SanDisk 2009 Annual Report Download - page 84

We have recently upgraded our enterprise-wide information systems and related controls, processes and
procedures, and any issues with the new systems could materially impact our business operations and/or
financial results. At the beginning of the third quarter of fiscal year 2009, we implemented a new enterprise
resource planning, or ERP, system. Any ERP system problems, quality issues or programming errors could
impact our continued ability to successfully operate our business or to timely and accurately report our financial
results. In addition, any distraction of our workforce due to the new systems could harm our business or results of
operations.
Anti-takeover provisions in our charter documents, stockholder rights plan and in Delaware law could
discourage or delay a change in control and, as a result, negatively impact our stockholders. We have taken a
number of actions that could have the effect of discouraging a takeover attempt. For example, we have a
stockholders’ rights plan that would cause substantial dilution to a stockholder, and substantially increase the cost
paid by a stockholder, who attempts to acquire us on terms not approved by our board of directors. This could
discourage an acquisition of us. In addition, our certificate of incorporation grants our board of directors the
authority to fix the rights, preferences and privileges of and issue up to 4,000,000 shares of preferred stock
without stockholder action (2,000,000 of which have already been reserved under our stockholder rights plan).
Issuing preferred stock could have the effect of making it more difficult and less attractive for a third party to
acquire a majority of our outstanding voting stock. Preferred stock may also have other rights, including
economic rights senior to our common stock that could have a material adverse effect on the market value of our
common stock. In addition, we are subject to the anti-takeover provisions of Section 203 of the Delaware General
Corporation Law. This section provides that a corporation may not engage in any business combination with any
interested stockholder, defined broadly as a beneficial owner of 15% or more of that corporation’s voting stock,
during the three-year period following the time that a stockholder became an interested stockholder. This
provision could have the effect of delaying or discouraging a change of control of SanDisk.
Unanticipated changes in our tax provisions or exposure to additional income tax liabilities could affect our
profitability. We are subject to income tax in the U.S. and numerous foreign jurisdictions. Our tax liabilities are
affected by the amounts we charge for inventory, services, licenses, funding and other items in intercompany
transactions. We are subject to ongoing tax audits in various jurisdictions. Tax authorities may disagree with our
intercompany charges or other matters and assess additional taxes. For example, we are currently under a federal
income tax audit by the Internal Revenue Service, or IRS, for fiscal years 2005 through 2008. While we regularly
assess the likely outcomes of these audits in order to determine the appropriateness of our tax provision,
examinations are inherently uncertain and an unfavorable outcome could occur. An unanticipated unfavorable
outcome in any specific period could harm our results of operations for that period or future periods. The
financial cost and our attention and time devoted to defending income tax positions may divert resources from
our business operations, which could harm our business and profitability. The IRS audit may also impact the
timing and/or amount of our refund claim. In addition, our effective tax rate in the future could be adversely
affected by changes in the mix of earnings in countries with differing statutory tax rates, changes in the valuation
of deferred tax assets and liabilities, changes in tax laws, and the discovery of new information in the course of
our tax return preparation process. In particular, the carrying value of deferred tax assets, which are
predominantly in the U.S., is dependent on our ability to generate future taxable income in the U.S. Any of these
changes could affect our profitability.
We may be subject to risks associated with environmental regulations. Production and marketing of
products in certain states and countries may subject us to environmental and other regulations including, in some
instances, the responsibility for environmentally safe disposal or recycling. Such laws and regulations have
recently been passed in several jurisdictions in which we operate, including Japan and certain states within the
U.S. Although we do not anticipate any material adverse effects in the future based on the nature of our
operations and the focus of such laws, there is no assurance such existing laws or future laws will not harm our
financial condition, liquidity or results of operations.
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