SanDisk 2010 Annual Report Download - page 232

Notes To Consolidated Financial Statements
Solid State Storage Solutions LLC. During the second quarter of fiscal year 2007, the Company formed
Solid State Storage Solutions LLC (“S4”), a venture with third parties to license intellectual property. S4
qualifies as a variable interest entity. The Company is considered the primary beneficiary of S4 and the Company
consolidates S4 in its Consolidated Financial Statements for all periods presented. The Company considered
multiple factors in determining it was still the primary beneficiary, including its overall involvement with the
venture, contributions and participation in operating activities. S4’s assets and liabilities were not material to the
Company’s Consolidated Balance Sheets as of January 2, 2011 and January 3, 2010.
Sale of Net Assets. In February 2010, the Company sold the net assets of its mobile phone SIM card business
for $17.8 million which resulted in a gain of $13.2 million recorded in other income (expense). The sale proceeds
are included in “Proceeds from sale of assets” in investing activities on the Consolidated Statements of Cash Flows.
The operating results of the mobile phone SIM card business were immaterial for all periods presented.
Note 14: Stockholders’ Rights Plan
On September 15, 2003, the Company amended its existing stockholder rights plan to terminate the rights
issued under that rights plan, and the Company adopted a new rights plan. Under the new rights plan, rights were
distributed as a dividend at the rate of one right for each share of common stock of the Company held by
stockholders of record as of the close of business on September 25, 2003. In November 2006, the Company
extended the term of the rights plan, such that the rights will expire on April 28, 2017 unless redeemed or
exchanged. Under the new rights agreement and after giving effect to the Company’s stock dividend effected on
February 18, 2004, each right will, under the circumstances described below, entitle the registered holder to buy
one two-hundredths of a share of Series A Junior Participating Preferred Stock for $225.00. The rights will
become exercisable only if a person or group acquires beneficial ownership of 15% or more of the Company’s
common stock or commences a tender offer or exchange offer upon consummation of which such person or
group would beneficially own 15% or more of the Company’s common stock.
Note 15: Litigation
The flash memory industry is characterized by significant litigation seeking to enforce patent and other
intellectual property rights. The Company’s patent and other intellectual property rights are primarily responsible
for generating license and royalty revenue. The Company seeks to protect its intellectual property through
patents, copyrights, trademarks, trade secrets, confidentiality agreements and other methods, and has been and
likely will continue to enforce such rights as appropriate through litigation and related proceedings. The
Company expects that its competitors and others who hold intellectual property rights related to its industry will
pursue similar strategies. From time-to-time, it has been and may continue to be necessary to initiate or defend
litigation against third parties. These and other parties could bring suit against the Company. In each case listed
below where the Company is the defendant, the Company intends to vigorously defend the action. At this time,
the Company does not believe it is reasonably possible that losses related to the litigation described below have
occurred beyond the amounts, if any, that have been accrued. However, legal discovery and litigation is highly
unpredictable and future legal developments may cause current estimates to change in future periods.
Patent Infringement Litigation Initiated by SanDisk. On October 24, 2007, the Company filed a complaint
for patent infringement in the United States District Court for the Western District of Wisconsin against the
following defendants: Phison Electronics Corp. (“Phison”); Silicon Motion Technology Corp., Silicon Motion,
Inc. (Taiwan), Silicon Motion, Inc. (California), and Silicon Motion International, Inc. (collectively, “Silicon
Motion”); Synergistic Sales, Inc. (“Synergistic”); USBest Technology, Inc. dba Afa Technologies, Inc.
(“USBest”); Skymedi Corp. (“Skymedi”); Chipsbank Microelectronics (HK) Co., Ltd., Chipsbank Technology
(Shenzhen) Co., Ltd., and Chipsbank Microelectronics Co., Ltd., (collectively, “Chipsbank”); Infotech Logistic
LLC (“Infotech”); Zotek Electronic Co., Ltd., dba Zodata Technology Ltd. (collectively, “Zotek”); Power
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