Intel 1997 Annual Report Download - page 58

Notes to consolidated
financial statements
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):
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 con- tributions 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:
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
(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)
======== ========