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. 28, 2013

Investments, Debt and Equity Securities [Abstract]

Available-for-sale securities held by the Company as of December 28, 2013 and December 29, 2012 were as follows:



	December 28, 2013		December 29, 2012
	(In millions)
Fair Value
Classified as cash equivalents:
Money market funds	$	19	$	402
Commercial paper	421		75
Total classified as cash equivalents	$	440	$	477
Classified as current marketable securities:
Commercial paper	$	178	$	324
Time deposits	50		100
Auction rate securities	—		28
Marketable equity securities	—		1
Total classified as current marketable securities	$	228	$	453
Classified as long-term marketable securities:
Money market funds	$	2	$	13
Corporate bonds	88		168
Total classified as long-term marketable securities	$	90	$	181
Classified as other assets:
Money market funds	$	18	$	10
Mutual funds	14		14
Total classified as other assets	$	32	$	24

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

At December 28, 2013 and December 29, 2012, the Company had approximately $18 million and $10 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.

At December 28, 2013 and 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 realized a loss of $2 million on sales of approximately $28 million of auction rate securities (ARS) holdings during 2013 that were classified as available-for-sale securities. The cost of securities sold is determined based on the specific identification method. There were no other sales of available-for-sale securities during 2013. The Company no longer holds any ARS investments as of December 28, 2013.

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

At December 28, 2013 and December 29, 2012, $90 million and $181 million, respectively, of investments were classified as long-term marketable securities. The Company’s intent is to hold such investments for greater than one year, and the Company does not intend to use them in current operations. As a result of narrowing investment yields, the Company will continue to re-evaluate its investment strategy related to amounts designated as long-term as such investments mature.

All contractual maturities of the Company’s available-for-sale marketable debt securities as of December 28, 2013 were within one year, except those for certain long-term marketable securities. The Company’s long-term marketable securities currently consist of 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 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 28, 2013
Assets
Classified as cash equivalents:
Money market funds	$	19		$	19	$	—		$	—
Commercial paper	421			—		421			—
Total classified as cash equivalents	$	440		$	19	$	421		$	—
Classified as marketable securities:
Commercial paper	$	178		$	—	$	178		$	—
Time deposits	50			—		50			—
Total classified as marketable securities	$	228		$	—	$	228		$	—
Classified as long-term marketable securities:
Money market funds	$	2		$	2	$	—		$	—
Corporate bonds	88			—		88			—
Total classified as long-term marketable securities	$	90		$	2	$	88		$	—
Classified as other assets:
Money market funds	$	18		$	18	$	—		$	—
Mutual funds	14			14		—			—
Total classified as other assets	$	32		$	32	$	—		$	—
Total assets measured at fair value	$	790		$	53	$	737		$	—
Liabilities
Classified as accrued liabilities: Foreign currency derivative contracts	$	(4	)	$	—	$	(4	)	$	—
Total liabilities measured at fair value	$	(4	)	$	—	$	(4	)	$	—
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		—			—



	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 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

With the exception of its long-term debt, the Company carries its financial instruments at fair value. Investments in money market funds, commercial paper, time deposits, marketable equity securities, corporate bonds, mutual funds 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 that 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, that 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 during 2013 and 2012.

ARS investments as of December 29, 2012 were classified within Level 3 because they were valued using a discounted cash flow model. Some of the inputs to this model are unobservable in the market and are significant.

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



	December 28, 2013			December 29, 2012
	(In millions)
Beginning balance	$	28		$	38
Redemptions	(26		)	(6		)
Losses included in net loss	(2		)	—
Change in fair value included in net loss	—			(4		)
Ending balance	$	—		$	28

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
Discount rate for periodic interest payments	0.84	%
Discount rate for principal repayments	1.31	%
Liquidity discount	0.90	%
Credit discount	2.00% to 12.00%
Estimated period	17 to 20 years

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 on a quarterly basis for disclosure purposes. The carrying amounts and estimated fair values of financial instruments not recorded at fair value are as follows:



	December 28, 2013				December 29, 2012
	Carrying amount		Estimated Fair Value		Carrying amount		Estimated Fair Value
	(In millions)
Short-term debt (excluding capital leases)	$	55	$	55	$	—	$	—
Long-term debt (excluding capital leases)	$	1,986	$	2,132	$	2,019	$	1,837

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.