Intel 2000 Annual Report Download - page 37

Pro forma information regarding net income and earnings per share is required by SFAS No. 123. This information is required to be
determined as if the company had accounted for its employee stock options (including shares issued under the Stock Participation Plan,
collectively called "options") granted subsequent to December 31, 1994 under the fair value method of that statement. The fair value of options
granted in 2000, 1999 and 1998 reported below was 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 employee stock 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 employee stock options. The weighted average
estimated fair value of employee stock options granted during 2000, 1999 and 1998 was $28.27, $14.77 and $8.96 per share, respectively. The
weighted average estimated fair value of shares granted under the Stock Participation Plan during 2000, 1999 and 1998 was $19.60, $9.90 and
$5.46, 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 and to permit employee deferral of a portion of salaries in
excess of certain tax limits and deferral of bonuses. This plan is unfunded.
The company expensed $362 million for the Qualified Plans and the Non-Qualified Plan in 2000 ($294 million in 1999 and $291 million in
1998). The company expects to fund approximately $387 million for the 2000 contribution to the Qualified Plans and to allocate approximately
$15 million for the Non-Qualified Plan, including the utilization of amounts expensed in prior years. A remaining accrual of approximately
$117 million carried forward from prior years is expected to be contributed to these plans in future years.
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
Employee stock options 2000 1999 1998
Expected life (in years)
6.5
6.5
6.5
Risk
-
free interest rate
6.2
%
5.2
%
5.3
%
Volatility
.42
.38
.36
Dividend yield
.1
%
.2
%
.2
%
Stock Participation Plan shares 2000 1999 1998
Expected life (in years)
.5
.5
.5
Risk
-
free interest rate
6.1
%
4.9
%
5.2
%
Volatility
.66
.45
.42
Dividend yield
.1
%
.2
%
.2
%
(In millions—except per share amounts) 2000 1999 1998
Pro forma net income
$
9,699
$
6,860
$
5,755
Pro forma basic earnings per share
$
1.45
$
1.03
$
.87
Pro forma diluted earnings per share
$
1.40
$
.99
$
.83