AMD 2014 Annual Report Download - page 89

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rate interest payments to floating rate interest payments. The swaps effectively converted a portion of the fixed
interest payments payable on the 6.75% Notes into variable interest payments based on LIBOR. The interest rate
swaps are designated as a fair value hedge. Because the specific terms and notional amount of the swaps are
intended to match the portion of the 6.75% Notes being hedged, it is assumed to be a highly effective hedge.
Accordingly, changes in the fair value of the interest rate swaps are exactly offset by changes in the fair value of
the 6.75% Notes. All changes in fair value of the swaps are recorded on the Company’s consolidated balance
sheets with no net impact to the Company’s consolidated statements of operations.
The Company’s fair value hedge derivative contracts are classified within Level 2 because the valuation
inputs are based on quoted prices and market observable data of similar instruments in active markets.
The following table shows the fair value amounts included in long-term other assets should the fair value
hedge derivative contracts be in a gain position or included in other long-term liabilities should these contracts be
in a loss position. These amounts were recorded in the Company’s consolidated balance sheets as follows:
December 27,
2014
December 28,
2013
(In millions)
Interest Rate Swap Contracts
Contracts designated as fair value hedging instruments ...... $ 3 $—
NOTE 8: Concentrations of Credit and Operation Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily
of investments in debt securities, trade receivables and derivative financial instruments used in hedging activities.
The Company places its investments with high credit quality financial institutions and, by policy, limits the
amount of credit exposure with any one financial institution. The Company invests in time deposits and
certificates of deposit from banks having combined capital, surplus and undistributed profits of not less than
$200 million. At the time an investment is made, investments in commercial paper of industrial firms and
financial institutions are rated A1, P1 or better. The Company invests in tax-exempt securities, including
municipal notes and bonds, corporate bonds that are rated A, A2 or better and repurchase agreements, each of
which have securities of the type and quality listed above as collateral.
The Company believes that concentrations of credit risk with respect to trade receivables are limited
because a large number of geographically diverse customers make up the Company’s customer base, thus
diluting the trade credit risk. Accounts receivable from the Company’s top three customers accounted for
approximately 28%, 17% and 15% of the total consolidated accounts receivable balance as of December 27,
2014 and 21%, 18% and 17% of the total consolidated accounts receivable balance as of December 28, 2013.
However, the Company does not believe the receivable balance from these customers represents a significant
credit risk based on past collection experience, and review of their current credit quality. The Company manages
its exposure to customer credit risk through credit limits, credit lines, ongoing monitoring procedures and credit
approvals. Furthermore, the Company performs in-depth credit evaluations of all new customers and, at intervals,
for existing customers. From this, the Company may require letters of credit, bank or corporate guarantees or
advance payments, if deemed necessary.
The Company’s existing derivative financial instruments are with four large international financial
institutions of investment grade credit rating. The Company does not believe that there is significant risk of
nonperformance by these counterparties because the Company monitors their credit rating on an ongoing basis.
By using derivative instruments, the Company is subject to credit and market risk. If a counterparty fails to fulfill
its performance obligations under a derivative contract, the Company’s credit risk will equal the fair value of the
derivative instrument. Generally, when the fair value of a derivative contract is positive, the counterparty owes
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