10-Q 1 new10qdocument07012017.htm 10-Q Document


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 July 1, 2017.
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
intca01a03a01a04a25.jpg
INTEL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
 
94-1672743
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
2200 Mission College Boulevard, Santa Clara, California
 
95054-1549
(Address of principal executive offices)
 
(Zip Code)
(408) 765-8080
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer þ
Accelerated filer  ¨
Non-accelerated filer   ¨
Smaller reporting company  ¨
Emerging growth company  ¨
 
 
(Do not check if a smaller reporting company)
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  þ
Shares outstanding of the Registrant’s common stock:
Class
 
Outstanding as of July 1, 2017
Common stock, $0.001 par value
 
4,699 million




INTEL CORPORATION
 
FORM 10-Q
FOR THE FISCAL QUARTER ENDED JULY 1, 2017
INDEX





Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements that involve a number of risks and uncertainties. Words such as "anticipates," "expects," "intends," "goals," "plans," "believes," "seeks," "estimates," "continues," "may," "will," “would,” "should," “could,” and variations of such words and similar expressions are intended to identify such forward-looking statements. In addition, any statements that refer to projections of our future financial performance, our anticipated growth and trends in our businesses, uncertain events or assumptions, and other characterizations of future events or circumstances are forward-looking statements. Such statements are based on management's expectations as of the date of this filing and involve many risks and uncertainties that could cause our actual results to differ materially from those expressed or implied in our forward-looking statements. Such risks and uncertainties include those described throughout this report and our Annual Report on Form 10-K for the year ended December 31, 2016, particularly the "Risk Factors" sections of such reports. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. Readers are urged to carefully review and consider the various disclosures made in this Form 10-Q and in other documents we file from time to time with the Securities and Exchange Commission that disclose risks and uncertainties that may affect our business. The forward-looking statements in this Form 10-Q do not reflect the potential impact of any divestitures, mergers, acquisitions, or other business combinations that had not been completed as of July 27, 2017. In addition, the forward-looking statements in this Form 10-Q are made as of the date of this filing, and Intel does not undertake, and expressly disclaims any duty, to update such statements, whether as a result of new information, new developments or otherwise, except to the extent that disclosure may be required by law.

1



PART I – FINANCIAL INFORMATION
ITEM 1.
FINANCIAL STATEMENTS
INTEL CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (Unaudited)
 
 
Three Months Ended
 
Six Months Ended
(In Millions, Except Per Share Amounts)
 
Jul 1,
2017
 
Jul 2,
2016
 
Jul 1,
2017
 
Jul 2,
2016
Net revenue
 
$
14,763

 
$
13,533

 
$
29,559

 
$
27,235

Cost of sales
 
5,665

 
5,560

 
11,314

 
11,132

Gross margin
 
9,098

 
7,973

 
18,245

 
16,103

Research and development
 
3,275

 
3,145

 
6,601

 
6,391

Marketing, general and administrative
 
1,854

 
2,007

 
3,958

 
4,233

Restructuring and other charges
 
105

 
1,414

 
185

 
1,414

Amortization of acquisition-related intangibles
 
37

 
89

 
75

 
179

Operating expenses
 
5,271

 
6,655

 
10,819

 
12,217

Operating income
 
3,827

 
1,318

 
7,426

 
3,886

Gains (losses) on equity investments, net
 
342

 
478

 
594

 
500

Interest and other, net
 
403

 
(126
)
 
367

 
(208
)
Income before taxes
 
4,572

 
1,670

 
8,387

 
4,178

Provision for taxes
 
1,764

 
340

 
2,615

 
802

Net income
 
$
2,808

 
$
1,330

 
$
5,772

 
$
3,376

Basic earnings per share of common stock
 
$
0.60

 
$
0.28

 
$
1.22

 
$
0.71

Diluted earnings per share of common stock
 
$
0.58

 
$
0.27

 
$
1.19

 
$
0.69

Cash dividends declared per share of common stock
 
$

 
$

 
$
0.5325

 
$
0.5200

Weighted average shares of common stock outstanding:
 
 
 
 
 
 
 
 
Basic
 
4,710

 
4,729

 
4,717

 
4,725

Diluted
 
4,845

 
4,866

 
4,864

 
4,870

See accompanying notes.

2



INTEL CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
 
 
Three Months Ended
 
Six Months Ended
(In Millions)
 
Jul 1,
2017
 
Jul 2,
2016
 
Jul 1,
2017
 
Jul 2,
2016
Net income
 
$
2,808

 
$
1,330

 
$
5,772

 
$
3,376

Changes in other comprehensive income, net of tax:
 
 
 
 
 
 
 
 
Net unrealized holding gains (losses) on available-for-sale investments
 
(534
)
 
(346
)
 
9

 
(55
)
Deferred tax asset valuation allowance
 

 
(2
)
 

 
(3
)
Net unrealized holding gains (losses) on derivatives
 
136

 
26

 
331

 
213

Net prior service (costs) credits
 
(12
)
 
1

 
(10
)
 
3

Actuarial valuation
 
214

 
(318
)
 
230

 
(299
)
Net foreign currency translation adjustment
 
507

 
(1
)
 
508

 
1

Other comprehensive income (loss)
 
311

 
(640
)
 
1,068

 
(140
)
Total comprehensive income
 
$
3,119

 
$
690

 
$
6,840

 
$
3,236

See accompanying notes.

3



INTEL CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS (Unaudited)
(In Millions)
 
Jul 1,
2017
 
Dec 31,
2016
Assets
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
11,687

 
$
5,560

Short-term investments
 
3,158

 
3,225

Trading assets
 
11,084

 
8,314

Accounts receivable, net
 
5,397

 
4,690

Inventories
 
6,324

 
5,553

Assets held for sale
 

 
5,210

Other current assets
 
2,967

 
2,956

Total current assets
 
40,617

 
35,508

Property, plant and equipment, net of accumulated depreciation of $56,520 ($53,934 as of December 31, 2016)
 
38,130

 
36,171

Marketable equity securities
 
5,904

 
6,180

Other long-term investments
 
4,481

 
4,716

Goodwill
 
14,102

 
14,099

Identified intangible assets, net
 
8,867

 
9,494

Other long-term assets
 
10,006

 
7,159

Total assets
 
$
122,107

 
$
113,327

Liabilities, temporary equity, and stockholders’ equity
 
 
 
 
Current liabilities:
 
 
 
 
Short-term debt
 
$
4,130

 
$
4,634

Accounts payable
 
3,671

 
2,475

Accrued compensation and benefits
 
2,332

 
3,465

Accrued advertising
 
835

 
810

Deferred income
 
1,587

 
1,718

Liabilities held for sale
 

 
1,920

Other accrued liabilities
 
6,227

 
5,280

Total current liabilities

18,782

 
20,302

Long-term debt
 
27,855

 
20,649

Long-term deferred tax liabilities
 
2,502

 
1,730

Other long-term liabilities
 
3,469

 
3,538

Contingencies (Note 17)
 

 

Temporary equity
 
874

 
882

Stockholders’ equity:
 
 
 
 
Preferred stock
 

 

Common stock and capital in excess of par value, 4,699 issued and outstanding (4,730 issued and outstanding as of December 31, 2016)
 
25,781

 
25,373

Accumulated other comprehensive income (loss)
 
1,174

 
106

Retained earnings
 
41,670

 
40,747

Total stockholders’ equity
 
68,625

 
66,226

Total liabilities, temporary equity, and stockholders’ equity
 
$
122,107

 
$
113,327

See accompanying notes.

4



INTEL CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
 
 
Six Months Ended
(In Millions)
 
Jul 1,
2017
 
Jul 2,
2016
Cash and cash equivalents, beginning of period
 
$
5,560

 
$
15,308

Cash flows provided by (used for) operating activities:
 
 
 
 
Net income
 
5,772

 
3,376

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Depreciation
 
3,300

 
3,141

Share-based compensation
 
725

 
812

Restructuring and other charges
 
185

 
1,414

Amortization of intangibles
 
634

 
791

(Gains) losses on equity investments, net
 
(526
)
 
(426
)
(Gains) losses on divestitures
 
(387
)
 

Deferred taxes
 
807

 
71

Changes in assets and liabilities:1
 
 
 
 
Accounts receivable
 
(618
)
 
734

Inventories
 
(760
)
 
(104
)
Accounts payable
 
425

 
375

Accrued compensation and benefits
 
(1,102
)
 
(1,659
)
Income taxes payable and receivable
 
563

 
(79
)
Other assets and liabilities
 
(413
)
 
(546
)
Total adjustments
 
2,833

 
4,524

Net cash provided by operating activities
 
8,605

 
7,900

Cash flows provided by (used for) investing activities:
 
 
 
 
Additions to property, plant and equipment
 
(4,730
)
 
(3,632
)
Acquisitions, net of cash acquired
 
(3
)
 
(14,619
)
Purchases of available-for-sale investments
 
(1,894
)
 
(5,693
)
Sales of available-for-sale investments
 
1,698

 
3,685

Maturities of available-for-sale investments
 
2,197

 
2,393

Purchases of trading assets
 
(7,961
)
 
(7,205
)
Maturities and sales of trading assets
 
5,977

 
5,313

Investments in loans receivable and reverse repurchase agreements
 

 
(223
)
Collection of loans receivable and reverse repurchase agreements
 

 
650

Investments in non-marketable equity investments
 
(625
)
 
(663
)
Proceeds from divestitures
 
924

 

Other investing
 
201

 
304

Net cash used for investing activities
 
(4,216
)
 
(19,690
)
Cash flows provided by (used for) financing activities:
 
 
 
 
Increase (decrease) in short-term debt, net
 
(12
)
 
1,416

Issuance of long-term debt, net of issuance costs
 
7,078

 
2,734

Repayment of debt
 
(500
)
 

Proceeds from sales of common stock through employee equity incentive plans
 
406

 
527

Repurchase of common stock
 
(2,518
)
 
(1,597
)
Restricted stock unit withholdings
 
(404
)
 
(394
)
Payment of dividends to stockholders
 
(2,516
)
 
(2,461
)
Other financing
 
204

 
142

Net cash provided by (used for) financing activities
 
1,738

 
367

Net increase (decrease) in cash and cash equivalents
 
6,127

 
(11,423
)
Cash and cash equivalents, end of period
 
$
11,687

 
$
3,885

 
 
 
 
 
Supplemental disclosures of noncash investing activities and cash flow information:
 
 
 
 
Acquisition of property, plant, and equipment included in accounts payable and accrued liabilities
 
$
1,686

 
$
1,479

Loan receivable from McAfee and TPG
 
$
2,200

 
$

Non-marketable equity investment in McAfee
 
$
1,078

 
$

Cash paid during the period for:
 
 
 
 
Interest, net of capitalized interest and interest rate swap payments/receipts
 
$
280

 
$
348

Income taxes, net of refunds
 
$
1,139

 
$
689

1 
The impact of assets and liabilities reclassified as held for sale was not considered in the changes in assets and liabilities within cash flows from operating activities. See "Note 9: Acquisitions and Divestitures" for additional information.
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 fiscal year ended December 31, 2016 (2016 Form 10-K).
We have a 52- or 53-week fiscal year that ends on the last Saturday in December. Our fiscal year 2017 is a 52-week year ending on December 30, 2017, while our fiscal year 2016 was a 53-week fiscal year that ended on December 31, 2016. The first quarter of fiscal year 2016 was a 14-week quarter compared to the standard 13-week quarters.
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 report should be read in conjunction with the consolidated financial statements in our 2016 Form 10-K.
Note 2: Recent Accounting Standards
We assess the adoption impacts of recently issued accounting standards by the Financial Accounting Standards Board on our financial statements. The tables below describe impacts from newly issued standards as well as material updates to our previous assessments, if any, from our 2016 Form 10-K.
Accounting Standards Adopted
Standard/Description
Effective Date and Adoption Considerations
Effect on Financial Statements or Other Significant Matters
Intangibles - Goodwill and Other - Simplifying the Test for Goodwill Impairment. This accounting standard update eliminates Step 2 from the existing guidance to simplify how goodwill impairment tests are performed.
With the elimination of this step, a goodwill impairment test is performed by comparing the fair value of a reporting unit to its carrying value. An impairment charge is recognized for the amount by which the reporting unit's carrying value exceeds its fair value.

We elected to early adopt this accounting standard update in the second quarter of 2017 on a prospective basis.


We expect the adoption of this update to simplify our annual goodwill impairment testing process, by eliminating the need to estimate the implied fair value of a reporting unit’s goodwill, if its respective carrying value exceeds fair value.



Accounting Standards Not Yet Adopted
Standard/Description
Effective Date and Adoption Considerations
Effect on Financial Statements or Other Significant Matters
Compensation - Retirement Benefits - Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. This amended standard was issued to provide additional guidance on the presentation of net benefit cost in the income statement and on the components eligible for capitalization in assets. The service cost component of the net periodic benefit cost will continue to be reported within operating income on the consolidated income statement. All other non-service components are required to be presented separately outside operating income and only service costs will be eligible for inventory capitalization.
Effective in the first quarter of 2018.
Changes to the presentation of benefit costs are required to be adopted retrospectively while changes to the capitalization of service costs into inventories are required to be adopted prospectively. The standard permits, as a practical expedient, to use the amounts disclosed in the Retirement Benefit Plans footnote for the prior comparative periods as the estimation basis for applying the retrospective presentation requirement.
We expect the adoption of the amended standard to result in the reclassification of approximately $260 million from non-service components above the subtotal of operating income to interest and other, net, for the year ended December 31, 2016. We are continuing to assess the impacts of adoption to our 2017 financial statements.




6

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


Note 3: Operating Segments Information
We manage our business through the following operating segments:
Client Computing Group (CCG)
 
Includes platforms designed for notebooks, 2 in 1 systems, desktops (including all-in-ones and high-end enthusiast PCs), tablets, phones, wireless and wired connectivity products, and mobile communication components.
 
Data Center Group (DCG)
 
Includes workload-optimized platforms for compute, storage, and network functions and related products designed for enterprise, cloud, and communication infrastructure market segments.
 
Internet of Things Group (IOTG)
 
Includes platforms designed for Internet of Things market segments, including retail, transportation, industrial, video, buildings and smart cities, along with a broad range of other market segments.
 
Non-Volatile Memory Solutions Group (NSG)
 
Includes Intel® Optane™ SSD products and NAND flash memory products primarily used in solid-state drives.
 
Programmable Solutions Group (PSG)
 
Includes programmable semiconductors primarily field-programmable gate array (FPGAs) and related products for a broad range of market segments, including communications, data center, industrial, military, and automotive.
 
All other
 
Includes results from our other non-reportable segments and corporate-related charges.
We offer platforms that incorporate various components and technologies, including a microprocessor and chipset, a stand-alone System-on-Chip, or a multichip package. A platform may be enhanced by additional hardware, software, and services offered by Intel. Platforms are used in various form factors across our CCG, DCG, and IOTG operating segments. We derive a substantial majority of our revenue from platforms, which is our principal product.
The “all other” category includes revenue, expenses, and charges such as:
results of operations from non-reportable segments;
amounts included within restructuring and other charges;
a portion of profit-dependent compensation and other expenses not allocated to the operating segments;
divested businesses for which discrete operating results are not regularly reviewed by our Chief Operating Decision Maker (CODM), who is our Chief Executive Officer;
results of operations of start-up businesses that support our initiatives, including our foundry business; and
acquisition-related costs, including amortization and any impairment of acquisition-related intangibles and goodwill.
The CODM does not evaluate operating segments using discrete asset information. Operating segments do not record inter-segment revenue. We do not allocate gains and losses from equity investments, interest and other income, or taxes to operating segments. Although the CODM uses operating income to evaluate the segments, operating costs included in one segment may benefit other segments. Except for these differences, the accounting policies for segment reporting are the same as for Intel as a whole.

7

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


Net revenue and operating income (loss) for each period were as follows:
 
 
Three Months Ended
 
Six Months Ended
(In Millions)
 
Jul 1,
2017
 
Jul 2,
2016
 
Jul 1,
2017
 
Jul 2,
2016
Net revenue:
 
 
 
 
 
 
 
 
Client Computing Group
 
 
 
 
 
 
 
 
Platform
 
$
7,634

 
$
6,938

 
$
15,031

 
$
14,137

Other
 
579

 
400

 
1,158

 
750

 
 
8,213

 
7,338

 
16,189

 
14,887

Data Center Group
 
 
 
 
 
 
 
 
Platform
 
4,026

 
3,718

 
7,905

 
7,425

Other
 
346

 
309

 
699

 
601

 
 
4,372

 
4,027

 
8,604

 
8,026

Internet of Things Group
 
 
 
 
 
 
 
 
Platform
 
614

 
497

 
1,246

 
1,068

Other
 
106

 
75

 
195

 
155

 
 
720

 
572

 
1,441

 
1,223

Non-Volatile Memory Solutions Group
 
874

 
554

 
1,740

 
1,111

Programmable Solutions Group
 
440

 
465

 
865

 
824

All other
 
144

 
577

 
720

 
1,164

Total net revenue
 
$
14,763

 
$
13,533

 
$
29,559

 
$
27,235

Operating income (loss):
 
 
 
 
 
 
 
 
Client Computing Group
 
$
3,025

 
$
1,911

 
$
6,056

 
$
3,796

Data Center Group
 
1,661

 
1,765

 
3,148

 
3,529

Internet of Things Group
 
139

 
89

 
244

 
212

Non-Volatile Memory Solutions Group
 
(110
)
 
(224
)
 
(239
)
 
(319
)
Programmable Solutions Group
 
97

 
(62
)
 
189

 
(262
)
All other
 
(985
)
 
(2,161
)
 
(1,972
)
 
(3,070
)
Total operating income
 
$
3,827

 
$
1,318

 
$
7,426

 
$
3,886


8

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


Note 4: Earnings Per Share
We computed basic earnings per share of common stock based on the weighted average number of shares of common stock outstanding during the period. We computed diluted earnings per share of common stock based on the weighted average number of shares of common stock outstanding plus potentially dilutive shares of common stock outstanding during the period.
 
 
Three Months Ended
 
Six Months Ended
(In Millions, Except Per Share Amounts)
 
Jul 1,
2017
 
Jul 2,
2016
 
Jul 1,
2017
 
Jul 2,
2016
Net income available to common stockholders
 
$
2,808

 
$
1,330

 
$
5,772

 
$
3,376

Weighted average shares of common stock outstanding—basic
 
4,710

 
4,729

 
4,717

 
4,725

Dilutive effect of employee equity incentive plans
 
36

 
49

 
48

 
57

Dilutive effect of convertible debt
 
99

 
88

 
99

 
88

Weighted average shares of common stock outstanding—diluted
 
4,845

 
4,866

 
4,864

 
4,870

Basic earnings per share of common stock
 
$
0.60

 
$
0.28

 
$
1.22

 
$
0.71

Diluted earnings per share of common stock
 
$
0.58

 
$
0.27

 
$
1.19

 
$
0.69

Potentially dilutive shares of common stock from employee incentive plans are determined by applying the treasury stock method to the assumed exercise of outstanding stock options, the assumed vesting of outstanding RSUs, and the assumed issuance of common stock under the stock purchase plan. Potentially dilutive shares of common stock for our 2005 debentures are determined by applying the if-converted method. However, as our 2009 debentures require settlement of the principal amount of the debt in cash upon conversion, with the conversion premium paid in cash or stock at our option, potentially dilutive shares of common stock are determined by applying the treasury stock method.
In all periods presented, potentially dilutive securities which would have been antidilutive are insignificant and are excluded from the computation of diluted earnings per share.
In all periods presented, we included our 2009 debentures in the calculation of diluted earnings per share of common stock because the average market price was above the conversion price. We could potentially exclude the 2009 debentures in the future if the average market price is below the conversion price.
Note 5: Other Financial Statement Details
Inventories
(In Millions)
 
Jul 1,
2017
 
Dec 31,
2016
Raw materials
 
$
1,014

 
$
695

Work in process
 
3,775

 
3,190

Finished goods
 
1,535

 
1,668

Total inventories
 
$
6,324

 
$
5,553

Deferred Income
(In Millions)
 
Jul 1,
2017
 
Dec 31,
2016
Deferred income on shipments of components to distributors
 
$
1,416

 
$
1,475

Deferred income from software, services and other
 
171

 
243

Current deferred income
 
$
1,587


$
1,718


9

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


Gains (Losses) on Equity Investments, Net
The components of gains (losses) on equity investments, net for each period were as follows:
 
 
Three Months Ended
 
Six Months Ended
(In Millions)
 
Jul 1,
2017
 
Jul 2,
2016
 
Jul 1,
2017
 
Jul 2,
2016
Share of equity method investee losses, net
 
$
(8
)
 
$
(12
)
 
$
(19
)
 
$
(20
)
Impairments
 
(555
)
 
(60
)
 
(603
)
 
(89
)
Gains on sales, net
 
802

 
419

 
1,076

 
515

Dividends
 
66

 
74

 
68

 
74

Other, net
 
37

 
57

 
72

 
20

Total gains (losses) on equity investments, net
 
$
342

 
$
478

 
$
594

 
$
500

Interest and Other, Net
The components of interest and other, net for each period were as follows:
 
 
Three Months Ended
 
Six Months Ended
(In Millions)
 
Jul 1,
2017
 
Jul 2,
2016
 
Jul 1,
2017
 
Jul 2,
2016
Interest income
 
$
136

 
$
51

 
$
212

 
$
103

Interest expense
 
(156
)
 
(187
)
 
(302
)
 
(395
)
Other, net
 
423

 
10

 
457

 
84

Total interest and other, net
 
$
403

 
$
(126
)
 
$
367

 
$
(208
)
Interest expense in the preceding table is net of $69 million of interest capitalized in the second quarter of 2017 and $136 million in the first six months of 2017 ($24 million in the second quarter of 2016 and $46 million in the first six months of 2016).
Note 6: Restructuring and Other Charges
 
 
Three Months Ended
 
Six Months Ended
(In Millions)
 
Jul 1,
2017
 
Jul 2,
2016
 
Jul 1,
2017
 
Jul 2,
2016
2016 Restructuring Program
 
$
(42
)
 
$
1,414

 
$
(53
)
 
$
1,414

Other charges
 
147

 

 
238

 

Total restructuring and other charges
 
$
105

 
$
1,414

 
$
185

 
$
1,414

2016 Restructuring Program
In the second quarter of 2016, our management approved and commenced the 2016 Restructuring Program. This program was substantially completed in the second quarter of 2017.
For further information, see "Note 7: Restructuring and Other Charges" in Part II, Item 8 of our 2016 Form 10-K.
Restructuring and other charges by type for the 2016 Restructuring Program for the period were as follows:
 
 
Three Months Ended
 
Six Months Ended
(In Millions)
 
Jul 1,
2017
 
Jul 2,
2016
 
Jul 1,
2017
 
Jul 2,
2016
Employee severance and benefit arrangements
 
$
(49
)
 
$
1,414

 
$
(70
)
 
$
1,414

Asset impairment and other charges
 
7

 

 
17

 

Total restructuring and other charges
 
$
(42
)
 
$
1,414

 
$
(53
)
 
$
1,414


10

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


Restructuring and other activity for the 2016 Restructuring Program for the first six months of 2017 was as follows:
(In Millions)
 
Employee Severance and Benefits
 
Asset Impairments and Other
 
Total
Accrued restructuring balance as of December 31, 2016
 
$
585

 
$
10

 
$
595

Additional accruals
 

 
17

 
17

Adjustments
 
(70
)
 

 
(70
)
Cash payments
 
(217
)
 
(16
)
 
(233
)
Non-cash settlements
 

 
(1
)
 
(1
)
Accrued restructuring balance as of July 1, 2017
 
$
298

 
$
10

 
$
308

We recorded the additional accruals as restructuring and other charges and within the "all other" operating segments category. A substantial majority of the accrued restructuring balance as of July 1, 2017 is expected to be paid within the next 12 months and was recorded within accrued compensation and benefits. Restructuring actions related to this program that were approved in 2016 impacted approximately 15,000 employees.
Other charges
 
 
Three Months Ended
 
Six Months Ended
(In Millions)
 
Jul 1,
2017
 
Jul 1,
2017
ISecG separation costs
 
$
70

 
$
143

Other
 
77

 
95

Total other charges
 
$
147

 
$
238

Note 7: Income Taxes
Our effective income tax rate was 31.2% in the first six months of 2017 compared to 19.2% in the first six months of 2016. A majority of the increase in the effective rate was attributable to the $822 million tax expense due to our divestiture of ISecG.
Note 8: Investments
Available-for-Sale Investments
 
 
July 1, 2017
 
December 31, 2016
(In Millions)
 
Adjusted Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Fair Value
 
Adjusted Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Fair Value
Corporate debt
 
$
6,115

 
$
13

 
$
(7
)
 
$
6,121

 
$
3,847

 
$
4

 
$
(14
)
 
$
3,837

Financial institution instruments
 
8,011

 
7

 
(6
)
 
8,012

 
6,098

 
5

 
(11
)
 
6,092

Government debt
 
1,778

 
3

 
(5
)
 
1,776

 
1,581

 

 
(8
)
 
1,573

Marketable equity securities
 
2,560

 
3,344

 

 
5,904

 
2,818

 
3,363

 
(1
)
 
6,180

Total available-for-sale investments
 
$
18,464

 
$
3,367

 
$
(18
)
 
$
21,813

 
$
14,344

 
$
3,372

 
$
(34
)
 
$
17,682

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 July 1, 2017 (most time deposits were issued by institutions outside the U.S. as of December 31, 2016).

11

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


During the second quarter of 2017, we sold available-for sale investments for proceeds of $1.3 billion ($875 million in the second quarter of 2016). During the first six months of 2017, we sold available-for-sale investments for proceeds of $1.8 billion ($3.8 billion in the first six months of 2016). The gross realized gains on sales of available-for-sale investments were $796 million in the second quarter of 2017 and $1.1 billion in the first six months of 2017 ($403 million in the second quarter of 2016 and $497 million in the first six months of 2016).
On April 28, 2017, Cloudera, Inc. (Cloudera) completed its initial public offering and we have designated our previous equity and cost method investments in Cloudera as available-for-sale. During the second quarter of 2017, we determined we had an other-than-temporary decline in the fair value of our investment and recognized an impairment charge of $278 million. We recognized the impairment in the second quarter due to the duration and severity of the decline in the investment's fair value, which we determined was below cost based upon observable market prices after the initial public offering.
The fair value of available-for-sale debt investments, by contractual maturity, as of July 1, 2017, were as follows:
(In Millions)
 
Fair Value
Due in 1 year or less
 
$
8,408

Due in 1–2 years
 
1,434

Due in 2–5 years
 
2,976

Due after 5 years
 
71

Instruments not due at a single maturity date
 
3,020

Total
 
$
15,909

Equity Method Investments
McAfee
In the second quarter of 2017, we closed our divestiture of the ISecG business and retained a 49% interest in McAfee as partial consideration. The carrying value of our investment was $1.1 billion as of July 1, 2017. Our investment is accounted for under the equity method of accounting and is classified within other long-term assets. For further information related to the divestiture of ISecG, see "Note 9: Acquisitions and Divestitures".
IM Flash Technologies, LLC
Since the inception of IM Flash Technologies, LLC (IMFT) in 2006, Micron Technology, Inc. (Micron) and Intel have jointly developed NAND flash memory and, most recently, 3D XPoint™ technology products. Intel also purchases jointly developed products directly from Micron under certain supply agreements.
As of July 1, 2017, we own a 49% interest in IMFT. The carrying value of our investment was $837 million as of July 1, 2017 ($849 million as of December 31, 2016) and is classified within other long-term assets.
IMFT is a variable interest entity and all costs of IMFT are passed on to Micron and Intel through sale of products or services in proportional share of ownership. Our portion of IMFT costs, primarily related to product purchases and production-related services, was approximately $105 million in the second quarter of 2017 and approximately $235 million in the first six months of 2017 (approximately $100 million in the second quarter of 2016 and approximately $200 million in the first six months of 2016). The amount due to IMFT for product purchases and services provided was approximately $100 million as of July 1, 2017 (approximately $95 million as of December 31, 2016).
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. Except for the amount due to IMFT for product purchases and production-related 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 July 1, 2017. 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.

12

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


Non-marketable Cost Method Investments
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 phones. We 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., a holding company under Tsinghua Unigroup. During 2015, we invested $966 million to complete the first phase of the equity investment and accounted for our interest using the cost method of accounting. During the second quarter of 2017, we reduced our expectation of the company's future operating performance due to competitive pressures, which resulted in an other-than-temporary impairment charge of $147 million.
Trading Assets
Net gains related to trading assets still held at the reporting date were $321 million in the second quarter of 2017 and $483 million in the first six months of 2017 (there were no net gains or losses related to trading assets still held at the reporting date in the second quarter of 2016 and $190 million of net gains in the first six months of 2016). Net losses on the related derivatives were $311 million in the second quarter of 2017 and $446 million in the first six months of 2017 (net losses of $184 million in the first six months of 2016).

13

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


Note 9: Acquisitions and Divestitures
Pending Acquisition of Mobileye
During the first quarter of 2017, we entered into a definitive agreement to acquire Mobileye N.V. (Mobileye). Pursuant to the terms of the agreement, a wholly-owned subsidiary of Intel commenced a tender offer on April 5, 2017 to acquire all of the issued and outstanding ordinary shares of Mobileye for $63.54 per share in cash, representing a fully-diluted equity value of approximately $15.3 billion as of the date of the agreement. The transaction is expected to close during the third quarter of 2017, pending satisfaction of all closing conditions. Mobileye is a global leader in the development of computer vision and machine learning, data analysis, localization and mapping for advanced driver assistance systems and autonomous driving. This acquisition will combine Mobileye’s leading computer vision expertise with Intel’s high-performance computing and connectivity expertise to create automated driving solutions from cloud to car.
Divestiture of Intel Security Group
On September 7, 2016, we announced a definitive agreement with TPG VII Manta Holdings, L.P., now known as Manta Holdings, L.P. (TPG), to transfer certain assets and liabilities relating to ISecG to a newly formed, jointly-owned, separate cybersecurity company, called McAfee. The transaction closed on April 3, 2017.
Total consideration was $4.2 billion, consisting of $924 million in cash proceeds, $1.1 billion in the form of equity representing a 49% ownership interest in McAfee, and $2.2 billion in the form of promissory notes issued by McAfee and TPG. The promissory notes are classified as a loan receivable within other long-term assets. The notes accrue interest quarterly at an interest rate of three-month LIBOR plus 7.0% per annum and mature in 2020, but may be repaid early without penalty. The interest rate will increase by 0.5% every three months beginning in the first quarter of 2018. Additionally, McAfee may borrow $250 million on a line of credit provided by Intel. The line of credit will be closed when the notes are repaid.
The carrying amounts of the major classes of ISecG assets and liabilities as of the transaction close date included the following:
(In Millions)
 
Apr 3,
2017
Accounts receivable
 
$
317

Goodwill
 
3,601

Identified intangible assets
 
965

Other assets
 
276

Total assets
 
$
5,159

 
 
 
Deferred income
 
$
1,553

Other liabilities
 
276

Total liabilities
 
$
1,829

As of the transaction close date, we recognized a pre-tax gain of $387 million within "Interest and other, net," which is net of $507 million of currency translation adjustment losses reclassified from accumulated other comprehensive income (loss) associated with currency charges on the carrying values of ISecG goodwill and identified intangible assets. In addition, we recognized a tax expense of $822 million.

14

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


Note 10: Identified Intangible Assets
 
 
July 1, 2017
(In Millions)
 
Gross Assets
 
Accumulated
Amortization
 
Net
Acquisition-related developed technology
 
$
6,591

 
$
(1,441
)
 
$
5,150

Acquisition-related customer relationships
 
1,340

 
(224
)
 
1,116

Acquisition-related brands
 
79

 
(19
)
 
60

Licensed technology and patents
 
3,184

 
(1,451
)
 
1,733

Identified intangible assets subject to amortization
 
11,194

 
(3,135
)
 
8,059

In-process research and development
 
808

 

 
808

Identified intangible assets not subject to amortization
 
808

 

 
808

Total identified intangible assets
 
$
12,002

 
$
(3,135
)
 
$
8,867

 
 
December 31, 2016
(In Millions)
 
Gross Assets
 
Accumulated
Amortization
 
Net
Acquisition-related developed technology
 
$
7,405

 
$
(1,836
)
 
$
5,569

Acquisition-related customer relationships
 
1,449

 
(260
)
 
1,189

Acquisition-related brands
 
87

 
(21
)
 
66

Licensed technology and patents
 
3,285

 
(1,423
)
 
1,862

Identified intangible assets subject to amortization
 
12,226

 
(3,540
)
 
8,686

In-process research and development
 
808

 

 
808

Identified intangible assets not subject to amortization
 
808

 

 
808

Total identified intangible assets
 
$
13,034

 
$
(3,540
)
 
$
9,494

Amortization expenses recorded in the consolidated condensed statements of income for each period were as follows:
 
 
 
 
Three Months Ended
 
Six Months Ended
(In Millions)
 
Location
 
Jul 1,
2017
 
Jul 2,
2016
 
Jul 1,
2017
 
Jul 2,
2016
Acquisition-related developed technology
 
Cost of sales
 
$
198

 
$
235

 
$
407

 
$
470

Acquisition-related customer relationships
 
Amortization of acquisition-related intangibles
 
33

 
82

 
68

 
165

Acquisition-related brands
 
Amortization of acquisition-related intangibles
 
4

 
7

 
7

 
14

Licensed technology and patents
 
Cost of sales
 
78

 
71

 
152

 
142

Total amortization expense
 
 
 
$
313

 
$
395

 
$
634

 
$
791

We expect future amortization expense for the next five years to be as follows:
(In Millions)
 
Remainder of 2017
 
2018
 
2019
 
2020
 
2021
Acquisition-related developed technology
 
$
394

 
$
784

 
$
782

 
$
750

 
$
715

Acquisition-related customer relationships
 
67

 
122

 
121

 
119

 
119

Acquisition-related brands
 
7

 
13

 
13

 
13

 
14

Licensed technology and patents
 
132

 
231

 
219

 
194

 
179

Total future amortization expenses
 
$
600

 
$
1,150

 
$
1,135

 
$
1,076

 
$
1,027


15

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


Note 11: Other Long-Term Assets
(In Millions)
 
Jul 1,
2017
 
Dec 31,
2016
Equity method investments
 
$
2,266

 
$
1,328

Non-marketable cost method investments
 
2,719

 
3,098

Non-current deferred tax assets
 
753

 
907

Pre-payments for property, plant and equipment
 
422

 
347

Loans receivable
 
2,725

 
236

Reverse repurchase agreements
 

 
250

Other
 
1,121

 
993

Total other long-term assets
 
$
10,006

 
$
7,159

Note 12: Borrowings
Short-Term Debt
(In Millions)
 
Jul 1,
2017
 
Dec 31,
2016
Drafts payable
 
$
13

 
$
25

Current portion of long-term debt
 
4,125

 
4,618

Less: debt issuance costs associated with the current portion of long-term debt
 
(8
)
 
(9
)
Total short-term debt
 
$
4,130

 
$
4,634

Our current portion of long-term debt includes our 2009 junior subordinated convertible debentures due 2039 and our 2012 senior notes due 2017.
We have an ongoing authorization from our Board of Directors to borrow up to $10.0 billion under our commercial paper program. This amount includes an increase of $5.0 billion in the authorization limit approved by our Board of Directors in April 2017.
During the second quarter of 2017, we repaid $500 million of our 1.75% senior notes that matured in May 2017.

16

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


Long-Term Debt
Our indebtedness is carried at amortized cost net of applicable hedge adjustments.
(In Millions)
 
Jul 1,
2017
 
Dec 31,
2016
Floating-rate senior notes:
 
 
 
 
$700, three-month LIBOR plus 0.08%, due May 2020
 
$
700

 
$

$800, three-month LIBOR plus 0.35%, due May 2022
 
800

 

Fixed-rate senior notes:
 
 
 
 
$500, 1.75%, due May 2017
 

 
501

$3,000, 1.35%, due December 2017
 
3,000

 
2,999

$600, 2.50%, due November 2018
 
603

 
604

A$250, 3.25%, due December 20191
 
191

 
180

$1,000, 1.85%, due May 2020
 
1,000

 

$1,750, 2.45%, due July 2020
 
1,749

 
1,749

$500, 1.70%, due May 2021
 
499

 
499

$2,000, 3.30%, due October 2021
 
1,999

 
1,988

$750, 2.35%, due May 2022
 
748

 

$1,000, 3.10%, due July 2022
 
995

 
987

A$550, 4.00%, due December 20221
 
419

 
394

$1,500, 2.70%, due December 2022
 
1,493

 
1,480

$400, 4.10%, due November 2023
 
422

 
424

$1,250, 2.88%, due May 2024
 
1,241

 

$600, 2.70%, due June 2024
 
600

 

$2,250, 3.70%, due July 2025
 
2,176

 
2,148

$1,000, 2.60%, due May 2026
 
995

 
983

$1,000, 3.15%, due May 2027
 
997

 

$750, 4.00%, due December 2032
 
745

 
745

$1,500, 4.80%, due October 2041
 
1,491

 
1,491

$925, 4.25%, due December 2042
 
924

 
924

$2,000, 4.90%, due July 2045
 
1,999

 
1,999

$1,007, 4.90%, due August 2045
 
1,005

 
995

$915, 4.70%, due December 2045
 
905

 
894

$1,250, 4.10%, due May 2046
 
1,243

 
1,243

$1,000, 4.10%, due May 2047
 
994

 

Junior subordinated convertible debentures:
 
 
 
 
$1,600, 2.95%, due December 2035
 
1,000

 
992

$2,000, 3.25%, due August 2039
 
1,126

 
1,118

Long-term debt
 
32,059

 
25,337

Less: current portion of long-term debt
 
(4,125
)
 
(4,618
)
Less: debt issuance costs
 
(79
)
 
(70
)
Total long-term debt
 
$
27,855

 
$
20,649

1 
To manage foreign currency risk associated with the Australian-dollar-denominated notes issued in 2015, we entered into currency interest rate swaps with an aggregate notional amount of $577 million, which effectively converted these notes to U.S.-dollar-denominated notes. For further discussion on our currency interest rate swaps, see "Note 15: Derivative Financial Instruments."

17

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


During the second quarter of 2017, we issued a total of $7.1 billion aggregate principal amount of senior notes. We intend to use the net proceeds from the offering of the notes for general corporate purposes, which may include refinancing of outstanding debt or repurchases of shares of our common stock.
Our senior floating rate notes pay interest quarterly and our senior fixed rate notes pay interest semiannually. We may redeem the fixed rate notes prior to their maturity at our option at specified redemption prices and subject to certain restrictions. The obligations under the notes rank equally in right of payment with all of our other existing and future senior unsecured indebtedness and effectively rank junior to all liabilities of our subsidiaries.
Subsequent to the end of the second quarter of 2017, we gave notice of our intention to redeem the $1.0 billion, 4.90% senior notes due August 2045. The redemption date is August 11, 2017.
For further information on our debt instruments, see "Note 14: Borrowings" in Part II, Item 8 of our 2016 Form 10-K.

18

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


Note 13: Fair Value
For information about our fair value policies, and methods and assumptions used in estimating the fair value of our financial assets and liabilities, see “Note 2: Accounting Policies" and "Note 15: Fair Value" in Part II, Item 8 of our 2016 Form 10-K.
Assets and Liabilities Measured and Recorded at Fair Value on a Recurring Basis
 
 
July 1, 2017
 
December 31, 2016
 
 
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
 
$

 
$
2,645

 
$

 
$
2,645

 
$

 
$
498

 
$

 
$
498

Financial institution instruments 1
 
3,020

 
2,139

 

 
5,159

 
1,920

 
811

 

 
2,731

Government debt 2
 

 
466

 

 
466

 

 
332

 

 
332

Reverse repurchase agreements
 

 
2,335

 

 
2,335

 

 
768

 

 
768

Short-term investments:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Corporate debt
 

 
1,654

 
6

 
1,660

 

 
1,332

 
6

 
1,338

Financial institution instruments 1
 

 
1,221

 

 
1,221

 

 
1,603

 

 
1,603

Government debt 2
 

 
277

 

 
277

 

 
284

 

 
284

Trading assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Asset-backed securities
 

 
22

 

 
22

 

 
87

 

 
87

Corporate debt
 

 
2,461

 

 
2,461

 

 
2,847

 

 
2,847

Financial institution instruments 1
 
92

 
1,544

 

 
1,636

 
36

 
1,608

 

 
1,644

Government debt 2
 
31

 
6,934

 

 
6,965

 
32

 
3,704

 

 
3,736

Other current assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Derivative assets
 

 
326

 

 
326

 

 
382

 

 
382

Loans receivable
 

 
86

 

 
86

 

 
326

 

 
326

Marketable equity securities
 
5,472

 
432

 

 
5,904

 
6,180

 

 

 
6,180

Other long-term investments:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Corporate debt
 

 
1,811

 
5

 
1,816

 

 
1,995

 
6

 
2,001

Financial institution instruments 1
 

 
1,632

 

 
1,632

 

 
1,758

 

 
1,758

Government debt 2
 

 
1,033

 

 
1,033

 

 
957

 

 
957

Other long-term assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Derivative assets
 

 
64

 
9

 
73

 

 
31

 
9

 
40

Loans receivable
 

 
525

 

 
525

 

 
236

 

 
236

Total assets measured and recorded at fair value
 
8,615

 
27,607

 
20

 
36,242

 
8,168

 
19,559

 
21

 
27,748

Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other accrued liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Derivative liabilities
 

 
444

 

 
444

 

 
371

 

 
371

Other long-term liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Derivative liabilities
 

 
125

 
12

 
137

 

 
179

 
33

 
212

Total liabilities measured and recorded at fair value
 
$

 
$
569

 
$
12

 
$
581

 
$

 
$
550

 
$
33

 
$
583

1 
Level 1 investments consist of money market funds. Level 2 investments consist primarily of commercial paper, certificates of deposit, time deposits, and notes and bonds issued by financial institutions.
2 
Level 1 investments consist primarily of US Treasury securities. Level 2 investments consist primarily of US Agency notes and non-U.S. government debt.

19

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


In the second quarter of 2017, we began assigning fair value hierarchy levels based on the underlying instrument type for our fixed income portfolio. We have reclassified prior period amounts to conform to the current period presentation.
Fair Value Option for Loans Receivable
As of July 1, 2017 and December 31, 2016, 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.
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.
We classified non-marketable equity investments as Level 3. Impairments recognized on non-marketable equity investments held as of July 1, 2017 were $277 million during the second quarter of 2017 and $325 million during the first six months of 2017 ($57 million during the second quarter of 2016 and $84 million during the first six months of 2016 on non-marketable equity investments held as of July 2, 2016).
Financial Instruments Not Recorded at Fair Value on a Recurring Basis
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:
 
 
July 1, 2017
(In Millions)
 
Carrying
Amount
 
Fair Value Measured Using
 
Fair Value
Level 1
 
Level 2
 
Level 3
 
Grants receivable
 
$
440

 
$

 
$
440

 
$

 
$
440

Loans receivable1
 
$
2,465

 
$

 
$
2,465