Intel 2005 Annual Report Download - page 78

Table of Contents
INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 13: Acquisitions and Divestitures
Business Combinations
All of the company’s acquisitions that qualified as business combinations have been accounted for using the purchase method of accounting.
Consideration includes the cash paid and the value of any options assumed, less any cash acquired, and excludes contingent employee compensation
payable in cash and any debt assumed. The company accounts for the intrinsic value of stock options assumed related to future services as unearned
compensation within stockholders’ equity.
During 2005, the company completed three acquisitions qualifying as business combinations in exchange for aggregate net cash consideration of
$177 million, plus certain liabilities. Most of this consideration was allocated to goodwill and related to businesses within the “all other” category for
segment reporting purposes. During 2004, the company completed one acquisition qualifying as a business combination in exchange for net cash
consideration of approximately $33 million, plus certain liabilities. The company also completed one acquisition in 2003 qualifying as a business
combination in exchange for net cash consideration of $21 million, plus certain liabilities. The operating results since the date of acquisition of the
businesses acquired are included in the segment that completed the acquisition.
Development
-Stage Operations
An acquisition of a development-stage operation does not qualify as a business combination under SFAS No. 141, “Business Combinations,” and
purchase consideration for such an acquisition is not allocated to goodwill. Workforce-in -place qualifies as an identified intangible asset for an
acquisition of a development-stage operation.
During 2005, the company acquired a development-stage operation in exchange for total net cash consideration of $19 million, which resulted in the
recording of workforce-in -place of $20 million. During 2004, there were no acquisitions qualifying as development-
stage operations. During 2003, the
company acquired a development-
stage operation in exchange for total net cash consideration of approximately $40 million, all of which was allocated
to workforce-in -place. The operating results of these acquisitions are included in the segment completing the acquisition, as appropriate, for segment
reporting purposes.
Divestitures
During 2003, the company recognized approximately $758 million in tax benefits related to sales of the stock of certain previously acquired
companies, primarily DSP Communications, Inc. (DSP), Dialogic Corporation and Xircom, Inc. A net benefit of approximately $420 million was
recognized on the divestiture of a portion of the intellectual property assets of DSP, through the sale of the stock of DSP. A benefit of approximately
$200 million was recognized on the divestiture of a portion of the assets, primarily real estate, of Dialogic, through the sale of the stock of Dialogic,
and a benefit of approximately $125 million was recognized related to the sale of a wireless WAN business, through the sale of the stock of Xircom.
The pre-tax gains and losses on these sales for financial statement or book purposes were not significant. The company was able to recognize tax
losses because the tax basis in the entities exceeded the book basis, as the goodwill allocated to the transactions for financial statement purposes was
less than the amount the company could effectively deduct for tax purposes.
Note 14: Goodwill
During the first quarter of 2005, the company reorganized its business groups to bring all major product groups in line with the company’s strategy to
design and deliver technology platforms (see “Note 19: Operating Segment and Geographic Information”). Due to this reorganization of the
company’
s business groups during the first quarter of 2005, goodwill was allocated to the new reporting units based on the estimated fair value of each
business group within its original reporting unit relative to the estimated fair value of that reporting unit. In the fourth quarter of 2005, the company
added the Flash Memory Group (FMG). As the flash products group was a separate reporting unit in MG, with no goodwill assigned, the transfer of
the flash products group to FMG did not change the goodwill recorded within the operating segments. The majority of the “all other” category
goodwill is included in the Digital Home Group operating segment, which is also a reporting unit.
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