AMD 2004 Annual Report Download - page 27

Table of Contents
factors, management considers forecasted demand in relation to the inventory on hand, competitiveness of product offerings, market conditions and product life
cycles when determining obsolescence and net realizable value. If we anticipate future demand or market conditions to be less favorable than our projections as
forecasted, additional inventory write-downs may be required, and would be reflected in cost of sales in the period the revision is made. This would have a
negative impact on our gross margins in that period. If in any period we are able to sell inventories that were not valued or that had been written off in a previous
period, related revenues would be recorded without any offsetting charge to cost of sales, resulting in a net benefit to our gross margin in that period. To the
extent these factors materially affect our gross margins, we would disclose them in our filings with the SEC.
Impairment of Long-Lived Assets. We consider no less frequently than quarterly whether indicators of impairment of long-lived assets are present. These
indicators may include, but are not limited to, significant decreases in the market value of an asset and significant changes in the extent or manner in which an
asset is used. If these or other indicators are present, we determine whether the estimated undiscounted cash flows attributable to the assets in question are 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 asset determined to be impaired is to be held and used, we recognize an
impairment loss through a charge to our operating results to the extent the present value of anticipated net cash flows attributable to the asset is less than the
asset’s carrying value, which we depreciate over the remaining estimated useful life of the asset. We may incur additional impairment losses in future periods if
factors influencing our estimates of the undiscounted cash flows change.
Restructuring Charges. We record and account for our restructuring activities following formally approved plans that identify the actions and timeline
over which the restructuring activities will occur. Our remaining restructuring accruals include estimates pertaining to facility exit costs and subleasing
assumptions resulting from exiting certain facilities. We review these accruals on a quarterly basis and adjust these accruals when changes in facts and
circumstances suggest actual amounts will differ from our estimates. Although we do not anticipate significant changes, actual costs may be different than our
original or revised estimates. These changes in estimates can result in increases or decreases to our results of operations in future periods and would be presented
on the restructuring and other special charges (recoveries), net, line of our consolidated operating statements.
Income Taxes. In determining taxable income for financial statement reporting purposes, we must make certain estimates and judgments. These estimates
and judgments are applied in the calculation of certain tax liabilities and in the determination of the recoverability of deferred tax assets, which arise from
temporary differences between the recognition of assets and liabilities for tax and financial statement reporting purposes.
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 charge to income tax expense, in the form of a valuation allowance, for the deferred tax assets that we estimate will not ultimately be recoverable. We
consider past performance, future expected taxable income and prudent and feasible tax planning strategies in determining the need for a valuation allowance. In
fiscal 2002, we recorded a valuation allowance against all of our U.S. deferred tax assets, net of deferred tax liabilities, based on past performance and the
likelihood of realization of our deferred tax assets at the time. In fiscal 2003, we continued to provide a valuation allowance against all of our U.S. deferred tax
assets, net of deferred tax liabilities. In fiscal 2004, a portion of the valuation allowance was utilized as a result of net operating profits. If we later determine that
it is more likely than not that the net deferred tax assets will be realized, an appropriate amount of the previously provided valuation allowance will be reversed,
resulting in a benefit to our earnings. Such benefits would be recorded on the income tax provision (benefit) line of our statement of operations.
In addition, the calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax rules and the potential for future
adjustment by the Internal Revenue Service or other taxing
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Source: ADVANCED MICRO DEVIC, 10-K, March 01, 2005