AMD 2007 Annual Report Download - page 101

Table of Contents
Derivative Financial Instruments. The Company is primarily subject to foreign currency risks for transactions denominated in euros and Canadian
dollars. 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 fluctuation in value of forecasted euro and Canadian dollar
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 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 29, 2007, 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 change in fair value 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 earnings.
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, measured by 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 commonly referred to as “processors in a box,” a one-year limited warranty to direct purchasers of all
other microprocessor products 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, chipsets and certain products for consumer electronics devices will conform to its approved
specifications and be free from defects in material and workmanship under
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Source: ADVANCED MICRO DEVIC, 10-K, February 26, 2008