AMD 2009 Annual Report Download - page 65

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.
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.
2007 Impairment
In the fourth quarter of 2007, pursuant to our accounting policy, we performed an annual impairment test of
goodwill. As a result of this analysis, we concluded that the carrying amounts of goodwill included in our
Graphics and former Consumer Electronics segments exceeded their implied fair values and recorded an
impairment charge of approximately $1.26 billion, of which $913 million is included in the caption “Impairment
of goodwill and acquired intangible assets” and $346 million is included in the caption “Income (loss) from
discontinued operations, net of tax” in our 2007 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 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. While market valuation data for
comparable companies was gathered and analyzed, we concluded that there was not 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, and therefore we 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 ranging from 13 percent to 15 percent. The estimates of future operating results and cash flows
were principally derived from an updated long-term financial forecast, which was developed as part of our
strategic planning cycle conducted annually during the latter part of the third quarter of 2007. The decline in the
implied fair value of the goodwill and resulting impairment charge was primarily driven by the updated long-
term financial forecasts, which showed lower estimated near-term and longer-term profitability compared to
estimates developed at the time of the completion of the ATI acquisition. The updated financial forecast for our
Graphics segment was lower primarily because of intense pricing competition with Nvidia throughout 2007,
which required an increase in sales and marketing activities to a greater extent than we previously forecasted. In
addition, we had invested in the development of new graphics technologies to a greater extent than previously
forecasted, which resulted in an increase in research and development expenses. Also, Intel announced its
intention to develop a discrete graphics product. These factors resulted in lower near-term and longer-term
forecasts of Graphics business revenues, operating profitability and cash flows compared to the forecasts at the
time of the ATI acquisition.
The updated financial forecast for our former Consumer Electronics segment was lower primarily because
our Digital Television business was affected by the rapid introduction and proliferation of low cost digital
57