SanDisk 2004 Annual Report Download - page 28

Table of Contents
expenses in 2003 compared to 2002 represented a growth of 33.3%. The increase in research and development spending was
attributable primarily to development and support of an increasing number of card formats and product lines. Our headcount grew to
272 at the end of 2003 from 198 at the end of 2002.
Sales and Marketing. Our 2003 sales and marketing expenses were $66.3 million or 6.1% of revenues compared with
$40.4 million or 7.5% of revenues in 2002. Our headcount grew to 127 at the end of 2003 from 108 at the end of 2002. Our expense
growth was primarily due to increased headcount as well as increased spending for cooperative and product advertising,
merchandising, product launches and promotional activities.
General and Administrative. Our 2003 general and administrative expenses were $31.1 million or 2.9% compared with
$27.1 million or 5.0% of revenues in 2002. The 14.7% increase in general and administrative expenses was primarily due to increased
headcount resulting in higher total salaries and payroll related expenses offset by lower legal and intellectual property litigation
expenses during the year. Our headcount grew to 152 at the end of 2003 from 130 at the end of 2002.
Non−operating Loss, net. Our non−operating items for 2003 netted to ($15.2) million. Non−operating income was comprised of
net interest income of $2.1 million a loss on the misappropriation of our UMC shares of ($18.3) million, a gain on the authorized sale
of shares of UMC of $3.7 million and ($2.7) million of other items. Our non−operating items for 2002 netted to ($18.2) million.
Provision for Income Taxes. Our effective tax rate in 2003 was 30% compared with 9% in 2002. Our 2003 tax rate differs from the
statutory rate primarily due to state tax expense, a reversal of the tax benefit we recognized in 2001 and 2002 related to the unrealized
gain on the disposition of our UMC shares, and to the benefit provided by the reversal of $47 million in valuation allowance carried on
net deferred tax assets at the end of fiscal 2002 which could be taken principally because our net operating loss carryforwards have
been fully realized.
Other Comprehensive Income (Loss), net. Foreign currency translation adjustments were $8.0 million and unrealized gains on
investments were $82.7 million for 2003. Other comprehensive loss adjustments totaled ($82.3) million for 2002.
Cash Flows. Operating activities generated $272.5 million of cash during the year ended December 28, 2003. Significant
contributors to the generation of cash from operations were net income of $168.9 million, non−cash adjustments to income for
depreciation and amortization of $23.0 million, loss on unauthorized sales of UMC shares of $18.3 million, amortization/accretion
related to original premium/discount on short−term investments of $2.0 million and allowances for doubtful accounts of $1.4 million;
decreases in income taxes refund receivable of $1.6 million and prepaid expenses and other assets of $7.7 million, increases in
deferred income on shipments to distributors and retailers and deferred revenue of $57.7 million, accounts payable of $51.3 million,
other current liabilities to related parties of $29.1 million, income taxes payable of $26.2 million and accrued payroll and related
expenses of $16.5 million. These were partially offset by increases in accounts receivable of $104.6 million and the inventory balance
of $28.3 million. Operating activities generated $107.0 million during the year ended December 29, 2002. We used $335.7 million for
investing activities. We increased our short−term investment balance by $295.1 million, purchased $52.5 million of test equipment
and other fixed assets. We received $22.8 million, resulting in a recognized a gain of $7.0 million from the authorized sale of UMC
shares and received $20.0 million under the settlement agreement we entered into in connection with the unauthorized sale of UMC
shares. We used $105.6 million for investing activities in December 29, 2002. We generated $55.3 million of cash from exercises of
stock options and sales under our employee stock purchase plan and we completed an underwritten public offering of approximately
8.3 million shares resulting in net proceeds of $521.6 million. We generated $29.9 million for financing activities in December 29,
2002.
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