Intel's (INTC) - Get Report net income in 2004 would have been slashed by 17% if the world's largest chipmaker had accounted for the value of stock options issued to employees, according to the company's annual report.

Intel reported net income of $7.5 billion, or $1.16 a share in 2004. Excluding $1.27 billion in stock- and options-based compensation for employees, Intel earned $6.2 billion, or 97 cents a share.

Intel granted options representing 115 million shares to employees and directors in 2004, up from 110 million in 2003. The 2003 issuance was the lowest since 1999.

Intel filed its annual report with the

Securities and Exchange Commission

on Friday.

In 2003, Intel's stock option issuance would have reduced its earnings by 17% as well. In 2002, stock options would have cut its earnings by 38%.

Corporations are not currently required to expense stock options issued to employees, but a pro forma disclosure has to be made on no less than an annual basis in public filings with the SEC.

The Santa Clara, Calif.-based company also disclosed in its report that it impaired $117 million worth of private investments in 2004, down from $319 million in 2003, $524 million in 2002, and $1.1 billion in 2001.

The overall portfolio of investments held by Intel Capital was $507 million, down from $665 million in 2003. Intel Capital, the venture capital arm of Intel, typically takes small stakes in start-up companies.

In addition, Intel said it owes $600 million to the IRS as part of a formal assessment on tax benefits from export sales logged in 1999 and 2000. The IRS made a decision about the long-running case in January, but Intel said it is appealing the matter.

Intel's three largest customers accounted for 42% of its sales in 2004, equal to the previous year. Its top customer amounted to 19% of its sales, and the No. 2 customer accounted for 16% of sales.

Intel also reiterated its 2005 capital expenditure budget of $4.9 billion to $5.3 billion, according to the report.