AMD 2009 Annual Report Download - page 83

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Of the amounts set forth in the table above, GF investment portfolio and debt obligations were as follows:
Fiscal
2010
Fiscal
2011
Fiscal
2012
Fiscal
2013
Fiscal
2014 Thereafter Total
Fiscal 2009
Fair Value
Investment Portfolio
Cash equivalents:
Fixed rate amounts ........... $348 $— $— $— $— $ — $ 348 $ 348
Weighted-average rate .... 0.17% — — — — — 0.17%
Variable rate amounts ........ $530 $— $— $— $— $ — $ 530 $ 530
Weighted-average rate .... 0.16% — — — — — 0.16%
Total Investment Portfolio ..... $878 $— $— $— $— $ — $ 878 $ 878
Debt Obligations
Fixed rate amounts ........... $— $— $— $— $— $1,269 $1,269 $ 983
Weighted-average rate .... — — — — — 9.60% 9.60%
Variable rate amounts ........ $290 $170 $— $— $— $ — $ 460 $ 460
Weighted-average rate .... 2.74% 2.74% — — — — 2.74%
Total Debt Obligations ......... $290 $170 $— $— $— $1,269 $1,729 $1,443
Foreign Exchange Risk. As a result of our foreign operations, we incur costs and we carry assets and
liabilities that are denominated in foreign currencies, primarily the euro (with respect to GF asset and liabilities)
and Canadian dollar, while sales of products are primarily denominated in U.S. dollars.
As a consequence, movements in exchange rates could cause our foreign currency denominated expenses to
increase as a percentage of net revenue, affecting our profitability and cash flows. We use foreign currency
forward contracts to reduce our exposure to currency fluctuations on our foreign currency exposures. The
objective of these contracts is to minimize the impact of foreign currency exchange rate movements on our
operating results. Our accounting policy for these instruments is based on our designation of such instruments as
hedges of underlying exposure to variability in cash flows. We do not use these contracts for speculative or
trading purposes.
Realized gains and losses related to the foreign currency forward contracts, net of changes in the value of
the hedged exposures, for the year ended December 26, 2009 were not material. As of December 26, 2009, we
had unrealized foreign currency forward contract gains of $2 million that were recorded to other comprehensive
income (loss). In addition, upon deconsolidation of GF in the first quarter of 2010, our outstanding euro currency
forward contracts will cease to qualify for cash flow hedge accounting because we will no longer have direct
exposure to the euro denominated forecasted spending incurred by GF that those contracts were intended to
hedge. While GF will bill us in U.S. dollars, those billings will, nonetheless, reflect fluctuations in the euro
because some of GF’s wafer costs will be based on euro denominated costs. Therefore, our operating results and
cash flows will continue to be indirectly exposed to fluctuations in the euro even after deconsolidation. We
intend to economically hedge this indirect euro exposure by entering into euro currency forward contracts.
However, because these contracts do not qualify as cash flow hedges, the mark-to-market impact of these
contracts cannot be included in cost of sales. Rather, those mark-to-market adjustments will be recorded in
“Other income (expense), net” in our consolidated statements of operations. Therefore, while our objective of
reducing our earnings and cash flow exposure to euro fluctuations may be achieved in a given reporting period,
our reported gross margin and other income (expense) may become increasingly volatile, albeit in offsetting
directions, depending on the volatility of the euro. However, we cannot give any assurance that these strategies
will be effective or that transaction losses can be minimized or forecasted accurately. In particular, generally we
hedge only a portion of our foreign currency exchange exposure. Moreover, we determine our total foreign
currency exchange exposure using projections of long-term expenditures for items such as payroll and materials.
We cannot provide assurance that our hedging activities will eliminate foreign exchange rate exposure. Failure to
do so could have an adverse effect on our business, financial condition, results of operations and cash flow.
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