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Table of Contents
Acceleration of AMD Stock Options and Restricted Stock Units held by Spansion Employees
On December 15, 2005, the Company accelerated the vesting of all outstanding AMD stock options and restricted stock units held by Spansion employees
that would otherwise have vested from December 16, 2005 to December 31, 2006. In connection with the modification of the terms of these options to accelerate
their vesting, $1.2 million was recorded as non-cash compensation expense on a pro forma basis in accordance with SFAS 123, and this amount was included in
the pro forma stock compensation expense for the year ended December 25, 2005.
The primary purpose for accelerating the vesting of these awards was to minimize future compensation expense that the Company and Spansion would
otherwise have been required to recognize in its and Spansion’s respective consolidated statements of operations with respect to these awards. If the Company
had not accelerated the vesting of these awards, they would have been subject to variable fair value accounting in accordance with the guidance provided in EITF
Issue No. 96-18, “Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling Goods or
Services,” and EITF Issue No. 00-12, “Accounting by an Investor for Stock-Based Compensation Granted to Employees of an Equity Method Investee.” This
accounting treatment would have applied because subsequent to Spansion’s IPO, the Company no longer consolidates Spansion’s results of operations.
Accordingly, Spansion employees are no longer considered employees of the Company. Under variable fair value accounting, the Company would have been
required to re-measure the fair value of unvested stock-based awards of the Company’s common stock held by Spansion employees after Spansion’s IPO at the
end of each accounting period until such awards were fully vested.
The acceleration of these awards resulted in a compensation charge in the Company’s fourth quarter of 2005 of $1.5 million, which was based on the
estimated forfeiture rate of 7.94 percent. If actual forfeitures differ from the estimate used, the compensation charge will be adjusted accordingly.
In addition to the acceleration of vesting of certain stock awards as indicated above, there are approximately 684,000 unvested AMD stock options and
restricted stock units that are still held by Spansion employees which are currently subject to variable accounting. In accordance with EITF 00-12, the resulting
compensation charge will be recorded in the Company’s consolidated statements of operations in the same caption as the equity in income (loss) of
unconsolidated investee.
NOTE 4: Related-Party Transactions
The Company and Fujitsu Limited formed FASL LLC, later renamed Spansion LLC, effective June 30, 2003 by expanding an existing manufacturing joint
venture that was formed in 1993 and in which the Company’s ownership interest was slightly less than 50 percent. Upon formation of Spansion LLC, the
Company increased its ownership interest to 60 percent. From the date of formation through December 20, 2005, the Company held a 60 percent controlling
equity interest in Spansion LLC and, therefore, consolidated the results of Spansion LLC’s operations. The Company accounted for the Spansion LLC
transaction as a partial step acquisition and purchase business combination under the provision of SFAS 141, and EITF Consensus No. 01-02. As of December 21
2005, following the completion of Spansion’s IPO, the Company’s ownership interest was diluted to 37.9 percent and the Company no longer controlled
Spansion’s operations. As a result, effective December 21, 2005, the Company started accounting for its investment in Spansion under the equity method of
accounting.
June 30, 2003 to December 20, 2005
As part of the formation of Spansion LLC, both the Company and Fujitsu contributed their respective investments in their existing joint manufacturing
venture, Fujitsu AMD Semiconductor Limited, or FASL. Prior to such contribution, the Company held a 49.992 percent ownership in this joint venture and
accounted for its investment under the equity method of accounting. The Company also contributed its Flash memory inventory, its manufacturing facility
located in Austin, Texas (Fab 25), its Flash memory research and development facility
89
Source: ADVANCED MICRO DEVIC, 10-K, February 27, 2006