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 30, 1995, 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. [ ]
Aggregate market value of voting stock held
by non-affiliates of the registrant as of February 24, 1996
$46.67 billion
821.2 million shares of Common Stock outstanding as of February 24, 1996
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of Annual Report to Stockholders for fiscal year ended
December 30, 1995 - Part II, and Part IV.
(2) Portions of Proxy Statement dated April 4, 1996 - Part III.
PAGE 2
PART I
ITEM 1. BUSINESS
INDUSTRY
Intel Corporation and its subsidiaries (collectively called "Intel," the
"Company" or the "Registrant") operates predominantly in one 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 can perform the
functions of thousands--even millions--of individual transistors, diodes,
capacitors and resistors.
PRODUCTS
The Company's major products include microprocessors and related board-level
products, chipsets, embedded processors and microcontrollers, flash memory
chips, network and communications products and conferencing products.
Microprocessors and Related Board-Level Products.
- -------------------------------------------------
A microprocessor is the central processing unit of a computer system. It
processes system data and controls other devices in the system, acting as the
brains of a computer. Intel's flagship microprocessors include the Pentium(R)
Pro and the Pentium(R) microprocessor families.
Intel-designed board-level products are used as basic building blocks for
consumer, technical and commercial computing applications. Many original
equipment manufacturers (OEMs) use Intel's board-level products to build their
own PCs, microcomputers, real-time control systems and other products. OEM
customers buy at this level of integration to accelerate their time-to-market
and to direct their investments to other areas of their product lines. The
Company provides board-level products to give OEM customers flexibility by
enabling them to choose whether to buy at the component or board-level.
Intel's developments in the area 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 used on each
microprocessor, and a greater number of microprocessors to be placed on each
silicon wafer. The result is microprocessors that are smaller, faster, consume
less power and cost less to manufacture. In 1995, the Company ramped its first
production on its most advanced 0.35 micron process technology. Intel plans to
add additional 0.35 micron capacity in 1996, enabling very high-volume
production of its newest, fastest Pentium Pro and Pentium microprocessors.
During 1995, the rapid transition of the PC market to the Pentium
microprocessor continued. Quarterly unit shipments of the Pentium
microprocessor family surpassed the Intel486(TM) microprocessor family in the
third quarter of 1995. The Pentium microprocessors now power entry-level to
high-end computers. Intel significantly enhanced the performance of the
Pentium microprocessor family in 1995, introducing new versions operating at
120 and 133 MHz, and in January of 1996, 150 and 166 MHz. Intel plans to
introduce to the market higher performance versions of the Pentium
microprocessor, including versions with enhancements to improve performance of
multimedia and communications applications. Intel also introduced, in 1995,
new 90- and 120-MHz versions, and in early 1996, a 133-MHz version of the
Pentium microprocessor for mobile computers that have lower power consumption
and a smaller package than the desktop/server version.
PAGE 3
MICROPROCESSORS AND RELATED BOARD-LEVEL PRODUCTS, CONTINUED.
- ------------------------------------------------------------
In late 1995, Intel introduced its sixth-generation processor, the Pentium
Pro microprocessor at speeds of 150, 166, 180 and 200MHz. The Pentium Pro
microprocessor is fully compatible with prior generations and delivers
performance comparable to that of high-end workstations. The Pentium Pro
microprocessor uses Intel's Dynamic Execution architecture to increase the
amount of work that can be done in parallel. In 1996, Pentium Pro
microprocessors are expected to be used for enterprise server applications and
business desktops utilizing full 32-bit software environments such as Windows
NT*. The Pentium Pro microprocessor also offers enhanced multiprocessing and
manageability features for high-performance desktops and servers. The Pentium
Pro microprocessor uses a high-speed bus between the CPU and second-level
cache memory to provide optimum performance.
Sales of the Pentium microprocessor family comprised a majority of the
Company's revenues and a substantial majority of its gross margin in 1995. A
significant and growing portion of the Company's revenues and gross margins
were derived from sales of the Pentium microprocessor family in 1994. During
1995, the Intel486 microprocessor family represented a significant but rapidly
declining portion of the Company's revenues and gross margins. The Intel486
microprocessor family comprised a majority of the Company's revenues and a
substantial majority of its gross margin during 1994 and 1993. The Intel486
microprocessor products are now offered primarily for embedded applications.
During 1995, Overdrive(R) processors, a family of upgrade microprocessors,
expanded to include products based on the Pentium microprocessor that will
allow users to upgrade their Intel486 microprocessor systems. In early 1996,
Intel announced Overdrive processors that upgrade systems to equivalents of
120-, 125- and 133-MHz versions of the Pentium microprocessor.
CHIPSETS. The Company's core-logic chipsets support incremental performance,
ease-of-use and new capabilities for systems based on Intel's Pentium and
Pentium Pro microprocessors. Based on these incremental capabilities, and the
growth of the Pentium microprocessor-based systems, Intel has become a
significant supplier of core-logic chipsets. The Intel 430FX chipset
introduced in early 1995, won numerous awards and has become one of the most
popular chipsets in the industry. Intel plans to introduce several new members
of this product family in 1996.
Based on the Peripheral Components Interconnect (PCI) bus, the Intel 430
PCIset family for the Pentium microprocessors and the Intel 440 PCIset family
for the Pentium Pro microprocessors support and extend the graphic, video and
other capabilities of many Intel processor-based systems.
EMBEDDED PROCESSORS AND MICROCONTROLLERS.
- -----------------------------------------
Intel provides embedded products such as microprocessors, microcontrollers and
memory components to application segments that are focused on enhancing the PC
and voice and data communication. Embedded products are used in many
peripheral devices, including keyboards, printers, networks, copiers and fax
machines, which enhance the PC's capabilities and make it easier to use. In
addition, embedded products are improving the functionality of wireless
communication devices such as cellular phones and pagers, and enabling the
development of new peripherals such as digital cameras and personal digital
assistants. Intel's embedded products provide advanced technology to other
market segments as well, including commercial and military avionics, medical
instrumentation, automotive and factory automation control products.
Intel's embedded products line consists of 32-bit processors, including the
i960(R) processor family and the embedded Intel386(TM) and Intel486 processor
families; the 80C186 16-bit processor family; MCS(R) 96 16-bit
microcontrollers, and 8-bit microcontrollers, such as the MCS 51 and MCS 251
microcontroller families.
The Company introduced several embedded control products in 1995, including
the 80960RP processor, used in server motherboards and adapter cards connected
to servers; the 83C196EA and 87C196CB 16-bit microcontrollers for automotive
and industrial applications, and the 8xC51RA/RB/RC 8-bit microcontrollers.
During 1995, Intel also started shipping in volume its new MCS 251
microcontroller, the 8xC251SB. Intel has begun to implement the Universal
Serial Bus (USB) specification in microcontroller products.
________________________
* Other brands and names are the property of their respective owners.
PAGE 4
FLASH MEMORY PRODUCTS. Memory components are used to store user data and
computer program code. Flash memory retains information when the power is off.
Intel is a leader in flash applications, such as PC BIOS, cellular phones and
networking. The Company was a key player in defining and promoting the
Miniature Card specification for low-cost, very small form-factor flash cards
to be used in a variety of consumer electronics applications. In 1995, Intel
expanded its SmartVoltage memory product line with additional densities and a
low-voltage device targeted for the mobile market.
NETWORK AND COMMUNICATIONS PRODUCTS. These hardware and software products are
sold to corporate network administrators and PC users through distributor and
reseller channels. The product line improves the performance, capabilities and
manageability of PC desktop and server systems in corporate networks.
Intel's networking products are designed to provide high-bandwidth
communications to PC desktop and server systems, and to make it easier for LAN
administrators to install and manage their systems. The architecture that
delivers this management capability is called Smart Network Services.
Intel's networking products consist of LAN products, such as the
EtherExpress(TM) family of adapters and Express Stackable Hubs, and network
management products, including the LANDesk(R) Management Group of products.
Supporting the Smart Network Services strategy are new or upgraded LAN
products: EtherExpress PRO adapters that use flash memory for one-step
installation and configuration; EtherExpress PRO/100, a fast Ethernet adapter
that can operate at 10 or 100 megabytes per second; Express Stackable Hubs;
StorageExpress(TM) backup servers; NetportExpress(TM) print servers; LANDesk
Management Suite software, which combines management of desktop systems and
servers on LANs; LANDesk Workgroup Manager; LANDesk Server Manager Pro; and
LANDesk Virus Protect.
CONFERENCING PRODUCTS. In 1994, Intel introduced its ProShare conferencing
products. This product line includes Intel's ProShare(TM) Conferencing Video
System 200, a PC-based video-conferencing system that offers full application
and document sharing and is certified in over 25 countries. It gives users
powerful information-sharing capabilities and an innovative way to convey
ideas. ProShare conferencing products deliver instant communications.
The ProShare Conferencing Video System 200 supports video and data conferences
over ISDN or corporate LAN/WAN networks. The product supports industry
standards, such as the H.320 international telecommunications standard, to
conduct video conferences with other H.320-compliant products, including room
conferencing systems.
In 1995, the ProShare Conferencing Video System 200 became one of the
industry's leading desktop conferencing products. This system won many industry
awards, including "Editors' Choice" from PC Magazine UK, CADENCE magazine and
PC Laptop Computers magazine. -------------- -------
- -------------------
Also in 1995, Intel introduced the ProShare TeamStation, a group video
conferencing system for meeting rooms, with all the features of the ProShare
Conferencing Video System 200.
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 significant portion of
Intel's production of microprocessor board-level products 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 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. A majority of the
Company's VLSI component assembly and testing is performed at facilities in
Penang, Malaysia and Manila, Philippines. A significant portion of Intel's
production of microprocessor board-level products and systems is conducted at
facilities in Leixlip, Ireland and Penang, Malaysia.
In general, if Intel were unable to fabricate wafers or assemble or test 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, and for production capacity of board-level products. A
significant portion of Intel's production of board-level products is conducted
through the use of subcontractors in Penang, Malaysia. 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 30, 1995, the Company employed approximately 41,600 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 over one thousand customers worldwide in 1995, 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
microprocessor board-level and system products, 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 are software compatible
with some of the Company's key products. Many of Intel's competitors are
licensed to use Intel patents. Furthermore, 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. 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 software compatible products enter the
market in significant volume or alternative architectures gain market
acceptance.
It continues to be Intel's strategy to introduce ever-higher performance
microprocessors and work with the software industry to develop compelling
applications that can take advantage of this higher performance, thus driving
demand toward the Company's newer 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 software compatible or of rival architectural designs) or reduce
prices on existing products. Such developments could have an adverse effect on
Intel's revenues and margins.
PAGE 7
RESEARCH AND DEVELOPMENT
The Company's competitive position has developed to a large extent because of
its emphasis on 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. Intel
is jointly developing semiconductor processes, software optimization and
microprocessor architecture. 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 1990s. The
Company also develops "enabling" software technologies, 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 $1,296 million, $1,111 million and $970 million in fiscal
years 1995, 1994 and 1993, respectively. As of December 30, 1995, Intel had
approximately 7,700 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.
INTELLECTUAL PROPERTY AND LICENSING
Intellectual property rights that 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 heading
"Competition."
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( 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,
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 30, 1995):
Craig R. Barrett (age 56) has been Chief Operating Officer since 1993; a
director of Intel since 1992; and Executive Vice President since 1990.
Andrew S. Grove (age 59) has been a director of Intel since 1974; President
since 1979; and Chief Executive Officer since 1987.
Gordon E. Moore (age 67) has been a director of Intel since 1968 and Chairman
of the Board since 1979.
Leslie L. Vadasz (age 59) has been a director of Intel since 1988; and Senior
Vice President, Director of Corporate Business Development since 1991.
Frank C. Gill (age 52) has been Senior Vice President and General Manager,
Internet and Communications Group since 1996. Prior to that, Mr. Gill was
Senior Vice President and General Manager, Intel Products Group from 1991 to
1996; and Senior Vice President and President of the Systems Group from 1990
to 1991.
David L. House (age 52) has been Senior Vice President and General Manager,
Enterprise Server Group since 1995. Prior to that, Mr. House was Senior Vice
President and Director, Corporate Strategy from 1993 to 1995; Senior Vice
President and General Manager, Architecture Marketing and Applications Group
from 1992 to 1993; and Senior Vice President and President of Microcomputer
Components Group from 1990 to 1991.
Paul S. Otellini (age 45) has been Senior Vice President, Director, Sales
since 1994. Prior to that, Mr. Otellini was Senior Vice President and General
Manager, Microprocessor Products Group, from 1992 to 1994; Vice President and
General Manager, Microprocessor Products Group from 1991 to 1992; and Vice
President, Microcomputer Components Group, General Manager, Micro Products
Group from 1990 to 1991.
Gerhard H. Parker (age 52) has been Senior Vice President and General Manager,
Technology & Manufacturing Group, since 1992. Prior to that, Dr. Parker was
Vice President and General Manager, Technology & Manufacturing Group from 1990
to 1992.
Robert W. Reed (age 49) has been Senior Vice President and General Manager,
Semiconductor Products Group, since 1991. Prior to that, Mr. Reed was Senior
Vice President and Chief Financial Officer from 1990 to 1991.
Ronald J. Whittier (age 59) has been Senior Vice President and General
Manager, Content Group since 1995. Prior to that, Mr. Whittier was Senior Vice
President and General Manager, Intel Architecture Laboratories from 1993 to
1995; Vice President and General Manager, Software Technology Group from 1991
to 1992; and Vice President and Director of Marketing from 1990 to 1991.
Albert Y.C. Yu (age 54) has been Senior Vice President and General Manager,
Microprocessor Products Group since 1993. Prior to that, Dr. Yu was Vice
President and General Manager, Microprocessor Products Group from 1991 to
1993; and Vice President and General Manager, Micro Products Group from 1990
to 1991.
PAGE 9
EXECUTIVE OFFICERS, CONTINUED
Michael A. Aymar (age 48) has been Vice President and General Manager, Desktop
Products Group since 1995. Prior to that, Mr. Aymar was Vice President and
General Manager, Intel486(TM) Microprocessor Division from 1994 to 1995;
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 45) has been Vice President and Chief Financial Officer
since 1994. Prior to that, Mr. Bryant was Vice President, Intel Products Group
from 1990 to 1994.
F. Thomas Dunlap, Jr. (age 44) has been Vice President, General Counsel and
Secretary since 1987.
G. Carl Everett, Jr. (age 45) has been Senior Vice President and General
Manager, Desktop Products Group since 1995. Prior to that, Mr. Everett was
Senior Vice President and General Manager, Microprocessor Products Group from
1994 to 1995; and Vice President and Director, Worldwide Sales Group from 1990
to 1994.
Stephen P. Nachtsheim (age 50) has been Vice President and General Manager,
Mobile/Handheld Products Group since 1995. Prior to that, Mr. Nachtsheim was
Vice President and General Manager, Mobile and Home Products Group from 1994
to 1995; and General Manager of European Intel Products Group from 1990 to
1994.
PAGE 10
ITEM 2. PROPERTIES
At December 30, 1995, Intel owned the major facilities described below:
<TABLE>
No. of Bldgs. Location Total Sq. Ft. Use
- ------------- -------- ------------- ---
<S> <C> <C> <C>
56 United States (A) 9,744,000 Executive and administrative
offices, wafer fabrication,
components testing and
assembly, research and
development, computer and
service functions, system
assembly and warehousing.
6 Ireland 959,000 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) 431,000 Components assembly and
testing and administrative
offices.
1 Germany 86,000 European marketing, German
sales and administrative
offices.
</TABLE>
At December 30, 1995, Intel also leased 24 major facilities in the U.S.
totaling approximately 893,000 square feet and 11 facilities in other
countries totaling approximately 250,000 square feet. These leases expire at
varying dates through 2005, including renewals at the option of Intel.
Intel believes that its existing facilities are suitable and adequate for its
present purposes, and the productive capacity in such facilities is in general
being utilized. Intel has other facilities available that it can equip to
meet anticipated future demand. These include 4.7 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 was sold in March 1996.
(B) The lease on a portion of the land used for these facilities expires
in 2032.
(C) Leases on land expire in 1998.
PAGE 11
ITEM 3. LEGAL PROCEEDINGS
A. LITIGATION
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 differed, these actions generally
alleged 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 sought compensatory and
punitive damages of unspecified amounts. A Stipulation of Settlement covering
all actions was filed in the Santa Clara Superior Court on March 22, 1995 and
became final on June 22, 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 sought (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. A hearing was held
on January 12, 1996 to consider and approve a stipulated settlement and
dismissal of the action. The Court approved the settlement, and an order of
dismissal was signed and became effective on January 22, 1996.
Thorn EMI North America, Inc. vs. Intel
and Advanced Micro Devices, Inc., DEL (C95-199)
- -----------------------------------------------
On March 29, 1995, Thorn EMI North America Inc. brought suit in Federal Court
in Delaware against Intel and Advanced Micro Devices, Inc. (AMD) alleging
infringement of a U.S. patent relating to processes for manufacturing
semiconductors, certain of which processes are utilized in the manufacture of
the Company's Pentium(R) and Pentium(R) Pro microprocessors. The plaintiff is
seeking injunctive relief and unspecified damages. On September 8, 1995, Intel
was granted a motion to sever its case from the AMD case. Trial of the
plaintiff's claims against Intel is presently set for June 1996. The Company
believes this lawsuit to be without merit and will defend the case vigorously.
Although the ultimate outcome of this lawsuit 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.
PAGE12
B. ENVIRONMENTAL PROCEEDINGS
Intel has been named to the California and U.S. 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 areas adjacent to its former 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.
Superfund statutes, liability for cleanup of the Mountain View site and
adjacent area is joint and several. The Company has reached agreement 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 will not have a material adverse effect on the Company's
financial position or overall trends in results of operations, even if joint
and several liability were to be assessed.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PAGE13
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 24, 1996, there were 85,273 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 1991 through 1995, under the heading "Financial Summary" on page
27 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 30, 1995 are as follows:
Fiscal Year
-----------------------------------------------------
1991 1992 1993 1994 1995
12.4x 20.7x 54.4x 39.5x 67.6x
Fixed charges consist of interest expense and the estimated interest component
of rent expense.
PAGE 14
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 28 through 30 of the Registrant's 1995 Annual Report to Stockholders,
which information is hereby incorporated by reference.
Subsequent to December 30, 1995, Intel repurchased 4.1 million shares of
Common Stock under the Company's authorized stock repurchase program at a cost
of $234 million, including 1.8 million shares at a cost of $108 million upon
the exercise of put warrants. The Company also sold 3 million put warrants,
receiving proceeds of $18 million, while 1.5 million previously outstanding
put warrants expired unexercised. As of March 25, 1996, the Company had the
potential obligation to repurchase 11.7 million shares of Common Stock at an
aggregate price of $734 million under outstanding put warrants. The 11.7
million put warrants outstanding at March 25, 1996 expire on various dates
between May 1996 and February 1997 and have exercise prices ranging from $56
to $68 per share, with an average exercise price of $62. After reserving
shares to cover these outstanding put warrants, 26.1 million shares remained
available under the stock repurchase program authorization.
During the third quarter of 1995, a portion of the receivable balance from one
of the Company's five largest customers was converted into a loan. The total
amount receivable from this customer at December 30, 1995 was approximately
$400 million. The total amount receivable from this customer at March 25,
1996 was approximately $356 million. This customer has informed the Company
that it anticipates obtaining additional outside financing. No assurances can
be given that this additional financing will be obtained.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated financial statements of Intel Corporation at December 30, 1995
and December 31, 1994 and for each of the three years in the period ended
December 30, 1995 and the Report of Independent Auditors thereon and Intel
Corporation's unaudited quarterly financial data for the two-year period ended
December 30, 1995 are incorporated by reference from the Registrant's 1995
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 15
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 heading "Election of Directors" on pages 2
through 4 of the Registrant's Proxy Statement dated April 4, 1996, 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 "Directors'
Compensation," "Compensation Committee Interlocks and Insider Participation,"
and "Executive Compensation," on pages 5 and 6, 10 and 12, respectively, of the
Registrant's Proxy Statement dated April 4, 1996, 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 April 4, 1996, under the heading "Security Ownership of Certain
Beneficial Owners and Management," on pages 15 and 16, which information is
hereby incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
PAGE 16
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
None.
PAGE 17
INDEX TO FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
(Item 14 (a)) Reference Page
--------------
1995
Annual
Form Report to
10-K Stockholders
---- ------------
<TABLE>
<S> <C> <C>
Consolidated Balance Sheets-
December 30, 1995 and December 31, 1994 . . . . . . . . . . . . . . . . 15
Consolidated Statements of Income for
the years ended December 30, 1995,
December 31, 1994 and December 25, 1993 . . . . . . . . . . . . . . . . 14
Consolidated Statements of Cash Flows
for the years ended December 30, 1995,
December 31, 1994 and December 25, 1993 . . . . . . . . . . . . . . . . 16
Consolidated Statements of Stockholders'
Equity for the years ended December 30, 1995,
December 31, 1994 and December 25, 1993 . . . . . . . . . . . . . . . . 17
Notes to Consolidated Financial Statements-
December 30, 1995, December 31, 1994 and
December 25, 1993 . . . . . . . . . . . . . . . . . . . . . . . . . .18-26
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . .27
Supplementary Information (unaudited)
Financial Information by Quarter . . . . . . . . . . . . . . . . . . . .31
Schedule for years ended December 30, 1995,
December 31, 1994 and December 25, 1993:
II- Valuation and Qualifying Accounts . . . . . . . . . . .18
</TABLE>
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 1995 Annual Report to Stockholders is not to be deemed
filed as part of this report.
Page references to the 1995 Annual Report to Stockholders relate to the bound,
printed version of the report.
PAGE 18
INTEL CORPORATION
- -----------------
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
December 25, 1993, December 31, 1994 and December 30,1995
(In Millions)
Additions
Balance at Charged to Balance
Beginning Costs and at End
of Year Expenses Deductions (A) of Year
---------- ---------- ------------- -------
<TABLE>
<S> <C> <C> <C> <C>
1993
Allowance for Doubtful Receivables $26 $ 4 $ 8 $22
--- --- --- ---
1994
Allowance for Doubtful Receivables $22 $10 $-- $32
--- --- --- ---
1995
Allowance for Doubtful Receivables $32 $28 $ 3 $57
(A) Uncollectible accounts written off, net of recoveries.
</TABLE>
PAGE 19
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 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 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 as
filed on March 28, 1986).
4.2 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 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
as filed on March 25, 1994) and the Third Amendment to Warrant Agreement
dated as of May 1, 1995.
10.1 Intel Corporation 1984 Stock Option Plan, as amended and restated,
effective May 4, 1994 (incorporated by reference to Exhibit 10.2 of
Registrant's Form 10-Q for the quarter ended April 2, 1994 as filed on
May 16, 1994), together with the First Amendment to Intel Corporation
1984 Stock Option Plan, dated July 1995 (incorporated by reference to
Exhibit 10.1 of Registrant's Form 10-Q for the quarter ended July 1, 1995
as filed on August 10, 1995).
10.2 Intel Corporation 1988 Executive Long-Term Stock Option Plan as amended
and restated (incorporated by reference to Exhibit 10.6 of Registrant's
Form 10-Q for the quarter ended April 2, 1994 as filed on May 16, 1994).
10.3 Intel Corporation Executive Officer Bonus Plan as amended and restated
effective January 1, 1995 (incorporated by reference to Exhibit 10.7 of
Registrant's Form 10-Q for the quarter ended April 5, 1995 as filed on
May 15, 1995).
10.4 Intel Corporation Sheltered Employee Retirement Plan Plus, as amended and
restated effective November 1, 1995 (incorporated by reference to Exhibit
4.1 of Registrant's Registration Statement on Form S-8 as filed October
18, 1995).
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 30, 1995 expressly incorporated by reference herein.
21. Intel Subsidiaries.
23. Consent of Ernst & Young LLP, Independent Auditors.
27. Financial Data Schedule.
PAGE 20
SIGNATURES
Pursuant 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
INTEL CORPORATION
Registrant
By /s/ F. Thomas Dunlap, Jr.
- ----------------------------
F. Thomas Dunlap, Jr.
Vice President and Secretary
March 27, 1996
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
- -------------------- --------------------
Craig R. Barrett Max Palevsky
Director Director
March 27, 1996 March 27, 1996
/s/ Andy D. Bryant /s/ Arthur Rock
- ------------------ ---------------
Andy D. Bryant Arthur Rock
Vice President, Principal Director
Accounting and Chief Financial Officer March 27, 1996
March 27, 1996
/s/ Jane E. Shaw
/s/ Winston H. Chen ----------------
- ------------------- Jane E. Shaw
Winston H. Chen Director
Director March 27, 1996
March 27, 1996
/s/ Leslie L. Vadasz
/s/ Andrew S. Grove --------------------
- ------------------- Leslie L. Vadasz
Andrew S. Grove Director
Principal Executive Officer March 27, 1996
President and Director
March 27, 1996 /s/ David B. Yoffie
-------------------
/s/ D. James Guzy David B. Yoffie
- ----------------- Director
D. James Guzy March 27, 1996
Director
March 27, 1996 /s/ Charles E. Young
--------------------
/s/ Gordon E. Moore Charles E. Young
- ------------------- Director
Gordon E. Moore March 27, 1996
Chairman of the Board
March 27, 1996
??
EXHIBIT 11.1
INTEL CORPORATION
COMPUTATION OF EARNINGS PER SHARE
(In millions, except per share amounts)
<TABLE>
Year Ended
-----------------------------
Dec. 25, Dec. 31, Dec. 30,
1993 1994 1995
------- ------- -------
<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 836 830 825
Add-shares issuable from assumed exercise of options
and warrants 46 44 59
------ ------ ------
Weighted average number of shares outstanding as
adjusted 882 874 884
====== ====== ======
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 836 830 825
Add-shares issuable from assumed exercise of options
and warrants 46 44 65
------ ------ ------
Weighted average number of shares outstanding as
adjusted 882 874 890
====== ====== ======
NET INCOME $2,295 $2,288 $3,566
====== ====== ======
PRIMARY EARNINGS PER SHARE $ 2.60 $ 2.62 $ 4.03
====== ====== ======
FULLY DILUTED EARNINGS PER SHARE(1) $ 2.60 $ 2.62 $ 4.01
====== ====== ======
</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
----------------------------------------------------
<S> <C> <C> <C> <C> <C>
Dec. 28, Dec. 26, Dec. 25, Dec. 31, Dec. 30,
1991 1992 1993 1994 1995
-------- -------- -------- -------- --------
Income before taxes $1,195 $1,569 $3,530 $3,603 $5,638
Add - Fixed charges net of
capitalized interest 98 68 58 66 38
------ ------ ------ ------ ------
Income before taxes and
fixed charges (net of
capitalized interest) $1,293 $1,637 $3,588 $3,669 $5,676
====== ====== ====== ====== ======
Fixed charges:
Interest* $ 82 $ 54 $ 50 $ 57 $ 29
Capitalized interest 6 11 8 27 46
Estimated interest component
of rental expense 16 14 8 9 9
------ ------ ------ ------ ------
Total $ 104 $ 79 $ 66 $ 93 $ 84
====== ====== ====== ====== ======
Ratio of earnings before taxes
and fixed charges, to fixed
charges 12.4x 20.7x 54.4x 39.5x 67.6x
</TABLE>
* Interest expense includes the amortization of underwriting fees for the
relevant periods outstanding.
Exhibit 13
Consolidated Statements Of Income
Three years ended December 30, 1995
(In millions--except per share amounts)
<TABLE>
<S> <C> <C> <C>
1995 1994 1993
------- ------- -------
Net revenues $16,202 $11,521 $ 8,782
------- ------- -------
Cost of sales 7,811 5,576 3,252
Research and development 1,296 1,111 970
Marketing, general and
administrative 1,843 1,447 1,168
------- ------- -------
Operating costs and expenses 10,950 8,134 5,390
------- ------- -------
Operating income 5,252 3,387 3,392
Interest expense (29) (57) (50)
Interest income and other, net 415 273 188
------- ------- -------
Income before taxes 5,638 3,603 3,530
Provision for taxes 2,072 1,315 1,235
------- ------- -------
Net income $ 3,566 $ 2,288 $ 2,295
======= ======= =======
Earnings per common and
common equivalent share $ 4.03 $ 2.62 $ 2.60
======= ======= =======
Weighted average common and
common equivalent shares
outstanding 884 874 882
======= ======= =======
</TABLE>
See accompanying notes.
Consolidated Balance Sheets
December 30, 1995 and December 31, 1994
(In millions--except per share amounts)
<TABLE>
<S> <C> <C>
1995 1994
------- -------
Assets
Current assets:
Cash and cash equivalents $ 1,463 $ 1,180
Short-term investments 995 1,230
Accounts receivable, net of allowance for
doubtful accounts of $57 ($32 in 1994) 3,116 1,978
Inventories 2,004 1,169
Deferred tax assets 408 552
Other current assets 111 58
------- -------
Total current assets 8,097 6,167
------- -------
Property, plant and equipment:
Land and buildings 3,145 2,292
Machinery and equipment 7,099 5,374
Construction in progress 1,548 850
------- -------
11,792 8,516
Less accumulated depreciation 4,321 3,149
------- -------
Property, plant and equipment, net 7,471 5,367
------- -------
Long-term investments 1,653 2,127
Other assets 283 155
------- -------
Total assets $17,504 $13,816
======= =======
Liabilities and stockholders' equity
Current liabilities:
Short-term debt $ 346 $ 517
Accounts payable 864 575
Deferred income on shipments to distributors 304 269
Accrued compensation and benefits 758 588
Accrued advertising 218 108
Other accrued liabilities 328 538
Income taxes payable 801 429
------- -------
Total current liabilities 3,619 3,024
------- -------
Long-term debt 400 392
Deferred tax liabilities 620 389
Put warrants 725 744
Commitments and contingencies
Stockholders' equity:
Preferred Stock, $.001 par value, 50 shares
authorized; none issued -- --
Common Stock, $.001 par value, 1,400 shares
authorized; 821 issued and outstanding in
1995 (827 in 1994) and capital in excess
of par value 2,583 2,306
Retained earnings 9,557 6,961
------- -------
Total stockholders' equity 12,140 9,267
------- -------
Total liabilities and stockholders' equity $17,504 $13,816
======= =======
</TABLE>
See accompanying notes.
<TABLE>
Consolidated Statements Of Cash Flows
Three years ended December 30, 1995
(In millions) 1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Cash and cash equivalents,
beginning of year $ 1,180 $ 1,659 $ 1,843
======= ======= =======
Cash flows provided by (used for)
operating activities:
Net income 3,566 2,288 2,295
Adjustments to reconcile net income to
net cash provided by (used for)
operating activities:
Depreciation 1,371 1,028 717
Net loss on retirements of property,
plant and equipment 75 42 36
Amortization of debt discount 8 19 17
Change in deferred tax assets and
liabilities 346 (150) 12
Changes in assets and liabilities:
(Increase) in accounts receivable (1,138) (530) (379)
(Increase) in inventories (835) (331) (303)
(Increase) in other assets (241) (13) (68)
Increase in accounts payable 289 148 146
Tax benefit from employee stock plans 116 61 68
Increase in income taxes payable 372 38 32
Increase in accrued compensation and
benefits 170 44 109
(Decrease) increase in other
liabilities (73) 337 119
------- ------- -------
Total adjustments 460 693 506
------- ------- -------
Net cash provided by operating activities 4,026 2,981 2,801
======= ======= =======
Cash flows provided by (used for)
investing activities:
Additions to property, plant and
equipment (3,550) (2,441) (1,933)
Purchases of long-term,
available-for-sale investments (129) (975) (1,165)
Sales of long-term,
available-for-sale investments 114 10 5
Maturities and other changes in
available-for-sale investments, net 878 503 (244)
------- ------- -------
Net cash (used for) investing activities (2,687) (2,903) (3,337)
======= ======= =======
Cash flows provided by (used for)
financing activities:
(Decrease) increase in short-term
debt, net (179) (63) 197
Additions to long-term debt -- 128 148
Retirement of long-term debt (4) (98) --
Proceeds from sales of shares through
employee stock plans and other 192 150 133
Proceeds from sale of Step-Up
Warrants, net -- -- 287
Proceeds from sales of put warrants,
net of repurchases 85 76 62
Repurchase and retirement of
Common Stock (1,034) (658) (391)
Payment of dividends to stockholders (116) (92) (84)
------- ------- -------
Net cash (used for) provided by financing
activities (1,056) (557) 352
======= ======= =======
Net increase (decrease) in cash and cash
equivalents 283 (479) (184)
======= ======= =======
Cash and cash equivalents, end of year $ 1,463 $ 1,180 $ 1,659
======= ======= =======
Supplemental disclosures of cash flow
information:
Cash paid during the year for:
Interest $ 182 $ 76 $ 39
Income taxes $ 1,209 $ 1,366 $ 1,123
Cash paid for interest in 1995 includes approximately $108 million of
accumulated interest on Zero Coupon Notes that matured in 1995.
</TABLE>
See accompanying notes.
Consolidated Statements Of Stockholders' Equity
<TABLE>
Common Stock
and capital in excess
of par value
-------------------
Three years ended December 30, 1995 Number Retained
(In millions) of shares Amount earnings Total
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Balance at December 26, 1992 837 $ 1,776 $ 3,669 $ 5,445
Proceeds from sales of shares
through employee stock plans,
tax benefit of $68 and other 14 201 -- 201
Proceeds from sales of put warrants -- 62 -- 62
Reclassification of put warrant
obligation, net -- (37) (278) (315)
Proceeds from sale of Step-Up Warrants -- 287 -- 287
Repurchase and retirement of Common
Stock (14) (95) (296) (391)
Cash dividends declared
($.10 per share) -- -- (84) (84)
Net income -- -- 2,295 2,295
------- ------- ------- -------
Balance at December 25, 1993 837 2,194 5,306 7,500
Proceeds from sales of shares through
employee stock plans, tax benefit of
$61 and other 12 215 -- 215
Proceeds from sales of put warrants -- 76 -- 76
Reclassification of put warrant
obligation, net -- (15) (106) (121)
Repurchase and retirement of
Common Stock (22) (164) (429) (593)
Redemption of Common Stock
Purchase Rights -- -- (2) (2)
Cash dividends declared
($.115 per share) -- -- (96) (96)
Net income -- -- 2,288 2,288
------- ------- ------- -------
Balance at December 31, 1994 827 2,306 6,961 9,267
Proceeds from sales of shares
through employee stock plans,
tax benefit of $116 and other 13 310 -- 310
Proceeds from sales of put warrants -- 85 -- 85
Reclassification of put warrant
obligation, net -- 61 (42) 19
Repurchase and retirement of
Common Stock (19) (179) (855) (1,034)
Cash dividends declared
($.15 per share) -- -- (124) (124)
Unrealized gain on
available-for-sale investments, net -- -- 51 51
Net income -- -- 3,566 3,566
------- ------- ------- -------
Balance at December 30, 1995 821 $ 2,583 $ 9,557 $12,140
======= ======= ======= =======
</TABLE>
See accompanying notes.
Notes To Consolidated Financial Statements
Accounting policies
Fiscal year. Intel Corporation ("Intel" or "the Company") has a fiscal year
that ends the last Saturday in December. Fiscal years 1995 and 1993, each
52-week years, ended on December 30 and 25, respectively. Fiscal 1994 was a
53-week year and ended on December 31, 1994. 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.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
Investments. Highly liquid investments with insignificant interest rate risk
and with original maturities of three months or less are classified as cash
and cash equivalents. Investments with maturities greater than three months
and less than one year are classified as short-term investments. Investments
with maturities greater than one year are classified as long-term investments.
The Company accounts for investments in accordance with SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities," effective
as of the beginning of fiscal 1994. The Company's policy is to protect the
value of its investment portfolio and to minimize principal risk by earning
returns based on current interest rates. All of the Company's marketable
investments are classified as available-for-sale as of the balance sheet date
and are reported at fair value, with unrealized gains and losses, net of tax,
recorded in Stockholders' equity. The cost of securities sold is based on the
specific identification method. Realized gains or losses and declines in
value, if any, judged to be other than temporary on available-for-sale
securities are reported in other income or expense. Investments in non-
marketable instruments are recorded at the lower of cost or market and included
in other assets.
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, non-marketable instruments, swaps, currency forward contracts, currency
options and options hedging non-marketable instruments are based on quoted
market prices or pricing models using current market rates.
Derivative financial instruments. The Company utilizes derivative financial
instruments to reduce financial market risks. These instruments are used to
hedge foreign currency, equity and interest rate market exposures of underlying
assets, liabilities and other obligations. The Company does not use derivative
financial instruments for speculative or trading purposes. The Company's
accounting policies for these instruments are based on the Company's
designation of such instruments as hedging transactions. The criteria the
Company uses for designating an instrument as a hedge include its effectiveness
in risk reduction and one-to-one matching of derivative instruments to
underlying transactions. Gains and losses on currency forward contracts, and
options that are designated and effective as hedges of anticipated
transactions, for which a firm commitment has been attained, are deferred and
recognized in income in the same period that the underlying transactions are
settled. Gains and losses on currency forward contracts, options and swaps that
are designated and effective as hedges of existing transactions are recognized
in income in the same period as losses and gains on the underlying transactions
are recognized and generally offset. Gains and losses on options hedging
investments in non-marketable instruments are deferred and recognized in income
in the same period as the hedges mature or when the underlying transaction is
sold, whichever comes first. Income or expense on swaps is accrued as an
adjustment to the yield of the related investments or debt they hedge.
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 were as follows:
<TABLE>
<S> <C> <C>
(In millions) 1995 1994
------- -------
Materials and purchased parts $ 674 $ 345
Work in process 707 528
Finished goods 623 296
------- -------
Total $ 2,004 $ 1,169
======= =======
</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.
The Company adopted SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of," effective as of the
beginning of fiscal 1995. This adoption had no material effect on the Company's
financial statements. 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.
Advertising. Cooperative advertising obligations are accrued and the costs
expensed at the same time the related revenue is recognized. All other
advertising costs are expensed as incurred. The Company does not incur any
direct-response advertising costs. Advertising expense was $654 million, $459
million and $325 million in 1995, 1994 and 1993, respectively.
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 $46 million, $27 million and $8 million for 1995, 1994 and 1993,
respectively.
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.
Stock distribution. On June 16, 1995, the Company effected a stock distribution
in the form of a two-for-one stock split to stockholders of record as of May
19, 1995. Share, per share, Common Stock, capital in excess of par value, stock
option and warrant amounts herein have been restated to reflect the effect of
this split.
Common Stock
1998 Step-Up Warrants. In 1993, the Company issued 40 million 1998 Step-Up
Warrants to purchase 40 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 $35.75 per share of Common
Stock, subject to annual increases to a maximum price of $41.75 per share
effective in March 1997. As of December 30, 1995, approximately 40 million
Warrants were exercisable at a price of $38.75 and expire on March 14, 1998
if not previously exercised. For 1995, the Warrants had a dilutive effect on
earnings per share and represented approximately
11 million common equivalent shares. The Warrants did not have a dilutive
effect on earnings per share in 1994 or 1993.
Stock repurchase program. In 1990, the Board of Directors authorized the
repurchase of up to 80 million shares of Intel's Common Stock in open market
or negotiated transactions. The Board increased this authorization to a maximum
of 110 million shares in July 1994. As of December 30, 1995, the Company had
repurchased and retired approximately 68 million shares for the program to date
at a cost of $2.19 billion. As of December 30, 1995, after reserving shares to
cover outstanding put warrants, 29.9 million shares remained available under
the repurchase authorization.
Put warrants
In a series of private placements from 1991 through 1995, 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 of Potential
(In millions) received warrants obligation
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
December 26, 1992 $ 56 28.0 $373
Sales 62 21.6 561
Expirations -- (20.0) (246)
------ ------ ------
December 25, 1993 118 29.6 688
Sales 76 25.0 744
Exercises -- (2.0) (65)
Expirations -- (27.6) (623)
------ ------ ------
December 31, 1994 194 25.0 744
Sales 85 17.5 925
Repurchases -- (5.5) (201)
Expirations -- (25.0) (743)
------ ------ ------
December 30, 1995 $279 12.0 $725
====== ====== ======
</TABLE>
The amount related to Intel's potential repurchase obligation has been
reclassified from stockholders' equity to put warrants. The 12 million put
warrants outstanding at December 30, 1995 expire on various dates between
February 1996 and November 1996 and have exercise prices ranging from $38 to
$68 per share, with an average exercise price of $60 per share. There is no
significant dilutive effect on earnings per share for the periods presented.
Borrowings
Short-term debt. Short-term debt and weighted average interest rates at
fiscal year-ends were as follows:
<TABLE>
1995 1994
----------------------- -----------------------
Weighted Weighted
average average
(In millions) Balance interest rate Balance interest rate
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Borrowed under
lines of credit $ 57 3.2% $ 68 3.2%
Reverse repurchase
agreements payable
in non-U.S. currencies 124 9.2% 99 8.0%
Notes payable 2 4.7% 5 4.7%
Short-term portion
of long-term debt -- -- 179 11.8%
Drafts payable 163 N/A 166 N/A
------ ------
Total $ 346 $ 517
====== ======
</TABLE>
At December 30, 1995, the Company had established foreign and domestic lines of
credit of approximately $1.16 billion. 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 1995 and 1994. 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 was as follows:
<TABLE>
(In millions) 1995 1994
------- -------
<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 in 1994 -- 179
Other U.S. dollar debt 4 4
Payable in other currencies:
Irish punt due 2008-2024 at 6%-12% 240 228
Greek drachma due 2001 46 46
Other foreign currency debt -- 4
(Less short-term portion) -- (179)
------- -------
Total $ 400 $ 392
======= =======
</TABLE>
The Company has guaranteed repayment of principal and interest on the AFICA
Bonds 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 Zero
Coupon Notes matured during 1995. 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 1994, the Company filed a shelf registration statement with the Securities
and Exchange Commission (SEC) that became effective in 1995. When combined with
previous shelf 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 or
other issuers' 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"). The Company may issue up to $1.4 billion in additional securities
under effective registration statements.
As of December 30, 1995, aggregate debt maturities were as follows: 1996-none;
1997-none; 1998-$110 million; 1999-none; 2000-none; and thereafter-$290 million.
Investments
The stated return on a majority of the Company's marketable investments in
long-term fixed rate debt and equity 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" under "Accounting policies").
Investments with maturities of greater than six months consist primarily of A
and 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 and A2 rated counterparties in certain countries, result in some minor
exceptions. Intel's practice is to obtain and secure available collateral from
counterparties against obligations whenever Intel deems appropriate. At
December 30, 1995, investments were placed with approximately 100 different
counterparties.
Investments at December 30, 1995 were as follows:
<TABLE>
Gross Gross Estimated
unrealized unrealized fair
(In millions) Cost gains losses value
------- ------- ------- -------
<S> <C> <C> <C> <C>
Commercial paper $ 576 $ -- $ -- $ 576
Repurchase agreements 474 -- -- 474
Securities of foreign
governments 456 1 (1) 456
Corporate bonds 375 5 -- 380
Bank time deposits 360 -- -- 360
Loan participations 278 -- -- 278
Floating rate notes 224 -- -- 224
Fixed rate notes 159 1 (1) 159
Collateralized mortgage
obligations 129 -- (1) 128
Other debt securities 119 -- (1) 118
------- ------- ------- -------
Total debt securities 3,150 7 (4) 3,153
------- ------- ------- -------
Hedged equity 431 45 -- 476
Preferred stock and
other equity 309 91 (11) 389
------- ------- ------- -------
Total equity securities 740 136 (11) 865
------- ------- ------- -------
Swaps hedging investments in
debt securities -- 2 (9) (7)
Swaps hedging investments in
equity securities -- 5 (47) (42)
Currency forward
contracts hedging investments
in debt securities -- 3 -- 3
------- ------- ------- -------
Total available-for-sale
securities 3,890 153 (71) 3,972
Less amounts classified
as cash equivalents (1,324) -- -- (1,324)
------- ------- ------- -------
Total investments $ 2,566 $ 153 $ (71) $ 2,648
======= ======= ======= =======
Investments at December 31, 1994 were as follows:
Gross Gross Estimated
unrealized unrealized fair
(In millions) Cost gains losses value
- ---------------------------------------------------------------------------
Commercial paper $ 544 $ -- $ -- $ 544
Repurchase agreements 194 -- -- 194
Securities of
foreign governments 518 2 (7) 513
Corporate bonds 440 12 (14) 438
Bank time deposits 406 -- -- 406
Loan participations 266 6 (2) 270
Fixed rate notes 167 1 (2) 166
Collateralized mortgage
obligations 170 -- (4) 166
Floating rate notes 488 1 (1) 488
Other debt securities 293 -- (5) 288
------- ------- ------- -------
Total debt securities 3,486 22 (35) 3,473
------- ------- ------- -------
Hedged equity 431 -- (58) 373
Preferred stock and
other equity 368 20 (16) 372
------- ------- ------- -------
Total equity securities 799 20 (74) 745
------- ------- ------- -------
Swaps hedging investments
in debt securities -- 22 (14) 8
Swaps hedging investments
in equity securities -- 60 -- 60
Currency forward contracts
hedging investments in
debt securities -- 1 -- 1
------- ------- ------- -------
Total available-for-sale
securities 4,285 125 (123) 4,287
Less amounts classified
as cash equivalents (930) -- -- (930)
------- ------- ------- -------
Total investments $ 3,355 $ 125 $ (123) $ 3,357
======= ======= ======= =======
</TABLE>
Note: Certain 1994 amounts have been restated to conform to the 1995
presentation.
During the year ended December 30, 1995, debt and marketable securities with a
fair value at the date of sale of $114 million were sold. The gross realized
gains on such sales totaled $60 million. There were no material proceeds or
gross realized gains or losses from sales of securities during 1994.
The amortized cost and estimated fair value of investments in debt securities
at December 30, 1995, by contractual maturity, were as follows:
<TABLE>
Estimated
fair
(In millions) Cost value
- ------------------------------------------------------------------------------
<S> <C> <C>
Due in 1 year or less $ 2,172 $ 2,172
Due in 1-2 years 486 489
Due in 2-5 years 214 214
Due after 5 years 278 278
------- -------
Total investments in debt securities $ 3,150 $ 3,153
======= =======
</TABLE>
Derivative financial instruments
Outstanding notional amounts for derivative financial instruments at fiscal
year-ends were as follows:
<TABLE>
(In millions) 1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C>
Swaps hedging investments in debt securities $ 824 $ 1,080
Swaps hedging investments in equity securities $ 567 $ 567
Swaps hedging debt $ 156 $ 156
Currency forward contracts $ 1,310 $ 784
Currency options $ 28 $ 10
Options hedging investments in non-marketable
instruments $ 82 $ --
</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 utilizes swap agreements to exchange the foreign
currency, equity, and interest rate returns of its investment and debt
portfolios for a floating U.S. dollar interest rate based return. The floating
rates on swaps are based primarily on U.S. dollar LIBOR and reset on a monthly,
quarterly or semiannual basis.
Weighted average pay and receive rates, average maturities and range of
maturities on swaps at December 30, 1995 were
as follows:
<TABLE>
Weighted
Weighted average Weighted
average receive average Range of
pay rate rate maturity maturities
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Swaps hedging investments
in U.S. dollar debt securities 6.5% 6.2% 1.1 years 0-3 years
Swaps hedging investments
in foreign currency
debt securities 10.4% 9.1% 1.1 years 0-3 years
Swaps hedging investments
in equity securities N/A 5.4% 1.2 years 0-2 years
Swaps hedging debt 5.9% 5.2% 3.6 years 3-6 years
</TABLE>
Note: Pay and receive rates are based on the reset rates that were in effect at
December 30, 1995.
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
maturities on most of these foreign currency instruments are less than 12
months. Deferred gains or losses attributable to foreign currency instruments
are not material.
Fair values of financial instruments
The estimated fair values of financial instruments outstanding at fiscal
year-ends were as follows:
<TABLE>
1995 1994
--------------------- ---------------------
Estimated Estimated
Carrying fair Carrying fair
(In millions) amount value amount value
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 1,463 $ 1,463 $ 1,180 $ 1,180
Short-term investments $ 995 $ 995 $ 1,230 $ 1,230
Long-term investments $ 1,699 $ 1,699 $ 2,058 $ 2,058
Non-marketable instruments $ 239 $ 259 $ 59 $ 144
Swaps hedging investments
in debt securities $ (7) $ (7) $ 8 $ 8
Swaps hedging investments
in equity securities $ (42) $ (42) $ 60 $ 60
Options hedging
investments in non-
marketable instruments $ (9) $ (13) $ -- $ --
Short-term debt $ (346) $ (346) $ (517) $ (517)
Long-term debt $ (400) $ (399) $ (392) $ (384)
Swaps hedging debt $ -- $ (1) $ -- $ (12)
Currency forward contracts $ 3 $ 4 $ 1 $ 5
Currency options $ -- $ -- $ -- $ --
</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 substantial
majority of the Company's trade receivables are derived from sales to
manufacturers of microcomputer systems, with the remainder spread across
various other industries.
During 1995, the Company experienced an increase in its concentration of credit
risk due to increasing trade receivables from sales to manufacturers of
microcomputer systems. The Company's five largest customers accounted for
approximately 33% of net revenues for 1995. At December 30, 1995, these
customers accounted for approximately 34% of net accounts receivable. A portion
of the receivable balance from one of the Company's five largest customers has
been converted into a loan. The total amount receivable from this customer was
approximately $400 million at December 30, 1995.
The Company endeavors to keep pace with the evolving computer industry and has
adopted credit policies and standards intended to accommodate industry growth
and inherent risk. Management believes that credit risks are moderated by the
diversity of its end customers and geographic sales areas. Intel performs
ongoing credit evaluations of its customers' financial condition and requires
collateral as deemed necessary.
<TABLE>
Interest income and other
(In millions) 1995 1994 1993
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income $ 272 $ 235 $ 155
Foreign currency gains 29 15 --
Other income 114 23 33
------- ------- -------
Total $ 415 $ 273 $ 188
======= ======= =======
</TABLE>
Other income for 1995 included approximately $58 million from the settlement of
ongoing litigation and $60 million from sales of a portion of the Company's
investment in marketable equity securities. 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 benefits related
to the Company's Irish expansion and dividend income earned on equity
investments.
Provision for taxes
The provision for taxes consisted of the following:
<TABLE>
(In millions) 1995 1994 1993
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Income before taxes:
U.S. $ 3,427 $ 2,460 $ 2,587
Foreign 2,211 1,143 943
------- ------- -------
Total income before taxes $ 5,638 $ 3,603 $ 3,530
======= ======= =======
Provision for taxes:
Federal:
Current $ 1,169 $ 1,169 $ 946
Deferred 307 (178) 35
------- ------- -------
1,476 991 981
------- ------- -------
State:
Current 203 162 150
Foreign:
Current 354 134 127
Deferred 39 28 (23)
------- ------- -------
393 162 104
------- ------- -------
Total provision for taxes $ 2,072 $ 1,315 $ 1,235
======= ======= =======
Effective tax rate 36.8% 36.5% 35.0%
======= ======= =======
</TABLE>
The tax benefit associated with dispositions from employee stock plans reduced
taxes currently payable for 1995 by $116 million ($61 million and $68 million
for 1994 and 1993, respectively).
The provision for taxes reconciled to the amount computed by applying the
statutory federal rate of 35% to income before taxes as follows:
<TABLE>
(In millions) 1995 1994 1993
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Computed expected tax $ 1,973 $ 1,261 $ 1,235
State taxes, net of federal
benefits 132 105 98
Other (33) (51) (98)
------- ------- -------
Provision for taxes $ 2,072 $ 1,315 $ 1,235
======= ======= =======
</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 were as follows:
<TABLE>
(In millions) 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets
Accrued compensation and benefits $ 61 $ 49
Deferred income 127 127
Inventory valuation and related reserves 104 255
Interest and taxes 61 54
Other, net 55 67
------- -------
408 552
Deferred tax liabilities
Depreciation (475) (338)
Unremitted earnings of certain subsidiaries (116) (51)
Other, net (29) --
------- -------
(620) (389)
------- -------
Net deferred tax (liability) asset $ (212) $ 163
======= =======
</TABLE>
U.S. income taxes were not provided for on a cumulative total of approximately
$615 million of undistributed earnings for certain non-U.S. subsidiaries. The
Company intends to reinvest these earnings indefinitely in operations outside
the United States.
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 an export source issue and
for the IRS on another, smaller issue. The IRS appealed the decision to the
United States Court of Appeals for the Ninth Circuit, and the Company filed a
cross-appeal of the decision. In 1995, the Court of Appeals affirmed the
decision of the Tax Court. The IRS has subsequently requested a re-hearing.
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 a stock option plan (hereafter referred to as the
EOP Plan) 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. The Company accounts for stock options in accordance with APB
Opinion No. 25, "Accounting for Stock Issued to Employees." In accordance with
SFAS No. 123, "Accounting for Stock-Based Compensation," the Company intends to
continue to apply APB No. 25 for purposes of determining net income and to
adopt the pro forma disclosure requirements for fiscal 1996.
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 with respect to EOP Plan
activity was as follows:
<TABLE>
Outstanding options
Shares -----------------------
available Number Aggregate
(In millions) for options of shares price
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
December 26, 1992 65.4 73.6 $ 669
Grants (15.2) 15.2 357
Exercises -- (9.0) (56)
Cancellations 1.8 (1.8) (24)
------- ------- -------
December 25, 1993 52.0 78.0 946
Grants (12.0) 12.0 397
Exercises -- (8.2) (54)
Cancellations 1.6 (1.6) (33)
------- ------- -------
December 31, 1994 41.6 80.2 1,256
Grants (13.5) 13.5 645
Exercises -- (9.8) (81)
Cancellations 3.0 (3.0) (77)
------- ------- -------
December 30, 1995 31.1 80.9 $ 1,743
======= ======= =======
Options exercisable at:
December 25, 1993 20.4 $ 135
December 31, 1994 26.2 $ 198
December 30, 1995 25.3 $ 236
</TABLE>
The range of exercise prices for options outstanding under the EOP Plan at
December 30, 1995 was $3.13 to $69.43. These options will expire if not
exercised at specific dates ranging from January 1996 to December 2005. Prices
for options exercised during the three-year period ended December 30, 1995
ranged from $3.04 to $36.13.
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 26, 1992 13.2 6.0 $ 44
Grants (0.4) 0.4 11
Exercises -- (0.8) (6)
------- ------- -------
December 25, 1993 12.8 5.6 49
Exercises -- (0.6) (4)
------- ------- -------
December 31, 1994 12.8 5.0 45
Grants (0.5) 0.5 30
Exercises -- (0.9) (6)
------- ------- -------
December 30, 1995 12.3 4.6 $ 69
======= ======= =======
Options exercisable at:
December 25, 1993 1.4 $ 11
December 31, 1994 2.6 $ 19
December 30, 1995 3.8 $ 29
</TABLE>
The range of exercise prices for options outstanding under the ELTSOP Plan at
December 30, 1995 was $7.31 to $60.48.
These options will expire if not exercised at specific dates ranging from April
1999 to September 2005. Prices for options exercised during the three-year
period ended December 30, 1995 ranged from $7.31 to $7.34.
Stock participation plan. Under this plan, eligible 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, 11.9 million shares were available for issuance at December 30, 1995.
Employees purchased 3.5 million shares in 1995 (4.0 million and 4.4 million in
1994 and 1993, respectively) for $110 million ($94 million and $71 million in
1994 and 1993, respectively).
Retirement plans. The Company provides tax-qualified profit-sharing retirement
plans (the "Qualified Plans") for the benefit of eligible employees in the U.S.
and Puerto Rico. The plans are designed to provide employees with an
accumulation of funds for retirement on a tax-deferred basis 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 eligible employees in the U.S. This
plan is designed to permit certain discretionary employer contributions in
excess of the tax limits applicable to the Qualified Plans and to permit
employee deferrals in excess of certain tax limits. This plan is unfunded.
The Company accrued $188 million for the Qualified Plans and the Non-Qualified
Plan in 1995 ($152 million in 1994 and $103 million in 1993). Of the $188
million accrued in 1995, the Company expects to fund approximately $145 million
for the 1995 contribution to the Qualified Plans and to allocate approximately
$6 million for the Non-Qualified Plan. The remainder, plus approximately $140
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 tax-qualified defined-benefit pension plans for the
benefit of eligible employees in the U.S. and Puerto Rico. Each plan provides
for minimum pension benefits that 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 Qualified Plan. If the balance in the participant's Qualified
Plan exceeds the pension guarantee, the participant will receive benefits from
the Qualified Plan only. Intel's funding policy is consistent with the funding
requirements of federal laws and regulations.
Pension expense for 1995, 1994 and 1993 for the U.S. and Puerto Rico plans was
less than $1 million per year, and no component of expense exceeded $2 million.
The funded status of these plans as of December 30, 1995 and December 31, 1994
was as follows:
<TABLE>
(In millions) 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Vested benefit obligation $ (3) $ (3)
======= =======
Accumulated benefit obligation $ (4) $ (3)
======= =======
Projected benefit obligation $ (6) $ (5)
Fair market value of plan assets 8 6
------- -------
Projected benefit obligation less than plan assets 2 1
Unrecognized net (gain) (12) (12)
Unrecognized prior service cost 3 4
------- -------
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 were as follows:
<TABLE>
1995 1994 1993
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Discount rate 7.0% 8.5% 7.0%
Rate of increase in compensation
levels 5.0% 5.5% 5.0%
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 1995, 1994 and 1993 for the foreign plans included the
following:
<TABLE>
(In millions) 1995 1994 1993
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost-benefits earned
during the year $ 9 $ 5 $ 5
Interest cost of projected
benefit obligation 6 5 6
Actual investment (return)
on plan assets (4) (8) (7)
Net amortization and deferral (2) 3 2
------- ------- -------
Net pension expense $ 9 $ 5 $ 6
======= ======= =======
</TABLE>
The funded status of the foreign defined-benefit plans as of December 30, 1995
and December 31, 1994 is summarized below:
<TABLE>
Assets Accu-
exceed mulated
accu- benefits
1995 mulated exceed
(In millions) benefits assets
- ------------------------------------------------------------------------------
<S> <C> <C>
Vested benefit obligation $ (44) $ (8)
======= =======
Accumulated benefit obligation $ (46) $ (14)
======= =======
Projected benefit obligation $ (62) $ (22)
Fair market value of plan assets 67 4
------- -------
Projected benefit obligation less than
(in excess of) plan assets 5 (18)
Unrecognized net loss 4 5
Unrecognized net transition obligation 2 --
------- -------
Prepaid (accrued) pension costs $ 11 $ (13)
======= =======
Assets Accu-
exceed mulated
accu- benefits
1994 mulated exceed
(In millions) benefits assets
- ------------------------------------------------------------------------------
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>
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 were as follows:
<TABLE>
1995 1994 1993
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Discount rate 5.5%-14% 5.5%-14% 5.5%-14%
Rate of increase in
compensation levels 4.5%-11% 4.5%-11% 4.5%-11%
Expected Long-Term return on
assets 5.5%-14% 5.5%-14% 5.5%-14%
</TABLE>
Plan assets of the foreign plans consist primarily of listed stocks, bonds and
cash surrender value life insurance policies.
Other postemployment benefits. The Company has adopted SFAS No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions," and
SFAS No. 112, "Employers' Accounting for Postemployment Benefits." There was
no material impact on the Company's financial statements for the periods
presented.
Commitments
The Company leases a portion of its capital equipment and certain of its
facilities under operating leases that expire at various dates through 2011.
Rental expense was $38 million in 1995, $38 million in 1994 and $35 million in
1993. Minimum rental commitments under all non-cancelable leases with an
initial term in excess of one year are payable as follows: 1996--$25 million;
1997--$20 million; 1998--$15 million; 1999--$12 million; 2000--$10 million; 2001
and beyond--$23 million. Commitments for construction or purchase of property,
plant and equipment approximated $1.47 billion at December 30, 1995. In
connection with certain manufacturing arrangements, Intel had minimum purchase
commitments of approximately $1.12 billion at December 30, 1995 for flash
memories and other memory components and for production capacity of board-level
products.
Contingencies
On March 29, 1995, Thorn EMI North America Inc. brought suit in Federal Court
in Delaware against Intel and Advanced Micro Devices, Inc. (AMD) alleging
infringement of a U.S. patent relating to processes for manufacturing
semiconductors, certain of which processes are utilized in the manufacture of
the Company's Pentium(R) and Pentium(R) Pro microprocessors. The plaintiff is
seeking injunctive relief and unspecified damages. On September 8, 1995, Intel
was granted a motion to sever its case from the AMD case. Trial of the
plaintiff's claims against Intel is presently set for June 1996. The Company
believes this lawsuit to be without merit and intends to defend the lawsuit
vigorously. Although the ultimate outcome of this lawsuit 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.
Intel has been named to the California and U.S. 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 areas adjacent to one of its former 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. Superfund statutes, liability for cleanup of this site and the
adjacent area is joint and several. The Company, however, has reached agreement
with those same two companies which significantly limits 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 will not have a material adverse effect on the Company's
financial position or overall trends in results of operations, 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.
The estimate of the potential impact on the Company's financial position or
overall results of operations for the above legal proceedings could change in
the future.
Industry segment reporting
The Company operates predominantly in one industry segment. The Company
designs, develops, manufactures and markets microcomputer components and
related products at various levels of integration. The Company sells its
products directly to original equipment manufacturers (OEMs) and also to a
network of industrial and retail distributors throughout the world. The
Company's principal markets are in the United States, Europe, Asia-Pacific and
Japan, with the U.S. and Europe being the largest based on revenues. The
Company's major products include microprocessors and related board-level
products, chipsets, embedded processors and microcontrollers, flash memory
chips, and network and communications products. Microprocessors and related
board-level products account for a substantial majority of the Company's net
revenues. No customer exceeded 10% of revenues in 1995 or 1994. One significant
customer accounted for 10% of revenues in 1993. Summary balance sheet
information for operations outside the United States at
Fiscal year-ends is as follows:
<TABLE>
(In millions) 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C>
Total assets $ 4,404 $ 2,940
Total liabilities $ 1,661 $ 962
Net property, plant and equipment $ 1,414 $ 1,238
</TABLE>
Geographic information for the three years ended December 30, 1995 is presented
in the following table. Transfers between geographic areas are accounted for at
amounts that are generally above cost and consistent with 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>
Transfers
Sales to between Identi-
(In millions) unaffiliated geographic Net Operating fiable
1995 customers areas revenues income assets
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
United States $ 7,922 $ 6,339 $14,261 $ 3,315 $12,603
Europe 4,560 1,190 5,750 1,383 2,517
Japan 1,737 28 1,765 353 665
Asia-Pacific 1,983 1,566 3,549 271 893
Other -- 684 684 410 329
Eliminations -- (9,807) (9,807) 124 (3,651)
Corporate -- -- -- (604) 4,148
------- ------- ------- ------- -------
Consolidated $16,202 $ -- $16,202 $ 5,252 $17,504
======= ======= ======= ======= =======
1994
- -------------------------------------------------------------------------------
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
======= ======= ======= ======= =======
</TABLE>
Supplemental information (unaudited)
Quarterly information for the two years ended December 30, 1995 is presented on
page 31.
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 30, 1995 and December 31, 1994, and the related
consolidated statements of income, stockholders' equity, and cash flows for
each of the three years in the period ended December 30, 1995. 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Intel Corporation at December 30, 1995 and December 31, 1994, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 30, 1995, in conformity with generally
accepted accounting principles.
San Jose, California
January 15, 1996
Financial Summary
Ten Years Ended December 30, 1995
<TABLE>
Additions
Net investment Long-term Stock- to property,
in property, Total debt & put holders' plant &
(In millions) plant & equip. assets warrants equity equipment
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1995 $ 7,471 $17,504 $ 1,125 $12,140 $ 3,550
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
</TABLE>
<TABLE>
(In millions--except per share amounts)
Research Operating Net Earnings Dividends
Net Cost of & devel- income income (loss) declared
revenues sales opment (loss) (loss) per share per share
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1995 $16,202 $ 7,811 $ 1,296 $ 5,252 $ 3,566 $ 4.03 $ 0.15
1994 $11,521 $ 5,576 $ 1,111 $ 3,387 $ 2,288 $ 2.62 $ 0.115
1993 $ 8,782 $ 3,252 $ 970 $ 3,392 $ 2,295 $ 2.60 $ 0.10
1992 $ 5,844 $ 2,557 $ 780 $ 1,490 $ 1,067 $ 1.24 $ 0.05
1991 $ 4,779 $ 2,316 $ 618 $ 1,080 $ 819 $ 0.98 --
1990 $ 3,921 $ 1,930 $ 517 $ 858 $ 650 $ 0.80 --
1989 $ 3,127 $ 1,721 $ 365 $ 557 $ 391 $ 0.52 --
1988 $ 2,875 $ 1,506 $ 318 $ 594 $ 453 $ 0.63 --
1987 $ 1,907 $ 1,044 $ 260 $ 246 $ 248 $ 0.34 --
1986 $ 1,265 $ 861 $ 228 $ (195) $ (203) $ (0.29) --
</TABLE>
Management's Discussion And Analysis Of Financial Condition
And Results Of Operations
Results of operations. Intel posted record net revenues in 1995, for the
ninth consecutive year, rising by 41% from 1994 to 1995 and by 31% from 1993
to 1994. Higher volumes of the rapidly ramping Pentium(R) microprocessor
family, partially offset by lower prices, and increased sales of related board-
level products were responsible for most of the growth in revenues in 1994 and
1995. Revenues from the Intel486(TM) microprocessor family declined
substantially in 1995 due to a shift in market demand toward the Company's
Pentium microprocessors and lower Intel486 microprocessor prices.
Higher volumes of flash memory and chipset products also contributed toward the
increase in revenues from 1993 to 1995 and also helped enable the successful
Pentium microprocessor ramp. Sales of system platforms, embedded control
products, and networking and communications products also grew.
Cost of sales increased by 40% from 1994 to 1995 and by 71% from 1993 to 1994.
The growth in cost of sales from 1993 to 1995 was driven by Pentium
microprocessor and board-level unit volume growth, new factories coming into
production, shifts in process and product mix, and in the fourth quarter of
1995, by costs associated with unusually high reserves related to inventories
of certain purchased components. 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 an inventory writedown
related to a divide problem in the floating point unit of the Pentium
microprocessor. As a result of the above factors, the gross margin percentage
was 52% in 1995 and 1994, compared to 63% in 1993.
Quarterly unit shipments of the Pentium microprocessor family surpassed those
of the Intel486 microprocessor family during the third quarter of 1995. The
Company helped accelerate this transition by offering chipsets and motherboards
to enable computer manufacturers to bring their products to market faster.
Sales of the Pentium microprocessor family comprised a majority of the
Company's revenues and a substantial majority of its gross margin during 1995.
During 1995, the Intel486 microprocessor family represented a significant but
rapidly declining portion of the Company's revenues and gross margins. The
Intel486 microprocessor family comprised a majority of the Company's revenues
and a substantial majority of its gross margin during 1993 and 1994.
Research and development spending grew by 17% from 1994 to 1995, as the Company
continued to invest in strategic programs, particularly for the internal
development of microprocessor products and related manufacturing technology.
Increased spending for marketing programs, including media merchandising and
the Company's Intel Inside(R) cooperative advertising program, drove the 27%
increase in marketing, general and administrative expenses from 1994 to 1995.
The $28 million decrease in interest expense from 1994 to 1995 was mainly due
to lower average borrowing balances in addition to higher interest
capitalization resulting from increased facility construction programs. The
increase in interest expense from 1993 to 1994 was primarily due to higher
average interest rates on borrowings, partially offset by higher interest
capitalization.
Interest and other income increased by $142 million from 1994 to 1995,
primarily due to higher average interest rates on investments in 1995, gains
of $58 million related to the settlement of litigation and gains of $60
million from the sale of a portion of the Company's investment in marketable
equity securities. Interest and other income increased by $85 million from 1993
to 1994, mainly due to higher average interest 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 included gains of $27 million from the sale of certain
foreign benefits related to a plant expansion in Ireland during 1993.
The Company utilizes investments and corresponding interest rate swaps to
preserve principal while enhancing the yield on its investment portfolio
without significantly increasing risk, and uses forward contracts, options and
swaps to hedge currency, market and interest rate exposures. Gains and losses
on these instruments are generally offset by those on the underlying hedged
transactions; as a result, there was no material net impact on the Company's
financial results during the 1993- 1995 period.
The Company's effective income tax rate increased to 36.8% in 1995 compared to
36.5% and 35.0% in 1994 and 1993, respectively. The increases in rate from
1993 to 1995 resulted from the fact that tax credits have not grown as rapidly
as overall pretax income.
Financial condition. The Company's financial condition remains very strong. As
of December 30, 1995, total cash and short- and long-term investments totaled
$4.11 billion, down from $4.54 billion at December 31, 1994. Cash generated
from operating activities rose to $4.03 billion in 1995, compared to $2.98
billion and $2.80 billion in 1994 and 1993, respectively.
Investing activities consumed $2.69 billion in cash during 1995, compared to
$2.90 billion during 1994 and $3.34 billion during 1993. Capital expenditures
increased substantially in both 1994 and 1995, as the Company continued to
invest in the property, plant and equipment needed for future business
requirements, including manufacturing capacity. The Company expects to spend
approximately $4.1 billion for capital additions in 1996 and had committed
approximately $1.47 billion for the construction or purchase of property, plant
and equipment as of December 30, 1995.
Inventory levels, particularly raw materials and finished goods, increased
significantly in 1995. This increase was primarily attributable to the increased
level of business and, to a lesser extent, to an unusually low level of
inventory at the end of 1994 because of a writedown of inventories in the
fourth quarter of 1994 in connection with the divide problem in the floating
point unit of the Pentium processor. The increase in accounts receivable in
1995 was mainly due to revenue growth, including the growth of non-domestic
sales that have longer payment terms. During 1995, the Company experienced an
increase in its concentration of credit risk due to increasing trade
receivables from sales to manufacturers of microcomputer systems. The Company's
five largest customers accounted for approximately 33% of net revenues for
1995. At December 30, 1995, these customers accounted for approximately 34% of
net accounts receivable. A portion of the receivable balance from one of its
five largest customers has been converted into a loan. The total amount
receivable from this customer was approximately $400 million at December 30,
1995.
The Company used $1.06 billion and $557 million for financing activities in
1995 and 1994, respectively, while $352 million was provided in 1993. The major
financing application of cash in 1995 was for stock repurchases totaling $1.03
billion. Financing applications of cash in 1994 included stock repurchases of
$658 million 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 outstanding
put warrants at the end of 1995, with the potential obligation to buy back 12
million shares of its Common Stock at an aggregate price of $725 million. The
exercise price of these warrants ranges from $38 to $68 per share, with an
average exercise price of $60 per share.
Other sources of liquidity include combined credit lines and authorized
commercial paper borrowings of $1.86 billion, $57 million of which was
outstanding at December 30, 1995. The Company also maintains the ability to
issue an aggregate of approximately $1.4 billion in debt, equity and other
securities under Securities and Exchange Commission (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 for the recently announced expansion of international
manufacturing sites, working capital requirements, the potential put warrant
obligation and the dividend program.
Outlook. The statements contained in this Outlook are based on current
expectations. These statements are forward looking, and actual results may
differ materially.
Intel expects that the total number of personal computers using Intel's
Pentium microprocessors and other semiconductor components sold worldwide will
continue to grow in 1996. Intel has expanded manufacturing capacity over the
last few years and continues to expand capacity to be able to meet the
potential increase in demand. Intel's financial results are to a large extent
dependent on this market segment. Revenue is also a function of the
distribution of microprocessor speed and performance levels, which is difficult
to forecast. Because of the large price difference between components for the
highest and lowest performance computers, this distribution affects the
average price Intel will realize and has a large impact on Intel's revenues.
Intel's strategy has been, and continues to be, to introduce ever higher
performance microprocessors and work with the software industry to develop
compelling applications that can take advantage of this higher performance,
thus driving demand toward the newer products. Capacity has been planned based
on the assumed continued success of the Company's strategy.
In line with this strategy, the Company has recently announced higher speed
members of the Pentium(R) Pro microprocessor family. If the market demand does
not continue to grow and move rapidly toward higher performance products,
revenue growth may be impacted, the manufacturing capacity installed might be
under-utilized and capital spending may be slowed. The Company may continue to
reduce microprocessor prices aggressively and systematically to bring its
technology to market.
The Company's gross margin percentage is a sensitive function of the product
mix sold in any period. Because the percentage of motherboards that Intel's
customers purchase changes with maturity of the product cycle, and motherboards
generally have lower gross margin percentages than microprocessors, Intel's
gross margin percentage varies depending on the mix of microprocessors and
related motherboards within a product family. Various other factors, including
unit volumes and costs and yield issues associated with initiating production
at new factories or on new processes, also will continue to affect the amount
of cost of sales and the variability of gross margin percentages in future
quarters. From time to time the Company may forecast a range of gross margin
percentages for the coming quarter. Actual results may differ. Longer term
gross margin percentages are even more difficult to predict.
To implement its strategy, Intel continues to build capacity to produce high-
performance microprocessors and other products. The Company expects that
capital spending will increase to approximately $4.1 billion in 1996. This
spending plan is dependent upon delivery times of various machines and
construction schedules for new facilities. Based on this forecast, depreciation
for 1996 is expected to be approximately $1.9 billion, an increase of
approximately $500 million from 1995. Most of this increased depreciation will
be included in cost of sales and research and development spending.
The industry in which Intel operates is characterized by very short product
life cycles. Intel considers it imperative to maintain a strong research and
development program to continue to succeed. Accordingly, research and
development spending is expected to grow in 1996 to approximately $1.6 billion.
The Company will also continue spending to promote its products and to increase
the value of its product brands. Based on current forecasts, spending for
marketing and general and administrative expenses is expected to increase in
1996.
The Company expects its tax rate to decrease to 36.5% for 1996. This estimate
is based on current tax law and is subject to change.
The Company's future results of operations and the other forward looking
statements contained in this Outlook, in particular the statements regarding
growth in the personal computer industry, capital spending, depreciation,
research and development, and marketing and general and administrative
expenses, involve a number of risks and uncertainties. In addition to the
factors discussed above, among the other factors that could cause actual
results to differ materially are the following: business conditions and the
general economy; competitive factors, such as rival chip architectures,
competing software compatible microprocessors, acceptance of new products and
price pressures; availability of third-party component products at reasonable
prices; risk of nonpayment of accounts receivable or customer loans;
manufacturing ramp and capacity; risks associated with foreign operations; risk
of inventory obsolescence due to shifts in market demand; timing of software
industry product introductions; and litigation involving intellectual property
and consumer issues.
Intel believes that it has the product offerings, facilities, personnel, and
competitive and financial resources for continued business success, but future
revenues, costs, margins, product mix and profits are all influenced by a number
of factors, as discussed above.
Financial Information By Quarter
(In millions--except per share data)
(Unaudited)
<TABLE>
1995 for quarter ended December 30 September 30 July 1 April 1
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net revenues $ 4,580 $ 4,171 $ 3,894 $ 3,557
Cost of sales $ 2,389 $ 2,008 $ 1,805 $ 1,609
Net income $ 867 $ 931 $ 879 $ 889
Earnings per share $ .98 $ 1.05 $ .99 $ 1.02
Dividends per share(A)
Declared $ .04 $ .04 $ .04 $ .03
Paid $ .04 $ .04 $ .03 $ .03
Market price range Common
Stock(B) High $ 72.88 $ 76.44 $ 65.63 $ 44.25
Low $ 56.75 $ 58.63 $ 42.75 $ 31.81
Market price range Step-Up
Warrants(B) High $ 39.00 $ 43.63 $ 31.88 $ 11.91
Low $ 26.75 $ 30.44 $ 11.31 $ 6.97
(In millions-except per share data)
1994 for quarter ended December 31 October 1 July 2 April 2
- -------------------------------------------------------------------------------
Net revenues $ 3,228 $ 2,863 $ 2,770 $ 2,660
Cost of sales $ 2,023 $ 1,273 $ 1,156 $ 1,124
Net income $ 372(C) $ 659 $ 640 $ 617
Earnings per share $ .43 $ .76 $ .73 $ .70
Dividends per share(A)
Declared $ .03 $ .03 $ .03 $ .025
Paid $ .03 $ .03 $ .025 $ .025
Market price range Common
Stock(B) High $ 33.06 $ 33.63 $ 35.31 $ 36.13
Low $ 28.91 $ 28.25 $ 28.75 $ 30.63
Market price range Step-Up
Warrants(B) High $ 7.50 $ 8.00 $ 9.22 $ 9.75
Low $ 6.16 $ 6.50 $ 6.50 $ 7.56
</TABLE>
(A) Intel plans to continue its dividend program. However, dividends are
dependent on future earnings, capital requirements and financial condition.
(B) Intel's Common Stock (symbol INTC) and 1998 Step-Up Warrants (symbol INTCW)
trade on The Nasdaq Stock Market and are 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 30, 1995, there were approximately
69,400 holders of Common Stock. All stock and warrant prices are closing prices
per The Nasdaq Stock Market.
(C) 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.
GRAPHICS APPENDIX LIST*
* In this Appendix, the following descriptions of graphs on pages 28 and 29 of
the Company's 1995 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 1995 Annual
Report to Stockholders.
<TABLE>
REVENUES AND INCOME
(Dollars in billions) 1993 1994 1995
------ ------ ------
<S> <C> <C> <C>
Net revenues 8.782 11.521 16.202
Net income 2.295 2.288 3.566
COSTS AND EXPENSES
(Percent of revenues) 1993 1994 1995
------ ------ ------
Cost of sales 37% 48% 48%
R&D 11% 10% 8%
Marketing and G&A 13% 13% 11%
OTHER INCOME AND EXPENSE
(Dollars in millions) 1993 1994 1995
------ ------ ------
Interest and other income 188 273 415
Interest expense 50 57 29
CASH AND INVESTMENTS
(Dollars in billions) 1994 1995
------ ------
Cash and cash equivalents 1.180 1.463
Short-term investments 1.230 .995
Long-term investments 2.127 1.653
</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)
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 15, 1996, included in the 1995
Annual Report to Stockholders of Intel Corporation.
Our audits also included 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, 33-41771, and 33-63489; and Form S-3 Nos. 33-20117, 33-54220,
33-58964, 33-49827, 33-50971 and 33-56107) of our report dated January 15,
1996, 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, 1996
<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>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-30-1995
<PERIOD-END> DEC-30-1995
<CASH> 1463
<SECURITIES> 995
<RECEIVABLES> 3173
<ALLOWANCES> 57
<INVENTORY> 2004
<CURRENT-ASSETS> 8097
<PP&E> 11792
<DEPRECIATION> 4321
<TOTAL-ASSETS> 17504
<CURRENT-LIABILITIES> 3619
<BONDS> 400
<COMMON> 2583
725<F1>
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 17504
<SALES> 16202
<TOTAL-REVENUES> 16202
<CGS> 7811
<TOTAL-COSTS> 7811
<OTHER-EXPENSES> 1296<F2>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 29
<INCOME-PRETAX> 5638
<INCOME-TAX> 2072
<INCOME-CONTINUING> 3566
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3566
<EPS-PRIMARY> 4.03
<EPS-DILUTED> 0
<FN>
<F1>Item consists of put warrants.
<F2>Item consists of research and development.
</FN>
</TABLE>
Exhibit 4.2
THIRD AMENDMENT TO WARRANT AGREEMENT
This Third Amendment to Warrant Agreement (this "Amendment") is made and
entered into as of May 1, 1995, by and between Intel Corporation, a Delaware
corporation (the "Company"), and Harris Trust and Savings Bank, an Illinois
banking corporation ("Harris"), as Warrant Agent, for purposes of amending that
certain Warrant Agreement -- 1998 Step-Up Warrants to Purchase Common Stock,
dated March 1, 1993, as amended by that certain First Amendment to Warrant
Agreement, dated October 18, 1993, and that certain Second Amendment to Warrant
Agreement, dated January 17, 1994 (collectively, the "Warrant Agreement").
RECITALS
(a) The Company issued 1998 Step-Up Warrants (the "Warrants") entitling
holders to purchase 20,000,000 shares of the Company's Common Stock, $.001 par
value (the "Common Stock") (as adjusted for previous stock splits);
(b) On April 27, 1995, the Company's Board of Directors declared a two for
one stock split to be effected as a special stock distribution of one share of
Common Stock for each share of Common Stock outstanding (the "Split"); and
(c) Pursuant to Sections 14(a), (h) and (k) of the Agreement, the Warrants
will be adjusted, as of the June 16, 1995 payment date for the Split (the
"Payment Date"), by reducing the per share exercise prices of each Warrant to
one-half of the per share exercise prices in effect immediately prior to the
Payment Date, and by issuing to each Warrant holder of record on the May 19,
1995 record date for the Split, one additional Warrant at the adjusted per
share exercise prices for each Warrant held as of such record date.
AGREEMENT
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and Harris agree as
follows:
1. Effective as of June 16, 1995, Section 2 of the Warrant Agreement is
hereby amended to read in its entirety as follows:
"SECTION 2. Amount Issued. Subject to the provisions of this Agreement,
Warrants to purchase no more than forty million (40,000,000) Shares may be
issued and delivered by the Company hereunder."
2. Effective as of June 16, 1995, the second paragraph of Section 7 of the
Warrant Agreement is hereby amended to read in its entirety as follows:
"Subject to the provisions of this Agreement, including Section 14, each
Warrant shall entitle the holder thereof to purchase from the Company (and
the Company shall issue and sell to such holder of a Warrant) one fully paid
and nonassessable Share at the price set forth in the following table (such
price, as it may be adjusted from time to time as provided in Section 14,
being the "Exercise Price"):
Exercise Date
- -----------------------------------
After On or Before Exercise Price Per Share
May 13, 1993 March 14, 1994 $35.75**
March 14, 1994 March 14, 1995 $37.25**
March 14, 1995 March 14, 1996 $38.75
March 14, 1996 March 14, 1997 $40.25
March 14, 1997 March 14, 1998 $41.75
**(expired prior to, but adjusted to reflect, stock distribution paid
June 16, 1995)"
3. Effective as of June 16, 1995, Exhibit A is replaced with the attached
Exhibit A-3.
4. Except as expressly modified herein, the Warrant Agreement remains in
full force and effect.
The parties hereto have caused this Amendment to be executed and delivered as
of the date first set forth above.
Attest: INTEL CORPORATION
/s/ THOMAS R. LAVELLE By: /s/ ARVIND SODHANI
- --------------------- -------------------------------------
Name/Title: Arvind Sodhani, Treasurer
Attest: HARRIS TRUST AND SAVINGS BANK
____________________________ By: /s/ RICHARD C. CARLSON
----------------------------------------------
Name/Title: Richard C. Carlson, Vice President
EXHIBIT A-3 (REVISED 5/95)
[FORM OF FACE OF WARRANT CERTIFICATE]
VOID AFTER MARCH 14, 1998
No. C- WARRANT TO PURCHASE _______
SHARES OF COMMON STOCK
INTEL CORPORATION
1998 STEP-UP WARRANT TO PURCHASE COMMON STOCK
This Warrant Certificate certifies that ______________________ or
registered assigns, is the registered holder of a 1998 Step-Up Warrant (the
"Warrant") of Intel Corporation, a Delaware corporation (the "Company"), to
purchase the number of shares (the "Shares") of Common Stock, $0.001 par value
(the "Common Stock"), of the Company set forth above. This Warrant expires at
5:00 p.m. New York City time (the "Close of Business") on March 14, 1998 (the
"Expiration Date"), unless such date is extended at the option of the Company,
and entitles the holder to purchase from the Company the number of fully paid
and nonassessable Shares set forth above at the initial exercise price (the
"Exercise Price"), payable in lawful money of the United States of America,
determined in accordance with the following table:
Exercise Date
After the Close On or Before the Exercise Price
of Business Close of Business Per Share
- --------------- ----------------- ---------------
May 13, 1993 March 14, 1994 $35.75**
March 14, 1994 March 14, 1995 $37.25**
March 14, 1995 March 14, 1996 $38.75
March 14, 1996 March 14, 1997 $40.25
March 14, 1997 March 14, 1998 $41.75
**(expired prior to, but adjusted to reflect, stock distribution paid
June 16, 1995)
Subject to the terms and conditions set forth herein and in the Warrant
Agreement referred to on the reverse hereof, this Warrant may be exercised
upon surrender of this Warrant Certificate and payment of the aggregate
Exercise Price at the office or agency of the Warrant Agent in New York,
New York or in Chicago, Illinois (each such office, a "Warrant Agent Office").
The Exercise Price and the number of Shares purchasable upon exercise of
this Warrant are subject to adjustment upon the occurrence of certain events
as set forth in the Warrant Agreement.
No Warrant may be exercised prior to May 14, 1993 or after the Close of
Business on the Expiration Date, unless the Company exercises its option to
extend such date. After the Close of Business on the Expiration Date, the
Warrants will become wholly void and of no value.
REFERENCE IS HEREBY MADE TO THE FURTHER PROVISIONS OF THIS WARRANT
CERTIFICATE SET FORTH ON THE REVERSE HEREOF. SUCH FURTHER PROVISIONS SHALL
FOR ALL PURPOSES HAVE THE SAME EFFECT AS THOUGH FULLY SET FORTH AT THIS PLACE.
This Warrant Certificate shall not be valid unless countersigned by the
Warrant Agent.
IN WITNESS WHEREOF, the Company has caused this Certificate to be executed
by its duly authorized officers, and the corporate seal hereunto affixed.
Dated: ________________
INTEL CORPORATION
By ___________________________
[Corporate Seal of Intel Corporation]
ATTEST:
By __________________________________
Countersigned:
HARRIS TRUST AND SAVINGS BANK,
AS WARRANT AGENT
By __________________________________
[FORM OF REVERSE OF WARRANT CERTIFICATE]
INTEL CORPORATION
The warrant evidenced by this warrant certificate is a part of a duly
authorized issue of 1998 Step-Up Warrants to purchase a maximum of forty
million (40,000,000) Shares of Common Stock (subject to adjustment) issued
pursuant to a Warrant Agreement, dated as of March 1, 1993, as the same has
and may be amended from time to time (the "Warrant Agreement"), duly executed
and delivered by the Company to Harris Trust and Savings Bank, as Warrant
Agent (the "Warrant Agent"). The Warrant Agreement hereby is incorporated by
reference in and made a part of this instrument and is hereby referred to for a
description of the rights, limitation of rights, obligations, duties and
immunities thereunder of the Warrant Agent, the Company and the holders (the
words "holders" or "holder" meaning the registered holders or registered
holder) of the Warrants. A copy of the Warrant Agreement may be inspected at
the Warrant Agent Office and is available upon written request addressed to
the Company. All terms used herein that are defined in the Warrant Agreement
have the meanings assigned to them therein.
Warrants may be exercised to purchase Shares from the Company before the
Close of Business on the Expiration Date, at the Exercise Price set forth on
the face hereof, subject to adjustment as described in the Warrant Agreement.
The holder of the Warrant evidenced by this Warrant Certificate may exercise
such Warrant by surrendering the Warrant Certificate, with the form of election
to purchase set forth hereon properly completed and executed, together with
payment of the aggregate Exercise Price, in lawful money of the United States
of America, and any applicable transfer taxes, at the Warrant Agent Office.
In the event that upon any exercise of the Warrant evidenced hereby the
number of Shares actually purchased shall be less than the total number of
Shares purchasable upon exercise of the Warrant evidenced hereby, there shall
be issued to the holder hereof, or such holder's assignee, a new Warrant
Certificate evidencing a Warrant to purchase the Shares not so purchased. No
adjustment shall be made for any cash dividends on any Shares issuable upon
exercise of this Warrant. After the Close of Business on the Expiration Date,
unexercised Warrants shall become wholly void and of no value.
The Company shall not be required to issue fractions of Shares or any
certificates that evidence fractional Shares. In lieu of such fractional
Shares, there shall be paid to holders of the Warrant Certificates with regard
to which such fractional Shares would otherwise be issuable an amount in cash
equal to the same fraction of the current market value (as determined pursuant
to the Warrant Agreement) of a full Share.
Warrant Certificates, when surrendered at the Warrant Agent Office by the
registered holder thereof in person or by a legal representative or attorney
duly authorized in writing, may be exchanged, in the manner and subject to the
limitations provided in the Warrant Agreement, but without payment of any
service charge, for another Warrant Certificate or Warrant Certificates of like
tenor evidencing a Warrant to purchase in the aggregate a like number of Shares.
Upon due presentment for registration of transfer of this Warrant
Certificate at the Warrant Agent Office, a new Warrant Certificate or Warrant
Certificates of like tenor and evidencing a Warrant or Warrants to purchase in
the aggregate a like number of Shares shall be issued to the transferee in
exchange for this Warrant Certificate, subject to the limitations provided in
the Warrant Agreement, without charge, except for any tax or other
governmental charge imposed in connection therewith.
The Company and Warrant Agent may deem and treat the registered holder
hereof as the absolute owner of this Warrant Certificate (notwithstanding any
notation of ownership or other writing hereon made by anyone) for the purpose
of any exercise hereof and for all other purposes, and neither the Company nor
the Warrant Agent shall be affected by any notice to the contrary.
ELECTION TO EXERCISE
(TO BE EXECUTED UPON EXERCISE OF THE WARRANT)
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase _______ Shares and
herewith tenders in payment for such Shares $______ in lawful money of the
United States of America, in accordance with the terms hereof. The undersigned
requests that a certificate representing such Shares be registered and
delivered as follows:
___________________________________________________
Name
___________________________________________________
Address
___________________________________________________
Delivery Address (if different)
If such number of Shares is less than the aggregate number of Shares
purchasable hereunder, the undersigned requests that a new Warrant Certificate
representing the balance of such Shares be registered and delivered as follows:
___________________________________________________
Name
___________________________________________________
Address
___________________________________________________
Delivery Address (if different)
_________________________________ _________________________________
Social Security or Other Taxpayer Signature
Identification Number of Holder
Note: The above signature must
correspond with the name as
written upon the face of this
Warrant Certificate in every
particular, without alteration or
enlargement or any change what-
soever. If the certificate
representing the Shares or any
Warrant Certificate representing
Warrants not exercised is to be
registered in a name other than
that in which this Warrant
Certificate is registered, the
signature of the holder hereof
must be guaranteed.
SIGNATURE GUARANTEED:
_________________________________
ASSIGNMENT
(TO BE EXECUTED BY THE REGISTERED HOLDER IF SUCH
HOLDER DESIRES TO TRANSFER THE WARRANT CERTIFICATE)
FOR VALUE RECEIVED, the undersigned registered holder hereby sells, assigns
and transfers unto
___________________________________________________
Name of Assignee
___________________________________________________
Address of Assignee
this Warrant Certificate, together with all right, title and interest therein,
and does irrevocably constitute and appoint ____________________ attorney, to
transfer the within Warrant Certificate on the books of the Warrant Agent, with
full power of substitution.
_________________________________ _________________________________
Dated Signature
Note: The above signature must
correspond with the name as
written upon the face of this
Warrant Certificate in every
particular, without alteration or
enlargement or any change
whatsoever.
_________________________________
Social Security or Other Taxpayer
Identification Number of Assignee
SIGNATURE GUARANTEED:
_________________________________
