10-Q 1 a0331201810qdocument.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 March 31, 2018.
Or
 
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
For the transition period from                  to                 
Commission File Number 000-06217
a001intellogocolor.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 March 31, 2018
Common stock, $0.001 par value
 
4,660 million



TABLE OF CONTENTS
CHANGES TO OUR QUARTERLY REPORT ON FORM 10-Q
To improve readability and better present how we organize and manage our business, we have changed the order and presentation of content in our Quarterly Report on Form 10-Q (Form 10-Q). See "Form 10-Q Cross-Reference Index" within Other Key Information for a cross-reference index to the traditional U.S. Securities and Exchange Commission (SEC) Form 10-Q format.
We have included key metrics that we use to measure our business, some of which are non-GAAP measures. See these "Non-GAAP Financial Measures" within Other Key Information.

FORWARD-LOOKING STATEMENTS
A QUARTER IN REVIEW
 
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS AND SUPPLEMENTAL DETAILS
 
Index to Consolidated Condensed Financial Statements and Supplemental Details
 
Consolidated Condensed Financial Statements
 
Notes to the Consolidated Condensed Financial Statements
 
MANAGEMENT'S DISCUSSION AND ANALYSIS (MD&A) - RESULTS OF OPERATIONS
 
Overview
 
Revenue, Gross Margin, and Operating Expenses
 
Business Unit Trends and Results
 
Other Consolidated Results of Operations
 
Liquidity and Capital Resources
 
Quantitative and Qualitative Disclosures about Market Risk
 
OTHER KEY INFORMATION
 
Risk Factors
 
Controls and Procedures
 
Non-GAAP Financial Measures
 
Issuer Purchases of Equity Securities
 
Exhibits
 
Form 10-Q Cross-Reference 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, projected growth of markets relevant to 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 30, 2017, 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 April 26, 2018. 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.

INTEL UNIQUE TERMS
We use specific terms throughout this document to describe our business and results. Below are key terms and how we define them:
PLATFORM PRODUCTS
 
A microprocessor (processor or central processing unit (CPU)) and chipset, a stand-alone System-on-Chip (SoC), or a multichip package. Platform products, or platforms, are primarily used in solutions sold through Client Computing Group (CCG), Data Center Group (DCG), and Internet of Things Group (IOTG) segments.
 
 
 
ADJACENT PRODUCTS
 
All of our non-platform products, for CCG, DCG, and IOTG like modem, ethernet and silicon photonics, as well as Non-Volatile Memory Solutions Group (NSG), Programmable Solutions Group (PSG), and Mobileye products. Combined with our platform products, adjacent products form comprehensive platform solutions to meet customer needs.
 
 
 
PC-CENTRIC BUSINESS
 
Is made up of our CCG business, both platform and adjacent products.
 
 
 
DATA-CENTRIC BUSINESSES
 
Includes our DCG, IOTG, NSG, PSG, and all other businesses.
Intel, the Intel logo, Intel Core, Intel Inside, Intel Optane, Xeon, and 3D XPoint are trademarks of Intel Corporation or its subsidiaries in the U.S. and/or other countries.
*Other names and brands may be claimed as the property of others. 

 
 
1


A QUARTER IN REVIEW
Q1 2018 was a record first quarter in revenue and exceeded the expectations we set in January 2018. Our transformation to a data-centric company accelerated with the revenue of our data-centric businesses up 25% over the first quarter of last year excluding Intel Security Group (ISecG). Collectively, these businesses now account for 49% of revenue and are on track to cross over 50% of revenue this year — an important milestone for our company. CCG continued to execute well, producing revenue growth within a declining PC market.
We generated $6.3 billion of cash flow from operations and returned $3.3 billion to shareholders. We received prepayments of $1.7 billion associated with NAND strategic customer supply agreements.
REVENUE
 
OPERATING INCOME
 
DILUTED EPS
$16.1B
 
 
 
$4.5B
 
$4.8B
 
$0.93
 
$0.87
GAAP
 
 
 
GAAP
 
non-GAAP1
 
GAAP
 
non-GAAP1
up $1.3B or 9% from Q1 2017; up 13% excluding ISecG
 
up $838M or 23% from Q1 2017
 
up $836M or 21% from Q1 2017
 
up $0.32 or 53% from Q1 2017
 
up $0.21 or 32% from Q1 2017
 
 
 
 
 
 
 
 
 
Strong results from data-centric businesses driven by double-digit growth across DCG, IOTG, NSG, and PSG
 
Higher ASP and volume with lower spending, offset by 10nm transition costs
 
Data-centric growth, strong operating margin leverage, lower tax rate from Tax Reform2, and mark to market gains in GAAP results
 
 
 
 
 
 
 
 
 
 
 
 Data-centric $B
 
 PC-centric $B
 
 GAAP $B
 
Non-GAAP $B
 
 GAAP
 
 Non-GAAP
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BUSINESS SUMMARY
Data-centric investments are building momentum. Customers are accelerating adoption of Intel® Xeon® Scalable processors and our field-programmable gate arrays (FPGAs) are winning data-center designs.
We announced new products including the high performance 8th Gen Intel® Core™ i9 processor for mobile and the Intel® Optane™ SSD 800P, the latest addition to the growing Intel Optane technology family of products.
Mobileye won a high-volume design for EyeQ*5. We also began operating autonomous vehicle test cars in Israel with plans to expand the fleet to other geographies.
We are sharpening the focus of IOTG toward growth opportunities that align to our data-centric strategy. We entered into an agreement to divest Wind River Systems, Inc. (Wind River), currently reported under IOTG. The assets and liabilities of Wind River are classified as held for sale and we expect the transaction to close by the end of Q2 this year. 
We continue to make 14nm process optimizations and architectural innovations in both data-center and client products that will be coming this year. Intel is currently shipping low volume 10nm product and now expects 10nm volume production to shift to 2019.
The security of our products is one of our most important priorities. We have released microcode updates for Intel products launched in the past nine years that require protection against the side-channel method vulnerabilities referred to as "Spectre" and "Meltdown." In addition, we are making changes to our future hardware design to address certain of these side-channel variants.


1 See "Non-GAAP Financial Measures" within Other Key Information.
2 Tax Reform refers to the U.S. Tax Cuts and Jobs Act enacted in December 2017.

A QUARTER IN REVIEW
 
2


CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
INDEX TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Page
Consolidated Condensed Statements of Income
Consolidated Condensed Statements of Comprehensive Income
Consolidated Condensed Balance Sheets
Consolidated Condensed Statements of Cash Flows
 
 
Notes to Consolidated Condensed Financial Statements
 
 
Basis
 
Note 1: Basis of Presentation
Note 2: Recent Accounting Standards and Accounting Policies
Performance & Operations
 
Note 3: Operating Segments
Note 4: Earnings Per Share
Note 5: Contract Liabilities
Note 6: Other Financial Statement Details
Note 7: Income Taxes
Investments, Long-term Assets & Debt
 
Note 8: Investments
Note 9: Identified Intangible Assets
Note 10: Other Long-Term Assets
Note 11: Fair Value
Risk Management & Other
 
Note 12: Other Comprehensive Income (Loss)
Note 13: Derivative Financial Instruments
Note 14: Employee Equity Incentive Plans
Note 15: Contingencies

 
 
3


INTEL CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
 
 
Three Months Ended
(In Millions, Except Per Share Amounts; Unaudited)
 
Mar 31,
2018
 
Apr 1,
2017
Net revenue
 
$
16,066

 
$
14,796

Cost of sales
 
6,335

 
5,636

Gross margin
 
9,731

 
9,160

Research and development
 
3,311

 
3,311

Marketing, general and administrative
 
1,900

 
2,099

Restructuring and other charges
 

 
80

Amortization of acquisition-related intangibles
 
50

 
38

Operating expenses
 
5,261

 
5,528

Operating income
 
4,470

 
3,632

Gains (losses) on equity investments, net
 
643

 
252

Interest and other, net
 
(102
)
 
(69
)
Income before taxes
 
5,011

 
3,815

Provision for taxes
 
557

 
851

Net income
 
$
4,454

 
$
2,964

Earnings per share – Basic
 
$
0.95

 
$
0.63

Earnings per share – Diluted
 
$
0.93

 
$
0.61

Cash dividends declared per share of common stock
 
$
0.60

 
$
0.5325

Weighted average shares of common stock outstanding:
 
 
 
 
Basic
 
4,674

 
4,723

Diluted
 
4,790

 
4,881

See accompanying notes.

FINANCIAL STATEMENTS
  Consolidated Condensed Statements of Income
4




INTEL CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME
 
 
Three Months Ended
(In Millions; Unaudited)
 
Mar 31,
2018
 
Apr 1,
2017
Net income
 
$
4,454

 
$
2,964

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

 
543

Net unrealized holding gains (losses) on derivatives
 
119

 
195

Actuarial valuation and other pension benefits (expenses), net
 
148

 
18

Translation adjustments and other
 
(22
)
 
1

Other comprehensive income (loss)
 
245

 
757

Total comprehensive income
 
$
4,699

 
$
3,721

See accompanying notes.

FINANCIAL STATEMENTS
  Consolidated Condensed Statements of Comprehensive Income
5



INTEL CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(In Millions)
 
Mar 31,
2018
 
Dec 30,
2017
 
 
(unaudited)
 
 
Assets
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
3,554

 
$
3,433

Short-term investments
 
2,020

 
1,814

Trading assets
 
10,623

 
8,755

Accounts receivable
 
4,879

 
5,607

Inventories
 
7,146

 
6,983

Other current assets
 
3,408

 
2,908

Total current assets
 
31,630

 
29,500

Property, plant and equipment, net of accumulated depreciation of $60,665 ($59,286 as of December 30, 2017)
 
43,735

 
41,109

Equity investments
 
9,481

 
8,579

Other long-term investments
 
3,435

 
3,712

Goodwill
 
24,346

 
24,389

Identified intangible assets, net
 
12,355

 
12,745

Other long-term assets
 
3,614

 
3,215

Total assets
 
$
128,596

 
$
123,249

Liabilities, temporary equity, and stockholders’ equity
 
 
 
 
Current liabilities:
 
 
 
 
Short-term debt
 
$
3,842

 
$
1,776

Accounts payable
 
4,415

 
2,928

Accrued compensation and benefits
 
2,118

 
3,526

Deferred income
 

 
1,656

Other accrued liabilities
 
9,586

 
7,535

Total current liabilities

19,961

 
17,421

Debt
 
24,770

 
25,037

Contract liabilities
 
2,479

 

Income taxes payable, non-current
 
5,774

 
4,069

Deferred income taxes
 
1,564

 
3,046

Other long-term liabilities
 
3,082

 
3,791

Contingencies (Note 15)
 

 

Temporary equity
 
801

 
866

Stockholders’ equity:
 
 
 
 
Preferred stock
 

 

Common stock and capital in excess of par value, 4,660 issued and outstanding (4,687 issued and outstanding as of December 30, 2017)
 
26,430

 
26,074

Accumulated other comprehensive income (loss)
 
(683
)
 
862

Retained earnings
 
44,418

 
42,083

Total stockholders’ equity
 
70,165

 
69,019

Total liabilities, temporary equity, and stockholders’ equity
 
$
128,596

 
$
123,249

See accompanying notes.

FINANCIAL STATEMENTS
  Consolidated Condensed Balance Sheets
6



INTEL CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
 
 
Three Months Ended
(In Millions; Unaudited)
 
Mar 31,
2018
 
Apr 1,
2017
Cash and cash equivalents, beginning of period
 
$
3,433

 
$
5,560

Cash flows provided by (used for) operating activities:
 
 
 
 
Net income
 
4,454

 
2,964

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Depreciation
 
1,806

 
1,625

Share-based compensation
 
433

 
397

Restructuring and other charges
 

 
80

Amortization of intangibles
 
390

 
321

(Gains) losses on equity investments, net
 
(643
)
 
(250
)
Deferred taxes
 
1

 
212

Changes in assets and liabilities:
 
 
 
 
Accounts receivable
 
102

 
(105
)
Inventories
 
(96
)
 
(232
)
Accounts payable
 
73

 
188

Accrued compensation and benefits
 
(1,307
)
 
(1,277
)
Customer deposits and prepaid supply agreements
 
1,599

 

Income taxes payable and receivable
 
294

 
427

Other assets and liabilities
 
(822
)
 
(452
)
Total adjustments
 
1,830

 
934

Net cash provided by operating activities
 
6,284

 
3,898

Cash flows provided by (used for) investing activities:
 
 
 
 
Additions to property, plant and equipment
 
(2,910
)
 
(1,952
)
Purchases of available-for-sale debt investments
 
(859
)
 
(1,746
)
Maturities of available-for-sale debt investments
 
893

 
1,508

Purchases of trading assets
 
(5,398
)
 
(3,075
)
Maturities and sales of trading assets
 
3,760

 
2,433

Other investing
 
(277
)
 
54

Net cash used for investing activities
 
(4,791
)
 
(2,778
)
Cash flows provided by (used for) financing activities:
 
 
 
 
Increase (decrease) in short-term debt, net
 
2,142

 
435

Repayment of debt and debt conversion
 
(327
)
 

Proceeds from sales of common stock through employee equity incentive plans
 
289

 
329

Repurchase of common stock
 
(1,914
)
 
(1,242
)
Payment of dividends to stockholders
 
(1,400
)
 
(1,229
)
Other financing
 
(162
)
 
(39
)
Net cash provided by (used for) financing activities
 
(1,372
)
 
(1,746
)
Net increase (decrease) in cash and cash equivalents
 
121

 
(626
)
Cash and cash equivalents, end of period
 
$
3,554

 
$
4,934

 
 
 
 
 
Supplemental disclosures of noncash investing activities and cash flow information:
 
 
 
 
Acquisition of property, plant, and equipment included in accounts payable and accrued liabilities
 
$
2,904

 
$
1,448

Cash paid during the period for:
 
 
 
 
Interest, net of capitalized interest and interest rate swap payments/receipts
 
$
60

 
$
97

Income taxes, net of refunds
 
$
228

 
$
171

See accompanying notes.

FINANCIAL STATEMENTS
  Consolidated Condensed Statements of Cash Flows
7



INTEL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE 1: BASIS OF PRESENTATION
We prepared our interim consolidated condensed financial statements that accompany these notes in conformity with 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 30, 2017 (2017 Form 10-K), except for changes associated with recent accounting standards for retirement benefits, revenue recognition, and financial instruments as detailed in "Note 2: Recent Accounting Standards and Accounting Policies."
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 2017 Form 10-K.
NOTE 2: RECENT ACCOUNTING STANDARDS AND ACCOUNTING POLICIES
We assess the adoption impacts of recently issued accounting standards by the Financial Accounting Standards Board on our financial statements. The sections below describe impacts from newly adopted standards as well as material updates to our previous assessments, if any, from our 2017 Form 10-K.
ACCOUNTING STANDARDS ADOPTED
Compensation - Retirement Benefits - Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost
Standard/Description: This amended standard was issued to provide additional guidance on the presentation of net periodic benefit cost in the income statement and on the components eligible for capitalization in assets. In accordance with the revised standard, we have separated the different components of net periodic benefit cost, presenting service cost components within operating income and other non-service components separately outside of operating income on the income statement. In addition, only service costs are now eligible for inventory capitalization.
Effective Date and Adoption Considerations: Effective in the first quarter of 2018. Changes to the presentation of benefit costs were 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, use of the amounts disclosed in the Retirement Benefit Plans footnote for the prior comparative periods as the estimation basis for applying the retrospective presentation requirement.
Effect on Financial Statements or Other Significant Matters: Adoption of the amended standard resulted in the reclassification of approximately $114 million of non-service net periodic benefit costs from line items within operating income to interest and other, net, for the year ended December 30, 2017 ($259 million for the year ended December 31, 2016).
Revenue Recognition - Contracts with Customers
Standard/Description: This standard was issued to achieve a consistent application of revenue recognition within the U.S., resulting in a single revenue model to be applied by all companies. 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 companies disclose the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.
Effective Date and Adoption Considerations: Effective in the first quarter of 2018.This standard was adopted using a modified retrospective approach through a cumulative adjustment to retained earnings for the fiscal year beginning December 31, 2017.
Effect on Financial Statements or Other Significant Matters: Our adoption assessments identified a change in revenue recognition timing on our component sales made to distributors. Under the new standard we now recognize revenue when we deliver to the distributor rather than deferring recognition until the distributor sells the components.
On the date of initial application, we removed the deferred income and related receivables on component sales made to distributors through a cumulative adjustment to retained earnings. The revenue deferral that was historically recognized in the following period is expected to be primarily offset by the acceleration of revenue recognition in the current period as control of the product transfers to our customer.

FINANCIAL STATEMENTS
  Notes to Financial Statements
8




Our assessment also identified a change in expense recognition timing related to payments we make to our customers for distinct services they perform as part of cooperative advertising programs, which were previously recorded as operating expenses. We now recognize the expense for cooperative advertising in the period the marketing activities occur. Previously we recognized the expense in the period the customer was entitled to participate in the program, which coincided with the period of sale. On the date of initial adoption, we capitalized the expense of cooperative advertising not performed through a cumulative adjustment to retained earnings.
We have completed our adoption and implemented policies, processes, and controls to support the standard's measurement and disclosure requirements. Refer to the tables below, which summarize the impacts of the changes discussed above to Intel's financial statements recorded as an adjustment to opening balances for the fiscal year beginning December 31, 2017, and also provide comparative reporting of the impacts of adopting the standard.
Accounting Policy Updates: We recognize net product revenue when we satisfy performance obligations as evidenced by the transfer of control of our products or services to customers. Substantially all of our revenue is derived from product sales. In accordance with contract terms, revenue for product sales is recognized at the time of product shipment from our facilities or delivery to the customer location, as determined by the agreed upon shipping terms. We include shipping charges billed to customers in net revenue, and include the related shipping costs in cost of sales.
We measure revenue based on the amount of consideration we expect to be entitled to in exchange for products or services. Any variable consideration is recognized as a reduction of net revenue at the time of revenue recognition. We determine variable consideration, which consists primarily of sales price concessions, by estimating the most likely amount of consideration we expect to receive from the customer based on historical analysis of customer purchase volumes. The impacts of distributor sales price reductions resulting from price protection agreements are also estimated based on historical analysis of such activity and are reflected as a reduction in net revenue.
We make payments to our customers through cooperative advertising programs, such as our Intel Inside® program, for marketing activities for certain of our products. We accrue cooperative advertising obligations and record the costs as a reduction in revenue at the same time that the related revenue is recognized.
Financial Instruments - Recognition and Measurement
Standard/Description: Requires changes to the accounting for financial instruments that primarily affect equity investments, financial liabilities measured using the fair value option, and the presentation and disclosure requirements for such instruments.
Effective Date and Adoption Considerations: Effective in the first quarter of 2018. Changes to our marketable equity securities were required to be adopted using a modified retrospective approach through a cumulative effect adjustment to retained earnings for the fiscal year beginning December 31, 2017. Since management has elected to apply the measurement alternative to non-marketable equity securities, changes to these securities were adopted prospectively.
Effect on Financial Statements or Other Significant Matters: Marketable equity securities previously classified as available-for-sale equity investments are now measured and recorded at fair value with changes in fair value recorded through the income statement.
All non-marketable equity securities formerly classified as cost method investments are measured and recorded using the measurement alternative. Equity securities measured and recorded using the measurement alternative are recorded at cost minus impairment, if any, plus or minus changes resulting from qualifying observable price changes. Adjustments resulting from impairments and observable price changes are recorded in the income statement.
Beginning in the first quarter of 2018, in accordance with the standard, recurring fair value disclosures are no longer provided for equity securities measured using the measurement alternative. In addition, the existing impairment model has been replaced with a new one-step qualitative impairment model. No initial adoption adjustment was recorded for these instruments since the standard is required to be applied prospectively for securities measured using the measurement alternative.
We have completed our adoption and implemented policies, processes, and controls to support the standard's measurement and disclosure requirements. Refer to the table below, which summarizes impacts, net of tax, of the changes discussed above to Intel's financial statements. This reflects an adjustment to opening balances for the fiscal year beginning December 31, 2017.
Accounting Policy Updates: We regularly invest in equity securities of public and private companies to promote business and strategic objectives. Equity investments are measured and recorded as follows:
Marketable equity securities are equity securities with readily determinable fair value (RDFV) that are measured and recorded at fair value. Prior to fiscal 2018, these securities were measured and recorded at fair value and classified as available-for-sale securities.
Non-marketable equity securities are equity securities without RDFV that are measured and recorded using a measurement alternative which measures the securities at cost minus impairment, if any, plus or minus changes resulting from qualifying observable price changes. These securities were previously accounted for using the cost method of accounting, measured at cost less other-than-temporary impairment.

FINANCIAL STATEMENTS
  Notes to Financial Statements
9




Equity method investments are equity securities in investees we do not control but over which we have the ability to exercise significant influence. Equity method investments are measured at cost minus impairment, if any, plus or minus our share of equity method investee income or loss. Our proportionate share of the income or loss from equity method investments is recognized on a one-quarter lag and is recorded in gains (losses) on equity investments, net.
Realized and unrealized gains or losses resulting from changes in value and sale of our equity investments are recorded in gains (losses) on equity investments, net. We previously recorded unrealized gains and losses through other comprehensive income (loss) and realized gains and losses on the sale, exchange or impairment of these equity investments through gains (losses) on equity investments, net.
The carrying value of our portfolio of non-marketable equity securities totaled $2.8 billion as of March 31, 2018 ($2.6 billion as of December 30, 2017). The carrying value of our non-marketable equity securities is adjusted for qualifying observable price changes resulting from the issuance of similar or identical securities by the same issuer. Determining whether an observed transaction is similar to a security within our portfolio requires judgment based on the rights and preferences of the securities. Recording upward and downward adjustments to the carrying value of our equity securities as a result of observable price changes requires quantitative assessments of the fair value of our securities using various valuation methodologies and involves the use of estimates.
Non-marketable equity securities and equity method investments are also subject to periodic impairment reviews. Our quarterly impairment analysis considers both qualitative and quantitative factors that may have a significant impact on the investee's fair value. Qualitative factors considered include industry and market conditions, the financial performance and near-term prospects of the investee, and other relevant events and factors affecting the investee. When indicators of impairment exist, we prepare quantitative assessments of the fair value of our equity investments using both the market and income approaches which require judgment and the use of estimates, including discount rates, investee revenues and costs, and comparable market data of private and public companies, among others. Prior to fiscal 2018, non-marketable equity securities were tested for impairment using the other-than-temporary impairment model which considered the severity and duration of a decline in fair value below cost and our ability and intent to hold the investment for a sufficient period of time to allow for recovery. Impairments of non-marketable equity securities were $16 million in the first quarter of 2018 ($46 million in the first quarter of 2017).
Opening Balance Adjustments
The following table summarizes the effects of adopting Revenue Recognition - Contracts with CustomersFinancial Instruments - Recognition and Measurement, and other accounting standards on our financial statements for the fiscal year beginning December 31, 2017 as an adjustment to the opening balance:
 
 
 
 
Adjustments from
 
 

(In Millions)
 
Balance as of
Dec 30, 2017
 
Revenue Standard
 
Financial Instruments Update
 
Other1 
 
Opening Balance as of
Dec 31, 2017
Assets:
 
 
 
 
 
 
 
 
 
 
Accounts receivable
 
$
5,607

 
$
(530
)
 
$

 
$

 
$
5,077

Inventories
 
$
6,983

 
$
47

 
$

 
$

 
$
7,030

Other current assets
 
$
2,908

 
$
64

 
$

 
$
(8
)
 
$
2,964

Equity investments
 
$

 
$

 
$
8,579

 
$

 
$
8,579

Marketable equity securities
 
$
4,192

 
$

 
$
(4,192
)
 
$

 
$

Other long-term assets
 
$
7,602

 
$

 
$
(4,387
)
 
$
(43
)
 
$
3,172

 
 
 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
 
 
Deferred income
 
$
1,656

 
$
(1,356
)
 
$

 
$

 
$
300

Other accrued liabilities
 
$
7,535

 
$
81

 
$

 
$

 
$
7,616

Deferred income taxes
 
$
3,046

 
$
191

 
$

 
$
(20
)
 
$
3,217

 
 
 
 
 
 
 
 
 
 
 
Stockholders' equity:
 
 
 
 
 
 
 
 
 
 
Accumulated other comprehensive income (loss)
 
$
862

 
$

 
$
(1,745
)
 
$
(45
)
 
$
(928
)
Retained earnings
 
$
42,083

 
$
665

 
$
1,745

 
$
14

 
$
44,507

1 
Includes adjustments from adoption of "Income Taxes - Intra-Entity Transfers of Assets Other Than Inventory" and "Income StatementReporting Comprehensive Income - Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income."

FINANCIAL STATEMENTS
  Notes to Financial Statements
10




The following table summarizes the impacts of adopting the new revenue standard on our consolidated condensed statement of income and balance sheet:
 
 
For the period ended March 31, 2018
(In Millions)
 
As reported
 
Adjustments
 
Without new revenue standard
Income Statement
 
 
 
 
 
 
 
 
 
 
 
 
 
Net revenue
 
$
16,066

 
$
(462
)
 
$
15,604

Cost of sales
 
6,335

 
(156
)
 
6,179

Gross margin
 
9,731

 
(306
)
 
9,425

Marketing, general and administrative
 
1,900

 
(52
)
 
1,848

Operating income
 
4,470

 
(254
)
 
4,216

Income before taxes
 
5,011

 
(254
)
 
4,757

Provision for taxes
 
557

 
(47
)
 
510

Net income
 
$
4,454

 
$
(207
)
 
$
4,247

 
 
 
 
 
 
 
Balance Sheet
 
 
 
 
 
 
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
Accounts receivable
 
$
4,879

 
$
346

 
$
5,225

Inventories
 
$
7,146

 
$
51

 
$
7,197

Other current assets
 
$
3,408

 
$
(14
)
 
$
3,394

 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
Deferred income
 
$

 
$
1,670

 
$
1,670

Other accrued liabilities
 
$
9,586

 
$
(181
)
 
$
9,405

Deferred income taxes
 
$
1,564

 
$
(229
)
 
$
1,335

 
 
 
 
 
 
 
Equity:
 
 
 
 
 
 
Retained earnings
 
$
44,418

 
$
(877
)
 
$
43,541

NOTE 3: OPERATING SEGMENTS
We manage our business through the following operating segments:
Client Computing Group (CCG)
Data Center Group (DCG)
Internet of Things Group (IOTG)
Non-Volatile Memory Solutions Group (NSG)
Programmable Solutions Group (PSG)
All Other
We offer platform products that incorporate various components and technologies, including a microprocessor and chipset, a stand-alone System-on-Chip (SoC), or a multichip package. A platform product may be enhanced by additional hardware, software, and services offered by Intel. Platform products are used in various form factors across our CCG, DCG, and IOTG operating segments. We derive a substantial majority of our revenue from platform products, which are our principal products and considered as one class of product.
CCG and DCG are our reportable operating segments. IOTG, NSG, and PSG do not meet the quantitative thresholds to qualify as reportable operating segments; however, we have elected to disclose the results of these non-reportable operating segments. 
The “all other” category includes revenue, expenses, and charges such as:
results of operations from non-reportable segments not otherwise presented, including Mobileye results;
historical results of operations from divested businesses;
results of operations of start-up businesses that support our initiatives, including our foundry business;
amounts included within restructuring and other charges;
a portion of employee benefits, compensation, and other expenses not allocated to the operating segments; and
acquisition-related costs, including amortization and any impairment of acquisition-related intangibles and goodwill.

FINANCIAL STATEMENTS
  Notes to Financial Statements
11




The Chief Operating Decision Maker (CODM), which is our Chief Executive Officer (CEO), does not evaluate operating segments using discrete asset information. Operating segments do not record inter-segment revenue. We do not allocate gains and losses from equity investments, interest and other income, or taxes to operating segments. Although the CODM uses operating income to evaluate the segments, operating costs included in one segment may benefit other segments. Except for these differences, the accounting policies for segment reporting are the same as for Intel as a whole.
Net revenue and operating income (loss) for each period were as follows:
 
 
Three Months Ended
(In Millions)
 
Mar 31,
2018
 
Apr 1,
2017
Net revenue:
 
 
 
 
Client Computing Group
 
 
 
 
Platform
 
$
7,615

 
$
7,397

Adjacent
 
605

 
579

 
 
8,220

 
7,976

Data Center Group
 
 
 
 
Platform
 
4,824

 
3,879

Adjacent
 
410

 
353

 
 
5,234

 
4,232

Internet of Things Group
 
 
 
 
Platform
 
719

 
632

Adjacent
 
121

 
89

 
 
840

 
721

Non-Volatile Memory Solutions Group
 
1,040

 
866

Programmable Solutions Group
 
498

 
425

All other
 
234

 
576

Total net revenue
 
$
16,066

 
$
14,796

 
 
 
 
 
Operating income (loss):
 
 
 
 
Client Computing Group
 
$
2,791

 
$
3,031

Data Center Group
 
2,602

 
1,487

Internet of Things Group
 
227

 
105

Non-Volatile Memory Solutions Group
 
(81
)
 
(129
)
Programmable Solutions Group
 
97

 
92

All other
 
(1,166
)
 
(954
)
Total operating income
 
$
4,470

 
$
3,632


FINANCIAL STATEMENTS
  Notes to Financial Statements
12




Disaggregated net revenue for each period was as follows:
 
 
Three Months Ended
(In Millions)
 
Mar 31,
2018
 
Apr 1,
2017
Platform revenue
 
 
 
 
Desktop platform
 
$
2,907

 
$
2,855

Notebook platform
 
4,689

 
4,498

DCG platform
 
4,824

 
3,879

Other platform1
 
738

 
676

 
 
13,158

 
11,908

 
 
 
 
 
Adjacent revenue2
 
2,908

 
2,354

ISecG divested business
 

 
534

Total revenue
 
$
16,066

 
$
14,796

1 
Includes our tablet, service provider, and IOTG platform revenue.
2 
Includes all of our non-platform products for CCG, DCG, and IOTG like modem, ethernet, and silicon photonic, as well as NSG, PSG, and Mobileye products.
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
(In Millions, Except Per Share Amounts)
 
Mar 31,
2018
 
Apr 1,
2017
Net income available to common stockholders
 
$
4,454

 
$
2,964

Weighted average shares of common stock outstanding – basic
 
4,674

 
4,723

Dilutive effect of employee equity incentive plans
 
65

 
58

Dilutive effect of convertible debt
 
51

 
100

Weighted average shares of common stock outstanding – diluted
 
4,790

 
4,881

Earnings per share – Basic
 
$
0.95

 
$
0.63

Earnings per share – Diluted
 
$
0.93

 
$
0.61

Potentially dilutive shares of common stock from employee equity incentive plans are determined by applying the treasury stock method to the assumed exercise of outstanding stock options, the assumed vesting of outstanding restricted stock units (RSUs), and the assumed issuance of common stock under the stock purchase plan. In December 2017, we paid cash to satisfy the conversion of our 2035 debentures, which we excluded from our dilutive earnings per share computation starting in the fourth quarter of 2017 and are no longer dilutive. Our 2039 debentures require settlement of the principal amount of the debt in cash upon conversion. Since the conversion premium is paid in cash or stock at our option, we determined the potentially dilutive shares of common stock by applying the treasury stock method.
In all periods presented, 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 2039 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 2039 debentures in the future if the average market price is below the conversion price.

FINANCIAL STATEMENTS
  Notes to Financial Statements
13




NOTE 5: CONTRACT LIABILITIES
(In Millions)
 
Mar 31,
2018
 
Opening Balance as of Dec 31, 2017
Contract liabilities from prepaid supply agreements
 
$
2,723

 
$
105

Contract liabilities from software, services and other
 
115

 
195

Total contract liabilities
 
$
2,838

 
$
300

Contract liabilities are primarily related to partial prepayments received from customers on long term supply agreements towards future NSG product delivery. As new prepaid supply agreements are entered into and performance obligations are negotiated, this component of the contract liability balance will increase, and as customers purchase product and utilize their prepaid balances, the balance will decrease. The short-term portion of prepayments from supply agreements is reported on the consolidated condensed balance sheet within other accrued liabilities.
The following table shows the changes in contract liability balances relating to prepaid supply agreements during the first three months of 2018:
(In Millions)
 
 
Prepaid supply agreements balance as of Dec 31, 2017
 
$
105

Additions and adjustments
 
2,692

Revenue recognized
 
(74
)
Prepaid supply agreements balance as of Mar 31, 2018
 
$
2,723

Additions in the first three months of 2018 include a $1.0 billion reclassification from customer deposits previously included in other long-term liabilities. The long-term supply agreements represent $5.3 billion in future anticipated revenues with 5% expected to be recognized during the current year and the remainder ratably over the next 5 years.
NOTE 6: OTHER FINANCIAL STATEMENT DETAILS
INVENTORIES
(In Millions)
 
Mar 31,
2018
 
Dec 30,
2017
Raw materials
 
$
1,242

 
$
1,098

Work in process
 
3,750

 
3,893

Finished goods
 
2,154

 
1,992

Total inventories
 
$
7,146

 
$
6,983

INTEREST AND OTHER, NET
The components of interest and other, net for each period were as follows:
 
 
Three Months Ended
(In Millions)
 
Mar 31,
2018
 
Apr 1,
2017
Interest income
 
$
91

 
$
76

Interest expense
 
(112
)
 
(146
)
Other, net
 
(81
)
 
1

Total interest and other, net
 
$
(102
)
 
$
(69
)
Interest expense in the preceding table is net of $113 million of interest capitalized in the first quarter of 2018 ($67 million in the first quarter of 2017).

FINANCIAL STATEMENTS
  Notes to Financial Statements
14




NOTE 7: INCOME TAXES
We have not adjusted our provisional tax estimates related to the U.S. Tax Cuts and Jobs Act (Tax Reform) that we recorded in the fourth quarter of 2017. Our accounting remains incomplete as of the first three months of 2018 and will be refined throughout 2018 based on our ongoing analysis of data and tax positions along with new guidance from regulators and interpretation of the law. Our estimated annual effective tax rate for the first three months of 2018 includes provisional tax estimates for certain Tax Reform provisions related to foreign-derived intangible income and low-taxed intangible income. We expect that these provisions will be clarified by additional analysis and regulatory guidance, and the clarification could impact our estimated annual effective tax rate.
Our effective income tax rate was 11.1% in the first three months of 2018 compared to 22.3% in the first three months of 2017. The reduction from Tax Reform of the U.S. statutory federal tax rate from 35.0% to 21.0% favorably impacted our effective tax rate by approximately nine percentage points. Further, the new Tax Reform provisions related to foreign-derived intangible income favorably impacted our effective tax rate by approximately two percentage points, and the provision related to low-taxed intangible income and the repeal of the domestic manufacturing deduction each unfavorably impacted our effective tax rate by approximately one percentage point. In addition, our effective tax rate in the first three months of 2018 was favorably impacted by one-time items unrelated to Tax Reform.
NOTE 8: INVESTMENTS
DEBT SECURITIES
Trading Assets
Net gains related to trading assets still held at the reporting date were $175 million in the first three months of 2018 ($217 million of net gains in the first three months of 2017). Net losses on the related derivatives were $149 million in the first three months of 2018 ($186 million of net losses in the first three months of 2017).
Available-for-Sale Debt Investments
 
 
March 31, 2018
 
December 30, 2017
(In Millions)
 
Adjusted Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Fair Value
 
Adjusted Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Fair Value
Corporate debt
 
$
2,440

 
$
2

 
$
(27
)
 
$
2,415

 
$
2,294

 
$
4

 
$
(13
)
 
$
2,285

Financial institution instruments
 
3,303

 
3

 
(17
)
 
3,289

 
3,387

 
3

 
(9
)
 
3,381

Government debt
 
956

 

 
(12
)
 
944

 
961

 

 
(6
)
 
955

Total available-for-sale debt investments
 
$
6,699

 
$
5

 
$
(56
)
 
$
6,648

 
$
6,642

 
$
7

 
$
(28
)
 
$
6,621

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 March 31, 2018 and as of December 30, 2017.
The fair value of available-for-sale debt investments, by contractual maturity, as of March 31, 2018, were as follows:
(In Millions)
 
Fair Value
Due in 1 year or less
 
$
2,823

Due in 1–2 years
 
1,715

Due in 2–5 years
 
1,651

Due after 5 years
 
69

Instruments not due at a single maturity date
 
390

Total
 
$
6,648


FINANCIAL STATEMENTS
  Notes to Financial Statements
15




EQUITY INVESTMENTS
(In Millions)
 
Mar 31,
2018
 
Dec 30,
2017
Marketable equity securities
 
$
4,653

 
$
4,192

Non-marketable equity securities
 
2,823

 
2,613

Equity method investments
 
2,005

 
1,774

Total
 
$
9,481


$
8,579


The components of gains (losses) on equity investments, net for each period were as follows:
 
 
Three Months Ended
(In Millions)
 
Mar 31,
2018
 
Apr 1,
2017
Mark to market adjustments on marketable equity securities1
 
$
606

 
$

Gains (losses) on sales1
 
10

 
274

Observable price adjustments on non-marketable equity securities1
 
124

 

Impairments
 
(17
)
 
(48
)
Share of equity method investee gains (losses)
 
(82
)
 
(11
)
Other
 
2

 
37

Total gains (losses) on equity investments, net
 
$
643

 
$
252

1 
Mark to market and observable price adjustments relate to the new financial instruments standard adopted in the first quarter of 2018, and are not applicable in prior periods. Gains (losses) on sales includes realized gains (losses) on sales of non-marketable equity securities and equity method investments, and in 2017 also includes realized gains (losses) on sales of available-for-sale equity securities which are now reflected in mark to market adjustments on marketable equity securities.
(In Millions)
 
Mar 31,
2018
Net gains (losses) recognized during the period on equity securities
 
$
724

Less: Net gains and losses recognized during the period on equity securities sold during the period
 
(11
)
Unrealized gains (losses) recognized during the reporting period on equity securities still held at the reporting date
 
$
713

Cloudera, Inc.
On April 28, 2017, Cloudera, Inc. (Cloudera) completed its initial public offering and we 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.
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 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 $308 million.

FINANCIAL STATEMENTS
  Notes to Financial Statements
16




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 3D XPoint™ technology products. Intel also purchases jointly developed products directly from Micron under certain supply agreements.
As of March 31, 2018, we own a 49% interest in IMFT. The carrying value of our investment was $1.8 billion as of March 31, 2018 ($1.5 billion as of December 30, 2017) which is classified as an equity method investment.
The IMFT operating agreement continues through 2024 unless terminated earlier, and provides for certain buy-sell rights of the joint venture. Intel has the right to cause Micron to buy our interest in IMFT and, if exercised, Micron could elect to receive financing from us for one to two years. Commencing in January 2019, Micron has the right to call our interest in IMFT with the closing date to be effective within one year.
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 was approximately $83 million in the first three months of 2018 (approximately $130 million in the first three months of 2017). In the event that IMFT has excess cash, IMFT will make payments to Micron and Intel in the form of dividends.
IMFT depends on Micron and Intel for any additional cash needs. During the first quarter of 2018, we extended $319 million in member debt financing (MDF) to IMFT to fund the ramp of 3D XPoint technology. The MDF balance may be converted to a capital contribution at our request, or may be repaid upon availability of funds. Our known maximum exposure to loss approximated the carrying value of our investment balance in IMFT. 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 and future cash calls. 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.
NOTE 9: IDENTIFIED INTANGIBLE ASSETS
 
 
March 31, 2018
(In Millions)
 
Gross Assets
 
Accumulated
Amortization
 
Net
Acquisition-related developed technology
 
$
9,513

 
$
(2,197
)
 
$
7,316

Acquisition-related customer relationships
 
2,036

 
(343
)
 
1,693

Acquisition-related brands
 
143

 
(34
)
 
109

Licensed technology and patents
 
3,104

 
(1,434
)
 
1,670

Identified intangible assets subject to amortization
 
14,796

 
(4,008
)
 
10,788

In-process research and development
 
1,567

 

 
1,567

Identified intangible assets not subject to amortization
 
1,567

 

 
1,567

Total identified intangible assets
 
$
16,363

 
$
(4,008
)
 
$
12,355

 
 
December 30, 2017
(In Millions)
 
Gross Assets
 
Accumulated
Amortization
 
Net
Acquisition-related developed technology
 
$
8,912

 
$
(1,922
)
 
$
6,990

Acquisition-related customer relationships
 
2,052

 
(313
)
 
1,739

Acquisition-related brands
 
143

 
(29
)
 
114

Licensed technology and patents
 
3,104

 
(1,370
)
 
1,734

Identified intangible assets subject to amortization
 
14,211

 
(3,634
)
 
10,577

In-process research and development
 
2,168

 

 
2,168

Identified intangible assets not subject to amortization
 
2,168

 

 
2,168

Total identified intangible assets
 
$
16,379

 
$
(3,634
)
 
$
12,745


FINANCIAL STATEMENTS
  Notes to Financial Statements
17




Amortization expenses recorded in the consolidated condensed statements of income for each period were as follows:
 
 
 
 
Three Months Ended
(In Millions)
 
Location
 
Mar 31,
2018
 
Apr 1,
2017
Acquisition-related developed technology
 
Cost of sales
 
$
275

 
$
209

Acquisition-related customer relationships
 
Amortization of acquisition-related intangibles
 
45

 
35

Acquisition-related brands
 
Amortization of acquisition-related intangibles
 
5

 
3

Licensed technology and patents
 
Cost of sales
 
65

 
74

Total amortization expenses
 
 
 
$
390

 
$
321

We expect future amortization expenses for the next five years to be as follows:
(In Millions)
 
Remainder of 2018
 
2019
 
2020
 
2021
 
2022
Acquisition-related developed technology
 
$
824

 
$
1,097

 
$
1,066

 
$
1,030

 
$
991

Acquisition-related customer relationships
 
136

 
180

 
179

 
179

 
171

Acquisition-related brands
 
15

 
20

 
20

 
20

 
6

Licensed technology and patents
 
195

 
246

 
214

 
195

 
190

Total future amortization expenses
 
$
1,170

 
$
1,543

 
$
1,479

 
$
1,424

 
$
1,358

NOTE 10: OTHER LONG-TERM ASSETS
(In Millions)
 
Mar 31,
2018
 
Dec 30,
2017
Non-current deferred tax assets
 
$
982

 
$
840

Pre-payments for property, plant and equipment
 
1,145

 
714

Loans receivable
 
744

 
860

Other
 
743

 
801

Total other long-term assets
 
$
3,614

 
$
3,215


FINANCIAL STATEMENTS
  Notes to Financial Statements
18




NOTE 11: 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 our 2017 Form 10-K.
ASSETS AND LIABILITIES MEASURED AND RECORDED AT FAIR VALUE ON A RECURRING BASIS
 
 
March 31, 2018
 
December 30, 2017
 
 
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
 
$

 
$
347

 
$

 
$
347

 
$

 
$
30

 
$

 
$
30

Financial institution instruments 1
 
390

 
422

 

 
812

 
335

 
640

 

 
975

Government debt 2
 

 
34

 

 
34

 

 
90

 

 
90

Reverse repurchase agreements
 

 
1,399

 

 
1,399

 

 
1,399

 

 
1,399

Short-term investments:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Corporate debt
 

 
631

 

 
631

 

 
672

 
3

 
675

Financial institution instruments 1
 

 
1,184

 

 
1,184

 

 
1,009

 

 
1,009

Government debt 2
 

 
205

 

 
205

 

 
130

 

 
130

Trading assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Asset-backed securities
 

 

 

 

 

 
2

 

 
2

Corporate debt
 

 
3,195

 

 
3,195

 

 
2,842

 

 
2,842

Financial institution instruments 1
 
12

 
1,920

 

 
1,932

 
59

 
1,064

 

 
1,123

Government debt 2
 
29

 
5,467

 

 
5,496

 
30

 
4,758

 

 
4,788

Other current assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Derivative assets
 

 
362

 

 
362

 
2

 
277

 

 
279

Loans receivable
 

 
166

 

 
166

 

 
30

 

 
30

Marketable equity securities
 
4,578

 
75

 

 
4,653

 
4,148

 
44

 

 
4,192

Other long-term investments:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Corporate debt
 

 
1,437

 

 
1,437

 

 
1,576

 
4

 
1,580

Financial institution instruments 1
 

 
1,293

 

 
1,293

 

 
1,397

 

 
1,397

Government debt 2
 

 
705

 

 
705

 

 
735

 

 
735

Other long-term assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Derivative assets
 

 
96

 

 
96

 

 
77

 
7

 
84

Loans receivable
 

 
494

 

 
494

 

 
610

 

 
610

Total assets measured and recorded at fair value
 
5,009

 
19,432

 

 
24,441

 
4,574

 
17,382

 
14

 
21,970

Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other accrued liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Derivative liabilities
 

 
555

 

 
555

 

 
454

 

 
454

Other long-term liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Derivative liabilities
 

 
530

 
61

 
591

 

 
297

 
6

 
303

Total liabilities measured and recorded at fair value
 
$

 
$
1,085

 
$
61

 
$
1,146

 
$

 
$
751

 
$
6

 
$
757

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 U.S. Treasury securities. Level 2 investments consist primarily of U.S. Agency notes and non-U.S. government debt.


FINANCIAL STATEMENTS
  Notes to Financial Statements
19




FAIR VALUE OPTION FOR LOANS RECEIVABLE
As of March 31, 2018 and December 30, 2017, 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 securities, equity method investments, non-financial assets, such as intangible assets and property, plant and equipment, are recorded at fair value only if an impairment or observable price adjustment is recognized in the current period. If an observable price adjustment or impairment is recognized on our non-marketable equity securities during the period we classify these assets as Level 3 within the fair value hierarchy based on the nature of the fair value inputs.
FINANCIAL INSTRUMENTS NOT RECORDED AT FAIR VALUE ON A RECURRING BASIS
Financial instruments not recorded at fair value on a recurring basis include non-marketable equity securities (that have not been re-measured or impaired in the current period), grants receivable, loans receivable, reverse repurchase agreements and our short-term and long-term debt.
Prior to the adoption of the new financial instrument standard, our non-marketable cost method investments were not recorded at fair value on a recurring basis and the carrying amount and fair value as of December 30, 2017 was $2.6 billion and $3.6 billion, respectively. These assets were classified as Level 3 within the fair value hierarchy based on the nature of the fair value inputs.
As of March 31, 2018, the aggregate carrying value of grants receivable, loans receivable, and reverse repurchase agreements was $815 million (the aggregate carrying amount as of December 30, 2017 was $935 million). The estimated fair value of these financial instruments approximates their carrying value and is categorized as Level 2 within the fair value hierarchy based on the nature of the fair value inputs.
As of March 31, 2018, the fair value of short and long-term debt (excluding drafts payable) was $30.3 billion (the fair value as of December 30, 2017 was $29.4 billion). These liabilities are classified as Level 2 within the fair value hierarchy based on the nature of the fair value inputs.
NOTE 12: OTHER COMPREHENSIVE INCOME (LOSS)
The changes in accumulated other comprehensive income (loss) by component and related tax effects in the first three months of 2018 were as follows:
(In Millions)
 
Unrealized Holding Gains (Losses) on Available-for-Sale Equity Investments
 
Unrealized Holding Gains (Losses) on Derivatives
 
Actuarial Valuation and Other Pension Expenses
 
Translation adjustments and other
 
Total
Balance as of December 30, 2017
 
$
1,745

 
$
106

 
$
(963
)
 
$
(26
)
 
$
862

Impact of change in accounting principle
 
(1,745
)
 
24

 
(65
)
 
(4
)
 
(1,790
)
Opening Balance as of December 31, 2017
 
$

 
$
130

 
$
(1,028
)
 
$
(30
)
 
$
(928
)
Other comprehensive income (loss) before reclassifications
 

 
203

 
140

 
(29
)
 
314

Amounts reclassified out of accumulated other comprehensive income
 

 
(53
)
 
45

 
(1
)
 
(9
)
Tax effects
 

 
(31
)
 
(37
)
 
8

 
(60
)
Other comprehensive income (loss)
 

 
119

 
148

 
(22
)
 
245

Balance as of March 31, 2018
 
$

 
$
249

 
$
(880
)
 
$
(52
)
 
$
(683
)

FINANCIAL STATEMENTS
  Notes to Financial Statements
20




The amounts reclassified out of accumulated other comprehensive income (loss) into the consolidated condensed statements of income for each period were as follows:
 
 
 
 
Income Before Taxes Impact
(In Millions)
 
 
 
 
Three Months Ended
Comprehensive Income Components
 
Location
 
Mar 31,
2018
 
Apr 1,
2017
Unrealized holding gains (losses) on available-for-sale equity investments:
 
 
 
 
 
 
 
 
Gains (losses) on equity investments, net
 
$

 
$
263

 
 
 
 

 
263

Unrealized holding gains (losses) on derivatives:
 
 
 
 
 
 
Foreign currency contracts
 
Cost of sales
 
8

 
(20
)
 
 
Research and development
 
41

 
(16
)
 
 
Marketing, general and administrative
 
14

 
(5
)
 
 
Gains (losses) on equity investments, net
 

 
4

 
 
Interest and other, net
 
(10
)
 
38

 
 
 
 
53

 
1

Amortization of pension and postretirement benefit components:
 
 
 
 
 
 
Actuarial valuation and other pension expenses
 
 
 
(45
)
 
(24
)
 
 
 
 
(45
)
 
(24
)
Translation adjustments and other
 
Interest and other, net
 
1