Intel 2004 Annual Report Download - page 79

Table of Contents
INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 14: Goodwill
Goodwill attributed to operating segments for the years ended December 27, 2003 and December 25, 2004 was as follows:
During the first quarter of 2004, the company combined its communications-related businesses, the former Intel Communications Group
(ICG) and the Wireless Communications and Computing Group (WCCG), into a single organization, the Intel Communications Group (ICG)
(see “Note 19: Operating Segment and Geographic Information”). The ICG operating segment is made up of two reporting units: the flash
memory reporting unit and the ICG reporting unit. All of the ICG operating segment goodwill is included in the ICG reporting unit. Also
during the first quarter of 2004, the consumer electronics business, which was previously part of the former ICG operating segment, was
moved into the Intel Architecture business. Based on the estimated fair value of the consumer electronics business relative to the former ICG
reporting unit, goodwill of $466 million was transferred to the Intel Architecture business.
During the fourth quarter of 2004, the company completed its annual review and determined that the fair value of the ICG reporting unit
was in excess of its carrying value; therefore, goodwill was not impaired. During 2003, the company completed its impairment review for
goodwill for the former ICG and WCCG reporting units and found indicators of impairment for the WCCG reporting unit. The WCCG
business, comprising primarily flash memory products and cellular baseband chipsets, had not performed as management had expected, and it
became apparent that WCCG was expected to grow more slowly than had previously been projected. A slower-than-expected rollout of
products and slower-than-expected customer acceptance of the reporting unit’s products in the baseband chipset business, as well as a delay in
the transition to next-generation phone networks, had pushed out the forecasts for sales into high-
end data cell phones. These factors resulted in
lower growth expectations for the reporting unit and triggered the goodwill impairment. An impairment review requires a two-step process.
The first step of the review compares the fair value of the reporting units with substantial goodwill against their aggregate carrying values,
including goodwill. The company estimated the fair value of the WCCG and ICG reporting units using the income method of valuation, which
included the use of estimated discounted cash flows. Based on the comparison, the carrying value of the WCCG reporting unit exceeded the
fair value. Accordingly, the company performed the second step of the test, comparing the implied fair value of the WCCG reporting unit’s
goodwill with the carrying amount of that goodwill. Based on this assessment, the company recorded a non-cash impairment charge of $611
million in 2003, which was included as a component of operating income in the “all other” category for segment reporting purposes.
Also during 2003, the goodwill related to one of the company’s small seed businesses, included in the “all other” category, was impaired.
In addition, goodwill in the ICG operating segment decreased, primarily as a result of goodwill allocated to divestitures on a fair value basis in
2003. During 2004, the company recorded goodwill of $29 million ($3 million in 2003) in connection with a qualifying business combination.
In 2004, as a result of a change in estimate associated with deferred tax assets of certain previous acquisitions, goodwill in the ICG operating
segment decreased.
71
(In Millions)
Intel
Communications
Group
Intel
Architecture
Business
All Other
Total
December 28, 2002 $
4,255
$
69
$
6
$
4,330
Impairments
(611
)
—
(
6
)
(617
)
Additions
3
—
—
3
Other adjustments
(9
)
(2
)
—
(
11
)
December 27, 2003
3,638
67
—
3,705
Transfer
(466
)
466
—
—
Additions
29
—
—
29
Other adjustments
(15
)
—
—
(
15
)
December 25, 2004
$
3,186
$
533
$
—
$
3,719