NOTE 10. Commitments and Contingencies

Guarantees of Indebtedness Not Recorded on the Company's Condensed 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. AMTC provides advanced photomasks for use in manufacturing the Company's microprocessors. In January 2010, the Company signed binding agreements to transfer its limited partnership interests in the AMTC and BAC to GF. On March 31, 2010, the Company's limited partnership interests in AMTC and BAC were effectively transferred to an affiliate of GF.

The Company, along with Toppan Photomasks Germany GmbH, and GF guarantee AMTC's rental obligations relating to a portion of the BAC facility. The Company's portion of the guarantee corresponds with its exposure under the initial guarantee agreement and is made on a joint and several basis with GF. GF has separately agreed to indemnify the Company under certain circumstances if it is called upon to make any payments under the AMTC rental contract guarantee. AMTC's rental obligation and the rental contract guarantee both terminate in June 2012. However, both the rental and guarantee agreements may be extended. Management cannot currently estimate if or by how long these agreements may be extended. As of July 2, 2011, the Company's joint and several guarantee of the rental obligation was $2 million.

In addition, the Company and GF are joint and several guarantors of 50% of AMTC's obligations under a revolving credit facility. In the event the Company is called upon to make any payments under the guarantee agreement, GF has separately agreed to indemnify the Company so long as certain conditions are met. The AMTC revolving credit facility and the Company's related guarantee obligations terminate in December 2011. However, the credit facility and guarantee agreement may be extended. Management cannot currently estimate if or by how long these agreements may be extended. As of July 2, 2011, the amount outstanding under this loan was $34 million and the Company's joint and several guarantee obligation was $17 million.

Warranties and Indemnities

The Company generally warrants that its microprocessors, graphics processors and chipsets 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, provided that, subject to certain exceptions, the Company generally offers a three-year limited warranty to end users for microprocessor products that are commonly referred to as "processors in a box" and for PC workstation products and has 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 quarters and six months ended July 2, 2011 and June 26, 2010 are as follows:

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.

Contingencies

Legal Matters

SGI (Graphics Properties Holdings, Inc.) v. ATI and AMD, Case No.06-C-0611 in the United States District Court for the Western District of Wisconsin

On April 18, 2011, the parties entered into a confidential Settlement and License Agreement that resolved this litigation matter for an immaterial amount and that provides immunity under all Graphics Properties Holdings, Inc. (GPHI) patents for alleged infringement by AMD products, including components, software and designs. On April 26, 2011, the Court entered an order granting the parties' agreed motion for dismissal and final judgment.

Graphics Properties Holdings, Inc. (GPHI) v. Nintendo, Acer, Sony, Apple, and Toshiba, Case No. 10-CV-08655 in the Southern District of New York

Under the confidential terms of the Settlement and License Agreement, GPHI has notified the defendants that the Settlement and License Agreement (as described above) entered into by AMD and GPHI immunizes the defendants from GPHI's allegations of infringement as to AMD graphics products and designs in that case and has requested the defendants' agreement to the joint dismissal of the claims and counterclaims asserted in this litigation matter.

Graphics Properties Holdings, Inc. (GPHI) v. Dell, Alienware, Lenovo, Gateway, and Hewlett-Packard, Case No. 10-CV-00992 in the District of Delaware

Under the confidential terms of the Settlement and License Agreement, GPHI has notified the defendants that the Settlement and License Agreement (as described above) entered into by AMD and GPHI immunizes the defendants from GPHI's allegations of infringement as to AMD graphics products and designs in that case and has requested the defendants' agreement to the joint dismissal of the claims and counterclaims asserted in this litigation matter.

The Company is a defendant or plaintiff in various other actions that arose in the normal course of business. In the opinion of management, the aggregate liability, if any, with respect to these matters will not have a material effect on its financial condition or results of operations.