AMD 2010 Annual Report Download - page 53

to certain exceptions set forth in the Amended and Restated Shareholders’ Agreement, our right to designate one
representative to the GF board of directors will continue for at least two years following the date on which our
ownership in GF, on a fully converted to GF Ordinary Shares basis, falls below 10%, the point at which we
previously lost the right to such board representative. Among other things, the Amended and Restated Funding
Agreement incorporated the terms of the letter agreement referenced above.
The issuance of Class A Preferred Shares to ATIC International diluted our ownership interest in GF from
23% to 14% on a fully converted to GF Ordinary Shares basis and from 34% to 18% on a voting basis.
Moreover, as a result of the contribution, we expect to realize a non-cash gain as a result of the dilution of our
equity interest in GF, which will be reflected in our investment in GF balance during the first quarter of 2011.
We cannot estimate the amount of gain at this time, but we expect it to be material.
In connection with our reduced ownership interest in GF, we were required to decrease the number of
AMD-designated directors on GF’s Board from two to one. Also, in connection with the contribution and the
amendments to the Shareholders’ Agreement and the Funding Agreement, we assessed our ability to exercise
significant influence over GF. We considered factors such as representation on GF’s Board, participation in GF’s
policy-making processes, material intra-entity transactions, interchange of managerial personnel, technological
dependency, and the extent of our ownership in GF in relation to ownership by the other shareholder. Based on
the results of the assessment, we concluded that as of December 27, 2010, we no longer have the ability to
exercise significant influence over GF. Accordingly, effective as of December 27, 2010, we changed our method
of accounting for our ownership interest in GF from the equity method to the cost method of accounting. Under
the cost method of accounting, we will no longer recognize any share of GF’s net income or loss in our statement
of operations.
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. GAAP. The preparation of
these financial statements requires us to make estimates and judgments that affect the reported amounts in our
consolidated financial statements. 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 Allowances. 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 two
quarters 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,
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