10-Q 1 a10qdocument9262015.htm 10-Q 10-Q


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 26, 2015.
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 16, 2015
Common stock, $0.001 par value
 
4,719 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 26,
2015
 
Sep 27,
2014
 
Sep 26,
2015
 
Sep 27,
2014
Net revenue
 
$
14,465

 
$
14,554

 
$
40,441

 
$
41,149

Cost of sales
 
5,354

 
5,096

 
15,352

 
15,161

Gross margin
 
9,111

 
9,458

 
25,089

 
25,988

Research and development
 
2,927

 
2,842

 
9,009

 
8,547

Marketing, general and administrative
 
1,910

 
1,979

 
5,812

 
6,087

Restructuring and asset impairment charges
 
14

 
20

 
367

 
238

Amortization of acquisition-related intangibles
 
68

 
77

 
198

 
222

Operating expenses
 
4,919

 
4,918

 
15,386

 
15,094

Operating income
 
4,192

 
4,540

 
9,703

 
10,894

Gains (losses) on equity investments, net
 
165

 
35

 
297

 
178

Interest and other, net
 
(104
)
 
(25
)
 
(91
)
 
70

Income before taxes
 
4,253

 
4,550

 
9,909

 
11,142

Provision for taxes
 
1,144

 
1,233

 
2,102

 
3,099

Net income
 
$
3,109

 
$
3,317

 
$
7,807

 
$
8,043

Basic earnings per share of common stock
 
$
0.65

 
$
0.68

 
$
1.64

 
$
1.63

Diluted earnings per share of common stock
 
$
0.64

 
$
0.66

 
$
1.59

 
$
1.58

Cash dividends declared per share of common stock
 
$
0.48

 
$
0.45

 
$
0.96

 
$
0.90

Weighted average shares of common stock outstanding:
 
 
 
 
 
 
 
 
Basic
 
4,747

 
4,880

 
4,749

 
4,945

Diluted
 
4,876

 
5,045

 
4,900

 
5,095

See accompanying notes.

2



INTEL CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
 
 
Three Months Ended
 
Nine Months Ended
(In Millions)
 
Sep 26,
2015
 
Sep 27,
2014
 
Sep 26,
2015
 
Sep 27,
2014
Net income
 
$
3,109

 
$
3,317

 
$
7,807

 
$
8,043

Other comprehensive income, net of tax:
 
 
 
 
 
 
 
 
Change in net unrealized holding gains (losses) on available-for-sale investments
 
(1,029
)
 
303

 
(943
)
 
217

Change in deferred tax asset valuation allowance
 
(5
)
 
(26
)
 
(13
)
 
(30
)
Change in net unrealized holding gains (losses) on derivatives
 
42

 
(184
)
 
89

 
(173
)
Change in net prior service (costs) credits
 
2

 
2

 
6

 
(41
)
Change in actuarial valuation
 
11

 
(148
)
 
30

 
(143
)
Change in net foreign currency translation adjustment
 
(1
)
 
(121
)
 
(170
)
 
(127
)
Other comprehensive income (loss)
 
(980
)
 
(174
)
 
(1,001
)
 
(297
)
Total comprehensive income
 
$
2,129

 
$
3,143

 
$
6,806

 
$
7,746

See accompanying notes.

3



INTEL CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS (Unaudited)
(In Millions)
 
Sep 26,
2015
 
Dec 27,
2014
Assets
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
7,065

 
$
2,561

Short-term investments
 
7,119

 
2,430

Trading assets
 
6,659

 
9,063

Accounts receivable, net
 
4,101

 
4,427

Inventories
 
4,965

 
4,273

Deferred tax assets
 
1,992

 
1,958

Other current assets
 
4,304

 
3,018

Total current assets
 
36,205

 
27,730

 
 
 
 
 
Property, plant and equipment, net of accumulated depreciation of $51,405 ($46,471 as of December 27, 2014)
 
31,597

 
33,238

Marketable equity securities
 
5,618

 
7,097

Other long-term investments
 
1,829

 
2,023

Goodwill
 
11,026

 
10,861

Identified intangible assets, net
 
4,022

 
4,446

Other long-term assets
 
8,255

 
6,505

Total assets
 
$
98,552

 
$
91,900

 
 
 
 
 
Liabilities, temporary equity, and stockholders’ equity
 
 
 
 
Current liabilities:
 
 
 
 
Short-term debt
 
$
1,129

 
$
1,596

Accounts payable
 
2,449

 
2,748

Accrued compensation and benefits
 
2,732

 
3,475

Accrued advertising
 
1,028

 
1,092

Deferred income
 
2,160

 
2,205

Other accrued liabilities
 
5,582

 
4,895

Total current liabilities

15,080

 
16,011

 
 
 
 
 
Long-term debt
 
20,059

 
12,059

Long-term deferred tax liabilities
 
2,502

 
3,775

Other long-term liabilities
 
2,909

 
3,278

Contingencies (Note 21)
 

 

Temporary equity
 
905

 
912

Stockholders’ equity:
 
 
 
 
Preferred stock
 

 

Common stock and capital in excess of par value, 4,731 issued and 4,730 outstanding (4,752 issued and 4,748 outstanding as of December 27, 2014)
 
23,001

 
21,781

Accumulated other comprehensive income (loss)
 
(335
)
 
666

Retained earnings
 
34,431

 
33,418

Total stockholders’ equity
 
57,097

 
55,865

Total liabilities, temporary equity, and stockholders’ equity
 
$
98,552

 
$
91,900

See accompanying notes.

4



INTEL CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
 
 
 
Nine Months Ended
(In Millions)
 
Sep 26,
2015
 
Sep 27,
2014
Cash and cash equivalents, beginning of period
 
$
2,561

 
$
5,674

Cash flows provided by (used for) operating activities:
 
 
 
 
Net income
 
7,807

 
8,043

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Depreciation
 
5,885

 
5,491

Share-based compensation
 
1,009

 
867

Restructuring and asset impairment charges
 
367

 
238

Excess tax benefit from share-based payment arrangements
 
(139
)
 
(109
)
Amortization of intangibles
 
680

 
884

(Gains) losses on equity investments, net
 
(245
)
 
(124
)
Deferred taxes
 
(1,093
)
 
(347
)
Changes in assets and liabilities:
 
 
 
 
Accounts receivable
 
332

 
(76
)
Inventories
 
(640
)
 
59

Accounts payable
 
(86
)
 
(292
)
Accrued compensation and benefits
 
(1,217
)
 
(408
)
Income taxes payable and receivable
 
774

 
(190
)
Other assets and liabilities
 
156

 
611

Total adjustments
 
5,783

 
6,604

Net cash provided by operating activities
 
13,590

 
14,647

 
 
 
 
 
Cash flows provided by (used for) investing activities:
 
 
 
 
Additions to property, plant and equipment
 
(4,998
)
 
(7,962
)
Acquisitions, net of cash acquired
 
(538
)
 
(193
)
Purchases of available-for-sale investments
 
(7,522
)
 
(6,077
)
Sales of available-for-sale investments
 
1,040

 
786

Maturities of available-for-sale investments
 
2,153

 
7,396

Purchases of trading assets
 
(7,943
)
 
(10,347
)
Maturities and sales of trading assets
 
10,465

 
9,541

Investments in loans receivable and reverse repurchase agreements
 
(2,550
)
 
(150
)
Collection of loans receivable and reverse repurchase agreements
 
466

 
117

Investments in non-marketable equity investments
 
(1,864
)
 
(1,330
)
Other investing
 
380

 
218

Net cash used for investing activities
 
(10,911
)
 
(8,001
)
 
 
 
 
 
Cash flows provided by (used for) financing activities:
 
 
 
 
Increase (decrease) in short-term debt, net
 
(473
)
 
(202
)
Excess tax benefit from share-based payment arrangements
 
139

 
109

Issuance of long-term debt, net of issuance costs
 
7,986

 

Proceeds from sales of common stock through employee equity incentive plans
 
696

 
1,566

Repurchase of common stock
 
(2,476
)
 
(6,792
)
Restricted stock unit withholdings
 
(416
)
 
(314
)
Payment of dividends to stockholders
 
(3,423
)
 
(3,340
)
Collateral associated with repurchase of common stock
 
325

 

Decrease in liability due to return of collateral associated with repurchase of common stock
 
(325
)
 

Other financing
 
(209
)
 
(199
)
Net cash provided by (used for) financing activities
 
1,824

 
(9,172
)
 
 
 
 
 
Effect of exchange rate fluctuations on cash and cash equivalents
 
1

 
(5
)
 
 
 
 
 
Net increase (decrease) in cash and cash equivalents
 
4,504

 
(2,531
)
 
 
 
 
 
Cash and cash equivalents, end of period
 
$
7,065

 
$
3,143

 
 
 
 
 
Supplemental disclosures of cash flow information:
 
 
 
 
Cash paid during the period for:
 
 
 
 
Interest, net of capitalized interest
 
$
60

 
$
59

Income taxes, net of refunds
 
$
2,301

 
$
3,579

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 27, 2014 and Form 8-K filed with the U.S. Securities and Exchange Commission (SEC) on June 5, 2015. We have reclassified certain prior period amounts to conform to current period presentation.
We have a 52- or 53-week fiscal year that ends on the last Saturday in December. Fiscal year 2016 is a 53-week fiscal year, and the first quarter of 2016 will be a 14-week quarter.
As a result of our integration of McAfee Inc. (McAfee) in the third quarter of 2015, the functional currency for operations previously acquired from McAfee was changed to U.S. dollar, making U.S. dollar the functional currency for Intel and our subsidiaries.
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 27, 2014 and as updated by the Form 8-K filed with the SEC on June 5, 2015.
Note 2: Recent Accounting Standards
In May 2014, the Financial Accounting Standards Board (FASB) issued a new standard to achieve a consistent application of revenue recognition within the U.S., resulting in a single revenue model to be applied by reporting companies under U.S. generally accepted accounting principles. Under the new model, recognition of revenue occurs when a customer obtains control of promised goods or services in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, the new standard requires that reporting companies disclose the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. On July 9, 2015, the FASB agreed to delay the effective date by one year. In accordance with the agreed upon delay, the new standard is effective for us beginning in the first quarter of 2018 and we expect to adopt it at that time. The new standard is required to be applied retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying it recognized at the date of initial application. We have not yet selected a transition method nor have we determined the impact of the new standard on our consolidated condensed financial statements.
In the third quarter of 2015, we adopted an amended standard simplifying the presentation of debt issuance costs as a direct deduction from the carrying value of the debt liability rather than showing the debt issuance costs as an asset. We have applied the amendment retrospectively to the comparable period presented and it did not have a significant impact on our financial statements.
Note 3: 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 cost method investments, cost method loans receivable, equity method investments, grants receivable, and reverse repurchase agreements with original maturities greater than approximately three months. Substantially all of our liabilities are not measured and recorded at fair value.

6

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


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.

7

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


Assets and Liabilities Measured and Recorded at Fair Value on a Recurring Basis
Assets and liabilities measured and recorded at fair value on a recurring basis at the end of each period were as follows: 
 
 
September 26, 2015
 
December 27, 2014
 
 
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
 
$

 
$
3,607

 
$

 
$
3,607

 
$

 
$
48

 
$

 
$
48

Financial institution instruments
 
100

 
1,756

 

 
1,856

 
321

 
1,119

 

 
1,440

Government debt
 
6

 
187

 

 
193

 

 

 

 

Reverse repurchase agreements
 

 
668

 

 
668

 

 
268

 

 
268

Short-term investments:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Corporate debt
 
263

 
1,960

 
30

 
2,253

 
363

 
412

 
31

 
806

Financial institution instruments
 
105

 
2,341

 

 
2,446

 
149

 
1,050

 

 
1,199

Government debt
 
81

 
2,339

 

 
2,420

 
252

 
173

 

 
425

Trading assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Asset-backed securities
 

 
384

 
55

 
439

 

 
766

 
58

 
824

Corporate debt
 
1,626

 
569

 

 
2,195

 
2,625

 
339

 

 
2,964

Financial institution instruments
 
964

 
541

 

 
1,505

 
1,146

 
613

 

 
1,759

Government debt
 
974

 
1,546

 

 
2,520

 
1,295

 
2,221

 

 
3,516

Other current assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Derivative assets
 

 
437

 
1

 
438

 

 
559

 
2

 
561

Loans receivable
 

 
140

 

 
140

 

 
505

 

 
505

Marketable equity securities
 
5,498

 
120

 

 
5,618

 
7,097

 

 

 
7,097

Other long-term investments:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Asset-backed securities
 

 
1

 
4

 
5

 

 
2

 
4

 
6

Corporate debt
 
339

 
941

 
3

 
1,283

 
453

 
728

 
13

 
1,194

Financial institution instruments
 
88

 
320

 

 
408

 
189

 
319

 

 
508

Government debt
 
84

 
49

 

 
133

 
75

 
240

 

 
315

Other long-term assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Derivative assets
 

 
33

 
15

 
48

 

 
35

 
22

 
57

Loans receivable
 

 
350

 

 
350

 

 
216

 

 
216

Total assets measured and recorded at fair value
 
10,128

 
18,289

 
108

 
28,525

 
13,965

 
9,613

 
130

 
23,708

Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other accrued liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Derivative liabilities
 

 
276

 
7

 
283

 

 
563

 

 
563

Other long-term liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Derivative liabilities
 

 
17

 

 
17

 

 
17

 

 
17

Total liabilities measured and recorded at fair value
 
$

 
$
293

 
$
7

 
$
300

 
$

 
$
580

 
$

 
$
580

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.

8

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


During the first nine months of 2015, we transferred corporate debt, financial institution instruments, government debt, and marketable equity securities of approximately $821 million from Level 1 to Level 2 of the fair value hierarchy and approximately $148 million of corporate debt and financial institution instruments from Level 2 to Level 1 ($230 million of corporate debt, financial institution instruments, and government debt from Level 1 to Level 2 and $400 million from Level 2 to Level 1 during the first nine months of 2014). These transfers were based on changes in market activity for the underlying securities. 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.
Investments in Debt Instruments
Debt instruments reflected in the preceding table include investments such as asset-backed securities, corporate debt, financial institution instruments, government debt, and reverse repurchase agreements classified as cash equivalents. We classify our debt instruments as Level 2 when we use observable market prices for identical securities that are traded in less active markets. When observable market prices for identical securities are not available, we price the debt instruments using our own models, such as a discounted cash flow model, or non-binding market consensus prices 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 instruments; 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. When we use non-binding market consensus prices, we corroborate them with quoted market prices for similar instruments or compare them to output from internally-developed pricing models such as a discounted cash flow model. The discounted cash flow model uses observable market inputs, such as LIBOR-based yield curves, currency spot and forward rates, and credit ratings. All significant inputs are derived from or corroborated with observable market data.
The fair values of debt instruments classified as Level 3 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 help ensure the fair value measurements are reasonable and consistent with market experience in similar asset classes.
Fair Value Option for Loans Receivable
We elected the fair value option for loans receivable when the interest rate or currency exchange rate risk was hedged at inception with a related derivative instrument. As of September 26, 2015, 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 gains or losses on 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 currency exchange rate risk was not hedged at inception with a related derivative instrument. Loans receivable not measured and recorded at fair value are included in the following "Financial Instruments Not Recorded at Fair Value on a Recurring Basis" section.
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 is recognized.
Some of our non-marketable equity investments have 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 impairments. We classified these investments as Level 3 because the valuations used unobservable inputs that were significant to the fair value measurements and required management judgment due to the absence of quoted market prices. Impairments recognized on non-marketable equity investments held as of September 26, 2015 were $27 million during the third quarter of 2015 and $100 million during the first nine months of 2015 ($28 million during the third quarter of 2014 and $93 million during the first nine months of 2014 on non-marketable equity investments held as of September 27, 2014).

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 grants receivable, cost method loans receivable, non-marketable cost method investments, reverse repurchase agreements with original maturities greater than approximately three months, and indebtedness carried at amortized cost plus hedge adjustments when applicable; however, the assets are recorded at fair value only when an impairment is recognized. The carrying amounts and fair values of financial instruments not recorded at fair value on a recurring basis at the end of each period were as follows:
 
 
September 26, 2015
(In Millions)
 
Carrying
Amount
 
Fair Value Measured Using
 
Fair Value
Level 1
 
Level 2
 
Level 3
 
Grants receivable
 
$
749

 
$

 
$
756

 
$

 
$
756

Loans receivable
 
$
310

 
$

 
$
310

 
$

 
$
310

Non-marketable cost method investments
 
$
3,003

 
$

 
$

 
$
3,938

 
$
3,938

Reverse repurchase agreements
 
$
2,650

 
$

 
$
2,650

 
$

 
$
2,650

Short-term debt
 
$
1,088

 
$

 
$
1,554

 
$

 
$
1,554

Long-term debt
 
$
20,059

 
$
13,192

 
$
7,508

 
$

 
$
20,700

NVIDIA Corporation cross-license agreement liability
 
$
198

 
$

 
$
200

 
$

 
$
200

 
 
December 27, 2014
(In Millions)
 
Carrying
Amount
 
Fair Value Measured Using
 
Fair Value
Level 1
 
Level 2
 
Level 3
 
Grants receivable
 
$
676

 
$

 
$
679

 
$

 
$
679

Loans receivable
 
$
250

 
$

 
$
250

 
$

 
$
250

Non-marketable cost method investments
 
$
1,769

 
$

 
$

 
$
2,599

 
$
2,599

Reverse repurchase agreements
 
$
450

 
$

 
$
450

 
$

 
$
450

Short-term debt
 
$
1,580

 
$

 
$
2,145

 
$

 
$
2,145

Long-term debt
 
$
12,059

 
$
11,467

 
$
1,309

 
$

 
$
12,776

NVIDIA Corporation cross-license agreement liability
 
$
395

 
$

 
$
399

 
$

 
$
399

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 26, 2015 and December 27, 2014, the carrying amount of our grants receivable was classified within other current assets and other long-term assets, as applicable.
The carrying amount and fair value of loans receivable exclude loans measured and recorded at a fair value of $490 million as of September 26, 2015 ($721 million as of December 27, 2014). 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. All significant inputs in the models are 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+/A1 for most of our loans receivable and the substantial majority of our reverse repurchase agreements as of September 26, 2015.

10

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


As of September 26, 2015 and December 27, 2014, the unrealized loss position of our non-marketable cost method investments was insignificant. Our non-marketable cost method investments are valued using a qualitative and quantitative analysis of events or circumstances that impact the fair value of the investment. Qualitative analysis of our investments involves understanding our investee’s revenue and earnings trends relative to pre-defined milestones and overall business prospects; the technological feasibility of our investee’s products and technologies; the general market conditions in the investee’s industry or geographic area, including adverse regulatory or economic changes; and the management and governance structure of the investee. Quantitative assessments of the fair value of our investments are developed using the market and income approaches. The market approach includes the use of financial metrics and ratios of comparable public companies, such as revenue, earnings, comparable performance multiples, recent financing rounds, the terms of the investees’ issued interests, and the level of marketability of the investments. 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 regarding investees’ revenue, costs, and discount rates based on the risk profile of comparable companies. Estimates of revenue and costs are developed using available market, historical, and forecast data. We measure the fair value of our non-marketable cost method investments as close to the end of the period as feasible.
The carrying amount and fair value of short-term debt exclude drafts payable. Our short-term debt recognized at amortized cost includes our 2009 junior subordinated convertible debentures due 2039 (2009 debentures). During the third quarter of 2015, the 2009 debentures were classified as short-term debt on the consolidated condensed balance sheets and are convertible at the option of the holder during the fourth quarter of 2015. For further information, see the "Borrowings" note in Part II, Item 8 of our Annual Report on Form 10-K for the year ended December 27, 2014 and Form 8-K filed with the SEC on June 5, 2015. 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 are classified as Level 1 when we use quoted prices in active markets and Level 2 when the quoted prices are from less active markets or when other observable inputs are used to determine fair value. The fair value of our 2009 and 2005 convertible debentures is determined using discounted cash flow models with observable market inputs, and takes into consideration variables such as interest rate changes, comparable instruments, subordination discount, and credit-rating changes, and is therefore classified as Level 2.
The NVIDIA Corporation (NVIDIA) 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, pursuant to which we agreed to make payments to NVIDIA over six years. As of September 26, 2015 the carrying amount of the liability arising from the agreement was classified within other accrued liabilities based on the expected timing of the underlying payments ($200 million in January 2016 treated as cash used for financing activities). As of December 27, 2014, the carrying amount of the liability arising from the agreement was classified within other accrued liabilities and other long-term liabilities, based on the expected timing of the underlying payments ($200 million in each of January 2015 and 2016 treated as cash used for financing activities). The fair value is determined using a discounted cash flow model, which discounts future cash flows using our incremental borrowing rates.

11

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


Note 4: Cash and Investments
Cash and investments at the end of each period were as follows:
(In Millions)
 
Sep 26,
2015
 
Dec 27,
2014
Available-for-sale investments
 
$
20,222

 
$
13,038

Cash
 
741

 
805

Equity method investments
 
1,577

 
1,446

Loans receivable
 
800

 
971

Non-marketable cost method investments
 
3,003

 
1,769

Reverse repurchase agreements
 
3,318

 
718

Trading assets
 
6,659

 
9,063

Total cash and investments
 
$
36,320

 
$
27,810

Available-for-Sale Investments
Available-for-sale investments at the end of each period were as follows:
 
 
September 26, 2015
 
December 27, 2014
(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
 
$
7

 
$

 
$
(2
)
 
$
5

 
$
8

 
$

 
$
(2
)
 
$
6

Corporate debt
 
7,139

 
11

 
(7
)
 
7,143

 
2,040

 
13

 
(5
)
 
2,048

Financial institution instruments
 
4,709

 
2

 
(1
)
 
4,710

 
3,146

 
2

 
(1
)
 
3,147

Government debt
 
2,747

 

 
(1
)
 
2,746

 
741

 

 
(1
)
 
740

Marketable equity securities
 
3,287

 
2,342

 
(11
)
 
5,618

 
3,318

 
3,779

 

 
7,097

Total available-for-sale investments
 
$
17,889

 
$
2,355

 
$
(22
)
 
$
20,222

 
$
9,253

 
$
3,794

 
$
(9
)
 
$
13,038

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 26, 2015 and December 27, 2014.
For information on the unrealized holding gains (losses) on available-for-sale investments reclassified out of accumulated other comprehensive income (loss) into the consolidated condensed statements of income, see "Note 20: Other Comprehensive Income (Loss)."
During the third quarter of 2015, we sold available-for-sale investments for proceeds of $1.1 billion, of which $134 million related to sales of cash and cash equivalents ($373 million in the third quarter of 2014, of which $82 million related to sales of cash and cash equivalents). During the first nine months of 2015, we sold available-for-sale investments for proceeds of $1.2 billion, of which $134 million related to sales of cash and cash equivalents ($1.2 billion in the first nine months of 2014 of which $459 million related to sales of cash and cash equivalents). The gross realized gains on sales of available-for-sale investments were $12 million in the third quarter of 2015 and $97 million in the first nine months of 2015 (none in the third quarter of 2014 and $136 million in the first nine months of 2014).

12

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


The amortized cost and fair value of available-for-sale debt investments, by contractual maturity, as of September 26, 2015, were as follows:
(In Millions)
 
Cost
 
Fair Value
Due in 1 year or less
 
$
12,643

 
$
12,651

Due in 1–2 years
 
1,166

 
1,164

Due in 2–5 years
 
661

 
660

Instruments not due at a single maturity date
 
132

 
129

Total
 
$
14,602

 
$
14,604

Equity Method Investments
IM Flash Technologies, LLC
Micron Technology, Inc. (Micron) and Intel formed IM Flash Technologies, LLC (IMFT) in 2006 to manufacture NAND flash memory products for Micron and Intel. During 2012, we amended the operating agreement for IMFT and entered into agreements with Micron that modified our joint venture relationship. Additionally, we have certain supply agreements with Micron to provide us with jointly developed flash memory products.
The amended operating agreement extended the term of IMFT to 2024, unless earlier terminated under certain terms and conditions. The amended agreement provides for certain buy-sell rights. Intel has the ability to cause Micron to buy our interest in IMFT. If we exercise this put right, Micron would set the closing date of the transaction within two years following such election and could elect to receive financing from us for one to two years. Subsequent to our put right, and commencing in January 2018, Micron has the right to call our interest in IMFT with the closing date to be effective within one year. The IMFT operating agreements provide that IMFT may manufacture jointly developed NAND flash memory and 3D XPoint technology products.
As of September 26, 2015, we own a 49% interest in IMFT. The carrying value of our investment was $872 million as of September 26, 2015 ($713 million as of December 27, 2014) and is classified within other long-term assets.
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 $115 million in the third quarter of 2015 and approximately $315 million in the first nine months of 2015 (approximately $100 million in the third quarter of 2014 and approximately $305 million in the first nine months of 2014). The amount due to IMFT for product purchases and services provided was approximately $20 million as of September 26, 2015 (approximately $60 million as of December 27, 2014).
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 $872 million as of September 26, 2015. 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 26, 2015. 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.
We have determined that we do not have the characteristics of a consolidating investor in the variable interest entity and, therefore, we account for our interest in IMFT using the equity method of accounting.
Cloudera, Inc.
During 2014, we invested in Cloudera, Inc. (Cloudera). Our fully-diluted ownership interest in Cloudera is 17% as of September 26, 2015. Our investment is accounted for under the equity and cost methods of accounting based on the rights associated with different securities we own, and is classified within other long-term assets. The carrying value of our equity method investment was $263 million and of our cost method investment was $454 million as of September 26, 2015 ($280 million for our equity method investment and $454 million for our cost method investment as of December 27, 2014).

13

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


Non-marketable Cost Method Investments
Investment in Beijing UniSpreadtrum Technology Ltd.
During 2014, we entered into a series of agreements with Tsinghua Unigroup Ltd. (Tsinghua Unigroup), an operating subsidiary of Tsinghua Holdings Co. Ltd., to, among other things, jointly develop Intel® architecture- and communications-based solutions for smartphones. We have also agreed to invest up to 9.0 billion Chinese yuan (approximately $1.5 billion as of the date of the agreement) for a minority stake of approximately 20% of Beijing UniSpreadtrum Technology Ltd. (UniSpreadtrum), a holding company under Tsinghua Unigroup. During the third quarter of 2015, we invested $966 million to complete the first phase of the equity investment. We have determined we will not have significant influence over the company and, therefore, we will account for our interest using the cost method of accounting. Subject to regulatory approvals and other closing conditions, the second phase of the investment will require additional funding of approximately $500 million.
Trading Assets
As of September 26, 2015 and December 27, 2014, substantially all of our trading assets were marketable debt instruments. Net losses related to trading assets still held at the reporting date were $88 million in the third quarter of 2015 and net losses were $151 million in the first nine months of 2015 (net losses of $283 million in the third quarter of 2014 and $254 million in the first nine months of 2014). Net gains on the related derivatives were $72 million in the third quarter of 2015 and net gains were $138 million in the first nine months of 2015 (net gains of $278 million in the third quarter of 2014 and $252 million in the first nine months of 2014).
Note 5: 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 (R&D) are included in cost of sales in the period incurred. Inventories at the end of each period were as follows:
(In Millions)
 
Sep 26,
2015
 
Dec 27,
2014
Raw materials
 
$
557

 
$
462

Work in process
 
2,690

 
2,375

Finished goods
 
1,718

 
1,436

Total inventories
 
$
4,965

 
$
4,273

Note 6: 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, commodity price risk, and credit risk. When possible, we enter into master netting arrangements with counterparties 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. Generally, our master netting agreements allow for net settlement in case of certain triggering events such as bankruptcy or default of one of the counterparties to the transaction. We may also elect to exchange cash collateral with certain of our counterparties on a regular basis. For presentation on our consolidated condensed balance sheets, we do not offset fair value amounts recognized for derivative instruments under master netting arrangements. Our derivative financial instruments are recorded at fair value and are included in other current assets, other long-term assets, other accrued liabilities, or other long-term liabilities.

14

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


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 is incurred in or exposed to other currencies, primarily the euro, the Japanese yen, the Chinese Yuan and the Israeli shekel. We have established balance sheet and forecasted transaction currency risk management programs to protect against fluctuations in the 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 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. Most of 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 are recognized at fair value. The substantial majority of these instruments generally 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 the 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.
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. We may elect to swap fixed coupon payments on our debt issuances for floating rate coupon payments. 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.

15

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


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 with fair value hedge accounting designation that utilize interest rate swap agreements to hedge against changes in fair value on certain fixed rate debt due to changes in the benchmark interest rate. For these derivatives, we recognize gains and losses in interest and other, net, along with the offsetting losses and gains attributable to the changes in the benchmark interest rate on the underlying hedged items.
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 generally 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 the 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 our investments. 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 losses and gains on the related liabilities, both of which are recorded in cost of sales and operating expenses.
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 26,
2015
 
Dec 27,
2014
 
Sep 27,
2014
Currency forwards
 
$
12,395

 
$
15,578

 
$
13,896

Currency interest rate swaps
 
4,966

 
5,446

 
5,015

Embedded debt derivatives
 
3,600

 
3,600

 
3,600

Interest rate swaps
 
1,740

 
1,347

 
1,259

Total return swaps
 
1,020

 
1,056

 
1,032

Other
 
64

 
49

 
53

Total
 
$
23,785

 
$
27,076

 
$
24,855

The gross notional amounts for currency forwards and currency interest rate swaps (presented by currency) at the end of each period were as follows:
(In Millions)
 
Sep 26,
2015
 
Dec 27,
2014
 
Sep 27,
2014
Chinese yuan
 
$
2,650

 
$
3,097

 
$
1,420

Euro
 
6,546

 
7,486

 
6,973

Israeli shekel
 
1,938

 
2,489

 
2,170

Japanese yen
 
2,733

 
3,779

 
4,223

Other
 
3,494

 
4,173

 
4,125

Total
 
$
17,361

 
$
21,024

 
$
18,911


16

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


During the fourth quarter of 2014, we entered into $1.5 billion of forward contracts to hedge our anticipated equity funding of the UniSpreadtrum investment. The hedges were designated as cash flow hedges and the related gains and losses attributable to changes in the spot rates were recognized in accumulated other comprehensive income (loss). Hedge gains and losses attributable to changes in the forward rates were recognized in interest and other, net. During the second quarter of 2015, we discontinued cash flow hedge accounting treatment for $478 million of forward contracts since we could no longer assert that funding is probable to occur within the initially specified timeline. Hedge losses accumulated in other comprehensive income related to these de-designated forward contracts were insignificant.
During the third quarter of 2015, $1.0 billion of forward contracts were utilized to fund our investment in UniSpreadtrum. Hedge losses attributable to changes in the spot rates accumulated in other comprehensive income (loss) for these forward contracts will remain deferred in accumulated other comprehensive income (loss) until the UniSpreadtrum shares are either disposed of or impaired. As the shares are disposed of or impaired, we will reclassify the gains or losses from accumulated other comprehensive income (loss) to gains (losses) on equity investments, net as an offset to the gain or loss recognized for the share disposal or impairment.
During the third quarter of 2015, we entered into $1.0 billion interest rate swap agreement to hedge against changes in fair value attributable to the benchmark interest rate for our $1.0 billion face value 2015 senior notes due 2045 at 4.90%. The hedge was designated as a fair value hedge.
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 26, 2015
 
December 27, 2014
(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
 
$
31

 
$
6

 
$
156

 
$
1

 
$
6

 
$
1

 
$
497

 
$
9

Interest rate swaps
 

 
3

 

 

 

 

 

 

Total derivatives designated as hedging instruments
 
31

 
9

 
156

 
1

 
6

 
1

 
497

 
9

Derivatives not designated as hedging instruments:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Currency forwards
 
40

 

 
78

 

 
207

 

 
44

 

Currency interest rate swaps
 
365

 
24

 
36

 

 
344

 
34

 
7

 

Embedded debt derivatives
 

 

 

 
16

 

 

 
4

 
8

Interest rate swaps
 

 

 
5

 

 
3

 

 
11

 

Other
 
2

 
15

 
8

 

 
1

 
22

 

 

Total derivatives not designated as hedging instruments
 
407

 
39

 
127

 
16

 
555

 
56

 
66

 
8

Total derivatives
 
$
438

 
$
48

 
$
283

 
$
17

 
$
561

 
$
57

 
$
563

 
$
17



17

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


Amounts Offset in the Consolidated Condensed Balance Sheets
The gross amounts of our derivative instruments and reverse repurchase agreements subject to master netting arrangements with various counterparties and cash and non-cash collateral posted under such agreements at the end of each period were as follows:
 
 
September 26, 2015
 
 
 
 
 
 
 
 
Gross Amounts Not Offset in the Balance Sheet
 
 
(In Millions)
 
Gross Amounts Recognized
 
Gross Amounts Offset in the Balance Sheet
 
Net Amounts Presented in the Balance Sheet
 
Financial Instruments
 
Cash and Non-Cash Collateral Received or Pledged
 
Net Amount
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
Derivative assets subject to master netting arrangements
 
$
475

 
$

 
$
475

 
$
(206
)
 
$
(127
)
 
$
142

Reverse repurchase agreements
 
3,318

 

 
3,318

 

 
(3,318
)
 

Total assets
 
3,793

 

 
3,793

 
(206
)
 
(3,445
)
 
142

Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
Derivative liabilities subject to master netting arrangements
 
298

 

 
298

 
(206
)
 
(15
)
 
77

Total liabilities
 
$
298

 
$

 
$
298

 
$
(206
)
 
$
(15
)
 
$
77

 
 
December 27, 2014
 
 
 
 
 
 
 
 
Gross Amounts Not Offset in the Balance Sheet
 
 
(In Millions)
 
Gross Amounts Recognized
 
Gross Amounts Offset in the Balance Sheet
 
Net Amounts Presented in the Balance Sheet
 
Financial Instruments
 
Cash and Non-Cash Collateral Received or Pledged
 
Net Amount
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
Derivative assets subject to master netting arrangements
 
$
559

 
$

 
$
559

 
$
(365
)
 
$
(78
)
 
$
116

Reverse repurchase agreements
 
718

 

 
718

 

 
(718
)
 

Total assets
 
1,277

 

 
1,277

 
(365
)
 
(796
)
 
116

Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
Derivative liabilities subject to master netting arrangements
 
559

 

 
559

 
(365
)
 
(80
)
 
114

Total liabilities
 
$
559

 
$

 
$
559

 
$
(365
)
 
$
(80
)
 
$
114

We obtain and secure available collateral from counterparties against obligations, including securities lending transactions and reverse repurchase agreements, when we deem it appropriate.


18

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


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 (loss) for each period were as follows:
 
 
Three Months Ended
 
Nine Months Ended
(In Millions)
 
Sep 26,
2015
 
Sep 27,
2014
 
Sep 26,
2015
 
Sep 27,
2014
Currency forwards
 
$
(68
)
 
$
(241
)
 
$
(268
)
 
$
(201
)
Other
 

 

 

 
(3
)
Total
 
$
(68
)
 
$
(241
)
 
$
(268
)
 
$
(204
)
Gains and losses on derivative instruments in cash flow hedging relationships related to hedge ineffectiveness and amounts excluded from effectiveness testing, were insignificant during all periods presented in the preceding tables. There was no impact on results of operations from discontinued cash flow hedges during the third quarter of 2015 and the impact was insignificant during the first nine months of 2015, 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 20: Other Comprehensive Income (Loss)."
Derivatives in Fair Value Hedging Relationships
The effects of derivative instruments designated as fair value hedges, recognized in interest and other, net for each period were as follows:
 
 
Three Months Ended
 
Nine Months Ended
(In Millions)
 
Sep 26,
2015
 
Sep 27,
2014
 
Sep 26,
2015
 
Sep 27,
2014
Interest rate swap
 
$
3

 
$

 
$
3

 
$

Hedged item
 
(3
)
 

 
(3
)
 

Total
 
$

 
$

 
$

 
$

There was no hedge ineffectiveness during all periods presented in the preceding tables.
Derivatives Not Designated as Hedging Instruments
The effects of derivative instruments not designated as hedging instruments on the consolidated condensed statements of income for each period were as follows:
 
 
 
 
Three Months Ended
 
Nine Months Ended
(In Millions)
 
Location of Gains (Losses)
Recognized in Income on Derivatives
 
Sep 26,
2015
 
Sep 27,
2014
 
Sep 26,
2015
 
Sep 27,
2014
Currency forwards
 
Interest and other, net
 
$
(19
)
 
$
62

 
$
(33
)
 
$
40

Currency interest rate swaps
 
Interest and other, net
 
80

 
221

 
283

 
193

Interest rate swaps
 
Interest and other, net
 
(3
)
 
1

 
(8
)
 
(3
)
Total return swaps
 
Various
 
(90
)
 
(7
)
 
(48
)
 
51

Other
 
Various
 
(3
)
 
(3
)
 
(17
)
 
(1
)
Total
 
 
 
$
(35
)
 
$
274

 
$
177

 
$
280


19

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


Note 7: Acquisitions
During the first nine months of 2015, we completed five acquisitions qualifying as business combinations in exchange for acquisition date consideration of $591 million, most of which was cash consideration. Substantially all of the consideration was allocated to goodwill, acquisition-related developed technology, and acquisition-related customer relationships. Included in these acquisitions is our acquisition of Lantiq Semiconductor (Lantiq), intended to extend Intel's success in cable home gateways into DSL and fiber markets. We acquired Lantiq in the second quarter of 2015 for acquisition date cash consideration of $383 million, most of which was allocated to goodwill, acquisition-related developed technology, and acquisition-related customer relationships. The operating results of Lantiq are included in our Client Computing Group operating segment.
The completed acquisitions in the first nine months of 2015, both individually and in the aggregate, were not significant to our results of operations. For information on goodwill by operating segment, see “Note 8: Goodwill” and for information on the classification of intangible assets, see "Note 9: Identified Intangible Assets."
Pending Acquisition of Altera Corporation
During the second quarter of 2015, we entered into a definitive agreement to acquire Altera Corporation (Altera) in an all-cash transaction expected to close within six to nine months from the date of the agreement. Upon completion of the acquisition, each outstanding share of Altera common stock and, subject to certain exceptions, each share of Altera common stock underlying vested stock option awards, restricted stock unit awards and performance-based restricted stock unit awards will be converted into the right to receive $54.00 per share in cash, without interest. As of the date we entered into the agreement, the transaction had an approximate value of $16.7 billion. This transaction is subject to certain regulatory approvals and customary closing conditions.
Note 8: Goodwill
Goodwill activity for the first nine months of 2015 was as follows:
(In Millions)
 
Dec 27,
2014
 
Acquisitions
 
Currency Exchange and Other
 
Sep 26,
2015
Client Computing Group
 
$
3,708

 
$
150

 
$

 
$
3,858

Data Center Group
 
2,376

 

 

 
2,376

Internet of Things Group
 
428

 

 

 
428

Software and services operating segments
 
4,236

 
10

 
(182
)
 
4,064

All other
 
113

 
187

 

 
300

Total
 
$
10,861

 
$
347

 
$
(182
)
 
$
11,026

During the first quarter of 2015, we combined the PC Client Group and the Mobile and Communications Group to create the Client Computing Group. All prior-period amounts have been retrospectively adjusted to reflect our new organizational structure. For further information, see "Note 22: Operating Segments Information."

20

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


Note 9: Identified Intangible Assets
Identified intangible assets at the end of each period were as follows:
 
 
September 26, 2015
(In Millions)
 
Gross Assets
 
Accumulated
Amortization
 
Net
Acquisition-related developed technology
 
$
2,846

 
$
(2,202
)
 
$
644

Acquisition-related customer relationships
 
1,733

 
(1,154
)
 
579

Acquisition-related trade names
 
59

 
(53
)
 
6

Licensed technology and patents
 
3,106

 
(1,283
)
 
1,823

Identified intangible assets subject to amortization
 
7,744

 
(4,692
)
 
3,052

Acquisition-related trade names
 
767

 

 
767

Other intangible assets
 
203

 

 
203

Identified intangible assets not subject to amortization
 
970

 

 
970

Total identified intangible assets
 
$
8,714

 
$
(4,692
)
 
$
4,022


 
 
December 27, 2014
(In Millions)
 
Gross Assets
 
Accumulated
Amortization
 
Net
Acquisition-related developed technology
 
$
3,009

 
$
(2,192
)
 
$
817

Acquisition-related customer relationships
 
1,698

 
(1,001
)
 
697

Acquisition-related trade names
 
61

 
(49
)
 
12

Licensed technology and patents
 
3,153

 
(1,224
)
 
1,929

Identified intangible assets subject to amortization
 
7,921

 
(4,466
)
 
3,455

Acquisition-related trade names
 
788

 

 
788

Other intangible assets
 
203

 

 
203