AMD 2008 Annual Report Download - page 84

If these market conditions continue deteriorating further, they may limit our ability to access the capital
markets to meet liquidity needs, on favorable terms or at all, resulting in adverse effects on our financial
condition and results of operations.
Auction Rate Securities. The recent uncertainties in the credit markets have affected all of our auction rate
securities (ARS) and auctions for these securities have failed to settle on their respective settlement dates. While
these securities are currently illiquid, there have been no defaults and all interest has been received when due.
During 2008, we recorded other than temporary impairment charges of $24 million related to our ARS.
In October 2008, UBS AG (UBS) offered to repurchase all of the ARS that we purchased from them prior to
February 13, 2008. As of December 27, 2008, we owned $82 million par value of these securities. We accepted
this offer. From June 30, 2010 through July 2, 2012, we have the right, but not the obligation, to sell, at par, these
ARS to UBS. We initially recorded the put option at its estimated fair value as an asset on our consolidated
balance sheet, with the corresponding gain recorded in earnings as other income. For future periods, the put
option will be marked to market each quarter, with changes in its estimated fair value recorded in earnings as
other income (expense).
In addition, during the fourth quarter of 2008, we reclassified the underlying UBS ARS from the “available-
for-sale” category to the “trading securities” category. Changes to the estimated fair value of these ARS are
recorded in earnings following this reclassification.
As of December 27, 2008, we classified our investments in ARS as current assets because we reasonably
expect that we will be able to sell these securities and have the proceeds available for use in our operations within
the next twelve months. Although there may not be successful future auctions, we believe there will be other
channels through which we may sell the ARS. Specific factors we considered in determining that our ARS
should be classified as short-term marketable securities and included as current assets are as follows:
• We have had redemptions, at par, totaling $26 million throughout the period of failed auctions.
• We are receiving above market rates of interest on the ARS without any default. We believe the issuers
have an incentive to refinance because of higher interest rates compared with market rates demonstrated
by redemptions we received during the year.
• Federal and state governments are stepping in to provide guaranteed new student loans, as well as
purchasing the loans, which we believe will create a secondary market for these securities.
• In informal discussions with staff members at brokerage firms, we have been informed that brokerage
firms continue in their efforts to create a new market for these securities by working with issuers to
refinance the existing instruments into a new form of security or reducing the maturity to attract
investors.
With respect to $82 million of our ARS, prior to June 30, 2010, UBS, at its sole discretion, may sell, or
otherwise dispose of, and/or enter orders in the auctions process with respect to these securities on our behalf so
long as we receive par value for the ARS sold. UBS has also agreed to use their best efforts to facilitate issuer
redemptions and/or to resolve the liquidity concerns of holders of their ARS through restructurings and other
means. However, we are not dependant on liquidating our ARS in the next twelve months in order to meet our
liquidity needs.
At this time, we believe that the current illiquidity of these investments is temporary. We will continue to
monitor and assess the situation by considering factors including the success or continued failure of future
auctions, possible failure of the investments to be redeemed, deterioration of the credit ratings of the investments,
market risk and other factors. Such a reassessment may change the classification of these investments to long-
term, or result in a conclusion that these investments are further impaired. If we determine that the fair value of
our ARS has further declined and such a decline is temporary, we would record a temporary impairment within
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