Intel 2004 Annual Report Download - page 78

Table of Contents
INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 13: Acquisitions and Divestitures
Business Combinations
All of the company’s acquisitions that qualified as business combinations have been accounted for using the purchase method of
accounting. Consideration includes the cash paid and the value of any options assumed, less any cash acquired, and excludes contingent
employee compensation payable in cash and any debt assumed. The company accounts for the intrinsic value of stock options assumed related
to future services as unearned compensation within stockholders’ equity (see “Note 15: Identified Intangible Assets and Acquisition-Related
Unearned Stock Compensation”).
During 2004, the company completed an acquisition qualifying as a business combination in exchange for net cash consideration of
approximately $33 million, plus certain liabilities. During 2003, the company completed one acquisition qualifying as a business combination
in exchange for total cash consideration of approximately $21 million. The operating results of the businesses acquired in 2003 and 2004 have
been included in the results of the Intel Communications Group (ICG) operating segment from the date of acquisition. There were no
acquisitions qualifying as business combinations in 2002.
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 qualifies 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. Approximately $35 million was allocated to acquisition-
related developed technology and
$20 million to purchased in-process research and development, 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.
Divestitures
During 2003, the company recognized approximately $758 million in tax benefits related to sales of the stock of certain previously
acquired companies, primarily DSP Communications, Inc. (DSP), Dialogic Corporation and Xircom, Inc. A net benefit of approximately $420
million was recognized on the divestiture of a portion of the intellectual property assets of DSP, through the sale of the stock of DSP. A benefit
of approximately $200 million was recognized on the divestiture of a portion of the assets, primarily real estate, of Dialogic, through the sale of
the stock of Dialogic, and a benefit of approximately $125 million was recognized related to the sale of a wireless WAN business, through the
sale of the stock of Xircom. The pre-tax gains and losses on these sales for financial statement or book purposes were not significant. The
company was able to recognize tax losses because the tax basis in the entities exceeded the book basis, as the goodwill allocated to the
transactions for financial statement purposes was less than the amount the company could effectively deduct for tax purposes. During 2002, the
company recognized a $75 million tax benefit related to sales of the stock of certain previously acquired companies, primarily Ziatech
Corporation.
70