AMD 2003 Annual Report Download - page 40

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Of these amounts, AMD Saxony received approximately $412 million in capital investment grants and allowances and $131 million in interest subsidies.
In addition, AMD Saxony has received advance payments for interest subsidies amounting to $22 million as of December 28, 2003. AMD Saxony also received
$55 million in research and development subsidies through December 28, 2003. Amounts received under the Subsidy Agreement are recorded as a long-term
liability on our financial statements and are being amortized to operations ratably over the contractual life of the Subsidy Agreement as a reduction to operating
expenses through December of 2008. Historical exchange rates in effect at the time these investment grants and allowances and interest subsidies were received
were used to translate amounts denominated in deutsche marks (converted to euros) into U.S. dollars.
Under the Subsidy Agreement, for the construction and financing of Fab 30, AMD Saxony undertook to attain a certain employee headcount by December
2003 and to maintain such headcount until December 2008. Noncompliance with the conditions of the grants, allowances and subsidies contained in the Subsidy
Agreement 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. In December 2002, AMD Saxony reduced its anticipated employment levels as a result of the 2002 Restructuring Plan. Consequently, as of December
2003, headcount was below the level agreed to by AMD Saxony at which AMD Saxony would be entitled to receive the maximum amount of capital investment
grants and allowances available. However, the aggregate amount of grants and allowances actually received by AMD Saxony to date, calculated as a percentage
of the maximum amount of grants and allowances available, does not exceed the actual headcount at AMD Saxony at December 2003, calculated as a percentage
of the headcount target undertaken in the Subsidy Agreement. Accordingly, AMD Saxony does not believe it has received grants and allowances in excess of its
entitlement under the Subsidy Agreement. However, we anticipate that the maximum amount of capital investment grants and allowances available under the
Subsidy Agreement will be reduced from an originally anticipated amount of $517 million to approximately $453 million. We adjusted the quarterly amortization
of these amounts accordingly.
The Dresden Loan Agreements, as amended, also require that we:
• provide interim funding to AMD Saxony if either the remaining capital investment grants and allowances or the remaining interest subsidies are
delayed, such funding to be repaid to AMD, as AMD Saxony receives the investment grants and allowances or subsidies from the State of Saxony and
the Federal Republic of Germany;
• fund shortfalls in government subsidies resulting from any default under the Subsidy Agreement caused by AMD Saxony or its affiliates; and
• guarantee of up to 50 percent of AMD Saxony’s obligations under the Dresden Loan Agreements, which guarantee must not be less than $138 million
or more than $373 million, until the bank loans are repaid in full. As of December 28, 2003, the amount outstanding under the guarantee was $332
million.
As AMD Saxony’s obligations under the Dresden Loan Agreements are included in our consolidated financial statements, no incremental liability is
recorded under the Dresden guarantee.
AMD Saxony would be in default under the Dresden Loan Agreements if we, AMD Saxony or AMD Saxony Holding GmbH (AMD Holding) fail to
comply with certain obligations thereunder or upon the occurrence of certain events and if, after the occurrence of the event, the lenders determine that their legal
or risk position is materially adversely affected. Circumstances that could result in a default include:
• our failure to fund equity contributions or loans or otherwise comply with our obligations relating to the Dresden Loan Agreements;
• the sale of shares in AMD Saxony or AMD Holding;
• the failure to pay material obligations;
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Source: ADVANCED MICRO DEVIC, 10-K, March 09, 2004