SanDisk 2007 Annual Report Download - page 128

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month purchase commitment because the price is determined by reference to the future cost to produce the
semiconductor wafers. In addition, the Company is committed to fund 49.9% of FlashVision’s costs to the extent
that FlashVision’s revenues from wafer sales to the Company and Toshiba are insufficient to cover these costs.
The Company agreed to indemnify Toshiba for certain liabilities Toshiba incurs as a result of Toshiba’s
guarantee of the FlashVision equipment lease arrangement. If FlashVision fails to meet its lease commitments, and
Toshiba fulfills these commitments under the terms of Toshiba’s guarantee, then the Company will be obligated to
reimburse Toshiba for 49.9% of any claims and associated expenses under the lease, unless the claims result from
Toshiba’s failure to meet its obligations to FlashVision or its covenants to the lenders. Because FlashVision’s
equipment lease arrangement is denominated in Japanese yen, the maximum amount of the Company’s contingent
indemnification obligation on a given date when converted to U.S. dollars will fluctuate based on the exchange rate
in effect on that date. See “Off-Balance Sheet Liabilities.”
Flash Partners. The Company has a 49.9% ownership interest in Flash Partners Ltd. (“Flash Partners”), a
business venture with Toshiba which owns 50.1%, formed in fiscal year 2004. In the venture, the Company and
Toshiba have collaborated in the development and manufacture of NAND flash memory products. These NAND
flash memory products are manufactured by Toshiba at the 300-millimeter wafer fabrication facility (“Fab 3”)
located in Yokkaichi, Japan, using the semiconductor manufacturing equipment owned or leased by Flash Partners.
Flash Partners purchases wafers from Toshiba at cost and then resells those wafers to the Company and Toshiba at
cost plus a markup. The Company accounts for its 49.9% ownership position in Flash Partners under the equity
method of accounting. The Company is committed to purchase its provided three-month forecast of Flash Partner’s
NAND wafer supply, which generally equals 50 percent of the venture’s output. The Company is not able to
estimate its total wafer purchase commitment obligation beyond its rolling three month purchase commitment
because the price is determined by reference to the future cost to produce the semiconductor wafers. In addition, the
Company is committed to fund 49.9% of Flash Partners’ costs to the extent that Flash Partners’ revenues from wafer
sales to the Company and Toshiba are insufficient to cover these costs.
As of December 30, 2007, the Company had notes receivable from Flash Partners of 72.3 billion Japanese yen,
or approximately $640 million based upon the exchange rate at December 30, 2007. These notes are secured by the
equipment purchased by Flash Partners using the note proceeds. The Company has additional guarantee obligations
to Flash Partners, see “Off-Balance Sheet Liabilities.”
Flash Alliance. The Company has a 49.9% ownership interest in Flash Alliance Ltd. (“Flash Alliance”), a
business venture with Toshiba which owns 50.1%, formed in fiscal year 2006. In the venture, the Company and
Toshiba have collaborated in the development and manufacture of NAND flash memory products. These NAND
flash memory products are manufactured by Toshiba at its 300-millimeter wafer fabrication facility (“Fab 4”) in
Yokkaichi, Japan, using the semiconductor manufacturing equipment owned or leased by Flash Alliance. Flash
Alliance purchases wafers from Toshiba at cost and then resells those wafers to the Company and Toshiba at cost
plus a markup. The Company accounts for its 49.9% ownership position in Flash Alliance under the equity method
of accounting. The Company is committed to purchase its provided three-month forecast of Flash Alliance’s NAND
wafer supply, which generally equals 50 percent of the venture’s output. The Company is not able to estimate its
total wafer purchase commitment obligation beyond its rolling three month purchase commitment because the price
is determined by reference to the future cost to produce the semiconductor wafers. In addition, the Company is
committed to fund 49.9% of Flash Alliance’s costs to the extent that Flash Alliance’s revenues from wafer sales to
the Company and Toshiba are insufficient to cover these costs.
The Company has guarantee obligations to Flash Alliance, see “Off-Balance Sheet Liabilities.”
As a part of the Flash Ventures’ agreements, the Company is required to fund direct and common research and
development expenses related to the development of advanced NAND flash memory technologies. As of
December 30, 2007 and December 31, 2006, the Company had accrued liabilities related to these expenses of
$8.0 million and $5.9 million, respectively.
F-32
Notes to Consolidated Financial Statements — (Continued)