Deferred Income and Allowances on Sales to Distributors

Deferred income and allowances on sales to distributors is comprised of the following components:



(In thousands)	December 31, 2011			December 31, 2010

Deferred revenue on shipments to distributors	$	302,815		$	529,332
Deferred cost of sales on shipments to distributors	(30,536		)	(42,044		)
Deferred income on shipments to distributors	272,279			487,288
Advances to distributors	(648		)	(66,495		)
Other deferred revenue ⁽¹⁾	8,245			7,918
Total	$	279,876		$	428,711


(1)	Principally represents revenue deferred on our software and intellectual property licenses.

The Deferred income and allowances on sales to distributor activity for 2011 and 2010 was as follows:



(In thousands)	2011			2010

Balance at beginning of period	$	428,711		$	281,885
Deferred revenue recognized upon shipment to distributors	5,189,404			7,771,347
Deferred costs of sales recognized upon shipments to distributors	(279,875		)	(456,872		)
Decrease (increase) in advances to distributors	65,847			(5,618		)
Revenue recognized upon sell-through to end customers	(1,260,208		)	(1,361,037		)
Costs of sales recognized upon sell-through to end customers	283,308			385,894
Earned distributor price concessions ⁽¹⁾	(4,021,944		)	(6,008,166		)
Returns	(127,646		)	(178,355		)
Increase (decrease) in other deferred revenue	2,279			(367		)
Balance at end of period	$	279,876		$	428,711


(1)	Average aggregate price concessions typically range from 65% to 80% of our list price on an annual basis, depending upon the composition of our sales, volumes and factors associated with the timing of shipments to distributors.

We sell the majority of our products to distributors worldwide at a list price. However, distributors resell our products to end customers at a very broad range of individually negotiated prices based on a variety of factors, including customer, product, quantity, geography and competitive differentiation. The majority of our distributors' sales to their customers are priced at a discount from our list price. Under these circumstances, we remit back to the distributor a portion of its original purchase price after the resale transaction is completed and we validate the distributor's resale information, including end customer, device, quantity and price, against the distributor price concession that we have approved in advance. To receive price concessions, distributors must submit the price concession claims to us for approval within 60 days of the resale of the product to an end customer. It is our practice to apply these negotiated price discounts to future purchases, requiring the distributor to settle receivable balances, on a current basis, generally within 30 days, for amounts originally invoiced. This practice has an adverse impact on the working capital of our distributors. As such, we have entered into agreements with certain distributors whereby we advance cash to the distributors to reduce the distributor's working capital requirements. These advances are settled in cash at least on a quarterly basis and are estimated based on the amount of ending inventory as reported by the distributor multiplied by a negotiated percentage. Such advances have no impact on revenue recognition or our consolidated statements of income and are a component of Deferred income and allowances on sales to distributors on our consolidated balance sheets. We continuously process discounts taken by distributors against our Deferred income and allowances on sales to distributors. We adjust the recorded amount of the distributor advances based on cash settlements at the end of each quarter. These advances are set forth in binding legal agreements and are unsecured, bear no interest on unsettled balances, and are due upon demand. The agreements governing these advances can be canceled by us at any time.

Total price concessions earned by distributors were $4.0 billion and $6.0 billion for the years ended December 31, 2011 and December 31, 2010, respectively. The 2011 decrease in price concessions results from proportionately higher sales to OEMs in 2011 and higher sales to certain distributors at prices reflecting negotiated discounted end customer prices.

We also enter into arrangements that, in substance, finance distributors' accounts receivable and inventory. The amounts advanced are classified as Other current assets in our consolidated balance sheets and totaled $9.1 million as of December 31, 2011 and $66.3 million as of December 31, 2010. These arrangements are set forth in binding legal agreements and are unsecured, bear no interest on unsettled balances, and are due upon demand.