VeriSign (VRSN)

Other Income (Expense), net

Other income, net consists primarily of interest earned on our cash, cash equivalents, and short-term investments, gains and losses on the sale or impairment of equity investments, and the net effect of foreign currency gains and losses.

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The following table presents the components of other income, net for years ended December 31, 2006, 2005 and 2004:

2006 compared to 2005:    Other income decreased approximately $7.5 million primarily due to $7.8 million in interest expense related to our outstanding balance from our credit facility in 2006. We recorded a $21.7 million gain on sale of our remaining equity stake in Network Solutions. Interest income decreased $2.5 million, primarily as a result of a decrease in our short-term investment balances.

2005 compared to 2004:    Other income decreased approximately $32.3 million primarily due to a gain on sale of VeriSign Japan stock of approximately $74.9 million in 2004. In 2005, we realized gains on investments, net of losses and impairments, of approximately $11.3 million. Interest income increased $11.7 million, primarily as a result of higher cash balances and slightly higher interest rates during 2005. In 2005 we recorded a gain of approximately $6.0 million related to the resolution of a dispute with a telecommunications carrier customer. As part of the restatement, we reduced our 2004 other income by $1.9 million for a gain on investment that should have been recorded in 2003.

Note 16.     Other Income (Expense), net

The following table presents the components of other income (expense), net for years ended December 31, 2005, 2004 and 2003:

Interest income is derived principally from the investment of VeriSign’s surplus cash balances. During 2005, VeriSign recognized a gain of $8.2 million on the sale of an equity investment that was previously impaired. During 2004, VeriSign sold 18,000 ordinary shares of its Tokyo-based, majority owned consolidated subsidiary, VeriSign Japan K.K., representing approximately 7% of the Company’s ownership interest, and recorded a gain of approximately $74.9 million related to the sale. Other, net includes approximately $6.0 million of other income related to a litigation settlement with a telecommunications carrier during 2005.

Other income (expense), net

Other income (expense), net consists primarily of interest income earned on our cash, cash equivalents and short-term and long-term investments, gains and losses on the sale or impairment of equity investments, and the net effect of foreign currency transaction gains and losses.

A comparison of total other income (expense) for the years ended December 31, 2004, 2003 and 2002 is presented below.

Total other income, net in 2004 consisted primarily of net interest income and other items of $17.7 million, a net gain from the sale of a portion of the company’s holdings in VeriSign Japan and other investments of $79.8 million, partially offset by a net impairment of investments totaling $12.6 million, and a net loss on foreign currency transactions of $2.9 million. In the first and third quarter of 2004, we determined the decline in value of certain non-public equity investments was other-than-temporary and we recognized the net impairment losses totaling $12.6 million described above.

Total other expense, net in 2003 consisted primarily of a net impairment of investments totaling $16.5 million, partially offset by net interest income of $7.7 million and a gain on foreign currency transactions of $1.8 million. In the first quarter of 2003, we determined the decline in value of certain non-public equity investments was other-than-temporary and we recognized net impairment losses totaling $16.5 million.

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