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16 . 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
c o m p ressio n te c hno lo g y and produc ts for future digital
c am c o rd e rs that w ill b e c ap ab le o f using o ur flash
m em o ry c ard s to store ho m e vid e o m o vies , rep lac ing
the m ag ne tic tape c urrently use d in these system s.
Und e r the ag re em ent, w e o w n approxim ately 10 % o f
Divio and are en title d to o ne b o ard se at.
Dep end ing o n the d em and fo r o ur produc ts, w e
m ay d ec ide to m ake ad d itio nal investm ents, w hic h
c o uld b e substantial, in asse m b ly and te st m anufac tur-
ing eq uipm ent or found ry c ap acity to sup p o rt our b usi-
ne ss in the future. Our o p erating exp ense s m ay
inc re ase as a result of the need to hire ad ditio nal p er-
so nnel to sup port o ur sales and m ark eting effo rts and
research and d eve lo p m e nt ac tivities, inc luding our p ro -
p o se d c ollab o ratio n w ith Toshib a for the jo int d e velo p -
m ent o f 512 m e g ab it and 1 g ig abit flash m e m o ry chip s.
W e b e lieve the e xisting c ash and cash eq uivale nts and
sho rt- te rm investm e nts w ill b e suffic ient to m ee t o ur
c urrently antic ip ate d w o rking c ap ital and c ap ital e xp e n-
d iture re q uire m e nts fo r the ne xt tw elve m o nths.
In January 2 000 , the USIC fo und ry w as m erg e d
into the UM C p arent c o m p any. In exchange fo r o ur
USIC share s, w e rec e ived 111 m illio n UM C shares.
The se share s w ere value d at ap p ro xim ately $39 6 m il-
lio n at the tim e o f the m e rg er, resulting in a pretax g ain
o f $34 4.2 m illion ($ 203 .9 m illio n after- tax) in the first
q uarter o f 200 0. All of the UM C share s w e receive d as
a result of the m erg e r w ere s ub je c t to trad ing restric -
tio ns im p o sed b y UM C and the Taiw an Sto c k
Exc hang e . The trad ing restric tions exp ired o n o ne - half
o f the shares six m o nths afte r the d ate o f the m erg er,
o n July 3 , 2 000 . The rem aining shares w ill b ecom e
available fo r sale over a tw o - ye ar p erio d b eg inning in
January 2 002 . W hen the shares are ultim ate ly sold, it
is likely that w e w ill rec og nize additio nal g ains or lo sses
d ue to fluc tuatio ns in the p ric e o f the UM C shares.
W hile w e d o no t antic ip ate the need fo r such funds in
the current year, w e m ay liq uid ate a p o rtio n o f the
UM C shares that are availab le for sale, and use the
p ro c eed s to support o ur o p e ratio ns and c ap ital e xp e n-
d itu re s.
I m p a c t o f C u r r e n c y E x c h a n g e R a t e s
A portio n o f o ur reve nues are d eno m inate d in
Jap anese Yen. W e e nter into fo re ig n exc hang e forw ard
c o ntracts to he d g e ag ainst c hang e s in fo reign curren c y
exc hang e rates. No forw ard contracts w ere outstand-
ing at Decem b e r 31, 20 0 0. At Dec e m b e r 3 1, 1999 , tw o
fo rw ard c o ntrac ts w ith n o tio nal am ounts o f $ 8 .2 m illion
w ere o utstanding . Future e xc hang e rate fluc tuatio ns
c o uld have a m aterial ad verse effec t o n o ur b usiness,
financ ial c o nditio n and results o f o p e rations.
I m p a c t o f R e c e n t ly I s s u e d A c c o u n t in g
S t a n d a r d s
In June 1998 , the Financ ial Ac c o unting Stand ard s Board
issued Statem ent 133, Accounting fo r De rivative
Instrum e nts and H e d g ing Ac tivities, w hic h w e are
req uired to ad o p t in fiscal 20 01. H istorically, w e have
had a m inim al use o f d erivative s and d o not anticipate
that the adoptio n o f the ne w State m e nt w ill have a sig -
nificant e ffect o n o ur earning s o r financ ial p o sition.
In Dec e m b e r 199 9 , The Sec urities and Exchange
Co m m issio n issued Staff Accounting B ulle tin N o . 101
“ Re venue Rec o g nitio n in Financ ial Statem e nts.” SAB 10 1
p ro vid es g uidanc e on the re c o g nition, p resentatio n and
d isc lo sure o f revenue in financ ial state m e nts . All reg is-
trants are e xp e c te d to apply the ac c o unting an d d isclo -
sure s d esc rib ed in SAB 101. Our im p le m entatio n of SAB
10 1 did not have a m aterial im p act o n o ur c o nsolid ate d
results o f o p e rations, financial positio n and c ash flo w s.
In M arc h 200 0 , the Financ ial Accounting Stand ards
Board issue d FASB Interp re tation No. 44 (“ FIN 44” ),
“ Accounting fo r Certain Transac tio ns Involving Sto c k
Co m p e nsatio n- an Interp re tatio n o f APB Op inion N o .
25.” FIN 4 4 c larifie s the ap p lic ation o f APB Opinio n 25
and , am o ng o the r issues c larifies the follow ing : the d efi-
nitio n o f an e m p lo ye e for the p urp o ses o f ap plying APB
Op inion N o . 2 5 ; the c riteria fo r d e te rm inin g w h ether a
p lan q ualifie s as a no nc o m pensato ry p lan; the account-
ing c o nse q uences o f vario us m odific ations to the term s
fo r the previo usly fixe d sto c k o p tio ns o r aw ard s; and
the ac c o unting fo r an exc hang e o f sto c k c o m p e nsatio n
aw ard s in a b usiness c o m b inatio n. FIN 44 b ecam e
effe c tive Ju ly 1, 20 0 0 and d id no t have a m ate rial
im p ac t o n o ur c o nsolidate d re sults o f o p eratio ns , finan-
c ial p o sitio n , and c ash flo w s.
F a c t o r s T h a t M a y A f f e c t F u t u r e R e s u lt s
O u r o p e r a tin g r e s u lts m a y flu c tu a t e s ig nific a n tly,
w hic h m a y a d ve r s e ly a ff e c t o u r s t o c k p ric e .
Our q uarterly and annual o p erating results have fluc -
tuated signific antly in the p ast and w e e xp e c t that
the y w ill c o ntinue to fluc tuate in the future. This fluc tu-
atio n is a result o f a variety o f fac tors, inc luding the
fo llo w in g :
• unp redictab le d e m and fo r o ur p ro d ucts;
• d e c line in the ave rag e s ellin g p ric e s o f o ur p ro d -
uc ts d ue to c o m p etitive p ric in g p re ssures;
• seaso nality in sales o f o ur p ro d uc ts;
• e xc e ss c ap acity o f flash m e m o ry fro m o ur com -
p etito rs and o ur o w n ne w flash w afe r cap ac ity;
• d iffic ulty o f fo recasting and m anagem ent o f inve n-
to ry leve ls; and in p articular, b uild ing a larg e inve n-
to ry of unsold p ro d uct d ue to no n- c ancelable c o n-
trac tual o b lig ations to purc hase m aterials suc h as
flash w afers, co ntro lle rs, p rinted c irc uit b o ards and
d isc re te c o m ponents; and
• e xp e nses relate d to o b solescenc e o r d evaluatio n
o f unso ld invento ry, o r re se rves nec e ssary to p ro -
te c t us ag ainst fu ture w rite- o ffs of suc h unso ld
inve nt o ry.
• adve rse changes in p ro d uc t and c usto m e r m ix;
• slow er than antic ipate d m arket ac c eptance o f ne w
o r e nhanc e d ve rsio ns o f o ur p ro d ucts;
• c o m p eting flash m e m o ry card standard s w hic h d is-
p lac e the stand ards use d in o ur p ro d uc ts;
• c hang e s in our d istrib ution c hannels;
• tim ing of license and ro yalty revenue;
• fluc tuatio ns in p ro d uct costs, partic ularly d ue to
fluctuatio ns in m anufacturing yield s and utiliz atio n;
• availab ility o f suffic ient silicon w afe r fo undry c ap aci-
ty to m ee t c ustom er d em and ;