SanDisk 2009 Annual Report Download - page 139

This is a TAB type table. Insert
conts here. Annual Report
Notes To Consolidated Financial Statements
from Flash Ventures. The Company’s controller wafers are primarily manufactured by Semiconductor
Manufacturing International Corporation, Taiwan Semiconductor Manufacturing Company, Ltd., and United
Microelectronics Corporation. The failure of any of these sources to deliver silicon wafers could have a material
adverse effect on the Company’s business, financial condition and results of operations. Moreover, Toshiba’s
employees that produce Flash Ventures’ products are covered by collective bargaining agreements and any strike
or other job action by those employees could interrupt the Company’s wafer supply from Toshiba’s Yokkaichi,
Japan operations.
In addition, key components are purchased from single source vendors for which alternative sources are
currently not available. Shortages could occur in these essential materials due to an interruption of supply or
increased demand in the industry. If the Company were unable to procure certain of such materials, it would be
required to reduce its manufacturing operations, which could have a material adverse effect upon its results of
operations. The Company also relies on third-party subcontractors to assemble 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 its products and have material adverse effects on the Company’s
operating results.
Concentration of Credit Risk. The Company’s concentration of credit risk consists principally of cash, cash
equivalents, short and long-term marketable securities and trade receivables. The Company’s investment policy
restricts investments to high-credit quality investments and limits the amounts invested with any one issuer. The
Company sells to OEMs, retailers and distributors in the U.S., Europe, Middle East and Africa (“EMEA”), and
Asia-Pacific (“APAC”), performs ongoing credit evaluations of its customers’ financial condition, and generally
requires no collateral.
Off-Balance Sheet Risk. The Company has off-balance sheet financial obligations. See Note 13,
“Commitments, Contingencies and Guarantees.”
Note 9: Compensation and Benefits
Share-Based Benefit Plans
2005 Incentive Plan.On May 27, 2005, the Company’s stockholders approved the 2005 Stock Incentive
Plan, which was amended in May 2006 and renamed the 2005 Incentive Plan (“2005 Plan”). Shares of the
Company’s common stock may be issued under the 2005 Plan pursuant to three separate equity incentive
programs: (i) the discretionary grant program under which stock options and stock appreciation rights may be
granted to officers and other employees, non-employee board members and independent consultants, (ii) the
stock issuance program under which shares may be awarded to such individuals through restricted stock or
restricted stock unit awards or as a stock bonus for services rendered to the Company, and (iii) an automatic grant
program for the non-employee board members pursuant to which such individuals will receive option grants or
other stock awards at designated intervals over their period of board service. The 2005 Plan also includes a
performance-based cash bonus awards program for employees classified under Section 16. Grants and awards
under the discretionary grant program generally vest as follows: 25% of the shares will vest on the first
anniversary of the vesting commencement date and the remaining 75% will vest proportionately each quarter
over the next 36 months of continued service. Awards under the stock issuance program generally vest in equal
annual installments over a 4-year period. Grants under the automatic grant program will vest in accordance with
the specific vesting provisions set forth in that program. A total of 27,924,938 shares of the Company’s common
stock have been reserved for issuance under this plan. The share reserve may increase by up to 10,000,000 shares
of common stock to the extent that outstanding options under the 1995 Stock Option Plan and the 1995
Non-Employee Directors Stock Option Plan expire or terminate unexercised, of which as of January 3, 2010,
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