NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

June 29, 2003

The accompanying unaudited condensed consolidated financial statements of Advanced Micro Devices, Inc. (the Company or AMD) have been prepared in accordance with generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. The results of operations for the interim periods shown in this report are not necessarily indicative of results to be expected for the full fiscal year ending December 28, 2003. In the opinion of the Company’s management, the information contained herein reflects all adjustments necessary to make the results of operations for the interim periods a fair statement of such operations. All such adjustments are of a normal recurring nature. The interim financial statements should be read in conjunction with the financial statements in the Company’s Annual Report on Form 10-K for the year ended December 29, 2002. Certain prior period amounts have been reclassified to conform to the current period presentation.

The Company uses a 52- to 53- week fiscal year ending on the last Sunday in December. The quarters ended June 29, 2003 and June 30, 2002 each included 13 weeks. The six months ended June 29, 2003 and June 30, 2002 each included 26 weeks.

In January 2003, the Financial Accounting Standards Board issued Interpretation No. 46, “Consolidation of Variable Interest Entities” (FIN 46). Variable interest entities often are created for a single specified purpose, for example, to facilitate securitization, leasing, hedging, research and development, or other transactions or arrangements. This interpretation of Accounting Research Bulletin No. 51, “Consolidated Financial Statements,” defines what these variable interest entities are and provides guidelines on identifying them and assessing an enterprise’s interests in a variable interest entity to decide whether to consolidate that entity. Generally, FIN 46 applies to variable interest entities created after January 31, 2003 and to variable interest entities in which an enterprise obtains an interest after that date. For existing variable interest entities in which an enterprise holds a variable interest that it acquired before February 1, 2003, the provision of this interpretation will apply no later than the beginning of the first interim or annual reporting period beginning after June 15, 2003. The Company does not expect the adoption of FIN 46 to have a material impact on the Company’s results of operations or financial condition.

In May 2003, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity,” (SFAS 150) which addresses how to classify and measure certain financial instruments with characteristics of both liabilities (or an asset in some circumstances) and equity – as either debt or equity in the balance sheet. SFAS 150 requirements apply to issuers’ classification and measurement of freestanding financial instruments, including those that comprise more than one option or forward contract. SFAS 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The Company does not expect the adoption of SFAS 150 to have a material impact on the Company’s results of operations or financial condition.

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The Company uses the intrinsic value method to account for stock options issued to its employees under its stock option plans and amortizes deferred compensation, if any, over the vesting period of the options. Compensation expense resulting from the issuance of fixed term stock option awards is measured as the difference between the exercise price of the option and the fair market value of the underlying share of company stock subject to the option on the award’s grant date. For purposes of pro forma disclosures, the Company estimates the fair value of its stock-based awards to employees using a Black-Scholes option pricing model. The pro forma effect on net earnings and net earnings per share are as follows for the quarters and six-month periods ended June 29, 2003 and June 30, 2002.

On June 27, 2003, the Company filed a Tender Offer Statement with the SEC, and made an offer, which was approved by the Company’s stockholders, to exchange certain stock options to purchase shares of the Company’s common stock, outstanding under eligible option plans and held by eligible employees, for replacement options to be granted no sooner than six months and one day from the cancellation of the surrendered options. The offer to exchange expired on July 25, 2003. Options to purchase approximately 19.0 million shares of the Company’s common stock were tendered for exchange and cancelled on July 28, 2003. Subject to the terms of the offer to exchange, the Company will grant replacement options to purchase approximately 13.4 million shares of its common stock on or after January 29, 2004, in exchange for the options cancelled in the offer to exchange. The Company does not expect to record any compensation expense as the result of the transactions contemplated by this offer to exchange.

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The following is a summary of the available-for-sale securities held by the Company as of June 29, 2003:

Long-term equity investments consist of marketable equity securities that, while available for sale, are not intended to be used to fund current operations.

The amortized cost and estimated fair value of available-for-sale marketable debt securities (short-term investments) at June 29, 2003, by contractual maturity, are shown below. Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations without call or prepayment penalties.

Available-for-sale securities with maturities greater than twelve months are classified as short-term when they include investments of cash that are intended to be used in current operations. The Company realized net gains from the sale of available-for-sale securities in the first six months of 2003 of $3.7 million, which was included in interest and other income, net.

At June 29, 2003 and December 29, 2002, the Company had approximately $12 million and $13 million of investments classified as held to maturity, consisting of commercial paper and treasury notes used for long-term workers compensation and leasehold deposits that were included in Other Assets. The fair value of the investments approximated cost at June 29, 2003 and December 29, 2002.

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Included in cash and cash equivalents is a compensating balance of $200 million, which AMD Saxony is required to keep at all times through June 29, 2005 in an account with Dresdner Bank AG in connection with the Dresden Loan Agreements (as defined in Note 10). Also included in cash and cash equivalents is $33 million of restricted cash associated with the advance receipt of interest subsidies from the Federal Republic of Germany and the State of Saxony in connection with the Dresden Loan Agreements. Restrictions over the Company’s access to the restricted cash will lapse as the Company incurs qualifying interest expense on the Dresden term loans over the next four quarters.

Potential dilutive common shares include shares issuable upon the exercise of outstanding employee stock options and the conversion of outstanding convertible notes and debentures. As the Company incurred net losses for all periods presented, diluted net loss per common share is the same as basic net loss per common share. Potential dilutive common shares of approximately 77 million and 24 million for the three months ended June 29, 2003 and June 30, 2002 and 76 million and 23 million for the six months ended June 29, 2003 and June 30, 2002 were not included in the net loss per common share calculation, as their inclusion would have been antidilutive.

In 1993, the Company formed a joint venture with Fujitsu Limited, Fujitsu AMD Semiconductor Limited (formerly referred to as FASL and currently referred to as the Manufacturing Joint Venture), for the development and manufacture of non-volatile memory devices (See Note 12). The Manufacturing Joint Venture operated advanced integrated circuit manufacturing facilities in Aizu-Wakamatsu, Japan, to produce Flash memory devices, which were sold to the Company and Fujitsu. The Company’s Fab 25 in Austin, Texas, produced Flash memory devices for sale to the Manufacturing Joint Venture. The Company’s share of the Manufacturing Joint Venture was 49.992 percent and the investment was accounted for under the equity method prior to June 29, 2003. The Company’s share of the Manufacturing Joint Venture after tax net income during the second quarter of 2003 was $4.8 million. At June 29, 2003, the cumulative adjustment related to the translation of the Manufacturing Joint Venture financial statements into U.S. dollars resulted in a decrease in the investment in the Manufacturing Joint Venture of $0.5 million.

The following tables present the significant related party transactions and balances of the Manufacturing Joint Venture, which were included in the Company’s unaudited condensed consolidated financial statements:

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As of June 29, 2003, the Company had $74 million in loan guarantees outstanding with respect to third-party loans incurred by the Manufacturing Joint Venture. As a result of the execution of the FASL LLC agreements with Fujitsu, which resulted in the integration of the Company’s and Fujitsu’s flash memory operations in the third quarter, these third party loans were refinanced and the existing guarantees had expired (See Note 12).

The following is condensed unaudited financial data of the Manufacturing Joint Venture:

The Company’s share of the Manufacturing Joint Venture net income differs from the equity in net income of the Manufacturing Joint Venture reported on the condensed consolidated statements of operations. The difference is due to adjustments resulting from the intercompany profit eliminations and differences in U.S. and Japanese tax treatment of the Manufacturing Joint Venture income, which are reflected on the Company’s consolidated statements of operations. The Company has never received cash dividends from its investment in the Manufacturing Joint Venture.

In 2000, the Manufacturing Joint Venture further expanded its production capacity through a foundry arrangement with Fujitsu Microelectronics, Inc. (FMI), a wholly owned subsidiary of Fujitsu Limited. In connection with FMI equipping its wafer fabrication facility in Gresham, Oregon, (the Gresham Facility) to produce Flash memory devices for sale to the Manufacturing Joint Venture, the Company agreed to guarantee the repayment of up to $125 million of Fujitsu’s obligations as a co-signer with FMI under its global multicurrency revolving credit facility (the Credit Facility) with a third-party bank (the Guarantee). In 2001, Fujitsu closed the Gresham Facility due to the downturn of the Flash memory market. The Company disagreed with Fujitsu as to the amount, if any, owed under this Guarantee and has reached a settlement, subject to final internal approval by Fujitsu, which would result in a cash payment by the Company to Fujitsu. The settlement amount is immaterial to the Company’s financial statements, and was recorded in the Company’s statement of operations for the second quarter ended June 29, 2003.

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AMD operated in two reportable segments during the quarter and six months ended June 29, 2003: the Core Products segment, which reflects the aggregation of the PC processor, memory products and Other IC products operating segments, and the Foundry Services segment. The aggregation of the Company’s operating segments into the Company’s reporting segments was made pursuant to the aggregation criteria set forth in Statement of Financial Accounting Standards No. 131 (SFAS 131). The Core Products segment includes microprocessors, Flash memory devices, Erasable Programmable Read-Only Memory (EPROM) devices, embedded processors, platform products, personal connectivity solutions products and networking products. The Foundry Services segment includes the sale of products to Legerity, Inc. and Vantis Corporation, the Company’s former voice communications products and programmable logic products subsidiaries. The Company terminated its foundry service arrangements with Legerity in the third quarter of 2002 and will terminate its foundry service arrangements with Vantis in the third quarter of 2003. The Company evaluates performance and allocates resources based on these segments’ operating income (loss).

The following table is a summary of sales and operating income (loss) by segment with reconciliation to net loss for the quarters and six months ended June 29, 2003 and June 30, 2002:

The following are the components of comprehensive loss:

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The components of accumulated other comprehensive income are as follows:

2002 Restructuring Plan

In December 2002, the Company began implementing a restructuring plan (the 2002 Restructuring Plan) to align its cost structure to industry conditions resulting from weak customer demand and industry-wide excess inventory. The 2002 Restructuring Plan will result in the reduction of approximately 2,000 positions or 15 percent of the Company’s employees, affecting all levels of its workforce in almost every organization. As part of this plan, and as a result of the Company’s technology agreement with IBM to develop future generations of the Company’s logic process technology, the Company has ceased its silicon processing associated with logic research and development in its Submicron Development Center (SDC) in Sunnyvale, California and has eliminated most of those related resources, including the sale or abandonment of certain equipment used in the SDC.

The 2002 Restructuring Plan has resulted in the consolidation of facilities, primarily at the Company’s Sunnyvale, California site and at sales offices worldwide. The Company is in the process of vacating, and attempting to sublease, certain facilities currently occupied under long-term operating leases. The Company has 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, the Company 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 had 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 primarily related to vacating and consolidating the Company’s facilities and $55.5 million resulting from the abandonment of partially completed ERP software and other information technology implementation activities.

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The Company expects to substantially complete the activities associated with the 2002 Restructuring Plan by the end of December 2003. As of June 29, 2003, 1,429 employees had been terminated pursuant to the 2002 Restructuring Plan resulting in cumulative cash payments of $47 million for severance and employee benefit costs.

During the first quarter of 2003, management approved the sale of additional equipment, primarily equipment used in the SDC, that had been identified as no longer useful in the Company’s operations. As a result, the Company 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 equipment’s sale.

The following table summarizes activities under the 2002 Restructuring Plan through June 29, 2003:

2001 Restructuring Plan

In 2001, the Company announced a restructuring plan (the 2001 Restructuring Plan) due to the continued slowdown in the semiconductor industry and a resulting decline in revenues. The Company has substantially completed its execution of the 2001 Restructuring Plan, with the exception of the facilities and equipment decommission activities, which are expected to be completed by the end of 2003. During the first quarter of 2003, the Company reduced the estimated accrual of the facility and equipment decommission costs by $7.4 million based on the most current information available. During the first quarter, the Company also realized a recovery of approximately $1.6 million from the sale of equipment impaired as a result of the 2001 Restructuring Plan, previously held-for-sale at amounts in excess of its initially estimated fair value. Both amounts were included in restructuring and other special charges, net.

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The following table summarizes activities under the 2001 Restructuring Plan during the six months ended June 29, 2003:

As of June 29, 2003 and December 29, 2002, $107 million and $113 million of the total restructuring accruals of $161 million and $213 million were included in Other Liabilities (long-term) on the balance sheets. (See Note 11.)

The Company accounts for guarantees in accordance with FIN 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” The following table summarizes guarantees that the Company has issued as of June 29, 2003: