Intel 2006 Annual Report Download - page 40

Table of Contents
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Investments in non-marketable equity securities are inherently risky, and a number of these companies are likely to fail. Their
success is dependent on product development, market acceptance, operational efficiency, and other key business success
factors. In addition, depending on their future prospects and market conditions, they may not be able to raise additional funds
when needed or they may receive lower valuations, with less favorable investment terms than in previous financings, and the
investments would likely become impaired.
We review our investments quarterly for indicators of impairment; however, for non-marketable equity securities, the
impairment analysis requires significant judgment to identify events or circumstances that would likely have a significant
adverse effect on the fair value of the investment. The indicators that we use to identify those events or circumstances include
(a) the investee’s revenue and earnings trends relative to predefined milestones and overall business prospects; (b) the
technological feasibility of the investee’s products and technologies; (c) the general market conditions in the investee’s
industry or geographic area, including adverse regulatory or economic changes; (d) factors related to the investee’s ability to
remain in business, such as the investee’s liquidity, debt ratios, and the rate at which the investee is using its cash; and (e) the
investee’s receipt of additional funding at a lower valuation.
Investments identified as having an indicator of impairment are subject to further analysis to determine if the investment is
other than temporarily impaired, in which case the investment is written down to its impaired value and a new cost basis is
established. When an investee is not considered viable from a financial or technological point of view, we write off the
investment, since we consider the estimated fair value to be nominal. If an investee obtains additional funding at a valuation
lower than our carrying amount or requires a new round of equity funding to stay in operation and the new funding does not
appear imminent, we presume that the investment is other than temporarily impaired, unless specific facts and circumstances
indicate otherwise. Impairments of investments in our portfolio of non-marketable equity securities were $79 million in 2006
($103 million in 2005 and $115 million in 2004). Over the past 12 quarters, impairments of investments in our portfolio of
non-marketable equity securities have ranged between $10 million and $41 million per quarter.
Income Taxes
We must make certain estimates and judgments in determining income tax expense for financial statement purposes. These
estimates and judgments occur in the calculation of tax credits, tax benefits, and deductions, such as the tax benefit for export
sales, and in the calculation of certain tax assets and liabilities, which arise from differences in the timing of recognition of
revenue and expense for tax and financial statement purposes. Significant changes to these estimates may result in an increase
or decrease to our tax provision in a subsequent period.
We must assess the likelihood that we will be able to recover our deferred tax assets. If recovery is not likely, we must
increase our provision for taxes by recording a valuation allowance against the deferred tax assets that we estimate will not
ultimately be recoverable. We believe that a substantial majority of the deferred tax assets recorded on our consolidated
balance sheets will ultimately be recovered. However, should there be a change in our ability to recover our deferred tax
assets, our tax provision would increase in the period in which we determined that the recovery was not probable.
In addition, the calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax
regulations. We recognize liabilities for anticipated tax audit issues in the U.S. and other tax jurisdictions based on our
estimate of whether, and the extent to which, additional tax payments are probable. If we ultimately determine that payment of
these amounts is unnecessary, we reverse the liability and recognize a tax benefit during the period in which we determine that
the liability is no longer necessary. This may occur for a variety of reasons, such as the expiration of the statute of limitations
on a particular tax return or the signing of a final settlement agreement with the relative tax authority. We record an additional
charge in our provision for taxes in the period in which we determine that the recorded tax liability is less than we expect the
ultimate assessment to be.
In June 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 48, “Accounting for
Uncertainty in Income Taxes—an interpretation of SFAS No. 109.” The provisions are effective beginning in the first quarter
of 2007. See “Note 2: Accounting Policies” in Part II, Item 8 of this Form 10-K for further discussion.
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