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1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the fiscal year ended December 28, 1996, OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (No Fee Required) For the transition period
from______to ______
Commission File Number 0-6217
INTEL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 94-1672743
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2200 Mission College Boulevard, Santa Clara, California, 95052-8119
(Address of principal executive offices, Zip Code)
Registrant's telephone number, including area code (408) 765-8080
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on
which registered
NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value
1998 Step-Up Warrants to Purchase Common Stock
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. YES_X_NO___
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
Aggregate market value of voting stock held
by non-affiliates of the registrant as of February 28, 1997
$108.5 billion
817.5 million shares of Common Stock outstanding as of February 28, 1997
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of Annual Report to Stockholders for fiscal year ended December
28, 1996 - Part II and Part IV.
(2) Portions of the Registrant's Proxy Statement related to the 1997 Annual
Meeting of Stockholders, to be filed subsequent to the date hereof -
Part III.
2
PART I
------
ITEM 1. BUSINESS
Industry
Intel Corporation and its subsidiaries (collectively called "Intel," the
"Company" or the "Registrant") operates predominantly in one industry
segment. The Company designs, develops, manufactures and markets
microcomputer components and related products at various levels of
integration. Intel's principal components consist of silicon-based
semiconductors etched with complex patterns of transistors. Each one of these
integrated circuits can perform the functions of thousands--some even
millions--of individual transistors, diodes, capacitors and resistors.
Products
The Company's major products include microprocessors and related board-level
products, chipsets, embedded processors and microcontrollers, flash memory
products, network and communications products and conferencing products.
Microprocessors and Related Board-Level Products.
- - -------------------------------------------------
A microprocessor is the central processing unit of a computer system. It
processes system data and controls other devices in the system, acting as
the brains of a computer. Intel's flagship microprocessors include the
Pentium Pro and the Pentium microprocessor families.
Intel-designed board-level products are used as basic building blocks for
consumer, technical and commercial computing applications. Many original
equipment manufacturers (OEMs) use Intel's board-level products to build
their own computers products. OEM customers buy at this level of integration
to accelerate their time-to-market and to direct their investments to other
areas of their product lines. The Company provides board-level products to
give OEM customers flexibility by enabling them to choose whether to buy at
the component or board level.
Intel's developments in the area of semiconductor design and manufacturing
have made it possible to decrease the feature size of circuits etched into
silicon. This permits a greater number of transistors to be used on each
microprocessor, and a greater number of microprocessors to be placed on each
silicon wafer. The resulting trend is toward microprocessors that are smaller,
faster, consume less power and cost less to manufacture. In 1996, the Company
expanded manufacturing capacity on its 0.35 micron process technology,
enabling very high-volume production of its newest, fastest Pentium Pro and
Pentium microprocessors.
During 1996, the rapid transition of the personal computer (PC) market
segment to the Pentium microprocessor continued. Pentium microprocessors
now power entry-level to high-end computer systems. Intel significantly
expanded the Pentium microprocessor family in 1996, introducing new versions
operating at 150, 166 and 200 MHz. The 120- and 133-MHz versions of the
Pentium processor are now used in entry-level PCs. In January 1997, the
Company introduced versions of the Pentium microprocessor with MMX media
enhancement technology, with improvements that significantly enhance
media-rich and communications applications.
In 1996, Intel also introduced 133- and 150-MHz versions of the Pentium
microprocessor for mobile computers. The 120-MHz mobile Pentium processor,
introduced in 1995, is now aimed at entry-level notebook systems. These
processors, optimized for notebook and mobile applications, consume less
power and come in a smaller package than the desktop or server versions.
3
In February 1997, the Company introduced the Intel Mobile Module, an
integrated module that plugs into a mobile system's motherboard. This module
is designed to help equipment manufacturers bring new notebooks to market and
to improve notebook performance.
Intel's sixth-generation processor, the Pentium Pro microprocessor, made
significant advances in the server and workstation market segments in 1996.
The Pentium Pro microprocessor is fully compatible with prior generations and
delivers performance comparable to that of traditional mid-range workstations
at about one-third of the system cost of such workstations. In 1996, the
Pentium Pro microprocessor multiprocessing and manageability features made it
a popular choice for enterprise server applications, as well as business
desktops utilizing full 32-bit software environments such as Windows NT*. In
early 1997, Intel named its new Pentium Pro processor with MMX media
enhancement technology the Pentium II processor. This processor initially
will be targeted at the business market segment and is expected to be
available in computer systems in the first half of 1997.
Sales of Pentium microprocessors and related board-level products comprised
a majority of the Company's revenues and a substantial majority of its gross
margin during 1995 and 1996. During 1996 Pentium Pro microprocessors and
related board-level products became an increasing portion of the Company's
revenue and gross margin. The Intel486 microprocessor family contributed
negligible revenues and gross margin during 1996. During 1995, the Intel486
microprocessor family represented a significant but rapidly declining
portion of the Company's revenues and gross margins, while it comprised a
majority of the Company's revenues and a substantial majority of its gross
margin during 1994.
During 1996, Intel's OverDrive processors, a family of upgrade
microprocessors, expanded to include products based on certain of the newer
Pentium microprocessors, allowing users to upgrade their older Pentium
processor-based systems. Intel announced OverDrive processors that upgrade
systems to the approximate level of 120-, 125-, 133-, 150- and 166-MHz
versions of the Pentium microprocessor. Users may still upgrade Intel486
microprocessor systems with the Pentium OverDrive processor as well. In
1997, Intel expects to introduce Pentium OverDrive processors with MMX
technology, bringing richer multimedia performance to Pentium processor-based
PCs in a single upgrade chip.
Chipsets.
- - --------- The Company's core-logic chipsets support incremental performance,
ease-of-use and new capabilities for systems based on Intel's Pentium and
Pentium Pro microprocessors. Based on the Peripheral Components Interconnect
(PCI) bus, the Intel 430 PCIset family for desktop and mobile Pentium
microprocessors and the Intel 440 and 450 PCIset families for the Pentium Pro
microprocessors perform essential logic functions surrounding the CPU in
computers based on Intel architecture processors. Due to the growth of
Pentium microprocessor-based systems, Intel has become a major supplier of
core-logic chipsets.
In 1996, Intel introduced a new, fourth-generation PCI chipset family for
Pentium processors: the 430HX for Pentium processor-based business PCs and
the 430VX for Pentium processor-based home and small business PCs. These
products signify an important evolution in chipsets: by optimizing two
separate chipsets for different market segments, Intel helps OEMs and
motherboard manufacturers fine-tune the price-performance of their systems
and boards and make specific product designs for their targeted audiences.
The Intel430 PCIsets were the first chipset products to support the Universal
Serial Bus (USB), a new industry initiative to improve PC performance.
In 1996, Intel also introduced the 440FX PCIset, a highly integrated chip set
solution for delivering Pentium Pro processor performance to mainstream
business systems. This second-generation PCIset for Pentium Pro processors
optimizes system performance for 32-bit application software in 32-bit
operating system environments, and supports USB capabilities.
- - ---------------------------------
* Other brands and names are the property of their respective owners.
4
Embedded Processors and Microcontrollers.
- - ----------------------------------------- Intel provides embedded products
such as microprocessors, microcontrollers and memory components to a wide
range of manufacturers. Embedded products are used in products such as
automobile engine and braking systems, hard disk drives, laser printers,
input/output control modules, cellular phones, home appliances, factory
automation control products, commercial and military avionics, and medical
instrumentation.
Intel's embedded products line consists of 32-bit processors,including the
i960 processor family and the embedded Intel386 and Intel486 processor
families; the 16-bit 80C186 processor family; 16-bit MCS 96 microcontrollers;
and 8-bit microcontrollers, such as the MCS 51 and MCS 251 microcontroller
families.
The Company introduced several embedded control products in 1996, including
the MCS 96 architecture-based 87C196LB and 83C196LC/LD 16-bit
microcontrollers for automotive applications, such as anti-lock braking,
traction control and multi-airbag systems; and the new MCS 151
microcontroller, the 8xC151, offering an intermediate performance and price
level between the original 80C51 device and the more recent 8xC251 series of
microcontrollers. In early 1997, the Company introduced the i960 RD I/O
processor which is dedicated to high-performance input/output subsystems for
network servers.
Flash Memory Products.
- - ---------------------- Memory components are used to store user data and
computer program code. Flash memory retains information when the power is
off. Intel was a key player in defining and promoting the Miniature Card
specification for low-cost, very small form-factor flash cards to be used in
a variety of consumer electronics applications. In 1996, Intel introduced a
new family of Smart Voltage flash memory products made on the Company's 0.4
micron process. Available in 4-, 8- and 16-Mbit levels, the new products are
used in network servers and digital audio and digital photography systems.
Network and Communications Products.
- - ------------------------------------ These hardware and software products
are sold to corporate network administrators and PC users through reseller,
retail and original equipment manufacturer channels. The product line
enhances the capabilities of PC systems and networks and makes them easier to
use and manage. Intel's networking products are designed to help reduce
the total cost of networked business computing by providing high-bandwidth
communications to PC desktop and server systems, and making it easier for
local area network (LAN) administrators to install and manage their systems.
Intel's networking products consist of network management products, including
the LANDesk Management Group of products, and LAN hardware products, such as
the EtherExpress family of adapters and Express Switching Hubs and Stackable
Hubs.
New LANDesk Management Group products in 1996 included: LANDesk Virus Protect
for Windows NT and NetWare* servers as well as client and stand-alone PCs;
LANDesk Network Manager software for easier, cost-effective management of
Intel's workgroup hubs and switches; and the latest LANDesk Management
Technology, enabling administrators to configure new PCs without having to
install software manually at each user workstation.
Also in 1996, Intel introduced several new or upgraded LAN products:
100BASE-T4 models of the EtherExpress PRO/100 adapter and Express Stackable
Hubs; the NetportExpress PRO/100 print server, allowing workgroups to connect
and manage printers at 10Mbps or 100Mbps; and the Intel Express 100BASE-TX
Switching Hub, providing 100Mbps networking performance with workgroups of
up to hundreds of client PCs. In 1996, the EtherExpress PRO/100 was found by
LANQuest Labs to outperform other Fast Ethernet LAN adapters in both Windows
NT and Novell NetWare environments.
- - -------------------------------------
* Other brands and names are the property of their respective owners.
5
From time to time, Intel invests in various companies. In February 1997,
Intel announced it had acquired Case Technology, based in Copenhagen,
Denmark. Case Technology is an innovator in Fast Ethernet networking
technology and its products are expected to become elements of Intel's
strategy for providing customers with a cost-effective range of networking
solutions. Case Technology has expertise and products in the 10 and 100Mbps
Ethernet switching and small business and branch office routing areas.
Conferencing Products.
- - ---------------------- The Intel ProShare conferencing technology is used in
a PC-based video-conferencing system that offers full application and
document sharing and is certified for use in over 25 countries. It gives
users powerful, real-time information-sharing capabilities and an innovative
way to convey ideas. The technology supports video and data conferences over
ISDN or corporate LAN networks. It also supports industry standards, such as
the H.320 international telecommunications standard, to conduct video
conferences with other H.320-compliant products, including room conferencing
systems.
The product line includes the ProShare Conferencing Video System 200, one of
the industry's leading desktop conferencing solutions, allowing up to 24
people to simultaneously see each other, convey ideas and edit data from
their own PCs, and the ProShare TeamStation, a group video conferencing
system for meeting rooms, with all the features of the ProShare Conferencing
Video System 200.
In 1996, Intel expanded the ProShare technology family to reach home PC users
for the first time with the introduction of the Intel Video Phone with
ProShare technology. This consumer video conferencing product allows people
to see and hear each other on home PCs using ordinary phone lines. The
technology is available in PCs from various companies. The Intel Video Phone
runs best on systems with an Intel Pentium processor with MMX technology, for
smoothest display of compressed video signals.
Manufacturing
A substantial majority of the Company's wafer production, including
microprocessor fabrication, and a significant portion of the assembly and
final testing of the resulting components is conducted at domestic Intel
facilities in Chandler, Arizona; Aloha, Oregon; Santa Clara, California; and
Rio Rancho, New Mexico. A significant portion of Intel's production of
microprocessor board-level products and systems takes place at facilities in
Hillsboro, Oregon; DuPont, Washington; and Las Piedras, Puerto Rico.
Outside the United States, a significant portion of Intel's wafer production
is conducted at plants in Jerusalem, Israel and Leixlip, Ireland. A
significant portion of Pentium processor production is conducted at the
Ireland site. A majority of the Company's component assembly and testing
(including Pentium processor assembly and testing) is performed at facilities
in Penang, Malaysia and Manila, Philippines. A significant portion of
Intel's production of microprocessor board-level products and systems is
conducted at its facility in Leixlip, Ireland.
In general, if Intel were unable to fabricate wafers or assemble or test its
products abroad, or if air transportation between its foreign facilities and
the United States were disrupted, there could be a materially adverse effect
upon the Company's operations. In addition to normal manufacturing risks,
foreign operations are subject to certain additional exposures, including
political instability, currency controls and fluctuations, and tariff and
import restrictions. To date, Intel has not experienced significant
difficulties related to these foreign business risks.
To augment capacity, Intel uses subcontractors to perform assembly of certain
products and wafer fabrication for certain components, primarily flash memory
and chipsets, and for production capacity of board-level products. A
significant portion of Intel's production of board-level products is
conducted through the use of subcontractors in Penang, Malaysia.
The manufacture of integrated circuits is a complex process. Normal
manufacturing risks include errors and interruptions in the fabrication
process and defects in raw materials, as well as other risks, all of which
can affect yields.
6
Employees
At December 28, 1996, the Company employed approximately 48,500 people
worldwide.
Sales
Most of Intel's products are sold or licensed through sales offices located
near major concentrations of users throughout the United States, Europe,
Japan, Asia-Pacific and other parts of the world.
The Company also uses distributors (industrial and retail) and
representatives to distribute its products both in the United States and
overseas. Typically, distributors handle a wide variety of products,
including those competitive with Intel products, and fill orders for many
customers. Most of Intel's sales to distributors are made under agreements
allowing for price protection and/or the right of return on unsold
merchandise. Sales representatives generally do not offer directly
competitive products, but may carry complementary items manufactured by
others. Representatives do not maintain a product inventory; instead, their
customers place large-quantity orders directly with Intel and are referred to
distributors for smaller orders. Intel sold products to over one thousand
customers worldwide in 1996, none of which represented more than 10% of total
revenues.
Backlog
Intel's sales are made primarily pursuant to standard purchase orders for
delivery of standard products. Intel has some agreements that give a customer
the right to purchase a specific number of products during a time period.
Although not generally obligating the customer to purchase any particular
number of such products, some of these agreements do contain billback clauses.
As a matter of industry practice, billback clauses are difficult to enforce.
The quantity actually purchased by the customer, as well as the shipment
schedules, are frequently revised during the agreement term to reflect
changes in the customer's needs. In light of industry practice and
experience, Intel does not believe that such agreements are meaningful for
determining backlog figures. Intel believes that only a small proportion of
its order backlog is noncancellable and that the dollar amount associated
with the noncancellable portion is immaterial. Therefore, Intel does not
believe that backlog as of any particular date is necessarily indicative of
future results.
7
Competition
The Company competes in different product lines to various degrees on the
basis of price, performance, availability and quality. Intel is engaged in a
rapidly advancing field of technology in which its ability to compete depends
upon the continuing improvement of its products and processes, continuing
cost reductions and the development of new products to meet changing customer
requirements. Prices decline rapidly in the semiconductor industry as unit
volume grows, as competition develops, and as production experience is
accumulated. Many companies compete with Intel and are engaged in the same
basic fields of activity, including research and development. Both foreign
and domestic, these competitors range in size from large multinationals to
smaller companies competing in specialized market segments. In microprocessor
board-level and system products, Intel competes with board manufacturers and
microprocessor-based computer manufacturers. Some competitors are also Intel
customers.
A number of competitors have developed and begun marketing products that are
software compatible with some of the Company's key products. In particular,
companies have announced plans to ship products in 1997 intended to compete
with the Pentium and Pentium Pro microprocessor families. Many of Intel's
competitors are licensed to use Intel patents. Furthermore, based on the
current case law, Intel's competitors can design microprocessors that are
compatible with Intel microprocessors and avoid Intel patent rights through
the use of foundry services that have licenses with Intel. Competitors'
products may add features, increase performance or sell at lower prices. The
Company also faces significant competition from companies that offer rival
microprocessor architectures. The Company cannot predict whether such rival
architectures will establish or increase market acceptance or provide
increased competition to the Company's products. Future distortion of price
maturity curves could occur as software compatible products enter the market
in significant volume or alternative architectures gain market acceptance.
Intel's strategy has been, and continues to be, to introduce ever higher
performance microprocessors. To implement this strategy, the Company plans to
cultivate new businesses and continue to work with the software industry to
develop compelling applications that can take advantage of this higher
performance, thus driving demand toward the newer products. Intel also is
committed to the protection of its intellectual property rights against
illegal use. There can be no assurance, however, that competitors will not
introduce new products (either software compatible or of rival architectural
designs) or reduce prices on existing products. Such developments could have
an adverse effect on Intel's revenues and margins.
Research and Development
The Company's competitive position has developed to a large extent because of
its emphasis on research and development. This emphasis has enabled Intel to
deliver many products before they have become available from competitors, and
thus has permitted Intel's customers to commit to the use of these new
products in the development of their own products. Intel's research and
development activities are directed toward developing new products, hardware
technologies and processes, and improving existing products and lowering
their cost. Intel is jointly developing a new 64-bit microprocessor
architecture and software optimizations with a third party. New 64-bit
processors based on this architecture are expected to be initially targeted
at server, workstation and enterprise computing products, probably in the
late 1990s. The Company also develops "enabling" software technologies, such
as open software specifications and software tools, to enhance the
functionality and acceptance of the personal computer platform. Intel's
expenditures for research and development were $1,808 million, $1,296
million and $1,111 million in fiscal years 1996, 1995 and 1994,
respectively. As of December 28, 1996, Intel had approximately 9,100
employees engaged in research and development. The results of Intel's
research and development activities depend upon competitive circumstances and
Intel's ability to transfer new products to production in a timely and
cost-effective manner.
Most design and development of components and other products is performed at
Intel's facilities in Santa Clara and Folsom, California; Aloha and
Hillsboro, Oregon; Chandler, Arizona; and Haifa, Israel.
8
Intellectual Property and Licensing
Intellectual property rights that apply to various Intel products include
patents, copyrights, trade secrets, trademarks and maskwork rights. Because
of the rapidly changing technology and a broad distribution of patents in the
semiconductor industry, Intel's present intention is not to rely primarily on
intellectual property rights to protect or establish its market position.
However, Intel has established an active program to protect its investment in
technology by enforcing its intellectual property rights. Intel does not
intend to broadly license its intellectual property rights unless it can
obtain adequate consideration. Reference is also made to the heading
"Competition."
Intel has filed and obtained a number of patents in the United States and
abroad. Intel has entered into patent cross-license agreements with many of
its major competitors and other parties.
Intel protects many of its computer programs by copyrighting them. Intel has
registered numerous copyrights with the United States Copyright Office. The
ability to protect or to copyright software in some foreign jurisdictions is
not clear. However, Intel has a policy of requiring customers to obtain a
software license contract before providing a customer with certain computer
programs. Certain components have computer programs embedded in them, and
Intel has obtained copyright protection for some of these programs as well.
Intel has obtained protection for the maskworks for a number of its
components under the Chip Protection Act of 1984.
Intel has obtained certain trademarks and trade names for its products to
distinguish genuine Intel products from those of its competitors and is
currently engaged in a cooperative program with OEMs to identify personal
computers that incorporate genuine Intel microprocessors with the Intel
Inside logo. Intel maintains certain details about its processes, products
and strategies as trade secrets.
As is the case with many companies in the semiconductor industry, Intel has,
from time to time, been notified of claims that it may be infringing certain
intellectual property rights of others. These claims have been referred to
counsel, and they are in various stages of evaluation and negotiation. If it
appears necessary or desirable, Intel may seek licenses for these
intellectual property rights. Intel can give no assurance that licenses will
be offered by all claimants, that the terms of any offered licenses will be
acceptable to Intel or that in all cases the dispute will be resolved without
litigation.
Compliance with Environmental Regulations
To Intel's present knowledge, compliance with federal, state and local
provisions enacted or adopted for protection of the environment has had no
material effect upon its operations. However, reference is made to Item 3.
Legal Proceedings, of this Form 10-K.
9
Executive Officers
The following sets forth certain information with regard to executive officers
of Intel (ages are as of December 28, 1996):
Craig R. Barrett (age 57) has been Chief Operating Officer since 1993; a
director of Intel since 1992; and Executive Vice President since 1990.
Andrew S. Grove (age 60) has been a director of Intel since 1974; President
since 1979; and Chief Executive Officer since 1987.
Gordon E. Moore (age 67) has been a director of Intel since 1968 and
Chairman of the Board since 1979.
Leslie L. Vadasz (age 60) has been a director of Intel since 1988; and Senior
Vice President, Director of Corporate Business Development since 1991.
Frank C. Gill (age 53) has been Executive Vice President and General Manager,
Internet and Communications Group since 1996. Prior to that, Mr. Gill was
Senior Vice President and General Manager, Intel Products Group from 1991 to
1996.
Paul S. Otellini (age 46) has been Executive Vice President, Director, Sales
and Marketing Group since 1996. Prior to that, Mr. Otellini was Senior Vice
President, Director, Sales and Marketing Group from 1994 to 1996; Senior Vice
President and General Manager, Microprocessor Products Group from 1992 to
1994 and Vice President and General Manager, Microprocessor Products Group
from 1991 to 1992.
Gerhard H. Parker (age 53) has been Executive Vice President and General
Manager, Technology and Manufacturing Group since 1996. Prior to that, Dr.
Parker was Senior Vice President and General Manager, Technology and
Manufacturing Group from 1992 to 1996; Vice President and General Manager,
Technology and Manufacturing Group from 1990 to 1992.
Ronald J. Whittier (age 60) has been Senior Vice President and General
Manager, Content Group since 1995. Prior to that, Mr. Whittier was Senior
Vice President and General Manager, Intel Architecture Laboratories from 1993
to 1995 and Vice President and General Manager, Software Technology Group
from 1991 to 1992.
Albert Y. C. Yu (age 55) has been Senior Vice President and General Manager,
Microprocessor Products Group since 1993. Prior to that, Dr. Yu was Vice
President and General Manager, Microprocessor Products Group from 1991 to
1993.
Michael A. Aymar (age 49) has been Vice President and General Manager,
Desktop Products Group since 1995. Prior to that, Mr. Aymar was Vice
President and General Manager, Intel486 Microprocessor Division from 1994 to
1995 and Vice President and General Manager, Mobile Computing Group from 1991
to 1994.
Andy D. Bryant (age 46) has been Vice President and Chief Financial Officer
since 1994. Prior to that, Mr. Bryant was Vice President, Intel Products
Group from 1990 to 1994.
F. Thomas Dunlap, Jr. (age 45) has been Vice President, General Counsel and
Secretary since 1987.
10
Executive Officers, continued
Patrick P. Gelsinger (age 35) has been Vice President and General Manager,
Desktop Products Group since 1996. Prior to that, Mr. Gelsinger was Vice
President, Internet and Communications Group and General Manager ICG Product
Development from 1995 to 1996; Vice President, Intel Products Group and
General Manager, Personal Conferencing Division from 1993 to 1995; Vice
President, Intel Products Group and General Manager, PC Enhancement Division-
Business Communications from 1992 to 1993; and General Manager, MD 6,
Microprocessor Development from 1991 to 1992.
John H. F. Miner (age 41) has been Vice President and General Manager,
Enterprise Server Group since 1996. Prior to that, Mr. Miner was Vice
President, Desktop Products Group and General Manager, OEM Products and
Services Division from 1995 to 1996; General Manager, OEM Products and
Services Division from 1993 to 1995 and General Manager, OEM Modules
Operation from 1992 to 1993.
Stephen P. Nachtsheim (age 51) has been Vice President and General Manager,
Mobile/Handheld Products Group since 1995. Prior to that, Mr. Nachtsheim was
Vice President and General Manager, Mobile and Home Products Group from 1994
to 1995; and General Manager of European Intel Products Group from 1990 to
1994.
Ronald J. Smith (age 46) has been Vice President and General Manager,
Computing Enhancement Group since 1996. Prior to that, Mr. Smith was Vice
President, Desktop Products Group and General Manager, PCI Components
Division from 1995 to 1996; and he served in the positions of General
Manager, Programmable Logic Device Operation and before that, General Manager
, Gate Array Operation for the period covering 1992 to 1995.
11
ITEM 2. PROPERTIES
At December 28, 1996, Intel owned the major facilities described below:
No. of Bldgs. Location Total Sq. Ft. Use
- - ------------- -------- ------------- ---
61 United States 12,385,000 Executive and administrative
offices, wafer fabrication,
components assembly and
testing, research and
development, computer and
service functions, board and
system assembly, and
warehousing.
6 Ireland 959,000 Wafer fabrication, board and
system assembly, warehousing
and administrative offices.
6 Malaysia (A) 531,000 Components assembly and
testing, warehousing and
administrative offices.
4 Israel 380,000 Wafer fabrication, design
center and administrative
offices.
5 Puerto Rico 426,000 Board and system assembly,
warehousing and
administrative offices.
3 England 184,000 Sales and marketing,
warehousing and
administrative offices.
3 Japan 167,000 Sales and marketing,
warehousing and
administrative offices.
1 Philippines 431,000 Components assembly and
testing, warehousing and
administrative offices.
1 Germany 86,000 Sales and marketing and
administrative offices.
At December 28, 1996, Intel also leased 22 major facilities in the U.S.
totaling approximately 722,000 square feet and 12 facilities in other
countries totaling approximately 275,000 square feet. These leases expire at
varying dates through 2005 and include renewals at the option of Intel.
Intel believes that its existing facilities are suitable and adequate for
its present purposes, and the productive capacity in such facilities is in
general being utilized. Intel also has 3.5 million square feet of building
space under various stages of construction in the United States and abroad
for manufacturing and administrative purposes.
- - ----------------------------
(A) The lease on a portion of the land used for these facilities expires in
2032.
12
ITEM 3. LEGAL PROCEEDINGS
A. Litigation
EMI Group, NA vs. Intel, DEL (C95-199)
--------------------------------------
On March 29, 1995, the plaintiff brought suit in Federal Court in Delaware
alleging infringement of a U.S. patent relating to processes for
manufacturing semiconductors. The plaintiff sought injunctive relief and
damages of one and one-quarter percent (1 1/4%) royalties from the sale of
microprocessors manufactured using the allegedly infringing processes. In May
1996, the Court granted Intel's motion for summary judgment on some of the
processes in issue. In November 1996, the Court granted Intel's motion for
summary judgment on the remaining processes in issue and entered judgment in
favor of Intel and against the plaintiff on the claims in the complaint. EMI
has appealed this decision. Although the ultimate outcome of this lawsuit
cannot be determined at this time, management, including internal counsel,
does not believe that the ultimate outcome will have a material adverse
effect on Intel's financial position or overall trends in results of
operations.
B. Environmental Proceedings
Intel has been named to the California and U.S. Superfund lists for three of
its sites and has completed, along with two other companies, a Remedial
Investigation/Feasibility study with the U.S. Environmental Protection
Agency (EPA) to evaluate the groundwater in areas adjacent to one of its
former sites. The EPA has issued a Record of Decision with respect to a
groundwater cleanup plan at that site, including expected costs to complete.
Under the California and U.S. Superfund statutes, liability for cleanup of
this site and the adjacent area is joint and several. The Company, however,
has reached agreement with those same two companies which significantly
limits the Company's liabilities under the proposed cleanup plan. Also, the
Company has completed extensive studies at its other sites and is engaged in
cleanup at several of these sites. In the opinion of management, including
internal counsel, the potential losses to the Company in excess of amounts
already accrued arising out of these matters will not have a material
adverse effect on the Company's financial position or overall trends in
results of operations, even if joint and several liability were to be
assessed.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
13
PART II **
----------
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
(a) Reference is made to the information regarding market, market
price range and dividend information appearing under "Financial
Information by Quarter (Unaudited)" on page 37 of the Registrant's
1996 Annual Report to Stockholders which information is hereby
incorporated by reference.
(b) As of February 28, 1997, there were approximately 124,000
registered folders of record of the Registrant's Common Stock.
ITEM 6. SELECTED FINANCIAL DATA
Reference is made to the information regarding selected financial data for
the fiscal years 1992 through 1996, under the heading "Financial Summary" on
page 33 of the Registrant's 1996 Annual Report to Stockholders, which
information is hereby incorporated by reference.
In addition, the ratios of earnings to fixed charges for each of the five
years in the period ended December 28, 1996 are as follows:
Fiscal Year
----------------------------------------------
1992 1993 1994 1995 1996
20.7x 54.4x 39.5x 67.6x 107.8x
Fixed charges consist of interest expense and the estimated interest
component of rent expense.
- - ---------------
** Page references to the 1996 Annual Report to Stockholders or to the
Registrant's Proxy Statement related to the 1997 Annual Meeting of
Stockholders under Items 5, 6, 7 and 8 in Part II; 10, 11 and 12 in Part III
and 14 in Part IV relate to the bound, printed versions of such Report and
Proxy Statement, not to the electronic versions appearing at the Intel
Internet site (www.intel.com). However, all data referred to also appears in
the electronic versions.
14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Reference is made to the information appearing under the heading
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" on pages 34 through 36 of the Registrant's 1996 Annual Report to
Stockholders, which information is hereby incorporated by reference.
Between December 28, 1996 and March 26, 1997, Intel repurchased 7.7 million
shares of Common Stock under the Company's authorized stock repurchase
program at a cost of $1.2 billion. The Company also sold 6 million put
warrants, receiving proceeds of $88 million, while 3 million previously
outstanding put warrants expired unexercised. As of March 26, 1997, the
Company had the potential obligation to repurchase 7.5 million shares of
Common Stock at an aggregate price of $1.0 billion under outstanding put
warrants. The 7.5 million put warrants outstanding at March 26, 1997 expire
on various dates between April 1997 and February 1998 and have exercise
prices ranging from $66 to $162 per share, with an average exercise price of
$136. In March 1997, Intel's Board of Directors approved an increase of up to
30 million shares in the stock repurchase program. With the additional
authorization, after reserving shares to cover outstanding put warrants, 39.9
million shares remain available for repurchase under the authorization as of
March 26, 1997.
In line with the Company's strategy to introduce ever higher performance
microprocessors, Intel plans to introduce the Pentium(R) Pro processor with
MMX(TM) media enhancement technology, named the Pentium(R) II, in the first
half of 1997.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated financial statements of Intel Corporation at December 28, 1996
and December 30, 1995 and for each of the three years in the period ended
December 28, 1996 and the Report of Independent Auditors thereon and Intel
Corporation's unaudited quarterly financial data for the two-year period
ended December 28, 1996 are incorporated by reference from the Registrant's
1996 Annual Report to Stockholders, on pages 18 through 33 and page 37.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
15
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Reference is made to the information regarding Directors and Executive
Officers appearing under the heading "Election of Directors" on pages 2
through 5 of the Registrant's Proxy Statement related to the 1997 Annual
Meeting of Stockholders (the "1997 Proxy Statement") , which information is
hereby incorporated by reference, and to the information under the heading
"Executive Officers" in Part I hereof.
ITEM 11. EXECUTIVE COMPENSATION
Reference is made to the information appearing under the headings "Directors'
Compensation," "Compensation Committee Interlocks and Insider Participation,"
and "Executive Compensation," on pages 6 and 7, 11 and 13, respectively, of
the 1997 Proxy Statement, which information is hereby incorporated by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Reference is made to information appearing in the 1997 Proxy Statement, under
the heading "Security Ownership of Certain Beneficial Owners and Management,"
on pages 16 and 17, which information is hereby incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
16
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) 1. Financial Statements
The financial statements listed in the accompanying index
to financial statements and financial statement schedules
are filed or incorporated by reference as part of this
annual report.
2. Financial Statement Schedule
The financial statement schedule listed in the
accompanying index to financial statements and financial
statement schedules is filed as part of this annual
report.
3. Exhibits
The exhibits listed in the accompanying index to exhibits
are filed or incorporated by reference as part of this
annual report.
(b) Reports on Form 8-K
None.
17
INDEX TO FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
(Item 14 (a))
Reference Page
1996
Annual
Form Report to
10K Stockholders
--- ------------
Consolidated Balance Sheets-
December 28, 1996 and December 30, 1995 19
Consolidated Statements of Income for
the years ended December 28, 1996,
December 30, 1995 and December 31, 1994 18
Consolidated Statements of Cash Flows
for the years ended December 28, 1996,
December 30, 1995 and December 31, 1994 20
Consolidated Statements of Stockholders'
Equity for the years ended December 28, 1996,
December 30, 1995 and December 31, 1994 21
Notes to Consolidated Financial Statements-
December 28, 1996, December 30, 1995 and
December 31, 1994 22-31
Report of Ernst & Young LLP, Independent Auditors 32
Supplementary Information (unaudited)
Financial Information by Quarter 37
Schedule for years ended December 28, 1996,
December 30, 1995 and December 31, 1994:
II- Valuation and Qualifying Accounts 18
Schedules other than the one listed above are omitted for the reason that
they are not required or are not applicable, or the required information is
shown in the financial statements or notes thereto.
The consolidated financial statements listed in the above index, which are
included in the Company's 1996 Annual Report to Stockholders, are hereby
incorporated by reference. With the exception of the pages listed in the
above index and the portions of such report referred to in Items 5, 6, 7 and
8 of this Form 10-K, the 1996 Annual Report to Stockholders is not to be
deemed filed as part of this report.
18
INTEL CORPORATION
-----------------
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
December 31, 1994, December 30, 1995 and December 28,1996
(In Millions)
Additions
Balance at Charged to Balance
Beginning Costs and at End
of Year Expenses Deductions(A) of Year
------- -------- -------------- -------
1994
Allowance for Doubtful
Receivables $22 $10 $-- $32
--- --- --- ---
1995
Allowance for Doubtful
Receivables $32 $28 $ 3 $57
--- --- --- ---
1996
Allowance for Doubtful
Receivables $57 $25 $14 $68
--- --- --- ---
(A) Uncollectible accounts written off, net of recoveries.
19
INDEX TO EXHIBITS
(Item 14(a))
Description
3.1 Intel Corporation Certificate of Incorporation (incorporated by
reference to Exhibit 3.1 of Registrant's Form 10-Q for the quarter
ended June 26, 1993 as filed on August 10, 1993).
3.2 Intel Corporation Bylaws as amended (incorporated by reference to
exhibit 4.2 of Registrant's Registration Statement on Form S-8 as
filed on February 3, 1997).
4.1 Agreement to Provide Instruments Defining the Rights of Security
Holders (incorporated by reference to Exhibit 4.1 of Registrant's
Form 10-K as filed on March 28, 1986).
4.2 Warrant Agreement dated as of March 1, 1993, as amended between the
Registrant and Harris Trust and Savings Bank (as successor Warrant
Agent) related to the issuance of 1998 Step-Up Warrants to purchase
Common Stock of Intel Corporation (incorporated by reference to
Exhibit 4.6 of Registrant's Form 10-K as filed on March 25, 1993),
together with the First Amendment to Warrant Agreement dated as of
October 18, 1993 and the Second Amendment to Warrant Agreement dated
as of January 17, 1994 (incorporated by reference to Exhibit 4.4 of
the Registrant's Form 10-K as filed on March 25, 1994) and the Third
Amendment to Warrant Agreement dated as of May 1, 1995 (incorporated
by reference to Exhibit 4.2 of the Registrant's Form 10-K as filed
on March 29, 1996).
10.1* Intel Corporation 1984 Stock Option Plan as amended and restated,
effective March 26, 1997.
10.2* Intel Corporation 1988 Executive Long Term Stock Option Plan as
amended and restated, effective March 26, 1997.
10.3* Intel Corporation Executive Officer Bonus Plan as amended and
restated effective January 1, 1995 (incorporated by reference to
Exhibit 10.7 of Registrant's Form 10-Q for the quarter ended April 5,
1995 as filed on May 15, 1995).
10.4* Intel Corporation Sheltered Employee Retirement Plan Plus, as amended
and restated effective July 15, 1996 (incorporated by reference to
Exhibit 4.1.1 of Registrant's Registration Statement on Form S-8 as
filed on July 17, 1996).
11. Computation of Per Share Earnings.
12. Statement Setting Forth the Computation of Ratios of Earnings to
Fixed Charges.
13. Portions of the Annual Report to Stockholders for fiscal year ended
December 28, 1996 expressly incorporated by reference herein.
21. Intel Subsidiaries.
23. Consent of Ernst & Young LLP, Independent Auditors.
27. Financial Data Schedule.
- - --------------------------
* Compensation plans or arrangements in which directors and executive
officers are eligible to participate.
20
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this Annual Report to be signed on its behalf by the undersigned,
thereunto duly authorized.
INTEL CORPORATION
- - -----------------
Registrant
By /s/ F. Thomas Dunlap, Jr.
- - ----------------------------
F. Thomas Dunlap, Jr.
Vice President and Secretary
March 26, 1997
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the
dates indicated.
/s/ Craig R. Barrett /s/ Gordon E. Moore
- - -------------------- -------------------
Craig R. Barrett Gordon E. Moore
Director Chairman of the Board
March 26, 1997 March 26, 1997
/s/ Max Palevsky
- - -------------------- -----------------
John Browne Max Palevsky
Director Director
March 26, 1997 March 26, 1997
/s/ Andy D. Bryant /s/ Arthur Rock
- - ------------------ ---------------
Andy D. Bryant Arthur Rock
Vice President, Director
Chief Financial Officer, March 26, 1997
Principal Accounting
and Financial Officer
March 26, 1997
/s/ Jane E. Shaw
/s/ Winston H. Chen ----------------
- - ------------------- Jane E. Shaw
Winston H. Chen Director
Director March 26, 1997
March 26, 1997
/s/ Leslie L. Vadasz
--------------------
/s/ Andrew S. Grove Leslie L. Vadasz
- - ------------------- Director
Andrew S. Grove March 26, 1997
President and Director,
Principal Executive Officer
March 26, 1997 /s/ David B. Yoffie
-------------------
David B. Yoffie
/s/ D. James Guzy Director
- - ----------------- March 26, 1997
D. James Guzy
Director
March 26, 1997 ----------------
Charles E. Young
Director
March 26, 1997