Intel 2006 Annual Report Download - page 71

Table of Contents
INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Advertising
Cooperative advertising programs reimburse customers for marketing activities for certain of the company’s products, subject
to defined criteria. Cooperative advertising obligations are accrued and the costs are recorded at the same time the related
revenue is recognized. Cooperative advertising costs are recorded as marketing, general and administrative expense to the
extent that an advertising benefit separate from the revenue transaction can be identified and the cash paid does not exceed the
fair value of that advertising benefit received. Any excess of cash paid over the fair value of the advertising benefit received is
recorded as a reduction in revenue. All other advertising costs are recorded as marketing, general and administrative expense
as incurred. Advertising expense was $2.3 billion in 2006 ($2.6 billion in 2005 and $2.1 billion in 2004).
Employee Equity Incentive Plans
The company has employee equity incentive plans, which are described more fully in “Note 3: Employee Equity Incentive
Plans.” Effective January 1, 2006, the company adopted the provisions of SFAS No. 123 (revised 2004), “Share-Based
Payment” (SFAS No. 123(R)). SFAS No. 123(R) requires employee equity awards to be accounted for under the fair value
method. Accordingly, share-based compensation is measured at the grant date, based on the fair value of the award. Prior to
January 1, 2006, the company accounted for awards granted under its equity incentive plans using the intrinsic value method
prescribed by Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees” (APB No.
25), and related interpretations, and provided the required pro forma disclosures prescribed by SFAS No. 123, “
Accounting for
Stock-Based Compensation” (SFAS No. 123), as amended. The exercise price of options is equal to the market price of Intel
common stock (defined as the average of the high and low trading prices reported by The NASDAQ Global Select Market*)
on the date of grant. Additionally, the stock purchase plan was deemed non-
compensatory under APB No. 25. Accordingly, no
share-based compensation, other than insignificant amounts of acquisition-related compensation, was recognized on the
consolidated financial statements prior to 2006.
Under the modified prospective method of adoption for SFAS No. 123(R), the compensation cost recognized by the company
beginning in 2006 includes (a) compensation cost for all equity incentive awards granted prior to, but not yet vested as of
January 1, 2006, based on the grant-date fair value estimated in accordance with the original provisions of SFAS No. 123, and
(b) compensation cost for all equity incentive awards granted subsequent to January 1, 2006, based on the grant-
date fair value
estimated in accordance with the provisions of SFAS No. 123(R). The company uses the straight-line attribution method to
recognize share-based compensation costs over the service period of the award. Upon exercise, cancellation, forfeiture, or
expiration of stock options, or upon vesting or forfeiture of restricted stock units, deferred tax assets for options and restricted
stock units with multiple vesting dates are eliminated for each vesting period on a first-in, first-out basis as if each vesting
period was a separate award. To calculate the excess tax benefits available as of the date of adoption for use in offsetting
future tax shortfalls, the company followed the alternative transition method discussed in Financial Accounting Standards
Board (FASB) Staff Position No. 123(R)-3.
Recent Accounting Pronouncements
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (SFAS No. 157). The purpose of SFAS No.
157 is to define fair value, establish a framework for measuring fair value, and enhance disclosures about fair value
measurements. The measurement and disclosure requirements are effective for the company beginning in the first quarter of
fiscal year 2008. The company is currently evaluating the impact that SFAS No. 157 will have on its consolidated financial
statements.
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial
Liabilities” (SFAS No. 159). SFAS No. 159 permits companies to choose to measure certain financial instruments and certain
other items at fair value. The standard requires that unrealized gains and losses on items for which the fair value option has
been elected be reported in earnings. SFAS No. 159 is effective for the company beginning in the first quarter of fiscal year
2008, although earlier adoption is permitted. The company is currently evaluating the impact that SFAS No. 159 will have on
its consolidated financial statements.
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