Intel 2003 Annual Report Download - page 83

Table of Contents
Index to Financial Statements
INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
During 2002, Intel wrote off acquisition-related identified intangibles of $127 million, related to a portion of the developed technology
acquired with the Xircom acquisition and the acquisition of Trillium Digital Systems, Inc. The impaired developed technology of Xircom
primarily related to PC Ethernet cards, whose forecasted revenue declined significantly as the market moved to LAN-on-motherboard
technology. The impaired developed technology of Trillium related primarily to a change in the product roadmap for telephony operating-
systems software that resulted in a significant decline in forecasted revenue for that technology. The amount of the impairments was
determined using a fair-value approach based on discounted future cash flows. In 2001, Intel wrote off acquisition-
related identified intangibles
of $26 million and goodwill of $98 million, related to acquisitions made prior to 2000.
For 2003, $5 million was allocated to purchased in-process research and development (IPR&D) and expensed at the time of the
acquisition ($198 million for 2001), because the technological feasibility of products under development had not been established and no future
alternative uses existed. The fair value of the IPR&D was determined using the income approach, which discounts expected future cash flows
from projects under development to their net present value. Each project was analyzed to determine the technological innovations included; the
utilization of core technology; the complexity, cost and time to complete development; any alternative future use or current technological
feasibility; and the stage of completion. Future cash flows were estimated, taking into account the expected life cycles of the products and the
underlying technology, relevant market sizes and industry trends. The company determined a discount rate for each project based on the
relative risks inherent in the project’s development horizon, the estimated costs of development, and the level of technological change in the
project and the industry, among other factors.
Note 15: Acquisition of Development-Stage Operations
An acquisition of a development-stage operation does not qualify as a business combination under SFAS No. 141, “Business
Combinations,” and purchase consideration for such an acquisition is not allocated to goodwill. Workforce-in-place does qualify as an
identified intangible asset for an acquisition of a development-stage operation.
During 2003, the company acquired a development-stage operation in exchange for total cash consideration of approximately
$40 million, all of which was allocated to workforce-in-place. During 2002, the company acquired three development-stage operations in
exchange for total consideration of approximately $57 million, with approximately $35 million allocated to acquisition-related developed
technology and $20 million to IPR&D, with the remaining amount representing the value of net tangible assets. The operating
results of each of
these acquisitions since the date of acquisition have been included in the operating results of the acquiring business unit within either the ICG
operating segment or the “all other” category, as appropriate, for segment reporting purposes.
Note 16: Goodwill
Goodwill by operating segment was adjusted for the years ended December 28, 2002 and December 27, 2003, as follows:
76
(In Millions)
Intel
Communications
Group
Intel
Architecture
Business
Wireless
Communications
and Computing
Group
All Other Total
December 29, 2001
$
3,653
$
68
$
603
$
6
$
4,330
Workforce-in-place
reclassified, net of
deferred tax
12
—
8
—
20
Other adjustments
(21
)
1
—
—
(
20
)
December 28, 2002
3,644
69
611
6
4,330
Impairments
—
—
(
611
)
(6
)
(617
)
Additions
3
—
—
—
3
Other adjustments
(9
)
(2
)
—
—
(
11
)
December 27, 2003
$
3,638
$
67
$
—
$
—
$
3,705