SanDisk 2006 Annual Report Download - page 146

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options were allegedly allocated to officers and employees of msystems in violation of applicable law. Mr. Rabbi
claimed that the aforementioned actions allegedly caused damage to msystems. On October 17, 2006, msystems
filed a motion to change its title in the motion to permit the filing of the derivative action from a “Formal
Respondent” to a “Respondent,” and Mr. Rabbi has consented to this motion. msystems received an extension of
time to file its response to the motion until March 25, 2007. On January 25, 2007, msystems filed a motion to
dismiss the motion to seek leave to file the derivative action and the derivative action on the grounds, inter alia, that
Mr. Rabbi ceased to be a shareholder of msystems after the merger between msystems and the Company.
On February 20, 2007, Texas MP3 Technologies Ltd. filed suit against the Company, Samsung Electronics Co.,
Ltd., Samsung Electronics America, Inc. and Apple Computer, Inc., Case No. 2:07-CV-52, in the Eastern District of
Texas, Marshall Division, alleging patent infringement related to MP3 players.
Note 15: Condensed Consolidating Financial Statements
As part of the acquisition of msystems, the Company entered into a supplemental indenture whereby the
Company became an additional obligor and guarantor of the assumed $75 million 1% Convertible Notes due 2035
issued by msystems Finance Company, (the “Subsidiary Issuer” or “mfinco”) and previously guaranteed by
msystems Ltd. (the “Other Guarantor Subsidiary” or “msystems”). SanDisk Corporation’s (the “Parent Company”
or the “Company”) guarantee is full and unconditional, jointly and severally with msystems. Both msystems and
mfinco are wholly-owned subsidiaries of the Company. The following condensed consolidating financial state-
ments present separate information for mfinco as the original issuer, the Company and msystems as guarantors and
the Company’s other combined non-guarantor subsidiaries, and should be read in conjunction with the consolidated
financial statements of the Company.
These condensed consolidating financial statements have been prepared using the equity method of account-
ing. Earnings of subsidiaries are reflected in the Company’s investment in subsidiaries account. The elimination
entries eliminate investments in subsidiaries, related stockholders’ equity and other intercompany balances and
transactions. Only fiscal year 2006 financials are presented as the inception of the guarantee by the Company
coincides only with the consummation of the acquisition of msystems on November 19, 2006. Therefore the results
of operations and statement of cashflow presented for mfinco and msystems represent the period from the date of
acquisition, November 19, 2006, to December 31, 2006.
Annual Report
F-47
Notes to Consolidated Financial Statements — (Continued)