Intel 2004 Annual Report Download - page 32

Table of Contents
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Investments identified as having an indicator of impairment are subject to further analysis to determine if the investment is other than
temporarily impaired, in which case we write the investment down to its impaired value. When an investee is not considered viable from a
financial or technological point of view, we write down the entire investment since we consider the estimated fair market value to be nominal.
If an investee obtains additional funding at a valuation lower than our carrying amount or requires a new round of equity funding to stay in
operation and the new funding does not appear imminent, we presume that the investment is other than temporarily impaired, unless specific
facts and circumstances indicate otherwise. Impairments of investments in our portfolio, primarily impairments of non-marketable equity
securities, were approximately $117 million in 2004 ($319 million in 2003 and $524 million in 2002).
Inventory. The valuation of inventory requires us to estimate obsolete or excess inventory as well as inventory that is not of saleable
quality. The determination of obsolete or excess inventory requires us to estimate the future demand for our products within specific time
horizons, generally six months or less. The estimates of future demand that we use in the valuation of inventory are the basis for our published
revenue forecasts, which are also consistent with our short-term manufacturing plans. If our demand forecast for specific products is greater
than actual demand and we fail to reduce manufacturing output accordingly, we could be required to write down additional inventory, which
would have a negative impact on our gross margin.
Long-Lived Assets. We assess the impairment of long-lived assets when events or changes in circumstances indicate that the carrying
value of the assets or the asset grouping may not be recoverable. Factors that we consider in deciding when to perform an impairment review
include significant under-
performance of a business or product line in relation to expectations, significant negative industry or economic trends,
and significant changes or planned changes in our use of the assets. Recoverability of assets that will continue to be used in our operations is
measured by comparing the carrying amount of the asset grouping to our estimate of the related total future net cash flows. If an asset
grouping’s carrying value is not recoverable through the related cash flows, the asset grouping is considered to be impaired. The impairment is
measured by the difference between the asset grouping’s carrying amount and its fair value, based on the best information available, including
market prices or discounted cash flow analysis.
Impairments of long-lived assets are determined for groups of assets related to the lowest level of identifiable independent cash flows.
Due to our asset usage model and the interchangeable nature of our semiconductor manufacturing capacity, we must make subjective
judgments in determining the independent cash flows that can be related to specific asset groupings. In addition, as we make manufacturing
process conversions and other factory planning decisions, we must make subjective judgments regarding the remaining useful lives of assets,
primarily process-specific semiconductor manufacturing tools and building improvements. When we determine that the useful lives of assets
are shorter than we had originally estimated, and there are sufficient cash flows to support the carrying value of the assets, we accelerate the
rate of depreciation charges in order to fully depreciate the assets over their new shorter useful lives.
Income Taxes. We must make certain estimates and judgments in determining income tax expense for financial statement purposes.
These estimates and judgments occur in the calculation of tax credits, tax benefits and deductions, such as the tax benefit for export sales, and
in the calculation of certain tax assets and liabilities, which arise from differences in the timing of recognition of revenue and expense for tax
and financial statement purposes. Significant changes to these estimates may result in an increase or decrease to our tax provision in a
subsequent period.
We must assess the likelihood that we will be able to recover our deferred tax assets. If recovery is not likely, we must increase our
provision for taxes by recording a valuation allowance against the deferred tax assets that we estimate will not ultimately be recoverable. We
believe that a substantial majority of the deferred tax assets recorded on our balance sheet will ultimately be recovered. However, should there
be a change in our ability to recover our deferred tax assets, our tax provision would increase in the period in which we determined that the
recovery was not likely.
In addition, the calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax regulations. We
recognize liabilities for anticipated tax audit issues in the U.S. and other tax jurisdictions based on our estimate of whether, and the extent to
which, additional tax payments are probable. If we ultimately determine that payment of these amounts is unnecessary, we reverse the liability
and recognize a tax benefit during the period in which we determine that the liability is no longer necessary. We record an additional charge in
our provision for taxes in the period in which we determine that the recorded tax liability is less than we expect the ultimate assessment to be.
For a discussion of current tax matters, see “Note 10: Provision for Taxes” and “Note 18: Contingencies” in Part II, Item 8 of this Form 10-K.
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