AMD 1998 Annual Report Download - page 214

The AMD segment's operating loss increased in 1998 compared to 1997 primarily
due to a significant increase in fixed costs associated with microprocessor
products, as well as increased costs for research and development related to
Dresden Fab 30 and the Motorola alliance and depreciation expense and labor
costs associated with the installation of new order management and accounts
receivable systems and related software upgrades. These increases in expenses
were partially offset by higher net sales in the AMD segment. The AMD segment's
operating loss decreased in 1997 compared to 1996 primarily due to increased AMD
segment net sales. This increase in net sales was partially offset by increases
in research and development expenses as well as advertising and marketing
expenses for the introduction of the AMD-K6 microprocessor.
The Vantis segment's operating income decreased in 1998 compared to 1997 due to
a decrease in unit shipments, lower average selling prices of SPLD products and
higher spending on software and product development. This decrease in net sales
was partially offset by a decrease in costs and expenses as a result of reduced
manufacturing activity in response to lower demand for SPLDs coupled with lower
per unit wafer fabrication expenses and lower marketing, general and
administrative expenses. Despite a decrease in net sales, the Vantis segment's
operating income increased in 1997 compared to 1996 due to the transfer of
manufacturing activity from the SDC to other production facilities, where
production costs were lower. In addition, research and development expenses in
1997 decreased from 1996.
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Financial Condition
Cash flow from operating activities was $144 million in 1998 compared to $399
million in 1997 and $89 million in 1996. Net operating cash flows in 1998
decreased $254 million year over year primarily due to an increase in net loss
of $83 million combined with a decrease in the net change in operating assets
and liabilities of $153 million and a decrease in net non-cash adjustments to
net loss of $18 million. The decrease in the net change in operating assets and
liabilities was primarily due to a lower increase in payables and accrued
liabilities in 1998 compared to 1997. The decrease in net non-cash adjustments
to net loss was primarily due to a larger increase in deferred income taxes in
1998 compared to 1997. This decrease was partially offset by an increase in
depreciation and amortization in 1998.
Investing activities consumed $998 million in cash during 1998 compared to $633
million in 1997 and $276 million in 1996. Substantially all of our net investing
activities in 1998 consisted of capital expenditures. Capital expenditures
increased in 1998 compared to 1997 due to continued investment in property,
plant and equipment primarily for Fab 25 and Dresden Fab 30. Capital
expenditures of $485 million in 1996 were offset by net proceeds from the sale
of short-term investments of approximately $207 million.
Our financing activities provided cash of $975 million in 1998, including
proceeds from the Convertible Subordinated Notes, borrowings from Dresdner Bank
AG in the amount of $300 million (denominated in deutsche marks), and capital
investment grants from the Federal Republic of Germany and the State of Saxony
of $197 million.
Financing sources of cash for 1997 and 1996 consisted primarily of borrowings
under the Credit Agreement in 1997 and proceeds from the Senior Secured Notes in
1996. The above sources were offset by debt repayments of $88 million in 1998,
$80 million in 1997 and $253 million in 1996. Financing activities for all years
presented include proceeds from the issuance of common stock under employee
stock plans.
We plan to continue to make significant capital investments in 1999. These
investments include those relating to the continued facilitization of Dresden
Fab 30 and Fab 25.
AMD Saxony, an indirect wholly owned German subsidiary of AMD, has constructed
and is installing equipment in Dresden Fab 30, a 900,000-square-foot submicron
integrated circuit manufacturing and design facility located in Dresden, in the
State of Saxony, Germany. AMD, the Federal Republic of Germany, the State of
Saxony and a consortium of banks are supporting the project. We currently
estimate construction and facilitization costs of Dresden Fab 30 to be $1.9
billion. 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. The Dresden Loan Agreements provide for the funding of the
construction and facilitization of Dresden Fab 30. The funding consists of:
. equity, subordinated loans and loan guarantees from AMD;
. loans from a consortium of banks; and
. grants, subsidies and loan guarantees from the Federal Republic of
Germany and the State of Saxony.
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Source: ADVANCED MICRO DEVIC, 10-K, March 29, 1999