SanDisk 2004 Annual Report Download - page 29

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Table of Contents
Liquidity and Capital Resources
Liquid Assets. At January 2, 2005, we had cash, cash equivalents and short−term investments of $1.3 billion. As of that date, the
cost basis of our investment in 22.2 million UMC shares was $13.4 million and its market value was $14.2 million. As of January 2,
2005, we held 9.1 million Tower shares whose book value and market value was $20.5 million. As of that date, we also held a warrant
to purchase approximately 360,000 Tower shares and we estimated the market value of that warrant to be less than $0.1 million. We
have agreed not to dispose of 6.3 million of our 9.0 million Tower shares until 2006.
Short Term Liquidity. As of January 2, 2005, our working capital balance was $1.5 billion. We do not expect any liquidity
constraints in the next twelve months. In 2005, we currently expect to expend approximately $67.9 million on additional loans to
FlashVision, approximately $230.0 million on investments in Flash Partners, $45.8 million on 200−millimeter semiconductor wafer
manufacturing equipment to be installed at Toshiba’s Yokkaichi Operations and $62 million (of which $3.8 million was committed as
of January 2, 2005) on property and equipment, which includes test equipment and other assets to be used in manufacturing.
Long Term Requirements. Depending on the demand for our products, we may decide to make additional investments, which
could be substantial, in wafer fabrication foundry capacity and assembly and test manufacturing equipment to support our business in
the future. We may also make equity investments in other companies or engage in merger or acquisition transactions.
Contingent Obligations. We agreed to reimburse Toshiba for 49.9% of losses it sustains under its guarantee of FlashVision’s
operating lease with Mizuho bank. As of January 2, 2005, the maximum exposure for both us and Toshiba under that guarantee was
23.1 billion Japanese yen and our maximum exposure was 11.5 billion Japanese yen. See “Item 1. Business−Ventures With
Toshiba−FlashVision.” Our reimbursement agreement with Toshiba is an exhibit to this report and it should be read carefully in its
entirety for a comprehensive understanding of our obligation.
Toshiba Ventures. The terms of the FlashVision venture contractually obligate us to expand FlashVision’s capacity. Our total
future investment commitment as of January 2, 2005, was estimated to be 7.0 billion Japanese yen to be loaned to FlashVision to fund
the acquisition of new equipment and equipment to upgrade FlashVision’s production from 90−nanometers to 70−nanometers, and
5.4 billion Japanese yen for 200−millimeter semiconductor wafer manufacturing equipment to be installed at Toshiba’s Yokkaichi
Operations. We currently do not have plans to expand FlashVision’s capacity to include 300−millimeter wafers or lithography sizes
smaller than 70−nanometers. The FlashVision master agreement and operating agreement are exhibits to this report and each one of
them should be read carefully in its entirety for a comprehensive understanding of our obligations.
The terms of the FlashVision venture contractually obligate us to purchase half of FlashVision’s NAND wafer production output.
This obligation is denominated in Japanese yen and is non−cancellable. We cannot estimate the total amount of this commitment as of
January 2, 2005 because our price is determined by reference to the future cost to produce the semiconductor wafers. As part of the
FlashVision and Flash Partners agreements, we agreed to share in Toshiba’s costs associated with NAND product development and its
common semiconductor research and development activities. As of January 2, 2005, we had accrued liabilities related to those
expenses of $5.5 million. Our common research and development obligation is variable but capped at increasing fixed quarterly
amounts through 2008 and is not subject to any payment caps thereafter. Our direct research and development contribution is
determined based on a variable computation. The common R&D participation agreement and the product development agreement are
exhibits to this report and should be read carefully in their entirety for a more complete understanding of these arrangements.
We guaranteed on an unsecured and several basis 50% of Flash Partners’ lease obligation to Mitsui Leasing & Development Co.,
Ltd. Our maximum exposure under the guarantee is 25 billion Japanese yen. On December 23, 2004, the date of inception of our
guarantee, Flash Partners had no outstanding lease
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