Intel 2013 Annual Report Download - page 78

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73
Derivatives Not Designated as Hedging Instruments
The effects of derivative instruments not designated as hedging instruments on the consolidated statements of
income for each period were as follows:
(In Millions) Location of Gains (Losses)
Recognized in Income on Derivatives 2013 2012 2011
Currency forwards Interest and other, net $ 44 $ 3 $ 58
Currency interest rate swaps Interest and other, net 29 (71) (17)
Equity options Gains (losses) on equity
investments, net 1(1) (67)
Interest rate swaps Interest and other, net —31 (26)
Total return swaps Various 140 77 (13)
Other Gains (losses) on equity
investments, net 5(7) 4
Other Interest and other, net —3 —
Total $ 219 $ 35 $ (61)
Note 7: 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. Most 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 December 28, 2013, our total credit exposure to any single counterparty,
excluding Japan government bonds, did not exceed $750 million. We obtain and secure available collateral from
counterparties against obligations, including securities lending transactions, when we deem it appropriate.
A substantial majority of our trade receivables are derived from sales to original equipment manufacturers and
original design manufacturers. We also have accounts receivable derived from sales to industrial and retail
distributors. Our three largest customers accounted for 44% of net revenue for 2013 (43% for 2012 and 2011).
Additionally, these three largest customers accounted for 34% of our accounts receivable as of December 28, 2013
(33% as of December 29, 2012). We believe that the receivable balances from these largest customers do not
represent a significant credit risk based on cash flow forecasts, balance sheet analysis, and past collection
experience.
We have adopted credit policies and standards intended to accommodate industry growth and inherent risk. We
believe that credit risks are moderated by the financial stability of our major customers. We assess credit risk
through quantitative and qualitative analysis, and from this analysis, we establish credit limits and determine
whether we will seek to use one or more credit support devices, such as obtaining a parent guarantee or standby
letter of credit, or obtaining credit insurance.
Table of Contents
INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)