AMD 2002 Annual Report Download - page 56

Table of Contents
(loss) (a component of stockholders’ equity) and subsequently recognized in operations in the same period the hedged forecasted transaction affects operations.
Generally, the gain or loss on derivative contracts, when recognized in operations, offsets the gain or loss on the hedged foreign currency assets, liabilities, or
firm commitments. As of December 29, 2002, the Company expects to reclassify the amount accumulated in other comprehensive income (loss) to operations
within the next twelve months upon the recognition in operations of the hedged forecasted transactions. The Company does not use derivatives for speculative or
trading purposes.
The effectiveness test for these foreign currency contracts utilized by the Company is the fair value to fair value comparison method. Under this method,
the Company includes the time value portion of the change in value of the currency forward contract in its effectiveness assessment.
If a cash flow hedge should be discontinued because it is probable that the original forecasted transaction will not occur, the net gain or loss in
accumulated other comprehensive income (loss) will be reclassified into operations as a component of other income and expense, net.
Premiums paid for foreign currency forward and option contracts are immediately charged to operations.
Inventories. Inventories are stated at standard cost adjusted to approximate the lower of actual cost (first-in, first-out method) or market (net realizable
value). Inventories on hand in excess of forecasted demand for generally six months or less are not valued. Obsolete inventories are written off.
Restructuring Charges. The Company records restructuring charge in accordance with Emerging Issues Task Force Issue No. 94-3, “Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity” (EITF 94-3). Under EITF 94-3 restructuring charges are recorded
upon approval of a formal management plan and are included in the operating results of the period in which such plan has been approved. Changes in estimates
occur when it is apparent that exit costs will be more or less costly than originally estimated.
Property, Plant and Equipment. Property, plant and equipment are stated at cost. Depreciation and amortization are provided on a straight-line basis over
the estimated useful lives of the assets for financial reporting purposes. Estimated useful lives for financial reporting purposes are as follows: machinery and
equipment, two to five years; buildings and building improvements, 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.
Foreign Grants and Subsidies. The Company receives investment grants and allowances as well as interest subsidies under a Subsidy Agreement with
the Federal Republic of Germany and the State of Saxony. Generally, such grants and subsidies are subject to forfeiture in declining amounts over the life of the
agreement, if the Company does not maintain certain levels of employment or meet other agreement conditions. Accordingly, amounts received under the
Subsidy Agreement are recorded as a long-term liability on the Company’s financial statements and are being amortized to operations ratably over the
contractual life of the Subsidy Agreement as a reduction to operating expenses through December of 2008.
Advertising Expenses. Cooperative advertising funding obligations under customer incentive programs are accrued and the costs recorded at the same
time the related revenue is recognized. All other advertising costs are expensed as incurred. Advertising expenses for 2002, 2001 and 2000 were approximately
$199 million, $184 million and $148 million, respectively.
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Source: ADVANCED MICRO DEVIC, 10-K, March 14, 2003