Accounting: What the Numbers Mean 9th Edition by Wayne W McManus, Daniel F Viele, David H Marshall

Exercise 71

Capital budget expenditure analysis, Internet assignment Annual reports provide significant information about an organization’s capital budget and capital budgeting process. Intel Corporation provides financial reports for several years at www.intel.com (About Intel ? Investor Relations  ?Financials and Filings  ?Annual Report). This exercise will require you to use Intel’s consolidated statements of cash flows, management’s discussion and analysis of financial condition and results of operations, and notes to the consolidated financial statements for the most recent year presented.

Required:

Using Intel’s most recent annual report, answer the following:

a. From Intel’s consolidated statements of cash flows:

1. Identify the amount of capital expenditures from the investing activities section. How much were the additions to property, plant, and equipment? How much were the acquisitions, net of cash acquired?

2. How do these amounts compare to the previous two years? Comment on the trend relative to the general cash flow position for each year.

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b. Read Intel’s management’s discussion and analysis of financial condition and results of operations.

1. In the Strategy section, what information is provided about the Intel capital program?

2. In the Critical Accounting Estimates section, describe how Intel assesses the impairment of long-lived assets.

3. In the Liquidity and Capital Resources section, how were investing cash flows used for capital expenditures?

4. In the Business Outlook section, describe Intel’s capital spending plan for the next year.

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c. From Intel’s notes to the consolidated financial statements, determine the following:

1. How does Intel value and depreciate property, plant, and equipment?

2. If applicable, describe Intel’s acquisitions for the year.

3. If applicable, describe Intel’s divestitures for the year.

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d. From Intel’s selected financial data, do the following:

1. For the five years presented, calculate the ratio of additions to property, plant, and equipment to net revenue.

2. For the five years presented, calculate the ratio of net investment in property, plant, and equipment to total assets.

3. Comment on the trends.

Step 1 of 5

Note to Instructor:  The purpose of this case is to familiarize students with information about an organization’s capital expenditures that may appear in their annual report.  This solution uses Intel’s 2008 annual report, which was the most recent annual report available at the time we were preparing the 9th edition of Accounting: What the Numbers Mean.  Over the years, Intel has been very consistent in the structure of its annual report and the location sequence of information presented.  Hence, it should be fairly easy for you to update this solution for annual reports issued after 2008.

For the year 2008: (Note: Dollar amounts in millions)

a.1.Additions to property, plant, and equipment were $5,197 and Acquisitions, net of cash acquired were $16 in 2008 (Intel Annual Report p. 58).

2.Additions to property, plant and equipment were $5,000 and $5,860 in 2007 and 2006, respectively. Acquisitions, net of cash acquired were $76 and $0 in 2007 and 2006, respectively. The trend indicates that Intel has been fairly consistent in capital expenditures for property, plant, and equipment from 2006 to 2008 and increased acquisitions in 2007 and 2008 over 2006 (Intel Annual Report p. 58).

Intel’s end of year cash amount was $3,350, $7,307, and $6,598 in 2008, 2007, and 2006, respectively. This trend indicates that over the three periods, the general cash position has increased and then decreased in 2008 which is primarily attributed to the cash provided by operating activities (Intel Annual Report p. 58).