Intel 2006 Annual Report Download - page 73

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Table of Contents
INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Share
-Based Compensation
Effective January 1, 2006, the company adopted the provisions of SFAS No. 123(R), as discussed in “Note 2: Accounting
Policies.” The following table summarizes the effects of share-
based compensation resulting from the application of SFAS No.
123(R):
In accordance with SFAS No. 123(R), the company adjusts share-based compensation on a quarterly basis for changes to the
estimate of expected equity award forfeitures based on a review of recent forfeiture activity and expected future employee
turnover. The effect of adjusting the forfeiture rate for all expense amortization after January 1, 2006 is recognized in the
period the forfeiture estimate is changed. The effect of forfeiture adjustments in 2006 was insignificant.
The total share-based compensation cost capitalized as part of inventory as of December 30, 2006 was $72 million. The
amount that the company would have capitalized to inventory as of December 31, 2005, if it had applied the provisions of
SFAS No. 123(R) retrospectively, was $66 million. Under the provisions of SFAS No. 123(R), $66 million has been recorded
as a credit to common stock and capital in excess of par value. During 2006, the tax benefit realized for the tax deduction from
option exercises and other awards totaled $139 million.
Pro forma information required under SFAS No. 123(R) for periods prior to fiscal year 2006, as if the company had applied
the fair value recognition provisions of SFAS No. 123 to options granted under the company’s equity incentive plans and
rights to acquire stock granted under the company’s stock purchase plan, is as follows:
62
(In Millions, Except Per Share Amounts)
2006
2005
2004
Cost of sales
$
349
$
—
$
—
Research and development
487
—
—
Marketing, general and administrative
539
—
—
Share
-
based compensation effects in income before taxes
1,375
—
—
Income taxes
(388
)
—
—
Net share
-
based compensation effects in net income
$
987
$
—
$
—
Share-based compensation effects on basic earnings per common share
$
0.17
$
—
$
—
Share
-
based compensation effects on diluted earnings per common share
$
0.17
$
—
$
—
Share
-
based compensation effects on cash flow from operations
$
(123
)
$
—
$
—
Share
-
based compensation effects on cash flow from financing activities
$
123
$
—
$
—
(In Millions, Except Per Share Amounts)
2005
2004
Net income, as reported
$
8,664
$
7,516
Less: total share-based compensation determined under the fair value method for all awards, net of
tax
1,262
1,271
Pro forma net income
$
7,402
$
6,245
Reported basic earnings per common share
$
1.42
$
1.17
Pro forma basic earnings per common share
$
1.21
$
0.98
Reported diluted earnings per common share
$
1.40
$
1.16
Pro forma diluted earnings per common share
$
1.20
$
0.97