AMD 2015 Annual Report Download - page 52

used to determine the fair value of our reporting units includes projected cash flows for the next 10 years and
discount rates ranging from 13% to 35% from 2013 to 2015. The discount rate used is based on the weighted-
average cost of capital adjusted for the relevant risk associated with business-specific characteristics and the
uncertainty related to the reporting unit’s ability to execute on the projected cash flows. A variance in the
discount rate could have a significant impact on the amount of the goodwill impairment charge recorded, if any.
Estimating the fair value of a reporting unit is judgmental in nature and involves the use of significant
estimates and assumptions. These estimates and assumptions include revenue growth rates and operating margins
used to calculate projected future cash flows, risk-adjusted discount rates, future economic and market conditions
and the determination of appropriate comparable publicly-traded companies. In addition, we make certain
judgments and assumptions in allocating shared assets and liabilities to individual reporting units to determine
the carrying amount of each reporting unit.
Based on the results of our annual analysis of goodwill in 2015, each reporting unit’s fair value exceeded its
carrying value, ranging from approximately 17% to approximately 196%. The Computing and Graphics reporting
unit had the lowest excess of fair value over carrying value at 17%, however there is no goodwill within this
reporting unit. In estimating the fair value of our reporting units, we took into consideration the challenging
industry and market trends that existed as of September 27, 2015, the date of the annual goodwill impairment test
for each respective reporting unit.
Based on the results of our annual goodwill impairment analysis in 2014, we determined that the carrying
value of the Computing and Graphics reporting unit exceeded its estimated fair value and accordingly an
impairment charge of $233 million was recorded, which represented the entire goodwill balance within this
reporting unit. The remaining two reporting units’ estimated fair values exceeded their carrying value, ranging
from approximately 156% to approximately 209%. In estimating the fair value of our reporting units, we took
into consideration the challenging industry and market trends that existed as of September 28, 2014, the date of
the annual goodwill impairment test for each respective reporting unit.
Based on the results of our annual analysis of goodwill in 2013, each reporting unit’s fair value exceeded its
carrying value, indicating that there was no goodwill impairment.
Estimates of fair value for all or our reporting units can be affected by a variety of external and internal
factors. Potential events or circumstance that could reasonably be expected to negatively affect the key
assumptions we used in estimating the fair value of our reporting units include adverse changes in our industry,
increased competition, an inability to successfully introduce new products in the marketplace or to achieve
internal forecasts, and a decline in our stock price. If the estimated fair value of our reporting units declines due
to any of these factors, we may be required to record future goodwill impairment.
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 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 authority. If our estimates of these taxes are greater or less than actual results, an
additional tax benefit or charge will result. We recognize the interest and penalties related to unrecognized tax
benefits as interest expense and income tax expense, respectively.
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