Intel 2004 Annual Report Download - page 55

Table of Contents
INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The company acquires certain equity investments for the promotion of business and strategic objectives, and to the extent that these
investments continue to have strategic value, the company typically does not attempt to reduce or eliminate the inherent equity market risks
through hedging activities. The marketable portion of these investments is included in marketable strategic equity securities.
Non-Marketable Equity Securities and Other Investments. Non-marketable equity securities and other investments are accounted for at
historical cost or, if Intel has significant influence over the investee, using the equity method of accounting. Intel’s proportionate share of
income or losses from investments accounted for under the equity method, and any gain or loss on disposal, are recorded in interest and other,
net. Non-marketable equity securities, equity-method investments and certain other investments are included in other assets. Cost-basis loan
participation notes are classified as short-term investments or other long-term investments.
All of the company’s investments are subject to a periodic impairment review; however, for non-marketable equity securities, the
impairment analysis requires significant judgment to identify events or circumstances that would likely have a significant adverse effect on the
fair value of the investment. The indicators Intel uses to identify those events and circumstances include the investee’s revenue and earnings
trends relative to predefined milestones and overall business prospects; the technological feasibility of the investee’
s products and technologies;
the general market conditions in the investee’s industry or geographic area, including adverse regulatory or economic changes; factors about
the investee’s ability to remain in business, such as the investee’s liquidity, debt ratios and the rate at which the investee is using cash; and the
investee’s receipt of additional funding at a lower valuation. 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 the investment is written down to its estimated fair
value. When an investee is not considered viable from a financial or technological point of view, the entire investment is written down, since
the estimated fair market value is considered to be nominal. If an investee obtains additional funding at a valuation lower than Intel’s carrying
amount or requires a new round of equity funding to stay in operation, and the new funding does not appear imminent, it is presumed that the
investment is other than temporarily impaired, unless specific facts and circumstances indicate otherwise. Impairment of non-
marketable equity
securities is recorded in gains (losses) on equity securities, net.
Securities Lending
From time to time, the company enters into securities lending agreements with financial institutions, generally to facilitate hedging
transactions. Selected securities may be loaned, secured by collateral in the form of cash or securities. The loaned securities continue to be
carried as investment assets on the balance sheet. Cash collateral is recorded as an asset with a corresponding liability. For lending agreements
collateralized by securities, the collateral is not recorded as an asset or a liability, unless the collateral is repledged.
Fair Values of Financial Instruments
The carrying value of cash equivalents approximates fair value due to the short period of time to maturity. Fair values of short-term
investments, trading assets, long-term investments, marketable strategic equity securities, certain non-marketable investments, short-term debt,
long-term debt, swaps, currency forward contracts, currency options, equity options and warrants are based on quoted market prices or pricing
models using current market data. Debt securities are generally valued using discounted cash flows in a yield-curve model based on LIBOR.
Equity options and warrants are priced using a Black-Scholes option pricing model. For the company’s portfolio of non-marketable equity
securities, management believes that the carrying value of the portfolio approximates the fair value at December 25, 2004 and December 27,
2003. This estimate takes into account the market movements of the equity and venture capital markets over the last few years, the impairment
analyses performed and the related impairments recorded during 2004 and 2003. All of the company’
s financial instruments are recorded at fair
value except for non-marketable investments, including cost-basis loan participation notes and debt. Management believes that the differences
between the estimated fair values and carrying values of these financial instruments were not significant at December 25, 2004 and December
27, 2003. Estimated fair values are management’s estimates; however, when there is no readily available market, the estimated fair values may
not necessarily represent the amounts that could be realized in a current transaction, and these fair values could change significantly.
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