Fiscal year. Intel Corporation ("Intel" or "the Company") has a fiscal year that ends the last Saturday in December. Fiscal years 1997, 1996 and 1995, each 52-week years, ended on December 27, 28 and 30, respectively. Periodically, there will be a 53-week year. The next 53-week year will end on December 30, 2000.

Basis of presentation. The consolidated financial statements include the accounts of Intel and its wholly owned subsidiaries. Significant intercompany accounts and transactions have been eliminated. Accounts denominated in foreign currencies have been remeasured into the functional currency in accordance with Statement of Financial Accounting Standards ("SFAS") No. 52, "Foreign Currency Translation," using the U.S. dollar as the functional currency.

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Investments. Highly liquid investments with insignificant interest rate risk and with original maturities of three months or less are classified as cash and cash equivalents. Investments with maturities greater than three months and less than one year are classified as short-term investments. Investments with maturities greater than one year are classified as long-term investments.

The Company accounts for investments in accordance with SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities." The Company's policy is to protect the value of its investment portfolio and to minimize principal risk by earning returns based on current interest rates. For equity investments entered into for the promotion of business and strategic objectives, an insignificant portion of the investment portfolio, the Company typically does not attempt to reduce or eliminate the inherent market risks. A substantial majority of the Company's marketable investments are classified as available-for-sale as of the balance sheet date and are reported at fair value, with unrealized gains and losses, net of tax, recorded in stockholders' equity. The cost of securities sold is based on the specific identification method. Realized gains or losses and declines in value, if any, judged to be other than temporary, on available-for-sale securities are reported in other income or expense. Investments in non-marketable instruments are recorded at the lower of cost or market and included in other assets.

Trading assets. During 1996, the Company began purchasing securities classified as trading assets. Net gains on the trading asset portfolio were $37 million and $12 million in 1997 and 1996, respectively. The Company maintains its trading asset portfolio to generate returns that offset changes in certain liabilities related to deferred compensation arrangements. The trading assets consist of marketable equity securities and are stated at fair value. Both realized and unrealized gains and losses are included in other income or expense and generally offset the change in the deferred compensation liability, which is also included in other income or expense.

Fair values of financial instruments. Fair values of cash and cash equivalents approximate cost due to the short period of time to maturity. Fair values of long-term investments, long-term debt, short-term investments, short-term debt, long-term debt redeemable within one year, trading assets, non-marketable instruments, swaps, currency forward contracts, currency options and options hedging marketable instruments are based on quoted market prices or pricing models using current market rates. No consideration is given to liquidity issues in valuing debt.

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

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

(In millions)	1997		1996
Raw materials	$ 255		$ 280
Work in process	928		672
Finished goods	514		341
Total	$ 1,697		$ 1,293

Property, plant and equipment. Property, plant and equipment are stated at cost. Depreciation is computed for financial reporting purposes principally by use of the straight-line method over the following estimated useful lives: machinery and equipment, 2-4 years; land and buildings, 4-40 years.

The Company evaluates property, plant and equipment in accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."

Deferred income on shipments to distributors. Certain of the Company's sales are made to distributors under agreements allowing price protection and/or right of return on merchandise unsold by the distributors. Because of frequent sales price reductions and rapid technological obsolescence in the industry, Intel defers recognition of such sales until the merchandise is sold by the distributors.

Advertising. Cooperative advertising obligations are accrued and the costs expensed at the same time the related revenue is recognized. All other advertising costs are expensed as incurred. The Company does not incur any direct-response advertising costs. Advertising expense was $1,203 million, $974 million and $654 million in 1997, 1996 and 1995, respectively.

Interest. Interest as well as gains and losses related to contractual agreements to hedge certain investment positions and debt (see "Derivative financial instruments") are recorded as net interest income or expense on a monthly basis. Interest expense capitalized as a component of construction costs was $9 million, $33 million and $46 million for 1997, 1996 and 1995, respectively.

Earnings per share. The consolidated financial statements are presented in accordance with SFAS No. 128, "Earnings per Share." Basic earnings per common share are computed using the weighted average number of common shares outstanding during the period. Diluted earnings per common share incorporate the incremental shares issuable upon the assumed exercise of stock options and warrants. Diluted earnings per common share do not differ from the Company's previously reported earnings per common and common equivalent share.

Stock distribution. On July 13, 1997, the Company effected a two-for-one stock split in the form of a special stock distribution to stockholders of record as of June 10, 1997. All share, per share, Common Stock, stock option and warrant amounts herein have been restated to reflect the effect of this split.

Recent accounting pronouncements. The Company intends to adopt SFAS No. 130, "Reporting Comprehensive Income," and SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," in fiscal 1998. Both will require additional disclosure but will not have a material effect on the Company's financial position or results of operations. SFAS No. 130 will first be reflected in the Company's first quarter of 1998 interim financial statements. Components of comprehensive income for the Company include items such as net income and changes in the value of available-for-sale securities. SFAS No. 131 requires segments to be determined based on how management measures performance and makes decisions about allocating resources. SFAS No. 131 will first be reflected in the Company's 1998 Annual Report.

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1998 Step-Up Warrants. In 1993, the Company issued 80 million 1998 Step-Up Warrants to purchase 80 million shares of Common Stock. This transaction resulted in an increase of $287 million in Common Stock and capital in excess of par value, representing net proceeds from the offering. The Warrants became exercisable in May 1993 at an effective price of $17.875 per share of Common Stock, subject to annual increases to a maximum price of $20.875 per share effective in March 1997. As of December 27, 1997, approximately 78 million Warrants were exercisable at a price of $20.875 per Warrant. These Warrants expire on March 14, 1998.

Stock repurchase program. The Company has an ongoing authorization, as amended, from the Board of Directors to repurchase up to 280 million shares of Intel's Common Stock and Step-Up Warrants in open market or negotiated transactions. During 1997, the Company repurchased 43.6 million shares of Common Stock at a cost of $3.4 billion. As of December 27, 1997, the Company had repurchased and retired approximately 213.4 million shares at a cost of $6.9 billion since the program began in 1990. As of December 27, 1997, after reserving 26.3 million shares to cover outstanding put warrants, 40.3 million shares remained available under the repurchase authorization.

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In a series of private placements from 1991 through 1997, the Company sold put warrants that entitle the holder of each warrant to sell to the Company, by physical delivery, one share of Common Stock at a specified price. On certain of these warrants, the Company simultaneously entered into additional contractual arrangements which cause the warrants to terminate if the Company's stock price reaches specified levels. Activity during the past three years is summarized as follows:

			Put warrants outstanding
(In millions)	Cumulative net premium received		Number of warrants		Potential obligation
December 31, 1994	$ 194		50.0		$ 744
Sales	85		35.0		925
Repurchases	-		(11.0)		(201)
Expirations	-		(50.0)		(743)
December 30, 1995	279		24.0		725
Sales	56		18.0		603
Exercises	-		(3.6)		(108)
Expirations	-		(29.4)		(945)
December 28, 1996	335		9.0		275
Sales	288		46.3		3,525
Expirations	-		(29.0)		(1,759)
December 27, 1997	$ 623		26.3		$ 2,041

The amount related to Intel's potential repurchase obligation has been reclassified from stockholders' equity to put warrants. The 26.3 million put warrants outstanding at December 27, 1997 expire on various dates between February and August 1998 and have exercise prices ranging from $68 to $95 per share, with an average exercise price of $78 per share. There is no significant effect on diluted earnings per share for the periods presented.

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Short-term debt. Short-term debt and weighted average interest rates at fiscal year-ends were as follows:

			1997				1996
(In millions)			Balance		Weighted average interest rate		Balance		Weighted average interest rate
Borrowed under
	lines of credit		$ 32		N/A		$ 30		N/A
Reverse repurchase
	agreements payable in non-U.S. currencies		-		-		263		6.4%
Notes payable			-		-		3		0.7%
Drafts payable			180		N/A		93		N/A
Total			$ 212				$ 389

The Company also borrows under commercial paper programs. Maximum borrowings under commercial paper programs reached $175 million during 1997 and $306 million during 1996. This debt is rated A-1+ by Standard and Poor's and P-1 by Moody's. Proceeds are used to fund short-term working capital needs.

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

(In millions)		1997		1996
Payable in U.S. dollars:
	AFICA Bonds due 2013 at 4%	$ 110		$ 110
	Reverse repurchase arrangement due 2001	-		300
	Other U.S. dollar debt	6		4
Payable in other currencies:
	Irish punt due 1999-2027 at 5%-12%	396		268
	Greek drachma due 2001	46		46
Subtotal		$ 558		$ 728
Less long-term debt redeemable within one year		(110)		-
Total		$ 448		$ 728

The Company has guaranteed repayment of principal and interest on the AFICA Bonds issued by the Puerto Rico Industrial, Medical and Environmental Pollution Control Facilities Financing Authority ("AFICA"). The bonds are adjustable and redeemable at the option of either the Company or the bondholder every five years through 2013. They are next adjustable and redeemable in 1998 and accordingly have been reclassified as a current liability at December 27, 1997. The Irish punt borrowings were made in connection with the financing of a factory in Ireland, and Intel has invested the proceeds in Irish punt denominated instruments of similar maturity to hedge foreign currency and interest rate exposures. The Greek drachma borrowings were made under a tax incentive program in Ireland, and the proceeds and cash flows have been swapped to U.S. dollars. The $300 million reverse repurchase arrangement originally payable in 2001 was repaid in 1997. It had a borrowing rate of 5.9% at December 28, 1996.

Under shelf registration statements filed with the Securities and Exchange Commission, Intel originally had the authority to issue up to $3.3 billion in the aggregate of Common Stock, Preferred Stock, depositary shares, debt securities and warrants to purchase the Company's or other issuers' Common Stock, Preferred Stock and debt securities, and, subject to certain limits, stock index warrants and foreign currency exchange units. In 1993, Intel completed an offering of Step-Up Warrants (see "1998 Step-Up Warrants") under these registration statements. The Company may issue up to approximately $1.4 billion in additional securities under effective registration statements.

As of December 27, 1997, aggregate debt maturities were as follows: 1998-$110 million; 1999-$7 million; 2000-$5 million; 2001-$56 million; 2002-$15 million; and thereafter-$365 million.

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

Investments with maturities of greater than six months consist primarily of A and A2 or better rated financial instruments and counterparties. Investments with maturities of up to six months consist primarily of A-1 and P-1 or better rated financial instruments and counterparties. Foreign government regulations imposed upon investment alternatives of foreign subsidiaries, or the absence of A and A2 rated counterparties in certain countries, result in some minor exceptions. Intel's practice is to obtain and secure available collateral from counterparties against obligations whenever Intel deems appropriate. At December 27, 1997, investments were placed with approximately 250 different counterparties.

Investments at December 27, 1997 were as follows:

(In millions)		Cost		Gross unrealized gains		Gross unrealized losses		Estimated fair value
Commercial paper		$ 3,572		$ 1		$ (9)		$ 3,564
Bank deposits		2,369		-		(2)		2,367
Corporate bonds		1,788		12		(73)		1,727
Floating rate notes		843		1		(2)		842
Loan participations		743		-		-		743
Repurchase agreements		515		-		-		515
Securities of foreign
	governments	75		-		(6)		69
Fixed rate notes		32		-		-		32
Other debt securities		294		-		(1)		293
	Total debt securities	10,231		14		(93)		10,152
Hedged equity		504		9		(17)		496
Preferred stock and
	other equity	620		131		(41)		710
	Total equity securities	1,124		140		(58)		1,206
Swaps hedging
	investments in
	debt securities	-		76		(12)		64
Swaps hedging
	investments in
	equity securities	-		17		(9)		8
Currency forward
	contracts hedging
	investments in
	debt securities	-		16		(1)		15
Total available-for-sale
	securities	11,355		263		(173)		11,445
Less amounts classified
	as cash equivalents	(3,976)		-		-		(3,976)
Total investments		$ 7,379		$ 263		$ (173)		$ 7,469

Investments at December 28, 1996 were as follows:

(In millions)		Cost		Gross unrealized gains		Gross unrealized losses		Estimated fair value
Commercial paper		$ 2,386		$ -		$ (1)		$ 2,385
Bank deposits		1,846		-		(2)		1,844
Repurchase agreements		931		-		(1)		930
Loan participations		691		-		-		691
Corporate bonds		657		10		(6)		661
Floating rate notes		366		-		-		366
Securities of foreign
	governments	265		14		(2)		277
Fixed rate notes		262		-		-		262
Other debt securities		284		-		(2)		282
	Total debt securities	7,688		24		(14)		7,698
Hedged equity		891		71		(15)		947
Preferred stock and
	other equity	270		174		(3)		441
	Total equity securities	1,161		245		(18)		1,388
Swaps hedging investments
	in debt securities	-		5		(17)		(12)
Swaps hedging investments
	in equity securities	-		15		(42)		(27)
Options hedging investments
	in equity securities	(9)		-		(16)		(25)
Currency forward contracts
	hedging investments
	in debt securities	-		5		-		5
Total available-for-sale
	securities	8,840		294		(107)		9,027
Less amounts classified
	as cash equivalents	(3,932)		-		-		(3,932)
Total investments		$ 4,908		$ 294		$ (107)		$ 5,095

Available-for-sale securities with a fair value at the date of sale of $153 million, $225 million and $114 million were sold in 1997, 1996 and 1995, respectively. The gross realized gains on these sales totaled $106 million, $7 million and $60 million, respectively.

The amortized cost and estimated fair value of investments in debt securities at December 27, 1997, by contractual maturity, were as follows:

(In millions)	Cost		Estimated fair value
Due in 1 year or less	$ 8,925		$ 8,863
Due in 1-2 years	638		620
Due in 2-5 years	293		295
Due after 5 years	375		374
Total investments in debt securities	$ 10,231		$ 10,152

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

(In millions)			1997		1996
Swaps hedging investments in debt securities		$	2,017	$	900
Swaps hedging investments in equity securities		$	604	$	918
Swaps hedging debt		$	155	$	456
Currency forward contracts		$	1,724	$	1,499
Currency options		$	55	$	94
Options hedging investments
	in marketable equity securities	$	-	$	82

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

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

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

Weighted average pay and receive rates, average maturities and range of maturities on swaps at December 27, 1997 were as follows:

		Weighted average pay rate		Weighted average receive rate		Weighted average maturity		Range of maturities
Swaps hedging
	investments in U.S.
	dollar debt securities	6.1%		5.8%		.9 years		0-3 years
Swaps hedging
	investments in foreign
	currency debt securities	6.3%		5.9%		1.0 years		0-3 years
Swaps hedging
	investments in
	equity securities	N/A		5.7%		.6 years		0-2 years
Swaps hedging debt		5.9%		5.2%		1.6 years		0-4 years

Note: Pay and receive rates are based on the reset rates that were in effect at December 27, 1997.

Other foreign currency instruments. Intel transacts business in various foreign currencies, primarily Japanese yen and certain other Asian and European currencies. The Company has established revenue and balance sheet hedging programs to protect against reductions in value and volatility of future cash flows caused by changes in foreign exchange rates. The Company utilizes currency forward contracts and currency options in these hedging programs. The maturities on these instruments are less than 12 months. Deferred gains or losses attributable to foreign currency instruments are not material.

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

		1997					1996
(In millions)		Carrying amount		Estimated fair value			Carrying amount		Estimated fair value
Cash and cash equivalents		$	4,102	$	4,102		$	4,165	$	4,165
Short-term investments		$	5,561	$	5,561		$	3,736	$	3,736
Trading assets		$	195	$	195		$	87	$	87
Long-term investments		$	1,821	$	1,821		$	1,418	$	1,418
Non-marketable
	instruments	$	387	$	497		$	119	$	194
Swaps hedging invest-
	ments in debt securities	$	64	$	64		$	(12)	$	(12)
Swaps hedging
	investments in
	equity securities	$	8	$	8		$	(27)	$	(27)
Options hedging invest-
	ments in marketable
	equity securities	$	-	$	-		$	(25)	$	(25)
Short-term debt		$	(212)	$	(212)		$	(389)	$	(389)
Long-term debt redeemable
	within one year	$	(110)	$	(109)			-		-
Long-term debt		$	(448)	$	(448)		$	(728)	$	(731)
Swaps hedging debt		$	-	$	(1)		$	-	$	13
Currency forward
	contracts	$	26	$	28		$	5	$	18
Currency options		$	1	$	1		$	-	$	-

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Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of investments and trade receivables. Intel places its investments with high-credit-quality counterparties and, by policy, limits the amount of credit exposure to any one counterparty based on Intel's analysis of that counterparty's relative credit standing. A majority of the Company's trade receivables are derived from sales to manufacturers of computer systems, with the remainder spread across various other industries. The Company's five largest customers accounted for approximately 39% of net revenues for 1997. At December 27, 1997, these customers accounted for approximately 34% of net accounts receivable.

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

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The provision for taxes consisted of the following:

(In millions)		1997		1996		1995
Income before taxes:
	U.S.	$ 8,033		$ 5,515		$ 3,427
	Foreign	2,626		2,419		2,211
Total income before taxes		$ 10,659		$ 7,934		$ 5,638
Provision for taxes:
Federal:
	Current	$ 2,930		$ 2,046		$ 1,169
	Deferred	30		8		307
		2,960		2,054		1,476
State:
	Current	384		286		203
Foreign:
	Current	394		266		354
	Deferred	(24)		171		39
		370		437		393
Total provision for taxes		$ 3,714		$ 2,777		$ 2,072
Effective tax rate		34.8%		35.0%		36.8%

The tax benefit associated with dispositions from employee stock plans reduced taxes currently payable for 1997 by $224 million ($196 million and $116 million for 1996 and 1995, respectively).

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

(In millions)	1997		1996		1995
Computed expected tax	$ 3,731		$ 2,777		$ 1,973
State taxes, net of federal benefits	249		186		132
Other	(266)		(186)		(33)
Provision for taxes	$ 3,714		$ 2,777		$ 2,072

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

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

(In millions)	1997		1996
Deferred tax assets
Accrued compensation and benefits	$ 76		$ 71
Deferred income	200		147
Inventory valuation and related reserves	163		187
Interest and taxes	49		54
Other, net	188		111
	676		570
Deferred tax liabilities
Depreciation	(882)		(573)
Unremitted earnings of certain subsidiaries	(162)		(359)
Other, net	(32)		(65)
	(1,076)		(997)
Net deferred tax (liability)	$ (400)		$ (427)

U.S. income taxes were not provided for on a cumulative total of approximately $1,505 million of undistributed earnings for certain non-U.S. subsidiaries. The Company intends to reinvest these earnings indefinitely in operations outside the United States.

During 1997, the Company officially settled all tax and related interest for years 1978 through 1990 with the Internal Revenue Service ("IRS"). There was no material effect on the Company's 1997 financial statements.

The Company's U.S. income tax returns for the years 1991 through 1993 are presently under examination by the IRS. Final proposed adjustments have not yet been received for these years. In addition, examination by the IRS of the Company's income tax returns for the years 1994 through 1996 began in 1997. Management believes that adequate amounts of tax and related interest and penalties, if any, have been provided for any adjustments that may result for the years under examination.

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Stock option plans. Intel has a 1984 Stock Option Plan under which officers, key employees and non-employee directors may be granted options to purchase shares of the Company's authorized but unissued Common Stock. In 1997, the Board of Directors approved the 1997 Stock Option Plan, which made an additional 130 million shares available for employees other than officers and directors. The Company also has an Executive Long-Term Stock Option Plan under which certain employees, including officers, may be granted options to purchase shares of the Company's authorized but unissued Common Stock. Under all of the plans, the option exercise price is equal to fair market value at the date of grant.

Options currently expire no later than 10 years from the grant date and generally vest after 5 years. Proceeds received by the Company from exercises are credited to Common Stock and capital in excess of par value. Additional information with respect to stock option plan activity was as follows:

			Outstanding options
(In millions)	Shares available for options		Number of shares	Weighted average exercise price
December 31, 1994	108.9		170.3	$	7.64
Grants	(27.9)		27.9	$	24.11
Exercises	-		(21.3)	$	4.07
Cancellations	5.9		(5.9)	$	12.83
December 30, 1995	86.9		171.0	$	10.60
Grants	(26.7)		26.7	$	34.56
Exercises	-		(23.7)	$	4.93
Cancellations	5.1		(5.1)	$	17.05
December 28, 1996	65.3		168.9	$	14.98
Additional shares reserved	130.0		-		-
Grants	(31.5)		31.5	$	72.46
Exercises	-		(23.6)	$	6.11
Cancellations	4.4		(4.4)	$	32.76
December 27, 1997	168.2		172.4	$	26.24
Options exercisable at:
December 30, 1995			58.2	$	4.55
December 28, 1996			57.3	$	5.72
December 27, 1997			57.6	$	7.33

The range of exercise prices for options outstanding at December 27, 1997 was $2.52 to $97.94. The range of exercise prices for options is wide due primarily to the increasing price of the Company's stock over the period when the grants were made.

The following tables summarize information about options outstanding at December 27, 1997:

	Outstanding options
Range of exercise prices	Number of shares (in millions)	Weighted average contract- ual life (in years)		Weighted average exercise price
$2.52 - $9.78	49.2		2.9	$	5.34
$11.09 - $20.56	45.1		5.8	$	14.04
$22.20 - $48.47	46.5		7.9	$	28.95
$52.09 - $97.94	31.6		9.4	$	72.12
Total	172.4		6.2	$	26.24

	Exercisable options
Range of exercise prices	Number of shares (in millions)	Weighted average exercise price
$2.52 - $9.78	49.1	$	5.34
$11.09 - $20.56	6.2	$	13.90
$22.20 - $48.47	2.1	$	29.86
$52.09 - $97.94	.2	$	60.09
Total	57.6	$	7.33

These options will expire if not exercised at specific dates ranging from January 1998 to December 2007. Prices for options exercised during the three-year period ended December 27, 1997 ranged from $1.52 to $61.31.

Stock Participation Plan. Under this plan, eligible employees may purchase shares of Intel's Common Stock at 85% of fair market value at specific, predetermined dates. Of the 236 million shares authorized to be issued under the plan, 43.0 million shares were available for issuance at December 27, 1997. Employees purchased 4.5 million shares in 1997 (7.0 million in 1996 and in 1995) for $191 million ($140 million and $110 million in 1996 and 1995, respectively).

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

Pro forma information regarding net income and earnings per share is required by SFAS No. 123. This information is required to be determined as if the Company had accounted for its employee stock options (including shares issued under the Stock Participation Plan, collectively called "options") granted subsequent to December 31, 1994 under the fair value method of that statement. The fair value of options granted in 1997, 1996 and 1995 reported below has been estimated at the date of grant using a Black-Scholes option pricing model with the following weighted average assumptions:

Employee stock options	1997		1996		1995
Expected life (in years)	6.5		6.5		6.5
Risk-free interest rate	6.6%		6.5%		6.8%
Volatility	.36		.36		.36
Dividend yield	.1%		.2%		.3%
Stock Participation Plan shares	1997		1996		1995
Expected life (in years)	.5		.5		.5
Risk-free interest rate	5.3%		5.3%		6.0%
Volatility	.40		.36		.36
Dividend yield	.1%		.2%		.3%

The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions, including the expected stock price volatility. Because the Company's options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in the opinion of management, the existing models do not necessarily provide a reliable single measure of the fair value of its options. The weighted average estimated fair value of employee stock options granted during 1997, 1996 and 1995 was $35.33, $16.35 and $11.63 per share, respectively. The weighted average estimated fair value of shares granted under the Stock Participation Plan during 1997, 1996 and 1995 was $22.08, $8.11 and $6.13, respectively.

For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting periods. The Company's pro forma information follows (in millions except for earnings per share information):

		1997		1996		1995
Pro forma net income	$	6,735	$	5,046	$	3,506
Pro forma basic earnings per share	$	4.12	$	3.07	$	2.12
Pro forma diluted earnings per share	$	3.76	$	2.84	$	1.98

The effects on pro forma disclosures of applying SFAS No. 123 are not likely to be representative of the effects on pro forma disclosures of future years. Because SFAS No. 123 is applicable only to options granted subsequent to December 31, 1994, the pro forma effect will not be fully reflected until 1999.

Retirement plans. The Company provides tax-qualified profit-sharing retirement plans (the "Qualified Plans") for the benefit of eligible employees in the U.S. and Puerto Rico and certain foreign countries. The plans are designed to provide employees with an accumulation of funds for retirement on a tax-deferred basis and provide for annual discretionary 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 in excess of the tax limits applicable to the Qualified Plans and to permit employee deferrals in excess of certain tax limits. This plan is unfunded.

The Company accrued $273 million for the Qualified Plans and the Non-Qualified Plan in 1997 ($209 million in 1996 and $188 million in 1995). Of the $273 million accrued in 1997, the Company expects to fund approximately $245 million for the 1997 contribution to the Qualified Plans and to allocate approximately $12 million for the Non-Qualified Plan. The remainder, plus approximately $193 million carried forward from prior years, is expected to be contributed to these plans when allowable under IRS regulations and plan rules.

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

The Company provides tax-qualified defined-benefit pension plans for the benefit of eligible employees in the U.S. and Puerto Rico. Each plan provides for minimum pension benefits that are determined by a participant's years of service, final average compensation (taking into account the participant's social security wage base) and the value of the Company's contributions, plus earnings, in the Qualified Plan. If the participant's balance in the Qualified Plan exceeds the pension guarantee, the participant will receive benefits from the Qualified Plan only. Intel's funding policy is consistent with the funding requirements of federal laws and regulations.

Pension expense for 1997, 1996 and 1995 for the U.S. and Puerto Rico plans was less than $1 million per year, and no component of expense exceeded $4 million.

The funded status of these plans as of December 27, 1997 and December 28, 1996 was as follows:

(In millions)	1997			1996
Vested benefit obligation	$		(5)	$		(3)
Accumulated benefit obligation	$		(5)	$		(4)
Projected benefit obligation	$		(6)	$		(5)
Fair market value of plan assets			14			11
Projected benefit obligation less than plan assets			8			6
Unrecognized net (gain)			(15)			(15)
Unrecognized prior service cost			2			3
Accrued pension costs	$		(5)	$		(6)

At fiscal year-ends, significant assumptions used were as follows:

	1997		1996		1995
Discount rate	7.0%		7.0%		7.0%
Rate of compensation increase	5.0%		5.0%		5.0%
Expected long-term return on assets	8.5%		8.5%		8.5%