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longer-term forecasts of Graphics business revenues, operating profitability and cash flows compared to the
Company’s forecasts at the time of the completion of the ATI acquisition.
The updated financial forecast for the former Consumer Electronics segment was lower primarily because
its Digital Television business was affected by the rapid introduction and proliferation of low cost digital
televisions that did not contain its technology. The availability and adoption of these low cost alternatives by
consumers resulted in lower forecasted sales to those companies employing the Company’s technology. In
addition, the Company’s Handheld business was dependant on a small number of mobile handset customers for
its revenues. During 2007, one handset customer experienced severe competition and eroding market share for its
consumer handset products. These two principal factors resulted in lower near-term and longer-term forecasts of
revenues, operating profitability, and cash flows compared to the Company’s forecast at the time of the ATI
acquisition. These updated long-term financial forecasts represented the best estimate that the Company’s
management had at the time and the Company believed that its underlying assumptions were reasonable at that
time.
The outcome of the Company’s 2007 goodwill impairment analysis indicated that the carrying amount of
certain acquisition-related intangible assets or asset groups may not be recoverable. The Company assessed the
recoverability of the acquisition-related intangible assets or asset groups, as appropriate, by determining whether
the unamortized balances could be recovered through undiscounted future net cash flows. The Company
determined that certain of the acquisition-related developed product technology associated with its Graphics and
Consumer Electronics segments was impaired primarily due to the revised lower revenue forecasts associated
with the products incorporating such developed product technology. The Company measured the amount of
impairment by calculating the amount by which the carrying value of the assets exceeded their estimated fair
values, which were based on projected discounted future net cash flows. As a result of this impairment analysis,
the Company recorded an impairment charge of $349 million, of which $219 million is included in the caption
“Impairment of goodwill and acquired intangible assets” and $130 million is included in the caption “Income
(loss) from discontinued operations, net of tax” in its 2007 consolidated statement of operations.
The balances of acquisition-related intangible assets as of December 26, 2009, were as follows:
Developed
product
technology
Game
console
royalty
agreements
Customer
relationships
Trademark
and trade
name
Customer
backlog Total
Cost of ATI acquisition related intangible
assets ................................. $752 $147 $257 $62 $ 36 $1,254
Reclassification to discontinued
operations(1) ........................ (255) — (59) (10) (2) (326)
Amortization expense .................. (17) (5) (8) (1) (5) (36)
Intangible assets, net December 31, 2006 ...... 480 142 190 51 29 892
Amortization expense .................. (93) (30) (49) (7) (29) (208)
Impairment charges ................... (219) — — — — (219)
Intangible assets, net December 29, 2007 ...... 168 112 141 44 — 465
Amortization expense .................. (55) (29) (45) (7) — (136)
Impairment charges ................... (80) — (34) (16) — (130)
Reclassification(2) ..................... (31) — — — — (31)
Intangible assets, net December 27, 2008 ...... 2 83 62 21 — 168
Amortization expense .................. (2) (29) (34) (5) — (70)
Intangible assets, net December 26, 2009 ...... $— $ 54 $ 28 $16 $— $ 98
(1) Represents the reclassification of the Digital Television business unit to discontinued operations. (See Note 20)
(2) Represents the reclassification of certain assets related to the Handheld business unit that were sold to
Qualcomm in the first quarter of 2009 (See 2008 Impairment)
97