Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the consolidated financial statements as of December 29, 2018 and December 30, 2017 and for each of the three years in the period ended December 29, 2018 and related notes, which are included in this Annual Report on Form 10-K as well as with the other sections of this Annual Report on Form 10-K, including “Part I, Item 1: Business,” “Part II, Item 6: Selected Financial Data” and “Part II, Item 8: Financial Statements and Supplementary Data.”

Introduction

We are a global semiconductor company primarily offering:

•	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

•	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.

In this management’s discussion and analysis (MD&A), we will describe the results of operations and the financial condition for us and our consolidated subsidiaries, including a discussion of our results of operations for 2018 compared to 2017 and 2017 compared to 2016, an analysis of changes in our financial condition and a discussion of our contractual obligations and off balance sheet arrangements.

Overview

Our 2018 financial results demonstrate the success of our strong product roadmap execution. Customers continued to adopt our high performance products as new products accounted for over 65% of our annual 2018 revenue. Net revenue for 2018 was $6.5 billion, an increase of 23% compared to 2017 net revenue of $5.3 billion. Gross margin, as a percentage of net revenue for 2018, was 38%, a 4% increase compared to 34% in 2017. Our operating income for 2018 improved to $451 million compared to operating income of $127 million for 2017. Our net income for 2018 improved to $337 million compared to a net loss of $33 million in the prior year.

We significantly expanded our desktop processor offerings in 2018 with the launch of our second-generation AMD Ryzen and high-end AMD Ryzen Threadripper™ WX processors for gamers, creators and hardware enthusiasts. We announced the availability of our first desktop consumer and commercial Ryzen and Ryzen PRO APUs that combine our high-performance “Zen” CPU and Radeon “Vega” graphics cores into a single chip. We also introduced the first entry-level processors based on our “Zen” CPU and “Vega” GPU cores for the consumer and commercial desktop PC market with the AMD Athlon™ and AMD PRO processors. In the notebook market, multiple customers launched premium consumer and commercial PCs featuring our mobile AMD Ryzen APUs, including our first enterprise-class notebooks powered by our new AMD Ryzen PRO APUs. For the high-performance embedded markets, we introduced the AMD EPYC™ Embedded 3000 processor and AMD Ryzen Embedded V1000 processor families that bring new levels of computing and graphics performance to the thin client, digital signage, and infrastructure markets.

Cash, cash equivalents and marketable securities as of December 29, 2018 were $1.16 billion, down from $1.18 billion at the end of 2017. Principal amount of total debt as of December 29, 2018 was $1.53 billion, compared to $1.70 billion as of December 30, 2017.

We intend the discussion of our financial condition and results of operations that follows to provide information that will assist in understanding our financial statements, the changes in certain key items in those financial statements from period to period, the primary factors that resulted in those changes, and how certain accounting principles, policies and estimates affect our financial statements.

Critical Accounting Estimates

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP). The preparation of our financial statements requires us to make estimates and judgments that affect the reported amounts in our consolidated financial statements. We evaluate our estimates on an on-going basis, including those related to our revenue, inventories, goodwill impairments and income taxes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Although actual results have historically been reasonably consistent with

management’s expectations, the actual results may differ from these estimates or our estimates may be affected by different assumptions or conditions.

Management believes the following critical accounting estimates are the most significant to the presentation of our financial statements and require the most difficult, subjective and complex judgments.

Revenue recognition. In accordance with the adoption of the new revenue standard effective the beginning of the first quarter of 2018, we now recognize revenue upon the shipment of the product to our distributors (sell-in), rather than upon the resale of the product by our distributors to their customers (sell-through). Accordingly, we have established provisions for rights of return and price protection on unsold product held by our distributors.

Revenue Allowances. We record a provision for estimated sales returns and allowances on product sales for estimated future price reductions and other customer incentives in the same period that the related revenues are recorded. We base these estimates on actual historical sales returns, historical allowances, historical price reductions, market activity and other known or anticipated trends and factors. These estimates are subject to management’s judgment and actual provisions could be different from our estimates and current provisions, resulting in future adjustments to our revenue and operating results.

Inventory Valuation. At each balance sheet date, we evaluate our ending inventories for excess quantities and obsolescence based on projected sales outlook. This evaluation includes analysis of historical sales levels by product and projections of future demand. These projections assist us in determining the carrying value of our inventory. In addition, we write off inventories that we consider obsolete. We adjust the remaining specific inventory balances to approximate the lower of our standard manufacturing cost or net realizable value. Among other factors, management considers forecasted demand in relation to the inventory on hand, competitiveness of product offerings, market conditions and product life cycles when determining obsolescence and realizable value. If in any period we anticipate future demand or market conditions to be less favorable than our previous estimates, additional inventory write-downs may be required and would be reflected in cost of sales in the period the revision is made. This would have a negative impact on our gross margin in that period. If in any period we are able to sell inventories that were not valued or that had been written down in a previous period, related revenues would be recorded without any offsetting charge to cost of sales resulting in a net benefit to our gross margin in that period.

Goodwill. We perform our goodwill impairment analysis as of the first day of the fourth quarter of each year and, if certain events or circumstances indicate that an impairment loss may have been incurred, on a more frequent basis. The analysis may include both qualitative and quantitative factors to assess the likelihood of an impairment.

Qualitative factors include industry and market consideration, overall financial performance, share price trends and market capitalization and Company-specific events. We first analyze qualitative factors. If we conclude it is more likely than not that the fair value of a reporting unit exceeds its carrying amount, we do not proceed to perform a quantitative impairment test.

A quantitative impairment analysis, if necessary, considers the income approach, which requires estimates of the present value of expected future cash flows to determine a reporting unit’s fair value. Significant estimates include revenue growth rates and operating margins used to calculate projected future cash flows, discount rates, and future economic and market conditions. If we conclude 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.

Income Taxes. In determining taxable income for financial statement reporting purposes, we must make certain estimates and judgments. These estimates and judgments are applied in the calculation of certain tax liabilities and in the determination of the recoverability of deferred tax assets which arise from temporary differences between the recognition of assets and liabilities for tax and financial statement reporting purposes.

We must assess the likelihood that we will be able to recover our deferred tax assets. If recovery is not likely, we must increase our charge to income tax expense in the form of a valuation allowance for the deferred tax assets that we estimate will not ultimately be recoverable. We consider past performance, future expected taxable income and prudent and feasible tax planning strategies in determining the need for a valuation allowance.

In addition, the calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax rules and the potential for future adjustment of our uncertain tax positions by the Internal Revenue Service or other taxing authorities. If our estimates of these taxes are greater or less than actual results, an additional tax benefit or charge will result. We recognize the interest and penalties related to unrecognized tax benefits as interest expense and income tax expense, respectively.

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. The SEC staff issued Staff Accounting Bulletin No. 118 (SAB 118) to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Reform Act. More specifically, SAB 118 allowed companies to record provisional amounts during a measurement period that is similar to the measurement period used when accounting for business combinations. As a result, we have recognized the provisional tax impacts related to deemed repatriated earnings and the revaluation of deferred tax assets and liabilities in our consolidated financial statements for the year ended December 30, 2017. During 2018, we finalized our computation of the impact of the Tax Reform Act.

In January 2018, the FASB released guidance on the accounting for tax on the global intangible low-taxed income (GILTI) provisions of the Tax Reform Act. The GILTI provisions impose a tax on foreign income in excess of a deemed return on tangible assets of foreign corporations. The guidance allows companies to make an accounting policy election to either (i) account for GILTI as a component of tax expense in the period in which they are subject to the rules (the period cost method), or (ii) account for GILTI in the Company’s measurement of deferred taxes (the deferred method). After completing the analysis of the GILTI provisions, we elected to account for GILTI using the period cost method.

Results of Operations

We report our financial performance based on the following two reportable segments:the Computing and Graphics segment and the Enterprise, Embedded and Semi-Custom segment.

Additional information on our reportable segments is contained in Note 15: Segment Reporting of the Notes to Financial Statements (Part II, Item 8 of this Form 10-K).

Our operating results tend to vary seasonally. Historically, first quarter PC product sales were generally lower than fourth quarter sales and with respect to our semi-custom SoC products for game consoles our sales pattern usually reflects higher sales in the second and third quarters compared to the first and fourth quarters.

The following table provides a summary of net revenue and operating income (loss) by segment for 2018, 2017 and 2016.

	2018				2017				2016
	(In millions)
Net revenue:
Computing and Graphics	$	4,125			$	2,977			$	1,988
Enterprise, Embedded and Semi-Custom	2,350				2,276				2,331
Total net revenue	$	6,475			$	5,253			$	4,319
Operating income (loss):
Computing and Graphics	$	470			$	92			$	(243	)
Enterprise, Embedded and Semi-Custom	163				132				287
All Other	(182		)		(97		)		(417		)
Total operating income (loss)	$	451			$	127			$	(373	)

Computing and Graphics

Computing and Graphics net revenue of $4.1 billion in 2018 increased by 39%, compared to $3.0 billion in 2017, primarily as a result of a 15% increase in average selling price and a 17% increase in unit shipments. The increase in average selling price and unit shipments was primarily driven by higher demand for our Ryzen™ processors.

Computing and Graphics net revenue of $3.0 billion in 2017 increased by 50%, compared to $2.0 billion in 2016 as a result of a 38% increase in average selling price and a 1% increase in unit shipments. The increase in the average selling price was primarily driven by Ryzen desktop processor and Radeon graphics products sales. The increase in unit shipments was primarily attributable to higher demand for our Radeon graphics products.

Computing and Graphics operating income was $470 million in 2018 compared to operating income of $92 million in 2017. The improvement in operating income was primarily driven by higher demand for Ryzen and Radeon products as customers continued to adopt our new products, partially offset by a $195 million increase in operating expenses. Operating expenses increased for the reasons set forth under “Expenses” below.

Computing and Graphics operating income was $92 million in 2017, compared to an operating loss of $243 million in 2016. The improvement in operating results was primarily due to the increase in net revenue referenced above, partially offset by the related increase in cost of sales and operating expenses. Operating expenses increased for the reasons set forth under “Expenses” below.

Enterprise, Embedded and Semi-Custom

Enterprise, Embedded and Semi-Custom net revenue of $2.4 billion in 2018 increased by 3% compared to net revenue of $2.3 billion 2017. The increase in net revenue was primarily due to higher sales of our EPYC™ server products, partially offset by lower semi-custom revenue.

Enterprise, Embedded and Semi-Custom net revenue of $2.28 billion in 2017 decreased by 2% compared to net revenue of $2.33 billion in 2016. IP related revenue and sales of our EPYC datacenter processors, which were launched in June of 2017, were mostly offset by a decrease in non-recurring engineering (NRE) revenue and lower sales of our semi-custom SoC products.

Enterprise, Embedded and Semi-Custom operating income was $163 million in 2018 compared to operating income of $132 million in 2017. The improvement in operating income was due primarily to richer server and semi-custom product mix, partially offset by a $50 million increase in operating expenses and lower IP-related revenue. In 2017, operating income also included a licensing gain of $52 million. Operating expenses increased for the reasons set forth under “Expenses” below.

Enterprise, Embedded and Semi-Custom operating income was $132 million in 2017 compared to operating income of $287 million in 2016. The decline in operating results was primarily due to an increase in operating expenses driven primarily by datacenter-related expenses and lower licensing gain recorded in 2017 related to the licensed IP to the THATIC JV compared to 2016. Operating expenses increased for the reasons set forth under “Expenses” below.

All Other

All Other operating loss of $182 million in 2018 included stock-based compensation expense of $137 million and an impairment of technology licenses of $45 million.

All Other operating loss of $97 million in 2017 was related to stock-based compensation expense.

All Other operating loss of $417 million in 2016 included a charge of $340 million, which was comprised of the $100 million payment under the Sixth Amendment and the $240 million value of the warrant under the Warrant Agreement with WCH, and stock-based compensation expense of $86 million, partially offset by restructuring reversals of $10 million.

Comparison of Gross Margin, Expenses, Interest Expense, Other Income (Expense), Net Income Taxes and Equity Loss in Investee

The following is a summary of certain consolidated statement of operations data for 2018, 2017 and 2016:

	2018				2017				2016
	(In millions, except for percentages)
Cost of sales	$	4,028			$	3,466			$	3,316
Gross margin	2,447				1,787				1,003
Gross margin percentage	38		%		34		%		23		%
Research and development	1,434				1,196				1,008
Marketing, general and administrative	562				516				466
Restructuring and other special charges, net	—				—				(10		)
Licensing gain	—				(52		)		(88		)
Interest expense	(121		)		(126		)		(156		)
Other income (expense), net	—				(9		)		80
Provision (benefit) for income taxes	(9		)		18				39
Equity loss in investee	$	(2	)		$	(7	)		$	(10	)

Gross Margin

Gross margin as a percentage of net revenue was 38% in 2018 compared to 34% in 2017. The improvement in gross margin was primarily driven by the ramp of new products with higher gross margin than the corporate average.

Gross margin as a percentage of net revenue was 34% in 2017 compared to 23% in 2016. Gross margin improved in 2017 primarily due to the absence of the charge of $340 million recorded in 2016, comprised of a $100 million payment under the Sixth Amendment and the value of the warrant of $240 million under the Warrant Agreement, which accounted for eight gross margin percentage points. In addition, the increase in gross margin percentage for 2017 compared to 2016 was due to a favorable shift in product mix to new Radeon GPU and Ryzen desktop processor products in the Computing and Graphics segment.

Expenses

Research and Development Expenses

Research and development expenses of $1.4 billion in 2018 increased by $238 million, or 20%, compared to $1.2 billion in 2017. The increase was primarily driven by a $168 million increase in product engineering and design related costs attributable to both segments, and higher annual employee incentives driven by improved financial performance.

Research and development expenses of $1.2 billion in 2017 increased by $188 million, or 19%, compared to $1.0 billion in 2016. The increase was primarily due to a $136 million increase in product engineering and design related costs attributable to both segments, and higher annual employee incentives driven by improved financial performance.

Marketing, General and Administrative Expenses

Marketing, general and administrative expenses of $562 million in 2018 increased by $46 million, or 9%, compared to $516 million in 2017. The increase was primarily due to a $41 million increase in sales and marketing activities attributable to both segments and higher annual employee incentives driven by our improved financial performance.

Marketing, general and administrative expenses of $516 million in 2017 increased by $50 million, or 11%, compared to $466 million in 2016. The increase was primarily due to a $29 million increase in sales and marketing activities attributable to both segments and higher annual employee incentives driven by our improved financial performance.

Interest Expense

Interest expense of $121 million in 2018 decreased by $5 million compared to $126 million in 2017, primarily due to lower debt balances and lower weighted average interest rates.

Interest expense of $126 million in 2017 decreased by $30 million compared to $156 million in 2016, primarily due to lower weighted average interest rates and lower debt balances.

Other Income (Expense), Net

Other income (expense), net of zero in 2018 changed by $9 million compared to $9 million Other expense, net in 2017. The change from 2017 to 2018 was primarily due to $12 million higher interest income in 2018 mainly related to a withholding tax refund from a foreign jurisdiction.

Other expense, net of $9 million in 2017 changed by $89 million compared to $80 million Other income, net in 2016. The change from 2016 to 2017 was primarily due to the absence in 2017 of the substantial gain on sale of equity interests in ATMP JV that was partially offset by loss on debt redemption in 2016.

Provision (Benefit) For Income Taxes

We recorded an income tax benefit of $9 million in 2018 and an income tax provision of $18 million and $39 million in 2017 and 2016, respectively.

The income tax benefit in 2018 was primarily due to a $36 million refund of withholding tax from a foreign jurisdiction related to a legal settlement from 2010, offset by $13 million of U.S. income taxes resulting from the Tax Reform Act, $7 million tax provision in foreign locations and $7 million of withholding taxes on cross-border transactions.

The income tax provision in 2017 was primarily due to withholding taxes applicable to IP-related revenue and licensing gains from foreign locations.

The income tax provision in 2016 was primarily due to $41 million of foreign taxes in profitable locations including $27 million attributable to a gain on the sale of 85% of the ownership interest in the subsidiary operating a factory in Suzhou and $9 million of withholding taxes on cross-border transactions where no foreign tax credit is expected to be realizable, offset by $2 million of tax benefits for Canadian tax credits and the monetization of certain U.S. tax credits.

International Sales

International sales as a percentage of net revenue were 80% in 2018 and 74% in 2017. The increase in international sales as a percentage of net revenue in 2018 compared to 2017 was primarily driven by a higher proportion of revenue from China and Taiwan related to sales of our products within the Computing and Graphics segment.

International sales as a percentage of net revenue were 74% in 2017 and 79% in 2016. The decrease in international sales as a percentage of net revenue in 2017 compared to 2016 was primarily driven by a higher proportion of revenue from domestic sales of our desktop processors, graphics processors and semi-custom SoC products.

We expect that international sales will continue to be a significant portion of total sales in the foreseeable future. Substantially all of our sales transactions were denominated in U.S. dollars.

FINANCIAL CONDITION

Liquidity and Capital Resources

As of December 29, 2018, our cash, cash equivalents and marketable securities were $1.16 billion compared to $1.18 billion as of December 30, 2017. The percentage of cash and cash equivalents held domestically was 88% as of December 29, 2018, and 95% as of December 30, 2017. Our operating, investing and financing activities for fiscal 2018, 2017 and 2016 were as follows:

	2018				2017				2016
	(In millions)
Net cash provided by (used in):
Operating activities	$	34			$	12			$	81
Investing activities	(170		)		(54		)		277
Financing activities	28				(33		)		122
Net increase (decrease) in cash and cash equivalents, and restricted cash	$	(108	)		$	(75	)		$	480

Our aggregate principal debt obligations were $1.5 billion and $1.7 billion as of December 29, 2018 and December 30, 2017, respectively.

We believe our cash, cash equivalents and marketable securities balance along with our Secured Revolving Line of Credit will be sufficient to fund operations, including capital expenditures, over the next 12 months. We believe we will be able to access the capital markets should we require additional funds. However, we cannot assure that such funds will be available on favorable terms, or at all.

Operating Activities

Net cash provided by operating activities was $34 million in 2018 compared to net cash provided by operating activities of $12 million in 2017. The increase in net cash provided in operating activities was primarily due to changes in working capital, largely driven by higher cash collections from increased revenue, partially offset by higher labor costs and timing of accounts payable payments.

Net cash provided by operating activities was $12 million in 2017 compared to net cash provided by operating activities of $81 million in 2016. The decrease in cash inflows from operating activities was primarily due to higher operating costs including higher wafer purchases and higher labor costs, partially offset by higher cash collection primarily due to higher revenue and lower interest payments resulting from debt reductions.

Investing Activities

Net cash used in investing activities was $170 million in 2018, which primarily consisted of $163 million for purchases of property and equipment, a net cash outflow from purchases and maturities of available-for-sale debt securities partially offset by collection of deferred proceeds on sale of receivables.

Net cash used in investing activities was $54 million in 2017, which consisted primarily of a cash outflow of $113 million for purchases of property and equipment, partially offset by collection of deferred proceeds on sale of receivables.

Net cash provided by investing activities was $277 million in 2016, which primarily consisted of a net cash inflow of $342 million from sale of equity interests in the ATMP JV, partially offset by purchases of property and equipment .

Financing Activities

Net cash provided by financing activities was $28 million in 2018, which consisted of a net cash inflow of $69 million from the issuance of common stock through employee equity incentive plans, partially offset by the repurchase of an aggregate principal amount of $40 million of our outstanding 6.75% Senior Notes due 2019 (6.75% Notes) and 7.00% Senior Notes due 2024 (7.00% Notes) for $41 million in cash.

Net cash used in financing activities was $33 million in 2017, which primarily consisted of the repurchases of an aggregate principal amount of $103 million of our outstanding 6.75% Notes and 7.00% Notes for $110 million in cash and $13 million for tax withholding on the vesting of restricted stock, partially offset by the $70 million net proceeds from our Secured Revolving Line of Credit and the $20 million proceeds from issuance of common stock under stock-based compensation equity plans.

Net cash provided by financing activities was $122 million in 2016, which primarily consisted of the $782 million net proceeds from the issuance of our 2.125% Convertible Senior Notes due 2026 (2.125% Notes), the $667 million net proceeds from selling 115 million shares of our common stock and the $20 million proceeds from issuance of common stock under stock-based compensation equity plans, partially offset by the repurchases of an aggregate principal amount of $1.1 billion of our outstanding 6.75% Notes, 7.75% Senior Notes due 2020 (7.75% Notes), 7.50% Senior Notes due 2022 (7.50% Notes) and 7.00% Notes for $1.1 billion in cash and repayments in aggregate of $230 million of our Secured Revolving Line of Credit.

Contractual Obligations

The following table summarizes our consolidated principal contractual cash obligations, as of December 29, 2018, and is supplemented by the discussion following the table:

	Payment due by period
(In millions)	Total				2019				2020				2021				2022				2023				2024 and thereafter
Term Debt	$	1,458			$	66			$	—			$	—			$	337			$	—			$	1,055
Secured Revolving Line of Credit	70				70				—				—				—				—				—
Other long-term liabilities (1)	170				50				42				40				35				1				2
Aggregate interest obligation (2)	349				63				61				61				60				35				69
Operating leases	322				54				48				43				40				35				102
Purchase obligations (3)	337				287				29				15				4				2				—
Obligations to GF (4)	2,435				1,200				715				520				—				—				—
Total contractual obligations (5)	$	5,141			$	1,790			$	895			$	679			$	476			$	73			$	1,228

(1)	Amounts largely represent future fixed and non-cancellable cash payments associated with software technology and licenses and IP licenses, including the payments due within the next 12 months.

(2)	Represents estimated aggregate interest obligations for our outstanding debt obligations that are payable in cash, excluding non-cash amortization of debt issuance costs and debt discount.

(3)	We have purchase obligations for goods and services where payments are based, in part, on the volume or type of services we acquire. In those cases, we only included the minimum volume of purchase obligations in the table above. Purchase orders for goods and services that are cancellable upon notice and without significant penalties are not included in the amounts above.

(4)

Subsequent to the year end, on January 28, 2019, we entered into a Seventh Amendment with GF, which among other terms modified our minimum wafer purchase obligations to GF which are reflected in the above table. These minimum purchase obligations are our contractual minimums and do not necessarily reflect our actual expected expenditures, which could be significantly different. We cannot meaningfully quantify or estimate our future purchase obligations to GF beyond 2021 but expect that our future purchases from GF will continue to be material.

(5)	Total amount excludes contractual obligations already recorded on our condensed consolidated balance sheets except for debt obligations and other liabilities related to software and technology licenses and IP licenses.

Senior Notes

6.75% Senior Notes Due 2019

On February 26, 2014, we issued $600 million of our 6.75% Notes. Our 6.75% Notes are our general unsecured senior obligations. Interest is payable on March 1 and September 1 of each year beginning September 1, 2014 until the maturity date of March 1, 2019. Our 6.75% Notes are governed by the terms of an indenture (the 6.75% Indenture) dated February 26, 2014 between us and Wells Fargo Bank, N.A., as trustee.

At any time before March 1, 2019, we may redeem some or all of our 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).

In 2016, we repurchased $404 million in aggregate principal amount of our 6.75% Notes pursuant to a partial tender offer for $442 million. In 2017, we settled $30 million in aggregate principal amount of our 6.75% Notes, of which $26 million was settled in cash and $5 million was settled in treasury stock. During 2018, we settled $101 million in aggregate principal amount of our 6.75% Notes, of which $14 million was settled in cash and $87 million was settled in treasury stock. As of December 29, 2018, the outstanding aggregate principal amount of our 6.75% Notes was $66 million.

See Note 13 of “Notes to Consolidated Financial Statements” below, for additional information regarding our 6.75% Notes.

7.50% Senior Notes Due 2022

On August 15, 2012, we issued $500 million of our 7.50% Notes. Our 7.50% Notes are our general unsecured senior obligations. 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 us and Wells Fargo Bank, N.A., as trustee.

Prior to August 15, 2022, we may redeem some or all of our 7.50% 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 7.50% Indenture).

In 2014, we repurchased $25 million in aggregate principal amount of our 7.50% Notes. In 2016, we repurchased $125 million in aggregate principal amount of our 7.50% Notes. In 2017, we settled $3 million in aggregate principal amount of our 7.50% Notes in treasury stock. During 2018, we settled $10 million in aggregate principal amount of our 7.50% Notes in treasury stock. As of December 29, 2018, the outstanding aggregate principal amount of our 7.50% Notes was $337 million.

See Note 13 of “Notes to Consolidated Financial Statements” below, for additional information regarding our 7.50% Notes.

7.00% Senior Notes Due 2024

On June 16, 2014, we issued $500 million of our 7.00% Notes. The 7.00% Notes are our general unsecured senior obligations. 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 us and Wells Fargo Bank, N.A., as trustee.

Prior to July 1, 2019, we 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, we may redeem our 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%

In 2016, we settled $84 million in aggregate principal amount of our 7.00% Notes for $77 million in cash and $8 million with treasury stock. In 2017, we settled $105 million in aggregate principal amount of our 7.00% Notes for $84 million in cash and $26 million in treasury stock. During 2018, we settled $61 million in aggregate principal amount of our 7.00% Notes for $26 million in cash and $35 million in treasury stock. As of December 29, 2018, the outstanding aggregate principal amount of the 7.00% Notes was $250 million.

See Note 13 of “Notes to Consolidated Financial Statements” below, for additional information regarding our 7.00% Notes.

During 2018, we recorded $12 million in losses on extinguishment of debt associated with the debt repurchases noted above.

2.125% Convertible Senior Notes Due 2026

On September 14, 2016, we issued $700 million in aggregate principal amount of our 2.125% Notes. We also granted an option to the underwriters to purchase up to an additional $105 million aggregate principal amount of our 2.125% Notes. On September 28, 2016, this option was exercised in full and we issued an additional $105 million aggregate principal amount of our 2.125% Notes.

Our 2.125% Notes are our general unsecured senior obligations 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. Our 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 us 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 our 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 10 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 our 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, we will pay or deliver, as the case may be, cash, shares of our common stock or a combination of cash and shares of our common stock, at our election.

During the fourth quarter of 2018, the conversion conditions were satisfied and as a result, the 2.125% Notes are eligible for conversion during the first calendar quarter of 2019. We 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, we 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 we undergo a fundamental change prior to the maturity date of the notes, holders may require us 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.

As of December 29, 2018, the outstanding aggregate principal amount of our 2.125% Notes was $805 million. See Note 13 of “Notes to Consolidated Financial Statements” below for additional information regarding our 2.125% Notes.

Potential Repurchase of Outstanding Notes

We may elect to purchase or otherwise retire all or a portion of our 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 we believe the market conditions are favorable to do so.

Secured Revolving Line of Credit

On April 14, 2015, we and our subsidiary, AMD International Sales & Service, Ltd. (together, the Borrowers), ATI Technologies ULC (collectively with the Borrowers, the Loan Parties), a group of lenders and Bank of America N.A., acting as the agent for the lenders, entered into an amended and restated loan and security agreement, as amended (the Agreement). The Agreement provides for a secured revolving line of credit (the Secured Revolving Line of Credit) that allows the Borrowers to borrow, repay and re-borrow amounts from time to time up to $500 million with up to $45 million available for issuance of letters of credit, subject to certain conditions. Borrowings are limited up to a certain amount of eligible accounts receivable, as determined in accordance with the Agreement. The size of the commitment under the Secured Revolving Line of Credit may be increased by up to an aggregate amount of $200 million. The commitments under the Secured Revolving Line of Credit are available through

March 21, 2022. The Borrowers are subject to commitment fees and letter of credit facility fees. The Loan Parties are required to comply with certain covenants under the Agreement.

The Secured Revolving Line of Credit bears interest, at the option of the Borrowers, either at (a) a customary London Interbank Offered Rate (LIBOR) plus an applicable margin (as determined in accordance with the agreement), or (b) (i) the greatest of (x) the bank’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) an applicable margin.

As of December 29, 2018 and December 30, 2017, the Secured Revolving Line of Credit had an outstanding loan balance of $70 million at an interest rate of 6.00% and 4.75%. respectively. As of December 31, 2016, we had repaid an aggregate of $230 million of the Secured Revolving Line of Credit and we had no borrowings outstanding. As of December 29, 2018, the Secured Revolving Line of Credit had $26 million related to outstanding letters of credit and up to $175 million available for future borrowings. We report intra-period changes in revolving credit balance on a net basis in our condensed consolidated statement of cash flows as we intend the period of the borrowings to be brief, repaying borrowed amounts within 90 days. As of December 29, 2018, we were in compliance with all required covenants stated in the Loan Agreement.

The agreements governing our 6.75% Notes, 7.50% Notes, 7.00% Notes, 2.125% Notes and our 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.

Operating Leases

We lease certain of our facilities and in some jurisdictions we lease the land on which our facilities are built under non-cancellable lease agreements that expire at various dates through 2028. In addition, we lease certain office equipment for terms ranging from one to five years. Total future non-cancellable lease obligations as of December 29, 2018 were $322 million, including $259 million of future lease payments related to leases in Austin, Texas, Santa Clara, California, Markham, Canada, Singapore and Shanghai, China.

During the second quarter of 2018, we entered into a 10-year operating lease to occupy approximately 270,000 square feet of office space in Shanghai, China. Base rent payments commenced in October 2018 and the total estimated base rent payments over the life of the lease are approximately $72 million. As of December 29, 2018, the total estimate of future base rent over the life of the lease is approximately $68 million. In addition to the base rent payments, we are obligated to pay certain customary amounts for our share of operating expenses and tax obligations. We will also incur costs for capital projects for the new office space.

During the third quarter of 2016, we 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 29, 2018, the total estimate of future base rent over the life of the lease is approximately $94 million, included in amounts above. In addition to the base rent payments, we will be obligated to pay certain customary amounts for our share of operating expenses and tax obligation. We will also incur costs for capital projects on the new office space. We have the option to extend the term of the lease for two additional five-year periods.

Off-Balance Sheet Arrangements

As of December 29, 2018, we had no off-balance sheet arrangements.