AMD 2009 Annual Report Download - page 90

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. Shipping and handling costs associated with product sales are included in cost of sales.
Deferred revenue and related product costs for 2009 and 2008 are as follows:
Year Ended
December 26,
2009
December 27,
2008
(In millions)
Deferred revenue .................................... $199 $118
Deferred cost of sales ................................. (61) (68)
Deferred income on shipments to distributors .............. $138 $ 50
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. 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. Implied fair value of
goodwill is determined by considering both the income and market approach.
Impairment of Long-Lived Assets including Acquired Intangible Assets. For long-lived assets other than
goodwill, the Company evaluates whether impairment losses have occurred when events and circumstances
indicate that the carrying amount of these assets might not be recoverable. The Company assesses recoverability
by determining whether 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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