SEC Company Response from INTEL CORP (INTC) (CIK 0000050863) (INTC) — Apr 18, 2012
INTEL CORP (INTC) (CIK 0000050863)
Date: April 18, 2012 · CIK: 0000050863 · Accession: 0000050863-12-000053
AI Filing Summary & Sentiment
Reasoning
File numbers found in text: 000-06217
Referenced dates: March 21, 2012
Letter
United States Securities and Exchange Commission Division of Corporate Finance Re: Intel Corporation Form 10-K for the Year Ended December 31, 2011 Filed February 23, 2012 File No. 000-06217
Dear Ms. Ravitz,
We have received your comment letter dated March 21, 2012, and the following are our responses to your comments. For your ease of reference, we have included your original comments below and have provided our responses after each comment.
Form 8-K dated January 19, 2012, filed January 20, 2012
Comment No. 1
We note that you present non-GAAP measures for revenues, gross margin, operating income, net income and earnings per share on page 2 of exhibit 99.1, but that you did not use a title for each measure that clearly distinguishes it from its directly comparable GAAP measure. Instead we note that you simply used an asterisk cross-referenced to a footnote at the bottom of the page to tell investors that the amount presented in each bullet point is a non-GAAP measure. Tell us how this presentation complies with Items 10(e)(1)(i)(A) and 10(e)(1)(ii)(E) of Regulation S-K. Otherwise, please confirm that in future filings you will revise your presentation of non-GAAP measures to fully comply
with those requirements.
Intel Corporation
P.O. Box 58119
2200 Mission College Blvd.
Santa Clara, CA 95052-8119
(408) 765-8080 (direct)
Comment Letter Response to United States Securities and Exchange Commission dated April 18, 2012
United States Securities and Exchange Commission
Division of Corporate Finance
April 18, 2012
Page 2
Response to Comment No. 1
We acknowledge the staff’s comment regarding the presentation of GAAP and non-GAAP financial measures in our January 20, 2012 filing related to the CFO Commentary on Fourth-Quarter and Full Year 2011 Results (“CFO Commentary”). For the reasons explained below, we believe that the non-GAAP presentations on page 2 of exhibit 99.1 in the referenced filing satisfy the applicable requirements. However, in light of the staff’s comments, in future filings we will revise our formatting to use titles or other appropriate headlining devices for presentations of non-GAAP financial measures.
Item 10(e)(1)(i)(A) of Regulation S-K requires a registrant to include “a presentation, with equal or great prominence, of the most directly comparable financial measure or measures calculated and presented in accordance with Generally Accepted Accounting Principles (GAAP)” when including non-GAAP measures in a filing. We note that the presentation of non-GAAP financial measures on page 2 follows the discussion of GAAP financial results presented on page 1 in the first two paragraphs of the commentary. The discussion on page 1 provides a summary and analysis of the company’s year-over-year and quarter-over-quarter revenue, operating income, net income and earnings per share on a GAAP basis, and also provides the gross margin numbers on a GAAP basis. The corresponding non-GAAP measures do not appear until the second page of the commentary, and are presented in summary form without analysis.
Item 10(e)(1)(ii)(E) of Regulation S-K says that a registrant must not “use titles or descriptions of non-GAAP financial measures that are the same as, or confusingly similar to, titles or descriptions used for GAAP financial measures”. The introductory paragraph to the presentation of non-GAAP results clearly describes the subsequent information as consisting of non-GAAP financial information, stating: “As a result of the acquisition of McAfee, Inc. and the Infineon wireless division in the first quarter of 2011, we will continue to provide Non-GAAP financial information in addition to GAAP to provide additional visibility into operational results of the company. Excluding the impacts of deferred revenue write-down and associated costs, amortization of acquisition-related intangibles, other acquisition related accounting impacts, and the related income tax effects of these changes,[t]he 2011 full year results when compared to 2010 were the following…”. In addition, on page 2 of the CFO Commentary, in our non-GAAP presentation of 2011 full year results compared to full year 2010, and fourth quarter 2011 compared to fourth quarter 2010, we identified each non-GAAP financial measure with an asterisk, cross-referenced to a footnote at the bottom of the page that states: “Non-GAAP financial measure. See the explanation of non-GAAP measures and the reconciliation to the most directly comparable GAAP financial measure on pages 10-12”. Given the introductory language, asterisks and footnote, we believe it unlikely that readers would be confused into thinking that that the items presented in that section of the commentary were GAAP financial measures.
Comment Letter Response to United States Securities and Exchange Commission dated April 18, 2012
United States Securities and Exchange Commission
Division of Corporate Finance
April 18, 2012
Page 3
Form 10-K for the year ended December 31, 2011
Comment No. 2
Item 1. Business, page 1
To the extent that recent developments in the supply of and access to rare earth metals have affected or are likely to affect your business, provide the disclosure required by Item 101(c)(1)(iii) of Regulation S-K. In addition, if access to rare earth metals by you, your suppliers or customers creates uncertainties or risks for your business, please provide risk factor or trends disclosure pursuant to Items 503(c) and 303 of Regulation S-K.
Response to Comment No. 2
We are aware of reports concerning recent developments in the market for rare earth metals, and we do not currently believe that access to these metals has materially affected or is likely to materially affect our business. The company uses an insignificant amount of rare earth metals, and we have explored alternative sources of supply, including obtaining rare earth metals from other locations as well as using substitute materials. We state in our Form 10-K for the Year Ended December 31, 2011(the “2011 Form 10-K”) that “We have thousands of suppliers, including subcontractors, providing our various materials and service needs. We set expectations for supplier performance and reinforce those expectations with periodic assessments. We communicate those expectations to our suppliers regularly and work with them to implement improvements when necessary. We seek, where possible, to have several sources of supply for all of these materials and resources, but we may rely on a single or limited number of suppliers, or upon suppliers in a single country. In those cases, we develop and implement plans and actions to reduce the exposure that would result from a disruption in supply.” We also address our approach to managing raw materials in the risk factor captioned, “We may have difficulties obtaining the resources or products we need for manufacturing, assembling and testing our products, or operating other aspects of our business, which could harm our ability to meet demand and increase our costs.”
We are also aware that developments in the market for rare earth metals could have an impact on the supply chains affecting our customers, which in turn could affect demand for our products. The risk factors state that “Changes in product demand may harm our financial results and are hard to predict.…demand could decrease due to changes in the high-technology supply chain, including supply constraints caused by natural disasters or other events…” and “Our global operations subject us to risks that may harm our results of operations and financial condition….our ability to manufacture, assemble and test, design, develop, or sell products may be affected by supply chain interruptions...”.
Based on our management of our use of rare earth metals, including the prospect of alternative and substitute sources of supply, we do not believe they are distinctive enough from other aspects of our business to be mentioned specifically. We also do not believe that developments in the market for rare earth metals constitute for Intel a known material trend or material uncertainty under Item 303 of
Comment Letter Response to United States Securities and Exchange Commission dated April 18, 2012
United States Securities and Exchange Commission
Division of Corporate Finance
April 18, 2012
Page 4
Regulation S-K. Accordingly, we believe that any potential risks to the company’s business relating to rare earth metals are adequately encompassed in the risk factor disclosures referred to above.
Comment No. 3
Third parties may attempt . . ., page 15
We note that at a press event on March 6, 2012, Diane Bryant, your Vice President and General Manager, Data Center and Connected Systems Group, stated that “the [IT and security] environment we are all living in just continues to increase in intensity. The number of attacks to our environment is doubling every year. The sophistication of those attacks is getting more intense.” Please tell us what consideration you gave to including disclosure describing these particular characteristics of your security environment and the implications of such rapid and significant increases in the threats to that environment. Please refer to the Division of Corporation Finance’s Disclosure Guidance Topic No. 2 at http://www.sec.gov/divisions/corpfin/guidance/cfguidance-topic2.htm for additional information.
Response to Comment No. 3
We acknowledge Ms. Bryant’s comments regarding the number and intensity of attacks to our IT environment, and note that her comments were made in the context of the commencement of the public marketing of the company’s new server processor family (Ms. Bryant is the general manager of that business unit), which among other features provides customers with an enhanced security environment as described in the press release accompanying that event, a copy of which is available at http://newsroom.intel.com/community/intel_newsroom/blog/2012/03/06/new-intel-server-technology-powering-the-cloud-to-handle-15-billion-connected-devices?cid=rss-258152-c1-273728. The comments provide information on Intel’s IT environment as a representative example of the volume and nature of threats faced by companies in the IT environment in general, and are not a discussion of unique aspects of Intel’s exposure to cyberattacks.
We address implications of cybersecurity considerations throughout the discussion of our Business in our 2011 Form 10-K in the context of our products and business strategy, reflecting the fact that improving the security of connected devices through products we manufacture is a strategic imperative for us and a significant reason for our 2011 acquisition of McAfee, Inc. For example, in “Company Strategy” we discuss our goal of enhancing security features by combining hardware and software solutions. In the “Platforms” section of our product descriptions, we discuss our Intel® vProTM technology, a computer hardware-based security technology, as well as McAfee’s product offerings. In our “Products and Product Strategy by Operating Segment” section, we describe our initiative within our software and services operating segments to create a more secure online experience with the introduction of McAfee DeepSAFE* technology. Security is also mentioned as an important differentiating factor in our “Competition” section.
Comment Letter Response to United States Securities and Exchange Commission dated April 18, 2012
United States Securities and Exchange Commission
Division of Corporate Finance
April 18, 2012
Page 5
We are aware of the importance of cybersecurity and in preparing our disclosures we reviewed and considered the SEC’s guidance on the topic. While the number of attacks to our environment did increase from 2010 to 2011, the number of malware incidents actually decreased by 30% due to the controls and systems we have put in place. While our spending on IT security, data protection, data privacy, and business recovery has increased, neither the annual increase nor the total expenditure is material to our business.
We address the applicable topics discussed in CF Disclosure Guidance: Topic No. 2 in our 2011 Form 10-K as follows:
·
Risk factors. For the second year, we have included a risk factor, “Third parties may attempt to breach our network security, which could damage our reputation and financial results”, that outlines the principal risks we face from cybersecurity, including reputational damage, theft of proprietary information, and interruption of our internal systems and services.
·
MD&A. We are not aware of any cyber incidents that were material, either individually or in the aggregate, in 2011. We believe our risk factor adequately addresses our known exposure to cybersecurity risk.
·
Description of Business. Cyber incidents did not materially affect our products, services, relationships with customers or suppliers, or competitive conditions in 2011, except to the extent addressed in our product and service offerings as discussed above.
·
Legal Proceedings. We are not involved in any material legal proceedings involving cyber incidents.
·
Financial Statement Disclosures. We did not incur substantial costs to prevent cyber incidents or have cyber incidents warranting financial statement disclosure in 2011.
·
Disclosure controls and procedures. We believe that our disclosure controls and procedures are effective, and are designed with the objective that cyber incidents not significantly affect our ability to record, process, summarize, and report information required to be disclosed in our SEC filings.
Comment No. 4
Management’s Discussion and Analysis of Financial Condition and Results of Operations, page
Results of Operations, page 29
Please tell us and, in your future filings provide, a clear and quantified discussion of the underlying material causes of changes in your overall net revenues and overall gross margins, as well as similar changes in related segment results. We note in this regard that your current disclosure merely refers to general causes such as significantly higher platform average selling prices or slightly higher platform unit sales, but does not explain the reasons for these changes or quantify how each factor contributed to the period over period increases. Refer to the instructions to Item 303 of Regulation S-K and section III.B.4 of SEC Interpretive Release No. 33-8350.
Comment Letter Response to United States Securities and Exchange Commission dated April 18, 2012
United States Securities and Exchange Commission
Division of Corporate Finance
April 18, 2012
Page 6
Response to Comment No. 4
In preparing our quarterly filings, we seek to identify in the Overview section of our Management's Discussion and Analysis the underlying material changes to our results of operations, the reasons for these changes, and the known trends to our revenues and gross margins. For example, we disclose the reason for the changes in our PC Client Group in the Overview section by stating “Our client business is benefiting as rising incomes increase the affordability of PCs in emerging markets.” We also disclose the reason for the changes in our Data Center Group by stating “Our data center business is benefiting as the increasing number of devices that compute and connect to the Internet drives the build-out of the cloud infrastructure.” Additionally, we make note in Overview of the offsetting impact in the fourth quarter of 2011 as a result of the hard disk drive supply shortage caused by the floods in Thailand.
We have historically listed significant causes of period-over-period changes in average selling prices (ASPs) and unit sales in order of quantitative impact as well
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CONFIDENTIAL
FOR INFORMATION OF SEC STAFF ONLY
April 18, 2012
United States Securities and Exchange Commission
Division of Corporate Finance
100 F Street NE
Mail Stop 6010
Washington, D.C. 20549
Attn: Amanda Ravitz, Assistant Director
Re: Intel Corporation
Form 10-K for the Year Ended December 31, 2011
Filed February 23, 2012
File No. 000-06217
Dear Ms. Ravitz,
We have received your comment letter dated March 21, 2012, and the following are our responses to your comments. For your ease of reference, we have included your original comments below and have provided our responses after each comment.
Form 8-K dated January 19, 2012, filed January 20, 2012
Comment No. 1
We note that you present non-GAAP measures for revenues, gross margin, operating income, net income and earnings per share on page 2 of exhibit 99.1, but that you did not use a title for each measure that clearly distinguishes it from its directly comparable GAAP measure. Instead we note that you simply used an asterisk cross-referenced to a footnote at the bottom of the page to tell investors that the amount presented in each bullet point is a non-GAAP measure. Tell us how this presentation complies with Items 10(e)(1)(i)(A) and 10(e)(1)(ii)(E) of Regulation S-K. Otherwise, please confirm that in future filings you will revise your presentation of non-GAAP measures to fully comply
with those requirements.
Intel Corporation
P.O. Box 58119
2200 Mission College Blvd.
Santa Clara, CA 95052-8119
(408) 765-8080 (direct)
Comment Letter Response to United States Securities and Exchange Commission dated April 18, 2012
United States Securities and Exchange Commission
Division of Corporate Finance
April 18, 2012
Page 2
Response to Comment No. 1
We acknowledge the staff’s comment regarding the presentation of GAAP and non-GAAP financial measures in our January 20, 2012 filing related to the CFO Commentary on Fourth-Quarter and Full Year 2011 Results (“CFO Commentary”). For the reasons explained below, we believe that the non-GAAP presentations on page 2 of exhibit 99.1 in the referenced filing satisfy the applicable requirements. However, in light of the staff’s comments, in future filings we will revise our formatting to use titles or other appropriate headlining devices for presentations of non-GAAP financial measures.
Item 10(e)(1)(i)(A) of Regulation S-K requires a registrant to include “a presentation, with equal or great prominence, of the most directly comparable financial measure or measures calculated and presented in accordance with Generally Accepted Accounting Principles (GAAP)” when including non-GAAP measures in a filing. We note that the presentation of non-GAAP financial measures on page 2 follows the discussion of GAAP financial results presented on page 1 in the first two paragraphs of the commentary. The discussion on page 1 provides a summary and analysis of the company’s year-over-year and quarter-over-quarter revenue, operating income, net income and earnings per share on a GAAP basis, and also provides the gross margin numbers on a GAAP basis. The corresponding non-GAAP measures do not appear until the second page of the commentary, and are presented in summary form without analysis.
Item 10(e)(1)(ii)(E) of Regulation S-K says that a registrant must not “use titles or descriptions of non-GAAP financial measures that are the same as, or confusingly similar to, titles or descriptions used for GAAP financial measures”. The introductory paragraph to the presentation of non-GAAP results clearly describes the subsequent information as consisting of non-GAAP financial information, stating: “As a result of the acquisition of McAfee, Inc. and the Infineon wireless division in the first quarter of 2011, we will continue to provide Non-GAAP financial information in addition to GAAP to provide additional visibility into operational results of the company. Excluding the impacts of deferred revenue write-down and associated costs, amortization of acquisition-related intangibles, other acquisition related accounting impacts, and the related income tax effects of these changes,[t]he 2011 full year results when compared to 2010 were the following…”. In addition, on page 2 of the CFO Commentary, in our non-GAAP presentation of 2011 full year results compared to full year 2010, and fourth quarter 2011 compared to fourth quarter 2010, we identified each non-GAAP financial measure with an asterisk, cross-referenced to a footnote at the bottom of the page that states: “Non-GAAP financial measure. See the explanation of non-GAAP measures and the reconciliation to the most directly comparable GAAP financial measure on pages 10-12”. Given the introductory language, asterisks and footnote, we believe it unlikely that readers would be confused into thinking that that the items presented in that section of the commentary were GAAP financial measures.
Comment Letter Response to United States Securities and Exchange Commission dated April 18, 2012
United States Securities and Exchange Commission
Division of Corporate Finance
April 18, 2012
Page 3
Form 10-K for the year ended December 31, 2011
Comment No. 2
Item 1. Business, page 1
To the extent that recent developments in the supply of and access to rare earth metals have affected or are likely to affect your business, provide the disclosure required by Item 101(c)(1)(iii) of Regulation S-K. In addition, if access to rare earth metals by you, your suppliers or customers creates uncertainties or risks for your business, please provide risk factor or trends disclosure pursuant to Items 503(c) and 303 of Regulation S-K.
Response to Comment No. 2
We are aware of reports concerning recent developments in the market for rare earth metals, and we do not currently believe that access to these metals has materially affected or is likely to materially affect our business. The company uses an insignificant amount of rare earth metals, and we have explored alternative sources of supply, including obtaining rare earth metals from other locations as well as using substitute materials. We state in our Form 10-K for the Year Ended December 31, 2011(the “2011 Form 10-K”) that “We have thousands of suppliers, including subcontractors, providing our various materials and service needs. We set expectations for supplier performance and reinforce those expectations with periodic assessments. We communicate those expectations to our suppliers regularly and work with them to implement improvements when necessary. We seek, where possible, to have several sources of supply for all of these materials and resources, but we may rely on a single or limited number of suppliers, or upon suppliers in a single country. In those cases, we develop and implement plans and actions to reduce the exposure that would result from a disruption in supply.” We also address our approach to managing raw materials in the risk factor captioned, “We may have difficulties obtaining the resources or products we need for manufacturing, assembling and testing our products, or operating other aspects of our business, which could harm our ability to meet demand and increase our costs.”
We are also aware that developments in the market for rare earth metals could have an impact on the supply chains affecting our customers, which in turn could affect demand for our products. The risk factors state that “Changes in product demand may harm our financial results and are hard to predict.…demand could decrease due to changes in the high-technology supply chain, including supply constraints caused by natural disasters or other events…” and “Our global operations subject us to risks that may harm our results of operations and financial condition….our ability to manufacture, assemble and test, design, develop, or sell products may be affected by supply chain interruptions...”.
Based on our management of our use of rare earth metals, including the prospect of alternative and substitute sources of supply, we do not believe they are distinctive enough from other aspects of our business to be mentioned specifically. We also do not believe that developments in the market for rare earth metals constitute for Intel a known material trend or material uncertainty under Item 303 of
Comment Letter Response to United States Securities and Exchange Commission dated April 18, 2012
United States Securities and Exchange Commission
Division of Corporate Finance
April 18, 2012
Page 4
Regulation S-K. Accordingly, we believe that any potential risks to the company’s business relating to rare earth metals are adequately encompassed in the risk factor disclosures referred to above.
Comment No. 3
Third parties may attempt . . ., page 15
We note that at a press event on March 6, 2012, Diane Bryant, your Vice President and General Manager, Data Center and Connected Systems Group, stated that “the [IT and security] environment we are all living in just continues to increase in intensity. The number of attacks to our environment is doubling every year. The sophistication of those attacks is getting more intense.” Please tell us what consideration you gave to including disclosure describing these particular characteristics of your security environment and the implications of such rapid and significant increases in the threats to that environment. Please refer to the Division of Corporation Finance’s Disclosure Guidance Topic No. 2 at http://www.sec.gov/divisions/corpfin/guidance/cfguidance-topic2.htm for additional information.
Response to Comment No. 3
We acknowledge Ms. Bryant’s comments regarding the number and intensity of attacks to our IT environment, and note that her comments were made in the context of the commencement of the public marketing of the company’s new server processor family (Ms. Bryant is the general manager of that business unit), which among other features provides customers with an enhanced security environment as described in the press release accompanying that event, a copy of which is available at http://newsroom.intel.com/community/intel_newsroom/blog/2012/03/06/new-intel-server-technology-powering-the-cloud-to-handle-15-billion-connected-devices?cid=rss-258152-c1-273728. The comments provide information on Intel’s IT environment as a representative example of the volume and nature of threats faced by companies in the IT environment in general, and are not a discussion of unique aspects of Intel’s exposure to cyberattacks.
We address implications of cybersecurity considerations throughout the discussion of our Business in our 2011 Form 10-K in the context of our products and business strategy, reflecting the fact that improving the security of connected devices through products we manufacture is a strategic imperative for us and a significant reason for our 2011 acquisition of McAfee, Inc. For example, in “Company Strategy” we discuss our goal of enhancing security features by combining hardware and software solutions. In the “Platforms” section of our product descriptions, we discuss our Intel® vProTM technology, a computer hardware-based security technology, as well as McAfee’s product offerings. In our “Products and Product Strategy by Operating Segment” section, we describe our initiative within our software and services operating segments to create a more secure online experience with the introduction of McAfee DeepSAFE* technology. Security is also mentioned as an important differentiating factor in our “Competition” section.
Comment Letter Response to United States Securities and Exchange Commission dated April 18, 2012
United States Securities and Exchange Commission
Division of Corporate Finance
April 18, 2012
Page 5
We are aware of the importance of cybersecurity and in preparing our disclosures we reviewed and considered the SEC’s guidance on the topic. While the number of attacks to our environment did increase from 2010 to 2011, the number of malware incidents actually decreased by 30% due to the controls and systems we have put in place. While our spending on IT security, data protection, data privacy, and business recovery has increased, neither the annual increase nor the total expenditure is material to our business.
We address the applicable topics discussed in CF Disclosure Guidance: Topic No. 2 in our 2011 Form 10-K as follows:
·
Risk factors. For the second year, we have included a risk factor, “Third parties may attempt to breach our network security, which could damage our reputation and financial results”, that outlines the principal risks we face from cybersecurity, including reputational damage, theft of proprietary information, and interruption of our internal systems and services.
·
MD&A. We are not aware of any cyber incidents that were material, either individually or in the aggregate, in 2011. We believe our risk factor adequately addresses our known exposure to cybersecurity risk.
·
Description of Business. Cyber incidents did not materially affect our products, services, relationships with customers or suppliers, or competitive conditions in 2011, except to the extent addressed in our product and service offerings as discussed above.
·
Legal Proceedings. We are not involved in any material legal proceedings involving cyber incidents.
·
Financial Statement Disclosures. We did not incur substantial costs to prevent cyber incidents or have cyber incidents warranting financial statement disclosure in 2011.
·
Disclosure controls and procedures. We believe that our disclosure controls and procedures are effective, and are designed with the objective that cyber incidents not significantly affect our ability to record, process, summarize, and report information required to be disclosed in our SEC filings.
Comment No. 4
Management’s Discussion and Analysis of Financial Condition and Results of Operations, page
23
Results of Operations, page 29
Please tell us and, in your future filings provide, a clear and quantified discussion of the underlying material causes of changes in your overall net revenues and overall gross margins, as well as similar changes in related segment results. We note in this regard that your current disclosure merely refers to general causes such as significantly higher platform average selling prices or slightly higher platform unit sales, but does not explain the reasons for these changes or quantify how each factor contributed to the period over period increases. Refer to the instructions to Item 303 of Regulation S-K and section III.B.4 of SEC Interpretive Release No. 33-8350.
Comment Letter Response to United States Securities and Exchange Commission dated April 18, 2012
United States Securities and Exchange Commission
Division of Corporate Finance
April 18, 2012
Page 6
Response to Comment No. 4
In preparing our quarterly filings, we seek to identify in the Overview section of our Management's Discussion and Analysis the underlying material changes to our results of operations, the reasons for these changes, and the known trends to our revenues and gross margins. For example, we disclose the reason for the changes in our PC Client Group in the Overview section by stating “Our client business is benefiting as rising incomes increase the affordability of PCs in emerging markets.” We also disclose the reason for the changes in our Data Center Group by stating “Our data center business is benefiting as the increasing number of devices that compute and connect to the Internet drives the build-out of the cloud infrastructure.” Additionally, we make note in Overview of the offsetting impact in the fourth quarter of 2011 as a result of the hard disk drive supply shortage caused by the floods in Thailand.
We have historically listed significant causes of period-over-period changes in average selling prices (ASPs) and unit sales in order of quantitative impact as well