Intel 2002 Annual Report Download - page 45

Acquisition-related intangibles include developed technology, trademarks and customer lists, and are amortized on a straight-
line basis over
periods ranging from 2–6 years. Intellectual property assets primarily represent acquired technology licenses and are amortized over the periods
of benefit, ranging from 2–10 years, generally on a straight-line basis. All identified intangible assets are classified within other assets on the
balance sheet. In the quarter following the period in which identified intangible assets become fully amortized, the fully amortized balances are
removed from the gross asset and accumulated amortization amounts.
Identified intangible assets are regularly reviewed to determine whether facts and circumstances exist which indicate that the useful life is
shorter than originally estimated or the carrying amount of assets may not be recoverable. The company assesses the recoverability of identified
intangible assets by comparing the projected undiscounted net cash flows associated with the related asset or group of assets over their remaining
lives
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against their respective carrying amounts. Impairment, if any, is based on the excess of the carrying amount over the fair value of those assets.
Revenue Recognition
The company recognizes net revenue when the earnings process is complete, as evidenced by an agreement with the customer, transfer of
title and acceptance, if applicable, as well as fixed pricing and probable collectibility. Because of frequent sales price reductions and rapid
technology obsolescence in the industry, sales made to distributors under agreements allowing price protection and/or right of return are deferred
until the distributors sell the merchandise. Shipping charges billed to customers are included in net revenue and the related shipping costs are
included in cost of sales.
Product Warranty
The company's product warranty accrual includes specific accruals for known product issues and an accrual for an estimate of incurred but
unidentified product issues based on historical activity. During 2000, the company announced that it would replace motherboards that had a
defective memory translator hub component with the Intel® 820 chipset and recognized a charge with a total impact on gross margin of
approximately $253 million. As of December 29, 2001, no significant balance remained. The warranty accrual and the related expense for
known product issues were not significant for 2001 and 2002. Due to effective product testing and the short time between product shipment and
the detection and correction of product failures, the warranty accrual based on historical activity and the related expense were not significant as
of and for the fiscal years presented.
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. Cooperative advertising expenses are recorded as marketing, general and administrative expense to
the extent the cash paid does not exceed the fair value of the advertising benefit received. Any excess of cash paid over the fair value of the
advertising benefit received is recorded as a reduction of revenue. Advertising expense was $1.7 billion in 2002 ($1.6 billion in 2001 and
$2.0 billion in 2000).
Stock Option Plans
The company has employee stock benefit plans, which are described more fully in "Note 11: Employee Stock Benefit Plans." The
company's stock option plans are accounted for under the intrinsic value recognition and measurement principles of APB Opinion No. 25,
"Accounting for Stock Issued to Employees," and related Interpretations. As the exercise price of all options granted under these plans was equal
to the market price of the underlying common stock on the grant date, no stock-based employee compensation cost, other than acquisition-
related compensation, is recognized in net income. The following table illustrates the effect on net income and earnings per share if the company
had applied the fair value recognition provisions of SFAS No. 123, "Accounting for Stock-Based Compensation," to employee stock benefits,
including shares issued under the stock option plans and under the company's Stock Participation Plan, collectively called "options."
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For purposes of this pro-forma disclosure, the estimated fair value of the options is assumed to be amortized to expense over the options'
vesting periods.
(In Millions—Except Per Share Amounts) 2002 2001 2000
Net income, as reported
$
3,117
$
1,291
$
10,535
Less: Total stock
-
based employee compensation expense determined under the