Intel 2012 Annual Report Download - page 70

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Derivatives in Cash Flow Hedging Relationships
The before-tax effects of derivative instruments in cash flow hedging relationships for the three years ended
December 29, 2012 were as follows:
Gains (Losses)
Recognized in OCI on
Derivatives (Effective Portion)
Gains (Losses) Reclassified from Accumulated OCI into
Income by Derivative Instrument Type (Effective Portion)
(In Millions)
2012
2011
2010
Location
2012
2011
2010
Currency
forwards ..............
$ 4
$ 20
$ 66
Cost of sales.......................................
$ 11
$ 118
$ 49
Research and development................
(63)
20
27
Marketing, general and
administrative .................................
(25)
19
4
Other........................
9
—
4
Cost of sales.......................................
(2)
4
(2)
Total........................
$ 13
$ 20
$ 70
$ (79)
$ 161
$ 78
Gains and losses on derivative instruments in cash flow hedging relationships related to hedge ineffectiveness and
amounts excluded from effectiveness testing were insignificant during all periods presented in the preceding tables. We
estimate that we will reclassify approximately $33 million (before taxes) of net derivative gains included in accumulated
other comprehensive income (loss) into earnings within the next 12 months. For all periods presented, there was an
insignificant impact on results of operations from discontinued cash flow hedges as a result of forecasted transactions that
were not probable to occur.
Derivatives Not Designated as Hedging Instruments
The effects of derivative instruments not designated as hedging instruments on the consolidated statements of income for
the three years ended December 29, 2012 were as follows:
(In Millions)
Location of Gains (Losses)
Recognized in Income on Derivatives
2012
2011
2010
Currency forwards
Interest and other, net .............................................
$ 3
$ 58
$ 72
Currency interest rate swaps
Interest and other, net .............................................
(71)
(17)
74
Equity options
Gains (losses) on equity investments, net ..............
(1)
(67)
59
Interest rate swaps
Interest and other, net .............................................
31
(26)
(59)
Total return swaps
Various ....................................................................
77
(13)
70
Other
Gains (losses) on equity investments, net ..............
(7)
4
(2)
Other
Interest and other, net .............................................
3
—
(1)
Total .....................................................................................................................
$ 35
$ (61)
$ 213
Note 8: Concentrations of Credit Risk
Financial instruments that potentially subject us to concentrations of credit risk consist principally of investments in debt
instruments, derivative financial instruments, loans receivable, and trade receivables. When possible, we enter into
master netting arrangements with counterparties to mitigate credit risk in derivative transactions. A master netting
arrangement may allow counterparties to net settle amounts owed to each other as a result of multiple, separate
derivative transactions. For presentation on our consolidated balance sheets, we do not offset fair value amounts
recognized for derivative instruments under master netting arrangements.
We generally place investments with high-credit-quality counterparties and, by policy, we limit the amount of credit
exposure to any one counterparty based on our analysis of that counterparty’s relative credit standing. Substantially all of
our investments in debt instruments are in A/A2 or better rated issuances, and the majority of the issuances are rated AA-
/Aa3 or better. Our investment policy requires substantially all investments with original maturities at the time of
investment of up to six months to be rated at least A-2/P-2 by Standard & Poor’s/Moody’s, and specifies a higher
minimum rating for investments with longer maturities. For instance, investments with maturities of greater than three
years generally require a minimum rating of AA-/Aa3 at the time of investment. Government regulations imposed on
investment alternatives of our non-U.S. subsidiaries, or the absence of A rated counterparties in certain countries, result in
some minor exceptions. Credit-rating criteria for derivative instruments are similar to those for other investments. Due to
master netting arrangements, the amounts subject to credit risk related to derivative instruments are generally limited to
the amounts, if any, by which the counterparty’s obligations exceed our obligations with that counterparty. As of