AMD 2006 Annual Report Download - page 70

Table of Contents
production related grants and allowances as a credit to cost of sales. The credit to cost of sales totaled $116 million in 2006, $72 million in 2005, and $67 million
in 2004. The fluctuations in the recognition of these credits have not significantly impacted our gross margins.
Expenses
Research and Development Expenses
Research and development expenses increased $61 million, or 5 percent, from $1,144 million in 2005 to $1,205 million in 2006. This increase was
primarily attributable to: a $222 million increase in research and development expenses attributable to our Computation Products segment primarily due to an
increase in silicon design, platform and product development costs for our microprocessor products, a $90 million increase due to the consolidation of ATI’s
research and development expenses from October 25, 2006, and a $39 million increase in stock-based compensation, corporate bonus and profit sharing
expenses. Research and development expenses were partially offset by the absence of Spansion research and development expenses because we did not
consolidate Spansion’s results of operations into ours in 2006. In 2005, research and development expenses attributable to our Memory Products segment were
$290 million.
Research and development expenses increased $210 million, or 22 percent, from $934 million in 2004 to $1,144 million in 2005 primarily due to an
increase of $103 million in product design and process improvement costs for new generations of our microprocessors and an increase in start-up costs associated
with the Fab 36 project of $96 million.
From time to time, we also apply for and obtain subsidies from the State of Saxony, the Federal Republic of Germany and the European Union for certain
research and development projects. We record the amortization of the research and development related grants and allowances as well as the research and
development subsidies as a reduction of research and development expenses when all conditions and requirements set forth in the subsidy grant are met. The
credit to research and development expenses totaled $27 million in 2006, $44 million in 2005, and $21 million in 2004.
Marketing, General and Administrative Expenses
Marketing, general and administrative expenses of $1,140 million in 2006 increased $124 million, or 12 percent, from $1,016 million in 2005. This
increase was primarily attributable to a $258 million increase in marketing, general and administrative expenses attributable to our Computation Products
segment primarily due to: a $215 million increase in marketing, branding and cooperative advertising costs, a $36 million increase due to the consolidation of
ATI’s marketing, general and administrative expenses from October 25, 2006, and a $27 million increase in stock-based compensation, corporate bonus and
profit sharing expenses. Marketing, general and administrative expenses were partially offset by the absence of Spansion market, general and administrative
expenses because we did not consolidate Spansion’s results of operations into ours in 2006. In 2005, marketing, general and administrative expenses attributable
to our Memory Products segment were $208 million.
Marketing, general and administrative expenses of $1,016 million in 2005 increased $204 million, or 25 percent, compared to $812 million in 2004,
primarily due to an increase of $110 million in marketing and cooperative advertising costs and other expenses related to the 17 percent increase in revenue in
2005 compared to 2004. In addition, in 2005 we wrote off goodwill of $16 million, which was originally recorded in 2003 as a result of the formation of
Spansion LLC.
In-process research and development, and amortization of acquired intangible assets and integration charges
In-process research and development of $416 million in 2006 relates to projects acquired in connection with the acquisition of ATI. Amortization of
acquired intangible assets and integration charges in 2006 includes amortization of $47 million and integration charges of $32 million. See “Part II, Item 7,
MD&A—ATI
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Source: ADVANCED MICRO DEVIC, 10-K, March 01, 2007