SanDisk 2002 Annual Report Download - page 41

3 9 2 0 0 2 Annua l Re port
* Includes Investm ent in Foundries, short-term , w hich also includes a
w arrant to purchase ordinary shares of Tow er Sem iconductor Ltd.,
w ith an approxim ate fair value of $537 thousand as of Decem ber
31, 2002.
The net unrealized loss on the available-for-sale securi-
ties at Decem ber 31, 2002 w as $43.0 m illion, and includes
an unrealized loss of $6.6 m illion on the Com pany’s invest-
m ent in UM C and deferred taxes of $37.5 m illion, offset by a
$1.1 m illion unrealized gain on short- term investm ents. The
unrealized gain on available-for- sale securities at Decem ber
31, 2001 w as $46.4 m illion, and included $95.8 m illion of
unrealized gain on the Com pany’s investm ent in UM C in the
fourth quarter of 2001 (see “Investm ent in Foundry” below ).
Fair value of available-for-sale securities is based upon
quoted m arket prices. Gross realized gains and losses on
sales of available-for-sale securities during the years ended
Decem ber 31, 2002 and 2001 w ere im m aterial.
Debt securities at Decem ber 31, 2002 and 2001, by con-
tractual m aturity, are show n below. Actual m aturities m ay
differ from contractual m aturities because issuers of the
securities m ay have the right to prepay obligations.
(In thousands) Decem ber 31, 2 0 0 2 2001
Short term investm e nts **
Due in one year or less $ 130,369 $ 64,079
Due after one year through five years 59,487 41,422
Total $ 189,856 $ 105,501
** Excludes Investm ent in Foundries, short-term , w hich also includes
a w arrant to purchase ordinary shares of Tow er Sem iconductor
Ltd., w ith an approxim ate fair value of $537 thousand as of
Decem ber 31,2002.
Lo ng -Te rm Inve stm e nts
The Com pany holds m inority equity investments in compa-
nies having operations or technology in areas within
SanDisk’s strategic focus. Certain of the investm ents carry
restrictions on im m ediate disposition. Investm ents in public
companies w ith restrictions of less than one year are classi-
fied as available-for-sale and are adjusted to their fair m ar-
ket value w ith unrealized gains and losses recorded as a
component of accum ulated other com prehensive income.
Investm ents in non- public companies are review ed on a
quarterly basis to determ ine if their value has been im paired
and adjustm ents are recorded as necessary. Upon disposi-
tion of these investm ents, the specific identification m ethod
is used to determ ine the cost basis in com puting realized
gains or losses. Declines in value that are judged to be other
than tem porary are reported in other incom e and expense.
Ac c o unts Re ce iva ble
Accounts receivable include am ounts ow ed by geographi-
cally dispersed distributors, retailers, and OEM custom ers.
No collateral is required. Provisions are provided for sales
returns, product exchanges and bad debts.
The activity in the allow ance for doubtful accounts is as
follows (in thousands):
Additions
Balance at Charged to Balance at
For the year ended Beginning Costs and Deductions End
Decem ber 31, of Period Expenses (Write-offs) of Period
2000 $ 1,871 $ 3,991 $ (852) $ 5,010
2001 5,010 829 (920) 4,919
2 0 0 2 4 ,9 19 1,79 5 (2 ,15 1) 4 ,5 6 3
Inve nto rie s and Inve ntory Va luatio n
Inventories are stated at the low er of cost or m arket. Cost is
computed on a currently adjusted standard basis (w hich
approxim ates actual costs on a first-in, first-out basis).
M arket value is based upon an estim ated average selling
price reduced by norm al gross m argins. Inventories are as
follows (in thousands):
Decem ber 31, 2 0 0 2 2001
Raw m aterials $ 7,9 16 $ 6,325
Work-in-process 2 5 ,4 0 8 18,850
Finished goods 5 7,8 71 32,706
$ 9 1,19 5 $ 57,881
The Com pany w rites dow n its inventory for estim ated
obsolescence or unmarketable inventory equal to the differ-
ence between the cost of the inventory and the estim ated
m arket value based upon assumptions about future dem and
and m arket conditions, including assum ptions about
changes in average selling prices. If actual m arket condi-
tions are less favorable than those projected by m anage-
m ent, additional inventory w rite-dow ns m ay be required.
In 2002, the Com pany sold approxim ately $11.9 m illion of
NOR inventory that had been com pletely w ritten off in prior
periods. In 2001, the Com pany recorded w rite-dow ns for
excess or obsolete inventories and low er of cost or m arket
price adjustm ents of approxim ately $85 m illion. The
Com pany m ay be forced to take additional w rite-downs for
excess or obsolete inventory in future quarters if inventory
levels exceed forecasted custom er orders. In addition, the
Com pany m ay record low er of cost or m arket price adjust-
m ents to its inventories if continued pricing pressure results
in a net realizable value that is low er than its m anufacturing
cost. Although the Com pany continuously tries to m aintain
its inventory in line w ith the near term forecasted level of
business, the Com pany is obligated to honor existing pur-
chase orders, w hich have been placed w ith its suppliers. In
the case of its FlashVision joint venture, the Com pany is
obligated to purchase 50% of the production output, w hich
m akes it m ore difficult for the Com pany to reduce its inven-
tory in times w hen the dem and forecast is reduced.
Pro p e rty and Eq uip m e nt
Property, plant and equipm ent are carried at cost less accu-
m ulated depreciation and amortization. Depreciation
expense related to plant and equipm ent totaled $21.1 m illion,
$20.5 m illion and $15.9 m illion, in fiscal 2002, 2001 and 2000,
respectively. Am ortization expense is related to intangible
assets and totaled $0.2 m illion in 2002 and none in 2001 and
2000. Depreciation and amortization is com puted using the
straight- line m ethod over the estim ated useful lives of the
assets or the rem aining lease term , w hichever is shorter,
generally tw o to seven years.
Property and equipm ent consist of the follow ing
(in thousands):
Decem ber 31, 2 0 0 2 2001
M achinery and equipm ent $ 5 8 ,8 9 6 $ 62,656
Softw are 15 ,3 8 1 8,481
Furniture and fixtures 6 ,19 6 2,076
Leasehold Im provem ents 6 ,6 71 6,227
Property and equipment, at cost 8 7,14 4 79,440
Accum ulated depreciation and am ortization (5 6 ,8 3 7) (45,710)
Property and equipment, net $ 3 0 ,3 0 7 $ 33,730