SanDisk 2002 Annual Report Download - page 30

2 8 S a nD isk C o rp o ra tio n
currently engaged in various political disputes w ith China
and in the past both countries have conducted m ilitary exer-
cises in or near the other’s territorial w aters and airspace.
The Taiw anese and Chinese governm ents m ay escalate
these disputes, resulting in an econom ic em bargo, a disrup-
tion in shipping routes or even m ilitary hostilities. This could
harm our business by interrupting or delaying the production
or shipm ent of flash m em ory w afers or card products by our
Taiw anese or Japanese foundries and subcontractors.
Under its current leadership, the Chinese governm ent has
been pursuing econom ic reform policies, including the
encouragem ent of foreign trade and investment and greater
econom ic decentralization. The Chinese governm ent m ay
not continue to pursue these policies and, even if it does
continue, these policies m ay not be successful. The Chinese
governm ent m ay also significantly alter these policies from
tim e to tim e. In addition, China does not currently have a
comprehensive and highly developed legal system , particu-
larly w ith respect to the protection of intellectual property
rights. As a result, enforcement of existing and future law s
and contracts is uncertain, and the im plem entation and
interpretation of such laws m ay be inconsistent. Such incon-
sistency could lead to piracy and degradation of our intellec-
tual property protection.
Although w e do not believe the current political unrest
and continuing escalation of violence in Israel represent a
m ajor security problem for Tow er since M igdal Haemek,
Israel is in a relatively secure geographic location, the unrest
m ay expand and even if it rem ains at current levels, could
cause scheduling delays, as w ell as econom ic uncertainty,
w hich could cause potential foundry custom ers to go else-
w here for their foundry business. M oreover, if U.S. m ilitary
actions in Afghanistan, Iraq or elsew here, or current Israeli
m ilitary actions, result in retaliation against Israel, Tow er’s
fabrication facility and our engineering design center in Israel
m ay be adversely im pacted. In addition, w hile the political
unrest has not yet posed a direct security risk to our engi-
neering design center in Israel, it m ay cause unforeseen
delays in the developm ent of our products and m ay in the
future pose such a direct security risk.
Ec ono m ic risks. We price our products prim arily in U.S.
Dollars. If the Euro, Yen and other currencies w eaken rela-
tive to the U.S. Dollar, our products m ay be relatively m ore
expensive in these regions, w hich could result in a decrease
in our sales. While m ost of our sales are denom inated in
U.S. Dollars, w e invoice certain Japanese custom ers in
Japanese Yen and are subject to exchange rate fluctuations
on these transactions, w hich could harm our business,
financial condition and results of operations.
Gene ral risks. Our international business activities could
also be limited or disrupted by any of the follow ing factors:
• the need to com ply w ith foreign governm ent regulation;
• general geopolitical risks such as political and econom ic
instability, potential hostilities and changes in diplom atic
and trade relationships;
• natural disasters affecting the countries in w hich w e
conduct our business, particularly Japan, such as the
earthquakes experienced in Taiw an in 1999 and in Japan
and China in previous years;
• im position of regulatory requirem ents, tariffs, im port and
export restrictions and other barriers and restrictions;
• longer paym ent cycles and greater difficulty in accounts
receivable collection, particularly as w e increase our
sales through the retail distribution channel, and general
business conditions deteriorate;
• adverse tax rules and regulations;
• w eak protection of our intellectual property rights; and
• delays in product shipm ents due to local custom s
restrictions.
Terro rist attac ks and threats, and g o ve rnm e nt
res pons e s there to, m ay ne g a tively im p ac t all asp e c ts o f
our o p erations, re ve nues , c osts and sto c k p ric e .
The terrorist attacks in the United States, the U.S. retalia-
tion for these attacks, the w ar in Iraq and threats of w ar
elsew here and the related decline in consum er confidence
and continued econom ic w eakness have had a substantial
adverse im pact on our retail sales. Any escalation in these
events or sim ilar future events m ay disrupt our operations or
those of our custom ers and suppliers and m ay affect the
availability of m aterials needed to m anufacture our products
or the m eans to transport those m aterials to m anufacturing
facilities and finished products to custom ers. In addition,
these events have had and m ay continue to have an
adverse im pact on the U.S. and w orld econom y in general
and consum er confidence and spending in particular, w hich
could harm our sales. In addition, recent consumer reports
indicate that consumer confidence has reached its low est
level since 1993. If consum er confidence continues to
decline or does not recover, our revenues and results of
operations m ay be adversely im pacted throughout 2003 and
beyond. Any of these events could increase volatility in the
U.S. and w orld financial m arkets, w hich could harm our
stock price and m ay lim it the capital resources available to
us and our custom ers or suppliers. This could have a signifi-
cant im pact on our operating results, revenues and costs
and m ay result in increased volatility in the m arket price of
our com m on stock.
Re c e ntly e nac te d and pro p o se d c ha ng e s in se c urities
law s a nd re g ulations are like ly to inc re ase o ur c osts .
The Sarbanes- Oxley Act of 2002 that becam e law in July
2002 requires changes in our corporate governance, public
disclosure and compliance practices. The Act also requires
the SEC to prom ulgate new rules on a variety of subjects. In
addition to final rules and rule proposals already m ade,
Nasdaq has proposed revisions to its requirem ents for com -
panies, such as us, that are Nasdaq-listed. We expect these
developm ents to increase our legal and financial com pliance
costs, and to m ake som e activities m ore difficult, such as
stockholder approval of new option plans. We expect these
developm ents to m ake it m ore difficult and m ore expensive
for us to obtain director and officer liability insurance, and
w e m ay be required to accept reduced coverage or incur
substantially higher costs to obtain coverage. These devel-
opments could m ake it m ore difficult for us to attract and
retain qualified m em bers of our board of directors, particu-
larly to serve on our audit com m ittee and qualified executive
officers. We are presently evaluating and m onitoring regula-
tory developm ents and cannot estim ate the tim ing or m ag-
nitude of additional costs we m ay incur as a result.
Risk s Re la te d to O ur C ha rte r D oc um e nts,
Stoc khold e r Rig hts Pla n, O ur Stoc k P rice a nd Our
D e bt Ra ting
Anti-take o ve r p ro visions in o ur c harter d o c um ents,
sto c kho lde r rig hts p lan a nd in De law are law c o uld