Business Context and Reporting Period
Company: Advanced Micro Devices, Inc. (AMD)
Filing Type: Form 8-K (Current Report)
Date of Report: March 2, 2009
Event: Completion of a manufacturing joint venture with Advanced Technology Investment Company LLC (ATIC), a sovereign wealth fund of Abu Dhabi, and West Coast Hitech L.P. (WCH). The joint venture, originally named The Foundry Company, was renamed GLOBALFOUNDRIES Inc. on March 4, 2009.
Key Financial Metrics and Transaction Details
This filing details a strategic restructuring rather than standard periodic financial results. Key financial figures related to the transaction include:
- ATIC Cash Contribution: $1.4 billion contributed to The Foundry Company.
- Cash to AMD: $700 million transferred from ATIC to AMD in exchange for 700,000 Class B Preferred Shares of The Foundry Company.
- WCH Investment: $124.7 million aggregate purchase price for 58 million shares of AMD common stock and warrants to purchase 35 million shares.
- Warrant Terms: Exercise price of $0.01 per share; exercisable after the earlier of public ground-breaking of a New York facility or March 2, 2011; expire March 2, 2019.
- Future Funding Commitment: ATIC committed to provide additional equity funding of a minimum of $3.6 billion and up to $6.0 billion over the next five years.
- Debt Repurchase: AMD repurchased partnership interests in AMD Fab 36 KG from Leipziger Messe for approximately $190 million (Euro-equivalent).
Material Changes Versus Prior Period
The filing reports a fundamental change in AMD's manufacturing structure:
- Asset Transfer: AMD contributed Fab 30/38 and Fab 36 (Dresden Subsidiaries), manufacturing assets, real property, employees, inventory, and a portion of its patent portfolio to The Foundry Company.
- Consolidation: The Foundry Company's financial results will continue to be consolidated in AMD's financial statements.
- Debt Restructuring: The €700 million Term Loan Facility associated with Fab 36 was transferred to The Foundry Company, with AMD and The Foundry Company acting as joint guarantors.
- Board Changes: Hector de J. Ruiz resigned from AMD's board; Waleed Ahmed Al Mokarrab Al Muhairi (affiliate of WCH/ATIC) was appointed to fill the vacancy. Bruce Claflin was appointed Chairman of the Board.
Guidance, Outlook, Risks, and Contingencies
Outlook and Agreements:
- Wafer Supply: AMD agreed to purchase all microprocessor unit (MPU) requirements from The Foundry Company. GPU requirements will be purchased at specified percentages once a 32nm process is qualified. The agreement lasts until May 2, 2024.
- Capital Plan: Future funding is divided into three phases (2009-2010, 2011-2013, 2014-termination). ATIC is obligated to fund equity if AMD does not participate pro rata.
Risks and Covenants:
- Financial Covenants: AMD must comply with adjusted tangible net worth and EBITDA covenants if group consolidated cash declines below specific thresholds tied to credit ratings (e.g., $500 million if Moody's rating is B1 or lower).
- Change of Control: If AMD undergoes a change of control within two years of closing, ATIC has the right to put its securities to AMD for cash or purchase AMD's securities.
- Deadlock Resolution: Shareholders can break board deadlocks if they own more than 75% or 90% of shares on a fully diluted basis.
Important Facts for Investor Verification
- Verify the exact ownership percentages of AMD and ATIC in GLOBALFOUNDRIES Inc. post-closing based on the preferred share structures described.
- Confirm the status of the €700 million Term Loan Facility and the specific credit rating triggers for AMD's financial covenants.
- Monitor the timeline for the "public ground-breaking" of the New York facility, which triggers the exercisability of WCH warrants.
- Review the "Wafer Supply Agreement" terms regarding pricing mechanisms for MPU and GPU products, as these directly impact AMD's cost of goods sold.
- Assess the impact of the $190 million cash outflow for the repurchase of Leipziger Messe's partnership interests on AMD's immediate liquidity.