AMD 2011 Annual Report Download - page 89

In June 2009, the FASB issued an amendment to improve financial reporting by enterprises involved with
variable interest entities. This new guidance became effective for the Company beginning the first day of 2010.
Under the new guidance, the investor who is deemed to both (i) have the power to direct the activities of the
variable interest entity that most significantly impact the variable interest entity’s economic performance and
(ii) be exposed to losses and returns will be the primary beneficiary who should then consolidate the variable
interest entity. The Company evaluated whether the governance changes described above would, pursuant to the
new guidance, affect its consolidation of GF. The Company considered the purpose and design of GF, the
activities of GF that most significantly affect the economic performance of GF and the concept of “who has the
power,” as contemplated by the new guidance. Based on the results of this evaluation and in light of the
governance changes whereby the Company believes it only had protective rights relative to the operations of GF,
the Company concluded that the other investor in GF, ATIC, is the party who has the power to direct the
activities of GF that most significantly impact GF’s performance and is, therefore, the primary beneficiary of GF.
Accordingly, effective as of December 27, 2009, the Company deconsolidated GF and during fiscal 2010 it
accounted for its ownership interest in GF under the equity method of accounting. Under the deconsolidation
accounting guidelines, the investor’s opening investment is recorded at fair value as of the date of
deconsolidation. The difference between this initial fair value of the investment and the net carrying value is
recognized as a gain or loss in earnings. During the first quarter of 2010, the Company completed a valuation
analysis to determine the initial fair value of its investment in GF. In determining the fair value, the Company
used a combination of the income approach and the market approach.
The income approach included the following inputs and assumptions:
• An expectation regarding the growth of GF revenues at a compounded average growth rate;
• A perpetual long-term growth rate; and
• A discount rate that was based on the estimated weighted average cost of capital of GF.
When choosing the appropriate inputs associated with the market approach to apply to GF trailing and
projected financial metrics, GF historical and forecasted performance was benchmarked against that of selected
comparable companies. The selected multiple ranges were applied to GF trailing and projected financial metrics
in order to obtain an indication of the GF business enterprise value on a minority, marketable basis.
Each approach resulted in a business enterprise value that was comparable. The Company equally weighed
the business enterprise value of GF provided by each method. Based on the results of this valuation, the
Company determined the deconsolidation date fair value of its investment in GF to be $454 million. The
Company recognized approximately $325 million, which is the difference between the fair value as of the
deconsolidation date and the net carrying value of its investment, as a non-cash gain in other income (expense),
net, for the year ended December 25, 2010.
Funding of GF
Pursuant to each GF funding request from the beginning of 2010 through November 17, 2010, the equity
securities issued by GF consisted of 20% of Class A Preferred Shares and 80% of Class B Preferred Shares. On
November 24, 2010, the Company, ATIC and GF signed a letter agreement regarding future funding of GF.
Pursuant to this letter agreement, the parties agreed that the securities to be issued in consideration of any GF
funding would consist solely of GF’s Class A Preferred Shares. In addition, the purchase price per Class A
Preferred Share would be determined by dividing GF’s net tangible assets (derived from its most recent fiscal
year-end audited consolidated balance sheet) by GF’s total number of outstanding preferred shares (assuming the
conversion of any outstanding GF Class A subordinated convertible notes into Class A Preferred Shares and
Class B subordinated convertible notes into Class B Preferred Shares) as of the date of the balance sheet referred
to above and multiplying by 1.10. Prior to the letter agreement, the funding multiple was 0.90.
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