AMD 1998 Annual Report Download - page 15

In 1997, FASL completed construction of a second Flash memory device wafer
fabrication facility, FASL II, at a site contiguous to the existing FASL
facility. In 1998, equipment was installed and production was initiated in
FASL II. We expect the facility, including equipment, to cost approximately $1
billion when fully equipped. Capital expenditures for FASL II construction to
date have been funded by cash generated from FASL operations and local
borrowings by FASL. To the extent that FASL is unable to secure the necessary
funds for FASL II, we may be required to contribute cash or guarantee third-
party loans in proportion to our 49.992 percent interest in FASL. As of
December 27, 1998, we had loan guarantees of $81 million outstanding with
respect to these loans. The planned FASL II costs are denominated in yen and
are, therefore, subject to change due to foreign exchange rate fluctuations.
In connection with FASL, AMD and Fujitsu have entered into various joint
development, cross-license and investment arrangements. Accordingly, the
companies are providing their product designs and process and manufacturing
technologies to FASL. In addition, both companies are collaborating in
developing manufacturing processes and designing Flash memory devices for
FASL. The right of each company to use the licensed intellectual property of
the other with respect to certain products is limited both in scope and
geographic areas. For instance, AMD and Fujitsu have cross-licensed their
respective intellectual property to produce stand-alone Flash memory devices
with geometrics of 0.5 micron or smaller within the joint venture.
Furthermore, our ability to sell Flash memory products incorporating Fujitsu
intellectual property, whether or not produced by FASL, is also limited in
certain territories, including Japan and Asia (excluding Taiwan). Fujitsu is
likewise limited in its ability to sell Flash memory devices incorporating our
intellectual property, whether or not produced by FASL, in certain territories
including the United States and Taiwan.
Dresden Fab 30. AMD Saxony has constructed and is installing equipment in
Dresden Fab 30, a 900,000-square-foot submicron integrated circuit
manufacturing and design facility located in Dresden, in the State of Saxony,
Germany. AMD, the Federal Republic of Germany, the State of Saxony and a
consortium of banks are supporting the project. We currently estimate
construction and facilitization costs of Dresden Fab 30 to be approximately
$1.9 billion. In March 1997, AMD Saxony entered into a loan agreement and
other related agreements (the Dresden Loan Agreements) with a consortium of
banks led by Dresdner Bank AG. The Dresden Loan Agreements provide for the
funding of the construction and facilitization of Dresden Fab 30. The funding
consists of:
. equity, subordinated loans and loan guarantees from AMD;
. loans of $989 million (denominated in deutsche marks) from a consortium
of banks led by Dresdner Bank AG; and
. capital investment grants and allowances, subsidies and loan guarantees
from the Federal Republic of Germany and the State of Saxony.
The Dresden Loan Agreements, which were amended in February 1998 to reflect
upgrades in wafer production technology as well as the decline in the deutsche
mark relative to the U.S. dollar, require that we partially fund Dresden Fab
30 project costs in the form of subordinated loans to, or equity investments
in, AMD Saxony. The Dresden Loan Agreements also provide that we will:
. provide interim funding to AMD Saxony if capital investment allowances or
interest subsidies to be received by AMD Saxony are delayed;
. fund shortfalls in government subsidies resulting from any default under
the subsidy agreements caused by AMD Saxony or its affiliates;
. guarantee a portion of AMD Saxony's obligations under the Dresden Loan
Agreements until Dresden Fab 30 has been completed;
. fund certain contingent obligations, including project cost overruns, if
any; and
. make funds available to AMD Saxony, after completion of Dresden Fab 30,
if AMD Saxony does not meet its fixed charge coverage ratio covenant.
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Source: ADVANCED MICRO DEVIC, 10-K, March 29, 1999