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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

For the quarterly period ended March 28, 2009

OR

For the transition period from                  to                 

Commission File Number 001-07882

ADVANCED MICRO DEVICES, INC.

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: (408) 749-4000

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ¨    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act).     Yes  ¨    No  x

Indicate the number of shares outstanding of the registrant’s common stock, $0.01 par value, as of April 27, 2009: 667,311,575.

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INDEX

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PART I. FINANCIAL INFORMATION

Advanced Micro Devices, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(Unaudited)

See accompanying notes to condensed consolidated financial statements

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Advanced Micro Devices, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(Unaudited)

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See accompanying notes to condensed consolidated financial statements

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Advanced Micro Devices Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

See accompanying notes to condensed consolidated financial statements.

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Advanced Micro Devices, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1. Basis of Presentation and Significant Accounting Policies

Basis of Presentation. The accompanying unaudited condensed consolidated financial statements of Advanced Micro Devices, Inc. and subsidiaries and GLOBALFOUNDRIES Inc. and subsidiaries (the Company or AMD) have been prepared in accordance with generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. The results of operations for the interim period ended March 28, 2009 shown in this report are not necessarily indicative of results to be expected for the full fiscal year ending December 26, 2009. In the opinion of the Company’s management, the information contained herein reflects all adjustments necessary for a fair presentation of the Company’s results of operations, financial position and cash flows. All such adjustments are of a normal, recurring nature. The unaudited interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements in the Company’s Annual Report on Form 10-K for the fiscal year ended December 27, 2008. (See Note 2, “GLOBALFOUNDRIES”).

The Company uses a 52 to 53 week fiscal year ending on the last Saturday in December. The quarters ended March 28, 2009 and March 29, 2008 each consisted of 13 weeks.

Principles of Consolidation. The condensed consolidated financial statements include the Company’s accounts and those of its majority-owned subsidiaries as well as GLOBALFOUNDRIES Inc. and its majority-owned subsidiaries. Upon consolidation, all significant intercompany accounts and transactions are eliminated, and amounts pertaining to the noncontrolling ownership interests held by third parties in the operating results and financial position of the Company’s majority-owned subsidiaries and GLOBALFOUNDRIES are reported as noncontrolling interest.

The Company consolidates the accounts of GLOBALFOUNDRIES and its majority-owned subsidiaries as required by Financial Accounting Standard Board (FASB) Interpretation No. 46R, Consolidation of Variable Interest Entities, An Interpretation of ARB No. 51 (FIN 46R) (See Note 2, “GLOBALFOUNDRIES”).

Recently Adopted Accounting Pronouncements.

Noncontrolling Interest. In December 2007, the FASB issued Statement No. 160, Noncontrolling Interests in Consolidated Financial Statements—An Amendment of ARB No. 51 (SFAS 160). SFAS 160 requires that noncontrolling interests in subsidiaries be reported as a component of stockholders’ equity in the condensed consolidated balance sheet. However, securities of an issuer that are redeemable at the option of the holder or outside the control of the issuer continue, pursuant to SEC Accounting Series Release (ASR) 268 and EITF Topic D-98, to be classified outside stockholders’ equity. SFAS 160 also requires that earnings or losses attributed to the noncontrolling interests be reported as part of consolidated earnings and not as a separate component of income or expense, and requires disclosure of the attribution of consolidated earnings to the controlling and noncontrolling interests on the face of the condensed consolidated statement of operations. The Company adopted SFAS 160 at the beginning of its fiscal year 2009. Upon the formation of GLOBALFOUNDRIES during the first quarter of 2009, the Company accounts for the noncontrolling interest held by Advanced Technology Investment Company LLC (ATIC) in GLOBALFOUNDRIES in accordance with this new accounting pronouncement. Since the preferred securities issued by GLOBALFOUNDRIES to ATIC can be put to AMD in limited circumstances, ATIC’s noncontrolling interest is, accordingly, not reported as a component of stockholders’ equity in the condensed consolidated balance sheet. (See Note 2, “GLOBALFOUNDRIES”).

Business Combinations. In December 2007, the FASB issued Statement No. 141 (revised 2007), Business Combinations (SFAS 141(R)). Under SFAS 141(R), an entity is required to recognize assets acquired, liabilities assumed, contractual contingencies, and contingent consideration at their fair value on the acquisition date. It further requires that acquisition-related costs be recognized separately from the acquisition and expensed as incurred; that restructuring costs generally be expensed in periods subsequent to the acquisition date; and that changes in accounting for deferred tax asset valuation allowances and acquired income tax uncertainties after the measurement period be recognized as a component of the provision for taxes. In addition, acquired in-process research and development is measured at fair value, capitalized as an indefinite-life intangible asset and tested for impairment pursuant to FASB Statement No. 142, Goodwill and Other Intangible Assets (SFAS 142). The Company adopted SFAS 141(R) in the first quarter of 2009 and will apply this new accounting standard for future business combinations.

Derivative Instruments and Hedging Activities. In March 2008, the FASB issued Statement No. 161, Disclosures about Derivative Instruments and Hedging Activities—An Amendment of FASB Statement No. 133 (SFAS 161). SFAS 161 requires enhanced disclosures about an entity’s derivative and hedging activities and is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with earlier application encouraged. The Company adopted SFAS 161 in the first quarter of 2009. (See Note 16, “Hedging Transactions and Derivative Financial Instruments”).

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Life of Intangible Assets. In April 2008, the FASB issued FSP No. 142-3, Determination of the Useful Life of Intangible Assets (FSP 142-3), which amends the factors considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS 142. FSP 142-3 requires a consistent approach between the useful life of a recognized intangible asset under SFAS 142 and the period of expected cash flows used to measure the fair value of an asset under SFAS 141 (R). The FSP also requires enhanced disclosures when an intangible asset’s expected future cash flows are affected by an entity’s intent and/or ability to renew or extend the arrangement. FSP 142-3 is effective for financial statements issued for fiscal years beginning after December 15, 2008 and is applied prospectively. The Company adopted FSP 142-3 in the first quarter of 2009. The new accounting standard did not have a material impact on its consolidated results of operations or financial condition.

Convertible Debt Instruments. In May 2008, the FASB issued FSP APB No. 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement) (FSP APB 14-1). This FSP requires the issuer of certain convertible debt instruments that may be settled in cash (or other assets) on conversion to separately account for the liability (debt) and equity (conversion option) components of the instrument in a manner that reflects the issuer’s nonconvertible debt borrowing rate. The effective date of this FSP is for financial statements issued for fiscal years beginning after December 15, 2008 and interim periods within those fiscal years and it does not permit earlier application. However, the transition guidance requires retrospective application to all periods presented in the Company’s financial statements. In the first quarter of 2009, the Company adopted this FSP and modified its accounting for its 6.00% Convertible Senior Notes due 2015 (6.00% Notes). To retrospectively apply this FSP, 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. The debt discount is being accreted from issuance through April 2015, the period the 6.00% Notes are expected to be outstanding, and is 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 condensed consolidated balance sheet. The initial value of the equity component, which reflects the equity conversion feature of the 6.00% Notes, is equal to the initial debt discount. (See Note 15 “Accounting changes—Convertible Debt instruments”).

Recently Issued Accounting Pronouncements.

Fair Value of Financial Instruments. In April 2009, the FASB issued FSP No. FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments (FSP 107-1 and APB 28-1), which require disclosure in the body or in the accompanying notes of the Company’s summarized financial information for interim reporting periods and in its financial statements for annual reporting periods the fair value of all financial instruments for which it is practicable to estimate that value, whether recognized or not in the statement of financial position, as required by Statement 107. FSP FAS 107-1 and APB 28-1 will be effective for interim reporting periods ending after June 15, 2009. The Company is currently evaluating the future impact FSP FAS 107-1 and APB 28-1 will have on its financial statements.

Other-Than-Temporary Impairment. In April 2009, the FASB issued FSP No. FAS 115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments (FSP 115-2 and FAS 124-2), which clarifies the interaction of the factors that should be considered when determining whether a debt security is other than temporarily impaired. FSP 115-2 and FAS 124-2 will be effective for interim and annual reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. The Company is currently evaluating the future impact FSP 115-2 and FAS 124-2 will have on its financial statements.

Fair Value Considering Volume and Level of Activity. In April 2009, the FASB issued FSP No. FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly (FSP 157-4), which clarifies the interaction of the factors that should be considered when evaluating whether there has been a significant decrease in the volume and level of activity for an asset or liability when compared with normal market activity for the asset or liability (or similar assets or liabilities). If there has been a significant decrease in the volume and level of activity for the asset or liability, further analysis of the transactions or quoted prices is required, and a significant adjustment to the transactions or quoted prices may be necessary to estimate fair value. FSP 157-4 will be effective for interim and annual reporting periods ending after June 15, 2009, and should be applied prospectively. The Company is currently evaluating the future impact FSP 157-4 will have on its financial statements.

2. GLOBALFOUNDRIES

On March 2, 2009, the Company consummated the transactions contemplated by a Master Transaction Agreement dated October 6, 2008 and amended on December 5, 2008 by and among the Company, ATIC and West Coast Hitech L.P., an exempted limited partnership organized under the laws of the Cayman Islands (WCH), acting through its general partner, West Coast Hitech G.P., Ltd., a corporation organized under the laws of the Cayman Islands and formed GLOBALFOUNDRIES Inc., a manufacturing joint venture. At the closing of these transactions (Closing), the Company contributed certain assets and liabilities to GLOBALFOUNDRIES, including, among other things, shares of the groups of German subsidiaries owning Fab 30/38 and Fab 36

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(Dresden Subsidiaries), certain manufacturing assets, owned real property, tangible personal property, employees, inventories, books and records, a portion of the Company’s patent portfolio and intellectual property and technology, rights under certain material contracts and authorizations necessary for GLOBALFOUNDRIES to carry on its business, in exchange for GLOBALFOUNDRIES securities consisting of one Class A Ordinary Share, 1,090,950 Class A Preferred Shares and 700,000 Class B Preferred Shares, and the assumption of certain liabilities by GLOBALFOUNDRIES. ATIC contributed $1.4 billion of cash to GLOBALFOUNDRIES in exchange for GLOBALFOUNDRIES securities consisting of one Class A Ordinary Share, 218,190 Class A Preferred Shares, 172,760 Class B Preferred Shares, $202 million aggregate principal amount of 4% Class A Subordinated Convertible Notes (the Class A Notes) and $807 million aggregate principal amount of 11% Class B Subordinated Convertible Notes (the Class B Notes), and transferred $700 million of cash to the Company in exchange for the transfer by the Company of 700,000 GLOBALFOUNDRIES Class B Preferred Shares.

At the Closing, the Company also issued to WCH, for an aggregate purchase price of $125 million, 58 million shares of its common stock and warrants to purchase 35 million shares of its common stock at an exercise price of $0.01 per share (the Warrants). The Warrants are exercisable after the earlier of (i) public ground-breaking of GLOBALFOUNDRIES’ planned manufacturing facility in New York and (ii) March 2, 2011. The Warrants expire on March 2, 2019.

In connection with the Closing, AMD Fab 36 Holding GmbH and AMD Fab 36 Admin GmbH, repurchased the limited and silent partnership interests in AMD Fab 36 Limited Liability Company & Co KG (AMD Fab 36 KG) held by the remaining unaffiliated limited partner, Leipziger Messe Gesellschaft mbH (Leipziger Messe).

Under the Master Transaction Agreement, the cash consideration that WCH and ATIC paid and the securities that they received are as follows:

As of the Closing, the Company and ATIC owned 1,090,950, or 83.3%, and 218,190, or 16.7%, respectively, of Class A Preferred Shares, and ATIC owned 100% of the Class B Preferred Shares and 100% of the Class A Notes and Class B Notes.

Class A Preferred Shares. The Class A Preferred Shares rank senior in right of payment to the Ordinary Shares of GLOBALFOUNDRIES and junior in right of payment to the Class B Preferred Shares for purposes of dividends, distributions and upon a Liquidation Event (as defined below). The Class A Preferred Shares are not entitled to any dividend or pre-determined accretion in value. In the event of the liquidation, dissolution or winding up of GLOBALFOUNDRIES (Liquidation Event), each Class A Preferred Share will be entitled to receive, after the distribution to the holders of the Class B Preferred Shares but prior to any distribution to the holders of Ordinary Shares, out of the remaining assets of GLOBALFOUNDRIES, if any, an amount equal to the initial purchase price per share of the Class A Preferred Shares. Each Class A Preferred Share is convertible, at the option of the holder thereof, into Class B Ordinary Shares at the then applicable Class A Conversion Rate upon a Liquidation Event. Each Class A Preferred Share will automatically convert into Class B Ordinary Shares at the then applicable Class A Conversion Rate upon the earlier of (i) an initial public offering of GLOBALFOUNDRIES (IPO) or (ii) a change of control transaction of GLOBALFOUNDRIES. The “Class A Conversion Rate” is 100 Class B Ordinary Shares for each Class A Preferred Share converted, subject to customary anti-dilution adjustments. The Class A Preferred Shares are non-voting until the Reconciliation Event (defined below). Following the Reconciliation Event, each Class A Preferred Share will vote on an as-converted basis with the Ordinary Shares, voting together as a single class, with respect to any question upon which holders of Ordinary Shares have the right to vote.

Class B Preferred Shares. The Class B Preferred Shares rank senior in right of payment to all other classes or series of equity securities of GLOBALFOUNDRIES for purposes of dividends, distributions and upon a Liquidation Event. Each Class B Preferred Share is deemed to accrete in value at a rate of 12% per year, compounded semiannually, of the initial purchase price per such share. The accreted value accrues daily from the Closing and is taken into account upon certain distributions to the holders of Class B

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Preferred Shares or upon conversion of the Class B Preferred Shares. In the event of a Liquidation Event, each Class B Preferred Share will be entitled to receive, prior to any distribution to the holders of any other classes or series of equity securities, an amount equal to its accreted value. Upon completion of the above distribution to the holders of Class B Preferred Shares, each Class A Preferred Share will be entitled to receive its liquidation preference amount out of any remaining assets of GLOBALFOUNDRIES. Upon completion of the above distributions to the holders of Preferred Shares, all of the remaining assets of GLOBALFOUNDRIES, if any, will be distributed pro rata among the holders of Ordinary Shares. Each Class B Preferred Share is convertible, at the option of the holder thereof, into Class B Ordinary Shares at the then applicable Class B Conversion Rate (as hereinafter defined) upon a Liquidation Event. Each Class B Preferred Share automatically converts into Class B Ordinary Shares at the then applicable Class B Conversion Rate upon the earlier of (i) an IPO or (ii) a change of control transaction of GLOBALFOUNDRIES. The “Class B Conversion Rate” is be 100 Class B Ordinary Shares for each Class B Preferred Share converted, subject to customary anti-dilution adjustments. The Class B Preferred Shares are non-voting until the Reconciliation Event (defined below). Following the Reconciliation Event, each Class B Preferred Share will vote on an as-converted basis with the Ordinary Shares, voting together as a single class, with respect to any question upon which holders of Ordinary Shares have the right to vote.

Class A Subordinated Convertible Notes. The Class A Notes accrue interest at a rate of 4% per annum, compounded semiannually, and mature upon the later of (i) 10 years from the date of issuance or (ii) the date of the earlier of (i) such time when the Company have secured for GLOBALFOUNDRIES certain rights under its existing cross license agreement with Intel Corporation (Intel Patent Cross License Agreement), or (ii) such time when GLOBALFOUNDRIES’ Board of Directors determines that GLOBALFOUNDRIES no longer needs to be a “Subsidiary” under the Intel Patent Cross License Agreement (the Reconciliation Event). Interest on the Class A Notes is payable semiannually in additional Class A Notes. The Class A Notes are the unsecured obligations of GLOBALFOUNDRIES and rank subordinated in right of payment to any current or future senior indebtedness of GLOBALFOUNDRIES. The Class A Notes are not redeemable by GLOBALFOUNDRIES without the noteholder’s consent. The Class A Notes are convertible, in whole or in part, in multiples of $1,000, into GLOBALFOUNDRIES Class A Preferred Shares at the option of the holder at any time prior to the close of business on the business day immediately preceding the maturity date based on the conversion ratio in effect on the date of conversion, if (i) such conversion would not cause GLOBALFOUNDRIES to fail to constitute its “Subsidiary” under the Intel Patent Cross License Agreement or (ii) the Reconciliation Event has occurred. On or after the Reconciliation Event, the Class A Notes will automatically convert into Class A Preferred Shares upon the earlier of (i) a GLOBALFOUNDRIES initial public offering, (ii) certain change of control transactions of GLOBALFOUNDRIES or (iii) the close of business on the business day immediately preceding the maturity date.

Class B Subordinated Convertible Notes. The Class B Notes accrue interest at a rate of 11% per annum, compounded semiannually, and mature upon the later of (i) 10 years from the date of issuance or (ii) the date of the Reconciliation Event. Interest on the Class B Notes is payable semiannually in additional Class B Notes. The Class B Notes are the unsecured obligations of GLOBALFOUNDRIES and rank subordinated in right of payment to any current or future senior indebtedness of GLOBALFOUNDRIES. The Class B Notes are not redeemable by GLOBALFOUNDRIES without the noteholder’s consent. The Class B Notes are convertible, in whole or in part, in multiples of $1,000, into GLOBALFOUNDRIES Class B Preferred Shares at the option of the holder at any time prior to the close of business on the business day immediately preceding the maturity date at the conversion ratio in effect on the date of conversion, if (i) such conversion would not cause GLOBALFOUNDRIES to fail to constitute its “Subsidiary” under the Intel Patent Cross License Agreement or (ii) the Reconciliation Event has occurred. On or after the Reconciliation Event, the Class B Notes will automatically convert into GLOBALFOUNDRIES Class B Preferred Shares upon the earlier of (i) a GLOBALFOUNDRIES initial public offering, (ii) certain change of control transactions of GLOBALFOUNDRIES or (iii) the close of business on the business day immediately preceding the maturity date.

For accounting purposes, the Company consolidates the accounts of GLOBALFOUNDRIES as required by FIN 46R. Based on the structure of the transaction, pursuant to the guidance in FIN 46R, GLOBALFOUNDRIES is a variable-interest entity, and the Company is deemed to be the primary beneficiary and is, therefore, required to consolidate the accounts of GLOBALFOUNDRIES. Pursuant to the requirements of SFAS 160, which the Company applied as of the beginning of fiscal 2009, ATIC’s noncontrolling interest, represented by its equity interests in GLOBALFOUNDRIES, is presented outside of stockholders’ equity in its condensed consolidated balance sheet due to the right that ATIC has to put those securities back to us in the event of a change of control of AMD during the two years following the Closing. The Company’s net income (loss) attributable to its common stockholders per share consists of its consolidated net income (loss), as adjusted for (i) the portion of GLOBALFOUNDRIES’ earnings or losses attributable to ATIC, which is based on ATIC’s proportional ownership interest in GLOBALFOUNDRIES’ Class A Preferred Shares (16.7% as of March 28, 2009), and (ii) the non-cash accretion on GLOBALFOUNDRIES’ Class B Preferred Shares attributable to the Company, based on its proportional ownership interest of GLOBALFOUNDRIES’ Class A Preferred Shares (83.3% as of March 28, 2009).

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The table below reflects the changes in noncontrolling interest during the quarter ended March 28, 2009.

For the quarter ended March 29, 2008, the noncontrolling interest income recorded in the Company’s condensed consolidated statement of operations was $13 million. This noncontrolling interest related to the guaranteed rate of return of between 11 and 13 percent for the unaffiliated partner contributions in AMD Fab 36 KG.

At the Closing, AMD, ATIC and GLOBALFOUNDRIES also entered into a Shareholders’ Agreement (the Shareholders’ Agreement), a Funding Agreement (the Funding Agreement), and a Wafer Supply Agreement (the Wafer Supply Agreement), certain terms of each of which are summarized below.

Shareholders’ Agreement. The Shareholders’ Agreement sets forth the rights and obligations of AMD and ATIC as shareholders of GLOBALFOUNDRIES. The initial GLOBALFOUNDRIES board of directors (GLOBALFOUNDRIES Board) consists of eight directors, and AMD and ATIC each designated four directors. After the Reconciliation Event, the number of directors a GLOBALFOUNDRIES shareholder may designate may decrease according to the percentage of GLOBALFOUNDRIES’ shares it owns on a fully diluted basis.

Pursuant to the Shareholders’ Agreement, GLOBALFOUNDRIES is not allowed to take certain corporate actions without unanimous GLOBALFOUNDRIES Board approval. The Shareholders’ Agreement sets forth procedures by which any deadlock with respect to matters requiring GLOBALFOUNDRIES Board approval is to be resolved.

Pursuant to the Shareholders’ Agreement, if a change of control of AMD occurs within two years of Closing, ATIC will have the right to put any or all GLOBALFOUNDRIES securities (valued at their fair market value) held by ATIC and its permitted transferees to the Company in exchange for cash, or if a change of control of AMD occurs after a specified event, ATIC will have the option to purchase in cash any or all of GLOBALFOUNDRIES securities (valued at their fair market value) held by the Company and its permitted transferees.

Funding Agreement. The Funding Agreement provides for the future funding of GLOBALFOUNDRIES and governs the terms and conditions under which ATIC is obligated to provide such funding. Pursuant to the Funding Agreement, ATIC has committed to additional equity funding of a minimum of $3.6 billion and up to $6.0 billion to be provided in phases over the next five years. The Company has the right, but not the obligation, to provide additional future capital to GLOBALFOUNDRIES in an amount pro rata to its interest in the fully converted ordinary shares of GLOBALFOUNDRIES.

At each equity funding, the equity securities to be issued by GLOBALFOUNDRIES will consist of 20% of Class A Preferred Shares and 80% of Class B Preferred Shares. Rather than issuing Preferred Shares, GLOBALFOUNDRIES may, in certain circumstances, issue additional Class A Notes and Class B Notes to ATIC in those same proportions in connection with future funding. The aggregate amount of equity funding to be provided by the shareholders in any fiscal year depends on the time period of such funding and the amounts set forth in the five-year capital plan of GLOBALFOUNDRIES. In addition, GLOBALFOUNDRIES is required to obtain specified third-party debt in any given fiscal year, as set forth in its five-year capital plan. To the extent that GLOBALFOUNDRIES obtains more than the specified amount of third-party debt, ATIC is able to reduce its funding commitment accordingly. To the extent that GLOBALFOUNDRIES is not able to obtain the full amount of third-party debt, ATIC is not obligated to make up the difference. To the extent the Company chooses not to participate in an equity financing of GLOBALFOUNDRIES, ATIC is obligated to purchase its share of GLOBALFOUNDRIES securities, subject to ATIC’s funding commitments under the Funding Agreement.

ATIC’s obligations to provide funding are subject to certain conditions including the accuracy of GLOBALFOUNDRIES’ representations and warranties in the Funding Agreement, the absence of a material adverse effect on GLOBALFOUNDRIES or AMD and the absence of a material breach or default by GLOBALFOUNDRIES or AMD under the provisions of any transaction document. There are additional funding conditions for each of the phases which are set forth in more detail in the Funding Agreement.

Wafer Supply Agreement. The Wafer Supply Agreement governs the terms by which the Company purchases products manufactured by GLOBALFOUNDRIES. Pursuant to the Wafer Supply Agreement, the Company purchases, subject to limited exceptions, all of its microprocessor unit (MPU) product requirements from GLOBALFOUNDRIES. If the Company acquires a third-party business that manufactures MPU products, it will have up to two years to transition the manufacture of such MPU products to GLOBALFOUNDRIES. In addition, once GLOBALFOUNDRIES establishes a 32nm-qualified process, the Company will purchase from GLOBALFOUNDRIES, where competitive, specified percentages of its graphics processor unit (GPU) requirements at all process nodes, which percentages will increase linearly over a five-year period. At its request, GLOBALFOUNDRIES will also provide sort services to the Company on a product-by-product basis.

The Company will provide GLOBALFOUNDRIES with product forecasts of its MPU and GPU product requirements. The price for MPU products is related to the percentage of our MPU-specific total cost of goods sold. The price for GPU products will be determined by the parties when GLOBALFOUNDRIES is able to begin manufacturing GPU products for the Company.

The Wafer Supply Agreement is in effect through May 2, 2024. However, the Wafer Supply Agreement may be terminated if a business plan deadlock exists and ATIC elects to enter into a transition period pursuant to the Funding Agreement. GLOBALFOUNDRIES has agreed to use commercially reasonable efforts to assist the Company to transition the supply of products to another provider, and continue to fulfill purchase orders for up to two years following the termination or expiration of the Wafer Supply Agreement.

3. Stock-Based Incentive Compensation Plans

The following table summarizes stock-based compensation expense related to employee stock options, restricted stock and restricted stock units of continuing operations for the quarter ended March 28, 2009 and March 29, 2008, respectively, which was allocated in the condensed consolidated statements of operations as follows:

For the quarter ended March 28, 2009, the Company did not have employee stock-based compensation expense for discontinued operations. For the quarter ended March 29, 2008, employee stock-based compensation expense included in discontinued operations and excluded from continuing operations was $1 million.

Stock Options. The weighted-average assumptions that the Company applied in the lattice-binomial model that the Company uses to value employee stock options are as follows:

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For the quarters March 28, 2009 and March 29, 2008, the Company granted 1,104,034 and 9,533,876 employee stock options, respectively, with average estimated grant date fair values of $1.35 and $3.03, respectively.

Restricted Stock Units and Awards. For the quarters March 28, 2009 and March 29, 2008, the Company granted 199,650 and 490,784 shares of restricted stock and restricted stock units, respectively, with an average grant date fair value of $2.41 and $6.40, respectively.

4. Goodwill and Acquisition Related Intangible Assets

The carrying amount of goodwill for the Graphics segment as of March 28, 2009 and December 27, 2008, was $323 million.

The changes in the balances of acquisition related intangible assets for the quarter ended March 28, 2009 and the net book value of acquisition related intangible assets at March 28, 2009 were as follows:

Estimated future amortization expense related to acquisition related intangible assets is as follows:

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5. Net Income (Loss) Attributable to AMD Common Stockholders Per Share

Basic net income (loss) attributable to AMD Common Stockholders per share is computed using the weighted-average number of common shares outstanding. Diluted net income (loss) attributable to AMD Common Stockholders per share is computed using the weighted-average number of common shares outstanding plus any dilutive potential common shares outstanding. Potential dilutive common shares include stock options, restricted stock awards, and shares issuable upon the conversion of convertible debt. The following table sets forth the components of basic and diluted income (loss) attributable to AMD Common Stockholders per share:

Potential common shares (i) from outstanding stock awards totaling approximately 67 million, (ii) issuable under the Company’s 5.75% Convertible Senior Notes due 2012 totaling 75 million and (iii) issuable upon exercise of the Warrants totaling 35 million for the first quarter of 2009 were not included in the net loss attributable to AMD common stockholders per share calculation because their inclusion would have been anti-dilutive.

Potential common shares from outstanding stock awards totaling approximately 60 million along with approximately 75 million common shares issuable under the Company’s 5.75% Convertible Senior Notes due 2012 for the first quarter of 2008 were not included in the net loss attributable to AMD common stockholders per share calculation because their inclusion would have been anti-dilutive.

6. Segment Reporting

Management, including the Chief Operating Decision Maker (CODM), who is the Company’s chief executive officer, reviews and assesses operating performance using segment net revenues and operating income (loss) before interest, other income (expense), net, and income taxes. These performance measures include the allocation of expenses to the operating segments based on management’s judgment.

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As of December 27, 2008, the Company had two reportable segments:

the Computing Solutions segment, which includes microprocessors, chipsets and embedded processors and related revenue; and

the Graphics segment, which includes graphics, video and multimedia products and related revenue as well as revenue from royalties received in connection with the sale of game console systems that incorporate its graphics technology.

In the first quarter of 2009, the Company consummated the GLOBALFOUNRDIES manufacturing joint venture transaction and started using the following three reportable segments:

the Computing Solutions segment, which includes microprocessors, chipsets and embedded processors and related revenue;

the Graphics segment, which includes graphics, video and multimedia products and related revenue as well as revenue from royalties received in connection with the sale of game console systems that incorporate its graphics technology; and

the Foundry segment, which includes the operating results attributable to front end wafer manufacturing operations and related activities, including the operating results of GLOBALFOUNDRIES from March 2, 2009 onward.

In addition to these reportable segments, the Company has an All Other category, which is not a reportable segment. This category includes certain expenses and credits that are not allocated to any of the operating segments because the CODM does not consider these expenses and credits in evaluating the performance of the operating segments. Such expenses are non-Foundry segment related expenses and include employee stock-based compensation expense, profit sharing expense, restructuring charges and, impairment charges for goodwill and intangible assets. The results of the Handheld business unit are also reported in the All Other category.

Starting in the first quarter of 2009, the Company also has an Intersegment Eliminations category, which is also not a reportable segment. This category includes intersegment eliminations for revenue, cost of sales and profits on inventory related to transactions between the Computing Solutions segment and the Foundry segment.

The following table provides a summary of net revenue and operating income (loss) by segment for the quarter ended March 28, 2009. Information for prior periods has not been recast to reflect the segment changes noted above because it is not practicable to do so.

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The following table provides a summary of net revenue and operating income (loss) by segment for the quarters ended March 28, 2009 and March 29, 2008, applying the segment structure that was in place as of December 27, 2008:

7. Comprehensive Income (Loss)

The following are the components of comprehensive income (loss):

8. Commitments and Contingencies

Guarantees

Guarantees of Indebtedness Recorded on the Company’s Condensed Consolidated Balance Sheet

As of December 27, 2008, the principal guarantee related to indebtedness recorded on the Company’s consolidated balance sheet was for $28 million, which represented the amount of silent partnership contributions that AMD Fab 36 KG Holding and AMD Fab 36 Admin were required to repurchase from Leipziger Messe, excluding the guaranteed rate of return. At the Closing of the GLOBALFOUNDRIES transaction, AMD Fab 36 Holding and AMD Fab 36 Admin repurchased the partnership contributions in AMD Fab 36 KG held by Leipziger Messe. Accordingly, no incremental liabilities were recorded on the Company’s condensed consolidated balance sheet as of the end of the first quarter of 2009.

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 by AMD, Infineon Technologies AG (Infineon) and DuPont Photomasks, Inc. (Dupont) 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 April 2005, DuPont was acquired by Toppan Printing Co., Ltd. and became a wholly owned subsidiary of Toppan, named Toppan Photomasks, Inc. (Toppan). In December 2007, Infineon entered into an assignment agreement to transfer its interest in AMTC and BAC to Qimonda AG (Qimonda), with the exception of

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certain AMTC/BAC related payment guarantees. The assignment became effective in January 2008. In January 2009, Qimonda filed an application with the local court in Munich to commence insolvency proceedings. Pursuant to the partnership agreements of AMTC and BAC, the commencement of insolvency proceedings constituted an event of default which gave AMD and Toppan the right to expel Qimonda from the joint ventures. In March 2009, AMD and Toppan expelled Qimonda as a limited partner from the AMTC and BAC joint ventures, and, accordingly, became the only remaining joint venture partners. In agreement with the Qimonda preliminary insolvency administrator, AMD, Toppan, Qimonda and the AMTC and BAC joint ventures executed a divestiture agreement regarding, among other things, the compensation to be paid to Qimonda for its limited partnership interest as a result of its expulsion from the joint ventures. The Company’s obligations with respect to the compensation are not material.

In December 2002, BAC obtained a euro denominated term loan to finance the construction of the photomask facility pursuant to which the equivalent of $35 million was outstanding as of March 28, 2009. Also in December 2002, each of Toppan Photomasks Germany GmbH, and AMTC, as lessees, entered into a lease agreement with BAC, as lessor. The term of the lease agreement is ten years from initial occupancy. Each joint venture partner guaranteed a specific percentage of AMTC’s portion of the rental payments. Currently, Infineon, AMD and Toppan are the guarantors under the rental guarantee. The rental payments to BAC are in turn used by BAC to repay amounts outstanding under the BAC term loan. There is no separate guarantee outstanding for the BAC term loan. With respect to the lease agreement, AMTC may exercise a “step-in” right in which it would take over Toppan Germany’s remaining rental payments in connection with the lease agreement between Toppan Photomask Germany and BAC. As of March 28, 2009, the Company’s guarantee of AMTC’s portion of the rental obligation was approximately $8 million. The Company’s maximum liability in the event AMTC exercises its “step-in” right and the other joint venture partners default under the guarantee would be approximately $62 million. These estimates are based upon forecasted rents to be charged by BAC in the future and are subject to change based upon the actual usage of the facility by the tenants and foreign currency exchange rates.

In December 2007, AMTC entered into a euro denominated revolving credit facility, pursuant to which the equivalent of $69 million was outstanding as of March 28, 2009. With the lenders’ consent, AMTC may request that the loan amount be increased by an additional amount of euro (equivalent to approximately $53 million as of March 28, 2009). The term of the revolving credit facility is three years. Upon request by AMTC and subject to certain conditions, the term of the revolving credit facility may be extended for up to two additional years. Pursuant to a guarantee agreement, AMD and Toppan guarantee one third of AMTC’s outstanding loan balance under the revolving credit facility, and Qimonda provided cash security equal to one third of AMTC’s outstanding loan balance pursuant to a cash pledge agreement As of March 28, 2009, the Company’s potential obligation under this guarantee was the equivalent of $23 million plus the Company’s portion of accrued interest and expenses. The Company’s maximum potential liability under this guarantee in the event the AMTC revolving credit facility is increased as set forth above would be approximately $30 million plus the Company’s portion of accrued interest and expenses. Under the terms of the guarantee, if the Company’s group consolidated cash (which is defined as cash, cash equivalents and marketable securities less the aggregate amount outstanding under any revolving credit facility) is less than or expected to be less than $500 million, the Company will be required to provide cash collateral equal to one third of the balance outstanding under the revolving credit facility. The Company evaluated this guarantee under the provisions of FASB Interpretation No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others (FIN 45) and concluded it was immaterial to the Company’s financial position or results of operations.

Under the AMTC revolving credit facility, Qimonda’s application for insolvency is considered an event of default and upon the demand of two thirds of the lenders, all the amounts outstanding under the credit facility may be immediately due and payable. The AMTC has received a waiver from the lenders to waive the event of default until May 29, 2009. In addition, the Company expects that the AMTC credit facility will be amended to reflect Qimonda’s expulsion from the joint ventures. Under the BAC term loan, an insolvency of a partner does not constitute an event of default. However, an event of default may be triggered under the BAC term loan under certain circumstances, such as an event that results in a material adverse effect on the joint venture, or if a partner ceases to continue its business or does not fulfill certain material obligations. In the event the AMTC credit facility is called, the Company believes that the lenders under the BAC term loan will also call the BAC term loan and that the Company will be obligated to perform under the rental guarantee. As a result of Qimonda’s expulsion from the joint ventures, AMD and Toppan are reviewing the business plans and operations of the AMTC and BAC joint ventures.

As of March 28, 2009, Qimonda owed AMTC approximately $20 million in connection with its committed capacity allocations. However, as a result of the commencement of insolvency proceedings, these amounts are considered insolvency claims and will be handled along with the claims of Qimonda’s other creditors. Because AMTC is unlikely to recover amounts due from Qimonda during the insolvency proceedings, the Company incurred a charge of $10 million, or 50 percent of the total receivable, in the first quarter of 2009.

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Warranties and Indemnities

The Company generally warrants that microprocessor products sold to its customers will, at the time of shipment, be free from defects in workmanship and materials and conform to its approved specifications. 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,” a one-year limited warranty to direct purchasers of all other microprocessor products that are commonly referred to as “tray” microprocessor products, and a one-year limited warranty to direct purchasers of embedded processor products. The Company 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.

The Company generally warrants that its graphics, chipset and certain products for consumer electronics devices will conform to the Company’s approved specifications and be free from defects in material and workmanship under normal use and service for a period of one year beginning on shipment of such products to its customers. The Company generally warrants that ATI-branded PC workstation products will conform to the Company’s approved specifications and be free from defects in material and workmanship under normal use and service for a period of three years, beginning on shipment of such products to its customers.

Changes in the Company’s potential liability for product warranty during the quarters ended March 28, 2009 and March 29, 2008 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. The Company has agreed to hold the other party harmless against specified 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) infringe the intellectual property rights of a third party or other claims made against certain parties. It is not possible to determine the maximum potential amount of liability under these indemnification obligations due to the limited history of indemnification claims and 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

The Company is a defendant or plaintiff in various actions that arose in the normal course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Company’s financial condition or results of operations.

9. Income Tax

The Company recorded an income tax provision of $116 million in the first quarter of 2009 and less than $1 million in the first quarter of 2008.

The income tax provision recorded in the first quarter of 2009 was primarily due to a one-time loss of deferred tax assets for German net operating loss carryovers upon the transfer of the Company’s ownership interests in its Dresden Subsidiaries to GLOBALFOUNDRIES. The income tax provision in the first quarter of 2008 was due to foreign taxes in profitable locations offset by immaterial discrete tax benefits.

As of March 28, 2009, substantially all of the Company’s U.S. deferred tax assets, net of deferred tax liabilities, continue to be subject to a valuation allowance. The realization of these assets is dependent on substantial future taxable income which at March 28, 2009 in management’s estimate, is not more likely than not to be achieved.

The Company’s gross unrecognized tax benefits decreased by $20 million during the quarter primarily due to the reversal of unrecognized tax benefits for German net operating loss carryovers resulting from the formation of GLOBALFOUNDRIES. The change in gross unrecognized tax benefits decreased income taxes in the first quarter of 2009 by $18 million.

During the 12 months beginning March 29, 2009 the Company expects to reduce its unrecognized tax benefits by approximately $83 million as a result of the expiration of certain statutes of limitation and audit resolutions. The Company does not believe it is reasonably possible that other unrecognized tax benefits will materially change in the next 12 months.

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10. Fair Value Measurements

Assets and (liabilities) measured at fair value are summarized below:

The Company measures its cash equivalents, marketable securities, the UBS put option and foreign currency derivative contracts at fair value. Cash equivalents and marketable securities are primarily classified within Level 1 or Level 2, with the exception of auction rate security (ARS) investments. This is because cash equivalents and marketable securities are valued primarily using quoted market prices or alternative pricing sources and models utilizing market observable inputs, as provided to the Company by its brokers. The Company’s Level 1 assets are valued using quoted prices for identical instruments in active markets. The Company’s Level 2 assets, all of which mature within six months, are valued using broker reports that utilize quoted market prices for

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similar instruments. The ARS investments and the UBS put option are classified within Level 3 because they are valued using a discounted cash flow model. Some of the inputs to this model are unobservable in the market and are significant. The Company’s foreign currency derivative contracts are classified within Level 2 because the valuation inputs are based on quoted prices and market observable data of similar instruments in active markets, such as currency spot and forward rates.

The Company’s investments in ARS include approximately $124 million of student loan ARS, $32 million of municipal and corporate ARS and $2 million ARS in preferred shares of closed end mutual funds. Approximately 80 percent of the Company’s ARS holdings are AAA rated investments and all the $124 million student loan ARS are guaranteed by the Federal Family Educational Loan Program. Until the first quarter of 2008, the fair values of the Company’s ARS were determinable by reference to frequent successful Dutch auctions of such securities, which settled at par.

The recent uncertainties in the credit markets have affected all of the Company’s ARS investments and auctions for these securities have failed to settle on their respective settlement dates. As a result, reliable Level 1 or Level 2 pricing is not available for these ARS. In light of these developments, to determine the fair value for its ARS, the Company obtained broker reports and discussed with brokers the critical inputs that they used in their proprietary models to assess fair value, which included liquidity, credit rating and discounted cash flows associated with these ARS. In addition, the Company performed its own discounted cash flow analyses. The outcomes of these activities indicated that the fair value of the ARS remained consistent with the fair value as of December 27, 2008.

The significant inputs and assumptions used by the Company in the discounted cash flow model to determine the fair value of its ARS, as of March 28, 2009, were as follows:

In October 2008, UBS AG (UBS) offered to repurchase all of the Company’s ARS that were purchased from UBS prior to February 13, 2008. In accounting for the put option, the Company made the fair value accounting election as permitted by FASB Statement No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (SFAS 159). Accordingly, the Company initially recorded the put option at its estimated fair value as an other asset on the Company’s consolidated balance sheet, with the corresponding gain recorded in the earnings. The put option is marked to market each quarter, with changes in its estimated fair value recorded in earnings. The Company recorded a loss of $1 million during the three months ended March 28, 2009 to reflect the change in fair value of the put option. The Company’s significant inputs and assumptions used in the discounted cash flow model to determine the fair value of this put option, as of March 28, 2009, are as follows:

If different assumptions were used for the various inputs to the valuation approach including, but not limited to, assumptions involving the estimated lives of the ARS investments, the estimated cash flows over those estimated lives, the estimated discount rates applied to those cash flows and the illiquidity factor, the estimated fair value of these investments and the put option could be significantly higher or lower than the fair value determined by the Company as of March 28, 2009.

As of March 28, 2009, the Company classified its investments in ARS as current assets because it reasonably expects that it will be able to sell these securities and have the proceeds available for use in its operations within the next twelve months. Although there may not be successful future auctions, the Company reasonably expects there to be other channels through which it reasonably expects to sell the ARS. Specific factors the Company considered in determining that its ARS should be classified as short-term marketable securities and included as current assets are as follows:

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With respect to $82 million (par value) of its ARS holdings, prior to June 30, 2010, UBS, at its sole discretion, may sell, or otherwise dispose of, and/or enter orders in the auctions process with respect to these securities on the Company’s behalf so long as the Company receives par value for the ARS sold. UBS has also agreed to use its best efforts to facilitate issuer redemptions and/or to resolve the liquidity concerns of holders of their ARS through restructurings and other means.

Reconciliation of the financial assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3):

Total financial assets at fair value classified within Level 3 were 2 percent of total assets on the Company’s condensed consolidated balance sheet as March 28, 2009.

Total financial assets at fair value classified within Level 3 were 1.8 percent of total assets on the Company’s condensed consolidated balance sheet as of March 29, 2008.

11. Restructuring

In the second and fourth quarters of 2008, the Company initiated restructuring plans to reduce its cost structure. Both plans primarily involved the termination of employees. The restructuring plan initiated in the fourth quarter of 2008 involved cost reduction actions that either took place during the fourth quarter of 2008 and the first quarter of 2009, and to a lesser extent will continue to take place during the remainder of 2009.

The restructuring charges recorded in conjunction with the plan initiated during the second quarter of 2008 primarily represented severance and costs related to the continuation of certain employee benefits and costs to terminate a contract. This plan was substantially completed during the fourth quarter of 2008.

The restructuring charges recorded in conjunction with the plan initiated during the fourth quarter of 2008 primarily represented severance and costs related to the continuation of certain employee benefits, contract or program termination costs, asset impairments and exit costs for facility consolidations and closures. In the first quarter of 2009, the Company recorded restructuring charges related to this plan of approximately $55 million. The Company anticipates this plan to be substantially completed during 2009.

Restructuring charges for the plans initiated in the second and fourth quarters of 2008 have been aggregated and are included in the caption “Restructuring charges” in the Company’s condensed consolidated statement of operations, with the exception of $1 million in 2008, which is classified as discontinued operations.

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The following table provides a summary of each major type of cost associated with the restructuring plan initiated in the fourth quarter of 2008 through March 28, 2009:

The following table provides a reconciliation of the liability associated with the restructuring plan initiated in the fourth quarter 2008:

In December 2002, the Company initiated a restructuring plan (the 2002 Restructuring Plan) to further align the cost structure to industry conditions resulting from weak customer demand and industry-wide excess inventory. The 2002 Restructuring Plan resulted in the consolidation of facilities, primarily at the Sunnyvale, California site and at sales offices worldwide. With respect to its Sunnyvale, California site, the Company entered into a sublease agreement for a portion of these facilities with Spansion, Inc. On March 1, 2009, Spansion filed a voluntary petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code. On March 31, 2009, Spansion filed a motion in that proceeding in which it indicated that it does not intend to perform its obligations under its sublease agreement with the Company. As a result of this and the Company’s ongoing assessment of the restructuring accrual, the Company recorded an additional charge of approximately $5 million in the first quarter of 2009, which is included in the caption “Restructuring charges” in its condensed consolidated statement of operations. The Company anticipates these amounts will be paid through 2011.

The following table provides a reconciliation of the liability associated with the 2002 Restructuring Plan:

12. Disposition of Assets

In the first quarter of 2009, the Company completed the sale of certain graphics and multimedia technology assets and intellectual property that were formerly part of its Handheld business unit to Qualcomm Incorporated for approximately $65 million in cash. In addition, certain employees of the Handheld business became employees of Qualcomm. The assets the Company sold to Qualcomm had a carrying value of approximately $32 million and were classified as assets held for sale and included in the caption “Prepaid expenses and other current assets” in the Company’s 2008 consolidated balance sheet. As a result of the sale transaction the Company recognized a gain of $28 million. As part of the Company’s agreement with Qualcomm, the Company retained the AMD Imageon^™ media processor brand and the rights to continue selling the products that were part of the Handheld business unit. The Company intends to support existing handheld products and customers through the current product lifecycles. However, the Company currently does not intend to develop any new handheld products beyond those already committed.

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13. Receivable financing arrangement Classified as Other Short-Term Obligations

On March 26, 2008, the Company entered into a Sale of Receivables – Supplier Agreement with IBM Credit LLC (IBM Credit), and one of its wholly-owned subsidiaries, AMD International Sales & Service, Ltd. (AMDISS), entered into the same sales agreement with IBM United Kingdom Financial Services Ltd. (IBM UK), pursuant to which the Company and AMDISS agreed to sell to each of IBM Credit and IBM UK certain receivables. Pursuant to the sales agreements, the IBM parties agreed to purchase from the AMD parties invoices of specified AMD customers up to credit limits set by the IBM parties for any applicable AMD customer. As of March 28, 2009, only selected distributor customers have participated in this program. Because the Company does not recognize revenue until its distributors sell its products to their customers, pursuant to the requirements of EITF Issue No. 88-18, Sales of Future Revenue, the Company classified funds received from the IBM parties as debt. The debt is reduced as the IBM parties receive payments from the distributors. As of March 28, 2009, $134 million was outstanding under these agreements. As of December 27, 2008, $86 million was outstanding under these agreements. This amount appears as “Other short-term obligations” on the Company’s condensed consolidated balance sheets and is not considered a cash commitment.

14. Accrued Liabilities

The Company’s accrued liabilities at the quarters ended March 28, 2009 and December 27, 2008 were as follows:

15. Accounting changes — Convertible Debt instruments

In the first quarter of 2009, the Company adopted FSP APB 14-1 and modified its accounting for the 6.00% Notes. To retrospectively apply this FSP, 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, and is 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 condensed consolidated balance sheet. The initial value of the equity component, which reflects the equity conversion feature of the 6.00% Notes, is equal to the initial debt discount.

In November 2008, the Company repurchased $60 million in principal value of its 6.0% Notes ($54 million, net of unamortized debt discount) in an open market transaction for approximately $21 million, resulting in a gain of $39 million under accounting guidance prevailing at that time. Under the provisions of FSP APB 14-1, the Company allocated $6 million of the $21 million to the equity component and $27 million to the debt component, which resulted in a gain of approximately $27 million.

In February 2009, the Company repurchased $158 million in principal value of its 6.00% Notes ($143 million, net of unamortized debt discount) in open market transactions for approximately $57 million. Under the provisions of FSP APB 14-1, the Company allocated $24 million of the $57 million to the equity component and $33 million to the debt component, which resulted in a gain of approximately $108 million.

The effect of retrospective application of the FSP on retained earnings as of December 27, 2008 was $53 million. In the first quarter of 2009, the effect of applying the provisions of FSP APB 14-1 was (i) an increase in non-cash interest expense of approximately $6 million, which represents accretion of the unamortized debt discount associated with the 6.00% Notes for the first quarter of 2009 and (ii) an increase in other income (expense) of $9 million, which represents the difference in accounting for the gain on the debt repurchase under prior accounting compared with accounting pursuant to this FSP. There was no net deferred tax impact as a result of the adoption of FSP APB 14-1 due to the Company’s full valuation allowance.

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The following tables show the other information related to the 6.0% Notes required to be disclosed under FSP APB 14-1.

Information related to equity and debt components

Information related to interest rates and expense

(Millions except percentages)

The following tables show the financial statement line items affected by retrospective application of FSP APB 14-1 on the affected financial statement line items for the periods indicated: