AMD 1997 Annual Report Download - page 78

ADVANCED MICRO DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to concentrations
of credit risk consist primarily of cash equivalents, short-term investments,
trade receivables and financial instruments used in hedging activities.
The Company places its cash equivalents and short-term investments with high
credit quality financial institutions and, by policy, limits the amount of
credit exposure with any one financial institution. Investments in time
deposits and certificates of deposit are acquired from banks having combined
capital, surplus and undistributed profits of not less than $200 million.
Investments in commercial paper and money market auction rate preferred stocks
of industrial firms and financial institutions are rated A1, P1 or better,
investments in tax-exempt securities including municipal notes and bonds are
rated AA, Aa or better, and investments in repurchase agreements must have
securities of the type and quality listed above as collateral.
Concentrations of credit risk with respect to trade receivables are limited
because a large number of geographically diverse customers make up the
Company's customer base, thus spreading the trade credit risk. The Company
controls credit risk through credit approvals, credit limits and monitoring
procedures. The Company performs in-depth credit evaluations of all new
customers and requires letters of credit, bank guarantees and advance
payments, if deemed necessary. Bad debt expenses have not been material.
The counterparties to the agreements relating to the Company's foreign
currency hedging transactions consist of a number of major, high credit
quality, international financial institutions. The Company does not believe
that there is significant risk of nonperformance by these counterparties
because the Company monitors their credit ratings and limits the financial
exposure and the amount of agreements entered into with any one financial
institution. While the notional amounts of financial instruments are often
used to express the volume of these transactions, the potential accounting
loss on these transactions if all counterparties failed to perform is limited
to the amounts, if any, by which the counterparties' obligations under the
contracts exceed the obligations of the Company to the counterparties.
6. OTHER RISKS
Financing Requirements. The Company plans to continue to make significant
capital investments, at a significantly higher rate than in previous years.
These investments include those relating to the conversion of Fab 25 to 0.25
micron process technology and the construction and facilitization of Dresden
Fab 30. The Company will be required to raise funds through external financing
in order 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. 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 fund its capital investments and any such failure will have a
material adverse effect on the Company.
Products. AMD-K6 microprocessor and Flash memory devices each contributed a
significant portion of the Company's revenues in 1997. The Company's ability
to increase product revenues, and benefit fully from
F-13
Source: ADVANCED MICRO DEVIC, 10-K405, March 03, 1998