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 September 30, 2001
-------------------------------
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 (I.R.S. Employer Identification No.)
of incorporation or organization)
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.
Yes X No
------- -------
The number of shares of $0.01 par value common stock outstanding as of November
2, 2001: 339,827,235
-1-
INDEX
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Part I. Financial Information
---------------------
Page No.
--------
Item 1. Financial Statements (unaudited)
Condensed Consolidated Statements of Operations -
Quarters and Nine Months Ended September 30, 2001
and October 1, 2000 3
Condensed Consolidated Balance Sheets -
September 30, 2001 and December 31, 2000 4
Condensed Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 2001 and October 1, 2000 5
Notes to Condensed Consolidated Financial Statements (unaudited) 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 16
Item 3. Quantitative and Qualitative Disclosures About Market Risk 37
Part II. Other Information
-----------------
Item 6. Exhibits and Reports on Form 8-K 38
Signature 39
-2-
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ADVANCED MICRO DEVICES, INC.
---------------------------
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
-----------------------------------------------
(Unaudited)
(Thousands except per share amounts)
Quarter Ended Nine Months Ended
---------------------------- --------------------------
September 30, October 1, September 30, October 1,
2001 2000 2001 2000
------------- ------------- ------------- -----------
Net sales $ 765,870 $ 1,206,549 $ 2,939,881 $ 3,469,015
Expenses:
Cost of sales 594,056 639,010 1,945,085 1,857,334
Research and development 161,185 162,764 490,059 479,712
Marketing, general and administrative 150,918 141,931 456,346 438,259
Restructuring and other special charges 89,305 -- 89,305 --
----------- ----------- ----------- -----------
995,464 943,705 2,980,795 2,775,305
----------- ----------- ----------- -----------
Operating income (loss) (229,594) 262,844 (40,914) 693,710
Gain on sale of Legerity -- 336,899 -- 336,899
Interest and other income (expense), net (11,220) 19,789 19,911 60,852
Interest expense (9,946) (17,382) (51,790) (40,105)
----------- ----------- ----------- -----------
Income (loss) before income taxes, equity in net
income (loss) of joint venture
and extraordinary item (250,760) 602,150 (72,793) 1,051,356
Provision (benefit) for income taxes (65,018) 175,009 (8,758) 226,787
----------- ----------- ----------- -----------
Income (loss) before equity in net income (loss) of
joint venture and extraordinary item (185,742) 427,141 (64,035) 824,569
Equity in net income (loss) of joint venture (1,187) 4,406 19,296 3,469
----------- ----------- ----------- -----------
Income (loss) before extraordinary item (186,929) 431,547 (44,739) 828,038
Extraordinary item - loss on debt retirement, net of
tax benefit -- 22,980 -- 22,980
----------- ----------- ----------- -----------
Net income (loss) $ (186,929) $ 408,567 $ (44,739) $ 805,058
=========== =========== =========== ===========
Net income (loss) per common share:
Basic:
Income (loss) before extraordinary item $ (0.54) $ 1.38 $ (0.14) $ 2.69
----------- ----------- ----------- -----------
Extraordinary item $ -- $ 0.07 $ -- $ 0.08
----------- ----------- ----------- -----------
Net income (loss) $ (0.54) $ 1.31 $ (0.14) $ 2.61
----------- ----------- ----------- -----------
Diluted:
Income (loss) before extraordinary item $ (0.54) $ 1.24 $ (0.14) $ 2.42
----------- ----------- ----------- -----------
Extraordinary item $ -- $ 0.06 $ -- $ 0.06
----------- ----------- ----------- -----------
Net income (loss) $ (0.54) $ 1.18 $ (0.14) $ 2.36
----------- ----------- ----------- -----------
Shares used in per share calculation:
Basic 345,044 311,943 329,837 307,942
----------- ----------- ----------- -----------
Diluted 345,044 352,893 329,837 350,082
----------- ----------- ----------- -----------
See accompanying notes.
-3-
ADVANCED MICRO DEVICES, INC.
---------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
(Thousands)
September 30, December 31,
2001 2000*
--------------- --------------
(unaudited)
Assets
------
Current assets:
Cash and cash equivalents $ 397,423 $ 591,457
Short-term investments 506,111 701,708
------------ -------------
Total cash, cash equivalents and short-term investments 903,534 1,293,165
Accounts receivable, net of allowance for doubtful accounts 588,563 547,200
Inventories:
Raw materials 31,491 34,413
Work-in-process 292,981 154,854
Finished goods 124,606 154,274
------------ -------------
Total inventories 449,078 343,541
Deferred income taxes 168,846 218,527
Prepaid expenses and other current assets 289,722 255,256
------------ -------------
Total current assets 2,399,743 2,657,689
Property, plant and equipment, at cost 5,949,709 5,461,801
Accumulated depreciation and amortization (3,234,417) (2,825,334)
------------ -------------
Property, plant and equipment, net 2,715,292 2,636,467
Investment in joint venture 396,351 261,728
Other assets 227,819 211,851
------------ -------------
$ 5,739,205 $ 5,767,735
============ =============
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Accounts payable $ 369,064 $ 477,369
Accrued compensation and benefits 143,987 172,815
Accrued liabilities 382,797 276,721
Income taxes payable 49,591 74,806
Deferred income on shipments to distributors 34,620 92,828
Current portion of long-term debt, capital lease obligations and other 192,487 129,570
------------ -------------
Total current liabilities 1,172,546 1,224,109
Deferred income taxes 139,850 203,986
Long-term debt, capital lease obligations and other, less current portion 796,021 1,167,973
Commitments and contingencies
Stockholders' equity:
Common stock, par value 3,471 3,141
Capital in excess of par value 1,959,483 1,406,290
Treasury stock (68,837) --
Retained earnings 1,811,522 1,856,261
Accumulated other comprehensive loss (74,851) (94,025)
------------ -------------
Total stockholders' equity 3,630,788 3,171,667
------------ -------------
$ 5,739,205 $ 5,767,735
============ =============
* Amounts as of December 31, 2000 were derived from the December 31, 2000
audited financial statements.
See accompanying notes.
-4-
ADVANCED MICRO DEVICES, INC.
----------------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------
(Unaudited)
(Thousands)
Nine Months Ended
--------------------------
September 30, October 1,
2001 2000
------------ -----------
Cash flows from operating activities:
Net income (loss) $ (44,739) $ 805,058
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Gain on sale of Legerity -- (336,899)
Extraordinary item - loss on debt retirement
net of tax benefit -- 22,980
Depreciation and amortization 472,389 429,461
Net change in deferred income taxes (14,453) 104,461
Foreign grant and subsidy income (38,199) (27,975)
Net loss on disposal of property, plant and equipment 22,812 7,354
Undistributed income of joint venture (19,296) (3,469)
Recognition of deferred gain on sale of building (1,261) (1,261)
Net compensation recognized under employee stock plans 3,552 3,712
Restructuring and other special charges 89,305 --
Changes in operating assets and liabilities:
Increase in accounts receivable (41,618) (246,688)
Increase in inventories (112,954) (92,213)
Increase (decrease) in prepaid expenses 19,888 (38,888)
(Increase) decrease in other assets (47,723) 9,014
(Decrease) increase in tax refund receivable and tax payable (62,586) 8,369
(Refund) receipt of customer deposits under purchase agreements (39,000) 142,500
(Decrease) increase in payables and accrued liabilities (67,113) 14,776
(Decrease) increase in accrued compensation (62,926) 83,556
Income tax benefits from employee stock option exercises -- 71,197
----------- -----------
Net cash provided by operating activities 56,078 955,045
Cash flows from investing activities:
Proceeds from sale of Legerity -- 375,000
Purchases of property, plant and equipment (541,891) (577,177)
Proceeds from sale of property, plant and equipment 1,715 12,243
Purchases of available-for-sale securities (3,149,900) (2,709,408)
Proceeds from sale/maturities of available-for-sale securities 3,346,085 2,359,185
Investment in joint venture (122,356) --
----------- -----------
Net cash used in investing activities (466,347) (540,157)
Cash flows from financing activities:
Proceeds from borrowings 342,402 145,910
Payments on debt and capital lease obligations (90,305) (394,306)
Proceeds from issuance of stock 38,252 115,907
Repurchase of common stock (68,837) --
----------- -----------
Net cash provided by (used in) financing activities 221,512 (132,489)
Effect of exchange rate changes on cash and cash equivalents (5,277) 5,773
----------- -----------
Net increase (decrease) in cash and cash equivalents (194,034) 288,172
Cash and cash equivalents at beginning of period 591,457 294,125
----------- -----------
Cash and cash equivalents at end of period $ 397,423 $ 582,297
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid for:
Interest $ 38,120 $ 84,831
=========== ===========
Income taxes $ 58,088 $ 20,908
=========== ===========
Supplemental disclosures of non-cash financing activities:
Debt converted to common stock $ 516,860 $ --
=========== ===========
See accompanying notes.
----------------------
-5-
ADVANCED MICRO DEVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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 30, 2001. 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 31, 2000.
The Company uses a 52- to 53-week fiscal year ending on the last Sunday in
December. The quarters ended September 30, 2001 and October 1, 2000 each
included 13 weeks. The nine months ended September 30, 2001 and October 1,
2000 included 39 and 40 weeks.
-6-
2. Available-For-Sale Securities
The following is a summary of investments in available-for-sale securities:
September 30,
(Thousands) 2001
-------------
Cash equivalents:
Certificates of deposit $ 10,001
Commercial paper 69,543
Money market funds 61,850
Municipal bonds 28,690
Federal agency notes 14,737
Tax exempt money market funds --
------------
Total cash equivalents $ 184,821
============
Short-term investments:
Certificates of deposit $ 10,247
Commercial paper 31,048
Money market auction rate preferred stocks 118,292
Municipal bonds 261,706
Federal agency notes 25,782
Floating rate notes 17,247
Tax exempt preferred auction 41,788
------------
Total short-term investments $ 506,111
============
Long-term investments:
Equity investments $ 17,694
Commercial paper 9,999
Treasury notes 3,323
------------
Total long-term investments (included in other assets) $ 31,016
============
-7-
3. Net Income (Loss) per Common Share
Basic net income (loss) per common share is computed using the
weighted-average common shares outstanding. Diluted net income (loss) per
common share is computed using the weighted-average common shares outstanding
plus any potential dilutive securities. Dilutive securities include stock
options and shares issuable upon the conversion of convertible debt. For the
nine-month period ended September 30, 2001, an incremental 14 million shares
of common stock issuable upon the assumed conversion of convertible debt were
anti-dilutive and were not included in the calculation of diluted earnings
per share due to recorded net losses. For the three- and nine-month periods
ended September 30, 2001, outstanding stock options of 6 million and 8
million shares, respectively, were not included in the calculation of diluted
earnings per share, as the effect would also be anti-dilutive. The following
table sets forth the components of basic and diluted income (loss) per common
share:
Quarter Ended Nine Months Ended
------------------------ ------------------------
September 30, October 1, September 30, October 1,
(Thousands except per share data) 2001 2000 2001 2000
------------- ---------- ------------- ----------
Numerator:
Numerator for basic income (loss) per common share before
extraordinary item $ (186,929) $ 431,547 $ (44,739) $ 828,038
Numerator for basic extraordinary loss per common share -- 22,980 -- 22,980
------------- ---------- ------------- ----------
Numerator for basic income (loss) per common share $ (186,929) $ 408,567 $ (44,739) $ 805,058
Numerator for diluted income (loss) per common share before
extraordinary item $ (186,929) $ 431,547 $ (44,739) $ 828,038
Effect of adding back interest expense associated with
convertible debentures -- 6,410 -- 20,381
------------- ---------- ------------- ----------
Numerator for basic income (loss) per common share before extraordinary
item $ (186,929) $ 437,957 $ (44,739) $ 848,419
Numerator for diluted extraordinary loss per common share -- 22,980 -- 22,980
------------- ---------- ------------- ----------
Numerator for diluted income (loss) per common share $ (186,929) $ 414,977 $ (44,739) $ 825,439
Denominator:
Denominator for basic income (loss) per share - weighted-average shares 345,044 311,943 329,837 307,942
Effect of dilutive securities:
Employee stock options -- 12,996 -- 14,172
Convertible debentures -- 27,954 -- 27,968
------------- ---------- ------------- ----------
Dilutive potential common shares -- 40,950 -- 42,140
------------- ---------- ------------- ----------
Denominator for diluted net income (loss) per common share - 345,044 352,893 329,837 350,082
adjusted weighted-average shares
Net income (loss) per common share:
Basic:
Income (loss) before extraordinary item $ (0.54) $ 1.38 $ (0.14) $ 2.69
------------- ---------- ------------- ----------
Extraordinary item; debt $ -- $ 0.07 $ -- $ 0.08
------------- ---------- ------------- ----------
Net income (loss) $ (0.54) $ 1.31 $ (0.14) $ 2.61
------------- ---------- ------------- ----------
Diluted:
Income (loss) before extraordinary item $ (0.54) $ 1.24 $ (0.14) $ 2.42
------------- ---------- ------------- ----------
Extraordinary item; debt $ -- $ 0.06 $ -- $ 0.06
------------- ---------- ------------- ----------
Net income (loss) $ (0.54) $ 1.18 $ (0.14) $ 2.36
------------- ---------- ------------- ----------
-8-
4. Investment in Joint Venture
In 1993, AMD and Fujitsu Limited formed a joint venture, Fujitsu AMD
Semiconductor Limited (FASL), for the development and manufacture of
non-volatile memory devices. FASL operates advanced integrated circuit
manufacturing facilities in Aizu-Wakamatsu, Japan, to produce Flash memory
devices. FASL also uses foundry facilities in Iwate, Japan and Gresham,
Oregon. The Company's share of FASL is 49.992 percent, and the investment
is being accounted for under the equity method. At September 30, 2001, the
cumulative adjustment related to the translation of the FASL financial
statements into U.S. dollars resulted in a decrease in the investment in
FASL of $21 million. During the quarter ended July 1, 2001, the Company
made capital contributions of approximately $122 million to FASL. The
following are the significant FASL related-party transactions and balances:
Quarter Ended Nine Months Ended
-------------------------- -------------------------
September 30, October 1, September 30, October 1,
(Thousands) 2001 2000 2001 2000
------------- ----------- ------------- ----------
Royalty income $ 10,975 $ 8,236 $ 36,675 $ 20,139
Purchases 146,766 107,318 435,520 261,977
September 30, December 31,
(Thousands) 2001 2000
------------ ------------
Royalty receivable $ 21,048 $ 9,561
Accounts payable 77,713 77,503
The following is condensed unaudited financial data of FASL:
Quarter Ended Nine Months Ended
------------------------- ------------------------
September 30, October 1, September 30, October 1,
(Thousands) 2001 2000 2001 2000
------------- ---------- ------------- ----------
Net sales $ 241,812 $ 200,809 $ 808,573 $ 502,838
Gross profit (loss) (18,864) 19,513 73,669 22,811
Operating income (loss) (20,172) 18,599 69,822 20,276
Net income (loss) (11,798) 11,270 40,494 12,115
The Company's share of FASL net income set forth above differs from the
equity in net income of joint venture reported on the condensed
consolidated statements of operations. The difference is due primarily to
adjustments that eliminate the related-party transactions between FASL and
the Company on the Company's condensed consolidated statements of
operations.
-9-
FASL has expanded its production capacity through a foundry arrangement
with Fujitsu Microelectronics, Inc. (FMI). In connection with this foundry
arrangement, the Company agreed to guarantee up to $125 million of
Fujitsu's obligations under FMI's credit facility.
5. Segment Reporting
AMD operates in two reportable segments: the Core Products and Foundry
Services segments. AMD has previously shown three reportable segments;
however, as a result of the sale of Legerity, Inc. (Legerity), the Company
no longer operates in the Voice Communications segment. The Core Products
segment includes microprocessors, Flash memory devices, Erasable
Programmable Read-Only Memory (EPROM) devices, embedded processors,
platform products and networking products. The Foundry Services segment
includes fees for wafer fabrication and assembly, test, mark and pack
services provided to Legerity and Vantis Corporation (Vantis), the
Company's former programmable logic subsidiary. The Voice Communications
segment included the voice communications products of Legerity until July
31, 2000, the effective date of its sale. The following table is a summary
of the operating income by segment for the quarters and nine months ended
September 30, 2001 and October 1, 2000:
Quarter Ended Nine Months Ended
(Thousands) --------------------------- ---------------------------
Net sales: September 30, October 1, September 30, October 1,
2001 2000 2001 2000
------------ ----------- ------------ -----------
Core Products segment $ 741,320 $ 1,143,488 $ 2,843,915 $ 3,239,035
Foundry Services segment 24,550 45,634 95,966 89,671
Voice Communications segment -- 17,427 -- 140,309
------------ ----------- ------------ -----------
Total net sales $ 765,870 $ 1,206,549 $ 2,939,881 $ 3,469,015
============ =========== ============ ===========
Segment operating income (loss):
Core Products segment $ (123,947) $ 256,241 $ 70,053 $ 641,701
Foundry Services segment (9,441) 7,564 (14,761) 17,023
Voice Communications segment -- (961) -- 34,986
------------ ----------- ------------ -----------
Total segment operating income (loss) (133,388) 262,844 55,292 693,710
Restructuring and other special charges (89,305) -- (89,305) --
Additional inventory provision (6,901) -- (6,901) --
Gain on sale of Legerity -- 336,899 -- 336,899
Interest income and other, net (11,220) 19,789 19,911 60,852
Interest expense (9,946) (17,382) (51,790) (40,105)
(Provision) benefit for income taxes 65,018 (175,009) 8,758 (226,787)
Equity in net income (loss) of joint venture (1,187) 4,406 19,296 3,469
Extraordinary item - debt retirement, net of tax benefit -- (22,980) -- (22,980)
------------ ----------- ------------ -----------
Net income (loss) $ (186,929) $ 408,567 $ (44,739) $ 805,058
============ =========== ============ ===========
-10-
6. Comprehensive Income (Loss)
The following are the components of comprehensive income (loss):
Quarter Ended Nine Months Ended
-------------------------- ---------------------------
September 30, October 1, September 30, October 1,
(Thousands) 2001 2000 2001 2000
------------ ---------- ------------- ---------
Net income (loss) $ (186,929) $ 408,567 $ (44,739) $ 805,058
Foreign currency translation adjustments 59,525 (39,760) 18,585 (72,523)
Derivative financial instrument gains, net 20,060 -- 8,412 --
Unrealized gains (losses) on Securities arising
during the period 2,668 (3,974) (7,824) (1,410)
------------ ---------- ------------- ---------
Other comprehensive income (loss) 82,253 (43,734) 19,173 (73,933)
------------ ---------- ------------- ---------
Comprehensive income (loss) $ (104,676) $ 364,833 $ (25,566) $ 731,125
============ ========== ============= =========
The components of accumulated other comprehensive loss are as follows:
September 30, December 31,
(Thousands) 2001 2000
------------ ------------
Unrealized gain on Securities, net of tax $ 5,320 $ 13,143
Derivatives - cash flow hedging adjustments 8,412 --
Cumulative translation adjustments (88,583) (107,168)
------------ ------------
$ (74,851) $ (94,025)
============ ============
-11-
7. Share Repurchase Program
On January 29, 2001, the Company announced that the Board of Directors had
authorized a program to repurchase up to $300 million worth of the
Company's common stock over a period of time to be determined by
management. Any such repurchases will be made, from time to time, in the
open market or in privately negotiated transactions in compliance with Rule
10b-18 of the Securities Exchange Act, subject to market conditions,
applicable legal requirements and other factors. This program does not
obligate the Company to acquire any particular amount of its common stock,
and the program may be suspended at any time at the Company's discretion.
As of September 30, 2001, AMD had acquired 5,310,580 shares of its common
stock at an aggregate cost of $69 million under the program.
8. Dresden Loan Agreements
AMD Saxony Manufacturing GmbH (AMD Saxony), an indirect wholly owned
subsidiary of the Company, operates the Company's manufacturing and design
facility in Dresden, Germany (Dresden Fab 30). In 1997, AMD Saxony entered
into a loan and related agreements (the Dresden Loan Agreements) with a
consortium of banks led by Dresdner Bank AG.
In February 2001, the Dresden Loan Agreements were amended to reflect new
capacity and increased capital spending plans for Dresden Fab 30. Under the
February 2001 amendments, the Company agreed to extend its guaranty of AMD
Saxony's obligations and to make available to AMD Saxony revolving loans of
up to $500 million. The Company also expanded its obligation to reimburse
AMD Saxony for the cost of producing wafers for the Company and agreed to
cancel the cost overrun facility made available by the banks. Under these
amendments, the Company was released from financial covenants limiting
capital expenditures and requiring AMD Saxony to achieve capacity and
production cost targets by the end of 2001.
The Dresden Loan Agreements, as amended, require that the Company: provide
interim funding to AMD Saxony if either the remaining capital investment
allowances or the remaining interest subsidies are delayed, such interim
funding to be repaid as AMD Saxony receives the grants and subsidies from
the State of Saxony; fund shortfalls in government subsidies resulting from
any default under the subsidy agreements caused by AMD Saxony or its
affiliates; and guarantee up to 35 percent of AMD Saxony's obligations
under the Dresden Loan Agreements, which guarantee must not be less than
$103 million or more than $283 million, until the bank loans are repaid in
full.
-12-
9. Derivative Instruments and Hedging
On January 1, 2001, the Company adopted Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" (SFAS 133). The Statement requires the Company to recognize all
derivatives on the balance sheet at fair value. Derivatives that are not
hedges must be adjusted to fair value through income. If the derivative is
a hedge, depending on the nature of the hedge, changes in the fair value of
the derivative are either offset against the change in fair value of
assets, liabilities, or firm commitments through earnings (fair value
hedges) or recognized in other comprehensive income until the hedged item
is recognized in earnings (cash flow hedges). The ineffective portion of a
derivative's change in fair value is immediately recognized in earnings. As
of January 1, 2001, the Company had entered into foreign currency forward
contracts to hedge the gains and losses generated by the re-measurement of
foreign currency denominated intercompany accounts. As a result, these
derivatives, which are not designated as hedges, are recorded at fair
value, with changes in fair value recognized in operations. Accordingly,
the adoption of SFAS 133 had no impact on the Company's consolidated
financial position or operating results.
The Company purchases a significant volume of inventory from FASL, AMD's
unconsolidated joint venture in Japan, and from AMD Saxony. Purchases from
FASL and AMD Saxony are denominated in yen and euros, respectively.
Therefore, in the normal course of business, the Company's financial
position is routinely subjected to market risk associated with foreign
currency rate fluctuations. The Company's general practice is to ensure
that material business exposure to foreign exchange risks are identified,
measured and minimized using the most effective and efficient methods to
eliminate or reduce such exposures. To protect against the reduction in
value of forecasted yen and euro denominated cash flows resulting from
these transactions, the Company has instituted a foreign currency cash flow
hedging program. The Company purchases foreign currency forward contracts
and sells or purchases foreign currency option contracts generally expiring
within twelve months to hedge portions of its forecasted foreign currency
denominated cash flows. These foreign currency contracts are carried on the
Company's balance sheet at fair value with the effective portion of the
contracts' gain or loss recorded in accumulated other comprehensive income
(a component of stockholders' equity) and subsequently recognized in
earnings in the same period the hedged forecasted transaction affects
earnings. The Company does not use derivatives for trading purposes.
The effectiveness test for these foreign currency contracts utilized by the
Company is the fair value to fair value comparison method. SFAS 133 permits
the exclusion from the effectiveness assessment of the time value portion
of the change in value of the currency forward contract. The change in fair
value of the time value portion of the derivative is considered by the
Company to be inherently ineffective and is immediately adjusted through
earnings each accounting period. During the three-month period ended
September 30, 2001, the portions of the hedging instruments excluded from
the assessment of hedge effectiveness were not material to the Company's
consolidated financial position or operating results and are included in
earnings in the accompanying Consolidated Statements of Operations.
-13-
As of September 30, 2001, the Company expects to reclassify the amount
accumulated in other comprehensive income to earnings within the next
twelve months due to the recognition in earnings of the hedged forecasted
transactions.
If a cash flow hedge should be discontinued because it is probable that the
original forecasted transaction will not occur, the net gain or loss in
accumulated other comprehensive income will be reclassified into earnings
as a component of income and expense. No such amounts were recorded in
earnings during the three-month period ended September 30, 2001.
The following table summarizes activity in other comprehensive income
related solely to derivatives classified as cash flow hedges held by the
Company during the period from January 1, 2001 through September 30, 2001:
Nine Months Ended
(Thousands) September 30, 2001
------------------
Cumulative effect of adopting SFAS 133 $ -
Changes in fair value of derivatives, net (8,412)
----------
$ (8,412)
==========
10. Debt
On August 1, 2001, the Company redeemed the remaining $43 million of its
outstanding 11% Senior Secured Notes (the Senior Notes) due 2003.
11. Restructuring and other special charges
On September 25, 2001, due to the continued slowdown in the semiconductor
industry and a resulting decline in revenues, the Company announced a
restructuring plan to accelerate key components of its strategy to reduce
costs and enhance the financial performance of its core businesses. In
connection with the plan, the Company will close Fabs 14 and 15 in Austin,
Texas. These facilities support certain of the Company's older products and
its Foundry Service operations, which will be discontinued as part of the
plan. The Company will also restructure other manufacturing facilities and
reduce activities primarily in Penang, Malaysia, along with associated
administrative support.
These changes will result in the reduction of approximately 2,300 direct
manufacturing and related administrative support positions, or
approximately 15 percent of the Company's worldwide workforce, by the end
of the second quarter of 2002. Approximately 1,000 of these positions are
associated with closing Fabs 14 and 15 in Austin, Texas. The balance of the
reductions will result from reducing and restructuring activities primarily
in Penang, Malaysia.
Prior to the date of the financial statements, management approved and
committed the Company to the plan and determined the benefits that would be
offered to the
-14-
employees being terminated. The benefits package was communicated to
employees in sufficient detail to enable each affected employee to
determine the type and amount of benefit he or she is entitled to receive.
The Company recorded restructuring costs and other special charges of $89.3
million, consisting of $34.1 million of anticipated severance and fringe
benefit costs, $16.2 million of anticipated exit costs to close the
facilities in Austin and Penang and $39.0 million of asset impairment
charges. The asset impairment charges relate primarily to buildings and
production equipment and have been incurred as a result of the Company's
decision to implement the plan.
The Company recorded an additional charge of $6.9 million during the third
quarter of 2001 for the impairment of inventories associated with
Foundry Services and other discontinued product lines resulting from the
restructuring plan. This amount was recorded in cost of sales in the
Company's statement of operations.
A summary of the restructuring costs and other special charges is provided
as follows:
Restructuring
Liabilities
Total Noncash Cash September 30,
(Thousands) Charges Charges Payments 2001
--------------------------------------------
Severance and employee benefits $34,105 $ - $ - $34,105
Facility and equipment impairment 39,000 (39,000) - -
Facility and equipment decommission costs 15,500 - - 15,500
Other facility exit costs 700 - - 700
--------------------------------------------
$89,305 $(39,000) $ - $50,305
============================================
The Company expects to substantially complete execution of its
restructuring plan by the end of the second quarter of 2002. None of the
anticipated severance, fringe benefit or exit costs have been paid or used
as of September 30, 2001.
12. New Accounting Pronouncement
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets", which is effective January 1,
2002. SFAS 144 supercedes SFAS 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of", and the
accounting and reporting provisions relating to the disposal of a segment
of a business under Accounting Principles Board Opinion No. 30. The Company
does not expect that the adoption of SFAS 144 will have a significant
impact on its financial statements.
-15-
--------------------------------------------------------------------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Cautionary Statement Regarding Forward-Looking Statements
The 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. The forward-looking
statements relate to, among other things: operating results; anticipated cash
flows; capital expenditures; adequacy of resources to fund operations and
capital investments; our ability to produce AMD Athlon(TM) and AMD Duron(TM)
microprocessors in the volume required by customers on a timely basis; our
ability to maintain average selling prices of seventh-generation microprocessors
despite aggressive pricing strategies of our competitors; the ability of third
parties to provide timely infrastructure solutions (motherboards and chipsets)
to support our microprocessors; our ability to increase customer and market
acceptance of the newest versions of our seventh-generation microprocessors,
particularly in commercial and mobile markets; 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 production
ramp of our new submicron integrated circuit manufacturing and design facility
in Dresden, Germany (Dresden Fab 30); and the financing and construction of the
Fujitsu AMD Semiconductor Limited (FASL) manufacturing facilities. See
"Financial Condition" 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 for a discussion of the factors that could cause actual
results to differ materially from the forward-looking statements.
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 Financial Statements and related notes as of December 31,
2000 and December 26, 1999 and for each of the three years in the period ended
December 31, 2000 as filed in our Annual Report on Form 10-K.
AMD, the AMD logo, and combinations thereof, Advanced Micro Devices, AMD-K6, AMD
Athlon and AMD Duron are either trademarks or registered trademarks of Advanced
Micro Devices, Inc. Vantis is a trademark of Vantis Corporation. Legerity is a
trademark of Legerity, Inc. Microsoft and Windows are either registered
trademarks or trademarks of Microsoft Corporation. Other terms used to identify
companies and products may be trademarks of their respective owners.
-16-
--------------------------------------------------------------------------------
RESULTS OF OPERATIONS
We participate in all three technology areas within the digital Integrated
Circuits (IC) market--microprocessors, memory circuits and logic
circuits--through our Core Products and Foundry Services segments. Our Core
Products segment includes our PC processors, Memory products and Other IC
products. PC processors include our seventh-generation microprocessors, the AMD
Athlon and AMD Duron microprocessors, and our sixth-generation microprocessors.
Memory products include Flash memory devices and Erasable Programmable Read-Only
Memory, or EPROM, devices. Other IC products include embedded processors,
platform products and networking products. Our Foundry Services segment consists
of fees for services that we provide to Legerity, Inc. and Vantis Corporation.
We use a 52- to 53-week fiscal year ending on the last Sunday in December. The
quarters ended September 30, 2001, July 1, 2001 and October 1, 2000 each
included 13 weeks. The nine months ended September 30, 2001 and October 1, 2000
included 39 and 40 weeks.
-17-
The following is a summary of our net sales by segment for the periods presented
below:
Quarter Ended Nine Months Ended
------------------------------------ --------------------------
September 30, July 1, October 1, September 30, October 1,
(Millions) 2001 2001 2000 2001 2000
------------- -------- ---------- ------------- ----------
Core Products segment:
PC Processors $ 467 $ 588 $ 625 $ 1,717 $ 1,771
Memory Products 210 316 420 937 1,109
Other IC Products 64 51 99 190 359
---------- -------- --------- --------- ---------
741 955 1,144 2,844 3,239
Foundry Services segment 25 30 46 96 90
Voice Communications segment -- -- 17 -- 140
---------- -------- --------- --------- ---------
$ 766 $ 985 $ 1,207 $ 2,940 $ 3,469
========== ======== ========= ========= =========
Net Sales Comparison of Quarters Ended September 30, 2001 and July 1, 2001
Net sales of $766 million for the third quarter of 2001 decreased by 22 percent
compared to net sales of $985 million for the second quarter of 2001.
PC Processors net sales of $467 million decreased 21 percent in the third
quarter of 2001 compared to the second quarter of 2001. The decrease in net
sales was primarily due to a decline in average selling prices resulting from
very aggressive market pricing pressures. Total PC processor unit sales were
relatively flat compared to the second quarter of 2001. In the fourth quarter of
2001, we currently expect PC processor net sales to range from unchanged to
growth of 10 percent due to normal seasonality and the introduction of the new
AMD Athlon XP and AMD Athlon MP processors. Maintaining overall PC Processor
sales levels in the fourth quarter of 2001 is dependent upon continuing a
successful production ramp in Dresden Fab 30, our ability to maintain average
selling prices for our seventh-generation microprocessors, continuing growth in
unit shipments of our PC processors, the availability of chipsets and
motherboards from third-party suppliers and increasing market acceptance of the
newest versions of the AMD Athlon and AMD Duron processors.
Memory products net sales of $210 million decreased 34 percent in the third
quarter of 2001 compared to the second quarter of 2001. The decrease resulted
primarily from continuing weakness in the communications and networking
equipment industries and excess inventories held by major customers. In the
fourth quarter of 2001, we expect net sales of memory products to range from
unchanged to growth of 10 percent due to an increase in unit shipments,
partially offset by a decline in average selling prices.
Other IC products net sales of $64 million increased 25 percent in the third
quarter of 2001 compared to the second quarter of 2001 primarily due to
increased net sales of platform products, partially offset by a decrease in
networking product sales as a result of the sustained weakness in
-18-
the communications and networking equipment industries. We expect Other IC
revenues to decline in the fourth quarter of 2001 due to our restructuring plan,
which results in the discontinuation of embedded processors and networking
products by the end of the second quarter of 2002.
Foundry Services segment service fees of $25 million decreased 17 percent in the
third quarter of 2001 from $30 million in the second quarter of 2001. The
decrease was primarily due to a significant reduction in demand for product from
Vantis. We expect that service fees will continue to decline in the fourth
quarter of 2001 due to our restructuring plan, which results in the
discontinuation of these services by the end of the second quarter of 2002.
Net Sales Comparison of Quarters Ended September 30, 2001 and October 1, 2000
Net sales of $766 million for the third quarter of 2001 decreased by 37 percent
compared to net sales of $1,207 million for the third quarter of 2000.
PC Processors net sales of $467 million decreased 25 percent in the third
quarter of 2001 compared to the same quarter of 2000 primarily due to a decline
in average selling prices of our seventh-generation microprocessors, partially
offset by higher unit sales of our seventh-generation microprocessors.
Memory products net sales of $210 million decreased by 50 percent in the third
quarter of 2001 compared to the same quarter of 2000 due to a decline in unit
shipments, partially offset by an increase in average selling prices. The
decline in unit shipments resulted from the sustained weakness in the
communications and networking equipment industries and excess inventories held
by major customers.
Other IC products net sales of $64 million in the third quarter of 2001
decreased by 35 percent when compared to the same quarter of 2000 due to
decreased net sales from networking and embedded processor products, partially
offset by an increase in net sales of platform products.
Foundry Services segment service fees of $25 million in the third quarter of
2001 decreased by 46 percent compared to the same quarter of 2000. The decrease
was primarily due to a significant reduction of product purchases and service
fees from Vantis.
Net Sales Comparison of Nine Months Ended September 30, 2001 and October 1, 2000
Net sales of $2,940 million for the first nine months of 2001 decreased by 15
percent compared to net sales of $3,469 million for the first nine months of
2000.
PC Processors net sales of $1,717 million decreased three percent in the first
nine months of 2001 compared to the same period of 2000 primarily due to lower
average selling prices of our seventh-generation microprocessors and lower unit
sales of AMD-K6 microprocessors, partially offset by higher unit shipments of
our seventh-generation microprocessors.
Memory products net sales of $937 million decreased by 16 percent in the first
nine months of 2001 compared to the same period of 2000 due to a decline in unit
shipments resulting from the sustained weakness in the communications and
networking equipment industries and excess inventories held by major customers.
-19-
Other IC products net sales of $190 million in the first nine months of 2001
decreased by 47 percent compared to the same period of 2000 due to decreased net
sales from networking, platform and embedded processor products as the
communications and networking equipment industries continued to decline.
Foundry Services segment service fees of $96 million in the first nine months of
2001 increased compared to the same period of 2000. The increase was primarily
due to the addition of service fees from Legerity after the second quarter of
2000, partially offset by a reduction of product purchases and service fees from
Vantis.
Comparison of Expenses, Gross Margin Percentage and Interest
The following is a summary of expenses, gross margin percentage and interest and
other income (expense), net for the periods presented below:
Quarter Ended Nine Months Ended
------------------------------------- --------------------------
September 30, July 1, October 1, September 30, October 1,
2001 2001 2000 2001 2000
------------- -------- ---------- ------------- ----------
(Millions except for gross margin percentage)
Cost of sales $ 594 $ 636 $ 639 $ 1,945 $ 1,857
Gross margin percentage 22% 35% 47% 34% 46%
Research and development $ 161 $ 171 $ 163 $ 490 $ 480
Marketing, general and administrative 151 156 142 456 438
Restructuring and other special charges 89 - - 89 -
Gain on sale of Legerity - - 337 - 337
Interest and other income (expense), net (11) 12 20 20 61
Interest expense 10 20 17 52 40
We operate in an industry characterized by high fixed costs due to
capital-intensive manufacturing processes, particularly the state-of-the-art
production facilities required for PC processors and Flash memory devices. As a
result, our gross margin percentage is significantly affected by fluctuations in
product sales. Our ability to maintain gross margin percentages depends on
continuing a successful production ramp in Dresden Fab 30, maintaining average
selling prices of our core products, particularly in light of pricing pressures
from Intel, continuing growth in unit shipments of our PC processors, the
availability of chipsets and motherboards from third-party suppliers and
increasing market acceptance of the newest versions of the AMD Athlon and AMD
Duron processors.
The gross margin percentage of 22 percent in the third quarter of 2001 decreased
from 35 percent in the second quarter of 2001 and from 47 percent in the third
quarter of 2000. The decrease in gross margin percentage in the third quarter of
2001 compared to the second quarter of 2001 was primarily attributable to a
decline in the average selling prices and unit shipments for our core products
resulting largely from very aggressive market pricing pressures from Intel. The
decrease in gross margin percentage in the third quarter of 2001 compared to the
same quarter in 2000 was primarily due to higher fixed manufacturing costs and
decline in average selling prices. Fixed costs will continue to increase as we
ramp Dresden Fab 30 production through the end of 2001. We expect the initial
phases of Fab 30 to be at full capacity by the end of 2001.
-20-
Research and development expenses of $161 million in the third quarter of 2001
decreased six percent compared to the immediate prior quarter and one percent
compared to the same quarter in 2000. The decrease was primarily due to reduced
research and development activities for PC microprocessors.
Research and development and cost of sales included the recognition of deferred
credits on foreign capital grants and interest subsidies that were received for
Dresden Fab 30. Credits of approximately $11 million per quarter, denominated in
deutsche marks, will continue to be offset against Dresden Fab 30 expenses in
future quarters until June 2007.
Marketing, general and administrative expenses of $151 million in the third
quarter of 2001 decreased three percent compared to the second quarter of 2001
as a result of a decrease in sales expenses, partially offset by an increase in
marketing expenses for our core products. Marketing, general and administrative
expenses in the third quarter of 2001 increased six percent compared to the same
quarter in 2000. The increase was primarily due to increased advertising and
marketing expenses for our core products.
On September 25, 2001, due to the continued slowdown in the semiconductor
industry and a resulting decline in revenues, we announced a restructuring plan
to accelerate key components of our strategy to reduce costs and enhance the
financial performance of our core businesses. In connection with the plan, we
will close Fabs 14 and 15 in Austin, Texas. These facilities support certain of
our older products and our Foundry Service operations, which will be
discontinued as part of the plan. We will also restructure other manufacturing
facilities and reduce activities primarily in Penang, Malaysia, along with
associated administrative support.
These changes will result in the reduction of approximately 2,300 direct
manufacturing and related administrative support positions, or approximately 15
percent of our worldwide workforce, by the end of the second quarter of 2002.
Approximately 1,000 of these positions are associated with closing Fabs 14 and
15 in Austin, Texas. The balance of the reductions will result from reducing and
restructuring activities primarily in Penang, Malaysia.
Prior to the date of the financial statements, our management approved and
committed us to the plan and determined the benefits that would be offered to
the employees being terminated. The benefits package was communicated to
employees in sufficient detail to enable each affected employee to determine the
type and amount of benefit he or she is entitled to receive.
We recorded restructuring costs and other special charges of $89.3 million,
consisting of $34.1 million of anticipated severance and fringe benefit costs,
$16.2 million of anticipated exit costs to close the facilities in Austin and
Penang and $39.0 million of asset impairment charges. The asset impairment
charges relate primarily to buildings and production equipment and have been
incurred as a result of our decision to implement the plan.
We recorded an additional charge of $6.9 million during the third quarter of
2001 for the impairment of inventories associated with Foundry Services and
other discontinued product
-21-
lines resulting from the restructuring plan. This amount was recorded in cost of
sales in our statement of operations.
A summary of the restructuring costs and other special charges is provided as
follows:
Restructuring
Total Noncash Cash Liabilities
(Thousands) Charges Charges Payments September 30, 2001
-------------------------------------------------------------
Severance and employee benefits $ 34,105 $ - $ - $ 34,105
Facility and equipment impairment 39,000 (39,000) - -
Facility and equipment decommission
costs 15,500 - - 15,500
Other facility exit costs 700 - - 700
-------------------------------------------------------------
$ 89,305 $ (39,000) $ - $ 50,305
=============================================================
We expect to substantially complete execution of our restructuring plan by the
end of the second quarter of 2002. None of the anticipated severance, fringe
benefit or exit costs have been paid or used as of September 30, 2001. Upon
execution of the plan, we expect to realize an overall cost reduction of up to
$125 million on an annualized basis.
Interest and other income (expense) decreased $23 million compared to the second
quarter of 2001 primarily due to a $22 million charge for "other than temporary"
declines in our equity investments. Interest and other income (expense)
decreased $31 million compared to the same quarter of 2000 primarily due to a
$22 million charge for "other than temporary" declines in our equity investments
and an $8 million decrease in interest income due to a decrease in short-term
investments.
Interest expense of $10 million in the third quarter of 2001 decreased 51
percent compared to the second quarter of 2001 primarily due to the redemption
of our 6% convertible subordinated notes in May 2001. Interest expense
decreased 41 percent compared to the same quarter of 2000 primarily due to the
redemption of our 6% convertible subordinated notes and the redemption of the
remaining $43 million of our outstanding 11% Senior Secured Notes due 2003 in
the second quarter of 2001, partially offset by an increase of interest expense
as a result of increased borrowings by AMD Saxony under the Dresden Loan
Agreements, as described below.
-22-
Income Tax
We recorded an income tax benefit of $65 million in the third quarter of 2001
and an income tax provision of $175 million in the third quarter of 2000. The
effective tax rates for the quarter and nine months ended September 30, 2001
were 26 percent and 12 percent, respectively, reflecting the provision of U.S.
taxes on certain previously undistributed earnings of low-taxed foreign
subsidiaries. The effective tax rates for the quarter and nine months ended
October 1, 2000 were 29 percent and 22 percent, respectively, reflecting the
realization of deferred tax assets for which no benefit was previously taken.
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 68 percent in the third
quarter of 2001 compared to 61 percent in the second quarter of 2001 and 57
percent in the third quarter of 2000. International sales as a percent of net
sales were 64 percent in the first nine months of 2001 compared to 57 percent in
the first nine months of 2000. During the third quarter of 2001, approximately
one percent of our net sales were denominated in foreign currencies compared to
six percent in the same period in 2000. We do not have sales denominated in
local currencies in countries that have highly inflationary economies. The
impact on our operating results from changes in foreign currency rates
individually and in the aggregate has not been significant.
Comparison of Segment Income
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) by segment for the periods
presented below:
Quarter Ended Nine Months Ended
-------------------------------- -------------------------
September 30, July 1, October 1, September 30, October 1,
(Millions) 2001 2001 2000 2001 2000
------------- ------- ---------- ------------- -----------
Core Products $ (124) $ 28 $ 256 $ 70 $ 642
Foundry Services (9) (6) 8 (15) 17
Voice Communications - - (1) - 35
------------- ------- ---------- ------------- -----------
Total $ (133) $ 22 $ 263 $ 55 $ 694
------------- ------- ---------- ------------- -----------
Core Products' operating results for the third quarter of 2001 decreased $152
million compared to the second quarter of 2001 and $380 million compared to the
third quarter of 2000. These decreases were primarily due to a decline in the
average selling prices and unit shipments of our core products, due to the
sustained downturn in the semiconductor, communications and networking equipment
industries. Core
-23-
Products' operating results for the first nine months of 2001 decreased 89
percent compared to the first nine months of 2000 due to the sustained downturn
in the semiconductor, communications and networking equipment industries,
resulting in a decrease in net sales of our Core Products. As a result of the
sale of Legerity, effective July 31, 2000, we no longer operate in our former
Voice Communications segment, resulting in no operating income in this segment
in the third quarter of 2001 compared to an operating loss of $1 million in this
segment in the third quarter of 2000.
-24-
--------------------------------------------------------------------------------
FINANCIAL CONDITION
Net cash provided by operating activities was $56 million in the first nine
months of 2001 primarily due to an increase of $472 million from depreciation
and amortization and a nonrecurring $89 million from restructuring and other
special charges, offset by year to date losses of $45 million, a reduction to
operating cash flows from net changes in deferred income taxes and foreign grant
and subsidy income of $53 million and a net decrease of $414 million from
changes in operating assets and liabilities.
Net cash provided by operating activities was $955 million in the first nine
months of 2000 primarily due to net income of $805 million, a nonrecurring $337
million non-cash adjustment from the gain on the sale of Legerity in 2000, an
increase of $429 million from depreciation and amortization, an increase of $71
million from income tax benefits from employee stock option exercises, and a
decrease of $28 million from foreign grant and subsidy income.
Net cash used in investing activities was $466 million during the first nine
months of 2001. Major uses of cash during the period included $542 million for
the purchases of property, plant and equipment, primarily for Dresden Fab 30 and
Asia manufacturing facilities and $122 million for additional equity investments
in FASL, offset by $196 million of net proceeds from the maturities of
available-for-sale securities.
Net cash used in investing activities was $540 million during the first nine
months of 2000 primarily due to $577 million from the purchase of property,
plant and equipment and $350 million for net purchases of available-for-sale
securities, offset by the nonrecurring $375 million we received from the sale of
Legerity.
Net cash provided by financing activities was $222 million during the first nine
months of 2001 primarily due to $342 million in proceeds from Dresden Fab 30
borrowing activities and $38 million in proceeds from the issuance of stock in
connection with stock option exercises and purchases under our Employee Stock
Purchase Plan, offset by $90 million in payments on debt and capital lease
obligations and $69 million from our repurchase of our common stock.
Net cash used in financing activities was $132 million during the first nine
months of 2000 primarily due to $394 million in payments on debt and capital
lease obligations, offset by $146 million in proceeds from borrowing activities
and $116 million in proceeds from issuance of stock.
Under our loan and security agreement, effective as of July 13, 1999, which
provides for a four-year secured revolving line of credit of up to $200 million,
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
Manufacturers and 50 percent of our eligible accounts receivable from
distributors. We must comply with certain financial covenants if the level of
domestic cash we hold declines to certain levels or the amount of borrowings
under our loan and security agreement rises to certain levels. Our obligation
under our loan and security agreement is secured by a pledge of most of our
accounts receivable, inventory, general intangibles and the related proceeds. As
of September
-25-
30, 2001, no funds were drawn under our loan and security agreement. In
addition, we had available unsecured, uncommitted bank lines of credit in the
amount of $24 million, none of which were outstanding.
We plan to make capital investments of approximately $800 million during 2001,
of which approximately $542 million has been incurred as of September 30, 2001.
These investments include those relating to the continued facilitization of
Dresden Fab 30 and our fabrication facility in Austin, Texas, known as Fab 25.
On January 29, 2001, we announced that our board of directors had authorized a
program to repurchase up to $300 million worth of our common stock over a period
of time to be determined by management. Any such repurchases have been and will
be made in the open market or in privately negotiated transactions from time to
time in compliance with Rule 10b-18 of the Securities Exchange Act, subject to
market conditions, applicable legal requirements and other factors. This program
does not obligate us to acquire any particular amount of our common stock, and
the program may be suspended at any time at our discretion. As of September 30,
2001, we had acquired 5,310,580 shares of our common stock at an aggregate cost
of $69 million.
On May 21, 2001, we redeemed all $517.5 million of our outstanding 6%
Convertible Subordinated Notes due 2005, which resulted in the conversion of
$517.3 million of such Notes into approximately 28 million shares of our common
stock. The remaining $0.2 million of Notes were paid in cash to investors.
On August 1, 2001, we redeemed all $43 million of our outstanding 11% Senior
Secured Notes due 2003.
AMD Saxony, an indirect wholly owned German subsidiary of AMD, has constructed
and has installed equipment in Dresden Fab 30, which began production in the
second quarter of 2000. AMD, the Federal Republic of Germany, the State of
Saxony and a consortium of banks are supporting the project. We currently
estimate that the construction and facilitization costs of Dresden Fab 30 will
be $2.6 billion when fully equipped by the end of 2003. We have invested $1.7
billion as of September 30, 2001. 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. The Dresden Loan Agreements provide
for the funding of the construction and facilitization of Dresden Fab 30. The
funding consists of:
. equity, subordinated loans and loan guarantees from AMD;
. loans from a consortium of banks; and
. grants, subsidies and loan guarantees from the Federal Republic of Germany
and the State of Saxony.
The Dresden Loan Agreements require that we partially fund Dresden Fab 30
project costs in the form of subordinated loans to, or equity investments in,
AMD Saxony. In accordance with the terms of the Dresden Loan Agreements, as of
September 30, 2001, we have invested $278 million in AMD Saxony in the form of
subordinated loans and equity investments. In addition to support from AMD, the
consortium of banks referred to above agreed to provide up to $708 million in
-26-
loans to AMD Saxony to help fund Dresden Fab 30 project costs. As of September
30, 2001, $662 million of the available loans were outstanding.
Finally, the Federal Republic of Germany and the State of Saxony are supporting
the Dresden Fab 30 project in the form of:
. guarantees of the lesser of 65 percent of AMD Saxony bank debt or $708
million;
. capital investment grants and allowances totaling $287 million; and
. interest subsidies totaling $144 million.
Of these amounts, AMD Saxony had received $284 million in capital investment
grants and allowances and $54 million in interest subsidies as of September 30,
2001. The grants and subsidies are subject to conditions, including meeting
specified levels of employment in December 2001 and maintaining those levels
until June 2007. Noncompliance with the conditions of the grants 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. As of September 30, 2001, we were in compliance with all of the conditions
of the grants and subsidies.
As most of the amounts under the Dresden Loan Agreements are denominated in
deutsche marks, the dollar amounts set forth above are subject to change based
on applicable conversion rates. We used the exchange rate at the end of the
third quarter of 2001, which was approximately 2.12 deutsche marks to one U.S.
dollar, to value the amounts denominated in deutsche marks.
In February 2001, we amended the Dresden Loan Agreements to reflect new capacity
and increased capital expenditure plans for Dresden Fab 30. Under the February
2001 amendments, we agreed to increase and extend our guaranty of AMD Saxony's
obligations and to make available to AMD Saxony revolving loans of up to $500
million. We expanded our obligation to reimburse AMD Saxony for the cost of
producing wafers for us, and we also agreed to cancel the cost overrun facility
made available by the banks. Under the February 2001 amendments, we were
released from financial covenants limiting capital expenditures and requiring
AMD Saxony to achieve capacity and production cost targets by the end of 2001.
The Dresden Loan Agreements, as amended, also require that we:
. provide interim funding to AMD Saxony if either the remaining capital
investment allowances or the remaining interest subsidies are delayed, such
funding to be repaid to AMD as AMD Saxony receives the grants or subsidies
from the State of Saxony;
. fund shortfalls in government subsidies resulting from any default under the
subsidy agreements caused by AMD Saxony or its affiliates; and
. guarantee up to 35 percent of AMD Saxony's obligations under the Dresden Loan
Agreements, which guarantee must not be less than $103 million or more than
$283 million, until the bank loans are repaid in full.
-27-
AMD Saxony would be in default under the Dresden Loan Agreement if we, AMD
Saxony or AMD Saxony Holding GmbH (AMD Holding), the parent company of AMD
Saxony and a wholly owned subsidiary of AMD, fail to comply with certain
obligations thereunder or upon the occurrence of certain events including:
. material variances from the approved plan and specifications;
. the failure to fund equity contributions or shareholder loans;
. violations of restrictions on sales of shares in AMD Saxony or AMD Holding;
. the failure to pay material obligations;
. the occurrence of a material adverse change or filings or proceedings in
bankruptcy or insolvency with respect to us, AMD Saxony or AMD Holding; and
. the occurrence of a default under our loan and security agreement.
Generally, any default with respect to borrowings made or guaranteed by AMD
results in recourse to us of more than $10 million and, if not cured by us,
would result in a cross-default under the Dresden Loan Agreements and our loan
and security agreement. As of September 30, 2001, we were in compliance with all
conditions of the Dresden Loan Agreements.
In the event we are unable to meet our obligation to make loans to, or equity
investments in, AMD Saxony as required under the Dresden Loan Agreements, AMD
Saxony would be unable to complete the continued facilitization of Dresden Fab
30. We would also be in default under the Dresden Loan Agreements and the loan
and security agreement, which default would permit acceleration of certain
indebtedness. 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.
FASL, a joint venture formed by AMD and Fujitsu Limited (Fujitsu) in 1993, is
continuing the facilitization of its second Flash memory device wafer
fabrication facility, FASL JV2, in Aizu-Wakamatsu, Japan. The facility,
including equipment, is expected to cost approximately $915 million when fully
equipped. As of September 30, 2001, approximately $870 million of this cost had
been funded. In July 2000, FASL broke ground for a third fabrication facility
for the manufacture of Flash memory devices in Aizu-Wakamatsu, Japan. The
facility, designated as FASL JV3, is expected to cost approximately $1.5 billion
when fully equipped. As of September 30, 2001, approximately $600 million and
facilitization of this cost has been funded. To date, capital expenditures for
construction of FASL JV2 and FASL JV3 have been funded by cash generated from
FASL operations and borrowings by FASL. FASL has also expanded its production
capacity through a foundry arrangement with Fujitsu Microelectronics, Inc.
(FMI). In connection with this foundry arrangement, we agreed to guarantee up to
$125 million of Fujitsu's obligations under FMI's credit facility. As of
September 30, 2001, we had a $125 million loan guarantee outstanding with
respect to this arrangement.
A significant portion of FASL capital expenditures in 2001 will continue to be
funded by cash generated from FASL operations. In addition, both Fujitsu and AMD
made capital contributions of 15 billion yen ($122 million) each to FASL during
the second quarter of 2001. Further, to the
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extent that additional funds are required for the full facilitization of FASL
JV2 and FASL JV3, AMD may be required to contribute cash or guarantee
third-party loans in proportion to our 49.992 percent interest in FASL. As of
September 30, 2001, we had $7 million in loan guarantees outstanding with
respect to these loans. These planned costs are incurred in yen and are,
therefore, subject to change due to foreign exchange rate fluctuations. On
September 30, 2001, the exchange rate was 119.05 yen to 1 U.S. dollar, the rate
we used to translate the amounts denominated in yen into U.S. dollars.
We believe that our cash flows from operations and current cash balances,
together with available external financing, will be sufficient to fund our
operations and capital investments for at least the next 12 months.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets", which is effective January 1, 2002. SFAS 144
supercedes SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of", and the accounting and reporting
provisions relating to the disposal of a segment of a business under Accounting
Principles Board Opinion No. 30. The Company does not expect that the adoption
of SFAS 144 will have a significant impact on its financial statements.
RISK FACTORS
Our business, results of operations and financial condition are subject to a
number of risk factors, including the following:
Flash Memory Products
The demand for Flash memory devices continues to be weak due to the sustained
downturn in the communications and networking equipment industries and excess
inventories held by our customers. In addition, competition in the market for
Flash memory devices is expected to increase in 2002 and beyond as competing
manufacturers introduce new products and industry-wide production capacity
increases. We may be unable to maintain or increase our market share in Flash
memory devices as the market develops and Intel and other competitors introduce
competitive products. A decline in sales of our Flash memory devices and/or
lower average selling prices could have a material adverse effect on our
business.
Microprocessor Products
AMD's Dependence on Microprocessor Sales. The microprocessor market is
characterized by short product life cycles and migration to ever-higher
performance microprocessors. To compete successfully against Intel in this
market, we must transition to new process technologies at a fast pace and offer
higher performance microprocessors in significantly greater volumes. If we fail
to achieve yield and volume goals or to offer higher performance microprocessors
in significant volume on a timely basis, our business could be materially and
adversely affected.
We must continue to successfully market our seventh-generation Microsoft Windows
compatible microprocessors, the AMD Athlon and AMD Duron microprocessors, in
order to increase our microprocessor product revenues in 2001 and beyond. To
sell the volume of AMD Athlon and AMD Duron microprocessors we currently plan to
manufacture through 2002, we must increase sales to existing customers and
develop new customers in both consumer and commercial markets. Our production
and sales plans for microprocessors are subject to other risks and
uncertainties, including:
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. our ability to achieve a successful marketing position for the AMD Athlon XP
microprocessor, which relies on market acceptance of a metric based on
overall processor performance versus processor speed;
. our ability to maintain average selling prices of microprocessors despite
increasingly aggressive Intel pricing strategies, marketing programs, new
product introductions and product bundling of microprocessors, motherboards,
chipsets and combinations thereof;
. our ability to continue offering new higher performance microprocessors
competitive with Intel's Pentium 4 processor;
. our ability, on a timely basis, to produce microprocessors in the volume and
with the performance and feature set required by customers;
. the pace at which we are able to ramp production in Dresden Fab 30 on 0.18-
and 0.13-micron copper interconnect process technology;
. our ability to expand our chipset and system design capabilities;
. the availability and acceptance of motherboards and chipsets designed for our
microprocessors; and
. the use and market acceptance of a non-Intel processor bus (adapted by us
from Digital Equipment Corporation's EV6 bus) in the design of our
seventh-generation and future generation microprocessors, and the
availability of chipsets from vendors who will develop, manufacture and sell
chipsets with the EV6 interface in volumes required by us.
If we fail to achieve continued and expanded market acceptance of our
microprocessors, our business may be materially and adversely affected.
Investment in AMD Microprocessor Products. We plan to continue to make
significant capital expenditures to support our microprocessor products both in
the near and long term. These capital expenditures will be a substantial drain
on our cash flow and may also decrease our cash balances.
Intel Dominance. Intel has dominated the market for microprocessors used in PCs
for many years. As a result, Intel has been able to control x86 microprocessor
and PC system standards and dictate the type of products the market requires of
Intel's competitors. In addition, the financial strength of Intel allows it to
vary prices on its microprocessors and other products at will. This aggressive
pricing strategy has resulted in lower average selling prices and adversely
affects our margins and profitability. Intel also exerts substantial influence
over PC manufacturers and their channels of distribution through the "Intel
Inside" brand program and other marketing programs. As long as Intel remains in
this dominant position, we may be materially and adversely affected by its:
. pricing strategies;
. product mix and introduction schedules;
. product bundling, marketing, and merchandising strategies;
. control over industry standards, PC manufacturers and other PC industry
participants, including motherboard, chipset and basic input/output system
(BIOS) suppliers; and
. user brand loyalty.
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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 also dominates the PC system platform. As a result, PC OEMs are
increasingly dependent on Intel, less innovative on their own and, to a large
extent, distributors of Intel technology. In marketing our microprocessors to
these OEMs and dealers, we depend on companies other than Intel for the design
and manufacture of core-logic chipsets, graphics chips, motherboards, BIOS
software and other components. In addition, these companies produce chipsets,
motherboards, BIOS software and other components to support each new generation
of Intel's microprocessors only if Intel makes information about its products
available to them in time to address market opportunities. Delay in the
availability of such information makes, and will continue to make, it
increasingly difficult for these third parties to retain or regain market share.
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-generation and future generation microprocessors will
depend on our ability to ensure that the microprocessors can be used in PC
platforms designed to support our microprocessors or that platforms are
available that support both Intel processors and our microprocessors. A failure
of the designers and producers of motherboards, chipsets, processor modules and
other system components to support our microprocessor offerings could have a
material adverse effect on our business.
Fluctuations in the PC Market. Our future growth is closely tied to the growth
of the PC industry. Industry-wide fluctuations in the PC marketplace have in the
past and may in the future materially and adversely affect our business.
Dependence on Microsoft and Logo License. Our ability to innovate beyond the x86
instruction set controlled by Intel depends on support from Microsoft in its
operating systems. If Microsoft does not provide support in its operating
systems for our x86 instruction sets, independent software providers may forego
designing their software applications to take advantage of our innovations. In
addition, we have entered into logo license agreements with Microsoft that allow
us to label our products as "Designed for Microsoft Windows." If we fail to
retain the support and certification of Microsoft, our ability to market our
processors could be adversely affected.
Demand for Our Products Affected by Worldwide Economic and Political Conditions
The economic slowdown in the United States and worldwide, exacerbated by the
occurrence and threat of terrorist attacks and consequences of sustained
military action, could adversely affect demand for our microprocessors, Flash
memory devices and other integrated circuits. Similarly, a continued decline of
the worldwide semiconductor market or a significant decline in economic
conditions in any significant geographic area could decrease the overall demand
for our products, which could have a material adverse effect on our business.
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Financing Requirements
We will have significant capital requirements during the remainder of 2001 and
in 2002. To the extent that we cannot generate the required capital internally
or obtain such capital externally, our business could be materially and
adversely affected.
In March 1997, our indirect wholly owned subsidiary, AMD Saxony, entered into
the Dresden Loan Agreements with a consortium of banks led by Dresdner Bank AG.
The Dresden Loan Agreements require that we partially fund Dresden Fab 30
project costs in the form of subordinated loans to, or equity investments in,
AMD Saxony. In February 2001, these agreements were amended. If 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, which would
permit acceleration of indebtedness.
In July 2000, FASL broke ground for a third fabrication facility, FASL JV3, for
the manufacture of Flash memory devices in Aizu-Wakamatsu, Japan. To the extent
that additional funds are required for the full facilitization of FASL JV2
and FASL JV3, AMD may be required to contribute cash or guarantee third-party
loans in proportion to our 49.992 percent interest in FASL. If we are unable to
fulfill our obligations to FASL, our business could be materially and adversely
affected.
Manufacturing
Capacity. From time to time, we underutilize our manufacturing facilities as a
result of reduced demand for certain of our products. We are substantially
increasing our manufacturing capacity by making significant capital investments
in Dresden Fab 30, FASL JV3 and our test and assembly facility in Suzhou, China.
If industry projections are inaccurate, or if the increase in demand for our
products is not consistent with our expectations, we may underutilize our
manufacturing facilities and our business could be materially and adversely
affected.
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 capacities to meet demand, either in our own
facilities or through foundry or similar arrangements with others, could have a
material adverse effect on our business. At this time, the risk is that we will
have underutilized capacity in Fab 25, in our manufacturing facilities that
support our Foundry Services segment and in the manufacturing facilities used to
make our Flash memory devices.
Conversion of Fab 25 to Flash Memory Device Production. We have begun to convert
Fab 25 from production of microprocessors to production of our Flash memory
devices. During the period of conversion, this asset may not be fully
productive. Further, we cannot be certain that we will be able to implement the
process technology for this conversion in a timely manner. A substantial delay
in the successful conversion of Fab 25 could have a material adverse effect on
our business.
Facilitization of Dresden Fab 30. Facilitization of Dresden Fab 30 is expected
to be completed by the end of 2003. During this process, Dresden Fab 30 will not
be fully productive. A substantial delay in the facilitization of Dresden Fab 30
could have a material adverse effect on our business.
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Process Technology. We make substantial investments in research and development
of process technologies in an effort to improve the technologies and equipment
used to fabricate our products. However, we cannot be certain that we will be
able to develop or obtain or successfully implement leading-edge process
technologies needed to fabricate future generations of our products.
Manufacturing Interruptions and Yields. Any substantial interruption of our
manufacturing operations, either as a result of a labor dispute, equipment
failure or other cause, could materially and adversely affect our business
operations. Further, manufacturing yields may be adversely affected by, among
other things, errors and interruptions in the fabrication process, defects in
raw materials, implementation of new manufacturing processes, equipment
performance and process controls.
Product Incompatibility. It is possible that our products may not be compatible
with some or all industry-standard software and hardware. Further, we may be
unsuccessful in correcting any such compatibility problems in a timely manner.
If our customers are unable to achieve compatibility with software or hardware
after our products are shipped in volume, we could be materially and adversely
affected. In addition, the mere announcement of an incompatibility problem
relating to our products could have a material adverse effect on our business.
Product Defects. It is possible that one or more of our products may be found to
be defective after the product has been shipped to customers in volume. The cost
of a recall, software fix, product replacements and/or product returns may be
substantial and could have a material and adverse effect on our business. In
addition, modifications needed to fix the defect may impede performance of the
product.
Essential Manufacturing Materials. Certain raw materials we use in the
manufacture of our products are available from a limited number of suppliers.
Interruption of supply or increased demand in the industry could cause shortages
and price increases in various essential materials. If we were unable to procure
certain of these materials, we might have to reduce our manufacturing
operations, which reduction could have a material adverse effect on our
business.
International Manufacturing and Foundries. Nearly all product assembly and final
testing of our products are performed at our manufacturing facilities in Penang,
Malaysia; Bangkok, Thailand; Suzhou, China; and Singapore; or by subcontractors
in the United States and Asia. We also depend on foreign foundry suppliers and
joint ventures for the manufacture of a portion of our finished silicon wafers.
The political and economic risks associated with foreign manufacturing and the
construction of foreign facilities include political instability, expropriation,
currency controls and fluctuations, changes in freight and interest rates,
disruption in air transportation between the United States and our overseas
facilities and loss or modification of exemptions for taxes and tariffs.
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Key Personnel
Our future success depends upon the continued service of numerous key
engineering, manufacturing, marketing, sales and executive personnel. If we are
not able to continue to attract, retain and motivate qualified personnel
necessary for our business, the progress of our product development programs
could be hindered and our business could be otherwise adversely affected.
Fluctuations in Operating Results
Our operating results are subject to substantial quarterly and annual
fluctuations due to a variety of factors, including decreases in unit average
selling prices of our products, general worldwide economic conditions, the gain
or loss of significant customers, market acceptance of our products and new
product introductions by us or our competitors. In addition, changes in the mix
of products produced and sold in the mix of sales by distribution channels, in
the availability and cost of products from our suppliers, or in production
capacity and manufacturing yields can contribute to periodic fluctuations in
operating results.
Our operating results also tend to vary seasonally. Our revenues are generally
lower in the first, second and third quarters of each year than in the fourth
quarter. This seasonal pattern is largely a result of decreased demand in Europe
during the summer months and higher demand in the retail sector of the PC market
during the winter holiday season.
Other Risk Factors
Technological Change and Industry Standards. The market for our products is
generally characterized by rapid technological developments, evolving industry
standards, changes in customer requirements, frequent new product introductions
and enhancements, short product life cycles and severe price competition. Our
success depends substantially on our ability, on a cost-effective and timely
basis, to continue to enhance our existing products, to develop and introduce
new products that take advantage of technological advances and meet the demands
of our customers.
Competition. The integrated circuit industry is intensely competitive. Products
compete on performance, quality, reliability, price, adherence to industry
standards, software and hardware compatibility, marketing and distribution
capability, brand recognition and availability. After a product is introduced,
costs and average selling prices normally decrease over time as production
efficiency improves, competitors enter the market and successive generations of
products are developed and introduced for sale.
Order Revision and Cancellation Policies. Sales of our products are made
primarily pursuant to purchase orders for current delivery or agreements
covering purchases over a period of time, which may be revised or canceled
without penalty. As a result, we must commit resources to the manufacture of
products without any advance purchase commitments from customers. Our inability
to sell finished products could have a material adverse effect on our business.
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Distributors typically maintain an inventory of our products. In most instances,
our agreements with distributors protect their inventory of our products against
price reductions, as well as products that are slow moving or have been
discontinued. These agreements, which may be canceled by either party on a
specified notice, generally allow for the return of our products if the
agreement with the distributor is terminated. The market for our products is
generally characterized by, among other things, severe price competition. The
price protection and return rights we offer to our distributors could materially
and adversely affect us if there is an unexpected significant decline in the
price of our products.
Intellectual Property Rights. We may not be able to adequately protect our
technology or other intellectual property, in the United States and abroad,
through patents, copyrights, trade secrets, trademarks and other measures. Any
patent licensed by us or issued to us could be challenged, invalidated or
circumvented or rights granted thereunder may not provide a competitive
advantage to us. Further, patent applications that we file may not be issued.
Despite our efforts to protect our rights, others may independently develop
similar products, duplicate our products or design around our patents and other
rights.
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 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 our business. We cannot give any
assurance that all necessary licenses can be obtained on satisfactory terms, or
whether litigation may always be avoided or successfully concluded.
California Energy Crisis. During 2001, California's two largest power companies
have experienced a power shortage that has resulted in periodic "rolling"
blackouts to maintain the stability of the state power grid. Certain of our
California facilities, including our headquarters, product design, sales and
process technology development facilities, are susceptible to power
interruptions as long as the energy crisis continues. Frequent power
interruptions could have a material adverse impact on our business.
Environmental Regulations. If we fail to comply with governmental regulations
related to the use, storage, handling, discharge or disposal of toxic, volatile
or otherwise hazardous chemicals used in the manufacturing process, we may be
subject to fines, suspension of production, alteration of our manufacturing
processes or cessation of our operations. Such regulations could require us to
procure expensive remediation equipment or to incur other expenses to comply
with environmental regulations. Any failure to control the use of, disposal or
storage of, or adequately restrict the discharge of, hazardous substances could
subject us to future liabilities and could have a material adverse effect on our
business.
International Sales. Our international sales operations entail political and
economic risks, including expropriation, currency controls, exchange rate
fluctuations, changes in freight rates and changes in rates and exemptions for
taxes and tariffs.
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Volatility of Stock Price; Ability to Access Capital. Based on the trading
history of our stock, we believe that the following factors have caused and are
likely to continue to cause the market price of our common stock to fluctuate
substantially:
. quarterly fluctuations in our operating and financial results;
. announcements of new products and/or pricing by us or our competitors;
. the pace of new process technology and product manufacturing ramps;
. production yields of key products; and
. general conditions in the semiconductor industry.
In addition, an actual or anticipated shortfall in revenue, gross margins or
earnings from securities analysts' expectations could have an immediate effect
on the trading price of our common stock. Technology company stocks in general
have experienced extreme price and volume fluctuations that are often unrelated
to the operating performance of the companies. Market volatility may adversely
affect the market price of our common stock and consequently limit our ability
to raise capital or to make acquisitions.
Earthquake Danger. Our corporate headquarters, a portion of our manufacturing
facilities, assembly and research and development activities and certain other
critical business operations are located near major earthquake fault lines. We
could be materially and adversely affected in the event of a major earthquake.
Euro Conversion. On January 1, 1999, eleven of the fifteen member countries of
the European Union established fixed conversion rates between their existing
currencies and the euro. The participating countries adopted the euro as their
common legal currency on that date. The transition period will last through
January 1, 2002. We do not expect the introduction and use of the euro to
materially affect our foreign exchange activities or our use of derivatives and
other financial instruments or to result in any material increase in costs to
us. We will continue to assess the impact of the introduction of the euro
currency over the transition period.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In February 2001, we cancelled the interest rate swap agreement with a
counterparty under which the difference between fixed- and floating-rate
interest amounts calculated on an agreed-upon notional principal amount ($400
million) was exchanged at specified intervals. The cancellation resulted in a
gain to us of $475,000.
For additional Quantitative and Qualitative Disclosures about Market Risk,
including other foreign exchange risks associated with Dresden Fab 30, 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 31, 2000.
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PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.55 Amended and Restated Employment Agreement, dated as of
September 19, 2001, between AMD and Hector de J. Ruiz.
(b) Reports on Form 8-K
1. A Current Report on Form 8-K dated July 5, 2001, reporting under Item 5 -
Other Events, was filed announcing expected sales in the second quarter.
2. A Current Report on Form 8-K dated July 12, 2001, reporting under Item 5 -
Other Events, was filed announcing our second quarter results.
38
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.
ADVANCED MICRO DEVICES, INC.
Date: November 13, 2001 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
39