AMD 1993 Annual Report Download - page 366

3
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
fluctuations in product demand, and the ability to secure intellectual property
rights. While the company attempts to identify and respond to these changes as
soon as possible, the rapidity of their onset makes prediction of and reaction
to such events an ongoing challenge.
The company believes that its future results of operations and financial
condition could be impacted by the following factors: market acceptance and
timing of new products, trends in the personal computer marketplace, capacity
constraints, intense price competition, interruption of manufacturing materials
supply, negative changes in international economic conditions and decisions in
legal disputes relating to intellectual property rights.
Due to the factors noted above, the company's future operations, financial
condition and stock price may be subject to volatility. In addition, a
shortfall in revenue 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.
FINANCIAL CONDITION
The company's financial condition improved during 1993. Cash and cash
equivalents and temporary cash investments rose by $157.1 million to $488.2
million from 1992 to 1993. Net cash provided from operating activities was
offset by the purchase of property, plant and equipment of $323.7 million in
1993 to expand manufacturing capacity and also by the purchase of temporary
cash investments. Capital acquisitions have been on an upward trend in each of
the three years, and this trend is expected to continue in excess of $500
million in 1994 mainly for Fab 25 (see following discussion). In summary,
positive cash flow of $8.4 million was generated in 1993 as compared to
negative cash flow of $101.9 in 1992. This cash flow improvement was due to
higher net cash provided by operating activities, proceeds from stock issuances
to employees and Fujitsu Limited in 1993 and retirement of long-term debt in
1992.
Restricted cash totaling approximately $33.2 million was pledged by the
company to stay execution of a $27.4 million judgment, plus interest, in favor
of Brooktree Corporation. In the first quarter of 1993, the company and
Brooktree Corporation settled all pending litigation and agreed that AMD would
pay Brooktree $26.8 million. AMD made full payment on this settlement in the
second quarter of 1993.
In 1993, the company's current ratio grew to 2.12 from 2.09 in 1992 and 1.38
in 1991. Working capital grew by $124.5 million from $385.1 million in 1992 to
$509.6 million in 1993. This growth is primarily due to an increase in
temporary cash investments and accounts receivable resulting from higher sales
that more than offset higher accounts payable in 1993.
The company is currently involved in litigations with Intel Corporation (see
Note 12 of the Consolidated Financial Statements and 1993 Annual Report on Form
10K, Item 3, Legal Proceedings). While it is impossible to predict the
resolutions of the AMD/Intel litigations, there could be a material adverse
effect on the financial condition, or trends in results of operations of the
company, or the ability to raise necessary capital, or some combination of the
foregoing if the outcome of the Intel litigations either results in an award to
Intel of material monetary damages, or the company's intellectual property
rights are not sustained with regard to the Am386 or the Am486 products such
that the company is precluded from producing and selling Am386, Am486 and
future generations of microprocessors that are adjudicated to contain Intel
intellectual property, or from selling such products at competitive prices.
In July 1993, the company commenced 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 billion when fully
equipped. The first phase of construction and initial equipment installation is
expected to cost approximately $400 million through 1994.
Volume production is scheduled to begin in late 1995.
The company and Fujitsu Limited are cooperating in building and operating an
approximately $800 million wafer fabrication facility in Aizu-Wakamatsu, Japan
through their joint venture "Fujitsu-AMD Semiconductor Limited (FASL)." The
forecasted joint venture costs are denominated in yen and therefore are subject
to change due to fluctuations of foreign exchange rates. Each company will
contribute equally toward funding and supporting FASL. AMD is expected to
contribute approximately half of its share of funding in cash and guarantee
third-party loans made to FASL for the remaining half. However, to the extent
debt cannot be secured by FASL, AMD is required to contribute its portion in
cash. During 1993, the company's investment in FASL was immaterial; however,
management anticipates this investment will increase substantially, to
approximately $135 million in 1994. The company is also required under the
terms of the joint venture to contribute approximately one-half of such
additional amounts as may be necessary to sustain FASL's operations. The
facility, which will be capable of producing flash memory devices utilizing
CMOS process technology, is expected to begin operations in the fourth quarter
of 1994. Volume production is expected to begin in the first half of 1995.
As of the end of 1993, the company had the following financing arrangements:
unsecured committed bank lines of credit of $105 million, unutilized; long-term
secured equipment lease lines of $110 million, of which $65 million were
utilized; and short-term, unsecured uncommitted bank credit in the amount of
$83 million, of which $31 million was outstanding.
The company's current capital plan and requirements are based on various
Source: ADVANCED MICRO DEVIC, 10-K, March 07, 1994