Note 19: Employee Equity Incentive Plans
Our equity incentive plans are broad-based, long-term programs intended to attract and retain talented employees and align stockholder and employee interests.
In May 2013, stockholders approved an extension of the 2006 Equity Incentive Plan (the 2006 Plan). Stockholders approved 123 million additional shares for issuance, increasing the total shares of common stock authorized for issuance as equity awards to employees and non-employee directors to 719 million shares. The approval also extended the expiration date of the 2006 Plan to June 2016. A maximum of 517 million of these shares can be awarded as non-vested shares (restricted stock) or non-vested share units (restricted stock units). As of December 28, 2013, 304 million shares remained available for future grant under the 2006 Plan.
Going forward, 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 those plans. In connection with our completed acquisition of McAfee in 2011, we assumed McAfee’s equity incentive plan and issued replacement awards. The stock options and restricted stock units issued generally retain similar terms and conditions of the respective plan under which they were originally granted.
We issue restricted stock units with both a market condition and a service condition (market-based restricted stock units), referred to in our 2013 Proxy Statement as outperformance stock units, to a small group of senior officers and non-employee directors. For market-based restricted stock units issued in 2013, the number of shares of Intel common stock to be received at vesting will range from 50% to 200% of the target amount, based on total stockholder return (TSR) on Intel common stock measured against the benchmark TSR of a peer group over a three-year period. TSR is a measure of stock price appreciation plus any dividends paid in this performance period. As of December 28, 2013, 3 million market-based restricted stock units were outstanding. These market-based restricted stock units accrue dividend equivalents and generally vest three years and one month from the grant date.
Equity awards granted to employees in 2013 under our equity incentive plans generally vest over four years from the date of grant, and options expire seven years from the date of grant, with the exception of market-based restricted stock units, a small number of restricted stock units granted to executive-level employees, and replacement awards related to acquisitions.
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. In May 2011, stockholders approved an extension of the 2006 Stock Purchase Plan. Stockholders approved 133 million additional shares for issuance, increasing the total shares of common stock available for issuance to 373 million shares. The approval also extended the expiration date of the 2006 Stock Purchase Plan to August 2016. As of December 28, 2013, 216 million shares were available for issuance under the 2006 Stock Purchase Plan.
Share-Based Compensation
Share-based compensation recognized in 2013 was $1.1 billion ($1.1 billion in 2012 and $1.1 billion in 2011).
On a quarterly basis, we assess 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 adjustments made to the forfeiture rates, if any, in the period that we change the forfeiture estimate. The effect of forfeiture adjustments in 2013, 2012, and 2011 was not significant.
The total share-based compensation cost capitalized as part of inventory as of December 28, 2013, was $38 million ($41 million as of December 29, 2012 and $38 million as of December 31, 2011). During 2013, the tax benefit that we realized for the tax deduction from share-based awards totaled $385 million ($510 million in 2012 and $327 million in 2011).
We estimate the fair value of restricted stock unit awards with time-based vesting 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 estimate the fair value of market-based restricted stock units using a Monte Carlo simulation model on the date of grant. We based the weighted average estimated value 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, for each period as follows:
|
| | | | | | | | | | | | |
| | 2013 | | 2012 | | 2011 |
Estimated values | | $ | 21.45 |
| | $ | 25.32 |
| | $ | 19.86 |
|
Risk-free interest rate | | 0.2 | % | | 0.3 | % | | 0.7 | % |
Dividend yield | | 3.8 | % | | 3.3 | % | | 3.4 | % |
Volatility | | 25 | % | | 26 | % | | 27 | % |
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 stock granted under our stock purchase plan. We based the weighted average estimated value of employee stock option grants and rights granted under the stock purchase plan, as well as the weighted average assumptions used in calculating the fair value, on estimates at the date of grant, for each period as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Stock Options | | Stock Purchase Plan |
| | 2013 | | 2012 | | 2011 | | 2013 | | 2012 | | 2011 |
Estimated values | | $ | 3.11 |
| | $ | 4.22 |
| | $ | 3.91 |
| | $ | 4.52 |
| | $ | 5.47 |
| | $ | 4.69 |
|
Expected life (in years) | | 5.2 |
| | 5.3 |
| | 5.4 |
| | 0.5 |
| | 0.5 |
| | 0.5 |
|
Risk-free interest rate | | 0.8 | % | | 1.0 | % | | 2.2 | % | | 0.1 | % | | 0.1 | % | | 0.2 | % |
Dividend yield | | 3.9 | % | | 3.3 | % | | 3.4 | % | | 4.0 | % | | 3.3 | % | | 3.6 | % |
Volatility | | 25 | % | | 25 | % | | 27 | % | | 22 | % | | 24 | % | | 26 | % |
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. Prior to 2011, we used the simplified method of calculating expected life due to significant differences in the vesting terms and contractual life of current option grants compared to our historical grants. In 2011, we began using historical option exercise data as the basis for determining expected life, as we believe that we have sufficient historical data to provide a reasonable basis upon which to estimate the expected life input for valuing options using the Black-Scholes model.
Restricted Stock Unit Awards
Information with respect to outstanding RSU activity for each period was as follows:
|
| | | | | | | |
| | Number of RSUs (In Millions) | | Weighted Average Grant-Date Fair Value |
December 25, 2010 | | 99.8 |
| | $ | 18.56 |
|
Granted | | 43.3 |
| | $ | 19.86 |
|
Assumed in acquisition | | 5.8 |
| | $ | 20.80 |
|
Vested | | (37.5 | ) | | $ | 18.60 |
|
Forfeited | | (4.4 | ) | | $ | 19.07 |
|
December 31, 2011 | | 107.0 |
| | $ | 19.18 |
|
Granted | | 49.9 |
| | $ | 25.32 |
|
Vested | | (43.2 | ) | | $ | 18.88 |
|
Forfeited | | (4.4 | ) | | $ | 20.93 |
|
December 29, 2012 | | 109.3 |
| | $ | 22.03 |
|
Granted | | 53.4 |
| | $ | 21.45 |
|
Vested | | (44.5 | ) | | $ | 20.21 |
|
Forfeited | | (4.9 | ) | | $ | 22.06 |
|
December 28, 2013 | | 113.3 |
| | $ | 22.47 |
|
Expected to vest as of December 28, 2013 | 107.3 |
| | $ | 22.49 |
|
The aggregate fair value of awards that vested in 2013 was $1.0 billion ($1.2 billion in 2012 and $753 million in 2011), which represents the market value of Intel common stock on the date that the restricted stock units vested. The grant-date fair value of awards that vested in 2013 was $899 million ($816 million in 2012 and $697 million in 2011). The number of restricted stock units vested includes shares that we withheld on behalf of employees to satisfy the minimum statutory tax withholding requirements. Restricted stock units that are expected to vest are net of estimated future forfeitures.
As of December 28, 2013, there was $1.6 billion 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 1.2 years.
Stock Option Awards
As of December 28, 2013, options outstanding that have vested and are expected to vest were as follows:
|
| | | | | | | | | | | | | |
| | Number of Options (In Millions) | | Weighted Average Exercise Price | | Weighted Average Remaining Contractual Term (In Years) | | Aggregate Intrinsic Value (In Millions) |
Vested | | 111.5 |
| | $ | 20.25 |
| | 2.6 | | $ | 617 |
|
Expected to vest | | 39.6 |
| | $ | 23.40 |
| | 5.4 | | $ | 101 |
|
Total | | 151.1 |
| | $ | 21.08 |
| | 3.3 | | $ | 718 |
|
Aggregate intrinsic value represents the difference between the exercise price and $25.60, the closing price of Intel common stock on December 27, 2013, as reported on The NASDAQ Global Select Market*, for all in-the-money options outstanding. Options outstanding that are expected to vest are net of estimated future option forfeitures.
Options with a fair value of $186 million completed vesting during 2013 ($205 million during 2012 and $226 million during 2011). As of December 28, 2013, there was $75 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 1.1 years.
Additional information with respect to stock option activity for each period was as follows:
|
| | | | | | | |
| | Number of Options (In Millions) | | Weighted Average Exercise Price |
December 25, 2010 | | 386.4 |
| | $ | 20.45 |
|
Grants | | 14.7 |
| | $ | 21.49 |
|
Assumed in acquisition | | 12.0 |
| | $ | 15.80 |
|
Exercises | | (86.3 | ) | | $ | 20.06 |
|
Cancellations and forfeitures | | (8.6 | ) | | $ | 20.47 |
|
Expirations | | (19.9 | ) | | $ | 24.85 |
|
December 31, 2011 | | 298.3 |
| | $ | 20.12 |
|
Grants | | 13.5 |
| | $ | 27.01 |
|
Exercises | | (85.8 | ) | | $ | 20.45 |
|
Cancellations and forfeitures | | (3.9 | ) | | $ | 21.17 |
|
Expirations | | (19.3 | ) | | $ | 22.45 |
|
December 29, 2012 | | 202.8 |
| | $ | 20.20 |
|
Grants | | 20.1 |
| | $ | 22.99 |
|
Exercises | | (65.0 | ) | | $ | 18.76 |
|
Cancellations and forfeitures | | (3.0 | ) | | $ | 22.58 |
|
Expirations | | (1.9 | ) | | $ | 22.56 |
|
December 28, 2013 | | 153.0 |
| | $ | 21.10 |
|
Options exercisable as of: | | | | |
December 31, 2011 | | 203.6 |
| | $ | 20.44 |
|
December 29, 2012 | | 139.8 |
| | $ | 19.76 |
|
December 28, 2013 | | 111.5 |
| | $ | 20.25 |
|
The aggregate intrinsic value of stock option exercises in 2013 was $265 million ($517 million in 2012 and $318 million in 2011), which represents 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 28, 2013:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | | 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 |
$ | 1.12 |
| - | $ | 15.00 |
| | | 2.2 |
| | 3.7 | | $ | 12.22 |
| | 1.2 |
| | $ | 11.69 |
|
$ | 15.01 |
| - | $ | 20.00 |
| | | 70.5 |
| | 2.7 | | $ | 18.22 |
| | 70.4 |
| | $ | 18.20 |
|
$ | 20.01 |
| - | $ | 25.00 |
| | | 57.6 |
| | 4.2 | | $ | 22.59 |
| | 26.2 |
| | $ | 22.54 |
|
$ | 25.01 |
| - | $ | 30.00 |
| | | 22.4 |
| | 3.0 | | $ | 27.09 |
| | 13.4 |
| | $ | 27.02 |
|
$ | 30.01 |
| - | $ | 33.03 |
| | | 0.3 |
| | 0.1 | | $ | 32.31 |
| | 0.3 |
| | $ | 32.31 |
|
Total | | | | | 153.0 |
| | 3.3 | | $ | 21.10 |
| | 111.5 |
| | $ | 20.25 |
|
These options will expire if they are not exercised by specific dates through April 2021. Option exercise prices for options exercised during the three-year period ended December 28, 2013, ranged from $1.12 to $28.15.
Stock Purchase Plan
Approximately 76% of our employees were participating in our 2006 Stock Purchase Plan as of December 28, 2013 (72% in 2012 and 70% in 2011). Employees purchased 20.5 million shares in 2013 for $369 million under the 2006 Stock Purchase Plan (17.4 million shares for $355 million in 2012 and 18.5 million shares for $318 million in 2011). As of December 28, 2013, there was $13 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 period of approximately one and a half months.
