SanDisk 1999 Annual Report Download - page 38

INVENTORIES
Inventories are stated at the lower of cost or market. Cost is computed
on a currently adjusted standard basis (which approximates actual
costs on a first-in, first-out basis). Market value is based upon an
estimated average selling price reduced by normal gross margins.
Inventories are as follows:
Given the volatility of the market, the Company writes down inventories
to net realizable value based on backlog and forecasted demand.
However, backlog is subject to revisions, cancellations and resched-
uling. Actual demand may differ from forecasted demand and such
differences may have a material effect on the Company’s financial
position and results of operations.
PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
DEPRECIATION AND AMORTIZATION
Depreciation is computed using the straight-line method over the
estimated useful lives of the assets or the remaining lease term,
whichever is shorter, generally two to seven years.
INVESTMENT IN FOUNDRY
In 1997, the Company invested $40.3 million in United Silicon,
Inc., (“USIC”) a semiconductor manufacturing subsidiary of United
Microelectronics Corporation in Taiwan (“UMC”). The transaction
gave the Company an equity stake of approximately 10% in the
facility (which is accounted for on the cost basis) and guaranteed
access to approximately 12.5% of the wafer output from the facility.
In 1998, the Company increased its investment by $10.9 million to
retain its 10% ownership interest. No changes were made to the
production agreement. In January 2000, the USIC foundry was
merged into UMC. SanDisk received 111 million shares of UMC
stock in exchange for its USIC shares. (See Note 11).
REVENUE RECOGNITION
Product revenue, less a provision for estimated sales returns, is
recognized when title passes which is generally at the time of ship-
ment. However, revenue on shipments to distributors and retailers,
subject to certain rights of return and price protection, is deferred
until the merchandise is sold by the distributors or retailers, or the
rights expire.
The Company earns patent license and royalty revenue under patent
cross-license agreements with Hitachi Ltd., Intel Corporation,
Samsung Electronics Company Ltd., Sharp Electronics Corporation,
Silicon Storage Technology, Inc., SmartDisk Corporation and
Toshiba Corporation. The Company’s current license agreements
provide for the payment of license fees, royalties, or a combination
thereof, to the Company. The timing and amount of these payments
can vary substantially from quarter to quarter, depending on the terms
of each agreement and, in some cases, the timing of sales of products
by the other parties.
Patent license and royalty revenue is recognized when earned. In
1999, 1998 and 1997, the Company received payments under
these cross license agreements, portions of which were recognized
as revenue and portions of which are deferred revenue. Recognition of
deferred revenue is expected to occur in future periods as the Company
meets certain obligations as provided in the various agreements.
35
SanDisk Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 1998
Raw materials $ 10,387 $ 2,710
Work-in-process 20,708 3,818
Finished goods 4,584 2,394
Total $ 35,679 $8,922
December 31, 1999 1998
Machinery and equipment $ 47,004 $ 30,008
Software 5,994 3,413
Furniture and fixtures 1,335 1,173
Leasehold improvements 3,772 2,120
Property and equipment, at cost 58,105 36,714
Accumulated depreciation
and amortization ( 26,317 ) ( 19,172 )
Property and equipment, net $ 31,788 $ 17,542