AMD 2001 Annual Report Download - page 233

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Impairment of Long-Lived Assets. If indicators of impairment of long-lived
assets are present, the Company determines whether the sum of the estimated
undiscounted cash flows attributable to the assets in question is less than
their carrying value. If less, the Company recognizes an impairment loss based
on the excess of the carrying amount of the assets over their respective fair
values. If the assets determined to be impaired are to be held for use, the
Company recognizes an impairment charge to the extent the present value of
anticipated net cash flows attributable to the asset is less than the asset's
carrying value.
Treasury Stock. The Company accounts for treasury stock using the cost method.
Principles of Consolidation. The consolidated financial statements include the
Company's accounts and those of its wholly owned subsidiaries. Upon
consolidation, all significant intercompany accounts and transactions are
eliminated. Also included in the financial statements, under the equity method
of accounting, is the Company's 49.992 percent share of the operating results of
Fujitsu AMD Semiconductor Limited (FASL).
Foreign Currency Translation. The functional currency of the Company's foreign
subsidiaries, except AMD Saxony, is the U.S. dollar. The functional currency of
AMD Saxony and the Company's unconsolidated joint venture, FASL, are their local
currencies. Translation adjustments resulting from the process of remeasuring
the foreign currency financial statements of the Company's foreign subsidiaries
are included in operations. Adjustments resulting from translating the foreign
currency financial statements of AMD Saxony and FASL are included in
stockholders' equity.
Cash Equivalents. Cash equivalents consist of financial instruments that are
readily convertible into cash and have original maturities of three months or
less at the time of acquisition.
Derivative Financial Instruments. On January 1, 2001, the Company adopted
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS 133). SFAS 133 requires the Company to
record all derivatives on the balance sheet at fair value. Derivatives that are
not hedges must be adjusted to fair value through operating results. If the
derivative is a hedge, depending on the nature of the hedge, changes in the fair
value of the derivative are either offset against the change in fair value of
assets, liabilities or firm commitments through operations (fair value hedges)
or recognized in other comprehensive income until the hedged item is recognized
in operations (cash flow hedges). The ineffective portion of a derivative's
change in fair value is immediately recognized in operations. As of January 1,
2001, the Company had entered into foreign currency forward contracts to hedge
the gains and losses generated by the remeasurement of foreign currency
denominated intercompany accounts into U.S. dollars. As a result, these
derivatives, which were not designated as hedges, were recorded at fair value,
with changes in their fair value recognized in operations. Accordingly, the
initial adoption of SFAS 133 had no impact on the Company's consolidated
financial position or operating results. These transactions in 2001 were
denominated in Japanese yen, British pounds, Thai baht, Singapore dollars and
European Union euros.
The Company purchases a significant volume of inventory from FASL, AMD's
unconsolidated joint venture in Japan, and from AMD Saxony. Purchases from FASL
and AMD Saxony are denominated in yen and euros, respectively. Therefore, in the
normal course of business, the Company's financial position is routinely
subjected to market risk associated with foreign currency rate fluctuations. The
Company's general practice is to ensure that material business exposure to
foreign exchange risks are identified, measured and minimized using the most
effective and efficient methods to eliminate or reduce such exposures. To
protect against the reduction in value of forecasted yen and euro denominated
cash flows resulting from these transactions, the Company has instituted a
foreign currency cash flow hedging program. Under this program, the Company
purchases foreign currency forward contracts and sells or purchases foreign
currency option contracts, generally expiring within twelve months, to hedge
portions of its forecasted foreign currency denominated cash flows. The hedging
transactions in 2001 were denominated in yen and euros. These foreign currency
contracts are carried on the Company's balance sheet at fair value with the
effective portion of the contracts' gain or loss initially
Source: ADVANCED MICRO DEVIC, 10-K, March 07, 2002