AMD 2003 Annual Report Download - page 72

Table of Contents
in Capital to the extent there is a cumulative treasury stock paid in capital balance. Once the cumulative balance is reduced to zero, any remaining difference
resulting from the sale of treasury stock below cost is recorded to Retained Earnings.
Product Warranties. The Company generally offers a three-year limited warranty to end users for certain of its boxed microprocessor products and a
one-year limited warranty to direct purchasers for all other products. At the time revenue is recognized, the Company provides for estimated costs that may be
incurred under product warranties, with the corresponding expense recognized in cost of sales. Estimates of warranty expense are based on historical experience.
Remaining warranty accruals are evaluated periodically and are adjusted for changes in experience.
Foreign Currency Translation/Transactions. The functional currency of the Company’s foreign subsidiaries, except AMD Saxony Limited Liability
Company & Co. KG (AMD Saxony), AMD Fab 36 LLC & Co. KG, and FASL JAPAN, is the U.S. dollar. Translation adjustments resulting from remeasuring
the financial statements of subsidiaries into the U.S. dollar are included in operations, except for AMD Saxony, AMD Fab 36 LLC & Co. KG, and FASL
JAPAN. The functional currency of AMD Saxony Limited Liability Company & Co. KG and AMD Fab 36 LLC & Co. KG is the euro. The functional currency
of FASL JAPAN is the yen. Adjustments resulting from translating the foreign currency financial statements of AMD Saxony, AMD Fab 36 LLC & Co. KG, and
FASL JAPAN into the U.S. dollar are included as a separate component of accumulated other comprehensive income (loss). In addition, the gains or losses
resulting from transactions denominated in currency other than the functional currencies are recorded in net income (loss). The aggregate exchange gain included
in determining net income (loss) was $88 million in 2003 and $31 million in 2002. The aggregate exchange loss included in determining net income (loss) was
$16 million in 2001.
Guarantees. The Company accounts for guarantees in accordance with FASB Interpretation No. 45 (FIN 45), “Guarantor’s Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” Under FIN 45, a liability for the fair value of the obligation undertaken
in issuing the guarantee is recognized; however, this is limited to those guarantees issued or modified after December 31, 2002. The recognition of fair value is
not required for certain guarantees such as the parent’s guarantee of a subsidiary’s debt to a third party or guarantees on product warranties. For those guarantees
excluded from FIN 45’s fair value recognition provision, financial statement disclosures are made (see Note 12).
Foreign Grants and Subsidies. The Company receives investment grants and allowances as well as interest subsidies under a Subsidy Agreement with
the Federal Republic of Germany and the State of Saxony in connection with the construction and facilitization of Fab 30 in Dresden, Germany. Generally, such
grants and subsidies are subject to forfeiture in declining amounts over the life of the agreement, if the Company does not maintain certain levels of employment
or meet other agreement conditions. Accordingly, amounts received under the Subsidy Agreement are recorded as a long-term liability on the Company’s
financial statements and are being amortized to operations ratably over the contractual life of the Subsidy Agreement as a reduction to operating expenses
through December of 2008. From time to time, the Company also applies subsidies for certain research and development projects. The research and development
subsidies are recorded as a reduction of research and development expenses when all conditions and requirements are met.
Advertising Expenses. Cooperative advertising funding obligations under customer incentive programs are accrued and the costs recorded at the same
time the related revenue is recognized. Cooperative advertising expenses are recorded as marketing, general and administrative expense to the extent the cash
paid does not exceed the fair value of the advertising benefit received. Any excess of cash paid over the fair value of the advertising benefit received is recorded
as a reduction of revenue. Advertising expenses for 2003, 2002 and 2001 were approximately $148 million, $199 million and $184 million, respectively.
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Source: ADVANCED MICRO DEVIC, 10-K, March 09, 2004