AMD 2011 Annual Report Download - page 53

We perform the annual goodwill impairment analysis as of the first day of the fourth quarter of each fiscal
year. We evaluate whether goodwill has been impaired at the reporting unit level by first determining whether the
estimated fair value of the reporting unit is less than its carrying value and, if so, by determining whether the
implied fair value of goodwill within the reporting unit is less than the carrying value. The implied fair value of
goodwill is determined through the application of one or more valuation models common to our industry,
including the income, market and cost approaches. While market valuation data for comparable companies is
gathered and analyzed, we believe that there has not been sufficient comparability between the peer groups and
the specific reporting units to allow for the derivation of reliable indications of value using a market approach.
Therefore, we have ultimately employed the income approach which requires estimates of future operating
results and cash flows of each of the reporting units, discounted using estimated discount rates. The key
assumptions we have used to determine the fair value of our reporting units includes projected cash flows for the
next 10 years and discount rates ranging from 15% to 30%. Discount rates are based on our weighted average
cost of capital, adjusted for the risks associated with operations. A variance in the discount rate could have a
significant impact on the amount of the goodwill impairment charge recorded, if any.
Based on the results of our annual analysis of goodwill in 2011 and 2010, each reporting unit’s fair values
exceeded their carrying values by a significant amount, indicating that there was no goodwill impairment.
Impairment of Long-Lived Assets including Acquired Intangible Assets. We consider quarterly whether
indicators of impairment of long-lived assets and intangible assets are present. These indicators may include, but
are not limited to, significant decreases in the market value of an asset and significant changes in the extent or
manner in which an asset is used. If these or other indicators are present, we test for recoverability of the asset by
determining whether the estimated undiscounted cash flows attributable to the assets in question are less than
their carrying value. If less, we recognize an impairment loss based on the excess of the carrying amount of the
assets over their respective fair values. Fair value is determined through discounted future cash flows, appraisals
or other methods. Significant judgment is involved in estimating future cash flows and deriving the discount rate
to apply to the estimated future cash flows, and in evaluating the results of appraisals or other valuation methods.
For example, in recent analyses performed, discount rates have ranged from 18% to 32%, but this may not be
indicative of future analyses. If the asset determined to be impaired is to be held and used, we recognize an
impairment loss through a charge to our operating results, which also reduces the carrying basis of the related
asset. The new carrying value of the related asset is depreciated or amortized over the remaining estimated useful
life of the asset. We also must make subjective judgments regarding the remaining useful life of the asset. We
may incur additional impairment losses in future periods if factors influencing our estimates of the undiscounted
cash flows change. For assets held for sale, impairment losses are measured at the lower of the carrying amount
of the assets or the fair value of the assets less costs to sell. For assets to be disposed of other than by sale,
impairment losses are measured as their carrying amount less salvage value, if any, at the time the assets cease to
be used.
Income Taxes. In determining taxable income for financial statement reporting purposes, we must make
certain estimates and judgments. These estimates and judgments are applied in the calculation of certain tax
liabilities and in the determination of the recoverability of deferred tax assets, which arise from temporary
differences between the recognition of assets and liabilities for tax and financial statement reporting purposes.
We must assess the likelihood that we will be able to recover our deferred tax assets. If recovery is not
likely, we must increase our charge to income tax expense, in the form of a valuation allowance, for the deferred
tax assets that we estimate will not ultimately be recoverable. We consider past performance, future expected
taxable income and prudent and feasible tax planning strategies in determining the need for a valuation
allowance.
In addition, the calculation of our tax liabilities involves dealing with uncertainties in the application of
complex tax rules and the potential for future adjustment of our uncertain tax positions by the Internal Revenue
Service or other taxing jurisdiction. If our estimates of these taxes are greater or less than actual results, an
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