AMD 2007 Annual Report Download - page 99

Table of Contents
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 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. 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 at December 29, 2007 is related to the Company’s acquisition of ATI (see Note 3). In accordance with the provisions of FASB Statement
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 performs its annual goodwill impairment analysis as of the first day of the fourth quarter
of each fiscal year. The Company evaluates whether goodwill has been impaired at the reporting unit level by first determining whether the estimated fair value
of the reporting unit is less than its carrying value and, if so, by determining whether the implied fair value of goodwill within the reporting unit is less than the
carrying value. Fair values are determined by discounted future cash flow analyses.
As a result of the Company’s impairment analysis in the fourth quarter of 2007, the Company recorded an impairment charge related to the goodwill
initially recognized as a result of the acquisition of ATI (see Note 3).
In 2005, the Company recorded an impairment charge related to goodwill initially recognized as a result of the formation of Spansion LLC (see Note 4).
Impairment of Long-Lived Assets including Acquisition Related Intangible Assets. For long-lived assets other than goodwill, the Company evaluates
whether impairment losses have occurred 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
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Source: ADVANCED MICRO DEVIC, 10-K, February 26, 2008