AMD 2006 Annual Report Download - page 92

Table of Contents
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Interest Rate Risk. Our exposure to market risk for changes in interest rates relates primarily to our investment portfolio and long-term debt. We usually
invest our cash in investments with short maturities or with frequent interest reset terms. Accordingly, our interest income fluctuates with short-term market
conditions. As of December 31, 2006, substantially all of our investments in our portfolio were highly liquid investments and consisted primarily of bank notes,
short-term corporate notes, money market auction rate preferred stocks and short-term federal agency notes.
In October and December 2006, we borrowed $645 million and $248 million in U.S. dollars under the Fab 36 Term Loan. Interest is payable on this loan
at a variable rate which is calculated as the aggregate of the applicable margin, (as defined in the Fab 36 Term Loan) plus LIBOR plus minimum reserve cost if
any. We may select an interest period of one, two or three months or any other period agreed between AMD Fab 36 KG and the lenders. The rate of interest is
reset at the beginning of each new interest period. As of December 31, 2006, the rate of interest was 7.1259 percent for the first drawdown and 7.11563 percent
for the second drawdown. In addition, in October 2006, we borrowed an aggregate amount of $2.5 billion under the October 2006 Term Loan in order to finance
a portion of the ATI acquisition. Interest is payable on this loan at a variable rate which is calculated as the Eurodollar Rate (as defined in the October 2006 Term
Loan) plus a 2.25 percent margin. The margin will reduce by 0.25 percent when the outstanding aggregate principal amount is less than $1.75 billion. We may
select an interest period of one, two, three, six or if available to all the lenders, nine or twelve months for each loan. The rate of interest is reset at the beginning
of each new interest period. As of December 31, 2006, $2.2 billion was outstanding and the interest rate was 7.62 percent. Because the Fab 36 Term Loan and the
October 2006 Term Loan both bear a variable interest rate, our exposure to interest rate risk has increased significantly. We will continue to monitor our
exposure to interest rate risk.
Default Risk. We mitigate default risk in our investment portfolio by investing in only the highest credit quality securities and by constantly positioning
our portfolio to respond appropriately to a significant reduction in a credit rating of any investment issuer or guarantor. The portfolio includes marketable
securities with active secondary or resale markets to ensure portfolio liquidity. We are averse to principal loss and strive to preserve our invested funds by
limiting default risk and market risk.
Except for the October 2006 Term Loan, which was used to fund a portion of the ATI acquisition, we generally use proceeds from borrowings primarily to
support general corporate purposes, including capital expenditures and working capital needs.
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Source: ADVANCED MICRO DEVIC, 10-K, March 01, 2007