AMD 2006 Annual Report Download - page 73

Table of Contents
Other income (expense), net of $24 million expense in 2005 consisted primarily of a loss of approximately $10 million during the fourth quarter of 2005
resulting from the mark-to-market to earnings of certain foreign currency forward contracts which became ineffective in hedging against certain forecasted
foreign currency transactions and approximately $14 million of commitment and guarantee fees incurred in connection with the Fab 36 Term Loan. We don’t
expect these foreign currency transactions to occur in the future due to the change of functional currency for AMD Fab 36 KG from the euro to the U.S. dollar.
Other income (expense), net of $49 million in 2004 was due primarily to a charge of approximately $32 million related to a series of transactions pursuant
to which we exchanged $201 million of our 4.50% Convertible Senior Notes due 2007 for our common stock. The charge represented the difference between the
fair value of the common stock issued in the transactions and the fair value of common stock issuable pursuant to the original conversion terms of these notes. In
addition, interest income and other income (expense), net, in 2004 included a charge of approximately $14 million in connection with our prepayment of the term
loan agreement between our German subsidiary, AMD Saxony Limited Liability Company & Co. KG and a consortium of banks in order to finance Fab 30, and
a loss of approximately $6 million during the second quarter of 2004 resulting from the mark-to-market to earnings of certain foreign currency forward contracts
that we used as economic hedges of forecasted capital contributions to AMD Fab 36 KG, which did not qualify as accounting hedges.
Equity in net loss of Spansion Inc. and other
Prior to the Spansion IPO, we held a 60 percent controlling ownership interest in Spansion, and Spansion’s financial position, results of operations and
cash flows were consolidated with ours. Consequently, Spansion’s results of operations through December 20, 2005 were included in our consolidated statements
of operations and cash flows in 2005. Following Spansion’s IPO, our ownership interest was diluted from 60 percent to approximately 38 percent and we no
longer exercised control over Spansion. As a result, from December 21, 2005, the closing date of the IPO, through December 25, 2005 and during 2006 we used
the equity method of accounting to reflect our share of Spansion’s net income (loss), and we no longer consolidated Spansion’s financial position, operating
results or cash flows with ours. In connection with the reduction of our ownership interest in Spansion, we recorded a loss of $110 million in 2005 which
represents the difference between Spansion’s book value per share before and after the IPO multiplied by the number of shares of Spansion’s common stock
owned by us.
In November 2006, we sold 21,000,000 shares of Spansion’s Class A common stock in an underwritten public offering. We received $278 million in net
proceeds from the offering and realized a gain of $6 million from the sale, which was included in the caption, “Equity in net loss of Spansion, Inc. and other” in
our consolidated statements of operations. As a result of the offering, as of December 31, 2006 we own a total of 27,529,403 shares or approximately 21 percent
of Spansion’s outstanding common stock. During 2006, our equity in net loss of Spansion Inc. was $51 million. As of December 31, 2006, the carrying net book
value of our net equity investment in Spansion, which includes our proportionate share of Spansion’s accumulated other comprehensive income, amounted to
approximately $361 million. The fair value of this investment was approximately $409 million based on Spansion’s common stock closing market price on
December 29, 2006, the last trading day of the fiscal year.
To the extent that our ownership in Spansion decreases in the future whether it is caused by disposal of our ownership interest or by Spansion’s issuance of
additional common stock, we would record either a gain or a loss on such further dilution depending on Spansion’s book value and fair value at that time, which
could have a material effect on our results of operations in the period in which this ownership dilution occurs.
Income Taxes
We recorded an income tax provision of $23 million in 2006, a tax provision benefit of $7 million in 2005, and an income tax provision of $6 million in
2004. The income tax provision in 2006 primarily results from
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Source: ADVANCED MICRO DEVIC, 10-K, March 01, 2007