Harvard Business School 9-292-106

Rev. March 24, 1993

Intel Corporation, 1992

In late December 1991, Intel Corporation’s cofounder and Chairman of the Board, Gordon
Moore, was rethinking the company’s capital-structure and cash-disbursement policies. The
company had just completed an extremely successful five-year period during which annual revenues
had grown almost fourfold. Now the firm found itself with cash balances (net of long-term debt) of
$2.4 billion—well over one-third of total assets of $6.3 billion. With a market capitalization of almost
$9 billion, Intel had become one of the largest firms in the United States never to have paid a
dividend.1 Moore wondered whether the firm he founded in 1968 had grown sufficiently mature to
begin returning some of its cash to investors, perhaps by beginning to pay dividends or repurchasing
shares of stock.

While returning cash was a worthwhile goal, Moore recognized that cash availability was an
essential component of the firm’s overall strategy and that future cash needs were very uncertain. He
knew that the company faced considerable competitive pressure over the next few years. Imitations
of Intel’s proprietary microprocessor products had recently obtained substantial market share.
Furthermore, the production and development of new Intel products required ever-larger up-front
expenditures. In 1992 alone, Intel was expecting to spend over $700 million on research and
development (R&D) and approximately $1.2 billion on new plant and equipment. The rapid rate of
innovation in Intel’s business meant that it would be extremely costly—perhaps even fatal—to delay
or scrimp on these expenditures.

Moore was also concerned with the stock market’s response to recent competitive pressures.
Intel’s stock had over the last few weeks been trading at a price of $42.50 per share—a price-earnings
(P/E) ratio of under 11, far below the P/E of about 20 for the Standard and Poors’ 500. Some outside
analysts seemed to be pessimistic about Intel’s ability to keep its profits high. Notwithstanding these
concerns, Moore asked Intel’s Chief Financial Officer, Harold Hughes, and Treasurer, Arvind
Sodhani, to determine whether Intel’s current capital structure was appropriate. Moore also wanted
to know what alternatives might be available for disbursing cash to shareholders.

1The largest firm in all of U.S. history never to have paid a dividend was Digital Equipment Corporation, which
in 1987 had a market capitalization as high as $26.6 billion. However, by December 1991, DEC's market
capitalization had fallen below Intel's, to $6.7 billion.

Professor Kenneth A. Froot prepared this case as the basis for class discussion rather than to illustrate either effective or
ineffective handling of an administrative situation.
Copyright © 1992 by the President and Fellows of Harvard College. To order copies or request permission to
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 292-106 Intel Corporation, 1992

Company Background

Intel was founded in 1968 by Moore and the recently deceased Robert Noyce (coinventor of
the integrated circuit and vice chairman of Intel until 1988). The company quickly established a
reputation as a leading innovator in the design, development, and manufacture of semiconductors.
In 1969, Intel produced the world’s first static random access memory (SRAM). This was followed by
the 1024-bit dynamic random access memory (DRAM) in 1970. Intel DRAMs, which rapidly grew in
capacity, quickly became the industry standard and were by 1972 the largest-selling semiconductor
components in the world. In addition, Intel introduced in 1971 the first erasable programmable read-
only memory (EPROM) chip. This was an important innovation because it created a versatile and
inexpensive data-storage medium. Intel soon was the leading supplier of successive generations of
EPROMs.

Intel’s most important early breakthrough, however, came in the early 1970s. That
breakthrough was the microprocessor, a logic product that ultimately would become the “computer
inside the personal computer.” Upon its development, Intel proclaimed that microprocessor chips
would “usher in a new era of integrated electronics.” Yet the innovation came years ahead of the
development of its most popular end-use product—the personal computer. Indeed, Intel
underestimated the importance of its technology, missing the opportunity to commercialize its early
stand-alone personal computer to compete with Apple, whose first 8-bit machine was introduced in
1978.

Throughout the 1970s, Intel continued to innovate, creating a second generation of

TM TM
microprocessors, the i8088 and i8086 . In 1980, the i8088 was chosen as the computational
centerpiece of IBM’s first microcomputer, the PC. Later, IBM decided to base its more advanced AT
TM TM
computer on Intel’s i80286 and its even more advanced PS/2 on Intel’s i80386DX . IBM’s sheer
size and open-architecture policy quickly made its PC and AT important standards, in turn propelling
Intel’s microprocessors into a position of dominance.

During its first 15 years, Intel’s record of innovation had been impressive. According to one
observer, Intel was responsible for 16 of the 22 major breakthroughs in microelectronics between 1971
and 1981. The pace of the firm’s technological innovation was exemplified by “Moore’s Law,” which
had become an industrywide benchmark. The law held that the number of components on a chip
doubled every two years. To fund this continuing innovation, Intel’s strategy had been to withdraw
from product segments that had matured and to redirect resources toward new products, which sold
at premium prices.

However, the focus on rapidly developing product markets with steep learning curves
created risks. A major mistake or delay in a product could result in Intel falling permanently behind
its competitors. In one example, Intel’s failure to produce a viable 256K DRAM product in the mid-
1980s, after being the world leader in DRAMs in the 1970s, led to its permanent withdrawal from
DRAM design and production activities.

In spite of such lapses, by 1991 Intel had become the world’s second-largest manufacturer of
integrated circuits, with estimated 1991 integrated-circuit revenues of almost $4.1 billion, and the
world’s largest metal-oxide-silicon (MOS) manufacturer.2 Exhibit 1 reports revenue data on Intel’s
largest competitors. Although based in the United States, Intel operated 40 major manufacturing and
development facilities on 3 continents and had 90 sales offices in over 21 nations. Gordon Moore,
with his gentle and deferential manner, had become perhaps the most-respected figure in the
semiconductor industry (in addition to one of its richest, with holdings of about 7% of Intel’s stock).
Exhibits 2 and 3 provide recent financial information on Intel.

2MOS was the newer and more efficient of two processes for making integrated circuits.

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 Intel Corporation, 1992 292-106

Products

In 1991, Intel’s mission was to be the leading “building-block supplier to the new computer
industry.” To fulfill this mission, management believed the firm had to invest in the design,
development, and manufacture of a variety of advanced microcomputer components and related
products at various levels of integration. Exhibit 4 gives details on sales and operating margins for
Intel’s various product lines.

Memory (10% of sales)

Intel supplied a broad line of memory components, including EPROMs, DRAMs and SRAMs
(both produced in recent years by subcontractors for Intel), and flash memories (introduced by Intel
in 1988). Flash memories were easier and faster to update than EPROMs because they could be
reprogrammed after installation.

Microprocessors and coprocessors (52% of sales)

Processor and logic products performed the central and peripheral data-processing functions
for microcomputers. Intel produced several families of processors for personal computers (see
Exhibit 5). The higher-performance microprocessors in the 32-bit i386 and i486 families were also
powerful enough to be used in minicomputers, parallel-processing systems, and engineering
workstations. The most recent addition to the i386 family was Intel’s i386SL, a microprocessor
designed for portable computers and introduced in 1990. It incorporated a power management unit
that extended battery life up to 10 hours. The high-performance i486 family was introduced in 1989.
Intel was also developing two even more advanced processors, the P5 (referred to by analysts as the
i586) and the P6. These chips were expected to include networking and digital-video-interface
circuitry directly on the microprocessor and were scheduled to become available in mid-1992 and
late-1993, respectively.

In addition to these processors, Intel introduced the i860 microprocessor in 1989, which was
designed for high-speed multiprocessing systems and technical workstations. Intel also made
coprocessors for various applications: graphics, disk drives, keyboards, printers, networks, and high-
speed mathematical calculations.

Microcontrollers, peripherals, and systems (38% of sales)

Microcontrollers were designed to be embedded within an application and to be

programmed to control the operation of that application. They typically integrated a central-
processing unit (CPU), memory, and other features on a single chip and were used in computer and
communications systems, automobile-control applications, robotics, electronic instrumentations,
home video machines, and other applications.

Intel’s technological leadership in microprocessors gave it certain competitive advantages in

designing and marketing integrated microcomputer systems based on Intel products. Intel
microprocessors were also at the heart of the company’s design and development of parallel-
processing supercomputers, which began in 1986.

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 292-106 Intel Corporation, 1992

Intel’s Microprocessor Competitors

In the late 1970s, before a standard microprocessor technology had emerged, semiconductor
producers typically cross-licensed products with competing companies. Intel’s sales contracts often
stipulated that Intel facilitate the development of second sources for its i8088, i8086, and i80286
microprocessors. The company therefore licensed the i8088 and i8086 to 12 competitors and the
i80286 to 4. These competing producers commanded a substantial fraction of industry microprocessor
sales. Indeed, by the end of 1990, Intel had garnered only 19% of i8088 unit sales (against 51% by
Advanced Micro Devices (AMD) and 13% by Siemens), 23% of i8086 family unit sales (against 23% by
AMD and 37% by NEC), and 41% of i80286 unit sales (against 37% by AMD and 10% by Siemens).

Meanwhile, the design, development, and production costs of successive generations of

microprocessors were rising rapidly. In just a few years, Intel’s development expenses went from
$100 million for the i386, to $300 million for the i486, to an estimated $500 million for the P5, and to
perhaps $600 million for the P6. The costs of building state-of-the-art fabrication facilities (fabs) and
equipment capable of producing 32-bit (and beyond) processors were increasing even more rapidly.
Intel’s capital spending on plant and equipment rose from $422 million in 1989, to $680 million in
1990, to an estimated $948 million in 1991, and to an expected $1.2 billion in 1992 (see Exhibit 3).
These setup costs also represented an ever-increasing fraction of total production costs. For example,
analysts estimated that Intel’s marginal costs for the i486 would fall from about $75 per unit in 1990 to
about $6 per unit by 1993 as more sophisticated fabs were employed and learning-by-doing effects
made existing processes more efficient. Such dramatic declines in marginal costs were very common
for new microprocessor products.

The economics of microprocessor production combined with the emergence of the X86 family
as the dominant industry standard gave Intel the strategic leverage it needed to change its licensing
policies. Beginning with the i386 family, which was introduced in 1986, the company refused to grant
second-source contracts to customers other than IBM, which retained the right to manufacture the
i386 for some of its own machines. Demand for Intel’s i386 microprocessors seemed to be less price
sensitive than that of earlier processors because there were no competing suppliers. Partly as a result,
Intel’s operating margins for microprocessors began to rise beginning in 1987 as the i386 product
cycle moved into its “ramp-up” phase (see Exhibit 4). Net income increased from a loss of $203
million in 1986 to an expected $819 million in 1991.

Intel’s decision to produce its newer microprocessors exclusively raised competitive

challenges. One source of competition came from imitations (commonly, but inaccurately, called
clones) of Intel’s products. Intel had already seen imitations of its mathematics coprocessors take
considerable market power and market share away. In general, imitations were much less expensive
to develop than the original processor and tended to appear after demand for the original had
already ramped-up. This timing allowed imitators to avoid the costly development and market-
acceptance phases of the life cycle and to align their product features with more recent changes in
demand. Exhibit 6 depicts the time profile of a typical microprocessor life cycle. (Industry analysts
believe that life cycles for newer processors are considerably shorter than that shown in Exhibit 6.) In
Intel’s experience, imitators tended to enter when (and if) the product reached the “growth” or ramp-
up phase. Exhibit 7 presents time-series data on both shipments and the installed base of various
microprocessors.

In one example of a late-entry imitation, AMD began shipping its i386SX- and i386DX-
compatibles in December 1990, almost five years after Intel introduced the originals. By that time, the
i386 family was roughly between the growth and maturity phases of the life cycle (see Exhibit 6),
with Intel’s i386 sales having reached an annual rate of about $1.2 billion on volume of about 12
million units. AMD’s chips, however, had somewhat higher operating speeds and better power
usage than comparable Intel processors. With a selling price slightly below Intel’s, AMD’s share of
monthly i386 shipments had shot up to about 30% at the end of 12 months’ time. AMD sold

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 Intel Corporation, 1992 292-106

approximately $145 million worth of imitation i386s in the last quarter of 1991 alone (about 27.5% of
the last-quarter’s market of $2.1 billion in annualized sales). See Exhibit 7 for data on the
industrywide number of units shipped. Late entry into successful markets was the strategy of W.J.
Sanders, AMD’s flamboyant chairman and Chief Executive Officer (CEO). He kept AMD focused on
high-volume products and well behind the cutting edge.

By the end of 1991, the number of companies that sold imitation products had grown
dramatically. Chips and Technologies had recently announced a group of chips that mimicked the
functions of the i386, and Cyrix was expected to do the same in the near future. AMD and NexGen
Microsystems were expected to introduce i486-compatible processors during 1992. Imitating an
existing processor’s functions was less expensive and time-consuming than designing the original—
analysts reported that Chips and Technologies created its imitation i386 for about $50 million, which
was reportedly what AMD needed to spend on each of its i386- and i486-compatibles. Exhibit 8
reports general financial information as well as data on net cash assets for several of Intel’s
competitors.

Another competitive threat was posed by alternative CPUs that did not attempt compatibility
with Intel’s products. Motorola’s 68000 family of CPUs, used principally on Apple machines, had for
several years been a potentially threatening alternative. Furthermore, several high-performance
reduced-instruction-set-computing (RISC) processors had recently been introduced: the ACE
consortium would use a product of NEC and Siemens, the MIPS chip; Fujitsu had built the SPARC
chip for Sun Microsystems; and a recent Apple/IBM alliance would use the Motorola-built, IBM-
designed RS6000 series as a platform. Some informed observers believed that these processors might
have performance advantages over Intel’s X86 microprocessors. Furthermore, there was concern that
the large Japanese companies might price their RISC processors very aggressively in order to gain
market share.

Intel’s response to these competitive challenges was fourfold. First, Intel used the legal
system to defend vigorously what it believed to be infringements of its intellectual property rights. In
early 1991, Intel sued AMD for illegal use of Intel’s microcode in its processors. The case was
originally to come to trial in February 1992, although AMD had filed for a continuance to delay the
trial until April 1992. In January 1991, Intel had also filed a preliminary injunction in the U.S. District
Court in Sherman, Texas against Cyrix Corporation, a Texas-headquartered firm. Intel sought to
prohibit Cyrix from shipping its cloned math coprocessors and claimed that Cyrix was infringing on
Intel’s patents. The case was not expected to go to trial until 1993. Intel was also pursuing actions
against several companies such as USLI and Cyrix that had allegedly copied patented Intel circuits in
their microprocessors and that were not licensed by Intel to do so. These companies argued that they
could employ Intel circuits without violating the patent law, provided that they used fabs owned by
companies that were licensed by Intel. Court decisions in these cases were expected soon.

Second, Intel responded to “me-too” competitors with a major advertising thrust (see Exhibit
2 for advertising expense data). The “Intel Inside” campaign, which would cost almost $100 million
per year, attempted to gain better premium-brand recognition. In addition, Intel tried to exploit its
continuity as a producer of microprocessors in its “pull” campaign. This was intended to attract
consumers to the i486’s easy upgradeability feature—a feature that no other supplier currently
offered.

Intel’s third competitive response was to speed up the product cycle by switching consumers
to its “second-wave” 32-bit microprocessors, the i386SL and i486 family. Analysts anticipated that the
newer i386SL, with its advanced power-management circuitry, would displace a substantial portion
of the demand for first-wave i386 imitations. First-wave 386 processors were increasingly used in the
large and rapidly growing portable- and laptop-computer market, where power-management
features were crucial. However, due to a certain software bug, demand for Intel’s i386SL had thus far
been disappointing. Intel also began to encourage vendors and OEM manufacturers to switch from
386 processors to Intel’s new 1.2-million-transistor i486 family through price cuts and greater

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 292-106 Intel Corporation, 1992

availability. Demand for i486 processors had begun to accelerate but was hampered by some
observers’ skepticism about the chips’ performance. (See Exhibit 7 for data on shipments.) In spite of
these delays, one analyst expected shipments of the i386SL to rise from a negligible number of units in
1990 to 1.8 million in 1992, and those of the i486 family to rise from 0.3 million units in 1990 to 3.7
million in 1992. In addition to accelerating the life cycle for existing processors, Intel had moved up
the introduction date of the P5 and P6, further shortening future life cycles. Intel’s forecast of
microprocessor sales by type is reported in Exhibit 9. It predicted a rapid decline in shipments of 8-
and 16-bit processors.

Intel attempted to counter the competitive threat from RISC-based chips by emphasizing
performance and portability. It was believed that high-speed i486 and P5 chips would at least match
the performance of recently introduced RISC products. Furthermore, Intel had an advantage over
other microprocessor platforms in the sheer size of the previously installed base—85 million existing
X86-based PCs, with more than 50,000 software applications and $40 billion invested in software.
Exhibit 10 shows that, as of 1991, all major operating systems for microcomputers ran (or were soon
to run) on Intel designs. No other type of microprocessor had more than two operating systems
designed for it. The result was that Intel architecture had become the “port of choice,” according to
Andrew Grove, Intel’s CEO.

Intel’s final strategy for confronting potential competitors was its aggressive spending on
R&D, equipment, and fabs to produce its chips. The company wanted to be strong in process
technology and production capacity and to use those strengths together with its design capability as
competitive weapons.

In spite of Intel’s responses, many informed observers worried about the company’s ability to
continue its rapid growth and sustain its generous margins. Analysts argued that if AMD could
successfully clone the i486, others could and would do so as well. Rumors were already circulating
that AMD would announce its 486-compatible chip earlier than expected and soon thereafter would
raise substantial outside money for additional fabs. Even if AMD failed to build its own facilities,
suitable state-of-the-art fabs could be rented from companies that produced less profitable
semiconductors such as DRAMs and EPROMs. Analysts also knew that although the best known
names in the PC business—Compaq, IBM, Dell, NEC, and Toshiba (together representing about 30%
of microcomputer sales)—had thus far purchased microprocessors only from Intel, it was not clear
whether they would continue to do so.

The stock market seemed to treat the competitive threats to Intel with increasing seriousness.
From the time of the announcement of the i386 in early 1986 until the recognition that AMD was
successfully shipping its imitation in mid-1991, Intel’s stock price rose from approximately $13 to $59
per share. By the fall of 1991, however, the stock had fallen to the low $40s. (See Exhibit 11 for
information on stock prices.) Given 1991 anticipated earnings of $819 million, Intel’s P/E was less
than 11. Intel’s management had become concerned about the market’s increasingly negative view of
Intel’s competitive positioning.

Financial History

Intel became a public corporation in 1971, the year it recorded its first net profit. Even at that
time, Intel carried almost no debt on its books. As of December 31, 1971, Intel’s net worth and total
assets were $13,456,344 and $14,839,755, respectively. The firm’s policy was to issue debt only when
and if the terms were attractive. For example, in the fall of 1983, Intel issued $110 million of 20-year

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 Intel Corporation, 1992 292-106

adjustable-rate industrial revenue bonds, with an average interest rate of just under 8%.3 In
connection with these bonds, Intel was obliged to spend $110 million to finance expansion in Puerto
Rico. To ensure that adequate debt financing would be available if suddenly needed, the company
and its subsidiaries kept bank credit lines in place, currently allowing for over $900 million in
borrowing capacity.

Intel’s debt issues often contained equity-linked components. For example, in August 1980,
the firm issued $150 million in 20-year 7% convertible subordinated debentures. These debentures
were called on September 14, 1983, and one month later the bonds were converted into 5 million
shares at approximately $30 per share. Intel also issued 10-year notes in May 1985 and April 1987
($236.5 million of zero-coupon, 11.75% notes and $110 million of 8.125% notes, respectively). Both
sets of notes were sold with detachable warrants, which yielded an additional $27.1 and $90.4 million
in cash, respectively. The warrants from the note issues were exercised in 1990, resulting in the
issuance of 14.15 million shares at an average price of $27.80 per share.

Intel had also issued stock during the last decade, although never publicly. On February 7,
1983, IBM purchased 12.5 million newly issued shares in Intel (equivalent to approximately 13% of
previously outstanding shares) for $250 million. IBM, which accounted for 8.6% of Intel revenues in
1983, had clear incentives to strengthen Intel’s balance sheet. In June 1987, however, IBM was
persuaded to terminate its investment in Intel, and Intel repurchased and retired 13,350,000 shares
from IBM for $361.6 million, or about $27 per share. In August 1987, Intel also issued 9 million one-
year warrants for $63.3 million. In August 1988, the warrants were exercised at a price of $30 per
share, yielding Intel another $268.6 million in cash net of fees. Exhibit 11 shows the timing of these
equity-linked transactions.

The company also maintained several liberal stock option plans, which generated cash
through the exercise of employee options and direct-share purchases. During 1990—not an atypical
year—options were exercised on 2.9 million shares, generating approximately $42 million in cash. In
that year, employees also purchased an additional 1.4 million shares under Intel’s stock participation
plan, resulting in an additional inflow of $39.3 million.

In an effort to offset the steady dilution from the stock purchase and option plans, in August
1990, management authorized the repurchase of up to 20 million shares. Repurchases would be
performed by the treasurer and would take place in the open market or in privately negotiated
transactions. After consulting with Moore and others, Arvind Sodhani soon executed the repurchase
of approximately 3.2 million shares at a total cost of $102.4 million. However, as management was
hesitant to buy back shares at a price much above $40 per share, the repurchase activity soon came to
a halt. With the stock price stalled in the low $40s, some analysts began to interpret Intel’s reluctance
to repurchase as a negative signal about the firm’s future prospects.

Although Sodhani did not repurchase additional shares directly, he did perform a
“conditional” repurchase in November 1991. That is, Intel privately sold about 3.5 million tradeable
put warrants to some of its institutional investors for approximately $14 million. Each warrant gave
its holder the right to sell one share of common stock back to Intel at $40 per share in one year’s time.
The repurchase was considered conditional because investors would not rationally elect the
repurchase unless the stock price was below $40 per share on the warrants’ expiration date.

In April 1989, Intel undertook several steps to strengthen its independence and to protect it
from potential hostile acquirers. Specifically, Intel issued to its existing stockholders a set of common-
stock-purchase rights, which would trade in a one-to-one ratio with existing shares of common stock.
The rights could be exercised or traded separately from the shares of stock they represented only if

3During that year the average U.S. Treasury medium- and long-term bond yields were 10.45% and 11.11%
respectively.

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 292-106 Intel Corporation, 1992

certain events occurred. For example, under one of the rights’ provisions, at any time after an entity
acquired more than 20% but less than 50% of Intel’s stock, Intel had the option to exchange the rights
(other than those held by the acquirer) for shares of common stock, with an exchange ratio of one to
one.4 This gave Intel the ability to dilute substantially a potential acquirer’s holdings and therefore
create a large disincentive to attempt a hostile takeover.

During the 1980s, Intel’s net cash position grew steadily. Between 1980 and 1982, the ratio of
long-term debt to total assets stood at approximately 20%, and the firm’s cash position was negligible.
After IBM’s stock purchase and the 1985 issuance of 10-year notes, Intel’s cash and equivalents plus
long-term investments (which consisted of liquid investments in bonds rated AA or higher) less long-
term debt rose to approximately 15% of total assets in December 1986. By December 1991, this ratio
had grown to approximately 38%. This was in spite of the fact that, during the 1986-to-1991 period,
Intel had experienced very rapid growth, with revenues increasing at a compound annual rate of over
30%. Intel’s competitors kept proportionately much smaller cash balances (see Exhibit 8), although
several large firms in the industry, such as IBM, held larger absolute amounts.

The Decision

As Moore contemplated these developments, he wondered whether Intel’s cash balances had
grown unnecessarily large. At $2.4 billion, the firm could fund its planned investment expenditures
out of cash for almost two and one-half years without using any cash flow from operations. Although
there remained great uncertainty about the level of these flows, earnings estimates from analysts
suggested that operations would continue to generate cash—indeed, perhaps in substantial amounts.
Exhibit 12 presents cash flow forecasts based on several analysts’ expectations of future earnings.

Harold Hughes and Arvind Sodhani weighed the arguments for and against a change in cash
disbursement policies. Both believed that Intel’s cash was an important competitive weapon and that,
with the economy in recession, “cash was king.” It seemed to Hughes and Sodhani that the costs of
holding cash were small, especially in view of the high returns Intel’s treasury had earned on its cash
balances. For several years, Hughes and Sodhani had posted returns of approximately 170 basis
points over U.S. Treasury bills without investing in securities rated below AA (see Exhibit 2). This
excess after-tax income in 1990 alone came to about $18 million. Nonetheless, Hughes and Sodhani
started to explore several cash disbursement options that were open to Intel.

First, Intel could continue or expand its market-repurchase program. In practice, however,
open-market repurchases were executed only when management could agree that the stock price was
unduly low. Hughes and Sodhani knew that such consensus was difficult to achieve. One alternative
was to undertake a formal fixed-price tender offer, in which Intel would publicly announce an offer to
buy back shares at a given price. Another repurchase possibility was a Dutch auction, in which
shareholders submitted schedules that reported the number of shares they would tender at each price
across a range of prices. Intel would then choose the number of shares it wanted to repurchase by
picking a single price at which to buy.

A second alternative was for Intel to declare a 40¢-per-share ($84 million total) annual
dividend on its common stock. Dividends were controversial within Intel. While some favored
dividends, others, such as Hughes and Sodhani, opposed them because dividends were a tax-
disadvantaged means of disbursing corporate cash and represented an ongoing commitment that
could be potentially difficult to maintain. Indeed, Hughes and Sodhani speculated that the market
might react negatively to a dividend, perhaps pushing the stock price down even further.

4The statuary and case law pertaining to such Rights issues was highly developed in the State of Delaware,
where Intel was incorporated beginning in mid-1989.

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 Intel Corporation, 1992 292-106

Nevertheless, dividends would give shareholders income on their holdings without their having to
sell shares.

A final alternative was a package of two less conventional securities. For the first, Intel would
distribute to shareholders a two-year put warrant, one warrant for each share of stock. Each warrant
would be tradeable and give its holder the right to sell 0.1 shares of stock back to Intel at the end of
two years’ time at a price of $50 per share. Thus, for example, if Intel’s stock price was $40 per share
in two years, Intel would be obliged to buy back 208.99/10 = 20.9 million shares at $50 each (or a total
of $1 billion) from those who held the warrants. Investors who were not interested in holding the
warrants could sell them in the open market at an expected price of about 60¢ per warrant. The
second security in the package was $1 billion of 10-year convertible subordinated debentures with a
5% coupon. The bonds would be convertible at the end of two years into 13.3 million shares of Intel
common stock at a conversion price of $75 per share.

Moore wondered about the implications of these measures for the company’s future
competitive position and for shareholder value.

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 292-106 Intel Corporation, 1992

Exhibit 1 Top Integrated Circuit Manufacturers, Worldwide Revenues ($ millions)

1976 $MM 1981 $MM 1987 $MM 1991 $MM

TI 135 Intel 491 NEC 2,006 NEC 4,742
Intel 132 NEC 438 Toshiba 1,566 Intel 4,059
NEC 74 Motorola 372 Intel 1,473 Toshiba 3,910
Gen’l Inst. 68 TI 350 Hitachi 1,236 Hitachi 3,587
National 67 Hitachi 288 Fujitsu 1,014 Motorola 3,096
Hitachi 63 National 255 Motorola 986 TI 2,667
AMI 59 Toshiba 250 Mitsubishi 811 Mitsubishi 2,121
Mostek 56 Fujitsu 218 TI 784 AMD 1,185
Motorola 55 Mostek 210 Matsushita 593 VLSI Tech. 165
Rockwell 50 Gen’l Inst. 141 OKI 566 Chips & Tech. 158

Source: Dataquest, 1992

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 292-106 -11-

Exhibit 2 Annual Income Statements

December December December December December December December December December December December December
1991(E) 1990 1989 1988 1987 1986 1985 1984 1983 1982 1981 1980

Sales 4,779 3,921 3,127 2,875 1,907 1,265 1,365 1,629 1,122 900 789 855
Cost of goods sold 1,898 1,638 1,440 1,295 872 687 784 774 539 467 395 350
2,881 2,283 1,687 1,580 1,035 578 581 855 583 432 393 504

SG & A, of which: 1,383 1,133 849 775 618 540 482 496 359 329 301 272
R&D 618 517 365 318 260 228 195 180 142 131 116 96
advertising expense 121 94 55 55 28 28 30 24 16 14 14 12

Operating income before

depreciation 1,498 1,151 838 805 417 38 99 359 224 103 93 232
Depreciation, depletion, and
amortization 418 292 237 211 171 174 159 109 85 75 63 49

Operating profit 1,080 858 601 594 246 (135) (60) 250 139 28 30 183
Interest expense 105 102 102 78 66 39 26 15 17 17 15 8
Interest income 194 203 154 102 61 42 53 57 46 18 21 9
Other nonoperating income 26 27 (70) 11 46 (42) 27 6 10 2 5 0

Pretax income 1,195 986 583 629 288 (175) (5) 298 178 30 40 185
Total income taxes 376 336 192 176 112 9 (7) 100 62 0 13 89

Income before extraordinary

items and discontinued
operations extraordinary 819 650 391 453 176 (183) 2 198 116 30 40 185
items 0 0 0 0 73 10 0 0 0 0 0 0

Net income 819 650 391 453 248 (173) 2 198 116 30 27 97

Earnings per share (fully

diluted) 3.62 3.19 2.06 2.51 1.38 -0.99 0.01 1.13 0.70 0.22 0.20 0.74
Common shares outstanding 208.99 199.65 184.52 180.54 168.33 176.66 174.12 170.75 167.55 136.09 131.30 128.21

Book value per share 21.14 17.99 13.81 11.52 7.76 7.22 8.16 7.97 6.60 4.06 3.72 3.38
Market-to-book ratio (end of
year) 2.01 2.14 2.50 2.06 3.41 1.94 2.39 2.34 4.18 3.19 2.02 3.97

Source: Intel Corp. 1991 figures include casewriter estimates.

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 292-106 -12-

Exhibit 3 Annual Balance Sheet ($ millions)

December December December December December December December December December December December December
1991(E) 1990 1989 1988 1987 1986 1985 1984 1983 1982 1981 1980

Assets:
Cash and equivalents 2,277 1,785 1,090 971 619 373 361 231 389 85 115 128
Net receivables 698 710 569 506 439 298 364 354 303 221 180 196
Inventories 422 415 347 366 236 198 171 219 152 122 97 91
Other current assets 207 209 157 126 138 154 128 154 89 100 67 32
Total Current Assets 3,604 3,119 2,163 1,970 1,431 1,024 1,024 958 933 528 460 447
Gross PP&E 3,723 2,814 2,249 1,898 1,536 1,364 1,338 1,165 801 697 591 447
Accumulated depreciation 1,560 1,156 965 775 645 585 490 386 297 236 179 126
Net PP&E 2,163 1,658 1,284 1,122 891 779 848 778 504 462 412 321
Long-term investmentsa 480 561 508 422 262 264 267 272 217 51 0 0
Other assets 46 38 39 36 13 13 12 21 26 16 0 0
Total Assets 6,292 5,276 3,994 3,550 2,597 2,080 2,152 2,029 1,680 1,056 872 767
Liabilities:
Long-term debt: current portion 0 86 16 0 117 0 4 0 0 0 0 0
Notes payable 173 193 140 217 335 112 84 66 81 75 32 12
Accounts payable 245 209 165 153 115 62 57 80 79 39 32 12
Taxes payable 152 241 167 156 25 15 3 40 18 0 0 4
Accrued expenses 536 464 337 308 206 118 85 117 73 56 46 55
Deferred income on shipment to
distributors 122 121 96 100 83 67 72 88 74 52 53 46
Total Current Liabilities 1,228 1,314 921 934 882 374 307 390 326 223 172 147
Long-term debt 363 345 412 479 298 287 271 146 128 197 150 150
Deferred taxes 144 126 111 56 105 132 134 113 89 68 44 23
Investment tax credit 0 0 0 0 6 12 19 20 15 17 18 14
Equity:
Common stock + capital surplusb 1,411 1,404 1,011 861 540 757 730 671 631 177 143 128
Retained earningsb 3,007 2,188 1,538 1,219 766 518 691 689 491 375 345 305
Common equity 4,418 3,592 2,549 2,080 1,306 1,275 1,421 1,360 1,122 552 488 433
Put warrants 140 0 0 0 0 0 0 0 0 0 0 0
Total Equity 4,558 3,592 2,549 2,080 1,306 1,275 1,421 1,360 1,122 552 488 433
Total Liabilities and Equity 6,292 5,376 3,994 3,550 2,597 2,080 2,152 2,029 1,680 1,056 872 767

Capital Expenditures: 948 680 422 362 302 155 236 388 145 138 157 156
(Cash + Long-term investments
- Long-term debt) / assets 0.38 0.37 0.30 0.26 0.22 0.17 0.17 0.18 0.28 -0.06 -0.04 -0.03

Source: Intel Corp. 1991 figures include casewriter estimates.

a
Long-term investments are held almost exclusively in investment-grade bonds.
b
Surplus on Common stock and Retained earnings accounts are restated from company reports in order that the retained earnings account above be consistent with the income statement in Exhibit 1.

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 Intel Corporation, 1992 292-106

Exhibit 4 Analyst Estimates of Market Segments 1987 to 1991 ($ millions)

1987 1988 1989 1990 1991

Segment Sales:
EPROMS 130 220 265 252 228
SRAM 103 180 140 116 113
Other 102 137 120 133 131
Memory 335 537 525 501 472
8086 Family 69 39 29 18 12
80286 275 202 98 63 41
80386 210 538 822 1084 1361
80486 0 0 22 338 713
80586 0 0 0 0 0
i860 0 0 18 70 65
Coprocessors 81 175 163 233 255
Other 37 35 22 48 54
Microprocessors 672 989 1174 1854 2501
8-bit microcontrollers 200 255 245 223 195
16-bit microcontrollers 67 110 120 143 177
Microcontrollers 267 365 365 366 372
Processor Support 94 145 160 159 222
Graphics/Disk Controllers 58 73 80 79 122
Communications 53 84 75 63 117
Peripherals 205 302 315 301 461
OEM PC 0 0 45 175 295
Other Systems 428 682 702 723 723
Systems 428 682 747 898 1018
Total 1907 2875 3126 3920 4824
Operating Profit:
Memory 41 81 50 57 51
Microprocessors 97 275 262 500 776
Microcontrollers 25 71 68 62 46
Peripherals 23 50 61 65 91
Systems 60 117 116 174 123
Total 246 594 557 858 1087
Operating Margin:
Memory 12% 15% 10% 11% 11%
Microprocessors 14 28 22 27 31
Microcontrollers 9 19 19 17 12
Peripherals 11 17 19 22 20
Systems 14 17 16 19 12
Total 13 21 18 22 23

Source: Analyst estimates, Morgan Stanley.

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 292-106 Intel Corporation, 1992

Exhibit 5 Intel Microprocessor Product Line

Chip Introduction Clock Mips Price Per Internal External Number of Typical
Name Date speed chipa bus bus transistors use

i8086 June 1978 5MHz 0.33 $5.50 16-bit 16-bit 29,000 Portable
8MHz 0.66 $6.00 computing
10MHz 0.75 $16.00

i8088 June 1979 5MHz 0.33 $3.00 16-bit 8-bit 29,000 Portable
8MHz 0.66 $4.00 computing

i286 February 1982 8MHz 1.20 $8.00 16-bit 16-bit 130,000 Portable
10MHz 1.50 $8.00 computing
12MHz 2.66 $8.00

i386DX October 1985 16MHz 6.00 $156.00 32-bit 32-bit 275,000 Desktop
February 1987 20MHz 7.00 $156.00 computing
April 1988 25MHz 8.50 $156.00
April 1989 33MHz 11.40 $195.00

i386SX June 1988 16MHz 2.50 $57.00 32-bit 16-bit 275,000 Entry-level
January 1989 20MHz 4.20 $85.50 desktop and
portable
computing

i386SL October 1990 20MHz 4.21 $135.00 32-bit 16-bit 855,000 Portable
September 1991 25MHz 5.30 $189.00 computing

i486DX April 1989 25MHz 20.00 $428.00b 32-bit 32-bit 1,200,000 Desktop
May 1990 33MHz 27.00 $428.00 computing
June 1991 50MHz 40.70 $644.00 and servers

i486SX September 1991 16MHz 13.00 $214.00c 32-bit 32-bit 1,185,000 Desktop
April 1991 20MHz 16.50 $242.00d computing
September 1991 25MHz 20.00 $333.00e

Source: Intel Corp. and PC Week (Nov. 1981).

Note:
a. Based on purchase of 1,000 chips.
b. Low-power version costs $471.
c. Low-power version costs $235.
d. Low-power version costs $266.
e. Low-power version costs $366.

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 Intel Corporation, 1992 292-106

Exhibit 6 Microprocessor Product Life Cycle

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 292-106 Intel Corporation, 1992

Exhibit 7 Shipments and Installed Base of Various Microprocessors (MM units), 1981 to 1991

1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991

Intel Micro-based

Units shipped 0.0 0.2 1.0 2.6 4.6 6.1 8.8 11.9 15.7 18.6 20.7
Installed base 0.0 0.2 1.2 3.7 9.2 15.1 23.5 34.4 47.8 62.6 77.7

8088, 8086

Units shipped 0.0 0.2 0.9 2.4 4.1 4.5 5.1 5.0 4.7 3.4 2.3
Installed base 0.0 0.2 1.1 3.5 8.7 13.1 17.9 22.0 24.7 24.7 22.8

80286

Units shipped 0.0 0.0 0.0 0.1 0.4 1.6 3.3 5.7 7.6 7.2 6.8
Installed base 0.0 0.0 0.0 0.1 0.5 2.0 5.2 10.9 18.4 25.3 31.2

80386

Units shipped 0.0 0.0 0.0 0.0 0.0 0.0 0.4 1.2 3.3 7.8 10.3
Installed base 0.0 0.0 0.0 0.0 0.0 0.0 0.4 1.5 4.7 5.5 12.5

80486

Units shipped 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.1 1.3
Installed base 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.1 1.3

Motorola Micro-based

Units shipped 0.0 0.0 0.0 0.5 0.7 0.9 1.2 1.6 1.8 2.6 3.0
Installed base 0.0 0.0 0.1 0.5 1.3 2.2 3.4 5.0 6.4 8.4 10.7

RISC

Units shipped 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.2 0.3
Installed base 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.1 0.3 0.6

Source: Infocorp (1992).

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 292-106 -17-

Exhibit 8 Selected Financial Data, 1987 to 1991

Advanced Micro Devices Chips and Technologies
1987 1988 1989 1990 1991(E) 1987 1988 1989 1990 1991
Sales 997 1,126 1,105 1,059 1,175 80 141 218 293 225
Net income (48) 19 46 (54) (59) 13 22 33 29 (10)
Cash flow 105 173 182 75 188 14 24 38 29 2
Capital expenditures 138 132 159 304 142 2 7 5 14 9
Cash 235 287 279 115 128 30 48 59 72 38
Total assets 1,114 1,081 1,122 1,112 -- 51 95 141 202 159
Long-term debt 136 130 126 131 155 1 3 6 9 7
(Long-term debt - cash)/market value of equity (%) -0.13 -0.23 -0.24 0.04 -- -1.09 -0.17 -0.16 -0.21 -0.30
Years of casha 0.7 1.2 1.0 -0.1 -0.2 18.5 6.8 10.8 4.7 3.6
Return on equity (%) -7.3 3.0 6.7 -8.4 -- 48.8 33.2 31.4 1.9 -8.4
Cash dividend 0 0 0 0 0 0 0 0 0 0
High price 24.88 16.88 10.50 11.38 -- 37.75 21.25 26.25 23.50 13.25
Low price 7.50 7.13 7.13 3.63 -- 8.25 10.75 13.25 5.25 6.00
Book/share 6.21 5.91 6.39 5.63 6.70 2.03 4.79 7.30 9.31 8.51
P/E ratio 78 18 -- -- 14 8 7 10 --
Market value 775 690 639 401 -- 322 261 339 306 103
Shares (millions) 78.51 79.95 81.14 82.34 83.60 13.01 13.92 14.44 14.39 13.44
Beta 1.96 1.90 1.94 1.69 1.92 -- -- 2.13 1.92 2.12

Intel IBM
Sales 1,907 2,875 3,127 3,921 4,779 54,217 59,681 62,710 69,018 64,700
Net income 248 453 391 650 819 5,258 5,806 3,758 5,020 2,425
Cash flow 347 664 628 943 1,215 8,785 9,362 7,998 10,237 8,696
Capital expenditures 302 477 422 680 873 4,304 5,390 6,414 6,509 6,580
Cashb 881 1,393 1,598 2,346 2,757 6,967 6,123 4,961 4,551 4,700
Total assets 2,597 3,550 3,994 5,376 6,292 63,688 73,037 77,734 87,568 --
Long-term debt 298 479 412 345 363 3,858 8,518 10,825 11,943 11,991
(Long-term debt - cash)/market value of equity (%) -0.13 -0.21 -0.19 -0.26 -0.49 -0.05 0.03 0.11 0.11 --
Years of casha 1.9 1.9 2.8 2.9 2.7 0.7 -0.4 -0.9 -1.1 1.1
Return on equity (%) 13.4 21.8 15.3 18.1 22.8 13.7 13.9 9.8 14.1 --
Cash dividend 0 0 0 0 0 2,654 2,609 2,752 2,774 2,803
High price 41.83 37.25 36.00 52.00 59.00 175.88 129.50 130.88 123.13 --
Low price 13.83 19.25 22.88 28.00 37.00 102.00 104.25 93.38 94.50 --
Book/share 7.76 11.52 13.81 17.99 21.14 64.09 66.99 67.01 74.96 74.60
P/E ratio 19 9 17 12 11 13 13 15 11 --
Market value 4,461 4,288 6,366 7,687 8,882 68,960 71,875 54,094 64,567 --
Shares (millions) 168.33 180.54 184.52 199.65 208.99 597.05 589.74 574.70 571.39 572.14
Beta 1.67 1.74 1.68 1.70 1.75 0.75 0.81 0.85 0.75 0.74

Note:
a”Years of Cash” reports the number of years of current investment expenditures that can be funded by net cash balances– (Cash - Long-term Debt) / Capital Expenditures
bCash balances for Intel include Long-term Investments.

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 292-106 -18-

Exhibit 8 (continued)
LSI Logic Corp. Motorola, Inc.
1987 1988 1989 1990 1991 1987 1988 1989 1990 1991(E)
Sales 262 379 547 655 -- 6,707 8,250 9,620 10,885 11,400
Net income 11 25 (25) (33) -- 308 445 498 499 450
Cash flow 50 77 63 67 -- 802 988 1,148 1,289 1,267
Capital expenditures 174 101 114 62 -- 689 873 1,094 1,256 1,128
Cash 267 204 153 159 -- 258 340 433 577 627
Total assets 699 787 765 784 -- 5,321 6,710 7,686 8,742 --
Long-term debt 188 192 204 190 -- 344 343 755 792 794
(Long-term debt - cash)/market value of equity (%) -0.20 -0.03 0.18 0.12 -- 0.01 0.00 0.04 0.03 --
Years of casha 0.5 0.1 -0.4 -0.5 -- -0.1 -0.0 -0.3 -0.2 -0.1
Return on equity (%) 3.5 7.2 -8.4 -12.3 -- 10.2 13.2 13.1 11.7 --
Cash dividend 0 0 0 0 -- 83 87 99 100 100
High price 17.25 13.63 12.38 13.00 -- 74.00 54.63 62.50 88.38 --
Low price 6.50 7.25 6.25 5.13 -- 34.50 35.88 39.50 49.13 --
Book/share 7.70 8.20 7.24 6.55 -- 23.26 26.02 28.16 32.32 35.05
P/E ratio 37 19 -- -- 21 12 15 14 --
Market value 395 435 293 263 -- 6,433 5,447 7,612 6,898 --
Shares (millions) 40.05 40.46 41.07 42.06 -- 129.30 129.70 130.40 131.70 131.95
Beta 2.30 1.95 1.76 1.48 1.71 1.47 1.49 1.55 1.48 1.49

Texas Instruments VLSI Technology

Sales 5,594 6,295 6,522 6,567 6,600 172 221 288 325 410
Net income 309 366 292 (39) (170) 8 7 1 (13) 9.5
Cash flow 637 756 745 502 398 32 36 38 36 57
Capital expenditures 463 628 863 909 500 50 55 39 35 50
Cash 663 780 637 412 416 103 75 55 35 41
Total assets 4,256 4,427 4,804 5,048 -- 271 303 318 327 --
Long-term debt 487 624 618 715 950 81 84 85 89 100
(Long-term debt - cash)/market value of equity (%) -0.04 -0.05 -0.01 0.10 -- -0.09 0.04 0.17 0.48 --
Years of casha 0.4 0.2 0.0 -0.3 -1.0 0.4 -0.2 -0.8 -1.5 -1.2
Return on equity (%) 14.9 21.3 14.9 -2.1 -- 5.7 4.5 0.3 -8.7 --
Cash dividend 55 58 59 59 59 0 0 0 0 0
High price 80.25 60.00 46.75 44.00 -- 20.25 11.38 10.13 12.25 --
Low price 36.25 34.50 28.13 22.50 -- 7.13 5.88 6.38 3.00 --
Book/share 21.95 21.36 24.10 22.46 17.10 6.15 6.40 6.42 5.86 6.30
P/E ratio 15 10 12 -- -- 36 29 369 @NM --
Market value 4,383 3,306 2,924 3,108 -- 246 200 178 113 --
Shares (millions) 78.62 80.65 81.50 81.78 81.99 22.86 23.48 24.17 25.11 25.81
Beta 1.09 1.31 1.50 1.43 1.58 2.11 1.84 1.69 1.63 1.99

Source: Value Line and Standard and Poors

Note:
a”Years of Cash” reports the number of years of current investment expenditures that can be funded by net cash balances– (Cash - Long-term Debt) / Capital Expenditures
bCash balances for Intel include Long-term Investments

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 Intel Corporation, 1992 292-106

Exhibit 9 Intel X86 Family Sales

Note: First Wave 32-Bit CPUs include i386DX and i3865SX.

Second Wave 32-Bit CPUs include i386SL and the i486 family.

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 292-106 Intel Corporation, 1992

Exhibit 10 Portability of Various Microprocessor Platforms

Microprocessor Platform
X86 68000 MIPS SPARC RS/6000

Operating System Software:

DOS x
Windows x
32-Bit OS/2 x
UNIX x x x x x
Microsoft Windows NT# x x
Apple/IBM New OS# x x x
Sunsoft Solaris 2.0# x x

Source: Intel Corp.

# software currently being designed.

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 Intel Corporation, 1992 292-106

Exhibit 11 Stock Price History and Recent End-of-Month Stock Prices

Recent End-of-Month Stock Prices

INTEL AMD CHIPS & TECHNOLOGY

31-Dec-90 38.500 4.875 7.250

31-Jan-91 45.750 7.250 10.125
28-Feb-91 47.750 8.125 11.250
29-Mar-91 46.750 10.500 10.750
30-Apr-91 49.250 12.250 10.000
31-May-91 55.750 13.500 9.750
28-Jun-91 46.500 12.000 7.625
31-Jul-91 47.000 11.125 8.000
30-Aug-91 49.500 12.375 8.875
30-Sep-91 42.250 9.375 9.125
31-Oct-91 40.625 12.750 8.125
29-Nov-91 41.000 14.375 8.000
20-Dec-91 42.500 17.000 7.750

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 292-106 Intel Corporation, 1992

Exhibit 12 Estimates of Future Cash Flows

Depreciation Worksheet 1991 1992 1993 1994 1995

Earnings estimates from analysts:

Average 819 862 1,028 1,166 1,339
Pessimistic 819 485 595 700 900
Capital Expenditures: (948) (1,200) (1,380) (1,587) (1,746)
Land and Buildings (237) (240) (276) (317) (349)
Machinery and Equipment (711) (960) (1,104) (1,270) (1,397)
Depreciation Expense 418 666 971 1,044 1,235
Net Additions to PPE (530) (534) (409) (543) (511)
Decrease in Net Working Capital (58) (11) (42) (35) (43)
Shares issued, @$40, 3M/yr 120 120 120 120 120
Put warrants issued 14 0 0 0 0
Paydown of Long-Term Debt to 0 0 (91) (91) (91) (90)
Annual Change in Casha:
Average 365 346 606 617 815
% of Estimated Revenues 8% 9% 12% 11% 12%
Pessimistic 365 1 198 221 426
% of Estimated Revenues 8% 0% 2% 3% 4%

Cash Balance plus Long-Term Investments less Long-Term Debt:

Average 2,394 2,740 3,346 3,964 4,779
Pessimistic 2,394 2,395 2,593 2,815 3,241
Total Assets 6,292 7,169 8,309 9,335 10,694
Total Cash/Total Assets:
Average 38% 38% 40% 42% 45%
Pessimistic 38% 33% 31% 30% 30%

Source: Intel Corporation, and casewriter and analyst estimates.

Note:
a Annual change in cash is equal to estimated Earnings and Net additions to PP&E + decrease in Net working capital + proceeds

from shares and warrants issued + cost of paying down long-term debt.
Capital Expenditures are assumed to grow at 15% per year.
Depreciation: Straight line over 3.5 years for machinery and equipment and 25 years for plant and property.
Capital spending is also depreciated for six months in the year made. Net working capital: calculated as current assets - current
liabilities - cash and cash equivalents. In 1990 and 1991 NWC was 28% and 24% of earnings, respectively. Estimates for 1992-
1995 assume that NWC remains at 25% of average estimated earnings.

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