Intel 1996 Annual Report Download - page 68

Although the Company had higher average investment balances in 1996, 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. Interest and other income increased by $142 million from 1994
to 1995, mainly due to the previously noted gains in 1995, in addition to higher average interest rates on investments in 1995.
The Company utilizes investments and corresponding interest rate swaps to preserve principal while enhancing the yield on its investment
portfolio without significantly increasing risk, and uses forward contracts, options and swaps to hedge foreign currency, equity and interest rate
market exposures of underlying assets, liabilities and other obligations. Gains and losses on these instruments are generally offset by those on
the underlying hedged transactions; as a result, there was no material net impact on the Company's financial results during the 1994 to 1996
period.
The Company's effective income tax rate decreased to 35.0% in 1996 compared to 36.8% and 36.5% in 1995 and 1994, respectively.
Financial condition
The Company's financial condition remains very strong. As of December 28, 1996, total cash and short- and long-
term investments totaled $9.3
billion, up from $4.1 billion at December 30, 1995. Cash generated from operating activities rose to $8.7 billion in 1996, compared to $4.0
billion and $2.9 billion in 1995 and 1994, respectively.
Investing activities consumed $5.3 billion in cash during 1996, compared to $2.7 billion during 1995 and $2.9 billion during 1994, as operating
activities generated significantly more cash during 1996. Capital expenditures totaled $3.0 billion in 1996, as the Company continued to invest
in property, plant and equipment, primarily for microprocessor manufacturing capacity. The Company had committed approximately $1.6
billion for the construction or purchase of property, plant and equipment as of December 28, 1996. See "Outlook" for a discussion of capital
expenditure expectations in 1997.
Inventory levels, particularly raw materials and finished goods, decreased significantly in 1996. This decrease was primarily attributable to the
sell-through of purchased parts inventory and lower costs of manufacturing. The increase in accounts receivable in 1996 was mainly due to
revenue growth, offset somewhat by improved receivable collections. During 1995, the Company experienced an increase in its concentration
of credit risk due to increasing trade receivables from sales to manufacturers of microcomputer systems. Although the financial exposure to
individual customers has increased with the growth in revenues, the concentration of credit among the largest customers has decreased slightly
in 1996. The Company's five largest customers accounted for approximately 30% of net revenues for 1996. At December 28, 1996, these
customers accounted for approximately 25% of net accounts receivable.
The Company used $773 million for financing activities in 1996, compared to $1.1 billion and $557 million in 1995 and 1994, respectively.
The major financing applications of cash in 1996 and 1995 were for stock repurchases totaling $1.3 billion for 16.8 million shares (including
$108 million for exercised put warrants) and $1.0 billion for 18.9 million shares, respectively. Financing applications of cash in 1994 included
stock repurchases of $658 million and the early retirement of the Company's 8 1/8% debt. Financing sources of cash during 1996 included $300
million under a private reverse repurchase arrangement and $261 million in proceeds from the sale of shares primarily pursuant to employee
stock plans ($192 million in 1995 and $150 million in 1994).
As part of its authorized stock repurchase program, the Company had outstanding put warrants at the end of 1996, with the potential obligation
to buy back 4.5 million shares of its Common Stock at an aggregate price of $275 million. The exercise price of these warrants ranged from
$56 to $69 per share, with an average exercise price of $61 per share as of December 28, 1996.
Other sources of liquidity include combined credit lines and authorized commercial paper borrowings of $1.8 billion, $30 million of which was
outstanding at December 28, 1996. 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 (SEC) shelf