<PAGE>
Form 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 27, 1994
--------------------
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
P. O. Box 3453
Sunnyvale, California 94088-3453
- --------------------- --------------
(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
------- -------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of March 27, 1994:
Common Stock, $0.01 par value 92,770,327
- ----------------------------- ------------------------
Class Number of Shares
<PAGE>
ADVANCED MICRO DEVICES, INC.
----------------------------
INDEX
-----
<TABLE>
<CAPTION>
Page No.
--------
<S> <C> <C>
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Statements of Income--
Quarters Ended March 27, 1994
and March 28, 1993 3
Condensed Consolidated Balance Sheets--
March 27, 1994 and December 26, 1993 4
Condensed Consolidated Statements of Cash Flows--
Quarters Ended March 27, 1994
and March 28, 1993 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition 9
Part II. Other Information
Item 1. Legal Proceedings 14
Item 5 Other Information 23
Item 6. Exhibits and Reports on Form 8-K 24
Signature 25
</TABLE>
2
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I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ADVANCED MICRO DEVICES, INC.
----------------------------
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
-------------------------------------------
(Unaudited)
(Thousands Except Per Share Amounts)
<TABLE>
<CAPTION>
Quarter Ended
------------------------
March 27, March 28,
1994 1993
--------- ---------
<S> <C> <C>
Net Sales $513,080 $407,433
Expenses:
Cost of sales 230,437 194,082
Research and development 68,221 61,827
Marketing, general and administrative 92,894 68,481
-------- --------
391,552 324,390
-------- --------
Operating income 121,528 83,043
Interest and other income, net 3,603 3,387
Interest expense (739) (1,082)
-------- --------
Income before taxes on income 124,392 85,348
Provision for taxes on income 39,805 23,897
-------- --------
Net income 84,587 61,451
Preferred stock dividends 2,588 2,587
-------- --------
Net income applicable to common shareholders $ 81,999 $ 58,864
======== ========
Net income per common share
Primary $ 0.85 $ 0.63
======== ========
Fully diluted $ 0.82 $ 0.61
======== ========
Shares used in per share calculation
Primary 96,233 93,751
======== ========
Fully diluted 103,670 100,820
======== ========
</TABLE>
See accompanying notes
- ----------------------
3
<PAGE>
ADVANCED MICRO DEVICES, INC.
----------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
(Thousands)
<TABLE>
<CAPTION>
March 27, December 26,
1994 1993
(Unaudited) (Audited)
----------- ------------
<S> <C> <C>
Assets
- ------
Current assets:
Cash and cash equivalents $ 84,405 $ 60,423
Temporary cash investments 458,282 427,775
----------- -----------
Total cash and cash equivalents, and
temporary cash investments 542,687 488,198
Accounts receivable, net 313,972 263,617
Inventories:
Raw materials 14,953 15,371
Work-in-process 59,372 56,504
Finished goods 30,507 32,175
----------- -----------
Total inventories 104,832 104,050
Prepaid expenses and other current assets 33,082 30,399
Deferred income taxes 77,924 77,922
----------- -----------
Total current assets 1,072,497 964,186
Property, plant and equipment, at cost 2,043,892 1,998,363
Accumulated depreciation and amortization (1,127,402) (1,094,037)
----------- -----------
Net property, plant and equipment 916,490 904,326
Other assets 69,256 60,719
----------- -----------
$ 2,058,243 $ 1,929,231
=========== ===========
Liabilities and Stockholders' Equity
- ------------------------------------
Current liabilities:
Notes payable to banks $ 33,304 $ 30,994
Accounts payable 102,976 127,151
Accrued compensation and benefits 88,977 81,860
Accrued liabilities 88,588 83,982
Income tax payable 64,726 34,991
Deferred income on shipments to distributors 90,618 74,436
Long-term debt and capital lease obligations due
within one year 22,439 21,205
----------- -----------
Total current liabilities 491,628 454,619
Deferred income taxes 42,837 42,837
Long-term debt and capital lease obligations due
after one year 81,108 79,504
Stockholders' equity:
Capital stock:
Serial preferred stock, par value 35 35
Common stock, par value 929 926
Capital in excess of par value 628,130 619,733
Retained earnings 813,576 731,577
----------- -----------
Total stockholders' equity 1,442,670 1,352,271
----------- -----------
$ 2,058,243 $ 1,929,231
=========== ===========
</TABLE>
See accompanying notes
- ----------------------
4
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ADVANCED MICRO DEVICES, INC.
----------------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------
(Unaudited)
(Thousands)
<TABLE>
<CAPTION>
Quarter Ended
-----------------------------
March 27, March 28,
1994 1993
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 84,587 $ 61,451
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 50,972 40,775
Net gain on sale of property, plant and equipment (224) (175)
Write-down of property, plant and equipment 338 169
Compensation recognized on employee stock plans 384 315
Net increase in deferred income taxes (2) (26,670)
Increase in income tax payable 35,065 44,734
Changes in operating assets and liabilities:
Net increase in receivables, inventories,
prepaids and other assets (62,357) (4,033)
Net increase in payables and accrued liabilities 3,730 12,503
--------- ---------
Net cash provided by operating activities 112,493 129,069
--------- ---------
Cash flows from investing activities:
Purchase of property, plant and equipment (53,126) (91,327)
Proceeds from sale of property, plant and equipment 241 183
Purchase of held-to-maturity debt securities (161,968) (228,206)
Proceeds from sale of held-to-maturity debt securities 131,461 224,226
--------- ---------
Net cash used in investing activities (83,392) (95,124)
--------- ---------
Cash flows from financing activities:
Proceeds from borrowings 12,412 -
Principal payments on borrowings (17,629) (8,209)
Net proceeds from issuance of stock 2,686 5,376
Payments of preferred stock dividends (2,588) (2,587)
--------- ---------
Net cash used in financing activities (5,119) (5,420)
--------- ---------
Net increase in cash and cash equivalents 23,982 28,525
Cash and cash equivalents-beginning of period 60,423 52,027
--------- ---------
Cash and cash equivalents-end of period $ 84,405 $ 80,552
========= =========
Supplemental disclosures of cash flow information:
Cash paid during the first quarter for:
Interest (net of amounts capitalized) $ - $ 829
========= =========
Income taxes $ 4,749 $ 5,695
Non-cash financing activities: ========= =========
Equipment capital leases $ 10,365 $ 2,953
========= =========
</TABLE>
See accompanying notes
- ----------------------
5
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
- ----------------------------------------------------
1. The results of operations for the interim periods shown in this report are
not necessarily indicative of results to be expected for the fiscal year. In
the opinion of 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.
2. The company is currently involved in the following litigations with Intel
Corporation: (1) the Technology Agreement Arbitration, (2) the '287
Microcode Litigation, (3) the '386 Microcode Litigation, (4) the '486
Microcode Litigation, (5) the Business Interference Case, (6) the Antitrust
Case, and (7) the International Trade Commission Proceeding. These
litigations, except for the Antitrust Case, arise principally out of disputes
over the nature, scope and duration of the intellectual property rights
granted to the company under two agreements: (i) a 1976 Cross-License
Agreement and (ii) a 1982 Technology Exchange Agreement (collectively, the
"Agreements").
On March 10, 1994, a federal court jury in San Jose, California returned
verdicts in the 287 Microcode Litigation finding that a 1976 patent and
copyright agreement between AMD and Intel (the "1976 Agreement") granted AMD
rights to sell microchips containing Intel microcodes. The Court entered a
judgment on the verdicts in AMD's favor on March 11, 1994. Prior to the
jury's determination, AMD and Intel agreed that the jury's verdicts would be
determinative of the question whether the 1976 Agreement grants AMD the right
to copy microcodes contained in Intel microprocessors and peripheral
microchips, including not only the 287 math co-processor, but generally as to
all microprocessors and peripheral microchips, specifically including the 386
and 486 microprocessors.
Intel has indicated that it intends to appeal the verdicts in the 287 case
and it is expected that the appeal process will take at least one year. It is
AMD's expectation that Intel, notwithstanding the March 10, 1994 verdicts or
any other ruling adverse to Intel in the pending legal proceedings with AMD,
will continue to pursue the remaining intellectual property claims in the
pending litigations against the company.
An unfavorable ultimate decision in the 287, 386 or 486 Microcode Litigation
could result in a material monetary damages award to Intel and/or preclude
the company from continuing to produce those Am386 and Am486 products
adjudicated to contain any copyrighted Intel microcode. Therefore, such
litigations could have a materially adverse impact on the financial condition
and results of operations of the company.
The AMD/Intel Litigations involve multiple interrelated and complex issues
of fact and law. Therefore, the ultimate outcome of the AMD/Intel
Litigations cannot presently be determined. Accordingly, no provision for
any liability that may result upon the adjudication of the AMD/Intel
Litigations has been made in the company's financial statements.
3. Five class-action complaints and one stockholders' derivative action were
filed against the company and certain officers and directors in September and
October of 1993. The complaints generally allege violations of federal
securities laws and breaches of obligations, based on statements made by the
company regarding the development of its Am486 products and statements
contained in the company's 1993 third quarter earnings release. The class
action suits have been consolidated and the amount of damages sought is
unspecified. The company believes the resolutions of these actions will not
have a material adverse impact on the financial condition of the company.
4. AMD has three groundwater contamination sites that are on the Federal
Superfund list. The company is in the process of an extensive cleanup and
studies of its sites and is meeting all
6
<PAGE>
regulatory requirements. Management believes these matters will not have a
material adverse effect on the financial condition or overall trends in the
results of operations of the company.
5. The effective tax rates used for the first quarters of 1994 and 1993 were 32
percent and 28 percent, respectively.
6. In 1993, the company and Fujitsu Limited established a joint venture,
"Fujitsu-AMD Semiconductor Limited (FASL)." AMD's share of FASL is 49.95
percent, and this investment is being accounted for under the equity method.
Through the first quarter of 1994, the amount invested in FASL and the
company's share of the results of operations of FASL are immaterial.
7. Effective December 27, 1993, the company adopted the Statement of Financial
Accounting Standards No. 115 (SFAS No. 115), "Accounting for Certain
Investments in Debt and Equity Securities." Under SFAS No. 115, all affected
debt and equity securities must be stated at fair value and classified as
held-to-maturity, trading, or available-for-sale. The cumulative effect as
of December 27, 1993, of adopting SFAS No. 115 is considered to be
immaterial.
Management determines the appropriate classification of debt securities at
the time of purchase and reevaluates such designation as of each balance
sheet date. Debt securities are classified as held-to-maturity when the
company has the positive intent and ability to hold the securities to
maturity. Held-to-maturity securities are stated at amortized cost.
Cash and cash equivalents and temporary cash investments include the
following held-to-maturity debt securities as of March 27, 1994 (in
thousands):
<TABLE>
<S> <C>
Security repurchase agreements $ 33,800
Other 1,631
--------
Held-to-maturity debt securities 35,431
Cash 48,974
--------
Total cash and cash equivalents $ 84,405
========
Certificates of deposit $346,845
Corporate notes 61,415
Treasury notes 40,221
Commercial paper 9,801
--------
Total temporary cash investments $458,282
========
</TABLE>
The market value of the above held-to-maturity debt securities approximates
amortized cost as of March 27, 1994.
7
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8. Shares used in the primary net income per common share computation are the
weighted average number of common shares outstanding plus dilutive common
share equivalents. The fully diluted computation also includes other
dilutive convertible securities. Shares used in the per share computations
are as follows:
<TABLE>
<CAPTION>
Quarter Ended
---------------------------------
March 27, March 28,
1994 1993
--------- ---------
(Thousands)
<S> <C> <C>
Primary:
Common shares outstanding 92,575 88,935
Employee stock plans 3,658 4,816
--------- ---------
96,233 93,751
========= =========
Fully diluted:
Common shares outstanding 92,575 88,935
Employee stock plans 4,239 5,029
Preferred stock 6,856 6,856
--------- ---------
103,670 100,820
========= =========
</TABLE>
8
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
-----------------------------------------------------------------
FINANCIAL CONDITION
-------------------
The following discussion should be read in conjunction with the attached
condensed consolidated financial statements and notes thereto, and with the
company's audited financial statements and notes thereto for the fiscal year
ended December 26, 1993.
RESULTS OF OPERATIONS
AMD reported record sales, operating income and net income for the first quarter
of 1994. Net sales of $513.1 million for the first quarter of 1994, rose by 26
percent from sales of $407.4 million for the first quarter of 1993. This
increase was primarily attributable to substantial growth in Am486(Trademark)
microprocessor sales, partially offset by significantly lower sales of
Am386(Registered Trademark) products.
Sales to international customers for the first quarter of 1994 and 1993 were 53
percent and 56 percent, respectively. First quarter sales grew in North America
and Europe while sales in Asia declined as compared to the same quarter a year
ago.
Due to their maturing life cycle, sales of Am386 microprocessors decreased
substantially as compared to the first quarter of 1993, resulting from both unit
shipment and average-selling-price declines. Management anticipates Am386
microprocessor revenue will continue on its downward trend for the remainder of
1994 since the market has transitioned to 486 technology.
The company's Am386 and Am486 products have been the subject of litigation with
Intel Corporation (see Footnote 2 of the consolidated financial statements, Part
II, Item 1, Legal Proceedings). On March 10, 1994, a federal court jury in San
Jose, California returned verdicts in the 287 microcode litigation finding that
a 1976 patent and copyright agreement between AMD and Intel (the "1976
Agreement") granted AMD rights to sell microchips containing Intel microcodes.
The Court entered a judgment on the verdicts in AMD's favor on March 11, 1994.
Prior to the jury's determination, AMD and Intel agreed that the jury's verdicts
would be determinative of the question whether the 1976 Agreement grants AMD the
right to copy microcodes contained in Intel microprocessors and peripheral
microchips, including not only the 287 math co-processor, but generally as to
all microprocessors and peripheral microchips, specifically including the 386
and 486 microprocessors.
Intel has indicated that it intends to appeal the verdicts in the 287 case and
it is expected that the appeal process will take at least one year. It is AMD's
expectation that Intel, notwithstanding the March 10, 1994 verdicts or any other
ruling adverse to Intel in the pending legal proceedings with AMD, will continue
to pursue the remaining intellectual property claims in the pending litigations
against the company.
An unfavorable ultimate decision in the 287, 386 or 486 microcode litigation
could result in a material monetary damages award to Intel and/or preclude the
company from continuing to produce those Am386 and Am486 products adjudicated to
contain any copyrighted Intel microcode. Therefore, such litigations could have
a materially adverse impact on the financial condition and results of operations
of the company.
During 1993, the company's X86 business transitioned from Am386 to Am486
products. The company began shipments of its Am486DX microprocessors during the
second quarter of 1993.
Am386 is a registered trademark of Advanced Micro Devices, Inc.
Am486 is a trademark of Advanced Micro Devices, Inc.
9
<PAGE>
Since that time, Am486DX unit shipments have grown significantly. In the first
quarter of 1994, unit shipments of Am486DX devices exceeded 900,000 units while
average selling prices declined moderately as compared to the immediate prior
quarter. It is expected that selling prices will continue to decline due to
competitive pressures.
The company has initiated an aggressive manufacturing plan in its Submicron
Development Center (SDC); nevertheless, Am486 product demand is expected to
exceed production capacity in the second quarter of 1994. In February 1994, the
company and Digital Equipment Corporation (Digital) entered into a foundry
agreement for AMD's Am486 microprocessors. The agreement is for two years with
an option for extension at the end of that period. However, both parties have
certain rights to terminate this agreement earlier in the event of adverse
developments in the company's microprocessor-related litigations. Initial
shipments of Am486 products from wafers manufactured by Digital are expected to
begin in the fourth quarter of 1994. The company may enter into additional
foundry arrangements in order to supplement internal capacity based on business
conditions. Regardless of these foundry arrangements, the company's production
capacity is expected to increase in late 1995 due to the completion of its
700,000 square-foot submicron semiconductor manufacturing complex in Austin,
Texas (Fab 25).
An unfavorable ultimate decision in the 287 or the 486 Microcode Litigations
could affect the company's ability to continue to ship and produce its Am486DX
products or, in the case of the 486 Microcode Litigation, could result in a
material monetary damages award to Intel, either of which could have an
immediate, material adverse impact on the company's results of operations and
financial condition. The AMD/Intel legal proceedings involve multiple
interrelated and complex issues of fact and law. The ultimate outcome of such
proceedings cannot presently be determined. Accordingly, no provision for any
liability that may result upon the adjudication of the AMD/Intel legal
proceedings has been made in the company's financial statements.
The company is also developing its next generation of microprocessors, referred
to as the K-series, based on superscalar RISC-type architecture. Development of
the initial K-series products is expected to be completed in the fourth quarter
of 1994 or early 1995.
In addition to the above-mentioned litigations, the future outlook for AMD's
microprocessor business is highly dependent upon microprocessor market
conditions, which are subject to both demand and price elasticity. Future
growth will depend on the market demand for Am486 products and AMD's future
generation microprocessors, and the company's ability to meet this demand.
For the first quarter of 1994, revenues of network, data and telecommunication
products increased slightly as compared to the first quarter of 1993. This
increase was mainly attributable to strong growth in Ethernet products partially
offset by decreased sales of data communication products. Sales of embedded
processors and microcontrollers in the first quarter of 1994 decreased slightly
from the first quarter of 1993.
First quarter sales of flash memory devices grew slightly as compared to the
corresponding quarter a year ago due to an increase in unit shipments. However,
flash sales decreased substantially as compared to the immediate prior quarter
due to pricing pressures from increased competition. It is expected that these
pricing pressures will continue through 1994. The company plans to meet
projected long-term demand for flash memory devices through a manufacturing
joint venture with Fujitsu Limited of Japan, which is expected to begin volume
production in the first half of 1995.
10
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Revenues of erasable programmable read-only memories (EPROMs) in the first
quarter of 1994 grew from the similar prior period due to increased capacity
resulting from foundry arrangements and higher average prices due to greater
demand.
Sales of CMOS programmable logic devices (PLDs) increased in the first quarter
of 1994 as compared to the same quarter last year, primarily driven by
MACH(Trademark) family products (mid-density PLDs). However, this increase was
offset by a decrease in bipolar PLD sales. Management expects flat PLD sales in
the second quarter of 1994 as sales growth, if any, in MACH family products may
be offset by bipolar PLD sales decline.
Cost of sales of $230.4 million for the first quarter of 1994 contributed to a
gross margin of 55 percent as compared to a gross margin of 52 percent in the
first quarter of 1993. This increase in gross margin was primarily related to
higher margins from Am486 products. Gross margins for the remainder of 1994 are
dependent upon the strength of market demand for Am486 devices and the company's
ability to meet that demand.
Research and development expenses increased to $68.2 million in the first
quarter of 1994 from $61.8 million in the same quarter last year due to higher
research and development spending in Fab 25 and most product lines. The company
expects research and development expenses to remain relatively stable for the
remainder of 1994.
Marketing, general and administrative expenses grew by $24.4 million to $92.9
million for the first quarter of 1994 from $68.5 million for the first quarter
of 1993. This increase was mainly due to increased legal fees relating to
litigations with Intel, microprocessor advertising rebates and profit sharing.
In summary, total operating expenses for the first quarter of 1994 were $391.6
million, a $67.2 million increase over the $324.4 million operating expenses for
the first quarter of 1993. However, operating expenses as a percentage of sales
decreased in the first quarter of 1994 as compared to the same quarter a year
ago. Consequently, operating income as a percentage of sales increased to 24
percent in the first quarter of 1994 as compared to 20 percent in the same
quarter last year. Although the company is continuing to focus on cost
containment, operating expenses may rise through 1994 in both absolute dollars
and as a percentage of sales due to start-up manufacturing costs for Fab 25,
further increases in depreciation, and higher foundry expenses which are
dependent on product demand.
Interest and other income rose slightly to $3.6 million in the first quarter of
1994 as compared to $3.4 million in the first quarter of 1993, due to higher
cash available for investment. Interest expense was $.7 million for the first
quarter of 1994, down from $1.1 million in the first quarter of 1993 due to
lower average borrowing rates.
Provision for income taxes was $39.8 million, or 32 percent, for the first
quarter of 1994 compared to $23.9 million, or 28 percent, for the first quarter
of 1993. The higher provision in 1994 was primarily due to reduced benefits
from low taxed foreign income and from available tax credit carryforwards.
Management expects that the provision for taxes on income will remain at
approximately 32 percent through 1994.
The company recorded net income before preferred stock dividends of $84.6
million in the first quarter of 1994, up from $61.5 million in the first quarter
of 1993. After preferred stock
MACH is a trademark of Advanced Micro Devices, Inc.
11
<PAGE>
dividends of $2.6 million for both quarters, the primary net income per common
share was $.85 for the first quarter of 1994 and $.63 for the same quarter a
year ago.
FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS AND FINANCIAL CONDITION
- ----------------------------------------------------------------------------
The semiconductor industry is generally characterized by a highly competitive
and rapidly changing environment in which operating results are often subject to
the effects of new product introductions, manufacturing technology innovations,
rapid fluctuations in product demand, and the ability to secure intellectual
property rights. While the company attempts to identify and respond to these
changes as soon as possible, the rapidity of their onset makes prediction of and
reaction to such events an ongoing challenge.
The company believes that its future results of operations and financial
condition could be impacted by the following factors: market acceptance and
timing of new products, trends in the personal computer marketplace, capacity
constraints, intense price competition, interruption of manufacturing materials
supply, negative changes in international economic conditions and decisions in
legal disputes relating to intellectual property rights.
Due to the factors noted above, the company's future operations, financial
condition and stock price may be subject to volatility. In addition, a
shortfall in revenue or earnings from securities analysts' expectations could
have an immediate adverse effect on the trading price of the company's common
stock in any given period.
FINANCIAL CONDITION
- -------------------
The company's financial condition improved during the first quarter of 1994.
Cash and cash equivalents, and temporary cash investments increased by $54.5
million to $542.7 million from December 26, 1993 to March 27, 1994. Net cash
provided by operating activities was offset by the purchase of property, plant
and equipment to expand manufacturing capacity, and the purchase of held-to-
maturity debt securities in the first quarter of 1994. Positive cash flow
decreased slightly in the first quarter of 1994 as higher net income was offset
by an increase in accounts receivable.
Working capital grew by $71.3 million from $509.6 million at the end of 1993 to
$580.9 million in the first quarter of 1994. This growth was primarily due to
an increase in cash and cash equivalents, temporary cash investments and
accounts receivable resulting from higher sales.
The company is currently involved in litigations with Intel. While it is
impossible to predict the resolutions of the AMD/Intel litigations, there could
be a material adverse effect on the financial condition, or trends in results of
operations of the company, or the ability to raise necessary capital, or some
combination of the foregoing if the outcome of the Intel litigations either
results in an award to Intel of material monetary damages, or the company's
intellectual property rights are not sustained with regard to certain
microprocessor products currently the subject of litigation with Intel (see
footnote 2 of the consolidated financial statements, Part II, Item 1, Legal
Proceedings).
12
<PAGE>
In July 1993, the company commenced construction of its 700,000 square-foot
submicron semiconductor manufacturing complex in Austin, Texas. Known as Fab
25, the new facility is expected to cost approximately $1 billion when fully
equipped. The first phase of construction and initial equipment installation is
expected to cost approximately $400 million through 1994. Volume production is
scheduled to begin in late 1995.
The company and Fujitsu Limited are cooperating in building and operating an
approximately $800 million wafer fabrication facility in Aizu-Wakamatsu, Japan
through their joint venture "Fujitsu AMD Semiconductor Limited (FASL)". The
forecasted joint venture costs are denominated in yen and therefore are subject
to change due to fluctuations of foreign exchange rates. Each company will
contribute equally toward funding and supporting FASL. AMD is expected to
contribute approximately half of its share of funding in cash and guarantee
third-party loans made to FASL for the remaining half. However, to the extent
debt cannot be secured by FASL, AMD is required to contribute its portion in
cash. Through the first quarter of 1994, the company's investment in FASL was
immaterial; however, management anticipates this investment will increase
substantially, to approximately $135 million by the end of 1994. The company is
also required under the terms of the joint venture to contribute approximately
one-half of such additional amounts as may be necessary to sustain FASL's
operations. The facility is expected to begin operations in the fourth quarter
of 1994 utilizing CMOS process technology. Volume production is expected to
commence in the first half of 1995.
As of the end of the first quarter of 1994, the company had the following
financing arrangements: unsecured committed bank lines of credit of $105
million, unutilized; long-term secured equipment lease lines of $110 million, of
which $75 million were utilized; and short-term, unsecured uncommitted bank
credit in the amount of $84 million, of which $33 million was outstanding.
The company's current capital plan and requirements are based on various
product-mix, selling-price and unit-demand assumptions and are, therefore,
subject to revision due to future market changes and litigation outcomes.
In April 1994, AMD filed with the Securities and Exchange Commission a shelf
registration statement covering the offer and sale of up to $400 million of its
securities, which may be debt securities, preferred stock, depositary shares
representing fractions of shares of preferred stock, common stock, warrants to
purchase common stock or any combination of the foregoing which the company may
offer from time to time in the future. Such registration statement is not yet
effective. Any sale of securities by the company will occur through the use of
a prospectus contained in the registration statement. The precise nature and
terms of the securities to be offered and sold by the company will be
established at the time of their sale (see Part II, Item 5).
The company, given the current business prospects, also intends to call all of
its outstanding preferred shares for redemption when market conditions permit.
In such event, all of AMD's outstanding depositary shares would also be
redeemed. Each depositary share represents one-tenth of a preferred share, and
each ten depositary shares are convertible into 19.873 shares of AMD's common
stock (see Part II, Item 5).
Management believes that, absent unfavorable litigation outcomes, cash flows
from operations and current cash balances, together with current and anticipated
available long-term financing, will be sufficient to fund operations, capital
investments, and research and development projects currently planned for the
remainder of 1994.
13
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II. OTHER INFORMATION
-----------------
ITEM 1. LEGAL PROCEEDINGS
-----------------
A. INTEL
-----
GENERAL
-------
Advanced Micro Devices, Inc. ("AMD" or "company") and Intel Corporation
("Intel") are engaged in a number of legal proceedings involving AMD's X86
products. The current status of such legal proceedings are described below. An
unfavorable ultimate decision in the 287, 386 or 486 microcode cases could
result in a material monetary award to Intel and/or preclude AMD from continuing
to produce those Am386 (Registered Trademark) and Am486 (Trademark) products
adjudicated to contain any copyrighted Intel microcode. The Am486 products are a
material part of the company's business and profits and such an unfavorable
decision could have an immediate, materially adverse impact on the financial
condition and results of the operations of AMD.
The AMD/Intel legal proceedings involve multiple interrelated and complex issues
of fact and law. The ultimate outcome of such legal proceedings cannot
presently be determined. Accordingly, no provision for any liability that may
result upon an adjudication of any of the AMD/Intel legal proceedings has been
made in the company's financial statements.
On March 10, 1994, a federal court jury in San Jose, California returned
verdicts in the 287 microcode litigation discussed in A.2 below finding that a
1976 patent and copyright agreement between AMD and Intel (the "1976 Agreement")
granted AMD rights to sell microchips containing Intel microcodes. The Court
entered a judgment on the verdicts in AMD's favor on March 11, 1994. Prior to
the jury's determination, AMD and Intel agreed that the jury's verdicts would be
determinative of the question whether the 1976 Agreement grants AMD the right to
copy microcodes contained in Intel microprocessors and peripheral microchips,
including not only the 287 math co-processor, but generally as to all
microprocessors and peripheral microchips, specifically including the 386 and
486 microprocessors.
Intel has indicated that it intends to appeal the verdicts in the 287 case and
it is expected that the appeal process will take at least one year. It is AMD's
expectation that Intel, notwithstanding the March 10, 1994 verdicts or any other
ruling adverse to Intel in the pending legal proceedings with AMD, will continue
to pursue the remaining intellectual property claims in the pending litigations
against the company.
14
<PAGE>
STATUS OF CASES
---------------
1. AMD/Intel Technology Agreement Arbitration.
------------------------------------------
A 1982 technology exchange agreement (the "1982 Agreement") between AMD and
Intel has been the subject of a dispute which was submitted to Arbitration
through the Superior Court of Santa Clara County, California and the matter is
now at the California Supreme Court on appeal. The dispute centers around issues
relating to whether Intel breached its agreement with AMD and whether that
breach injured AMD, as well as the remedies available to AMD for such a breach.
In February 1992, the Arbitrator awarded AMD several remedies including the
following: a permanent, royalty-free, nonexclusive, nontransferable worldwide
right to all Intel copyrights, patents, trade secrets and mask work rights, if
any, contained in the then-current version of AMD's Am386 family of
microprocessors; and a two-year extension, until December 31, 1997, of the
copyright and patent rights granted to AMD. Intel appealed this decision as it
relates to the technology award. On May 22, 1992, the Superior Court in Santa
Clara County confirmed the Arbitrator's award and entered judgment in the
Corporation's favor on June 1, 1992. Intel appealed the decision confirming the
Arbitrator's award in state court. On June 4, 1993, the California Court of
Appeal affirmed in all respects the Arbitrator's determinations that Intel
breached the 1982 Agreement. However, the Court of Appeal held that the
Arbitrator exceeded his powers in awarding to AMD a license to Intel
intellectual property, if any, in AMD's Am386 microprocessor and in extending
the 1976 Agreement between AMD and Intel by two years. As a result, the Court
of Appeal ordered the lower court to correct the award to remove these rights
and then confirm the award as so corrected.
On September 2, 1993, the California Supreme Court granted the company's
petition for review of the California Court of Appeal decision that the
Arbitrator exceeded his authority. The company has requested that the
California Supreme Court affirm the judgment confirming the Arbitrator's award
to the company, which includes the right to the Intel 386 microcode.
If the California Supreme Court reverses the decision of the California Court of
Appeal and affirms the Arbitrator's award, the company would assert the
Arbitrator's award as well as the verdicts in the 287 Microcode case discussed
below as defenses against Intel's intellectual property claims in the 386 and
486 Microcode Litigations discussed below. If sustained, both these defenses
could preclude Intel from continuing to pursue its pending intellectual property
and related damages claims regarding the Am386 microprocessors, and the
Arbitrator's award also could preclude claims respecting the Am486SX
microprocessors. If the Supreme Court does not reverse the decision of the
California Court of Appeal it could among other things: (i) decide to remand the
matter for a new Arbitration proceeding either on the merits or solely on the
issue of relief including the damages due to the company, or (ii) order no
further proceedings which would affirm the decision of the Court of Appeal and
prevent AMD from using the Arbitration award as a defense in the 386 or 486
Microcode Litigations discussed below. The California Supreme Court is expected
to decide the case by the end of 1994.
The company believes it has the right to use Intel technology to manufacture and
sell AMD's microprocessor products based on a variety of factors, including: (i)
the 1982 Agreement, (ii) the Arbitrator's award in the Arbitration which is
pending review by the California Supreme Court, and (iii) the 1976 Agreement. An
unfavorable decision by the California Supreme Court could
15
<PAGE>
materially adversely affect other AMD/Intel microcode legal proceedings
discussed herein. Such matters involve multiple interrelated and complex issues
of fact and law. The ultimate outcome of the AMD/Intel legal proceedings cannot
presently be determined. Accordingly, no provision for any liability that may
result upon the adjudication of the AMD/Intel legal proceedings has been made in
the company's financial statements.
2. 287 Microcode Litigation (Case No. C-90-20237, N.D. Cal.)
---------------------------------------------------------
On April 23, 1990, Intel Corporation filed an action against the company in the
U.S. District Court, Northern District of California, seeking an injunction and
damages with respect to the Corporation's 80C287, a math coprocessor designed to
function with the 80286. Intel's suit alleges several causes of action,
including infringement of Intel copyright on the Intel microcode used in its 287
math coprocessor, mask work infringement, unfair competition by means of false
advertising and unauthorized copying of the Intel 287 microcode by the third
party developer of the AMD 80C287 microchips.
In June 1992, a jury determined that the company did not have the right to use
Intel microcode in the 80C287. On December 2, 1992, the court denied the
company's request for declaratory relief to the effect it has the right, under
the 1976 Agreement with Intel to distribute products containing Intel microcode.
The company filed a motion on February 1, 1993, for a new trial based upon the
discovery of AMD of evidence improperly withheld by Intel at the time of trial.
In April, 1993, the court granted AMD a new trial on the issue of whether the
1976 Agreement with Intel Corporation granted AMD a license to use Intel
microcode in its products. The ruling vacated both an earlier jury verdict
holding that the 1976 Agreement did not cover the rights to microcode contained
in the Intel 80287 math coprocessor and the December 2, 1992 ruling (discussed
above). A new trial commenced in January, 1994 and jury verdicts were returned
in AMD's favor on March 10, 1994 finding that the 1976 Agreement granted AMD
rights to sell microchips containing Intel microcodes. The court entered a
judgment on the verdicts in AMD's favor on March 11, 1994. Prior to the jury's
determination, AMD and Intel agreed that the jury's verdicts would be
determinative of the question whether the 1976 Agreement grants AMD the right to
copy microcodes contained in Intel microprocessors and peripheral microchips,
including not only the 287 math co-processor, but generally as to all
microprocessors and peripheral microchips, specifically including the 386 and
486 microprocessors.
The impact of the ultimate outcome of the 287 Microcode Litigation is highly
uncertain and dependent upon the scope and breadth of the final result in the
case. A decision of broad scope could not only result in a damages award but
also impact the company's ability to continue to ship and produce its Am486
products or other microprocessor products containing any copyrighted Intel
microcode. The company's inability to ship such products could have an
immediate, material adverse impact on the company's results of operations and
financial condition. The outcome of the 287 litigation could also materially
impact the outcomes in the other AMD/Intel microcode legal proceedings. Such
matters involve multiple interrelated and complex issues of fact and law. The
ultimate outcome of the AMD/Intel legal proceedings cannot presently be
determined. Accordingly, no provision for any liability that may result upon
the adjudication of the AMD/Intel legal proceedings has been made in the
company's financial statements.
16
<PAGE>
3. 386 Microcode Litigation (Case No. A-91-CA-800, W.D. Texas and Case No.
-----------------------------------------------------------------------
C-92-20039, N.D. Cal.)
- ----------------------
On October 9, 1991, Intel Corporation filed an action against the company in the
U.S. District Court for the Western District of Texas (Case No. A-91-CA-800,
W.D. Texas), alleging the separate existence and copyrightability of the logic
programming in a microprocessor and characterizing that logic as a "control
program", and further alleging that the company violated copyrights on this
material and on the Intel microcode contained in the Am386 microprocessor. This
action has been transferred to the U.S. District Court, Northern District of
California (Case No. C-92-20039, N.D. Cal.). The complaint asserts claims for
copyright infringement of what Intel describes as: (1) its 386 microprocessor
microcode program and revised programs, (2) its control program stored in a 386
microprocessor programmable logic array and (3) Intel In-Circuit Emulation (ICE)
microcode. The complaint seeks damages and injunctive relief arising out of the
company's development, manufacture and sale of its Am386 microprocessors and
seeks a declaratory judgment as to the Intel/AMD license agreements (1976 and
1982 Agreements), including a claim for a declaratory judgment that AMD's
license rights to Intel's microcodes expire on December 31, 1995, and that AMD
may no longer sell product containing Intel microcode after that date. The
monetary relief sought by Intel is unspecified. The company has answered and
counterclaimed seeking declaratory relief.
The company believes that Intel's microcode copyright claims are substantively
the same as claims made in the 287 Microcode Litigation (Case No. C-90-20237,
N.D. Cal.) (discussed above). Intel has also asserted that federal law prevents
the company from asserting as a defense the intellectual property rights that
were awarded in the Intel Arbitration (discussed above). On October 29, 1992,
the court in the 386 Microcode Litigation granted the company's motion to stay
further proceedings pending resolution of the state court Arbitration appeal. On
December 28, 1993, the U.S. Court of Appeals for the Ninth Circuit reversed the
stay order and the case was remanded for further proceedings. The company will
file a petition for writ of certiorari in the Supreme Court of the United
States. If the petition is granted, AMD will move to have the mandate of the
Ninth Circuit recalled and stayed pending a decision by the U.S. Supreme Court
on the correctness of the trial court's order to stay. Meanwhile, the 386 case
is no longer stayed and the company expects Intel to argue that the Arbitration
is not a defense in this action. As discussed above, the jury verdicts in the
287 case resolve the issue of whether AMD has the right to use Intel's
microcodes in AMD's Am386 microprocessor. However, the company expects Intel to
argue that the verdicts do not resolve the claims in the 386 Microcode
Litigation that AMD is not licensed to use (1) Intel's "control program" stored
in Intel's 386 microprocessor's programmable logic array or (2) what Intel
characterizes as "ICE microcode".
An unfavorable final decision in the 386 Microcode Litigation could result in a
material monetary damages award to Intel and/or preclude the company from
continuing to produce the Am386 and any other microprocessors which contain any
copyrighted Intel microcode, either of which could have an immediate, material
adverse impact on the company's results of operations and financial condition.
The AMD/Intel legal proceedings involve multiple interrelated and complex issues
of fact and law. The ultimate outcome of such proceedings cannot presently be
determined. Accordingly, no provision for any liability that may result upon
the adjudication of the AMD/Intel legal proceedings has been made in the
company's financial statements.
17
<PAGE>
4. 486 Microcode Litigation (Case No. C-93-20301 PVT, N.D. Cal.)
-------------------------------------------------------------
On April 28, 1993, Intel Corporation filed an action against AMD in the U.S.
District Court, Northern District of California, seeking an injunction and
damages with respect to the company's Am486 microprocessor. The suit alleges
several causes of action, including infringement of various Intel copyrighted
computer programs.
Intel's Fourth Amended Complaint was filed on November 2, 1993. The Fourth
Amended Complaint seeks damages and injunctive relief based on the following
claims: (1) AMD's alleged copying and distribution of 486 "Processor Microcode
Programs" and "Control Programs"; (2) AMD's alleged copying of 486 "Processor
Microcode" as an intermediate step in creating proprietary microcodes for the
AMD version of the 486. The Fourth Amended Complaint also seeks a declaratory
judgment that (1) AMD has induced third party copyright infringement through
encouraging third parties to import Am486-based products ("Third Party
Inducement Claim"); (2) AMD's license rights to Intel microcode expire as of
December 31, 1995 and AMD may no longer sell any products containing Intel
microcode after that date ("License Expiration Claim"); (3) AMD's license rights
to Intel microcodes do not extend to In-Circuit Emulation (ICE) microcode ("ICE
Claim"); and (4) AMD is not licensed to authorize third parties to copy the
Intel microcode ("Have Copied Claim"). Intel's Fourth Amended Complaint further
seeks damages and injunctive relief based on AMD's alleged copying and
distribution of Intel's "386 Processor Microcode Program" in AMD's 486SX
microprocessor. The company answered the complaint in January, 1994.
On December 1, 1993, Intel moved for partial summary judgment on its claim for
copyright infringement of what Intel terms its 486 ICE microcode. This motion
was denied and a trial date of May 16, 1994, has been set for what Intel terms
the ICE microcode portion of the 486 Microcode Litigation.
By order dated December 21, 1993, the Court granted the company's motion to stay
Intel's claim that AMD's 486SX infringes Intel copyrights on its 386 microcode.
In light of the Ninth Circuit decision discussed above in the 386 Microcode
Litigation reversing the Court's order staying the case, the stay order in this
action may be vacated and/or appealed and the litigation concerning this claim
may proceed.
AMD believes that the microcode copyright infringement claims made by Intel in
the 486 Microcode Litigation are substantively the same as claims: (i) made in
the 287 Microcode Litigation with regard to the Intel microcode, discussed above
and (ii) made in the 386 Microcode Litigation with regard to AMD's rights to
utilize the so-called Intel microcode, "control programs" and ICE microcode.
Intel's License Expiration Claim contained in the 486 Microcode Litigation is
also contained in the 386 but not the 287 Microcode Litigation.
As discussed above, the jury verdicts in the 287 case resolve the issue whether
AMD has the right to use Intel's microcode in AMD's Am486 microprocessor. The
company expects Intel to argue that the verdicts do not resolve the claims in
the 486 Microcode Litigation that AMD is not licensed to use (1) Intel's
"control program" stored in Intel's 486 microprocessor's programmable logic
array or (2) what Intel characterizes as "ICE microcode".
An unfavorable ultimate decision in the 287 or the 486 Microcode Litigations
could affect the company's ability to continue to produce and ship its Am486DX
products or, in the case of the 486 Microcode Litigation, could result in a
material monetary damages award to Intel, either of which
18
<PAGE>
could have an immediate, material adverse impact on the company's results of
operations and financial condition. The AMD/Intel legal proceedings involve
multiple interrelated and complex issues of fact and law. The ultimate outcome
of such proceedings cannot presently be determined. Accordingly, no provision
for any liability that may result upon the adjudication of the AMD/Intel legal
proceedings has been made in the company's financial statements.
5. Antitrust Case Against Intel
----------------------------
On August 28, 1991, the company filed an antitrust complaint against Intel
Corporation in the U.S. District Court for the Northern District of California
(Case No. C-91-20541-JW-EAI), alleging that Intel engaged in a series of
unlawful acts designed to secure and maintain a monopoly in iAPX microprocessor
chips. The complaint alleges that Intel illegally coerced customers to purchase
Intel chips through selective allocations of Intel products and tying
availability of the Intel 80386 to purchases of other products from Intel, and
that Intel filed baseless lawsuits against AMD in order to eliminate AMD as a
competitor and intimidate AMD customers. The complaint requests significant
monetary damages (which may be trebled), and an injunction requiring Intel to
license the 80386 and 80486 to AMD, or other appropriate relief. On December 17,
1991, the Court dismissed certain of AMD's claims relating to Intel's past
practices on statute of limitations grounds. Intel filed a motion for partial
summary judgment on a single AMD claim that Intel filed a baseless trademark
lawsuit against AMD and this motion has been granted. The trial date of October
4, 1994 has been vacated and no new date has been set. With the Court's
permission, AMD filed an amended complaint on March 9, 1994, alleging
monopolization and attempted monopolization by Intel in connection with the sale
of the 286, 386, 486 and Pentium microprocessors.
6. Business Interference Case Against Intel
----------------------------------------
On November 12, 1992, the company filed a proceeding against Intel in the
Superior Court of Santa Clara County, California (Case No. 726343), for tortious
interference with prospective economic advantage, violation of California's
Unfair Competition Act, breach of contract and declaratory relief arising out of
Intel's efforts to require AMD's customers to pay to Intel patent royalties if
they purchased 386 and 486 microprocessors from AMD. The patent involved,
referred to as the Crawford '338 patent, covers various aspects of how the Intel
386 microprocessor, the Intel 486 microprocessor and future X86 processors
manage memory and how these microprocessors generate memory pages and page
tables when combined with external memory and multi-tasking software such as
Microsoft (Registered Trademark) Windows (Trademark), OS/2 (Registered
Trademark) or UNIX (Registered Trademark). The action was subsequently removed
to the Federal District Court where AMD amended its complaint to include causes
of action for violation of the Lanham Act and a declaration of patent invalidity
and unenforceability. The complaint alleges that Intel is demanding royalties
for the use of the Intel patents from the company's customers, without informing
the company's customers that the company's license arrangement with Intel
protects the company's customers from an Intel patent infringement lawsuit. No
royalties for the license are charged to customers who purchase these
microprocessors from Intel. This case is presently stayed pending resolution of
the International Trade Commission Proceeding, discussed next.
19
<PAGE>
7. International Trade Commission Proceeding
-----------------------------------------
The United States International Trade Commission Proceeding (the "ITC
Proceeding") (Investigation No. 337-TA-352) was filed by Intel Corporation on
May 7, 1993, against two respondents, Twinhead International and its U.S.
subsidiary, Twinhead Corporation. Twinhead is a Taiwan-based manufacturer which
is a customer of both AMD and Intel. Twinhead purchases microprocessors from
AMD and Intel, and incorporates these microprocessors into computers sold by
Twinhead. Intel claims that the respondents induce computer end-users to
infringe on what is known as the Crawford '338 patent when the computers
containing AMD microprocessors are used with multi-tasking software such as
Windows, Unix or OS/2. Intel seeks a permanent exclusion order from entry into
the United States of certain Twinhead personal computers and an order directing
Twinhead to cease and desist from demonstrating, testing or otherwise using such
computers in the United States.
AMD's dispute with Intel in the Intel Business Interference Case (Case No.
C-92-20789, N.D. Cal) (discussed above) requests a declaration that the Crawford
'338 patent is invalid; accordingly, AMD intervened in the ITC Proceeding as a
real party in interest by filing a motion with the ITC to intervene on the side
of the respondents. On July 2, 1993, the ITC granted AMD's motion to intervene
in the ITC Proceeding on the side of respondents and to participate fully in all
proceedings as a party. The company has vigorously contested the relief Intel
seeks. Any decision by an administrative judge would then be confirmed or not be
confirmed by the International Trade Commission (ITC).
On February 4, 1994, the company filed a motion to suspend immediately and
thereafter to terminate the ITC proceeding on the ground that Intel is
collaterally estopped from pursuing the relief it seeks by reason of a judgment
soon to be entered in favor of Cyrix Corporation (also an intervenor in the ITC
Proceeding) and against Intel in a trial involving the Crawford '338 patent in
Texas federal court. Intel opposed the motion, and filed a motion of its own
requesting that the ITC proceeding be suspended, not terminated, pending
appellate review of the Cyrix Judgment. On February 22, 1994, the ITC
Administrative Law Judge granted AMD's motion to suspend, and indicated his
intent to grant AMD's request to terminate the ITC Proceeding upon entry of the
judgment in the Texas federal court. The Judge denied Intel's motion to suspend
the ITC Proceeding until its appeal of the judgment in favor of Cyrix has been
resolved.
An unfavorable outcome before the ITC could have an adverse effect on the
company's ability to sell microprocessors to Twinhead and other computer
manufacturers in Taiwan and potentially, other countries. An unfavorable
outcome could have an immediate, material adverse impact on the company's
results of operations and financial condition.
B. OTHER
-----
1. In Re Advanced Micro Devices Securities Litigation
--------------------------------------------------
Between September 8 and September 10, 1993, five class actions were filed,
purportedly on behalf of purchasers of the company's stock, alleging that the
company and various of its officers and directors violated Sections 10(b) and
20(a) of the Securities and Exchange Act of 1934, 15 U.S.C. (S)(S) 78j(b) and
78t(a), respectively, and Rule 10b-5 promulgated thereunder, 17 C.F.R. (S)
240.10b-5, by issuing allegedly false and misleading statements about the
company's development of its 486SX personal computer microprocessor products,
and the extent to which that development process included access to Intel's 386
microcode. Some or all of the complaints
20
<PAGE>
alleged that the company's conduct also constituted fraud, negligent
misrepresentations and violations of the California Corporations Code.
By order dated October 13, 1993, these five cases, as well as any cases that
might be subsequently filed, were consolidated under the caption "In Re Advanced
Micro Devices Securities Litigation," with the lead case for the consolidated
actions being Samuel Sinay v. Advanced Micro Devices, Inc., et al. (No.
C-93-20662-JW, N.D. Cal). A consolidated amended class action complaint was
filed on December 3, 1993, containing all the claims described above and
additional allegations that the company made false and misleading statements
about its revenues and earnings during the third quarter of its 1993 fiscal year
as well as about potential foundry arrangements. The amended complaint seeks
damages in an unspecified amount. On January 14, 1994, the company filed a
motion to dismiss various claims in the amended and consolidated class action
complaint. The motion to dismiss was scheduled for hearing on March 25, 1994,
but has been taken off calendar pending preliminary settlement negotiations. The
company has responded to initial document requests and interrogatories and has
begun document production. No depositions have been taken. This case is in the
early stage of discovery. The company believes the ultimate outcome of this
litigation will not have a material adverse effect upon the financial condition
of the company.
2. George A. Bilunka, et al. v. Sanders, et al. (93-20727JW, N.D. Cal.)
--------------------------------------------------------------------
On September 30, 1993, an AMD shareholder, George A. Bilunka, purported to
commence an action derivatively on the company's behalf against all of the
company's directors and certain of the company's officers. The company is named
as a nominal defendant. This purported derivative action essentially alleges
that the individual defendants breached their fiduciary duties to the company by
causing, or permitting, the company to make allegedly false and misleading
statements described in In re Advanced Micro Devices Securities Litigation above
about the company's development of its 486SX personal computer microprocessor
products, and the extent to which that development process included access to
Intel's 386 microcode. This action alleges that a pre-suit demand on the
company's Board of Directors would have been futile because of alleged director
involvement. Damages are sought against the individual defendants in an
unspecified amount.
On November 10, 1993, the company, as nominal defendant, filed a motion to
dismiss the action for failure to make a demand upon the company's Board of
Directors. The plaintiff then filed an amended derivative complaint on December
17, 1993. The company again moved to dismiss the complaint. The motion was
heard on February 4, 1994, and on March 1, 1994 the Court granted in part and
denied in part the motion. Proceedings in this case, which the Court has
ordered to be coordinated with the consolidated securities class actions, are
generally in abeyance pending settlement negotiations. The company believes
that the ultimate outcome of this litigation will not have a material adverse
effect upon the financial condition of the company.
3. SEC Investigation
-----------------
The Securities and Exchange Commission ("SEC") has notified the company that it
is conducting an informal investigation of the company regarding the company's
disclosures about the development of its Am486SX products. See items 1 and 2 of
Section (B) hereof. The company is cooperating fully with the SEC.
21
<PAGE>
4. Other Matters.
-------------
The company is a defendant or plaintiff in various other actions which arose in
the normal course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
financial condition or the results of operations of the company.
22
<PAGE>
ITEM 5. OTHER INFORMATION
-----------------
A. SHELF REGISTRATION
------------------
On April 1, 1994, the company filed a shelf registration statement with the
Securities and Exchange Commission covering up to $400 million of its
securities, which may be either debt securities, preferred stock, depositary
shares representing fractions of shares of preferred stock, common stock,
warrants to purchase common stock or any combination of the foregoing which the
company may offer from time to time in the future. The nature and terms of the
securities will be established at the time of their sale. The company may offer
the securities through underwriters to be named in the future, through agents or
otherwise. The net proceeds of any offering will be used for general corporate
purposes, which may include the reduction of outstanding indebtedness, working
capital increases and capital expenditures.
B. PREFERRED STOCK
---------------
On April 4, 1994, the company announced that, given its current business
prospects, it intends to call all of its outstanding $30.00 Convertible
Exchangeable Preferred Shares ("Preferred Shares") for redemption when market
conditions permit. In such event, all of the company's outstanding Depositary
Convertible Exchangeable Preferred Shares ("Depositary Shares") would also be
redeemed. Each Depositary Share represents one-tenth of a Preferred Share, and
each ten Depositary Shares are convertible into 19.873 shares of the company's
common stock.
If the redemption occurs prior to March 15, 1995, the redemption price would be
$50.90 per Depositary Share, plus accrued and unpaid dividends. Based on the
last reported sales price of $28.50 per share of common stock on April 7, 1994,
ten Depositary Shares could have been converted into common stock (including
cash in lieu of any fractional share) having a market value of $56.64 for each
Depositary Share.
The company presently intends to redeem the Preferred Shares when it has
obtained a satisfactory commitment from underwriters to purchase from the
company the number of shares of common stock as would have been issuable upon
conversion of any Depositary Shares which are not converted. Any offering of
securities related to a redemption of the Preferred Shares would be made only by
means of a prospectus contained in a registration statement filed with the
Securities and Exchange Commission separate from the $400 million shelf
registration statement which the company filed on April 1, 1994. The company is
not certain when or if market conditions or its business prospects will allow
the company to call the Preferred Shares for redemption.
23
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
A. Exhibits
--------
99.1 Judgment entered March 11, 1994 in 287 Microcode Litigation filed
as Exhibit 99.1 to Form 8-K dated March 10, 1994 is hereby
incorporated by reference.
99.2 Jury Verdicts dated March 10, 1994 in 287 Microcode Litigation
filed as Exhibit 99.2 to Form 8-K dated March 10, 1994 is hereby
incorporated by reference.
B. Form 8-K
--------
1. The company filed a Form 8-K, dated March 10, 1994, reporting the
results of the 287 Microcode Litigation trial and the status of
pending litigations.
24
<PAGE>
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: April 8, 1994 /s/ Larry R. Carter
------------- By:____________________
Larry R. Carter
Vice President and
Corporate Controller
Signing on behalf of the
registrant and as chief
accounting officer
25
