AMD 2006 Annual Report Download - page 102

Table of Contents
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 cancelled 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 with distributors may contain standard stock rotation provisions
permitting limited levels of product returns. 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 rights
of return or price protection on unsold products held by them. In these instances, the Company recognizes revenue when it ships the product directly to the
distributors.
The Company records estimated reductions to revenue under distributor and customer incentive programs, including certain cooperative advertising and
marketing promotions and volume based incentives and special pricing arrangements, at the time the related revenues are recognized. For transactions where the
Company reimburses a customer for a portion of the customer’s cost to perform specific product advertising or marketing and promotional activities, such
amounts are recorded as a reduction of revenue unless they qualify for cost recognition under Emerging Issues Task Force (EITF) Issue No. 01-9, Accounting for
Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor’s Products) (EITF 01-9). Shipping and handling costs associated with
product sales are included in cost of sales.
Inventories. Inventories are stated at standard cost adjusted to approximate the lower of actual cost (first-in, first-out method) or market (net realizable
value). Generally, inventories on hand in excess of forecasted demand for the next six months are not valued. Obsolete inventories are written off.
Goodwill and Acquisition Related Intangible Assets. Goodwill represents the excess of the purchase price over the fair value of net tangible and
identifiable intangible assets acquired. All of the Company’s goodwill and acquisition related intangible assets outstanding at December 31, 2006 were related to
the Company’s acquisition of ATI (see Note 3). In accordance with the provisions of Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill
and Other Intangible Assets (SFAS 142), goodwill amounts are not amortized, but rather are tested for impairment at least annually or more frequently if there
are indicators of impairment present. The Company will perform its annual goodwill impairment analysis during the fourth quarter of each fiscal year, with the
first impairment analysis related to ATI goodwill to be performed in the fourth quarter of 2007. Intangible assets that are not considered to have an indefinite
useful life are amortized over their useful lives, which range from 14 months to seven years. The carrying amount of these assets is reviewed for impairment
whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. Recoverability of these assets is measured by
comparing the carrying amount of the asset to the future undiscounted cash flows the asset is expected to generate. If the asset is considered to be impaired, the
amount of any impairment is measured as the difference between the carrying value and the fair value of the impaired asset.
In 2005, the Company recorded an impairment charge related to goodwill initially recognized as result of the formation of Spansion LLC. (See Note 4).
Impairment of Long-Lived Assets. For long-lived assets other than goodwill and acquisition related intangible assets, the Company records impairment
losses when events and circumstances indicate that these assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are
less than the carrying amounts of those assets. If less, the impairment losses are based on the excess of the carrying amounts of these assets over their respective
fair values. Their fair values would then become the new cost basis. Fair value is determined by discounted future cash flows, appraisals or other methods. For
assets held for sale, impairment losses are measured at the lower of the carrying amount of the assets or the fair value of the assets less costs to sell. For assets to
be disposed of other than by sale, impairment losses are measured as their carrying amount less salvage value, if any, at the time the assets cease to be used.
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Source: ADVANCED MICRO DEVIC, 10-K, March 01, 2007