Intel 2007 Annual Report Download - page 70

Table of Contents
INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Share
-Based Compensation
Effective January 1, 2006, we adopted the provisions of SFAS No. 123(R), as discussed in “Note 2: Accounting Policies.”
Share-based compensation recognized in 2007 was $952 million ($1,375 million in 2006 and zero in 2005).
In accordance with SFAS No. 123(R), we adjust share-based compensation on a quarterly basis for changes to our estimate of
expected equity award forfeitures based on our review of recent forfeiture activity and expected future employee turnover. We
recognize the effect of adjusting the forfeiture rate for all expense amortization after January 1, 2006 in the period that we
change the forfeiture estimate. The effect of forfeiture adjustments in 2007 and 2006 was insignificant.
The total share-based compensation cost capitalized as part of inventory as of December 29, 2007 was $41 million
($72 million as of December 30, 2006). The amount that we would have capitalized to inventory as of December 31, 2005, if
we had applied the provisions of SFAS No. 123(R) retrospectively, was $66 million. Under the provisions of SFAS No. 123
(R), we recorded $66 million as a credit to common stock and capital in excess of par value. During 2007, the tax benefit that
we realized for the tax deduction from option exercises and other awards totaled $265 million ($139 million in 2006).
Pro forma information required under SFAS No. 123(R) for 2005, as if we had applied the fair value recognition provisions of
SFAS No. 123 to options granted under our equity incentive plans and rights to acquire stock granted under our stock purchase
plan, is as follows:
For share-based compensation recognized in 2007 and 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),
we use the Black-Scholes option pricing model to estimate the fair value of options granted under our equity incentive plans
and rights to acquire stock granted under our stock purchase plan. We based 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
used in calculating these values, on estimates at the date of grant, as follows:
61
(In Millions, Except Per Share Amounts)
2005
Net income, as reported
$
8,664
Less:
total share
-
based compensation determined under the fair value method for all awards, net of tax
1,262
Pro forma net income
$
7,402
Reported basic earnings per common share
$
1.42
Pro forma basic earnings per common share
$
1.21
Reported diluted earnings per common share
$
1.40
Pro forma diluted earnings per common share
$
1.20
Stock Options Stock Purchase Plan
2007 2006 2005
1
2007 2006 2005
1
Estimated values
$
5.79
$
5.21
$
6.02
$
5.18
$
4.56
$
5.78
Expected life (in years)
5.0
4.9
4.7
.5
.5
.5
Risk
-
free interest rate
4.5
%
4.9
%
3.9
%
5.2
%
5.0
%
3.2
%
Volatility
26
%
27
%
26
%
28
%
29
%
23
%
Dividend yield
2.0
%
2.0
%
1.4
%
2.0
%
2.1
%
1.3
%
1
Estimated values and assumptions used in calculating fair value prior to the adoption of SFAS No. 123(R).