Intel 2012 Annual Report Download - page 64
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Government bonds include bonds issued or deemed to be guaranteed by government entities. Government bonds include
instruments such as non-U.S. government bonds, U.S. Treasury securities, and U.S. agency securities. The underlying
assets of substantially all of our reverse repurchase agreements presented in the preceding table are government bonds.
During 2012, we transferred approximately $200 million of government bonds and corporate bonds from Level 1 to Level
2, primarily based on the reduced market activity for the underlying securities. Our policy is to reflect transfers in and
transfers out at the beginning of the quarter in which a change in circumstances resulted in the transfer.
Investments in Debt Instruments
Debt investments reflected in the preceding table include investments such as asset-backed securities, bank deposits,
commercial paper, corporate bonds, government bonds, money market fund deposits, municipal bonds, and reverse
repurchase agreements classified as cash equivalents. When we use observable market prices for identical securities that
are traded in less-active markets, we classify our debt investments as Level 2. When observable market prices for
identical securities are not available, we price our debt investments using non-binding market consensus prices that are
corroborated with observable market data; quoted market prices for similar instruments; or pricing models, such as a
discounted cash flow model, with all significant inputs derived from or corroborated with observable market 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 or similar securities; and the internal assumptions of pricing providers or brokers that use observable
market inputs and, to a lesser degree, unobservable market inputs. We corroborate non-binding market consensus prices
with observable market data using statistical models when observable market data exists. The discounted cash flow
model uses observable market inputs, such as LIBOR-based yield curves, currency spot and forward rates, and credit
ratings.
Debt investments that are classified as Level 3 are classified as such due to the lack of observable market data to
corroborate either the non-binding market consensus prices or the non-binding broker quotes. When observable market
data is not available, we corroborate our fair value measurements using non-binding market consensus prices and non-
binding broker quotes from a second source.
Fair Value Option for Loans Receivable
We elected the fair value option for loans made to third parties when the interest rate or foreign exchange rate risk was
hedged at inception with a related derivative instrument. As of December 29, 2012, the fair value of our loans receivable
for which we elected the fair value option did not significantly differ from the contractual principal balance based on the
contractual currency. Loans receivable are classified within other current assets and other long-term assets. Fair value is
determined using a discounted cash flow model, with all significant inputs derived from or corroborated with observable
market data. Gains and losses from changes in fair value on the loans receivable and related derivative instruments, as
well as interest income, are recorded in interest and other, net. During all periods presented, changes in the fair value of
our loans receivable were largely offset by changes in the related derivative instruments, resulting in an insignificant net
impact on our consolidated statements of income. Gains and losses attributable to changes in credit risk are determined
using observable credit default spreads for the issuer or comparable companies; these gains and losses were insignificant
during all periods presented. We did not elect the fair value option for loans when the interest rate or foreign exchange
rate risk was not hedged at inception with a related derivative instrument.
Assets Measured and Recorded at Fair Value on a Non-Recurring Basis
Our non-marketable equity investments (non-marketable equity method and cost method investments) and non-financial
assets, such as intangible assets and property, plant and equipment, are recorded at fair value only if an impairment
charge is recognized.
A portion of our non-marketable equity investments has been measured and recorded at fair value due to events or
circumstances that significantly impacted the fair value of those investments, resulting in other-than-temporary impairment
charges. We classified these investments as Level 3, as we used unobservable inputs to the valuation methodologies that
were significant to the fair value measurements, and the valuations required management judgment due to the absence of
quoted market prices. Impairment charges recognized on non-marketable equity investments held as of December 29,
2012 were $68 million during 2012 ($62 million during 2011 on non-marketable equity investments held as of
December 31, 2011 and $121 million during 2010 on non-marketable equity investments held as of December 25, 2010).
The fair value of the non-marketable equity investments impaired during 2012 was $73 million at the time of impairment
($69 million and $128 million for non-marketable equity investments impaired during 2011 and 2010, respectively).