Intel 1999 Annual Report Download - page 47

value method of that statement. The fair value of options granted in 1999, 1998 and 1997 reported below has been estimated at the date of grant
using a Black- Scholes option pricing model with the following weighted average assumptions:
The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions
and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions, including the expected stock
price volatility. Because the company's options have characteristics significantly different from those of traded options, and because changes in
the subjective input assumptions can materially affect the fair value estimate, in the opinion of management, the existing models do not
necessarily provide a reliable single measure of the fair value of its options. The weighted average estimated fair value of employee stock
options granted during 1999, 1998 and 1997 was $29.53, $17.91 and $17.67 per share, respectively, excluding options assumed through
acquired companies. The weighted average estimated fair value of shares granted under the Stock Participation Plan during 1999, 1998 and
1997 was $19.81, $10.92 and $11.04, respectively.
For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting periods. The
company's pro forma information follows:
Retirement plans. The company provides tax-qualified profit-sharing retirement plans (the "Qualified Plans") for the benefit of eligible
employees in the U.S. and Puerto Rico and certain foreign countries. The plans are designed to provide employees with an accumulation of
funds for retirement on a tax-deferred basis and provide for annual discretionary employer contributions to trust funds.
The company also provides a non-qualified profit-sharing retirement plan (the "Non-Qualified Plan") for the benefit of eligible employees in
the U.S. This plan is designed to permit certain discretionary employer contributions in excess of the tax limits applicable to the Qualified
Plans and to permit employee deferrals in excess of certain tax limits. This plan is unfunded.
The company expensed $294 million for the Qualified Plans and the Non- Qualified Plan in 1999 ($291 million in 1998 and $273 million in
1997). The company expects to fund approximately $333 million for the 1999 contribution to the Qualified Plans and to allocate approximately
$9 million for the Non- Qualified Plan, including the utilization of amounts expensed in prior years. A remaining accrual of approximately
$157 million carried forward from prior years is expected to be contributed to these plans when allowable under IRS regulations and plan rules.
Contributions made by the company vest based on the employee's years of service. Vesting begins after three years of service in 20% annual
increments until the employee is 100% vested after seven years.
The company provides tax-qualified defined-benefit pension plans for the benefit of eligible employees in the U.S. and Puerto Rico. Each plan
provides for minimum pension benefits that are determined by a participant's years of service, final average compensation (taking into account
the participant's social security wage base) and the value of the company's contributions, plus earnings, in the Qualified Plan. If the participant's
balance in the Qualified Plan exceeds the pension guarantee, the participant will receive benefits from the Qualified Plan only. Intel's funding
policy is consistent with the funding requirements of federal laws and regulations. The company also provides defined-
benefit pension plans in
certain foreign countries. The company's funding policy for foreign defined-benefit pension plans is consistent with the local requirements in
each country. These defined-benefit pension plans had no material impact on the company's financial statements for the periods presented. The
company provides postemployment benefits for retired employees in the U.S. Upon retirement, eligible employees are credited with a defined
dollar amount based on years of service. These credits can be used to pay all or a portion of the cost to purchase coverage in an Intel-sponsored
medical plan. These benefits had no material impact on the company's financial statements for the periods presented.
Acquisitions
During 1999 and 1998, the company completed a number of acquisitions that were accounted for using the purchase method of accounting.
Employee stock options 1999 1998 1997
-----------------------------------------------------------------------------------------------------------
Expected life (in years) 6.5 6.5 6.5
Risk-free interest rate 5.2% 5.3% 6.6%
Volatility .38 .36 .36
Dividend yield .2% .2% .1%
Stock Participation Plan shares 1999 1998 1997
-----------------------------------------------------------------------------------------------------------
Expected life (in years) .5 .5 .5
Risk-free interest rate 4.9% 5.2% 5.3%
Volatility .45 .42 .40
Dividend yield .2% .2% .1%
(In millions - except per share amounts) 1999 1998 1997
--------------------------------------------------------------------------------------------
Pro forma net income $ 6,860 $ 5,755 $ 6,735
Pro forma basic earnings per share $ 2.06 $ 1.73 $ 2.06
Pro forma diluted earnings per share $ 1.98 $ 1.66 $ 1.88