Intel 2006 Annual Report Download - page 68

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Table of Contents
INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Equity Market Risk
The company may elect to mitigate equity risk using the following equity market risk management programs:
Measurement of Effectiveness
Any ineffective portion of the hedges, as well as amounts excluded from the assessment of effectiveness, are recognized
currently in earnings in interest and other, net.
If a cash flow hedge were discontinued because it was no longer probable that the original hedged transaction would occur as
anticipated, the unrealized gain or loss on the related derivative would be reclassified into earnings. Subsequent gains or losses
on the related derivative instrument would be recognized in income in each period until the instrument matures, is terminated,
is re-designated as a qualified hedge, or is sold. For all periods presented, the portion of hedging instruments’ gains or losses
excluded from the assessment of effectiveness and the ineffective portions of hedges had an insignificant impact on earnings
for both cash flow and fair value hedges.
Securities Lending
From time to time, the company enters into securities lending agreements with financial institutions, generally to facilitate
hedging and certain investment transactions. Selected securities may be loaned, secured by collateral in the form of cash or
securities. The loaned securities continue to be carried as investment assets on the consolidated balance sheets. Cash collateral
is recorded as an asset with a corresponding liability. For lending agreements collateralized by securities, the collateral is not
recorded as an asset or a liability, unless the collateral is repledged.
57
•
Equity derivatives with hedge accounting designation
which utilize equity options, swaps, or forward contracts to
hedge the equity market risk of marketable equity securities, when these investments are not considered to have
strategic value. These derivatives are generally designated as fair value hedges. The gains or losses from the change in
fair value of these equity derivatives, as well as the offsetting change in the fair value of the underlying hedged equity
securities, are recognized currently in gains (losses) on equity securities, net. As of December 30, 2006, the company
did not have any equity derivatives designated as fair value hedges.
•
Equity derivatives without hedge accounting designation
which utilize equity derivatives, such as warrants, options, or
other equity derivatives. Changes in the fair value of such derivatives are recognized in gains (losses) on equity
securities, net. Certain equity securities within the trading asset portfolio are maintained to generate returns that seek to
offset changes in liabilities related to the equity market risk of certain deferred compensation arrangements, and gains
and losses are recorded in interest and other, net.
•
Effectiveness for forwards
is generally measured by comparing the cumulative change in the fair value of the hedge
contract with the cumulative change in the present value of the forecasted cash flows of the hedged item. For currency
forward contracts used in cash flow hedging strategies related to long-term capital purchases, forward points are
excluded and effectiveness is measured using spot rates to value both the hedge contract and the hedged item.
•
Effectiveness for currency options and equity options with hedge accounting designation
is generally measured by
comparing the cumulative change in the fair value of the hedge contract with the cumulative change in the fair value of
an option instrument representing the hedged risks in the hedged item for cash flow hedges. For fair value hedges, time
value is excluded and effectiveness is measured based on spot rates to value both the hedge contract and the hedged
item.
•
Effectiveness for interest rate swaps
is generally measured by comparing the change in fair value of the hedged item
with the change in fair value of the interest rate swap.