AMD 2008 Annual Report Download - page 99

separately account for the liability (debt) and equity (conversion option) components of the instrument in a
manner that reflects the issuer’s nonconvertible debt borrowing rate. The effective date of this FSP is for
financial statements issued for fiscal years beginning after December 15, 2008 and interim periods within those
fiscal years and it does not permit earlier application. However, the transition guidance requires retroactive
application to all periods presented. This FSP will impact our accounting for the 6.00% Notes whereby the equity
component would be included in the paid-in-capital portion of stockholders’ equity on the balance sheet and the
value of the equity component would be treated as an original issue discount for purposes of accounting for the
debt component. Higher interest expense will result by recognizing accretion of the discounted carrying value of
the 6.00% Notes to their face amount as interest expense over the term of the 6.00% Notes. We expect to have
higher interest expense beginning in its first quarter of 2009 due to the interest accretion, and the interest expense
associated with its 6.00% Notes for prior periods will also be higher than previously reported due to the
retrospective application of this FSP. Based on our preliminary analysis, the interest expense associated with the
6.00% Notes will be approximately $16 million, $25 million and $27 million higher for fiscal years 2007, 2008
and 2009, respectively, as a result of adopting this FSP.
In October 2008, the FASB issued FSP No. FAS 157-3, Determining the Fair Value of a Financial Asset
When the Market for That Asset Is Not Active. (FSP FAS 157-3)This FSP clarifies the application of FASB
Statement No. 157, Fair Value Measurements, in a market that is not active and provides an example to illustrate
key considerations in determining the fair value of a financial asset when the market for that financial asset is not
active. In particular, it provides additional guidance on (a) how the reporting entity’s own assumptions (that is,
expected cash flows and appropriately risk-adjusted discount rates) should be considered when measuring fair
value when relevant observable inputs do not exist, (b) how available observable inputs in a market that is not
active should be considered when measuring fair value, and (c) how the use of market quotes (for example,
broker quotes or pricing services for the same or similar financial assets) should be considered when assessing
the relevance of observable and unobservable inputs available to measure fair value. This FSP is effective upon
issuance, including prior periods for which financial statements have not been issued. We evaluated this FSP and
concluded that our analysis in determining the fair value of our financial assets when the market for them is not
active is consistent with the FSP’s guidance.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Interest Rate Risk. Our exposure to market risk for changes in interest rates relates primarily to our
investment portfolio and long-term debt. We usually invest our cash in investments with short maturities or with
frequent interest reset terms. Accordingly, our interest income fluctuates with short-term market conditions. As
of December 27, 2008, our investment portfolio consisted primarily of money market funds, bank notes, short-
term corporate notes and ARS. With the exception of our ARS, these were highly liquid investments. Due to the
short-term nature of our investment portfolio, our exposure to interest rate risk is minimal.
In November 2008, we purchased $60 million principal amount of our 6.00% Notes, which reduced the
outstanding balance to $2.14 billion as of December 27, 2008 from $2.2 billion as of December 29, 2007. In
February 2009, we repurchased approximately $158 million in principal amount of the 6.00% Notes for
approximately $57 million in cash.
As of December 27, 2008, the majority of our outstanding debt is fixed rate debt. Therefore, our exposure to
market risk for changes in interest rates on reported interest expense and corresponding cash flows is limited.
We will continue to monitor our exposure to interest rate risk.
Default Risk. We mitigate default risk in our investment portfolio by investing in only the highest credit
quality securities and by constantly positioning our portfolio to respond appropriately to a significant reduction in
a credit rating of any investment issuer or guarantor. The portfolio includes marketable securities with active
secondary or resale markets to ensure portfolio liquidity. We are averse to principal loss and strive to preserve
our invested funds by limiting default risk and market risk.
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