AMD 2006 Annual Report Download - page 104

Table of Contents
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 the consolidated statements of operations line item corresponding to the hedged forecasted transaction in the same period the transaction affects
operations. Generally, the gain or loss on derivative contracts, when recognized, offsets the gain or loss on the hedged transactions. As of December 31, 2006, 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 other income (expense), net, which has not been significant to date.
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 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
six 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 recorded in 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 in retained earnings.
Product Warranties. The Company generally warrants that microprocessor products sold to its customers will, at the time of shipment, be free from
defects in workmanship and materials and conform to its approved specifications. Subject to certain exceptions, 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,” a one-year limited warranty to direct
purchasers of all other microprocessor products that are commonly referred to as “tray” microprocessor products, and a one-year limited warranty to direct
purchasers of embedded processor products. The Company has offered extended limited warranties to certain customers of “tray” microprocessor products who
have written agreements with the Company and target their computer systems at the commercial and/or embedded markets.
The Company generally warrants that its graphics and chipset products and certain products for consumer electronics devices will be free from defects in
material and workmanship under normal use and service for a period of one year, beginning on the date first sold to an end user but not later than 90 days after
shipment of such products to its customers. The Company generally warrants that ATI-branded PC workstation products will be free from defects in material and
workmanship under normal use and service for a period of three years, beginning on the date first sold to an end user but not later than 90 days after shipment of
such products to its customers.
Foreign Currency Translation/Transactions. For the year ended December 31, 2006, the functional currency of all the Company’s foreign subsidiaries
was the U.S. dollar. For 2005 and 2004, the functional
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Source: ADVANCED MICRO DEVIC, 10-K, March 01, 2007