SanDisk 2010 Annual Report Download - page 158

Natural disasters or epidemics in the countries in which we or our suppliers or subcontractors operate
could negatively impact our supply chain operations. Our supply chain operations, including those of our
suppliers and subcontractors, are concentrated in Milpitas, California; Raleigh, North Carolina; Astugi and
Yokkaichi, Japan; Hsinchu, Taichung and Tainan, Taiwan; Dongguan, Shanghai and Shenzen, China and
Singapore. 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 or H1N1 flu. If a natural
disaster or epidemic were to occur in one or more of these areas, we could incur a significant work or production
stoppage. The impact of these potential events is magnified by the fact that we do not have insurance for most
natural disasters, including earthquakes. The impact of a natural disaster could harm our business and results of
operations.
Disruptions in global transportation could impair our ability to deliver or receive product on a timely basis
or at all, causing harm to our financial results. Our raw materials, work-in-process and finished product are
primarily distributed via air. If there are significant disruptions in air travel, we may not be able to deliver our
products or receive raw materials. For example, the volcanic eruption in Iceland in April 2010 halted air traffic
for several days over Europe and disrupted other travel routes that pass through Europe, resulting in delayed
delivery of our products to certain European countries. In addition, a natural disaster that affects air travel in Asia
could disrupt our ability to receive raw materials in, or ship finished product from, our Shanghai facility or our
Asia-based contract manufacturers. As a result, our business and results of operations may be harmed.
We rely on information systems to run our business and any prolonged down time could materially impact
our business operations and/or financial results. We rely on an enterprise resource planning system, as well as
multiple other systems, databases, and data centers to operate and manage our business. Any information system
problems, programming errors or unanticipated system or data center interruptions could impact our continued
ability to successfully operate our business and could harm our financial results or our ability to accurately report
our financial results on a timely basis.
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, defined broadly as a beneficial owner of 15% or more of that corporation’s voting stock,
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 tax in the U.S. 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. For example, we are currently under a federal
income tax audit by the U.S. Internal Revenue Service, or IRS, for fiscal years 2005 through 2008. While we
regularly assess the likely outcomes of these audits in order to determine the appropriateness of our tax provision,
examinations are inherently uncertain and an unfavorable outcome could occur. An unanticipated unfavorable
30