AMD 2007 Annual Report Download - page 58

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near-term and longer-term could be materially different from these forecasts, which could impact future estimates of fair value of our reporting units and may
result in further impairment of goodwill.
The outcome of our goodwill impairment analysis also indicated that the carrying amount of certain acquisition-related intangible assets or asset groups
may not be recoverable. Accordingly, we assessed the recoverability of the acquisition-related intangible assets or asset groups, as appropriate, by determining
whether the unamortized balances could be recovered through their respective estimated undiscounted future net cash flows. We determined that certain of the
acquisition-related developed product technology associated with our Graphics and Consumer Electronics segments was impaired primarily due to the revised
lower revenue forecasts associated with products incorporating such developed product technology. We measured the amount of impairment by calculating the
amount by which the carrying value of the assets exceeded their estimated fair values, which were based on projected discounted future net cash flows. As a
result of this impairment analysis, we recorded an impairment charge of $349 million, which is included in the caption “Impairment of goodwill and acquired
intangible assets” in our 2007 consolidated statements of operations. We also revised our estimate of the weighted average useful life of the developed product
technology from 60 months to 50 months based on the revised cash flow forecasts.
Critical Accounting Estimates
Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been
prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and
judgments that affect the reported amounts in our consolidated financial statements. We evaluate our estimates on an on-going basis, including those related to
our revenues, inventories, asset impairments, goodwill, business combination, and income taxes. We base our estimates on historical experience and on various
other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values
of assets and liabilities. Although actual results have historically been reasonably consistent with management’s expectations, actual results may differ from these
estimates or our estimates may be affected by different assumptions or conditions.
We believe the following critical accounting estimates are the most significant to the presentation of our financial statements and require the most difficult,
subjective and complex judgments.
Revenue Reserves. We record a provision for estimated sales returns and allowances on product sales for estimated future price reductions and other
customer incentives in the same period that the related revenues are recorded. We base these estimates on actual historical sales returns, allowances, historical
price reductions, market activity, and other known or anticipated trends and factors. These estimates are subject to management’s judgment, and actual provisions
could be different from our estimates and current provisions, resulting in future adjustments to our revenues and operating results.
Inventory Valuation. At each balance sheet date, we evaluate our ending inventories for excess quantities and obsolescence. This evaluation includes
analysis of sales levels by product and projections of future demand. These projections assist us in determining the carrying value of our inventory and are also
used for near-term factory production planning. Generally, inventories on hand in excess of forecasted demand for the next six months are not valued. In
addition, we write off inventories that are considered obsolete. We adjust the remaining specific inventory balances to approximate the lower of our standard
manufacturing cost or market value. Among other 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, in any period, we anticipate future
demand or market conditions to be less favorable than our previous estimates, 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 margin 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
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Source: ADVANCED MICRO DEVIC, 10-K, February 26, 2008