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AMD takes an additional $70 million in restructuring charges

AMD and ATI have not enjoyed the success the two firms envisioned when AMD bought the graphics firm in 2006. AMD is hurting due to the global economy and announced this week that it will take an additional restructuring charge related to the $5.4 billion is spent to purchase ATI.

AMD says that it also laid off 100 more employees than it had originally announced bringing the total laid off over the quarter to 600.

As a result of the additional layoffs, AMD is recording $70 million in restructuring charges rather than the $50 million in charges it has expected. The chipmaker also says that the new cost reduction would result in additional charges though the first half of 2009, though the firm did not specify what the additional charges would be.

EWeek reports that AMD will take an additional goodwill impairment charge related to the ATI purchase from 2006. AMD says that the charge is based on an updated, long-term financial outlook. This isn’t the first impairment charge AMD has taken in relation to the ATI purchase, in June of 2006 AMD took a charge totaling $800 million. AMD will also take a $20 million impairment charge on an investment in flash maker Spansion.

AMD announced in early December that it was cutting revenue forecasts by 25%.

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More AMD tragedies
By crystal clear on 12/31/2008 9:26:03 AM , Rating: 3
Now read this-

On December 15, 2008, Advanced Micro Devices, Inc. (the “Company”), delivered a notice of termination to Lehman Brothers OTC Derivatives Inc. (“Lehman Derivatives”) of the capped call transaction that the Company entered into with Lehman Derivatives, represented by Lehman Brothers Inc. (“Lehman Brothers”) as its agent, in connection with the issuance by the Company of $2.2 billion aggregate principal amount of 6.00% Convertible Senior Notes due 2015 (the “Notes”) in April 2007.

The capped call transaction was intended to to reduce the potential common stock dilution to then existing stockholders of the Company upon conversion of the Notes by allowing the Company to receive shares of common stock from the counterparty generally equal to the number of shares of common stock issuable upon conversion of the Notes.
The filing by Lehman Brothers of a voluntary Chapter 11 bankruptcy petition in October 2008 constituted an “event of default” under the capped call arrangement, giving the Company the immediate right to terminate the transaction and entitling the Company to claim reimbursement for the loss incurred in terminating and closing out the transaction.
The Lehman Brothers bankruptcy proceedings are ongoing and the Company’s ability to reduce the potential dilution upon conversion of the Notes through the capped call transaction has effectively been eliminated.
The Company intends to claim reimbursement from Lehman Brothers for the loss of the value of the capped call transaction incurred in the termination and close out of the capped call transaction.

As a result of the uncertain recoverability of this counterparty exposure, the Company is unable to predict whether, and to what extent,it may be able to recover for this loss.

Moreover, as a result of the termination, the Company likely will be subject to potentially disadvantageous tax consequences, including the use of a material amount of its net operating losses against triggered taxable income.

To put it simple language-

The deal was supposed to work like this: AMD paid Lehman Brothers $182 million to scoop up enough AMD shares before 2015, when the convertible senior notes come due, so that it could hand those shares back to AMD and cancel out the new shares that would flood the market when the senior notes were converted into shares of stock.

To summarize it-

The money AMD paid to Lehman is for all practical purposes lost & unrecoverable.

To prevent share dillution AMD has to buy back its own share & has NO money to buy them back.

"What would I do? I'd shut it down and give the money back to the shareholders." -- Michael Dell, after being asked what to do with Apple Computer in 1997
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