Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Advanced Micro Devices, Inc.

Consolidated Statements of Operations

	Year Ended
	December 30, 2017				December 31, 2016				December 26, 2015
	(In millions, except per share amounts)
Net revenue	$	5,329			$	4,272			$	3,991
Cost of sales	3,506				3,274				2,911
Gross margin	1,823				998				1,080
Research and development	1,160				1,008				947
Marketing, general and administrative	511				460				482
Amortization of acquired intangible assets	—				—				3
Restructuring and other special charges, net	—				(10		)		129
Licensing gain	(52		)		(88		)		—
Operating income (loss)	204				(372		)		(481		)
Interest expense	(126		)		(156		)		(160		)
Other income (expense), net	(9		)		80				(5		)
Income (loss) before equity loss and income taxes	69				(448		)		(646		)
Provision for income taxes	19				39				14
Equity loss in investee	(7		)		(10		)		—
Net income (loss)	$	43			$	(497	)		$	(660	)
Earnings (loss) per share
Basic	$	0.04			$	(0.60	)		$	(0.84	)
Diluted	$	0.04			$	(0.60	)		$	(0.84	)
Shares used in per share calculation
Basic	952				835				783
Diluted	1,039				835				783

See accompanying notes to consolidated financial statements.

Advanced Micro Devices, Inc.

Consolidated Statements of Comprehensive Income (Loss)

	Year Ended
	December 30, 2017				December 31, 2016				December 26, 2015
	(In millions)
Net income (loss)	$	43			$	(497	)		$	(660	)
Other comprehensive income (loss):
Unrealized gains (losses) on available-for-sale securities:
Unrealized gains (losses) arising during period, net of tax effects of $0, $1, and $0	1				—				(2		)
Unrealized gains (losses) on cash flow hedges:
Unrealized gains (losses) arising during period, net of tax effects of $0, $2, and $0	17				1				(22		)
Reclassification adjustment for (gains) losses realized and included in net income (loss), net of tax effect of $1, $0, and $0	(7		)		2				21
Total change in unrealized gains (losses) on cash flow hedges, net of tax	10				3				(1		)
Total other comprehensive income (loss)	11				3				(3		)
Total comprehensive income (loss)	$	54			$	(494	)		$	(663	)

See accompanying notes to consolidated financial statements.

Advanced Micro Devices, Inc.

Consolidated Balance Sheets (1) (2)

	December 30, 2017				December 31, 2016
	(In millions, except par value amounts)
ASSETS
Current assets:
Cash and cash equivalents	$	1,185			$	1,264
Accounts receivable, net	400				311
Inventories, net	739				751
Prepayment and other receivables - related parties	33				32
Prepaid expenses	77				63
Other current assets	188				109
Total current assets	2,622				2,530
Property, plant and equipment, net	261				164
Goodwill	289				289
Investment: equity method	58				59
Other assets	310				279
Total assets	$	3,540			$	3,321
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Short-term debt	$	70			$	—
Accounts payable	384				440
Payables to related parties	412				383
Accrued liabilities	541				391
Other current liabilities	57				69
Deferred income on shipments to distributors	22				63
Total current liabilities	1,486				1,346
Long-term debt, net	1,325				1,435
Other long-term liabilities	118				124
Commitments and contingencies (see Notes 16 and 17)
Stockholders’ equity:
Capital stock:
Common stock, par value $0.01; 1,500 shares authorized on December 30, 2017 and December 31, 2016; shares issued: 979 shares on December 30, 2017 and 949 shares on December 31, 2016; shares outstanding: 967 shares on December 30, 2017 and 935 shares on December 31, 2016	9				9
Additional paid-in capital	8,464				8,334
Treasury stock, at cost (12 shares on December 30, 2017 and 14 shares on December 31, 2016)	(108		)		(119		)
Accumulated deficit	(7,760		)		(7,803		)
Accumulated other comprehensive income (loss)	6				(5		)
Total stockholders’ equity	611				416
Total liabilities and stockholders’ equity	$	3,540			$	3,321

(1) Amounts reflected adoption of FASB ASU 2015-17, Balance Sheet Classification of Deferred Taxes beginning in the first quarter of 2016.
(2) Amounts reflected adoption of FASB ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs beginning in the first quarter of 2016.

See accompanying notes to consolidated financial statements.

Advanced Micro Devices, Inc.

Consolidated Statements of Stockholders’ Equity (Deficit)

Three Years Ended December 30, 2017

(In millions)

	Number of shares			Common Stock				Additional paid-in capital				Treasury stock				Accumulated deficit				Accumulated other comprehensive income (loss)				Total stockholders’ equity (deficit)
December 27, 2014	776			$	8			$	6,949			$	(119	)		$	(6,646	)		$	(5	)		$	187
Net loss	—			—				—				—				(660		)		—				(660		)
Other comprehensive loss	—			—				—				—				—				(3		)		(3		)
Common stock issued under stock-based compensation plans, net of tax withholding	16			—				5				(4		)		—				—				1
Stock-based compensation	—			—				63				—				—				—				63
December 26, 2015	792			8				7,017				(123		)		(7,306		)		(8		)		(412		)
Net loss	—			—				—				—				(497		)		—				(497		)
Other comprehensive income	—			—				—				—				—				3				3
Common stock issued under stock-based compensation plans, net of tax withholding	27			—				20				(4		)		—				—				16
Stock-based compensation	—			—				86				—				—				—				86
Equity component of the 2.125% Notes, net	—			—				305				—				—				—				305
Warrant issued related to sixth amendment to the WSA	—			—				240				—				—				—				240
Issuance of common stock, net of issuance costs	115			1				666				—				—				—				667
Issuance of common stock to partially settle the 7.00% Notes	1			—				—				8				—				—				8
December 31, 2016	935			9				8,334				(119		)		(7,803		)		(5		)		416
Net income	—			—				—				—				43				—				43
Other comprehensive income	—			—				—				—				—				11				11
Common stock issued under stock-based compensation plans, net of tax withholding	32			—				20				(13		)		—				—				7
Stock-based compensation	—			—				97				—				—				—				97
Issuance of treasury stock to partially settle the 6.75% notes and the 7.00% notes	—			—				13				24				—				—				37
December 30, 2017	967			$	9			$	8,464			$	(108	)		$	(7,760	)		$	6			$	611

See accompanying notes to consolidated financial statements.

Advanced Micro Devices, Inc.

Consolidated Statements of Cash Flows

	Year Ended
	December 30, 2017				December 31, 2016				December 26, 2015
	(In millions)
Cash flows from operating activities:
Net income (loss)	$	43			$	(497	)		$	(660	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Net gain on sale of equity interests in ATMP JV	(3		)		(146		)		—
Depreciation and amortization	144				133				167
Provision for deferred income taxes	—				11				—
Stock-based compensation expense	97				86				63
Amortization of debt discount and issuance costs	36				21				11
Restructuring and other special charges, net	—				—				83
Net loss on debt redemption	12				68				—
Fair value of warrant issued related to sixth amendment to the WSA	—				240				—
Other	3				(6		)		(3		)
Changes in operating assets and liabilities:
Accounts receivable	(89		)		222				280
Inventories	12				(73		)		(11		)
Prepayment and other receivables - related parties	(1		)		1				84
Prepaid expenses and other assets	(140		)		(166		)		(111		)
Payable to related parties	29				138				27
Accounts payable, accrued liabilities and other	(75		)		58				(156		)
Net cash provided by (used in) operating activities	68				90				(226		)
Cash flows from investing activities:
Net proceeds from sale of equity interests in ATMP JV	1				342				—
Purchases of available-for-sale securities	(222		)		—				(227		)
Purchases of property, plant and equipment	(113		)		(77		)		(96		)
Proceeds from maturities of available-for-sale securities	222				—				462
Proceeds from sale of property, plant and equipment	—				—				8
Other	(2		)		2				—
Net cash provided by (used in) investing activities	(114		)		267				147
Cash flows from financing activities:
Proceeds from issuance of common stock, net of issuance costs	—				667				—
Proceeds from issuance of convertible senior notes, net of issuance costs	—				782				—
Proceeds from issuance of common stock under stock-based compensation equity plans	20				20				5
Proceeds from (repayments of) short-term borrowings, net	70				(230		)		100
Repayments of long-term debt and capital lease obligations	(110		)		(1,113		)		(44		)
Other	(13		)		(4		)		(2		)
Net cash provided by (used in) financing activities	(33		)		122				59
Net increase (decrease) in cash and cash equivalents	(79		)		479				(20		)
Cash and cash equivalents at beginning of year	1,264				785				805
Cash and cash equivalents at end of year	$	1,185			$	1,264			$	785
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest	$	88			$	149			$	149
Income taxes	$	20			$	20			$	3
Non-cash investing and financing activities:
Purchases of property, plant and equipment, accrued but not paid	$	50			$	—			$	—
Issuance of common stock to partially settle long-term debt	$	38			$	8			$	—
Non-cash acquisition of property and equipment	$	12			$	—			$	—

See accompanying notes to consolidated financial statements.

Advanced Micro Devices, Inc.

Notes to Consolidated Financial Statements

December 30, 2017, December 31, 2016 and December 26, 2015

NOTE 1: Nature of Operations

Advanced Micro Devices, Inc. is a global semiconductor company. References herein to AMD or the Company mean Advanced Micro Devices, Inc. and its consolidated subsidiaries. The Company primarily offers:

(i)	x86 microprocessors, as standalone devices or as incorporated into an accelerated processing unit (APU), chipsets, discrete and integrated graphics processing units (GPUs), and professional GPUs; and

(ii)	server and embedded processors, semi-custom System-on-Chip (SoC) products and technology for game consoles.

We also license portions of our intellectual property (IP) portfolio.

NOTE 2: Summary of Significant Accounting Policies

Fiscal Year. The Company uses a 52 or 53 week fiscal year ending on the last Saturday in December. Fiscal 2017, 2016 and 2015 ended December 30, 2017, December 31, 2016 and December 26, 2015, respectively. Fiscal 2017, 2016 and 2015 consisted of 52, 53 and 52 weeks, respectively.

Principles of Consolidation. The consolidated financial statements include the Company’s accounts and those of its wholly-owned subsidiaries. Upon consolidation, all significant inter-company accounts and transactions are eliminated.

Use of Estimates. The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles (U.S. GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of commitments and contingencies at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results are likely to differ from those estimates, and such differences may be material to the financial statements. Areas where management uses subjective judgment include, but are not limited to, revenue allowances, inventory valuation, valuation and impairment of goodwill, valuation of investments in marketable securities, deferred income taxes and restructuring charges.

Revenue Recognition. The Company recognizes revenue from products sold directly to customers, including original equipment manufacturers (OEMs), when persuasive evidence of an arrangement exists, the price is fixed or determinable, delivery has occurred and collectability is reasonably assured. Estimates of product returns, allowances and future price reductions based on actual historical experience and other known or anticipated trends and factors are recorded at the time revenue is recognized. The Company sells to distributors under terms allowing the majority of distributors certain rights of return and price protection on unsold merchandise held by them. The distributor agreements, which may be canceled by either party upon specified notice, generally contain a provision for the return of those of the Company’s products that the Company has removed from its price book and that are not more than 12 months older than the manufacturing code date. In addition, some agreements with distributors may contain standard stock rotation provisions permitting limited levels of product returns. Consequently, the Company is unable to readily estimate the product returns and pricing when the product is sold to the distributors. Accordingly, the Company defers the gross margin resulting from the deferral of both revenue and related product costs from sales to distributors with agreements that have the aforementioned terms until the merchandise is resold by the distributors and reports such deferred amounts as Deferred income on shipments to distributors on its consolidated balance sheet. Products are sold to distributors at standard published prices that are contained in price books that are broadly provided to the Company’s various distributors. Distributors are then required to pay for these products within the Company’s standard contractual terms, which are typically net 60 days. The Company records allowances for price protection given to distributors and customer rebates in the period of distributor re-sale. The Company determines these allowances based on specific contractual terms with its distributors. Price reductions generally do not result in sales prices that are less than the Company’s product cost. Deferred income on shipments to distributors is revalued at the end of each period based on the change in inventory units at distributors, on the latest published prices and on the latest product costs.

The Company records estimated reductions to revenue under distributor and customer incentive programs, including certain cooperative advertising and marketing promotions and volume-based incentives and special pricing arrangements, at the time the related revenues are recognized. For transactions where the Company reimburses a customer for a portion of the customer’s cost to perform specific product advertising or marketing and promotional activities, such amounts are recorded as a reduction of revenue unless they qualify for expense recognition. Shipping and handling costs associated with product sales are included in cost of sales.

Deferred revenue and related product costs were as follows:

	December 30, 2017				December 31, 2016
	(In millions)
Deferred revenue	$	55			$	124
Deferred cost of sales	(33		)		(61		)
Deferred income on shipments to distributors	$	22			$	63

Inventories. Inventories are stated at standard cost adjusted to approximate the lower of actual cost (first-in, first-out method) or net realizable value. The Company adjusts inventory carrying value for estimated obsolescence equal to the difference between the cost of inventory and the estimated net realizable value based upon assumptions about future demand and market conditions. The Company fully reserves for inventories and non-cancellable purchase orders for inventory deemed obsolete. The Company performs periodic reviews of inventory items to identify excess inventories on hand by comparing on-hand balances to anticipated usage using recent historical activity as well as anticipated or forecasted demand. If estimates of customer demand diminish further or market conditions become less favorable than those projected by the Company, additional inventory adjustments may be required.

Goodwill. Goodwill represents the excess of the purchase price over the fair value of net tangible and identifiable intangible assets acquired. In accordance with Accounting Standards Codification (ASC) 350, “Goodwill and Other Intangible Assets”, goodwill is not amortized, but rather is tested for impairment at least annually or more frequently if indicators of impairment are present. The Company performs its annual goodwill impairment analysis as of the first day of the fourth quarter of each year and, if certain events or circumstances indicate that an impairment loss may have been incurred, on an interim basis. The Company adopted ASU 2017-04, "Intangibles - Goodwill and Other: Topic 350: Simplifying the Test for Goodwill Impairment", which eliminated step two from the goodwill impairment test. In assessing impairment on goodwill, the Company first analyzes qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the quantitative goodwill impairment test. The qualitative factors the Company assesses include long-term prospects of its performance, share price trends and market capitalization and Company-specific events. If the Company concludes it is more likely than not that the fair value of a reporting unit exceeds its carrying amount, the Company does not need to perform the quantitative impairment test. If based on that assessment, the Company believes it is more likely than not that the fair value of the reporting unit is less than its carrying value, a quantitative goodwill impairment test will be performed by comparing the fair value of each reporting unit to its carrying value. A goodwill impairment charge is recognized for the amount by which the reporting unit’s fair value is less than its carrying value. Any loss recognized should not exceed the total amount of goodwill allocated to that reporting unit.

Commitments and Contingencies. From time to time the Company is a defendant or plaintiff in various legal actions that arise in the normal course of business. The Company is also a party to environmental matters including local, regional, state and federal government clean-up activities at or near locations where the Company currently or has in the past conducted business. The Company is required to assess the likelihood of any adverse judgments or outcomes to these matters as well as potential ranges of reasonably possible losses. A determination of the amount of reserves required for these commitments and contingencies that would be charged to earnings, if any, includes assessing the probability of adverse outcomes and estimating the amount of potential losses. The required reserves, if any, may change in the future due to new developments in each matter or changes in circumstances such as a change in settlement strategy. Changes in required reserves could increase or decrease the Company’s earnings in the period the changes are made (See Notes 16 and 17).

Restructuring Charges. Restructuring charges are primarily comprised of severance costs, contract and program termination costs, asset impairments and costs of facility consolidation and closure. Restructuring charges are recorded upon approval of a formal management plan and are included in the operating results of the period in which such plan is approved and the expense becomes estimable. To estimate restructuring charges, management utilizes assumptions of the number of employees that would be involuntarily terminated and the amount of future costs to operate and eventually vacate duplicate facilities. Severance and other employee separation costs are accrued when it is probable that benefits will be paid and the amount is reasonably estimable. The rates used in determining severance accruals are based on the Company’s policies and practices and negotiated settlements.

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

Accounts Receivable. The Company maintains an allowance for doubtful accounts based on its assessment of the collectability of amounts owed by customers. The allowance consists of known specific troubled accounts as well as an amount based on overall estimated potential uncollectible accounts receivable based on historical experience.

Investments in Certain Debt and Equity Securities. The Company classifies its investments in debt and marketable equity securities at the date of acquisition as available-for-sale. Available-for-sale securities are reported at fair value with the related unrealized gains and losses included, net of tax, in accumulated other comprehensive income (loss), a component of stockholders’ equity. Realized gains and losses and declines in the value of available-for-sale securities determined to be other than temporary are included in other income (expense), net. The cost of securities sold is determined based on the specific identification method.

The Company classifies investments in debt securities with maturities of more than three months at the time of purchase as marketable securities on its consolidated balance sheet. Classification of these securities as current is based on the Company’s intent and belief in its ability to sell these securities and use the proceeds from sale in operations within 12 months.

Derivative Financial Instruments. The Company maintains a foreign currency hedging strategy which uses derivative financial instruments to mitigate the risks associated with changes in foreign currency exchange rates. This strategy takes into consideration all of the Company’s consolidated exposures. The Company does not use derivative financial instruments for trading or speculative purposes.

In applying its strategy, the Company uses foreign currency forward contracts to hedge certain forecasted expenses denominated in foreign currencies. The Company designates these contracts as cash flow hedges of forecasted expenses, to the extent eligible under the accounting rules, and evaluates hedge effectiveness prospectively and retrospectively. As such, the effective portion of the gain or loss on these contracts is reported as a component of accumulated other comprehensive income (loss) and is reclassified to earnings in the same line item as the associated forecasted transaction and in the same period during which the hedged transaction affects earnings. Any ineffective portion is immediately recorded in earnings.

The Company also uses, from time to time, foreign currency forward contracts to economically hedge recognized foreign currency exposures on the balance sheets of various subsidiaries. The Company does not designate these forward contracts as hedging instruments. Accordingly, the gain or loss associated with these contracts is immediately recorded in earnings.

Property, Plant and Equipment. Property, plant and equipment are stated at cost. Depreciation and amortization are provided on a straight-line basis over the estimated useful lives of the assets for financial reporting purposes. Estimated useful lives for financial reporting purposes are as follows: equipment uses two to six years, buildings and building improvements uses up to 40 years and leasehold improvements are measured by the shorter of the remaining terms of the leases or the estimated useful economic lives of the improvements.

Product Warranties. 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 central processing unit (CPU) and AMD A-Series accelerated processing unit (APU) products purchased as individually packaged products, commonly referred to as “processors in a box”, and for PC workstation products. The Company also has offered extended limited warranties to certain customers of “tray” microprocessor products and/or workstation graphics or server products who have written agreements with the Company and target their computer systems at the commercial and/or embedded markets. The Company accrues warranty costs at the time of sale of warranted products.

Foreign Currency Translation/Transactions. The functional currency of all of the Company’s foreign subsidiaries is the U.S. dollar. Assets and liabilities denominated in non-U.S. dollars have been remeasured into U.S. dollars at current exchange rates for monetary assets and liabilities and historical exchange rates for non-monetary assets and liabilities. Non-U.S. dollar denominated transactions have been remeasured at average exchange rates in effect during each period, except for those cost of sales and expense transactions related to non-monetary balance sheet amounts which have been remeasured at historical exchange rates. The gains or losses from foreign currency remeasurement are included in earnings.

Subsidies. The Company received investment grants in connection with the construction and operation of certain facilities in Asia. Generally, such grants are subject to forfeiture in declining amounts over the life of the agreement if the Company does not maintain certain levels of employment or meet other conditions specified in the relevant grant documents. Accordingly, amounts granted are initially recorded as a receivable until cash proceeds are received. In the period the grant receivable is recorded, a current and long-term liability is also recorded which is subsequently amortized as a reduction to cost of sales.

The Company also received grants relating to certain research and development projects. These research and development funds are generally recorded as a reduction of research and development expenses when all conditions and requirements set forth in the underlying grant agreement are met.

Marketing, Communications and Advertising Expenses. Marketing, communications and advertising expenses for 2017, 2016 and 2015 were approximately $156 million, $131 million and $154 million, respectively. Cooperative advertising funding obligations under customer incentive programs are accrued and the costs are recorded upon agreement with customers and vendor

partners. Cooperative advertising expenses are recorded as marketing, general and administrative expense to the extent the cash paid does not exceed the estimated fair value of the advertising benefit received. Any excess of cash paid over the estimated fair value of the advertising benefit received is recorded as a reduction of revenue.

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

Diluted net income (loss) per share is computed based on the weighted average number of shares outstanding plus potentially dilutive shares outstanding during the period. Potentially dilutive shares are determined by applying treasury stock method to assumed exercise of outstanding stock options, the assumed vesting of outstanding RSUs, the assumed issuance of common stock under the employee stock purchase plan (ESPP) and the assumed exercise of the warrant under the warrant agreement (the Warrant Agreement) with West Coast Hitech L.P. (WCH), a wholly-owned subsidiary of Mubadala Investment Company PJSC (Mubadala). Potentially dilutive shares shares issuable upon conversion of the 2.125% Convertible Senior Notes due 2026 (2.125% Notes) are calculated using the if-converted method.

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

	2017				2016				2015
	(In millions, except per share amounts)
Numerator—Net income (loss):
Numerator for basic and diluted net income (loss) per share	$	43			$	(497	)		$	(660	)
Denominator—Weighted average shares:
Denominator for basic earnings (loss) per share	952				835				783
Effect of potentially dilutive shares:
Employee stock options, restricted stock units, and warrants	87				—				—
Denominator for diluted earnings (loss) per share	1,039				835				783
Earnings (loss) per share:
Basic	$	0.04			$	(0.60	)		$	(0.84	)
Diluted	$	0.04			$	(0.60	)		$	(0.84	)

Potential shares from certain employee stock options, restricted stock units, ESPP and the conversion of the 2.125% Notes totaling 102 million shares for 2017 and potential shares from certain stock options, restricted stock units, the conversion of the 2.125% Notes and the warrants under the Warrant Agreement totaling 231 million and 52 million shares for 2016 and 2015, respectively, were not included in the diluted net loss per share calculations as their inclusion would have been anti-dilutive.

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

The table below summarizes the changes in accumulated other comprehensive income (loss) by component for the years ended December 30, 2017 and December 31, 2016:

	December 30, 2017												December 31, 2016
	Unrealized gains (losses) on available-for-sale securities				Unrealized gains (losses) on cash flow hedges				Total				Unrealized gains (losses) on available-for-sale securities			Unrealized gains (losses) on cash flow hedges				Total
	(In millions)
Beginning balance	$	(1	)		$	(4	)		$	(5	)		$	(1	)	$	(7	)		$	(8	)
Unrealized gains arising during the period, net of tax effects	1				17				18				—			1				1
Reclassification adjustment for (gains) losses realized and included in net income (loss), net of tax effects	—				(7		)		(7		)		—			2				2
Total other comprehensive income	1				10				11				—			3				3
Ending balance	$	—			$	6			$	6			$	(1	)	$	(4	)		$	(5	)

Stock-Based Compensation. The Company estimates stock-based compensation cost for stock options at the grant date based on the option’s fair-value as calculated by the lattice-binomial option-pricing model. For restricted stock units, including performance-based restricted stock units (PRSUs), fair value is based on the closing price of the Company’s common stock on the grant date. The Company estimates the grant-date fair value of restricted stock units that involve a market condition using the Monte Carlo simulation model. The Company estimates the grant-date fair value of the ESPP using the Black-Scholes model. Compensation expense is recognized over the vesting period of the applicable award using the straight-line method, except for the compensation expense related to PRSUs, which are recognized ratably for each vesting tranche from the service inception date to the end of the requisite service period.

The application of the lattice-binomial option-pricing model requires the use of extensive actual employee exercise behavior data and the use of a number of complex assumptions including expected volatility of the Company’s common stock, risk-free interest rate and expected dividends. Significant changes in any of these assumptions could materially affect the fair value of stock options granted in the future.

Forfeiture rates are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates in order to derive the Company’s best estimate of awards ultimately expected to vest.

Recently Adopted Accounting Standards

Goodwill Impairment. In January 2017, the Financial Accounting Standards Board (FASB) issued ASU 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (ASU 2017-04), which eliminates step two from the goodwill impairment test. Under the amendments in ASU 2017-04, an entity should recognize an impairment charge for the amount by which the carrying amount of a reporting unit exceeds its fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. ASU 2017-04 is effective for annual and any interim impairment tests performed for periods beginning after December 15, 2019 on a prospective basis, and earlier adoption is permitted for goodwill impairment tests performed on testing dates after January 1, 2017. The Company early adopted this accounting standard update in the third quarter of 2017 on a prospective basis and did not have an impact on its consolidated financial statements. The adoption of this update is to simplify its annual goodwill impairment testing process by eliminating the need to estimate the implied fair value of a reporting unit’s goodwill if its respective carrying value exceeds fair value.

Stock Compensation. In March 2016, the FASB issued ASU 2016-09, Compensation-Stock Compensation (Topic 718) Improvements to Employee Share-Based Payment Accounting (ASU 2016-09), which is intended to simplify several aspects of the accounting for share-based payment award transactions. The Company adopted this guidance in the first quarter of 2017 and elected to continue to estimate forfeitures expected to occur to determine the amount of compensation cost to be recognized in each period. In the first quarter of 2017, the Company recorded a $96 million cumulative-effect adjustment in accumulated deficit and an offsetting increase in deferred tax assets for previously unrecognized excess tax benefits that existed as of December 31, 2016. Since substantially all of the Company’s U.S. and foreign deferred tax assets, net of deferred tax liabilities, are subject to a valuation allowance and the realization of these assets is not more likely than not to be achieved, the Company recorded a $96 million valuation allowance against these deferred tax assets with an offsetting adjustment in accumulated deficit. The Company elected to report cash flows related to excess tax benefits as an operating activity on a prospective basis. The presentation requirement

for cash flows related to employee taxes paid for withheld shares did not impact the statements of cash flows because such cash flows have historically been presented as a financing activity.

Investments. In March 2016, the FASB issued ASU 2016-07, Investments – Equity Method and Joint Ventures (Topic 323): Simplifying the Transition to the Equity Method of Accounting (ASU 2016-07), which requires the equity method investor to add the cost of acquiring the additional interest in the investee to the current basis of the investor’s previously held interest and adopt the equity method of accounting as of the date the investment qualifies for equity method accounting. The Company adopted this guidance in the first quarter of 2017, and it did not have an impact on its consolidated financial statements.

Inventory. In July 2015, the FASB issued ASU 2015-11, Simplifying the Measurement of Inventory (ASU 2015-11), which requires entities to measure inventory at the lower of cost or net realizable value. This ASU simplifies the subsequent measurement of inventory by replacing the lower of cost or market test with a lower of cost or net realizable value test. The Company adopted this guidance in the first quarter of 2017, and it did not have an impact on its consolidated financial statements.

Recently Issued Accounting Standards

Derivatives and Hedging. In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities (ASU 2017-12), which amends and simplifies existing guidance in order to allow companies to more accurately present the economic effects of risk management activities in the financial statements. ASU 2017-12 is effective for fiscal years beginning after December 15, 2018, including interim periods therein with early adoption permitted. The Company will adopt this guidance in the first quarter of 2019 and does not expect a significant impact on its consolidated financial statements.

Stock Compensation. In May 2017, the FASB issued ASU 2017-09, Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting (ASU 2017-09) to provide clarity and reduce both the (1) diversity in practice and (2) cost and complexity when changing the terms or conditions of share-based payment awards. Under ASU 2017-09, modification accounting is required to be applied unless all of the following are the same immediately before and after the change:

1. The award’s fair value (or calculated value or intrinsic value, if those measurement methods are used);

2. The award’s vesting conditions; and

3. The award’s classification as an equity or liability instrument.

ASU 2017-09 is effective for annual and interim periods beginning after December 15, 2017 on a prospective basis, and early adoption is permitted. The Company will adopt this guidance in the first quarter of 2018 and does not expect an impact on its financial statements.

Income Taxes. In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory (ASU 2016-16), which requires entities to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. This amends current GAAP which prohibits recognition of current and deferred income taxes for all types of intra-entity asset transfers until the asset has been sold to an outside party. ASU 2016-16 is effective for fiscal years beginning after December 15, 2017, including interim periods therein. Upon adoption, the Company must apply a modified retrospective transition approach through a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption. The Company is currently evaluating the impact of this new standard on its consolidated financial statements.

Statement of Cash Flows. In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (ASU 2016-15), which is intended to reduce the existing diversity in practice in how certain cash receipts and cash payments are classified in the statement of cash flows. In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows, Restricted Cash (Topic 230) (ASU 2016-18), which requires the inclusion of restricted cash with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. ASU 2016-15 and ASU 2016-18 are both effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, provided that all of the amendments are adopted in the same period. The amendments will be applied using a retrospective transition method to each period presented. The Company will adopt these guidances in the first quarter of 2018 and does not expect a significant impact on its financial statements.

Financial Instruments. In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments (ASU 2016-13). The standard changes the methodology for measuring credit losses on financial instruments and the timing of when such losses are recorded. ASU 2016-13 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2019. Early adoption is permitted for fiscal years, and interim

periods within those years, beginning after December 15, 2018. The Company will adopt this guidance in the first quarter of 2020 and is currently evaluating the impact of this new standard on its consolidated financial statements.

Leases. In February 2016, the FASB issued ASU 2016-02, Leases (ASU 2016-02), which increases transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with early adoption permitted. Upon adoption, lessees must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The Company will not early adopt the new standard and therefore the new standard will be effective for the Company in the first quarter of its fiscal 2019. The Company expects that upon adoption the most significant impact will be the recognition of right-of-use assets and lease liabilities on our consolidated balance sheets for our operating leases. The Company has established a cross-functional team of key stakeholders for implementing the new standard and has begun to inventory its real estate and equipment leases. As part of the Company’s assessment and implementation plan, the Company is evaluating and implementing changes to its policies, procedures and controls.

Financial Instruments. In January 2016, the FASB issued ASU 2016-01, Financial Instruments—Overall: Recognition and Measurement of Financial Assets and Financial Liabilities (ASU 2016-01), which requires that most equity investments be measured at fair value, with subsequent changes in fair value recognized in net income. The ASU also impacts financial liabilities under the fair value option and the presentation and disclosure requirements for financial instruments. In addition, the FASB clarified guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities. Entities will have to assess the realizability of such deferred tax assets in combination with the entities other deferred tax assets. ASU 2016-01 is effective for fiscal years beginning after December 15, 2017 and for interim periods within that reporting period. In the first quarter of 2018, the Company will elect to adopt the measurement alternative, which will apply this ASU prospectively, for its equity investments that do not have readily determinable fair values. In addition, the Company will record a cumulative effect adjustment to retained earnings for its equity securities that have readily determinable fair values. The Company does not expect the effects of either to have a material impact on its consolidated financial statements.

Revenue Recognition. In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) (ASC 606), which creates a single source of revenue guidance under U.S. GAAP for all companies in all industries and replaces most existing revenue recognition guidance in U.S. GAAP. Under the new standard, revenue is recognized when a customer obtains control of promised goods or services and is recognized in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. In addition, the new standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The FASB has issued several amendments to the new standard, including clarification on accounting for licenses of intellectual property and identifying performance obligations.

The new standard is effective for annual reporting periods beginning after December 15, 2017, with early adoption permitted. The Company did not early adopt the new standard, and therefore the new standard will be effective for the Company in the first quarter of its fiscal 2018.

The guidance permits two methods of adoption: retrospectively to each prior reporting period presented (full retrospective method), or prospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application and providing additional disclosures comparing results to the previous rules in the year of adoption of the new standard (the modified retrospective method or the cumulative catchup method). The Company will adopt the standard using the full retrospective method to adjust each prior reporting period presented. The Company has implemented changes to its policies, procedures and controls, and finalized the assessment of the accounting impact resulting from the new standard.

See Note 19 Impact to Reported Results for the impact of the adoption of ASC 606 on the Company's consolidated financial statements.

Although there are several other new accounting pronouncements issued or proposed by the FASB, which the Company has adopted or will adopt, as applicable, the Company does not believe any of these accounting pronouncements has had or will have a material impact on its consolidated financial position, operating results or statements of cash flows.

NOTE 3: GLOBALFOUNDRIES

Formation and Accounting

On March 2, 2009, the Company consummated the transactions contemplated by the Master Transaction Agreement among the Company, Mubadala Technology Investments LLC, or Mubadala Tech (formerly, Advanced Technology Investment Company LLC) and WCH, pursuant to which the Company formed GLOBALFOUNDRIES Inc. (GF). In connection with the consummation of the transactions contemplated by the Master Transaction Agreement, the Company, Mubadala Tech and GF entered into a Wafer Supply Agreement (the WSA), a Funding Agreement (the Funding Agreement) and a Shareholders’ Agreement (the Shareholders’ Agreement) on March 2, 2009.

On March 4, 2012, as partial consideration for certain rights received under a second amendment to the WSA, the Company transferred to GF all of the remaining capital stock of GF that the Company owned. In addition, as of March 4, 2012, the Funding Agreement was terminated and the Company was no longer party to the Shareholders’ Agreement. As a result of these transactions, the Company no longer owned any GF capital stock as of March 4, 2012.

GF continues to be a related party of the Company because Mubadala and Mubadala Tech are affiliated with WCH, a significant stockholder of the Company. WCH and Mubadala Tech are wholly-owned subsidiaries of Mubadala.

Wafer Supply Agreement

The WSA governs the terms by which the Company purchases products manufactured by GF. Pursuant to the WSA, the Company is required to purchase from GF all of its microprocessor and APU product requirements and a certain portion of its GPU product requirements with limited exceptions. If the Company acquires a third party business that manufactures microprocessor and APU products, the Company will have up to two years to transition the manufacture of such microprocessor and APU products to GF.

The WSA terminates no later than March 2, 2024. GF has agreed to use commercially reasonable efforts to assist the Company to transition the supply of products to another provider and to continue to fulfill purchase orders for up to two years following the termination or expiration of the WSA. During the transition period, pricing for microprocessor and APU products will remain as set forth in the WSA, but the Company’s purchase commitments to GF will no longer apply.

Sixth Amendment to Wafer Supply Agreement. On August 30, 2016, the Company entered into a sixth amendment (the Sixth Amendment) to the WSA. The Sixth Amendment modified certain terms of the WSA applicable to wafers for the Company’s microprocessor, graphics processor and semi-custom products for a five-year period from January 1, 2016 to December 31, 2020. The Company and GF agreed to establish a comprehensive framework for technology collaboration for the 7nm technology node.

The Sixth Amendment also provides the Company a limited waiver with rights to contract with another wafer foundry with respect to certain products in the 14nm and 7nm technology nodes and gives the Company greater flexibility in sourcing foundry services across its product portfolio. In consideration for these rights, the Company agreed to pay GF $100 million in installments starting in the fourth fiscal quarter of 2016 through the third fiscal quarter of 2017. From the fourth fiscal quarter of 2016 to the third fiscal quarter of 2017, the Company paid GF $25 million each quarter and as of December 30, 2017, the Company had paid GF $100 million in aggregate. Starting in 2017 and continuing through 2020, the Company agreed to make quarterly payments to GF based on the volume of certain wafers purchased from another wafer foundry.

Further, for each calendar year during the term of the Sixth Amendment, the Company and GF agreed to annual wafer purchase targets that increase from 2016 through 2020. If the Company does not meet the annual wafer purchase target for any calendar year, the Company will be required to pay to GF a portion of the difference between the Company’s actual wafer purchases and the wafer purchase target for that year. The annual targets were established based on the Company’s business and market expectations and took into account the limited waiver it received for certain products. The Company met its 2017 annual wafer purchase target.

The Company and GF also agreed on fixed pricing for wafers purchased during 2016 and established a framework to agree on annual wafer pricing for the years 2017 to 2020. The Company and GF had agreed on pricing for wafer purchases for 2017.

The Company’s total purchases from GF related to wafer manufacturing, research and development activities and other for 2017, 2016 and 2015 were $1.1 billion, $0.7 billion and $0.9 billion, respectively. Included in the total purchases for the year ended December 30, 2017 are amounts related to the volume of certain wafers purchased from another wafer foundry, as agreed to by the Company and GF under the Sixth Amendment. As of December 30, 2017 and December 31, 2016, the amount of prepayment and other receivables related to GF was $27 million and $32 million, respectively, included in Prepayment and other

receivables - related parties on the Company's consolidated balance sheets. As of December 30, 2017 and December 31, 2016, the amount of payable to GF was $241 million and $255 million, respectively, included in Payables to related parties on the Company's consolidated balance sheets.

Warrant Agreement. Also on August 30, 2016, in consideration of the limited waiver and rights under the Sixth Amendment, the Company entered into a warrant agreement (the Warrant Agreement) with WCH, a wholly-owned subsidiary of Mubadala. Under the Warrant Agreement, WCH and its permitted assigns are entitled to purchase 75 million shares of the Company’s common stock (the Warrant Shares) at a purchase price of $5.98 per share. The warrant under the Warrant Agreement is exercisable in whole or in part until February 29, 2020. Notwithstanding the foregoing, the Warrant Agreement will only be exercisable to the extent that Mubadala does not beneficially own, either directly or through any other entities directly and indirectly owned by Mubadala or its subsidiaries, an aggregate of more than 19.99% of the Company’s outstanding capital stock after any such exercise.

NOTE 4: Equity Interest Purchase Agreement - ATMP Joint Venture

In April 2016, the Company and certain of its subsidiaries completed the sale of a majority of the equity interests in Suzhou TF-AMD Semiconductor Co., Ltd. (formerly, AMD Technologies (China) Co., Ltd.), and TF AMD Microelectronics (Penang) Sdn. Bhd. (formerly, Advanced Micro Devices Export Sdn. Bhd.), to affiliates of Tongfu Microelectronics Co., Ltd. (formerly, Nantong Fujitsu Microelectronics Co., Ltd.) (TFME), a Chinese joint stock company, to form two joint ventures (collectively, the ATMP JV). As a result of the sale, TFME’s affiliates own 85% of the equity interests in the ATMP JV while certain of the Company’s subsidiaries own the remaining 15%. The Company has no obligations to fund the ATMP JV.

As a result of the transaction, the Company received approximately $342 million, including purchase price adjustments, in net cash proceeds for selling 85% of the equity interest in each of Suzhou TF-AMD Semiconductor Co., Ltd. and TF AMD Microelectronics (Penang) Sdn. Bhd. These proceeds, net of certain transaction costs, were included in investing activities on the Company’s consolidated statements of cash flows for the year ended December 31, 2016.

The Company recognized a net pre-tax gain on the sale of its 85% equity interest in ATMP JV of $146 million for the year ended December 31, 2016, which was recognized in Other income (expense), net on the Company’s consolidated statements of operations. The net pre-tax gain reflects the excess of the sum of net cash proceeds and fair value of the Company’s retained 15% equity interests in the ATMP JV over the sum of the net book values of the Company’s former subsidiaries and other closing costs directly attributed to the divestiture. The above gain includes $11 million in excess of fair value of the Company’s retained interest over the corresponding net book values. During 2017, the Company recorded a $3 million pre-tax gain for final settlement related to the sale of 85% of the equity interest in ATMP facilities in Other income (expense), net on its consolidated statements of operations.

The Company accounts for its equity interests in the ATMP JV under the equity method of accounting due to its significant influence over the ATMP JV. As of December 30, 2017 and December 31, 2016, the carrying value of the Company’s investment in the ATMP JV was $58 million and $59 million, respectively.

Following the deconsolidation, the ATMP JV is a related party of the Company. The ATMP JV provides assembly, test, mark and packaging (ATMP) services to the Company. The Company currently pays the ATMP JV for ATMP services on a cost-plus basis. The Company’s total purchases from the ATMP JV during 2017 and 2016 amounted to approximately $438 million and $265 million, respectively. As of December 30, 2017 and December 31, 2016, the amount payable to the ATMP JV was $171 million and $128 million, respectively, included in Payables to related parties on the Company’s consolidated balance sheets.

During 2017 and 2016, the Company recorded losses of $7 million and $10 million, respectively, in Equity loss in investee on its consolidated statements of operations, which included certain expenses incurred by the Company on behalf of the ATMP JV.

NOTE 5. Equity Joint Venture

In February 2016, the Company and Tianjin Haiguang Advanced Technology Investment Co., Ltd. (THATIC), a third-party Chinese entity (JV Partner), formed a joint venture comprised of two separate legal entities, China JV1 and China JV2 (collectively, the THATIC JV). The Company’s equity share in China JV1 and China JV2 is a majority and minority interest, respectively, funded by the Company’s contribution of certain of its patents. The JV Partner is responsible for the initial and on-going financing of the THATIC JV’s operations. The Company has no obligations to fund the THATIC JV.

The Company concluded the China JV1 and China JV2 are not operating joint ventures and are variable interest entities due to their reliance on on-going financing by JV Partner. The Company determined that it is not the primary beneficiary of either China JV1 or China JV2, as the Company does not have unilateral power to direct selling and marketing, manufacturing and product development activities related to the THATIC JV’s products. Accordingly, the Company does not consolidate either of these entities and therefore accounts for its investments in the THATIC JV under the equity method of accounting. The THATIC JV is a related party of the Company.

In February 2016, the Company licensed certain of its intellectual property (Licensed IP) to the THATIC JV for a total of approximately $293 million in license fees payable over several years contingent upon achievement of certain milestones. The Company also expects to receive a royalty based on the sales of the THATIC JV’s products to be developed on the basis of such Licensed IP. The Company also provided certain engineering and technical support to the THATIC JV in connection with the product development. In March 2017, the Company entered into a development and intellectual property agreement (Development and IP) with THATIC JV, and also expects to receive a royalty based on the sales of the THATIC JV’s products to be developed on the basis of such agreement. In addition, from time to time the Company enters into certain agreements with the THATIC JV to provide other services primarily related to research and development.

The Company recognized income related to the Licensed IP over the period commencing upon delivery of the first Licensed IP milestone through the date of the milestone that required the Company’s continuing involvement in the product development process, which was completed at the end of the second quarter of 2017. Royalty payments will be recognized in income once earned. The Company classifies Licensed IP income and royalty income associated with the February 2016 agreement as other operating income. During 2017, the Company recognized a $52 million licensing gain associated with the Licensed IP. In addition, during 2017, the Company recognized $36 million of Development and IP fees and other services fees of $12 million as credits to research and development expenses. During 2016, the Company recognized an $88 million licensing gain. No credits for the Development and IP agreement and other services was recognized as credits to research and development by the Company during 2016. No royalty income was recognized by the Company during 2017 and 2016.

The Company’s total exposure to losses through its investment in the THATIC JV is limited to the Company’s investment in the THATIC JV, which was zero as of December 30, 2017. The Company’s share in the net losses of the THATIC JV for 2017 was not material and is not recorded in the Company’s consolidated statement of operations since the Company is not obligated to fund the THATIC JV’s losses in excess of the Company’s investment in the THATIC JV. The Company’s receivable from the THATIC JV for these agreements was $3 million and zero as of December 30, 2017 and December 31, 2016, respectively, included in Prepayment and other receivables - related parties on its consolidated balance sheets. As of December 30, 2017 and December 31, 2016, the total assets and liabilities of the THATIC JV were not material.

NOTE 6: Supplemental Balance Sheet Information

Accounts Receivable

As of December 30, 2017 and December 31, 2016, Accounts receivable, net included unbilled accounts receivable of $16 million and $37 million, respectively. Unbilled accounts receivable represent revenue recognized but not billed as payments are deferred by customers until certain contractual milestones are met. All unbilled accounts receivable are expected to be billed and collected within twelve months.

Inventories

	December 30, 2017				December 31, 2016
	(In millions)
Raw materials	$	34			$	11
Work in process	468				564
Finished goods	237				176
Total inventories, net	$	739			$	751

Property, plant and equipment

	December 30, 2017				December 31, 2016
	(In millions)
Leasehold improvements	$	187			$	148
Equipment	758				714
Construction in progress	56				19
Property, plant and equipment, gross	1,001				881
Accumulated depreciation and amortization	(740		)		(717		)
Total property, plant and equipment, net	$	261			$	164

The Company incurs costs for the fabrication of mask sets used by its foundry partners to manufacture its products. Beginning the first quarter of 2017, the Company capitalizes mask set costs that are expected to be utilized in production manufacturing as the Company’s product development process has become more predictable and thus supports capitalization of the mask set. The capitalized mask set costs begin depreciating to Cost of sales once the products go into production on a straight-line basis over the estimated useful life of two years. Previously, mask sets were expensed to research and development.

Depreciation expense for 2017, 2016 and 2015 was $77 million, $71 million and $94 million, respectively.

Other assets

	December 30, 2017				December 31, 2016
	(In millions)
Software and technology licenses, net	$	239			$	234
Other	71				45
Total other assets	$	310			$	279

Accrued liabilities

	December 30, 2017				December 31, 2016
	(In millions)
Accrued compensation and benefits	$	206			$	116
Marketing programs and advertising expenses	150				102
Software technology and licenses payable	41				24
Other accrued and current liabilities	144				149
Total accrued liabilities	$	541			$	391

NOTE 7: Goodwill and Acquired Intangible Assets

Goodwill

The carrying amounts of goodwill as of December 30, 2017 and December 31, 2016 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		)
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
Balance as of December 30, 2017	—				289				—				289
Goodwill, gross	1,359				289				745				2,393
Accumulated impairment losses	$	(1,359	)		$	—			$	(745	)		$	(2,104	)

As a result of the decision to form the JVs with TFME in 2015, the balance sheet as of December 26, 2015 reflects held-for-sale accounting of the ATMP assets and liabilities which required 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.

In the fourth quarters of 2017 and 2016, the Company conducted its annual impairment tests of goodwill. The Company determined that the estimated fair value exceeded the carrying value of the reporting units, indicating that there was no goodwill impairment with respect to these reporting units.

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 30, 2017 and December 31, 2016. Amortization expense for acquisition-related intangible assets was zero, zero, and $3 million for the years 2017, 2016 and 2015, respectively.

NOTE 8: Financial Instruments

Cash and Cash Equivalents

Cash and cash equivalents measured and recorded at fair value on a recurring basis, which approximates amortized cost, as of December 30, 2017 and December 31, 2016 are summarized below:

	December 30, 2017				December 31, 2016
	(In millions)
Cash and cash equivalents
Cash	$	108			$	67
Level 1(1) (2)
Government money market funds	395				50
Total level 1	395				50
Level 2(1) (3)
Commercial paper	682				1,147
Total level 2	682				1,147
Total	$	1,185			$	1,264

(1)	The Company did not have any transfers between Level 1 and Level 2 during 2017 and 2016.

(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 prices for identical instruments in markets that are not active or comparable instruments in active markets. 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 30, 2017 and December 31, 2016, the Company had approximately $2 million and $2 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.

As of December 30, 2017 and December 31, 2016, the Company also had approximately $18 million and $15 million, respectively, 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 30, 2017								December 31, 2016
	Carrying Amount				Estimated Fair Value				Carrying Amount				Estimated Fair Value
	(In millions)
Short-term debt	$	70			$	70			$	—			$	—
Long-term debt, net(1)	$	1,324			$	2,103			$	1,434			$	2,313

(1)	Carrying amounts of long-term debt are net of unamortized debt issuance costs of $19 million and $25 million as of December 30, 2017 and December 31, 2016, respectively, based on the adoption of ASU 2015-03, and net of $286 million and $308 million unamortized debt discount associated with the 2.125% Notes as of December 30, 2017 and December 31, 2016, respectively.

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 income (loss), the amount of gain (loss) reclassified from accumulated other comprehensive income (loss) and included in earnings related to the foreign currency forward contracts designated as cash flow hedges and the amount of 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:

	2017				2016
	(In millions)
Foreign Currency Forward Contracts - gains (losses)
Contracts designated as cash flow hedging instruments
Other comprehensive income (loss)	$	9			$	4
Research and development	7				(1		)
Marketing, general and administrative	1				—
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 30, 2017				December 31, 2016
		(In millions)
Foreign Currency Forward Contracts - gains (losses)
Contracts designated as cash flow hedging instruments		$	7			$	(2	)

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 30, 2017 and December 31, 2016, the notional values of the Company’s outstanding foreign currency forward contracts were $300 million and $138 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 2017 and 2016 was immaterial. As of both December 30, 2017 and 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.

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 15%, 13% and 11% of the total consolidated accounts receivable balance as of December 30, 2017 and 12%, 11% and 10% of the total consolidated accounts receivable balance as of December 31, 2016. 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 30, 2017, counterparties’ obligations under the contracts exceeded the Company’s obligations by $7 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 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:

	2017				2016				2015
	(In millions)
Current:
U.S. Federal	$	(3	)		$	(2	)		$	(1	)
U.S. State and Local	—				—				—
Foreign National and Local	38				21				16
Total	35				19				15
Deferred:
U.S. Federal	(15		)		(1		)		—
Foreign National and Local	(1		)		21				(1		)
Total	(16		)		20				(1		)
Provision for income taxes	$	19			$	39			$	14

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

	2017				2016				2015
	(In millions)
U.S.	$	108			$	(604	)		$	(1,100	)
Foreign	(46		)		146				454
Total pre-tax income (loss) including equity loss in investee	$	62			$	(458	)		$	(646	)

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 30, 2017 and December 31, 2016 are as follows:

	December 30, 2017				December 31, 2016
	(In millions)
Deferred tax assets:
Net operating loss carryovers	$	1,551			$	2,480
Deferred distributor income	7				26
Inventory valuation	20				26
Accrued expenses not currently deductible	61				65
Acquired intangibles	102				213
Tax deductible goodwill	56				146
Federal and state tax credit carryovers	546				427
Foreign research and development ITC credits	391				341
Other	55				83
Total deferred tax assets	2,789				3,807
Less: valuation allowance	(2,621		)		(3,526		)
Total deferred tax assets, net of valuation allowance	168				281
Deferred tax liabilities:
Discount of convertible notes	(58		)		(105		)
Undistributed foreign earnings	(97		)		(158		)
Other	(13		)		(18		)
Total deferred tax liabilities	(168		)		(281		)
Net deferred tax assets	$	—			$	—

The breakdown between current and non-current deferred tax assets and deferred tax liabilities as of December 30, 2017 and December 31, 2016 is as follows:

	December 30, 2017				December 31, 2016
	(In millions)
Current deferred tax assets	$	—			$	—
Non-current deferred tax assets	11				11
Current deferred tax liabilities	—				—
Non-current deferred tax liabilities	$	(11	)		$	(11	)
Net deferred tax assets	$	—			$	—

Non-current deferred tax assets are included in the caption Other assets on the consolidated balance sheets. Non-current deferred tax liabilities are included in the caption Other long-term liabilities on the consolidated balance sheets.

In December 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act of 2017 (Tax Reform Act). The legislation significantly changes U.S. tax law by, among other things, lowering corporate income tax rates, implementing a modified territorial tax system and imposing a transition tax on deemed repatriated earnings of foreign subsidiaries. The Tax Reform Act permanently reduces the U.S. corporate income tax rate from a maximum of 35% to a flat 21% rate, effective January 1, 2018. ASC 740: Income Taxes, requires companies to recognize the effect of the tax law changes in the period of enactment. However, the SEC staff issued Staff Accounting Bulletin 118 which will allow companies to record provisional amounts during a measurement period that is similar to the measurement period used when accounting for business combinations. The Company has adjusted its deferred tax assets and liabilities based on the reduction of the U.S. federal corporate tax rate from 35% to 21% and assessed the realizability of our deferred tax assets based on our current understanding of the provisions of the new law. The Company considers its accounting for the impacts of the Tax Reform Act to be incomplete and the Company will continue to assess the impact of the Tax Reform Act (and expected further guidance from federal and state tax authorities as well as further guidance for the associated income tax accounting) on its business and consolidated financial statements over the next 12 months.

The Tax Reform Act eliminated the corporate alternative minimum tax (AMT) for tax years commencing on or after January 1, 2018. As a result, AMT credit carryforwards may be utilized to reduce future income tax liabilities. In addition, excess AMT credits are refundable in any taxable year beginning after 2017 and before 2022 in an amount equal to 50% (100% in the case of taxable years beginning in 2021) of the excess of the minimum tax credit for the taxable year over the amount of the credit allowable for the year against regular tax liability. Accordingly, the Company has reclassified $16 million of AMT credit carry forwards as a non-current tax receivable.

As of December 30, 2017, 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 30, 2017, in management’s estimate, is not more likely than not to be achieved. In 2017, gross deferred tax assets decreased by $1,018 million primarily for provisional decreases related to the remeasurement of deferred tax assets due to the 21% tax rate under the Tax Reform Act, as well as decreases related to acquired intangibles and goodwill, offset by a decrease in the gross deferred tax liability balance of $112 million primarily for provisional decreases related to the remeasurement of deferred tax liabilities due to the 21% tax rate under the Tax Reform Act, and a decrease in the gross valuation allowance of $905 million. In 2016, the net valuation allowance decreased by $143 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.

The following is a summary of the Company’s various tax attribute carryforwards as of December 30, 2017.

Carryforward	Federal				State / Provincial				Expiration
	(In millions)
U.S.-net operating loss carryovers	$	7,254			$	309			2018 to 2037
U.S.-credit carryovers	$	394			$	213			2018 to 2037
Canada-credit carryovers	$	369			$	42			2021 to 2037
Other foreign net operating loss carryovers	$	37			N/A				various

Utilization of $8 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.

	2017				2016				2015
	(In millions)
Statutory federal income tax expense (benefit) at 35% rate	$	22			$	(160	)		$	(226	)
State taxes, net of federal benefit	1				1				1
Foreign (income) expense at other than U.S. rates	—				(1		)		9
U.S. valuation allowance generated	16				201				232
Credit monetization	(20		)		(2		)		(2		)
Provision for income taxes	$	19			$	39			$	14

As part of the transition from a world-wide tax system to a territorial (dividend exemption) system, the Tax Reform Act imposes a one-time transition tax on the cumulative undistributed post-1986 earnings and profits of certain foreign subsidiaries. The transition tax applies at a rate of 15.5% for earnings held as liquid assets and 8.0% for earnings held as illiquid assets by the foreign subsidiaries. The Company is currently estimating that it will not be subject to the transition tax because of the aggregate cumulative post-1986 earnings and profits of its foreign subsidiaries are in an overall deficit, however the Company has not yet completed its calculations of the total post-1986 earnings and profits and associated tax pools for its foreign subsidiaries. Additionally, the Company understands that there could be further interpretations from U.S. federal and state governments and regulatory organizations that may impact its final calculation.

Because of the transition to a territorial system under the Tax Reform Act, the taxation of future dividend distributions by foreign subsidiaries is expected to be limited to withholding taxes which may apply based on the jurisdiction of the subsidiary. The Company has made no provision for taxes on approximately $117 million of cumulative undistributed earnings of certain foreign subsidiaries through December 30, 2017 based on the Company’s intention to indefinitely reinvest such earnings (2016: approximately $82 million). However, if such earnings were distributed, the Company would incur additional withholding taxes.

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 not increase the Company’s net income in 2017 because the Company’s operations in Malaysia were immaterial. The net impact of tax holidays did not decrease the Company’s net loss in 2016 and 2015 because the Company’s operations in Malaysia operated at a loss.

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

	2017				2016				2015
	(In millions)
Balance at beginning of year	$	42			$	38			$	28
Increases for tax positions taken in prior years	7				3				11
Decreases for tax positions taken in prior years	(2		)		—				(1		)
Increases for tax positions taken in the current year	3				2				2
Decreases for settlements with taxing authorities	—				—				(2		)
Decreases for lapsing of the statute of limitations	(1		)		(1		)		—
Balance at end of year	$	49			$	42			$	38

The amount of unrecognized tax benefits that would impact the effective tax rate was $9 million, $4 million and $4 million as of December 30, 2017, December 31, 2016 and December 26, 2015, respectively. The Company had no or immaterial amounts of accrued interest and no accrued penalties related to unrecognized tax benefits as of December 30, 2017, December 31, 2016 and December 26, 2015. 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 December 31, 2017, the Company expects to reduce its unrecognized tax benefits by $1 million primarily as a result of the lapse of statute 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 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.

NOTE 11: Debt and Other Obligations

Total Debt

The Company’s total debt as of December 30, 2017 and December 31, 2016 consisted of:

	December 30, 2017				December 31, 2016
	(In millions)
6.75% Notes	$	166			$	196
7.50% Notes	347				350
7.00% Notes	311				416
2.125% Notes	805				805
Secured Revolving Line of Credit	70				—
Total debt (principal amount)	1,699				1,767
Unamortized debt discount associated with 2.125% Notes	(286		)		(308		)
Unamortized debt issuance costs	(19		)		(25		)
Other	1				1
Total debt (net)	1,395				1,435
Less: current portion	(70		)		—
Total debt, less current portion	$	1,325			$	1,435

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 and 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. During the fourth quarter of 2017, none of the conversion conditions were satisfied and as a result, the 2.125% Notes are not eligible for conversion during the first calendar quarter of 2018. The Company’s current intent is to deliver shares of its common stock upon conversion of the 2.125% Notes.

The Company may not redeem the notes prior to the maturity date and no sinking fund is provided for the notes.

The conversion rate is initially 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 is 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 amount 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. During 2016, the Company recorded issuance costs of $15 million and $9 million for the liability and equity portions, respectively,

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

The 2.125% Notes consisted of the following:

	December 30, 2017			December 31, 2016
	(In millions)
Principal amounts:
Principal	$	805		$	805
Unamortized debt discount(1)	(286		)	(308		)
Unamortized debt issuance costs	(12		)	(14		)
Net carrying amount	$	507		$	483
Carrying amount of the equity component, net(2)	$	305		$	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 30, 2017, the remaining life of the 2.125% Notes was approximately 105 months.

Based on the closing price of the Company’s common stock of $10.28 on December 29, 2017, the last business day of 2017, the if-converted value of the 2.125% Notes exceeded its principal amount by approximately $229 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 30, 2017:

	December 30, 2017			December 31, 2016
	(In millions)
Contractual interest expense	$	17		$	5
Interest cost related to amortization of debt issuance costs	2			—
Interest cost related to amortization of the debt discount	$	22		$	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.

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

During 2017, the Company settled $30 million in aggregate principal amount of its 6.75% Notes for $26 million in cash and $5 million in treasury stock. As of December 30, 2017, the outstanding aggregate principal amount of the 6.75% Notes was $166 million.

Subsequent to the end of 2017 and through February 27, 2018, the Company repurchased $13.6 million in aggregate principal amount of its 6.75% Notes in cash.

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.

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.

In 2014, the Company repurchased $25 million in aggregate principal amount of its 7.50% Notes in open market transactions for $24 million. In 2016, the Company repurchased $125 million in aggregate principal amount of its 7.50% Notes pursuant to a partial tender offer for $135 million. During 2017, the Company settled $3 million in aggregate principal amount of its 7.50% Notes for $3 million in treasury stock. As of December 30, 2017, the outstanding aggregate principal amount of the 7.50% Notes was $347 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.

7.00% Senior Notes Due 2024

On June 16, 2014, the Company issued $500 million of its 7.00% Senior Notes due 2024 (7.00% Notes). The 7.00% Notes are general unsecured senior obligations of the Company. Interest is payable on January 1 and July 1 of each year beginning January 1, 2015 until the maturity date of July 1, 2024. The 7.00% Notes are governed by the terms of an indenture (the 7.00% Indenture) dated June 16, 2014 between the Company and Wells Fargo Bank, N.A., as trustee.

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

During 2017, the Company settled $105 million in aggregate principal amount of its 7.00% Notes for $84 million in cash and $26 million in treasury stock. As of December 30, 2017, the outstanding aggregate principal amount of the 7.00% Notes was $311 million.

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.

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		0.25%		1.25%
II		greater than or equal to 33.33% of the Revolver Commitment, less than 66.66%		0.5%		1.5%
III		less than 33.33% of the Revolver Commitment		0.75%		1.75%

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 0.25% per annum payable monthly on the unused amount of the commitments under the

Secured Revolving Line of Credit. 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 0.25% 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.

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.

Fifth Amendment to the Amended and Restated Loan and Security Agreement

On March 21, 2017, the Loan Parties entered into a fifth amendment to the Amended and Restated Loan Agreement (the Fifth Amendment) by and among the Loan Parties, the financial institutions party thereto from time to time as lenders and the Agent, which modifies the Amended and Restated Loan Agreement. The Fifth Amendment amends the Amended and Restated Loan Agreement by, among other things, extending the maturity date of the Secured Revolving Line of Credit from April 14, 2020 to March 21, 2022, reducing the Applicable Margin (as defined in the Amended and Restated Loan Agreement), reducing the commitment fee, lowering the minimum threshold of Availability (as defined in the Amended and Restated Loan Agreement) required to be maintained by the Company and AMDISS in order to avoid cash dominion, amending the borrowing base reporting requirement, amending maximum dollar limits related to supply chain finance arrangements, increasing the LC Facility Fees (as defined in the Amended and Restated Loan Agreement) and reducing the amount of the Secured Revolving Line of Credit available for the issuance for letters of credit from $75 million to $45 million.

The Amended and Restated Loan Agreement provides for a Secured Revolving Line of Credit for a principal amount up to $500 million with up to $45 million available for issuance of letters of credit. 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 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.

Sixth Amendment to the Amended and Restated Loan and Security Agreement

On September 19, 2017, the Loan Parties entered into a sixth amendment to the Amended and Restated Loan Agreement (the Sixth Amendment) by and among the Loan Parties, the financial institutions party thereto from time to time as lenders and the Agent, which modifies the Amended and Restated Loan Agreement. The Sixth Amendment amends the definition of the term “Qualified Factor Arrangement” to state that the amount held or owing or subject to repurchase is limited to (i) during the Company’s first fiscal quarter of each of its fiscal years, $220 million in the aggregate, (ii) during the Company’s second and third fiscal quarter of each of its fiscal years, $300 million in the aggregate, and (iii) (x) from the first day of the Company’s fourth fiscal quarter of each of its fiscal years to December 20 of each of its fiscal years, $300 million in the aggregate (provided, that not more than $220 million of such amount may consist of Qualified Factor Accounts (as defined in the Sixth Amendment) sold in such period) and (y) from December 21 of each of the Company’s fiscal years to and including the last day of the Company’s fourth fiscal quarter of each of its fiscal years, $220 million in the aggregate.

Seventh Amendment to the Amended and Restated Loan and Security Agreement

On November 14, 2017, the Loan Parties entered into a seventh amendment to the Amended and Restated Loan Agreement (the Seventh Amendment) by and among the Loan Parties, the financial institutions party thereto from time to time as lenders and the Agent, which modifies the Amended and Restated Loan Agreement. The Seventh Amendment amends the definition of the term “Qualified Factor Arrangement” to state that the amount held or owing to Qualified Factor or subject to repurchase shall not exceed $300 million in the aggregate at any time.

As of December 30, 2017, the Secured Revolving Line of Credit had an outstanding loan balance of $70 million at an interest rate of 4.75%. As of December 31, 2016, the Company had repaid an aggregate of $230 million of the Secured Revolving Line

of Credit and had no borrowings outstanding. As of December 30, 2017, the Secured Revolving Line of Credit had $19 million related to outstanding letters of credit and up to $92 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 30, 2017, 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.

Future Payments on Total Debt

As of December 30, 2017, the Company’s future debt payment obligations for the respective fiscal years were as follows:

	Long Term Debt (Principal only)
	(In millions)
2018	$	—
2019	166
2020	—
2021	—
2022	347
2023 and thereafter	1,116
Total	$	1,629

NOTE 12: Other Income (Expense), Net

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

	2017				2016				2015
	(In millions)
Interest income	$	6			$	2			$	—
Gain on sale of 85% ATMP JV	3				146				—
Loss on debt redemption	(12		)		(68		)		—
Other	(6		)		—				(5		)
Other income (expense), net	$	(9	)		$	80			$	(5	)

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 revenue and operating income (loss) before interest, other income (expense), net, income taxes and equity loss of investee. 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 and integrated graphics processing units (GPUs), professional GPUs and licensing portions of its IP portfolio; 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 IP portfolio.

In addition to these reportable segments, the Company has an All Other category, which is not a reportable segment. This category primarily includes certain expenses and credits that are not allocated to any of the reportable segments because management does not consider these expenses and credits in evaluating the performance of the reportable segments. Also included in this category are employee stock-based compensation expense, the charge related to the Sixth Amendment, restructuring and other special charges, net and amortization of acquired intangible assets. 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 2017, 2016 and 2015.

	2017				2016				2015
	(In millions)
Net revenue:
Computing and Graphics	$	3,029			$	1,967			$	1,805
Enterprise, Embedded and Semi-Custom	2,300				2,305				2,186
Total net revenue	$	5,329			$	4,272			$	3,991
Operating income (loss):
Computing and Graphics	$	147			$	(238	)		$	(502	)
Enterprise, Embedded and Semi-Custom	154				283				215
All Other	(97		)		(417		)		(194		)
Total operating income (loss)	$	204			$	(372	)		$	(481	)

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

	2017				2016				2015
	(In millions)
Operating loss:
Stock-based compensation expense	$	(97	)		$	(86	)		$	(63	)
Restructuring and other special charges, net	—				10				(129		)
Amortization of acquired intangible assets	—				—				(3		)
Charge related to the Sixth Amendment to the WSA with GF	—				(340		)		—
Other	—				(1		)		1
Total operating loss	$	(97	)		$	(417	)		$	(194	)

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

The Company’s operations outside the United States include research and development activities and sales, marketing and administrative activities. The Company conducts product and system research and development activities for its products in the United States with additional design and development engineering teams located in China, Canada, India, Singapore, Australia and Taiwan. The Company’s ATMP facilities located in Malaysia and China were sold in the second quarter of 2016 (see Note 4: Equity Interest Agreement - ATMP Joint Venture). The Company’s material sales and marketing offices are located in the United States, Latin America, Europe and Asia.

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

	2017				2016				2015
	(In millions)
United States	$	1,364			$	923			$	984
Europe	263				155				168
China (including Taiwan)	1,747				1,108				1,145
Singapore	551				571				356
Japan	1,242				1,443				1,254
Other countries	162				72				84
Total sales to external customers	$	5,329			$	4,272			$	3,991

The following table summarizes long-lived assets by geographic areas:

	2017				2016
	(In millions)
United States	$	200			$	104
Malaysia	5				9
China	7				7
Singapore	22				24
Other countries	27				20
Total long-lived assets	$	261			$	164

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:

	2017			2016			2015
Customer A	23	%		33	%		31	%
Customer B	15	%		16	%		18	%
Customer C	6	%		10	%		8	%

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.

NOTE 14: Common Stock and Stock-Based Incentive Compensation Plans

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.

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). Shares reserved for future grants under the Company’s prior equity compensation plans were consolidated into the 2004 Plan.

Under the 2004 Plan, stock options generally vest and become exercisable over a three-year period from the date of grant and expire within 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 granted at the fair market value of the Company’s common stock on the date of grant and (ii) 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.

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.

Employee Stock Purchase Plan. The Company has introduced the Employee Stock Purchase Plan (ESPP) in the fourth quarter of 2017. Under the ESPP, eligible employees who participate in an offering period may have up to 10% of their earnings withheld, up to certain limitations, to purchase shares of common stock at 85% of the lower of the fair market value on the first or the last business day of the six-month offering period. The offering periods commence in November and May of each year with the first offering period under the ESPP commencing in November 2017.

As of December 30, 2017, the Company had 49 million shares of common stock that were available for future grants and 52 million shares reserved for issuance upon the exercise of outstanding stock options or the vesting of unvested restricted stock units. In addition, the Company had 50 million shares of common stock that were available for issuance under the ESPP.

Stock options, 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, restricted stock units, including PRSUs and the ESPP, was allocated in the consolidated statements of operations as follows:

	2017				2016				2015
	(In millions)
Cost of sales	$	2			$	2			$	3
Research and development	57				49				36
Marketing, general, and administrative	38				35				24
Total stock-based compensation expense, net of tax of $0	$	97			$	86			$	63

During 2017, the Company did not realize any excess tax benefits related to stock-based compensation and therefore the Company did not record any effects relating to operating cash flows. During 2016 and 2015, the Company did not 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 30, 2017, December 31, 2016 and December 26, 2015 was $5.46, $3.10 and $1.02 per share, respectively, using the following weighted-average assumptions:

	2017			2016			2015
Expected volatility	57.26	%		62.33	%		60.14	%
Risk-free interest rate	1.68	%		1.02	%		1.29	%
Expected dividends	—	%		—	%		—	%
Expected life (in years)	3.92			3.98			3.91

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 and related information:

	2017							2016							2015
	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	20			$	4.15			32			$	4.44			36			$	4.78
Granted	1			$	12.83			2			$	6.98			8			$	2.12
Canceled	—		*	$	7.69			(9	)		$	5.53			(9	)		$	4.91
Exercised	(4	)		$	5.19			(5	)		$	4.75			(3	)		$	1.61
Outstanding at end of year	17			$	4.32			20			$	4.15			32			$	4.44
Exercisable at end of year	13			$	3.82			13			$	4.32			21			$	5.34

*: Less than 1 million shares.

As of December 30, 2017, the weighted-average remaining contractual life of outstanding stock options was 3.75 years and their aggregate intrinsic value was $104 million. As of December 30, 2017, the weighted-average remaining contractual life of exercisable stock options was 3.30 years and their aggregate intrinsic value was $87 million. The total intrinsic value of stock options exercised for 2017, 2016 and 2015 was $27 million, $10 million and $2 million, respectively.

As of December 30, 2017, the Company had $9 million of total unrecognized compensation expense related to stock options that will be recognized over the weighted-average period of 1.43 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 2017, 2016 and 2015 is presented below:

	2017							2016							2015
	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	52			$	3.73			51			$	2.61			43			$	4.05
Granted	12			$	11.63			29			$	4.72			38			$	2.03
Forfeited	(3	)		$	5.83			(5	)		$	2.95			(15	)		$	3.71
Vested	(26	)		$	3.81			(23	)		$	2.56			(15	)		$	4.13
Unvested balance at end of period	35			$	6.60			52			$	3.73			51			$	2.61

The total fair value of RSUs vested during 2017, 2016 and 2015 was $328 million, $151 million and $33 million, respectively. Compensation expense recognized for the RSUs for 2017, 2016 and 2015 was approximately $93 million, $80 million and $57 million, respectively.

As of December 30, 2017, the Company had $184 million of total unrecognized compensation expense related to RSUs that will be recognized over the weighted-average period of 1.55 years.

PRSUs. The Company estimated the fair value for the PRSUs with a market condition using the Monte Carlo simulation model on the date of grant. During 2017, 2016 and 2015, the Company granted 0.8 million, 2.0 million and 3.9 million, respectively, PRSUs with a market condition to certain of the Company's senior executives. The weighted-average grant date fair values of the 2017 and 2016 PRSUs were $17.18 and $9.00, respectively. The weighted-average date fair values of the two grants in 2015 were $0.85 and $0.91 per share, using the following assumptions:

	2017			2016			2015
Stock price at valuation date	$12.83			$5.14			$1.85 - $1.99
Expected volatility	64.39	%		57.83	%		48.88% - 51.69%
Risk-free interest rate	1.50	%		0.88	%		1.08% - 1.12%
Expected dividends	—	%		—	%		—	%
Expected term (in years)	3.0			3.07			2.76 - 3.0

The summary of the changes in the PRSUs during 2017, 2016 and 2015 is presented below.

	2017			2016			2015
	(Shares in millions)
Unvested shares at beginning of period	5			7			9
Granted	2			5			5
Forfeited	(1	)		(2	)		(7	)
Vested	(3	)		(5	)		—
Unvested shares at end of period	3			5			7

ESPP. The Company uses the Black-Scholes model in determining the fair value of ESPP. The weighted-average grant date fair value for the ESPP during fiscal 2017 was $3.46 per share using the following assumptions:

	2017
Expected volatility	56.07	%
Risk-free interest rate	1.36	%
Expected dividends	—	%
Expected term (in years)	0.49
Forfeiture rate	7.8	%

The Company recognized $2.3 million of stock-based compensation expense in 2017 related to the ESPP.

NOTE 15: Defined Contribution 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 $12,150, $11,925 and $11,925 for 2017, 2016 and 2015, respectively. The Company’s contributions to the 401(k) plan for 2017, 2016 and 2015 were approximately $18 million, $16 million and $16 million, respectively.

NOTE 16: Commitments and Guarantees

Operating Leases

As of December 30, 2017, the Company’s future non-cancellable operating lease commitments were as follows:

Year	Operating leases
	(In millions)
2018	$	40
2019	35
2020	31
2021	29
2022	28
2023 and thereafter	92
Total non-cancellable operating lease commitments	$	255

The Company leases certain of its facilities and in some jurisdictions the Company leases the land on which these facilities are built under non-cancellable 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 2017, 2016 and 2015 was $44 million, $39 million and $47 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 expired 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. The base rent obligation commenced in August 2017. As of December 30, 2017, the total estimate of future base rent payments over the life of the lease was approximately $103 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 two additional 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 it 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 30, 2017 were $255 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 30, 2017, total non-cancellable purchase obligations excluding the Company’s wafer purchase commitments to GF under the WSA were $406 million.

The Company also had other contractual obligations, primarily included in Other long-term liabilities and Accrued liabilities on its consolidated balance sheet, which primarily consisted of $107 million of payments due under certain software and technology licenses and IP licenses that will be paid through 2021.

Future unconditional purchase obligations as of December 30, 2017 were as follows:

Year	Unconditional purchase obligations
	(In millions)
2018	$	346
2019	65
2020	40
2021	33
2022	29
2023 and thereafter	—
Total unconditional purchase commitments	$	513

Obligations to GF

As of December 30, 2017, the Company's minimum purchase obligations for wafer purchases for the years 2018 through 2020 are approximately $2.8 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 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 or server 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 30, 2017 and December 31, 2016 are as follows:

	December 30, 2017				December 31, 2016
	(In millions)
Beginning balance	$	12			$	15
New warranties issued during the period	25				21
Settlements during the period	(21		)		(19		)
Changes in liability for pre-existing warranties during the period, including expirations	(4		)		(5		)
Ending balance	$	12			$	12

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

Hatamian Securities Litigation

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. On September 4, 2015, plaintiffs filed their motion for class certification, and on March 16, 2016, the Court granted plaintiffs' motion. A court-ordered mediation held in January 2016 did not result in a settlement of the lawsuit. The discovery process was concluded. The plaintiffs and defendants filed cross-motions for summary judgment, and briefing on those motions was completed in July 2017. On October 9, 2017, the parties signed a definitive settlement agreement resolving this matter and submitted it to the Court for approval. Under the terms of this agreement, the settlement will be funded entirely by certain of the Company's insurance carriers and the defendants will continue to deny any liability or wrongdoing. The final settlement hearing is scheduled for February 27, 2018.

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 were stayed pending resolution of the Hatamian Lawsuit. On January 30, 2018, the Wessels and Hamilton plaintiffs amended their complaints. On February 2, 2018, the Ha plaintiff filed his amended complaint. On February 22, 2018, the Company filed motions to dismiss the Hamilton and Ha plaintiffs’ amended complaints.

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.

Dickey Litigation

On October 26, 2015, a putative class action complaint captioned Dickey et al. v. AMD, No. 15-cv-04922 was filed against the Company in the United States District Court for the Northern District of California. Plaintiffs allege that the Company misled consumers by using the term "eight cores" in connection with the marketing of certain AMD FX CPUs that are based on the Company's “Bulldozer” core architecture. The plaintiffs allege these products cannot perform eight calculations simultaneously, without restriction. The plaintiffs seek to obtain damages under several causes of action for a nationwide class of consumers who allegedly were deceived into purchasing certain Bulldozer-based CPUs that were marketed as containing eight cores. The plaintiffs also seek attorneys' fees. On December 21, 2015, the Company filed a motion to dismiss the complaint, which was granted on April 7, 2016. The plaintiffs then filed an amended complaint with a narrowed putative class definition, which the Court dismissed upon the Company's motion on October 31, 2016. The plaintiffs subsequently filed a second amended complaint, and the Company filed a motion to dismiss the second amended complaint. On June 14, 2017, the Court issued an order granting in part and denying in part the Company's motion to dismiss, and allowing the plaintiffs to move forward with a portion of their complaint. Discovery is underway. The putative class definition does not encompass the Company's RyzenTM or EPYCTM processors.

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.

Kim Securities Litigation

On January 16, 2018, a putative class action lawsuit captioned Kim et al. v. AMD, et al., Case No. 3:18-cv-00321 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 Sections 10(b) and 20(a) of the Exchange Act, and Rule 10b-5 of the Exchange Act. The plaintiff seeks to represent a proposed class of all persons who purchased or otherwise acquired the Company's common stock during the period February 21, 2017 through January 11, 2018. The complaint seeks damages allegedly caused by alleged materially misleading statements and/or material omissions by the Company and the individual officers regarding a security vulnerability (Spectre), which statements and omissions, the plaintiff claims, allegedly caused the Company's common stock price to be artificially inflated during the purported class period. The complaint seeks unspecified compensatory damages, attorneys’ fees and costs.

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.

Hauck Litigation

On January 19, 2018, a putative class action complaint captioned Diana Hauck et al. v. AMD, Inc., Case No. 5:18-cv-0047 was filed against the Company in the United States District Court for the Northern District of California. The plaintiff alleges that the Company misled consumers in connection with the marketing of AMD processors. Specifically, the plaintiff alleges that the Company's processors cannot perform at their advertised processing speeds without exposing consumers to the Spectre security vulnerability. The plaintiff seeks to obtain damages under several causes of action for a nationwide class of consumers who allegedly were misled into purchasing or leasing AMD processors (and devices containing AMD processors), as well as attorneys’ fees, punitive damages, and restitution.

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.

Speck Litigation

On February 4, 2018, a putative class action complaint captioned Brian Speck et al. v. AMD, Inc., Case No. 5:18-cv-0744 was filed against the Company in the United States District Court for the Northern District of California. The plaintiff alleges that the Company misled consumers in connection with the design and marketing of AMD processors. Specifically, the plaintiff alleges that the Company's processors are subject to the Spectre security vulnerability, and that any "patches" to remedy this security vulnerability will result in degradation of processor performance. The plaintiff seeks to obtain damages under several causes of action for a nationwide class of consumers and a subclass of Ohio residents who allegedly were misled into purchasing AMD processors (and devices containing AMD processors), as well as attorneys' fees, equitable relief, and restitution.

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.

Barnes and Caskey-Medina Litigation

On February 9, 2018, a putative class action complaint captioned Nathan Barnes and Jonathan Caskey-Medina, et al. v. AMD, Inc., Case No. 5:18-cv-00883, was filed against the Company in the United States District Court for the Northern District of California. The plaintiffs allege that the Company misled consumers in connection with the marketing of AMD processors. Specifically, the plaintiffs allege that the Company touted the speed and reliability of its processors even though these processors are subject to the Spectre security vulnerability. The plaintiffs seek to obtain damages under several causes of action for a nationwide class of consumers who allegedly were misled into purchasing or leasing AMD processors (and devices containing AMD processors), as well as attorneys' fees, equitable relief, and restitution.

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 $3 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 involved a reduction of global headcount by approximately 5% and included 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 were completed during the first quarter of 2017. The liabilities related to the 2015 Restructuring Plan recorded in Other current liabilities and Other long-term liabilities on the Company's consolidated balance sheets as of December 30, 2017 and December 31, 2016 were zero and $3 million, respectively.

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 liabilities related to the 2014 Restructuring Plan recorded in Other current liabilities and Other long-term liabilities on the Company's consolidated balance sheets as of December 30, 2017 and December 31, 2016 were zero and $4 million, respectively.

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.

NOTE 19: Impact to Reported Results of the Adoption of ASC 606, Revenue from Contracts with Customers

As discussed in Note 2, the Company elected to adopt ASC 606, using the full retrospective method, which requires retrospective application of the standard to prior reporting periods. The most significant impacts of the adoption of ASC 606 to the Company relate to (1) the acceleration of revenue recognition for sales of custom products subject to a non-cancellable customer purchase order, (2) the acceleration of revenue recognition for sales to distributors, and (3) the timing and financial statement classification of certain development and intellectual property licensing agreements.

Custom products which are associated with the Company’s Enterprise, Embedded, and Semi-Custom segment (semi-custom products), under non-cancellable purchases orders, which are manufactured to customers’ specifications, and cannot be re-sold to another customer, will be recognized as revenue, based on the value of the inventory and expected margin, over the time of production of the products by the Company, rather than upon shipment. Revenue from sales to the Company's distributors will be recognized as revenue upon shipment of the product to the distributors (sell-in), instead of the current revenue recognition upon reported resale of the product by the distributors to their customers (sell-through). For a development and intellectual property licensing agreement executed in 2017, the Company will recognize revenue for the entire consideration upon transfer of control of the intellectual property (IP) license to the customer in a future period. Previously, the agreement resulted in the reduction to research and development expenses in 2017 for development work as the expenses were incurred and would have resulted in licensing revenue to be recognized in periods beyond 2017 upon completion of the deliverables, based on a fair value allocation of the consideration received. Revenue recognition related to the Company’s other revenue streams will remain substantially unchanged.

The adoption of the new standard has an impact on the Company’s Consolidated Statements of Operations and Consolidated Balance Sheets, but has no impact on cash provided by or used in operating, financing, or investing activities on the Consolidated Statements of Cash Flows.

The impact on the Company’s 2017 and 2016 Consolidated Statement of Operations as a result of the adoption of the new standard is as follows:

	Year Ended
	December 30, 2017												December 31, 2016
	As reported				Adjustment				As adjusted				As reported				Adjustment				As adjusted
	(In millions, except per share amounts)
Net revenue (1)	$	5,329			$	(76	)		$	5,253			$	4,272			$	47			$	4,319
Cost of sales (1)	3,506				(40		)		3,466				3,274				42				3,316
Gross margin	1,823				(36		)		1,787				998				5				1,003
Research and development (2)	1,160				36				1,196				1,008				—				1,008
Marketing, general and administrative	511				5				516				460				6				466
Restructuring and other special charges, net	—				—				—				(10		)		—				(10		)
Licensing gain	(52		)		—				(52		)		(88		)		—				(88		)
Operating income (loss)	204				(77		)		127				(372		)		(1		)		(373		)
Interest expense	(126		)		—				(126		)		(156		)		—				(156		)
Other income (expense), net	(9		)		—				(9		)		80				—				80
Income (loss) before equity loss and income taxes	69				(77		)		(8		)		(448		)		(1		)		(449		)
Provision for income taxes	19				(1		)		18				39				—				39
Equity loss in investee	(7		)		—				(7		)		(10		)		—				(10		)
Net income (loss)	$	43			$	(76	)		$	(33	)		$	(497	)		$	(1	)		$	(498	)
Earnings (loss) per share
Basic	$	0.04			$	(0.07	)		$	(0.03	)		$	(0.60	)		$	—			$	(0.60	)
Diluted	$	0.04			$	(0.07	)		$	(0.03	)		$	(0.60	)		$	—			$	(0.60	)
Shares used in per share calculation
Basic	952								952				835								835
Diluted	1,039								952				835								835

(1)	2017 and 2016 revenue and cost of sales changes were due to a net drain (decrease in revenue) or net build (increase in revenue) in channel and semi-custom product inventories.

(2)	2017 Research and development expenses increased due to the absence of credits to research and development expenses recognized for a development and intellectual property licensing agreement under the “As reported” standard, which will be recognized as revenue for the entire consideration upon transfer of control of the IP license to the customer under the new standard.

The impact on the Company’s affected 2017 and 2016 Consolidated Balance Sheets line items, as a result of the adoption of the new standard is as follows:

	Year Ended
	December 30, 2017												December 31, 2016
	As reported				Adjustment				As adjusted				As reported				Adjustment				As adjusted
	(In millions)
Accounts receivable, net (1)	$	400			$	54			$	454			$	311			$	61			$	372
Inventories, net (2)	739				(45		)		694				751				(60		)		691
Other current assets	188				3				191				109				6				115
Accrued liabilities	541				14				555				391				9				400
Other current liabilities (3)	57				35				92				69				—				69
Deferred income on shipments to distributors (4)	22				(22		)		—				63				(63		)		—
Accumulated deficit	(7,760		)		(15		)		(7,775		)		(7,803		)		61				(7,742		)

(1)	2017 and 2016 Accounts receivable, net increased primarily due to the acceleration in timing of semi-custom product revenue.

(2)	2017 and 2016 Inventories, net decreased primarily due to the acceleration in timing of semi-custom product revenue.

(3)

2017 Other current liabilities adjusted primarily due to the absence of credits to research and development expenses recognized for a development and intellectual property licensing agreement under the “As reported” standard, which will be recognized as revenue for the entire consideration upon transfer of control of the IP license to the customer under the new standard. The credits are recorded as deferred revenue under the new standard.

(4)	2017 and 2016 deferred income on shipments to distributors is eliminated due to the change in the revenue recognition model for sales to distributors, whereby revenue is recognized upon the shipment of the product to the distributors (sell-in), instead of upon reported resale of the product by the distributors to their customers (sell-through).

The impact on the Company’s 2017 and 2016 net revenue and operating income (loss) by segments as a result of the adoption of the new standard is as follows:

	Year Ended
	December 30, 2017												December 31, 2016
	As reported				Adjustment				As adjusted				As reported				Adjustment				As adjusted
	(In millions)
Net revenue:
Computing and Graphics (1)	$	3,029			$	(52	)		$	2,977			$	1,967			$	21			$	1,988
Enterprise, Embedded and Semi-Custom (2)	2,300				(24		)		2,276				2,305				26				2,331
Total net revenue	$	5,329			$	(76	)		$	5,253			$	4,272			$	47			$	4,319
Operating income (loss):
Computing and Graphics (3)	$	147			$	(55	)		$	92			$	(238	)		$	(5	)		$	(243	)
Enterprise, Embedded and Semi-Custom (4)	154				(22		)		132				283				4				287
All Other	(97		)		—				(97		)		(417		)		—				(417		)
Total operating income (loss)	$	204			$	(77	)		$	127			$	(372	)		$	(1	)		$	(373	)

(1)	2017 and 2016 Computing and Graphics revenue changes were due to a net drain (decrease in revenue) or net build (increase in revenue) in channel inventory.

(2)	2017 and 2016 Enterprise, Embedded and Semi-Custom revenue changes were due to a net drain (decrease in revenue) or net build (increase in revenue) in semi-custom product inventory.

(3)

2017 Computing and Graphics operating income decreased primarily due to the lower revenue from sales to distributors. In addition, 2017 is lower due to the absence of credits to research and development expenses recognized for a development and intellectual property licensing agreement under the “As Reported” standard, which will be recognized as revenue for the entire consideration upon transfer of control of the IP license to the customer under the new standard. 2016 Computing and Graphics operating loss increased due to slightly higher operating expenses.

(4)

2017 Enterprise, Embedded and Semi-Custom operating income decreased primarily due to lower revenue from sales of semi-custom products. In addition, 2017 is lower due to the absence of credits to research and development expenses recognized for a certain development and intellectual property licensing agreement under the “As reported” standard, which will be recognized as revenue for the entire consideration upon transfer of control of the IP license to the customer under the new standard. 2016 Enterprise, Embedded and Semi-Custom operating income increased due to higher revenue from sales of semi-custom products.

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors of Advanced Micro Devices, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Advanced Micro Devices, Inc. (the Company) as of December 30, 2017 and December 31, 2016, the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity and cash flows for each of the three years in the period ended December 30, 2017, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 30, 2017 and December 31, 2016, and the results of its operations and its cash flows for each of the three years in the period ended December 30, 2017, in conformity with U.S. generally accepted accounting principles.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 30, 2017, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 27, 2018 expressed an unqualified opinion thereon.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 1970.

Redwood City, California

February 27, 2018

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors of Advanced Micro Devices, Inc.

Opinion on Internal Control over Financial Reporting

We have audited Advanced Micro Devices, Inc.’s internal control over financial reporting as of December 30, 2017, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Advanced Micro Devices, Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 30, 2017, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheets of the Company as of December 30, 2017 and December 31, 2016, the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity and cash flows for each of the three years in the period ended December 30, 2017, and the related notes and our report dated February 27, 2018 expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Ernst & Young LLP

Redwood City, California

February 27, 2018

Supplementary Financial Information (unaudited)

The Company uses a 52 or 53 week fiscal year ending on the last Saturday in December. All quarters of 2017 and 2016 except the fourth quarter of 2016 consisted of 13 weeks; the fourth quarter of 2016 consisted of 14 weeks.

	(In millions, except per share amounts)
	2017																2016
	Dec. 30				Sep. 30				July 1				April 1				Dec. 31				Sep. 24				Jun. 25				Mar. 26
Net revenue	$	1,480			$	1,643			$	1,222			$	984			$	1,106			$	1,307			$	1,027			$	832
Cost of sales(1)	965				1,070				818				653				755				1,248				708				563
Gross margin	515				573				404				331				351				59				319				269
Research and development	300				315				279				266				264				259				243				242
Marketing, general and administrative	133				132				125				121				121				117				117				105
Restructuring and other special charges (reversals), net	—				—				—				—				—				—				(7		)		(3		)
Licensing gain	—				—				(25		)		(27		)		(31		)		(24		)		(26		)		(7		)
Operating income (loss)	82				126				25				(29		)		(3		)		(293		)		(8		)		(68		)
Interest expense	(31		)		(31		)		(32		)		(32		)		(34		)		(41		)		(41		)		(40		)
Other income (expense), net(2)	2				(3		)		(3		)		(5		)		(7		)		(63		)		150				—
Income (loss) before income taxes	53				92				(10		)		(66		)		(44		)		(397		)		101				(108		)
Provision for income taxes	(8		)		19				3				5				5				4				29				1
Equity loss in investee	—				(2		)		(3		)		(2		)		(2		)		(5		)		(3		)		—
Net income (loss)	61				71				(16		)		(73		)		(51		)		(406		)		69				(109		)
Earnings (loss) per share
Basic	$	0.06			$	0.07			$	(0.02	)		$	(0.08	)		$	(0.06	)		$	(0.50	)		$	0.09			$	(0.14	)
Diluted	$	0.06			$	0.07			$	(0.02	)		$	(0.08	)		$	(0.06	)		$	(0.50	)		$	0.08			$	(0.14	)
Shares used in per share calculation
Basic	965				957				945				939				931				815				794				793
Diluted	1,037				1,042				945				939				931				815				821				793

(1)	During the third quarter of 2016, the Company recorded a charge of $340 million, consisting of the $100 million payment under the Sixth Amendment and the $240 million value of the warrant under the Warrant Agreement issued in consideration of the Sixth Amendment.

(2)

The Company recorded a pre-tax gain of $150 million on the sale of its 85% equity interest in ATMP JV during the second quarter of 2016. During the third quarter of 2016, as a result of certain purchase price adjustments, the Company recognized a charge of $4 million. During the fourth quarter of 2017, the Company recorded a $3 million pre-tax gain for final settlement related to the sale of 85% of the equity interest in ATMP facilities.