AMD 2008 Annual Report Download - page 107

valuation, the initial valuation of goodwill and acquisition-related intangible assets, impairment of long-lived
assets, including goodwill and acquisition-related intangible assets, valuation of investments in marketable
securities 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 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 and reports such deferred
amounts as “Deferred income on shipments to distributors” on its consolidated balance sheet. Products are sold
to distributors at standard published prices that are contained in price books that are broadly provided to the
Company’s various distributors. Distributors are then required to pay for this product within the Company’s
standard commercial terms, which are typically net 30 days. The Company uses reserves to record price
protection given to distributors and customer rebates in the period of distributor re-sale. The Company
determines these reserves based on specific contractual terms with its distributors. Price reductions generally do
not result in sales prices that are less than the Company’s product cost. Gross margin resulting from the deferral
of both revenue and related product costs on shipments to distributors is revalued at the end of each fiscal period
based on the change in inventory units at distributors, latest published prices, and latest product costs.
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.
Deferred revenue and related product costs for 2008 and 2007 are as follows:
Year Ended
December 27,
2008
December 29,
2007
(In millions)
Deferred revenue .................................... $118 $ 212
Deferred cost of sales ................................. (68) (111)
Deferred income on shipments to distributors .............. $ 50 $101
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.
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