AMD 1996 Annual Report Download - page 228

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment is stated at cost. Depreciation and amortization
are provided principally on the straight-line basis over the estimated useful
lives of the assets for financial reporting purposes and on accelerated methods
for tax purposes. Estimated useful lives for financial reporting purposes are as
follows: machinery and equipment 3 to 5 years; buildings up to 26 years; and
leasehold improvements are the shorter of the remaining terms of the leases or
the estimated economic useful lives of the improvements.
Effective January 1, 1996 the Company adopted Statement of Financial Accounting
Standards No. 121 (SFAS 121), "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of." SFAS 121 requires
recognition of impairment of long-lived assets in the event the net book value
of such assets exceeds the future undiscounted cash flows attributable to such
assets. Adoption of SFAS 121 has not had a material impact on the Company's
financial position or results of operations.
DEFERRED INCOME ON SHIPMENTS TO DISTRIBUTORS
A portion of sales is made to distributors under terms allowing certain rights
of return and price protection on unsold merchandise held by the distributors.
Pursuant to the Company's agreements with distributors, AMD protects its
distributors' inventory of the Company's products against price reductions as
well as products that are slow moving or have been discontinued. These
agreements, which may be canceled by either party on a specified notice,
generally contain a provision for the return of the Company's products in the
event the agreement with the distributor is terminated. Accordingly, recognition
of sales to distributors and related gross profits are deferred until the
merchandise is resold by the distributors.
ADVERTISING EXPENSES
The Company accounts for advertising costs as expense in the period in which
they are incurred. Advertising expense for 1996, 1995 and 1994 was approximately
$44 million, $44 million and $32 million, respectively.
NET INCOME (LOSS) PER COMMON SHARE
Primary net income per common share is based upon weighted-average common and
dilutive common equivalent shares outstanding using the treasury stock method.
Dilutive common equivalent shares include stock options, warrants, and
restricted stock. Fully diluted net income per common share is computed using
the weighted-average common and dilutive common equivalent shares outstanding,
plus other dilutive shares outstanding which are not common equivalent shares.
Other dilutive shares which are not common equivalent shares include convertible
preferred stock. Primary net loss per common share excludes common equivalent
shares as their effect on the net loss per share would be anti-dilutive. All
share information has been adjusted on a retroactive basis herein to give effect
to the merger with NexGen and the conversion of NexGen shares on a 0.8 to one
share of AMD common stock.
EMPLOYEE STOCK PLANS
The Company accounts for its stock option plans and its employee stock purchase
plan in accordance with provisions of the Accounting Principles Board's Opinion
No. 25 (APB 25), "Accounting For Stock Issued to Employees." In 1995, the
Financial Accounting Standards Board released the Statement of Financial
Accounting Standards No. 123 (SFAS 123), "Accounting for Stock-Based
Compensation." SFAS 123 provides an alternative to APB 25 and is effective for
fiscal years beginning after December 15, 1995. As allowed under SFAS 123, the
Company continues to account for its employee stock plans in accordance with the
provisions of APB 25. See Note 12.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results inevitably will differ from those estimates, and such differences
may be material to the financial statements.
YEAR-END ADJUSTMENTS (UNAUDITED)
The Company made certain year-end adjustments in 1995, resulting from changes in
estimates related to the Nx586 product which was developed by NexGen. These
adjustments were material to the results of the fourth quarter. These
adjustments, related to accounts receivable and inventory, were charged
primarily to net sales and cost of sales and reduced 1995 operating income by
approximately $52 million. These adjustments had no impact on the Company's
operating results in 1996.
FINANCIAL PRESENTATION.
Source: ADVANCED MICRO DEVIC, 10-K, March 20, 1997