SanDisk 2009 Annual Report Download - page 158

Notes To Consolidated Financial Statements
Tower Semiconductor. As of December 28, 2008, Tower Semiconductor Ltd. (“Tower”), one of the
Company’s suppliers of wafers for its controller components, ceased being a related party as the Company’s
ownership was less than 10% of Tower’s outstanding shares. The Company purchased controller wafers and
related non-recurring engineering of approximately $25.9 million and $65.8 million in the fiscal years ended
December 28, 2008 and December 30, 2007, respectively. The purchases of controller wafers are ultimately
reflected as a component of the Company’s cost of product revenues. In fiscal year 2008, the Company
recognized impairment charges of $18.9 million as a result of the other-than-temporary decline in its investment
in Tower ordinary shares which reduced the investment value to $2.1 million as of December 28, 2008. At
December 28, 2008, the Company also had a net receivable from Tower of $0.4 million and an outstanding loan
of $3.0 million to Tower for expansion of Tower’s 0.13 micron logic wafer capacity. The loan to Tower is
secured by the equipment purchased.
Flextronics. On January 10, 2008, Michael Marks, who serves on the Company’s Board of Directors,
resigned from Flextronics International, Ltd., (“Flextronics”), where he had held the position of chairman of the
Board of Directors. The activity from December 31, 2007 to January 10, 2008 between Flextronics and the
Company was immaterial. For the fiscal year ended December 30, 2007, the Company recorded revenues from
Flextronics and its affiliates of $75.5 million. In addition, the Company purchased from Flextronics and its
affiliates $72.6 million of services for card assembly and testing in the fiscal year ended December 30, 2007,
which is ultimately reflected as a component of the Company’s cost of product revenues.
Note 15: 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 16: 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 secrets, confidentiality agreements and other methods, and has been and
likely will continue to enforce such rights as appropriate through litigation and related proceedings. The
Company expects that its competitors and others who hold intellectual property rights related to its industry will
pursue similar strategies. From time-to-time, it has been and may continue to be necessary to initiate or defend
litigation against third parties. These and other parties could bring suit against the Company. In each case listed
below where the Company is the defendant, the Company intends to vigorously defend the action. At this time,
the Company does not believe it is reasonably possible that losses related to the litigation described below have
occurred beyond the amounts, if any, that have been accrued.
msystems Shareholder Derivative Claim in Israel. On September 11, 2006, Mr. Rabbi, a shareholder of
msystems Ltd. (“msystems”), a company subsequently acquired by the Company in or about November 2006,
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