SanDisk 2007 Annual Report Download - page 134

For the years ended December 30, 2007, December 31, 2006 and January 1, 2006, foreign currency contracts
resulted in a loss of $8.3 million and gains of $5.8 million and $5.1 million, respectively, including forward point
income, offset by the foreign currency exposures hedged by these forward contracts which had a gain of
$17.8 million and losses of $2.2 million and $5.1 million, respectively. The Company has outstanding cash flow
hedges designated to mitigate equity risk associated with certain available-for-sale equity securities totaling
approximately $60.4 million. The changes in the fair value of the cash flow hedges are included in accumulated
other comprehensive income and were immaterial for the year ended December 30, 2007. The Company does not
enter into derivatives for speculative or trading purposes.
Note 13: 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 Flash Ventures. See also
Note 12, “Commitments, Contingencies and Guarantees.” The Company purchased NAND flash memory wafers
from Flash Ventures and Toshiba, made payments for shared research and development expenses, made loans to
Flash Ventures and made investments in Flash Ventures totaling approximately $1,294.5 million, $658.4 million
and $571.7 million in the years ended December 30, 2007, December 31, 2006 and January 1, 2006, respectively.
The purchases of NAND flash memory wafers are ultimately reflected as a component of the Company’s cost of
product revenues. During the twelve months ended December 30, 2007, the Company had sales to Toshiba
(excluding TwinSys Ltd. as described below) of $26.7 million, compared to zero in the prior years. At December 30,
2007 and December 31, 2006, the Company had accounts payable balances due to Toshiba of $0.2 million and
$19.2 million, respectively, and accounts receivable balances from Toshiba of $4.2 million and $1.4 million,
respectively. At December 30, 2007 and December 31, 2006, the Company had accrued current liabilities due to
Toshiba for shared research and development expenses of $8.0 million and $5.9 million, respectively.
Flash Ventures with Toshiba. The Company owns 49.9% of each Flash Venture entity and accounts for its
ownership position under the equity method of accounting. The Company’s obligations with respect to the Flash
Ventures’ lease arrangements, capacity expansion, take-or-pay supply arrangements and research and development
cost sharing are described in Note 12, “Commitments, Contingencies and Guarantees.” Flash Ventures are all
variable interest entities as defined under FASB Interpretation No. 46 (“FIN 46R”), Consolidation of Variable
Interest Entities, and the Company is not the primary beneficiary of any of the Flash Venture’s entities because it
absorbs less than a majority of the expected gains and losses of each entity. At December 30, 2007 and December 31,
2006, the Company had accounts payable balances due to Flash Ventures of $131.3 million and $61.6 million,
respectively.
The Company’s maximum reasonably estimable loss exposure (excluding lost profits) as a result of its
involvement with Flash Ventures was $2.2 billion and $1.1 billion, as of December 30, 2007 and December 31,
2006, respectively. These amounts are comprised of the Company’s investments, notes receivable and guarantee
and contingent indemnification obligations. At December 30, 2007 and December 31, 2006, the Company’s
consolidated retained earnings included approximately $2.8 million and $2.5 million, respectively, of undistributed
earnings of Flash Ventures.
The following summarizes the aggregated financial information for Flash Ventures as of December 30, 2007
and December 31, 2006 (in thousands).
F-38
Notes to Consolidated Financial Statements — (Continued)