Intel 2010 Annual Report Download - page 45

Table of Contents
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
IMFT/IMFS
IMFT and IMFS are variable interest entities that are designed to manufacture and sell NAND products to Intel and Micron at
manufacturing cost. We determine the fair value of our investment in IMFT/IMFS using the income approach based on a
weighted average of multiple discounted cash flow scenarios of our NAND Solutions Group business, which requires the use
of unobservable inputs. Unobservable inputs that require us to make our most difficult and subjective judgments are the
estimates for projected revenue and discount rate. Changes in management estimates for these unobservable inputs have the
most significant effect on the fair value determination. We have not had an other-than-temporary impairment of our
investment in IMFT/IMFS.
Long
-Lived Assets
We assess the impairment of long-lived assets when events or changes in circumstances indicate that the carrying value of the
assets or the asset grouping may not be recoverable. Factors that we consider in deciding when to perform an impairment
review include significant under-performance of a business or product line in relation to expectations, significant negative
industry or economic trends, and significant changes or planned changes in our use of the assets. We measure the
recoverability of assets that will continue to be used in our operations by comparing the carrying value of the asset grouping to
our estimate of the related total future undiscounted net cash flows. If an asset grouping’s carrying value is not recoverable
through the related undiscounted cash flows, the asset grouping is considered to be impaired. The impairment is measured by
comparing the difference between the asset grouping’s carrying value and its fair value. Long-lived assets such as goodwill;
intangible assets; and property, plant and equipment are considered non-financial assets, and are recorded at fair value only if
an impairment charge is recognized.
Impairments of long-lived assets are determined for groups of assets related to the lowest level of identifiable independent
cash flows. Due to our asset usage model and the interchangeable nature of our semiconductor manufacturing capacity, we
must make subjective judgments in determining the independent cash flows that can be related to specific asset groupings. In
addition, as we make manufacturing process conversions and other factory planning decisions, we must make subjective
judgments regarding the remaining useful lives of assets, primarily process
-specific semiconductor manufacturing tools and
building improvements. When we determine that the useful lives of assets are shorter than we had originally estimated, we
accelerate the rate of depreciation over the assets’ new, shorter useful lives. Over the past 12 quarters, including the fourth
quarter of 2010, impairments and accelerated depreciation of long-lived assets ranged from $10 million to $300 million per
quarter.
Income Taxes
We must make estimates and judgments in determining the provision for taxes for financial statement purposes. These
estimates and judgments occur in the calculation of tax credits, benefits, and deductions, and in the calculation of certain tax
assets and liabilities that arise from differences in the timing of recognition of revenue and expense for tax and financial
statement purposes, as well as the interest and penalties related to uncertain tax positions. Significant changes in these
estimates may result in an increase or decrease to our tax provision in a subsequent period.
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 provision for taxes by recording a valuation allowance against the deferred tax assets that we estimate will not
ultimately be recoverable. We believe that we will ultimately recover the deferred tax assets recorded on our consolidated
balance sheets. However, should there be a change in our ability to recover our deferred tax assets, our tax provision would
increase in the period in which we determined that the recovery was not likely. Recovery of a portion of our deferred tax assets
is impacted by management’s plans with respect to holding or disposing of certain investments; therefore, changes in
management’s plans with respect to holding or disposing of investments could affect our future provision for taxes.
The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax regulations. We
recognize liabilities for uncertain tax positions based on a two-step process. The first step is to evaluate the tax position for
recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be
sustained on audit, including resolution of related appeals or litigation processes, if any. If we determine that a tax position
will more likely than not be sustained on audit, the second step requires us to estimate and measure the tax benefit as the
largest amount that is more than 50% likely to be realized upon ultimate settlement. It is inherently difficult and subjective to
estimate such amounts, as we have to determine the probability of various possible outcomes. We re-evaluate these uncertain
tax positions on a quarterly basis. This evaluation is based on factors such as changes in facts or circumstances, changes in tax
law, new audit activity, and effectively settled issues. Determining whether an uncertain tax position is effectively settled
requires judgment. Such a change in recognition or measurement would result in the recognition of a tax benefit or an
additional charge to the tax provision.