Intel 2006 Annual Report Download - page 70

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Table of Contents
INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Goodwill
Goodwill is recorded when the purchase price of an acquisition exceeds the estimated fair value of the net identified tangible
and intangible assets acquired. The company performs an annual impairment review for each reporting unit using a fair value
approach. Reporting units may be operating segments as a whole or an operation one level below an operating segment,
referred to as a component. In determining the carrying value of the reporting unit, an allocation of the company’s
manufacturing and assembly and test assets must be made because of the interchangeable nature of the company’s
manufacturing and assembly and test capacity. This allocation is based on each reporting unit’s relative percentage utilization
of the manufacturing and assembly and test assets. For further discussion of goodwill, see “Note 15: Goodwill.”
Identified Intangible Assets
Intellectual property assets primarily represent rights acquired under technology licenses and are generally amortized on a
straight-line basis over periods ranging from 2 to 17 years. Acquisition-related developed technology is amortized on a
straight-line basis over periods ranging from 4 to 6 years. Other intangible assets include acquisition-
related customer lists and
workforce-in-place, which are amortized on a straight-line basis, and customer supply agreements, which are amortized based
on product volume. Other intangible assets are amortized over periods ranging from 2 to 6 years. All identified intangible
assets are classified within other long-term assets on the consolidated balance sheets. In the quarter following the period in
which identified intangible assets become fully amortized, the fully amortized balances are removed from the gross asset and
accumulated amortization amounts. For further discussion of identified intangible assets, see “Note 16: Identified Intangible
Assets.”
The company performs a quarterly review of its identified intangible assets to determine if facts and circumstances exist which
indicate that the useful life is shorter than originally estimated or that the carrying amount of assets may not be recoverable. If
such facts and circumstances do exist, the company assesses the recoverability of identified intangible assets by comparing the
projected undiscounted net cash flows associated with the related asset or group of assets over their remaining lives against
their respective carrying amounts. Impairment, if any, is based on the excess of the carrying amount over the fair value of
those assets.
Product Warranty
The company generally sells products with a limited warranty of product quality and a limited indemnification of customers
against intellectual property infringement claims related to the company’
s products. The company accrues for known warranty
and indemnification issues if a loss is probable and can be reasonably estimated, and accrues for estimated incurred but
unidentified issues based on historical activity. The accrual and the related expense for known issues were not significant
during the periods presented. Due to product testing and the short time typically between product shipment and the detection
and correction of product failures, and considering the historical rate of payments on indemnification claims, the accrual and
related expense for estimated incurred but unidentified issues were not significant during the periods presented.
Revenue Recognition
The company recognizes net revenue when the earnings process is complete, as evidenced by an agreement with the customer,
transfer of title, and acceptance, if applicable, as well as fixed pricing and probable collectibility. Pricing allowances, including
discounts based on contractual arrangements with customers, are recorded when revenue is recognized as a reduction to both
accounts receivable and revenue. Because of frequent sales price reductions and rapid technology obsolescence in the industry,
sales made to distributors under agreements allowing price protection and/or right of return are deferred until the distributors
sell the merchandise. Shipping charges billed to customers are included in net revenue, and the related shipping costs are
included in cost of sales.
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