Annual report pursuant to Section 13 and 15(d)

Financial Instruments

v2.4.0.6
Financial Instruments
 12 Months Ended
Dec. 31, 2011
Financial Instruments [Abstract]  
Financial Instruments

NOTE 7: Financial Instruments

Available-for-sale securities held by the Company as of December 31, 2011 and December 25, 2010 were as follows:

 

     

Fair

Value

  
     (In millions)  

December 31, 2011

   

Classified as cash equivalents:

   

Money market funds

    $ 738   

Commercial paper

      1   

Total classified as cash equivalents

    $ 739   

Classified as current marketable securities:

   

Commercial paper

    $ 698   

Time deposits

      160   

Auction rate securities

      38   

Total classified as current marketable securities

    $ 896   

Classified as long-term marketable securities:

   

Money market funds

    $ 9   

Corporate bonds

      140   

Total classified as long-term marketable securities

    $ 149   

Classified as other assets:

   

Money market funds

    $ 10   

Total classified as other assets

    $ 10   

December 25, 2010

   

Classified as cash equivalents:

   

Money market funds

    $ 405   

Commercial paper

      51   

Total classified as cash equivalents

    $ 456   

Classified as marketable securities:

   

Commercial paper

    $ 983   

Time deposits

      135   

Equity securities

      8   

Auction rate securities

      57   

Total classified as marketable securities

    $ 1,183   

Classified as other assets:

   

Money market funds

    $ 29   

Equity securities

      1   

Total classified as other assets

    $ 30   

 

The amortized costs of available-for-sale securities approximates the fair value for the periods presented.

At December 31, 2011 and December 25, 2010, the Company had approximately $10 million and $29 million, respectively, of available-for-sale investments in money market funds used as collateral for leased buildings and letter of credit deposits, which were included in other assets on the Company's consolidated balance sheets. The Company is restricted from accessing these deposits.

The Company realized a gain of approximately $4 million on sales of available-for-sale securities of approximately $29 million during 2011. The gain includes approximately $2 million in other income (expense), net from redemption of auction rate securities (ARS) called at par for $21 million with a net carrying amount of $19 million during 2011. The carrying value of the Company's remaining ARS holdings as of December 31, 2011 was $38 million (par value $45 million). The Company has the intent and believes it has the ability to sell these securities within the next 12 months. During 2011, the Company invested $149 million in long-term marketable securities, which the Company intends to hold greater than one year, and does not intend to use in current operations.

The Company realized net gains of $16 million on sales of available-for-sale securities during 2010 and realized a $1 million gain from ARS tender activities during 2010.

All contractual maturities of the Company's available-for-sale marketable debt securities at December 31, 2011 were within one year except those for ARS and certain long-term marketable securities. The Company's ARS have stated maturities ranging from January 2030 to December 2050. The Company's long-term marketable securities include corporate bonds and money market funds. The corporate bonds have maximum stated maturities of 2 years, and the Company intends to invest the money market funds into corporate bonds with maturities of greater than a year. Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations without call or prepayment penalties.

 

Fair Value Measurements

Financial instruments measured and recorded at fair value on a recurring basis are summarized below:

 

      Fair value measurement at reporting dates using  
      Total    

Quoted Prices

in Active

Markets for

Identical Assets

(Level 1)

     

Significant

Other

Observable

Inputs

(Level 2)

    

Significant

Unobservable

Inputs

(Level 3)

  
     (In millions)  

December 31, 2011

          

Assets

          

Classified as cash equivalents:

          

Money market funds

    $ 738      $ 738       $ —        $ —     

Commercial paper

      1        —           1        —     

Total classified as cash equivalents

    $ 739      $ 738       $ 1      $ —     

Classified as current marketable securities:

          

Commercial paper

    $ 698      $ —         $ 698      $ —     

Time deposits

      160        —           160        —     

Auction rate securities

      38        —           —          38   

Total classified as current marketable securities

    $ 896      $ —         $ 858      $ 38   

Classified as long-term marketable securities:

          

Money market funds

    $ 9      $ 9       $ —        $ —     

Corporate bonds

      140        —           140        —     

Total classified as long-term marketable securities

    $ 149      $ 9       $ 140      $ —     

Classified as other assets:

          

Money market funds

    $ 10      $ 10       $ —        $ —     

Total classified as other assets

    $ 10      $ 10       $ —        $ —     

Total assets measured at fair value

    $ 1,794      $ 757       $ 999      $ 38   

Liabilities

          

Classified as accrued liabilities - Foreign currency derivative contracts

    $ (2 )    $ —         $ (2 )    $ —     

Total liabilities measured at fair value

    $ (2 )    $ —         $ (2 )    $ —     

December 25, 2010

          

Assets

          

Classified as cash equivalents:

          

Money market funds

    $ 405      $ 405       $ —        $ —     

Commercial paper

      51        —           51        —     

Total classified as cash equivalents

    $ 456      $ 405       $ 51      $ —     

Classified as marketable securities:

          

Commercial paper

    $ 983      $ —         $ 983      $ —     

Time deposits

      135        —           135        —     

Equity securities

      8        8         —          —     

Auction rate securities

      57        —           —          57   

Total classified as marketable securities

    $ 1,183      $ 8       $ 1,118      $ 57   

Classified as other assets:

          

Money market funds

    $ 29      $ 29       $ —        $ —     

Equity securities

      1        1         —          —     

Total classified as other assets

    $ 30      $ 30       $ —        $ —     
      Fair value measurement at reporting dates using  
      Total    

Quoted Prices

in Active

Markets for

Identical Assets

(Level 1)

     

Significant

Other

Observable

Inputs

(Level 2)

    

Significant

Unobservable

Inputs

(Level 3)

  
     (In millions)  

Total assets measured at fair value

    $ 1,669      $ 443       $ 1,169      $ 57   

Liabilities

          

Classified as accrued liabilities - Foreign currency derivative contracts

    $ (3 )    $ —         $ (3 )    $ —     

Total liabilities measured at fair value

    $ (3 )    $ —         $ (3 )    $ —     

With the exception of its long-term debt and investment in GF, the Company carries its financial instruments at fair value. Investments in money market mutual funds, commercial paper, time deposits, marketable equity securities, corporate bonds, and foreign currency derivative contracts are primarily classified within Level 1 or Level 2. This is because such financial instruments are valued primarily using quoted market prices or alternative pricing sources and models utilizing market observable inputs, as provided to the Company by its brokers. The Company's Level 1 assets are valued using quoted prices for identical instruments in active markets.

The Company's Level 2 short-term investments are valued using broker reports that utilize quoted market prices for identical or comparable instruments. Brokers gather observable input for all of the Company's fixed income securities from a variety of industry data providers and other third-party sources. The Company's Level 2 long-term investments are valued using broker reports that utilize a third party professional pricing service who gathers information from multiple market sources and integrates relevant credit information, observed market movements and sector news into their pricing evaluation. The Company validates, on a sample basis, the derived prices provided by the brokers by comparing their assessment of the fair values of the Level 2 long term investments against the fair values of the portfolio balances of another third-party professional's pricing services, other than that utilized by the brokers, who use a similar technique as the brokers to derive pricing as described above. The Company's foreign currency 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, such as currency spot and forward rates.

The Company did not have any transfers between Level 1 and Level 2 of the fair value hierarchy.

The ARS investments are classified within Level 3 because they are valued using a discounted cash flow model. Some of the inputs to this model are unobservable in the market and are significant.

The continuing uncertainties in the credit markets have affected all of the Company's ARS investments and auctions for these securities have failed to settle on their respective settlement dates since February 2008. As a result, reliable Level 1 or Level 2 pricing is not available for these ARS. In light of these developments, the Company performs its own discounted cash flow analysis to value these ARS. As of December 31, 2011 and December 25, 2010, the Company's significant inputs and assumptions used in the discounted cash flow model to determine the fair value of its ARS, include interest rate, liquidity and credit discounts and the estimated life of the ARS investments. The outcomes of these activities indicated that the fair value of the ARS remained relatively flat as of December 31, 2011 when compared to the fair value as of December 25, 2010.

The roll-forward of the financial assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) is as follows:

 

     

December 31,

2011

    

December 25,

2010

  
     

Auction

Rate Securities

    

Auction

Rate Securities

    

UBS

Put Option

  
     (In millions)  

Beginning balance

    $ 57      $ 159      $ 2   

Redemption at par

      (21 )      (98 )      —     

Gain (loss) included in net income (loss)

      2        3        (2 ) 

Change in fair value included in other comprehensive income (loss)

      —          (7 )      —     

Ending balance

    $ 38      $ 57      $ —     

 

 

Financial Instruments Not Recorded at Fair Value on a Recurring Basis. Financial instruments that are not recorded at fair value are measured at fair value quarterly for disclosure purposes. The carrying amounts and estimated fair values of financial instruments not recorded at fair value are as follows:

 

     

December 31,

2011

     

December 25,

2010

  
     

Carrying

amount

      Estimated
Fair Value		     

Carrying

amount

     

Estimated

Fair Value

  
     (In millions)  

Short-term debt (excluding capital leases)

    $ 485       $ 490       $ —         $ —     

Long-term debt (excluding capital leases)

    $ 1,505       $ 1,619       $ 2,162       $ 2,326   

The fair value of the Company's short-term debt and long-term debt is estimated based on the quoted market prices for the same or similar issues or on the current rates offered to the Company for debt of the same remaining maturities. The Company believes the fair value of its investment in GF approximates its carrying value (described in Note 3). The fair value of the Company's accounts receivable, accounts payable and other short-term obligations approximate their carrying value based on existing payment terms.