Interpreting Disclosure on Employee Stock Options
Intel Corporation reported the following in its 2012 10-K report.
Share-Based Compensation Share-based compensation recognized in 2012 was $1.1 billion ($1.1 billion in 2011 and $917 million in 2010) During 2012, the tax benefit that we realized for the tax deduction from share-based awards totaled $510 million ($327 million in 2011 and $266 million in 2010) 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, as follows
| Estimated values | $ 4.22 | $ 3.91 | $ 4.82 | $ 5.47 | $ 4.69 | $ 4.71 | |
| Expected life (in years) | 5.3 | 5.4 | 4.9 | 0.5 | 0.5 | 0.5 | |
| Risk-free interest rate | 1.0% | 2.2% | 2.5% | 0.1% | 0.2% | 0.2% | |
| Volatility | 25% | 27% | 28% | 24% | 26% | 32% | |
| Dividend yield | 3.3% | 3.4% | 2.7% | 3.3% | 3.6% | 3.1% |
Additional information with respect to stock option activity is as follows:
| December 26, 2009 | 451.3 | $ 25.08 |
| Grants | 20.2 | $ 23.25 |
| Exercises | (16.6) | $ 18.36 |
| Cancellations and forfeitures | (16.1) | $ 24.76 |
| Expirations | (52.4) | $ 60.68 |
| 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 |
| Options exercisable as of: | ||
| December 25, 2010 | 263.0 | $ 21.03 |
| December 31, 2011 | 203.6 | $ 20.44 |
| December 29, 2012 | 139.8 | $ 19.76 |
1. How many options were exercised during 2012?
2. Estimate the cash that Intel received from its employees when these options were exercised. (Round your answer to one decimal place.)
3. What was the intrinsic value per share of the options exercised in 2012? (Hint: Assume that Intel grants options at-the-money.)
4. If employees who exercised options in 2012 immediately sold them, what “profit” did they make from the shares? (Round your answer to two decimal places.)
5. The tax benefit that Intel will receive on the options exercised is computed based on the intrinsic value of the options exercised. Estimate Intel’s tax benefit from the 2012 option exercises assuming a tax rate of 37%. (Round your answer to two decimal places.)
6. What was the average exercise price of the options that expired in 2012?
