Business Context and Reporting Period
Company: Advanced Micro Devices, Inc. (AMD)
Filing Type: Form 8-K (Current Report)
Date of Report: March 25, 2005
Subject: Entry into a Material Definitive Agreement regarding a credit facility amendment for Spansion Japan Limited, a wholly-owned subsidiary of Spansion LLC (a majority-owned subsidiary of AMD).
Key Financial Metrics and Agreement Terms
The filing details an amended and extended revolving facility credit agreement with Japanese financial institutions. Key terms include:
- Total Facility Amount: Up to 15 billion yen (approximately $141 million as of March 25, 2005).
- Tranche Structure:
- Tranche A: Up to 6 billion yen (~$56 million) at TIBOR + 0.55%.
- Tranche B: Up to 9 billion yen (~$85 million) at TIBOR + 1.2%.
- Availability Period: Drawdowns permitted until March 24, 2006.
- Repayment Deadline: No later than April 24, 2006.
- Use of Proceeds: Working capital purposes.
- Collateral: Accounts receivable from Fujitsu Limited held in trust.
Material Changes and Covenants
The agreement imposes specific financial covenants and restrictions on Spansion Japan:
- Financial Covenants:
- Assets must exceed liabilities at year-end and mid-year.
- Adjusted tangible net worth must not be less than 60 billion yen (~$564 million) at the end of each fiscal quarter.
- Total net income plus depreciation must reach 21.125 billion yen (~$199 million) by the end of fiscal year 2005.
- Debt service coverage ratio (net income + depreciation / interest + scheduled debt + capex) must be at least 120% as of fiscal year 2005 end.
- Dividend Restrictions: Dividends are prohibited except those declared after the end of each fiscal quarter.
- Cash Balance Restrictions: If minimum cash balance falls below 1 billion yen (~$9 million), Spansion Japan is prohibited from mergers, asset disposals, stock repurchases, or capital structure changes.
Outlook, Risks, and Contingencies
Events of Default: The facility may become due on demand if Spansion Japan files for bankruptcy, fails to pay obligations, defaults on third-party debt exceeding 200 million yen (~$2 million), or fails to remedy a shortfall in pledged accounts receivable within three business days.
Counterparty Risk: The facility may also become automatically due if Fujitsu Limited (the minority owner of Spansion LLC and source of pledged receivables) files for bankruptcy, defaults on payments to Spansion Japan, or defaults on third-party debt exceeding 1 billion yen (~$9 million).
Currency Risk: U.S. dollar amounts are subject to exchange rate fluctuations. The filing utilized an exchange rate of 106.30 yen to one U.S. dollar as of March 25, 2005.
Investor Verification Checklist
- Verify Spansion Japan's current adjusted tangible net worth against the 60 billion yen covenant threshold.
- Monitor the value of accounts receivable from Fujitsu Limited held in trust to ensure it meets required thresholds.
- Assess the financial stability of Fujitsu Limited as a counterparty risk factor.
- Review Spansion Japan's cash balance to ensure it remains above the 1 billion yen restriction level.
- Confirm the projected net income plus depreciation for fiscal year 2005 meets the 21.125 billion yen requirement.