SanDisk 2002 Annual Report Download - page 50

4 8 S a nD isk C o rp o ra tio n
components of the Com pany’s deferred tax assets as of
Decem ber 31, 2002 and 2001 are as follow s (in thousands):
Decem ber 31, 2 0 0 2 2001
Deferred tax assets:
Inventory valuation $ 13 ,0 0 0 $ 35,900
Deferred revenue recognized for
tax purposes 2 6 ,5 0 0 6,500
Accruals and reserves not
currently deductible 16 ,10 0 8,500
Foreign tax and other credit carryforw ards 2 4 ,70 0 27,900
NOL carryforw ard 1,2 0 0 6,400
Unrealized loss on investm ent w rite dow n 14 ,4 0 0 8,400
Other – 3,600
Subtotal: Deferred tax assets 9 5 ,9 0 0 97,200
Valuation allow ance for deferred
tax assets (6 6 ,4 0 0 ) (36,100)
Total deferred tax assets $ 2 9 ,5 0 0 $ 61,100
Deferred tax liabilities:
Unrealized gain on sale of
Foundry shares (2 9 ,5 0 0 ) (61,100)
Total: Deferred tax liabilities (2 9 ,5 0 0 ) (61,100)
Total net deferred tax assets/ (liabilities) $ – $ –
Based on the w eight of available evidence, the Com pany
provided a valuation allow ance against the net deferred tax
assets. The valuation allow ance w as based on the
Com pany’s assessm ent of its historical earnings patterns
that make it uncertain that the Com pany w ill have sufficient
incom e in the appropriate jurisdictions to realize the full
value of the assets. The Com pany w ill continue to evaluate
the realizability of the deferred tax assets on a quarterly
basis. The valuation allow ance increased by $30.3 m illion
and $36.1 m illion in 2002 and 2001, respectively. The
valuation allow ance for deferred tax assets includes approxi-
m ately $5.2 m illion attributable to stock option deductions,
the benefit of w hich w ill be credited to stockholders’ equity
upon realization.
As of Decem ber 31, 2002, the Com pany has no federal
net operating loss carryforw ard and has a state net operat-
ing loss carryforw ard of approxim ately $24.5 m illion. As a
result of California legislation, the utilization of a substantial
portion of the Com pany’s NOLs is suspended for 2003. The
net operating loss carryforw ard w ill expire in 2013 if not uti-
lized. The Company has federal foreign tax credit of approxi-
m ately $23.2 m illion, w hich w ill begin to expire at various
dates beginning in 2005 through 2008. The Com pany also
has federal alternative m inim um tax credit and state
research and developm ent tax credit, w hich do not expire.
Utilization of the net operating loss carry-forw ards and
credits may be subject to a substantial annual lim itation
due to the ow nership change lim itations provided by the
Internal Revenue Code of 1986, as am ended, and sim ilar
state provisions. The annual limitation is not expected to
result in the expiration of net operating losses and credits
before utilization.
Note 8:
J o in t Ve n t u r e , S t r a t e g ic M a n u f a c t u r in g
R e la t io n s h ip s a n d I n v e s t m e n t s
FlashVisio n – In April 2002, the Com pany and Toshiba
restructured their FlashVision Dom inion Sem iconductor,
Virginia business by consolidating FlashVision’s advanced
NAND w afer fabrication m anufacturing operations at
Toshiba’s m em ory fabrication facility in Yokkaichi, Japan.
Under the term s of the agreem ent, Toshiba transferred the
FlashVision owned and leased NAND production tool-set
from Dom inion to Yokkaichi and undertook full responsibility
for the equipm ent transfer and production set up. The
FlashVision operation at Yokkaichi continues the joint ven-
ture on essentially the sam e term s as the parties had at
Toshiba’s facility in Virginia. In M arch 2002, FlashVision exer-
cised its right of early term ination under its lease facility w ith
ABN AM RO and in April 2002 repaid all am ounts outstand-
ing. FlashVision secured a new equipm ent lease arrange-
m ent of approxim ately 37.9 billion Japanese Yen (or approx-
im ately $305 m illion based on the exchange rate in effect on
the date the agreem ent w as executed) in M ay 2002 w ith
M izuho Corporate Bank, Ltd., or M izuho, and certain other
financial institutions. Under the term s of the new lease,
Toshiba is required to provide a guarantee to these financial
institutions on behalf of FlashVision. The Com pany agreed to
indem nify Toshiba in certain circum stances for certain liabili-
ties Toshiba incurs as a result of Toshiba’s guarantee of the
FlashVision equipm ent lease arrangem ent. If FlashVision fails
to m eet its lease comm itm ents, and Toshiba fulfills these
comm itm ents under the term s of Toshiba’s guarantee, the
Com pany w ill be obligated to reim burse Toshiba for 49.9%
of any claim s under the lease, unless such claim s result
from Toshiba’s failure to m eet its obligations to FlashVision
or its covenants to the lenders. Because FlashVision’s new
equipm ent lease arrangem ent is denom inated in Japanese
Yen, the m axim um am ount of the Com pany’s contingent
indem nification obligation on a given date w hen converted
to U.S. Dollars w ill fluctuate based on the exchange rate in
effect on that date. As of Decem ber 31, 2002 the m axim um
am ount of the Com pany’s contingent indem nification obliga-
tion, w hich reflects paym ents and any lease adjustments,
w as approxim ately $142.4 m illion. The Com pany accounts
for its investm ent in FlashVision under the equity m ethod
of accounting.
UM C – At Decem ber 31, 2002, the Com pany’s equity
investm ent in UM C w as valued at $113.0 m illion on the
Com pany’s balance sheet. In the third quarter of 2002, the
Com pany received approxim ately 23 million additional
shares of UM C stock in the form of stock dividends. These
shares are included in the 165 m illion shares classified as
available-for-sale in accordance w ith SFAS No. 115, are
reported at m arket value of $105.4 million and included in
current assets on the Com pany’s balance sheet. The
Com pany also has 11 m illion shares that contain trading
restrictions that extend beyond one year, w hich are valued
at their adjusted cost of $7.5 m illion and included in non-cur-
rent assets. UM C’s share price declined to NT$22.20 at
Decem ber 31, 2002 from a stock dividend adjusted price of
NT$42.87 at Decem ber 31, 2001 resulting in a $81.8 m illion
reduction of our previously recorded unrealized gain on the
Com pany’s investm ent that is classified as available-for- sale.
At Decem ber 31, 2002, the m arket value of the available-for-
sale portion of the Com pany’s UM C investm ent had declined
$6.6 m illion, before tax, below its adjusted cost of $112.0
m illion, and this unrealized loss is included in accumulated