SanDisk 2003 Annual Report Download - page 90

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
reasonable assurance of realization. Accordingly, the Company has charged to earnings these amounts as a
loss on unauthorized sale of UMC shares. Related to the recorded loss, the Company recognized a tax beneÑt
in the third quarter of approximately $7.0 million, and it also recognized a charge to its tax provision of
approximately $24.4 million resulting from the reversal of a tax beneÑt recognized in prior periods associated
with the stolen UMC shares. If the Company realizes any additional recovery, a gain will be realized in the
period of recovery. With respect to the remaining 20.6 million shares owned by the Company, UMC's share
price increased to New Taiwan dollars, or NT$, of NT$29.00 at December 28, 2003, from a stock dividend
adjusted price of NT$21.34 at December 29, 2002. As a result, our investment, which is classiÑed as
available-for-sale in accordance with SFAS No. 115, includes a net unrealized gain of approximately
$4.7 million, inclusive of related tax expense of $0.6 million, recorded as a component of accumulated
comprehensive income on the Company's consolidated balance sheet. If the fair value of the UMC shares
declines in the future and such declines are deemed to be other-than-temporary, it may be necessary to record
losses on these declines. In addition, in future periods, there may be a gain or loss, due to Öuctuations in the
market value of UMC's stock, if the UMC shares are sold.
At December 29, 2002, the Company's equity investment in UMC was valued at $113.0 million on the
Company's consolidated balance sheet. In 2002, the Company received approximately 23 million additional
shares of UMC stock in the form of stock dividends. These shares were included in the 165 million shares
classiÑed as available-for-sale in accordance with SFAS No. 115, were reported at market value of
$105.4 million and included in current assets on the Company's consolidated balance sheet. The Company
also had 11 million shares that contained trading restrictions that extended beyond one year, which were
valued at their adjusted cost of $7.5 million and were included in non-current assets. UMC's share price
declined to stock dividend adjusted price NT$21.34 at December 29, 2002 from NT$41.22 at December 30,
2001 resulting in a $81.8 million reduction of the Company's previously recorded unrealized gain on the
Company's investment that is classiÑed as available-for-sale. At December 29, 2002, the market value of the
available-for-sale portion of the Company's UMC investment had declined $6.6 million, before tax, below its
adjusted cost of $112.0 million, and this unrealized loss was included in accumulated other comprehensive
income (loss) on the Company's consolidated balance sheet. (See Note 12.) The Company accounts for its
investment in UMC under the cost method of accounting.
Tower Semiconductor. In July 2000, the Company entered into a share purchase agreement to make an
aggregate $75.0 million investment in Tower Semiconductor for Tower's new foundry facility, Fab 2, in Ñve
installments upon Tower's completion of speciÑc milestones. As of December 28, 2003, the Company had
invested $79.0 million in Tower and obtained 8,313,638 Tower ordinary shares, $14.3 million of prepaid wafer
credits, and a warrant to purchase 360,313 Tower ordinary shares at an exercise price of $7.50 per share. The
warrant expires on October 31, 2006. The 8,313,638 Tower ordinary shares represented an approximate 16%
equity ownership position in Tower as of December 28, 2003. In Ñscal 2003 the Company recorded write-
downs to the value of the wafer credits of $3.9 million and utilized approximately $0.7 million of these wafer
credits to purchase controller wafers from Tower. Also in 2003, the Company recorded a $0.6 million gain to
adjust the book value of the warrant and as of December 28, 2003, the Company had recognized cumulative
losses of approximately $32.2 million as a result of the other-than-temporary decline in the value of its
investment in Tower ordinary shares, $12.2 million as a result of the impairment in value on its prepaid wafer
credits and $0.1 million of losses on its warrant to purchase Tower ordinary shares. As of December 28, 2003,
the Company's Tower ordinary shares were valued at $58.8 million and included an unrealized gain of
$34.0 million, inclusive of related tax expense impact of $2.7 million, recorded as a component of accumulated
other comprehensive income, its Tower prepaid wafer credits were valued at $1.4 million and the warrant to
purchase Tower ordinary shares was valued at $1.2 million.
In February 2003, the Company agreed to amend its foundry investment agreements with Tower and
advance the payment of $11.0 million for the Ñfth and Ñnal milestone in two installments, a Ñrst installment of
approximately $6.6 million and a second installment of approximately $4.4 million, regardless of whether the
milestone was met. Tower's shareholders approved the amendment in May 2003. In November 2003, the
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