SanDisk 2011 Annual Report Download - page 115

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conts here. Annual Report
The fiscal year 2010 net cash provided by financing activities was primarily due to the net proceeds from
the issuance of our 1.5% Notes due 2017 and related warrants and convertible bond hedge in August 2010 of
$878 million, higher cash received from employee stock programs and the excess tax benefit from share-based
compensation, offset by the redemption of our 1% Convertible Notes due 2035 of ($75) million in the first
quarter of fiscal year 2010.
Liquid Assets. At January 1, 2012, we had cash, cash equivalents and short-term marketable securities of
$2.85 billion. We have $2.77 billion of long-term marketable securities which we believe are also liquid assets,
but are classified as long-term marketable securities due to the remaining maturity of each marketable security
being greater than one year.
Short-Term Liquidity. As of January 1, 2012, our working capital balance was $3.26 billion. During fiscal
year 2012, we expect our portion of capital investments in Flash Ventures plus our investment in non-fab
property, plant and equipment to be between $1.1 billion and $1.6 billion, of which we expect approximately
$400 million to $500 million will be funded through our cash, which includes providing loans and investments to
the Flash Ventures. The remaining portion will be funded through the working capital of Flash Ventures and
equipment leases of Flash Ventures.
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. We have completed an acquisition in February 2012 and we may also make equity investments in other
companies, engage in additional merger or acquisition transactions, or purchase or license technologies. These
activities may require us to raise additional financing, which could be difficult to obtain, and which if not
obtained in satisfactory amounts, could prevent us from funding Flash Ventures, 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, responding to competitive pressures or unanticipated industry
changes, any of which could harm our business.
Our short-term liquidity is impacted in part by our ability to maintain compliance with covenants in the
outstanding Flash Ventures master lease agreements. The Flash Ventures master lease agreements contain
customary covenants for Japanese lease facilities as well as an acceleration clause for certain events of default
related to us as guarantor, including, among other things, our failure to maintain a minimum shareholder equity
of at least $1.51 billion, and our failure to maintain a minimum corporate rating of BB- from S&P or Moody’s, or
a minimum corporate rating of BB+ from R&I. As of January 1, 2012, Flash Ventures was in compliance with all
of its master lease covenants. As of January 1, 2012, our R&I credit rating was BBB, three notches above the
required minimum corporate rating threshold for R&I; and our S&P credit rating was BB, one notch above the
required minimum corporate rating threshold for S&P.
If our shareholders’ equity falls below $1.51 billion, or both S&P and R&I were to downgrade our credit
rating below the minimum corporate rating threshold, or other events of default occur, Flash Ventures would
become non-compliant with certain covenants under certain master equipment lease agreements and would be
required to negotiate a resolution to the non-compliance to avoid acceleration of the obligations under such
agreements. Such resolution could include, among other things, supplementary security to be supplied by us, as
guarantor, or increased interest rates or waiver fees, should the lessors decide they need additional collateral or
financial consideration under the circumstances. If a resolution was unsuccessful, we could be required to pay a
portion or up to the entire $731.7 million outstanding lease obligations covered by our guarantees under such
Flash Ventures master lease agreements, based upon the exchange rate at January 1, 2012, which would
negatively impact our short-term liquidity.
As of January 1, 2012, the amount of cash and cash equivalents and short and long-term marketable
securities held by foreign subsidiaries was $649 million. We provide for U.S. income taxes on the earnings of
foreign subsidiaries unless the earnings are considered indefinitely invested outside of the U.S. As of January 1,
2012, no provision had been made for U.S. income taxes or foreign withholding taxes on $362 million of
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