Equity Interest Purchase Agreement - ATMP Joint Venture
|3 Months Ended|
Apr. 01, 2017
|Equity Method Investments and Joint Ventures [Abstract]|
|Equity Interest Purchase Agreement - ATMP Joint Venture and Equity Joint Venture - Intellectual Property Licensing Agreement||
Equity Interest Purchase Agreement - ATMP Joint Venture
On April 29, 2016, the Company and certain of its subsidiaries completed the sale of a majority of the equity interests in Suzhou TF-AMD Semiconductor Co., Ltd. (formerly, AMD Technologies (China) Co., Ltd.), and TF AMD Microelectronics (Penang) Sdn. Bhd. (formerly, Advanced Micro Devices Export Sdn. Bhd.), to affiliates of Tongfu Microelectronics Co., Ltd. (formerly, Nantong Fujitsu Microelectronics Co., Ltd.) (TFME), a Chinese joint stock company, to form two joint ventures (collectively, the ATMP JV). As a result of the sale, TFME’s affiliates own 85% of the equity interests in the ATMP JV while certain of the Company’s subsidiaries own the remaining 15%. The Company has no obligations to fund the ATMP JV.
The Company accounts for its equity interests in the ATMP JV under the equity method of accounting due to its significant influence over the ATMP JV. As of April 1, 2017 and December 31, 2016, the carrying value of the Company's investment in the ATMP JV was approximately $58 million and $59 million, respectively. Following the deconsolidation, the ATMP JV is a related party of the Company. The ATMP JV provides assembly, test, mark and packaging (ATMP) services to the Company. The Company currently pays the ATMP JV for ATMP services on a cost-plus basis. The Company's total purchases from the ATMP JV during the quarter ended April 1, 2017 amounted to approximately $96 million. As of April 1, 2017 and December 31, 2016, the amount payable to the ATMP JV was $125 million and $128 million, respectively, included in Payables to related parties on its condensed consolidated balance sheets.
During the quarter ended April 1, 2017, the Company recorded $2 million in Equity loss in investee on its condensed consolidated statements of operations, which includes certain expenses incurred by the Company on behalf of the ATMP JV.
Equity Joint Venture - Intellectual Property Licensing Agreement
In February 2016, the Company and Tianjin Haiguang Advanced Technology Investment Co., Ltd. (THATIC), a third-party Chinese entity (JV Partner), formed a joint venture comprised of two separate legal entities, China JV1 and China JV2 (collectively, the THATIC JV). The Company’s equity share in China JV1 and China JV2 is a majority and minority interest, respectively, funded by the Company’s contribution of certain of its patents. The JV Partner is responsible for the initial and on-going financing of the THATIC JV’s operations. The Company has no obligations to fund the THATIC JV.
The Company concluded the China JV1 and China JV2 are not operating joint ventures and are variable interest entities due to their reliance on on-going financing by JV Partner. The Company determined that it is not the primary beneficiary of either China JV1 or China JV2, as the Company does not have unilateral power to direct selling and marketing, manufacturing and product development activities related to the THATIC JV’s products. Accordingly, the Company will not consolidate either of these entities and therefore accounts for its investments in the THATIC JV under the equity method of accounting. THATIC JV is a related party of the Company's.
In February 2016, the Company licensed certain of its intellectual property (Licensed IP) to the THATIC JV for a total of approximately $293 million in license fee payable over several years contingent upon achievement of certain milestones. The Company also expects to receive a royalty based on the sales of the THATIC JV’s products to be developed on the basis of such Licensed IP. The Company will also provide certain engineering and technical support to the THATIC JV in connection with the product development. In March 2017, the Company entered into a development and intellectual property agreement with THATIC JV, and also expects to receive a royalty based on the sales of the THATIC JV’s products to be developed on the basis of such agreement. The Company will also provide certain engineering and technical support to the THATIC JV in connection with the product development.
The Company recognizes income related to the Licensed IP over the period commencing upon delivery of the first Licensed IP milestone through the date of the milestone that requires the Company’s continuing involvement in the product development process. Royalty payments will be recognized in income once earned. The Company will classify Licensed IP income and royalty income as other operating income. During the quarter ended April 1, 2017, the Company recognized $27 million licensing gain associated with the Licensed IP and an immaterial amount of development fee as a credit to research and development expenses. During the quarter ended March 26, 2016, the Company recognized $7 million licensing gain and no development fee credit, associated with these agreements. No royalty income was recognized during the quarters ended April 1, 2017 and March 26, 2016.
The Company’s total exposure to losses through its investment in the THATIC JV is limited to the Company’s investments in the THATIC JV, which was zero as of April 1, 2017. The Company’s share in the net losses of the THATIC JV for the quarter ended April 1, 2017 was not material and is not recorded in the Company’s condensed consolidated statement of operations since the Company is not obligated to fund the THATIC JV’s losses in excess of the Company’s investment in the THATIC JV. The Company’s receivable from THATIC JV was $20 million and zero as of April 1, 2017 and December 31, 2016, respectively, included in Prepayment and other receivables - related parties on its condensed consolidated balance sheets. As of April 1, 2017, the total assets and liabilities of the THATIC JV were not material.
The entire disclosure for equity method investments and joint ventures. Equity method investments are investments that give the investor the ability to exercise significant influence over the operating and financial policies of an investee. Joint ventures are entities owned and operated by a small group of businesses as a separate and specific business or project for the mutual benefit of the members of the group.
Reference 1: http://www.xbrl.org/2003/role/presentationRef