Intel 2008 Annual Report Download - page 71

Download and view the complete annual report

Please find page 71 of the 2008 Intel annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 143

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140
  • 141
  • 142
  • 143

Table of Contents
INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Derivative Financial Instruments
Our primary objective for holding derivative financial instruments is to manage currency exchange rate risk and interest rate
risk, and to a lesser extent, equity market risk and commodity price risk. Our derivative financial instruments are recorded at
fair value and are included in other current assets, other long-term assets, other accrued liabilities, or other long-term
liabilities. Derivative instruments recorded as assets totaled $173 million as of December 27, 2008 ($118 million as of
December 29, 2007). Derivative instruments recorded as liabilities totaled $299 million as of December 27, 2008
($130 million as of December 29, 2007). For further discussion of our derivative instruments, see “Note 8: Derivative
Financial Instruments.”
Our accounting policies for derivative financial instruments are based on whether they meet the criteria for designation as cash
flow or fair value hedges. A designated hedge of the exposure to variability in the future cash flows of an asset or a liability, or
of a forecasted transaction, is referred to as a cash flow hedge. A designated hedge of the exposure to changes in fair value of
an asset or a liability, or of an unrecognized firm commitment, is referred to as a fair value hedge. The criteria for designating
a derivative as a hedge include the assessment of the instrument’s effectiveness in risk reduction, matching of the derivative
instrument to its underlying transaction, and the probability that the underlying transaction will occur. For derivatives with
cash flow hedge accounting designation, we report the after-tax gain or loss from the effective portion of the hedge as a
component of accumulated other comprehensive income (loss) and reclassify it into earnings in the same period or periods in
which the hedged transaction affects earnings, and within the same income statement line item as the impact of the hedged
transaction. For derivatives with fair value hedge accounting designation, we recognize gains or losses from the change in fair
value of these derivatives, as well as the offsetting change in the fair value of the underlying hedged item, in earnings.
Derivatives that we designate as hedges are classified in the consolidated statements of cash flows in the same section as the
underlying item, primarily within cash flows from operating activities.
We recognize gains and losses from changes in fair values of derivatives that are not designated as hedges for accounting
purposes within the income statement line item most closely associated with the economic underlying, primarily in interest
and other, net, except for equity-related gains or losses, which we primarily record in gains (losses) on other equity
investments, net. Derivatives not designated as hedges are classified in cash flows from operating activities.
As part of our strategic investment program, we also acquire equity derivative instruments, such as warrants and equity
conversion rights associated with debt instruments, which we do not designate as hedging instruments. We recognize the gains
or losses from changes in fair values of these equity derivative instruments in gains (losses) on other equity investments, net.
Measurement of Effectiveness
If a cash flow hedge were discontinued because it was no longer probable that the original hedged transaction would occur as
anticipated, the unrealized gain or loss on the related derivative would be reclassified into earnings. Subsequent gains or losses
on the related derivative instrument would be recognized in income in each period until the instrument matures, is terminated,
is re-designated as a qualified hedge, or is sold. Any ineffective portion of both cash flow and fair value hedges, as well as
amounts excluded from the assessment of effectiveness, is recognized in earnings in interest and other, net.
63
•
Effectiveness for forwards
is generally measured by comparing the cumulative change in the fair value of the hedge
contract with the cumulative change in the present value of the forecasted cash flows of the hedged item. For currency
forward contracts used in cash flow hedging strategies related to capital purchases, forward points are excluded, and
effectiveness is measured using spot rates to value both the hedge contract and the hedged item. For currency forward
contracts used in cash flow hedging strategies related to operating expenditures, forward points are included and
effectiveness is measured using forward rates to value both the hedge contract and the hedged item.
•
Effectiveness for currency options and equity options with hedge accounting designation
is generally measured by
comparing the cumulative change in the fair value of the hedge contract with the cumulative change in the fair value of
an option instrument representing the hedged risks in the hedged item for cash flow hedges. For fair value hedges, time
value is excluded and effectiveness is measured based on spot rates to value both the hedge contract and the hedged
item.
•
Effectiveness for interest rate swaps
is generally measured by comparing the change in fair value of the hedged item
with the change in fair value of the interest rate swap.