Maverick - We're not Done with all this Good AMD Financial Information
In February 1998, certain of the covenants under the Credit Agreement, including those related to the
modified quick ratio, minimum tangible net worth and fixed charge coverage ratio, were amended at the
request of the Company. The Company sought to amend the covenants because otherwise it risked
violating certain of the covenants unless it scaled back on its business and capital investment plan. As of
March 29, 1998, the Company is in compliance with all covenants under the Credit Agreement. However,
the Company will be required to raise $300-400 million of funds through external financing in the second
quarter of 1998 in order to meet certain of these amended covenants and to continue to make the
substantial capital investments required to convert Fab 25 to 0.25 micron process technology, as well as for
other ongoing capital investments. The Company has filed a shelf registration statement for the offering of
debt or equity securities under the Securities Act of 1933, as amended.
In the event the Company is unable to meet its obligation to make loans to, or equity investments in, AMD
Saxony as required under the Dresden Loan Agreement, AMD Saxony will be unable to complete Dresden
Fab 30 and the Company will be in default under the Dresden Loan Agreement, the Credit Agreement and
the Indenture, which would permit acceleration of indebtedness, which would have a material adverse effect
on the Company. There can be no
assurance that the Company will be able to obtain the funds necessary to fulfill these obligations and any
such failure would have a material adverse effect on the Company.
The Company has historically been able to raise external financing to fund its capital expenditures and
believes that cash flows from operations and current cash balances, together with external financing
activities during 1998, will be sufficient to fund operations and capital investments currently planned through
1998.
RISK FACTORS
The Company's business, results of operations and financial condition are subject to a number of risk
factors, including the following:
Financing Requirements
The Company plans to continue to make significant capital investments, at a significantly higher rate than in
previous years. These investments include those relating to the conversion of Fab 25 to 0.25 micron
process technology and the construction and facilitization of Dresden Fab 30.
Equipment installation is in progress at FASL II and the facility is expected to cost approximately $1.1 billion
when fully equipped, which is anticipated in the second quarter of 2000. Capital expenditures for FASL II
construction to date have been funded by cash generated from FASL operations and borrowings by FASL.
To the extent that FASL is unable to secure the necessary funds for FASL II, the Company may be required
to contribute cash or guarantee third-party loans in proportion to its 49.992 percent interest in FASL.
In 1996, the Company entered into a syndicated bank loan agreement (the Credit Agreement), which
provided for a $150 million three-year secured revolving line of credit (which is currently unused) and a $250
million four-year secured term loan. All of the secured term loan is outstanding at March 29, 1998. The
secured loan is repayable in eight equal quarterly installments of approximately $31 million commencing in
October 1998.
In February 1998, certain of the covenants under the Credit Agreement were amended. The Company will
be required to raise funds through external financing in the second quarter of 1998 in order to meet certain
of these amended covenants and to continue to make the substantial capital investments required to
convert Fab 25 to 0.25 micron process technology, as well as for other ongoing capital investments.
In March 1997, the Company's indirect wholly owned subsidiary, AMD Saxony, entered into a Loan
Agreement (the Dresden Loan Agreement) with a consortium of banks led by Dresdner Bank AG. Under the
terms of the February 1998 amendments to the Dresden Loan Agreement, the Company is required to
make subordinated loans to, or equity investments in, AMD Saxony, totaling $100 million in 1998 and $170
million in 1999. AMD is required to fund $70 million of the 1999 amount on an accelerated basis as follows:
(i) if the Company undertakes a sale or other placement of its stock in the capital markets in 1998, the $70
million will be funded upon receipt
of the offering proceeds; (ii) if the Company generates $140 million of net income (as defined in the
Indenture for the Senior Secured Notes) in 1998, the $70 million will be funded prior to January 31, 1999;
(iii) if the Company does not fund through (i) or (ii) above, the Company will fund the maximum amount
allowed under the Indenture for the Senior Secured Notes by January 31, 1999 and will fund the remaining
amount through the sale of at least $200 million of the Company's stock by June 30, 1999.
In the event the Company is unable to obtain the external financing necessary to meet its covenants under
the Credit Agreement, it will also be unable to fund its capital investments planned for 1998. In addition, in
the event the Company is unable to meet its obligation to make loans to, or equity investments in, AMD
Saxony as required under the Dresden Loan Agreement, AMD Saxony will be unable to complete Dresden
Fab 30 and the Company will be in default under the Dresden Loan Agreement, the Credit Agreement and
the Indenture, which would permit acceleration of indebtedness, which would have a material adverse effect
on the Company. There can be no assurance that the Company will be able to obtain the funds necessary to
fulfill these obligations and any such failure would have a material adverse effect on the Company.
Microprocessor Products
Investment in and Dependence on K86(TM) AMD Microprocessor Products; Transition to 0.25 Micron
Process Technology. The Company's microprocessor business has in the past, and will in 1998, continue to
significantly impact the Company's revenues, margins and operating results. The Company plans to
continue to make significant capital expenditures to support the microprocessor business in 1998, which
will be a substantial drain on the Company's cash flow and cash balances. |
