AMD 2007 Annual Report Download - page 252

Spansion Inc.
Notes to Consolidated Financial Statements—(Continued)
Facilities, and certain assets located in the JV1/JV2 Facilities, to Fujitsu for a purchase price of approximately $150 million plus the value of the inventory at the
time of closing. Concurrently with the execution of the asset purchase agreement, Spansion Japan and Fujitsu also executed (i) a master lease agreement,
pursuant to which Spansion Japan will lease certain equipment to Fujitsu to use in the JV1/JV2 Facilities, (ii) a foundry agreement, pursuant to which Fujitsu has
agreed to manufacture, and the Company has agreed to purchase, wafers to be manufactured by Fujitsu for Spansion in the JV1/JV2 Facilities (the foundry
agreement also includes minimum supply and purchase commitments between both the parties resulting in financial penalties if such supply and purchase
commitments are not achieved) and (iii) a secondment and transfer agreement, pursuant to which Spansion Japan has agreed to second a specified number of
employees to Fujitsu to work in the JV1/JV2 Facilities and ultimately to transfer certain of the employees to Fujitsu. The Company refers to these agreements
collectively as the JV1/JV2 Transaction. Under the terms of the asset purchase agreement, the JV1/JV2 Transaction is scheduled to close in the second quarter of
fiscal 2007.
6. Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash equivalents, marketable securities,
trade receivables and foreign currency forward contracts. The Company places its cash equivalents and marketable securities with high quality credit financial
institutions and, by policy, limits the amount of credit exposure with any one financial institution.
Concentration of credit risk with respect to trade receivables exists because the Company sells a significant portion of its products directly to Fujitsu.
Trade accounts receivable from Fujitsu comprised approximately 48 percent and 49 percent of the total consolidated trade accounts receivable balance as of
December 31, 2006 and December 25, 2005, respectively. However, the Company does not believe the receivable balances from the related party subject the
Company to significant credit risk as historical losses have not been significant and Fujitsu’s own customer base represent a large number of geographically
diverse companies. Fujitsu is required to pay its trade receivables regardless of whether it can collect from its customers. The Company does not require
collateral or other security from Fujitsu.
The counterparties relating to the Company’s financial activities, including investing, borrowing and foreign exchange hedging, consist of large
international financial institutions. The Company does not believe that there is significant risk of nonperformance by these counterparties because the Company
monitors their credit ratings and limits the financial exposure and the notional amount of agreements entered into with any one financial institution. While the
notional amounts of derivative financial instruments are often used to express the volume of these transactions, the potential accounting loss on these transactions
if all counterparties failed to perform is limited to the amounts, if any, by which the counterparties’ obligations under the contracts exceed the Company’s
obligations to the counterparties. As of December 31, 2006 and December 25, 2005, the Company had a total notional amount of approximately $10.9 million
and $49.6 million, respectively, in outstanding foreign currency forward exchange contracts. Foreign currency gains and losses were not significant for the
periods presented.
Source: ADVANCED MICRO DEVIC, 10-K, February 26, 2008