AMD 1999 Annual Report Download - page 138

Dependence on Microsoft and Logo License. Our ability to innovate beyond the x86
instruction set controlled by Intel depends on support from Microsoft in its
operating systems. If Microsoft does not provide support in its operating
systems for the x86 instructions that we innovate and design into our
processors, independent software providers may forego designing their software
applications to take advantage of our innovations. This would adversely affect
our ability to market our processors. In addition, we have entered into logo
license agreements with Microsoft that allow us to label our products as
"Designed for Microsoft Windows." We have also obtained appropriate
certifications from recognized testing organizations for our K86
microprocessors. If we fail to maintain the logo license agreements with
Microsoft, we may lose our ability to label our K86 microprocessors with the
Microsoft Windows logo. This could impair our ability to market the products and
could have a material adverse effect on our business.
Fluctuations in PC Market. Since most of our microprocessor products are used in
PCs and related peripherals, our future growth is closely tied to the growth of
the PC industry. Industry-wide fluctuations in the PC marketplace have in the
past and may in the future materially and adversely affect our business.
Financing Requirements
We currently plan to make capital investments of approximately $800 million in
2000 although the actual expenditures may vary. These investments include those
relating to the continued facilitization of Dresden Fab 30 and Fab 25.
In 1999, the building construction of FASL II was completed, equipment was
installed and production was initiated. 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 borrowings by FASL. If 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.
In 1996, we entered into the Credit Agreement, which provided for a $150
million three-year secured revolving line of credit and a $250 million four-year
secured term loan. On June 25, 1999, we terminated the secured revolving line of
credit. On July 13, 1999, we replaced the Credit Agreement with a new Loan and
Security Agreement (the Loan Agreement) with a consortium of banks led by Bank
of America. On July 30, 1999, we repaid the outstanding balance on the secured
term loan and terminated the Credit Agreement. Under the Loan Agreement, which
provides for a four-year secured revolving line of credit of up to $200 million,
we can borrow, subject to amounts which may be set aside by the lenders, up to
85 percent of our eligible accounts receivable from OEMs and 50 percent of our
eligible accounts receivable from distributors. We must comply with certain
financial covenants if the level of domestic cash we hold declines to certain
levels, or the amount of borrowings under the Loan Agreement rises to certain
levels. Our obligations under the Loan Agreement are secured by a pledge of most
of our accounts receivable, inventory, general intangibles and the related
proceeds.
In March 1997, our indirect wholly owned subsidiary, AMD Saxony, entered into
the Dresden Loan Agreements with a consortium of banks led by Dresdner Bank AG.
The terms of the Dresden Loan Agreements required us to make subordinated loans
to AMD Saxony totaling $100 million in 1998, and to make additional subordinated
loans to, or equity investments in, AMD Saxony totaling $100 million in 1999.
The Dresden Loan Agreements, which were amended in February 1998 to reflect
planned 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. In accordance with the terms of the Dresden Loan
Agreements, we have invested $421 million as of December 26,1999 in the form of
subordinated loans and equity in AMD Saxony. The Dresden Loan Agreements were
amended again in June 1999 to remove a requirement that we sell at least $200
million of our stock by June 30, 1999 in order to fund a $70 million loan to AMD
Saxony. In lieu of the stock offering, we funded the $70 million loan to AMD
Saxony with proceeds from the sale of Vantis.
Because the amounts under the Dresden Loan Agreements are denominated in
deutsche marks, the dollar amounts set forth herein are subject to change based
on applicable conversion rates. As of the end of 1999, the exchange rate was
approximately 1.94 deutsche marks to 1 U.S. dollar (which we used to calculate
our obligations denominated in deutsche marks).
If 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 Agreement, the Loan Agreement and the Indenture, which would
have a material adverse effect on our business. If we are unable to obtain the
funds necessary to fulfill these obligations, our business will be materially
and adversely affected.
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Source: ADVANCED MICRO DEVIC, 10-K405, March 21, 2000