EXHIBIT 13
4
Intel Corporation 1997
Consolidated
statements of income
Three years ended December 27, 1997
(In millions-except
per share amounts) 1997 1996 1995
- --------------------------------------------------------------------------------
Net revenues $ 25,070 $ 20,847 $ 16,202
-------- -------- --------
Cost of sales 9,945 9,164 7,811
Research and development 2,347 1,808 1,296
Marketing, general and
administrative 2,891 2,322 1,843
-------- -------- --------
Operating costs and expenses 15,183 13,294 10,950
-------- -------- --------
Operating income 9,887 7,553 5,252
Interest expense (27) (25) (29)
Interest income and other, net 799 406 415
-------- -------- --------
Income before taxes 10,659 7,934 5,638
Provision for taxes 3,714 2,777 2,072
-------- -------- --------
Net income $ 6,945 $ 5,157 $ 3,566
======== ======== ========
Basic earnings per common share $ 4.25 $ 3.13 $ 2.16
======== ======== ========
Diluted earnings per common share $ 3.87 $ 2.90 $ 2.02
======== ======== ========
Weighted average common shares
outstanding 1,635 1,645 1,650
Dilutive effect of:
Employee stock options 102 94 96
1998 Step-Up Warrants 58 37 22
-------- -------- --------
Weighted average common shares
outstanding,
assuming dilution 1,795 1,776 1,768
======== ======== ========
See accompanying notes.
5
Intel Corporation 1997
Consolidated
balance sheets
December 27, 1997 and December 28, 1996
(In millions-except per share amounts) 1997 1996
- ------------------------------------------------------------------------------
Assets
Current assets:
Cash and cash equivalents $ 4,102 $ 4,165
Short-term investments 5,630 3,742
Trading assets 195 87
Accounts receivable, net of allowance for doubtful
accounts of $65 ($68 in 1996) 3,438 3,723
Inventories 1,697 1,293
Deferred tax assets 676 570
Other current assets 129 104
------- -------
Total current assets 15,867 13,684
------- -------
Property, plant and equipment:
Land and buildings 5,113 4,372
Machinery and equipment 10,577 8,729
Construction in progress 2,437 1,161
------- -------
18,127 14,262
Less accumulated depreciation 7,461 5,775
------- -------
Property, plant and equipment, net 10,666 8,487
------- -------
Long-term investments 1,839 1,353
Other assets 508 211
------- -------
Total assets $28,880 $23,735
======= =======
Liabilities and stockholders' equity
Current liabilities:
Short-term debt $ 212 $ 389
Long-term debt redeemable within one year 110 --
Accounts payable 1,407 969
Accrued compensation and benefits 1,268 1,128
Deferred income on shipments to distributors 516 474
Accrued advertising 500 410
Other accrued liabilities 842 507
Income taxes payable 1,165 986
------- -------
Total current liabilities 6,020 4,863
------- -------
Long-term debt 448 728
Deferred tax liabilities 1,076 997
Put warrants 2,041 275
Commitments and contingencies
Stockholders' equity:
Preferred Stock, $.001 par value,
50 shares authorized; none issued -- --
Common Stock, $.001 par value, 4,500 shares authorized;
1,628 issued and outstanding (1,642 in 1996) and
capital in excess of par value 3,311 2,897
Retained earnings 15,984 13,975
------- -------
Total stockholders' equity 19,295 16,872
------- -------
Total liabilities and stockholders' equity $28,880 $23,735
======= =======
See accompanying notes.
6
Intel Corporation 1997
Consolidated statements
of cash flows
Three years ended December 27, 1997
(In millions) 1997 1996 1995
- --------------------------------------------------------------------------------
Cash and cash equivalents,
beginning of year $ 4,165 $ 1,463 $ 1,180
-------- -------- --------
Cash flows provided by
(used for) operating
activities:
Net income 6,945 5,157 3,566
Adjustments to reconcile
net income to net cash
provided by (used for)
operating activities:
Depreciation 2,192 1,888 1,371
Net loss on retirements
of property,
plant and equipment 130 120 75
Amortization of debt discount -- -- 8
Deferred taxes 6 179 346
Changes in assets and liabilities:
Accounts receivable 285 (607) (1,138)
Inventories (404) 711 (835)
Accounts payable 438 105 289
Accrued compensation and benefits 140 370 170
Income taxes payable 179 185 372
Tax benefit from
employee stock plans 224 196 116
Other assets and liabilities (127) 439 (324)
-------- -------- --------
Total adjustments 3,063 3,586 450
-------- -------- --------
Net cash provided by
operating activities 10,008 8,743 4,016
-------- -------- --------
Cash flows provided by
(used for) investing
activities:
Additions to property,
plant and equipment (4,501) (3,024) (3,550)
Purchases of available-for-sale
investments (9,224) (4,683) (685)
Sales of available-for-sale
investments 153 225 114
Maturities and other changes in
available-for-sale investments 6,713 2,214 1,444
-------- -------- --------
Net cash (used for)
investing activities (6,859) (5,268) (2,677)
-------- -------- --------
Cash flows provided by
(used for) financing
activities:
(Decrease) increase in
short-term debt, net (177) 43 (179)
Additions to long-term debt 172 317 --
Retirement of long-term debt (300) -- (4)
Proceeds from sales of shares
through employee
stock plans and other 357 261 192
Proceeds from sales of
put warrants 288 56 85
Repurchase and retirement of
Common Stock (3,372) (1,302) (1,034)
Payment of dividends to
stockholders (180) (148) (116)
-------- -------- --------
Net cash (used for) financing
activities (3,212) (773) (1,056)
-------- -------- --------
Net (decrease) increase in
cash and cash
equivalents (63) 2,702 283
-------- -------- --------
Cash and cash equivalents,
end of year $ 4,102 $ 4,165 $ 1,463
======== ======== ========
Supplemental disclosures
of cash flow
information:
Cash paid during the year for:
Interest $ 37 $ 51 $ 182
Income taxes $ 3,305 $ 2,217 $ 1,209
Cash paid for interest in 1995 includes approximately $108 million of
accumulated interest on Zero Coupon Notes that matured in 1995.
Certain 1996 and 1995 amounts have been reclassified to conform to the
1997 presentation.
See accompanying notes.
7
Intel Corporation 1997
Consolidated statements
of stockholders' equity
Common Stock
and capital in excess
of par value
-----------------------
Three years ended
December 27, 1997 Number Retained
(In millions) of shares Amount earnings Total
- --------------------------------------------------------------------------------
Balance at
December 31, 1994 1,654 $ 2,306 $ 6,961 $ 9,267
Proceeds from sales
of shares through
employee stock plans,
tax benefit
of $116 and other 27 310 -- 310
Proceeds from sales
of put warrants -- 85 -- 85
Reclassification of
put warrant obligation,
net -- 61 (42) 19
Repurchase and retirement
of Common Stock (38) (179) (855) (1,034)
Cash dividends declared
($.075 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 1,643 2,583 9,557 12,140
Proceeds from sales of
shares through
employee stock plans,
tax benefit
of $196 and other 33 457 -- 457
Proceeds from sales
of put warrants -- 56 -- 56
Reclassification of
put warrant obligation,
net -- 70 272 342
Repurchase and retirement
of Common Stock (34) (269) (925) (1,194)
Cash dividends declared
($.095 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 1,642 2,897 13,975 16,872
Proceeds from sales
of shares through
employee stock plans,
tax benefit
of $224 and other 30 581 (1) 580
Proceeds from sales
of put warrants -- 288 -- 288
Reclassification of
put warrant obligation,
net -- (144) (1,622) (1,766)
Repurchase and retirement
of Common Stock (44) (311) (3,061) (3,372)
Cash dividends declared
($.115 per share) -- -- (188) (188)
Unrealized loss on
available-for-sale
investments, net -- -- (64) (64)
Net income -- -- 6,945 6,945
-------- -------- -------- --------
Balance at
December 27, 1997 1,628 $ 3,311 $ 15,984 $ 19,295
======== ======== ======== ========
See accompanying notes.
8
Intel Corporation 1997
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 1997, 1996 and 1995,
each 52-week years, ended on December 27, 28 and 30, respectively.
Periodically, there will be a 53-week year. 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. For
equity investments entered into for the promotion of business and strategic
objectives, an insignificant portion of the investment portfolio, the Company
typically does not attempt to reduce or eliminate the inherent market risks. 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 began purchasing securities
classified as trading assets. Net gains on the trading asset portfolio were
$37 million and $12 million in 1997 and 1996, respectively. 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, long-term debt redeemable within one year, trading assets,
non-marketable instruments, swaps, currency forward contracts, currency options
and options hedging 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.
If an underlying hedged transaction is terminated earlier than initially
anticipated, the offsetting gain or loss on the related derivative instrument
would be recognized in income in the same period. Subsequent gains or losses on
the related derivative instrument would be recognized in income in each period
until the instrument matures, is terminated or is sold. 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) 1997 1996
- ------------------------------------------------------------------
Raw materials $ 255 $ 280
Work in process 928 672
Finished goods 514 341
------ ------
Total $1,697 $1,293
====== ======
9
Notes to consolidated
financial statements
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, 4-40 years.
The Company evaluates property, plant and equipment in accordance with SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of."
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 $1,203 million,
$974 million and $654 million in 1997, 1996 and 1995, 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 $9 million, $33 million and $46 million for 1997, 1996 and 1995,
respectively.
Earnings per share. The consolidated financial statements are presented in
accordance with SFAS No. 128, "Earnings per Share." Basic earnings per common
share are computed using the weighted average number of common shares
outstanding during the period. Diluted earnings per common share incorporate
the incremental shares issuable upon the assumed exercise of stock options and
warrants. Diluted earnings per common share do not differ from the Company's
previously reported earnings per common and common equivalent share.
Stock distribution. On July 13, 1997, the Company effected a two-for-one stock
split in the form of a special stock distribution to stockholders of record as
of June 10, 1997. All share, per share, Common Stock, stock option and warrant
amounts herein have been restated to reflect the effect of this split.
Recent accounting pronouncements. The Company intends to adopt SFAS No. 130,
"Reporting Comprehensive Income," and SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information," in fiscal 1998. Both will require
additional disclosure but will not have a material effect on the Company's
financial position or results of operations. SFAS No. 130 will first be
reflected in the Company's first quarter of 1998 interim financial statements.
Components of comprehensive income for the Company include items such as net
income and changes in the value of available-for-sale securities. SFAS No.
131 requires segments to be determined based on how management measures
performance and makes decisions about allocating resources. SFAS No. 131 will
first be reflected in the Company's 1998 Annual Report.
Common Stock
1998 Step-Up Warrants. In 1993, the Company issued 80 million 1998 Step-Up
Warrants to purchase 80 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 $17.875 per share of Common
Stock, subject to annual increases to a maximum price of $20.875 per share
effective in March 1997. As of December 27, 1997, approximately 78 million
Warrants were exercisable at a price of $20.875 per Warrant. These Warrants
expire on March 14, 1998.
Stock repurchase program. The Company has an ongoing authorization, as
amended, from the Board of Directors to repurchase up to 280 million shares of
Intel's Common Stock and Step-Up Warrants in open market or negotiated
transactions. During 1997, the Company repurchased 43.6 million shares of
Common Stock at a cost of $3.4 billion. As of December 27, 1997, the Company
had repurchased and retired approximately 213.4 million shares at a cost of
$6.9 billion since the program began in 1990. As of December 27, 1997, after
reserving 26.3 million shares to cover outstanding put warrants, 40.3 million
shares remained available under the repurchase authorization.
Put warrants
In a series of private placements from 1991 through 1997, the Company sold
put warrants that entitle the holder of each warrant to sell to the Company,
by physical delivery, one share of Common Stock at a specified price. On
certain of these warrants, the Company simultaneously entered into additional
contractual arrangements which cause the warrants to terminate if the Company's
stock price reaches specified levels. Activity during the past three years is
summarized as follows:
Put warrants
outstanding
------------------------
Cumulative
net premium Number of Potential
(In millions) received warrants obligation
- --------------------------------------------------------------------------------
December 31, 1994 $ 194 50.0 $ 744
Sales 85 35.0 925
Repurchases -- (11.0) (201)
Expirations -- (50.0) (743)
-------- -------- --------
December 30, 1995 279 24.0 725
Sales 56 18.0 603
Exercises -- (3.6) (108)
Expirations -- (29.4) (945)
-------- -------- --------
December 28, 1996 335 9.0 275
Sales 288 46.3 3,525
Expirations -- (29.0) (1,759)
-------- -------- --------
December 27, 1997 $ 623 26.3 $ 2,041
======== ======== ========
10
Notes to consolidated
financial statements
The amount related to Intel's potential repurchase obligation has been
reclassified from stockholders' equity to put warrants. The 26.3 million put
warrants outstanding at December 27, 1997 expire on various dates between
February and August 1998 and have exercise prices ranging from $68 to $95 per
share, with an average exercise price of $78 per share. There is no significant
effect on diluted 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:
1997 1996
----------------------- ---------------------
Weighted Weighted
average average
interest interest
(In millions) Balance rate Balance rate
- ------------------------------------------------------------------------------
Borrowed under
lines of credit $ 32 N/A $ 30 N/A
Reverse repurchase
agreements payable in
non-U.S. currencies -- -- 263 6.4%
Notes payable -- -- 3 0.7%
Drafts payable 180 N/A 93 N/A
------- -------
Total $ 212 $ 389
======= =======
The Company also borrows under commercial paper programs. Maximum borrowings
under commercial paper programs reached $175 million during 1997 and $306
million during 1996. This debt is rated A-1+ by Standard and Poor's and P-1
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) 1997 1996
- ------------------------------------------------------------------------------
Payable in U.S. dollars:
AFICA Bonds due 2013 at 4% $ 110 $ 110
Reverse repurchase arrangement due 2001 -- 300
Other U.S. dollar debt 6 4
Payable in other currencies:
Irish punt due 1999-2027 at 5%-12% 396 268
Greek drachma due 2001 46 46
------- -------
Subtotal 558 728
Less long-term debt
redeemable within one year (110) --
------- -------
Total $ 448 $ 728
======= =======
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. They are next adjustable and redeemable in 1998 and
accordingly have been reclassified as a current liability at December 27, 1997.
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 originally
payable in 2001 was repaid in 1997. It had a borrowing rate of 5.9% at December
28, 1996.
Under shelf registration statements filed with the Securities and Exchange
Commission, Intel originally had 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") under
these registration statements. The Company may issue up to approximately $1.4
billion in additional securities under effective registration statements.
As of December 27, 1997, aggregate debt maturities were as follows: 1998-$110
million; 1999-$7 million; 2000-$5 million; 2001-$56 million; 2002-$15 million;
and thereafter-$365 million.
Investments
The 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").
11
Notes to consolidated
financial statements
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 A-1 and P-1 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 27, 1997, investments were placed with approximately 250 different
counterparties.
Investments at December 27, 1997 were as follows:
Gross Gross Estimated
unrealized unrealized fair
(In millions) Cost gains losses value
- --------------------------------------------------------------------------------
Commercial paper $ 3,572 $ 1 $ (9) $ 3,564
Bank deposits 2,369 -- (2) 2,367
Corporate bonds 1,788 12 (73) 1,727
Floating rate notes 843 1 (2) 842
Loan participations 743 -- -- 743
Repurchase agreements 515 -- -- 515
Securities of foreign
governments 75 -- (6) 69
Fixed rate notes 32 -- -- 32
Other debt securities 294 -- (1) 293
-------- -------- -------- --------
Total debt
securities 10,231 14 (93) 10,152
-------- -------- -------- --------
Hedged equity 504 9 (17) 496
Preferred stock and
other equity 620 131 (41) 710
-------- -------- -------- --------
Total equity
securities 1,124 140 (58) 1,206
-------- -------- -------- --------
Swaps hedging
investments
in debt securities -- 76 (12) 64
Swaps hedging
investments
in equity securities -- 17 (9) 8
Currency forward
contracts
hedging investments in
debt securities -- 16 (1) 15
-------- -------- -------- --------
Total
available-for-sale
securities 11,355 263 (173) 11,445
Less amounts
classified as
cash equivalents (3,976) -- -- (3,976)
-------- -------- -------- --------
Total investments $ 7,379 $ 263 $ (173) $ 7,469
======== ======== ======== ========
Investments at December 28, 1996 were as follows:
Gross Gross Estimated
unrealized unrealized fair
(In millions) Cost gains losses value
- --------------------------------------------------------------------------------
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
======== ======== ======== ========
Available-for-sale securities with a fair value at the date of sale of
$153 million, $225 million and $114 million were sold in 1997, 1996 and 1995,
respectively. The gross realized gains on these sales totaled $106 million,
$7 million and $60 million, respectively.
The amortized cost and estimated fair value of investments in debt securities
at December 27, 1997, by contractual maturity, were as follows:
Estimated
(In millions) Cost fair value
- --------------------------------------------------------------------------------
Due in 1 year or less $ 8,925 $ 8,863
Due in 1-2 years 638 620
Due in 2-5 years 293 295
Due after 5 years 375 374
-------- --------
Total investments in debt securities $ 10,231 $ 10,152
======== ========
12
Notes to consolidated
financial statements
Derivative financial instruments
Outstanding notional amounts for derivative financial instruments at fiscal
year-ends were as follows:
(In millions) 1997 1996
- --------------------------------------------------------------------------------
Swaps hedging investments in debt securities $ 2,017 $ 900
Swaps hedging investments in equity securities $ 604 $ 918
Swaps hedging debt $ 155 $ 456
Currency forward contracts $ 1,724 $ 1,499
Currency options $ 55 $ 94
Options hedging investments
in marketable equity securities $ -- $ 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
nvestments.
Swap agreements. The Company utilizes swap agreements to exchange the foreign
currency, equity and interest rate returns of its investment and debt
portfolios for floating U.S. dollar interest rate based returns. The floating
rates on swaps are based primarily on U.S. dollar LIBOR and are reset on a
monthly, quarterly or semiannual basis.
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.
Weighted average pay and receive rates, average maturities and range of
maturities on swaps at December 27, 1997 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 6.1% 5.8% .9 years 0-3 years
Swaps hedging investments
in foreign currency
debt securities 6.3% 5.9% 1.0 years 0-3 years
Swaps hedging investments
in equity securities N/A 5.7% .6 years 0-2 years
Swaps hedging debt 5.9% 5.2% 1.6 years 0-4 years
Note: Pay and receive rates are based on the reset rates that were in effect at
December 27, 1997.
Other foreign currency instruments. Intel transacts business in various
foreign currencies, primarily Japanese yen and certain other Asian and 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:
1997 1996
-------------------- --------------------
Estimated Estimated
Carrying fair Carrying fair
(In millions) amount value amount value
- -------------------------------------------------------------------------------
Cash and cash equivalents $ 4,102 $ 4,102 $ 4,165 $ 4,165
Short-term investments $ 5,561 $ 5,561 $ 3,736 $ 3,736
Trading assets $ 195 $ 195 $ 87 $ 87
Long-term investments $ 1,821 $ 1,821 $ 1,418 $ 1,418
Non-marketable instruments $ 387 $ 497 $ 119 $ 194
Swaps hedging investments
in debt securities $ 64 $ 64 $ (12) $ (12)
Swaps hedging investments
in equity securities $ 8 $ 8 $ (27) $ (27)
Options hedging investments in
marketable equity securities $ -- $ -- $ (25) $ (25)
Short-term debt $ (212) $ (212) $ (389) $ (389)
Long-term debt redeemable
within one year $ (110) $ (109) $ -- $ --
Long-term debt $ (448) $ (448) $ (728) $ (731)
Swaps hedging debt $ -- $ (1) $ -- $ 13
Currency forward contracts $ 26 $ 28 $ 5 $ 18
Currency options $ 1 $ 1 $ -- $ --
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 based on Intel's
analysis of that counterparty's relative credit standing. A majority of the
Company's trade receivables are derived from sales to manufacturers of computer
systems, with the remainder spread across various other industries. The
Company's five largest customers accounted for approximately 39% of net
revenues for 1997. At December 27, 1997, these customers accounted for
approximately 34% 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.
13
Notes to consolidated
financial statements
Interest income and other
(In millions) 1997 1996 1995
- --------------------------------------------------------------------------------
Interest income $ 562 $ 364 $ 272
Foreign currency gains 63 26 29
Other income 174 16 114
-------- -------- --------
Total $ 799 $ 406 $ 415
======== ======== ========
Other income for 1997 includes approximately $106 million from sales of a
portion of the Company's investments in marketable equity securities. 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
investments in marketable equity securities.
Provision for taxes
The provision for taxes consisted of the following:
(In millions) 1997 1996 1995
- --------------------------------------------------------------------------------
Income before taxes:
U.S. $ 8,033 $ 5,515 $ 3,427
Foreign 2,626 2,419 2,211
-------- -------- --------
Total income before taxes $ 10,659 $ 7,934 $ 5,638
======== ======== ========
Provision for taxes:
Federal:
Current $ 2,930 $ 2,046 $ 1,169
Deferred 30 8 307
-------- -------- --------
2,960 2,054 1,476
-------- -------- --------
State:
Current 384 286 203
Foreign:
Current 394 266 354
Deferred (24) 171 39
-------- -------- --------
370 437 393
-------- -------- --------
Total provision for taxes $ 3,714 $ 2,777 $ 2,072
======== ======== ========
Effective tax rate 34.8% 35.0% 36.8%
======== ======== ========
The tax benefit associated with dispositions from employee stock plans
reduced taxes currently payable for 1997 by $224 million ($196 million and
$116 million for 1996 and 1995, respectively).
The provision for taxes reconciles to the amount computed by applying the
statutory federal rate of 35% to income before taxes as follows:
(In millions) 1997 1996 1995
- ------------------------------------------------------------------------------
Computed expected tax $ 3,731 $ 2,777 $ 1,973
State taxes, net of federal
benefits 249 186 132
Other (266) (186) (33)
-------- -------- --------
Provision for taxes $ 3,714 $ 2,777 $ 2,072
======== ======== ========
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) 1997 1996
- ---------------------------------------------------------------
Deferred tax assets:
Accrued compensation
and benefits $ 76 $ 71
Deferred income 200 147
Inventory valuation and
related reserves 163 187
Interest and taxes 49 54
Other, net 188 111
-------- --------
676 570
Deferred tax liabilities:
Depreciation (882) (573)
Unremitted earnings of
certain subsidiaries (162) (359)
Other, net (32) (65)
-------- --------
(1,076) (997)
-------- --------
Net deferred tax (liability) $ (400) $ (427)
======== ========
U.S. income taxes were not provided for on a cumulative total of
approximately $1,505 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 1997, the Company officially settled all tax and related interest
for years 1978 through 1990 with the Internal Revenue Service ("IRS"). There
was no material effect on the Company's 1997 financial statements.
The Company's U.S. income tax returns for the years 1991 through 1993 are
presently under examination by the IRS. Final proposed adjustments have not
yet been received for these years. In addition, examination by the IRS of the
Company's income tax returns for the years 1994 through 1996 began in 1997.
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 1984 Stock Option 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. In 1997, the
Board of Directors approved the 1997 Stock Option Plan, which made an
additional 130 million shares available for employees other than officers and
directors. The Company also has an Executive Long-Term Stock Option Plan under
which certain employees, including officers, may be granted options to purchase
shares of the Company's authorized but unissued Common Stock. Under all of the
plans, the option exercise price is equal to fair market value at the date of
grant.
Options currently expire no later than 10 years from the grant date and
generally vest after 5 years. Proceeds received by the Company from exercises
are credited to Common Stock and capital in excess of par value. Additional
14
Notes to consolidated
financial statements
information with respect to stock option plan activity was as follows:
Outstanding options
-------------------
Weighted
Shares average
available Number exercise
(In millions) for options of shares price
- --------------------------------------------------------------------------------
December 31, 1994 108.9 170.3 $ 7.64
Grants (27.9) 27.9 $ 24.11
Exercises -- (21.3) $ 4.07
Cancellations 5.9 (5.9) $ 12.83
-------- --------
December 30, 1995 86.9 171.0 $ 10.60
Grants (26.7) 26.7 $ 34.56
Exercises -- (23.7) $ 4.93
Cancellations 5.1 (5.1) $ 17.05
-------- --------
December 28, 1996 65.3 168.9 $ 14.98
Additional shares reserved 130.0 -- --
Grants (31.5) 31.5 $ 72.46
Exercises -- (23.6) $ 6.11
Cancellations 4.4 (4.4) $ 32.76
-------- --------
December 27, 1997 168.2 172.4 $ 26.24
======== ========
Options exercisable at:
December 30, 1995 58.2 $ 4.55
December 28, 1996 57.3 $ 5.72
December 27, 1997 57.6 $ 7.33
The range of exercise prices for options outstanding at December 27, 1997 was
$2.52 to $97.94. The range of exercise prices for options is wide due primarily
to the increasing price of the Company's stock over the period when the grants
were made.
The following tables summarize information about options outstanding at
December 27, 1997:
Outstanding options
------------------------------------------------
Weighted
average Weighted
Number of contract- average
shares (in ual life exercise
Range of exercise prices millions) (in years) price
- --------------------------------------------------------------------------------
$2.52-$9.78 49.2 2.9 $ 5.34
$11.09-$20.56 45.1 5.8 $ 14.04
$22.20-$48.47 46.5 7.9 $ 28.95
$52.09-$97.94 31.6 9.4 $ 72.12
--------
Total 172.4 6.2 $ 26.24
========
Exercisable options
-------------------------------
Weighted
Number of average
shares (in exercise
Range of exercise prices millions) price
- --------------------------------------------------------------------------------
$2.52-$9.78 49.1 $ 5.34
$11.09-$20.56 6.2 $ 13.90
$22.20-$48.47 2.1 $ 29.86
$52.09-$97.94 .2 $ 60.09
--------
Total 57.6 $ 7.33
========
These options will expire if not exercised at specific dates ranging from
January 1998 to December 2007. Prices for options exercised during the
three-year period ended December 27, 1997 ranged from $1.52 to $61.31.
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 236 million shares authorized to be issued under
the plan, 43.0 million shares were available for issuance at December 27, 1997.
Employees purchased 4.5 million shares in 1997 (7.0 million in 1996 and in
1995)for $191 million ($140 million and $110 million in 1996 and 1995,
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 1997, 1996 and 1995 reported
below has been estimated at the date of grant using a Black-Scholes option
pricing model with the following weighted average assumptions:
Employee stock options 1997 1996 1995
- --------------------------------------------------------------------------------
Expected life (in years) 6.5 6.5 6.5
Risk-free interest rate 6.6% 6.5% 6.8%
Volatility .36 .36 .36
Dividend yield .1% .2% .3%
Stock Participation Plan shares 1997 1996 1995
- --------------------------------------------------------------------------------
Expected life (in years) .5 .5 .5
Risk-free interest rate 5.3% 5.3% 6.0%
Volatility .40 .36 .36
Dividend yield .1% .2% .3%
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.
15
Notes to consolidated
financial statements
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 1997, 1996 and 1995 was $35.33,
$16.35 and $11.63 per share, respectively. The weighted average estimated fair
value of shares granted under the Stock Participation Plan during 1997, 1996
and 1995 was $22.08, $8.11 and $6.13, respectively.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting periods. The
Company's pro forma information follows (in millions except for earnings
per share information):
1997 1996 1995
- --------------------------------------------------------------------------------
Pro forma net income $ 6,735 $ 5,046 $ 3,506
Pro forma basic earnings
per share $ 4.12 $ 3.07 $ 2.12
Pro forma diluted earnings
per share $ 3.76 $ 2.84 $ 1.98
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 con-
tributions 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 $273 million for the Qualified Plans and the
Non-Qualified Plan in 1997 ($209 million in 1996 and $188 million in 1995).
Of the $273 million accrued in 1997, the Company expects to fund approximately
$245 million for the 1997 contribution to the Qualified Plans and to allocate
approximately $12 million for the Non-Qualified Plan. The remainder, plus
approximately $193 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 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 1997, 1996 and 1995 for the U.S. and Puerto Rico plans
was less than $1 million per year, and no component of expense exceeded $4
million.
The funded status of these plans as of December 27, 1997 and December 28,
1996 was as follows:
(In millions) 1997 1996
- --------------------------------------------------------------------------------
Vested benefit obligation $ (5) $ (3)
======== ========
Accumulated benefit obligation $ (5) $ (4)
======== ========
Projected benefit obligation $ (6) $ (5)
Fair market value of plan assets 14 11
-------- --------
Projected benefit obligation
less than plan assets 8 6
Unrecognized net (gain) (15) (15)
Unrecognized prior service cost 2 3
-------- --------
Accrued pension costs $ (5) $ (6)
======== ========
At fiscal year-ends, significant assumptions used were as follows:
1997 1996 1995
- --------------------------------------------------------------------------------
Discount rate 7.0% 7.0% 7.0%
Rate of compensation increase 5.0% 5.0% 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 1997, 1996 and 1995 for the foreign plans was $14
million, $17 million and $9 million, respectively. No component of expense
exceeded $15 million.
16
Notes to consolidated
financial statements
The funded status of the foreign defined-benefit plans as of December
27, 1997 and December 28, 1996 is summarized below:
Assets Accu-
exceed mulated
accu- benefits
1997 mulated exceed
(In millions) benefits assets
- --------------------------------------------------------------------------------
Vested benefit obligation $ (43) $ (11)
======== ========
Accumulated benefit obligation $ (49) $ (17)
======== ========
Projected benefit obligation $ (71) $ (26)
Fair market value of plan assets 78 4
-------- --------
Projected benefit obligation less than
(in excess of) plan assets 7 (22)
Unrecognized net loss 3 2
Unrecognized net transition obligation 2 1
-------- --------
Prepaid (accrued) pension costs $ 12 $ (19)
======== ========
Assets Accu-
exceed mulated
accu- benefits
mulated exceed
(In millions) benefits assets
- --------------------------------------------------------------------------------
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)
======== ========
At fiscal year-ends, significant assumptions used were as follows:
1997 1996 1995
- --------------------------------------------------------------------------------
Discount rate 5.5%-14% 5.5%-14% 5.5%-14%
Rate of compensation increase 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 accounts for other postemployment
benefits in accordance with SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," and SFAS No. 112, "Employers'
Accounting for Postemployment Benefits." These benefits had 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 2010.
Rental expense was $69 million in 1997, $57 million in 1996 and $38 million
in 1995. Minimum rental commitments under all non-cancelable leases with an
initial term in excess of one year are payable as follows: 1998-$37 million;
1999-$33 million; 2000-$18 million; 2001-$13 million; 2002-$12 million; 2003
and beyond-$17 million. Commitments for construction or purchase of property,
plant and equipment approximated $3.3 billion at December 27, 1997. In
connection with certain manufacturing arrangements, Intel had minimum purchase
commitments of approximately $191 million at December 27, 1997 for flash
memories and other memory components.
In October 1997, the Company and Digital Equipment Corporation ("Digital")
announced that they have agreed to establish a broad-based business
relationship. The agreement includes sale of Digital's semiconductor
manufacturing operations to Intel for approximately $700 million, a 10-year
patent cross-license, supply of both Intel and Alpha microprocessors by
Intel to Digital, development by Digital of future systems based on Intel's
64-bit microprocessors and termination of litigation between the companies
as described below (see "Contingencies"). This agreement is subject to U.S.
government review. The transactions provided for in the agreement are not
expected to have a material adverse effect on the Company's financial condition
or ongoing results of operations in any reporting period.
In January 1998, the Company acquired the outstanding shares of Chips and
Technologies, Inc. of San Jose, California, for approximately $430 million as
a result of a tender offer commenced in August 1997. The transaction will be
accounted for as a purchase.
Contingencies
In March 1995, EMI Group, N.A. ("EMI", formerly known as Thorn EMI North
America Inc.) brought suit in Federal District 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. A hearing on
EMI's appeal of the grant of summary judgment was heard in August 1997. No
decision has been issued.
17
Notes to consolidated
financial statements
Digital brought suit in Federal District Court in Massachusetts in May 1997,
alleging that Intel is infringing 10 patents in making and selling
microprocessor products. Digital sought an injunction and monetary damages. If
granted, the injunction would prohibit Intel from using Digital's patented
technology in its microprocessor products. The Company believes that its
products do not infringe the Digital patents. The Company filed a counterclaim
against Digital for infringement of nine microprocessor-related patents, and,
in District Court in Oregon, the Company claimed that Digital infringes six
video and computer system patents. In October 1997, Intel and Digital announced
that they have agreed to establish a broad-based business relationship as
described above (see "Commitments"). Among other matters, the two companies
agreed to request a stay of all lawsuits until government review of the
agreement is completed, following which the lawsuits would be dismissed
with prejudice.
In November 1997, Intergraph Corporation ("Intergraph") filed suit in
Federal District Court in Alabama generally alleging that Intel attempted to
coerce Intergraph into relinquishing certain patent rights relating to
microprocessor and chipset interaction in multiprocessor workstations. The suit
also alleges that Intel infringes three Intergraph patents and includes alleged
violations of antitrust laws. The suit seeks injunctive relief along with
unspecified damages. In November 1997, Intel filed suit against Intergraph in
Federal District Court in California seeking a declaratory judgment that the
Intergraph patents are invalid. Intel also filed an action in the same court
alleging breach of contract and misappropriation of trade secrets based on
Intergraph's refusal to return Intel confidential information as contractually
required.
Although the ultimate outcome of the legal proceedings noted above cannot be
determined at this time, management, including internal counsel, does not
believe that the outcome of these proceedings, individually and in the
aggregate, 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 Company's financial position or overall trends
in results of operations.
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. In
1997, one customer accounted for 12% of the Company's revenues. No customer
exceeded 10% of revenues in 1996 and 1995. Summary balance sheet information
for operations outside the United States at fiscal year-ends is as follows:
(In millions) 1997 1996
- --------------------------------------------------------------------------------
Assets $ 5,332 $ 4,784
Total liabilities $ 2,127 $ 1,694
Net property, plant and equipment $ 2,644 $ 1,615
18
Notes to consolidated
financial statements
Geographic information for the three years ended December 27, 1997 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.
Transfers
Sales to between
(In millions) unaffiliated geographic Net Operating Identifiable
1997 customers areas revenues income assets
- ------------------------------------------------------------------------------------------------
United States $ 11,053 $ 12,155 $ 23,208 $ 7,734 $ 15,542
Europe 6,774 1,101 7,875 1,056 2,463
Asia-Pacific 4,754 2,659 7,413 549 1,849
Japan 2,489 26 2,515 184 394
Other -- 1,127 1,127 692 626
Eliminations -- (17,068) (17,068) 513 (4,365)
Corporate -- -- -- (841) 12,371
-------- -------- -------- -------- --------
Consolidated $ 25,070 $ -- $ 25,070 $ 9,887 $ 28,880
======== ======== ======== ======== ========
1996
- ------------------------------------------------------------------------------------------------
United States $ 8,668 $ 9,846 $ 18,514 $ 5,255 $ 12,982
Europe 5,876 917 6,793 1,118 2,405
Asia-Pacific 3,844 2,004 5,848 509 1,361
Japan 2,459 20 2,479 340 659
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
======== ======== ======== ======== ========
1995
- ------------------------------------------------------------------------------------------------
United States $ 7,922 $ 6,339 $ 14,261 $ 3,315 $ 12,603
Europe 4,560 1,190 5,750 1,383 2,517
Asia-Pacific 1,983 1,566 3,549 271 893
Japan 1,737 28 1,765 353 665
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
======== ======== ======== ======== ========
Supplemental information (unaudited)
Quarterly information for the two years ended December 27, 1997 is
presented on page 25.
19
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 27, 1997 and December 28, 1996, and the related
consolidated statements of income, stockholders' equity, and cash flows for
each of the three years in the period ended December 27, 1997. 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 27, 1997 and December 28, 1996, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 27, 1997, in conformity with generally
accepted accounting principles.
/S/Ernst & Young LLP
San Jose, California
January 12, 1998
20
Financial summary
Ten years ended
December 27, 1997
Net investment Additions
in property, Long-term Stock- to property,
plant & Total debt & put holders' plant &
(In millions) equipment assets warrants equity equipment
- ---------------------------------------------------------------------------------------------
1997 $ 10,666 $ 28,880 $ 2,489 $ 19,295 $ 4,501
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
(In millions Research Basic Diluted Dividends
-except per Net Cost of & devel- Operating Net earnings earnings declared
share amounts) revenues sales opment income income per share per share per share
- ---------------------------------------------------------------------------------------------------------
1997 $25,070 $ 9,945 $ 2,347 $ 9,887 $ 6,945 $ 4.25 $3.87 $.115
1996 $20,847 $ 9,164 $ 1,808 $ 7,553 $ 5,157 $ 3.13 $2.90 $.095
1995 $16,202 $ 7,811 $ 1,296 $ 5,252 $ 3,566 $ 2.16 $2.02 $.075
1994 $11,521 $ 5,576 $ 1,111 $ 3,387 $ 2,288 $ 1.38 $1.31 $.058
1993 $ 8,782 $ 3,252 $ 970 $ 3,392 $ 2,295 $ 1.37 $1.30 $.050
1992 $ 5,844 $ 2,557 $ 780 $ 1,490 $ 1,067 $ .64 $ .62 $.025
1991 $ 4,779 $ 2,316 $ 618 $ 1,080 $ 819 $ .51 $ .49 --
1990 $ 3,921 $ 1,930 $ 517 $ 858 $ 650 $ .42 $ .40 --
1989 $ 3,127 $ 1,721 $ 365 $ 557 $ 391 $ .27 $ .26 --
1988 $ 2,875 $ 1,506 $ 318 $ 594 $ 453 $ .33 $ .31 --
21
Intel Corporation 1997
Management's discussion and analysis
of financial condition and results of operations
Results of operations
Intel posted record net revenues in 1997, for the 11th consecutive year,
rising by 20% from 1996 to 1997 and by 29% from 1995 to 1996. The growth in
revenues from 1996 to 1997 was primarily due to higher volumes of the Pentium(R)
microprocessor family (including processors with Intel's MMX(TM) media
enhancement technology) and Pentium(R) Pro processors, and the ramp of the
Pentium(R) II processors. The growth in revenues from 1995 to 1996 was driven
primarily by higher volumes of the Pentium processor family, partially offset
by lower processor prices. From 1995 to 1997, the increased revenues on
microprocessors were partially offset by decreased revenues from sales of
related board-level products, as sales of board-level products became less
significant to the Company's business, and insignificant in 1997.
Higher volumes of chipset products also contributed toward the increase in
revenues from 1995 to 1997 and helped enable the Pentium and Pentium Pro
microprocessor ramps and the ongoing ramp of the Pentium II microprocessor.
Revenues from embedded control products and networking and communications
products also grew over this period. Revenues from flash memory products grew
from 1995 to 1996 but declined from 1996 to 1997.
Cost of sales increased by 8.5% from 1996 to 1997 and by 17% from 1995 to
1996. While revenues increased substantially from 1996 to 1997 and from 1995
to 1996, growth in cost of sales was significantly less in both periods. The
growth in cost of sales from 1996 to 1997 was driven by unit volume growth,
costs related to the ramp of the 0.25-micron microprocessor manufacturing
process and shifts in product mix, partially offset by factory efficiencies
due to the increased volumes. Cost of sales in the second half of 1997 was
negatively affected by the cost of purchased components in the Single Edge
Contact ("SEC") cartridge used with the Pentium II processor. The increase in
cost of sales from 1995 to 1996 was driven by unit volume growth, new factories
commencing production, manufacturing process conversions and shifts in product
mix. Cost of sales in the second half of 1996 was favorably affected by
factory efficiencies from higher volumes.
The gross margin percentage was 60% in 1997, compared to 56% in 1996 and 52%
in 1995 as a result of the cost and revenue factors discussed above. However,
for the second half of 1997, the gross margin percentage was 58%, compared to
60% in the second half of 1996, primarily due to the impact of the SEC
cartridge and a weaker flash memory market segment in 1997. See "Outlook" for
a discussion of gross margin expectations.
Sales of Pentium family microprocessors and related board-level products
comprised a majority of the Company's revenues and gross margin during 1997.
During 1996 and 1995, a majority of the Company's revenues and a substantial
majority of its gross margin were derived from these products. Sales of
Pentium Pro and Pentium II microprocessors became an increasing portion
of the Company's revenues and gross margin in 1996 and a significant portion
in 1997. The Intel486(TM) microprocessor family contributed significant but
declining revenues and gross margin in 1995 and negligible revenues and gross
margin in 1996.
Research and development spending grew by 30% from 1996 to 1997 and 40% from
1995 to 1996, 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), other
revenue-dependent expenses and expenses related to headcount in 1997 drove
the 25% and 26% increases in marketing, general and administrative expenses
from 1996 to 1997 and from 1995 to 1996, respectively.
Interest expense was essentially flat from 1996 to 1997, mainly due to
lower interest capitalization, offset by lower average borrowing balances and
interest rates in 1997. The decrease in interest expense from 1995 to 1996 was
primarily due to lower average borrowing balances and interest rates in 1996.
Interest and other income increased by $393 million from 1996 to 1997,
primarily due to higher average investment balances and higher gains on sales
22
of equity investments. Although the Company had higher average investment
balances in 1996 than in 1995, 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.
The Company's effective income tax rate decreased to 34.8% in 1997 compared
to 35.0% and 36.8% in 1996 and 1995, respectively.
Financial condition
The Company's financial condition remains very strong. As of December 27,
1997, total cash, trading assets and short- and long-term investments totaled
$11.8 billion, up from $9.3 billion at December 28, 1996. Cash generated from
operating activities rose to $10.0 billion in 1997, compared to $8.7 billion
and $4.0 billion in 1996 and 1995, respectively.
The Company used $6.9 billion in cash for investing activities during 1997,
compared to $5.3 billion during 1996 and $2.7 billion during 1995, as operating
activities generated significantly more cash during 1997. Capital expenditures
totaled $4.5 billion in 1997, as the Company continued to invest in property,
plant and equipment, primarily for microprocessor manufacturing capacity. The
Company had committed approximately $3.3 billion for the construction or
purchase of property, plant and equipment as of December 27, 1997. See
"Outlook" for a discussion of capital expenditure expectations in 1998.
Inventory levels, particularly work in process and finished goods, increased
significantly in 1997. This increase was primarily attributable to the ramp
of the Pentium II processor and the related higher level of purchased
components on the SEC cartridge. The decrease in accounts receivable in
1997 was mainly due to improved receivable collections and higher revenues
in geographic regions with faster payment patterns. The Company's five largest
customers accounted for approximately 39% of net revenues for 1997, and one
customer accounted for 12% of revenues. No customers accounted for more than
10% of revenues in 1996 and 1995. At December 27, 1997, the five largest
customers accounted for approximately 34% of net accounts receivable.
The Company used $3.2 billion for financing activities in 1997, compared to
$773 million and $1.1 billion in 1996 and 1995, respectively. The major
financing applications of cash in 1997 were for repurchase of 43.6 million
shares of Common Stock for $3.4 billion and a $300 million repayment under a
private reverse repurchase arrangement. The major financing applications of
cash in 1996 and 1995 were for stock repurchases totaling $1.3 billion
(including $108 million for exercised put warrants) and $1.0 billion,
respectively. Financing sources of cash during 1997 included $357 million in
proceeds from the sale of shares primarily pursuant to employee stock plans
($261 million in 1996 and $192 million in 1995). Financing sources in 1996
also included $300 million under the private reverse repurchase arrangement.
As part of its authorized stock repurchase program, the Company had
outstanding put warrants at the end of 1997, with the potential obligation to
buy back 26.3 million shares of its Common Stock at an aggregate price of
$2.0 billion. The exercise price of these warrants ranged from $68 to $95
per share, with an average exercise price of $78 per share as of December
27, 1997.
Other sources of liquidity include authorized commercial paper borrowings
of $700 million. 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 shelf registration statements.
In January 1998, the Company acquired the outstanding shares of Chips and
Technologies, Inc. of San Jose, California, for approximately $430 million.
On October 27, 1997, the Company and Digital Equipment Corporation
("Digital") announced that they have agreed to establish a broad-based business
relationship. Under the agreement, Intel will purchase Digital's semiconductor
operations, including facilities in Hudson, Massachusetts as well as
development operations in Jerusalem, Israel and Austin, Texas for approximately
23
$700 million. The agreement is subject to U.S. government review.
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.
Financial market risks
The Company is exposed to financial market risks, including changes in
interest rates, foreign currency exchange rates and marketable equity
security prices. To mitigate these risks, the Company utilizes derivative
financial instruments. The Company does not use derivative financial
instruments for speculative or trading purposes.
The primary objective of the Company's investment activities is to preserve
principal while at the same time maximizing yields without significantly
increasing risk. To achieve this objective, the 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. A hypothetical
60 basis point increase in interest rates would result in an approximate
$18 million decrease (less than 0.2%) in the fair value of the Company's
available-for-sale securities.
The Company hedges currency risks of investments denominated in foreign
currencies with foreign currency borrowings, currency forward contracts and
currency interest rate swaps. Gains and losses on these foreign currency
investments would generally be offset by corresponding losses and gains on
the related hedging instruments, resulting in negligible net exposure to the
Company.
A substantial majority of the Company's revenue, expense and capital
purchasing activities are transacted in U.S. dollars. However, the Company
does enter into these transactions in other currencies, primarily Japanese
yen and certain other Asian and European currencies. To protect against
reductions in value and the volatility of future cash flows caused by changes
in foreign exchange rates, the Company has established revenue, expense and
balance sheet hedging programs. Currency forward contracts and currency options
are utilized in these hedging programs. The Company's hedging programs reduce,
but do not always entirely eliminate, the impact of foreign currency exchange
rate movements. An adverse change (defined as 20% in certain Asian currencies
and 10% in all other currencies) in exchange rates would result in a decline
in income before taxes of less than $20 million.
The Company is exposed to equity price risks on the marketable portion of
equity securities included in its portfolio of investments entered into for
the promotion of business and strategic objectives. These investments are
generally in small capitalization stocks in the high-technology industry
sector. The Company typically does not attempt to reduce or eliminate its
market exposure on these securities. A 20% adverse change in equity prices
would result in an approximate $75 million decrease in the fair value of
the Company's available-for-sale securities.
All of the potential changes noted above are based on sensitivity analyses
performed on the Company's financial positions at December 27, 1997. Actual
results may differ materially.
Outlook
This outlook section contains a number of forward-looking statements, all of
which are based on current expectations. Actual results may differ materially.
These statements do not reflect the potential impact of any future mergers or
acquisitions, except as noted below.
Intel expects that the total number of computers using Intel's Pentium
family processors, sixth-generation processors (including Pentium II and
Pentium Pro processors) and other semiconductor components sold worldwide
will continue to grow in 1998. The Company's financial results are
substantially dependent on sales of these microprocessors and other
semiconductor components. Revenue is also a function of the mix of
microprocessor types and speeds sold, as well as the mix of microprocessors
and related purchased components, 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. The Company's expectations regarding growth in the
computing industry worldwide are subject to the impact of economic conditions
in various geographic regions, including the Asia-Pacific region, which has
recently been undergoing a currency and economic crisis.
Intel's strategy is to introduce ever higher performance microprocessors
tailored for the different segments of the worldwide computing market. 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 each computing market segment. In line with this
strategy, the Company is seeking to develop higher performance microprocessors
for each market segment, including servers, workstations, high-end business
PCs, the basic PC and other product lines. The Company may continue to reduce
microprocessor prices at such times as it deems appropriate in order to bring
its technology to market within each relevant market segment.
The Company's gross margin varies depending on the mix of types and speeds of
processors sold and the mix of microprocessors and related purchased components
within a product family. The Company's most advanced product, the Pentium II
processor, is packaged with purchased components in the SEC cartridge, and the
inclusion of purchased components tends to increase absolute dollar margins but
24
to lower the gross margin percentage. This increased volume of purchased
components on the SEC cartridge is expected to reduce the gross margin
percentage over the next several quarters from 59% in the fourth quarter of
1997. Various other factors (including unit volumes and costs, yield issues
associated with production at factories, ramp of new technologies, excess or
obsolete inventory, 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. The Company currently expects that revenue and the gross
margin percentage in the first quarter of 1998 will be adversely affected by
weaker demand from original equipment manufacturers. Intel's primary goal is to
get its advanced technology to the marketplace, and the Company sometimes
implements strategies that increase dollar margins but lower margin
percentages. These strategies include the SEC cartridge, as discussed above,
and the Company's plans to grow in non-microprocessor areas that have the
potential to expand computing and telecommunications capabilities, an example
of which is the acquisition of Chips and Technologies, Inc.
The Company believes that over the long term the gross margin percentage will
be 50% plus or minus a few points. 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.
The Company has expanded manufacturing capacity over the last few years and
continues to expand capacity based on the assumed continued success of its
strategy and the acceptance of its products in specific market segments. If
the market demand does not continue to grow and move rapidly toward higher
performance products in the various market segments, revenues and gross margin
may be affected, the manufacturing capacity installed may be under-utilized,
and capital spending may be slowed. Revenues and gross margin may also be
affected if the Company does not add capacity fast enough to meet market
demand. The Company expects that capital spending will increase to
approximately $5.3 billion in 1998 to support significant expansion of
worldwide manufacturing capacity. The Company's capital spending plan includes
the acquisition of Digital's semiconductor facilities. This plan is dependent
upon expectations regarding manufacturing efficiencies, delivery times of
various machines and construction schedules for new facilities. Depreciation
for 1998 is expected to be approximately $2.7 billion. Most of the 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, and the Company's continued success is dependent on technological
advances, including the development and implementation of new processes and
new strategic products for specific market segments. As Intel considers it
imperative to maintain a strong research and development program, spending
for research and development in 1998 is expected to increase to approximately
$2.8 billion. In addition, the Company expects the acquisition of Chips and
Technologies, Inc. in 1998 to result in a one-time charge for in-process
research and development of approximately $165 million in the first quarter.
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, general and administrative expenses is also expected to increase
in 1998.
The Company currently expects its tax rate to decrease to 34% for 1998 due
to the settlement of federal tax audits and favorable resolution of significant
state tax issues and tax matters in other countries. This estimate, based on
current tax law and current estimate of earnings, excludes the effect of the
one-time charge related to Chips and Technologies, Inc. and is subject to
change.
In September 1997, the Federal Trade Commission ("FTC") staff notified Intel
that the FTC has begun an investigation of the Company's business practices. To
date, no allegations have been made, nor have any charges been filed. The
Company has an aggressive program in place to make sure its business practices
are in full compliance with federal laws in this area. Although neither the
extent nor the outcome of this investigation can be determined at this time,
management, including internal counsel, does not believe that the outcome will
have a material adverse effect on the Company's financial position or overall
trend in results of operations.
Like many other companies, the year 2000 computer issue creates risk for
Intel. If internal systems do not correctly recognize date information when
the year changes to 2000, there could be an adverse impact on the Company's
operations. The Company has initiated a comprehensive project to prepare its
computer systems for the year 2000 and plans to have changes to critical
systems completed by the first quarter of 1999 to allow time for testing. The
Company is also assessing the capability of its products sold to customers
over a period of years to handle the year 2000 and has a plan in place to
address product issues during 1998. Management believes that the likelihood
of a material adverse impact due to problems with internal systems or products
sold to customers is remote and expects that the cost of these projects over
the next two years will not have a material effect on the Company's financial
position or overall trends in results of operations. Intel is also contacting
critical suppliers of products and services to determine that the suppliers'
operations and the products and services they provide are year 2000 capable
or to monitor their progress toward year 2000 capability. There can be no
assurance that another company's failure to ensure year 2000 capability would
not have an adverse effect on the Company.
25
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 computing industry, gross margin, capital spending, depreciation,
research and development, marketing and general and administrative expenses,
the FTC investigation and the year 2000 issue - 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: changes in customer order patterns, including changes in customer
and channel inventory levels; competitive factors, such as rival chip
architectures and manufacturing technologies, competing software-compatible
microprocessors and availability of other computing alternatives; timing of
software industry product introductions; execution of the manufacturing ramp;
the ability to successfully integrate and operate any acquired businesses;
costs or other adverse effects associated with processors and other products
containing errata (deviations from published specifications); risks associated
with foreign operations; and litigation involving intellectual property,
consumer and other 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.
Financial information
by quarter (unaudited)
(In millions-except
per share data)
1997 for quarter ended December 27 September 27 June 28 March 29
- ------------------------------------------------------------------------------
Net revenues $ 6,507 $ 6,155 $ 5,960 $ 6,448
Cost of sales $ 2,691 $ 2,604 $ 2,343 $ 2,307
Net income $ 1,743 $ 1,574 $ 1,645 $ 1,983
Basic earnings per share $ 1.07 $ .96 $ 1.01 $ 1.21
Diluted earnings per share $ .98 $ .88 $ .92 $ 1.10
Dividends per share
(A) Declared $ .03 $ .03 $ .03 $ .025
Paid $ .03 $ .03 $ .025 $ .025
Market price range
Common Stock
(B) High $ 95.38 $100.50 $ 84.66 $ 82.38
Low $ 69.13 $ 69.53 $ 65.25 $ 65.19
Market price range
Step-Up Warrants
(B) High $ 74.69 $ 79.88 $ 64.16 $ 62.63
Low $ 48.38 $ 49.56 $ 45.31 $ 45.06
(In millions-except
per share data)
1996 for quarter ended December 28 September 28 June 29 March 30
- --------------------------------------------------------------------------------
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
Basic earnings per share $ 1.16 $ .80 $ .63 $ .54
Diluted earnings per share $ 1.06 $ .74 $ .59 $ .51
Dividends per share
(A) Declared $ .025 $ .025 $ .025 $ .020
Paid $ .025 $ .025 $ .020 $ .020
Market price range
Common Stock
(B) High $ 68.75 $ 48.69 $ 38.44 $ 30.50
Low $ 47.72 $ 34.50 $ 28.44 $ 25.00
Market price range
Step-Up Warrants
(B) High $ 49.19 $ 29.44 $ 19.66 $ 14.25
Low $ 28.38 $ 15.88 $ 12.00 $ 10.81
(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) trades on The Nasdaq Stock Market*
and is quoted in the Wall Street Journal and other newspapers. Intel's
1998 Step-Up Warrants (symbol INTCW) trade on The Nasdaq Stock Market
until their March 1998 expiration. Intel's Common Stock also trades on
The Swiss Exchange. At December 27, 1997, there were approximately
173,000 registered holders of Common Stock. All stock and warrant
prices are closing prices per The Nasdaq Stock Market.
GRAPHICS APPENDIX LIST*
FOR PAGES 21 AND 22
* In this Appendix, the following descriptions of graphs on pages 21 and 22 of
the Company's 1997 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 1997 Annual
Report to Stockholders.
REVENUES AND INCOME
(Dollars in billions) 1995 1996 1997
------ ------ ------
Net revenues 16.2 20.8 25.1
Net income 3.6 5.2 6.9
COSTS AND EXPENSES
(Percent of revenues) 1995 1996 1997
------ ------ ------
Cost of sales 48% 44% 40%
R&D 8% 9% 9%
Marketing and G&A 12% 11% 12%
(Total) 68% 64% 61%
OTHER INCOME AND EXPENSE
(Dollars in millions) 1995 1996 1997
------ ------ ------
Interest income & other 415 406 799
Interest expense 29 25 27
CASH AND INVESTMENTS
(Dollars in billions) 1996 1997
------ ------
Cash & cash equivalents 4.2 4.1
Short-term investments 3.7 5.6
Long-term investments 1.4 1.8