Intel 1997 Annual Report Download - page 46

Notes to consolidated
financial statements
Property, plant and equipment. Property, plant and equipment are stated at cost. Depreciation is computed for financial reporting purposes
principally by use of the straight-line method over the following estimated useful lives:
machinery and equipment, 2-4 years; land and buildings, 4-40 years.
The Company evaluates property, plant and equipment in accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of."
Deferred income on shipments to distributors. Certain of the Company's sales are made to distributors under agreements allowing price
protection and/or right of return on merchandise unsold by the distributors. Because of frequent sales price reductions and rapid technological
obsolescence in the industry, Intel defers recognition of such sales until the merchandise is sold by the distributors.
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. The Company does not incur any direct-response advertising costs. Advertising expense was
$1,203 million, $974 million and $654 million in 1997, 1996 and 1995, respectively.
Interest. Interest as well as gains and losses related to contractual agreements to hedge certain investment positions and debt (see "Derivative
financial instruments") are recorded as net interest income or expense on a monthly basis. Interest expense capitalized as a component of
construction costs was $9 million, $33 million and $46 million for 1997, 1996 and 1995, respectively.
Earnings per share. The consolidated financial statements are presented in accordance with SFAS No. 128, "Earnings per Share." Basic
earnings per common share are computed using the weighted average number of common shares outstanding during the period. Diluted
earnings per common share incorporate the incremental shares issuable upon the assumed exercise of stock options and warrants. Diluted
earnings per common share do not differ from the Company's previously reported earnings per common and common equivalent share.
Stock distribution. On July 13, 1997, the Company effected a two-for-one stock split in the form of a special stock distribution to stockholders
of record as of June 10, 1997. All share, per share, Common Stock, stock option and warrant amounts herein have been restated to reflect the
effect of this split.
Recent accounting pronouncements. The Company intends to adopt SFAS No. 130, "Reporting Comprehensive Income," and SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information," in fiscal 1998. Both will require additional disclosure but will not have
a material effect on the Company's financial position or results of operations. SFAS No. 130 will first be reflected in the Company's first
quarter of 1998 interim financial statements. Components of comprehensive income for the Company include items such as net income and
changes in the value of available-for-sale securities. SFAS No. 131 requires segments to be determined based on how management measures
performance and makes decisions about allocating resources. SFAS No. 131 will first be reflected in the Company's 1998 Annual Report.
Common Stock
1998 Step-Up Warrants. In 1993, the Company issued 80 million 1998 Step-Up Warrants to purchase 80 million shares of Common Stock.
This transaction resulted in an increase of $287 million in Common Stock and capital in excess of par value, representing net proceeds from the
offering. The Warrants became exercisable in May 1993 at an effective price of $17.875 per share of Common Stock, subject to annual
increases to a maximum price of $20.875 per share effective in March 1997. As of December 27, 1997, approximately 78 million Warrants
were exercisable at a price of $20.875 per Warrant. These Warrants expire on March 14, 1998.
Stock repurchase program. The Company has an ongoing authorization, as amended, from the Board of Directors to repurchase up to 280
million shares of Intel's Common Stock and Step-Up Warrants in open market or negotiated transactions. During 1997, the Company
repurchased 43.6 million shares of Common Stock at a cost of $3.4 billion. As of December 27, 1997, the Company had repurchased and
retired approximately 213.4 million shares at a cost of $6.9 billion since the program began in 1990. As of December 27, 1997, after reserving
26.3 million shares to cover outstanding put warrants, 40.3 million shares remained available under the repurchase authorization.
Put warrants
In a series of private placements from 1991 through 1997, the Company sold put warrants that entitle the holder of each warrant to sell to the
Company, by physical delivery, one share of Common Stock at a specified price. On certain of these warrants, the Company simultaneously
entered into additional contractual arrangements which cause the warrants to terminate if the Company's stock price reaches specified levels.
Activity during the past three years is summarized as follows:
Put warrants
outstanding
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Cumulative
net premium Number of Potential