Fiscal yearIntel Corporation has a fiscal year that ends on the last Saturday in December. Fiscal year 2000, a 53-week year, ended on December 30, 2000. Fiscal years 1999 and 1998, each 52-week years, ended on December 25 and 26, respectively. The next 53-week year will end on December 31, 2005.

Derivative financial instrumentsThe company utilizes derivative financial instruments to reduce financial market risks. These instruments are used to hedge foreign currency, interest rate and certain equity market exposures of underlying assets, liabilities and other obligations. The company also uses derivatives to create synthetic instruments, for example, buying and selling put and call options on the same underlying security, to generate money market-like returns with a similar level of risk. The company does not use derivative financial instruments for speculative or trading purposes. The company's accounting policies for these instruments are based on whether they meet the company's criteria for designation as hedging transactions. The criteria the company uses for designating an instrument as a hedge include the instrument's effectiveness in risk reduction and one-to-one matching of derivative instruments to underlying transactions. Gains and losses on currency forward contracts, and options that are designated and effective as hedges of anticipated transactions, for which a firm commitment has been attained, are deferred and recognized in income in the same period that the underlying transactions are settled. Gains and losses on currency forward contracts, options and swaps that are designated and effective as hedges of existing transactions are recognized in income in the same period as losses and gains on the underlying transactions are recognized and generally offset. Gains and losses on any instruments not meeting the above criteria are recognized in income in the current period. If an underlying hedged transaction is terminated earlier than initially anticipated, the offsetting gain or loss on the related derivative instrument would be recognized in income in the same period. Subsequent gains or losses on the related derivative instrument would be recognized in income in each period until the instrument matures, is terminated or is sold. Income or expense on swaps is accrued as an adjustment to the yield of the related investments or debt they hedge.

InventoriesInventories are stated at the lower of cost or market. Cost is computed on a currently adjusted standard basis (which approximates actual cost on a current average or first-in, first-out basis). Inventories at fiscal year-ends were as follows:

Property, plant and equipmentProperty, plant and equipment are stated at cost. Depreciation is computed for financial reporting purposes principally using the straight-line method over the following estimated useful lives: machinery and equipment, 2–4 years; buildings, 4–40 years. Reviews are regularly performed to determine whether facts and circumstances exist which indicate that the carrying amount of assets may not be recoverable. The company assesses the recoverability of its assets by comparing the projected undiscounted net cash flows associated with the related asset or group of assets over their remaining life against their respective carrying amounts. Impairment, if any, is based on the excess of the carrying amount over the fair value of those assets.

Goodwill and other acquisition-related intangiblesGoodwill is recorded when the consideration paid for acquisitions exceeds the fair value of identifiable net tangible and intangible assets acquired. Goodwill and other acquisition-related intangibles are amortized on a straight-line basis over the periods indicated below. Goodwill and other acquisition-related intangibles are reviewed for recoverability periodically or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. The carrying amount is compared to the undiscounted cash flows of the businesses acquired. Should the review indicate that these intangibles are not recoverable, their carrying amount would be reduced by the estimated shortfall of those cash flows. No impairment has been indicated to date.

Net goodwill and other acquisition-related intangibles at fiscal year-ends were as follows:

Other intangibles include items such as trademarks, workforce-in-place and customer lists. The total balances presented above are net of total accumulated amortization of $2.0 billion and $471 million at December 30, 2000 and December 25, 1999, respectively.

Amortization of goodwill and other acquisition-related intangibles and costs was $1.6 billion for 2000. This includes $1.3 billion of amortization of goodwill and $248 million of amortization of other acquisition-related intangibles (a majority of which was related to developed technology). In addition, the total includes $26 million of amortization of acquisition-related stock compensation costs (see "Acquisition-related unearned stock compensation ") and $2 million of amortization of other acquisition-related costs.

Revenue recognitionThe company generally recognizes net revenues upon the transfer of title. However, certain of the company's sales are made to distributors under agreements allowing price protection and/or right of return on merchandise unsold by the distributors. Because of frequent sales price reductions and rapid technological obsolescence in the industry, Intel defers recognition of revenues on shipments to distributors until the distributors sell the merchandise. Management believes that the company's revenue recognition policies are in accordance with the Securities and Exchange Commission Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" (SAB 101).

AdvertisingCooperative advertising obligations are accrued and the costs expensed at the same time the related revenues are recognized. All other advertising costs are expensed as incurred. Advertising expense was $2.0 billion, $1.7 billion and $1.3 billion in 2000, 1999 and 1998, respectively.

InterestInterest as well as gains and losses related to contractual agreements to hedge certain investment positions and debt (see "Derivative financial instruments ") are recorded as net interest income or expense within interest and other, net.

Earnings per shareThe shares used in the computation of the company's basic and diluted earnings per common share are reconciled as follows:

(In millions)	2000		1999		1998
Weighted average common   shares outstanding	6,709		6,648		6,672
Dilutive effect of:
Employee stock options	272		289		318
Convertible notes	5		3		—
1998 step-up warrants	—		—		45
Weighted average common   shares outstanding,   assuming dilution	6,986		6,940		7,035

Weighted average common shares outstanding, assuming dilution, includes the incremental shares that would be issued upon the assumed exercise of stock options, as well as the assumed conversion of the convertible notes and the incremental shares for the step-up warrants, for the respective periods the notes and warrants were outstanding. Put warrants outstanding had no dilutive effect on diluted earnings per common share for the periods presented. For the three-year period ended December 30, 2000, certain of the company's stock options were excluded from the calculation of diluted earnings per share because they were antidilutive, but these options could be dilutive in the future. Net income for the purpose of computing diluted earnings per common share was not materially affected by the assumed conversion of the convertible notes. (See "Long-term debt " under "Borrowings.")

Stock distributionOn July 30, 2000, the company effected a two-for-one stock split in the form of a special stock distribution to stockholders of record as of July 2, 2000. As a result of the stock split in 2000, approximately $3 million was reclassified from retained earnings to common stock, representing the par value of the newly issued shares. On April 11, 1999, the company effected a two-for-one stock split in the form of a special stock distribution to stockholders of record as of March 23, 1999. All share, per share, common stock, stock option and warrant amounts herein have been restated to reflect the effects of these splits.

ReclassificationsCertain amounts reported in previous years have been reclassified to conform to the 2000 presentation.

Recent accounting pronouncementsThe company will adopt Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended, at the beginning of its fiscal year 2001. The standard will require the company to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of derivatives will either be offset against the change in fair value of the hedged assets, liabilities or firm commitments through earnings, or recognized in other comprehensive income until the hedged item is recognized in earnings. The change in a derivative's fair value related to the ineffective portion of a hedge, if any, will be immediately recognized in earnings. The initial adoption of SFAS No. 133 will not have a material effect on the company's results of operations or financial condition.

Stock repurchase programThe company has an ongoing authorization, as amended, from the Board of Directors to repurchase up to 1.5 billion shares of Intel's common stock in open market or negotiated transactions. During 2000, the company repurchased 73.5 million shares of common stock at a cost of $4.0 billion. As of December 30, 2000, the company had repurchased and retired approximately 1.4 billion shares at a cost of $22.2 billion since the program began in 1990. As of December 30, 2000, 126.7 million shares remained available under the repurchase authorization.

1998 step-up warrantsDuring 1998, approximately 310 million of the 1998 step-up warrants were exercised and shares of common stock were issued for proceeds of $1.6 billion. The expiration date of these warrants was March 14, 1998.

In a series of private placements from 1991 through 1999, the company sold put warrants that entitled the holder of each warrant to sell to the company, 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
(In millions)	net premium received			Number of warrants		Potential obligation
December 27, 1997	$	623		105.2		$	2,041
Sales		40		30.0			588
Exercises		—		(60.0)			(1,199)
Expirations		—		(65.2)			(1,229)
December 26, 1998		663		10.0			201
Sales		20		8.0			261
Expirations		—		(14.0)			(332)
December 25, 1999		683		4.0			130
Expirations		—		(4.0)			(130)
December 30, 2000	$	683		—		$	—

Short-term debtShort-term debt at fiscal year-ends was as follows:

The company also borrows under commercial paper programs. Maximum borrowings under commercial paper programs reached $539 million during 2000 and $200 million during 1999. This debt is rated A-1+ by Standard & Poor's and P-1 by Moody's.

Long-term debtLong-term debt at fiscal year-ends was as follows:

The company has guaranteed repayment of principal and interest on bonds issued by the Puerto Rico Industrial, Tourist, Educational, Medical and Environmental Control Facilities Financing Authority. The bonds are adjustable and redeemable at the option of either the company or the bondholder every five years through 2013 and are next adjustable and redeemable in 2003.

In September 2000, all of the convertible subordinated notes were exchanged for approximately 7.4 million shares of unregistered Intel common stock. During 1999, the company assumed the notes with a principal amount of $115 million as a result of the Level One Communications, Inc. acquisition (see "Acquisitions "). The value assigned to the notes was approximately $212 million, based upon the assumed conversion price at the date of acquisition. Amortization of the premium substantially offset the interest expense on the notes.

The Irish punt borrowings were made in connection with the financing of manufacturing facilities in Ireland, and Intel has invested the proceeds in Irish punt denominated instruments of similar maturity to hedge foreign currency and interest rate exposures.

As of December 30, 2000, aggregate debt maturities were as follows: 2001–$10 million; 2002–$19 million; 2003–$132 million; 2004–$27 million; 2005–$29 million; and thereafter–$500 million.

The returns on a majority of the company's marketable investments in long-term fixed rate debt and certain equity securities are swapped to U.S. dollar LIBOR-based returns. The currency risks of investments denominated in foreign currencies are hedged with foreign currency borrowings, currency forward contracts or currency interest rate swaps. (See "Derivative financial instruments " under "Accounting policies.")

Investments in debt securities with maturities of greater than six months consist primarily of A and A2 or better rated financial instruments and counterparties. Investments with maturities of up to six months consist primarily of A-1 and P-1 or better rated financial instruments and counterparties. Foreign government regulations imposed upon investment alternatives of foreign subsidiaries, or the absence of A and A2 rated counterparties in certain countries, result in some minor exceptions. Intel's practice is to obtain and secure available collateral from counterparties against obligations whenever Intel deems appropriate. At December 30, 2000, debt investments were placed with approximately 240 different counterparties.

Available-for-sale investments at December 30, 2000 were as follows:

(In millions)		Cost			Gross unrealized gains			Gross unrealized losses			Estimated fair value
Commercial paper		$	7,182		$	24		$	(5)		$	7,201
Bank time deposits			3,171			2			—			3,173
Floating rate notes			2,011			10			(7)			2,014
Corporate bonds			1,195			5			(16)			1,184
Loan participations			903			—			—			903
Securities of foreign   governments			294			—			—			294
Repurchase agreements			70			—			—			70
U.S. government   securities			31			—			—			31
Other debt securities			21			—			—			21
Total debt securities			14,878			41			(28)			14,891
Marketable strategic   equity securities			1,623			756			(464)			1,915
Preferred stock and   other equity			109			—			—			109
Total equity securities			1,732			756			(464)			2,024
Swaps hedging   investments in debt   securities			—			24			(12)			12
Currency forward   contracts hedging   investments in debt   securities			—			4			(21)			(17)
Total available-for-   sale investments			16,610			825			(525)			16,910
Less amounts classified   as cash equivalents			(2,701)			—			—			(2,701)
		$	13,909		$	825		$	(525)		$	14,209

Available-for-sale investments at December 25, 1999 were as follows:

(In millions)		Cost			Gross unrealized gains			Gross unrealized losses			Estimated fair value
Commercial paper		$	2,971		$	—		$	(2)		$	2,969
U.S. government   securities			2,746			—			(5)			2,741
Floating rate notes			2,152			—			(4)			2,148
Bank time deposits			2,022			—			(3)			2,019
Corporate bonds			865			49			(9)			905
Loan participations			625			—			—			625
Fixed rate notes			275			—			(1)			274
Securities of foreign   governments			59			—			—			59
Other debt securities			33			—			(1)			32
Total debt securities			11,748			49			(25)			11,772
Marketable strategic   equity securities			1,277			5,882			(38)			7,121
Preferred stock and   other equity			121			—			—			121
Total equity securities			1,398			5,882			(38)			7,242
Swaps hedging   investments in debt   securities			—			12			(50)			(38)
Currency forward   contracts hedging   investments in debt   securities			—			2			—			2
Total available-for-   sale investments			13,146			5,945			(113)			18,978
Less amounts classified   as cash equivalents			(3,362)			—			—			(3,362)
		$	9,784		$	5,945		$	(113)		$	15,616

Available-for-sale securities with a fair value at the date of sale of $4.2 billion, $1.0 billion and $227 million were sold in 2000, 1999 and 1998, respectively. The gross realized gains on these sales totaled $3.4 billion, $883 million and $185 million, respectively, and the company realized $52 million in gross losses on sales in 2000. In 2000, the company recognized gains of $682 million on shares valued at $866 million exchanged in third-party merger transactions. In 2000, the company also recognized $297 million of impairment losses on available-for-sale and non-marketable investments.

The amortized cost and estimated fair value of investments in debt securities at December 30, 2000, by contractual maturity, were as follows:

Outstanding notional amounts for derivative financial instruments at fiscal year-ends were as follows:

While the contract or notional amounts provide one measure of the volume of these transactions, they do not represent the amount of the company's exposure to credit risk. The amounts potentially subject to credit risk (arising from the possible inability of counterparties to meet the terms of their contracts) are generally limited to the amounts, if any, by which a counterparty's obligations exceed the obligations of Intel with that counterparty. The company controls credit risk through credit approvals, limits and monitoring procedures. Credit rating criteria for derivative financial instruments are similar to those for investments.

Swap agreementsThe company utilizes swap agreements to exchange the foreign currency and interest rate returns of its investment and debt portfolios for floating U.S. dollar interest rate based returns. The floating rates on swaps are based primarily on U.S. dollar LIBOR and are reset on a monthly, quarterly or semiannual basis.

Pay rates on swaps hedging investments in debt securities match the yields on the underlying investments they hedge. Receive rates on swaps hedging debt match the expense on the underlying debt they hedge. Maturity dates of swaps match those of the underlying investment or the debt they hedge. There is approximately a one-to-one matching of swaps to investments and debt. Swap agreements generally remain in effect until expiration.

Weighted average pay and receive rates, weighted average maturities and range of maturities on swaps at December 30, 2000 were as follows:

	Weighted average pay rate		Weighted average receive rate		Weighted average maturity		Range of maturities
Swaps hedging investments   in U.S. dollar   debt securities	6.71%		6.86%		0.7 years		0–2 years
Swaps hedging investments   in foreign currency   debt securities	5.40%		6.75%		0.7 years		0–2 years
Swaps hedging debt	6.68%		5.67%		2.8 years		2–3 years
Note: Pay and receive rates are based on the reset rates that were in effect at December 30, 2000.

Other foreign currency instrumentsIntel transacts business in various foreign currencies, primarily Japanese yen and certain other Asian and European currencies. The company has established revenue, expense and balance sheet hedging programs to protect against reductions in value and volatility of future cash flows caused by changes in foreign exchange rates. The company utilizes currency forward contracts and currency options in these hedging programs. The maturities on these instruments are less than 12 months.

The estimated fair values of financial instruments outstanding at fiscal year-ends were as follows:

		2000						1999
(In millions)		Carrying amount			Estimated fair value			Carrying amount			Estimated fair value
Cash and cash equivalents		$	2,976		$	2,976		$	3,695		$	3,695
Short-term investments		$	10,498		$	10,498		$	7,740		$	7,740
Trading assets		$	355		$	355		$	388		$	388
Marketable strategic   equity securities		$	1,915		$	1,915		$	7,121		$	7,121
Other long-term investments		$	1,801		$	1,801		$	791		$	791
Non-marketable instruments		$	1,886		$	3,579		$	1,177		$	3,410
Swaps hedging investments   in debt securities		$	12		$	12		$	(38)		$	(38)
Options hedging deferred   compensation liabilities		$	(5)		$	(5)		$	—		$	—
Short-term debt		$	(378)		$	(378)		$	(230)		$	(230)
Long-term debt		$	(707)		$	(702)		$	(955)		$	(1,046)
Swaps hedging debt		$	—		$	(1)		$	—		$	(5)
Currency forward contracts		$	2		$	6		$	1		$	—

Financial instruments that potentially subject the company to concentrations of credit risk consist principally of investments and trade receivables. Intel places its investments with high-credit-quality counterparties and, by policy, limits the amount of credit exposure to any one counterparty based on Intel's analysis of that counterparty's relative credit standing. A substantial majority of the company's trade receivables are derived from sales to manufacturers of computer systems, with the remainder spread across various other industries. The company's five largest customers accounted for approximately 42% of net revenues for 2000. At December 30, 2000, these customers accounted for approximately 40% of net accounts receivable.

The company endeavors to keep pace with the evolving computer and Internet-related industries, and has adopted credit policies and standards intended to accommodate industry growth and inherent risk. Management believes that credit risks are moderated by the diversity of its end customers and geographic sales areas. Intel performs ongoing credit evaluations of its customers' financial condition and requires collateral as deemed necessary.

(In millions)	2000			1999			1998
Interest income	$	920		$	618		$	593
Interest expense		(35)			(36)			(34)
Gain on assets contributed to Convera		117			—			—
Other, net		(15)			(4)			14
Total	$	987		$	578		$	573

In December 2000, Intel and Excalibur Technologies Corporation formed a new company, Convera Corporation. Intel contributed its Interactive Media Services division and invested $150 million in cash in exchange for 14.9 million voting and 12.2 million non-voting shares of Convera. Intel recognized a gain of $117 million on the portion of the business and related assets contributed to Convera in which Intel does not retain an ownership interest. Intel will record its proportionate share of Convera's income or loss in interest and other, net.

The components of other comprehensive income and related tax effects were as follows:

(In millions)	2000			1999			1998
Change in unrealized gains on investments,   net of tax of $620, $(2,026), and $(357)   in 2000, 1999 and 1998, respectively	$	(1,153)		$	3,762		$	665
Less: adjustment for gains realized   and included in net income, net of   tax of $1,316, $309 and $65 in 2000,   1999 and 1998, respectively		(2,443)			(574)			(120)
Other comprehensive income	$	(3,596)		$	3,188		$	545

Accumulated other comprehensive income presented in the accompanying consolidated balance sheets consists of the accumulated net unrealized gain on available-for-sale investments.

Income before taxes and the provision for taxes consisted of the following:

(In millions)	2000			1999			1998
Income before taxes:
U.S.	$	11,162		$	7,239		$	6,677
Foreign		3,979			3,989			2,460
Total income before taxes	$	15,141		$	11,228		$	9,137
Provision for taxes:
Federal:
Current	$	3,809		$	3,356		$	2,321
Deferred		(65)			(162)			145
		3,744			3,194			2,466
State:
Current		454			393			320
Foreign:
Current		473			384			351
Deferred		(65)			(57)			(68)
		408			327			283
Total provision for taxes	$	4,606		$	3,914		$	3,069
Effective tax rate		30.4%			34.9%			33.6%

The tax benefit associated with dispositions from employee stock plans reduced taxes currently payable for 2000 by $887 million ($506 million and $415 million for 1999 and 1998, respectively).

The provision for taxes reconciles to the amount computed by applying the statutory federal rate of 35% to income before taxes as follows:

(In millions)	2000			1999			1998
Computed expected tax	$	5,299		$	3,930		$	3,198
State taxes, net of federal benefits		295			255			208
Foreign income taxed at different rates		(363)			(239)			(339)
Non-deductible acquisition-related costs		444			274			74
Reversal of previously accrued taxes		(600)			—			—
Other		(469)			(306)			(72)
Provision for taxes	$	4,606		$	3,914		$	3,069

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

Significant components of the company's deferred tax assets and liabilities at fiscal year-ends were as follows:

(In millions)	2000			1999
Deferred tax assets
Accrued compensation and benefits	$	87		$	111
Accrued advertising		88			66
Deferred income		307			182
Inventory valuation and related reserves		120			91
Interest and taxes		52			48
Other, net		67			175
		721			673
Deferred tax liabilities
Depreciation		(721)			(703)
Acquired intangibles		(309)			(214)
Unremitted earnings of certain subsidiaries		(131)			(172)
Unrealized gain on investments		(105)			(2,041)
		(1,266)			(3,130)
Net deferred tax (liability)	$	(545)		$	(2,457)

U.S. income taxes were not provided for on a cumulative total of approximately $4.2 billion of undistributed earnings for certain non-U.S. subsidiaries. The company intends to reinvest these earnings indefinitely in operations outside the United States.

In March 2000, the Internal Revenue Service (IRS) closed its examination of the company's tax returns for years up to and including 1998. Resolution was reached on a number of issues, including adjustments related to the intercompany allocation of profits. As part of this closure, the company reversed previously accrued taxes, reducing the tax provision for the first quarter of 2000 by $600 million, or approximately $0.09 per share.

Years after 1998 are open to examination by the IRS. Management believes that adequate amounts of tax and related interest and penalties, if any, have been provided for any adjustments that may result for these years.

Stock option plansIntel 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 options may be granted to employees other than officers and directors. The company's Executive Long-Term Stock Option Plan, under which certain key employees, including officers, have been granted stock options, terminated in September 1998. Although this termination will not affect options granted prior to this date, no further grants may be made under this plan. Under all of the plans, the option exercise price is equal to the fair market value of Intel common stock at the date of grant. During 2000 and 1999, Intel also assumed the stock option plans and the outstanding options of certain acquired companies. No additional options will be granted under these assumed plans.

Options granted by Intel currently expire no later than 10 years from the grant date and generally vest within 5 years. Additional information with respect to stock option plan activity is as follows:

				Outstanding options
(Shares in millions)	Shares available for options			Number of shares		Weighted average exercise price
December 27, 1997		672.8		689.6		$	6.56
Grants		(96.0)		96.0		$	19.18
Exercises		—		(126.0)		$	2.30
Cancellations		34.6		(34.6)		$	11.82
Lapsed under terminated plans		(77.0)		—		$	—
December 26, 1998		534.4		625.0		$	9.07
Grants		(81.2)		81.2		$	31.96
Options assumed in acquisitions		—		25.6		$	12.87
Exercises		—		(96.0)		$	3.32
Cancellations		24.6		(24.6)		$	16.43
December 25, 1999		477.8		611.2		$	12.87
Grants		(162.8)		162.8		$	54.68
Options assumed in acquisitions		—		4.3		$	5.21
Exercises		—		(107.5)		$	4.66
Cancellations		32.6		(32.6)		$	26.28
December 30, 2000		347.6		638.2		$	24.16
Options exercisable at:
December 26, 1998				207.6		$	3.06
December 25, 1999				206.4		$	4.71
December 30, 2000				195.6		$	7.07

The range of option exercise prices for options outstanding at December 30, 2000 was $0.08 to $72.88. The range of exercise prices for options is wide due primarily to the fluctuating price of the company's stock over the period during which the options were granted and the impact of assumed options of acquired companies that had experienced significant price appreciation.

The following tables summarize information about options outstanding at December 30, 2000 :

	Outstanding options
Range of exercise prices	Number of shares (in millions)			Weighted average contractual life (in years)		Weighted average exercise price
$0.08–$7.56		157.1		3.1		$	4.10
$7.66–$18.83		161.4		5.7		$	12.96
$18.90–$36.99		161.9		7.6		$	24.76
$37.15–$72.88		157.8		9.4		$	54.95
Total		638.2		6.5		$	24.16

	Exercisable options
Range of exercise prices	Number of shares (in millions)		Weighted average exercise price
$0.08–$7.56	147.4		$	4.02
$7.66–$18.83	35.0		$	13.25
$18.90–$36.99	12.3		$	23.24
$37.15–$72.88	0.9		$	42.44
Total	195.6		$	7.07

These options will expire if not exercised at specific dates through December 2010. Option exercise prices for options exercised during the three-year period ended December 30, 2000 ranged from $0.08 to $49.81.

Stock Participation PlanUnder this plan, eligible employees may purchase shares of Intel's common stock at 85% of fair market value at specific, predetermined dates. Of the 944 million shares authorized to be issued under the plan, 139.7 million shares remained available for issuance at December 30, 2000. Employees purchased 8.9 million shares in 2000 (10.9 million in 1999 and 12.5 million in 1998) for $305 million ($241 million and $229 million in 1999 and 1998, respectively).

Pro forma informationThe company has elected to follow APB Opinion No. 25, "Accounting for Stock Issued to Employees," in accounting for its employee stock options because, as discussed below, the alternative fair value accounting provided for under SFAS No. 123, "Accounting for Stock-Based Compensation," requires the use of option valuation models that were not developed for use in valuing employee stock options. Under APB No. 25, because the exercise price of the company's employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized in the company's financial statements.

Pro forma information regarding net income and earnings per share is required by SFAS No. 123. This information is required to be determined as if the company had accounted for its employee stock options (including shares issued under the Stock Participation Plan, collectively called "options") granted subsequent to December 31, 1994 under the fair value method of that statement. The fair value of options granted in 2000, 1999 and 1998 reported below was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted average assumptions:

Employee stock options	2000		1999		1998
Expected life (in years)	6.5		6.5		6.5
Risk-free interest rate	6.2%		5.2%		5.3%
Volatility	.42		.38		.36
Dividend yield	.1%		.2%		.2%
Stock Participation Plan shares	2000		1999		1998
Expected life (in years)	.5		.5		.5
Risk-free interest rate	6.1%		4.9%		5.2%
Volatility	.66		.45		.42
Dividend yield	.1%		.2%		.2%

The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions, including the expected stock price volatility. Because the company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in the opinion of management, the existing models do not necessarily provide a reliable single measure of the fair value of employee stock options. The weighted average estimated fair value of employee stock options granted during 2000, 1999 and 1998 was $28.27, $14.77 and $8.96 per share, respectively. The weighted average estimated fair value of shares granted under the Stock Participation Plan during 2000, 1999 and 1998 was $19.60, $9.90 and $5.46, respectively.

For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting periods. The company's pro forma information follows:

(In millions—except per share amounts)	2000			1999			1998
Pro forma net income	$	9,699		$	6,860		$	5,755
Pro forma basic earnings per share	$	1.45		$	1.03		$	.87
Pro forma diluted earnings per share	$	1.40		$	.99		$	.83

Retirement plansThe company provides tax-qualified profit-sharing retirement plans (the "Qualified Plans") for the benefit of eligible employees in the U.S. and Puerto Rico and certain foreign countries. The plans are designed to provide employees with an accumulation of funds for retirement on a tax-deferred basis and provide for annual discretionary employer contributions to trust funds.

The company also provides a non-qualified profit-sharing retirement plan (the "Non-Qualified Plan") for the benefit of eligible employees in the U.S. This plan is designed to permit certain discretionary employer contributions and to permit employee deferral of a portion of salaries in excess of certain tax limits and deferral of bonuses. This plan is unfunded.

The company expensed $362 million for the Qualified Plans and the Non-Qualified Plan in 2000 ($294 million in 1999 and $291 million in 1998). The company expects to fund approximately $387 million for the 2000 contribution to the Qualified Plans and to allocate approximately $15 million for the Non-Qualified Plan, including the utilization of amounts expensed in prior years. A remaining accrual of approximately $117 million carried forward from prior years is expected to be contributed to these plans in future years.

Contributions made by the company vest based on the employee's years of service. Vesting begins after three years of service in 20% annual increments until the employee is 100% vested after seven years.

The company provides tax-qualified defined-benefit pension plans for the benefit of eligible employees in the U.S. and Puerto Rico. Each plan provides for minimum pension benefits that are determined by a participant's years of service, final average compensation (taking into account the participant's social security wage base) and the value of the company's contributions, plus earnings, in the Qualified Plan. If the participant's balance in the Qualified Plan exceeds the pension guarantee, the participant will receive benefits from the Qualified Plan only. Intel's funding policy is consistent with the funding requirements of federal laws and regulations. The company also provides defined-benefit pension plans in certain foreign countries. The company's funding policy for foreign defined-benefit pension plans is consistent with the local requirements in each country. These defined-benefit pension plans had no material impact on the company's financial statements for the periods presented.

The company provides postemployment benefits for retired employees in the U.S. Upon retirement, eligible employees are credited with a defined dollar amount based on years of service. These credits can be used to pay all or a portion of the cost to purchase coverage in an Intel-sponsored medical plan. These benefits had no material impact on the company's financial statements for the periods presented.

The company has completed a number of acquisitions that were accounted for using the purchase method of accounting.

2000In March 2000, the company acquired Ambient Technologies, Inc. Ambient develops integrated digital subscriber line silicon solutions and analog modems designed to bring high-speed Internet access to home users and small businesses.

Also in March 2000, the company acquired GIGA A/S. GIGA specializes in the design of advanced high-speed communications chips used in optical networking and communications products that direct traffic across the Internet and corporate networks.

In April 2000, the company acquired Picazo Communications, Inc. Picazo specializes in CT Media™ server software, which enables third-party vendors to develop innovative applications for telecommunications.

In May 2000, the company acquired Basis Communications Corporation. Basis designs and markets advanced semiconductors and other products used in equipment that directs traffic across the Internet and corporate networks.

In August 2000, the company acquired Trillium Digital Systems, Inc. in exchange for 2.6 million unregistered shares of Intel common stock, cash and options assumed. The portion of the purchase consideration related to 1.2 million shares contingent on the continued employment of certain employees, and the intrinsic value of stock options assumed related to future services, have been classified as unearned compensation within stockholders' equity (see "Acquisition-related unearned stock compensation "). Trillium is a provider of communications software solutions used by suppliers of wireless, Internet, broadband and telephony products.

In October 2000, the company acquired Ziatech Corporation. The intrinsic value of stock options assumed related to future services has been classified as unearned compensation within stockholders' equity. Ziatech designs and markets a full range of Intel® Architecture-based circuit boards, hardware platforms and development systems.

1999In February 1999, the company acquired Shiva Corporation. Shiva's products include remote access and virtual private networking solutions for the small to mid-sized enterprise market segment and the remote access needs of campuses and branch offices.

In July 1999, the company acquired Softcom Microsystems, Inc. Softcom develops and markets semiconductor products for original equipment manufacturers in the networking and communications market segments. Softcom's high-performance components are designed for networking gear (access devices, routers and switches) used to direct voice and data across the Internet as well as traditional enterprise networks.

In July 1999, the company acquired Dialogic Corporation to expand Intel's standard high-volume server business in the networking and telecommunications market segments. Dialogic designs, manufactures and markets computer hardware and software enabling technology for computer telephony systems.

In August 1999, the company acquired Level One Communications, Inc. Approximately 69 million shares of Intel common stock were issued in connection with the purchase. In addition, Intel assumed Level One's convertible debt with a fair value of approximately $212 million at acquisition. This debt has since been converted to Intel common stock. Level One provides silicon connectivity solutions for high-speed telecommunications and networking applications.

In September 1999, the company acquired NetBoost Corporation. NetBoost develops and markets hardware and software solutions for communications equipment suppliers and independent software vendors in the networking and communications market segments.

In October 1999, the company acquired IPivot, Inc. IPivot designs and manufactures Internet commerce equipment that manages large volumes of Internet traffic securely and efficiently.

In November 1999, the company acquired DSP Communications, Inc., which supplies solutions for digital cellular communications products, including chipsets, reference designs, software and other key technologies for lightweight wireless handsets.

1998In January 1998, the company acquired Chips and Technologies, Inc. Chips and Technologies was a supplier of graphics accelerator chips for mobile computing products.

In May 1998, the company purchased the semiconductor operations of Digital Equipment Corporation. Assets acquired consisted primarily of property, plant and equipment. Following the purchase, lawsuits between the companies that had been pending since 1997 were dismissed with prejudice.

These purchase transactions are further described below:

(In millions)		Consid- eration			Purchased in-process research & devel- opment			Goodwill & other identified intangibles			Form of consideration
2000
Ambient		$	148		$	10		$	135			Cash and options   assumed
GIGA		$	1,247		$	52		$	1,184			Cash
Picazo		$	120		$	—		$	120			Cash and options   assumed
Basis		$	453		$	21		$	472			Cash and options   assumed
Trillium		$	277		$	8		$	232			Common stock, cash   and options assumed
Ziatech		$	222		$	18		$	185			Cash and options   assumed
1999
Shiva		$	132		$	—		$	99			Cash and options   assumed
Softcom		$	149		$	9		$	139			Cash and options   assumed
Dialogic		$	732		$	83		$	614			Cash and options   assumed
Level One		$	2,137		$	231		$	2,007			Common stock and   options assumed
NetBoost		$	215		$	10		$	205			Cash and options   assumed
IPivot		$	496		$	—		$	505			Cash and options   assumed
DSP
Communications		$	1,599		$	59		$	1,491			Cash and options   assumed
1998
Chips and
Technologies		$	337		$	165		$	126			Cash and options   assumed
Semiconductor   operations of
Digital		$	585		$	—		$	32			Cash
Consideration includes the cash paid, less any cash acquired; the value of stock issued and options assumed; and excludes any debt assumed.

For 2000, 1999 and 1998, $109 million, $392 million and $165 million, respectively, were allocated to purchased in-process research and development (IPR&D) and expensed upon acquisition of the above companies, because the technological feasibility of products under development had not been established and no future alternative uses existed. The fair value of the IPR&D was determined using the income approach, which discounts expected future cash flows from projects under development to their net present value. Each project was analyzed to determine the technological innovations included; the utilization of core technology; the complexity, cost and time to complete development; any alternative future use or current technological feasibility; and the stage of completion. Future cash flows were estimated, taking into account the expected life cycles of the products and the underlying technology, market sizes and industry trends. Discount rates were derived from weighted average cost of capital analyses, adjusted to reflect the relative risks inherent in each entity's development process. The IPR&D charge includes the fair value of IPR&D completed. The fair value assigned to developed technology is included in identified intangible assets, and no value is assigned to IPR&D to be completed or to future development. Intel believes the amounts determined for IPR&D, as well as developed technology, are representative of fair value and do not exceed the amounts an independent party would pay for these projects.

In addition to the transactions described above, Intel purchased other businesses in smaller transactions. The total amount allocated to goodwill and identified intangibles for these transactions was $237 million ($175 million in 1999), which represents a substantial majority of the consideration for these transactions.

The consolidated financial statements include the operating results of acquired businesses from the dates of acquisition. The operating results of Ambient, GIGA, Basis, Trillium, Level One, Softcom and NetBoost have been included in the Network Communications Group operating segment. The operating results of Picazo, Ziatech, Shiva, Dialogic and IPivot have been included in the Communications Products Group operating segment. The operating results of DSP Communications have been included in the Wireless Communications and Computing Group operating segment. All of these groups are part of the "all other" category for segment reporting purposes. The operating results of Chips and Technologies have been included in the Intel Architecture Group operating segment.

The unaudited pro forma information below assumes that companies acquired in 2000 and 1999 had been acquired at the beginning of 1999 and includes the effect of amortization of goodwill and other identified intangibles from that date. The impact of charges for IPR&D has been excluded. This is presented for informational purposes only and is not necessarily indicative of the results of future operations or results that would have been achieved had the acquisitions taken place at the beginning of 1999.

During 2000, the company recorded acquisition-related purchase consideration of $123 million as unearned stock-based compensation, in accordance with Financial Accounting Standards Board Interpretation No. 44, "Accounting for Certain Transactions Involving Stock Compensation." This amount represents the portion of the purchase consideration related to shares issued contingent on continued employment of certain employee stockholders and the intrinsic value of stock options assumed that are earned as future services are provided by employees. The compensation is being recognized over the related employment period, and the expense is included in the amortization of goodwill and other acquisition-related intangibles and costs. A total of $26 million of expense was recognized for 2000.

During 2000, the company announced that it would replace motherboards that had a defective memory translator hub (MTH) component with the Intel® 820 Chipset. The company took a charge with a total impact on gross margin of approximately $253 million. As of December 30, 2000, the remaining balance of the reserve was approximately $54 million. Management believes that the balance in the reserve is adequate and appropriate for the estimated remaining costs of the motherboard replacement program.

The company leases a portion of its capital equipment and certain of its facilities under operating leases that expire at various dates through 2013. Rental expense was $123 million in 2000, $71 million in 1999 and $64 million in 1998. Minimum rental commitments under all non-cancelable leases with an initial term in excess of one year are payable as follows: 2001–$89 million; 2002–$78 million; 2003–$55 million; 2004–$47 million; 2005–$42 million; 2006 and beyond–$196 million. Commitments for construction or purchase of property, plant and equipment approximated $5.0 billion at December 30, 2000. In connection with certain manufacturing arrangements, Intel had minimum purchase commitments of approximately $76 million at December 30, 2000 for flash memory and silicon wafers.

In January 2001, Intel announced that it had entered into a definitive agreement to acquire Xircom, Inc. for $25 per share in an all-cash tender offer valued at approximately $748 million, before consideration of any cash acquired. In addition, Intel will assume existing employee options. Xircom is a supplier of PC cards and other products used to connect mobile computing devices to corporate networks and the Internet. The completion of this transaction is subject to acceptance of this offer by holders of a majority of the outstanding shares of Xircom on a fully diluted basis, other customary conditions and compliance by Xircom with certain financial and business criteria. This acquisition is expected to be accounted for using the purchase method of accounting.

In November 1997, Intergraph Corporation filed suit in Federal District Court in Alabama, generally alleging that Intel attempted to coerce Intergraph into relinquishing certain patent rights. The suit alleges that Intel infringes five Intergraph microprocessor-related patents, and includes alleged violations of antitrust laws and various state law claims. The suit seeks injunctive relief, damages and prejudgment interest, and further alleges that Intel's infringement is willful and that any damages awarded should be trebled. Intergraph's expert witness has claimed that Intergraph is entitled to damages of approximately $2.2 billion for Intel's alleged patent infringement, $500 million for the alleged antitrust violations and an undetermined amount for alleged state law violations. Intel believes that it does not infringe Intergraph's patents and believes those patents are invalid and unenforceable. Intel has counterclaimed that the Intergraph patents are invalid and further alleges infringement of seven Intel patents, breach of contract and misappropriation of trade secrets. In October 1999, the court reconsidered an earlier adverse ruling and granted Intel's motion for summary judgment that the Intergraph patents are licensed to Intel, and dismissed all of Intergraph's patent infringement claims with prejudice. This ruling has been reversed by the Court of Appeals for the Federal Circuit, and as a result, the patent issues are returned to the District Court. In March 2000, the District Court granted Intel's motion for summary judgment on Intergraph's federal antitrust claims, and in April 2000, Intergraph appealed this ruling. Intergraph's state law claims remain at issue in the trial court. The company disputes Intergraph's claims and intends to defend the lawsuit vigorously.

The company is currently party to various legal proceedings, including that noted above. While management, including internal counsel, currently believes that the ultimate outcome of these proceedings, individually and in the aggregate, will not have a material adverse effect on the company's financial position or overall trends in results of operations, litigation is subject to inherent uncertainties. Were an unfavorable ruling to occur, there exists the possibility of a material adverse impact on the net income of the period in which the ruling occurs.

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 would not have a material adverse effect on the company's financial position or overall trends in results of operations, even if joint and several liability were to be assessed.

The estimate of the potential impact on the company's financial position or overall results of operations for the above legal proceedings could change in the future.

Intel designs, develops, manufactures and markets computer and networking and communications products at various levels of integration. The company is organized into five product-line operating segments: the Intel Architecture Group, the Wireless Communications and Computing Group, the Communications Products Group, the Network Communications Group and the New Business Group. Each group has a vice president who reports directly to the Chief Executive Officer (CEO). The CEO allocates resources to each group using information about their revenues and operating profits before interest and taxes. The CEO has been identified as the Chief Operating Decision Maker as defined by SFAS No. 131. Only the Intel Architecture Group meets the criteria for a reportable segment under the standard.

The Intel Architecture Group's products include microprocessors and related board-level products and chipsets based on the P6 micro-architecture (including the Pentium® III, Intel® Celeron™ and Pentium® III Xeon™ processors) as well as the Pentium® 4 processor based on the new Intel® NetBurst™ micro-architecture. Sales of microprocessors and related board-level products, including chipsets, based on the P6 micro-architecture comprised a substantial majority of the company's 2000 revenues and gross margin. The Wireless Communications and Computing Group's products are primarily component-level hardware for digital cellular communications and other wireless applications, including flash memory, low-power processors and baseband chipsets for wireless devices. The Communications Products Group's products consist of building blocks for Internet data centers and networks. The Network Communications Group's products include communications silicon components, such as network processors, used in local and wide area networking applications and embedded control chips. The New Business Group provides e-Commerce data center services as well as products such as connected peripherals. Intel's products in all operating groups are sold directly to original equipment manufacturers, and through retail and industrial distributors, resellers and e-Business channels throughout the world.

In addition to these operating segments, the sales and marketing, manufacturing, finance and administration groups report to the CEO. Expenses of these groups are allocated to the operating segments and are included in the operating results reported below. Certain corporate-level operating expenses (primarily the amount by which profit-dependent bonus expenses differ from a targeted level recorded by the operating segments) are not allocated to operating segments and are included in "all other" in the reconciliation of operating profits reported below.

During 1999 and 1998, changes in the reserve for deferred income on shipments to distributors were not allocated to the operating segments and were included in the "all other" category. For 2000, the revenues and operating profit related to changes in the distributor reserve have been allocated to the operating segments, and information for prior periods has been restated to conform to the new presentation.

Intel does not identify or allocate assets by operating segment, and does not allocate depreciation as such to the operating segments, nor does the CEO evaluate groups on these criteria. Operating segments do not record intersegment revenues, and, accordingly, there are none to be reported. Intel does not allocate interest and other income, interest expense or taxes to operating segments. The accounting policies for segment reporting are the same as for the company as a whole (see "Accounting policies ").

Information on reportable segments for the three years ended December 30, 2000 is as follows:

(In millions)	2000			1999			1998
Intel Architecture Group
Revenues	$	27,297		$	25,459		$	23,654
Operating profit	$	12,986		$	11,435		$	9,314
All other
Revenues	$	6,429		$	3,930		$	2,619
Operating loss	$	(2,591)		$	(1,668)		$	(935)
Total
Revenues	$	33,726		$	29,389		$	26,273
Operating profit	$	10,395		$	9,767		$	8,379

In both 2000 and 1999, two customers each accounted for 13% of the company's revenues. In 1998, one customer accounted for 13% of the company's revenues and another accounted for 11%. A substantial majority of the sales to these customers were Intel Architecture Group products.

Geographic revenue information for the three years ended December 30, 2000 is based on the location of the selling entity. Property, plant and equipment information is based on the physical location of the assets at the end of each of the fiscal years.

Revenues from unaffiliated customers by geographic region were as follows:

(In millions)	2000			1999			1998
United States	$	13,912		$	12,740		$	11,663
Asia-Pacific		8,674			6,704			5,309
Europe		8,066			7,798			7,452
Japan		3,074			2,147			1,849
Total revenues	$	33,726		$	29,389		$	26,273

Net property, plant and equipment by country was as follows:

(In millions)	2000			1999
United States	$	11,108		$	8,127
Ireland		1,545			1,312
Other foreign countries		2,360			2,276
Total property, plant and equipment, net	$	15,013		$	11,715

Quarterly information for the two years ended December 30, 2000 is presented in "Financial information by quarter (unaudited) ."