SanDisk 2005 Annual Report Download - page 113

Liquidity and Capital Resources
Cash Flows. Operating activities generated $480.9 million of cash during the year ended January 1, 2006.
Significant contributors to the generation of cash from operations were net income of $386.4 million, non-cash
adjustments to income for depreciation and amortization of $65.8 million, loss on investment in Tower Semi-
conductor of $10.1 million, foreign currency revaluation of FlashVision notes receivable of $7.7 million, amor-
tization/accretion related to original premium/discount on short-term investments of $2.6 million, decreases in
income tax receivable of $64.2 million, increases in accounts payable of $148.2 million, increases in related party
liabilities of $24.7 million, accrued payroll and related expenses of $13.8 million, deferred income of $57.2 million
and current and non-current other accrued liabilities of $6.9 million. These were partially offset by increases in the
inventory balance of $135.2 million, accounts receivable of $134.2 million, other current and non-current assets of
$31.1 million, wafer cost adjustments of $2.3 million and deferred taxes of $1.5 million.
Operating activities generated $227.6 million of cash during the year ended January 2, 2005. Significant
contributors to the generation of cash from operations were net income of $266.6 million, non-cash adjustments to
income for depreciation and amortization of $38.9 million, allowances for doubtful accounts of $4.6 million,
amortization/accretion related to original premium/discount on short-term investments of $3.2 million and
amortization of bond issuance costs of $2.6 million; decreases in deposits and other assets of $13.3 million,
increases in accrued payroll and related expenses of $13.5 million and both current and non-current other accrued
liabilities of $15.2 million. These were partially offset by increases in the inventory balance of $79.5 million,
accounts receivable of $14.9 million and decreases in deferred income on shipments to distributors and retailers and
deferred revenue of $15.4 million, and decreases in accounts payable, income taxes payable and other current
liabilities to related parties of $6.2 million.
We used $299.5 million for investing activities during the year ended January 1, 2006. We increased our short-
term investment balance by $81.0 million, loaned $34.2 million to FlashVision, invested $21.8 million in Flash
Partners, loaned $20.0 million to Matrix Semiconductor, Inc., purchased $39.1 million of semiconductor wafer
manufacturing equipment to be used at Toshiba’s Yokkaichi Operations, purchased $95.4 million of test equipment
and $3.5 million of investment in foundries and acquired a technology license for $4.5 million.
For year ended January 2, 2005, we used $523.0 million for investing activities. We increased our short-term
investment balance by $337.0 million, loaned $33.6 million to FlashVision, invested $23.1 million in Flash
Partners, purchased $63.4 million of 200-millimeter semiconductor wafer manufacturing equipment to be used at
Toshiba’s Yokkaichi Operations and purchased $62.4 million of test equipment and other capital items.
We generated $115.4 million and $24.6 million of cash from exercises of stock options and sales under our
employee stock purchase plan during the years ended January 1, 2006 and January 2, 2005, respectively.
Liquid Assets. At January 1, 2006, we had cash, cash equivalents and short-term investments of $1.7 billion.
As of that date, the cost basis of our investment in 24.5 million UMC shares was $13.4 million and its market value
was $13.9 million. As of January 1, 2006, we held 10.2 million Tower shares whose carrying value and market value
was $12.9 million and $14.8 million, respectively. As of January 1, 2006, we have agreed not to sell 7.2 million of
our 10.2 million Tower shares. This restriction is no longer in effect in fiscal 2006. However, we do remain subject
to certain restrictions on the transfer of our Tower ordinary shares including certain rights of first refusal, and
through January 2008, have agreed to maintain minimum shareholdings.
Short-Term Liquidity. As of January 1, 2006, our working capital balance was $2.0 billion. We do not expect
any liquidity constraints in the next twelve months. In 2006, we currently expect to loan or make investments in
Flash Partners of approximately $500 million, and additionally to guarantee future operating leases of Flash
Partners or procure other financing of approximately $500 million. We also expect to spend approximately
$200 million on property and equipment, which includes assembly and test equipment as well as engineering
equipment, and spending related to facilities and information systems.
Long-Term Requirements. Depending on the demand for our products, we may decide to make additional
investments, which could be substantial, in wafer fabrication foundry capacity and assembly and test manufacturing
equipment to support our business in the future. We may also make equity investments in other companies or engage
in merger or acquisition transactions. These additional investments may require us to raise additional financing,
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