AMD 1996 Annual Report Download - page 16

DRESDEN. AMD Saxony Manufacturing GmbH (AMD Saxony), a German subsidiary
wholly owned by the Company through a German holding company, is building a
900,000 square foot submicron integrated circuit manufacturing and design
facility in Dresden, in the State of Saxony, Germany (the Dresden Facility)
over the next five years at a presently estimated cost of approximately $1.5
billion. The Dresden Facility is being designed for the production of
microprocessors and other advanced logic products. The Federal Republic of
Germany and the State of Saxony have agreed to support the project in the form
of (i) a guarantee of 65% of the bank debt to be incurred by AMD Saxony up to
a maximum of Deutsche marks (DM) 1.65 billion, (ii) investment grants and
subsidies totaling DM500.5 million, and (iii) interest subsidies from the
State of Saxony totaling DM300 million. In March 1997, AMD Saxony will be
entering into a loan agreement with a consortium of banks led by Dresdner Bank
AG under which facilities totaling DM1.65 billion will be made available. In
connection with the financing, the Company has agreed to invest in AMD Saxony
over the next three years equity and subordinated loans in an amount totaling
approximately DM507.5 million. Until the Dresden Facility has been completed,
AMD has also agreed to guarantee AMD Saxony's obligations under the loan
agreement up to a maximum of DM217.5 million. After completion of the Dresden
Facility, AMD has agreed to make available to AMD Saxony up to DM145 million
if the subsidiary does not meet its fixed charge coverage ratio covenant.
Finally, AMD has agreed to undertake certain contingent obligations, including
various obligations to fund project cost overruns. The Company began site
preparation of the Dresden Facility in the fourth quarter of 1996, and plans
to commence construction during the second quarter of 1997. The planned
Dresden Facility costs are denominated in Deutsche marks and, therefore, are
subject to change due to foreign exchange rate fluctuations. The Company plans
to hedge future foreign exchange exposure for the Dresden Facility.
AMD is currently negotiating the final forms of all the agreements relating
to the operation and financing of the Dresden Facility. The negotiations
presently contemplate that, in addition to the obligations discussed above,
AMD (directly or indirectly) will be required to (1) return all federal and
state government grants, allowances and interest subsidies, or replace all
such subsidies that are not made available, if the Company or AMD Saxony fails
to meet certain material obligations to the Federal Republic of Germany or the
State of Saxony; (2) purchase the output of the Dresden Facility at transfer
prices to be set pursuant to specific formulas, and which adjust downwards
when the Dresden Facility is operating at less than 75% capacity because of a
lack of market demand for the products being fabricated there (the Company's
product purchase obligation can be terminated once the syndicated loan has
been repaid or under circumstances relating to a change of control of AMD
Saxony or the destruction or abandonment of the Dresden Facility); (3) cause
AMD Saxony to undertake bona fide research and development activities at the
design center of the Dresden Facility; and (4) grant a non-exclusive license
to AMD Saxony to use, at the Dresden Facility and in products manufactured at
the Dresden Facility, intellectual property developed at the Dresden design
center.
No assurance can be given that AMD will be able to negotiate final
agreements relating to the operation and financing of the Dresden Facility on
terms satisfactory to it, that the terms of any such agreements will not be
materially different from those described, or that the financial exposure of
AMD in connection with the Dresden Facility will not materially exceed the
proposed terms described herein.
MARKETING AND SALES
The Company's products are marketed and sold under the AMD trademark. AMD
employs a direct sales force through its principal facilities in Sunnyvale,
California, and field sales offices throughout the United States and abroad
(primarily Europe and Asia Pacific). In 1996, the Company established a
separate sales force dedicated to sales of programmable logic devices as a
part of the Company's process of transferring its operations relating to the
design, development and marketing of programmable logic devices to a wholly
owned subsidiary, Vantis Corporation. AMD also sells its products through
third-party distributors and independent representatives in both domestic and
international markets pursuant to nonexclusive agreements. The distributors
also sell products manufactured by the Company's competitors, including those
products for which AMD is an alternate source. One of the Company's
distributors, Arrow Electronics, Inc., accounted for approximately 13% of 1996
net sales. No other distributor or OEM customer accounted for 10% or more of
net sales in 1996.
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Source: ADVANCED MICRO DEVIC, 10-K, March 20, 1997