SanDisk 2000 Annual Report Download - page 17

15 . Sa n D is k C o r p o ra t io n . 2 0 0 0 A n n ua l Re p o r t
and state c re d its and tax exem pt intere st incom e d ue
to the sig nific ant incre ase in taxab le incom e o ver 19 99.
Our 19 99 effec tive tax rate w as lo w e r than o ur 19 98
rate due to the p ro p o rtio nal rate b enefits from federal
and state tax c red its.
L iq u id it y a n d C a p it a l R e s o u r c e s
As o f Decem ber 31, 200 0, w e had w o rking c ap ital o f
$52 6.0 m illio n, w hic h inc luded $106.3 m illio n in c ash
and c ash e q uivalents and $373.3 m illio n in sho rt- te rm
investm ents. Op e rating ac tivitie s p ro vid ed $ 84.9 m illio n
o f c ash in 2 000 prim arily from net inc o m e, increases in
d eferred taxes o f $ 114.5 m illio n larg e ly due to the g ain
o n UM C, inc om e taxes p ayab le o f $ 39.8 m illio n as a
result o f hig her taxab le incom e than in 1999 , ac c o unts
p ayab le of $3 6 .4 m illion prim arily fro m inc reased inve n-
to ries, and d e fe rred re venue o f $ 21.4 m illio n related to
lic ense fees, w hic h w e re p artially o ffset b y an inc rease
in invento ry of $6 0 .9 m illion and an inc re ase in
ac c o unts receivable o f $52 .2 m illio n asso c iate d w ith
hig her reve nues. C ash p ro vid e d b y o p eratio ns w as
$17.0 m illio n in 1999 and $15.1 m illio n in 1998 .
N et c ash used in investing ac tivities o f $ 13 7.9 m il-
lio n in 20 00 inc luded $134.7 m illion investe d in
FlashVision LLC, our fo undry jo int venture w ith
To shib a, $2 6 .6 m illion of cap ital e q uip m e nt p urc h ase s,
a $2 0 .0 m illion d e p o sit in an e sc ro w ac c o unt fo r o ur
investm ent in Tow e r Sem ic ond uc to r, and our $ 7.2 m il-
lio n investm e nt in Divio , p artially o ffset b y p ro c e e d s
fro m ne t sale s o f inve stm ents o f $51.5 m illion. In 1999 ,
ne t cash used in investing ac tivities o f $2 14 .4 m illio n
c o nsiste d $ 2 1.4 m illio n o f c ap ital e q uipm ent p urchases
and ne t p urc hases of investm e nts o f $ 19 3 .0 m illion. In
19 98, net c ash use d in inve sting ac tivities o f $23 .0 m il-
lio n c o nsisted o f a se c o nd inve stm ent in the USIC
fo und ry o f $ 10 .9 m illio n, $ 7.5 m illio n o f c ap ital eq uip-
m ent p urc hases and ne t purc hases o f investm e nts o f
$4.6 m illio n.
In 20 0 0, financ ing ac tivities p ro vid e d $ 13 .6 m illio n,
p rim arily fro m the sale o f c o m m on sto c k throug h the
o ur sto c k o p tion and em p lo ye e sto c k p urc hase p lans.
During 19 99, c ash p ro vid ed b y financ ing ac tivities o f
$32 8.2 m illio n w as p rim arily fro m $32 0 .3 m illion fro m
the net p ro c e ed s of the sale o f c o m m on sto c k in o ur
N o vem ber 19 99 fo llo w - o n sto c k o ffe ring and $7.9 m il-
lio n fro m the sale o f com m o n sto c k thro ug h the
SanDisk s to c k o p tio n and e m p lo ye e stock purc hase
p lans. During 19 98, c ash p ro vid ed b y financ ing ac tivi-
tie s of $2 .4 m illio n w as p rim arily fro m the sale of c o m -
m o n sto ck thro ug h the SanDisk sto c k o p tio n and
em ployee sto c k p urc hase plans.
On June 30 , 2 000 , w e c lo s ed a transac tion w ith
To shib a p ro vid ing for the jo int d evelo p m ent and m anu-
facture o f 5 12 m egab it and 1 g ig ab it flash m e m o ry
c hip s and Se c ure Dig ital Card contro lle rs. As p art o f
this transactio n, SanDisk and Toshib a fo rm ed
FlashVision LLC, a jo int ve nture to equip and o p erate a
silic o n w afer m anufac turing line at Do m inio n
Sem icond uc tor in Virg in ia. The c o st o f eq uip p ing the
Virg inia w afe r m anufac turing line is estim ated at
b etw een $ 700 m illio n and $ 800 m illion. As p art o f o ur
50% o w nership of the joint venture w e had inve ste d
$134.7 m illion as o f De c e m b er 3 1, 2 000 , and in January
200 1, w e investe d the rem aining $ 15 .3 m illio n. W e have
also g uarantee d up to $ 215 m illio n in equip m e nt lease
line s to eq uip Toshib a’s Do m inion Se m ic o nduc to r m an-
ufac turing c lean ro o m w ith ad vanc ed w afe r p ro c e ssing
equip m ent. As of January 26, 2 0 01, $20 m illion of this
am o unt had b een b o rro w e d by FlashVisio n.
On July 4, 2 0 00, w e entered into a share p urc hase
ag re em ent to m ake a $75 m illio n investm e nt in To w er
Sem icond uc tor, o r Tow er, in Israel, re p resenting
ap p ro xim ate ly 10% ow ne rship o f Tow e r. In exc hang e
fo r o ur investm e nt, w e receive d o ne se at o n the b o ard
o f d irecto rs of Tow er and a g uarante e d p o rtion of the
w afer o utput fro m the ad vanced fabricatio n fac ility
To w er has started to build in M igd al Haem ek, Israe l.
Und e r the te rm s o f the ag reem ent, w e w ill m ake o ur
investm ent o ve r a p e riod o f approxim ately 18 m onths if
ke y m ile stones re lated to the construc tio n, eq uipp ing
and w afer p ro d uc tion at the new w afer fab ric ation
facility are m et. On January 26 , 200 1, Tow er satisfie d
the closing c o nd itio ns o f the share p urc hase agree -
m ent, and w e transfe rred the first $ 2 0 m illio n o f o ur
investm ent from an e sc ro w ac c o u nt to p urc hase
866 ,5 5 1 ordinary share s and o b tain $8 .8 m illio n in p re-
p aid w afer c redits. On M arch 1, 200 1, w e p aid Tow er
$11 m illio n up o n its c o m p le tio n o f m ile stone o ne, to
p urc hase 3 66,690 ordinary share s and o b tain ad d itio n-
al prep aid w afe r c re d its. Ad d itio nal c o ntrib utions w ill
take the fo rm o f m andato ry w arrant e xe rc ise s fo r o rd i-
nary shares at an e xe rc ise pric e of $3 0 .0 0 p e r share if
o the r m ilesto ne s are m e t. The w arrants w ill expire five
years fro m the d ate o f g rant, an d in the event the ke y
m ilesto nes are n o t ac hie ved, the exerc ise o f the se
w arrants w ill n o t be m andato ry. W e expec t first w afer
p ro d uc tion to c o m m ence at the ne w fab ric atio n facility
in late 2 0 02.
On August 9, 200 0, w e ente red into a jo int ve n-
ture , Dig ital Portal Inc , or DPI, w ith Photo - M e
Inte rnatio nal, or PM I, fo r the m anufac ture, installation,
m arketing and s ervic e of self- servic e , d ig ital p hoto
p rinting labs, o r kiosks, b earing the SanDisk b rand
nam e in locatio ns in the U.S. and Canad a. These
kio sks em p loy hig h- q uality, lo w - cost, silve r halid e
p ho to p ro c e ssing tec hno lo g y deve lo p ed b y PM I. Under
the ag reem e nt, SanDisk and PM I w ill e ac h m ake an ini-
tial inve stm ent o f $ 4 m illio n in the DPI jo int venture , and
se c ure le ase financ ing for the p urc hase o f the kiosks.
The total value of the le ase fin anc ing w ill d epend o n
the num b e r of kio sks d ep lo ye d b y the joint venture .
W e e stim ate that w e w ill g uarante e e q uip m ent le ase
arrangem e nts of ap p ro xim ately $ 40 m illio n o ver the
first tw o ye ars o f the ag re em ent. PM I w ill m anufacture
the kio sks fo r the jo int ve nture and w ill install and
m aintain the kio sks und e r c on trac t w ith the jo int ve n-
ture . W e e xp e c t to d eploy the first kio sks in p ilo t p ro -
g ram s in se lected retail store s in the Unite d State s
starting in the first half of 20 0 1.
On N o vem b er 2, 20 0 0, w e m ad e a strateg ic
investm ent o f $ 7.2 m illio n in Divio, Inc . Divio is a
p rivate ly- held m anufac ture r o f d ig ital im ag ing