SanDisk 2000 Annual Report Download - page 35

3 3 . Sa n D is k C o rp o ra t io n . 2 0 0 0 A n n u a l Re p o rt
Given the vo latility of the m arke t, the Co m p any w rites
d o w n inve nto rie s to ne t realizab le value b ased o n
b ac klog and fo rec aste d dem and . H o w e ver, b ac klo g is
sub jec t to revisions, c anc e llatio ns and resc he d uling .
Ac tual dem and m ay differ fro m fo re c asted d e m and
and such d iffe renc e s m ay have a m aterial e ffect o n the
Co m p any’s financ ial p o sition and results o f o p e ratio ns.
P r o p e rty a n d Eq u ip m e n t
Pro p e rty and equip m e nt c o nsist o f the fo llo w ing (in
th o usa nd s):
Dec em b e r 31, 2 0 0 0 199 9
M achine ry and eq uip m ent $ 6 2 ,3 10 $ 47,00 4
So ft w a re 7,4 3 5 5,994
Furniture and fixtures 2 ,10 3 1,3 35
Lease hold im p ro vem ents 5,842 3 ,772
Pro pe rty and eq uip m e nt, at c o st 7 7,6 9 0 5 8,105
Ac cum ulate d d ep re cia tion and
am o rt izatio n (36,595) (2 6,317)
Pro pe rty and eq uip m e nt, net $ 4 1,0 9 5 $ 31,78 8
D e p re c ia tio n a nd A m o r t iz a t io n
Dep re c iation and am o rtizatio n is c o m p uted using the
straight- line m e thod o ve r the estim ated useful lives o f
the assets o r the rem aining lease term , w hic he ver is
sho rter, g e ne rally tw o to seve n years.
In v e s t m e n t in F o u n d r y
In 1997, the Com p any inve ste d $4 0 .3 m illion in United
Silic o n, Inc., (“ USIC” ) a sem icond uc tor m anufac turing
sub sid iary o f United M ic ro e lec tro nic s Corporatio n in
Taiw an (“ UM C” ). The transac tion gave the Co m p any
an equity stake o f approxim ately 10% in the fac ility
(w hic h w as accounted fo r o n the cost b asis) and g uar-
antee d ac c e ss to ap p ro xim ate ly 12.5% o f the w afer
o utp ut fro m the fac ility. In 1998 , the Co m p any
inc re ase d its investm ent b y $10.9 m illio n to retain its
10 % o w nership intere st. N o c hang e s w ere m ad e to the
p ro d uc tion agree m e nt.
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. The Com p any receive d
UM C shares in exc hang e for its USIC shares. The
Co m p any d o e s no t have a right to a seat on the b o ard
o f d irecto rs of the com b ine d c om pany.
In exchange fo r USIC shares, w e receive d 111 m il-
lio n UM C share s. These shares w e re valued at
ap p ro xim ate ly $ 396 m illio n at the tim e o f the m e rg er,
resulting in a p retax g ain o f $ 344 .2 m illio n ($2 03.9 m il-
lio n after- tax) in the first q uarter o f 200 0 . All of the
UM C shares receive d by the Co m p any as a re sult of
the m erg e r w ere sub je c t to trad ing restric tio ns
im p o se d by UM C and the Taiw an Sto c k Exc hang e . The
trad ing re stric tions exp ired o n o ne - half o f the shares
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 the Co m p any w ill recognize ad d itio nal
g ains o r lo sse s d ue to fluc tuations in the p ric e of the
UM C shares.
In M ay 20 00, the Com pany rec eived a stock divi-
d end fro m UM C o f 2 0 0 shares fo r e very 1,000 share s
o f UM C o w ne d , resulting in its o w nership of 22 m illion
ad d itional shares o f UM C. The shares re c eive d as a
sto c k d ivid e nd and the 50% o f the sh ares re c e ived as
a result of the m erg e r that b e c am e unre stric ted in July
200 0 are treated as availab le - fo r- sale sec urities und e r
Statem ent o f Financ ial Accounting Stand ards 115 ,
“ Accounting fo r Certain Investm ents in De b t and Eq uity
Securitie s” , at De c e m b er 3 1, 2 000 and are includ ed in
sho rt- te rm investm e nts. The se share s w ere ad justed
to m arke t value and the resulting unrealized lo ss o f
$50 .3 m illio n in fisc al 2 000 is includ e d in ac cum ulated
o the r com p rehensive incom e. In additio n, o n
Septem ber 18 , 200 0, UM C c o m p leted its Am eric an
Dep ositary Share s (“ ADRs ” ) offering. In conne c tio n
w ith this o ffe ring , SanDisk sig ned a lo c k- up ag ree m e nt
that prohib its the sale of all but 5 m illio n o f these unre -
stric ted UM C shares fo r a p eriod o f 9 0 d ays fo llo w ing
the com p letio n o f the offering. The re m aining 50 % o f
the share s receive d as a re sult of the m erg e r, that w ill
b e restric ted fro m sale until 2 002 , are ac c o unted for at
the ir historic al c o st b eg inning in the first q uarter o f
200 1. The se sec urities w ill b e m arked to m arket
thro ugh othe r c o m pre he nsive inc o m e w he n the w hen
the related restric tions lap se .
R e ve n ue R e c o g n it io n
Pro d uct re venue , less a p rovisio n fo r estim ated sales
returns, is re c o g nized w hen title p asses w hic h is g en-
erally at the tim e of ship m ent. H o w ever, re venue o n
ship m ents to distrib uto rs and retailers, subjec t to c er-
tain rig hts of return and p ric e p ro te c tio n, is deferre d
until the m e rc hand ise is so ld b y the d istrib uto rs o r
retailers, o r the rig hts expire.
The Com p any earns p atent lic e nse and ro yalty
reve nue under pate nt c ro ss - lic e nse ag reem ents w ith
H itachi Ltd., Intel Co rp o ratio n, Le xar, Sam sung
Electro nic s Co m pany Ltd ., Sharp Ele c tro nics
Co rp o ration, Silic o n Sto rage Tec hno lo g y, Inc.,
Sm artDisk Co rp o ratio n, TDK and To shib a Corp oratio n.
The Com p any’s c urre nt lic e nse ag reem ents provide fo r
the paym ent o f lic ense fees, royaltie s, o r a com b ina-
tio n there o f, to the Co m pany. The tim ing and am ount
o f these paym e nts c an vary substantially fro m q uarter
to quarter, d e p end ing o n the term s o f e ac h agre e m ent
and , in som e c ases, the tim ing of sale s o f p ro d uc ts by
the othe r p arties.
Patent lic ense and ro yalty re venue is rec o g nized
w he n earned. In 20 00, 1999 and 1998 , the Co m p any
rec eived p aym ents und e r the se c ro ss- lic ense ag re e-
m ents, portio ns o f w hich w ere re c o g nized as revenue
and p o rtio ns o f w hic h are d e fe rred revenue. Re c o g -
nitio n o f d e ferre d re venue is e xp e c te d to o c c u r in
future p e rio d s o ver the life o f the ag re em en ts, as the
Co m p any m ee ts c ertain o b lig atio ns as p ro vid ed in the
vario us ag re em ents.