AMD 2007 Annual Report Download - page 84

Table of Contents
In addition to support from us 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 our 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 is required to maintain this headcount through December 2013. We record these grants as long-term liabilities on our consolidated balance
sheet and amortize them to operations ratably starting from December 2004 through December 2013. Initially, we 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, we started amortizing
these amounts as a reduction to cost of sales. For allowances, starting from the first quarter of 2006, we amortize 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 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.
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 we 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:
• our 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;
• occurrence of any event which the lenders reasonably believe has had or is likely to have a material adverse effect on the business, assets or condition
of AMD Fab 36 KG or AMD or their ability to perform under the Fab 36 Loan Agreements;
• filings or proceedings in bankruptcy or insolvency with respect to us, AMD Fab 36 KG or any limited partner;
• occurrence of a change in control (as defined in the Fab 36 Loan Agreements) of AMD;
• AMD Fab 36 KG’s noncompliance with certain affirmative and negative covenants, including restrictions on payment of profits, dividends or other
distributions except in limited circumstances and restrictions on incurring additional indebtedness, disposing of assets and repaying subordinated debt;
and
79
Source: ADVANCED MICRO DEVIC, 10-K, February 26, 2008