Business Context and Reporting Period
Company: Advanced Micro Devices, Inc. (AMD)
Filing Type: Form 8-K (Current Report)
Report Date: April 21, 2011
Reporting Period: Fiscal Quarter ended April 2, 2011
This filing announces financial results for the first fiscal quarter of 2011. It includes a press release (Exhibit 99.1) and financial commentary from Thomas J. Seifert, Senior Vice President, Chief Financial Officer, and Interim Chief Executive Officer (Exhibit 99.2).
Key Financial Metrics and Accounting Changes
The filing text does not provide specific GAAP or non-GAAP values for revenue, net income, cash flow, or margins for the quarter ended April 2, 2011. These figures are contained in the attached exhibits (99.1 and 99.2) which are referenced but not included in the source text.
Significant Accounting Change:
- GLOBALFOUNDRIES (GF) Accounting: Beginning in the first fiscal quarter of 2011, AMD changed its accounting for its investment in GF from the equity method to the cost method. Previously (Q1 2010 through Dec 25, 2010), GF results were deconsolidated and accounted for under the equity method.
- Non-GAAP Adjustments: The company presents non-GAAP measures excluding GF-related items, amortization of acquired intangible assets, and legal settlement charges/gains to reflect core operating performance.
Material Changes and Unusual Items
The filing details several specific items excluded from non-GAAP calculations to ensure comparability across periods:
- Payment to GF (Q1 2011): A $24 million charge recorded in cost of sales related to a payment to GF (cash and preferred shares) for manufacturing assets that do not benefit AMD.
- Legal Settlements:
- Q4 2010: A $283 million gain recorded from a settlement agreement, along with a $47 million related tax provision.
- Q1 2011: A $5 million charge recorded in cost of sales related to a legal settlement.
- Deconsolidation Gain (Q1 2010): A one-time, non-cash gain of approximately $325 million recognized in Q1 2010 related to the fair value assessment of the investment in GF upon deconsolidation.
- Amortization of Intangibles: Significant expenses related to the ATI acquisition are excluded from non-GAAP operating income and net income.
Guidance, Outlook, and Liquidity Commentary
Supplier Agreements and Cash Flow:
- IBM Credit Agreements: AMD previously sold distributor invoices to IBM Credit LLC. Under GAAP, funds received were classified as debt (financing activities), not operating cash flow.
- Termination: On February 11, 2011, AMD terminated these supplier agreements.
- Impact on Metrics: Starting in the third quarter of 2011, AMD expects to transition away from adjusting its non-GAAP adjusted free cash flow to include distributor payments to IBM Parties, as the underlying transaction structure has changed.
Management Commentary: Management emphasizes that non-GAAP measures (including Adjusted EBITDA and non-GAAP adjusted free cash flow) are provided to assist investors in comparing performance across periods by excluding items not indicative of core operations. These measures are not substitutes for GAAP results.
Investor Verification Checklist
- Review Exhibit 99.1 (Press Release) for specific GAAP and non-GAAP revenue, net income, and earnings per share figures for Q1 2011.
- Verify the reconciliation tables in Exhibit 99.2 to understand the exact dollar impact of the $24 million GF payment and $5 million legal charge on Q1 2011 margins.
- Confirm the transition timeline for the removal of the IBM Credit adjustment from non-GAAP free cash flow calculations in Q3 2011.
- Assess the impact of the shift from equity method to cost method accounting for GF on future earnings volatility.