AMD 2005 Annual Report Download - page 87

Table of Contents
The Company classifies investments with remaining time to maturity of less than twelve months as short-term investments. Short-term investments
generally 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 remaining time to maturity 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 primarily subject to foreign currency risks for transactions denominated in 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 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 transactions. As of December 25, 2005, the Company
expects to reclassify the amount accumulated in other comprehensive income 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 unrealized gain or loss will
be recorded as a component of interest income and other income (expense), 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. 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: 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.
Treasury Stock. The Company accounts for treasury stock acquisitions using the cost method. For reissuance of treasury stock, to the extent that the
reissuance price is more than the cost, the excess is recorded as an increase to capital in excess of par value. If the reissuance price is less than the cost, the
difference is also recorded to capital in excess of par value to the extent there is a cumulative treasury stock paid in capital balance. Once the cumulative balance
is reduced to zero, any remaining difference resulting from the sale of treasury stock below cost is recorded to retained earnings.
Product Warranties. The Company generally offers a three-year limited warranty to end users for microprocessor products that are commonly referred to
as “processors in a box” and a one-year limited warranty to direct purchasers for all other microprocessor and embedded processor products. Under limited
circumstances,
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Source: ADVANCED MICRO DEVIC, 10-K, February 27, 2006