Intel 2007 Annual Report Download - page 65

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Table of Contents
INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Measurement of Effectiveness
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. Any ineffective portion of both cash flow and fair value hedges, as well as
amounts excluded from the assessment of effectiveness, are recognized in earnings in interest and other, net.
Securities Lending
We may enter 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 our consolidated balance sheets. Cash collateral is recorded as an asset
with a corresponding liability. For lending agreements collateralized by securities, we do not record the collateral as an asset
or a liability, unless the collateral is repledged.
Inventories
We compute inventory cost on a currently adjusted standard basis (which approximates actual cost on an average or
first-in, first-out basis). The valuation of inventory requires us to estimate obsolete or excess inventory as well as inventory
that is not of saleable quality. The determination of obsolete or excess inventory requires us to estimate the future demand for
our products. Inventory in excess of saleable amounts is not valued, and the remaining inventory is valued at the lower of cost
or market. Inventories at fiscal year-ends were as follows:
56
•
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 capital purchases, forward points are excluded, and
effectiveness is measured using spot rates to value both the hedge contract and the hedged item. For currency forward
contracts used in cash flow hedging strategies related to operating expenditures, forward points are included and
effectiveness is measured using forward 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.
(In Millions)
2007
2006
Raw materials
$
507
$
608
Work in process
1,460
2,044
Finished goods
1,403
1,662
Total inventories
$
3,370
$
4,314