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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

For the fiscal year ended December 28, 2003

OR

For the transition period from ____________ to ____________

Commission File Number 1-7882

ADVANCED MICRO DEVICES, INC.

(Exact name of registrant as specified in its charter)

(408) 749-4000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

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.  ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes  x  No  ¨

Aggregate market value of the voting stock held by non-affiliates based on the closing price on March 1, 2004 ($14.89), as reported on the New York Stock Exchange:

$5,238,679,476

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.

351,825,351 shares as of March 1, 2004

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement for the Annual Meeting of Stockholders to be held on April 29, 2004, are incorporated into Part II and III hereof.

AMD, Advanced Micro Devices, AMD Athlon, AMD Duron, AMD Opteron, AMD PowerNow!, Alchemy, and Geode are either our trademarks or our registered trademarks in the United States and/or other jurisdictions. Spansion, FASL, MirrorBit, and combinations thereof, are trademarks of FASL LLC in the United States and/or other jurisdictions. Vantis is a trademark of Lattice Semiconductor Corporation. Legerity is a trademark of Legerity, Inc. Microsoft, Windows, Windows NT and MS-DOS are either registered trademarks or trademarks of Microsoft Corporation in the United States and/or other jurisdictions. MIPS is a registered trademark of MIPS Technologies, Inc. in the United States and/or other jurisdictions. HyperTransport is a licensed trademark of the HyperTransport Technology Consortium. NetWare is a registered trademark of Novell, Inc. in the United States and/or other jurisdictions. Other terms used to identify companies and products may be trademarks of their respective owners.

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Advanced Micro Devices, Inc.

FORM 10-K

For The Fiscal Year Ended December 28, 2003

INDEX

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PART I

Cautionary Statement Regarding Forward-Looking Statements

The statements in this report include forward-looking statements. These forward-looking statements are based on current expectations and beliefs and involve numerous risks and uncertainties that could cause actual results to differ materially from expectations. These forward-looking statements should not be relied upon as predictions of future events as we cannot assure you that the events or circumstances reflected in these statements will be achieved or will occur. You can identify forward-looking statements by the use of forward-looking terminology including “believes,” “expects,” “may,” “will,” “should,” “seeks,” “approximately,” “intends,” “plans,” “pro forma,” “estimates,” or “anticipates” or the negative of these words and phrases or other variations of these words and phrases or comparable terminology. The forward-looking statements relate to, among other things, our ability to be profitable, our revenues, depreciation and amortization, operating results; anticipated cash flows; capital expenditures; gross margins; adequacy of resources to fund operations and capital investments; customer and market acceptance of our AMD Opteron^™ and AMD Athlon^™ 64 microprocessors, and the AMD64 technology upon which they are based; customer and market acceptance of FASL LLC’s Spansion^™ Flash memory products based on MirrorBit^™ and floating gate technology; the ability to produce these products in the volumes required by the market at acceptable yields and on a timely basis; our and FASL LLC’s ability to maintain the level of investment in research and development that is required to remain competitive; our and FASL LLC’s ability to transition to new products and technologies in a timely and effective way; our and FASL LLC’s ability to achieve cost reductions in the amounts and in the timeframes anticipated; our ability to produce microprocessors in the volume required by customers on a timely basis; our ability to maintain or improve average selling prices of our products despite aggressive marketing and pricing strategies of our competitors; our ability, and the ability of third parties, to provide timely infrastructure solutions, such as motherboards and chipsets, to support our microprocessors; the process technology transitions in our wafer fabrication facilities located in Dresden, Germany (Fab 30) and FASL LLC’s wafer fabrication facilities in Austin, Texas (Fab 25) and in Aizu-Wakamatsu, Japan (JV1, JV2 and JV3); and the financing and construction of our 300-millimeter wafer fabrication facility (Fab 36) in Dresden, Germany. For a discussion of the factors that could cause actual results to differ materially from the forward-looking statements, see the “Financial Condition” and “Risk Factors” sections set forth in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” beginning on page 20 below and such other risks and uncertainties as set forth below in this report or detailed in our other Securities and Exchange Commission reports and filings.

General

We are a semiconductor manufacturer with manufacturing facilities in the United States, Europe and Asia and sales offices throughout the world. We design, manufacture and market industry-standard digital integrated circuits that are used in many diverse product applications such as desktop and mobile personal computers, or PCs, workstations, servers, communications equipment and automotive and consumer electronics. Our products include microprocessors, Flash memory devices and embedded microprocessors for personal connectivity devices, which we refer to as our Personal Connectivity Solutions, or PCS, products.

Developments in 2003

During 2003, we endeavored to position our company to take advantage of anticipated growth opportunities within the semiconductor market and anticipated increased demand for semiconductor products in 2004. In April 2003, we introduced our AMD Opteron microprocessors for servers and workstations, and in September 2003, we introduced our AMD Athlon 64 microprocessors for desktop and mobile PCs. We designed these high-performance microprocessors for both 32-bit and 64-bit processing, enabling users to protect their information technology investments by continuing to use their 32-bit software applications while implementing 64-bit software applications on the timetable of their choice.

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In order to meet anticipated demand for these and other advanced microprocessor products, we are constructing a new 300-millimeter wafer fabrication facility. This facility, Fab 36, will be located in Dresden, Germany, adjacent to our existing manufacturing facility, Fab 30.

In addition, in order to respond more quickly to changes in market trends in the Flash memory market and improve efficiencies in the production, marketing and design of our Flash memory products, we and Fujitsu Limited formed a new entity named FASL LLC, effective June 30, 2003. We own 60 percent of FASL LLC while Fujitsu owns 40 percent. Accordingly, as of June 30, 2003, we began consolidating the results of FASL LLC’s operations. FASL LLC is headquartered in Sunnyvale, California, and its manufacturing, research, test, and assembly operations are in the United States and Asia. FASL LLC engages in the research, development, manufacture, marketing, and promotion of Flash memory products, which it markets under the Spansion global product brand name. We and Fujitsu are the distributors of FASL LLC’s Spansion Flash memory products. As part of this transaction, we contributed to FASL LLC our Flash memory inventory, our manufacturing facility located in Austin, Texas, known as Fab 25, our Flash memory research and development facility in Sunnyvale, California, known as the Submicron Development Center, or SDC, and our Flash memory assembly and test operations in Thailand, Malaysia and China. Fujitsu contributed its Flash memory division, including related inventory, cash, and its Flash memory assembly and test operations in Malaysia. In addition, both we and Fujitsu contributed our respective investments in our previous manufacturing joint venture, Fujitsu AMD Semiconductor Limited, located in Aizu-Wakamatsu, Japan, which became part of a wholly owned subsidiary of FASL LLC named FASL JAPAN LIMITED, or FASL JAPAN. In this report we refer to the previous manufacturing joint venture with Fujitsu as the Manufacturing Joint Venture.

As part of the transaction, we entered into various contracts with FASL LLC and Fujitsu, including a non-competition agreement pursuant to which we agreed that we would not engage in the development, production, manufacture, marketing, distribution, promotion or sale of Flash memory devices outside of FASL LLC; a patent cross-license agreement pursuant to which each party has been granted a non-exclusive license under the other party’s respective licensed patents for the manufacture and sale of semiconductor products worldwide; services agreements pursuant to which we agreed to provide, among other things, certain information technology, facilities, logistics, legal, tax, finance, human resources, and environmental, health and safety services to FASL LLC; and a distribution agreement pursuant to which we obtained the right to distribute Spansion Flash memory products. The term of the distribution agreement is indefinite, subject to termination by mutual agreement of the parties, upon failure to cure a material breach or upon termination of the limited liability company operating agreement that governs FASL LLC, unless otherwise agreed to by the parties.

Additional Information

We were incorporated under the laws of Delaware on May 1, 1969. Our mailing address and executive offices are located at One AMD Place, Sunnyvale, California 94088, and our telephone number is (408) 749-4000. With the exception of the sections of this report that discuss financial data, which is presented on a consolidated basis, references in this report to “AMD,” “we” and “us” include our subsidiaries, but, unless otherwise indicated, do not include FASL LLC or its subsidiaries. We post on the Investor Relations page of our Web site, www.amd.com, our filings with the SEC, our Corporate Governance Guidelines, our Code of Ethics for our Chief Executive Officer, Chief Financial Officer, Corporate Controller and other senior finance executives, our other Code of Ethics entitled “Worldwide Standards of Business Conduct,” for our directors and employees, and the charters of our Audit, Nominating and Corporate Governance and Compensation Committees. Our filings with the SEC are posted as soon as reasonably practical after they are filed electronically with the SEC. You can also obtain copies of these documents by writing to us at: Corporate Secretary, AMD, One AMD Place, M/S 68, Sunnyvale, California 94088, or emailing us at Corporate.Secretary@amd.com. All such documents and filings are available free of charge.

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For financial information about geographic areas and for segment information with respect to sales and operating results, refer to the information set forth in Note 9 of our consolidated financial statements on page 83, below.

For a discussion of the risk factors related to our business operations, please see the sections entitled, “Cautionary Statement Regarding Forward-Looking Statements,” above, and the “Risk Factors” and “Financial Condition” sections set forth in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” beginning on page 20, below.

The Integrated Circuit Market

The integrated circuit market has grown dramatically over the past two decades, driven primarily by the demand for electronic business and consumer products. Today, virtually all electronic products use integrated circuits, including PCs and related peripherals, wired and wireless voice and data communications and networking products, including cellular phones, facsimile and photocopy machines, printers, home entertainment equipment, industrial control equipment and automobiles.

The market for integrated circuits can be divided into separate markets for digital and analog devices. We participate in the market for digital integrated circuits. The three types of digital integrated circuits used in most electronic systems are:

Within the digital integrated circuit market, we participate primarily in the microprocessor and Flash memory markets. In addition, we participate in the embedded processor market for personal connectivity devices.

Computation Products

The Microprocessor Market

A microprocessor is a silicon integrated circuit that serves as the central processing unit, or CPU, of a computer. It generally consists of millions of transistors that process data and control other devices in the system, acting as the brain of the computer. The performance of a microprocessor is typically a critical factor impacting the performance of a PC and other similar devices. The indicators of microprocessor performance are work-per-cycle, or how many instructions are executed per cycle, and clock speed, representing the rate at which its internal logic operates, measured in units of hertz, or cycles processed per second. Other factors of microprocessor performance include the amount of memory storage and the speed at which data stored in memory can be accessed. Developments in circuit design and manufacturing process technologies have resulted in dramatic advances in microprocessor performance over the past two decades. With the introduction of our AMD Athlon XP processor in October 2001, we began positioning our processors based on overall performance, which is a function of both architecture and clock speed. We believe overall performance is a better indicator of CPU capability than simply clock speed.

Improvements in the performance characteristics of microprocessors and decreases in production costs resulting from advances in manufacturing process technology as well as a corresponding decrease in selling prices have increased the demand for microprocessors over time. The greatest demand for microprocessors today is from PC manufacturers. With few exceptions, these manufacturers require x86 microprocessors that are compatible with the Microsoft^® Windows^® operating system.

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The microprocessor market is characterized by short product life cycles and migration to ever-higher-performance microprocessors. To compete successfully in this market, we must transition to new process technologies at a fast pace and offer higher-performance microprocessors in significantly greater volumes. We also must achieve manufacturing yield and volume goals while producing these microprocessors in order to sell them at competitive prices. For more information about competition in the microprocessor market, see the section entitled “Competition,” below.

We believe that worldwide demand for PC microprocessors will increase in 2004 compared with 2003. Factors that we believe will stimulate growth in the demand for PC microprocessors include an anticipated replacement cycle for older PC systems, lower-priced PC systems, enhanced product features, strategic purchases of new PC systems to deploy new tools and technologies, and improved economic conditions.

Microprocessor Products

We currently offer microprocessor products for desktop and mobile PCs, servers and workstations. Our microprocessors are based on the x86 architecture. In addition, we design them based on a superscalar reduced instruction set computer, or RISC, architecture. RISC architecture allows microprocessors to perform fewer types of computer instructions thereby allowing the microprocessor to operate at a higher speed. We also design our microprocessors to be compatible with operating system software such as Windows XP, Windows 2000, Windows NT^®, Windows 98 (and Windows predecessor operating systems), Linux, NetWare^® and UNIX.

Our microprocessors for desktop PCs consist of four product brands: AMD Athlon 64 FX, AMD Athlon 64, AMD Athlon XP, and AMD Duron^™ processors. We introduced the first Windows-compatible, x86 architecture-based 64-bit PC processor, the AMD Athlon 64 microprocessor, in September 2003, an introduction date that we changed from our originally stated date due to a combination of factors, including the features and functionality of these new processors in comparison to our existing PC processors, AMD Athlon XP, the fact that demand for our AMD Athlon XP processors was greater than expected, and the state of the microprocessor market at the time the introduction was planned. AMD Athlon 64 processors are based on the AMD64 technology platform, which extends the industry-standard x86 instruction set architecture to 64-bit computing. We designed our AMD Athlon 64 processors to run both 32-bit and 64-bit applications simultaneously, enabling users to protect their information technology investments by continuing to use their 32-bit software applications while implementing 64-bit applications on the timetable of their choice. We design our AMD Athlon 64 processors for sophisticated PC users and businesses that seek to access large amounts of data and physical memory. Simultaneously with our introduction of the AMD Athlon 64 processor, we introduced the AMD Athlon 64 FX processor, designed specifically for gamers, PC enthusiasts and digital content creators who require products that can perform graphic-intensive tasks. We design our AMD Athlon XP processors for the value market and offer PC users and small to medium businesses affordable processors that can meet their core computing needs. We also design AMD Duron processors, which we sell primarily in cost-sensitive emerging markets. Most of our microprocessor product sales in 2003 were of our AMD Athlon XP microprocessors.

Our microprocessors for the mobile computing market consist of mobile AMD Athlon 64 processors and AMD Athlon XP-M processors. Our original equipment manufacturer, or OEM, customers incorporate these processors into a variety of notebook designs, including full-size and thin-and-light notebooks. We have designed mobile processor products for high-performance computing and wireless connectivity. They feature advanced power management from AMD PowerNow!^™ technology which offers reduced power consumption and extended system battery life. During 2003, we primarily provided mobile computing products for the full-size or desktop-replacement segment of the mobile computing market. Our strategy for 2004 is to expand our product portfolio to address the thin-and-light segment of the mobile computing market and increase our share in the full-size segment of this market.

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Our x86 microprocessors for servers and workstations consist of the AMD Opteron and AMD Athlon MP processors. A server is a powerful computer on a network that is dedicated to a particular purpose and stores large amounts of information and performs the critical functions for that purpose. A workstation is essentially a heavy-duty desktop, designed for tasks like computer-aided design. We introduced our first 64-bit microprocessor for servers and workstations, the AMD Opteron processor, in April 2003, an introduction date that we changed from our originally planned date due to a combination of factors, including the state of the microprocessor market at the time the introduction was planned and our plans to introduce these products on 130-nanometer silicon-on-insulator, or SOI, manufacturing process technology. Like the AMD Athlon 64 processors, the AMD Opteron processors for servers and workstations are based on the AMD64 technology and are designed to run both 32-bit and 64-bit applications simultaneously. AMD Opteron processors are the first processors to extend the industry-standard x86 instruction set architecture to 64-bit computing. AMD Opteron processors are available in one- to eight-way servers that can be used in a variety of server applications, including business processing (enterprise resource planning, customer relationship management, and supply chain management) and business intelligence. AMD Opteron processors are also available in one- to four-way workstation solutions that can be used in workstation applications such as engineering and digital content creation software, and other information technology infrastructure applications such as intensive Web serving and messaging.

Our AMD Opteron and AMD Athlon 64 processors support HyperTransport^™ technology, which is a high-bandwidth communications interface we developed, as well as integrated memory controllers that enable substantially higher performance than existing, non-integrated memory controller architectures. We expect our advanced architecture to provide users with even greater performance improvements as operating systems and software applications begin leveraging the benefits of our 64-bit architecture. To that end, in April 2002, we announced a collaboration with Microsoft to incorporate 64-bit support into the Windows operating system. Microsoft has indicated that they intend to release the 64-bit version of Windows XP in 2004. We believe that the backward compatibility of these processors will allow users to migrate more easily from current 32-bit operating systems and applications to future 64-bit operating systems and applications on a common hardware platform.

We also sell chipset products and make available motherboard reference design kits, designed to support our microprocessors for use in PCs and embedded products. A chipset provides the interface between all of a PC’s subsystems and sends data from the microprocessor to all the input/output and 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. We report the revenue from sales of our chipset products in our Computation Products segment.

We believe the key factors impacting our ability to increase microprocessor revenues in 2004 are: our ability to increase market acceptance of our AMD Opteron and AMD Athlon 64 processors and to produce them in a timely manner on new process technologies, including 90-nanometer SOI technology, in the volume and with the performance and feature set required by customers; market acceptance of the newest versions of our AMD Athlon XP processors; growth in unit shipments of our microprocessor products; and our ability to maintain or increase average selling prices for our microprocessor products.

In 2004, one of our goals is to increase market acceptance of our AMD64 technology, particularly in the enterprise segment. To that end we intend to focus on developing and introducing products for the server and workstation markets and increasing our share of these markets. Although we will continue to provide our AMD Athlon MP products pursuant to market demand, we intend to concentrate on developing and producing new versions of our AMD Opteron microprocessors for these markets.

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Memory Products

Flash Memory Market

Memory circuits store data and instructions and are characterized as either volatile or non-volatile. Volatile devices lose stored information after electrical power is shut off while non-volatile devices retain stored information. Volatile memory integrated circuits primarily consist of Dynamic Random Access Memory, or DRAM, devices and Static Random Access Memory, or SRAM, devices. Non-volatile memory integrated circuits include Flash memory, Read-Only Memory, or ROM, Erasable Programmable Read-Only Memory, or EPROM, and Electrically Erasable Programmable Read-Only Memory, or EEPROM, devices.

Flash memory devices have a size and cost advantage over EEPROM devices, which utilize a larger, more expensive memory cell. Flash memory devices also provide greater flexibility and ease of use when compared to other non-volatile memory devices, such as ROM and EPROM, because Flash memory devices can be electrically rewritten to update parameters or system software. ROM devices cannot be rewritten and EPROM devices require information to be erased using ultraviolet light before they can be rewritten. The Flash memory market has grown significantly in recent years. In particular, the increasing use and functionality of consumer electronics such as cellular phones, MP3 players, DVD players, digital cameras, and personal storage USB drives has contributed to an increasing demand for Flash memory devices.

There are two major types of Flash memory employed in the non-volatile memory market today: Boolean logic-based NOR (Not Or) Flash memory and NAND (Not And) Flash memory. NOR Flash memory is generally more reliable than NAND and less prone to data corruption. NOR Flash memory is typically used to store program code in communication devices such as cellular telephones, and consumer products such as DVD players. NAND Flash memory has generally been less expensive to manufacture and is typically used in devices that require high-capacity data storage such as memory cards for digital cameras and MP3 players. Within the Flash memory market, we sell primarily NOR Spansion Flash memory-based products. In 2003, we also sold a very limited number of our EPROM devices. Sales of EPROM devices have been steadily declining for the past few years as customers switch over to Flash memory devices. In 2004, we will continue to sell our existing inventory of EPROM products. However, we expect these sales to be minimal and we do not intend to manufacture any new EPROM products in 2004.

Flash Memory Products

Our Spansion Flash memory products encompass a broad spectrum of densities and features to address the wireless mobile handset and embedded systems markets. These products are used in cellular telephones, consumer electronics, automotive electronics, networking equipment and other applications that require memory to be non-volatile and electrically rewritten. Our Spansion Flash memory products may be categorized into two main technologies: floating gate technology and MirrorBit technology.

Spansion Flash memory products using conventional floating gate technology are available in densities from one megabit to 128 megabits. A conventional memory cell includes a transistor having a source and a drain and a control gate to regulate the current flow between the source and the drain, thereby defining whether the memory cell stores a “0” bit or a “1” bit. Floating gate technology is memory cell technology in which the memory cell includes a “floating gate” between the control gate and the source and drain. Adding or removing charge from the floating gate changes the threshold voltage of the cell. Products using conventional floating gate technology are typically used for their non-volatile code storage and code execution as well as their ease of in-system re-programmability. These products are designed to meet the requirements of a range of Flash memory market segments, from the low-end, low-density value segment to the high-performance, high-density wireless segment.

Spansion Flash memory products also include devices based on MirrorBit technology, a proprietary technology that stores two bits of data in a single memory cell thereby doubling the density, or storage capacity, of each memory cell. Products based on MirrorBit technology require fewer wafer fabrication process steps to

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manufacture and have simpler layouts compared to products based on single-bit-per-cell or multi-level-cell floating gate technology. As a result, MirrorBit technology can contribute to a smaller die size and improved production yields. Due to these characteristics, for a given density, products based on MirrorBit technology can be less expensive to produce than products based on conventional floating gate single-bit-per-cell or multi-level cell technology. We believe MirrorBit technology gives us an advantage in the manufacturing of these products equivalent to one lithography node over multi-level cell solutions and two lithography nodes over single-bit-per-cell solutions. Lithography is a process technology used in the manufacture of integrated circuits. In addition, we believe MirrorBit technology enables the production of NOR Flash memory products at higher densities than are commercially viable using single bit-per-cell technology.

Spansion Flash memory products using first-generation MirrorBit technology are manufactured using 230-nanometer process technology and are available in densities ranging from 16 megabits through 256 megabits. In September 2003, FASL LLC announced the availability of engineering samples of the first 512 megabit NOR Flash memory product based on its second-generation MirrorBit technology. We believe this high density product will enable designers to create large memory arrays, simplify existing designs by using only a single device, and reduce costs by migrating from floating gate technology-based products. In 2004, products based on second-generation MirrorBit technology will be manufactured using primarily 110-nanometer process technology. We believe manufacturing costs for NOR Flash memory products based on MirrorBit technology that are manufactured using 110-nanometer process technology are similar to or lower than manufacturing costs for comparable products based on conventional floating gate multi-level cell technology that are manufactured using 90-nanometer process technology.

Spansion Flash memory products implement different architectures to address different customer requirements. These different architectures may be supported on floating gate technology as well as on MirrorBit technology. We address demand for lower-performance customer applications by providing asynchronous access products with slower read speeds. We address demand for higher-performance products by providing advanced architecture products that support faster burst-mode and page-mode read interfaces. Burst-mode products allow fast access to data in a continuous sequential operation, while page-mode products allow fast random access to data within a page. The wireless market in particular currently demands such high-performance solutions. We intend to continue to address the growing performance requirements of our customers in this market by expanding our product offerings and improving our products’ performance. In addition to a high-performance architecture, Spansion products may also include benefits such as Advanced Sector Protection, which improves security, and simultaneous read/write, which improves system performance.

We also offer Flash memory in multi-chip packages, or MCPs, across a range of densities. Currently, the largest consumers of Flash memory devices are mobile phone manufacturers. Mobile phone manufacturers require devices that allow them to make feature-rich products in small packages. They are especially interested in MCPs due to the single, space-saving package, low power consumption, and high performance. Our MCP products incorporate Spansion Flash memory devices ranging from 16 megabits to 128 megabits and non-Flash memory die, such as SRAM devices, which FASL LLC purchases from outside vendors, ranging from two megabits to 64 megabits. We intend to continue to provide new products for this growing market, and we expect sales of MCP products to increase in 2004 in comparison to 2003.

We believe that the key factors impacting our ability to increase Flash memory product revenues in 2004 are the continued market acceptance of MirrorBit technology, our ability to maintain or increase average selling prices for Spansion Flash memory products, and growth in unit shipments of these Flash memory products. In addition, FASL LLC’s ability to successfully transition to 110-nanometer process technologies for specified Flash memory products and its ability to successfully increase manufacturing capacity at its fabrication, assembly and test facilities are key factors impacting our ability to increase Flash memory product revenues.

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Other Products and Services

Personal Connectivity Solutions Products

We offer low-power, high-performance embedded microprocessor products for personal connectivity devices. Our PCS products include low-power x86 and MIPS^® architecture-based embedded processors. We design these processors to address customer needs in the non-PC Internet appliance market. Typically these processors are used in products that require high to moderate levels of performance where key features include reduced cost, mobility and compactness. Products that use our embedded processors also often have limited user interfaces and programmability when compared to PCs and servers.

In August 2003, we acquired the Geode^™ family of microprocessor products from National Semiconductor Corporation. The Geode technology integrates complex functionality, such as processing, system logic, graphics, and audio and video decompression on to one integrated device. AMD Geode microprocessors are based on the x86 architecture and are optimized for power and performance. We target our AMD Geode processors for four main market segments: computer systems commonly referred to as “enterprise-thin clients” with low power consumption and minimal memory that leverage application software from a centralized server; low-cost network appliances; set-top boxes; and personal access devices. With the AMD Geode family of microprocessors, we are able to extend the range of our x86-based product offerings to serve markets from embedded appliances to high-end servers.

We develop our AMD Alchemy^™ embedded processors for portable media players, Internet access points, and gateways in which low-power consumption is a key factor. All of these products have an architecture that provides a 32-bit MIPS instruction set. They support Microsoft Windows, CE.NET, Linux, VxWorks, and other operating systems.

We believe that our PCS products offer our customers faster time to market and lower product costs. Our strategy is to continue providing cost-effective PCS products that our customers can deploy quickly in their applications.

Foundry Services

Prior to 2003, we provided foundry services to our former voice communications products subsidiary, Legerity, Inc., and to our former programmable logic devices subsidiary, Vantis Corporation. We had no revenue from these services in 2003 and will not have any revenue for these services in the future.

Research and Development; Manufacturing Process Technology

Manufacturing process technology is a key determinant in the improvement of most semiconductor products. Each new generation of manufacturing process technology has resulted in products with greater performance. We have devoted significant resources to developing and improving manufacturing process technologies used in the production of our products. In order to remain competitive, we must continue to maintain our process technology leadership. In particular, we have made and continue to make significant investments in manufacturing process technologies and in strategic relationships with industry-leading companies relating to manufacturing process technology development. We may not realize our expected return on these investments if we fail to increase market acceptance for our products, if the market for our microprocessor or Flash memory products should significantly deteriorate or if we are unable to realize the full benefit of our strategic relationships. In addition, if we are unable to remain competitive with respect to process technology, we will be materially and adversely affected.

Our efforts concerning research and development of advanced process technologies are focused on logic technology used for manufacturing our microprocessors. FASL LLC’s efforts concerning research and development of advanced process technologies are focused on non-volatile memory technology used for

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manufacturing Spansion Flash memory products. In December 2002, we executed an agreement with IBM to jointly develop new logic process technologies, particularly 65- and 45-nanometer technologies to be implemented on 300-millimeter silicon wafers, for use in producing future high-performance microprocessor products. The joint development agreement terminates on December 31, 2005 and may be extended by the mutual agreement of the parties. The agreement can also be terminated immediately by either party if the other party permanently ceases doing business, becomes bankrupt or insolvent, liquidates or undergoes a change of control, or terminated upon 30 days written notice upon a failure to perform a material obligation thereunder. The new process technologies are being developed at an IBM facility in New York and are aimed at improving microprocessor performance and reducing power consumption. The new process technologies will be based on advanced structures and materials such as high-speed SOI transistors, copper interconnects and improved “low-k dielectric” insulation. During 2002 and 2003, we paid approximately $190 million to IBM in connection with agreements and services related to research and development activities. In addition, in December 2003, we entered into license and consulting services agreements with IBM pursuant to which we licensed technology and know-how developed by IBM in connection with manufacturing products on 300-millimeter silicon wafers. In addition, some development work for logic process technologies took place at Fab 30. Research and development with respect to non-volatile memory technology used for manufacturing Spansion Flash memory products is conducted primarily at FASL LLC’s SDC facility located in Sunnyvale, California and at its facilities in Japan. Currently, FASL LLC is developing new non-volatile memory process technology, including 90-nanometer floating gate technology and 90-nanometer MirrorBit technology utilizing three-layer copper interconnect.

Our expenses for research and development were $852 million in 2003, $816 million in 2002, and $651 million in 2001. These expenses represented 24 percent of consolidated net sales in 2003, 30 percent of consolidated net sales in 2002, and 17 percent of consolidated net sales in 2001.

As of year-end 2003, all of our microprocessors were manufactured using our 130-nanometer process technology on 200-millimeter wafers at Fab 30. In 2004, we expect to convert our microprocessor manufacturing to primarily 90-nanometer process technology. We believe that use of 90-nanometer technology will allow us to provide products that are higher performing, use less power, and that cost less to manufacture.

In November 2003, we announced our intention to construct and facilitize a 300-millimeter wafer fabrication facility, Fab 36. Fab 36 will be owned by a newly created partnership named AMD Fab 36 Limited Liability Company & Co. KG, or AMD Fab 36, and will be located in Dresden, Germany, adjacent to Fab 30. We control the management of AMD Fab 36 through a wholly owned Delaware subsidiary, AMD Fab 36 LLC, which is a general partner of AMD Fab 36. We expect that Fab 36 will produce future generations of our microprocessor products, and that it will be in volume production in 2006. We believe using 300-millimeter wafers will decrease the manufacturing costs for certain of our microprocessor products and increase our capacity for producing these products because it allows us to produce more equivalent chips per wafer than 200-millimeter wafers.

FASL LLC’s Flash memory device production at year-end 2003 was on 130-, 170-, 230- and 320-nanometer process technologies. During 2004, FASL LLC intends to transition some of its Flash memory devices to production on 110-nanometer process technology with the goal that by the end of 2004, Fab 25 and JV3 will employ mostly 110-nanometer technology. In addition, we believe that the demand for our Flash memory products will increase in 2004. Therefore, FASL LLC intends to increase manufacturing capacity at its wafer fabrication facilities.

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Manufacturing, Assembly and Test Facilities

Our microprocessor fabrication and FASL LLC’s Flash memory fabrication is conducted at the facilities described in the chart below:

We also have foundry arrangements with third parties for the production of our Personal Connectivity Solutions and chipset products.

The current assembly and test facilities for our microprocessor products are described in the chart set forth below:

Some assembly and final testing of our microprocessor products is also performed by subcontractors in the United States and Asia.

The current assembly and test facilities for FASL LLC’s Spansion Flash memory products are described in the chart set forth below:

Some assembly and final testing of FASL LLC’s products is performed by subcontractors in Asia, including Fujitsu’s final assembly and testing facility in Kyushu, Japan.

The political and economic risks associated with operations in foreign countries include:

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In 2004, we plan to make additional capital investments in our assembly and test facilities.

Certain Material Agreements.    Descriptions of certain material contractual relationships we have relating to FASL LLC are set forth on page 2, above, and page 14, below, and relating to Fab 30 are set forth on page 34, below. A description of our principal contractual relationships with IBM is set forth on page 9, above.

Competition

The integrated circuit industry is intensely competitive. Products compete on performance, quality, reliability, price, adherence to industry standards, software and hardware compatibility, marketing and distribution capability, brand recognition and availability. Technological advances in the industry result in frequent product introductions, regular price reductions, short product life cycles and increased product capabilities that may result in significant performance improvements.

In each area of the digital integrated circuit markets in which we participate, we face competition from different companies.

Competition in the Microprocessor Market

Intel has dominated the market for microprocessors used in desktop and mobile PCs for many years. Intel is also a significant competitor in the server segment of the microprocessor market. Because of its dominant position, Intel has also been able to control x86 microprocessor and PC system standards and dictate the type of products the microprocessor market requires of Intel’s competitors. In addition, Intel’s significant financial resources allow it to market its products aggressively, to target our customers and our channel partners with special incentives, and to discipline customers who do business with us. These aggressive activities can result in lower unit sales and average selling prices for us and adversely affect our margins and profitability. Intel also exerts substantial influence over PC manufacturers and their channels of distribution through the “Intel Inside” brand program and other marketing programs. As long as Intel remains in this dominant position, we may be materially and adversely affected by its:

Intel also dominates the PC system platform. As a result, PC OEMs are highly dependent on Intel, less innovative on their own and, to a large extent, are distributors of Intel technology. In marketing our

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microprocessors to OEMs, we depend on third-party companies other than Intel for the design and manufacture of core-logic chipsets, graphics chips, motherboards, BIOS software and other components. In recent years, many of these third-party designers and manufacturers have lost significant market share to Intel or exited the business. In addition, these companies produce chipsets, motherboards, BIOS software and other components to support each new generation of Intel’s microprocessors, and Intel has significant leverage over their business opportunities.

We do not currently plan to develop microprocessors that are bus interface protocol compatible with Intel microprocessors because our patent cross-license agreement with Intel does not extend to microprocessors that are bus interface protocol compatible with Intel’s sixth and subsequent generation processors. Thus, our microprocessors are not designed to function with motherboards and chipsets designed to work with Intel microprocessors. Our ability to compete with Intel in the market for microprocessors will depend on our ability to continue to develop relationships with infrastructure providers and ensure that these third-party designers and manufacturers design PC platforms to support new generations of our microprocessors. A failure of the designers and producers of motherboards, chipsets and other system components to support our microprocessor offerings, particularly our new AMD Athlon 64 and AMD Opteron processors, would have a material adverse effect on us.

Similarly, we offer OEMs and partners motherboard reference design kits designed to support our processors. The primary reason we offer these products is to provide our customers with a solution that will allow them to use our microprocessors and develop and introduce their products in the market more quickly. We cannot be certain, however, that our efforts will be successful.

We expect Intel to maintain its dominant position in the microprocessor market and to continue to invest heavily in research and development, new manufacturing facilities and other technology companies. Intel has substantially greater financial resources than we do and accordingly spends substantially greater amounts on research and development than we do. We expect competition from Intel to increase in 2004 and beyond to the extent Intel reduces the prices for its products and as Intel introduces new products. For example, in February 2004, Intel announced that it intends to introduce 64-bit processors for servers and workstations that will be able to run existing 32-bit software applications in mid-2004. We believe that these processors will compete with our AMD Opteron microprocessors. In addition, Intel announced that it will offer 64-bit processors for the desktop market and other market segments that will be able to run existing 32-bit software applications in a time frame based on both timing and availability of the infrastructure required to support them, and customer demand. These products would compete with our AMD Athlon 64 microprocessors. Moreover, Intel currently manufactures certain of its microprocessor products on 300-millimeter wafers using 90-nanometer process technology. Use of 90-nanometer technology can result in products that are higher performing, use less power and that cost less to manufacture. Use of 300-millimeter wafers can decrease manufacturing costs and increase capacity by yielding more equivalent chips per wafer than 200-millimeter wafers. We have not yet made comparable transitions at our microprocessor manufacturing facilities. As a result, we may be more vulnerable to Intel’s aggressive pricing strategies for microprocessor products. Intel’s strong position in the microprocessor market, its existing relationships with top-tier OEMs and its aggressive pricing strategies could result in lower unit sales and average selling prices for our products, which could adversely affect our revenues.

Competition in the Flash Memory Market

With respect to Flash memory products, our principal competitors are Intel, Samsung, Toshiba, STMicroelectronics N.V., Sharp Electronics Corporation, Renesas Technology, Silicon Storage Technology, and Macronix International. We expect competition in the market for Flash memory devices to increase in 2004 and beyond as existing manufacturers introduce new products and industry-wide production capacity increases. Furthermore, in 2003, NAND vendors gained an increasing share of the overall Flash memory market. If further significant improvements in NAND technology occur in the future, applications currently using NOR technology may transition to NAND technology. As a result, NAND vendors may gain a substantial share of the overall Flash memory market.

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Competition With Respect to Our Other Products

With respect to PCS products, our principal competitors are Hitachi, Intel, Motorola, Inc., NEC Corporation, Toshiba, Transmeta, and Via Technologies. We expect competition in the market for PCS devices to increase in 2004 as our principal competitors focus more resources on developing low-power embedded solutions.

Marketing and Sales

We market and sell our products, other than Flash memory products, under the AMD trademark. We employ a direct sales force through our principal facilities in Sunnyvale, California, and field sales offices throughout the United States and abroad, primarily Europe and Asia Pacific. We also sell our products through third-party distributors and independent representatives in both domestic and international markets pursuant to non-exclusive agreements. Distributors also sell products manufactured by our competitors. In 2003, one of our distributors, Avnet, Inc., accounted for approximately 13 percent of our consolidated net sales. Avnet primarily purchases our microprocessor products. Also in 2003, Fujitsu Limited accounted for approximately 13 percent of our consolidated net sales. Fujitsu primarily purchases Spansion Flash memory products from FASL LLC. No distributor accounted for ten percent or more of our consolidated net sales in 2002 and 2001. No OEM customer accounted for ten percent or more of our consolidated net sales in 2003, 2002 or 2001.

FASL LLC’s Flash memory products are marketed and sold under the Spansion trademark. We and Fujitsu act as distributors of Spansion Flash memory products and receive a commission from FASL LLC. We distribute Spansion products in the same manner as we sell our other products, through our direct sales force and through third-party distributors and independent representatives.

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. In 2003, we primarily focused our direct marketing activities on the launch of our AMD Opteron and AMD Athlon 64 microprocessor products and the AMD64 technology platform. In addition, we have cooperative advertising and marketing programs with our customers, including market development programs. Under these programs, eligible customers can use market development funds in partial reimbursement for advertisements and marketing programs related to our products.

We intend to build upon our position as a global supplier of integrated circuits by expanding our focus to include emerging global markets. In 2003, we focused on expanding our participation in China’s microprocessor, embedded processor and Flash memory markets, and we expect to continue these efforts in 2004. For example, in order to strengthen and consolidate our efforts in China, effective in February 2004, we established a new entity, Advanced Micro Devices (China) Co., Ltd., which will serve as our regional headquarters in the region. We also established relationships with OEMs such as Dawning Information Industry Corp. Ltd., a server manufacturer in China. These activities expanded on our existing investments in China, including FASL LLC’s Flash memory assembly and test facility in Suzhou.

Distributors typically maintain an inventory of our products. Generally, we sell to distributors under terms allowing the distributors certain rights of return and price protection on any inventory of our products held by them. We defer the gross margin on these sales to distributors, resulting from both our deferral of revenue and related product costs, until the applicable products are re-sold by the distributors. The price protection and return rights we offer to our distributors could materially and adversely affect us if there is an unexpected significant decline in the price of our products.

In 2003, international sales as a percent of net sales were 80 percent. Our international sales operations entail political and economic risks, including expropriation, currency controls, exchange rate fluctuations, changes in freight rates and changes in rates and exemptions for taxes and tariffs.

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Raw Materials

Certain raw materials we use in the manufacture of our products and FASL LLC uses in the manufacture of its products are available from a limited number of suppliers. For example, we are dependent on key chemicals from a limited number of suppliers and rely on a few foreign companies to supply the majority of certain types of the integrated circuit packages we purchase. Similarly, FASL LLC purchases commercial non-Flash memory die, such as SRAM, from third-party suppliers and incorporates these die into its MCP products. Interruption of supply or increased demand in the industry could cause shortages and price increases in various essential materials. If we or FASL LLC were unable to procure certain of these materials, we or FASL LLC might have to reduce manufacturing operations. Such a reduction could have a material adverse effect on us. To date, neither we nor FASL LLC have experienced significant difficulty in obtaining the raw materials required for our manufacturing operations.

In June 2002, we formed Advanced Mask Technology Center GmbH and Co., KG (AMTC) and Maskhouse Building Administration GmbH and Co., KG, (BAC), two joint ventures with Infineon Technologies AG and Dupont Photomasks, Inc., for the purpose of constructing and operating an advanced photomask facility in Dresden, Germany. Photomasks are used during the production of integrated circuits. The purpose of the AMTC is to conduct research, development and pilot production of optical photomasks for advanced lithography technology. In October 2003, the AMTC announced the official commencement of pilot production of optical photomasks. In 2004, we intend to procure advanced photomasks from the AMTC pursuant to the terms of our joint venture arrangement and use these photomasks in the manufacture of certain of our microprocessor products.

Environmental Regulations

Many aspects of our and FASL LLC’s business operations and products are regulated by domestic and international environmental regulations. These regulations include limitations on discharges to air and water; remediation requirements; product chemical content limitations; chemical use and handling restrictions; pollution control requirements; waste minimization considerations; and hazardous materials transportation, treatment and disposal restrictions. If we or FASL LLC fail to comply with any of the applicable environmental regulations we may be subject to fines, suspension of production, alteration of our manufacturing processes, sales limitations, and criminal and civil liabilities. Existing or future regulations could require us or FASL LLC to procure expensive pollution abatement or remediation equipment, to modify product designs or to incur other expenses to comply with environmental regulations. Any failure to control the use, disposal or storage, or adequately restrict the discharge of hazardous substances could subject us to future liabilities and could have a material adverse effect on our business.

Intellectual Property and Licensing

As of March 1, 2004, we had over 5,900 United States patents and had over two thousand patent applications pending in the United States. In certain cases, we have filed corresponding applications in foreign jurisdictions. We expect to file future patent applications in both the United States and abroad on significant inventions, as we deem appropriate. FASL LLC also has patents and pending patent applications in the United States and Japan. In certain cases, FASL LLC filed corresponding applications in foreign jurisdictions. We expect FASL LLC to file future patent applications in both the United States and abroad on significant inventions, as it deems appropriate.

In May 2001, we signed a ten-year cross-license agreement with Intel Corporation. In addition, we have entered into numerous cross-licensing and technology exchange agreements with other companies under which we both transfer and receive technology and intellectual property rights. As part of the FASL LLC transaction we entered into a patent cross-license agreement with FASL LLC whereby each party has been granted a non-exclusive license under the other party’s respective licensed patents for the manufacture and sale of

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semiconductor products worldwide. In addition, FASL LLC has granted us the right to sublicense FASL LLC patents and patent applications. FASL LLC has entered into a similar cross-license agreement (without the grant of sublicense rights) with Fujitsu Limited. These patent cross-license agreements terminate upon the later of July 1, 2013 or upon the transfer of all of the respective party’s ownership or economic interest in FASL LLC, unless earlier terminated upon 30 days notice following a change of control of the other party. We have also entered into a patent cross-license with Fujitsu Limited whereby each party has been granted a non-exclusive license under certain of the other party’s respective semiconductor-related patents. This patent cross-license agreement terminates upon the tenth anniversary of the agreement, unless earlier terminated upon 30 days notice following a change of control of the other party.

Although we attempt to protect our intellectual property rights, in the United States and abroad through patents, copyrights, trade secrets and other measures, we may not be able to adequately protect our technology or other intellectual property or prevent others from independently developing similar technology. Any patent licensed by us or issued to us could be challenged, invalidated or circumvented, or rights granted thereunder may not provide a competitive advantage to us. Furthermore, patent applications that we file may not be issued. Despite our efforts to protect our rights, others may independently develop similar products, duplicate our products or design around our patents and other rights. In addition, it is difficult to cost-effectively monitor compliance with, and enforce, our intellectual property rights on a worldwide basis.

From time to time, we have been notified that we may be infringing intellectual property rights of others. If any such claims are asserted against us, we may seek to obtain a license under the third party’s intellectual property rights. We cannot assure you that we will be able to obtain all necessary licenses on satisfactory terms, or at all. We could decide, in the alternative, to resort to litigation to challenge such claims. Such challenges could be extremely expensive and time-consuming and could have a material adverse effect on us. We cannot assure you that litigation related to the intellectual property rights of us or others will always be avoided or successfully concluded.

Backlog

We manufacture and market standard lines of products. Consequently, a significant portion of our sales are made from inventory on a current basis. Sales are made primarily pursuant to purchase orders for current delivery or agreements covering purchases over a period of time, which orders or agreements may be revised or canceled without penalty. Generally, in light of current industry practice and experience, we do not believe that such agreements provide meaningful backlog figures or are necessarily indicative of actual sales for any succeeding period.

Employees

As of March 1, 2004, we (excluding FASL LLC and its subsidiaries) employed approximately 7,400 employees, none of whom are represented by collective bargaining arrangements. Also, as of March 1, 2004, FASL LLC and its subsidiaries employed approximately 6,900 employees. In addition, approximately an aggregate of 180 individuals remained employed by us or Fujitsu but were made available on a full-time basis to FASL LLC or its subsidiaries. FASL LLC expects that substantially all of these individuals will become employees of FASL LLC or its subsidiaries in 2004 and 2005. Certain employees of FASL JAPAN are represented by a company union. We believe that our relationship with our employees is good and that FASL LLC’s relationship with its employees is good.

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Our principal engineering, manufacturing, warehouse and administrative facilities comprise approximately 3.3 million square feet and are located in the United States, Germany, Singapore, and Malaysia. Approximately 2.2 million square feet of this space is in buildings we own. We acquired approximately 115 acres of land in Dresden, Germany for Fab 30. Fab 30 is encumbered by a lien securing AMD Saxony’s obligations under the Dresden Loan Agreements. For more detail regarding the Dresden Loan Agreements, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Dresden Term Loan and Dresden Term Loan Guarantee,” below.

We have an operating lease on property containing two buildings with an aggregate of approximately 364,000 square feet, located on 45.6 acres of land in Sunnyvale, California (One AMD Place). This operating lease ends in December 2018. In 2000, we entered into a lease agreement for three buildings, totaling 175,000 square feet, located adjacent to One AMD Place, which we call AMD Square, to be used as engineering offices and lab facilities. During 2002, we determined that we no longer required AMD Square. As of December 28, 2003, AMD Square is vacant, and we are actively marketing it for sublease. During 2003, we also vacated approximately 75,000 square feet of leased administrative office space in Austin, Texas. We continue to have lease obligations with respect to these facilities ranging from 18 to 24 months, and we are marketing these facilities for sublease.

In addition to principal engineering, manufacturing, warehouse and administrative facilities, we lease sales office facilities in 20 locations globally, totalling approximately 150,000 square feet. These facilities are generally located in commercial centers near our customers, principally in Latin America, Europe and the Asia Pacific region.

FASL LLC’s principal engineering, manufacturing, warehouse and administrative facilities comprise approximately four million square feet and are located in the United States, Japan, Malaysia, Thailand and China. Over 3.9 million square feet of this space is in buildings FASL LLC owns. The remainder of this space is leased, primarily from us. FASL LLC leases approximately 15 acres of land in Suzhou, China for its assembly and test facility. In addition, FASL LLC also leases approximately 90 acres of land in Japan for its wafer fabrication facilities. Its Fab 25 facility in Austin, Texas is encumbered by a lien securing the July 2003 FASL Term Loan. For more detail regarding the July 2003 FASL Term Loan, see, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—July 2003 FASL Term Loan and Guarantee,” below.

Our and FASL LLC’s leases cover facilities with expiration terms of generally one to 20 years. We currently do not anticipate difficulty in either retaining occupancy of any of our facilities through lease renewals prior to expiration or through month-to-month occupancy, or replacing them with equivalent facilities.

Environmental Matters

We are named as a responsible party on Superfund clean-up orders for three sites in Sunnyvale, California that are on the National Priorities List. Since 1981, we have discovered hazardous material releases to the groundwater from former underground tanks and proceeded to investigate and conduct remediation at these three sites. The chemicals released into the groundwater were commonly used in the semiconductor industry in the United States in the wafer fabrication process prior to 1979.

In 1991, we received four 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. Under these agreements other parties have assumed the costs and primary responsibility for conducting remediation activities under the orders. We remain responsible for these costs in the event that the other parties do not fulfill their obligations under the settlement agreements.

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To address anticipated future remediation costs under the orders, we have computed and recorded an estimated environmental liability of approximately $3.3 million in accordance with applicable accounting rules and have not recorded any potential insurance recoveries in determining the estimated costs of the cleanup. The progress of future remediation efforts cannot be predicted with certainty, and these costs may change. Environmental charges to earnings have not been material during any of the last three fiscal years. We believe that the potential liability, if any, in excess of amounts already accrued, will not have a material adverse effect on our financial condition or results of operation.

In 1998, the U.S. Environmental Protection Agency (EPA) identified us as one of hundreds of Superfund “potentially responsible parties” as a result of disposal of waste at a regulated landfill in Santa Barbara County, California that was later abandoned by its owners and designated as a Superfund site by the EPA. We have reached a settlement with EPA and completed payment. However, the public notification, judicial review and issuance of a consent decree remain pending. The amount of the settlement did not have a material adverse effect on our financial condition or results of operations.

Other Matters

We are a defendant or plaintiff in various other actions that arose in the normal course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on our financial condition or results of operations.

No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this report.

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PART II

Our common stock (symbol “AMD”) is listed on the New York Stock Exchange. On March 1, 2004, there were 8,041 registered holders of our common stock. We have never paid cash dividends on our stock and may be restricted from doing so pursuant to the loan agreements that we entered into with several domestic financial institutions. See discussion in the “Notes Payable to Banks” section set forth in, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” beginning on page 20, below. The high and low sales price per share of common stock were as follows:

The information under the caption, “Equity Compensation Plan Information,” in our Proxy Statement for our Annual Meeting of Stockholders to be held April 29, 2004 (2004 Proxy Statement) is incorporated herein by reference.

During 2003, we did not sell any of our equity securities that were not registered under the Securities Act of 1933, as amended.

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Five Years Ended December 28, 2003

(Thousands except per share amounts)

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The following discussion should be read in conjunction with the consolidated financial statements and related notes as of December 28, 2003 and December 29, 2002, and for each of the three years in the period ended December 28, 2003, which are included in this annual report. Certain prior period amounts have been reclassified to conform to the current period presentation.

Overview

We design, manufacture and market industry-standard digital integrated circuits that are used in diverse product applications such as desktop and mobile PCs, workstations and servers, communications equipment, and automotive and consumer electronics. Our products include microprocessors, Flash memory devices, and Personal Connectivity Solutions products.

The semiconductor industry has recently shown signs of recovery from the downturn experienced during 2001 and 2002, which contributed to an improvement in our operating results during 2003 compared to 2002. Total net sales for 2003 of $3,519 million increased 30 percent compared with net sales of $2,697 million for 2002. This increase was driven primarily by increased sales of microprocessors and Flash memory products across all geographies as well as the consolidation of FASL LLC’s results of operations, which include sales by FASL LLC to Fujitsu. In addition, the restructuring and cost-cutting measures that we initiated in 2002 contributed to significant cost savings in 2003. These cost savings, combined with the increase in revenues, contributed to a 79 percent decrease in net loss from a net loss of $1,303 million in 2002 to a net loss of $274 million in 2003.

During 2003, we reached an agreement with Fujitsu to form FASL LLC. The formation of FASL LLC has allowed us to combine our and Fujitsu’s product manufacturing and technology development efforts to respond more quickly to the demands of our Flash memory product customers. As a result of the transaction, we began consolidating FASL LLC’s results of operations on June 30, 2003. However, as FASL LLC did not exist prior to June 30, 2003, the results of operations for prior periods did not include the consolidation of FASL LLC’s operations. Accordingly, the segment operating information for our Memory Products segment for the year ended December 28, 2003, is not fully comparable to the segment information for all prior periods presented.

In addition, we introduced our 64-bit microprocessor products during 2003 with the launch of our AMD Opteron processor for servers and workstations in April and our AMD Athlon 64 processor for desktop and mobile PCs in September. In November 2003, we began construction of a new 300-millimeter wafer fabrication facility in Dresden, Germany, which we expect to be in volume production in 2006. We believe the new capacity provided by this facility will allow us to satisfy anticipated demand for our 64-bit microprocessors. In addition to providing increased capacity, we believe that manufacturing our 64-bit processors on 300-millimeter silicon wafers, and employing advanced manufacturing process technologies, will allow us to reduce our manufacturing costs.

For 2004, we believe critical success factors include: increasing market acceptance of 64-bit computing; our and FASL LLC’s ability to successfully develop and transition to the latest manufacturing process technologies; our ability to develop and introduce new products for the server and workstation markets on a timely basis and increasing our share of those markets; expanding our participation in emerging global markets, including China, Latin America, India, and Eastern Europe; improving our share of the Flash memory market, including enabling the increased adoption of MirrorBit technology; and maximizing the synergies of FASL LLC.

We intend the discussion of our financial condition and results of operations that follows to provide information that will assist you in understanding our financial statements, the changes in certain key items in those financial statements from year to year, the primary factors that resulted in those changes, and how certain accounting principles, policies and estimates affect our financial statements.

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Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts in our consolidated financial statements. We evaluate our estimates on an on-going basis, including those related to our revenues, inventories, asset impairments, restructuring charges, income taxes and commitments and contingencies. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Although actual results have historically been reasonably consistent with management’s expectations, the actual results may differ from these estimates or our estimates may be affected by different assumptions or conditions.

We believe the following critical accounting policies are the most significant to the presentation of our financial statements and require the most difficult, subjective and complex judgments.

Revenue Reserves.    We record a provision for estimated 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 management judgment while considering actual historical sales returns, historical price reductions, market activity, allowances, and other known or anticipated trends and factors. Actual provisions could be different from our estimates and current provisions, resulting in future adjustments to our revenues and operating results.

Inventory Valuation.    At each balance sheet date, we evaluate our ending inventories for excess quantities and obsolescence. This evaluation includes analysis of sales levels by product and projections of future demand. These projections assist us in determining the carrying value of our inventory and are also used for near-term factory production planning. Inventories on hand in excess of forecasted demand of generally six months or less, are not valued. In addition, we write off inventories that are considered obsolete. 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 realizable value. We adjust remaining inventory balances to approximate the lower of our standard manufacturing cost or market value. If we anticipate future demand or market conditions to be less favorable than our projections as forecasted, additional inventory write-downs may be required, and would be reflected in cost of sales in the period the revision is made. This would have a negative impact on our gross margins in that period. If in any period we are able to sell inventories that were not valued or that had been written off in a previous period, related revenues would be recorded without any offsetting charge to cost of sales, resulting in a net benefit to our gross margin in that period. To the extent these factors materially affect our gross margins, we would disclose them.

Impairment of Long-Lived Assets.    We consider no less frequently than quarterly whether indicators of impairment of long-lived assets are present. These indicators may include, but are not limited to, significant decreases in the market value of an asset and significant changes in the extent or manner in which an asset is used. If these or other indicators are present, we determine whether the estimated undiscounted cash flows attributable to the assets in question are less than their carrying value. If less, we recognize an impairment loss based on the excess of the carrying amount of the assets over their respective fair values. Fair value is determined by discounted future cash flows, appraisals or other methods. If the asset determined to be impaired is to be held and used, we recognize an impairment loss through a charge to our operating results to the extent the present value of anticipated net cash flows attributable to the asset is less than the asset’s carrying value, which we depreciate over the remaining estimated useful life of the asset. We may incur additional impairment losses in future periods if factors influencing our estimates of the undiscounted cash flows change.

Restructuring Charges.    We record and account for our restructuring activities following formally approved plans that identify the actions and timeline over which the restructuring activities will occur. Restructuring charges include estimates pertaining to employee severance and fringe benefit costs, facility exit

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costs, subleasing assumptions and facility and equipment decommissioning costs resulting from exiting certain facilities. We review remaining restructuring accruals on a quarterly basis and adjust these accruals when changes in facts and circumstances suggest actual amounts will differ from our estimates. Although we do not anticipate significant changes, actual costs may be different than our original or revised estimates. These changes in estimates can result in increases or decreases to our results of operations in future periods and would be presented on the restructuring and other special charges, net, line of our consolidated operating statements.

Income Taxes.    In determining taxable income for financial statement reporting purposes, we must make certain estimates and judgments. These estimates and judgments are applied in the calculation of certain tax liabilities and in the determination of the recoverability of deferred tax assets, which arise from temporary differences between the recognition of assets and liabilities for tax and financial statement reporting purposes.

We must assess the likelihood that we will be able to recover our deferred tax assets. If recovery is not likely, we must increase our provision for taxes by recording a charge to income tax expense, in the form of a valuation allowance, for the deferred tax assets that we estimate will not ultimately be recoverable. We consider past performance, future expected taxable income and prudent and feasible tax planning strategies in determining the need for a valuation allowance. In fiscal 2002, we recorded a valuation allowance against all of our U.S. deferred tax assets, net of deferred tax liabilities, based on past performance and the likelihood of realization of our deferred tax assets at the time. In fiscal 2003, we continued to provide a valuation allowance against all of our U.S. deferred tax assets, net of deferred tax liabilities. If we later determine that it is more likely than not that the net deferred tax assets will be realized, an appropriate amount of the previously provided valuation allowance will be reversed, resulting in a benefit to our earnings. Such benefits would be recorded on the income tax provision (benefit) line of our statement of operations.

In addition, the calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax rules and the potential for future adjustment by the Internal Revenue Service or other taxing jurisdiction. If our estimates of these taxes are greater or less than actual results, an additional tax benefit or charge will result.

Commitments and Contingencies.    From time to time we are a defendant or plaintiff in various legal actions that arise in the normal course of business. We are also a party to environmental matters, including local, regional, state and federal government cleanup activities at or near locations where we currently or have in the past conducted our business. We are also a guarantor of various third-party obligations and commitments. We are required to assess the likelihood of any adverse judgments or outcomes to these matters as well as potential ranges of probable losses. A determination of the amount of reserves required for these commitments and contingencies, if any, that would be charged to earnings includes assessing the probability of adverse outcomes and estimating the amount of potential losses. The required reserves may change in the future due to new developments in each matter or changes in circumstances, such as a change in settlement strategy. Changes in required reserves could increase or decrease our earnings in the period the changes are made.

Results Of Operations

As discussed above in the section entitled, “Developments in 2003,” on page 1, effective June 30, 2003, we and Fujitsu formed FASL LLC. As a result of the transaction, we began consolidating FASL LLC’s results of operations on June 30, 2003. Prior to June 30, 2003, we accounted for our share of the Manufacturing Joint Venture’s operating results under the equity method. As FASL LLC did not exist prior to June 30, 2003, the results of our operations for periods prior to the third quarter of 2003 do not include the consolidation of FASL LLC’s results of operations. Accordingly, our operating results for the year ended December 28, 2003 are not fully comparable with our results for prior periods. As we have a 60 percent controlling interest in FASL LLC, Fujitsu’s 40 percent share in the net income (loss) of FASL LLC is reflected as a minority interest adjustment to our consolidated financial statements. This minority interest adjustment will not correspond to Memory Products segment operating income (loss) because Memory Products segment operating income (loss) includes operations incremental to those of FASL LLC. In addition, the minority interest calculation is based on FASL LLC’s net income (loss) rather than operating income (loss).

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We review and assess operating performance using segment revenues and operating income before interest, taxes and minority interest. These performance measures include the allocation of expenses to the operating segments based on management judgment. Prior to the third quarter of 2003, we had two reportable segments: the Core Products and Foundry Services segments. Primarily as a result of the formation of FASL LLC, we re-evaluated our reportable segments.

Beginning in the third quarter of 2003, we changed our reportable segments to: 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 Flash memory products. We believe that separate reporting of these operating segments, given our new focus on FASL LLC as a separate operating company and its separate market brand—Spansion, provides more useful information to our stockholders.

In addition to our reportable segments, we also have the All Other category that is not a reportable segment, but rather it includes other small operating segments that are neither individually nor in the aggregate greater than ten percent of our consolidated revenues or assets. This category also includes certain operating expenses and credits that are not allocated to the operating segments. Prior period segment information has been reclassified to conform to the current period presentation. However, as FASL LLC did not exist prior to June 30, 2003, the results of operations for prior periods did not include the consolidation of FASL LLC’s operations. Accordingly, the segment operating information for the Memory Products segment for the year ended December 28, 2003, is not fully comparable to the reclassified segment information for all prior periods presented.

We use a 52- to 53-week fiscal year ending on the last Sunday in December. The years ended December 28, 2003, December 29, 2002, and December 30, 2001, each included 52 weeks.

The following is a summary of our net sales for 2003, 2002 and 2001.

Net Sales Comparison for Years Ended December 28, 2003 and December 29, 2002

Total net sales of $3,519 million in 2003 increased 30 percent compared to net sales of $2,697 million in 2002.

Computation Products net sales of $1,960 million in 2003 increased 12 percent compared to net sales of $1,756 million in 2002. The increase in net sales was primarily due to a 15 percent increase in microprocessor unit shipments due primarily to increased demand from our OEM customers, partially offset by a decline of four percent in the average selling prices of our microprocessor products. Unit shipment growth was particularly strong in Latin America and China, which accounted for 77 percent of overall unit growth.

Memory Products net sales of $1,419 million in 2003 increased 92 percent compared to net sales of $741 million in 2002. The increase in net sales was primarily attributable to the effect of consolidating FASL LLC’s results of operations, which include FASL LLC’s sales to Fujitsu, and increased demand for Flash memory products. Further quantification of the breakdown in the increase in net sales is not practical due to the reorganization of geographical sales territories between AMD and Fujitsu.

All Other net sales of $140 million in 2003 decreased 30 percent compared to net sales of $200 million in 2002 and consisted primarily of net sales of our Personal Connectivity Solutions products. The decrease was due

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to a $53 million decrease in revenue resulting from discontinued production of selected mature embedded processors and networking products and a $34 million decrease in Foundry Services revenue, offset by a $28 million increase in revenues from sales of AMD Geode and wireless products.

Net Sales Comparison for Years Ended December 29, 2002 and December 30, 2001

Total net sales of $2,697 million in 2002 decreased 31 percent compared to net sales of $3,892 million in 2001.

Computation Products net sales of $1,756 million in 2002 decreased 29 percent compared to net sales of $2,466 million in 2001. This decrease was almost wholly due to a decrease in unit sales of 16 percent, and a decrease in average selling prices of 13 percent, reflecting industry-wide weakness in PC sales, competitive pricing pressure, and the execution of our plan to align our microprocessor inventory in the supply chain with forecasted customer demand, which included our decision to limit shipments and accept receipt of product returns from certain customers.

Memory Products net sales of $741 million in 2002 decreased 35 percent compared to net sales of $1,133 million in 2001. The decrease was primarily due to a decrease in average selling prices of 36 percent, reflecting continued weakness in the telecommunications and networking equipment industries.

All Other net sales of $200 million in 2002 decreased 32 percent compared to net sales of $293 million in 2001. The decrease was primarily due to a decrease in Foundry Services revenues of approximately $64 million and a decrease in net sales of $31 million from embedded processors and networking products as a result of sustained market declines in the communications and networking equipment industries.

Comparison of Gross Margin Percentage, Expenses, Interest Income and Other, Net, and Interest Expense

The following is a summary of gross margin percentage, expenses and interest income and other, net, and interest expense for 2003, 2002 and 2001:

Gross margin percentage increased to 34 percent in 2003 compared to 22 percent in 2002. The increase in gross margin was primarily due to an increase in net sales of 30 percent, accompanied by an increase in cost of sales of only ten percent. Our cost of sales increased at a lower rate than net sales primarily due to cost reductions from the 2002 Restructuring Plan and other cost reduction initiatives. In addition, microprocessor unit sales increased 15 percent while average selling prices of microprocessor products decreased by four percent, and we realized $63 million, or approximately two percentage points resulting from the sale of microprocessor products that had been previously written off. Further quantification of the improvement in gross margin percentage is not practical due to the consolidation of FASL LLC’s operating results on June 30, 2003.

We amortize capital grants and allowances, interest subsidies and research and development subsidies that we receive from the State of Saxony and the Federal Republic of Germany for Fab 30 as they are earned. The

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amortization of these grants and subsidies is recognized as credits to research and development expenses and cost of sales. The credits to cost of sales totaled $46.2 million in 2003 and $37.5 million in 2002.

Gross margin percentage decreased to 22 percent in 2002 compared to 33 percent in 2001. This decrease was primarily due to a 31 percent decrease in the combined sales of PC processors and Flash memory products, as a result of lower unit demand and average selling prices due to weakened customer demand and industry-wide excess inventory, partially offset by cost savings realized from the closure of certain facilities pursuant to the 2001 Restructuring Plan, which is discussed below.

Research and development expenses of $852 million in 2003 increased four percent from $816 million in 2002 due primarily to an increase in expenses as a result of the FASL LLC transaction, $23 million in research and development efforts related to new microprocessors, and $58 million in expenses related to amounts paid to IBM to jointly develop new logic process technologies for use in future high-performance microprocessor products. These increases were offset by a $35 million reduction in internal research and development costs from 2002 to 2003, primarily due to the reduction of research and development activities associated with our PCS products and the absence of the $42 million charge representing amounts paid to IBM in 2002 in exchange for consulting services relating to optimizing the performance of our manufacturing processes.

We amortize capital grants and allowances, interest subsidies and research and development subsidies that we receive from the State of Saxony and the Federal Republic of Germany for Fab 30 as they are earned. The amortization of these grants and subsidies is recognized as credits to research and development expenses and cost of sales. The credits to research and development expenses totaled $29.0 million in 2003 and $21.8 million in 2002.

Research and development expenses of $816 million in 2002 increased 25 percent compared to $651 million in 2001. This increase was primarily due to an overall increase in research and development efforts directed to our microprocessors. In addition, research and development expenses in 2002 included a $42 million charge for amounts paid to IBM in exchange for consulting services relating to optimizing the performance of our manufacturing processes in the fourth quarter of 2002, as well as the reallocation of $30 million from manufacturing resources, previously included in costs of goods sold, to research and development activities for microprocessors.

Marketing, general and administrative expenses of $587 million in 2003 decreased 12 percent compared to $670 million in 2002. The decrease was primarily due to decreased cooperative advertising and marketing expenses of $55 million and cost reductions from the 2002 Restructuring Plan and other cost reduction initiatives.

Marketing, general and administrative expenses of $670 million in 2002 increased eight percent compared to $620 million in 2001 primarily as a result of increased advertising and marketing expenses associated with the launch of our branding campaign.

In December 2002, we began implementing a restructuring plan (the 2002 Restructuring Plan) to further align our cost structure to industry conditions resulting from weak customer demand and industry-wide excess inventory.

As part of this plan, and as a result of our agreement with IBM to jointly develop future generations of our logic process technology, we ceased logic research and development in the SDC and eliminated most of those related resources, including the sale or abandonment of certain equipment used in the SDC.

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 attempting to sublease certain facilities

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currently occupied under long-term operating leases through 2013. We also terminated the implementation of certain partially completed enterprise resource planning (ERP) software and other information technology implementation activities, resulting in the abandonment of certain software, hardware and capitalized development costs.

Pursuant to the 2002 Restructuring Plan, we recorded restructuring costs and other special charges of $330.6 million in the fourth quarter of 2002, consisting primarily of $68.8 million of anticipated severance and fringe benefit costs, an asset impairment charge of $32.5 million relating to a license that has no future use because of its association with discontinued logic development activities, asset impairment charges of $30.6 million resulting from the abandonment of equipment previously used in logic process development and manufacturing activities, anticipated exit costs of $138.9 million almost wholly related to vacating and consolidating our facilities and a charge of $55.5 million resulting from the abandonment of partially completed ERP software and other information technology implementation activities.

During 2003, management approved the sale of additional equipment, primarily equipment used in the SDC, that was identified as no longer useful in our operations. As a result, we recorded approximately $11 million of asset impairment charges in the first quarter of 2003, including $3.3 million of charges for decommission costs necessary to complete the sale of the equipment.

During 2003, we revised our estimates of the number of positions to be eliminated pursuant to the 2002 Restructuring Plan from 2,000 to 1,800 in response to the additional resources required due to the FASL LLC transaction. As a result, we reversed $8.9 million of the estimated severance and fringe benefit accrual. As of December 28, 2003, 1,736 employees had been terminated pursuant to the 2002 Restructuring Plan resulting in cumulative cash payments of $53 million in severance and employee benefit costs. The remaining accrual of $6.7 million represents the severance benefits cost obligations for individuals whose employments terminated but who elected to defer receipt of severance benefits until 2004 and for employees who were pre-notified in 2003 of their employment terminations, which will occur in 2004.

With the exception of exit costs consisting primarily of remaining lease payments on abandoned facilities, net of estimated sublease income that are payable through 2011, we have substantially completed the activities associated with the 2002 Restructuring Plan as of December 28, 2003. As a result of the 2002 Restructuring Plan, we realized overall cost reductions of approximately $150 million in 2003. We also implemented other cost reduction initiatives incremental to the specific expense reductions resulting from the 2002 Restructuring Plan.

The following table summarizes activities under the 2002 Restructuring Plan through December 28, 2003:

In 2001, we announced a restructuring plan (the 2001 Restructuring Plan) due to the continued slowdown in the semiconductor industry and a resulting decline in revenues. We substantially completed our execution of the

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2001 Restructuring Plan as of December 28, 2003. During 2003, we reduced the estimated accrual of the facility and equipment decommission costs by $12.2 million based on the most current information available. During 2003, we also realized a recovery of approximately $3.9 million for the excess of the sale price over the estimated fair value of equipment that was determined to be impaired as a result of the 2001 Restructuring Plan. Both amounts were included in restructuring and other special charges, net. As a result of the 2001 Restructuring Plan, we have realized overall cost reductions of $211 million as of December 28, 2003.

The following table summarizes activity under the 2001 Restructuring Plan through December 28, 2003:

Interest income and other, net, of approximately $21 million in 2003 decreased 34 percent from $32 million in 2002. The decrease was primarily due to a decrease in investment income of $16 million caused by lower cash equivalents and short-term investment balances and $2.3 million in charges in 2003 for other-than-temporary declines in our equity investments. This decrease was offset by a gain of approximately $6 million based on the difference between the carrying value and fair value of assets contributed by us to FASL LLC. Fujitsu now owns a 40 percent interest in these assets. The gain on the deemed sale of these assets to FASL LLC was limited to the difference in carrying value of our interest in the assets following the completion of the transaction and the carrying value of the assets immediately prior to the transaction.

Interest income and other, net, of $32 million increased $6 million or 23 percent in 2002 compared to $26 million in 2001. The increase was primarily due to $4.7 million in charges for other-than-temporary declines in our equity investments as compared to $27 million in charges in 2001, offset by a decrease of $20 million in interest income as a result of lower interest rates on our investment portfolio and lower cash equivalents and short term investment balances.

Interest expense of $110 million in 2003 increased 55 percent compared to $71 million in 2002. The increase was due primarily to the effect of our 4.50% Convertible Senior Notes due 2007 (4.50% Notes), issued in November 2002, which resulted in annual interest charges of $18 million, interest of $5 million on $110 million drawn at the end of September 2002 under our July 2003 Loan Agreement, and the FASL LLC transaction, which resulted in additional interest expense of approximately $9 million in 2003. In addition, in 2002 we capitalized interest of $10.7 million on continued expansion and facilitization of Fabs 25 and 30 compared to only $1.5 million in 2003.

Interest expense of $71 million in 2002 increased 16 percent compared to $61 million in 2001. The increase was due primarily to the effect of interest expense incurred on our 4.75% Convertible Senior Debentures Due 2022 (4.75% Debentures), issued in January 2002, which resulted in interest charges of $22 million, partially offset by an increase in capitalized interest associated with conversion of Fab 25 to a Flash memory facility, facilitization activities at Fab 30, and a decrease of $11 million in interest expense due to a partial repayment of the outstanding loans under the Dresden Loan Agreements in 2002.

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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:

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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Memory Products operating loss of $189 million in 2003 increased $30 million from 2002. Further quantification of the changes is not practical due to the consolidation of FASL LLC on June 30, 2003.

Memory Products operating loss was $159 million in 2002 compared to $268 million of operating income in 2001. The change in the operating result was primarily due to decrease in net sales of $392 million as a result of a 36 percent decline in average selling prices due to continued weakness in the Flash memory market.

Our All Other operating loss of $21 million in 2003 improved by $384 million compared to 2002, primarily due to $331 million of restructuring and other special charges included in the 2002 results, and a $14 million credit adjustment to the restructuring charge in 2003.

Our All Other operating loss of $405 million in 2002 increased by $270 million compared to 2001. The operating loss included $331 million of restructuring and other special charges in 2002 compared to approximately $89 million in 2001. The remaining increase of operating loss was primarily due to an increase in operating loss of Personal Connectivity Solutions products, partially offset by approximately $27 million of improvement of operating results in Foundry Services.

Financial Condition

Our cash, cash equivalents and short-term investments at December 28, 2003 totaled $1.1 billion, which included approximately $330 million in cash, cash equivalents, and short-term investments maintained by FASL LLC. FASL LLC’s operating agreement governs its ability to use this cash balance for operations or to distribute it to us and Fujitsu. Pursuant to the operating agreement, and subject to restrictions contained in third party loan agreements, FASL LLC must first distribute any cash balance to us and Fujitsu in an amount sufficient to cover each party’s estimated tax liability, if any, related to FASL LLC’s taxable income for each fiscal year. Any remaining cash balance after the tax liability distribution would be used by FASL LLC to fund its operations in accordance with its budget. If any cash remains, it must be used to repay FASL LLC’s outstanding debt to us and Fujitsu. Any remaining cash after such distributions is distributed at the discretion of FASL LLC’s Board of Managers, to us and Fujitsu, pro rata, based on each party’s membership interest at the time of distribution, which currently is 60 percent and 40 percent.

Net cash provided by operating activities was approximately $296 million in 2003. Although we had a net loss of $274 million for the year, adjustments for non-cash charges, which were primarily depreciation and amortization, resulted in a positive cash flow from operations. The net changes in operating assets in 2003 as compared to 2002 included an increase in accounts receivable due to higher net sales and the consolidation of FASL LLC’s results of operations, which include FASL LLC’s sales to Fujitsu, and an increase in net inventory due to the consolidation of FASL LLC’s results of operations. At December 28, 2003, Fujitsu accounted for approximately 31 percent of our consolidated net accounts receivable and approximately 13 percent of our consolidated net sales. The net changes in payables and accrued liabilities included payments in 2003 of $90 million for a technology license from IBM, approximately $64 million of payments in 2003 under the 2002 Restructuring Plan and an accrual of $29 million in December 2003 related to our license from IBM for technology and know-how related to manufacturing products on 300-millimeter silicon wafers.

Net cash used in operating activities was $120 million in 2002, primarily as a result of our net loss of $1,303 million, adjusted by non-cash related charges. Changes in operating assets and liabilities in 2002 as compared to 2001 were attributable to a decrease in accounts receivable due to a 31 percent decrease in net sales. At December 29, 2002, inventory increased as compared to December 29, 2001 due to an increase of products to support anticipated 2003 sales, a change in the mix of inventory, and the impact of Flash memory production from Fab 25 following its conversion from logic manufacturing.

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Net cash provided by operating activities was $168 million in 2001. Although we had a net loss of $61 million, adjustments for non-cash charges resulted in a positive cash flow from operations. These adjustments included: $623 million of depreciation and amortization expense, $82 million of restructuring charges, $27 million of impairment charges on equity investments and $10 million of provision for doubtful accounts, offset by non-cash credits of $98 million from net charges in deferred income taxes and foreign grant and subsidy income, and other uses of cash in operating activities of approximately $423 million due to net changes in operating assets and liabilities.

Net cash provided by investing activities was $83 million in 2003, primarily as a result of net cash inflow of $482 million from sales and purchases of available-for-sale securities, $148 million of cash acquired from the FASL LLC transaction and $30 million in proceeds from sale of property, plant and equipment, offset by $570 million used to purchase property, plant and equipment.

Net cash used in investing activities was $854 million in 2002, including $705 million used for purchases of property, plant and equipment primarily for Fab 30 and Fab 25, $27 million, net of cash acquired, to acquire Alchemy Semiconductor, Inc., and $131 million from net purchases of available-for-sale securities, offset by $9 million of proceeds from the sale of property, plant and equipment.

Net cash used in investing activities was $554 million in 2001, primarily due to $679 million used for the purchases of property, plant, and equipment, primarily for Fab 30 and our assembly and test facilities in Asia, and $122 million for additional equity investments in the Manufacturing Joint Venture, offset by $246 million of net proceeds from sales and maturities of available-for-sale securities.

Net cash provided by financing activities was $267 million in 2003, primarily due to $245 million received from equipment sale and leaseback transactions completed by FASL LLC, a $40 million cash note to FASL LLC from Fujitsu as part of the FASL LLC transaction, $155 million of capital investment allowances received from the Federal Republic of Germany as part of the Fab 30 project and $35 million of proceeds from sale of stock under our Employee Stock Purchase Plan and employee stock option exercises, offset by $141 million in payments on debt and capital lease obligations, and a $74 million increase in a compensating cash balance. The compensating cash balance represents the minimum cash balance that must be maintained by AMD Saxony in order to comply with the minimum liquidity covenant set forth in the Dresden Loan Agreements.

Net cash provided by financing activities was $907 million in 2002, primarily due to $486 million in proceeds, net of $14 million in debt issuance costs, from issuing our 4.75% Debentures, $391 million in proceeds, net of $11 million in debt issuance costs, from issuing our 4.50% Notes, $108 million drawn pursuant to the September 2002 Term Loan Agreement (currently referred to as the July 2003 FASL Term Loan), net of $2 million in debt issuance costs, $120 million drawn pursuant to the Loan and Security Agreement dated July 13, 1999 (currently referred to as the July 2003 Loan Agreement), $21 million in proceeds from equipment lease financing, $29 million in proceeds from the sale of stock under our Employee Stock Purchase Plan and employee stock option exercises, and $76 million of net capital investment allowances and interest subsidies received from the Federal Republic of Germany and the State of Saxony as part of the Fab 30 project. These amounts were offset by $325 million in payments on debt and capital lease obligations.

Net cash provided by financing activities was $141 million in 2001, primarily due to $63 million in proceeds from the issuance of notes payable to banks, $308 million drawn pursuant to the Dresden Loan Agreements, $38 million in capital investment allowances and interest subsidies received from the Federal Republic of Germany and the State of Saxony as part of the Fab 30 project, and $37 million in proceeds from the sale of stock under our Employee Stock Purchase Plan and employee stock option exercises, offset by $137 million in payments on debt and capital lease obligations, $77 million used to repurchase our common stock and a $91 million increase in the compensating cash balance discussed above.

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Notes Payable to Banks

On July 7, 2003, we amended and restated our 1999 Loan and Security Agreement with a consortium of banks led by a domestic financial institution (the July 2003 Loan Agreement). We further amended the July 2003 Loan Agreement on October 3, 2003. The July 2003 Loan Agreement currently provides for a secured revolving line of credit of up to $125 million that expires in July 2007. We can borrow, subject to amounts set aside by the lenders, up to 85 percent of our eligible accounts receivable from OEMs and 50 percent of our eligible accounts receivable from distributors. As of December 28, 2003, no amount was outstanding under the July 2003 Loan Agreement. We have to comply, among other things, with the following financial covenants if our net domestic cash (as defined in the July 2003 Loan Agreement) declines below $125 million:

As of December 28, 2003, net domestic cash, as defined, totaled $567 million and the preceding financial covenants were not applicable. Our obligations under the July 2003 Loan Agreement are secured by all of our accounts receivable, inventory, general intangibles (excluding intellectual property) and the related proceeds, excluding FASL LLC’s accounts receivable, inventory, and general intangibles.

Contractual Cash Obligations and Guarantees

The following tables summarize our principal contractual cash obligations that are recorded on our consolidated balance sheets and principal guarantees of such indebtedness at December 28, 2003, and are supplemented by the discussion following the tables.

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Principal contractual cash obligations that are recorded on our consolidated balance sheets at December 28, 2003 were:

Guarantees of Indebtedness Recorded on our Consolidated Balance Sheets

The following table summarizes the principal guarantees issued as of December 28, 2003 related to underlying liabilities that are already recorded on our consolidated balance sheets as of December 28, 2003 and their expected expiration dates by year:

4.75% Convertible Senior Debentures Due 2022

On January 29, 2002, we issued $500 million of our 4.75% Convertible Senior Debentures Due 2022 (the 4.75% Debentures) in a private offering pursuant to Rule 144A and Regulation S of the Securities Act.

The interest rate payable on the 4.75% Debentures will reset on August 1, 2008, August 1, 2011 and August 1, 2016 to a rate per annum equal to the interest rate payable 120 days prior to the reset dates on 5-year U.S. Treasury Notes, plus 43 basis points. The interest rate will not be less than 4.75 percent and will not exceed 6.75 percent. Holders have the right to require us to repurchase all or a portion of our 4.75% Debentures on February 1, 2009, February 1, 2012, and February 1, 2017. The holders of the 4.75% Debentures also have the ability to require us to repurchase the 4.75% Debentures in the event that we undergo specified fundamental changes, including a change of control. In each such case, the redemption or repurchase price would be 100 percent of the principal amount of the 4.75% Debentures plus accrued and unpaid interest. The 4.75% Debentures are convertible by the holders into our common stock at a conversion price of $23.38 per share at any

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time. At this conversion price, each $1,000 principal amount of the 4.75% Debentures will be convertible into approximately 43 shares of our common stock. Issuance costs incurred in the amount of approximately $14 million are amortized ratably, which approximates the effective interest method, over the term of the 4.75% Debentures, as interest expense.

Beginning on February 5, 2005, the 4.75% Debentures are redeemable by us for cash at specified prices expressed as a percentage of the outstanding principal amount plus accrued and unpaid interest at our option, provided that we may not redeem the 4.75% Debentures prior to February 5, 2006, unless the last reported sale price of our common stock is at least 130 percent of the then effective conversion price for at least 20 trading days within a period of 30 consecutive trading days ending within five trading days of the date of the redemption notice.

The redemption prices for the specified periods are as follows:

We may elect to purchase or otherwise retire our bonds with cash, stock or assets from time to time in open market or privately negotiated transactions, either directly or through intermediaries when we believe that market conditions are favorable to do so. Such purchases may have a material effect on our liquidity, financial condition and results of operations.

4.50% Convertible Senior Notes Due 2007

On November 25, 2002, we sold $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 is payable semiannually in arrears on June 1 and December 1 of each year, beginning June 1, 2003. Beginning on December 4, 2005, the 4.50% Notes are redeemable by us at our option for cash at specified prices expressed as a percentage of the outstanding principal amount plus accrued and unpaid interest provided that we may not redeem the 4.50% Notes unless the last reported sale price of our common stock is at least 150 percent of the then effective conversion price for at least 20 trading days within a period of 30 trading days ending within five trading days of the date of the redemption notice.

The redemption prices for the specified periods are as follows:

The 4.50% Notes are convertible at the option of the holder at any time prior to the close of business on the business day immediately preceding the maturity date of December 1, 2007, unless previously redeemed or repurchased, into shares of common stock at a conversion price of $7.37 per share, subject to adjustment in certain circumstances. At this conversion price, each $1,000 principal amount of the 4.50% Notes will be convertible into approximately 135 shares of our common stock. Issuance costs incurred in the amount of approximately $12 million are amortized ratably, over the term of the 4.50% Notes, as interest expense, approximating the effective interest method.

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Holders have the right to require us to repurchase all or a portion of our 4.50% Notes in the event that we undergo specified fundamental changes, including a change of control. In each such case, the redemption or repurchase price would be 100 percent of the principal amount of the 4.50% Notes plus accrued and unpaid interest.

Dresden Term Loan and Dresden Term Loan Guarantee

AMD Saxony, our indirect, wholly owned German subsidiary, continues to facilitize Fab 30, which began production in the second quarter of 2000. AMD, the Federal Republic of Germany, the State of Saxony and a consortium of banks are providing financing for the project. We currently estimate that the construction and facilitization costs of Fab 30 will be $2.5 billion when it is fully equipped by the end of 2005. As of December 28, 2003, we had invested $2.3 billion in AMD Saxony and we currently estimate that during 2004 we will invest approximately $160 million.

In March 1997, AMD Saxony entered into a loan agreement and other related agreements (the Dresden Loan Agreements) with a consortium of banks led by Dresdner Bank AG, a German financial institution, in order to finance the project. AMD Saxony has pledged substantially all of its property as security under the Dresden Loan Agreements. The Dresden Loan Agreements were amended in February 2004 to accommodate the construction, facilitization, and operation of Fab 36.

Because most of the amounts under the Dresden Loan Agreements are denominated in deutsche marks (converted to euros), the dollar amounts are subject to change based on applicable exchange rates. We used the exchange rate that was permanently fixed on January 1, 1999, of 1.95583 deutsche marks to one euro for the conversion of deutsche marks to euros, and then used exchange rate as of December 28, 2003, of 0.804 euro to one U.S. dollar to translate the amounts denominated in deutsche marks into U.S. dollars.

The Dresden Loan Agreements, as amended, provide for the funding of the construction and facilitization of Fab 30. The funding consists of:

The Dresden Loan Agreements require that we partially fund Fab 30 project costs in the form of subordinated and revolving loans to, or equity investments in, AMD Saxony. In accordance with the terms of the Dresden Loan Agreements, as of December 28, 2003 we had provided $179 million of subordinated loans and $286 million of equity investments in AMD Saxony. These amounts have been eliminated in our consolidated financial statements.

In addition to support from us, the consortium of banks referred to above made available $954 million in loans to AMD Saxony to help fund Fab 30 project costs. The loans have been fully drawn and a portion has been repaid. AMD Saxony had $664 million of such loans outstanding as of December 28, 2003, which are included in our consolidated balance sheet.

Finally, pursuant to a Subsidy Agreement, the Federal Republic of Germany and the State of Saxony are supporting the Fab 30 project, in accordance with the Dresden Loan Agreements, in the form of:

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Of these amounts, AMD Saxony received approximately $412 million in capital investment grants and allowances and $131 million in interest subsidies. In addition, AMD Saxony has received advance payments for interest subsidies amounting to $22 million as of December 28, 2003. AMD Saxony also received $55 million in research and development subsidies through December 28, 2003. Amounts received under the Subsidy Agreement are recorded as a long-term liability on our financial statements and are being amortized to operations ratably over the contractual life of the Subsidy Agreement as a reduction to operating expenses through December of 2008. Historical exchange rates in effect at the time these investment grants and allowances and interest subsidies were received were used to translate amounts denominated in deutsche marks (converted to euros) into U.S. dollars.

Under the Subsidy Agreement, for the construction and financing of Fab 30, AMD Saxony undertook to attain a certain employee headcount by December 2003 and to maintain such headcount until December 2008. Noncompliance with the conditions of the grants, allowances and subsidies contained in the Subsidy Agreement could result in the forfeiture of all or a portion of the future amounts to be received, as well as the repayment of all or a portion of amounts received to date. In December 2002, AMD Saxony reduced its anticipated employment levels as a result of the 2002 Restructuring Plan. Consequently, as of December 2003, headcount was below the level agreed to by AMD Saxony at which AMD Saxony would be entitled to receive the maximum amount of capital investment grants and allowances available. However, the aggregate amount of grants and allowances actually received by AMD Saxony to date, calculated as a percentage of the maximum amount of grants and allowances available, does not exceed the actual headcount at AMD Saxony at December 2003, calculated as a percentage of the headcount target undertaken in the Subsidy Agreement. Accordingly, AMD Saxony does not believe it has received grants and allowances in excess of its entitlement under the Subsidy Agreement. However, we anticipate that the maximum amount of capital investment grants and allowances available under the Subsidy Agreement will be reduced from an originally anticipated amount of $517 million to approximately $453 million. We adjusted the quarterly amortization of these amounts accordingly.

The Dresden Loan Agreements, as amended, also require that we:

As AMD Saxony’s obligations under the Dresden Loan Agreements are included in our consolidated financial statements, no incremental liability is recorded under the Dresden guarantee.

AMD Saxony would be in default under the Dresden Loan Agreements if we, AMD Saxony or AMD Saxony Holding GmbH (AMD Holding) fail to comply with certain obligations thereunder or upon the occurrence of certain events and if, after the occurrence of the event, the lenders determine that their legal or risk position is materially adversely affected. Circumstances that could result in a default include:

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Generally, any default with respect to borrowings made or guaranteed by AMD that results in recourse to us of more than $2.5 million, and that is not cured by us, would result in a cross-default under the Dresden Loan Agreements. As of December 28, 2003, we were in compliance with all conditions of the Dresden Loan Agreements.

In the event we are unable to meet our obligations to AMD Saxony as required under the Dresden Loan Agreements and the lenders determine that their legal or risk position is materially adversely affected, we will be in default under the Dresden Loan Agreements, which would permit acceleration of the outstanding loans of approximately $664 million. The occurrence of a default under these agreements would likely result in a cross-default under the Indentures governing our 4.75% Debentures and 4.50% Notes. We cannot assure that we would be able to obtain the funds necessary to fulfill these obligations. Any such failure would have a material adverse effect on us.

July 2003 FASL Term Loan and Guarantee

On July 11, 2003, we amended our September 2002 Loan Agreement and assigned it to FASL LLC. Under the Amended and Restated Term Loan Agreement (the July 2003 FASL Term Loan), amounts borrowed bear interest at a variable rate of LIBOR plus four percent, which was 5.14 percent at December 28, 2003. Repayment occurs in equal, consecutive, quarterly principal and interest installments ending in September 2006. As of December 28, 2003, $72.5 million was outstanding under the July 2003 FASL Term Loan, of which 60 percent is guaranteed by us and 40 percent is guaranteed by Fujitsu. FASL LLC has granted a security interest in certain property, plant and equipment as security under the July 2003 FASL Term Loan.

The July 2003 FASL Term Loan Agreement restricts FASL LLC’s ability to pay cash dividends in respect of membership interests if FASL LLC’s net domestic cash balance (as defined in the July 2003 FASL Term Loan) declines below $130 million through the first quarter of 2004, $120 million from the second quarter of 2004 to the end of 2005 and $100 million during 2006. FASL LLC must also comply with additional financial covenants if its net domestic cash balance declines below $130 million through the first quarter of 2004, $120 million from the second quarter of 2004 to the end of 2005 and $100 million during 2006. At any time that net domestic cash falls below these thresholds, FASL LLC must comply with, among other things, the following financial covenants:

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At December 28, 2003, FASL LLC’s net domestic cash totaled $208 million, and the preceding financial covenants were not applicable.

FASL JAPAN Term Loan and Guarantee

Because most amounts under the FASL JAPAN Term Loan are denominated in yen, the dollar amounts are subject to change based on applicable exchange rates. We used the exchange rate as of December 28, 2003 of 107.19 yen to one U.S. dollar to translate the amounts denominated in yen into U.S. dollars.

As a result of the FASL LLC transaction, the Manufacturing Joint Venture’s third-party loans were refinanced from the proceeds of a term loan in the aggregate principal amount of 18 billion yen (approximately $168 million on December 28, 2003) entered into between FASL JAPAN and a Japanese financial institution. Under the agreement, the amounts borrowed bear an interest rate of TIBOR plus a spread that is determined by Fujitsu’s current debt rating and FASL JAPAN’s non-consolidated net asset value as of the last day of its fiscal year. The interest rate was 0.98 percent as of December 28, 2003. Repayment occurs in equal, consecutive, quarterly principal installments ending in June 2007. FASL JAPAN’s assets are pledged as security for its borrowings under this agreement. Also, Fujitsu guaranteed 100 percent of the amounts outstanding under this facility. We agreed to reimburse Fujitsu 60 percent of any amount paid by Fujitsu under its guarantee of this loan. Under this loan agreement, FASL JAPAN is required to comply with the following financial covenants:

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As of December 28, 2003, FASL JAPAN was in compliance with these financial covenants.

Fujitsu Cash Note

As a result of the FASL LLC transaction, Fujitsu also loaned $40 million to FASL LLC pursuant to a promissory note. The note bears an interest rate of LIBOR plus four percent, which was 5.14 percent as of December 28, 2003, and has a term of three years. The note is repayable in four equal payments, including interest, on September 30, 2005, December 31, 2005, March 31, 2006 and June 30, 2006.

Capital Lease Obligations

On July 16, 2003, FASL JAPAN entered into a sale-leaseback transaction for certain equipment with a third-party financial institution in the amount of 12 billion yen (approximately $100 million on July 16, 2003) in cash proceeds. Upon execution of the agreement, the equipment had a net book value of approximately $168 million. As the term on the leaseback transaction is more than 75 percent of the remaining economic lives of the equipment, we are accounting for the transaction as a capital lease. We recognized an immediate loss of $16 million on the transaction due to the fact that the fair market value of the equipment was less than its net book value at the time of the transaction. We also recorded a deferred loss of approximately $52 million which is being amortized over the term of the lease in proportion to the amortization of the underlying leased assets. We guaranteed 50 percent of the outstanding obligations, under the lease arrangement. As of December 28, 2003, the outstanding lease obligations under this agreement were approximately $86 million. In addition, FASL LLC and its subsidiaries also entered into other capital lease and leaseback transactions during the third quarter of 2003, which resulted in additional capital lease obligations of $159 million as of December 28, 2003. Accordingly, as of December 28, 2003, FASL LLC had aggregate outstanding capital lease obligations of approximately $245 million. Obligations under these lease agreements are collateralized by the assets leased and are payable through 2007. Leased assets consist principally of machinery and equipment. We guaranteed approximately $147 million of FASL LLC’s aggregate outstanding capital lease obligations as of December 28, 2003.

Other Long-term Liabilities

Included in other long-term liabilities as of December 28, 2003 is approximately $99 million of restructuring accrual that will be paid through 2011 and approximately $18 million in customer cash deposits related to multi-year supply agreements for Spansion Flash memory products that will be paid through 2005, which guarantee customers’ purchases of these products. Excluded from contractual cash obligations is approximately $263 million of deferred grants and subsidies related to the Fab 30 project and a $23 million deferred gain as a result of the sale and leaseback of our corporate marketing, general and administrative facility in Sunnyvale, California in 1998, as these liabilities do not require cash payments.

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Principal contractual cash obligations that are not recorded on our consolidated balance sheets at December 28, 2003 were: