Advanced Micro Devices, Inc. Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Financial Instruments (Notes)

Financial Instruments (Notes)

9 Months Ended

Sep. 28, 2013

Fair Value, Assets, Liabilities and Stockholders' Equity Measured on Recurring Basis [Abstract]

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



	September 28, 2013		December 29, 2012
	(In millions)
Fair Value
Classified as cash equivalents:
Money market funds	$	—	$	402
Commercial paper	150		75
Time deposits	25		—
Total classified as cash equivalents	$	175	$	477
Classified as current marketable securities:
Commercial paper	$	452	$	324
Time deposits	50		100
Auction rate securities	15		28
Marketable equity security	—		1
Total classified as current marketable securities	$	517	$	453
Classified as long-term marketable securities:
Money market funds	$	—	$	13
Corporate bonds	121		168
Total classified as long-term marketable securities	$	121	$	181
Classified as other assets:
Money market funds	$	18	$	10
Mutual funds	13		14
Total classified as other assets	$	31	$	24

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

As of September 28, 2013 and December 29, 2012, the Company had approximately $18 million and $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 condensed consolidated balance sheets. The Company is restricted from accessing these deposits.

At September 28, 2013 and December 29, 2012, the Company had approximately $13 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 condensed consolidated balance sheets. The Company is restricted from accessing these investments.

There were no sales of available-for-sale securities during the third quarter of 2013. The Company did not realize any gain or loss on sales of approximately $14 million available-for-sale securities during the nine months ended September 28, 2013. The cost of securities sold is determined based on the specific identification method.

The carrying value of the Company’s remaining auction rate securities (ARS) holdings as of September 28, 2013 was $15 million (par value $22 million). The Company has the intent and believes it has the ability to sell these ARS within the next 12 months.

At September 28, 2013, $121 million 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 September 28, 2013 were within one year, except those for ARS and certain long-term marketable securities. The Company’s ARS have stated maturities ranging from January 2036 to December 2050. The Company’s long-term marketable securities currently consist of corporate bonds. The corporate bonds have maximum stated maturities of two years. 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)
September 28, 2013
Assets
Classified as cash equivalents:
Commercial paper	$	150		$	—	$	150		$	—
Time deposits	25			—		25			—
Total classified as cash equivalents	$	175		$	—	$	175		$	—
Classified as current marketable securities:
Commercial paper	$	452		$	—	$	452		$	—
Time deposits	50			—		50			—
Auction rate securities	15			—		—			15
Total classified as current marketable securities	$	517		$	—	$	502		$	15
Classified as long-term marketable securities:
Corporate bonds	$	121		$	—	$	121		$	—
Total classified as long-term marketable securities	$	121		$	—	$	121		$	—
Classified as other assets:
Money market funds	$	18		$	18	$	—		$	—
Mutual funds	13			13		—			—
Total classified as other assets	$	31		$	31	$	—		$	—
Total assets measured at fair value	$	844		$	31	$	798		$	15

Liabilities
Classified as accrued liabilities – Foreign currency derivative contracts	$	(1	)	$	—	$	(1	)	$	—
Total liabilities measured at fair value	$	(1	)	$	—	$	(1	)	$	—

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 current marketable securities:
Commercial paper	$	324	$	—	$	324	$	—
Time deposits	100		—		100		—
Auction rate securities	28		—		—		28
Marketable equity security	1		1		—		—
Total classified as current 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 the quarters or nine months ended September 28, 2013 and September 29, 2012.

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 September 28, 2013 and December 29, 2012, 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 analyses indicated that the fair value of the ARS remained relatively unchanged as of September 28, 2013 when compared to the fair value as of December 29, 2012. As of September 28, 2013, these Level 3 ARS accounted for approximately one percent of the Company’s total cash, cash equivalents and current 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:



	Quarter Ended				Nine Months Ended
	September 28, 2013		September 29, 2012		September 28, 2013			September 29, 2012
	(In millions)
Beginning balance	$	15	$	32	$	28		$	38
Redemptions	—		—		(13		)	(6		)
Ending balance	$	15	$	32	$	15		$	32

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:



	September 28, 2013		December 29, 2012
Discount rate for periodic interest payments	0.63	%	0.84	%
Discount rate for principal repayments	1.26	%	1.31	%
Liquidity discount	0.90	%	0.90	%
Credit discount	2.00% to 12.00%		2.00% to 12.00%
Estimated period (years)	17 to 20 years		17 to 20 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 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:



	September 28, 2013				December 29, 2012
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
	(In millions)
Long-term debt (excluding capital leases)	$	2,031	$	2,105	$	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.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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