Intel 1998 Annual Report Download - page 40

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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:
Property, plant and equipment. Property, 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.
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 revenues are recognized. All
other advertising costs are expensed as incurred. Advertising expense was $1.3 billion, $1.2 billion and $974 million in 1998, 1997 and 1996,
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. Interest expense capitalized as a component of construction costs was $6
million, $9 million and $33 million for 1998, 1997 and 1996, respectively.
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. For portions of 1998, 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.
Stock distribution. On January 27, 1999, the Company announced a two-for-one stock split in the form of a special stock distribution payable
April 11, 1999 to stockholders of record as of March 23, 1999. 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 effects of these splits.
Reclassifications. Certain amounts reported in previous years have been reclassified to conform to the 1998 presentation.
Recent accounting pronouncements. The Company intends to adopt Statement of Financial Accounting Standards ("SFAS") No. 133,
"Accounting for Derivative Instruments and Hedging Activities," as of the beginning of its fiscal year 2000. 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 effect of adopting the Standard is currently being evaluated but is not expected to have a material
effect on the Company's financial position or overall trends in results of operations.
Common Stock
1998 Step-Up Warrants. In 1993, the Company issued 160 million 1998 Step-Up Warrants to purchase 160 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 $8.9375 per share of Common Stock, subject to annual
increases to a maximum price of $10.4375 per share effective in March 1997. Between December 27, 1997 and March 14, 1998, approximately
155 million 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.
Stock repurchase program. The Company has an ongoing authorization, as amended, from the Board of Directors to repurchase up to 760
million shares of Intel's Common Stock in open market or negotiated transactions. During 1998, the Company repurchased 161.7 million shares
of Common Stock at a cost of $6.8 billion. As of December 26, 1998, the Company had repurchased and retired approximately 588.6 million
shares at a cost of $13.6 billion since the program began in 1990. As of December 26, 1998, after allowing for 5 million shares to cover
outstanding put warrants, 166.4 million shares remained available under the repurchase authorization.
(IN MILLIONS) 1998 1997
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Raw materials $ 206 $ 255
Work in process 795 928
Finished goods 581 514
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TOTAL $1,582 $1,697
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