AMD 2006 Annual Report Download - page 129

Table of Contents
value of the silent partnership contributions by the guaranteed annual rate of return of between 11 percent and 13 percent. The Company records this periodic
accretion to redemption value as interest expense.
The limited partnership contributions that AMD Fab 36 KG received from Leipziger Messe and Fab 36 Beteiligungs and the New Silent Partnership
Portion described above are not mandatorily redeemable, but rather are subject to redemption outside of the control of AMD Fab 36 Holding and AMD Fab 36
Admin. In consolidation, the Company initially recorded these contributions as minority interest, based on their fair value. Each accounting period, the Company
increases the carrying value of this minority interest toward its ultimate redemption value of these contributions by the guaranteed rate of return of between 11
percent and 13 percent. The Company is classifying 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 No. 133, Accounting
for Derivative Instruments and Hedging Activities.
As of December 31, 2006, AMD Fab 36 KG had received $185 million of silent partnership contributions and $238 million of limited partnership
contributions, which includes a New Silent Partnership Amount of $66 million, from the unaffiliated partners. These contributions were recorded as debt and
minority interest, respectively, in the consolidated balance sheets.
In addition to support from the Company 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 $716 million, depending on the level of capital investments by AMD Fab 36
KG.
In connection with the receipt of subsidies for the Fab 36 project, AMD Fab 36 KG is required to attain a certain employee headcount by December 2007
and maintain this headcount through December 2012. The Company recorded these subsidies as long-term liabilities on its consolidated balance sheets and
amortizes them to operations ratably starting from December 2004 through December 2012. Initially, the Company amortized the grant amounts as a reduction to
research and development expenses. Beginning in the first quarter of 2006, when Fab 36 began producing revenue generating products, the Company started
amortizing these amounts as a reduction to cost of sales. For allowances, starting from the first quarter of 2006, the Company amortizes the amounts as a
reduction of depreciation expense ratably over the life of the equipment because these allowances are intended to subsidize the capital investments in equipment.
Noncompliance with the covenants contained in the subsidy grant documents could result in 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, 2006, AMD Fab 36 KG received cash allowances of $157 million for capital investments made in 2003 through 2005 as well as cash
grants of $207 million for capital investments made in 2003 through 2006 and a prepayment for capital investments planned in 2007 and the first half of 2008.
The Fab 36 Loan Agreements also require that the Company:
• provides 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
• guarantees 100 percent of AMD Fab 36 KG’s obligations under the Fab 36 Loan Agreements until the bank loans are repaid in full.
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Source: ADVANCED MICRO DEVIC, 10-K, March 01, 2007