UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) |
OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended SeptemberJune 29, 20022003
OR
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) |
OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number 1-7882
ADVANCED MICRO DEVICES, INC.
(Exact name of registrant as specified in its charter)
Delaware | 94-1692300 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
One AMD Place Sunnyvale, California | 94088 | |
(Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (408) 732-2400
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-12 of the Exchange Act).
Yes x No ¨
Indicate the number of shares outstanding of the registrant’s common stock, $0.01 par value common stock outstanding as of October 25, 2002: 343,474,020
Page No. | |||||||
Part I. | Financial | ||||||
Item 1. Financial Statements (unaudited) | |||||||
3 | |||||||
Condensed Consolidated Balance Sheets – June 29, 2003 and December 29, 2002 | 4 | ||||||
5 | |||||||
6 | |||||||
| | |||||||
| | |||||||
| | Item 4.Controls and Procedures | ||||||
Part II. | Other Information | ||||||
| | 55 | ||||||
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
(Unaudited)
(Thousands except per share amounts)
Quarter Ended | Nine Months Ended | |||||||||||||||
September 29, 2002 | September 30, 2001 | September 29, 2002 | September 30, 2001 | |||||||||||||
| Net sales | $ | 508,227 | $ | 765,870 | $ | 2,010,599 | $ | 2,939,881 | ||||||||
| Expenses: | ||||||||||||||||
| Cost of sales | 453,884 | 594,056 | 1,599,048 | 1,945,085 | ||||||||||||
| Research and development | 220,959 | 161,185 | 571,266 | 490,059 | ||||||||||||
| Marketing, general and administrative | 158,568 | 150,918 | 475,676 | 456,346 | ||||||||||||
| Restructuring and other special charges | — | 89,305 | — | 89,305 | ||||||||||||
| 833,411 | 995,464 | 2,645,990 | 2,980,795 | |||||||||||||
| Operating loss | (325,184 | ) | (229,594 | ) | (635,391 | ) | (40,914 | ) | ||||||||
| Interest and other income (expense), net | 12,941 | (11,220 | ) | 31,140 | 19,911 | |||||||||||
| Interest expense | (21,166 | ) | (9,946 | ) | (49,053 | ) | (51,790 | ) | ||||||||
| Loss before income taxes and equity in net income (loss) of joint venture | (333,409 | ) | (250,760 | ) | (653,304 | ) | (72,793 | ) | ||||||||
| Income tax benefit | (73,350 | ) | (65,018 | ) | (198,884 | ) | (8,758 | ) | ||||||||
| Loss before equity in net income (loss) of joint venture | (260,059 | ) | (185,742 | ) | (454,420 | ) | (64,035 | ) | ||||||||
| Equity in net income (loss) of joint venture | 5,888 | (1,187 | ) | 6,148 | 19,296 | |||||||||||
| Net loss | $ | (254,171 | ) | $ | (186,929 | ) | $ | (448,272 | ) | $ | (44,739 | ) | ||||
| Net loss per common share: | ||||||||||||||||
| Basic | $ | (0.74 | ) | $ | (0.54 | ) | $ | (1.31 | ) | $ | (0.14 | ) | ||||
| Diluted | $ | (0.74 | ) | $ | (0.54 | ) | $ | (1.31 | ) | $ | (0.14 | ) | ||||
| Shares used in per share calculation: | ||||||||||||||||
| Basic | 342,780 | 345,044 | 341,796 | 329,837 | ||||||||||||
| Diluted | 342,780 | 345,044 | 341,796 | 329,837 | ||||||||||||
| Quarter Ended | Six Months Ended | |||||||||||||||
| June 29, 2003 | June 30, 2002 | June 29, 2003 | June 30, 2002 | |||||||||||||
Net sales | $ | 645,261 | $ | 600,299 | $ | 1,359,816 | $ | 1,502,372 | ||||||||
Expenses: | ||||||||||||||||
Cost of sales | 425,085 | 558,290 | 921,677 | 1,145,164 | ||||||||||||
Research and development | 208,513 | 178,425 | 411,575 | 350,307 | ||||||||||||
Marketing, general and administrative | 135,161 | 160,248 | 273,389 | 317,108 | ||||||||||||
Restructuring and other special charges, net | — | — | 2,146 | — | ||||||||||||
| 768,759 | 896,963 | 1,608,787 | 1,812,579 | |||||||||||||
Operating loss | (123,498 | ) | (296,664 | ) | (248,971 | ) | (310,207 | ) | ||||||||
Interest and other income, net | 4,971 | 8,661 | 11,711 | 18,199 | ||||||||||||
Interest expense | (26,364 | ) | (15,729 | ) | (52,169 | ) | (27,887 | ) | ||||||||
Loss before income taxes and equity in net income (loss) of joint venture | (144,891 | ) | (303,732 | ) | (289,429 | ) | (319,895 | ) | ||||||||
Provision (benefit) for income taxes | — | (121,493 | ) | 2,936 | (125,534 | ) | ||||||||||
Loss before equity in net income (loss) of joint venture | (144,891 | ) | (182,239 | ) | (292,365 | ) | (194,361 | ) | ||||||||
Equity in net income (loss) of joint venture | 4,795 | (2,699 | ) | 5,913 | 260 | |||||||||||
Net loss | $ | (140,096 | ) | $ | (184,938 | ) | $ | (286,452 | ) | $ | (194,101 | ) | ||||
Net loss per common share: | ||||||||||||||||
Basic: | ||||||||||||||||
Net loss | $ | (0.40 | ) | $ | (0.54 | ) | $ | (0.83 | ) | $ | (0.57 | ) | ||||
Diluted: | ||||||||||||||||
Net loss | $ | (0.40 | ) | $ | (0.54 | ) | $ | (0.83 | ) | $ | (0.57 | ) | ||||
Shares used in per share calculation: | ||||||||||||||||
Basic | 346,320 | 341,782 | 345,666 | 341,294 | ||||||||||||
Diluted | 346,320 | 341,782 | 345,666 | 341,294 | ||||||||||||
See accompanying notes.
(Thousands except share amounts)
September 29, 2002 | December 30, 2001* | |||||||
(unaudited) | ||||||||
Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 533,389 | $ | 427,288 | ||||
| Short-term investments | 332,435 | 442,709 | ||||||
| Total cash, cash equivalents and short-term investments | 865,824 | 869,997 | ||||||
| Accounts receivable, net of allowance for doubtful accounts | 428,653 | 659,783 | ||||||
| Inventories: | ||||||||
| Raw materials | 16,637 | 26,489 | ||||||
| Work-in-process | 234,991 | 236,679 | ||||||
| Finished goods | 168,604 | 117,306 | ||||||
| Total inventories | 420,232 | 380,474 | ||||||
| Deferred income taxes | 177,321 | 155,898 | ||||||
| Prepaid expenses and other current assets | 253,616 | 286,957 | ||||||
| Total current assets | 2,145,646 | 2,353,109 | ||||||
| Property, plant and equipment, at cost: | ||||||||
| Land | 47,707 | 33,207 | ||||||
| Buildings and leasehold improvements | 1,265,229 | 1,461,228 | ||||||
| Equipment | 5,165,948 | 4,162,652 | ||||||
| Construction-in-progress | 458,609 | 469,191 | ||||||
| Total property, plant and equipment | 6,937,493 | 6,126,278 | ||||||
| Accumulated depreciation and amortization | (4,007,701 | ) | (3,387,140 | ) | ||||
| Property, plant and equipment, net | 2,929,792 | 2,739,138 | ||||||
| Investment in joint venture | 374,408 | 363,611 | ||||||
| Deferred income taxes | 85,996 | — | ||||||
| Other assets | 195,640 | 191,384 | ||||||
| $ | 5,731,482 | $ | 5,647,242 | |||||
Liabilities and Stockholders’ Equity | ||||||||
| Current liabilities: | ||||||||
| Notes payable to banks | $ | 48,981 | $ | 63,362 | ||||
| Accounts payable | 355,576 | 304,990 | ||||||
| Accrued compensation and benefits | 119,666 | 129,042 | ||||||
| Accrued liabilities | 389,861 | 443,995 | ||||||
| Income taxes payable | 38,088 | 56,234 | ||||||
| Deferred income on shipments to distributors | 34,151 | 47,978 | ||||||
| Current portion of long-term debt, capital lease obligations and other | 307,536 | 268,336 | ||||||
| Total current liabilities | 1,293,859 | 1,313,937 | ||||||
| Deferred income taxes | — | 105,305 | ||||||
| Long-term debt, capital lease obligations and other, less current portion | 1,196,531 | 672,945 | ||||||
| Commitments and contingencies | ||||||||
| Stockholders’ equity: | ||||||||
| Common stock, par value $0.01; 750,000,000 authorized; 343,474,090 shares issued and outstanding at September 29, 2002 and 340,502,883 at December 30, 2001 | 3,435 | 3,405 | ||||||
| Capital in excess of par value | 1,992,146 | 1,966,374 | ||||||
| Treasury stock, at cost: 6,310,580 shares | (77,157 | ) | (77,157 | ) | ||||
| Retained earnings | 1,347,408 | 1,795,680 | ||||||
| Accumulated other comprehensive loss | (24,740 | ) | (133,247 | ) | ||||
| Total stockholders’ equity | 3,241,092 | 3,555,055 | ||||||
| $ | 5,731,482 | $ | 5,647,242 | |||||
June 29, 2003 | December 29, 2002 * | |||||||
| (unaudited) | ||||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 703,176 | $ | 428,748 | ||||
Short-term investments | 35,625 | 608,957 | ||||||
Total cash, cash equivalents and short-term investments | 738,801 | 1,037,705 | ||||||
Accounts receivable, net of allowance for doubtful accounts of $13,708 on June 29, 2003 and $18,906 on December 29, 2002 | 351,834 | 395,828 | ||||||
Inventories: | ||||||||
Raw materials | 19,475 | 22,741 | ||||||
Work-in-process | 317,445 | 254,957 | ||||||
Finished goods | 130,464 | 154,905 | ||||||
Total inventories | 467,384 | 432,603 | ||||||
Prepaid expenses and other current assets | 157,022 | 153,542 | ||||||
Total current assets | 1,715,041 | 2,019,678 | ||||||
Property, plant and equipment: | ||||||||
Land | 35,343 | 34,443 | ||||||
Buildings and leasehold improvements | 1,470,868 | 1,392,972 | ||||||
Equipment | 5,451,485 | 5,256,502 | ||||||
Construction in progress | 332,540 | 355,746 | ||||||
Total property, plant and equipment | 7,290,236 | 7,039,663 | ||||||
Accumulated depreciation and amortization | (4,396,109 | ) | (4,158,854 | ) | ||||
Property, plant and equipment, net | 2,894,127 | 2,880,809 | ||||||
Investment in joint venture | 390,069 | 382,942 | ||||||
Other assets | 294,670 | 335,752 | ||||||
Total Assets | $ | 5,293,907 | $ | 5,619,181 | ||||
Liabilities and Stockholders’ Equity | ||||||||
Current liabilities: | ||||||||
Notes payable to banks | $ | — | $ | 913 | ||||
Accounts payable | 350,399 | 352,438 | ||||||
Accrued compensation and benefits | 122,361 | 131,324 | ||||||
Accrued liabilities | 269,561 | 435,657 | ||||||
Restructuring accruals | 54,467 | 99,974 | ||||||
Income taxes payable | 38,368 | 21,246 | ||||||
Deferred income on shipments to distributors | 65,412 | 57,184 | ||||||
Current portion of long-term debt and capital lease obligations | 77,693 | 71,339 | ||||||
Other current liabilities | 85,732 | 89,437 | ||||||
Total current liabilities | 1,063,993 | 1,259,512 | ||||||
Long-term debt and capital lease obligations, less current portion | 1,587,009 | 1,570,322 | ||||||
Other liabilities | 359,625 | 322,082 | ||||||
Commitments and contingencies | ||||||||
Stockholders’ equity: | ||||||||
Common stock, par value $0.01; 750,000,000 shares authorized; shares issued: 353,801,706 on June, 29, 2003 and 351,442,331 on December 29, 2002; shares outstanding: 346,915,387 on June 29, 2003 and 344,528,152 on December 29, 2002 | 3,469 | 3,445 | ||||||
Capital in excess of par value | 2,025,493 | 2,014,464 | ||||||
Treasury stock, at cost (6,886,319 shares on June 29, 2003 and 6,914,179 shares on December 29, 2002) | (92,702 | ) | (93,217 | ) | ||||
Retained earnings | 205,931 | 492,668 | ||||||
Accumulated other comprehensive income | 141,089 | 49,905 | ||||||
Total stockholders’ equity | 2,283,280 | 2,467,265 | ||||||
Total liabilities and stockholders’ equity | $ | 5,293,907 | $ | 5,619,181 | ||||
| * | Amounts as of December |
See accompanying notes.
(Unaudited)
(Thousands)
| Six Months Ended | ||||||||
| June 29, 2003 | June 30, 2002 | |||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | (286,452 | ) | $ | (194,101 | ) | ||
Adjustments to reconcile net loss to net cash (used in) provided by operating activities: | ||||||||
Depreciation | 400,521 | 331,138 | ||||||
Amortization | 22,801 | 26,077 | ||||||
Impairment of equity investment | 258 | — | ||||||
Change in allowance for doubtful accounts | (5,198 | ) | 1,860 | |||||
Benefit for deferred income taxes | — | (97,761 | ) | |||||
Foreign grant and subsidy income | (32,102 | ) | (28,831 | ) | ||||
Net loss on disposal of property, plant and equipment | 4,146 | 17,015 | ||||||
Net gain realized on sale of available-for-sale securities | (3,736 | ) | (702 | ) | ||||
Undistributed income of joint venture | (5,913 | ) | (260 | ) | ||||
Restructuring and other special charges, net | 3,705 | — | ||||||
Recognition of deferred gain on sale of building | (840 | ) | (840 | ) | ||||
Compensation recognized under employee stock plans | 995 | 1,654 | ||||||
Changes in operating assets and liabilities: | ||||||||
Decrease in accounts receivable | 55,138 | 123,049 | ||||||
(Increase) decrease in inventories | (34,781 | ) | 550 | |||||
Increase in prepaid expenses and other current assets | (12,501 | ) | (10,946 | ) | ||||
Decrease in other assets | 34,466 | 145,500 | ||||||
Increase (decrease) in income taxes payable | 17,487 | (18,410 | ) | |||||
Refund of customer deposits under long-term purchase agreements | (26,500 | ) | (30,000 | ) | ||||
Net decrease in accounts payable, accrued liabilities and other liabilities | (215,538 | ) | (161,819 | ) | ||||
Decrease in accrued compensation and benefits | (8,963 | ) | (399 | ) | ||||
Net cash (used in) provided by operating activities | (93,007 | ) | 102,774 | |||||
Cash flows from investing activities: | ||||||||
Purchases of property, plant and equipment | (283,576 | ) | (371,410 | ) | ||||
Proceeds from sale of property, plant and equipment | 2,458 | 2,240 | ||||||
Business acquisitions, net of cash acquired | (6,265 | ) | (26,509 | ) | ||||
Purchases of available-for-sale securities | (867,115 | ) | (2,729,547 | ) | ||||
Proceeds from sales and maturities of available-for-sale securities | 1,440,862 | 2,611,547 | ||||||
Net cash provided by (used in) investing activities | 286,364 | (513,679 | ) | |||||
Cash flows from financing activities: | ||||||||
Proceeds from borrowings, net of issuance costs | 13,678 | 567,727 | ||||||
Payments on debt and capital lease obligations | (48,792 | ) | (184,734 | ) | ||||
Proceeds from foreign grants and subsidies | 81,596 | 74,781 | ||||||
Proceeds from issuance of stock | 10,285 | 16,099 | ||||||
Net cash provided by financing activities | 56,767 | 473,873 | ||||||
Effect of exchange rate changes on cash and cash equivalents | 24,304 | 15,935 | ||||||
Net increase in cash and cash equivalents | 274,428 | 78,903 | ||||||
Cash and cash equivalents at beginning of period | 428,748 | 427,288 | ||||||
Cash and cash equivalents at end of period | $ | 703,176 | $ | 506,191 | ||||
Supplemental disclosures of cash flow information: | ||||||||
Cash paid (refunded) for: | ||||||||
Interest | $ | 41,681 | $ | 17,212 | ||||
Income taxes | $ | 10,778 | $ | 23,342 | ||||
(Unaudited)
Nine Months Ended | ||||||||
September 29, 2002 | September 30, 2001 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | (448,272 | ) | $ | (44,739 | ) | ||
| Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||||
| Depreciation | 541,987 | 457,619 | ||||||
| Amortization | 14,315 | 14,770 | ||||||
| Provision for doubtful accounts | 3,354 | 2,798 | ||||||
| Net change in deferred income taxes | (200,364 | ) | (14,453 | ) | ||||
| Foreign grant and subsidy income | (47,965 | ) | (38,199 | ) | ||||
| Net loss on disposal of property, plant and equipment | 12,372 | 22,812 | ||||||
| Net realized gain on sale of available-for-sale securities | (4,829 | ) | — | |||||
| Undistributed income of joint venture | (6,148 | ) | (19,296 | ) | ||||
| Recognition of deferred gain on sale of building | (1,261 | ) | (1,261 | ) | ||||
| Net compensation recognized under employee stock plans | 2,195 | 3,552 | ||||||
| Restructuring and other special charges | — | 89,305 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Decrease (increase) in accounts receivable | 227,834 | (44,416 | ) | |||||
| Increase in inventories | (39,603 | ) | (112,954 | ) | ||||
| Decrease in prepaid expenses | 2,798 | 19,888 | ||||||
| Increase in other assets | (1,435 | ) | (47,723 | ) | ||||
| Decrease (increase) in tax refund receivable | 33,692 | (37,369 | ) | |||||
| Increase in tax payable | (18,146 | ) | (25,217 | ) | ||||
| Refund of customer deposits under purchase agreements | (30,000 | ) | (39,000 | ) | ||||
| Decrease in payables and accrued liabilities | (21,992 | ) | (67,113 | ) | ||||
| Decrease in accrued compensation and benefits | (9,374 | ) | (62,926 | ) | ||||
| Net cash provided by operating activities | 9,158 | 56,078 | ||||||
| Cash flows from investing activities: | ||||||||
| Purchases of property, plant and equipment | (567,182 | ) | (541,891 | ) | ||||
| Proceeds from sale of property, plant and equipment | 5,162 | 1,715 | ||||||
| Cash paid for the acquisition of Alchemy, net of cash acquired | (26,509 | ) | — | |||||
| Purchases of available-for-sale securities | (3,294,538 | ) | (3,149,900 | ) | ||||
| Proceeds from sales/maturities of available-for-sale securities | 3,437,269 | 3,346,085 | ||||||
| Investment in joint venture | — | (122,356 | ) | |||||
| Net cash used in investing activities | (445,798 | ) | (466,347 | ) | ||||
| Cash flows from financing activities: | ||||||||
| Proceeds from borrowings and equipment financing, net of issuance costs | 735,643 | 319,090 | ||||||
| Payments on debt and capital lease obligations | (280,611 | ) | (90,305 | ) | ||||
| Proceeds from foreign grants | 50,253 | 23,312 | ||||||
| Proceeds from issuance of stock | 23,606 | 38,252 | ||||||
| Repurchase of common stock | — | (68,837 | ) | |||||
| Net cash provided by financing activities | 528,891 | 221,512 | ||||||
| Effect of exchange rate changes on cash and cash equivalents | 13,850 | (5,277 | ) | |||||
| Net increase (decrease) in cash and cash equivalents | 106,101 | (194,034 | ) | |||||
| Cash and cash equivalents at beginning of period | 427,288 | 591,457 | ||||||
| Cash and cash equivalents at end of period | $ | 533,389 | $ | 397,423 | ||||
| Supplemental disclosures of cash flow information: | ||||||||
| Cash paid for (refunded): | ||||||||
| Interest | $ | 25,274 | $ | 38,120 | ||||
| Income taxes | $ | (18,324 | ) | $ | 58,088 | |||
| Supplemental disclosures of non-cash financing activities: | ||||||||
| Redemption of convertible debt | $ | — | $ | 516,860 | ||||
June 29, 2003
| 1. | Basis of Presentation |
The accompanying unaudited condensed consolidated financial statements of Advanced Micro Devices, Inc. (the Company or AMD) have been prepared in accordance with generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. The results of operations for the interim periods shown in this report are not necessarily indicative of results to be expected for the full fiscal year ending December 29, 2002.28, 2003. In the opinion of the Company’s management, the information contained herein reflects all adjustments necessary to make the results of operations for the interim periods a fair statement of such operations. All such adjustments are of a normal recurring nature. The interim financial statements should be read in conjunction with the financial statements in the Company’s Annual Report on Form 10-K for the year ended December 30, 2001.29, 2002. Certain prior period amounts have been reclassified to conform to the current period presentation.
The Company uses a 52- to 53-week53- week fiscal year ending on the last Sunday in December. The Company’s current fiscal year will end on December 29, 2002. The quarters ended SeptemberJune 29, 20022003 and SeptemberJune 30, 20012002 each included 13 weeks. The ninesix months ended SeptemberJune 29, 20022003 and SeptemberJune 30, 20012002 each included 3926 weeks.
| 2. | New Accounting Pronouncements |
In January 2003, the Financial Accounting Standards Board issued Interpretation No. 141, “Business Combinations” (SFAS 141), Statement46, “Consolidation of Variable Interest Entities” (FIN 46). Variable interest entities often are created for a single specified purpose, for example, to facilitate securitization, leasing, hedging, research and development, or other transactions or arrangements. This interpretation of Accounting Research Bulletin No. 51, “Consolidated Financial Accounting Standards No. 142, “GoodwillStatements,” defines what these variable interest entities are and Other Intangible Assets” (SFAS 142)provides guidelines on identifying them and Statementassessing an enterprise’s interests in a variable interest entity to decide whether to consolidate that entity. Generally, FIN 46 applies to variable interest entities created after January 31, 2003 and to variable interest entities in which an enterprise obtains an interest after that date. For existing variable interest entities in which an enterprise holds a variable interest that it acquired before February 1, 2003, the provision of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (SFAS 144) atthis interpretation will apply no later than the beginning of the 2002 fiscal year.first interim or annual reporting period beginning after June 15, 2003. The Company does not expect the adoption of these standards did notFIN 46 to have a material impact on the Company’s results of operations or financial statements.
In July 2002,May 2003, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 146150, “Accounting for Costs AssociatedCertain Financial Instruments with ExitCharacteristics of both Liabilities and Equity,” (SFAS 150) which addresses how to classify and measure certain financial instruments with characteristics of both liabilities (or an asset in some circumstances) and equity – as either debt or Disposal Activities” (SFAS 146).equity in the balance sheet. SFAS 146 addresses150 requirements apply to issuers’ classification and measurement of freestanding financial accounting and reporting for costs associated with exitinstruments, including those that comprise more than one option or disposal activities and nullifies EITF Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)” (EITF 94-3). The principal difference betweenforward contract. SFAS 146 and EITF 94-3 relates to SFAS 146’s timing for recognition of a liability for a cost associated with an exit or disposal activity. SFAS 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. Under EITF 94-3 a liability for an exit cost as generally defined in EITF 94-3 was recognized at the date of an entity’s commitment to an exit plan.
| 3. |
The Company uses the intrinsic value method to account for stock options issued to its employees under its stock option plans and amortizes deferred compensation, if any, over the vesting period of the options. Compensation expense resulting from the issuance of fixed term stock option awards is measured as the difference between the exercise price of the option and the fair market value of the underlying share of company stock subject to the option on the award’s grant date. For purposes of pro forma disclosures, the Company estimates the fair value of its stock-based awards to employees using a Black-Scholes option pricing model. The pro forma effect on net earnings and net earnings per share are as follows for the quarters and six-month periods ended June 29, 2003 and June 30, 2002.
| Quarter Ended | Six Months Ended | |||||||||||||||
| (Thousands except per share amounts) | June 29, 2003 | June 30, 2002 | June 29, 2003 | June 30, 2002 | ||||||||||||
Net loss—as reported | $ | (140,096 | ) | $ | (184,938 | ) | $ | (286,452 | ) | $ | (194,101 | ) | ||||
Plus: intrinsic value compensation expense recorded | 507 | 785 | 995 | 1,654 | ||||||||||||
Less: fair value compensation expenses | (15,482 | ) | (40,597 | ) | (37,680 | ) | (87,509 | ) | ||||||||
Net loss - pro forma | $ | (155,071 | ) | $ | (224,750 | ) | $ | (323,137 | ) | $ | (279,956 | ) | ||||
Basic net loss per share - as reported | $ | (0.40 | ) | $ | (0.54 | ) | $ | (0.83 | ) | $ | (0.57 | ) | ||||
Diluted net loss per share - as reported | $ | (0.40 | ) | $ | (0.54 | ) | $ | (0.83 | ) | $ | (0.57 | ) | ||||
Basic net loss per share - pro forma | $ | (0.45 | ) | $ | (0.66 | ) | $ | (0.93 | ) | $ | (0.82 | ) | ||||
Diluted net loss per share - pro forma | $ | (0.45 | ) | $ | (0.66 | ) | $ | (0.93 | ) | $ | (0.82 | ) | ||||
On June 27, 2003, the Company filed a Tender Offer Statement with the SEC, and made an offer, which was approved by the Company’s stockholders, to exchange certain stock options to purchase shares of the Company’s common stock, outstanding under eligible option plans and held by eligible employees, for replacement options to be granted no sooner than six months and one day from the cancellation of the surrendered options. The offer to exchange expired on July 25, 2003. Options to purchase approximately 19.0 million shares of the Company’s common stock were tendered for exchange and cancelled on July 28, 2003. Subject to the terms of the offer to exchange, the Company will grant replacement options to purchase approximately 13.4 million shares of its common stock on or after January 29, 2004, in exchange for the options cancelled in the offer to exchange. The Company does not expect to record any compensation expense as the result of the transactions contemplated by this offer to exchange.
| 4. | Financial Instruments |
The following is a summary of the available-for-sale securities held by the Company as of SeptemberJune 29, 2002:
(Thousands) | Cost | Fair Market Value | ||||
| Cash equivalents: | ||||||
| Commercial paper | $ | 226,774 | $ | 226,886 | ||
| Money market funds | 19,137 | 19,152 | ||||
| Federal agency notes | 2,212 | 2,212 | ||||
| Total cash equivalents | $ | 248,123 | $ | 248,250 | ||
| Short-term investments: | ||||||
| Bank notes | $ | 9,513 | $ | 9,789 | ||
| Corporate notes | 77,478 | 78,766 | ||||
| Money market auction rate preferred stocks | 127,715 | 127,785 | ||||
| Federal agency notes | 114,413 | 116,095 | ||||
| Total short-term investments | $ | 329,119 | $ | 332,435 | ||
| Long-term investments: | ||||||
| Equity investments | $ | 11,571 | $ | 8,414 | ||
| Commercial paper | 10,000 | 10,000 | ||||
| Federal agency notes | 2,473 | 2,473 | ||||
| Total long-term investments (included in other assets) | $ | 24,044 | $ | 20,887 | ||
| (Thousands) | Cost | Fair Market Value | ||||
Cash equivalents: | ||||||
Federal agency notes | $ | 1,995 | $ | 2,004 | ||
Money market funds | 662,857 | 663,122 | ||||
Total cash equivalents | $ | 664,852 | $ | 665,126 | ||
Short-term investments: | ||||||
Bank notes | $ | 2,727 | $ | 2,954 | ||
Federal agency notes | 14,044 | 14,242 | ||||
Auction Rate Preferred Stocks | 5,000 | 5,002 | ||||
Corporate notes | 13,822 | 13,427 | ||||
Total short-term investments | $ | 35,593 | $ | 35,625 | ||
Long-term investments: | ||||||
Equity investments | $ | 7,765 | $ | 10,660 | ||
Total long-term investments (included in Other Assets) | $ | 7,765 | $ | 10,660 | ||
Long-term equity investments consist of marketable equity securities that, while available for sale, are not intended to be used to fund current operations.
The amortized cost and estimated fair value of available-for-sale marketable debt securities (short-term investments) at June 29, 2003, by contractual maturity, are shown below. Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations without call or prepayment penalties.
| (Thousands) | Amortized Cost | Estimated Fair Value | ||||
Due in one year or less | $ | 19,990 | $ | 19,785 | ||
Due after one year | 15,603 | 15,840 | ||||
Total | $ | 35,593 | $ | 35,625 | ||
Available-for-sale securities with maturities greater than twelve months are classified as short-term when they include investments of cash that are intended to be used in current operations. The Company realized a net gain ongains from the sale of available-for-sale securities of $4.8 million in the first ninesix months of 2003 of $3.7 million, which was included in interest and other income, net.
At June 29, 2003 and December 29, 2002, the Company had approximately $12 million and $13 million of investments classified as held to maturity, consisting of commercial paper and treasury notes used for long-term workers compensation and leasehold deposits that were included in Other Assets. The fair value of the investments approximated cost at June 29, 2003 and December 29, 2002.
Included in cash and cash equivalents is a compensating balance of $101$200 million, which represents the next semi-annual principal payment due under the terms ofAMD Saxony is required to keep at all times through June 29, 2005 in an account with Dresdner Bank AG in connection with the Dresden Loan Agreements.Agreements (as defined in Note 10). Also included in cash and cash equivalents is $31$33 million of restricted cash associated with the advance receipt of interest subsidies from the Federal Republic of Germany and the State of Saxony.Saxony in connection with the Dresden Loan Agreements. Restrictions over the Company’s access to thisthe restricted cash will lapse as the Company incurs qualifying interest expense on the Dresden Term Loansterm loans over the next four quarters.
| Net Loss Per Common Share |
Potential diluted number of common shares is computed as though such dilutive common shares wereinclude shares issuable upon the exercise of outstanding foremployee stock options and the whole period for which loss per share is presented.conversion of outstanding convertible notes and debentures. As the Company incurred net losses for all periods presented, diluted net loss per common share is the same as basic net loss per common share. Potential dilutive common shares of approximately 2277 million and 2024 million for the three-monththree months ended June 29, 2003 and nine-month periods ended September 29,June 30, 2002 and 676 million and 2223 million for the three-monthsix months ended June 29, 2003 and nine-month periods ended SeptemberJune 30, 2001, respectively,2002 were not included in the net loss per common share calculation, as their inclusion would have been anti-dilutive.
| Investment in Joint Venture |
In 1993, AMD and Fujitsu Limitedthe Company formed a joint venture with Fujitsu Limited, Fujitsu AMD Semiconductor Limited (FASL)(formerly referred to as FASL and currently referred to as the Manufacturing Joint Venture), for the development and manufacture of non-volatile memory devices. FASL operatesdevices (See Note 12). The Manufacturing Joint Venture operated advanced integrated circuit (IC) manufacturing facilities in Aizu-Wakamatsu, Japan, for the production ofto produce Flash memory devices.devices, which were sold to the Company and Fujitsu. The Company’s Fab 25 in Austin, Texas, produced Flash memory devices for sale to the Manufacturing Joint Venture. The Company’s share of FASL isthe Manufacturing Joint Venture was 49.992 percent and the investment iswas accounted for under the equity method.method prior to June 29, 2003. The Company’s share of the Manufacturing Joint Venture after tax net income during the second quarter of 2003 was $4.8 million. At SeptemberJune 29, 2002,2003, the cumulative adjustment related to the translation of the FASLManufacturing Joint Venture financial statements into U.S. dollars resulted in a decrease in the Company’s investment in FASLthe Manufacturing Joint Venture of $36.8$0.5 million.
The following aretables present the significant FASL related-partyrelated party transactions and balances:
Quarter Ended | Nine Months Ended | |||||||||||
(Thousands) | September 29, 2002 | September 30, 2001 | September 29, 2002 | September 30, 2001 | ||||||||
| Royalty income | $ | 9,789 | $ | 10,975 | $ | 25,330 | $ | 36,675 | ||||
| Purchases | 107,832 | 146,766 | 283,713 | 435,520 | ||||||||
(Thousands) | September 29, 2002 | December 30, 2001 | ||||||||||
| Royalty receivable | $ | 15,754 | $ | 6,962 | ||||||||
| Accounts receivable | 25,686 | — | ||||||||||
| Accounts payable | 233 | 37,957 | ||||||||||
| Quarter Ended | Six Months Ended | |||||||||||
| (Thousands) | June 29, 2003 | June 30, 2002 | June 29, 2003 | June 30, 2002 | ||||||||
Royalty income | $ | 12,280 | $ | 8,265 | $ | 24,611 | $ | 15,541 | ||||
Purchases | 166,247 | 88,382 | 356,595 | 175,881 | ||||||||
Sales to the Manufacturing Joint Venture | 112,812 | — | 222,570 | — | ||||||||
| (Thousands) | June 29, 2003 | December 29, 2002 | ||||
Royalty receivable | $ | 9,216 | $ | 11,551 | ||
Accounts receivable | 82,986 | 96,814 | ||||
Accounts payable | 130,329 | 108,890 | ||||
As of June 29, 2003, the Company had $74 million in loan guarantees outstanding with respect to third-party loans incurred by the Manufacturing Joint Venture. As a result of the execution of the FASL LLC agreements with Fujitsu, which resulted in the integration of the Company’s and Fujitsu’s flash memory operations in the third quarter, these third party loans were refinanced and the existing guarantees had expired (See Note 12).
The following is condensed unaudited financial data of FASL:
Quarter Ended | Nine Months Ended | |||||||||||||
(Thousands) | September 29, 2002 | September 30, 2001 | September 29, 2002 | September 30, 2001 | ||||||||||
| Net sales | $ | 235,986 | $ | 241,812 | $ | 577,167 | $ | 808,573 | ||||||
| Gross profit (loss) | 1,429 | (18,864 | ) | 45,133 | 73,669 | |||||||||
| Operating income (loss) | (2,673 | ) | (20,172 | ) | 38,209 | 69,822 | ||||||||
| Net income (loss) | (1,559 | ) | (11,798 | ) | 18,130 | 40,494 | ||||||||
| Quarter Ended | Six Months Ended | |||||||||||||||
| (Thousands) | June 29, 2003 | June 30, 2002 | June 29, 2003 | June 30, 2002 | ||||||||||||
Net sales | $ | 273,935 | $ | 171,896 | $ | 565,037 | $ | 341,181 | ||||||||
Gross (loss) profit | (22,872 | ) | (5,491 | ) | (12,955 | ) | 43,704 | |||||||||
Operating (loss) income | (23,941 | ) | (6,412 | ) | (14,958 | ) | 41,944 | |||||||||
Net loss | (13,395 | ) | (28,289 | ) | (9,618 | ) | (4,243 | ) | ||||||||
| (Thousands) | June 29, 2003 | December 29, 2002 | ||||
Current assets | $ | 283,720 | $ | 287,050 | ||
Non-current assets | 967,271 | 1,056,107 | ||||
Current liabilities | 465,401 | 549,015 | ||||
The Company’s share of FASLthe Manufacturing Joint Venture net income (loss) set forth above differs from the equity in net income (loss) of joint venturethe Manufacturing Joint Venture reported on the condensed consolidated statements of operations. The difference is due to adjustments resulting from the intercompany profit eliminations and differences in U.S. and Japanese tax treatment of the Manufacturing Joint Venture income, which are reflected on the Company’s consolidated statements of operations. The Company has never received cash dividends from its investment in FASL.
In 2000, FASLthe Manufacturing Joint Venture further expanded its production capacity through a foundry arrangement with Fujitsu Microelectronics, Inc. (FMI), a wholly owned subsidiary of Fujitsu Limited. In connection with FMI equipping its wafer fabrication facility in Gresham, Oregon, (the Gresham Facility) to produce Flash memory devices for sale to FASL,the Manufacturing Joint Venture, the Company agreed to guarantee (the Guarantee) the repayment of up to $125 million to Fujitsu in connection withof Fujitsu’s obligationobligations as a co-signer with FMI under its global multicurrency revolving credit facility (the Credit Facility) with a third-party bank. On November 30,bank (the Guarantee). In 2001, Fujitsu announced that it was closingclosed the Gresham Facility due to athe downturn of the Flash memory market. On March 26, 2002, theThe Company received notice from Fujitsu that FMI requested an advance of funds from Fujitsu to avoid default under the Credit Facility, which notice is required as a condition to the Company’s obligations under the Guarantee. However, to date, the Company has not received a demand for payment under the terms of the Guarantee from Fujitsu. Furthermore, the Company continues to disagreedisagreed with Fujitsu as to the amount, if any, ofowed under this Guarantee and has reached a settlement, subject to final internal approval by Fujitsu, which would result in a cash payment by the Company to Fujitsu. The settlement amount is immaterial to the Company’s obligations under the Guarantee. While the Company continues to discuss this matter with Fujitsu, the Company cannot at this time reasonably predict its outcome including any amounts the Company might be required to pay Fujitsu, and therefore, has not recorded any liability in its consolidated financial statements, associated withand was recorded in the Guarantee.
| Segment Reporting |
AMD operatesoperated in two reportable segments:segments during the quarter and six months ended June 29, 2003: the Core Products segment, which reflects the aggregation of the PC processor, memory products and memoryOther IC products operating segments, and the Foundry Services segment. The aggregation of the Company’s operating segments into the Company’Company’s reporting segments was made pursuant to the aggregation criteria set forth in SFAS 131.Statement of Financial Accounting Standards No. 131 (SFAS 131). The Core Products segment includes microprocessors, Flash memory devices, Erasable Programmable Read-Only Memory (EPROM) devices, embedded processors, platform products, personal connectivity solutions products and networking products. The Foundry Services segment includes fees for services providedthe sale of products to Legerity, Inc. and Vantis.Vantis Corporation, the Company’s former voice communications products and programmable logic products subsidiaries. The Company terminated its Foundry Servicefoundry service arrangements with Legerity in the third quarter of 2002.2002 and will terminate its foundry service arrangements with Vantis in the third quarter of 2003. The Company
The following table is a summary of sales and operating income (loss) by segment with a reconciliation to net loss for the quarters and ninesix months ended SeptemberJune 29, 20022003 and SeptemberJune 30, 2001:
Quarter Ended | Nine Months Ended | |||||||||||||||
(Thousands) | September 29, 2002 | September 30, 2001 | September 29, 2002 | September 30, 2001 | ||||||||||||
| Segment net sales: | ||||||||||||||||
| Core Products segment | $ | 494,386 | $ | 741,320 | $ | 1,978,375 | $ | 2,843,915 | ||||||||
| Foundry Services segment | 13,841 | 24,550 | 32,224 | 95,966 | ||||||||||||
| Total segment net sales | $ | 508,227 | $ | 765,870 | $ | 2,010,599 | $ | 2,939,881 | ||||||||
| Segment operating income (loss): | ||||||||||||||||
| Core Products segment | $ | (330,856 | ) | $ | (123,947 | ) | $ | (632,602 | ) | $ | 70,053 | |||||
| Foundry Services segment | 5,672 | (9,441 | ) | (2,789 | ) | (14,761 | ) | |||||||||
| Total segment operating income (loss) | (325,184 | ) | (133,388 | ) | (635,391 | ) | 55,292 | |||||||||
| Restructuring and other special charges | — | (89,305 | ) | — | (89,305 | ) | ||||||||||
| Additional inventory provision | — | (6,901 | ) | — | (6,901 | ) | ||||||||||
| Interest income and other, net | 12,941 | (11,220 | ) | 31,140 | 19,911 | |||||||||||
| Interest expense | (21,166 | ) | (9,946 | ) | (49,053 | ) | (51,790 | ) | ||||||||
| Income tax benefit | 73,350 | 65,018 | 198,884 | 8,758 | ||||||||||||
| Equity in net income (loss) of joint venture | 5,888 | (1,187 | ) | 6,148 | 19,296 | |||||||||||
| Net loss | $ | (254,171 | ) | $ | (186,929 | ) | $ | (448,272 | ) | $ | (44,739 | ) | ||||
| Quarter Ended | Six Months Ended | |||||||||||||||
| (Thousands) | June 29, 2003 | June 30, 2002 | June 29, 2003 | June 30, 2002 | ||||||||||||
Segment net sales: | ||||||||||||||||
Core Products segment | $ | 645,261 | $ | 593,869 | $ | 1,359,816 | $ | 1,483,989 | ||||||||
Foundry Services segment | — | 6,430 | — | 18,383 | ||||||||||||
Total segment net sales | $ | 645,261 | $ | 600,299 | $ | 1,359,816 | $ | 1,502,372 | ||||||||
Segment operating loss: | ||||||||||||||||
Core Products segment | $ | (123,498 | ) | $ | (289,206 | ) | $ | (248,971 | ) | $ | (301,746 | ) | ||||
Foundry Services segment | — | (7,458 | ) | — | (8,461 | ) | ||||||||||
Total segment operating loss | (123,498 | ) | (296,664 | ) | (248,971 | ) | (310,207 | ) | ||||||||
Interest income and other, net | 4,971 | 8,661 | 11,711 | 18,199 | ||||||||||||
Interest expense | (26,364 | ) | (15,729 | ) | (52,169 | ) | (27,887 | ) | ||||||||
(Provision) benefit for income taxes | — | 121,493 | (2,936 | ) | 125,534 | |||||||||||
Equity in net income of joint venture | 4,795 | (2,699 | ) | 5,913 | 260 | |||||||||||
Net loss | $ | (140,096 | ) | $ | (184,938 | ) | $ | (286,452 | ) | $ | (194,101 | ) | ||||
| Comprehensive |
The following are the components of comprehensive loss:
Quarter Ended | Nine Months Ended | |||||||||||||||
(Thousands) | September 29, 2002 | September 30, 2001 | September 29, 2002 | September 30, 2001 | ||||||||||||
| Net loss | $ | (254,171 | ) | $ | (186,929 | ) | $ | (448,272 | ) | $ | (44,739 | ) | ||||
| Net change in cumulative translation adjustments | (20,483 | ) | 59,525 | 80,873 | 18,585 | |||||||||||
| Net change in unrealized gains (losses) on cash flow hedges | (1,307 | ) | 20,060 | 32,111 | 8,412 | |||||||||||
| Net change in unrealized gains (losses) on available-for-sale securities | (3,400 | ) | 2,668 | (4,477 | ) | (7,824 | ) | |||||||||
| Other comprehensive income (loss) | (25,190 | ) | 82,253 | 108,507 | 19,173 | |||||||||||
| Comprehensive loss | $ | (279,361 | ) | $ | (104,676 | ) | $ | (339,765 | ) | $ | (25,566 | ) | ||||
| Quarter Ended | Six Months Ended | |||||||||||||||
| (Thousands) | June 29, 2003 | June 30, 2002 | June 29, 2003 | June 30, 2002 | ||||||||||||
Net loss | $ | (140,096 | ) | $ | (184,938 | ) | $ | (286,452 | ) | $ | (194,101 | ) | ||||
Net change in cumulative translation adjustments | 62,420 | 138,745 | 102,993 | 101,356 | ||||||||||||
Net change in unrealized gain/(loss) on cash flow hedges | (8,144 | ) | 40,290 | (11,628 | ) | 33,418 | ||||||||||
Net change in unrealized gain/(loss) on available-for-sale securities | 1,518 | 91 | (181 | ) | (1,077 | ) | ||||||||||
Other comprehensive income | 55,794 | 179,126 | 91,184 | 133,697 | ||||||||||||
Comprehensive loss | $ | (84,302 | ) | $ | (5,812 | ) | $ | (195,268 | ) | $ | (60,404 | ) | ||||
The components of accumulated other comprehensive lossincome are as follows:
(Thousands) | September 29, 2002 | December 30, 2001 | ||||||
| Cumulative translation adjustments | $ | (54,046 | ) | $ | (134,919 | ) | ||
| Net unrealized gains (losses) on cash flow hedges | 28,712 | (3,399 | ) | |||||
| Unrealized gain on available-for-sale securities | 594 | 5,071 | ||||||
| Accumulated other comprehensive loss | $ | (24,740 | ) | $ | (133,247 | ) | ||
| (Thousands) | June 29, 2003 | December 29, 2002 | ||||
| Net unrealized gain on available-for-sale securities, net of taxes of $1,143 in 2003 and $1,250 in 2002 | $ | 1,971 | $ | 2,152 | ||
| Net unrealized gain on cash flow hedges, net of taxes of $17,143 in 2003 and $17,511 in 2002 | 17,451 | 29,079 | ||||
Cumulative translation adjustments | 121,667 | 18,674 | ||||
| $ | 141,089 | $ | 49,905 | |||
| 9. |
| Restructuring and Other Special Charges |
2002 Restructuring Plan
In fiscal 2001December 2002, the Company announcedbegan implementing a restructuring plan (the 20012002 Restructuring Plan), due to a slowdownalign its cost structure to industry conditions resulting from weak customer demand and industry-wide excess inventory. The 2002 Restructuring Plan will result in the semiconductor industry and a resulting decline in revenues. In connection with the plan, the Company closed Fabs 14 andreduction of approximately 2,000 positions or 15 in Austin, Texas in June 2002. These facilities supported certainpercent of the Company’s older products andemployees, affecting all levels of its Foundry Service operations, which were discontinued asworkforce in almost every organization. As part of this plan, and as a result of the plan.Company’s technology agreement with IBM to develop future generations of the Company’s logic process technology, the Company has ceased its silicon processing associated with logic research and development in its Submicron Development Center (SDC) in Sunnyvale, California and has eliminated most of those related resources, including the sale or abandonment of certain equipment used in the SDC.
The 2002 Restructuring Plan has resulted in the consolidation of facilities, primarily at the Company’s Sunnyvale, California site and at sales offices worldwide. The Company is in the process of vacating, and attempting to sublease, certain facilities currently occupied under long-term operating leases. The Company has also reorganized related manufacturing facilitiesterminated the implementation of certain partially completed enterprise resource planning (ERP) software and reduced relatedother information technology implementation activities, primarilyresulting in Penang, Malaysia along with associated administrative support.
Pursuant to the 20012002 Restructuring Plan, the Company recorded restructuring costs and other special charges of $89.3$330.6 million in the fourth quarter of 2002, consisting primarily of $34.1$68.8 million of anticipated severance and fringe benefit costs, $13.0an asset impairment charge of $32.5 million relating to a license that had no future use because of its association with discontinued logic development activities, asset impairment charges of $30.6 million resulting from the abandonment of equipment previously used in logic process development and $3.2 million ofmanufacturing activities, anticipated exit costs of $138.9 million primarily related to closevacating and consolidating the Company’s facilities and $55.5 million resulting from the abandonment of partially completed ERP software and other information technology implementation activities.
The Company expects to substantially complete the activities associated with the 2002 Restructuring Plan by the end of December 2003. As of June 29, 2003, 1,429 employees had been terminated pursuant to the 2002 Restructuring Plan resulting in Austincumulative cash payments of $47 million for severance and Asia, mostlyemployee benefit costs.
During the first quarter of 2003, management approved the sale of additional equipment, primarily equipment used in Penang, and $28.7 million and $10.3the SDC, that had been identified as no longer useful in the Company’s operations. As a result, the Company recorded approximately $11 million of non-cash asset impairment charges in Austinthe first quarter of 2003, including $3.3 million of charges for decommission costs necessary to complete the equipment’s sale.
The following table summarizes activities under the 2002 Restructuring Plan through June 29, 2003:
| (Thousands) | Severance and Employee Benefits | Asset impairment | Exit and Equipment Decommission Costs | Other Restructuring Charges | Total | |||||||||||||||
2002 provision | $ | 68,770 | $ | 118,590 | $ | 138,900 | $ | 4,315 | $ | 330,575 | ||||||||||
Q4 2002 non-cash charges | — | (118,590 | ) | — | — | (118,590 | ) | |||||||||||||
Q4 2002 cash charges | (14,350 | ) | — | (795 | ) | — | (15,145 | ) | ||||||||||||
Accruals at December 29, 2002 | 54,420 | — | 138,105 | 4,315 | 196,840 | |||||||||||||||
Q1 2003 provision | — | 7,791 | 3,314 | — | 11,105 | |||||||||||||||
Q1 2003 non-cash charges | — | (7,791 | ) | — | — | (7,791 | ) | |||||||||||||
Q1 2003 cash charges | (17,820 | ) | — | (751 | ) | (4,223 | ) | (22,794 | ) | |||||||||||
Accruals at March 30, 2003 | 36,600 | — | 140,668 | 92 | 177,360 | |||||||||||||||
Q2 2003 cash charges | (14,922 | ) | — | (8,309 | ) | (77 | ) | (23,308 | ) | |||||||||||
Accruals at June 29, 2003 | $ | 21,678 | $ | — | $ | 132,359 | $ | 15 | $ | 154,052 | ||||||||||
2001 Restructuring Plan
In 2001, the Company announced a restructuring plan (the 2001 Restructuring Plan) due to the continued slowdown in the semiconductor industry and Asia, primarily Penang.a resulting decline in revenues. The asset impairment charges related primarilyCompany has substantially completed its execution of the 2001 Restructuring Plan, with the exception of the facilities and equipment decommission activities, which are expected to buildingsbe completed by the end of 2003. During the first quarter of 2003, the Company reduced the estimated accrual of the facility and production equipment that were incurreddecommission costs by $7.4 million based on the most current information available. During the first quarter, the Company also realized a recovery of approximately $1.6 million from the sale of equipment impaired as a result of the Company’s decision to implement the 2001 Restructuring Plan. Management determined thePlan, previously held-for-sale at amounts in excess of its initially estimated fair value of the affected equipment based on market data and conditions.
The following table summarizes activityactivities under the 2001 Restructuring Plan through Septemberduring the six months ended June 29, 2002:
(Thousands) | Severance and Employee Benefits | Facilities and equipment impairment | Facility and equipment decommission costs | Other facility exit costs | Total | |||||||||||||||
| Q3 2001 charges | $ | 34,105 | $ | 39,000 | $ | 15,500 | $ | 700 | $ | 89,305 | ||||||||||
| Non-cash charges | — | (39,000 | ) | — | — | (39,000 | ) | |||||||||||||
| Cash charges | (7,483 | ) | — | — | (54 | ) | (7,537 | ) | ||||||||||||
| Accruals at December 30, 2001 | 26,622 | — | 15,500 | 646 | 42,768 | |||||||||||||||
| Cash charges | (26,622 | ) | — | (439 | ) | — | (27,061 | ) | ||||||||||||
| Accruals at September 29, 2002 | $ | — | $ | — | $ | 15,061 | $ | 646 | $ | 15,707 | ||||||||||
| (Thousands) | Facilities and Equipment Decommission Costs | Other Facilities Exit Costs | Total | ||||||||
Accrual at December 29, 2002 | $ | 15,055 | $ | 646 | $ | 15,701 | |||||
Q1 2003 cash charges | (630 | ) | — | (630 | ) | ||||||
Q1 2003 non-cash adjustment | (7,400 | ) | — | (7,400 | ) | ||||||
Accruals at March 30, 2003 | 7,025 | 646 | 7,671 | ||||||||
Q2 2003 cash charges | (226 | ) | — | (226 | ) | ||||||
Accruals at June 29, 2003 | $ | 6,799 | $ | 646 | $ | 7,445 | |||||
As of June 29, 2003 and December 29, 2002, $107 million and $113 million of the Company’s 2002 Restructuring Plan, seetotal restructuring accruals of $161 million and $213 million were included in Other Liabilities (long-term) on the balance sheets. (See Note 13.
The Company accounts for guarantees in accordance with FIN 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” The following table summarizes guarantees that the Company has issued as of June 29, 2003:
| (In Thousands) | Maximum | Amounts of guarantee expiration per period | |||||||||||||||||||||
| Amounts Guaranteed | 2003 | 2004 | 2005 | 2006 | 2007 | 2008 and Beyond | |||||||||||||||||
Dresden intercompany guarantee | $ | 313,712 | $ | — | $ | — | $ | — | $ | 313,712 | * | $ | — | $ | — | ||||||||
BAC payment guarantee | 28,571 | 28,571 | — | — | — | — | — | ||||||||||||||||
AMTC payment guarantee | 36,571 | — | — | — | — | 36,571 | — | ||||||||||||||||
AMTC rental guarantee | 134,406 | — | — | — | — | — | 134,406 | * | |||||||||||||||
Manufacturing Joint Venture guarantee (Note 6) | 74,000 | 74,000 | — | — | — | — | — | ||||||||||||||||
Total guarantee | $ | 587,260 | $ | 102,571 | $ | — | $ | — | $ | 313,712 | $ | 36,571 | $ | 134,406 | |||||||||
| * | Amounts outstanding will diminish until the expiration of the guarantee. |
Dresden Term Loan Agreements and Dresden Intercompany Guarantee
AMD Saxony Limited Liability Company & Co. KG, (AMD Saxony, formerly known as AMD Saxony Manufacturing GmbH), an indirect wholly-owned German subsidiary of AMD, continues to facilitize Fab 30, which began production in the third quarter of 2000. AMD, the Federal Republic of Germany, the State of Saxony, and a consortium of banks are providing financing for the project.
In August 2002,March 1997, AMD Saxony entered into a loan agreement and other related agreements (the Dresden Loan Agreements) with a consortium of banks led by Dresdner Bank AG, a German financial institution, in order to finance the Subsidy Agreement withproject.
Because most of the amounts under the Dresden Loan Agreements were denominated in deutsche marks (converted to euros), the dollar amounts discussed below are subject to change based on applicable conversion rates. The Company used the exchange rate that was permanently fixed on January 1, 1999, of 1.95583 deutsche marks to one euro for the conversion of deutsche marks to euros, and then used the exchange rate of 0.875 euro to one U.S. dollar as of June 29, 2003, to translate the amounts denominated in deutsche marks into U.S. dollars.
The Dresden Loan Agreements, as amended, provide for the funding of the construction and facilitization of Fab 30. The funding consists of:
The Dresden Loan Agreements require that the Company partially fund Fab 30 project costs in the form of subordinated and revolving loans to, or equity investments in, AMD Saxony. In accordance with the terms of the Dresden Loan Agreements, as of June 29, 2003, the balances were $168 million of subordinated loans, $197 million of revolving loans and $286 million of equity investments in AMD Saxony, wasnet of repayments. These amounts have been eliminated in the Company’s consolidated financial statements.
In addition to support from AMD, the consortium of banks referred to above made available up to $877 million in loans to AMD Saxony to help fund Fab 30 project costs. The loans have been fully drawn and a portion has been repaid. AMD Saxony had $627 million of such loans outstanding as of June 29, 2003, which is included in the Company’s consolidated balance sheets.
The Dresden Loan Agreements, as amended, also require that the Company:
As AMD Saxony’s obligations under the Dresden Loan Agreements are beingincluded in the Company’s consolidated financial statements, no incremental liability is recorded under the Dresden guarantee.
AMD Saxony would be in default under the Dresden Loan Agreements if the Company, AMD Saxony, AMD Saxony Holding GmbH (AMD Holding), AMD Saxony Admin GmbH or AMD Saxony LLC failed to comply with certain obligations thereunder or upon the occurrence of certain events, including:
Generally, any default with respect to borrowings made or guaranteed by AMD that results in recourse to the Company of more than $2.5 million and that is not cured by the Company, would result in a cross-default under the Dresden Loan Agreement. As of June 29, 2003, the Company was in compliance with all conditions of the Dresden Loan Agreements.
In the event the Company is unable to meet its obligations to AMD Saxony as required under the Dresden Loan Agreements, the Company will be in default under the Dresden Loan Agreements, which would permit acceleration of certain indebtedness, which could have a material adverse effect on the Company. The occurrence of a default under the Dresden Loan Agreements would likely result in a cross-default under the Indentures governing the Company’s 4.75% Debentures and 4.50% Notes.
Advanced Mask Technology Center and Maskhouse Building Administration Guarantees
The Advanced Mask Technology Center GmbH & Co. KG (AMTC), and Maskhouse Building Administration GmbH & Co., KG (BAC), are joint ventures formed by AMD, Infineon Technologies AG and DuPont Photomasks, Inc. for the purpose of constructing and operating a new advanced photomask facility in Dresden, Germany. To finance the project, BAC entered into an $86 million bridge loan in June 2002, and BAC and AMTC entered into a $137 million revolving credit facility and an $86 million term loan in December 2002. When drawn, the term loan will replace the bridge loan. Also in December 2002, in order to occupy the photomask facility, BAC and AMTC entered into a rental agreement. With regard to these commitments by BAC and AMTC, the Company guaranteed up to approximately $29 million plus interest and expenses under the bridge loan, up to approximately $37 million plus interest and expenses under the revolving loan, up to approximately $29 million plus interest and expenses under the term loan (which will replace the bridge loan guarantee when the term loan is drawn), and up to approximately $18 million, initially, under the rental agreement. The obligations under the rental agreement guarantee diminish over time through 2011 as the term loan is repaid. However, under certain circumstances of default by the other tenant of the photomask facility under the rental agreement and more than one joint venture partner under its guarantee obligations, the maximum potential amount of the Company’s obligations under the rental agreement guarantee is approximately $134 million. As of June 29, 2003, $74 million was outstanding under the bridge loan, and no amounts were drawn under the revolving credit facility or the term loan.
The Company has not recorded any liability in its consolidated financial statements associated with these guarantees.
Warranties and Indemnities
At the time revenue is recognized, the Company provides for estimated costs that may be incurred under product warranties, with the corresponding expense recognized in cost of sales. Estimates of warranty expense are based on historical experience. Remaining warranty accruals are evaluated periodically and are adjusted for changes in experience.
The Company generally offers a three-year limited warranty to end users for certain of its boxed microprocessor products, and a one-year limited warranty only to direct purchasers for all other products.
Changes in the Company’s potential liability for product warranty during the six months ended June 29, 2003 were as follows (in thousands):
Balance at December 29, 2002 | $ | 19,369 | ||
New warranties issued during the period | 17,973 | |||
Settlements during the period | (15,597 | ) | ||
Changes in liability for pre-existing warranties during the period, including expirations | (154 | ) | ||
Balance at June 29, 2003 | $ | 21,591 | ||
In addition to product warranties, the Company, from time to time, in its normal course of business, indemnifies other parties with whom it enters into contractual relationships, including customers, lessors and parties to other transactions with the Company, with respect to certain matters. The Company has agreed to hold the other party harmless against specified losses, such as those arising from a breach of representations or covenants, third party claims that the Company’s products when used for their intended purpose(s) infringe the intellectual property rights of such third party or other claims made against certain parties. It is not possible to determine the maximum potential amount of liability under these indemnification obligations due to the limited history of prior indemnification claims and the unique facts and circumstances that are likely to be involved in each particular claim. Historically, payments made by the Company under these obligations were not material.
| 11. | Other Liabilities |
The Company’s other long-term liabilities at June 29, 2003 and December 29, 2002 consisted of:
| (In thousands) | June 29, 2003 | December 29, 2002 | ||||
Dresden deferred grants and subsidies | $ | 210,767 | $ | 146,346 | ||
Restructuring accrual | 107,030 | 112,567 | ||||
Other | 41,828 | 63,169 | ||||
| $ | 359,625 | $ | 322,082 | |||
| 12. | Subsequent Events |
FASL LLC
Effective June 30, 2003, the Company and Fujitsu Limited executed several agreements which resulted in the integration of the Company’s and Fujitsu’s Flash memory operations in the third quarter. The new company, FASL LLC, is 60 percent owned by the Company and 40 percent owned by Fujitsu Limited. The Company contributed or sold its Flash memory operations, including related inventory, its manufacturing facility located in Austin, Texas (Fab 25), its Submicron Development Center in Sunnyvale, California, and its Flash memory assembly and test operations in Thailand, Malaysia and China, in exchange for membership interests in FASL LLC and a $261 million promissory note. AMD also loaned to FASL LLC $120 million pursuant to a promissory note. The note has a term of three years and bears interest at LIBOR plus 4%. Interest payments only are due in quarterly installments for the first two years. Payments of principal (along with interest) are due in equal installments over the last four quarters of the note. Fujitsu contributed its Flash memory division including related inventory, $140 million in cash and its Fujitsu Microelectronics (Malaysia) Sdn. Bhd. final assembly and test operations. The Company and Fujitsu also contributed the existing Manufacturing Joint Venture located in Aizu-Wakamatsu, which became a wholly owned subsidiary of FASL LLC. Fujitsu also loaned to FASL LLC $40 million pursuant to a promissory note. The terms of Fujitsu’s note are substantially similar to the terms of the Company’s note.
The Company holds a majority voting and economic interest in FASL LLC and controls its operations. Accordingly, the Company will consolidate the operations and financial position of FASL LLC in its consolidated third quarter 2003 financial statements as of the date of commencement of FASL LLC operations. For accounting purposes, the Company is deemed to have acquired an incremental 10 percent interest in the existing Manufacturing Joint Venture and 60 percent interest in the assets contributed by Fujitsu. In addition, the Company is deemed to have sold 40 percent of its interest in its contributed assets, excluding its interest in the existing manufacturing joint venture. An independent fair market value appraisal for this transaction is currently in process and is expected to be completed by the end of the third quarter. Based on the results of the appraisal, during the third quarter of 2003, the Company may be required to recognize a gain or loss on the sale of its interests in the assets contributed to FASL LLC. At this time the Company cannot estimate the results of the appraisal or the gain or loss, if any, that would be recognized as a reductionresult of related operating expenses ratably overthis transaction.
Amendment of Note Payable to Bank
On July 7, 2003, the lifeCompany amended and restated its 1999 Loan and Security Agreement with a consortium of banks led by a domestic financial institution (the July 2003 Loan Agreement). The July 2003 Loan Agreement provides for a secured revolving line of credit of up to $200 million that expires in July of 2007. The Company can borrow, subject to amounts that may be set aside by the agreement.
Amendment and is therefore included in Other Assets.
On November 7, 2002,July 11, 2003, the Company announced thatamended its September 2002 Loan Agreement and assigned it to FASL LLC. Under the Amended and Restated Term Loan Agreement (the July 2003 FASL Term Loan), amounts borrowed bear interest at a variable rate of LIBOR plus four percent, which was formulating a restructuring plan (the5.1 percent at June 29, 2003. Repayment occurs in equal, consecutive, quarterly principal and interest installments ending in September 2006. As of June 29, 2003, $96 million was outstanding under the September 2002 Restructuring Plan) to addressLoan Agreement. Following the continuing industry-wide weaknessassignment, as of July 11, 2003, $89.4 million was outstanding under the July 2003 FASL Term Loan. The Company guaranteed 60 percent of this amount. FASL LLC must also comply with additional financial covenants if its net domestic cash balance (as defined in the semiconductor industry and to adjust its cost structure. Pursuant toJuly 2003 FASL Term Loan Agreement) declines below $130 million through the 2002 Restructuring Plan, the Company intends to reduce its fixed costs as a percentagefirst quarter of total costs over time from approximately 80 percent to approximately 70 percent. The Company also expects to reduce its expenses by approximately $1002004, $120 million per quarter bybetween the second quarter of 2003. 2004 through 2005 and $100 million in 2006. At any time that net domestic cash is less than these thresholds, FASL LLC must also maintain minimum levels of adjusted tangible net worth and EBITDA and a minimum fixed charge coverage ratio.
Manufacturing Joint Venture Loan Refinancing
As a result of the execution of the FASL LLC agreements with Fujitsu, the existing Manufacturing Joint Venture’s third party loans were refinanced from the proceeds of a term loan in the aggregate principal amount of $150 million entered into between a wholly owned subsidiary of FASL LLC and a Japanese financial institution. Fujitsu guaranteed 100 percent of the amounts outstanding under this facility. In turn, the Company expects total expensesagreed to pay Fujitsu 60 percent of any amount paid by Fujitsu under its guarantee of this facility. Because AMD will consolidate FASL LLC, the full amount of the third party loan will be reflected in the Company’s consolidated financial statements.
Sale Leaseback Transaction
On July 18, 2003, to be reduced by $350 million based on current product demand forecasts.a wholly owned subsidiary of FASL LLC entered into a sale and leaseback transaction for certain equipment with a third party financial institution in the amount of $100 million. The Company cannot, however, be sure that the goalsguaranteed up to approximately $50 million, or 50 percent, of the 2002 Restructuring Plan will be realized. The 2002 Restructuring Plan is expected to result in pre-tax restructuring and related charges to earnings of several hundred million dollars inoutstanding obligations, under the fourth quarter of 2002. The Company also expects approximately one-third of the restructuring and related charges to consist of cash payments.
lease arrangement.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Cautionary Statement Regarding Forward-Looking Statements
TheThis report includes forward-looking statements. These forward-looking statements in this Management’s Discussion and Analysis of Financial Condition and Results of Operations that are forward-looking are based on current expectations and beliefs and involve numerous risks and uncertainties that could cause actual results to differ materially from expectations. These forward-looking statements should not be relied upon as predictions of future events as we cannot assure you that the events or circumstances reflected in these statements will be achieved or will occur. You can identify forward-looking statements by the use of forward-looking terminology including, “believes,” “expects,” “may,” “will,” “should,” “seeks,” “approximately,” “intends,” “plans,” “pro forma,” “estimates,” or “anticipates” or the negative of these words and phrases or other variations of these words and phrases or comparable terminology. The forward-looking statements in this report relate to, among other things:things, operating results; anticipated cash flows; capital expenditures; gross margins; adequacy of resources to fund operations and capital investments; our ability to achieve cost reductions in the amounts and in the timeframes anticipated; our ability to transition to new product introductions effectively;products and technologies in a timely and effective way; our ability to produce microprocessors in the volume required by customers on a timely basis;customers; our ability to maintain average selling prices of microprocessors despite aggressive marketing and pricing strategies of our competitors; our ability to introduce in a timely manner and achieve market acceptance offor our eighth-generation microprocessors including those based on Hammer technology, on a timely basis and produce them in the volumes required by the market at acceptable yields; our ability, and the ability of third parties, to provide timely infrastructure solutions, such as motherboards and chipsets, to support our microprocessors; a recovery in the economy leading to increased demand for our microprocessor products; a recovery in the communication and networking industries leading to an increase in the demand for Flash memory products; the effect of foreign currency hedging transactions; the process technology transitiontransitions in our submicron integrated circuit manufacturing and design facilityfacilities located in Dresden, Germany (Dresden Fab(Fab 30), and in FASL LLC’s manufacturing facilities located in Austin, Texas (Fab 25) and Aizu-Wakamatsu, Japan (JV2 and JV3); and the financing and further construction of FASL LLC’s manufacturing facilities; and our ability to successfully integrate the Fujitsu AMD Semiconductor Limited (FASL) manufacturing facilities. See “Financial Condition”operations of our newly formed majority owned subsidiary, FASL LLC, and “Risk Factors” below, as well as such other risks and uncertainties as are detailed in our other Securities and Exchange Commission reports and filings forsustain any benefit from it. For a discussion of the factors that could cause actual results to differ materially from the forward-looking statements.statements, see the “Financial Condition” and “Risk Factors” sections set forth below beginning on page 28 and such other risks and uncertainties as set forth below in this report or detailed in our other Securities and Exchange Commission reports and filings.
The following discussion should be read in conjunction with the Unaudited Condensed Consolidated Financial Statements and related notes included in this report and our Audited Consolidated Financial Statements and related notes as of December 30, 200129, 2002 and December 31, 200030, 2001 and for each of the three years in the period ended December 30, 200129, 2002 as filed in our Annual Report on Form 10-K.
AMD, the AMD Arrow logo, and combinations thereof, Advanced Micro Devices, AMD Athlon, AMD Duron, AMD Opteron and MirrorBit are either trademarks or registered trademarks of Advanced Micro Devices, Inc. in the United States and/or other jurisdictions. Spansion and MirrorBit are trademarks of FASL LLC in the United States and/or other jurisdictions. Vantis is a trademark of Lattice Semiconductor Corporation. Legerity is a trademark of Legerity, Inc. Microsoft and Windows are either registered trademarks or trademarks of Microsoft Corporation in the United States and/or other jurisdictions. Pentium is a registered trademark of Intel Corporation in the United States and/or other jurisdictions. Other terms used to identify companies and products may be trademarks of their respective owners.
CRITICAL ACCOUNTING POLICIESRESULTS OF OPERATIONS
We use a 52- to 53-week fiscal year ending on the last Sunday in December. The quarters ended SeptemberJune 29, 2002,2003 and June 30, 2002 and September 30, 2001 each included 13 weeks. The ninesix months ended SeptemberJune 29, 20022003 and SeptemberJune 30, 20012002 each included 3926 weeks.
The following is a summary of our net sales by segment for the periods presented below:
Quarter Ended | Nine Months Ended | ||||||||||||||
September 29, 2002 | June 30, 2002 | September 30, 2001 | September 29, 2002 | September 30, 2001 | |||||||||||
(Millions) | |||||||||||||||
| Core Products segment: | |||||||||||||||
| PC Processors | $ | 262 | $ | 380 | $ | 467 | $ | 1,326 | $ | 1,717 | |||||
| Memory Products | 189 | 175 | 210 | 524 | 937 | ||||||||||
| Other IC Products | 43 | 39 | 64 | 128 | 190 | ||||||||||
| 494 | 594 | 741 | 1,978 | 2,844 | |||||||||||
| Foundry Services segment | 14 | 6 | 25 | 32 | 96 | ||||||||||
| $ | 508 | $ | 600 | $ | 766 | $ | 2,011 | $ | 2,940 | ||||||
| Quarters Ended | Six Months Ended | ||||||||||||||
| (Millions) | June 29, 2003 | March 30, 2003 | June 30, 2002 | June 29, 2003 | June 30, 2002 | ||||||||||
Core Products segment: | |||||||||||||||
PC Processors | $ | 402 | $ | 468 | $ | 380 | $ | 870 | $ | 1,064 | |||||
Memory Products | 211 | 218 | 175 | 429 | 335 | ||||||||||
Other IC Products | 32 | 29 | 39 | 61 | 85 | ||||||||||
| 645 | 715 | 594 | 1,360 | 1,484 | |||||||||||
Foundry Services segment | — | — | 6 | — | 18 | ||||||||||
| $ | 645 | $ | 715 | $ | 600 | $ | 1,360 | $ | 1,502 | ||||||
Net Sales Comparison of Quarters Ended SeptemberJune 29, 20022003 and JuneMarch 30, 20022003
Net sales of $508$645 million for the second quarter of 2003 decreased 10 percent compared to net sales of $715 million for the first quarter of 2003.
PC Processors net sales of $402 million decreased 14 percent in the second quarter of 2003 compared to the first quarter of 2003. The decrease in net sales was due to decreases in both unit sales and average selling prices due to weaker than anticipated channel sales in Asia and Europe. In the third quarter of 2003, we expect PC processors sales to increase due to normal seasonality and improved product mix due to increased shipments of our AMD Opteron microprocessors.
Memory products net sales of $211 million decreased 3 percent in the second quarter of 2003 compared to the first quarter of 2003. The decrease in net sales was due to a decline in average selling prices, caused by a decrease in sales to the high-end cellular phone market in Asia due to issues surrounding the SARS outbreak, partially offset by an increase in unit sales in other geographic areas. In the third quarter of 2003, we expect our reported Flash memory device sales to increase significantly, primarily due to the consolidation of FASL LLC’s sales with ours on our statement of operations beginning June 30, 2003 and also due to increased sales and market share gains in the high-end cellular handset market and recovery of the Asian markets.
Other IC products net sales of $32 million increased 10 percent in the second quarter of 2003 compared to the first quarter of 2003 primarily due to increased chipset sales.
We did not receive foundry services fees in the second quarter of 2003 due to the termination of our foundry services arrangement with Legerity in the third quarter of 2002 decreased by 15and the expected termination of our foundry service arrangement with Vantis in the third quarter of 2003.
Net Sales Comparison of Quarters Ended June 29, 2003 and June 30, 2002
Net sales of $645 million for the second quarter of 2003 increased 7 percent compared to net sales of $600 million for the second quarter of 2002.
PC processorsProcessors net sales of $262$402 million decreased by 31increased 6 percent compared toin the second quarter of 2002. This decrease was due to declines in both average selling prices and unit sales, reflecting industry-wide weakness in PC sales. This decrease also reflected our decision not to accept orders from certain customers, not to ship to certain customers and our receipt of product returns from certain customers, each as part of our efforts to reduce excess PC processor inventory in the overall supply chain. In the fourth quarter of 2002, we expect unit shipments of PC processors to follow seasonal patterns, which generally show increases from third quarter levels. Our ability to increase PC processor revenue in the fourth quarter of 2002 depends upon customer demand for the newest versions of the AMD Athlon processors, an increase of average selling prices and an increase in unit shipments of our PC processors.
Memory products net sales of $211 million increased 20 percent in the second quarter of 2003 compared to the second quarter of 2002 due to an increase in average selling prices ascaused by shipping a result of the continued strength of demand in the high-end mobile phone market, which resulted in a shift in the relativehigher density mix of products sold to higher density flash products. We expect sales of Flash memory devices to increaseproduct. This was partially offset by a decline in the fourth quarter of 2002.
Other IC products net sales of $43$32 million increased by 10decreased 18 percent in the thirdsecond quarter of 20022003 compared to the second quarter of 2002 primarily due to an increase indecreased net sales offrom networking and embedded processors.
We did not receive foundry services fees of $14 million in the thirdsecond quarter of 2002 increased from2003 compared to $6 million in the second quarter of 2002, due to an increase in service fees from Legerity. We expect Foundry Services segment service fees to decrease significantlythe termination of our foundry services arrangement with Legerity in the fourththird quarter of 2002 and the expected termination of our foundry service arrangement with Vantis in the third quarter of 2003.
Net Sales Comparison of Six Months Ended June 29, 2003 and June 30, 2002
Net sales of $1,360 million for the first six months of 2003 decreased by 9 percent compared to net sales of $1,502 million for the first six months of 2002.
PC Processors net sales of $870 million decreased 18 percent in the first six months of 2003 compared to the first six months of 2002 primarily due to a decrease in average selling prices of our microprocessors.
Memory products net sales of $429 million increased 28 percent in the first six months of 2003 compared to the first six months of 2002 due to increases in both unit shipments and average selling prices.
Other IC products net sales of $61 million in the first six months of 2003 decreased 28 percent compared to the first six months of 2002 due to decreases in net sales from networking and embedded processor products.
We did not receive foundry services fees in the first six months of 2003 compared to $18 million in the first six months of 2002 due to the termination of our Foundry Service arrangementsfoundry services arrangement with Legerity which occurred in the third quarter of 2002. We also expect Foundry Services segment service fees to continue to decrease through the third quarter of 2003, when our agreement with Vantis ends.
Comparison of Expenses, Gross Margin Percentage and Interest
The following is a summary of expenses, gross margin percentage and interest and other income, net for the periods presented below:
Quarter Ended | Nine Months Ended | |||||||||||||||||||
September 29, 2002 | June 30, 2002 | September 30, 2001 | September 29, 2002 | September 30, 2001 | ||||||||||||||||
(Millions except for gross margin percentage) | ||||||||||||||||||||
| Cost of sales | $ | 454 | $ | 558 | $ | 594 | $ | 1,599 | $ | 1,945 | ||||||||||
| Gross margin percentage | 11 | % | 7 | % | 22 | % | 20 | % | 34 | % | ||||||||||
| Research and development | $ | 221 | $ | 178 | $ | 161 | $ | 571 | $ | 490 | ||||||||||
| Marketing, general and administrative | 159 | 160 | 151 | 476 | 456 | |||||||||||||||
| Restructuring and other special charges | — | — | 89 | — | 89 | |||||||||||||||
| Interest and other income, net | 13 | 9 | (11 | ) | 31 | 20 | ||||||||||||||
| Interest expense | 21 | 16 | 10 | 49 | 52 | |||||||||||||||
| Quarters Ended | Six Months Ended | |||||||||||||||||||
| (Millions except for gross margin percentage) | June 29, 2003 | March 30, 2003 | June 30, 2002 | June 29, 2003 | June 30, 2002 | |||||||||||||||
Cost of sales | $ | 425 | $ | 497 | $ | 558 | $ | 922 | $ | 1,145 | ||||||||||
Gross margin percentage | 34 | % | 31 | % | 7 | % | 32 | % | 24 | % | ||||||||||
Research and development | $ | 209 | $ | 203 | $ | 178 | $ | 412 | $ | 350 | ||||||||||
Marketing, general and administrative | 135 | 138 | 160 | 273 | 317 | |||||||||||||||
Interest and other income, net | 5 | 7 | 9 | 12 | 19 | |||||||||||||||
Interest expense | 26 | 26 | 16 | 52 | 28 | |||||||||||||||
We operate in an industry characterized by intense competition, rapid product development cycles and high fixed costs due to capital-intensive manufacturing processes, particularly the costs to build and maintain state-of-the-art wafer production facilities required for PC processors and memory devices. As a result, our gross margin percentage is significantly affected by fluctuations in unit salesnew product production costs, product demand and our ability to sell PC processors and memory devices that we manufacture at sustainable average selling prices.
The gross margin percentage of 11 percent in the third quarter of 2002 increased from seven34 percent in the second quarter of 2002 due primarily to a more favorable mix of Flash products sold, a reallocation of manufacturing resources, previously included in costs of goods sold, to2003 increased research and development activities for our upcoming eighth-generation microprocessors based on Hammer technology, and cost savings realized from the closure of our facilities pursuant to the 2001 Restructuring Plan described below. This increase was partially offset by a decline31 percent in the unit shipmentsfirst quarter of 2003 and average selling prices of our PC processors as well as our decision not to accept ordersincreased from certain customers, not to ship to certain customers and our receipt of product returns from certain customers, each as part of our efforts to reduce excess PC processor inventory7 percent in the overall supply chain.second quarter of 2002. The gross margin percentage of 11 percent in the third quarter of 2002 decreased from 22 percent in the third quarter of 2001. The gross margin percentage of 2032 percent for the first ninesix months of 2003 increased from 24 percent for the first six months of 2002. The increase in gross margin percentage in the second quarter of 2003 compared to the first quarter of 2003 was primarily attributable to cost savings realized as a result of our 2002 Restructuring Plan, partially offset by a decrease in average selling prices of both Flash memory devices and PC processor products. The increase in gross margin percentage in the second quarter of 2003 compared to the second quarter in 2002 was primarily due to cost savings realized pursuant to the 2002 Restructuring Plan and due to an increase in revenue. The increase in gross margin percentage in the first six months of 2003 compared to the first six months of 2002 decreased from 34 percent for the same period in 2001. These declines werewas primarily due to a declinecost savings realized pursuant to the 2002 Restructuring Plan, partially offset by decrease in both average selling prices of both Flash memory devices and unit shipments of our PC processors.
Research and development expenses of $221$209 million in the thirdsecond quarter of 2003 were relatively flat compared to the first quarter of 2003 and increased 17 percent compared to the second quarter of 2002. Research and development expenses of $412 million in the first six months of 2003 increased 17 percent compared to the first six months of 2002. The increase in research and development expenses in the second quarter of 2003 compared to the second quarter of 2002 increased 24and in the first six months of 2003 compared to the first six months of 2002 was primarily due to higher volume of research and development wafer starts related to our AMD Opteron microprocessors.
We amortize the foreign capital grants, interest subsidies and research and development subsidies that we received from the State of Saxony for Fab 30 as they are earned. The amortization of these grants and subsidies are recognized as credits to research and development expenses and cost of sales. These credits totaled $4.7 and $11.1 million in the second quarter of 2003, $5.4 and $10.9 million in the first quarter of 2003 and $4.2 and $10.8 million in the second quarter of 2002. In the first six months of 2003, these credits totaled $10.1 and $22 million. In the first six months of 2002, these credits totaled $7.6 and $21.2 million.
Marketing, general and administrative expenses of $135 million in the second quarter of 2003 were relatively flat compared to the first quarter of 2003. Marketing, general and administrative expenses in the second quarter of 2003 decreased 16 percent compared to the second quarter of 2002, and 37decreased 14 percent compared to the same quarter in 2001. Research and development expenses of $571 million in the first ninesix months of 2002 increased 17 percent2003 compared to the first ninesix months of 2001.2002. The increase in researchdecreases were primarily a result of cost savings realized as a result of the 2002 Restructuring Plan and development expenses was primarily due to the reallocationdiscontinuation of manufacturing resources, previously included in costs of goods sold, to increased researchcertain marketing and developmentpromotional activities for our upcoming eighth-generation microprocessors based on Hammer technology.
In the first nine months of 2002, these credits totaled $12.8 million and $35.1 million, respectively. In the first nine months of 2001, these credits totaled $11.2 million and $31.7 million, respectively.
Interest expense in the second quarter of 2002 was primarily due to the gains realized from the sales or maturities of short-term investments. The increase from the third quarter of 2001
In December 2002, we began implementing a restructuring plan (the 2002 Restructuring Plan) to align our cost structure to industry conditions resulting from weak customer demand and industry-wide excess inventory. The 2002 Restructuring Plan will result in the reduction of approximately 2,000 positions or 15 percent of our employees, affecting all levels of our workforce in almost every organization. As part of this plan, and as a result of our technology agreement with IBM to develop future generations of our logic process technology, we have ceased silicon processing associated with logic research and development in our Submicron Development Center (SDC) and have eliminated most of those related resources, including the sale or abandonment of certain equipment used in the SDC.
The 2002 Restructuring Plan has resulted in the consolidation of facilities, primarily at our Sunnyvale, California site and at sales offices worldwide. We are in the process of vacating, and attempting to sublease, certain facilities currently occupied under long-term operating leases. We have also terminated the implementation of certain partially completed enterprise resource planning (ERP) software and other information technology implementation activities, resulting in the abandonment of certain software, hardware and capitalized development costs.
Pursuant to the 2002 Restructuring Plan, we recorded restructuring costs and other special charges of $330.6 million in the fourth quarter of 2002, consisting primarily of $68.8 million of anticipated severance and fringe benefit costs, an asset impairment charge of $32.5 million relating to a license that has no future use because of its association with discontinued logic development activities, asset impairment charges of $30.6 million resulting from the abandonment of equipment previously used in logic process development and manufacturing activities, anticipated exit costs of $138.9 million primarily related to vacating and consolidating our facilities and $55.5 million resulting from the abandonment of partially completed ERP software and other information technology implementation activities.
We expect to substantially complete the activities associated with the 2002 Restructuring Plan by the end of December 2003. As of June 29, 2003, 1,429 employees had been terminated pursuant to the 2002 Restructuring Plan resulting in cumulative cash payments of $47 million in severance and employee benefit costs.
During the first quarter of 2003, management approved the sale of additional interestequipment, primarily equipment used in the SDC, that has been identified as no longer useful in our operations. As a result, we recorded approximately $11 million of asset impairment charges in the first quarter of 2003, including $3.3 million of charges for decommission costs necessary to complete the equipment’s sale.
The following table summarizes activities under the 2002 Restructuring Plan through June 29, 2003:
| (Thousands) | Severance and Employee Benefits | Asset impairment | Exit and Equipment Decommission Costs | Other Restructuring | Total | |||||||||||||||
2002 provision | $ | 68,770 | $ | 118,590 | $ | 138,900 | $ | 4,315 | $ | 330,575 | ||||||||||
Q4 2002 non-cash charges | — | (118,590 | ) | — | — | (118,590 | ) | |||||||||||||
Q4 2002 cash charges | (14,350 | ) | — | (795 | ) | — | (15,145 | ) | ||||||||||||
Accruals at December 29, 2002 | 54,420 | — | 138,105 | 4,315 | 196,840 | |||||||||||||||
Q1 2003 provision | — | 7,791 | 3,314 | — | 11,105 | |||||||||||||||
Q1 2003 non-cash charges | — | (7,791 | ) | — | — | (7,791 | ) | |||||||||||||
Q1 2003 cash charges | (17,820 | ) | — | (751 | ) | (4,223 | ) | (22,794 | ) | |||||||||||
Accruals at March 30, 2003 | $ | 36,600 | $ | — | $ | 140,668 | $ | 92 | $ | 177,360 | ||||||||||
Q2 2003 cash charges | (14,922 | ) | — | (8,309 | ) | (77 | ) | (23,308 | ) | |||||||||||
Accruals at June 29, 2003 | $ | 21,678 | $ | — | $ | 132,359 | $ | 15 | $ | 154,052 | ||||||||||
As a result of the 2002 Restructuring Plan, we currently expect to realize cost reductions of approximately $150 million in 2003. As of June 29, 2003, the actions taken to date, pursuant to the 2002 Restructuring Plan, resulted in actual expense on our $500 million 4.75% Convertible Senior Debentures Due 2022.
In fiscal 2001, we announced a restructuring plan (the 2001 Restructuring Plan), due to athe continued slowdown in the semiconductor industry and a resulting decline in revenues. In connectionWe have substantially completed our execution of the 2001 Restructuring Plan, with the plan, we closed Fabs 14 and 15 in Austin, Texas in June 2002. These facilities supported certainexception of our older products and Foundry Service operations, which have been discontinued as part of our plan. We also reorganized related manufacturingthe facilities and equipment decommission activities which are expected to be completed by the end of 2003. During the first quarter of 2003, we reduced relatedthe estimated accrual of the facility and equipment decommission costs by $7.4 million based on the most current information available. During the first quarter, we also realized a recovery of approximately $1.6 million from the sale of equipment impaired as a result of the 2001 Restructuring Plan, previously held-for-sale at amounts in excess of its initially estimated fair value. Both amounts were included in restructuring and other special charges, net.
The following table summarizes activities primarily in Penang, Malaysia, along with associated administrative support.
| (Thousands) | Facilities and Equipment Decommission Costs | Other Facilities Exit Costs | Total | ||||||||
Accrual at December 29, 2002 | $ | 15,055 | $ | 646 | $ | 15,701 | |||||
Q1 2003 cash charges | (630 | ) | — | (630 | ) | ||||||
Q1 2003 non-cash adjustment | (7,400 | ) | — | (7,400 | ) | ||||||
Accruals at March 30, 2003 | $ | 7,025 | $ | 646 | $ | 7,671 | |||||
Q2 2003 cash charges | (226 | ) | — | (226 | ) | ||||||
Accruals at June 29, 2003 | $ | 6,799 | $ | 646 | $ | 7,445 | |||||
As a result of the 2001 Restructuring Plan, we recorded restructuring costs and other special charges of $89.3 million, consisting of $34.1 million of anticipated severance and fringe benefit costs, $13.0 million and $3.2 million of anticipated exit costs to close facilities in Austin and Asia, mostly in Penang, and $28.7 million and $10.3 million of non-cash asset impairment charges in Austin and Asia, primarily Penang. The asset impairment charges related primarily to buildings and production equipment that were incurred as a result of our decision to implement the restructuring plan. Management determined the fair value of the affected equipment based on market data and conditions.
Income TaxTaxes
We recorded anno income tax benefit of $73 millionagainst our pre-tax losses in the thirdsecond quarter of 20022003 and an income tax benefitprovision of $65$3 million in the thirdfirst quarter of 2001.2003. The income tax provision recorded in the first quarter of 2003 was primarily for taxes due on income generated in certain state and foreign tax jurisdictions. No tax benefit was recorded in the first or second quarter of 2003 on pre-tax losses due to continuing operating losses. The effective tax benefit ratesrate for the quarter and ninesix months ended September 29,June 30, 2002 were 22was 40 and 39 percent, and 30 percent, respectively, reflecting a valuation allowance against certain deferred tax assets. The effective tax benefit rates fordue primarily to the quarter and nine months ended September 30, 2001 were 26 percent and 12 percent, respectively, reflecting the provisionbenefits of U.S. taxes on certain previously undistributed earnings of low-taxed foreign subsidiaries. The tax benefit on the restructuring charges in the quarter ended September 30, 2001 was $21 million or 24 percent, reflecting the allocation of the charge between U.S. and foreign low-taxed jurisdictions.
Other Items
International sales as a percent of net sales were 7573 percent in the thirdsecond quarter of 20022003 compared to 73 percent in the first quarter of 2003 and 72 percent in the second quarter of 2002 and 68 percent in the third quarter of 2001.2002. International sales as a percent of net sales were 6973 percent in the first ninesix months of 2002 compared to 642003 and 68 percent in the first ninesix months of 2001.2002. During the thirdsecond quarter of 2003 and 2002, approximately onefour percent of our net sales were denominated in currencies other than the U.S. dollar. The majority of these sales were denominated in euros. The impact on our operating results from changes in foreign currencies, the same ascurrency rates individually and in the second quarteraggregate has not been material, principally as a result of 2002. We do not have sales denominated in local currencies in countries that have highly inflationary economies.
Comparison of Segment Income (Loss)
We operated in two reportable segments during the quarter and six months ended June 29, 2003: the Core Products segment, which reflects the aggregation of the PC processors, memory products and Other IC products operating segments, and the Foundry Services segment. The Core Products segment includes PC processors, Memory products and other IC products. PC processor products include our AMD Opteron, AMD Athlon and AMD Duron microprocessors. Memory products include Flash memory devices and EPROMs. Other IC products include platform products, which primarily consist of chipsets, embedded processors, networking products and personal connectivity solutions products. The Foundry Services segment included fees for products sold to Legerity and Vantis. We terminated our foundry services arrangement with Legerity in the third quarter of 2002 and will terminate the foundry service arrangement with Vantis in the third quarter of 2003. For a comparison of segment net sales, refer to the previous discussions on net sales by product group.
The following is a summary of operating income (loss)loss by segment for the periods presented below:
Quarter Ended | Nine Months Ended | |||||||||||||||||||
September 29, 2002 | June 30, 2002 | September 30, 2001 | September 29, 2002 | September 30, 2001 | ||||||||||||||||
(Millions) | ||||||||||||||||||||
| Core Products | $ | (331 | ) | $ | (289 | ) | $ | (124 | ) | $ | (632 | ) | $ | 70 | ||||||
| Foundry Services | 6 | (7 | ) | (9 | ) | (3 | ) | (15 | ) | |||||||||||
| Total segment operating income (loss) | $ | (325 | ) | $ | (296 | ) | $ | (133 | ) | $ | (635 | ) | $ | 55 | ||||||
| Quarters Ended | Six Months Ended | |||||||||||||||||||
| (Millions) | June 29, 2003 | March 30, 2003 | June 30, 2002 | June 29, 2003 | June 30, 2002 | |||||||||||||||
Core Products | $ | (123 | ) | $ | (125 | ) | $ | (289 | ) | $ | (249 | ) | $ | (302 | ) | |||||
Foundry Services | — | — | (7 | ) | — | (8 | ) | |||||||||||||
Total segment operating income (loss) | $ | (123 | ) | $ | (125 | ) | $ | (296 | ) | $ | (249 | ) | $ | (310 | ) | |||||
Core Products’ operating results for the thirdsecond quarter of 2002 decreased $422003 were relatively flat compared to the first quarter of 2003 and increased by $166 million compared to the second quarter of 2002 and $207 million compared to the same quarter of 2001.2002. Core Products’ operating results in the first ninesix months of 2002 decreased $7022003 increased by $53 million compared to the first ninesix months of 2001. The change in operating results was2002. These increases were primarily due to a declinecost savings realized pursuant to the 2002 Restructuring Plan and increased unit sales of Flash memory devices, partially offset by decrease in both average selling prices of both Flash memory devices and unit shipmentsPC processor products.
FINANCIAL CONDITION
Net cash used by operating activities was $93 million in the first six months of 2003, primarily as a result of our PC processors.
Net cash provided by operating activities was $9$103 million in the first ninesix months of 2002 as a result of non-cash charges, including $556$357 million of depreciation and amortization, $12$17 million of net loss on disposal of property, plant and equipment and $144 million of other cash provided by operating activities of approximately $48 million due to net changes in operating assets and liabilities. This wasliabilities, offset by our nine-monthyear-to-date net lossesloss of $448$194 million and non-cash credits of $248$127 million from net changes of $200 million in deferred income taxes and $48 million of foreign grant and subsidy income.
Net cash used inprovided by investing activities was $446$286 million induring the first ninesix months of 20022003, primarily due to $567 million used for the purchasesas a result of property, plant and equipment, $30 million, net of cash acquired, to purchase Alchemy Semiconductor, offset by $143$574 million of net cash inflow from purchases and sales of available-for-sale securities, and $5offset by $284 million of proceeds fromused for the salepurchases of property, plant and equipment.
Net cash used inby investing activities was $466$514 million in the first ninesix months of 20012002, primarily due to $542$371 million used for the purchases of property, plant and equipment, $27 million, net of cash acquired, to purchase Alchemy Semiconductor and $122 million of additional equity investments in FASL, offset by $196$118 million of net cash inflowoutflow from the purchases and sales of available-for-sale securities.
Net cash provided by financing activities was $529$57 million during the first six months of 2003, primarily due to $82 million of capital investment grants received from the German government as part of the Dresden Fab 30 loan agreements, $14 million in proceeds from borrowings under our notes payable and equipment sale-leaseback, and $10 million of proceeds primarily from sale of stock under our Employee Stock Purchase Plan, offset by $49 million in payments on debt and capital lease obligations.
Net cash provided by financing activities was $474 million in the first ninesix months of 2002, primarily due to $486 million in proceeds, net of $14 million in debt issuance costs, from issuing our 4.75% Convertible Senior Debentures Due 2022, $108 million in proceeds from our September 2002 Loan Agreement, net of $2 million in debt issuance costs, $120convertible senior debentures, $75 million in borrowings under our July 1999 Loan Agreement, $13 million in proceeds from equipment lease financing, $24loan agreement, $16 million in proceeds from the issuance of stock in connection with stock option exercises and employee purchases under our Employee Stock Purchase Plan and $50 million of capital investment grants and interest subsidies from the German government as part of the Dresden Fab 30 loan agreements, offset by $281 million in payments on debt and capital lease obligations.
Contractual Cash Obligations and Guarantees
The following tables summarize our principal contractual cash obligations and principal guarantees at SeptemberJune 29, 20022003, and are supplemented by the discussion following the tables:
Principal Contractual Cash Obligations:
(Thousands) | Total | 2002 | 2003 | 2004 | 2005 | 2006 | 2007 and Beyond | ||||||||||||||
| Notes payable to banks | $ | 48,981 | $ | 48,981 | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||
| September 2002 term loan | 110,000 | 6,875 | 27,500 | 27,500 | 27,500 | 20,625 | — | ||||||||||||||
| Dresden term loans | 551,636 | 101,321 | 213,900 | 157,610 | 78,805 | — | — | ||||||||||||||
| Convertible Senior Debentures | 500,000 | — | — | — | — | — | 500,000 | ||||||||||||||
| Capital lease obligations | 44,043 | 3,748 | 15,838 | 15,600 | 5,508 | 3,349 | — | ||||||||||||||
| Operating leases | 452,267 | 15,487 | 51,371 | 47,066 | 42,120 | 38,408 | 257,815 | ||||||||||||||
| Unconditional purchase commitments | 41,020 | 2,380 | 9,520 | 9,424 | 9,424 | 2,568 | 7,704 | ||||||||||||||
| Total contractual cash obligations | $ | 1,747,947 | $ | 178,792 | $ | 318,129 | $ | 257,200 | $ | 163,357 | $ | 64,950 | $ | 765,519 | |||||||
Guarantees: | |||||||||||||||||||||
Amounts of guarantee expiration per period | |||||||||||||||||||||
(Thousands) | Total amounts guaranteed | 2002 | 2003 | 2004 | 2005 | 2006 | 2007 and Beyond | ||||||||||||||
| Dresden guarantee | $ | 300,000 | $ | — | $ | — | $ | — | $ | 300,000 | $ | — | $ | — | |||||||
| BAC guarantee | 24,465 | — | 24,465 | — | — | — | — | ||||||||||||||
| FASL guarantee | 127,000 | — | — | — | — | — | 127,000 | ||||||||||||||
| Fujitsu guarantee | 125,000 | — | 125,000 | — | — | — | — | ||||||||||||||
| Total guarantees | $ | 576,465 | $ | — | $ | 149,465 | $ | — | $ | 300,000 | $ | — | $ | 127,000 | |||||||
| Payments Due By Period | |||||||||||||||||||||
| (In Thousands) | Total | 2003 | 2004 | 2005 | 2006 | 2007 | 2008 and beyond | ||||||||||||||
September 2002 Loan Agreement | $ | 96,250 | $ | 13,750 | $ | 27,500 | $ | 27,500 | $ | 27,500 | $ | — | $ | — | |||||||
4.75% Convertible Senior Debentures Due 2022 | 500,000 | — | — | — | — | — | 500,000 | ||||||||||||||
4.50% Convertible Senior Notes Due 2007 | 402,500 | — | — | — | — | 402,500 | — | ||||||||||||||
Dresden term loans | 627,429 | 17,143 | 17,143 | 325,714 | 267,429 | — | — | ||||||||||||||
Capital lease obligations | 38,523 | 8,037 | 17,078 | 7,078 | 4,884 | 1,446 | — | ||||||||||||||
Operating leases | 444,344 | 28,065 | 51,637 | 45,966 | 39,114 | 39,041 | 240,521 | ||||||||||||||
Unconditional purchase commitments | 135,174 | 25,138 | 49,958 | 49,648 | 2,726 | 2,568 | 5,136 | ||||||||||||||
Total contractual cash obligations | $ | 2,244,220 | $ | 92,133 | $ | 163,316 | $ | 455,906 | $ | 341,653 | $ | 445,555 | $ | 745,657 | |||||||
Principal Guarantees at June 29, 2003 were:
| (In Thousands) | Maximum Amounts | Amounts of guarantee expiration per period | |||||||||||||||||||||
| 2003 | 2004 | 2005 | 2006 | 2007 | 2008 and Beyond | ||||||||||||||||||
Dresden intercompany guarantee | $ | 313,712 | $ | — | $ | — | $ | — | $ | 313,712 | * | $ | — | $ | — | ||||||||
BAC payment guarantee | 28,571 | 28,571 | — | — | — | — | — | ||||||||||||||||
AMTC payment guarantee | 36,571 | — | — | — | — | 36,571 | — | ||||||||||||||||
AMTC rental guarantee | 134,406 | — | — | — | — | — | 134,406 | * | |||||||||||||||
Manufacturing Joint Venture guarantee | 74,000 | 74,000 | — | — | — | — | — | ||||||||||||||||
Total guarantees | $ | 587,260 | $ | 102,571 | $ | — | $ | — | $ | 313,712 | $ | 36,571 | $ | 134,406 | |||||||||
| * | Amounts outstanding will diminish until the expiration of the guarantee. |
Notes Payable to Banks
We entered into a Loan and Security Agreement (the July 1999 Loan Agreement) with a consortium of banks led by a domestic financial institution on July 13, 1999.1999, as amended and restated on July 7, 2003 (the July 2003 Loan Agreement). The July 19992003 Loan Agreement provides for a four-year secured revolving line of credit of up to $200 million.million that expires in July of 2007. We can borrow, subject to amounts that may be set aside by the lenders, up to 85 percent of our eligible accounts receivable from original equipment manufacturersOEMs and 50 percent of our eligible accounts receivable from distributors. We must comply with certain financial covenants if the level of net domestic cash (as defined in the July 19992003 Loan Agreement) we hold declines tobelow $200 million or the amount of borrowings under themillion. At June 29, 2003, net domestic cash, as defined, totaled $416 million. The July 1999 Loan Agreement rises to 50 percent of available credit. Under these circumstances the July 19992003 Loan Agreement restricts our ability to pay cash dividends on our common stock.stock if the level of our net domestic cash declines below $200 million. Our obligations under the July 19992003 Loan Agreement are secured by a pledge of all of our accounts receivable, inventory, general intangibles and the related proceeds from the realization of these assets.proceeds. FASL LLC’s assets, accounts receivable, inventory and general intangibles are not pledged as security for our obligations. As of SeptemberJune 29, 2002, $45 million2003, no amount was outstanding under the July 19992003 Loan Agreement, which we have subsequently repaid.
Agreement.
September 2002 FASL Term Loan Agreement
On September 27, 2002, we entered into a term loan and security agreement with a domestic financial institution (the(formerly referred to as the September 2002 Loan Agreement). Under the agreement, we can borrowarranged for borrowings of up to $155 million to be secured by certain property, plant and equipment located at our Fab 25 semiconductor manufacturing facility25. We borrowed $110 million in Austin, Texas. Amounts borrowedSeptember of 2002 under this agreement. On July 11, 2003, we amended the September 2002 Loan Agreement and assigned it to FASL LLC. Under the Amended and Restated Term Loan Agreement (the July 2003 FASL Term Loan), amounts borrowed bear interest at a variable rate of LIBOR plus four percent, which was 5.85.1 percent at SeptemberJune 29, 2002.2003. Repayment occurs in equal, consecutive, quarterly principal and interest payments beginning December 2002 andinstallments ending onin September 2006. As of SeptemberJune 29, 2002, $1102003, $96 million was outstanding under the September 2002 Loan Agreement. Following the assignment, as of July 11, 2003, $89.4 million was outstanding under the July 2003 FASL Term Loan. We guaranteed 60 percent of this amount. FASL LLC must also comply with certainadditional financial covenants if ourits net domestic cash balance (as defined in the September 2002July 2003 FASL Term Loan Agreement) drops to an amountdeclines below $130 million through the first quarter of $3002004, $120 million or less. We intend to usebetween the amounts borrowed under the September 2002 Loan Agreement for capital expenditures, working capital,second quarter of 2004 through 2005 and general corporate purposes.
4.75% Convertible Senior Debentures Due 2022
On January 29, 2002, we issued $500 million of our 4.75% Convertible Senior Debentures Due 2022 (the 4.75% Debentures) in a private offering pursuant to Rule 144A and Regulation S of the Securities Act.
The interest rate payable on the 4.75% Debentures will be reset on each of August 1, 2008, August 1, 2011 and August 1, 2016 to a rate per annum equal to the interest rate payable 120 days prior to the reset dates on 5-year U.S. Treasury Notes, plus 43 basis points. The interest rate will not be less than 4.75 percent and will not exceed 6.75 percent. Holders of the Debentures will also have the right to require us to repurchase all or a portion of theirour 4.75% Debentures on February 1, 2009, February 1, 2012, and February 1, 2017, at2017. The holders of the 4.75% Debentures will also have the ability to require us to repurchase the Debentures in the event that we undergo specified fundamental changes, including a change of control. In each such case, the redemption or repurchase price equal towould be 100 percent of the principal amount of the 4.75% Debentures plus accrued and unpaid interest. The 4.75% Debentures are convertible by the holders into our common stock at a conversion price of $23.38 per share at any time. At this conversion price, each $1,000 principal amount of the 4.75% Debentures will be convertible into approximately 43 shares of our common stock.
Beginning on February 5, 2005, the 4.75% Debentures are redeemable by us for cash at specified prices expressed as a percentage of the outstanding principal amount plus accrued and unpaid interest at our option, provided that we may not redeem the 4.75% Debentures prior to February 1,5, 2006 unless the last reported sale price of our common stock is at least 130 percent of the then effective conversion price for at least 20 trading days within a period of 30 consecutive trading days ending within five trading days of the date of the redemption notice.
The redemption prices are as follows for Debentures to be redeemed during the periods set forth below:
Period | Price | ||
Beginning on February 5, 2005 through February 4, 2006 | 102.375 | % | |
Beginning on February 5, 2006 through February 4, 2007 | 101.583 | % | |
Beginning on February 5, 2007 through February 4, 2008 | 100.792 | % | |
Beginning on February 5, 2008 | 100.000 | % |
We may elect to purchase or otherwise retire our bonds with cash, stock or assets from time to time in open market or privately negotiated transactions, either directly or through intermediaries where we believe that market conditions are favorable to do so. Such purchases may have a material effect on our liquidity, financial condition and results of operations.
4.50% Convertible Senior Notes Due 2007
On November 25, 2002, we sold $402.5 million of 4.50% Convertible Senior Notes Due 2007 (the 4.50% Notes) in a registered offering. Interest on the 4.50% Notes is payable semiannually in arrears on June 1 and December 1 of each year, beginning June 1, 2003. Beginning on December 4, 2005, the 4.50% Notes are redeemable by us at our option for cash at specified prices expressed as a percentage of the outstanding principal amount plus accrued and unpaid interest provided that we may not redeem the 4.50% Notes unless the last reported sale price of our common stock is at least 150 percent of the then effective conversion price for at least 20 trading days within a period of thirty trading days ending within 5 trading days of the date of the redemption notice.
The redemption prices are as follows for the specified periods:
Period | Price | ||
Beginning on December 4, 2005 through November 30, 2006 | 101.8 | % | |
Beginning on December 1, 2006 through November 30, 2007 | 100.9 | % | |
On December 1, 2007 | 100.0 | % |
The 4.50% Notes are convertible at the option of the holder at any time prior to the close of business on the business day immediately preceding the maturity date of December 1, 2007, unless previously redeemed or repurchased, into shares of common stock at a conversion price of $7.37 per share, subject to adjustment in certain circumstances. At this conversion price, each $1,000 principal amount of the 4.50% Notes will be convertible into approximately 135 shares of our common stock. Issuance costs incurred in the amount of approximately $12 million are being amortized ratably, which approximates the interest method, over the term of the 4.50% Notes as interest expense.
Holders have the right to require us to repurchase all or a portion of our 4.50% Notes in the event that we undergo specified fundamental changes, including a change of control. In each such case, the redemption or repurchase price would be 100 percent of the principal amount of the 4.50% Notes plus accrued and unpaid interest.
Dresden Term Loans and Dresden Intercompany Guarantee
AMD Saxony, Limited Liability Company & Co. KG (formerly known as AMD Saxony Manufacturing GmbH) (AMD Saxony), an indirect wholly-ownedwholly owned German subsidiary of AMD, continues to facilitize Dresden Fab 30, which began production in the third quarter of 2000. AMD, the Federal Republic of Germany, the State of Saxony, and a consortium of banks are providing financing for the project.We currently estimate that the construction and facilitization costs of Dresden Fab 30 will be $2.6$2.7 billion when it is fully equipped by the end of 2005. As of SeptemberJune 29, 2002,2003, we had invested $2.1$2.2 billion in AMD Saxony.
In March 1997, AMD Saxony entered into a loan agreement and other related agreements (the Dresden Loan Agreements) with a consortium of banks led by Dresdner Bank AG a German financial institution, in order to finance the project. The Dresden Loan Agreements were amended in February 1998, June 1999, February 2001 and June 2002.
Because most of the amounts under the Dresden Loan Agreements are denominated in deutsche marks (converted to euros), the dollar amounts set forth below are subject to change based on applicable conversion rates. We used the exchange rate that was permanently fixed on January 1, 1999, of 1.95583 deutsche marks to 1.00one euro for the conversion of deutsche marks to euros, and then used exchange rate of 1.020.875 euro to 1.00one U.S. dollar as of SeptemberJune 29, 2002,2003, to valuetranslate the amounts denominated in deutsche marks.
The Dresden Loan Agreements, as amended, provide for the funding of the construction and facilitization of Dresden Fab 30. The funding consists of:
The Dresden Loan Agreements require that we partially fund Dresden Fab 30 project costs in the form of subordinated and revolving loans to, or equity investments in, AMD Saxony. In accordance with the terms of the Dresden Loan Agreements, as of SeptemberJune 29, 2002, we had invested $1482003, the balances were $168 million in the form of subordinated loans, $257$197 million in the form of revolving loans and $286 million in the form of equity investments in AMD Saxony.Saxony, net of repayments. These amounts have been eliminated in our consolidated financial statements.
In addition to support from AMD, the consortium of banks referred to above had made available up to $751$877 million in loans to AMD Saxony to help fund Dresden Fab 30 project costs. The loans have been fully drawn and a portion has been repaid. AMD Saxony had $552$627 million of such loans outstanding as of SeptemberJune 29, 2002,2003, which are included in our consolidated balance sheets. Please refer to the Contractual Cash Obligation table, above, for repayment schedule.
Finally, pursuant to a Subsidy Agreement, as amended in August 2002, the Federal Republic of Germany and the State of Saxony are supporting the Dresden Fab 30 project, in accordance with the Dresden Loan Agreements, in the form of:
Of these amounts, AMD Saxony had received approximately $284$364 million in capital investment grants and allowances and $146allowance, $114 million in interest subsidies. Of theIn addition, AMD Saxony received advanced payments for interest subsidies received,amounting to $37 million, of which approximately $25$4 million is restricted from our access for more than one year, and areis therefore included in Other Assets. In addition to the above-mentionedabove mentioned subsidies, AMD Saxony had also received $25$44 million in research and development subsidies through SeptemberJune 29, 2002. These amounts2003. Amounts received under the Subsidy Agreement are included inrecorded as a long-term liability on our consolidated financial statements.statements and are being amortized to operations ratably over the contractual life of the Subsidy Agreement as a reduction to operating expenses through December of 2008. The historical rates were used to translate the amounts denominated in deutsche marks (converted to euros) into U.S. dollars.
The Subsidy Agreement, as amended, imposes conditions on AMD Saxony, including the requirement to attain a certain employment levelsemployee headcount by December 2003 and to maintain those levelssuch headcount until December 2008. Noncompliance with the conditions of the grants, allowances and subsidies could result in the forfeiture of all or a portion of the future amounts to be received, as well as the repayment of all or a portion of amounts received to date. In December 2002, AMD Saxony reduced its anticipated December 2003 employment levels as a result of the 2002 Restructuring Plan (see Note 9 of the Condensed Consolidated Financial Statements). Consequently, the anticipated headcount is below the level required to be maintained by the Subsidy Agreement. Based on these revised headcount estimates, the maximum amount of capital investment grants and allowances available under the Subsidy Agreement would be reduced from $476 million to $416 million. We adjusted the quarterly amortization of these amounts accordingly. There have been no conditions of noncompliance through SeptemberJune 29, 20022003 that would result in forfeiture of any of the grants and allowances.
The Dresden Loan Agreements, as amended, also require that we:
As AMD Saxony’s obligations under the Dresden Loan Agreements are included in our consolidated financial statements, no incremental liability is recorded under the Dresden guarantee.
AMD Saxony would be in default under the Dresden Loan Agreementsagreement if we, AMD Saxony, or AMD Saxony Holding GmbH (AMD Holding) fail, AMD Saxony Admin GmbH or AMD Saxony LLC failed to comply with certain obligations thereunder or upon the occurrence of certain events, including:
Generally, any default with respect to borrowings made or guaranteed by AMD that results in recourse to us of more than $2.5 million, and that is not cured by us, would result in a cross-default under the Dresden Loan Agreements, the July 1999 Loan Agreement and the September 2002 Loan Agreement.Agreements. As of SeptemberJune 29, 2002,2003, we were in compliance with all conditions of the Dresden Loan Agreements.
In the event we are unable to meet our obligations to AMD Saxony as required under the Dresden Loan Agreements, we will be in default under the Dresden Loan Agreements, the July 1999 Loan Agreement and the September 2002 Loan Agreement, which would permit acceleration of certain indebtedness, which could have a material adverse effect on us. The occurrence of a default under the Dresden Loan Agreements would likely result in a cross-default under the Indentures governing our 4.75% Debentures and 4.50% Notes. We cannot assure that we will be able to obtain the funds necessary to fulfill these obligations. Any such failure would have a material adverse effect on us.
Advanced Mask Technology Center GuaranteeCapital Lease Obligations
As of constructing and operating a new advanced photomask facility in Dresden, Germany. In June 2002, in connection with the financing of the construction of this facility, AMD guaranteed the payment29, 2003, we had capital lease obligations of BAC,approximately $39 million. Obligations under these lease agreements are collateralized by the assets leased and are payable through 2007. Leased assets consist principally of machinery and equipment.
Operating Leases, Unconditional Purchase Commitments and Other Operating Commitments
We lease certain of our facilities, including our executive offices in an amount not
We expect that AMTC and BAC will obtain additional financing for the construction and facilitization of the photomask facility and that we may be required to enter into additional guarantee arrangements in connection with this financing.
FASL Facilities and Guarantees Related to the Manufacturing Joint Venture
AMD and Fujitsu Limited formed a joint venture in 1993, formerly referred to as FASL and currently referred to as the Manufacturing Joint Venture, that operates advanced wafer fabricationintegrated circuit manufacturing facilities in Aizu-Wakamatsu, Japan, (FASL JV1, FASL JV2 and FASL JV3), for the production ofto produce Flash memory devices, which are sold to us and Fujitsu. FASL is continuing the facilitization of FASL JV2 and FASL JV3. We expect FASL JV2 and JV3, including equipment, to cost approximately $2.1 billion when fully equipped. As of September 29, 2002, approximately $1.6 billion of these costs had been funded by cash generated from FASL operations. These costs are incurred in Japanese yen and are, therefore, subject to change due to foreign exchange rate fluctuations. We used the exchange rate on September 29, 2002 of 122.83 yen to 1.00 U.S. dollar to translate the amounts denominated in yen into U.S. dollars.
In 2000, FASLthe Manufacturing Joint Venture further expanded its production capacity through a foundry arrangement with Fujitsu Microelectronics, Inc. (FMI), a wholly owned subsidiary of Fujitsu Limited. In connection with FMI equipping its wafer fabrication facility in Gresham, Oregon, (the Gresham Facility) to produce Flash memory devices for sale to FASL,the Manufacturing Joint Venture, we agreed to guarantee (the Guarantee) the repayment of up to $125 million to Fujitsu in connection withof Fujitsu’s obligationobligations as a co-signer with FMI under its global multicurrency revolving credit facility (the Credit Facility) with a third-party bank. On November 30,bank (the Fujitsu Guarantee). In 2001, Fujitsu announced that it was closingclosed the Gresham Facility due to athe downturn of the Flash memory market. On March 26, 2002, we received notice from Fujitsu that FMI requested an advance of funds from Fujitsu to avoid default under the Credit Facility, which notice is required as a condition to our obligations under the Guarantee. However, to date we have not received a demand for payment under the terms of the Guarantee from Fujitsu. Furthermore, we continue to disagreeWe disagreed with Fujitsu as to the amount, if any, owed under this Guarantee and have reached a settlement, subject to final internal approval by Fujitsu, which would result in a cash payment by us to Fujitsu. This settlement amount is immaterial to our financial statements, and was recorded in our second quarter statement of operations ended June 29, 2003.
Effective June 30, 2003, we and Fujitsu Limited executed several agreements which resulted in the integration of our and Fujitsu’s Flash memory operations in the third quarter. The new company, FASL LLC, is 60 percent owned by us and 40 percent owned by Fujitsu Limited. We contributed or sold our Flash memory operations, including related inventory, our manufacturing facility located in Austin, Texas (Fab 25), our Submicron Development Center in Sunnyvale, California, and our Flash memory assembly and test operations in Thailand, Malaysia and China, in exchange for membership interests in FASL LLC and a $261 million promissory note. We also loaned to FASL LLC $120 million pursuant to a promissory note. The note has a term of three years and bears interest at LIBOR plus 4%. Interest payments only are due in quarterly installments for the first two years. Payments of principal (along with interest) are due in equal installments over the last four quarters of the note. Fujitsu contributed its Flash memory division, including related inventory, $140 million in cash and its Fujitsu Microelectronics (Malaysia) Sdn. Bhd. final assembly and test operations. We and Fujitsu also contributed our existing Manufacturing Joint Venture located in Aizu-Wakamatsu, which became a wholly owned subsidiary of FASL LLC. Fujitsu also loaned to FASL LLC $40 million pursuant to a promissory note. The terms of Fujitsu’s note are substantially similar to the terms of our note. FASL LLC products will be sold by AMD and Fujitsu, as FASL LLC’s distributors, under the Spansion™ brand.
We hold a majority voting and economic interest in FASL LLC and control its operations. Accordingly, we will consolidate the operations and financial position of FASL LLC in our consolidated third quarter 2003 financial statements as of commencement of FASL LLC operations. For accounting purposes, we are deemed to have acquired an incremental 10 percent interest in the existing Manufacturing Joint Venture and 60 percent interest in the assets contributed by Fujitsu. In addition, we are deemed to have sold 40 percent of our interest in our contributed assets, excluding our interest in the existing manufacturing joint venture. An independent fair market value appraisal for this transaction is currently in process and is expected to be completed by the end of the third quarter. Based on the results of the appraisal, during the third quarter of 2003, we may be required to recognize a gain or loss on the sale of our interest in the assets contributed to FASL LLC. At this time we cannot estimate the results of the appraisal or the gain or loss, if any, that would be recognized as a result of this transaction.
As of June 29, 2003, we had $74 million in loan guarantees outstanding with respect to third-party loans incurred by the Manufacturing Joint Venture. As a result of the execution of the FASL LLC agreements with Fujitsu, the existing Manufacturing Joint Venture’s third party loans were refinanced from the proceeds of a term loan in the aggregate principal amount of $150 million entered into between a wholly owned subsidiary of FASL LLC and a Japanese financial institution. Fujitsu guaranteed 100 percent of the amounts outstanding under this facility. In turn, we agreed to pay Fujitsu 60 percent of any amount paid by Fujitsu under its guarantee of this facility. Because we will consolidate FASL LLC, the full amount of the third party loan will be reflected in our consolidated financial statements.
On July 18, 2003, a wholly owned subsidiary of FASL LLC entered into a sale and leaseback transaction for certain equipment with a third party financial institution in the amount of $100 million. We guaranteed up to approximately $50 million, or 50 percent of the outstanding obligations, under the lease arrangement.
In addition, during the four-year period commencing on June 30, 2003, we are obligated to provide FASL LLC with additional funding to finance operational cash flow needs. Generally, FASL LLC is first required to seek any required financing from external sources. However, if such third party financing is not available, we must provide funding to FASL LLC equal to our pro rata ownership interest in FASL LLC, which is currently 60 percent.
Advanced Mask Technology Center Guarantee and BAC Guarantee
The Advanced Mask Technology Center GmbH & Co. KG (AMTC) and Maskhouse Building Administration GmbH &Co., KG (BAC) are joint ventures formed by us, Infineon Technologies AG and DuPont Photomasks, Inc. for the purpose of constructing and operating a new advanced photomask facility in Dresden, Germany. To finance the project, BAC entered into an $86 million bridge loan in June 2002 and BAC and AMTC entered into a $137 million revolving credit facility and an $86 million term loan in December 2002. When drawn, the term loan will replace the bridge loan. Also in December 2002, in order to occupy the photomask facility, BAC and AMTC entered into a rental agreement. With regard to these commitments by BAC and AMTC, we guaranteed up to approximately $29 million plus interest and expenses under the bridge loan, up to approximately $37 million plus interest and expenses under the revolving loan, up to approximately $29 million plus interest and expenses under the term loan (which will replace the bridge loan guarantee when the term loan is drawn), and up to approximately $18 million, initially, under the rental agreement. The obligations under the rental agreement guarantee diminish over time through 2011 as the term loan is repaid. However, under certain circumstances of default by the other tenant of the photomask facility under the rental agreement and more than one joint venture partner under its guarantee obligations, the maximum potential amount of our obligations under the Guarantee. While we continue to discuss this matter with Fujitsu, we cannot at this time reasonably predict its outcome including anyrental agreement guarantee is approximately $134 million. As of June 29, 2003, $74 million was outstanding under the bridge loan and no amounts we might be required to pay Fujitsu, and, therefore,were drawn under the revolving credit facility or the term loan.
We have not recorded any liability in our consolidated financial statements associated with the Guarantee.
Other Financing Activities
Our capital expenditure plan for the second half of FASL’s2003 will now include capital expenditures in 2002 will continueby FASL LLC, and we expect capital expenditures for 2003 to be funded by cash generated from FASL’s operations. However, to the extent that additional funds are required for the full facilitization of FASL JV2 and FASL JV3, we will be required to contribute cash or guarantee third-party loans in proportion to our 49.992 percent interest in FASL, up to 25 billion yen ($204 million). As of September 29, 2002, we had $127 million in loan guarantees outstanding with respect to FASL’s outstanding third-party loans.
Supplementary Stock-Based Incentive Compensation Disclosures
Section I. Option Program Description
Our stock option programs are intended to attract, retain and motivate highly qualified employees. We have several stock option plans under which key employees have been granted incentive (ISOs) and nonqualified (NSOs) stock options to purchase our common stock. Generally, options vest and become exercisable over four years from the date of grant and expire five to ten years after the date of grant. ISOs granted under the plans have exercise prices of not less than 100 percent of the fair market value of the common stock on the date of grant. Exercise prices of NSOs range from $0.01 to the fair market value of the common stock on the date of grant.
Section II. General Option Information
The following is a summary of stock option activity for the next 12 months.
| Six months Ended June 29, 2003 | Year Ended December 29, 2002 | |||||||||||
Number of Shares | Weighted-Average Exercise Price | Number of Shares | Weighted-Average Exercise Price | |||||||||
Options: | ||||||||||||
Outstanding at beginning of period | 60,408,754 | $ | 18.58 | 52,944,339 | $ | 20.44 | ||||||
Granted | 2,523,331 | 7.16 | 11,828,688 | 5.62 | ||||||||
Canceled | (2,500,313 | ) | 19.39 | (3,413,705 | ) | 20.34 | ||||||
Exercised | (202,273 | ) | 3.29 | (950,568 | ) | 6.23 | ||||||
Outstanding at end of period | 60,229,499 | $ | 18.12 | 60,408,754 | $ | 18.58 | ||||||
Exercisable at end of period | 39,821,147 | $ | 19.40 | 33,806,970 | $ | 19.55 | ||||||
Available for grant at beginning of period | 13,018,643 | 21,145,854 | ||||||||||
Available for grant at end of period | 12,926,501 | 13,018,643 | ||||||||||
In-the-money and out-of-the-money stock option information as of June 29, 2003 was as follows:
| Exercisable | Unexercisable | Total | ||||||||||||||
As of End of Quarter | Shares | Weighted Average Exercise Price | Shares | Weighted Average Exercise Price | Shares | Weighted Average Exercise Price | ||||||||||
In-the-Money | 2,592,393 | $ | 5.82 | 2,964,287 | N/A | (3) | 5,556,680 | $ | 5.63 | |||||||
Out-of-the-Money(1) | 37,228,754 | $ | 20.35 | 17,444,065 | N/A | (3) | 54,672,819 | $ | 19.39 | |||||||
Total Options Outstanding | 39,821,147 | 20,408,352 | 60,229,499 | (2) | ||||||||||||
| (1) | Out-of-the-money stock options have an exercise price equal to or above $6.38, the market value of AMD’s common stock, on the last trading day of the second quarter of 2003, June 27, 2003. |
| (2) | Includes 716,845 shares granted from treasury stock as non-plan grants. |
| (3) | Weighted average exercise price information is not available. |
Section III. Distribution and Dilutive Effect of Options
Options granted to employees, including officers, and non-employee directors were as follows:
| 2003 YTD | 2002 | 2001 | |||||||
Net grants(1) during the period as % of outstanding shares(2) | 0.01 | % | 2.44 | % | 3.71 | % | |||
Grants to listed officers(3) during the period as % of total options granted | 8.96 | % | 14.33 | % | 7.88 | % | |||
Grants to listed officers(3) during the period as % of outstanding shares | 0.07 | % | 0.49 | % | 0.33 | % | |||
Cumulative options held by listed officers (3) as % of total options outstanding | 18.35 | % | 17.93 | % | 16.51 | % |
| (1) | Options grants are net of options canceled. |
| (2) | Outstanding shares as of June 29, 2003, December 29, 2002 and December 30, 2001. |
| (3) | The “listed officers” are those listed in our proxy statement filed with our notice of annual meeting dated March 8, 2002 and March 25, 2003. |
Section IV. Executive Options
Options granted to listed officers for the six months ended June 29, 2003 were as follows:
| 2003 Option Grants | Potential Realizable Value at Assumed Annual Rates of Stock Price Appreciation for Option Term | ||||||||||||||||||
Name(1) | Number of Grant | Percent of Total Options Granted to Employees as of June 29, 2003 | Exercise Price Per Share | Expiration Date | 0% | 5% | 10% | ||||||||||||
W. J. Sanders III | — | — | $ | — | — | $ | — | $ | — | $ | — | ||||||||
Hector de J. Ruiz | 125,000 | 5.02 | % | $ | 7.36 | 5/1/2013 | $ | — | $ | 578,583 | $ | 1,466,243 | |||||||
Robert R. Herb | 19,791 | 0.79 | % | $ | 7.36 | 5/1/2013 | $ | — | $ | 91,606 | $ | 232,147 | |||||||
Robert J. Rivet | 31,250 | 1.25 | % | $ | 7.36 | 5/1/2013 | $ | — | $ | 144,646 | $ | 366,561 | |||||||
William T. Siegle | 18,750 | 0.75 | % | $ | 7.36 | 5/1/2013 | $ | — | $ | 86,787 | $ | 219,936 | |||||||
Thomas M. McCoy | 31,250 | 1.25 | % | $ | 7.36 | 5/1/2013 | $ | — | $ | 144,646 | $ | 366,561 | |||||||
| (1) | The “listed officers” are those listed in our proxy statement filed with out notice of annual meeting dated March 25, 2003. |
Option exercises during 2003 and option values for listed officers(1) for the six months ended June 29, 2003 were as follows:
Name | Shares | Value | Number of Securities Underlying Unexercised Options at 6/29/03 | Values of Unexercised In-the-Money Options at 6/29/03 | |||||||||||
| Exercisable | Unexercisable | Exercisable | Unexercisable | ||||||||||||
W. J. Sanders III | — | $ | — | 3,550,000 | 250,000 | $ | — | $ | — | ||||||
Hector de J. Ruiz | — | $ | — | 1,600,000 | 2,225,000 | $ | — | $ | — | ||||||
Robert R. Herb | — | $ | — | 775,013 | 494,780 | $ | 17,892 | $ | 28,109 | ||||||
Robert J. Rivet | — | $ | — | 361,116 | 280,134 | $ | 8,945 | $ | 77,755 | ||||||
William T. Siegle | 6,000 | $ | 42,990 | 522,251 | 105,499 | $ | 6,709 | $ | 125,201 | ||||||
Thomas M. McCoy | — | $ | — | 630,694 | 255,556 | $ | 8,945 | $ | 14,055 | ||||||
| (1) | The “listed officers” are those listed in our proxy statement filed with our notice of annual meeting dated March 25, 2003. |
| (2) | Value for these purposes is based solely on the difference between market value of underlying shares on the applicable date (i.e., date of exercise or fiscal year-end) and exercise price of options. |
Section V. Equity Compensation Plan Information
The number of shares issuable upon exercise of outstanding options granted to employees and non-employee directors, as well as the number of shares remaining available for future issuance, under our equity compensation plans as of June 29, 2003 are summarized in the following table:
| Six Months Ended June 29, 2003 | |||||||||
Plan category | Number of Securities to be Issued Upon Exercise of Outstanding Options | Weighted-Average Exercise Price of Outstanding Options | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a) | ||||||
| (a) | (b) | (c) | |||||||
| Equity compensation plans approved by shareholders | 34,055,766 | $ | 21.82 | 7,250,088 | |||||
| Equity compensation plans not approved by shareholders | 26,173,733 | (1) | $ | 13.31 | 5,676,413 | (2) | |||
TOTAL | 60,229,499 | 12,926,501 | |||||||
| (1) | Includes 716,845 shares granted from treasury stock as non-plan grants. |
| (2) | Of these shares, approximately 1,677,767 shares can be issued as restricted stock under the 1998 Stock Incentive Plan. |
On June 27, 2003, with the approval of our shareholders, we filed a Tender Offer Statement with the SEC, and made an offer to exchange certain stock options to purchase shares of our common stock, outstanding under eligible option plans and held by eligible employees, for replacement options to be granted no sooner than six months and one day from the cancellation of the surrendered options. The offer to exchange expired on July 25, 2003. Options to purchase approximately 19.0 million shares of our common stock were tendered for exchange and cancelled on July 28, 2003. Subject to the terms of the offer to exchange, we will grant replacement options to purchase approximately 13.4 million shares of its common stock on or after January 29, 2004, in exchange for the options cancelled in the offer to exchange. We do not expect to record any compensation expense as the result of the transactions contemplated by this offer to exchange.
Recently Issued Accounting Pronouncements
In January 2003, the Financial Accounting Standards Board issued Interpretation No. 141, “Business Combinations” (SFAS 141), Statement46, “Consolidation of Variable Interest Entities” (FIN 46). Variable interest entities often are created for a single specified purpose, for example, to facilitate securitization, leasing, hedging, research and development, or other transactions or arrangements. This interpretation of Accounting Research Bulletin No. 51, “Consolidated Financial Accounting Standards No. 142, “GoodwillStatements,” defines what these variable interest entities are and Other Intangible Asset” (SFAS 142)provides guidelines on identifying them and Statementassessing an enterprise’s interests in a variable interest entity to decide whether to consolidate that entity. Generally, FIN 46 applies to variable interest entities created after January 31, 2003 and to variable interest entities in which an enterprise obtains an interest after that date. For existing variable interest entities in which an enterprise holds a variable interest that it acquired before February 1, 2003, the provision of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (SFAS 144) atthis interpretation will apply no later than the beginning of the 2002 fiscal year. Thefirst interim or annual reporting period beginning after June 15, 2003. We do not expect the adoption of these standards did notFIN 46 to have a material impact on our results of operations or financial statements.
In July 2002,May 2003, the FASBFinancial Accounting Standards Board issued Statement of Financial Accounting Standards No. 146150, “Accounting for Costs AssociatedCertain Financial Instruments with ExitCharacteristics of both Liabilities and Equity,” (SFAS 150) which addresses how to classify and measure certain financial instruments with characteristics of both liabilities (or an asset in some circumstances) and equity – as either debt or Disposal Activities” (SFAS 146).equity in the balance sheet. SFAS 146 addresses150 requirements apply to issuers’ classification and measurement of freestanding financial accounting and reporting for costs associated with exitinstruments, including those that comprise more than one option or disposal activities and nullifies EITF Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).” (EITF 94-3). The principal difference betweenforward contract. SFAS 146 and EITF 94-3 relates to SFAS 146’s timing for recognition of a liability for a cost associated with an exit or disposal activity. SFAS 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. Under EITF 94-3 a liability for an exit cost as generally defined in EITF 94-3 was recognized at the date of an entity’s commitment to an exit plan. SFAS 146150 is effective for exitfinancial instruments entered into or disposal activities that are initiatedmodified after DecemberMay 31, 2002, with early adoption encouraged. The Company will adopt SFAS 146 prospectively as of December 30, 2002,2003, and otherwise is effective at the beginning of fiscal year 2003, and, therefore, itsthe first interim period beginning after June 15, 2003. We do not expect the adoption is not expectedof SFAS 150 to have anya material impact on the Company’s current financial position orour results of operations.
RISK FACTORSRisk Factors
We have recently experienced substantial declines in revenues and operating losses,since 2001, and we may experience additional declines in revenues and increases in operating losses.losses in the future
The semiconductor industry is highly cyclical and is currently experiencing a severe downturn whichthat is adversely affecting, and may continue to adversely affect, our business.business
If current conditions do not improve in the near term or if these conditions in the semiconductor industry occur in the future, as they likely will to a lesser or greater degree, our business will continue to be adversely affected.
Fluctuations in the personal computer market may continue to materially adversely affect us.
In addition, current trends of consolidation within the personal computer industry, as recently evidenced by the Hewlett-Packard/Compaq merger, as well as potential market share increases by customers who exclusively purchase microprocessors from Intel corporation,Corporation, such as Dell, Corporation,Inc., could further materially adversely affect us.
We plan for significant capital expenditures in 2003 and beyond and if we cannot generate the capital required for these capital expenditures and other ongoing operating expenses through operating cash flow and external financing activities, we may be materially adversely affected.affected
In March 1997, AMD Saxony entered into the Dresden Loan AgreementAgreements and other related agreements. These agreements require that we partially fund Dresden Fab 30 project costs in the form of subordinated and revolving loans to, or equity investments in, AMD Saxony. We currently estimate that the maximum construction and facilitization costs to us of Dresden Fab 30 will be $2.6$2.7 billion when fully equipped.equipped by the end of 2005. We had invested $2.1$2.2 billion as of SeptemberJune 29, 2002.2003. If we are unable to meet our obligations to AMD Saxony as required under these agreements, we will be in default under the Dresden Loan Agreement,Agreements, which would permit acceleration of $552$627 million of indebtedness, as well as acceleration by cross-default of our obligations under our other borrowing arrangements.
FASL LLC, our majority owned subsidiary, continues to facilitize its manufacturing facilities in Aizu-Wakamatsu, Japan, known as FASL JV2 and FASL JV3.JV3 and in Austin, Texas, known as Fab 25. We expect FASL JV2 and FASL JV3, including equipment, to cost approximately $2.1 billion when fully equipped. As of September 29, 2002, approximately $1.6 billion of this cost had been funded. Tothat the extent that additional funds are required for the fullmaximum facilitization costs of FASL JV2 and FASL JV3 weto FASL LLC, will be $1.8 billion when fully equipped.
In addition, during the four-year period commencing on June 30, 2003, we are obligated to provide FASL LLC with additional funding to finance operational cash flow needs. Generally, FASL LLC is first required to contribute cash or guarantee third-party loans in proportionseek any required financing from external sources. However, if such third party financing is not available, we must provide funding to FASL LLC equal to our 49.992 percentpro-rata ownership interest in FASL.
We have a substantial amount of debt and debt service obligations, and may incur additional debt, that could adversely affect our financial position.position
Our high degree of leverage may:
Our ability to make payments on and to refinance our debt or our guarantees of other parties’ debts will depend on our financial and operating performance, which may fluctuate significantly from quarter to quarter and is subject to prevailing economic conditions and to financial, business and other factors beyond our control.
We cannot assure you that we will continue to generate sufficient cash flow or that we will be able to borrow funds under our credit facilities in amounts sufficient to enable us to service our debt, or meet our working capital and capital expenditure requirements. If we are not able to generate sufficient cash flow from operations or to borrow sufficient funds to service our debt, due to borrowing base restrictions or otherwise, we may be required to sell assets or equity, reduce capital expenditures, refinance all or a portion of our existing debt or obtain additional financing. We cannot assure you that we will be able to refinance our debt, sell assets or equity, or borrow more funds on terms acceptable to us, if at all.
If we are not successful in integrating the operations of our new majority owned subsidiary, FASL LLC, we could be materially adversely affected. Effective June 30, 2003, we and Fujitsu Limited executed several agreements which resulted in the integration of our and Fujitsu’s flash memory operations in the third quarter. We contributed our Flash memory group, our Fab 25 in Austin, Texas, our Submicron Development Center in Sunnyvale, California, and our assembly and test operations in Thailand, Malaysia and China. Fujitsu contributed its Flash memory business division and its Fujitsu Microelectronics (Malaysia) Sdn. Bhd. final assembly and test operations. We, together with Fujitsu, contributed our existing Manufacturing Joint Venture, which became a wholly owned subsidiary of FASL LLC.
Any benefits of this proposed transaction are subject to, among other things, the following risks:
We cannot assure you that we will be able to successfully integrate these operations or that we will be able to achieve and sustain any benefit from FASL LLC’s creation.
External factors, such as the SARS virus and potential terrorist attacks and other acts of violence or war, may materially adversely affect us. Concerns about the severe acute respiratory syndrome (SARS) virus are having an adverse effect upon the Asian economies and have affected and may continue to affect demand for our products in Asia. In addition, if there were to be a case of SARS discovered in any of our operations in Asia, the measures to prevent the spread of the virus could disrupt our operations at that location. There have been no cases of SARS affecting our operations to date. Finally, the spread of SARS and the extent of local preventive measures could affect the production capabilities of manufacturers of our PCS products, which are located in Taiwan, or their ability to ship products to us on a timely basis.
Terrorist attacks may negatively affect our operations. These attacks or armed conflicts may directly impact our physical facilities or those of our suppliers or customers. Furthermore, these attacks may make travel and the transportation of our products more difficult and more expensive and ultimately affect our sales.
Also as a result of terrorism, the United States may be included in armed conflicts that could have a further impact on our sales, our supply chain, and our ability to deliver products to our customers. Political and economic instability in some regions of the world may also result and could negatively impact our business. The consequences of armed conflicts are unpredictable, and we may not be able to foresee events that could have an adverse effect on our business or your investment.
More generally, any of these events could cause consumer confidence and spending to decrease or result in increased volatility in the United States and worldwide financial markets and economy. They also could result in or exacerbate economic recession in the United States or abroad. Any of these occurrences could have a significant impact on our operating results, revenues and costs and may result in the volatility of the market price for our securities and on the future prices of our securities.
Intense competition in the integrated circuit industry may materially adversely affect us.us
Intel Corporation’s dominance of the PC processor market may limit our ability to compete effectively in that market.
We expect Intel to maintain its dominant position in the marketplace as well as to continue to invest heavily in research and development, new manufacturing facilities and other technology companies. Intel has substantially greater financial resources than we do and accordingly expends substantially greater amounts on research and development than we do.
In marketing our microprocessors to OEMs and dealers, we depend on third-party companies other than Intel for the design and manufacture of core-logic chipsets, graphics chips, motherboards, BIOS software and other components. Over theIn recent years, many of these third-party designers and manufacturers have lost significant market share to Intel or exited the business. In addition, these companies produce chipsets, motherboards, BIOS software and other components to support each new generation of Intel’s microprocessors, and Intel has significant leverage over their business opportunities.
Our microprocessors are not designed to function with motherboards and chipsets designed to work with Intel microprocessors. Our ability to compete with Intel in the market for seventh-generationAMD OpteronTM and eighth-generationupcoming AMD Athlon 64 microprocessors will depend on our ability to ensure that PC platforms are designed to support our microprocessors. A failure of the designers and producers of motherboards, chipsets and other system components to support our microprocessor offerings would have a material adverse effect on us.
If we are unable to develop, produce and successfully market higher-performing microprocessor products, we may be materially adversely affected.affected
To be successful, we must increase sales of our microprocessor products to existing customers and develop new customers in both consumer and commercial markets, particularly the latter. Our production and sales plans for microprocessors are subject to other risks and uncertainties, including:
Our ability to increase microprocessor product revenues and benefit fully from the substantial investments we have made and continue to make related to microprocessors depends on the continuing success of our AMD Athlon microprocessors and the success of future generations of microprocessors.microprocessors, most immediately the AMD Opteron processor, and later this year the AMD Athlon 64 processor. If we fail to achieve continued and expanded market acceptance of our seventh-generation microprocessors, we may be materially adversely affected.
We must introduce in a timely manner, and achieve market acceptance for, our eighth-generationAMD Opteron and upcoming AMD Athlon 64 microprocessors, or we will be materially adversely affected.affected
If we were to lose Microsoft Corporation’s support for our products, our ability to market our processors would be materially adversely affected.affected
The completion and impact of our restructuring program and cost reductions could adversely affect us.
Weak market demand for our Spansion Flash memory products, the loss of a significant customer in the high-end mobile telephone market, or any difficulty in our transition toa lack of market acceptance of MirrorBitTM™ technology may have a material adverse effect on us.us
In July 2002, we commenced production shipments of ourthe first product with MirrorBit™ technology. Our MirrorBit technology is a new memory cell architecture that enables Flash memory products to hold twice as much data as standard Flashflash memory devices. A lack of customer or market acceptance or any substantial difficulty in transitioning our Flash memory products to MirrorBit technology or any future process technology could reduce ourFASL LLC’s ability to be competitive in the market and could have a material adverse effect on us.
Spansion memory products are based on the NOR architecture and a significant market shift to the NAND architecture could materially adversely affect us. Spansion memory products are based on the NOR architecture, and any significant shift in the marketplace to products based on NAND or other architectures will reduce the total market available to us and therefore reduce our market share, which could have a materially adverse affect on us.
Worldwide economic and political conditions may affect demand for our products and slow payment by our customers.
Our inability to adapt quickly to significant fluctuations in demand for our products relative to theManufacturing capacity of our manufacturing facilities could have a material adverse effect onutilization rates may adversely affect us.
There may also be situations in which our manufacturing facilities are inadequate to meet the demand for certain of our products. Our inability to obtain sufficient manufacturing capacity to meet demand, either in our own facilities or through foundry or similar arrangements with others, could have a material adverse effect on us.
Further, during periods when we are implementing new process technologies, our or FASL LLC’s manufacturing facilities may not be fully productive. A substantial delay in the technology transitions in Dresden Fab 30 to smaller than 130-nanometer process technologies employing silicon on insulatorsilicon-on-insulator technology could have a material adverse effect on us.
At this time, the most significant risk is underutilization of our manufacturing capacity.
Unless we maintain manufacturing efficiency, our future profitability could be materially adversely affected.
From time to time, we have experienced difficulty in beginning production at new facilities, transferring production to other facilities, and in effecting transitions to new manufacturing processes that have caused us to suffer delays in product deliveries or reduced yields. We cannot be sure that we will not experience manufacturing problems in achieving acceptable yields or experience product delivery delays in the future as a result of, among other things, capacity constraints, construction delays, transferring production to other facilities, upgrading or expanding existing facilities or changing our process technologies, which could result in a loss of future revenues. Our results of operations could also be adversely affected by the increase in fixed costs and operating expenses related to increases in production capacity if revenues do not increase proportionately.
We cannot be certain that our substantial investments in research and development of process technologies will lead to improvements in technology and equipment used to fabricate our products or that we will have sufficient resources to invest in the level of research and development that is required to remain competitive.competitive
If our microprocessors are not compatible with some or all industry-standard software and hardware, we could be materially adversely affected.affected
Our debt instruments impose restrictions on us that may adversely affect our ability to operate our business.
Our ability to satisfy the covenants, financial ratios and tests of our debt instruments and FASL LLC’s ability to satisfy the covenants, financial ratios and tests of the July 2003 FASL Term Loan can be affected by events beyond our or FASL LLC’s control. We cannot assure you that we or FASL LLC will meet those requirements. A breach of any of these covenants, financial ratios or tests could result in a default under our July 19992003 Loan Agreement, our September 2002the July 2003 FASL Term Loan Agreement and/or the Dresden Loan Agreement.Agreements. In addition, these agreements contain cross default provisions whereby a default under one agreement would likely result in cross-default under agreements covering other borrowings. For example, the occurrence of a default under the July 2003 FASL Term Loan would cause a cross-default under the July 2003 Loan Agreement and a default under the July 2003 Loan Agreement or under the indentures governing our 4.75% Debentures and our 4.50% Notes would cause a cross-default under the Dresden Loan Agreements. The occurrence of an event ofa default under any of these agreements or under the indenture governing our Debentures would likely result in a cross-default under the agreements covering the other borrowings andborrowing arrangements would permit the applicable lenders or noteholdersnote holders to declare all amounts outstanding under those borrowing arrangements to be immediately due and payable and permittingwould permit the lenders to terminate all commitments to extend further credit. If we or FASL LLC were unable to repay those amounts, the lenders under the July 19992003 Loan Agreement, the September 2002July 2003 FASL Term Loan Agreement and the Dresden Loan AgreementAgreements could proceed against the collateral granted to them to secure that indebtedness. We have pledgedgranted a security interest in substantially all of our personal property, including inventory and accounts receivable as security under our July 19992003 Loan Agreement, andFASL LLC has granted a security interest in certain property, plant and equipment as security under our September 2002the July 2003 FASL Term Loan Agreement, and AMD Saxony has pledged substantially all of its property as security under the Dresden Loan Agreement.Agreements. If the lenders under any of the credit facilities or the noteholdersnote holders or the trustee under the indentureindentures governing our 4.75% Debentures and our 4.50% Notes accelerate the repayment of borrowings, we cannot assure you that we will have sufficient assets to repay those borrowings and our other indebtedness.
Costs related to defective products could have a material adverse effect on us.
If essential raw materials are not available to manufacture our products, we could be materially adversely affected.
Our operations in foreign countries are subject to political and economic risks, which could have a material adverse effect on us.us
The political and economic risks associated with our operations in foreign countries include:
any of which could have a material adverse effect on us.
As part of our business strategy, we are continuing to seek expansion of product sales in emerging overseas markets. We recently signed a research and development joint venture agreement with China Basic Education Software Company, Ltd. to develop hardware platforms
Our inability to continue to attract and retain key personnel may hinder our product development programs.
Our operating results are subject to substantial seasonal fluctuations.
Uncertainties involving the ordering and shipment of, and payment for, our products could materially adversely affect us.
During 2002, the markets in which our customers operate were characterized by a decline in end-userend user demand, which reduced visibility of future demand for our products and resulted in high levels of inventories in the PC industry supply chain. In some cases, this led to delays in payments for our products. WeWhile we believe thatinventories in the supply chain are currently at reasonable levels, market conditions are uncertain and these and other factors could continue to materially adversely affect our revenues in the near term.
Our price protection obligations and return rights under specific provisions in our agreements with distributors may adversely affect us.us
If we cannot adequately protect our technology or other intellectual property, in the United States and abroad, through patents, copyrights, trade secrets, trademarks and other measures, we may lose a competitive advantage and incur significant expenses.expenses
From time to time, we have been notified that we may be infringing intellectual property rights of others. If any such claims are asserted against us, we may seek to obtain a license under the third party’s intellectual property rights. We cannot assure you that all necessary licenses can be obtained on satisfactory terms, if at all. We could decide, in the alternative, to resort to litigation to challenge such claims. Such challenges could be extremely expensive and time-consuming and could have a material adverse effect on us. We cannot assure you that litigation related to the intellectual property rights of us and others will always be avoided or successfully concluded.
Failure to comply with any of the applicable environmental regulations could subject us toresult in a range of consequences including fines, suspension of production, alteration of our manufacturing process, cessation of operations or regulatory action.sales, and criminal and civil liabilities
Our corporate headquarters assembly and research and development activitiesFASL LLC’s manufacturing facilities in Japan are located in an earthquake zone and these operations could be interrupted in the event of an earthquake.earthquake
| ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Reference is made to Part II, Item 7A, Quantitative and Qualitative Disclosures about Market Risk, in our Annual Report on Form 10-K for the fiscal year ended December 30, 2001.
| ITEM 4. | CONTROLS AND PROCEDURES |
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, our management recognizedrecognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and our management necessarily wasis required to apply its judgment in evaluating the cost-benefit relationship of possible
As of June 29, 2003, the dateend of the quarter covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective.
There havehas been no significant changeschange in our internal controls over financial reporting during our most recent fiscal quarter that has materially affected, or in other factors that could significantlyis reasonably likely to materially affect, theour internal controls subsequent to the date we completed our evaluation.
PART II. OTHER INFORMATION
| ITEM 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS |
AMD’s annual meeting of stockholders was held on May 1, 2003. The following are the results of the voting on the proposals submitted to stockholders at the annual meeting.
Proposal No. 1: Election of Directors. The following individuals were elected as directors:
Name | For | Withheld | ||
W. J. Sanders III | 285,623,762 | 5,675,886 | ||
Hector de J. Ruiz | 285,471,701 | 5,827,946 | ||
Friedrich Baur | 285,474,652 | 5,824,996 | ||
Charles M. Blalack | 278,497,693 | 12,801,955 | ||
R. Gene Brown | 278,841,722 | 12,457,926 | ||
Robert B. Palmer | 284,928,314 | 6,371,334 | ||
Leonard Silverman | 279,708,500 | 11,591,148 |
Proposal No. 2: The proposal to ratify the appointment of Ernst & Young LLP as independent auditors for the current fiscal year was approved.
For: 281,735,866 | Against: 7,680,994 | Abstain: 1,882,788 |
Proposal No. 3: The proposal to approve the amendment to the 2000 Employee Stock Purchase Plan was approved.
For: 280,741,189 | Against: 8,453,832 | Abstain: 2,104,626 |
Proposal No. 4: The proposal to approve the amendments to the Option Plans and the Option Exchange Program was approved.
For: 254,180,169 | Against: 33,958,345 | Abstain: 2,348,348 |
| ITEM 6. | EXHIBITS AND REPORTS ON FORM 8-K |
| (a) | Exhibits |
| 10.12 | AMD 2000 Stock Incentive Plan, as amended. | |
| 10.32 | AMD 1998 Stock Incentive Plan, as amended. | |
| 10.34 | 1995 Stock Plan of NexGen, Inc. as amended. | |
| 10.44 | ||
| Term Loan and Security Agreement, dated as of | ||
| *10.52 | Amended and Restated Limited Liability Company Operating Agreement of FASL LLC dated as of June 30, 2003. | |
| 10.53 | Contribution and Assumption Agreement by and among Advanced Micro Devices, Inc., AMD Investments, Inc., Fujitsu Limited, Fujitsu Microelectronics Holdings, Inc., and FASL LLC dated as of June 30, 2003. | |
| 10.54 | Asset Purchase Agreement by and among Advanced Micro Devices, Inc., Fujitsu Limited and FASL LLC dated as of June 30, 2003. | |
| *10.55 | AMD-FASL Patent Cross-License Agreement by and between Advanced Micro Devices, Inc. and FASL LLC dated as of June 30, 2003. | |
| *10.56 | AMD Distribution Agreement by and between Advanced Micro Devices, Inc. and FASL LLC dated as of June 30, 2003. | |
| *10.57 | Non-Competition Agreement by and among Advanced Micro Devices, Inc., AMD Investments, Inc., Fujitsu Limited, Fujitsu Microelectronics Holding, Inc. and FASL LLC dated as of June 30, 2003. | |
| 10.58 | AMD 1996 Stock Incentive Plan, as amended. | |
| 31.1 | Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
| 31.2 | Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
| 32.1 | Certification of Principal Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
| 32.2 | Certification of Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
| * | Confidential treatment has been requested as to certain portions of these Exhibits |
| (b) | Reports on Form 8-K |
A Current Report on Form 8-K dated July 17, 2002April 16, 2003 reporting under Item 5—Other Events,12 – Disclosure of Results of Operations and Financial Condition, was filedfurnished announcing our secondfirst quarter results.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: August 11, 2003 | ADVANCED MICRO DEVICES, INC. | |||||||
By: | /s/ ROBERT J. RIVET | |||||||
Robert J. Rivet | ||||||||
Senior Vice President, Chief Financial Officer | ||||||||
Signing on behalf of the registrant and as the principal accounting officer | ||||||||
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