SanDisk 2007 Annual Report Download - page 91

$96.3 million from exercises of share-based awards. Additionally, during the fiscal year ended December 31, 2006,
we received a tax benefit of $57.4 million on employee stock programs.
Liquid Assets. At December 30, 2007, we had cash, cash equivalents and short-term investments of
$1.84 billion.
Short-Term Liquidity. As of December 30, 2007, our working capital balance was $2.39 billion. We do not
expect any liquidity constraints over the next twelve months. We expect our loans and investments in the flash
ventures with Toshiba as well as our investments in property, plant and equipment to be approximately $1.0 billion
in fiscal year 2008.
Long-Term Requirements. Depending on the demand for our products, we may decide to make additional
investments, which could be substantial, in wafer fabrication foundry capacity and assembly and test manufacturing
equipment to support our business in the future. We may also make equity investments in other companies or engage
in merger or acquisition transactions. These activities may require us to raise additional financing, which could be
difficult to obtain, and which if not obtained in satisfactory amounts may prevent us from funding the flash ventures
with Toshiba; increasing our wafer supply; developing or enhancing our products; taking advantage of future
opportunities; engaging in investments in or acquisitions of companies; growing our business or responding to
competitive pressures or unanticipated industry changes; any of which could harm our business.
Financing Arrangements. In May 2006, we issued and sold $1.15 billion in aggregate principal amount of
1% Notes due 2013. The 1% Notes were issued at par and pay interest at a rate of 1% per annum. The 1% Notes may
be converted into our common stock, under certain circumstances, based on an initial conversion rate of
12.1426 shares per $1,000 principal amount of notes (which represents an initial conversion price of approximately
$82.36 per share). The conversion price will be subject to adjustment in some events but will not be adjusted for
accrued interest. The net proceeds to us from the offering of the 1% Notes were $1.13 billion. Concurrently with the
issuance of the 1% Notes, we purchased a convertible bond hedge and sold warrants. The separate convertible bond
hedge and warrant transactions are structured to reduce the potential future economic dilution associated with the
conversion of the 1% Notes and to increase the initial conversion price to $95.03 per share.
In November 2006, we assumed through our acquisition of msystems, their $75 million in aggregate principal
amount of 1% Convertible Senior Notes due 2035, or the 1% Notes due 2035. The 1% Notes due 2035 pay interest at
a rate of 1% per annum. The 1% Notes due 2035 may be converted into our common stock, under certain
circumstances, based on an initial conversion rate of 26.8302 shares of common stock per $1,000 principal amount
of notes (which represents an initial conversion price of approximately $37.27 per share). The conversion price will
be subject to adjustment in some events but will not be adjusted for accrued interest. See Note 5, “Financing
Arrangements,” to our consolidated financial statements in Item 8 of this report.
Toshiba Ventures. We are a 49.9% percent owner in FlashVision, Flash Partners and Flash Alliance, or
collectively referred to as Flash Ventures, our business ventures with Toshiba to develop and manufacture NAND
flash memory products. These NAND flash memory products are manufactured by Toshiba at Toshiba’s Yokkaichi,
Japan operations using the semiconductor manufacturing equipment owned or leased by Flash Ventures. This
equipment is funded or will be funded by investments in or loans to the ventures from us and Toshiba. Flash
Ventures purchase wafers from Toshiba at cost and then resells those wafers to us and Toshiba at cost plus a markup.
We are contractually obligated to purchase half of Flash Ventures’ NAND wafer supply. We are not able to estimate
our total wafer purchase obligations beyond our rolling three month purchase commitment because the price is
determined by reference to the future cost to produce the semiconductor wafers. In addition to the semiconductor
assets owned or leased by Flash Ventures, we directly own certain semiconductor manufacturing equipment in
Toshiba’s Yokkaichi, Japan operations from which we receive 100% of the output. See Note 13, “Related Parties
and Strategic Investments,” to our consolidated financial statements in Item 8 of this report.
From time-to-time, we and Toshiba mutually approve increases in the wafer supply capacity of Flash Ventures
that may contractually obligate us to increase capital funding. As of December 30, 2007, Flash Partners’ Fab 3 had
reached full capacity of approximately 150,000 wafers per month; however, we expect to continue to invest in Flash
Partners in order to convert to the next technology node. The capacity of Flash Alliance’s Fab 4 at full expansion is
expected to be approximately 210,000 wafers per month, and the timeframe to reach full capacity is to be mutually
45