AMD 2012 Annual Report Download - page 96

With the exception of its long-term debt, the Company carries its financial instruments at fair value.
Investments in money market, mutual funds, commercial paper, time deposits, marketable equity securities,
corporate bonds 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 who 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,
who 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.
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 December 29, 2012 and
December 31, 2011, 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. As of December 29, 2012, these Level 3 ARS accounted for approximately 3 percent of the
Company’s total cash, cash equivalents and 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:
December 29,
2012
December 31,
2011
(In millions)
Beginning balance ................................... $ 38 $ 57
Redemption at par ................................... (6) (21)
Gain (loss) included in net income (loss) ................. — 2
Change in fair value included in net income (loss) .......... (4) —
Change in fair value included in other comprehensive income
(loss) ............................................ — —
Ending balance ...................................... $ 28 $ 38
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