ADVANCED MICRO DEVICES INC — Annual Report 1997

Sep 30, 1997

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K/A (No. 1) (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the fiscal year ended December 29, 1996 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ---------------- ----------------- Commission File Number 1-7882 ADVANCED MICRO DEVICES, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 94-1692300 (STATE OR OTHER JURISDICTION (IRS EMPLOYER OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER) ONE AMD PLACE 94086 SUNNYVALE, CALIFORNIA (ZIP CODE) (Address of principal executive offices) Registrant's telephone number, including area code: (408) 732-2400 Securities registered pursuant to Section 12(b) of the Act: (Name of each exchange (Title of each class) on which registered) --------------------- -------------------- $.01 Par Value Common Stock New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None 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 ------- ------ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Aggregate market value of the voting stock held by nonaffiliates as of February 25, 1997. $5,068,372,307 Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date. 138,952,155 shares as of February 25, 1997. DOCUMENTS INCORPORATED BY REFERENCE (1) Portions of the Annual Report to Stockholders for the fiscal year ended December 29, 1996, are incorporated into Parts II and IV hereof. (2) Portions of the Proxy Statement for the Annual Meeting of Stockholders to be held on April 24, 1997, are incorporated into Part III hereof. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) 1. FINANCIAL STATEMENTS The financial statements listed in the accompanying Index to Consolidated Financial Statements and Financial Statement Schedule covered by Report of Independent Auditors are filed or incorporated by reference as part of this Annual Report on Form 10-K. The following is a list of such financial statements:

1. FINANCIAL STATEMENT SCHEDULE The financial statement schedule listed in the accompanying Index to Consolidated Financial Statements and Financial Statement Schedule covered by the Report of Independent Auditors is filed as part of this Annual Report on Form 10-K as follows:

All other schedules have been omitted because the required information is not present or is not present in amounts sufficient to require submission of the schedules, or because the information required is included in the Consolidated Financial Statements or Notes thereto. With the exception of the information specifically incorporated by reference into Parts II and IV of this Annual Report on Form 10-K, the 1996 Annual Report to Stockholders is not to be deemed filed as part of this report. 2 3. EXHIBITS The exhibits listed in the accompanying Index to Exhibits are filed as part of, or incorporated by reference into, this Annual Report on Form 10-K. The following is a list of such Exhibits: EXHIBIT ------- NUMBER DESCRIPTION OF EXHIBITS ------ -----------------------

3 EXHIBIT NUMBER DESCRIPTION OF EXHIBITS - ------ -----------------------

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10 The Company will furnish a copy of any exhibit on request and payment of the Company's reasonable expenses of furnishing such exhibit. * Management contracts and compensatory plans or arrangements required to be filed as an Exhibit to comply with Item 14(a)(3). ** Confidential treatment has been granted as to certain portions of these Exhibits. *** Confidential treatment has been requested as to certain portions of these Exhibits. (b) REPORTS ON FORM 8-K. The following report on Form 8-K was filed during the fourth quarter of the Company's fiscal year ended December 29, 1996: 1. A Current Report on Form 8-K dated October 7, 1996, was filed announcing the Company's third quarter revenues. (d) FINANCIAL STATEMENTS Report of Ernst & Young LLP, Independent Auditors................. 21 Statement of Operations for the three years in the period ended March 31, 1997.................................. 12 Balance Sheets at March 31, 1997 and March 31, 1996............... 13 Statements of Stockholders' Equity for the three years in the period ended March 31, 1997............................... 14 Statements of Cash flows for the three years in the period ended March 31, 1997............................... 15 Notes to Financial Statements..................................... 16 11 FUJITSU AMD SEMICONDUCTOR LIMITED STATEMENTS OF OPERATIONS

See accompanying notes 12 FUJITSU AMD SEMICONDUCTOR LIMITED BALANCE SHEETS

See accompanying notes 13 FUJITSU AMD SEMICONDUCTOR LIMITED STATEMENTS OF CASH FLOWS

See accompanying notes 14 FUJITSU AMD SEMICONDUCTOR LIMITED STATEMENTS OF STOCKHOLDERS' EQUITY Three Years Ended March 31, 1997 (Thousands except share amounts)

See accompanying notes 15 FUJITSU AMD SEMICONDUCTOR LIMITED NOTES TO FINANCIAL STATEMENTS March 31, 1997 (Information as of and for the years ended March 31, 1996 and 1995 is unaudited) 1. NATURE OF OPERATIONS In 1993, Advanced Micro Devices (AMD) and Fujitsu Limited (Fujitsu) formed a joint venture, Fujitsu AMD Semiconductor Limited (FASL or the Company), for the development and manufacture of non-volatile memory devices. Through FASL, the two companies have constructed and are operating an advanced integrated circuit manufacturing facility in Aizu-Wakamatsu, Japan, to produce Flash memory devices. AMD has a 49.992% interest in FASL, and Fujitsu has the remaining interest. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ACCOUNTING PRINCIPLES. The accounting records of the Company are maintained in accordance with accounting practices prevailing in Japan. The accompanying financial statements, however, include adjustments which have not been recorded in the legal books of account of the Company but are necessary to conform with generally accepted accounting principles in the United States of America (U.S. GAAP). These adjustments consist principally of depreciation under a different method and its impact on the valuation of inventories, provision of deferred income taxes, and adjustments stemming from the translation of the Company's financial statements into the U.S. dollar for reporting purposes. FOREIGN CURRENCY TRANSLATION. The functional currency of the Company is the Japanese yen. Financial statements are translated into U.S. dollars using the exchange rate at each balance sheet date for assets and liabilities and a weighted average exchange rate for each period for income statement items. Translation adjustments are recorded as a separate component of stockholders' equity in the U.S. dollar financial statements. INVENTORIES. Inventories are stated principally at standard cost adjusted to approximate the lower of cost (average method) or market (net realizable value). PROPERTY, PLANT AND EQUIPMENT. Property, plant and equipment is stated at cost. Depreciation is provided principally on the straight-line basis over the estimated useful lives of the assets for financial reporting purposes and on accelerated methods for tax purposes. Estimated useful lives for financial reporting purposes are as follows: machinery and equipment 3 to 5 years; buildings up to 26 years. Effective April 1, 1996 the Company adopted, for U.S. GAAP reporting purposes only, Statement of Financial Accounting Standards No. 121 (SFAS 121), "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." SFAS 121 requires recognition of impairment of long-lived assets in the event the net book value of such assets exceeds the future undiscounted cash flows attributable to such assets. Adoption of SFAS 121 has not had a material impact on the Company's financial position or results of operations. NET INCOME (LOSS) PER COMMON SHARE. Per share amounts have been computed based on the average number of common shares outstanding. The Company has no common stock equivalents. 16 FUJITSU AMD SEMICONDUCTOR LIMITED NOTES TO FINANCIAL STATEMENTS March 31, 1997 (Information as of and for the years ended March 31, 1996 and 1995 is unaudited) USE OF ESTIMATES. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results inevitably will differ from those estimates, and such differences may be material to the financial statements. 3. RELATED PARTY TRANSACTIONS The Company is 100 percent owned by AMD and Fujitsu, with AMD having a 49.992% interest, and Fujitsu having the remaining interest. Prior to January, 1997, AMD had a 49.95% interest in FASL. Under the terms of the joint venture agreement, FASL production is allocated nearly equally between AMD and Fujitsu. All of the Company's sales and accounts receivable for the years 1997, 1996 and 1995 were with these related parties. In 1997, 1996 and 1995, FASL made purchases from AMD and Fujitsu totaling $14 million, $14 million and $3 million, respectively. At March 31, 1997, FASL owed AMD, Fujitsu and Fujitsu's subsidiaries $73 million which consisted of loan, trade and royalty payables. At March 31, 1996, FASL owed AMD, Fujitsu and Fujitsu's subsidiaries $72 million which consisted of trade and royalty payables. The Company has an agreement with Fujitsu Capital Limited (FCAP), a wholly-owned subsidiary of Fujitsu, to provide financing to FASL at lower interest rates than banks. Had the Company obtained financing from a lender other than FCAP, the additional interest expense would have been immaterial. In March of 1996, FASL began construction of a second Flash memory device wafer fabrication facility (FASL II) at a site contiguous to the existing FASL facility in Aizu-Wakamatsu, Japan. The facility is expected to cost approximately $1.1 billion when fully equipped. Capital expenditures for FASL II construction are expected to be funded by cash generated from FASL operations and, if necessary, borrowings by FASL. To the extent that FASL is unable to secure the necessary funds for FASL II, AMD and Fujitsu may be required to contribute cash or guarantee third-party loans in proportion to their percentage interest in FASL. At March 31, 1997, AMD and Fujitsu had loan guarantees outstanding totaling $52 million with respect to such loans. The Company has a severance benefit package for employees formerly employed by Fujitsu. FASL accrues the Company's share of severance benefits at year-end in an amount to be settled with Fujitsu if the eligible employee terminates their service with FASL and returns to Fujitsu or another Fujitsu group company. 4. OTHER RISKS PRODUCTS. At present the only type of products produced by the Company are Flash memory devices. The Company expects that its ability to maintain or expand its current levels of revenues in the future will depend upon, among other things, its dependence on AMD and Fujitsu in developing and marketing in a timely manner its future generations of Flash memory devices. 17 FUJITSU AMD SEMICONDUCTOR LIMITED NOTES TO FINANCIAL STATEMENTS March 31, 1997 (Information as of and for the years ended March 31, 1996 and 1995 is unaudited) MARKETS. The markets for the Company's products are characterized by rapid technological developments, evolving industry standards, changes in customer requirements, frequent new product introductions and enhancements and short product life cycles. The market for Flash memory devices is primarily dependent upon the market for communications devices, such as cellular phones and routers (devices used to transfer data between local area networks). CUSTOMERS. The Company derives all of its revenues from sales to AMD and Fujitsu. Under the terms of the joint venture, the production is allocated nearly equally to AMD and Fujitsu. The Company is dependent on the demand of Flash memory devices from AMD and Fujitsu. MATERIALS. Certain of the raw materials used by the Company in the manufacture of its products are available from a limited number of suppliers. Shortages could occur in various essential materials due to interruption of supply or increased demand in the industry. If FASL were unable to procure certain of such materials, it would be required to reduce its manufacturing operations, which could have a material adverse effect on the Company. To date, FASL has not experienced significant difficulty in obtaining the necessary raw materials. 5. INCOME TAXES Provision (benefit) for income taxes consists of: (Thousands) 1997 1996 1995 ------- ------- -------- Current: Foreign National $27,415 $14,868 $ 40 Foreign Local 13,841 7,632 - Deferred: Foreign National and Local 12,594 76,161 (16,981) ------- ------- -------- Provision (benefit) for income taxes $53,850 $98,661 $(16,941) ======= ======= ======== Under SFAS No. 109, deferred income taxes reflect the net tax effects of tax carryforwards and temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities as of March 31, 1997 and 1996 are as follows: 18 FUJITSU AMD SEMICONDUCTOR LIMITED NOTES TO FINANCIAL STATEMENTS March 31, 1997 (Information as of and for the years ended March 31, 1996 and 1995 is unaudited) (Thousands) 1997 1996 -------- -------- Deferred tax assets: Inventory reserves $ 2,606 $ 2,464 Sales reserves 84 - Accrued expenses not currently deductible 3,365 2,219 -------- -------- Total deferred tax assets 6,055 4,683 Deferred tax liabilities: Depreciation (62,985) (40,865) Sales reserves (16,030) Other (414) (580) -------- -------- Total deferred tax liabilities (63,399) (57,475) -------- -------- Net deferred tax liabilities $ 57,344 $ 52,792 ======== ======== The following is a reconciliation between statutory Japanese income taxes and the total provision (benefit) for income taxes:

1. COMMITMENTS At March 31, 1997, the Company had commitments of approximately $81 million for the construction of FASL II. The Company leases the land from Fujitsu under an agreement which expires May 31, 2023. Beginning in 1994, the lease fee is revised every three years based on the fair market value of the land. For each of the next five years and beyond, lease obligations are: 19 FUJITSU AMD SEMICONDUCTOR LIMITED NOTES TO FINANCIAL STATEMENTS March 31, 1997 (Information as of and for the years ended March 31, 1996 and 1995 is unaudited) (Thousands) Leases ------ 1998 $ 357 1999 357 2000 357 2001 357 2002 357 Beyond 2002 357 ------ Total $2,142 ====== 7. RETAINED EARNINGS The amount of retained earnings available for dividends under the Commercial Code in Japan is based on the amount recorded in the Company's books maintained in accordance with Japanese accounting practices. The adjustments included in the accompanying financial statements but not recorded in the books as explained in Note 2 have no effect on the determination of retained earnings available for dividends under the Commercial Code in Japan. 20 [LOGO OF ERNST & YOUNG] Report of Independent Auditors The Board of Directors and Stockholders Fujitsu AMD Semiconductor Limited We have audited the accompanying balance sheet of Fujitsu AMD Semiconductor Limited as of March 31, 1997, and the related statements of operations, stockholders' equity, and cash flows for the year then ended. 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 audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. 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 audit provides a reasonable basis for our opinion. We have also reported separately on the financial statements of Fujitsu AMD Semiconductor Limited for the same year prepared in accordance with accounting principles generally accepted in Japan. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Fujitsu AMD Semiconductor Limited at March 31, 1997, and the results of its operations and the cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. /s/ Ernst & Young Tokyo, Japan September 19, 1997 21 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. Registrant September 30, 1997 By:/s/ Marvin D. Burkett -------------------------------------- Marvin D. Burkett Senior Vice President, Chief Financial and Administrative Officer and Treasurer 22