AMD 2005 Annual Report Download - page 97

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Table of Contents
logistics, legal, tax, finance, human resources, and environmental health and safety services to Spansion for a specified period. Under the amended patent
cross-license agreement, Spansion will pay royalties to the Company based on a percentage of Spansion’s net sales.
In addition, the Company entered into an agency agreement with Spansion pursuant to which the Company has agreed to continue to ship products to and
invoice Spansion’s customers in the Company’s name on behalf of Spansion until Spansion has the capability to do so on its own. Prior to shipping the product to
Spansion’s customers, the Company purchases the applicable product from Spansion and pays Spansion the same amount that it invoices Spansion’s customers.
In performing these services, the Company acts as Spansion’s agent for the sale of Spansion’s Flash memory products, and the Company does not receive a
commission or fees for these services. Under the agreement, Spansion assumes full responsibility for its products and these transactions, including establishing
the pricing and determining product specifications. Spansion also assumes credit and inventory risk related to these product sales.
In accordance with EITF Issue No. 99-19, “Reporting Revenue Gross as a Principal versus Net as an Agent,” the Company records sales of Spansion’s
Flash memory products and the related cost of sales on a net basis on its consolidated statements of operations. As a result, the net impact to the Company’s net
sales and cost of sales is zero.
With respect to the Company’s balance sheet, sales to Spansion’s customers are included in the Company’s “Accounts Receivable” line item whereas the
payables to Spansion that relate to the products the Company purchased from Spansion are reflected in its “Accounts Payable to Spansion” line item. These
amounts are recorded separately on the balance sheet because there is no legal right of offset in accordance with FIN 39, Offsetting of Amounts Related to
Certain Contracts.
92
Source: ADVANCED MICRO DEVIC, 10-K, February 27, 2006