Annual report pursuant to Section 13 and 15(d)

Commitments And Guarantees

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Commitments And Guarantees
12 Months Ended
Dec. 31, 2011
Commitments And Guarantees [Abstract]  
Commitments And Guarantees

NOTE 16: Commitments and Guarantees

As of December 31, 2011, total non-cancelable long-term operating lease obligations, including those for facilities vacated in connection with restructuring activities, were as follows for each of the next five years and beyond:

 

      Operating
leases
 
     (In millions)  

2012

   $ 36   

2013

     32   

2014

     29   

2015

     24   

2016

     17   

2017 and beyond

     37   
     $ 175   

The Company leases certain of its facilities and in some jurisdictions the Company leases the land on which these facilities are built, under non-cancelable lease agreements that expire at various dates through 2022. The Company also leases certain manufacturing and office equipment for terms ranging from 1 to 5 years. Rent expense was approximately $48 million, $44 million and $55 million in 2011, 2010, and 2009.

In December 1998, the Company arranged for the sale of its marketing, general and administrative facility in Sunnyvale, California and leased it back for a period of 20 years. The Company recorded a deferred gain of $37 million on the sale and is amortizing it over the life of the lease. The lease expires in December 2018. At the beginning of the fourth lease year and every three years thereafter, the rent is adjusted by 200% of the cumulative increase in the consumer price index over the prior three-year period, up to a maximum of 6.9%. Certain other operating leases contain provisions for escalating lease payments subject to changes in the consumer price index. Total future lease obligations as of December 31, 2011, were approximately $175 million.

The Company's purchase obligations primarily include the Company's obligations to purchase wafers and substrates from third parties. Total non-cancelable purchase obligations, other than those to GF under the WSA, as of December 31, 2011 were $374 million. For the obligations to GF under the WSA, see discussion in Note 3.

 

Guarantees of Indebtedness Not Recorded on the Company's Consolidated Balance Sheet

AMTC and BAC Guarantees

The Advanced Mask Technology Center GmbH & Co. KG (AMTC) and Maskhouse Building Administration GmbH & Co. KG (BAC) are joint ventures initially formed for the purpose of constructing and operating an advanced photomask facility in Dresden, Germany. In 2010, the Company's limited partnership interests in AMTC and BAC were effectively transferred to an affiliate of GF.

AMD, GF and Toppan Photomasks Germany GmbH, guaranteed AMTC's rental obligations relating to a portion of the BAC facility. The Company's portion of the guarantee was made on a joint and several basis with GF. GF separately agreed to indemnify the Company under certain circumstances if it were called upon to make any payments under the guarantee granted by the Company.

The BAC term loan was fully repaid in December 2011, and as a result the AMTC rental contract guarantee terminated. The Company was not required to make any payments under the guarantee.

In addition, the Company and GF were joint and several guarantors of 50% of AMTC's obligations under a revolving credit facility. In December 2011, the Company was released from the guarantee. The Company was not required to make any payments under the guarantee.

Warranties and Indemnities

The Company generally warrants that its products sold to its customers will conform to the Company's approved specifications and be free from defects in material and workmanship under normal use and service for one year. Subject to certain exceptions, the Company also offers a three-year limited warranty to end users for only those CPU and AMD A-Series APU products that are commonly referred to as "processors in a box" and has also offered extended limited warranties to certain customers of "tray" microprocessor products and/or workstation graphics products who have written agreements with the Company and target their computer systems at the commercial and/or embedded markets.

Changes in the Company's potential liability for product warranty during the years ended December 31, 2011 and December 25, 2010 are as follows:

 

     

December 31,

2011

   

December 25,

2010

 
     (In millions)  

Beginning balance

   $ 19      $ 19   

New warranties issued during the period

     35        34   

Settlements during the period

     (36     (35

Changes in liability for pre-existing warranties during the period, including expirations

     2        1   

Ending balance

   $ 20      $ 19   

In addition to product warranties, the Company, from time to time in its normal course of business, indemnifies other parties, with whom it enters into contractual relationships, including customers, lessors and parties to other transactions with the Company, with respect to certain matters. In these limited matters, the Company has agreed to hold certain third parties harmless against specific types of claims or losses, such as those arising from a breach of representations or covenants, third-party claims that the Company's products when used for their intended purpose(s) and under specific conditions infringe the intellectual property rights of a third party, or other specified claims made against the indemnified party. It is not possible to determine the maximum potential amount of liability under these indemnification obligations due to the unique facts and circumstances that are likely to be involved in each particular claim and indemnification provision. Historically, payments made by the Company under these obligations have not been material.