What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2021-01-29 compared with 2020-02-04 · 529 added, 487 removed, 674 unchanged (60% of the section changed)

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Consolidated Statements of Operations

2020 December 28,

2019 December 29,

(In millions, except per share amounts)

Net revenue $ 9,763 $ 6,731 $ 6,475

Cost of sales 5,416 3,863 4,028

Gross profit 4,347 2,868 2,447

Research and development 1,983 1,547 1,434

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Other expense, net ( 47 ) ( 165 ) —

Income (loss) before income taxes and equity loss

Provision for (benefit from) income taxes

Equity loss in investee

Net income (loss)

Earnings (loss) per share

Income before income taxes and equity income (loss) 1,275 372 330

Income tax provision (benefit) ( 1,210 ) 31 ( 9 )

Equity income (loss) in investee 5 — ( 2 )

Net income $ 2,490 $ 341 $ 337

Earnings per share

Basic $ 2.10 $ 0.31 $ 0.34

Diluted $ 2.06 $ 0.30 $ 0.32

Shares used in per share calculation

Basic 1,184 1,091 982

Diluted 1,207 1,120 1,064

See accompanying notes to consolidated financial statements.

Advanced Micro Devices, Inc.

Consolidated Statements of Comprehensive Income (Loss)

Consolidated Statements of Comprehensive Income

2020 December 28,

2019 December 29,

(In millions)

Net income (loss)

Other comprehensive income (loss), net of tax of zero:

Unrealized gains (losses) on available-for-sale securities:

Unrealized gains arising during period

Unrealized gains (losses) on cash flow hedges:

Unrealized gains (losses) arising during period

Reclassification adjustment for (gains) losses realized and included in net income (loss)

Total change in unrealized gains (losses) on cash flow hedges

Net income $ 2,490 $ 341 $ 337

Other comprehensive income (loss)

Net change in unrealized gains (losses) on cash flow hedges 17 8 ( 14 )

Cumulative-effect adjustment to accumulated deficit related to the adoption of ASU 2016-01, Financial Instruments — — 2

Total comprehensive income (loss)

Total comprehensive income $ 2,507 $ 349 $ 325

See accompanying notes to consolidated financial statements.

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Consolidated Balance Sheets

2020 December 28,

(In millions, except par value amounts)

1 unchanged sentence

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

Marketable securities

Short-term investments 695 37

Accounts receivable, net 2,066 1,859

Inventories, net

Prepayment and receivables—related parties

Inventories 1,399 982

Receivables from related parties 10 20

Prepaid expenses and other current assets 378 233

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Operating lease right-of-use assets 208 205

Goodwill 289 289

equity method 63 58

Deferred tax assets 1,245 22

Other non-current assets 373 357

Total assets $ 8,962 $ 6,028

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Short-term debt, net

Accounts payable $ 468 $ 988

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Common stock, par value $ 0.01 ;

2,250 shares authorized, 1,175 shares issued and 1,170 shares outstanding as of December 28, 2019;

2,250 shares authorized, 1,010 shares issued and 1,005 shares outstanding as of December 29, 2018

shares authorized:

shares issued:

1,217 and 1,175 ;

shares outstanding:

1,211 and 1,170

Additional paid-in capital 10,544 9,963

Treasury stock, at cost (5 shares as of December 28, 2019 and December 29, 2018)

Treasury stock, at cost (shares held:

( 131 ) ( 53 )

Accumulated deficit ( 4,605 ) ( 7,095 )

Accumulated other comprehensive income (loss)

Accumulated other comprehensive income 17 —

Total stockholders’ equity 5,837 2,827

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Consolidated Statements of Stockholders’ Equity

2020 December 28,

2019 December 29,

(In millions)

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Balance, beginning of period $ 12 $ 10 $ 9

Common stock issued under employee equity

incentive plans, net of tax withholding

Common stock issued under employee equity plans — — 1

Issuance of common stock upon warrant exercise — 1 —

Issuance of common stock to partially settle convertible debt

Issuance of common stock to settle convertible debt — 1 —

Balance, end of period $ 12 $ 12 $ 10

1 unchanged sentence

Balance, beginning of period $ 9,963 $ 8,750 $ 8,464

Common stock issued under employee equity

incentive plans, net of tax withholding

Common stock issued under employee equity plans 85 74 71

Stock-based compensation 274 197 137

Issuance of common stock upon warrant exercise — 448 —

Issuance of common stock to partially settle convertible debt, net

Issuance of common stock to settle convertible debt 217 485 —

Issuance of treasury stock to partially settle debt — 4 78

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Balance, beginning of period $ ( 53 ) $ ( 50 ) $ ( 108 )

Purchase of treasury stock for tax withholding

under employee equity incentive plans

Common stock repurchases for tax withholding on employee equity plans ( 78 ) ( 6 ) ( 6 )

Issuance of treasury stock to partially settle debt — 3 64

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Balance, beginning of period $ ( 7,095 ) $ ( 7,436 ) $ ( 7,775 )

Net income (loss)

Cumulative effect adjustment to accumulated

deficit related to the adoption of ASU

2016-01, Financial Instruments

Net income 2,490 341 337

Cumulative effect adjustment to accumulated deficit related to the adoption of ASU 2016-01, Financial Instruments — — 2

Balance, end of period $ ( 4,605 ) $ ( 7,095 ) $ ( 7,436 )

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Consolidated Statements of Cash Flows

2020 December 28,

2019 December 29,

(In millions)

Cash flows from operating activities:

Net income (loss)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Net income $ 2,490 $ 341 $ 337

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization 312 222 170

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Deferred income taxes ( 1,223 ) ( 7 ) ( 4 )

Other 6 ( 2 ) ( 1 )

Changes in operating assets and liabilities:

Accounts receivable

Prepayment and receivables—related parties

Accounts receivable, net ( 219 ) ( 623 ) ( 806 )

Inventories ( 417 ) ( 137 ) ( 151 )

Receivables from related parties 10 14 ( 28 )

Prepaid expenses and other assets ( 231 ) ( 176 ) ( 70 )

Payables to related parties ( 135 ) 7 35

Accounts payable, accrued liabilities and other

Accounts payable ( 513 ) 153 212

Accrued liabilities and other 574 220 81

Net cash provided by operating activities 1,071 493 34

Cash flows from investing activities:

Purchases of available-for-sale debt securities

Purchases of property and equipment ( 294 ) ( 217 ) ( 163 )

Proceeds from maturity of available-for-sale debt securities

Purchases of short-term investments ( 850 ) ( 284 ) ( 123 )

Proceeds from maturity of short-term investments 192 325 45

Collection of deferred proceeds on sale of receivables — 25 71

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Cash flows from financing activities:

Proceeds from issuance of common stock through employee equity incentive plans

Proceeds from (repayments of) short-term debt

Proceeds from warrant exercised by related party

Payments to extinguish long-term debt

Net cash provided by (used in) financing activities

Proceeds from short-term borrowings 200 — —

Repayments and extinguishment of debt ( 200 ) ( 473 ) ( 41 )

Proceeds from warrant exercise — 449 —

Proceeds from sales of common stock through employee equity plans 85 74 70

Common stock repurchases for tax withholding on employee equity plans

( 78 ) ( 6 ) ( 6 )

Other ( 1 ) ( 1 ) 5

Net cash provided by financing activities 6 43 28

Net increase (decrease) in cash and cash equivalents, and restricted cash 125 387 ( 108 )

1 unchanged sentence

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

2020 December 28,

2019 December 29,

(In millions)

1 unchanged sentence

Cash paid during the year for:

Interest $ 31 $ 67 $ 79

Income taxes, net of refund $ 8 $ ( 4 ) $ ( 8 )

1 unchanged sentence

Purchases of property and equipment, accrued but not paid $ 31 $ 65 $ 49

Issuance of common stock to partially settle convertible debt

Issuance of common stock to settle convertible debt $ 217 $ 377 $ —

Transfer of assets for the acquisition of property and equipment $ 111 $ 115 $ 28

Issuance of treasury stock to partially settle debt $ — $ 7 $ 141

Deferred proceeds on sale of receivables $ — $ — $ 25

Transfer of assets for the acquisition of property and equipment

Non-cash activities for leases:

Operating lease right-of-use assets acquired by assuming related liabilities $ 45 $ 22 $ —

Reconciliation of cash, cash equivalents and restricted cash

Cash and cash equivalents $ 1,595 $ 1,466 $ 1,078

Restricted cash included in Other current assets

Restricted cash included in Other assets

Restricted cash included in Prepaid expense and other current assets $ — $ 4 $ 5

Total cash, cash equivalents and restricted cash $ 1,595 $ 1,470 $ 1,083

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Notes to Consolidated Financial Statements

NOTE 1 – The Company

Advanced Micro Devices, Inc.

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and its consolidated subsidiaries.

Summary of Significant Accounting Policies

AMD’s products include x86 microprocessors (CPUs), accelerated processing units which integrate microprocessors and graphics (APUs), discrete graphics processing units (GPUs), semi-custom System-on-Chip (SOC) products and chipsets for the PC, gaming, datacenter and embedded markets.

In addition, AMD provides development services and sells or licenses portions of its intellectual property portfolio.

NOTE 2 – Summary of Significant Accounting Policies

Fiscal Year .

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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 impairment of goodwill and deferred income taxes.

Basis of Presentation .

Effective in the first quarter of 2018, the Company adopted Accounting Standard Update (ASU) 2014-09, Revenue from Contracts with Customers (ASC 606), using the full retrospective method, which required the Company to adjust prior reporting periods presented.

The 2017 amounts presented in the consolidated financial statements and notes to the consolidated financial statements were previously adjusted in the Company’s 2018 Form 10-K to reflect the retrospective application.

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.

Revenue Recognition

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Shipping and handling costs associated with product sales are included in cost of sales.

Nature of products and services

The Company’s microprocessors (CPUs), chipsets, graphics processing unites (GPUs), data center and professional graphics products, accelerated processing units (APUs), server and embedded processors, and System-on-Chip (SoC) products may be sold as standard non-custom products, or custom products manufactured to customers’ specifications.

The Company also provides development services and licenses portions of its intellectual property (IP) portfolio.

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

Non-custom products

The Company transfers control and recognizes revenue when non-custom products are shipped to customers, which includes original equipment manufacturers (OEM) and distributors, in accordance with the shipping terms of the sale.

Non-custom product arrangements generally comprise a single performance obligation.

Certain OEMs may be entitled to rights of return and rebates under OEM agreements.

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For transactions where the Company reimburses a customer for a portion of the customer’s cost to perform specific product advertising or marketing and promotional activities, such amounts are recognized as a reduction to revenue unless they qualify for expense recognition.

Constraints of variable consideration have not been material.

Custom products

at contract inception, are recognized as revenue, based on the value of the inventory and expected margin, over the time of production of the products by the Company.

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.

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.

The Company believes that a cost-based input method is the most appropriate manner to measure how the Company satisfies its performance obligations to customers because the effort and costs incurred best depict the Company’s satisfaction of its performance obligation.

Sales of semi-custom products are not subject to a right of return.

Custom products arrangements involve a single performance obligation.

There are no variable consideration estimates associated with custom products.

Development and intellectual property licensing agreements

From time to time, the Company may enter into arrangements with customers that combine the provision of development services and a license to the right to use the IP.

From time to time, the Company may enter into arrangements with customers that combine the provision of development services and a license to the right to use the Company’s IP.

These arrangements are deemed to be single or multiple performance obligations based upon the nature of the arrangements.

Revenue is recognized upon the transfer of control, over time or at a point in time, depending on the nature of the arrangements.

The Company evaluates whether the licensing component is distinct.

A licensing component is distinct if it is both (i) capable of being distinct and (ii) distinct in the context of the arrangement.

If the license is not distinct it is combined with the development services as a single performance obligation and recognized over time.

If the license is distinct, revenue is recognized at a point in time when the customer has the ability to benefit from the license.

From time to time, the Company may enter into arrangements with customers that solely involve the sale or licensing of its patents or IP.

Generally, there are no performance obligations beyond transferring the designated license to the Company’s patents or IP.

Accordingly, revenue is recognized at a point in time when the customer has the ability to benefit from the license.

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

Total revenue recognized over time associated with custom products and development services accounted for approximately 18 %, 19 % and 29 % of the Company’s revenue in 2020, 2019 and 2018, respectively.

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.

Inventories are stated at standard cost adjusted to approximate the lower of actual cost (first-in, first-out method) or estimated net realizable value.

The Company adjusts inventory carrying value for estimated excess and obsolescence equal to the difference between the cost of inventory and the estimated net realizable value based upon assumptions about anticipated or forecasted demand, estimates of future selling prices, competitiveness of product offerings, market and industry conditions, customer requirements and product life cycles.

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.

In determining excess or obsolescence reserves for its products, the Company considers assumptions such as changes in business and economic conditions, other-than-temporary decreases in demand for its products, and changes in technology or customer requirements.

In determining the lower of cost or net realizable value reserves, the Company considers assumptions such as recent historical sales activity and selling prices, as well as estimates of future selling prices.

The Company fully reserves for inventories and non-cancellable purchase orders for inventory deemed obsolete.

The Company performs periodic reviews of inventory items to identify excess inventories on hand by comparing on-hand balances to anticipated usage using recent historical activity as well as anticipated or forecasted demand.

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

The Company performs periodic reviews of inventory items to identify excess inventories on hand by comparing on-hand balances and non-cancellable purchase orders to anticipated usage using recent historical activity as well as anticipated or forecasted demand.

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 .

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.

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

The Company first analyzes qualitative factors.

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.

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 the 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.

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 the reporting unit’s fair value is less than its carrying value.

Any loss recognized should not exceed the total amount of goodwill allocated to that reporting unit.

Commitments and Contingencies.

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.

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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.

Cash Equivalents and Short-term Investments

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.

Accounts Receivable.

Accounts receivable are primarily comprised of trade receivables presented net of rebates, price protection and an allowance for doubtful accounts.

Accounts receivable also include unbilled receivables, which primarily represent work completed on semi-custom products under non-cancellable purchase orders that have no alternative use to the Company at contract inception, for which revenue has been recognized but not yet invoiced to customers.

The Company maintains an allowance for doubtful accounts based on its assessment of the collectability of amounts owed by customers.

The allowance consists of known specific troubled accounts as well as an amount based on overall estimated potential uncollectible accounts receivable based on historical experience.

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.

Investments in Available-for-sale Debt Securities

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Available-for-sale debt securities are reported at fair value with the related unrealized gains and losses included, net of tax, in accumulated other comprehensive income (loss), a component of stockholders’ equity.

Realized gains and losses and declines in the value of available-for-sale debt securities determined to be other than temporary are included in other expense, net.

If an available-for-sale debt security’s fair value is less than its amortized cost basis, then the Company evaluates whether the decline is the result of a credit loss, in which case an impairment is recorded through an allowance for credit losses.

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.

The Company classifies investments in available-for-sale debt securities with maturities of more than three months at the time of purchase as marketable securities on its consolidated balance sheets.

Classification of these 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.

Derivative Financial Instruments.

The Company maintains a foreign currency hedging strategy which uses derivative financial instruments to mitigate the risks associated with changes in foreign currency exchange rates.

This strategy takes into consideration some of the Company’s consolidated exposures.

The Company does not use derivative financial instruments for trading or speculative purposes.

In applying its strategy, the Company uses foreign currency forward contracts to hedge certain forecasted revenue and expenses denominated in foreign currencies.

The Company designates these contracts as cash flow hedges of forecasted revenue and expenses, to the extent eligible under the accounting rules, and evaluates hedge effectiveness prospectively and retrospectively.

To the extent such hedges are effective, the Company records the gain or loss on these contracts as a component of accumulated other comprehensive income (loss) and it reclassifies such gains or losses to earnings in the same period during which the hedged transaction affects earnings.

Such amounts are included in the same line item in earnings as the associated forecasted transaction.

The Company also uses, from time to time, foreign currency forward contracts to economically hedge recognized foreign currency exposures on the balance sheets of various subsidiaries.

The Company does not designate these forward contracts as hedging instruments.

Accordingly, the gain or loss associated with these contracts is immediately recorded in Other expense, net.

Accounts Receivable

Accounts receivable are primarily comprised of trade receivables presented net of rebates, price protection and an allowance for doubtful accounts.

Accounts receivable also include unbilled receivables, which primarily represent work completed on development services recognized as revenue but not yet invoiced to customers and semi-custom products under non-cancellable purchase orders that have no alternative use to the Company at contract inception, for which revenue has been recognized but not yet invoiced to customers.

All unbilled accounts receivables are expected to be billed and collected within twelve months.

The Company manages its exposure to customer credit risk through credit limits, credit lines, ongoing monitoring procedures and credit approvals.

Furthermore, the Company performs in-depth credit evaluations of all new customers and, at intervals, for existing customers.

From this, the Company may require letters of credit, bank or corporate guarantees or advance payments if deemed necessary.

The Company maintains an allowance for doubtful accounts, consisting of known specific troubled accounts as well as an amount based on overall estimated

potential uncollectible accounts receivable based on historical experience and review of their current credit quality.

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

Property and Equipment

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As allowed by the guidance, the Company has elected not to recognize ROU assets and lease liabilities that arise from short-term (12 months or less) leases for any class of underlying asset.

Operating leases are included in operating lease ROU assets, other current liabilities, and long-term operating lease liabilities on the Company’s consolidated balance sheet.

Operating leases are included in operating lease ROU assets, other current liabilities, and long-term operating lease liabilities on the Company’s consolidated balance sheets.

The Company’s finance leases are immaterial.

Product Warranties.

The Company generally warrants that its products sold to its customers will conform to its approved specifications and be free from defects in material and workmanship under normal use and conditions for one year .

The Company may also offer one to three -year limited warranties based on product type and negotiated warranty terms with certain customers.

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

Foreign Currency Translation/Transactions

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dollars at current exchange rates for monetary assets and liabilities and historical exchange rates for non-monetary assets and liabilities.

dollar denominated transactions have been remeasured at average exchange rates in effect during each period, except for those cost of sales and expense

transactions related to non-monetary balance sheet amounts which have been remeasured at historical exchange rates.

dollar denominated transactions have been remeasured at average exchange rates in effect during each period, except for those cost of sales and expense transactions related to non-monetary balance sheet amounts which have been remeasured at historical exchange rates.

The gains or losses from foreign currency remeasurement are included in earnings.

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Stock-Based Compensation

The Company estimates stock-based compensation cost for stock options at the grant date based on the option’s fair value as calculated by the lattice-binomial option-pricing model.

For time-based restricted stock units, fair value is based on the closing price of the Company’s common stock on the grant date.

The Company estimates the grant-date fair value of restricted stock units that involve a market condition using the Monte Carlo simulation model.

The Company estimates the grant-date fair value of stock to be issued under the ESPP using the Black-Scholes model.

Compensation expense is recognized over the vesting period of the applicable award using the straight-line method, except for the compensation expense related to PRSUs, which are recognized ratably for each vesting tranche from the service inception date to the end of the requisite service period.

The Company estimates stock-based compensation cost for stock options at the grant date based on the option’s fair value as calculated by the Black-Scholes model.

For time-based restricted stock units (RSUs), fair value is based on the closing price of the Company’s common stock on the grant date.

The Company estimates the grant-date fair value of RSUs that involve a market condition using the Monte Carlo simulation model.

The Company estimates the grant-date fair value of stock to be issued under the Employee Stock Purchase plan (ESPP) using the Black-Scholes model.

Compensation expense is recognized over the vesting period of the applicable award using

the straight-line method, except for the compensation expense related to RSUs with performance or market conditions (PRSUs), which are recognized ratably for each vesting tranche from the service inception date to the end of the requisite service period.

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

Income Taxes.

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.

The Company measures deferred tax assets and liabilities using tax rates applicable to taxable income in effect for the years in which those tax assets are expected to be realized or settled and provides a valuation allowance against deferred tax assets when it cannot conclude that it is more likely than not that some or all deferred tax assets will be realized.

The assessment requires significant judgment and is performed in each of the applicable taxing jurisdictions.

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

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Recently Adopted Accounting Standards

In February 2016, the Financial Accounting Standards Board (FASB) issued ASU 2016-02, Leases (Topic 842) , to increase transparency and comparability among organizations for lease recognition and disclosure.

This standard requires lessees to recognize lease assets and lease liabilities on the balance sheet, while recognizing expenses on the income statements in a manner similar to legacy guidance.

The Company adopted this standard in the first quarter of 2019, using the optional modified retrospective approach, which did not require an adjustment to comparative period financial statements, and recorded $ 228 million of right-of-use assets and $ 261 million of lease liabilities primarily related to office buildings on its consolidated balance sheet as of December 30, 2018.

The Company’s accounting for capital leases, now referred to as finance leases, remains unchanged.

The adoption of the new standard had no impact on the Company’s consolidated statement of operations or on net cash provided by or used in operating, financing, or investing activities on its consolidated statement of cash flows.

Upon adoption of ASU 2016-02, the Company elected a transition practical expedient under the new accounting standard allowing it not to separate lease and non-lease components and instead to account for each separate lease component and non-lease component as a single lease component.

The Company implemented internal controls and key system functionality to enable the preparation of financial information on adoption.

Recently Issued Accounting Standards

Financial Instruments.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments .

In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-13, Financial Instruments — Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments .

This standard changes the methodology for measuring credit losses on financial instruments and the timing of when such losses are recorded.

ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, using a modified retrospective adoption method.

The Company will adopt this standard in the first quarter of 2020 and the adoption will not have a material impact on its consolidated financial statements.

Income Taxes.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes .

This standard simplifies the accounting for income taxes by eliminating certain exceptions to the guidance in Topic 740 related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences.

The new guidance also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill and allocating consolidated income taxes to separate financial statements of entities not subject to income tax.

ASU 2019-12 is effective for fiscal years beginning after December 15, 2020, with early adoption permitted.

Upon adoption, the Company must apply certain aspects of this standard retrospectively for all periods presented while other aspects are applied on a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption.

The Company adopted this standard in the first quarter of 2020 using the modified retrospective adoption method.

This standard did not have an impact on the consolidated financial statements upon adoption.

Recently Issued Accounting Standards

In August 2020, the FASB issued ASU 2020-06, Debt — Debt with Conversion and Other Options (Subtopic 470-20) and Contracts in Entity’s Own Equity (Subtopic 815-40), Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity.

This standard simplifies the accounting for convertible instruments and its application of the derivatives scope exception for contracts in its own equity by eliminating some of the models that require separating embedded conversion features from convertible instruments.

The guidance also addresses how convertible instruments are accounted for in the diluted earnings per share calculation and enhances disclosures about the terms of convertible instruments and contracts in an entity’s own equity.

The standard is effective for fiscal years beginning after December 15, 2021, with early adoption permitted, and can be adopted through either a modified retrospective method with a cumulative effect adjustment to opening retained earnings or a full retrospective method.

The Company is currently evaluating the impact of this new standard on its consolidated financial statements.

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.

Supplemental Balance Sheet Information

NOTE 3 – Supplemental Financial Statement Information

Short-term Investments

As of December 26, 2020, the Company had $ 400 million of time deposits and $ 295 million of commercial paper.

As of December 28, 2019, the Company had $ 37 million of commercial paper.

Accounts Receivable, net

As of December 26, 2020 and December 28, 2019, Accounts receivable, net included unbilled accounts receivable of $ 123 million and $ 197 million, respectively.

Unbilled receivables primarily represent work completed on semi-custom products under non-cancellable purchase orders that have no alternative use to the Company at contract inception, for which revenue has been recognized but not yet invoiced to customers.

All unbilled accounts receivables are expected to be billed and collected within 12 months.

Inventories, net

2020 December 28,

(In millions)

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Finished goods 167 197

Total inventories, net

Total inventories $ 1,399 $ 982

Property and Equipment, net

2020 December 28,

(In millions)

Leasehold improvements $ 208 $ 203

Equipment 1,209 951

Construction in progress 136 114

Property and equipment, gross 1,553 1,268

Accumulated depreciation and amortization

Accumulated depreciation ( 912 ) ( 768 )

Total property and equipment, net $ 641 $ 500

Depreciation expense for 2020, 2019 and 2018 was $ 217 million, $ 142 million and $ 94 million, respectively.

Other Non-current Assets

2020 December 28,

(In millions)

Software and technology licenses, net $ 229 $ 210

Total other assets

During 2018, the Company recorded an impairment charge in Cost of sales of $ 45 million on technology licenses that are no longer being used.

Other 144 147

Total other non-current assets $ 373 $ 357

Accrued Liabilities

2020 December 28,

(In millions)

Accrued compensation and benefits $ 513 $ 285

Marketing programs and advertising expenses

Accrued marketing programs and advertising expenses 839 454

Other accrued and current liabilities 444 345

Total accrued liabilities $ 1,796 $ 1,084

Other Current Liabilities

(In millions)

Unearned Revenue

Operating lease liabilities

Total other current liabilities

Unearned revenue represents consideration received or due from customers in advance of the Company satisfying its performance obligations.

1 unchanged sentence

Changes in unearned revenue were as follows:

2020 December 28,

(In millions)

3 unchanged sentences

Ending balance $ 15 $ 2

Revenue allocated to remaining performance obligations that are unsatisfied (or partially unsatisfied) as of December 28, 2019 is $ 456 million , which may include amounts received from customer but not yet earned and amounts that will be invoiced and recognized as revenue in future periods associated with any combination of development services, IP licensing and product revenue.

The Company expects to recognize $ 188 million in the next 12 months .

The revenue allocated to remaining performance obligations did not include amounts which have an original expected duration of less than one year.

Equity Joint Ventures

Revenue allocated to remaining performance obligations that are unsatisfied (or partially unsatisfied) as of December 26, 2020 was $ 337 million, which may include amounts received from customers but not yet earned and amounts that will be invoiced and recognized as revenue in future periods associated with any combination of development services, IP licensing and product revenue.

The Company expects to recognize $ 174 million of revenue allocated to remaining performance obligations in the next 12 months.

The revenue allocated to remaining performance obligations did not include amounts which have an original expected duration of one year or less.

NOTE 4 – Related Parties—Equity Joint Ventures

ATMP Joint Venture s

The Company holds a 15 % equity interest in two joint ventures (collectively, the ATMP JV) with Tongfu Microelectronics Co., Ltd, a Chinese joint stock company, and as such, the ATMP JV is a related party of the Company.

The Company holds a 15 % equity interest in two joint ventures (collectively, the ATMP JV) with affiliates of Tongfu Microelectronics Co., Ltd, a Chinese joint stock company.

The Company has no obligation to fund the ATMP JV.

2 unchanged sentences

The Company assists the ATMP JV in its management of certain raw material inventory.

The purchases from and resales to the ATMP JV of inventory under

inventory management is reported within purchases and resales with the ATMP JV and does not impact the Company’s consolidated statement of operations.

The Company’s total purchases from the ATMP JV during 2019 and 2018 amounted to $ 660 million and $ 574 million , respectively.

As of December 28, 2019 and December 29, 2018 , the amount payable to the ATMP JV was $ 213 million and $ 207 million , respectively, included in Payables to related parties on the Company’s consolidated balance sheets.

The Company’s resales back to the ATMP JV during 2019 and 2018 amounted to $ 56 million and $ 62 million , respectively.

As of December 28, 2019 and December 29, 2018 , the Company had receivables from ATMP JV of $ 7 million and $ 16 million , respectively, included in Prepayment and receivables—related parties on the Company’s consolidated balance sheets.

During 2019, the Company did no t record any gain or loss in Equity loss in investee on its consolidated statements of operations.

During 2018 and 2017 , the Company recorded $ 2 million and $ 7 million , respectively, in Equity loss in investee , which included certain expenses incurred by the Company on behalf of the ATMP JV.

As of December 28, 2019 and December 29, 2018 , the carrying value of the Company’s investment in the ATMP JV was approximately $ 58 million .

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 2020 and 2019 amounted to $ 831 million and $ 660 million, respectively.

As of December 26, 2020 and December 28, 2019, the amounts payable to the ATMP JV were $ 78 million and $ 213 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 2020 and 2019 amounted to $ 28 million and $ 56 million, respectively.

As of December 26, 2020 and December 28, 2019, the Company had receivables from ATMP JV of $ 10 million and $ 7 million, respectively, included in Receivables from related parties on the Company’s consolidated balance sheets.

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

During 2019, the Company did no t record any gain or loss in Equity income (loss) in investee.

During 2018, the Company recorded a $ 2 million loss in Equity income (loss) in investee, which included certain expenses incurred by the Company on behalf of the ATMP JV.

As of December 26, 2020 and December 28, 2019, the carrying value of the Company’s investment in the ATMP JV were approximately $ 63 million and $ 58 million, respectively.

THATIC Joint Ventures

In February 2016, the Company and Higon Information Technology Co., Ltd.

(THATIC), a third-party Chinese entity (JV Partner), formed a joint venture comprised of two separate legal entities, China JV1 and China JV2 (collectively, the THATIC JV).

The Company’s equity share in China JV1 and China JV2 is a majority and minority interest, respectively, funded by the Company’s contribution of certain of its patents.

The JV Partner is responsible for the initial and on-going financing of the THATIC JV’s operations.

The Company has no obligations to fund the THATIC JV.

The Company does not consolidate either of these entities and accounts for its investments in the THATIC JV under the equity method of accounting.

The THATIC JV is a related party of the Company.

The Company’s share in the net losses of the THATIC JV for 2019 is not recorded in the Company’s consolidated statements of operations since the Company is not obligated to fund the THATIC JV’s losses in excess of the Company’s investment in the THATIC JV, which was zero as of December 28, 2019 .

The Company holds equity interests in two joint ventures (collectively, the THATIC JV) with Higon Information Technology Co., Ltd.

(THATIC), a third-party Chinese entity.

The Company holds a majority interest in one of the joint ventures and a minority interest in the other.

The Company is not a primary beneficiary of the THATIC JV and, as such, the Company does not consolidate either of these entities and accounts for its equity interests in the THATIC JV under the equity method of accounting.

The Company’s share in the net losses of the THATIC JV is not recorded in the Company’s consolidated statements of operations since the Company is not obligated to fund the THATIC JV’s losses in excess of the Company’s investment in the THATIC JV, which was zero as of both December 26, 2020 and December 28, 2019.

In February 2016, the Company licensed certain of its intellectual property (Licensed IP) to the THATIC JV for a total of $ 293 million in license fees payable over several years upon achievement of certain milestones.

3 unchanged sentences

The Company classifies Development and IP income and royalty income, associated with the March 2017 agreement, as revenue once earned.

In addition, from time to time, the Company enters into certain agreements with the THATIC JV to provide other services primarily related to research and development.

During 2019 and 2017 , the Company recognized $ 60 million and $ 52 million as licensing gain associated with the Licensed IP.

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

During 2018, the Company recognized $ 86 million of IP-related revenue upon completion of all technology milestones under the Development and IP agreement.

The Company’s receivable from the THATIC JV for the above agreements was $ 13 million and $ 18 million as of December 28, 2019 and December 29, 2018 , respectively, included in Prepayment and receivables—related parties on its consolidated balance sheets.

In June 2019, the U.S.

Commerce Department’s Bureau of Industry and Security added certain Chinese entities to the Entity List, including THATIC and the THATIC JV.

As of December 26, 2020, the Company had no receivables from the THATIC JV.

The Company’s receivable from the THATIC JV was $ 13 million as of December 28, 2019, included in Receivables from related parties on its consolidated balance sheets.

In June 2019, the Bureau of Industry and Security of the United States Department of Commerce added certain Chinese entities to the Entity List, including THATIC and the THATIC JV.

The Company is complying with U.S.

law pertaining to the Entity List designation.

GLOBALFOUNDRIES

In March 2009, the Company and GLOBALFOUNDRIES Inc.

(GF) entered into a Wafer Supply Agreement (WSA) under which the Company would purchase wafers from GF.

The WSA, which has been amended from time to time, governs the terms

by which the Company purchases products manufactured by GF through March 1, 2024.

Pursuant to the WSA and its amendments, the Company is required to purchase all of its microprocessor and APU product requirements and a certain portion of its GPU product requirements from GF manufactured at process nodes larger than 7 nanometer (nm), with limited exceptions.

Under the terms of the WSA, the Company has minimum annual wafer purchase targets through 2021.

If the Company fails to meet the agreed wafer purchase target during a calendar year, it will be required to pay to GF a portion of the difference between the actual wafer purchases and the applicable annual purchase target.

The Company also agreed to continue to make quarterly payments to GF based on the volume of certain wafers purchased from another wafer foundry.

On August 30, 2016, in consideration for the limited waiver and rights under the WSA Sixth Amendment, the Company entered into a warrant agreement (the Warrant Agreement) with West Coast Hitech L.P.

(WCH), a wholly-owned subsidiary of Mubadala Development Company PJSC (Mubadala).

Under the Warrant Agreement, WCH and its permitted assigns were entitled to purchase 75 million shares of the Company’s common stock at a purchase price of $ 5.98 per share.

On February 13, 2019, WCH exercised its warrant to purchase 75 million shares of the Company’s common stock at a purchase price of $ 5.98 per share for a total amount of $ 449 million .

Through May 15, 2019, GF was a related party of the Company because Mubadala and Mubadala Technology Investments LLC (Mubadala Tech, a party to the WSA) were affiliated with WCH, and a director of the Company’s Board of Directors (the Board) was associated with Mubadala.

GF, WCH and Mubadala Tech are wholly-owned subsidiaries of Mubadala.

Effective May 15, 2019, the director of the Board associated with Mubadala retired from the Board, and as a result, GF was no longer considered a related party of the Company.

All prior period related party classifications on the financial statements for GF have been reclassified to conform to the current period presentation.

The Company’s total purchases from GF related to wafer manufacturing, research and development activities and other for 2019 (through May 15, 2019), 2018 and 2017 were $ 0.5 billion , $ 1.6 billion and $ 1.1 billion , respectively.

Included in the total purchases were amounts related to the volume of certain wafers purchased from another wafer foundry, as agreed by the Company and GF.

As of December 29, 2018, the amount of prepayment and receivables related to GF was $ 18 million and the amount of payable to GF was $ 326 million .

The carrying amount of goodwill as of both December 28, 2019 and December 29, 2018 was $ 289 million , which was fully allocated to reporting units within the Company’s Enterprise, Embedded and Semi-Custom segment.

NOTE 5 – Goodwill

The carrying amount of goodwill as of both December 26, 2020 and December 28, 2019 was $ 289 million, which was all allocated to reporting units within the Company’s Enterprise, Embedded and Semi-Custom segment.

In the fourth quarters of 2020 and 2019, the Company conducted its annual impairment tests of goodwill and concluded that there was no goodwill impairment with respect to its reporting units.

Debt, Secured Revolving Facility and Secured Revolving Line of Credit

NOTE 6 – Debt and Revolving Credit Facility

The Company’s total debt as of December 26, 2020 and December 28, 2019 consisted of:

2020 December 28,

(In millions)

Secured Revolving Line of Credit

7.50 % Senior Notes Due 2022 ( 7.50 % Notes)

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

Total debt (principal amount) 338 563

Unamortized debt discount associated with 2.125% Notes

Unamortized debt issuance costs

Total debt (net)

current portion

Total debt, less current portion

Unamortized debt discount for 2.125 % Notes

Unamortized debt issuance costs for 2.125 % Notes

Unamortized debt issuance costs for 7.50 % Notes

Total long-term debt (net) $ 330 $ 486

2.125 % Convertible Senior Notes Due 2026

2 unchanged sentences

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

As of December 26, 2020, the outstanding aggregate principal amount of the 2.125 % Notes was $ 26 million.

The 2.125 % Notes mature on September 1, 2026.

6 unchanged sentences

The event described in (1) above was met during the fourth calendar quarter of 2020 and, as a result, the 2.125 % Notes are convertible at the option of the holder from January 1, 2021 and remain convertible until March 31, 2021.

During 2019, the Company converted $ 554 million principal amount of its 2.125 % Notes through the issuance of approximately 69 million shares of the Company’s common stock at the conversion price of $ 8.00 per share and an aggregate cash payment of $ 56 million .

As of December 28, 2019 , the Company had $ 251 million principal of its 2.125 % Notes outstanding.

During 2020, holders of the 2.125 % Notes converted $ 225 million principal amount of these notes, for which the Company issued approximately 28 million shares of the Company’s common stock at the conversion price of $ 8.00 per share.

The Company recorded a loss of $ 54 million from these conversions in Other expense, net on its consolidated statements of operations.

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

1 unchanged sentence

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

The 2.125 % Notes consisted of the following:

(In millions)

Unamortized debt discount (1)

Unamortized debt issuance costs

Net carrying amount

Carrying amount of the equity component, net (2)

Included in the consolidated balance sheets within Long-term debt, net and amortized over the remaining life of the notes using the effective interest rate method.

Included in the consolidated balance sheets within additional paid-in capital, net of $ 3 million in equity issuance costs.

As of December 28, 2019 , the remaining life of the 2.125 % Notes was approximately 81 months.

Based on the closing price of the Company’s common stock of $ 46.18 on December 27, 2019, the last trading day of 2019, the if-converted value of the 2.125 % Notes exceeded its principal amount by approximately $ 1.2 billion .

Based on the closing price of the Company’s common stock of $ 91.81 on December 24, 2020, the last trading day of 2020, the if-converted value of the 2.125 % Notes exceeded its principal amount by approximately $ 272 million.

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

1 unchanged sentence

The following table sets forth total interest expense recognized related to the 2.125 % Notes for the year ended December 26, 2020:

2020 December 28,

(In millions)

2 unchanged sentences

Interest cost related to amortization of the debt discount $ 6 $ 22

6.75 % Senior Notes Due 2019

On February 26, 2014 , the Company issued $ 600 million of its 6.75 % Senior Notes due 2019 ( 6.75 % Notes).

The 6.75 % Notes were general unsecured senior obligations of the Company.

Interest was payable on March 1 and September 1 of each year beginning September 1, 2014 until the maturity date of March 1, 2019 .

The 6.75 % Notes were governed by the terms of an indenture (the 6.75 % Indenture) dated February 26, 2014 between the Company and Wells Fargo Bank, N.A., as trustee.

In 2016, the Company repurchased $ 404 million in aggregate principal amount of its 6.75 % Notes pursuant to a partial tender offer for $ 442 million .

In 2017, the Company settled $ 30 million in aggregate principal amount of its 6.75 % Notes, of which $ 26 million was settled in cash and $ 5 million was settled in treasury stock.

During 2018 , the Company settled $ 101 million in aggregate principal amount of its 6.75 % Notes for $ 14 million in cash and $ 87 million in treasury stock at a weighted-average cost of $ 9.04 per share.

During 2019 , the Company redeemed the remaining $ 66 million in aggregate principal amount of its 6.75 % Notes with a combination of cash and treasury stock.

The carrying amount of the equity component of the 2.125 % Notes was $ 10 million and $ 95 million as of December 26, 2020 and December 28, 2019, respectively.

7.50 % Senior Notes Due 2022

3 unchanged sentences

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.

In 2014, the Company repurchased $ 25 million in aggregate principal amount of its 7.50 % Notes in open market transactions for $ 24 million .

In 2016, the Company repurchased $ 125 million in aggregate principal amount of its 7.50 % Notes pursuant to a partial tender offer for $ 135 million .

In 2017, the Company settled $ 3 million in aggregate principal amount of its 7.50 % Notes in treasury stock.

In 2018 , the Company settled $ 10 million in aggregate principal amount of its 7.50 % Notes in treasury stock at a weighted-average cost of $ 9.01 per share.

During 2019 , the Company repurchased $ 25 million in aggregate principal amount of its 7.50 % Notes in cash.

As of December 26, 2020, the outstanding aggregate principal amount of the 7.50 % Notes was $ 312 million.

2 unchanged sentences

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.

7.00 % Senior Notes Due 2024

On June 16, 2014 , the Company issued $ 500 million of its 7.00 % Senior Notes due 2024 ( 7.00 % Notes).

The 7.00 % Notes are general unsecured senior obligations of the Company.

Interest is payable on January 1 and July 1 of each year beginning January 1, 2015 until the maturity date of July 1, 2024 .

The 7.00 % Notes are governed by the terms of an indenture (the 7.00 % Indenture) dated June 16, 2014 between the Company and Wells Fargo Bank, N.A., as trustee.

In 2016, the Company settled $ 84 million in aggregate principal amount of its 7.00 % Notes for $ 77 million in cash and $ 8 million in treasury stock.

In 2017, the Company settled $ 105 million in aggregate principal amount of its 7.00 % Notes for $ 84 million in cash and $ 26 million in treasury stock.

In 2018 , the Company settled $ 61 million in aggregate principal amount of its 7.00 % Notes for $ 26 million in cash and $ 35 million in treasury stock at a weighted-average cost of $ 9.42 per share.

During 2019 ,

the Company repurchased the remaining $ 250 million in aggregate principal amount of its 7.00 % Notes with a combination of cash and treasury stock.

Debt Covenants and Seniority

2 unchanged sentences

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.

Loss from Debt Redemption, Repurchase and Conversion

In aggregate, during 2019, the Company recorded $ 176 million of aggregate losses from the redemption, repurchase and conversion of debt noted above in Other expense, net on its consolidated statement of operations.

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.

Secured Revolving Facility

On June 7, 2019 , the Company entered into a secured revolving credit facility for up to $ 500 million (the Secured Revolving Facility) pursuant to a credit agreement by and among the Company, as borrower, the lenders party thereto and Wells Fargo Bank, National Association, as administrative agent (the Credit Agreement).

The Secured Revolving Facility consists of a $ 500 million , five-year secured revolving loan facility, including a $ 50 million swingline subfacility and a $ 75 million sublimit for letters of credit.

The Company’s obligations under the Credit Agreement are secured by a lien on substantially all of the Company’s property, other than intellectual property.

The Credit Agreement also provides the ability to increase the Secured Revolving Facility or incur incremental term loans or other incremental equivalent debt by an amount not to exceed certain amounts as set forth in the Credit Agreement.

The Company’s available borrowings under the Secured Revolving Facility are also subject to reduction by an amount equal to the net cash proceeds of (i) any debt issuances not permitted by the Secured Revolving Facility and (ii) any non-ordinary course asset sales, in excess of $ 250 million , if such net cash proceeds are not reinvested by the Company within twelve months of receipt.

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

The applicable margin for LIBOR rate loans ranges, based on an applicable total leverage ratio, from 1.00 % to 1.75 % per annum, and the applicable margin for base rate loans ranges from 0.00 % to 0.75 % per annum.

The Company is required to pay fees on the undrawn portion available under the Secured Revolving Facility and in respect of outstanding letters of credit.

In the event the LIBOR rate is not available, the agreement allows the Company to use the base rate.

The Credit Agreement contains customary affirmative and negative covenants, as well as a total leverage covenant requiring the Company to maintain a maximum ratio of consolidated funded debt to consolidated EBITDA of 4.00 :1.00 and an interest coverage covenant requiring the Company to maintain a minimum ratio of consolidated EBITDA to consolidated cash interest expense of 3.00 :1.00.

The Credit Agreement also contains customary events of default, which if they occur, could result in the termination of commitments under the Secured Revolving Facility, the declaration that all outstanding loans are immediately due and payable in whole or in part and the requirement to maintain cash collateral deposits in respect of outstanding letters of credit.

As of December 28, 2019 , there were no borrowings outstanding under the Credit Agreement, and the Company was in compliance with all required covenants under the Credit Agreement as of December 28, 2019 .

As of December 28, 2019 , the Company had $ 14 million of letters of credit outstanding under the Credit Agreement.

Secured Revolving Line of Credit

On June 7, 2019, in connection with entering into the Credit Agreement as described above, the Company repaid its outstanding loan balance of $ 70 million under the secured revolving line of credit (Secured Revolving Line of Credit) and terminated the Amended and Restated Loan and Security Agreement dated as of April 14, 2015, as amended, among the Company, a group of

lenders, and Bank of America, N.A., acting as agent for the lenders.

Revolving Credit Facility

On June 7, 2019, the Company entered into a secured revolving credit facility for up to $ 500 million (the Revolving Credit Facility) pursuant to a credit agreement by and among the Company, as borrower, the lenders party thereto and Wells Fargo Bank, National Association, as administrative agent (the Credit Agreement).

The Revolving Credit Facility consists of a $ 500 million, five-year secured revolving loan facility, including a $ 50 million swingline subfacility and a $ 75 million sublimit for letters of credit.

Prior to the third quarter ended September 26, 2020, obligations under the Credit Agreement were secured by a lien on substantially all the Company’s property, other than intellectual property.

During the third quarter ended September 26, 2020, as a result of upgrades of the Company’s debt ratings, the security requirements under the Credit Agreement were terminated and the liens on the Company’s collateral were released.

The Credit Agreement also provides the ability to increase the Revolving Credit Facility or incur incremental term loans or other incremental equivalent.

The Company’s available borrowings under the Revolving Credit Facility are also subject to reduction.

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.

The Credit Agreement contains customary affirmative and negative covenants, as well as a total leverage covenant.

The Credit Agreement also contains customary events of default.

On April 6, 2020, the Company borrowed $ 200 million under the Credit Agreement via the LIBOR rate loan option at an annual interest rate of 2.37 %.

The Company repaid the $ 200 million borrowing plus interest on July 6, 2020.

As of December 26, 2020, the Company had $ 13 million of letters of credit outstanding under the Credit Agreement and the Company was in compliance with all required covenants under the Credit Agreement.

Future Payments on Total Debt

As of December 28, 2019 , the Company’s future debt payment obligations for the respective fiscal years were as follows:

As of December 26, 2020, the Company’s future debt payment obligations were as follows:

(Principal only)

(In millions)

2025 and thereafter

Financial Instruments

Cash, Cash Equivalents, and Marketable Securities

Cash and financial instruments measured and recorded at fair value on a recurring basis, which approximates amortized cost, as of December 28, 2019 and December 29, 2018 are summarized below:

(In millions)

December 28, 2019

Government money market funds

Total level 1

Commercial paper

Total level 2

(In millions)

December 29, 2018

Government money market funds

Total level 1

Commercial paper

Total level 2

Level 1 fair value estimates are based on quoted prices for identical instruments in active markets.

Level 2 fair value estimates are based on quoted prices for identical or comparable instruments in markets that are not active or comparable instruments in active markets.

In addition to those amounts presented above, as of December 28, 2019 and December 29, 2018 , the Company had approximately $ 4 million and $ 5 million , respectively, of investments in money market funds, used as collateral for letters of credit deposits, which were included in Other current assets on the Company’s consolidated balance sheets.

As of December 28, 2019 and December 29, 2018 , the Company also had approximately $ 30 million and $ 21 million , respectively, of investments in mutual funds held in a Rabbi trust established for the Company’s deferred compensation plan, which were included in Other assets on the Company’s consolidated balance sheets.

These government money market funds and mutual funds are classified within Level 1 because they are valued using quoted prices for identical instruments in active markets.

NOTE 7 – Financial Instruments

Fair Value Measurements

Financial Instruments Recorded at Fair Value on a Recurring Basis

As of December 26, 2020 and December 28, 2019, the Company had $ 295 million and $ 37 million of commercial paper, respectively, included in Short-term investments on the Company’s consolidated balance sheets.

The commercial paper is classified within Level 2 as its fair value estimates were based on quoted prices for comparable instruments .

In addition, as of December 26, 2020 and December 28, 2019, the Company also had approximately $ 46 million and $ 30 million, respectively, of investments in mutual funds held in a Rabbi trust established for the Company’s deferred compensation plan, which were included in Other non-current assets on the Company’s consolidated balance sheets.

As of December 28, 2019, the Company also had approximately $ 4 million of investments in money market funds, used as collateral for letters of credit deposits, which were included in Other current assets on the Company’s consolidated balance sheets.

These money market funds and mutual funds are classified within Level 1 because they are valued using quoted prices for identical instruments in active markets.

Their amortized cost approximates the fair value for all periods presented.

The Company is restricted from accessing these investments.

Financial Instruments Not Recorded at Fair Value on a Recurring Basis.

The Company carries its certain financial instruments at fair value with the exception of its debt.

Financial instruments that are not recorded at fair value are measured at fair value on a quarterly basis for disclosure purposes.

The carrying amounts and estimated fair values of financial instruments not recorded at fair value are as follows:

December 28, 2019

December 29, 2018

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:

December 26, 2020 December 28, 2019

Amount Estimated

Fair Value Carrying

Amount Estimated

(In millions)

Short-term debt

Long-term debt, net $ 330 $ 642 $ 486 $ 1,823

Carrying amounts of long-term debt are net of unamortized debt issuance costs of $ 4 million and $ 16 million as of December 28, 2019 and December 29, 2018 , respectively, and net of $ 73 million and $ 262 million unamortized debt discount associated with the 2.125 % Notes as of December 28, 2019 and December 29, 2018 , respectively.

The carrying amounts above do not include the equity component related to the conversion feature of the 2.125 % Notes of $ 95 million and $ 305 million as of December 28, 2019 and December 29, 2018 , respectively.

The estimated fair value of the Company’s short-term and long-term debt are based on Level 2 inputs.

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 26, 2020.

The estimated fair value of the 2.125 % Notes takes into account the value of the Company’s stock price of $ 46.18 as of December 28, 2019 and the initial conversion price of approximately $ 8.00 per share of common stock.

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

The estimated fair value of the 2.125 % Notes as of December 26, 2020 takes into account the value of the Company’s stock price of $ 91.81 as of December 24, 2020, the last trading date for the year ended December 26, 2020 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.

Hedging Transactions and Derivative Financial Instruments

Cash Flow Hedges and Foreign Currency Forward Contracts not Designated as Hedges

The following table shows the amount of losses included in accumulated other comprehensive income (loss) (AOCI), the amount of losses reclassified from accumulated other comprehensive income (loss) and included in earnings related to the foreign currency forward contracts designated as cash flow hedges and the amount of losses included in other expense, net, related to contracts not designated as hedging instruments which was allocated in the consolidated statements of operations:

December 28, 2019

December 29, 2018

Cost of sales

Research and development

Marketing, general and administrative

Other expense, net

Research and development

Marketing, general and administrative

Other expense, net

(In millions)

Contracts designated as cash flow hedging instruments

Losses reclassified from AOCI into earnings

Contracts not designated as hedging instruments

Losses recognized in earnings

The Company’s foreign currency derivative contracts are classified within Level 2 because the valuation inputs are based on quoted prices and market observable data of similar instruments in active markets such as currency spot and forward rates.

The following table shows the fair value amounts of the Company’s foreign currency derivative contracts depending on whether the foreign currency forward contracts were a gain or loss position.

These amounts were recorded in the Company’s consolidated balance sheets in either Other current assets or Other current liabilities.

(In millions)

Foreign Currency Forward Contracts - gains (losses)

Contracts designated as cash flow hedging instruments - gains

Contracts designated as cash flow hedging instruments - losses

For the foreign currency contracts designated as cash flow hedges, the ineffective portions of the hedging relationship and the amounts excluded from the assessment of hedge effectiveness were immaterial.

As of December 28, 2019 and December 29, 2018 , the notional values of the Company’s outstanding foreign currency forward contracts were $ 739 million and $ 396 million , respectively.

All the contracts mature within 12 months and, upon maturity, the amounts recorded in Accumulated other comprehensive income (loss) are expected to be reclassified into earnings.

The Company hedges its exposure to the variability in future cash flows for forecasted transactions over a maximum of 12 months.

Accumulated Other Comprehensive Income (Loss)

Cash Flow Hedges Designated as Accounting Hedges and Foreign Currency Forward Contracts not Designated as Accounting Hedges

The Company enters into foreign currency forward contracts to hedge its exposure to foreign currency exchange rate risk related to future forecasted transactions denominated in currencies other than the U.S.

These contracts generally mature within 12 months and are designated as accounting hedges.

As of December 26, 2020 and December 28, 2019, the notional values of the Company’s outstanding foreign currency forward contracts designated as cash flow hedges were $ 501 million and $ 467 million, respectively.

The fair value of these contracts was not material as of December 26, 2020 and December 28, 2019.

The Company also enters into foreign currency forward contracts to reduce the short-term effects of foreign currency fluctuations on certain receivables or payables denominated in currencies other than the U.S.

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

As of December 26, 2020 and December 28, 2019, the notional values of outstanding contracts were $ 254 million and $ 272 million, respectively.

The fair value of these contracts was not material as of December 26, 2020 and December 28, 2019.

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) for the years ended December 28, 2019 and December 29, 2018 :

December 28, 2019

December 29, 2018

Unrealized gains (losses) on cash flow hedges

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

2020 2019 2018

Gains (losses) on cash flow hedges:

(In millions)

Beginning balance $ — $ ( 8 ) $ 6

Unrealized gain (losses) arising during the period, net of tax of zero

Reclassification adjustment for gains realized and included in net income, net of tax of zero

Net unrealized gains (losses) arising during

the period 18 2 ( 19 )

Net losses (gains) reclassified into income during the period ( 1 ) 6 5

Total other comprehensive income (loss) 17 8 ( 14 )

Ending balance $ 17 $ — $ ( 8 )

Concentrations of Credit and Operation Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of investments in available-for-sale debt securities, trade receivables and derivative financial instruments used in hedging activities.

The Company places its investments with high credit quality financial institutions and, by policy, limits the amount of credit exposure with any one financial institution.

NOTE 9 – Concentrations of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of investments in time deposits, available-for-sale debt securities and trade receivables.

The Company places its investments with high credit quality financial institutions.

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

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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.

The Company manages its exposure to customer credit risk through credit limits, credit lines, ongoing monitoring procedures and credit approvals.

Furthermore, the Company performs in-depth credit evaluations of all new customers and, at intervals, for existing customers.

From this, the Company may require letters of credit, bank or corporate guarantees or advance payments if deemed necessary.

The Company’s existing derivative financial instruments are with large international financial institutions of investment grade credit rating.

The Company does not believe that there is significant risk of nonperformance by these counterparties because the Company monitors their credit rating on an ongoing basis.

By using derivative instruments, the Company is subject to credit and market risk.

If a counter-party fails to fulfill its performance obligations under a derivative contract, the Company’s credit risk will equal the fair value of the derivative instrument.

Generally, when the fair value of a derivative contract is positive, the counter-party owes the Company, thus creating a receivable risk for the Company.

Based upon certain factors including a review of the credit default swap rates for the Company’s counter-parties, the Company determined its counter-party credit risk to be immaterial.

At December 28, 2019 , the Company’s obligations under the contracts did not exceed counter-parties’ obligations.

The Company is dependent on certain equipment and materials from a limited number of suppliers and relies on a limited number of foreign companies to supply the majority of certain types of integrated circuit packages for back-end manufacturing operations.

Similarly, certain non-proprietary materials or components such as memory, PCBs, substrates and capacitors used in the manufacture of the Company’s graphics products are currently available from only a limited number of sources.

Interruption of supply or increased demand in the industry could cause shortages and price increases in various essential materials.

If the Company or its third-party manufacturing suppliers are unable to procure certain of these materials or its foundries are unable to procure materials for manufacturing its products, its business would be materially adversely affected.

Earnings (Loss) Per Share

Basic earnings (loss) per share is computed based on the weighted-average number of shares outstanding.

Diluted earnings (loss) per share is computed based on the weighted-average number of shares outstanding plus potentially dilutive shares outstanding during the period.

Potentially dilutive shares are determined by applying the treasury stock method to the assumed exercise of outstanding stock options, the assumed vesting of outstanding RSUs, the assumed issuance of common stock under the employee stock purchase plan (ESPP) and the assumed exercise of the warrants.

NOTE 10 – Earnings Per Share

Basic earnings per share is computed based on the weighted-average number of shares outstanding.

Diluted earnings per share is computed based on the weighted-average number of shares outstanding plus potentially dilutive shares outstanding during the period.

Potentially dilutive shares are determined by applying the treasury stock method to the Company’s stock options, RSUs (including PRSUs), common stock to be issued under the ESPP and warrants.

Potentially dilutive shares issuable upon conversion of the 2.125 % Convertible Senior Notes due 2026 ( 2.125 % Notes) are calculated using the if-converted method.

The following table sets forth the components of basic and diluted earnings (loss) per share:

The following table sets forth the components of basic and diluted earnings per share:

2020 2019 2018

(In millions, except per share amounts)

Numerator-Net income (loss):

Numerator for basic and diluted earnings per share

Denominator-Weighted average shares:

Denominator for basic earnings per share

Net income for basic earnings per share $ 2,490 $ 341 $ 337

Effect of potentially dilutive shares:

Employee equity incentive plans and warrants

Denominator for diluted earnings per share

Earnings (loss) per share:

Potential shares from employee equity incentive plans and the conversion of the 2.125 % Notes totaling 93 million and 105 million shares for 2019 and 2018 , respectively, and potential shares from employee equity incentive plans, the conversion of the 2.125 % Notes and the warrants under the Warrant Agreement totaling 189 million shares for 2017 , were not included in the diluted earnings (loss) per share calculation as their inclusion would have been anti-dilutive.

Common Stock and Stock-Based Incentive Compensation Plans

Shares Outstanding

Interest expense related to the 2.125% Notes 1 — —

Net income for diluted earnings per share $ 2,491 $ 341 $ 337

Basic weighted average shares 1,184 1,091 982

Effect of potentially dilutive shares:

Employee equity plans and warrants 20 29 82

2.125% Notes 3 — —

Diluted weighted average shares 1,207 1,120 1,064

Earnings per share:

Basic $ 2.10 $ 0.31 $ 0.34

Diluted $ 2.06 $ 0.30 $ 0.32

Potential shares from employee equity plans and the impact from the conversion of the 2.125 % Notes up to the conversion date, totaling 22 million for 2020, were not included in the earnings per share calculation because their inclusion would have been anti-dilutive.

Potential shares from employee equity plans, the impact from the conversion of the 2.125 % Notes up to the conversion date and the assumed conversion of the remaining outstanding 2.125 % Notes, totaling 93 million and 105 million shares for 2019 and 2018, respectively, were not included in the earnings per share calculation because their inclusion would have been anti-dilutive.

NOTE 11 – Common Stock and Stock-Based Compensation

Shares of common stock outstanding were as follows:

2020 December 28,

2019 December 29,

(In millions)

Number of shares

Balance, beginning of period 1,170 1,005 967

Common stock issued under employee equity

incentive plans, net of tax withholding

Common stock issued under employee equity plans 14 20 31

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

Issuance of common stock upon warrant exercise — 75 —

Issuance of common stock to partially settle convertible debt

Issuance of common stock to settle convertible debt 28 69 —

Issuance of treasury stock to partially settle debt — 1 7

Balance, end of period 1,211 1,170 1,005

The Company’s stock-based incentive programs are intended to attract, retain and motivate highly qualified employees.

On April 29, 2004, the Company’s stockholders approved the 2004 Equity Incentive Plan (the 2004 Plan).

The Company introduced the Employee Stock Purchase Plan (ESPP) in the fourth quarter of 2017.

Under the 2004 Plan, stock options generally vest and become exercisable over a three -year period from the date of grant and expire within ten years after the grant date.

Stock-Based Compensation

The Company’s employee equity programs are intended to attract, retain and motivate highly qualified employees.

On April 29, 2004, the Company’s stockholders approved the 2004 Equity Incentive Plan, as amended and restated (the 2004 Plan).

In the fourth quarter of 2017, the Company introduced the 2017 Employee Stock Purchase Plan, as amended and restated (the 2017 Plan).

Under the 2004 Plan, stock options generally vest and become exercisable over a three-year period from the date of grant and expire within seven years after the grant date.

Unvested shares that are reacquired by the Company from forfeited outstanding equity awards become available for grant and may be reissued as new awards.

Under the 2004 Plan, the Company can grant (i) stock options, and (ii) RSUs, including time-based RSUs and Performance-based Restricted Stock Units (PRSUs).

Under the 2004 Plan, the Company can grant (i) stock options, and (ii) RSUs, including time-based RSUs and PRSUs.

Stock Options.

A stock option is the right to purchase shares of the Company’s common stock at a fixed exercise price for a fixed period of time.

Under the 2004 Plan, nonstatutory and incentive stock options may be granted.

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The purchase price for the shares is $ 0.00 per share.

Performance-based Restricted Stock Units.

Performance-based Restricted Stock Units (PRSUs) can be granted to certain of the Company’s senior executives.

PRSUs can be granted to certain of the Company’s senior executives.

The performance metrics can be financial performance, non-financial performance and/or market conditions.

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The actual number of shares that a grant recipient receives at the end of the period may range from 0 % to 250 % of the Target Shares granted, depending upon the degree of achievement of the performance target designated by each individual award.

Employee Stock Purchase Plan.

Under the ESPP, eligible employees who participate in an offering period may have up to 10 % of their earnings withheld, up to certain limitations, to purchase shares of common stock at 85 % of the lower of the fair market value on the first or the last business day of the six -month offering period.

Under the 2017 Plan, eligible employees who participate in an offering period may have up to 10 % of their eligible earnings withheld, up to certain limitations, to purchase shares of common stock at 85 % of the lower of the fair market value on the first or the last business day of the six-month offering period.

The offering periods commence in May and November each year.

As of December 28, 2019 , the Company had 61 million shares of common stock that were available for future grants and 30 million shares reserved for issuance upon the exercise of outstanding stock options or the vesting of unvested restricted stock units.

In addition, the Company had 42 million shares of common stock that were available for issuance under the ESPP.

As of December 26, 2020, the Company had 57 million shares of common stock that were available for future grants and 22 million shares reserved for issuance upon the exercise of outstanding stock options or the vesting of unvested RSUs, including PRSUs, under the 2004 Plan.

In addition, the Company had 40 million shares of common stock that were available for issuance under the 2017 plan.

Valuation and Expense

Stock-based compensation expense was allocated in the consolidated statements of operations as follows:

2020 2019 2018

(In millions)

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Marketing, general, and administrative 95 62 42

Total stock-based compensation expense, net of tax of $0

During 2019 , 2018 and 2017 , the Company did no t realize any excess tax benefits related to stock-based compensation and therefore the Company did not record any related financing cash flows.

Total stock-based compensation expense before income taxes 274 197 137

Income tax benefit ( 42 ) — —

Total stock-based compensation expense, net of income taxes $ 232 $ 197 $ 137

Stock Options.

The weighted-average estimated fair value of employee stock options granted for the years ended December 26, 2020, December 28, 2019 and December 29, 2018 was $ 38.49 , $ 13.31 and $ 7.62 per share, respectively, using the following assumptions:

Expected volatility

2020 2019 2018

Expected volatility 57.87 % 52.60 % - 56.51 %

51.51 % - 60.46 %

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2.20 % - 2.83 %

2.20% - 2.83%

Expected dividends — % — % — %

Expected life (in years) 4.3 3.94 - 3.95

The Company uses a combination of the historical volatility of its common stock and the implied volatility for publicly traded options on the Company’s common stock as the expected volatility assumption required by the lattice-binomial model.

The risk-free interest rate is based on the rate for a U.S.

The risk-free interest rate is

based on the rate for a U.S.

Treasury zero-coupon yield curve with a term that approximates the expected life of the option grant at the date closest to the option grant date.

The expected dividend yield is zero as the Company does not expect to pay dividends in the near future.

The expected term of employee stock options represents the weighted-average period the stock options are expected to remain outstanding and is a derived output of the lattice-binomial model.

The expected term of employee stock options represents the weighted-average period the stock options are expected to remain outstanding.

The following table summarizes stock option activity and related information:

Outstanding Number

Aggregate Intrinsic Value

Weighted-Average Remaining Contractual Life

of Shares Weighted-

Price Aggregate Intrinsic Value Weighted-Average Remaining Contractual Life

(In millions, except share price)

Balance as of December 28, 2019 10 $ 7.56

Granted — $ 84.85

Exercised ( 3 ) $ 3.62

Balance as of December 26, 2020 7 $ 12.91 $ 589 2.92

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The following table summarizes time-based RSU activity and related information:

Aggregate Intrinsic Value

Weighted-Average Remaining Contractual Life

of Shares Weighted-

Fair Value Aggregate Intrinsic Value Weighted-Average Remaining Contractual Life

(In millions except share price)

Unvested shares as of December 28, 2019 18 $ 22.93

Granted 4 $ 78.59

Forfeited ( 1 ) $ 30.82

Vested ( 9 ) $ 20.67

Unvested shares as of December 26, 2020 12 $ 43.98 $ 1,078 1.13

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The weighted-average grant date fair values of PRSUs granted during 2020, 2019 and 2018 were $ 122.95 , $ 50.00 and $ 21.67 , respectively, using the following assumptions:

2020 2019 2018

Expected volatility 55.74 % - 60.10 %

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The expected dividend yield is zero as the Company does not expect to pay dividends in the near future.

The expected term of PRSUs represents the weighted-average period the PRSUs are expected to remain outstanding.

The expected term of PRSUs represents the requisite service periods of these PRSUs.

The following table summarizes PRSU activity and related information:

Aggregate Intrinsic Value

Weighted-Average Remaining Contractual Life

of Shares Weighted-

Fair Value Aggregate Intrinsic Value Weighted-Average Remaining Contractual Life

(In millions except share price)

Unvested shares as of December 28, 2019 3 $ 36.13

Granted 1 $ 122.95

Forfeited — $ 45.25

Vested ( 1 ) $ 16.45

Unvested shares as of December 26, 2020 3 $ 55.63 $ 248 2.25

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The weighted-average grant date fair value for the ESPP during 2020, 2019 and 2018 was $ 20.97 , $ 9.96 and $ 4.71 per share, respectively, using the following assumptions:

2020 2019 2018

Expected volatility 55.16 % - 66.53 %

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The expected dividend yield is zero as the Company does not expect to pay dividends in the near future.

The expected term of the ESPP represents the weighted-average period the ESPP is expected to remain outstanding.

During 2019 , 1.8 million and 1.4 million shares of common stock were purchased in each of the two six -month offering periods under the ESPP at a purchase price of $ 16.18 and $ 23.77 per share, respectively, resulting in aggregate cash proceeds of $ 62 million .

The expected term of the ESPP represents the six-month offering period.

During 2020, 2 million shares of common stock were purchased under the ESPP at a purchase price of $ 37.81 resulting in aggregate cash proceeds of $ 75 million.

As of December 26, 2020, the Company had $ 12 million of total unrecognized compensation expense related to the ESPP, which will be recognized over the weighted-average period of 0.37 years.

Retirement Benefit Plans

NOTE 12 – Retirement Benefit Plans

The Company provides retirement benefit plans in the United States and certain foreign countries.

The Company has a 401(k) retirement plan that allows participating employees in the United States to contribute as defined by the plan and subject to Internal Revenue Service limitations.

The Company matches 75 % of employees’ contributions up to 6 % of their compensation.

The Company matches 75 % of employees’ contributions up to 6 % of their eligible compensation.

The Company’s contributions to the 401(k) plan for 2020, 2019 and 2018 were approximately $ 29 million , $ 25 million and $ 21 million, respectively.

Income (loss) before income taxes consists of the following:

NOTE 13 – Income Taxes

Income before income taxes consists of the following:

2020 2019 2018

(In millions)

Total pre-tax income (loss) including equity loss in investee

The provision for (benefit from) income taxes consists of:

$ 1,213 $ 334 $ 114

Total pre-tax income including equity income (loss) in investee $ 1,280 $ 372 $ 328

The income tax provision (benefit) consists of:

2020 2019 2018

(In millions)

Federal $ — $ ( 13 ) $ 12

State and Local 5 1 —

Provision for (benefit from) income taxes

The table below displays the reconciliation between statutory federal income taxes and the total provision for (benefit from) income taxes.

Total 13 38 ( 5 )

Federal ( 1,193 ) — —

State and Local ( 28 ) — —

( 2 ) ( 7 ) ( 4 )

Total ( 1,223 ) ( 7 ) ( 4 )

Income tax provision (benefit) $ ( 1,210 ) $ 31 $ ( 9 )

The table below displays the reconciliation between statutory federal income taxes and the total income tax provision (benefit).

2020 2019 2018

(In millions)

Statutory federal income tax expense (benefit)

at 21%, 21% and 35% rate

Statutory federal income tax expense at 21% $ 269 $ 78 $ 69

State taxes ( 6 ) 1 1

Foreign withholding taxes (refund) 10 22 ( 29 )

Foreign rate detriment

Foreign rate detriment / (benefit) ( 3 ) 2 2

Valuation allowance change ( 1,301 ) ( 59 ) ( 64 )

Credit monetization

Research credits ( 57 ) — ( 1 )

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

Tax Reform Act — ( 13 ) 13

Provision for (benefit from) income taxes

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

Other ( 6 ) — —

Income tax provision (benefit) $ ( 1,210 ) $ 31 $ ( 9 )

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.

The income tax provision in 2018 was primarily due to a $ 36 million refund of withholding tax from a foreign jurisdiction related to a legal settlement from 2010, offset by $ 13 million of U.S.

income taxes resulting from the Tax Reform Act, $ 7 million tax provision in foreign locations and $ 7 million of withholding taxes on cross-border transactions.

The income tax provision in 2017 was primarily due to $ 38 million of foreign taxes in profitable locations including $ 27 million of withholding taxes on cross-border transactions, offset by $ 1 million of tax benefits for Canadian tax credits and $ 19 million primarily attributable to the reversal of the valuation allowance on Alternate Minimum Tax (AMT) credit carryovers due to the Tax Reform Act.

The income tax provision in 2018 was primarily due to a $ 36 million refund of withholding tax from a foreign jurisdiction related to a legal settlement from 2010, partially offset by $ 13 million of U.S.

income taxes resulting from the Tax Reform Act, a $ 7 million tax provision in foreign locations and $ 7 million of withholding taxes on cross-border transactions.

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.

Significant components of the Company’s deferred tax assets and liabilities as of December 28, 2019 and December 29, 2018 are as follows:

Significant components of the Company’s deferred tax assets and liabilities as of December 26, 2020 and December 28, 2019 were as follows:

2020 December 28,

(In millions)

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Foreign research and development ITC credits 489 429

Capitalized costs 174 232

Lease liability 72 57

Other 149 105

Total deferred tax assets 2,996 3,071

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Deferred tax liabilities:

Right-of-use assets ( 62 ) ( 49 )

Discount of convertible notes ( 2 ) ( 16 )

Undistributed foreign earnings ( 114 ) ( 111 )

Other ( 8 ) ( 17 )

Total deferred tax liabilities ( 186 ) ( 193 )

Net deferred tax assets $ 1,234 $ 11

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

2020 2019 2018

(In millions)

Balance at beginning of year $ 2,867 $ 2,443 $ 2,621

Charges (reductions) to income tax expense/other accounts* ( 1,301 ) ( 61 ) ( 59 )

Net (deductions) recoveries +

10 485 ( 119 )

Balance at end of year $ 1,576 $ 2,867 $ 2,443

* Amounts recorded against other accounts are not material

+ The 2019 and 2020 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 26, 2020 and December 28, 2019 is as follows:

2020 December 28,

(In millions)

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Net deferred tax assets $ 1,234 $ 11

Deferred tax assets are included in Other assets on the consolidated balance sheets.

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

As of December 28, 2019 , substantially all of the Company’s U.S.

and foreign deferred tax assets, net of deferred tax liabilities, continued to be subject to a valuation allowance.

The Company evaluates the need for and the amount of a valuation allowance for deferred tax assets based on available evidence whether it is more-likely-than-not (a probability level of more than 50%) that these assets will be realized.

In completing this assessment management must consider both objective and subjective factors in its assessment.

These factors include, but are not limited to a history of losses in prior years, unique competitiveness of the semiconductor industry, future reversal of existing temporary differences, tax planning strategies, and future taxable income exclusive of reversing temporary differences and loss carryforwards.

After evaluating all available evidence, the Company determined that the valuation allowances for the United States and Canada should both be maintained.

The Company’s United States federal and state net operating losses carryforwards as of December 28, 2019, were $ 6.7 billion and $ 0.5 billion , respectively.

The United States federal net operating losses will expire between 2026 through 2037, and the state net operating losses will expire at various dates through 2037.

The federal credit of $ 399 million will expire at various dates between 2020 and 2039.

The state credits of $ 239 million will expire at various dates between 2020 through 2039 except for California R&D credit, which does not expire.

Through the end of 2020, the Company demonstrated consistent and continued profitability over the preceding three-year period.

The Company’s ability to sustain and grow its such profitability is supported by the continued positive momentum of its consumer and commercial products including its newly released desktop, mobile and graphics processors, greater market acceptance for its server products, the successful adoption of its new game console processor products, and its continued leadership in the development of HPC products.

In assessing the realizability of the deferred tax assets, the Company considered the highly dynamic and competitive landscape of its industry, the continued performance and market acceptance of its new products, and the impact of such market acceptance on forecasts of future profitability.

As a result, in the fourth quarter of 2020, the Company concluded that its history of profitable operating results, including the current period results, along with increasingly favorable forecasts of continued future profitability, provided sufficient positive evidence supporting the realizability of a certain amount of its U.S.

deferred tax assets and, accordingly, the release of the related valuation allowance previously recorded against these deferred tax assets, resulting in a tax benefit of $ 1.3 billion in the fourth quarter of 2020.

The Company continues to maintain a valuation allowance of approximately $ 1.6 billion for certain federal, state, and foreign tax attributes.

The federal valuation allowance maintained is due to current limitations, including limitations under Internal Revenue Code Section 382 or 383, separate return loss year rules, or dual consolidated loss rules.

The state and foreign valuation allowance maintained is due to lack of sufficient sources of income.

The Company’s United States federal and state net operating losses carryforwards as of December 26, 2020, were $ 5.2 billion and $ 343 million, respectively.

The United States federal net operating losses will expire between 2029 and 2037, and the state net operating losses will expire at various dates through 2039.

The federal tax credits of $ 385 million will expire at various dates between 2021 and 2040.

The state tax credits of $ 252 million will expire at various dates between 2021 through 2035 except for California R&D credit, which does not expire.

The Company also has $ 494 million of credit carryforward in Canada that will expire between 2026 and 2040.

The Tax Reform Act modified the income tax liability in the United States for companies with subsidiaries outside of the United States.

As a result of the Tax Reform Act the impact of future distributions of undistributed earnings that are indefinitely

reinvested are anticipated to be withholding taxes from local jurisdictions.

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 $ 304 million as of December 26, 2020.

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

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

2020 2019 2018

(In millions)

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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 2007 onwards due to the net operating losses.

Segment Reporting

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).

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

The Company also licenses portions of its IP portfolio.

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 System-on-Chip (SoC) products, development services and technology for game consoles.

The Company also licenses portions of its IP portfolio.

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.

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The following table provides a summary of net revenue and operating income (loss) by segment for 2020, 2019 and 2018.

2020 2019 2018

(In millions)

5 unchanged sentences

Enterprise, Embedded and Semi-Custom 391 263 163

All Other ( 288 ) ( 209 ) ( 182 )

Total operating income $ 1,369 $ 631 $ 451

The following table provides major items included in All Other category:

The following table provides items included in All Other category:

2020 2019 2018

(In millions)

1 unchanged sentence

Stock-based compensation expense $ ( 274 ) $ ( 197 ) $ ( 137 )

Acquisition-related costs ( 14 ) — —

Impairment of technology licenses — — ( 45 )

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

The Company’s operations outside the United States include research and development activities and sales, marketing and administrative activities.

The Company conducts product and system research and development activities for its products in the United States with additional design and development engineering teams located in Canada, China, India, Taiwan and Singapore.

The Company’s material sales and marketing offices are located in the United States, Latin America, Europe and Asia.

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

2020 2019 2018

(In millions)

1 unchanged sentence

China (including Hong Kong) 2,329 1,736 1,319

Japan 1,033 840 1,225

Europe 1,108 762 470

Taiwan 1,187 719 1,197

Singapore 1,096 597 728

Other countries 716 313 209

Total sales to external customers $ 9,763 $ 6,731 $ 6,475

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:

2020 2019 2018

Customer A * 12 % 19 %

Customer B * * 11 %

Less than 10%

Sales to customers A and B consisted of products from the Company’s Enterprise, Embedded and Semi-Custom segment.

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

2020 December 28,

(In millions)

United States $ 421 $ 300

Canada 126 99

Singapore 32 33

Other countries 28 32

Total property and equipment, net $ 641 $ 500

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:

Less than 10%

Sales to customers A and B consisted of products from the Company’s Enterprise, Embedded and Semi-Custom segment.

Other Expense, Net

NOTE 15 – Other Expense, Net

The following table summarizes the components of Other expense, net:

2020 2019 2018

(In millions)

Interest income $ 8 $ 15 $ 18

Gain on sale of 85% ATMP JV

Loss on debt redemption, repurchase and conversion ( 54 ) ( 176 ) ( 12 )

Other ( 1 ) ( 4 ) ( 6 )

Other expense, net $ ( 47 ) $ ( 165 ) $ —

Commitments and Guarantees

NOTE 16 – Commitments and Guarantees

Operating Leases

The Company has entered into operating and finance leases for its corporate offices, data centers, research and development facilities and certain equipment.

The leases expire at various dates through 2028, some of which include options to extend the lease for up to 5 years .

The leases expire at various dates through 2028, some of which include options to extend the lease for up to five years.

For 2020, 2019 and 2018, the Company recorded $ 59 million, $ 56 million and $ 53 million, respectively, of operating lease expense, including short-term lease expense.

For the year ended December 28, 2019 , the Company recorded $ 25 million of variable lease expense, which primarily included operating expenses and property taxes associated with the usage of facilities under the operating leases.

For the year ended December 28, 2019 , cash paid for operating leases included in operating cash flows was $ 47 million .

For 2020 and 2019, the Company recorded $ 27 million and $ 25 million, respectively, of variable lease expense, which primarily included operating expenses and property taxes associated with the usage of facilities under the operating leases.

For 2020 and 2019, cash paid for operating leases included in operating cash flows was $ 55 million and $ 47 million, respectively.

The Company’s finance leases and short-term leases are immaterial.

Supplemental information related to leases is as follows:

Weighted-average remaining lease term – operating leases

Weighted-average remaining lease term – operating leases 5.56 years

Weighted-average discount rate – operating leases 5.29 %

Future minimum lease payments under non-cancellable operating lease liabilities as of December 26, 2020 are as follows:

(In millions)

Year (In millions)

2026 and thereafter 54

Total minimum lease payments 284

interest ( 42 )

Present value of net minimum lease payments 242

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The Company’s purchase obligations primarily include the Company’s obligations to purchase wafers and substrates from third parties.

The Company also had other contractual obligations, primarily included in Other long-term liabilities and Accrued liabilities on its consolidated balance sheet, which primarily consisted of $ 146 million of payments due under certain software and technology licenses and IP licenses that will be paid through 2022.

The Company also had other contractual obligations, primarily included in Other long-term liabilities and Accrued liabilities on its consolidated balance sheets, which primarily consisted of $ 149 million of payments due under certain software and technology licenses and IP licenses that will be paid through 2025.

Total future unconditional purchase obligations as of December 26, 2020 were as follows:

(In millions)

Year (In millions)

2026 and thereafter 12

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Warranties and Indemnities

The Company may also offer one to three-year limited warranties based on product type and negotiated warranty terms with certain customers.

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 26, 2020 and December 28, 2019 are as follows:

2020 December 28,

(In millions)

Beginning balance $ 15 $ 13

New warranties issued during the period

Provisions during the period 82 31

Settlements during the period ( 60 ) ( 29 )

Changes in liability for pre-existing warranties during the period, including expirations

Ending balance $ 37 $ 15

In addition to product warranties, the Company from time to time in its normal course of business indemnifies other parties with whom it enters into contractual relationships, including customers, lessors and parties to other transactions with the Company, with respect to certain matters.

In these limited matters, the Company has agreed to hold certain third parties harmless against specific types of claims or losses such as those arising from a breach of representations or covenants, third-party claims that the Company’s products when used for their intended purpose(s) and under specific conditions infringe the intellectual property rights

of a third party, or other specified claims made against the indemnified party.

It is not possible to determine the maximum potential amount of liability under these indemnification obligations due to the unique facts and circumstances that are likely to be involved in each particular claim and indemnification provision.

Historically, payments made by the Company under these obligations have not been material.

Contingencies

In addition, the impact from changes in estimates for pre-existing warranties has been immaterial.

NOTE 17 – Contingencies

Shareholder Derivative Lawsuits (Wessels, Hamilton and Ha)

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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.

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.

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The Company opposed this motion on December 13, 2018, and the Court denied it on February 25, 2019.

The Wessels, Hamilton, and Ha appeals are currently pending.

Briefing has completed in each appeal.

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, that motion to dismiss remains pending.

On August 27, 2020, the California Court of Appeal affirmed the district court’s dismissal of the Wessels complaint and the time to seek further appeals has since expired.

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

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Plaintiffs further allege that the Company’s processors cannot perform at their advertised processing speeds without exposing consumers to Spectre, and that any “patches” to remedy this security vulnerability will result in degradation of processor performance.

The plaintiffs seek damages under several causes of action on behalf of a nationwide class and four state subclasses (California, Florida, Massachusetts, Louisiana) of consumers who purchased

the Company’s processors and/or devices containing AMD processors.

The plaintiffs seek damages under several causes of action on behalf of a nationwide class and four state subclasses (California, Florida, Massachusetts, Louisiana) of consumers who purchased the Company’s processors and/or devices containing AMD processors.

The plaintiffs also seek attorneys’ fees, equitable relief, and restitution.

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Briefing has completed for the appeal.

On May 15, 2020, the Ninth Circuit affirmed the district court’s ruling dismissing the subset of claims currently at issue against the Company.

On August 14, 2020, the district court dismissed the remaining claims with prejudice.

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Collabo alleges that the Company infringes one patent (7,930,575) related to power management;

and Polaris alleges that the Company infringes two patents (6,728,144 and 8,117,526) relating to control or use of dynamic random-access memory, or DRAM.

and Polaris alleges that the Company infringes two patents (6,728,144

and 8,117,526) relating to control or use of dynamic random-access memory, or DRAM.

Each of the three complaints seeks unspecified monetary damages, interest, fees, expenses, and costs against the Company;

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On August 23, 2019, the Court held a claim construction hearing in each case.

On May 14, 2020, at the request of Polaris, the Court dismissed all claims related to one of the two patents in suite in the Polaris case.

On June 10, 2020, the Court granted AMD’s motions to stay the Polaris and Aquila cases pending the completion of inter partes review of each of the patents-in-suit in those cases by the Patent Trial and Appeals Board.

Dickey Litigation

On October 26, 2015, a putative class action complaint captioned Dickey et al.

15-cv-04922 was filed against the Company in the United States District Court for the Northern District of California.

Plaintiffs allege that the Company misled consumers by using the term “eight cores” in connection with the marketing of certain AMD FX CPUs that are based on the Company’s “Bulldozer” core architecture.

The plaintiffs allege these products cannot perform eight calculations simultaneously, without restriction.

The plaintiffs seek to obtain damages under several causes of action for a nationwide class of consumers who allegedly were deceived into purchasing certain Bulldozer-based CPUs that were marketed as containing eight cores.

The plaintiffs also seek attorneys’ fees.

On December 21, 2015, the Company filed a motion to dismiss the complaint, which was granted on April 7, 2016.

The plaintiffs then filed an amended complaint with a narrowed putative class definition, which the Court dismissed upon the Company’s motion on October 31, 2016.

The plaintiffs subsequently filed a second amended complaint, and the Company filed a motion to dismiss the second amended complaint.

On June 14, 2017, the Court issued an order granting in part and denying in part the Company’s motion to dismiss, and allowing the plaintiffs to move forward with a portion of their complaint.

On March 27, 2018, plaintiffs filed their motion for class certification.

On January 17, 2019, the Court granted plaintiffs’ motion for class certification.

The class definition does not encompass the Company’s Ryzen or EPYC processors.

On January 31, 2019, the Company filed a petition in the Ninth Circuit Court of Appeals, seeking review of certain aspects of the January 17, 2019 class certification order.

On May 9, 2019, the parties attended mediation and reached a tentative settlement.

On June 3, 2019, the Ninth Circuit Court of Appeals denied the Company’s petition seeking appellate review of the January 17, 2019 class certification order.

On August 9, 2019, the parties executed a formal settlement agreement.

On August 23, 2019, plaintiffs filed their motion for preliminary approval of the settlement agreement.

On October 4, 2019, the Court granted the motion for preliminary approval of the settlement agreement.

Based upon information presently known to management, the Company believes that the settlement will not have a material adverse effect on its financial condition, cash flows or results of operations.

Monterey Research Litigation

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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.

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.

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 18 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.

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.).

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).

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.

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.

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

6,363,466 (related to out of order data transactions);

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.

Environmental Matters

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The Company is a defendant or plaintiff in various actions that arose in the normal course of business.

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.

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., a wholly owned subsidiary of the Company (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 common stock of the Company 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 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).

The closing of the Merger is subject to customary conditions, including regulatory approval and approval by the stockholders of both the Company and Xilinx.

The Merger is currently expected to close by the end of calendar year 2021.

Report of Independent Registered Public Accounting Firm

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We have audited the accompanying consolidated balance sheets of Advanced Micro Devices, Inc.

(the Company) as of December 28, 2019 and December 29, 2018, the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity and cash flows for each of the three years in the period ended December 28, 2019, and the related notes (collectively referred to as the “consolidated financial statements”).

(the Company) as of December 26, 2020 and December 28, 2019, the related consolidated statements of operations, comprehensive income, stockholders’ equity and cash flows for each of the three years in the period ended December 26, 2020, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 26, 2020 and December 28, 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 26, 2020, in conformity with U.S.

generally accepted accounting principles.

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 28, 2019, 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 4, 2020 expressed an unqualified opinion thereon.

Adoption of New Accounting Standard

As discussed in Note 2 to the consolidated financial statements, the Company changed its method for accounting for leases as a result of the adoption of Accounting Standards Update (ASU) No.

2016-02, Leases (Topic 842), and the amendments effective December 30, 2018 under the optional modified retrospective approach.

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 26, 2020, 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 January 29, 2021 expressed an unqualified opinion thereon.

Basis for Opinion

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Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

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 account or disclosure 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 the 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 28, 2019, the Company’s net inventory balance was $982 million.

Description of the Matter At December 26, 2020, the Company’s net inventory balance was $1,399 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 in excess of forecasted demand, by considering recent historical activity as well as anticipated or forecasted demand.

2 unchanged sentences

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 internal controls over the Company's inventory carrying value adjustment determination process, including the basis for developing above described assumptions and management’s judgments.

How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of internal controls over the Company's inventory carrying value adjustment determination process, including the basis for developing above described assumptions and management’s judgments.

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.

1 unchanged sentence

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.

Deferred Tax Asset Valuation Allowance

Description of the Matter As discussed in Note 13 to the consolidated financial statements, at December 26, 2020, the Company carried deferred tax assets of $1,420 million, net of a $1,576 million valuation allowance.

Deferred tax assets are reduced by a valuation allowance if, based on the weight of all available evidence, in management’s judgment it is more likely than not that some portion, or all, of the deferred tax assets will not be realized.

Once established, the valuation allowance is released when, based on the weight of all available evidence, management concludes that related deferred tax assets are more likely than not to be realized.

In 2020, management concluded sufficient positive evidence exists to release a portion of the valuation allowance related to U.S.

deferred tax assets, resulting in an income tax benefit of $1,301 million in 2020.

Auditing management's analysis of the realizability of the deferred tax assets was complex and highly judgmental because the assessment process involves significant judgment and subjective evaluation of assumptions that may be affected by future operations of the Company, market or economic conditions.

How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of controls that address the risks of material misstatement relating to the realizability of deferred tax assets, including controls over management’s evaluation of the nature of its tax attributes and projections of the future reversal of existing taxable temporary differences and future taxable income.

We evaluated the Company's assessment of the realizability of its U.S.

deferred tax assets and the resultant release of valuation allowance.

Our audit procedures included, among others, evaluation of the nature of the Company’s tax attributes, application of the technical tax guidance related to attributes subject to additional limitation, projections of the future reversal of existing taxable temporary differences and assumptions used by the Company to assess reliability of its projected future taxable income.

We compared the projections of future taxable income with the actual results of prior periods and assessed management's consideration of current industry and economic trends.

We also compared the projections of future taxable income with other forecasted financial information prepared by the Company.

Further, we tested the completeness and accuracy of the underlying data used in the Company’s projections.

We involved our tax professionals with specialized skills and knowledge to evaluate the Company’s assessment of the scheduling of the reversal of existing temporary taxable differences and carryforward amounts and the carryforward lives of its deferred tax assets, and whether the estimated future sources of taxable income were of the appropriate character to utilize the deferred tax assets in the relevant time period.

/s/ Ernst & Young LLP

1 unchanged sentence

San Jose, California

February 4, 2020

January 29, 2021

Report of Independent Registered Public Accounting Firm

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(the Company) maintained, in all material respects, effective internal control over financial reporting as of December 26, 2020, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheets of the Company as of December 28, 2019 and December 29, 2018 , the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity and cash flows for each of the three years in the period ended December 28, 2019, and the related notes and our report dated February 4, 2020 expressed an unqualified opinion thereon.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 26, 2020 and December 28, 2019, the related consolidated statements of operations, comprehensive income, stockholders’ equity and cash flows for each of the three years in the period ended December 26, 2020, and the related notes and our report dated January 29, 2021 expressed an unqualified opinion thereon.

Basis for Opinion

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Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

12 unchanged sentences

San Jose, California

February 4, 2020

January 29, 2021

Supplementary Financial Information (unaudited)

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(In millions, except per share amounts)

Dec 26 Sep 26 June 27 Mar 28 Dec 28 Sep 28 June 29 Mar 30

Net revenue $ 3,244 $ 2,801 $ 1,932 $ 1,786 $ 2,127 $ 1,801 $ 1,531 $ 1,272

Cost of sales 1,793 1,571 1,084 968 1,178 1,024 910 751

Gross profit 1,451 1,230 848 818 949 777 621 521

Research and development 573 508 460 442 395 406 373 373

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Income before income taxes 546 401 160 168 205 126 37 4

Provision for (benefit from) income taxes

Equity loss in investee

Income tax provision (benefit) (1)

( 1,232 ) 12 4 6 35 7 2 ( 13 )

Equity income (loss) in investee 3 1 1 — — 1 — ( 1 )

Net income $ 1,781 $ 390 $ 157 $ 162 $ 170 $ 120 $ 35 $ 16

Earnings per share

Basic $ 1.48 $ 0.33 $ 0.13 $ 0.14 $ 0.15 $ 0.11 $ 0.03 $ 0.01

Diluted $ 1.45 $ 0.32 $ 0.13 $ 0.14 $ 0.15 $ 0.11 $ 0.03 $ 0.01

Shares used in per share calculation

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Basic 1,205 1,184 1,174 1,170 1,140 1,097 1,084 1,044

Diluted 1,226 1,215 1,227 1,224 1,188 1,117 1,109 1,094

(1) During the fourth quarter of 2020, the Company recognized a $ 1.3 billion income tax benefit upon the release of a portion of the valuation allowance on U.S.

deferred tax assets.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL

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