Intel 1997 Annual Report Download - page 67

of equity investments. Although the Company had higher average investment balances in 1996 than in 1995, interest and other income
decreased by $9 million from 1995 to 1996, primarily due to the offsetting effect of $118 million in unusual gains in 1995.
The Company's effective income tax rate decreased to 34.8% in 1997 compared to 35.0% and 36.8% in 1996 and 1995, respectively.
Financial condition
The Company's financial condition remains very strong. As of December 27, 1997, total cash, trading assets and short- and long-term
investments totaled $11.8 billion, up from $9.3 billion at December 28, 1996. Cash generated from operating activities rose to $10.0 billion in
1997, compared to $8.7 billion and $4.0 billion in 1996 and 1995, respectively.
The Company used $6.9 billion in cash for investing activities during 1997, compared to $5.3 billion during 1996 and $2.7 billion during 1995,
as operating activities generated significantly more cash during 1997. Capital expenditures totaled $4.5 billion in 1997, as the Company
continued to invest in property, plant and equipment, primarily for microprocessor manufacturing capacity. The Company had committed
approximately $3.3 billion for the construction or purchase of property, plant and equipment as of December 27, 1997. See "Outlook" for a
discussion of capital expenditure expectations in 1998.
Inventory levels, particularly work in process and finished goods, increased significantly in 1997. This increase was primarily attributable to
the ramp of the Pentium II processor and the related higher level of purchased components on the SEC cartridge. The decrease in accounts
receivable in 1997 was mainly due to improved receivable collections and higher revenues in geographic regions with faster payment patterns.
The Company's five largest customers accounted for approximately 39% of net revenues for 1997, and one customer accounted for 12% of
revenues. No customers accounted for more than 10% of revenues in 1996 and 1995. At December 27, 1997, the five largest customers
accounted for approximately 34% of net accounts receivable.
The Company used $3.2 billion for financing activities in 1997, compared to $773 million and $1.1 billion in 1996 and 1995, respectively. The
major financing applications of cash in 1997 were for repurchase of 43.6 million shares of Common Stock for $3.4 billion and a $300 million
repayment under a private reverse repurchase arrangement. The major financing applications of cash in 1996 and 1995 were for stock
repurchases totaling $1.3 billion (including $108 million for exercised put warrants) and $1.0 billion, respectively. Financing sources of cash
during 1997 included $357 million in proceeds from the sale of shares primarily pursuant to employee stock plans ($261 million in 1996 and
$192 million in 1995). Financing sources in 1996 also included $300 million under the private reverse repurchase arrangement.
As part of its authorized stock repurchase program, the Company had outstanding put warrants at the end of 1997, with the potential obligation
to buy back 26.3 million shares of its Common Stock at an aggregate price of $2.0 billion. The exercise price of these warrants ranged from
$68 to $95 per share, with an average exercise price of $78 per share as of December 27, 1997.
Other sources of liquidity include authorized commercial paper borrowings of $700 million. The Company also maintains the ability to issue an
aggregate of approximately $1.4 billion in debt, equity and other securities under Securities and Exchange Commission shelf registration
statements.
In January 1998, the Company acquired the outstanding shares of Chips and Technologies, Inc. of San Jose, California, for approximately $430
million.
On October 27, 1997, the Company and Digital Equipment Corporation ("Digital") announced that they have agreed to establish a broad-based
business relationship. Under the agreement, Intel will purchase Digital's semiconductor operations, including facilities in Hudson,
Massachusetts as well as development operations in Jerusalem, Israel and Austin, Texas for approximately