Business Context and Reporting Period
Company: Advanced Micro Devices, Inc. (AMD)
Filing Type: Form 8-K (Current Report)
Date of Report: October 15, 2009
Reporting Period: Fiscal quarter ended September 26, 2009 (Third Quarter 2009)
This filing announces financial results and includes Regulation FD disclosure. It details the creation of a manufacturing joint venture, GLOBALFOUNDRIES Inc. (GF), on March 2, 2009. Although AMD does not majority own GF, it consolidates GF's operations. The filing provides both consolidated GAAP results and non-GAAP measures for "AMD Product Company" (excluding the Foundry segment and intersegment eliminations) to offer visibility into core operations.
Key Financial Metrics and Adjustments
Note: This 8-K filing describes the methodology for non-GAAP adjustments and specific transaction values but does not contain the consolidated GAAP revenue, net income, or cash flow totals for the quarter. Those figures are referenced as being in the attached press release (Exhibit 99.1).
- Debt Repurchase Gains:
- Q3 2009: Repurchased $186 million face value of 6% Convertible Senior Notes due 2015, recognizing a gain of $66 million.
- Q2 2009: Repurchased $15 million face value of 5.75% Convertible Senior Notes due 2012, recognizing a gain of $6 million.
- Restructuring Charges:
- Q3 2009: $4 million.
- Q2 2009: $1 million.
- Q3 2008: $9 million.
- Inventory Write-downs (Historical Context): In Q4 2008, AMD recorded a $227 million inventory write-down. Sales of this inventory in 2009 generated a gross margin benefit excluded from non-GAAP margins.
- Divestitures (Historical Context):
- DTV business sold to Broadcom in Q4 2008 for $141.5 million cash.
- Handheld business assets sold to Qualcomm in Q1 2009 for $65 million cash.
Material Changes and Non-GAAP Methodology
The filing outlines significant adjustments made to derive non-GAAP financial measures for Q2 and Q3 2009 compared to prior periods:
- Exclusions for Consolidated AMD: Adjustments exclude the gross margin benefit from Q4 2008 inventory sales, amortization of acquired intangible assets (ATI acquisition), restructuring charges, and gains from debt repurchases.
- Exclusions for AMD Product Company: In addition to the above, this metric excludes the net loss from the Foundry segment (GF), intersegment eliminations, net income/loss attributable to noncontrolling interest, and Class B preferred accretion.
- Comparison to Q3 2008: Non-GAAP measures for Q3 2008 excluded losses from discontinued operations (DTV), impairment of goodwill/intangibles related to ATI, restructuring charges, investment net charges ($9 million related to Spansion Inc.), and process technology license revenue ($191 million).
Outlook, Risks, and Management Commentary
Management Commentary:
- Management believes non-GAAP measures facilitate better comparison of current and historical operating performance by removing non-recurring or non-operational items.
- The "AMD Product Company" metric is provided to help investors understand financial results absent the consolidation requirement of GF.
- Adjusted EBITDA is presented to assist investors and lenders in evaluating capital structure and borrowing capacity.
Risks and Contingencies:
- Non-GAAP Limitations: The filing explicitly states that non-GAAP measures and Adjusted EBITDA are not substitutes for GAAP measures. Adjusted EBITDA does not account for changes in assets/liabilities, interest, or taxes that affect cash flows.
- Consolidation Impact: The requirement to consolidate GF, despite not being a majority-owned subsidiary, significantly impacts reported results, necessitating the "AMD Product Company" view.
Investor Verification Checklist
- Verify the specific GAAP revenue, net income, and cash flow figures in the attached press release (Exhibit 99.1), as they are not listed in this 8-K text.
- Confirm the reconciliation tables between GAAP and non-GAAP measures to understand the magnitude of the $66 million debt gain and inventory margin benefits.
- Review the "AMD Product Company" metrics to assess core performance independent of the GLOBALFOUNDRIES joint venture losses.
- Monitor the impact of the $227 million Q4 2008 inventory write-down on future gross margins as remaining inventory is sold.
- Assess the sustainability of Adjusted EBITDA given the exclusion of interest, taxes, and depreciation.