Intels Financial Statement - Example

Intel’s Financial ment Task Introduction Intel Corporation, established on July 1968, has its headquarters in Santa Clara,California and was reincorporated in Delaware in 1989. The pioneers of Intel Corporation are Robert Noyce and Godon Moore. The company started by majoring in the development of DRAM and SRAM memory chips until 1981. Currently, the company designs and manufactures advanced integrated digital technology platforms consisting of a microprocessor and chipset. These products may be enhanced by additional hardware, software and services. The company supplies the named equipments to original equipment manufacturers, original design manufacturers and industrial and communications equipment manufacturers in the computing and communication industries. The platforms developed by Intel Corporation are widely used in applications such as Personal computers (including ultrabook, detachable and convertible systems), tablets, Smartphones, automobiles, servers, medical devices and automated factory systems. The company’s goal is to be the preeminent computing solution that powers the worldwide digital economy. This essay, therefore, presents analysis of the of the company’s financial statement components, as per the module. Module 1 1): The maturity on the Intel’s long-term debt is $ 22,852,000. The stated amount represents principal and interest cash payments over the life of the debt obligations, including anticipate interest payments that are not recorded on the company’s consolidated balance sheets. Any future settlement of convertible debt would impact the company’s cash flow (Intel Corporation: Form 10-k, 2012). 2): the Intel’s projected obligations on Long-Term Debt and Payments due by period are as follows: within a period less than one year, the obligation is $ 480,000. For a period of 1 - 3 years, the debt obligation is projected to be $ 860,000. For a period of 3 - 5 years, the projected obligation on debt is $ 5,330,000. Lastly, for a period more than 5 years, the projected obligation on the debt is $ 16,182,000 (Intel Corporation: Form 10-k, 2012). 3): the par or stated value of Intel’s preference shares is $ 0.001. 4): the par or stated value of Intel’s ordinary shares is $ 0.001. 5): the percentage of Intel’s authorized ordinary shares was issued at Dec 29, 2012 was as follows: 10,000 ordinary shares were authorized as of the stated date. Only 4,944 shares were issued. Therefore, the percentage shares issued = (4,944/10,000) = 49.44% 6): the number of ordinary shares outstanding at Dec 29, 2012, and Dec 31, 2011 were 4,944 and 5,000 respectively (Intel Corporation: Form 10-k, 2012). Module 2 Intel corporation’s equity plans are broad-based, long-term programs intended to attract and retain talented employees and align stockholder and employee interest. As of December 29, 2012, 237 million shares were available for issuance under the 2006 Stock Purchase plan. Share-based compensation recognized in 2012 was $ 1.1 billion. On quarterly basis, the company assessed changes to estimates of expected equity award forfeitures based on a recent review of forfeiture activity and expected future employee turnover. The company estimates the fair value of restricted stock unit awards with time-based vesting using the value of our common stock on the date of grant, reduced by the present value of dividends expected to be paid on the common stock prior to vesting. The company uses the Monte Carlo simulation model to estimate the fair value of market-based stock. The total share-based compensation cost capitalized as part of inventory as of December 29, 2012 was $ 41 million. During the year 2012, the tax benefit that we realized for the tax deduction from share-based awards totaled $ 510 million (Intel Corporation: Form 10-k, 2012). 1): the number of options granted and exercisable in 2011 and 2012 under the plan were as follows: vested options = $ 139.8 million. Expected to vest = $ 59.9 million. The total amount of options granted = $ 199.7 million (Intel Corporation: Form 10-k, 2012). 2): the company computes the diluted earnings per common share using net income available to common stockholders and the weighted average number of common shares outstanding. For that matter, the diluted weighted-average shares outstanding was used by Intel in computing earnings per share for 2011 and 2012 were $ 5,411,000 and $ 5,160,000 respectively. Consequently, the Intel’s diluted earnings per share in 2011 and 2012 were $ 2.39 and $ 2.13 respectively (Intel Corporation: Form 10-k, 2012). 3): the other equity-based compensation plans issued by Intel Corporation is the restricted stock unit plan. 4): Intel Corporation reports the following investments in the year 2012: investing cash flows consist primarily of capital expenditures, investment purchases, sales, maturities and disposals. The investments are increase in short-term debt ($65 million), proceeds from government grants ($ 63 million), excess tax benefits from share-based payment arrangements ($ 142 million), issuance of long-term debt, net of issuance cost ($ 6,124 million), repayment of debt ($ - 125 million), proceeds from sales of shares through employee equity incentive plans ($ 2,111 million), repurchase of common stock ($ - 5,110 million), payment of dividends to stockholders ($ - 4,350 million) and other financing ($ 328 million). In the year 2012, there were more cash outflows than cash inflows from the investing activities. Therefore, the net cash used for financing activities was $ - 1,408 million (Intel Corporation: Form 10-k, 2012). 6): Intel determines fair value using the following levels: level 1 depends on the quoted price in active markets for identical assets or liabilities. Level 2 depends on the observable inputs other than the level 1 price, such as quoted prices for similar assets or liabilities, quoted prices in less active markets, or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated with observable market data for substantially the full term of the assets or liabilities. Level 2 also relies on the non-binding market consensus prices that can be corroborated with observable market data, as well as quoted prices that were adjusted for security specific reasons. Level 3 uses unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of assets or liabilities. The level also takes into consideration the non-binding market consensus prices or non-binding broker quotes (Intel Corporation: Form 10-k, 2012). 7): Intel Corporation uses derivative financial instruments as follows: the company holds derivative financial instruments with the primary objectives to manage currency exchange rate risk and interest rate risk. The company also, to a lesser extent, engages the derivatives for equity market risk and the commodity price risk. The company is exposed to currency exchange risk and manages the currency exposures using forward contracts, currency interest rate swaps and currency options (Kieso, Weygandt & Warfield, 2014). The currency risk management involves two programs: first is the currency derivative with cash flow hedge accounting designation that utilizes currency forward contracts and currency options to hedge exposures to the variability in the U.S dollar equivalent of anticipated non-U. S. dollar denominated cash flows. Second, the currency without hedge accounting designation that utilize currency forward contracts or currency interest rate swaps to economically hedge the functional currency equivalent cash flows of recognized monetary assets and liabilities, non- U.S.- dollar denominated debt instruments classified as trading assets, and hedges of non-U. S. -dollar denominated loans receivable recognized at fair value (Intel Corporation: Form 10-k, 2012). The company’s primary reason for engaging in hedging against the interest rate risk is to preserve the principal while maximizing the yields. The company generally swaps the returns on investments in fixed-rate debt instruments with remaining maturities longer than six months. The interest rate management includes the following two programs: First, the interest rate derivatives with cash flow hedge accounting designation that utilizes interest rate swap agreements to modify the interest characteristics of debt instruments. Second, he interest rate derivative without hedge accounting designation that utilizes interest rate swap and currency interest rate swap in economic hedging transactions, including hedges of non-U. S. -dollar- denominated debt instruments classified as trading assets and hedges of non-U. S. -dollar- denominated loan receivables are recognized at fair value (Intel Corporation: Form 10-k, 2012). Module 3 1a): the amounts relative to income taxes does Intel report in its 2012 income statement is $ 3,868,000. 1b): the amounts relative to income taxes does Intel report in its 29 Dec 2012 balance sheet is $ 2,117,000 (deferred tax assets). 1c): the amounts relative to income taxes does Intel report in its 2012 statement of cash flows is $ - 242,000. 2): the Intel’s provision for income taxes in 2011 and 2012 was computed at the following effective tax rates: 27.2% and 26 % respectively. 3): $ 1,751,000 of Intel’s 2012 total provision for income taxes was current tax expense, and $ 2,117,000 were deferred tax expense. 4): the company records that the estimation of the tax assets and liabilities depends on the timing of recognition of revenue and expenses for tax and financial statement purposes, as well as the interest and penalties related to uncertain tax positions. The company states that the recovery of the deferred tax assets is uncertain and in that case, provisions for taxes should be increased (Intel Corporation: Form 10-k, 2012). Module 4 1): the kind of pension plan does Intel provide its employees is defined benefit plan. The reason is, the methodology of estimating the benefits (taking into account the participants’ years of service and the average compensation) (Intel Corporation: Form 10-k, 2012). 2): the Intel’s pension expense for 2011 and 2012 were $426 million and $ 562 million respectively. 3): the impact of Intel’s pension plans on its 2011 and 2012 consolidated balance sheets were as follows: the obligations (accrued compensation and benefit) that arose due to the pension plan are categorized under liabilities thus reduces the company’s net asset value. In 2011 and 2012, the compensation and benefit obligations were $ 2,972,000 and $ 2,948,000 respectively (Intel Corporation: Form 10-k, 2012). 4): the company takes into account the volatility and liquidity issues when allocating the assets. The targeted allocations are fixed income debt and hedge funds. The investment strategy has been selected in order to provide protection from both deflation and inflation, while providing enough cash flow to meet the pension obligations (Intel Corporation: Form 10-k, 2012). Module 5 1): the type of lease used by Intel Corporation is operating lease. 2): the amount of operating lease reported by Intel Corporation in 2012 is $ 909 million. Module 6 1): yes, there were changes in the accounting policy. In 2011 first quarter, the company adopted new standards that removed certain tangible products and associated software from the scope of the software revenue recognition guidance. Similarly, the first quarter of 2012 was characterized by the adoption of the amended standards that increases the prominence of items reported in other comprehensive income. The accounting changes in both years had no significant impact on the company’s consolidated income statement (Intel Corporation: Form 10-k, 2012). 2): the company’s most critical accounting estimates include the valuation of non-marketable equity investment and the determination of other temporary impairments, the assessment of recoverability of long-lived assets, the recognition and measurement of current and deferred income taxes, the valuation of inventory, and the recognition and measurement of loss contingencies (Intel Corporation: Form 10-k, 2012). Module 7 1): the company used the indirect method of cash flow presentation. The net cash provided by operating activities for the years 2011 and 2012 were $ 20,963 million and 18,994 million respectively. 2): the most significant item in the cash flows used for investing activities section in 2012 were purchases of trading assets which consumed $ 16,892 million. 3): the most significant item in the cash flows used for financing activities section in 2012 was issuance of long-term debt, net of issuance cost which generated $ 6,124 million. 4): deferred income taxes appear under operating activities section of the cash flow statement. It is in this section for the reason that it arises due to the company’s income generating activities. 5): depreciation is reported under the operating activities section of the cash flow statement. It is added to the income because it does not cause an actual cash outflow (Intel Corporation: Form 10-k, 2012). Module 8 1): note 2 contains the company’s accounting policies in the following areas: accounting estimates, trading assets, available-for-sale investments, non-marketable and other equity investment, other-than-temporary impairment, derivative financial instruments, securities lending, loans receivables, inventories, property, plant and equipment, goodwill, identified intangible assets, product warranty, revenue recognition, advertising, employment equity incentive plan and income tax (Intel Corporation: Form 10-k, 2012). 2): Intel Corporation segmented reporting as follows: the company’s operating segment, including PC Client Group, data Center Group and other Intel architecture operating segments. Second, software and services operating segments such as McAfee, wind river software group and software and services group. Third, all other including non-volatile memory solutions group. The largest segment is the company’s operating segment. Intel’s largest customers are Dell and Hawlett-Packard Corporations (Intel Corporation: Form 10-k, 2012). References Kieso, D.E., Weygandt, J.J., & Warfield, T.D. (2014). Intermediate Accounting. Hoboken: Wiley. Intel Corporation: Form 10-k (2012). Retrieved from http://www.sec.gov/Archives/edgar/data/50863/000119312513065416/d424446d10k.htm. Read More