AMD 2007 Annual Report Download - page 130

Table of Contents
consolidation, the Company initially records 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 classifies this periodic accretion of redemption value as minority interest. No separate accounting is required for the put and call
options because they are not freestanding instruments and not considered derivatives under FASB Statement No. 133, Accounting for Derivative Instruments and
Hedging Activities.
As of December 29, 2007, AMD Fab 36 KG had received $206 million of silent partnership contributions and $265 million of limited partnership
contributions, which includes a New Silent Partnership Amount of $74 million, from the unaffiliated partners. These contributions were recorded as debt and
minority interest, respectively, in the Company’s consolidated balance sheet.
In addition to support from the Company and the consortium of banks referenced 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 $798 million, depending on the level of capital investments by AMD Fab
36 KG and $386 million, depending on the level of capital investments for expansion of production capacity at the Company’s Dresden site.
In connection with the receipt of investment grants for the Fab 36 project, AMD Fab 36 KG is required to attain a certain employee headcount by
December 2008 and maintain this headcount through December 2013. The Company records these grants as long-term liabilities on the Company’s consolidated
balance sheet and amortize them to operations ratably starting from December 2004 through December 2013. 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 investments because these allowances are intended to subsidize the capital
investments. Noncompliance with the covenants contained in the subsidy documents could result in the repayment of all or a portion of the amounts received to
date.
As of December 29, 2007, AMD Fab 36 KG received cash allowances of $320 million for capital investments made in 2003 through 2006 as well as cash
grants of $221 million for capital investments made in 2003 through 2007 and a prepayment for capital investments planned for the first half of 2008.
The Fab 36 Loan Agreements also require that the Company:
• 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.
Under the Fab 36 Loan Agreements, AMD Fab 36 KG, AMD Fab 36 Holding and AMD Fab 36 Admin are generally prevented from paying dividends or
making other payments to us. In addition, AMD Fab 36 KG would be in default under the Fab 36 Loan Agreements if the Company or any of the AMD
companies 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 adversely affected. Circumstances that could result in a default include:
• the Company’s failure to provide loans to AMD Fab 36 KG as required under the Fab 36 Loan Agreements;
• failure to pay any amount due under the Fab 36 Loan Agreements within five days of the due date;
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Source: ADVANCED MICRO DEVIC, 10-K, February 26, 2008