Intel 2000 Annual Report Download - page 40

excluded. This is presented for informational purposes only and is not necessarily indicative of the results of future operations or results that
would have been achieved had the acquisitions taken place at the beginning of 1999.
Acquisition-related unearned stock compensation
During 2000, the company recorded acquisition-related purchase consideration of $123 million as unearned stock-based compensation, in
accordance with Financial Accounting Standards Board Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation." This amount represents the portion of the purchase consideration related to shares issued contingent on continued employment
of certain employee stockholders and the intrinsic value of stock options assumed that are earned as future services are provided by employees.
The compensation is being recognized over the related employment period, and the expense is included in the amortization of goodwill and
other acquisition-related intangibles and costs. A total of $26 million of expense was recognized for 2000.
MTH reserve
During 2000, the company announced that it would replace motherboards that had a defective memory translator hub (MTH) component
with the Intel® 820 Chipset. The company took a charge with a total impact on gross margin of approximately $253 million. As of
December 30, 2000, the remaining balance of the reserve was approximately $54 million. Management believes that the balance in the reserve
is adequate and appropriate for the estimated remaining costs of the motherboard replacement program.
Commitments
The company leases a portion of its capital equipment and certain of its facilities under operating leases that expire at various dates through
2013. Rental expense was $123 million in 2000, $71 million in 1999 and $64 million in 1998. Minimum rental commitments under all non-
cancelable leases with an initial term in excess of one year are payable as follows: 2001—$89 million; 2002—$78 million; 2003—$55 million;
2004—$47 million; 2005—$42 million; 2006 and beyond—$196 million. Commitments for construction or purchase of property, plant and
equipment approximated $5.0 billion at December 30, 2000. In connection with certain manufacturing arrangements, Intel had minimum
purchase commitments of approximately $76 million at December 30, 2000 for flash memory and silicon wafers.
In January 2001, Intel announced that it had entered into a definitive agreement to acquire Xircom, Inc. for $25 per share in an all-cash
tender offer valued at approximately $748 million, before consideration of any cash acquired. In addition, Intel will assume existing employee
options. Xircom is a supplier of PC cards and other products used to connect mobile computing devices to corporate
networks and the Internet. The completion of this transaction is subject to acceptance of this offer by holders of a majority of the outstanding
shares of Xircom on a fully diluted basis, other customary conditions and compliance by Xircom with certain financial and business criteria.
This acquisition is expected to be accounted for using the purchase method of accounting.
Contingencies
In November 1997, Intergraph Corporation filed suit in Federal District Court in Alabama, generally alleging that Intel attempted to coerce
Intergraph into relinquishing certain patent rights. The suit alleges that Intel infringes five Intergraph microprocessor-related patents, and
includes alleged violations of antitrust laws and various state law claims. The suit seeks injunctive relief, damages and prejudgment interest,
and further alleges that Intel's infringement is willful and that any damages awarded should be trebled. Intergraph's expert witness has claimed
that Intergraph is entitled to damages of approximately $2.2 billion for Intel's alleged patent infringement, $500 million for the alleged antitrust
violations and an undetermined amount for alleged state law violations. Intel believes that it does not infringe Intergraph's patents and believes
those patents are invalid and unenforceable. Intel has counterclaimed that the Intergraph patents are invalid and further alleges infringement of
seven Intel patents, breach of contract and misappropriation of trade secrets. In October 1999, the court reconsidered an earlier adverse ruling
and granted Intel's motion for summary judgment that the Intergraph patents are licensed to Intel, and dismissed all of Intergraph's patent
infringement claims with prejudice. This ruling has been reversed by the Court of Appeals for the Federal Circuit, and as a result, the patent
issues are returned to the District Court. In March 2000, the District Court granted Intel's motion for summary judgment on Intergraph's federal
antitrust claims, and in April 2000, Intergraph appealed this ruling. Intergraph's state law claims remain at issue in the trial court. The company
disputes Intergraph's claims and intends to defend the lawsuit vigorously.
The company is currently party to various legal proceedings, including that noted above. While management, including internal counsel,
currently believes that the ultimate outcome of these proceedings, individually and in the aggregate, will not have a material adverse effect on
the company's financial position or overall trends in results of operations, litigation is subject to inherent uncertainties. Were an unfavorable
(In millions, except per share amounts—unaudited) 2000 1999
Net revenues
$
33,850
$
30,081
Net income
$
10,466
$
6,484
Basic earnings per common share
$
1.56
$
0.97
Diluted earnings per common share
$
1.50
$
0.93