Exhibit 13
Consolidated Statements Of Income
Three years ended December 30, 1995
(In millions--except per share amounts)
1995 1994 1993
------- ------- -------
Net revenues $16,202 $11,521 $ 8,782
------- ------- -------
Cost of sales 7,811 5,576 3,252
Research and development 1,296 1,111 970
Marketing, general and
administrative 1,843 1,447 1,168
------- ------- -------
Operating costs and expenses 10,950 8,134 5,390
------- ------- -------
Operating income 5,252 3,387 3,392
Interest expense (29) (57) (50)
Interest income and other, net 415 273 188
------- ------- -------
Income before taxes 5,638 3,603 3,530
Provision for taxes 2,072 1,315 1,235
------- ------- -------
Net income $ 3,566 $ 2,288 $ 2,295
======= ======= =======
Earnings per common and
common equivalent share $ 4.03 $ 2.62 $ 2.60
======= ======= =======
Weighted average common and
common equivalent shares
outstanding 884 874 882
======= ======= =======
See accompanying notes.
Consolidated Balance Sheets
December 30, 1995 and December 31, 1994
(In millions--except per share amounts)
1995 1994
------- -------
Assets
Current assets:
Cash and cash equivalents $ 1,463 $ 1,180
Short-term investments 995 1,230
Accounts receivable, net of allowance for
doubtful accounts of $57 ($32 in 1994) 3,116 1,978
Inventories 2,004 1,169
Deferred tax assets 408 552
Other current assets 111 58
------- -------
Total current assets 8,097 6,167
------- -------
Property, plant and equipment:
Land and buildings 3,145 2,292
Machinery and equipment 7,099 5,374
Construction in progress 1,548 850
------- -------
11,792 8,516
Less accumulated depreciation 4,321 3,149
------- -------
Property, plant and equipment, net 7,471 5,367
------- -------
Long-term investments 1,653 2,127
Other assets 283 155
------- -------
Total assets $17,504 $13,816
======= =======
Liabilities and stockholders' equity
Current liabilities:
Short-term debt $ 346 $ 517
Accounts payable 864 575
Deferred income on shipments to distributors 304 269
Accrued compensation and benefits 758 588
Accrued advertising 218 108
Other accrued liabilities 328 538
Income taxes payable 801 429
------- -------
Total current liabilities 3,619 3,024
------- -------
Long-term debt 400 392
Deferred tax liabilities 620 389
Put warrants 725 744
Commitments and contingencies
Stockholders' equity:
Preferred Stock, $.001 par value, 50 shares
authorized; none issued -- --
Common Stock, $.001 par value, 1,400 shares
authorized; 821 issued and outstanding in
1995 (827 in 1994) and capital in excess
of par value 2,583 2,306
Retained earnings 9,557 6,961
------- -------
Total stockholders' equity 12,140 9,267
------- -------
Total liabilities and stockholders' equity $17,504 $13,816
======= =======
See accompanying notes.
Consolidated Statements Of Cash Flows
Three years ended December 30, 1995
(In millions) 1995 1994 1993
------- ------- -------
Cash and cash equivalents,
beginning of year $ 1,180 $ 1,659 $ 1,843
======= ======= =======
Cash flows provided by (used for)
operating activities:
Net income 3,566 2,288 2,295
Adjustments to reconcile net income to
net cash provided by (used for)
operating activities:
Depreciation 1,371 1,028 717
Net loss on retirements of property,
plant and equipment 75 42 36
Amortization of debt discount 8 19 17
Change in deferred tax assets and
liabilities 346 (150) 12
Changes in assets and liabilities:
(Increase) in accounts receivable (1,138) (530) (379)
(Increase) in inventories (835) (331) (303)
(Increase) in other assets (241) (13) (68)
Increase in accounts payable 289 148 146
Tax benefit from employee stock plans 116 61 68
Increase in income taxes payable 372 38 32
Increase in accrued compensation and
benefits 170 44 109
(Decrease) increase in other
liabilities (73) 337 119
------- ------- -------
Total adjustments 460 693 506
------- ------- -------
Net cash provided by operating activities 4,026 2,981 2,801
======= ======= =======
Cash flows provided by (used for)
investing activities:
Additions to property, plant and
equipment (3,550) (2,441) (1,933)
Purchases of long-term,
available-for-sale investments (129) (975) (1,165)
Sales of long-term,
available-for-sale investments 114 10 5
Maturities and other changes in
available-for-sale investments, net 878 503 (244)
------- ------- -------
Net cash (used for) investing activities (2,687) (2,903) (3,337)
======= ======= =======
Cash flows provided by (used for)
financing activities:
(Decrease) increase in short-term
debt, net (179) (63) 197
Additions to long-term debt -- 128 148
Retirement of long-term debt (4) (98) --
Proceeds from sales of shares through
employee stock plans and other 192 150 133
Proceeds from sale of Step-Up
Warrants, net -- -- 287
Proceeds from sales of put warrants,
net of repurchases 85 76 62
Repurchase and retirement of
Common Stock (1,034) (658) (391)
Payment of dividends to stockholders (116) (92) (84)
------- ------- -------
Net cash (used for) provided by financing
activities (1,056) (557) 352
======= ======= =======
Net increase (decrease) in cash and cash
equivalents 283 (479) (184)
======= ======= =======
Cash and cash equivalents, end of year $ 1,463 $ 1,180 $ 1,659
======= ======= =======
Supplemental disclosures of cash flow
information:
Cash paid during the year for:
Interest $ 182 $ 76 $ 39
Income taxes $ 1,209 $ 1,366 $ 1,123
Cash paid for interest in 1995 includes approximately $108 million of
accumulated interest on Zero Coupon Notes that matured in 1995.
See accompanying notes.
Consolidated Statements Of Stockholders' Equity
Common Stock
and capital in excess
of par value
-------------------
Three years ended December 30, 1995 Number Retained
(In millions) of shares Amount earnings Total
--------- --------- --------- ---------
Balance at December 26, 1992 837 $ 1,776 $ 3,669 $ 5,445
Proceeds from sales of shares
through employee stock plans,
tax benefit of $68 and other 14 201 -- 201
Proceeds from sales of put warrants -- 62 -- 62
Reclassification of put warrant
obligation, net -- (37) (278) (315)
Proceeds from sale of Step-Up Warrants -- 287 -- 287
Repurchase and retirement of Common
Stock (14) (95) (296) (391)
Cash dividends declared
($.10 per share) -- -- (84) (84)
Net income -- -- 2,295 2,295
------- ------- ------- -------
Balance at December 25, 1993 837 2,194 5,306 7,500
Proceeds from sales of shares through
employee stock plans, tax benefit of
$61 and other 12 215 -- 215
Proceeds from sales of put warrants -- 76 -- 76
Reclassification of put warrant
obligation, net -- (15) (106) (121)
Repurchase and retirement of
Common Stock (22) (164) (429) (593)
Redemption of Common Stock
Purchase Rights -- -- (2) (2)
Cash dividends declared
($.115 per share) -- -- (96) (96)
Net income -- -- 2,288 2,288
------- ------- ------- -------
Balance at December 31, 1994 827 2,306 6,961 9,267
Proceeds from sales of shares
through employee stock plans,
tax benefit of $116 and other 13 310 -- 310
Proceeds from sales of put warrants -- 85 -- 85
Reclassification of put warrant
obligation, net -- 61 (42) 19
Repurchase and retirement of
Common Stock (19) (179) (855) (1,034)
Cash dividends declared
($.15 per share) -- -- (124) (124)
Unrealized gain on
available-for-sale investments, net -- -- 51 51
Net income -- -- 3,566 3,566
------- ------- ------- -------
Balance at December 30, 1995 821 $ 2,583 $ 9,557 $12,140
======= ======= ======= =======
See accompanying notes.
Notes To Consolidated Financial Statements
Accounting policies
Fiscal year. Intel Corporation ("Intel" or "the Company") has a fiscal year
that ends the last Saturday in December. Fiscal years 1995 and 1993, each
52-week years, ended on December 30 and 25, respectively. Fiscal 1994 was a
53-week year and ended on December 31, 1994. The next 53-week year will end on
December 30, 2000.
Basis of presentation. The consolidated financial statements include the
accounts of Intel and its wholly owned subsidiaries. Significant intercompany
accounts and transactions have been eliminated. Accounts denominated in foreign
currencies have been remeasured into the functional currency in accordance with
Statement of Financial Accounting Standards (SFAS) No. 52, "Foreign Currency
Translation," using the U.S. dollar as the functional currency.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
Investments. Highly liquid investments with insignificant interest rate risk
and with original maturities of three months or less are classified as cash
and cash equivalents. Investments with maturities greater than three months
and less than one year are classified as short-term investments. Investments
with maturities greater than one year are classified as long-term investments.
The Company accounts for investments in accordance with SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities," effective
as of the beginning of fiscal 1994. The Company's policy is to protect the
value of its investment portfolio and to minimize principal risk by earning
returns based on current interest rates. All of the Company's marketable
investments are classified as available-for-sale as of the balance sheet date
and are reported at fair value, with unrealized gains and losses, net of tax,
recorded in Stockholders' equity. The cost of securities sold is based on the
specific identification method. Realized gains or losses and declines in
value, if any, judged to be other than temporary on available-for-sale
securities are reported in other income or expense. Investments in non-
marketable instruments are recorded at the lower of cost or market and included
in other assets.
Fair values of financial instruments. Fair values of cash and cash equivalents,
short-term investments and short-term debt approximate cost due to the short
period of time to maturity. Fair values of long-term investments, long-term
debt, non-marketable instruments, swaps, currency forward contracts, currency
options and options hedging non-marketable instruments are based on quoted
market prices or pricing models using current market rates.
Derivative financial instruments. The Company utilizes derivative financial
instruments to reduce financial market risks. These instruments are used to
hedge foreign currency, equity and interest rate market exposures of underlying
assets, liabilities and other obligations. The Company does not use derivative
financial instruments for speculative or trading purposes. The Company's
accounting policies for these instruments are based on the Company's
designation of such instruments as hedging transactions. The criteria the
Company uses for designating an instrument as a hedge include its effectiveness
in risk reduction and one-to-one matching of derivative instruments to
underlying transactions. Gains and losses on currency forward contracts, and
options that are designated and effective as hedges of anticipated
transactions, for which a firm commitment has been attained, are deferred and
recognized in income in the same period that the underlying transactions are
settled. Gains and losses on currency forward contracts, options and swaps that
are designated and effective as hedges of existing transactions are recognized
in income in the same period as losses and gains on the underlying transactions
are recognized and generally offset. Gains and losses on options hedging
investments in non-marketable instruments are deferred and recognized in income
in the same period as the hedges mature or when the underlying transaction is
sold, whichever comes first. Income or expense on swaps is accrued as an
adjustment to the yield of the related investments or debt they hedge.
Inventories. Inventories are stated at the lower of cost or market. Cost is
computed on a currently adjusted standard basis (which approximates actual cost
on a current average or first-in, first-out basis). Inventories at fiscal
year-ends were as follows:
(In millions) 1995 1994
------- -------
Materials and purchased parts $ 674 $ 345
Work in process 707 528
Finished goods 623 296
------- -------
Total $ 2,004 $ 1,169
======= =======
Property, plant and equipment. Property, plant and equipment are stated at
cost. Depreciation is computed for financial reporting purposes principally by
use of the straight-line method over the following estimated useful lives:
machinery and equipment, 2-4 years; land and buildings, 4-45 years.
The Company adopted SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of," effective as of the
beginning of fiscal 1995. This adoption had no material effect on the Company's
financial statements. Deferred income on shipments to distributors. Certain of
the Company's sales are made to distributors under agreements allowing price
protection and/or right of return on merchandise unsold by the distributors.
Because of frequent sales price reductions and rapid technological obsolescence
in the industry, Intel defers recognition of such sales until the merchandise
is sold by the distributors.
Advertising. Cooperative advertising obligations are accrued and the costs
expensed at the same time the related revenue is recognized. All other
advertising costs are expensed as incurred. The Company does not incur any
direct-response advertising costs. Advertising expense was $654 million, $459
million and $325 million in 1995, 1994 and 1993, respectively.
Interest. Interest as well as gains and losses related to contractual
agreements to hedge certain investment positions and debt (see "Derivative
financial instruments") are recorded as net interest income or expense on a
monthly basis. Interest expense capitalized as a component of construction
costs was $46 million, $27 million and $8 million for 1995, 1994 and 1993,
respectively.
Earnings per common and common equivalent share. Earnings per common and common
equivalent share are computed using the weighted average number of outstanding
common and dilutive common equivalent shares outstanding. Fully diluted
earnings per share have not been presented as part of the consolidated
statements of income because the differences are insignificant.
Stock distribution. On June 16, 1995, the Company effected a stock distribution
in the form of a two-for-one stock split to stockholders of record as of May
19, 1995. Share, per share, Common Stock, capital in excess of par value, stock
option and warrant amounts herein have been restated to reflect the effect of
this split.
Common Stock
1998 Step-Up Warrants. In 1993, the Company issued 40 million 1998 Step-Up
Warrants to purchase 40 million shares of Common Stock. This transaction
resulted in an increase of $287 million in Common Stock and capital in excess
of par value, representing net proceeds from the offering. The Warrants became
exercisable in May 1993 at an effective price of $35.75 per share of Common
Stock, subject to annual increases to a maximum price of $41.75 per share
effective in March 1997. As of December 30, 1995, approximately 40 million
Warrants were exercisable at a price of $38.75 and expire on March 14, 1998
if not previously exercised. For 1995, the Warrants had a dilutive effect on
earnings per share and represented approximately
11 million common equivalent shares. The Warrants did not have a dilutive
effect on earnings per share in 1994 or 1993.
Stock repurchase program. In 1990, the Board of Directors authorized the
repurchase of up to 80 million shares of Intel's Common Stock in open market
or negotiated transactions. The Board increased this authorization to a maximum
of 110 million shares in July 1994. As of December 30, 1995, the Company had
repurchased and retired approximately 68 million shares for the program to date
at a cost of $2.19 billion. As of December 30, 1995, after reserving shares to
cover outstanding put warrants, 29.9 million shares remained available under
the repurchase authorization.
Put warrants
In a series of private placements from 1991 through 1995, the Company sold put
warrants that entitle the holder of each warrant to sell one share of Common
Stock to the Company at a specified price. Activity during the past three years
is summarized as follows:
Put warrants
outstanding
Cumulative ---------------------------
premium Number of Potential
(In millions) received warrants obligation
- ----------------------------------------------------------------------------
December 26, 1992 $ 56 28.0 $373
Sales 62 21.6 561
Expirations -- (20.0) (246)
------ ------ ------
December 25, 1993 118 29.6 688
Sales 76 25.0 744
Exercises -- (2.0) (65)
Expirations -- (27.6) (623)
------ ------ ------
December 31, 1994 194 25.0 744
Sales 85 17.5 925
Repurchases -- (5.5) (201)
Expirations -- (25.0) (743)
------ ------ ------
December 30, 1995 $279 12.0 $725
====== ====== ======
The amount related to Intel's potential repurchase obligation has been
reclassified from stockholders' equity to put warrants. The 12 million put
warrants outstanding at December 30, 1995 expire on various dates between
February 1996 and November 1996 and have exercise prices ranging from $38 to
$68 per share, with an average exercise price of $60 per share. There is no
significant dilutive effect on earnings per share for the periods presented.
Borrowings
Short-term debt. Short-term debt and weighted average interest rates at
fiscal year-ends were as follows:
1995 1994
----------------------- -----------------------
Weighted Weighted
average average
(In millions) Balance interest rate Balance interest rate
- -----------------------------------------------------------------------------
Borrowed under
lines of credit $ 57 3.2% $ 68 3.2%
Reverse repurchase
agreements payable
in non-U.S. currencies 124 9.2% 99 8.0%
Notes payable 2 4.7% 5 4.7%
Short-term portion
of long-term debt -- -- 179 11.8%
Drafts payable 163 N/A 166 N/A
------ ------
Total $ 346 $ 517
====== ======
At December 30, 1995, the Company had established foreign and domestic lines of
credit of approximately $1.16 billion. The Company generally renegotiates these
lines annually. Compensating balance requirements are not material.
The Company also borrows under commercial paper programs. Maximum borrowings
reached $700 million during both 1995 and 1994. This debt is rated A1+ by
Standard and Poor's and P1 by Moody's. Proceeds are used to fund short-term
working capital needs.
Long-term debt. Long-term debt at fiscal year-ends was as follows:
(In millions) 1995 1994
------- -------
Payable in U.S. dollars:
AFICA Bonds due 2013 at 4% $ 110 $ 110
Zero Coupon Notes due 1995 at 11.8%,
net of unamortized discount of $8 in 1994 -- 179
Other U.S. dollar debt 4 4
Payable in other currencies:
Irish punt due 2008-2024 at 6%-12% 240 228
Greek drachma due 2001 46 46
Other foreign currency debt -- 4
(Less short-term portion) -- (179)
------- -------
Total $ 400 $ 392
======= =======
The Company has guaranteed repayment of principal and interest on the AFICA
Bonds issued by the Puerto Rico Industrial, Medical and Environmental Pollution
Control Facilities Financing Authority (AFICA). The bonds are adjustable and
redeemable at the option of either the Company or the bondholder every five
years through 2013 and are next adjustable and redeemable in 1998. The Zero
Coupon Notes matured during 1995. The Irish punt borrowings were made in
connection with the financing of a factory in Ireland, and Intel has invested
the proceeds in Irish punt denominated instruments of similar maturity to hedge
foreign currency and interest rate exposures. The Greek drachma borrowings were
made under a tax incentive program in Ireland, and the proceeds and cash flows
have been swapped to U.S. dollars.
In 1994, the Company filed a shelf registration statement with the Securities
and Exchange Commission (SEC) that became effective in 1995. When combined with
previous shelf registration statements, this filing gave Intel the authority to
issue up to $3.3 billion in the aggregate of Common Stock, Preferred Stock,
depositary shares, debt securities and warrants to purchase the Company's or
other issuers' Common Stock, Preferred Stock and debt securities, and, subject
to certain limits, stock index warrants and foreign currency exchange units.
In 1993, Intel completed an offering of Step-Up Warrants (see "1998 Step-Up
Warrants"). The Company may issue up to $1.4 billion in additional securities
under effective registration statements.
As of December 30, 1995, aggregate debt maturities were as follows: 1996-none;
1997-none; 1998-$110 million; 1999-none; 2000-none; and thereafter-$290 million.
Investments
The stated return on a majority of the Company's marketable investments in
long-term fixed rate debt and equity securities are swapped to U.S. dollar
LIBOR-based returns. The currency risks of investments denominated in foreign
currencies are hedged with foreign currency borrowings, currency forward
contracts or currency interest rate swaps (see "Derivative
financial instruments" under "Accounting policies").
Investments with maturities of greater than six months consist primarily of A
and A2 or better rated financial instruments and counterparties. Investments
with maturities of up to six months consist primarily of A1/P1 or better rated
financial instruments and counterparties. Foreign government regulations
imposed upon investment alternatives of foreign subsidiaries, or the absence
of A and A2 rated counterparties in certain countries, result in some minor
exceptions. Intel's practice is to obtain and secure available collateral from
counterparties against obligations whenever Intel deems appropriate. At
December 30, 1995, investments were placed with approximately 100 different
counterparties.
Investments at December 30, 1995 were as follows:
Gross Gross Estimated
unrealized unrealized fair
(In millions) Cost gains losses value
------- ------- ------- -------
Commercial paper $ 576 $ -- $ -- $ 576
Repurchase agreements 474 -- -- 474
Securities of foreign
governments 456 1 (1) 456
Corporate bonds 375 5 -- 380
Bank time deposits 360 -- -- 360
Loan participations 278 -- -- 278
Floating rate notes 224 -- -- 224
Fixed rate notes 159 1 (1) 159
Collateralized mortgage
obligations 129 -- (1) 128
Other debt securities 119 -- (1) 118
------- ------- ------- -------
Total debt securities 3,150 7 (4) 3,153
------- ------- ------- -------
Hedged equity 431 45 -- 476
Preferred stock and
other equity 309 91 (11) 389
------- ------- ------- -------
Total equity securities 740 136 (11) 865
------- ------- ------- -------
Swaps hedging investments in
debt securities -- 2 (9) (7)
Swaps hedging investments in
equity securities -- 5 (47) (42)
Currency forward
contracts hedging investments
in debt securities -- 3 -- 3
------- ------- ------- -------
Total available-for-sale
securities 3,890 153 (71) 3,972
Less amounts classified
as cash equivalents (1,324) -- -- (1,324)
------- ------- ------- -------
Total investments $ 2,566 $ 153 $ (71) $ 2,648
======= ======= ======= =======
Investments at December 31, 1994 were as follows:
Gross Gross Estimated
unrealized unrealized fair
(In millions) Cost gains losses value
- ---------------------------------------------------------------------------
Commercial paper $ 544 $ -- $ -- $ 544
Repurchase agreements 194 -- -- 194
Securities of
foreign governments 518 2 (7) 513
Corporate bonds 440 12 (14) 438
Bank time deposits 406 -- -- 406
Loan participations 266 6 (2) 270
Fixed rate notes 167 1 (2) 166
Collateralized mortgage
obligations 170 -- (4) 166
Floating rate notes 488 1 (1) 488
Other debt securities 293 -- (5) 288
------- ------- ------- -------
Total debt securities 3,486 22 (35) 3,473
------- ------- ------- -------
Hedged equity 431 -- (58) 373
Preferred stock and
other equity 368 20 (16) 372
------- ------- ------- -------
Total equity securities 799 20 (74) 745
------- ------- ------- -------
Swaps hedging investments
in debt securities -- 22 (14) 8
Swaps hedging investments
in equity securities -- 60 -- 60
Currency forward contracts
hedging investments in
debt securities -- 1 -- 1
------- ------- ------- -------
Total available-for-sale
securities 4,285 125 (123) 4,287
Less amounts classified
as cash equivalents (930) -- -- (930)
------- ------- ------- -------
Total investments $ 3,355 $ 125 $ (123) $ 3,357
======= ======= ======= =======
Note: Certain 1994 amounts have been restated to conform to the 1995
presentation.
During the year ended December 30, 1995, debt and marketable securities with a
fair value at the date of sale of $114 million were sold. The gross realized
gains on such sales totaled $60 million. There were no material proceeds or
gross realized gains or losses from sales of securities during 1994.
The amortized cost and estimated fair value of investments in debt securities
at December 30, 1995, by contractual maturity, were as follows:
Estimated
fair
(In millions) Cost value
- ------------------------------------------------------------------------------
Due in 1 year or less $ 2,172 $ 2,172
Due in 1-2 years 486 489
Due in 2-5 years 214 214
Due after 5 years 278 278
------- -------
Total investments in debt securities $ 3,150 $ 3,153
======= =======
Derivative financial instruments
Outstanding notional amounts for derivative financial instruments at fiscal
year-ends were as follows:
(In millions) 1995 1994
- ------------------------------------------------------------------------------
Swaps hedging investments in debt securities $ 824 $ 1,080
Swaps hedging investments in equity securities $ 567 $ 567
Swaps hedging debt $ 156 $ 156
Currency forward contracts $ 1,310 $ 784
Currency options $ 28 $ 10
Options hedging investments in non-marketable
instruments $ 82 $ --
While the contract or notional amounts provide one measure of the volume of
these transactions, they do not represent the amount of the Company's exposure
to credit risk. The amounts potentially subject to credit risk (arising from
the possible inability of counterparties to meet the terms of their contracts)
are generally limited to the amounts, if any, by which the counterparties'
obligations exceed the obligations of the Company. The Company controls credit
risk through credit approvals, limits and monitoring procedures. Credit rating
criteria for off-balance-sheet transactions are similar to those for
investments.
Swap agreements. The Company utilizes swap agreements to exchange the foreign
currency, equity, and interest rate returns of its investment and debt
portfolios for a floating U.S. dollar interest rate based return. The floating
rates on swaps are based primarily on U.S. dollar LIBOR and reset on a monthly,
quarterly or semiannual basis.
Weighted average pay and receive rates, average maturities and range of
maturities on swaps at December 30, 1995 were
as follows:
Weighted
Weighted average Weighted
average receive average Range of
pay rate rate maturity maturities
- -------------------------------------------------------------------------------
Swaps hedging investments
in U.S. dollar debt securities 6.5% 6.2% 1.1 years 0-3 years
Swaps hedging investments
in foreign currency
debt securities 10.4% 9.1% 1.1 years 0-3 years
Swaps hedging investments
in equity securities N/A 5.4% 1.2 years 0-2 years
Swaps hedging debt 5.9% 5.2% 3.6 years 3-6 years
Note: Pay and receive rates are based on the reset rates that were in effect at
December 30, 1995.
Pay rates on swaps hedging investments in debt securities generally match the
yields on the underlying investments they hedge. Payments on swaps hedging
investments in equity securities generally match the equity returns on the
underlying investments they hedge. Receive rates on swaps hedging debt
generally match the expense on the underlying debt they hedge. Maturity dates
of swaps generally match those of the underlying investment or the debt they
hedge. There is approximately a one-to-one matching of investments and debt to
swaps. Swap agreements generally remain in effect until expiration. Income or
expense on swaps is accrued as an adjustment to the yield of the related
investments or debt they hedge.
Other foreign currency instruments. Intel transacts business in various foreign
currencies, primarily Japanese yen and certain European currencies. The
maturities on most of these foreign currency instruments are less than 12
months. Deferred gains or losses attributable to foreign currency instruments
are not material.
Fair values of financial instruments
The estimated fair values of financial instruments outstanding at fiscal
year-ends were as follows:
1995 1994
--------------------- ---------------------
Estimated Estimated
Carrying fair Carrying fair
(In millions) amount value amount value
- ---------------------------------------------------------------------------
Cash and cash equivalents $ 1,463 $ 1,463 $ 1,180 $ 1,180
Short-term investments $ 995 $ 995 $ 1,230 $ 1,230
Long-term investments $ 1,699 $ 1,699 $ 2,058 $ 2,058
Non-marketable instruments $ 239 $ 259 $ 59 $ 144
Swaps hedging investments
in debt securities $ (7) $ (7) $ 8 $ 8
Swaps hedging investments
in equity securities $ (42) $ (42) $ 60 $ 60
Options hedging
investments in non-
marketable instruments $ (9) $ (13) $ -- $ --
Short-term debt $ (346) $ (346) $ (517) $ (517)
Long-term debt $ (400) $ (399) $ (392) $ (384)
Swaps hedging debt $ -- $ (1) $ -- $ (12)
Currency forward contracts $ 3 $ 4 $ 1 $ 5
Currency options $ -- $ -- $ -- $ --
Concentrations of credit risk
Financial instruments that potentially subject the Company to concentrations of
credit risk consist principally of investments and trade receivables. Intel
places its investments with high-credit-quality counterparties and, by policy,
limits the amount of credit exposure to any one counterparty. A substantial
majority of the Company's trade receivables are derived from sales to
manufacturers of microcomputer systems, with the remainder spread across
various other industries.
During 1995, the Company experienced an increase in its concentration of credit
risk due to increasing trade receivables from sales to manufacturers of
microcomputer systems. The Company's five largest customers accounted for
approximately 33% of net revenues for 1995. At December 30, 1995, these
customers accounted for approximately 34% of net accounts receivable. A portion
of the receivable balance from one of the Company's five largest customers has
been converted into a loan. The total amount receivable from this customer was
approximately $400 million at December 30, 1995.
The Company endeavors to keep pace with the evolving computer industry and has
adopted credit policies and standards intended to accommodate industry growth
and inherent risk. Management believes that credit risks are moderated by the
diversity of its end customers and geographic sales areas. Intel performs
ongoing credit evaluations of its customers' financial condition and requires
collateral as deemed necessary.
Interest income and other
(In millions) 1995 1994 1993
- ----------------------------------------------------------------------------
Interest income $ 272 $ 235 $ 155
Foreign currency gains 29 15 --
Other income 114 23 33
------- ------- -------
Total $ 415 $ 273 $ 188
======= ======= =======
Other income for 1995 included approximately $58 million from the settlement of
ongoing litigation and $60 million from sales of a portion of the Company's
investment in marketable equity securities. Other income for 1994 included non-
recurring gains from the settlement of various insurance claims. Other income
for 1993 included non-recurring gains from the sale of certain benefits related
to the Company's Irish expansion and dividend income earned on equity
investments.
Provision for taxes
The provision for taxes consisted of the following:
(In millions) 1995 1994 1993
- ----------------------------------------------------------------------------
Income before taxes:
U.S. $ 3,427 $ 2,460 $ 2,587
Foreign 2,211 1,143 943
------- ------- -------
Total income before taxes $ 5,638 $ 3,603 $ 3,530
======= ======= =======
Provision for taxes:
Federal:
Current $ 1,169 $ 1,169 $ 946
Deferred 307 (178) 35
------- ------- -------
1,476 991 981
------- ------- -------
State:
Current 203 162 150
Foreign:
Current 354 134 127
Deferred 39 28 (23)
------- ------- -------
393 162 104
------- ------- -------
Total provision for taxes $ 2,072 $ 1,315 $ 1,235
======= ======= =======
Effective tax rate 36.8% 36.5% 35.0%
======= ======= =======
The tax benefit associated with dispositions from employee stock plans reduced
taxes currently payable for 1995 by $116 million ($61 million and $68 million
for 1994 and 1993, respectively).
The provision for taxes reconciled to the amount computed by applying the
statutory federal rate of 35% to income before taxes as follows:
(In millions) 1995 1994 1993
- ----------------------------------------------------------------------------
Computed expected tax $ 1,973 $ 1,261 $ 1,235
State taxes, net of federal
benefits 132 105 98
Other (33) (51) (98)
------- ------- -------
Provision for taxes $ 2,072 $ 1,315 $ 1,235
======= ======= =======
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:
(In millions) 1995 1994
- -------------------------------------------------------------------------------
Deferred tax assets
Accrued compensation and benefits $ 61 $ 49
Deferred income 127 127
Inventory valuation and related reserves 104 255
Interest and taxes 61 54
Other, net 55 67
------- -------
408 552
Deferred tax liabilities
Depreciation (475) (338)
Unremitted earnings of certain subsidiaries (116) (51)
Other, net (29) --
------- -------
(620) (389)
------- -------
Net deferred tax (liability) asset $ (212) $ 163
======= =======
U.S. income taxes were not provided for on a cumulative total of approximately
$615 million of undistributed earnings for certain non-U.S. subsidiaries. The
Company intends to reinvest these earnings indefinitely in operations outside
the United States.
The Company's U.S. income tax returns for the years 1978 through 1987 have been
examined by the Internal Revenue Service (IRS). In 1989, the Company received
a notice of proposed deficiencies from the IRS totaling $36 million, exclusive
of penalties and interest, for the years 1978 through 1982. These proposed
deficiencies relate primarily to operations in Puerto Rico. In 1989, the Company
filed a petition in the U.S. Tax Court contesting these proposed deficiencies
and subsequently reached settlement of certain issues with the IRS. In 1993,
the U.S. Tax Court ruled in favor of the Company on an export source issue and
for the IRS on another, smaller issue. The IRS appealed the decision to the
United States Court of Appeals for the Ninth Circuit, and the Company filed a
cross-appeal of the decision. In 1995, the Court of Appeals affirmed the
decision of the Tax Court. The IRS has subsequently requested a re-hearing.
The Company has also received an examination report for the years 1983 through
1987. Intel has lodged a protest, which relates solely to the export source
issue referenced above, to the IRS Appeals Office, but no decisions have been
reached.
The Company's U.S. income tax returns for the years 1988 through 1990 are
presently under examination by the IRS. Final proposed adjustments have not yet
been received for these years. Management believes that adequate amounts of tax
and related interest and penalties, if any, have been provided for any
adjustments that may result from unsettled portions of the 1978-1987 cases or
the years now under examination.
Employee benefit plans
Stock option plans. Intel has a stock option plan (hereafter referred to as the
EOP Plan) under which officers, key employees and non-employee directors may be
granted options to purchase shares of the Company's authorized but unissued
Common Stock. The Company also has an Executive Long-Term Stock Option Plan
(ELTSOP) under which certain key executive officers may be granted options to
purchase shares of the Company's authorized but unissued Common Stock. Under
all plans, the option purchase price is not less than fair market value at the
date of grant. The Company accounts for stock options in accordance with APB
Opinion No. 25, "Accounting for Stock Issued to Employees." In accordance with
SFAS No. 123, "Accounting for Stock-Based Compensation," the Company intends to
continue to apply APB No. 25 for purposes of determining net income and to
adopt the pro forma disclosure requirements for fiscal 1996.
Options currently expire no later than ten years from the grant date. Proceeds
received by the Company from exercises are credited to Common Stock and
capital in excess of par value. Additional information with respect to EOP Plan
activity was as follows:
Outstanding options
Shares -----------------------
available Number Aggregate
(In millions) for options of shares price
- ------------------------------------------------------------------------------
December 26, 1992 65.4 73.6 $ 669
Grants (15.2) 15.2 357
Exercises -- (9.0) (56)
Cancellations 1.8 (1.8) (24)
------- ------- -------
December 25, 1993 52.0 78.0 946
Grants (12.0) 12.0 397
Exercises -- (8.2) (54)
Cancellations 1.6 (1.6) (33)
------- ------- -------
December 31, 1994 41.6 80.2 1,256
Grants (13.5) 13.5 645
Exercises -- (9.8) (81)
Cancellations 3.0 (3.0) (77)
------- ------- -------
December 30, 1995 31.1 80.9 $ 1,743
======= ======= =======
Options exercisable at:
December 25, 1993 20.4 $ 135
December 31, 1994 26.2 $ 198
December 30, 1995 25.3 $ 236
The range of exercise prices for options outstanding under the EOP Plan at
December 30, 1995 was $3.13 to $69.43. These options will expire if not
exercised at specific dates ranging from January 1996 to December 2005. Prices
for options exercised during the three-year period ended December 30, 1995
ranged from $3.04 to $36.13.
Activity for the ELTSOP Plan is summarized below:
Outstanding options
Shares -------------------
available Number Aggregate
(In millions) for options of shares price
- ------------------------------------------------------------------------------
December 26, 1992 13.2 6.0 $ 44
Grants (0.4) 0.4 11
Exercises -- (0.8) (6)
------- ------- -------
December 25, 1993 12.8 5.6 49
Exercises -- (0.6) (4)
------- ------- -------
December 31, 1994 12.8 5.0 45
Grants (0.5) 0.5 30
Exercises -- (0.9) (6)
------- ------- -------
December 30, 1995 12.3 4.6 $ 69
======= ======= =======
Options exercisable at:
December 25, 1993 1.4 $ 11
December 31, 1994 2.6 $ 19
December 30, 1995 3.8 $ 29
The range of exercise prices for options outstanding under the ELTSOP Plan at
December 30, 1995 was $7.31 to $60.48.
These options will expire if not exercised at specific dates ranging from April
1999 to September 2005. Prices for options exercised during the three-year
period ended December 30, 1995 ranged from $7.31 to $7.34.
Stock participation plan. Under this plan, eligible employees may purchase
shares of Intel's Common Stock at 85% of fair market value at specific,
predetermined dates. Of the 59.0 million shares authorized to be issued under
the plan, 11.9 million shares were available for issuance at December 30, 1995.
Employees purchased 3.5 million shares in 1995 (4.0 million and 4.4 million in
1994 and 1993, respectively) for $110 million ($94 million and $71 million in
1994 and 1993, respectively).
Retirement plans. The Company provides tax-qualified profit-sharing retirement
plans (the "Qualified Plans") for the benefit of eligible employees in the U.S.
and Puerto Rico. The plans are designed to provide employees with an
accumulation of funds for retirement on a tax-deferred basis and provide for
annual discretionary contributions to trust funds.
The Company also provides a non-qualified profit-sharing retirement plan (the
"Non-Qualified Plan") for the benefit of eligible employees in the U.S. This
plan is designed to permit certain discretionary employer contributions in
excess of the tax limits applicable to the Qualified Plans and to permit
employee deferrals in excess of certain tax limits. This plan is unfunded.
The Company accrued $188 million for the Qualified Plans and the Non-Qualified
Plan in 1995 ($152 million in 1994 and $103 million in 1993). Of the $188
million accrued in 1995, the Company expects to fund approximately $145 million
for the 1995 contribution to the Qualified Plans and to allocate approximately
$6 million for the Non-Qualified Plan. The remainder, plus approximately $140
million carried forward from prior years, is expected to be contributed to
these plans when allowable under IRS regulations and plan rules. Contributions
made by the Company vest based on the employee's years of service. Vesting
begins after three years of service in 20% annual increments until the employee
is 100% vested after seven years.
The Company provides tax-qualified defined-benefit pension plans for the
benefit of eligible employees in the U.S. and Puerto Rico. Each plan provides
for minimum pension benefits that are determined by a participant's years of
service, final average compensation (taking into account the participant's
social security wage base) and the value of the Company's contributions, plus
earnings, in the Qualified Plan. If the balance in the participant's Qualified
Plan exceeds the pension guarantee, the participant will receive benefits from
the Qualified Plan only. Intel's funding policy is consistent with the funding
requirements of federal laws and regulations.
Pension expense for 1995, 1994 and 1993 for the U.S. and Puerto Rico plans was
less than $1 million per year, and no component of expense exceeded $2 million.
The funded status of these plans as of December 30, 1995 and December 31, 1994
was as follows:
(In millions) 1995 1994
- --------------------------------------------------------------------------------
Vested benefit obligation $ (3) $ (3)
======= =======
Accumulated benefit obligation $ (4) $ (3)
======= =======
Projected benefit obligation $ (6) $ (5)
Fair market value of plan assets 8 6
------- -------
Projected benefit obligation less than plan assets 2 1
Unrecognized net (gain) (12) (12)
Unrecognized prior service cost 3 4
------- -------
Accrued pension costs $ (7) $ (7)
======= =======
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:
1995 1994 1993
- ----------------------------------------------------------------------------
Discount rate 7.0% 8.5% 7.0%
Rate of increase in compensation
levels 5.0% 5.5% 5.0%
Expected Long-Term return on assets 8.5% 8.5% 8.5%
Plan assets of the U.S. and Puerto Rico plans consist primarily of listed
stocks and bonds, repurchase agreements, money market securities, U.S.
government securities and stock index derivatives.
The Company provides defined-benefit pension plans in certain foreign countries
where required by statute. The Company's funding policy for foreign defined-
benefit plans is consistent with the local requirements in each country.
Pension expense for 1995, 1994 and 1993 for the foreign plans included the
following:
(In millions) 1995 1994 1993
- ----------------------------------------------------------------------------
Service cost-benefits earned
during the year $ 9 $ 5 $ 5
Interest cost of projected
benefit obligation 6 5 6
Actual investment (return)
on plan assets (4) (8) (7)
Net amortization and deferral (2) 3 2
------- ------- -------
Net pension expense $ 9 $ 5 $ 6
======= ======= =======
The funded status of the foreign defined-benefit plans as of December 30, 1995
and December 31, 1994 is summarized below:
Assets Accu-
exceed mulated
accu- benefits
1995 mulated exceed
(In millions) benefits assets
- ------------------------------------------------------------------------------
Vested benefit obligation $ (44) $ (8)
======= =======
Accumulated benefit obligation $ (46) $ (14)
======= =======
Projected benefit obligation $ (62) $ (22)
Fair market value of plan assets 67 4
------- -------
Projected benefit obligation less than
(in excess of) plan assets 5 (18)
Unrecognized net loss 4 5
Unrecognized net transition obligation 2 --
------- -------
Prepaid (accrued) pension costs $ 11 $ (13)
======= =======
Assets Accu-
exceed mulated
accu- benefits
1994 mulated exceed
(In millions) benefits assets
- ------------------------------------------------------------------------------
Vested benefit obligation $ (32) $ (4)
======= =======
Accumulated benefit obligation $ (34) $ (9)
======= =======
Projected benefit obligation $ (49) $ (16)
Fair market value of plan assets 51 3
------- -------
Projected benefit obligation
less than (in excess of) plan assets 2 (13)
Unrecognized net loss 2 2
Unrecognized net transition obligation -- 1
------- -------
Prepaid (accrued) pension costs $ 4 $ (10)
======= =======
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:
1995 1994 1993
- -----------------------------------------------------------------------------
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%
Plan assets of the foreign plans consist primarily of listed stocks, bonds and
cash surrender value life insurance policies.
Other postemployment benefits. The Company has adopted SFAS No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions," and
SFAS No. 112, "Employers' Accounting for Postemployment Benefits." There was
no material impact on the Company's financial statements for the periods
presented.
Commitments
The Company leases a portion of its capital equipment and certain of its
facilities under operating leases that expire at various dates through 2011.
Rental expense was $38 million in 1995, $38 million in 1994 and $35 million in
1993. Minimum rental commitments under all non-cancelable leases with an
initial term in excess of one year are payable as follows: 1996--$25 million;
1997--$20 million; 1998--$15 million; 1999--$12 million; 2000--$10 million; 2001
and beyond--$23 million. Commitments for construction or purchase of property,
plant and equipment approximated $1.47 billion at December 30, 1995. In
connection with certain manufacturing arrangements, Intel had minimum purchase
commitments of approximately $1.12 billion at December 30, 1995 for flash
memories and other memory components and for production capacity of board-level
products.
Contingencies
On March 29, 1995, Thorn EMI North America Inc. brought suit in Federal Court
in Delaware against Intel and Advanced Micro Devices, Inc. (AMD) alleging
infringement of a U.S. patent relating to processes for manufacturing
semiconductors, certain of which processes are utilized in the manufacture of
the Company's Pentium(R) and Pentium(R) Pro microprocessors. The plaintiff is
seeking injunctive relief and unspecified damages. On September 8, 1995, Intel
was granted a motion to sever its case from the AMD case. Trial of the
plaintiff's claims against Intel is presently set for June 1996. The Company
believes this lawsuit to be without merit and intends to defend the lawsuit
vigorously. Although the ultimate outcome of this lawsuit cannot be determined
at this time, management, including internal counsel, does not believe that the
outcome of this litigation will have a material adverse effect on the Company's
financial position or overall trends in results of operations.
Intel has been named to the California and U.S. Superfund lists for three of
its sites and has completed, along with two other companies, a Remedial
Investigation/Feasibility study with the U.S. Environmental Protection Agency
(EPA) to evaluate the groundwater in areas adjacent to one of its former sites.
The EPA has issued a Record of Decision with respect to a groundwater cleanup
plan at that site, including expected costs to complete. Under the California
and U.S. Superfund statutes, liability for cleanup of this site and the
adjacent area is joint and several. The Company, however, has reached agreement
with those same two companies which significantly limits the Company's
liabilities under the proposed cleanup plan. Also, the Company has completed
extensive studies at its other sites and is engaged in cleanup at several of
these sites. In the opinion of management, including internal counsel, the
potential losses to the Company in excess of amounts already accrued arising
out of these matters will not have a material adverse effect on the Company's
financial position or overall trends in results of operations, even if joint
and several liability were to be assessed.
The Company is party to various other legal proceedings. In the opinion of
management, including internal counsel, these proceedings will not have a
material adverse effect on the financial position or overall trends in results
of operations of the Company.
The estimate of the potential impact on the Company's financial position or
overall results of operations for the above legal proceedings could change in
the future.
Industry segment reporting
The Company operates predominantly in one industry segment. The Company
designs, develops, manufactures and markets microcomputer components and
related products at various levels of integration. The Company sells its
products directly to original equipment manufacturers (OEMs) and also to a
network of industrial and retail distributors throughout the world. The
Company's principal markets are in the United States, Europe, Asia-Pacific and
Japan, with the U.S. and Europe being the largest based on revenues. The
Company's major products include microprocessors and related board-level
products, chipsets, embedded processors and microcontrollers, flash memory
chips, and network and communications products. Microprocessors and related
board-level products account for a substantial majority of the Company's net
revenues. No customer exceeded 10% of revenues in 1995 or 1994. One significant
customer accounted for 10% of revenues in 1993. Summary balance sheet
information for operations outside the United States at
Fiscal year-ends is as follows:
(In millions) 1995 1994
- -------------------------------------------------------------------------------
Total assets $ 4,404 $ 2,940
Total liabilities $ 1,661 $ 962
Net property, plant and equipment $ 1,414 $ 1,238
Geographic information for the three years ended December 30, 1995 is presented
in the following table. Transfers between geographic areas are accounted for at
amounts that are generally above cost and consistent with rules and regulations
of governing tax authorities. Such transfers are eliminated in the consolidated
financial statements. Operating income by geographic segment does not include
an allocation of general corporate expenses. identifiable assets are those that
can be directly associated with a particular geographic area. Corporate assets
include cash and cash equivalents, short-term investments, deferred tax assets,
other current assets, long-term investments and certain other assets.
Transfers
Sales to between Identi-
(In millions) unaffiliated geographic Net Operating fiable
1995 customers areas revenues income assets
- -------------------------------------------------------------------------------
United States $ 7,922 $ 6,339 $14,261 $ 3,315 $12,603
Europe 4,560 1,190 5,750 1,383 2,517
Japan 1,737 28 1,765 353 665
Asia-Pacific 1,983 1,566 3,549 271 893
Other -- 684 684 410 329
Eliminations -- (9,807) (9,807) 124 (3,651)
Corporate -- -- -- (604) 4,148
------- ------- ------- ------- -------
Consolidated $16,202 $ -- $16,202 $ 5,252 $17,504
======= ======= ======= ======= =======
1994
- -------------------------------------------------------------------------------
United States $ 5,826 $ 4,561 $10,387 $ 2,742 $ 7,771
Europe 3,158 380 3,538 418 1,733
Japan 944 61 1,005 125 343
Asia-Pacific 1,593 1,021 2,614 154 540
Other -- 639 639 378 324
Eliminations -- (6,662) (6,662) 179 (1,878)
Corporate -- -- -- (609) 4,983
------- ------- ------- ------- -------
Consolidated $11,521 $ -- $11,521 $ 3,387 $13,816
======= ======= ======= ======= =======
1993
- -------------------------------------------------------------------------------
United States $ 4,416 $ 3,406 $ 7,822 $ 2,896 $ 5,379
Europe 2,476 51 2,527 309 1,214
Japan 678 119 797 108 351
Asia-Pacific 1,212 745 1,957 132 420
Other -- 566 566 348 207
Eliminations -- (4,887) (4,887) 85 (1,123)
Corporate -- -- -- (486) 4,896
------- ------- ------- ------- -------
Consolidated $ 8,782 $ -- $ 8,782 $ 3,392 $11,344
======= ======= ======= ======= =======
Supplemental information (unaudited)
Quarterly information for the two years ended December 30, 1995 is presented on
page 31.
Report Of Ernst & Young LLP, Independent Auditors
The Board of Directors and
Stockholders, Intel Corporation
We have audited the accompanying consolidated balance sheets of Intel
Corporation as of December 30, 1995 and December 31, 1994, and the related
consolidated statements of income, stockholders' equity, and cash flows for
each of the three years in the period ended December 30, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Intel Corporation at December 30, 1995 and December 31, 1994, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 30, 1995, in conformity with generally
accepted accounting principles.
San Jose, California
January 15, 1996
Financial Summary
Ten Years Ended December 30, 1995
Additions
Net investment Long-term Stock- to property,
in property, Total debt & put holders' plant &
(In millions) plant & equip. assets warrants equity equipment
- -------------------------------------------------------------------------------
1995 $ 7,471 $17,504 $ 1,125 $12,140 $ 3,550
1994 $ 5,367 $13,816 $ 1,136 $ 9,267 $ 2,441
1993 $ 3,996 $11,344 $ 1,114 $ 7,500 $ 1,933
1992 $ 2,816 $ 8,089 $ 622 $ 5,445 $ 1,228
1991 $ 2,163 $ 6,292 $ 503 $ 4,418 $ 948
1990 $ 1,658 $ 5,376 $ 345 $ 3,592 $ 680
1989 $ 1,284 $ 3,994 $ 412 $ 2,549 $ 422
1988 $ 1,122 $ 3,550 $ 479 $ 2,080 $ 477
1987 $ 891 $ 2,499 $ 298 $ 1,276 $ 302
1986 $ 779 $ 1,977 $ 287 $ 1,245 $ 155
(In millions--except per share amounts)
Research Operating Net Earnings Dividends
Net Cost of & devel- income income (loss) declared
revenues sales opment (loss) (loss) per share per share
- -------------------------------------------------------------------------------
1995 $16,202 $ 7,811 $ 1,296 $ 5,252 $ 3,566 $ 4.03 $ 0.15
1994 $11,521 $ 5,576 $ 1,111 $ 3,387 $ 2,288 $ 2.62 $ 0.115
1993 $ 8,782 $ 3,252 $ 970 $ 3,392 $ 2,295 $ 2.60 $ 0.10
1992 $ 5,844 $ 2,557 $ 780 $ 1,490 $ 1,067 $ 1.24 $ 0.05
1991 $ 4,779 $ 2,316 $ 618 $ 1,080 $ 819 $ 0.98 --
1990 $ 3,921 $ 1,930 $ 517 $ 858 $ 650 $ 0.80 --
1989 $ 3,127 $ 1,721 $ 365 $ 557 $ 391 $ 0.52 --
1988 $ 2,875 $ 1,506 $ 318 $ 594 $ 453 $ 0.63 --
1987 $ 1,907 $ 1,044 $ 260 $ 246 $ 248 $ 0.34 --
1986 $ 1,265 $ 861 $ 228 $ (195) $ (203) $ (0.29) --
Management's Discussion And Analysis Of Financial Condition
And Results Of Operations
Results of operations. Intel posted record net revenues in 1995, for the
ninth consecutive year, rising by 41% from 1994 to 1995 and by 31% from 1993
to 1994. Higher volumes of the rapidly ramping Pentium(R) microprocessor
family, partially offset by lower prices, and increased sales of related board-
level products were responsible for most of the growth in revenues in 1994 and
1995. Revenues from the Intel486(TM) microprocessor family declined
substantially in 1995 due to a shift in market demand toward the Company's
Pentium microprocessors and lower Intel486 microprocessor prices.
Higher volumes of flash memory and chipset products also contributed toward the
increase in revenues from 1993 to 1995 and also helped enable the successful
Pentium microprocessor ramp. Sales of system platforms, embedded control
products, and networking and communications products also grew.
Cost of sales increased by 40% from 1994 to 1995 and by 71% from 1993 to 1994.
The growth in cost of sales from 1993 to 1995 was driven by Pentium
microprocessor and board-level unit volume growth, new factories coming into
production, shifts in process and product mix, and in the fourth quarter of
1995, by costs associated with unusually high reserves related to inventories
of certain purchased components. Gross margin for the fourth quarter of 1994
included the impact of a $475 million charge, primarily to cost of sales, to
cover replacement costs, replacement material and an inventory writedown
related to a divide problem in the floating point unit of the Pentium
microprocessor. As a result of the above factors, the gross margin percentage
was 52% in 1995 and 1994, compared to 63% in 1993.
Quarterly unit shipments of the Pentium microprocessor family surpassed those
of the Intel486 microprocessor family during the third quarter of 1995. The
Company helped accelerate this transition by offering chipsets and motherboards
to enable computer manufacturers to bring their products to market faster.
Sales of the Pentium microprocessor family comprised a majority of the
Company's revenues and a substantial majority of its gross margin during 1995.
During 1995, the Intel486 microprocessor family represented a significant but
rapidly declining portion of the Company's revenues and gross margins. The
Intel486 microprocessor family comprised a majority of the Company's revenues
and a substantial majority of its gross margin during 1993 and 1994.
Research and development spending grew by 17% from 1994 to 1995, as the Company
continued to invest in strategic programs, particularly for the internal
development of microprocessor products and related manufacturing technology.
Increased spending for marketing programs, including media merchandising and
the Company's Intel Inside(R) cooperative advertising program, drove the 27%
increase in marketing, general and administrative expenses from 1994 to 1995.
The $28 million decrease in interest expense from 1994 to 1995 was mainly due
to lower average borrowing balances in addition to higher interest
capitalization resulting from increased facility construction programs. The
increase in interest expense from 1993 to 1994 was primarily due to higher
average interest rates on borrowings, partially offset by higher interest
capitalization.
Interest and other income increased by $142 million from 1994 to 1995,
primarily due to higher average interest rates on investments in 1995, gains
of $58 million related to the settlement of litigation and gains of $60
million from the sale of a portion of the Company's investment in marketable
equity securities. Interest and other income increased by $85 million from 1993
to 1994, mainly due to higher average interest rates on investments in 1994,
gains related to the settlement of various insurance claims in 1994, and
higher foreign exchange gains and investment balances in 1994. Interest and
other income in 1993 included gains of $27 million from the sale of certain
foreign benefits related to a plant expansion in Ireland during 1993.
The Company utilizes investments and corresponding interest rate swaps to
preserve principal while enhancing the yield on its investment portfolio
without significantly increasing risk, and uses forward contracts, options and
swaps to hedge currency, market and interest rate exposures. Gains and losses
on these instruments are generally offset by those on the underlying hedged
transactions; as a result, there was no material net impact on the Company's
financial results during the 1993- 1995 period.
The Company's effective income tax rate increased to 36.8% in 1995 compared to
36.5% and 35.0% in 1994 and 1993, respectively. The increases in rate from
1993 to 1995 resulted from the fact that tax credits have not grown as rapidly
as overall pretax income.
Financial condition. The Company's financial condition remains very strong. As
of December 30, 1995, total cash and short- and long-term investments totaled
$4.11 billion, down from $4.54 billion at December 31, 1994. Cash generated
from operating activities rose to $4.03 billion in 1995, compared to $2.98
billion and $2.80 billion in 1994 and 1993, respectively.
Investing activities consumed $2.69 billion in cash during 1995, compared to
$2.90 billion during 1994 and $3.34 billion during 1993. Capital expenditures
increased substantially in both 1994 and 1995, as the Company continued to
invest in the property, plant and equipment needed for future business
requirements, including manufacturing capacity. The Company expects to spend
approximately $4.1 billion for capital additions in 1996 and had committed
approximately $1.47 billion for the construction or purchase of property, plant
and equipment as of December 30, 1995.
Inventory levels, particularly raw materials and finished goods, increased
significantly in 1995. This increase was primarily attributable to the increased
level of business and, to a lesser extent, to an unusually low level of
inventory at the end of 1994 because of a writedown of inventories in the
fourth quarter of 1994 in connection with the divide problem in the floating
point unit of the Pentium processor. The increase in accounts receivable in
1995 was mainly due to revenue growth, including the growth of non-domestic
sales that have longer payment terms. During 1995, the Company experienced an
increase in its concentration of credit risk due to increasing trade
receivables from sales to manufacturers of microcomputer systems. The Company's
five largest customers accounted for approximately 33% of net revenues for
1995. At December 30, 1995, these customers accounted for approximately 34% of
net accounts receivable. A portion of the receivable balance from one of its
five largest customers has been converted into a loan. The total amount
receivable from this customer was approximately $400 million at December 30,
1995.
The Company used $1.06 billion and $557 million for financing activities in
1995 and 1994, respectively, while $352 million was provided in 1993. The major
financing application of cash in 1995 was for stock repurchases totaling $1.03
billion. Financing applications of cash in 1994 included stock repurchases of
$658 million and the early retirement of the Company's 8 1/8% debt. Sources of
financing in 1993 included the Company's public offering of the 1998 Step-Up
Warrants, which resulted in proceeds of $287 million.
As part of its authorized stock repurchase program, the Company had outstanding
put warrants at the end of 1995, with the potential obligation to buy back 12
million shares of its Common Stock at an aggregate price of $725 million. The
exercise price of these warrants ranges from $38 to $68 per share, with an
average exercise price of $60 per share.
Other sources of liquidity include combined credit lines and authorized
commercial paper borrowings of $1.86 billion, $57 million of which was
outstanding at December 30, 1995. The Company also maintains the ability to
issue an aggregate of approximately $1.4 billion in debt, equity and other
securities under Securities and Exchange Commission (SEC) shelf registration
statements. The Company believes that it has the financial resources needed to
meet business requirements in the foreseeable future, including capital
expenditures for the recently announced expansion of international
manufacturing sites, working capital requirements, the potential put warrant
obligation and the dividend program.
Outlook. The statements contained in this Outlook are based on current
expectations. These statements are forward looking, and actual results may
differ materially.
Intel expects that the total number of personal computers using Intel's
Pentium microprocessors and other semiconductor components sold worldwide will
continue to grow in 1996. Intel has expanded manufacturing capacity over the
last few years and continues to expand capacity to be able to meet the
potential increase in demand. Intel's financial results are to a large extent
dependent on this market segment. Revenue is also a function of the
distribution of microprocessor speed and performance levels, which is difficult
to forecast. Because of the large price difference between components for the
highest and lowest performance computers, this distribution affects the
average price Intel will realize and has a large impact on Intel's revenues.
Intel's strategy has been, and continues to be, to introduce ever higher
performance microprocessors and work with the software industry to develop
compelling applications that can take advantage of this higher performance,
thus driving demand toward the newer products. Capacity has been planned based
on the assumed continued success of the Company's strategy.
In line with this strategy, the Company has recently announced higher speed
members of the Pentium(R) Pro microprocessor family. If the market demand does
not continue to grow and move rapidly toward higher performance products,
revenue growth may be impacted, the manufacturing capacity installed might be
under-utilized and capital spending may be slowed. The Company may continue to
reduce microprocessor prices aggressively and systematically to bring its
technology to market.
The Company's gross margin percentage is a sensitive function of the product
mix sold in any period. Because the percentage of motherboards that Intel's
customers purchase changes with maturity of the product cycle, and motherboards
generally have lower gross margin percentages than microprocessors, Intel's
gross margin percentage varies depending on the mix of microprocessors and
related motherboards within a product family. Various other factors, including
unit volumes and costs and yield issues associated with initiating production
at new factories or on new processes, also will continue to affect the amount
of cost of sales and the variability of gross margin percentages in future
quarters. From time to time the Company may forecast a range of gross margin
percentages for the coming quarter. Actual results may differ. Longer term
gross margin percentages are even more difficult to predict.
To implement its strategy, Intel continues to build capacity to produce high-
performance microprocessors and other products. The Company expects that
capital spending will increase to approximately $4.1 billion in 1996. This
spending plan is dependent upon delivery times of various machines and
construction schedules for new facilities. Based on this forecast, depreciation
for 1996 is expected to be approximately $1.9 billion, an increase of
approximately $500 million from 1995. Most of this increased depreciation will
be included in cost of sales and research and development spending.
The industry in which Intel operates is characterized by very short product
life cycles. Intel considers it imperative to maintain a strong research and
development program to continue to succeed. Accordingly, research and
development spending is expected to grow in 1996 to approximately $1.6 billion.
The Company will also continue spending to promote its products and to increase
the value of its product brands. Based on current forecasts, spending for
marketing and general and administrative expenses is expected to increase in
1996.
The Company expects its tax rate to decrease to 36.5% for 1996. This estimate
is based on current tax law and is subject to change.
The Company's future results of operations and the other forward looking
statements contained in this Outlook, in particular the statements regarding
growth in the personal computer industry, capital spending, depreciation,
research and development, and marketing and general and administrative
expenses, involve a number of risks and uncertainties. In addition to the
factors discussed above, among the other factors that could cause actual
results to differ materially are the following: business conditions and the
general economy; competitive factors, such as rival chip architectures,
competing software compatible microprocessors, acceptance of new products and
price pressures; availability of third-party component products at reasonable
prices; risk of nonpayment of accounts receivable or customer loans;
manufacturing ramp and capacity; risks associated with foreign operations; risk
of inventory obsolescence due to shifts in market demand; timing of software
industry product introductions; and litigation involving intellectual property
and consumer issues.
Intel believes that it has the product offerings, facilities, personnel, and
competitive and financial resources for continued business success, but future
revenues, costs, margins, product mix and profits are all influenced by a number
of factors, as discussed above.
Financial Information By Quarter
(In millions--except per share data)
(Unaudited)
1995 for quarter ended December 30 September 30 July 1 April 1
- -------------------------------------------------------------------------------
Net revenues $ 4,580 $ 4,171 $ 3,894 $ 3,557
Cost of sales $ 2,389 $ 2,008 $ 1,805 $ 1,609
Net income $ 867 $ 931 $ 879 $ 889
Earnings per share $ .98 $ 1.05 $ .99 $ 1.02
Dividends per share(A)
Declared $ .04 $ .04 $ .04 $ .03
Paid $ .04 $ .04 $ .03 $ .03
Market price range Common
Stock(B) High $ 72.88 $ 76.44 $ 65.63 $ 44.25
Low $ 56.75 $ 58.63 $ 42.75 $ 31.81
Market price range Step-Up
Warrants(B) High $ 39.00 $ 43.63 $ 31.88 $ 11.91
Low $ 26.75 $ 30.44 $ 11.31 $ 6.97
(In millions-except per share data)
1994 for quarter ended December 31 October 1 July 2 April 2
- -------------------------------------------------------------------------------
Net revenues $ 3,228 $ 2,863 $ 2,770 $ 2,660
Cost of sales $ 2,023 $ 1,273 $ 1,156 $ 1,124
Net income $ 372(C) $ 659 $ 640 $ 617
Earnings per share $ .43 $ .76 $ .73 $ .70
Dividends per share(A)
Declared $ .03 $ .03 $ .03 $ .025
Paid $ .03 $ .03 $ .025 $ .025
Market price range Common
Stock(B) High $ 33.06 $ 33.63 $ 35.31 $ 36.13
Low $ 28.91 $ 28.25 $ 28.75 $ 30.63
Market price range Step-Up
Warrants(B) High $ 7.50 $ 8.00 $ 9.22 $ 9.75
Low $ 6.16 $ 6.50 $ 6.50 $ 7.56
(A) Intel plans to continue its dividend program. However, dividends are
dependent on future earnings, capital requirements and financial condition.
(B) Intel's Common Stock (symbol INTC) and 1998 Step-Up Warrants (symbol INTCW)
trade on The Nasdaq Stock Market and are quoted in the Wall Street Journal
and other newspapers. Intel's Common Stock also trades on the Zurich, Basel and
Geneva, Switzerland exchanges. At December 30, 1995, there were approximately
69,400 holders of Common Stock. All stock and warrant prices are closing prices
per The Nasdaq Stock Market.
(C) Net income for the fourth quarter of 1994 was impacted by a $475 million
pretax charge to revenue and cost of sales to cover replacement and other costs
associated with a divide problem in the floating point unit of the Company's
Pentium processor.
GRAPHICS APPENDIX LIST*
* In this Appendix, the following descriptions of graphs on pages 28 and 29 of
the Company's 1995 Annual Report to Stockholders that are omitted from the
EDGAR text are more specific with respect to the actual amounts and percentages
than can be determined from the graphs themselves.
The Company submits such more specific descriptions only for the purpose of
complying with EDGAR requirements for transmitting this Annual Report on Form
10-K; such more specific descriptions are not intended in any way to provide
information that is additional to that otherwise provided in the 1995 Annual
Report to Stockholders.
REVENUES AND INCOME
(Dollars in billions) 1993 1994 1995
------ ------ ------
Net revenues 8.782 11.521 16.202
Net income 2.295 2.288 3.566
COSTS AND EXPENSES
(Percent of revenues) 1993 1994 1995
------ ------ ------
Cost of sales 37% 48% 48%
R&D 11% 10% 8%
Marketing and G&A 13% 13% 11%
OTHER INCOME AND EXPENSE
(Dollars in millions) 1993 1994 1995
------ ------ ------
Interest and other income 188 273 415
Interest expense 50 57 29
CASH AND INVESTMENTS
(Dollars in billions) 1994 1995
------ ------
Cash and cash equivalents 1.180 1.463
Short-term investments 1.230 .995
Long-term investments 2.127 1.653