EXHIBIT 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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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 from expectations. The
forward-looking statements relate to, among other things: operating results;
anticipated cash flows; capital expenditures; gross margins; adequacy of
resources to fund operations and capital investments; our ability to produce AMD
Athlon(TM) and AMD Duron(TM) microprocessors with the performance and in the
volume required by customers on a timely basis; our ability to maintain average
selling prices of seventh-generation microprocessors despite aggressive
marketing and pricing strategies of our competitors; the ability of third
parties to provide timely infrastructure solutions (motherboards and chipsets)
to support our microprocessors; our ability to increase customer and market
acceptance of our seventh- and eighth-generation microprocessors; a recovery in
the communication and networking industries leading to an increase in the demand
for Flash memory products; the effect of foreign currency hedging transactions;
the process technology transition in our submicron integrated circuit
manufacturing and design facility in Dresden, Germany (Dresden Fab 30); and the
financing, construction and utilization of the Fujitsu AMD Semiconductor Limited
(FASL) manufacturing facilities. See "Financial Condition" and "Risk Factors"
below, as well as such other risks and uncertainties as are detailed in our
other Securities and Exchange Commission reports and filings for a discussion of
the factors that could cause actual results to differ materially from the
forward-looking statements.
The following discussion should be read in conjunction with the consolidated
financial statements and related notes as of December 30, 2001 and December 31,
2000 and for each of the three years in the period ended December 30, 2001,
which are included in this annual report.
AMD, the AMD Arrow logo, and combinations thereof, Advanced Micro Devices,
AMD-K6, AMD Athlon, AMD Duron and MirrorBit are either trademarks or registered
trademarks of Advanced Micro Devices, Inc. Vantis is a trademark of Vantis
Corporation. Legerity is a trademark of Legerity, Inc. Microsoft and Windows are
either registered trademarks or trademarks of Microsoft Corporation. Other terms
used to identify companies and products may be trademarks of their respective
owners.
CRITICAL ACCOUNTING POLICIES
Our discussion and analysis of our financial condition and results of operations
are based upon our consolidated financial statements, which have been prepared
in accordance with accounting principles generally accepted in the United
States. The preparation of these financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses and related disclosure of contingent assets and
liabilities. On an on-going basis, we evaluate our estimates, including those
related to our investments, allowance for doubtful accounts, revenues,
inventories, asset impairments, income taxes, commitments and contingencies. We
base our estimates on historical experience and on various other assumptions
that are believed to be reasonable under the circumstances, the results of
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
which form the basis for making judgments about the carrying values of assets
and liabilities. Actual results may differ from these estimates under different
assumptions or conditions.
We believe the following critical accounting policies relate to those policies
that are most important to the presentation of our financial statements and
require the most difficult, subjective and complex judgments.
Investments in Debt and Equity Securities. We hold minority interests in
companies having operations or possessing technology primarily in areas within
our strategic focus, some of which are publicly traded and have highly volatile
stock prices. We also make investments in marketable equity and debt securities.
We record an investment impairment charge when we believe an investment has
experienced a decline in value that is other-than-temporary. In determining if a
decline in market value below cost for a publicly traded security or debt
instrument is other-than-temporary, we evaluate the relevant market conditions,
offering prices, trends of earnings, price multiples and other key measures
providing an indication of the instrument's fair value. For private equity
investments, we evaluate the financial condition of the investee, market
conditions, trends of earnings and other key factors that provide indicators of
the fair market value of the investment. When a decline in value is deemed to be
other-than-temporary, we recognize an impairment loss in the current period to
the extent of the decline below the carrying value of the investment. Adverse
changes in market conditions or poor operating results of underlying investments
could result in additional other-than-temporary losses in future periods.
Allowance for Doubtful Accounts. We evaluate the collectibility of our accounts
receivable based on a combination of factors. In circumstances where we are
aware of a specific customer's inability to meet its financial obligations to
us, we record a specific allowance against amounts due to reduce the net
recognized receivable to the amount we reasonably believe will be collected. For
all other customers, we recognize allowances for doubtful accounts based on the
length of time the receivables are past due, the current business environment
and our historical experience. If the financial condition of our customers were
to deteriorate or if economic conditions worsened, additional allowances may be
required in the future.
Revenue Reserves. We record a provision for estimated sales returns and
allowances on product sales in the same period as the related revenues are
recorded. We base these estimates on historical sales returns and other known
factors. Actual returns could be different from our estimates and current
provisions for sales returns and allowances, resulting in future charges to
earnings.
10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Inventory Valuation. At each balance sheet date, we evaluate our ending
inventories for excess quantities and obsolescence. This evaluation includes
analyses of sales levels by product and projections of future demand.
Inventories on hand, in excess of forecasted demand, generally six months or
less, are not valued. In addition, we write off inventories that are considered
obsolete. Remaining inventory balances are adjusted to approximate the lower of
our standard manufacturing cost or market value. If future demand or market
conditions are less favorable than our projections, additional inventory
write-downs may be required and would be reflected in cost of sales in the
period the revision is made.
Impairment of Long-Lived Assets. We routinely consider whether indicators of
impairment of long-lived assets are present. If such indicators are present, we
determine whether the sum of the estimated undiscounted cash flows attributable
to the assets in question is less than their carrying value. If less, we
recognize an impairment loss based on the excess of the carrying amount of the
assets over their respective fair values. Fair value is determined by discounted
future cash flows, appraisals or other methods. If the assets determined to be
impaired are to be held and used, we recognize an impairment charge to the
extent the present value of anticipated net cash flows attributable to the asset
are less than the asset's carrying value. The fair value of the asset then
becomes the asset's new carrying value, which we depreciate over the remaining
estimated useful life of the asset. We may incur impairment losses in future
periods if factors influencing our estimates change.
Deferred Income Taxes. We record a valuation allowance to reduce our deferred
tax assets to the amount that is more likely than not to be realized. We have
considered future taxable income and prudent and feasible tax planning
strategies in determining the need for a valuation allowance. In the event that
we determine that we would not be able to realize all or part of our net
deferred tax assets, an adjustment to the deferred tax assets would be charged
to earnings in the period such determination is made. Likewise, if we later
determine that it is more likely than not that the net deferred tax assets would
be realized, then the previously provided valuation allowance would be reversed.
Our current valuation allowance covers the tax benefit from the exercise of
employee stock options. When these tax benefits are realized the valuation
allowance will be reversed and credited to capital in excess of par value.
Commitments and Contingencies. From time to time, we are a defendant or
plaintiff in various legal actions, which arise in the normal course of
business. We are also a party to environmental matters, including local,
regional, state and federal governed clean-up activities at or near locations
where we currently or have in the past conducted our business. We are also a
guarantor of various third-party obligations and commitments. We are required to
assess the likelihood of any adverse judgments or outcomes to these matters as
well as potential ranges of probable losses. A determination of the amount of
reserves required for these contingencies, if any, which would be charged to
earnings, is made after careful analysis of each individual issue. The required
reserves may change in the future due to new developments in each matter or
changes in circumstances, such as a change in settlement strategy. Changes in
required reserves could increase or decrease our earnings in the period the
changes are made.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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RESULTS OF OPERATIONS
In 2001, we participated in all three technology areas within the digital
integrated circuit (IC) market--microprocessors, memory circuits and logic
circuits--through our Core Products and Foundry Services segments. In 2000 and
1999, in addition to our Core Products and Foundry Services segments, we also
participated in the digital IC market through our Voice Communications and
Vantis segments. Our Core Products segment includes our PC processor products,
Memory products and Other IC products. PC processor products include our
seventh-generation microprocessors, the AMD Athlon and AMD Duron
microprocessors, and our sixth-generation microprocessors. Memory products
include Flash memory devices and Erasable Programmable Read-Only Memory
(EPROM) devices. Other IC products include embedded processors, networking
products and platform products, which primarily consist of chipsets. Our Foundry
Services segment consists of service fees from Legerity, Inc. and Vantis
Corporation. Our Voice Communications segment consisted of our voice
communications products subsidiary, Legerity, Inc. (Legerity), until July 31,
2000, the effective date of its sale. Our Vantis segment consisted of our
programmable logic devices subsidiary, Vantis Corporation (Vantis), until June
15, 1999, the date of its sale.
We sold 90 percent of Legerity for approximately $375 million in cash, effective
July 31, 2000. We sold Vantis to Lattice Semiconductor Corporation (Lattice) for
approximately $500 million in cash, effective June 15, 1999.
The following is a summary of net sales by segment for 2001, 2000 and 1999:
(Millions) 2001 2000 1999
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Core Products segment:
PC Processors $ 2,419 $ 2,337 $ 1,387
Memory Products 1,133 1,567 773
Other IC Products 242 457 400
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3,794 4,361 2,560
Foundry Services segment 98 143 43
Voice Communications segment - 140 168
Vantis segment - - 87
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Total $ 3,892 $ 4,644 $ 2,858
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Net Sales Comparison for Years Ended December 30, 2001 and December 31, 2000
Total net sales of $3,892 million decreased by 16 percent in 2001 compared to
2000.
PC processors net sales of $2,419 million increased by four percent in 2001
compared to 2000. This increase was primarily due to an increase in unit sales
of our seventh-generation microprocessors, the AMD Athlon and AMD Duron
microprocessors, partially offset by a decline in average selling prices. We
expect PC processor unit shipments and average selling prices in the first
quarter of 2002 to remain relatively flat as compared to the fourth quarter of
2001. Maintaining PC processor sales levels in 2002 depends on a continuing
successful technology transition in Dresden Fab 30, our ability to maintain
average selling prices for our seventh-generation microprocessors, continuing
growth in
11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
unit shipments of our PC processors, and increasing market acceptance of the
newest versions of the AMD Athlon and AMD Duron microprocessors.
Memory products net sales of $1,133 million decreased by 28 percent in 2001
compared to 2000. The decrease was primarily due to continuing weakness in the
communications and networking equipment industries and excess inventories held
by major customers. Although we expect shipments to remain flat, we expect a
decline in revenues from memory products in the first quarter of 2002, as
compared to the fourth quarter of 2001, primarily due to continuing pricing
pressures.
Other IC products net sales of $242 million decreased by 47 percent in 2001
compared to 2000. The decrease was due to decreased net sales of platform
products, embedded processors and networking products as a result of the
sustained market declines in the communications and networking equipment
industries. We expect Other IC revenues in the first quarter of 2002 to remain
relatively flat as compared to the fourth quarter of 2001.
The Foundry Services segment service fees of $98 million decreased by 31 percent
in 2001 compared to 2000. The decrease was primarily due to a significant
reduction in demand for wafer fabrication services from Vantis, partially offset
by an increase in overall service fees from Legerity. We expect that service
fees will continue to decline in the first quarter of 2002 due to our plan to
discontinue these services in 2002. Other than the restructuring and other
special charges recorded in the third quarter of 2001, we do not expect to have
any termination liabilities associated with our plan to discontinue these
services.
There were no sales from the Voice Communications segment in our 2001 net sales.
Voice Communications products contributed $140 million to our 2000 net sales,
prior to our sale of Legerity, effective July 31, 2000.
There were no sales from the Vantis segment in our 2001 and 2000 net sales.
Net Sales Comparison for Years Ended December 31, 2000 and December 26, 1999
Total net sales increased by $1,786 million in 2000, or 62 percent, to $4,644
million from $2,858 million in 1999.
PC processors net sales of $2,337 million increased by 68 percent in 2000
compared to 1999. This increase was primarily due to a strong increase in net
sales of our seventh-generation microprocessors, the AMD Athlon and AMD Duron
microprocessors. The AMD Duron microprocessor, a derivative of the AMD Athlon
microprocessor designed to provide a solution for value conscious PC buyers,
became available in June 2000. The strong increase in unit sales of our
seventh-generation microprocessors more than offset the decline in average
selling prices. The increase was partially offset by a decrease in net sales of
AMD-K6(TM) family microprocessors as a result of the market shift toward our
seventh-generation microprocessors.
Memory products net sales of $1,567 million increased by 103 percent in 2000
compared to 1999 primarily due to growth in sales volume, higher average selling
prices and a rich product mix of Flash memory devices, which was slightly offset
by a decline in net sales of EPROMs.
Other IC products net sales of $457 million increased by 14 percent in 2000
compared to 1999. The increase was primarily due to increased net sales from our
platform and networking products.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Foundry Services segment included service fees of $143 million from Lattice
and Legerity in 2000 compared to $43 million from Lattice in 1999. The increase
was primarily due to the addition of service fees from Legerity and secondarily
to an increase in service fees from Lattice during 2000.
Voice Communications products net sales of $140 million decreased by 17 percent
in 2000 compared to 1999 as a result of the sale of our Legerity subsidiary,
effective July 31, 2000.
There were no sales from the Vantis segment in our 2000 net sales. Vantis
segment contributed $87 million to our 1999 net sales, prior to our sale of
Vantis, effective June 15, 1999.
Comparison of Expenses, Gross Margin Percentage and Interest and Other Income,
Net
The following is a summary of expenses, gross margin percentage, and interest
and other income, net for 2001, 2000 and 1999:
(Millions except for gross margin percentage) 2001 2000 1999
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Cost of sales $2,590 $2,515 $1,964
Gross margin percentage 33% 46% 31%
Research and development $ 651 $ 642 $ 636
Marketing, general and administrative 620 599 540
Restructuring and other special charges 89 - 38
Gain on sale of Vantis - - 432
Gain on sale of Legerity - 337 -
Interest and other income, net 26 86 32
Interest expense 61 60 69
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We operate in an industry characterized by intense competition and high fixed
costs due to capital-intensive manufacturing processes, particularly the costs
to build and maintain state-of-the-art production facilities required for PC
processors and memory devices. As a result, our gross margin percentage is
significantly affected by fluctuations in unit sales and average selling prices.
Gross margin percentage decreased to 33 percent in 2001 compared to 46 percent
in 2000. The decrease in gross margin in 2001 was primarily due to lower unit
sales and average selling prices from Flash memory devices, networking products
and embedded processors and lower average selling prices of PC processors. We
expect gross margins in the first quarter of 2002 to remain relatively flat as
compared to the fourth quarter of 2001. Maintenance of gross margin percentage
depends on continually increasing unit sales of microprocessors and memory
products because of pricing pressures and because fixed costs continue to rise
with ongoing capital investments required to expand production capability and
capacity.
Gross margin percentage increased to 46 percent in 2000 compared to 31 percent
in 1999. The increase in gross margin in 2000 was primarily due to higher net
sales from PC processors and Flash memory devices, partially offset by a
reduction in gross margin as a result of the sale of Legerity, effective July
31, 2000, and an increase in fixed costs.
Research and development expenses of $651 million in 2001 increased slightly
compared to 2000. This slight increase was due to increased costs related to
research and development activities for PC processors.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Research and development expenses of $642 million in 2000 increased slightly
compared to 1999. This slight increase was due to increased costs related to
research and development activities for PC processors, offset by a substantial
portion of Dresden Fab 30 expenses shifting to cost of sales as production
commenced in the second quarter of 2000 and research and development subsidies
received from the German government.
Marketing, general and administrative expenses of $620 million in 2001 increased
four percent compared to 2000 primarily as a result of increased advertising and
marketing expenses associated with our core products and the AMD Athlon XP
processor launch, offset by the absence of Legerity expenses during 2001.
Marketing, general and administrative expenses of $599 million in 2000 increased
11 percent compared to 1999 primarily as a result of marketing and promotional
activities for the AMD Athlon microprocessor, our launch of the AMD Duron
microprocessor and higher expenses associated with higher labor costs, including
profit sharing. These increases were partially offset by the absence of Legerity
expenses during the second half of 2000.
On September 25, 2001, due to the continued slowdown in the semiconductor
industry and a resulting decline in revenues, we announced a restructuring plan
to accelerate key components of our strategy to reduce costs and enhance the
financial performance of our core products. In connection with the plan, we will
close Fabs 14 and 15 in Austin, Texas by the end of June 2002. These facilities
support certain of our older products and Foundry Service operations, which will
be discontinued as part of our plan. We will also reorganize other manufacturing
facilities and reduce activities primarily in Penang, Malaysia, along with
associated administrative support.
The restructuring plan will result in the reduction of approximately 2,300
direct manufacturing and related administrative support positions, or
approximately 15 percent of our worldwide workforce, by the end of the second
quarter of 2002. Approximately 1,000 of these positions are associated with
closing Fabs 14 and 15 in Austin. The balance of the reductions will result from
reorganizing activities primarily in Penang, Malaysia.
Pursuant to the September 25, 2001 plan, we recorded restructuring costs and
other special charges of $89.3 million, consisting of $34.1 million of
anticipated severance and employee benefit costs, $16.2 million of anticipated
exit costs to close facilities in Austin and Penang and $39.0 million of
non-cash asset impairment charges. The asset impairment charges relate primarily
to buildings and production equipment and have been incurred as a result of our
decision to implement the plan.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following table summarizes activity under the plan through December 30,
2001:
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Facility Facility and
Severance and and equipment Other
employee equipment decommission facilities
(Thousands) benefits impairment costs exit costs Total
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2001 provision $ 34,105 $ 39,000 $ 15,500 $ 700 $ 89,305
Cash charges (7,483) - - (54) (7,537)
Non-cash charges - (39,000) - - (39,000)
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Accruals at December 30, 2001 $ 26,622 $ - $ 15,500 $ 646 $ 42,768
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We expect to substantially complete execution of our restructuring plan by the
end of the second quarter of 2002. As a result of this restructuring plan, we
expect to realize overall cost reductions of $125 million on an annualized
basis. As of December 30, 2001, 786 employees had been terminated resulting in
cash payments of approximately $7.5 million in severance and employee benefit
costs.
During 1999, we initiated a review of our cost structure. Based upon this
review, we recorded restructuring and other special charges of $38 million in
1999 to better align our cost structure with expected revenue growth rates.
The restructuring and other special charges for the year ended December 26,
1999, and related activity during 1999, 2000 and 2001, are reflected in the
following table:
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Severance
and Equipment Discontinued
employee disposal system
(Thousands) benefits Facilities Equipment costs projects Total
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1999 provision $ 3,024 $ 968 $ 23,769 $ 4,380 $ 6,089 $ 38,230
Cash charges (3,024) (56) - (1,937) - (5,017)
Non-cash charges - - (23,769) - (6,089) (29,858)
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Accruals at December 26, 1999 - 912 - 2,443 - 3,355
Cash charges - (429) - (2,443) - (2,872)
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Accruals at December 31, 2000 - 483 - - - 483
Cash charges - (443) - - - (443)
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Accruals at December 30, 2001 $ - $ 40 $ - $ - $ - $ 40
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13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
We anticipate that the remaining accrual related to sales office facilities will
be utilized over the period through lease terminations in the second quarter of
2002.
We sold 90 percent of Legerity to Francisco Partners, L.P. for approximately
$375 million in cash, effective July 31, 2000. Prior to the sale, Legerity was a
wholly owned subsidiary of AMD, selling voice communications products. Our
pre-tax gain on the sale of Legerity was $337 million. The gain was computed
based on the excess of the consideration received for Legerity's net assets as
of July 31, 2000, less direct expenses related to the sale. The applicable tax
rate on the gain was 37 percent, resulting in an after-tax gain of $212 million.
On June 15, 1999, we sold Vantis to Lattice for approximately $500 million in
cash. Our pre-tax gain on the sale of Vantis was $432 million. The gain was
computed based on the excess of the consideration received for Vantis' net
assets as of June 15, 1999, less direct expenses related to the sale. The
applicable tax rate on the gain was 40 percent, resulting in an after-tax gain
of $259 million.
Interest and other income, net, decreased $60 million or 70 percent in 2001
compared to 2000 primarily due to $27 million in charges for
other-than-temporary declines in our equity investments, a $14 million decrease
in interest income due to a decrease in short-term investments and a $9 million
decrease due to the absence of a gain on the sale of real property.
Interest expense increased slightly in 2001 compared to 2000 due to a decrease
in capitalized interest expense attributable to the substantial completion of
Dresden Fab 30 and increased borrowings by AMD Saxony Manufacturing GmbH (AMD
Saxony) under the Dresden Loan Agreements, offset by the effect of redeeming our
6% convertible subordinated notes in May 2001.
Interest and other income, net, increased $54 million or 168 percent in 2000
compared to 1999 primarily due to higher average cash and short- and long-term
investment balances.
Interest expense decreased $9 million or 13 percent in 2000 compared to 1999
primarily due to lower average debt balances resulting from retirement of a
portion of our 11% Senior Secured Notes due 2003 (Senior Secured Notes) in
August 2000, offset by a reduction of capitalized interest as a result of the
completion of the initial phase of Dresden Fab 30.
Income Tax
We recorded an income tax benefit of $14 million in 2001 and income tax
provisions of $257 million in 2000 and $167 million 1999. The effective benefit
rate of 15.4 percent for the year ended December 30, 2001 was less than the
statutory rate because of a 24 percent tax benefit rate on the restructuring
charges, reflecting the allocation of the charges between U.S. and foreign
low-taxed jurisdictions, and a provision for U.S. taxes on certain previously
undistributed earnings of low-taxed foreign subsidiaries. The effective tax rate
was 20.5 percent for the year ended December 31, 2000. The effective tax rate,
excluding the gain on the sale of Legerity, was 14.5 percent reflecting the
benefit of realizing previously reserved deferred tax assets. The tax rate
recorded in 2000 attributable to the gain on the sale of Legerity was 37
percent. The effective tax rate was 227 percent for the year ended December 26,
1999. The effective tax rate, excluding the gain on the sale of Vantis and
restructuring charges, was zero. This reflected the establishment of reserves
against our deferred tax assets due to current and prior operating losses. The
tax rate recorded in 1999 attributable to the gain on the sale of Vantis net of
restructuring charges was 39 percent.
We had net deferred tax assets of $51 million as of December 30, 2001.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Other Items
International sales as a percent of net sales were 66 percent in 2001 and 60
percent in both 2000 and 1999. During 2001, approximately two 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 accounting principles generally accepted in the United States). 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)
In 2001, we operated in two reportable segments: the Core Products segment,
which reflects the aggregation of the PC processors and memory products
operating segments, and the Foundry Services segment. The Core Products segment
includes PC processors, Flash memory devices, EPROMs, embedded processors,
platform products and networking products. The Foundry Services segment included
fees for services provided to Legerity and Vantis. Our previous Voice
Communications segment included the voice communications products of our former
subsidiary, Legerity, prior to its sale effective July 31, 2000. Our former
Vantis segment included the programmable logic devices (PLD) of our former
subsidiary, Vantis, prior to its sale in 1999. For a comparison of segment net
sales, refer to the previous discussions on net sales by product group.
The following is a summary of operating income (loss) by segment for 2001, 2000
and 1999:
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(Millions) 2001 2000 1999
- ----------------------------------------------------------------------------------------------------
Core Products $ 72 $ 832 $ (342)
Foundry Services (34) 22 1
Voice Communications - 35 14
Vantis - - 6
--------------------------------------------
Total $ 38 $ 889 $ (321)
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Core Products segment operating income decreased by $760 million in 2001
compared to 2000 due to a decrease in net sales. The decrease was primarily due
to a decline in the average selling prices and unit sales of our core products
due to the sustained downturn in the microprocessor, communications, and
networking equipment industries and our restructuring plan previously discussed.
The Foundry Services segment operating income decreased by $56 million in 2001
compared to 2000 primarily due to the significant reduction in demand for wafer
fabrication services from Vantis and Legerity.
The Voice Communications segment operating income was zero in 2001 due to our
sale of Legerity, effective July 31, 2000.
The Vantis segment operating income was zero in 2001 due to our sale of Vantis,
effective June 15, 1999.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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FINANCIAL CONDITION
Net cash provided by operating activities was $168 million in 2001 as a result
of our net loss of $61 million, adjusted for non-cash charges, including, $623
million of depreciation and amortization expense, $82 million of restructuring
charges, $27 million of impairment charges on equity investments and $10 million
of provision for doubtful accounts, offset by non-cash credits of $93 million
from net changes in deferred income taxes and foreign grant and subsidy income,
and other uses of cash in operating activities of approximately $428 million due
to net changes in operating assets and liabilities.
Net cash provided by operating activities was $1,206 million in 2000 primarily
due to net income of $983 million and depreciation and amortization of $579
million, offset by a nonrecurring $337 million reduction to operating cash flows
from the gain on the sale of Legerity in 2000, a decrease of $269 million in
other assets, an increase of $158 million from income tax benefits from employee
stock option exercises, a decrease of $156 million in inventory, an increase of
$157 million in payables and accrued liabilities, an increase of $143 million
from customer deposits under long-term purchase agreements, a decrease of $140
million in accounts receivable, an increase of $79 million in prepaid expenses
and a decrease of $35 million from foreign grant and subsidy income.
Net cash provided by operating activities was 260 million in 1999 primarily due
to the net loss of $89 million, a nonrecurring $432 million reduction in
operating cash flows from the gain on the sale of Vantis in 1999, an increase of
$516 million from depreciation and amortization, an increase of $160 million
from deferred income taxes, an increase of $241 million in payables and accrued
liabilities, a decrease of $102 million in prepaid expenses, an increase of $55
million in other assets, a decrease of $50 million from foreign grant and
subsidy income not received in cash and a decrease of $48 million in accounts
receivable.
Net cash used in investing activities was $554 million in 2001 primarily due to
$679 million used for the purchases of property, plant, and equipment, primarily
for Dresden Fab 30 and Asia manufacturing facilities, and $122 million for
additional equity investments in FASL, offset by $246 million of net proceeds
from sales and maturities of available-for-sale securities.
Net cash used in investing activities was $816 million in 2000 primarily due to
$805 million used for purchases of property, plant and equipment, offset by $375
million we received in 2000 from the sale of Legerity and $398 million of net
purchases of available-for-sale securities.
Net cash used in investing activities was $142 million in 1999 primarily due to
$454 million from the sale of Vantis, a decrease of $620 million from purchases
of property, plant and equipment offset by $19 million in net proceeds from
sales of available-for-sale securities and $4 million in proceeds from sales of
property, plant and equipment.
Net cash provided by financing activities was $232 million in 2001 primarily due
to $63 million in proceeds from the issuance of notes payable to banks, $308
million in proceeds from Dresden borrowing activities, $38 million in proceeds
from the receipt of foreign grants and subsidies and
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
$37 million in proceeds from the issuance of stock in connection with stock
option exercises and purchases under our Employee Stock Purchase Plan, offset by
$137 million in payments on debt and capital lease obligations and $77 million
used to repurchase our common stock.
Net cash used in financing activities was $101 million in 2000 primarily due to
$375 million in payments on debt and capital lease obligations, offset by $136
million in proceeds from borrowing activities, $123 million in proceeds from the
issuance of stock and $15 million in proceeds from foreign grants and subsidies.
Net cash used in financing activities was $174 million in 1999 primarily due to
$244 million in payments on debt and capital lease obligations, offset by $12
million in proceeds from borrowings, $44 million in proceeds from issuance of
stock and $14 million in proceeds from foreign grants and subsidies.
Contractual Cash Obligations And Commercial Commitments
The following tables summarize our contractual cash obligations and commercial
commitments at December 30, 2001 and are supplemented by the discussion
following the tables:
Contractual Cash Obligations at December 30, 2001 were:
Payments due by period
----------------------
Less than 1 After 5
(In Thousands) Total year 1-3 years 4-5 years years
- --------------------------------------------------------------------------------------------------------
Notes payable to banks $ 63,362 $ 63,362 $ - $ - $ -
Dresden term loans 602,046 186,842 342,544 72,660 -
Commercial mortgage 1,190 182 423 245 340
Capital lease obligations 36,075 13,589 20,060 2,426 -
Operating leases 457,176 57,612 91,375 40,636 267,553
Unconditional purchase commitments 54,979 15,036 20,067 9,895 9,981
---------- -------- -------- -------- --------
Total contractual cash obligations $1,214,828 $336,623 $474,469 $125,862 $277,874
========== ======== ======== ======== ========
15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Commercial Commitments at December 30, 2001 were:
Amounts of commitment expiration per period
-------------------------------------------
Total amounts Less than 1 Over 5
(In Thousands) committed year 1-3 years 4-5 years years
- --------------------------------------------------------------------------------------------------------
Dresden guarantee $ 277,000 $ - $ - $ - $277,000
FASL guarantee 192,000 - - - 192,000
Fujitsu guarantee 125,000 - 125,000 - -
---------- ------- -------- ------ --------
Total commercial commitments $ 594,000 $ - $125,000 $ - $469,000
========== ======= ======== ====== ========
Notes Payable to Banks
We entered into a Loan and Security Agreement (the Loan Agreement) with a
consortium of banks led by a domestic financial institution on July 13, 1999.
The Loan Agreement provides for a four-year secured revolving line of credit of
up to $200 million. We can borrow, subject to amounts that may be set aside by
the lenders, up to 85 percent of our eligible accounts receivable from Original
Equipment Manufacturers (OEMs) and 50 percent of our eligible accounts
receivable from distributors. We must comply with certain financial covenants if
the level of domestic cash we hold declines to $200 million or the amount of
borrowings under the Loan Agreement rises to 50 percent of available credit.
Under these circumstances the Loan Agreement restricts our ability to pay cash
dividends on our common stock. Our obligations under the Loan Agreement are
secured by a pledge of all of our accounts receivable, inventory, general
intangibles and the related proceeds. As of December 30, 2001, $50 million was
outstanding under the Loan Agreement, which was repaid in January 2002.
As of December 30, 2001, we had approximately $18 million in lines of credit
available to our foreign subsidiaries under the other financing agreements, of
which approximately $13 million is outstanding.
Dresden Term Loans and Dresden Guarantee
AMD Saxony, an indirect wholly owned German subsidiary of AMD, continues to
facilitize Dresden Fab 30, which began production in the second quarter of 2000.
AMD, the Federal Republic of Germany, the State of Saxony, and a consortium of
banks are providing credit support for the project. We currently estimate
construction and facilitization costs of Dresden Fab 30 will be $2.5 billion
when fully equipped by the end of 2003. As of December 30, 2001, we had invested
$1.8 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 in order to finance the project. Because most of the amounts
under the Dresden Loan Agreements are denominated in deutsche marks, the dollar
amounts set forth below are subject to change based on applicable conversion
rates. We used the exchange rate as of December 30, 2001, which was
approximately 2.17 deutsche marks to one U.S. dollar, to value the amounts
denominated in deutsche marks. The Dresden Loan Agreements provide for the
funding of the construction and facilitization of Dresden Fab 30. The funding
consists of:
o equity, subordinated loans and loan guarantees from AMD;
o loans from a consortium of banks; and
o grants, subsidies and loan guarantees from the Federal Republic of Germany
and the State of Saxony.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Dresden Loan Agreements require that we partially fund Dresden Fab 30
project costs in the form of subordinated loans to, or equity investments in,
AMD Saxony. In accordance with the terms of the Dresden Loan Agreements, we have
invested $334 million as of December 30, 2001 in the form of subordinated loans
to and equity investments in AMD Saxony, which are eliminated in our
consolidated financial statements. In addition to support from AMD, the
consortium of banks referred to above has made available $692 million in loans
to AMD Saxony to help fund Dresden Fab 30 project costs. AMD Saxony had $602
million of such loans outstanding as of December 30, 2001, which are included in
our consolidated balance sheets.
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:
o guarantees of the lesser of 65 percent of AMD Saxony bank debt or $692
million;
o capital investment grants and allowances totaling $286 million; and
o interest subsidies totaling $142 million.
Of these amounts, AMD Saxony had received $284 million in capital investment
grants and allowances and $64 million in interest subsidies through December 30,
2001, which are included in our consolidated financial statements. The grants
and subsidies are subject to conditions, including meeting specified levels of
employment by 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 December
30, 2001, we were in compliance with all of the conditions of the grants and
subsidies.
In February 2001, the Dresden Loan Agreements were amended to reflect new
capacity and increased capital expenditure plans for Dresden Fab 30. Under the
February 2001 amendments, we agreed to increase and extend our guaranty of AMD
Saxony's obligations and to make available to AMD Saxony revolving loans of up
to $500 million. We expanded our obligation to reimburse AMD Saxony for the cost
of producing wafers for us, and we also agreed to cancel the cost overrun
facility made available by the banks. Under the February 2001 amendments, we
were released from financial covenants limiting capital expenditures and
requiring AMD Saxony to achieve capacity and production cost targets by the end
of 2001. As of December 30, 2001, $59 million of revolving loans were
outstanding. The revolving loan amounts are denominated in European Union euros
and are, therefore, subject to change due to foreign exchange rate fluctuations.
We used the December 30, 2001 exchange rate of 1.11 euros to one U.S. dollar to
translate the amount of the revolving loans. Because the loans are due to be
repaid by our subsidiary, AMD Saxony, the related receivable is not recorded on
our consolidated financial statements.
16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Dresden Loan Agreements, as amended, also require that we:
o 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;
o fund shortfalls in government subsidies resulting from any default under
the subsidy agreements caused by AMD Saxony or its affiliates; and
o guarantee up to 35 percent of AMD Saxony's obligations under the Dresden
Loan Agreements, which guarantee must not be less than $100 million or more
than $277 million, until the bank loans are repaid in full.
AMD Saxony would be in default under the Dresden Loan Agreements if we, AMD
Saxony or AMD Saxony Holding GmbH (AMD Holding), the parent company of AMD
Saxony and a wholly owned subsidiary of AMD, fail to comply with certain
obligations thereunder or upon the occurrence of certain events including:
o material variances from the approved plans and specifications;
o our failure to fund equity contributions or shareholder loans or otherwise
comply with our obligations relating to the Dresden Loan Agreements;
o the sale of shares in AMD Saxony or AMD Holding;
o the failure to pay material obligations;
o 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
o the occurrence of default under the Loan Agreement.
Generally, any default with respect to borrowing made or guaranteed by AMD that
results in recourse to us of more than $2.5 million and is not cured by us,
would result in a cross-default under the Dresden Loan Agreements and the Loan
Agreement. As of December 30, 2001, we were in compliance with all conditions
of the Dresden Loan Agreements.
In the event we are unable to meet our obligations to AMD Saxony as required
under the Dresden Loan Agreements, we will be in default under the Dresden Loan
Agreements and the Loan Agreement, which would permit acceleration of certain
indebtedness, which would have a material adverse effect on us. We cannot assure
that we will be able to obtain the funds necessary to fulfill these obligations.
Any such failure would have a material adverse effect on us.
Commercial Mortgage
As of December 30, 2001, we had a $1.2 million commercial mortgage outstanding
relating to one of our research facilities. The mortgage balance will be repaid
through 2007.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Capital Lease Obligations
As of December 30, 2001, we had capital lease obligations of approximately $36
million. Obligations under these lease agreements are collateralized by the
assets leased and are payable through 2005.
Operating Leases and Purchase Commitments
We lease certain of our facilities, including our executive offices in
Sunnyvale, California, under agreements which expire at various dates through
2018. We lease certain of our manufacturing and office equipment for terms
ranging from one to five years. Total future lease obligations as of December
30, 2001 were approximately $457 million.
We enter into purchase commitments for manufacturing supplies and services.
Total purchase commitments as of December 30, 2001 were approximately $55
million for periods through 2009.
FASL Facilities and Guarantees
FASL, a joint venture formed by AMD and Fujitsu Limited in 1993, operates
advanced integrated circuit manufacturing facilities in Aizu-Wakamatsu, Japan,
to produce Flash memory devices. FASL is continuing the facilitization of its
second and third Flash memory device wafer fabrication facilities, FASL JV2 and
FASL JV3. We expect FASL JV2 and FASL JV3, including equipment, to cost
approximately $2.4 billion when fully equipped. As of December 30, 2001,
approximately 1.5 billion of these costs had been funded by cash generated from
FASL operations. These costs are incurred in Japanese yen and are, therefore,
subject to change due to foreign exchange rate fluctuations. On December 30,
2001, the exchange rate was 128.02 yen to one U.S. dollar, the rate we used to
translate the amounts denominated in yen into U.S. dollars.
In 2000, FASL further expanded its production capacity through a foundry
arrangement with Fujitsu Microelectronics, Inc. (FMI), a wholly owned subsidiary
of Fujitsu Limited. In connection with FMI equipping its wafer fabrication
facility in Gresham, Oregon (the Gresham Facility) to produce flash memory
devices for sale to FASL, we agreed to guarantee the repayment of up to $125
million of Fujitsu's obligations as a co-signer with FMI under its global
multicurrency revolving credit facility (the Credit Facility) with a third-party
bank (the Guarantee). On November 30, 2001, Fujitsu announced that it was
closing the Gresham Facility, due to the downturn of the flash memory market. To
date, we have not received notice from Fujitsu that FMI has defaulted on any
payments due under the Credit Facility. Furthermore, subsequent to year end, we
were informed that amounts borrowed by FMI under the Credit Facility do not
become due until the end of March 2002. Accordingly, under the terms of the
Guarantee, we are not at this time, and were not at December 30, 2001, obligated
to make any payments to Fujitsu. However, subsequent to year end, Fujitsu
requested that we pay the entire $125 million under the Guarantee. Although we
disagree with Fujitsu as to the amount, if any, of our obligations under the
Guarantee, Fujitsu has indicated its belief that we are obligated to pay the
full $125 million.
A significant portion of FASL capital expenditures in 2002 will continue to be
funded by cash generated from FASL operations. In addition, both Fujitsu and AMD
made capital contributions of 15 billion yen ($122 million) each to FASL during
the second quarter of 2001. Further, to the extent that additional funds are
required for the full facilitization of FASL JV2 and FASL JV3, AMD will be
required to contribute cash or guarantee third-party loans in proportion to our
49.992 percent interest in FASL, up to 25 billion yen ($192 million). As of
December 30, 2001, we had $148 million in loan guarantees outstanding with
respect to these third-party loans.
UMC
On January 31, 2002, we announced an alliance with United Microelectronics
Corporation (UMC) under which UMC and AMD will establish a joint venture to own
and operate a state-of-
17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
the-art, 300-mm wafer fabrication facility in Singapore for high-volume
production of PC processors and other logic products. As part of the alliance,
we and UMC will collaborate in the development of advanced process technologies
for semiconductor logic products. We separately announced a foundry agreement
under which UMC will produce PC processors to augment Dresden Fab 30 production
capacity for devices produced on 130-nanometer and smaller-geometry technology.
Other Financing Activities
On January 29, 2002, we closed a private offering of $500 million aggregate
principal amount of our 4 3/4% Convertible Senior Debentures due 2022 issued
pursuant to Rule 144A and Regulation S. The Debentures bear interest at a rate
of 4 3/4% per annum. The interest rate will be reset on each of August 1, 2008,
August 1, 2011 and August 1, 2016 to a rate per annum equal to the interest rate
payable 120 days prior to such date on 5-year U.S. Treasury Notes, plus 43 basis
points. The reset rate will not be less than 4 3/4% and will not exceed 6 3/4%.
The Debentures will be convertible into our common stock initially at a
conversion price of $23.38 per share. At the initial conversion price, each
$1,000 principal amount of the Debentures will be convertible into approximately
43 shares of our common stock. We intend to use the net proceeds generated from
the offering for capital expenditures, working capital, and general corporate
purposes.
On August 1, 2001, we redeemed for cash the remaining $43 million of our
outstanding Senior Secured Notes.
On May 21, 2001, we called for redemption of the then outstanding $517.1 million
6% Convertible Subordinated Notes due 2005, which resulted in the conversion of
$509.6 million of such Notes, into approximately 28 million shares of our common
stock, net of unamortized debt issuance cost of $7.3 million. The remaining $0.2
million was paid in cash to investors.
On January 29, 2001, we announced that our Board of Directors had authorized a
program to repurchase up to $300 million worth of our common stock over a period
of time to be determined by management. These repurchases may be made in the
open market or in privately negotiated transactions from time to time in
compliance with the SEC's Rule 10b-18, subject to market conditions, applicable
legal requirements and other factors. This program does not obligate us to
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
acquire any particular amount of our common stock and the program may be
suspended at any time at our discretion. As of December 30, 2001, we had
acquired approximately 6.3 million shares of our common stock at an aggregate
cost of $77 million. Shares repurchased under this program will be used in
connection with our stock option plans.
We plan to make capital investments of approximately $850 million during 2002,
including amounts related to the continued facilitization of Dresden Fab 30. We
believe that cash flows from operations and current cash balances, together with
available external financing and the extension of existing facilities, will be
sufficient to fund operations and capital investments for at least the next 12
months.
- --------------------------------------------------------------------------------
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 141 "Business Combinations" (SFAS 141) and
Statement of Financial Accounting Standards No. 142 "Goodwill and Other
Intangible Assets" (SFAS 142). SFAS 141 requires all business combinations
initiated after June 30, 2001 to be accounted for using the purchase method.
Under SFAS 142, goodwill and intangible assets with indefinite lives are no
longer amortized but are reviewed annually (or more frequently if impairment
indicators arise) for impairment. Separable intangible assets that are not
deemed to have indefinite lives will continue to be amortized over their useful
lives (but with no maximum life). The amortization provisions of SFAS 142 apply
to goodwill and intangible assets acquired after June 30, 2001. With respect to
goodwill and intangible assets acquired prior to July 1, 2001, the amortization
and impairment provisions of SFAS 142 are effective upon the adoption of SFAS
142. We are required to adopt SFAS 141 and SFAS 142 at the beginning of 2002.
Presently these accounting standards would not have a material effect on our
consolidated financial statements as we do not have material amounts of
intangibles or any goodwill.
In August 2001, the Financial Accounting Standards Board issued Statement of
Accounting Standards No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets" (SFAS 144), which supersedes both Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of" (SFAS 121) and the
accounting and reporting provisions of APB Opinion No. 30, "Reporting the
Results of Operations-Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions" (Opinion 30), for the disposal of a segment of a business (as
previously defined in that Opinion). SFAS 144 retains the fundamental provisions
in SFAS 121 for recognizing and measuring impairment losses on long-lived assets
to be "held and used." In addition, the statement provides more guidance on
estimating cash flows when performing a recoverability test, requires that a
long-lived asset or group of assets to be disposed of other than by sale be
classified as "held-and-used" until they are disposed of, and establishes more
restrictive criteria to classify an asset or group of assets as "held for sale."
SFAS 144 also retains the basic provisions of Opinion 30 on how to present
discontinued operations in the income statement but broadens that presentation
to include a component of an entity (rather than a segment of a business). We
will adopt SFAS 144 at the beginning of 2002. We do not believe the adoption of
SFAS 144 will have a material impact on our operating results or financial
position.
- --------------------------------------------------------------------------------
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Interest Rate Risk. Our exposure to market risk for changes in interest rates
relates primarily to our investment portfolio and short-term debt obligations.
We mitigate default risk by investing in only the highest credit quality
securities and by constantly positioning our portfolio to respond appropriately
to a significant reduction in a credit rating of any investment issuer or
guarantor. The portfolio includes only marketable securities with active
secondary or resale markets to ensure portfolio liquidity. As stated in our
investment policy, we are averse to principal loss and ensure the safety and
preservation of our invested funds by limiting default risk and market risk.
We use proceeds from debt obligations primarily to support general corporate
purposes, including capital expenditures and working capital needs.
The following table presents the cost basis, fair value and related
weighted-average interest rates by year of maturity for our investment portfolio
and debt obligations as of December 30, 2001 and comparable fair values as of
December 31, 2000:
18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
- ------------------------------------------------------------------------------------------------------------------------------------
2001 2000
--------------------------------------------------------------------------------------------------------
(Thousands) 2002 2003 2004 2005 2006 Thereafter Total Fair value Fair value
- ------------------------------------------------------------------------------------------------------------------------------------
Investment portfolio
Cash equivalents:
Fixed rate amounts $125,334 $ - $ - $ - $ - $ - $125,334 $126,379 $ 202,010
Weighted-average rate 2.70% - - - - -
Variable rate amounts $152,122 - - - - - $152,122 $152,140 $ 78,300
Weighted-average rate 2.09% - - - - -
Short-term investments:
Fixed rate amounts $427,183 - - - - - $427,183 $426,359 $ 477,118
Weighted-average rate 4.17% - - - - -
Variable rate amounts $ 16,350 - - - - - $ 16,350 $ 16,350 $ 224,590
Weighted-average rate 2.86% - - - - -
Long-term investments:
Equity investments $ - - - - - $ 11,571 $ 19,342 $ 26,856
Fixed rate amounts $ 13,323 - - - - $ 13,323 $ 13,323 2,103
Weighted-average rate - 2.40%
Total Investment portfolio $720,989 $ 13,323 $ - $ - $ - $ - $745,883 $753,893 $1,010,977
- ------------------------------------------------------------------------------------------------------------------------------------
Debt Obligations
Debt-fixed rate amounts $187,024 $197,423 $ 145,544 $ 72,905 $ 270 $ 70 $603,236 $571,679 $ 853,288
Weighted-average rate 4.83% 5.23% 5.74% 6.49% 9.88% 9.88%
Notes payable to banks $ 63,362 $ - $ - $ - $ - $ - $ 63,362 $ 63,362 $ -
Weighted-average rate 5.23% - - - - -
Capital leases $ 10,779 $ 10,499 $ 8,765 $ 2,426 $ - $ - $ 32,469 $ 31,550 $ 15,874
Weighted-average rate 7.48% 7.38% 6.90% 6.75% - -
====================================================================================================================================
Total Debt Obligations $261,165 $207,922 $ 154,309 $ 75,331 $ 270 $ 70 $ 699,067 $ 666,591 $ 869,162
====================================================================================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Foreign Exchange Risk. We use foreign currency forward and option contracts to
reduce our exposure to currency fluctuations on our foreign currency exposures
in our foreign sales subsidiaries, on liabilities for products purchased from
FASL and AMD Saxony, and for foreign currency denominated fixed asset purchase
commitments. The objective of these contracts is to minimize the impact of
foreign currency exchange rate movements on our operating results and on the
cost of capital asset acquisition. Our accounting policy for these instruments
is based on our designation of such instruments as hedges of underlying exposure
to variability in cash flows. We do not use derivative financial instruments for
speculative or trading purposes.
We had an aggregate of $507 million (notional amount) of short-term foreign
currency forward contracts and option contracts denominated in Japanese yen,
European Union euro and Singapore dollar outstanding as of December 30, 2001.
Gains and losses related to the foreign currency forward and option contracts
for the year ended December 30, 2001 were not material. We do not anticipate any
material adverse effect on our consolidated financial position, results of
operations or cash flows resulting from the use of these instruments in the
future. We cannot give any assurance that these strategies will be effective or
that transaction losses can be minimized or forecasted accurately.
The table below provides information about our foreign currency forward and
option contracts as of December 30, 2001 and December 31, 2000. All of our
foreign currency forward contracts and option contracts mature within the next
12 months.
- ---------------------------------------------------------------------------------------------------------------------------
2001 2000
- ---------------------------------------------------------------------------------------------------------------------------
(Thousands except contract rates)
Notional Average Estimated Notional Average Estimated
amount contract rate fair value Amount contract rate fair value
- ---------------------------------------------------------------------------------------------------------------------------
Foreign currency forward contracts:
Japanese yen $105,895 122.76 $ (4,066) $ 54,915 110.22 $ (781)
British pound - - - 5,103 1.45 (16)
European Union euro 195,907 0.89 1,778 134,867 0.88 (1,602)
Singapore dollar 19,854 1.81 171 5,573 1.70 7
Thai baht - - - 6,712 39.52 (619)
- ---------------------------------------------------------------------------------------------------------------------------
Foreign currency option
contracts:
Japanese yen 86,400 125.00 (1,375) - - -
European Union euro 99,076 0.92 93 - - -
- ---------------------------------------------------------------------------------------------------------------------------
$507,132 $ (3,399) $207,170 $(3,011)
- ---------------------------------------------------------------------------------------------------------------------------
19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RISK FACTORS
We Depend Upon Market Demand for Our Flash Memory Products. The demand for Flash
memory devices continues to be weak due to the sustained downturn in the
communications and networking equipment industries and excess inventories held
by our customers. In addition, we expect competition in the market for Flash
memory devices to increase in 2002 and beyond as competing manufacturers
introduce new products and industry-wide production capacity increases. We may
be unable to maintain or increase our market share in Flash memory devices as
the market develops and Intel and other competitors introduce competitive
products. A decline in sales of our Flash memory devices and/or lower average
selling prices could have a material adverse effect on us.
In 2001, we announced a new memory cell architecture, our MirrorBit(TM)
technology that enables Flash memory products to hold twice as much data as
standard Flash memory devices. MirrorBit technology is expected to result in
reduced cost of our products. We plan to produce our first products with
MirrorBit technology in the second half of 2002. Any delay in our transition to
MirrorBit technology, or failure to achieve the cost savings we expect, could
reduce our ability to be competitive in the market and could have a material
adverse effect on us.
We Depend on the Commercial Success of Our Microprocessor Products. The
microprocessor market is characterized by short product life cycles and
migration to ever-higher performance microprocessors. To compete successfully
against Intel in this market, we must transition to new process technologies at
a fast pace and offer higher-performance microprocessors in significantly
greater volumes. If we fail to achieve yield and volume goals or to offer
higher-performance microprocessors in significant volume on a timely basis, we
could be materially adversely affected.
We must continue to market successfully our seventh-generation Microsoft Windows
compatible microprocessors, the AMD Athlon and AMD Duron microprocessors. To
sell the volume of AMD Athlon and AMD Duron microprocessors we currently plan to
manufacture through 2002, we must increase sales to existing customers and
develop new customers in both consumer and commercial markets. Our production
and sales plans for microprocessors are subject to other risks and
uncertainties, including:
o our ability to achieve a successful marketing position for the AMD Athlon
XP microprocessor, which relies on market acceptance of a metric based on
overall processor performance versus processor speed;
o our ability to maintain average selling prices of microprocessors despite
increasingly aggressive Intel pricing strategies, marketing programs, new
product introductions and product bundling of microprocessors,
motherboards, chipsets and combinations thereof;
o our ability to continue offering new higher performance microprocessors
competitive with Intel's Pentium 4 processor;
o our ability, on a timely basis, to produce microprocessors in the volume
and with the performance and feature set required by customers;
o the pace at which we are able to ramp production in Dresden Fab 30 on 0.13
micron copper interconnect process technology;
o our ability to expand our chipset and system design capabilities;
o the availability and acceptance of motherboards and chipsets designed for
our microprocessors; and
o the use and market acceptance of a non-Intel processor bus, adapted by us
from Digital Equipment Corporation's EV6 bus, in the design of our
seventh-generation and future generation microprocessors, and the
availability of chipsets from vendors who will develop, manufacture and
sell chipsets with the EV6 interface in volumes required by us.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Our ability to increase microprocessor product revenues and benefit fully from
the substantial investments we have made and continue to make related to
microprocessors depends on the continuing success of the AMD Athlon and AMD
Duron microprocessors, our seventh-generation processors, and future generations
of microprocessors, beginning with the eighth-generation "Hammer" family of
processors that we currently plan to introduce at the end of 2002.
If we fail to achieve continued and expanded market acceptance of our
seventh-generation microprocessors or if we fail to introduce in a timely
manner, or achieve market acceptance for, the Hammer microprocessors, we may be
materially adversely affected.
We Face Significant Competition from Intel Corporation. Intel has dominated the
market for microprocessors used in PCs for many years. As a result, Intel has
been able to control x86 microprocessor and PC system standards and dictate the
type of products the market requires of Intel's competitors. In addition, the
financial strength of Intel allows it to market its product aggressively, target
our customers and our channel partners with special incentives and discipline
customers who do business with us. These aggressive activities can result in
lower average selling prices for us and adversely affect our margins and
profitability. Intel also exerts substantial influence over PC manufacturers and
their channels of distribution through the "Intel Inside" brand program and
other marketing programs. As long as Intel remains in this dominant position, we
may be materially adversely affected by its:
o pricing and allocation strategies;
o product mix and introduction schedules;
o product bundling, marketing and merchandising strategies;
o control over industry standards, PC manufacturers and other PC industry
participants, including motherboard, chipset and basic input/output system
(BIOS) suppliers; and
o user brand loyalty.
We expect Intel to maintain its dominant position in the marketplace as well as
to continue to invest heavily in research and development, new manufacturing
facilities and other technology companies.
Intel also dominates the PC system platform. As a result, PC OEMs are highly
dependent on Intel, less innovative on their own and, to a large extent,
distributors of Intel technology.
In marketing our microprocessors to these OEMs and dealers, we depend on
companies other than Intel for the design and manufacture of core-logic
chipsets, graphics chips, motherboards, BIOS software and other components. In
recent years, many of these third-party designers and manufacturers have lost
significant market share or exited the business. In addition, these companies
produce chipsets, motherboards, BIOS software and other components to support
each new generation of Intel's microprocessors, and Intel has significant
leverage over their business opportunities.
Our microprocessors are not designed to function with motherboards and chipsets
designed to work with Intel micro-
20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
processors. Our ability to compete with Intel in the market for seventh-
generation and eighth-generation microprocessors will depend on our ability to
ensure that the microprocessors can be used in PC platforms designed to support
our microprocessors or that platforms are available that support both Intel
processors and our microprocessors. A failure of the designers and producers of
motherboards, chipsets, processor modules and other system components to support
our microprocessor offerings would have a material adverse effect on us.
The Cyclical Nature of the Semiconductor Industry May Limit Our Ability to
Maintain or Increase Revenue and Profit Levels During Industry Downturns. The
semiconductor industry is highly cyclical, to a greater extent than other less
dynamic or less technology-driven industries. In the past, including during 2001
and currently, our financial performance has been negatively affected by
significant downturns in the semiconductor industry as a result of:
o the cyclical nature of the demand for the products of semiconductor
customers;
o excess inventory levels by customers;
o excess production capacity; and
o accelerated declines in average selling prices.
If current conditions do not improve in the near term or if these or other
conditions in the semiconductor industry occur in the future, we will be
adversely affected.
Our Business Is Subject to Fluctuations in the Personal Computer Market. Our
business is closely tied to the personal computer industry. Industry-wide
fluctuations in the PC marketplace have materially adversely affected us,
including the industry downturn experienced during 2001 and currently, and may
materially adversely affect us in the future.
Worldwide Economic and Political Conditions May Affect Demand for Our Products.
The economic slowdown in the United States and worldwide, exacerbated by the
occurrence and threat of terrorist attacks and consequences of sustained
military action, has adversely affected demand for our microprocessors, Flash
memory devices and other integrated circuits. Similarly, a continued decline of
the worldwide semiconductor market or a significant decline in economic
conditions in any significant geographic area would likely decrease the overall
demand for our products, which could have a material adverse effect on us.
We Depend on Microsoft Corporation's Support for Our Products and Its Logo
License. Our ability to innovate beyond the x86 instruction set controlled by
Intel depends on support from Microsoft in its operating systems. If Microsoft
does not provide support in its operating systems for our x86 instruction sets,
independent software providers may forego designing their software applications
to take advantage of our innovations. In addition, we have entered into logo
license agreements with Microsoft that allow us to label our products as
"Designed for Microsoft Windows." If we fail to retain the support and
certification of Microsoft, our ability to market our processors could be
materially adversely affected.
We Will Have Significant Capital Requirements in 2002. We plan to continue to
make significant capital expenditures to support our microprocessor and Flash
memory products both in the near and long term, including $850 million in 2002.
These capital expenditures will be a substantial drain on our cash flow and may
also decrease our cash balances. To the extent that we
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
cannot generate the required capital internally or obtain such capital
externally, we could be materially adversely affected.
In March 1997, our indirect wholly owned subsidiary, AMD Saxony, entered into a
loan agreement and other related agreements with a consortium of banks led by
Dresdner Bank AG. These agreements require that we partially fund Dresden Fab 30
project costs in the form of subordinated loans to, and equity investments in,
AMD Saxony. We currently estimate that the construction and facilitization costs
of Dresden Fab 30 will be $2.5 billion when fully equipped by the end of 2003.
We had invested $1.8 billion as of December 30, 2001. If we are unable to meet
our obligations to AMD Saxony as required under these agreements, we will be in
default under the loan agreement, which would permit acceleration of
indebtedness.
We expect FASL JV2 and FASL JV3, including equipment, to cost approximately $2.4
billion when fully equipped. As of December 30, 2001, approximately $1.5 billion
of this cost had been funded. To the extent that additional funds are required
for the full facilitization of FASL JV2 and FASL JV3, we will be required to
contribute cash or guarantee third-party loans in proportion to our 49.992%
interest in FASL. In 2000, FASL further expanded its production capacity through
a foundry arrangement with Fujitsu Microelectronics, Inc. (FMI), a wholly owned
subsidiary of Fujitsu Limited. In connection with FMI equipping its wafer
fabrication facility in Gresham, Oregon (the Gresham Facility) to produce flash
memory devices for sale to FASL, we agreed to guarantee the repayment of up to
$125 million of Fujitsu's obligations as a co-signer with FMI under its global
multicurrency revolving credit facility (the Credit Facility) with a third-party
bank (the Guarantee). On November 30, 2001, Fujitsu announced that it was
closing the Gresham Facility, due to the downturn of the flash memory market. To
date, we have not received notice from Fujitsu that FMI has defaulted on any
payments due under the Credit Facility. Furthermore, subsequent to year end, we
were informed that amounts borrowed by FMI under the Credit Facility do not
become due until the end of March 2002. Accordingly, under the terms of the
Guarantee, we are not at this time, and were not at December 30, 2001, obligated
to make any payments to Fujitsu. However, subsequent to year end, Fujitsu
requested that we pay the entire $125 million under the Guarantee. Although we
disagree with Fujitsu as to the amount, if any, of our obligations under the
Guarantee, Fujitsu has indicated its belief that we are obligated to pay the
full $125 million. If we are unable to fulfill our obligations with respect to
FASL, our business could be materially and adversely affected.
While the FASL joint venture has been successful to date, there can be no
assurance that Fujitsu and AMD will elect to continue the joint venture in its
present form or at all.
Fluctuations in Demand for Our Products Relative to the Capacity of Our
Manufacturing Facilities Could Have a Material Adverse Effect on Us. Because we
cannot quickly adapt our manufacturing capacity to rapidly changing market
conditions, at times we underutilize our manufacturing facilities as a result of
reduced demand for certain of our products. We are substantially increasing our
manufacturing capacity by making significant capital investments in Dresden Fab
30, FASL JV3 and our test and assembly facility in Suzhou, China. If the
increase in demand for our products is not consistent with our expectations,
21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
we may underutilize our manufacturing facilities, and we could be materially
adversely affected. This has in the past had, and in the future may have, a
material adverse effect on our earnings.
We have also begun to convert our manufacturing facility in Austin, Texas (Fab
25) from production of microprocessors to production of our Flash memory
devices. At this time, the most significant risk is that we will have
underutilized capacity in Fab 25 as we continue to transition the production of
microprocessors out of Fab 25 and into Dresden Fab 30 and as we convert Fab 25
to a Flash memory device production facility while demand for flash memory
products remains depressed.
There may also be situations in which our manufacturing facilities are
inadequate to meet the demand for certain of our products. Our inability to
obtain sufficient manufacturing capacity to meet demand, either in our own
facilities or through foundry or similar arrangements with others, could have a
material adverse effect on us. Further, we cannot be certain that we will be
able to implement the process technology for the conversion of Fab 25 in a
timely manner. During this period of conversion, Fab 25 may not be fully
productive. Similarly, Dresden Fab 30 is expected to be fully facilitized by the
end of 2003. During this process, Dresden Fab 30 will not be fully productive. A
substantial delay in the successful conversion of Fab 25 or the facilitization
of Dresden Fab 30 could have a material adverse effect on us.
We Make Substantial Investments in Research and Development of Process
Technologies That May Not Be Successful. We make substantial investments in
research and development of process technologies in an effort to improve the
technologies and equipment used to fabricate our products. For example, the
successful development and implementation of silicon on insulator technology is
critical to the Hammer family of microprocessors currently under development.
However, we cannot be certain that we will be able to develop or obtain or
successfully implement leading-edge process technologies needed to fabricate
future generations of our products.
Any Substantial Interruption of or Problems with Our Manufacturing Operations
Could Materially Adversely Affect Us. Any substantial interruption of our
manufacturing operations, either as a result of a labor dispute, equipment
failure or other cause, could materially adversely affect us. Further,
manufacturing yields may be adversely affected by, among other things, errors
and interruptions in the fabrication process, defects in raw materials,
implementation of new manufacturing processes, equipment performance and process
controls. A decline in manufacturing yields may have a material adverse effect
on our earnings.
Our Products May not Be Compatible with Some or All Industry-Standard Software
and Hardware. It is possible that our products may not be compatible with some
or all industry-standard software and hardware. Further, we may be unsuccessful
in correcting any such compatibility problems in a timely manner. If our
customers are unable to achieve compatibility with software or hardware after
our products are shipped in volume, we could be materially adversely affected.
In addition, the mere announcement of an incompatibility problem relating to our
products could have a material adverse effect on us.
Costs Related to Defective Products Could Have a Material Adverse Effect on Us.
It is possible that one or more of our products may be found to be defective
after the product has been shipped to customers in volume. The cost of a recall,
software fix, product replacements and/or product returns may be substantial and
could have a material adverse effect on us. In addition, modifications needed to
fix the defect may impede performance of the product.
We Rely on the Availability of Essential Raw Materials to Manufacture Our
Products. Certain raw materials we use in the manufacture of our products are
available from a limited number of suppliers. Interruption of supply or
increased demand in the industry could cause shortages and price increases in
various essential materials. If we are unable to procure certain of
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
these materials, we might have to reduce our manufacturing operations. Such a
reduction could have a material adverse effect on us.
We Are Subject to Political and Economic Risks Associated with Our Operations in
Foreign Countries. Nearly all product assembly and final testing of our products
are performed at our manufacturing facilities in Penang, Malaysia; Bangkok,
Thailand; Suzhou, China; Japan; and Singapore; or by subcontractors in the
United States and Asia. We also depend on foreign foundry suppliers and joint
ventures for the manufacture of a portion of our finished silicon wafers and
have international sales operations. The political and economic risks associated
with our operations in foreign countries include:
o expropriation;
o changes in a specific country's or region's political or economic
conditions;
o trade protection measures and import or export licensing requirements;
o difficulty in protecting our intellectual property;
o changes in foreign currency exchange rates and currency controls;
o changes in freight and interest rates;
o disruption in air transportation between the United States and our overseas
facilities; and
o loss or modification of exemptions for taxes and tariffs;
any of which may have a material adverse effect on us.
We Rely on Our Ability to Attract and Retain Key Personnel. Our future success
depends upon the continued service of numerous key engineering, manufacturing,
marketing, sales and executive personnel. If we are not able to continue to
attract, retain and motivate qualified personnel necessary for our business, the
progress of our product development programs could be hindered, and we could be
otherwise adversely affected.
Our Operating Results are Subject to Substantial Quarterly and Annual
Fluctuations. Our operating results are subject to substantial quarterly and
annual fluctuations due to a variety of factors, including decreases in average
selling prices of our products, general worldwide economic conditions, the gain
or loss of significant customers, market acceptance of our products and new
product introductions by us or our competitors. In addition, changes in the mix
of products produced and sold in the mix of sales by distribution channels, in
the availability and cost of products from our suppliers or in production
capacity and manufacturing yields can contribute to periodic fluctuations in
operating results.
Our operating results also tend to vary seasonally. Our revenues are generally
lower in the first, second and third quarters of each year than in the fourth
quarter. This seasonal pattern is largely a result of decreased demand in Europe
during the summer months and higher demand in the retail sector of the PC
22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
market during the winter holiday season.
The Market for Our Products Is Subject to Rapid Technological Change. The market
for our products is generally characterized by rapid technological developments,
evolving industry standards, changes in customer requirements, frequent new
product introductions and enhancements, short product life cycles and severe
price competition. Our success depends substantially on our ability, on a
cost-effective and timely basis, to continue to enhance our existing products,
develop and introduce new products that take advantage of technological advances
and meet the demands of our customers.
We Face Intense Competition in the Integrated Circuit Industry. The integrated
circuit industry is intensely competitive. Products compete on performance,
quality, reliability, price, adherence to industry standards, software and
hardware compatibility, marketing and distribution capability, brand recognition
and availability. After a product is introduced, costs and average selling
prices normally decrease over time as production efficiency improves,
competitors enter the market and successive generations of products are
developed and introduced for sale. Failure to reduce our costs on existing
products or to develop and introduce, on a cost-effective and timely basis, new
products or enhanced versions of existing products with higher margins, would
have a material adverse effect on us.
Our Customers Can Cancel or Revise Purchase Orders Without Penalty. As a Result,
We Must Commit Resources to the Manufacture of Products Without Any Advance
Purchase Commitments from Customers. Sales of our products are made primarily
pursuant to purchase orders for current delivery or agreements covering
purchases over a period of time, which may be revised or canceled without
penalty. As a result, we must commit resources to the manufacture of products
without any advance purchase commitments from customers. Therefore, the failure
of demand for our products to match the supply of our products could result in
the expenditure of excess costs, which could have a material adverse effect on
us.
Our Obligations Under Specific Provisions in our Agreements with Distributors
Expose Us to Material Adverse Effects When We Experience an Unexpected
Significant Decline in the Price of Our Products. 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. The price protection and return
rights we offer to our distributors could materially adversely affect us if
there is an unexpected significant decline in the price of our products.
We May Not Be Able to Adequately Protect Our Technology or Other Intellectual
Property, in the United States and Abroad, Through Patents, Copyrights, Trade
Secrets, Trademarks and Other Measures. We may not be able to adequately protect
our technology or other intellectual property, in the United States and abroad,
through patents, copyrights, trade secrets, trademarks and other measures. Any
patent licensed by us or issued to us could be challenged, invalidated or
circumvented or rights granted thereunder may not provide a competitive
advantage to us. Further, patent applications that we file may not be issued.
Despite our efforts to protect our rights, others may independently develop
similar products, duplicate our products or design around our patents and other
rights. In addition, it is difficult to cost-effectively monitor compliance
with, and enforce, our intellectual property on a worldwide basis.
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
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
third party's intellectual property rights. We cannot assure you that all
necessary licenses can be obtained on satisfactory terms, if at all. We could
decide, in the alternative, to resort to litigation to challenge such claims.
Such challenges could be extremely expensive and time-consuming and could have a
material adverse effect on us. We cannot assure you that litigation related to
the intellectual property rights of us and others will always be avoided or
successfully concluded.
Our Inability to Effectively Transition to a New Enterprise Resource Planning
Program Could Have a Material Adverse Effect on Us. We are currently in the
process of transitioning to a new enterprise resource planning program. If we
are unsuccessful in transitioning to this new system in an effective and timely
manner, we could be materially adversely affected.
Failure to Comply with Applicable Environmental Regulations Could Materially
Adversely Affect our Business. Our business involves the use of hazardous
materials. If we fail to comply with governmental regulations related to the
use, storage, handling, discharge or disposal of toxic, volatile or otherwise
hazardous chemicals used in our manufacturing process, we may be subject to
fines, suspension of production, alteration of our manufacturing processes or
cessation of our operations. Such regulations could require us to procure
expensive remediation equipment or to incur other expenses to comply with
environmental regulations. Any failure to control the use of, disposal or
storage of, or adequately restrict the discharge of, hazardous substances could
subject us to future liabilities and could have a material adverse effect on us.
Violations of environmental laws may result in criminal and civil liabilities.
Terrorist Attacks, Such as the Attacks That Occurred in New York and Washington,
DC on September 11, 2001, and Other Acts of Violence or War May Materially
Adversely Affect the Markets in which We Operate, Our Operations and Our
Profitability. Terrorist attacks may negatively affect our operations. These
attacks or armed conflicts may directly impact our physical facilities or those
of our suppliers or customers. Furthermore, these attacks may make travel and
the transportation of our products more difficult and more expensive and
ultimately affect our sales.
Also as a result of terrorism, the United States has entered into an armed
conflict which could have a further impact on our sales, our supply chain, and
our ability to deliver products to our customers. Political and economic
instability in some regions of the world may also result and could negatively
impact our business. The consequences of any of these armed conflicts are
unpredictable, and we may not be able to foresee events that could have an
adverse effect on our business.
More generally, any of these events could cause consumer confidence and spending
to decrease or result in increased volatility in the United States and worldwide
financial markets and
23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
economy. They also could result in or exacerbate economic recession in the
United States or abroad. Any of these occurrences could have a significant
impact on our operating results, revenues and costs, volatility of the market
price for our securities and on the future price of our securities.
We Are Located in an Earthquake Zone. 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. In the event of a major earthquake, we could experience business
interruptions, destruction of facilities, and/or loss of life, all of which
could materially adversely affect us.
We Have a Substantial Amount of Debt and Debt Service Obligations, Which Could
Adversely Affect Our Financial Position. Our Loan Agreement provides for a
four-year secured revolving line of credit of up to $200 million, which
currently expires on July 14, 2003. Under this agreement, we can borrow, subject
to amounts which may be set aside by the lenders, up to 85% of our eligible
accounts receivable from OEMs and 50% of our eligible accounts receivable from
distributors. We must comply with certain financial covenants if the level of
cash we hold in the United States declines to certain levels. Our obligations
under this agreement are secured by a pledge of most of our accounts receivable,
inventory, general intangibles and the related proceeds. As of December 30,
2001, we had $50 million outstanding under the Loan Agreement, which has
subsequently been repaid.
Our indirect wholly owned subsidiary, AMD Saxony, is a party to a loan agreement
and other related agreements with a consortium of banks led by Dresdner Bank AG.
These agreements require that we partially fund Dresden Fab 30 project costs in
the form of subordinated loans to, or equity investments in, AMD Saxony. If we
are unable to meet our obligations to AMD Saxony as required under these
agreements, we will be in default under the Bank of America loan and security
agreement, which would permit acceleration of indebtedness under both
agreements. In addition, the Dresden Loan Agreement prohibits AMD Saxony from
paying any dividends, so cash held by AMD Saxony will not be available for the
repayment of the debentures.
To the extent that additional funds are required for the full facilitization of
FASL JV2 and FASL JV3, we will be required to contribute cash or guarantee
third-party loans in proportion to our 49.992% interest in FASL. If we are
unable to fulfill our obligations to FASL, our business could be materially and
adversely affected. In 2000, FASL further expanded its production capacity
through a foundry arrangement with Fujitsu Microelectronics, Inc. (FMI), a
wholly owned subsidiary of Fujitsu Limited. In connection with FMI equipping its
wafer fabrication facility in Gresham, Oregon (the Gresham Facility) to produce
flash memory devices for sale to FASL, we agreed to guarantee the repayment of
up to $125 million of Fujitsu's obligations as a co-signer with FMI under its
global multicurrency revolving credit facility (the Credit Facility) with a
third-party bank (the Guarantee). On November 30, 2001, Fujitsu announced that
it was closing the Gresham Facility, due to the downturn of the flash memory
market. To date, we have not received notice from Fujitsu that FMI has defaulted
on any payments due under the Credit Facility. Furthermore, subsequent to year
end, we were informed that amounts borrowed by FMI under the Credit Facility do
not become due until the end of March 2002. Accordingly, under the terms of the
Guarantee, we are not at this time, and were not at December 30, 2001, obligated
to make any payments to Fujitsu. However, subsequent to year end, Fujitsu
requested that we pay the entire $125 million under the Guarantee. Although we
disagree with Fujitsu as to the amount, if any, of our obligations under the
Guarantee, Fujitsu has indicated its belief that we are obligated to pay the
full $125 million.
On January 29, 2002, we closed a private offering of $500 million aggregate
principal amount of its 4 3/4% Convertible Senior Debentures Due 2022 (the
Debentures). The Debentures bear interest at a rate of 4 3/4% per annum. The
interest rate will be reset on each of August 1, 2008, August 1, 2011 and August
1, 2016 to a rate per annum equal to the interest rate payable 120 days prior to
such date on 5-year U.S. Treasury Notes, plus 43 basis points. The reset rate
will not be less than 4 3/4% and will not exceed 6 3/4%.
Our ability to make payments on and to refinance our debt or our guarantees of
other parties' debts will depend on our financial and operating performance,
which may fluctuate significantly from quarter to quarter and is subject to
prevailing economic conditions and to financial, business and other factors
beyond our control. We cannot assure you that our business will generate
sufficient cash flow from operations or that future borrowings will be available
to us under our Loan Agreement in an amount sufficient to enable us to pay our
debt or Debentures, or to fund our other liquidity needs. We may need to
refinance all or a portion of our debt, including the Debentures, on or before
maturity. We cannot assure you that we will be able to
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
refinance any of our debt, including our Loan Agreement or the Debentures, on
commercially reasonable terms or at all.
We may incur substantial additional debt in the future. As of December 30, 2001,
we had the ability to borrow $150 million under the loan and security agreement,
and currently have the ability to borrow the full $200 million. If new debt is
added to our and our subsidiaries' current debt levels, the risk of our
inability to repay our debt, including the Debentures, could intensify.
The Price of Our Common Stock Continues to Be Highly Volatile. Based on the
trading history of our common 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:
o quarterly fluctuations in our operating and financial results;
o announcements of new technologies, products and/or pricing by us or our
competitors;
o the pace of new process technology and product manufacturing ramps;
o fluctuations in the stock price and operating results of our competitors,
particularly Intel;
o changes in earnings estimates or buy/sell recommendations by financial
analysts;
o changes in the ratings of our debentures or other securities;
o production yields of key products; and
o general conditions in the semiconductor industry.
In addition, an actual or anticipated shortfall in revenue, gross margins or
earnings from securities analysts' expectations could have an immediate effect
on the trading price of our common stock. Technology company stocks in general
have experienced extreme price and volume fluctuations that are often unrelated
to the operating performance of the companies. Market volatility may adversely
affect the market price of our common stock, which could affect the price of our
debentures and limit our ability to raise capital or to make acquisitions.
24
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Years Ended December 30, 2001
(Thousands except per share amounts) 2001 2000 1999
- -----------------------------------------------------------------------------------------------------------
Net sales $ 3,891,754 $4,644,187 $2,857,604
Expenses:
Cost of sales 2,589,747 2,514,637 1,964,434
Research and development 650,930 641,799 635,786
Marketing, general and administrative 620,030 599,015 540,070
Restructuring and other special charges 89,305 - 38,230
- -----------------------------------------------------------------------------------------------------------
3,950,012 3,755,451 3,178,520
- -----------------------------------------------------------------------------------------------------------
Operating income (loss) (58,258) 888,736 (320,916)
Gain on sale of Vantis - - 432,059
Gain on sale of Legerity - 336,899 -
Interest and other income, net 25,695 86,301 31,735
Interest expense (61,360) (60,037) (69,253)
- -----------------------------------------------------------------------------------------------------------
Income (loss) before income taxes, equity in net income of
joint venture and extraordinary item (93,923) 1,251,899 73,625
Provision (benefit) for income taxes (14,463) 256,868 167,350
- -----------------------------------------------------------------------------------------------------------
Income (loss) before equity in net income of joint venture and
extraordinary item (79,460) 995,031 (93,725)
Equity in net income of joint venture 18,879 11,039 4,789
- -----------------------------------------------------------------------------------------------------------
Net income (loss) before extraordinary item (60,581) 1,006,070 (88,936)
Extraordinary item - debt retirement, net of $13,497 tax benefit - (23,044) -
- -----------------------------------------------------------------------------------------------------------
Net income (loss) $ (60,581) $ 983,026 $ (88,936)
- -----------------------------------------------------------------------------------------------------------
Net income (loss) per common share:
Basic - income (loss) before extraordinary item $ (0.18) $ 3.25 $ (0.30)
Diluted - income (loss) before extraordinary item $ (0.18) $ 2.95 $ (0.30)
- -----------------------------------------------------------------------------------------------------------
Basic - income (loss) after extraordinary item $ (0.18) $ 3.18 $ (0.30)
Diluted - income (loss) after extraordinary item $ (0.18) $ 2.89 $ (0.30)
Shares used in per share calculations:
Basic 332,407 309,331 294,577
Diluted 332,407 350,000 294,577
===========================================================================================================
See accompanying notes
25
CONSOLIDATED BALANCE SHEETS
December 30, 2001, and December 31, 2000
(Thousands except share and per share amounts) 2001 2000
- ------------------------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 427,288 $ 591,457
Short-term investments 442,709 701,708
- ------------------------------------------------------------------------------------------------------
Total cash, cash equivalents and short-term investments 869,997 1,293,165
Accounts receivable, net of allowance for doubtful accounts
of $19,270 in 2001 and $22,712 in 2000 659,783 547,200
Inventories:
Raw materials 26,489 34,413
Work-in-process 236,679 154,854
Finished goods 117,306 154,274
- ------------------------------------------------------------------------------------------------------
Total inventories 380,474 343,541
Deferred income taxes 155,898 218,527
Prepaid expenses and other current assets 286,957 255,256
- ------------------------------------------------------------------------------------------------------
Total current assets 2,353,109 2,657,689
Property, plant and equipment:
Land 33,207 33,094
Buildings and leasehold improvements 1,461,228 1,420,313
Equipment 4,162,652 3,563,125
Construction in progress 469,191 445,269
- ------------------------------------------------------------------------------------------------------
Total property, plant and equipment 6,126,278 5,461,801
Accumulated depreciation and amortization (3,387,140) (2,825,334)
- ------------------------------------------------------------------------------------------------------
Property, plant and equipment, net 2,739,138 2,636,467
Investment in joint venture 363,611 261,728
Other assets 191,384 211,851
- ------------------------------------------------------------------------------------------------------
$ 5,647,242 $ 5,767,735
======================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to banks $ 63,362 $ -
Accounts payable 304,990 477,369
Accrued compensation and benefits 129,042 172,815
Accrued liabilities 443,995 276,721
Income taxes payable 56,234 74,806
Deferred income on shipments to distributors 47,978 92,828
Current portion of long-term debt, capital lease obligations and other 268,336 129,570
- ------------------------------------------------------------------------------------------------------
Total current liabilities 1,313,937 1,224,109
Deferred income taxes 105,305 203,986
Long-term debt, capital lease obligations and other, less current portion 672,945 1,167,973
Commitments and contingencies
Stockholders' equity:
Capital stock:
Common stock, par value $0.01; 750,000,000 shares authorized in
2001 and 2000; 340,502,883 shares issued and outstanding in 2001
and 314,137,160 in 2000 3,405 3,141
Capital in excess of par value 1,966,374 1,406,290
Treasury stock, at cost: 6,310,580 shares (77,157) -
Retained earnings 1,795,680 1,856,261
Accumulated other comprehensive loss (133,247) (94,025)
- ------------------------------------------------------------------------------------------------------
Total stockholders' equity 3,555,055 3,171,667
- ------------------------------------------------------------------------------------------------------
$ 5,647,242 $ 5,767,735
======================================================================================================
See accompanying notes
26
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Common Stock
------------ Accumulated
Capital in other Total
Three Years Ended December 30, 2001 Number excess of Treasury Retained comprehensive stockholders'
(Thousands) of shares Amount par value Stock Earnings income (loss) equity
- --------------------------------------------- --------- ---------- ------------- --------- --------- ------------- -------------
December 27, 1998 290,954 $ 2,910 $ 1,070,146 $ - $ 962,171 $ (30,178) $ 2,005,049
====================================================================================================================================
Comprehensive income (loss):
Net loss - - - - (88,936) - (88,936)
Other comprehensive income (loss):
Net change in unrealized gains (losses)
on investments, net of taxes of $2,635 - - - - - 12,121 12,121
Less: Reclassification adjustment for
gains included in earnings - - - - - (4,603) (4,603)
Net change in cumulative translation
adjustments - - - - - (5,246) (5,246)
------------
Total other comprehensive income 12,764
------------
Total comprehensive loss (76,172)
------------
Issuance of shares:
Employee stock plans 5,358 53 31,126 - - - 31,179
Fujitsu Limited 1,000 10 12,588 - - - 12,598
Compensation recognized under employee
stock plans - - 6,619 - - - 6,619
- --------------------------------------------- --------- ---------- ------------- --------- --------- ------------ -----------
December 26, 1999 297,312 2,973 1,120,479 - 873,235 (17,414) 1,979,273
====================================================================================================================================
Comprehensive income (loss):
Net income - - - - 983,026 - 983,026
Other comprehensive income:
Net change in unrealized gains
(losses) on investments,
net of taxes of $745 - - - - - (1,135) (1,135)
Net change in cumulative translation
adjustments - - - - - (75,476) (75,476)
------------
Total other comprehensive loss (76,611)
------------
Total comprehensive income 906,415
------------
Issuance of shares:
Employee stock plans 16,805 168 122,826 - - - 122,994
Conversion of our 6% Subordinated Notes 20 - 360 - - - 360
Income tax benefits realized from
employee stock option exercises - - 158,253 - - - 158,253
Compensation recognized under employee
stock plans - - 4,372 - - - 4,372
- --------------------------------------------- --------- ---------- ------------- --------- --------- ------------ -----------
December 31, 2000 314,137 3,141 1,406,290 - 1,856,261 (94,025) 3,171,667
====================================================================================================================================
Comprehensive income (loss):
Net loss - - - - (60,581) - (60,581)
Other comprehensive income (loss):
Net change in unrealized gains (losses)
on investments, net of taxes of $5,166 - - - - - (9,655) (9,655)
Plus: Reclassification adjustment
for losses included in earnings - - - - - 1,583 1,583
Net change in cumulative translation
adjustments - - - - - (27,751) (27,751)
Net change in unrealized losses on cash
flow hedges - - - - - (3,399) (3,399)
------------
Total other comprehensive loss (39,222)
------------
Total comprehensive loss (99,803)
------------
Issuance of shares:
Employee stock plans 4,734 47 44,029 - - - 44,076
Conversion of 6% Subordinated Notes 27,943 280 509,310 - - - 509,590
Common stock repurchases (6,311) (63) - (77,157) - - (77,220)
Premium from put options issued in
Company stock - - 2,153 - - - 2,153
Compensation recognized under
employee stock plans - - 4,592 - - - 4,592
- --------------------------------------------- --------- ---------- ------------- --------- ---------- ------------ -----------
December 30, 2001 340,503 $ 3,405 $ 1,966,374 $(77,157) $1,795,680 $ (133,247) $ 3,555,055
====================================================================================================================================
See accompanying notes
27
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Years Ended December 30, 2001
(Thousands) 2001 2000 1999
- --------------------------------------------------------------- ----------- ----------- -----------
Cash flows from operating activities:
Net income (loss) $ (60,581) $ 983,026 $ (88,936)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Gain on sale of Vantis - - (432,059)
Gain on sale of Legerity - (336,899) -
Depreciation 601,673 558,378 491,424
Amortization 21,194 20,692 24,096
Provision for doubtful accounts 9,791 8,154 3,543
Impairment of equity investments 27,164 - -
(Increase) decrease in deferred income tax assets (36,052) (19,076) 159,964
Restructuring and other special charges 81,768 - 29,858
Foreign grant and subsidy income (57,156) (35,187) (50,178)
Net loss on disposal of property, plant and equipment 22,371 10,380 10,665
Net loss (gain) realized on sale of
available-for-sale securities 1,565 - (4,250)
Compensation recognized under employee stock plans 4,592 867 2,655
Undistributed income of joint venture (18,879) (11,039) (4,789)
Recognition of deferred gain on sale of building (1,681) (1,681) (1,680)
Changes in operating assets and liabilities:
Increase in accounts receivable (122,174) (140,479) (48,069)
Increase in inventories (36,975) (156,284) (23,138)
Decrease (increase) in prepaid expenses 28,560 79,293 (101,786)
(Increase) decrease in other assets (88,775) (269,392) 55,485
Income tax benefits from employee stock option
exercises - 158,253 -
Increase (decrease) in tax refund receivable and tax
payable (52,288) 57,479 (4,288)
(Refund) receipt of customer deposits under LT purchase
agreements (39,000) 142,500 -
Net (decrease) increase in payables and accrued
liabilities (117,472) 156,567 241,403
- --------------------------------------------------------------- ----------- ----------- -----------
Net cash provided by operating activities 167,645 1,205,552 259,920
- --------------------------------------------------------------- ----------- ----------- -----------
Cash flows from investing activities:
Purchases of property, plant and equipment (678,865) (805,474) (619,772)
Proceeds from sale of Vantis - - 454,269
Proceeds from sale of Legerity - 375,000 -
Proceeds from sale of property, plant and equipment 1,737 12,899 3,996
Purchases of available-for-sale securities (4,130,769) (4,179,993) (1,579,813)
Proceeds from sale and maturity of available-for-sale
securities 4,376,732 3,781,766 1,598,946
Investment in joint venture (122,356) - -
- --------------------------------------------------------------- ----------- ----------- -----------
Net cash used in investing activities (553,521) (815,802) (142,374)
- --------------------------------------------------------------- ----------- ----------- -----------
Cash flows from financing activities:
Proceeds from notes payable to banks 63,363 - -
Proceeds from borrowings 308,457 135,789 12,101
Payments on debt and capital lease obligations (137,104) (375,016) (243,762)
Proceeds from foreign grants and subsidies 37,510 15,382 14,341
Proceeds from issuance of stock 36,706 122,994 43,777
Repurchase of common stock (77,220) - -
- --------------------------------------------------------------- ----------- ----------- -----------
Net cash provided by (used in) financing activities 231,712 (100,851) (173,543)
- --------------------------------------------------------------- ----------- ----------- -----------
Effect of exchange rate changes on cash and cash equivalents (10,005) 8,433 (11,786)
Net increase (decrease) in cash and cash equivalents (164,169) 297,332 (67,783)
- --------------------------------------------------------------- ----------- ----------- -----------
Cash and cash equivalents at beginning of year 591,457 294,125 361,908
- --------------------------------------------------------------- ----------- ----------- -----------
Cash and cash equivalents at end of year $ 427,288 $ 591,457 $ 294,125
=========================================================================================================
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest, net of amounts capitalized $ 52,749 $ 115,791 $ 51,682
Income taxes $ 68,220 $ 46,009 $ 15,466
=========================================================================================================
Non-cash financing activities:
Debt converted to common stock $ 509,590 $ - $ -
Equipment capital leases $ 24,255 $ - $ 2,307
=========================================================================================================
See accompanying notes
28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 30, 2001, December 31, 2000 and December 26, 1999
NOTE 1: NATURE OF OPERATIONS
AMD (the Company) is a semiconductor manufacturer with manufacturing facilities
in the United States, Europe and Asia Pacific and sales offices throughout the
world. The Company's products include a variety of industry-standard digital
integrated circuits (ICs) that are used in many diverse product applications
such as telecommunications equipment, data and network communications equipment,
consumer electronics, personal computers (PCs), workstations and servers.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Fiscal Year. The Company uses a 52- to 53-week fiscal year ending on the last
Sunday in December. Fiscal 2001 and 1999 were 52-week years, which ended on
December 30 and December 26, respectively. Fiscal 2000 was a 53-week year, which
ended on December 31, 2000. Fiscal 2002 will be a 52-week year ending December
29, 2002.
Investments. The Company classifies its marketable debt and equity securities at
the date of acquisition, into either held-to-maturity or available-for-sale
categories. Currently, the Company classifies all securities as
available-for-sale. These securities are reported at fair market value with the
related unrealized gains and losses included in other comprehensive income
(loss), net of tax, a component of stockholders' equity. Realized gains and
losses and declines in the value of securities determined to be
other-than-temporary are included in interest and other income, net. Interest
and dividends on all securities are also included in interest and other income,
net. The cost of securities sold is based on the specific identification method.
The Company classifies investments with maturities between three and 12 months
as short-term investments. Short-term investments consist of money market
auction rate preferred stocks and debt securities such as commercial paper,
corporate notes, certificates of deposit and marketable direct obligations of
United States governmental agencies. Available for sale securities with
maturities greater than twelve months are classified as short-term, as they
represent investments of cash that are for current operations.
Revenue Recognition. The Company recognizes revenue from products sold directly
to customers when persuasive evidence of an arrangement exists, the price is
fixed or determinable, shipment is made and collectibility is reasonably
assured. The Company sells to distributors under terms allowing the distributors
certain rights of return and price protection on unsold merchandise held by
them. The distributor agreements, which may be canceled by either party upon
specified notice, generally contain a provision for the return of the Company's
products in the event the agreement with the distributor is terminated and such
products have not yet been sold by the distributor. Accordingly, the Company
defers recognition of revenue and related profits from sales to distributors
with agreements that have the aforementioned terms until the merchandise is
resold by the distributors. The Company also sells its products to distributors
with substantial independent operations under sales arrangements whose terms do
not allow for rights of return or price protection on unsold products held by
them. In these instances, the
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Company recognizes revenue when it ships the product directly to the
distributors. Shipping and handling costs associated with product sales are
included in cost of sales.
Investments in Derivative Financial Instruments Indexed to Advanced Micro
Devices Stock. In November 2000, the Financial Accounting Standards Board (FASB)
Emerging Issues Task Force ("EITF") reached a final consensus on EITF issue No.
00-19, "`Determination of Whether Share Settlement is Within the Control of the
Issuer' for purposes of applying EITF Issue No. 96-13, `Accounting for
Derivative Financial Instruments Indexed to, and Potentially Settled in, a
Company's Own Stock'" ("EITF 00-19" or "the Consensus"). EITF 96-13 addresses
accounting for equity derivative contracts indexed to, and potentially settled
in, a company's own stock ("equity derivatives") by providing guidance for
distinguishing between permanent equity, temporary equity and assets and
liabilities. EITF 00-19 addresses and clarifies whether specific contract
provisions or other circumstances cause a net-share or physical settlement
alternative to be within or outside the control of the issuer.
To qualify as permanent equity, all the following criteria must be met: the
equity derivative contract must permit the Company to settle in unregistered
shares; the Company must have sufficient authorized but unissued shares
available to settle the contract; the contract must contain an explicit limit on
the number of shares to be delivered in a share settlement; there can be no
requirement in the contract to post collateral; there can be no "make whole"
provisions in the contract; and there can be no provisions in the contract that
indicate the counterparty has rights that rank higher than those of a common
shareholder. Equity derivative contracts accounted for as permanent equity are
recorded at their initial fair value and subsequent changes in fair value are
not recognized unless a change in the contracts' classification occurs. Equity
derivative contracts not qualifying for permanent equity accounting are recorded
at fair value as an asset or liability with subsequent changes in fair value
recognized through the statement of operations.
During the year ended December 30, 2001, the Company sold equity derivatives
indexed to and potentially settled in its own stock and recorded the premiums
received as permanent equity under the provisions of the Consensus. Premiums
received during 2001 totaled approximately $2 million. At December 30, 2001,
there were no contracts outstanding.
29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Impairment of Long-Lived Assets. If indicators of impairment of long-lived
assets are present, the Company determines whether the sum of the estimated
undiscounted cash flows attributable to the assets in question is less than
their carrying value. If less, the Company recognizes an impairment loss based
on the excess of the carrying amount of the assets over their respective fair
values. If the assets determined to be impaired are to be held for use, the
Company recognizes an impairment charge to the extent the present value of
anticipated net cash flows attributable to the asset is less than the asset's
carrying value.
Treasury Stock. The Company accounts for treasury stock using the cost method.
Principles of Consolidation. The consolidated financial statements include the
Company's accounts and those of its wholly owned subsidiaries. Upon
consolidation, all significant intercompany accounts and transactions are
eliminated. Also included in the financial statements, under the equity method
of accounting, is the Company's 49.992 percent share of the operating results of
Fujitsu AMD Semiconductor Limited (FASL).
Foreign Currency Translation. The functional currency of the Company's foreign
subsidiaries, except AMD Saxony, is the U.S. dollar. The functional currency of
AMD Saxony and the Company's unconsolidated joint venture, FASL, are their local
currencies. Translation adjustments resulting from the process of remeasuring
the foreign currency financial statements of the Company's foreign subsidiaries
are included in operations. Adjustments resulting from translating the foreign
currency financial statements of AMD Saxony and FASL are included in
stockholders' equity.
Cash Equivalents. Cash equivalents consist of financial instruments that are
readily convertible into cash and have original maturities of three months or
less at the time of acquisition.
Derivative Financial Instruments. On January 1, 2001, the Company adopted
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS 133). SFAS 133 requires the Company to
record all derivatives on the balance sheet at fair value. Derivatives that are
not hedges must be adjusted to fair value through operating results. If the
derivative is a hedge, depending on the nature of the hedge, changes in the fair
value of the derivative are either offset against the change in fair value of
assets, liabilities or firm commitments through operations (fair value hedges)
or recognized in other comprehensive income until the hedged item is recognized
in operations (cash flow hedges). The ineffective portion of a derivative's
change in fair value is immediately recognized in operations. As of January 1,
2001, the Company had entered into foreign currency forward contracts to hedge
the gains and losses generated by the remeasurement of foreign currency
denominated intercompany accounts into U.S. dollars. As a result, these
derivatives, which were not designated as hedges, were recorded at fair value,
with changes in their fair value recognized in operations. Accordingly, the
initial adoption of SFAS 133 had no impact on the Company's consolidated
financial position or operating results. These transactions in 2001 were
denominated in Japanese yen, British pounds, Thai baht, Singapore dollars and
European Union euros.
The Company purchases a significant volume of inventory from FASL, AMD's
unconsolidated joint venture in Japan, and from AMD Saxony. Purchases from FASL
and AMD Saxony are denominated in yen and euros, respectively. Therefore, in the
normal course of business, the Company's financial position is routinely
subjected to market risk associated with foreign currency rate fluctuations. The
Company's general practice is to ensure that material business exposure to
foreign exchange risks are identified, measured and minimized using the most
effective and efficient methods to eliminate or reduce such exposures. To
protect against the reduction in value of forecasted yen and euro denominated
cash flows resulting from these transactions, the Company has instituted a
foreign currency cash flow hedging program. Under this program, the Company
purchases foreign currency forward contracts and sells or purchases foreign
currency option contracts, generally expiring within twelve months, to hedge
portions of its forecasted foreign currency denominated cash flows. The hedging
transactions in 2001 were denominated in yen and euros. These foreign currency
contracts are carried on the Company's balance sheet at fair value with the
effective portion of the contracts' gain or loss initially
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
recorded in accumulated other comprehensive income (a component of stockholders'
equity) and subsequently recognized in operations in the same period the hedged
forecasted transaction affects operations. Generally, the gain or loss on
derivative contracts, when recognized in operations, offsets the gain or loss on
the hedged foreign currency assets, liabilities, or firm commitments. The
Company does not use derivatives for trading purposes.
The effectiveness test for these foreign currency contracts utilized by the
Company is the fair value to fair value comparison method. The Company includes
in its effectiveness assessment the time value portion of the change in value of
the currency forward contract.
If a cash flow hedge should be discontinued because it is probable that the
original forecasted transaction will not occur, the net gain or loss in
accumulated other comprehensive income will be reclassified into operations as a
component of income and expense. No such amounts were recorded in operations
during the year ended December 30, 2001.
Premiums paid for foreign currency forward and option contracts are immediately
charged to operations.
Inventories. Inventories are stated at standard cost adjusted to approximate the
lower of cost (first-in, first-out method) or market (net realizable value).
Inventories on hand, in excess of forecasted demand, generally six months or
less, are not valued. Obsolete inventories are written off.
Property, Plant and Equipment. Property, plant and equipment are stated at cost.
Depreciation and amortization are provided on a straight-line basis over the
estimated useful lives of the assets for financial reporting purposes. Estimated
useful lives for financial reporting purposes are as follows:
o machinery and equipment, three to five years;
o buildings, up to 26 years; and
o leasehold improvements, the shorter of the remaining terms of the leases or
the estimated economic useful lives of the improvements.
30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Foreign Grants and Subsidies. The Federal Republic of Germany and the State of
Saxony have agreed to support the Dresden Fab 30 project in the amount of $428
million, consisting of capital investment grants and interest subsidies. Dresden
Fab 30 is the Company's integrated circuit manufacturing and design facility in
Dresden, Germany. The grants and subsidies are subject to conditions, including
meeting specified levels of employment as of December 2001 and maintaining those
levels until June 2007. As of December 30, 2001, AMD Saxony had received grants
and subsidies totaling approximately $348 million. 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 the amounts received to date. There have been no conditions of
noncompliance through December 30, 2001 that would result in forfeiture of any
of the grants and subsidies. The grants and subsidies are being recognized as a
reduction of operating expense ratably over the life of the project. In 2001,
grants and subsidies recognized as a reduction to operating expenses amounted to
$57 million. Grants and subsidies received but not yet recognized in operations
as of December 30, 2001, were approximately $206 million.
Advertising Expenses. The Company accounts for advertising costs as expenses in
the period in which they are incurred. Advertising expenses for 2001, 2000 and
1999 were approximately $184 million, $148 million and $101 million,
respectively.
Net Income (Loss) Per Common Share. Basic net income (loss) per common share is
computed using the number of weighted-average common shares outstanding. Diluted
net income (loss) per common share is computed using weighted-average common
shares and weighted-average dilutive potential common shares outstanding.
The following table sets forth the computation of basic and diluted net income
(loss) per common share:
- ----------------------------------------------------------------------------------------------------------
(Thousands except per share data) 2001 2000 1999
- ----------------------------------------------------------------------------------------------------------
Numerator:
Numerator for basic income (loss) per common share before
extraordinary item $ (60,581) $ 1,006,070 $(88,936)
Numerator for basic extraordinary loss per common share - (23,044) -
-------------------------------------------
Numerator for basic income (loss) per common share $ (60,581) $ 983,026 $(88,936)
Numerator for basic income (loss) per common share before
extraordinary item $ (60,581) $ 1,006,070 $(88,936)
Effect of adding back interest expense associated with
convertible debentures - 27,507 -
-------------------------------------------
Numerator for diluted income (loss) per common share before
extraordinary item $ (60,581) $ 1,033,127 $(88,936)
Numerator for diluted extraordinary loss per common share - (23,044) -
-------------------------------------------
Numerator for diluted income (loss) per common share $ (60,581) $ 1,010,083 $(88,936)
Denominator:
Denominator for basic income (loss) per common share -
weighted-average shares 332,407 309,331 294,577
Effect of dilutive securities:
Employee stock options - 12,711 -
Convertible debentures - 27,958 -
----------------------------------------
Dilutive potential common shares - 40,669 -
----------------------------------------
Denominator for diluted income (loss) per common share -
adjusted weighted-average shares 332,407 350,000 294,577
Net income (loss) per common share:
Basic:
Income (loss) before extraordinary item $ (0.18) $ 3.25 $ (0.30)
Extraordinary item $ - $ (0.07) $ -
Net income (loss) $ (0.18) $ 3.18 $ (0.30)
Diluted:
Income (loss) before extraordinary item $ (0.18) $ 2.95 $ (0.30)
Extraordinary item $ - $ (0.06) $ -
Net income (loss) $ (0.18) $ 2.89 $ (0.30)
- ----------------------------------------------------------------------------------------------------------
31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In 2001 and 1999, approximately 14.4 million and 8.5 million of potential common
shares were excluded from the computation of diluted net loss per common share
because the effect in years with a net loss would be antidilutive.
Accumulated Other Comprehensive Income (Loss). Unrealized gains or losses on the
Company's available-for-sale securities, deferred gains and losses on derivative
financial instruments qualifying as cash flow hedges and foreign currency
translation adjustments are included in accumulated other comprehensive income
(loss).
The following are the components of accumulated other comprehensive income
(loss):
- ------------------------------------------------------------------------------------------------
(Thousands) 2001 2000
---- ----
Unrealized gain on investments, net of taxes of $2,939 $ 5,071 $ 13,143
Net unrealized loss on cash flow hedges (3,399) -
Cumulative translation adjustments (134,919) (107,168)
--------- ---------
$(133,247) $ (94,025)
========= =========
- ------------------------------------------------------------------------------------------------
Stock-based Compensation and Employee Stock Plans. The Company uses the
intrinsic value method under APB Opinion No. 25 to account for stock options
issued to its employees under its stock option plans and amortizes deferred
compensation over the vesting period of the options. See Note 10.
Use of Estimates. The preparation of consolidated financial statements in
conformity with accounting principles generally accepted in the United States
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of commitments and
contingencies at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting periods. Actual results are likely
to differ from those estimates, and such differences may be material to the
financial statements.
New Accounting Pronouncements. In July 2001, the FASB issued Statement of
Financial Accounting Standards No. 141 "Business Combinations" (SFAS 141) and
Statement of Financial Accounting Standards No. 142 "Goodwill and Other
Intangible Assets" (SFAS 142). SFAS 141 requires all business combinations
initiated after June 30, 2001 to be accounted for using the purchase method.
Under SFAS 142, goodwill and intangible assets with indefinite lives are no
longer amortized but are reviewed annually (or more frequently if impairment
indicators arise) for impairment. Separable intangible assets that are not
deemed to have indefinite lives will continue to be amortized over their useful
lives (but with no maximum life). The amortization provisions of SFAS 142 apply
to goodwill and intangible assets acquired after June 30, 2001. With respect to
goodwill and intangible assets acquired prior to July 1, 2001, the amortization
and impairment provisions of SFAS 142 are effective upon the adoption of SFAS
142. The Company is required to adopt SFAS 141 and SFAS 142 at the beginning of
2002. Presently these accounting standards would not have a material effect on
the Company's consolidated financial statements as the Company does not have
material amounts of intangibles or any goodwill.
In August 2001, the FASB issued Statement of Accounting Standards No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets" (SFAS 144),
which supersedes both Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of" (SFAS 121) and the accounting and reporting provisions of APB
Opinion No. 30, "Reporting the Results of Operations-Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions" (Opinion 30), for the disposal of a segment
of a business (as previously defined in that Opinion). SFAS 144 retains the
fundamental provisions in SFAS 121 for recognizing and measuring impairment
losses on long-lived assets to be "held and used." In addition, the statement
provides more guidance on estimating cash flows when performing a recoverability
test, requires that a long-lived asset or group of assets to be disposed of
other than
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
by sale be classified as "held and used" until they are disposed of, and
establishes more restrictive criteria to classify an asset or group of assets to
be "held for sale." SFAS 144 retains the basic provisions of Opinion 30 on how
to present discontinued operations in the income statement but broadens that
presentation to include a component of an entity (rather than a segment of a
business). The Company will adopt SFAS 144 at the beginning of 2002. The Company
does not believe the adoption of SFAS 144 will have a material impact on its
operating results or financial position.
NOTE 3: SALE OF SUBSIDIARIES
The Company sold 90 percent of Legerity for approximately $375 million in cash
to Francisco Partners, L.P., effective July 31, 2000. Prior to the sale,
Legerity was a wholly owned subsidiary of AMD, selling voice communications
products. The Company's pretax gain on the sale of Legerity was $337 million.
The gain was computed based on the excess of the consideration received for
Legerity's net assets as of July 31, 2000, less direct expenses related to the
sale. The applicable tax rate on the gain was 37 percent, resulting in an
after-tax gain of $212 million.
On June 15, 1999, the Company sold Vantis to Lattice Semiconductor Corporation
for approximately $500 million in cash. The actual cash received was net of
Vantis' cash and cash equivalents balance of approximately $46 million as of the
closing of the sale. The Company's pretax gain on the sale of Vantis was $432
million. The gain was computed based upon 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, resulting in an after-tax gain of $259 million.
32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4: FINANCIAL INSTRUMENTS
Available-For-Sale Securities
Available-for-sale securities held by the Company as of December 30, 2001 and
December 31, 2000 are as follows:
- ----------------------------------------------------------------------------------------------------------
Gross Gross
unrealized unrealized Fair market
(Thousands) Cost gains losses market
- ----------------------------------------------------------------------------------------------------------
2001
Cash equivalents:
Commercial paper $ 76,976 $ 545 $ - $ 77,521
Certificates of deposit 10,001 240 - 10,241
Federal agency notes 38,357 260 - 38,617
Money market funds 152,122 18 - 152,140
- ----------------------------------------------------------------------------------------------------------
Total cash equivalents $ 277,456 $ 1,063 $ - $ 278,519
- ----------------------------------------------------------------------------------------------------------
Short-term investments:
Money market auction rate
preferred stocks $ 128,130 $ 158 $ (14) $ 128,274
Municipal bonds 1,331 - - 1,331
Floating rate notes 155,729 5 (290) 155,444
Federal agency notes 153,343 114 (832) 152,625
Tax exempt money market fund 5,000 35 - 5,035
- ----------------------------------------------------------------------------------------------------------
Total short-term investments $ 443,533 $ 312 $ (1,136) $ 442,709
- ----------------------------------------------------------------------------------------------------------
Long-term investments:
Equity investments $ 11,571 $ 8,257 $ (486) $ 19,342
Commercial paper 10,000 - - 10,000
Federal agency notes 3,323 - - 3,323
- ----------------------------------------------------------------------------------------------------------
Total long-term investments $ 24,894 $ 8,257 $ (486) $ 32,665
- ----------------------------------------------------------------------------------------------------------
Grand Total: $ 745,883 $ 9,632 $ (1,622) $ 753,893
==========================================================================================================
2000
Cash equivalents:
Commercial paper $ 200,261 $ 1,762 $ (13) $ 202,010
Money market funds 78,300 - - 78,300
- ----------------------------------------------------------------------------------------------------------
Total cash equivalents $ 278,561 1,762 $ (13) $ 280,310
- ----------------------------------------------------------------------------------------------------------
Short-term investments:
Money market auction rate
preferred stocks $ 224,590 $ - $ - $ 224,590
Certificates of deposit 20,001 - (1) 20,000
Corporate notes 9,366 523 - 9,889
Federal agency notes 44,106 654 (2) 44,758
Commercial paper 401,324 3,973 (2,826) 402,471
- ----------------------------------------------------------------------------------------------------------
Total short-term investments $ 699,387 $ 5,150 $ (2,829) $ 701,708
- ----------------------------------------------------------------------------------------------------------
Long-term investments:
Equity investments $ 10,161 $ 16,695 $ - $ 26,856
Federal agency notes 2,105 - (2) 2,103
- ----------------------------------------------------------------------------------------------------------
Total long-term investments $ 12,266 $ 16,695 $ (2) $ 28,959
- ----------------------------------------------------------------------------------------------------------
Grand Total: $ 990,214 $ 23,607 $ (2,844) $ 1,010,977
==========================================================================================================
The Company realized a loss on the sale of available-for-sale securities of $1.6
million in 2001 and a gain of $4.3 million in 1999. The Company did not sell any
available-for-sale securities in 2000.
33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Derivative Financial Instruments
The following table summarizes activity in accumulated other comprehensive
income (loss) related to derivatives classified as cash flow hedges held by the
Company during the period from January 1, 2001 through December 30, 2001:
Year Ended
(Thousands) December 30, 2001
---------------------
Cumulative effect of adopting SFAS 133 $ -
Reclassified into operations -
Changes in fair value of derivatives, net (3,399)
---------------------
$ (3,399)
=====================
As of December 30, 2001, the Company expects to reclassify the amount
accumulated in other comprehensive income (loss) to operations within the next
twelve months upon the recognition in operations of the hedged forecasted
transactions.
Fair Value of Other Financial Instruments
The Company estimates the fair value of debt using a discounted cash flow
analysis based on estimated interest rates for similar types of borrowing
arrangements with similar remaining maturities. The carrying amounts and
estimated fair values of the Company's debt are as follows:
- --------------------------------------------------------------------------------------------------
(Thousands) 2001 2000
- --------------------------------------------------------------------------------------------------
Carrying Fair Carrying Fair
amount value amount value
------ ----- ------ -----
Notes payable to banks $ 63,362 $ 63,362 $ - $ -
- --------------------------------------------------------------------------------------------------
Long-term debt and capital leases:
Capital leases 32,469 31,550 15,874 15,213
Long-term debt (excluding capital
leases) 603,236 571,679 936,789 865,963
- --------------------------------------------------------------------------------------------------
Total long-term debt and capital
leases 635,705 603,229 952,663 881,176
Less: current portion 197,803 216,496 49,440 67,428
- --------------------------------------------------------------------------------------------------
Total long-term debt and capital
leases, less current portion $ 437,902 $ 386,733 $ 903,223 $ 813,748
==================================================================================================
The fair value of the Company's accounts receivable and accounts payable
approximate book value based on existing payment terms.
NOTE 5: CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to concentrations of
credit risk consist primarily of cash equivalents, short-term investments, trade
receivables and derivative financial instruments used in hedging activities.
The Company places its cash equivalents and short-term investments with high
credit quality financial institutions and, by policy, limits the amount of
credit exposure with any one financial
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
institution. The Company acquires investments in time deposits and certificates
of deposit from banks having combined capital, surplus and undistributed profits
of not less than $200 million. Investments in commercial paper and money market
auction rate preferred stocks of industrial firms and financial institutions are
rated A1, P1 or better. Investments in tax-exempt securities, including
municipal notes and bonds are rated AA, Aa or better, and investments in
repurchase agreements must have securities of the type and quality listed above
as collateral.
Concentrations of credit risk with respect to trade receivables are limited
because a large number of geographically diverse customers make up the Company's
customer base, thus spreading the trade credit risk. The Company controls credit
risk through credit approvals, credit limits and monitoring procedures. The
Company performs in-depth credit evaluations of all new customers and requires
letters of credit, bank guarantees and advance payments, if deemed necessary.
The counterparties to the agreements relating to the Company's derivative
financial instruments consist of a number of large international financial
institutions. The Company does not believe that there is significant risk of
nonperformance by these counterparties because the Company monitors their credit
ratings and limits the financial exposure and the amount of agreements entered
into with any one financial institution. While the notional amounts of financial
instruments are often used to express the volume of these transactions, the
potential accounting loss on these transactions if all counterparties failed to
perform is limited to the amounts, if any, by which the counterparties'
obligations under the contracts exceed the Company's obligations to the
counterparties.
NOTE 6: INCOME TAXES
The provision (benefit) for income taxes consists of:
- ---------------------------------------------------------------------------------------------
(Thousands) 2001 2000 1999
---- ---- ----
- ---------------------------------------------------------------------------------------------
Current:
U.S. Federal $ - $251,849 $ (7,072)
U.S. State and Local (6) 3,599 363
Foreign National and Local 21,595 20,496 14,095
- ---------------------------------------------------------------------------------------------
Total 21,589 275,944 7,386
- ---------------------------------------------------------------------------------------------
Deferred:
U.S. Federal (30,192) 25,163 134,050
U.S. State and Local (7,321) (43,789) 26,178
Foreign National and Local 1,461 (450) (264)
- ---------------------------------------------------------------------------------------------
Total (36,052) (19,076) 159,964
- ---------------------------------------------------------------------------------------------
Provision (benefit) for income taxes $(14,463) $ 256,868 $167,350
=============================================================================================
34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Tax benefits resulting from the exercise of nonqualified stock options and the
disqualifying disposition of shares issued under the Company's stock-based
compensation plans reduced taxes currently payable by $158.3 million in 2000.
Such benefits were credited to capital in excess of par value.
Deferred income taxes reflect the net tax effects of tax carryovers and
temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the balances for income tax purposes.
Significant components of the Company's deferred tax assets and liabilities as
of December 30, 2001 and December 31, 2000 are as follows:
- -------------------------------------------------------------------------------------------
(Thousands) 2001 2000
---- ----
- -------------------------------------------------------------------------------------------
Deferred tax assets:
Net operating loss carryovers $ 4,147 $ 3,934
Deferred distributor income 17,730 32,848
Inventory valuation 74,434 22,327
Accrued expenses not currently deductible 74,063 46,400
Investments 29,237 15,173
Federal and state tax credit carryovers 76,234 120,938
Other 62,189 67,073
------------------------------
Total deferred tax assets 338,034 308,693
Less: valuation allowance (24,559) -
---------- ----------
313,475 308,693
---------- ----------
Deferred tax liabilities:
Depreciation (175,878) (222,355)
Capitalized Interest (30,967) (40,790)
Unremitted foreign earnings (27,400) -
Other (28,637) (31,007)
---------- ----------
Total deferred tax liabilities (262,882) (294,152)
---------- ----------
Net deferred tax assets (liabilities) $ 50,593 $ 14,541
========== ==========
- -------------------------------------------------------------------------------------------
In 2001, the valuation allowance for deferred tax assets increased by $25
million due to the stock option deduction arising from activity under the
Company's stock option plans, the benefits of which will increase capital in
excess of par value when realized. Pretax income from foreign operations was
approximately $52 million in 2001, $83 million in 2000 and $62 million in 1999.
The federal and state tax credit and net operating loss carryovers expire
beginning in the year 2003 through 2021.
The table below displays a reconciliation between statutory federal income taxes
and the total provision (benefit) for income taxes.
- -------------------------------------------------------------
2001
- ------------------------------------- ------------- ---------
(Thousands except percent) Tax Rate
- ------------------------------------- ------------- ---------
Statutory federal income tax expense $(32,872) (35.0)%
State taxes, net of federal benefit (4,762) (5.1)
Tax-exempt foreign sales corporation
income (2,394) (2.5)
Residual U.S. tax on previously
reinvested earnings 21,663 23.1
Restructuring charges at other than
U.S. rates 11,082 11.8
Tax credits (6,018) (6.4)
Other (1,162) (1.3)
---------- ---------
$(14,463) (15.4)%
========== =========
- -------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------
2000
- ------------------------------------- ------------- ---------
(Thousands except percent) Tax Rate
- ------------------------------------- ------------- ---------
Statutory federal income tax
expense $438,165 35.0%
State taxes, net of federal benefit 9,292 0.7
Tax-exempt foreign sales
corporation income (1,756) (0.2)
Foreign income at other than
U.S. rates (9,091) (0.7)
Valuation allowance utilized (177,008) (14.1)
Tax credits (5,000) (0.4)
Other 2,266 0.2
---------- ---------
$256,868 20.5%
========== =========
- -------------------------------------------------------------
- -------------------------------------------------------------
1999
- ------------------------------------- ------------- ---------
(Thousands except percent) Tax Rate
- ------------------------------------- ------------- ---------
Statutory federal income tax
expense $ 25,766 35.0%
State taxes, net of federal benefit 17,252 23.4
Foreign income at other than U.S.
rates (4,952) (6.7)
Net operating losses not currently
benefited 126,684 172.1
Other 2,600 3.5
---------- ---------
$ 167,350 227.3%
========== =========
- -------------------------------------------------------------
The Company has made no provision for U.S. income taxes on approximately $387
million of cumulative undistributed earnings of certain foreign subsidiaries
because it is the Company's intention to permanently reinvest such earnings. If
such earnings were distributed, the Company would accrue additional taxes of
approximately $117 million.
35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7: DEBT
Significant elements of notes payable to banks are:
- -----------------------------------------------------------------------------------------------------
(Thousands except percent) 2001 2000
- -----------------------------------------------------------------------------------------------------
Amounts available under notes payable to bank:
Three-year secured notes payable to bank $ 150,000 $ 200,000
Lines of credit available to foreign subsidiaries 4,251 24,419
- -----------------------------------------------------------------------------------------------------
Total amounts available at year-end under notes payable to banks $ 154,251 $ 224,419
Amounts outstanding at year-end under notes payable to banks 63,362 -
Weighted average interest rate on amounts outstanding at year-end 5.23% -
========= =========
- -----------------------------------------------------------------------------------------------------
Interest rates on foreign and short-term domestic borrowings are negotiated at
the time of the borrowing.
On July 13, 1999, the Company entered into a Loan and Security Agreement (the
Loan Agreement) with a consortium of banks led by a domestic financial
institution. 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 amounts 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 must
comply with certain financial covenants if the levels of domestic cash it holds
declines to $200 million, or the amount of borrowing under the Loan Agreement
rises to 50 percent of available credit. The Company's obligations under the
Loan Agreement are secured by a pledge of all of its accounts receivable,
inventory, general intangibles and the related proceeds. As of December 30,
2001, the Company had $50 million outstanding under the Loan Agreement, which
was repaid in January of 2002. The Loan Agreement restricts the Company from
paying cash dividends on its common stock.
Information with respect to the Company's long-term debt, capital lease
obligations and other at years ended 2001 and 2000 is:
- ---------------------------------------------------------------------------------------------------------------------
(Thousands) 2001 2000
- ---------------------------------------------------------------------------------------------------------------------
6% Convertible Subordinated Notes with interest payable semiannually and
principal due in April 2005 $ - $ 517,140
11% Senior Secured Notes with interest payable semiannually and principal due on
August 1, 2003, secured by the Fab 25 property, facility and equipment - 43,066
Term loans under the Dresden Loan Agreements with a weighted-average interest
rate of 5.72% and principal due between February 2001 and December 2005,
secured by the Dresden Fab 30 property, facility and equipment 602,046 375,226
Obligations under capital leases 32,469 15,874
Commercial mortgage with principal and 9.88% interest payable in monthly
installments through April 2007 1,190 1,357
------- --------
- ---------------------------------------------------------------------------------------------------------------------
635,705 952,663
Other 305,576 344,880
--------- -----------
- ---------------------------------------------------------------------------------------------------------------------
$ 941,281 $ 1,297,543
Less: current portion 268,336 129,570
--------- -----------
- ---------------------------------------------------------------------------------------------------------------------
Long-term debt, capital lease obligations and other, less current portion $ 672,945 $ 1,167,973
========= ===========
- ---------------------------------------------------------------------------------------------------------------------
In May 1998, the Company sold $517.5 million of Convertible Subordinated Notes
due May 15, 2005 (Convertible Subordinated Notes) under its $1 billion shelf
registration declared effective by the Securities and Exchange Commission on
April 20, 1998. Interest on the Convertible Subordinated Notes accrued at the
rate of six percent per annum and was payable semiannually in arrears on May 15
and November 15 of each year, commencing November 15, 1998. On May 21, 2001, the
Company called for redemption all of the then outstanding $517.1 million of
these Convertible Subordinated Notes due 2005, which resulted in the conversion
of $509.6 million of such Notes into approximately 28 million shares of the
Company's common stock, net of unamortized debt issuance cost of $7.3 million.
The remaining $0.2 million of such Notes was paid in cash to investors.
On July 6, 2000, the Company announced a cash tender offer and consent
solicitation for the outstanding $400 million aggregate principal amount of the
11% Senior Secured Notes due 2003. On August 2, 2000, the Company repurchased
$356 million of these notes at a premium of $36 million. The premium was
recorded as an extraordinary loss of approximately $23 million net of tax
benefit of $13 million. On August 1, 2001, the Company redeemed the remaining
$43 million of these notes for cash.
36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Obligations under the lease agreements are collateralized by the assets leased.
The Company's leased assets totaled approximately $77 million and $53 million as
of December 30, 2001 and December 31, 2000, respectively, and are included in
the related property, plant and equipment category. Amortization of assets
recorded under capital leases is included in depreciation expense. Accumulated
amortization of these leased assets was approximately $45 million as of December
30, 2001 and $39 million as of December 31, 2000.
Included in Other is $173.5 million of deferred grants and subsidies related to
the Dresden Fab 30 project. See Note 2. Also included in Other is a deferred
gain of $28.5 million as of December 30, 2001, as a result of the sale and
leaseback of the Company's corporate marketing, general and administrative
facility in 1998. The Company is amortizing the deferred gain ratably over the
lease term, which is 20 years. See Note 12. In addition, Other includes $103.5
million in customer cash deposits related to multi-year memory product
manufacturing supply agreements, which guarantee customers' specific volume
shipment.
The above debt agreements limit the Company and its subsidiaries' ability to
engage in various transactions and require satisfaction of specified financial
performance criteria. As of December 30, 2001, the Company was in compliance
with all restrictive covenants of such debt agreements.
Under certain circumstances, cross-defaults result under the Loan Agreement and
the Dresden Loan Agreements, which consist of a loan agreement and other related
agreements between AMD Saxony and a consortium of banks led by Dresdner Bank AG
(the Dresden Loan Agreements).
For each of the next five years and beyond, the Company's debt and capital lease
obligations are:
Debt Capital
(Thousands) (Principal only) leases Total
- -----------------------------------------------------------------------------------------------------------
2002 $ 187,024 $ 13,589 $ 200,613
2003 197,423 11,564 208,987
2004 145,544 8,496 154,040
2005 72,905 2,426 75,331
2006 270 - 270
Beyond 2006 70 - 70
- -----------------------------------------------------------------------------------------------------------
Total $ 603,236 $ 36,075 639,311
Less: amount representing interest - 3,606 3,606
- -----------------------------------------------------------------------------------------------------------
Total at present value $ 603,236 $ 32,469 $ 635,705
===========================================================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8: INTEREST EXPENSE & INTEREST AND OTHER INCOME, NET
Interest Expense
- -------------------------------------------------------------------------------
(Thousands) 2001 2000 1999
-----------------------------------------------
Total interest charges $ 68,403 $ 86,488 $116,255
Less: interest capitalized (7,043) (26,451) (47,002)
-------- --------- --------
Interest expense $ 61,360 $ 60,037 $ 69,253
======== ========= ========
- -------------------------------------------------------------------------------
In 2001, interest expense consisted primarily of interest incurred by AMD
Saxony's secured term loan under the Dresden Loan Agreements and interest on the
Company's Convertible Subordinated Notes issued in May 1998. In 2000 and 1999,
interest expense consisted primarily of interest incurred on the Company's
Senior Secured Notes issued in August 1996, interest on the Company's
Convertible Subordinated Notes issued in May 1998, interest on the Company's
$250 million four-year secured term loan and interest on AMD Saxony's secured
term loan, net of interest capitalized primarily related to the facilitization
of Fab 25 and Dresden Fab 30.
Interest and Other Income, Net
- -------------------------------------------------------------------------------
(Thousands) 2001 2000 1999
----------------------------------------------
Interest income $42,988 $59,228 $ 26,461
Other income (loss), net (17,293) 27,073 5,274
----------------------------------------------
$25,695 $86,301 $ 31,735
- -------------------------------------------------------------------------------
Other loss in 2001 consisted of charges for other than temporary declines in the
value of our marketable debt and equity securities investments totaling
approximately $27 million. Other income in 2000 and 1999 consisted of gains from
sales of investments and other assets.
NOTE 9: SEGMENT REPORTING
For purposes of disclosures required by Statement of Financial Accounting
Standards No. 131 (SFAS 131), AMD operated in two reportable segments during
2001: the Core Products segment, which reflects the aggregation of the PC
processor and memory products operating segments, and the Foundry Services
segment. The aggregation of our operating segments into our reporting segments
was made pursuant to the aggregation criteria set forth in SFAS 131. The Core
Products segment includes microprocessors, Flash memory devices, Erasable
Programmable Read-Only Memory (EPROM) devices, embedded processors, platform
products and networking products. The Foundry Services segment includes fees for
services provided to Legerity and Vantis. During 2000 and 1999, the Company also
operated in the Voice Communications Segment. The Voice Communications segment
included voice communications products of the Company's former subsidiary,
Legerity, until July 31, 2000, the effective date of its sale. In addition, in
1999, the Company also operated in the Vantis segment. The Vantis segment
included the programmable logic devices of the Company's former subsidiary,
Vantis, until June 15, 1999, the date of its sale. The accounting policies of
the segments are the same as those described in the Summary of Significant
Accounting Policies. The Company evaluates performance and allocates resources
based on these segments' operating income (loss).
The following table is a summary of operating income (loss) by segment for 2001,
2000 and 1999:
37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------------------------------------
(Thousands) 2001 2000 1999
- --------------------------------------------------------------------------------------------------------------
Net sales:
Core Products segment
External customers $ 3,793,962 $ 4,361,398 $ 2,559,939
Intersegment sales - - 32,626
- --------------------------------------------------------------------------------------------------------------
3,793,962 4,361,398 2,592,565
Foundry Services segment-external customers 97,792 142,480 43,204
Voice Communications segment-external customers - 140,309 167,760
Vantis segment-external customers - - 86,701
Elimination of intersegment sales - - (32,626)
- --------------------------------------------------------------------------------------------------------------
Total net sales $ 3,891,754 $ 4,644,187 $ 2,857,604
- --------------------------------------------------------------------------------------------------------------
Segment operating income (loss):
Core Products segment $ 71,530 $ 831,749 $ (342,007)
Foundry Services segment* (33,582) 22,000 1,509
Voice Communications segment - 34,987 13,943
Vantis segment - - 5,639
- --------------------------------------------------------------------------------------------------------------
Total segment operating income (loss) 37,948 888,736 (320,916)
- --------------------------------------------------------------------------------------------------------------
Gain on sale of Vantis - - 432,059
Gain on sale of Legerity - 336,899 -
Interest and other income, net 25,695 86,301 31,735
Interest expense (61,360) (60,037) (69,253)
Restructuring and other special charges (89,305) - -
Additional inventory provision (6,901) - -
Benefit (provision) for income taxes 14,463 (256,868) (167,350)
Equity in net income of FASL (Core Products) 18,879 11,039 4,789
Extraordinary item - debt retirement, net of tax benefit - (23,044) -
- --------------------------------------------------------------------------------------------------------------
Net income (loss) $ (60,581) $ 983,026 $ (88,936)
- --------------------------------------------------------------------------------------------------------------
Total assets:
Core Products segment
Assets excluding investment in FASL $ 5,283,631 $ 5,506,007 $ 4,066,346
Investment in FASL 363,611 261,728 273,608
- --------------------------------------------------------------------------------------------------------------
5,647,242 5,767,735 4,339,954
Foundry Services segment* - - -
Voice Communications segment - - 37,744
- --------------------------------------------------------------------------------------------------------------
Total assets $ 5,647,242 $ 5,767,735 $ 4,377,698
- --------------------------------------------------------------------------------------------------------------
Expenditures for long-lived assets:
Core Products segment $ 703,120 $ 803,065 $ 614,209
Foundry Services segment* - - -
Voice Communications segment - 2,409 1,729
Vantis segment - - 6,141
- --------------------------------------------------------------------------------------------------------------
Total expenditures for long-lived assets $ 703,120 $ 805,474 $ 622,079
- --------------------------------------------------------------------------------------------------------------
Depreciation and amortization expense:
Core Products segment $ 622,867 $ 578,302 $ 512,203
Foundry Services segment* - - -
Voice Communications segment - 768 1,044
Vantis segment - - 2,273
- --------------------------------------------------------------------------------------------------------------
Total depreciation and amortization expense $ 622,867 $ 579,070 $ 515,520
==============================================================================================================
*Operations of the Foundry Services segment are conducted using assets of
the Core Products segment.
The Company's operations outside the United States include both
manufacturing and sales. The Company's manufacturing subsidiaries are
located in Germany, Malaysia, Thailand, Singapore and China. Its sales
subsidiaries are in Europe, Asia Pacific and Brazil.
38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following is a summary of operations by entities within geographic areas for
the three years ended December 30, 2001:
- ---------------------------------------------------------------------------------------
(Thousands) 2001 2000 1999
-----------------------------------------------
Sales to external customers:
United States $ 1,327,403 $ 1,875,408 $ 1,131,983
Europe 1,492,428 1,553,808 835,673
Asia Pacific 1,071,923 1,214,971 889,948
-------------- --------------- -------------
$ 3,891,754 $ 4,644,187 $ 2,857,604
===============================================
Long-lived assets:
United States $ 1,079,882 $ 1,220,193 $ 1,469,412
Germany 1,335,861 1,064,308 812,773
Other Europe 2,825 3,188 3,847
Asia Pacific 320,570 348,778 237,204
-------------- --------------- -------------
$ 2,739,138 $ 2,636,467 $ 2,523,236
===============================================
- ---------------------------------------------------------------------------------------
Sales to external customers are based on the customer's billing location.
Long-lived assets are those assets used in each geographic area.
The Company markets and sells its products primarily to a broad base of
customers comprised of distributors and OEMs of computation and communications
equipment. No OEM customer accounted for more than ten percent of net sales in
2001. In 2000 and 1999, one of the Company's OEMs accounted for approximately 11
and 13 percent of net sales, respectively. No distributor accounted for ten
percent or more of net sales in 2001, 2000 and 1999.
NOTE 10: STOCK-BASED INCENTIVE COMPENSATION PLANS
Stock Option Plans. The Company has several stock option plans under which key
employees have been granted incentive (ISOs) and nonqualified (NSOs) stock
options to purchase the Company's common stock. Generally, options vest and
become exercisable over four years from the date of grant and expire five to ten
years after the date of grant. ISOs granted under the plans have exercise prices
of not less than 100 percent of the fair market value of the common stock on the
date of grant. Exercise prices of NSOs range from $0.01 to the fair market value
of the common stock on the date of grant.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following is a summary of stock option activity and related information:
- -----------------------------------------------------------------------------------------------------------------------
(Shares in thousands) 2001 2000 1999
---------------------------------------------------------------------------
Weighted- Weighted- Weighted-
average average average
Number exercise Number exercise Number exercise
of shares price of shares price of shares price
- -----------------------------------------------------------------------------------------------------------------------
Options:
Outstanding at beginning of year 43,852 $ 20.70 41,988 $ 8.37 40,550 $ 8.36
Granted 14,088 16.91 21,044 35.07 9,806 8.35
Canceled (1,444) 25.31 (3,247) 18.84 (4,710) 10.45
Exercised (3,553) 7.56 (15,933) 7.01 (3,658) 5.46
-------------------------------------- ------------ ----------- -------------
Outstanding at end of year 52,943 20.44 43,852 20.70 41,988 8.37
-------------------------------------- ============ =========== =============
Exercisable at end of year 22,465 17.63 14,667 9.64 21,408 7.97
Available for grant at beginning of
year 11,803 6,114 11,306
Available for grant at end of year 21,146 11,803 6,114
=======================================================================================================================
The following table summarizes information about options outstanding as of
December 30, 2001:
- -----------------------------------------------------------------------------------------------------
(Shares in thousands) Options outstanding Options exercisable
- -----------------------------------------------------------------------------------------------------
Weighted-
average Weighted- Weighted-
remaining average average
Range of Number contractual exercise Number exercise
exercise prices of shares life (years) price of shares price
- -----------------------------------------------------------------------------------------------------
$0.01-$9.44 13,711 5.92 $ 7.66 10,318 $ 7.59
$9.47-$17.06 14,047 8.46 12.13 3,823 11.97
$17.07-$32.10 13,369 8.39 23.57 3,679 21.28
$32.66-$45.91 11,816 8.35 41.63 4,645 41.73
--------------------------------- -----------
$0.01-$45.91 52,943 7.76 20.44 22,465 17.63
=====================================================================================================
39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Stock Purchase Plan. The Company has an employee stock purchase plan (ESPP) that
allows eligible and participating employees to purchase, through payroll
deductions, shares of the Company's common stock at 85 percent of the fair
market value at specified dates. As of December 30, 2001, 6,346,135 common
shares remained available for issuance under the plan. A summary of stock
purchased under the plan is shown below:
- --------------------------------------------------------------------------------
(Thousands) 2001 2000 1999
- --------------------------------------------------------------------------------
Aggregate purchase price $ 16,816 $ 12,388 $ 13,294
Shares purchased 1,220 815 861
================================================================================
Stock Appreciation Rights. The Company may grant stock appreciation rights
(SARs) to key employees under the 1992 stock incentive plan. The number of SARs
exercised plus common stock issued under the stock option plans may not exceed
the number of shares authorized under the stock incentive plan. The Company may
grant SARs in tandem with outstanding stock options, in tandem with future stock
option grants or independently of any stock options. Generally, the terms of
SARs granted under the plan are similar to those of options granted under the
stock incentive plans, including exercise prices, exercise dates and expiration
dates. To date, the Company has granted only limited SARs, which become
exercisable in the event of certain changes in control of AMD.
Restricted Stock Awards. In 1998, the Company adopted the 1998 stock incentive
plan under which the Company was authorized to issue two million shares of
common stock to employees who are not covered by Section 16 of the Securities
Exchange Act of 1934, as amended, subject to terms and conditions determined at
the discretion of the Company's Board of Directors. To date, the Company has
canceled agreements covering 40,791 shares without issuance and the Company has
issued 370,524 shares pursuant to prior agreements. As of December 30, 2001,
agreements covering 128,683 shares were outstanding. Activity under this plan is
included in the accompanying tables summarzing activity under the Company's
employee stock plans.
Shares Reserved for Issuance. The Company had a total of approximately
80,435,119 shares of common stock reserved as of December 30, 2001 for issuance
under employee stock option plans and the ESPP, including restricted stock
awards.
Stock-Based Compensation. The Company uses the intrinsic value method to account
for stock-based awards to employees. As permitted under SFAS 123, the Company
has elected to follow APB 25 and related interpretations in accounting for
stock-based awards to employees and elects to make pro forma fair value
disclosures as permitted by SFAS 123. The Company estimates the fair value of
its stock-based awards to employees using a Black-Scholes option pricing model.
The Black-Scholes model was developed for use in estimating the fair value of
traded options that have no vesting restrictions and are fully transferable. In
addition, the Black-Scholes model requires the input of highly subjective
assumptions including expected stock price volatility. Because our stock-based
awards to employees have characteristics significantly different from those of
traded options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the existing
models do not necessarily provide a reliable single measure of the fair value of
our stock-based awards to employees. The fair value of our stock-based awards to
employees was estimated assuming no expected dividends and the following
weighted-average assumptions:
- ---------------------------------------------------------------------------------------------------------
Options ESPP
----------------------------------------------------------------------
2001 2000 1999 2001 2000 1999
- ---------------------------------------------------------------------------------------------------------
Expected life (years) 3.02 4.27 3.45 0.25 0.25 0.25
Expected stock price volatility 83.43% 72.10% 68.72% 85.03% 87.95% 67.10%
Risk-free interest rate 3.57% 6.55% 5.48% 2.58% 5.95% 4.77%
- ---------------------------------------------------------------------------------------------------------
40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For pro forma purposes, the estimated fair value of our stock-based awards to
employees is amortized over the vesting period (for options) and the three-month
purchase period (for stock purchases under the ESPP). Our pro forma information
follows:
- -------------------------------------------------------------------------------------------------------
(Thousands except per share amounts) 2001 2000 1999
- -------------------------------------------------------------------------------------------------------
Net income (loss) - as reported $ (60,581) $983,026 $ (88,936)
Net income (loss) - pro forma (178,918) 830,495 (122,497)
Basic net income (loss) per share - as reported (0.18) 3.18 (0.30)
Diluted net income (loss) per share - as reported (0.18) 2.89 (0.30)
Basic net income (loss) per share - pro forma (0.54) 2.68 (0.42)
Diluted net income (loss) per share - pro forma (0.54) 2.37 (0.42)
- -------------------------------------------------------------------------------------------------------
The Company granted a total of 13,870,950 stock-based awards during 2001 with
exercise prices equal to the market price of the stock on the grant date. The
weighted-average exercise price and weighted-average fair value of these awards
were $16.93 and $9.27, respectively. The Company granted a total of 157,476
stock-based awards during 2001 with exercise prices greater than the market
price of the stock on the grant date. The weighted-average exercise price and
weighted-average fair value of these awards were $21.21 and $0.11, respectively.
The Company granted a total of 59,115 stock-based awards during 2001 with
exercise prices less than the market price of the stock on the grant date. The
weighted-average exercise price and weighted-average fair value of these awards
were $1.08 and $22.54, respectively. The Company granted a total of 20,702,856
stock-based awards during 2000 with exercise prices equal to the market price of
the stock on the grant date. The weighted-average exercise price and
weighted-average fair value of these awards were $35.12 and $21.00,
respectively. The Company granted a total of 25,800 stock-based awards during
2000 with exercise prices greater than the market price of the stock on the
grant date. The weighted-average exercise price and weighted-average fair value
of these awards were $26.92 and $0.02, respectively. The Company granted a total
of 315,510 stock-based awards during 2000 with exercise prices less than the
market price of the stock on the grant date. The weighted-average exercise price
and weighted-average fair value of these awards were $4.92 and $31.25,
respectively.
The weighted-average fair value of shares purchased under the Company's employee
stock purchase plan during 2001, 2000 and 1999 were $3.82, $5.54, and $2.39 per
share, respectively.
NOTE 11: OTHER EMPLOYEE BENEFIT PLANS
Profit Sharing Program. The Company has a profit sharing program to which the
Board of Directors authorizes quarterly contributions. Profit sharing
contributions were approximately $25 million in 2001 and $103 million in 2000.
There were no profit sharing contributions in 1999.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Retirement Savings Plan. The Company has a retirement savings plan, commonly
known as a 401(k) plan, that allows participating United States employees to
contribute from one percent to 15 percent of their pretax salary subject to
Internal Revenue Service limits. Before December 26, 1999, the Company made a
matching contribution calculated at 50 cents on each dollar of the first three
percent of participant contributions, to a maximum of 1.5 percent of eligible
compensation. After December 26, 1999, the Company revised the contribution rate
and contributes 50 cents on each dollar of the first six percent of
participants' contributions, to a maximum of three percent of eligible
compensation. The contributions to the 401(k) plan were approximately $11
million in 2001, $10 million in 2000 and $5 million in 1999.
NOTE 12: COMMITMENTS
The Company leases certain of its facilities under agreements that expire at
various dates through 2018. The Company also leases certain of its manufacturing
and office equipment for terms ranging from one to five years. Rent expense was
approximately $62 million, $48 million, and $52 million in 2001, 2000 and 1999,
respectively.
For each of the next five years and beyond, noncancelable long-term operating
lease obligations and commitments to purchase manufacturing supplies and
services are as follows:
- -----------------------------------------------------------------
Operating Purchase
(Thousands) leases commitments
- -----------------------------------------------------------------
2002 $ 57,612 $ 15,036
2003 47,695 10,172
2004 43,680 9,895
2005 40,636 9,895
2006 35,370 2,614
Beyond 2006 232,183 7,367
- -----------------------------------------------------------------
$ 457,176 $ 54,979
- -----------------------------------------------------------------
The operating lease of the Company's corporate marketing, general and
administrative facility in Sunnyvale expired in December 1998. At the end of the
lease term, the Company was obligated to either purchase the facility or to
arrange for its sale to a third party with a guarantee of residual value to the
seller equal to the option purchase price. In December 1998, the Company
arranged for the sale of the facility to a third party and leased it back under
a new operating lease. The Company deferred the gain ($37 million) on the sale
and is amortizing it over a period of 20 years, the life of the lease. The lease
expires in December 2018. At the beginning of the fourth lease year and every
three years thereafter, the rent will be adjusted by 200 percent of the
cumulative increase in the consumer price index over the prior three-year period
up to a maximum of 6.9 percent. Certain other operating leases contain
provisions for escalating lease payments subject to changes in the consumer
price index.
AMD Saxony has constructed and installed equipment in Dresden Fab 30, which
began production in the second quarter of 2000. AMD, the Federal Republic of
Germany, the State of Saxony and a consortium of banks are supporting the
project. In March 1997, AMD Saxony entered into the Dresden Loan Agreements,
which provide for the funding of the construction and facilitization of Dresden
Fab 30. The funding consists of:
41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
o equity, subordinated loans and loan guarantees from AMD;
o loans from a consortium of banks; and
o grants, subsidies and loan guarantees from the Federal Republic of
Germany and the State of Saxony.
The Dresden Loan Agreements require that the Company 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, the
Company has invested $334 million as of December 30, 2001 in the form of
subordinated loans and equity investments in AMD Saxony (denominated in both
deutsche marks and U.S. dollars) which are eliminated in our consolidated
financial statements.
In addition to AMD's support, the consortium of banks referred to above has made
available $692 million in loans to AMD Saxony to help fund Dresden Fab 30
project costs. AMD Saxony had $602 million of such loans outstanding through
December 30, 2001, which are included in the Company's consolidated balance
sheets.
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:
o guarantees equal to the lesser of 65 percent of AMD Saxony bank debt
or $692 million;
o capital investment grants and allowances totaling $286 million; and
o interest subsidies totaling $142 million.
Of these amounts, AMD Saxony has received $284 million in capital investment
grants and allowances and $64 million in interest subsidies through December 30,
2001, which are included in the Company's consolidated financial statements. The
grants and subsidies are subject to conditions, including meeting specified
levels of employment by 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
December 30, 2001, we were in compliance with all of the conditions of the
grants and subsidies.
In February 2001, the Dresden Loan Agreements were amended to reflect new
capacity and increased capital spending plans for Dresden Fab 30. Under the
February 2001 amendments, the Company agreed to extend its guaranty of AMD
Saxony's obligations and to make available to AMD Saxony revolving loans of up
to $500 million. The Company also expanded its obligation to reimburse AMD
Saxony for the cost of producing wafers for the Company and agreed to cancel the
cost overrun facility made available by the banks. Under these amendments, the
Company was released from financial covenants limiting capital expenditures and
requiring AMD Saxony to achieve capacity and production cost targets by the end
of 2001.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Dresden Loan Agreements also require that the Company:
o provide interim funding to AMD Saxony if either the remaining capital
investment allowances or the remaining interest subsidies are delayed,
which will be repaid to AMD as AMD Saxony receives the grants or
subsidies from the State of Saxony;
o fund shortfalls in government subsidies resulting from any default
under the subsidy agreements caused by AMD Saxony or its affiliates;
and
o guarantee up to 35 percent of AMD Saxony's obligations under the
Dresden Loan Agreements, which guarantee must not be less than $100
million or more than $277 million, until the bank loans are repaid in
full.
AMD Saxony would be in default under the Dresden Loan Agreements if we, AMD
Saxony or AMD Saxony Holding GmbH (AMD Holding), the parent company of AMD
Saxony and a wholly owned subsidiary of AMD, fail to comply with certain
obligations thereunder or upon the occurrence of certain events including:
o material variances from the approved plans and specifications;
o our failure to fund equity contributions or shareholder loans or
otherwise comply with our obligations relating to the Dresden Loan
Agreements;
o the sale of shares in AMD Saxony or AMD Holding;
o the failure to pay material obligations;
o 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
o the occurrence of default under the Loan Agreement.
Generally, any default with respect to borrowings made or guaranteed by AMD that
results in recourse to us of more than $2.5 million and is not cured by us,
would result in a cross-default under the Dresden Loan Agreements and the Loan
Agreement. As of December 30, 2001, we were in compliance with all conditions of
the Dresden Loan Agreements.
In the event we are unable to meet our obligations to AMD Saxony as required
under the Dresden Loan Agreements, we will be in default under the Dresden Loan
Agreements and the Loan Agreement, which would permit acceleration of certain
indebtedness, which would have a material adverse effect on us. We cannot assure
that we will be able to obtain the funds necessary to fulfill these obligations.
Any such failure would have a material adverse effect on us.
Because the amounts 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. At December 30, 2001, the exchange rate was
approximately 2.17 deutsche marks to one U.S. dollar (which the Company used to
translate the amounts denominated in deutsche marks).
NOTE 13: INVESTMENT IN JOINT VENTURE
In 1993, the Company formed a joint venture (FASL) with Fujitsu Limited 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, which are sold to the Company and Fujitsu. The Company's share
of FASL is 49.992 percent and the investment is being accounted for under the
equity method. The Company's share of FASL net income during 2001 was $18.9
million, net of income taxes of approximately $13.5 million. As of December 30,
2001, the cumulative adjustment related to the translation of the FASL financial
statements into U.S. dollars resulted in a decrease of approximately $53.4
million to the investment in FASL. The following tables present the significant
FASL related party transactions and balances:
42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------------------------
(Thousands) 2001 2000 1999
------------ ------------ ------------
Royalty income $ 44,342 $ 33,273 $ 23,214
Purchases 509,642 381,657 264,344
==================================================================================================
- --------------------------------------------------------------------------------------------------
(Thousands) December 30, 2001 December 31, 2000
------------------------ -----------------------
Royalty receivable $ 6,962 $ 9,561
Accounts payable 37,957 77,503
==================================================================================================
Pursuant to a cross-equity provision between the Company and Fujitsu, the
Company purchased 0.5 million shares of Fujitsu Limited common stock as of
December 30, 2001. Under the same provision, Fujitsu Limited purchased nine
million shares of the Company's common stock as of December 30, 2001.
FASL is continuing the facilitization of its second and third Flash memory
device wafer fabrication facilities, FASL JV2 and FASL JV3, in Aizu-Wakamatsu,
Japan. Capital expenditures for FASL JV2 and FASL JV3 construction and
facilitization to date have been funded by cash generated from FASL operations
and borrowings by FASL.
FASL capital expenditures in 2002 are expected 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 JV2 or FASL JV3, the
Company will be required to contribute cash or guarantee third-party loans in
proportion to its 49.992 percent interest in FASL. As of December 30, 2001, the
Company had $148 million in loan guarantees outstanding with respect to these
third-party loans. At December 30, 2001, the exchange rate was approximately
128.02 yen to one U.S. dollar, which the Company used to translate the amounts
denominated in yen.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following is condensed financial data of FASL:
- -------------------------------------------------------------------------------
(Thousands) 2001 2000 1999
------------------------------------------
Net sales $ 978,059 $ 733,574 $ 501,797
Gross profit 165,115 53,174 20,415
Operating income 160,298 49,645 17,724
Net income 34,924 28,179 9,977
- -------------------------------------------------------------------------------
- ---------------------------------------------------------------------------
December 30, December 31,
(Thousands) 2001 2000
-------------------------------
Current assets $ 146,549 $ 234,139
Non-current assets 1,056,061 786,802
Current liabilities 463,555 482,629
Non-current liabilities 1,058 1,271
- ---------------------------------------------------------------------------
The Company's share of the above FASL net income differs from the equity in net
income of joint venture reported on the consolidated statements of operations.
The difference is due to adjustments resulting from the intercompany profit
eliminations and differences in U.S. and Japanese tax treatment, which are
reflected on the Company's consolidated statements of operations. The Company
has never received cash dividends from its investment in FASL.
In 2000, FASL further expanded its production capacity through a foundry
arrangement with Fujitsu Microelectronics, Inc. (FMI), a wholly owned subsidiary
of Fujitsu Limited. In connection with FMI equipping its wafer fabrication
facility in Gresham, Oregon (the Gresham Facility) to produce flash memory
devices for sale to FASL, the Company agreed to guarantee the repayment of up to
$125 million of Fujitsu's obligations as a cosigner with FMI under its global
multicurrency revolving credit facility (the Credit Facility) with a third-party
bank (the Guarantee). On November 30, 2001, Fujitsu announced that it was
closing the Gresham Facility, due to the downturn of the flash memory market. To
date, the Company has not received notice from Fujitsu that FMI has defaulted on
any payments due under the Credit Facility. Furthermore, subsequent to year end,
the Company was informed that amounts borrowed by FMI under the Credit Facility
do not become due until the end of March 2002. Accordingly, under the terms of
the Guarantee, the Company believes it is not at this time, and was not at
December 30, 2001, obligated to make any payments to Fujitsu. However,
subsequent to year end, Fujitsu requested that the Company pay the entire $125
million under the Guarantee. Although the Company disagrees with Fujitsu as to
the amount, if any, of its obligations under the Guarantee, Fujitsu has
indicated its belief that the Company is obligated to pay the full $125 million.
The Company cannot predict the outcome of this matter. Accordingly, the Company
has not recorded any liability in its consolidated financial statements
associated with the Guarantee.
NOTE 14: RESTRUCTURING AND OTHER SPECIAL CHARGES
On September 25, 2001, due to the continued slowdown in the semiconductor
industry, and a resulting decline in revenues, the Company announced a
restructuring plan to accelerate key components of its strategy to reduce costs
and enhance the financial performance of its core products. In connection with
the plan, the Company will close Fabs 14 and 15 in Austin, Texas. These
facilities support certain of the Company's older products and its Foundry
Service operations, which will be discontinued as part of the plan. The Company
will also reorganize other manufacturing facilities and reduce activities
primarily in Penang, Malaysia along with associated administrative support.
The restructuring plan will result in the reduction of approximately 2,300
direct manufacturing and related administrative support positions, or
approximately 15 percent of the Company's worldwide workforce, by the end of the
second quarter of 2002. Approximately 1,000 of these positions are associated
with closing Fabs 14 and 15 in Austin. The balance of the reductions will result
from reorganizing activities primarily in Penang, Malaysia.
Pursuant to the September 25, 2001 plan, the Company recorded restructuring
costs and other special charges of $89.3 million, consisting of $34.1 million of
anticipated severance and fringe benefit costs, $16.2 million of anticipated
exit costs to close facilities in Austin and Penang and $39.0 million of
non-cash asset
43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
impairment charges. The asset impairment charges relate primarily to buildings
and production equipment and have been incurred as a result of the Company's
decision to implement the plan.
The following table summarizes activity under the plan through December 30,
2001:
- -----------------------------------------------------------------------------------------------------
(Thousands) Severance Facility Facility and
and and equipment Other
employee equipment decommission facilities
benefits impairment costs exit costs Total
- -----------------------------------------------------------------------------------------------------
2001 provision $34,105 $ 39,000 $ 15,500 $ 700 $ 89,305
Cash charges (7,483) - - (54) (7,537)
Non-cash charges - (39,000) - - (39,000)
- -----------------------------------------------------------------------------------------------------
Accruals at December 30, 2001 $26,622 $ - $ 15,500 $ 646 $ 42,768
=====================================================================================================
The Company expects to substantially complete execution of its restructuring
plan by the end of the second quarter of 2002. As of December 30, 2001, 786
employees were terminated resulting in cash payments of approximately $7.5
million in severance and employee benefit costs.
During 1999, the Company initiated a review of its cost structure. Based upon
this review, the Company recorded restructuring and other special charges of $38
million in 1999 to better align its cost structure with the expected revenue
growth rates.
The restructuring and other special charges for the year ended December 26,
1999, and the related activity during 1999, 2000 and 2001, are reflected in the
table below:
- -------------------------------------------------------------------------------------------------------------------
Severance Equipment Discontinued
and employee disposal system
(Thousands) benefits Facilities Equipment costs projects Total
- -------------------------------------------------------------------------------------------------------------------
1999 provision $ 3,024 $ 968 $ 23,769 $ 4,380 $ 6,089 $ 38,230
Cash charges (3,024) (56) - (1,937) - (5,017)
Non-cash charges - - (23,769) - (6,089) (29,858)
- -------------------------------------------------------------------------------------------------------------------
Accruals at December 26, 1999 - 912 - 2,443 - 3,355
Cash charges - (429) - (2,443) - (2,872)
- -------------------------------------------------------------------------------------------------------------------
Accruals at December 31, 2000 - 483 - - - 483
Cash charges - (443) - - - (443)
- -------------------------------------------------------------------------------------------------------------------
Accruals at December 30, 2001 $ - $ 40 $ - $ - $ - $ 40
===================================================================================================================
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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15: SHARE REPURCHASE PROGRAM
On January 29, 2001, the Company announced that the Board of Directors had
authorized a program to repurchase up to $300 million worth of the Company's
common stock over a period of time to be determined by management. Any such
repurchases will be made, from time to time, in the open market or in privately
negotiated transactions in compliance with Rule 10b-18 of the Securities
Exchange Act, subject to market conditions, applicable legal requirements and
other factors. This program does not obligate the Company to acquire any
particular amount of its common stock, and the program may be suspended at any
time at the Company's discretion. As of December 30, 2001, AMD acquired
approximately 6.3 million shares of its common stock at an aggregate cost of $77
million under the program. Shares repurchased under this program will be used in
connection with the Company's stock option plans.
NOTE 16: CONTINGENCIES
I. Environmental Matters
Clean-Up Orders. Since 1981, the Company has discovered, investigated and begun
remediation of three sites where releases from underground chemical tanks at our
facilities in Santa Clara County, California, adversely affected the
groundwater. The chemicals released into the groundwater were commonly in use in
the semiconductor industry in the wafer fabrication process prior to 1979. At
least one of the released chemicals (which the Company no longer uses) has been
identified as a probable carcinogen.
In 1991, the Company received four Final Site Clean-up Requirements Orders from
the California Regional Water Quality Control Board, San Francisco Bay Region,
relating to the three sites. One of the orders named us as well as TRW
Microwave, Inc. and Philips Semiconductors Corporation. In January 1999, the
Company entered into a settlement agreement with Philips whereby Philips assumed
costs allocated to the Company under this order, although the Company is
responsible for these costs in
44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
the event that Philips does not fulfill its
obligations under the settlement agreement. Another of the orders named AMD as
well as National Semiconductor Corporation. In December 2001, AMD entered into a
settlement agreement with National pursuant to which National will take the lead
for a period of time on certain groundwater remediation required under that
order, but AMD remains a responsible party for all purposes under the order and
retains specific responsibilities.
The three sites in Santa Clara County are on the National Priorities List
(Superfund). If the Company fails to satisfy federal compliance requirements, or
inadequately performs the compliance measures, the government (1) can bring an
action to enforce compliance or (2) can undertake the desired response actions
itself and later bring an action to recover its costs and penalties, which is up
to three times the costs of clean-up activities, if appropriate. The statute of
limitations has been tolled on the claims of landowners adjacent to the Santa
Clara County Superfund sites for causes of action such as negligence, nuisance
and trespass.
The Company has computed and recorded the estimated environmental liability in
accordance with applicable accounting rules and has not recorded any potential
insurance recoveries in determining the estimated costs of the cleanup. The
amount of environmental charges to earnings has not been material during any of
the last three fiscal years. The Company believes that the potential liability,
if any, in excess of amounts already accrued with respect to the foregoing
environmental matters will not have a material adverse effect on the Company's
financial condition or results of operations.
The Company received a notice dated October 14, 1998 from the Environmental
Protection Agency (EPA) indicating that the EPA has determined AMD to be a
potentially responsible party that arranged for disposal of hazardous substances
at a site located in Santa Barbara County, California. The Company is currently
in settlement discussions with the EPA and believes that any settlement will not
have a material adverse effect on the Company's financial condition or results
of operations.
II. Other Matters
The Company is a defendant or plaintiff in various other actions, which arose in
the normal course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's financial condition or results of operations.
NOTE 17: SUBSEQUENT EVENTS (UNAUDITED)
Issuance of Senior Convertible Debt
On January 29, 2002, the Company announced the closing of a private offering of
$500 million aggregate principal amount of its 4 3/4% Convertible Senior
Debentures (the Debentures) due 2022 issued pursuant to Rule 144A and Regulation
S. The Company intends to use the net proceeds generated from the offering for
capital expenditures, working capital and general corporate purposes.
The Debentures bear interest at a rate of 4 3/4% per annum. The interest rate
will be reset on each of August 1, 2008, August 1, 2011 and August 1, 2016 to a
rate per annum equal to the interest rate payable 120 days prior to such date on
5-year U.S. Treasury Notes, plus 43 basis points. The reset rate will not be
less than 4 3/4% and will not exceed 6 3/4%. The Debentures are initially
convertible into the Company's common stock at a conversion price of $23.38 per
share. At this conversion price, each $1,000 principal amount of the Debentures
will be convertible into approximately 43 shares of the Company's common stock.
The Debentures will be redeemable at specified prices declining to 100% of the
principal amount plus accrued and unpaid interest at the Company's option
beginning on February 5, 2005, provided that the Company may not redeem the
Debentures prior to February 1, 2006 unless the last reported sale price of the
Company's common stock is at least 130% of the then effective conversion price
for at least 20 trading days within a period of 30 consecutive trading days
ending within five trading days of the date of the redemption notice.
Holders of the Debentures will have the ability to require the Company to
repurchase the Debentures, in whole or in part, on February 1, 2009, February 1,
2012 and February 1, 2017. The holders of the Debentures will also have the
ability to require the company to repurchase the Debentures in the event that
the Company undergoes specified fundamental changes, including a
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
change of control. In each such case, the redemption or repurchase price would
be 100% of the principal amount of the Debentures plus accrued and unpaid
interest.
45
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
The Board of Directors and Stockholders
Advanced Micro Devices, Inc.
We have audited the accompanying consolidated balance sheets of Advanced Micro
Devices, Inc. as of December 30, 2001 and December 31, 2000, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended December 30, 2001. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Advanced Micro
Devices, Inc. as of December 30, 2001 and December 31, 2000, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 30, 2001, in conformity with accounting
principles generally accepted in the United States.
/s/ ERNST & YOUNG LLP
San Jose, CA
January 8, 2002
46
SUPPLEMENTARY FINANCIAL DATA
2001 and 2000 by Quarter (Unaudited)
(Thousands except per share and market 2001 2000
price amounts)
- ------------------------------------------------------------------------------------------------------------------------------------
Dec. 30 Sept. 30 July 1 Apr. 1 Dec. 31 Oct. 1 July 2 Apr. 2
- -----------------------------------------------------------------------------------------------------------------------------------
Net Sales $951,873 $ 765,870 $ 985,264 $1,188,747 $1,175,172 $1,206,549 $1,170,437 $1,092,029
Expenses:
Cost of sales 644,662 594,056 636,199 714,830 657,303 639,010 612,567 605,757
Research and development 160,871 161,185 171,114 157,760 162,087 162,764 155,651 161,297
Marketing, general and
administrative 163,683 150,918 156,291 149,138 160,756 141,931 152,022 144,306
Restructuring and other special
charges - 89,305 - - - - - -
- -----------------------------------------------------------------------------------------------------------------------------------
969,216 995,464 963,604 1,021,728 980,146 943,705 920,240 911,360
- -----------------------------------------------------------------------------------------------------------------------------------
Operating income (loss) (17,343) (229,594) 21,660 167,019 195,026 262,844 250,197 180,669
Gain on sale of Vantis - - - - - - - -
Gain on sale of Legerity - - - - - 336,899 - -
Interest and other income, net 5,784 (11,220) 12,308 18,823 25,449 19,789 19,935 21,128
Interest expense (9,570) (9,946) (20,199) (21,645) (19,932) (17,382) (11,244) (11,479)
- -----------------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes,
equity in net income (loss) of
joint venture and extraordinary
item (21,129) (250,760) 13,769 164,197 200,543 602,150 258,888 190,318
Provision (benefit) for income taxes (5,705) (65,018) 3,717 52,543 30,081 175,009 51,778 -
- -----------------------------------------------------------------------------------------------------------------------------------
Income (loss) before equity in net
income (loss) of joint venture and
extraordinary item (15,424) (185,742) 10,052 111,654 170,462 427,141 207,110 190,318
Equity in net income (loss) of joint
venture (417) (1,187) 7,300 13,183 7,570 4,406 32 (969)
- -----------------------------------------------------------------------------------------------------------------------------------
Income (loss) before extraordinary item (15,841) (186,929) 17,352 124,837 178,032 431,547 207,142 189,349
Extraordinary item - debt
retirement, net of tax benefit - - - - (64) (22,980) - -
- -----------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $(15,841) $(186,929) $ 17,352 $124,837 $ 177,968 $408,567 $207,142 $189,349
- -----------------------------------------------------------------------------------------------------------------------------------
Net income (loss) per share
Basic - income (loss) before
extraordinary item $ (0.05) $ (0.54) $ 0.05 $ 0.40 $ 0.57 $ 1.38 $ 0.67 $ 0.63
Diluted - income (loss) before
extraordinary item $ (0.05) $ (0.54) $ 0.05 $ 0.37 $ 0.53 $ 1.24 $ 0.60 $ 0.57
Basic - income (loss) after
extraordinary item $ (0.05) $ (0.54) $ 0.05 $ 0.40 $ 0.57 $ 1.31 $ 0.67 $ 0.63
Diluted - income (loss) after
extraordinary item $ (0.05) $ (0.54) $ 0.05 $ 0.37 $ 0.53 $ 1.18 $ 0.60 $ 0.57
- -----------------------------------------------------------------------------------------------------------------------------------
Shares used in per share calculation
Basic 340,119 345,044 330,120 314,347 313,501 311,943 309,625 302,257
Diluted 340,119 345,044 340,533 351,785 349,782 352,893 352,946 344,381
- -----------------------------------------------------------------------------------------------------------------------------------
Common stock market price range
High $ 18.62 $ 30.20 $ 34.65 $ 30.15 $ 26.00 $ 47.50 $ 47.72 $ 30.00
Low $ 7.69 $ 7.80 $ 18.73 $ 14.13 $ 13.56 $ 27.00 $ 25.50 $ 13.91
===================================================================================================================================
47
FINANCIAL SUMMARY
Five Years Ended December 30, 2001
(Thousands except per share amounts) 2001 2000 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------
Net sales $ 3,891,754 $4,644,187 $ 2,857,604 $2,542,141 $2,356,375
Expenses:
Cost of sales 2,589,747 2,514,637 1,964,434 1,718,703 1,578,438
Research and development 650,930 641,799 635,786 567,402 467,877
Marketing, general and administrative 620,030 599,015 540,070 419,678 400,713
Restructuring and other special charges 89,305 - 38,230 - -
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3,950,012 3,755,451 3,178,520 2,705,783 2,447,028
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Operating income (loss) (58,258) 888,736 (320,916) (163,642) (90,653)
Gain on sale of Vantis - - 432,059 - -
Gain on sale of Legerity - 336,899 - - -
Litigation settlement - - - (11,500) -
Interest and other income, net 25,695 86,301 31,735 34,207 35,097
Interest expense (61,360) (60,037) (69,253) (66,494) (45,276)
- ----------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes
and equity in net income of joint venture
and extraordinary item (93,923) 1,251,899 73,625 (207,429) (100,832)
Provision (benefit) for income taxes (14,463) 256,868 167,350 (91,878) (55,155)
- ----------------------------------------------------------------------------------------------------------------------
Income (loss) before equity in net income of
joint venture and extraordinary item (79,460) 995,031 (93,725) (115,551) (45,677)
Equity in net income of joint venture 18,879 11,039 4,789 11,591 24,587
- ----------------------------------------------------------------------------------------------------------------------
Income (loss) before extraordinary item (60,581) 1,006,070 (88,936) (103,960) (21,090)
Extraordinary item - debt retirement, net of
tax benefit - (23,044) - - -
- ----------------------------------------------------------------------------------------------------------------------
Net income (loss) $ (60,581) $ 983,026 $ (88,936) $ (103,960) $ (21,090)
Net income (loss) per share
Basic - income (loss) before extraordinary
item $ (0.18) $ 3.25 $ (0.30) $ (0.36) $ (0.07)
Diluted - income (loss) before extraordinary
item $ (0.18) $ 2.95 $ (0.30) $ (0.36) $ (0.07)
- ----------------------------------------------------------------------------------------------------------------------
Basic - income (loss) after extraordinary
item $ (0.18) $ 3.18 $ (0.30) $ (0.36) $ (0.07)
Diluted - income (loss) after extraordinary
item $ (0.18) $ 2.89 $ (0.30) $ (0.36) $ (0.07)
- ----------------------------------------------------------------------------------------------------------------------
Shares used in per share calculation:
Basic 332,407 309,331 294,577 287,796 281,319
Diluted 332,407 350,000 294,577 287,796 281,319
- ----------------------------------------------------------------------------------------------------------------------
Long-term debt, capital lease obligations
and other, less current portion $ 672,945 $1,167,973 $ 1,427,282 $1,372,416 $ 662,689
Total assets $5,647,242 $5,767,735 $ 4,377,698 $4,252,968 $3,515,271
======================================================================================================================
The Company's common stock (symbol "AMD") is listed on the New York Stock
Exchange. The Company has never paid cash dividends on common stock and may be
restricted from doing so. Refer to the notes to consolidated financial
statements. The number of stockholders of record at February 25, 2002 was 7,815.
AMD, the AMD Arrow logo, and combinations thereof, Advanced Micro Devices,
AMD-K6, AMD Athlon, AMD Duron and MirrorBit are either trademarks or registered
trademarks of Advanced Micro Devices, Inc. Vantis is a trademark of Vantis
Corporation. Legerity is a trademark of Legerity, Inc. Microsoft and Windows are
either trademarks or registered trademarks of Microsoft Corporation. Other terms
used to identify companies and products may be trademarks of their respective
owners.
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