Intel 2003 Annual Report Download - page 84

Table of Contents
Index to Financial Statements
INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
During the fourth quarter of 2003, the company completed its annual impairment review for goodwill and found indicators of impairment
for the Wireless Communications and Computing Group (WCCG) reporting unit. The WCCG business, comprised primarily of flash memory
products and cellular baseband chipsets, has not performed as management had expected. In the fourth quarter of 2003, it became apparent that
WCCG was now expected to grow more slowly than previously projected. A slower-than-expected rollout of products and slower-than-
expected customer acceptance of our products in the baseband chipset business, as well as a delay in the transition to next-generation phone
networks, have pushed out the forecasts for sales into high-end data cell phones. These factors resulted in lower growth expectations for the
reporting unit and triggered the goodwill impairment. The impairment review requires a two-
step process. The first step of the review compares
the fair value of the reporting units with substantial goodwill against their aggregate carrying values, including goodwill. The company
estimated the fair value of the WCCG and ICG reporting units using the income method of valuation, which includes the use of estimated
discounted cash flows. Based on the comparison, the carrying value of the WCCG reporting unit exceeded the fair value. Accordingly, the
company performed the second step of the test, comparing the implied fair value of the WCCG reporting unit’s goodwill with the carrying
amount of that goodwill. Based on this assessment, the company recorded a non-cash impairment charge of $611 million, which is included as
a component of operating income in the “all other” category for segment reporting purposes.
Also during 2003, the goodwill related to one of the company’s seed businesses, included in the “all other” category, was impaired. Seed
businesses are businesses that support the company’s strategic initiatives. In addition, goodwill in the ICG operating segment decreased,
primarily as a result of goodwill allocated to divestitures on a fair value basis in 2003. During 2003, the company recorded goodwill of $3
million in connection with a qualifying business combination. In 2002, no goodwill was recorded or impaired.
Upon adoption of SFAS No. 141, workforce-in-place no longer meets the definition of an identifiable intangible asset in acquisitions
qualifying as business combinations. As a result, as of the beginning of 2002, the net book value of the company’s workforce-in-place of $39
million, along with associated deferred tax liabilities of $19 million, was reclassified to goodwill (see “Goodwill” under “Note 2: Accounting
Policies”).
Note 17: Identified Intangible Assets
Identified intangible assets acquired during 2003 and 2002 are summarized as follows:
Of the intellectual property assets acquired in 2002, $295 million represented the value of assets capitalized as a result of payments under
the settlement agreement with Intergraph Corporation related to the lawsuits in Alabama and Texas (see “Note 21: Contingencies”). The value
of the Intergraph assets and the amount of the charge to cost of sales in 2002 were derived from the historical and expected future revenue from
sales of the relevant microprocessors.
Identified intangible assets as of December 27, 2003 consisted of the following:
77
2003 2002
(In Millions)
Value
Weighted
Average
Life
Value
Weighted
Average
Life
Acquisition
-
related developed technology
$
14
4
$
35
2
Other acquisition
-
related intangibles
40
2
—
—
Intellectual property assets
96
5
317
7
Total identified intangible assets
$
150
$
352
(In Millions)
Gross
Assets
Accumulated
Amortization
Net
Acquisition
-
related developed technology
$
994
$
(772
)
$
222
Other acquisition
-
related intangibles
94
(49
)
45
Intellectual property assets
604
(212
)
392
Total identified intangible assets
$
1,692
$
(1,033
)
$
659