AMD 2008 Annual Report Download - page 140

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.
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 $764 million, depending on
the level of capital investments by AMD Fab 36 KG and $32 million allowances depending on the level
of capital investments for expansion of production capacity at the 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. The Company records these grants as long-term liabilities on the Company’s consolidated
balance sheet and amortizes 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. Allowances are amortized 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 27, 2008, AMD Fab 36 KG received cash allowances of $407 million for capital
investments made in 2003 through 2008 as well as cash grants of $211 million for capital investments made in
2003 through 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 the Company. 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;
• 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 the Company, AMD Fab 36 KG or
any limited partner;
• occurrence of a change in control (as defined in the Fab 36 Loan Agreements) of AMD;
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