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. 26, 2015

Investments, Debt and Equity Securities [Abstract]

Cash, Cash Equivalents and Marketable Securities

Cash and financial instruments measured and recorded at fair value on a recurring basis as of December 26, 2015 and December 27, 2014 are summarized below:



	Total Fair Value		Cash and Cash Equivalents
	(In millions)
December 26, 2015
Cash	$	409	$	409
Level 2^{(2) (3)}
Commercial paper	376		376
Total level 2	376		376
Total	$	785	$	785



		Total Fair Value		Cash and Cash Equivalents		Short-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


⁽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 2015 and 2014.


⁽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.

Available-for-sale securities held by the Company as of December 26, 2015 consisted of commercial paper and as of December 27, 2014 also consisted of money market funds and corporate bonds. The amortized cost of available-for-sale securities approximates the fair value for all periods presented.

In addition to those amounts presented above, as of December 26, 2015 and December 27, 2014, the Company had approximately $1 million and $10 million, respectively, 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 26, 2015 and December 27, 2014, the Company had approximately $15 million and $16 million, respectively, of available-for-sale investments in mutual funds held in a Rabbi trust established for the Company’s deferred compensation plan, which were also 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.

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 26, 2015				December 27, 2014
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
	(In millions)
Short-term debt (excluding capital leases)	$	230	$	230	$	172	$	173
Long-term debt (excluding capital leases)	$	2,025	$	1,372	$	2,025	$	1,858

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:



	2015			2014
	(In millions)
Foreign Currency Forward Contracts - gains (losses)
Contracts designated as cash flow hedging instruments
Other comprehensive income (loss)	$	(1	)	$	(3	)
Cost of sales	(4		)	—
Research and development	(10		)	(3		)
Marketing, general and administrative	(7		)	(3		)
Contracts not designated as hedging instruments
Other income (expense), net	$	(3	)	$	(3	)

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 Other current assets should the foreign currency forward contracts be in a gain position or included in Other current liabilities should these contracts be in a loss position. As of December 26, 2015, the Company’s outstanding contracts were in a net loss position of $6 million. These amounts were recorded in the Company’s consolidated balance sheets as follows:



	December 26, 2015			December 27, 2014
	(In millions)
Foreign Currency Forward Contracts - gains (losses)
Contracts designated as cash flow hedging instruments	$	(6	)	$	(6	)
Contracts not designated as hedging instruments	$	—		$	(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 26, 2015 and December 27, 2014, the notional values of the Company’s outstanding foreign currency forward contracts were $156 million and $298 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.

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 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 26, 2015		December 27, 2014
	(In millions)
Interest Rate Swap Contracts - gains (losses)
Contracts designated as fair value hedging instruments	$	7	$	3