SanDisk 2006 Annual Report Download - page 91

Amortization of Acquisition-Related Intangible Assets.
FY 2006
Percent
Change FY 2005
Percent
Change FY 2004
(In millions, except percentages)
Amortization of acquisition-related intangible
assets ............................... $17.4 — n/a — n/a
Percent of revenue........................ 0.5% — n/a — n/a
Our expense from the amortization of acquisition-related intangible assets for the year ended December 31,
2006 was directly related to our acquisition of Matrix in January 2006 and msystems in November 2006. See
Note 10, “Business Acquisitions,” to our consolidated financial statements included in Item 8 of this report.
Other Income.
FY 2006
Percent
Change FY 2005
Percent
Change FY 2004
(In millions, except percentages)
Equity in income of business ventures ......... $ 0.5 25% $ 0.4 (20)% $ 0.5
Interest income .......................... 101.1 136% 42.8 110% 20.4
Interest expense ......................... (10.6) 1667% (0.6) (90)% (5.9)
Gain (loss) in investment in foundries ......... 6.1 (174)% (8.2) (36)% (12.9)
Recovery on unauthorized sale of UMC shares. . . — — — — 6.2
Other income (loss), net ................... 7.3 217% 2.3 (162)% (3.7)
Total other income, net .................... $104.4 184% $36.7 698% $ 4.6
Other income for 2006 was comprised primarily of interest income of $101.1 million offset by interest expense
of ($10.6) million resulting from our $1.15 billion debt offering in May 2006. See Note 7, “Financing Arrange-
ments,” to our consolidated financial statements included in Item 8 of this report.
Other income for 2005 was comprised of interest income of $42.8 million, an other-than-temporary reduction
in the value of our investment in Tower of ($10.1) million and other items of $4.0 million.
Provision for Income Taxes.
FY 2006 FY 2005 FY 2004
Provision for Income Taxes ................................ 53.5% 37.0% 37.0%
Our fiscal 2006 tax rate differs from the statutory rate primarily due to state tax expense, net of federal benefit,
nondeductible stock option compensation adjustments recorded under FAS 123(R), in-process R&D write-offs, tax
exempt interest income and foreign income at other than U.S. tax rates. The 2006 tax rate increased over prior year
primarily due to nondeductible stock option compensation adjustments recorded under FAS 123(R), in-process
R&D write-offs, partially offset by increases in tax exempt interest income and foreign income at other than U.S. tax
rates. Our fiscal 2005 and fiscal 2004 tax rates differ from the statutory rate primarily due to state tax expense, net of
federal benefit. Our future tax rate may be impacted by state taxes, our ability to realize tax benefits from capital
losses, our ability to obtain tax concessions from certain tax jurisdictions, and the geographic mix of our earnings.
Liquidity and Capital Resources
Cash Flows. Operating activities generated $598.1 million of cash during the fiscal year ended December 31,
2006. The primary sources of operating cash flow for the fiscal year ended December 31, 2006 were: (1) net income,
adjusted to exclude the effect of non-cash charges including depreciation, amortization, share-based compensation
and write-off of acquired in-process technology, which were partially offset by lower deferred taxes and gain on
investment in foundries, and (2) increases in accounts payable to related parties and other liabilities, which were
partially offset by increases in accounts receivables, inventory and other assets and decreases in accounts payable
trade.
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