Intel 2008 Annual Report Download - page 40

Table of Contents
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Level 2 instruments include observable inputs other than Level 1 prices, such as quoted prices for identical instruments in
markets with insufficient volume or infrequent transactions (less active markets), issuer credit ratings, non-binding market
consensus prices that can be corroborated with observable market data, model-derived valuations in which all significant
inputs are observable or can be derived principally from or corroborated with observable market data for substantially the full
term of the assets or liabilities, or quoted prices for similar assets or liabilities. These Level 2 instruments require more
management judgment and subjectivity compared to Level 1 instruments, including:
Level 3 instruments include unobservable inputs to the valuation methodology that are significant to the measurement of fair
value of assets or liabilities. The determination of fair value for Level 3 instruments requires the most management judgment
and subjectivity. Most of our marketable debt instruments classified as Level 3 are valued using a non-binding market
consensus price or a non-binding broker quote, both of which we corroborate with unobservable 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 non-observable market inputs. Adjustments to the fair value of instruments priced using non-binding market
consensus prices and non-binding broker quotes, and classified as Level 3, were not significant in 2008.
Other-Than-Temporary Impairment
After determining the fair value of our available-for-
sale debt instruments, gains or losses on these investments are recorded to
other comprehensive income, until either the investment is sold or we determine that the decline in value is other-than-
temporary. Determining whether the decline in fair value is other-than-
temporary requires management judgment based on the
specific facts and circumstances of each investment. For investments in debt instruments, these judgments primarily consider:
the financial condition and liquidity of the issuer, the issuer’s credit rating, and any specific events that may cause us to
believe that the debt instrument will not mature and be paid in full; and our ability and intent to hold the investment to
maturity. Given the current market conditions, these judgments could prove to be wrong, and companies with relatively high
credit ratings and solid financial conditions may not be able to fulfill their obligations. In addition, if management decides not
to hold an investment until maturity, it may result in the recognition of an other-than-temporary impairment.
As of December 27, 2008, our investments included $11.3 billion of available-for-sale debt instruments. During 2008, we
recognized $44 million in impairment charges on our available-for-sale debt instruments. As of December 27, 2008, our
cumulative unrealized losses related to debt instruments classified as available-for-sale were approximately $215 million
(approximately $55 million as of December 29, 2007). As of December 27, 2008, this amount included approximately
$170 million of unrecognized losses that could be recognized in the future if our other-than-temporary assessment changes.
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• Determining which instruments are most similar to the instrument being priced requires management to identify a
sample of similar securities based on the coupon rates, maturity, issuer, credit rating, and instrument type, and
subjectively select an individual security or multiple securities that are deemed most similar to the security being
priced.
• Determining whether a market is considered active requires management judgment. 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.
• Determining which model-derived valuations to use in determining fair value requires management judgment. When
observable market prices for identical securities or similar securities are not available, we price our marketable debt
instruments using non-binding market consensus prices that are corroborated with observable market data or pricing
models, such as discounted cash flow models, with all significant inputs derived from or corroborated with observable
market data.