Intel 2006 Annual Report Download - page 47

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Table of Contents
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
For 2005, revenue for the FMG operating segment remained approximately flat at $2.3 billion compared to 2004. Revenue
was positively affected by higher unit sales and negatively affected by lower average selling prices. Operating loss remained
approximately flat in 2005 at $154 million, compared to $149 million in 2004. The operating loss was positively affected by
lower unit costs and negatively affected by higher operating expenses.
Share
-Based Compensation
Share-based compensation totaled $1.4 billion in 2006, compared to zero in 2005 and 2004. We adopted SFAS No. 123(R)
under the modified prospective transition method, effective beginning in the first quarter of 2006. Prior to adoption of SFAS
No. 123(R), we accounted for our equity incentive plans under the intrinsic value recognition and measurement principles of
Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees” (APB No. 25) and related
interpretations. Accordingly, no share-based compensation, other than insignificant amounts of acquisition-related share-
based
compensation, was recognized in net income.
As of December 30, 2006, unrecognized share-based compensation costs and the weighted average period over which the
costs are expected to be recognized were as follows:
Share-based compensation charges are included in the “all other” category for segment reporting purposes.
Operating Expenses
Operating expenses for the three years ended December 30, 2006 were as follows:
Research and Development.
Research and development spending increased $728 million, or 14%, in 2006 compared to 2005,
and increased $367 million, or 8%, in 2005 compared to 2004. The increase in 2006 compared to 2005 was primarily due to
share-based compensation of $487 million, and to a lesser extent, higher development costs driven by our next-generation 45-
nanometer manufacturing process technology. Lower profit-dependent compensation expenses partially offset these increases.
The increase in 2005 compared to 2004 was primarily due to higher headcount and profit-dependent compensation expenses,
partially offset by lower expenses related to development for our 65-nanometer manufacturing process technology. Fiscal year
2005 included 53 weeks.
Marketing, General and Administrative.
Marketing, general and administrative expenses increased $408 million, or 7%, in
2006 compared to 2005, and increased $1.0 billion, or 22%, in 2005 compared to 2004. The increase in 2006 compared to
2005 was primarily due to share-based compensation of $539 million, and to a lesser extent, higher headcount. Partially
offsetting these increases were lower marketing program spending and lower profit-dependent compensation expenses. The
increase in 2005 compared to 2004 was primarily due to higher marketing program spending, higher headcount, and higher
profit-dependent compensation expenses as well as the extra work week.
37
Unrecognized
Share
-
Based
Weighted
Compensation
Average
Costs
Period
Stock options
$
1.1 billion
1.1 years
Restricted stock units
$
380 million
1.8 years
Stock purchase plan
$
19 million
1 month
(In Millions)
2006
2005
2004
Research and development (includes share-based compensation of $487 million in 2006
and zero in 2005 and 2004)
$
5,873
$
5,145
$
4,778
Marketing, general and administrative
(includes share-based compensation of $539
million in 2006 and zero in 2005 and 2004)
$
6,096
$
5,688
$
4,659
Restructuring and asset impairment charges
$
555
$
—
$
—
Amortization of acquisition
-
related intangibles and costs
$
42
$
126
$
179