SanDisk 2004 Annual Report Download - page 30

Download and view the complete annual report

Please find page 30 of the 2004 SanDisk annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 143

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140
  • 141
  • 142
  • 143

Table of Contents
obligations and under the Financial Accounting Standards Board’s Interpretation No. 45, Accounting for Guarantees, we concluded
that the fair value of a guarantee was zero on that date. Flash Partners had no outstanding lease obligations as of January 2, 2005.
However we expect Flash Partners to draw down the entire amount of the lease facility in 2005. See “Item 1. Business−Ventures With
Toshiba−Flash Partners.” Flash Partners’ master lease agreement and our guarantee agreement with Mitsui Leasing & Development is
an exhibit to this report and each one of them should be read carefully in its entirety for a comprehensive understanding of our
obligation.
The terms of the Flash Partners venture contractually obligate us to expand Flash Partners’ capacity. Although we intend to expand
Flash Partners capacity to 62,500 wafer starts per month and beyond, we and Toshiba have committed to expand its capacity to 15,000
wafer starts per month. We currently estimate our funding obligation at the 15,000 wafer starts per month level to be approximately
55 billion Japanese yen of which 25 billion Japanese yen is expected to be financed through Flash Partners’ lease facility with Mitsui
Leasing & Development. Flash Partners’ master agreement and operating agreement are exhibits to this report and each one of them
should be read carefully in its entirety for a comprehensive understanding of our obligations.
Contractual Obligations and Off Balance Sheet Arrangements
Our contractual obligations and off balance sheet arrangements at January 2, 2005, and the effect those contractual obligations are
expected to have on our liquidity and cash flow over the next five years is presented in textual and tabular format in Note 5 to our
consolidated financial statements included in Item 8.
Impact of Currency Exchange Rates
As of January 2, 2005, we had no hedges in place against our risk of fluctuations in foreign currencies. Future exchange rate
fluctuations could have a material adverse effect on our business, financial condition and results of operations. Our foreign currency
transaction and translation adjustments were not material over the past three years.
Although most of our transactions in the People’s Republic of China are denominated in United States dollars, we have noted the
significant growth in the local economy over the past several years. The Chinese yuan to United States dollar exchange rate is
currently fixed by the Chinese government, but instability in the Chinese economy or exchange rates could lead to our subcontractors
in the People’s Republic of China demanding altered terms in their arrangements with us.
For a discussion of foreign operating risks and foreign currency risks, see “Factors That May Affect Future Results.”
Impact of Recently Issued Accounting Standards
The FASB adopted a revised Statement of Financial Accounting Standards No. 123, or SFAS 123R, Share Based Payments, with
an effective date of June 15, 2005. We expect to adopt SFAS 123R in the third quarter of 2005, a transition provision allowed under
SFAS 123R, and we currently do not expect to restate prior periods to conform with the new accounting standard. SFAS 123R will
require us to recognize an expense based on the fair value of all share−based payments to employees, including grants of options to
buy shares of our common stock. We are unable to estimate the effect of adopting SFAS 123R because the actual amount will be
determined by reference to inputs to our option pricing model at the time of future share based compensation awards. Adoption of
SFAS 123R is expected to increase our operating expenses.
The FASB adopted Statement of Financial Accounting Standards No. 151, Inventory Costs, an Amendment to ARB No. 43, with an
effective date of June 15, 2005. SFAS 151 requires that abnormal amounts of idle facility expense, freight, handling costs, and
spoilage be recognized as current period charges and requires the allocation of fixed production overheads to inventory based on the
normal
25