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FINANCIAL CONDITION
Liquidity
As of December 29, 2012, our cash, cash equivalents and marketable securities of $1.0 billion decreased by
$763 million compared to cash, cash equivalents and marketable securities of $1.8 billion as of December 31,
2011. During 2012, we made net cash payments of $281 million to acquire SeaMicro, $250 million related to the
limited waiver of exclusively from GF, $105 million related to restructuring activities and $80 million related to
GF’s waiver of a portion of our wafer purchase commitments for the fourth quarter of 2012. The percentage of
our cash, cash equivalents and marketable securities held in the United States was 94% as of December 29, 2012.
During 2012, we invested an additional $32 million in long-term marketable securities, which we intend to
hold for more than one year and do not intend to use in current operations. Our long-term marketable securities
are invested in corporate bonds and money market funds that have maximum stated maturities of 2 years. As of
December 29, 2012, the fair value of these long-term marketable securities was $181 million. All of the long-
term marketable securities were held in the United States.
As of December 29, 2012, our debt and capital lease obligations were $2.04 billion, which reflects a debt
discount adjustment of $60 million on our 6.00% Notes and 8.125% Senior Notes due 2017 (8.125% Notes). In
the third quarter of 2012, we repaid in full the outstanding principal and accrued interest on our 5.75%
Convertible Senior Notes due 2012 (5.75% Notes), of approximately $499 million, and issued $500 million
aggregate principal amount of 7.50% Senior Notes due 2022 (7.50% Notes).
For 2012, our net cash used in operating activities was $338 million and our non-GAAP adjusted free cash
flow was negative $471 million. Adjusted free cash flow is a non-GAAP measure, which we calculated in 2012
by taking GAAP net cash used in operating activities of $338 million for 2012 and subtracting capital
expenditures, which were $133 million for 2012. For 2011, net cash provided by operating activities was $382
million and our non-GAAP adjusted free cash flow was $528 million. For 2011, we calculated non-GAAP
adjusted free cash flow by taking GAAP net cash provided by operating activities of $382 million for 2011 and
adding $396 million, which represented payments made by certain of our distributor customers during 2011 to
IBM Credit LLC and certain of its subsidiaries (collectively, the IBM Parties) pursuant to our former accounts
receivable financing arrangement, which we describe in further detail below. Then we adjusted the resulting
amount of $778 million by subtracting capital expenditures, which were $250 million for 2011. Compared to our
non-GAAP adjusted free cash flow of $528 million for 2011, the decrease in our non-GAAP adjusted free cash
flow for 2012 was primarily due to the fact that we did not generate cash flow from operating activities in 2012;
instead we used $338 million of net cash for operating activities. The decrease was partially offset by a $117
million decrease in capital expenditures.
We had various supplier agreements with the IBM Parties pursuant to which we sold invoices of selected
distributor customers. Under this financing arrangement, we did not recognize revenue until our distributors sold
our products to their customers. Under GAAP, we classified funds received from the IBM Parties as debt on the
balance sheet. Moreover, for cash flow purposes, we classified these funds as cash flows from financing
activities. When a distributor paid the applicable IBM Party, we reduced the distributor’s accounts receivable and
the corresponding debt resulted in a non-cash accounting entry. Because we did not receive the cash from the
distributor to reduce the accounts receivable, the distributor’s payment was not reflected in our cash flows from
operating activities.
Generally, under GAAP, the reduction in accounts receivable is assumed to be a source of operating cash
flow. Therefore, we believe that treating the payments from our distributor customers to the IBM Parties as if we
actually received the cash from the distributor and then used that cash to pay down the debt to the IBM Parties
was more reflective of the economic substance of the financing arrangement with the IBM Parties. We
terminated our financing arrangement with the IBM Parties in February 2011. Commencing in the third quarter
of 2011, we no longer make the adjustment for distributors’ payments to the IBM Parties to our GAAP net cash
provided by (used in) operating activities when calculating our non-GAAP adjusted free cash flow.
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