AMD 1997 Annual Report Download - page 73

ADVANCED MICRO DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Financial Accounting Standards No. 115 (SFAS No. 115), "Accounting for Certain
Investments in Debt and Equity Securities." Currently, the Company classifies
its securities as available-for-sale which are reported at fair market value
with the related unrealized gains and losses included in retained earnings.
Realized gains and losses and declines in value of securities judged to be
other than temporary are included in interest income and other, net. Interest
and dividends on all securities are included in interest income and other,
net.
Investments with maturities between three and twelve months are considered
short-term investments. Short-term investments consist of money market auction
rate preferred stocks and debt securities such as commercial paper, time
deposits, certificates of deposit, bankers' acceptances and marketable direct
obligations of the United States Treasury.
Foreign Exchange Forward Contracts. From time to time, foreign exchange
forward contracts are used to hedge the Company's net monetary asset positions
in its foreign subsidiaries and the Company's liabilities for products
purchased from FASL. Realized gains and losses from these hedges are included
in operations. Premiums and discounts, if any, are amortized over the life of
the contract and included in operations.
Interest Rate Swaps. From time to time, the Company enters into interest
rate swaps primarily to reduce its interest rate exposure by changing a
portion of the Company's interest rate exposure from a floating rate to a
fixed rate basis. The differential between fixed and floating rates to be paid
or received is accrued and recognized as an adjustment to interest expense.
Accordingly, the related amount receivable from or payable to counterparties
is included in other current assets or accrued liabilities, respectively.
Foreign Currency Option Contracts. From time to time, the Company enters
into option contracts to hedge firm foreign currency transactions. Premiums
related to option contracts are amortized over the life of the contract.
Realized gains on foreign currency option contracts will be included in the
basis of the transaction. Option contracts that would result in losses if
exercised are allowed to expire.
Inventories. Inventories are stated principally at standard cost adjusted to
approximate the lower of cost (first-in, first-out method) or market (net
realizable value).
Property, Plant and Equipment. Property, plant and equipment is stated at
cost. Depreciation and amortization are provided principally on the straight-
line basis over the estimated useful lives of the assets for financial
reporting purposes and on accelerated methods for tax purposes. Estimated
useful lives for financial reporting purposes are as follows: machinery and
equipment 3 to 5 years; buildings up to 26 years; and leasehold improvements
are the shorter of the remaining terms of the leases or the estimated economic
useful lives of the improvements.
Deferred Income on Shipments to Distributors. A portion of sales is made to
distributors under terms allowing certain rights of return and price
protection on unsold merchandise held by the distributors. Pursuant to the
Company's agreements with distributors, in most instances AMD protects its
distributors' inventory of the Company's products against price reductions, as
well as products that are slow moving or have been discontinued. These
agreements, which may be canceled by either party on a specified notice,
generally contain a provision for the return of the Company's products in the
event the agreement with the distributor is terminated. Accordingly,
recognition of sales to distributors and related gross profits are deferred
until the merchandise is resold by the distributors.
Advertising Expenses. The Company accounts for advertising costs as expense
in the period in which they are incurred. Advertising expense for 1997, 1996
and 1995 was approximately $74 million, $44 million and $44 million,
respectively.
F-8
Source: ADVANCED MICRO DEVIC, 10-K405, March 03, 1998