<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 September 26, 1999
------------------
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
-----------------
<TABLE>
<CAPTION>
ADVANCED MICRO DEVICES, INC.
- -------------------------------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
<S> <C>
Delaware 94-1692300
- -------------------------------------------- -----------------------------------------------
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
One AMD Place
Sunnyvale, California 94086
- -------------------------------------------- --------
(Address of principal executive offices) (Zip Code)
</TABLE>
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
October 6, 1999: 147,769,723
<PAGE>
ADVANCED MICRO DEVICES, INC.
- ----------------------------
INDEX
- -----
Part I. Financial Information
---------------------
<TABLE>
<CAPTION>
Page No.
-------------
<S> <C>
Item 1. Financial Statements
Condensed Consolidated Statements of Operations -
Quarters Ended September 26, 1999 and September 27, 1998,
and Nine Months Ended September 26, 1999 and September 27, 1998 3
Condensed Consolidated Balance Sheets -
September 26, 1999 and December 27, 1998 4
Condensed Consolidated Statements of Cash Flows -
Nine Months Ended September 26, 1999 and September 27, 1998 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 14
Item 3. Quantitative and Qualitative Disclosures About Market Risk 41
Part II. Other Information
-----------------
Item 1. Legal Proceedings 42
Item 6. Exhibits and Report on Form 8-K 42
Signature 43
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ADVANCED MICRO DEVICES, INC.
----------------------------
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
-----------------------------------------------
(Unaudited)
(Thousands except per share amounts)
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
---------------------------- --------------------------
September 26, September 27, September 26, September 27,
1999 1998 1999 1998
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Net sales $ 662,192 $ 685,927 $ 1,888,894 $ 1,753,321
Expenses:
Cost of sales 474,119 422,985 1,382,889 1,236,716
Research and development 157,626 143,665 484,850 410,943
Marketing, general and administrative 129,437 109,768 381,267 299,180
Restructuring and other special charges - - 32,530 -
------------ ------------ ------------ -----------
761,182 676,418 2,281,536 1,946,839
------------ ------------ ------------ -----------
Operating income (loss) (98,990) 9,509 (392,642) (193,518)
Gain on sale of Vantis - - 432,059 -
Litigation settlement - - - (11,500)
Interest income and other, net 6,757 10,071 24,777 24,170
Interest expense (18,033) (21,182) (56,883) (51,317)
------------ ------------ ------------ -----------
Income (loss) before income taxes and equity in joint venture (110,266) (1,602) 7,311 (232,165)
Provision (benefit) for income taxes - (635) 167,350 (91,742)
------------ ------------ ------------ -----------
Loss before equity in joint venture (110,266) (967) (160,039) (140,423)
Equity in net income of joint venture 4,721 1,973 6,023 14,142
------------ ------------ ------------ -----------
Net income (loss) $ (105,545) $ 1,006 $ (154,016) $(126,281)
============ ============ ============ ===========
Net income (loss) per common share:
Basic $ (0.72) $ 0.01 $ (1.05) $ (0.88)
============ ============ ============ ===========
Diluted $ (0.72) $ 0.01 $ (1.05) $ (0.88)
============ ============ ============ ===========
Shares used in per share calculation:
Basic 147,388 143,915 146,748 143,249
============ ============ ============ ===========
Diluted 147,388 146,642 146,748 143,249
============ ============ ============ ===========
</TABLE>
See accompanying notes
- ----------------------
3
<PAGE>
ADVANCED MICRO DEVICES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS*
(Thousands)
<TABLE>
<CAPTION>
September 26, December 27,
Assets 1999 1998
------------- ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 93,267 $ 361,908
Short-term investments 283,768 335,117
------------- ------------
Total cash, cash equivalents and short-term investments 377,035 697,025
Accounts receivable, net 382,478 415,557
Inventories:
Raw materials 13,318 21,185
Work-in-process 121,792 129,036
Finished goods 99,000 24,854
------------- ------------
Total inventories 234,110 175,075
Deferred income taxes 49,827 205,959
Prepaid expenses and other current assets 117,331 68,411
------------- ------------
Total current assets 1,160,781 1,562,027
Property, plant and equipment, at cost 4,882,825 4,380,362
Accumulated depreciation and amortization (2,313,710) (2,111,894)
------------- ------------
Property, plant and equipment, net 2,569,115 2,268,468
Investment in joint venture 271,896 236,820
Other assets 177,015 185,653
------------- ------------
$ 4,178,807 $ 4,252,968
============= ============
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable to banks $ 4,778 $ 6,017
Accounts payable 318,126 333,975
Accrued compensation and benefits 90,386 80,334
Accrued liabilities 208,248 168,280
Income tax payable 9,526 22,026
Deferred income on shipments to distributors 77,698 84,523
Current portion of long-term debt, capital lease obligations and other 44,691 145,564
------------- ------------
Total current liabilities 753,453 840,719
Deferred income taxes 58,037 34,784
Long-term debt, capital lease obligations and other, less current portion 1,448,552 1,372,416
Commitments and contingencies
Stockholders' equity:
Capital stock:
Common stock, par value 1,490 1,465
Capital in excess of par value 1,109,072 1,071,591
Retained earnings 808,155 962,171
Accumulated other comprehensive income (loss) 48 (30,178)
------------- ------------
Total stockholders' equity 1,918,765 2,005,049
------------- ------------
$ 4,178,807 $ 4,252,968
============= ============
</TABLE>
* Amounts as of September 26, 1999, are unaudited. Amounts as of December 27,
1998, are derived from the December 27, 1998, audited financial statements.
See accompanying notes
- ----------------------
4
<PAGE>
ADVANCED MICRO DEVICES, INC.
----------------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------
(Unaudited)
(Thousands)
<TABLE>
<CAPTION>
Nine Months Ended
-----------------------------------
September 26, September 27,
1999 1998
---------------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (154,016) $ (126,281)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Gain on sale of Vantis (432,059) -
Depreciation and amortization 385,590 342,420
Net decrease (increase) in deferred income tax assets 164,343 (101,901)
Restructuring and other special charges 25,038 -
Foreign grant and subsidy income (37,852) -
Net loss on disposal of property, plant and equipment 8,305 5,231
Net gain realized on sale of available-for-sale securities (4,250)
Undistributed income of joint venture (6,023) (14,142)
Recognition of deferred gain on sale of building (1,260) -
Net compensation recognized on employee stock options 399 6,102
Changes in operating assets and liabilities:
Net increase in receivables, inventories,
prepaid expenses and other assets (104,551) (87,414)
Net increase (decrease) in payables and accrued liabilities 89,749 (1,034)
Increase (Decrease) in income tax payable (12,793) 7,710
---------------- ----------------
Net cash provided by (used in) operating activities (79,380) 30,691
Cash flows from investing activities:
Proceeds from sale of Vantis 454,269 -
Purchase of property, plant and equipment (495,044) (798,664)
Proceeds from sale of property, plant and equipment 3,342 13,825
Purchase of available-for-sale securities (1,274,591) (1,211,845)
Proceeds from sale of available-for-sale securities 1,315,617 993,434
---------------- ----------------
Net cash provided by (used in) investing activities 3,593 (1,003,250)
Cash flows from financing activities:
Proceeds from borrowings 22,864 799,570
Payments on debt and capital lease obligations (239,392) (41,597)
Deferred financing costs - (12,783)
Proceeds from foreign grants - 91,355
Proceeds from issuance of stock 33,143 26,658
---------------- ----------------
Net cash provided by (used in) financing activities (183,385) 863,203
Effect of exchange rate changes on cash and cash equivalents (9,469) 4,391
---------------- ----------------
Net decrease in cash and cash equivalents (268,641) (104,965)
Cash and cash equivalents at beginning of period 361,908 240,658
---------------- ----------------
Cash and cash equivalents at end of period $ 93,267 $ 135,693
================ ================
Supplemental disclosures of cash flow information:
Cash paid (refunded) during the first nine months for:
Interest $ 68,159 $ 32,416
================ ================
Income taxes $ 10,220 $ (1,719)
================ ================
</TABLE>
See accompanying notes
- ----------------------
5
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of
Advanced Micro Devices, Inc. (the Company or AMD) have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10
of Regulation S-X. The results of operations for the interim periods shown
in this report are not necessarily indicative of results to be expected for
the full fiscal year ending December 26, 1999. In the opinion of the
Company's management, the information contained herein reflects all
adjustments necessary to make the results of operations for the interim
periods a fair statement of such operations. All such adjustments are of a
normal recurring nature. The interim financial statements should be read in
conjunction with the financial statements in the Company's Annual Report on
Form 10-K for the year ended December 27, 1998.
The Company uses a 52- to 53-week fiscal year ending on the last Sunday in
December. The quarters ended September 26, 1999 and September 27, 1998 each
included 13 weeks. The nine months ended September 26, 1999 and September
27, 1998 each included 39 weeks.
Certain prior year amounts on the condensed consolidated financial
statements have been reclassified to conform to the 1999 presentation.
2. Restructuring and Other Special Charges
Restructuring and other special charges were $17.5 million in the second
quarter of 1999 and $15.0 million in the first quarter of 1999. These
charges were the result of the Company's efforts to better align its cost
structure with expected revenue growth rates. The restructuring efforts
resulted in non-cash charges for the:
. closure of a submicron development laboratory facility;
. write-off of equipment in the Submicron Development Center (SDC);
. write-off of equipment taken out of service in Fab 25, the Company's
integrated circuit (IC) manufacturing facility located in Austin,
Texas, related to the 0.35-micron wafer fabrication process; and
. write-off of capitalized costs related to discontinued system projects.
Cash charges consisted of:
. severance and benefits to terminated employees including 50 employees
in the Information Technology department and 128 employees in the SDC
and sales offices;
. costs for leases of vacated and unused sales offices; and
. costs for the disposal of equipment taken out of service in Fab 25 and
the SDC.
6
<PAGE>
The restructuring and other special charges for the first nine months of 1999
are as follows:
<TABLE>
<CAPTION>
Severance
and Equipment Discontinued
Employee Disposal System
(Thousands) (Unaudited) Benefits Facilities Equipment Costs Projects Total
-------- ---------- --------- --------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
Q1 99 charges $ 779 $ - $ 8,148 $ - $ 6,089 $ 15,016
Non-cash charges - - (8,148) - (6,089) (14,237)
-------- ---------- --------- --------- ---------- -------
Accruals at March 28, 1999 779 - - - - 779
Q2 99 charges 2,245 968 10,801 3,500 - 17,514
Cash charges (1,360) - - - - (1,360)
Non-cash charges - - (10,801) - - (10,801)
-------- ---------- --------- --------- ---------- -------
Accruals at June 27, 1999 1,664 968 - 3,500 - 6,132
Cash charges (1,664) (35) - (1,067) - (2,766)
-------- ---------- --------- --------- ---------- -------
Accruals at September 26, 1999 $ - $ 933 $ - $ 2,433 $ - $ 3,366
======== ========== ======== ========= ========== ========
</TABLE>
The Company anticipates that the remaining accruals for sales office
facilities will be utilized over the period through lease termination in the
second quarter of 2002. The remaining accruals for the disposal costs for
equipment that has been taken out of service will be fully discharged by the
first quarter of 2000.
7
<PAGE>
3. Available-For-Sale Securities
The following is a summary of available-for-sale securities:
<TABLE>
<CAPTION>
September 26,
(Thousands) (Unaudited) 1999
--------------
<S> <C>
Cash equivalents:
Money market funds $18,800
Commercial paper 18,265
--------------
Total cash equivalents $37,065
==============
Short-term investments:
Bank notes $ 5,131
Federal agency notes 55,938
Money market auction rate preferred stocks 66,000
Certificates of deposit 52,301
Corporate notes 30,784
Commercial paper 73,614
--------------
Total short-term investments $283,768
==============
Long-term investments:
Equity investments $23,961
Commercial paper 9,999
Treasury notes 1,907
--------------
Total long-term investments (included in other assets) $35,867
==============
</TABLE>
4. Debt
The 1996 syndicated bank loan agreement (the Credit Agreement) provided for
a $150 million three-year secured revolving line of credit and a $250
million four-year secured term loan. On June 25, 1999, the Company
terminated the secured revolving line of credit. On July 13, 1999, the
Company replaced the Credit Agreement with a new Loan and Security Agreement
(the Loan Agreement) with a consortium of banks led by Bank of America. On
July 30, 1999, the Company repaid the outstanding balance of $86,250,000 on
the secured term loan and terminated the Credit Agreement. Under the Loan
Agreement, which provides for a four-year secured revolving line of credit
of up to $200 million, the Company can borrow, subject to discretionary
reserves which may be set aside by the lenders, up to 85 percent of its
eligible accounts receivable from Original Equipment Manufacturers (OEMs)
and 50 percent of its eligible accounts receivable from distributors. The
Company will be subject to compliance with certain financial covenants if
the levels of domestic cash it holds declines to certain levels, or the
amount of borrowings under the Loan Agreement rises to certain levels. The
Company obligations under the Loan Agreement are secured by a pledge of most
of its accounts receivable, inventory, general intangibles and the related
proceeds. As of September 26, 1999, no funds were drawn under the Loan
Agreement.
8
<PAGE>
5. Net Income (Loss) per Common Share
Basic net income (loss) per common share is computed using the weighted-
average common shares outstanding. Diluted net income per common share is
computed using the weighted average common shares outstanding plus any
potential dilutive securities. Dilutive securities include stock options,
restricted stock, warrants and convertible debt. The following table sets
forth the computation of basic and diluted net income (loss) per common
share:
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
----------------------------- --------------------------------
September 26, September 27, September 26, September 27,
(Thousands except per share data) (Unaudited) 1999 1998 1999 1998
------------------------------ --------------------------------
<S> <C> <C> <C> <C>
Numerator:
Numerator for basic and diluted net income (loss)
per common share (105,545) 1,006 (154,016) (126,281)
========= ======= ========= =========
Denominator:
Denominator for basic net income (loss)
per common share - weighted-average shares 147,388 143,915 146,748 143,249
Effect of dilutive securities:
Employee stock options - 2,472 - -
Restricted stock - 253 - -
Warrants - 2 - -
--------- ------- --------- ---------
Dilutive potential common shares - 2,727 - -
--------- ------- --------- ---------
Denominator for diluted net income (loss) per
common share - adjusted weighted-average shares 147,388 146,642 146,748 143,249
========= ======= ========= =========
Basic net income (loss) per common share $ (0.72) $ 0.01 $ (1.05) $ (0.88)
========= ======= ========= =========
Diluted net income (loss) per common share $ (0.72) $ 0.01 $ (1.05) $ (0.88)
========= ======= ========= =========
</TABLE>
Options, restricted stock and convertible debt were outstanding during the
quarter ended September 26, 1999 and both of the nine month periods ended
September 26, 1999 and September 27, 1998, but were not included in the
computation of diluted net loss per common share because the effect in
periods with a net loss would be antidilutive. Options to purchase 7,474,446
shares of common stock at a weighted-average price of $28.23 per share were
outstanding during the quarter ended September 27, 1998, but were not
included in the computation of diluted net income per common share because
the options' exercise price was greater than the average market price of the
common shares during the period.
6. Investment in Joint Venture
In 1993, AMD and Fujitsu Limited formed a joint venture, Fujitsu AMD
Semiconductor Limited (FASL), for the development and manufacture of non-
volatile memory devices. FASL operates advanced IC manufacturing facilities
in Aizu-Wakamatsu, Japan, to produce Flash memory devices. The Company's
share of FASL is 49.992 percent and the investment is being accounted for
under the equity method. As of September 26, 1999, the cumulative adjustment
related to the translation of the FASL financial statements into U.S.
dollars resulted in an increase in the investment in FASL of $4 million. The
following are the significant FASL related-party transactions and balances:
9
<PAGE>
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
-------------------------------- --------------------------------
September 26, September 27, September 26, September 27,
(Thousands) (Unaudited) 1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Royalty income $ 5,731 $ 4,893 $ 16,468 $ 15,566
Purchases 73,159 43,377 191,935 153,741
</TABLE>
<TABLE>
<CAPTION> September 26, September 27,
(Thousands) (Unaudited) 1999 1998
------------- -------------
<S> <C> <C>
Royalty receivable $ 12,141 $ 9,060
Accounts payable 56,771 10,808
</TABLE>
The following is condensed unaudited financial data of FASL:
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
-------------------------------- --------------------------------
September 26, September 27, September 26, September 27,
(Thousands) (Unaudited) 1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales $ 139,868 $ 98,295 $ 355,538 $ 315,204
Gross profit 12,335 5,575 31,005 39,026
Operating income 11,430 5,114 28,873 35,087
Net income 6,589 2,616 16,469 20,980
</TABLE>
The Company's share of the above FASL net income differs from the equity in
net income of joint venture reported on the condensed consolidated
statements of operations due to the elimination of intercompany unrealized
profits which are reflected on the Company's condensed consolidated
statements of operations.
7. Segment Reporting
Through June 1999, AMD had two principal businesses and had two reportable
segments: (1) the AMD segment, which consists of three product groups -
Computation Products Group, Memory Group and Communications Group, and (2)
the Vantis segment, which consisted of the Company's programmable logic
subsidiary, Vantis Corporation (Vantis). The reportable segments were
organized as discrete and separate functional units with separate management
teams and separate performance assessment and resource allocation processes.
The AMD segment produces microprocessors, core logic products, Flash memory
devices, Erasable Programmable Read-Only Memory (EPROM) devices,
telecommunication products, networking and input/output (I/O) products and
embedded processors. The Vantis segment produced complex and simple, high-
performance complementary metal oxide semiconductor (CMOS) programmable
logic devices (PLDs).
On June 15, 1999, AMD completed the sale of Vantis to Lattice Semiconductor
Corporation. Therefore, operating results of the Vantis segment are not
included in the results of the third quarter of 1999.
10
<PAGE>
The accounting policies of the segments were the same as those described in
the summary of significant accounting policies contained in the Company's
financial statements in its annual report on Form 10-K for the year ended
December 27, 1998. The Company evaluates performance and allocates resources
based on segment operating income (loss).
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
--------------------------------- --------------------------------
(Thousands) (Unaudited) September 26, September 27, September 26, September 27,
Net sales: 1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
AMD segment
External customers $ 662,192 $ 474,599 $ 1,802,202 $ 1,433,830
Intersegment - 19,504 32,626 68,153
------------- ------------- ------------- -------------
662,192 494,103 1,834,828 1,501,983
Vantis segment external customers - 51,939 86,692 160,102
Elimination of intersegment sales - (19,504) (32,626) (68,153)
------------- ------------- ------------- -------------
Net sales $ 662,192 $ 526,538 $ 1,888,894 $ 1,593,932
============= ============= ============= =============
Segment income (loss):
AMD segment $ (98,990) $ 8,028 $ (398,281) $ (209,223)
Vantis segment - 1,481 5,639 15,705
------------- ------------- ------------- -------------
Total operating income (loss) (98,990) 9,509 (392,642) (193,518)
Gain on sale of Vantis - - 432,059 -
Litigation settlement - - - (11,500)
Interest income and other, net 6,757 10,071 24,777 24,170
Interest expense (18,033) (21,182) (56,883) (51,317)
(Provision) Benefit for income taxes - 635 (167,350) 91,742
Equity in net income of
FASL (AMD segment) 4,721 1,973 6,023 14,142
------------- ------------- ------------- -------------
Net income (loss) $ (105,545) $ 1,006 $ (154,016) $ (126,281)
============= ============= ============= =============
</TABLE>
8. Sale of Vantis Corporation
On June 15, 1999, AMD sold Vantis to Lattice Semiconductor Corporation for
approximately $500 million in cash. AMD received, net of cash and cash
equivalents of approximately $46 million held by Vantis, approximately $454
million. AMD's pre-tax gain on the sale of Vantis was $432 million, subject
to adjustment, if any, based on the final determination of the net asset
value of Vantis as of June 15, 1999. The gain is computed based on Vantis'
preliminary net assets as of June 15, 1999 and other direct expenses related
to the sale. The applicable tax rate on the gain was 40 percent.
Prior to the Vantis sale, the Company negotiated various service contracts
with Vantis to continue to provide services to Vantis. According to the
service contracts, the Company will continue to provide, among other things,
wafer fabrication and assembly, test, mark and pack services to Vantis. The
wafer fabrication and assembly, test, mark and pack service agreements will
continue until September 2003. In the third quarter of 1999, approximately
$18 million of revenue was generated from the above service contracts.
11
<PAGE>
9. Comprehensive Income (Loss)
Under Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income," unrealized gains or losses on the Company's
available-for-sale securities and foreign currency translation adjustments
are included in other comprehensive income (loss).
The following are the components of comprehensive income (loss):
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
-------------------------------- --------------------------------
September 26, September 27, September 26, September 27,
(Thousands) (Unaudited) 1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net income (loss) $ (105,545) $ 1,006 $ (154,016) $ (126,281)
Foreign currency translation adjustments 49,423 4,401 19,433 (11,280)
Unrealized gains on securities, net of tax:
Unrealized gains on investments arising
during the period 6,377 (1,715) 14,246 4,954
Less: Reclassification adjustment for
gains included in earnings - - (3,453) -
------------- ------------- ------------- -------------
Other comprehensive income (loss) 55,800 2,686 30,226 (6,326)
------------- ------------- ------------- -------------
Comprehensive income (loss) $ (49,745) $ 3,692 $ (123,790) $ (132,607)
============= ============= ============= ==============
</TABLE>
The components of accumulated other comprehensive income (loss), net of
related tax, are as follows:
<TABLE>
<CAPTION>
September 26, December 27,
(Thousands) (Unaudited) 1999 1998
------------- ------------
<S> <C> <C>
Unrealized gain on investments, net of tax $ 17,553 $ 6,760
Cumulative translation adjustments (17,505) (36,938)
------------- ------------
$ 48 $ (30,178)
============= ============
</TABLE>
10. Contingencies
SECURITIES CLASS ACTION LITIGATION. Between March 10, 1999 and April 22,
1999, AMD and certain individual officers of AMD were named as defendants in
the following lawsuits: Arthur S. Feldman v. Advanced Micro Devices, Inc.,
et al.; Pamela Lee v. Advanced Micro Devices, Inc., et al.; Izidor Klein v.
Advanced Micro Devices, Inc., et al.; Nancy P. Steinman v. Advanced Micro
Devices, Inc., et al.; Robert L. Dworkin v. Advanced Micro Devices, Inc., et
al.; Howard M. Lasker v. Advanced Micro Devices, Inc., et al.; John K.
Thompson v. Advanced Micro Devices, Inc., et al.; Dan Schwartz v. Advanced
Micro Devices, Inc., et al.; Serena Salamon and Norman Silverberg v.
Advanced Micro Devices, Inc., et al.; David Wu and Hossein Mizraie v.
Advanced Micro Devices, Inc., et al.; Eidman v. Advanced Micro Devices,
Inc., et al.; Nold v. Advanced Micro Devices, Inc., et al.; Freeland v.
Advanced Micro Devices, Inc., et al.; Fradkin v. Advanced Micro Devices,
Inc. et al.; Ellis Investment Co. v. Advanced Micro Devices, Inc., et al.;
Dezwareh v. Advanced Micro Devices, Inc., et al.; and Tordjman v. Advanced
Micro Devices, Inc., et al. These class action complaints allege various
violations of federal securities law, including violations of Section 10(b)
12
<PAGE>
of the Securities Exchange Act and Rule 10b-5 promulgated thereunder. Most
of the complaints purportedly were filed on behalf of all persons, other
than the defendants, who purchased or otherwise acquired common stock of AMD
during the period from October 6, 1998 to March 8, 1999. Two of the
complaints allege a class period from July 13, 1998 to March 9, 1999. All of
the complaints allege that materially misleading statements and/or material
omissions were made by AMD and certain individual officers of AMD concerning
design and production problems relating to high-speed versions of the AMD-
K6(R)-2 and AMD-K6(R)-III microprocessors. The complaints seek unspecified
damages, equitable relief, interest, fees and other litigation costs.
The Company has entered into a stipulation whereby plaintiffs will file a
consolidated amended complaint following a ruling by the Ninth Circuit Court
of Appeals on the In re Silicon Graphics Securities Litigation, 97-16204,
case now pending before it. The stipulation also sets forth the period of
time the Company will have to respond to the new compliant once it is filed
and served. The Company intends to contest the litigation vigorously. 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 on our financial condition or results of operations.
13
<PAGE>
- -------------------------------------------------------------------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Cautionary Statement Regarding Forward-Looking Statements
The statements in this Management's Discussion and Analysis of Financial
Condition and Results of Operations that are forward-looking are based on
current expectations and beliefs and involve numerous risks and uncertainties
that could cause actual results to differ materially. The forward-looking
statements relate to, among other things, operating results; anticipated cash
flows; capital expenditures; adequacy of resources to fund operations and
capital investments; our ability to access external sources of capital; our
ability to transition to new process technologies; our ability to produce the
AMD Athlon microprocessor in the volume required by customers on a timely basis;
our ability, and the ability of third parties, to provide timely infrastructure
solutions (motherboards and chipsets) to support the AMD Athlon microprocessor;
customer and market acceptance of the AMD Athlon microprocessor; our ability to
maintain average selling prices for the AMD Athlon microprocessor; strengthening
demand for Flash memory devices; Year 2000 costs; the impact on our business as
a result of Year 2000 issues; the impact on customers and suppliers as they
prepare for the Year 2000; our new submicron integrated circuit manufacturing
and design facility located in Dresden, Germany (Dresden Fab 30); and the
Fujitsu AMD Semiconductor Limited (FASL) manufacturing facilities. See
"Financial Condition" and "Risk Factors" below, as well as such other risks and
uncertainties as are detailed in our other Securities and Exchange Commission
reports and filings for a discussion of the factors that could cause actual
results to differ materially from the forward-looking statements.
The following discussion should be read in conjunction with the Consolidated
Financial Statements and related notes as of December 27, 1998, and December 28,
1997, and for each of the three years in the period ended December 27, 1998.
AMD, the AMD logo, and combinations thereof, Advanced Micro Devices, K86, AMD-
K6, AMD-K6-2, AMD-K6-III, AMD Athlon and 3DNow! are either trademarks or
registered trademarks of Advanced Micro Devices, Inc. Vantis is a trademark of
Vantis Corporation. Microsoft and Windows are either registered trademarks or
trademarks of Microsoft Corporation. Pentium is a registered trademark and
Celeron is a trademark of Intel Corporation. Other terms used to identify
companies and products may be trademarks of their respective owners.
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- -------------------------------------------------------------------------------
RESULTS OF OPERATIONS
During the nine months ended September 26, 1999, we participated in all three
technology areas within the digital integrated circuit (IC) market - memory
circuits, logic circuits and microprocessors - through (1) our AMD segment,
which consists of our three product groups - Computation Products Group (CPG),
Memory Group and Communications Group and (2) our Vantis segment, which
consisted of our former programmable logic subsidiary, Vantis Corporation
(Vantis). CPG products include microprocessors, core logic products and
embedded processors. Memory Group products include Flash memory devices and
Erasable Programmable Read-Only Memory (EPROM) devices. Communications Group
products include telecommunication products, networking, and input/output (I/O)
products. Vantis products are complex and simple high-performance complementary
metal oxide semiconductor (CMOS) programmable logic devices (PLDs).
On June 15, 1999, we completed the sale of our Vantis segment to Lattice
Semiconductor Corporation for approximately $500 million in cash. The actual
cash received was approximately $454 million, which was net of Vantis' cash and
cash equivalents balance of approximately $46 million as of the closing.
The following is a summary of the net sales of the AMD and Vantis segments for
the periods presented below:
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
------------------------------------------------ --------------------------------
September 26, June 27, September 27, September 26, September 27,
(Millions) 1999 1999 1998 1999 1998
------------- -------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
AMD Segment:
CPG $ 368 $ 317 $ 437 $ 1,080 $ 939
Memory Group 206 166 129 499 428
Communications Group 70 70 70 203 228
Lattice service fees 18 2 - 20 -
------------- -------- ------------- ------------- -------------
662 555 636 1,802 1,595
Vantis Segment - 40 50 87 158
------------- -------- ------------- ------------- -------------
Total $ 662 $ 595 $ 686 $ 1,889 $ 1,753
============= ======== ============= ============= =============
</TABLE>
Net Sales Comparison of Quarters Ended September 26, 1999 and June 27, 1999
Net sales for the third quarter of 1999 increased by 11 percent compared to the
second quarter of 1999. Excluding sales from the Vantis Segment and Lattice
service fees, net sales for the third quarter of 1999 increased 16 percent
compared to the second quarter of 1999.
CPG net sales of $368 million increased 16 percent in the third quarter of 1999
compared to the second quarter of 1999. Increased volumes of approximately 22
percent in aggregate sales of AMD Athlon(TM) and AMD-K6(R) microprocessors were
partially offset by a decrease of approximately five percent in average selling
prices which was caused by aggressive Intel marketing, pricing and product
bundling. Sales of AMD Athlon microprocessors are highly dependent upon the
availability of chipsets and motherboards from Taiwanese and other
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<PAGE>
suppliers. Taiwan is currently recovering from a major earthquake that occurred
on September 21, 1999. The earthquake resulted in an interruption of power to
our suppliers' manufacturing facilities that contributed to a severe shortage of
motherboards in the last week of the third quarter of 1999 which adversely
affected our sales of AMD Athlon microprocessors. Overall CPG sales growth in
the fourth quarter of 1999 and in the first quarter of 2000 is dependent upon a
successful production ramp on 0.25-micron and 0.18-micron technology, market
acceptance of our AMD Athlon microprocessor and availability of chipsets and
motherboards from Taiwanese and other suppliers, as to which we cannot give any
assurance.
Memory Group net sales of $206 million increased 24 percent in the third quarter
of 1999 compared to the second quarter of 1999 as a result of higher average
selling prices and strong growth in demand for higher density Flash memory
devices. Demand for Flash memory devices has remained strong through October,
1999; however, our ability to achieve further gains will depend upon gaining
additional manufacturing capacity and/or increasing average selling prices, as
to which we cannot give any assurance.
Communications Group net sales of $70 million were flat in the third quarter of
1999 compared to the second quarter of 1999. The increase in sales of
telecommunication products, which includes digital cordless circuits, ISDN and
subscriber linecard circuits (SLICs and SLACs(TM)), was completely offset by a
decrease in sales of networking products. In October 1999, we announced our
intention to sell the Communications Group. We expect to complete the sale in
the first half of 2000.
On June 15, 1999, we sold Vantis to Lattice Semiconductor Corporation for
approximately $500 million in cash. As a result, there were no sales from
Vantis in the third quarter of 1999. Prior to the sale of Vantis, we negotiated
various service contracts with Vantis to continue to provide, among other
things, wafer fabrication and assembly, test, mark and pack services to Vantis.
We received service fees of $18 million from Lattice in the third quarter of
1999 compared to $2 million in the second quarter of 1999. The wafer
fabrication and assembly, test, mark and pack service contracts will continue
until September 2003.
Net Sales Comparison of Quarters Ended September 26, 1999 and September 27, 1998
Net sales for the third quarter of 1999 decreased by three percent compared to
the third quarter of 1998. Excluding net sales from the Vantis Segment and
Lattice service fees, net sales for the third quarter of 1999 increased one
percent compared to the third quarter of 1998.
CPG net sales of $368 million decreased 16 percent in the third quarter of 1999
compared to the same quarter of 1998. Declines in average selling prices of
AMD-K6 microprocessors, caused by aggressive Intel marketing, pricing and
product bundling, offset a more than 20 percent growth in combined
microprocessor unit volume. Sales of AMD Athlon microprocessors are highly
dependent upon the availability of chipsets and motherboards from Taiwanese and
other suppliers. Taiwan is currently recovering from a major earthquake that
occurred on September 21, 1999. The earthquake resulted in an interruption of
power to our suppliers' manufacturing facilities that contributed to a severe
shortage of motherboards in the last week of the third quarter of 1999 which
adversely affected our sales of AMD Athlon microprocessors. Overall CPG sales
growth in the fourth quarter of 1999 and in the first quarter of 2000 is
dependent upon a successful production ramp on 0.25-micron and 0.18-micron
technology, market acceptance of our AMD Athlon microprocessor and availability
of chipsets
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<PAGE>
and motherboards from Taiwanese and other suppliers, as to which we cannot give
any assurance.
Memory Group net sales of $206 million increased by 60 percent in the third
quarter of 1999 compared to the third quarter of 1998 as a result of higher
average selling prices and strong growth in demand for higher density Flash
memory devices. Demand for Flash memory devices has remained strong through
October, 1999; however, our ability to achieve further gains will depend upon
gaining additional manufacturing capacity and/or increasing average selling
prices, as to which we cannot give any assurance.
Communications Group net sales of $70 million were flat in the third quarter of
1999 compared to the third quarter of 1998. The increase in sales of
telecommunication products, which includes digital cordless circuits, ISDN and
SLICs and SLACs, was completely offset by a decrease in sales of networking
products. In October 1999, we announced our intention to sell the
Communications Group. We expect to complete the sale in the first half of 2000.
On June 15, 1999, we sold Vantis to Lattice Semiconductor Corporation for
approximately $500 million in cash. As a result, there were no sales from
Vantis in the third quarter of 1999. Prior to the sale of Vantis, we negotiated
various service contracts with Vantis to continue to provide, among other
things, wafer fabrication and assembly, test, mark and pack services to Vantis.
We received service fees of $18 million from Lattice in the third quarter of
1999. The wafer fabrication and assembly, test, mark and pack service contracts
will continue until September 2003.
Net Sales Comparison of Nine Months Ended September 26, 1999 and September 27,
1998
Net sales for the first nine months of 1999 increased by eight percent compared
to the first nine months of 1998. Excluding sales from the Vantis Segment and
Lattice service fees, net sales for the first nine months of 1999 increased 12
percent compared to the same period of 1998.
CPG net sales of $1 billion increased by 15 percent in the first nine months of
1999 compared to the same period of 1998. Unit shipments increased more than
55% over this period as growth in sales of the AMD-K6 microprocessors was driven
by a stronger customer base. This increase in unit shipments offset declines in
AMD-K6 microprocessor average selling prices caused by aggressive Intel
marketing, pricing and product bundling in the first nine months of 1999. Sales
of AMD Athlon microprocessors are highly dependent upon the availability of
chipsets and motherboards from Taiwanese and other suppliers. Taiwan is
currently recovering from a major earthquake that occurred on September 21,
1999. The earthquake resulted in an interruption of power to our suppliers'
manufacturing facilities that contributed to a severe shortage of motherboards
in the last week of the third quarter of 1999 which adversely affected our sales
of AMD Athlon microprocessors. Overall CPG sales growth in the fourth quarter
of 1999 and in the first quarter of 2000 is dependent upon a successful
production ramp on 0.25-micron and 0.18-micron technology, market acceptance of
our AMD Athlon microprocessor and availability of chipsets and motherboards from
Taiwanese and other suppliers, as to which we cannot give any assurance.
Memory Group net sales of $499 million increased 17 percent in the first nine
months of 1999 compared to the first nine months of 1998 as a result of higher
average selling prices and strong growth in demand for higher density Flash
memory devices. Demand for Flash memory devices
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<PAGE>
has remained strong through October, 1999; however, our ability to achieve
further gains will depend upon gaining additional manufacturing capacity and/or
increasing average selling prices, as to which we cannot give any assurance.
Communications Group net sales of $203 million decreased 11 percent in the first
nine months of 1999 compared to the first nine months of 1998. The increase in
sales volume of telecommunication products, which includes digital cordless
circuits, ISDN, SLICs and SLACs, was completely offset by weak sales of
networking products. In addition, average selling prices deteriorated for
telecommunication products primarily due to the economic downturn in Asia
earlier in the year. In October 1999, we announced our intention to sell the
Communications Group. We expect to complete the sale in the first half of 2000.
On June 15, 1999, we sold Vantis to Lattice Semiconductor Corporation for
approximately $500 million in cash. As a result, there were no sales from
Vantis for the last 15 weeks of the first nine months of 1999. Vantis net sales
in the first nine months of 1999 were $87 million compared to $158 million in
the same period of 1998. Prior to the sale of Vantis, we negotiated various
service contracts with Vantis to continue to provide, among other things, wafer
fabrication and assembly, test, mark and pack services to Vantis. We received
service fees of $20 million from Lattice in the first nine months of 1999. The
wafer fabrication and assembly, test, mark and pack service contracts will
continue until September 2003.
Comparison of Expenses, Gross Margin Percentage and Interest
The following is a summary of expenses, gross margin percentage and interest
income and other, net for the periods presented below:
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
--------------------------------------------- -----------------------------
September 26, June 27, September 27, September 26, September 27,
(Millions except for gross margin percentage) 1999 1999 1998 1999 1998
------------- -------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Cost of sales $ 474 $ 458 $ 423 $ 1,383 $ 1,237
Gross margin percentage 28 % 23 % 38 % 27 % 29 %
Research and development 158 167 144 485 411
Marketing, general and administrative 129 125 110 381 299
Restructuring and other special charges - 18 - 33 -
Gain on sale of Vantis - 432 - 432 -
Litigation settlement - - - - 12
Interest income and other, net 7 7 10 25 24
Interest expense 18 18 21 57 51
</TABLE>
We operate in an industry characterized by high fixed costs due to the capital-
intensive manufacturing process, particularly the state-of-the-art production
facilities required for microprocessors. As a result, our gross margin
percentage is significantly affected by fluctuations in product sales. Gross
margin percentage growth depends on increased sales from microprocessors and
other products as fixed costs continue to rise due to additional capital
investments made as we continue to expand production capacity.
Gross margin percentage of 28 percent in the third quarter of 1999 increased
from 23 percent in the second quarter of 1999 and decreased from 38 percent in
the third quarter of 1998. For the first nine months of 1999, gross margin
percentage of 27 percent decreased from 29 percent in
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<PAGE>
the same period of 1998. The increase in gross margin percentage in the third
quarter of 1999 compared to the second quarter of 1999 was due to higher net
sales of microprocessors and Flash memory devices. Higher net sales were
partially offset by an increase in fixed costs. The decrease in gross margin
percentage in the third quarter of 1999 compared to the third quarter of 1998
was due to lower net sales of microprocessors combined with higher fixed costs.
The decrease in gross margin percentage in the first nine months of 1999
compared to the same period of 1998 was due primarily to higher fixed costs.
Fixed costs will continue to increase as we introduce equipment for 0.18-micron
process technology capacity and facilitize Fab 25, our IC manufacturing facility
in Austin, Texas. Dresden Fab 30 will also contribute to an increase in cost of
sales when it begins producing units for sale, which we anticipate to be no
earlier than the second quarter of 2000. Accordingly, absent significant
increases in sales, particularly with respect to microprocessors, we will
continue to experience pressure on our gross margin percentage.
Research and development expenses of $158 million in the third quarter of 1999
decreased five percent compared to the second quarter of 1999 and increased 10
percent compared to the third quarter of 1998. Research and development
expenses of $485 million for the first nine months of 1999 increased 18 percent
from the same period in the previous year. In the third quarter of 1999, we
experienced savings in our Submicron Development Center (SDC) as a result of
restructuring activities and savings related to the absence of Vantis expenses
when compared to the second quarter of 1999. The first nine months of 1999
included additional costs related to the facilitization of Dresden Fab 30,
research and development activities for the AMD Athlon microprocessor and the
technology alliance we entered into with Motorola in 1998 (1998 Alliance) for
the development of Flash memory and logic process technologies. These
additional costs were partially offset in 1999 by the recognition of deferred
credits on foreign capital grants and interest subsidies that were received for
Dresden Fab 30. These credits of approximately $13 million per quarter will
continue to be offset against Dresden Fab 30 expenses in future quarters until
June 2007. Beginning no earlier than the second quarter of 2000, we expect
Dresden Fab 30 to begin producing units for sale. At that time, a significant
portion of Dresden Fab 30 expenses, including the deferred credits referred to
above, will shift from research and development expense to cost of sales.
Marketing, general and administrative expenses of $129 million in the third
quarter of 1999 increased three percent compared to the second quarter of 1999
and increased 17 percent compared to the third quarter of 1998. Marketing,
general and administrative expenses of $381 million in the first nine months of
1999 increased 27 percent compared to the same period of 1998. Marketing and
promotional activities for our launch of the AMD Athlon microprocessor
increased in the third quarter of 1999 compared to the second quarter of 1999
and the same quarter of 1998. These increases were partially offset by savings
related to the absence of Vantis expenses in the third quarter of 1999. In
addition to greater marketing and promotional activities, the first nine months
of 1999 also included increased costs and related depreciation expense
associated with the installation of new order management and accounts receivable
systems.
In the first quarter of 1999 we initiated a review of our cost structure. Based
upon this review, we recorded restructuring and other special charges of $15
million in the first quarter of 1999 and $18 million in the second quarter of
1999 as a result of certain of our actions to better align our cost structure
with expected revenue growth rates. Although we have achieved the expected cost
savings as a result of this realignment, we have not achieved the expected
revenue growth rates.
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<PAGE>
As a result, we will continue to evaluate our cost structure and may incur
additional restructuring and other special charges during the fourth quarter of
1999.
The restructuring activities and other special charges primarily relate to: 1)
the closure of a submicron development laboratory facility; 2) write-offs of
certain equipment, including estimated equipment disposal costs, in the SDC; 3)
write-offs of equipment utilized in the discontinued 0.35-micron wafer
fabrication process; 4) the elimination of job responsibilities for 50 employees
in the first quarter and 128 employees in the second quarter in the SDC, sales
offices and Information Technology department; 5) the write-off of discontinued
system projects; and 6) costs for vacated and unused sales office leases.
During the third quarter of 1999, we discharged our accrual balance of $1.7
million which was incurred in the second quarter of 1999 relating to the
severance costs for the termination of 128 employees. We expect to discharge
our third quarter accrual balances as follows: 1) the $2.4 million accrual for
the disposal costs for equipment that has been taken out of service will be
fully discharged by the first quarter of 2000; and 2) the $933,000 accrual for
costs related to vacated and unused leases is expected to be discharged through
the second quarter of 2002.
On June 15, 1999, we completed the sale of our Vantis segment to Lattice
Semiconductor Corporation for approximately $500 million in cash. The actual
cash received was net of Vantis' cash and cash equivalent balance of
approximately $46 million at the closing. Our pre-tax gain on the sale of
Vantis was $432 million, subject to adjustment, if any, based on the final
determination of the net asset value of Vantis at June 15, 1999. The gain is
computed based on Vantis' net assets as of June 15, 1999 and other direct
expenses related to the sale. The applicable tax rate on the gain was 40
percent.
A litigation settlement of approximately $12 million was recorded during the
nine months ended September 26, 1998 for the settlement of a class action
securities lawsuit against AMD and certain current and former officers and
directors. We paid the settlement during the third quarter of 1998.
Interest income and other, net of $7 million in the third quarter of 1999 was
flat compared to the second quarter of 1999 and decreased $3 million compared to
the third quarter of 1998. Interest income and other, net of $25 million in the
first nine months of 1999 increased $1 million compared to the first nine months
of 1998. The decrease in the third quarter of 1999 compared to the same quarter
of 1998 was primarily due to lower average cash balances.
Interest expense of $18 million in the third quarter of 1999 was flat compared
to the second quarter of 1999 and decreased $3 million compared to the third
quarter of 1998. Interest expense of $57 million in the first nine months of
1999 increased $6 million compared to the first nine months of 1998. The
remaining balance on our $250 million four-year secured term loan was repaid
during the third quarter of 1999 resulting in a decrease in interest expense.
This decrease was fully offset by bank charges incurred for refinancing our 1996
syndicated bank loan agreement, which provided for a $150 million three-year
secured revolving line of credit and a $250 million four-year secured term loan
(the Credit Agreement), and which is discussed in greater detail below in
Financial Condition. The first nine months of 1999 included higher interest
expense as a result of higher average debt balances from the $517.5 million of
Convertible Subordinated Notes sold in May 1998.
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Income Tax
No tax benefits were recorded for the operating losses in the current quarter
and the nine months ended September 26, 1999 because the deferred tax assets
arising from such losses are fully offset by a valuation allowance. The first
nine months of 1999 includes a tax provision of $172.8 million for the gain on
the sale of Vantis. The effective tax rate is expected to be zero for the
fourth quarter of 1999.
We had net deferred tax liabilities of $8.2 million as of September 26, 1999
representing certain foreign deferred taxes.
Other Items
International sales as a percent of net sales were 63 percent in the third
quarter of 1999 compared to 58 percent in the second quarter of 1999 and 52
percent in the third quarter of 1998. International sales were 59 percent of
net sales in the first nine months of 1999 compared to 52 percent in the same
period of 1998. During the first nine months of 1999, approximately eight
percent of our net sales were denominated in foreign currencies. We do not have
sales denominated in local currencies in countries that have highly inflationary
economies (as defined by generally accepted accounting principles). The impact
on our operating results from changes in foreign currency rates individually and
in the aggregate has not been material.
Comparison of Segment Income (Loss)
For a comparison of segment net sales, refer to the previous discussions on net
sales by product group.
On June 15, 1999, we completed the sale of our Vantis Segment to Lattice
Semiconductor Corporation for approximately $500 million in cash. The actual
cash received of approximately $454 million was net of Vantis' cash and cash
equivalent balance of approximately $46 million as of the closing.
The following is a summary of operating income (loss) by segment for the periods
presented below:
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
-------------------------------------------------- --------------------------------
September 26, June 27, September 27, September 26, September 27,
(Millions) 1999 1999 1998 1999 1998
------------- -------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
AMD Segment $ (99) $ (172) $ 8 $ (398) $ (209)
Vantis Segment - (1) 1 6 16
------------- -------- ------------- ------------- -------------
Total $ (99) $ (173) $ 9 $ (392) $ (193)
</TABLE>
The AMD Segment incurred a smaller operating loss in the third quarter of 1999
compared to the second quarter of 1999 due to an increase in net sales of AMD
Athlon microprocessors and Flash memory devices. The AMD Segment's operating
loss increased in the third quarter of 1999 compared to the same quarter in 1998
mainly due to lower net sales and higher fixed costs. In
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<PAGE>
the first nine months of 1999 compared to the first nine months of 1998, the AMD
Segment's operating loss increased despite higher sales. These operating loss
increases were caused by higher costs associated with the facilitization of Fab
25 and Dresden Fab 30, the 1998 Alliance with Motorola, research and development
on the AMD Athlon microprocessor, restructuring and other special charges and
depreciation on new order management and accounts receivable systems.
In June 1999, we completed the sale of our Vantis Segment to Lattice
Semiconductor Corporation. Net sales for the Vantis Segment decreased for all
periods presented due to the sale of the Vantis Segment on June 15, 1999, which
created a fewer number of weeks included in the third quarter and nine months
ended September 26, 1999 than in comparable prior periods.
- -------------------------------------------------------------------------------
FINANCIAL CONDITION
Cash and cash equivalents in the first nine months of 1999 decreased by $269
million compared to a decrease of $105 million in the first nine months of 1998.
Operating activities consumed $79 million in the first nine months of 1999
compared to positive operating cash flows of $31 million in the same period of
1998. The cash used in net operating cash flows for the first nine months of
1999 primarily contributed to the $52 million cumulative year to date operating
losses net of noncash adjustments and a $27 million decrease in our net
operating assets.
Net investing activities generated a net $4 million during the first nine months
of 1999 compared to $1 billion consumed during the first nine months of 1998.
During the current year, we incurred nearly $495 million in capital expenditures
for the continued facilitization of Dresden Fab 30 and Fab 25. This is compared
to capital expenditures of nearly $800 million in the same period of 1998.
During the same period, the sale of our Vantis segment generated proceeds of
$454 million in the current year.
Financing activities consumed $183 million during the first nine months of 1999
primarily as a result of paying down $239 million in debt. Current year debt
payments were offset by proceeds of $23 million from debt borrowings and $33
million from the issuance of stock. Financing activities generated $863 million
in the same period of 1998 led by proceeds of $800 million from debt borrowings
and $91 million from foreign grants.
Our 1996 syndicated bank loan agreement (the Credit Agreement) provided for a
$150 million three-year secured revolving line of credit and a $250 million
four-year secured term loan. On June 25, 1999, we terminated the secured
revolving line of credit. On July 13, 1999, we replaced the Credit Agreement
with a new Loan and Security Agreement (the Loan Agreement) with a consortium of
banks led by Bank of America. On July 30, 1999, we repaid the outstanding
balance of $86,250,000 on the secured term loan and terminated the Credit
Agreement. Under the Loan Agreement, which provides for a four-year secured
revolving line of credit of up to $200 million, we can borrow, subject to
reserves which may be set aside by the lenders, up to 85 percent of our eligible
accounts receivable from Original Equipment Manufacturers (OEMs) and 50 percent
of our eligible accounts receivable from distributors. We will be subject to
compliance with certain financial covenants if the levels of domestic cash it
holds declines to certain levels, or the amount of borrowings under the Loan
Agreement rises to certain levels.
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Our obligations under the Loan Agreement are secured by a pledge of most of our
accounts receivable, inventory, general intangibles and the related proceeds. As
of September 26, 1999, no funds were drawn under the Loan Agreement, and we had
available unsecured, uncommitted bank lines of credit in the amount of $71
million, of which $5 million was outstanding.
We plan to continue to make significant capital investments in the fourth
quarter of 1999 and in the first quarter of 2000. These investments include
those relating to the continued facilitization of Dresden Fab 30 and Fab 25.
AMD Saxony Manufacturing GmbH (AMD Saxony), an indirect wholly owned German
subsidiary of AMD, has constructed and is installing equipment in Dresden Fab
30. AMD, the Federal Republic of Germany, the State of Saxony and a consortium
of banks are supporting the project. We currently estimate construction and
facilitization costs of Dresden Fab 30 to be $1.9 billion. In March 1997, AMD
Saxony entered into a loan agreement and other related agreements (the Dresden
Loan Agreements) with a consortium of banks led by Dresdner Bank AG. The
Dresden Loan Agreements provide for the funding of the construction and
facilitization of Dresden Fab 30. The funding consists of:
. equity, subordinated loans and loan guarantees from AMD;
. loans from a consortium of banks; and
. grants, subsidies and loan guarantees from the Federal Republic of
Germany and the State of Saxony.
The Dresden Loan Agreements, which were amended in February 1998 to reflect
planned upgrades in wafer production technology as well as the decline in the
deutsche mark relative to the U.S. dollar, require that we partially fund
Dresden Fab 30 project costs in the form of subordinated loans to, or equity
investments in, AMD Saxony. In accordance with the terms of the Dresden Loan
Agreements, we have invested $288 million to date (most of which is denominated
in deutsche marks) in the form of subordinated loans and equity in AMD Saxony.
We amended the Dresden Loan Agreements in June 1999 to remove a requirement that
we sell at least $200 million of our stock by June 30, 1999 in order to fund a
$70 million loan to AMD Saxony. In lieu of the stock offering, we funded the
$70 million loan to AMD Saxony with proceeds from the sale of Vantis. We are
required to make additional subordinated loans to, or equity investments in, AMD
Saxony of $100 million before December 31, 1999.
Additionally, the consortium of banks referred to above has made available $883
million in loans (denominated in deutsche marks) to AMD Saxony to help fund
Dresden Fab 30 project costs. AMD Saxony had $281 million of such loans
outstanding as of September 26, 1999.
Finally, the Federal Republic of Germany and the State of Saxony are supporting
the Dresden Fab 30 project, in accordance with the Dresden Loan Agreements, in
the form of:
. guarantees of 65 percent of AMD Saxony bank debt up to a maximum amount
of $883 million;
. capital investment grants and allowances totaling $287 million; and
. interest subsidies totaling $161 million.
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Of these amounts (which are all denominated in deutsche marks), AMD Saxony had
received $275 million in capital investment grants and $19 million in interest
subsidies as of September 26, 1999. The grants and subsidies are subject to
conditions, including meeting specified levels of employment in December 2001
and maintaining those levels until June 2007. Noncompliance with the conditions
of the grants and subsidies could result in the forfeiture of all or a portion
of the future amounts to be received as well as the repayment of all or a
portion of amounts received to date. As of September 26, 1999, we were in
compliance with all of the conditions of the grants and subsidies.
The Dresden Loan Agreements also require that we:
. provide interim funding to AMD Saxony if either the remaining capital
investment allowances or the remaining interest subsidies are delayed,
such funding to be repaid to AMD as AMD Saxony receives the grants or
subsidies from the State of Saxony;
. fund shortfalls in government subsidies resulting from any default under
the subsidy agreements caused by AMD Saxony or its affiliates;
. guarantee a portion of AMD Saxony's obligations under the Dresden Loan
Agreements up to a maximum of $116 million (denominated in deutsche
marks) until Dresden Fab 30 has been completed;
. fund certain contingent obligations including obligations to fund project
cost overruns, if any; and
. make funds available to AMD Saxony, after completion of Dresden Fab 30,
up to approximately $78 million (denominated in deutsche marks) if AMD
Saxony does not meet its fixed charge coverage ratio covenant.
Because our obligations under the Dresden Loan Agreements are denominated in
deutsche marks, the dollar amounts set forth above are subject to change based
on applicable conversion rates. We used the exchange rate at the end of the
third quarter of 1999, which was approximately 1.87 deutsche marks to 1 U.S.
dollar, to value our obligations denominated in deutsche marks.
The definition of defaults under the Dresden Loan Agreements includes the
failure of AMD, AMD Saxony or AMD Saxony Holding GmbH (AMD Holding), the parent
company of AMD Saxony and a wholly owned subsidiary of AMD, to comply with
obligations in connection with the Dresden Loan Agreements, including:
. material variances from the approved schedule and budget;
. our failure to fund equity contributions or shareholder loans or
otherwise comply with our obligations relating to the Dresden Loan
Agreements;
. the sale of shares in AMD Saxony or AMD Holding;
. the failure to pay material obligations;
. the occurrence of a material adverse change or filings or proceedings in
bankruptcy or insolvency with respect to us, AMD Saxony or AMD Holding;
and
. the occurrence of default under the indenture dated August 1, 1996
between AMD and the United States Trust Company of New York (the
Indenture) pursuant to which our $400 million aggregate principal amount
of 11% Senior Secured Notes due 2003 (the Senior Secured Notes) were
issued or the Loan Agreement.
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Generally, any such default which either (1) results from our non-compliance
with AMD obligations under the Dresden Loan Agreements and is not cured by AMD
or (2) results in recourse to AMD of more than $2.5 million and is not cured by
AMD, would result in a cross-default under the Dresden Loan Agreements, the
Indenture and the Loan Agreement. Under certain circumstances, cross-defaults
result under the Convertible Subordinated Notes, the Indenture, and the Dresden
Loan Agreements.
In the event we are unable to meet our obligation to make loans to, or equity
investments in, AMD Saxony as required under the Dresden Loan Agreements, AMD
Saxony will be unable to complete Dresden Fab 30 and we will be in default under
the Dresden Loan Agreements, the Indenture and the Loan Agreement, which would
permit acceleration of certain indebtedness, which would have a material adverse
effect on our business. There can be no assurance that we will be able to
obtain the funds necessary to fulfill these obligations. Any such failure would
have a material adverse effect on our business.
FASL, a joint venture formed by AMD and Fujitsu Limited in 1993, is continuing
the facilitization of its second Flash memory device wafer fabrication facility,
FASL II, in Aizu-Wakamatsu, Japan. The facility, including equipment, is
expected to cost approximately $1 billion when fully equipped. As of September
26, 1999, approximately $425 million of this cost had been funded. Capital
expenditures for FASL II construction to date have been funded by cash generated
from FASL operations and local borrowings by FASL.
FASL capital expenditures in the fourth quarter of 1999 and into 2000 will
continue to be funded by cash generated from FASL operations and local
borrowings by FASL. However, to the extent that FASL is unable to secure the
necessary funds for FASL II, we may be required to contribute cash or guarantee
third-party loans in proportion to our 49.992 percent interest in FASL. As of
September 26, 1999, we had loan guarantees of $21 million outstanding with
respect to these loans. These planned costs are denominated in yen and are,
therefore, subject to change due to foreign exchange rate fluctuations.
We believe that cash flows from operations and current cash balances, together
with external financing activities, will be sufficient to fund operations and
capital investments through the next twelve months.
RISK FACTORS
Our business, results of operations and financial condition are subject to a
number of risk factors, including the following:
Microprocessor Products
Future Dependence on the AMD Athlon Microprocessor. We will need to
successfully market our seventh-generation microprocessor, the AMD Athlon
microprocessor, in order to increase our microprocessor product revenues in 1999
and beyond, and to benefit fully from the substantial financial investments and
commitments we have made and continue to make related to microprocessors. We
commenced initial shipments of the AMD Athlon microprocessor in June 1999. Our
production and sales plans for the AMD Athlon microprocessor are subject to
numerous risks and uncertainties, including:
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. our ability to produce the AMD Athlon microprocessor in the volume and
performance mix required by customers on a timely basis;
. the availability and acceptance of motherboards and chipsets designed for
the AMD Athlon microprocessor;
. market acceptance of the AMD Athlon microprocessor;
. our ability to maintain average selling prices of the AMD Athlon
microprocessor despite aggressive Intel marketing, pricing and product
bundling or customer relationships which affect market demand;
. the successful development and installation of 0.18-micron process
technology and copper interconnect technology;
. the pace at which we are able to transition production in Fab 25 from
0.25 to 0.18-micron process technology and to ramp production in Dresden
Fab 30 on 0.18-micron copper interconnect process technology;
. the use and market acceptance of a non-Intel processor bus (adapted by us
from Digital Equipment Corporation's EV6 bus) in the design of the AMD
Athlon microprocessor, and the availability of chipset vendors who will
develop, manufacture and sell chipsets with the EV6 interface in volumes
required by us;
. our ability to expand our chipset and system design capabilities;
. the availability to our customers of cost and performance competitive
Static Random Access Memories (SRAMs) (including Tag chips) if Intel
corners the market for SRAM production capacity through its relationship
with SRAM manufacturers; and
. our ability to design and manufacture processor modules through
subcontractors.
If we fail to achieve market acceptance of the AMD Athlon microprocessor, or if
chipsets and motherboards which are compatible with the AMD Athlon
microprocessor are not made available, our business will be materially and
adversely affected. For example, on September 21, 1999, a major earthquake
struck Taiwan and caused power outages in certain of our suppliers'
manufacturing facilities. As a result, we experienced a severe shortage of
motherboards for the AMD Athlon microprocessor and, consequently, our sales of
AMD Athlon microprocessors in the quarterly period ended September 26, 1999 were
adversely affected. The effects of the earthquake in Taiwan may continue to
have an adverse impact on our business.
Investment in and Dependence on K86(TM) AMD Microprocessor Products. Our
microprocessor product revenues have significantly impacted, and will continue
in 1999 and 2000 to significantly impact, our revenues, profit margins and
operating results. We plan to continue to make significant capital expenditures
to support our microprocessor products both in the near and long term. These
capital expenditures will be a substantial drain on our cash flow and cash
balances.
Our ability to increase microprocessor product revenues, and benefit fully from
the substantial financial investments and commitments we have made and continue
to make related to microprocessors, depends upon the success of the AMD Athlon
microprocessor, which is our seventh-generation Microsoft Windows compatible
microprocessor, the AMD-K6-2 and AMD-K6-III microprocessors with 3DNow!(TM)
technology (the AMD-K6 family of microprocessors or the AMD-K6 microprocessors),
and the future generations of K86 microprocessors. The microprocessor market is
characterized by short product life cycles and migration to ever-higher
performance microprocessors. To compete successfully against Intel in this
market, we must
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transition to new process technologies at a faster pace than before and offer
higher performance microprocessors in significantly greater volumes. We must
achieve acceptable yields while producing microprocessors at higher speeds. In
the past, we have experienced significant difficulty in achieving microprocessor
yield and volume plans. Such difficulties have in the past, and may in the
future, adversely affect our results of operations and liquidity. If we fail to
offer higher performance microprocessors in significant volume on a timely basis
in the future, our business could be materially and adversely affected. We may
not achieve the production ramp necessary to meet our customers' volume
requirements for higher performance AMD Athlon and AMD-K6 microprocessors. It is
also possible that we may not increase our microprocessor revenues enough to
achieve sustained profitability.
To sell the volume of AMD Athlon and AMD-K6 microprocessors we currently plan to
make in 1999 and 2000, we must increase sales to existing customers and develop
new customers. If we lose any current top tier OEM customer, or if we fail to
attract additional customers through direct sales and through our distributors,
we may not be able to sell the volume of units planned. This result could have
a material adverse effect on our business.
Our production and sales plans for the AMD Athlon and AMD-K6 microprocessors are
subject to other risks and uncertainties, including:
. market acceptance of the AMD Athlon microprocessor, including the timely
availability of motherboards and chipsets designed for this processor;
. whether we can successfully fabricate higher performance AMD Athlon and
AMD-K6 microprocessors in planned volume mixes;
. the effects of Intel's new product introductions, marketing strategies
and pricing;
. the continued development of worldwide market acceptance for the AMD-K6
microprocessors and systems based on them;
. whether we will have the financial and other resources necessary to
continue to invest in the microprocessor products, including leading-edge
wafer fabrication equipment and advanced process technologies;
. the possibility that our newly introduced products may be defective;
. adverse market conditions in the personal computer (PC) market and
consequent diminished demand for our microprocessors; and
. unexpected interruptions in our manufacturing operations.
Because Intel dominates the industry and has brand strength, we have in the past
priced the AMD-K6 microprocessors below the published price of Intel processors
offering comparable performance. Thus, Intel's decisions on processor prices
can impact and have impacted the average selling prices of the AMD-K6
microprocessors, and consequently can impact and have impacted our margins. Our
business could be materially and adversely affected if we fail to:
. achieve the product performance improvements necessary to meet customer
needs;
. continue to achieve market acceptance of our AMD-K6 and AMD Athlon
microprocessors and increase market share;
. maintain revenues of the AMD-K6 family of microprocessors; and
. successfully ramp production and sales of the AMD Athlon microprocessor.
See also discussions below regarding Intel Dominance and Process Technology.
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Intel Dominance. Intel has dominated the market for microprocessors used in PCs
for a long time. Because of its dominant market position, Intel sets and
controls x86 microprocessor and PC system standards and, thus, dictates the type
of product the market requires of Intel's competitors. In addition, Intel can
vary prices on its microprocessors and other products at will and thereby affect
the margins and profitability of its competitors due to its financial strength
and dominant position. Intel exerts substantial influence over PC manufacturers
and their channels of distribution through the Intel Inside advertising rebate
program and other marketing programs. Intel invests hundreds of millions of
dollars in, and as a result exerts influence over, many other technology
companies. We expect Intel to continue to invest heavily in research and
development, new manufacturing facilities and other technology companies, and to
remain dominant:
. through the Intel Inside and other marketing programs;
. through other contractual constraints on customers, retailers, industry
suppliers and other third parties;
. by controlling industry standards; and
. by controlling supply and demand of motherboards, chipsets and other
system components.
As an extension of its dominant microprocessor market share, Intel also now
dominates the PC platform. As a result, it is difficult for PC manufacturers to
innovate and differentiate their product offerings. We do not have the financial
resources to compete with Intel on such a large scale. As long as Intel remains
in this dominant position, we may be materially and adversely affected by its:
. product mix and introduction schedules;
. product bundling and pricing strategies;
. control over industry standards, PC manufacturers and other PC industry
participants, including motherboard, chipset and BIOS suppliers; and
. customer brand loyalty.
As Intel has expanded its dominance over the PC system platform, many PC
manufacturers have reduced their system development expenditures and have
purchased microprocessors in conjunction with chipsets or in assembled
motherboards. PC OEMs have become increasingly dependent on Intel, less
innovative on their own and more of a distribution channel for Intel technology.
In marketing our microprocessors to these OEMs and dealers, we depend on
companies other than Intel for the design and manufacture of core-logic
chipsets, motherboards, basic input/output system (BIOS) software and other
components. In recent years, these third-party designers and manufacturers have
lost significant market share to Intel. In addition, these companies produce
chipsets, motherboards, BIOS software and other components to support each new
generation of Intel's microprocessors only if Intel makes information about its
products available to them in time to address market opportunities. Delay in the
availability of such information makes, and will continue to make, it
increasingly difficult for these third parties to retain or regain market share.
To compete with Intel in the microprocessor market in the future, we intend to
continue to form closer relationships with third-party designers and
manufacturers of core-logic chipsets,
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motherboards, BIOS software and other components. Similarly, we intend to expand
our chipset and system design capabilities, and to offer OEMs licensed system
designs incorporating our microprocessors and companion products. We cannot be
certain, however, that our efforts will be successful. We expect that, as Intel
introduces future generations of microprocessors, chipsets and motherboards, the
design of chipsets, memory and other semiconductor devices, and higher level
board products which support Intel microprocessors, will become increasingly
dependent on the Intel microprocessor design and may become incompatible with
non-Intel processor-based PC systems.
Intel's Pentium(R) III and Celeron(TM) microprocessors are sold only in form
factors that are not physically or interface protocol compatible with "Socket 7"
motherboards currently used with AMD-K6 microprocessors. Thus, Intel no longer
supports the Socket 7 infrastructure as it did when it was selling has
transitioned away from its fifth-generation Pentium processors. Because the AMD-
K6 microprocessors are designed to be Socket 7 compatible, and will not work
with motherboards designed for Pentium II, III and Celeron processors, we intend
to continue to work with third-party designers and manufacturers of
motherboards, chipsets and other products to ensure the continued availability
of Socket 7 infrastructure support for the AMD-K6 microprocessors, including
support for enhancements and features we add to our microprocessors. Socket 7
infrastructure support for the AMD-K6 microprocessors may not endure over time
as Intel moves the market to its infrastructure choices. We do not currently
plan to develop microprocessors that are bus interface protocol compatible with
the Pentium III and Celeron processors because our patent cross-license
agreement with Intel does not extend to microprocessors that are bus interface
protocol compatible with Intel's sixth and subsequent generation processors.
Thus, the AMD Athlon microprocessor card is not designed to function with
motherboards and chipsets designed to work with Intel microprocessors. Our
ability to compete with Intel in the market for AMD Athlon seventh-generation
and future generation microprocessors will depend on our:
. success in designing and developing the microprocessors; and
. ability to ensure that the microprocessors can be used in PC platforms
designed to support Intel's microprocessors and our microprocessors, or
that alternative platforms are available which are competitive with those
used with Intel processors.
A failure for any reason of the designers and producers of motherboards,
chipsets and other system components to support our K86 microprocessor offerings
would have a material adverse effect on our business.
Dependence on Microsoft and Logo License. Our ability to innovate beyond the x86
instruction set controlled by Intel depends on support from Microsoft in its
operating systems. If Microsoft does not provide support in its operating
systems for the x86 instructions that we innovate and design into our
processors, independent software providers may forego designing their software
applications to take advantage of our innovations. This would adversely affect
our ability to market our processors. In addition, we have entered into logo
license agreements with Microsoft that allow us to label our products as
"Designed for Microsoft Windows." We have also obtained appropriate
certifications from recognized testing organizations for our K86
microprocessors. If we fail to maintain the logo license agreements with
Microsoft, we may lose our ability to label our K86 microprocessors with the
Microsoft Windows logo. This could
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impair our ability to market the products and could have a material adverse
effect on our business.
Fluctuations in PC Market. Since most of our microprocessor products are used in
PCs and related peripherals, our future growth is closely tied to the
performance of the PC industry. Industry-wide fluctuations in the PC
marketplace have in the past and may in the future materially and adversely
affect our business.
Financing Requirements
We plan to continue to make significant capital investments in 1999. These
investments include those relating to the continued facilitization of Dresden
Fab 30 and Fab 25.
In 1998, equipment was installed and production was initiated in FASL II. We
expect the facility, including equipment, to cost approximately $1 billion when
fully equipped. Capital expenditures for FASL II construction to date have been
funded by cash generated from FASL operations and borrowings by FASL. If FASL
is unable to secure the necessary funds for FASL II, we may be required to
contribute cash or guarantee third-party loans in proportion to our 49.992
percent interest in FASL.
In 1996, we entered into the Credit Agreement, which provided for a $150 million
three-year secured revolving line of credit and a $250 million four-year secured
term loan. On June 25, 1999, we terminated the secured revolving line of credit.
On July 13, 1999, we replaced the Credit Agreement with a new Loan and Security
Agreement (the Loan Agreement) with a consortium of banks led by Bank of
America. On July 30, 1999, we repaid the outstanding balance on the secured
term loan and terminated the Credit Agreement. Under the Loan Agreement, which
provides for a four-year secured revolving line of credit of up to $200 million,
we can borrow, subject to discretionary reserves which may be set aside by the
lenders, up to 85 percent of our eligible accounts receivable from OEMs and 50
percent of our eligible accounts receivable from distributors. We will be
subject to compliance with certain financial covenants if the levels of domestic
cash it holds declines to certain levels, or the amount of borrowings under the
Loan Agreement rises to certain levels. Our obligations under the Loan Agreement
are secured by a pledge of most of our accounts receivable, inventory, general
intangibles and the related proceeds.
In March 1997, our indirect wholly owned subsidiary, AMD Saxony, entered the
Dresden Loan Agreements with a consortium of banks led by Dresdner Bank AG. The
terms of the Dresden Loan Agreements required us to make subordinated loans to
AMD Saxony totaling $100 million in 1998. The Dresden Loan Agreements, which
were amended in February 1998 to reflect planned upgrades in wafer production
technology as well as the decline in the deutsche mark relative to the U.S.
dollar, require that we partially fund Dresden Fab 30 project costs in the form
of subordinated loans to, or equity investments in, AMD Saxony. In accordance
with the terms of the Dresden Loan Agreements, we have invested $286 million to
date in the form of subordinated loans and equity in AMD Saxony. We amended the
Dresden Loan Agreements in June 1999 to remove a requirement that we sell at
least $200 million of our stock by June 30, 1999 in order to fund a $70 million
loan to AMD Saxony. In lieu of the stock offering, we funded the $70 million
loan to AMD Saxony with proceeds from the sale of Vantis. We are required to
make additional subordinated loans to, or equity investments in, AMD Saxony of
$100 million before December 31, 1999.
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Because our obligations under the Dresden Loan Agreements are denominated in
deutsche marks, the dollar amounts set forth herein are subject to change based
on applicable conversion rates. As of the end of the third quarter of 1999, the
exchange rate was approximately 1.87 deutsche marks to 1 U.S. dollar (which we
used to calculate our obligations denominated in deutsche marks).
If we are unable to meet our obligation to make loans to, or equity investments
in, AMD Saxony as required under the Dresden Loan Agreements, AMD Saxony will be
unable to complete Dresden Fab 30 and we will be in default under the Dresden
Loan Agreement, the Loan Agreement and the Indenture, which would permit
acceleration of indebtedness, which would have a material adverse effect on our
business. If we are unable to obtain the funds necessary to fulfill these
obligations, our business will be materially and adversely affected.
Manufacturing
Capacity. We underutilize our manufacturing facilities from time to time as a
result of reduced demand for certain of our products. Our operations related to
microprocessors have been particularly affected by this situation. If we
underutilize our manufacturing facilities in the future, our revenues may
suffer. We are substantially increasing our manufacturing capacity by making
significant capital investments in Fab 25 and Dresden Fab 30. In addition, the
building construction of FASL II, a second Flash memory device manufacturing
facility, is complete and equipment installation is in progress. We have also
built a new test and assembly facility in Suzhou, China. We are basing our
strategy of increasing our manufacturing capacity on industry projections for
future growth. If these industry projections are inaccurate, or if demand for
our products does not increase consistent with our plans and expectations, we
will likely underutilize our manufacturing facilities and our business could be
materially and adversely affected.
In contrast to the above, there also have been situations in the past in which
our manufacturing facilities were inadequate to meet the demand for certain of
our products. Our inability to generate sufficient manufacturing capacities to
meet demand, either in our own facilities or through foundry or similar
arrangements with others, could have a material adverse effect on our business.
At this time, the risk is that we will have insufficient capacity to meet demand
for Flash memory products and significant underutilized capacity relative to
demand for our microprocessor offerings.
Process Technology. In order to remain competitive, we must make continuing
substantial investments in improving our process technologies. In particular, we
have made and continue to make significant research and development investments
in the technologies and equipment used to fabricate our microprocessor products
and our Flash memory devices. Portions of these investments might not be fully
recovered if we fail to continue to gain market acceptance or if the market for
our Flash memory products should significantly deteriorate. Likewise, we are
making a substantial investment in Dresden Fab 30. The business plan for
Dresden Fab 30 calls for the successful development and installation of 0.18-
micron process technology and copper interconnect technology in order to
manufacture the AMD Athlon microprocessor in Dresden Fab 30. We have entered
into a strategic alliance with Motorola to co-develop the copper interconnect
technology required for the AMD Athlon microprocessor and subsequent generations
of microprocessors. We cannot be certain that the strategic alliance will be
successful or that we will be able to develop or obtain the leading-edge process
technologies that
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will be required in Fab 25 or Dresden Fab 30 to fabricate the AMD Athlon
microprocessor successfully.
Manufacturing Interruptions and Yields. Any substantial interruption of our
manufacturing operations, either as a result of a labor dispute, equipment
failure or other cause, could materially and adversely affect our business
operations. We also have been and may in the future be materially and adversely
affected by fluctuations in manufacturing yields. For example, our results in
the past have been negatively affected by disappointing AMD-K6 microprocessor
yields. The design and manufacture of ICs is a complex process. Normal
manufacturing risks include errors and interruptions in the fabrication process
and defects in raw materials, as well as other risks, all of which can affect
yields. Additional manufacturing risks incurred in ramping up new fabrication
areas and/or new manufacturing processes include equipment performance and
process controls as well as other risks, all of which can affect yields.
Product Incompatibility. Our products may possibly be incompatible with some or
all industry-standard software and hardware. If our customers are unable to
achieve compatibility with software or hardware after our products are shipped
in volume, we could be materially adversely affected. It is also possible that
we may be unsuccessful in correcting any such compatibility problems that are
discovered or that corrections will be unacceptable to customers or made in an
untimely manner. In addition, the mere announcement of an incompatibility
problem relating to our products could have a material adverse effect on our
business.
Product Defects. One or more of our products may possibly be found to be
defective after we have already shipped such products in volume, requiring a
product replacement, recall, or a software fix which would cure such defect but
impede performance. We may also be subject to product returns which could
impose substantial costs on us and have a material and adverse effect on our
business.
Essential Manufacturing Materials. Certain raw materials we use in the
manufacture of our products are available from a limited number of suppliers.
For example, a few foreign companies principally supply several types of the IC
packages purchased by us, as well as by the majority of other companies in the
semiconductor industry. Interruption of supply or increased demand in the
industry could cause shortages in various essential materials. We would have to
reduce our manufacturing operations if we were unable to procure certain of
these materials. This reduction in our manufacturing operations could have a
material adverse effect on our business.
International Manufacturing and Foundries. Nearly all product assembly and final
testing of our products are performed at our manufacturing facilities in Penang,
Malaysia; Bangkok, Thailand; and Singapore; or by subcontractors in Asia. We
have also constructed an additional assembly and test facility in Suzhou, China.
We also depend on foreign foundry suppliers and joint ventures for the
manufacture of a portion of our finished silicon wafers. Foreign manufacturing
and construction of foreign facilities entail political and economic risks,
including political instability, expropriation, currency controls and
fluctuations, changes in freight and interest rates, and loss or modification of
exemptions for taxes and tariffs. For example, if we were unable to assemble and
test our products abroad, or if air transportation between the United States and
our overseas facilities were disrupted, there could be a material adverse effect
on our business.
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Impact of Year 2000
General. The Year 2000 issue is the result of computer software and firmware
being written using two digits rather than four to define the applicable year.
If our computer software and firmware with date-sensitive functions are not Year
2000 capable, they may recognize a date using "00" as the year 1900 rather than
the year 2000. This could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, interruptions in
manufacturing operations or in the ability to process transactions, send
invoices or engage in other normal business activities.
Our multi-step Year 2000 readiness plan includes development of corporate
awareness, assessment of internal systems, project planning, project
implementation (including remediation, upgrading and replacement), validation
testing and contingency planning for both information technology (IT) and non-IT
internal systems.
The Plan. Our plan covers four areas that are critical to our business
operations:
. Information Technology, which includes application software,
infrastructure and network engineering and telecommunications;
. Manufacturing, which includes wafer fabrication facilities, assembly and
test facilities and third-party foundries;
. Products and product design, which includes our commercial products and
the hardware and software tools used specifically for product design; and
. Organizational support, which includes non-fabrication facilities,
security, corporate supply management, shipping, quality and
environmental health and safety (EHS) departments.
. Information Technology. We have modified or replaced significant portions of
our application software so that our systems will function properly with respect
to dates in the year 2000 and thereafter. Application software consists of
business software required for our corporate business systems, including our
accounts payable and receivable, payroll, order management, general ledger and
shipping applications. In December 1998, we installed new Year 2000 capable
order management and accounts receivable systems. As of September 26, 1999, we
completed remediation of all core business software that did not require an
upgrade or a replacement and testing of all our application software. We also
put all but one of our application systems into production as of September 26,
1999. We expect to put this remaining application into production early in the
fourth quarter of this year. If required modifications to existing software are
not made, or are not completed in a timely manner, the Year 2000 issue could
have a material impact on our business.
IT infrastructure consists of hardware and software other than application
software that supports our mainframe and distributed computer systems, including
PCs, operating systems and system utilities. We have tested Year 2000 capable
versions of all our infrastructure software and are in the process of
transitioning such software into productive use. All of our Year 2000 capable
infrastructure hardware and software was installed and in production as of
September 26, 1999.
Network engineering and telecommunications consists of components in our data
and voice communication networks. All of the data components and the voice
components in our
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communication networks were Year 2000 capable as of June 27, 1999. However, we
do not currently have all of the information necessary to determine if certain
of our international network service providers will be Year 2000 capable in a
timely manner. If they are not Year 2000 capable, our business could be
materially and adversely affected.
. Manufacturing. We are dedicating substantial resources to Year 2000 issues
with respect to our wafer fabrication facilities worldwide to ensure continued
operation of all critical wafer fabrication systems in the year 2000 and
thereafter. We retained an outside firm to provide Year 2000 program management
and implementation assistance in connection with problem assessment, remediation
and compliance testing. Approximately 99 percent of the critical wafer
fabrication equipment was made Year 2000 capable as of September 26, 1999. Our
goal is for the remaining one percent of the equipment to be Year 2000 capable
by year-end 1999. Fabrication equipment software testing and installation is
ongoing and will continue through the fourth quarter of 1999. Some vendors have
indicated that Year 2000 capable upgrades will not be available until later this
year. If these vendors do not provide Year 2000 capable upgrades in time for us
to install the products and to do adequate testing, or if the products do not
adequately address the Year 2000 problem, our business could be materially and
adversely affected.
Our assembly and test facilities are located in Malaysia, Thailand, China and
Singapore. We completed the remediation and replacement process for noncompliant
systems and equipment in these facilities as of September 26, 1999.
We believe that all critical Year 2000-related manufacturing areas, including
our wafer fabrication facilities and assembly and test facilities, will be Year
2000 capable by year-end 1999. We have begun contingency planning for critical
areas of our wafer manufacturing facilities and will continue developing and
refining these plans throughout 1999.
However, we cannot give any assurance that we will be successful in our efforts
to resolve any Year 2000 issues and to continue operations in our wafer
fabrication facilities in the year 2000. Our failure to successfully resolve
such issues could result in a shutdown of some or all of our operations, which
would have a material adverse effect on our business.
. Products and Product Design. We have reviewed the status of our current
products and have not identified any critical products with Year 2000 problems.
We believe that all of the critical hardware and software we use for product
design will be made Year 2000 capable by October 31, 1999. Testing of these
systems is ongoing and will continue through the end of the year. If we fail to
make the hardware and software we use for product design Year 2000 capable by
year-end 1999, our business could be materially and adversely affected.
. Organizational Support. Since organizational support consists of several
functional divisions that provide administrative support to us as a whole, and
this support overlaps in many areas, we are unable to quantify the overall
progress of this group. However, some divisions have commenced significant
projects aimed at Year 2000 readiness. For example, the facilities department
is in the process of upgrading the building management system at our corporate
marketing, general and administrative facility located in Sunnyvale, California.
As of June 27, 1999, we had installed all software upgrades required by
facilities for Year 2000 readiness. EHS provides another example. Upgrades
are being scheduled and performed on gas detection systems, acid neutralization
systems and groundwater cleanup controls. EHS' critical Year 2000
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readiness activities were complete as of June 27, 1999. Similarly, our security
department has completed our plan to ensure Year 2000 compliance of the fire,
intrusion and industrial process alarms in our China, Thailand and Germany
sites. Our goal is to have all of our domestic alarm systems upgraded and tested
for Year 2000 compliance by October 31, 1999. In addition to upgrades, these
organizational support divisions have replaced and will continue to replace
equipment and systems to the extent it is required for our Year 2000 readiness.
However, if we are unable to make our organizational support systems Year 2000
capable before year-end 1999, our business could be materially and adversely
affected.
Third-Party Suppliers and Customers. We have initiated communication with our
significant suppliers and customers to determine the extent to which our
operations are vulnerable to those third parties' failure to remediate their own
Year 2000 issues. Suppliers of hardware, software or products that might
contain embedded processors were asked to provide information regarding the Year
2000 compliance status of their products. We have also contacted critical
materials and services suppliers in the first, second and third quarters of
1999. We have received responses from all of these suppliers and have put
contingency plans in place to manage potential risks. In addition, in order to
protect against the acquisition of additional non-compliant products, we now
require suppliers to warrant that products sold or licensed to us are Year 2000
capable. We are currently assessing our significant customers' Year 2000
readiness plans. In the event that any of our significant customers and
suppliers do not successfully and timely achieve Year 2000 compliance, our
business or operations could be adversely affected. We cannot give any
assurance that the systems of other companies on which our systems rely will be
converted in a timely manner and will not have an adverse effect on our
operations. We are currently assessing the extent to which our significant
customers' exposure to contingencies related to the Year 2000 will affect the
products we sell; however, we do not expect these to have a material impact on
our operations.
We expect some testing and verification activities, as well as some upgrading of
the wafer fabrication equipment, to continue through the end of the year. We
also expect some aspects of the Year 2000 plan to continue beyond January 1,
2000 with respect to resolution of non-critical issues. However, these dates
are contingent upon the timeliness and accuracy of software and hardware
upgrades from vendors, adequacy and quality of resources available to work on
completion of the project and any other unforeseen factors.
Costs. The total expense of the Year 2000 plan is currently estimated to be
approximately $20 million, although actual expenditures may differ. Actual
costs incurred through the end of the third quarter of 1999 were approximately
$15 million, the majority of which was expensed. The expenses of the Year 2000
project are being funded through operating cash flows.
Estimates. The costs of the Year 2000 plan and the dates on which we believe we
will complete the Year 2000 modifications are based on management's best
estimates, which were derived utilizing numerous assumptions of future events,
including the continued availability of certain resources, third-party
modification plans and other factors. We cannot give any assurance that these
estimates will be achieved. Consequently, actual results could differ
materially from those anticipated.
Contingency Planning. We have completed a comprehensive contingency plan to
address situations that may result if we are unable to achieve Year 2000
readiness of our critical operations. We will continue to expand and refine our
contingency plans during the remainder
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of 1999. We cannot give any assurance that we will be able to develop a
contingency plan that will adequately address all issues that may arise in the
year 2000. Our failure to develop and implement, if necessary, an appropriate
contingency plan could have a material adverse impact on our operations.
Finally, we are also vulnerable to external forces that might generally affect
industry and commerce, such as utility or transportation company Year 2000
compliance failures and related service interruptions.
Key Personnel
Our future success depends upon the continued service of numerous key
engineering, manufacturing, marketing, sales and executive personnel. We may or
may not be able to continue to attract, retain and motivate qualified personnel
necessary for our business. Loss of the service of, or failure to recruit, key
engineering design personnel could be significantly detrimental to our product
development programs or otherwise have a material adverse effect on our
business.
Demand for Our Products Affected by Asian and Other Domestic and International
Economic Conditions
While general industry demand is currently strengthening, the demand for our
products during the last few years has been weak due to the general downturn in
the worldwide semiconductor market and an economic crisis in Asia. The economic
crisis in Asia may continue to adversely affect our business. A renewed decline
of the worldwide semiconductor market and economic condition in Asia could
decrease the demand for microprocessors and other ICs. A significant decline in
economic conditions in any significant geographic area, both domestically and
internationally, could decrease the overall demand for our products.
Flash Memory Products
Competition in the market for Flash memory devices continues to increase as
existing manufacturers introduce new products and industry-wide production
capacity increases, and as Intel continues to aggressively price its Flash
memory products. We expect competition in the marketplace for Flash memory
devices to continue to increase. It is possible that we will be unable to
maintain or increase our market share in Flash memory devices as the market
develops and as existing and potential new competitors introduce competitive
products. A decline in our Flash memory device business or decline in the gross
margin percentage in this product line could have a material adverse effect on
this product line.
Other Risk Factors
Debt Restrictions. The Loan Agreement and the Indenture contain significant
covenants that limit our ability and our subsidiaries' ability to engage in
various transactions and require satisfaction of specified financial performance
criteria. In addition, the occurrence of certain events, including, among other
things, failure to comply with the foregoing covenants, material inaccuracies of
representations and warranties, certain defaults under or acceleration of other
indebtedness and events of bankruptcy or insolvency would, in certain cases
after notice and grace periods, constitute events of default permitting
acceleration of indebtedness. The limitations imposed by the Loan Agreement and
the Indenture are substantial, and failure to comply with such limitations could
have a material adverse effect on our business.
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In addition, the Dresden Loan Agreements substantially prohibit AMD Saxony from
transferring assets to us, which will prevent us from using current or future
assets of AMD Saxony other than to satisfy obligations of AMD Saxony.
Technological Change and Industry Standards. The market for our products is
generally characterized by rapid technological developments, evolving industry
standards, changes in customer requirements, frequent new product introductions
and enhancements, short product life cycles and severe price competition.
Currently accepted industry standards may change. Our success depends
substantially on our ability, on a cost-effective and timely basis, to continue
to enhance our existing products and to develop and introduce new products that
take advantage of technological advances and adhere to evolving industry
standards. An unexpected change in one or more of the technologies related to
our products, in market demand for products based on a particular technology or
of accepted industry standards could materially and adversely affect our
business. We may or may not be able to develop new products in a timely and
satisfactory manner to address new industry standards and technological changes,
or to respond to new product announcements by others. In addition, new products
may or may not achieve market acceptance.
Competition. The IC industry is intensely competitive and, historically, has
experienced rapid technological advances in product and system technologies.
After a product is introduced, prices normally decrease over time as production
efficiency and competition increase, and as successive generations of products
are developed and introduced for sale. Technological advances in the industry
result in frequent product introductions, regular price reductions, short
product life cycles and increased product capabilities that may result in
significant performance improvements. Competition in the sale of ICs is based
on:
. performance;
. product quality and reliability;
. price;
. adherence to industry standards;
. software and hardware compatibility;
. marketing and distribution capability;
. brand recognition;
. financial strength; and
. ability to deliver in large volumes on a timely basis.
Fluctuations in Operating Results. Our operating results are subject to
substantial quarterly and annual fluctuations due to a variety of factors,
including:
. the effects of competition with Intel in microprocessor and Flash memory
device markets;
. competitive pricing pressures;
. anticipated decreases in unit average selling prices of our products;
. production capacity levels and fluctuations in manufacturing yields;
. availability and cost of products from our suppliers;
. the gain or loss of significant customers;
. new product introductions by us or our competitors;
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. changes in the mix of products produced and sold and in the mix of sales
by distribution channels;
. market acceptance of new or enhanced versions of our products;
. seasonal customer demand due to vacation and holiday schedules (for
example, decreased demand in Europe during the summer); and
. the timing of significant orders and the timing and extent of product
development costs.
In addition, operating results have recently been, and may in the future be,
adversely affected by general economic and other conditions causing a downturn
in the market for semiconductor devices, or otherwise affecting the timing of
customer orders or causing order cancellations or rescheduling. Our customers
may change delivery schedules or cancel orders without significant penalty. Many
of the factors listed above are outside of our control. These factors are
difficult to forecast, and these or other factors could materially and adversely
affect our quarterly or annual operating results.
Order Revision and Cancellation Policies. We manufacture and market standard
lines of products. Sales are made primarily pursuant to purchase orders for
current delivery, or agreements covering purchases over a period of time, which
may be revised or canceled without penalty. As a result, we must commit
resources to the production of products without any advance purchase commitments
from customers. Our inability to sell products after we devoted significant
resources to them could have a material adverse effect on our business.
Distributors typically maintain an inventory of our products. In most instances
our agreements with distributors protect their inventory of our products against
price reductions, as well as products that are slow moving or have been
discontinued. These agreements, which may be canceled by either party on a
specified notice, generally allow for the return of our products if the
agreement with the distributor is terminated. The market for our products is
generally characterized by, among other things, severe price competition. The
price protection and return rights we offer to our distributors could materially
and adversely affect us if there is an unexpected significant decline in the
price of our products.
Intellectual Property Rights; Potential Litigation. It is possible that:
. we will be unable to protect our technology or other intellectual
property adequately through patents, copyrights, trade secrets,
trademarks and other measures;
. patent applications that we may file will not be issued;
. foreign intellectual property laws will not protect our intellectual
property rights;
. any patent licensed by or issued to us will be challenged, invalidated or
circumvented or that the rights granted thereunder will not provide
competitive advantages to us; and
. others will independently develop similar products, duplicate our
products or design around our patents and other rights.
From time to time, we have been notified that we may be infringing intellectual
property rights of others. If any such claims are asserted against us, we may
seek to obtain a license under the third party's intellectual property rights.
We could decide, in the alternative, to resort to litigation to challenge such
claims. Such challenges could be extremely expensive and time-consuming and
could materially and adversely affect our business. We cannot give any
38
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assurance that all necessary licenses can be obtained on satisfactory terms, or
whether litigation may always be avoided or successfully concluded.
Environmental Regulations. We could possibly be subject to fines, suspension of
production, alteration of our manufacturing processes or cessation of our
operations if we fail to comply with present or future governmental regulations
related to the use, storage, handling, discharge or disposal of toxic, volatile
or otherwise hazardous chemicals used in the manufacturing process. Such
regulations could require us to acquire expensive remediation equipment or to
incur other expenses to comply with environmental regulations. Our failure to
control the use, disposal or storage of, or adequately restrict the discharge
of, hazardous substances could subject us to future liabilities and could have a
material adverse effect on our business.
International Sales. Our international sales operations entail political and
economic risks, including expropriation, currency controls, exchange rate
fluctuations, changes in freight rates and changes in rates and exemptions for
taxes and tariffs.
Volatility of Stock Price; Ability to Access Capital. Based on the trading
history of our stock, we believe that the following factors have caused and are
likely to continue to cause the market price of our common stock to fluctuate
substantially:
. quarterly fluctuations in our operating and financial results;
. announcements of new products and/or pricing by us or our competitors;
. the pace of new product manufacturing ramps;
. production yields of key products; and
. general conditions in the semiconductor industry.
In addition, an actual or anticipated shortfall in revenue, gross margins or
earnings from securities analysts' expectations could have an immediate effect
on the trading price of our common stock in any given period. Technology
company stocks in general have experienced extreme price and volume fluctuations
that are often unrelated to the operating performance of the companies. This
market volatility may adversely affect the market price of our common stock and
consequently limit our ability to raise capital or to make acquisitions. Our
current business plan envisions substantial cash outlays requiring external
capital financing. It is possible that capital and/or long-term financing will
be unavailable on terms favorable to us or in sufficient amounts to enable us to
implement our current plan.
Earthquake Danger. Our corporate headquarters, a portion of our manufacturing
facilities, assembly and research and development activities and certain other
critical business operations are located near major earthquake fault lines. We
could be materially and adversely affected in the event of a major earthquake.
Euro Conversion. On January 1, 1999, eleven of the fifteen member countries of
the European Union established fixed conversion rates between their existing
currencies and the euro. The participating countries adopted the euro as their
common legal currency on that date. The transition period will last through
January 1, 2002. We are assessing the potential impact to us that may result
from the euro conversion. We do not expect the introduction and use of the euro
to materially affect our foreign exchange activities, to affect our use of
derivatives and other financial instruments, or to result in any material
increase in costs to us. We will continue to
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assess the impact of the introduction of the euro currency over the transition
period as well as the period subsequent to the transition, as applicable.
40
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In 1998, we entered into a no-cost collar arrangement to hedge Dresden Fab 30
project costs through which we purchased $300 million of put option contracts
and sold $300 million of call option contracts. In the second quarter of 1999,
we entered into a no-cost collar arrangement to offset and neutralize our
remaining 1998 no-cost collar positions.
For additional Quantitative and Qualitative Disclosures about Market Risk,
including other foreign exchange risks associated with Dresden Fab 30, reference
is made to Part II, Item 7A, Quantitative and Qualitative Disclosures about
Market Risk, in our Annual Report on Form 10-K for the year ended December 27,
1998.
41
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
SECURITIES CLASS ACTION LITIGATION. Between March 10, 1999 and April
22, 1999, AMD and certain individual officers of AMD were named as
defendants in the following lawsuits: Arthur S. Feldman v. Advanced
Micro Devices, Inc., et al.; Pamela Lee v. Advanced Micro Devices,
Inc., et al.; Izidor Klein v. Advanced Micro Devices, Inc., et al.;
Nancy P. Steinman v. Advanced Micro Devices, Inc., et al.; Robert L.
Dworkin v. Advanced Micro Devices, Inc., et al.; Howard M. Lasker v.
Advanced Micro Devices, Inc., et al.; John K. Thompson v. Advanced
Micro Devices, Inc., et al.; Dan Schwartz v. Advanced Micro Devices,
Inc., et al.; Serena Salamon and Norman Silverberg v. Advanced Micro
Devices, Inc., et al.; David Wu and Hossein Mizraie v. Advanced Micro
Devices, Inc., et al.; Eidman v. Advanced Micro Devices, Inc., et al.;
Nold v. Advanced Micro Devices, Inc., et al.; Freeland v. Advanced
Micro Devices, Inc., et al.; Fradkin v. Advanced Micro Devices, Inc.
et al.; Ellis Investment Co. v. Advanced Micro Devices, Inc., et al.;
Dezwareh v. Advanced Micro Devices, Inc., et al.; and Tordjman v.
Advanced Micro Devices, Inc., et al. These class action complaints
allege various violations of federal securities law, including
violations of Section 10(b) of the Securities Exchange Act and Rule
10b-5 promulgated thereunder. Most of the complaints purportedly were
filed on behalf of all persons, other than the defendants, who
purchased or otherwise acquired common stock of AMD during the period
from October 6, 1998 to March 8, 1999. Two of the complaints allege a
class period from July 13, 1998 to March 9, 1999. All of the
complaints allege that materially misleading statements and/or
material omissions were made by AMD and certain individual officers of
AMD concerning design and production problems relating to high-speed
versions of the AMD-K6(R)-2 and AMD-K6-III microprocessors. The
complaints seek unspecified damages, equitable relief, interest, fees
and other litigation costs.
AMD has entered into a stipulation whereby the plaintiffs will file a
consolidated amended complaint following a ruling by the Ninth Circuit
Court of Appeals on the In re Silicon Graphics Securities
Litigation, 97-16204, case now pending before it. The stipulation
also sets forth the period of time AMD will have to respond to the
new complaint once it is filed. AMD intends to contest the
litigation vigorously. Based upon information presently known to
management, we do not believe that the ultimate resolution of these
lawsuits will have a material adverse effect on our financial
condition or results of operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1 Financial Data Schedule
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(b) Reports on Form 8-K
A Current Report on Form 8-K dated July 14, 1999 was filed reporting under
Item 5 - Other Events with respect to financial results for the second
quarter ended June 27, 1999.
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: October 29, 1999 By: /s/ Francis P. Barton
-----------------------
Francis P. Barton
Senior Vice President, Chief Financial Officer
Signing on behalf of the registrant and as
the principal accounting officer
43
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