AMD 2007 Annual Report Download - page 57

Table of Contents
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.
Trademarks and trade names have an estimated 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 other acquisition-related 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 based estimated useful lives for the other acquisition-related intangible assets on historical experience with technology life cycles, product roadmaps
and our intended future use of the intangible assets.
Integration
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. The costs associated with employee severance and relocation totaled approximately
seven million. The costs associated with the closure of duplicate facilities totaled approximately one 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 incurred costs of approximately $28 million and $32 million for the years ended December 29,
2007 and December 31, 2006, respectively, and they are included in the caption, “Amortization of acquired intangible assets and integration charges,” on our
consolidated statements of operations.
2007 Impairment Analysis
In the fourth quarter of 2007, pursuant to our accounting policy, we performed the annual goodwill impairment analysis. As a result of this analysis, we
concluded that the carrying amounts of goodwill assigned to our Graphics and Consumer Electronics segments exceeded their implied fair values and recorded
an impairment loss of approximately $1.3 billion, which is included in the caption “Impairment of goodwill and acquired intangible assets” in our 2007
consolidated statement of operations. The impairment charge was determined by comparing the carrying value of goodwill assigned to specific reporting units
within these segments as of October 1, 2007, with the implied fair value of the goodwill. We considered both the income and market approaches in determining
the implied fair value of the goodwill, which requires estimates of future operating results and cash flows of each of the reporting units discounted using
estimated discount rates ranging from 13.1 percent to 15.3 percent. The estimates of future operating results and cash flows were principally derived from our
updated long-term financial forecast, which is developed as part of our strategic planning cycle conducted annually during the latter part of the third quarter. The
decline in the implied fair value of the goodwill and resulting impairment charge was primarily driven by our updated long-term financial forecasts, which
showed lower estimated near-term and longer-term profitability compared to estimates we developed at the time of the completion of the acquisition. This
updated long-term financial forecast represents the best estimate that we have at this time and we believe that its underlying assumptions are reasonable.
However, actual performance in the
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Source: ADVANCED MICRO DEVIC, 10-K, February 26, 2008