Accounting Polices

Paper Summary:

This paper explains that the accounting policies of Intel Corporation, the world's largest semiconductor chip maker, demonstrate equity interest in a range of private and public companies, mainly for strategic reasons and to improve earnings in weak years. Whereas, the accounting policies of Advanced Micro Devices, Inc. (AMD), Intel's chief competitor, show evidence of a big-bath scenario. The author uses a variety of accounting procedures to compare the ratio analysis, levers of conservatism and earnings management of these two companies. The paper includes 18 tables and has endnotes instead of a bibliography.

Table of Contents:
Introduction
Ratio Analysis
Table 1: EC Ratio Analysis
Table 2: Ratio Analysis
Table 3: Advanced DuPont Model
Levers of Conservatism
Revenue Recognition
Depreciation
Table 4: PP&E and Depreciation & Amortization
Allowances for Accounts Receivable
Table 5: Allowances for Accounts Receivable
Product-Warranty Reserves
Table 6: Warranty Reserves
Inventories
Table 7: Inventories
Stock-Based Compensation
Table 8: Stock-Based Compensation
Table 9: Historical Volatility of Stocks and Implied Volatility of Stock Options
Retirement Benefit Obligations
Table 10: Retirement Benefit Obligations
Earnings Management
Operating Leases
Table 11: Operating leases at Intel
Table 12: Discount Rate Calculation for AMD
Table 13: Operating Leases at AMD
Off-Balance-Sheet Liabilities
Impairment of Intangible Assets
Subsidiaries
Table 14: Timeline of Events for AMD's Investment in Spansion Inc
Table 15: Intels' Equity Investments as per December 29, 2007
Restructuring Charges
Table 16: Restructuring Charges and Offsetting Gains at Intel
Repurchase of Common Stocks
Table 17: Number of Shares and EPS at Intel
Conclusion
Table 18: Consolidated Statements of Income and Balance Sheets at Intel and AMD

From the Paper:

"Intel uses useful lives of 2 to 4 years to depreciate its equipment (which includes machinery), while AMD uses useful lives of 2 to 6 years for equipment depreciation purposes. In Table 4 below we can see that Intel's estimated total average life of PP&E is 10 years in the last three years, while AMD's fluctuates between 5 and 9 years. (The estimated total average life is calculated by dividing the gross PP&E by the depreciation expense.) The generally longer average total life at Intel can be explained by the fact that it has a higher proportion of buildings in its PP&E mix (e.g. 33% vs. AMD's 14% in 2007)."

Sample of Sources Used:

• 10-K forms for AMD and Intel for fiscal years 2007, 2006, and 2005
• www.optionsxpress.com
• http://finance.yahoo.com
• Financial Reporting and Analysis, REvsine, Collins, Johnson, third edition, 2005
• Equity Valuation and Analysis; Russel Lundholm, Richard Sloan, second edition, 2007

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