AMD 2010 Annual Report Download - page 86

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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 majority of 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 these products within the Company’s standard commercial
terms, which are typically net 30 days. The Company records allowances for price protection given to
distributors and customer rebates in the period of distributor re-sale. The Company determines these allowances
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. Deferred income on shipments to distributors is revalued at the
end of each 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 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 2010 and 2009 are as follows:
December 25,
2010
December 26,
2009
(In millions)
Deferred revenue .................................... $254 $182
Deferred cost of sales ................................. (111) (61)
Deferred income on shipments to distributors .............. $143 $121
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 two quarters 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
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