Intel 1994 Annual Report Download - page 24

cash and equivalents on the balance sheet.
The amortized cost and estimated fair value of investments in debt securities at December 31, 1994, by contractual maturity, are as follows:
DERIVATIVE FINANCIAL INSTRUMENTS
As part of its ongoing asset and liability management activities, the Company enters into derivative financial instruments to reduce financial
market risks. These instruments are used to hedge foreign currency, equity market and interest rate exposures of underlying assets, liabilities
and other obligations. These instruments involve elements of market risk which offset the market risk of the underlying assets and liabilities
they hedge. The Company does not enter into derivative financial instruments for trading purposes. Notional amounts for derivatives at fiscal
year
-ends are as follows:
While the contract or notional amounts provide one measure of the volume of these transactions, they do not represent the amount of the
Company's exposure to credit risk. The amounts potentially subject to credit risk (arising from the possible inability of counterparties to meet
the terms of their contracts) are generally limited to the amounts, if any, by which the counterparties' obligations exceed the obligations of the
Company. The Company controls credit risk through credit approvals, limits and monitoring procedures. Credit rating criteria for off-balance-
sheet transactions are similar to those for investments.
SWAP AGREEMENTS. The Company enters into swap agreements to exchange the foreign currency, equity market, and fixed interest rate
exposures of its investment and debt portfolios for a floating interest rate. The floating rates on swaps are based primarily on U.S. dollar
LIBOR and reset on a monthly, quarterly or semiannual basis.
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Weighted average pay and receive rates, average maturities, and range of maturities on swaps at December 31, 1994 are as follows:
Pay rates on swaps hedging investments in debt securities generally match the yields on the underlying investments they hedge. Payments on
swaps hedging investments in equity securities generally match the equity returns on the underlying investments they hedge. Receive rates on
swaps hedging debt generally match the expense on the underlying debt they hedge. Maturity dates of swaps generally match those of the
underlying investment or the debt they hedge. There is approximately a one-to-one matching of investments and debt to swaps. Swap
agreements generally remain in effect until expiration. Income or expense on swaps is accrued as an adjustment to the yield of the related
investments or debt they hedge.
OTHER FOREIGN CURRENCY INSTRUMENTS. Intel transacts business in various foreign currencies, primarily Japanese yen and certain
Estimated
(In millions) Cost fair value
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Due in 1 year or less $1,144 $1,144
Due in 1-2 years 515 512
Due in 2-5 years 642 635
Due after 5 years 255 252
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Total investments in debt securities $2,556 $2,543
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(In millions) 1994 1993
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Swaps hedging investments in debt securities $1,080 $ 809
Swaps hedging investments in equity securities $ 567 $ 260
Swaps hedging debt $ 155 $ 110
Currency forward contracts $ 784 $ 620
Currency options $ 10 $ 28
Weighted Weighted Weighted
average average average Range of
pay rate receive rate maturity maturities
- ----------------------------------------------------------------------------
Swaps hedging
investments in
U.S. dollar
debt securities 6.7% 6.0% 1.2 years 0-4 years
Swaps hedging
investments in
foreign currency
debt securities 10.8% 8.2% 1.8 years 0-3 years
Swaps hedging
investments in
equity securities N/A 5.5% 2.1 years 0-3 years
Swaps hedging debt 6.1% 5.2% 4.9 years 4-7 years