Intel 1995 Annual Report Download - page 20

See accompanying notes.
Notes To Consolidated Financial Statements
Accounting policies
Fiscal year. Intel Corporation ("Intel" or "the Company") has a fiscal year that ends the last Saturday in December. Fiscal years 1995 and 1993,
each 52-week years, ended on December 30 and 25, respectively. Fiscal 1994 was a 53-week year and ended on December 31, 1994. The next
53-week year will end on December 30, 2000.
Basis of presentation. The consolidated financial statements include the accounts of Intel and its wholly owned subsidiaries. Significant
intercompany accounts and transactions have been eliminated. Accounts denominated in foreign currencies have been remeasured into the
functional currency in accordance with Statement of Financial Accounting Standards (SFAS) No. 52, "Foreign Currency Translation," using
the U.S. dollar as the functional currency.
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those
estimates.
Investments. Highly liquid investments with insignificant interest rate risk and with original maturities of three months or less are classified as
cash and cash equivalents. Investments with maturities greater than three months and less than one year are classified as short-term
investments. Investments with maturities greater than one year are classified as long-term investments. The Company accounts for investments
in accordance with SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities," effective as of the beginning of fiscal
1994. The Company's policy is to protect the value of its investment portfolio and to minimize principal risk by earning returns based on
current interest rates. All of the Company's marketable investments are classified as available-for-sale as of the balance sheet date and are
reported at fair value, with unrealized gains and losses, net of tax, recorded in Stockholders' equity. The cost of securities sold is based on the
specific identification method. Realized gains or losses and declines in value, if any, judged to be other than temporary on available-for-sale
securities are reported in other income or expense. Investments in non- marketable instruments are recorded at the lower of cost or market and
included in other assets.
Fair values of financial instruments. Fair values of cash and cash equivalents, short-term investments and short-term debt approximate cost due
to the short period of time to maturity. Fair values of long-term investments, long-term debt, non-marketable instruments, swaps, currency
forward contracts, currency options and options hedging non-marketable instruments are based on quoted market prices or pricing models
using current market rates.
Derivative financial instruments. The Company utilizes derivative financial instruments to reduce financial market risks. These instruments are
used to hedge foreign currency, equity and interest rate market exposures of underlying assets, liabilities and other obligations. The Company
does not use derivative financial instruments for speculative or trading purposes. The Company's accounting policies for these instruments are
based on the Company's designation of such instruments as hedging transactions. The criteria the Company uses for designating an instrument
as a hedge include its effectiveness in risk reduction and one-to-one matching of derivative instruments to underlying transactions. Gains and
losses on currency forward contracts, and options that are designated and effective as hedges of anticipated transactions, for which a firm
commitment has been attained, are deferred and recognized in income in the same period that the underlying transactions are settled. Gains and
losses on currency forward contracts, options and swaps that are designated and effective as hedges of existing transactions are recognized in
income in the same period as losses and gains on the underlying transactions are recognized and generally offset. Gains and losses on options
hedging investments in non-
marketable instruments are deferred and recognized in income in the same period as the hedges mature or when the
underlying transaction is sold, whichever comes first. Income or expense on swaps is accrued as an adjustment to the yield of the related
investments or debt they hedge. Inventories. Inventories are stated at the lower of cost or market. Cost is computed on a currently adjusted
standard basis (which approximates actual cost on a current average or first-in, first-out basis). Inventories at fiscal year-ends were as follows:
Property, plant and equipment. Property, plant and equipment are stated at cost. Depreciation is computed for financial reporting purposes
principally by use of the straight-line method over the following estimated useful lives:
machinery and equipment, 2-4 years; land and buildings, 4-
45 years. The Company adopted SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," effective as of the beginning of fiscal 1995. This adoption had no material
effect on the Company's financial statements. Deferred income on shipments to distributors. Certain of the Company's sales are made to
distributors under agreements allowing price protection and/or right of return on merchandise unsold by the distributors. Because of frequent
sales price reductions and rapid technological obsolescence in the industry, Intel defers recognition of such sales until the merchandise is sold
by the distributors.
Advertising. Cooperative advertising obligations are accrued and the costs expensed at the same time the related revenue is recognized. All
other advertising costs are expensed as incurred. The Company does not incur any direct-response advertising costs. Advertising expense was
$654 million, $459 million and $325 million in 1995, 1994 and 1993, respectively. Interest. Interest as well as gains and losses related to
Net income -- -- 3,566 3,566
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Balance at December 30, 1995 821 $ 2,583 $ 9,557 $12,140
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(In millions) 1995 1994
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Materials and purchased parts $ 674 $ 345
Work in process 707 528
Finished goods 623 296
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Total $ 2,004 $ 1,169
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