Intel 2009 Annual Report Download - page 51

Table of Contents
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Marketable Debt Instruments
As of December 26, 2009, our assets measured and recorded at fair value on a recurring basis included $17.5 billion of
marketable debt instruments. Of these instruments, $657 million was classified as Level 1, $15.8 billion as Level 2, and $1.1
billion as Level 3.
When available, we use observable market prices for identical securities to value our marketable debt instruments. If
observable market prices are not available, we use non-binding market consensus prices that we seek to corroborate with
observable market data, if available, or unobservable market data. When prices from multiple sources are available for a given
instrument, we use observable market quotes to price our instruments, in lieu of prices from other sources.
Our balance of marketable debt instruments that are measured and recorded at fair value on a recurring basis and classified as
Level 1 was classified as such due to the usage of observable market prices for identical securities that are traded in active
markets. Marketable debt instruments in this category generally include certain of our corporate bonds, government bonds, and
money market fund deposits. Management judgment was required to determine the levels at which sufficient volume and
frequency of transactions are met for a market to be considered active. Our assessment of an active market for our marketable
debt instruments generally takes into consideration activity during each week of the one-month period prior to the valuation
date of each individual instrument, including the number of days each individual instrument trades and the average weekly
trading volume in relation to the total outstanding amount of the issued instrument.
Approximately 10% of our balance of marketable debt instruments that are measured and recorded at fair value on a recurring
basis and classified as Level 2 was classified as such due to the usage of observable market prices for identical securities that
are traded in less active markets. When observable market prices for identical securities are not available, we price our
marketable debt instruments 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 and/or similar securities; and the
internal assumptions of pricing providers or brokers that use observable market inputs and, to a lesser degree, unobservable
market inputs. We corroborate the 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. Approximately 40% of our balance of marketable debt
instruments that are measured and recorded at fair value on a recurring basis and classified as Level 2 was classified as such
due to the usage of non-
binding market consensus prices that are corroborated with observable market data, and approximately
50% due to the usage of a discounted cash flow model. Marketable debt instruments classified as Level 2 generally include
commercial paper, bank time deposits, municipal bonds, certain of our money market fund deposits, and a majority of
corporate bonds and government bonds.
Our marketable debt instruments that are measured and recorded at fair value on a recurring basis and classified as Level 3
were classified as such due to the lack of observable market data to corroborate either the non-
binding market consensus prices
or the non-binding broker quotes. When observable market data is not available, we corroborate the non-binding market
consensus prices and non-binding broker quotes using unobservable data, if available. Marketable debt instruments in this
category generally include asset-backed securities and certain of our corporate bonds. All of our investments in asset-backed
securities were classified as Level 3, and substantially all of them were valued using non-binding market consensus prices that
we were not able to corroborate with observable market data due to the lack of transparency in the market for asset-backed
securities.
Equity Securities
As of December 26, 2009, our portfolio of assets measured and recorded at fair value on a recurring basis included $773
million of marketable equity securities. Of these securities, $676 million was classified as Level 1 because the valuations were
based on quoted prices for identical securities in active markets. Our assessment of an active market for our marketable equity
securities generally takes into consideration activity during each week of the one-month period prior to the valuation date for
each individual security, including the number of days each individual equity security trades and the average weekly trading
volume in relation to the total outstanding shares of that security. The remaining marketable equity securities of $97 million
were classified as Level 2 because their valuations were either based on quoted prices for identical securities in less active
markets or adjusted for security-specific restrictions.
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