SanDisk 2000 Annual Report Download - page 41

3 9 . 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
The tax b enefits as so c iated w ith sto c k op tio ns
red uc es taxe s c urrently payab le as sho w n above b y
$29 ,2 5 8,000 , $ 9,8 09,00 0 , and $1,76 1,000 in 2 0 00, 199 9
and 19 98, re sp e c tive ly. Suc h b e ne fits are c redited to
c ap ital in e xc e ss o f p ar w he n realized .
The Com p any’s p ro visio n fo r incom e taxes d iffe rs
fro m the am o unt co m p uted b y applying the federal
statutory rates to inc o m e befo re taxes as fo llo w s:
Dec em b e r 31, 2 0 0 0 19 99 199 8
Fed eral statuto ry rate 35.0% 35.0% 35.0%
State taxes, ne t o f fed eral be nefit 4 .6 2.8 3 .5
Rese arc h cre dit (0 .2 ) (1.7) (1.9 )
Tax e xem p t inte re st inc o m e (0 .8 ) (3 .9 ) (6 .1)
Other individ ually im m at erial ite m s 0 .7 0.8 5 .5
39.3% 33.0% 36.0%
Deferre d inc o m e taxe s reflect the net tax effe c ts o f
te m p o rary differe nc e s b etw een the c arrying am o u nts
o f assets and liab ilitie s for fin anc ial re p o rting p urp o ses
and the am o unt use d fo r inc o m e tax purp o se s.
Sig nific ant c o m p o nents o f the Co m p any’s deferre d tax
assets as of Dec e m b e r 3 1, 2 0 00 and 19 99 are as fo l-
lo w s (in tho usands):
Dec em b e r 31, 2 0 0 0 199 9
Defe rre d tax asse ts:
Invento ry w rite do w n rese rve s $ 13 ,0 0 0 $ 3,400
Defe rre d re ve nue 17,10 0 10,6 00
Ac cruals and o ther rese rve s 11,4 0 0 4,000
Other 1,2 0 0 800
To tal d eferre d tax as sets $ 4 2 ,70 0 $ 18,800
Defe rre d tax liab ilities:
Unre alized g ain re ce ip t o n
exc hang e o f UM C shares ( 10 5 ,6 0 0 ) –
To tal d eferre d tax as sets/ (liab ilities) $ (62,900) $ 18,8 00
Note 7:
J o in t Ve n t u r e , S t r a t e g ic M a n u f a c t u r in g
R e la t io n s h ip s a n d I n v e s t m e n t s
On June 30 , 2 000 , the Co m p any and Toshib a c lo sed a
transac tion p ro vid ing for the jo int d e velo p m ent and
m anufacture 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 a p art o f
this transactio n, the Co m pany and To shib a fo rm ed and
c o ntrib uted initial fund ing to FlashVisio n LLC, a jo int
venture to e q uip and o p e rate a silicon w afer m anufac-
turing line at Do m inio n Se m ic o nd uc to r in Virg inia. The
c o st o f e q uip p ing the Virg inia w afe r m anufac turing line
is estim ated at b e tw e en $ 70 0 m illio n and $ 800 m illion.
As p art o f the Co m p any’s 50% o w nership of the jo int
venture it had invested $ 13 4.7 m illio n as o f Decem b e r
31, 200 0, and in January 2 001, w e inve sted the rem ain-
ing $15.3 m illio n. The Com p any has also g uaranteed up
to $2 15 m illio n in eq uipm ent lease line s to eq uip
To shib a’s Do m inio n Sem icond uc tor m anufac turing
c lean room w ith ad vanced w afer p ro c essing e q uip -
m ent. As o f January 26, 2 001, $20 m illion w as g uaran-
te ed. In add itio n, the Com pany w ill s hare c ertain
research and d eve lo p m e nt c o sts. The Co m p any
exp ects to generate revenues fro m the sale o f p ro d -
uc ts using 512 m e g ab it te c hnolog y d urin g the se c o nd
half o f 2 0 01, and fro m the 1 gig ab it te c hnology d uring
200 2. The Co m p any ac c o unts fo r this inve stm ent
und er the e q uity m e thod, and the Co m p any’s of losse s
o n this jo int ve ntu re thro ug h Dec e m b e r 3 1, 2 000 are
no t m aterial.
On July 4, 2 0 00, SanDisk ente red into a share p ur-
c hase ag re em ent to m ake a $ 75 m illio n inve stm ent in
To w er Sem ic o nd ucto r, 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 its inve stm ent, the Co m p any w ill receive o n e se at
o n the board o f d ire c to rs o f Tow er and a g uarante ed
p o rtio n o f the w afer o utput fro m the ad vanced fabrica-
tio n fac ility Tow er is starting to build in M igdal H aem ek,
Israe l. Und e r the term s o f the ag re em ent, the
Co m p any w ill m ake o ur investm e nt o ve r a p eriod o f
ap p ro xim ate ly 18 m o nths if ke y m ilesto ne s related to
the construc tio n, eq uipp ing and w afer p ro d uc tion at
the new w afe r fab ric ation fac ility are m et. On January
26, 2 001, To w er satisfied the c lo sing c o nditio ns o f the
share p urc hase agree m e nt, and the Com p any trans-
fe rred the first $ 2 0 m illio n o f its inve stm ent fro m an
esc ro w ac c o unt to p urc h ase 86 6,5 51 share s o rd inary
shares and o b tain $8.8 m illio n in p re- p aid w afer c red-
its. On M arc h 1, 2 001, the Co m p any 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 ur-
c hase 366 ,69 0 o rd inary shares and o b tain additio nal
p repaid w afe r c re d its. Ad d itio nal contrib utio ns w ill take
the fo rm o f m andato ry w arrant e xe rc ise s fo r o rdinary
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 e xp e c t first w afe r
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. The Co m p any ac c o unts fo r this inve st-
m ent und e r the c o st m etho d .
On August 9, 200 0, SanDisk e ntere d into a jo int
venture , Dig italPo rtal Inc ., o r DPI, w ith Pho to - 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 and sec ure lease financ ing
fo r the purc hase o f the kio sks. The to tal value o f the
lease financ ing w ill d e p e nd on the num b e r o f kiosks
d eployed b y the jo int ve nture. The Co m pany estim ates
that it w ill g uarante e e q uip m ent le ase arrangem e nts o f
ap p ro xim ate ly $ 40 m illio n o ver the first tw o ye ars o f
the ag reem e nt. PM I w ill m anufac ture the kio sks fo r the
jo int venture and w ill install and m aintain the kiosks
und er contract w ith the jo int ve nture. The Co m p any
exp ects the first kio sks to b e d ep lo yed in p ilo t pro-
g ram s in se lect re tail stores in the Unite d States start-
ing in the first half of 20 0 1. The Co m p any acco unts fo r
this inve stm ent und e r the e q uity m e tho d , and the
Co m p any’s of lo sse s o n this jo int ve nture thro ugh
Dec em b e r 3 1, 2 0 00 are not m aterial.
On N o vem b er 2, 20 0 0, SanDisk m ade a strategic
investm ent o f $ 7.2 m illio n in Divio, Inc . Divio is a