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

Annual report pursuant to Section 13 and 15(d)

Financial Instruments (Notes)

Financial Instruments (Notes)

12 Months Ended

Dec. 27, 2014

Investments, Debt and Equity Securities [Abstract]

Financial Instruments Disclosure [Text Block]

Financial Instruments

Cash, Cash Equivalents and Marketable Securities

Cash and financial instruments measured and recorded at fair value on a recurring basis as of December 27, 2014 and December 28, 2013 are summarized below:



		Total Fair Value		Cash and Cash Equivalents		Short-Term Marketable Securities		Long-Term Marketable Securities
	(In millions)
December 27, 2014
Cash		$	391	$	391	$	—	$	—
Level 1^{(1) (2)}
Money market funds		4		4		—		—
Total level 1		4		4		—		—
Level 2^{(2) (3)}
Commercial paper		618		410		208		—
Corporate bonds		27		—		27		—
Total level 2		645		410		235		—
Total		$	1,040	$	805	$	235	$	—



		Total Fair Value		Cash and Cash Equivalents		Short-Term Marketable Securities		Long-Term Marketable Securities
	(In millions)
December 28, 2013
Cash		$	429	$	429	$	—	$	—
Level 1^{(1) (2)}
Money market funds		21		19		—		2
Total level 1		21		19		—		2
Level 2^{(2) (3)}
Commercial paper		599		421		178		—
Time deposits		50		—		50		—
Corporate bonds		88		—		—		88
Total level 2		737		421		228		88
Total		$	1,187	$	869	$	228	$	90


(1)	The Company’s Level 1 assets are valued using quoted prices for identical instruments in active markets.


(2)	The Company did not have any transfers between Level 1 and Level 2 of the fair value hierarchy during 2014 and 2013.

(3)

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 were 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 validated, 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 service, other than that utilized by the brokers, that use a similar technique as the brokers to derive pricing as described above.

Available-for-sale securities held by the Company as of December 27, 2014 and December 28, 2013 consisted of money market funds, commercial paper, time deposits, corporate bonds and mutual funds. The amortized cost of available-for-sale securities approximates the fair value for all periods presented.

In addition to those amounts presented above, at December 27, 2014 and December 28, 2013, the Company had approximately $10 million and $18 million of available-for-sale investments in money market funds, used as collateral for leased buildings and letters of credit deposits, which were included in Other Assets on the Company’s consolidated balance sheets. These money market funds are classified within Level 1 because they are valued using quoted prices for identical instruments in active markets. Their amortized costs are the same as the fair value for all periods presented. The Company is restricted from accessing these deposits.

Also in addition to those amounts presented above, at December 27, 2014 and December 28, 2013, the Company had approximately $16 million and $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. These mutual funds are classified within Level 1 because they are valued using quoted prices for identical instruments in active markets. Their amortized cost approximates the fair value for all periods presented. The Company is restricted from accessing these investments.

There were no sales of available-for-sale securities during 2014. During 2013 the Company realized a loss of $2 million on sales of available-for-sale securities of $28 million. The cost of securities sold is determined based on the specific identification method.

During 2014, the Company reclassified $45 million of its marketable securities that were previously classified as long-term to short-term as those were intended to be used for operations in the next twelve months.

At December 27, 2014, the Company had no investments that were classified as long-term marketable securities. At December 28, 2013, $90 million of investments were classified as long-term marketable securities.

All contractual maturities of the Company’s available-for-sale marketable debt securities as of December 27, 2014 were within one year. Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations without call or prepayment penalties.

Financial Instruments Not Recorded at Fair Value on a Recurring Basis. The Company carries its financial instruments at fair value with the exception of its debt. 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 27, 2014				December 28, 2013
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
	(In millions)
Short-term debt (excluding capital leases)	$	172	$	173	$	55	$	55
Long-term debt (excluding capital leases)	$	2,025	$	1,858	$	1,986	$	2,132

The Company’s short-term and long-term debt are classified within Level 2. The fair value of the debt 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.

Hedging Transactions and Derivative Financial Instruments

Cash Flow Hedges

The following table shows the amount of gain (loss) included in accumulated other comprehensive income (loss), the amount of gain (loss) reclassified from accumulated other comprehensive income (loss) and included in earnings related to the foreign currency forward contracts designated as cash flow hedges and the amount of gain (loss) included in other income (expense), net, related to contracts not designated as hedging instruments, which was allocated in the consolidated statements of operations:



	2014			2013
	(In millions)
Foreign Currency Forward Contracts
Contracts designated as cash flow hedging instruments
Other comprehensive income (loss)	$	(3	)	$	(3	)
Research and development	(3		)	(2		)
Marketing, general and administrative	(3		)	(1		)
Contracts not designated as hedging instruments
Other income (expense), net	$	(3	)	$	(2	)

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 following table shows the fair value amounts included in prepaid expenses and other current assets should the foreign currency forward contracts be in a gain position or included in accrued and other current 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)
Foreign Currency Forward Contracts
Contracts designated as cash flow hedging instruments	$	(6	)	$	(3	)
Contracts not designated as hedging instruments	$	(1	)	$	(1	)

For the foreign currency contracts designated as cash flow hedges, the ineffective portions of the hedging relationship and the amounts excluded from the assessment of hedge effectiveness were immaterial.

As of December 27, 2014 and December 28, 2013, the notional values of the Company’s outstanding foreign currency forward contracts were $298 million and $124 million, respectively. All the contracts mature within 12 months, and, upon maturity, the amounts recorded in accumulated other comprehensive income (loss) are expected to be reclassified into earnings. The Company hedges its exposure to the variability in future cash flows for forecasted transactions over a maximum of 12 months. As of December 27, 2014, the Company’s outstanding contracts were in a net loss position of $7 million.

Fair Value Hedges

In the third quarter of 2014, the Company entered into fixed-to-floating interest rate swaps on a notional amount of $250 million to hedge a portion of the Company’s 6.75% Senior Notes due 2019 (6.75% Notes). The purpose of these swaps is to manage a portion of the Company's exposure to interest rate risk by converting fixed 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	$	—