AMD 2001 Annual Report Download - page 224

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
economy. They also could result in or exacerbate economic recession in the
United States or abroad. Any of these occurrences could have a significant
impact on our operating results, revenues and costs, volatility of the market
price for our securities and on the future price of our securities.
We Are Located in an Earthquake Zone. Our corporate headquarters, a portion of
our manufacturing facilities, assembly and research and development activities
and certain other critical business operations are located near major earthquake
fault lines. In the event of a major earthquake, we could experience business
interruptions, destruction of facilities, and/or loss of life, all of which
could materially adversely affect us.
We Have a Substantial Amount of Debt and Debt Service Obligations, Which Could
Adversely Affect Our Financial Position. Our Loan Agreement provides for a
four-year secured revolving line of credit of up to $200 million, which
currently expires on July 14, 2003. Under this agreement, we can borrow, subject
to amounts which may be set aside by the lenders, up to 85% of our eligible
accounts receivable from OEMs and 50% of our eligible accounts receivable from
distributors. We must comply with certain financial covenants if the level of
cash we hold in the United States declines to certain levels. Our obligations
under this agreement are secured by a pledge of most of our accounts receivable,
inventory, general intangibles and the related proceeds. As of December 30,
2001, we had $50 million outstanding under the Loan Agreement, which has
subsequently been repaid.
Our indirect wholly owned subsidiary, AMD Saxony, is a party to a loan agreement
and other related agreements with a consortium of banks led by Dresdner Bank AG.
These agreements require that we partially fund Dresden Fab 30 project costs in
the form of subordinated loans to, or equity investments in, AMD Saxony. If we
are unable to meet our obligations to AMD Saxony as required under these
agreements, we will be in default under the Bank of America loan and security
agreement, which would permit acceleration of indebtedness under both
agreements. In addition, the Dresden Loan Agreement prohibits AMD Saxony from
paying any dividends, so cash held by AMD Saxony will not be available for the
repayment of the debentures.
To the extent that additional funds are required for the full facilitization of
FASL JV2 and FASL JV3, we will be required to contribute cash or guarantee
third-party loans in proportion to our 49.992% interest in FASL. If we are
unable to fulfill our obligations to FASL, our business could be materially and
adversely affected. In 2000, FASL further expanded its production capacity
through a foundry arrangement with Fujitsu Microelectronics, Inc. (FMI), a
wholly owned subsidiary of Fujitsu Limited. In connection with FMI equipping its
wafer fabrication facility in Gresham, Oregon (the Gresham Facility) to produce
flash memory devices for sale to FASL, we agreed to guarantee the repayment of
up to $125 million of Fujitsu's obligations as a co-signer with FMI under its
global multicurrency revolving credit facility (the Credit Facility) with a
third-party bank (the Guarantee). On November 30, 2001, Fujitsu announced that
it was closing the Gresham Facility, due to the downturn of the flash memory
market. To date, we have not received notice from Fujitsu that FMI has defaulted
on any payments due under the Credit Facility. Furthermore, subsequent to year
end, we were informed that amounts borrowed by FMI under the Credit Facility do
not become due until the end of March 2002. Accordingly, under the terms of the
Guarantee, we are not at this time, and were not at December 30, 2001, obligated
to make any payments to Fujitsu. However, subsequent to year end, Fujitsu
requested that we pay the entire $125 million under the Guarantee. Although we
disagree with Fujitsu as to the amount, if any, of our obligations under the
Guarantee, Fujitsu has indicated its belief that we are obligated to pay the
full $125 million.
On January 29, 2002, we closed a private offering of $500 million aggregate
principal amount of its 4 3/4% Convertible Senior Debentures Due 2022 (the
Debentures). The Debentures bear interest at a rate of 4 3/4% per annum. The
interest rate will be reset on each of August 1, 2008, August 1, 2011 and August
1, 2016 to a rate per annum equal to the interest rate payable 120 days prior to
such date on 5-year U.S. Treasury Notes, plus 43 basis points. The reset rate
will not be less than 4 3/4% and will not exceed 6 3/4%.
Our ability to make payments on and to refinance our debt or our guarantees of
other parties' debts will depend on our financial and operating performance,
which may fluctuate significantly from quarter to quarter and is subject to
prevailing economic conditions and to financial, business and other factors
beyond our control. We cannot assure you that our business will generate
sufficient cash flow from operations or that future borrowings will be available
to us under our Loan Agreement in an amount sufficient to enable us to pay our
debt or Debentures, or to fund our other liquidity needs. We may need to
refinance all or a portion of our debt, including the Debentures, on or before
maturity. We cannot assure you that we will be able to
Source: ADVANCED MICRO DEVIC, 10-K, March 07, 2002