SanDisk 2006 Annual Report Download - page 92

Operating activities generated $480.9 million of cash during the fiscal 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 of $10.1 million, foreign
currency revaluation of FlashVision notes receivable of $7.7 million, amortization/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 mil-
lion, 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.
We used $978.1 million for investing activities during the fiscal year ended December 31, 2006. Purchases of
short and long-term investments, net of proceeds from sales and maturities of short-term investments, totaled
$638.9 million. Capital expenditures totaling $176.5 million and investments and notes to the flash ventures of
$204.1 million, net of repayments was partially offset by cash acquired of $51.8 million as a result of our acquisition
of Matrix and msystems.
We used $299.5 million for investing activities during the fiscal 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, purchased $39.1 million of semiconductor wafer manufacturing
equipment to be used at Toshiba’s Yokkaichi, Japan 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.
We generated $1.20 billion of cash from financing activities due to $1.13 billion of cash from the issuance of
the 1% Convertible Senior Notes, net of issuance costs, partially offset by the purchase of the convertible bond
hedge of $386.1 million. We received $308.7 million from the issuance of warrants and $96.3 million from
exercises of share-based awards. Additionally, we received a tax benefit of $61.5 million on employee stock
programs during the fiscal year ended December 31, 2006.
We generated $115.4 million of cash from exercises of stock options and sales under our employee stock
purchase plan during the fiscal year ended January 1, 2006.
Liquid Assets. At December 31, 2006, we had cash, cash equivalents and short-term investments of
$2.81 billion.
Short-Term Liquidity. As of December 31, 2006, our working capital balance was $3.3 billion. We do not
expect any liquidity constraints over the next twelve months. We currently expect our total investments, loans,
expenditures and guarantees over the next 12 months to be approximately $1.4 billion. Of this amount, we expect to
loan, make investments or guarantee future operating leases for fab expansion of approximately $1.1 billion and
expect to spend approximately $300 million on property and equipment. The additions for property and equipment
includes assembly, test and engineering equipment, information systems as well as equipment and the continued
construction of a captive assembly and test manufacturing facility in Shanghai, China. The anticipated expenditure
for this China project over the next 12 months is approximately $150 million of the total property and equipment
expenditure and is subject to approval by the Chinese government.
In December 2006, we announced that our Board of Directors authorized a stock repurchase program under
which we intend to acquire up to $300 million of our outstanding common stock in the open market over the next
two years. Under this program, share purchases may be made from time-to-time in the open market at our
discretion. The stock repurchase program does not obligate us to purchase any particular amount of shares and the
plan may be suspended at our discretion. As of February 15, 2007, we have repurchased $0.4 million of shares.
On February 15, 2007, our Board of Directors approved a plan, or Plan, to reduce operating costs, which
includes a worldwide reduction in force of up to 10% of our headcount, or approximately 250 employees. We expect
to incur a restructuring charge in connection with the Plan in the range of $15 million to $20 million, with the
majority of the expense occurring in the first quarter of 2007. Cash payments associated with the Plan will be
approximately half of the total restructuring charge, with the remainder comprised of share-based compensation
charges resulting primarily from acceleration of certain equity awards as per terms of the msystems acquisition. The
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Annual Report