AMD 1998 Annual Report Download - page 216

Generally, any such default which either (1) results from our noncompliance with
the Dresden Loan Agreements and is not cured by AMD or (2) results in recourse
to AMD of more than $10 million and is not cured by AMD, would result in a
cross-default under the Dresden Loan Agreements, the Indenture and the Credit
Agreement. Under certain circumstances, cross-defaults result under the
Convertible Subordinated Notes, the Indenture and the Dresden Loan Agreements.
In the event we are unable to meet our obligation to make loans to, or equity
investments in, AMD Saxony as required under the Dresden Loan Agreements, AMD
Saxony will be unable to complete Dresden Fab 30 and we will be in default under
the Dresden Loan Agreements, the Indenture and the Credit Agreement, which would
permit acceleration of certain indebtedness, which would have a material adverse
effect on our business. There can be no assurance that we will be able to obtain
the funds necessary to fulfill these obligations and any such failure would have
a material adverse effect on our business.
Beginning in October 1998, the $250 million four-year secured term loan under
the Credit Agreement was repayable in eight equal quarterly installments of
approximately $31 million. As of December 27, 1998, the outstanding balance was
$219 million. As of December 27, 1998, we also had available unsecured
uncommitted bank lines of credit in the amount of $69 million, of which $6
million was outstanding.
In February and June 1998, certain of the covenants under the Credit Agreement,
including those relating to the modified quick ratio, minimum tangible net worth
and the fixed charge coverage ratio, were amended. As of December 27, 1998, we
were in compliance with all covenants under the Credit Agreement. In March 1999,
the parties to the Credit Agreement agreed to amend certain covenants, including
those relating to minimum tangible net worth, the modified quick ratio, the
leverage ratio and profitability, to facilitate our compliance with all
covenants under the Credit Agreement as of the end of the first quarter of 1999.
FASL, a joint venture formed by AMD and Fujitsu Limited in 1993, is continuing
the facilitization of its second Flash memory device wafer fabrication facility,
FASL II, in Aizu-Wakamatsu, Japan. We expect the facility, including equipment,
to cost approximately $1 billion when fully equipped. As of December 27, 1998,
approximately $368 million of such cost had been funded. Capital expenditures
for FASL II construction to date have been funded by cash generated from FASL
operations and local borrowings by FASL. During 1999, we presently anticipate
that FASL capital expenditures will continue to be funded by cash generated from
FASL operations and local borrowings by FASL. However, 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 pro portion 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.
As a result of our alliance with Motorola, relating to the development of Flash
memory and logic technology, we expect related research and development spending
to be between $15 million and $20 million per quarter in 1999.
We believe that cash flows from operations and current cash balances, together
with external financing activities, will be sufficient to fund operations and
capital investments through 1999.
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Recently Issued Financial Accounting Standards
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 (SFAS 133), "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 is required to be adopted in years
beginning after June 15, 1999. We expect to adopt SFAS 133 in 2000. We have not
completed our review of SFAS 133, and accordingly have not evaluated the effect
the adoption of the Statement may have on our consolidated results of operations
and financial position. SFAS 133 will require AMD to recognize all derivatives
on the balance sheet at fair value. Derivatives that are not hedges must be
adjusted to fair value through income. If the derivative is a hedge, depending
on the nature of the hedge, changes in the fair value of derivatives will either
be offset against the change in fair value of the hedged assets, liabilities, or
firm commitments through earnings or recognized in other comprehensive income
until the hedged item is recognized in earnings. The ineffective portion of a
derivative's change in fair value will be immediately recognized in earnings.
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Source: ADVANCED MICRO DEVIC, 10-K, March 29, 1999