Intel 2013 Annual Report Download - page 69

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Investments in Debt Securities
Debt securities reflected in the preceding table include investments such as asset-backed securities, bank deposits,
commercial paper, corporate bonds, government bonds, money market fund deposits, municipal bonds, and reverse
repurchase agreements classified as cash equivalents. When we use observable market prices for identical
securities that are traded in less active markets, we classify our debt investments as Level 2. When observable
market prices for identical securities are not available, we price our debt investments using non-binding market
consensus prices that are corroborated with observable market data; quoted market prices for similar instruments;
or pricing models, such as a discounted cash flow model, with all significant inputs derived from or corroborated
with observable market data. Non-binding market consensus prices are based on the proprietary valuation models
of pricing providers or brokers. These valuation models incorporate a number of inputs, including non-binding and
binding broker quotes; observable market prices for identical or similar securities; and the internal assumptions of
pricing providers or brokers that use observable market inputs and unobservable market inputs that we consider to
be not significant. We corroborate non-binding market consensus prices with observable market data using
statistical models when observable market data exists. The discounted cash flow model uses observable market
inputs, such as LIBOR-based yield curves, currency spot and forward rates, and credit ratings.
Debt securities classified as Level 3, are classified as such because the fair values are generally derived from
discounted cash flow models, performed either by us or our pricing providers, using inputs that we are unable to
corroborate with observable market data. We monitor and review the inputs and results of these valuation models to
ensure the fair value measurements are reasonable and consistent with market experience in similar asset classes.
Fair Value Option for Loans Receivable
We elected the fair value option for loans receivable when the interest rate or currency exchange rate risk was
hedged at inception with a related derivative instrument. As of December 28, 2013, the fair value of our loans
receivable for which we elected the fair value option did not significantly differ from the contractual principal balance
based on the contractual currency. Loans receivable are classified within other current assets and other long-term
assets. Fair value is determined using a discounted cash flow model, with all significant inputs derived from or
corroborated with observable market data. Gains and losses from changes in fair value on the loans receivable and
related derivative instruments, as well as interest income, are recorded in interest and other, net. During all periods
presented, changes in the fair value of our loans receivable were largely offset by changes in the related derivative
instruments, resulting in an insignificant net impact on our consolidated statements of income. Gains and losses
attributable to changes in credit risk are determined using observable credit default spreads for the issuer or
comparable companies; these gains and losses were insignificant during all periods presented. We did not elect the
fair value option for loans receivable when the interest rate or foreign exchange rate risk was not hedged at
inception with a related derivative instrument. Loans receivable not measured and recorded at fair value are
included in the "Financial Instruments Not Recorded at Fair Value on a Recurring Basis" section that follows.
Assets Measured and Recorded at Fair Value on a Non-Recurring Basis
Our non-marketable equity investments, marketable equity method investments, and non-financial assets, such as
intangible assets and property, plant and equipment, are recorded at fair value only if an impairment charge is
recognized.
A portion of our non-marketable equity investments has been measured and recorded at fair value due to events or
circumstances that significantly impacted the fair value of those investments, resulting in other-than-temporary
impairment charges. We classified these investments as Level 3, as we used unobservable inputs to the valuation
methodologies that were significant to the fair value measurements, and the valuations required management
judgment due to the absence of quoted market prices. Impairment charges recognized on non-marketable equity
investments held as of December 28, 2013, were $106 million during 2013 ($68 million during 2012 on non-
marketable equity investments held as of December 29, 2012 and $62 million during 2011 on non-marketable equity
investments held as of December 31, 2011). The fair value of the non-marketable equity investments impaired
during 2013 was $47 million at the time of impairment ($73 million and $69 million for non-marketable equity
investments impaired during 2012 and 2011, respectively).
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INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)