Advanced Micro Devices Inc (AMD)

[chipdesigner]

Equity method:

http://www.siliconinvestor.com/readmsg.aspx?msgid=21859340

http://beginnersinvest.about.com/cs/investinglessons/l/blmininterest.htm

Minority Interests on the Income Statement
If Federated Department Stores [the owner of Macy’s and Bloomingdales] purchased five percent of Saks Fifth Avenue, Inc., common sense tells us that Federated would be entitled to five percent of Saks’ earnings. How would Federated report their share of Saks’ earnings on their income statement? It depends on the percentage of the company’s voting stock Federated owned.

[ Potential far-future situation, post-IPO, post sale or distribution to shareholders: ]

• Cost METHOD (If Federated owned 20% or less):
The company would not be able to report its share of Saks’ earnings, except for the dividends it received from the Saks stock. The asset value of the investment would be reported at the lower of cost or market value on the balance sheet. What does that mean?

If Federated purchased 10 million shares of Saks stock at $5 per share [for a total cost of $50 million], it would record any dividends received on its income statement, and add $50 million to the balance sheet under investments. If Saks rose to $10 per share, the 10 million shares would be worth $100 million [$10 per share x 10 million shares = $100 million]. However, the balance sheet would continue to list the ‘value’ of those 10 million shares at $50 million.

On the other hand, if the stock dropped to $2.50 per share, thus reducing the investments to $25 million, the balance sheet value would be written down to reflect the lower price.

[ Situation immediately Post-IPO: ]

• EQUITY METHOD (If Federated owned 21-49%):
In most cases, Federated would include a single-entry line on their income statement reporting their share of Saks’ earnings. For example, if Saks earned $100 million and Federated owned 30 percent, they would include a line on the income statement for $30 million in income [30% of $100 million], even if these earnings were never paid out as dividends [meaning they never actually saw $30 million].


[ ***CURRENT*** Situation pre-IPO: ]

• Consolidated METHOD (If Federated owned 50+%):
The company would be required to include all of the revenues, expenses, tax liabilities, and profits of Saks on the income statement. It would then include an entry that deducted the percentage of the business it didn’t own. If Federated owned 65% of Saks, it would report the entire $100 million in profit, and then include an entry labeled minority interest that deducted the $35 million [35%] of the profits it didn’t own.