SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 2, 1995
-------------
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number 1-7882
------------------
ADVANCED MICRO DEVICES, INC
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 94-1692300
- --------------------------------------- ------------------------------------
State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization
One AMD Place
P. O. Box 3453
Sunnyvale, California 94088-3453
- --------------------------------------- ------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (408) 732-2400
--------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----- -----
The number of shares of $0.01 par value common stock outstanding as of
April 21, 1995: 103,156,257.
ADVANCED MICRO DEVICES, INC.
- ----------------------------
INDEX
- -----
Page No.
--------
Part I. Financial Information
---------------------
Item 1. Financial Statements
Condensed Consolidated Statements of Income--
Quarters Ended April 2, 1995
and March 27, 1994 3
Condensed Consolidated Balance Sheets--
April 2, 1995 and December 25, 1994 4
Condensed Consolidated Statements of Cash Flows--
Quarters Ended April 2, 1995
and March 27, 1994 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition 8
Part II. Other Information
-----------------
Item 1. Legal Proceedings 14
Item 6. Exhibits and Reports on Form 8-K 15
Signature 16
---------
2
I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ADVANCED MICRO DEVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Thousands except per share amounts)
Quarter Ended
---------------------------
April 2, March 27,
1995 1994
----------- -----------
Net sales $620,096 $513,080
Expenses:
Cost of sales 290,772 230,437
Research and development 92,500 68,221
Marketing, general, and administrative 96,946 92,894
--------- ---------
480,218 391,552
--------- ---------
Operating income 139,878 121,528
Interest income and other, net 6,713 4,182
Interest expense (1) (739)
--------- ---------
Income before income taxes and equity in
joint venture 146,590 124,971
Provision for income taxes 48,375 39,990
--------- ---------
Income before equity in joint venture 98,215 84,981
Equity in net income (loss) of joint venture (1,414) (394)
--------- ---------
Net income 96,801 84,587
Preferred stock dividends 10 2,588
--------- ---------
Net income applicable to common stockholders $ 96,791 $ 81,999
========= =========
Net income per common share:
Primary $ .96 $ .85
========= =========
Fully diluted $ .91 $ .82
========= =========
Shares used in per share calculation:
Primary 101,012 96,233
========= =========
Fully diluted 106,717 103,670
========= =========
See accompanying notes
3
ADVANCED MICRO DEVICES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Thousands)
April 2, December 25,
1995 1994
(Unaudited) (Audited)
-------------- --------------
Assets
- ------
Current assets:
Cash and cash equivalents $ 162,680 $ 121,343
Short-term investments 324,848 256,511
----------- -----------
Total cash, cash equivalents, and
short-term investments 487,528 377,854
Accounts receivable, net 339,080 337,107
Inventories:
Raw materials 23,445 21,604
Work-in-process 70,590 72,632
Finished goods 31,227 34,454
----------- -----------
Total inventories 125,262 128,690
Deferred income taxes 98,675 98,675
Prepaid expenses and other current assets 30,819 44,293
----------- -----------
Total current assets 1,081,364 986,619
Property, plant, and equipment, at cost 2,646,500 2,464,929
Accumulated depreciation and amortization (1,240,494) (1,200,718)
----------- -----------
Property, plant, and equipment, net 1,406,006 1,264,211
Investment in joint venture 140,327 124,588
Other assets 74,314 70,284
----------- -----------
$ 2,702,011 $ 2,445,702
=========== ===========
Liabilities and Stockholders' Equity
- ------------------------------------
Current liabilities:
Notes payable to banks $ 34,104 $ 32,459
Accounts payable 165,437 149,122
Accrued compensation and benefits 82,718 104,526
Accrued liabilities 79,840 82,570
Litigation settlement 20,000 58,000
Income tax payable 95,027 53,795
Deferred income on shipments to distributors 90,978 83,800
Current portion of long-term debt and capital lease obligations 29,066 27,895
----------- -----------
Total current liabilities 597,170 592,167
Deferred income taxes 42,518 42,518
Long-term debt and capital lease obligations, less current portion 219,906 75,752
Commitments and contingencies - -
Stockholders' equity:
Capital stock:
Serial preferred stock, par value - 34
Common stock, par value 1,032 956
Capital in excess of par value 707,258 698,673
Retained earnings 1,134,127 1,035,602
----------- -----------
Total stockholders' equity 1,842,417 1,735,265
----------- -----------
$ 2,702,011 $ 2,445,702
=========== ===========
See accompanying notes
4
ADVANCED MICRO DEVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Thousands)
Quarter Ended
-------------------------------
April 2, March 27,
1995 1994
------------- ------------
Cash flows from operating activities:
Net income $ 96,801 $ 84,587
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 57,483 51,076
Net loss (gain) on sale of property, plant, and equipment 398 (224)
Write-down of property, plant, and equipment 27 338
Compensation recognized under employee stock plans 1,079 372
Undistributed loss of joint venture 1,414 394
Net increase in deferred income taxes - (2)
Changes in operating assets and liabilities:
Net increase in receivables, inventories, prepaid
expenses, and other assets (5,367) (56,362)
Increase in income tax payable 46,794 35,250
Net (decrease) increase in payables and accrued liabilities (1,045) 3,730
Litigation settlement (20,000) -
----------- -----------
Net cash provided by operating activities 177,584 119,159
----------- -----------
Cash flows from investing activities:
Purchase of property, plant, and equipment (195,990) (52,761)
Proceeds from sale of property, plant, and equipment 583 241
Purchase of held-to-maturity debt securities (230,488) (161,968)
Maturities of held-to-maturity debt securities 162,151 131,461
Investment in joint venture (18,019) (6,678)
----------- -----------
Net cash used in investing activities (281,763) (89,705)
----------- -----------
Cash flows from financing activities:
Proceeds from borrowings 171,509 12,412
Payments on capital lease obligations and other debt (28,731) (17,994)
Net proceeds from issuance of stock 5,249 2,698
Redemption of preferred stock (2,501) -
Payments of preferred stock dividends (10) (2,588)
----------- -----------
Net cash provided by (used in) financing activities 145,516 (5,472)
----------- -----------
Net increase in cash and cash equivalents 41,337 23,982
Cash and cash equivalents at beginning of period 121,343 60,423
----------- -----------
Cash and cash equivalents at end of period $ 162,680 $ 84,405
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the first quarter for:
Interest (net of amounts capitalized) $ - $ -
=========== ===========
Income taxes $ 1,668 $ 4,749
=========== ===========
Non-cash financing activities:
Equipment purchased under capital leases $ 4,192 $ 10,730
=========== ===========
Conversion of preferred stock to common stock $ 164,127 $ -
=========== ===========
See accompanying notes
5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
1. The results of operations for the interim periods shown in this report are
not necessarily indicative of results to be expected for the fiscal year. In
the opinion of management, the information contained herein reflects all
adjustments necessary to make the results of operations for the interim
periods a fair statement of such operations. All such adjustments are of a
normal recurring nature.
The company uses a 52 to 53 week fiscal year ending on the Sunday closest
to December 31. The quarters ended April 2, 1995 and March 27, 1994 included
14 and 13 weeks, respectively.
Certain prior year amounts on the Consolidated Financial Statements have been
reclassified to conform to the 1995 presentation.
2. On February 10, 1995, the company called all outstanding shares of its
preferred stock for redemption on March 13, 1995, at a redemption price of
$509.00 per share, plus $7.30 of accrued and unpaid dividends. Prior to the
redemption date, 343,427 shares of preferred stock were surrendered for
conversion which resulted in the issuance of 6,824,694 shares of the
company's common stock. Pursuant to previous arrangements, on March 14,
1995, the company sold 28,518 shares of its common stock to certain
institutions and used the proceeds to fund the redemption of 1,435 shares of
preferred stock which were not converted.
3. The company announced on April 17, 1995, that the company's preferred stock
purchase rights issued in February 1990 to holders of the company's common
stock will be redeemed on May 3, 1995, for a redemption price of $.01 per
right payable on May 24, 1995, to the holders of the company's common stock
as of the redemption date.
4. AMD has three groundwater contamination sites that are on the Federal
Superfund list. The company is in the process of an extensive clean-up and
studies of its sites.
5. The effective tax rate used for the first quarters of 1995 and 1994 were 33
percent and 32 percent, respectively. The higher tax provisions in the first
quarter of 1995 were primarily due to the higher earnings achieved during the
first quarter of 1995.
6. In 1993, the company and Fujitsu Limited established a joint venture,
"Fujitsu AMD Semiconductor Limited (FASL)." AMD's share of FASL is 49.95
percent, and this investment is being accounted for under the equity method.
In the first quarter of 1995, the company invested approximately $18 million
in FASL. The company's share of FASL's loss was $2.2 million, which was
partially offset by income tax savings of approximately $0.8 million.
6
7. The following is a summary of held-to-maturity securities as of April 2,
1995 (in thousands):
Cash and cash equivalents
Certificates of deposit $ 20,002
Security repurchase agreements 56,500
Other 46,340
--------
Total cash equivalents 122,842
Cash 39,838
--------
Total cash and cash equivalents $162,680
========
Short-term investments
Certificates of deposit $150,067
Corporate notes 30,358
Treasury notes 24,942
Commercial paper 119,481
--------
Total short-term investments $324,848
========
Since held-to-maturity securities are short-term in nature, changes in
market interest rates would not have a significant impact on the fair value
of these securities. These securities are carried at amortized cost which
approximates fair value.
As of April 2, 1995, included in other assets, the company held $8.3
million of available-for-sale equity securities with fair value of $20.2
million. The net unrealized holding gain on these equity securities is
immaterial and therefore included in retained earnings.
8. The primary net income per common share computation is based on the weighted
average number of common shares outstanding plus dilutive common share
equivalents. The fully diluted computation also includes other dilutive
convertible securities. Shares used in the per share computations are as
follows:
Quarter Ended
----------------------
April 2, March 27,
1995 1994
---------- ----------
(Thousands)
Primary:
Common shares outstanding 97,350 92,575
Employee stock plans 3,662 3,658
------- -------
101,012 96,233
======= =======
Fully diluted:
Common shares outstanding 97,350 92,575
Employee stock plans 3,995 4,239
Preferred stock 5,372 6,856
------- -------
106,717 103,670
======= =======
7
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
------- -----------------------------------------------------------------
FINANCIAL CONDITION
-------------------
The following discussion should be read in conjunction with the attached
condensed consolidated financial statements and notes thereto, and with the
company's audited financial statements and notes thereto for the fiscal year
ended December 25, 1994.
RESULTS OF OPERATIONS
- ---------------------
Net sales for the first quarter of 1995, rose by 21 percent from the first
quarter of 1994. This increase was primarily attributable to growth in Am486(R)
microprocessor sales and secondarily due to an increase in flash memory sales.
The increase in Am486 microprocessor sales was attributable to unit shipment
growth while average selling prices declined due to competitive pressures.
Price declines are anticipated to continue for the remainder of 1995. A
significant portion of the company's first quarter revenues, profits, and
margins were attributable to Am486 products. The company anticipates that Am486
microprocessor revenues will continue to represent a significant portion of the
company's sales, profits, and margins in 1995.
The future outlook for AMD's microprocessor business is highly dependent upon
microprocessor market conditions, which are subject to price declines and
changes in demand. The company anticipates that any growth in existing and
future generation microprocessor products will depend on market demand and the
company's ability to meet this demand.
First quarter sales of flash memory devices increased as compared to the same
period a year ago primarily due to increased unit shipments. The company plans
to meet projected long-term demand for flash memory devices primarily through a
manufacturing joint venture, Fujitsu AMD Semiconductor Limited (FASL), which is
anticipated to begin volume production in the second half of 1995. During the
first quarter of 1995, the company began purchasing flash memory products from
FASL. Neither the amount of product purchased from FASL, nor the impact of the
company's share of FASL's operating results was material for the first quarter
of 1995.
For the first quarter of 1995, EPROM sales decreased as compared to the first
quarter of 1994 mainly because of pricing pressures caused by increased
competition. Sales of programmable logic devices (PLDs) in the first quarter of
1995 increased from the same quarter in 1994 due to increased unit shipments.
Revenues of communication products for the first quarter of 1995 increased as
compared to the same quarter a year ago primarily due to growth in Ethernet
products.
Domestic and international sales increased during the first quarter of 1995.
Sales to international customers as a percentage of sales for the first quarter
of 1995 and 1994 were 58 percent and 55 percent, respectively.
The first quarter of 1995 included an additional week as compared to the same
period of 1994 which was a 13 week-quarter. The impact of the additional week
was immaterial to the results of operations of the company.
Am486 is a registered trademark of Advanced Micro Devices, Inc.
8
Cost of sales of $290.8 million for the first quarter of 1995 contributed to a
gross margin of 53 percent as compared to a gross margin of 55 percent in the
first quarter of 1994. The decrease in gross margins in the first quarter of
1995 was primarily attributable to pricing pressures, particularly with respect
to Am486 microprocessor products. These pricing pressures are expected to
continue through 1995. Gross margin is also anticipated to decline due to
products received from FASL, which are expected to be purchased at higher costs
compared to similar products manufactured internally. The impact of gross
margin declines caused by purchases of products from FASL may be offset by the
company's share of income that may be generated by FASL, which is included in
net income under the equity method of accounting.
Research and development expenses increased in the first quarter of 1995 from
the same quarter last year. These increases were primarily due to higher Fab 25
spending and secondarily due to increased microprocessor development cost. The
company anticipates that this trend will continue for the remainder of 1995.
Marketing, general, and administrative expenses grew slightly in the first
quarter of 1995 from the first quarter of 1994. These increases were primarily
due to increased corporate advertising expenses.
Operating expenses as a percentage of sales increased in the first quarter of
1995 compared to the same quarter last year. Operating expenses as a percentage
of sales are anticipated to rise during the remainder of 1995, primarily due to
start-up costs and commencement of depreciation expenses (in the third quarter
of 1995) related to Fab 25, purchases of products from FASL, and pricing
pressures, particularly with respect to Am486 microprocessor products.
On January 11, 1995, the company and Intel Corporation reached an agreement to
settle all previously outstanding legal disputes between the two companies.
Pursuant to the settlement: (1) AMD has a fully paid-up, nonexclusive,
worldwide, royalty-free, perpetual license to copy and distribute the microcode
and control code in the Intel287(TM), Intel386(TM), and Intel486(TM)
microprocessor product families. (2) AMD agreed that it has no right to copy any
other Intel microcode, including the Pentium(TM) Processor microcode, the P6(TM)
microcode, and the 486 ICE (in-circuit emulation) microcode. (3) The companies
agreed to negotiate a new patent cross-license agreement to become effective
January 1, 1996. (4) AMD agreed to pay Intel $58 million in settlement of claims
for past damages related to AMD's distribution of Am486 microprocessors
containing Intel's 486 ICE microcode. (5) Intel and AMD dropped all cases
pending against each other in the courts, including appeals. (6) AMD has the
right to use foundries for Am486 products containing Intel microcode for up to
20 percent of the company's annual total unit shipments of Am486
microprocessors. (7) AMD and its customers have a license for Intel's "Crawford
'338" patent, covering memory management. (8) The two companies agreed not to
initiate legal action against one another for any activity occurring prior to
January 6, 1995. During January, 1995, approximately $18 million in damages,
including interest, which Intel was ordered to pay to AMD in a 1992 arbitration,
was offset against the $58 million settlement amount and the company paid $20
million of the settlement amount in cash. The $20 million balance is payable
upon execution of the new patent cross-license agreement. The company recorded
both AMD's settlement obligation to Intel and Intel's arbitration award
obligation to AMD in 1994.
Interest income and other, net increased in the first quarter of 1995 compared
to the corresponding quarter a year ago due to increased cash available for
investment. Interest expense decreased in the first quarter of 1995 from the
same period of 1994 due to higher capitalized interest resulting from Fab 25
capital spending.
9
The income tax rate increased to 33 percent in the first quarter of 1994 from 32
percent in the corresponding quarter of 1994. The higher tax provisions in the
first quarter of 1995 were primarily due to the higher earnings achieved during
the first quarter of 1995. The company anticipates that the income tax rate
will be approximately 33 percent in 1995.
The company enters into foreign exchange forward contracts to buy and sell
currencies as economic hedges of the company's foreign net monetary asset
position. In the first quarter of 1995, these hedging transactions were
denominated in lira, yen, French franc, deutsche mark, and pound sterling. The
maturities of these contracts are generally short-term in nature. The company
believes its foreign exchange contracts do not subject the company to material
risk from exchange rate movements because gains and losses on these contracts
are designed to offset losses and gains on the net monetary asset position being
hedged. Net foreign currency gains and losses have not been material. As of
April 2, 1995, the company had approximately $56.7 million (notional amount) of
foreign exchange forward contracts.
In the first quarter of 1995, approximately 19 percent of the company's net
sales were denominated in foreign currencies. The company does not have sales
denominated in local currencies in those countries which have highly
inflationary economies. The impact on the company's operating results from
changes in foreign currency rates individually and in the aggregate has not been
material.
The company has engaged in interest rate swaps primarily to reduce its interest
rate exposure by changing a portion of the company's interest rate obligation
from a floating rate to a fixed rate basis. At the end of the first quarter of
1995, the net outstanding notional amount of interest rate swaps was $40
million, which will mature in 1997. Gains and losses related to these interest
rate swaps have been immaterial.
The company primarily addresses market risk by participating as an end-user in
various derivative markets to manage its exposure to interest and foreign
currency exchange rate fluctuations. The counterparties to the company's
foreign exchange forward contracts, foreign currency options, and interest rate
swaps consist of a number of major high credit quality international financial
institutions. The company does not believe that there is significant risk of
nonperformance by these counterparties because the company continually monitors
the credit ratings of such counterparties, and limits the financial exposure and
the amount of agreements entered into with any one financial institution.
FINANCIAL CONDITION
- -------------------
Cash, cash equivalents, and short-term cash investments increased by $109.7
million from the end of 1994 to the first quarter of 1995. This increase was
primarily attributable to a $150 million term loan obtained in January of 1995
and secondarily due to cash generated by higher sales. This increase was
partially offset by investments in property, plant and equipment to expand
manufacturing capacity primarily related to Fab 25 and cash payments made for
the Intel litigation settlement. The company plans to continue to make
significant capital investments throughout 1995.
Working capital increased by $89.7 million from $394.5 million at the end of
1994 to $484.2 million in the first quarter of 1995. This increase was
primarily due to higher cash, cash equivalents, and short-term investments.
10
In 1993, the company began construction of its 700,000 square-foot submicron
semiconductor manufacturing complex in Austin, Texas. Known as Fab 25, the new
facility is expected to cost approximately $1.3 billion when fully equipped.
Construction and initial equipment installation are expected to cost
approximately $800 million through 1995 of which approximately $550 million was
incurred through the first quarter of 1995. Volume production is currently
scheduled to begin in late 1995.
The company and Fujitsu Limited, through their joint venture (FASL), are
operating a wafer fabrication facility in Aizu-Wakamatsu, Japan, which is
expected to ultimately cost $800 million. Each company is obligated to
contribute equally toward funding and supporting FASL. AMD is expected to
contribute approximately half of its share of funding in cash and may be
required to guarantee third-party loans made to FASL for the remaining half. To
the extent debt cannot be secured by FASL, AMD is required to contribute its
portion in cash. The company is also required under the terms of the joint
venture to contribute approximately one-half of any additional amounts as may be
necessary to sustain FASL's operations. At the end of the first quarter of
1995, the company's total cash investment in FASL was $160.4 million as compared
to $142.3 million at the end of 1994. No additional cash investment is
currently planned for the remainder of 1995. The FASL costs are denominated in
yen and therefore, are subject to change due to fluctuations in foreign exchange
rates. The company has previously entered into short-term foreign currency
options to hedge certain firm commitments relating to the company's FASL
investment. Given that no additional cash investment is planned for 1995, the
company did not hold any foreign currency options as of the end of the first
quarter of 1995. Volume production is presently expected to begin in the second
half of 1995.
As of the end of the first quarter of 1995, the company had the following
financing arrangements: unsecured committed bank lines of credit of $250
million, unutilized; long-term secured equipment lease lines of $125 million, of
which $111 million were utilized; short-term, unsecured uncommitted bank credit
in the amount of $128 million, of which $34 million was utilized; and an
outstanding $150 million four-year term loan.
The company's current capital plan and requirements are based on various
product-mix, selling-price and unit-demand assumptions and are, therefore,
subject to revision due to future market conditions.
On May 25, 1994, the Securities and Exchange Commission declared effective the
company's shelf registration statement covering up to $400 million of its
securities, which may be either debt securities, preferred stock, depositary
shares representing fractions of shares of preferred stock, common stock,
warrants to purchase common stock, or any combination of the foregoing which the
company may offer from time to time in the future. To date, the company has not
offered or sold any securities registered under the $400 million registration
statement. The nature and terms of the securities will be established at the
time of their sale. The company may offer the securities through underwriters
to be named in the future, through agents or otherwise. It is presently
expected that the net proceeds of any offering would be used for general
corporate purposes including but not limited to the reduction of outstanding
indebtedness, working capital increases and capital expenditures.
On February 10, 1995, the company called for redemption, on March 13, 1995 (the
"Redemption Date"), all outstanding shares of its $30.00 Convertible
Exchangeable Preferred Shares ("Preferred Shares") and, pursuant to the
provisions of the Deposit Agreement between the company and The First National
Bank of Boston, as Depositary, the Depositary called for redemption, on the
Redemption Date, all of the outstanding shares of the company's Depositary
Convertible Exchangeable Preferred Shares (the
11
"Depositary Shares"), each of which represented 1/10th of a Preferred Share. The
redemption price per Depositary Share was $50.90 plus $0.73 of accrued and
unpaid dividends from December 15, 1994, to the Redemption Date.
Each group of ten Depositary Shares, representing one whole share of Preferred
Stock, was convertible into 19.873 shares of common stock of the company at any
time prior to 5:00 P.M. eastern time on the Redemption Date. A total of
3,434,270 Depositary Shares were properly surrendered for conversion, resulting
in the issuance of 6,824,694 shares of the company's common stock. A total of
14,350 Depositary Shares were redeemed.
The company had arranged for Dondaldson, Lufkin & Jenrette Securities
Corporation and Salomon Brothers Inc (the "Purchasers") to purchase directly
from the company up to such whole number of shares of common stock as would have
been issuable upon conversion of any Depositary Shares not surrendered for
conversion. Pursuant to these arrangements, on March 14, 1995, the company sold
28,518 shares of its common stock to the Purchasers and used the proceeds to
fund the redemption of the Depositary Shares which were not surrendered for
conversion.
The company believes that cash flows from operations and current cash balances,
together with current and anticipated available long-term financing, will be
sufficient to fund operations, capital investments, and research and development
projects currently planned for the foreseeable future.
FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS AND FINANCIAL CONDITION
- ----------------------------------------------------------------------------
The semiconductor industry is generally characterized by a highly competitive
and rapidly changing environment in which operating results are often subject to
the effects of new product introductions, manufacturing technology innovations,
rapid fluctuations in product demand, the availability of manufacturing
capacity, and the ability to secure and maintain intellectual property rights.
While the company attempts to identify and respond to rapidly changing events
and conditions as soon as possible, the anticipation of and reaction to such
events are an ongoing challenge.
The company believes that its future results of operations and financial
condition could be impacted by any of the following factors: market acceptance
and timing of new products; continued market acceptance of personal computer
industry standards applicable to the company's products; trends in the personal
computer marketplace; capacity constraints; intense price competition;
interruption in procuring needed manufacturing materials; and changes in
domestic and international economic conditions.
The company's microprocessor products, and more specifically the company's
current generation of 486 microprocessors, have significantly contributed, and
are expected to significantly contribute in 1995 to the company's revenues,
margins and profits. The company's 486 microprocessors are re-engineered
versions of 486 microprocessors originally developed by Intel, and contain and
use, under license with Intel, its 486 microcode. The company's next generation
K86 RISC SUPERSCALAR(TM) products are being designed to be Microsoft(R)
Windows(R)-compatible and compete with Intel's post-486 generations of X86
microprocessors, including the Pentium and the P6. The company's K86 products
will not be re-engineered versions of microprocessors developed by Intel, and
pursuant to the litigation settlement agreement with Intel the company does not
have the right to use Intel microcodes in AMD product generations following the
486. Volume production of the initial K86 products, known as K-5, had been
scheduled to begin in the second half of 1995. Volume production is now
anticipated to begin in the
12
first half of 1996. There can be no assurance that the company will be able to
introduce its K86 products in a timely manner to meet competition, that these
microprocessors will not face severe price competition, or that superior
competitive products will not be introduced. There can be no assurance that the
K86 products will achieve market acceptance or desired operating results,
including but not limited to profitability. Any such failure could adversely
affect the company's future operations.
The company has entered into a number of licenses and cross-licenses relating to
several of the company's products. As is common in the semiconductor industry,
from time to time the company has been notified that it may be infringing other
parties' patents or copyrights. While patent and copyright owners in such
instances often express a willingness to resolve the dispute or grant a license,
no assurance can be given that all necessary licenses will be honored or
obtained on satisfactory terms, nor that the ultimate resolution of any material
dispute concerning the company's present or future products will not have an
adverse impact on the company's future results of operations or financial
condition.
Due to the factors noted above, the company's future operations, financial
condition, and stock price may be subject to volatility. In addition, an actual
or anticipated shortfall in revenue, gross margins, or earnings from securities
analysts' expectations could have an immediate adverse effect on the trading
price of the company's common stock in any given period.
13
II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
A. Settlement of '486 Microcode Litigation with Intel Corporation
(Case No. C-93-20301 PVT, N.D. Cal.)
Pursuant to the January 11, 1995, litigation settlement agreement with Intel,
this action formally terminated on March 16, 1995. All claims in this case
were dismissed with prejudice, except that a judgment was entered in favor of
Intel on its claim that AMD was not licensed to use Intel in-circuit
emulation (ICE) microcode, and a permanent injunction was entered in favor of
Intel prohibiting AMD from distributing any products containing the
unlicensed ICE microcode after January 15, 1995. The terms of the settlement
are discussed in Management's Discussion and Analysis of Results of
Operations and Financial Condition--Results of Operations.
B. Thorn EMI North America, Inc. v. Intel Corporation and AMD
(Case No. 95-199, Delaware)
On March 29, 1995, Thorn EMI North America filed and served a patent
infringement action against both the company and Intel. The complaint, which
was filed in Delaware federal district court, alleges patent infringement and
inducement of infringement by others, and alleges specifically that the
company and Intel manufacture microprocessors using a process technique for
fabricating MOS transistors in large scale integrated circuits in violation
of a 1984 patent now owned by Thorn EMI North America. The complaint seeks
injunctive relief and treble damages in an unspecified amount.
C. Environmental Matters
On March 28, 1995, Continental Casualty Company, CNA Casualty of California,
Columbia Casualty Company and Transcontinental Insurance Company served the
company with a declaratory relief action, filed in California state court in
the County of Santa Clara. The plaintiffs have also named as defendants all
other insurance companies who, like the plaintiffs, issued excess and/or
excess/umbrella comprehensive liability policies to AMD during 1975 through
1982. The complaint seeks a declaratory judgment with respect to the named
insurance companies' obligations to reimburse the company for expenses that
it has incurred and will incur in the future in defending and resolving
various environmental claims.
14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
A. Exhibits
--------
27.1 Financial Data Schedule
B. Reports on Form 8-K
-------------------
The following reports on Form 8-K were filed during the quarter for
which this report is filed:
1. Current Report on Form 8-K, dated December 30, 1994, filed
January 19, 1995, reporting, under Item 5, developments in the
AMD/Intel technology agreement arbitration, the settlement of the
AMD/Intel litigations, and the restatement of earnings.
2. Current Report on Form 8-K, dated February 10, 1995, reporting,
under Item 5, the registrant's call for redemption of its
outstanding $30.00 Convertible Exchangeable Preferred Stock.
3. Current Report on Form 8-K, dated March 13, 1995, reporting, under
Item 5, the results of the registrant's call for redemption of its
outstanding $30.00 Convertible Exchangeable Preferred Stock.
15
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ADVANCED MICRO DEVICES, INC.
Date: April 25, 1995 By: /s/Marvin Burkett
-------------- -----------------
Marvin Burkett
Senior Vice President,
Chief Financial and
Administrative Officer.
Signing on behalf of the
registrant and as the principal
financial officer
16
EXHIBIT INDEX
-------------
Exhibits
- --------
27.1 Financial Data Schedule