<PAGE> 1
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 For the fiscal year ended December 28, 1996, 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 28, 1997
$108.5 billion
817.5 million shares of Common Stock outstanding as of February 28, 1997
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of Annual Report to Stockholders for fiscal year ended December
28, 1996 - Part II and Part IV.
(2) Portions of the Registrant's Proxy Statement related to the 1997 Annual
Meeting of Stockholders, to be filed subsequent to the date hereof -
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's principal components consist of silicon-based
semiconductors etched with complex patterns of transistors. Each one of these
integrated circuits can perform the functions of thousands--some 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
products, 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 Pro and the Pentium 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 computers 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 resulting trend is toward microprocessors that are smaller,
faster, consume less power and cost less to manufacture. In 1996, the Company
expanded manufacturing capacity on its 0.35 micron process technology,
enabling very high-volume production of its newest, fastest Pentium Pro and
Pentium microprocessors.
During 1996, the rapid transition of the personal computer (PC) market
segment to the Pentium microprocessor continued. Pentium microprocessors
now power entry-level to high-end computer systems. Intel significantly
expanded the Pentium microprocessor family in 1996, introducing new versions
operating at 150, 166 and 200 MHz. The 120- and 133-MHz versions of the
Pentium processor are now used in entry-level PCs. In January 1997, the
Company introduced versions of the Pentium microprocessor with MMX media
enhancement technology, with improvements that significantly enhance
media-rich and communications applications.
In 1996, Intel also introduced 133- and 150-MHz versions of the Pentium
microprocessor for mobile computers. The 120-MHz mobile Pentium processor,
introduced in 1995, is now aimed at entry-level notebook systems. These
processors, optimized for notebook and mobile applications, consume less
power and come in a smaller package than the desktop or server versions.
<PAGE> 3
In February 1997, the Company introduced the Intel Mobile Module, an
integrated module that plugs into a mobile system's motherboard. This module
is designed to help equipment manufacturers bring new notebooks to market and
to improve notebook performance.
Intel's sixth-generation processor, the Pentium Pro microprocessor, made
significant advances in the server and workstation market segments in 1996.
The Pentium Pro microprocessor is fully compatible with prior generations and
delivers performance comparable to that of traditional mid-range workstations
at about one-third of the system cost of such workstations. In 1996, the
Pentium Pro microprocessor multiprocessing and manageability features made it
a popular choice for enterprise server applications, as well as business
desktops utilizing full 32-bit software environments such as Windows NT*. In
early 1997, Intel named its new Pentium Pro processor with MMX media
enhancement technology the Pentium II processor. This processor initially
will be targeted at the business market segment and is expected to be
available in computer systems in the first half of 1997.
Sales of Pentium microprocessors and related board-level products comprised
a majority of the Company's revenues and a substantial majority of its gross
margin during 1995 and 1996. During 1996 Pentium Pro microprocessors and
related board-level products became an increasing portion of the Company's
revenue and gross margin. The Intel486 microprocessor family contributed
negligible revenues and gross margin during 1996. During 1995, the Intel486
microprocessor family represented a significant but rapidly declining
portion of the Company's revenues and gross margins, while it comprised a
majority of the Company's revenues and a substantial majority of its gross
margin during 1994.
During 1996, Intel's OverDrive processors, a family of upgrade
microprocessors, expanded to include products based on certain of the newer
Pentium microprocessors, allowing users to upgrade their older Pentium
processor-based systems. Intel announced OverDrive processors that upgrade
systems to the approximate level of 120-, 125-, 133-, 150- and 166-MHz
versions of the Pentium microprocessor. Users may still upgrade Intel486
microprocessor systems with the Pentium OverDrive processor as well. In
1997, Intel expects to introduce Pentium OverDrive processors with MMX
technology, bringing richer multimedia performance to Pentium processor-based
PCs in a single upgrade chip.
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 the Peripheral Components Interconnect
(PCI) bus, the Intel 430 PCIset family for desktop and mobile Pentium
microprocessors and the Intel 440 and 450 PCIset families for the Pentium Pro
microprocessors perform essential logic functions surrounding the CPU in
computers based on Intel architecture processors. Due to the growth of
Pentium microprocessor-based systems, Intel has become a major supplier of
core-logic chipsets.
In 1996, Intel introduced a new, fourth-generation PCI chipset family for
Pentium processors: the 430HX for Pentium processor-based business PCs and
the 430VX for Pentium processor-based home and small business PCs. These
products signify an important evolution in chipsets: by optimizing two
separate chipsets for different market segments, Intel helps OEMs and
motherboard manufacturers fine-tune the price-performance of their systems
and boards and make specific product designs for their targeted audiences.
The Intel430 PCIsets were the first chipset products to support the Universal
Serial Bus (USB), a new industry initiative to improve PC performance.
In 1996, Intel also introduced the 440FX PCIset, a highly integrated chip set
solution for delivering Pentium Pro processor performance to mainstream
business systems. This second-generation PCIset for Pentium Pro processors
optimizes system performance for 32-bit application software in 32-bit
operating system environments, and supports USB capabilities.
- - ---------------------------------
* Other brands and names are the property of their respective owners.
<PAGE> 4
Embedded Processors and Microcontrollers.
- - ----------------------------------------- Intel provides embedded products
such as microprocessors, microcontrollers and memory components to a wide
range of manufacturers. Embedded products are used in products such as
automobile engine and braking systems, hard disk drives, laser printers,
input/output control modules, cellular phones, home appliances, factory
automation control products, commercial and military avionics, and medical
instrumentation.
Intel's embedded products line consists of 32-bit processors,including the
i960 processor family and the embedded Intel386 and Intel486 processor
families; the 16-bit 80C186 processor family; 16-bit MCS 96 microcontrollers;
and 8-bit microcontrollers, such as the MCS 51 and MCS 251 microcontroller
families.
The Company introduced several embedded control products in 1996, including
the MCS 96 architecture-based 87C196LB and 83C196LC/LD 16-bit
microcontrollers for automotive applications, such as anti-lock braking,
traction control and multi-airbag systems; and the new MCS 151
microcontroller, the 8xC151, offering an intermediate performance and price
level between the original 80C51 device and the more recent 8xC251 series of
microcontrollers. In early 1997, the Company introduced the i960 RD I/O
processor which is dedicated to high-performance input/output subsystems for
network servers.
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 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 1996, Intel introduced a
new family of Smart Voltage flash memory products made on the Company's 0.4
micron process. Available in 4-, 8- and 16-Mbit levels, the new products are
used in network servers and digital audio and digital photography systems.
Network and Communications Products.
- - ------------------------------------ These hardware and software products
are sold to corporate network administrators and PC users through reseller,
retail and original equipment manufacturer channels. The product line
enhances the capabilities of PC systems and networks and makes them easier to
use and manage. Intel's networking products are designed to help reduce
the total cost of networked business computing by providing high-bandwidth
communications to PC desktop and server systems, and making it easier for
local area network (LAN) administrators to install and manage their systems.
Intel's networking products consist of network management products, including
the LANDesk Management Group of products, and LAN hardware products, such as
the EtherExpress family of adapters and Express Switching Hubs and Stackable
Hubs.
New LANDesk Management Group products in 1996 included: LANDesk Virus Protect
for Windows NT and NetWare* servers as well as client and stand-alone PCs;
LANDesk Network Manager software for easier, cost-effective management of
Intel's workgroup hubs and switches; and the latest LANDesk Management
Technology, enabling administrators to configure new PCs without having to
install software manually at each user workstation.
Also in 1996, Intel introduced several new or upgraded LAN products:
100BASE-T4 models of the EtherExpress PRO/100 adapter and Express Stackable
Hubs; the NetportExpress PRO/100 print server, allowing workgroups to connect
and manage printers at 10Mbps or 100Mbps; and the Intel Express 100BASE-TX
Switching Hub, providing 100Mbps networking performance with workgroups of
up to hundreds of client PCs. In 1996, the EtherExpress PRO/100 was found by
LANQuest Labs to outperform other Fast Ethernet LAN adapters in both Windows
NT and Novell NetWare environments.
- - -------------------------------------
* Other brands and names are the property of their respective owners.
<PAGE> 5
From time to time, Intel invests in various companies. In February 1997,
Intel announced it had acquired Case Technology, based in Copenhagen,
Denmark. Case Technology is an innovator in Fast Ethernet networking
technology and its products are expected to become elements of Intel's
strategy for providing customers with a cost-effective range of networking
solutions. Case Technology has expertise and products in the 10 and 100Mbps
Ethernet switching and small business and branch office routing areas.
Conferencing Products.
- - ---------------------- The Intel ProShare conferencing technology is used in
a PC-based video-conferencing system that offers full application and
document sharing and is certified for use in over 25 countries. It gives
users powerful, real-time information-sharing capabilities and an innovative
way to convey ideas. The technology supports video and data conferences over
ISDN or corporate LAN networks. It also 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.
The product line includes the ProShare Conferencing Video System 200, one of
the industry's leading desktop conferencing solutions, allowing up to 24
people to simultaneously see each other, convey ideas and edit data from
their own PCs, and the ProShare TeamStation, a group video conferencing
system for meeting rooms, with all the features of the ProShare Conferencing
Video System 200.
In 1996, Intel expanded the ProShare technology family to reach home PC users
for the first time with the introduction of the Intel Video Phone with
ProShare technology. This consumer video conferencing product allows people
to see and hear each other on home PCs using ordinary phone lines. The
technology is available in PCs from various companies. The Intel Video Phone
runs best on systems with an Intel Pentium processor with MMX technology, for
smoothest display of compressed video signals.
Manufacturing
A substantial majority of the Company's wafer production, including
microprocessor fabrication, and a significant portion of the assembly and
final testing of the resulting components is conducted at domestic Intel
facilities in Chandler, Arizona; Aloha, Oregon; Santa Clara, 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; DuPont, Washington; and Las Piedras, Puerto Rico.
Outside the United States, a significant portion of Intel's wafer production
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 component assembly and testing
(including Pentium processor 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 its facility in Leixlip, Ireland.
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 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 manufacture of integrated circuits is a complex process. Normal
manufacturing risks include errors and interruptions in the fabrication
process and defects in raw materials, as well as other risks, all of which
can affect yields.
<PAGE> 6
Employees
At December 28, 1996, the Company employed approximately 48,500 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 1996, none of which represented more than 10% of total
revenues.
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.
<PAGE> 7
Competition
The Company competes in different product lines to various degrees on the
basis of price, performance, availability and quality. 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. 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. In microprocessor
board-level and system products, Intel competes with board manufacturers and
microprocessor-based computer manufacturers. Some competitors are also Intel
customers.
A number of competitors have developed and begun marketing products that are
software compatible with some of the Company's key products. In particular,
companies have announced plans to ship products in 1997 intended to compete
with the Pentium and Pentium Pro microprocessor families. 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, increase performance or sell at lower prices. The
Company also faces significant competition from companies that offer rival
microprocessor architectures. The Company cannot predict whether such rival
architectures will establish or increase 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.
Intel's strategy has been, and continues to be, to introduce ever higher
performance microprocessors. To implement this strategy, the Company plans to
cultivate new businesses and continue to work with the software industry to
develop compelling applications that can take advantage of this higher
performance, thus driving demand toward the 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.
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 many 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 a new 64-bit microprocessor
architecture and software optimizations with a third party. New 64-bit
processors based on this 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 $1,808 million, $1,296
million and $1,111 million in fiscal years 1996, 1995 and 1994,
respectively. As of December 28, 1996, Intel had approximately 9,100
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 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.
<PAGE> 8
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 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 and other parties.
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 obtain a
software license contract before providing a customer with certain computer
programs. Certain components have computer programs embedded in them, and
Intel has obtained copyright protection for some of these programs as well.
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
intellectual property 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.
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.
<PAGE> 9
Executive Officers
The following sets forth certain information with regard to executive officers
of Intel (ages are as of December 28, 1996):
Craig R. Barrett (age 57) has been Chief Operating Officer since 1993; a
director of Intel since 1992; and Executive Vice President since 1990.
Andrew S. Grove (age 60) 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 60) has been a director of Intel since 1988; and Senior
Vice President, Director of Corporate Business Development since 1991.
Frank C. Gill (age 53) has been Executive 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.
Paul S. Otellini (age 46) has been Executive Vice President, Director, Sales
and Marketing Group since 1996. Prior to that, Mr. Otellini was Senior Vice
President, Director, Sales and Marketing Group from 1994 to 1996; Senior Vice
President and General Manager, Microprocessor Products Group from 1992 to
1994 and Vice President and General Manager, Microprocessor Products Group
from 1991 to 1992.
Gerhard H. Parker (age 53) has been Executive Vice President and General
Manager, Technology and Manufacturing Group since 1996. Prior to that, Dr.
Parker was Senior Vice President and General Manager, Technology and
Manufacturing Group from 1992 to 1996; Vice President and General Manager,
Technology and Manufacturing Group from 1990 to 1992.
Ronald J. Whittier (age 60) 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 and Vice President and General Manager, Software Technology Group
from 1991 to 1992.
Albert Y. C. Yu (age 55) 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.
Michael A. Aymar (age 49) has been Vice President and General Manager,
Desktop Products Group since 1995. Prior to that, Mr. Aymar was Vice
President and General Manager, Intel486 Microprocessor Division from 1994 to
1995 and Vice President and General Manager, Mobile Computing Group from 1991
to 1994.
Andy D. Bryant (age 46) 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 45) has been Vice President, General Counsel and
Secretary since 1987.
<PAGE> 10
Executive Officers, continued
Patrick P. Gelsinger (age 35) has been Vice President and General Manager,
Desktop Products Group since 1996. Prior to that, Mr. Gelsinger was Vice
President, Internet and Communications Group and General Manager ICG Product
Development from 1995 to 1996; Vice President, Intel Products Group and
General Manager, Personal Conferencing Division from 1993 to 1995; Vice
President, Intel Products Group and General Manager, PC Enhancement Division-
Business Communications from 1992 to 1993; and General Manager, MD 6,
Microprocessor Development from 1991 to 1992.
John H. F. Miner (age 41) has been Vice President and General Manager,
Enterprise Server Group since 1996. Prior to that, Mr. Miner was Vice
President, Desktop Products Group and General Manager, OEM Products and
Services Division from 1995 to 1996; General Manager, OEM Products and
Services Division from 1993 to 1995 and General Manager, OEM Modules
Operation from 1992 to 1993.
Stephen P. Nachtsheim (age 51) 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.
Ronald J. Smith (age 46) has been Vice President and General Manager,
Computing Enhancement Group since 1996. Prior to that, Mr. Smith was Vice
President, Desktop Products Group and General Manager, PCI Components
Division from 1995 to 1996; and he served in the positions of General
Manager, Programmable Logic Device Operation and before that, General Manager
, Gate Array Operation for the period covering 1992 to 1995.
<PAGE> 11
ITEM 2. PROPERTIES
At December 28, 1996, Intel owned the major facilities described below:
<TABLE>
<S> <C> <C> <C>
No. of Bldgs. Location Total Sq. Ft. Use
- - ------------- -------- ------------- ---
61 United States 12,385,000 Executive and administrative
offices, wafer fabrication,
components assembly and
testing, research and
development, computer and
service functions, board and
system assembly, and
warehousing.
6 Ireland 959,000 Wafer fabrication, board and
system assembly, warehousing
and administrative offices.
6 Malaysia (A) 531,000 Components assembly and
testing, warehousing and
administrative offices.
4 Israel 380,000 Wafer fabrication, design
center and administrative
offices.
5 Puerto Rico 426,000 Board and system assembly,
warehousing and
administrative offices.
3 England 184,000 Sales and marketing,
warehousing and
administrative offices.
3 Japan 167,000 Sales and marketing,
warehousing and
administrative offices.
1 Philippines 431,000 Components assembly and
testing, warehousing and
administrative offices.
1 Germany 86,000 Sales and marketing and
administrative offices.
</TABLE>
At December 28, 1996, Intel also leased 22 major facilities in the U.S.
totaling approximately 722,000 square feet and 12 facilities in other
countries totaling approximately 275,000 square feet. These leases expire at
varying dates through 2005 and include 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 also has 3.5 million square feet of building
space under various stages of construction in the United States and abroad
for manufacturing and administrative purposes.
- - ----------------------------
(A) The lease on a portion of the land used for these facilities expires in
2032.
<PAGE> 12
ITEM 3. LEGAL PROCEEDINGS
A. Litigation
EMI Group, NA vs. Intel, DEL (C95-199)
--------------------------------------
On March 29, 1995, the plaintiff brought suit in Federal Court in Delaware
alleging infringement of a U.S. patent relating to processes for
manufacturing semiconductors. The plaintiff sought injunctive relief and
damages of one and one-quarter percent (1 1/4%) royalties from the sale of
microprocessors manufactured using the allegedly infringing processes. In May
1996, the Court granted Intel's motion for summary judgment on some of the
processes in issue. In November 1996, the Court granted Intel's motion for
summary judgment on the remaining processes in issue and entered judgment in
favor of Intel and against the plaintiff on the claims in the complaint. EMI
has appealed this decision. 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.
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 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
<PAGE> 13
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 37 of the Registrant's
1996 Annual Report to Stockholders which information is hereby
incorporated by reference.
(b) As of February 28, 1997, there were approximately 124,000
registered folders 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 1992 through 1996, under the heading "Financial Summary" on
page 33 of the Registrant's 1996 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 28, 1996 are as follows:
Fiscal Year
----------------------------------------------
1992 1993 1994 1995 1996
20.7x 54.4x 39.5x 67.6x 107.8x
Fixed charges consist of interest expense and the estimated interest
component of rent expense.
- - ---------------
** Page references to the 1996 Annual Report to Stockholders or to the
Registrant's Proxy Statement related to the 1997 Annual Meeting of
Stockholders under Items 5, 6, 7 and 8 in Part II; 10, 11 and 12 in Part III
and 14 in Part IV relate to the bound, printed versions of such Report and
Proxy Statement, not to the electronic versions appearing at the Intel
Internet site (www.intel.com). However, all data referred to also appears in
the electronic versions.
<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 34 through 36 of the Registrant's 1996 Annual Report to
Stockholders, which information is hereby incorporated by reference.
Between December 28, 1996 and March 26, 1997, Intel repurchased 7.7 million
shares of Common Stock under the Company's authorized stock repurchase
program at a cost of $1.2 billion. The Company also sold 6 million put
warrants, receiving proceeds of $88 million, while 3 million previously
outstanding put warrants expired unexercised. As of March 26, 1997, the
Company had the potential obligation to repurchase 7.5 million shares of
Common Stock at an aggregate price of $1.0 billion under outstanding put
warrants. The 7.5 million put warrants outstanding at March 26, 1997 expire
on various dates between April 1997 and February 1998 and have exercise
prices ranging from $66 to $162 per share, with an average exercise price of
$136. In March 1997, Intel's Board of Directors approved an increase of up to
30 million shares in the stock repurchase program. With the additional
authorization, after reserving shares to cover outstanding put warrants, 39.9
million shares remain available for repurchase under the authorization as of
March 26, 1997.
In line with the Company's strategy to introduce ever higher performance
microprocessors, Intel plans to introduce the Pentium(R) Pro processor with
MMX(TM) media enhancement technology, named the Pentium(R) II, in the first
half of 1997.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated financial statements of Intel Corporation at December 28, 1996
and December 30, 1995 and for each of the three years in the period ended
December 28, 1996 and the Report of Independent Auditors thereon and Intel
Corporation's unaudited quarterly financial data for the two-year period
ended December 28, 1996 are incorporated by reference from the Registrant's
1996 Annual Report to Stockholders, on pages 18 through 33 and page 37.
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 5 of the Registrant's Proxy Statement related to the 1997 Annual
Meeting of Stockholders (the "1997 Proxy Statement") , 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 6 and 7, 11 and 13, respectively, of
the 1997 Proxy Statement, 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 1997 Proxy Statement, under
the heading "Security Ownership of Certain Beneficial Owners and Management,"
on pages 16 and 17, 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))
<TABLE>
Reference Page
1996
Annual
Form Report to
10K Stockholders
--- ------------
<S> <C> <C>
Consolidated Balance Sheets-
December 28, 1996 and December 30, 1995 19
Consolidated Statements of Income for
the years ended December 28, 1996,
December 30, 1995 and December 31, 1994 18
Consolidated Statements of Cash Flows
for the years ended December 28, 1996,
December 30, 1995 and December 31, 1994 20
Consolidated Statements of Stockholders'
Equity for the years ended December 28, 1996,
December 30, 1995 and December 31, 1994 21
Notes to Consolidated Financial Statements-
December 28, 1996, December 30, 1995 and
December 31, 1994 22-31
Report of Ernst & Young LLP, Independent Auditors 32
Supplementary Information (unaudited)
Financial Information by Quarter 37
Schedule for years ended December 28, 1996,
December 30, 1995 and December 31, 1994:
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 1996 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 1996 Annual Report to Stockholders is not to be
deemed filed as part of this report.
<PAGE> 18
INTEL CORPORATION
-----------------
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
December 31, 1994, December 30, 1995 and December 28,1996
(In Millions)
<TABLE>
Additions
Balance at Charged to Balance
Beginning Costs and at End
of Year Expenses Deductions(A) of Year
------- -------- -------------- -------
<S> <C> <C> <C> <C>
1994
Allowance for Doubtful
Receivables $22 $10 $-- $32
--- --- --- ---
1995
Allowance for Doubtful
Receivables $32 $28 $ 3 $57
--- --- --- ---
1996
Allowance for Doubtful
Receivables $57 $25 $14 $68
--- --- --- ---
(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 4.2 of Registrant's Registration Statement on Form S-8 as
filed on February 3, 1997).
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 (incorporated
by reference to Exhibit 4.2 of the Registrant's Form 10-K as filed
on March 29, 1996).
10.1* Intel Corporation 1984 Stock Option Plan as amended and restated,
effective March 26, 1997.
10.2* Intel Corporation 1988 Executive Long Term Stock Option Plan as
amended and restated, effective March 26, 1997.
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 July 15, 1996 (incorporated by reference to
Exhibit 4.1.1 of Registrant's Registration Statement on Form S-8 as
filed on July 17, 1996).
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 28, 1996 expressly incorporated by reference herein.
21. Intel Subsidiaries.
23. Consent of Ernst & Young LLP, Independent Auditors.
27. Financial Data Schedule.
- - --------------------------
* Compensation plans or arrangements in which directors and executive
officers are eligible to participate.
<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
By /s/ F. Thomas Dunlap, Jr.
- - ----------------------------
F. Thomas Dunlap, Jr.
Vice President and Secretary
March 26, 1997
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the
dates indicated.
/s/ Craig R. Barrett /s/ Gordon E. Moore
- - -------------------- -------------------
Craig R. Barrett Gordon E. Moore
Director Chairman of the Board
March 26, 1997 March 26, 1997
/s/ Max Palevsky
- - -------------------- -----------------
John Browne Max Palevsky
Director Director
March 26, 1997 March 26, 1997
/s/ Andy D. Bryant /s/ Arthur Rock
- - ------------------ ---------------
Andy D. Bryant Arthur Rock
Vice President, Director
Chief Financial Officer, March 26, 1997
Principal Accounting
and Financial Officer
March 26, 1997
/s/ Jane E. Shaw
/s/ Winston H. Chen ----------------
- - ------------------- Jane E. Shaw
Winston H. Chen Director
Director March 26, 1997
March 26, 1997
/s/ Leslie L. Vadasz
--------------------
/s/ Andrew S. Grove Leslie L. Vadasz
- - ------------------- Director
Andrew S. Grove March 26, 1997
President and Director,
Principal Executive Officer
March 26, 1997 /s/ David B. Yoffie
-------------------
David B. Yoffie
/s/ D. James Guzy Director
- - ----------------- March 26, 1997
D. James Guzy
Director
March 26, 1997 ----------------
Charles E. Young
Director
March 26, 1997
<PAGE> 1 EXHIBIT 10.1
INTEL CORPORATION
1984 STOCK OPTION PLAN
(Amended and Restated Effective March 26, 1997)
1. PURPOSE
The purpose of this amended and restated Intel Corporation
1984 Stock Option Plan (the "Plan") is to advance the
interests of Intel Corporation, a Delaware corporation and
its subsidiaries (hereinafter collectively "Intel" or the
"Corporation"), by stimulating the efforts of key employees
on behalf of Intel, heightening the desire of key employees
to continue in employment with Intel, assisting Intel in
competing effectively with other enterprises for the
services of new employees necessary for the continued
improvement of operations, and to attract and retain the
best available personnel for service as directors of the
Corporation. This Plan, among other matters, permits the
grant of incentive stock options as defined in Section 422
of the Internal Revenue Code of 1986, as amended (the
"Code"), as well as options which are not incentive stock
options pursuant to Code Section 422, and includes the
individual grant limitations required by Section 162(m) of
the Code for the option income of certain individuals to be
tax deductible by the Corporation.
2. DEFINITIONS
(a) "Board of Directors" means the Board of Directors of the
Corporation.
(b) "Committee" shall mean the Compensation Committee appointed
by the Board of Directors from among its members to administer
this Plan pursuant to Section 9.
(c) "Disablement" shall have the meaning specified by the
Committee in the terms of an option grant or, in the absence of
any such term, shall mean a physical condition arising from an
illness or injury which renders an individual incapable of
performing work. The determination of the Committee as to an
individual's Disablement shall be conclusive on all of the
parties.
(d) "Plan" means the Intel Corporation 1984 Stock Option Plan,
as amended and restated herein.
(e) "Retirement" shall have the meaning specified by the
Committee in the terms of an option grant or, in the absence of
any such term, shall mean retirement from active employment with
Intel at or after age 60. The determination of the Committee as
to an individual's Retirement shall be conclusive on all parties.
(f) "Subsidiary" means any corporation in an unbroken chain of
corporations beginning with Intel Corporation where each of the
corporations in the unbroken chain other than the last
corporation owns stock possessing fifty percent (50%) or more of
the total combined voting power of all classes of stock in one of
<PAGE> 2
the other corporations in such chain.
3. PARTICIPANTS
"Participants" in the Plan shall be those key Intel
employees to whom options may be granted from time to time
by the Committee. Participants shall also include non-
employee directors of the Corporation to whom options are
granted in accordance with Section 6. No option shall be
granted to any person if immediately after the grant of such
option such person would own stock, including stock subject
to outstanding options held by him or her, amounting to more
than five percent (5%) of the total combined voting power or
value of all classes of stock of the Corporation or any
Subsidiary.
4. EFFECTIVE DATE AND TERMINATION OF PLAN
This Plan was last approved by the stockholders on May 4,
1994, and became effective on May 4, 1994. The Plan was
amended and restated by the Board of Directors in certain
non-material respects on March 26, 1997. The Plan shall
remain available for the grant of options until all shares
of stock available for option grants under this Plan shall
have been acquired through exercise of such options or on
May 3, 2004, whichever is earlier or at such earlier time as
the Board of Directors may determine. Termination of the
Plan will not affect the rights and obligations arising
under options theretofore granted and then in effect.
5. SHARES SUBJECT TO THE PLAN AND TO OPTIONS
The stock subject to options authorized to be granted under
the Plan shall consist of 85,000,000 shares of the
Corporation's common stock, $.001 par value ("Common
Stock"), or the number and kind of shares of stock or other
securities which shall be substituted or adjusted for such
shares as provided in Section 7. Such shares may be
authorized and unissued shares of the Corporation's common
stock. All or any shares of stock subject to an option
which for any reason terminates unexercised may again be
made subject to an option under the Plan.
6. GRANT, TERMS AND CONDITIONS OF OPTIONS
Options may be granted at any time and from time to time
prior to the termination of the Plan to those key employees
of Intel who, in the Committee's judgment, are largely
responsible through their judgment, interest, ability and
special efforts for the successful conduct of Intel's
operations. However, no Participant shall be granted
options in any year to purchase a number of shares of the
Corporation's Common Stock in excess of one percent (1%) of
the number of shares of the Corporation's common stock
outstanding on January 1, 1994.
Options may be granted to non-employee directors as follows.
The number of shares subject to each option grant to non-
employee directors, or the formula pursuant to which such
number shall be determined, the date of grant and the
vesting, expiration and other terms applicable to such
<PAGE> 3
options shall be specified from time to time by the Board of
Directors. Subject to adjustment pursuant to Section 7, the
maximum number of shares of Common Stock subject to options
granted under this Plan to any person on account of his or
her service as a non-employee director from the date of his
or her election or appointment as a director until the date
of the next regular annual stockholders' meeting shall not
exceed 5,000. All options granted to non-employee directors
will be non-qualified stock options.
No Participant or optionholder shall have any rights as a
stockholder with respect to any shares of stock subject to
option hereunder until said shares have been issued. Option
grants may be evidenced by a written stock option agreement
and/or such other written arrangements as may be approved
from time to time by the Committee. Each option grant will
expressly identify the option as an incentive stock option
or as a non-qualified stock option. Furthermore, the grant
of an incentive option pursuant to this Plan shall in no way
be construed as an alternative to the right of an optionee
to purchase stock pursuant to any present or future grant of
a non-qualified option under any of Intel's current or
future stock option plans. Options granted pursuant to the
Plan need not be identical but each option is subject to the
terms of the Plan and must contain and be subject to the
following terms and conditions:
(a) Price: The purchase price under each option granted to
employees shall be established by the Committee. In no event
will the option price be less than 100% of the fair market value
of the stock on the date of grant, except as otherwise provided
in accordance with subsection (g) below. The option price must
be paid in full at the time of the exercise. The price may be
paid in cash, cash equivalents or secured notes acceptable to the
Committee, by arrangement with a broker which is acceptable to
the Committee where payment of the option price is made pursuant
to an irrevocable direction to the broker to deliver all or part
of the proceeds from the sale of the option shares to the
Corporation, by the surrender of shares of common stock owned by
the optionee exercising the option and having a fair market value
on the date of exercise equal to the option price or in any
combination of the foregoing.
(b) Duration and Exercise or Termination of Option: Each option
granted to an employee shall be exercisable in such manner and at
such times as the Committee shall determine. Each option granted
must expire within a period of not more than ten (10) years from
the grant date. An employee's stock option agreement may provide
for accelerated exercisability in the event of the employee's
death, Disablement or Retirement or other events in accordance
with policies established by the Committee and may provide for
expiration prior to the end of its terms in the event of the
termination of the employee's service.
Unless the Board of Directors specifies otherwise, each
option granted to a non-employee director will become
fully exercisable beginning one year from the date on
<PAGE> 4
which the option was granted. If the Board of
Directors has provided for periodic option grants to
all non-employee directors, then when a non-employee
director is elected by the Board of Directors to begin
serving as director on a date not coincident with a
grant date for such options, that director will be
granted an initial non-employee director option as of
the date of the first meeting of the Board of Directors
at which he or she serves as director for a number of
shares calculated on a pro-rata basis, based on the
number of months remaining until the next regular grant
of options to non-employee directors.
(c) Suspension or Termination of Option: If at any time
(including after a notice of exercise has been delivered) the
Chief Executive Officer, President, Chief Operating Officer, Vice
President for Human Resources, General Counsel or any of their
designees (any such person, an "Authorized Officer") reasonably
believes that a Participant or other optionholder, other than a
non-employee director, has committed an act of misconduct as
described in this Section, the Authorized Officer may suspend the
Participant's or optionholder's rights to exercise any option
pending a determination of whether an act of misconduct has been
committed. If the Board of Directors or an Authorized Officer
determines a Participant or other optionholder, other than a non-
employee director, has committed an act of embezzlement, fraud,
dishonesty, nonpayment of any obligation owed to Intel, breach of
fiduciary duty or deliberate disregard of Intel rules resulting
in loss, damage or injury to Intel, or if a Participant or other
optionholder makes an unauthorized disclosure of any Intel trade
secret or confidential information, engages in any conduct
constituting unfair competition, induces any Intel customer to
breach a contract with Intel or induces any principal for whom
Intel acts as agent to terminate such agency relationship,
neither the Participant or optionholder nor his or her estate
shall be entitled to exercise any option whatsoever. In making
such determination, the Board of Directors or an Authorized
Officer shall act fairly and shall give the Participant an
opportunity to appear and present evidence on his or her behalf
at a hearing before a committee of the Board of Directors. For
any Participant who is an "executive officer" for purposes of
Section 16 of the Securities Exchange Act of 1934 (the "Exchange
Act"), the determination of the Board of Directors or of the
Authorized Officer shall be subject to the approval of the
Committee.
(d) Termination of Non-Employee Director's Service: Subject to
Section 6(b) and unless the Board of Directors specifies
otherwise, upon the termination of the Participant's service as a
non-employee director, his or her rights to exercise an option
then held shall be only as follows:
(1) Death. Upon the death of a non-employee director while in
service as a non-employee director of Intel, the non-employee
director's rights will be exercisable by his or her estate or
beneficiary at any time during the twelve (12) months next
succeeding the date of death. The number of shares exercisable
<PAGE> 5
by the estate or beneficiary will be the total number of
unexercised shares under the non-employee director's option on
the date of his or her death. If a non-employee director should
die within thirty (30) days of his or her termination of service
as a non-employee director with Intel, an option will be
exercisable by his or her estate or beneficiary at any time
during the twelve (12) months succeeding the date of termination,
but only to the extent of the number of shares as to which such
option was exercisable as of the date of such termination. A
non-employee director's estate shall mean his or her legal
representative or other person who so acquires the right to
exercise the option.
(2) Disablement. Upon the Disablement of a non-employee
director, any option which he or she holds, whether or not
exercisable on the date of Disablement, may be exercised after
the date of the Disablement within twelve (12) months.
(3) Retirement. Upon Retirement of a non-employee director, the
non-employee director's rights to non-qualified stock options
which he or she holds, whether or not otherwise exercisable on
the date of Retirement, may be exercised for a period of twelve
(12) months after Retirement.
(4) Other Reasons. Upon termination of a non-employee
director's service as a non-employee director for any reason
other than those stated above, the non-employee director may,
within ninety (90) days following such termination exercise the
option to the extent such option was exercisable on the date of
termination.
(e) Transferability of Option: Unless the Committee specifies
otherwise, each option shall be transferable only by will or the
laws of descent and distribution and shall only be exercisable by
the Participant during his or her lifetime.
(f) Modification or Assumption of Options: The Committee may
modify, extend or assume outstanding options (whether granted by
Intel or by another issuer) in return for the grant of new
options for the same or a different number of shares and at the
same or a different exercise price.
(g) Conditions and Restrictions Upon Securities Subject to
Options: Subject to the express provisions of the Plan, the
Committee may provide that the shares of Common Stock issued upon
exercise of an option shall be subject to such further conditions
or agreements as the Committee in its discretion may specify
prior to the exercise of such option, including without
limitation, conditions on vesting or transferability, forfeiture
or repurchase provisions and method of payment for the shares
issued upon exercise (including the actual or constructive
surrender of Common Stock already owned by the Participant or
optionholder). The Committee may establish rules for the
deferred delivery of Common Stock upon exercise of an option with
<PAGE> 6
the deferral evidenced by use of "Stock Units" equal in number to
the number of shares of Common Stock whose delivery is so
deferred. A "Stock Unit" is a bookkeeping entry representing an
amount equivalent to the fair market value of one share of Common
Stock. Unless the Committee specifies otherwise, Stock Units
represent an unfunded and unsecured obligation of the
Corporation. Settlement of Stock Units upon expiration of the
deferral period shall be made in Common Stock or otherwise as
determined by the Committee. The amount of Common Stock, or
other settlement medium, to be so distributed may be increased by
an interest factor or by dividend equivalents. Until a Stock
Unit is so settled, the number of shares of Common Stock
represented by a Stock Unit shall be subject to adjustment
pursuant to Section 7. Any Stock Units that are settled after
the holder's death shall be distributed to the holder's
designated beneficiary(ies) or, if none was designated, the
holder's estate.
(h) Other Terms and Conditions: Options may also contain such
other provisions, which shall not be inconsistent with any of the
foregoing terms, as the Committee shall deem appropriate. No
option, however, nor anything contained in the Plan shall confer
upon any Participant any right to continue in Intel's employ or
service nor limit in any way Intel's right to terminate his or
her employment or service at any time.
7. ADJUSTMENT OF AND CHANGES IN THE STOCK
(a) In the event that the shares of Common Stock of the
Corporation shall be changed into or exchanged for a different
number or kind of shares of stock or other securities of the
Corporation or of another corporation (whether by reason of
merger, consolidation, recapitalization, reclassification, split-
up, combination of shares, or otherwise), or if the number of
shares of Common Stock of the Corporation shall be increased
through a stock split or the payment of a stock dividend, then
there shall be substituted for or added to each share of common
stock of the Corporation theretofore appropriated or thereafter
subject or which may become subject to an option under the Plan,
the number and kind of shares of stock or other securities into
which each outstanding share of common stock of the Corporation
shall so be changed, or for which each such share shall be
exchanged, or to which each such share shall be entitled, as the
case may be. Outstanding options shall also be amended as to
price and other terms if necessary to reflect the foregoing
events. In the event there shall be any other change in the
number or kind of the outstanding shares of Common Stock of the
Corporation, or any stock or other securities into which such
Common Stock shall have been changed, or for which it shall have
been exchanged, then if the Committee shall, in its sole
discretion, determine that such change equitably requires an
adjustment in any option theretofore granted or which may be
granted under the Plan, such adjustment shall be made in
accordance with such determination.
<PAGE> 7
(b) No right to purchase fractional shares shall result from any
adjustment in options pursuant to this Section 7. In case of any
such adjustment, the shares subject to the option shall be
rounded down to the nearest whole share. Notice of any
adjustment shall be given by the Corporation to each Participant
or optionholder which shall have been so adjusted and such
adjustment (whether or not notice is given) shall be effective
and binding for all purposes of the Plan.
(c) Any other provision hereof to the contrary notwithstanding
(except Section 6(b)) in the event Intel is a party to a merger
or other reorganization, outstanding options shall be subject to
the agreement of merger or reorganization. Such agreement may
provide, without limitation, for the assumption of outstanding
options by the surviving corporation or its parent, for their
continuation by Intel (if Intel is a surviving corporation), for
accelerated vesting and accelerated expiration, or for settlement
in cash.
8. LISTING OR QUALIFICATION OF STOCK
In the event that the Board of Directors determines in its
discretion that the listing or qualification of the Plan
shares on any securities exchange or quotation or trading
system or under any applicable law or governmental
regulation is necessary as a condition to the issuance of
such shares under the option, the option may not be
exercised in whole or in part unless such listing,
qualification, consent or approval has been unconditionally
obtained.
9. ADMINISTRATION AND AMENDMENT OF THE PLAN
The Plan shall be administered by the Committee. The
Committee shall consist of two or more directors of Intel,
who shall be appointed by the Board of Directors. The Board
shall fill vacancies and may from time to time remove or add
members. All members of the Committee will be "non-employee
directors" as defined in Rule 16b-3 under the Exchange Act
and "outside directors" as defined under Section 162(m) of
the Code, but in each case only when required to exempt any
grant intended to qualify for an exemption under such
provisions. Notwithstanding the foregoing, unless otherwise
restricted by the Board of Directors, the Committee may
appoint one or more separate committees (any such committee,
a "Subcommittee") composed of one or more directors of Intel
(who may but need not be members of the Committee) and may
delegate to any such Subcommittee(s) the authority to grant
options under the Plan to Participants, to determine all
terms of such options, and/or to administer the Plan or any
aspect of it. Any action by any such Subcommittee within
the scope of such delegation shall be deemed for all
purposes to have been taken by the Committee.
Subject to the express provisions of this Plan, the
Committee shall be authorized and empowered to do all things
necessary or desirable in connection with the administration
of this Plan, including, without limitation: (a) to
prescribe, amend and rescind rules and regulations relating
to this Plan and to define terms not otherwise defined
<PAGE> 8
herein; (b) to determine which persons are Participants (as
defined in Section 3 hereof), to which of such Participants,
if any, an option shall be granted hereunder and the timing
of any such option grants; (c) to determine the number of
shares of Common Stock subject to an option and the exercise
or purchase price of such shares; (d) to establish and
verify the extent of satisfaction of any conditions to
exercisability applicable to an option; (e) to waive
conditions to and/or accelerate exercisability of an option,
either automatically upon the occurrence of specified events
(including in connection with a change of control of the
Corporation) or otherwise in its discretion; (f) to
prescribe and amend the terms of option grants made under
this Plan (which need not be identical); (g) to determine
whether, and the extent to which, adjustments are required
pursuant to Section 7 hereof; and (h) to interpret and
construe this Plan, any rules and regulations under the Plan
and the terms and conditions of any option granted
hereunder, and to make exceptions to any such provisions in
good faith and for the benefit of the Corporation.
All decisions, determinations and interpretations by the
Committee regarding the Plan, any rules and regulations
under the Plan and the terms and conditions of any option
granted hereunder, shall be final and binding on all
Participants and optionholders. The Committee shall
consider such factors as it deems relevant, in its sole and
absolute discretion, to making such decisions,
determinations and interpretations including, without
limitation, the recommendations or advice of any officer or
other employee of the Corporation and such attorneys,
consultants and accountants as it may select.
The Board of Directors may amend or terminate the Plan as
desired, without further action by the Corporation's
stockholders except to the extent required by applicable
law.
Notwithstanding the above, the provisions of Section 6
relating to non-employee directors may not be amended more
than once every six (6) months, except to comply with
changes to the Code or the rules thereunder.
10. TIME OF GRANTING OPTIONS
The effective date of each option granted hereunder shall be
the date on which the grant was made. Within a reasonable
time thereafter, Intel will deliver the option to the
Participant.
WITHHOLDING
To the extent required by applicable federal, state, local
or foreign law, a Participant or optionholder shall make
arrangements satisfactory to the Corporation for the
satisfaction of any withholding tax obligations that arise
by reason of an option exercise or any sale of shares. The
Corporation shall not be required to issue shares or to
recognize the disposition of such shares until such
obligations are satisfied. The Committee may permit these
obligations to be satisfied by having the Corporation
withhold a portion of the shares of stock that otherwise
would be issued to him or her upon exercise of the option,
or to the extent permitted, by tendering shares previously
acquired.
<PAGE> 1 Exhibit 10.2
INTEL CORPORATION
1988 EXECUTIVE LONG TERM
STOCK OPTION PLAN
(Amended and Restated Effective as of March 26, 1997)
1. PURPOSE
The purpose of this amended and restated Intel Corporation
1988 Executive Long Term Stock Option Plan (the "Plan") is
to advance the interests of Intel Corporation, a Delaware
corporation and its subsidiaries (hereinafter collectively
"Intel" or the "Corporation"), by stimulating the efforts of
certain key employees employed by Intel and heightening the
desire of such key employees to continue in employment with
Intel. The stock options granted pursuant to this Plan are
non-qualified stock options and shall not be incentive stock
options, as defined in Section 422 of the Internal Revenue
Code of 1986, as amended (the "Code"). This amended and
restated Plan includes the individual grant limitations
required by Section 162(m) of the Code for the option income
of certain individuals to be tax deductible by the
Corporation.
2. DEFINITIONS
(a) "Board of Directors" means the Board of Directors of the
Corporation.
(b) "Committee" means the Compensation Committee appointed by
the Board of Directors in accordance with Section 11.
(c) "Disablement" shall have the meaning specified by the
Committee in the terms of an option grant or, in the absence of
any such term, shall mean a physical condition arising from an
illness or injury which renders an individual incapable of
performing work. The determination of the Committee as to an
individual's Disablement shall be conclusive on all of the
parties.
(d) "Plan" means the Intel Corporation 1988 Executive Long Term
Stock Option Plan, as amended and restated herein.
(e) "Retirement" shall have the meaning specified by the
Committee in the terms of an option grant or, in the absence of
any such term, shall mean retirement from active employment with
Intel (i) at or after age 55 and with the approval of the
Committee or (ii) at or after age 65. The determination of the
Committee as to an individual's Retirement shall be conclusive on
all parties.
(f) "Subsidiary" means any corporation in an unbroken chain of
corporations beginning with Intel Corporation where each of the
corporations in the unbroken chain other than the last
corporation owns stock possessing 50 percent or more of the total
combined voting power of all classes of stock in one of the other
corporations in such chain.
<PAGE> 2
3. PARTICIPANTS
"Participants" in the Plan shall be those key employees who
have been employed by Intel for at least two years and to
whom options may be granted from time to time by the
Committee.
No option shall be granted to any employee if immediately
after the grant of such option such employee would own
stock, including stock subject to outstanding options held
by him or her, amounting to more than five percent (5%) of
the total combined voting power or value of all classes of
stock of the Corporation or any Subsidiary. Options may not
be granted to non-employee directors or members of the
Committee.
4. EFFECTIVE DATE AND TERMINATION OF PLAN
This Plan was last approved by the Corporation's
stockholders on May 4, 1994. The Plan was amended and
restated by the Board of Directors in certain non-material
respects on March 26, 1997.
The Plan shall remain available for the grant of options
until all shares of stock available for grant under this
Plan shall have been acquired through exercise of options or
until September 19, 1998 whichever is earlier. The Plan may
be terminated at such earlier time as the Board of Directors
may determine. Termination of the Plan will not affect the
rights and obligations arising under options theretofore
granted and then in effect.
5. SHARES SUBJECT TO THE PLAN AND TO OPTIONS
The stock subject to options authorized to be granted under
the Plan shall consist of 20,000,000 shares of the
Corporation's common stock, par value $.001 ("Common
Stock"), or the number and kind of shares of stock or other
securities which shall be substituted or adjusted for such
shares as provided in Section 8. Such shares may be
authorized and unissued shares of the Corporation's Common
Stock. All or any shares of stock subject to an option
which for any reason terminates unexercised may again be
made subject to an option under the Plan.
<PAGE> 3
6. GRANT, TERMS AND CONDITIONS OF OPTIONS
Options may be granted at any time and from time to time
prior to the termination of the Plan, to certain key
employees of Intel selected by the Committee. However, no
Participant shall be granted options in any year, to
purchase shares of common stock in excess of one percent
(1%) of the number of shares of the Corporation's Common
Stock outstanding on January 1, 1994. In addition, no
Participant or optionholder shall have any rights as a
stockholder with respect to any shares of stock subject to
option hereunder until said shares have been issued. Each
option may be evidenced by a written stock option agreement
and/or such other written arrangements as may be approved
from time to time by the Committee. Options granted
pursuant to the Plan need not be identical but each option
much contain and be subject to the following terms and
conditions:
(a) Price: The purchase price under each option shall be
established by the Committee. In no event will the option price
be less than the fair market value of the stock on the date of
grant. The option price must be paid in full at the time of
exercise. The price may be paid in cash or, as acceptable to the
Committee, by loan (as described in Section 7), by arrangement
with a broker where payment of the option price is made pursuant
to an irrevocable direction to the broker to deliver all or part
of the proceeds from the sale of the option shares to the
Corporation, by the surrender of shares of Common Stock of the
Corporation owned by the Participant exercising the option and
having a fair market value on the date of exercise equal to the
option price or in any combination of the foregoing.
(b) Duration and Exercise or Termination of Option: Each option
shall be exercisable in such manner and at such times as the
Committee shall determine. However, each option granted must
expire within a period of not more than ten (10) years from the
grant date.
(c) Suspension or Termination of Option: If at any time
(including after a notice of exercise has been delivered) the
Chief Executive Officer, President, Chief Operating Officer, Vice
President for Human Resources, General Counsel or any of their
designees (any such person, an "Authorized Officer") reasonably
believes that a Participant or optionholder has committed an act
of misconduct as described in this Section, the Authorized
Officer may suspend the Participant's or optionholder's rights to
exercise any option pending a determination of whether an act of
misconduct has been committed.
If the Board of Directors or an Authorized Officer
determines a Participant or optionholder has committed
an act of embezzlement, fraud, dishonesty, nonpayment
of any obligation owed to Intel, breach of fiduciary
duty or deliberate disregard of Intel rules resulting
in loss, damage or injury to Intel, or if a Participant
or optionholder makes an unauthorized disclosure of any
Intel trade secret or confidential information, engages
in any conduct constituting unfair competition, induces
<PAGE> 4
any Intel customer to breach a contract with Intel or
induces any principal for whom Intel acts as agent to
terminate such agency relationship, neither the
Participant nor optionholder nor his or her estate
shall be entitled to exercise any option whatsoever.
In making such determination, the Board of Directors or
an Authorized Officer shall act fairly and shall give
the Participant an opportunity to appear and present
evidence on his or her behalf at a hearing before a
committee of the Board of Directors. For any
Participant who is an "executive officer" for purposes
of Section 16 of the Securities Exchange Act of 1934
(the "Exchange Act"), the determination of the Board of
Directors or of the Authorized Officer shall be subject
to the approval of the Committee.
(d) Termination of Employment: Subject to Section 6(b), unless
the Committee specifies otherwise, upon the termination of the
Participant's employment, his or her rights to exercise an option
then held shall be only as follows:
(1) Death. Upon the death of a Participant while in employ of
Intel, the Participant's rights will be exercisable by his or
her estate or beneficiary at any time during the twelve (12)
months next succeeding the date of death.
If the Participant's option has been held by the
Participant for a minimum of four (4) years at the
time of death, then the number of shares
exercisable by the estate or beneficiary of the
deceased Participant will be the total number of
unexercised shares, whether or not exercisable,
under such option on the date of the Participant's
death. If the Participant's option has been held
for a period of less than four (4) years at the
time of death, then the number of shares
exercisable by the estate or beneficiary of the
deceased Participant will be the total number of
shares which were exercisable under such option on
the date of the Participant's death.
If a Participant should die within thirty (30)
days of his or her termination of employment with
Intel, an option will be exercisable by his or her
estate or beneficiary at any time during the
twelve (12) months succeeding the date of
termination, but only to the extent of the number
of shares as to which such option was exercisable
as of the date of such termination. A
Participant's estate shall mean his or her legal
representative or other person who so acquires the
right to exercise the option.
(2) Disablement. Upon the Disablement of any Participant, the
Participant's rights to options may be exercised for a period
of twelve (12) months after termination. If the Participant's
option has been held for a minimum of four (4) years, then the
number of shares exercisable by the Participant will be the
total number of unexercised shares, whether or not
exercisable, under such option on the date of the
Participant's termination. If the Participant's option has
<PAGE> 5
been held for a period of less than four (4) years, then the
number of shares exercisable by the Participant will be the
total number of shares which were exercisable under such
option on the date of the Participant's termination.
(3) Retirement. Upon Retirement of a Participant, the
Participant's rights to options may be exercised for a period
of twelve (12) months after Retirement. The number of shares
exercisable will be the total number of shares which were
exercisable under the Participant's option on the date of his
or her Retirement.
(4) Other Reasons. Upon termination of a Participant's
employment for any reason other than those stated above, a
Participant may, within thirty (30) days following such
termination exercise the option to the extent such option was
exercisable on the date of termination.
For purposes of this Section 6(d), unless the Committee
specifies otherwise, a Participant's employment shall
not be deemed terminated (i) if, within sixty (60) days
such Participant is rehired by Intel, (ii) if
Participant is transferred from the Corporation to any
Subsidiary or from any one Subsidiary to another or
from a Subsidiary to the Corporation, or (iii) at the
discretion of the Committee, during any period of a
Participant's leave of absence, provided that the
Committee may delay the Participant's rights to
exercise options as a result of such leave of absence.
In addition, a Participant's employment with any
partnership, joint venture or corporation not meeting
the requirements of a Subsidiary in which the
Corporation or a Subsidiary is a party and which is
designated by the Committee as subject to this
provision, shall be considered employment for purposes
of this Section 6(d).
(e) Transferability of Option: Unless the Committee specifies
otherwise, each option shall be transferable only by will or the
laws of descent and distribution and shall only be exercisable by
the Participant during his or her lifetime.
(f) Cancellation: The Committee may, at any time prior to
exercise and subject to consent of the Participant, cancel any
options previously granted and may or may not substitute in their
place options at a different price and different type under
different terms or in different amounts.
(g) Conditions and Restrictions Upon Securities Subject to
Options: Subject to the express provisions of the Plan, the
Committee may provide that the shares of Common Stock issued upon
exercise of an option shall be subject to such further conditions
or agreements as the Committee in its discretion may specify
prior to the exercise of such option, including without
limitation, conditions on vesting or transferability, forfeiture
or repurchase provisions and method of payment for the shares
issued upon exercise (including the actual or constructive
<PAGE> 6
surrender of Common Stock already owned by the Participant or
optionholder). The Committee may establish rules for the
deferred delivery of Common Stock upon exercise of an option with
the deferral evidenced by use of "Stock Units" equal in number to
the number of shares of Common Stock whose delivery is so
deferred. A "Stock Unit" is a bookkeeping entry representing an
amount equivalent to the fair market value of one share of Common
Stock. Unless the Committee specifies otherwise, Stock Units
represent an unfunded and unsecured obligation of the
Corporation. Settlement of Stock Units upon expiration of the
deferral period shall be made in Common Stock or otherwise as
determined by the Committee. The amount of Common Stock, or
other settlement medium, to be so distributed may be increased by
an interest factor or by dividend equivalents. Until a Stock
Unit is so settled, the number of shares of Common Stock
represented by a Stock Unit shall be subject to adjustment
pursuant to Section 8. Any Stock Units that are settled after
the holder's death shall be distributed to the holder's
designated beneficiary(ies) or, if none was designated, the
holder's estate.
(h) Other Terms and Conditions: Options may also contain such
other provisions, which shall not be inconsistent with any of the
foregoing terms, as the Committee shall deem appropriate. No
option, however, nor anything contained in the Plan shall confer
upon any Participant any right to continue in Intel's employ or
service nor limit in any way Intel's right to terminate his or
her employment at any time.
7. LOANS
The Corporation may make loans, at the request of the
Participant and in the sole discretion of the Board or its
Committee, for the purpose of enabling the Participant to
exercise options granted under the Plan and to pay the tax
liability resulting from an option exercise under the Plan.
The Board or its Committee shall have full authority to
determine the terms and conditions of such loans. Such
loans may be secured by the shares received upon exercise of
such option.
8. ADJUSTMENT OF AND CHANGES IN THE STOCK
In the event that the number of shares of Common Stock of
the Corporation shall be increased or decreased through
reclassification, combination of shares, a stock split or
the payment of a stock dividend, or otherwise, then each
share of common stock of the Corporation which has been
authorized for issuance under the Plan, whether such share
is then currently subject to or may become subject to an
option under the Plan, shall be proportionately adjusted to
reflect such increase or decrease. Outstanding options
shall also be amended as to price and other terms if
necessary to reflect the foregoing events.
In the event there shall be any other change in the number
or kind of the outstanding shares of Common Stock of the
Corporation, or any stock or other securities into which
such Common Stock shall have been changed, or for which it
shall have been exchanged, whether by reason of merger,
consolidation or otherwise, then if the Committee shall, in
<PAGE> 7
its sole discretion, determine that such change equitably
requires an adjustment to shares currently subject to
options or which may become subject to options under the
Plan, or to prices or terms of outstanding options, such
adjustment shall be made in accordance with such
determination. In addition, in the event of such change
described in this paragraph, the Board of Directors may
accelerate the time or times at which any option may be
exercised and may provide for cancellation of such
accelerated options which are not exercised within a time
prescribed by the Board of Directors in its sole discretion.
No right to purchase fractional shares shall result from any
adjustment in options pursuant to this Section. In case of
any such adjustment, the shares subject to the option shall
be rounded down to the nearest whole share. Notice of any
adjustment shall be given by the Corporation to each
Participant or optionholder which shall have been so
adjusted and such adjustment (whether or not notice is
given) shall be effective and binding for all purposes of
the Plan.
9. LISTING OR QUALIFICATION OF STOCK
In the event that the Board of Directors determines in its
discretion that the listing or qualification of the Plan
shares on any securities exchange or quotation or trading
system or under any applicable law or governmental
regulation is necessary as a condition to the issuance of
such shares under the option, the option may not be
exercised in whole or in part unless such listing,
qualification, consent or approval has been unconditionally
obtained.
10. WITHHOLDING
To the extent required by applicable federal, state, local
or foreign law, a Participant or optionholder shall make
arrangements satisfactory to the Corporation for the
satisfaction of any withholding tax obligations that arise
by reason of an option exercise. The Corporation shall not
be required to issue shares or to recognize the disposition
of such shares until such obligations are satisfied. The
Committee may permit these obligations to be satisfied by
having the Corporation withhold a portion of the shares of
stock that otherwise would be issued to him or her upon
exercise of the option, or to the extent permitted, by
tendering shares previously acquired.
11. ADMINISTRATION AND AMENDMENT OF THE PLAN
The Plan shall be administered by the Committee which shall
consist of at least two persons appointed by the Board of
Directors. The Board of Directors shall fill vacancies and
may from time to time remove or add members. All members of
the Committee will be "non-employee directors" as defined in
Rule 16b-3 under the Exchange Act and "outside directors" as
defined under Section 162(m) of the Code, but in each case
only when required to exempt any grant intended to qualify
for an exemption under such provisions. Notwithstanding the
foregoing, unless otherwise restricted by the Board of
Directors, the Committee may appoint one or more separate
committees (any such committee, a "Subcommittee") composed
of one or more directors of Intel (who may but need not be
<PAGE> 8
members of the Committee) and may delegate to any such
Subcommittee(s) the authority to grant options under the
Plan to Participants, to determine all terms of such
options, and/or to administer the Plan or any aspect of it.
Any action by any such Subcommittee within the scope of such
delegation shall be deemed for all purposes to have been
taken by the Committee. The Committee shall act pursuant to
a majority vote or majority written consent.
Subject to the express provisions of this Plan, the
Committee shall be authorized and empowered to do all things
necessary or desirable in connection with the administration
of this Plan, including, without limitation: (a) to
prescribe, amend and rescind rules and regulations relating
to this Plan and to define terms not otherwise defined
herein; (b) to determine which persons are Participants (as
defined in Section 3 hereof), to which of such Participants,
if any, an option shall be granted hereunder and the timing
of any such option grants; (c) to determine the number of
shares of Common Stock subject to an option and the exercise
or purchase price of such shares; (d) to establish and
verify the extent of satisfaction of any conditions to
exercisability applicable to an option; (e) to waive
conditions to and/or accelerate exercisability of an option,
either automatically upon the occurrence of specified events
(including in connection with a change of control of the
Corporation) or otherwise in its discretion; (f) to
prescribe and amend the terms of option grants made under
this Plan (which need not be identical); (g) to determine
whether, and the extent to which, adjustments are required
pursuant to Section 8 hereof; and (h) to interpret and
construe this Plan, any rules and regulations under the Plan
and the terms and conditions of any option granted
hereunder, and to make exceptions to any such provisions in
good faith and for the benefit of the Corporation.
All decisions, determinations and interpretations by the
Committee regarding the Plan, any rules and regulations
under the Plan and the terms and conditions of any option
granted hereunder, shall be final and binding on all
Participants and optionholders. The Committee shall
consider such factors as it deems relevant, in its sole and
absolute discretion, to making such decisions,
determinations and interpretations including, without
limitation, the recommendations or advice of any officer or
other employee of the Corporation and such attorneys,
consultants and accountants as it may select.
The interpretation and construction of any provision of the
Plan by the Board of Directors shall be final and
conclusive. The Board of Directors may periodically adopt
rules and regulations for carrying out the Plan, and amend
the Plan as desired, without further action by the
Corporation's stockholders except to the extent required by
applicable law.
12. TIME OF GRANTING OPTIONS
The effective date of such option shall be the date on which
the grant was made. Within a reasonable time thereafter,
Intel will deliver the option to the Participant.
<PAGE> 1 EXHIBIT 11.1
INTEL CORPORATION
COMPUTATION OF PER SHARE EARNINGS
(In millions, except per share amounts)
Year Ended
-----------------------------
Dec. 31, Dec. 30, Dec. 28,
1994 1995 1996
------- ------- -------
<TABLE>
PRIMARY SHARES CALCULATION
Reconciliation of weighted average number
of shares outstanding to amount used in
primary earnings per share computation:
<S> <C> <C> <C>
Weighted average number of shares outstanding 830 825 823
Add-shares issuable from assumed exercise
of options and warrants 44 59 65
------ ----- ------
Weighted average number of shares outstanding
as adjusted 874 884 888
====== ====== ======
</TABLE>
FULLY DILUTED SHARES CALCULATION
<TABLE>
Reconciliation of weighted average number
of shares outstanding to amount used in
fully diluted earnings per share computation:
<S> <C> <C> <C>
Weighted average number of shares
outstanding 830 825 823
Add-shares issuable from assumed exercise
of options and warrants 44 65 79
------ ----- ------
Weighted average number of shares
outstanding as adjusted 874 890 902
====== ===== ======
NET INCOME $2,288 $3,566 $5,157
====== ====== ======
PRIMARY EARNINGS PER SHARE $ 2.62 $ 4.03 $ 5.81
====== ====== ======
FULLY DILUTED EARNINGS PER SHARE(1) $ 2.62 $ 4.01 $ 5.72
====== ====== ======
</TABLE>
<PAGE> 2
(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.
<PAGE> 1 EXHIBIT 12.1
INTEL CORPORATION
STATEMENT SETTING FORTH THE COMPUTATION
OF RATIOS OF EARNINGS TO FIXED CHARGES FOR INTEL CORPORATION
(In millions, except ratios)
<TABLE>
Years Ended
----------------------------------------------------
Dec. 26, Dec. 25, Dec. 31, Dec. 30, Dec. 28,
1992 1993 1994 1995 1996
-------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
Income before taxes $1,569 $3,530 $3,603 $5,638 $7,934
Add - Fixed charges net of
capitalized interest 68 58 66 38 41
------ ------ ------ ------ ------
Income before taxes
and fixed charges
(net of capitalized
interest) $1,637 $3,588 $3,669 $5,676 $7,975
====== ====== ====== ====== ======
Fixed charges:
Interest* $ 54 $ 50 $ 57 $ 29 $ 25
Capitalized interest 11 8 27 46 33
Estimated interest component
of rental expense 14 8 9 9 16
------ ------ ------ ------ ------
Total $ 79 $ 66 $ 93 $ 84 $ 74
====== ====== ====== ====== ======
Ratio of earnings before taxes
and fixed charges, to fixed
charges 20.7x 54.4x 39.5x 67.6x 107.8x
</TABLE>
* Interest expense includes the amortization of underwriting fees for
the relevant periods outstanding.
<PAGE> 1 Exhibit 13
Consolidated statements of income
Three years ended December 28, 1996
<TABLE>
<S> <C> <C> <C>
(In millions
-except per share amounts) 1996 1995 1994
- - --------------------------------------------------------------------------
Net revenues $20,847 $16,202 $11,521
------- ------- -------
Cost of sales 9,164 7,811 5,576
Research and development 1,808 1,296 1,111
Marketing, general and
administrative 2,322 1,843 1,447
------- ------- -------
Operating costs and expenses 13,294 10,950 8,134
------- ------- -------
Operating income 7,553 5,252 3,387
Interest expense (25) (29) (57)
Interest income and other, net 406 415 273
------- ------- -------
Income before taxes 7,934 5,638 3,603
Provision for taxes 2,777 2,072 1,315
------- ------- -------
Net income $5,157 $3,566 $2,288
======= ======= =======
Earnings per common and common
equivalent share $ 5.81 $ 4.03 $ 2.62
======= ======= =======
Weighted average common and
common equivalent shares
outstanding 888 884 874
======= ======= =======
See accompanying notes.
</TABLE>
<PAGE> 2
Consolidated balance sheets
December 28, 1996 and December 30, 1995
<TABLE>
<S> <C> <C>
(In millions-
except per share amounts) 1996 1995
- - -------------------------------------------------------------------------
Assets
Current assets:
Cash and cash equivalents $ 4,165 $ 1,463
Short-term investments 3,742 995
Trading assets 87 --
Accounts receivable, net of allowance for doubtful
accounts of $68 ($57 in 1995) 3,723 3,116
Inventories 1,293 2,004
Deferred tax assets 570 408
Other current assets 104 111
------ -------
Total current assets 13,684 8,097
------ -------
Property, plant and equipment:
Land and buildings 4,372 3,145
Machinery and equipment 8,729 7,099
Construction in progress 1,161 1,548
------ -------
14,262 11,792
Less accumulated depreciation 5,775 4,321
------ -------
Property, plant and equipment, net 8,487 7,471
------ -------
Long-term investments 1,353 1,653
Other assets 211 283
------ -------
Total assets $23,735 $17,504
======= =======
Liabilities and stockholders' equity
Current liabilities:
Short-term debt $ 389 $ 346
Accounts payable 969 864
Deferred income on shipments to distributors 474 304
Accrued compensation and benefits 1,128 758
Accrued advertising 410 218
Other accrued liabilities 507 328
Income taxes payable 986 801
------ -------
Total current liabilities 4,863 3,619
------ -------
Long-term debt 728 400
Deferred tax liabilities 997 620
Put warrants 275 725
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 1996 and 1995,
and capital in excess of par value 2,897 2,583
Retained earnings 13,975 9,557
------- -------
Total stockholders' equity 16,872 12,140
------- -------
Total liabilities and stockholders' equity $23,735 $17,504
======= =======
See accompanying notes.
</TABLE>
<PAGE> 3
Consolidated statements of cash flows
Three years ended December 28, 1996
<TABLE>
<S> <C> <C> <C>
(In millions) 1996 1995 1994
- - ----------------------------------------------------------------------------
Cash and cash equivalents,
beginning of year $ 1,463 $ 1,180 $ 1,659
------- ------- -------
Cash flows provided by (used for)
operating activities:
Net income 5,157 3,566 2,288
Adjustments to reconcile net income
to net cash provided by (used for)
operating activities:
Depreciation 1,888 1,371 1,028
Net loss on retirements of property,
plant and equipment 120 75 42
Amortization of debt discount -- 8 19
Change in deferred tax assets and
liabilities 179 346 (150)
Changes in assets and liabilities:
(Increase) in accounts receivable (607) (1,138) (530)
Decrease (increase) in inventories 711 (835) (331)
(Increase) in other assets (7) (251) (57)
Increase in accounts payable 105 289 148
Tax benefit from employee stock plans 196 116 61
Purchase of trading assets (75) - -
(Gain) on trading assets (12) - -
Increase in income taxes payable 185 372 38
Increase in accrued compensation
and benefits 370 170 44
Increase (decrease) in other liabilities 533 (73) 337
------- ------- -------
Total adjustments 3,586 450 649
------- ------- -------
Net cash provided by operating activities 8,743 4,016 2,937
------- ------- -------
Cash flows provided by (used for) investing
activities:
Additions to property, plant and
equipment (3,024) (3,550) (2,441)
Purchases of available-for-sale
investments (4,683) (685) (3,168)
Sales of available-for-sale investments 225 114 10
Maturities and other changes in
available-for-sale investments 2,214 1,444 2,740
------- ------- -------
Net cash (used for) investing activities (5,268) (2,677) (2,859)
------- ------- -------
Cash flows provided by (used for) financing
activities:
Increase (decrease) in short-term debt,
net 43 (179) (63)
Additions to long-term debt 317 - 128
Retirement of long-term debt - (4) (98)
Proceeds from sales of shares
through employee stock plans and other 261 192 150
Proceeds from sales of put warrants 56 85 76
Repurchase and retirement of
Common Stock (1,302) (1,034) (658)
Payment of dividends to stockholders (148) (116) (92)
------- ------- -------
Net cash (used for) financing activities (773) (1,056) (557)
------- ------- -------
Net increase (decrease) in cash and
cash equivalents 2,702 283 (479)
------- ------- -------
Cash and cash equivalents, end of year $ 4,165 $ 1,463 $ 1,180
======= ======= =======
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 51 $ 182 $ 76
Income taxes $ 2,217 $ 1,209 $ 1,366
Cash paid for interest in 1995 includes approximately $108 million of
accumulated interest on Zero Coupon Notes that matured in 1995.
Certain 1995 and 1994 amounts have been reclassified to conform to
the 1996 presentation.
See accompanying notes.
</TABLE>
<PAGE> 4
Consolidated statements of stockholders' equity
<TABLE>
Common Stock
Three years ended December 28, 1996 and capital in excess
of par value
---------------------
Number Retained
(In millions) of shares Amount earnings Total
- - ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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
Proceeds from sales of shares through
employee stock plans, tax benefit
of $196 and other 17 457 -- 457
Proceeds from sales of put warrants -- 56 -- 56
Reclassification of put warrant
obligation, net -- 70 272 342
Repurchase and retirement of Common Stock (17) (269) (925) (1,194)
Cash dividends declared ($.19 per share) -- -- (156) (156)
Unrealized gain on available-for-sale
investments, net -- -- 70 70
Net income -- -- 5,157 5,157
------ ------ ------- -------
Balance at December 28, 1996 821 $2,897 $13,975 $16,872
====== ====== ======= =======
See accompanying notes.
</TABLE>
<PAGE> 5
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 1996 and 1995, each
52-week years, ended on December 28 and 30, 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." 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.
A substantial majority 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.
Trading assets. During 1996, the Company purchased securities classified as
trading assets. The Company maintains its trading asset portfolio to
generate returns that offset changes in certain liabilities related to
deferred compensation arrangements. The trading assets consist of marketable
equity securities and are stated at fair value. Both realized and unrealized
gains and losses are included in other income or expense and generally
offset the change in the deferred compensation liability, which is also
included in other income or expense.
Fair values of financial instruments. Fair values of cash and cash
equivalents approximate cost due to the short period of time to maturity.
Fair values of long-term investments, long-term debt, short-term investments,
short-term debt, trading assets, non-marketable instruments, swaps, currency
forward contracts, currency options, options hedging marketable instruments
and options hedging non-marketable instruments are based on quoted market
prices or pricing models using current market rates. No consideration is
given to liquidity issues in valuing debt.
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
the instrument's 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 any instruments not meeting the above criteria would be
recognized in income in the current period. 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>
(In millions) 1996 1995
- - ------------------------------------------------------------------------
<S> <C> <C>
Materials and purchased parts $ 280 $ 674
Work in process 672 707
Finished goods 341 623
------- -------
Total $1,293 $2,004
======= =======
</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.
<PAGE> 6
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 $974 million,
$654 million and $459 million in 1996, 1995 and 1994, 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 $33 million, $46 million and $27 million for 1996,
1995 and 1994, respectively.
Earnings per common and common equivalent share. Earnings per common and
common equivalent share are computed using the weighted average number of
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 distributions. On June 16, 1995, the Company effected a two-for-one
stock split in the form of a special stock distribution 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.
On January 13, 1997, the Board of Directors of the Company approved a
two-for-one stock split (the "1997 stock split") to be effected as a special
stock distribution of one share of Common Stock for each share of the
Company's Common Stock outstanding, subject to stockholder approval of an
increase in authorized shares at the Company's Annual Meeting on May 21,
1997. Because the 1997 stock split cannot be effected until there is an
increase in authorized shares, none of the share, per share, Common Stock,
capital in excess of par value, stock option or warrant amounts herein has
been restated to reflect the effect of the 1997 stock 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 28, 1996, approximately 40
million Warrants were exercisable at a price of $40.25 and expire on March
14, 1998 if not previously exercised. For 1996 and 1995, the Warrants had a
dilutive effect on earnings per share and represented approximately 19
million and 11 million common equivalent shares, respectively. The Warrants
did not have a dilutive effect on earnings per share in 1994.
Stock repurchase program. The Company has an authorization from the Board of
Directors to repurchase up to 110 million shares of Intel's Common Stock in
open market or negotiated transactions. During 1996 the company repurchased
16.8 million shares at a cost of $1.3 billion, including $108 million for
exercised put warrants. As of December 28, 1996, the Company had repurchased
and retired approximately 84.9 million shares at a cost of $3.5 billion since
the program began in 1990. As of December 28, 1996, after reserving 4.5
million shares to cover outstanding put warrants, 20.6 million shares
remained available under the repurchase authorization.
Put warrants
In a series of private placements from 1991 through 1996, 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 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
Sales 56 9.0 603
Exercises -- (1.8) (108)
Expirations -- (14.7) (945)
--------- --------- ---------
December 28, 1996 $ 335 4.5 $ 275
========= ========= =========
</TABLE>
The amount related to Intel's potential repurchase obligation has been
reclassified from stockholders' equity to put warrants. The 4.5 million put
warrants outstanding at December 28, 1996 expire on various dates between
February 1997 and April 1997 and have exercise prices ranging from $56 to $69
per share, with an average exercise price of $61 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>
1996 1995
--------------------- ---------------------
Weighted Weighted
average average
(In millions) Balance interest rate Balance interest rate
- - ------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Borrowed under
lines of credit $ 30 N/A $ 57 3.2%
Reverse repurchase
agreements payable
in non-U.S. currencies 263 6.4% 124 9.2%
Notes payable 3 0.7% 2 4.7%
Drafts payable 93 N/A 163 N/A
------- -------
Total $ 389 $ 346
======= =======
</TABLE>
<PAGE> 7
At December 28, 1996, the Company had established foreign and domestic lines
of credit of approximately $1.1 billion, a portion of which is uncommitted.
The Company generally renegotiates these lines annually. Compensating balance
requirements are not material.
The Company also borrows under commercial paper programs. Maximum borrowings
reached $306 million during 1996 and $700 million during 1995. 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) 1996 1995
- - ------------------------------------------------------------------------
<S> <C> <C>
Payable in U.S. dollars:
AFICA Bonds due 2013 at 4% $ 110 $ 110
Reverse repurchase arrangement due 2001 300 --
Other U.S. dollar debt 4 4
Payable in other currencies:
Irish punt due 2008-2024 at 6%-12% 268 240
Greek drachma due 2001 46 46
------ ------
Total $ 728 $ 400
====== ======
</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 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. The $300 million reverse repurchase
arrangement payable in 2001 has a current borrowing rate of 5.9%. The funds
received under this arrangement are available for general corporate purposes.
This debt may be redeemed or repaid under certain circumstances at the option
of either the lender or Intel.
Under shelf registration statements filed with the Securities and Exchange
Commission (SEC), Intel has 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 28, 1996, aggregate debt maturities were as follows:
1997-none; 1998-$110 million; 1999-none; 2000-none; 2001-$346 million; and
thereafter-$272 million.
Investments
The stated returns 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 and
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 28, 1996, investments were placed with
approximately 200 different counterparties.
Investments at December 28, 1996 were as follows:
<TABLE>
Gross Gross Estimated
unrealized unrealized fair
(In millions) Cost gains losses value
- - ------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial paper $2,386 $ -- $ (1) $2,385
Bank deposits 1,846 -- (2) 1,844
Repurchase agreements 931 -- (1) 930
Loan participations 691 -- -- 691
Corporate bonds 657 10 (6) 661
Floating rate notes 366 -- -- 366
Securities of foreign
governments 265 14 (2) 277
Fixed rate notes 262 -- -- 262
Other debt securities 284 -- (2) 282
-------- -------- -------- --------
Total debt securities 7,688 24 (14) 7,698
-------- -------- -------- --------
Hedged equity 891 71 (15) 947
Preferred stock and
other equity 270 174 (3) 441
-------- -------- -------- --------
Total equity securities 1,161 245 (18) 1,388
-------- -------- -------- --------
Swaps hedging
investments in
debt securities -- 5 (17) (12)
Swaps hedging
investments in
equity securities -- 15 (42) (27)
Options hedging
investments in
equity securities (9) -- (16) (25)
Currency forward
contracts hedging
investments in
debt securities -- 5 -- 5
-------- -------- -------- --------
Total available-for-sale
securities 8,840 294 (107) 9,027
Less amounts classified
as cash equivalents (3,932) -- -- (3,932)
-------- -------- -------- --------
Total investments $4,908 $ 294 $ 107) $5,095
======== ======== ======== ========
</TABLE>
<PAGE> 8
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
======== ======== ======== ========
</TABLE>
In 1996 and 1995, debt and marketable securities with a fair value at the
date of sale of $225 million and $114 million, respectively, were sold. The
gross realized gains on such sales totaled $7 million and $60 million,
respectively. There were no material proceeds, gross realized gains or gross
realized losses from sales of securities in 1994.
The amortized cost and estimated fair value of investments in debt securities
at December 28, 1996, by contractual maturity, were as follows:
<TABLE>
Estimated
fair
(In millions) Cost value
- - ----------------------------------------------------------------------
<S> <C> <C>
Due in 1 year or less $7,005 $7,007
Due in 1-2 years 320 327
Due in 2-5 years 86 88
Due after 5 years 277 276
-------- --------
Total investments in debt securities $7,688 $7,698
======== ========
</TABLE>
Derivative financial instruments
Outstanding notional amounts for derivative financial instruments
at fiscal year-ends were as follows:
<TABLE>
(In millions) 1996 1995
- - -----------------------------------------------------------------------
<S> <C> <C>
Swaps hedging investments in debt securities $ 900 $ 824
Swaps hedging investments in equity securities $ 918 $ 567
Swaps hedging debt $ 456 $ 156
Currency forward contracts $1,499 $1,310
Currency options $ 94 $ 28
Options hedging investments
in marketable equity securities $ 82 $ --
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. Income or expense on swaps is
accrued as an adjustment to the yield of the related investments or debt they
hedge.
Pay rates on swaps hedging investments in debt securities match the yields
on the underlying investments they hedge. Payments on swaps hedging
investments in equity securities match the equity returns on the underlying
investments they hedge. Receive rates on swaps hedging debt match the expense
on the underlying debt they hedge. Maturity dates of swaps match those of the
underlying investment or the debt they hedge. There is approximately a one-to
- - -one matching of swaps to investments and debt. Swap agreements remain in
effect until expiration. If a contract remains outstanding after the
termination of a hedged relationship, subsequent changes in the market value
of the contract would be recognized in earnings.
<PAGE> 9
Weighted average pay and receive rates, average maturities and range of
maturities on swaps at December 28, 1996 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 6.3% 5.7% .7 years 0-2 years
Swaps hedging
investments
in foreign currency
debt securities 8.7% 7.4% .8 years 0-3 years
Swaps hedging
investments in
equity securities N/A 5.6% .4 years 0-1 years
Swaps hedging debt 5.6% 6.9% 3.9 years 2-5 years
</TABLE>
Note: Pay and receive rates are based on the reset rates that were in effect
at December 28, 1996.
Other foreign currency instruments. Intel transacts business in various
foreign currencies, primarily Japanese yen and certain European currencies.
The Company has established revenue and balance sheet hedging programs to
protect against reductions in value and volatility of future cash flows
caused by changes in foreign exchange rates. The Company utilizes currency
forward contracts and currency options in these hedging programs. The
maturities on these 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>
1996 1995
--------------------- --------------------
Estimated Estimated
Carrying fair Carrying fair
(In millions) amount value amount value
- - ------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash and
cash equivalents $4,165 $4,165 $1,463 $1,463
Short-term investments $3,736 $3,736 $ 995 $ 995
Trading assets $ 87 $ 87 $ -- $ --
Long-term investments $1,418 $1,418 $1,699 $1,699
Non-marketable
instruments $ 119 $ 194 $ 239 $ 259
Swaps hedging
investments in
debt securities $ (12) $ (12) $ (7) $ (7)
Swaps hedging
investments in
equity securities $ (27) $ (27) $ (42) $ (42)
Options hedging
investments in
marketable
equity securities $ (25) $ (25) $ -- $ --
Options hedging
investments in non-
marketable instruments $ -- $ -- $ (9) $ (13)
Short-term debt $ (389) $ (389) $ (346) $ (346)
Long-term debt $ (728) $ (731) $ (400) $ (399)
Swaps hedging debt $ -- $ 13 $ -- $ (1)
Currency forward
contracts $ 5 $ 18 $ 3 $ 4
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. Although the financial exposure to individual
customers increased in 1996, the concentration of credit among the largest
customers decreased slightly during the year. The Company's five largest
customers accounted for approximately 30% of net revenues for 1996. At
December 28, 1996, these customers accounted for approximately 25% of net
accounts receivable.
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.
Interest income and other
<TABLE>
<S> <C> <C> <C>
(In millions) 1996 1995 1994
- - ------------------------------------------------------------------------
Interest income $ 364 $ 272 $ 235
Foreign currency gains 26 29 15
Other income 16 114 23
----- ----- -----
Total $ 406 $ 415 $ 273
===== ===== =====
</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.
Provision for taxes
The provision for taxes consisted of the following:
<TABLE>
(In millions) 1996 1995 1994
- - ------------------------------------------------------------------------
<S> <C> <C> <C>
Income before taxes:
U.S. $5,515 $3,427 $2,460
Foreign 2,419 2,211 1,143
------ ------ ------
Total income before taxes $7,934 $5,638 $3,603
====== ====== ======
Provision for taxes:
Federal:
Current $2,046 $1,169 $1,169
Deferred 8 307 (178)
------ ------ ------
2,054 1,476 991
------ ------ ------
State:
Current 286 203 162
Foreign:
Current 266 354 134
Deferred 171 39 28
------ ------ ------
437 393 162
------ ------ ------
Total provision for taxes $2,777 $2,072 $1,315
====== ====== ======
Effective tax rate 35.0% 36.8% 36.5%
====== ====== ======
</TABLE>
<PAGE> 10
The tax benefit associated with dispositions from employee stock plans
reduced taxes currently payable for 1996 by $196 million ($116 million and
$61 million for 1995 and 1994, respectively).
The provision for taxes reconciles to the amount computed by applying the
statutory federal rate of 35% to income before taxes as follows:
<TABLE>
(In millions) 1996 1995 1994
- - -----------------------------------------------------------------------
<S> <C> <C> <C>
Computed expected tax $2,777 $1,973 $1,261
State taxes, net of federal benefits 186 132 105
Other (186) (33) (51)
------ ------ ------
Provision for taxes $2,777 $2,072 $1,315
====== ====== ======
</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) 1996 1995
- - -----------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Accrued compensation and benefits $ 71 $ 61
Deferred income 147 127
Inventory valuation and related reserves 187 104
Interest and taxes 54 61
Other, net 111 55
------ ------
570 408
Deferred tax liabilities:
Depreciation (573) (475)
Unremitted earnings of certain subsidiaries (359) (116)
Other, net (65) (29)
------ ------
(997) (620)
------ ------
Net deferred tax (liability) $ (427) $ (212)
====== ======
</TABLE>
U.S. income taxes were not provided for on a cumulative total of
approximately $992 million of undistributed earnings for certain non-U.S.
subsidiaries. The Company intends to reinvest these earnings indefinitely in
operations outside the United States.
During 1996, Intel reached resolution on all outstanding issues related to
income tax returns for the years 1978-1987. Final adjustments were also
received from the Internal Revenue Service (IRS) for the years 1988-1990.
Neither event had a material effect on the Company's 1996 financial
statements.
The Company's U.S. income tax returns for the years 1991-1993 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 for the years 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 employees, including officers, may
be granted options to purchase shares of the Company's authorized but
unissued Common Stock. In January 1997 the Board of Directors approved the
1997 Stock Option Plan, which made an additional 65 million shares available
for employees other than officers and directors. Under all plans, the option
purchase price is equal to fair market value at the date of grant.
Options currently expire no later than ten years from the grant date and
generally vest after five years. Proceeds received by the Company from
exercises are credited to Common Stock and capital in excess of par value.
Additional information with respect to the EOP and the ELTSOP activity was as
follows:
<TABLE>
Outstanding options
----------------------
Weighted
Shares average
available Number exercise
(In millions) for options of shares price
- - ------------------------------------------------------------------------
<S> <C> <C> <C>
December 25, 1993 64.8 83.6 $11.90
Grants (12.0) 12.0 $33.08
Exercises -- (8.8) $ 6.59
Cancellations 1.6 (1.6) $20.63
------ ------
December 31, 1994 54.4 85.2 $15.28
Grants (14.0) 14.0 $48.22
Exercises -- (10.7) $ 8.14
Cancellations 3.0 (3.0) $25.66
------ ------
December 30, 1995 43.4 85.5 $21.20
Grants (13.3) 13.3 $69.12
Exercises -- (11.9) $ 9.86
Cancellations 2.5 (2.5) $34.10
------ ------
December 28, 1996 32.6 84.4 $29.96
====== ======
Options exercisable at:
December 31, 1994 28.8 $ 7.54
December 30, 1995 29.1 $ 9.10
December 28, 1996 28.6 $11.44
</TABLE>
The range of exercise prices for options outstanding at December 28, 1996
was $4.79 to $131.19. The range of exercise prices for options is wide due
primarily to the increasing price of the Company's stock over the period of
the grants.
The following tables summarize information about options outstanding at
December 28, 1996:
<TABLE>
Outstanding options
------------------------------------
Weighted
average Weighted
Number of contract- average
shares ual life exercise
Range of exercise prices (in millions) (in years) price
- - ------------------------------------------------------------------------
<S> <C> <C> <C>
$4.79-$13.41 34.0 3.7 $10.26
$13.63-$36.13 25.3 6.7 $27.29
$38.91-$131.19 25.1 8.9 $59.12
------
Total 84.4 6.1 $29.96
======
</TABLE>
<PAGE> 11
<TABLE>
Exercisable options
--------------------------
Weighted
Number of average
shares exercise
Range of exercise prices (in millions) price
- - ------------------------------------------------------------------------
<S> <C> <C>
$4.79-$13.41 25.6 $ 9.34
$13.63-$36.13 2.6 $24.92
$38.91-$131.19 .4 $55.21
------
Total 28.6 $11.44
======
</TABLE>
These options will expire if not exercised at specific dates ranging from
January 1997 to December 2006. Prices for options exercised during the
three-year period ended December 28, 1996 ranged from $3.04 to $69.43.
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 118 million shares authorized to be issued under
the plan, 23.8 million shares were available for issuance at December 28,
1996. Employees purchased 3.5 million shares in 1996 (3.5 million and 4.0
million in 1995 and 1994, respectively) for $140 million ($110 million and
$94 million in 1995 and 1994, respectively).
Pro forma information. The Company has elected to follow APB Opinion No. 25,
"Accounting for Stock Issued to Employees," in accounting for its employee
stock options because, as discussed below, the alternative fair value
accounting provided for under SFAS No. 123, "Accounting for Stock-Based
Compensation," requires the use of option valuation models that were not
developed for use in valuing employee stock options. Under APB No. 25,
because the exercise price of the Company's employee stock options equals the
market price of the underlying stock on the date of grant, no compensation
expense is recognized in the Company's financial statements.
Pro forma information regarding net income and earnings per share is required
by SFAS No. 123. This information is required to be determined as if the
Company had accounted for its employee stock options (including shares issued
under the Stock Participation Plan, collectively called "options") granted
subsequent to December 31, 1994 under the fair value method of that
statement. The fair value of options granted in 1995 and 1996 reported below
has been estimated at the date of grant using a Black-Scholes option pricing
model with the following weighted average assumptions:
<TABLE>
Employee Stock Participation
stock options Plan shares
-------------------- --------------------
1996 1995 1996 1995
- - ------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Expected life (in years) 6.5 6.5 .5 .5
Risk-free interest rate 6.5% 6.8% 5.3% 6.0%
Volatility .36 .36 .36 .36
Dividend yield .2% .3% .2% .3%
</TABLE>
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options that have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions, including the expected stock price volatility.
Because the Company's options have characteristics significantly different
from those of traded options, and because changes in the subjective input
assumptions can materially affect the fair value estimate, in the opinion of
management, the existing models do not necessarily provide a reliable single
measure of the fair value of its options. The weighted average estimated fair
value of employee stock options granted during 1996 and 1995 was $32.69 and
$23.26 per share, respectively. The weighted average estimated fair value of
shares granted under the Stock Participation Plan during 1996 and 1995 was
$16.22 and $12.25, respectively.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The
Company's pro forma information follows (in millions except for earnings per
share information):
<TABLE>
1996 1995
- - ------------------------------------------------------------------------
<S> <C> <C>
Pro forma net income $5,046 $3,506
Pro forma earnings per share $ 5.68 $ 3.96
</TABLE>
The effects on pro forma disclosures of applying SFAS No. 123 are not likely
to be representative of the effects on pro forma disclosures of future years.
Because SFAS No. 123 is applicable only to options granted subsequent to
December 31, 1994, the pro forma effect will not be fully reflected until
1999.
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 and certain foreign countries. 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 $209 million for the Qualified Plans and the
Non-Qualified Plan in 1996 ($188 million in 1995 and $152 million in 1994).
Of the $209 million accrued in 1996, the Company expects to fund
approximately $181 million for the 1996 contribution to the Qualified Plans
and to allocate approximately $10 million for the Non-Qualified Plan. The
remainder, plus approximately $177 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
<PAGE> 12
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 participant's balance in the 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 1996, 1995 and 1994 for the U.S. and Puerto Rico plans
was less than $1 million per year, and no component of expense exceeded $3
million.
The funded status of these plans as of December 28, 1996 and December 30,
1995 was as follows:
<TABLE>
(In millions) 1996 1995
- - -----------------------------------------------------------------------
<S> <C> <C>
Vested benefit obligation $ (3) $ (3)
====== ======
Accumulated benefit obligation $ (4) $ (4)
====== ======
Projected benefit obligation $ (5) $ (6)
Fair market value of plan assets 11 8
------ ------
Projected benefit obligation less than plan assets 6 2
Unrecognized net (gain) (15) (12)
Unrecognized prior service cost 3 3
------ ------
Accrued pension costs $ (6) $ (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>
1996 1995 1994
- - ------------------------------------------------------------------------
<S> <C> <C> <C>
Discount rate 7.0% 7.0% 8.5%
Rate of increase in
compensation levels 5.0% 5.0% 5.5%
Expected long-term return on assets 8.5% 8.5% 8.5%
</TABLE>
Plan assets of the U.S. and Puerto Rico plans consist primarily of listed
stocks and bonds, repurchase agreements, money market securities, U.S.
government securities and stock index derivatives.
The Company provides defined-benefit pension plans in certain foreign
countries where required by statute. The Company's funding policy for
foreign defined-benefit plans is consistent with the local requirements in
each country.
Pension expense for 1996, 1995 and 1994 for the foreign plans included the
following:
<TABLE>
(In millions) 1996 1995 1994
- - ------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost-benefits earned
during the year $ 10 $ 9 $ 5
Interest cost of projected
benefit obligation 7 6 5
Actual investment (return)
on plan assets (14) (4) (8)
Net amortization and deferral 14 (2) 3
------ ------ ------
Net pension expense $ 17 $ 9 $ 5
====== ====== ======
</TABLE>
The funded status of the foreign defined-benefit plans as of December 28,
1996 and December 30, 1995 is summarized below:
<TABLE>
Assets Accu-
exceed mulated
accu- benefits
1996 mulated exceed
(In millions) benefits assets
- - ------------------------------------------------------------------------
<S> <C> <C>
Vested benefit obligation $ (43) $ (9)
====== ======
Accumulated benefit obligation $ (46) $ (15)
====== ======
Projected benefit obligation $ (62) $ (23)
Fair market value of plan assets 68 3
------ ------
Projected benefit obligation less than
(in excess of) plan assets 6 (20)
Unrecognized net loss 3 3
Unrecognized net transition obligation 2 1
------ ------
Prepaid (accrued) pension costs $ 11 $ (16)
====== ======
</TABLE>
<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) pan assets 5 (18)
Unrecognized net loss 4 5
Unrecognized net transition obligation 2 --
------ ------
Prepaid (accrued) pension costs $ 11 $ (13)
====== ======
</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>
1996 1995 1994
- - ------------------------------------------------------------------------
<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.
<PAGE> 13
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 $57 million in 1996, $38 million in 1995 and $38 million
in 1994. Minimum rental commitments under all non-cancelable leases with an
initial term in excess of one year are payable as follows: 1997-$23 million;
1998-$18 million; 1999-$14 million; 2000-$11 million; 2001-$9 million; 2002
and beyond-$25 million. Commitments for construction or purchase of property,
plant and equipment approximated $1.6 billion at December 28, 1996. In
connection with certain manufacturing arrangements, Intel had minimum
purchase commitments of approximately $333 million at December 28, 1996 for
flash memories and other memory components and for production capacity of
board-level products.
Contingencies
In March 1995, EMI Group, N.A. (formerly known as Thorn EMI North America
Inc.) brought suit in Federal Court in Delaware against Intel, alleging that
certain Intel manufacturing processes infringe a U.S. patent. In May 1996,
the Court granted Intel's motion for summary judgment on some of the
processes in issue. In November 1996, the Court granted Intel's motion for
summary judgment on the remaining processes in issue and entered judgment in
favor of Intel and against EMI on the claims in EMI's complaint. EMI has
filed a Notice of Appeal with respect to the Court's decision. 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
Intel 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 1996, 1995 or 1994. Summary balance
sheet information for operations outside the United States at fiscal
year-ends is as follows:
<TABLE>
(In millions) 1996 1995
- - ------------------------------------------------------------------------
<S> <C> <C>
Assets $4,784 $4,404
Total liabilities $1,694 $1,661
Net property, plant and equipment $1,615 $1,414
</TABLE>
<PAGE> 14
Geographic information for the three years ended December 28, 1996 is
presented in the following tables. 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, trading assets, deferred tax assets,
long-term investments and certain other assets.
<TABLE>
Transfers
Sales to between Indenti-
(In millions) unaffiliated geographic Net Operating fiable
1996 customers areas revenues income assets
- - -----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
United States $ 8,668 $ 9,846 $18,514 $ 5,255 $12,982
Europe 5,876 917 6,793 1,118 2,405
Japan 2,459 20 2,479 340 659
Asia-Pacific 3,844 2,004 5,848 509 1,361
Other -- 865 865 529 359
Eliminations -- (13,652) (13,652) 453 (3,439)
Corporate -- -- -- (651) 9,408
------- ------- ------- ------- -------
Consolidated $20,847 $ -- $20,847 $ 7,553 $23,735
======= ======= ======= ======= =======
</TABLE>
<TABLE>
1995
- - ------------------------------------------------------------------------
<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
======= ======= ======= ======= =======
</TABLE>
<TABLE>
1994
- - ------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
United States $ 5,826 $ 4,561 $10,387 $ 2,742 $ 7,771
Europe 3,158 380 3,538 418 1,733
Japan 944 61 1,005 125 343
Asia-Pacific 1,593 1,021 2,614 154 540
Other -- 639 639 378 324
Eliminations -- (6,662) (6,662) 179 (1,878)
Corporate -- -- -- (609) 4,983
------- ------- ------- ------- -------
Consolidated $11,521 $ -- $11,521 $ 3,387 $13,816
======= ======= ======= ======= =======
</TABLE>
Supplemental information (unaudited)
Quarterly information for the two years ended December 28, 1996 is presented
on page 37 of the printed annual report (page 20 of this exhibit).
<PAGE> 15
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 28, 1996 and December 30, 1995, and the related
consolidated statements of income, stockholders' equity, and cash flows for
each of the three years in the period ended December 28, 1996. 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 28, 1996 and December 30, 1995,
and the consolidated results of its operations and its cash flows for each of
the three years in the period ended December 28, 1996, in conformity with
generally accepted accounting principles.
/s/Ernst & Young LLP
San Jose, California
January 13, 1997
<PAGE> 16
Financial summary
Ten Years Ended December 28, 1996
<TABLE>
Net investment Additions
in property, Long-term Stock- to property,
plant & Total debt & put holders' plant &
(In millions) equipment assets warrants equity equipment
- - -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1996 $ 8,487 $23,735 $ 1,003 $16,872 $ 3,024
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
</TABLE>
<TABLE>
Research Dividends
Net Cost of & devel- Operating Net Earnings declared
revenues sales opment income income per share per share
- - -----------------------------------------------------------------------------
(In millions -- except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
1996 $20,847 $9,164 $1,808 $7,553 $5,157 $5.81 $ .19
1995 $16,202 $7,811 $1,296 $5,252 $3,566 $4.03 $ .15
1994 $11,521 $5,576 $1,111 $3,387 $2,288 $2.62 $ .115
1993 $ 8,782 $3,252 $ 970 $3,392 $2,295 $2.60 $ .10
1992 $ 5,844 $2,557 $ 780 $1,490 $1,067 $1.24 $ .05
1991 $ 4,779 $2,316 $ 618 $1,080 $ 819 $ .98 --
1990 $ 3,921 $1,930 $ 517 $ 858 $ 650 $ .80 --
1989 $ 3,127 $1,721 $ 365 $ 557 $ 391 $ .52 --
1988 $ 2,875 $1,506 $ 318 $ 594 $ 453 $ .63 --
1987 $ 1,907 $1,044 $ 260 $ 246 $ 248 $ .34 --
</TABLE>
<PAGE> 17
Management's discussion and analysis of financial condition and results of
operations
Results of operations
Intel posted record net revenues in 1996, for the tenth consecutive year,
rising by 29% from 1995 to 1996 and by 41% from 1994 to 1995. Higher volumes
of the rapidly ramping Pentium(R) microprocessor family, partially offset by
lower processor prices and decreased revenues from sales of related
board-level products, were responsible for most of the growth in revenues
from 1995 to 1996. The Pentium(R) Pro microprocessor family, introduced in
late 1995, also contributed to the growth in revenues from 1995 to 1996. The
growth in revenues from 1994 to 1995 was driven primarily by higher volumes
of the Pentium processor family and related board-level products, which
surpassed sales of the Intel486(TM) microprocessor family in the third
quarter of 1995. Revenues from the Intel486 microprocessor family declined
substantially in 1995 and 1996, primarily due to this shift in market demand
toward the Company's more advanced microprocessors.
Higher volumes of flash memory and chipset products also contributed toward
the increase in revenues from 1994 to 1996 and also helped enable the
successful Pentium and Pentium Pro microprocessor ramps. Revenues from
embedded control products and networking and communications products also
grew over this period.
Cost of sales increased by 17% from 1995 to 1996 and by 40% from 1994 to
1995. The overall growth in cost of sales from 1994 to 1996 was driven by
unit volume growth in Pentium microprocessor and related board-level
products, new factories commencing production, manufacturing process
conversions and shifts in product mix. While revenues increased substantially
from 1995 to 1996, growth in cost of sales was significantly less. Cost of
sales in the first half of 1996 and the fourth quarter of 1995 were
negatively impacted by unusually high reserves related to inventories of
certain purchased components. The second half of 1996 was favorably impacted
by factory efficiencies from higher volumes, as well as relatively lower new
factory startup costs. In addition, in the second half of 1996 the Company
sold significantly more processor products than in the second half of 1995.
The gross margin percentage was 56% in 1996, compared to 52% in 1995 and
1994. However, as a result of all of the revenue and cost factors discussed
above, the gross margin percentage in the second half of 1996 was 60% (63%
in the fourth quarter), compared to 50% in the second half of 1995 (48% in
the fourth quarter). Gross margin for the fourth quarter of 1994 included
the impact of a $475 million charge, primarily to cost of sales, related to
a divide problem in the floating point unit of the Pentium microprocessor.
See "Outlook" for a discussion of gross margin expectations.
Sales of Pentium microprocessors and related board-level products comprised
a majority of the Company's revenues and a substantial majority of its gross
margin during 1995 and 1996. During 1996 Pentium Pro microprocessors and
related board-level products became an increasing portion of the Company's
revenues and gross margin. The Intel486 microprocessor family contributed
negligible revenues and gross margin during 1996. During 1995, the Intel486
microprocessor family represented a significant but rapidly declining portion
of the Company's revenues and gross margin, while it comprised a majority of
the Company's revenues and a substantial majority of its gross margin during
1994.
Research and development spending grew by 40% from 1995 to 1996 and 17% from
1994 to 1995, as the Company substantially increased its investments over
this time period 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, and other
revenue-dependent expenses drove the 26% and 27% increases in marketing,
general and administrative expenses from 1995 to 1996 and from 1994 to 1995,
respectively.
The $4 million decrease in interest expense from 1995 to 1996 was mainly due
to lower average borrowing balances and interest rates in 1996, partially
offset by lower interest capitalization. The decrease in interest expense
from 1994 to 1995 was primarily due to lower average borrowing balances in
1995 in addition to higher interest capitalization resulting from increased
facility construction programs.
<PAGE> 18
Although the Company had higher average investment balances in 1996, interest
and other income decreased by $9 million from 1995 to 1996, primarily due to
the offsetting effect of $118 million in unusual gains in 1995. Interest and
other income increased by $142 million from 1994 to 1995, mainly due to the
previously noted gains in 1995, in addition to higher average interest rates
on investments in 1995.
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 foreign currency, equity and interest rate market
exposures of underlying assets, liabilities and other obligations. 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 1994 to 1996 period.
The Company's effective income tax rate decreased to 35.0% in 1996 compared
to 36.8% and 36.5% in 1995 and 1994, respectively.
Financial condition
The Company's financial condition remains very strong. As of December 28,
1996, total cash and short- and long-term investments totaled $9.3 billion,
up from $4.1 billion at December 30, 1995. Cash generated from operating
activities rose to $8.7 billion in 1996, compared to $4.0 billion and $2.9
billion in 1995 and 1994, respectively.
Investing activities consumed $5.3 billion in cash during 1996, compared to
$2.7 billion during 1995 and $2.9 billion during 1994, as operating
activities generated significantly more cash during 1996. Capital
expenditures totaled $3.0 billion in 1996, as the Company continued to
invest in property, plant and equipment, primarily for microprocessor
manufacturing capacity. The Company had committed approximately $1.6 billion
for the construction or purchase of property, plant and equipment as of
December 28, 1996. See "Outlook" for a discussion of capital expenditure
expectations in 1997.
Inventory levels, particularly raw materials and finished goods, decreased
significantly in 1996. This decrease was primarily attributable to the
sell-through of purchased parts inventory and lower costs of manufacturing.
The increase in accounts receivable in 1996 was mainly due to revenue growth,
offset somewhat by improved receivable collections. 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. Although the financial exposure to individual customers has
increased with the growth in revenues, the concentration of credit among the
largest customers has decreased slightly in 1996. The Company's five largest
customers accounted for approximately 30% of net revenues for 1996. At
December 28, 1996, these customers accounted for approximately 25% of net
accounts receivable.
The Company used $773 million for financing activities in 1996, compared to
$1.1 billion and $557 million in 1995 and 1994, respectively. The major
financing applications of cash in 1996 and 1995 were for stock repurchases
totaling $1.3 billion for 16.8 million shares (including $108 million for
exercised put warrants) and $1.0 billion for 18.9 million shares,
respectively. Financing applications of cash in 1994 included stock
repurchases of $658 million and the early retirement of the Company's 8 1/8%
debt. Financing sources of cash during 1996 included $300 million under a
private reverse repurchase arrangement and $261 million in proceeds from the
sale of shares primarily pursuant to employee stock plans ($192 million in
1995 and $150 million in 1994).
As part of its authorized stock repurchase program, the Company had
outstanding put warrants at the end of 1996, with the potential obligation
to buy back 4.5 million shares of its Common Stock at an aggregate price of
$275 million. The exercise price of these warrants ranged from $56 to $69
per share, with an average exercise price of $61 per share as of December 28,
1996.
Other sources of liquidity include combined credit lines and authorized
commercial paper borrowings of $1.8 billion, $30 million of which was
outstanding at December 28, 1996. 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
<PAGE> 19
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 expansion of worldwide manufacturing
capacity, working capital requirements, the potential put warrant obligation
and the dividend program.
Outlook
The outlook section contains a number of forward-looking statements, all of
which are based on current expectations. Actual results may differ materially.
Intel expects that the total number of personal computers using Intel's
Pentium and Pentium Pro microprocessors and other semiconductor components
sold worldwide will continue to grow in 1997. Intel has expanded
manufacturing capacity over the last few years and continues to expand
capacity. Intel's financial results are substantially dependent on this
market segment. Revenue is also a function of the mix of microprocessors and
related motherboards and the mix of microprocessor types and speed, all of
which are difficult to forecast. Because of the large price difference
between types of microprocessors, this mix 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. To implement this strategy, the Company plans
to cultivate new businesses and continue to work with the software industry
to develop compelling applications that can take advantage of this higher
performance, thus driving demand toward the newer products. In line with this
strategy, the Company has recently announced higher performance members of
the Pentium microprocessor family, including the Pentium processor with
MMX(TM) technology. Capacity has been planned based on the assumed continued
success of the Company's strategy. If the market demand does not continue to
grow and move rapidly toward higher performance products, revenues and gross
margin 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
mixes sold in any period. Because the percentage of motherboards that Intel's
customers purchase changes with the 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 and the
mix of types of microprocessors. Various other factors, including unit
volumes and costs, and yield issues associated with production at factories,
processor speed mix and mix of shipments of other semiconductors, will also
continue to affect the amount of cost of sales and the variability of gross
margin percentages in future quarters. The Company's goal continues to be to
grow gross margin dollars. Intel's current gross margin expectation for 1997
is 60% plus or minus a few points. However, the Company believes that over
the long-term the gross margin percentage will be 50% plus or minus a few
points, as the Company introduces higher performance products and costs
continue to increase. In addition, from time to time the Company may forecast
a range of gross margin percentages for the coming quarter. Actual results
may differ from these estimates.
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 $4.5 billion in 1997 to
support significant expansion of worldwide manufacturing capacity. This
spending plan is dependent upon changes in manufacturing efficiencies,
delivery times of various machines and construction schedules for new
facilities. Depreciation for 1997 is expected to be approximately $2.5
billion, an increase of approximately $600 million from 1996. Most of this
increased depreciation would 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. 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 1997.
The Company currently expects its tax rate to increase to 35.5% for 1997.
This estimate is based on current tax law and current estimate of earnings,
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, gross margin, 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 growth in the computing industry and in the general economy;
changes in customer order patterns, including timing of delivery and changes
in seasonal fluctuations in PC buying patterns; competitive factors, such as
rival chip architectures, competing software-compatible microprocessors,
acceptance of new products and price pressures; risk of inventory
obsolescence due to shifts in market demand; variations in inventory
valuation; timing of software industry product introductions; continued
success in technological advances and their implementation, including the
manufacturing ramp; shortage of manufacturing capacity; risks associated with
foreign operations; changes in product mixes; 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 and profits are all influenced by a number of
factors, including those discussed above, all of which are inherently
difficult to forecast.
<PAGE> 20
Financial information by quarter (unaudited)
<TABLE>
(In millions-except per share data)
1996 for quarter ended December 28 September 28 June 29 March 30
- - -----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net revenues $ 6,440 $ 5,142 $ 4,621 $ 4,644
Cost of sales $ 2,392 $ 2,201 $ 2,150 $ 2,421
Net income $ 1,910 $ 1,312 $ 1,041 $ 894
Earnings per share $ 2.13 $ 1.48 $ 1.17 $ 1.02
Dividends per share (A)
Declared $ .05 $ .05 $ .05 $ .04
Paid $ .05 $ .05 $ .04 $ .04
Market price range Common
Stock (B)
High $ 137.50 $ 97.38 $ 76.88 $ 61.00
Low $ 95.44 $ 69.00 $ 56.88 $ 50.00
Market price range Step-Up
Warrants (B)
High $ 98.38 $ 58.88 $ 39.31 $ 28.50
Low $ 56.75 $ 31.75 $ 24.00 $ 21.63
</TABLE>
<TABLE>
(In millions-except per share data)
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
</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 28, 1996, there were
approximately 105,000 registered holders of Common Stock. All stock and
warrant prices are closing prices per The Nasdaq Stock Market.
<PAGE> 1 EXHIBIT 19
GRAPHICS APPENDIX LIST*
* In this Appendix, the following descriptions of graphs on pages 34 and 35
of the Company's 1996 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 1996 Annual
Report to Stockholders.
REVENUES AND INCOME
(Dollars in billions) 1994 1995 1996
------ ------ ------
Net revenues 11.5 16.2 20.8
Net income 2.3 3.6 5.2
COSTS AND EXPENSES
(Percent of revenues) 1994 1995 1996
------ ------ ------
Cost of sales 48% 48% 44%
R&D 10% 8% 9%
Marketing and G&A 13% 12% 11%
OTHER INCOME AND EXPENSE
(Dollars in millions) 1994 1995 1996
------ ------ ------
Interest and other income 273 415 406
Interest expense 57 29 25
CASH AND INVESTMENTS
(Dollars in billions) 1995 1996
------ ------
Cash and cash equivalents 1.5 4.2
Short-term investments 1.0 3.7
Long-term investments 1.7 1.4
<PAGE> 1 EXHIBIT 21
INTEL CORPORATION
SUBSIDIARIES
(All 100% Owned)
Intel International
(Incorporated in California)
Intel Overseas Corp.
(Incorporated in California)
Synchroquartz (U.S.) Corp.
(Incorporated in California)
Intel Malaysia SDN. BHD.
(Incorporated in Malaysia)
<PAGE> 1 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 13, 1997, included in the
1996 Annual Report to Stockholders of Intel Corporation.
Our audits also include the financial statement schedule of Intel Corporation
listed in Item 14(a). This schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
We also consent to the incorporation by reference in the Registration
Statements (Form S-8 Nos. 33-10392, 2-73464, 2-56648, 33-33983, 2-90217,
33-29672, 33-41771, 33-63489, and 333-20951; and Form S-3 Nos. 33-20117,
33-54220, 33-58964, 33-49827, 33-50971 and 33-56107) of our report dated
January 13, 1997, 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 26, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary information extracted from Intel Corporation's
CONSOLIDATED STATEMENTS OF INCOME AND CONSOLIDATED 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-28-1996
<PERIOD-END> DEC-28-1996
<CASH> 4165
<SECURITIES> 3829
<RECEIVABLES> 3791
<ALLOWANCES> 68
<INVENTORY> 1293
<CURRENT-ASSETS> 13684
<PP&E> 14262
<DEPRECIATION> 5775
<TOTAL-ASSETS> 23735
<CURRENT-LIABILITIES> 4863
<BONDS> 728
275<F1>
0
<COMMON> 2897
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 23735
<SALES> 20847
<TOTAL-REVENUES> 20847
<CGS> 9164
<TOTAL-COSTS> 9164
<OTHER-EXPENSES> 1808<F2>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 25
<INCOME-PRETAX> 7934
<INCOME-TAX> 2777
<INCOME-CONTINUING> 5157
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5157
<EPS-PRIMARY> 5.81
<EPS-DILUTED> 0<F3>
<FN>
<F1>Item consists of put warrants.
<F2>Item consists of research and development
<F3>Item not reported on face of income statement
</FN>
</TABLE>
