AMD 2002 Annual Report Download - page 77

Table of Contents
Advanced Mask Technology Center and Maskhouse Building Administration Guarantees
The Advanced Mask Technology Center GmbH & Co. KG (AMTC), and Maskhouse Building Administration GmbH & Co., KG (BAC), are joint
ventures formed by AMD, Infineon Technologies AG and Dupont Photomasks, Inc. for the purpose of constructing and operating a new advanced photomask
facility in Dresden, Germany. In June 2002, BAC entered into a $78 million bridge loan (Bridge Loan) with a consortium of banks led by Dresdner Bank for the
purpose of constructing the facility. The Company guaranteed the payment obligations of BAC under the Bridge Loan, in an amount not to exceed $26 million
plus interest and expenses. In December 2002, BAC and AMTC executed a facility agreement, consisting of a $125 million revolving credit facility (Revolving
Loan) and a $78 million term loan facility (Term Loan), with a consortium of banks led by Dresdner Bank. The Term Loan will supercede and replace the Bridge
Loan. The Company guaranteed the payment obligations of AMTC, in an amount not to exceed $33 million plus interest and expenses, under the Revolving
Loan. In addition, the Company guaranteed the payment obligations of BAC, in an amount not to exceed $26 million plus interest and expenses, under the Term
Loan.
In December 2002, AMTC and BAC entered into a rental agreement with respect to the photomask facility. The rental agreement would become effective
upon completion of construction of the photomask facility. The Company guaranteed approximately 23% of the payment obligations of AMTC under the rental
agreement which the Company believes will be equal to approximately $17 million initially, and will diminish over time through 2011 as the Term Loan is
repaid. The Company’s rental guarantee replaces its guarantee of the Term Loan. In addition, in the event the other tenant of the photomask facility defaults
under its rental agreement, and the AMTC assumes the defaulting tenant’s lease and related lease obligations, the Company would be required to guarantee 23%
of these additional rental payment obligations. Further, in the event one of the three joint venture partners is unable to meet its guarantee obligations with respect
to AMTC’s additional rental payment obligations, the remaining joint venture partners agreed to assume, on a pro rata basis, the defaulting partner’s guarantee
obligations with respect to AMTC’s additional rental payment only. Assuming the other tenant of the photomask facility defaults under the rental agreement and
AMTC exercises its option to assume the defaulting tenant’s obligations under its rental agreement, and assuming a default under the rental guarantee by both
Infineon and Dupont, the maximum potential amount of the Company’s guarantee obligations for these rental payments would be approximately $131 million.
As of December 29, 2002, no amounts were drawn under the Revolving Loan or the Term Loan and the Company had not recorded any liability in its
consolidated financial statements associated with these guarantees.
Warranties
At the time revenue is recognized, the Company provides for estimated costs that may be incurred under product warranties, with the corresponding
expense recognized in cost of sales. Estimates of warranty expense are based on historical experience. Remaining warranty accruals are evaluated periodically
and are adjusted for changes in experience.
The Company generally offers to end users a three year limited warranty for certain of its boxed microprocessor products, and a one year limited warranty,
to direct purchasers only, for all other products.
Changes in the Company’s liability for product warranty during the period are as follows (in thousands):
Balance, beginning of the period $ 16,730
New warranties issued during the period 34,574
Settlements during the period (51,935)
Changes in liability for pre-existing warranties during the period, including expirations 20,000
Balance, end of period $ 19,369
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Source: ADVANCED MICRO DEVIC, 10-K, March 14, 2003