AMD 2003 Annual Report Download - page 33

Table of Contents
We recorded an income tax provision of $3 million in 2003, an income tax provision of $45 million in 2002 and an income tax benefit of $14 million in
2001. The income tax provision in 2003 primarily reflected income tax expense generated in certain foreign tax jurisdictions, offset by a benefit of a U.S. federal
tax refund from a carryback claim we filed in 2003. No net tax benefit was recorded in 2003 on pre-tax losses due to continuing operating losses. Our tax
provision for 2003 does not reflect an increase in our net deferred tax liability of approximately $46 million. This net deferred tax liability was recognized by the
Japanese subsidiary of FASL LLC, FASL JAPAN, as tax expense in periods prior to our consolidation of FASL LLC on June 30, 2003, and therefore has not
been recorded as a component of our tax expense for 2003. The 2002 income tax provision was recorded primarily for taxes due on income generated in certain
state and foreign tax jurisdictions. No tax benefit was recorded in 2002 on pre-tax losses due to the establishment of a valuation allowance against the remainder
of our U.S. deferred tax assets, net of U.S. deferred tax liabilities in the fourth quarter, due to the incurrence of continuing substantial operating losses in the U.S.
The effective benefit rate of 15.4 percent for 2001 was less than the statutory rate because of a lower than U.S. statutory 24 percent tax benefit rate on the 2001
restructuring charges, reflecting the allocation of the charges between the U.S. and foreign lower-taxed jurisdictions, and a provision for U.S. taxes on certain
previously undistributed earnings of lower-taxed foreign subsidiaries.
Other Items
International sales as a percent of net sales were 80 percent in 2003, compared to 73 percent in 2002 and 67 percent in 2001. During 2003, approximately
15 percent of our net sales were denominated in currencies other than the U.S. dollar, primarily the Japanese yen, as compared to one percent during 2002. The
increase was primarily due to the consolidation of FASL LLC’s results of operations, which include sales by FASL LLC to Fujitsu, which are denominated in
yen. Our foreign exchange risk exposure resulting from these sales is partially mitigated as a result of our yen-denominated manufacturing costs. In addition, we
are subject to foreign currency risk related to our manufacturing costs in Fab 30, which are denominated in euros. We use foreign currency forward and option
contracts to reduce our exposure to the euro, but future exchange rate fluctuations may cause increases or decreases to our Fab 30 manufacturing costs. The
impact on our operating results from changes in foreign currency rates individually and in the aggregate has not been material, principally as a result of our
foreign currency hedging activities.
Comparison of Operating Income (Loss)
The following is a summary of operating income (loss) for 2003, 2002 and 2001:
2003 2002 2001
(Millions)
Computation Products $ (23) $ (661) $ (191)
Memory Products (189) (159) 268
All Other (21) (405) (135)
Total $ (233) $ (1,225) $ (58)
Computation Products operating loss of $23 million in 2003 improved by $638 million compared to $661 million in 2002. The improvement was primarily
due to incremental net sales of $204 million and a decrease in both manufacturing costs of $330 million and marketing, general and administrative expenses of
$39 million, which resulted primarily from our cost reduction initiatives and the 2002 Restructuring Plan. In addition, cooperative advertising and marketing
expenses decreased by $55 million from 2002.
Computation Products operating loss of $661 million in 2002 increased by $470 million compared to $191 million in 2001 primarily due to a decrease in
net sales. The decrease was primarily due to a decline in average selling prices of 13 percent and a decline in unit sales of 16 percent for microprocessors as a
result of the sustained downturn in the PC industry.
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Source: ADVANCED MICRO DEVIC, 10-K, March 09, 2004