were insignificant during all periods presented in the preceding tables. Additionally, for all periods presented, there was an insignificant impact on results of operations from discontinued cash flow hedges, which arises when forecasted transactions are probable of not occurring.
For information on the unrealized holding gains (losses) on derivatives reclassified out of accumulated other comprehensive income into the consolidated condensed statements of income, see "Note 18: Comprehensive Income."

17

INTEL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — Unaudited (Continued)


Derivatives Not Designated as Hedging Instruments
The effects of derivative instruments not designated as hedging instruments on the consolidated condensed statements of income during each period were as follows:
 
 
 
 
 
Three Months Ended
 
Nine Months Ended
(In Millions)
 
Location of Gains (Losses)
Recognized in Income on Derivatives
 
Sep 28,
2013
 
Sep 29,
2012
 
Sep 28,
2013
 
Sep 29,
2012
Currency forwards
 
Interest and other, net
 
$
(27
)
 
$
19

 
$
23

 
$
(9
)
Currency interest rate swaps
 
Interest and other, net
 
(56
)
 
(53
)
 

 
(40
)
Currency options
 
Interest and other, net
 

 
3

 

 
3

Interest rate swaps
 
Interest and other, net
 
(5
)
 
(3
)
 
(2
)
 
31

Total return swaps
 
Various
 
70

 
69

 
99

 
71

Other
 
Gains (losses) on equity investments, net
 
(6
)
 
(1
)
 
1

 
(3
)
Total
 
 
 
$
(24
)
 
$
34

 
$
121

 
$
53

Note 6: Acquisitions
During the first nine months of 2013, we completed nine acquisitions qualifying as business combinations in exchange for aggregate net cash consideration of $882 million, substantially all of which was allocated to goodwill and acquisition-related developed technology intangible assets. Included in these acquisitions is our acquisition of Stonesoft Corporation to expand our network security solutions, specifically addressing next generation firewall products. We acquired Stonesoft in the third quarter of 2013 for net cash consideration of $381 million, substantially all of which was allocated to goodwill and acquisition-related developed technology intangible assets. Stonesoft's operating results are included in our software and services operating segments. For information on the assignment of goodwill by operating segment related to these acquisitions, see “Note 7: Goodwill,” and for information on the classification of intangible assets, see "Note 8: Identified Intangible Assets." The completed acquisitions in the first nine months of 2013, both individually and in the aggregate, were not significant to our results of operations.
Note 7: Goodwill
Goodwill activity in the first nine months of 2013 was as follows:
 
(In Millions)
 
PC Client
Group
 
Data Center
Group
 
Other Intel
Architecture
Operating
Segments
 
Software and
Services
Operating
Segments
 
Total
December 29, 2012
 
$
2,962

 
$
1,839

 
$
916

 
$
3,993

 
$
9,710

Additions due to acquisitions
 
54

 

 
166

 
501

 
721

Transfers
 
34

 
(22
)
 
(12
)
 

 

Effect of exchange rate fluctuations
 

 

 

 
36

 
36

September 28, 2013
 
$
3,050

 
$
1,817

 
$
1,070

 
$
4,530

 
$
10,467

In the first quarter of 2013, we completed a reorganization that transferred a portion of our wired connectivity business formerly included within the Data Center Group (DCG) to the PC Client Group (PCCG), as the technology from that portion of the business is primarily used for client connectivity. Due to this reorganization, goodwill was transferred from DCG to PCCG. For further information see "Note 20: Operating Segments Information."

18

INTEL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — Unaudited (Continued)


Note 8: Identified Intangible Assets
Identified intangible assets at the end of each period were as follows:
 
 
 
September 28, 2013
(In Millions)
 
Gross Assets
 
Accumulated
Amortization
 
Net
Acquisition-related developed technology
 
$
3,034

 
$
(1,557
)
 
$
1,477

Acquisition-related customer relationships
 
1,760

 
(757
)
 
1,003

Acquisition-related trade names
 
65

 
(40
)
 
25

Licensed technology and patents
 
2,973

 
(890
)
 
2,083

Identified intangible assets subject to amortization
 
7,832

 
(3,244
)
 
4,588

Acquisition-related trade names
 
815

 

 
815

Other intangible assets
 
31

 

 
31

Identified intangible assets not subject to amortization
 
846

 

 
846

Total identified intangible assets
 
$
8,678

 
$
(3,244
)
 
$
5,434

 
 
 
December 29, 2012
(In Millions)
 
Gross Assets
 
Accumulated
Amortization
 
Net
Acquisition-related developed technology
 
$
2,778

 
$
(1,116
)
 
$
1,662

Acquisition-related customer relationships
 
1,712

 
(551
)
 
1,161

Acquisition-related trade names
 
68

 
(33
)
 
35

Licensed technology and patents
 
2,986

 
(699
)
 
2,287

Other intangible assets
 
238

 
(86
)
 
152

Identified intangible assets subject to amortization
 
7,782

 
(2,485
)
 
5,297

Acquisition-related trade names
 
809

 

 
809

Other intangible assets
 
129

 

 
129

Identified intangible assets not subject to amortization
 
938

 

 
938

Total identified intangible assets
 
$
8,720

 
$
(2,485
)
 
$
6,235

For identified intangible assets that are subject to amortization, we recorded amortization expense on the consolidated condensed statements of income as follows: amortization of acquisition-related developed technology and licensed technology and patents is included in cost of sales, amortization of acquisition-related customer relationships and trade names is included in amortization of acquisition-related intangibles, and amortization of other intangible assets is recorded as a reduction of revenue.
Amortization expenses during each period were as follows:
 
 
 
Three Months Ended
 
Nine Months Ended
(In Millions)
 
Sep 28,
2013
 
Sep 29,
2012
 
Sep 28,
2013
 
Sep 29,
2012
Acquisition-related developed technology
 
$
150

 
$
141

 
$
430

 
$
420

Acquisition-related customer relationships
 
70

 
71

 
208

 
224

Acquisition-related trade names
 
3

 
3

 
8

 
9

Licensed technology and patents
 
69

 
53

 
204

 
148

Other intangible assets
 

 

 
103

 

Total amortization expenses
 
$
292

 
$
268

 
$
953

 
$
801


19

INTEL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — Unaudited (Continued)


Based on the identified intangible assets that are subject to amortization as of September 28, 2013, we expect future amortization expense to be as follows:
 
(In Millions)
 
Remainder of 2013
 
2014
 
2015
 
2016
 
2017
Acquisition-related developed technology
 
$
151

 
$
587

 
$
313

 
$
221

 
$
72

Acquisition-related customer relationships
 
70

 
268

 
251

 
233

 
141

Acquisition-related trade names
 
3

 
10

 
9

 
3