AMD 1995 Annual Report Download - page 234

notes
TO CONSOLIDATED FINANCIAL STATEMENTS
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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.
In 1995, the Financial Accounting Standards Board released the Statement of
Financial Accounting Standard No. 121 (SFAS 121), "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed of." SFAS 121
requires recognition of impairment of long-lived assets in the event the net
book value of such assets exceeds the future undiscounted cash flows
attributable to such assets. SFAS 121 is effective for fiscal years beginning
after December 15, 1995. Adoption of SFAS 121 is not expected to have a material
impact on the company's financial position or results of operations.
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. These agreements can be canceled
by either party upon written notice, at which time the company generally
repurchases unsold inventory. 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 1995, 1994, and
1993 was approximately $40 million, $31 million, and $22 million, respectively.
Net income per common share. Primary net income per common share is based upon
weighted average common and dilutive common equivalent shares outstanding using
the treasury stock method. Dilutive common equivalent shares include stock
options and restricted stock. Fully diluted net income per common share is
computed using the weighted average common and dilutive common equivalent shares
outstanding, plus other dilutive shares outstanding which are not common
equivalent shares. Other dilutive shares which are not common equivalent shares
include convertible preferred stock.
Employee stock plans. The company accounts for its stock option plans and its
employee stock purchase plan in accordance with provisions of the Accounting
Principles Board's Opinion No. 25 (APB 25), "Accounting for Stock Issued to
Employees." In 1995, the Financial Accounting Standards Board released the
Statement of Financial Accounting Standard No. 123 (SFAS 123), "Accounting for
Stock Based Compensation." SFAS 123 provides an alternative to APB 25 and is
effective for fiscal years beginning after December 15, 1995. The company
expects to continue to account for its employee stock plans in accordance with
the provisions of APB 25. Accordingly, SFAS 123 is not expected to have any
material impact on the company's financial position or results of operations.
Use of estimates. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results inevitably will differ from those estimates,
and such differences may be material to the financial statements.
Financial presentation. Certain prior year amounts on the Consolidated Financial
Statements have been reclassified to conform to the 1995 presentation.
NOTE 3 FINANCIAL INSTRUMENTS
Financial instruments with off-balance-sheet risk.
As part of the company's asset and liability management, the company enters into
various types of transactions that involve financial instruments with off-
balance-sheet risk. These instruments are entered into in order to manage
financial market risk, including interest rate and foreign exchange risk. The
notional values, carrying amounts, and fair values are tabled below.
Foreign exchange forward contracts. The company enters into foreign exchange
forward contracts to buy and sell currencies as economic hedges of its net
monetary asset positions in its foreign subsidiaries and liabilities for
products purchased from FASL. The hedging transactions in 1995 were denominated
in lira, yen, French franc, deutsche mark, and pound sterling. The maturities of
these contracts are generally less than six months.
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Source: ADVANCED MICRO DEVIC, 10-K405, March 21, 1996