AMD 2001 Annual Report Download - page 198

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Inventory Valuation. At each balance sheet date, we evaluate our ending
inventories for excess quantities and obsolescence. This evaluation includes
analyses of sales levels by product and projections of future demand.
Inventories on hand, in excess of forecasted demand, generally six months or
less, are not valued. In addition, we write off inventories that are considered
obsolete. Remaining inventory balances are adjusted to approximate the lower of
our standard manufacturing cost or market value. If future demand or market
conditions are less favorable than our projections, additional inventory
write-downs may be required and would be reflected in cost of sales in the
period the revision is made.
Impairment of Long-Lived Assets. We routinely consider whether indicators of
impairment of long-lived assets are present. If such indicators are present, we
determine whether the sum of the estimated undiscounted cash flows attributable
to the assets in question is less than their carrying value. If less, we
recognize an impairment loss based on the excess of the carrying amount of the
assets over their respective fair values. Fair value is determined by discounted
future cash flows, appraisals or other methods. If the assets determined to be
impaired are to be held and used, we recognize an impairment charge to the
extent the present value of anticipated net cash flows attributable to the asset
are less than the asset's carrying value. The fair value of the asset then
becomes the asset's new carrying value, which we depreciate over the remaining
estimated useful life of the asset. We may incur impairment losses in future
periods if factors influencing our estimates change.
Deferred Income Taxes. We record a valuation allowance to reduce our deferred
tax assets to the amount that is more likely than not to be realized. We have
considered future taxable income and prudent and feasible tax planning
strategies in determining the need for a valuation allowance. In the event that
we determine that we would not be able to realize all or part of our net
deferred tax assets, an adjustment to the deferred tax assets would be charged
to earnings in the period such determination is made. Likewise, if we later
determine that it is more likely than not that the net deferred tax assets would
be realized, then the previously provided valuation allowance would be reversed.
Our current valuation allowance covers the tax benefit from the exercise of
employee stock options. When these tax benefits are realized the valuation
allowance will be reversed and credited to capital in excess of par value.
Commitments and Contingencies. From time to time, we are a defendant or
plaintiff in various legal actions, which arise in the normal course of
business. We are also a party to environmental matters, including local,
regional, state and federal governed clean-up activities at or near locations
where we currently or have in the past conducted our business. We are also a
guarantor of various third-party obligations and commitments. We are required to
assess the likelihood of any adverse judgments or outcomes to these matters as
well as potential ranges of probable losses. A determination of the amount of
reserves required for these contingencies, if any, which would be charged to
earnings, is made after careful analysis of each individual issue. The required
reserves 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 our earnings in the period the
changes are made.
Source: ADVANCED MICRO DEVIC, 10-K, March 07, 2002