NOTE 10: Debt and Other Obligations

Long-term Debt and Capital Lease Obligations

The Company's long-term debt and capital lease obligations as of December 31, 2011 and December 25, 2010 consisted of:

 

		December 31, 2011				December 25, 2010
		(In millions)
5.75% Convertible Senior Notes due 2012		$	485			$	485
6.00% Convertible Senior Notes due 2015, net of discount			546				723
8.125% Senior Notes due 2017, net of discount			459				454
7.75% Senior Notes Due 2020			500				500
Capital lease obligations			26				30
			2,016				2,192
Less: current portion			489				4
Long-term debt and capital lease obligations, less current portion		$	1,527			$	2,188

5.75% Convertible Senior Notes due 2012

On August 14, 2007, the Company issued $1.5 billion aggregate principal amount of the 5.75% Convertible Senior Notes due 2012 (the 5.75% Notes). The 5.75% Notes are general unsecured senior obligations. Interest is payable in arrears on February 15 and August 15 of each year beginning February 15, 2008 until the maturity date of August 15, 2012. The terms of the 5.75% Notes are governed by an Indenture (the 5.75% Indenture), dated as of August 14, 2007, by and between the Company and Wells Fargo Bank, National Association, as Trustee. In 2009, the Company repurchased $1,015 million in aggregate principal amount of the Company's outstanding 5.75% Notes for $1,002 million in cash.

 

As of December 25, 2011, the remaining outstanding aggregate principal amount of the Company's 5.75% Notes was $485 million. The Company reclassified this amount to current liabilities because the 5.75% Notes mature in the next 12 months.

The 5.75% Notes are convertible, in whole or in part, at any time prior to the close of business on the business day immediately preceding the maturity date of the 5.75% Notes, into shares of the Company's common stock based on an initial conversion rate of 49.6771 shares of common stock per $1,000 principal amount of the 5.75% Notes, which is equivalent to an initial conversion price of approximately $20.13 per share. This initial conversion price represents a premium of 50% relative to the last reported sale price of the Company's common stock on August 8, 2007 (the trading date preceding the date of pricing of the 5.75% Notes) of $13.42 per share. This initial conversion rate will be adjusted for certain anti-dilution events. In addition, the conversion rate will be increased in the case of corporate events that constitute a fundamental change (as defined in the 5.75% Indenture) of AMD under certain circumstances. Holders of the 5.75% Notes may require the Company to repurchase the 5.75% Notes for cash equal to 100% of the principal amount to be repurchased plus accrued and unpaid interest upon the occurrence of a fundamental change (as defined in the 5.75% Indenture) or a termination of trading (as defined in the 5.75% Indenture). Additionally, an event of default (as defined in the 5.75% Indenture) may result in the acceleration of the maturity of the 5.75% Notes.

The 5.75% 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 5.75% 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.

The Company may elect to refinance the outstanding amount of our 5.75% Notes, or to purchase or otherwise retire the outstanding amount of its 5.75% Notes in open market or privately negotiated transactions, either directly or through intermediaries. Otherwise, the Company will pay off the outstanding amount of the 5.75% Notes at maturity.

6.00% Convertible Senior Notes due 2015

On April 27, 2007, the Company issued $2.2 billion aggregate principal amount of the 6.00% Convertible Senior Notes due 2015(the 6.00% Notes). The 6.00% Notes are general unsecured senior obligations. Interest is payable on May 1 and November 1 of each year beginning November 1, 2007 until the maturity date of May 1, 2015. The terms of the 6.00% Notes are governed by an Indenture (the 6.00% Indenture) dated April 27, 2007, by and between the Company and Wells Fargo Bank, National Association, as Trustee.

In 2011, the Company repurchased $200 million in aggregate principal amount of its 6.00% Notes in open market transactions for $202 million. Prior to 2011, the Company repurchased $1.4 billion in aggregate principal amount of the 6.00% Notes for $1.2 billion. As of December 31, 2011, the outstanding aggregate principal amount of the 6.00% Notes was $580 million and the remaining carrying value was approximately $546 million, net of debt discount of $34 million.

In the first quarter of 2009, the Company adopted the new guidance for accounting for convertible debt that may be fully or partially settled in cash upon conversion and modified its accounting for its 6.00% Notes. To retrospectively apply this new guidance, the proceeds from the issuance of the Company's 6.00% Notes were allocated between a liability (issued at a discount) and equity in a manner that reflects interest expense at the market interest rate for similar nonconvertible debt as of the original issuance date of the 6.00% Notes. The debt discount is being accreted from issuance through April 2015, the period the 6.00% Notes are expected to be outstanding, with the accretion recorded as additional non-cash interest expense. The equity component is included in the paid-in-capital portion of stockholders' equity on the Company's consolidated balance sheet. The initial value of the equity component ($259 million), which reflects the equity conversion feature of the 6.00% Notes, is equal to the initial debt discount.

For the repurchase of its 6.00% Notes during 2011, the Company allocated $9 million of the $200 million aggregate cash payment to the equity component and reduced the carrying amount of the debt by $191 million.

Information related to equity and debt components:

 

Information related to interest rates and expense:

 

		2011				2010				2009
		(In millions, except percentages)
Effective interest rate			8	%			8	%			8	%
Interest cost related to contractual interest coupon		$	45			$	93			$	117
Interest cost related to amortization of the discount		$	11			$	20			$	25

Upon the occurrence of certain events described in the 6.00% Indenture, the 6.00% Notes will be convertible into cash up to the principal amount, and if applicable, into shares of the Company's common stock issuable upon conversion of the 6.00% Notes in respect of any conversion value above the principal amount, based on an initial conversion rate of 35.6125 shares of common stock per $1,000 principal amount of 6.00% Notes, which is equivalent to an initial conversion price of $28.08 per share. This initial conversion price represents a premium of 100% relative to the last reported sale price of the Company's common stock on April 23, 2007 (the trading date preceding the date of pricing of the 6.00% Notes) of $14.04 per share. The conversion rate will be adjusted for certain anti-dilution events. In addition, the conversion rate will be increased in the case of corporate events that constitute a fundamental change (as defined in the 6.00% Indenture) under certain circumstances. Holders of the 6.00% Notes may require the Company to repurchase the 6.00% Notes for cash equal to 100% of the principal amount to be repurchased plus accrued and unpaid interest upon the occurrence of a fundamental change or a termination of trading (as defined in the 6.00% Indenture). Additionally, an event of default (as defined in the 6.00% Indenture) may result in the acceleration of the maturity of the 6.00% Notes.

The 6.00% 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 6.00% 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.

The Company may elect to purchase or otherwise retire the balance of the 6.00% 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 it believes the market conditions are favorable to do so.

8.125% Senior Notes Due 2017

On November 30, 2009, the Company issued $500 million of the 8.125% Senior Notes Due 2017 (the 8.125% Notes) at a discount of 10.204%. The 8.125% Notes are general unsecured senior obligations. Interest is payable on June 15 and December 15 of each year beginning June 15, 2010 until the maturity date of December 15, 2017. The discount of $51 million is recorded as contra debt and will be amortized to interest expense over the life of the 8.125% Notes using the effective interest method. The 8.125% Notes are governed by the terms of an indenture (the 8.125% Indenture) dated November 30, 2009 between the Company and Wells Fargo Bank, National Association, as Trustee.

As of December 31, 2011, the outstanding aggregate principal amount of the Company's 8.125% Notes was $500 million and the remaining carrying value was approximately $459 million, net of debt discount of $41 million.

At anytime (which may be more than once) before December 15, 2012, the Company may redeem up to 35% of the aggregate principal amount of the 8.125% Notes within 90 days of the closing of an equity offering with the net proceeds thereof at a redemption price of not greater than 108.125% of the principal amount thereof, together with accrued and unpaid interest to but excluding the date of redemption. Prior to December 15, 2013, the Company may redeem some or all of the 8.125% 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 8.125% Indenture). Thereafter, the Company may redeem all or part of the 8.125% Notes at any time at specified redemption prices, plus accrued and unpaid interest.

Holders have the right to require the Company to repurchase all or a portion of the Company's 8.125% Notes in the event that the Company undergoes a change of control, as defined in the indenture governing the 8.125% Notes, at a repurchase price of 101% of the principal amount plus accrued and unpaid interest. Additionally, an event of default (as defined in the 8.125% Indenture) may result in the acceleration of the maturity of the 8.125% Notes.

The 8.125% Indenture contains certain covenants that limit, among other things, the Company's ability and the ability of its subsidiaries from:

 

•

incurring additional indebtedness, except specified permitted debt;

 

•

paying dividends and making other restricted payments;

 

•

making certain investments if an event of a default exists, or if specified financial conditions are not satisfied;

 

•

creating or permitting certain liens;

 

•

creating or permitting restrictions on the ability of its subsidiaries to pay dividends or make other distributions to the Company;

 

•

using the proceeds from sales of assets;

 

•

entering into certain types of transactions with affiliates; and

 

•

consolidating, merging or selling our assets as an entirety or substantially as an entirety.

The 8.125% 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 8.125% 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.

The Company may elect to purchase or otherwise retire the 8.125% Notes with cash, stock or other assets from time to time in open market or private negotiated transactions, either directly or through intermediaries, or by tender offer, when it believes the market conditions are favorable to do so.

7.75% Senior Notes Due 2020

On August 4, 2010, the Company issued $500 million of 7.75% Senior Notes Due 2020 (7.75% Notes). The 7.75% Notes are general unsecured senior obligations of the Company. Interest is payable on February 1 and August 1 of each year beginning February 1, 2011 until the maturity date of August 1, 2020. The 7.75% Notes are governed by the terms of an indenture (the 7.75% Indenture) dated August 4, 2010 between the Company and Wells Fargo Bank, National Association, as Trustee.

As of December 31, 2011, the outstanding aggregate principal amount of the Company's 7.75% Notes was $500 million.

At any time (which may be more than once) before August 1, 2013, the Company can redeem up to 35% of the aggregate principal amount of the 7.75% Notes within 90 days of the closing of an equity offering with the net proceeds thereof at a redemption price not greater than 107.75% of the principal amount thereof, together with accrued and unpaid interest to but excluding the date of redemption. Prior to August 1, 2015, the Company may redeem some or all of the 7.75% 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 7.75% Indenture). From August 1, 2015, the Company may redeem the 7.75% Notes at specified redemption prices, plus accrued and unpaid interest.

Holders have the right to require the Company to repurchase all or a portion of its 7.75% Notes in the event that the Company undergoes a change of control, as defined in the 7.75% 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 7.75% Indenture) may result in the acceleration of the maturity of the 7.75% Notes.

The 7.75% Indenture contains certain covenants that limit, among other things, the Company's ability and the ability of its subsidiaries, from:

 

•

incurring additional indebtedness, except specified permitted debt;

 

•

paying dividends and making other restricted payments;

 

•

making certain investments if an event of a default exists, or if specified financial conditions are not satisfied;

 

•

creating or permitting certain liens;

 

•

creating or permitting restrictions on the ability of its subsidiaries to pay dividends or make other distributions to the Company;

 

•

using the proceeds from sales of assets;

 

•

entering into certain types of transactions with affiliates; and

 

•

consolidating, merging or selling its assets as an entirety or substantially as an entirety.

 

The 7.75% 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 7.75% 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.

The Company may elect to purchase or otherwise retire the 7.75% Notes with cash, stock or other assets from time to time in open market or private negotiated transactions, either directly or through intermediaries, or by tender offer, when the Company believes the market conditions are favorable to do so.

The agreements governing its 5.75% Notes, 6.00% Notes, 8.125% Notes and 7.75% Notes 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 to declare all amounts outstanding under those borrowing arrangements to be immediately due and payable.

Fab 36 Term Loan and Guarantee

In connection with the consummation of the GF manufacturing joint venture transaction on March 2, 2009, the terms of the 700 million euro Term Loan Facility Agreement among AMD Fab 36 Limited Liability Company & Co. KG, as borrower, and a consortium of banks led by Dresdner Bank AG, as lenders (the Fab 36 Term Loan), and other related agreements (collectively, the Fab 36 Loan Agreements) were amended to allow for the transfer of the Company's former 300-millimeter wafer fabrication facility and its affiliated companies to GF. In addition, the Company also amended the terms of the related guarantee agreement such that the Company and GF were joint guarantors of the borrower's obligations to the lenders under the Fab 36 Loan Agreements. On March 31, 2011, GF fully repaid the amounts outstanding under the Fab 36 Term Loan. The Company was not required to make any payments under the related guarantee agreement.

Capital Lease Obligations

As of December 31, 2011, the Company had aggregate outstanding capital lease obligations of $26 million for one of its facilities in Canada, which is payable in monthly installments through 2017.

The gross amount of assets recorded under capital leases totaled approximately $23 million as of December 31, 2011 and December 25, 2010, and is included in the related property, plant and equipment category. Amortization of assets recorded under capital leases is included in depreciation expense. Accumulated amortization of these leased assets was approximately $12 million and $9 million as of December 31, 2011 and December 25, 2010 respectively.

Future Payments on Long Term Debt and Capital Lease Obligations

As of December 31, 2011, the Company's long term debt and capital lease payment obligations for each of the next five years and beyond, are:

 

		Long Term Debt (Principal only)				Capital Leases
		(In millions)
2012		$	485			$	6
2013			—				6
2014			—				6
2015			580				6
2016			—				6
2017 and beyond			1,000				1
Total			2,065				31
Less: amount representing interest			—				5
Total		$	2,065			$	26

 

Other Short-Term Obligations—Receivable Financing Arrangement

In 2011, the Company received proceeds of approximately $170 million from the sale of accounts receivable under the receivable financing arrangement with the IBM Parties. The IBM Parties collected approximately $396 million from the Company's distributor customers participating in the financing arrangement. The Company terminated the financing arrangement with the IBM Parties in February 2011and there were no outstanding invoices as of December 31, 2011.