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Intel Corporation Financial Statement Analysis

Executive Summary
Chris Dallof, CPA
Intel Corporation is a company that has been requested for me to analyze thoroughly by multiple clients
looking to both invest in and possibly acquire. This analysis is not an audit of the information provided
on the financial statements, but rather an educated insight into those statements based on my own
knowledge. Several exhibits will be included within this analysis, including growth/horizontal statements
and common-sized statements. The topics that will be covered are as follows:

 Management’s representations from the MD&A and letters from the CEO and chairman of Intel
 Balance sheet
 Statement of equity
 Income statement
 Statement of cash flows
 Liquidity (short-run solvency and liquidity of current assets)
 Leverage (both amount of debt and coverage of debt)
 Operating efficiency (asset management)
 Profitability (both margins and returns)
 Market measures

We will look into the different risk factors of Intel Corporation and the profitability to determine if this a
business worth investing in and how it’s prospects are looking for the future. Although the future of
Intel cannot be truly known, educated estimations and interpretations of trends from the statements
can give us an idea of what we can expect from Intel in the coming years.

Analysis of the Management’s Discussion and Analysis

And letters from the CEO and Chairman

In this section, we will investigate the different items discussed in the opening letters to Intel’s 10K and
the Management’s Discussion. This section is divided into several sub-sections to aid readers in finding
certain information more quickly.

Sections:

A. Intel’s nature of business and brief overview

B. Items mentioned that need review
C. Audit information for Intel’s financial statements
D. MD&A findings
E. Risk factors of Intel

A. Intel operates a business that manufactures and designs digital technology platforms. They sell
these platforms to OEMs and ODMs along with other businesses that are in the computing and
 communications industry. Intel also provides different services such as cloud storage and
information technology to clients and customers.

B. In reading the reports from the CEO and the Chairman, there are some items that will need to
be verified in later sections of the annual report.
1. Intel had net revenue of $9.6 billion (CEO)
2. Intel had earnings per share of $1.89 (CEO)
3. Intel generated $21 billion in cash from operations (CEO)
4. Intel returned 6.6 billion to stockholders in the form of dividends and share repurchases (CEO)
5. Intel expanded education opportunities for millions of students around the world (CEO)
6. Intel had high levels of profits (Chairman)
7. Intel had strong cash generation (Chairman)
8. Intel had a healthy balance sheet (Chairman)
9. Intel had a cumulative return to stockholders of $125 billion (Chairman)
10. How much cash is Intel generating from investments and financing, not just operations? (Both
mentioned the cash generated from operations.

C. There were two audit reports performed for Intel. One was relating to the financial statements
and the other was related to the internal financial controls of Intel.

The auditors determined that the information that Intel reported on its financial reports was fair
and in compliance with GAAP. Therefore, the auditors issued an unqualified opinion on Intel’s
statements.

The auditor’s report on the internal controls of intel was also unqualified as they found that they
were in compliance with GAAP and financial reporting was done fairly.

It appears that the same Independent Public Accounting Firm oversaw auditing both the
financial statements and internal controls.

The auditor’s report stated that results of operations and cash flows for the past 3 years was
accurate and in line with GAAP.

In the auditor’s report about the internal controls of Intel, it was stated that internal control
may not prevent misstatements due to its limitations. Future periods may also see controls that
are weakened due to changing conditions and a lack of compliance with policies.

D. The Management’s Discussion and Analysis section started with important information
regarding the income statement and comparison to the 2012 income statement. A reason for
the decrease in income from 2012 was from the start up costs for one of the company’s new
process technologies (14nm). Along with that, management had targeted layoffs to restructure
resources and removed a few business and facilities. Despite that, Intel’s revenue still only
dropped 1% from 2012.
The next thing Intel discusses is the new products they rolled out. The new technologies they
introduced were the 4th generation Intel Core process family, Intel Xeon 22nm processor, and
Intel Atom microarchitecture, platforms.

Management discusses the current status of liquidity within and outside of the U.S. subsidiaries.
$11.3 billion of their cash and investing instruments were held outside of the U.S. but they had
$2.1 billion available to use in the U.S. from that. without having to pay additional income taxes.
They believe the amount they have available is enough and they will not need to reinvestment it
anywhere else or take it out for anything. They explain that they don’t plan on investing the
money outside of the U.S. in another country and that if they ever did, the amount would be
subject to income taxes.

They also have $20.1 billion available in the U.S. from cash, cash equivalents, short-term
investments and marketable debt instruments. Most of these are reported to be A/A2 or better
than AA/Aa3.

Along with those assets, Intel has commercial paper available. The commercial paper was not
outstanding at the end of the year. The total amount in 2013 was $300 million and is rated A-1+
by the S&P and P-1 by Moody’s. They have a maximum amount available of $3 billion (approved
by the board of directors).

The availability of cash is key in knowing that Intel will be able to turn around and produce cash
quickly in the event that they need it. Although it is not likely that Intel’s liabilities will come due
all at once, they have a significant amount of cash or equivalents that would assist in relieving
them of that debt. Combining this with the ability of Intel to produce cash can help an investor
or analyst understand how prepared Intel is to pay off any debts quickly. The better the ability,
the less risky it is.

Another point in the discussion is the future capital obligations Intel has and the purposes for
those obligations. Intel has obligations of over $32 billion, with about half due after 5 years. The
table they used to break down the different obligations use broad terms, but those are each
explained with footnotes right below the table. Intel states in one of the footnotes that the
liability for long-term income taxes payable was left out of the breakdown due to an inability to
reliably predict them, but the amount for that was included in the balance sheet instead. Other
obligations that were dependent on certain milestones were also not included in the table.

Intel states that they expect sales to remain flat in 2014. The net revenue dropped 1% in 2013
from 2012, due, in part, to the high costs of setting up a factory for their new 14nm process
technology. Their PCCG and DCG platforms did not perform as well with revenue but that
amount was most offset by the revenue performance of their ISG platform. The operating costs
associated with R&D and MG&A were very similar to the amounts in 2012. The percentage of
R&D and MG&A compared to net revenue increased from 34% to 35% in 2013. This information
tells us that Intel is continually developing new innovative products, and the upfront cost of
those operations can lead to potentially higher revenue in the future.
 E. The outlook of Intel looks strong from the information provided so far. To find more information
I will be looking at the risk factors Intel has.

As with any business, the changes in product demand can positively or negatively impact
revenues. Intel states that they have high costs that are not easy to reduce in a short amount of
time. The demand for their products is hard to predict, but recently there has been less demand
from the PC market which is most likely caused by the rise in popularity of smartphones and
tablets. With the decrease in demand or inaccurate predictions of demand, Intel may need to
write off certain assets and shorten the useful life of factories and other equipment. This would
increase expenses and therefore impact income in negative way.

Earlier, R&D was mentioned as a rising cost due to new technology being introduced and
manufactured. Intel suggests that they must keep up with the industry because it is highly
competitive. The rise in R&D is a way Intel stays in the competition. Technology is constantly
and rapidly improving and becoming more and more advanced. If Intel is unable to create
products that are above or even on the same level as these competitors, they will start to see a
drop in demand and therefore make those expensive cuts to their equipment and factories. A
lot of the new technology is being geared toward smartphones and tablets, and Intel primarily
operates in the PC market. They must start building new technology and relationships with the
mobile industry to effectively have a share of that market.

The threat of hackers is also a very big concern in this age of technology. Intel is a targeted by
many hackers as well as the customers who purchase Intel products. They both may not always
be aware of these cyber attacks and potentially personal and important data can be stolen or
used for ransom. There have been successful hacks in the past and Intel is aware of that and is
continually monitoring their systems and technology to prevent it from happening. If Intel
cannot defend their products and customers from these attacks, they will lose public trust and
their reputation will begin to drop. This will affect sales and certain PC and mobile markets may
not want to use Intel products that are susceptible to such attacks.

Overall, the prospects for Intel look good. As long as they can keep their technology up to date
with the latest advances and integrate itself successfully into the mobile and tablet market, they
will continue to be a strong business. They already have a strong reputation in the PC market, so
if they can build on that reputation and keep their products from being hacked and
manipulated, Intel will be a household name for many more years.

As far as the MD&A and letters go, the information provided is a good basis to compare with the
following sections of this report where we will dig deeper into the financial statements and tangible
items Intel has. There are some statements made that will be later discussed and analyzed. The letters
from the CEO and Chairman can be a little misleading. Often, those are used as a sort of “fluff” to make
investors excited about their future with Intel. Although it may be accurate, it may not tell the whole
story of Intel. That will be discussed in the following sections.
Intel’s Balance Sheet

The balance sheet is a report required to be in the financial statements. This is composed of the assets,
liabilities, and equity of a company at a specific point in time. Different exhibits will be included in this
section, including the horizontal and vertical growth analysis of the balance sheet.
 Intel Corporation
Balance Sheet Vertical Analysis
For the Years Ended 2013, 2012

2013 2012
Assets
Current assets:
Cash and cash equivalents 6.1% 10.1%
Short-term investments 6.5% 4.7%
Trading assets 9.1% 6.7%
Accounts receivable, net of allowance for doubtful accounts of $38 3.9% 4.5%
Inventories 4.5% 5.6%
Deferred tax assets 2.8% 2.5%
Other current assets 1.8% 3.0%
Total current assets 34.7% 37.2%
Property, plant, equipment, net 34.0% 33.2%
Marketable equity securities 6.7% 5.2%
Other long-term investments 1.6% 0.6%
Goodwill 11.4% 11.5%
Identified intangible assets, net 5.6% 7.4%
Other long-term assets 5.9% 4.9%
Total assets 100.0% 100.0%

Liabilities and stockholder's equity

Current liabilities
Short-term debt 0.3% 0.4%
Accounts payable 3.2% 3.6%
Accrued compensation and benefits 3.4% 3.5%
Accrued advertising 1.1% 1.2%
Deferred income 2.3% 2.3%
Other accrued liabilities 4.4% 4.3%
Total current liabilities 14.7% 15.3%
Long-term debt 14.3% 15.6%
Long-term deferred tax liabilities 4.8% 4.0%
Other long-term liabilities 3.2% 4.4%
Stockholder's equity
Common stock 23.3% 23.1%
Accumulated other comprehensive income 1.3% -0.5%
Retained earnings 38.4% 38.1%
Total stockholder's equity 63.1% 60.7%
Total liabilities and stockholder's equity 100.0% 100.0%

Exhibit 1
 Intel Corporation
Balance Sheet Horizontal (Growth) Analysis (in millions)
For the Years Ended 2013, 2012

2013 % 2012
Assets
Current assets:
Cash and cash equivalents $ 5,674 -33.1% $ 8,478
Short-term investments 5,972 49.3% 3,999
Trading assets 8,441 48.5% 5,685
Accounts receivable, net of allowance for doubtful accounts of $38 3,582 -6.5% 3,833
Inventories 4,172 -11.9% 4,734
Deferred tax assets 2,594 22.5% 2,117
Other current assets 1,649 -34.4% 2,512
Total Current Assets 32,084 2.3% 31,358
Property, plant, equipment, net 31,428 12.3% 27,983
Marketable equity securities 6,221 40.6% 4,424
Other long-term investments 1,473 198.8% 493
Goodwill 10,513 8.3% 9,710
Identified intangible assets, net 5,150 -17.4% 6,235
Other long-term assets 5,489 32.3% 4,148
Total Assets 92,358 9.5% 84,351

Liabilities and stockholder's equity

Current liabilities
Short-term debt 261 -16.3% 312
Accounts payable 2,969 -1.8% 3,023
Accrued compensation and benefits 3,123 5.1% 2,972
Accrued advertising 1,021 0.6% 1,015
Deferred income 2,096 8.5% 1,932
Other accrued liabilities 4,078 11.9% 3,644
Total current liabilities 13,548 5.0% 12,898
Long-term debt 13,165 0.2% 13,136
Long-term deferred tax liabilities 4,397 28.9% 3,412
Other long-term liabilities 2,972 -19.7% 3,702
Stockholder's equity
Common stock 21,536 10.6% 19,464
Accumulated other comprehensive income 1,243 -411.5% (399)
Retained earnings 35,477 10.4% 32,138
Total stockholder's equity 58,256 13.8% 51,203
Total liabilities and stockholder's equity $ 92,358 9.5% $ 84,351

Exhibit 2
After analyzing both reports from the balance sheet, there are a few assets that must be reviewed. The
first being a significant decrease in the cash account. It dropped 33.1% from 2012. This could be due to
the increase in expenses for the new technology Intel released (discussed in previous report) and for the
payment of debt. Long-term liabilities decreased by 19.7%. Another reason for the decrease in the cash
account could also be a result of using cash to invest in short-term investments and trading assets,
which increased by 49.3% and 48.5%, respectively. Both accounts combined were more than the cash
account in both 2012 and 2013 (11.4% to 10.1% in 2012, and 15.6% to 6.1% in 2013). After reviewing
this information, one could feel better about the seemingly deep drop in cash. By using short-term
investments, Intel can potentially increase its available cash relatively quickly. The same thing applies to
the trading securities. They might not be as liquid as other short-term investments, but they can also
result in a cash gain for Intel.

2013 2012 Growth rate

(in millions)
Net sales $ 52,708 $ 53,341 -1.2%
Accounts receivables (total) 3,620 3,871 -6.5%
Allowance for doubtful accounts 38 38 0.0%
Accounts receivables (net) $ 3,582 $ 3,833 -6.5%

Allowance for doubtful accounts as a percentage of accounts receivable

2013 2012

Allowance for doubtful accounts 38 38

Accounts receivable 3,620 3,871
Percentage 1.05% 0.98%

Allowance for doubtful accounts as a percentage of net sales

2013 2012

Allowance for doubtful accounts 38 38

Net sales 52,708 53,341
Percentage 0.07% 0.07%

Above is the analysis for the accounts receivable for Intel. It appears that they estimate bad debts using
the net sales method. In both 2012 and 2013 the percentage of doubtful accounts compared to net sales
was .07%. This appears to be reasonable. Along with this analysis, the Valuation and Qualifying Accounts
section of the 10K provides some important information. For the last few years the balance in the
allowance for doubtful accounts was at $36 m in 2011 and $38 m in both 2012 and 2013. This shows
consistency on Intel’s part. Through the years, and based on their experience through the years, Intel
has determined that this range is reasonable an accurate.

Intel uses the lower of cost or market approach to valuate inventory. A key piece of information Intel
shares is the use of their product release qualification. This is a point when activities and associated
costs are changed from R&D to cost of sales. This is determined from previous capacity in the test, and
manufacturing and assembly facilities.

Assumptions about future demand and market conditions are the main contributors to using the LCM to
valuate inventory. Consumer confidence and acceptance, along with selling price compared to product
cost, customer base and life cycle of Intel products are all reviewed to determine the selling price of
products. It is written down if the estimated market value is less than the carrying value. Any products
that are not sellable or are excessive are written off and that results in a negative impact to the gross
margin.

Something that was expressed in the notes to the financial statements was the computation of cost of
sales. While the inventory is valuated using the LCM, cost of sales is valuated and recorded as first-in,
first-out. This is done in the first quarter that inventory is deemed as sellable. This has a slight impact on
the evaluation of the accounts. It is important to note that the inventory is sold on a lower of cost or
market price and the cost of selling it is first-in, first-out. It could cost more to sell depending on the
quarter and when items are deemed as complete. Keeping in mind the market price of selling versus the
cost and will help determine if Intel is able to compete effectively and offer products at lower prices
while keeping its costs low.

Deferred tax assets and liabilities have seen increases in the last two years. Tax assets rose 22.5% from
2012 and deferred tax liabilities increased 28.9%. These both seem like significant increases, but each
only increased by a fraction of a percent in relation to the balance sheet accounts.

Intel uses the straight-line method to calculate depreciation. The property, plant and equipment
accounts have increased from 2012 by 12.3%. However, this did not have a significant impact on the
balance sheet. The overall percentage in comparison to all the assets increased by just .08% and did not
change significantly.

Intel Corporation
Growth in property, plant, and equipment, and total assets
2009-2013

2013 % 2009
PP&E $ 31,428 82.5% $ 17,225
Total Assets $ 92,358 73.9% $ 53,095

The assets have seen great growth since 2009. Property, plant, and equipment are a very significant part
of Intel’s assets and they have seen the total assets almost double in the last 5 years. With PP&E being
34% of the total assets, any major changes in the account will greatly impact the balance sheet.
The MD&A discusses the capital purchases that Intel has coming. They explain that those were not
recorded as liabilities because they have not received the products yet. This means that Intel will be
receiving some new PP&E in the next year and that will increase that amount that is reported on the
balance sheet by $5,375.

There has been a change in the composition of current and long-term assets. Current assets made up a
large amount of all the assets in 2012 but dropped in 2013, while long-term investments, equity
securities and other long-term assets increased significantly. This could be the result of Intel investing in
assets that will return more cash in the long run.

Current liabilities are not a major concern for Intel. The account only increased 5% from 2012 and makes
up 14.7% of the balance sheet amount (down .6% from 2012).

Long term debt does not raise many concerns from Intel as well. The account decreased by 1.3% in
comparison to the balance sheet. There was only a small increase of .02% in long-term debt in 2013.

Intel Corporation
Change in long-term debt
2009-2013

2013 % 2009
Long-term debt $ 13,165 542.5% $ 2,049

When looking at the long-term debt of Intel over the last 5 years, an increase of 542.5% can raise some
concerns. The notes to the financial statements disclose the nature of the long-term debt and when all
the different accounts are due. Besides $4,496 total being due in the coming years (2,997 in 2017, 1,499
in 2016) the next payment date isn’t until 2021. Most of the long-term debt was used to acquire senior
notes. Senior notes were used to repurchase company stock and they can redeem their senior notes at
any time.

Other long-term liabilities are not a concern. They make up 3.2% of the balance sheet and decreased by
19.7% in 2013.

There have not been significant changes to the composition of debt to equity. The debt has decreased
overall for intel. With the increase in the balance sheet, and decrease in liabilities, that gives more
equity to stockholders and make those stocks even more valuable.

The commitments for Intel include agreements for the construction or purchase of property, plant, and
equipment along with leases for facilities and certain equipment through 2028. 829 million euros worth
of R&D was committed by Intel over five years along with purchase orders from ASML for tools.

Non-current deferred tax assets are listed as long-term assets on the balance sheet and long-term tax
payable are listed as long-term liabilities. The most significant component of the long-term tax liability
account is for the property, plant, and equipment. This makes up about half of the long-term tax
liabilities and is just over $650 million higher than the amount of net deferred tax liabilities Intel has.
The equity portion of the balance sheet shows common stock ($21,536 million), accumulated other
comprehensive income ($1,243 million, and retained earnings ($35,477 million).

Statement of Equity and Income Statement

Next we will be looking at the income statement and equity statement for Intel.

Intel Corporation
Growth Analysis of Statement of Income (in millions)
For the Years Ended 2011, 2012, and 2013

2013 % 2012 % 2011

Net revenue $ 52,708 98.8% $ 53,341 98.8% $ 53,999
Cost of sales 21,178 104.9% 20,190 99.7% 20,242
Gross Margin 31,521 95.1% 33,151 98.2% 33,757
Research and development 10,611 104.6% 10,148 121.5% 8,350
Marketing, general and administrative 8,088 100.4% 8,057 105.0% 7,670
Restructuring and asset impairment charges 240 - -
Amortization of acquisition-related intangibles 291 94.5% 308 118.5% 260
Operating expenses 19,230 103.9% 18,513 113.7% 16,280
Operating income 12,291 84.0% 14,638 83.8% 17,477
Gains (losses) on equity investments, net 471 334.0% 141 125.9% 112
Interest and other, net (151) -160.6% 94 49.0% 192
Income before taxes 12,611 84.8% 14,873 83.6% 17,781
Provision for taxes 2,991 77.3% 3,868 79.9% 4,839
Net income $ 9,620 87.4% $ 11,005 85.0% $ 12,942
Basic earnings per common share $ 1.94 88.2% $ 2.20 89.4% $ 2.46
Diluted earnings per common share $ 1.89 88.7% $ 2.13 89.1% $ 2.39
Weighted average common shares outstanding
Basic earnings per common share 4,970 99.5% 4,996 95.1% 5,256
Diluted earnings per common share 5,097 98.8% 5,160 95.4% 5,411

Exhibit 3
 Intel Corporation
Common-Size Statement of Income (Percentages)
For the Years Ended 2011, 2012, and 2013

2013 2012 2011

Net revenue 100.0 100.0 100
Cost of sales 40.2 37.9 37.5
Gross Margin 59.8 62.1 62.5
Research and development 20.1 19.0 15.5
Marketing, general and administrative 15.3 15.1 14.2
Restructuring and asset impairment charges 0.5 0.0 0.0
Amortization of acquisition-related intangibles 0.6 0.6 0.5
Operating expenses 36.5 34.7 30.1
Operating income 23.3 27.4 32.4
Gains (losses) on equity investments, net 0.9 0.3 0.2
Interest and other, net -0.3 0.2 0.4
Income before taxes 23.9 27.9 33.0
Provision for taxes 5.7 7.3 9.0
Net income 18.3 20.6 24.0

Exhibit 4

Sales revenue decreased by 1.2% in 2013 for Intel. According to the MD&A, this was due to lower unit
sales in the first half of the year, but those were offset in the second half. PC market stability is cited as
the reason for the higher unit sales in the second half of the year. This was particularly true in the fourth
quarter. $13.8 billion in revenue was 3% higher than the previous quarter, again due to stability in the
PC market. Intel expects revenue to remain flat in 2014 with a belief that their products will help boost
innovation and help make the PC market stronger.

2012 CPI 207

0.66 (34% deflation)
2011 CPI 316

2012 2011 Change % Change

Sales Revenue $ 53,341 $ 54,999 $ (1,658) 97%

2012 2011 (adj.) Change % Change

Sales Revenue $ 53,341 $ 36,299 $ 17,042 147%

2013 CPI 147

0.71 (29% deflation)
2012 CPI 207
 2013 2012 Change % Change
Sales Revenue $ 52,708 $ 53,341 $ (633) 99%

2013 2012 (adj.) Change % Change

Sales Revenue $ 52,708 $ 37,880 $ 14,828 139%

After adjusting the sales revenue for each year due to inflation, it appears that intel is doing better than
initial observation. Intel shows a decrease in net sales in both 2012 and 2013, but after CPI adjustments,
it appears that value of their net sales actually increased both years. This is due to a deflation in both
2012 and 2013 which would create a rise in the value of the dollar. In 2012, originally it appears that
Intel made 3% less than in 2011, but in reality, they made 147% more. There is a similar story in 2013
when intel appeared to make only 99% of what they made in 2012, but in relation to deflation, they
actually made 139% more.

Cost of sales increased in 2013. Most would assume that the cost of sales would correlate with the net
revenue, but that is not the case this time around. Net revenue dropped 1.2% and cost of goods sold
rose 4.9%. In 2012, the cost of goods was only 37.9% of net revenue and that number increased to
40.2% in 2013. In the Results of Operations section of the MD&A, it is explained that the selling prices
for all the 3 segments were increased, and that the overall units sold decreased by 2%. By this logic, it is
safe to assume that the cost of these units increased as well, and that is a large reason for the increase
in cost of sales.

Intel uses the FIFO method to calculate cost of sales. This means that the inventory that is received first
is also sold first. Something that I mentioned in the previous report (Case 2) was that Intel sells
inventory at lower-of-cost or market, which means it is generally in line with average market prices.
With that being said, the prices of units hardly changed, which means the disparity between net revenue
and cost of sales can be attributed to a rise in cost to the units. If Intel had used the LIFO method,
there’s a chance that the cost of sales could’ve lowered or increased, depending on how much the last
units cost when they were received. With the average cost method, there would’ve been a more
balanced measure of how much each unit cost and the percentage of cost to revenue could’ve been
lessened.

R&D is a very important part of Intel’s business. They are in a very competitive market that requires
constant innovation and upgrading of products. Their R&D grew by 4.2% in 2013 and has been growing
since 2011. This is partially due to the introduction of new products and a continual attempt to remain
competitive in their market. This did not seem to have a positive correlation to net sales in 2012 or
2013. In the PC and software industry, it is imperative to remain competitive, so the amount of R&D that
Intel has seems reasonable. It was 20.1% of net revenue in 2013 and 19% in 2012, so they are putting
quite a bit into it, which is an indicator that they want to stay afloat in their industry and continue to be
a household name. The Management’s Discussion cites an increase in product investment and salary
increases as the main reasons for the increase in R&D. Overall, it appears that Intel is spending more
time with research and development to keep pushing out new, innovative products.

Marketing is essential to Intel’s success. After spending so much on R&D, Intel has to be able to promote
the new products they are creating and keep the Intel name in peoples’ minds. The Income statement
groups advertising, general and administrative expenses, so it is not entirely clear if it correlates with net
revenue. However, the MG&A only rose slightly from 2011 to 2012 (105%) and 2012 to 2013 (100.4%).
The decrease in net sales over these two years could be an effect of a lesser amount being spent on
advertising, since the MG&A only rose slightly, and salary increases happen yearly. MG&A expense has
remained relatively constant in comparison to net sales in both 2012 and 2013, with both years being
just over 15%. This seems like a reasonable amount for a company of this size. The notes to the financial
statements states that the amount spent on advertising in 2013 was $1.9 billion, which was a decrease
from $2 billion in 2012. This solidifies the initial statement above that less was spent on advertising. The
MG&A also details that the increase in MG&A in 2012 was due to higher McAfee expenses. Higher
employee salaries and more employees also was a cause for the increase in both years.

Operating profit has seen decreases in both 2012 and 2013. The net operating profit was 27.4% to net
sales in 2012, which was a decrease of 5 percent from 2011, and 23.3% in 2013. These decreases are in-
line with the decreases in net sales and increases in costs and operating expenses.

2013 2012 2011

Income taxes 2,991 3,868 4,839
= 24% = 26% = 27%
Earnings before income taxes 12,661 14,873 17,781

Above is the calculation for the effective tax rates for each of the three years. Intel has seen a decline
each of the three years, which is due to the taxable income decreasing every year.

Net income has seen a negative trend in both 2012 and 2013. All the above factors played a role in this,
as they all come into play with calculating the final amount. Net earnings were 24% of net revenue in
2011, 20.6% in 2012, and 18.3% in 2013. It was down 15% in 2012 and 12.6% in 2013, which is a higher
amount than the decrease in net revenue for both years, but the higher costs of sales and other
expenses resulted in lower amounts.

Earnings per share has decreased each year as well. $2.39 was the amount in 2011 and that dropped to
$2.13 in 2012 and $1.89 in 2013. Again, all the above factors, especially the decreases in net earnings
are the reasons for EPS dropping each year.

Unrealized holding gains (losses) is the most significant part of the comprehensive income report for
Intel. This has seen significant increases the last 3 years. In 2011, there was a loss of $170 million and in
2013 there was a gain of $1,181 million. This has had a positive impact and has helped increase the total
amount of comprehensive income.

Intel has four major segments: PC Client Group, Data Center Group, Other Intel Architecture Operating
Segments, and Software and Services Operating Segments.
 Intel Corporation Horizontal Analysis of Statement of Shareholder's Equity

2013 % 2012 % 2011

Number of Shares 4,967 100.5% 4,944 98.9% 5,000
Amount $ 21,536 110.6% $ 19,464 114.3% $ 17,036
Accumulated Other Comprehensive Income (Loss) 1,243 -311.5% (399) 51.1% (781)
Retained Earnings 35,477 110.4% 32,138 108.4% 29,656
Total $ 58,256 113.8% $ 51,208 111.5% $ 45,911

Exhibit 5

Intel Corporation Vertical Analysis of Statement of Shareholder's Equity

2013 2012 2011

Total Amount of Shares 37% 38% 37%

Accumulated Other Comprehensive Income (Loss) 2% -1% -2%
Retained Earnings 61% 63% 65%
Total 100% 100% 100%

Exhibit 6

Overall, each of the equity accounts has risen from 2011 to 2013. An increase in stock indicates that
there are more stockholders holding stocks which means more stocks were sold. A decrease would
indicate that stocks are being retired or bought back by the company. This could be a way to increase
the value of each stock individually which could lead to more people buying the stock since they see the
increase and want to jump on.

A few facts can be verified after studying Intel’s income statement and statement of equity. The net
income was indeed $9.6 billion, and the EPS was $1.89. Intel did have a nice level of profit; however it
was a decrease from previous years, which was not mentioned by management. The Chairman stated
that the cumulative return to stockholders was $125 billion. This is fairly accurate. The actual amount
was $1,243 million and they probably rounded up to make the number seem slightly better. Overall,
Intel’s management was accurate in what they did talk about, but they did fail mention that the overall
net, operating, and gross profit have decreased over the last three years. I don’t think this is wrong for
them to do, it’s a way to keep themselves looking strong on the outside. Only those who truly dig deep
will know what is going on.

Liquidity, leverage, operating efficiency, profitability, and market measures of Intel

Ratios are commonly used to quickly learn financial information about a company. For these ratios, the
two most recent years are shown for Intel along with the industry average. We will be looking at five
different types of ratios to make observations about Intel’s financial performance for the last two years.
 Industry
Liquidity 2013 2012 averages
Short-run Solvency
Current ratio 32,084 31,358
= 2.4 = 2.4 2.2
13,584 12,898
Quick ratio 27,912 26,624
= 2.1 = 2.1 1.2
13,584 12,898
Liquidity of current assets
Avg. collection period 3,582 3,833
= 25 = 26 46
144 146
Days inventory held 3,582 3,833
= 62 = 69 70
58 55
Days payable outstanding 2,969 3,023
= 51 = 55 44
58 55

Liquidity for Intel looks very good compared to industry averages. The current ratio is slightly higher
than the average, but the quick ratio is about double that of the industry. This means less of their
current assets are from inventory and that they would be able to liquify assets more quickly if needed.
Their average collection period is just over half that of the industry, which means they are collecting on
accounts receivable more quickly than the industry and creating a positive inflow of cash rather than
having everything stay on account. They hold inventory about 8 days shorter than the average which
means they are getting it out more quickly.

Industry
Leverage 2013 2012 averages
Amount of debt
Debt to assets 34,102 33,148
= 36.9% = 39.3% 49.7%
92,358 84,351
Debt to equity 34,102 33,148
= 0.6 = 0.6 1.1
58,256 51,203
Coverage of debt
Times interest earned 12,291 14,638
= (81.4) = 155.7 8.2
(151) 94

The leverage for Intel looks great compared to the industry. With a smaller debt to asset and debt to
equity ratio, it means that most of their assets and equity are not financed by debt, which decreases the
risk for them. They are more than capable of paying for the interest they accrue according to the times
interest earned ratio.
 Industry
Operating efficiency
2013 2012 averages
Asset management
Accounts receivable turnover 52,708 53,341
= 14.7 = 13.9 8.0
3,582 3,833
Inventory turnover 21,178 20,190
= 5.1 = 4.3 5.2
4,172 4,734
Accounts payable turnover 21,178 20,190
= 7.1 = 6.7 8.3
2,969 3,023
Fixed asset turnover 52,708 53,341
= 1.7 = 1.9 15.2
31,428 27,983
Total asset turnover 52,708 53,341
= 0.6 = 0.6 1.5
92,358 84,351

The operating efficiency is a downer in comparison to the market. Intel is more efficient at collecting on
accounts receivable, but they are significantly worse at using fixed assets to generate income and are
slightly slower at paying down debt.

Industry
Profitability 2013 2012 averages
Margins
Gross profit margin 31,521 33,151
= 59.8% = 62.1% 28.7%
52,708 53,341
Operating profit margin 12,291 14,873
= 23.3% = 27.9% 1.6%
52,708 53,341
Returns
Return on total assets 52,708 53,341
= 57.07% = 63.24% 13.43%
92,358 84,351
Return on equity 52,708 53,341
= 90.48% = 104.18% 79.15%
58,256 51,203

Industry
Market measures 2013 2012 averages
Earnings per share 1.94 2.20 15.06

Intel dominates when it comes to profitability. From gross profit margin to return on equity, they are
very much higher and more profitable when compared to the industry averages. This means they are
generating a higher gross and operating profit margin along with using assets and equity to generate
income. The EPS suffers compared to the industry, so shares may not be the best option for quick
returns.
Conclusions

Overall, the prospects of Intel look fine. They are able to produce profit year in and year out. Though
they may suffer a bit when generating income from fixed assets, they are able to produce very
respectable income from equity and total assets. They manage to keep their uncollectable liabilities low
by collecting quickly on accounts receivable. In an industry that is highly competitive, Intel is very much
a top performer when it comes to financial ratios. The overall gross profit and net revenue for Intel did
decrease slightly in 2013, but the investment in new technology and the constant stream of R&D will
help the company stay very much at the top of the game in the coming years. Also, the inflation rate for
each year needs to be considered as well, because with that, Intel performed better in 2013 than the
previous two years. This analysis has been a thorough look into the state of Intel and I hope it helps
answer any questions.