AMD 1998 Annual Report Download - page 234

one-to-one matching of derivative instruments to underlying transactions. Gains
and losses on foreign currency forward and option contracts that are designated
and effective as hedges of anticipated transactions, for which a firm commitment
has been attained, are deferred and either recognized in income or included in
the basis of the transaction in the same period that the underlying transactions
are settled. Gains and losses on foreign currency forward and option contracts
and interest rate swap contracts that are designated and effective as hedges of
existing transactions are recognized in income in the same period as losses and
gains on the underlying transactions are recognized and generally offset. Gains
and losses on any instruments not meeting the above criteria would be recognized
in income in the current period. Purchased option contracts that would result in
losses, if exercised, are allowed to expire. If an underlying hedged transaction
is terminated earlier than initially anticipated, the offsetting gain or loss on
the related derivative instrument would be recognized in income in the same
period. Subsequent gains or losses on the related derivative instrument would be
recognized in income in each period until the instrument matures, is terminated
or is sold. Premiums paid for foreign currency forward and option contracts are
generally amortized over the life of the contracts and are not material to our
results of operations. Unamortized premiums are included in prepaid expenses and
other assets.
INVENTORIES We state inventories at standard cost adjusted to approximate the
lower of cost (first-in, first-out method) or market (net realizable value).
PROPERTY, PLANT AND EQUIPMENT We state property, plant and equipment at cost. We
provide depreciation and amortization on the straight-line basis over the
estimated useful lives of the assets for financial reporting purposes and on
accelerated methods for tax purposes. We estimate useful lives for financial
reporting purposes as follows:
. machinery and equipment, 3 to 5 years;
. buildings, up to 26 years; and
. leasehold improvements, the shorter of the
remaining terms of the leases or the estimated
economic useful lives of the improvements.
REVENUE RECOGNITION We recognize revenue from product sales direct to customers
when shipped. In addition, we sell to distributors under terms allowing the
distributors certain rights of return and price protection on unsold merchandise
they hold. The distributor agreements, which may be canceled by either party
upon specified notice, generally contain a provision for the return of our
products in the event the agreement with the distributor is terminated.
Accordingly, we defer recognition of revenue and related gross profits from
sales to distributors with agreements that have the aforementioned terms until
the merchandise is resold by the distributors.
FOREIGN GRANTS AND SUBSIDIES The Federal Republic of Germany and the State of
Saxony have agreed to support the Dresden Fab 30 project in the amount of $469
million (denominated in deutsche marks) consisting of capital investment grants
and interest subsidies. Dresden Fab 30 is our new integrated circuit
manufacturing and design facility in Dresden, Germany. The grants and subsidies
are subject to conditions, including meeting specified levels of employment in
December 2001 and maintaining those levels until June 2007. The grants and
subsidies will be recognized as a reduction of operating expense ratably over
the life of the project. In 1998, grants and subsidies recognized as income were
not material. As of December 27, 1998, AMD Saxony had received grants and
subsidies totaling $283 million (denominated in deutsche marks). Noncompliance
with the conditions of the grants and subsidies could result in the forfeiture
of all or a portion of the future amounts to be received as well as the
repayment of all or a portion of amounts received to date.
ADVERTISING EXPENSES We account for advertising costs as expense in the period
in which they are incurred. Advertising expense for 1998, 1997 and 1996 was
approximately $74 million, $74 million and $44 million, respectively.
NET LOSS PER COMMON SHARE Basic and diluted net loss per share are computed
using weighted-average common shares outstanding.
The following table sets forth the computation of basic and diluted net loss per
common share:
(Thousands except per share data) 1998 1997 1996
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Numerator for basic and diluted net loss
per common share $(103,960) $(21,090) $ (68,950)
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Denominator for basic and diluted net loss per
common share-weighted-average shares 143,668 140,453 135,126
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Basic and diluted net loss per common share $ (0.72) $ (0.15) $ (0.51)
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Source: ADVANCED MICRO DEVIC, 10-K, March 29, 1999