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FORM 10-K
ADVANCED MICRO DEVICES INC - amd
Filed: February 27, 2006 (period: December 25, 2005)
Annual report which provides a comprehensive overview of the company for the past year

Table of contents

  • Page 1
    FORM 10-K ADVANCED MICRO DEVICES INC - amd Filed: February 27, 2006 (period: December 25, 2005) Annual report which provides a comprehensive overview of the company for the past year

  • Page 2
    ... ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE CONTROLS AND PROCEDURES OTHER INFORMATION PART III ITEM 10. ITEM 11. ITEM 12. ITEM 13. ITEM 14. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT EXECUTIVE COMPENSATION SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED...

  • Page 3
    ...10.17(C) (THIRD AMENDMENT TO THE AMD) EX-10.58 (AMENDED AND RESTATED NON-COMPETITION AGREEMENT) EX-21 (LIST OF AMD SUBSIDIARIES) EX-23 (CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM) EX-24 (POWER OF ATTORNEY) EX-31.1 (CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302) EX-31...

  • Page 4
    ... company (as defined by Rule 12b-2 of the Exchange Act) Yes � No ⌧ As of June 24, 2005, the aggregate market value of the registrant's common stock held by non-affiliates of the registrant was approximately $6,799,159,288 based on the reported closing sale price of $17.17 per share as reported...

  • Page 5
    ... EXECUTIVE OFFICERS OF THE REGISTRANT EXECUTIVE COMPENSATION SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS PRINCIPAL ACCOUNTING FEES AND SERVICES MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER...

  • Page 6
    ...market share in high-growth global markets such as China, Latin America, India and Eastern Europe; Spansion's ability to implement 300-millimeter wafer manufacturing capacity; and customer and market acceptance of Spansion â„¢ Flash memory products based on MirrorBit â„¢ and floating gate technology...

  • Page 7
    ... York Stock Exchange under the symbol "AMD." Our mailing address and executive offices are located at One AMD Place, Sunnyvale, California 94088, and our telephone number is (408) 749-4000. References in this report to "AMD," "we," "us," "our," or the "Company" means Advanced Micro Devices, Inc. and...

  • Page 8
    ... the rate at which its internal logic operates, measured in units of hertz, or cycles per second. Other factors impacting microprocessor performance include memory size, data access speed and power consumption. Developments in circuit design and manufacturing 3 Source: ADVANCED MICRO DEVIC, 10...

  • Page 9
    ...and notebook PCs, we offer the AMD Sempron microprocessors, which we designed to provide core computing needs at affordable prices. AMD Athlon 64 and AMD Athlon 64 FX processors are based on the AMD64 technology platform, which extends the industry-standard x86 instruction set architecture to 64-bit...

  • Page 10
    ... operational costs related to power usage. Our AMD Opteron, AMD Athlon 64, AMD Turion 64 and certain AMD Sempron processors are based on AMD64 technology with direct connect architecture. Direct connect architecture connects an on-chip memory controller and I/O, or input/output, channels directly to...

  • Page 11
    ... storage devices, such as the keyboard, mouse, monitor and hard drive. The primary reason we offer these products to our customers is to provide them with a solution that will allow them to use our microprocessors and develop and introduce their products into the market more quickly. Memory Products...

  • Page 12
    ... to support code, or mixed code and data storage applications and serve the wireless and embedded categories of the Flash memory market. Some of its product families address both of these categories. Personal Connectivity Solutions The Embedded Processor Market We also offer embedded microprocessors...

  • Page 13
    ... levels of performance where key features include reduced cost, mobility, low power and small form factor. Products that use our embedded processors are targeted for specific market segments using SoC design techniques. Our embedded microprocessor products consist of the AMD Geode â„¢ family and the...

  • Page 14
    ... include AMD Alchemy solutions and AMD Geode processors. We market our products through our direct marketing and co-marketing programs. Our direct marketing activities include print and Web-based advertising as well as consumer and trade events and other industry and consumer communications. We...

  • Page 15
    ... manufacturers and other PC industry participants, including motherboard, memory, chipset and basic input/output system, or BIOS, suppliers; and • marketing and advertising expenditures in support of positioning the Intel brand over the brand of its OEM customers. 10 Source: ADVANCED MICRO DEVIC...

  • Page 16
    ..., Intel, NEC Corporation, Toshiba and Via Technologies. We expect competition in the market for these devices to increase as our principal competitors focus more resources on developing low-power embedded processor solutions. Competition in the Flash Memory Market Prior to the closing of Spansion...

  • Page 17
    ... for our microprocessor products in the United States with additional design and development engineering teams located in Germany, China, Japan and India. In December 2005, we announced the opening of the Korea Technology Development Center. The center will focus on helping local customers and...

  • Page 18
    ... Development Center in Sunnyvale, California, a manufacturing facility in Austin, Texas referred to as Fab 25 and at facilities in Aizu-Wakamatsu, Japan. Spansion is focusing on developing new non-volatile memory process technologies and has announced plans for development of 65-nanometer technology...

  • Page 19
    ... Manufacturing Area Square Footage Facility Location Penang, Malaysia Singapore Suzhou, China 112,000 194,000 44,310 Assembly & Test Test Test, Mark & Packaging Activity Some assembly and final testing of our microprocessor and personal connectivity solutions products is also performed...

  • Page 20
    ... 118,000 Facility Location Approximate Clean Room Square Footage Bangkok, Thailand Kuala Lumpur, Malaysia Penang, Malaysia Suzhou, China 78,000 71,300 71,000 30,250 During 2005, Spansion's products were manufactured on 110-, 130-, 170-, 200-, 230- and 320-nanometer process technologies. Process...

  • Page 21
    ...each party's patents for the manufacture and sale of semiconductor products worldwide. We pay Intel a royalty for certain licensed microprocessor products sold by us or any AMD affiliate anywhere in the world. The license applies to each party's patents that have a first effective filing date during...

  • Page 22
    ... treatment, transport, storage and disposal of solid and hazardous wastes. If we fail to comply with any of the applicable environmental regulations we may be subject to fines, suspension of production, alteration of our manufacturing processes, import/export restrictions, sales limitations...

  • Page 23
    ...or current reports under the Securities Exchange Act of 1934 that remain unresolved. ITEM 2. PROPERTIES At December 25, 2005, we owned principal engineering, manufacturing, warehouse and administrative facilities located in the United States, Germany, Singapore and Malaysia. These facilities totaled...

  • Page 24
    ... the x86 microprocessor market by engaging in anti-competitive financial and exclusionary business practices that in effect limit Intel's customers' ability and/or incentive to deal with AMD. The complaint alleges anti-competitive business practices, including: • Forcing major customers into Intel...

  • Page 25
    ...in the wafer fabrication process prior to 1979. In 1991, we received Final Site Clean-up Requirements Orders from the California Regional Water Quality Control Board relating to the three sites. We have entered into settlement agreements with other responsible parties on two of the orders during the...

  • Page 26
    Table of Contents PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Our common stock (symbol "AMD") is listed on the New York Stock Exchange. On February 17, 2006, there were 7,330 registered holders of our common stock. ...

  • Page 27
    ...2005 includes Memory Products net sales only through December 20, 2005. From December 21, 2005, the date which Spansion Inc. closed its IPO, through December 25, 2005, we used the equity method of accounting to reflect our share of Spansion's net income (loss) and included this information under the...

  • Page 28
    ... to 37.9 percent in connection with Spansion's IPO, we recorded a loss of $110 million which represents the difference between Spansion's book value per share before and after the IPO multiplied by the number of shares owned by us. 23 (3) (4) (5) Source: ADVANCED MICRO DEVIC, 10-K, February 27...

  • Page 29
    ...our introduction of AMD Turion 64 processors for notebook PCs in March 2005, AMD Opteron dual-core processors for servers and workstations in April 2005, and AMD Athlon 64 dual-core processors for desktop PCs in May 2005 helped drive increasing customer adoption of our products. Moreover, we believe...

  • Page 30
    ... sales returns and allowances on product sales and a provision for estimated future price reductions in the same period that the related revenues are recorded. We base these estimates on actual historical sales returns, allowances, historical price reductions, market activity, and other known...

  • Page 31
    ... to approximate the lower of our standard manufacturing cost or market value. Among other factors, management considers forecasted demand in relation to the inventory on hand, competitiveness of product offerings, market conditions and product life cycles when determining obsolescence and net...

  • Page 32
    ... Related Information" (SFAS 131). Previously, we included our Personal Connectivity Solutions operating segment in our All Other category. The Personal Connectivity Solutions segment includes primarily low-power, high-performance x86 and MIPS architecture-based embedded microprocessors and products...

  • Page 33
    ... 2005, AMD Opteron dual-core processors for servers and workstations in April 2005 and AMD Athlon 64 dual-core processors for desktop PCs in May 2005 helped drive increasing customer adoption of our products. The increase in average selling prices was 28 Source: ADVANCED MICRO DEVIC, 10-K, February...

  • Page 34
    ... demand from the wireless handset market in Asia, in part due to excess inventory accumulation by wireless handset OEMs in China during the first half of 2004, contributed to a decline in Memory Product net sales during the third quarter of 2004. In addition, a 29 Source: ADVANCED MICRO DEVIC...

  • Page 35
    ...to manufacture than Flash memory products based on floating gate technology. Further quantification of the changes is not practical due to the consolidation of Spansion's results of operations with our financial results as of June 30, 2003. Personal Connectivity Solutions Group Personal Connectivity...

  • Page 36
    ... a change in product mix and an aggregate increase of $9 million in marketing, general and administrative expenses as a result of activities related to our AMD Geode products and other product development. Manufacturing costs increased primarily because we manufactured more AMD Geode products, which...

  • Page 37
    ... able to absorb our fixed manufacturing costs due in part to improving yields at Fab 30. The improvement in gross margin was partially offset by a 12 percent decrease in gross margin for Memory Products due primarily to a decrease of 28 percent in average selling prices in 2005 compared to 2004...

  • Page 38
    ...) to further align our cost structure to industry conditions resulting from weak customer demand and industry-wide excess inventory. The 2002 Restructuring Plan resulted in the consolidation of facilities, primarily at our Sunnyvale, California site and at sales offices worldwide. We vacated and are...

  • Page 39
    ... are now not expected to occur due to the change of functional currency for AMD Fab 36 KG from the euro to the U.S. dollar and approximately $14 million of commitment and guarantee fees incurred in connection with the Fab 36 Loan Agreements. In addition, interest income increased approximately $19...

  • Page 40
    ... net sales were denominated in currencies other than the U.S. dollar, primarily the Japanese yen. However, as a result of the closing of Spansion's IPO on December 21, 2005, we do not expect to have significant sales denominated in the Japanese yen in the future. 35 Source: ADVANCED MICRO DEVIC, 10...

  • Page 41
    ... an increase in accounts receivable due to higher net sales, and increased inventories due primarily to an increase in microprocessor inventories resulting from a higher percentage of AMD64-based processors and improved market conditions. For 2004, Fujitsu accounted for approximately 23 percent...

  • Page 42
    ... received from equipment sale and leaseback transactions completed by Spansion, a $40 million cash note to Spansion from Fujitsu as part of the formation of Spansion LLC as of June 30, 2003, $155 million of capital investment allowances received from the Federal Republic of Germany for the Fab...

  • Page 43
    ... Due 2007 On November 25, 2002, we issued $402.5 million of 4.50% Convertible Senior Notes due 2007 (the 4.50% Notes) in a registered offering. Interest on the 4.50% Notes was payable semiannually in arrears on June 1 and December 1 of each year, beginning June 1, 2003. Beginning on December 4, 2005...

  • Page 44
    ... the 4.75% Debentures elected to convert their debentures into 21,378,605 shares of our common stock pursuant to the original terms of the 4.75% Debentures. Accordingly, as of February 6, 2006, the 4.75% Debentures were no longer outstanding. 39 Source: ADVANCED MICRO DEVIC, 10-K, February 27, 2006

  • Page 45
    ... On October 29, 2004, we issued $600 million of 7.75% Senior Notes due 2012 in a private offering pursuant to Rule 144A and Regulation S under the Securities Act of 1933, as amended. On April 22, 2005, we exchanged these notes for publicly registered notes which have substantially identical terms as...

  • Page 46
    ... and Guarantee and Fab 36 Partnership Agreements Our new 300-millimeter wafer fabrication facility, Fab 36, is located in Dresden, Germany adjacent to our other wafer manufacturing facility, Fab 30. Fab 36 is owned by AMD Fab 36 KG, a German limited partnership. We control the management of AMD Fab...

  • Page 47
    ... that the unaffiliated limited partners will receive a guaranteed rate of return of between 11 percent and 13 percent per annum on their total investment depending upon the monthly wafer output of Fab 36. We guaranteed these payments by AMD Fab 36 KG. 42 Source: ADVANCED MICRO DEVIC, 10-K, February...

  • Page 48
    ...required by the partnership agreements, investments significantly in excess of the business plan, or certain dispositions of the limited partnership interests of AMD Fab 36 Holding and AMD Fab 36 Admin. The purchase price under the put option is the partner's capital account balance plus accumulated...

  • Page 49
    ...AMD or their ability to perform under the Fab 36 Loan Agreements; • filings or proceedings in bankruptcy or insolvency with respect to us, AMD Fab 36 KG or any limited partner; • occurrence of a change in control (as defined in the Fab 36 Loan Agreements) of AMD; 44 Source: ADVANCED MICRO DEVIC...

  • Page 50
    ... the historical exchange rates that were in effect at the time AMD Fab 36 KG received these amounts to convert amounts denominated in euros into U.S. dollars. AMD Penang Term Loan On January 29, 2004, our subsidiary in Malaysia, AMD Export Sdn. Bhd., or AMD Penang, entered into a term loan agreement...

  • Page 51
    ... the sale and leaseback of our corporate marketing, general and administrative facility in Sunnyvale, California in 1998. Guarantees Guarantees of Indebtedness Recorded on Our Consolidated Balance Sheet The following table summarizes the principal guarantees issued as of December 25, 2005 related to...

  • Page 52
    ... its fiscal year. Repayment occurs in equal, consecutive, quarterly principal installments ending in June 2007. As a result of Spansion's IPO, the amount outstanding under this loan facility is no longer consolidated on our consolidated balance sheet. 47 Source: ADVANCED MICRO DEVIC, 10-K, February...

  • Page 53
    ... services. Under the agreement, Spansion assumes full responsibility for its products and these transactions, including establishing the pricing and determining product specifications. Spansion also assumes credit and inventory risk related to these product sales. 48 Source: ADVANCED MICRO DEVIC...

  • Page 54
    ... market share in a profitable manner. However we are in an extremely competitive business. Microprocessor products compete on performance, quality, reliability, cost, selling price, adherence to industry standards, software and hardware compatibility, marketing and distribution capability, brand...

  • Page 55
    ...a charge based on U.S. generally accepted accounting principles. On December 15, 2005, we accelerated the vesting of all outstanding AMD stock options and restricted stock units held by Spansion employees that would otherwise have vested from December 16, 2005 to 50 Source: ADVANCED MICRO DEVIC, 10...

  • Page 56
    ...have been required to re-measure the fair value of unvested stock-based awards of our common stock held by Spansion employees after Spansion's IPO at the end of each accounting period until such awards were fully vested. In connection with the acceleration of the vesting of these awards, we recorded...

  • Page 57
    ...-the-money stock options have an exercise price equal to or above $30.50, the closing price of AMD's common stock, on December 23, 2005, the last trading day of fiscal year 2005. Includes 69,396 shares outstanding from treasury stock as non-plan grants. Weighted average exercise price information is...

  • Page 58
    ... March 2005, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin No. 107 (SAB 107) regarding the SEC's interpretation of SFAS 123R and the valuation of share-based payments for public companies. We will apply the modified prospective method, which requires that compensation...

  • Page 59
    ... adversely affected. Our AMD Opteron processors are critical to our strategy of increasing market share in the server category of the microprocessor market. Similarly, our AMD Turion 64 processors are critical to our strategy of increasing 54 Source: ADVANCED MICRO DEVIC, 10-K, February 27...

  • Page 60
    ... of dual-core processors; • our ability to produce these processors in a timely manner on advanced process technologies, in the volume and with the performance and feature set required by customers; and • the availability, performance and feature set of motherboards, memory and chipsets designed...

  • Page 61
    ... if we fail to reduce our manufacturing costs and develop, introduce and sell on a timely basis, new products or enhanced versions of existing products at competitive prices. We depend on third-party companies for the design and manufacture of core-logic chipsets, graphics chips, motherboards, BIOS...

  • Page 62
    ... significant market share to Intel or exited the business. If we are unable to secure sufficient support for our microprocessor products from these designers and manufacturers, or if suppliers of chipsets cannot provide us with sufficient quantities of chipset products to meet our demand, our...

  • Page 63
    ... If our target markets do not grow as we anticipate, we may under-utilize our manufacturing facilities, which may result in write-downs or write-offs of inventories and losses on products whose demand is lower than we anticipate. In addition, during periods of industry overcapacity, customers do not...

  • Page 64
    .... If we lose Microsoft Corporation's support for our products, our ability to sell our microprocessors could be materially adversely affected. Our ability to innovate beyond the x86 instruction set controlled by Intel depends partially on Microsoft designing and developing its operating systems...

  • Page 65
    ... KG (based on an exchange rate of 0.843 euros to one U.S. dollar as of December 25, 2005). Loans provided to AMD Fab 36 KG under this revolving credit agreement are unsecured and subordinated to the rights of the consortium of banks that will also be providing financing to AMD Fab 36 KG. Our capital...

  • Page 66
    ... materially adversely affect us. We receive capital investment grants and allowances from the State of Saxony and the Federal Republic of Germany for Fab 36. We have also received capital investment grants and allowances as well as interest 61 Source: ADVANCED MICRO DEVIC, 10-K, February 27, 2006

  • Page 67
    ... our products to our customers and to distribute materials for our manufacturing facilities. In addition, we rely on a third party in India to provide certain information technology services to us, including helpdesk support, desktop application services, business and software support applications...

  • Page 68
    ... is located in Germany. Nearly all product assembly and final testing of our products is performed at manufacturing facilities in China, Malaysia and Singapore. We also depend on foreign foundry suppliers for the production of certain of our embedded microprocessors for personal connectivity devices...

  • Page 69
    ... worldwide financial markets. Any of these occurrences could have a material adverse effect on us and also may result in volatility of the market price for our securities. Unfavorable currency exchange rate fluctuations could adversely affect us. As a result of our foreign operations, we have costs...

  • Page 70
    ... products on the gray market could have a material adverse effect on us. If we cannot 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 lose a competitive advantage and...

  • Page 71
    ... located in China, Malaysia and Singapore. In the event of a major earthquake, or other natural or manmade disaster, we could experience loss of life of our employees, destruction of facilities or business interruptions, any of which could materially adversely affect us. 66 Source: ADVANCED MICRO...

  • Page 72
    ... parties, including patent cross-license agreements with other major semiconductor companies such as Intel, Motorola and IBM, and licenses from third parties for technology incorporated in Spansion's products and software used to operate its business. Following Spansion's initial public offering, it...

  • Page 73
    ... develop, manufacture and market ORNAND-based products that are competitive with NAND-based Flash memory products in the wireless category of the Flash memory market. If Spansion fails to develop and commercialize its ORNAND architecture on a timely basis or if Spansion's ORNAND-based products fail...

  • Page 74
    ...the products' lives. When Spansion's average selling prices decline, its net sales and net income decline unless it is able to compensate by selling more units, reducing its manufacturing costs or introducing new, higher margin products that have higher densities and/or incorporate advanced features...

  • Page 75
    ... Intel and Micron Technology, Inc. The principal bases of competition in the Flash memory market are cost, selling price, performance, quality and customer relationships. In particular, in the past, Spansion's competitors have aggressively priced their products in order to increase market share...

  • Page 76
    ...'s production of Flash memory products was constrained in the first half of 2004 because of difficulties in procuring adequate supply of pSRAM. Some of Spansion's major suppliers, including Samsung, are also its competitors in the Flash memory market. Interruption of supply or increased demand in...

  • Page 77
    ...sales of products are denominated in U.S. dollars. As a consequence, movements in exchange rates could cause our euro-denominated expenses to increase as a percentage of net sales, affecting our profitability and cash flows. We use foreign currency forward and option 72 Source: ADVANCED MICRO DEVIC...

  • Page 78
    ...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 acquisitions. Our accounting policy for these instruments is based on our designation of such instruments as hedges of underlying exposure to variability...

  • Page 79
    ... Micro Devices, Inc. and Subsidiaries Consolidated Statements Of Operations Three Years Ended December 25, 2005 2005 2004 2003 (In thousands, except per share amounts) Net sales Net sales to related party (see Note 4) Total net sales Expenses: Cost of sales Research and development Marketing...

  • Page 80
    ...of Contents Advanced Micro Devices, Inc. and Subsidiaries Consolidated Balance Sheets December 25, December 26, 2005 2004 (In thousands, except share and per share amounts) ASSETS Current assets: Cash and cash equivalents Short-term investments Spansion senior subordinated notes (see Note 3) Total...

  • Page 81
    ...Advanced Micro Devices, Inc. and Subsidiaries Consolidated Balance Sheets-(Continued) December 25, December 26, 2005 2004 (In thousands, except share and per share amounts) LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable Accounts payable to Spansion (see Note 4) Accounts...

  • Page 82
    ... comprehensive loss Issuance of shares: Employee stock plans Conversion of the remaining 4.5% Senior Convertible Notes Due 2007 (see Note 8) Compensation recognized under employee stock plans December 25, 2005 344,528 Amount $ 3,445 Capital in excess of par value 2,014,464 Treasury Retained...

  • Page 83
    ... on sale of available-for-sale securities Compensation recognized under employee stock plans Recognition of deferred gain on sale of building Tax benefit (expense) on minority interest in net loss of subsidiaries Changes in operating assets and liabilities: (Increase) decrease in accounts receivable...

  • Page 84
    ...flow information: Cash paid (refunded) during the year for: Interest, net of amounts capitalized (see Note 9) Income taxes Non-cash investing activities: Equipment purchased through acquisition Formation and consolidation of Spansion LLC (see Note 4): Total non-cash net assets of Manufacturing Joint...

  • Page 85
    ... communications and consumer electronics markets. These solutions include embedded microprocessors for personal connectivity devices and other consumer markets. Prior to the initial public offering (IPO) of Spansion Inc. on December 21, 2005 (see Note 3), the Company also manufactured and sold Flash...

  • Page 86
    ... and marketing promotions and volume based incentives and special pricing arrangements, at the time the related revenues are recognized. For transactions where the Company reimburses a customer for a portion of the customer's cost to perform specific product advertising or marketing and promotional...

  • Page 87
    ... the sale of treasury stock below cost is recorded to retained earnings. Product Warranties. The Company generally offers a three-year limited warranty to end users for microprocessor products that are commonly referred to as "processors in a box" and a one-year limited warranty to direct purchasers...

  • Page 88
    ... the Company may offer an extended limited warranty to direct purchasers of microprocessor products that are intended for systems targeted at the commercial end markets. Foreign Currency Translation/Transactions. As of December 25, 2005 and for the three years then ended, the functional currency of...

  • Page 89
    ...-for-sale securities, deferred gains and losses on derivative financial instruments qualifying as cash flow hedges, changes in minimum pension liabilities, and foreign currency translation adjustments are included in accumulated other comprehensive income. 84 Source: ADVANCED MICRO DEVIC, 10...

  • Page 90
    ... of all employee stock options outstanding under the Company's 2004 Equity Incentive Plan and the Company's prior equity compensation plans that had exercise prices per share higher than the closing price of the Company's common stock on April 27, 2005, which was 85 Source: ADVANCED MICRO DEVIC, 10...

  • Page 91
    ...the intrinsic value method of accounting under APB Opinion 25, "Accounting for Stock Issued to Employees," and generally requires a public entity to reflect on its income statement, instead of pro forma disclosures in its financial footnotes, the cost of employee services received in exchange for an...

  • Page 92
    ..., AMD will change its method of valuation for share-based awards granted from the Black-Scholes option-pricing model, which was previously used for the Company's pro forma information required under SFAS 123, to a lattice-binominal option-pricing model. In 2006, the Company intends to issue fewer...

  • Page 93
    ... value of this investment was approximately $680 million based on Spansion's market closing price on December 23, 2005, the last trading day of the fiscal year. Based on the relevant factors including the share price of Spansion during the period, its book value and its business plan, the Company...

  • Page 94
    ... Limited, or FASL. Prior to such contribution, the Company held a 49.992 percent ownership in this joint venture and accounted for its investment under the equity method of accounting. The Company also contributed its Flash memory inventory, its manufacturing facility located in Austin, Texas (Fab...

  • Page 95
    ... other things, certain information technology, research and development, quality assurance, insurance, facilities, environmental, and human resources services primarily to Spansion LLC's Japanese subsidiary, Spansion Japan. Fees earned by the Company and incurred by Spansion LLC or its subsidiaries...

  • Page 96
    ...amended and restated service agreements, a non-compete agreement and a patent cross-license agreement with Spansion. Under the amended services agreement, the Company will continue to provide, among other things, information technology, facilities, 91 Source: ADVANCED MICRO DEVIC, 10-K, February 27...

  • Page 97
    ... the pricing and determining product specifications. Spansion also assumes credit and inventory risk related to these product sales. In accordance with EITF Issue No. 99-19, "Reporting Revenue Gross as a Principal versus Net as an Agent," the Company records sales of Spansion's Flash memory products...

  • Page 98
    ... Cost Fair Market Value 2005 Cash equivalents: Commercial paper Time deposits Money market funds Total cash equivalents Short-term investments: Commercial paper Auction rate preferred stocks Spansion Senior Notes (see Note 3) Federal agency notes Total short-term investments Long-term investments...

  • Page 99
    ... credit risk based on past collection experience. The Company manages 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 or 94 Source: ADVANCED MICRO DEVIC...

  • Page 100
    ...corporate guarantees or advance payments, if deemed necessary, but generally does not require collateral from its customers. The counterparties to the agreements relating to the Company's derivative financial instruments consist of a number.... 95 Source: ADVANCED MICRO DEVIC, 10-K, February 27, 2006

  • Page 101
    ... Deferred distributor income Inventory valuation Accrued expenses not currently deductible Investments Federal and state tax credit carryovers Other Total deferred tax assets Less: valuation allowance Deferred tax liabilities: Property, plant and equipment Capitalized interest Investment in Spansion...

  • Page 102
    ... Foreign income at other than U.S. rates Net operating losses not currently benefited ...Company's intention to permanently reinvest such earnings. If such earnings were distributed, the Company would accrue additional income tax expense of approximately $84 million. 97 Source: ADVANCED MICRO DEVIC...

  • Page 103
    ... Due 2022 4.50% Convertible Senior Notes Due 2007 7.75% Senior Notes Due 2012 Repurchase Obligations to Fab 36 Partners AMD Penang Debt Obligations under capital leases July 2003 Spansion Term Loan Spansion Japan Term Loan Fujitsu Cash Note (see Note 4) Spansion China Loan Less: current portion...

  • Page 104
    ...Due 2007 On November 25, 2002, the Company issued $402.5 million of 4.50% Convertible Senior Notes due 2007 (the 4.50% Notes) in a registered offering. Interest on the 4.50% Notes was payable semiannually in arrears on June 1 and December 1 of each year, beginning June 1, 2003. Beginning on December...

  • Page 105
    ... fabrication facility, Fab 36, is located in Dresden, Germany adjacent to the Company's other wafer manufacturing facility, Fab 30. Fab 36 is owned by a German limited partnership named AMD Fab 36 Limited Liability Company & Co. KG, or AMD Fab 36 KG. The Company controls the management of AMD Fab 36...

  • Page 106
    ...2011. AMD Fab 36 KG pledged substantially all of its current and future assets as security under the Fab 36 Loan Agreements, the Company pledged its equity interest in AMD Fab 36 Holding and AMD Fab 36 LLC, AMD Fab... were not applicable. 101 Source: ADVANCED MICRO DEVIC, 10-K, February 27, 2006

  • Page 107
    ...required by the partnership agreements, investments significantly in excess of the business plan, or certain dispositions of the limited partnership interests of AMD Fab 36 Holding and AMD Fab 36 Admin. The purchase price under the put option is the partner's capital account balance plus accumulated...

  • Page 108
    ... until the bank loans are repaid in full. Under the Fab 36 Loan Agreements, AMD Fab 36 KG, AMD Fab 36 Holding and AMD Fab 36 Admin are generally prevented from paying dividends or making other payments to the Company. In addition, AMD Fab 103 Source: ADVANCED MICRO DEVIC, 10-K, February 27, 2006

  • Page 109
    ..., the Company used historical exchange rates that were in effect at the time AMD Fab 36 KG received these amounts to convert amounts denominated in euros into U.S. dollars. AMD Penang Term Loan On January 29, 2004, the Company's subsidiary in Malaysia, AMD Export Sdn. Bhd., or AMD Penang, entered...

  • Page 110
    ...During the second quarter of 2004, Spansion (China) Limited, a subsidiary of Spansion LLC, entered into two revolving loan agreements with a local financial institution. Under the terms of the revolving foreign exchange loan agreement, Spansion China can borrow in U.S. dollars up to an amount of $18...

  • Page 111
    ... to occur due to the change of functional currency for AMD Fab 36 KG from the euro to the U.S. dollar and approximately $14 million of commitment and guarantee fees incurred in connection with the Fab 36 Loan Agreements, which is described in more detail in Note 8. Other income (expense), net in...

  • Page 112
    ...• the Computation Products segment, which includes microprocessor products for desktop and mobile PCs, servers and workstations and chipset products; and • the Memory Products segment, which includes Spansion Flash memory products. In addition to the reportable segments, the Company also has the...

  • Page 113
    .... The Personal Conductivity Solutions segment includes primarily low-power, highperformance x86 and MIPS architecture-based embedded microprocessors and products for global commercial and consumer markets. The Company's All Other category also includes Personal Internet Communicator (PIC) products...

  • Page 114
    ... outside the United States include both manufacturing and sales activities. The Company's manufacturing subsidiaries are located in Germany, Malaysia, Singapore and China. Its sales subsidiaries are located in Europe, Asia and Latin America. 109 Source: ADVANCED MICRO DEVIC, 10-K, February 27, 2006

  • Page 115
    ... in Japan. 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 comprising distributors and OEMs of computer and communications...

  • Page 116
    ...2003, the Company filed a Tender Offer Statement with the SEC and made an offer, which was approved by the Company's stockholders to exchange certain stock options to purchase shares of common stock outstanding under eligible option plans and held by eligible employees, for replacement options to be...

  • Page 117
    ....20 10.08 13.58 13.72 The following table summarizes information about options outstanding as of December 25, 2005: Options outstanding Weightedaverage remaining contractual life (years) Options exercisable Range of exercise prices Number of shares $ 0.01 - $11.69 $11.70 - $14.86 $14.89 - $22.35...

  • Page 118
    ... fair value of these awards were $9.54 and $4.05. The Company did not grant stock-based awards during 2003 with exercise prices less than the closing price of its common stock on the grant date. NOTE 12: Other Employee Benefit Plans Profit Sharing Program. The Company has a profit sharing program to...

  • Page 119
    ... million related to contractual obligations of Fab 30 and Fab 36 to purchase silicon-on-insulator wafers and purchases of energy and gas and up to $226 million representing future payments to IBM pursuant to our joint development agreement. As IBM's services are being performed ratably over the life...

  • Page 120
    ... of AMD Fab 36 KG. See "Fab 36 Term Loan and Guarantee and Fab 36 Partnership Agreements," in Note 8. Guarantees of Indebtedness not Recorded on the Company's Consolidated Balance Sheet The following table summarizes the principal guarantees issued as of December 25, 2005 for which the related...

  • Page 121
    ...concluded the fair value of the guarantees is not significant after considering various factors including the recent IPO of Spansion, its credit rating, the ability of Spansion to make the payments on these obligations and the short maturity of the indebtedness. 116 Source: ADVANCED MICRO DEVIC, 10...

  • Page 122
    ... limited warranty to direct purchasers of microprocessor products that are intended for systems targeted at the commercial and market. Prior to Spansion's IPO and the related deconsolidation, the Company also offered a one-year limited warranty to direct purchasers for all Flash memory products...

  • Page 123
    ... from the California Regional Water Quality Control Board relating to the three sites. The Company has entered into settlement agreements with other responsible parties on two of the orders during the term of such agreements. Under these agreements 118 Source: ADVANCED MICRO DEVIC, 10-K, February...

  • Page 124
    ... fulfill their obligations under the settlement agreements. To address anticipated future remediation costs under the orders, the Company has computed and recorded an estimated environmental liability of approximately $4.2 million in accordance with applicable accounting rules and has not recorded...

  • Page 125
    ... the information set forth therein. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Advanced Micro Devices, Inc. and Subsidiaries' internal control over financial reporting as of December 25, 2005, based on...

  • Page 126
    ...the most recent fiscal year. Ernst & Young has issued an attestation report on management's assessment of the Company's internal control over financial reporting, which is included immediately following this report. /s/ Hector de J. Ruiz Chairman of the Board and Chief Executive Officer February 21...

  • Page 127
    ... Contents Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting The Board of Directors and Stockholders of Advanced Micro Devices, Inc. We have audited management's assessment, included in the accompanying Management's Report on Internal Control Over...

  • Page 128
    ... in our ownership interest in Spansion from 60 percent to 37.9 percent, we recorded a loss of $110 million which represents the difference between Spansion's book value per share before and after the IPO multiplied by the number of shares owned by us. 123 (3) (4) Source: ADVANCED MICRO DEVIC, 10...

  • Page 129
    ... in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate...

  • Page 130
    ... Exercises in 2005 and Fiscal Year-End Option Values," "Long-Term Incentive Plan Awards," "Replacement Retirement Benefit Arrangement for Dr. Ruiz," "Replacement Retirement Benefit Arrangement for Mr. Rivet," "Employment Agreements" and "Change in Control Arrangements" in our 2006 Proxy Statement...

  • Page 131
    ... incorporated by reference Form of 4.75% Convertible Senior Debenture due 2022, filed as Exhibit 4.15 to AMD's Annual Report on Form 10-K for the fiscal year ended December 30, 2001, is hereby incorporated by reference. 126 Description of Exhibits Source: ADVANCED MICRO DEVIC, 10-K, February 27...

  • Page 132
    ... and among Advanced Micro Devices, Inc. and Citigroup Global markets Inc., filed as Exhibit 10.12 to AMD's Form 8-K dated November 2, 2004, is hereby incorporated by reference. AMD 1986 Stock Option Plan, as amended, filed as Exhibit 10.2 to AMD's Annual Report on Form 10-K for the fiscal year ended...

  • Page 133
    .... Third Amendment to the Advanced Micro Devices, Inc. Executive Investment Account Plan dated November 9, 2005. Retention Payment Agreement by and between Advanced Micro Devices, Inc. and Henri Richard dated August 3, 2005 filed as Exhibit 10.65 to AMD's Quarterly Report on Form 10-Q for the period...

  • Page 134
    ... Advanced Micro Devices, Inc. and International Business Machines Corp. filed as Exhibit 10.36(b) to AMD's Quarterly Report on Form 10-Q for the period ended September 26, 2004, is hereby incorporated by reference. Design and Build Agreement dated November 15, 1996, between AMD Saxony Manufacturing...

  • Page 135
    ... Saxony Limited Liability and Co. KG, filed as Exhibit 10.38(l-5) to AMD's Annual Report on Form 10-K for the fiscal year ended December 28, 2003, is hereby incorporated by reference. AMD Saxonia Research, Design and Development Agreement, dated as of March 11, 1997, between AMD Saxony Manufacturing...

  • Page 136
    ...Investment Limited Liability Company & Co KG and M+W Zander Facility Engineering GmbH, dated November 20, 2003 filed as Exhibit 10.47 to AMD's Annual Report on Form 10-K for the period ended December 26, 2004, is hereby incorporated by reference.. Cooperation Agreement between Advanced Micro Devices...

  • Page 137
    ... and Restated Intellectual Property Contribution and Ancillary Matters Agreement by and among Fujitsu Limited, Advanced Micro Devices, Inc., AMD Investments, Inc., Spansion Inc. and Spansion Technology Inc. dated December 21, 2005, filed as Exhibit 10.4 to AMD's Current Report on Form 8-K dated...

  • Page 138
    ... and between Spansion LLC and Advanced Micro Devices, Inc. Amended and Restated Non-Competition Agreement by and among Advanced Micro Devices, Inc., AMD Investments, Inc., Fujitsu Limited, and Spansion Inc. dated as of December 21, 2005 filed as Exhibit 10.8 to AMD's Current Report on Form 8-K dated...

  • Page 139
    ... authorized. February 24, 2006 ADVANCED MICRO DEVICES, INC. By: /s/ ROBERT J. RIVET Robert J. Rivet Executive Vice President, Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons, on behalf of the...

  • Page 140
    Table of Contents Advanced Micro Devices, Inc. and Subsidiaries Valuation and Qualifying Accounts Years Ended December 28, 2003, December 26, 2004 and December 25, 2005 (In thousands) Additions Charged (Reductions Credited) To Operations Deductions SCHEDULE II Balance Beginning of Period (1) ...

  • Page 141
    ... to the Advanced Micro Devices, Inc. Executive Investment Account Plan R E C I T A L S: WHEREAS, Advanced Micro Devices, Inc. (the "Company") previously adopted the Advanced Micro Devices, Inc. Executive Investment Account Plan (the "Plan") as a nonqualified deferred compensation plan; and WHEREAS...

  • Page 142
    ... WHEREOF, the Company has caused the Plan to be amended by this Amendment Three this 9th day of November, 2005, to be effective as stated herein. ADVANCED MICRO DEVICES, INC. ADMINISTRATIVE COMMITTEE By: By: By: /s/ Mike Woollems /s/ Kelly Smales /s/ Reid Linney 2 Source: ADVANCED MICRO DEVIC, 10...

  • Page 143
    ... limited liability company ("Spansion"), and ADVANCED MICRO DEVICES, INC., a Delaware corporation ("AMD"). Spansion and AMD are hereinafter also referred to as the "Parties" and individually as a "Party." Capitalized but undefined terms shall have the meaning set forth in the Distribution Agreement...

  • Page 144
    ... the Distribution Agreement, as the case may be. 3. Communication. The Parties shall meet regularly during the transition phase, but not less than once per calendar month, to coordinate sales, marketing and support activities. Each Party shall designate a senior primary contact person to manage this...

  • Page 145
    ... extent possible in that territory while still achieving as nearly as possible the same economic, legal and contractual effect as the original provision in that territory and the remainder of this Agreement shall remain in full force and effect. Source: ADVANCED MICRO DEVIC, 10-K, February 27, 2006

  • Page 146
    ..., the Parties hereto have caused this Agreement to be executed, effective as of the Effective Date. SPANSION LLC By: /s/ Jim E. Doran Jim E. Doran, Executive Vice President, Worldwide Technology Development and Manufacturing Date: 12/7/05 ADVANCED MICRO DEVICES, INC. By: /s/ Mike Woollems Mike...

  • Page 147
    ... Company & Co. KG (6) AMD Saxony Admin GmbH AMD Saxony Holding GmbH AMD India Engineering Centre Private Limited Advanced Micro Devices S.p.A. AMD Japan Ltd. Advanced Micro Devices Sdn. Bhd. (7) Advanced Micro Devices(8) Export Sdn. Bhd. AMD (Netherlands) B.V. Advanced Micro Devices (Singapore) Pte...

  • Page 148
    ...Inc. and Subsidiaries included in this Annual Report (Form 10-K) for the year ended December 25, 2005: • Registration Statements on Forms S-8 (Nos. 33-10319, 33-26266, 33-36596 and 33-46578) pertaining to the Advanced Micro Devices, Inc. 1982 and 1986 Stock Option Plans and the 1980 and 1986 Stock...

  • Page 149
    ... to the Registration Statement on Form S-3 (No. 333-84028) pertaining to the 4.75% convertible debentures; Registration Statement on Form S-8 (No. 333-115474) pertaining to the Advanced Micro Devices, Inc. 2004 Equity Incentive Plan; Registration Statement on Form S-4 (No. 333-122174) pertaining to...

  • Page 150
    ..., to sign Advanced Micro Devices, Inc.'s Annual Report on Form 10-K for the fiscal year ended December 25, 2005, and any and all amendments thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting...

  • Page 151
    ... that: 1. I have reviewed this annual report on Form 10-K of Advanced Micro Devices, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which...

  • Page 152
    ... that: 1. I have reviewed this annual report on Form 10-K of Advanced Micro Devices, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which...

  • Page 153
    ... § 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Advanced Micro Devices, Inc. (the "Company") hereby certifies, to such officer's knowledge, that: (i.) the Annual Report on Form 10-K of the Company for the annual period ended December 25, 2005 (the...

  • Page 154
    ... § 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Advanced Micro Devices, Inc. (the "Company") hereby certifies, to such officer's knowledge, that: (i.) the Annual Report on Form 10-K of the Company for the annual period ended December 25, 2005 (the...