AMD 2004 Annual Report Download - page 79

Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 26, 2004, December 28, 2003 and December 29, 2002
NOTE 1: Nature of Operations
Advanced Micro Devices, Inc. (the Company or AMD) is a semiconductor manufacturer with manufacturing facilities in the United States, Europe, and
Asia and sales offices throughout the world. References herein to the “Company” means AMD and its consolidated subsidiaries, including Spansion LLC and its
subsidiaries. The Company designs, manufactures and markets industry-standard digital integrated circuits, or ICs, that are used in many diverse product
applications such as desktop and mobile personal computers, workstations, servers, communications equipment such as mobile telephones, and automotive and
consumer electronics. The Company’s products include microprocessors, Flash memory devices and embedded microprocessors for personal connectivity
devices and specific consumer markets.
NOTE 2: Summary of Significant Accounting Policies
Fiscal Year. The Company uses a 52- to 53-week fiscal year ending on the last Sunday in December. Fiscal 2004, 2003 and 2002 were 52-week years,
which ended on December 26, December 28 and December 29.
Principles of Consolidation. The consolidated financial statements include the Company’s accounts and those of its majority and wholly owned
subsidiaries, including Spansion LLC (see Note 3 and Note 7). Upon consolidation, all significant intercompany accounts and transactions are eliminated, and
amounts pertaining to the noncontrolling ownership interests held by third parties in the operating results and financial position of the Company’s majority
owned subsidiaries, are reported as “minority interest.” Also, included in the financial statements, under the equity method of accounting, are the Company’s
percentage equity share of certain investees’ operating results, where the Company has the ability to exercise significant influence over the operations of the
investee.
Reclassification. Certain prior period amounts have been reclassified to conform to the current period presentation.
Use of Estimates. The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of commitments and contingencies at the
date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results are likely to differ from those
estimates, and such differences may be material to the financial statements. Areas where management uses subjective judgment include, but are not limited to,
revenue reserves, inventory valuation, impairment of long-lived assets, restructuring charges, deferred income taxes and commitments and contingencies.
Revenue Recognition. The Company recognizes revenue from products sold directly to customers, including original equipment manufacturers (OEMs),
when persuasive evidence of an arrangement exists, the price is fixed or determinable, shipment is made and collectibility is reasonably assured. Estimates of
product returns, allowances and future price reductions, based on actual historical experience and other known or anticipated trends and factors, are recorded at
the time revenue is recognized. The Company sells to distributors under terms allowing the distributors certain rights of return and price protection on unsold
merchandise held by them. The distributor agreements, which may be canceled by either party upon specified notice, generally contain a provision for the return
of the Company’s products in the event the agreement with the distributor is terminated and the distributor’s products have not been sold. Accordingly, the
Company defers the gross margin resulting from the deferral of both revenue and related product costs from sales to distributors with agreements that have the
aforementioned terms until the merchandise is resold by the distributors. The Company also sells its products to distributors with substantial independent
operations under sales arrangements whose terms do not allow for
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Source: ADVANCED MICRO DEVIC, 10-K, March 01, 2005