AMD 2006 Annual Report Download - page 64

Table of Contents
discount rates, future economic and market conditions and determining of appropriate market comparables. We base our fair value estimates on assumptions we
believe to be reasonable but that are unpredictable and inherently uncertain. Actual future results may differ from those estimates. In addition, we make
judgments and assumptions in allocating assets and liabilities to each of our reporting units.
Business Combinations. In accordance with business combination accounting, we have allocated the purchase price of ATI to tangible and acquisition
related intangible assets acquired and liabilities assumed as well as to in-process research and development based on their estimated fair values. These valuations
require us to make significant estimates and assumptions, especially with respect to acquisition related intangible assets.
We will review the acquisition related intangible assets for impairment whenever events or changes in circumstances indicate that the carrying value of
these assets may not be recovered.
We make estimates of fair value using reasonable assumptions based on historical experience and information obtained from the management of the
acquired company. Critical estimates in valuing certain of the acquisition related intangible assets include but are not limited to: future expected cash flows from
sale of products, expected costs to develop in-process research and development projects into commercially viable products and estimated cash flows from the
projects when completed; the market’s awareness of the acquired company’s brand and the acquired company’s market position, as well as assumptions about the
period of time the acquired brand will continue to be used in the combined company’s product portfolio; and discount rates. Unanticipated events may occur
which may affect the accuracy or validity of such assumptions, estimates or actual results.
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 provision for taxes by
recording a 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 additional tax benefit or charge will result.
Results of Operations
We review and assess operating performance using segment revenues and operating income (loss) before interest, taxes, equity in net loss of Spansion Inc.
and other, and minority interest. These performance measures include the allocation of expenses to the operating segments based on management’s judgment.
Prior to December 21, 2005, we had the following three reportable segments:
• the Computation Products segment, which included microprocessor products for desktop and mobile PCs, servers and workstations and AMD chipset
products;
• the Memory Products segment, which included Spansion Flash memory products; and
• the Personal Connectivity Solutions segment, which consisted of embedded processors for global commercial and consumer markets.
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Source: ADVANCED MICRO DEVIC, 10-K, March 01, 2007