SanDisk 2012 Annual Report Download - page 205

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Off-Balance Sheet Liabilities
Flash Ventures. Flash Ventures sells and leases back from a consortium of financial institutions (“lessors”)
a portion of its tools and has entered into equipment master lease agreements totaling 387.6 billion Japanese yen,
or approximately $4.51 billion based upon the exchange rate at December 30, 2012. As of December 30, 2012,
the total amount outstanding from these master leases was 159.2 billion Japanese yen, or approximately
$1.85 billion based upon the exchange rate at December 30, 2012, of which the amount of the Company’s
guarantee obligation of the Flash Ventures’ master lease agreements, which reflects future payments and any
lease adjustments, was 79.6 billion Japanese yen, or approximately $926 million based upon the exchange rate at
December 30, 2012.
The master lease agreements contain customary covenants for Japanese lease facilities. In addition to
containing customary events of default related to Flash Ventures that could result in an acceleration of Flash
Ventures’ obligations, the master lease agreements contain an acceleration clause for certain events of default
related to the Company as guarantor, including, among other things, the Company’s failure to maintain a
minimum stockholders’ equity of at least $1.51 billion, and for some of the leases, the Company’s failure to
maintain a minimum corporate rating of BB—from Standard & Poors (“S&P”) or Moody’s Corporation
(“Moody’s”), or a minimum corporate rating of BB+ from Rating & Investment Information, Inc. (“R&I”). As of
December 30, 2012, Flash Ventures was in compliance with all of its master lease covenants. As of
December 30, 2012, the Company’s R&I credit rating was BBB, two notches above the required minimum
corporate rating threshold from R&I; and the Company’s S&P credit rating was BB, one notch above the
required minimum corporate rating threshold from S&P. If both S&P and R&I were to downgrade the
Company’s credit rating below the minimum corporate rating threshold, the Company’s stockholders’ equity
falls below $1.51 billion, or other events of default occur, Flash Ventures would become non-compliant under its
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 the Company, 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
non-compliance event were to occur and if the Company failed to reach a resolution, the Company could be
required to pay a portion or the entire outstanding lease obligations covered by its guarantees under such Flash
Ventures master lease agreements.
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