See accompanying notes.

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ADVANCED MICRO DEVICES, INC.INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Thousands)

See accompanying notes.

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ADVANCED MICRO DEVICES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

June 29,September 28, 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 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 29, 2002.2002, as amended. Certain prior period amounts have been reclassified to conform to the current period presentation.

The Company uses a 52- to 53- week fiscal year ending on the last Sunday in December. The quarters ended June 29,September 28, 2003 and June 30,September 29, 2002 each included 13 weeks. The six monthsnine- month periods ended June 29,September 28, 2003 and June 30,September 29, 2002 each included 2639 weeks.

2. Summary of Significant Accounting Policies

Principles of Consolidation. The consolidated financial statements include the Company’s accounts and those of its majority and wholly owned subsidiaries (see Note 6FASL LLC). Upon consolidation, all significant intercompany accounts and transactions are eliminated and amounts pertaining to the noncontrolling ownership interests in the operating results and financial position of the majority owned subsidiary, FASL LLC, are reported as “minority interest.” Also included in the financial statements, under the equity method of accounting, are the Company’s percentage equity share of certain investees’ operating results, where the Company has the ability to exercise significant influence over the operations of the investee.

Product Warranties.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.

New Accounting Pronouncements.In January 2003, the Financial Accounting Standards Board issued Interpretation No. 46, “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 Statements,” defines what these variable interest entities are and provides guidelines on identifying them and assessing 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

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February 1, 2003, the provisionprovisions of this interpretation will apply no later than the beginning of the first interim or annual reporting period beginning after June 15, 2003. The Company does not expect the adoption of FIN 46 todid not have a material impact on the Company’s results of operations or financial condition.

In May 2003, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity,”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 equity in the balance sheet. SFAS 150The requirements apply to issuers’ classification and measurement of freestanding financial instruments, including those that comprise more than one option or forward contract. SFAS 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The Company does not expect the adoption of SFAS 150 todid not have a material impact on the Company’s results of operations or financial condition.

3.

Stock-Based Incentive Compensation Plans

3. Stock-Based Incentive Compensation Plans

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 earningsloss and net earningsloss per share are as follows for the quarters and six-monthnine-month periods ended June 29,September 28, 2003 and June 30,September 29, 2002.

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

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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 at fair market value on the date of grant on or after January 29, 2004, in exchange for the options cancelled in the offer to exchange.cancelled. The Company does not expect to record any compensation expense as thea result of the transactions contemplated by this offer to exchange.

4.

Financial Instruments

4. Financial Instruments

The following is a summary of the available-for-sale securities held by the Company as of June 29,September 28, 2003:

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,September 28, 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.

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 net gains from the sale of available-for-sale securities in the first sixnine months of 2003 of $3.7 million, which waswere included in interest and other income, net.

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At June 29,September 28, 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.other assets. The fair value of the investments approximated cost at June 29,September 28, 2003 and December 29, 2002.

Included in cash and cash equivalents is a compensating balance of $200$201 million, which AMD 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 (as defined(see Note 11Guarantees). Included in Note 10). Also included in cashprepaid and cash equivalentsother assets is $33$28 million of restricted cash associated with the advance receipt of interest subsidies from the Federal Republic of Germany and the State of Saxony in connection with the Dresden Loan Agreements. Restrictions over the Company’s access to the restricted cash will lapse as the Company incurs qualifying interest expense on the Dresden term loansloan over the next four quarters.

5. Net Loss Per Common Share

Potential dilutive common shares include shares issuable upon the exercise of outstanding employee stock options and the 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 7778 million and 2422 million for the three months ended June 29,September 28, 2003 and June 30,September 29, 2002 and 7677 million and 2320 million for the sixnine months ended June 29,September 28, 2003 and June 30,September 29, 2002 were not included in the net loss per common share calculation, as their inclusion would have been antidilutive.

In 1993, the Company formed a joint venture with Fujitsu Limited, Fujitsu AMD Semiconductor Limited (formerly referred to as FASL and currently referred to as the Manufacturing Joint Venture), for the development and manufactureFASL). As a result of non-volatile memory devices (See Note 12). The Manufacturing Joint Venture operated advanced integrated circuit manufacturing facilities in Aizu-Wakamatsu, Japan, to produce Flash memory devices, which were sold tothis transaction, the Company and Fujitsu. The Company’s Fab 25acquired an incremental 10.008% controlling interest in Austin, Texas, produced Flash memory devices for sale to the Manufacturing Joint Venture. The Company’s sharenet assets of the Manufacturing Joint Venture (the difference between the Company’s 60% ownership of these net assets after their contribution to FASL LLC and its previous 49.992% ownership in these same net assets prior to their contribution to FASL LLC). Accordingly, the Company recorded its acquired incremental 10.008% interest in the Manufacturing Joint Venture’s contributed net assets based on the assets’ fair value on the effective

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date of the transaction. The remaining 89.992% interest in the Manufacturing Joint Venture’s net assets was 49.992 percentrecorded at its historical carrying value.

The Company also contributed its Flash memory inventory, its manufacturing facility located in Austin, Texas (Fab 25), its Flash memory research and development facilities in Sunnyvale, California, and its Flash memory assembly and test operations in Thailand, Malaysia and China. The Company recorded its continuing 60% interest in these net assets at their historical carrying values. The remaining 40% interest in these net assets was deemed to have been sold to Fujitsu and, accordingly, 40% of the carrying values of these net assets were adjusted to and recorded based on the net assets’ fair value on the effective date of the transaction. The excess of the fair value of the net assets treated as sold over their historical carrying value, approximately $44.7 million, was not recorded as a gain because the fair value of the consideration received by the Company in the form of the Company’s 60% equity interest in Fujitsu’s contributions and the investmentincremental 10.008% interest in the former Manufacturing Joint Venture’s net assets less direct costs of the transaction, did not exceed the 40% interest in book value of the net assets contributed by the Company.

To form FASL LLC, Fujitsu also contributed its Flash memory division, including related inventory, cash, and its Flash memory assembly and test operations in Malaysia. The Company is deemed to have acquired a 60% interest in the net assets contributed by Fujitsu and, accordingly, 60% of the carrying values of these net assets were adjusted to and recorded based on the net assets’ fair value. The remaining 40% interest in these net assets was accountedrecorded at the historical carrying value.

As part of the transaction, the Company and Fujitsu entered into various service contracts with FASL LLC. The Company will continue to provide, among other things, certain information technology, facilities, logistics, legal, tax, finance, human resources and environmental, health and safety services to FASL LLC. These contracts continue to be evaluated by the parties to ensure accuracy and efficiency in the manner in which the services are provided and allocated to FASL LLC.

The Company also loaned FASL LLC $120 million pursuant to a promissory note. The note has a term of three years and bears interest at LIBOR plus 4%, but is eliminated in the Company’s consolidated financial statements. Fujitsu also loaned FASL LLC $40 million pursuant to a promissory note. The note has a term of three years, with four equal principal payments due on September 30, 2005, December 31, 2005, March 31, 2006 and June 30, 2006. The note bears interest at LIBOR plus 4% to be paid quarterly.

The following table summarizes the preliminary purchase price allocation to the assets and liabilities of FASL LLC at June 30, 2003, the effective date of the transaction, including the fair values of the assets and liabilities attributable to the Manufacturing Joint Venture, AMD’s contributions and Fujitsu’s contributions. Upon consolidation, all amounts pertaining to Fujitsu’s interest in FASL LLC are reported as minority interest. Management considered a number of factors, including independent appraisals and valuations, in determining the preliminary purchase allocation.

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The intangible assets in the table above consist of the estimated fair value of the manufacturing and product distribution contracts among FASL LLC and AMD and Fujitsu which are determined to have an estimated useful life of four years. No value was assigned to in-process research and development because AMD and Fujitsu performed all research and development activities for under the equity method priorManufacturing Joint Venture and AMD and Fujitsu did not convey in-process technology rights to June 29, 2003. FASL LLC. Additionally, FASL LLC pays intellectual property royalties to AMD and Fujitsu for technological know-how used in its business operations at royalty rates deemed to approximate fair market values. No additional intangible assets were identified in connection with the transaction.

The Company’s shareacquisition cost was approximately $264 million, which includes 40% of the net book value of the Company’s contributions and other direct acquisition costs incurred by the Company. The acquisition cost approximated the fair values of the incremental net assets and equity interests acquired. Accordingly, there was no goodwill associated with the business combination.

The following pro forma financial information includes the combined results of operations of AMD and the Manufacturing Joint Venture as though the Manufacturing Joint Venture had been consolidated by AMD at the beginning of the nine-month periods ended September 28, 2003 and September 29, 2002 and for the quarter ended September 29, 2002. The historically reported operating results of the Manufacturing Joint Venture after tax net income during the second quarter of 2003 was $4.8 million. Atdo not include Flash memory sales recorded by Fujitsu’s former Flash memory operations in periods preceding June 29, 2003 because the cumulative adjustment relatedinformation is not available to the translationCompany. Depreciation and amortization expenses were estimated for the pro forma periods based on the amounts at which fixed and intangible assets were recorded at the acquisition date. Pro forma interest income and expense are not material and are not included in the pro forma financial information. Had the transaction occurred at the beginning of fiscal 2003, revenue, net loss and net loss per share would have been $2,536 million, $322 million and $0.93 for the nine-month period ended September 28, 2003. As the effective date of the transaction was June 30, 2003, no pro forma information is necessary for the three months ended September 28, 2003. Had the transaction occurred at the beginning of 2002, revenue, net loss and net loss per share would have been $627 million, $257 million, and $0.75, respectively, for the three-month period ended September 29, 2002 and $2,297 million, $446 million, and $1.30 for the nine-month periods ended September 29, 2002. These pro forma results are not necessarily indicative of the operating results that would have occurred if the transaction had been completed at the beginning of the periods indicated. The pro forma results are not necessarily indicative of future operating results.

In addition, the Manufacturing Joint Venture financial statements into U.S. dollars resulted inprovided a decrease indefined benefit pension plan and a lump-sum retirement benefit plan to certain employees. These plans were and are administered by Fujitsu and cover FASL LLC employees formerly assigned from Fujitsu and employees hired directly by the investment inManufacturing Joint Venture. A full actuarial valuation has not been completed for the specific portion of the plans that relate to the Manufacturing Joint Venture employees. As a result, the Company estimated FASL LLC’s proportionate allocation of $0.5pension obligations, pension assets and elements of pension expensed based on information provided by the actuaries to determine the amounts to be recorded on its consolidated financial statements. For the quarter ended September 28, 2003, the Company recorded an estimated pension cost charge of approximately $3 million and has recorded an estimated pension benefit obligation liability of approximately $25 million. As of September 28, 2003, the estimated projected benefit obligations were approximately $27 million and the estimated total pension plan assets were approximately $4 million. Although the Company believes that the estimates and assumptions used by the Company are reasonable, the actual amounts recorded could vary when a full actuarial valuation is completed as of Fujitsu’s fiscal year ended March 31, 2004. However, the Company does not expect any such difference will have a material impact on its consolidated financial statements.

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The following tables present the significant related party transactions between the Company and balances of the Manufacturing Joint Venture for the periods in which were included in the Company’s unaudited condensed consolidated financial statements:investment was accounted for under the equity method:

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).

(Thousands)		September 28, 2003		December 29, 2002
Royalty receivable		—		$11,551
Accounts receivable		—		96,814
Accounts payable		—		108,890

The following is condensed unaudited financial data offor the Manufacturing Joint Venture:

The Company’s share of the Manufacturing Joint VentureVenture’s net income differs(loss) differed from the equity in net income of the Manufacturing Joint Venturepreviously reported on the condensed consolidated statements of operations. The difference iswas due to adjustments resulting from the intercompany profit eliminations and differences in U.S. and Japanese tax treatment of the Manufacturing Joint VentureVenture’s income, which arewere reflected on the Company’s consolidated statements of operations. The Company has never received cash dividends from its investment in the Manufacturing Joint Venture.

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7. Foundry Arrangement Guarantee

In 2000, the 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 the Manufacturing Joint Venture, the Company agreed to guarantee the repayment of up to $125 million of Fujitsu’s obligations as a co-signer with FMI under its global multicurrency revolving credit facility (the Credit Facility) with a third-party bank (the Guarantee). In 2001, Fujitsu closed the Gresham Facility due to the downturn of the Flash memory market. The Company disagreed with Fujitsu as to the amount if any, owed under this Guarantee and has reached a settlement, subject to final internal approval by Fujitsu, which would resultresulting in a cash payment by the Company to Fujitsu. The settlement amount is immaterial to the Company’s financial statements, and was recorded in the Company’s statement of operations for the second quarter ended June 29, 2003 and paid in the third quarter ended September 28, 2003.

7.

Segment Reporting

AMD operated in8. Segment Reporting

Prior to the third quarter of 2003, the Company had two reportable segments, during the quarter and six months ended June 29, 2003: the Core Products segment, which reflects the aggregationand Foundry Services segments. Primarily as a result of the PC processor, memory productsformation of FASL LLC, the Company re-evaluated its reportable segments under SFAS 131. Management reviews and Other IC productsassesses operating performance using segment revenues and operating income before interest, taxes and minority interest. These performance measures include the allocation of expenses to the operating segments and the Foundry Services segment. The aggregation of the Company’s operating segments into the Company’s reporting segments was made pursuant to the aggregation criteria set forth in 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 the sale of products to Legerity, Inc. and Vantis Corporation, the Company’s former voice communications products and programmable logic products subsidiaries. The Company terminated its foundry service arrangements with Legeritybased on management judgment.

Beginning in the third quarter of 20022003, the Company changed its reportable segments to: the Computation Products segment, which includes x86 microprocessors for servers, workstations, desktop and will terminate its foundry service arrangements with Vantisnotebook PCs and chipset products, and the Memory Products segment, which includes the Flash memory products of AMD and FASL LLC. The Company believes that separate reporting of these operating segments, given the Company’s new focus on FASL LLC as a separate operating company and FASL LLC’s separate market brand, provides more useful information.

The All Other category comprises other small operating segments (Personal Connectivity Solutions Products, which includes low power MIPS and x86 solutions, and Foundry Services, which included fees from our former voice communications and programmable logic products subsidiaries) that are neither individually nor in the thirdaggregate material. This category also includes certain operating expenses and credits that are not allocated to the operating segments. Prior period segment information has been restated to conform to the current period presentation. However, as the Company’s results of operations for prior periods did not include the consolidation of FASL LLC’s operations the segment operating information for the Memory Products segment for the quarter of 2003. The Company evaluates performance and allocates resources based on these segments’ operating income (loss).ended September 28, 2003 is not comparable to the restated segment information for all prior periods presented.

The following table is a summary of sales and operating income (loss) by segment and category with reconciliation to net loss for the quarters and sixnine months ended June 29,September 28, 2003 and June 30,September 29, 2002: