SanDisk 2008 Annual Report Download - page 32

and successfully integrate acquisitions could materially harm our business and operating results. Even when an
acquired company has already developed and marketed products, there can be no assurance that such products
will be successful after the closing, will not cannibalize sales of our existing products, that product enhancements
will be made in a timely fashion or that pre-acquisition due diligence will have identified all possible issues that
might arise with respect to such company. Failed business combinations, or the efforts to create a business
combination, can also result in litigation.
Our success depends on our key personnel, including our executive officers, the loss of whom could disrupt
our business. Our success greatly depends on the continued contributions of our senior management and other
key research and development, sales, marketing and operations personnel, including Dr. Eli Harari, our founder,
chairman and chief executive officer. We do not have employment agreements with any of our executive officers
and they are free to terminate their employment with us at any time. Our success will also depend on our ability
to recruit additional highly skilled personnel. Historically, a significant portion of our employee compensation
has been dependent on equity compensation, which is directly tied to our stock price. Currently, the equity
incentives for virtually all of our employees are underwater, and as a result, our equity compensation has little or
no retention value. In addition, we are not paying annual cash performance bonuses in fiscal year 2009 and may
not pay cash bonuses in fiscal year 2010. Furthermore, we have frozen salaries, instituted forced shutdown days,
and reduced certain employee benefits to reduce costs. These actions or any further reduction in compensation
elements may make it more difficult for us to hire or retain key personnel.
We may incur additional restructuring charges or not realize the expected benefits of new initiatives to
reduce costs across our operations. In fiscal year 2008, we pursued a number of initiatives to reduce costs across
our operations. These initiatives included workforce reductions in certain areas as we realigned our business. In
fiscal year 2008, we recorded charges of $36 million for employee severance and benefits for employee
reductions worldwide, marketing contract termination costs, technology license impairments, fixed asset
impairments, and other charges. We may record additional employee severance and related costs for terminated
employees in fiscal year 2009. We may not realize the expected benefits of these initiatives. In addition, we
continue to focus on reducing our costs. As a result of these initiatives, we expect to incur restructuring or other
charges and we may experience disruptions in our operations and loss of key personnel.
Terrorist attacks, war, threats of war and government responses thereto may negatively impact our operations,
revenues, costs and stock price. Terrorist attacks, U.S. military responses to these attacks, war, threats of war and
any corresponding decline in consumer confidence could have a negative impact on consumer retail demand, which
is the largest channel for our products. Any of these events may disrupt our operations or those of our customers and
suppliers and may affect the availability of materials needed to manufacture our products or the means to transport
those materials to manufacturing facilities and finished products to customers. Any of these events could also
increase volatility in the U.S. and world financial markets, which could harm our stock price and may limit the
capital resources available to us and our customers or suppliers, or adversely affect consumer confidence. We have
substantial operations in Israel including a development center in Northern Israel, near the border with Lebanon, and
a research center in Omer, Israel, which is near the Gaza Strip, areas that have recently experienced significant
violence and political unrest. Continued turmoil and unrest in Israel or the Middle East could cause delays in the
development or production of our products. This could harm our business and results of operations.
Natural disasters or epidemics in the countries in which we or our suppliers or subcontractors operate
could negatively impact our operations. Our operations, including those of our suppliers and subcontractors, are
concentrated in Milpitas, California; Raleigh, North Carolina; Brno, Czech Republic; Astugi and Yokkaichi,
Japan; Hsinchu and Taichung, Taiwan; and Dongguan, Futian, Shanghai and Shenzen, China. In the past, these
areas have been affected by natural disasters such as earthquakes, tsunamis, floods and typhoons, and some areas
have been affected by epidemics, such as avian flu. If a natural disaster or epidemic were to occur in one or more
of these areas, our operations could be significantly impaired and our business may be harmed. This is magnified
by the fact that we do not have insurance for most natural disasters, including earthquakes. This could harm our
business and results of operations.
28