Intel 1998 Annual Report Download

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INTEL CORP
FORM 10-K
(Annual Report)
Filed 03/26/99 for the Period Ending 12/26/98
Address 2200 MISSION COLLEGE BLVD
RNB-4-151
SANTA CLARA, CA 95054
Telephone 4087658080
CIK 0000050863
Symbol INTC
SIC Code 3674 - Semiconductors and Related Devices
Industry Semiconductors
Sector Technology
Fiscal Year 12/31
http://www.edgar-online.com
© Copyright 2008, EDGAR Online, Inc. All Rights Reserved.
Distribution and use of this document restricted under EDGAR Online, Inc. Terms of Use.

Table of contents

  • Page 1
    ... 12/26/98 Address 2200 MISSION COLLEGE BLVD RNB-4-151 SANTA CLARA, CA 95054 4087658080 0000050863 INTC 3674 - Semiconductors and Related Devices Semiconductors Technology 12/31 Telephone CIK Symbol SIC Code Industry Sector Fiscal Year http://www.edgar-online.com © Copyright 2008, EDGAR Online...

  • Page 2
    ... organization) 94-1672743 (I.R.S. Employer 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...

  • Page 3
    ... market value of voting stock held by non-affiliates of the registrant as of February 26, 1999 $187.0 billion 3,324.7 million shares of Common Stock outstanding as of February 26, 1999 *** DOCUMENTS INCORPORATED BY REFERENCE (1) Portions of Annual Report to Stockholders for fiscal year ended...

  • Page 4
    ..., and the New Business Group. Each group has a vice president who reports directly to the Chief Executive Officer of Intel. Reference is made to the information regarding revenues and operating profit by reportable segments, and revenues from unaffiliated customers by geographic region, under the...

  • Page 5
    ... 512 KB and 1 MB L2 cache options. In January 1999, Intel introduced three new versions of the Pentium II Xeon processor incorporating 512 KB, 1 MB and 2 MB of L2 cache and running at 450 MHz. During 1998, sales of microprocessors and related board-level products based on the P6 microarchitecture...

  • Page 6
    ... microprocessors under development is expected to expand the capabilities of the Intel architecture to address the high-performance server and workstation market segments while still running the software that currently operates on the 32-bit Intel processor-based machines. A 64-bit microprocessor is...

  • Page 7
    ... switches, hubs, routers, remote-access equipment and adapter cards for PCs and servers. In October 1998, Intel announced the addition of the 166- and 266-MHz low-power-consumption Pentium processor with MMX technology to its embedded product line aimed at new point-of-sale, industrial automation...

  • Page 8
    ...an Internet-based PC support service; the LANDesk-Registered Trademark- Configuration Manager system management software; the Intel ProShare-Registered Trademark- Video System 500 videoconferencing system; and the Intel-Registered Trademark-Create & Share-TM- camera pack. MANUFACTURING A substantial...

  • Page 9
    ... of good units to meet demand. EMPLOYEES At December 26, 1998, the Company employed approximately 64,500 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...

  • Page 10
    ... Company's financial results are substantially dependent on sales of microprocessors by the Intel Architecture Business Group and to a lesser extent on sales of other semiconductor components by the Computing Enhancement Group. A number of competitors are marketing software-compatible products that...

  • Page 11
    ...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...

  • Page 12
    ... Sales and General Manager, Asia-Pacific Operations from 1995 to February 1998 and Technical Assistant to the Chairman and Chief Executive Officer from 1992 to 1995. Michael J. Splinter (age 48) has been Senior Vice President and General Manager, Technology and Manufacturing Group since January 1999...

  • Page 13
    ... 12 Israel (A) 1,724,000 11 Malaysia (B) 1,646,000 6 Philippines (C) 1,364,000 3 Costa Rica 735,000 5 Puerto Rico 426,000 1 People's Republic of China (D) United Kingdom Japan Germany 187,000 1 3 1 184,000 167,000 86,000 Sales and marketing and administrative offices. Sales and...

  • Page 14
    ...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...

  • Page 15
    ... 216,000 registered holders of record of the Registrant's Common Stock. (c) Unregistered sales of equity securities. None in the quarter ended December 26, 1998. ITEM 6. SELECTED FINANCIAL DATA Reference is made to the information regarding selected financial data for the fiscal years 1994 through...

  • Page 16
    ...and analysis of financial condition and results of operations" on pages 30 through 37 of the Registrant's 1998 Annual Report to Stockholders, which information is hereby incorporated by reference. On March 4, 1999, Intel and Level One announced a definitive stock-for-stock merger agreement valued at...

  • Page 17
    ... Committee Interlocks and Insider Participation," and "Executive Compensation," on pages 9, 14 and 16, respectively, of the 1999 Proxy Statement, which information is hereby incorporated by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Reference is made to...

  • Page 18
    ... 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 On October 14, 1998, Intel filed a report on Form...

  • Page 19
    ... Statements December 26, 1998, December 27, 1997 and December 28, 1996...18-28 Report of Ernst & Young LLP, Independent Auditors...29 Supplemental Information Financial Information by Quarter (unaudited)...37 Schedule for years ended December 26, 1998, December 27, 1997 and December 28, 1996: II...

  • Page 20
    INTEL CORPORATION SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS December 28, 1996, December 27, 1997 and December 26, 1998 (In Millions) Additions Charged to Costs and Expenses --------- Balance at Beginning of Year -------1996 Allowance for Doubtful Receivables 1997 Allowance for Doubtful ...

  • Page 21
    ..., 1998). 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 16, 1995). Intel Corporation Sheltered Employee Retirement Plan Plus, as...

  • Page 22
    ... Financial Officer and Principal Accounting Officer March 25, 1999 /s/ Arthur Rock Arthur Rock Director March 25, 1999 /s/ Winston H. Chen Winston H. Chen Director March 25, 1999 /s/ Jane E. Shaw Jane E. Shaw Director March 25, 1999 /s/ Andrew S. Grove Andrew S. Grove Chairman of the Board...

  • Page 23
    ... Deferred Compensation Agreement plus or minus the gains or losses pursuant to Section 4.2. "BOARD" means the Board of Directors of the Company as constituted at the relevant time. "CLOSING PRICE" means the closing price, or last reported sales price, as the case may be of the Company's Common Stock...

  • Page 24
    ..., "Closing Price" means the closing price or last reported sales price, as the case may be, of the Company's Common Stock as of the next most recent date for which a price is available. "CODE" means the Internal Revenue Code of 1986, as amended from time to time and any successor statute. References...

  • Page 25
    ... takes office. "OUTSIDE DIRECTOR" means any Director who is not a common-law employee of the Company or any of its subsidiaries. "PARTICIPANT" means an Outside Director of the Company who has executed a Deferred Compensation Agreement and who maintains an Account in the Plan. "PLAN" means the "Intel...

  • Page 26
    ...of such dividend. As of any date of valuation, the value of a Participant's Account will be equal to the value (at the Closing Price on such date) of the number of shares of Common Stock represented by the Deferred Compensation Units credited to the Account as of that date. SECTION 4.3 DISTRIBUTIONS...

  • Page 27
    ... specifies an Early Benefit Distribution Date which is at least twenty-four (24) full calendar months after the date the Participant's Deferred Compensation Agreement is received by the Company. With respect to elections relating to Plan Years subsequent to the Plan Year to which the original...

  • Page 28
    ...Account at the beginning of the calendar year (or, in the case of the first calendar year, on the Early Benefit Distribution Date or the date of the Termination Event) and dividing it by the total number... Benefits payable under the Plan. A beneficiary designation by a Participant shall be in writing ...

  • Page 29
    ..., certificates, opinions and reports furnished by any actuary, accountant, controller, counsel or other person employed or engaged by the Company with respect to this Plan. Neither any Participant nor any Beneficiary shall have any legal or equitable interest in such assets or policies, or any other...

  • Page 30
    ... that cannot be resolved pursuant to the internal dispute resolution processes implemented by the Company with respect to the Plan shall be resolved in the following manner. The Participant or Beneficiary, as the case may be, on the one hand, and the senior management of the Company, on the other...

  • Page 31
    ... which its Board has delegated such authority to amend; provided, however, any amendment which would alter the irrevocable nature of an election or which would reduce the amount credited to a Participant's Account on the date of such amendment shall not be effective unless consented to in writing by...

  • Page 32
    ... charges: Interest* Capitalized interest Estimated interest component of rental expense $ 57 27 $ 29 46 $ 25 33 $ 27 9 $ 34 6 9 -----$ 93 ====== 9 -----$ 84 ====== 16 -----$ 74 ====== 16 ------$ 52 ======= 15 -----$ 55 ====== Total Ratio of earnings before taxes and fixed charges, to fixed...

  • Page 33
    ...029 $ .025 $ .013 ---- Dividends paid per share -------$ .065 $ .055 $ .045 $ .035 $ .028 $ .025 $ .006 ---- Share and per share amounts shown have been adjusted for stock splits through April 1999, including the stock split declared in January 1999. * Additions to property, plant and equipment in...

  • Page 34
    ... Cost of sales Research and development Marketing, general and administrative Purchased in-process research and development Operating costs and expenses OPERATING INCOME Interest expense Interest income and other, net INCOME BEFORE TAXES Provision for taxes NET INCOME BASIC EARNINGS PER COMMON SHARE...

  • Page 35
    ... Long-term debt redeemable within one year Accounts payable Accrued compensation and benefits Deferred income on shipments to distributors Accrued advertising Other accrued liabilities Income taxes payable TOTAL CURRENT LIABILITIES LONG-TERM DEBT DEFERRED TAX LIABILITIES PUT WARRANTS COMMITMENTS AND...

  • Page 36
    ... on retirements of property, plant and equipment Deferred taxes Purchased in-process research and development Changes in assets and liabilities: Accounts receivable Inventories Accounts payable Accrued compensation and benefits Income taxes payable Tax benefit from employee stock plans Other assets...

  • Page 37
    Income taxes $2,784 $ 3,305 $ 2,217 SEE ACCOMPANYING NOTES.

  • Page 38
    ... 27, 1997 Components of comprehensive income: Net income Change in unrealized gain on available-for-sale investments Total comprehensive income Proceeds from sales of shares through employee stock plans, tax benefit of $415 and other Proceeds from exercise of 1998 Step-Up Warrants Proceeds from...

  • Page 39
    ... 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...

  • Page 40
    ...-line method over the following estimated useful lives: machinery and equipment, 2-4 years; buildings, 4-40 years. 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...

  • Page 41
    ..., by physical delivery, one share of Common Stock at a specified price. 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 30, 1995 $ 279 48.0 $ 725 Sales 56 36.0 603...

  • Page 42
    ... at the option of either the Company or the bondholder every five years through 2013 and are next adjustable and redeemable in 2003. The additional and the existing Irish punt borrowings were made in connection with the financing of manufacturing facilities in Ireland, and Intel has invested...

  • Page 43
    ...rate swaps (see "Derivative financial instruments" under "Accounting policies"). Investments with maturities of ...equity 100 -(2) 98 Marketable strategic equity securities 822 979 (44) 1,757 Preferred stock and other equity 140 1 -141 Total equity securities 1,062 980 (46) 1,996 Options creating...

  • Page 44
    ... gains on these sales totaled $185 million, $106 million and $7 million, respectively. The amortized cost and estimated fair value of investments in debt securities at December 26, 1998, by contractual maturity, were as follows: ESTIMATED FAIR (IN MILLIONS) COST VALUE Due in 1 year or less $6,412...

  • Page 45
    ... controls credit risk through credit approvals, limits and monitoring procedures. Credit rating criteria for derivative financial instruments are similar to those for investments. Swap agreements. The Company utilizes swap agreements to exchange the foreign currency, equity and interest rate returns...

  • Page 46
    Long-term investments Non-marketable instruments Options creating synthetic money market instruments Swaps hedging investments in debt securities Swaps hedging investments in equity securities Short-term debt Long-term debt redeemable within one year Long-term debt Swaps hedging debt Currency ...

  • Page 47
    ... credit policies and standards intended to accommodate industry growth and inherent risk. Management believes that credit risks are moderated by the diversity of the Company's end customers and geographic sales areas. Intel performs ongoing credit evaluations of its customers' financial condition...

  • Page 48
    Deferred TOTAL PROVISION FOR TAXES EFFECTIVE TAX RATE (68) -----283 -----$3,069 ====== 33.6% ====== (24) -----370 -----$3,714 ====== 34.8% ====== 171 -----437 -----$2,777 ====== 35.0% ====== The tax benefit associated with dispositions from employee stock plans reduced taxes currently payable ...

  • Page 49
    ... years. Employee benefit plans Stock option plans. Intel has a 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. The Company also has a stock option plan under which stock...

  • Page 50
    DECEMBER 28, 1996 Additional shares reserved Grants Exercises Cancellations DECEMBER 27, 1997 Grants Exercises Cancellations Lapsed under terminated plans DECEMBER 26, 1998 Options exercisable at: December 28, 1996 December 27, 1997 December 26, 1998 130.6 260.0 (63.0) -8.8 -----336.4 (48.0) -17.3 ...

  • Page 51
    ... from January 1999 to December 2008. Option exercise prices for options exercised during the three-year period ended December 26, 1998 ranged from $0.78 to $48.97. Stock Participation Plan. Under this plan, eligible employees may purchase shares of Intel's Common Stock at 85% of fair market value at...

  • Page 52
    ... 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 1998, 1997 and 1996 was $17.91, $17.67 and $8.17 per share...

  • Page 53
    ... 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...

  • Page 54
    ... profits before interest and taxes. The CEO has been identified as the Chief Operating Decision Maker as defined by SFAS No. 131. The Intel Architecture Business Group's products include the Pentium-Registered Trademark- family of microprocessors, and microprocessors and related board-level products...

  • Page 55
    ...Registered Trademark- processors), microcontrollers, flash memory products and graphics products. The Network Communications Group's products include fast Ethernet connections, hubs, switches and routers. The New Business Group's products include systems management software, digital imaging products...

  • Page 56
    Supplemental information (unaudited) Quarterly information for the two years ended December 26, 1998 is presented on page 37.

  • Page 57
    ... 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...

  • Page 58
    ... product development and manufacturing technology development. Marketing, general and administrative spending grew 6% in 1998, primarily due to the Intel Inside-Registered Trademark- cooperative advertising program and merchandising spending, partially offset by lower profit-dependent bonus...

  • Page 59
    ... line under development were based on discussions with management, existing product family revenues, anticipated product development schedules, product sales cycles and estimated life of each of the technologies. Revenue estimates were then compared for reasonableness to external industry sources...

  • Page 60
    ... cash to purchase C&T and $500 million to acquire a non-voting equity interest in Micron Technology, Inc. Inventory levels in total decreased in 1998, with a decrease in raw materials and work-in-process inventory, partially offset by an increase in finished goods inventory. The increase in accounts...

  • Page 61
    ... and Pentium-Registered Trademark- III Xeon-TM- processors) and other semiconductor components sold worldwide will continue to grow in 1999. The Company's financial results are substantially dependent on sales of these microprocessors by the Intel Architecture Business Group and other semiconductor...

  • Page 62
    ... PCs, embedded processors and related software to control scheduling, inventory tracking, statistical analysis and automated manufacturing. A significant portion of the Company's year 2000 efforts on internal systems is intended to prevent disruption to manufacturing operations. As of December...

  • Page 63
    working with critical suppliers, defined by Intel as those whose failure would shut down manufacturing or other critical operations within a short period of time. The Company has made inquiries of its major suppliers and has received responses to its initial inquiries from 100% of ...

  • Page 64
    ... Intel micro-controllers (embedded processors) are also "Year 2000 Capable," with the exception of two custom microcontroller products sold to a limited number of customers. However, the assessment of whether a complete system will operate correctly depends on firmware (BIOS) capability and software...

  • Page 65
    ... threatened to file intellectual property lawsuits against Intel. Although the outcome of the administrative action cannot 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...

  • Page 66
    ... THE YEAR AND NO DECLARATIONS IN THE SECOND AND FOURTH QUARTERS. A DIVIDEND WAS PAID IN EACH QUARTER OF 1998. INTEL PLANS TO CONTINUE ITS DIVIDEND PROGRAM. HOWEVER, DIVIDENDS ARE DEPENDENT ON FUTURE EARNINGS, CAPITAL REQUIREMENTS AND FINANCIAL CONDITION. (C) INTEL'S COMMON STOCK (SYMBOL INTC) TRADES...

  • Page 67
    * All other brands and names are the property of their respective owners.

  • Page 68
    ... otherwise provided in the 1998 Annual Report to Stockholders. REVENUES AND INCOME (Dollars in billions) Net revenue Net income 1996 ---20.8 5.2 1997 ---25.1 6.9 1998 ---26.3 6.1 COSTS AND EXPENSES (Percent of revenues) Cost of sales R&D Marketing and G&A (Total) 1996 ---44% 9% 11% 64% 1997...

  • Page 69
    ... Intel Europe, Inc Intel International BV Intel Ireland Limited Intel Kabushiki Kaisha Intel Massachusetts, Inc. Intel Products (M) Sdn. Bhd. Intel Puerto Rico, Inc Intel Semiconductor Limited Intel Technology Phils, Inc. Intel Technology Sdn. Berhad Jurisdiction of Incorporation Costa Rica...

  • Page 70
    ... by reference in this Annual Report (Form 10-K) of Intel Corporation of our report dated January 11, 1999, included in the 1998 Annual Report to Stockholders of Intel Corporation. Our audits also include the financial statement schedule of Intel Corporation listed in Item 14(a). This schedule is...

  • Page 71
    ... MANDATORY PREFERRED COMMON OTHER SE TOTAL LIABILITY AND EQUITY SALES TOTAL REVENUES CGS TOTAL COSTS OTHER EXPENSES LOSS PROVISION INTEREST EXPENSE INCOME PRETAX INCOME TAX INCOME CONTINUING DISCONTINUED EXTRAORDINARY CHANGES NET INCOME EPS PRIMARY EPS DILUTED 1 2 3 12 MOS DEC 26 1998 DEC 26...