SanDisk 2008 Annual Report Download - page 114

Notes To Consolidated Financial Statements
projects to technological feasibility and costs associated with ongoing maintenance after a product is released.
These activities range from 0% to 5% of Matrix’s portion of the Company’s net revenues for the in-process
technologies.
The effective tax rate used in the analysis of the in-process technologies reflected a historical industry-
specific average for the United States federal income tax rates. Discount rates (the rates utilized to discount the
net cash flows to their present values) ranging from 12.5% to 15.5% were used in computing the present value of
net cash flows for the projects. The percentage of completion was determined using costs incurred by Matrix
prior to the acquisition date compared to the estimated remaining research and development to be completed to
bring the projects to technological feasibility.
Pro Forma Results. The following unaudited pro forma financial information for the twelve months ended
December 31, 2006 presents the combined results of the Company, Matrix and msystems, as if the acquisitions
had occurred at the beginning of the period presented (in thousands, except per share amounts). Certain
adjustments have been made to the combined results of operations, including amortization of acquisition-related
intangible assets; however, charges for acquired in-process technology were excluded as these items were
non-recurring.
Twelve months ended
December 31,
2006
Net revenues ............................................................... $ 4,030,645
Net income ................................................................. $ 340,097
Net income per share:
Basic ................................................................. $ 1.49
Diluted ................................................................ $ 1.41
The pro forma financial information does not necessarily reflect the results of operations that would have
occurred had the Company, Matrix and msystems constituted a consolidated entity during such period.
Note 16: Stockholders’ Rights Plan
On September 15, 2003, the Company amended its existing stockholder rights plan to terminate the rights
issued under that rights plan, and the Company adopted a new rights plan. Under the new rights plan, rights were
distributed as a dividend at the rate of one right for each share of common stock of the Company held by
stockholders of record as of the close of business on September 25, 2003. In November 2006, the Company
extended the term of the rights plan, such that the rights will expire on April 28, 2017 unless redeemed or
exchanged. Under the new rights agreement and after giving effect to the Company’s stock dividend effected on
February 18, 2004, each right will, under the circumstances described below, entitle the registered holder to buy
one two-hundredths of a share of Series A Junior Participating Preferred Stock for $225.00. The rights will
become exercisable only if a person or group acquires beneficial ownership of 15% or more of the Company’s
common stock or commences a tender offer or exchange offer upon consummation of which such person or
group would beneficially own 15% or more of the Company’s common stock.
Note 17: Litigation
The flash memory industry is characterized by significant litigation seeking to enforce patent and other
intellectual 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 and other methods, and has been,
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