AMD 2006 Annual Report Download - page 62

Table of Contents
Other Acquisition Related Intangible Assets
Developed product technology consists of products that have reached technological feasibility and includes technology in ATI’s discrete GPU products,
integrated chipset products, handheld products, and digital TV products divisions. We expect this intangible asset to have a useful life of five years.
Game console royalty agreements represent agreements existing as of October 24, 2006 with video game console manufacturers for the payment of
royalties to ATI for intellectual property design work performed and were estimated to have an average useful life of five years.
Customer relationship intangibles represent ATI’s customer relationships existing as of October 24, 2006 and were estimated to have an average useful life
of four years.
We expect trademarks and trade names to have an average useful life of seven years.
Customer backlog represents customer orders existing as of October 24, 2006 that had not been delivered and were estimated to have a useful life of 14
months.
We determined the fair value of intangible assets using income approaches based on the most current financial forecast available as of October 24, 2006.
The discount rates we used to discount net cash flows to their present values ranged from 12 percent to 15 percent. We determined these discount rates after
consideration of our estimated weighted average cost of capital and the estimated internal rate of return specific to the acquisition. We recorded the excess of the
purchase price over the net tangible and identifiable intangible assets as goodwill.
We based estimated useful lives for the intangible assets on historical experience with technology life cycles, product roadmaps and our intended future
use of the intangible assets. We are amortizing the acquisition related intangible assets using the straight-line method over their estimated useful lives.
Integration Costs
Concurrent with the acquisition, we implemented an integration plan, which included the termination of some ATI employees, the relocation or transfer to
other sites of other ATI employees and the closure of duplicate facilities. We estimated the costs associated with employee severance and relocation to be $7
million. We estimated the costs associated with the closure of duplicate facilities to be $1 million. These costs were included as a component of net assets
acquired. Additionally, the integration plan also included termination of some AMD employees, cancellation of some existing contractual obligations, and other
costs to integrate the operations of the two companies. We estimated these costs to be $32 million for the year ended December 31, 2006, and they are included
in the caption, “Amortization of acquired intangible assets and integration charges” on our consolidated statement of operations.
Critical Accounting Estimates
Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been
prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and
judgments that affect the reported amounts in our consolidated financial statements. We evaluate our estimates on an on-going basis, including those related to
our revenues, inventories, asset impairments, goodwill, business combination, and income taxes. We base our estimates on historical experience and on various
other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values
of assets and liabilities. Although actual results have historically been reasonably consistent with management’s expectations, actual results may differ from these
estimates or our estimates may be affected by different assumptions or conditions.
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Source: ADVANCED MICRO DEVIC, 10-K, March 01, 2007