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This is a TAB type table. Insert
conts here. Annual Report
because the price is determined by reference to the future cost to produce the wafers. See Note 14, “Related
Parties and Strategic Investments,” of the Notes to Consolidated Financial Statements of this Form 10-K included
in Item 8 of this report.
The cost of the wafers we purchase from Flash Ventures is recorded in inventory and ultimately cost of
product revenues. Flash Ventures are variable interest entities; however, we are not the primary beneficiary of
these ventures because we are entitled to less than a majority of expected gains and losses with respect to each
venture. Accordingly, we account for our investments under the equity method and do not consolidate.
Under Flash Ventures’ agreements, we agreed to share in Toshiba’s costs associated with NAND product
development and our common semiconductor research and development activities. We and Toshiba each pay the
cost of our own design teams and 50% of the wafer processing and similar costs associated with this direct
design and development of flash memory. In the fourth quarter of fiscal year 2008, our requirement to fund
common research and development activities ended and final funding was completed in the second quarter of
fiscal year 2009. As of January 3, 2010 and December 28, 2008, we accrued liabilities related to these expenses
of zero and $4.0 million, respectively. We continue to participate in other common research and development
activities with Toshiba but are not committed to any minimum funding level.
For semiconductor fixed assets that are leased by Flash Ventures, we and Toshiba jointly guarantee on an
unsecured and several basis, 50% of the outstanding Flash Ventures’ lease obligations under master lease
agreements entered into from December 2004 through December 2008. These master lease obligations are
denominated in Japanese yen and are noncancelable. Our total master lease obligation guarantee, net of lease
payments, as of January 3, 2010, was 98.9 billion Japanese yen, or approximately $1.07 billion based upon the
exchange rate at January 3, 2010.
In our fiscal year 2009, we and Toshiba restructured Flash Ventures by selling more than 20% of Flash
Ventures’ capacity to Toshiba. The restructuring resulted in us receiving value of 79.3 billion Japanese yen of
which 26.1 billion Japanese yen, or $277 million, was received in cash, reducing outstanding notes receivable
from Flash Ventures and 53.2 billion Japanese yen of value reflected the transfer of off-balance sheet equipment
lease guarantee obligations from us to Toshiba. The restructuring was completed in a series of closings beginning
in January 2009 and extending through March 31, 2009. In the first quarter of fiscal year 2009, transaction costs
of $10.9 million related to the sale and transfer of equipment and lease obligations were expensed.
From time-to-time, we and Toshiba mutually approve the purchase of equipment in the Flash Ventures for
conversion to new process technologies or the addition of wafer capacity. Flash Partners has reached full wafer
capacity. Flash Alliance’s production output ramped in fiscal year 2008 to more than 50% of its estimated full
wafer capacity. During fiscal year 2010, we expect our portion of capital investments in Flash Ventures for new
process technologies and additional wafer capacity to be between $600 million to $800 million, which we expect
will be funded through additional loans to Flash Ventures, working capital contributions from Flash Ventures and
equipment operating leases.
FlashVision Venture with Toshiba. In the second quarter of fiscal year 2008, we and Toshiba determined
that production of NAND flash memory products utilizing 200-millimeter wafers was no longer cost effective
relative to market prices for NAND flash memory and decided to wind-down the FlashVision venture. As part of
the ongoing wind-down of FlashVision, Toshiba purchased certain assets of FlashVision. The existing master
equipment lease agreement between FlashVision and a consortium of financial institutions has been retired,
thereby releasing us from our contingent indemnification obligation with Toshiba. In fiscal year 2009, we
received distributions of $12.7 million, released $43.3 million of cumulative translation adjustments recorded in
accumulated OCI and impaired the remaining $7.9 million relating to our investment in FlashVision.
49