AMD 2011 Annual Report Download - page 51

Amended Shareholders’ Agreement
On December 27, 2010, we amended the Shareholders’ Agreement. Under the Amended and Restated
Shareholders’ Agreement, subject to certain exceptions set forth in the agreement, we have the right to designate
one representative to the GF board of directors, which continues for two years following the date on which our
ownership in GF, on a fully converted to GF ordinary shares basis, falls below 10%. Our ownership in GF, on a
fully diluted basis, fell below 10% in September 2011. Therefore, we will no longer be able to designate a
representative to the GF board of directors in September 2013.
Amended Funding Agreement
On December 27, 2010, we amended the Funding Agreement to implement the provisions of the November
24, 2010 letter agreement described above.
Following the GFS contribution and governance changes described above, we assessed our ability to
exercise significant influence over GF and considered factors such as our representation on GF’s board of
directors, participation in GF’s policy-making processes, material intra-entity transactions, interchange of
managerial personnel, technological dependency, and the extent of our ownership in relation to ownership by the
other shareholders. Based on the results of our assessment, we concluded that we no longer had the ability to
exercise significant influence over GF. Accordingly, as of the first quarter of 2011, we changed our method of
accounting for our ownership interest in GF from the equity method to the cost method of accounting.
Under the cost method of accounting, we no longer recognize any share of GF’s net income or loss in our
consolidated statement of operations. In addition, we review the carrying value of our investment in GF for
impairment at each reporting period. Impairment indicators, among other factors, include significant
deterioration in GF’s earnings performance or business prospects, significant changes in the market conditions in
which GF operates, and GF’s ability to continue as a going concern.
GF continues to be a related party of AMD. Our expenses related to GF’s wafer manufacturing were $904
million and $1.2 billion in 2011 and 2010, respectively. Our total expenses related to research and development
activities were $79 million and $114 million for 2011 and 2010, respectively. In addition, during the first quarter
of 2011, we incurred a charge of $24 million related to a payment to GF, primarily for certain manufacturing
assets of GF, which do not benefit us.
Funding of GF
During 2011, ATIC contributed $4.4 billion of cash to GF in exchange for GF securities consisting of
4,386,257 Class A Preferred shares. We did not participate in the fundings. As a result, our ownership interest in
GF’s Class A Preferred shares decreased from approximately 62% as of December 25, 2010, to approximately
12% as of December 31, 2011, and as of December 31, 2011, our ownership interest in GF was 9% on a fully
diluted basis. Since the formation of GF through December 31, 2011, ATIC contributed an aggregate of $5.6
billion of cash to GF in exchange for GF securities.
Impairment of investment in GF
During the fourth quarter of 2011, we identified indicators of impairment, including revised financial
projections which we received from GF. The fair value of our GF investment was determined by a valuation
analysis of GF’s Class A Preferred Shares, utilizing the revised financial projections. We concluded the decline
in fair value is other than temporary. As a result of the valuation analysis, we recorded a non-cash impairment
charge of approximately $209 million, based on the difference between the carrying value and the fair value of
the investment as of December 31, 2011. As of December 31, 2011, our investment balance in GF after
impairment was $278 million.
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