Note 19: Employee Equity Incentive Plans

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Our equity incentive plans are broad-based, long-term retention programs intended to attract and retain talented employees and align stockholder and employee interests.

In May 2007, stockholders approved an extension of the 2006 Equity Incentive Plan (the 2006 Plan). Stockholders approved 119 million additional shares for issuance, increasing the total shares of common stock available for issuance as equity awards to employees and non-employee directors to 294 million shares. Of this amount, we increased the maximum number of shares to be awarded as non-vested shares (restricted stock) or non- vested share units (restricted stock units) to 168 million shares. The approval also extended the expiration date of the 2006 Plan to June 2010. The 2006 Plan allows for time-based, performance-based, and market-based vesting for equity incentive awards. As of December 27, 2008, we had not issued any performance-based or market-based equity incentive awards. As of December 27, 2008, 174 million shares remained available for future grant under the 2006 Plan. We may assume the equity incentive plans and the outstanding equity awards of certain acquired companies. Once they are assumed, we do not grant additional shares under these plans.

We began issuing restricted stock units in 2006. We issue shares on the date that the restricted stock units vest. The majority of shares issued are net of the statutory withholding requirements that we pay on behalf of our employees. As a result, the actual number of shares issued will be less than the number of restricted stock units granted. Prior to vesting, restricted stock units do not have dividend equivalent rights, do not have voting rights, and the shares underlying the restricted stock units are not considered issued and outstanding.

Equity awards granted to employees in 2008 under our equity incentive plans generally vest over 4 years from the date of grant, and options expire 7 years from the date of grant. Equity awards granted to key officers, senior-level employees, and key employees in 2008 may have delayed vesting beginning 2 to 5 years from the date of grant, and options expire 7 to 10 years from the date of grant.

The 2006 Stock Purchase Plan allows eligible employees to purchase shares of our common stock at 85% of the value of our common stock on specific dates. Under the 2006 Stock Purchase Plan, we made 240 million shares of common stock available for issuance through August 2011. As of December 27, 2008, 188 million shares were available for issuance under the 2006 Stock Purchase Plan.

Share-Based Compensation

Effective January 1, 2006, we adopted the provisions of SFAS No. 123(R), as discussed in "Note 2: Accounting Policies." Share-based compensation recognized in 2008 was $851 million ($952 million in 2007 and $1,375 million in 2006).

In accordance with SFAS No. 123(R), we adjust share-based compensation on a quarterly basis for changes to our estimate of expected equity award forfeitures based on our review of recent forfeiture activity and expected future employee turnover. We recognize the effect of adjusting the forfeiture rate for all expense amortization after January 1, 2006 in the period that we change the forfeiture estimate. The effect of forfeiture adjustments in 2006, 2007, and 2008 was not significant.

The total share-based compensation cost capitalized as part of inventory as of December 27, 2008 was $46 million ($41 million as of December 29, 2007 and $72 million as of December 30, 2006). During 2008, the tax benefit that we realized for the tax deduction from option exercises and other awards totaled $147 million ($265 million in 2007 and $139 million in 2006).

We estimate the fair value of restricted stock unit awards using the value of our common stock on the date of grant, reduced by the present value of dividends expected to be paid on our common stock prior to vesting. We based the weighted average estimated values of restricted stock unit grants, as well as the weighted average assumptions that we used in calculating the fair value, on estimates at the date of grant, as follows:

		2008			2007			2006
Estimated values		$	19.94		$	21.13		$	18.70
Risk-free interest rate			2.1%			4.7%			4.9%
Dividend yield			2.6%			2.0%			2.0%

We use the Black-Scholes option pricing model to estimate the fair value of options granted under our equity incentive plans and rights to acquire common stock granted under our stock purchase plan. We based the weighted average estimated values of employee stock option grants and rights granted under the stock purchase plan, as well as the weighted average assumptions used in calculating these values, on estimates at the date of grant, as follows:

		Stock Options									Stock Purchase Plan
		2008			2007			2006			2008			2007			2006
Estimated values		$	5.74		$	5.79		$	5.21		$	5.32		$	5.18		$	4.56
Expected life (in years)			5.0			5.0			4.9			.5			.5			.5
Risk-free interest rate			3.0%			4.5%			4.9%			2.1%			5.2%			5.0%
Volatility			37%			26%			27%			35%			28%			29%
Dividend yield			2.7%			2.0%			2.0%			2.5%			2.0%			2.1%

We base the expected volatility on implied volatility, because we have determined that implied volatility is more reflective of market conditions and a better indicator of expected volatility than historical volatility. We use the simplified method of calculating expected life described in SAB 107, as amended by SAB 110, due to significant differences in the vesting terms and contractual life of current option grants compared to our historical grants.

Restricted Stock Unit Awards

Information with respect to outstanding restricted stock unit activity is as follows:

(In Millions, Except Per Share Amounts)		Number of Shares			Weighted Average Grant-Date Fair Value			Aggregate Fair Value(1)
December 31, 2005			—			—
Granted			30.0		$	18.70
Vested			—			—		$	—
Forfeited			(2.6)		$	18.58
December 30, 2006			27.4		$	18.71
Granted			32.8		$	21.13
Vested(2)			(5.9)		$	18.60		$	131
Forfeited			(3.2)		$	19.38
December 29, 2007			51.1		$	20.24
Granted			32.9		$	19.94
Vested(2)			(12.1)		$	19.75		$	270
Forfeited			(4.6)		$	20.12
December 27, 2008			67.3		$	20.18
Expected to vest as of December 27, 2008(3)			60.5		$	20.20

(1)	Represents the value of Intel common stock on the date that the restricted stock units vest. On the grant date, the fair value for these vested awards was $239 million in 2008 and $111 million in 2007.
(2)	The number of restricted stock units vested includes shares that we withheld on behalf of employees to satisfy the statutory tax withholding requirements.
(3)	Restricted stock units that are expected to vest are net of estimated future forfeitures.

As of December 27, 2008, there was $937 million in unrecognized compensation costs related to restricted stock units granted under our equity incentive plans. We expect to recognize those costs over a weighted average period of 1.4 years.

Stock Option Awards

Options outstanding that have vested and are expected to vest as of December 27, 2008 are as follows:

		Number of Shares (In Millions)			Weighted Average Exercise Price			Weighted Average Remaining Contractual Term (In Years)			Aggregate Intrinsic Value(1) (In Millions)
Vested			517.0		$	28.78			3.0		$	5
Expected to vest(2)			88.1		$	21.88			4.9			—
Total			605.1		$	27.77			3.3		$	5

(1)	Amounts represent the difference between the exercise price and $14.18, the closing price of Intel common stock on December 27, 2008, as reported on The NASDAQ Global Select Market*, for all in-the-money options outstanding.
(2)	Options outstanding that are expected to vest are net of estimated future option forfeitures.

Options with a fair value of $459 million completed vesting during 2008. As of December 27, 2008, there was $335 million in unrecognized compensation costs related to stock options granted under our equity incentive plans. We expect to recognize those costs over a weighted average period of 1.2 years.

Additional information with respect to stock option activity is as follows:

(In Millions, Except Per Share Amounts)		Number of Shares			Weighted Average Exercise Price			Aggregate Intrinsic Value(1)
December 31, 2005			899.9		$	26.71
Grants			52.3		$	20.04
Exercises			(47.3)		$	12.83		$	364
Cancellations and forfeitures			(65.4)		$	28.07
December 30, 2006			839.5		$	26.98
Grants			24.6		$	22.63
Exercises			(132.8)		$	19.78		$	552
Cancellations and forfeitures			(65.4)		$	31.97
December 29, 2007			665.9		$	27.76
Grants			24.9		$	20.81
Exercises			(33.6)		$	19.42		$	101
Cancellations and forfeitures			(42.8)		$	31.14
Expirations			(2.4)		$	22.84
December 27, 2008			612.0		$	27.70
Options exercisable at:
December 30, 2006			567.6		$	28.66
December 29, 2007			528.2		$	29.04
December 27, 2008			517.0		$	28.78

(1)	Amounts represent the difference between the exercise price and the value of Intel common stock at the time of exercise.

The following table summarizes information about options outstanding as of December 27, 2008:

		Outstanding Options									Exercisable Options
Range of Exercise Prices		Number of Shares (In Millions)			Weighted Average Remaining Contractual Life (In Years)			Weighted Average Exercise Price			Number of Shares (In Millions)			Weighted Average Exercise Price
$0.05–$15.00			0.6			3.4		$	5.26			0.6		$	5.26
$15.01–$20.00			86.5			4.4		$	18.37			64.7		$	18.40
$20.01–$25.00			274.5			3.6		$	22.53			211.0		$	22.67
$25.01–$30.00			122.2			4.1		$	27.23			116.2		$	27.25
$30.01–$35.00			48.9			1.7		$	31.35			45.2		$	31.33
$35.01–$40.00			20.0			1.6		$	38.43			20.0		$	38.43
$40.01–$72.88			59.3			1.4		$	59.85			59.3		$	59.85
Total			612.0			3.4		$	27.70			517.0		$	28.78

These options will expire if they are not exercised by specific dates through January 2018. Option exercise prices for options exercised during the three-year period ended December 27, 2008 ranged from $0.05 to $27.27.

Stock Purchase Plan

Approximately 72% of our employees were participating in our stock purchase plan as of December 27, 2008. Employees purchased 25.9 million shares in 2008 for $453 million under the 2006 Stock Purchase Plan (26.1 million shares for $428 million in 2007). Employees purchased 26.0 million shares in 2006 for $436 million under the now expired 1976 Stock Participation Plan. As of December 27, 2008, there was $18 million in unrecognized compensation costs related to rights to acquire common stock under our stock purchase plan. We expect to recognize those costs over a weighted average period of one month.