Advanced Micro Devices, Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Financial Instruments

Financial Instruments

12 Months Ended

Dec. 29, 2012

Investments, Debt and Equity Securities [Abstract]

Available-for-sale securities held by the Company as of December 29, 2012 and December 31, 2011 were as follows:



	December 29, 2012		December 31, 2011
	(In millions)
Fair Value
Classified as cash equivalents:
Money market funds	$	402	$	738
Commercial paper	75		1
Total classified as cash equivalents	$	477	$	739
Classified as current marketable securities:
Commercial paper	$	324	$	698
Time deposits	100		160
Auction rate securities	28		38
Marketable equity securities	1		—
Total classified as current marketable securities	$	453	$	896
Classified as long-term marketable securities:
Money market funds	$	13	$	9
Corporate bonds	168		140
Total classified as long-term marketable securities	$	181	$	149
Classified as other assets:
Money market funds	$	10	$	10
Mutual funds	14		—
Total classified as other assets	$	24	$	10

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

At December 29, 2012 and December 31, 2011, the Company had approximately $10 million 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.

At December 29, 2012, the Company had approximately $14 million of available-for-sale investments in mutual funds held in a Rabbi trust established for the Company's deferred compensation plan, which were included in other assets on the Company's consolidated balance sheets. The Company is restricted from accessing these investments.

The Company did not realize any gain or loss on sales of available-for-sale securities of approximately $6 million during 2012. The Company recorded an other-than-temporary impairment charge of approximately $4 million on one its ARS holdings during 2012.

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 29, 2012 was $28 million (par value $37 million). The Company has the intent and believes it has the ability to sell these securities within the next 12 months.

During 2012 and 2011, the Company invested $32 million and $149 million, respectively, in long-term marketable securities, which the Company intends to hold greater than one year, and does not intend to use in current operations.

All contractual maturities of the Company’s available-for-sale marketable debt securities at December 29, 2012 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 29, 2012
Assets
Classified as cash equivalents:
Money market funds	$	402	$	402	$	—	$	—
Commercial paper	75		—		75		—
Total classified as cash equivalents	$	477	$	402	$	75	$	—
Classified as marketable securities:
Commercial paper	$	324	$	—	$	324	$	—
Time deposits	100		—		100		—
Auction rate securities	28		—		—		28
Marketable equity security	1		1		—		—
Total classified as marketable securities	$	453	$	1	$	424	$	28
Classified as long-term marketable securities:
Money market funds	$	13	$	13	$	—	$	—
Corporate bonds	168		—		168		—
Total classified as long-term marketable securities	$	181	$	13	$	168	$	—
Classified as other assets:
Money market funds	$	10	$	10	$	—	$	—
Mutual funds	14		14		—		—
Total classified as other assets	$	24	$	24	$	—	$	—
Total assets measured at fair value	$	1,135	$	440	$	667	$	28
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 marketable securities:
Commercial paper	$	698	$	—	$	698	$	—
Time deposits	160		—		160		—
Auction rate securities	38		—		—		38
Total classified as marketable securities	$	896	$	—	$	858	$	38
Classified as long-term marketable securities:
Money market funds	$	9	$	9	$	—	$	—
Corporate bonds	140		—		140		—



	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 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	)	$	—

With the exception of its long-term debt, 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 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 inputs 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 29, 2012 and December 31, 2011, 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. As of December 29, 2012, these Level 3 ARS accounted for approximately 3 percent of the Company’s total cash, cash equivalents and marketable securities.

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



	December 29, 2012			December 31, 2011
	(In millions)
Beginning balance	$	38		$	57
Redemption at par	(6		)	(21		)
Gain (loss) included in net income (loss)	—			2
Change in fair value included in net income (loss)	(4		)	—
Change in fair value included in other comprehensive income (loss)	—			—
Ending balance	$	28		$	38

The Company’s significant inputs and assumptions used in the discounted cash flow model to determine the fair value of its ARS are listed below:



	December 29, 2012		December 31, 2011
Discount rate for periodic interest payments	0.84	%	1.13	%
Discount rate for principal repayments	1.31	%	1.93	%
Liquidity discount	0.90	%	0.90	%
Credit discount	2.00% to 12.00%		2.00%
Estimated period	17 to 20 years		17 years

Significant increases (decreases) in the significant inputs and assumptions above in isolation would result in a significantly lower (higher) fair value measurement. There is no interrelationship between changes in the inputs.

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 29, 2012				December 31, 2011
	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)	$	2,019	$	1,837	$	1,505	$	1,619

The fair value of the Company’s short-term and long-term debt, Level 2 financial instruments, was 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 fair value of the Company’s accounts receivable, accounts payable and other short-term obligations approximate their carrying value based on existing payment terms.