AMD 1998 Annual Report Download - page 218

Foreign Exchange Risk We use foreign exchange forward and option contracts to
reduce our exposure to currency fluctuations on our net monetary assets position
in our foreign subsidiaries, liabilities for products purchased from FASL, fixed
asset purchase commitments and obligations for future investments in AMD Saxony.
The objective of these contracts is to minimize the impact of foreign currency
exchange rate movements on our operating results and on the cost of capital
asset acquisition. Our accounting policy for these instruments is based on our
designation of such instruments as hedging transactions. We do not use
derivative financial instruments for speculative or trading purposes. We had $13
million (notional amount) of short-term foreign currency forward contracts
denominated in the Japanese yen, German mark and British pound outstanding as of
December 27, 1998.
We also have entered into various foreign currency option arrangements. In 1997,
we purchased $150 million of call option contracts to hedge our obligations to
provide loans to, or invest equity in, AMD Saxony, of which $75 million were
outstanding as of December 27, 1998. In 1998, we entered into a no-cost collar
arrangement to hedge Dresden Fab 30 project costs through which we purchased
$300 million of put option contracts and sold $300 million of call option
contracts. We had $220 million of no-cost collar option contracts outstanding as
of December 27, 1998.
Gains and losses related to the foreign currency forward and option contracts
for the year ended December 27, 1998 were not material. We do not anticipate any
material adverse effect on our consolidated financial position, results of
operations or cash flows resulting from the use of these instruments in the
future. We cannot give any assurance that these strategies will be effective or
that transaction losses can be minimized or forecasted accurately.
The following table provides information about our foreign currency forward and
option contracts as of December 27, 1998 and December 28, 1997.
1998 1997
------------------------------------ ------------------------------------
Notional Average Estimated Notional Average Estimated
(Thousands except contract rates) amount contract rate fair value amount contract rate fair value
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Foreign currency forward contracts:
Japanese yen $ 6,865 117.07 $ (22) $ 9,688 129.41 $ 76
German mark 5,407 1.66 (7) 1,695 1.77 -
British pound 840 1.68 4 823 1.65 (6)
Dutch guilder - - - 24,861 2.01 238
Italian lira - - - 6,323 1,739.00 2
French franc - - - 2,110 5.94 (1)
------- -------- -------- ----
$13,112 $ (25) $ 48,500 $309
======= ======== ======== ====
Purchased call option contracts:
German mark $ 75,000 1.45 $ 45 $150,000 1.45 $369
Purchased put option contracts:
German mark $220,000 1.85 $ 1,547 $ - - $ -
Written call option contracts:
German mark $220,000 1.69 $(13,469) $ - - $ -
The purchased call option contracts mature in 1999.
The purchased put and written call option contracts both mature in 2000. All of
our foreign currency forward contracts mature within the next 12 months.
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Risk Factors
Our business, results of operations and financial condition are subject to a
number of risk factors, including the following:
Demand for Our Products Affected by Asian and Other Domestic and International
Economic Conditions
The demand for our products has been weak due to the general downturn in the
worldwide semiconductor market and the current economic crisis in Asia. We
anticipate that the economic crisis in Asia may continue to adversely affect our
business. A further decline of the worldwide semi-conductor market and economic
condition in Asia could decrease the demand for microprocessors and other ICs. A
significant decline in economic conditions in any significant geographic area,
both domestically and internationally, could decrease the overall demand for our
products.
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Source: ADVANCED MICRO DEVIC, 10-K, March 29, 1999