SanDisk 2006 Annual Report Download - page 72

To manage our growth, we may need to improve our systems, controls and procedures and relocate portions of
our business to new or larger facilities. We have experienced and may continue to experience rapid growth, which
has placed, and could continue to place a significant strain on our managerial, financial and operations resources
and personnel. Our number of employees, including management-level employees, has increased significantly, due
to our acquisition of msystems. We must continue to improve our operational, accounting and financial systems and
managerial controls and procedures, including fraud procedures, and we will need to continue to expand, as well as,
train and manage our workforce. From time-to-time, we may need to relocate portions of our business to new or
larger facilities, which could result in disruption of our business or operations. For example, in May 2006, we
relocated our corporate headquarters and significant engineering operations, including labs and data centers, to new
facilities in Milpitas, California. If we do not manage our growth effectively, including transitions to new or larger
facilities, our business could be harmed.
We may need to raise additional financing, which could be difficult to obtain, and which if not obtained in
satisfactory amounts may prevent us from funding the ventures with Toshiba, increasing our wafer supply,
developing or enhancing our products, taking advantage of future opportunities, growing our business or
responding to competitive pressures or unanticipated industry changes, any of which could harm our business.
We currently believe that we have sufficient cash resources to fund our operations as well as our investments in the
ventures with Toshiba for at least the next twelve months; however, we may in the future raise additional funds,
including funds to meet our obligations with respect to Flash Partners and Flash Alliance, and we cannot be certain
that we will be able to obtain additional financing on favorable terms, if at all. From time-to-time, we may decide to
raise additional funds through public or private debt, equity or lease financings. If we issue additional equity
securities, our stockholders will experience dilution and the new equity securities may have rights, preferences or
privileges senior to those of existing holders of common stock. If we raise funds through debt or lease financing, we
will have to pay interest and may be subject to restrictive covenants, which could harm our business. If we cannot
raise funds on acceptable terms, if and when needed, we may not be able to develop or enhance our products, fulfill
our obligations to Flash Partners and Flash Alliance, take advantage of future opportunities, grow our business or
respond to competitive pressures or unanticipated industry changes, any of which could have a negative impact on
our business.
Anti-takeover provisions in our charter documents, stockholder rights plan and in Delaware law could
discourage or delay a change in control and, as a result, negatively impact our stockholders. We have taken a
number of actions that could have the effect of discouraging a takeover attempt. For example, we have a
stockholders’ rights plan that would cause substantial dilution to a stockholder, and substantially increase the
cost paid by a stockholder, who attempts to acquire us on terms not approved by our board of directors. This could
discourage an acquisition of us. In addition, our certificate of incorporation grants our board of directors the
authority to fix the rights, preferences and privileges of and issue up to 4,000,000 shares of preferred stock without
stockholder action (2,000,000 of which have already been reserved under our stockholder rights plan). Issuing
preferred stock could have the effect of making it more difficult and less attractive for a third party to acquire a
majority of our outstanding voting stock. Preferred stock may also have other rights, including economic rights
senior to our common stock that could have a material adverse effect on the market value of our common stock. In
addition, we are subject to the anti-takeover provisions of Section 203 of the Delaware General Corporation Law.
This section provides that a corporation may not engage in any business combination with any interested
stockholder during the three-year period following the time that a stockholder became an interested stockholder.
This provision could have the effect of delaying or discouraging a change of control of SanDisk.
Unanticipated changes in our tax provisions or exposure to additional income tax liabilities could affect our
profitability. We are subject to income taxes in the United States and numerous foreign jurisdictions. Our tax
liabilities are affected by the amounts we charge for inventory, services, licenses, funding and other items in
intercompany transactions. We are subject to ongoing tax audits in various jurisdictions. Tax authorities may
disagree with our intercompany charges or other matters and assess additional taxes. We regularly assess the likely
outcomes of these audits in order to determine the appropriateness of our tax provision. However, there can be no
assurance that we will accurately predict the outcomes of these audits, and the actual outcomes of these audits could
have a material impact on our net income or financial condition. In addition, our effective tax rate in the future could
be adversely affected by changes in the mix of earnings in countries with differing statutory tax rates, changes in the
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