SanDisk 2006 Annual Report Download - page 123

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plant and equipment, long-term investment in foundry, and equity investments and attributes those investments to
the locality of the investee’s primary operations.
Customer and Supplier Concentrations. A limited number of customers or licensees have accounted for a
substantial portion of the Company’s revenues. Revenues from the Company’s top 10 customers or licensees
accounted for approximately 52%, 50% and 55% of the Company’s revenues for the years ended December 31,
2006, January 1, 2006 and January 2, 2005, respectively. All customers were less than 10% of the Company’s
revenues in 2006 and 2004. In 2005, Best Buy Co., Inc., accounted for 11% of the Company’s revenues; all other
customers were less than 10% of the Company’s revenues.
All of the Company’s flash memory card products require silicon wafers for the memory components and the
controller components. The substantial majority of the Company’s memory wafers or components are currently
supplied from FlashVision Ltd., or FlashVision, Flash Partners Ltd., or Flash Partners, and TwinSys Data Storage
Limited Partnership, or TwinSys, ventures and to a lesser extent by Renesas and Samsung. The Company’s
controller wafers are currently manufactured by Tower and United Microelectronics Corp., or UMC. The failure of
any of these sources to deliver silicon could have a material adverse effect on the Company’s business, financial
condition and results of operations. Moreover, Toshiba’s employees that produce FlashVision’s and Flash Partners’
products are covered by collective bargaining agreements and any job action by those employees could interrupt the
Company’s wafer supply from Toshiba’s Yokkaichi, Japan operations.
In addition, key components are purchased from single source vendors for which alternative sources are
currently not available. Shortages could occur in these essential materials due to an interruption of supply or
increased demand in the industry. If the Company were unable to procure certain of such materials, it would be
required to reduce its manufacturing operations, which could have a material adverse effect upon its results of
operations. The Company also relies on third-party subcontractors to assemble and test its products. The Company
has no long-term contracts with these subcontractors and cannot directly control product delivery schedules. This
could lead to product shortages or quality assurance problems that could increase the manufacturing costs of its
products and have material adverse effects on the Company’s operating results.
Concentration of Credit Risk. The Company’s concentration of credit risk consists principally of cash, cash
equivalents, short-term and long-term investments and trade receivables. The Company’s investment policy
restricts investments to high-credit quality investments and limits the amounts invested with any one issuer.
The Company sells to original equipment manufacturers, retailers and distributors in the United States, Japan,
EMEA and non-Japan Asia-Pacific, performs ongoing credit evaluations of its customers’ financial condition, and
generally requires no collateral.
Off Balance Sheet Risk. The Company has off balance sheet financial obligations. See Note 8, “Commit-
ments, Contingencies and Guarantees.”
Note 7: Financing Arrangements
The following table reflects the carrying value of our long-term borrowings as of December 31, 2006 and
January 1, 2006:
December 31,
2006
January 1,
2006
(In millions)
1% Convertible Senior Notes due 2013 ........................... $1,150 $—
1% Convertible Notes due 2035 ................................ $ 75 $—
1% Convertible Senior Notes Due 2013. In May 2006, the Company issued and sold $1.15 billion in
aggregate principal amount of 1% Convertible Senior Notes due 2013 (the “1% Notes due 2013”) at par. The
1% Notes due 2013 may be converted, under certain circumstances described below, based on an initial conversion
rate of 12.1426 shares of common stock per $1,000 principal amount of notes (which represents an initial
F-24
Notes to Consolidated Financial Statements — (Continued)