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Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 25, 2005, December 26, 2004 and December 28, 2003
NOTE 1: Nature of Operations
Advanced Micro Devices, Inc. (the Company or AMD) is a leading semiconductor company with manufacturing or testing 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 prior to
December 21, 2005, Spansion Inc. (formerly, Spansion LLC) and its subsidiaries. The Company designs, manufactures and markets microprocessor solutions for
the computing, communications and consumer electronics markets. These solutions include embedded microprocessors for personal connectivity devices and
other consumer markets. Prior to the initial public offering (IPO) of Spansion Inc. on December 21, 2005 (see Note 3), the Company also manufactured and sold
Flash memory devices through its formerly consolidated majority owned subsidiary, Spansion LLC.
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 2005, 2004 and 2003 were 52-week years,
which ended on December 25, December 26 and December 28.
Principles of Consolidation. The consolidated financial statements included the Company’s accounts and those of its wholly-owned subsidiaries,
including the results of operations of Spansion Inc. through December 20, 2005 (see Note 3). Due to Spansion’s IPO on December 21, 2005 (see Note 3), the
Company’s ownership interest in Spansion was diluted from 60 percent to 37.9 percent, and as a result the Company no longer consolidates Spansion’s financial
position, results of operations or cash flows subsequent to the IPO. Therefore, the Company has used the equity method of accounting to reflect its share of
Spansion’s net income (loss) from December 21, 2005 through December 25, 2005.
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, is the Company’s percentage equity share of certain investees’ operating
results, including Spansion, where the Company has the ability to exercise significant influence over the operations of the investee.
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 and deferred income taxes.
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, delivery has occurred 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 those of the Company’s products that the Company has removed from its price book or that are not more than twelve months older than the manufacturing
code date. In addition, some agreements
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Source: ADVANCED MICRO DEVIC, 10-K, February 27, 2006