AMD 2006 Annual Report Download - page 117

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The royalty fees due to Fujitsu represent the payments from Spansion LLC for its use of Fujitsu’s intellectual property. The distributor commission
expense due to Fujitsu represents the compensation that Spansion LLC paid to Fujitsu in connection with Fujitsu’s distribution of Spansion Flash memory
products.
The Company’s transactions with Fujitsu were based on terms that are consistent with those of similar arms-length transactions executed with third parties.
Subsequent to December 20, 2005
On December 21, 2005, Spansion became an unconsolidated equity investee of the Company. There were no significant transactions between the
Company and Spansion relating to service agreements during the five day period, December 21 to December 25, 2005. The following table represents the
significant account balances receivable from or payable to Spansion at December 31, 2006 and December 25, 2005:
As of
December 31,
2006
As of
December 25,
2005
(In millions)
Investment in Spansion Senior Notes $ — $ 159
Receivable from Spansion (short-term) 10 143
Receivable from Spansion (long-term) 5 3
Accounts payable to Spansion 2 233
In connection with Spansion’s IPO, the Company entered into various amended and restated service agreements, a non-compete agreement and a patent
cross-license agreement with Spansion. Under the amended services agreements, the Company agreed to provide, among other things, information technology,
facilities, logistics, tax, finance and human resources services to Spansion for a specified period. Under the amended patent cross-license agreement, Spansion
pays royalties to the Company based on a percentage of Spansion’s net revenue.
In addition, the Company entered into an agency agreement with Spansion pursuant to which the Company agreed to ship products to and invoice
Spansion’s customers in the Company’s name on behalf of Spansion until Spansion had the capability to do so on its own. Prior to shipping the product to
Spansion’s customers, the Company purchased the applicable product from Spansion and paid Spansion the same amount that it invoiced Spansion’s customers.
In performing these services, the Company acted as Spansion’s agent for the sale of Spansion’s Flash memory products, and the Company did not receive a
commission or fees for these services. Under the agreement, Spansion assumed full responsibility for its products and these transactions, including establishing
the pricing and determining product specifications. Spansion also assumed credit and inventory risk related to these product sales. In the second quarter of 2006,
Spansion began to ship its products and invoice its customers directly, and the Company no longer ships and invoices products on behalf of Spansion.
Pursuant to the agency agreement and in accordance with EITF Issue No. 99-19, Reporting Revenue Gross as a Principal versus Net as an Agent, the
Company recorded sales of Spansion’s Flash memory products sold by the Company on behalf of Spansion and the related cost of sales on a net basis on its
condensed consolidated statements of operations. As a result, the net impact to the Company’s net revenue and cost of sales was zero.
Accounts receivable from sales to Spansion’s customers were reflected in the caption, “Accounts Receivable,” on the Company’s consolidated balance
sheets, whereas the payables to Spansion that relate to the products the Company purchased from Spansion were reflected in the caption, “Accounts Payable to
Spansion,” in the Company’s consolidated balance sheets. These amounts were recorded separately on the balance sheet because there is no legal right of offset
as described in FIN No. 39, Offsetting of Amounts Related to Certain Contracts.
On December 21, 2005, Spansion LLC, a wholly owned subsidiary of Spansion Inc., issued to the Company $175 million aggregate principal of its
12.75% Senior Subordinated Notes Due 2016 (Spansion Senior Notes) for $158.9 million or 90.828 percent of face value. In June 2006, Spansion LLC
repurchased its Senior Notes for aggregate cash proceeds of $175 million. Upon repurchase, the Company recognized a gain of $16 million, of which $10 million
was recorded as other income and $6 million (representing the elimination of approximately 38 percent of the gain) was recorded as a reduction to the equity in
net income (loss) of Spansion Inc.
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Source: ADVANCED MICRO DEVIC, 10-K, March 01, 2007