<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Current Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report: June 19, 1996
ADVANCED MICRO DEVICES, INC.
----------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 1-7882 94-1692300
---------------------------- ------------- -------------------
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
One AMD Place,
P.O. Box 3453
Sunnyvale, CA 94088-3453
---------------------------------------- ----------
(address of principal executive offices) (Zip Code)
Registrant's telephone number,
including area code: (408) 732-2400
--------------
Page 1 of 34
<PAGE>
Item 5. Other Events.
- ------ ------------
This Current Report on Form 8-K includes the Supplemental Consolidated
Financial Statements which have been prepared to give retroactive effect to the
merger of NexGen, Inc. with and into Advanced Micro Devices, Inc. (the
"company" or "AMD") on January 17, 1996.
SUPPLEMENTAL SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Five Years Ended December 31, 1995
(Dollars in thousands except per share amounts) 91 92 93 94 95
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net sales $1,226,649 $1,514,489 $1,648,280 $2,155,453 $2,468,379
Operating income 97,756 257,362 282,392 469,035 222,200
Net income 133,171 233,619 208,356 270,942 216,326
Net income per common share:
Primary 1.20 2.02 1.65 2.06 1.59
Fully diluted 1.20 1.99 1.64 2.02 1.57
Long-term debt and capital lease obligations,
less current portion 48,238 22,213 90,066 75,752 214,965
Total assets 1,304,773 1,453,768 1,944,953 2,525,721 3,078,467
</TABLE>
The company has never paid cash dividends on common stock and has no present
plans to do so.
Note: On January 17, 1996, the company acquired NexGen, Inc. (NexGen) in a
transaction accounted for as a pooling-of-interests. All financial data
of the company, for the periods presented, has been supplementally
prepared to give retroactive effect to the merger with NexGen.
2
<PAGE>
SUPPLEMENTARY FINANCIAL DATA
<TABLE>
<CAPTION>
1995 and 1994 by Quarter (Unaudited) Dec. 31, Oct. 1, July 2, Apr. 2,
(Thousands except per share amounts) 1995 1995 1995 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $595,178 $606,953 $638,867 $627,381
Expenses:
Cost of sales(1) 427,058 368,359 315,905 305,685
Research and development 107,715 106,237 105,695 96,874
Marketing, general, and administrative 100,766 102,549 106,602 102,734
-------- -------- -------- --------
635,539 577,145 528,202 505,293
-------- -------- -------- --------
Operating income (loss) (40,361) 29,808 110,665 122,088
Litigation settlement - - - -
Interest income and other, net 8,024 10,408 6,975 7,058
Interest expense (1,665) (315) (501) (578)
-------- -------- -------- --------
Income (loss) before income taxes and equity in joint venture (34,002) 39,901 117,139 128,568
Provision (credit) for income taxes (21,846) 10,212 39,016 42,824
-------- -------- -------- --------
Income (loss) before equity in joint venture (12,156) 29,689 78,123 85,744
Equity in net income (loss) of joint venture 21,500 12,311 2,529 (1,414)
-------- -------- -------- --------
Net income 9,344 42,000 80,652 84,330
Preferred stock dividends - - - 10
-------- -------- -------- --------
Net income applicable to common stockholders $ 9,344 $ 42,000 $ 80,652 $ 84,320
======== ======== ======== ========
Net income per common share -- Primary $ .07 $ .30 $ .59 $ .66
======== ======== ======== ========
-- Fully diluted $ .07 $ .30 $ .59 $ .63
======== ======== ======== ========
Shares used in per share calculation -- Primary 138,941 139,288 136,950 127,181
======== ======== ======== ========
-- Fully diluted 139,085 139,434 137,647 134,421
======== ======== ======== ========
Common stock market price range -- High $ 29.25 $ 36.50 $ 39.25 $ 35.88
-- Low $ 16.13 $ 28.00 $ 32.13 $ 23.50
</TABLE>
SUPPLEMENTARY FINANCIAL DATA
<TABLE>
<CAPTION>
1995 and 1994 by Quarter (Unaudited) Dec. 25, Sept. 25, June 26, Mar. 27,
(Thousands except per share amounts) 1994 1994 1994 1994
-------- --------- --------- --------
<S> <C> <C> <C> <C>
Net sales $557,821 $550,399 $534,146 $513,087
Expenses:
Cost of sales 278,783 267,322 237,038 230,446
Research and development 80,778 72,133 71,025 71,390
Marketing, general, and administrative 96,474 93,157 93,549 94,323
-------- -------- -------- --------
456,035 432,612 401,612 396,159
-------- -------- -------- --------
Operating income (loss) 101,786 117,787 132,534 116,928
Litigation settlement (58,000) - - -
Interest income and other, net 5,635 739 6,486 4,274
Interest expense (502) (782) (1,569) (1,557)
-------- -------- -------- --------
Income (loss) before income taxes and equity in joint venture 48,919 117,744 137,451 119,645
Provision (credit) for income taxes 16,504 39,252 46,895 39,581
-------- -------- -------- --------
Income (loss) before equity in joint venture 32,415 78,492 90,556 80,064
Equity in net income (loss) of joint venture (2,989) (4,277) (2,925) (394)
-------- -------- -------- --------
Net income 29,426 74,215 87,631 79,670
Preferred stock dividends 2,588 2,587 2,587 2,588
-------- -------- -------- --------
Net income applicable to common stockholders $ 26,838 $ 71,628 $ 85,044 $ 77,082
======== ======== ======== ========
Net income per common share -- Primary $ .21 $ .58 $ .68 $ .63
======== ======== ======== ========
-- Fully diluted $ .21 $ .56 $ .66 $ .61
======== ======== ======== ========
Shares used in per share calculation -- Primary 128,416 123,947 125,428 122,624
======== ======== ======== ========
-- Fully diluted 128,977 132,576 132,742 130,987
======== ======== ======== ========
Common stock market price range -- High $ 30.50 $ 31.00 $ 31.75 $ 31.75
-- Low $ 22.25 $ 24.00 $ 22.63 $ 16.75
</TABLE>
Note: On January 17, 1996, the company acquired NexGen, Inc. (NexGen) in a
transaction accounted for as a pooling-of-interests. All quarterly
financial data of the company, for the periods presented, has been
supplementally prepared to give retroactive effect to the merger with
NexGen.
(1) The company made certain year-end adjustments in 1995, resulting from
changes in estimates related to the Nx586 product which was developed by
NexGen. These adjustments were material to the results of the fourth
quarter. The adjustment charged to cost of sales in the fourth quarter of
1995 was approximately $49.2 million.
3
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
On January 17, 1996, the company acquired NexGen, Inc. (NexGen) in a transaction
accounted for as a pooling-of-interests. All financial data and footnote
information of the company, including the company's financial statements for the
periods discussed herein have been supplementally prepared to give retroactive
effect to the merger with NexGen.
The following discussion and analysis presents historical information only. For
information concerning trends, risks, and uncertainties that may have a material
favorable or unfavorable impact on the company's results of operations,
liquidity, capital resources in the future, and capital expenditure plans in
1996, please see "Management's Discussion and Analysis of Results of Operations
and Financial Condition" contained in the company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1995 and the company's Quarterly Report
on Form 10-Q for the quarter ended March 31, 1996.
RESULTS OF OPERATIONS
Net sales of $2.5 billion in 1995 rose by approximately 15 percent from 1994.
This increase was primarily attributable to substantial growth in Flash memory
sales and secondarily due to an increase in sales of communication products, the
combination of which more than offset a decline in microprocessor sales. Net
sales in 1994 increased by approximately 31 percent from 1993 due to substantial
growth in microprocessor sales.
Sales of Flash memory devices increased in 1995 from 1994 primarily due to
growth in unit shipments and secondarily due to a change in product mix
resulting in higher average selling prices. During 1995, Flash memory devices
contributed a significant portion of the company's revenues and profits.
Revenues from communication products rose from 1994 to 1995 primarily due to
growth in the Ethernet family of products. Sales of CMOS programmable logic
devices increased from 1994 to 1995 primarily due to increased unit shipments.
In 1995, EPROM sales decreased as compared to 1994 due to comparable declines in
both unit shipments and average selling prices.
In 1995, Am486(R) microprocessor sales decreased slightly primarily due to
average selling price declines, partially offset by increases in unit sales.
Am486 microprocessor products contributed a significant portion of the company's
revenues and profits in 1994 and 1995.
Am486 and Nx586 are registered trademarks of AMD.
K86 RISC SUPERSCALAR and AMD-K5 are trademarks of AMD.
4
<PAGE>
Gross margin was 43 percent in 1995 as compared to 53 percent in 1994 and 52
percent in 1993. The four main factors contributing to the decrease in gross
margin in 1995, in order of significance, were first, Am486 price declines;
second, purchase prices of FASL products, which are higher than the costs of
similar products manufactured internally; third, negative gross margins,
inventory reserves, and manufacturing loss accruals associated with
significantly reduced demand for NexGen products; and fourth, the transition of
Fab 25 costs from research and development to cost of sales when production
commenced in September 1995. The impact of gross margin declines caused by
purchase of FASL products during 1995 was mostly offset by the company's share
of FASL income. The increase in gross margin from 1993 to 1994 was primarily
attributable to increased sales from higher margin Am486 products during 1994.
Research and development expenses for 1995 increased to $417 million from $295
million in 1994, and $279 million in 1993. These increases were primarily due to
higher Fab 25 expenses and secondarily due to increased microprocessor
development costs.
Marketing, general, and administrative expenses were $413 million for 1995, $378
million for 1994, and $297 million for 1993. The increase from 1994 to 1995 was
primarily attributable to promotional expenses for the sale of NexGen's Nx586(R)
and other related products, and secondarily to higher advertising expenses. The
incremental change from 1993 to 1994 was mainly due to increased legal and
microprocessor advertising expenses.
Interest income and other, net rose from 1994 to 1995 primarily due to higher
interest rates during 1995 and secondarily due to a realized gain of
approximately $3 million from equity securities sold during 1995. In 1994,
interest income and other, net included a net charge of approximately $5 million
resulting from the securities class action lawsuit and stockholders' derivative
action settlements, and a gain from the damages award in an arbitration
proceeding with Intel Corporation. Interest expense in 1995 decreased from 1994
due to higher capitalized interest mainly related to the construction of Fab 25.
The income tax rate was approximately 28, 34, and 29 percent in 1995, 1994, and
1993, respectively. The lower tax rate in 1995 resulted from lower state taxes
and increased benefits from low taxed foreign income. The lower tax rate in 1993
was primarily due to available tax credit carryforwards.
International sales were 56, 55, and 54 percent of total sales in 1995, 1994,
and 1993, respectively. During 1995, approximately 17 percent of the company's
net sales were denominated in foreign currencies. The company does not have
sales denominated in local currencies in those countries which have highly
inflationary economies. (A highly inflationary economy is defined in accordance
with the Statement of Financial
5
<PAGE>
Accounting Standards No. 52 as one in which the cumulative inflation over a
three-year consecutive period approximates 100 percent or more.) The impact on
the company's operating results from changes in foreign currency rates
individually and in the aggregate has not been material.
The company enters into foreign exchange forward contracts to buy and sell
currencies as economic hedges of the company's foreign net monetary asset
position including the company's liabilities for products purchased from FASL.
In 1995, these hedging transactions were denominated in lira, yen, French franc,
deutsche mark, and pound sterling. The maturities of these contracts are
generally short-term in nature. The company believes its foreign exchange
contracts do not subject the company to material risk from exchange rate
movements because gains and losses on these contracts are designed to offset
losses and gains on the net monetary asset position being hedged. Net foreign
currency gains and losses have not been material. As of December 31, 1995, the
company had approximately $37 million (notional amount) of foreign exchange
forward contracts (see Notes 3, 4, and 5 to the Supplemental Consolidated
Financial Statements).
The company has engaged in interest rate swaps primarily to reduce its interest
rate exposure by changing a portion of the company's interest rate obligation
from a floating rate to a fixed rate basis. At the end of 1995, the net
outstanding notional amount of interest rate swaps was $190 million, of which
$150 million will mature in 1996 and $40 million will mature in 1997. Gains and
losses related to these interest rate swaps have been immaterial (see Notes 3,
4, and 5 to the Supplemental Consolidated Financial Statements).
The company primarily addresses market risk by participating as an end user in
various derivative markets to manage its exposure to interest and foreign
currency exchange rate fluctuations. The counterparties to the company's foreign
exchange forward contracts and interest rate swaps consist of a number of major,
high credit quality, international financial institutions. The company does not
believe that there is significant risk of nonperformance by these counterparties
because the company monitors the credit ratings of such counterparties, and
reduces the financial exposure by limiting the amount of agreements entered into
with any one financial institution.
In 1995, the Financial Accounting Standards Board released the Statement of
Financial Accounting Standards No. 121 (SFAS 121), "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of."
SFAS 121 requires recognition of impairment of long-lived assets in the event
the net book value of such assets exceeds the future undiscounted cash flows
attributable to such assets. SFAS 121 is effective for fiscal years beginning
after December 15, 1995. Adoption of SFAS 121 is not expected to have a material
impact on the company's financial condition or results of operations.
6
<PAGE>
The company accounts for its stock option plans and its employee stock purchase
plan in accordance with provisions of the Accounting Principles Board's Opinion
No. 25 (APB 25), "Accounting For Stock Issued to Employees." In 1995, the
Financial Accounting Standards Board released the Statement of Financial
Accounting Standards No. 123 (SFAS 123), "Accounting for Stock Based
Compensation." SFAS 123 provides an alternative to APB 25 and is effective for
fiscal years beginning after December 15, 1995. The company expects to continue
to account for its employee stock plans in accordance with the provisions of APB
25. Accordingly, SFAS 123 is not expected to have any material impact on the
company's financial condition or results of operations.
FINANCIAL CONDITION
Cash, cash equivalents, and short-term investments increased by $79 million from
1994 to 1995. This increase was primarily attributable to a $150 million term
loan obtained in January of 1995 offset by NexGen's cash used in operations. The
$545 million of cash generated from operating activities in 1995 was used to
fund investments in property, plant, and equipment to expand manufacturing
capacity primarily related to Fab 25.
Working capital increased by $20 million from $442 million at the end of 1994 to
$462 million at the end of 1995. This increase was primarily due to higher cash,
cash equivalents, and short-term investments.
At the end of 1995, the company's total cash investment in FASL was $160 million
as compared to $142 million at the end of 1994. In 1995, FASL approved
construction of a second Flash memory fab, FASL II, at a site contiguous to the
existing FASL facility in Aizu-Wakamatsu, Japan.
On January 11, 1995, the company and Intel Corporation reached an agreement to
settle all previously outstanding legal disputes between the two companies. As
part of the settlement, in December 1995, the company signed a five-year,
comprehensive patent cross-license agreement with Intel which expires on
December 31, 2000. The agreement provides that after December 31, 1999, the
parties will negotiate in good faith a patent cross-license agreement to be
effective January 1, 2001. Effective January 1, 1996, the new agreement gives
the company and Intel the rights to use each others' patents and certain
copyrights, exclusive of microprocessor microcode copyrights. The cross-license
is royalty-bearing for the company's products that use certain Intel
technologies. The company is required to pay Intel minimum non-refundable
royalties during the years 1997 to 2000.
As of the end of 1995, the company had the following financing arrangements:
unsecured committed bank lines of credit of $250 million, unutilized; long-term
secured equipment lease lines of $132 million, which were fully utilized; short-
term, unsecured uncommitted bank credit in the amount of $96 million, of which
$27
7
<PAGE>
million was utilized; an outstanding $150 million four-year term loan; and
approximately $12.5 million in short-term debt financing.
RISK FACTORS
The semiconductor industry is generally characterized by a highly competitive
and rapidly changing environment in which operating results are subject to the
effects of new product introductions, manufacturing technology innovations,
rapid fluctuations in product demand, the availability of manufacturing
capacity, and the ability to secure and maintain intellectual property rights.
While the company attempts to identify and respond to rapidly changing events
and conditions as soon as possible, the anticipation of and reaction to such
events are an ongoing challenge. The company's future results of operations and
financial condition may be adversely impacted by various factors. These risk
factors are detailed in the description of the company's business, operations,
and financial condition in the company's Form 10-K for the fiscal year ended
December 31, 1995 under the captions "Business" and "Management's Discussion and
Analysis of Results of Operations and Financial Condition" and in the company's
Form 10-Q for the quarter ended March 31, 1996 under the caption "Management's
Discussion and Analysis of Results of Operations and Financial Condition."
8
<PAGE>
The Board of Directors and Shareholders
Advanced Micro Devices, Inc.
We have audited the supplemental consolidated balance sheets of Advanced Micro
Devices, Inc. (formed as a result of the consolidation of Advanced Micro
Devices, Inc. and NexGen, Inc.) as of December 31, 1995 and December 25, 1994
and the related supplemental consolidated statements of income, stockholders'
equity, and cash flows for each of the three years in the period ended December
31, 1995. The supplemental consolidated financial statements give retroactive
effect to the merger of Advanced Micro Devices, Inc. and NexGen, Inc. on January
17, 1996, which has been accounted for using the pooling-of-interests method as
described in the notes to the supplemental consolidated financial statements.
These supplemental financial statements are the responsibility of the management
of Advanced Micro Devices, Inc. Our responsibility is to express an opinion on
these supplemental financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, based on our audits, the supplemental financial statements
referred to above present fairly, in all material respects, the consolidated
financial position of Advanced Micro Devices, Inc. at December 31, 1995 and
December 25, 1994, and the consolidated results of its operations and its cash
flows for each of the three years in the period ended December 31, 1995, after
giving retroactive effect to the merger of NexGen, Inc., as described in the
notes to the supplemental consolidated financial statements, in conformity with
generally accepted accounting principles.
Ernst & Young LLP
San Jose, California
April 30, 1996
9
<PAGE>
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF INCOME
Three Years Ended December 31, 1995
(Thousands except per share amounts)
<TABLE>
<CAPTION>
95 94 93
---------- ----------- -----------
<S> <C> <C> <C>
Net sales $2,468,379 $ 2,155,453 $ 1,648,280
Expenses:
Cost of sales 1,417,007 1,013,589 789,564
Research and development 416,521 295,326 279,412
Marketing, general, and administrative 412,651 377,503 296,912
---------- ----------- -----------
2,246,179 1,686,418 1,365,888
---------- ----------- -----------
Operating income 222,200 469,035 282,392
Litigation settlement - (58,000) -
Interest income and other, net 32,465 17,134 16,931
Interest expense (3,059) (4,410) (4,398)
---------- ----------- -----------
Income before income taxes and equity in joint venture 251,606 423,759 294,925
Provision for income taxes 70,206 142,232 85,935
---------- ----------- -----------
Income before equity in joint venture 181,400 281,527 208,990
Equity in net income (loss) of joint venture 34,926 (10,585) (634)
---------- ----------- -----------
Net income 216,326 270,942 208,356
Preferred stock dividends 10 10,350 10,350
---------- ----------- -----------
Net income applicable to common stockholders $ 216,316 $ 260,592 $ 198,006
========== =========== ===========
Net income per common share:
Primary $ 1.59 $ 2.06 $ 1.65
========== =========== ===========
Fully diluted $ 1.57 $ 2.02 $ 1.64
========== =========== ===========
Shares used in per share calculation:
Primary 136,208 126,674 119,925
Fully diluted 137,815 134,142 127,167
</TABLE>
See accompanying notes
10
<PAGE>
SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS
December 31, 1995, and December 25, 1994
(Thousands except share and per share amounts)
<TABLE>
<CAPTION>
95 94
----------- -----------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 126,316 $ 117,997
Short-term investments 383,349 312,924
----------- -----------
Total cash, cash equivalents, and short-term investments 509,665 430,921
Accounts receivable, net of allowance for doubtful accounts
of $15,618 in 1995, and $10,469 in 1994 284,238 345,546
Inventories:
Raw materials 29,494 23,097
Work-in-process 68,827 74,892
Finished goods 57,665 35,514
----------- -----------
Total inventories 155,986 133,503
Deferred income taxes 147,489 105,238
Prepaid expenses and other current assets 40,564 46,370
----------- -----------
Total current assets 1,137,942 1,061,578
Property, plant, and equipment:
Land 28,851 28,820
Buildings and leasehold improvements 893,646 500,530
Equipment 1,843,662 1,456,512
Construction in progress 180,742 492,792
----------- -----------
Total property, plant, and equipment 2,946,901 2,478,654
Accumulated depreciation and amortization (1,305,267) (1,209,813)
----------- -----------
Property, plant, and equipment, net 1,641,634 1,268,841
Investment in joint venture 176,821 124,588
Other assets 122,070 70,714
----------- -----------
$ 3,078,467 $ 2,525,721
=========== ===========
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable to banks $ 26,770 $ 32,459
Accounts payable 241,916 159,939
Accrued compensation and benefits 106,347 105,604
Accrued liabilities 103,404 85,912
Litigation settlement - 58,000
Income tax payable 56,297 53,795
Deferred income on shipments to distributors 100,057 83,800
Current portion of long-term debt and capital lease obligations 41,642 40,420
----------- -----------
Total current liabilities 676,433 619,929
Deferred income taxes 84,607 32,686
Long-term debt and capital lease obligations, less current portion 214,965 75,752
Commitments and contingencies - -
Stockholders' equity:
Capital stock:
Serial preferred stock (redeemed March 13, 1995), par value $.10;
1,000,000 shares authorized; 345,000 shares issued and 344,862
shares outstanding in 1994 - 34
Common stock, par value $.01; 250,000,000 shares authorized;
132,182,019 shares issued and outstanding in 1995,
and 121,919,102 in 1994 1,050 959
Capital in excess of par value 908,989 871,200
Retained earnings 1,192,423 925,161
----------- -----------
Total stockholders' equity 2,102,462 1,797,354
----------- -----------
$ 3,078,467 $ 2,525,721
=========== ===========
</TABLE>
See accompanying notes
11
<PAGE>
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Three Years Ended December 31, 1995
(Thousands)
<TABLE>
<CAPTION>
Preferred Stock Common Stock
-----------------------------------
Number Number Capital in Total
of of Warrant Excess of Retained Stockholders'
Shares Amount Shares Amount Valuation Par Value Earnings Equity
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
December 27, 1992 12,580 $ 53,119 89,976 $1,122 $ - $ 532,674 $ 457,454 $1,044,369
Issuance of preferred stock 3,842 21,725 - - - - - 21,725
Issuance of common stock - - 106 73 - - - 73
Valuation of warrants - - - - 533 - - 533
Issuance of shares:
Employee stock plans - - 3,218 31 - 19,408 - 19,439
Fujitsu Limited - - 1,000 10 - 22,952 - 22,962
Compensation recognized under
employee stock plans - - - - - 1,313 - 1,313
Income tax benefits realized from
employee stock option exercises - - - - - 43,386 - 43,386
Preferred stock dividends - - - - - - (10,350) (10,350)
Net income - - - - - - 208,356 208,356
------- --------- ------- ------ ----- --------- ---------- ----------
December 26, 1993 16,422 74,844 94,300 1,236 533 619,733 655,460 1,351,806
Issuance of common stock - - 4,676 316 - 65,170 - 65,486
Issuance of shares:
Employee stock plans - - 1,970 19 - 16,911 - 16,930
Fujitsu Limited - - 1,000 10 - 22,625 - 22,635
Compensation recognized under
employee stock plans - - - - - 1,971 - 1,971
Conversion of preferred stock to
common stock (16,078) (74,810) 19,973 3 - 106,199 - 31,392
Income tax benefits realized from
employee stock option exercises - - - - - 37,433 - 37,433
Preferred stock dividends - - - - - - (10,350) (10,350)
Reincorporation into a Delaware Corporation - - - (625) - 625 - -
Net income - - - - - - 270,942 270,942
Unrealized gain from available-for-sale
investments - - - - - - 9,109 9,109
------- --------- ------- ------ ----- --------- ---------- ----------
December 25, 1994 344 34 121,919 959 533 870,667 925,161 1,797,354
Changes in NexGen's stockholders'
equity in the six months ended
June 30, 1995 18,161 93,548 (24,530) 352 - (171,994) 23,803 (54,291)
Issuance of preferred stock 1,376 12,653 - - - - - 12,653
Issuance of common stock - - 4,542 271 - 65,340 - 65,611
Issuance of shares:
Employee stock plans - - 2,283 22 - 23,518 - 23,540
Compensation recognized under
employee stock plans - - - - - 2,483 - 2,483
Conversion of preferred stock to
common stock (19,881) (106,235) 26,823 71 - 103,663 - (2,501)
Reincorporation into a Delaware Corporation - - (33) (625) - 625 -
Warrants exercised - - 1,178 - (533) 533 - -
Income tax benefits realized from
employee stock option exercises - - - - - 15,189 - 15,189
Preferred stock dividends - - - - - - (10) (10)
Redemption of stockholder rights plan - - - - - (1,035) - (1,035)
Net income - - - - - - 216,326 216,326
Unrealized gain from available-for-sale
investments and translation
adjustment for joint venture - - - - - - 27,143 27,143
------- --------- ------- ------ ----- --------- ---------- ----------
December 31, 1995 - $ - 132,182 $1,050 $ - $ 908,989 $1,192,423 $2,102,462
======= ========= ======= ====== ===== ========= ========== ==========
</TABLE>
See accompanying notes
12
<PAGE>
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Years Ended December 31, 1995
(Thousands)
<TABLE>
<CAPTION>
95 94 93
--------- ----------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 216,326 $ 270,942 $ 208,356
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 264,675 217,665 176,827
Accrual for litigation settlement - 58,000 -
Net (gain) loss on sale of property, plant, and equipment 2,152 276 (2,943)
Write-down of property, plant, and equipment 611 2,230 366
Net gain realized on sale of available-for-sale securities (2,707) - -
Compensation recognized under employee stock plans 2,483 1,971 1,313
Undistributed (income) loss of joint venture (34,926) 10,585 634
Changes in operating assets and liabilities:
Net (increase) decrease in receivables, inventories,
prepaid expenses, and other assets 19,548 (128,914) (57,628)
Payment of litigation settlement (58,000) - -
Net increase in deferred income taxes (925) (32,543) (30,304)
Increase in income tax payable 11,772 61,910 70,502
Net increase in payables and accrued liabilities 124,058 63,737 72,131
--------- ----------- ---------
Net cash provided by operating activities 545,067 525,859 439,254
--------- ----------- ---------
Cash flows from investing activities:
Purchase of property, plant, and equipment (625,900) (552,271) (325,981)
Proceeds from sale of property, plant, and equipment 4,834 2,058 4,648
Purchase of available-for-sale securities (817,888) (56,328) (4,934)
Proceeds from sale of available-for-sale securities 756,373 4,849 -
Purchase of held-to-maturity debt securities (648,012) (1,245,167) (715,487)
Proceeds from maturities of held-to-maturity debt securities 642,229 1,416,431 566,773
Investment in joint venture (18,019) (139,175) (3,160)
--------- ----------- ---------
Net cash used in investing activities (706,383) (569,603) (478,141)
--------- ----------- ---------
Cash flows from financing activities:
Proceeds from borrowings 246,345 42,025 17,528
Payments on capital lease obligations and other debt (142,937) (70,288) (22,616)
Proceeds from issuance of stock 101,804 136,443 64,692
Expenses for conversion of preferred stock and redemption of
stockholder rights (3,536) - -
Payments of preferred stock dividends (10) (10,350) (10,350)
--------- ----------- ---------
Net cash provided by financing activities 201,666 97,830 49,254
--------- ----------- ---------
Net increase in cash and cash equivalents 40,350 54,086 10,367
Cash and cash equivalents at beginning of year 85,966 63,911 53,544
--------- ----------- ---------
Cash and cash equivalents at end of year $ 126,316 $ 117,997 $ 63,911
========= =========== =========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest (net of amounts capitalized) $ 2,541 $ 4,125 $ 2,462
========= =========== =========
Income taxes $ 60,329 $ 111,704 $ 44,433
========= =========== =========
Non-cash financing activities:
Equipment capital leases $ 24,422 $ 34,202 $ 64,512
========= =========== =========
Conversion of preferred stock to common stock $ 270,328 $ 106,201 $ -
========= =========== =========
</TABLE>
See accompanying notes
13
<PAGE>
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995, December 25, 1994, and December 26, 1993
1. NATURE OF OPERATIONS
AMD is a semiconductor manufacturer with manufacturing facilities in the
U.S. and Asia, and sales offices throughout the world. Focusing on the personal
and networked computing and communications markets, AMD is a global company that
derives more than half of its revenues from international sales, mainly in
Europe and Asia. The company provides programmable products in concert with
applications solutions to the manufacturers of equipment for personal and
networked computation and communications.
2. BUSINESS COMBINATION
On January 17, 1996, the company acquired NexGen, Inc. ("NexGen") in a
tax-free reorganization in which NexGen was merged directly into the company.
The company has exchanged approximately 29.3 million shares of AMD common stock
and has reserved 4.3 million shares to be exchanged for NexGen options and
warrants assumed by the company. The 33.6 million total shares to be exchanged
represent eight-tenths (0.8) of a share of the common stock of AMD for each
share of the common stock of NexGen outstanding or subject to an assumed warrant
or option. The merger has been accounted for under the pooling-of-interests
method.
The supplemental consolidated financial statements have been prepared to give
retroactive effect to the merger of NexGen with and into AMD on January 17,
1996. Generally accepted accounting principles prescribe giving effect to a
consummated business combination accounted for by the pooling-of-interests
method in financial statements that do not include the date of consummation. The
accompanying supplemental consolidated financial statements do not extend
through the date of the consummation, however, they will become the historical
consolidated financial statements of the company after financial statements
covering the date of consummation of the business combination are issued.
Prior to its merger with AMD, NexGen reported on a fiscal year ending June 30.
In the accompanying supplemental consolidated financial statements and the notes
thereto, NexGen's financial position and operating results as of and for the
years ended June 30, 1994 and 1995 were combined with AMD's financial position
and operating results as of and for the years ended December 26, 1993 and
December 25, 1994, respectively. NexGen's financial position and operating
results for 1995, which were restated to a December 31, 1995 year end, were
combined with AMD's financial position and operating results as of and for the
year ended December 31, 1995. Accordingly, NexGen's operating results for the
six months ended June 30, 1995 were duplicated in each of the years ended
December 25, 1994 and December 31, 1995. NexGen's revenues and net loss for that
six month period were $19.9 million and $34.4 million, respectively.
Consolidated stockholders' equity has been reduced by $54.3 million, which
represents NexGen's net stockholders' equity activity for the six months ended
June 30, 1995 in order to eliminate the duplication of stockholders' equity
activity during that period. As a result of the combination of NexGen's
financial position as of June 30, 1995 with the financial position of AMD as of
December 25, 1994, the beginning cash and cash equivalents balance in the
accompanying 1995 supplemental consolidated statements of cash flows does not
equal the December 25, 1994 cash and cash equivalents balance.
A reconciliation of net sales, net income, and net income per common share of
the company, as previously reported, NexGen and combined, including the NexGen
income tax benefit, is as follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- -------
<S> <C> <C> <C>
Net Sales:
AMD, as previously reported $2,429,724 $2,134,659 $1,648,280
NexGen 38,655 20,794 -
---------- ---------- ----------
Combined $2,468,379 $2,155,453 $1,648,280
========== ========== ==========
Net Income (Loss):
AMD, as previously reported $300,521 $305,266 $228,781
NexGen (126,727) (45,795) (23,708)
NexGen income tax benefit 42,532 11,471 3,283
---------- ---------- ----------
Combined $216,326 $270,942 $208,356
========== ========== ==========
Net Income Per Common Share
(Primary):
AMD, as previously reported $2.85 $3.02 $2.30
========== ========== ==========
Combined $1.59 $2.06 $1.65
========== ========== ==========
Net Income Per Common Share
(Fully Diluted):
AMD, as previously reported $2.81 $2.92 $2.24
========== ========== ==========
Combined $1.57 $2.02 $1.64
========== ========== ==========
</TABLE>
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
FISCAL YEAR. The company uses a 52- to 53-week fiscal year ending on the last
Sunday in December, which resulted in a 53-week year ended December 31, 1995.
This compares with a 52-week fiscal year for 1994 and 1993, which ended on
December 25 and 26, respectively.
PRINCIPLES OF CONSOLIDATION. The supplemental consolidated financial statements
include the accounts of the company and its subsidiaries. Upon consolidation,
all significant intercompany accounts and transactions are eliminated. Also
included in the financial statements of the company, under the equity method of
accounting, is the company's 49.95 percent investment in Fujitsu AMD
Semiconductor Limited (FASL).
FOREIGN CURRENCY TRANSLATION. The U.S. dollar is the functional currency for the
company's wholly-owned foreign subsidiaries. Translation adjustments, resulting
from the process of
14
<PAGE>
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
translating foreign currency financial statements into U.S. dollars, are
included in operations. The functional currency of the company's unconsolidated
joint venture is the Japanese yen. Translation adjustments relating to the
translation of these statements have not been material, and therefore, are not
disclosed as a separate component of stockholders' equity.
CASH EQUIVALENTS. Cash equivalents consist of financial instruments which are
readily convertible to cash and have original maturities of three months or less
at the time of acquisition.
INVESTMENTS. The company classifies its marketable debt and equity securities
into held-to-maturity and available-for-sale categories in accordance with the
provisions of the Statement of Financial Accounting Standards No. 115 (SFAS No.
115), "Accounting for Certain Instruments in Debt and Equity Securities." In
accordance with the FASB staff Special Report, "A Guide to Implementation of
Statement 115 on Accounting for Certain Investments in Debt and Equity
Securities," the company chose to reclassify, as of December 31, 1995, all cash
equivalents and short-term investments that were classified as held-to-maturity
at that time from held-to-maturity to available-for-sale. Securities classified
as available-for-sale are reported at fair market value with the related
unrealized gains and losses included in retained earnings. Realized gains and
losses and declines in value of securities judged to be other than temporary are
included in interest income and other, net. Interest and dividends on all
securities are included in interest income and other, net.
Investments with maturities between three and twelve months are considered
short-term investments. Short-term investments consist of money market auction
preferred stocks and debt securities such as commercial paper, time deposits,
certificates of deposit, bankers' acceptances, and marketable direct obligations
of the United States Treasury.
FOREIGN EXCHANGE FORWARD CONTRACTS. Foreign exchange forward contracts are used
to hedge the company's net monetary asset positions in its foreign subsidiaries
and the company's liabilities for products purchased from FASL. Realized gains
and losses from these hedges are included in operations. Premiums and discounts,
if any, are amortized over the life of the contract and included in operations.
FOREIGN CURRENCY OPTIONS. Foreign currency options are used to hedge firm
commitments with respect to the company's joint venture (FASL) investment.
Realized gains and losses from these hedges are deferred and included in other
assets or accrued liabilities, respectively. They are recognized in operations
in the same period as the hedged transactions. Premiums and discounts, if any,
are amortized over the life of the contract and included in operations.
INTEREST RATE SWAPS. The company enters into interest rate swaps primarily to
reduce its interest rate exposure by changing a portion of the company's
interest rate exposure from a floating rate to a fixed rate basis. The
differential between fixed and floating rates to be paid or received is accrued
and recognized as an adjustment to interest expense. Accordingly, the related
amount payable to or receivable from counterparties is included in other current
assets or accrued liabilities.
INVENTORIES. Inventories are stated principally at standard cost adjusted to
approximate the lower of cost (first-in, first-out method) or market (net
realizable value).
PROPERTY, PLANT, AND EQUIPMENT. Property, plant, and equipment is stated at
cost. Depreciation and amortization are provided principally on the straight-
line basis over the estimated useful lives of the assets for financial reporting
purposes and on accelerated methods for tax purposes. Estimated useful lives for
financial reporting purposes are as follows: machinery and equipment 3 to 5
years; buildings up to 26 years; and leasehold improvements are the shorter of
the remaining terms of the leases or the estimated economic useful lives of the
improvements.
In 1995, the Financial Accounting Standards Board released the Statement of
Financial Accounting Standards No. 121 (SFAS 121), "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of."
SFAS 121 requires recognition of impairment of long-lived assets in the event
the net book value of such assets exceeds the future undiscounted cash
15
<PAGE>
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
flows attributable to such assets. SFAS 121 is effective for fiscal years
beginning after December 15, 1995. Adoption of SFAS 121 is not expected to have
a material impact on the company's financial position or results of operations.
DEFERRED INCOME ON SHIPMENTS TO DISTRIBUTORS. A portion of sales is made to
distributors under terms allowing certain rights of return and price protection
on unsold merchandise held by the distributors. These agreements can be canceled
by either party upon written notice, at which time the company generally
repurchases unsold inventory. Accordingly, recognition of sales to distributors
and related gross profits are deferred until the merchandise is resold by the
distributors.
ADVERTISING EXPENSES. The company accounts for advertising costs as expense in
the period in which they are incurred. Advertising expense for 1995, 1994, and
1993 was approximately $44 million, $32 million, and $22 million, respectively.
NET INCOME PER COMMON SHARE. Primary net income per common share is based upon
weighted average common and dilutive common equivalent shares outstanding using
the treasury stock method. Dilutive common equivalent shares include stock
options, warrants, and restricted stock. Fully diluted net income per common
share is computed using the weighted average common and dilutive common
equivalent shares outstanding, plus other dilutive shares outstanding which are
not common equivalent shares. Other dilutive shares which are not common
equivalent shares include convertible preferred stock and convertible notes.
All share information has been adjusted on a retroactive basis herein to
give effect to the merger with NexGen and the conversion of NexGen shares on a
0.8 to one share of AMD common stock.
EMPLOYEE STOCK PLANS. The company accounts for its stock option plans and its
employee stock purchase plan in accordance with provisions of the Accounting
Principles Board's Opinion No. 25 (APB 25), "Accounting For Stock Issued to
Employees." In 1995, the Financial Accounting Standards Board released the
Statement of Financial Accounting Standards No. 123 (SFAS 123), "Accounting for
Stock Based Compensation." SFAS 123 provides an alternative to APB 25 and is
effective for fiscal years beginning after December 15, 1995. The company
expects to continue to account for its employee stock plans in accordance with
the provisions of APB 25. Accordingly, SFAS 123 is not expected to have any
material impact on the company's financial position or results of operations.
USE OF ESTIMATES. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results inevitably will differ from those estimates,
and such differences may be material to the financial statements.
YEAR-END ADJUSTMENTS (UNAUDITED). The company made certain year-end adjustments
in 1995, resulting from changes in estimates related to the Nx586 product which
was developed by NexGen. These adjustments were material to the results of the
fourth quarter. These adjustments, related to accounts receivable and inventory,
were charged primarily to net sales and cost of sales and reduced operating
income by approximately $51.7 million.
4. FINANCIAL INSTRUMENTS
FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
As part of the company's asset and liability management, the company enters into
various types of transactions that involve financial instruments with off-
balance-sheet risk. These instruments are entered into in order to manage
financial market risk, including interest rate and foreign exchange risk. The
notional values, carrying amounts, and fair values are tabled below.
Foreign exchange forward contracts
The company enters into foreign exchange forward contracts to buy and sell
currencies as economic hedges of its net monetary asset positions in its foreign
subsidiaries and liabilities for products.
16
<PAGE>
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
purchased from FASL. The hedging transactions in 1995 were denominated in lira,
yen, French franc, deutsche mark, and pound sterling. The maturities of these
contracts are generally less than six months.
Foreign currency options
The joint venture (FASL) investments are denominated in yen, and therefore, are
subject to exposure due to fluctuations in yen exchange rates. Thus, the company
hedges its exposures on certain firm commitments relating to the FASL investment
with foreign currency options denominated in yen. The maturities of these
options are generally less than six months. No foreign currency options were
outstanding as of December 31, 1995.
Interest rate swaps
The company engaged in interest rate swaps primarily to reduce its interest rate
exposure on its term loan and on a building lease obligation by changing a
portion of the company's interest rate obligation from a floating rate to a
fixed rate basis without exchanges of the underlying notional amounts. The fixed
interest rates are based on one to five year swap rates, and the floating
interest rates are based on three or six months LIBOR. These interest rate swaps
will mature in 1996 and 1997.
FAIR VALUE OF FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The estimates of fair value were obtained using prevailing financial market
information as of December 31, 1995. In certain instances where judgment is
required in estimating fair value, price quotes were obtained from certain of
the company's counterparty financial institutions.
<TABLE>
<CAPTION>
(Thousands) 1995 1994
--------------------------------- ---------------------------------
Notional Carrying Fair Notional Carrying Fair
amount amount value amount amount value
--------------------------------- ---------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest rate instruments:
Swaps $190,000 $(518) $(1,694) $ 40,000 $(518) $ 228
Foreign exchange instruments:
Foreign exchange forward contracts 36,670 (102) (102) 32,651 536 536
Foreign currency options - - - 12,662 - (200)
</TABLE>
FAIR VALUE OF OTHER FINANCIAL INSTRUMENTS
The carrying value of short-term debt approximates fair value due to its short-
term maturity. The fair value of long-term debt was estimated using discounted
cash flow analysis based on estimated interest rates for similar types of
borrowing arrangements.
The carrying amounts and estimated fair values of the company's other financial
instruments are as follows:
17
<PAGE>
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
(Thousands) 1995 1994
------------------- -------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Short-term debt:
Notes payable $ 26,770 $ 26,770 $ 32,459 $ 32,459
Long-term debt
(excluding capital leases) 179,301 180,920 33,433 32,755
</TABLE>
SECURITIES HELD-TO-MATURITY AND AVAILABLE-FOR-SALE
The following is a summary of held-to-maturity and available-for-sale securities
included in cash and cash equivalents and short-term investments as of December
31, 1995 and December 25, 1994.
<TABLE>
<CAPTION>
Available-for-sale Held-to-maturity Available-for-sale
(Thousands) 1995 1994 1994
------------------ ---------------- ------------------
<S> <C> <C> <C>
Certificates of deposit $ 15,002 $ 4,997 $ -
Treasury notes 10,437 - 14,348
Federal agency notes 14,065 - -
Security repurchase agreements 53,370 50,800 17,998
Commercial paper 14,914 24,760 -
Other debt securities 434 1,672 -
------------------ ---------------- ------------------
Total cash equivalents $ 108,222 $ 82,229 $ 32,346
================== ================ ==================
Certificates of deposit $ 70,551 $ 95,342 $ 3,716
Municipal notes and bonds 52,256 - -
Corporate notes 37,898 101,850 -
Treasury notes 60,989 44,877 15,997
Commercial paper 46,656 14,442 -
Money market auction preferred stocks 114,999 36,700 -
------------------ ---------------- ------------------
Total short-term investments $ 383,349 $ 293,211 $ 19,713
================== ================ ==================
</TABLE>
On November 15, 1995, the FASB staff issued a Special Report, "A Guide to
Implementation of Statement 115 on Accounting for Certain Investments in Debt
and Equity Securities." In accordance with provisions in that Special Report,
the company chose to reclassify cash equivalents and short-term investments from
held-to-maturity to available-for-sale. At the date of the transfer, the
amortized cost of those securities was approximately $480.7 million. Since the
securities transferred on December 31, 1995 are short-term in nature, changes in
market interest rates did not
18
<PAGE>
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
have a significant impact on the fair value of these securities. The net
unrealized gain on these securities was immaterial.
The available-for-sale equity securities that the company held, included in
other assets, had a cost and fair value of $14.5 million and $75.1 million,
respectively, as of December 31, 1995, and a cost and fair value of $9.4 million
and $18.5 million, respectively, as of December 25, 1994. At December 31, 1995,
the total net unrealized holding gain on these equity securities, net of tax,
was approximately $42.5 million, of which $33.4 million was recorded in 1995.
The entire, net of tax, unrealized holding gain is included in retained
earnings.
As of December 31, 1995, the company did not own any securities classified
as trading.
5. CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the company to concentrations of
credit risk consist primarily of cash equivalents, short-term investments, trade
receivables, and financial instruments used in hedging activities.
The company places its cash equivalents and short-term investments with
high credit quality financial institutions and, by policy, limits the amount of
credit exposure with any one financial institution. Investments in time deposits
and certificates of deposit are acquired from banks having combined capital,
surplus, and undistributed profits of not less than $200 million. Investments in
commercial paper and money market auction preferred stocks of industrial firms
and financial institutions are rated A1, P1 or better, investments in tax-exempt
securities including municipal notes and bonds are rated AA, Aa or better, and
investments in repurchase agreements must have securities of the type and
quality listed above as collateral.
Concentrations of credit risk with respect to trade receivables are limited
because a large number of geographically diverse customers make up the company's
customer base, thus spreading the trade credit risk. The company controls credit
risk through credit approvals, credit limits, and monitoring procedures. The
company performs in-depth credit evaluations of all new customers and requires
letters of credit, bank guarantees and advance payments, if deemed necessary.
Bad debt expenses have not been material.
The counterparties to the agreements relating to the company's foreign
exchange and interest rate instruments consist of a number of major, high credit
quality, international financial institutions. The company does not believe that
there is significant risk of nonperformance by these counterparties because the
company monitors the credit ratings of such counterparties, and limits the
financial exposure and the amount of agreements entered into with any one
financial institution. While the notional amounts of financial instruments are
often used to express the volume of these transactions, the potential accounting
loss on these transactions if all counterparties failed to perform is limited to
the amounts, if any, by which the counterparties' obligations under the
contracts exceed the obligations of the company to the counterparties.
6. CONCENTRATIONS OF OTHER RISKS
PRODUCTS. Microprocessor products and Flash memory devices contributed a
significant portion of the company's revenues and profits in 1995. The company
expects that its ability to maintain or expand its current levels of revenues
and profits in the future will depend upon, among other things, its success in
developing and marketing, in a timely manner, its next generation of
microprocessor products, the K86 RISC SUPERSCALAR(TM) products, and future
generations of Flash memory devices.
19
<PAGE>
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
MARKETS. The markets for the company's products are characterized by rapid
technological developments, evolving industry standards, changes in customer
requirements, frequent new product introductions and enhancements, and short
product life cycles. The market for microprocessors and Flash memory devices is
primarily dependent upon the market for personal computers (PC). From time to
time, the PC industry has experienced significant downturns, often in connection
with, or in anticipation of, declines in general economic conditions. These
downturns have been characterized by diminished product demand, production
overcapacity, and resultant accelerated erosion of average selling prices. The
company's business could be materially and adversely affected by industry-wide
fluctuations in the PC marketplace in the future.
INVENTORIES. Given the volatility of the market, the company makes inventory
provisions for potentially excess and obsolete inventory based on backlog and
forecasted demand. However, such backlog demand is subject to revisions,
cancellations, and rescheduling. Actual demand will inevitably differ from such
anticipated demand, and such differences may have a material effect on the
financial statements.
CUSTOMERS. The company markets and sells its products primarily to a broad base
of customers comprised of Distributors and Original Equipment Manufacturers
(OEM's) of computation and communication equipment. One of the company's
distributors, Arrow Electronics, Inc., accounted for approximately 12 percent of
1995 net sales. No other Distributor or OEM customer constituted 10 percent or
more of net sales in 1995.
INTERNATIONAL OPERATIONS. The company derives more than half of its revenues
from international sales. However, only a portion of the company's international
sales were denominated in foreign currencies. Further, the company does not have
any sales denominated in the local currencies of those countries which have
highly inflationary economies.
Nearly all product assembly and final testing of the company's products are
performed at its manufacturing facilities in Penang, Malaysia; Singapore; and
Bangkok, Thailand; or by subcontractors in Asia. Wafer fabrication of certain
products is performed at foundries in Asia. FASL wafer fabrication facilities
are located in Aizu-Wakamatsu, Japan. Foreign manufacturing entails political
and economic risks, including political instability, expropriation, currency
controls and fluctuations, changes in freight and interest rates, and exemptions
for taxes and tariffs. For example, if the company were unable to assemble and
test its products abroad, or if air transportation between the United States,
the company's overseas facilities and customers worldwide were disrupted, there
could be a material adverse effect on the company's operations.
MATERIALS. Certain of the raw materials used by the company in the manufacture
of its products are available from a limited number of suppliers. For example,
several types of integrated circuit packages purchased by the company, as well
as by the majority of other companies in the semiconductor industry, are
principally supplied by Japanese companies. Shortages could occur in various
essential materials due to interruption of supply or increased demand in the
industry. If the company were unable to procure certain of such materials, it
would be required to reduce its manufacturing operations, which could have a
material adverse effect upon its results of operations.
7. SERIAL PREFERRED STOCK
In March 1987, the company sold 345,000 shares of Convertible Exchangeable
Preferred Stock, $.10 par value. Dividends were payable quarterly in arrears at
an annual rate of $30 per share (6
20
<PAGE>
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
percent) cumulative from the date of original issue. The preferred stock was
redeemable for cash at any time at the option of the company, in whole or in
part, at prices declining to $500 per share at March 15, 1997, plus unpaid
dividends. The preferred stock was convertible at any time at the option of the
holder into common stock at the initial conversion rate of 19.873 common shares
for each preferred share.
On February 10, 1995, the company called all outstanding shares of its
preferred stock for redemption on March 13, 1995, at a redemption price of
$509.00 per share, plus $7.30 of accrued and unpaid dividends. Prior to the
redemption date, 343,427 shares of preferred stock were surrendered for
conversion which resulted in the issuance of 6,824,694 shares of the company's
common stock. Pursuant to previous arrangements, on March 14, 1995, the company
sold 28,518 shares of its common stock to certain institutions and used the
proceeds to fund the redemption of 1,435 shares of preferred stock which were
not converted.
NexGen's 19,536,328 shares of Convertible Preferred Stock issued and
outstanding as of May 24, 1995 were converted into 19,970,328 shares of its
Common Stock in conjunction with its initial public offering on May 24, 1995. As
of June 30, 1994, 13,583,459 shares of Convertible Preferred Stock were issued
and outstanding.
8. STOCKHOLDER RIGHTS PLAN
In February 1990, the company adopted a stockholder rights plan and declared a
dividend distribution of preferred stock purchase rights at the rate of one
right for each share of common stock held as of the close of business on
February 20, 1990. The rights were not exercisable, or transferable apart from
the common stock, until certain events occurred. The rights were redeemable at
any time at the option of the company.
On May 3, 1995, the company redeemed all its preferred stock purchase
rights for a redemption price of $.01 per right (approximately $1 million) paid
on May 24, 1995, to the holders of the company's common stock as of the
redemption date.
9. WARRANTS
On May 24, 1995, the effective date of NexGen's initial public offering, all
previously issued preferred series warrants were converted into warrants to
purchase common stock. All outstanding warrants are held by related parties. The
following summarizes the warrants outstanding as of December 31, 1995:
<TABLE>
<CAPTION>
WARRANT HOLDER WARRANTS WARRANT PRICE
- ------------------------------------------------------------------------------
<S> <C> <C>
Warrants issued in connection with Promissory
Notes and Preferred Stock Offering 493,280 $0.63-$9.38
Warrants issued in connection with consulting
services 280,000 $5.00
Warrants issued to sales agent 682,392 $5.00-$9.38
Total warrants issued and outstanding
as of December 31, 1995 1,455,672 $0.63-$9.38
</TABLE>
For the year ended December 31, 1995 warrants previously issued to purchase
1,364,000 shares of common stock were exercised on a cashless basis for
1,178,010 shares of common stock. Warrants for an additional 540 shares of
common stock are claimed to be outstanding by certain warrant holders. All
warrants are currently exercisable at December 31, 1995.
21
<PAGE>
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
10. INCOME TAXES
Provision for income taxes consists of:
<TABLE>
<CAPTION>
(Thousands) 1995 1994 1993
------------- ------------ ------------
<S> <C> <C> <C>
Current:
U.S. Federal $ 58,683 $ 154,448 $ 83,574
U.S. State and Local 1,855 13,001 3,640
Foreign National and Local 10,594 7,350 2,332
Deferred:
U.S. Federal 1,295 (29,733) (5,206)
U.S. State and Local (3,167) (2,820) 1,798
Foreign National and Local 946 (14) (203)
------------- ------------ ------------
Provision for income taxes $ 70,206 $ 142,232 $ 85,935
============= ============ ============
</TABLE>
Tax benefits resulting from the exercise of nonqualified stock options and
the disqualifying disposition of shares acquired under the company's incentive
stock option and stock purchase plans reduced taxes currently payable as shown
above by $15.2 million, $37.4 million, and $43.4 million in 1995, 1994, and
1993, respectively. Such benefits were credited to capital in excess of par
value when realized.
Under SFAS No. 109, deferred income taxes reflect the net tax effects of
tax carryforwards and temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts used for
income tax purposes. Significant components of the company's deferred tax assets
and liabilities as of December 31, 1995, December 25, 1994, and December 26,
1993 are as follows:
<TABLE>
<CAPTION>
(Thousands) 1995 1994 1993
------------- ------------ ------------
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss carryovers $ 62,796 $ 30,840 $ 21,820
Deferred distributor income 40,583 31,396 31,349
Inventory reserves 29,665 18,809 14,935
Accrued expenses not currently deductible 35,639 39,467 21,799
Federal and state tax credit carryovers 6,249 2,873 30,888
Other 49,850 39,081 27,569
------------- ------------ ------------
Total deferred tax assets 224,782 162,466 148,360
Less: valuation allowance (33,386) (14,445) (43,335)
------------- ------------ ------------
Net deferred tax assets 191,396 148,021 105,025
------------- ------------ ------------
Deferred tax liabilities:
Depreciation (109,141) (59,614) (44,886)
Other (19,373) (15,855) (20,154)
------------- ------------ ------------
Total deferred tax liabilities (128,514) (75,469) (65,040)
------------- ------------ ------------
Net deferred tax assets $ 62,882 $ 72,552 $ 39,985
============= ============ ============
</TABLE>
22
<PAGE>
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
Approximately $26.4 million of the 1993 valuation allowance for deferred tax
assets, attributable to stock option deductions, was credited to equity upon
realization in 1994.
Pretax income from foreign operations was approximately $60.6 million in
1995, $45.7 million in 1994, and $40.0 million in 1993.
As of December 31, 1995, the company has net operating loss carryovers of
approximately $179.4 million for federal income tax purposes. The federal
carryovers expire on various dates through 2009. No significant state
carryforwards exist due to the capitalization of research and development
expenditures for state purposes and state statutory limitations on the amount of
net operating losses which may be carried forward to subsequent years.
Under the Tax Reform Act of 1986, the amounts of and the benefit from net
operating losses that can be carried forward may be limited in certain
circumstances. Because of changes in ownership greater than 50 percent,
realization of the company's net operating loss carryforwards incurred prior to
July 1992 and January 1996 may be subject to annual limitations of approximately
$3.9 million and $27.3 million, respectively. These annual limitations should
result in the availability of all carryforwards by the year 2004.
The following is a reconciliation between statutory federal income taxes
and the total provision for income taxes:
<TABLE>
<CAPTION>
1995 1994 1993
-------------------- ----------------- -----------------
(Thousands except percent) Tax Rate Tax Rate Tax Rate
-------------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Statutory federal
income tax provision $ 88,062 35.0 % $ 148,316 35.0 % $ 103,224 35.0 %
State taxes net of federal benefit 216 0.1 6,601 1.6 3,535 1.2
Tax exempt Foreign Sales
Corporation income (6,848) (2.7) (8,955) (2.1) (7,236) (2.5)
Tax credits utilized - - - - (5,004) (1.7)
Foreign income
at other than U.S. rates (11,503) (4.6) (9,633) (2.3) (10,398) (3.5)
Other 279 0.1 5,903 1.4 1,814 0.6
---------- ---- --------- ---- --------- ----
$ 70,206 27.9 % $ 142,232 33.6 % $ 85,935 29.1 %
========== ==== ========= ==== ========= ====
</TABLE>
No provision has been made for income taxes on approximately $264.6 million
of cumulative undistributed earnings of certain foreign subsidiaries because it
is the company's intention to permanently invest such earnings. If such earnings
were distributed, additional taxes of $92.6 million would accrue.
The company's Far East assembly and test plants in Singapore and Thailand
are operated under various tax holidays which expire in whole or in part during
1996 and 1998. Possible extensions of the holiday period, as well as other tax
incentives, are anticipated to result in minimal tax liabilities in these
countries through 1998. The net impact of these tax holidays was an increase in
net income of approximately $6.2 million ($0.04 per share) in 1995.
11. DEBT
The company has certain debt agreements that contain provisions regarding
restrictions on cash dividends, maintenance of specified working capital and net
worth levels, and specific financial ratio requirements. At December 31, 1995,
the company was in compliance with all restrictive covenants
23
<PAGE>
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
of such debt agreements and all retained earnings was restricted as to payments
of cash dividends on common stock.
Significant elements of uncommitted, unsecured revolving lines of credit are:
<TABLE>
<CAPTION>
(thousands except percent) 1995 1994
----------- -----------
<S> <C> <C>
Total lines of credit $ 345,801 $ 378,182
Portion of lines of credit available to
foreign subsidiaries 95,801 128,182
Amounts outstanding at year-end:
Short-term 26,770 32,459
Short-term borrowings:
Average daily borrowings 29,666 33,449
Maximum amount outstanding at
any month-end 36,105 35,384
Weighted monthly average interest
rate 4.19 % 4.32 %
Average interest rate on amounts
outstanding at year-end 4.41 % 4.42 %
</TABLE>
Interest on foreign and short-term domestic borrowings is negotiated at the
time of the borrowing.
Information with respect to the company's long-term debt and capital lease
obligations at year-end is:
24
<PAGE>
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
(Thousands) 1995 1994
---------- ---------
<S> <C> <C>
Term loan with variable interest at 7.06% at December 31, 1995
payable quarterly through 1998 $ 150,000 $ -
10%-11% Convertible notes payable due on March 1, 1996 1,774 2,500
Promissory notes with principal and 6.88% interest payable
annually through January 2000, secured by a partnership
interest 10,276 11,946
12% Note payable due on June 1, 1996 10,000 10,000
Mortgage with principal and 9.88% interest payable in monthly
installments through April 2007 2,167 2,382
Obligations under capital leases 77,306 82,739
Obligations secured by equipment 4,990 6,482
Other 94 123
---------- ---------
256,607 116,172
Less: current portion (41,642) (40,420)
---------- ---------
Long-term debt and capital lease obligations, less current portion $ 214,965 $ 75,752
========== =========
</TABLE>
On January 5, 1995, the company obtained a $150 million single term four-
year loan with a consortium of eight commercial banks. The loan has a floating
interest rate based on the three months LIBOR and requires quarterly interest
payments with the principal to be paid at the end of the term in 1998. The
interest rate on the loan at December 31, 1995 was 7.06 percent.
For each of the next five years and beyond, long-term debt and capital
lease obligations are:
<TABLE>
<CAPTION>
Long-term
Debt Capital
(Thousands) (Principal only) Leases
---------------- ---------
<S> <C> <C>
1996 $ 15,420 $ 27,304
1997 3,802 26,255
1998 154,033 21,532
1999 2,326 6,949
2000 2,493 1,182
Beyond 2000 1,227 -
--------- ---------
Total 179,301 83,222
Less: Amount representing interest - 5,916
--------- ---------
Total at present value $ 179,301 $ 77,306
========= =========
</TABLE>
Obligations under the lease agreements are collateralized by the assets
leased. Total assets leased were approximately $141.9 million and $131.7
million at December 31, 1995 and December 25, 1994, respectively. Accumulated
amortization of these leased assets was approximately $95.6 million and $60.5
million at December 31, 1995 and December 25, 1994, respectively.
25
<PAGE>
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
12. INTEREST EXPENSE & INTEREST INCOME AND OTHER, NET
INTEREST EXPENSE
<TABLE>
<CAPTION>
(Thousands) 1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Interest expense $ 21,102 $ 12,704 $ 11,482
Interest capitalized (18,043) (8,294) (7,084)
---------- ---------- ----------
$ 3,059 $ 4,410 $ 4,398
========== ========== ==========
</TABLE>
In 1995, interest expense primarily consisted of interest payments on the
$150 million four-year term loan the company entered into on January 5, 1995;
and interest capitalized primarily related to the construction of Fab 25.
INTEREST INCOME AND OTHER, NET
<TABLE>
<CAPTION>
(Thousands) 1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Interest income $ 29,518 $ 23,331 $ 16,431
Other income (loss) 2,947 (6,197) 500
---------- ---------- ----------
$ 32,465 $ 17,134 $ 16,931
========== ========== ==========
</TABLE>
In 1995, other income (loss) primarily consisted of the $2.7 million
realized gain on an equity investment in Seeq Corporation. In 1994, other income
(loss) primarily consisted of the $33 million settlement cost related to the
class action lawsuits and stockholders' derivative action offset by an $18
million gain resulting from an award of damages in the arbitration proceedings
with Intel. Also included in other income (loss) for all years presented is the
net gain (loss) on the sale of assets.
13. FOREIGN AND DOMESTIC OPERATIONS
The company is currently engaged in a single line of business: The design,
development, manufacture, and sale of programmable products in concert with
applications solutions to the manufacturers of equipment for personal and
networked computation and communications.
Operations outside the United States include both manufacturing and sales.
Manufacturing subsidiaries are located in Malaysia, Singapore, and Thailand.
Sales subsidiaries are in Europe and Asia.
The following is a summary of operations by entities within geographic
areas for the three years ended December 31, 1995:
26
<PAGE>
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
(Thousands) 1995 1994 1993
---------- ----------- ----------
<S> <C> <C> <C>
Sales to unaffiliated customers:
North America $1,780,240 $1,544,844 $1,174,410
Europe 491,293 483,632 343,600
Asia 196,846 126,977 130,270
---------- ----------- ----------
$2,468,379 $2,155,453 $1,648,280
========== ========== ==========
Transfers between geographic areas
(eliminated in consolidation):
North America $ 743,117 $ 563,303 $ 444,378
Asia 396,158 323,050 277,496
---------- ----------- ----------
$1,139,275 $ 886,353 $ 721,874
========== ========== ==========
Operating income:
North America $ 164,549 $ 423,027 $ 243,015
Europe 18,922 15,860 8,376
Asia 38,729 30,148 31,001
---------- ----------- ----------
$ 222,200 $ 469,035 $ 282,392
========== ========== ==========
Identifiable assets:
North America $2,636,675 $2,170,099 $1,663,199
Europe 85,664 120,070 88,003
Asia 463,530 361,144 312,529
Eliminations (107,402) (125,592) (118,778)
---------- ----------- ----------
$3,078,467 $2,525,721 $1,944,953
========== ========== ==========
U.S. export sales:
Asia $ 485,625 $ 436,120 $ 314,268
Europe 206,328 126,752 109,226
---------- ----------- ----------
$ 691,953 $ 562,872 $ 423,494
========== ========== ==========
</TABLE>
Sales to unaffiliated customers are based on the location of the company's
subsidiary. Transfers between geographic areas consist of products and services
that are sold at amounts generally above cost and are consistent with governing
tax regulations. Operating income is total sales less operating expenses.
Identifiable assets are those assets used in each geographic area. Export sales
are United States foreign direct sales to unaffiliated customers primarily in
Europe and Asia.
14. EMPLOYEE BENEFIT PLANS
STOCK OPTION PLANS. The company has several stock option plans under which key
employees have been granted incentive (ISOs) and nonqualified (NSOs) stock
options to purchase the company's common stock. Generally, options are
exercisable within four years from the date of grant and expire five to ten
years after the date of grant. ISOs granted under the plans have exercise
prices of not less than 100 percent of the fair market value of the common stock
at the date of grant. Exercise prices of NSOs may not be less than 50 percent
of the fair market value of the common stock at the date of grant. At December
31, 1995, 3,101 employees, including 161 employees originally from NexGen, were
eligible and participating in the plans.
The following is a summary of stock option exercises:
27
<PAGE>
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
(Thousands) 1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Aggregate exercise price $15,195 $10,355 $14,066
Options exercised 2,313 2,218 2,855
</TABLE>
A summary of the stock option plans at December 31, 1995 and December 25, 1994
is shown below.
<TABLE>
<CAPTION>
(Thousands except per share amounts) 1995 1994
-------- --------
<S> <C> <C>
Options:
Outstanding at beginning of year 14,825 13,957
Granted 4,327 4,389
Canceled (510) (376)
Exercised (2,313) (2,218)
-------- --------
Outstanding at end of year 16,329 15,752
======== ========
Exercisable at beginning of year 8,784 7,848
Exercisable at end of year 10,374 9,711
Available for grant at beginning
of year 3,386 1,419
Available for grant at end of year 751 3,150
Aggregate exercise price of options
outstanding at end of year $269,953 $211,437
Average exercise price of options
outstanding at end of year $ 16.53 $ 13.42
</TABLE>
STOCK APPRECIATION RIGHTS PLANS. The company maintains three stock
appreciation rights plans under which stock appreciation rights (SARs) either
have been or may be granted to key employees. The number of SARs exercised plus
common stock issued under the stock option plans may not exceed the number of
shares authorized under the stock option plans. SARs may be granted in tandem
with outstanding stock options, in tandem with future stock option grants, or
independently of any stock options. Generally, the terms of SARs granted under
the plans are similar to those of options granted under the stock option plans,
including exercise prices, exercise dates, and expiration dates. To date, the
company has granted only limited SARs, which become exercisable only in the
event of certain changes in control of the company.
STOCK PURCHASE PLAN. The company has a stock purchase plan that allows
participating employees to purchase, through payroll deductions, shares of the
company's common stock at 85 percent of the fair market value at specified
dates. At December 31, 1995, 6,723 employees were eligible to participate in
the plan and 482,182 common shares remained available for issuance under the
plan. Beginning in 1995, NexGen had a stock purchase plan that allowed
participating employees to purchase shares of NexGen's common stock at 85
percent of the fair market value at specified dates. At December 31, 1995, 161
employees were eligible to participate in the plan and 365,504 common shares
remained available for issuance under the plan. A summary of stock purchased
under these plans is shown below.
28
<PAGE>
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
(Thousands except
employee participants) 1995 1994 1993
------- ------ ------
<S> <C> <C> <C>
Aggregate purchase price $11,457 $8,115 $6,413
Shares purchased 501 412 387
Employee participants 2,825 1,941 1,684
</TABLE>
PROFIT SHARING PROGRAM. The company has a profit sharing program to which the
Board of Directors has authorized semiannual contributions. Profit sharing
contributions were $44.7 million in 1995, $57.0 million in 1994, and $33.9
million in 1993.
RETIREMENT SAVINGS PLAN. The company has a retirement savings plan, commonly
known as a 401(k) plan, that allows participating United States employees to
contribute from 1 percent to 15 percent of their pre-tax salary subject to
I.R.S. limits. The company makes a matching contribution calculated at 50 cents
on each dollar of the first 3 percent of participant contributions, to a maximum
of 1.5 percent of eligible compensation. The company's contributions to the
401(k) plan were $4.3 million, $3.7 million, and $3.2 million for 1995, 1994,
and 1993, respectively. There are four investment funds in which each employee
may invest contributions in whole percentage increments. NexGen had a 401(k)
plan which allowed employees to contribute from one percent to ten percent of
their pre-tax salary subject to I.R.S. limits. NexGen did not match employee
contributions.
RESTRICTED STOCK AWARD PLAN. The company established the 1987 restricted stock
award plan under which up to two million shares of common stock may be issued to
employees, subject to terms and conditions determined at the discretion of the
Board of Directors. The company entered into agreements to issue 226,427,
180,000, and 19,000 shares in 1995, 1994, and 1992, respectively. To date,
agreements covering 212,212 shares have been canceled without issuance and
1,252,964 shares have been issued pursuant to prior agreements. At December 31,
1995, agreements covering 436,427 shares were outstanding under the plan and
310,609 shares remained available for future awards. Outstanding awards vest
under varying terms within five years.
15. COMMITMENTS
The company leases certain of its facilities under agreements which expire at
various dates through 2011. The company also leases certain of its
manufacturing and office equipment for terms ranging from one to six years.
Rent expense was $37.2 million, $32.4 million, and $32.3 million in 1995, 1994,
and 1993, respectively.
For each of the next five years and beyond, noncancelable long-term operating
lease obligations and commitments to purchase manufacturing supplies and
services are as follows:
29
<PAGE>
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Operating Purchase
(Thousands) Leases Commitments
--------- -----------
<S> <C> <C>
1996 $29,955 $23,492
1997 23,150 4,868
1998 17,781 4,868
1999 11,717 4,868
2000 11,144 3,797
Beyond 2000 11,503 27,900
</TABLE>
Included in 1996 purchase commitments is $18.4 million for Nx586 inventory.
The Company has fully reserved for these commitments. See footnote 3, year end
adjustments.
The operating lease of the company's corporate sales and marketing facility
expires in December 1998. The company has the option of extending the lease
agreement or purchasing the building for $40 million. The company may also
consider alternative financing arrangements.
At December 31, 1995, the company had commitments of approximately $93 million
for the construction or acquisition of additional property, plant, and
equipment.
The company is currently planning to build a submicron wafer fabrication and
design facility in Dresden, Germany at an estimated cost of approximately $1.5
billion over 5 years. The German federal and state governments will provide
financing assistance to the facility through grants and allowances, loan
guarantees, and loan interest subsidies. As of December 31, 1995, the company
had commitments to make cash investments and loans, in aggregate, in this
facility amounting to approximately $350 million over the next 4 years.
In December 1995, the company signed a five-year, comprehensive patent cross-
license agreement with Intel. The cross-license is royalty-bearing for the
company's products that use certain Intel technologies. The company is required
to pay Intel minimum non-refundable royalties during the years from 1997 to
2000.
16. INVESTMENT IN JOINT VENTURE
In 1993, the company and Fujitsu Limited established a joint venture, Fujitsu
AMD Semiconductor Limited (FASL), to manufacture Flash memory devices. The
company's share of FASL is 49.95 percent and the investment is being accounted
for under the equity method. In 1995, the company invested an additional $18.0
million in FASL, and the company's share of FASL net income during 1995 was
$34.9 million, net of income taxes of approximately $18.8 million. At December
31, 1995, the adjustment related to the translation of the FASL financial
statements into U.S. dollars resulted in a decrease of approximately $6.2
million to the investment in FASL.
Pursuant to a cross-equity provision between AMD and Fujitsu Limited, the
company purchased $12.7 million of Fujitsu Limited shares, with certain resale
restrictions. Under the same provision, Fujitsu Limited has purchased 2 million
shares of AMD common stock, and is required to purchase an additional 2.5
million shares over the next several years, for a total investment not to exceed
$100 million. No purchases were made in 1995.
The following is condensed unaudited financial data of FASL:
30
<PAGE>
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Three years ended December 31, 1995
(Unaudited)
(Thousands) 1995 1994 1993
-------- -------- -------
<S> <C> <C> <C>
Net sales $252,069 $ - $ -
Operating income (loss) 117,411 (32,203) (1,772)
Net income (loss) 107,563 (32,293) (1,772)
</TABLE>
<TABLE>
<CAPTION>
December 31, 1995, and December 25, 1994
(Unaudited)
(Thousands) 1995 1994
-------- --------
<S> <C> <C>
Current assets $161,810 $ 10,907
Non-current assets 326,252 263,380
Current liabilities 107,524 29,362
Non-current liabilities 284 60
</TABLE>
17. CONTINGENCIES
I. LITIGATIONS
A. CLASS ACTION LAWSUITS. On November 3 and 15, 1995, two class action
lawsuits were filed, purportedly on behalf of purchasers of the company's stock
from April 11, 1995, to September 25, 1995, alleging that the company and
various of its officers and directors violated sections of the Securities
Exchange Act of 1934 Rule 10b-5 promulgated thereunder by issuing allegedly
false and misleading statements concerning the development and production of the
AMD-K5(TM). The complaints seek damages in an unspecified amount. Based upon
information presently known to management, the company does not believe that the
ultimate resolution of these lawsuits will have a material adverse effect upon
the financial condition or results of operations of the company.
B. AMD v. ALTERA CORPORATION. This litigation, which began in 1994, involves
multiple claims and counterclaims for patent infringement relating to the
company's and Altera Corporation's programmable logic devices. Based upon
information presently known to management, the company does not believe that the
ultimate resolution of this lawsuit will have a material adverse effect upon the
financial condition or results of operations of the company.
C. THORN EMI NORTH AMERICA, INC. v. AMD. This litigation was filed in 1995 and
alleged that AMD infringed a patent owned by Thorn EMI North America, Inc.
relating to the processes used by AMD to manufacture microprocessors. The
litigation was settled and has been dismissed. The settlement will not have a
material adverse effect upon the financial condition or results of operations of
the company.
II. SEC INVESTIGATION
The Securities and Exchange Commission (SEC) began an informal
investigation of the company in 1993 concerning the company's disclosures
relating to the development of microcode for one of its Am486 products. The
company has been cooperating fully with the SEC. Based upon information
presently known to management, the company does not believe that the ultimate
resolution of the investigation will have a material adverse effect upon the
financial condition or results of operations of the company.
31
<PAGE>
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
III. ENVIRONMENTAL MATTERS
CLEAN-UP ORDERS. Since 1981, the company has discovered, investigated, and
begun remediation of three sites where releases from underground chemical tanks
at its facilities in Santa Clara County, California adversely affected the
groundwater. The chemicals released into the groundwater were commonly in use in
the semiconductor industry in the wafer fabrication process prior to 1979. At
least one of the released chemicals (which is no longer used by the company) has
been identified as a probable carcinogen.
In 1991, the company received four Final Site Clean-up Requirements Orders
from the California Regional Water Quality Control Board, San Francisco Bay
Region ("RWQCB") relating to the three sites. One of the orders named the
company as well as TRW Microwave, Inc. and Philips Semiconductors Corporation.
Another of the orders named the company as well as National Semiconductor
Corporation.
The three sites in Santa Clara County are on the National Priorities List
(Superfund). If the company fails to satisfy federal compliance requirements or
inadequately performs the compliance measures, the government (a) can bring an
action to enforce compliance, or (b) can undertake the desired response actions
itself and later bring an action to recover its costs, and penalties, which is
up to three times the costs of clean-up activities, if appropriate. With regard
to certain claims related to this matter the statute of limitations has been
tolled.
The company has computed and recorded the estimated environmental liability
in accordance with applicable accounting rules and has not recorded any
potential insurance recoveries in determining the estimated costs of the clean-
up. The amount of environmental charges to earnings has not been material during
the last three fiscal years. The company believes that the potential liability,
if any, in excess of amounts already accrued with respect to the foregoing
environmental matters will not have a material adverse effect on the financial
condition or results of operations of the company.
IV. 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 results of operations of the company.
18. SHELF REGISTRATION STATEMENT
On May 25, 1994, the Securities and Exchange Commission declared effective the
company's shelf registration statement 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. To date, the company has not
offered or sold any securities registered under the $400 million registration
statement.
32
<PAGE>
CONSENT OF ERNST & YOUNG, LLP INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement on
Form S-8 (No. 33-16095) pertaining to the Advanced Micro Devices, Inc. 1987
Restricted Stock Award Plan, in the Registration Statement on Form S-8 (No. 33-
39747) pertaining to the Advanced Micro Devices, Inc. 1991 Employee Stock
Purchase Plan, in the Registration Statements on Form S-8 (Nos. 33-10319, 33-
36596 and 33-46578) pertaining to the Advanced Micro Devices, Inc. 1982 and 1986
Stock Option Plans and the 1980 and 1986 Stock Appreciation Rights Plans, in the
Registration Statements on Form S-8 (Nos. 33-46577 and 33-55107) pertaining to
the Advanced Micro Devices, Inc., 1992 Stock Incentive Plan, in the Registration
Statement on Form S-8 (No. 33-00969) pertaining to the Advanced Micro Devices,
Inc. 1991 Employee Stock Purchase Plan and to the 1995 Stock Plan of NexGen,
Inc., in the Registration Statement on Form S-3 (No. 33-52943) pertaining to up
to $400,000,000 in the aggregate of debt securities, preferred stock, depositary
shares evidencing fractions of preferred shares, common stock and warrants to
purchase common stock, and in the Registration Statement on Form S-4 (No. 33-
64911) pertaining to shares issued in connection with the acquisition of NexGen,
Inc. and Post-Effective Amendment No. 1 thereto on Form S-8, and Form S-8 (No.
333-04797) pertaining to the Advanced Micro Devices, Inc. 1996 Stock Incentive
Plan, of our report dated April 30, 1996, with respect to the supplemental
consolidated financial statements of Advanced Micro Devices, Inc. included
herein.
Ernst & Young LLP
June 17, 1996
San Jose, California
33
<PAGE>
SIGNATURES
----------
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 hereunto duly authorized.
ADVANCED MICRO DEVICES, INC.
(Registrant)
Date: June 20, 1996 By: /s/ Marvin D. Burkett
-------------------------------
Marvin D. Burkett
Senior Vice President, Chief
Financial and Administrative
Officer and Treasurer
34
