AMD Reports Third Quarter Results (Revenue up 14%)

Cautionary Statement

This release contains forward-looking statements concerning revenue and other expectations for the fourth quarter of 2008, the expected closing of The Foundry Company joint venture and the increased investment by the Mubadala Development Company which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are commonly identified by words such as would, may, expects, believes, plans, intends, projects, and other terms with similar meaning. Investors are cautioned that the forward-looking statements in this release are based on current beliefs, assumptions and expectations, speak only as of the date of this release and involve risks and uncertainties that could cause actual results to differ materially from current expectations. Risks include the possibility that Intel Corporations pricing, marketing and rebating programs, product bundling, standard setting, new product introductions or other activities targeting the companys business will prevent attainment of the companys current plans; global business and economic conditions will worsen, resulting in lower than currently expected revenue in the fourth quarter of 2008 and beyond; the companys Asset Smart strategy will not reach fruition or will be less beneficial than anticipated; the announced transaction for the formation of The Foundry Company and the associated third-party investment will not occur as anticipated; demand for computers and consumer electronics products and, in turn, demand for the companys products will be lower than currently expected; customers stop buying the companys products or materially reduce their demand for its products; the company will require additional funding and may not be able to raise funds on favorable terms or at all; the companys cost containment efforts will not be effective; the company will be unable to develop, launch and ramp new products and technologies in the volumes and mix required by the market and at mature yields on a timely basis; there will be unexpected variations in market growth and demand for the companys products and technologies in light of the product mix that it may have available at any particular time or a decline in demand; the company will be unable to transition to advanced manufacturing process technologies in a timely and effective way, consistent with planned capital expenditures; the company will be unable to maintain the level of investment in research and development and capacity that is required to remain competitive; the company will be unable to divest its Handheld or DTV product businesses in the expected timeframe, if at all, or in a manner contemplated by the company; and the company will be unable to obtain sufficient manufacturing capacity or components to meet demand for its products or will under-utilize its microprocessor manufacturing facilities. Investors are urged to review in detail the risks and uncertainties in the companys Securities and Exchange Commission filings, including but not limited to the Quarterly Report on Form 10-Q for the quarter ended June 28, 2008.

1 In this press release, in addition to GAAP financial results, AMD has provided non-GAAP financial measures for net income (loss), operating income (loss) and gross margin. Non-GAAP net income (loss) excludes discontinued operations, a gain on the sale of 200mm equipment and other certain charges as reflected in the table. Non-GAAP operating income (loss) excludes a gain on the sale of 200mm equipment and other certain charges as reflected in the table. Non-GAAP gross margin excludes process technology license revenue and a gain on the sale of 200mm equipment as reflected in the table. Management believes this non-GAAP presentation makes it easier for investors to compare current and historical period operating results.

AMD, the AMD Arrow logo, AMD Opteron, AMD Phenom and combinations thereof, and ATI, the ATI logo, FireGL and Radeon are trademarks of Advanced Micro Devices, Inc. Other names are for informational purposes only and used to identify companies and products and may be trademarks of their respective owners.

ADVANCED MICRO DEVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Millions except per share amounts and percentages)
Quarter Ended Nine Months Ended
Sept. 27, June 28, Sept. 29, Sept. 27, Sept. 29,
2008 2008 2007 2008 2007
(Unaudited) (Unaudited) (Unaudited)

 

(Unaudited) (Unaudited)
Net revenue $ 1,776 $ 1,349 $ 1,558 $ 4,581 $ 3,997
Cost of sales 871 653 923 2,376 2,608
Gross margin 905 696 635 2,205 1,389
Gross margin % 51 % 52 % 41 % 48 % 35 %
Research and development 422 442 431 1,319 1,261

Marketing, general and admini-
strative

313 337 346 984 1,029
Amortization of acquired intangible assets and integration charges 30 30 39 89 127
Restructuring charges 9 30 - 39 -
Operating income (loss) 131 (143 ) (181 ) (226 ) (1,028 )
Interest income 7 10 19 32 54
Interest expense (87 ) (95 ) (95 ) (277 ) (272 )
Other income (expense), net (4 ) (10 ) (1 ) (15 ) (8 )

Income (loss) from continuing operations before minority interest, equity in net loss of Spansion Inc. and other and income taxes

47 (238 ) (258 ) (486 ) (1,254 )
Minority interest in consolidated subsidiaries (7 ) (7 ) (9 ) (27 ) (26 )
Equity in net loss of Spansion Inc. and other - (24 ) (57 ) (24 ) (86 )
Income (loss) from continuing operations before income taxes 40 (269 ) (324 ) (537 ) (1,366 )
Provision (benefit) for income taxes (1 ) - 20 (1 ) 59
Income (loss) from continuing operations $ 41 $ (269 ) $ (344 ) $ (536 ) $ (1,425 )
Income (loss) from discontinued operations, net of tax (108 ) (920 ) (52 ) (1,078 ) (182 )
Net income (loss) $ (67 ) $ (1,189 ) $ (396 ) $ (1,614 ) $ (1,607 )
Net income (loss) per common share
Basic and diluted
Continuing operations $ 0.07 $ (0.44 ) $ (0.62 ) $ (0.88 ) $ (2.59 )
Discontinued operations $ (0.18 ) $ (1.52 ) $ (0.09 ) $ (1.78 ) $ (0.33 )
Basic and diluted net income (loss) per common share $ (0.11 ) $ (1.96 ) $ (0.71 ) $ (2.66 ) $ (2.92 )
Shares used in per share calculation
Basic and diluted 608 607 554 607 551
ADVANCED MICRO DEVICES, INC.
CONSOLIDATED BALANCE SHEETS
(Millions)
Sept. 27, Dec. 29,
2008

2007(a)

(Unaudited)
Assets
Current assets:
Cash, cash equivalents and marketable securities $ 1,341 $ 1,889
Accounts receivable, net 620 603
Inventories 844 802
Prepaid expenses and other current assets 240 396
Deferred income taxes 20 64
Assets of discontinued operations 283 1,304
Total current assets 3,348

 

5,058
Property, plant and equipment, net 4,440 4,711
Goodwill 945 950
Acquisition related intangible assets, net 224 311
Other assets 535 520
Total Assets $ 9,492

 

$ 11,550
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 737 $ 992
Accrued compensation and benefits 143 183
Accrued liabilities 850 815
Deferred income on shipments to distributors 65 101
Current portion of long-term debt and capital lease obligations 266 238
Other short-term obligations 94 -
Other current liabilities 226 270
Liabilities of discontinued operations 11 26
Total current liabilities 2,392

 

2,625
Deferred income taxes 4 6
Long-term debt and capital lease obligations, less current portion 4,874 5,031
Other long-term liabilities 657 633
Minority interest in consolidated subsidiaries 175 265
Stockholders' equity:
Capital stock:
Common stock, par value 6 6
Capital in excess of par value 5,981 5,921
Retained earnings (deficit) (4,714 ) (3,100 )
Accumulated other comprehensive income 117 163
Total stockholders' equity 1,390

 

2,990
Total Liabilities and Stockholders' Equity $ 9,492

 

$ 11,550

(a)

Amounts for the year ended December 29, 2007 were derived from the December 29, 2007 audited financial statements, adjusted for discontinued operations.
ADVANCED MICRO DEVICES, INC.
SELECTED CORPORATE DATA (1)
(Unaudited)
(Millions except headcount and percentages)
Quarter Ended Nine Months Ended

 

 

 

 

 

Segment Information from Continuing Operations

Sept. 27,

2008

June 28,

2008

Sept. 29,

2007

Sept 27,

2008

Sept. 29,

2007

Computing Solutions (2)
Net revenue $ 1,391 $ 1,101 $ 1,283 $ 3,687 $ 3,299
Operating income (loss) $ 143 $ (9 ) $ (122 ) $ (29 ) $ (722 )
Graphics (3)
Net revenue 385 248 275 894 698
Operating income (loss) 47 (38 ) 11 22 (55 )
All Other (4)
Net revenue - - - - -
Operating income (loss) (59 ) (96 ) (70 ) (219 ) (251 )
Total from Continuing Operations
Net revenue $ 1,776 $ 1,349 $ 1,558 $ 4,581 $ 3,997
Operating income (loss) $ 131 $ (143 ) $ (181 ) $ (226 ) $ (1,028 )
Revenue Reconciliation
Revenue from continuing operations $ 1,776 $ 1,349 $ 1,558 $ 4,581 $ 3,997
Revenue from discontinued operations 44 37 74 130 246
Total revenue $ 1,820 $ 1,386 $ 1,632 $ 4,711 $ 4,243
Components of Discontinued Operations
Operating loss $ (24 ) $ (42 ) $ (52 ) $ (116 ) $ (182 )
Impairment of goodwill and acquired intangible assets (84 ) (876 ) - (960 ) -
Restructuring charges - (2 ) - (2 ) -
Total loss from discontinued operations $ (108 ) $ (920 ) $ (52 ) $ (1,078 ) $ (182 )
Other Data
Depreciation & amortization
(excluding amortization of acquired intangible assets) $ 266 $ 263 $ 261 $ 794 $ 755
Capital additions $ 83 $ 104 $ 417 $ 509 $ 1,417
Adjusted EBITDA (5) $ 422 $ 119 $ 66 $ 622 $ (237 )
Headcount 15,460 15,653 16,498 15,460 16,498

(1)

 

Comparative amounts adjusted for discontinued operations except for headcount data.

(2)

 

Computing Solutions segment includes microprocessors, chipsets and embedded processors. For the quarter ended June 28, 2008 and nine months ended September 27, 2008, the operating loss includes a $193M gain on the sale of 200 mm equipment. For the quarter and nine months ended Sept. 27, 2008, revenue includes $191M in technology license revenue.

(3)

 

Graphics segment includes graphics, video and multimedia products developed for use in desktop and notebook computers, including home media PCs, professional workstations and servers. Starting in the quarter ended June 28, 2008 this segment also includes royalties received in connection with the sale of game console systems that incorporate the Company s graphics technology. Prior periods have been recast to conform to current period presentation.

(4)

 

All Other category includes employee stock-based compensation expense and certain operating expenses and credits that are not allocated to the operating segments. Also included in this category are the restructuring, severance and ATI acquisition-related charges. Details of the restructuring, severance and ATI acquisition-related charges and employee stock-based compensation expense are shown below.
Restructuring, severance, and ATI acquisition-related charges: Employee stock-based compensation expense:

Quarter Ended

Nine Months Ended Quarter Ended Nine Months Ended
Q308 Q208 Q307 Q308 Q307 Q308 Q208 Q307 Q308 Q307
Restructuring charges $ 9 $ 30 $ - $ 39 $ - Cost of sales $ 2 $ 3 $ 2 $ 8 $ 7
Severance charges - - 2 - 18 Research and development 9 8 12 32 38
Subtotal $ 9 $ 30 $ 2 $ 39 $ 18 Marketing, general and administrative 7 6 11 15 36
$ 18 $ 17 $ 25 $ 55 $ 81
Amortization of acquired intangible assets 29 30 34 88 102
Integration charges 1 - 5 1 25

Total amortization of acquired intangibles and integration charges

$ 30 $ 30 $ 39 $ 89 $ 127
Cost of fair value adjustment of acquired inventory - - - - 18
ATI acquisition-related charges $ 30 $ 30 $ 39 $ 89 $ 145
Restructuring, severance, and ATI acquisition-related charges $ 39 $ 60 $ 41 $ 128 $ 163

(5)

 

Reconciliation of income (loss) from continuing operations to Adjusted EBITDA(a)

Quarter Ended Nine Months Ended
Q308 Q208 Q307 Q308 Q307
Income (loss) from continuing operations $ 41 $ (269 ) $ (344 ) $ (536 ) $ (1,425 )
Depreciation and amortization 266 263 261 794 755
Amortization of acquired intangible assets 29 30 34 88 102
Interest expense 87 95 95 277 272
Provision (benefit) for income taxes (1 ) - 20

 

(1 ) 59
Adjusted EBITDA $ 422 $ 119 $ 66 $ 622 $ (237 )

(a)

The Company defines Adjusted EBITDA as income (loss) from continuing operations adjusted for depreciation and amortization, amortization of acquired intangible assets, interest expense and taxes. The Company calculates and communicates Adjusted EBITDA because management believes it is of interest to investors and lenders in relation to its overall capital structure and its ability to borrow additional funds. The Company s calculation of Adjusted EBITDA may or may not be consistent with the calculation of this measure by other companies in the same industry. Investors should not view Adjusted EBITDA as an alternative to the U.S. GAAP operating measure of net income or U.S. GAAP liquidity measures of cash flows from operating, investing and financing activities. In addition, Adjusted EBITDA does not take into account changes in certain assets and liabilities as well as interest and income taxes that can affect cash flows.

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