Intel 2006 Annual Report Download - page 74

Table of Contents
INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Share-based compensation recognized in 2006 as a result of the adoption of SFAS No. 123(R), as well as pro forma
disclosures according to the original provisions of SFAS No. 123 for periods prior to the adoption of SFAS No. 123(R), use
the Black-Scholes option pricing model for estimating the fair value of options granted under the company’s equity incentive
plans and rights to acquire stock granted under the company’s stock purchase plan. The weighted average estimated values of
employee stock option grants and rights granted under the stock purchase plan, as well as the weighted average assumptions
that were used in calculating such values during 2006, 2005, and 2004, were based on estimates at the date of grant as follows:
In 2005, the company reevaluated the assumptions used to estimate the value of options granted under the company’s equity
incentive plans and rights to acquire stock granted under the company’s stock purchase plan. Beginning in 2005, the company
based the expected volatility on implied volatility, as management determined that implied volatility is more reflective of
market conditions and a better indicator of expected volatility than historical volatility. Additionally, beginning in 2005, the
company based the expected life of options granted on the simplified calculation of expected life, described in the U.S.
Securities and Exchange Commission’
s Staff Accounting Bulletin 107, due to changes in the vesting terms and contractual life
of current option grants compared to the company’s historical grants. No adjustments to the 2004 input assumptions were
made.
Share-based compensation related to restricted stock unit awards is calculated based on the market price of Intel common
stock on the date of grant, reduced by the present value of dividends expected to be paid on Intel common stock prior to
vesting of the restricted stock unit. The weighted average estimated values of restricted stock unit grants, as well as the
weighted average assumptions that were used in calculating the fair value during 2006, were based on estimates at the date of
grant, as follows:
Stock Option Awards
Options outstanding that have vested and are expected to vest as of December 30, 2006 are as follows:
63
Stock Options
Stock Purchase Plan
2006
2005
1
2004
1
2006
2005
1
2004
1
Estimated values
$
5.21
$
6.02
$
10.79
$
4.56
$
5.78
$
6.38
Expected life (in years)
4.9
4.7
4.2
.5
.5
.5
Risk
-
free interest rate
4.9
%
3.9
%
3.0
%
5.0
%
3.2
%
1.4
%
Volatility
27
%
26
%
50
%
29
%
23
%
30
%
Dividend yield
2.0
%
1.4
%
.6
%
2.1
%
1.3
%
.6
%
1
Estimated values and assumptions used in the calculation of fair value prior to the adoption of SFAS No. 123(R).
2006
Estimated values
$
18.70
Risk
-
free interest rate
4.9
%
Dividend yield
2.0
%
Weighted
Average
Weighted
Remaining
Number of
Average
Contractual
Aggregate Intrinsic
Shares
Exercise
Term
Value
1
(In Millions)
Price (In Years) (In Millions)
Vested
567.6
$
28.66
4.0
$
272
Expected to vest
248.4
$
23.50
5.9
90
Total
816.0
$
27.09
4.5
$
362
1
These amounts represent the difference between the exercise price and $20.25, the closing price of Intel stock on
December 29, 2006, as reported on The NASDAQ Global Select Market*, for all
in
-
the
-
money
options outstanding.