SanDisk 2004 Annual Report Download - page 66

Download and view the complete annual report

Please find page 66 of the 2004 SanDisk annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 143

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140
  • 141
  • 142
  • 143

Table of Contents
Notes to Consolidated Financial Statements — (Continued)
Concentration of Credit Risk. The Company’s concentration of credit risk consists principally of cash, cash equivalents,
short−term investments and trade receivables. The Company’s investment policy restricts investments to high−credit quality
investments and limits the amounts invested with any one issuer. The Company sells to original equipment manufacturers, retailers
and distributors in the United States, Japan, EMEA and non−Japan Asia−Pacific, performs ongoing credit evaluations of its
customers’ financial condition, and generally requires no collateral.
Off Balance Sheet Risk. The Company has off balance sheet financial obligations. See Note 5.
Foreign Exchange Exposures. The Company is exposed to foreign currency exchange rate risk inherent in sales, cost of sales, and
assets and liabilities denominated in currencies other than the United States Dollar. The Company did not hedge its foreign currency
risk in 2004, 2003 and 2002.
The Company had net transaction losses of approximately ($1.4) million, ($1.3) million and ($0.5) million for the years ended
January 2, 2005, December 28, 2003 and December 29, 2002, respectively. These amounts are included in other income (loss), net, in
the accompanying consolidated income statements.
Note 5: Commitments, Litigation, Contingencies and Guarantees
Commitments
FlashVision. The terms of the FlashVision venture (see Note 11) contractually obligate the Company to purchase half of
FlashVision’s NAND wafer production output. At January 2, 2005, the portions of the Company’s take or pay commitment to
FlashVision, which was measurable, was $172.4 million.
The Company is committed to fund 49.9% of FlashVision’s costs to the extent that FlashVision’s revenues from wafer sales to its
parents are insufficient. As of January 2, 2005, the Company held FlashVision notes receivable of 3.6 billion Japanese yen. These
notes are secured by the equipment purchased by FlashVision using the note proceeds. The Company expects to advance to
FlashVision an additional 7.0 billion Japanese yen in several tranches through the end of 2005.
The Company has purchased approximately $63.4 million of capital equipment based on the exchange rate in effect when the
assets were acquired and has committed to purchase up to approximately 5.4 billion Japanese yen of additional capital equipment. The
Company will receive 100% of the output from this equipment on terms substantially similar to the terms for FlashVision output.
In addition, as a part of the FlashVision and Flash Partners venture agreements, the Company is required to fund direct and
common research and development expenses related to the development of advanced NAND flash memory technologies. In 2004, the
Company and Toshiba increased the maximum quarterly amounts the Company may pay under these agreements and clarified the
allocation methodologies for direct research and development costs. As of January 2, 2005, the Company had accrued liabilities
related to those expenses of $5.5 million. The common research and development amount is a variable computation, and is subject to
payment caps through the end of 2008. Direct research and development liabilities will be computed using a variable percentage of
actual research and development expenses incurred.
Toshiba Foundry. The Company also has the ability to purchase additional capacity under a foundry arrangement, as discussed in
Note 10 with Toshiba. Under the terms of the Company’s foundry agreement with Toshiba, the Company is required to provide
Toshiba with a purchase order commitment based on a six−month rolling forecast. The purchase orders placed under this arrangement
relating to the first three months of the six−month forecast are binding and cannot be cancelled.
Flash Partners. The Company is committed to purchase 50% of Flash Partners (see Note 11) NAND memory products. The
Company is currently committed to fund Flash Partner’s expansion to 15,000 wafer starts per month. The Company estimates the cost
of that commitment, in terms of equipment investment, to have been approximately 55 billion Japanese yen at January 2, 2005, of
which 25 billion Japanese yen is expected to be funded from the lease facility discussed below.
F−20