Intel 2007 Annual Report Download - page 37

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Table of Contents
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION (Continued)
Higher volatility and longer expected lives result in an increase to share-based compensation determined at the date of grant.
The effect that changes in the volatility and the expected life would have on the weighted average fair value of option awards
and the increase in total fair value during 2007 and 2006 were as follows:
In addition, SFAS No. 123(R) requires us to develop an estimate of the number of share-based awards that will be forfeited
due to employee turnover. Quarterly adjustments in the estimated forfeiture rates can have a significant effect on reported
share-based compensation, as we recognize the cumulative effect of the rate adjustments for all expense amortization after
January 1, 2006 in the period in which the estimated forfeiture rates are adjusted. We estimate and adjust forfeiture rates based
on a quarterly review of recent forfeiture activity and expected future employee turnover. If a revised forfeiture rate is higher
than our previously estimated forfeiture rate, we make an adjustment that will result in a decrease in the expense recognized in
the financial statements. If a revised forfeiture rate is lower than the previously estimated forfeiture rate, we make an
adjustment that will result in an increase in the expense recognized in the financial statements. These adjustments affect our
gross margin; R&D expenses; and marketing, general and administrative expenses. The effect of forfeiture adjustments in
2006 and 2007 was insignificant. We record cumulative adjustments to the extent that the related expense is recognized in the
financial statements, beginning with implementation of SFAS No. 123(R) in the first quarter of 2006. Therefore, the potential
impact from cumulative forfeiture adjustments will increase in future periods. The expense that we recognize in future periods
could also differ significantly from the current period and from our forecasts due to adjustments in the assumed forfeiture
rates.
Recent Accounting Pronouncements and Accounting Changes
See “Note 2: Accounting Policies” in Part II, Item 8 of this Form 10-K for a description of accounting changes and recent
accounting pronouncements, including the expected dates of adoption and estimated effects, if any, on our consolidated
financial statements.
31
2007
2006
Weighted Average
Increase in Total
Weighted Average
Increase in Total
Fair Value Per
Fair Value
1
Fair Value Per
Fair Value
1
Share
(In Millions)
Share
(In Millions)
As reported
$
5.79
$
5.21
Hypothetical:
Increase expected volatility by 5 percentage points
2
$
6.56
$
20
$
5.92
$
36
Increase expected life by 1 year
$
6.24
$
12
$
5.68
$
24
1
Amounts represent the hypothetical increase in the total fair value determined at the date of grant, which would be
amortized over the service period, net of estimated forfeitures.
2
For example, an increase from 26% reported volatility for 2007 to a hypothetical 31% volatility.