SanDisk 2008 Annual Report Download

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Table of contents

  • Page 1

  • Page 2

  • Page 3
    ...-nanometer and 32-nanometer, our industry-leading 4-bits per cell NAND on 43-nanometer, and advanced development of 24-nanometer NAND. In 2008, we entered into a joint development and license agreement with Toshiba to further the development of our 3D Read/Write technology, which we believe has the...

  • Page 4
    ...increase attach rates for cards in slotted phones, to boost the storage capacity per card, and to open up new applications with preloaded content cards such as our slotMusicâ„¢ and slotRadioâ„¢ cards. Recently, at the World Mobile Congress, we launched our Service Delivery Card, a new product family...

  • Page 5
    ...Identification No.) 601 McCarthy Blvd. Milpitas, California (Address of principal executive offices) 95035 (Zip Code) (408) 801-1000 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which...

  • Page 6
    ... 28, 2008 EXPLANATORY NOTE SanDisk Corporation (the "Company") is filing this Amendment No. 1 to its Annual Report on Form 10-K for the year ended December 28, 2008, which was originally filed on February 25, 2009 (the "Original 10-K"), to correct a clerical error in which a number was placed in the...

  • Page 7
    ..., Executive Officers and Corporate Governance ...Executive Compensation ...Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters ...Certain Relationships and Related Transactions, and Director Independence ...Principal Accountant Fees and Services ...PART...

  • Page 8
    ... sell SanDisk branded products for consumer electronics through broad global retail and original equipment manufacturer, or OEM, distribution channels. We design, develop and manufacture products and solutions in a variety of form factors using our flash memory, controller and firmware technologies...

  • Page 9
    ... CF, standard. Through our internal development and technology obtained through acquisitions, we also hold key intellectual property for USB drives. We plan to continue to work with leading mobile communications and digital consumer device companies to discover new markets for flash storage products...

  • Page 10
    ... and we provide SD cards, Memory Stick PRO Duo™ cards and USB drives that are all specifically packaged for the gaming market. We also sell a line of digital media players with both embedded and removable memory under our Sansa® brand with varying combinations of audio and video capabilities. We...

  • Page 11
    ..., and Japan. • OEM. Our OEM customers include manufacturers of mobile phones, digital cameras, PCs, GPS and other digital consumer devices, such as gaming devices. Our products are sold directly to OEMs and through distributors. We support our OEM customers through our direct sales representatives...

  • Page 12
    ... are specifically designed to support secure and authorized access to corporate information. Embedded and Semi-Removable Products. Our embedded products are a set of reliable, high-capacity, high performance and cost-effective embedded flash memory drive solutions for both data and code storage. Our...

  • Page 13
    ...chip inside our cards is designed to detect such defects and recover data under most standard conditions. Patents and Licenses. We rely on a combination of patents, trademarks, copyright and trade secret laws, confidentiality procedures and licensing arrangements to protect our intellectual property...

  • Page 14
    ... the overall market for flash memory; our intellectual property ownership, in particular our patent claims and MLC manufacturing knowhow, provides us with license and royalty revenue as well as certain cost advantages; Flash Ventures provide us with leading edge, low-cost flash memory; we market and...

  • Page 15
    ..., Toshiba, and others. Our SSDs also face competition from hard disk drives, which are offered by companies including, among others, Seagate Technology LLC, or Seagate, Samsung and Western Digital Corporation, or Western Digital. Digital Audio/Video Player Manufacturers. Our digital audio/video...

  • Page 16
    ... Product Development, and Director of Memory Design and Product Engineering. Mr. Mehrotra has more than 29 years of experience in the non-volatile semiconductor memory industry including engineering and engineering management positions at SanDisk, Integrated Device Technology, Inc., SEEQ Technology...

  • Page 17
    ... and managing inventory levels due to noncancelable contractual obligations to purchase materials, such as custom non-memory materials, and the need to build finished product in advance of customer purchase orders; timing, volume and cost of wafer production from Flash Ventures as impacted...

  • Page 18
    ...through the first quarter of fiscal year 2009. Our ability to return to or sustain profitability on a quarterly or annual basis in the future depends in part on industry and our supply/demand balance, our ability to develop new products and technologies, the rate of growth of our target markets, the...

  • Page 19
    ... impact our business, financial condition and results of operations. A significant portion of our sales are made through retailers, either directly or through distributors. Sales through these channels typically include rights to return unsold inventory and protection against price declines, as...

  • Page 20
    ... markets for flash memory include digital audio and video players, USB drives and SSDs. We cannot assure you that the use of flash memory in mobile handsets or other existing markets and products will develop and grow fast enough, or that new markets will adopt NAND flash technologies in general...

  • Page 21
    ... to manage risks associated with new products and production ramp issues. New applications, such as the adoption of flash-based SSDs that are designed to replace hard disk drives in devices such as computers and servers, can take several years to develop. We cannot guarantee that manufacturers will...

  • Page 22
    ... flash memory chips in high volumes at low costs and to sell these flash memory chips themselves or to our flash card competitors at a low cost. Some of our competitors may sell their flash memory chips at or below their true manufacturing costs to gain market share and to cover their fixed costs...

  • Page 23
    ... upon the exchange rate at December 28, 2008, covered by our guarantee under such Flash Ventures master lease agreements, which would substantially deplete our cash position and may force us to seek additional financing, which may or may not be available. The semiconductor industry is subject to...

  • Page 24
    ... memory industry is currently experiencing significant excess supply, reduced demand, high inventory levels, and accelerated declines in selling prices. If the oversupply of NAND-based flash products continues, we may be forced to hold excessive inventory, sell our inventory below cost, and record...

  • Page 25
    ... contain errors or defects, our overall supply could be adversely affected. These factors could result in the rejection of our products, damage to our reputation, lost revenues, diverted development resources, increased customer service and support costs and warranty claims and litigation. We record...

  • Page 26
    ..., we may be forced to write-down excess inventory or write-down inventory to the lower of cost or market, as was the case in fiscal year 2008, which may harm our financial condition and results of operations. During periods of excess supply in the market for our flash memory products, we may lose...

  • Page 27
    ... negatively impact our business, results of operations and financial condition. We may be unable to protect our intellectual property rights, which would harm our business, financial condition and results of operations. We rely on a combination of patents, trademarks, copyright and trade secret 23

  • Page 28
    ... of Wisconsin and one action in the United States International Trade Commission against 25 companies that manufacture, sell and import USB flash drives, CompactFlash cards, multimedia cards, MP3/media players and/or other removable flash storage products. There can be no assurance that we will...

  • Page 29
    ... in one or more geographic locations. If we or our suppliers are enjoined from selling any of our respective products or if we are required to develop new technologies or pay significant monetary damages or are required to make substantial royalty payments, our business would be harmed. We may...

  • Page 30
    ...may lead to higher volatility in our stock price, the need for significant working capital investments in receivables and inventory and our need to build inventory levels in advance of our most active selling seasons. Because of our international business and operations, we must comply with numerous...

  • Page 31
    ...of acquired technologies and product development through volume production, unanticipated costs and expenditures, changing relationships with customers, suppliers and strategic partners, or contractual, intellectual property or employment issues. In addition, key personnel of an acquired company may...

  • Page 32
    ... fiscal year 2008, we recorded charges of $36 million for employee severance and benefits for employee reductions worldwide, marketing contract termination costs, technology license impairments, fixed asset impairments, and other charges. We may record additional employee severance and related costs...

  • Page 33
    ... in fiscal year 2009. This project requires significant investment, the re-engineering of many processes used to run our business, and the attention of many employees and managers who would otherwise be focused on other aspects of our business. The design and implementation of the new ERP system...

  • Page 34
    ... decline. Additionally, adverse publicity related to the disclosure of a material weakness or deficiency in internal controls could have a negative impact on our reputation, business and stock price. Any internal control or procedure, no matter how well designed and operated, can only provide...

  • Page 35
    ... agreements to increase manufacturing capacity, including the expansion of Fab 4. As of December 28, 2008, we had guarantee obligations for Flash Venture master lease agreements of approximately $2.09 billion. In addition, we have significant commitments for the future fixed costs of Flash Ventures...

  • Page 36
    ...; and New Delhi, India; and design centers in Omer and Tefen, Israel; Edinburgh, Scotland; Bangalore, India and Madrid, Spain. ITEM 3. LEGAL PROCEEDINGS The flash memory industry is characterized by significant litigation seeking to enforce patent and other intellectual property rights. The Company...

  • Page 37
    ...one of the Company's U.S. patents, U.S. Patent No. 5,172,338 (the "'338 patent"), and also alleges that several of ST's patents are invalid and not infringed. On June 18, 2007, the Company filed an amended complaint, removing several of the Company's declaratory judgment claims. At a case management...

  • Page 38
    ... Texas, Civil Action No. 6:07-CV-00374-LED. The complaint alleges that a memory controller used in the Company's flash memory devices infringes U.S. Patent No. 5,208,725. Lonestar sought a permanent injunction, actual damages, treble damages for willful infringement, and costs and attorney fees. The...

  • Page 39
    ... Office. This motion was granted and on June 4, 2008, the action is currently stayed. On October 24, 2007, the Company filed a complaint under Section 337 of the Tariff Act of 1930 (as amended) (Inv. No. 337-TA-619) titled, "In the matter of flash memory controllers, drives, memory cards, and media...

  • Page 40
    ...Infotech, Interactive, PNY, TSR and Welldone. The Company also voluntarily dismissed its claims against Acer and Synergistic without prejudice. The Company also voluntarily dismissed its claims against Corsair in light of its agreement to sell flash memory products only under license or consent from...

  • Page 41
    ...District of California in a purported class action captioned In re Flash Memory Antitrust Litigation, Civil Case No. C07-0086. Plaintiffs allege the Company and a number of other manufacturers of flash memory products conspired to fix, raise, maintain, and stabilize the price of NAND flash memory in...

  • Page 42
    ... to transfer the case to the United States District Court for the Northern District of California, where it is now Case No. 3:09-CV-01813. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the fourth quarter of fiscal year 2008...

  • Page 43
    ... PURCHASES OF EQUITY SECURITIES Market For Our Common Stock. Our common stock is traded on the NASDAQ Global Select Market, or NASDAQ, under the symbol "SNDK." The following table summarizes the high and low sale prices for our common stock as reported by the NASDAQ. High Low 2007 First quarter...

  • Page 44
    ...) and year (which ends on the Sunday closest to December 31), and the S&P 500 Stock Index, S&P Semiconductor Company Stock Index and PHLX Semiconductor Index are based on our fiscal quarters and year. $250 $200 $150 $100 $50 $0 2003 2004 2005 2006 2007 2008 SanDisk Corporation S&P 500...

  • Page 45
    ... DATA SANDISK CORPORATION SELECTED FINANCIAL DATA December 28, 2008 (1) Fiscal Years Ended December 30, December 31, January 1, 2007 (2) 2006 (3) 2006 (4) (In thousands, except per share data) January 2, 2005 (5) Revenues Product ...License and royalty ...Total revenues ...Cost of product revenues...

  • Page 46
    ...use in portable devices. We sell SanDisk branded products for consumer electronics through broad global retail and OEM distribution channels. We design, develop and manufacture products and solutions in a variety of form factors using our flash memory, controller and firmware technologies. We source...

  • Page 47
    ... an increasing number of gigabytes and/or units of memory and that over time, new markets will emerge. In order to profitably capitalize on price elasticity of demand in the market for flash storage products, we must reduce our cost per gigabyte at a rate similar to the change in selling price per...

  • Page 48
    ...generally under agreements allowing price protection and/or right of return and, therefore, the sales and related costs of these transactions are deferred until the retailers or distributors sell the merchandise to their end customer, or the rights of return expire. At December 28, 2008 and December...

  • Page 49
    ... revenue for customer and distributor incentive programs and offerings, including price protection, promotions, co-op advertising, and other volume-based incentives and expected returns. Additionally, we have incentive programs that require us to estimate, based on historical experience, the number...

  • Page 50
    ... year 2008 compared to fiscal year 2007 decreased in all geographical regions due to aggressive industry price declines partially offset by unit sales growth in all regions except Japan. Revenue and unit sales in Japan declined on a year over year basis due to lower sales of OEM USB drives and cards...

  • Page 51
    ... impacted by charges for excess inventory of certain products and Flash Alliance venture costs, partially offset by insurance proceeds related to claims on a fab power outage that occurred in the first quarter of fiscal year 2006. In addition, cost of product increased due to amortization of...

  • Page 52
    ...by lower share-based compensation expense of ($10) million and lower Flash Venture related costs of ($7) million. The growth in fiscal year 2008 research and development expense reflects parallel investment in NAND X2, X3 and X4 storage technologies, and 3D Read/ Write memory architecture technology...

  • Page 53
    ... our annual impairment test on the first day of the fourth quarter of fiscal year 2008 and determined that the goodwill was not impaired. However, based on a combination of factors, including the economic environment, current and forecasted operating results, NAND-industry pricing conditions...

  • Page 54
    ...-related intangible assets for the fiscal year ended December 31, 2007 was directly related to twelve months of amortization in fiscal year 2007 from our acquisition of msystems compared to less than two months of amortization in fiscal year 2006. Write-off of Acquired In-Process Technology. FY 2008...

  • Page 55
    ... in fiscal year 2008. Of these charges, $15 million related to severance and benefits for employee reductions worldwide and $21 million related to marketing contract termination costs, technology license impairments and fixed asset impairments related to outsourcing certain manufacturing activities...

  • Page 56
    ... at fiscal year 2008 year end, an increase in other liabilities related to Flash Ventures capacity under utilization accrual, timing of the cash settlement of outstanding hedge contracts, and lower deferred income on shipments to distributors and retailers related to lower revenue levels. Operating...

  • Page 57
    ... was unsuccessful, we could be required to pay a portion or the entire outstanding lease obligations covered by our guarantee under such Flash Ventures master lease agreements of up to $2.09 billion, based upon the exchange rate at December 28, 2008, which could negatively impact our short-term...

  • Page 58
    ..., we account for our investments under the equity method and do not consolidate. Under Flash Ventures' agreements, we agreed to share in Toshiba's costs associated with NAND product development and our common semiconductor research and development activities. As of December 28, 2008, we 54

  • Page 59
    ... obligation related to Flash Ventures is variable based on an annual forecasted joint research and development costs as mutually agreed upon by us and Toshiba. In addition to general NAND product development and common semiconductor research performed by Toshiba, both parties perform direct research...

  • Page 60
    ... of our NAND flash wafers. In addition, we also have significant costs denominated in the Chinese renminbi, or RMB, and the Israeli New shekel, or ILS. We do not enter into derivatives for speculative or trading purposes. In fiscal years 2008 and 2007, we used foreign currency forward contracts to...

  • Page 61
    ... accumulated OCI and subsequently recognized in cost of product revenues in the same period the hedged cost of product revenues is recognized. At December 28, 2008 we had foreign currency forward exchange contracts in place that amounted to a net sale in U.S. dollar equivalent of approximately $577...

  • Page 62
    ... officer and principal financial officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 as of the end of the period covered by this report...

  • Page 63
    ... about the likelihood of future events. Changes in Internal Control over Financial Reporting. There were no changes in our internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f)) during the quarter ended December 28, 2008 that have materially affected, or are reasonably...

  • Page 64
    ... Awards at Fiscal 2008 Year-End" and "Option Exercises and Stock Vested in Fiscal 2008" in our Proxy Statement for our 2009 Annual Meeting of Stockholders, and is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS...

  • Page 65
    ...report 1) All financial statements Index to Financial Statements Page Reports of Independent Registered Public Accounting Firm ...Consolidated Balance Sheets ...Consolidated Statements of Operations... required by Item 601 of Regulation S-K The information required by this item is set forth on the ...

  • Page 66
    SANDISK CORPORATION INDEX TO FINANCIAL STATEMENTS Page Reports of Independent Registered Public Accounting Firm ...Consolidated Balance Sheets ...Consolidated Statements of Operations ...Consolidated Statements of Stockholders' Equity ...Consolidated Statements of Cash Flows ...Notes to ...

  • Page 67
    ... ended December 28, 2008, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of SanDisk Corporation's internal control over financial reporting...

  • Page 68
    ... internal control over financial reporting as of December 28, 2008, based on the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Consolidated Balance Sheets of SanDisk Corporation as of December 28, 2008...

  • Page 69
    ... of $13,881 in fiscal year 2008 and $13,790 in fiscal year 2007 ...Inventory ...Deferred taxes ...Other current assets ...Total current assets ...Long-term investments ...Property and equipment, net ...Notes receivable and investments in flash ventures with Toshiba ...Deferred taxes ...Goodwill...

  • Page 70
    SANDISK CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS Fiscal Years Ended December 28, December 30, December 31, 2008 2007 2006 (In thousands, except per share amounts) Revenues Product ...License and royalty ...Total revenues ...Cost of product revenues ...Amortization of acquisition-related ...

  • Page 71
    ... from stock options exercised ...Share-based compensation expense and reversal of deferred compensation ...Purchased calls ...Sold warrants ...Tax benefit on purchased calls ...Issuance of stock and equity awards related to acquisitions ...Reclass of premium on assumed msystems convertible debt...

  • Page 72
    ... of acquired in-process technology ...- - 225,600 Impairment, restructuring and other charges ...1,146,407 - - Other non-cash charges (income) ...18,940 12,721 (2,793) Changes in operating assets and liabilities: Accounts receivable from product revenues ...332,113 145,657 (115,061) Inventory ...(42...

  • Page 73
    ... under agreements allowing price protection and/ or a right of return and, therefore, the revenues and related costs of these transactions are deferred until the retailers or distributors sell-through the merchandise to their end customer, or the rights of return expire. Estimated sales returns are...

  • Page 74
    ... programs are recorded as an offset to product revenues or deferred revenues. Marketing development programs are recorded as a reduction to revenue in compliance with Emerging Issues Task Force No. 01-9 ("EITF 01-9"), Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller...

  • Page 75
    ...) or Cost of Product Revenues in the accompanying Consolidated Statements of Operations. See Note 4, "Balance Sheet Information-Notes Receivable and Investments in Flash Ventures with Toshiba," regarding impairment of equity method investments in fiscal year 2008. Inventories and Inventory Valuation...

  • Page 76
    ... in an impairment charge and such a charge could have a material adverse effect on the Company's consolidated results of operations. See Note 5, "Goodwill and Intangible Assets," regarding impairment of long-lived assets in fiscal year 2008. Fair Value of Financial Instruments. For certain of the...

  • Page 77
    ... for fiscal years beginning after December 15, 2008, with early application prohibited, and requires retrospective application to all periods presented. The following tables illustrate the Company's convertible long-term debt, net income (loss) and net income (loss) per share on an as reported basis...

  • Page 78
    ... for per share amounts): December 28, 2008 Fiscal Years Ended December 30, December 31, 2007 2006 Net income (loss), as reported ...$(2,056,776) $ Amortization of bond discount ...(50,514) Tax effect of amortization of bond discount ...18,732 Valuation allowance reversal ...98,615 Pro forma net...

  • Page 79
    ... described below: Level 1 Level 2 Valuations based on quoted prices in active markets for identical assets or liabilities that the Company has the ability to directly access. Valuations based on quoted prices for similar assets or liabilities; valuations for interest-bearing securities based on non...

  • Page 80
    ... the fiscal years ended December 28, 2008 and December 30, 2007 were as follows (in thousands): December 28, 2008 Gross Gross Unrealized Unrealized Book Value Gains Losses December 30, 2007 Gross Gross Unrealized Unrealized Book Value Gains Losses Market Value Market Value Fixed income securities...

  • Page 81
    ... due to changes in interest rates. The gross unrealized loss related to publicly traded equity investments were due to changes in market prices. The Company has cash flow hedges designated to mitigate risk from these equity investments as of December 28, 2008, as discussed in Note 6, "Derivatives...

  • Page 82
    ...the first quarter of fiscal year 2008, the Company recorded an additional provision for doubtful accounts as well as a reversal of $12.0 million of product revenues associated with receivable balances related to a customer having severe financial difficulties. Inventory. Inventories, net of reserves...

  • Page 83
    ... Flash Partners and Flash Alliance impairments were recorded in Cost of Product Revenues due to the operational nature of the ventures. See Note 13, "Commitments, Contingencies and Guarantees-Flash Partners and Flash Alliance," regarding equity method investments in fiscal year 2008. Other Current...

  • Page 84
    ...cost related to warranty expense is recorded at the time of customer invoice. The Company's warranty liability is affected by customer and consumer returns, product failures, number of units sold, and repair or replacement costs incurred. Should actual product failure rates, or repair or replacement...

  • Page 85
    ... Company performed its annual impairment test on the first day of the fourth quarter of fiscal year 2008 and determined that the goodwill was not impaired. However, based on a combination of factors, including the economic environment, current and forecasted operating results, NAND-industry pricing...

  • Page 86
    ... in the fiscal year ended December 28, 2008. As of December 28, 2008, the Company had forward contracts and options in place that hedged future purchases of approximately 31.7 billion Japanese yen, or approximately $352 million, based upon the exchange rate as of December 28, 2008. The forward...

  • Page 87
    ... $2.01 billion and ($2.58) billion in foreign currencies, respectively, based upon the exchange rates at December 28, 2008. For the fiscal year ended December 28, 2008, non-designated foreign currency forward contracts resulted in a loss of $147.6 million including forward-point income. For the...

  • Page 88
    ... SFAS 133 on results of operations recognized in Cost of Product Revenues was as follows (in thousands): December 28, 2008 Fiscal Years Ended December 30, December 31, 2007 2006 Foreign exchange contracts designated as cash flow hedges ...Equity market risk contract designated as cash flow hedge...

  • Page 89
    ... related to the convertible bond hedge at inception of the transaction. Sold Warrants. The Company received $308.7 million from the same counterparties from the sale of warrants to purchase up to approximately 14 million shares of the Company's common stock at an exercise price of $95.03 per share...

  • Page 90
    ...and Major Customers. The Company markets and sells flash memory products in the U.S. and in foreign countries through its sales personnel, dealers, distributors, retailers and subsidiaries. The Company's Chief Operating Decision Maker, the President and Chief Operating Officer, evaluates performance...

  • Page 91
    ... revenues. All customers were less than 10% of the Company's total revenues in fiscal years 2007 and 2006. All of the Company's flash memory card products require silicon wafers for the memory components and the controller components. The Company's memory wafers or components are currently supplied...

  • Page 92
    ... and test a portion of its products. The Company has no long-term contracts with these subcontractors and cannot directly control product delivery schedules or manufacturing processes. This could lead to product shortages or quality assurance problems that could increase the manufacturing costs of...

  • Page 93
    ... residing in the U.S. and an international component for employees who are non-U.S. residents. The ESPP plan allows eligible employees to purchase shares of the Company's common stock at the end of each six-month offering period at a purchase price equal to 85% of the lower of the fair market...

  • Page 94
    ... term. Valuation Assumptions. The fair value of the Company's stock options granted to employees, officers and non-employee board members and Employee Stock Purchase Plans ("ESPP") shares granted to employees for the years ended December 28, 2008, December 30, 2007 and December 31, 2006 was...

  • Page 95
    ... To Consolidated Financial Statements Stock Options and SARs. A summary of stock options and stock appreciation rights ("SARs") activity under all of the Company's share-based compensation plans as of December 28, 2008 and changes during the fiscal year ended December 28, 2008 is presented below...

  • Page 96
    ... fiscal years ended December 28, 2008, December 30, 2007 and December 31, 2006, respectively, that included the following: December 28, 2008 December 30, 2007 (In thousands) December 31, 2006 Share-based compensation expense by caption: Cost of product revenues ...Research and development ...Sales...

  • Page 97
    ... to be utilized in fiscal year 2009. Fourth Quarter of Fiscal 2008 Restructuring Plan and Other. In the fourth quarter ended December 28, 2008, the Company initiated additional restructuring actions in an effort to better align its cost structure with business operation levels ("Fourth Quarter...

  • Page 98
    ... quarter of fiscal year 2007, the Company initiated a restructuring plan to better align its organizational workforce and close redundant facilities in order to reduce the Company's cost structure. The Company incurred a total cost of $6.7 million, of which $6.0 million was related to involuntary...

  • Page 99
    ... 28, 2008 Fiscal Years Ended December 30, December 31, 2007 2006 U.S. federal statutory rate ...State taxes, net of federal benefit ...Non-deductible share-based compensation expense ...Impairment of goodwill ...Valuation allowance ...Write-off of acquired in-process technology ...Tax-exempt...

  • Page 100
    ... of $241.7 million has been recorded due to federal and certain state net operating loss carryback claims. The Emergency Economic Stabilization Act of 2008 enacted October 3, 2008 retroactively extended the research credit carryforward for the fiscal year 2008. As a result, the generated credit...

  • Page 101
    ... tax benefits for positions existing at December 28, 2008. The Company is subject to U.S. federal income tax as well as income taxes in many state and foreign jurisdictions. The federal statute of limitations on assessment remains open for the tax years 2005 through 2007, and the statutes of...

  • Page 102
    ..."), a business venture with Toshiba which owns 50.1%. In this venture, the Company and Toshiba collaborated in the development and manufacture of 200-millimeter NAND flash memory products. However, the Company and Toshiba have determined that production of NAND flash memory products utilizing 200...

  • Page 103
    ... in fiscal year 2004. In the venture, the Company and Toshiba have collaborated in the development and manufacture of NAND flash memory products. These NAND flash memory products are manufactured by Toshiba at the 300-millimeter wafer fabrication facility ("Fab 3") located in Yokkaichi, Japan, using...

  • Page 104
    ... NAND flash memory technologies. As of December 28, 2008 and December 30, 2007, the Company had accrued liabilities related to these expenses of $4.0 million and $8.0 million, respectively. In addition, in fiscal year 2008, the Company recorded charges of $121 million in cost of product revenues...

  • Page 105
    ... upon the exchange rate at May 30, 2008, was retired by Toshiba on May 30, 2008 thereby releasing the Company of its indemnification agreement with Toshiba. Flash Partners. Flash Partners sells and leases back from a consortium of financial institutions ("lessors") a portion of its tools and has...

  • Page 106
    ... the Company's guarantee obligation of the Flash Alliance master lease agreements was 90.6 billion Japanese yen, or approximately $1.0 billion based upon the exchange rate at December 28, 2008. Remaining master lease payments are due semiannually and are scheduled to be completed in fiscal year 2013...

  • Page 107
    ...in many cases the Company will share in the expenses associated with the defense and cost of settlement associated with such claims. This agreement provides limited protection for the Company against third party claims that NAND flash memory products manufactured and sold by Flash Ventures infringes...

  • Page 108
    ... due March 15, 2035. The Company will pay cash interest at an annual rate of 1%, payable semi-annually on March 15 and September 15 of each year until calendar year 2035. Includes Toshiba foundries, Flash Ventures, related party vendors and other silicon source vendor purchase commitments. Includes...

  • Page 109
    ... and December 31, 2006, respectively. The purchases of NAND flash memory wafers are ultimately reflected as a component of the Company's cost of product revenues. During the fiscal year ended December 28, 2008, the Company had sales to Toshiba (excluding TwinSys as described in Note 13, "Commitments...

  • Page 110
    ... engineering of approximately $25.9 million, $65.8 million and $41.0 million in the fiscal years ended December 28, 2008, December 30, 2007 and December 31, 2006, respectively. The purchases of controller wafers are ultimately reflected as a component of the Company's cost of product revenues...

  • Page 111
    ...intellectual property should the venture be profitable. Note 15: Business Acquisitions msystems Ltd. On November 19, 2006, the Company completed the acquisition of msystems in an all stock transaction. This combination joined together two flash memory companies with complementary products, customers...

  • Page 112
    ... fiscal year 2009 and decline thereafter as other new products are expected to become available. Estimated operating expenses included research and development expenses and selling, marketing and administrative expenses based upon historical and expected direct expense level and general industry...

  • Page 113
    ... fiscal year 2009 and decline thereafter as other new products are expected to become available. Estimated operating expenses included research and development expenses and selling, marketing and administrative expenses based upon historical and expected direct expense level and general industry...

  • Page 114
    ... 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 secret laws, confidentiality agreements...

  • Page 115
    ... Inc. (collectively, "ST") in the United States District Court for the Northern District of California, captioned SanDisk Corporation v. STMicroelectronics, Inc., et al., Civil Case No. C 04 04379 JF. The complaint alleges that ST's products infringe one of the Company's U.S. patents, U.S. Patent No...

  • Page 116
    ... Northern District of California against ST (Case No. C0505021 JF). In the suit, the Company seeks damages and injunctions against ST from making, selling, importing or using flash memory chips or products that infringe the Company's U.S. Patent No. 5,991,517 (the "'517 patent"). As discussed above...

  • Page 117
    ... Office. This motion was granted and on June 4, 2008, the action is currently stayed. On October 24, 2007, the Company filed a complaint under Section 337 of the Tariff Act of 1930 (as amended) (Inv. No. 337-TA-619) titled, "In the matter of flash memory controllers, drives, memory cards, and media...

  • Page 118
    ...collectively, "LG"); TSR Silicon Resources Inc. ("TSR"); and Welldone Co. ("Welldone"). In the complaint, the Company asserts that respondents' accused flash memory controllers, drives, memory cards, and media players infringe the following: U.S. Patent No. 5,719,808 (the "'808 patent"); U.S. Patent...

  • Page 119
    ...District of California in a purported class action captioned In re Flash Memory Antitrust Litigation, Civil Case No. C07-0086. Plaintiffs allege the Company and a number of other manufacturers of flash memory products conspired to fix, raise, maintain, and stabilize the price of NAND flash memory in...

  • Page 120
    ... of New York seeking earn-out payments of approximately $3.8 million in connection with SanDisk's acquisition of MDRM, Inc. in fiscal year 2004. A mediation was held in June 2007, as required by the acquisition agreement, but was unsuccessful. The Company filed its answer on November 14, 2008 and...

  • Page 121
    ... Statements of Operations For the fiscal year ended December 28, 2008 Parent Company (1) Other Combined Subsidiary Guarantor Non-Guarantor Consolidating (1) (1) Issuer Subsidiary Subsidiaries (2) Adjustments (In thousands) Total Company Total revenues ...$ 1,825,252 Total cost of revenues ...1,841...

  • Page 122
    ... Statements of Operations For the fiscal year ended December 31, 2006 Parent Company (1) Other Combined Subsidiary Guarantor Non-Guarantor Consolidating (1) (1) Issuer Subsidiary Subsidiaries (2) Adjustments (In thousands) Total Company Total revenues ...$ 2,101,601 Total cost of revenues ...1,280...

  • Page 123
    ... (2) Adjustments (In thousands) Total Company ASSETS Current assets: Cash and cash equivalents ...$ 376,052 $ Short-term investments ...443,632 Accounts receivable, net ...76,733 Inventory ...87,612 Other current assets ...1,155,377 Total current assets ...Property and equipment, net ...Other non...

  • Page 124
    ... (2) Adjustments (In thousands) Total Company ASSETS Current assets: Cash and cash equivalents ...$ 389,337 $ Short-term investments ...1,001,641 Accounts receivable, net ...215,049 Inventory ...104,626 Other current assets ...759,872 Total current assets ...Property and equipment, net ...Other non...

  • Page 125
    ... of Cash Flows For the fiscal year ended December 28, 2008 Parent Company (1) Subsidiary Issuer (1) Other Combined Guarantor Non-Guarantor Consolidating Subsidiary (1) Subsidiaries (2) Adjustments (In thousands) Total Company Net cash provided by (used in) operating activities ...$ (459,599) $ Net...

  • Page 126
    ... of Cash Flows For the fiscal year ended December 31, 2006 Parent Company (1) Subsidiary Issuer (1) Other Combined Guarantor Non-Guarantor Consolidating Subsidiary (1) Subsidiaries (2) Adjustments (In thousands) Total Company Net cash provided by (used in) operating activities ...$ 458,012 $ Net...

  • Page 127
    ... interruption proceeds of $21.8 million received in fiscal year 2007, related to a power outage in fiscal year 2006 at FlashVision and Flash Partners. Fiscal Quarters Ended March 30, June 29, September 28, December 28, 2008 2008 2008 2008 (In thousands) Share-based compensation ...$ 23,226 $ 25,108...

  • Page 128
    ... each flash venture has agreed to sell to Toshiba more than 20% of its current production capacity through the acquisition by Toshiba of certain owned and leased equipment. The total value of the restructuring transaction to the Company is approximately $890 million based upon the exchange rate as...

  • Page 129
    ...of the Securities Exchange Act of 1934, as amended, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Signature Title Date By: /s/ * (Dr. Eli Harari) Chairman of the Board and Chief Executive Officer (Principal...

  • Page 130
    ... the Registrant and The Bank of New York. (21) Form of Indemnification Agreement entered into between the Registrant and its directors and officers. (2) License Agreement between the Registrant and Dr. Eli Harari, dated September 6, 1988. (2) SanDisk Corporation 1995 Stock Option Plan, as Amended...

  • Page 131
    ... & Development, Ltd. (15) Guarantee Agreement, dated as of September 22, 2006, by and among the Registrant, SMBC Leasing Company, Limited and Toshiba Finance Corporation. (23) Amended and Restated SanDisk Corporation 2005 Incentive Plan. (25), (*) SanDisk Corporation Form of Notice of Grant of Stock...

  • Page 132
    ...Employee Director Automatic Stock Option (Annual Grant). (16), (*) SanDisk Corporation Form of Stock Option Agreement. (16), (*) SanDisk Corporation Form of Automatic Stock Option Agreement. (16), (*) SanDisk Corporation Form of Restricted Stock Unit Issuance Agreement. (17), (*) SanDisk Corporation...

  • Page 133
    ... filed as an Exhibit to the Registrant's Current Report on Form 8-K dated June 3, 2005. Previously filed as an Exhibit to the Registrant's Form 10-Q for the quarter ended March 30, 2008. Previously filed as an Exhibit to the Registrant's 2005 Annual Report on Form 10-K. Previously filed as an...

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