AMD 1997 Annual Report Download - page 26

In 1996, the Company entered into a syndicated bank loan agreement (the
Credit Agreement), which provided for a $150 million three-year secured
revolving line of credit (which is currently unused) and a $250 million four-
year secured term loan. All of the secured term loan is outstanding at
December 28, 1997. The secured loan is repayable in eight equal quarterly
installments of approximately $31 million commencing in October 1998.
In February 1998, certain of the covenants under the Credit Agreement were
amended. The Company will be required to raise funds through external
financing in the second quarter of 1998 in order to meet certain of these
amended covenants and to continue to make the substantial capital investments
required to convert Fab 25 to 0.25 micron process technology, as well as for
other ongoing capital investments.
In March 1997, the Company's indirect wholly owned subsidiary, AMD Saxony,
entered into a Loan Agreement (the Dresden Loan Agreement) with a consortium
of banks led by Dresdner Bank AG. Under the terms of the February 1998
amendments to the Dresden Loan Agreement, the Company is required to make
subordinated loans to, or equity investments in, AMD Saxony, totaling $100
million in 1998 and $170 million in 1999. AMD is required to fund $70 million
of the 1999 amount on an accelerated basis as follows: (i) if the Company
undertakes a sale or other placement of its stock in the capital markets in
1998, the $70 million will be funded upon receipt of the offering proceeds;
(ii) if the Company generates $140 million of net income (as defined in the
Indenture for the Senior Secured Notes) in 1998, the $70 million will be
funded prior to January 31, 1999; (iii) if the Company does not fund through
(i) or (ii) above, the Company will fund the maximum amount allowed under the
Indenture for the Senior Secured Notes by January 31, 1999 and will fund the
remaining amount through the sale of at least $200 million of the Company's
stock by June 30, 1999.
In the event the Company is unable to obtain the external financing
necessary to meet its covenants under the Credit Agreement, it will also be
unable to fund its capital investments planned for 1998. In addition, in the
event the Company is unable to meet its obligation to make loans to, or equity
investments in, AMD Saxony as required under the Dresden Loan Agreement, AMD
Saxony will be unable to complete Dresden Fab 30 and the Company will be in
default under the Dresden Loan Agreement, the Credit Agreement and the
Indenture, which would permit acceleration of indebtedness, which would have a
material adverse effect on the Company. There can be no assurance that the
Company will be able to obtain the funds necessary to fulfill these
obligations and any such failure would have a material adverse effect on the
Company.
Microprocessor Products
Investment in and Dependence on K86 AMD Microprocessor Products; Transition
to 0.25 Micron Process. The Company's microprocessor business has in the past,
and will in 1998, continue to significantly impact the Company's revenues,
margins and operating results. The Company plans to continue to make
significant capital expenditures to support the microprocessor business in
1998, which will be a substantial drain on the Company's cash flow and cash
balances.
The Company's ability to increase microprocessor product revenues, and
benefit fully from the substantial financial investments and commitments it
has made and continues to make related to microprocessors, depends upon the
success of the AMD-K6 microprocessor in 1998 and future generations of K86
microprocessors in 1999 and beyond. The microprocessor market is characterized
by very short product life cycles and migration to ever higher performance
microprocessors. To compete successfully against Intel Corporation in this
market, the Company must transition to new process technologies at a faster
pace than before and offer higher performance microprocessors in significantly
greater volumes. The Company has recently experienced significant difficulty
in achieving its microprocessor yield and volume plans on 0.35 micron process
technology, which in turn has adversely affected the Company's results of
operations and liquidity. The Company has determined that it must convert from
0.35 micron to 0.25 micron process technology in Fab 25 as soon as possible in
order to meet customer microprocessor needs for performance and volume, and to
compete successfully against Intel. The Company's process technology
transition schedule is aggressive and entails a high degree of risk. The
Company's 0.25 micron process technology, while successfully put into
production in the Company's Submicron Development Center in Sunnyvale,
California, has not been qualified in Fab 25. There can be no assurance that
the Company will execute a successful transition to 0.25 micron process
technology in Fab 25, or that the
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Source: ADVANCED MICRO DEVIC, 10-K405, March 03, 1998