AMD 2012 Annual Report Download - page 53

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Amendments to Wafer Supply Agreement and Accounting in 2012
Second Amendment to Wafer Supply Agreement
On March 4, 2012, we entered into a second amendment to the WSA with GF. The primary effect of this
second amendment was to modify certain pricing and other terms of the WSA applicable to wafers for our
microprocessor and APU products to be delivered by GF to us during 2012. Pursuant to the second amendment,
GF committed to provide us with, and we committed to purchase, a fixed number of production wafers in 2012.
We paid GF fixed prices for production wafers delivered in 2012.
The second amendment also granted us certain rights to contract with another wafer foundry supplier with
respect to specified 28 nm products for a specified period of time. In consideration for these rights, we agreed to
pay GF $425 million and transfer to GF all of the capital stock of GF that we owned. As a result of us receiving
these rights in the first quarter of 2012, we recorded a charge related to this limited waiver of exclusivity from
GF of $703 million consisting of the $425 million cash payment and a $278 million non-cash charge representing
the carrying and fair value of the capital stock that we transferred to GF. Pursuant to the second amendment,
$150 million of the $425 million was paid on March 5, 2012, $50 million was paid on June 29, 2012 and $50
million was paid on October 1, 2012 with the remaining $175 million paid by December 31, 2012. In addition, as
security for the final two payments, we issued a $225 million promissory note to GF.
As a result of the transfer of our shares of GF capital stock, we no longer owned any GF capital stock. Also,
we are no longer entitled to designate a director to GF’s board, and our designated director resigned effective as
of the date of the second amendment. As of March 4, 2012, we were no longer a party to either the Shareholders’
Agreement or the Funding Agreement.
Third Amendment to Wafer Supply Agreement
On December 6, 2012, we entered into a third amendment to the WSA with GF. Pursuant to the third
amendment, we modified our wafer purchase commitments for the fourth quarter of 2012 under the second
amendment to the WSA. In addition, we agreed to certain pricing and other terms of the WSA applicable to
wafers for our microprocessor and APU products to be delivered by GF to us during 2013 and through
December 31, 2013. Pursuant to the third amendment, we committed to purchase a fixed number of production
wafers at negotiated prices in the fourth quarter of 2012 and through December 31, 2013. GF agreed to waive a
portion of our wafer purchase commitments for the fourth quarter of 2012. In consideration of this waiver, we
agreed to pay GF a fee of $320 million. As a result, we recorded an LCM charge of $273 million for the write-
down of inventory to its market value in the fourth quarter of 2012. The cash impact of this $320 million fee will
be spread over several quarters, with $80 million paid by December 28, 2012 and $40 million by April 1, 2013.
For the remainder of the fee, we issued a $200 million promissory note to GF that matures on December 31,
2013.
GF continues to be a related party of AMD. Our expenses related to GF’s wafer manufacturing were $1.2
billion, $904 million and $1.2 billion in 2012, 2011 and 2010. Our expenses related to GF’s research and
development activities were $49 million, $79 million and $114 million for 2012, 2011 and 2010.
Critical Accounting Estimates
Our discussion and analysis of our financial condition and results of operations are based upon our
consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of our
financial statements requires us to make estimates and judgments that affect the reported amounts in our
consolidated financial statements. We evaluate our estimates on an on-going basis, including those related to our
revenue, inventories, asset impairments and income taxes. We base our estimates on historical experience and on
various other assumptions that we believe to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities. Although actual results have
historically been reasonably consistent with management’s expectations, the actual results may differ from these
estimates or our estimates may be affected by different assumptions or conditions.
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