SanDisk 2006 Annual Report Download - page 131

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the year ended December 31, 2006. No cash flow hedges were outstanding in fiscal years prior to 2006. The
Company does not enter into derivatives for speculative or trading purposes.
Note 9: Related Parties and Strategic Investments
Toshiba. The Company and Toshiba have collaborated in the development and manufacture of NAND flash
memory products. These NAND flash memory products are manufactured by Toshiba at Toshiba’s Yokkaichi,
Japan operations using the semiconductor manufacturing equipment owned or leased by FlashVision or Flash
Partners. See also Note 8, “Commitments, Contingencies and Guarantees.” The Company purchased NAND flash
memory wafers from FlashVision, Flash Partners and Toshiba, made payments for shared research and development
expenses, made loans to FlashVision and Flash Partners and made investments in Flash Partners totaling approx-
imately $658.4 million, $571.7 million and $516.6 million in the years ended December 31, 2006, January 1, 2006
and January 2, 2005 respectively. The purchases of NAND flash memory wafers are ultimately reflected as a
component of the Company’s cost of product revenues. At December 31, 2006 and January 1, 2006, the Company
had accounts payable balances due to Toshiba of $19.2 million and $11.7 million, respectively. At December 31,
2006 and January 1, 2006, the Company had accrued current liabilities due to Toshiba for shared research and
development expenses of $5.9 million and $4.2 million, respectively.
FlashVision. The Company owns 49.9% of FlashVision. The Company’s obligations with respect to
FlashVision’s lease arrangement, capacity expansion, take-or-pay supply arrangements and research and devel-
opment cost sharing are described in Note 8. The fair value of the Company’s loan to FlashVision approximates
book value. FlashVision is a variable interest entity and the Company is not the primary beneficiary of FlashVision
because it is entitled to less than a majority of any residual gains and is obligated with respect to less than a majority
of residual losses with respect to the venture. At December 31, 2006 and January 1, 2006, the Company had
accounts payable balances due to FlashVision of $19.2 million and $23.0 million, respectively.
The Company’s maximum reasonably estimable loss exposure (excluding lost profits) as a result of its
involvement with FlashVision was $246.0 million and $298.1 million, as of December 31, 2006 and January 1,
2006, respectively. These amounts are comprised of the Company’s investments, notes receivable and contingent
indemnification obligation. At December 31, 2006 and January 1, 2006, the Company’s consolidated retained
earnings included approximately $2.3 million and $2.1 million, respectively, of undistributed earnings of
FlashVision.
Flash Partners. The Company accounts for its 49.9% ownership position in Flash Partners under the equity
method of accounting. The Company’s obligations with respect to Flash Partner’s lease arrangement, capacity
expansion, take-or-pay supply arrangements and research and development cost sharing are described in Note 8
“Commitments, Contingencies and Guarantees.” Flash Partners is a variable interest entity and the Company is not
the primary beneficiary of Flash Partners because it is entitled to less than a majority of any residual gains and is
obligated with respect to less than a majority of residual losses with respect to the venture. At December 31, 2006
and January 1, 2006, the Company had accounts payable balances due to Flash Partners of $42.4 million and
$27.0 million, respectively.
The Company’s maximum reasonably estimable loss exposure (other than lost profits) as a result of its
involvement with Flash Partners was $865.4 million and $245.3 million as of December 31, 2006 and January 1,
2006, respectively. These amounts are comprised of the Company’s investments and guarantee of half of Flash
Partners’ lease obligation.
Flash Alliance. The Company has a 49.9% ownership interest in Flash Alliance, a business venture with
Toshiba, formed on July 7, 2006. In the venture, the Company and Toshiba will collaborate in the development and
manufacture of NAND flash memory products. These NAND flash memory products will be manufactured by
Toshiba at its 300-millimeter wafer fabrication facility, Fab 4, being built in Yokkaichi, Japan, using the
semiconductor manufacturing equipment that will be owned or leased by Flash Alliance. Flash Alliance will
purchase wafers from Toshiba at cost and then resell those wafers to the Company and Toshiba at cost plus a
markup. Toshiba owns 50.1% of this venture. The Company accounts for its 49.9% ownership position in Flash
F-32
Notes to Consolidated Financial Statements — (Continued)