Why is AMD changing its accounting method for GLOBALFOUNDRIES (GF)?

AMD transitioned to the cost method of accounting for its investment in GF starting in the first fiscal quarter of 2011. This move follows a period where GF's results were deconsolidated and then accounted for under the equity method. The company states this change aims to provide investors with clearer visibility into AMD's financial results excluding GF-related items that are not indicative of ongoing operating performance.

What is the significance of the $24 million payment to GF mentioned in the filing?

In the first fiscal quarter of 2011, AMD made a $24 million payment to GF. This payment was made in cash and GF Class A Preferred Shares and primarily related to certain GF manufacturing assets that do not directly benefit AMD. AMD has excluded this payment from its non-GAAP net income, operating income, and gross margin calculations, considering it not indicative of ongoing operating performance.

How will the termination of the IBM Credit agreements affect AMD's financial reporting?

AMD terminated its supplier agreements with IBM Credit LLC on February 11, 2011. These agreements involved AMD selling distributor invoices to IBM Credit and treating the received funds as debt. The company used a non-GAAP adjusted free cash flow calculation to reflect the economic substance of these transactions. Following the termination, AMD expects to transition away from this specific adjustment to its GAAP net cash provided by operating activities when calculating non-GAAP adjusted free cash flow, likely starting in the third quarter of 2011.

AMD 8-K: Earnings & Results & Regulation FD

Q: What are the key adjustments AMD makes when reporting non-GAAP financial measures?

AMD excludes several items from its GAAP results to arrive at its non-GAAP figures. These commonly include: gross margin benefits from GF deconsolidation, deconsolidation gains, equity income/loss from GF, payments to GF, amortization of acquired intangible assets (related to the ATI acquisition), gains or charges from legal settlements, and related income tax effects. The company believes these exclusions help investors better evaluate its core operating performance.

Summary

Advanced Micro Devices, Inc. (AMD) filed an 8-K on April 21, 2011, to report its financial results for the fiscal quarter ended April 2, 2011. A key aspect of this filing is the company's continued shift in accounting for its investment in GLOBALFOUNDRIES Inc. (GF). Beginning in the first quarter of 2011, AMD transitioned from the equity method to the cost method of accounting for its GF investment. The company also provided significant detail on its use of non-GAAP financial measures, aiming to offer investors a clearer view of its core operating performance by excluding various non-recurring or unusual items. These non-GAAP measures are presented to supplement GAAP results and include adjustments for items such as the deconsolidation of GF, payments to GF, amortization of acquired intangible assets, legal settlement gains/charges, and income tax effects related to settlements. AMD emphasizes that these non-GAAP figures are not intended to replace GAAP reporting but to aid in comparative analysis across periods. The filing also notes the termination of supplier agreements with IBM Credit LLC and its expected impact on the calculation of non-GAAP adjusted free cash flow.

Key Highlights

1AMD transitioned to the cost method of accounting for its investment in GLOBALFOUNDRIES (GF), moving away from the equity method used in prior periods.
2The company is providing several non-GAAP financial measures (e.g., non-GAAP net income, operating income, gross margin, Adjusted EBITDA, adjusted free cash flow) to offer a clearer view of core operating performance.
3Exclusions for non-GAAP reporting include GF-related items (deconsolidation benefits, equity income/loss, payments), amortization of acquired intangibles, legal settlement gains/charges, and certain tax items.
4A $24 million payment to GF in Q1 2011 was excluded from non-GAAP results as it related to manufacturing assets that did not benefit AMD.
5A significant gain of $283 million from a legal settlement in Q4 2010 was excluded from non-GAAP reporting.
6AMD terminated supplier agreements with IBM Credit LLC in February 2011, which will affect its non-GAAP adjusted free cash flow calculation methodology starting in Q3 2011.
7The filing references accompanying press releases and financial commentary for detailed financial information and reconciliations of non-GAAP measures.

ADVANCED MICRO DEVICES INC 8-K Report, Financial Results (Apr 21, 2011)

Summary

Key Highlights

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