AMD 2010 Annual Report Download - page 95

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 started accounting 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 fundings 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.
During 2010, ATIC contributed $930 million of cash to GF in exchange for GF securities consisting of
444,313 Class A Preferred shares and 617,695 Class B Preferred shares. The Company did not participate in the
fundings. As a result, its ownership interest in GF’s Class A Preferred shares decreased from approximately 83%
as of December 26, 2009 to approximately 62% as of December 25, 2010, and the Company’s ownership interest
in GF, on a fully converted to Ordinary Shares basis, was approximately 23%. These contributions resulted in an
aggregate gain on issuance of new GF shares of $232 million, which was recorded as part of the equity in net loss
of investee line item on the consolidated statement of operations.
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