SanDisk 2006 Annual Report Download - page 75

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There are numerous risks associated with our acquisition of msystems. On November 19, 2006, we acquired
msystems. There are numerous risks associated with our acquisition of msystems, including the risks described
below.
Although we expect that the merger will result in benefits to us, those benefits may not occur because of
integration and other challenges, and failure to realize the benefits of the merger may result in the dilution of our per
share operating results. Achieving the expected benefits of the merger will depend on the timely and efficient
integration of our and msystems’ technology, product lines, operations, business culture and personnel. This will be
particularly challenging due to the fact that msystems is headquartered in Israel and we are headquartered in
California. The integration may not be completed as quickly as expected, and if we fail to effectively integrate the
companies or the integration takes longer than expected, we may not achieve the expected benefits of the merger.
The challenges involved in this integration include, among others:
• retaining the customers and sales distribution channels of both companies;
• maintaining employee morale and retaining key employees;
• retaining key sources of supply;
• incorporating msystems’ technology and products into our business and future product lines;
• integrating msystems’ sales force into our worldwide product sales network;
• demonstrating to msystems’ customers that the merger will not result in adverse changes in pricing,
customer service standards or product support;
• coordinating research and development activities to enhance introduction of new products and technologies;
• integrating msystems’ internal control over financial reporting with our internal control over financial
reporting;
• migrating both companies to a common enterprise resource planning information system to integrate all
operations, sales and administrative activities for the combined companies in a timely and cost effective
way;
• integrating msystems’ international operations with ours;
• integrating the business cultures of both companies; and
• ensuring there are no delays in releasing new products to market.
This integration effort will be international in scope, complex, time consuming and expensive, and may disrupt
our respective businesses or result in the loss of customers or key employees or the diversion of the attention of
management. Neither msystems nor we have experience in integrating businesses and operations of this magnitude
and scope. Integration will be particularly difficult because certain key members of msystems’ senior management
are no longer with the combined company. In addition, the integration process may strain our financial and
managerial controls and reporting systems and procedures. This may result in the diversion of management and
financial resources from our core business objectives. There can be no assurance that we and msystems will
successfully integrate our respective businesses or that we will realize the anticipated benefits of the merger. If we
do not realize the expected benefits of the merger, including the achievement of operating synergies, the merger
could result in a reduction of our per share earnings as compared to the per share earnings that would have been
achieved by us had the merger not occurred.
In addition, msystems’ headquarters and significant operations are located in Israel. Therefore, political,
economic and military conditions in Israel directly affect its business and operations. We cannot predict the effect of
continued or increased violence in Lebanon or Gaza, or the effect of military action elsewhere in the Middle East.
Continued armed conflicts or political instability in the region would harm business conditions and could adversely
affect the combined company’s results of operations. Furthermore, several countries continue to restrict or ban
business with Israel and Israeli companies. These restrictive laws and policies may limit the combined company’s
ability to make sales in those countries.
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