AMD 2008 Annual Report Download - page 65

Digital Television unit is included in the caption, “Income (loss) from discontinued operations, net of tax” in our
2008 consolidated statement of operations.
During the fourth quarter of 2008, we determined that, based on our ongoing negotiations related to the
divestiture of the Handheld business unit, the discontinued operations classification criteria for this business unit
were no longer met. As a result we classified the results of the Handheld business back into continuing
operations. During the first quarter of 2009 we sold certain graphics and multimedia technology assets and
intellectual property that were formerly part of our Handheld business unit to Qualcomm. As of December 27,
2008, these assets were classified as assets held for sale and included in the caption, “Prepaid expenses and other
current assets” in our 2008 consolidated balance sheet. Pursuant to our agreement with Qualcomm, we retained
the AMD Imageon media processor brand and the right to continue selling the products that were part of the
Handheld business unit, and we intend to support our existing Handheld products and customers through the
current product lifecycles. We do not intend to develop any new Handheld products or engage new customer
programs beyond those already committed. The lives of the remaining certain intangible assets associated with
the Handheld business unit have been shortened to reflect our current expectations of their economic usefulness.
In the fourth quarter of 2008, pursuant to our accounting policy, we conducted an annual impairment test of
goodwill. In addition, due to the significant decline in the price of our common stock and the revised lower
revenue forecast for the fourth quarter of 2008, which we concluded were additional impairment indicators, we
conducted another interim impairment analysis as of November 22, 2008, the end of our second fiscal month of
the fourth quarter. As a result of these analyses, we concluded that the carrying amounts of goodwill included in
the Graphics and Computing Solutions segments exceeded their implied fair values and recorded an impairment
charge of $622 million, which is included in the caption “Impairment of goodwill and acquired intangible assets”
in our 2008 consolidated statement of operations. The impairment charge was determined by comparing the
carrying value of goodwill assigned to the reporting units within these segments as of November 22, 2008 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. Also, we chose the same approach that we used during the 2007 impairment
analysis, which required estimates of future operating results and cash flows of each of the reporting units
discounted using estimated discount rates ranging from 19 percent to 25 percent. The estimates of future
operating results and cash flows were principally derived from an updated long-term financial outlook in light of
fourth quarter market conditions and the challenging economic outlook. The conclusion was also due to the
deterioration in the price of our common stock and the resulting reduced market capitalization.
Our cost basis of goodwill deductible for tax was $2.6 billion. Our adjusted basis after tax deductions
through 2008 is $2.2 billion.
The outcome of our 2008 goodwill impairment analysis indicated that the carrying amount of certain
acquisition-related intangible assets or asset groups may not be recoverable. We assessed the recoverability of the
acquisition-related intangible assets or asset groups, as appropriate, by determining whether the unamortized
balances could be recovered through undiscounted future net cash flows. We determined that certain of the
acquisition-related intangible assets associated with our Computing Solutions and Graphics segments and our
Handheld business unit were impaired primarily due to the revised lower revenue forecasts associated with the
products incorporating the developed product technology, the customer relationships, and the trademarks and
trade names. We measured the amount of impairment by calculating the amount by which the carrying value of
the assets exceeded their estimated fair values, which were based on projected discounted future net cash flows.
As a result of this impairment analysis, we recorded an impairment charge of approximately $62 million, which
is included in the caption “Impairment of goodwill and acquired intangible assets” in our 2008 consolidated
statement of operations.
If business conditions continue to deteriorate we may have to perform additional interim goodwill and
intangible asset impairment analysis prior to the fourth quarter of 2009, which could result in additional
impairment charges.
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