PAGE 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 (Fee Required) For the fiscal year ended December 31, 1994, OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (No Fee Required) For the transition period
from____to____
Commission File Number 0-6217
INTEL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 94-1672743
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2200 Mission College Boulevard, Santa Clara, California, 95052-8119
(Address of principal executive offices, Zip Code)
Registrant's telephone number, including area code (408) 765-8080
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on
which registered
NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value
1998 Step-Up Warrants to Purchase Common Stock
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES__X__NO_____
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X]
Aggregate market value of voting stock held
by non affiliates of the registrant as of February 25, 1995
$30.43 billion
414.5 million shares of Common Stock outstanding as of February 25, 1995
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of Annual Report to Stockholders for fiscal year ended
December 31, 1994-Items 5, 6, 7, 8 and 14.
(2) Portions of Proxy Statement dated March 14, 1995 -Items 10, 11, 12,
and 13.
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PAGE 2
PART I
------
ITEM 1. BUSINESS
INDUSTRY
Intel Corporation and its subsidiaries (collectively called "Intel," the
"Company" or the "Registrant") operate in one dominant industry segment. The
Company designs, develops, manufactures and markets microcomputer components
and related products at various levels of integration.
Intel components consist of silicon-based semiconductors etched with complex
patterns of transistors. Each one of these integrated circuits (ICs) can
perform the functions of thousands--even millions--of individual transistors,
diodes, capacitors and resistors.
PRODUCTS
Intel's product strategy is twofold: the Company offers OEMs (original
equipment manufacturers) a wide range of PC (personal computer) building-block
products to meet their needs, and offers PC users products that expand the
capabilities of their systems and networks.
The Company's major products include microprocessors, chipsets, embedded
processors and microcontrollers, flash memory chips, computer modules and
boards, network and communications products, personal conferencing products and
scalable parallel processing computers.
MICROPROCESSORS. A microprocessor is the central processing unit of a PC. It
processes system data and controls other devices in the system, acting as the
brains of a PC. Intel's 32-bit processors include the flagship Pentium(R)
processor family and the Intel486(TM) microprocessor family. Pentium processors
are the latest extension of an architecture that is pervasive worldwide; the
market research firm Dataquest estimates that approximately 134 million PCs
based on the Intel architecture are currently in use (compared to fewer than 20
million PCs based on other architectures). The Company's strategy is to develop
products in the Intel architecture family that are compatible with the
installed base of software applications.
Intel's developments in the art of semiconductor design and manufacturing have
made it possible to decrease the feature size of circuits etched into silicon.
This permits a greater number of transistors to be fit on each silicon wafer,
resulting in microprocessors that are smaller, faster running, more energy
efficient, and less expensive to make. These developments have also led to
increasingly complex designs. Despite rigorous testing standards, the Company
cannot give assurances that any particular design will be flawless.
The Pentium processor family, fully binary compatible with previous generations
of the Intel architecture, was introduced in 1993 with 60- and 66-MHz versions
In 1994 Intel extended the family with 3.3V 75-, 90- and 100-MHz Pentium
processors with enhanced power management features and performance of up to 166
MIPS. These processors have enabled a broad variety of mainstream mobile,
desktop, and server systems based on the Pentium processor, and the PC market
is transitioning rapidly to Pentium processor-based systems. Intel sells its
microprocessor products, including Pentium processors, at various levels of
integration (chips, boards, systems and modules) depending on the OEM's
requirements (see "Computer Modules and Boards"). Intel expects to introduce
higher performance versions of the Pentium processor in 1995.
In early 1995, Intel previewed its sixth-generation processor, codenamed the
P6, at the International Solid State Circuits Conference. The 5.5-million-
transistor P6, initially operating at 133 MHz, is projected to deliver
approximately two times the performance of the 100-MHz Pentium processor while
maintaining binary software compatibility with previous generations of the
Intel architecture. P6 technology is expected to deliver workstation
performance on the desktop while also enabling a new generation of
multiprocessor servers. Systems based on the P6 processor are expected to be
available in the second half of 1995.
PAGE 3
Within the Intel486 microprocessor product family, certain designations such as
SX, DX, DX2 and DX4 differentiate the processors from one another. SX, DX and
DX2 are used to designate the earlier generations of the family. Introduced
in 1994, the IntelDX4(TM) processor, the fastest member of the Intel486
microprocessor family, is popular in both entry-level home and business desktop
systems and in mobile computers. The IntelDX4 processor family offers up to 50
percent more performance than the 66-MHz IntelDX2(TM) microprocessor.
The OverDrive(R) family of processors provides CPU performance enhancements to
Intel486 and Pentium processor-based systems. In early 1995, Intel introduced
the Pentium OverDrive processor technology to Intel486 microprocessor-based
systems.
Sales of the Intel486 microprocessor family comprised a majority of the
Company's revenues and a substantial majority of its gross margin in 1992,
1993 and 1994. A significant and growing portion of the Company's sales
and margins were derived from sales of the Pentium processor family in 1994.
As part of its strategic goal to double processor performance at major system
price points, the Company cut microprocessor prices aggressively and
systematically in 1994, and this trend may continue in 1995. Future distortion
of price maturity curves could occur as imitation products enter the market
in significant volume or alternative architectures gain market acceptance.
The outlook for Pentium processor shipments in 1995 is dependent on several
business factors, including the manufacturing ramp and market demand. The
Pentium processor family comprised 23% of the Company's microprocessor unit
shipments to the desktop market segment in the fourth quarter of 1994. If
current trends continue, quarterly unit volumes of the Pentium processor family
could surpass those of the Intel486 microprocessor family during 1995.
CHIPSETS. Based on the industry accepted PCI bus, the Company's core logic
chipsets support and extend the graphic and other capabilities of Intel486 and
Pentium processors. Early in 1995, Intel introduced the Triton chipset, a
third-generation Pentium processor chipset targeted at 75-, 90- and 100-MHz
systems.
EMBEDDED PRODUCTS. Embedded chips provide the computing power in devices other
than PCs and workstations. Embedded products are dedicated to specific
application functions and are found in wireless communications, printers,
copiers, fax machines, VCRs, cable converter boxes and other TV equipment,
commercial and military avionics, medical instrumentation, and factory
automation control products.
Intel's embedded product line consists of 32-bit processors, including the
i960(R) processor family, which are the best selling RISC (reduced instruction
set computing) chips in the world in terms of units sold (according to
Dataquest); embedded Intel386(TM) processors that primarily use the DOS
operating system; the 80C186 microprocessor family; 16-bit microcontrollers,
such as the 8096 and the 80C196; and 8-bit microcontrollers, such as the MCS(R)
51 microcontroller family. The Company introduced several embedded processor
products in 1994, including the 80960JX family and the 80C196NP 16-bit
microcontroller.
FLASH MEMORY CHIPS. Memory components are used to store computer programs and
data entered by users. Flash memories are nonvolatile and do not require
power to retain information.
Intel supplies a broad line of flash memory components that are used across a
broad range of applications, including BIOS storage in many personal computers,
printers and networking devices, medical instrumentation and industrial
controllers.
In 1994, Intel introduced SmartVoltage memories, providing users with increased
flexibility in optimizing their systems for lower power consumption and higher
performance. Manufacturers of wireless communications devices, handheld
terminals and other battery-operated devices have seen improved systems value
from these chips. The Company also introduced the 16 Mbit Flash RAM chip
enabling non volatile, updatable memory for embedded code storage plus the
industry's highest speed execution. This product enabled many system designers
to replace two kinds of memory--DRAM and ROM--with one: Flash RAM.
PAGE 4
COMPUTER MODULES AND BOARDS. Hundreds of microcomputer platforms and single-
board computers based on Intel components are now widely accepted as basic
building blocks for technical and commercial applications. Many OEMs build
their own PCs, microcomputers, real-time control systems and other products
based on these modules.
A significant portion of Intel's Pentium processors are sold at higher levels
of integration incorporated into boards, systems and modules to OEMs. OEM
customers buy at these levels of integration to accelerate the time to get
their products to market. With the growth of the Pentium processor business,
Intel has become one of the largest manufacturers of populated PC motherboards.
The Company cannot always predict the level of integration at which customers
will request microprocessor products. In addition, the manufacture of boards
and systems requires DRAMs and other components that may be in short supply.
Although the Company has entered into supply agreements with manufacturers of
these components, there can be no assurances of adequate supply.
NETWORK AND COMMUNICATIONS PRODUCTS. Sold to PC users through retail channels,
these hardware and software products improve the performance or capabilities of
PC systems and networks.
Intel's networking products are designed to make PC networks easier for LAN
administrators to install and manage. The architecture that delivers this
management capability is called Smart Network Services.
Intel's networking products consist of LAN products, such as the
EtherExpress family of adapters; and network management products, including
the LANDesk(R) product line.
Supporting the Smart Network Services strategy are new or upgraded LAN
products: EtherExpress(TM) Pro adapters that use flash memory for one-step
installation and configuration; EtherExpress Pro/100, a 100 MB ethernet adapter
that supports the new 100 MB standard 100-based T; StorageExpress(TM) back up
servers; NETSatisFAXtion(R) software; NetportExpress(TM) print servers; and
LANDeskManager Suite V. 2.0 software, which combines management of desktop
systems, servers, wire segments and services on LANs.
PERSONAL CONFERENCING PRODUCTS. PC users can install Intel software and cards
that let two users view and manipulate the same documents simultaneously and,
in some cases, see each other. Personal conferencing products merge the power
of the PC with the real-time immediacy of the telephone. In 1994, Intel
introduced its ProShare(TM) personal conferencing products, including the
ProShare Video System 200 and ProShare Video System 150, which were certified
in 22 countries. During 1994, these products were updated to provide the
following enhancements: ISDN and LAN transfer support, increased video quality
and expanded serviceability.
SCALABLE PARALLEL PROCESSING SYSTEMS. Scalable parallel processing (SPP)
systems use the processing power of multiple microprocessors working
simultaneously to solve large-scale computing, data and image manipulation
problems. Intel offers SPP systems for both commercial and technical market
segments. For the enterprise computing and interactive multimedia market
segments, Intel architecture-based server building blocks and platforms are
offered through OEMs. For the supercomputer market segment, the Paragon(
MP XP/S massively parallel supercomputer is scalable from compute-intensive
embedded applications to systems with over 1,000 i860(R) XR multiprocessor
compute nodes. In 1994, a linked system based on two Intel Paragon XP/S 140
supercomputers beat the existing world record for computing performance by more
than 50 percent.
PAGE 5
MANUFACTURING
A majority of the Company's wafer production and some assembly and final
testing of VLSI (very large scale integration) components are conducted at
domestic Intel facilities in Chandler, Arizona; Aloha, Oregon; Santa Clara and
Folsom, California; and Rio Rancho, New Mexico. A majority of Intel's
production of microcomputers and memory boards and systems takes place at
facilities in Hillsboro, Oregon and Las Piedras, Puerto Rico.
Outside the United States, a significant portion of Intel's VLSI wafer
production, including some microprocessor fabrication, is conducted at plants
in Jerusalem, Israel and Leixlip, Ireland. A significant portion of Pentium
processor production is conducted at the Ireland site. Most of the Company's
VLSI component assembly and testing is performed at facilities in Penang,
Malaysia and Manila, Philippines. A significant and growing portion of Intel's
production of microcomputers and memory boards and systems is conducted at
facilities in Leixlip, Ireland, and Penang, Malaysia.
In general, if Intel were unable to assemble, test or perform wafer fabrication
on its products abroad, or if air transportation between its foreign facilities
and the United States were disrupted, there could be a materially adverse
effect upon the Company's operations. In addition to normal manufacturing
risks, foreign operations are subject to certain additional exposures,
including political instability, currency controls and fluctuations, and tariff
and import restrictions. To date, Intel has not experienced significant
difficulties related to these foreign business risks.
To augment capacity, Intel uses subcontractors to perform assembly of certain
products and wafer fabrication for certain VLSI components, primarily flash
memory and chipsets. The Company cannot give assurances that it will be able
to fully satisfy demand for certain of these products.
The manufacture of integrated circuits is a complex process. Normal
manufacturing risks include errors in the fabrication process, defects in raw
materials, as well as other factors, all of which can affect yields.
EMPLOYEES
At December 31, 1994, the Company employed approximately 32,600 people
worldwide.
SALES
Most of Intel's products are sold or licensed through sales offices located
near major concentrations of users throughout the United States, Europe, Japan,
Asia-Pacific and other parts of the world.
The Company also uses distributors (industrial and retail) and representatives
to distribute its products both in the United States and overseas. Typically,
distributors handle a wide variety of products, including those competitive
with Intel products, and fill orders for many customers. Most of Intel's sales
to distributors are made under agreements allowing for price protection and/or
the right of return on unsold merchandise. Sales representatives generally do
not offer directly competitive products, but may carry complementary items
manufactured by others. Representatives do not maintain a product inventory;
instead, their customers place large quantity orders directly with Intel and
are referred to distributors for smaller orders. Intel sold products to
thousands of customers worldwide in 1994, none of which represented more than
10% of total revenues.
PAGE 6
BACKLOG
Intel's sales are made primarily pursuant to standard purchase orders for
delivery of standard products. Intel has some agreements that give a customer
the right to purchase a specific number of products during a time period.
Although not generally obligating the customer to purchase any particular
number of such products, some of these agreements do contain billback clauses.
As a matter of industry practice, billback clauses are difficult to enforce.
The quantity actually purchased by the customer, as well as the shipment
schedules, are frequently revised during the agreement term to reflect changes
in the customer's needs. In light of industry practice and experience, Intel
does not believe that such agreements are meaningful for determining backlog
figures. Intel believes that only a small proportion of its order backlog is
noncancellable and that the dollar amount associated with the noncancellable
portion is immaterial. Therefore, Intel does not believe that backlog as of
any particular date is necessarily indicative of future results.
COMPETITION
The Company competes in different product lines to various degrees on the basis
of price, performance, availability and quality. Many companies compete with
Intel and are engaged in the same basic fields of activity, including research
and development. Both foreign and domestic, these competitors range in size
from large multinationals to smaller companies competing in specialized market
segments. Intel is engaged in a rapidly advancing field of technology in which
its ability to compete depends upon the continuing improvement of its products
and processes, continuing cost reductions, and the development of new products
to meet changing customer requirements.
Prices decline rapidly in the semiconductor industry as unit volume grows, as
competition develops, and as production experience is accumulated. In the
microcomputer and board and systems area, Intel competes with board
manufacturers and microprocessor-based computer manufacturers. Some of these
competitors are also Intel customers.
A number of competitors have developed products that imitate some of the
Company's key products. Some of these products obtained market acceptance and
Intel's revenues and margins with respect to certain of these products were
adversely affected and may continue to be adversely affected. Based on the
current case law, Intel's competitors can design microprocessors which are
compatible with Intel microprocessors and avoid Intel patent rights through the
use of foundry services that have licenses with Intel. Furthermore, as part of
a recent settlement between Intel and AMD to settle all outstanding legal
disputes between the two companies, Intel licensed AMD to copy the microcode in
the Intel386 and Intel486 microprocessors. However, AMD agreed that it has no
right to copy the microcode in the Pentium processor and future
microprocessors. The net effect of this situation (i.e., case law and the AMD
settlement) is that while it is possible for competitors to imitate the
functionality of Intel processors, future imitations are not expected to be as
close an imitation as were the Am386* and Am486* products from AMD.
Competitors' products may add features and increase performance. The Company
also faces significant competition from companies that offer rival
microprocessor architectures. The Company cannot predict whether such rival
architectures will gain market acceptance or provide increased competition to
the Company's products. Future distortion of price maturity curves could occur
as imitation products enter the market in significant volume or alternative
architectures gain market acceptance.
It continues to be Intel's strategy to maintain its competitive advantage
through aggressive investments in manufacturing capacity and the development
and marketing of advanced products which provide greater functionality to its
customers than is provided by competitive products. Intel also is committed to
the protection of its intellectual property rights against illegal use. There
can be no assurance, however, that competitors will not introduce new products
(either imitative or of rival architectural designs) or reduce prices on
existing products. Such developments could have an adverse effect on Intel's
revenues and margins.
________________________
* Other brands and names are the property of their respective owners
PAGE 7
RESEARCH AND DEVELOPMENT
The Company's competitive position has developed to a large extent because of
its emphasis upon research and development. This emphasis has enabled Intel to
deliver products before they have become available from competitors, and thus
has permitted Intel's customers to commit to the use of these new products in
the development of their own products. Intel's research and development
activities are directed toward developing new products, hardware technologies
and processes and improving existing products and lowering their cost. The
Company also develops "enabling" software, such as open software
specifications and software tools, to enhance the functionality and acceptance
of the personal computer platform Intel's expenditures for research and
development were $1,111 million, $970 million and $780 million in fiscal years
1994, 1993 and 1992, respectively. As of December 31, 1994, Intel had
approximately 6,400 employees engaged in research and development. The results
of Intel's research and development activities depend upon competitive
circumstances and Intel's ability to transfer new products to production in a
timely and cost-effective manner.
Most design and development of VLSI components and other products is performed
at Intel's facilities in Santa Clara and Folsom, California; Aloha and
Hillsboro, Oregon; Chandler, Arizona; and Haifa, Israel.
In June 1994, Intel and Hewlett-Packard Company announced a joint research and
development project covering a wide range of activities, including
semiconductor processes, software optimization and microprocessor design
technologies. New 64-bit processors based on the jointly developed architecture
are expected to be initially targeted at server, workstation and enterprise
computing products, probably in the late 1990's.
INTELLECTUAL PROPERTY AND LICENSING
Intellectual property rights which apply to various Intel products include
patents, copyrights, trade secrets, trademarks and maskwork rights. Because of
the rapidly changing technology and a broad distribution of patents in the
semiconductor industry, Intel's present intention is not to rely primarily on
intellectual property rights to protect or establish its market position.
However, Intel has established an active program to protect its investment in
technology by enforcing all of its intellectual property rights. Intel does
not intend to broadly license its intellectual property rights unless it can
obtain adequate consideration. Reference is also made to the headings
"Competition," and "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
Intel has filed and obtained a number of patents in the United States and
abroad. Intel has entered into patent cross license agreements with many of
its major competitors.
Intel protects many of its computer programs by copyrighting them. Intel has
registered numerous copyrights with the United States Copyright Office. The
ability to protect or to copyright software in some foreign jurisdictions is
not clear. However, Intel has a policy of requiring customers to sign a
software license contract before providing a customer with certain computer
programs. Certain VLSI components have computer programs embedded in them, and
Intel has obtained copyright protection for some of these programs as well.
Beginning in 1985, Intel has obtained protection for the maskworks for a number
of its components under the Chip Protection Act of 1984.
Intel has obtained certain trademarks and trade names for its products to
distinguish genuine Intel products from those of its competitors and is
currently engaged in a cooperative program with OEMs to identify personal
computers that incorporate genuine Intel microprocessors with the Intel
Inside(R) logo. Intel maintains certain details about its processes, products
and strategies as trade secrets.
As is the case with many companies in the semiconductor industry, Intel has,
from time to time, been notified of claims that it may be infringing certain
patent rights of others. These claims have been referred to counsel and they
are in various stages of evaluation and negotiation. If it appears necessary
or desirable, Intel may seek licenses for these intellectual property rights.
Intel can give no assurance that licenses will be offered by all claimants or
that the terms of any offered licenses will be acceptable to Intel or that in
all cases the dispute will be resolved without litigation.
PAGE 8
COMPLIANCE WITH ENVIRONMENTAL REGULATIONS
To Intel's present knowledge, compliance with federal, state and local
provisions enacted or adopted for protection of the environment has had no
material effect upon its operations. However, reference is made to Item 3.,
Legal Proceedings, of this Form 10-K.
EXECUTIVE OFFICERS
The following sets forth certain information with regard to executive officers
of Intel (ages are as of December 31, 1994):
Craig R. Barrett (age 55) has been Chief Operating Officer since 1993; a
director of Intel Corporation since 1992; Executive Vice President since
1992; and Vice President and General Manager of the Microcomputer Components
Group from 1989 to 1992.
Andrew S. Grove (age 58) has been a director of Intel Corporation since 1974;
President since 1979; and Chief Executive Officer since 1987.
Gordon E. Moore (age 66) has been a director of Intel Corporation since 1968
and Chairman of the Board since 1979.
Leslie L. Vadasz (age 58) has been a director of Intel Corporation since 1988;
Senior Vice President, Director of Corporate Business Development since 1991;
and Senior Vice President and General Manager of the Systems Group from 1986 to
1990.
Frank C. Gill (age 51) has been Senior Vice President and General Manager,
Intel Products Group since 1991; Senior Vice President and President of the
Systems Group from 1990 to 1991; and Senior Vice President and Director of
Sales from 1989 to 1990.
David L. House (age 51) has been Senior Vice President and Director, Corporate
Strategy since 1991; Senior Vice President and President of Microcomputer
Components Group from 1990 to 1991; and Senior Vice President and General
Manager, Microcomputer Components Group from 1987 to 1990.
Paul S. Otellini (age 44) has been Senior Vice President, Director, Sales since
May 1994; Senior Vice President and General Manager, Microprocessor Products
Group, from 1993 to 1994; Vice President and General Manager, Microprocessor
Products Group from 1991 to 1992; Vice President and General Manager, Micro
Products Group from 1990 to 1991; and Vice President and Assistant to the
President from 1989 to 1990.
Gerhard H. Parker (age 51) has been Senior Vice President and General Manager,
Technology & Manufacturing Group, since 1992; Vice President and Director,
Technology & Manufacturing Group from 1991 to 1992; Vice President and
Director, Technology Group from 1990 to 1991; Vice President and General
Manager, Technology and Manufacturing Group during 1990; and Vice President and
General Manager, Component Technology and Development Group from 1989 to 1990.
PAGE 9
Robert W. Reed (age 48) has been Senior Vice President and General Manager,
Semiconductor Products Group, since 1991; Senior Vice President and Chief
Financial Officer from 1990 to 1991; and Senior Vice President, Chief Financial
Officer and Director of Administration from 1989 to 1990.
Ronald J. Whittier (age 58) has been Senior Vice President and General Manager,
Intel Architecture Laboratories, since January 1993; Vice President and General
Manager, Software Technology Group from 1991 to 1992; Vice President and
Director of Marketing from 1990 to 1991; and Vice President and Director of
Corporate Marketing from 1985 to 1990.
Albert Y.C. Yu (age 53) has been Senior Vice President and General Manager,
Microprocessor Products Group since January 1993; Vice President and General
Manager, Microprocessor Products Group from 1991 to 1992; Vice President and
General Manager, Micro Products Group from 1990 to 1991; and Vice President and
General Manager, Component Technology and Development Group from 1989 to 1990.
Michael A. Aymar (age 47) has been Vice President and General Manager,
Intel486(TM) Microprocessor Division, since January 1994; Vice President and
General Manager, Mobile Computing Group, from 1991 to 1994; and Vice President
and General Manager, Santa Clara Microcomputer Division from 1989 to 1991.
Andy D. Bryant (age 44) has been Vice President and Chief Financial Officer
since February 1994; Vice President, Intel Products Group from 1990 to 1994;
and Director of Finance from 1987 to 1990.
F. Thomas Dunlap, Jr. (age 43) has been Vice President, General Counsel and
Secretary since 1987.
G. Carl Everett, Jr. (age 44) has been Senior Vice President and General
Manager, Microprocessor Products Group since May 1994; Vice President and
Director, Worldwide Sales Group from 1990 to 1994; Vice President and Director
of North American Sales during 1990; and Vice President, Sales and Marketing
Group from 1987 to 1990.
Stephen P. Nachtsheim (age 50) has been Vice President and General Manager,
Mobile and Home Products Group since January 1995. Prior to that time, from
January 1994 to January 1995, he was an appointed vice president of the same
group. He held the positions of General Manager of European Intel Products
Group from 1992 to 1994; General Manager of ASIC from 1990 to 1992; and General
Manager of Intel Europe from 1988 to 1990.
PAGE 10
ITEM 2. PROPERTIES
At December 31, 1994, Intel owned the major facilities described below:
<TABLE>
No. of
Bldgs. Location Total Sq. Ft. Use
<S> <C> <C> <C>
46 United States (A) 8,739,000 Executive and administrative offices,
wafer fabrication, components testing
and assembly, research and development,
computer and service functions, system
assembly and warehousing.
2 Ireland 745,000 Wafer fabrication, system and board
assembly, and administrative offices.
6 Malaysia (B) 531,000 Components assembly and testing and
administrative offices.
4 Israel 379,000 Wafer fabrication, design center, sales
office and related support functions.
4 Puerto Rico 292,000 Systems manufacturing, board assembly,
warehousing and administration.
3 England 184,000 European sales, marketing, warehousing
and related support functions.
3 Japan 167,000 Sales, warehousing and related support
functions.
1 Philippines (C) 131,000 Components assembly and testing and
administrative offices.
1 Germany 86,000 European marketing, German sales and
administrative offices.
1 France (D) 63,000 French sales and administrative offices.
</TABLE>
At December 31, 1994, Intel also leased 21 major facilities in the U.S.
totaling approximately 609,000 square feet and 11 facilities in other countries
totaling approximately 246,000 square feet. These leases expire at varying
dates through 2002, including renewals at the option of Intel.
Intel believes that its existing facilities are suitable and adequate, and the
productive capacity in such facilities is in general being utilized. Intel has
other facilities available that it can equip to meet future demand as such
demand materializes. These include 4.5 million square feet of building space
under various stages of construction in the United States and abroad for
manufacturing and administrative purposes.
_________________________
(A) Includes an idle, 131,000-square-foot facility formerly utilized for
wafer fabrication and administration, which is currently for sale.
(B) The lease on a portion of the land used for these facilities expires
in 2032.
(C) Leases on land expire in 1998, 2002 and 2008.
(D) This facility is currently for sale.
PAGE 11
ITEM 3. LEGAL PROCEEDINGS
A. LITIGATION
Intel vs. Advanced Micro Devices, Inc. ("AMD")
U.S. District Court for the Northern District of California
(C90-20237) - Intel287 Copyright Infringement Suit
-----------------------------------------------------------
In a letter dated March 23, 1990 from AMD, AMD asserted a right to copy and
distribute Intel-copyrighted microcode in an AMD 80C287 math coprocessor.
In response to the letter, Intel filed a suit on April 23, 1990 in the U.S.
District Court for the Northern District of California, alleging that AMD
infringed Intel's copyright on the microcode for the Intel287(TM) math
coprocessor. In its defense, AMD claimed a license to copy and distribute
Intel copyrighted microcode based on a clause in a 1976 patent cross-license
agreement which gives AMD the right "...to copy microcodes contained in Intel
microcomputers and peripheral products sold by Intel."
On January 11, 1995, in connection with the settlement of various legal matters
between the two companies, the parties agreed to dismiss all claims,
counterclaims and defenses raised in this action. AMD has agreed to abide by
the terms of the preliminary injunction entered August 7, 1990, and Intel has
granted AMD a license to Intel code contained in Intel287, Intel386 and
Intel486 microprocessors. AMD has agreed that it has no right to copy the
microcode in the Pentium processor and future microprocessors.
Intel vs. Advanced Micro Devices, Inc. ("AMD")
U.S. District Court for the Northern District of California
(C92-20039) - Intel386 Copyright Infringement Suit
-----------------------------------------------------------
On October 9, 1991, Intel filed another copyright infringement suit against
AMD, alleging that AMD copied the Intel386 microcode and a control program
which is stored in a programmable logic array.
On January 11, 1995, in connection with the settlement of various legal matters
between the two companies, the parties agreed to dismiss all claims,
counterclaims and defenses raised in this action.
Intel vs. Advanced Micro Devices, Inc. ("AMD")
U.S. District Court for the Northern District of California
(C93-20301) - Intel486 Copyright Infringement Suit
----------------------------------------------------------
On April 28, 1993, the Company filed a complaint in the U.S. District Court for
the Northern District of California covering numerous copyright infringement
claims on AMD's versions of Intel486 microprocessors.
On October 11, 1994, Judge Trumbull ruled that AMD is not licensed to copy or
distribute the Company's 486 ICE(TM) system microcode, and entered an
injunction which prohibits AMD from shipping Am486s which contain the Company's
486 ICE system microcode after January 15, 1995.
On January 11, 1995, in connection with the settlement of various legal matters
between the two companies, the parties agreed to dismiss all claims,
counterclaims and defenses raised in this action. The 486 ICE system microcode
injunction will remain in effect, and AMD agreed to pay Intel $58 million as
settlement for past damages for its 486 ICE system microcode infringement.
As part of the settlement, AMD will have the right to use foundries for up to
20% of its Am486 production.
PAGE 12
Advanced Micro Devices, Inc. ("AMD") vs. Intel Corporation
U.S. District Court for the Northern District of California
(C91-20541) - Antitrust Suit
-----------------------------------------------------------
On August 29, 1991, AMD filed a lawsuit against Intel in the U.S. District
Court for the Northern District of California, alleging that Intel violated the
Sherman Act by committing unlawful acts and conspiring with customers and
distributors to secure and maintain monopoly positions in microprocessor and
math coprocessor markets.
On January 11, 1995, in connection with the settlement of various legal matters
between the two companies, the parties agreed to dismiss all claims,
counterclaims and defenses raised in this action.
Consumer Class Action Suits
---------------------------
Machtinger vs. Intel, Cook Co. Circuit Court, IL (94-C-7300)
Anthony Uzzo & Co. vs. Intel, Santa Clara Co. Superior Court (CV745729)
Liberty Bell Equip. vs. Intel, Santa Clara Co. Superior Court (CV745803)
Sloane vs. Intel, Santa Clara Co. Superior Court (CV745876)
Klein vs. Intel, Santa Clara Co. Superior Court (CV745895)
Scalzo vs. Intel, Santa Clara Co. Superior Court (CV745924)
Rep. Electronic Products vs. Intel and Dell,
Wayne Co. Circuit Court, MI (94-435132CK)
Fingold vs. Intel, Santa Clara Co. Superior Court (CV746031)
Lees et al vs. Intel, Camden Co. Superior Court, NJ (L 11508 94)
Kurtz, Orman vs. Intel, Santa Clara Co. Superior Court (CV746116)
Data Technology Services vs. Intel, U.S.D.C., Dist. of CO (94-N-2886)
Carney vs. Intel, Santa Clara Co. Superior Court (CV746128)
-----------------------------------------------------------
During the period from November 29, 1994 through December 19, 1994, numerous
civil consumer lawsuits were filed in state courts in various states against
the Company. Although the complaints differ, these actions generally allege
that Intel breached express and implied warranties, engaged in deceptive
advertising and otherwise committed consumer fraud by shipping Pentium
processors which contained a divide problem in the floating point unit, and by
failing to disclose it. The suits seek compensatory and punitive damages of
unspecified amounts. One of the actions has since been withdrawn. A
Stipulation of Settlement covering all remaining pending actions was filed in
the Santa Clara Superior Court on March 22, 1995. Preliminary approval was
granted by the Court on March 24, 1995.
Weisberg vs. C. Barrett, W.H. Chen, A. Grove, D.J. Guzy, G. Moore, M. Palevsky,
A. Rock, J. Shaw, L. Vadasz, D. Yoffie, C. Young and Intel
Southern District, NY (C95-0674)
--------------------------------
On January 31, 1995, the plaintiff brought this suit in Federal Court in New
York (Southern District) as both a derivative and stockholder action to
invalidate the Company's Executive Officer Bonus Plan, alleging that the plan
is so vague and misleading as to be ambiguous. Plaintiff seeks (i)
cancellation of the stockholders' approval of the Plan, (ii) unspecified
damages to Intel by the Board of Directors, and (iii) to enjoin implementation
of the Plan and the payment of any bonuses under the Plan.
Although the ultimate outcome of any outstanding claims cannot be determined
at this time, management, including internal counsel, does not believe that the
ultimate outcome will have a material adverse effect on Intel's financial
position or overall trends in results of operations.
PAGE 13
B. ENVIRONMENTAL PROCEEDINGS
Intel has been named to the California and U.S. federal Superfund lists for
three of its sites and has completed, along with two other companies, a
Remedial Investigation/Feasibility study with the U.S. Environmental Protection
Agency (EPA) to evaluate the ground water in areas adjacent to its Mountain
View, California site. The EPA has issued a Record of Decision with respect to
a groundwater cleanup plan at that site. Under the California and U.S. federal
Superfund statutes, liability for cleanup of the Mountain View site and
adjacent area is joint and several. The Company has reached agreement in
principle with those same two companies which should significantly limit the
Company's liabilities under the proposed cleanup plan. Also, the Company has
completed extensive studies at its other sites and is engaged in cleanup at
several of these sites. In the opinion of management, including internal
counsel, the potential losses to the Company in excess of amounts already
accrued arising out of these matters would not have a material adverse effect
on the Company's financial position, even if joint and several liability were
to be assessed.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PAGE 14
PART II
-------
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
(a) Reference is made to the information regarding market, market price
range and dividend information appearing under "Financial
Information by Quarter (Unaudited)" on page 31 of the Registrant's
Annual Report to Stockholders which information is hereby
incorporated by reference.
(b) As of February 25, 1995, there were 43,262 holders of record of the
Registrant's Common Stock.
ITEM 6. SELECTED FINANCIAL DATA
Reference is made to the information regarding selected financial data for the
fiscal years 1990 through 1994, including the related footnotes, under the
heading "Financial Summary" on page 28 of the Registrant's Annual Report to
Stockholders, which information is hereby incorporated by reference.
In addition, the ratios of earnings to fixed charges for each of the five years
in the period ended December 31, 1994 are as follows:
Fiscal Year
--------------------------------------------------------
1990 1991 1992 1993 1994
9.2x 12.4x 20.7x 54.4x 39.5x
Fixed charges consist of interest expense and the estimated interest component
of rent expense.
PAGE 15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Reference is made to the information appearing under the heading "Management's
Discussion and Analysis of Financial Condition and Results of Operations" on
pages 29 through 31 of the Registrant's 1994 Annual Report to Stockholders,
which information is hereby incorporated by reference.
Subsequent to December 31, 1994, Intel repurchased 2.0 million shares of Common
Stock under the Company's authorized stock repurchase program at a cost of $150
million. The Company also sold 3.5 million put warrants, receiving proceeds of
$16 million, while 3.0 million previously outstanding put warrants expired. As
of March 22, 1995, the Company had the potential obligation to repurchase 13.0
million shares of Common Stock at an aggregate price of $821 million under
outstanding put warrants. After reserving shares to cover these outstanding put
warrants, 15.4 million shares remained available under the stock repurchase
program authorization.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated financial statements of Intel Corporation at December 31, 1994 and
December 25, 1993 and for each of the three years in the period ended December
31, 1994 and the Report of Independent Auditors thereon and Intel Corporation's
unaudited quarterly financial data for the two-year period ended December 31,
1994 are incorporated by reference from the Registrant's 1994 Annual Report to
Stockholders, on pages 14 through 31.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PAGE 16
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Reference is made to the information regarding Directors and Executive Officers
appearing under the headings "Election of Directors" and "Name and Principal
Occupation" on pages 1 through 3 of the Registrant's Proxy Statement dated
March 14, 1995, which information is hereby incorporated by reference, and to
the information under the heading "Executive Officers" in Part I hereof.
ITEM 11. EXECUTIVE COMPENSATION
Reference is made to the information appearing under the headings "Executive
Compensation," "Directors' Compensation," and "Compensation Committee
Interlocks and Insider Participation," on pages 8 through 11 of the
Registrant's Proxy Statement dated March 14, 1995, which information is hereby
incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Reference is made to information appearing in the Registrant's Proxy Statement
dated March 14, 1995, under the heading "Security Ownership of Certain
Beneficial Owners and Management," on pages 13 and 14, which information is
hereby incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Reference is made to the information appearing under the heading "Certain
Relationships and Related Transactions" on page 14 of the Registrant's Proxy
Statement dated March 14, 1995, which information is hereby incorporated by
reference.
PAGE 17
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
The financial statements listed in the accompanying index to
financial statements and financial statement schedules are filed
or incorporated by reference as part of this annual report.
2. Financial Statement Schedule
The financial statement schedule listed in the accompanying
index to financial statements and financial statement schedules
is filed as part of this annual report.
3. Exhibits
The exhibits listed in the accompanying index to exhibits are
filed or incorporated by reference as part of this annual
report.
(b) Reports on Form 8-K
On December 21, 1994, Intel filed a report on Form 8-K relating
to the adoption of an upon-request replacement policy on Pentium
processors and a then-unspecified material charge against
earnings to be taken in the fourth quarter of 1994.
PAGE 18
INDEX TO FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
(Item 14 (a))
Reference Page
--------------
1994
Annual
Form Report to
10-K Stockholders
Consolidated Balance Sheets-
December 31, 1994 and December 25, 1993 . . . . . . . . . . . . . . . . .15
Consolidated Statements of Income for
the years ended December 31, 1994,
December 25, 1993 and December 26, 1992 . . . . . . . . . . . . . . . . .14
Consolidated Statements of Cash Flows
for the years ended December 31, 1994
December 25, 1993 and December 26, 1992 . . . . . . . . . . . . . . . . .16
Consolidated Statements of Stockholders'
Equity for the years ended December 31, 1994,
December 25, 1993 and December 26, 1992 . . . . . . . . . . . . . . . . .17
Notes to Consolidated Financial Statements-
December 31, 1994, December 25, 1993 and
December 26, 1992 . . . . . . . . . . . . . . . . . . . . . . . . . . 18-26
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . . 27
Supplementary Information (unaudited)
Financial Information by Quarter . . . . . . . . . . . . . . . . . . . . 31
Schedule for years ended December 31, 1994,
December 25, 1993 and December 26, 1992:
II- Valuation and Qualifying Accounts . . . . . . . . . . .19
Schedules other than the one listed above are omitted for the reason that they
are not required or are not applicable, or the required information is shown in
the financial statements or notes thereto.
The consolidated financial statements listed in the above index which are
included in the Company's Annual Report to Stockholders are hereby incorporated
by reference. With the exception of the pages listed in the above index and
the portions of such report referred to in Items 5, 6, 7, and 8 of this Form
10-K, the 1994 Annual Report to Stockholders is not to be deemed filed as part
of this report.
Page references to the 1994 Annual Report to Stockholders relate to the bound,
printed version of the report.
PAGE 19
INTEL CORPORATION
--------------------------------
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
December 26, 1992, December 25, 1993 and December 31, 1994
(In Millions)
Additions
Balance at Charged to Balance
Beginning Costs and at End
of Year Expenses Deductions (A) of Year
---------- ---------- ------------- -------
1992
Allowance for Doubtful Receivables $ 9 $29 $12 $26
--- --- --- ---
1993
Allowance for Doubtful Receivables $26 $ 4 $ 8 $22
--- --- --- ---
1994
Allowance for Doubtful Receivables $22 $10 $-- $32
--- --- --- ---
(A) Uncollectible accounts written off, net of recoveries.
PAGE 20
INDEX TO EXHIBITS
(Item 14 (a))
Description
3.1 Intel Corporation Certificate of Incorporation (incorporated by reference
to Exhibit 3.1 of Registrant's Form 10-Q for the quarter ended June 26,
1993 [Commission File No. 0-6217] as filed on August 10, 1993)
3.2 Intel Corporation Bylaws as amended, (incorporated by reference to
Exhibit 3.2 of Registrant's Registration Statement on Form 10-Q for the
quarter ended September 25, 1993 [Commission File No. 0-6217] as filed on
November 9, 1993).
4.1 Agreement to Provide Instruments Defining the Rights of Security Holders
(incorporated by reference to Exhibit 4.1 of Registrant's Form 10-K
[Commission File No. 0-6217] as filed on March 28, 1986).
4.2 Indenture dated as of May 1, 1985 among Intel Overseas Corporation, Intel
Corporation and Wachovia Bank Trust Company N.A. related to $236,500,000
principal amount of zero coupon notes due 1995 issued by Intel Overseas
Corporation and guaranteed by Intel Corporation (incorporated by
reference to Exhibit 4.1 of Registrant's Form 10-Q for the quarter ended
June 29, 1985 [Commission File No. 0-6217] as filed on August 13, 1985).
4.3 Warrant agreement dated as of March 1, 1993, as amended between the
Registrant and Harris Trust and Savings Bank (as successor Warrant Agent)
related to the issuance of 1998 Step-Up Warrants to purchase Common Stock
of Intel Corporation (incorporated by reference to Exhibit 4.6 of
Registrant's Form 10-K [Commission File No. 0-6217] as filed on March 25,
1993), together with the First Amendment to Warrant Agreement dated as of
October 18, 1993 and the Second Amendment to Warrant Agreement dated as
of January 17, 1994 (incorporated by reference to Exhibit 4.4 of the
Registrant's Form 10-K [Commission File No. 0-6217] as filed on March
25, 1994).
10.1* Intel Corporation 1984 Stock Option Plan, as amended and restated
(incorporated by reference to Exhibit 10.2 of Registrant's Form 10-Q for
the quarter ended April 2, 1994 [Commission File No. 0-6217] as filed on
May 16, 1994).
10.2 Intel Corporation Profit-Sharing Retirement Plan dated April 20, 1990 as
amended and restated effective January 1, 1989 (incorporated by reference
to Exhibit 10.3 of Registrant's Form 10-K [Commission File No. 0-6217] as
filed on March 26, 1992).
10.3 Second Amendment dated March 2, 1992 to Intel Corporation Profit-Sharing
Retirement Plan dated April 20, 1990 as amended and restated effective
January 1, 1989 (incorporated by reference to Exhibit 10.4 of
Registrant's Form 10-K [Commission File No. 0-6217] as filed on March 26,
1993).
10.4 Intel Corporation Defined Benefit Pension Plan and Trust dated September
7, 1988 as amended (incorporated by reference to Exhibit 10.5 of
Registrant's Form 10-K [Commission File No. 0-6217] as filed on March 28,
1990).
10.5* Intel Corporation 1988 Executive Long Term Stock Option Plan as amended
and restated (incorporated by reference to Exhibit 10.6 of Form 10-Q for
the quarter ended April 2, 1994 [Commission File No. 0-6217] as filed on
May 16, 1994).
10.6* Intel Corporation Sheltered Employee Retirement Plan Plus dated December
1, 1991 (incorporated by reference to Exhibit 10.6 of Registrant's Form
10-K [Commission File No. 0-6217] as filed on March 26, 1992).
PAGE 21
10.7* Intel Corporation Executive Officer Bonus Plan dated January 1, 1994
(incorporated by reference to Exhibit 10.8 of Registrant's Form 10-K
[Commission File No. 0-6217] as filed on March 25, 1994).
11. Computation of Per Share Earnings.
12. Statement Setting Forth the Computation of Ratios of Earnings to Fixed
Charges.
13. Portions of the Annual Report to Stockholders for fiscal year ended
December 31, 1994 expressly incorporated by reference herein.
21. Intel Subsidiaries.
23. Consent of Ernst & Young LLP, Independent Auditors.
27. Financial Data Schedule.
* Compensation plans or arrangements in which officers and directors are
eligible to participate.
PAGE 22
SIGNATURESPursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Annual Report to be
signed on its behalf by the undersigned, thereunto duly authorized.
INTEL CORPORATION
Registrant By
/s/ F. Thomas Dunlap, Jr.
- -------------------------
F. Thomas Dunlap, Jr.
Vice President and Secretary
March 24, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ Craig R. Barrett /s/ Max Palevsky
- -------------------- ----------------
Craig R. Barrett Max Palevsky
Director Director
March 24, 1995 March 24, 1995
/s/ Andy D. Bryant /s/ Arthur Rock
- ------------------ ---------------
Andy D. Bryant Arthur Rock
Vice President, Principal Director
Accounting and Chief Financial Officer March 24, 1995
March 24, 1995
/s/ Jane E. Shaw
/s/ Winston H. Chen ----------------
- ------------------- Jane E. Shaw
Winston H. Chen Director
Director March 24, 1995
March 24, 1995
/s/ Leslie L. Vadasz
/s/ Andrew S. Grove --------------------
- ------------------- Leslie L. Vadasz
Andrew S. Grove Director
Principal Executive Officer March 24, 1995
President and Director
March 24, 1995 /s/ David B. Yoffie
-------------------
/s/ D. James Guzy David B. Yoffie
- ----------------- Director
D. James Guzy March 24, 1995
Director
March 24, 1995 /s/ Charles E. Young
--------------------
/s/ Gordon E. Moore Charles E. Young
- ------------------- Director
Gordon E. Moore March 24, 1995
Chairman of the Board
March 24, 1995
EXHIBIT 11.1
<TABLE>
INTEL CORPORATION
COMPUTATION OF EARNINGS PER SHARE
(In millions, except per share amounts)
Year Ended
-----------------------------
Dec. 26, Dec. 25, Dec. 31,
1992 1993 1994
------- ------- -------
<S> <C> <C> <C>
PRIMARY SHARES CALCULATION
Reconciliation of weighted average number
of shares outstanding to amount used in
primary earnings per share computation:
Weighted average number of shares outstanding 414 418 415
Add-shares issuable from assumed exercise of options
and warrants 15 23 22
------ ------ ------
Weighted average number of shares outstanding as
adjusted 429 441 437
====== ====== ======
FULLY DILUTED SHARES CALCULATION
Reconciliation of weighted average number
of shares outstanding to amount used in
fully diluted earnings per share computation:
Weighted average number of shares outstanding 414 418 415
Add-shares issuable from assumed exercise of options
and warrants 17 23 22
------ ------ ------
Weighted average number of shares outstanding as
adjusted 431 441 437
====== ====== ======
NET INCOME $1,067 $2,295 $2,288
====== ====== ======
PRIMARY EARNINGS PER SHARE $ 2.49 $ 5.20 $ 5.24
====== ====== ======
FULLY DILUTED EARNINGS PER SHARE(1) $ 2.48 $ 5.20 $ 5.24
====== ====== ======
</TABLE>
(1) Earnings per common and common equivalent share presented on the face
of the income statement represent primary earnings per share. Dual
presentation of primary and fully diluted earnings per share has not been
made on the face of the income statement because the differences are
insignificant. This exhibit is presented because common stock equivalents
represent more than 3% of weighted average common shares outstanding.
EXHIBIT 12.1
INTEL CORPORATION
STATEMENT SETTING FORTH THE COMPUTATION
OF RATIOS OF EARNINGS TO FIXED CHARGES FOR INTEL CORPORATION
(In millions, except ratios)
<TABLE>
Years Ended
----------------------------------------------------
Dec. 29, Dec. 28, Dec. 26, Dec. 25, Dec. 31,
1990 1991 1992 1993 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Income before taxes $986 $1,195 $1,569 $3,530 $3,603
Add - Fixed charges net of
capitalized interest 117 98 68 58 73
------ ------ ------ ------ ------
Income before taxes and fixed
charges (net of capitalized interest) $1,103 $1,293 $1,637 $3,588 $3,676
====== ====== ====== ====== ======
Fixed charges:
Interest* $ 99 $ 82 $ 54 $ 50 $ 57
Capitalized interest 3 6 11 8 27
Estimated interest component
of rental expense 18 16 14 8 9
------ ------ ------ ------ ------
Total $ 120 $ 104 $ 79 $ 66 $ 93
====== ====== ====== ====== ======
Ratio of earnings before taxes
and fixed charges, to fixed
charges 9.2x 12.4x 20.7x 54.4x 39.5x
</TABLE>
* Interest expense includes the amortization of underwriting fees for the
relevant periods outstanding.
Exhibit 13
PAGE 1
CONSOLIDATED STATEMENTS OF INCOME
Three years ended December 31, 1994
<TABLE>
(In millions--except per share amounts) 1994 1993 1992
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net revenues $11,521 $ 8,782 $ 5,844
-------- -------- --------
Cost of sales 5,576 3,252 2,557
Research and development 1,111 970 780
Marketing, general and administrative 1,447 1,168 1,017
-------- -------- --------
Operating costs and expenses 8,134 5,390 4,354
-------- -------- --------
Operating income 3,387 3,392 1,490
Interest expense (57) (50) (54)
Interest income and other, net 273 188 133
-------- -------- --------
Income before taxes 3,603 3,530 1,569
Provision for taxes 1,315 1,235 502
-------- -------- --------
Net income $ 2,288 $ 2,295 $ 1,067
======== ======== ========
Earnings per common and common equivalent share $ 5.24 $ 5.20 $ 2.49
======== ======== ========
Weighted average common and common equivalent
shares outstanding 437 441 429
======== ======== ========
</TABLE>
See accompanying notes.
PAGE 2
CONSOLIDATED BALANCE SHEETS
December 31, 1994 and December 25, 1993
<TABLE>
(In millions--except per share amounts) 1994 1993
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 1,180 $ 1,659
Short-term investments 1,230 1,477
Accounts receivable, net of allowance for doubtful
accounts of $32 ($22 in 1993) 1,978 1,448
Inventories 1,169 838
Deferred tax assets 552 310
Other current assets 58 70
-------- --------
Total current assets 6,167 5,802
-------- --------
Property, plant and equipment:
Land and buildings 2,292 1,848
Machinery and equipment 5,374 4,148
Construction in progress 850 317
-------- --------
8,516 6,313
Less accumulated depreciation 3,149 2,317
-------- --------
Property, plant and equipment, net 5,367 3,996
-------- --------
Long-term investments 2,127 1,416
Other assets 155 130
-------- --------
Total assets $13,816 $11,344
======== ========
Liabilities and stockholders' equity
Current liabilities:
Short-term debt $ 517 $ 399
Long-term debt redeemable within one year -- 98
Accounts payable 575 427
Deferred income on shipments to distributors 269 200
Accrued compensation and benefits 588 544
Other accrued liabilities 646 374
Income taxes payable 429 391
-------- --------
Total current liabilities 3,024 2,433
-------- --------
Long-term debt 392 426
Deferred tax liabilities 389 297
Put warrants 744 688
Commitments and contingencies
Stockholders' equity:
- ---------------------
Preferred Stock, $.001 par value, 50 shares
authorized; none issued -- --
Common Stock, $.001 par value, 1,400 shares authorized;
413 issued and outstanding in 1994 (418 in 1993) and
capital in excess of par value 2,306 2,194
Retained earnings 6,961 5,306
-------- --------
Total stockholders' equity 9,267 7,500
-------- --------
Total liabilities and stockholders' equity $13,816 $11,344
======== ========
</TABLE>
See accompanying notes.
PAGE 3
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three years ended December 31, 1994
-----------------------------------
<TABLE>
(In millions) 1994 1993 1992
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash and cash equivalents, beginning of year $ 1,659 $ 1,843 $ 1,519
-------- -------- --------
Cash flows provided by (used for) operating activities:
Net income 2,288 2,295 1,067
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Depreciation 1,028 717 518
Net loss on retirements of property, plant
and equipment 42 36 57
Amortization of debt discount 19 17 16
Change in deferred tax assets and liabilities (150) 12 13
Changes in assets and liabilities:
(Increase) in accounts receivable (530) (379) (371)
(Increase) in inventories (331) (303) (113)
(Increase) in other assets (13) (68) (61)
Increase in accounts payable 148 146 112
Tax benefit from employee stock plans 61 68 55
Increase in income taxes payable 38 32 207
Increase in accrued compensation and benefits 44 109 66
Increase in other liabilities 337 119 70
-------- -------- --------
Total adjustments 693 506 569
-------- -------- --------
Net cash provided by operating activities 2,981 2,801 1,636
-------- -------- --------
Cash flows provided by (used for) investing activities:
Additions to property, plant and equipment (2,441) (1,933) (1,228)
Purchases of long-term, available-for-sale investments (975) (1,165) (293)
Sales of long-term, available-for-sale investments 10 5 13
Maturities and other changes in available-for-sale
investments, net 503 (244) 28
-------- -------- --------
Net cash (used for) investing activities (2,903) (3,337) (1,480)
-------- -------- --------
Cash flows provided by (used for) financing activities:
(Decrease) increase in short-term debt, net (63) 197 29
Additions to long-term debt 128 148 --
Retirement of long-term debt (98) -- (20)
Proceeds from sales of shares through employee
stock plans and other 150 133 138
Proceeds from sale of Step-Up Warrants, net -- 287 --
Proceeds from sales of put warrants, net of repurchases 76 62 42
Repurchase and retirement of Common Stock (658) (391) --
Payment of dividends to stockholders (92) (84) (21)
-------- -------- --------
Net cash provided by (used for) financing activities (557) 352 168
-------- -------- --------
Net (decrease) increase in cash and cash equivalents (479) (184) 324
-------- -------- --------
Cash and cash equivalents, end of year $ 1,180 $ 1,659 $ 1,843
======== ======== ========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 76 $ 39 $ 32
Income taxes $ 1,366 $ 1,123 $ 227
</TABLE>
Certain amounts reported in previous years have been reclassified to conform to
the 1994 presentation. See accompanying notes.
PAGE 4
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Three years ended December 31, 1994
<TABLE>
Common Stock and
capital in excess of par value
------------------------------
Number Retained
(In millions) of shares Amount earnings Total
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 28, 1991 408 $ 1,641 $ 2,777 $ 4,418
Proceeds from sales of shares
through employee stock plans,
tax benefit of $55 and other 11 193 -- 193
Proceeds from sales of put warrants,
net of repurchases -- 42 -- 42
Reclassification of put warrant
obligation, net (100) (133) (233)
Cash dividends declared ($.10 per share) -- -- (42) (42)
Net income -- -- 1,067 1,067
-------- -------- -------- --------
Balance at December 26, 1992 419 1,776 3,669 5,445
Proceeds from sales of shares through
employee stock plans, tax benefit
of $68 and other 6 201 -- 201
Proceeds from sales of put warrants -- 62 -- 62
Reclassification of put warrant
obligation, net -- (37) (278) (315)
Proceeds from sale of Step-Up Warrants -- 287 -- 287
Repurchase and retirement of Common Stock (7) (95) (296) (391)
Cash dividends declared ($.20 per share) -- -- (84) (84)
Net income -- -- 2,295 2,295
-------- -------- -------- --------
Balance at December 25, 1993 418 2,194 5,306 7,500
Proceeds from sales of shares through
employee stock plans, tax benefit of
$61 and other 6 215 -- 215
Proceeds from sales of put warrants -- 76 -- 76
Reclassification of put warrant
obligation, net -- (15) (106) (121)
Repurchase and retirement of Common Stock (11) (164) (429) (593)
Redemption of Common Stock Purchase Rights -- -- (2) (2)
Cash dividends declared ($.23 per share) -- -- (96) (96)
Net income -- -- 2,288 2,288
-------- -------- -------- --------
Balance at December 31, 1994 413 $ 2,306 $ 6,961 $ 9,267
======== ======== ======== ========
</TABLE>
See accompanying notes.
PAGE 5
ACCOUNTING POLICIES
FISCAL YEAR. Intel Corporation ("Intel" or "the Company") has a fiscal year
that ends the last Saturday in December. Fiscal 1994 was a 53-week year and
ended on December 31, 1994. Fiscal 1993 and 1992, each 52-week years, ended on
December 25 and 26, respectively. The next 53-week year will end on December
30, 2000.
BASIS OF PRESENTATION. The consolidated financial statements include the
accounts of Intel and its wholly owned subsidiaries. Significant intercompany
accounts and transactions have been eliminated. Accounts denominated in foreign
currencies have been remeasured into the functional currency in accordance
with Statement of Financial Accounting Standards (SFAS) No. 52, "Foreign
Currency Translation," using the U.S. dollar as the functional currency.
CASH AND CASH EQUIVALENTS. Cash and cash equivalents are highly liquid
investments with insignificant interest rate risk and original maturities of
three months or less.
INVESTMENTS. In 1994, the Company adopted SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities," effective as of the beginning of
fiscal 1994. This adoption had no material effect on the Company's financial
statements. All of the Company's short- and long-term investments are
classified as available-for-sale as of the balance sheet date and are reported
at fair value, with unrealized gains and losses recorded as a component of
stockholders' equity.
FAIR VALUES OF FINANCIAL INSTRUMENTS. Fair values of cash and cash equivalents,
short-term investments and short-term debt approximate cost due to the short
period of time to maturity. Fair values of long-term investments, long-term
debt, swaps, currency forward contracts and currency options are based on
quoted market prices or pricing models using current market rates.
INVENTORIES. Inventories are stated at the lower of cost or market. Cost is
computed on a currently adjusted standard basis (which approximates actual cost
on a current average or first-in, first-out basis). Inventories at fiscal year-
ends are as follows:
<TABLE>
(In millions) 1994 1993
- ----------------------------------------------------------
<S> <C> <C>
Materials and purchased parts $ 345 $ 216
Work in process 528 321
Finished goods 296 301
------ ------
Total $1,169 $ 838
====== ======
</TABLE>
PROPERTY, PLANT AND EQUIPMENT. Property, plant and equipment are stated at
cost. Depreciation is computed for financial reporting purposes principally by
use of the straight-line method over the following estimated useful lives:
machinery and equipment, 2-4 years; land and buildings, 4-45 years.
DEFERRED INCOME ON SHIPMENTS TO DISTRIBUTORS. Certain of the Company's sales
are made to distributors under agreements allowing price protection and/or
right of return on merchandise unsold by the distributors. Because of frequent
sales price reductions and rapid technological obsolescence in the industry,
Intel defers recognition of such sales until the merchandise is sold by the
distributors.
INTEREST. Interest as well as gains and losses related to contractual
agreements to hedge certain investment positions and debt (see "Derivative
financial instruments") are recorded as net interest income or expense on a
monthly basis. Interest expense capitalized as a component of construction
costs was $27 million, $8 million and $11 million for 1994, 1993 and 1992,
respectively.
ACCOUNTING FOR INCOME TAXES. In 1993, the Company adopted SFAS No. 109,
"Accounting for Income Taxes," effective as of the beginning of fiscal 1993.
This adoption had no material effect on Intel's financial statements. Prior
years were accounted for under SFAS No. 96 and have not been restated.
EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE. Earnings per common and common
equivalent share are computed using the weighted average number of outstanding
common and dilutive common equivalent shares outstanding. Fully diluted
earnings per share have not been presented as part of the consolidated
statements of income because the differences are insignificant.
COMMON STOCK
COMMON STOCK PURCHASE RIGHTS. At the Company's Annual Meeting of Stockholders
in May 1994, stockholders approved a proposal to redeem the Common Stock
Purchase Rights (the "Rights") issued in 1989. A one-time payment of $.005 per
share was paid to stockholders in September 1994 to redeem the Rights.
1998 STEP-UP WARRANTS. In 1993, the Company issued 20 million 1998 Step-Up
Warrants to purchase 20 million shares of Common Stock. This transaction
resulted in an increase of $287 million in Common Stock and capital in excess
of par value, representing net proceeds from the offering. The Warrants became
exercisable in May 1993 at an effective price of $71.50 per share of Common
Stock, subject to annual increases to a maximum price of $83.50 per share
effective in March 1997. As of December 31, 1994, the Warrants are exercisable
at a price of $74.50 and expire on March 14, 1998 if not previously exercised.
At prevailing market prices for Intel's Common Stock, there is no dilutive
effect on earnings per share for the periods presented.
STOCK REPURCHASE PROGRAM. In 1990, the Board of Directors authorized the
repurchase of up to 40 million shares of Intel's Common Stock in open market
or negotiated transactions. The Board increased this authorization to a maximum
of 55 million shares in July 1994. During 1994, the Company repurchased and
retired 10.9 million shares (7.3 million shares in 1993) at a cost of $658
million ($391 million in 1993). The 1994 amounts include 1.0 million shares
repurchased for $65 million in connection with the exercise of put warrants
(see "Put warrants"). As of December 31, 1994, after reserving shares to cover
outstanding put warrants, 17.9 million shares remained available under the
repurchase authorization.
PAGE 6
PUT WARRANTS
In a series of private placements from 1991 through 1994, the Company sold put
warrants that entitle the holder of each warrant to sell one share of Common
Stock to the Company at a specified price. Activity during the past three years
is summarized as follows:
<TABLE>
Put warrants outstanding
Cumulative -------------------------
premium Number Potential
(In millions) received (paid) of warrants obligation
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
December 28, 1991 $ 14 7.0 $ 140
Sales 43 14.0 373
Repurchases (1) (5.2) (104)
Expirations -- (1.8) (36)
------ ------ ------
December 26, 1992 56 14.0 373
Sales 62 10.8 561
Expirations -- (10.0) (246)
------ ------ ------
December 25, 1993 118 14.8 688
Sales 76 12.5 744
Exercises -- (1.0) (65)
Expirations -- (13.8) (623)
------ ------ ------
December 31, 1994 $ 194 12.5 $ 744
====== ====== ======
</TABLE>
The amount related to Intel's potential repurchase obligation has been
reclassified from stockholders' equity to put warrants. The 12.5 million put
warrants outstanding at December 31, 1994 expire on various dates between
February 1995 and December 1995 and have exercise prices ranging from $55 to
$63 per share. There was no effect on earnings per share for the periods
presented. During 1994, in connection with the exercise of 1.0 million put
warrants, the Company repurchased and retired 1.0 million shares of Common
Stock at a cost of $65 million (see "Stock repurchase program").
BORROWINGS
SHORT-TERM DEBT. Short-term debt and weighted average interest rates at fiscal
year-ends are as follows:
<TABLE>
1994 1993
------------------------ -------------------------
Weighted Weighted
average average
(In millions) Balance interest rate Balance interest rate
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Borrowed under
lines of credit $ 68 3.2% $ 85 5.8%
Reverse repurchase
agreements 99 8.0% 197 7.9%
Notes payable 5 4.7% 2 3.4%
Short-term portion
of long-term debt 179 11.8% -- --
Drafts payable 166 N/A 115 N/A
------ ------ ------ ------
Total $ 517 $ 399
====== ====== ====== ======
</TABLE>
At December 31, 1994, the Company had established foreign and domestic lines
of credit of approximately $1,040 million. The Company generally renegotiates
these lines annually. Compensating balance requirements are not material.
The Company also borrows under commercial paper programs. Maximum borrowings
reached $700 million during both 1994 and 1993. This debt is rated A1+ by
Standard and Poor's and P1 by Moody's. Proceeds are used to fund short-term
working capital needs.
LONG-TERM DEBT. Long-term debt at fiscal year-ends is as follows:
<TABLE>
(In millions) 1994 1993
- -----------------------------------------------------------------------
<S> <C> <C>
Payable in U.S. dollars:
AFICA Bonds due 2013 at 4% $ 110 $ 110
Zero Coupon Notes due 1995 at 11.8%,
net of unamortized discount of $8
($27 in 1993) 179 160
8 1/8% Notes due 1997 -- 98
Other U.S. dollar debt 4 6
Payable in other currencies:
Irish punt due 2008-2024 at 6%-12% 228 146
Greek drachma due 2001 46 --
Other foreign currency debt 4 4
(Less short-term or redeemable portion) (179) (98)
------ ------
Total $ 392 $ 426
====== ======
</TABLE>
The Company has guaranteed repayment of principal and interest on the AFICA
Bonds which were issued by the Puerto Rico Industrial, Medical and
Environmental Pollution Control Facilities Financing Authority (AFICA). The
bonds are adjustable and redeemable at the option of either the Company or the
bondholder every five years through 2013 and are next adjustable and redeemable
in 1998. The 8 1/8% notes were called and repurchased by the Company during
1994 for $98 million. The Irish punt borrowings were made in connection with
the financing of a factory in Ireland, and Intel has invested the proceeds in
Irish punt denominated instruments of similar maturity to hedge foreign
currency and interest rate exposures. The Greek drachma borrowings were made
under a tax incentive program in Ireland, and the proceeds and cash flows have
been swapped to U.S. dollars.
In 1993, the Company filed a shelf registration statement with the SEC. When
combined with previous registration statements, this filing gave Intel the
authority to issue up to $3.3 billion in the aggregate of Common Stock,
Preferred Stock, depositary shares, debt securities and warrants to purchase
the Company's Common Stock, Preferred Stock and debt securities, and, subject
to certain limits, stock index warrants and foreign currency exchange units. In
1993, Intel completed an offering of Step-Up Warrants (see "1998 Step-Up
Warrants") and may issue up to $1.4 billion in additional securities under open
registration statements.
As of December 31, 1994, aggregate debt maturities are as follows: 1995-$187
million; 1996-none; 1997-none; 1998-$110 million; and thereafter-$282 million.
PAGE 7
INVESTMENTS
The Company's policy is to protect the value of the investment portfolio by
minimizing principal risk and earning returns based on current interest rates.
All hedged equity and a majority of investments in long-term fixed rate debt
securities are swapped to U.S. dollar LIBOR-based returns. The currency risks
of investments denominated in foreign currencies are hedged with foreign
currency borrowings, currency forward contracts or currency interest rate swaps
(see "Derivative financial instruments"). Investments with maturities of
greater than one year are classified as long term. There were no material
proceeds, gross realized gains or gross realized losses from sales of
securities during the year.
Investments with maturities of greater than six months consist primarily of
A/A2 or better rated financial instruments and counterparties. Investments with
maturities of up to six months consist primarily of A1/P1 or better rated
financial instruments and counterparties. Foreign government regulations
imposed upon investment alternatives of foreign subsidiaries or the absence of
A/A2 rated counterparties in certain countries result in some minor exceptions.
Intel's practice is to obtain and secure collateral from counterparties against
obligations whenever deemed appropriate. At December 31, 1994, investments were
placed with approximately 100 different counterparties, and no individual
security, financial institution or issuer exceeded 10% of total investments.
Investments at December 31, 1994 are comprised of the following:
<TABLE>
Gross Gross
unrealized unrealized Estimated
(In millions) Cost gains losses fair value
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Securities of foreign
governments $ 518 $ 2 $ (7) $ 513
Floating rate notes 488 1 (1) 488
Corporate bonds 440 12 (14) 438
Loan participations 200 6 (2) 204
Collateralized mortgage
obligations 170 -- (4) 166
Fixed rate notes 167 1 (2) 166
Commercial paper 134 -- -- 134
Other debt securities 439 -- (5) 434
------- ------- ------- -------
Total debt securities 2,556 22 (35) 2,543
------- ------- ------- -------
Hedged equity 431 -- (58) 373
Preferred stock and
other equity 368 20 (16) 372
------- ------- ------- -------
Total equity securities 799 20 (74) 745
------- ------- ------- -------
Swaps hedging
debt securities -- 22 (14) 8
Swaps hedging
equity securities -- 60 -- 60
Currency forward
contracts hedging
debt securities -- 1 -- 1
------- ------- ------- -------
Total available-for-sale
securities $3,355 $ 125 $ (123) $3,357
======= ======= ======= =======
</TABLE>
At December 31, 1994, the Company also holds $930 million of available-for-sale
investments in other debt securities that are classified as cash and
equivalents on the balance sheet.
The amortized cost and estimated fair value of investments in debt securities
at December 31, 1994, by contractual maturity, are as follows:
<TABLE>
Estimated
(In millions) Cost fair value
- -------------------------------------------------------------
<S> <C> <C>
Due in 1 year or less $1,144 $1,144
Due in 1-2 years 515 512
Due in 2-5 years 642 635
Due after 5 years 255 252
------ ------
Total investments in debt securities $2,556 $2,543
====== ======
</TABLE>
DERIVATIVE FINANCIAL INSTRUMENTS
As part of its ongoing asset and liability management activities, the Company
enters into derivative financial instruments to reduce financial market risks.
These instruments are used to hedge foreign currency, equity market and
interest rate exposures of underlying assets, liabilities and other
obligations. These instruments involve elements of market risk which offset the
market risk of the underlying assets and liabilities they hedge. The Company
does not enter into derivative financial instruments for trading purposes.
Notional amounts for derivatives at fiscal year-ends are as follows:
<TABLE>
(In millions) 1994 1993
- ---------------------------------------------------------------------------
<S> <C> <C>
Swaps hedging investments in debt securities $1,080 $ 809
Swaps hedging investments in equity securities $ 567 $ 260
Swaps hedging debt $ 155 $ 110
Currency forward contracts $ 784 $ 620
Currency options $ 10 $ 28
</TABLE>
While the contract or notional amounts provide one measure of the volume of
these transactions, they do not represent the amount of the Company's exposure
to credit risk. The amounts potentially subject to credit risk (arising from
the possible inability of counterparties to meet the terms of their contracts)
are generally limited to the amounts, if any, by which the counterparties'
obligations exceed the obligations of the Company. The Company controls credit
risk through credit approvals, limits and monitoring procedures. Credit rating
criteria for off-balance-sheet transactions are similar to those for
investments.
SWAP AGREEMENTS. The Company enters into swap agreements to exchange the
foreign currency, equity market, and fixed interest rate exposures of its
investment and debt portfolios for a floating interest rate. The floating rates
on swaps are based primarily on U.S. dollar LIBOR and reset on a monthly,
quarterly or semiannual basis.
PAGE 8
Weighted average pay and receive rates, average maturities, and range of
maturities on swaps at December 31, 1994 are as follows:
<TABLE>
Weighted Weighted Weighted
average average average Range of
pay rate receive rate maturity maturities
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Swaps hedging
investments in
U.S. dollar
debt securities 6.7% 6.0% 1.2 years 0-4 years
Swaps hedging
investments in
foreign currency
debt securities 10.8% 8.2% 1.8 years 0-3 years
Swaps hedging
investments in
equity securities N/A 5.5% 2.1 years 0-3 years
Swaps hedging debt 6.1% 5.2% 4.9 years 4-7 years
</TABLE>
Pay rates on swaps hedging investments in debt securities generally match the
yields on the underlying investments they hedge. Payments on swaps hedging
investments in equity securities generally match the equity returns on the
underlying investments they hedge. Receive rates on swaps hedging debt
generally match the expense on the underlying debt they hedge. Maturity dates
of swaps generally match those of the underlying investment or the debt they
hedge. There is approximately a one-to-one matching of investments and debt to
swaps. Swap agreements generally remain in effect until expiration. Income or
expense on swaps is accrued as an adjustment to the yield of the related
investments or debt they hedge.
OTHER FOREIGN CURRENCY INSTRUMENTS. Intel transacts business in various foreign
currencies, primarily Japanese yen and certain European currencies. The Company
enters into currency forward and option contracts to hedge foreign exchange
risk. The Company also periodically enters into currency option contracts to
hedge certain anticipated revenue and purchases for which it does not have a
firm commitment. The maturities on most of these foreign currency instruments
are less than 12 months. Any gains or losses on these instruments are
recognized in accordance with SFAS Nos. 52 and 80. Deferred gains or losses
attributable to foreign currency instruments are not material.
FAIR VALUES OF FINANCIAL INSTRUMENTS
The estimated fair values of financial instruments at fiscal year-ends are
as follows:
<TABLE>
1994 1993
---------------------- ----------------------
Carrying Estimated Carrying Estimated
(In millions) amount fair value amount fair value
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 1,180 $ 1,180 $ 1,659 $ 1,659
Short-term investments 1,230 1,230 1,477 1,477
Long-term investments 2,058 2,058 1,416 1,412
Swaps hedging investments in
debt securities 8 8 -- --
Swaps hedging investments in
equity securities 60 60 -- --
Short-term debt (517) (517) (399) (399)
Long-term debt (392) (384) (426) (436)
Swaps hedging debt -- (12) -- --
Currency forward contracts 1 5 -- 9
Currency options -- -- -- --
------- ------- ------- -------
Total $3,628 $3,628 $3,727 $3,722
======= ======= ======= =======
</TABLE>
CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to concentrations of
credit risk consist principally of investments and trade receivables. Intel
places its investments with high-credit-quality counterparties and, by policy,
limits the amount of credit exposure to any one counterparty. A majority of the
Company's trade receivables are derived from sales to manufacturers of
microcomputer systems, with the remainder spread across various other
industries. The Company keeps pace with the evolving computer industry and has
adopted credit policies and standards to accommodate the industry's growth and
inherent risk. Management believes that any risk of accounting loss is
significantly reduced due to the diversity of its products, end customers and
geographic sales areas. Intel performs ongoing credit evaluations of its
customers' financial condition and requires collateral, such as letters of
credit and bank guarantees, whenever deemed necessary.
INTEREST INCOME AND OTHER
<TABLE>
(In millions) 1994 1993 1992
- -------------------------------------------------------------------
<S> <C> <C> <C>
Interest income $235 $155 $141
Foreign currency gains (losses) 15 -- (1)
Other income (loss) 23 33 (7)
----- ----- -----
Total $273 $188 $133
===== ===== =====
</TABLE>
Other income for 1994 included non-recurring gains from the settlement of
various insurance claims. Other income for 1993 included non-recurring gains
from the sale of certain foreign benefits related to the Company's Irish
expansion and dividend income earned on equity investments. Other loss for 1992
included a provision to cover the Company's liability for damages payable under
an arbitration decision, partially offset by income from incentive credits.
PAGE 9
PROVISION FOR TAXES
Income before taxes and the provision for taxes consisted of the following:
<TABLE>
(In millions) 1994 1993 1992
- ------------------------------------------------------------------
<S> <C> <C> <C>
Income before taxes:
U.S. $2,460 $2,587 $ 924
Foreign 1,143 943 645
------ ------ ------
Total income before taxes: $3,603 $3,530 $1,569
====== ====== ======
Provision for taxes:
Federal:
Current $1,169 $ 946 $ 339
Deferred (178) 35 6
------ ------ ------
991 981 345
------ ------ ------
State:
Current 162 150 71
Foreign:
Current 134 127 79
Deferred 28 (23) 7
------ ------ ------
162 104 86
------ ------ ------
Total provision for taxes $1,315 $1,235 $ 502
====== ====== ======
Effective tax rate 36.5% 35.0% 32.0%
====== ====== ======
</TABLE>
The tax benefit associated with dispositions from employee stock plans reduced
taxes currently payable for 1994 by $61 million and for 1993 by $68 million.
Such benefits are credited to Common Stock and capital in excess of par value
when realized.
The provision for taxes reconciles to the amount computed by applying the
statutory U.S. federal rate of 35% for 1994 (35% for 1993 and 34% for 1992) to
income before taxes as follows:
<TABLE>
(In millions) 1994 1993 1992
- -------------------------------------------------------------------
<S> <C> <C> <C>
Computed expected tax $1,261 $1,235 $ 533
State taxes, net of federal benefits 105 98 47
Research and experimental credit (11) (23) (7)
Foreign sales corporation benefit (50) (46) (36)
Provision for combined
foreign and U.S. taxes on
certain foreign income at
rates (less) greater
than U.S. rate (37) 1 (17)
Other 47 (30) (18)
------- ------- -------
Provision for taxes $1,315 $1,235 $ 502
======= ======= =======
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax assets and liabilities at fiscal year-ends are as
follows:
<TABLE>
(In millions) 1994 1993
- ----------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Accrued compensation and other benefits $ 49 $ 44
Accrued advertising 17 18
Deferred income 127 76
Inventory valuation and related reserves 255 77
Interest and taxes 54 72
Other, net 50 23
------- -------
552 310
Deferred tax liabilities:
Depreciation (338) (245)
Unremitted earnings of certain subsidiaries (51) (52)
------- -------
(389) (297)
------- -------
Net deferred tax asset $ 163 $ 13
======= =======
</TABLE>
During 1992, in accordance with SFAS No. 96, deferred income taxes were
provided for significant temporary differences. The principal items making up
the 1992 deferred tax expense included $42 million for depreciation reduced by
$18 million for inventory valuation and other reserves, and $12 million of
other items.
The Company's U.S. income tax returns for the years 1978 through 1987 have been
examined by the Internal Revenue Service (IRS). In 1989, the Company received a
notice of proposed deficiencies from the IRS totaling $36 million, exclusive of
penalties and interest, for the years 1978 through 1982. These proposed
deficiencies relate primarily to operations in Puerto Rico. In 1989, the
Company filed a petition in the U.S. Tax Court contesting these proposed
deficiencies and subsequently reached settlement of certain issues with the
IRS. In 1993, the U.S. Tax Court ruled in favor of the Company on the export
source issue and for the IRS on another, smaller issue. The IRS has appealed
the decision to the United States Court of Appeals for the Ninth Circuit, and
the Company has filed a cross-appeal of the decision.
The Company has also received an examination report for the years 1983 through
1987. Intel has lodged a protest, which relates solely to the export source
issue referenced above, to the IRS Appeals Office, but no decisions have been
reached.
The Company's U.S. income tax returns for the years 1988 through 1990 are
presently under examination by the IRS. Final proposed adjustments have not yet
been received for these years. Management believes that adequate amounts of
tax and related interest and penalties, if any, have been provided for any
adjustments that may result from unsettled portions of the 1978-1987 cases or
the years now under examination.
EMPLOYEE BENEFIT PLANS
STOCK OPTION PLANS. Intel has stock option plans (hereafter referred to as the
EOP Plans) under which officers, key employees and non-employee directors may
be granted options to purchase shares of the Company's authorized but unissued
Common Stock. The Company also has an Executive Long-Term Stock Option Plan
(ELTSOP) under which certain key executive officers may be granted options to
purchase shares of the Company's authorized but unissued Common Stock. Under
all plans, the option purchase price is not less than fair market value at the
date of grant.
PAGE 10
Options currently expire no later than ten years from the grant date. Proceeds
received by the Company from exercises are credited to Common Stock and capital
in excess of par value. Additional information on EOP Plan activity is as
follows:
<TABLE>
Outstanding options
Shares ---------------------------
available Number Aggregate
(In millions) for options of shares price
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
December 28, 1991 38.1 39.0 $ 585
Grants (7.3) 7.3 195
Exercises -- (7.6) (78)
Cancellations 1.9 (1.9) (33)
------- ------- -------
December 26, 1992 32.7 36.8 669
Grants (7.6) 7.6 357
Exercises -- (4.5) (56)
Cancellations 0.9 (0.9) (24)
------- ------- -------
December 25, 1993 26.0 39.0 946
Grants (6.0) 6.0 397
Exercises -- (4.1) (54)
Cancellations 0.8 (0.8) (33)
------- ------- -------
December 31, 1994 20.8 40.1 $1,256
======= ======= =======
Options exercisable at:
December 26, 1992 9.8 $ 109
December 25, 1993 10.2 $ 135
December 31, 1994 13.1 $ 198
</TABLE>
The range of exercise prices for options outstanding at December 31, 1994 was
$6.08 to $72.25. These options expire if not exercised at specific dates
ranging from January 1995 to December 2004. Prices for options exercised during
the three-year period ended December 31, 1994 ranged from $3.52 to $58.78.
Activity for the ELTSOP Plan is summarized below:
<TABLE>
Outstanding options
Shares -------------------------
available Number Aggregate
(In millions) for options of shares price
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
December 28, 1991 6.4 3.5 $ 51
Exercises -- (0.3) (4)
Cancellations 0.2 (0.2) (3)
------- ------- -------
December 26, 1992 6.6 3.0 44
Grants (0.2) 0.2 11
Exercises -- (0.4) (6)
------- ------- -------
December 25, 1993 6.4 2.8 49
Exercises -- (0.3) (4)
------- ------- -------
December 31, 1994 6.4 2.5 $ 45
======= ======= =======
Options exercisable at:
December 26, 1992 0.5 $ 7
December 25, 1993 0.7 $ 11
December 31, 1994 1.3 $ 19
</TABLE>
The exercise prices of options outstanding at December 31, 1994 ranged from
$14.63 to $54.63. These options expire if not exercised at specific dates
ranging from April 1999 to July 2003. The price range for options exercised
during the three-year period ended December 31, 1994 was $14.63 to $14.69.
STOCK PARTICIPATION PLAN. Under this plan, qualified employees may purchase
shares of Intel's Common Stock at 85% of fair market value at specific,
predetermined dates. Of the 59.0 million shares authorized to be issued under
the plan, 15.4 million shares are available for issuance at December 31, 1994.
Employees purchased 2.0 million shares in 1994 (2.2 million and 2.6 million in
1993 and 1992, respectively) for $94 million ($71 million and $57 million in
1993 and 1992, respectively).
RETIREMENT PLANS. The Company provides profit-sharing retirement plans (the
"Profit-Sharing Plans") for the benefit of qualified employees in the U.S. and
Puerto Rico. The plans are designed to provide employees with an accumulation
of funds at retirement and provide for annual discretionary contributions to
trust funds.
The Company also provides a non-qualified profit-sharing retirement plan (the
"Non-Qualified Plan") for the benefit of qualified employees in the U.S. This
plan is designed to permit certain discretionary employer contributions in
excess of the tax limits applicable to the profit-sharing retirement plans
discussed above and to permit certain employee deferrals in excess of certain
tax limits. This plan is intended to be an unfunded plan.
The Company accrued $152 million for the Profit-Sharing Plans and the Non-
Qualified Plan in 1994 ($103 million in 1993 and $93 million in 1992). Of the
$152 million accrued in 1994, the Company expects to fund approximately $126
million for the 1994 contribution to the Profit-Sharing Plans and to allocate
approximately $5 million for the Non-Qualified Plan. The remainder, plus
approximately $120 million carried forward from prior years, is expected to be
contributed to these plans when allowable under IRS regulations and plan rules.
Contributions made by the Company vest based on the employee's years of
service. Vesting begins after three years of service in 20% annual increments
until the employee is 100% vested after seven years.
The Company provides qualified defined benefit pension plans for the benefit of
qualified employees in the U.S. and Puerto Rico. Each plan provides for minimum
pension benefits, which are determined by a participant's years of service,
final average compensation (taking into account the participant's social
security wage base), and the value of the Company's contributions, plus
earnings, in the Profit-Sharing Plan. If the balance in the participant's
Profit-Sharing Plan exceeds the pension guarantee, the participant will receive
benefits from the Profit-Sharing Plan only. Intel's funding policy is
consistent with the funding requirements of federal laws and regulations.
PAGE 11
Pension expense for 1994, 1993 and 1992 for the U.S. and Puerto Rico plans was
less than $1 million per year, and no component of expense exceeded $1 million.
The funded status of these plans as of December 31, 1994 and December 25, 1993
is as follows:
<TABLE>
(In millions) 1994 1993
- -------------------------------------------------------------------------
<S> <C> <C>
Vested benefit obligation $ (3) $ (2)
===== =====
Accumulated benefit obligation $ (3) $ (2)
===== =====
Projected benefit obligation $ (5) $ (8)
Fair market value of plan assets 6 6
----- -----
Projected benefit obligation less than
(in excess of) plan assets 1 (2)
Unrecognized net (gain) (12) (10)
Unrecognized prior service cost 4 5
----- -----
Accrued pension costs $ (7) $ (7)
===== =====
</TABLE>
At fiscal year-ends, the weighted average discount rates and long-term rates
for compensation increases used for estimating the benefit obligations and the
expected return on plan assets are as follows:
<TABLE>
1994 1993 1992
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Discount rate 8.5% 7.0% 8.5%
Rate of increase in compensation levels 5.5% 5.0% 5.5%
Expected long-term return on assets 8.5% 8.5% 8.5%
</TABLE>
Plan assets of the U.S. and Puerto Rico plans consist primarily of listed
stocks and bonds, repurchase agreements, money market securities, U.S.
government securities and stock index derivatives.
The Company provides defined-benefit pension plans in certain foreign countries
where required by statute. The Company's funding policy for foreign defined-
benefit plans is consistent with the local requirements in each country.
Pension expense for 1994, 1993 and 1992 for the foreign plans included the
following:
<TABLE>
(In millions) 1994 1993 1992
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost-benefits earned
during the year $ 5 $ 5 $ 5
Interest cost of projected
benefit obligation 5 6 5
Actual investment (return)
on plan assets (8) (7) --
Net amortization and deferral 3 2 (5)
----- ----- -----
Net pension expense $ 5 $ 6 $ 5
===== ===== =====
</TABLE>
The funded status of the foreign defined-benefit plans as of December 31, 1994
and December 25, 1993 is summarized below:
<TABLE>
Assets
exceed Accumulated
1994 accumulated benefits
(In millions) benefits exceed assets
- -------------------------------------------------------------------------------
<S> <C> <C>
Vested benefit obligation $ (32) $ (4)
======= =======
Accumulated benefit obligation $ (34) $ (9)
======= =======
Projected benefit obligation $ (49) $ (16)
Fair market value of plan assets 51 3
------- -------
Projected benefit obligation less than
(in excess of) plan assets 2 (13)
Unrecognized net loss 2 2
Unrecognized net transition obligation -- 1
------- -------
Prepaid (accrued) pension costs $ 4 $ (10)
======= =======
</TABLE>
<TABLE>
Assets exceed Accumulated
1993 accumulated benefits
(In millions) benefits exceed assets
- -------------------------------------------------------------------------------
<S> <C> <C>
Vested benefit obligation $ (27) $ (3)
======= =======
Accumulated benefit obligation $ (28) $ (7)
======= =======
Projected benefit obligation $ (39) $ (12)
Fair market value of plan assets 41 2
------- -------
Projected benefit obligation
less than (in excess of) plan assets 2 (10)
Unrecognized net transition obligation -- 1
------- -------
Prepaid (accrued) pension costs $ 2 $ (9)
======= =======
</TABLE>
At fiscal year-ends, the weighted average discount rates and long-term rates
for compensation increases used for estimating the benefit obligations and the
expected return on plan assets are as follows:
<TABLE>
1994 1993 1992
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Discount rate 5.5%-14% 5.5%-14% 5.5%-24%
Rate of increase in
compensation levels 4.5%-11% 4.5%-11% 4.5%-18%
Expected long-term
return on assets 5.5%-14% 5.5%-14% 5.5%-24%
</TABLE>
Plan assets of the foreign plans consist primarily of listed stocks, bonds and
cash surrender value life insurance policies.
OTHER POSTEMPLOYMENT BENEFITS. As of December 31, 1994, Intel does not offer
the types of benefits covered by SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," and thus is not affected by this
statement. SFAS No. 112, "Employers' Accounting for Postemployment Benefits,"
does not materially impact the Company.
PAGE 12
COMMITMENTS
The Company leases a portion of its capital equipment and certain of its
facilities under leases which expire at various dates through 2003. Rental
expense was $38 million in 1994, $35 million in 1993 and $39 million in 1992.
Minimum rental commitments under all non-cancelable leases with an initial term
in excess of one year are payable as follows: 1995-$16 million; 1996-$14
million; 1997-$11 million; 1998-$8 million; 1999-$5 million; 2000 and beyond-
$8 million. Commitments for construction or purchase of property, plant and
equipment approximate $1,406 million at December 31, 1994. In connection with
certain contract manufacturing arrangements, Intel has minimum purchase
commitments of approximately $150 million at December 31, 1994 for flash
memories intended for sale.
CONTINGENCIES
In 1991, the Company was sued by Advanced Micro Devices, Inc. (AMD) in the U.S.
District Court for the Northern District of California, alleging violations of
U.S. antitrust laws and claiming $2 billion damages and requesting treble
damages under the antitrust laws. On January 11, 1995, in connection with the
settlement of various legal matters between the two companies, the parties
agreed to dismiss all claims, counterclaims and defenses raised in this action.
During late 1994, numerous civil lawsuits were filed in the U.S. District Court
for the Northern District of California alleging that Intel failed to disclose
material information relating to the divide problem in the floating point unit
in the Pentium(R) processor, thereby committing violations of various
securities laws. In addition, certain officers and directors who sold stock
were alleged to have committed acts of insider trading. All cases were dismissed
on February 9, 1995.
During the period from November 29, 1994 through December 19, 1994, numerous
civil consumer lawsuits were filed in state courts in various states against
the Company. Although the complaints differ, these actions generally allege
that Intel breached express and implied warranties, engaged in deceptive
advertising and otherwise committed consumer fraud by shipping Pentium
processors that contained a divide problem in the floating point unit, and by
failing to disclose it. The suits seek compensatory and punitive damages of
unspecified amounts. In two of the pending cases, plaintiffs have filed a
motion for a preliminary injunction, seeking to modify and more widely
publicize Intel's replacement policy and other related relief. The Company
believes the suits to be without merit and will defend the cases vigorously.
Although the ultimate outcome of these suits cannot be determined at this time,
management, including internal counsel, does not believe that the outcome of
this litigation will have a material adverse effect on the Company's financial
position or overall trends in results of operations.
The Company has been named to the California and U.S. federal Superfund lists
for three of its sites and has completed, along with two other companies, a
Remedial Investigation/Feasibility Study with the U.S. Environmental Protection
Agency (EPA) to evaluate the groundwater in a certain area related to one of
its sites. The EPA has issued a Record of Decision with respect to a
groundwater cleanup plan at that site, including expected costs to complete.
Under the California and U.S. federal Superfund statutes, liability for cleanup
of this site is joint and several. The Company, however, has reached agreement
in principle with those same two companies that significantly limits the
Company's liabilities under the proposed cleanup plan. In addition, the Company
has done extensive cleanup and studies of its sites. In the opinion of
management, including internal counsel, the potential losses to the Company in
excess of amounts already accrued arising out of these matters will not have a
material adverse effect on the Company's financial position, even if joint and
several liability were to be assessed.
The Company is party to various other legal proceedings. In the opinion of
management, including internal counsel, these proceedings will not have a
material adverse effect on the financial position or overall trends in results
of operations of the Company.
INDUSTRY SEGMENT REPORTING
Intel operates in one dominant industry segment: the design, development,
manufacture and sale of microcomputer components and related products at
various levels of integration. No customer exceeded 10% of revenues in 1994.
One significant customer accounted for 10% of revenues in 1993; none did so in
1992. Major operations outside the United States include manufacturing
facilities in Ireland, Israel, Malaysia, and the Philippines, and sales
subsidiaries in Japan, Asia-Pacific, and throughout Europe and other parts of
the world. Summary balance sheet information for operations outside the United
States at fiscal year-ends is as follows:
<TABLE>
(In millions) 1994 1993
- ----------------------------------------------------------
<S> <C> <C>
Total assets $2,940 $2,192
Total liabilities $ 962 $ 637
Net property, plant and equipment $1,238 $1,042
</TABLE>
PAGE 13
Geographic information for the three years ended December 31, 1994 is presented
in the following table. Transfers between geographic areas are accounted for at
amounts that are generally above cost and consistent with the rules and
regulations of governing tax authorities. Such transfers are eliminated in the
consolidated financial statements. Operating income by geographic segment does
not include an allocation of general corporate expenses. Identifiable assets
are those that can be directly associated with a particular geographic area.
Corporate assets include cash and cash equivalents, short-term investments,
deferred tax assets, other current assets, long-term investments and certain
other assets.
<TABLE>
Sales to Transfers
(In millions) unaffiliated between geo- Net Operating Identifiable
1994 customers graphic areas revenues income assets
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
United States $ 5,826 $ 4,561 $10,387 $ 2,742 $ 7,771
Europe 3,158 380 3,538 418 1,733
Japan 944 61 1,005 125 343
Asia-Pacific 1,593 1,021 2,614 154 540
Other -- 639 639 378 324
Eliminations -- (6,662) (6,662) 179 (1,878)
Corporate -- -- -- (609) 4,983
------- ------- ------- ------- -------
Consolidated $11,521 $ -- $11,521 $ 3,387 $13,816
======= ======= ======= ======= =======
1993
- -------------------------------------------------------------------------------------
United States $ 4,416 $ 3,406 $ 7,822 $ 2,896 $ 5,379
Europe 2,476 51 2,527 309 1,214
Japan 678 119 797 108 351
Asia-Pacific 1,212 745 1,957 132 420
Other -- 566 566 348 207
Eliminations -- (4,887) (4,887) 85 (1,123)
Corporate -- -- -- (486) 4,896
------- ------- ------- ------- -------
Consolidated $ 8,782 $ -- $ 8,782 $ 3,392 $11,344
======= ======= ======= ======= =======
1992
- -------------------------------------------------------------------------------------
United States $ 3,018 $ 2,339 $ 5,357 $ 1,313 $ 3,761
Europe 1,435 47 1,482 160 937
Japan 452 71 523 54 282
Asia-Pacific 939 595 1,534 127 321
Other -- 444 444 269 175
Eliminations -- (3,496) (3,496) 28 (751)
Corporate -- -- -- (461) 3,364
------- ------- ------- ------- -------
Consolidated $ 5,844 $ -- $ 5,844 $ 1,490 $ 8,089
======= ======= ======= ======= =======
</TABLE>
Supplemental information (unaudited)
Quarterly information for the two years ended December 31, 1994 is presented on
page 31.
PAGE 14
REPORT OF ERNST & YOUNG LLP
Independent auditors
The Board of Directors and Stockholders, Intel Corporation
We have audited the accompanying consolidated balance sheets of Intel
Corporation as of December 31, 1994 and December 25, 1993, and the related
consolidated statements of income, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 1994. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Intel Corporation
at December 31, 1994 and December 25, 1993, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1994, in conformity with generally accepted accounting principles.
/s/Ernst & Young LLP
San Jose, California
January 16, 1995
PAGE 15
FINANCIAL SUMMARY
Ten years ended December 31, 1994
<TABLE> Additions to
Net investment Long-term Stock property,
in property, Total debt & put holders plant
(In millions) plant & equip. assets warrants equity equipment
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1994 $ 5,367 $13,816 $ 1,136 $ 9,267 $ 2,441
1993 $ 3,996 $11,344 $ 1,114 $ 7,500 $ 1,933
1992 $ 2,816 $ 8,089 $ 622 $ 5,445 $ 1,228
1991 $ 2,163 $ 6,292 $ 503 $ 4,418 $ 948
1990 $ 1,658 $ 5,376 $ 345 $ 3,592 $ 680
1989 $ 1,284 $ 3,994 $ 412 $ 2,549 $ 422
1988 $ 1,122 $ 3,550 $ 479 $ 2,080 $ 477
1987 $ 891 $ 2,499 $ 298 $ 1,276 $ 302
1986 $ 779 $ 1,977 $ 287 $ 1,245 $ 155
1985 $ 848 $ 2,153 $ 271 $ 1,421 $ 236
</TABLE>
<TABLE>
Cost Operating Net Earnings Dividends
Net of Research & income income (loss) declared
revenues sales development (loss) (loss) per share per share
- ---------------------------------------------------------------------------------------
(In millions-- except per share amounts
<S> <C> <C> <C> <C> <C> <C> <C>
1994 $11,521 $ 5,576 $ 1,111 $ 3,387 $ 2,288 $ 5.24 $ 0.23
1993 $ 8,782 $ 3,252 $ 970 $ 3,392 $ 2,295 $ 5.20 $ 0.20
1992 $ 5,844 $ 2,557 $ 780 $ 1,490 $ 1,067 $ 2.49 $ 0.10
1991 $ 4,779 $ 2,316 $ 618 $ 1,080 $ 819 $ 1.96 --
1990 $ 3,921 $ 1,930 $ 517 $ 858 $ 650 $ 1.60 --
1989 $ 3,127 $ 1,721 $ 365 $ 557 $ 391 $ 1.04 --
1988 $ 2,875 $ 1,506 $ 318 $ 594 $ 453 $ 1.26 --
1987 $ 1,907 $ 1,044 $ 260 $ 246 $ 248 $ 0.69 --
1986 $ 1,265 $ 861 $ 228 $ (195) $ (203) $ (0.58) --
1985 $ 1,365 $ 943 $ 195 $ (60) $ 2 $ 0.00 --
</TABLE>
PAGE 16
MANAGEMENT'S DISCUSSION AND ANALYSIS
of financial condition and results of operations
RESULTS OF OPERATIONS
Intel's net revenues reached a new high in 1994, rising by 31% from 1993 to
1994 and by 50% from 1992 to 1993, driven by a robust PC market and an ongoing
shift in demand toward more powerful microprocessors. Higher volumes of
increasingly faster, more advanced microprocessors, partially offset by lower
average selling prices, were responsible for most of the growth in revenues
from 1992 through 1994. The Pentium(R) processor, introduced in 1993, ramped
into high volume in 1994 and was the major factor in Intel's overall revenue
growth from 1993 to 1994. Increased sales of newer members of the Intel486(TM)
microprocessor family, such as the IntelDX2(TM) processor, drove the revenue
growth from 1992 to 1993.
Higher volumes of motherboard and chipset products also contributed
significantly to the increase in revenues from 1993 to 1994 and helped enable
the successful Pentium processor ramp. Flash memory revenues increased
throughout the 1992-1994 period, although not at rates previously expected.
Sales of system platforms, networking and communications products, and embedded
control products also grew, especially from 1992 to 1993. Growing demand and
production for the Intel486 microprocessor family resulted in a sharp decline
in sales of the mature Intel386(TM) CPU family from 1992 to 1993 (graph
omitted).
Gross margin for the fourth quarter of 1994 included the impact of a $475
million charge, primarily to cost of sales, to cover replacement costs,
replacement material and inventory writedown related to a divide problem in
the floating point unit of the Pentium processor. Cost of sales increased by
71% from 1993 to 1994 and by 27% from 1992 to 1993. Cost of sales grew at a
faster rate than revenues during 1993 and 1994, although gross margin dollar
contribution generally continued to rise. In addition to the one-time charge
for the Pentium processor floating point problem, growth in cost of sales was
driven by higher unit volumes, shifts in product mix and costs associated with
initiating production at new factories. As a result of these factors and the
revenue trends described above, gross margin percentage declined to 52% in 1994
(37% in the fourth quarter of 1994), compared to 63% in 1993.
Sales of the Intel486 microprocessor family comprised a majority of the
Company's revenues and a substantial majority of its gross margin during 1992,
1993 and 1994. While Intel reached its goal of shipping 6-7 million Pentium
processors later than anticipated, a significant and growing portion of the
Company's revenues and margins were derived from sales of the Pentium processor
family in 1994. The Pentium processor family comprised 23% of Intel's
microprocessor unit shipments to the desktop computer market segment in the
fourth quarter of 1994. If current trends continue, quarterly volumes of the
Pentium processor family could surpass those of the Intel486 microprocessor
family during 1995.
Research and development spending grew by 15% from 1993 to 1994, as the Company
continued to invest in internal programs, particularly for microprocessor
technology development. Increased spending for strategic marketing programs,
including media merchandising and the Company's Intel Inside(R) cooperative
advertising program, drove the 24% increase in marketing, general and
administrative expenses from 1993 to 1994. Spending in the fourth quarter of
1994 included the greater part of an $80 million Pentium processor
merchandising program (graph omitted).
Interest expense increased by $7 million from 1993 to 1994, primarily due to
higher average interest rates on borrowings, partially offset by higher
interest capitalization resulting from increased facility construction
programs. The decrease in interest expense from 1992 to 1993 was mainly due to
lower average interest rates on borrowings.
Interest and other income increased by $85 million from 1993 to 1994, mainly
due to higher average rates on investments in 1994, gains related to the
settlement of various insurance claims in 1994, and higher foreign exchange
gains and investment balances in 1994. Interest and other income in 1993
includes gains of $27 million from the sale of certain foreign benefits related
to an expansion in Ireland. Interest and other income in 1992 was reduced by a
$15 million charge to income to cover damages payable to Advanced Micro
Devices, Inc. (AMD) as part of an arbitration decision (graph omitted).
It is the general practice of the Company to enter into investments and
corresponding interest rate swaps to enhance the yield on its investment
portfolio without increasing risk. The Company enters into forward contracts,
options and swaps to hedge currency, market and interest rate exposures (see
"Notes to Consolidated Financial Statements"). Gains and losses on these
instruments are offset by those on the underlying hedged transactions; as a
result, there was no material net impact on the Company's financial results
during 1992-1994.
PAGE 17
The effective income tax rate rose to 36.5% in 1994 compared to 35.0% and 32.0%
in 1993 and 1992, respectively. The rate increases from 1993 to 1994 resulted
from the fact that tax credits have not grown as rapidly as overall pretax
income. This factor, together with an increase in the federal statutory rate,
also led to an increase in the effective tax rate from 1992 to 1993. The
adoption of SFAS No. 109, "Accounting for Income Taxes," effective at the
beginning of 1993, had no material impact on Intel's financial statements.
FINANCIAL CONDITION
The Company's financial condition remains very strong. As of December 31, 1994,
total cash and short- and long-term investments totaled $4.54 billion,
essentially unchanged from December 25, 1993. Cash generated from operating
activities rose to $2.98 billion in 1994 compared to $2.80 billion and $1.64
billion in 1993 and 1992, respectively.
Investing activities consumed $2.90 billion in cash during 1994, compared to
$3.34 billion during 1993 and $1.48 billion during 1992. Capital expenditures
increased substantially in both 1993 and 1994, as the Company continued to
invest in the property, plant and equipment needed for future business
requirements, including manufacturing capacity. The Company expects to expend
approximately $2.9 billion for capital additions in 1995 and had committed
approximately $1.41 billion for the construction or purchase of property, plant
and equipment as of December 31, 1994 (graph omitted).
The Company used $557 million for financing activities in 1994, while $352
million and $168 million were provided in 1993 and 1992, respectively. Major
financing applications of cash in 1994 included stock repurchases of $658
million, including $65 million for put warrant exercises, and the early
retirement of the Company's 8 1/8% debt. Sources of financing in 1993 included
the Company's public offering of the 1998 Step-Up Warrants, which resulted in
proceeds of $287 million.
As part of its authorized stock repurchase program, the Company had the
potential obligation at the end of 1994 to buy back 12.5 million shares of its
Common Stock at an aggregate price of $744 million under outstanding put
warrants.
Other sources of liquidity include combined credit lines and authorized
commercial paper borrowings of $1.74 billion, only $68 million of which was
outstanding at December 31, 1994. The Company also maintains the ability to
issue an aggregate of approximately $1.4 billion in debt, equity and other
securities under SEC shelf registration statements. The Company believes that
it has the financial resources needed to meet business requirements in the
foreseeable future, including capital expenditures, strategic operating
expenses, the dividend program and the Pentium processor replacement program.
OUTLOOK
Future trends for revenue and profitability continue to be difficult to
predict. The Company faces a number of risks and uncertainties, including
business conditions and growth in the personal computer industry and general
economy; competitive factors, including rival chip architectures, imitators of
the Company's key microprocessors, and price pressures; manufacturing capacity;
and ongoing litigation involving Intel intellectual property.
Intel believes that the $475 million pretax charge taken in the fourth quarter
to cover the divide problem in the floating point unit of the Pentium processor
will be sufficient to cover all associated replacement and inventory costs. The
Company has completed a full manufacturing transition to the updated Pentium
processor.
Based on the current case law, Intel's competitors can design microprocessors
that are compatible with Intel microprocessors and avoid Intel patent rights
through the use of foundry services that have licenses with Intel. Furthermore,
as part of a recent agreement between Intel and AMD to settle all outstanding
legal disputes between the two companies, Intel licensed AMD to copy the
microcode in the Intel386 and Intel486 microprocessors. However, AMD agreed
that it has no right to copy the microcode in the Pentium processor and future
microprocessors. The net effect of this situation (i.e., case law and the AMD
settlement) is that while it is possible for competitors to imitate the
functionality of Intel processors, future imitations are not expected to be as
close an imitation as were the Am386* and Am486* products from AMD.
Competitors' products may add features and increase performance.
Management, including internal counsel, does not believe that the outcome of
lawsuits currently facing Intel will have a material adverse effect on the
Company's financial position or overall trends in results of operations (see
"Contingencies" in "Notes to Consolidated Financial Statements"). However, were
an unfavorable ruling to occur in any quarterly period, there exists the
possibility of a material impact on the net income of that period. Management
believes, given the Company's current liquidity and cash and investments
balances, that even an adverse judgement would not have a material impact on
cash and investments or liquidity.
As part of its strategic goal to double performance at major system price
points, the Company cut microprocessor prices aggressively and systematically
in 1994, and this trend may continue in 1995. Future distortion of price
maturity curves could occur as imitation products enter the market in
significant volume or alternative architectures gain market acceptance. The
outlook for Pentium processor shipments in 1995 remains dependent on several
business factors, including continued success in the manufacturing ramp and
market demand, including microprocessor product mix.
PAGE 18
Gross margin percentage trended downward during 1993 and 1994, although gross
margin dollar contribution has generally continued to increase on a quarterly
basis. Except for the one-time charge for the Pentium processor divide problem,
the factors impacting cost of sales growth (discussed above) are expected to
continue. Research and development and marketing spending is expected to
continue to grow, as the Company regards these expenditures as critical to
future business success. The Company expects its tax rate to increase to 37%
for 1995.
Intel's stock price is subject to significant volatility. If revenues or
earnings fail to meet expectations of the investment community, there could be
an immediate and significant impact on the trading price for the Company's
stock. Because of stock market forces beyond Intel's control and the nature of
Intel's business, such shortfalls can be sudden.
The Company believes it has the product portfolio and financial and
technological resources necessary for continued success, but revenue and
profitability trends cannot be precisely determined at this time.
FINANCIAL INFORMATION BY QUARTER
(unaudited)
<TABLE>
(in millions--except per share and price data)
1994 for quarter ended December 31 October 1 July 2 April 2
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net revenues $ 3,228 $ 2,863 $ 2,770 $ 2,660
Cost of sales $ 2,023 $ 1,273 $ 1,156 $ 1,124
Net income $ 372(A) $ 659 $ 640 $ 617
Earnings per share $ .86 $ 1.52 $ 1.46 $ 1.40
Dividends per share(B) Declared $ .06 $ .06 $ .06 $ .05
Paid $ .06 $ .06 $ .05 $ .05
Market price range Common Stock(C) High $ 66.13 $ 67.25 $ 70.63 $ 72.25
Low $ 57.81 $ 56.50 $ 57.50 $ 61.25
Market price range Step-Up Warrants(C) High $ 15.00 $ 16.00 $ 18.44 $ 19.50
Low $ 12.31 $ 13.00 $ 13.00 $ 15.13
</TABLE>
<TABLE>
(in millions--except per share and price data)
1993 for quarter ended December 25 September 25 June 26 March 27
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net revenues $ 2,389 $ 2,240 $ 2,130 $ 2,023
Cost of sales $ 935 $ 833 $ 766 $ 718
Net income $ 594(D) $ 584 $ 569 $ 548
Earnings per share $ 1.35 $ 1.33 $ 1.30 $ 1.24
Dividends per share(B) Declared $ .05 $ .05 $ .05 $ .05
Paid $ .05 $ .05 $ .05 $ .05
Market price range Common Stock(C) High $ 73.25 $ 68.75 $ 58.75 $ 59.94
Low $ 56.25 $ 50.00 $ 43.69 $ 43.25
Market price range Step-Up Warrants(C) High $ 19.94 $ 17.63 $ 14.31 $ 14.69
Low $ 13.75 $ 11.25 $ 9.44 $ 13.13
</TABLE>
(A) Net income for the fourth quarter of 1994 was impacted by a $475
million pretax charge to revenue and cost of sales to cover replacement
and other costs associated with a divide problem in the floating point
unit of the Company's Pentium processor.
(B) Intel plans to continue its dividend program. However, dividends are
dependent on future earnings, capital requirements and financial
condition.
(C) Intel's Common Stock (symbol INTC) and 1998 Step-Up Warrants
(symbol INTCW) are traded on Nasdaq and quoted in the Wall Street
Journal and other newspapers. Intel's Common Stock also trades on the
Zurich, Basel and Geneva, Switzerland exchanges. At December 31, 1994,
there were approximately 39,900 holders of Common Stock. All stock and
warrant prices are closing prices per the Nasdaq National Market
System.
(D) Interest and other income for the fourth quarter of 1993 included gains
of $27 million from the sale of certain foreign benefits related to the
Company's Ireland expansion.
PAGE 19
GRAPHICS APPENDIX LIST*
* In this Appendix, the following descriptions of graphs on pages 29 and 30 of
the Company's 1994 Annual Report to Stockholders that are omitted from the
EDGAR text are more specific with respect to the actual amounts and percentages
than can be determined from the graphs themselves.
The Company submits such more specific descriptions only for the purpose of
complying with EDGAR requirements for transmitting this Annual Report on Form
10-K; such more specific descriptions are not intended in any way to provide
information that is additional to that otherwise provided in the 1994 Annual
Report to Stockholders.
<TABLE>
REVENUES AND INCOME
(Dollars in millions) 1992 1993 1994
------ ------ ------
<S> <C> <C> <C>
Net revenues 5,844 8,782 11,521
Net income 1,067 2,295 2,288
COSTS AND EXPENSES
(Percent of revenues) 1992 1993 1994
------ ------ ------
Cost of sales 44% 37% 48%
R&D 13% 11% 10%
Marketing and G&A 17% 13% 13%
OTHER INCOME AND EXPENSE
(Dollars in millions) 1992 1993 1994
------ ------ ------
Interest and other income 133 188 273
Interest expense 54 50 57
CASH AND INVESTMENTS
(Dollars in billions) 1993 1994
------ ------
Cash and cash equivalents 1.659 1.180
Short-term investments 1.477 1.230
Long-term investments 1.416 2.127
</TABLE>
EXHIBIT 21
INTEL CORPORATION
SUBSIDIARIES
(All 100% Owned)
Intel International
(Incorporated in California)
Intel Overseas Corp.
(Incorporated in California)
Synchroquartz (U.S.) Corp.
(Incorporated in California)
Intel FSC
(Incorporated in Barbados)
EXHIBIT 23
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Intel Corporation of our report dated January 16, 1995, included in the 1994
Annual Report to Stockholders of Intel Corporation.
Our audits also include the financial statement schedule of Intel Corporation
listed in Item 14(a). This schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
We also consent to the incorporation by reference in the Registration
Statements (Form S-8 Nos. 33-10392, 2-73464, 2-56648, 33-33983, 2-90217,
33-29672, and 33-41771; and Form S-3 Nos. 2-97538, 33-20117, 33-54220,
33-58964, 33-49827, and 33-50971) of our report dated January 16, 1995, with
respect to the financial statements incorporated herein by reference, and our
report included in the preceding paragraph with respect to the financial
statement schedule included in this Annual Report (Form 10-K) of Intel
Corporation.
/s/Ernst & Young LLP
San Jose, California
March 27, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary information extracted from Intel Corporation's
CONSOLIDATED CONDENSED STATEMENTS OF INCOME AND CONSOLIDATED CONDENSED BALANCE
SHEETS and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
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<FN>
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