AMD 2012 Annual Report Download - page 81

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 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 expense
recognition. Shipping and handling costs associated with product sales are included in cost of sales.
Deferred revenue and related product costs were as follows:
December 29,
2012
December 31,
2011
(In millions)
Deferred revenue .................................... $189 $202
Deferred cost of sales ................................. (81) (79)
Deferred income on shipments to distributors .............. $108 $123
Inventories. Inventories are stated at standard cost adjusted to approximate the lower of actual cost (first-
in, first-out method) or market. Inventories on hand in excess of forecasted demand 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 is not amortized, but rather is 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. The implied fair value of goodwill is
determined through the application of one or more valuation models common to the Company’s industry,
including the income, market and cost approaches.
Commitments and Contingencies. From time to time the Company is a defendant or plaintiff in various
legal actions that arise in the normal course of business. The Company is also a party to environmental matters,
including local, regional, state and federal government clean-up activities at or near locations where the
Company currently or has in the past conducted business. The Company is required to assess the likelihood of
any adverse judgments or outcomes to these matters as well as potential ranges of reasonably possible losses. A
determination of the amount of reserves required for these commitments and contingencies, if any, that would be
charged to earnings, includes assessing the probability of adverse outcomes and estimating the amount of
potential losses. The required reserves, if any, may change in the future due to new developments in each matter
or changes in circumstances such as a change in settlement strategy. Changes in required reserves could increase
or decrease the Company’s earnings in the period the changes are made. (See Notes 15 and 16).
Restructuring Charges. Restructuring charges are primarily comprised of severance costs, contract and
program termination costs and costs of facility consolidation and closure. Restructuring charges are recorded
upon approval of a formal management plan and are included in the operating results of the period in which such
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