AMD 2004 Annual Report Download - page 81

Table of Contents
such as a change in settlement strategy. Changes in required reserves could increase or decrease our earnings in the period the changes are made. (See Note 15.)
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.
Investments. The Company classifies its marketable debt and equity securities at the date of acquisition as either held to maturity or available for sale.
Substantially all of the Company’s marketable debt and equity securities are classified as available-for-sale. These securities are reported at fair market value
with the related unrealized gains and losses included in accumulated other comprehensive income (loss), net of tax, a component of stockholders equity. Realized
gains and losses and declines in the value of securities determined to be other-than-temporary are included in interest income and other, net. The cost of securities
sold is based on the specific identification method.
The Company classifies investments with maturities between three and 12 months as short-term investments. Short-term investments consist of money
market auction rate preferred stocks and debt securities such as commercial paper, corporate notes, certificates of deposit and marketable direct obligations of
United States governmental agencies. Available-for-sale securities with maturities greater than twelve months are classified as short term when they represent
investments of cash that are intended to be used in current operations.
Derivative Financial Instruments. The Company is subject to foreign currency risks for transactions denominated in yen and euros. 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, and are reflected
in prepaid expenses and other current assets or accrued liabilities, with the effective portion of the contracts’ gain or loss initially recorded in accumulated other
comprehensive income (loss) and subsequently recognized in cost of sales in the same period the hedged forecasted transaction affects operations. Generally, the
gain or loss on derivative contracts, when recognized in cost of sales, offsets the gain or loss on the hedged foreign currency assets, liabilities or firm
commitments. As of December 26, 2004, 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. Any ineffective portion of
the hedges is recognized currently in interest income and other, net, which has not been significant.
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 interest income and other, net.
Premiums paid for foreign currency forward and option contracts are immediately charged to operations.
Property, Plant and Equipment. Property, plant and equipment are stated at cost, except for assets deemed to have been sold as part of the Spansion LLC
transaction (see Note 3). Depreciation and amortization are
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Source: ADVANCED MICRO DEVIC, 10-K, March 01, 2005