<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
--------------
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
----- -----
The number of shares of $0.01 par value common stock outstanding as of May 3,
1996: 134,864,625.
<PAGE>
ADVANCED MICRO DEVICES, INC.
- ----------------------------
INDEX
- -----
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Part I. Financial Information
---------------------
Item 1. Financial Statements
Condensed Consolidated Statements of Income--
Quarters Ended March 31, 1996
and April 2, 1995 3
Condensed Consolidated Balance Sheets--
March 31, 1996 and December 31, 1995 4
Condensed Consolidated Statements of Cash Flows--
Quarters Ended March 31, 1996
and April 2, 1995 5
Notes to Condensed Consolidated Financial
Statements 6
Item 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition 10
Part II. Other Information
-----------------
Item 1. Legal Proceedings 17
Item 4. Submission of Matters to a Vote of
Security Holders 19
Item 6. Exhibits and Report on Form 8-K 20
Signature 21
----------
</TABLE>
2
<PAGE>
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
---------------------
April 2,
March 31, 1995
1996 (Restated)*
-------- ---------
<S> <C> <C>
Net sales $544,212 $627,381
Expenses:
Cost of sales 368,735 305,685
Research and development 94,780 96,874
Marketing, general, and administrative 103,011 102,734
-------- --------
566,526 505,293
-------- --------
Operating income (loss) (22,314) 122,088
Interest income and other, net 28,059 7,058
Interest expense (1,981) (578)
-------- --------
Income before income taxes and equity in joint venture 3,764 128,568
Provision for income taxes - 42,824
-------- --------
Income before equity in joint venture 3,764 85,744
Equity in net income (loss) of joint venture 21,563 (1,414)
-------- --------
Net income 25,327 84,330
Preferred stock dividends - 10
-------- --------
Net income applicable to common stockholders $ 25,327 $ 84,320
======== ========
Net income per common share:
Primary $ .18 $ .66
======== ========
Fully diluted $ .18 $ .63
======== ========
Shares used in per share calculation:
Primary 138,399 127,181
======== ========
Fully diluted 138,399 134,421
======== ========
</TABLE>
*Restated from previously released financial information to reflect the
January 1996 merger with NexGen, Inc., which has been accounted for under
the pooling-of-interests method.
See accompanying notes
- ----------------------
3
<PAGE>
ADVANCED MICRO DEVICES, INC.
----------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
(Thousands)
<TABLE>
<CAPTION>
December 31,
March 31, 1995
1996 (Unaudited)
(Unaudited) (Restated)*
------------ -------------
<S> <C> <C>
Assets
- ------
Current assets:
Cash and cash equivalents $ 85,382 $ 126,316
Short-term investments 323,917 383,349
----------- -----------
Total cash, cash equivalents, and short-term investments 409,299 509,665
Accounts receivable, net 235,159 284,238
Inventories:
Raw materials 38,384 29,494
Work-in-process 81,726 68,827
Finished goods 48,063 57,665
----------- -----------
Total inventories 168,173 155,986
Deferred income taxes 151,089 147,489
Prepaid expenses and other current assets 49,230 40,564
----------- -----------
Total current assets 1,012,950 1,137,942
Property, plant, and equipment, at cost 3,028,089 2,946,901
Accumulated depreciation and amortization (1,367,783) (1,305,267)
----------- -----------
Property, plant, and equipment, net 1,660,306 1,641,634
Investment in joint venture 175,382 176,821
Other assets 106,171 122,070
----------- -----------
$ 2,954,809 $ 3,078,467
=========== ===========
Liabilities and Stockholders' Equity
- ------------------------------------
Current liabilities:
Notes payable to banks $ 13,870 $ 26,770
Accounts payable 159,043 241,916
Accrued compensation and benefits 67,639 106,347
Accrued liabilities 96,213 103,404
Income tax payable 49,396 56,297
Deferred income on shipments to distributors 107,331 100,057
Current portion of long-term debt and capital lease obligations 39,244 41,642
----------- -----------
Total current liabilities 532,736 676,433
Deferred income taxes 94,207 84,607
Long-term debt and capital lease obligations, less current portion 205,918 214,965
Commitments and contingencies - -
Stockholders' equity:
Capital stock:
Common stock, par value 1,394 1,050
Capital in excess of par value 926,353 908,989
Retained earnings 1,194,201 1,192,423
----------- -----------
Total stockholders' equity 2,121,948 2,102,462
----------- -----------
$ 2,954,809 $ 3,078,467
=========== ===========
</TABLE>
*Restated from previously released financial information to reflect the January
1996 merger with NexGen, Inc., which has been accounted for under the pooling-
of-interests method.
See accompanying notes.
- ----------------------
4
<PAGE>
ADVANCED MICRO DEVICES, INC.
----------------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------
(Unaudited)
(Thousands)
<TABLE>
<CAPTION>
Three Months Ended
---------------------
March 31, April 2,
1996 1995
(Restated)*
--------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 25,327 $ 84,330
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 75,807 57,928
Net loss on sale of property, plant,
and equipment 416 398
Write-down of property, plant, and equipment 84 27
Net gain realized on sale of available-for-sale
securities (24,743) -
Compensation recognized under employee
stock plans 687 1,079
Undistributed (income) loss of joint venture (21,563) 1,414
Changes in operating assets and liabilities:
Net (increase) decrease in receivables,
inventories, prepaid expenses,
and other assets 22,768 (12,131)
Payment of litigation settlement - (20,000)
Net (increase) decrease in deferred income
taxes 6,000 (5,551)
Increase (decrease) in income tax payable (6,901) 46,794
Net increase (decrease) in payables and
accrued liabilities (102,423) 6,020
--------- ---------
Net cash (used in) provided by operating activities (24,541) 160,308
--------- ---------
Cash flows from investing activities:
Purchase of property, plant, and equipment (95,329) (196,575)
Proceeds from sale of property, plant, and equipment 802 583
Purchase of available-for-sale securities (236,331) (140,657)
Proceeds from sale of available-for-sale securities 322,128 137,680
Purchase of held-to-maturity debt securities - (230,488)
Proceeds from maturities of held-to-maturity debt
securities - 162,151
Investment in joint venture - (18,019)
--------- ---------
Net cash used in investing activities (8,730) (285,325)
--------- ---------
Cash flows from financing activities:
Proceeds from borrowings 15,125 171,808
Payments on capital lease obligations and other debt (39,812) (28,731)
Proceeds from issuance of stock 17,024 18,001
Redemption of preferred stock and stockholder rights - (2,501)
Payments of preferred stock dividends - (10)
--------- ---------
Net cash (used in) provided by financing activities (7,663) 158,567
--------- ---------
Net increase (decrease) in cash and cash equivalents (40,934) 33,550
Cash and cash equivalents at beginning of period 126,316 85,966
--------- ---------
Cash and cash equivalents at end of period $ 85,382 $ 119,516
========= =========
Supplemental disclosures of cash flow information:
Cash paid during the first three months for:
Interest (net of amounts capitalized) $ - $ -
========= =========
Income taxes $ 464 $ 1,668
========= =========
Non-cash financing activities:
Equipment capital leases $ 342 $ 4,192
========= =========
Conversion of preferred stock to common stock $ - $ 164,127
========= =========
</TABLE>
* Restated from previously released financial information to reflect the January
1996 merger with NexGen, Inc., which has been accounted for under the pooling-
of-interests method.
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.
The company uses a 52 to 53 week fiscal year ending on the last Sunday in
December. The quarters ended March 31, 1996 and April 2, 1995 included 13
and 14 weeks, respectively.
On January 17, 1996, the company acquired NexGen, Inc. (NexGen) which was
accounted for as a pooling-of-interests. All financial data and footnote
information of the company, including the company's previously issued
financial statements for the periods presented in this Form 10-Q, have been
restated to include the historical financial information of NexGen in
accordance with generally accepted accounting principles.
Certain prior year amounts on the Condensed Consolidated Financial
Statements have been reclassified to conform to the 1996 presentation.
2. No tax provision was recorded in the first quarter of 1996 due to the lower
earnings during the period. The income tax rate was 33 percent in the first
quarter of 1995. The company currently estimates that there will be no tax
provision in 1996.
6
<PAGE>
3. The following is a summary of available-for-sale securities included in cash
and cash equivalents and short-term investments as of March 31, 1996 (in
thousands):
<TABLE>
<S> <C>
Cash equivalents
Treasury notes $ 2,017
Federal agency notes 23,444
Security repurchase agreements 29,100
Commercial paper 5,000
Other debt securities 740
--------
Total cash equivalents $ 60,301
========
Short-term investments
Certificates of deposit $ 45,575
Municipal notes and bonds 53,257
Corporate notes 47,861
Treasury notes 57,790
Commercial paper 36,534
Money market auction preferred stocks 82,900
--------
Total short-term investments $323,917
========
</TABLE>
As of March 31, 1996, the company held $12.9 million of available-for-sale
equity securities with a fair value of $35.3 million which are included in
other assets. The net unrealized gain on these equity securities is included
in retained earnings. During the first quarter of 1996, the company sold a
portion of its available-for-sale equity securities and realized a pre-tax
gain of $24.7 million.
7
<PAGE>
4. The primary net income per common share computation is based on the weighted
average number of common shares outstanding plus dilutive common share
equivalents. The fully diluted computation also includes other dilutive
convertible securities. In the first quarter of 1995, the company called for
redemption of all outstanding shares of its Convertible Preferred Stock. As
a result, all of its outstanding Preferred Stock was either redeemed or
converted to the company's common stock. Shares used in the per share
computations are as follows:
<TABLE>
<CAPTION>
Quarter Ended
------------------------
March 31, April 2,
1996 1995
--------- --------
(Thousands)
<S> <C> <C>
Primary:
Common shares outstanding 133,229 120,590
Employee stock plans 4,374 6,003
Warrants 796 588
------- -------
138,399 127,181
======= =======
Fully diluted:
Common shares outstanding 133,229 120,590
Employee stock plans 4,374 6,542
Dilutive convertible securities - 145
Warrants 796 1,772
Preferred stock - 5,372
------- -------
138,399 134,421
======= =======
</TABLE>
5. On January 17, 1996, the company acquired NexGen in a tax-free
reorganization in which NexGen was merged directly into the company. The
company has issued approximately 29.3 million shares of AMD common stock and
has reserved for issuance approximately 4.3 million additional shares for
issuance pursuant to the NexGen options and warrants assumed by the company.
The 33.6 million total shares to be issued 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 and all
financial data of the company prior to the merger has been restated to
include the historical financial information of NexGen. Merger related costs
of $8.7 million were charged to operations during the three month period
ended March 31,
8
<PAGE>
1996. NexGen maintained its financial records on a calendar month fiscal
year ending on June 30. The December 31, 1995 restated consolidated balance
sheet includes the balance sheet of NexGen as of December 31, 1995. The
restated consolidated statements of income and cash flows for the quarter
ended April 2, 1995 include NexGen's statements of operations and cash flows
for the quarter ended March 31, 1995. No significant adjustments were
required to conform the accounting policies of the company and NexGen.
Financial information as of March 31, 1995 and for the quarter then ended
reflects the company's and NexGen's operations for those periods.
Separate results of the combining entities for the three months ended March
31, 1995 are as follows:
<TABLE>
<CAPTION>
(Thousands)
<S> <C>
Net sales:
AMD $620,096
NexGen 7,285
--------
$627,381
========
Net income (loss):
AMD $102,352
NexGen (18,022)
--------
$ 84,330
========
</TABLE>
9
<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 31, 1995. All financial data and footnote information of the
company, including the company's previously issued financial statements for the
periods discussed herein have been restated to include the historical financial
information of NexGen.
RESULTS OF OPERATIONS
- ---------------------
Net sales for the first quarter of 1996 decreased by 13 percent from the first
quarter of 1995. This decrease was primarily attributable to a decline in
Am486(R) microprocessor sales, which more than offset increased Flash memory
sales. Net sales for the first quarter of 1996 decreased 9 percent from the
immediate prior quarter. This decrease was primarily attributable to a decline
in microprocessor sales and, secondarily, due to a decline in Flash memory
sales.
First quarter sales of Flash memory devices increased significantly from the
same period a year ago primarily due to higher average selling prices and,
secondarily, due to growth in unit shipments. Flash memory sales declined in the
first quarter of 1996 as compared to the immediate prior quarter due to a
decrease in unit shipments. Prices are currently declining during the second
quarter of 1996, which may contribute to decreased revenue from Flash memory
devices in the second quarter. The company plans to continue to meet projected
long-term demand for Flash memory devices primarily through its manufacturing
joint venture, Fujitsu AMD Semiconductor Limited (FASL), located in Aizu-
Wakamatsu, Japan, in which AMD has a 49.95 percent equity interest. A
significant portion of the company's revenues in the first quarter of 1996 were
derived from Flash memory products. The company presently anticipates demand for
the company's Flash memory products to be adversely affected in the second
quarter due to continued inventory adjustments by the company's customers.
Am486, MACH, AMD-K5, and Nx586 are registered trademarks of AMD.
K86, K86 RISC SUPERSCALAR, AMD-K5, AMD-K6, SLAC, and Nx686 are trademarks
of AMD.
Microsoft and Windows are registered trademarks of Microsoft Corporation.
10
<PAGE>
In addition to sales of Flash memory devices, revenues from communication
products for the first quarter of 1996 increased as compared to the same period
a year ago primarily due to increased sales of AMD's SLIC (subscriber line
interface circuit), SLAC(TM) (subscriber line audio-processing circuit), and
FDDI (Fiber Distributed Data Interface) circuit products. For the first quarter
of 1996, EPROM sales increased as compared to the first quarter of 1995 due to
increases in average selling prices.
Sales of CMOS programmable logic devices in the first quarter of 1996 increased
from the same quarter in 1995 primarily due to increases in average selling
prices.
In the first quarter of 1996 compared to the same period in 1995, Am486
microprocessor sales decreased significantly primarily due to decreases in unit
sales and, secondarily, due to average selling price declines. Price and unit
shipment declines are anticipated to continue in the remainder of 1996.
At the end of the first quarter of 1996, the company began shipments of the AMD-
K5(TM) microprocessor, the first member of the K86 family. This microprocessor
is a fifth-generation, superscalar device that is fully compatible with the
Microsoft(R) Windows(R) operating system. On January 17, 1996, NexGen, Inc.
merged with and into AMD. The company plans to bring to production status
NexGen's sixth-generation design as the AMD-K6(TM) microprocessor. The company
does not expect any sales of AMD-K6 in 1996.
Gross margin of 32 percent for the first quarter of 1996 declined approximately
19 percent from the comparable period in 1995. The three main factors
contributing to the decrease in gross margin in the first quarter of 1996, in
order of significance, were first, Am486 price declines; second, increasing
sales volume of FASL products, with purchase prices higher than the
costs of similar products manufactured internally; and third, the
underutilization of Fab 25. These factors are expected to contribute to further
declines in gross margin and increased operating losses in the second quarter of
1996 than in the immediate prior quarter.
Research and development expenses remained relatively flat in the first quarter
of 1996 compared to the same quarter last year.
Marketing, general, and administrative expenses remained relatively flat in the
first quarter of 1996 compared to the first quarter of 1995. A non-recurring
charge of $8.7 million for expenses associated with AMD's merger with NexGen is
included in marketing, general, and administrative expenses in the first quarter
of 1996.
Interest income and other, net increased in the first quarter of 1996 compared
to the corresponding quarter a year ago due to a pre-tax gain of $24.7 million
resulting from a sale of equity securities. Interest expense increased in the
first quarter of 1996 compared to the same period of 1995 due to lower
capitalized interest mainly related to the construction of Fab 25.
11
<PAGE>
No tax provision was recorded in the first quarter of 1996 due to the lower
earnings during the period. The income tax rate was 33 percent in the first
quarter of 1995. The company currently estimates that there will be no tax
provision in 1996.
International sales were 52 percent of total sales in the first quarter of 1996
as compared to 58 percent for the comparable period in 1995. In the first
quarter of 1996, approximately 16 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 Accounting Standard 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 the first quarter of 1996, 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 March 31, 1996,
the company had approximately $73 million (notional amount) of foreign exchange
forward contracts.
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 the first quarter of
1996, 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.
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.
12
<PAGE>
In 1995, the Financial Accounting Standards Board released the Statement of
Financial Accounting Standard No. 121 (SFAS 121), "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed of." The company
adopted SFAS 121 in the first quarter of 1996 and there was no material impact
on the company's financial condition or results of operations.
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 Standard 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 decreased by $100 million for
the first quarter of 1996 primarily due to investments in property, plant and
equipment to expand manufacturing capacity mainly related to Fab 25. The
company's operations required the use of $24.5 million in cash during the
quarter.
The company's total cash investment in FASL was $160 million at the end of the
first quarter of 1996 and at the end of 1995. No additional cash investment is
currently planned for the remainder of 1996. In March of 1996, FASL began
construction of a second Flash memory fab, FASL II, at a site contiguous to the
existing FASL facility in Aizu-Wakamatsu, Japan. The facility is expected to
cost approximately $1.1 billion when fully equipped. Capital expenditures for
FASL II construction are expected to be funded by the cash anticipated to be
generated from FASL operations and, if necessary, bank borrowings by FASL.
However, in the event that FASL is unable to secure the necessary funds for FASL
II, AMD is required to contribute cash or guarantee third-party loans in
proportion to its percentage of interest in FASL. The planned FASL II costs are
denominated in yen and, therefore, are subject to change due to foreign exchange
rate fluctuations. Volume production in FASL II is currently scheduled to begin
in late 1997 assuming continued demand for flash products.
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 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
13
<PAGE>
the next 4 years. The company plans to continue to make significant capital
investments throughout 1996, including an estimated $240 million for Fab 25 and
$75 million for the new facility in Dresden. The company presently anticipates
that it will augment its working capital and fund a portion of its capital
expenditures in the remainder of 1996 through external financing.
As of the end of the first quarter of 1996, 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 $93 million, of which $14 million was utilized; and an outstanding
$150 million four-year term loan.
The company's current capital plan and requirements are based on the
availability of external financing, various product-mix, selling-price, and
unit-demand assumptions and are, therefore, subject to revision due to future
market conditions. The company presently anticipates that it may not remain in
compliance during the second quarter of 1996 with the cash and cash equivalent
requirements of the modified quick ratio covenants in certain of its bank credit
agreements without additional external financing. Failure to meet these
financial covenants would constitute an event of default under the company's
agreements with its lenders, permitting the lenders, at their discretion, among
other things, to demand repayment of all amounts owed to them and to refuse any
further borrowings or advances. The company is currently exploring a number of
alternatives to obtain external financing and/or a waiver or modification of its
existing bank agreements. Although the company believes that it will be able to
arrange external financing or renegotiate its bank agreements prior to June 30,
1996 in a manner that will eliminate any possible violation of the modified
quick ratio covenants, no agreements or commitments have been obtained by the
company to date and no assurance can be given as to whether or when any such
financing, or modifications to or waivers under the bank agreements, can be
obtained or the terms thereof.
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. To date, the company has not
offered or sold any securities registered under the $400 million registration
statement. 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. It is presently expected
that the net proceeds of any offering would be used for general corporate
purposes including but not limited to the reduction of outstanding indebtedness,
working capital increases, and capital expenditures.
14
<PAGE>
The company believes that cash flows from operations and current cash balances,
together with current and anticipated external financing, will be sufficient to
fund operations and capital investments currently planned for the remainder of
1996.
CAUTIONARY STATEMENT
- --------------------
The statements in this Management's Discussion and Analysis that are forward
looking, for example, estimates of 1996 gross margin, microprocessor and Flash
memory business and prospects, capital spending, impact of the NexGen merger,
external financing plans, financial instruments, and FASL II, are based on
current expectations and actual results may differ materially. Forward looking
statements contained in this Management's Discussion and Analysis involve
numerous risks and uncertainties that could cause actual results to differ
materially, including but not limited to the timely development and market
acceptance of new products, the impact of competitive products and pricing, the
timely development of wafer fabrication process technologies, the effect of
changing economic conditions, business conditions and growth in the personal
computer market, continued demand for the company's microprocessor and Flash
memory products, the company's ability to access external sources of capital,
and such risks and uncertainties detailed from time to time in the company's SEC
reports and filings, including the Form 10-K for the 1995 fiscal year.
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. Certain of
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." In
addition to those factors, the following risk factors should be considered by
holders of AMD common stock.
The company's manufacturing facilities may be underutilized for the remainder of
1996. Such underutilization could materially adversely impact the company's
quarterly and annual financial condition and operating results.
15
<PAGE>
The company has recently introduced its first generation of K86 products which
are now in volume production. The company's production and sales plans are
subject to numerous risks and uncertainties, including customer inventory levels
and orders for the company's products, changed industry and company forecasts of
demand, the timing of introduction of higher-performance fifth generation
microprocessors and other products, the pace at which the company is able to
ramp production of fifth generation microprocessors in Feb 25, the effects of
marketing and pricing strategies adopted by Intel Corporation which has a
dominant position in the microprocessor market, the possibility that products
newly introduced by the company may fail to achieve market acceptance or may be
found defective, adverse conditions in the personal computer market and
unexpected interruptions in the company's manufacturing operations. Lack of
acceptance of the company's first generation K86 products would have a material
adverse effect on the company's quarterly and annual financial condition and
results of operations.
The company's future operations, financial condition, and stock price may be
subject to volatility. Based on the trading history of its stock, the company
believes that factors such as quarterly fluctuations in the company's financial
results, announcements of new products by the company or its competitors, and
general conditions in the semiconductor industry have caused and are likely to
continue to cause the market price of AMD common stock to fluctuate
substantially. Technology company stocks in general have experienced extreme
price and volume fluctuations that often have been unrelated to the operating
performance of the companies. This market volatility may adversely affect the
market price of AMD common stock. In addition, an actual or anticipated
shortfall in revenue, gross margin, or earnings from securities analysts'
expectations could have an immediate effect on the trading price of the
company's common stock in any given period.
The company's current business plan envisions substantial cash outlays requiring
external capital financing. In addition, as discussed in Financial Condition,
above, the company anticipates that external financing will be required in order
to remain in compliance with certain of its financial covenants in its bank
credit agreements. There can be no assurance that capital will be available on
terms favorable to the company in sufficient amounts to enable the company to
implement its current business plan. In the event such capital is not
available, the company may be required to reduce or eliminate one or more of its
existing three product development areas: computations, communications and
components, and programmable logic devices.
16
<PAGE>
II. OTHER INFORMATION
Item 1. Legal Proceedings
SEC Investigation. The Securities and Exchange Commission (SEC) began an
informal investigation of the company in 1993 regarding the company's
disclosures about the development of its AM486SX microcode in a development
process and the extent to which it included access to Intel's 386 microcode.
These disclosures were the subject of securities class actions and a derivative
suit that were settled and dismissed with prejudice. The company has cooperated
fully with the SEC's requests for information. Based on information currently
known, management does not believe that the informal investigation will have a
material effect on the financial condition or results of operations of the
company.
Irving Karton and Jason Lyons v. S. Atiq Raza, et al. (Case No. CV753583, Cal.
Sup. Ct., County of Santa Clara, California). On November 1, 1995, two alleged
shareholders of NexGen filed suit against NexGen, its board of directors and a
former director of NexGen. The complaint, as amended, alleged that the
consideration which NexGen stockholders would receive pursuant to the Merger was
inadequate; the defendants had therefore breached the directors' fiduciary
duties to the stockholders of NexGen; the Merger consideration was below the
fair or inherent value of NexGen; the defendants had not considered other
potential purchases of NexGen or its stock; and there had been inadequate
disclosure of material facts concerning the business and prospects of NexGen as
they related to the Merger. The amended complaint sought an injunction against
the Merger, rescission of the Merger, if consummated, unspecified damages,
attorney's fees and other relief. A settlement was reached pursuant to which the
agreement governing the Merger was amended in certain respects; a stockholder
rights plan adopted by NexGen was amended in certain respects; and NexGen made
certain disclosures to its stockholders in connection with the Merger which were
requested by the plaintiffs. On February 19, 1996, the court entered an order
giving its final approval to the settlement and awarding plaintiffs' attorneys
fees and expenses. The settlement and the attorneys fees and expenses award will
not have a material adverse effect upon the financial condition or results of
operations of the company.
Advanced Micro Devices, Inc. v. Altera Corporation (Case No. C94-20567-RMW, U.S.
District Ct., San Jose, California). 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. On March 11,
1996, the court has dismissed most of Altera's counterclaim, the remainder of
which AMD intends to continue to contest vigorously. 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.
17
<PAGE>
Thorn EMI North America, Inc. v Advanced Micro Devices, Inc. (Case No. 95-199-
RRM, U.S. District Ct., Wilmington, Delaware). This litigation was filed in 1995
and alleged that AMD infringed a patent owned by Thorn EMI North America, Inc.
relating to processes used by AMD to manufacture microprocessors. The action
sought unspecified damages for past infringement and an injunction against
alleged further infringement. 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.
18
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
A special meeting of the company's stockholders was held on January 16, 1996 at
which the stockholders were asked to approve proposals to (1) approve and adopt
an Agreement and Plan of Merger among AMD, AMD Merger Corporation, a wholly-
owned subsidiary of AMD, and NexGen, Inc., as amended, and the transactions
contemplated thereby ("Proposal No. 1") and (2) approve an Amendment to the
Advanced Micro Devices, Inc. 1991 Stock Purchase Plan to increase the number of
shares of AMD Common Stock issuable thereunder from 2,500,000 shares to
3,600,000 shares ("Proposal No.2"). Both proposals were approved by the
requisite vote. The results of the voting on Proposals No. 1 and No. 2 were:
For Against Abstain Broker Non-Votes
---------- --------- --------- ----------------
Proposal No. 1 58,114,751 3,006,579 1,154,092 25,121,794
Proposal No. 2 82,799,025 3,280,044 1,318,147 Not applicable
19
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a). Exhibits 10.23(g) Fujitsu Joint Development Agreement
Amendment (confidential treatment has
been requested as to certain portions
of this Exhibit)
27.1 Financial Data Schedule
(b). Reports on Form 8-K
The following reports on Form 8-K were filed during the quarter
for which this report is filed:
1. Current Report on Form 8-K dated January 5, 1996 reporting
under Item 5 - Other Information-the execution of a
comprehensive patent cross license agreement between the
company and Intel Corporation.
2. Current Report on Form 8-K dated January 10, 1996 reporting
under Item 5 - Other Information-the financial results for
the year ended December 31, 1995.
3. Current Report on Form 8-K dated January 12, 1996 reporting
under Item 5 - Other Information-NexGen, Inc.'s expected
financial results for its second fiscal quarter ended
December 31, 1995.
4. Current Report on Form 8-K dated January 17, 1996 reporting
under Item 2 - Acquisition or Disposition of Assets and
Item 7 - Financial Statements and Exhibits-the completion of
the company's acquisition of NexGen, Inc.
20
<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: May 15, 1996 By: /s/ Geoffrey Ribar
--------------- ------------------
Geoffrey Ribar
Vice President and
Corporate Controller
Signing on behalf of the
registrant and as the principal
accounting officer
21
<PAGE>
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
Exhibits
- --------
<C> <S>
10.23(g) Fujitsu Joint Development Agreement Amendment (Confidential
treatment has been requested as to certain portions of this
Exhibit.)
27.1 Financial Data Schedule
</TABLE>
<PAGE>
EXHIBIT 10.23(g)
ADDITIONS TO ATTACHMENTS TO JOINT DEVELOPMENT AGREEMENT
This is to confirm that ADVANCED MICRO DEVICES, INC. and FUJITSU LIMITED have
agreed upon the below-listed Additions to Attachments to the Joint Development
Agreement between both parties dated March 26, 1993:
First Addition re Memory Cards (PC) to each of the Attachments A, B and C
to the Joint Development Agreement.
Second Addition re Memory Cards (PCMCIA-ATA) to each of the Attachments A,
B and C to the Joint Development Agreement.
All the above-listed Additions mutually agreed upon are set forth in the eight
pages attached hereto.
ADVANCED MICRO DEVICES, INC. FUJITSU LIMITED
/s/ Clive Ghest /s/ Hirofumi Takeda
----------------------------- ------------------------
Name: Clive Ghest Name: Hirofumi Takeda
------------------------ -------------------
Vice President
Title: Clive Ghest Title: General Manager
----------------------- ------------------
Date: February 27, 1996 Date: December 20, 1995
------------------------ -------------------
- -------------------------------------------------------------------------------
Confidential portions of this document have been deleted and filed separately
with the Securities and Exchange Commission pursuant to a request for
confidential treatment.
- -------------------------------------------------------------------------------
<PAGE>
ATTACHMENT A TO
JOINT DEVELOPMENT AGREEMENT
---------------------------
FIRST ADDITION--MEMORY CARDS (PC)
---------------------------------
This First Addition is for the joint development of Memory Cards (described in
the Technology Cross-License Agreement). These Memory Cards will be designated
as PC (Personal Computer) Cards which will use software drivers and Flash file
management software, and currently are designated as D-series. The D-series
Memory Cards will utilize the [CONFIDENTAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION] Flash Memory Products.
[CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION] It is contemplated that design, development, test and
evaluation work will be carried out by either AMD or Fujitsu as will be
designated by the Joint Development Committee as appropriate. Both parties will,
at the request of either party, discuss joint development of PC Cards other than
D-series.
Joint Development Committee:
Fujitsu Initial: H.T. Date: 2/12/95 AMD Initial: /s/RCG Date: 2/27/96
----- ------- ------ --------
19A
<PAGE>
ATTACHMENT B TO
JOINT DEVELOPMENT AGREEMENT
---------------------------
FIRST ADDITION--MEMORY CARDS (PC)
---------------------------------
This First Addition describes the design information for these PC Cards to be
developed and exchanged so AMD and Fujitsu (and/or their respective
Subsidiaries) will both be able to manufacture or have manufactured these PC
Cards.
A. ASIC Product Specifications
a) Catalog specification including Card Datasheet
b) Architectual information
B. Design Data
a) Circuit diagrams and Schematic layouts
b) Layout data supplemental information
c) Functional Block specifications
d) Configuration & Control Registers
e) Net List
C. Device Evaluation Data
a) Functional test results of sample cards
b) Electrical characteristics of sample cards
c) Reliability data of sample cards
d) Control parameters and their tolerance
e) Test specifications
f) Test programs
D. Software Drivers - Preliminary List
a) SystemSoft - MTD
b) Award - MTD
c) Phoenix - MTD
d) SCM-FTL filesystem support
e) Datalight - FFS/FTL filesystem support
f) Data I/O - PSX programmer support
[CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION.]
Joint Development Committee:
Fujitsu Initial: H.T. Date: 2/12/95 AMD Initial: /s/RCG Date: 2/27/96
----- ------- ------ -------
20A
<PAGE>
ATTACHMENT C TO
JOINT DEVELOPMENT AGREEMENT
---------------------------
FIRST ADDITION--MEMORY CARDS (PC)
---------------------------------
D-Series:
- ---------
Item Phase Start Date Completion Date
- ---------- ---------- ---------------
Specification [CONFIDENTIAL INFORMATION DELETED AND FILED
Development SEPARATELY WITH THE SECURITIES AND EXCHANGE
Prototype ASIC** COMMISSION]
Prototype Card
Software Drive
Qualification
*TBE: To be established
**ASIC: Application Specific Integrated Circuitry
Joint Development Committee:
Fujitsu Initial: H.T. Date: 2/12/95 AMD Initial: /s/RCG Date: 2/27/96
----- -------- ------- --------
21A
<PAGE>
ATTACHMENT A TO
JOINT DEVELOPMENT AGREEMENT
---------------------------
SECOND ADDITION--MEMORY CARDS (PCMCIA-ATA)
------------------------------------------
This Second Addition is for the joint development of Memory Cards (described in
the Technology Cross-License Agreement) containing controllers, application
specific integrated circuitry, and firmware. These Memory Cards will have all
pertinent software and manage Flash files on the cards. These Memory Cards will
be designated as PCMCIA-ATA (Personal Computer Memory Card Interface
Association-Advanced Technology Attachment) Cards.
[CONFIDENTIAL INFORMATION DELETED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION] It is contemplated that product planning, design,
development, test and evaluation work will be carried out by either AMD or
Fujitsu as will be designated by the Joint Development Committee as appropriate.
[CONFIDENTIAL INFORMATION DELETED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION]
19A
<PAGE>
ATTACHMENT A TO
JOINT DEVELOPMENT AGREEMENT
SECOND ADDITION--MEMORY CARDS (PCMCIA-ATA)
Page 2 of 3
[CONFIDENTIAL INFORMATION DELETED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION]
19A
<PAGE>
ATTACHMENT A TO
JOINT DEVELOPMENT AGREEMENT
SECOND ADDITION--MEMORY CARDS (PCMCIA-ATA)
Page 3 of 3
[CONFIDENTIAL INFORMATION DELETED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION]
PCMCIA-ATA Cards to be developed hereunder will utilize the [CONFIDENTIAL
INFORMATION DELETED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION] Flash Memory Products.
Both parties will, at the request of either party, discuss joint development of
PCMCIA-ATA Cards utilizing other Flash Memory Products.
Joint Development Committee:
Fujitsu Initial: H.T. Date: 2/12/96 AMD Initial: /s/RCG Date: 2/27/96
---- ------- ------ -------
19A
<PAGE>
ATTACHMENT B TO
JOINT DEVELOPMENT AGREEMENT
---------------------------
SECOND ADDITION--MEMORY CARDS (PCMCIA-ATA)
------------------------------------------
This Second Addition describes the design information for these PCMCIA-ATA Cards
to be developed and exchanged so AMD and Fujitsu and/or their respective
Subsidiaries will both be able to manufacture or have manufactured these
PCMCIA-ATA Cards. Fujitsu shall negotiate in good faith with AMD about the
supply of components required to manufacture ATA Cards, and vice versa.
A. Product Specifications
a) Catalog specification including Card Datasheet
b) Device specification
i) PCB material used
ii) Gerber files
c) Architectural information
B. Design Data
a) Circuit diagrams and Schematic layouts
b) Layout data supplemental information
c) Functional Block specifications
d) ATA and Flash media interface
e) Configuration & Control Registers
f) SRAM Buffer Controller
g) Power management functions
C. MIcroCode and Firmware Code
Source Code for Firmware & Microcontroller code including:
a) Flash media file management
i) Copy, Erase, and Read functions
ii) Garbage Collection protocols
b) ECC implementation
D. Device Evaluation Data
a) Functional test results of sample cards
b) Electrical characteristics of sample cards
c) Reliability data of sample cards
d) Control parameters and their tolerance
e) Test specifications
f) Test programs
Joint Development Committee: Fujitsu Initial: H.T. Date: 2/12/95
----- --------
AMD Initial: /s/RCG Date: 2/27/96
------- --------
20A
<PAGE>
ATTACHMENT C
TO
JOINT DEVELOPMENT AGREEMENT
---------------------------
SECOND ADDITION--MEMORY CARDS (PCMCIA-ATA)
------------------------------------------
Item Phase Start Date Completion Date
- ---------- ---------- ---------------
Specification [CONFIDENTIAL INFORMATION DELETED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE
Development COMMISSION]
Prototyping
Qualification
Joint Development Committee:
Fujitsu Initial: H.T. Date: 2/12/95 AMD Initial: /s/RCG Date: 2/27/96
---- ------- ------ -------
21A
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-29-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 85,382
<SECURITIES> 323,917
<RECEIVABLES> 245,719
<ALLOWANCES> (10,560)
<INVENTORY> 168,173
<CURRENT-ASSETS> 1,012,950
<PP&E> 3,028,089
<DEPRECIATION> (1,367,783)
<TOTAL-ASSETS> 2,954,809
<CURRENT-LIABILITIES> 532,736
<BONDS> 0
0
0
<COMMON> 1,394
<OTHER-SE> 2,120,554
<TOTAL-LIABILITY-AND-EQUITY> 2,954,809
<SALES> 544,060
<TOTAL-REVENUES> 544,212
<CGS> 368,735
<TOTAL-COSTS> 368,735
<OTHER-EXPENSES> 197,791
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,981
<INCOME-PRETAX> 3,764
<INCOME-TAX> 0
<INCOME-CONTINUING> 25,327
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 25,327
<EPS-PRIMARY> 0.18
<EPS-DILUTED> 0.18
</TABLE>
