AMD 2008 Annual Report Download - page 67

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 as evidenced by the impairment charges we
recorded in 2007 and 2008 with respect to goodwill and intangible assets resulting from the ATI acquisition.
Goodwill. Goodwill represents the excess of the purchase price over the fair value of net tangible and
identifiable intangible assets acquired. All of our goodwill at December 27, 2008 is related to our acquisition of
ATI. In accordance with the provisions of FASB Statement No. 142, Goodwill and Other Intangible Assets
(SFAS 142), goodwill amounts are not amortized, but rather are tested for impairment at least annually, or more
frequently if there are indicators of impairment present. We perform the annual goodwill impairment analysis as
of the first day of the fourth quarter of each fiscal year. We evaluate whether goodwill has been impaired at the
reporting unit level by first determining whether the estimated fair value of the reporting unit is less than its
carrying value and, if so, by determining whether the implied fair value of goodwill within the reporting unit is
less than the carrying value. Implied fair value of goodwill is determined by considering both the income and
market approach. While market valuation data for comparable companies is gathered and analyzed, we believe
that there has not been sufficient comparability between the peer groups and the specific reporting units to allow
for the derivation of reliable indications of value using a market approach. Therefore, we have ultimately
employed the income approach which requires estimates of future operating results and cash flows of each of the
reporting units discounted using estimated discount rates. We recorded a portion of the impairment charges in the
caption “Impairment of goodwill and acquired intangible assets” in our consolidated statement of operations and
a portion as discontinued operations.
The key assumptions used to determine the fair value of our reporting units included projected cash flows
for the next 10 years and discount rates ranging from 13 percent to 32 percent which were based on our weighted
average cost of capital, adjusted for the risks associated with the operations. A variance in the discount rate could
have had a significant impact on the amount of the goodwill impairment charge recorded. We cannot predict the
occurrence of certain future events that might adversely affect the reported value of goodwill, which totaled $323
million at December 27, 2008. Such events may include, but are not limited to, strategic decisions made in
response to economic and competitive conditions, the impact of the economic environment on our customer base,
or a material negative change in our relationships with significant customers.
Impairment of Long-Lived Assets including Acquisition-Related Intangible Assets. We consider quarterly
whether indicators of impairment of long-lived assets and intangible assets are present. These indicators may
include, but are not limited to, significant decreases in the market value of an asset and significant changes in the
extent or manner in which an asset is used. If these or other indicators are present, we test for recoverability of
the asset by determining whether the estimated undiscounted cash flows attributable to the assets in question are
less than their carrying value. If less, we recognize an impairment loss based on the excess of the carrying
amount of the assets over their respective fair values. Fair value is determined by discounted future cash flows,
appraisals or other methods. Significant judgment is involved in estimating future cash flows and deriving the
discount rate ranging from 18 percent to 30 percent to apply to the estimated future cash flows and in evaluating
the results of appraisals or other valuation methods. If the asset determined to be impaired is to be held and used,
we recognize an impairment loss through a charge to our operating results which also reduces the carrying basis
of the related asset. The new carrying value of the related asset is depreciated or amortized over the remaining
estimated useful life of the asset. We also must make subjective judgments regarding the remaining useful life of
the asset. We may incur additional impairment losses in future periods if factors influencing our estimates of the
undiscounted cash flows change. As a result of our impairment analysis, in 2008 we recorded impairment
charges of $130 million in continuing operations and $10 million in discontinued operations. In 2007, we
recorded definite lived intangible asset impairment charges of $349 million.
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.
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