SanDisk 2013 Annual Report Download - page 134

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 shares of preferred stock 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 harm 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, without certain conditions being satisfied. This provision could delay or
discourage 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 and other taxes 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 were under a federal income tax audit by the U.S. Internal Revenue Service, or IRS, for fiscal
years 2005 through 2008 and issued the Revenue Agent’s report in February 2012. The most significant
proposed adjustments are comprised of related party transactions between our U.S. parent entity and our
foreign subsidiaries. We are contesting these adjustments through the IRS Appeals Office and cannot
predict when a resolution will be reached. Furthermore, we are currently under a federal income tax audit
by the IRS for fiscal years 2009 through 2011, and we do not expect a resolution of this audit to be reached
during the next twelve months. While we regularly assess the likely outcomes of these audits in order to
determine the appropriateness of our tax provision, tax audits are inherently uncertain and an unfavorable
outcome could occur. An unanticipated unfavorable outcome in any specific period could harm our
operating results for that period or future periods. The financial cost and management attention and time
devoted to defending income tax positions may divert resources from our business operations, which could
harm our business and profitability. IRS audits may also impact the timing and/or amount of our refund
claims. 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 valuation of deferred tax assets and
liabilities, changes in tax laws and the discovery of new information in the course of our tax return
preparation process. In particular, the carrying value of deferred tax assets, which are predominantly in the
U.S., is dependent on our ability to generate future taxable income in the U.S.
We may be subject to risks associated with laws, regulations and customer initiatives relating to the
environment or other social responsibility issues. Production and marketing of products in certain states and
countries may subject us to environmental and other regulations including, in some instances, the
responsibility for environmentally safe disposal or recycling. Such laws and regulations have recently been
passed in several jurisdictions in which we operate, including Japan and certain states within the U.S. In
addition, climate change issues, energy usage and emissions controls may result in new environmental
legislation and regulations, at the international, federal or state level, that may make it more difficult or
expensive for us, our suppliers and our customers to conduct business. Any of these regulations could
cause us to incur additional direct costs, as well as increased indirect costs related to our relationships with
our customers and suppliers, and otherwise harm our operations and financial condition.
Government regulators or our customers may require us to comply with product or manufacturing
standards that are more restrictive than current laws and regulations related to environmental matters,
conflict minerals or other social responsibility initiatives. The implementation of these standards could
affect the sourcing, cost and availability of materials used in the manufacture of our products.
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