AMD 2007 Annual Report Download - page 124

Table of Contents
In connection with the issuance and sale of the 6.00% Notes, the Company also entered into a Registration Rights Agreement (the 6.00% Registration
Rights Agreement), dated April 27, 2007, between the Company and Morgan Stanley & Co. Incorporated, as representative of the several initial purchasers of the
6.00% Notes, pursuant to which the Company agreed to file a shelf registration statement with the SEC for the resale by holders of the 6.00% Notes and the
6.00% Conversion Shares, use the Company’s reasonable best efforts to cause the registration statement to be declared effective and keep the registration
statement effective for the period described in the 6.00% Registration Rights Agreement. On July 13, 2007 the Company filed a shelf registration statement that
was automatically declared effective. The Company will file with the SEC a post-effective amendment to the shelf registration statement, prepare and file a
supplement to the prospectus, or file a new shelf registration statement on a quarterly basis in order to include any additional selling security holders in the shelf
registration statement. The Company could be subject to paying additional interest on the 6.00% Notes for the period during which a default under the 6.00%
Registration Rights Agreement exists.
In connection with the issuance of the 6.00% Notes, on April 24, 2007, the Company purchased the capped call. The capped call has an initial strike price
of $28.08 per share, subject to certain adjustment, which matches the initial conversion price of the 6.00% Notes, and a cap price of $42.12 per share. The capped
call is intended to reduce the potential common stock dilution to then existing stockholders upon conversion of the 6.00% Notes because the call option allows us
to receive shares of common stock from the counterparty generally equal to the number of shares of common stock issuable upon conversion of the 6.00% Notes.
The Company does not anticipate experiencing an increase in the number of shares outstanding from the conversion of the 6.00% Notes unless the price of the
Company’s common stock appreciates above $42.12 per share. If, however, the market value per share of the Company’s common stock, as measured under the
terms of the capped call, exceeds the cap price of the capped call, there would be dilution to the extent that the then market value per share of the common stock
exceeds the cap price. The Company analyzed the capped call under EITF Issue No. 00-19, Accounting for Derivative Financial Instruments Indexed to, and
Potentially Settled In, a Company’s Own Stock, and determined that it meets the criteria for classification as an equity transaction. As a result, the Company has
recorded the purchase of the capped call as a reduction in additional paid-in capital and will not recognize subsequent changes in its fair value.
The net proceeds from the offering, after deducting discounts, commissions and offering expenses payable by us, were approximately $2.2 billion. The
Company used approximately $182 million of the net proceeds to purchase the capped call and applied $500 million of the net proceeds to prepay a portion of the
amount outstanding under the October 2006 Term Loan. In connection with this repayment, the Company recorded a charge of approximately $5 million to write
off unamortized debt issuance costs associated with the October 2006 Term Loan repayment.
In September 2007, the FASB exposed for comment a proposed FASB Staff Position (FSP) No. APB 14-a, Accounting for Convertible Debt Instruments
That May Be Settled in Cash upon Conversion (including partial cash settlement). This proposed FSP would change the accounting for certain convertible debt
instruments, including the Company’s 6.00% Notes. Under the proposed new rules, for convertible debt instruments that may be settled entirely or partially in
cash upon conversion, an entity should separately account for the liability and equity components of the instrument in a manner that reflects the issuer’s
economic interest cost. The effect of the proposed new rules for the Company’s 6.00% Notes is that the equity component would be included in the
paid-in-capital portion of stockholders’ equity on the Company’s balance sheet and the value of the equity component would be treated as an original issue
discount for purposes of accounting for the debt component of the 6.00% Notes. Higher interest expense would result by recognizing accretion of the discounted
carrying value of the 6.00% Notes to their face amount as interest expense over the term of the 6.00% Notes. If issued as proposed, the final FSP would provide
final guidance effective for the fiscal years beginning after December 15, 2007, would not permit early application, and would be applied retrospectively to all
periods presented.
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Source: ADVANCED MICRO DEVIC, 10-K, February 26, 2008