Inventories
|
|
|
|
|
|
|
|
|
|
December 31,
2016
|
|
December 26,
2015
|
|
(In millions)
|
Raw materials
|
$
|
11
|
|
|
$
|
16
|
|
Work in process
|
564
|
|
|
482
|
|
Finished goods
|
176
|
|
|
180
|
|
Total inventories, net
|
$
|
751
|
|
|
$
|
678
|
|
Other current assets
|
|
|
|
|
|
|
|
|
|
December 31,
2016
|
|
December 26,
2015
|
|
(In millions)
|
Assets held-for-sale
|
$
|
—
|
|
|
$
|
183
|
|
Other current assets
|
109
|
|
|
65
|
|
Total other current assets
|
$
|
109
|
|
|
$
|
248
|
|
Property, plant and equipment
|
|
|
|
|
|
|
|
|
|
December 31,
2016
|
|
December 26,
2015
|
|
(In millions)
|
Leasehold improvements
|
$
|
148
|
|
|
$
|
146
|
|
Equipment
|
714
|
|
|
821
|
|
Construction in progress
|
19
|
|
|
17
|
|
Property, plant and equipment, gross
|
881
|
|
|
984
|
|
Accumulated depreciation and amortization
|
(717
|
)
|
|
(796
|
)
|
Total property, plant and equipment, net
|
$
|
164
|
|
|
$
|
188
|
|
Depreciation expense for
2016
,
2015
and
2014
was
$71 million
,
$94 million
and
$115 million
, respectively.
Other assets
|
|
|
|
|
|
|
|
|
|
December 31,
2016
|
|
December 26,
2015
|
|
(In millions)
|
Software and technology licenses, net
|
$
|
232
|
|
|
$
|
189
|
|
Other
|
47
|
|
|
109
|
|
Total other assets
|
$
|
279
|
|
|
$
|
298
|
|
Accrued liabilities
|
|
|
|
|
|
|
|
|
|
December 31,
2016
|
|
December 26,
2015
|
|
(In millions)
|
Accrued compensation and benefits
|
$
|
116
|
|
|
$
|
95
|
|
Marketing programs and advertising expenses
|
102
|
|
|
109
|
|
Software technology and licenses payable
|
24
|
|
|
50
|
|
Other accrued and current liabilities
|
149
|
|
|
218
|
|
Total accrued liabilities
|
$
|
391
|
|
|
$
|
472
|
|
Other current liabilities
|
|
|
|
|
|
|
|
|
|
December 31,
2016
|
|
December 26,
2015
|
|
(In millions)
|
Liabilities related to assets held-for-sale
|
$
|
—
|
|
|
$
|
79
|
|
Other current liabilities
|
69
|
|
|
45
|
|
Total other current liabilities
|
$
|
69
|
|
|
$
|
124
|
|
NOTE 7: Goodwill and Acquired Intangible Assets
Goodwill
The carrying amounts of goodwill as of
December 31, 2016
and
December 26, 2015
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Computing and Graphics
|
|
Enterprise, Embedded and Semi-Custom
|
|
All Other
|
|
Total
|
|
(In millions)
|
Initial goodwill due to ATI acquisition
|
$
|
1,194
|
|
|
$
|
255
|
|
|
$
|
745
|
|
|
$
|
2,194
|
|
Initial goodwill due to SeaMicro acquisition
|
165
|
|
|
65
|
|
|
—
|
|
|
230
|
|
|
1,359
|
|
|
320
|
|
|
745
|
|
|
2,424
|
|
Accumulated impairment losses
|
(1,359
|
)
|
|
—
|
|
|
(745
|
)
|
|
(2,104
|
)
|
Balance as of December 27, 2014
|
—
|
|
|
320
|
|
|
—
|
|
|
320
|
|
Assets held-for-sale (sold to ATMP JV during 2016)
|
|
|
(42
|
)
|
|
|
|
(42
|
)
|
Balance as of December 26, 2015
|
—
|
|
|
278
|
|
|
—
|
|
|
278
|
|
Adjustment to assets sold to ATMP JV
|
—
|
|
|
11
|
|
|
—
|
|
|
11
|
|
Balance as of December 31, 2016
|
—
|
|
|
289
|
|
|
—
|
|
|
289
|
|
Goodwill, gross
|
1,359
|
|
|
289
|
|
|
745
|
|
|
2,424
|
|
Accumulated impairment losses
|
$
|
(1,359
|
)
|
|
$
|
—
|
|
|
$
|
(745
|
)
|
|
$
|
(2,104
|
)
|
As a result of the decision to form the JVs with TFME, the balance sheet as of December 26, 2015 reflects held-for-sale accounting of the ATMP assets and liabilities which requires reclassification of such financial amounts to current assets and current liabilities. Asset balances reclassified into other current assets included goodwill of
$42 million
. During 2016, the formation of ATMP JV was completed and the actual goodwill assigned to ATMP JV was approximately
$31 million
.
During the fourth quarter of 2014, the Company conducted its annual impairment test of goodwill. In step one of the impairment test, the Company compared the fair value of each of the reporting units to its carrying value. The Company determined that the carrying value of the Computing and Graphics reporting unit exceeded its fair value, indicating potential goodwill impairment existed based on a combination of factors such as a decline in stock price.
Therefore, the Company performed the second step of the impairment test, in which the fair value of the reporting unit is allocated to all of the assets and liabilities of the reporting unit on a fair value basis, including any unrecognized intangible assets, with any excess representing the implied fair value of goodwill. The fair value was determined using an income approach, which estimates the present value of future cash flows based on management’s forecast of revenue growth rates and operating margins. Based on this analysis, the implied fair value of the goodwill of the Computing and Graphics reporting unit was zero. The Company concluded that the carrying amount
of goodwill assigned to the Computing and Graphics segment exceeded the implied fair values and recorded an impairment charge of
$233 million
, which is included in “Goodwill impairment charge” on the Company’s consolidated statement of operations.
The Company determined that the estimated fair value exceeded the carrying value of the remaining two reporting units, indicating that there was no goodwill impairment with respect to these reporting units. In connection with completing the goodwill impairment analysis, the Company reviewed its long-lived tangible and intangible assets within the Computing and Graphics reporting unit under ASC 360, “Accounting for the Impairment or Disposal of Long-Lived Assets.” The Company determined that the forecasted undiscounted cash flows related to these assets or asset groups were in excess of their carrying values, and therefore these assets were not impaired.
In the fourth quarters of
2016
and
2015
, the Company conducted its annual impairment tests of goodwill. Based on the results of the Company’s analysis of goodwill, each reporting unit’s fair value exceeded its carrying value, indicating that there was no goodwill impairment in
2016
and
2015
.
Acquisition-related intangible assets
As a part of the Company’s strategy to simplify and sharpen its investment focus, the Company decided to exit the dense server systems business, formerly SeaMicro, in the first quarter of 2015. As a result, the Company recorded a charge of
$76 million
in “Restructuring and other special charges, net” on the Company’s consolidated statements of operations during 2015. This charge consisted of an impairment charge of
$62 million
related to the acquired intangible assets. The Company concluded that the carrying value of the acquired intangible assets associated with its dense server systems business was fully impaired as the Company did not have plans to utilize the related freedom fabric technology in any of its future products nor did it have any plans at that time to monetize the associated intellectual property.
There were no unamortized balances of acquisition-related intangible assets as of
December 31, 2016
and
December 26, 2015
.
The following table summarizes amortization expense associated with acquisition-related intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
|
(In millions)
|
Developed technology
|
|
$
|
—
|
|
|
$
|
3
|
|
|
$
|
13
|
|
Customer relationships
|
|
—
|
|
|
—
|
|
|
1
|
|
Total
|
|
$
|
—
|
|
|
$
|
3
|
|
|
$
|
14
|
|
NOTE 8: Financial Instruments
Cash and Cash Equivalents
Cash and financial instruments measured and recorded at fair value on a recurring basis as of
December 31, 2016
and
December 26, 2015
are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2016
|
|
December 26,
2015
|
|
|
(In millions)
|
Cash and cash equivalents
|
|
|
|
|
Cash
|
|
$
|
67
|
|
|
$
|
409
|
|
Level 1
(1) (2)
|
|
|
|
|
Government money market funds
|
|
50
|
|
|
—
|
|
Total level 1
|
|
50
|
|
|
—
|
|
Level 2
(1) (3)
|
|
|
|
|
Commercial paper
|
|
1,147
|
|
|
376
|
|
Total level 2
|
|
1,147
|
|
|
376
|
|
Total
|
|
$
|
1,264
|
|
|
$
|
785
|
|
|
|
(1)
|
The Company did not have any transfers between Level 1 and Level 2 of the fair value hierarchy during 2016 and 2015.
|
|
|
(2)
|
The Company's Level 1 assets are valued using quoted prices for identical instruments in active markets.
|
|
|
(3)
|
The Company’s Level 2 assets are valued using broker reports that utilize quoted market prices for identical or comparable instruments. Brokers gather observable inputs for all of the Company’s fixed income securities from a variety of industry data providers and other third-party sources.
|
In addition to those amounts presented above, as of
December 31, 2016
and
December 26, 2015
, the Company had approximately
$2 million
and
$1 million
, respectively, of investments in money market funds, used as collateral for letters of credit deposits, which were included in Other current assets and Other assets, respectively, on the Company’s consolidated balance sheets. These money market funds are classified within Level 1 because they are valued using quoted prices for identical instruments in active markets. Their amortized costs are the same as the fair value for all periods presented. The Company is restricted from accessing these deposits.
Also in addition to those amounts presented above, at
December 31, 2016
and
December 26, 2015
, the Company had approximately
$15 million
of investments in mutual funds held in a Rabbi trust established for the Company’s deferred compensation plan, which were also included in Other assets on the Company’s consolidated balance sheets. These 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 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 31, 2016
|
|
December 26, 2015
|
|
Carrying
Amount
|
|
Estimated
Fair Value
|
|
Carrying
Amount
|
|
Estimated
Fair Value
|
|
(In millions)
|
Short-term debt
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
230
|
|
|
$
|
230
|
|
Long-term debt, net
(1)
|
$
|
1,434
|
|
|
$
|
2,313
|
|
|
$
|
2,000
|
|
|
$
|
1,372
|
|
|
|
(1)
|
Carrying amounts of long-term debt are net of unamortized debt issuance costs of
$25 million
as of
December 31, 2016
and
December 26, 2015
, based on the adoption of ASU 2015-03, and net of
$308 million
unamortized debt discount associated with the
2.125%
Notes as of
December 31, 2016
.
|
The Company’s short-term and long-term debt, net are classified within Level 2. The fair value of the debt was estimated based on the quoted market prices for the same or similar issues or on the current rates offered to the Company for debt of the same remaining maturities. 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.
Hedging Transactions and Derivative Financial Instruments
Cash Flow Hedges
The following table shows the amount of gain (loss) included in accumulated other comprehensive loss, the amount of gain (loss) reclassified from accumulated other comprehensive loss and included in earnings related to the foreign currency forward contracts designated as cash flow hedges and the amount of gain (loss) included in other income (expense), net, related to contracts not designated as hedging instruments, which was allocated in the consolidated statements of operations:
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
(In millions)
|
Foreign Currency Forward Contracts - gains (losses)
|
|
|
|
Contracts designated as cash flow hedging instruments
|
|
|
|
Other comprehensive income (loss)
|
$
|
4
|
|
|
$
|
(1
|
)
|
Cost of sales
|
—
|
|
|
(4
|
)
|
Research and development
|
(1
|
)
|
|
(10
|
)
|
Marketing, general and administrative
|
—
|
|
|
(7
|
)
|
Contracts not designated as hedging instruments
|
|
|
|
Other income (expense), net
|
$
|
3
|
|
|
$
|
(3
|
)
|
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 included in Other current assets should the foreign currency forward contracts be in a gain position or included in Other current liabilities should these contracts be in a loss position. These amounts were recorded in the Company’s consolidated balance sheets as follows:
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2016
|
|
December 26,
2015
|
|
|
(In millions)
|
Foreign Currency Forward Contracts
- gains (losses)
|
|
|
|
|
Contracts designated as cash flow hedging instruments
|
|
$
|
(2
|
)
|
|
$
|
(6
|
)
|
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 31, 2016
and
December 26, 2015
, the notional values of the Company’s outstanding foreign currency forward contracts were
$138 million
and
$156 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.
Fair Value Hedges
In the third quarter of 2014, the Company entered into fixed-to-floating interest rate swaps on a notional amount of
$250 million
to hedge a portion of the Company’s
6.75%
Senior Notes due 2019 (
6.75%
Notes). The purpose of these swaps was to manage a portion of the Company’s exposure to interest rate risk by converting fixed rate interest payments to floating rate interest payments. The swaps effectively converted a portion of the fixed interest payments payable on the
6.75%
Notes into variable interest payments based on LIBOR. The interest rate swaps were designated as a fair value hedge. Because the specific terms and notional amount of the swaps were intended to match the portion of the
6.75%
Notes being hedged, it was assumed to be a highly effective hedge. Accordingly, changes in the fair value of the interest rate swaps were exactly offset by changes in the fair value of the
6.75%
Notes. All changes in fair value of the swaps were recorded on the Company’s consolidated balance sheets with no net impact to the Company’s consolidated statements of operations.
During
2016
, the Company terminated the above fair value hedges. In connection with the repurchase of a portion of the principal amount of the
6.75%
Notes during the third quarter of 2016, the Company canceled one of its interest rate swap contracts and recorded a gain of approximately
$2 million
in Other income (expense), net on the Company's consolidated statement of operations. Additionally, during the fourth quarter of 2016, the Company canceled its remaining interest rate swap contract on the remaining portion of the outstanding
6.75%
Notes. For this cancellation, the Company recorded a deferred gain, which is recognized as interest income over the remaining life of the
6.75%
Notes. The total amount of interest income recognized from the deferred gain during
2016
was immaterial. As of
December 31, 2016
, the balance of the deferred gain included in Long-term debt, net on the Company's consolidated balance sheet was approximately
$1 million
.
The Company’s fair value hedge derivative contracts were classified within Level 2 because the valuation inputs were based on quoted prices and market observable data of similar instruments in active markets.
The following table shows the fair value amounts included in Other assets should the fair value hedge derivative contracts be in a gain position or included in Other long-term liabilities should these contracts be in a loss position. These amounts were recorded in the Company’s consolidated balance sheets as follows:
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2016
|
|
December 26,
2015
|
|
|
(In millions)
|
Interest Rate Swap Contracts
- gains (losses)
|
|
|
|
|
Contracts designated as fair value hedging instruments
|
|
$
|
—
|
|
|
$
|
7
|
|
NOTE 9: Concentrations of Credit and Operation Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of investments in 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. The Company invests in time deposits and certificates of deposit from banks having combined capital, surplus and undistributed profits of not less than
$200 million
. At the time an investment is made, investments in commercial paper of industrial firms and financial institutions are rated A1, P1 or better. The Company invests in tax-exempt
securities, including municipal notes and bonds that are rated A, A2 or better and repurchase agreements, each of which have securities of the type and quality listed above as collateral.
The Company believes that concentrations of credit risk with respect to trade receivables are limited because a large number of geographically diverse customers make up the Company’s customer base, thus diluting the trade credit risk. Accounts receivable from the Company’s top
three
customers accounted for approximately
12%
,
11%
and
10%
of the total consolidated accounts receivable balance as of
December 31, 2016
and
26%
,
17%
and
11%
of the total consolidated accounts receivable balance as of
December 26, 2015
. 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 counterparty 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 counterparty 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 counterparties, the Company determined its counterparty credit risk to be immaterial. At
December 31, 2016
, the Company’s obligations under the contracts exceeded the counterparties’ obligations by
$2 million
.
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 its internal 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.
NOTE 10: Income Taxes
The provision for income taxes consists of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
(In millions)
|
Current:
|
|
|
|
|
|
U.S. Federal
|
$
|
(2
|
)
|
|
$
|
(1
|
)
|
|
$
|
(1
|
)
|
U.S. State and Local
|
—
|
|
|
—
|
|
|
—
|
|
Foreign National and Local
|
21
|
|
|
16
|
|
|
6
|
|
Total
|
19
|
|
|
15
|
|
|
5
|
|
Deferred:
|
|
|
|
|
|
U.S. Federal
|
(1
|
)
|
|
—
|
|
|
—
|
|
Foreign National and Local
|
21
|
|
|
(1
|
)
|
|
—
|
|
Total
|
20
|
|
|
(1
|
)
|
|
—
|
|
Provision for income taxes
|
$
|
39
|
|
|
$
|
14
|
|
|
$
|
5
|
|
Loss before income taxes consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
(In millions)
|
U.S.
|
$
|
(604
|
)
|
|
$
|
(1,100
|
)
|
|
$
|
(621
|
)
|
Foreign
|
146
|
|
|
454
|
|
|
223
|
|
Total pre-tax loss including ATMP JV equity loss
|
$
|
(458
|
)
|
|
$
|
(646
|
)
|
|
$
|
(398
|
)
|
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 31, 2016
and
December 26, 2015
are as follows:
|
|
|
|
|
|
|
|
|
|
December 31,
2016
|
|
December 26,
2015
|
|
(In millions)
|
Deferred tax assets:
|
|
|
|
Net operating loss carryovers
|
$
|
2,480
|
|
|
$
|
2,342
|
|
Deferred distributor income
|
26
|
|
|
20
|
|
Inventory valuation
|
26
|
|
|
39
|
|
Accrued expenses not currently deductible
|
65
|
|
|
74
|
|
Acquired intangibles
|
213
|
|
|
257
|
|
Tax deductible goodwill
|
146
|
|
|
192
|
|
Federal and state tax credit carryovers
|
427
|
|
|
400
|
|
Foreign capitalized research and development costs
|
—
|
|
|
60
|
|
Foreign research and development ITC credits
|
341
|
|
|
231
|
|
Discount of convertible notes
|
2
|
|
|
1
|
|
Other
|
83
|
|
|
119
|
|
Total deferred tax assets
|
3,809
|
|
|
3,735
|
|
Less: valuation allowance
|
(3,633
|
)
|
|
(3,669
|
)
|
Total deferred tax assets, net of valuation allowance
|
176
|
|
|
66
|
|
Deferred tax liabilities:
|
|
|
|
Undistributed foreign earnings
|
(158
|
)
|
|
(33
|
)
|
Other
|
(18
|
)
|
|
(23
|
)
|
Total deferred tax liabilities
|
(176
|
)
|
|
(56
|
)
|
Net deferred tax assets
|
$
|
—
|
|
|
$
|
10
|
|
The breakdown between current and non-current deferred tax assets and deferred tax liabilities as of
December 31, 2016
and
December 26, 2015
is as follows:
|
|
|
|
|
|
|
|
|
|
December 31,
2016
|
|
December 26,
2015
|
|
(In millions)
|
Current deferred tax assets
|
$
|
—
|
|
|
$
|
8
|
|
Non-current deferred tax assets
|
11
|
|
|
48
|
|
Current deferred tax liabilities
|
—
|
|
|
(46
|
)
|
Non-current deferred tax liabilities
|
$
|
(11
|
)
|
|
$
|
—
|
|
Net deferred tax assets
|
$
|
—
|
|
|
$
|
10
|
|
Current deferred tax assets and current deferred tax liabilities are included in captions Other current assets and Accrued liabilities, respectively, on the consolidated balance sheets. Non-current deferred tax assets are included in the caption “Other assets” on the consolidated balance sheets.
As of
December 31, 2016
, 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 realization of these assets is dependent on substantial future taxable income which, at
December 31, 2016
, in management’s estimate, is not more likely than not to be achieved. In
2016
, the net valuation allowance decreased by
$36 million
primarily for decreases in deferred tax assets related to foreign capitalized research costs, acquired intangibles and goodwill. In
2015
, the net valuation allowance increased by
$174 million
primarily for increases in deferred tax assets related to the net operating losses generated from pre-tax book losses in the U.S. In
2014
, the net valuation allowance increased by
$120 million
primarily for increases in deferred tax assets related to net operating losses generated from pre-tax book losses in the U.S.
As of
December 31, 2016
and
December 26, 2015
, the Company had
$95 million
and
$118 million
, respectively, of deferred tax assets subject to a valuation allowance that related to excess stock option deductions, which are not presented in the deferred tax asset balances.
The following is a summary of the various tax attribute carryforwards the Company had as of
December 31, 2016
. The amounts presented below include amounts related to excess stock option deductions, as discussed above.
|
|
|
|
|
|
|
|
|
|
|
Carryforward
|
Federal
|
|
State /
Provincial
|
|
Expiration
|
|
(In millions)
|
|
|
U.S.-net operating loss carryovers
|
$
|
6,973
|
|
|
$
|
348
|
|
|
2017 to 2036
|
U.S.-credit carryovers
|
$
|
398
|
|
|
$
|
209
|
|
|
2017 to 2036
|
Canada-net operating loss carryovers
|
$
|
13
|
|
|
$
|
13
|
|
|
2027 to 2028
|
Canada-credit carryovers
|
$
|
331
|
|
|
$
|
39
|
|
|
2021 to 2036
|
Barbados-net operating loss carryovers
|
$
|
29
|
|
|
N/A
|
|
|
2017
|
Other foreign net operating loss carryovers
|
$
|
36
|
|
|
N/A
|
|
|
various
|
Utilization of
$10 million
of the Company’s U.S. federal net operating loss carryforwards are subject to annual limitations as a result of the ATI Technologies ULC (ATI) acquisition.
The table below displays reconciliation between statutory federal income taxes and the total provision (benefit) for income taxes.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
(In millions)
|
Statutory federal income tax benefit at 35% rate
|
$
|
(160
|
)
|
|
$
|
(226
|
)
|
|
$
|
(139
|
)
|
State taxes, net of federal benefit
|
1
|
|
|
1
|
|
|
1
|
|
Foreign (income) expense at other than U.S. rates
|
(1
|
)
|
|
9
|
|
|
1
|
|
U.S. valuation allowance generated
|
201
|
|
|
232
|
|
|
144
|
|
Credit monetization
|
(2
|
)
|
|
(2
|
)
|
|
(2
|
)
|
Provision for income taxes
|
$
|
39
|
|
|
$
|
14
|
|
|
$
|
5
|
|
The Company has made no provision for U.S. income taxes on approximately
$37 million
of cumulative undistributed earnings of certain foreign subsidiaries through
December 31, 2016
because it is the Company’s intention to indefinitely reinvest such earnings (2015: approximately
$307 million
). If such earnings were distributed, the Company would incur additional income taxes of approximately
$13 million
(after an adjustment for foreign tax credits). These additional income taxes may not result in income tax expense or a cash payment to the Internal Revenue Service, but may result in the utilization of deferred tax assets that are currently subject to a valuation allowance.
The year-on-year reduction in cumulative undistributed earnings for which no provision for U.S. income taxes has been provided is primarily due to a combination of dividend distributions, other US federal income tax return inclusions, and changes in circumstances in certain subsidiaries such that their undistributed earnings are no longer considered indefinitely reinvested in full or in part. Significant movements in previously undistributed earnings of foreign subsidiaries are discussed below.
The Company recognized the U.S. income tax effect of undistributed earnings within certain subsidiaries in China and Malaysia of
$83 million
through December 31, 2016. In addition, dividends and other U.S. federal income tax return inclusions of
$198 million
were recognized in U.S. taxable income through
December 31, 2016
. The tax effect of the total recognition of
$281 million
distributed and undistributed by these subsidiaries is the utilization of deferred tax assets and an equivalent reduction in valuation allowances over those assets. These movements arise because the Company closed the transaction to sell
85%
of the ownership interest in the subsidiaries operating factories in Suzhou and Penang.
The Company recognized the U.S. income tax effect of undistributed earnings within a subsidiary in Bermuda and its subsidiaries of
$127 million
through December 31, 2016 because of a simplification plan which resulted in the relocation of certain activities between entities within the Company group. On completion these initiatives will allow a merger of two operating subsidiaries and reduce their role within the group’s operating activities. This causes the Company to modify its judgment that the associated undistributed earnings of these subsidiaries remain indefinitely reinvested. The tax effect of this recognition is the utilization of deferred tax assets and an equivalent reduction in valuation allowances over those assets.
The Company partially recognized undistributed earnings within certain subsidiaries in China of
$56 million
through December 26, 2015 because the announcement in October 2015 of an agreement to sell
85%
of the ownership interest in the subsidiary operating a factory in Suzhou caused the Company to modify its judgment that associated undistributed earnings of that subsidiary’s holding company in China will remain indefinitely reinvested. A future distribution of these earnings will give rise to an associated future withholding tax of
$6 million
. This is recognized as an income tax expense within the 2015 income tax provision. The same event results in the Chinese holding company recognizing the future benefit of tax losses available to offset taxable gains when the deal closes. The future benefit of those losses is
$7 million
and is a reduction in the 2015 income tax provision. The net effect of this event in the 2015 income tax provision is a reduction of
$1 million
.
The Company’s operations in Malaysia currently operate under a tax holiday, which will expire in 2018. This tax holiday may be extended if specific conditions are met. The net impact of the tax holiday did
no
t decrease the Company’s net loss in
2016
because the Company’s operations in Malaysia operated at a net loss. The net impact of tax holidays did
no
t decrease the Company’s net loss in
2015
because the Company’s operations in Malaysia operated at a loss. The net impact of tax holidays decreased the Company’s net loss by
$2 million
in
2014
,
less than $.01
per share, diluted.
A reconciliation of the gross unrecognized tax benefits is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
(In millions)
|
Balance at beginning of year
|
$
|
38
|
|
|
$
|
28
|
|
|
$
|
52
|
|
Increases for tax positions taken in prior years
|
3
|
|
|
11
|
|
|
1
|
|
Decreases for tax positions taken in prior years
|
—
|
|
|
(1
|
)
|
|
—
|
|
Increases for tax positions taken in the current year
|
2
|
|
|
2
|
|
|
2
|
|
Decreases for settlements with taxing authorities
|
—
|
|
|
(2
|
)
|
|
(27
|
)
|
Decreases for lapsing of the statute of limitations
|
(1
|
)
|
|
—
|
|
|
—
|
|
Balance at end of year
|
$
|
42
|
|
|
$
|
38
|
|
|
$
|
28
|
|
The amount of unrecognized tax benefits that would impact the effective tax rate was
$4 million
,
$4 million
and
$3 million
as of
December 31, 2016
,
December 26, 2015
and
December 27, 2014
, respectively. The Company had
no
or immaterial amounts of accrued interest and no accrued penalties related to unrecognized tax benefits as of
December 31, 2016
,
December 26, 2015
and
December 27, 2014
. The Company recognizes the accrued interest and penalties to unrecognized tax benefits as interest expense and income tax expense, respectively.
During the 12 months beginning January 1, 2017, the Company expects to reduce its unrecognized tax benefits by
$1 million
primarily as a result of the lapse of statue with certain tax authorities. The Company does not believe it is reasonably possible that other unrecognized tax benefits will materially change in the next 12 months. However, the resolutions and/or closure of open audits are highly uncertain.
As of December 27, 2014, the Canada Revenue Agency, or CRA, had completed its audit of ATI for the years 2005 through 2010 and issued its final Notice of Assessment, which the Company has reviewed and agreed to. As of December 26, 2015, the Italian tax authorities had concluded their audit of the Company’s subsidiaries’ activities in Italy for the years 2003 through 2013. The Company entered into a settlement for
$11 million
in taxes and penalties and
$2 million
in interest. The Company and its subsidiaries have several foreign, foreign provincial, and U.S. state audits in process at any one point in time. The Company has provided for uncertain tax positions that require a liability under the adopted method to account for uncertainty in income taxes. The Company has not recognized any current or long-term deferred tax assets under a valuation allowance as a result of the application of uncertainty in income taxes in ASC 740 for unrecognized tax benefits as of
December 31, 2016
.
NOTE 11: Debt and Other Obligations
Total Debt
The Company’s total debt as of
December 31, 2016
and
December 26, 2015
consisted of:
|
|
|
|
|
|
|
|
|
|
December 31,
2016
|
|
December 26,
2015
|
|
(In millions)
|
6.75% Notes
|
$
|
196
|
|
|
$
|
600
|
|
6.75% Notes, interest rate swap
|
—
|
|
|
7
|
|
7.75% Notes
|
—
|
|
|
450
|
|
7.50% Notes
|
350
|
|
|
475
|
|
7.00% Notes
|
416
|
|
|
500
|
|
2.125% Notes
|
805
|
|
|
—
|
|
Secured Revolving Line of Credit
|
—
|
|
|
230
|
|
Other
|
1
|
|
|
—
|
|
Total debt (principal amount)
|
1,768
|
|
|
2,262
|
|
Unamortized debt discount associated with 2.125% Notes
|
(308
|
)
|
|
—
|
|
Unamortized debt issuance costs
|
(25
|
)
|
|
(25
|
)
|
Total debt (net)
|
1,435
|
|
|
2,237
|
|
Less: current portion
|
—
|
|
|
230
|
|
Total debt, less current portion
|
$
|
1,435
|
|
|
$
|
2,007
|
|
2.125%
Convertible Senior Notes Due 2026
On September 14, 2016, the Company issued
$700 million
in aggregate principal amount of
2.125%
Convertible Senior Notes due 2026 (
2.125%
Notes). The Company also granted an option to the underwriters to purchase an additional
$105 million
aggregate principal amount of the
2.125%
Notes. On September 28, 2016, this option was exercised in full and the Company issued an additional
$105 million
aggregate principal amount of the
2.125%
Notes.
The
2.125%
Notes are general unsecured senior obligations of the Company and will mature on September 1, 2026, unless earlier repurchased or converted. Interest is payable in arrears on March 1 and September 1 of each year beginning on March 1, 2017. The
2.125%
Notes are governed by the terms of a base indenture and a supplemental indenture (together the
2.125%
Indentures) dated September 14, 2016 between the Company and Wells Fargo Bank, N.A., as trustee.
Holders may convert their notes at their option at any time prior to the close of business on the business day immediately preceding June 1, 2026 only under the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending on September 30, 2016 (and only during such calendar quarter), if the last reported sale price of the Company's common stock for at least
20
trading days (whether or not consecutive) during a period of
30
consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to
130%
of the conversion price on each applicable trading day; (2) during the
five
business day period after any
ten
consecutive trading day period (the “measurement period”) in which the trading price per $1,000 principal amount of notes for each trading day of the measurement period was less than
98%
of the product of the last reported sale price of the Company's common stock and the conversion rate on each such trading day; or (3) upon the occurrence of specified corporate events. On or after June 1, 2026 until the close of business on the business day immediately preceding the maturity date, holders may convert their notes at any time, regardless of the foregoing circumstances. Upon conversion, the Company will pay or deliver, as the case may be, cash, shares of the Company's common stock or a combination of cash and shares of the Company's common stock, at the Company's election.
The Company may not redeem the notes prior to the maturity date, and no sinking fund is provided for the notes.
The conversion rate will initially be
125.0031
shares of common stock per $1,000 principal amount of notes (equivalent to an initial conversion price of approximately
$8.00
per share of common stock). The conversion rate will be subject to adjustment in some events but will not be adjusted for any accrued and unpaid interest. In addition, following certain corporate events that occur prior to the maturity date, the Company will increase the conversion rate for a holder who elects to convert its notes in connection with such a corporate event in certain circumstances.
If the Company undergoes a fundamental change prior to the maturity date of the notes, holders may require the Company to repurchase for cash all or any portion of their notes at a fundamental change repurchase price equal to 100% of the principal amount of the notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date.
In accounting for the issuance of the
2.125%
Notes, the Company separated the
2.125%
Notes into liability and equity components. The carrying amounts of the liability component was calculated by measuring the fair value of a similar liability that
does not have associated conversion features. The carrying amount of the equity component representing the conversion option was determined by deducting the fair value of the liability component from the par value of the
2.125%
Notes as a whole. The excess of the principal amount of the liability component over its book value (debt discount) is accreted to interest expense over the term of the
2.125%
Notes. The equity component is not remeasured as long as it continues to meet the conditions for equity classification.
In accounting for the issuance costs related to the
2.125%
Notes, the Company allocated the total amount of issuance costs incurred to the liability and equity components based on their relative fair values. Issuance costs attributable to the liability component are being amortized to interest expense over the term of the
2.125%
Notes, and the issuance costs attributable to the equity component are netted against the equity component in
additional paid-in capital. The Company recorded issuance costs of
$15 million
and
$9 million
, respectively, for the liability and equity portions.
The
2.125%
Notes consisted of the following:
|
|
|
|
|
|
December 31,
2016
|
|
(In millions)
|
Principal amounts:
|
|
Principal
|
$
|
805
|
|
Unamortized debt discount
(1)
|
(308
|
)
|
Unamortized debt issuance costs
|
(14
|
)
|
Net carrying amount
|
$
|
483
|
|
Carrying amount of the equity component, net
(2)
|
$
|
305
|
|
|
|
(1)
|
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.
|
|
|
(2)
|
Included in the consolidated balance sheets within additional paid-in capital, net of
$9 million
in equity issuance costs.
|
As of
December 31, 2016
, the remaining life of the
2.125%
Notes was approximately
117 months
.
Based on the closing price of the Company's common stock of
$11.34
on December 30, 2016, the last business day of the 2016, the if-converted value of the
2.125%
Notes exceeded its principal amount by approximately
$336 million
.
The effective interest rate of the liability component of the
2.125%
Notes is
8%
. This interest rate was based on the interest rates of similar liabilities at the time of issuance that did not have associated conversion features. The following table sets forth total interest expense recognized related to the
2.125%
Notes for the year ended
December 31, 2016
:
|
|
|
|
|
|
December 31,
2016
|
|
(In millions)
|
Contractual interest expense
|
$
|
5
|
|
Interest cost related to amortization of debt issuance costs
|
—
|
|
Interest cost related to amortization of the debt discount
|
$
|
6
|
|
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 are general unsecured senior obligations of the Company. Interest is 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 are 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.
During
2016
, the Company repurchased
$404 million
in aggregate principal amount of its
6.75%
Notes pursuant to a partial tender offer for
$442 million
, which included payment of accrued and unpaid interest of
$2 million
. The Company incurred a total loss of
$41 million
in connection with the foregoing repurchase of the
6.75%
Notes. As of
December 31, 2016
, the outstanding aggregate principal amount of the
6.75%
Notes was
$196 million
.
At any time before March 1, 2019, the Company may redeem some or all of the
6.75%
Notes at a price equal to 100% of the principal amount, plus accrued and unpaid interest and a “make whole” premium (as set forth in the
6.75%
Indenture).
Holders have the right to require the Company to repurchase all or a portion of the
6.75%
Notes in the event that the Company undergoes a change of control, as defined in the
6.75%
Indenture, at a price of
101%
of the principal amount plus accrued and unpaid interest. Additionally, an event of default (as defined in the
6.75%
Indenture) may result in the acceleration of the maturity of the
6.75%
Notes.
The
6.75%
Indenture contains certain covenants that limit, among other things, the Company’s ability and the ability of its subsidiaries, to:
|
|
•
|
incur additional indebtedness, except specified permitted debt;
|
|
|
•
|
pay dividends and make other restricted payments;
|
|
|
•
|
make certain investments if an event of a default exists, or if specified financial conditions are not satisfied;
|
|
|
•
|
create or permit certain liens;
|
|
|
•
|
create or permit restrictions on the ability of its subsidiaries to pay dividends or make other distributions to the Company;
|
|
|
•
|
use the proceeds from sales of assets;
|
|
|
•
|
enter into certain types of transactions with affiliates; and
|
|
|
•
|
consolidate, merge or sell its assets as entirety or substantially as an entirety.
|
On February 10, 2017, the Company settled
$5 million
in aggregate principal amount of its
6.75%
Notes with treasury stock.
7.75%
Senior Notes Due 2020
On
August 4, 2010
, the Company issued
$500 million
of its
7.75%
Senior Notes Due 2020 (
7.75%
Notes). The
7.75%
Notes were general unsecured senior obligations of the Company. Interest was payable on February 1 and August 1 of each year beginning February 1, 2011 until the maturity date of
August 1, 2020
. The
7.75%
Notes were governed by the terms of an indenture (the
7.75%
Indenture) dated August 4, 2010 between the Company and Wells Fargo Bank, N.A., as trustee.
In 2014, the Company repurchased
$50 million
in aggregate principal amount of its
7.75%
Notes in open market transactions for
$49 million
, which included payment of accrued and unpaid interest of
$1 million
. The Company recorded a total gain of
$2 million
in connection with the foregoing repurchase of the
7.75%
Notes.
During
2016
, the Company paid off the remaining
$450 million
in aggregate principal amount of its
7.75%
Notes for
$467 million
, which included payment of accrued and unpaid interest of
$5 million
. The Company incurred a total loss of
$16 million
in connection with the foregoing repurchase of the
7.75%
Notes. As of
December 31, 2016
, the Company did
no
t have any
7.75%
Notes outstanding.
7.50%
Senior Notes Due 2022
On
August 15, 2012
, the Company issued
$500 million
of its
7.50%
Senior Notes due 2022 (
7.50%
Notes). The
7.50%
Notes are general unsecured senior obligations of the Company. Interest is payable on February 15 and August 15 of each year beginning February 15, 2013 until the maturity date of
August 15, 2022
. The
7.50%
Notes are governed by the terms of an indenture (the
7.50%
Indenture) dated August 15, 2012 between the Company and Wells Fargo Bank, N.A., as trustee.
During 2014, the Company repurchased
$25 million
in aggregate principal amount of its
7.50%
Notes in open market transactions for
$24 million
. The payment of accrued and unpaid interest included in the purchase price was immaterial. The Company incurred a total gain of
$1 million
in connection with the foregoing repurchase of the
7.50%
Notes.
During
2016
, the Company repurchased
$125 million
in aggregate principal amount of its
7.50%
Notes) pursuant to a partial tender offer for
$135 million
, which included payment of accrued and unpaid interest of
$1 million
. The Company incurred a total loss of
$10 million
in connection with the foregoing repurchase of the
7.50%
Notes. As of
December 31, 2016
, the outstanding aggregate principal amount of the
7.50%
Notes was
$350 million
.
Prior to August 15, 2022, the Company may redeem some or all of the
7.50%
Notes at a price equal to 100% of the principal amount, plus accrued and unpaid interest and a “make whole” premium (as defined in the
7.50%
Indenture).
Holders have the right to require the Company to repurchase all or a portion of the
7.50%
Notes in the event that the Company undergoes a change of control, as defined in the
7.50%
Indenture, at a repurchase price of
101%
of the principal amount plus accrued and unpaid interest. Additionally, an event of default (as defined in the
7.50%
Indenture) may result in the acceleration of the maturity of the
7.50%
Notes.
The
7.50%
Indenture contains certain covenants that limit, among other things, the Company’s ability and the ability of its subsidiaries, to:
•
incur additional indebtedness, except specified permitted debt;
•
pay dividends and make other restricted payments;
•
make certain investments if an event of a default exists, or if specified financial conditions are not satisfied;
•
create or permit certain liens;
|
|
•
|
create or permit restrictions on the ability of its subsidiaries to pay dividends or make other distributions to the Company;
|
•
use the proceeds from sales of assets;
•
enter into certain types of transactions with affiliates; and
•
consolidate, merge or sell its assets as entirety or substantially as an entirety.
On February 10, 2017, the Company settled
$3 million
in aggregate principal amount of its
7.50%
Notes with treasury stock.
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.
During
2016
, the Company settled
$84 million
in aggregate principal amount of its
7.00%
Notes, which included payment of accrued and unpaid interest of
$1 million
, for
$77 million
in cash and
$8 million
in treasury stock. The Company incurred a total loss of
$1 million
in connection with the foregoing repurchase of the
7.00%
Notes. As of
December 31, 2016
, the outstanding aggregate principal amount of the
7.00%
Notes was
$416 million
.
At any time before July 1, 2017, the Company may redeem up to
35%
of the aggregate principal amount of the
7.00%
Notes within 90 days of the closing of an equity offering with the net proceeds thereof at a redemption price equal to
107.000%
of the principal amount thereof, together with accrued and unpaid interest to but excluding the date of redemption. Prior to July 1, 2019, the Company may redeem some or all of the
7.00%
Notes at a price equal to 100% of the principal amount, plus accrued and unpaid interest and a “make whole” premium (as set forth in the
7.00%
Indenture).
Starting July 1, 2019, the Company may redeem the
7.00%
Notes for cash at the following specified prices plus accrued and unpaid interest:
|
|
|
|
Period
|
Price as
Percentage of
Principal Amount
|
Beginning on July 1, 2019 through June 30, 2020
|
103.500
|
%
|
Beginning on July 1, 2020 through June 30, 2021
|
102.333
|
%
|
Beginning on July 1, 2021 through June 30, 2022
|
101.167
|
%
|
On July 1, 2022 and thereafter
|
100.000
|
%
|
Holders have the right to require the Company to repurchase all or a portion of the
7.00%
Notes in the event that the Company undergoes a change of control, as defined in the
7.00%
Indenture, at a repurchase price of
101%
of the principal amount plus accrued and unpaid interest. Additionally, an event of default (as defined in the
7.00%
Indenture) may result in the acceleration of the maturity of the
7.00%
Notes.
The
7.00%
Indenture contains certain covenants that limit, among other things, the Company’s ability and the ability of its subsidiaries, to:
|
|
•
|
incur additional indebtedness, except specified permitted debt;
|
|
|
•
|
pay dividends and make other restricted payments;
|
|
|
•
|
make certain investments if an event of a default exists, or if specified financial conditions are not satisfied;
|
|
|
•
|
create or permit certain liens;
|
|
|
•
|
create or permit restrictions on the ability of its subsidiaries to pay dividends or make other distributions to the Company;
|
|
|
•
|
use the proceeds from sales of assets;
|
|
|
•
|
enter into certain types of transactions with affiliates; and
|
|
|
•
|
consolidate, merge or sell its assets as entirety or substantially as an entirety.
|
On February 10, 2017, the Company settled
$26 million
in aggregate principal amount of its
7.00%
Notes with treasury stock.
The
6.75%
Notes,
7.50%
Notes,
7.00%
Notes and
2.125%
Notes rank equally with the Company’s existing and future senior debt and are senior to all of the Company’s future subordinated debt. The
6.75%
Notes,
7.50%
Notes,
7.00%
Notes and
2.125%
Notes rank junior to all of the Company’s future senior secured debt to the extent of the collateral securing such debt and are structurally subordinated to all existing and future debt and liabilities of the Company’s subsidiaries.
Potential Repurchase of Outstanding Notes
The Company may elect to purchase or otherwise retire the
6.75%
Notes,
7.50%
Notes,
7.00%
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 Line of Credit
Loan and Security Agreement
The Company and its subsidiary, AMD International Sales & Service, Ltd. (together, the Borrowers), entered into a loan and security agreement on November 12, 2013, as amended on December 11, 2014 (the Loan Agreement), for a secured revolving line of credit for a principal amount of up to
$500 million
(the Secured Revolving Line of Credit), with up to
$75 million
available for issuance of letters of credit, with a group of lenders and Bank of America, N.A., acting as agent for the lenders (the Agent). The Secured Revolving Line of Credit had a maturity date of November 12, 2018. Borrowings under the Secured Revolving Line of Credit were limited to up to
85%
of eligible account receivable minus certain reserves. The borrowings of the Secured Revolving Line of Credit may be used for general corporate purposes, including working capital needs.
Amended and Restated Loan and Security Agreement
On April 14, 2015, the Borrowers and ATI Technologies ULC (collectively, the Loan Parties) amended and restated the Loan Agreement (the Amended and Restated Loan Agreement) by and among the Loan Parties, the financial institutions party thereto from time to time as lenders (the Lenders) and the Agent.
The Amended and Restated Loan Agreement provides for a Secured Revolving Line of Credit for a principal amount of up to
$500 million
with up to
$75 million
available for issuance of letters of credit, which remained unchanged from the Loan Agreement. Borrowings under the Secured Revolving Line of Credit are limited to up to
85%
of eligible accounts receivable (
90%
for certain qualified eligible accounts receivable), minus specified reserves. The size of the commitments under the Secured Revolving Line of Credit may be increased by up to an aggregate amount of
$200 million
.
The Secured Revolving Line of Credit matures on April 14, 2020 and is secured by a first priority security interest in the Loan Parties’ accounts receivable, inventory, deposit accounts maintained with the Agent and other specified assets, including books and records.
The Borrowers may elect a per annum interest rate equal to (a) the London Interbank Offered Rate (LIBOR) plus the applicable margin set forth in the chart below (the Applicable Margin) as determined by the average availability under the Secured Revolving Line of Credit and the fixed charge coverage ratio for the most recently ended four-fiscal-quarter period; or (b) (i) the greatest of (x) the Agent’s prime rate, (y) the federal funds rate, as published by the Federal Reserve Bank of New York plus
0.50%
, and (z) LIBOR for a one-month period plus
1.00%
, plus (ii) the Applicable Margin.
Applicable Margin, if average availability is equal to or greater than
66.66%
of the total commitment amount and the fixed charge coverage ratio for the most recently ended four-fiscal quarter period is greater than or equal to
1.25
to 1.00, is
0.25%
for Base Rate Revolver Loans and
1.25%
for LIBOR Revolver Loans. Otherwise, Applicable Margin is determined in accordance with the below table:
|
|
|
|
|
|
|
|
Level
|
|
Average
Availability for
Last Fiscal
Month
|
|
Base Rate
Revolver Loans:
Applicable Margin
|
|
LIBOR
Revolver Loans:
Applicable Margin
|
I
|
|
greater than or equal to 66.66% of the Revolver Commitment
|
|
0.5%
|
|
1.5%
|
II
|
|
greater than or equal to 33.33% of the Revolver Commitment, less than 66.66%
|
|
0.75%
|
|
1.75%
|
III
|
|
less than 33.33% of the Revolver Commitment
|
|
1%
|
|
2%
|
The Secured Revolving Line of Credit may be optionally prepaid or terminated, and unutilized commitments may be reduced at any time, in each case without premium or penalty. In connection with the Secured Revolving Line of Credit, the Borrowers will pay an unused line fee equal to
0.375%
per annum, payable monthly on the unused amount of the commitments under the Secured Revolving Line of Credit. The unused line fee decreases to
0.25%
per annum when 35% or more of the Secured Revolving Line of Credit is utilized. The Borrowers will pay (i) a monthly fee on all letters of credit outstanding under the Secured Revolving Line of Credit equal to the applicable LIBOR margin and (ii) a fronting fee to the Agent equal to
0.125%
of all such letters of credit, payable monthly in arrears.
The Amended and Restated Loan Agreement contains covenants that place certain restrictions on the Loan Parties’ ability to, among other things, allow certain of the Company’s subsidiaries that manufacture or process inventory for the Loan Parties to borrow secured debt or unsecured debt beyond a certain amount, amend or modify certain terms of any debt of
$50 million
or more or subordinated debt, create or suffer to exist any liens upon accounts or inventory, sell or transfer any of Loan Parties’ accounts or inventory other than certain ordinary-course transfers and certain supply chain finance arrangements, make certain changes to any Loan Party’s name or form or state of organization without notifying the Agent, liquidate, dissolve, merge, amalgamate, combine or consolidate, or become a party to certain agreements restricting the Loan Parties’ ability to incur or repay debt, grant liens, make distributions, or modify loan agreements.
Further restrictions apply when certain payment conditions (the Payment Conditions) are not satisfied with respect to specified transactions, events or payments. The Payment Conditions include that (i) no default or event of default exists and (ii) at all times during the 45 consecutive days immediately prior to such transaction, event or payment and on a pro forma basis after giving effect to such transaction, event or payment and any incurrence or repayment of indebtedness in connection therewith, the Loan Parties’ Excess Cash Availability (as defined in the Amended and Restated Loan Agreement) is greater than the greater of
20%
of the total commitment amount and
$100 million
. Such restrictions limit the Loan Parties’ ability to, among other things, create any liens upon any of the Loan Parties’ property other than customary permitted liens and liens on up to
$1.5 billion
of secured credit facilities debt (which amount includes the Secured Revolving Line of Credit), declare or make cash distributions, create any encumbrance on the ability of a subsidiary to make any upstream payments, make asset dispositions other than certain ordinary course dispositions and certain supply chain finance arrangements, make certain loans, make payments with respect to subordinated debt or certain borrowed money prior to its due date or become a party to certain agreements restricting the Loan Parties’ ability to enter into any non-arm’s-length transaction with an affiliate.
The Loan Parties are required to repurchase, redeem, defease, repay, create a segregated account for the repayment of, or request Agent to reserve a sufficient available amount under the Secured Revolving Line of Credit for the repayment of, all debt for borrowed money exceeding
$50 million
, by no later than 60 days prior to its maturity date (not including the Secured Revolving Line of Credit). Any reserved funds for this purpose would not be included in domestic cash calculations.
In addition, if at any time the Loan Parties’ Excess Cash Availability is less than the greater of
15%
of the total commitment amount and
$75 million
, the Loan Parties must maintain a minimum fixed charge coverage ratio of
1.00
to 1.00 until (i) no event of default exists and (ii) the Loan Parties’ Excess Cash Availability is greater than the greater of
15%
of the total commitment amount and
$75 million
for 45 consecutive days.
The events of default under the Amended and Restated Loan Agreement include, among other things, payment defaults, the inaccuracy of representations or warranties, defaults in the performance of affirmative and negative covenants, bankruptcy and insolvency related defaults, a cross-default related to indebtedness in an aggregate amount in excess of
$50 million
, judgments entered against a Loan Party in an amount that exceeds cumulatively
$50 million
, certain ERISA events and events related to Canadian defined benefits plans and a change of control. When a Payment Condition has not been satisfied, additional events of default include, among other things, a loss, theft damage or destruction with respect to any collateral if the amount not covered by insurance exceeds
$50 million
.
During
2016
, the Company repaid an aggregate of
$230 million
of the Secured Revolving Line of Credit. As of
December 31, 2016
, the Company did
no
t have any borrowings outstanding under the Secured Revolving Line of Credit. At
December 26, 2015
,
the Secured Revolving Line of Credit had an outstanding loan balance of
$230 million
at an interest rate of
4.00%
. At
December 31, 2016
, the Secured Revolving Line of Credit had
$19 million
related to outstanding letters of credit and up to
$121 million
available for future borrowings. The Company reports its intra-period changes in its revolving credit balance on a net basis in its condensed consolidated statement of cash flows as the Company intends the period of the borrowings to be brief, repaying borrowed amounts within 90 days. As of
December 31, 2016
, the Company was in compliance with all required covenants stated in the Loan Agreement.
The agreements governing the
6.75%
Notes,
7.50%
Notes,
7.00%
Notes,
2.125%
Notes and the Secured Revolving Line of Credit contain cross-default provisions whereby a default under one agreement would likely result in cross defaults under agreements covering other borrowings. The occurrence of a default under any of these borrowing arrangements would permit the applicable note holders or the lenders under the Secured Revolving Line of Credit to declare all amounts outstanding under those borrowing arrangements to be immediately due and payable.
First Amendment to the Amended and Restated Loan and Security Agreement
On June 10, 2015, the Loan Parties entered into a first amendment to the Amended and Restated Loan and Security Agreement (the First Amendment) by and among the Loan Parties, the Lenders and the Agent, which modifies the Amended and Restated Loan and Security Agreement. Amendments to the Amended and Restated Loan Agreement effected by the First Amendment included the addition of exceptions to the liens and asset sale covenants to permit the Loan Parties to enter into certain supply chain finance arrangements, as well as the addition of certain definitions related thereto.
Second Amendment to the Amended and Restated Loan and Security Agreement
On April 29, 2016, the Loan Parties entered into a second amendment to the Amended and Restated Loan and Security Agreement (the Second Amendment) by and among the Loan Parties, the Lenders and the Agent, which modifies the Amended and Restated Loan and Security Agreement. The primary amendment to the Amended and Restated Loan Agreement effected by the Second Amendment related to the expansion of the definition of permitted asset dispositions to include the sale or transfer of inventory to the ATMP JV pursuant to the Equity Interest Purchase Agreement between AMD and TFME.
Third Amendment to the Amended and Restated Loan and Security Agreement
On June 21, 2016, the Loan Parties entered into a third amendment to the Amended and Restated Loan and Security Agreement (the Third Amendment) by and among the Loan Parties, the Lenders and the Agent, which modifies the Amended and Restated Loan and Security Agreement. Amendments to the Amended and Restated Loan Agreement effected by the Third Amendment included the further expansion of the asset sale covenants to permit the Loan Parties to enter into certain supply chain finance arrangements.
Fourth Amendment to the Amended and Restated Loan and Security Agreement
On September 7, 2016, the Loan Parties entered into a fourth amendment to the Amended and Restated Loan and Security Agreement (the Fourth Amendment) by and among the Loan Parties, the Lenders and the Agent, which modifies the Amended and Restated Loan and Security Agreement. The primary amendment to the Amended and Restated Loan agreement effected by the Fourth Amendment was to increase the dollar limit as set forth the definition related to certain supply chain finance arrangements.
Capital Lease Obligations
The Company terminated its capital lease obligations and entered into a non-cancelable operating lease agreement related to one of its facilities in Markham, Ontario, Canada during 2015. As of December 31, 2016 and December 26, 2015, the Company did
no
t have any capital lease obligations outstanding.
Future Payments on Total Debt
As of
December 31, 2016
, the Company’s future debt payment obligations for the respective fiscal years were as follows:
|
|
|
|
|
|
Long Term Debt (Principal only)
|
|
(In millions)
|
2017
|
$
|
—
|
|
2018
|
—
|
|
2019
|
196
|
|
2020
|
—
|
|
2021
|
—
|
|
2022 and thereafter
|
1,571
|
|
Total
|
$
|
1,767
|
|
NOTE 12: Other Income (expense), Net
The following table summarizes the components of other income (expense), net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
(In millions)
|
Interest income
|
$
|
2
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Gain on sale of 85% ATMP JV
|
146
|
|
|
—
|
|
|
—
|
|
Loss on debt redemption
|
(68
|
)
|
|
—
|
|
|
(61
|
)
|
Other
|
—
|
|
|
(5
|
)
|
|
(5
|
)
|
Other income (expense), net
|
$
|
80
|
|
|
$
|
(5
|
)
|
|
$
|
(66
|
)
|
NOTE 13: 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 revenues and operating income (loss) before interest, other income (expense), net, and income taxes. These performance measures include the allocation of expenses to the operating segments based on management’s judgment. The Company has the following
two
reportable segments:
|
|
•
|
the Computing and Graphics segment, which primarily includes desktop and notebook processors and chipsets, discrete graphics processing units (GPUs) and professional graphics; and
|
|
|
•
|
the Enterprise, Embedded and Semi-Custom segment, which primarily includes server and embedded processors, semi-custom System-on-Chip (SoC) products, development services, technology for game consoles and licensing portions of its intellectual property portfolio.
|
In addition to these reportable segments, the Company has an All Other category, which is not a reportable segment. This category primarily includes certain expenses and credits that are not allocated to any of the reportable segments because management does not consider these expenses and credits in evaluating the performance of the reportable segments. Also included in this category are employee stock-based compensation expense, the charge related to the Sixth Amendment to the WSA with GF, restructuring and other special charges, net, amortization of acquired intangible assets, workforce rebalancing severance charges, goodwill impairment charge and significant or unusual lower of cost or market inventory adjustments. The Company also reported the results of former businesses in the All Other category because the operating results were not material.
The following table provides a summary of net revenue and operating income (loss) by segment for
2016
,
2015
and
2014
. The results prior to July 1, 2014 have been recast to reflect the Company’s new reportable segments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
(In millions)
|
Net revenue:
|
|
|
|
|
|
Computing and Graphics
|
$
|
1,967
|
|
|
$
|
1,805
|
|
|
$
|
3,132
|
|
Enterprise, Embedded and Semi-Custom
|
2,305
|
|
|
2,186
|
|
|
2,374
|
|
Total net revenue
|
$
|
4,272
|
|
|
$
|
3,991
|
|
|
$
|
5,506
|
|
Operating income (loss):
|
|
|
|
|
|
Computing and Graphics
|
$
|
(238
|
)
|
|
$
|
(502
|
)
|
|
$
|
(76
|
)
|
Enterprise, Embedded and Semi-Custom
|
283
|
|
|
215
|
|
|
399
|
|
All Other
|
(417
|
)
|
|
(194
|
)
|
|
(478
|
)
|
Total operating loss
|
$
|
(372
|
)
|
|
$
|
(481
|
)
|
|
$
|
(155
|
)
|
The following table provides major items included in All Other category:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
(In millions)
|
Operating loss:
|
|
|
|
|
|
Stock-based compensation expense
|
$
|
(86
|
)
|
|
$
|
(63
|
)
|
|
$
|
(81
|
)
|
Restructuring and other special charges, net
|
10
|
|
|
(129
|
)
|
|
(71
|
)
|
Amortization of acquired intangible assets
|
—
|
|
|
(3
|
)
|
|
(14
|
)
|
Charge related to the Sixth Amendment to the WSA with GF
|
(340
|
)
|
|
—
|
|
|
—
|
|
Goodwill impairment
|
—
|
|
|
—
|
|
|
(233
|
)
|
Lower of cost or market inventory adjustment
|
—
|
|
|
—
|
|
|
(58
|
)
|
Workforce rebalancing severance charges
|
—
|
|
|
—
|
|
|
(14
|
)
|
Other
|
(1
|
)
|
|
1
|
|
|
(7
|
)
|
Total operating loss
|
$
|
(417
|
)
|
|
$
|
(194
|
)
|
|
$
|
(478
|
)
|
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; assembly, test, mark and packaging 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 China, Canada, India, Singapore, and Taiwan. The Company’s ATMP facilities located in Malaysia and China were sold in the second quarter of 2016 (see NOTE 4). 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 country, which is based on the billing location of the customer:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
(In millions)
|
United States
|
$
|
923
|
|
|
$
|
984
|
|
|
$
|
1,030
|
|
Europe
|
155
|
|
|
168
|
|
|
325
|
|
China
|
1,108
|
|
|
1,145
|
|
|
2,324
|
|
Singapore
|
571
|
|
|
356
|
|
|
371
|
|
Japan
|
1,443
|
|
|
1,254
|
|
|
1,324
|
|
Other countries
|
72
|
|
|
84
|
|
|
132
|
|
Total sales to external customers
|
$
|
4,272
|
|
|
$
|
3,991
|
|
|
$
|
5,506
|
|
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:
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Customer A
|
33
|
%
|
|
31
|
%
|
|
23
|
%
|
Customer B
|
16
|
%
|
|
18
|
%
|
|
13
|
%
|
Customer C
|
10
|
%
|
|
8
|
%
|
|
13
|
%
|
Sales to customers A and B consisted of products from the Company's Enterprise, Embedded and Semi-Custom segment and sales to customer C consisted primarily of products from the Company's Computing and Graphics segment.
The following table summarizes long-lived assets by geographic areas:
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
(In millions)
|
United States
|
$
|
104
|
|
|
$
|
123
|
|
Malaysia
|
9
|
|
|
11
|
|
China
|
7
|
|
|
5
|
|
Singapore
|
24
|
|
|
25
|
|
Other countries
|
20
|
|
|
24
|
|
Total long-lived assets
|
$
|
164
|
|
|
$
|
188
|
|
NOTE 14: Common Stock and Stockholders’ Equity (Deficit)
Common stock
During the third quarter of 2016, the Company completed its registered underwritten public offering of
115 million
shares of the Company’s common stock, par value
$0.01
per share, at a public offering price of
$6.00
per share, pursuant to an underwriting agreement with J.P. Morgan Securities LLC, Barclays Capital Inc. and Credit Suisse Securities (USA) LLC, as representatives of the several underwriters named therein. The resulting aggregate net proceeds to the Company from the common stock offering were approximately
$667 million
, after deducting underwriting discounts and offering expenses totaling approximately
$23 million
. As of December 31, 2016, there were
935 million
shares of common stock outstanding.
Stock-Based Incentive Compensation Plans
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). As of
December 31, 2016
, the Company also has stock options outstanding under equity compensation plans that the Company assumed as part of its SeaMicro acquisition. Shares reserved for future grants under the Company’s prior equity compensation plans were consolidated into the 2004 Plan; none of the reserved shares under the SeaMicro plan were consolidated into the 2004 Plan. As of
December 31, 2016
, the Company had
31.5 million
shares of common stock that were available for future grants and
72.1 million
shares reserved for issuance upon the exercise of outstanding stock options or the vesting of unvested restricted stock units.
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. 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 fair market value awards or full value awards. Fair market value awards are awards granted at or above the fair market value of the Company’s common stock on the date of grant. Full value awards are awards granted at less than the fair market value of the Company’s common stock on the date of grant. Awards can consist of (i) stock options and stock appreciation rights granted at the fair market value of the Company’s common stock on the date of grant and (ii) restricted stock or restricted stock units, as full value awards. The following is a description of the material terms of the awards that may be granted under the 2004 Plan.
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. The exercise price of the shares subject to each nonstatutory stock option and incentive stock option cannot be less than
100%
of the fair market value of the Company’s common stock on the date of the grant. The exercise price of each option granted under the 2004 Plan must be paid in full at the time of the exercise.
Stock Appreciation Rights
. Awards of stock appreciation rights may be granted pursuant to the 2004 Plan. Stock appreciation rights may be granted to employees and consultants. No stock appreciation right may be granted at less than fair market value of the Company’s common stock on the date of grant or have a term of over
ten
years from the date of grant. Upon exercising a stock appreciation right, the holder of such right is entitled to receive payment from the Company in an amount determined by multiplying (i) the difference between the closing price of a share of the Company’s common stock on the date of exercise and the exercise price by (ii) the number of shares with respect to which the stock appreciation right is exercised. The Company’s obligation arising upon the exercise of a stock appreciation right may be paid in shares or in cash, or any combination thereof.
Restricted Stock.
Restricted stock can be granted to any employee, director or consultant. The purchase price for an award of restricted stock is
$0.00
per share.
Restricted Stock Units.
Restricted stock units (RSUs) are awards that can be granted to any employee, director or consultant and that obligate the Company to issue a specific number of shares of the Company’s common stock in the future if the vesting terms and conditions are satisfied. 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. The performance metrics can be financial performance, non-financial performance and/or market condition. Each PRSU award reflects a target number of shares (Target Shares) that may be issued to an award recipient before adjusting based on the Company’s financial performance, non-financial performance and/or market conditions. 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.
Stock options, stock appreciation rights, restricted stock, RSUs and PRSUs granted after April 29, 2015, generally may not vest in less than one year following the date of grant.
Valuation and Expense Information
Stock-based compensation expense related to employee stock options and restricted stock units, including PRSUs, was allocated in the consolidated statements of operations as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
(In millions)
|
Cost of sales
|
$
|
2
|
|
|
$
|
3
|
|
|
$
|
3
|
|
Research and development
|
49
|
|
|
36
|
|
|
44
|
|
Marketing, general, and administrative
|
35
|
|
|
24
|
|
|
34
|
|
Total stock-based compensation expense, net of tax of $0
|
$
|
86
|
|
|
$
|
63
|
|
|
$
|
81
|
|
During
2016
,
2015
and
2014
, the Company did
no
t realize any excess tax benefits related to stock-based compensation and therefore the Company did not record any effects relating to financing cash flows. The Company did not capitalize stock-based compensation cost as part of the cost of an asset because the cost was immaterial.
Stock Options
. The Company uses the lattice-binomial model in determining the fair value of the employee stock options.
The weighted-average estimated fair value of employee stock options granted for the years ended
December 31, 2016
,
December 26, 2015
and
December 27, 2014
was
$3.10
,
$1.02
and
$1.46
per share, respectively, using the following weighted-average assumptions:
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Expected volatility
|
62.33
|
%
|
|
60.14
|
%
|
|
53.36
|
%
|
Risk-free interest rate
|
1.02
|
%
|
|
1.29
|
%
|
|
1.15
|
%
|
Expected dividends
|
—
|
%
|
|
—
|
%
|
|
—
|
%
|
Expected life (in years)
|
3.98
|
|
|
3.91
|
|
|
3.86
|
|
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. 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 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 following table summarizes stock option activity, including market-based stock options, and related information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
Number
of Shares
|
|
Weighted-
Average
Exercise
Price
|
|
Number
of Shares
|
|
Weighted-
Average
Exercise
Price
|
|
Number
of Shares
|
|
Weighted-
Average
Exercise
Price
|
|
(In millions, except share price)
|
Stock options:
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at beginning of year
|
32
|
|
|
$
|
4.44
|
|
|
36
|
|
|
$
|
4.78
|
|
|
35
|
|
|
$
|
5.08
|
|
Granted
|
2
|
|
|
$
|
6.98
|
|
|
8
|
|
|
$
|
2.12
|
|
|
8
|
|
|
$
|
3.73
|
|
Canceled
|
(9
|
)
|
|
$
|
5.53
|
|
|
(9
|
)
|
|
$
|
4.91
|
|
|
(4
|
)
|
|
$
|
7.64
|
|
Exercised
|
(5
|
)
|
|
$
|
4.75
|
|
|
(3
|
)
|
|
$
|
1.61
|
|
|
(3
|
)
|
|
$
|
1.47
|
|
Outstanding at end of year
|
20
|
|
|
$
|
4.15
|
|
|
32
|
|
|
$
|
4.44
|
|
|
36
|
|
|
$
|
4.78
|
|
Exercisable at end of year
|
13
|
|
|
$
|
4.32
|
|
|
21
|
|
|
$
|
5.34
|
|
|
23
|
|
|
$
|
5.28
|
|
As of
December 31, 2016
, the weighted-average remaining contractual life of outstanding stock options was
4.29 years
and their aggregate intrinsic value was
$145 million
. As of
December 31, 2016
, the weighted-average remaining contractual life of exercisable stock options was
3.45 years
and their aggregate intrinsic value was
$90 million
. The total intrinsic value of stock options exercised for
2016
,
2015
and
2014
was
$10 million
,
$2 million
and
$7 million
, respectively.
As of
December 31, 2016
, the Company had
$11 million
of total unrecognized compensation expense, net of estimated forfeitures, related to stock options that will be recognized over the weighted-average period of
1.78 years
.
RSUs.
RSUs vest in accordance with the terms and conditions established by the Compensation and Leadership Resources Committee of the Board of Directors, and are based either on continued service or continued service and performance. The cost of RSUs is determined using the fair value of the Company’s common stock on the date of the grant, and the compensation expense is recognized over the service period.
The summary of the changes in RSUs outstanding, including the PRSUs, during
2016
,
2015
and
2014
is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
Number
of Shares
|
|
Weighted-
Average
Fair Value
|
|
Number
of Shares
|
|
Weighted-
Average
Fair Value
|
|
Number
of Shares
|
|
Weighted-
Average
Fair Value
|
|
(In millions except share price)
|
Unvested balance at beginning of period
|
51
|
|
|
$
|
2.61
|
|
|
43
|
|
|
$
|
4.05
|
|
|
40
|
|
|
$
|
4.52
|
|
Granted
|
29
|
|
|
$
|
4.72
|
|
|
38
|
|
|
$
|
2.03
|
|
|
23
|
|
|
$
|
3.89
|
|
Forfeited
|
(5
|
)
|
|
$
|
2.95
|
|
|
(15
|
)
|
|
$
|
3.71
|
|
|
(5
|
)
|
|
$
|
4.48
|
|
Vested
|
(23
|
)
|
|
$
|
2.56
|
|
|
(15
|
)
|
|
$
|
4.13
|
|
|
(15
|
)
|
|
$
|
4.90
|
|
Unvested balance at end of period
|
52
|
|
|
$
|
3.73
|
|
|
51
|
|
|
$
|
2.61
|
|
|
43
|
|
|
$
|
4.05
|
|
The total fair value of RSUs vested during
2016
,
2015
and
2014
was
$151 million
,
$33 million
and
$60 million
, respectively. Compensation expense recognized for the RSUs for
2016
,
2015
and
2014
was approximately
$80 million
,
$57 million
and
$65 million
, respectively.
As of
December 31, 2016
, the Company had
$121 million
of total unrecognized compensation expense, net of estimated forfeitures, related to RSUs that will be recognized over the weighted-average period of
1.76 years
.
PRSUs.
The Company estimated the fair value for the PRSUs with a market condition using Monte Carlo simulation model on the date of grant. During
2016
, the Company granted
2.0 million
PRSUs that included a market condition to certain of the Company’s senior executives. During
2015
, the Company granted
5.2 million
PRSUs to certain of the Company’s certain senior executives, of which
3.9 million
PRSUs included a market condition.
The summary of the changes in the PRSUs during
2016
,
2015
and
2014
is presented below.
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
(Shares in millions)
|
Unvested shares at beginning of period
|
7
|
|
|
9
|
|
|
5
|
|
Granted
|
5
|
|
|
5
|
|
|
5
|
|
Forfeited
|
(2
|
)
|
|
(7
|
)
|
|
(1
|
)
|
Vested
|
(5
|
)
|
|
—
|
|
|
—
|
|
Unvested shares at end of period
|
5
|
|
|
7
|
|
|
9
|
|
NOTE 15: Other Employee Benefit Plans
The Company has a retirement savings plan, commonly known as a 401(k) plan that allows participating employees in the United States to contribute up to
100%
of their pre-tax salary subject to Internal Revenue Service limits. The Company matched
75%
of employees’ contributions up to
6%
of their compensation, to a maximum per employee match of
$11,925
,
$11,925
and
$11,700
for
2016
,
2015
and
2014
, respectively. The Company’s contributions to the 401(k) plan for
2016
,
2015
and
2014
were approximately
$16 million
,
$16 million
and
$18 million
, respectively.
NOTE 16: Commitments and Guarantees
Operating Leases
As of
December 31, 2016
, the Company’s future non-cancelable operating lease commitments, including those for facilities vacated in connection with restructuring activities, were as follows:
|
|
|
|
|
Year
|
Operating
leases
|
|
(In millions)
|
2017
|
$
|
49
|
|
2018
|
51
|
|
2019
|
46
|
|
2020
|
43
|
|
2021
|
64
|
|
2022 and thereafter
|
135
|
|
Total non-cancelable operating lease commitments
|
$
|
388
|
|
The Company leases certain of its facilities, and in some jurisdictions, the Company leases the land on which these facilities are built, under non-cancelable lease agreements that expire at various dates through 2028. The Company also leases certain manufacturing and office equipment for terms ranging from
one
to
five
years. Rent expense for
2016
,
2015
and
2014
was
$39 million
,
$47 million
and
$59 million
, respectively.
In December 1998, the Company arranged for the sale of its marketing, general and administrative facility in Sunnyvale, California and leased it back for a period of
20
years. The Company recorded a deferred gain of
$37 million
on the sale and is amortizing it over the life of the lease. During the second quarter of 2016, the Company signed an amendment to the lease agreement associated with this facility in Sunnyvale, California so that the lease expires in December 2017. In connection with the amendment, the lease payments were reduced for 2017. During the third quarter of 2016, the Company entered into a
10
-year operating lease to occupy
220,000
square feet of new office space in Santa Clara. Base rent obligation is estimated to commence in August 2017 and the total estimate base rent payments over the life of the lease are approximately
$125 million
. In addition to the base rent payments, the Company will be obligated to pay certain customary amounts for its share of operating expenses and tax obligation. The Company has the option to extend the term of the lease for an additional two
five
-year periods.
In September 2013, the Company sold a light industrial building in Singapore and leased back a portion of the original space. The Company recorded a deferred gain of
$14 million
on the sale and is amortizing over the initial lease term. The initial operating lease term expires in September 2023 and provides for options to extend the lease for
4
years at the end of the initial lease term, and for an additional
3.5
years thereafter.
Certain other operating leases contain provisions for escalating lease payments subject to changes in the consumer price index. Total future lease obligations as of
December 31, 2016
were
$388 million
.
Purchase and Other Contractual Obligations
The Company’s purchase obligations primarily include the Company’s obligations to purchase wafers and substrates from third parties. As of
December 31, 2016
, total non-cancelable purchase obligations, excluding the Company’s wafer purchase commitments to GF under the WSA, were
$447 million
.
The Company also had other contractual obligations, included in Other long-term liabilities on its consolidated balance sheet, which primarily consisted of
$91 million
of payments due under certain software and technology licenses that will be paid through 2020.
Future unconditional purchase obligations as of
December 31, 2016
were as follows:
|
|
|
|
|
Year
|
Unconditional purchase obligations
|
|
(In millions)
|
2017
|
$
|
391
|
|
2018
|
86
|
|
2019
|
51
|
|
2020
|
9
|
|
2021
|
1
|
|
2022 and thereafter
|
—
|
|
Total unconditional purchase commitments
|
$
|
538
|
|
Obligations to GF
As of
December 31, 2016
, the Company's minimum purchase obligations for wafer purchases for the years 2017 through 2020 are approximately
$3.3 billion
.
Warranties and Indemnities
The Company generally warrants that its products sold to its customers will conform to the Company’s approved specifications and be free from defects in material and workmanship under normal use and conditions for
one
year. Subject to certain exceptions, the Company also offers a
three
-year limited warranty to end users for those CPU and AMD A-Series APU products purchased as individually packaged products, commonly referred to as “processors in a box”, and for PC workstation products. The Company also offered extended limited warranties to certain customers of “tray” microprocessor products and/or workstation graphics products who have written agreements with the Company and target their computer systems at the commercial and/or embedded markets.
Changes in the Company’s estimated liability for product warranty during the years ended
December 31, 2016
and
December 26, 2015
are as follows:
|
|
|
|
|
|
|
|
|
|
December 31,
2016
|
|
December 26,
2015
|
|
(In millions)
|
Beginning balance
|
$
|
15
|
|
|
$
|
19
|
|
New warranties issued during the period
|
21
|
|
|
28
|
|
Settlements during the period
|
(19
|
)
|
|
(26
|
)
|
Changes in liability for pre-existing warranties during the period, including expirations
|
(5
|
)
|
|
(6
|
)
|
Ending balance
|
$
|
12
|
|
|
$
|
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.
NOTE 17: Contingencies
Securities Class Action
On January 15, 2014, a class action lawsuit captioned Hatamian v. AMD, et al., C.A. No. 3:14-cv-00226 (the “Hatamian Lawsuit”) was filed against the Company in the United States District Court for the Northern District of California. The complaint purports to assert claims against the Company and certain individual officers for alleged violations of Section 10(b) of the Securities Exchange Act of 1934, as amended (the Exchange Act), and Rule 10b-5 of the Exchange Act. The plaintiffs seek to represent a proposed class of all persons who purchased or otherwise acquired our common stock during the period April 4, 2011 through October 18, 2012. The complaint seeks damages allegedly caused by alleged materially misleading statements and/or material omissions by the Company and the individual officers regarding its 32nm technology and “Llano” product, which statements and omissions, the plaintiffs claim, allegedly operated to artificially inflate the price paid for the Company’s common stock during the period. The complaint seeks unspecified compensatory damages, attorneys’ fees and costs. On July 7, 2014, the Company filed a motion to dismiss plaintiffs’ claims. On March 31, 2015, the Court denied the motion to dismiss. On May 14, 2015, the Company filed its answer to plaintiffs’ corrected amended complaint. The discovery process is ongoing. On September 4, 2015, plaintiffs filed their motion for class certification. A court-ordered mediation held in January 2016 did not result in a settlement of the lawsuit.
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.
Shareholder Derivative Lawsuit
On March 20, 2014, a purported shareholder derivative lawsuit captioned
Wessels v. Read, et al.
, Case No. 1:14-cv-262486 (“Wessels”) was filed against the Company (as a nominal defendant only) and certain of the Company’s directors and officers in the Santa Clara County Superior Court of the State of California. The complaint purports to assert claims against the Company and certain individual directors and officers for breach of fiduciary duty, waste of corporate assets and unjust enrichment. The complaint seeks damages allegedly caused by alleged materially misleading statements and/or material omissions by the Company and the individual directors and officers regarding its 32nm technology and “Llano” product, which statements and omissions, the plaintiffs claim, allegedly operated to artificially inflate the price paid for the Company’s common stock during the period. On April 27, 2015, a similar purported shareholder derivative lawsuit captioned
Christopher Hamilton and David Hamilton v. Barnes, et al.
, Case No. 5:15-cv-01890 (“Hamilton”) was filed against the Company (as a nominal defendant only) and certain of the Company’s directors and officers in the United States District Court for the Northern District of California. The case was transferred to the judge handling the Hatamian Lawsuit and is now Case No. 4:15-cv-01890. On September 29, 2015, a similar purported shareholder derivative lawsuit captioned
Jake Ha v Caldwell, et al.,
Case No. 3:15-cv-04485 (“Ha”) was filed against the Company (as a nominal defendant only) and certain of its directors and officers in the United States District Court for the Northern District of California. The lawsuit also seeks a court order voiding the shareholder vote on AMD’s 2015 proxy. The case was transferred to the judge handling the Hatamian Lawsuit and is now Case No. 4:15-cv-04485. The Wessels, Hamilton and Ha shareholder derivative lawsuits are currently stayed.
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.
ZiiLabs Litigation
On December 16, 2016, a patent lawsuit captioned
ZiiLabs v. AMD
, C.A. No. 2:16-cv-1418 in the United States District Court for Eastern District of Texas (the “ZiiLabs Lawsuit”) was filed against us in the United States District Court for the Eastern District of Texas. The complaint alleges that AMD infringes four patents related generally to graphics processors and memory controllers. The complaint seeks damages, interest, and attorneys’ fees. ZiiLabs filed several similar lawsuits against other companies on the same day. On the same date, ZiiLabs also filed a complaint with the United States International Trade Commission (“USITC”) pursuant to Section 337 of the Tariff Act of 1930 against AMD and several other companies asserting the same four patents. The complaint seeks a limited exclusion order barring the importation of certain products that contain AMD memory controllers and graphics processors. AMD’s customer is also a named respondent. On January 18, 2017, the USITC announced that it would institute the investigation, entitled 337-TA-1037,
In the Matter of Certain Graphics Processors, DDR Memory Controllers, and Products Containing the Same
.
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.
Environmental Matters
The Company is named as a responsible party on Superfund clean-up orders for
three
sites in Sunnyvale, California that are on the National Priorities List. Since 1981, the Company has discovered hazardous material releases to the groundwater from former underground tanks and proceeded to investigate and conduct remediation at these
three
sites. The chemicals released into the groundwater were commonly used in the semiconductor industry in the United States in the wafer fabrication process prior to 1979.
In 1991, the Company received Final Site Clean-up Requirements Orders from the California Regional Water Quality Control Board relating to the
three
sites. The Company has entered into settlement agreements with other responsible parties on two of the orders. During the term of such agreements, other parties have agreed to assume most of the foreseeable costs as well as the primary role in conducting remediation activities under the orders. The Company remains responsible for additional costs beyond the scope of the agreements as well as all remaining costs in the event that the other parties do not fulfill their obligations under the settlement agreements.
To address anticipated future remediation costs under the orders, the Company has computed and recorded an estimated environmental liability of approximately
$4 million
and has not recorded any potential insurance recoveries in determining the estimated costs of the cleanup. The progress of future remediation efforts cannot be predicted with certainty and these costs may change. The Company believes that any amount in addition to what has already been accrued would not be material.
Other Legal Matters
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.
NOTE 18: Restructuring and Other Special Charges, Net
2015 Restructuring Plan
In the third quarter of 2015, the Company implemented a restructuring plan (2015 Restructuring Plan) focused on its ongoing efforts to simplify its business and better align resources around its priorities and business outlook. The 2015 Restructuring Plan involves a reduction of global headcount by approximately
5%
and includes organizational actions such as outsourcing certain IT services and application development. During 2015, the Company recorded a
$37 million
restructuring charge, which consisted of
$27 million
for severance and benefit costs,
$1 million
for facilities-related costs and
$9 million
for intangible asset-related charges. The actions associated with the 2015 Restructuring Plan will be completed by the end the first quarter of 2017.
The following table provides a summary of the restructuring activities during
2016
and the related liabilities recorded in Other current liabilities and Other long-term liabilities on the Company’s consolidated balance sheets as of
December 31, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
and related
benefits
|
|
Other exit
related
costs
|
|
Total
|
|
(In millions)
|
Balance as of December 26, 2015
|
$
|
14
|
|
|
$
|
—
|
|
|
$
|
14
|
|
Charges (reversals), net
|
(1
|
)
|
|
—
|
|
|
(1
|
)
|
Cash payments
|
(10
|
)
|
|
—
|
|
|
(10
|
)
|
Balance as of December 31, 2016
|
$
|
3
|
|
|
$
|
—
|
|
|
$
|
3
|
|
2014 Restructuring Plan
In the fourth quarter of 2014, the Company implemented a restructuring plan (2014 Restructuring Plan) designed to improve operating efficiencies. The 2014 Restructuring Plan involved a reduction of global headcount by approximately
6%
and an alignment of its real estate footprint with its reduced headcount. The Company recorded a
$57 million
restructuring charge in the fourth quarter of 2014, which consisted of
$44 million
for severance and costs related to the continuation of certain employee benefits,
$6 million
for contract or program termination costs,
$1 million
for facilities-related costs and
$6 million
for asset impairments, a non-cash charge. During 2015, the Company recorded a
$16 million
restructuring charge, which consisted of
$5 million
non-cash charge related to asset impairments,
$2 million
for severance and related benefits and
$9 million
for facilities-related costs. The 2014 Restructuring Plan was completed during the third quarter of 2015.
The following table provides a summary of the restructuring activities during
2016
and the related liabilities recorded in Other current liabilities and Other long-term liabilities on the Company’s consolidated balance sheets as of
December 31, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
and related
benefits
|
|
Other exit
related
costs
|
|
Total
|
|
(In millions)
|
Balance as of December 26, 2015
|
$
|
5
|
|
|
$
|
15
|
|
|
$
|
20
|
|
Charges (reversals), net
|
(2
|
)
|
|
(7
|
)
|
|
(9
|
)
|
Cash payments
|
(1
|
)
|
|
(6
|
)
|
|
(7
|
)
|
Balance as of December 31, 2016
|
$
|
2
|
|
|
$
|
2
|
|
|
$
|
4
|
|
Dense Server Systems Business Exit
As a part of the Company’s strategy to simplify and sharpen its investment focus, the Company exited the dense server systems business, formerly SeaMicro, in the first quarter of 2015. As a result, the Company recorded a charge of
$76 million
in “Restructuring and other special charges, net” on the Company’s consolidated statements of operations during 2015. This charge consisted of an impairment charge of
$62 million
related to the acquired intangible assets. The Company concluded that the carrying value of the acquired intangible assets associated with its dense server systems business was fully impaired as the Company did not have plans to utilize the related freedom fabric technology in any of its future products nor did it have any plans at that time to monetize the associated intellectual property. In addition, the exit charge consisted of a
$7 million
non-cash charge related to asset impairments,
$4 million
of severance and related benefits and
$3 million
for contract or program termination costs. The Company substantially completed this exit activity during the second quarter of 2016.
Executive Officer Separation
In the fourth quarter of 2014, the Company recorded other special charges of
$13 million
. The amount primarily included
$10 million
due to the departure of the Company’s former CEO, of which
$5 million
was related to cash and
$5 million
was related to stock-based compensation expense. The amount is recorded under “Restructuring and other special charges, net” on the consolidated statements of operations.