Intel 2009 Annual Report Download - page 55

Table of Contents
We use derivative financial instruments primarily to manage currency exchange rate and interest rate risk, and to a lesser
extent, equity market and commodity price risk. All of the potential changes noted below are based on sensitivity analyses
performed on our financial positions as of December 26, 2009 and December 27, 2008. Actual results may differ materially.
Currency Exchange Rates
We generally hedge currency risks of non-U.S.-dollar-denominated investments in debt instruments and loans receivable with
offsetting currency forward contracts, currency options, or currency interest rate swaps. Gains and losses on these
non-U.S.-currency investments would generally be offset by corresponding losses and gains on the related hedging
instruments, resulting in a negligible net exposure to loss.
Substantially all of our revenue and a majority of our expense and capital purchasing activities are transacted in U.S. dollars.
However, certain operating expenditures and capital purchases are incurred in or exposed to other currencies, primarily the
Japanese yen, the euro, and the Israeli shekel. We have established balance sheet and forecasted transaction currency risk
management programs to protect against fluctuations in fair value and the volatility of future cash flows caused by changes in
exchange rates. We generally utilize currency forward contracts and, to a lesser extent, currency options in these hedging
programs. Our hedging programs reduce, but do not always entirely eliminate, the impact of currency exchange rate
movements (see “Risk Factors” in Part I, Item 1A of this Form 10-K). We considered the historical trends in currency
exchange rates and determined that it was reasonably possible that a weighted average adverse change of 20% in currency
exchange rates could be experienced in the near term. Such an adverse change, after taking into account hedges and offsetting
positions, would have resulted in an adverse impact on income before taxes of less than $40 million as of December 26, 2009
(less than $55 million as of December 27, 2008).
Interest Rates
We are exposed to interest rate risk related to our investment portfolio and debt issuances. The primary objective of our
investments in debt instruments is to preserve principal while maximizing yields. To achieve this objective, the returns on our
investments in debt instruments are generally based on the U.S.-dollar three-
month LIBOR. A hypothetical decrease in interest
rates of 1.0% would have resulted in an increase in the fair value of our debt issuances of approximately $205 million as of
December 26, 2009 (an increase of approximately $150 million as of December 27, 2008). A hypothetical decrease in interest
rates of up to 1.0% would have resulted in an increase in the fair value of our investment portfolio of approximately $10
million as of December 26, 2009 (an increase of approximately $15 million as of December 27, 2008). These hypothetical
decreases in interest rates, after taking into account hedges and offsetting positions, would have resulted in a decrease in the
fair value of our net investment position of approximately $195 million as of December 26, 2009 and $135 million as of
December 27, 2008. The fluctuations in fair value of our debt issuances and investment portfolio reflect only the direct impact
of the change in interest rates. Other economic variables, such as equity market fluctuations and changes in relative credit risk,
could result in a significantly higher decline in our net investment portfolio. For further information on how credit risk is
factored into the valuation of our investment portfolio and debt issuances, see “Fair Value of Financial Instruments” in Part II,
Item 7 of this Form 10-K.
Equity Prices
Our marketable equity investments include marketable equity securities and equity derivative instruments such as warrants and
options. To the extent that our marketable equity securities have strategic value, we typically do not attempt to reduce or
eliminate our equity market exposure through hedging activities; however, for our investments in strategic equity derivative
instruments, including warrants, we may enter into transactions to reduce or eliminate the equity market risks. For securities
that we no longer consider strategic, we evaluate legal, market, and economic factors in our decision on the timing of disposal
and whether it is possible and appropriate to hedge the equity market risk.
We hold derivative instruments that seek to offset changes in liabilities related to the equity market risks of certain deferred
compensation arrangements. The gains and losses from changes in fair value of these derivatives are designed to offset the
gains and losses on the related liabilities, resulting in an insignificant net exposure to loss.
47
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK