AMD 2010 Annual Report Download - page 88

In applying its strategy, the Company used foreign currency forward contracts to hedge certain forecasted
expenses denominated in foreign currencies, primarily the euro and Canadian dollar. The Company designated
these contracts as cash flow hedges of forecasted expenses, to the extent eligible under the accounting rules, and
evaluates hedge effectiveness prospectively and retrospectively. As such, the effective portion of the gain or loss
on these contracts is reported as a component of accumulated other comprehensive income (loss) and reclassified
to earnings in the same line item as the associated forecasted transaction and in the same period during which the
hedged transaction affects earnings. Any ineffective portion is immediately recorded in earnings.
Upon deconsolidation of GF in the first quarter of 2010, the Company’s outstanding euro currency forward
contracts no longer qualified for cash flow hedge accounting treatment because the Company no longer had
direct exposure to the euro denominated forecasted spending incurred by GF that those contracts were intended
to hedge. However, subsequent to the deconsolidation of GF in 2010, GF invoiced the Company in U.S. dollars
under the Wafer Supply Agreement and these invoices reflected fluctuations in the euro because some of GF’s
wafer costs are based on euro denominated costs. Therefore, the Company’s operating results and cash flows in
2010 were indirectly exposed to fluctuations in the euro even after deconsolidation. The Company may continue
to economically hedge any material indirect euro exposure by entering into euro currency forward contracts.
However, because these contracts do not qualify as cash flow hedges, gains or losses on these contracts cannot be
included in cost of sales, and mark-to-market gains and losses on these contracts can no longer be deferred until
the forecasted transactions occur.
The Company also uses, from time to time, foreign currency forward contracts to economically hedge
recognized foreign currency exposures on the balance sheets of various subsidiaries, primarily those denominated
in Canadian dollar. The Company does not designate these forward contracts as hedging instruments.
Accordingly, the gain or loss associated with these contracts is immediately recorded in 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 39 years; and leasehold improvements, measured by the
shorter of the remaining terms of the leases or the estimated economic useful lives of the improvements.
Product Warranties. The Company generally warrants that its microprocessors, graphics processors and
chipsets sold to its customers will conform to the Company’s approved specifications and be free from defects in
material and workmanship under normal use and service for one year, provided that, 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” and for ATI Technologies ULC (ATI)-branded PC
workstation products and has offered extended limited warranties to certain customers of “tray” microprocessor
products and/or workstation graphics products who have written agreements with the Company and target their
computer systems at the commercial and/or embedded markets.
The Company accrues warranty costs at the time of sale of warranted products.
Foreign Currency Translation/Transactions. The functional currency of all of the Company’s foreign
subsidiaries is the U.S. dollar. Assets and liabilities denominated in non-U.S. dollars have been remeasured into
U.S. dollars at current exchange rates for monetary assets and liabilities and historical exchange rates for
non-monetary assets and liabilities. Non-U.S. dollar denominated transactions have been remeasured at average
exchange rates in effect during each period, except for those cost of sales and expense transactions related to
non-monetary balance sheet amounts, which have been remeasured at historical exchange rates. The gains or
losses from foreign currency remeasurement are included in earnings.
Foreign Subsidies. The Company received investment grants in connection with the construction and
operation of its facilities in Asia. Generally, such grants are subject to forfeiture in declining amounts over the
life of the agreement if the Company does not maintain certain levels of employment or meet other conditions
80