Intel 2006 Annual Report Download - page 81

Table of Contents
INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 8: Concentrations of Credit Risk
Financial instruments that potentially subject the company to concentrations of credit risk consist principally of investments in
debt securities, derivative financial instruments, and trade receivables.
Intel generally places its investments with high-credit-quality counterparties and, by policy, limits the amount of credit
exposure to any one counterparty based on Intel’s analysis of that counterparty’s relative credit standing. Investments in debt
securities with original maturities of greater than six months consist primarily of A and A2 or better rated financial instruments
and counterparties. Investments with original maturities of up to six months consist primarily of A-1 and P-1 or better rated
financial instruments and counterparties. Government regulations imposed on investment alternatives of Intel’s
non-U.S. subsidiaries, or the absence of A and A2 rated counterparties in certain countries, result in some minor exceptions,
which are reviewed and approved annually by the Finance Committee of the Board of Directors. Credit rating criteria for
derivative instruments are similar to those for investments. The amounts subject to credit risk related to derivative instruments
are generally limited to the amounts, if any, by which a counterparty’s obligations exceed the obligations of Intel with that
counterparty. At December 30, 2006, the total credit exposure to any single counterparty did not exceed $350 million. Intel’s
practice is to obtain and secure available collateral from counterparties against obligations, including securities lending
transactions, whenever Intel deems appropriate.
A substantial majority of the company’s trade receivables are derived from sales to original equipment manufacturers and
original design manufacturers of computer systems, handheld devices, and networking and communications equipment. The
company also has accounts receivable derived from sales to industrial and retail distributors. The company’s two largest
customers accounted for 35% of net revenue for 2006, 2005, and 2004. At December 30, 2006, the two largest customers
accounted for 52% of net accounts receivable (42% of net accounts receivable at December 31, 2005). Management believes
that the receivable balances from these largest customers do not represent a significant credit risk based on cash flow forecasts,
balance sheet analysis, and past collection experience.
The company has adopted credit policies and standards intended to accommodate industry growth and inherent risk.
Management believes that credit risks are moderated by the financial stability of the company’s end customers and diverse
geographic sales areas. To assess the credit risk of counterparties, a quantitative and qualitative analysis is performed. From
this analysis, credit limits are established and a determination is made as to whether one or more credit support devices, such
as obtaining some form of third-party guarantee or standby letter of credit, or obtaining credit insurance, for all or a portion of
the account balance is necessary.
Note 9: Interest and Other, Net
The components of interest and other, net were as follows:
During 2006, the company realized gains of $612 million for three completed divestitures, included within other, net, in the
table above. See “Note 14: Acquisitions and Divestitures” for further information.
During 2004, the company recognized $60 million of gains in other, net associated with terminating financing arrangements
for manufacturing facilities and equipment in Ireland (see “Note 6: Borrowings”). Gains associated with terminating similar
financing arrangements recognized in 2006 and 2005 were insignificant.
70
(In Millions)
2006
2005
2004
Interest income
$
636
$
577
$
301
Interest expense
(24
)
(19
)
(50
)
Other, net
590
7
38
Total
$
1,202
$
565
$
289