AMD 2009 Annual Report Download - page 92

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attached to the ARS if they were to be sold to a third party. Furthermore, the put option’s terms do not provide
for net settlement, and the market for the underlying ARS that the Company purchased from UBS is currently
illiquid. Therefore, the Company’s put option is not readily convertible into cash and does not qualify as a
derivative. The Company has elected to account for the put option at fair value as permitted by the fair value
accounting guidance for such financial instruments. Accordingly, the Company initially recorded the put option
at its estimated fair value, with the corresponding gain recorded in earnings. The put option is marked to market
each quarter, with changes in its estimated fair value recorded in earnings. The put option is classified in “Other
current assets” on the consolidated balance sheets.
Derivative Financial Instruments. The Company maintains a foreign currency hedging strategy, which
uses derivative financial instruments to mitigate the risks associated with changes in foreign currency exchange
rates. This strategy takes into consideration all of the Company’s consolidated exposures. The Company does not
use derivative financial instruments for trading or speculative purposes.
In applying its strategy, from time to time, the Company uses foreign currency forward contracts to hedge
certain forecasted expenses denominated in foreign currencies, primarily the euro and Canadian dollar. The
Company designates these contracts as cash flow hedges of forecasted expenses and evaluates hedge
effectiveness prospectively and retrospectively. As such, the effective portion of the gain or loss on these
contracts is reported as a component of other comprehensive income (loss) and reclassified to earnings in the
same line item as the associated forecasted transaction and in the same period during which the hedged
transaction affects earnings. Any ineffective portion is immediately recorded in earnings.
The Company also uses, from time to time, foreign currency forward contracts to economically hedge
recognized foreign currency exposures on the balance sheets of various subsidiaries, primarily those denominated
in the euro and Canadian dollar. The Company does not designate these forward contracts as hedging
instruments. Accordingly, the gain or loss associated with these contracts is immediately recorded in earnings.
Property, Plant and Equipment. Property, plant and equipment are stated at cost. Depreciation and
amortization are provided on a straight-line basis over the estimated useful lives of the assets for financial
reporting purposes. Estimated useful lives for financial reporting purposes are as follows: equipment, two to six
years; buildings and building improvements, up to 39 years; and leasehold improvements, measured by the
shorter of the remaining terms of the leases or the estimated economic useful lives of the improvements.
Product Warranties. The Company generally warrants that its microprocessors, graphics processors, and
chipsets sold to its customers will conform to the Company’s approved specifications and be free from defects in
material and workmanship under normal use and service for one year, provided that, subject to certain
exceptions, the Company generally offers a three-year limited warranty to end users for microprocessor products
that are commonly referred to as “processors in a box” and for ATI branded PC workstation products and has
offered extended limited warranties to certain customers of “tray” microprocessor products and/or workstation
graphics products who have written agreements with the Company and target their computer systems at the
commercial and/or embedded markets.
The Company accrues warranty costs at the time of sale of warranted products.
Foreign Currency Translation/Transactions. The functional currency of all of the Company’s foreign
subsidiaries is the U.S. dollar. Assets and liabilities denominated in non-U.S. dollars have been remeasured into
U.S. dollars at current exchange rates for monetary assets and liabilities and historical exchange rates for
non-monetary assets and liabilities. Non-U.S. dollar denominated transactions have been remeasured at average
exchange rates in effect during each period, except for those cost of sales and expense transactions related to
non-monetary balance sheet amounts, which have been remeasured at historical exchange rates. The gains or
losses from foreign currency remeasurement have been included in earnings.
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