AMD 1995 Annual Report Download - page 237

notes
TO CONSOLIDATED FINANCIAL STATEMENTS
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On November 15, 1995, the FASB staff issued the Special Report, "A Guide to
Implementation of Statement 115 on Accounting for Certain Investments in Debt
and Equity Securities." In accordance with provisions in that Special Report,
the company chose to reclassify cash equivalents and short-term investments from
held-to-maturity to available-for-sale. At the date of the transfer, the
amortized cost of those securities was approximately $480.7 million. Since the
securities transferred on December 31, 1995 are short-term in nature, changes in
market interest rates did not have a significant impact on the fair value of
these securities. The net unrealized gain on these securities was immaterial.
The available-for-sale equity securities that the company held, included in
other assets, had a cost and fair value of $14.5 million and $75.1 million,
respectively, as of December 31, 1995, and a cost and fair value of $9.4 million
and $18.5 million, respectively as of December 25, 1994. At December 31, 1995,
the total net unrealized holding gain on these equity securities, net of tax,
was approximately $42.5 million, of which $33.4 million was recorded in 1995.
The entire, net of tax, unrealized holding gain is included in retained
earnings.
As of December 31, 1995, the company did not own any securities classified
as trading.
NOTE 4 CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the company to concentrations of
credit risk consist primarily of cash equivalents, short-term investments, trade
receivables, and financial instruments used in hedging activities.
The company places its cash equivalents and short-term investments with
high credit quality financial institutions and, by policy, limits the amount of
credit exposure with any one financial institution. Investments in time deposits
and certificates of deposit are acquired from banks having combined capital,
surplus and undistributed profits of not less than $200 million. Investments in
commercial paper and money market auction preferred stocks of industrial firms
and financial institutions are rated A1, P1 or better, investments in tax-exempt
securities including municipal notes and bonds are rated AA, Aa or better, and
investments in repurchase agreements must have securities of the type and
quality listed above as collateral.
Concentrations of credit risk with respect to trade receivables are limited
because a large number of geographically diverse customers make up the company's
customer base, thus spreading the trade credit risk. The company controls credit
risk through credit approvals, credit limits, and monitoring procedures. The
company performs in-depth credit evaluations of all new customers and requires
letters of credit, bank guarantees and advance payments, if deemed necessary.
Bad debt expenses have not been material.
The counterparties to the agreements relating to the company's foreign
exchange and interest rate instruments consist of a number of major, high credit
quality, international financial institutions. The company does not believe that
there is significant risk of nonperformance by these counterparties because the
company monitors the credit ratings of such counterparties, and limits the
financial exposure and the amount of agreements entered into with any one
financial institution. While the notional amounts of financial instruments are
often used to express the volume of these transactions, the potential accounting
loss on these transactions if all counterparties failed to perform is limited to
the amounts, if any, by which the counterparties' obligations under the
contracts exceed the obligations of the company to the counterparties.
NOTE 5 CONCENTRATIONS OF OTHER RISKS
Products. Microprocessor products and Flash memory devices contributed a
significant portion of the company's revenues and profits in 1995. The company
expects that its ability to maintain or expand its current levels of revenues
and profits in the future will depend upon, among other things, its success in
developing and marketing, in a timely manner, its next generation of
microprocessor products, the K86 RISC SUPERSCALAR products, and future
generations of Flash memory devices.
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Source: ADVANCED MICRO DEVIC, 10-K405, March 21, 1996