Intel 2006 Annual Report Download - page 67

Download and view the complete annual report

Please find page 67 of the 2006 Intel annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 145

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140
  • 141
  • 142
  • 143
  • 144
  • 145

Table of Contents
INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Through the use of derivative financial instruments, the company manages the following risks:
Currency Risk
The company transacts business in various currencies other than the U.S. dollar and has established balance sheet and
forecasted transaction risk management programs to protect against fluctuations in fair value and volatility of future cash flows
caused by changes in exchange rates. The forecasted transaction risk management program includes anticipated transactions
such as operating costs and capital purchases. These programs reduce, but do not always entirely eliminate, the impact of
currency exchange movements. The company’s currency risk management programs include:
Interest Rate Risk
The company’s primary objective for holding investments in debt securities is to preserve principal while maximizing yields.
The returns on the company’s investments in fixed-rate debt securities with durations longer than three months are generally
swapped into U.S. dollar three-month LIBOR-based returns. The company’s interest rate risk management programs include:
56
• Currency derivatives with cash flow hedge accounting designation which utilize currency forward contracts and
currency options to hedge exposures to the variability in the U.S.-dollar equivalent of anticipated
non-U.S.-dollar-denominated
cash flows. The maturity of these instruments will generally occur within 12 months. For
these derivatives, the after-tax gain or loss from the effective portion of the hedge is reported as a component of
accumulated other comprehensive income (loss) in stockholders’ equity and is reclassified into earnings in the same
period or periods in which the hedged transaction affects earnings, and within the same line item on the consolidated
statements of income as the impact of the hedged transaction.
• Currency derivatives with fair value hedge accounting designation which utilize currency forward contracts and
currency options to hedge the fair value exposure of recognized foreign currency denominated assets or liabilities, or
previously unrecognized firm commitments. For fair value hedges, gains or losses are recognized in earnings to offset
fair value changes in the hedged transaction. As of December 30, 2006 and December 31, 2005, the company did not
have any derivatives designated as foreign currency fair value hedges.
• Currency derivatives without hedge accounting designation which utilize currency forward contracts or currency
interest rate swaps to economically hedge the functional currency equivalent cash flows of recognized monetary assets,
including non-U.S.-dollar-denominated debt securities and recognized monetary assets and liabilities. The maturity of
these instruments will generally occur within 12 months, except for derivatives associated with certain long-term
equity-related investments that will generally mature within five years. Changes in the U.S.-dollar equivalent cash
flows of the underlying assets and liabilities are approximately offset by the changes in fair values of the related
derivatives. Net gains or losses are recorded within the line item on the consolidated statements of income that is most
closely associated with the economic underlying, primarily in interest and other, net, except for equity-related gains or
losses, which are primarily recorded in gains (losses) on equity securities, net.
•
Interest rate derivatives with cash flow hedge accounting designation
which utilize interest rate swap agreements to
modify the interest characteristics of some of the company’s investments. For these derivatives, the after-tax gain or
loss from the effective portion of the hedge is reported as a component of accumulated other comprehensive income
(loss) and is reclassified into earnings in the same period or periods in which the hedged transaction affects earnings,
and within the same line item on the consolidated statements of income as the impact of the hedged transaction.
•
Interest rate derivatives with fair value hedge accounting designation
which utilize interest rate swap agreements to
hedge the fair values of debt instruments. The gains or losses from the changes in fair value of these instruments, as
well as the offsetting change in the fair value of the hedged long-term debt, are recognized in interest expense. At
December 30, 2006 and December 31, 2005, the company did not have any interest rate derivatives designated as fair
value hedges.
•
Interest rate derivatives without hedge accounting designation
which utilize interest rate swaps and currency interest
rate swaps in economic hedging transactions, including hedges of non-U.S.-dollar-denominated debt securities
classified as trading assets. The floating interest rates on the swaps are reset on a monthly, quarterly, or semiannual
basis. Changes in fair value of the debt securities classified as trading assets are generally offset by changes in fair
value of the related derivatives, resulting in a negligible net impact that is recorded in interest and other, net.