AMD 2014 Annual Report Download - page 77

based on specific contractual terms with its distributors. Price reductions generally do not result in sales prices
that are less than the Company’s product cost. Deferred income on shipments to distributors is revalued at the
end of each period based on the change in inventory units at distributors, latest published prices and latest
product costs.
The Company records estimated reductions to revenue under distributor and customer incentive programs,
including certain cooperative advertising and marketing promotions and volume based incentives and special
pricing arrangements, at the time the related revenues are recognized. For transactions where the Company
reimburses a customer for a portion of the customer’s cost to perform specific product advertising or marketing
and promotional activities, such amounts are recorded as a reduction of revenue unless they qualify for expense
recognition. Shipping and handling costs associated with product sales are included in cost of sales.
Deferred revenue and related product costs were as follows:
December 27,
2014
December 28,
2013
(In millions)
Deferred revenue .................................... $130 $ 253
Deferred cost of sales ................................. (58) (108)
Deferred income on shipments to distributors .............. $ 72 $145
Inventories. Inventories are stated at standard cost adjusted to approximate the lower of actual cost (first-
in, first-out method) or market. The Company adjusts inventory carrying value for estimated obsolescence equal
to the difference between the cost of inventory and the estimated market value based upon assumptions about
future demand and market conditions. The Company fully reserves for inventories and noncancelable purchase
orders for inventory deemed obsolete. The Company performs periodic reviews of inventory items to identify
excess inventories on hand by comparing on-hand balances to anticipated usage using recent historical activity as
well as anticipated or forecasted demand. If estimates of customer demand diminish further or market conditions
become less favorable than those projected by the Company, additional inventory adjustments may be required.
Goodwill. Goodwill represents the excess of the purchase price over the fair value of net tangible and
identifiable intangible assets acquired. In accordance with Accounting Standards Codification (ASC) 350,
“Goodwill and Other Intangible Assets,” goodwill is not amortized, but rather is tested for impairment at least
annually or more frequently if indicators of impairment present. The Company performs its annual goodwill
impairment analysis as of the first day of the fourth quarter of each year and, if certain events or circumstances
indicate that an impairment loss may have been incurred, on an interim basis. The analysis of potential
impairment of goodwill requires a two-step process. The first step of the impairment test is to compare the fair
value of each reporting unit to its carrying value. If step one indicates that impairment potentially exists, the
second step is performed to measure the amount of impairment, if any. Goodwill impairment exists when the
estimated fair value of goodwill is less than its carrying value.
Commitments and Contingencies. From time to time the Company is a defendant or plaintiff in various
legal actions that arise in the normal course of business. The Company is also a party to environmental matters,
including local, regional, state and federal government clean-up activities at or near locations where the
Company currently or has in the past conducted business. The Company is required to assess the likelihood of
any adverse judgments or outcomes to these matters as well as potential ranges of reasonably possible losses. A
determination of the amount of reserves required for these commitments and contingencies, if any, that would be
charged to earnings, includes assessing the probability of adverse outcomes and estimating the amount of
potential losses. The required reserves, if any, may change in the future due to new developments in each matter
or changes in circumstances such as a change in settlement strategy. Changes in required reserves could increase
or decrease the Company’s earnings in the period the changes are made. (See Notes 15 and 16).
Restructuring Charges. Restructuring charges are primarily comprised of severance costs, contract and
program termination costs, asset impairments and costs of facility consolidation and closure. Restructuring
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