2013 Q4 Form 10-Q Financial Statement

#000005086313000104 Filed on October 28, 2013

View on sec.gov

Income Statement

Concept 2013 Q4 2013 Q3 2012 Q3
Revenue $13.83B $13.48B $13.46B
YoY Change 2.65% 0.19% 3.26%
Cost Of Revenue $5.263B $5.069B $4.942B
YoY Change -7.01% 2.57% -3.66%
Gross Profit $8.571B $8.414B $8.515B
YoY Change 9.65% -1.19% 7.76%
Gross Profit Margin 61.96% 62.4% 63.28%
Selling, General & Admin $2.006B $1.970B $1.995B
YoY Change 2.45% -1.25% 4.72%
% of Gross Profit 23.4% 23.41% 23.43%
Research & Development $2.826B $2.742B $2.605B
YoY Change 7.49% 5.26% 31.17%
% of Gross Profit 32.97% 32.59% 30.59%
Depreciation & Amortization $1.956B $2.021B $1.893B
YoY Change -2.44% 6.76% 25.86%
% of Gross Profit 22.82% 24.02% 22.23%
Operating Expenses $4.906B $4.910B $4.674B
YoY Change 5.23% 5.05% 17.82%
Operating Profit $3.665B $3.504B $3.841B
YoY Change 16.16% -8.77% -2.39%
Interest Expense $10.00M $56.00M $14.00M
YoY Change -95.07% 300.0%
% of Operating Profit 0.27% 1.6% 0.36%
Other Income/Expense, Net -$8.000M $0.00 $57.00M
YoY Change -94.81% -100.0% 533.33%
Pretax Income $3.551B $3.924B $3.921B
YoY Change 10.83% 0.08% -0.25%
Income Tax $926.0M $974.0M $949.0M
% Of Pretax Income 26.08% 24.82% 24.2%
Net Earnings $2.625B $2.950B $2.972B
YoY Change 6.36% -0.74% 0.61%
Net Earnings / Revenue 18.97% 21.88% 22.09%
Basic Earnings Per Share $0.59 $0.59
Diluted Earnings Per Share $514.4K $0.58 $0.58
COMMON SHARES
Basic Shares Outstanding 4.971B shares 4.981B shares 4.996B shares
Diluted Shares Outstanding 5.100B shares 5.153B shares

Balance Sheet

Concept 2013 Q4 2013 Q3 2012 Q3
SHORT-TERM ASSETS
Cash & Short-Term Investments $11.65B $11.37B $6.003B
YoY Change -6.66% 89.46% -22.45%
Cash & Equivalents $5.674B $4.881B $3.520B
Short-Term Investments $5.972B $6.492B $2.483B
Other Short-Term Assets $1.649B $1.517B $1.659B
YoY Change -34.36% -8.56% -24.35%
Inventory $4.172B $4.533B $5.319B
Prepaid Expenses
Receivables $3.582B $3.719B $3.938B
Other Receivables $0.00 $0.00 $0.00
Total Short-Term Assets $32.08B $31.35B $23.01B
YoY Change 2.32% 36.22% -0.38%
LONG-TERM ASSETS
Property, Plant & Equipment $31.43B $30.35B $27.16B
YoY Change 12.31% 11.74% 30.7%
Goodwill $10.51B $10.47B $9.623B
YoY Change 8.27% 8.77% 5.27%
Intangibles $5.150B $5.434B $6.221B
YoY Change -17.4% -12.65% -7.15%
Long-Term Investments $1.038B $985.0M $1.010B
YoY Change 4.64% -2.48% -41.89%
Other Assets $5.489B $4.857B $4.033B
YoY Change 32.33% 20.43% -10.06%
Total Long-Term Assets $60.27B $59.20B $51.43B
YoY Change 13.74% 15.12% 19.63%
TOTAL ASSETS
Total Short-Term Assets $32.08B $31.35B $23.01B
Total Long-Term Assets $60.27B $59.20B $51.43B
Total Assets $92.36B $90.55B $74.44B
YoY Change 9.49% 21.64% 12.64%
SHORT-TERM LIABILITIES
YoY Change
Accounts Payable $2.969B $2.996B $3.188B
YoY Change -1.79% -6.02% 16.27%
Accrued Expenses $7.850B $8.031B $6.755B
YoY Change 2.87% 18.89% 18.16%
Deferred Revenue
YoY Change
Short-Term Debt $0.00 $0.00 $0.00
YoY Change
Long-Term Debt Due $0.00 $350.0M $56.00M
YoY Change -100.0% 525.0% -21.13%
Total Short-Term Liabilities $13.57B $13.88B $11.95B
YoY Change 5.19% 16.08% 15.44%
LONG-TERM LIABILITIES
Long-Term Debt $13.17B $13.16B $7.100B
YoY Change 0.22% 85.31% 239.71%
Other Long-Term Liabilities $2.972B $3.683B $3.215B
YoY Change -19.72% 14.56% 27.63%
Total Long-Term Liabilities $16.14B $16.84B $10.32B
YoY Change -4.16% 63.26% 123.8%
TOTAL LIABILITIES
Total Short-Term Liabilities $13.57B $13.88B $11.95B
Total Long-Term Liabilities $16.14B $16.84B $10.32B
Total Liabilities $29.71B $30.72B $22.27B
YoY Change -0.1% 37.93% 48.82%
SHAREHOLDERS EQUITY
Retained Earnings $35.48B $33.29B $30.49B
YoY Change 10.39% 9.18% -4.75%
Common Stock
YoY Change
Preferred Stock
YoY Change
Treasury Stock (at cost)
YoY Change
Treasury Stock Shares
Shareholders Equity $58.26B $55.45B $49.27B
YoY Change
Total Liabilities & Shareholders Equity $92.36B $90.55B $74.44B
YoY Change 9.49% 21.64% 12.64%

Cashflow Statement

Concept 2013 Q4 2013 Q3 2012 Q3
OPERATING ACTIVITIES
Net Income $2.625B $2.950B $2.972B
YoY Change 6.36% -0.74% 0.61%
Depreciation, Depletion And Amortization $1.956B $2.021B $1.893B
YoY Change -2.44% 6.76% 25.86%
Cash From Operating Activities $6.038B $5.731B $5.147B
YoY Change 0.2% 11.35% 29.61%
INVESTING ACTIVITIES
Capital Expenditures -$2.948B -$2.868B -$3.364B
YoY Change 7.04% -14.74% 35.43%
Acquisitions
YoY Change
Other Investing Activities -$973.0M -$455.0M -$1.488B
YoY Change -62.26% -69.42% -187.48%
Cash From Investing Activities -$3.921B -$3.323B -$4.852B
YoY Change -26.46% -31.51% 519.67%
FINANCING ACTIVITIES
Cash Dividend Paid
YoY Change
Common Stock Issuance & Retirement, Net
YoY Change
Debt Paid & Issued, Net
YoY Change
Cash From Financing Activities -1.322B -1.306B -2.004B
YoY Change -130.98% -34.83% -26.99%
NET CHANGE
Cash From Operating Activities 6.038B 5.731B 5.147B
Cash From Investing Activities -3.921B -3.323B -4.852B
Cash From Financing Activities -1.322B -1.306B -2.004B
Net Change In Cash 795.0M 1.102B -1.709B
YoY Change -83.98% -164.48% -485.78%
FREE CASH FLOW
Cash From Operating Activities $6.038B $5.731B $5.147B
Capital Expenditures -$2.948B -$2.868B -$3.364B
Free Cash Flow $8.986B $8.599B $8.511B
YoY Change 2.35% 1.03% 31.85%

Facts In Submission

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<div style="font-family:Times New Roman;font-size:10pt;"><div style="line-height:120%;padding-top:18px;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;color:#000000;font-weight:bold;text-decoration:none;">Note 19: Contingencies</font><font style="font-family:Arial;font-size:10pt;font-weight:bold;"> </font></div><div style="line-height:120%;padding-top:6px;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;font-style:italic;font-weight:bold;">Legal Proceedings</font></div><div style="line-height:120%;padding-top:12px;text-align:left;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;">We are a party to various legal proceedings, including those noted in this section. Although management at present believes that the ultimate outcome of these proceedings, individually and in the aggregate, will not materially harm our financial position, results of operations, cash flows, or overall trends, legal proceedings and related government investigations are subject to inherent uncertainties, and unfavorable rulings or other events could occur. Unfavorable resolutions could include substantial monetary damages. In addition, in matters for which injunctive relief or other conduct remedies are sought, unfavorable resolutions could include an injunction or other order prohibiting us from selling one or more products at all or in particular ways, precluding particular business practices, or requiring other remedies. Were unfavorable outcomes to occur, the possibility exists for a material adverse impact on our business, results of operations, financial position, and overall trends. We might also conclude that settling one or more such matters is in the best interests of our stockholders, employees, and customers, and any such settlement could include substantial payments. However, we have not reached this conclusion with respect to any particular matter at this time.</font></div><div style="line-height:120%;padding-top:12px;text-align:left;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;">A number of proceedings generally have challenged and continue to challenge certain of our competitive practices. The allegations in these proceedings vary and are described in more detail in the following paragraphs. In general, they contend that we improperly conditioned price rebates and other discounts on our microprocessors on exclusive or near-exclusive dealing by some of our customers; and they allege that our software compiler business unfairly preferred Intel</font><font style="font-family:inherit;font-size:10pt;"><sup style="vertical-align:top;line-height:120%;font-size:7pt">&#174;</sup></font><font style="font-family:inherit;font-size:10pt;"> </font><font style="font-family:Arial;font-size:10pt;">microprocessors over competing microprocessors and that, through the use of our compilers and other means, we have caused the dissemination of inaccurate and misleading benchmark results concerning our microprocessors. Based on the procedural posture of the various remaining competition matters, which we describe in subsequent paragraphs, our investment of resources to explain and defend our position has declined as compared to the period 2005-2011. Nonetheless, certain of the matters remain active, and these challenges could continue for a number of years, potentially requiring us to invest additional resources. We believe that we compete lawfully and that our marketing, business, intellectual property, and other challenged practices benefit our customers and our stockholders, and we will continue to conduct a vigorous defense in the remaining proceedings.</font></div><div style="line-height:120%;padding-top:18px;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;font-style:italic;">Government Competition Matters and Related Consumer Class&#160;Actions</font></div><div style="line-height:120%;padding-top:12px;text-align:left;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;">In 2001, the European Commission (EC) commenced an investigation regarding claims by Advanced Micro Devices, Inc. (AMD) that we used unfair business practices to persuade customers to buy our microprocessors. We received numerous requests for information and documents from the EC and we responded to each of those requests. The EC issued a Statement of Objections in July 2007 and held a hearing on that Statement in March 2008. The EC issued a Supplemental Statement of Objections in July 2008.</font></div><div style="line-height:120%;padding-top:12px;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;">In May 2009, the EC issued a decision finding that we had violated Article 82 of the EC Treaty and Article 54 of the European Economic Area Agreement. In general, the EC found that we violated Article 82 (later renumbered as Article 102 by a new treaty) by offering alleged </font><font style="font-family:inherit;font-size:10pt;">&#8220;</font><font style="font-family:Arial;font-size:10pt;">conditional rebates and payments</font><font style="font-family:inherit;font-size:10pt;">&#8221;</font><font style="font-family:Arial;font-size:10pt;"> that required our customers to purchase all or most of their x86 microprocessors from us. The EC also found that we violated Article 82 by making alleged </font><font style="font-family:inherit;font-size:10pt;">&#8220;</font><font style="font-family:Arial;font-size:10pt;">payments to prevent sales of specific rival products.</font><font style="font-family:inherit;font-size:10pt;">&#8221;</font><font style="font-family:Arial;font-size:10pt;"> The EC imposed a fine in the amount of</font><font style="font-family:inherit;font-size:10pt;">&#160;</font><font style="font-family:Arial;font-size:10pt;color:#000000;text-decoration:none;">&#8364;1.06 billion</font><font style="font-family:Arial;font-size:10pt;"> (</font><font style="font-family:Arial;font-size:10pt;color:#000000;text-decoration:none;">$1.447 billion</font><font style="font-family:Arial;font-size:10pt;"> as of May 2009), which we subsequently paid during the third quarter of 2009, and ordered us to </font><font style="font-family:inherit;font-size:10pt;">&#8220;</font><font style="font-family:Arial;font-size:10pt;">immediately bring to an end the infringement referred to in</font><font style="font-family:inherit;font-size:10pt;">&#8221;</font><font style="font-family:Arial;font-size:10pt;"> the EC decision. In the second quarter of 2009, we recorded the related charge within marketing, general and administrative. We strongly disagree with the EC</font><font style="font-family:inherit;font-size:10pt;">'</font><font style="font-family:Arial;font-size:10pt;">s decision, and we appealed the decision to the Court of First Instance (which has been renamed the General Court) in July 2009. The hearing of our appeal took place on July 3 through July 6, 2012. The court</font><font style="font-family:inherit;font-size:10pt;">'</font><font style="font-family:Arial;font-size:10pt;">s decision is expected in late 2013 or early 2014.</font></div><div style="line-height:120%;padding-top:12px;text-align:left;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;">The EC decision exceeds 500 pages but contains no specific direction on whether or how we should modify our business practices. Instead, the decision states that we should </font><font style="font-family:inherit;font-size:10pt;">&#8220;</font><font style="font-family:Arial;font-size:10pt;">cease and desist</font><font style="font-family:inherit;font-size:10pt;">&#8221;</font><font style="font-family:Arial;font-size:10pt;"> from further conduct that, in the EC</font><font style="font-family:inherit;font-size:10pt;">'</font><font style="font-family:Arial;font-size:10pt;">s opinion, would violate applicable law. We have taken steps, which are subject to the EC</font><font style="font-family:inherit;font-size:10pt;">'</font><font style="font-family:Arial;font-size:10pt;">s ongoing review, to comply with that decision pending appeal. We had discussions with the EC to better understand the decision and to explain changes to our business practices. Based on our current understanding and expectations, we do not believe that any such changes will be material to our financial position, results, or cash flows.</font></div><div style="line-height:120%;padding-top:12px;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;">In June</font><font style="font-family:inherit;font-size:10pt;">&#160;</font><font style="font-family:Arial;font-size:10pt;">2005, we received an inquiry from the Korea Fair Trade Commission (KFTC) requesting documents from our Korean subsidiary related to marketing and rebate programs that we entered into with Korean PC manufacturers. In February 2006, the KFTC initiated an inspection of documents at our offices in Korea. In September 2007, the KFTC served on us an Examination Report alleging that sales to two customers during parts of 2002</font><font style="font-family:inherit;font-size:10pt;">-</font><font style="font-family:Arial;font-size:10pt;">2005 violated Korea</font><font style="font-family:inherit;font-size:10pt;">'</font><font style="font-family:Arial;font-size:10pt;">s Monopoly Regulation and Fair Trade Act. In December 2007, we submitted our written response to the KFTC. In February 2008, the KFTC</font><font style="font-family:inherit;font-size:10pt;">'</font><font style="font-family:Arial;font-size:10pt;">s examiner submitted a written reply to our response. In March 2008, we submitted a further response. In April 2008, we participated in a pre-hearing conference before the KFTC, and we participated in formal hearings in May and June 2008. In June 2008, the KFTC announced its intent to fine us approximately&#160;</font><font style="font-family:Arial;font-size:10pt;color:#000000;text-decoration:none;">$25 million</font><font style="font-family:Arial;font-size:10pt;"> for providing discounts to Samsung Electronics Co., Ltd. and TriGem Computer Inc. In November 2008, the KFTC issued a final written decision concluding that our discounts had violated Korean antitrust law and imposing a fine on us of approximately </font><font style="font-family:Arial;font-size:10pt;color:#000000;text-decoration:none;">$20 million</font><font style="font-family:Arial;font-size:10pt;">, which we paid in January 2009. In December 2008, we appealed this decision by filing a lawsuit in the Seoul High Court seeking to overturn the KFTC</font><font style="font-family:inherit;font-size:10pt;">'</font><font style="font-family:Arial;font-size:10pt;">s decision. In June 2013, the Seoul High Court rejected Intel's appeal and affirmed the KFTC's findings, including the imposition of the fine. </font></div><div style="line-height:120%;padding-top:12px;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;">At least 82 separate class-action lawsuits have been filed in the U.S. District Courts for the Northern District of California, Southern District of California, District of Idaho, District of Nebraska, District of New Mexico, District of Maine, and District of Delaware, as well as in various California, Kansas, and Tennessee state courts. These actions generally repeat the allegations made in a now-settled lawsuit filed against us by AMD in June 2005 in the U.S. District Court for the District of Delaware (AMD litigation). Like the AMD litigation, these class-action lawsuits allege that we engaged in various actions in violation of the Sherman Act and other laws by, among other things: providing discounts and rebates to our manufacturer and distributor customers conditioned on exclusive or near-exclusive dealing that allegedly unfairly interfered with AMD</font><font style="font-family:inherit;font-size:10pt;">'</font><font style="font-family:Arial;font-size:10pt;">s ability to sell its microprocessors; interfering with certain AMD product launches; and interfering with AMD</font><font style="font-family:inherit;font-size:10pt;">'</font><font style="font-family:Arial;font-size:10pt;">s participation in certain industry standards-setting groups. The class actions allege various consumer injuries, including that consumers in various states have been injured by paying higher prices for computers containing our microprocessors. We dispute these class-action claims and intend to defend the lawsuits vigorously.</font></div><div style="line-height:120%;padding-top:12px;text-align:left;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;">All of the federal class actions and the Kansas and Tennessee state court class actions have been transferred by the Multidistrict Litigation Panel to the U.S. District Court in Delaware for all pre-trial proceedings and discovery (MDL proceedings). The Delaware district court appointed a Special Master to address issues in the MDL proceedings, as assigned by the court. In January 2010, the plaintiffs in the Delaware action filed a motion for sanctions for our alleged failure to preserve evidence. This motion largely copies a motion previously filed by AMD in the AMD litigation, which has settled. The plaintiffs in the MDL proceedings also moved for certification of a class of members who purchased certain PCs containing products sold by us. In July 2010, the Special Master issued a Report and Recommendation (Report) denying the motion to certify a class. The MDL plaintiffs filed objections to the Special Master</font><font style="font-family:inherit;font-size:10pt;">'</font><font style="font-family:Arial;font-size:10pt;">s Report, and a hearing on those objections was held in March 2011. In September 2012, the court ruled that an evidentiary hearing will be necessary to enable the court to rule on the objections to the Special Master</font><font style="font-family:inherit;font-size:10pt;">'</font><font style="font-family:Arial;font-size:10pt;">s Report, to resolve the motion to certify the class, and to resolve a separate motion to exclude certain testimony and evidence from the MDL plaintiffs</font><font style="font-family:inherit;font-size:10pt;">'</font><font style="font-family:Arial;font-size:10pt;"> expert. The hearing occurred in July 2013, and we are awaiting the court's decision on the class certification issues.</font></div><div style="line-height:120%;padding-top:12px;text-align:left;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;">All California class actions have been consolidated in the Superior Court of California in Santa Clara County. The plaintiffs in the California actions have moved for class certification, which we are in the process of opposing. At our request, the court in the California actions has agreed to delay ruling on this motion until after the Delaware district court rules on the similar motion in the MDL proceedings. Given the procedural posture and the nature of these cases, including the fact that the Delaware district court has not determined whether the matters before it may proceed as a class action, we are unable to make a reasonable estimate of the potential loss or range of losses, if any, arising from these matters. </font></div><div style="line-height:120%;padding-top:18px;text-align:left;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;font-style:italic;">In re High Tech Employee Antitrust Litigation </font></div><div style="line-height:120%;padding-top:12px;text-align:left;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;">Between May and July 2011, former employees of Intel, Adobe Systems Incorporated, Apple Inc., Google Inc., Intuit Inc., Lucasfilm Ltd., and Pixar filed antitrust class action lawsuits in the California Superior Courts alleging that these companies had entered into a conspiracy to suppress the compensation of their employees. The California Superior Court lawsuits were removed to the United States District Court for the Northern District of California and were consolidated. The plaintiffs&#8217; allegations referenced the 2009 and 2010 investigation by the Department of Justice (DOJ) into employment practices in the technology industry, as well as the DOJ&#8217;s complaints and subsequent stipulated final judgments with the seven companies named as defendants in the lawsuits. The plaintiffs allege that the defendants entered into certain unlawful agreements not to cold call employees of particular other defendants and that there was an overarching conspiracy among the defendants. Plaintiffs assert one such agreement specific to Intel, namely that Intel and Google entered into an agreement starting no later than September 2007, not to cold call each other&#8217;s employees.</font></div><div style="line-height:120%;padding-top:12px;text-align:left;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;">In September 2011, the plaintiffs filed a consolidated amended complaint, captioned </font><font style="font-family:Arial;font-size:10pt;font-style:italic;">In re High Tech Employee Antitrust Litigation,</font><font style="font-family:Arial;font-size:10pt;"> which asserts the same state law claims as the state court complaints, and also asserts claims under Section 1 of the Sherman Antitrust Act and Section 4 of the Clayton Antitrust Act. In April 2012, the court granted the defendants&#8217; motion to dismiss plaintiffs&#8217; state law claims but denied defendants&#8217; motion to dismiss the Sherman Act and Clayton Act claims.</font></div><div style="line-height:120%;padding-top:12px;text-align:left;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;">In October 2013, the court certified a class consisting of approximately </font><font style="font-family:Arial;font-size:10pt;">66,000</font><font style="font-family:Arial;font-size:10pt;"> current or former employees of the seven defendants. This so-called &#8220;technical class&#8221; consists of a group of current and former technical, creative, and research and development employees at each of the defendants. Plaintiffs&#8217; consolidated amended complaint seeks a declaration that the defendants&#8217; alleged actions violated the antitrust laws; damages, trebled as provided for by law under the Sherman Act or Clayton Act; restitution, and disgorgement; and attorneys&#8217; fees and costs. Trial is scheduled to begin in late May 2014. Given the procedural posture and the nature of this case, we are unable to make a reasonable estimate of the potential loss or range of losses, if any, that might arise from this matter. We dispute the plaintiffs&#8217; claims and intend to defend the lawsuit vigorously.</font></div><div style="line-height:120%;padding-top:18px;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;font-style:italic;">Lehman Brothers Holdings Inc. and Lehman Brothers OTC Derivatives Inc. v. Intel</font></div><div style="line-height:120%;padding-top:12px;text-align:left;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;">In May 2013, Lehman Brothers OTC Derivatives Inc. (LOTC) and Lehman Brothers Holdings Inc. (LBHI) filed a lawsuit in the United States Bankruptcy Court in the Southern District of New York asserting claims against us arising from a 2008 contract between Intel and LOTC. Under the terms of the 2008 contract, we prepaid </font><font style="font-family:Arial;font-size:10pt;color:#000000;text-decoration:none;">$1.0 billion</font><font style="font-family:Arial;font-size:10pt;"> to LOTC, in exchange for which LOTC was required to deliver to us on or before September 29, 2008, quantities of Intel common stock and cash determined by a formula set forth in the contract. LOTC's performance under the contract was secured by&#160;</font><font style="font-family:Arial;font-size:10pt;color:#000000;text-decoration:none;">$1.0 billion</font><font style="font-family:Arial;font-size:10pt;"> of cash collateral. Under the terms of the contract, LOTC was obligated to deliver approximately </font><font style="font-family:Arial;font-size:10pt;color:#000000;text-decoration:none;">50 million</font><font style="font-family:Arial;font-size:10pt;"> shares of our common stock to us on September 29, 2008. LOTC failed to deliver any Intel common stock or cash, and we exercised our right of set-off against the&#160;</font><font style="font-family:Arial;font-size:10pt;color:#000000;text-decoration:none;">$1.0 billion</font><font style="font-family:Arial;font-size:10pt;"> collateral. LOTC and LBHI acknowledge in their complaint that we were entitled to set off our losses against the collateral, but they assert that we withheld collateral in excess of our losses that should have been returned to LOTC. The complaint asserts a claim for breach of contract, a claim for &#8220;turnover&#8221; under section 542(a) of the Bankruptcy Code, and a claim for violation of the automatic stay under section 362(a)(3) of the Bankruptcy Code. The complaint does not expressly quantify the amount of damages claimed but does assert multiple theories of damages that impliedly seek up to </font><font style="font-family:Arial;font-size:10pt;color:#000000;text-decoration:none;">$312 million</font><font style="font-family:Arial;font-size:10pt;"> of alleged excess collateral, plus interest based on LOTC's claimed cost of borrowing. In June 2013, we filed a motion to dismiss plaintiffs' bankruptcy claims and for a determination that the breach of contract claim is &#8220;non-core&#8221; under the Bankruptcy Code. The hearing on the motion occurred in September 2013. We believe that we acted in a manner consistent with our contractual rights, and we intend to defend against any claim to the contrary. Given the procedural posture and the nature of this case, including that discovery has just begun, we are unable to make a reasonable estimate of the potential loss or range of losses, if any, that might arise from this matter.</font></div><div style="line-height:120%;padding-top:18px;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;font-style:italic;">McAfee, Inc. Shareholder Litigation</font></div><div style="line-height:120%;padding-top:12px;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;">On August 19, 2010, we announced that we had agreed to acquire all of McAfee&#8217;s common stock for </font><font style="font-family:Arial;font-size:10pt;color:#000000;text-decoration:none;">$48.00</font><font style="font-family:Arial;font-size:10pt;"> per share. Four McAfee shareholders filed putative class-action lawsuits in Santa Clara County, California Superior Court challenging the proposed transaction. The cases were ordered consolidated in September 2010. Plaintiffs filed an amended complaint that named former McAfee board members, McAfee and Intel as defendants, and alleged that the McAfee board members breached their fiduciary duties and that McAfee and Intel aided and abetted those breaches of duty. The complaint requested rescission of the merger agreement, such other equitable relief as the court may deem proper, and an award of damages in an unspecified amount. In June 2012, the plaintiffs&#8217; damages expert asserted that the value of a McAfee share for the purposes of assessing damages should be </font><font style="font-family:Arial;font-size:10pt;color:#000000;text-decoration:none;">$62.08</font><font style="font-family:Arial;font-size:10pt;">.</font></div><div style="line-height:120%;padding-top:12px;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;">In January 2012, the court certified the action as a class action, appointed the Central Pension Laborers&#8217; Fund to act as the class representative, and scheduled trial to begin in January 2013. In March 2012, defendants filed a petition with the California Court of Appeal for a writ of mandate to reverse the class certification order; the petition was denied in June 2012. In March 2012, at defendants&#8217; request, the court held that plaintiffs were not entitled to a jury trial, and ordered a bench trial. In April 2012, plaintiffs filed a petition with the California Court of Appeal for a writ of mandate to reverse that order, which the court of appeal denied in July 2012. In August 2012, defendants filed a motion for summary judgment. The trial court granted that motion in November 2012, and entered final judgment in the case in February 2013. In April 2013, plaintiffs filed a notice of appeal. Because the resolution of the appeal may materially impact the scope and nature of the proceeding, we are unable to make a reasonable estimate of the potential loss or range of losses, if any, arising from this matter. We dispute the class-action claims and intend to continue to defend the lawsuit vigorously.</font></div><div style="line-height:120%;padding-top:18px;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;font-style:italic;">X2Y Attenuators, LLC v. Intel et al</font></div><div style="line-height:120%;padding-top:12px;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;">In May 2011, X2Y Attenuators, LLC (X2Y) filed a patent infringement lawsuit in the U.S. District Court for the Western District of Pennsylvania and a complaint with the U.S. International Trade Commission (ITC) pursuant to Section 337 of the Tariff Act of 1930 against us and two of our customers, Apple Inc. and Hewlett-Packard Company, alleging infringement of five patents. X2Y subsequently added a sixth patent to both actions. The district court action is stayed pending resolution of the ITC proceeding. X2Y alleges that at least Intel</font><font style="font-family:inherit;font-size:10pt;"><sup style="vertical-align:top;line-height:120%;font-size:7pt">&#174;</sup></font><font style="font-family:inherit;font-size:10pt;"> </font><font style="font-family:Arial;font-size:10pt;">Core&#8482;</font><font style="font-family:inherit;font-size:10pt;"> </font><font style="font-family:Arial;font-size:10pt;">and Intel</font><font style="font-family:inherit;font-size:10pt;"><sup style="vertical-align:top;line-height:120%;font-size:7pt">&#174;</sup></font><font style="font-family:inherit;font-size:10pt;"> </font><font style="font-family:Arial;font-size:10pt;">Xeon</font><font style="font-family:inherit;font-size:10pt;"><sup style="vertical-align:top;line-height:120%;font-size:7pt">&#174;</sup></font><font style="font-family:inherit;font-size:10pt;"> </font><font style="font-family:Arial;font-size:10pt;">processor families infringe the asserted patents. X2Y also requests that the ITC issue permanent exclusion and cease-and-desist orders to, among other things, prohibit us from importing these microprocessors and Apple and Hewlett-Packard Company products that incorporate these microprocessors into the United States. In the district court action, X2Y seeks unspecified damages, including enhanced damages for alleged willful infringement, and injunctive relief. On June 13, 2012, the Administrative Law Judge issued an initial determination granting X2Y&#8217;s motion to partially terminate the ITC investigation with respect to three of the asserted patents. The Administrative Law Judge held a hearing on the remaining three patents in August 2012 and issued an initial determination in December 2012. In the initial determination, the Administrative Law Judge found that Intel, Apple, and Hewlett-Packard Company have not violated Section 337 of the Tariff Act of 1930 because they have not infringed any of the asserted claims of the three patents, and ruled that the asserted claims of two of the patents were invalid. In December 2012, the parties filed petitions for review of the initial determination by the ITC. On February&#160;15, 2013, the ITC determined to review in part the initial determination. On review, the Commission determined to reverse or vacate certain findings, and to terminate the investigation with a finding of no violation. On April 12, 2013, X2Y filed a Notice of Appeal with the United States Court of Appeals for the Federal Circuit. Given the procedural posture and nature of the cases, including, the fact that resolution of the appeal of the ITC</font><font style="font-family:inherit;font-size:10pt;">'</font><font style="font-family:Arial;font-size:10pt;">s decision may materially impact the scope and nature of the proceeding, the fact that monetary damages are not an available remedy in the ITC, and that discovery regarding X2Y&#8217;s claimed damages has not commenced in the stayed district court action, we are unable to make a reasonable estimate of the potential loss or range of losses, if any, arising from these matters. We dispute the claims and intend to defend the lawsuits vigorously.</font></div></div>
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