Intel 1997 Annual Report Download - page 44

Intel Corporation 1997
Notes to consolidated
financial statements
Accounting policies
Fiscal year. Intel Corporation ("Intel" or "the Company") has a fiscal year that ends the last Saturday in December. Fiscal years 1997, 1996 and
1995, each 52-week years, ended on December 27, 28 and 30, respectively. Periodically, there will be a 53-week year. The next 53-week year
will end on December 30, 2000.
Basis of presentation. The consolidated financial statements include the accounts of Intel and its wholly owned subsidiaries. Significant
intercompany accounts and transactions have been eliminated. Accounts denominated in foreign currencies have been remeasured into the
functional currency in accordance with Statement of Financial Accounting Standards ("SFAS") No. 52, "Foreign Currency Translation," using
the U.S. dollar as the functional currency.
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those
estimates.
Investments. Highly liquid investments with insignificant interest rate risk and with original maturities of three months or less are classified as
cash and cash equivalents. Investments with maturities greater than three months and less than one year are classified as short-term
investments. Investments with maturities greater than one year are classified as long-term investments.
The Company accounts for investments in accordance with SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities." The Company's policy is to protect the value of its investment portfolio and to minimize principal risk by earning returns based on
current interest rates. For equity investments entered into for the promotion of business and strategic objectives, an insignificant portion of the
investment portfolio, the Company typically does not attempt to reduce or eliminate the inherent market risks. A substantial majority of the
Company's marketable investments are classified as available-for-sale as of the balance sheet date and are reported at fair value, with
unrealized gains and losses, net of tax, recorded in stockholders' equity. The cost of securities sold is based on the specific identification
method. Realized gains or losses and declines in value, if any, judged to be other than temporary, on available-for-
sale securities are reported in
other income or expense. Investments in non-marketable instruments are recorded at the lower of cost or market and included in other assets.
Trading assets. During 1996, the Company began purchasing securities classified as trading assets. Net gains on the trading asset portfolio were
$37 million and $12 million in 1997 and 1996, respectively. The Company maintains its trading asset portfolio to generate returns that offset
changes in certain liabilities related to deferred compensation arrangements. The trading assets consist of marketable equity securities and are
stated at fair value. Both realized and unrealized gains and losses are included in other income or expense and generally offset the change in the
deferred compensation liability, which is also included in other income or expense.
Fair values of financial instruments. Fair values of cash and cash equivalents approximate cost due to the short period of time to maturity. Fair
values of long-term investments, long-term debt, short-term investments, short-term debt, long-term debt redeemable within one year, trading
assets, non-
marketable instruments, swaps, currency forward contracts, currency options and options hedging marketable instruments are based
on quoted market prices or pricing models using current market rates. No consideration is given to liquidity issues in valuing debt.
Derivative financial instruments. The Company utilizes derivative financial instruments to reduce financial market risks. These instruments are
used to hedge foreign currency, equity and interest rate market exposures of underlying assets, liabilities and other obligations. The Company
does not use derivative financial instruments for speculative or trading purposes. The Company's accounting policies for these instruments are
based on the Company's designation of such instruments as hedging transactions. The criteria the Company uses for designating an instrument
as a hedge include the instrument's effectiveness in risk reduction and one-to-
one matching of derivative instruments to underlying transactions.
Gains and losses on currency forward contracts and options that are designated and effective as hedges of anticipated transactions, for which a
firm commitment has been attained, are deferred and recognized in income in the same period that the underlying transactions are settled.
Gains and losses on currency forward contracts, options and swaps that are designated and effective as hedges of existing transactions are
recognized in income in the same period as losses and gains on the underlying transactions are recognized and generally offset. Gains and
losses on any instruments not meeting the above criteria would be recognized in income in the current period. If an underlying hedged
transaction is terminated earlier than initially anticipated, the offsetting gain or loss on the related derivative instrument would be recognized in
income in the same period. Subsequent gains or losses on the related derivative instrument would be recognized in income in each period until
the instrument matures, is terminated or is sold. Income or expense on swaps is accrued as an adjustment to the yield of the related investments
or debt they hedge.
Inventories. Inventories are stated at the lower of cost or market. Cost is computed on a currently adjusted standard basis (which approximates
actual cost on a current average or first-in, first-out basis). Inventories at fiscal year-ends were as follows:
(In millions) 1997 1996
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