SanDisk 2004 Annual Report Download - page 67

Table of Contents
Notes to Consolidated Financial Statements — (Continued)
The Company is committed to purchase one half of Flash Partners output at a formula based on the actual cost to produce the
wafers. The Company will incur substantial expenses related to initial design and development of manufacturing process technology
and start−up costs for Fab 3.
Purchase orders placed under the Toshiba ventures and foundry arrangement with Toshiba relating to the first three months of the
six−month forecast are binding and cannot be cancelled. At January 2, 2005, approximately $68.8 million of non−cancelable purchase
orders for flash memory wafers were outstanding.
Other Silicon Sources. The Company’s contracts with its other sources of silicon generally require the Company to provide a
purchase order commitment based on a six−month rolling forecast. The purchase orders placed under these arrangements relating to
the first three months of the six−month forecast are binding and cannot be cancelled. At January 2, 2005, approximately $66.5 million
of non−cancelable purchase orders for memory and controllers were outstanding.
Subcontractors. In the normal course of business, the Company’s subcontractors periodically procure production materials based
on the forecast the Company provides to them. The Company’s agreements with these subcontractors require that it reimburse them
for materials that are purchased on the Company’s behalf in accordance with such forecast. As such, the Company may be committed
to certain costs over and above its open non−cancelable purchase orders with these subcontractors.
Litigation
The Company is involved in a number of lawsuits, including, among others, cases involving the Company’s patents and the
patents of third parties. The Company cannot reasonably estimate a probable loss in any of these matters. Some of the actions seek
injunctions against the Company’s sale of its products and/or substantial monetary damages, which if granted or awarded could have a
material adverse effect on the Company’s business, financial condition and results of operations.
Litigation is subject to inherent risks and uncertainties that may cause actual results to differ materially from the Company’s
expectations. Factors that could cause litigation results to differ include, but are not limited to, the discovery of previously unknown
facts, changes in the law or in the interpretation of laws, and uncertainties associated with the judicial decision−making process. If the
Company receives an adverse judgment in any litigation, it could be required to pay substantial damages and/or cease the
manufacture, use and sale of products. Litigation, including intellectual property litigation, can be complex, can extend for a
protracted period of time, and can be expensive. Litigation initiated by the Company could also result in counter−claims against it,
which could increase the costs associated with the litigation and result in the Company’s payment of damages or other judgments
against it.
The Company has been subject to, and expects to continue to be subject to, claims and legal proceedings regarding alleged
infringement by the Company of the patents, trademarks and other intellectual property rights of third parties. From time to time the
Company has sued, and may in the future sue, third parties in order to protect its intellectual property rights. Parties that the Company
has sued and that it may sue for patent infringement may counter−sue the Company for infringing their patents. If the Company was
held to infringe the intellectual property of others, the Company may need to spend significant resources to develop non−infringing
technology or obtain licenses from third parties, but the Company may not be able to develop such technology or acquire such licenses
on terms acceptable to it or at all.
From time−to−time the Company agrees to indemnify certain of its suppliers and customers for alleged patent infringement. The
scope of such indemnity varies but may in some instances include indemnification for damages and expenses, including attorneys’
fees. The Company may from time to time be engaged in litigation as a result of such indemnification obligations. Third−party claims
for patent infringement are excluded from coverage under the Company’s insurance policies. Any future obligation to indemnify the
Company’s customers or suppliers, may have a material adverse effect on the Company’s business, financial condition and results of
operations. F−21