AMD 2011 Annual Report Download - page 82

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In applying its strategy, the Company used foreign currency forward contracts to hedge certain forecasted
expenses denominated in foreign currencies, primarily the 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.
During the first quarter of 2011, the Company reassessed its hedging needs related to its Euro foreign
exchange exposure and liquidated its Euro currency forward contracts. The Company may economically hedge
any material Euro exposure it identifies in the future by entering into Euro currency forward contracts.
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 dollars. 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 products 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. Subject to certain exceptions, the Company also offers a three-year limited warranty
to end users for only those CPU and AMD A-Series APU products that are commonly referred to as “processors
in a box” and has also 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 certain 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
specified in the relevant grant documents. Accordingly, amounts granted are initially recorded as a receivable
until cash proceeds are received. In the period the grant receivable is recorded, a current and long-term liability is
also recorded which is subsequently amortized as a reduction to cost of sales.
The Company also received an investment grant relating to certain research and development projects.
These research and development funds are recorded as a reduction of research and development expenses when
all conditions and requirements set forth in the underlying grant agreement are met.
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