AMD 2000 Annual Report Download - page 16

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. Because most of the amounts under the Dresden Loan Agreements
are denominated in deutsche marks, the dollar amounts set forth below are
subject to change based on applicable conversion rates. We used the exchange
rate at the end of 2000, which was approximately 2.20 deutsche marks to one U.S.
dollar, to value the amounts denominated in deutsche marks. 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 from a consortium of banks; and
. grants, subsidies and loan guarantees from the Federal Republic of
Germany and the State of Saxony.
The Dresden Loan Agreements 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 $410 million as of December 31, 2000 in the form of subordinated loans
to and equity in AMD Saxony. In addition to support from AMD, the consortium
of banks referred to above has made available $750 million in loans to AMD
Saxony to help fund Dresden Fab 30 project costs. AMD Saxony had $375 million of
such loans outstanding as of December 31, 2000.
Finally, the Federal Republic of Germany and the State of Saxony are
supporting the Dresden Fab 30 project, in accordance with the Dresden Loan
Agreements, in the form of:
. guarantees of 65 percent of AMD Saxony bank debt up to a maximum of $750
million in bank debt;
. capital investment grants and allowances totaling $287 million; and
. interest subsidies totaling $141 million.
Of these amounts, AMD Saxony had received approximately $284 million in
capital investment grants and allowances and $38 million in interest subsidies
as of December 31, 2000. The grants and subsidies are subject to conditions,
including meeting specified levels of employment in December 2001 and
maintaining those levels until June 2007. Noncompliance with the conditions of
the grants and subsidies could result in the forfeiture of all or a portion of
the future amounts to be received as well as the repayment of all or a portion
of amounts received to date. As of December 31, 2000, we were in compliance with
all of the conditions of the grants and subsidies.
In February 2001, we amended the Dresden Loan Agreements to reflect new
capacity and increased capital expenditure plans for Dresden Fab 30. Under the
February 2001 amendments, we agreed to increase and extend our guaranty of AMD
Saxony's obligations and to make available to AMD Saxony revolving loans of up
to $500 million. We expanded our obligation to reimburse AMD Saxony for the
cost of producing wafers for us and we also agreed to cancel the cost overrun
facility made available by the banks. Under the February 2001 amendments, we
have been released from financial covenants limiting capital expenditures and
requiring AMD Saxony to achieve capacity and production cost targets by the end
of 2001.
The Dresden Loan Agreements, as amended, also require that we:
. provide interim funding to AMD Saxony if either the remaining capital
investment allowances or the remaining interest subsidies are delayed,
such funding to be repaid to AMD as AMD Saxony receives the grants or
subsidies from the state of Saxony;
. fund shortfalls in government subsidies resulting from any default under
the subsidy agreements caused by AMD Saxony or its affiliates; and
. guarantee up to 35 percent of AMD Saxony's obligations under the Dresden
Loan Agreements, which guarantee must not be less than $99 million or
more than $273 million, until the bank loans are repaid in full.
We entered into foreign currency hedging transactions for Dresden Fab 30 in
1998, 1999 and 2000 and anticipate entering into additional such foreign
currency hedging transactions in 2001 and in future years. We use foreign
currency forward and option contracts to reduce our exposure to currency
fluctuations on our foreign currency exposures in our foreign sales
subsidiaries, liabilities for products purchased from FASL and for foreign
currency denominated fixed asset purchase commitments. The objective of these
contracts is to minimize the impact of foreign currency exchange rate movements
on our operating results and on the cost of capital asset acquisition. Our
accounting policy for these instruments is based on our designation of such
instruments as hedging transactions. We generally do not use derivative
financial instruments for speculative or trading purposes.
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Source: ADVANCED MICRO DEVIC, 10-K405, March 20, 2001