What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-02-27 compared with 2022-02-03 · 559 added, 378 removed, 760 unchanged (55% of the section changed)

7 unchanged sentences

Cost of sales 11,550 8,505 5,416

Amortization of acquisition-related intangibles 1,448 — —

Total cost of sales 12,998 8,505 5,416

Gross profit 10,603 7,929 4,347

1 unchanged sentence

Marketing, general and administrative 2,336 1,448 995

Amortization of acquisition-related intangibles 2,100 — —

Licensing gain ( 102 ) ( 12 ) —

38 unchanged sentences

Goodwill 24,177 289

Acquisition-related intangibles 24,118 —

equity method 83 69

12 unchanged sentences

Long-term operating lease liabilities 396 348

Deferred tax liabilities 1,934 12

Other long-term liabilities 1,664 321

12 unchanged sentences

Accumulated deficit ( 131 ) ( 1,451 )

Accumulated other comprehensive income (loss) ( 3 ) 17

Accumulated other comprehensive loss ( 41 ) ( 3 )

Total stockholders’ equity 54,750 7,497

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Balance, beginning of period $ 12 $ 12 $ 12

Issuance of common stock upon warrant exercise — — 1

Issuance of common stock to settle convertible debt — — 1

Issuance of common stock as consideration for acquisition 4 — —

Balance, end of period $ 16 $ 12 $ 12

3 unchanged sentences

Stock-based compensation 1,080 379 274

Issuance of common stock upon warrant exercise — — 448

Issuance of common stock to settle convertible debt — 25 217

Issuance of treasury stock to partially settle debt — — 4

Issuance of common stock as consideration for acquisition 45,372 — —

Fair value of replacement share-based awards related to acquisition 275 — —

Issuance of common stock warrants 42 17 5

3 unchanged sentences

Repurchases of common stock ( 3,702 ) ( 1,762 ) —

Reissuance of treasury stock as consideration for acquisition 3,138 — —

Common stock repurchases for tax withholding on employee equity plans ( 405 ) ( 237 ) ( 78 )

Issuance of treasury stock to partially settle debt — — 3

Balance, end of period $ ( 3,099 ) $ ( 2,130 ) $ ( 131 )

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Amortization of operating lease right-of-use assets 88 56 42

Amortization of inventory fair value adjustment 189 — —

Loss on debt redemption, repurchase and conversion — 7 54

1 unchanged sentence

Deferred income taxes ( 1,505 ) 308 ( 1,223 )

Gain on equity investments, net ( 56 ) ( 2 ) ( 1 )

(Gains) losses on equity investments, net 62 ( 56 ) ( 2 )

Other ( 14 ) ( 7 ) 8

12 unchanged sentences

Proceeds from maturity of short-term investments 4,310 1,678 192

Collection of deferred proceeds on sale of receivables — — 25

Cash received from acquisition of Xilinx 2,366 — —

Acquisition of Pensando, net of cash acquired ( 1,544 ) — —

Other ( 16 ) ( 7 ) —

Net cash used in investing activities ( 686 ) ( 952 ) ( 149 )

Net cash provided by (used in) investing activities 1,999 ( 686 ) ( 952 )

Cash flows from financing activities:

Proceeds from short-term borrowings — 200 —

Repayments and extinguishment of debt — ( 200 ) ( 473 )

Proceeds from warrant exercise — — 449

Proceeds from debt, net of issuance costs 991 — 200

Repayment of debt ( 312 ) — ( 200 )

Proceeds from sales of common stock through employee equity plans 167 104 85

4 unchanged sentences

Net cash (used in) provided by financing activities ( 3,264 ) ( 1,895 ) 6

Net increase in cash and cash equivalents, and restricted cash 940 125 387

Cash, cash equivalents and restricted cash at beginning of year 1,595 1,470 1,083

Cash, cash equivalents and restricted cash at end of year $ 2,535 $ 1,595 $ 1,470

Net increase in cash and cash equivalents 2,300 940 125

Cash and cash equivalents at beginning of year 2,535 1,595 1,470

Cash and cash equivalents at end of year $ 4,835 $ 2,535 $ 1,595

Advanced Micro Devices, Inc.

Consolidated Statements of Cash Flows

2022 December 25,

8 unchanged sentences

Issuance of common stock to settle convertible debt $ — $ 25 $ 217

Issuance of common stock and treasury stock for the acquisition of Xilinx $ 48,514 $ — $ —

Fair value of replacement share-based awards related to acquisition of Xilinx $ 275 $ — $ —

Transfer of assets for the acquisition of property and equipment $ 13 $ 37 $ 111

Issuance of treasury stock to partially settle debt $ — $ — $ 7

Non-cash activities for leases:

Operating lease right-of-use assets acquired by assuming related liabilities $ 115 $ 227 $ 45

Reconciliation of cash, cash equivalents and restricted cash

Cash and cash equivalents $ 2,535 $ 1,595 $ 1,466

Restricted cash included in Prepaid expense and other current assets — — 4

Total cash, cash equivalents and restricted cash $ 2,535 $ 1,595 $ 1,470

See accompanying notes to consolidated financial statements.

6 unchanged sentences

and its consolidated subsidiaries.

AMD’s products include x86 microprocessors (CPUs), as standalone devices or as incorporated into accelerated processing units (APUs), chipsets, discrete and integrated graphics processing units (GPUs), data center and professional GPUs, server and embedded processors, semi-custom SoC products, microprocessor and SoC development services and technology for game consoles.

AMD’s products include x86 microprocessors (CPUs) and graphics processing units (GPUs), as standalone devices or as incorporated into accelerated processing units (APUs), chipsets, data center and professional GPUs, embedded processors, semi-custom System-on-Chip (SoC) products, microprocessor and SoC development services and technology, data processing units (DPUs), Field Programmable Gate Arrays (FPGAs), and Adaptive SoC products.

From time to time, the Company may also sell or license portions of its intellectual property (IP) portfolio.

NOTE 2 – Summary of Significant Accounting Policies

On February 14, 2022 (the Xilinx Acquisition Date), the Company completed the acquisition of Xilinx, Inc.

On May 26, 2022 (the Pensando Acquisition Date), the Company completed the acquisition of Pensando Systems, Inc.

See Note 5 - Business Combinations for additional information on these acquisitions.

NOTE 2 – Basis of Presentation and Significant Accounting Policies

Fiscal Year .

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Fiscal 2022, 2021 and 2020 ended on December 31, 2022, December 25, 2021 and December 26, 2020, respectively.

Fiscal 2021, 2020 and 2019 each consisted of 52 weeks.

Fiscal 2022 consisted of 53 weeks, and fiscal 2021 and 2020 each consisted of 52 weeks.

Principles of Consolidation.

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Actual results are likely to differ from those estimates, and such differences may be material to the financial statements.

Areas where management uses subjective judgment include, but are not limited to, revenue allowances, inventory valuation, valuation and assessing potential impairment, if any, of goodwill and deferred income taxes.

Areas where management uses subjective judgment include, but are not limited to, revenue allowances, inventory valuation, valuation of goodwill and long-lived and intangible assets, and income taxes.

Revenue Recognition

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Substantially all the Company’s revenue is derived from product sales, representing a single performance obligation.

Customers are generally required to pay for products and services within the Company’s standard contractual terms, which are typically net 30 to 60 days.

The Company has determined that it does not have significant financing components in its contracts with customers.

Non-custom products

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Custom products

Custom products which are associated with the Company’s Enterprise, Embedded, and Semi-Custom segment (semi-custom products), sold under non-cancellable purchases orders, for which the Company has an enforceable right to payment, and which have no alternative use to the Company at contract inception, are recognized as revenue, over the time of production of the products by the Company.

Custom products which are associated with the Company’s Gaming segment (semi-custom products), sold under non-cancellable purchases orders, for which the Company has an enforceable right to payment, and which have no alternative use to the Company at contract inception, are recognized as revenue, over the time of production of the products by the Company.

The Company utilizes a cost-based input method, calculated as cost incurred plus estimated margin, to determine the amount of revenue to recognize for in-process, but incomplete, customer orders at a reporting date.

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There are no variable consideration estimates associated with either combined development and IP arrangements or for standalone arrangements involving either the sale or licensing of IP.

Customers are generally required to pay for products and services within the Company’s standard contractual terms, which are typically net 30 to 60 days.

The Company has determined that it does not have significant financing components in its contracts with customers.

The Company values inventory at standard cost, adjusted to approximate the lower of actual cost or estimated net realizable value using assumptions about future demand and market conditions.

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If estimates of customer demand diminish further or market conditions become less favorable than those projected by the Company, additional inventory carrying value adjustments may be required .

Business Combinations

The Company is required to use the acquisition method of accounting for business combinations.

The acquisition method of accounting requires the Company to allocate the purchase consideration to the assets acquired and liabilities assumed from the acquiree based on their respective fair values as of the acquisition date.

The excess of the fair value of purchase consideration over the fair value of these assets acquired and liabilities assumed is recorded as goodwill.

When determining the fair values of assets acquired and liabilities assumed, management makes significant estimates and assumptions, especially with respect to intangible assets.

Critical estimates in valuing intangible assets include, but are not limited to, expected future revenue growth rates and margins, future changes in technology, time to recreate customer relationships, useful lives, and discount rates.

Fair value estimates are based on the assumptions that management believes a market participant would use in pricing the asset or liability.

These estimates are inherently uncertain and, therefore, actual results may differ from the estimates made.

As a result, during the measurement period of up to one year from the acquisition date, the Company may record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill.

Upon the conclusion of the measurement period or final determination of the fair value of the purchase price of an acquisition, whichever comes first, any subsequent adjustments are recorded in the Consolidated Statements of Operations.

The Company performs its goodwill impairment analysis as of the first day of the fourth quarter of each year and, if certain events or circumstances indicate that an impairment loss may have been incurred, on a more frequent basis.

The analysis may include both qualitative and quantitative factors to assess the likelihood of an impairment.

The Company first analyzes qualitative factors to determine if it is more likely than not that the fair value of a reporting unit exceeds its carrying amount.

The Company has the option to first perform qualitative testing to determine if it is more likely than not that the fair value of a reporting unit exceeds its carrying amount.

Qualitative factors include industry and market considerations, overall financial performance, share price trends and market capitalization and Company-specific events.

If the Company concludes it is more likely than not that the fair value of a reporting unit exceeds its carrying amount, the Company does not proceed to perform a quantitative impairment test.

If the Company concludes it is more likely than not that the fair value of a reporting unit is less than its carrying value, a quantitative goodwill impairment test will be performed by comparing the fair value of each reporting unit to its carrying value.

A quantitative impairment analysis, if necessary, considers the income approach, which requires estimates of the present value of expected future cash flows to determine a reporting unit’s fair value.

Significant estimates include revenue growth rates and operating margins used to calculate projected future cash flows, discount rates, and future economic and market conditions.

A goodwill impairment charge is recognized for the amount by which a reporting unit’s fair value is less than its carrying value, not to exceed the total amount of goodwill allocated to that reporting unit.

Contingencies

From time to time the Company is a defendant or plaintiff in various legal actions that arise in the normal course of business.

The Company is also subject to income tax, indirect tax or other tax claims by tax agencies in jurisdictions in which it conducts business.

In addition, the Company is a party to environmental matters including local, regional, state and federal government clean-up activities at or near locations where the Company currently or has in the past conducted business.

The Company is required to assess the likelihood of any adverse judgments or outcomes to these matters as well as potential ranges of reasonably possible losses.

A determination of the amount of reserves required for these commitments and contingencies that would be charged to earnings, if any, includes assessing the probability of adverse outcomes and estimating the amount of potential losses.

The required reserves, if any, may change due to new developments in each matter or changes in circumstances such as a change in settlement strategy.

Cash Equivalents and Short-term Investments

If the Company concludes it is more likely than not that the fair value of a reporting unit is less than its carrying value or elects to bypass the qualitative test, a quantitative goodwill impairment test will be performed by comparing the fair value of each reporting unit to its carrying value.

The Company’s quantitative impairment analysis uses a combination of the income approach, which requires estimates of the present value of expected future cash flows of a reporting unit, and the market approach, which uses financial ratios of comparable companies to arrive at an estimated value for the reporting units.

Significant estimates and assumptions used in the income approach include assessments of macroeconomic conditions, growth rates of reporting units in the near- and long-term, expectations of the Company’s ability to execute on roadmaps and projections, and the discount rate applied to cash flows.

Significant estimates used in the market approach include the identification of comparable companies for each reporting unit, and the determination of the appropriate multiples to apply to a reporting unit based on adjustments and consideration of specific attributes of that reporting unit.

If a reporting unit’s fair value is determined to be less than its carrying value, a goodwill impairment charge is recognized for the amount by which the reporting unit’s fair value is less than its carrying value, not to exceed the total amount of goodwill allocated to that reporting unit.

Long-Lived and Intangible Assets

Long-lived and intangible assets to be held and used are reviewed for impairment if indicators of potential impairment exist and at least annually for indefinite-lived intangible assets.

Impairment indicators are reviewed on a quarterly basis.

Assets are grouped and evaluated for impairment at the lowest level of identifiable cash flows.

When indicators of impairment exist and assets are held for use, the Company estimates future undiscounted cash flows attributable to the related asset groups.

In the event such cash flows are not expected to be sufficient to recover the recorded value of the assets, the assets are written down to their estimated fair values based on the expected discounted future cash flows attributable to the asset group or based on appraisals.

Factors affecting impairment of assets held for use include the ability of the specific assets to generate separately identifiable positive cash flows.

When assets are removed from operations and held for sale, the Company estimates impairment losses as the excess of the carrying value of the assets over their fair value.

Market conditions are among the factors affecting impairment of assets held for sale.

Changes in any of these factors could necessitate impairment recognition in future periods for assets held for use or assets held for sale.

Cash Equivalents

Cash equivalents consist of financial instruments that are readily convertible into cash and have original maturities of three months or less at the time of purchase.

Other investments in time deposits due within 12 months and marketable securities are included in short-term investments.

Classification of marketable securities as current is based on the Company’s intent and belief in its ability to sell these securities and use the proceeds from sale in operations within 12 months.

Accounts Receivable

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The Company does not believe the receivable balance from its customers represents a significant credit risk.

Investments in Available-for-sale Debt Securities

Available for Sale Debt Securities.

The Company classifies its investments in debt securities at the date of acquisition as available-for-sale.

2 unchanged sentences

Unrealized gains and losses not attributable to credit losses are included, net of tax, in accumulated other comprehensive income (loss), a component of stockholders’ equity.

The cost of securities sold is determined based on the specific identification method.

Classification of available-for-sale debt securities as current or non-current is based on the Company’s intent and belief in its ability to sell these securities and use the proceeds from sale in operations within 12 months.

Non-marketable Securities.

The Company’s investments in non-marketable securities of privately-held companies are accounted for under the measurement alternative, defined as cost, less impairments, adjusted for subsequent observable price changes and are periodically assessed for impairment when events or circumstances indicate that a decline in value may have occurred.

The Company's periodic assessment of impairment is made by considering available evidence, including the investee’s general market and industry conditions and product development status.

The Company also assesses the investee’s ability to meet business milestones, its financial condition, and near-term prospects, including the rate at which the investee is using its cash, the investee’s need for possible additional funding at a lower valuation and any bona fide offer to purchase the investee.

Fair Value Measurements

The Company’s financial instruments are measured and recorded at fair value on a recurring basis, except for non-marketable equity investments in privately-held companies, which are generally accounted for under the measurement alternative.

Fair Value Hierarchy

The fair value framework requires the categorization of assets and liabilities into three levels based upon the assumptions (inputs) used to price the assets or liabilities.

The guidance for fair value measurements requires that assets and liabilities carried at fair value be classified and disclosed in one of the following categories:

Level 1 — Quoted (unadjusted) prices in active markets for identical assets or liabilities.

Level 2 — Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets or liabilities in active markets;

quoted prices for identical or similar assets or liabilities in markets that are not active;

or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability.

Level 3 — Unobservable inputs to the valuation methodology that are supported by little or no market activity and that are significant to the measurement of the fair value of the assets or liabilities.

Level 3 assets and liabilities include those whose fair value measurements are determined using pricing models, discounted cash flow methodologies or similar valuation techniques, as well as significant management judgment or estimation.

Property and Equipment

Property and equipment are stated at cost.

Depreciation and amortization are provided on a straight-line basis over the estimated useful lives of the assets.

Estimated useful lives of equipment is two to six years , and leasehold improvements are measured by the shorter of the remaining terms of the leases or the estimated useful economic lives of the improvements.

Depreciation and amortization are provided on a straight-line basis over the estimated useful lives of one to 15 years for equipment, 34 to 44 years for buildings, and leasehold improvements are measured by the shorter of the remaining terms of the leases or the estimated useful economic lives of the improvements.

Operating and finance leases are recorded as right-of-use (ROU) assets and lease liabilities on the Company’s balance sheet.

9 unchanged sentences

Foreign Currency Translation/Transactions

The functional currency of all of the Company’s foreign subsidiaries is the U.S.

The functional currency of the majority of the Company’s foreign subsidiaries is the U.S.

For certain foreign subsidiaries where the local currency is the functional currency, assets and liabilities are translated from foreign currencies into U.S.

Gains or losses arising from translation of foreign currency denominated assets and liabilities (i.e., cumulative translation adjustment) are included as a component of accumulated other comprehensive income (loss) in stockholders' equity.

Assets and liabilities denominated in non-U.S.

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Forfeiture rates are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

Contingencies

From time to time the Company is a defendant or plaintiff in various legal actions that arise in the normal course of business.

The Company is also subject to income tax, indirect tax or other tax claims by tax agencies in jurisdictions in which it conducts business.

The Company is required to assess the likelihood of any adverse judgments or outcomes to these matters as well as potential ranges of reasonably possible losses.

The required reserves, if any, may change due to new developments in each matter or changes in circumstances such as a change in settlement strategy.

The Company computes the provision for income taxes using the liability method and recognizes deferred tax assets and liabilities for temporary differences between financial statement and income tax bases of assets and liabilities, as well as for operating loss and tax credit carryforwards.

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In addition, the Company recognizes tax benefits from uncertain tax positions only if it is more likely than not that they will be sustained, based on the technical merits of the positions, on examination by the jurisdictional tax authority.

The Company recognizes any accrued interest and penalties to unrecognized tax benefits as interest expense and income tax expense, respectively.

Recently Adopted Accounting Standards

Income Taxes.

In December 2019, the Financial Accounting Standards Board (FASB) issued ASU 2019-12, I ncome Taxes (Topic 740):

Simplifying the Accounting for Income Taxes , which simplifies various aspects of accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and clarifies and amends existing guidance to improve consistent application.

The guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020.

The Company adopted this standard in the first quarter of 2021 using the modified retrospective adoption method through a cumulative-effect adjustment to accumulated deficit as of the beginning of the period.

The adoption of this new standard resulted in the recognition of an $8.4 million deferred tax liability associated with book-tax differences in foreign equity method investments.

Recently Issued Accounting Standards

Although there are several other new accounting pronouncements issued by the FASB, the Company does not believe any of these accounting pronouncements had or will have a material impact on its consolidated financial statements.

Global Intangible Low-Taxed Income (GILTI).

In 2022, the Company elected to change its method of accounting for the United States GILTI tax from recording the tax impact in the period it is incurred to recognizing deferred taxes for temporary tax basis differences expected to reverse as GILTI tax in future years.

The change is considered preferable based on the Company’s facts and circumstances as it provides better and more timely information of expected future income tax liabilities arising from temporary tax differences primarily associated with the Xilinx acquisition.

As a result of the acquisition, the Company recorded $27.3 billion of identified intangible assets (refer to Note 5 - Business Combinations), of which $16.9 billion are related to foreign operations which will be amortized to income from operations over the assets’ estimated useful lives, but for which the Company will not receive a tax deduction under GILTI.

This accounting policy change resulted in the recording of $857 million of deferred tax liabilities in connection with the Xilinx acquisition as disclosed in Note 14 - Income Taxes.

In addition, for the year ended December 31, 2022, it resulted in a decrease in the income tax provision with a corresponding increase to net income of $296 million and an increase in basic and diluted earnings per share of $0.19, as compared to the computation under the previous accounting policy.

This accounting policy change had no material impact on the Company’s historical consolidated financial statements.

Accrued Interest on Unrecognized Tax Benefits.

Prior to 2022, the Company reported any interest expense related to unrecognized tax benefits as a component of Interest expense and reported any related penalties as a component of Income tax provision (benefit).

In 2022, the Company elected to change its method of accounting for tax interest expense from Interest expense to the Income tax provision (benefit) line in the Consolidated Statements of Operations.

This change in classification is considered preferable as it i) better aligns classification of tax interest with the substance of the underlying tax positions, which are managed inclusive of interest, ii) allows for greater visibility to the cost of the Company’s debt and other financing activities, and iii) better aligns with common industry practice and provides increased comparability.

This accounting policy change resulted in a decrease in Interest expense and corresponding increase to i) Income before income taxes and equity income and ii) Income tax provision (benefit) as reported on the Consolidated Statements of Operations of $11 million in 2022.

This accounting policy change had an immaterial effect on the Consolidated Statements of Operations in 2021 and 2020, and the Company did not revise its previously issued consolidated financial statements for these fiscal years.

This accounting policy change had no impact to net income or basic and diluted earnings per share, or to financial statements besides the Consolidated Statements of Operations, for any period, as compared to the computation under the previous accounting policy.

NOTE 3 – Supplemental Financial Statement Information

Short-term Investments

2021 December 26,

(In millions)

Commercial paper $ 880 $ 295

Time deposits 193 400

Total short-term investments $ 1,073 $ 695

Accounts Receivable, net

As of December 25, 2021 and December 26, 2020, Accounts receivable, net included unbilled accounts receivable of $ 329 million and $ 123 million, respectively.

As of December 31, 2022 and December 25, 2021, Accounts receivable, net included unbilled accounts receivable of $ 1.1 billion and $ 329 million, respectively.

Unbilled accounts receivables primarily represent work completed for development services and on custom products for which revenue has been recognized but not yet invoiced.

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(In millions)

Leasehold improvements $ 206 $ 208

Land $ 120 $ —

Building and leasehold improvements 594 206

Equipment 2,163 1,534

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Accrued compensation and benefits 701 705

Customer program liabilities 859 314

Other accrued and current liabilities 641 472

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Revenue recognized over time associated with custom products and development services accounted for approximately 24 %, 23 % and 18 % of the Company’s revenue in 2022, 2021 and 2020, respectively.

NOTE 4 – Segment Reporting

Management, including the Chief Operating Decision Maker (CODM), who is the Company’s Chief Executive Officer, reviews and assesses operating performance using segment net revenue and operating income (loss).

These performance measures include the allocation of expenses to the reportable segments based on management’s judgment.

In the second quarter of fiscal year 2022, the Company updated its segment reporting structure to align financial reporting with the manner in which the Company manages its business in strategic end markets.

The Company’s disclosed measure of segment operating results has been updated consistent with the revised manner in which the Company’s CODM assesses the company’s financial performance and allocates resources.

All prior-period segment data have been retrospectively adjusted.

The Company’s four reportable segments are:

• the Data Center segment, which primarily includes server CPUs and GPUs, DPUs, FPGAs and Adaptive SoC products for data centers;

• the Client segment, which primarily includes CPUs, accelerated processing units that integrate microprocessors and GPUs (APUs), and chipsets for desktop and notebook personal computers;

• the Gaming segment, which primarily includes discrete GPUs, semi-custom SoC products and development services;

• the Embedded segment, which primarily includes embedded CPUs and GPUs, FPGAs, and Adaptive SoC products.

From time to time, the Company may also sell or license portions of its IP portfolio.

In addition to these reportable segments, the Company has an All Other category, which is not a reportable segment.

This category primarily includes certain expenses and credits that are not allocated to any of the reportable segments because the CODM does not consider these expenses and credits in evaluating the performance of the reportable segments.

This category primarily includes amortization of acquisition-related intangibles, employee stock-based compensation expense, acquisition-related costs and licensing gain.

The following table provides a summary of net revenue and operating income (loss) by segment for 2022, 2021 and 2020.

2022 December 25,

2021 December 26,

(In millions)

Data Center $ 6,043 $ 3,694 $ 1,685

Client 6,201 6,887 5,189

Gaming 6,805 5,607 2,746

Embedded 4,552 246 143

Total net revenue $ 23,601 $ 16,434 $ 9,763

Operating income (loss):

Data Center $ 1,848 $ 991 $ 198

Client 1,190 2,088 1,608

Gaming 953 934 ( 138 )

Embedded 2,252 44 ( 11 )

All Other ( 4,979 ) ( 409 ) ( 288 )

Total operating income (loss) $ 1,264 $ 3,648 $ 1,369

The following table provides items included in All Other category:

2022 December 25,

2021 December 26,

(In millions)

Operating loss:

Stock-based compensation expense $ 1,081 $ 379 $ 274

Acquisition-related costs 452 42 14

Amortization of acquisition-related intangibles 3,548 — —

Licensing gain ( 102 ) ( 12 ) —

Total operating loss $ 4,979 $ 409 $ 288

The Company does not discretely allocate assets to its operating segments, nor does management evaluate operating segments using discrete asset information.

The following table summarizes sales to external customers by geographic regions based on billing location of the customer:

2022 December 25,

2021 December 26,

(In millions)

United States $ 8,049 $ 4,656 $ 2,294

China (including Hong Kong) 5,207 4,096 2,329

Japan 4,177 2,381 1,033

Europe 1,773 1,249 1,108

Taiwan 2,369 2,091 1,187

Singapore 1,380 1,389 1,096

Other countries 646 572 716

Total sales to external customers $ 23,601 $ 16,434 $ 9,763

The following table summarizes sales to major customers that accounted for at least 10% of the Company’s consolidated net revenue for the respective years:

2022 December 25,

2021 December 26,

Customer A 16 % 14 % *

Customer B * 11 % *

Less than 10%

Sales to customers A and B consisted of sales of products from the Gaming and Client segments, respectively.

The following table summarizes Property and equipment, net by geographic areas:

2022 December 25,

(In millions)

United States $ 1,102 $ 486

Canada 80 105

Singapore 132 35

Other countries 42 30

Total property and equipment, net $ 1,513 $ 702

NOTE 5 – Business Combinations

Pensando Acquisition

On May 26, 2022, the Company completed the acquisition of all issued and outstanding shares of Pensando, a leader in next-generation distributed computing, for a transaction valued at approximately $ 1.9 billion.

The recorded purchase consideration of $ 1.7 billion is net of deferred cash compensation requiring future services and other customary closing adjustments.

The acquisition of Pensando and its leading distributed services platform expands the Company’s ability to offer leadership solutions for cloud, enterprise, and edge customers.

The purchase consideration was preliminarily allocated as follows:

(In millions)

Cash and cash equivalents $ 111

Accounts receivable 31

Prepaid expenses and other current assets 43

Property and equipment 11

Deferred tax assets 22

Acquisition-related intangibles 349

Total Assets 633

Accounts payable 15

Accrued and other liabilities 61

Total Liabilities 76

Fair value of net assets acquired 557

Goodwill 1,098

Total purchase consideration $ 1,655

The Company allocated the purchase price to tangible and identified intangible assets acquired and liabilities assumed based on the preliminary estimates of their fair values, which were determined using generally accepted valuation techniques based on estimates and assumptions made by management.

The fair values are subject to adjustment for up to one year after the close of the transaction as additional information is obtained.

Any adjustments to the preliminary purchase price allocation identified during the measurement period are recognized in the period in which the adjustments are determined.

Adjustments to the preliminary purchase price allocation since the completion of the acquisition resulted in an immaterial decrease to goodwill.

Goodwill arising from the Pensando acquisition was assigned to the Company’s Data Center segment.

Goodwill was primarily attributed to expanded market opportunities expected to be achieved from the integration of Pensando.

Goodwill is not expected to be deductible for income tax purposes.

Following are details of the purchase consideration allocated to acquired intangible assets:

Fair Value Weighted-average estimated useful life

(In millions) (In years)

Developed technology (1)

Customer relationships (2)

Customer backlog (3)

Product trademarks (4)

Identified intangible assets subject to amortization 129

In-process research and development (IPR&D) not subject to amortization (5)

Total identified intangible assets acquired $ 349

The fair value of developed technology was determined using the income approach, specifically the multi-period excess earnings method.

Customer relationships represent the fair value of existing contractual relationships and customer loyalty determined based on existing relationships using the income approach, specifically the with and without method.

Customer backlog represents the fair value of non-cancellable customer contract orders using the income approach, specifically the multi-period excess earnings method.

Product trademarks primarily relate to the Pensando product-related trademarks, and the fair value was determined by applying the income approach, specifically the relief from royalty method.

The fair value of IPR&D was determined using the income approach, specifically the multi-period excess earnings method.

The fair value of the identified intangible assets subject to amortization are amortized over the assets’ estimated useful lives based on the pattern in which the economic benefits are expected to be received to cost of sales and operating expenses.

IPR&D consists of projects that have not yet reached technological feasibility as of the acquisition date.

Accordingly, the Company recorded an indefinite-lived intangible asset of $ 220 million for the fair value of these projects, which will initially not be amortized.

Instead, these projects will be tested for impairment annually and whenever events or changes in circumstances indicate that these projects may be impaired.

Once the project reaches technological feasibility, the Company will begin to amortize the intangible assets over their estimated useful lives.

From the Pensando Acquisition Date to December 31, 2022, the Consolidated Statements of Operations include immaterial revenue and operating results attributable to Pensando, which are reported under the Data Center segment.

In 2022, Pensando acquisition-related costs of $ 102 million was recorded under Cost of sales, Research and development, and Marketing, general and administrative expenses on the Company’s Consolidated Statements of Operations.

Acquisition-related costs are primarily comprised of direct transaction costs, fair value adjustments for acquired inventory and certain compensation charges.

The Company may incur additional acquisition-related costs in the future related to the acquisition.

Xilinx Acquisition

On February 14, 2022, the Company completed the acquisition of all issued and outstanding shares of Xilinx, a leading provider of adaptive computing solutions, for a total purchase consideration of $ 48.8 billion ($ 46.4 billion, net of cash acquired of $ 2.4 billion).

The acquisition of Xilinx expands the Company’s product portfolio to include adaptable hardware platforms that enable hardware acceleration and rapid innovation across a variety of technologies.

With the acquisition of Xilinx, the Company now offers FPGAs, Adaptive SoC products and ACAP products.

The purchase consideration consisted of $ 48.5 billion of fair value of 429 million shares of the Company’s common stock issued to Xilinx stockholders and $ 275 million of fair value of replacement equity awards attributable to services rendered pre-combination.

As the transaction closed prior to the opening of markets on the Xilinx Acquisition Date, the fair value of the common stock issued to Xilinx stockholders was based on the closing price of the Company’s common stock on February 11, 2022 of $ 113.18 per share.

The financial results of Xilinx are included in the Company’s consolidated financial statements from the Xilinx Acquisition Date to December 31, 2022 and are reported under the Embedded and Data Center segments.

The purchase consideration was allocated as follows:

(In millions)

Cash and cash equivalents $ 2,366

Short-term investments 1,582

Accounts receivable 299

Inventories 539

Prepaid expenses and other current assets 61

Property and equipment 692

Operating lease right-of-use assets 61

Acquisition-related intangibles 27,308

Deferred tax assets 15

Other non-current assets 418

Total Assets 33,341

Accounts payable 116

Accrued liabilities 634

Other current liabilities 185

Long-term debt 1,474

Long-term operating lease liabilities 45

Deferred tax liabilities 4,346

Other long-term liabilities 532

Total Liabilities 7,332

Fair value of net assets acquired 26,009

Goodwill 22,784

Total purchase consideration $ 48,793

The Company allocated the purchase price to tangible and identified intangible assets acquired and liabilities assumed based on the estimates of their fair values, which were determined using generally accepted valuation techniques based on estimates and assumptions made by management.

Goodwill arising from the acquisition of Xilinx was assigned to the Embedded and Data Center segments.

Goodwill was primarily attributed to increased synergies expected to be achieved from the integration of Xilinx.

Goodwill is not expected to be deductible for income tax purposes.

Following are details of the purchase consideration allocated to acquired intangible assets:

Fair Value Weighted-average estimated useful life

(In millions) (In years)

Developed technology (1)

$ 12,295 16 years

Customer relationships (2)

12,290 14 years

Customer backlog (3)

Corporate trade name (4)

Product trademarks (4)

Identified intangible assets subject to amortization 26,338

In-process research and development (IPR&D) not subject to amortization (5)

Total identified intangible assets acquired $ 27,308

The fair value of developed technology was determined using the income approach, specifically, the multi-period excess earnings method.

Customer backlog represents the fair value of non-cancellable customer contract orders using the income approach, specifically the multi-period excess earnings method.

Corporate trade name and product trademarks primarily relate to the Xilinx brand and product-related trademarks, respectively, and the fair values were determined by applying the income approach, specifically the relief from royalty method.

The fair value of IPR&D was determined using the income approach, specifically the multi-period excess earnings method.

IPR&D consists of projects that have not yet reached technological feasibility as of the acquisition date.

Accordingly, the Company recorded an indefinite-lived intangible asset of $ 970 million for the fair value of these projects, which will initially not be amortized.

Instead, these projects are tested for impairment annually and whenever events or changes in circumstances indicate that these projects may be impaired.

Once the project reaches technological feasibility, the Company will begin to amortize the intangible assets over their estimated useful life.

The Company also assumed unvested restricted stock units with estimated fair value o f $ 1.2 billion, of which $ 275 million was included as a component of the purchase consideration and $ 951 million will be recognized as expense subsequent to the acquisition.

The Consolidated Statements of Operations include the following revenue and operating income attributable to Xilinx in 2022:

(In millions)

Net revenue $ 4,612

Operating income $ 2,247

Operating income attributable to Xilinx recorded under the Embedded and Data Center segments does not include $4.2 billion of amortization of acquisition-related intangibles, employee stock-based compensation expense and acquisition-related costs, which are recorded under the “All Other” segment.

In 2022, Xilinx acquisition-related costs of $ 350 million were recorded under Cost of sales, Research and development, and Marketing, general and administrative expenses on the C ompany’s Consolidated Statements of Operations.

Acquisition-related costs are primarily comprised of direct transaction costs, fair value adjustments for acquired inventory and certain compensation charges.

The Company may incur additional acquisition-related costs in the future related to the Xilinx acquisition.

Supplemental Unaudited Pro Forma Information

Following are the supplemental consolidated financial results of the Company, Xilinx and Pensando on an unaudited pro forma basis, as if the acquisitions had been consummated as of the beginning of the fiscal year 2021 (i.e., December 27, 2020).

2022 December 25,

(in millions)

Net revenue $ 24,117 $ 20,150

Net income $ 2,311 $ 8

The Company’s fiscal year ends on the last Saturday in December of each year, Xilinx’s fiscal year ended on the Saturday nearest March 31 of each year and Pensando’s fiscal year ended on January 31 of each year.

The unaudited pro forma information above is presented on the basis of the Company’s fiscal year and combines the historical results of the fiscal periods of the Company with the following historical results of Xilinx and Pensando:

the twelve months ended December 31, 2022 includes Xilinx results for the twelve-month period beginning January 2, 2022 through December 31, 2022 and Pensando results for the twelve-month period beginning January 1, 2022 through December 31, 2022;

and the twelve months ended December 25, 2021 includes Xilinx results for the twelve months ended January 1, 2022 and Pensando results for the twelve months ended December 31, 2021.

The unaudited pro forma financial information presented is for informational purposes only and is not necessarily indicative of the results of operations that would have been achieved if the Xilinx and Pensando acquisitions were completed at the beginning of fiscal year 2021 and are not indicative of the future operating results of the combined company.

The pro forma results include adjustments related to purchase accounting, primarily amortization of acquisition-related intangible assets, fixed asset depreciation expense and expense from assumed stock-based compensation awards.

The pro forma results also include amortization expense of acquired Xilinx inventory fair value step-up of $ 184 million in fiscal year 2021 and no Xilinx inventory fair value step-up expense in fiscal year 2022.

NOTE 6 – Acquisition-related Intangible Assets and Goodwill

Acquisition-related Intangible Assets

Acquisition-related intangibles as of December 31, 2022 were as follows:

Weighted-average Remaining Useful Life December 31, 2022

Gross Carrying Amount Accumulated Amortization Net Carrying Amount

(In millions)

Developed technology 15 years $ 12,360 $ ( 738 ) $ 11,622

Customer relationships 13 years 12,324 ( 1,973 ) 10,351

Customer backlog 1 month 809 ( 712 ) 97

Corporate trade name 1 month 65 ( 57 ) 8

Product trademarks 11 years 914 ( 68 ) 846

Identified intangible assets subject to amortization 26,472 ( 3,548 ) 22,924

IPR&D not subject to amortization N/A 1,194 — 1,194

Total acquisition-related intangible assets $ 27,666 $ ( 3,548 ) $ 24,118

Acquisition-related intangible asset balance as of December 25, 2021 was not material.

Acquisition-related intangible amortization expense was $ 3.5 billion in fiscal year 2022.

Based on the carrying value of acquisition-related intangibles recorded as of December 31, 2022, and assuming no subsequent impairment of the underlying assets, the estimated annual amortization expense for acquisition-related intangibles is expected to be as follows:

Fiscal Year (In millions)

2028 and thereafter 11,978

Total $ 22,924

In the second quarter of fiscal year 2022, the Company reassigned goodwill balances among the updated reportable segments to reflect changes in its segment reporting structure.

The Company performed a goodwill impairment test immediately prior to and after the segment change and determined that no indicators of impairment to goodwill existed.

The carrying amount of goodwill as of December 31, 2022 and December 25, 2021 was $ 24.2 billion and $ 289 million, respectively, and was assigned to reporting units within the following reportable segments:

December 25, 2021 Acquisitions Adjustments and Reassignment due to segment change December 31, 2022

(In millions)

Reportable segments before segment change:

Enterprise, Embedded and Semi-Custom $ 289 $ — $ ( 289 ) $ —

Xilinx — 22,794 ( 22,794 ) —

Reportable segments after segment change:

Data Center — 1,094 1,790 2,884

Gaming — — 238 238

Embedded — — 21,055 21,055

Total $ 289 $ 23,888 $ — $ 24,177

During the fourth quarter of fiscal years 2022 and 2021, the Company conducted its annual impairment tests of goodwill and concluded that there was no goodwill impairment with respect to its reporting units.

NOTE 7 – Related Parties—Equity Joint Ventures

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The purchases from and resales to the ATMP JV of inventory under the Company’s inventory management program are reported within purchases and resales with the ATMP JV and do not impact the Company’s consolidated statement of operations.

The Company’s purchases from the ATMP JV during 2021 and 2020 amounted to $ 1.1 billion and $ 831 million, respectively.

The Company’s purchases from the ATMP JV during 2022 and 2021 amounted to $ 1.7 billion and $ 1.1 billion, respectively.

As of December 31, 2022 and December 25, 2021, the amounts payable to the ATMP JV were $ 463 million and $ 85 million, respectively, and are included in Payables to related parties on the Company’s consolidated balance sheets.

The Company’s resales to the ATMP JV during 2021 and 2020 amounted to $ 28 million for each year .

As of December 25, 2021 and December 26, 2020, the Company had receivables from ATMP JV of $ 2 million and $ 10 million, respectively, included in Receivables from related parties on the Company’s consolidated balance sheets.

During 2021, the Company recorded a gain of $ 6 million in Equity income in investee on its consolidated statement of operations.

During 2020, the Company recorded a gain of $ 5 million in Equity income in investee on its consolidated statement of operations.

During 2019, the Company did not record any gain or loss in Equity income in investee.

The Company’s resales to the ATMP JV during 2022 and 2021 amounted to $ 15 million and $28 million, respectively .

As of December 31, 2022 and December 25, 2021, the Company had receivables from ATMP JV of $ 2 million for each year, included in Receivables from related parties on the Company’s consolidated balance sheets.

During 2022, 2021 and 2020, the Company recorded gains of $ 14 million, $ 6 million and $5 million in Equity income in investee on its consolidated statement of operations, respectively.

As of December 31, 2022 and December 25, 2021, the carrying value of the Company’s investment in the ATMP JV was approximately $ 83 million and $ 69 million, respectively.

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The Company classifies Licensed IP and royalty income associated with the February 2016 agreement as Licensing gain within operating income.

During 2021, the Company recognized $ 12 million of licensing gain from royalty income under the agreement.

The Company recognized $ 60 million as licensing gain associated with the Licensed IP during 2019.

During 2022 and 2021, the Company recognized $102 million in licensing gain from a milestone achievement and royalty income and $12 million of licensing gain from royalty income under the agreement, respectively.

As of December 31, 2022 and December 25, 2021, the Company had no receivables from the THATIC JV.

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law pertaining to the Entity List designation.

NOTE 5 – Goodwill

The carrying amount of goodwill as of December 25, 2021 and December 26, 2020 was $ 289 million, which was allocated to reporting units within the Company’s Enterprise, Embedded and Semi-Custom segment.

During the fourth quarter of 2021 and 2020, the Company conducted its annual impairment tests of goodwill and concluded that there was no goodwill impairment with respect to its reporting units.

NOTE 8 – Debt and Revolving Credit Facility

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(In millions)

7.50 % Senior Notes Due 2022 ( 7.50 % Notes)

7.50% Senior Notes Due August 2022 (7.50% Notes)

2.950% Senior Notes Due 2024 (Xilinx 2024 Notes)

2.125% Convertible Senior Notes Due 2026 (2.125% Notes)

2.375% Senior Notes Due 2030 (Xilinx 2030 Notes)

3.924 % Senior Notes Due 2032 ( 3.924 % Notes)

4.393 % Senior Notes Due 2052 ( 4.393 % Notes)

Total debt (principal amount) 2,501 313

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current portion of long-term debt — ( 312 )

Total long-term debt, net of current portion $ 1 $ 330

2.125 % Convertible Senior Notes Due 2026

In September 2016, the Company issued $ 805 million in aggregate principal amount of 2.125 % Convertible Senior Notes due 2026 ( 2.125 % Notes).

The 2.125 % Notes are general unsecured senior obligations of the Company.

The interest is payable semi-annually in March and September of each year, commencing in March 2017.

During 2021, holders of the 2.125 % Notes converted $ 25 million principal amount of notes in exchange for approximately 3 million shares of the Company’s common stock at the conversion price of $ 8.00 per share.

The Company recorded a loss of $ 7 million from these conversions in Other income (expense), net on its consolidated statements of operations.

As of December 25, 2021, the outstanding aggregate principal amount of the 2.125 % Notes was $ 1 million .

The Company’s current intent is to deliver shares of its common stock upon conversion of the 2.125 % Notes.

As such, no sinking fund is provided for the 2.125 % Notes and the Company continued to classify the carrying value of the liability component of the 2.125 % Notes as long-term debt and the equity component of the 2.125 % Notes as permanent equity on its consolidated balance sheet as of December 25, 2021.

The determination of whether or not the 2.125 % Notes are convertible is performed on a calendar-quarter basis.

Based on the closing price of the Company’s common stock of $ 146.14 on December 23, 2021, the last trading day of 2021, the if-converted value of the 2.125 % Notes exceeded its principal amount by approximately $ 15 million .

The effective interest rate of the liability component of the 2.125 % Notes is 8 %.

This interest rate was based on the interest rates of similar liabilities at the time of issuance that did not have associated conversion features.

The following table sets forth total interest expense recognized related to the 2.125 % Notes for the year ended December 25, 2021:

2021 December 26,

(In millions)

Contractual interest expense $ — $ 4

Interest cost related to amortization of the debt discount $ — $ 6

The carrying amount of the equity component of the 2.125 % Notes was $ 0 million and $ 10 million as of December 25, 2021 and December 26, 2020, respectively.

Total long-term debt $ 2,467 $ 1

In August 2022, the Company repaid its $312 million 7.50% Senior Notes.

Assumed Xilinx Notes

In connection with the acquisition of Xilinx, the Company assumed $ 1.5 billion in aggregate principal of Xilinx’s 2.95% Notes and 2.375% Notes (together, the Assumed Xilinx Notes ) which were recorded at fair value as of the Xilinx Acquisition Date.

The difference between the fair value at the Xilinx Acquisition Date and the principal outstanding of the Assumed Xilinx Notes is being amortized through interest expense over the remaining term of the debt.

The Assumed Xilinx Notes are general unsecured senior obligations of the Company with semi-annual fixed interest payments due on June 1 and December 1.

The indentures governing the Assumed Xilinx Notes contain various covenants which limit the Company’s ability to, among other things, create certain liens on principal property or the capital stock of certain subsidiaries, enter into certain sale and leaseback transactions with respect to principal property, and consolidate or merge with, or convey, transfer or lease all or substantially all of the Company’s assets to another person.

3.924% Senior Notes Due 2032 and 4.393% Senior Notes Due 2052

On June 9, 2022, the Company issued $1.0 billion in aggregate principal amount of 3.924 % Notes and 4.393 % Notes.

The 3.924 % Notes and 4.393 % Notes are general unsecured senior obligations of the Company.

The interest is payable semi-annually on June 1 and December 1 of each year, commencing on December 1, 2022.

The 3.924 % and 4.393 % Notes are governed by the terms of an indenture dated June 9, 2022 between the Company and US Bank Trust Company, National Association as trustee.

As of December 31, 2022, the outstanding aggregate principal amount of the 3.924 % Notes and 4.393 % Notes was $1.0 billion.

The Company may redeem some or all of the 3.924 % Notes and 4.393 % Notes prior to March 1, 2032 and December 1, 2051, respectively, at a price equal to the greater of the present value of the principal amount and future interest through the maturity of the 3.924 % Notes or 4.393 % Notes or 100% of the principal amount plus accrued and unpaid interest.

Holders have the right to require the Company to repurchase all or a portion of the 3.924 % Notes or 4.393 % Notes in the event that the Company undergoes a change of control as defined in the indenture, at a repurchase price of 101% of the principal amount plus accrued and unpaid interest.

Additionally, an event of default may result in the acceleration of the maturity of the 3.924 % Notes and 4.393 % Notes.

During 2022 , activity on the 2.125% Notes was immaterial.

7.50% Senior Notes Due 2022

On August 15, 2012, the Company issued $ 500 million of its 7.50 % Senior Notes due 2022 ( 7.50 % Notes).

The 7.50 % Notes are general unsecured senior obligations of the Company.

Interest is payable on February 15 and August 15 of each year beginning February 15, 2013 until the maturity date of August 15, 2022.

The 7.50 % Notes are governed by the terms of an indenture (the 7.50 % Indenture) dated August 15, 2012 between the Company and Wells Fargo Bank, N.A., as trustee.

As of December 25, 2021, the outstanding aggregate principal amount of the 7.50 % Notes was $ 312 million.

Prior to August 15, 2022, the Company may redeem some or all of the 7.50 % Notes at a price equal to 100 % of the principal amount plus accrued and unpaid interest and a “make whole” premium (as defined in the 7.50 % Indenture).

Holders have the right to require the Company to repurchase all or a portion of the 7.50 % Notes in the event that the Company undergoes a change of control as defined in the 7.50 % Indenture, at a repurchase price of 101 % of the principal amount plus accrued and unpaid interest.

Additionally, an event of default (as defined in the 7.50 % Indenture) may result in the acceleration of the maturity of the 7.50 % Notes.

Debt Covenants and Seniority

The 7.50 % Notes require the Company to comply with certain financial covenants and a number of restrictive covenants.

The 7.50 % Notes and 2.125 % Notes rank equally with the Company’s existing and future senior debt and are senior to all of the Company’s future subordinated debt.

The 7.50 % Notes and 2.125 % Notes rank junior to all of the Company’s future senior secured debt to the extent of the collateral securing such debt and are structurally subordinated to all existing and future debt and liabilities of the Company’s subsidiaries.

Potential Repurchase of Outstanding Notes

The Company may elect to purchase or otherwise retire the 7.50 % Notes and 2.125 % Notes with cash, stock or other assets from time to time in open market or privately negotiated transactions either directly or through intermediaries or by tender offer when the Company believes the market conditions are favorable to do so.

Revolving Credit Facility

The Company is party to a $ 500 million unsecured revolving credit facility (the Revolving Credit Facility), including a $ 50 million swingline sub-facility and a $ 75 million sublimit for letters of credit pursuant to a credit agreement with a syndicate of banks.

The Revolving Credit Facility expires in June 2024.

Borrowings under the Revolving Credit Facility bear interest at either the LIBOR rate or the base rate at the Company’s option (in each case, as customarily defined) plus an applicable margin.

As of December 25, 2021, there were no borrowings outstanding under the Revolving Credit Facility and the Company was in compliance with all required covenants.

As of December 25, 2021, the Company had $ 14 million of letters of credit outstanding under the Revolving Credit Facility.

These notes matured on August 15, 2022.

Future Payments on Total Debt

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Year (In millions)

2028 and thereafter 1,750

Total $ 2,501

Revolving Credit Facility

On April 29, 2022, the Company entered into a Credit Agreement (Revolving Credit Agreement) with Wells Fargo Bank, N.A.

as administrative agent and the other banks identified therein as lenders.

The Revolving Credit Agreement provides for a five-year revolving credit facility in an aggregate principal amount not to exceed $3.0 billion (subject to certain terms and conditions).

Revolving loans under the Revolving Credit Agreement can be Secure Overnight Financing Rate (SOFR) Loans or Base Rate Loans (each as defined in the Revolving Credit Agreement) at the Company's option.

Each SOFR Loan will bear interest at a rate per annum equal to the applicable SOFR Rate plus a margin based on the Company's Debt Ratings (as defined in the Revolving Credit Agreement) from time to time of between 0.625% and 1.250%.

Each Base Rate Loan will bear interest at a rate per annum equal to the Base Rate (as defined in the Revolving Credit Agreement) plus a margin based on the Company's Debt Ratings from time to time of between 0.000% and 0.250%.

In addition, the Company has agreed to pay a commitment fee based on the Company's Debt Ratings from time to time of between 0.050% and 0.125% (as defined in the Revolving Credit Agreement).

The Revolving Credit Agreement also contains a sustainability-linked pricing component which provides for interest rate and facility fee reductions or increases based on the Company meeting or missing targets related to environmental sustainability, specifically greenhouse gas emissions.

The Revolving Credit Agreement contains customary representations and warranties, and affirmative and negative covenants and events of default applicable to the Company and its subsidiaries.

As of December 31, 2022, the Company was in compliance with these covenants.

As of December 31, 2022, the Company had no outstanding borrowings under this revolving credit facility but may borrow in the future and use the proceeds for payment of expenses in connection with working capital and general corporate expenses.

Commercial Paper

On November 3, 2022, the Company established a new commercial paper program, under which the Company may issue unsecured commercial paper notes up to a maximum principal amount outstanding at any time of $3 billion with a maturity of up to 397 days from the date of issue.

The commercial paper will be sold at a discount from par or, alternatively, will be sold at par and bear interest at rates that will vary based on market conditions at the time of issuance.

As of December 31, 2022, the Company had no commercial paper outstanding.

NOTE 9 – Financial Instruments

Fair Value Measurements

The Company’s financial instruments are measured and recorded at fair value on a recurring basis, except for non-marketable equity investments in privately-held companies.

These equity investments are generally accounted for under the measurement alternative, defined as cost, less impairments, adjusted for subsequent observable price changes and are periodically assessed for impairment when events or circumstances indicate that a decline in value may have occurred.

Fair Value Hierarchy

The fair value framework requires the categorization of assets and liabilities into three levels based upon the assumptions (inputs) used to price the assets or liabilities.

The guidance for fair value measurements requires that assets and liabilities carried at fair value be classified and disclosed in one of the following categories:

Level 1 — Quoted (unadjusted) prices in active markets for identical assets or liabilities.

Level 2 — Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets or liabilities in active markets;

quoted prices for identical or similar assets or liabilities in markets that are not active;

or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability.

Financial Instruments Recorded at Fair Value on a Recurring Basis

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Commercial paper — 224 224 — 45 45

Time deposits and certificates of deposits — 159 159 — — —

Short-term investments

Commercial paper — 441 441 — 880 880

Time deposits — 193 193 — 400 400

Time deposits and certificates of deposits — — — — 193 193

Asset-backed and mortgage-backed securities — 39 39 — — —

Treasury and agency securities 466 — 466 — — —

Foreign government and agency securities — 74 74 — — —

Other non-current assets

Time deposits and certificates of deposits — 9 9 — — —

Equity investments 8 — 8 66 — 66

2 unchanged sentences

The Company did not have any financial instruments measured at fair value on a recurring basis within Level 3 fair value measurements as of December 31, 2022 or December 25, 2021.

During the year ended December 25, 2021, the Company recognized a $ 64 million gain recorded in Other income in the consolidated statements of operations due to an increase in the fair value of an equity investment.

Deferred compensation plan investments are mutual fund investments held in a Rabbi trust established to maintain the Company’s executive deferred compensation plan.

Deferred compensation plan investments are primarily mutual fund investments held in a Rabbi trust established to maintain the Company’s executive deferred compensation plan.

The following is a summary of cash equivalents and short-term investments:

December 31, 2022

Cost/ Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value

(in millions)

Asset-backed and mortgage-backed securities $ 42 $ — $ ( 3 ) $ 39

Commercial paper 669 — ( 4 ) 665

Money market funds 3,017 — — 3,017

Time deposits and certificates of deposits 159 — 159

Treasury and agency securities 471 — ( 5 ) 466

Foreign government and agency securities 74 — — 74

$ 4,432 $ — $ ( 12 ) $ 4,420

As of December 31, 2022, the Company did not have material available-for-sale debt securities which had been in a continuous unrealized loss position of more than twelve months.

The contractual maturities of investments classified as available-for-sale are as follows:

December 31, 2022 December 25, 2021

Amortized Cost Fair Value Amortized Cost Fair Value

(In millions) (In millions)

Due within 1 year $ 1,224 $ 1,218 $ 1,118 $ 1,118

Due in 1 year through 5 years 159 156 — —

Due in 5 years and later 41 38 — —

$ 1,424 $ 1,412 $ 1,118 $ 1,118

Financial Instruments Not Recorded at Fair Value

The Company carries its financial instruments at fair value with the exception of its long-term debt.

The carrying amounts and estimated fair values of the Company’s long-term debt are as follows:

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Long-term debt, net of current portion 2,467 2,281 1 15

The estimated fair value of the Company’s long-term debt are based on Level 2 inputs as the fair value is based on quoted prices for the Company’s debt and comparable instruments in inactive markets.

The Company’s 2.125% Notes, included in Long-term debt, net, above, were convertible at the option of the holder as of December 25, 2021.

The estimated fair value of the 2.125% Notes as of December 25, 2021 takes into account the value of the Company’s stock price of $ 146.14 as of December 23, 2021, the last trading date for the year ended December 25, 2021 and the initial conversion price of approximately $8.00 per share of common stock.

The fair value of the Company’s time deposits, accounts receivable, accounts payable and other short-term obligations approximate their carrying value based on existing terms.

The estimated fair value of the Company’s long-term debt is based on Level 2 inputs of quoted prices for the Company’s debt and comparable instruments in inactive markets.

The fair value of the Company’s accounts receivable, accounts payable and other short-term obligations approximate their carrying value based on existing terms.

Financial Instruments Measured at Fair Value on a Non-Recurring Basis

As of December 31, 2022, the Company had non-marketable securities in privately-held companies of $ 137 million.

The balance of non-marketable securities in privately-held companies as of December 25, 2021 was not material.

Hedging Transactions and Derivative Financial Instruments

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These contracts generally mature within 24 months and are designated as accounting hedges.

As of December 25, 2021 and December 26, 2020, the notional values of the Company’s outstanding foreign currency forward contracts designated as cash flow hedges were $ 894 million and $ 501 million, respectively.

The fair value of these contracts was not material as of December 25, 2021 and December 26, 2020.

As of December 31, 2022 and December 25, 2021, the notional value of the Company’s outstanding foreign currency forward contracts designated as cash flow hedges was $ 1.9 billion and $ 894 million, respectively.

The fair value of these contracts, recorded as a liability, was $ 27 million as of December 31, 2022.

The fair value of these contracts as of December 25, 2021 was not material.

Foreign Currency Forward Contracts Not Designated as Accounting Hedges

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These forward contracts generally mature within 3 months and are not designated as accounting hedges.

As of December 25, 2021 and December 26, 2020, the notional values of outstanding contracts were $ 291 million and $ 254 million, respectively.

As of December 31, 2022 and December 25, 2021, the notional value of these outstanding contracts was $ 485 million and $ 291 million, respectively.

The fair value of these contracts was not material as of December 31, 2022 and December 25, 2021.

NOTE 8 – Accumulated Other Comprehensive Income (Loss)

Unrealized holding gains or losses on the Company’s available-for-sale debt securities and unrealized holding gains and losses on derivative financial instruments qualifying as cash flow hedges are included in other comprehensive income (loss).

The table below summarizes the changes in accumulated other comprehensive income (loss):

December 25, 2021 December 26, 2020 December 28, 2019

Gains (losses) on cash flow hedges:

(In millions)

Beginning balance $ 17 $ — $ ( 8 )

Net unrealized gains (losses) arising during the period 5 18 2

Net losses (gains) reclassified into income during the period ( 25 ) ( 1 ) 6

Total other comprehensive income (loss) ( 20 ) 17 8

Ending balance $ ( 3 ) $ 17 $ —

The cash flows associated with derivative instruments as cash flow hedging instruments are classified in the same category in the Consolidated Statement of Cash Flows as the cash flows of the related items.

NOTE 10 – Concentrations of Credit Risk

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At the time an investment is made, investments in commercial paper of industrial firms and financial institutions are rated A1, P1, F1 or better.

The Company invests in tax-exempt securities including municipal notes and bonds and bonds that are rated A, A2 or better and repurchase agreements, each of which have securities of the type and quality listed above as collateral.

The Company invests in bonds that are rated A, A2 or better and repurchase agreements, each of which have securities of the type and quality listed above as collateral.

The Company believes that concentrations of credit risk with respect to trade receivables are limited because a large number of geographically diverse customers make up the Company’s customer base, thus diluting the trade credit risk.

The Company’s top three customers with the highest accounts receivable balances each accounted for approximately 20 %, 15 % and 9 % of the total consolidated accounts receivable balance as of December 25, 2021 and 18 %, 17 % and 6 %, of the total consolidated accounts receivable balance as of December 26, 2020.

One customer accounted for approximately 18 % of the total consolidated accounts receivable balance as of December 31, 2022.

Two customers each accounted for approximately 20 % and 15 % of the total consolidated accounts receivable balance as of December 25, 2021.

However, the Company does not believe the receivable balance from these customers represents a significant credit risk based on past collection experience and review of their current credit quality.

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Balance, beginning of period 1,207 1,211 1,170

Common stock issued in the acquisition of Xilinx 429 — —

Common stock issued under employee equity plans 17 12 14

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Common stock repurchases for tax withholding on equity awards ( 5 ) ( 2 ) ( 1 )

Issuance of common stock upon warrant exercise — — 75

Issuance of common stock to settle convertible debt — 3 28

Issuance of treasury stock to partially settle debt — — 1

Balance, end of period 1,612 1,207 1,211

Stock Repurchase Program

In May 2021, the Company’s Board of Directors approved a stock repurchase program authorizing up to $4 billion of repurchases of the Company’s outstanding common stock (the Repurchase Program).

In May 2021, the Company’s Board of Directors approved a stock repurchase program authorizing up to $4 billion of the Company’s common stock (Existing Repurchase Program).

In February 2022, the Company’s Board of Directors approved a new stock repurchase program in addition to the Existing Repurchase Program to purchase up to $8 billion of outstanding common stock in the open market (collectively referred to as the “Repurchase Program”).

During the year ended December 31, 2022, the Company repurchased 36.3 million shares of its common stock under the Repurchase Program for $ 3.7 billion.

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In addition, the Company had 36 million shares of common stock that were available for issuance under the 2017 plan.

With the acquisition of Xilinx, the Company assumed the Xilinx, Inc.

2007 Equity Incentive Plan (2007 Plan) and may grant stock options and awards under this plan.

As of December 31, 2022, the Company had 18 million shares of common stock that were available for future grants under the 2007 Plan.

Valuation and Expense

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Stock Options.

The weighted-average estimated fair value of employee stock options granted for the years ended December 25, 2021, December 26, 2020 and December 28, 2019 was $ 46.07 , $ 38.49 and $ 13.31 per share, respectively, using the following assumptions:

The weighted-average estimated fair value of employee stock options granted during 2022, 2021 and 2020 was $ 44.35 , $ 46.07 and $ 38.49 per share, respectively, using the following assumptions:

December 31, 2022 December 25, 2021 December 26, 2020

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Unvested shares as of December 25, 2021 10 $ 79.03

Assumed with acquisition of Xilinx 12 $ 103.35

Granted 17 $ 92.92

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The total fair value of time-based RSUs vested during 2022, 2021 and 2020 was $ 889 million, $ 678 million and $ 642 million, respectively.

As of December 25, 2021, the Company had $ 704 million of total unrecognized compensation expense related to time-based RSUs, which will be recognized over the weighted-average period of 1.92 years.

As of December 31, 2022, the Company had $ 2.0 billion of total unrecognized compensation expense related to time-based RSUs, which will be recognized over the weighted-average period of 1.67 years.

The weighted-average grant date fair values of PRSUs granted during 2022, 2021 and 2020 were $ 121.12 , $ 153.89 and $ 122.95 , respectively, using the following assumptions:

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Expected term (in years) 2.07 - 3.07

3.00 2.48 - 3.00

The Company uses the historical volatility of its common stock and risk-free interest rate based on the rate for a U.S.

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As of December 31, 2022, the Company had $ 37 million of total unrecognized compensation expense related to the ESPP, which will be recognized over the weighted-average period of 0.36 years.

Xilinx Replacement Awards

In connection with the acquisition of Xilinx, the Company issued equity awards as replacement for assumed equity awards to Xilinx employees.

The replacement awards include restricted stock units of approximately 12 million shares with a weighted average fair value of $103.35 per share and have terms that are substantially the same as the assumed Xilinx awards.

The fair value of replacement awards related to services rendered up to the Xilinx Acquisition Date was recognized as a component of the total purchase consideration while the remaining fair value of replacement awards attributable to post-combination services is being recognized as stock-based compensation expense over the remaining post-acquisition vesting period.

NOTE 13 – Retirement Benefit Plans

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$ 2,093 $ 3,528 $ 1,213

Total pre-tax income including equity income (loss) in investee $ 3,675 $ 1,280 $ 372

( 895 ) 147 67

Total pre-tax income including equity income in investee $ 1,198 $ 3,675 $ 1,280

The income tax provision (benefit) consists of:

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State taxes (benefit) ( 3 ) 1 ( 6 )

Foreign withholding taxes 7 10 22

Foreign rate detriment (benefit) 195 71 ( 3 )

Valuation allowance change 3 ( 1,301 ) ( 59 )

GILTI and other foreign inclusion ( 105 ) — —

Foreign-Derived Intangible Income (FDII) deduction ( 261 ) ( 147 ) —

Research credits ( 241 ) ( 78 ) ( 57 )

Excess tax benefits relating to share-based compensation ( 125 ) ( 116 ) —

Tax Reform Act — — ( 13 )

Foreign Derived Intangible Income deduction ( 147 ) — —

Stock-based and non-deductible compensation 10 ( 125 ) ( 116 )

Valuation allowance change — 3 ( 1,301 )

Other 31 16 4

Income tax provision (benefit) $ ( 122 ) $ 513 $ ( 1,210 )

The Company recorded an income tax benefit of $ 122 million in 2022 and an income tax provision of $ 513 million in 2021, representing effective tax rates of (10%) and 14%, respectively.

The reduction in income tax expense in 2022 was primarily due to the lower pre-tax income coupled with a $ 261 million FDII tax benefit and $241 million of research and development (R&D) tax credits.

Beginning in 2022, provisions in the U.S.

Tax Cuts and Jobs Act of 2017 require the Company to capitalize and amortize R&D expenditures rather than deducting the costs as incurred.

The capitalization resulted in an increase in 2022 taxable income which also increased the income eligible for the FDII tax benefit.

Additionally, there was a pre-tax loss incurred outside of the U.S.

primarily due to the GAAP amortization of Xilinx acquisition-related items and therefore, the Company recorded a corresponding tax benefit associated with the reversal of the previously established GILTI deferred tax liability.

As a part of the Xilinx acquisition and as a result of certain employment and operational commitments the Company has made in Singapore, the Company has been granted a Development and Expansion Incentive (DEI) that is effective through 2031.

The DEI reduces the local tax on Singapore income from a statutory rate of 17% to 5% through 2031.

Due to the current year pre-tax loss, the Company did not receive any income tax or EPS benefit.

The Company recorded an income tax provision of $ 513 million in 2021 and an income tax benefit of $1.2 billion in 2020, representing effective tax rates of 14% and (95)% respectively.

The income tax provision of $ 513 million was a result of higher income in the U.S.

and increase in foreign taxes, partially offset by $ 147 million of foreign-derived intangible income benefit, $ 78 million of research and development tax credits, and $ 125 million of excess tax benefit for stock-based compensation net of non-deductible officers’ compensation.

The income tax provision in 2021 was a result of higher income in the U.S.

and increase in foreign taxes, partially offset by $ 147 million of FDII benefit, $ 78 million of R&D tax credits, and $ 125 million of excess tax benefit for stock-based compensation net of non-deductible officers’ compensation.

The income tax benefit in 2020 was primarily due to $1.3 billion of tax benefit from the valuation allowance release in the U.S.

This benefit was partially offset by approximately $10 million of withholding tax expense related to cross-border transactions, $13 million of state and foreign taxes and $75 million increase in valuation allowance against certain state and foreign tax credits, which are reflected as part of the state taxes and foreign rate benefit in the reconciliation table above.

The income tax provision in 2019 was primarily due to $ 22 million of withholding tax related to cross-border transactions and $ 22 million of tax in foreign locations, partially offset by a $ 13 million benefit for a reduction of U.S.

income taxes accrued in the prior year.

Deferred income taxes reflect the net tax effects of tax carryovers and temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the balances for income tax purposes.

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Federal and state tax credit carryovers 631 319

Foreign research and development ITC credits 547 489

Foreign R&D and investment tax credits 578 547

Capitalized costs 65 121

Lease liability 161 124

Capitalized R&D 943 —

Total deferred tax assets 4,543 2,853

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Deferred tax liabilities:

Acquired intangibles and goodwill ( 50 ) ( 1 )

Acquired intangibles ( 3,430 ) ( 50 )

Right-of-use assets ( 151 ) ( 110 )

Discount of convertible notes — ( 2 )

Undistributed foreign earnings ( 35 ) ( 24 )

GILTI ( 633 ) —

Other ( 92 ) ( 15 )

Total deferred tax liabilities ( 4,341 ) ( 199 )

Net deferred tax assets $ 919 $ 1,234

Net deferred tax assets (liabilities) $ ( 1,876 ) $ 919

As a result of the acquisition of Xilinx, the Company recorded $4.3 billion of net deferred tax liabilities primarily on the excess of book basis over the tax basis of the acquired intangible assets, including $857 million of GILTI net deferred tax liability.

Additionally, as the result of the new R&D capitalization tax law effective in 2022, the capitalized amounts resulted in increased current year taxable income, but which are deductible as amortized in future periods.

Therefore, the Company recorded a deferred tax asset for the capitalized R&D expenditures.

The movement in the deferred tax valuation allowance was as follows:

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Balance at beginning of year $ 1,735 $ 1,576 $ 2,867

Charges (reductions) to income tax expense/other accounts* 3 ( 1,301 ) ( 61 )

Net (deductions) recoveries +

Charges (reductions) to income tax expense and other accounts* 112 3 ( 1,301 )

Acquisition-related 231 — —

Net recoveries +

Balance at end of year $ 2,078 $ 1,735 $ 1,576

* Amounts recorded against other accounts are not material

+ The 2019 and 2021 net recoveries were primarily related to net originating deferred tax assets and newly generated tax credits

Deferred tax liabilities are included in Other long-term liabilities on the consolidated balance sheets.

The breakdown between deferred tax assets and deferred tax liabilities as of December 25, 2021 and December 26, 2020 is as follows:

2021 December 26,

(In millions)

Deferred tax assets $ 931 $ 1,245

Deferred tax liabilities ( 12 ) ( 11 )

Net deferred tax assets $ 919 $ 1,234

* Amounts recorded in 2020 reflect release of valuation allowances.

+ The net recoveries for all were primarily related to net originating deferred tax assets and newly generated tax credits.

Under current U.S.

tax law, the impact of future distributions of undistributed earnings that are indefinitely reinvested are anticipated to be subject to withholding taxes from local jurisdictions and non-conforming U.S.

state jurisdictions.

The amount of cumulative undistributed earnings that are permanently reinvested that could be subject to withholding taxes are $460 million as of December 31, 2022.

Through the end of fiscal year 2022, the Company continued to maintain a valuation allowance of approximately $2.1 billion for certain federal, state, and foreign tax attributes.

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Certain state and foreign valuation allowance maintained is due to lack of sufficient sources of future taxable income.

The Company’s United States federal and state net operating losses carryforwards as of December 25, 2021, were $ 1.9 billion and $ 265 million, respectively.

Net operating losses may be subject to limitations by the Internal Revenue Code and similar provisions.

The United States federal net operating losses will expire between 2034 and 2037, and the state net operating losses will expire at various dates through 2039.

The Company’s U.S.

federal and state net operating losses carryforwards as of December 31, 2022, were $ 435 million and $ 476 million, respectively.

Net operating losses (NOLs) may be subject to limitations by the Internal Revenue Code and similar provisions.

$71 million of U.S.

federal NOLs will expire between 2023 and 2037, and $364 million of federal NOLs have no expiration date, and the state NOLs will expire at various dates through 2042.

The difference between the amount of federal NOLs which are recorded on the Company’s balance sheet as deferred tax assets and their related valuation allowance, and the amounts reported on the Company’s tax returns are the result of uncertain tax positions the Company has taken during the current year and for which an income tax reserve has been recorded.

The federal tax credits of $ 12 million will expire at various dates between 2023 and 2042.

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The Company also has $ 595 million of credit carryforward in Canada that will expire between 2026 and 2040.

Under current U.S.

tax law the impact of future distributions of undistributed earnings that are indefinitely reinvested are anticipated to be withholding taxes from local jurisdictions and non-conforming U.S.

state jurisdictions.

The amount of cumulative undistributed earnings that are permanently reinvested that could be subject to withholding taxes are $ 364 million as of December 25, 2021.

The Company also recorded $142 million of current tax payable as of the Xilinx acquisition date.

Additionally, the Company assumed $203 million of long-term liabilities for uncertain tax positions, including $12 million of interest, as well as $321 million of long-term liabilities for transition tax payable over three years.

Included in the assumed liabilities for uncertain tax positions is a tax position with respect to whether stock-based compensation from Xilinx’s cost sharing arrangement should be shared among cost share participants.

The Company has concluded that the law was unsettled and believes the current uncertain tax position liability is sufficient and will continue to monitor developments in relevant tax court cases.

A reconciliation of the Company's gross unrecognized tax benefits was as follows:

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Balance at beginning of year $ 275 $ 119 $ 65

Increases for tax positions taken in the current year 748 156 30

Increases for tax positions taken in prior years 104 14 41

Decreases for tax positions taken in prior years ( 12 ) ( 9 ) ( 15 )

Increases for tax positions taken in the current year 156 30 15

Decreases for settlements with taxing authorities ( 5 ) ( 1 ) ( 3 )

Decreases for lapsing of the statute of limitations — ( 1 ) ( 1 )

Increases to tax positions taken in prior years through acquisitions 252 — —

Decreases for settlements with taxing authorities and statute of limitation lapses ( 6 ) ( 5 ) ( 2 )

Balance at end of year $ 1,361 $ 275 $ 119

The amount of unrecognized tax benefits that would impact the effective tax rate was $ 215 million, $ 77 million and $ 17 million as of December 25, 2021, December 26, 2020 and December 28, 2019, respectively.

The Company had $39 million of accrued penalties and interest related to unrecognized tax benefits as of December 25, 2021.

The amount of unrecognized tax benefits that would impact the effective tax rate if recognized was $ 1.2 billion, $ 215 million and $ 77 million as of December 31, 2022, December 25, 2021 and December 26, 2020, respectively.

The Company’s policy is to include interest and penalties related to income tax liabilities within the provision for income taxes on the Consolidated Statements of Operations.

The Company had $81.3 million of accrued penalties and interest related to unrecognized tax benefits as of December 31, 2022 including $12 million assumed from the Xilinx acquisition.

The Company had no material amounts of accrued interest and accrued penalties related to unrecognized tax benefits as of December 25, 2021 and December 26, 2020.

As of December 31, 2022 and December 25, 2021, the Company had long-term income tax liabilities of $1.3 billion and $189 million, respectively, recorded under Other long-term liabilities in the Consolidated Balance Sheets.

The Company is subject to taxation in the U.S.

and foreign jurisdictions.

Earnings from non-U.S.

activities are subject to local country income tax.

The material jurisdiction in which the Company is subject to potential examination by the taxing authority is the United States, where tax years from 2008 are open for audit.

Pre-acquisition Xilinx U.S.

tax returns for fiscal years 2018 and 2019 are currently under audit by the IRS.

It is possible the Company may have tax audits close in the next 12 months that could materially change the balance of the uncertain tax benefits;

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state audits in process at any one point in time.

The Company has provided for uncertain tax positions that require a liability under the adopted method to account for uncertainty in income taxes.

The Company is subject to taxation in the United States and foreign jurisdictions.

Earnings from non-U.S.

activities are subject to local country income tax.

The material jurisdiction in which the Company is subject to potential examination by the taxing authority is the United States, which is open for years from 2008 onwards due to the net operating losses.

NOTE 14 – Segment Reporting

Management, including the Chief Operating Decision Maker, who is the Company’s Chief Executive Officer, reviews and assesses operating performance using segment net revenue and operating income (loss).

These performance measures include the allocation of expenses to the operating segments based on management’s judgment.

The Company has the following two reportable segments:

• the Computing and Graphics segment, which primarily includes desktop and notebook microprocessors, accelerated processing units that integrate microprocessors and graphics, chipsets, discrete graphics processing units (GPUs), data center and professional GPUs, and development services.

From time to time, the Company may also sell or license portions of its IP portfolio.

• the Enterprise, Embedded and Semi-Custom segment, which primarily includes server and embedded processors, semi-custom SoC products, development services and technology for game consoles.

From time to time, the Company may also sell or license portions of its IP portfolio.

In addition to these reportable segments, the Company has an All Other category, which is not a reportable segment.

This category primarily includes certain expenses and credits that are not allocated to any of the reportable segments because management does not consider these expenses and credits in evaluating the performance of the reportable segments.

This category primarily includes employee stock-based compensation expense and acquisition-related costs.

The following table provides a summary of net revenue and operating income (loss) by segment for 2021, 2020 and 2019.

December 25, 2021 December 26, 2020 December 28, 2019

(In millions)

Computing and Graphics $ 9,332 $ 6,432 $ 4,709

Enterprise, Embedded and Semi-Custom 7,102 3,331 2,022

Total net revenue $ 16,434 $ 9,763 $ 6,731

Operating income (loss):

Computing and Graphics $ 2,090 $ 1,266 $ 577

Enterprise, Embedded and Semi-Custom 1,979 391 263

All Other ( 421 ) ( 288 ) ( 209 )

Total operating income $ 3,648 $ 1,369 $ 631

The following table provides items included in All Other category:

December 25, 2021 December 26, 2020 December 28, 2019

(In millions)

Operating loss:

Stock-based compensation expense $ ( 379 ) $ ( 274 ) $ ( 197 )

Acquisition-related costs ( 42 ) ( 14 ) —

Loss contingency on legal matter — — ( 12 )

Total operating loss $ ( 421 ) $ ( 288 ) $ ( 209 )

The Company does not discretely allocate assets to its operating segments, nor does management evaluate operating segments using discrete asset information.

The following table summarizes sales to external customers by geographic regions based on billing location of the customer:

December 25, 2021 December 26, 2020 December 28, 2019

(In millions)

United States $ 4,656 $ 2,294 $ 1,764

China (including Hong Kong) 4,096 2,329 1,736

Japan 2,381 1,033 840

Europe 1,249 1,108 762

Taiwan 2,091 1,187 719

Singapore 1,389 1,096 597

Other countries 572 716 313

Total sales to external customers $ 16,434 $ 9,763 $ 6,731

The following table summarizes sales to major customers that accounted for at least 10% of the Company’s consolidated net revenue for the respective years:

December 25, 2021 December 26, 2020 December 28, 2019

Customer A 14 % * 12 %

Customer B 11 % * *

Less than 10%

Sales to customer A consisted of products primarily from the Enterprise, Embedded and Semi-Custom segment and sales to customer B consisted of products primarily from the Computing and Graphics segment.

The following table summarizes Property and equipment, net by geographic areas:

2021 December 26,

(In millions)

United States $ 486 $ 421

Canada 105 126

Singapore 35 32

Other countries 41 28

Total property and equipment, net $ 702 $ 641

NOTE 15 – Other Income (Expense), Net

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Loss on debt redemption, repurchase and conversion — ( 7 ) ( 54 )

Gains on equity investments, net 56 2 1

Other expense ( 2 ) ( 3 ) ( 5 )

Gains (losses) on equity investments, net ( 62 ) 56 2

Other income (expense) 5 ( 2 ) ( 3 )

Other income (expense), net $ 8 $ 55 $ ( 47 )

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The Company’s purchase commitments primarily include the Company’s obligations to purchase wafers and substrates from third parties and future payments related to certain software and technology licenses and IP licenses.

Purchase commitments include obligations made under noncancellable purchase orders and contractual obligations requiring minimum purchases or for which cancellation would lead to significant penalties.

Total future unconditional purchase commitments as of December 31, 2022 were as follows:

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Total unconditional purchase commitments $ 8,610

On an ongoing basis, the Company works with suppliers on the timing of payments and deliveries of purchase commitments, taking into account business conditions.

Warranties and Indemnities

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The Company accrues warranty costs to Cost of sales at the time of sale of warranted products.

Changes in the Company’s estimated liability for product warranty during the years ended December 25, 2021 and December 26, 2020 are as follows:

Changes in the Company’s estimated liability for product warranty during 2022 and 2021 are as follows:

2022 December 25,

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NOTE 17 – Contingencies

Shareholder Derivative Lawsuits (Wessels, Hamilton and Ha)

On March 20, 2014, a purported shareholder derivative lawsuit captioned Wessels v.

Read, et al., Case No.

1:14 cv-262486 (Wessels) was filed against the Company (as a nominal defendant only) and certain of its directors and officers in the Santa Clara County Superior Court of the State of California.

The complaint purports to assert claims against the Company and certain individual directors and officers for breach of fiduciary duty, waste of corporate assets and unjust enrichment.

The complaint seeks damages allegedly caused by alleged materially misleading statements and/or material omissions by the Company and the individual directors and officers regarding its 32 nm technology and “Llano” product, which statements and omissions, the plaintiffs claim, allegedly operated to artificially inflate the price paid for the Company’s common stock during the period.

On April 27, 2015, a similar purported shareholder derivative lawsuit captioned Christopher Hamilton and David Hamilton v.

Barnes, et al., Case No.

5:15-cv-01890 (Hamilton) was filed against the Company (as a nominal defendant only) and certain of its directors and officers in the United States District Court for the Northern District of California.

On September 29, 2015, a similar purported shareholder derivative lawsuit captioned Jake Ha v Caldwell, et al., Case No.

3:15-cv-04485 (Ha) was filed against the Company (as a nominal defendant only) and certain of its directors and officers in the United States District Court for the Northern District of California.

The lawsuit also seeks a court order voiding the stockholder vote on the Company’s 2015 proxy.

The case was transferred to the judge handling the Hamilton Lawsuit and is now Case No.

4:15-cv-04485.

The Wessels, Hamilton and Ha shareholder derivative lawsuits were stayed pending resolution of a class action lawsuit captioned Hatamian v.

AMD, et al., C.A.

3:14-cv-00226 filed against the Company in the United States District Court for the Northern District of California (the Hatamian Lawsuit).

The Hatamian Lawsuit asserted claims against the Company and certain of its officers for alleged violations of Section 10(b) of the Exchange Act of 1934, as amended (the Exchange Act), and SEC Rule 10b-5 concerning certain statements regarding its 32 nm technology and “Llano” products.

On October 9, 2017, the parties signed a definitive settlement agreement resolving the Hatamian Lawsuit and submitted it to the Court for approval.

Under the terms of this agreement, the settlement was funded entirely by certain of the Company’s insurance carriers and the defendants continued to deny any liability or wrongdoing.

On March 2, 2018, the court approved the settlement and entered a final judgment in the Hatamian Lawsuit.

On July 23, 2018, the Santa Clara Superior Court sustained the Company’s demurrer in the Wessels case, dismissing all claims in that matter with prejudice.

The California Court of Appeal affirmed this decision on August 27, 2020 and issued its remittitur on September 9, 2020, which foreclosed further appeals in the state court litigation.

On October 4, 2018, the district court issued an order dismissing the Hamilton and Ha amended complaints and both plaintiffs appealed.

On March 16, 2020, the Ninth Circuit affirmed the district court’s dismissal of the Ha complaint and the time to seek further appeals has since expired.

On the same day, the Ninth Circuit also reversed and remanded the district court’s dismissal of the Hamilton complaint for further consideration of defendants’ motion to dismiss.

Following supplemental briefing, the district court entered an order on April 5, 2021 dismissing with prejudice all claims in the Hamilton action as precluded by the decision in the Wessels case.

Quarterhill Inc.

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On May 14, 2021, AMD filed a notice of cross-appeal to the Court of Appeals for the Federal Circuit for the IPR decision regarding U.S.

Appellate briefing is underway.

On July 18, 2022, the Court of Appeals for the Federal Circuit affirmed the Patent Trial and Appeal Board’s decision.

On February 8, 2022, Polaris filed a lawsuit against Xilinx, Inc.

alleging infringement of four patents related to memory chips and memory interfaces.

On February 22, 2022, the Company was served with the complaint.

On April 14, 2022, the Company filed a motion to dismiss the complaint.

On April 28, 2022, Polaris filed an amended complaint.

On May 12, 2022, the Company filed an answer to the amended complaint.

On June 1, 2022, Polaris filed two lawsuits against the Company and Hewlett-Packard GmbH, HP Deutschland GmbH in the Hamburg and Munich Courts in Germany, alleging infringement of two patents related to memory chips and memory interfaces.

On July 15, 2022, Polaris filed a lawsuit against the Company, ASUSTeK Computer Inc., and ASUS Computer GmbH, alleging infringement of a patent related to memory chips and memory interfaces.

Based upon information presently known to management, the Company believes that the potential liability of the above listed legal proceeding, if any, will not have a material adverse effect on its financial condition, cash flows or results of operations.

Monterey Research Litigation

On November 15, 2019, Monterey Research, LLC filed a patent infringement complaint against the Company in the United States District Court for the District of Delaware (Case.

1:19-cv-02149).

Monterey Research alleges that the Company infringes six U.S.

On November 15, 2019, Monterey Research, LLC (Monterey) filed a patent infringement complaint against the Company in the United States District Court for the District of Delaware.

Monterey alleges that the Company infringes six U.S.

6,534,805 (related to SRAM cell design);

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and 8,373,455 (related to output buffer circuits).

Monterey Research seeks unspecified monetary damages, enhanced damages, interest, fees, expenses, costs, and injunctive relief against the Company.

On January 22, 2020, the Company filed a motion to dismiss part of Monterey Research’s complaint.

On February 5, 2020, Monterey Research filed an amended complaint.

On February 19, 2020, the Company filed a renewed motion to dismiss part of Monterey Research’s complaint.

On October 13, 2020, the Court granted in part, and denied in part, the Company’s renewed motion to dismiss.

On October 27, 2020, the Company filed its answer to Monterey’s complaint and also filed counterclaims based on Monterey’s breach of the parties’ pre-suit non-disclosure agreement.

On December 1, 2020, Monterey filed a motion to dismiss the Company’s counterclaims.

On January 5, 2021, the Court granted the Company’s motion to stay the litigation pending inter partes review of the patents-in-suit by the Patent Trial and Appeals Board.

In November and December 2021 and January 2022, the USPTO issued five final written decisions in the inter partes reviews cancelling all challenged claims of five patents in suit.

On August 12, 2021, Monterey filed two patent infringement complaints in the United States District Court for the Western District of Texas (Case.

6:21-cv-00839 and Case.

6:21-cv-00840).

On August 12, 2021, Monterey filed two patent infringement complaints in the United States District Court for the Western District of Texas.

In the first complaint, Monterey alleges that the Company infringes two patents (8,694,776 and 9,767,303) related to memory controllers, three patents (8,572,297, 7,609,799, and 7,899,145) related to circuit designs, and one patent (6,979,640) related to semiconductor processing.

In the second complaint, Monterey alleges that the Company infringes one patent (6,680,516) related to semiconductor processing.

In both complaints, Monterey Research seeks unspecified monetary damages, enhanced damages, interest, fees, expenses, costs, and injunctive relief against the Company.

On October 22, 2021, Monterey Research filed an amended complaint in Case.

6:21-cv-00840 withdrawing its infringement claims for the ’776 and ’303 patents, and asserting an additional infringement claim for a patent related to circuit design (8,103,497).On November 15, 2021, the Company filed a motion to dismiss the complaint.

On December 8, 2021, Monterey filed its response.

On December 20, 2021, the Company filed a motion to transfer the case to Austin division.

City of Pontiac Police and Fire Retirement System Litigation

On September 29, 2020, the City of Pontiac Police and Fire Retirement System, an AMD shareholder, filed a shareholder derivative complaint (the “Complaint”) against AMD and the members of its Board of Directors (collectively, “Defendants”) in the United States District Court for the Northern District of California.

See City of Pontiac Police and Fire Retirement System v.

Caldwell, et al., No.

5:20-cv-6794 (N.D.

The Complaint alleges that Defendants breached their fiduciary duties, violated Section 14(a) of the Exchange Act of 1934, and were unjustly enriched by misrepresenting the Company’s commitment to diversity, particularly with respect to the composition of the membership of AMD’s Board of Directors and senior leadership team.

On December 18, 2020, Defendants filed a motion to dismiss the Complaint.

On February 12, 2021, Plaintiff filed an opposition to Defendants’ motion to dismiss, and on March 12, 2021, Defendants filed a reply brief in support of the motion to dismiss.

On July 1, 2021, the Court granted Defendants’ motion to dismiss, without prejudice.

On August 2, 2021, the parties filed a joint stipulation to dismiss the case with prejudice, and the court approved the joint stipulation on August 3, 2021.

Xilinx Acquisition Litigation

On October 26, 2020, the Company, its wholly-owned subsidiary, Thrones Merger Sub, Inc., and Xilinx, Inc.

(“Xilinx”) entered a definitive agreement (the “Merger Agreement”) in which the Company will acquire Xilinx by merging Thrones Merger Sub, Inc.

with and into Xilinx, with Xilinx continuing as the surviving corporation and becoming a wholly-owned subsidiary of the Company (the “Proposed Transaction”).

See Note 13 of Notes to Consolidated Financial Statements for additional information.

On December 3, 2020, the Company and Xilinx filed a Registration Statement on Form S-4 (together with the joint proxy statement and prospectus contained therein, the “Registration Statement”) describing the Proposed Transaction and other related matters.

On December 11, 2020, a Xilinx shareholder filed a putative class action in the New York State Supreme Court, New York County, regarding the Proposed Transaction.

Xilinx, Case No.

656971/2020 (N.Y.

Ct.) (“Nunez”).

The lawsuit alleges that the Board of Directors of Xilinx breached their fiduciary duties to Xilinx shareholders in connection with the Proposed Transaction by allegedly failing to obtain fair, adequate and maximum consideration for Xilinx shareholders in connection with the Proposed Transaction and by not disclosing certain material information about the Proposed Transaction in the Registration Statement.

The lawsuit asserts a single claim against the Company, alleging that it aided and abetted the Xilinx directors’ breach of their fiduciary duties.

The lawsuit seeks to enjoin or rescind any transaction with Xilinx as well as certain other equitable relief, unspecified damages and attorneys’ fees and costs.

On December 15, 2020, a Xilinx shareholder filed a lawsuit in the United States District Court for the Southern District of New York, regarding the Proposed Transaction.

Xilinx, Case No.

1:20-cv-10595 (S.D.N.Y.) (“Shumacher”).

The lawsuit alleges that Xilinx and its Board of Directors disseminated a false and misleading Registration Statement that omitted material information regarding the Proposed Transaction, thereby violating Section 14(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

The lawsuit also asserts a single claim against the Company, alleging that it acted as a controlling person of Xilinx within the meaning of Section 20(a) of the Exchange Act by virtue of its supervisory control over the composition of the Registration Statement.

The lawsuit seeks to enjoin or rescind any transaction with Xilinx as well as certain other equitable relief, unspecified damages and attorneys’ fees and costs.

On December 23, 2020, a shareholder of the Company filed a lawsuit in the United States District Court of the Southern District of New York regarding the Proposed Transaction.

Advanced Micro Devices, Case No.

1:20-cv-10894 (S.D.N.Y) (“Vazirani”).

The lawsuit alleges that the Company and its Board of Directors disseminated a false and misleading Registration Statement that omitted material information regarding the Proposed Transaction, thereby violating Sections 14(a) and 20(a) of the Exchange Act.

The lawsuit seeks to enjoin or rescind any transaction with Xilinx as well as certain other equitable relief, unspecified damages and attorneys’ fees and costs.

On March 22, 2021, the Nunez complaint was voluntarily dismissed, and on March 25, 2021, the Vazirani complaint was voluntarily dismissed.

The Shumacher complaint was voluntarily dismissed on April 9, 2021.

On March 31, 2022, the Company entered into an agreement which will provide the Company a license to the Monterey Research patents.

The agreement did not have a material adverse effect on the Company’s financial condition, cash flows, or results of operation.

Analog Devices Litigation

On December 5, 2019, Analog Devices, Inc.

(ADI) filed a lawsuit against Xilinx alleging infringement of eight patents related to switching circuits, comparators, analog to digital convertors, signal conditioners, and switched capacitors.

On January 21, 2020, Xilinx filed its answer and counterclaims alleging infringement by ADI of eight patents related to digital to analog converters, serializing data paths, transceivers, networks on chip, termination circuits, and data transmitters.

In November 2022, the Company and Analog Devices, Inc.

resolved all ongoing patent litigations, based on mutually agreed upon terms.

As part of this resolution, the two companies have committed to pursue technology collaborations to bring next generation solutions to their communications and data center customers.

The agreement did not have a material adverse effect on the Company’s financial condition, cash flows, or results of operations.

Future Link Systems Litigation

On December 21, 2020, Future Link Systems, LLC filed a patent infringement complaint against the Company in the United States District Court for the Western District of Texas.

Future Link Systems alleges that the Company infringes three U.S.

On December 21, 2020, Future Link Systems, LLC (Future Link) filed a patent infringement complaint against the Company in the United States District Court for the Western District of Texas.

Future Link alleges that the Company infringes three U.S.

7,983,888 (related to simulated PCI express circuitry);

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and 6,622,108 (related to interconnect testing).

Future Link Systems seeks unspecified monetary damages, enhanced damages, interest, fees, expenses, costs, and injunctive relief against the Company.

On March 22, 2021, the Company filed its answer to Future Link Systems’ complaint and also filed counterclaims based on Future Link Systems’ breach of the parties’ pre-suit non-disclosure agreement.

On April 12, 2021, Future Link Systems filed its answer to the Company’s counterclaims.

On June 3, 2021, the Company filed a motion to transfer the case to Austin, Texas.

On October 14, 2021, the Court issued an order construing certain terms in the asserted patents.

On November 22, 2021, the case was reassigned to the Austin division.

On January 5, 2022, the Company filed a motion to strike Future Link System’s infringement contentions, and Future Link Systems filed a response on January 19, 2022.

On January 14, 2022, the USPTO instituted an IPR trial for one of the three patents in suit.

On December 21, 2021, Future Link Systems LLC filed a lawsuit alleging infringement of two patents related to power management.

The Company was served with the complaint on December 28, 2021.

On December 28, 2021, Future Link Systems LLC filed a complaint at the United States International Trade Commission alleging infringement of the same two power management patents.

On December 21, 2021, Future Link filed a lawsuit alleging infringement of two U.S.

patents (8,099,614 and 7,685,439) related to power management.

On December 28, 2021, Future Link filed a complaint at the United States International Trade Commission alleging infringement of the same two power management patents.

Several of the Company’s customers were also named as respondents.

On January 26, 2022, the USITC announced that it would institute the investigation.

Based upon information presently known to management, the Company believes that the potential liability of the above listed legal proceedings, if any, will not have a material adverse effect on its financial condition, cash flows or results of operations.

On March 31, 2022, the Company entered into an agreement which will provide the Company a license to the Future Link patents.

The agreement did not have a material adverse effect on the Company’s financial condition, cash flows, or results of operations.

Environmental Matters

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With respect to these matters, based on the management’s current knowledge, the Company believes that the amount or range of reasonably possible loss, if any, will not, either individually or in the aggregate, have a material adverse effect on the Company’s financial position, results of operations, or cash flows.

NOTE 18 - Pending Acquisition

On October 26, 2020, the Company entered into an Agreement and Plan of Merger (the Merger Agreement) with Thrones Merger Sub, Inc., the Company’s wholly owned subsidiary (Merger Sub), and Xilinx, Inc.

(Xilinx), whereby Merger Sub will merge with and into Xilinx (the Merger), with Xilinx surviving such Merger as a wholly owned subsidiary of the Company.

Under the Merger Agreement, at the effective time of the Merger (the Effective Time), each share of common stock of Xilinx (Xilinx Common Stock) issued and outstanding immediately prior to the Effective Time (other than treasury shares and any shares of Xilinx Common Stock held directly by the Company or Merger Sub) will be converted into the right to receive 1.7234 fully paid and non-assessable shares of the Company’s common stock and, if applicable, cash in lieu of fractional shares, subject to any applicable withholding.

As of the signing of the Merger Agreement, the transaction was valued at $35 billion.

The actual valuation of the transaction could differ significantly from the estimated amount due to movements in the price of the Company’s common stock, the number of shares of Xilinx common stock outstanding on the closing date of the Merger and other factors.

Under the Merger Agreement, the Company will be required to pay a termination fee to Xilinx equal to $ 1.5 billion if the Merger Agreement is terminated in certain circumstances, including if the Merger Agreement is terminated because the Company’s board of directors has changed its recommendation.

The Company will be required to pay a termination fee equal to $ 1.0 billion if the Merger Agreement is terminated in certain circumstances related to the failure to obtain required regulatory approvals prior to October 26, 2021 (subject to automatic extension first to January 26, 2022 and then to April 26, 2022, in each case, to the extent the regulatory closing conditions remain outstanding).

On April 7, 2021, the Company’s stockholders voted to approve all the proposals relating to the Merger at a special meeting of stockholders.

Xilinx stockholders also voted to approve their respective proposals relating to the Merger at a Xilinx special meeting held on the same day.

The closing of the Merger is subject to customary conditions, including regulatory approval.

The Merger is currently expected to close in the first quarter of 2022.

NOTE 19 - Subsequent Events

Subsequent to December 25, 2021, through the date of issuance of these consolidated financial statements (the “issuance date”), the Company repurchased $ 1.0 billion of its common stock under the Repurchase Program.

As of the issuance date, $ 1.2 billion remained available for future stock repurchases under the Repurchase Program.

Report of Independent Registered Public Accounting Firm

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We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 27, 2023 expressed an unqualified opinion thereon.

Change in Accounting Principle

As discussed in Note 2 to the consolidated financial statements, the Company has elected to change its method of accounting for the United States Global Intangible Low-Taxed Income (GILTI) tax to recognize deferred taxes for temporary tax basis differences expected to reverse as GILTI tax in future years.

Basis for Opinion

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We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Inventory Valuation

Description of the Matter At December 31, 2022, the Company’s net inventory balance was $3,771 million.

As discussed in Note 2 of the consolidated financial statements, the Company adjusts the inventory carrying value to the lower of actual cost or the estimated net realizable value after completing ongoing reviews of on-hand inventory quantities exceeding forecasted demand, by considering recent historical activity as well as anticipated or forecasted demand.

As discussed in Note 2 to the consolidated financial statements, the Company adjusts the inventory carrying value to the lower of actual cost or the estimated net realizable value after completing ongoing reviews of on-hand inventory quantities exceeding forecasted demand and by considering recent historical activity as well as anticipated demand.

Auditing management’s inventory carrying value adjustments involved significant judgment because the estimates are based on several factors that are affected by market, industry, and competitive conditions outside the Company's control.

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Our audit procedures included, among others, testing the reasonableness of management’s key assumptions and judgments and testing the accuracy and completeness of the underlying data used to determine the amount of inventory carrying value adjustments.

For instance, we compared the quantities and carrying value of on-hand inventories to related unit sales, both historical and forecasted, assessed the reasonableness of management’s estimates of future sales prices by analyzing historical sales and evaluating any factors that may impact sales prices, and evaluated the appropriateness and adequacy of management’s adjustments to such sales forecasts by analyzing potential technological changes in line with product life cycles and/or identified alternative customer uses.

We also assessed the accuracy of forecasts underlying management's estimates by comparing management’s historical forecasts to actual results, evaluated industry and market factors and performed sensitivity analyses over the significant assumptions used by management to evaluate necessary changes in the inventory carrying value adjustments.

Business Combination

Description of the Matter

During fiscal year 2022, the Company completed the acquisition of Xilinx, Inc.

(“Xilinx”) for consideration of $48.8 billion, as disclosed in Note 5 to the consolidated financial statements.

The transaction was accounted for as a business combination.

Auditing the Company's accounting for its acquisition of Xilinx was complex due to the significant estimation uncertainty in the Company’s determination of the fair value of certain identified intangible assets, principally consisting of developed technology and customer relationships.

The significant estimation uncertainty was primarily due to the sensitivity of the respective fair values to underlying assumptions about the future performance of the acquired business.

The Company used a discounted cash flow model to measure the developed technology and customer relationship intangible assets.

The significant assumptions used to estimate the value of these intangible assets included certain assumptions that form the basis of the forecasted results, specifically, revenue growth rates, technology migration curves, and time to recreate customer relationships.

These significant assumptions are forward looking and could be affected by future economic and market conditions.

How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s accounting for the acquisition.

This included testing controls over the estimation process supporting the recognition and measurement of the developed technology and customer relationships intangible assets, including the valuation models and underlying assumptions used to develop such estimates.

To test the estimated fair value of the developed technology and customer relationships intangible assets, we performed audit procedures that included, among others, evaluating the Company's selection of the valuation methodology, evaluating the methods and significant assumptions used by the Company, and evaluating the completeness and accuracy of the underlying data supporting the significant assumptions and estimates.

For example, we compared the significant assumptions to current industry, market and economic trends and to the Company's budgets and forecasts, and Xilinx’s historical operating results.

We involved our valuation specialists to assist with our evaluation of the methodology used by the Company and significant assumptions included in the fair value estimates.

Our valuation specialists’ procedures included, among others, developing a range of independent estimates for the discount rates used in the valuation models and comparing those to the discount rates selected by management.

/s/ Ernst & Young LLP

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data