AMD 2002 Annual Report Download - page 55

Table of Contents
products to distributors with substantial independent operations under sales arrangements whose terms do not allow for rights of return or price protection on
unsold products held by them. In these instances, the Company recognizes revenue when it ships the product directly to the distributors. The Company records
estimated reductions to revenue under distributor and customer incentive programs, including certain advertising and marketing promotions, volume based
incentives and special pricing arrangements, at the time the related revenues are recognized. Shipping and handling costs associated with product sales are
included in cost of sales.
Impairment of Long-lived Assets. The Company accounts for the impairment of long-lived assets in accordance with SFAS 144, “Accounting for the
Impairment or Disposal of Long-Lived Assets.” For long-lived assets used in operations, the Company records impairment losses when events and circumstances
indicate that these assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts of those
assets. If less, the impairment losses are based on the excess of the carrying amounts of these assets over their respective fair values. Their fair values would then
become the new cost basis. The fair values are determined by quoted market prices if available. When quoted market prices are not available, the present value of
the future estimated net cash flow is generally used. For assets held for sale, impairment losses are measured at the lower of the carrying amount of the assets or
the fair value of the assets less costs to sell. For assets to be disposed of other than by sale, impairment losses are measured as their carrying amount less salvage
value, if any, at the time the assets cease to be used.
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, are the Company’s shares of certain investees’ results, which primarily include the Company’s 49.992 percent share of the operating results of
Fujitsu AMD Semiconductor Limited (FASL). Certain prior period amounts have been reclassified to conform to the current period presentation.
Foreign Currency Translation. The functional currency of the Company’s foreign subsidiaries, except AMD Saxony Limited Liability Company & Co.
KG (AMD Saxony), is the U.S. dollar. Translation adjustments resulting from remeasuring the financial statements of subsidiaries into the U.S. dollar are
included in operations. The functional currency of AMD Saxony and FASL are their local currencies. Adjustments resulting from translating the foreign currency
financial statements of AMD Saxony and FASL into the U.S. dollar are included as a separate component of accumulated other comprehensive income (loss).
The aggregate exchange gain included in determining net income was $31 million in 2002 and $6 million in 2000. The aggregate exchange loss included in
determining net income was $16 million in 2001.
Cash Equivalents. Cash equivalents consists 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. 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. 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 recorded in accumulated other comprehensive income
49
Source: ADVANCED MICRO DEVIC, 10-K, March 14, 2003