AMD 1997 Annual Report Download - page 23

Marketing, general and administrative expenses increased in 1997, primarily
due to higher advertising and marketing expenses associated with the
introduction of the AMD-K6 microprocessor. Additionally, business systems
expenses increased due to new system installation and system upgrade expenses.
The decrease from 1995 to 1996 was primarily due to the cessation of expenses
associated with products from NexGen, which the Company no longer offers,
coupled with effective expense controls.
Interest income and other, net decreased in 1997 due to realized gains in
1996 of approximately $41 million from equity securities sales, which were
partially offset by higher interest income in 1997 as a result of higher cash
balances. The increase from 1995 to 1996 was due to realized gains of
approximately $41 million from equity securities sold during 1996, which were
partially offset by lower interest income as a result of lower cash balances
and lower interest rates during 1996. Interest expense increased in all cases
due to increasing debt balances, including the Company's $400 million Senior
Secured Notes sold in August 1996 and the $250 million four-year secured term
loan entered into in January 1997. The 1997 increase is partially offset by
higher capitalized interest related to the second phase of construction of Fab
25 and construction of Dresden Fab 30.
INCOME TAX
The Company recorded tax benefits of $55 million and $85 million in 1997 and
1996, respectively, resulting in an effective tax benefit rate of
approximately 55 percent and 41 percent in 1997 and 1996, respectively. The
income tax rate was approximately 28 percent for 1995. The higher tax benefit
rate in 1997 is attributable to higher state tax benefits and increased
relative foreign tax benefits. Realization of the Company's net deferred tax
assets ($64 million at December 28, 1997) is dependent on future taxable
income. While the Company believes that it is more likely than not that such
assets will be realized, other factors, including those mentioned in the
discussion of Risk Factors, may impact the ultimate realization of such
assets.
OTHER ITEMS
International sales were 57, 53 and 56 percent of total sales in 1997, 1996
and 1995, respectively. During 1997, approximately 12 percent of the Company's
net sales were denominated in foreign currencies. The Company does not have
sales denominated in local currencies in those countries which have highly
inflationary economies. (A highly inflationary economy is defined in
accordance with the Statement of Financial Accounting Standards No. 52 as one
in which the cumulative inflation over a three-year consecutive period
approximates 100 percent or more.) While, to date, the impact on sales of the
economic crisis in Asia has been immaterial, the Company has recently
experienced slightly lower than expected demand in Asia, primarily in its
telecommunication products. The impact on the Company's operating results from
changes in foreign currency rates individually and in the aggregate has not
been material.
FINANCIAL CONDITION
Cash flow from operating activities was approximately $399 million in 1997,
compared to $89 million and $545 million in 1996 and 1995, respectively. Net
operating cash flows in 1997 increased year over year due to a reduction in
net loss of $48 million combined with increases in non-cash adjustments to net
loss of $143 million and an increase in the net change in operating assets and
liabilities of $119 million. The increased non-cash adjustments resulted
primarily from increased depreciation and amortization, a reduction in net
gain on the sale of available-for-sale securities and a reduction in
undistributed income of joint venture. The increase in the net change in
operating assets and liabilities resulted from an increase in payables and
recovery of tax refund receivables offset in part by increases in accounts
receivable, prepaid expenses and inventories.
Investing activities consumed $633 million in cash during 1997,
substantially all of which consisted of capital expenditures, compared to $276
million and $706 million in 1996 and 1995, respectively. Capital expenditures
totaled $685 million in 1997, up from $485 million in 1996, as the Company
continued to invest in property, plant and equipment primarily for Fab 25 and
Dresden Fab 30. Capital expenditures in 1996 were offset by net proceeds from
the sale of short-term investments of approximately $207 million. Investing
activities in
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Source: ADVANCED MICRO DEVIC, 10-K405, March 03, 1998