Intel 2013 Annual Report Download - page 35

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30
Critical Accounting Estimates
The methods, estimates, and judgments that we use in applying our accounting policies have a significant impact
on the results that we report in our consolidated financial statements. Some of our accounting policies require us to
make difficult and subjective judgments, often as a result of the need to make estimates regarding matters that are
inherently uncertain. Our most critical accounting estimates include:
• the valuation of non-marketable equity investments and the determination of other-than-temporary impairments,
which impact gains (losses) on equity investments, net when we record impairments;
• the assessment of recoverability of long-lived assets (property, plant and equipment; goodwill; and identified
intangibles), which impacts gross margin or operating expenses when we record asset impairments or
accelerate their depreciation or amortization;
• the recognition and measurement of current and deferred income taxes (including the measurement of
uncertain tax positions), which impact our provision for taxes;
• the valuation of inventory, which impacts gross margin; and
• the recognition and measurement of loss contingencies, which impact gross margin or operating expenses
when we recognize a loss contingency, revise the estimate for a loss contingency, or record an asset
impairment.
In the following section, we discuss these policies further, as well as the estimates and judgments involved.
Non-Marketable Equity Investments
We regularly invest in non-marketable equity instruments of private companies, which range from early-stage
companies that are often still defining their strategic direction to more mature companies with established revenue
streams and business models. The carrying value of our non-marketable equity investment portfolio, excluding
equity derivatives, totaled $2.3 billion as of December 28, 2013 ($2.2 billion as of December 29, 2012).
Our non-marketable equity investments are recorded using the cost method or the equity method of accounting,
depending on the facts and circumstances of each investment. Our non-marketable equity investments are
classified within other long-term assets on the consolidated balance sheets.
Non-marketable equity investments are inherently risky, and their success depends on product development,
market acceptance, operational efficiency, and other key business factors. The companies could fail or not be able
to raise additional funds when needed, or they may receive lower valuations with less favorable investment terms
than previous financings. These events could cause our investments to become impaired. In addition, financial
market volatility could negatively affect our ability to realize value in our investments through liquidity events such as
initial public offerings, mergers, and private sales. For further information about our investment portfolio risks, see
“Risk Factors” in Part I, Item 1A of this Form 10-K.
We determine the fair value of our non-marketable equity investments portfolio quarterly for disclosure purposes;
however, the investments are recorded at fair value only if an impairment charge is recognized. We determine the
fair value of our non-marketable equity investments using the market and income approaches. The market
approach includes the use of financial metrics and ratios of comparable public companies, such as projected
revenue, earnings, and comparable performance multiples. The selection of comparable companies requires
management judgment and is based on a number of factors, including comparable companies’ sizes, growth rates,
industries, and development stages. The income approach includes the use of a discounted cash flow model, which
requires significant estimates regarding the investees' revenue, costs, and discount rates based on the risk profile of
comparable companies. Estimates of revenue and costs are developed using available market, historical, and
forecast data. The valuation of these non-marketable equity investments also takes into account variables such as
conditions reflected in the capital markets, recent financing activities by the investees, the investees’ capital
structures, the terms of the investees’ issued interests, and the lack of marketability of the investments.
Table of Contents
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)