SanDisk 2000 Annual Report Download - page 33

3 1 . Sa n D is k C o rp o r a t io n . 2 0 0 0 A n n u a l R e p o r t
Notes to Consolidated Financial Statements
Note 1:
O r g a n iz a t io n a n d S u m m a r y o f S ig n if ic a n t
A c c o u n t in g P o lic ie s
O r g a n iz a t io n a nd N a t u r e o f O p e r a t io ns
SanDisk C o rp o ratio n (the Co m p any) w as inc o rp o rated
in Delaw are o n June 1, 19 8 8, to d e sig n, m anufacture ,
and m arket ind ustry- standard , so lid - state m ass sto r-
ag e p ro d uc ts using p ro p rie tary, hig h- density flash
m em o ry te c hno lo g y. The Co m p any o p e rate s in o ne
se g m ent and se rves c usto m e rs in the consum er elec -
tro nic s, ind ustrial, c o m m unic atio ns and highly p o rtab le
c o m p uting m arke ts. Princ ip al g e o g rap hic m ark ets fo r
the Co m p any’s p ro d uc ts inc lude the Unite d State s,
Jap an, Euro p e and the Far East.
S u p p lie r a n d C u s t o m e r C o n c e n tra t io n s
A lim ite d num b e r o f c usto m e rs histo ric ally have
ac c o unte d fo r a sub stantial p o rtio n o f the Co m pany’s
reve nues. In 20 00, no sing le c usto m e r acc o unted for
m o re than 10 % o f to tal re venue s. In 19 9 9 and 199 8,
reve nues from o ne c usto m er exc e eded 10 % o f to tal
reve nues. Sales of the Com p any’s p ro d ucts w ill vary as
a result of fluctuatio ns in m arket d em and. Furthe r, the
flash d ata sto rag e m arkets in w hic h the Co m p any
c o m p e tes are c harac te rize d b y rap id tec hno log ical
c hang e, evo lving ind ustry stand ard s, dec lining average
se lling p ric es and rapid tec hno lo g ic al o b so le sc e nc e.
Ce rtain o f the raw m aterials used b y the Co m p any
in the m anufac ture o f its p ro d ucts are availab le from a
lim ite d num b e r o f sup p lie rs. Fo r exam p le , all o f the
Co m p any’s produc ts re q uire silicon w afe rs, the m ajori-
ty of w hic h are c urrently sup p lied b y Unite d
M ic ro elec tronic s Co rp o ratio n (“ UM C’ ) in Taiw an and
To shib a, thro ugh its Yokaaichi fac ility in Jap an. The
Co m p any is d e p end ent o n its fo und ries to allocate to
the Co m p any a p o rtio n o f th eir fo und ry c ap ac ity suffi-
c ient to m ee t the Co m p any’s need s, to produc e
w afers o f accep tab le q uality and w ith ac c ep tab le m an-
ufac turing yie ld s and to d eliver tho se w afers to the
Co m p any o n a tim e ly basis. On oc c asion, the Co m p any
has e xp e rienc ed d iffic ulties in e ac h o f these are as.
Und e r e ac h o f the Co m p any’s w afer sup ply ag re e-
m ents, the Com p any is o b lig ated to provide a m o nth ly
ro lling fo re c ast o f antic ip ated p urc hase orders. Excep t
in lim ite d c irc um stanc e s and subjec t to ac c e p tanc e b y
the fo und ries, the estim ates for the first three m o nths
o f eac h fo re c ast c o n stitute a b inding com m itm e nt and
the estim ates for the rem aining m o nths m ay no t
inc re ase or d e c rease b y m o re than a certain p erc e nt-
ag e fro m the p re vio us m o nth’s fo re c ast. The se restric -
tio ns lim it the Co m pany’s ab ility to react to significant
fluctuatio ns in d em and fo r its p ro d uc ts. As a result, the
Co m p any has no t b een able to m atc h its p urchases o f
w afers to sp e c ific c usto m e r o rd e rs, and therefo re the
Co m p any has taken w rite d o w ns for p o te ntial excess
invento ry p urc hased p rio r to the re c eip t of custom er
o rd ers and m ay b e re q uire d to d o so in the future.
The se adjustm ents d ecrease g ro ss m argins in the
q uarter rep o rted and have resulte d , and c o uld in the
future re sult in fluc tuatio ns in g ro ss m argins o n a quar-
te r to q uarter b asis. To the extent the Co m p any inac -
c urately fo re c asts the num b e r of w afers required, it
m ay have e ither a sho rtag e o r an exc ess sup p ly o f
w afers, either o f w hich could have a m aterial ad ve rse
effe c t o n the Co m p any’s business, financ ial c o nditio n
and results o f o p e rations. Additio nally, if the Com p any
is unable to o b tain scheduled q uantities o f w afe rs fro m
any fo und ry w ith ac c e p tab le yield s, the Co m p any’s
b usiness, financial c ond itio n and results o f o p e rations
c o uld b e ne g atively im p ac ted .
In ad d itio n, c ertain ke y c o m p onen ts are p urchased
fro m single so urc e vendors fo r w hic h alte rnative
so urc e s are c urrently not availab le . Sho rtag es c o u ld
o c c ur in the se e ssential m aterials d ue to an interrup tion
o f supply o r inc rease d d e m and in the ind ustry. If the
Co m p any w ere unab le to p ro c ure c ertain o f such
m aterials, it w o uld be required to reduc e its m anufac -
turing o p e rations that c o u ld have a m aterial ad ve rse
effe c t up o n its re sults of op eratio ns. We also rely o n
third - p arty sub c ontrac tors to asse m b le and test the
m em o ry c o m p o nents fo r o ur produc ts. W e have no
lo ng - term c o ntrac ts w ith these sub c o ntracto rs and
c anno t direc tly c o ntro l p ro d uct delive ry schedules. This
c o uld lead to p ro d uct sho rtages o r quality assuranc e
p ro b lem s that c o uld incre ase the m anufacturing c o sts
o f o ur produc ts and have ad ve rse e ffe c ts o n o ur oper-
ating re sults.
U s e o f Es tim a t e s
The p re p aratio n of financ ial state m ents in c o nfo rm ity
w ith g e ne rally ac c epted ac c ounting p rinciples req uires
m anag em ent to m ake e stim ate s and assum p tions that
affe c t the am o unts rep o rted in the financ ial state m ents
and ac c o m panying no tes. Ac tual re sults c o uld d iffer
fro m those estim ates.
B a s is o f P r e s e n t a tio n
The Com p any’s fisc al year e nd s o n the Sund ay c lo sest
to Dec e m b e r 3 1. Fisc al year 2 000 e nd e d on De c e m b er
31, 200 0 an d w as 52 w ee ks in leng th. Fisc al year 19 99
end ed o n January 2 , 2 000 and w as 53 w eeks in le ng th.
Fisc al year 1998 e nd ed on De c e m b er 2 7, 19 98 and w as
52 w eeks in le ng th. Fo r e ase o f p resentatio n, the
ac c o m p anying financ ial state m ents have b een sho w n
as end ing o n the last d ay o f the c ale nd ar m o nth.
P r in c ip le s o f C o n s o lid a t io n
The c onso lid ated financ ial state m e nts includ e the
ac c o unts o f the Co m p any and its w ho lly o w ne d sub -
sid iarie s. All signific ant inte rc o m p any b alanc e s and
transac tions have bee n elim inated .