Intel 2004 Annual Report Download - page 59

Table of Contents
INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Property, plant and equipment is stated at cost. Depreciation is computed for financial reporting purposes principally using the straight-
line method over the following estimated useful lives: machinery and equipment, 2–4 years; buildings, 4–40 years. Reviews are regularly
performed to determine whether facts and circumstances exist which indicate that the carrying amount of assets may not be recoverable or that
the useful life is shorter than originally estimated. The company assesses the recoverability of its assets held for use by comparing the projected
undiscounted net cash flows associated with the related asset or group of assets over their remaining lives against their respective carrying
amounts. Impairment, if any, is based on the excess of the carrying amount over the fair value of those assets (see “Note 16: Impairment of
Long-Lived Assets”). If assets are determined to be recoverable, but the useful lives are shorter than originally estimated, the net book value of
the assets is depreciated over the newly determined remaining useful lives.
Goodwill
Goodwill is recorded when the purchase price paid for an acquisition exceeds the estimated fair value of the net identified tangible and
intangible assets acquired. The company performs an annual review in the fourth quarter of each year, or more frequently if indicators of
potential impairment exist, to determine if the carrying value of the recorded goodwill is impaired. The impairment review process compares
the fair value of the reporting unit in which goodwill resides to its carrying value. Reporting units may be operating segments as a whole or an
operation one level below an operating segment, referred to as a component. In determining the carrying value of the reporting unit, an
allocation of the company’s manufacturing and assembly and test assets must be made because of the interchangeable nature of the company’s
manufacturing and assembly and test capacity. This allocation is based on each reporting unit’s relative percentage utilization of the
manufacturing and assembly and test assets (see “Note 14: Goodwill”).
Identified Intangible Assets
Acquisition-related intangibles include developed technology, trademarks and customer lists, and are amortized on a straight-line basis
over periods ranging from 2–6 years. Also included in acquisition-related intangibles is workforce-in-place related to acquisitions that did not
qualify as business combinations. Intellectual property assets primarily represent rights acquired under technology licenses and are amortized
over the periods of benefit, ranging from 2–10 years, generally on a straight-line basis. All identified intangible assets are classified within
other assets on the balance sheet. In the quarter following the period in which identified intangible assets become fully amortized, the fully
amortized balances are removed from the gross asset and accumulated amortization amounts.
The company performs a quarterly review of its identified intangible assets to determine if facts and circumstances exist which indicate
that the useful life is shorter than originally estimated or that the carrying amount of assets may not be recoverable. If such facts and
circumstances do exist, the company assesses the recoverability of identified intangible assets by comparing the projected undiscounted net
cash flows associated with the related asset or group of assets over their remaining lives against their respective carrying amounts. Impairment,
if any, is based on the excess of the carrying amount over the fair value of those assets.
Product Warranty
The company generally sells products with a limited warranty of product quality and a limited indemnification of customers against
intellectual property infringement claims related to the company’s products. The company accrues for known warranty and indemnification
issues if a loss is probable and can be reasonably estimated, and accrues for estimated incurred but unidentified issues based on historical
activity. The accrual and the related expense for known issues were not significant during the periods presented. Due to product testing and the
short time between product shipment and the detection and correction of product failures, and considering the historical rate of payments on
indemnification claims, the accrual and related expense for estimated incurred but unidentified issues were not significant during the periods
presented.
Revenue Recognition
The company recognizes net revenue when the earnings process is complete, as evidenced by an agreement with the customer, transfer of
title and acceptance, if applicable, as well as fixed pricing and probable collectibility. Because of frequent sales price reductions and rapid
technology obsolescence in the industry, sales made to distributors under agreements allowing price protection and/or right of return are
deferred until the distributors sell the merchandise. Shipping charges billed to customers are included in net revenue, and the related shipping
costs are included in cost of sales.
54