SanDisk 2005 Annual Report Download - page 98

• imposition of regulatory requirements, tariffs, import and export restrictions and other barriers and
restrictions;
• imposition of additional duties, charges and/or fees related to customs entries for our products, which are all
manufactured offshore;
• inability to successfully manage our foreign exchange exposures;
• longer payment cycles and greater difficulty in accounts receivable collection;
• adverse tax rules and regulations;
• weak protection of our intellectual property rights; and
• delays in product shipments due to local customs restrictions.
Tower Semiconductor’s Financial Situation is Challenging. Tower supplies a significant portion of our
controller wafers from its Fab 2 facility and is currently a sole source of supply for some of our controllers. Tower’s
Fab 2 is operational but has not been completed and a continued supply of controllers to us from Tower on a cost-
effective basis may be dependent on this completion. Tower’s completion of the equipment installation, technology
transfer and ramp-up of production at Fab 2 is dependent upon Tower (a) having, or being able to raise, sufficient
funds to complete the Fab 2 project; (b) meeting the conditions to receive Israeli government grants and tax benefits
approved for Fab 2; and (c) obtaining the approval of the Israeli Investment Center to extend the five-year
investment period under its Fab 2 approved enterprise program. In addition, Tower recently entered into an
amendment to the credit facility agreement with its banks. If Tower fails to raise funds in the amounts and at the
times required under the amended credit facility agreement or otherwise fails to comply with the revised financial
ratios and covenants to avoid being in default under its amended bank credit agreements, Tower may have to cease
operations. If this occurs, we will be forced to source our controllers from another supplier and our business,
financial condition and results of operations may be harmed. Specifically, our ability to supply a number of products
would be disrupted until we were able to transition manufacturing and qualify a new foundry with respect to
controllers that are currently sole sourced at Tower, which could take three or more quarters to complete.
We have recognized cumulative losses of approximately $53.6 million as a result of the other-than-temporary
decline in the value of our investment in Tower ordinary shares, $10.1 million as a result of the impairment in value
on our prepaid wafer credits and $1.3 million of losses on our warrant to purchase Tower ordinary shares as of
January 1, 2006. Of the approximately 10.2 million Tower ordinary shares we own, we agreed not to sell
approximately 7.2 million shares at January 1, 2006. This restriction is no longer in effect in fiscal 2006; however,
we do remain subject to certain restrictions on the transfer of our Tower ordinary shares including certain rights of
first refusal, and through January 2008, have agreed to maintain minimum shareholdings. It is possible that we will
record further write-downs of our investment, which was carried on our consolidated balance sheet at $12.9 million
as of January 1, 2006, which would harm our results of operations and financial condition.
Our stock price has been, and may continue to be, volatile, which could result in investors losing all or part of
their investments. The market price of our stock has fluctuated significantly in the past and may continue to
fluctuate in the future. We believe that such fluctuations will continue as a result of many factors, including future
announcements concerning us, our competitors or principal customers regarding financial results or expectations,
technological innovations, new product introductions, governmental regulations, the commencement or results of
litigation or changes in earnings estimates by analysts. In addition, in recent years the stock market has experienced
significant price and volume fluctuations and the market prices of the securities of high technology and semi-
conductor companies have been especially volatile, often for reasons outside the control of the particular
companies. These fluctuations as well as general economic, political and market conditions may have an adverse
affect on the market price of our common stock.
We may make acquisitions that are dilutive to existing stockholders, result in unanticipated accounting charges
or otherwise adversely affect our results of operations, and result in difficulties in assimilating and integrating the
operations, personnel, technologies, products and information systems of acquired companies or businesses. We
continually evaluate and explore strategic opportunities as they arise, including business combinations, strategic
partnerships, collaborations, capital investments and the purchase, licensing or sale of assets. If we issue equity
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Annual Report