AMD 2008 Annual Report Download - page 92

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. 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 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
• AMD Fab 36 KG’s noncompliance with certain financial covenants, including loan to fixed asset value
ratio and, in certain circumstances, a minimum cash covenant.
In general, any default with respect to other indebtedness of AMD or AMD Fab 36 KG that is not cured,
would result in a cross-default under the Fab 36 Loan Agreements.
The occurrence of a default under the Fab 36 Loan Agreements would permit the lenders to accelerate the
repayment of all amounts outstanding under the Fab 36 Term Loan. In addition, the occurrence of a default under
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