Business Context and Reporting Period
Company: Advanced Micro Devices, Inc. (AMD)
Filing Type: Form 8-K (Current Report)
Date of Report: December 27, 2010
Event: Entry into material definitive agreements and other events related to the restructuring of AMD's relationship with GLOBALFOUNDRIES Inc. (GF).
Key Financial Metrics and Agreements
This filing details amendments to the Shareholders' Agreement and Funding Agreement between AMD, ATIC International Investment Company LLC, and GF. Key financial and structural points include:
- Ownership Stake: Following the contribution of GLOBALFOUNDRIES Singapore Pte. Ltd. (GFS) to GF, AMD's ownership in GF is approximately 14% on a fully converted ordinary shares basis.
- Funding Valuation Change: For equity funding on or after November 17, 2010, the purchase price per GF Class A Preferred Share is determined by GF's net tangible assets divided by total outstanding preferred shares, multiplied by 1.10. This replaces the previous multiple of 0.90.
- Board Representation: AMD retains the right to designate one representative to the GF board of directors for at least two years after its ownership falls below 10%.
Material Changes Versus Prior Period
The filing outlines significant changes to the "Original Agreements" established in March 2009:
- Accounting Method Change: Commencing with the first fiscal quarter of 2011, AMD will account for its investment in GF under the cost method. Consequently, AMD will no longer recognize any share of GF's net income or loss in its statements of operations.
- Financial Reporting: GF must now provide financial information required by AMD specifically for the change in accounting method.
- Transaction Structure: ATIC International contributed all outstanding shares of GFS to GF in exchange for 2,808,981 newly issued GF Class A Preferred Shares.
Outlook, Risks, and Unusual Items
Unusual Items and Future Impact:
- Non-Cash Gain: AMD expects to recognize a non-cash gain in the first fiscal quarter of 2011 related to the dilution of its equity interest in GF resulting from the GFS Contribution.
- Amount Uncertainty: The exact amount of this non-cash gain cannot be determined at this time and will be disclosed in a future filing once calculated.
- Exhibit Filing: The full text of the Amended and Restated Shareholders' Agreement and Funding Agreement will be filed as exhibits to AMD's next Annual Report on Form 10-K.
Investor Verification Checklist
- Verify the exact amount of the non-cash gain related to equity dilution when disclosed in the Q1 2011 filing.
- Monitor the impact of switching to the cost method on AMD's reported net income starting Q1 2011.
- Review the full text of the Amended and Restated Shareholders' and Funding Agreements in the upcoming Form 10-K for detailed covenants.
- Track AMD's ownership percentage in GF to determine when the two-year extension for board representation expires.