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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
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¨
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
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Delaware
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94-1692300
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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2485 Augustine Drive
Santa Clara, California
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95054
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(Address of principal executive offices)
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(Zip Code)
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Large accelerated filer
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þ
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Accelerated filer
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¨
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Non-accelerated filer
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¨
(Do not check if a smaller reporting company)
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Smaller reporting company
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¨
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Emerging growth company
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¨
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Page No.
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ITEM 1.
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FINANCIAL STATEMENTS
|
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Three Months Ended
|
||||||
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March 31,
2018 |
|
April 1,
2017 |
||||
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(In millions, except per share amounts)
|
||||||
Net revenue
|
$
|
1,647
|
|
|
$
|
1,178
|
|
Cost of sales
|
1,050
|
|
|
800
|
|
||
Gross margin
|
597
|
|
|
378
|
|
||
Research and development
|
343
|
|
|
271
|
|
||
Marketing, general and administrative
|
134
|
|
|
123
|
|
||
Licensing gain
|
—
|
|
|
(27
|
)
|
||
Operating income
|
120
|
|
|
11
|
|
||
Interest expense
|
(31
|
)
|
|
(32
|
)
|
||
Other income (expense), net
|
1
|
|
|
(5
|
)
|
||
Income (loss) before equity loss and income taxes
|
90
|
|
|
(26
|
)
|
||
Provision for income taxes
|
8
|
|
|
5
|
|
||
Equity loss in investee
|
(1
|
)
|
|
(2
|
)
|
||
Net income (loss)
|
$
|
81
|
|
|
$
|
(33
|
)
|
Earnings (loss) per share
|
|
|
|
||||
Basic
|
$
|
0.08
|
|
|
$
|
(0.04
|
)
|
Diluted
|
$
|
0.08
|
|
|
$
|
(0.04
|
)
|
Shares used in per share calculation
|
|
|
|
||||
Basic
|
968
|
|
|
939
|
|
||
Diluted
|
1,039
|
|
|
939
|
|
(1)
Prior year amounts adjusted to reflect the retrospective application of ASU 2014-09, Revenue from Contracts with Customers. Refer to Note 1.
|
|
Three Months Ended
|
||||||
|
March 31,
2018 |
|
April 1,
2017 |
||||
|
(In millions)
|
||||||
Net income (loss)
(1)
|
$
|
81
|
|
|
$
|
(33
|
)
|
Other comprehensive income, net of tax:
|
|
|
|
||||
Unrealized gains (losses) on cash flow hedges:
|
|
|
|
||||
Unrealized gains arising during the period
|
1
|
|
|
2
|
|
||
Reclassification adjustment for (gains) losses realized and included in net income (loss)
|
(4
|
)
|
|
(1
|
)
|
||
Total change in unrealized gains on cash flow hedges
|
(3
|
)
|
|
1
|
|
||
Total other comprehensive income
|
(3
|
)
|
|
1
|
|
||
Cumulative-effect adjustment to accumulated deficit related to the adoption of ASU 2016-01
|
2
|
|
|
—
|
|
||
Total comprehensive income (loss)
|
$
|
80
|
|
|
$
|
(32
|
)
|
(1)
Prior year amounts adjusted to reflect the retrospective application of ASU 2014-09, Revenue from Contracts with Customers. Refer to Note 1.
|
|
March 31,
2018 |
|
December 30,
2017 |
||||
|
(In millions, except par value amounts)
|
||||||
ASSETS
|
|
|
|
||||
Current assets:
|
|
|
|
||||
Cash and cash equivalents
|
$
|
1,045
|
|
|
$
|
1,185
|
|
Accounts receivable, net
|
738
|
|
|
454
|
|
||
Inventories, net
|
715
|
|
|
694
|
|
||
Prepayment and other receivables - related parties
|
18
|
|
|
33
|
|
||
Prepaid expenses
|
67
|
|
|
77
|
|
||
Other current assets
|
168
|
|
|
191
|
|
||
Total current assets
|
2,751
|
|
|
2,634
|
|
||
Property, plant and equipment, net
|
290
|
|
|
261
|
|
||
Goodwill
|
289
|
|
|
289
|
|
||
Investment: equity method
|
57
|
|
|
58
|
|
||
Other assets
|
376
|
|
|
310
|
|
||
Total assets
|
$
|
3,763
|
|
|
$
|
3,552
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
||||
Current liabilities:
|
|
|
|
||||
Short-term debt, net
|
$
|
223
|
|
|
$
|
70
|
|
Accounts payable
|
456
|
|
|
384
|
|
||
Payables to related parties
|
374
|
|
|
412
|
|
||
Accrued liabilities
|
485
|
|
|
555
|
|
||
Other current liabilities
|
159
|
|
|
92
|
|
||
Total current liabilities
|
1,697
|
|
|
1,513
|
|
||
Long-term debt, net
|
1,165
|
|
|
1,325
|
|
||
Other long-term liabilities
|
186
|
|
|
118
|
|
||
Commitments and contingencies (See Note 12)
|
|
|
|
||||
Stockholders’ equity:
|
|
|
|
||||
Capital stock:
|
|
|
|
||||
Common stock, par value $0.01; 1,500 shares authorized on March 31, 2018 and December 30, 2017; shares issued: 981 on March 31, 2018 and 979 shares on December 30, 2017; shares outstanding: 969 on March 31, 2018 and 967 shares on December 30, 2017
|
10
|
|
|
9
|
|
||
Additional paid-in capital
|
8,502
|
|
|
8,464
|
|
||
Treasury stock, at cost (12 shares on March 31, 2018 and December 30, 2017)
|
(108
|
)
|
|
(108
|
)
|
||
Accumulated deficit
|
(7,692
|
)
|
|
(7,775
|
)
|
||
Accumulated other comprehensive income
|
3
|
|
|
6
|
|
||
Total stockholders’ equity
|
715
|
|
|
596
|
|
||
Total liabilities and stockholders’ equity
|
$
|
3,763
|
|
|
$
|
3,552
|
|
(1)
Prior year amounts adjusted to reflect the retrospective application of ASU 2014-09, Revenue from Contracts with Customers. Refer to Note 1.
|
|
Three Months Ended
|
||||||
|
March 31,
2018 |
|
April 1,
2017 |
||||
|
(In millions)
|
||||||
Cash flows from operating activities:
|
|
|
|
||||
Net income (loss)
|
$
|
81
|
|
|
$
|
(33
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
||||
Depreciation and amortization
|
44
|
|
|
34
|
|
||
Stock-based compensation expense
|
32
|
|
|
23
|
|
||
Amortization of debt discount and issuance costs
|
10
|
|
|
9
|
|
||
Loss on debt redemption
|
1
|
|
|
4
|
|
||
Other
|
1
|
|
|
5
|
|
||
Changes in operating assets and liabilities:
|
|
|
|
||||
Accounts receivable
|
(284
|
)
|
|
(395
|
)
|
||
Inventories
|
(21
|
)
|
|
76
|
|
||
Prepayment and other receivables - related parties
|
15
|
|
|
1
|
|
||
Prepaid expenses and other assets
|
34
|
|
|
(29
|
)
|
||
Payables to related parties
|
(38
|
)
|
|
(54
|
)
|
||
Accounts payable, accrued liabilities and other
|
39
|
|
|
60
|
|
||
Net cash used in operating activities
|
(86
|
)
|
|
(299
|
)
|
||
Cash flows from investing activities:
|
|
|
|
||||
Purchases of property, plant and equipment
|
(46
|
)
|
|
(23
|
)
|
||
Purchases of available-for-sale securities
|
—
|
|
|
(221
|
)
|
||
Other
|
—
|
|
|
(2
|
)
|
||
Net cash used in investing activities
|
(46
|
)
|
|
(246
|
)
|
||
Cash flows from financing activities:
|
|
|
|
||||
Proceeds from issuance of common stock under stock-based compensation equity plans
|
6
|
|
|
8
|
|
||
Repayments of long-term debt
|
(14
|
)
|
|
—
|
|
||
Other
|
—
|
|
|
(5
|
)
|
||
Net cash provided by (used in) financing activities
|
(8
|
)
|
|
3
|
|
||
Net decrease in cash, cash equivalents, and restricted cash
|
(140
|
)
|
|
(542
|
)
|
||
Cash, cash equivalents, and restricted cash at beginning of period
|
1,191
|
|
|
1,266
|
|
||
Cash, cash equivalents, and restricted cash at end of period
|
$
|
1,051
|
|
|
$
|
724
|
|
Supplemental cash flow information:
|
|
|
|
||||
Non-cash investing and financing activities:
|
|
|
|
||||
Purchases of property, plant and equipment, accrued but not paid
|
$
|
47
|
|
|
$
|
11
|
|
Issuance of common stock to partially settle long-term debt
|
$
|
—
|
|
|
$
|
38
|
|
Reconciliation of cash, cash equivalents and restricted cash
|
|
|
|
||||
Cash and cash equivalents
|
$
|
1,045
|
|
|
$
|
722
|
|
Restricted cash included in Other current assets
|
3
|
|
|
2
|
|
||
Restricted cash included in Other assets
|
3
|
|
|
—
|
|
||
Total cash, cash equivalents and restricted cash
|
$
|
1,051
|
|
|
$
|
724
|
|
(1)
Prior year amounts adjusted to reflect the retrospective application of ASU 2014-09, Revenue from Contracts with Customers. Refer to Note 1.
|
(2)
Amounts reflected adoption of ASU 2016-18, Statement of Cash Flows, Restricted Cash (Topic 230) beginning in the first quarter of 2018.
|
|
Three months ended April 1, 2017
|
||||||||||
|
As Previously Reported
|
|
Adjustment
|
|
As Adjusted
|
||||||
|
(In millions, except per share amounts)
|
||||||||||
Net revenue
|
$
|
984
|
|
|
$
|
194
|
|
|
$
|
1,178
|
|
Cost of sales
|
653
|
|
|
147
|
|
|
800
|
|
|||
Gross margin
|
331
|
|
|
47
|
|
|
378
|
|
|||
Research and development
|
266
|
|
|
5
|
|
|
271
|
|
|||
Marketing, general and administrative
|
121
|
|
|
2
|
|
|
123
|
|
|||
Licensing gain
|
(27
|
)
|
|
—
|
|
|
(27
|
)
|
|||
Operating income (loss)
|
(29
|
)
|
|
40
|
|
|
11
|
|
|||
Interest expense
|
(32
|
)
|
|
—
|
|
|
(32
|
)
|
|||
Other income (expense), net
|
(5
|
)
|
|
—
|
|
|
(5
|
)
|
|||
Income (loss) before equity loss and income taxes
|
(66
|
)
|
|
40
|
|
|
(26
|
)
|
|||
Provision for income taxes
|
5
|
|
|
—
|
|
|
5
|
|
|||
Equity loss in investee
|
(2
|
)
|
|
—
|
|
|
(2
|
)
|
|||
Net income (loss)
|
$
|
(73
|
)
|
|
$
|
40
|
|
|
$
|
(33
|
)
|
Earnings (loss) per share
|
|
|
|
|
|
||||||
Basic
|
$
|
(0.08
|
)
|
|
$
|
0.04
|
|
|
$
|
(0.04
|
)
|
Diluted
|
$
|
(0.08
|
)
|
|
$
|
0.04
|
|
|
$
|
(0.04
|
)
|
Shares used in per share calculation
|
|
|
|
|
|
||||||
Basic
|
939
|
|
|
|
|
|
939
|
|
|||
Diluted
|
939
|
|
|
|
|
|
939
|
|
|
December 30, 2017
|
||||||||||
|
As Previously Reported
|
|
Adjustment
|
|
As Adjusted
|
||||||
|
(In millions, except per share amounts)
|
||||||||||
Accounts receivable, net
|
$
|
400
|
|
|
$
|
54
|
|
|
$
|
454
|
|
Inventories, net
|
739
|
|
|
(45
|
)
|
|
694
|
|
|||
Other current assets
|
188
|
|
|
3
|
|
|
191
|
|
|||
Accrued liabilities
|
541
|
|
|
14
|
|
|
555
|
|
|||
Other current liabilities
|
57
|
|
|
35
|
|
|
92
|
|
|||
Deferred income on shipments to distributors
|
22
|
|
|
(22
|
)
|
|
—
|
|
|||
Accumulated deficit
|
$
|
(7,760
|
)
|
|
$
|
(15
|
)
|
|
$
|
(7,775
|
)
|
|
March 31,
2018 |
|
December 30,
2017 |
||||
|
(In millions)
|
||||||
Raw materials
|
$
|
69
|
|
|
$
|
34
|
|
Work in process
|
520
|
|
|
446
|
|
||
Finished goods
|
126
|
|
|
214
|
|
||
Total inventories, net
|
$
|
715
|
|
|
$
|
694
|
|
|
March 31,
2018 |
|
December 30,
2017 |
||||
|
(In millions)
|
||||||
Leasehold improvements
|
$
|
173
|
|
|
$
|
187
|
|
Equipment
|
747
|
|
|
758
|
|
||
Construction in progress
|
64
|
|
|
56
|
|
||
Property, plant and equipment, gross
|
984
|
|
|
1,001
|
|
||
Accumulated depreciation
|
(694
|
)
|
|
(740
|
)
|
||
Total property, plant and equipment, net
|
$
|
290
|
|
|
$
|
261
|
|
|
March 31,
2018 |
|
December 30,
2017 |
||||
|
(In millions)
|
||||||
Software technology and licenses, net
|
$
|
308
|
|
|
$
|
239
|
|
Other
|
68
|
|
|
71
|
|
||
Total other assets
|
$
|
376
|
|
|
$
|
310
|
|
|
March 31,
2018 |
|
December 30,
2017 |
||||
|
(In millions)
|
||||||
Accrued compensation and benefits
|
$
|
129
|
|
|
$
|
206
|
|
Marketing programs and advertising expenses
|
153
|
|
|
145
|
|
||
Software technology and licenses payable
|
54
|
|
|
41
|
|
||
Other
|
149
|
|
|
163
|
|
||
Total accrued liabilities
|
$
|
485
|
|
|
$
|
555
|
|
|
March 31,
2018 |
|
December 30,
2017 |
||||
|
(In millions)
|
||||||
Unearned revenue
|
$
|
147
|
|
|
$
|
85
|
|
Other
|
12
|
|
|
7
|
|
||
Total other current liabilities
|
$
|
159
|
|
|
$
|
92
|
|
|
March 31,
2018 |
|
April 1,
2017 |
||||
|
(In millions)
|
||||||
Beginning balance
|
$
|
85
|
|
|
$
|
22
|
|
Unearned revenue
|
86
|
|
|
27
|
|
||
Revenue recognized during the period
|
(24
|
)
|
|
(5
|
)
|
||
Ending balance
|
$
|
147
|
|
|
$
|
44
|
|
|
March 31,
2018 |
|
December 30,
2017 |
||||
|
(In millions)
|
||||||
Principal amounts:
|
|
|
|
||||
Principal
|
$
|
805
|
|
|
$
|
805
|
|
Unamortized debt discount
(1)
|
(280
|
)
|
|
(286
|
)
|
||
Unamortized debt issuance costs
|
(12
|
)
|
|
(12
|
)
|
||
Net carrying amount
|
$
|
513
|
|
|
$
|
507
|
|
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
of equity issuance costs.
|
|
Three Months Ended
|
||||||
|
March 31,
2018 |
|
April 1,
2017 |
||||
|
(In millions)
|
||||||
Contractual interest expense
|
$
|
4
|
|
|
$
|
4
|
|
Interest cost related to amortization of debt issuance costs
|
—
|
|
|
1
|
|
||
Interest cost related to amortization of the debt discount
|
$
|
6
|
|
|
$
|
6
|
|
|
Three Months Ended
|
||||||
|
March 31,
2018 |
|
April 1,
2017 |
||||
|
(In millions, except per share amounts)
|
||||||
Numerator – Net income (loss):
|
|
|
|
||||
Numerator for basic and diluted earnings (loss) per share
|
$
|
81
|
|
|
$
|
(33
|
)
|
Denominator - Weighted average shares
|
|
|
|
||||
Denominator for basic earnings (loss) per share
|
968
|
|
|
939
|
|
||
Effect of potentially dilutive shares:
|
|
|
|
||||
Employee stock options and restricted stock units
|
34
|
|
|
—
|
|
||
Warrants
|
37
|
|
|
—
|
|
||
Denominator for diluted earnings (loss) per share
|
1,039
|
|
|
939
|
|
||
Earnings (loss) per share:
|
|
|
|
||||
Basic
|
$
|
0.08
|
|
|
$
|
(0.04
|
)
|
Diluted
|
$
|
0.08
|
|
|
$
|
(0.04
|
)
|
|
March 31,
2018 |
|
December 30,
2017 |
||||
|
(In millions)
|
||||||
Cash
|
$
|
113
|
|
|
$
|
108
|
|
Level 1
(1) (2)
|
|
|
|
||||
Government money market funds
|
$
|
45
|
|
|
$
|
395
|
|
Total level 1
|
$
|
45
|
|
|
$
|
395
|
|
Level 2
(1) (3)
|
|
|
|
||||
Commercial paper
|
$
|
887
|
|
|
$
|
682
|
|
Total level 2
|
$
|
887
|
|
|
$
|
682
|
|
Total
|
$
|
1,045
|
|
|
$
|
1,185
|
|
(1)
|
The Company did not have any transfers between Level 1 and Level 2 of the fair value hierarchy during the
quarter ended March 31, 2018
or the year ended
December 30, 2017
.
|
(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.
|
|
March 31, 2018
|
|
December 30, 2017
|
||||||||||||
|
Carrying
Amount
|
|
Estimated
Fair Value
|
|
Carrying
Amount
|
|
Estimated
Fair Value
|
||||||||
|
(In millions)
|
||||||||||||||
Short-term debt
|
$
|
223
|
|
|
$
|
229
|
|
|
$
|
70
|
|
|
$
|
70
|
|
Long-term debt, net
(1)
|
$
|
1,164
|
|
|
$
|
1,889
|
|
|
$
|
1,324
|
|
|
$
|
2,103
|
|
(1)
|
Carrying amounts of long-term debt are net of unamortized debt issuance costs of
$19 million
as of
March 31, 2018
and net of unamortized debt discount associated with the
2.125%
Notes of
$280 million
as of
March 31, 2018
and
$286 million
as of
December 30, 2017
.
|
|
Three Months Ended
|
||||||
|
March 31,
2018 |
|
April 1,
2017 |
||||
|
(In millions)
|
||||||
Foreign Currency Forward Contracts - gains (losses)
|
|
|
|
||||
Contracts designated as cash flow hedging instruments
|
|
|
|
||||
Other comprehensive income (loss)
|
$
|
(3
|
)
|
|
$
|
2
|
|
Research and development
|
3
|
|
|
1
|
|
||
Marketing, general and administrative
|
1
|
|
|
—
|
|
||
Contracts not designated as hedging instruments
|
|
|
|
||||
Other income (expense), net
|
$
|
(2
|
)
|
|
$
|
—
|
|
|
March 31,
2018 |
|
December 30,
2017 |
||||
|
(In millions)
|
||||||
Foreign Currency Forward Contracts - gains (losses)
|
|
|
|
||||
Contracts designated as cash flow hedging instruments
|
$
|
5
|
|
|
$
|
7
|
|
•
|
the Computing and Graphics segment, which primarily includes desktop and notebook processors and chipsets, discrete and integrated graphics processing units (GPUs), professional GPUs. The Company also licenses 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. The Company also licenses portions of its IP portfolio.
|
|
Three Months Ended
|
||||||
|
March 31,
2018 |
|
April 1,
2017 |
||||
|
(In millions)
|
||||||
Net revenue:
|
|
|
|
||||
Computing and Graphics
|
$
|
1,115
|
|
|
$
|
573
|
|
Enterprise, Embedded and Semi-Custom
|
532
|
|
|
605
|
|
||
Total net revenue
|
$
|
1,647
|
|
|
$
|
1,178
|
|
Operating income (loss):
|
|
|
|
||||
Computing and Graphics
|
$
|
138
|
|
|
$
|
(21
|
)
|
Enterprise, Embedded and Semi-Custom
|
14
|
|
|
55
|
|
||
All Other
(1)
|
(32
|
)
|
|
(23
|
)
|
||
Total operating income
|
$
|
120
|
|
|
$
|
11
|
|
|
Three Months Ended
|
|
|
March 31,
2018 |
|
Expected volatility
|
51.51% - 53.74%
|
|
Risk-free interest rate
|
2.20% - 2.41%
|
|
Expected dividends
|
0.00
|
%
|
Expected life
|
3.92 years
|
|
|
Three Months Ended
|
||||||
|
March 31,
2018 |
|
April 1,
2017 |
||||
|
(In millions)
|
||||||
Beginning balance
|
$
|
12
|
|
|
$
|
12
|
|
New warranties issued
|
7
|
|
|
5
|
|
||
Settlements
|
(8
|
)
|
|
(5
|
)
|
||
Changes in liability for pre-existing warranties, including expirations
|
1
|
|
|
(2
|
)
|
||
Ending balance
|
$
|
12
|
|
|
$
|
10
|
|
|
Three Months Ended
|
||||||||||||||||||||||
|
March 31,
2018 |
|
April 1,
2017 |
||||||||||||||||||||
|
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
|
$
|
—
|
|
|
$
|
6
|
|
|
$
|
6
|
|
|
$
|
(1
|
)
|
|
$
|
(4
|
)
|
|
$
|
(5
|
)
|
Unrealized gains arising during the period
|
—
|
|
|
1
|
|
|
1
|
|
|
—
|
|
|
3
|
|
|
3
|
|
||||||
Reclassification adjustment for (gains) losses realized and included in net income (loss)
|
—
|
|
|
(4
|
)
|
|
(4
|
)
|
|
—
|
|
|
(1
|
)
|
|
(1
|
)
|
||||||
Tax effect
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1
|
)
|
|
(1
|
)
|
||||||
Total other comprehensive income (loss)
|
—
|
|
|
(3
|
)
|
|
(3
|
)
|
|
—
|
|
|
1
|
|
|
1
|
|
||||||
Ending balance
|
$
|
—
|
|
|
$
|
3
|
|
|
$
|
3
|
|
|
$
|
(1
|
)
|
|
$
|
(3
|
)
|
|
$
|
(4
|
)
|
ITEM 2.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
•
|
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.
|
•
|
the Computing and Graphics segment, which primarily includes desktop and notebook processors and chipsets, GPUs, professional GPUs. We also license portions of our IP portfolio; and
|
•
|
the Enterprise, Embedded and Semi-Custom segment, which primarily includes server and embedded processors, semi-custom SoC products, development services, technology for game consoles. We also license portions of our IP portfolio.
|
|
|
Three Months Ended
|
||||||
|
|
March 31,
2018 |
|
April 1,
2017 |
||||
|
|
(In millions)
|
||||||
Net revenue:
|
|
|
|
|
||||
Computing and Graphics
|
|
$
|
1,115
|
|
|
$
|
573
|
|
Enterprise, Embedded and Semi-Custom
|
|
532
|
|
|
605
|
|
||
Total net revenue
|
|
$
|
1,647
|
|
|
$
|
1,178
|
|
Operating income (loss):
|
|
|
|
|
||||
Computing and Graphics
|
|
$
|
138
|
|
|
$
|
(21
|
)
|
Enterprise, Embedded and Semi-Custom
|
|
14
|
|
|
55
|
|
||
All Other
|
|
(32
|
)
|
|
(23
|
)
|
||
Total operating income
|
|
$
|
120
|
|
|
$
|
11
|
|
|
|
Three Months Ended
|
||||||
|
|
March 31,
2018 |
|
April 1,
2017 |
||||
|
|
(In millions except for percentages)
|
||||||
Cost of sales
|
|
$
|
1,050
|
|
|
$
|
800
|
|
Gross margin
|
|
597
|
|
|
378
|
|
||
Gross margin percentage
|
|
36
|
%
|
|
32
|
%
|
||
Research and development
|
|
343
|
|
|
271
|
|
||
Marketing, general and administrative
|
|
134
|
|
|
123
|
|
||
Licensing gain
|
|
—
|
|
|
(27
|
)
|
||
Interest expense
|
|
(31
|
)
|
|
(32
|
)
|
||
Other income (expense), net
|
|
1
|
|
|
(5
|
)
|
||
Provision for income taxes
|
|
8
|
|
|
5
|
|
||
Equity loss in investee
|
|
$
|
(1
|
)
|
|
$
|
(2
|
)
|
|
Three Months Ended
|
||||||
|
March 31,
2018 |
|
April 1,
2017 |
||||
|
(In millions)
|
||||||
Cost of sales
|
$
|
1
|
|
|
$
|
—
|
|
Research and development
|
21
|
|
|
14
|
|
||
Marketing, general and administrative
|
10
|
|
|
9
|
|
||
Stock-based compensation expense, net of tax of $0
|
$
|
32
|
|
|
$
|
23
|
|
|
|
Three Months Ended
|
||||||
|
|
March 31,
2018 |
|
April 1,
2017 |
||||
|
|
(In millions )
|
||||||
Net cash provided by (used in):
|
|
|
|
|
||||
Operating activities
|
|
$
|
(86
|
)
|
|
$
|
(299
|
)
|
Investing activities
|
|
(46
|
)
|
|
(246
|
)
|
||
Financing activities
|
|
$
|
(8
|
)
|
|
$
|
3
|
|
|
Payments due by period as of March 31, 2018
|
||||||||||||||||||||||||||
(In millions)
|
Total
|
|
Remainder of 2018
|
|
2019
|
|
2020
|
|
2021
|
|
2022
|
|
2023 and
thereafter
|
||||||||||||||
6.75% Notes
|
$
|
153
|
|
|
$
|
—
|
|
|
$
|
153
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
7.50% Notes
|
347
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
347
|
|
|
—
|
|
|||||||
7.00% Notes
|
311
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
311
|
|
|||||||
2.125% Notes
|
805
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
805
|
|
|||||||
Secured Revolving Line of Credit
|
70
|
|
|
70
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||||
Other long-term liabilities
(1)
|
201
|
|
|
47
|
|
|
50
|
|
|
40
|
|
|
33
|
|
|
29
|
|
|
2
|
|
|||||||
Aggregate interest obligation
(2)
|
419
|
|
|
39
|
|
|
71
|
|
|
66
|
|
|
66
|
|
|
65
|
|
|
112
|
|
|||||||
Operating leases
|
253
|
|
|
32
|
|
|
39
|
|
|
32
|
|
|
30
|
|
|
28
|
|
|
92
|
|
|||||||
Purchase obligations
(3)
|
342
|
|
|
302
|
|
|
30
|
|
|
8
|
|
|
2
|
|
|
—
|
|
|
—
|
|
|||||||
Obligations to GF
(4)
|
2,733
|
|
|
1,127
|
|
|
826
|
|
|
780
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||||
Total contractual obligations
(5)
|
$
|
5,634
|
|
|
$
|
1,617
|
|
|
$
|
1,169
|
|
|
$
|
926
|
|
|
$
|
131
|
|
|
$
|
469
|
|
|
$
|
1,322
|
|
(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)
|
Includes our currently expected purchases from GF for the remainder of 2018 for wafer manufacturing and research and development activities and minimum purchase obligations for wafer purchases for years 2018 through 2020. We cannot meaningfully quantify or estimate our future purchase obligations to GF beyond 2020 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.
|
ITEM 3.
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
ITEM 4.
|
CONTROLS AND PROCEDURES
|
ITEM 1.
|
LEGAL PROCEEDINGS
|
ITEM 1A.
|
RISK FACTORS
|
•
|
business practices, including rebating and allocation strategies and pricing actions, designed to limit our market share and margins;
|
•
|
de facto control over industry standards, and heavy influence on PC manufacturers and other PC industry participants, including motherboard, memory, chipset and basic input/output system, or BIOS, suppliers and software companies as well as the graphics interface for Intel platforms; and
|
•
|
marketing and advertising expenditures in support of positioning the Intel brand over the brand of its original equipment manufacturer OEM customers and retailers.
|
•
|
make it difficult for us to satisfy our financial obligations, including making scheduled principal and interest payments;
|
•
|
limit our ability to borrow additional funds for working capital, capital expenditures, acquisitions and general corporate and other purposes;
|
•
|
limit our ability to use our cash flow or obtain additional financing for future working capital, capital expenditures, acquisitions or other general corporate purposes;
|
•
|
create or permit restrictions on the ability of certain restricted subsidiaries to pay dividends or make other distributions to us;
|
•
|
create liens upon any of the Loan Parties’ property (other than customary permitted liens and liens in respect of up to $1.5 billion of secured credit facilities debt (which amount includes our Secured Revolving Line of Credit);
|
•
|
make certain loans, make payments with respect to subordinated debt or certain borrowed money prior to its due date; and
|
•
|
a failure to accurately estimate customer demand for our products, including for our older products as our new products are introduced; or
|
ITEM 6.
|
EXHIBITS
|
*10.1
|
|
|
31.1
|
|
|
31.2
|
|
|
32.1
|
|
|
32.2
|
|
|
101.INS
|
|
XBRL Instance Document.
|
101.SCH
|
|
XBRL Taxonomy Extension Schema Document.
|
101.CAL
|
|
XBRL Taxonomy Extension Calculation Linkbase Document.
|
101.DEF
|
|
XBRL Taxonomy Extension Definition Linkbase Document.
|
101.LAB
|
|
XBRL Taxonomy Extension Label Linkbase Document.
|
101.PRE
|
|
XBRL Taxonomy Extension Presentation Linkbase Document.
|
|
* Management contracts and compensatory plans or arrangements.
|
|
|
|
|
ADVANCED MICRO DEVICES, INC.
|
|
|
|
|
|
May 3, 2018
|
|
By:
|
/s/Devinder Kumar
|
|
|
Name:
|
Devinder Kumar
|
|
|
Title:
|
Senior Vice President, Chief Financial Officer and Treasurer
Signing on behalf of the Registrant as the Principal Financial Officer
|
1.
|
Purposes
.
|
2.
|
Definitions
.
|
|
A.
|
“Award” means, with respect to each Participant, any cash incentive payment made under the Plan for a Performance Period, including Awards that qualify as performance-based compensation under Section 162(m) of the Code.
|
|
B.
|
“Code” means the Internal Revenue Code of 1986, as amended.
|
|
C.
|
“Committee” means the Compensation and Leadership Resources Committee of AMD’s Board of Directors, or such other committee designated by that Board of Directors, which is authorized to administer the Plan under Section 3 hereof. With respect to payments hereunder intended to qualify as performance-based compensation under Section 162(m) of the Code, the Committee shall be comprised solely of two or more directors who are “outside directors” under Section 162(m) of the Code.
|
|
D.
|
“Company” means AMD and any corporation or other business entity of which AMD (i) directly or indirectly has an ownership interest of 50% or more, or (ii) has a right to elect or appoint 50% or more of the board of directors or other governing body.
|
|
E.
|
“Key Employee” means any employee of the Company whose performance the Committee determines can have a significant effect on the success of the Company.
|
|
F.
|
“Participant” means any Key Employee to whom an Award is granted under the Plan.
|
|
G.
|
“Performance Period” means any fiscal year of the Company or such other period as determined by the Committee.
|
|
H.
|
“Plan” means this Plan, which shall be known as the AMD Executive Incentive Plan.
|
3.
|
Administration
.
|
|
A.
|
The Plan shall be administered by the Committee. Subject to the requirements for qualifying payments hereunder as performance-based compensation under Section 162(m) of the Code, the Committee shall have the authority to:
|
|
(i)
|
interpret and determine all questions of policy and expediency pertaining to the Plan;
|
|
(ii)
|
adopt such rules, regulations, agreements and instruments as it deems necessary for its proper administration;
|
|
(iii)
|
select Key Employees to receive Awards;
|
|
(iv)
|
determine the terms of Awards;
|
|
(v)
|
determine amounts subject to Awards (within the limits prescribed in the Plan);
|
|
(vi)
|
determine whether Awards will be granted in replacement of or as alternatives to any other incentive or compensation plan of the Company or an acquired business unit;
|
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(vii)
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grant waivers of Plan or Award conditions (other than Awards intended to qualify as performance-based compensation under Section 162(m) of the Code);
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(viii)
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accelerate the payment of Awards (but with respect to Awards intended to qualify as performance-based compensation under Section 162(m) of the Code, only as permitted under that Section);
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(ix)
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correct any defect, supply any omission, or reconcile any inconsistency in the Plan, any Award or any Award notice;
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(x)
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take any and all other actions it deems necessary or advisable for the proper administration of the Plan;
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(xi)
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adopt such Plan procedures, regulations, subplans and the like as it deems are necessary to enable Key Employees to receive Awards; and
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(xii)
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amend the Plan at any time and from time to time, provided however that no amendment to the Plan shall be effective unless approved by the Company’s stockholders, to the extent such stockholder approval is required under Section 162(m) of the Code.
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B.
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The Committee may delegate its authority to grant and administer Awards to a separate committee; however, only the Committee may grant and administer Awards which are intended to qualify as performance-based compensation under Section 162(m) of the Code.
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4.
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Eligibility
.
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5.
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Performance Goals
.
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A.
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The Committee shall set forth in writing objectively determinable performance goals (“Performance Goals”) applicable to a Participant for a Performance Period prior to the commencement of such Performance Period, provided, however, that such goals may be established after the start of the Performance Period but, with respect to an Award that is intended to qualify as performance-based compensation under Section 162(m) of the Code, in no event later than the latest time permitted by Section 162(m) of the Code with respect to any payments intended to qualify as performance-based compensation under Section 162(m) of the Code (generally, no later than the earlier of (i) 90 days after the commencement of the Performance Period or (ii) the lapse of 25% of the Performance Period, and in any event while the outcome is substantially uncertain) (the “162(m) Determination Date”).
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B.
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Each Performance Goal shall relate to one or more of the following business
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•
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Net income
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•
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Operating income
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•
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Earnings before interest and taxes
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•
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Earnings before interest, taxes, depreciation and amortization
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•
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Earnings per share
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•
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Return on investment
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•
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Return on capital
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•
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Return on invested capital
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•
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Return on capital compared to cost of capital
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•
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Return on capital employed
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•
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Return on equity
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•
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Return on assets
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•
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Return on net assets
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•
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Total stockholder return
|
|
•
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Stockholder return
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•
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Cash return on capitalization
|
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•
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|
Revenue
|
|
•
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|
Revenue ratios (per employee or per customer)
|
|
•
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|
Stock price
|
|
•
|
|
Market share
|
|
•
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|
Stockholder value
|
|
•
|
|
Net cash flow
|
|
•
|
|
Cash flow
|
|
•
|
|
Cash flow from operations
|
|
•
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|
Cash balance
|
|
•
|
|
Cash conversion cycle
|
|
•
|
|
Cost reductions and cost ratios (per employee or per customer)
|
|
•
|
|
New product releases
|
|
•
|
|
Strategic positioning programs, including the achievement of specified milestones or the completion of specified projects.
|
|
C.
|
A Performance Goal applicable to an Award may provide for a targeted level or levels of achievement measured on a GAAP or non-GAAP basis, as determined by the Committee. A Performance Goal also may (but is not required to) be based solely by reference to the performance of the individual, the Company as a whole or any subsidiary, division, business segment or business unit of the Company, or any combination thereof or based upon the relative performance of other companies or upon comparisons of any of the indicators of performance relative to a peer group of other companies. Unless otherwise stated, such a Performance Goal need not be based upon an increase or positive result under a particular business criterion and could include, for example, maintaining the status quo or limiting economic losses (measured, in each case, by reference to specific business criteria). The Committee, in its sole discretion, may provide that one or more objectively determinable adjustments shall be made to one or more of the Performance Goals applicable to an Award. Such adjustments may include one or more of the following: (a) items related to a change in accounting principle; (b) items relating to financing activities; (c) expenses for restructuring or productivity initiatives; (d) other non-operating items; (e) items related to acquisitions; (f) items attributable to the business operations of any entity acquired by the Company during the applicable performance period; (g) items related to the disposal of a business or segment of a business; (h) items related to discontinued operations that do not qualify as a segment of a business under applicable accounting standards; (i) items attributable to any stock dividend, stock split, combination or exchange of stock
|
|
occurring during the applicable performance period; (j) any other items of significant income or expense which are determined to be appropriate adjustments; (k) items relating to unusual or extraordinary corporate transactions, events or developments, (l) items related to amortization of acquired intangible assets; (m) items that are outside the scope of the Company’s core, on-going business activities; (n) items related to acquired in-process research and development; (o) items relating to changes in tax laws; (p) items relating to major licensing or partnership arrangements; (q) items relating to asset impairment charges; (r) items relating to gains or losses for litigation, arbitration and contractual settlements; or (s) items relating to any other unusual or nonrecurring events or changes in applicable law, accounting principles or business conditions.
|
|
D.
|
With respect to an Award that is intended to qualify as performance-based compensation under Section 162(m) of the Code, on or prior to the 162(m) Determination Date, the Committee shall establish in writing a bonus formula specifying the target level and/or other level(s) of performance that must be achieved with respect to each criterion that is identified in a Performance Goal in order for an Award to be payable and shall, for each Participant, establish in writing a target (and/or other level(s)) Award payable under the Plan for the Performance Period upon attainment of the Performance Goals.
|
|
E.
|
In the event Performance Goals are based on more than one business criterion, the Committee may determine to make Awards upon attainment of the Performance Goal relating to any one or more of such criteria, provided the Performance Goals, when established, are stated as alternatives to one another at the time the Performance Goal is established.
|
6.
|
Awards.
|
|
A.
|
During any fiscal year of the Company, no Participant shall receive an Award of more than $10,000,000.
|
|
B.
|
No Award that is intended to qualify as performance-based compensation under Section 162(m) of the Code shall be paid to a Participant unless and until the Committee makes a certification in writing with respect to the attainment of the Performance Goals to the extent required by Section 162(m) of the Code. Although the Committee may in its sole discretion eliminate or reduce an Award payable to a Participant pursuant to the applicable bonus formula, the Committee shall have no discretion to increase the amount of a Participant’s Award as determined under the applicable bonus formula.
|
|
C.
|
Unless otherwise directed by the Committee, each Award shall be paid on the March 15 immediately following the end of the Performance Period to which such Award relates.
|
|
D.
|
The payment of an Award requires that the Participant be on the Company’s payroll as of the date of payment of the Award. Subject to the requirements for qualifying payments hereunder as performance-based compensation under Section 162(m) of the Code, the Committee may make exceptions to this requirement in the case of change in control, retirement, death or disability, as determined by the Committee in its sole discretion, provided, however, in the case of retirement under an Award that is intended to qualify as performance-based compensation under Section 162(m) of the Code, an exception may be made by the Committee only if the performance goals for such qualifying payments have been satisfied based on actual performance through the end of the Performance Period (or if applicable, based on actual performance through the termination date), the amount is pro-rated based on the time employed during the Performance Period, and the payment is made at the same time similarly situated participants receive bonuses for such Performance Period.
|
|
E.
|
The Company shall withhold all applicable federal, state, local and foreign taxes required by law to be paid or withheld relating to the receipt or payment of any Award.
|
|
F.
|
At the discretion of the Committee, payment of an Award or any portion thereof may be deferred under a nonqualified deferred compensation plan maintained by the Committee until a time established by the Committee and in accordance with the terms of such plan.
|
7.
|
General
.
|
|
A.
|
No Awards that are intended to qualify as performance-based compensation under Section 162(m) of the Code shall be paid under the Plan unless and until the Company’s stockholders shall have approved the Plan and the business criteria set forth above as required by Section 162(m) of the Code. So long as the Plan shall not have been previously terminated by the Company, it shall be resubmitted for approval by the Company’s stockholders in the fifth year after it shall have first been approved by the Company’s stockholders, and no later than every fifth year thereafter. In addition, the Plan shall be resubmitted to the Company’s stockholders for approval as required by Section 162(m) of the Code if it is amended in any way that changes the material terms of the Plan, including by materially modifying the business criteria set forth above, increasing the maximum Award payable under the Plan or changing the Plan’s eligibility requirements.
|
|
B.
|
Any rights of a Participant under the Plan shall not be assignable by such Participant, by operation of law or otherwise, except by will or the laws of descent and distribution. No Participant may create a lien on any funds or rights to which he or she may have an interest under the Plan, or which is held by the Company for the account of the Participant under the Plan.
|
|
C.
|
Participation in the Plan shall not give any Key Employee any right to remain in the employ of the Company. Further, the adoption of this Plan shall not be deemed to give any Key Employee or other individual the right to be selected as a Participant or to be granted an Award.
|
|
D.
|
The Plan shall constitute an unfunded, unsecured obligation of the Company to make bonus payments from its general assets in accordance with the provisions of the Plan. To the extent any person acquires a right to receive payments from the Company under this Plan, such rights shall be no greater than the rights of an unsecured creditor of the Company.
|
|
E.
|
The Plan shall be governed by and construed in accordance with the laws of the State of Delaware.
|
|
F.
|
The Board may amend or terminate the Plan at any time and for any reason, subject to stockholder approval as described above.
|
Date: May 3, 2018
|
|
|
|
/s/Lisa T. Su
|
|
|
Lisa T. Su
President and Chief Executive Officer
(Principal Executive Officer)
|
|
|
Date: May 3, 2018
|
|
|
|
/s/Devinder Kumar
|
|
|
Devinder Kumar
Senior Vice President,
Chief Financial Officer and Treasurer
(Principal Financial Officer)
|
|
|
(i.)
|
the Quarterly Report on Form 10-Q of the Company for the period ended March 31, 2018 (the "Report") fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and
|
(ii.)
|
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
Date: May 3, 2018
|
|
|
|
/s/ Lisa T. Su
|
|
|
Lisa T. Su
President and Chief Executive Officer
(Principal Executive Officer)
|
|
|
(i.)
|
the Quarterly Report on Form 10-Q of the Company for the period ended March 31, 2018 (the "Report") fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and
|
(ii.)
|
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
Date: May 3, 2018
|
|
|
|
/s/ Devinder Kumar
|
|
|
Devinder Kumar
Senior Vice President,
Chief Financial Officer and Treasurer
(Principal Financial Officer)
|
|
|