SanDisk 1999 Annual Report Download - page 18

GENERAL AND ADMINISTRATIVE.
General and administrative expenses include the cost of our finance,
information systems, human resources, shareholder relations, legal
and administrative functions. General and administrative expenses
were $12.6 million in 1999 compared to $7.5 million in 1998 and
$7.1 million in 1997. The increase in 1999 was primarily due to
higher salaries and payroll related expenses, increased legal fees
and an increase in the allowance for doubtful accounts. The
increase in 1998 was primarily due to increased consulting
expenses related to the implementation of our new management
information system and an increase in the allowance for doubtful
accounts. General and administrative expenses represented 5.1% of
total revenues in 1999 compared to 5.5% in 1998 and 5.7% in
1997. We expect general and administrative expenses to increase as
our general and administrative functions grow to support our overall
growth. General and administrative expenses could also increase
substantially in the future if we pursue additional litigation to
defend our patent portfolio. See “Factors That May Affect Future
Results —Risks associated with patents, proprietary rights and
related litigation.”
INTEREST INCOME.
Interest income was $8.3 million in 1999 compared to $5.3 million
in 1998 and $3.7 million in 1997. The increase in 1999 is prima-
rily due to higher interest income in the fourth quarter due to the
investment of the proceeds from the sale of common stock in our
November 1999 follow-on public offering. The increase in 1998 is
primarily due to higher investment balances as a result of the invest-
ment of the proceeds from the sale of common stock in our
November 1997 follow-on public offering.
OTHER INCOME (LOSS), NET.
Other income (loss), net was $1.3 million in 1999 compared to
$374,000 in 1998 and ($1,000) in 1997. The increases in 1999 and
1998 were primarily due to increased foreign currency transaction
gains of
$1.1 million and $412,000 respectively.
PROVISION FOR INCOME TAXES.
Our 1999, 1998 and 1997 effective tax rates were approximately
33.0%, 36.0% and 15.0%, respectively. Our 1999 effective tax
rate was lower than our 1998 rate due to benefits from federal
and state tax credits. Our 1998 tax rate is substantially higher than
our 1997 rate due to the utilization of all remaining federal and
state tax credit carry forwards in 1997.
Liquidity and Capital Resources
As of December 31, 1999, we had working capital of $482.8 million,
which included $146.2 million in cash and cash equivalents and
$311.0 million in short-term investments. Operating activities pro-
vided $17.0 million of cash in 1999 primarily from net income, an
increase in accounts payable of $23.8 million, and an increase in
accrued liabilities of $23.7 million, which were partially offset by an
increase in accounts receivable of $33.6 million, as a direct result of
increased sales in the fourth quarter, and an increase in inventory of
$26.8 million to support anticipated levels of growth. Cash provided
by operations was $15.1 million in 1998 and $29.3 million in 1997.
Net cash used in investing activities of $214.4 million in 1999
included $21.4 million of capital equipment purchases and net pur-
chases of investments of $193.0 million. In 1998, net cash used in
investing activities of $23.0 million consisted of a second invest-
ment in the USIC foundry of $10.9 million, $7.5 million of capital
equipment purchases and net purchases of investments of $4.6
million. In 1997, net cash used in investing activities of $108.9
million consisted of net purchases of investments of $59.0 million,
an investment of $40.3 in the USIC foundry and $9.6 million of
capital equipment purchases.
In 1999, financing activities provided $328.2 million of cash
including $320.3 million from the net proceeds of the sale of com-
mon stock in our November 1999 follow-on stock offering and $7.9
million from the sale of common stock through the SanDisk stock
option and employee stock purchase plans. During 1998, cash pro-
vided by financing activities of $2.4 million was primarily from the
sale of common stock through the SanDisk stock option and
employee stock purchase plans. Financing activities provided $81.2
million of cash in 1997, primarily from the sale of common stock in
our November 1997 follow-on stock offering.
In October 1999, we entered into a nonbinding memorandum of
understanding with Toshiba providing for the joint development and
manufacturing of 512 megabit and 1 gigabit flash memory chips
and Secure Digital Memory Card controllers. Further, we and
Toshiba intend to form and fund a joint venture to equip and oper-
ate a silicon wafer manufacturing line in Virginia. The cost of
equipping the Virginia wafer manufacturing line is estimated at
between $700 million and $800 million. We, as part of our 50%
ownership of the joint venture, expect to invest up to $150 million
in cash, and, if necessary, guarantee equipment lease lines for an
additional $250 million.
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SanDisk Corporation
MANAGEMENT’S DISCUSSION AND ANALYSIS