Intel (INTC)

Financial Condition

Our financial condition remains strong. At July 2, 2005, cash, short-term investments and fixed income debt instruments included in trading assets totaled $14.5 billion, down from $16.8 billion at December 25, 2004. At July 2, 2005, total short-term and long-term debt was $748 million and represented approximately 2% of stockholders’ equity. At December 25, 2004, total short-term and long-term debt was $904 million and also represented approximately 2% of stockholders’ equity.

Cash provided by operating activities is net income adjusted for certain non-cash items and changes in assets and liabilities. For the first half of 2005, cash provided by operating activities was $6.7 billion, compared to $5.8 billion for the first half of 2004. For the first half of 2005, the largest contribution to the increase in cash provided by operating activities was from a decrease in trading assets, primarily due to maturities in excess of purchases. Accrued compensation and benefits decreased, primarily due to 2004 year-end profit dependent payments. Accounts receivable increased compared to December 2004 as the fourth quarter of 2004 included higher cash receipts. For the first half of 2005, our two largest customers accounted for approximately 35% of net revenue, with one of these customers accounting for approximately 19% of revenue and the other customer accounting for approximately 16%. For the first half of 2004, our two largest customers accounted for approximately 34% of net revenue. Additionally, these two largest customers accounted for approximately 36% of net accounts receivable at July 2, 2005 (approximately 34% at December 25, 2004). Income taxes payable increased compared to December 25, 2004 due to the timing of estimated payments and refunds. Inventories increased compared to December 2004 levels, primarily due to increases in chipsets and flash memory products.

Investing cash flows consisted primarily of capital expenditures and the proceeds of investments sold and payment for investments acquired. We used $1.0 billion in net cash for investing activities for the first half of 2005, compared to $3.7 billion during the first half of 2004. The lower cash used in investing activities in the first half of 2005 resulted from higher net maturities of available-for-sale investments due to a shift in our portfolio of investments in debt securities to shorter-term maturities in order to fund working capital and other investing and financing activities. Capital expenditures increased to $3.2 billion in the first half of 2005 from $1.7 billion in the first half of 2004, primarily driven by investments in 65-nanometer production equipment.

Financing cash flows consisted primarily of repurchases and retirement of common stock and payment of dividends to stockholders. We used $5.2 billion in net cash for financing activities in the first half of 2005 compared to $3.0 billion in the first half of 2004. The major financing use of cash was for the repurchase of shares as we purchased 206.8 million shares of common stock for $5.0 billion (105.2 million shares for $3.0 billion in the first half of 2004). At July 2, 2005, approximately 406.7 million shares remained available for repurchase under existing repurchase authorizations. Our dividend payments were $990 million in the first half of 2005, higher than the $517 million paid in the first half of 2004, due to an increase from $0.04 to $0.08 in cash dividends per common share effective for the first quarter of 2005. Financing sources of cash for the first half of 2005 were primarily $702 million in proceeds from the sale of shares pursuant to employee equity incentive plans ($552 million during the first half of 2004).

Another potential source of liquidity is authorized borrowings, including commercial paper, of $3.0 billion. Maximum borrowings under our commercial paper program during the first half of 2005 were approximately $150 million, although no commercial paper was outstanding at the end of the period. We also maintain the ability to issue an aggregate of approximately $1.4 billion in debt, equity and other securities under U.S. Securities and Exchange Commission (SEC) shelf registration statements.

We believe that we have the financial resources needed to meet business requirements for the next 12 months, including capital expenditures for the expansion or upgrading of worldwide manufacturing and assembly and test capacity, working capital requirements, the dividend program, potential stock repurchases and potential future acquisitions or strategic investments.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Financial Condition

Our financial condition remains strong. At April 2, 2005, cash, short-term investments and fixed income debt instruments included in trading assets totaled $15.8 billion, down from $16.8 billion at December 25, 2004. At April 2, 2005, total short-term and long-term debt was $686 million and represented approximately 2% of stockholders’ equity. At December 25, 2004, total debt was $904 million and also represented approximately 2% of stockholders’ equity.

Cash provided by operating activities is net income adjusted for certain non-cash items and changes in assets and liabilities. For the first quarter of 2005, cash provided by operating activities was $3.8 billion, compared to $1.8 billion for the first quarter of 2004. For the first quarter of 2005, the largest contribution to the increase in cash provided by operating activities was from an increase in income taxes payable. The increase in income taxes payable compared to December 2004 was primarily due to a lack of significant estimated tax payments made in the first quarter of 2005. Additional working capital sources of cash included a decrease in trading assets, primarily due to maturities in excess of purchases. Accrued compensation and benefits decreased, primarily due to payout of 2004 year-end employee bonuses. Accounts receivable increased compared to December 2004, primarily due to higher days sales outstanding (from 34 to 37 days in the first quarter of 2005) as the fourth quarter of 2004 included higher cash receipts. For the first quarter of 2005, our three largest customers accounted for approximately 39% of net revenue, with one of these customers accounting for approximately 18% of revenue and another customer accounting for approximately 15%. For the first quarter of 2004, our three largest customers accounted for approximately 40% of net revenue. Additionally, these three largest customers accounted for approximately 42% of net accounts receivable at April 2, 2005 (approximately 45% at December 25, 2004). Inventories increased compared to December 2004 levels, primarily due to increases in chipset, wireless connectivity and flash memory products.

Investing cash flows consist primarily of capital expenditures and the proceeds of investments sold and payment for investments acquired. We used $331 million in net cash for investing activities for the first quarter of 2005, compared to $929 million during the first quarter of 2004. The lower cash used in investing activities in the first quarter of 2005 resulted from higher net maturities of available-for-sale investments due to a shift in our portfolio of investments in debt securities to shorter-term maturities. Capital expenditures increased to $1.8 billion in the first quarter of 2005 from $680 million in the first quarter of 2004, reflecting a higher investment in capital equipment, primarily driven by investments in 300mm, 65-nanometer production equipment.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Financing cash flows consist primarily of repurchases and retirement of common stock and payment of dividends to stockholders. We used $2.6 billion in net cash for financing activities in the first quarter of 2005 compared to $1.3 billion in the first quarter of 2004. The major financing use of cash was for the repurchase of shares as we purchased 107.9 million shares of common stock for $2.5 billion (49.2 million shares for $1.5 billion in the first quarter of 2004). At April 2, 2005, approximately 506 million shares remained available for repurchase under existing repurchase authorizations. Our dividend payments were $497 million in the first quarter of 2005, higher than the $259 million paid in the same period of the prior year, due to an increase from $0.04 to $0.08 in cash dividends per common share effective for the first quarter of 2005. Financing sources of cash for the first quarter of 2005 were primarily $410 million in proceeds from the sale of shares pursuant to employee equity incentive plans ($386 million during the first quarter of 2004).

Another potential source of liquidity is authorized borrowings, including commercial paper, of $3.0 billion. Maximum borrowings under our commercial paper program during the first quarter of 2005 were approximately $150 million, although no commercial paper was outstanding at the end of the period. We also maintain the ability to issue an aggregate of approximately $1.4 billion in debt, equity and other securities under U.S. Securities and Exchange Commission (SEC) shelf registration statements.

We believe that we have the financial resources needed to meet business requirements for the next 12 months, including capital expenditures for the expansion or upgrading of worldwide manufacturing and assembly and test capacity, working capital requirements, the dividend program, potential stock repurchases and potential future acquisitions or strategic investments.

Financial Condition

Our financial condition remains strong. At December 25, 2004, cash, short-term investments and fixed income debt instruments included in trading assets totaled $16.8 billion, up from $15.9 billion at December 27, 2003. At December 25, 2004, total short-term and long-term debt was $904 million and represented approximately 2% of stockholders’ equity. At December 27, 2003, total debt was $1.2 billion and represented approximately 3% of stockholders’ equity.

Cash provided by operating activities is net income adjusted for certain non-cash items and changes in assets and liabilities. For 2004, cash provided by operating activities was $13.1 billion, compared to $11.5 billion in 2003 and $9.1 billion in 2002. In 2004, the majority of the increase in cash provided by operating activities was due to higher net income. Working capital sources of cash included increases in income taxes payable, accrued compensation and benefits, and accounts payable. The increase in income taxes payable was primarily due to the timing of refunds and higher earnings in 2004 compared to 2003, partially offset by higher estimated tax payments made for 2004. Accrued compensation and benefits increased, primarily due to higher accruals related to employee bonuses. Accounts payable was higher, primarily due to the timing of capital expenditures. Accounts receivable was relatively flat in 2004 compared to 2003 and increased in 2003 over 2002 levels, primarily due to higher revenue in 2003. Despite an increase in sales, the days’ sales outstanding decreased to 34 days at December 2004 compared to 36 days at December 2003 and 34 days at December 2002. The decrease in 2004 was due to a higher proportion of sales occurring at the beginning of the fourth quarter. For 2004, our three largest customers accounted for approximately 42% of net revenue, with one of these customers accounting for approximately 19% of revenue and another customer accounting for approximately 16%. For 2003, our three largest customers accounted for approximately 42% of net revenue (38% of net revenue for 2002). Additionally, these three largest customers accounted for approximately 45% of net accounts receivable at December 25, 2004 (approximately 43% at December 27, 2003 and 39% at December 28, 2002). Inventories were relatively flat in 2004 compared to 2003 levels but represented increases over 2002, primarily due to ramping of new products at that time. During 2003, working capital uses of cash also included a decrease in income taxes payable.

Investing cash flows consist primarily of capital expenditures and the proceeds of investments sold and payment for investments acquired. We used $5.0 billion in net cash for investing activities during 2004, compared to $7.1 billion during 2003 and $5.8 billion during 2002. The higher cash used in investing activities in 2003 resulted from higher net purchases of available-for-sale investments due to improved corporate credit profiles that facilitated a slight shift in our portfolio of investments in debt securities to longer term maturities during that year. Capital expenditures were $3.8 billion, $3.7 billion and $4.7 billion in 2004, 2003 and 2002, respectively, reflecting a lower investment in capital equipment and construction, primarily for additional microprocessor manufacturing capacity in recent years. Capital spending for 2005 is expected to be between $4.9 billion and $5.3 billion, primarily driven by investments in 300mm, 65-nanometer production equipment.

Financing cash flows consist primarily of repurchases and retirement of common stock and payment of dividends to stockholders. We used $7.7 billion in net cash for financing activities in 2004 compared to $3.9 billion in 2003 and 2002. During 2004, our Board of Directors authorized the repurchase of an additional 500 million shares of common stock under the company’s ongoing stock repurchase program, and in 2004 we purchased 301 million shares of common stock for $7.5 billion (176 million shares for $4.0 billion in 2003 and 183 million shares for $4.0 billion in 2002). At December 25, 2004, approximately 614 million shares remained available for repurchase under existing repurchase authorizations. Payment of dividends was $1.0 billion in 2004 ($524 million in 2003 and $533 million in 2002) due to an increase in the quarterly cash dividend from $0.02 per share to $0.04 per share effective beginning in the first quarter of 2004. On February 2, 2005, our Board of Directors declared a cash dividend of $0.08 per common share for the first quarter of 2005. The dividend is payable on March 1, 2005 to stockholders of record on February 7, 2005. Financing sources of cash during 2004 were primarily $894 million in proceeds from the sale of shares pursuant to employee equity incentive plans ($967 million in 2003 and $681 million in 2002).

Another potential source of liquidity is authorized borrowings, including commercial paper, of $3.0 billion. Maximum borrowings under our commercial paper program during 2004 were approximately $550 million, although no commercial paper was outstanding at the end of the period. We also maintain the ability to issue an aggregate of approximately $1.4 billion in debt, equity and other securities under U.S. Securities and Exchange Commission (SEC) shelf registration statements.

We believe that we have the financial resources needed to meet business requirements for the next 12 months, including capital expenditures for the expansion or upgrading of worldwide manufacturing and assembly and test capacity, working capital requirements, the dividend program, potential stock repurchases and potential future acquisitions or strategic investments.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(Continued)