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Operating Expenses.
Total R&D expense and SG&A expense increased to 10.6% of net revenue in 2011 compared
to 8.9% in 2010. R&D expense was $703 million in 2011, an increase of $92 million, or 15% over the prior year. As
a percentage of net revenue, R&D expense increased to 7.4% in 2011 compared to 6.2% in 2010. This increase in
R&D expense was primarily due to the continued investment in product development to support new programs.
SG&A expense was $307 million in 2011, an increase of $42 million, or 16%, as compared to 2010. SG&A expense as
a percentage of net revenue increased to 3.2% in 2011 compared to 2.7% in 2010. This increase in SG&A expense was
primarily due to the expansion of sales and marketing to support new products and growing markets as well as $17
million of expenses related to the acquisition of HGST.
Other Income (Expense).
Other expense, net was $1 million in 2011 compared to $5 million in 2010. This
decrease was primarily due to an increase in interest income of $5 million due to higher average daily invested cash
balances and a $1 million decrease in our term loan interest expense due to a lower principal balance, partially offset
by acquisition-related debt commitment fees of $2 million.
Income Tax Provision.
Income tax expense was $54 million in 2011 as compared to $138 million in 2010. Tax
expense as a percentage of income before taxes was 7% in 2011 compared to 9% for 2010. Income tax expense for
2011 reflects the extension of the R&D tax credit that was signed into law in December 2010. The differences
between the effective tax rate and the U.S. Federal statutory rate are primarily due to tax holidays in Malaysia, Singa-
pore and Thailand that expire at various dates through 2023 and the current year generation of income tax credits.
We recognized a net increase of $15 million in our liability for unrecognized tax benefits during 2011. As of
July 1, 2011, we had a recorded liability for unrecognized tax benefits of approximately $245 million. Interest and
penalties recognized on such amounts were not material.
Liquidity and Capital Resources
We ended 2012 with total cash and cash equivalents of $3.2 billion, a decrease of $282 million from July 1,
2011. The following table summarizes our statements of cash flows for the three years ended June 29, 2012 (in
millions):
Years Ended
June 29,
2012
July 1,
2011
July 2,
2010
Net cash flow provided by (used in):
Operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 3,067
$1,655
$1,942
Investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4,167)
(793)
(986)
Financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
819
(106)
(16)
Effect of exchange rate changes on cash . . . . . . . . . . . . . . . . . .
(1)
--
--
Net increase (decrease) in cash and cash equivalents . . . . . . . . . .
$ (282)
$ 756
$ 940
Our investment policy is to manage our investment portfolio to preserve principal and liquidity while max-
imizing return through the full investment of available funds. We believe our cash, cash equivalents and cash gen-
erated from operations will be sufficient to meet our working capital, debt and capital expenditure needs for the next
twelve months. Our ability to sustain our working capital position is subject to a number of risks that we discuss in
Item 1A of this Annual Report on Form 10-K.
A total of $1.7 billion and $3.0 billion of our cash and cash equivalents was held outside of the United States at
June 29, 2012 and July 1, 2011, respectively. Substantially all of the amounts held outside of the United States are
intended to be indefinitely reinvested in foreign operations. Our current plans do not anticipate that we will need funds
generated from foreign operations to fund our domestic operations. In the event funds from foreign operations are
needed in the United States, any repatriation could result in the accrual and payment of additional U.S. income tax.
Operating Activities
Net cash provided by operating activities during 2012 was $3.1 billion as compared to $1.7 billion for 2011 and
$1.9 billion for 2010. Cash flow from operating activities consists of net income, adjusted for non-cash charges, plus
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