AMD 2004 Annual Report Download - page 46

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significantly in excess of the business plan, or certain dispositions of the limited partnership interests of AMD Fab 36 Holding and AMD Fab 36 Admin. The
purchase price under the put option is the partner’s capital account balance plus accumulated or accrued profits due to such limited partner. The purchase price
under the call option is the same amount, plus a premium of $4.7 million to Leipziger Messe and a premium of $2.8 million to Fab 36 Beteiligungs. The right of
first refusal price is the lower of the put option price or the price offered by the third party that triggered the right. We guaranteed the payments under the put
options.
In addition, AMD Fab 36 Holding and AMD Fab 36 Admin are obligated to repurchase the silent partnership interest of Leipziger Messe’s and Fab 36
Beteiligungs’ contributions over time. Specifically, AMD Fab 36 Holding and AMD Fab 36 Admin are required to repurchase Leipziger Messe’s silent
partnership interest of $108 million in annual 25 percent installments commencing one year after Leipziger Messe has completed its limited partnership and
silent partnership contributions, and Fab 36 Beteiligungs’ silent partnership interest of $81 million in annual 20 percent installments commencing in October
2005.
For accounting and financial reporting purposes under United States generally accepted accounting principles, we classified the silent partnership
contributions as debt, based on their fair value because of the mandatory redemption features described in the prior paragraph. Each accounting period, we
increase the carrying value of this debt towards our ultimate redemption value of the silent partnership contributions by the guaranteed annual rate of return of
between 11 percent to 13 percent. We classify this periodic accretion to redemption value as interest expense.
The limited partnership contributions that AMD Fab 36 KG expects to receive from Leipziger Messe and Fab 36 Beteiligungs are subject to the put and
call provisions referenced above. These contributions are not mandatorily redeemable, but rather are subject to redemption outside of the control of AMD Fab 36
Holding and AMD Fab 36 Admin. Upon consolidation, we initially record these contributions as minority interest, based on their fair value. Each accounting
period, we increase the carrying value of this minority interest toward our ultimate redemption value of these contributions by the guaranteed rate of return of
between 11 percent and 13 percent. We classify this periodic accretion of redemption value as an additional minority interest allocation. No separate accounting
is required for the put and call options because they are not freestanding instruments and not considered derivatives under SFAS 133, Accounting for Derivative
Instruments and Hedging Activities.
As of December 26, 2004, AMD Fab 36 KG received $122 million of silent partnership contributions and $128 million of limited partnership contributions
from the unaffiliated limited partners. These contributions were recorded as debt and minority interest, respectively, in the accompanying consolidated balance
sheet.
In addition to support from us and the consortium of banks referred to above, the Federal Republic of Germany and the State of Saxony have agreed to
support the Fab 36 project in the form of:
• a loan guarantee equal to 80 percent of the losses sustained by the lenders after foreclosure on all other security; and
• subsidies consisting of grants and allowances totaling up to approximately $735 million.
As of December 26, 2004, AMD Fab 36 KG received cash allowances of $5 million for investments made in 2003 and cash grants of $25 million for
investments made in 2003 and 2004.
The Fab 36 Loan Agreements also require that we:
• provide funding to AMD Fab 36 KG if cash shortfalls occur, including funding shortfalls in government subsidies resulting from any defaults caused by
AMD Fab 36 KG or its affiliates; and
• guarantee 100 percent of AMD Fab 36 KG’s obligations under the Fab 36 Loan Agreements until the loans are repaid in full.
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Source: ADVANCED MICRO DEVIC, 10-K, March 01, 2005