SanDisk 2010 Annual Report Download

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Stockholders Letter
Notice of 2011 Annual Meeting and Proxy Statement
2010 Annual Report on Form 10-K
• • • • • • • • • • • •
• • • •

Table of contents

  • Page 1
    Stockholders Letter Notice of 2011 Annual Meeting and Proxy Statement 2010 Annual Report on Form 10-K

  • Page 2
    ...design to consumer branding and retail distribution. SanDisk's product portfolio includes ï¬,ash memory cards for mobile phones, digital cameras and camcorders; digital audio/video players; USB ï¬,ash drives for consumers and the enterprise; embedded memory for mobile devices; and solid state drives...

  • Page 3
    Stockholders Letter Proxy Statement Annual Report

  • Page 4

  • Page 5
    ... new category for NAND flash. According to market analysts, this market started in the second half of 2010 and quickly grew to consume nearly 5% of NAND industry supply for the full year 2010. A key enabler of richer media experience for consumers and a productivity enhancer for business customers...

  • Page 6
    ...NAND flash as the high capacity storage medium. There is a certain segment where SSD can be viewed as a replacement market for hard disk drives ("HDD") and this market is likely to be price sensitive. We still think that at a price point of about $1 per gigabyte (at the end consumer level), the case...

  • Page 7
    ... write this letter, the SanDisk team is working diligently to manage the impact on our business. It will take time to work through this process, but I am confident in our team's ability to minimize the future impact on SanDisk. Sincerely yours, Sanjay Mehrotra President and Chief Executive Officer

  • Page 8

  • Page 9
    ... will have the right to revoke the proxy and vote your shares in person. We look forward to seeing you at the Annual Meeting. By Order of the Board of Directors, Proxy Statement Michael E. Marks Chairman of the Board, Director Milpitas, California April 25, 2011 IMPORTANT NOTICE REGARDING INTERNET...

  • Page 10
    [THIS PAGE INTENTIONALLY LEFT BLANK]

  • Page 11
    ... THE NUMBER OF SHARES RESERVED FOR ISSUANCE UNDER THE SANDISK CORPORATION 2005 EMPLOYEE STOCK PURCHASE PLANS ...PROPOSAL NO. 5-ADVISORY VOTE ON NAMED EXECUTIVE OFFICER COMPENSATION OF SANDISK CORPORATION "SAY ON PAY" ...PROPOSAL NO. 6-ADVISORY VOTE ON FREQUENCY OF "SAY ON PAY" VOTE ...SECURITY...

  • Page 12
    [THIS PAGE INTENTIONALLY LEFT BLANK]

  • Page 13
    ... sending an e-mail with the 12-Digit Control Number in the subject line to [email protected]. Voting Rights At the Record Date, approximately 238,371,732 shares of the Company's common stock (the "Common Stock") were outstanding and entitled to vote at the Annual Meeting. A majority of the...

  • Page 14
    ... at the Annual Meeting, such as the election of Directors, the approval of the amendments to the Company's 2005 Incentive Plan, the approval of the amendments to the Company's 2005 Employee Stock Purchase Plans, the approval of the advisory resolution on Named Executive Officer compensation and the...

  • Page 15
    ... means by Directors, officers or employees of the Company. No additional compensation will be paid to these individuals for these services. The Company will enlist the help of banks and brokerage firms in soliciting proxies from their customers and reimburse the banks and brokerage firms for related...

  • Page 16
    ... to 2002 and returned to the Board of Directors in May 2004. Business Experience and Qualifications of Nominees for Election as Directors Mr. DeNuccio has served as a Director of the Company since August 4, 2009. Mr. DeNuccio currently serves as Chief Executive Officer and a director of Metaswitch...

  • Page 17
    ... Company, since November 2010. Prior to joining the LATMG, Mr. Hartenstein served as Chairman, President and Chief Executive Officer of HD Partners Acquisition Corporation, a corporation formed to acquire assets or an operating business in the media, entertainment or telecommunication industries...

  • Page 18
    ... to communicate and inform the Board about technology and industry developments and trends. The Board also benefits from Dr. Hu's experience on the boards of other publicly traded technology companies. Ms. Lego served as a Director of the Company from 1989 to 2002 and returned to the Board in May...

  • Page 19
    ... President and Chief Operating Officer, Senior Vice President of Product Development, Vice President of Product Development, and Director of Design Engineering. Mr. Mehrotra has more than 30 years of experience in the non-volatile semiconductor memory industry including engineering and management...

  • Page 20
    ...the Corporate Governance Principles free of charge to any stockholder who sends a written request to SanDisk Corporation, Investor Relations, 601 McCarthy Blvd., Milpitas, CA 95035. Company Policy Regarding Board Member Attendance at Annual Meetings The Company encourages each incumbent Director and...

  • Page 21
    ... and applicable listing standards and laws as the Compensation Committee or the Board considers appropriate. • Proxy Statement • • • • • • • Processes and Procedures. The Company's President and Chief Executive Officer recommends to the Compensation Committee salary, annual...

  • Page 22
    ... Judy Bruner, the Company's Executive Vice President, Administration and Chief Financial Officer, through July 20, 2010, and consisted solely of Ms. Bruner beginning on July 21, 2010. The Secondary Executive Committee took action by written consent 17 times during fiscal 2010. Share-based awards to...

  • Page 23
    ... written request to SanDisk Corporation, Investor Relations, 601 McCarthy Blvd., Milpitas, CA 95035. The Board of Directors has determined that each of the members of the Nominating and Governance Committee is an "independent director" as defined in the NASDAQ Marketplace Rules. Proxy Statement 11

  • Page 24
    ... of the Company. Under the Company's Corporate Governance Principles, the number of officers or employees of the Company serving at any time on the Board should be limited such that, at all times, a majority of the Directors is "independent" under applicable SEC and stock exchange rules. 12

  • Page 25
    ... high levels of accomplishment; Demonstrated business acumen and experience, and ability to exercise sound business judgment in matters that relate to the current and long-term objectives of the Company; Ability to read and understand basic financial statements and other financial information...

  • Page 26
    ... Directors who were members of the Board of Directors at any time during fiscal 2010 and who were not also an employee of the Company (referred to herein as "Non-Employee Directors"). Directors employed by the Company are not entitled to receive additional compensation for their service as Directors...

  • Page 27
    ..., in Part II, Item 8 "Financial Statements and Supplementary Data," of the Company's 2010 Form 10-K filed with the SEC on February 23, 2011, which note is incorporated herein by reference. (2) In fiscal 2010, the Company granted each of the Non-Employee Directors an annual stock option award in the...

  • Page 28
    ... grant practices, the fair market value is equal to the closing price of a share of the Common Stock on NASDAQ on the grant date. The stock options granted to Non-Employee Directors are immediately exercisable. However, upon a Non-Employee Director's cessation of service with the Company, any shares...

  • Page 29
    ... following the grant date. Pursuant to the terms of the 2005 Plan, restricted stock units granted to the Company's Non-Employee Directors shall vest on an accelerated basis in connection with a change in control of the Company. Upon the cessation of the Non-Employee Director's service, any unvested...

  • Page 30
    ... with the annual audit of the Company's internal control over financial reporting and review of the Company's quarterly financial statements. The fees also include professional services provided for new and existing statutory audits of subsidiaries or affiliates of the Company. Audit-related fees...

  • Page 31
    ... of the shares present in person or represented by proxy at the Annual Meeting and entitled to vote on Proposal No. 2 is required to ratify the appointment of Ernst & Young LLP as the Company's independent registered public accounting firm for the fiscal year ending January 1, 2012. Proxy Statement...

  • Page 32
    ... Board of Directors on April 7, 2011. The primary purpose of the proposed amendments is to increase the number of shares of Common Stock reserved for issuance under the 2005 Plan by an additional 9,000,000 shares, which is expected to be used over multiple years. The shares available for grant under...

  • Page 33
    ... Annex A to this Proxy Statement and can be reviewed on the SEC's website at http://www.sec.gov. You may also obtain, free of charge, a copy of the 2005 Plan by writing to Investor Relations at the Company's principal offices at 601 McCarthy Blvd., Milpitas, California 95035. Incentive Programs. The...

  • Page 34
    February 25, 2011, approximately 3,487 employees (including 5 executive officers) were eligible to participate in the discretionary grant and stock issuance programs and 8 non-employee Board members were eligible to participate in those programs and the automatic grant program. Securities Subject to...

  • Page 35
    ... number of shares actually issued upon such exercise. • Proxy Statement • Equity Incentive Programs Discretionary Grant Program. Under the discretionary grant program, eligible persons may be granted options to purchase shares of the Company's Common Stock or stock appreciation rights tied...

  • Page 36
    ... share right awards or restricted stock units, which entitle the recipients to receive those shares, without the payment of any cash purchase price, upon the attainment of designated performance goals or the completion of a prescribed service period or upon the expiration of a designated time period...

  • Page 37
    ...-based compensation; (6) sales or revenue targets; (7) return on assets, capital or investment; (8) cash flow; (9) market share; (10) cost reduction goals; (11) budget comparisons; (12) measures of customer satisfaction; (13) measures of inventory turns or inventory weeks of supply; (14) new product...

  • Page 38
    ... stock appreciation rights in return for new options or stock appreciation rights with a lower exercise price per share, (ii) the cancellation of outstanding options or stock appreciation rights with exercise prices per share in excess of the then current fair market value per share of Common Stock...

  • Page 39
    ... person may be granted stock options, stand-alone stock appreciation rights, direct stock issuances (whether vested or unvested) and other stock-based awards under the 2005 Plan per calendar year; (v) the number and/or class of securities and the exercise price or base price per 27 Proxy Statement

  • Page 40
    ... the automatic grant program to new and continuing non-employee board members. Such adjustments will be designed to preclude any dilution or enlargement of benefits under the 2005 Plan or the outstanding awards thereunder. Valuation. The fair market value per share of the Company's Common Stock on...

  • Page 41
    ... not recognize any taxable income at the time of exercise but will have to report as ordinary income, as and when the Company's repurchase right lapses, an amount equal to the excess of (i) the fair market value of the shares on the date the repurchase right lapses over (ii) the exercise price paid...

  • Page 42
    ... are granted to the Company's employees and non-employee Board members are valued at fair value as of the grant date under an appropriate valuation formula, and that value will be charged as a direct compensation expense against the Company's reported earnings over the designated vesting period of...

  • Page 43
    ... that year under the 2005 Plan. For information regarding share-based awards granted to the Company's Named Executive Officers during fiscal 2010, see the material under the heading "Grants of Plan-Based Awards in Fiscal 2010" below. Aggregate Past Grants Under the 2005 Plan As of February 25, 2011...

  • Page 44
    ...the Securities Exchange Act of 1934" of this Proxy Statement below under the heading "Equity Compensation Information for Plans or Individual Arrangements with Employees and Non-Employees." Required Vote The affirmative vote of the holders of a majority of the shares present in person or represented...

  • Page 45
    ... B to this Proxy Statement and can be reviewed on the SEC's website at http://www.sec.gov. You may also obtain, free of charge, a copy of the 2005 Purchase Plans by writing to Investor Relations at the Company's principal offices at 601 McCarthy Blvd., Milpitas, California 95035. Administration The...

  • Page 46
    ... the outstanding purchase rights thereunder. Offering Periods and Purchase Rights Shares of Common Stock are currently offered under the 2005 Purchase Plans through a series of offering periods. The duration of each offering period is fixed by the Compensation Committee prior to its start date, but...

  • Page 47
    ... share of Common Stock on the start date of the offering period or (ii) the fair market value on the last day of the offering period. The fair market value per share of Common Stock on any particular date under the 2005 Purchase Plans will be deemed to be equal to the closing selling price per share...

  • Page 48
    ... an "employee stock purchase plan" within the meaning of Section 423 of the Internal Revenue Code. Under a plan which so qualifies, no taxable income will be recognized by a participant, and no deductions will be allowable to the Company, upon either the grant or the exercise of the purchase rights...

  • Page 49
    ... grant date. New Plan Benefits Because benefits under the 2005 Purchase Plans will depend on employees' elections to participate and the fair market value of the Company's common stock at various future dates, it is not possible to determine the benefits that will be received by executive officers...

  • Page 50
    ... executive only upon realized share appreciation. The Compensation Committee sets a significant portion of the compensation of the Named Executive Officers based on their ability to achieve annual operational objectives that advance the Company's long-term business objectives and that are designed...

  • Page 51
    ... the Named Executive Officer compensation as disclosed in this Proxy Statement, the Compensation Committee will consider the Company's stockholders' concerns and will evaluate whether any actions are necessary to address those concerns. Recommendation of the Board of Directors The Board believes...

  • Page 52
    ... are designed to promote a long-term connection between pay and performance, the Board currently believes that an annual advisory vote on Named Executive Officer compensation is consistent with seeking input from, and engaging in discussions with, the stockholders on corporate governance matters...

  • Page 53
    ... and all current Directors and executive officers of the Company as a group. Unless otherwise indicated and subject to applicable community property laws, the persons named in the following table have sole voting and investment power with respect to all shares of Common Stock. The number of shares...

  • Page 54
    ... trusts for the benefit of Dr. Harari's children, and 69,225 shares held in the name of Dr. Harari's son. Dr. Harari ceased to be a Director and the Company's Chief Executive Officer as of December 31, 2010. Includes 69,225 shares subject to immediately exercisable options granted to Mr. Hartenstein...

  • Page 55
    ... table sets forth certain information about persons the Company knows, based solely on inspection of 13G filings made with the SEC, to be beneficial owners of five percent or more of the Common Stock as of February 25, 2011: Amount and Nature of Beneficial Ownership Number of Percentage Owned Shares...

  • Page 56
    ... from reporting persons that all reportable transactions were reported. Based solely on that review, the Company believes that during the fiscal year ended January 2, 2011, all required filings were timely made in accordance with the Exchange Act's requirements. Equity Compensation Information for...

  • Page 57
    ... of the Annual Report on Form 10-K, without charge, by writing to Investor Relations at the Company's principal executive offices located at 601 McCarthy Blvd., Milpitas, California 95035. The Annual Report on Form 10-K is also available at www.sandisk.com/IR under SEC Filings. Proxy Statement 45

  • Page 58
    ..., the Audit Committee recommended to the Company's Board of Directors that the audited financial statements be included in the Company's Annual Report on Form 10-K for the fiscal year ended January 2, 2011 filed with the SEC. Audit Committee of the Board of Directors Catherine P. Lego (Chair) Irwin...

  • Page 59
    ... Operation-Non-GAAP Financial Measures" of the Company's Form 10-K filed February 23, 2011. The Company underwent significant management changes in fiscal 2010. Dr. Harari retired as the Company's Chief Executive Officer on December 31, 2010, at which time Mr. Mehrotra became the Company's President...

  • Page 60
    ... fiscal quarters ending June 30, 2010. The Compensation Committee established key performance metrics for the fiscal 2010 annual cash incentive opportunity, which provided for payments upon attainment of a target level non-GAAP earnings per share ("EPS") and the achievement of certain non-financial...

  • Page 61
    ... annual cash incentive opportunity, a long-term share-based incentive opportunity, 401(k) retirement benefits and severance protection for certain terminations of the Named Executive Officers' employment. The Company believes that each element of its executive compensation program helps the Company...

  • Page 62
    ... creation of stockholder value, and therefore the value of these benefits is dependent on performance. Each Named Executive Officer's annual bonus opportunity is paid out on an annual basis and is designed to reward performance for that period. Long-term equity incentives are generally paid out or...

  • Page 63
    ... as President and Chief Executive Officer on January 1, 2011, Mr. Mehrotra also attended meetings of the Compensation Committee relating to fiscal 2010 compensation of the Named Executive Officers. At meetings pertaining to officer pay, the Company's Chief Executive Officer presents compensation...

  • Page 64
    ...not Named Executive Officers at the time of the Compensation Committee's deliberations in March 2010. Target bonus percentages for Mr. Sadana and Mr. Brelsford were set at 70% of base salary respectively, by Dr. Harari upon Mr. Sadana's appointment as Senior Vice President and Chief Strategy Officer...

  • Page 65
    ...individual officer. The Compensation Committee typically grants long-term share-based awards in the first quarter of the fiscal year except for awards to new hires and awards related to the promotion of current employees. However, except as set forth below with respect to grants to new employees and...

  • Page 66
    ... (4) years following the grant date. The Company did not grant restricted stock units in fiscal 2009. In fiscal 2008, the Compensation Committee granted restricted stock units to each of the Named Executive Officers. The restricted stock units awarded in fiscal 2008 were not subject to time-based...

  • Page 67
    ... the Named Executive Officers with financial and personal security during a period of time when they are likely to be unemployed. In connection with his appointment as President and Chief Executive Officer, Mr. Mehrotra and the Company also entered into a severance agreement not related to a change...

  • Page 68
    ... retired as the Company's Chief Executive Officer and as a director, effective as of December 31, 2010. Dr. Harari will serve as a consultant to the Company for a two-year period beginning January 1, 2011. Under Dr. Harari's consulting agreement, Dr. Harari will perform consulting services for the...

  • Page 69
    ... performance targets under the fiscal 2011 annual cash incentive award program relate to non-GAAP EPS and certain strategic operational goals the attainment of which the Compensation Committee will evaluate following the end of fiscal 2011. Stock Ownership Guidelines Each Board member and executive...

  • Page 70
    .... The Compensation Committee is currently composed of the four Non-Employee Directors named at the end of this report each of whom is independent as defined by the NASDAQ Global Select Market listing standards. The Compensation Committee has reviewed and discussed with management the disclosures...

  • Page 71
    ... Company's 2010 Annual Report on Form 10-K, filed with the SEC. Under general accounting principles, compensation expense with respect to stock awards and option awards granted to the Company's employees and directors is generally recognized over the vesting periods applicable to the awards. The SEC...

  • Page 72
    ...as the fiscal 2010 and fiscal 2009 presentation using the grant date fair value of the awards granted during the corresponding year (regardless of the period over which the awards are scheduled to vest). Since this requirement differs from the SEC's past disclosure rules, the amounts reported in the...

  • Page 73
    ... as a member of the Board of Directors beginning as of July 21, 2010. As an employeedirector, Mr. Mehrotra did not receive additional compensation for his services as a director in fiscal 2010. Compensation of Named Executive Officers The Summary Compensation Table-Fiscal 2008-2010 above quantifies...

  • Page 74
    ... based upon principles used to calculate the value of equity awards for purposes of the Company's financial statements. Mr. Brelsford's 2010 annual bonus was not subject to a maximum limitation since Mr. Brelsford was not a Named Executive Officer at the time the 2010 annual bonus plan was adopted...

  • Page 75
    ...bonus and performance targets based on year-to-date performance. Restricted Stock Units Each restricted stock unit reported in column (c) of the table above and granted to the Named Executive Officers in fiscal 2010 represents a contractual right to receive one share of the Company's Common Stock if...

  • Page 76
    ... the 2005 Plan and the Company's option grant practices, the fair market value is equal to the closing price of a share of Common Stock on NASDAQ on the applicable grant date. Each stock option granted to the Named Executive Officers in fiscal 2010 is subject to a four year vesting schedule, with 25...

  • Page 77
    ...AT FISCAL 2010 YEAR-END The following table presents information regarding the outstanding share-based awards held by each Named Executive Officer as of January 2, 2011, including the vesting dates for the portions of these awards that had not vested as of that date. Additional information regarding...

  • Page 78
    ... a Named Executive Officer's employment terminates. The market or payout value of stock awards reported in columns (i) and (k) are computed by multiplying the number of shares or units of stock reported in columns (h) and (j), respectively, by $49.86, the closing market price of the Company's Common...

  • Page 79
    ... annual installments on February 19, 2011 and February 19, 2012. (14) (15) (16) (17) OPTIONS EXERCISES AND STOCK VESTED IN FISCAL 2010 The following table presents information regarding the exercise of stock options by Named Executive Officers during fiscal 2010, and on the vesting during fiscal...

  • Page 80
    ... that the price per share of Common Stock is equal to the closing price per share on December 31, 2010 the last trading day in fiscal 2010. In addition to the change in control and termination benefits described below, outstanding share-based awards held by the Company's Named Executive Officers may...

  • Page 81
    ... after-tax benefit to the Named Executive Officer. The following table lists the Named Executive Officers and the estimated amounts they would have become entitled to under their change of control agreement had their employment with the Company terminated on January 2, 2011 under the circumstances...

  • Page 82
    ... "related-person transactions" between the Company or its subsidiaries and related persons. Under SEC rules, a related person is a director, officer, nominee for director, or 5% stockholder of the company since the beginning of the last fiscal year and their immediate family members. The Company has...

  • Page 83
    ... Statement OTHER BUSINESS The Board of Directors knows of no other business that will be presented for consideration at the Annual Meeting. If other matters are properly brought before the Annual Meeting, however, it is the intention of the persons named in the accompanying proxy to vote the shares...

  • Page 84
    [THIS PAGE INTENTIONALLY LEFT BLANK]

  • Page 85
    ..., or be issued shares of Common Stock through direct purchase or as a bonus for services rendered the Corporation (or any Parent or Subsidiary), and the Automatic Grant Program under which eligible non-employee Board members will automatically receive grants at designated intervals over their...

  • Page 86
    ...from time to time the specific number of shares to be subject to the initial and annual grants made to the non-employee Board members under such program. F. Awards to Employees who are "covered employees" under Section 162(m) of the Code of (i) options or stock appreciation rights, or (ii) shares or...

  • Page 87
    ... a non-employee Board member. V. STOCK SUBJECT TO THE PLAN; ANNUAL CASH LIMITATION Proxy Statement A. The stock issuable under the Plan shall be shares of authorized but unissued or reacquired Common Stock, including shares repurchased by the Corporation on the open market. The number of shares of...

  • Page 88
    ... be made under the Automatic Grant Program to new and continuing non-employee Board members, (vi) the number and/ or class of securities and the exercise or base price per share in effect under each outstanding option or stock appreciation right under the Plan and (vii) the number and/or class of...

  • Page 89
    ... at such time or times, during such period and for such number of shares as shall be determined by the Plan Administrator and set forth in the documents evidencing the option. However, no option shall have a term in excess of seven (7) years measured from the option grant date. C. Effect of...

  • Page 90
    ... additional period of time equal in duration to any interval within the specified post-Service exercise period during which the exercise of that option or the immediate sale of the shares acquired under such option could not be effected in compliance with applicable federal and state securities laws...

  • Page 91
    ... under applicable law or regulation. C. 10% Stockholder. If any Employee to whom an Incentive Option is granted is a 10% Stockholder, then the exercise price per share shall not be less than one hundred ten percent (110%) of the Fair Market Value per share of Common Stock on the option grant date...

  • Page 92
    ... at the time the Stand-alone Right is granted. In no event, however, may the base price per share be less than the Fair Market Value per underlying share of Common Stock on the grant date. In the event outstanding Standalone Rights are to be assumed in connection with a Change in Control transaction...

  • Page 93
    ... or stock appreciation right under the Discretionary Grant Program shall automatically accelerate so that each such option or stock appreciation right shall, immediately prior to the effective date of that Change in Control, become exercisable as to all the shares of Common Stock at the time subject...

  • Page 94
    ...maximum number and/or class of securities for which any one person may be granted stock options, stand-alone stock appreciation rights, direct stock issuances and other stock-based awards under the Plan per calendar year. To the extent the actual holders of the Corporation's outstanding Common Stock...

  • Page 95
    ... and new options or stock appreciation rights are granted in replacement with a lower exercise price per share, (ii) cancel outstanding options or stock appreciation rights under the Plan with exercise prices per share in excess of the then current Fair Market Value per share of Common Stock for...

  • Page 96
    ...-based compensation; (6) sales or revenue targets; (7) return on assets, capital or investment; (8) cash flow; (9) market share; (10) cost reduction goals; (11) budget comparisons; (12) measures of customer satisfaction; (13) measures of inventory turns or inventory weeks of supply; (14) new product...

  • Page 97
    ..., however, shall have the discretionary authority to (i) issue vested shares of Common Stock under one or more outstanding share right awards or restricted stock units as to which the designated performance goals or Service requirements have not been attained or satisfied, and (ii) award...

  • Page 98
    ... Termination within a designated period following the effective date of that Change in Control transaction. E. The Plan Administrator shall also have the discretionary authority to structure one or more unvested stock issuances, one or more restricted stock unit or other share right awards or one...

  • Page 99
    .... There shall be no limit on the number of such annual share option grants any one continuing non-employee Board member may receive over his or her period of Board service, and non-employee Board members who have previously been in the employ of the Corporation (or any Parent or Subsidiary) shall be...

  • Page 100
    ... the four (4)-year period measured from the option grant date. The shares subject to each annual 40,000-share-or-less grant made to a non-employee Board member for his or her continued Board service shall vest, and the Corporation's repurchase right shall lapse, in one installment upon the earlier...

  • Page 101
    ... to the terms of the Change in Control transaction. B. Should a Hostile Take-Over occur prior to the Optionee's cessation of Service, then the shares of Common Stock at the time subject to each outstanding option held by such Optionee under this Automatic Grant Program but not otherwise vested...

  • Page 102
    ... percent (100%)) designated by the holder. The shares of Common Stock so withheld shall reduce the number of shares of Common Stock authorized for issuance under the Plan. Stock Delivery: The election to deliver to the Corporation, at the time the Non-Statutory Option or stock appreciation right is...

  • Page 103
    ... the Form S-8 registration statement for the shares of Common Stock issuable under the Plan, and all applicable listing requirements of any Stock Exchange (or the Nasdaq National Market, if applicable) on which Common Stock is then listed for trading. VII. NO EMPLOYMENT/SERVICE RIGHTS Nothing in the...

  • Page 104
    ... shall mean the Internal Revenue Code of 1986, as amended. F. Common Stock shall mean the Corporation's common stock. G. Compensation Committee shall mean the Compensation Committee of the Board comprised of two (2) or more non-employee Board members. H. Corporation shall mean SanDisk Corporation...

  • Page 105
    ...ii) If the Common Stock is at the time listed on any Stock Exchange, then the Fair Market Value shall be the closing selling price per share of Common Stock at the close of regular hours trading (i.e., before after-hours trading begins) on the date in question on the Stock Exchange determined by the...

  • Page 106
    ... 1995 Non-Employee Directors Stock Option Plan, as each such Plan is in effect immediately prior to the 2005 Annual Stockholders Meeting. BB. Secondary Board Committee shall mean a committee of one or more Board members appointed by the Board to administer the Discretionary Grant and Stock Issuance...

  • Page 107
    ...-swing profit liabilities of Section 16 of the 1934 Act. EE. Service shall mean the performance of services for the Corporation (or any Parent or Subsidiary, whether now existing or subsequently established) by a person in the capacity of an Employee, a non-employee member of the board of directors...

  • Page 108
    [THIS PAGE INTENTIONALLY LEFT BLANK]

  • Page 109
    ... on any one Purchase Date and (iii) the number and class of securities and the price per share in effect under each outstanding purchase right in order to prevent the dilution or enlargement of benefits thereunder. IV. OFFERING PERIODS A. Shares of Common Stock shall be offered for purchase...

  • Page 110
    ... Plan shall begin on February 15, 2012 and end on August 14, 2012, unless the Plan Administrator designates different start and end dates for such Purchase Interval. V. ELIGIBILITY A. Each individual who is an Eligible Employee on the start date of any offering period under the Plan may enter that...

  • Page 111
    ... right shall be granted on the start date of the offering period and shall provide the Participant with the right to purchase shares of Common Stock, in one or more installments during that offering period, upon the terms set forth below. The Participant shall execute a stock purchase agreement...

  • Page 112
    ... making a timely filing of the prescribed enrollment forms) on or before the start date of that offering period. H. Termination of Purchase Right. The following provisions shall govern the termination of outstanding purchase rights: (i) Should the Participant cease to remain an Eligible Employee for...

  • Page 113
    ....(C) for the offering period in which the Participant is enrolled at the time of such Change in Control. However, the applicable limitation on the number of shares of Common Stock purchasable per Participant shall continue to apply to any such purchase. The Corporation shall use its best efforts to...

  • Page 114
    ... registration statement filed with the Securities and Exchange Commission), all applicable listing requirements of any stock exchange (or the Nasdaq National Market, if applicable) on which the Common Stock is listed for trading and all other applicable requirements established by law or regulation...

  • Page 115
    ... which rights are hereby expressly reserved by each, to terminate such person's employment at any time for any reason, with or without cause. C. The provisions of the Plan shall be governed by the laws of the State of California without resort to that State's conflict-of-laws rules. Proxy Statement...

  • Page 116
    Schedule A Corporations Participating in Employee Stock Purchase Plan SanDisk Corporation. B-8

  • Page 117
    ... the Corporation's outstanding securities pursuant to a tender or exchange offer made directly to the Corporation's stockholders. D. Code shall mean the Internal Revenue Code of 1986, as amended. E. Common Stock shall mean the Corporation's common stock. F. Corporate Affiliate shall mean any parent...

  • Page 118
    ...ii) If the Common Stock is at the time listed on any Stock Exchange, then the Fair Market Value shall be the closing selling price per share of Common Stock at the close of regular hours trading (i.e., before after-hours trading begins) on the date in question on the Stock Exchange determined by the...

  • Page 119
    ... on any one Purchase Date and (iii) the number and class of securities and the price per share in effect under each outstanding purchase right in order to prevent the dilution or enlargement of benefits thereunder. IV. OFFERING PERIODS A. Shares of Common Stock shall be offered for purchase...

  • Page 120
    ... Plan shall begin on February 15, 2012 and end on August 14, 2012, unless the Plan Administrator designates different start and end dates for such Purchase Interval. V. ELIGIBILITY A. Each individual who is an Eligible Employee on the start date of any offering period under the Plan may enter that...

  • Page 121
    ... right shall be granted on the start date of the offering period and shall provide the Participant with the right to purchase shares of Common Stock, in one or more installments during that offering period, upon the terms set forth below. The Participant shall execute a stock purchase agreement...

  • Page 122
    ... making a timely filing of the prescribed enrollment forms) on or before the start date of that offering period. H. Termination of Purchase Right. The following provisions shall govern the termination of outstanding purchase rights: Should the Participant cease to remain an Eligible Employee for any...

  • Page 123
    ....(C) for the offering period in which the Participant is enrolled at the time of such Change in Control. However, the applicable limitation on the number of shares of Common Stock purchasable per Participant shall continue to apply to any such purchase. The Corporation shall use its best efforts to...

  • Page 124
    ... Dollars ($25,000.00) worth of stock of the Corporation or any Corporate Affiliate (determined on the basis of the Fair Market Value per share on the date or dates such rights are granted) for each calendar year such rights are at any time outstanding. B. For purposes of applying such accrual...

  • Page 125
    ... registration statement filed with the Securities and Exchange Commission), all applicable listing requirements of any stock exchange (or the Nasdaq National Market, if applicable) on which the Common Stock is listed for trading and all other applicable requirements established by law or regulation...

  • Page 126
    ... Hong Kong Limited SanDisk Hong Kong Limited, Australia Branch Office SanDisk Korea Limited SanDisk India Device Design Centre Private Limited SanDisk Hong Kong Limited, Singapore Representative Office SanDisk IL Ltd. SanDisk Israel (Tefen) Ltd. SanDisk Information Technology (Shanghai) Co., Ltd...

  • Page 127
    ... the Corporation's outstanding securities pursuant to a tender or exchange offer made directly to the Corporation's stockholders. D. Code shall mean the Internal Revenue Code of 1986, as amended. E. Common Stock shall mean the Corporation's common stock. F. Corporate Affiliate shall mean any parent...

  • Page 128
    ...ii) If the Common Stock is at the time listed on any Stock Exchange, then the Fair Market Value shall be the closing selling price per share of Common Stock at the close of regular hours trading (i.e., before after-hours trading begins) on the date in question on the Stock Exchange determined by the...

  • Page 129
    ...ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended January 2, 2011 OR ' TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number: 0000-26734 SANDISK...

  • Page 130
    ... Market Risk ...Financial Statements and Supplementary Data ...Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ...Controls and Procedures ...Other Information ...PART III Directors, Executive Officers and Corporate Governance ...Executive Compensation ...Security...

  • Page 131
    ... company. What We Do. We design, develop and manufacture data storage solutions in a variety of form factors using our flash memory, proprietary controller and firmware technologies. Our solutions include removable cards, embedded products, universal serial bus, or USB, drives, digital media players...

  • Page 132
    ... leading-edge, low-cost NAND memory for use in a variety of end-products, including consumer, mobile phone and computing devices. We are a one-stop-shop for our retail and OEM customers, selling in high volumes all major NAND flash storage card formats for our target markets. Our revenues are driven...

  • Page 133
    ...carry files and application software on a portable USB drive. Our Professional and Enterprise line of UFDs are geared towards the corporate user and are specifically designed to support secure and authorized access to corporate information. Digital Media Players. Sansa® is our branded line of flash...

  • Page 134
    ... and applications are driving demand for additional NAND flash memory storage in mobile phones. Consumer. We provide flash storage products to multiple consumer markets, including imaging, gaming, audio/video and GPS. Flash storage cards are used as the film for all major brands of digital cameras...

  • Page 135
    ... used in standard operating systems for PCs, mobile phones, gaming devices, digital media players and other consumer and industrial products. Our patented intelligent controller technology, with its advanced defect management system, permits our flash storage card products to achieve a high level...

  • Page 136
    ...with other companies regarding potential license agreements for our patents. In the three years ended January 2, 2011, we have generated $1.28 billion in revenue from license agreements. Trade secrets and other confidential information are also important to our business. We protect our trade secrets...

  • Page 137
    ...flash memory cards, USB drives and digital audio players. We also face competition from manufacturers of hard disk drives and from new technologies. We believe that our ability to compete successfully depends on a number of factors, including price, quality and on-time delivery of products; product...

  • Page 138
    ... product offerings and many companies are attempting to develop memory cells that use different designs and materials in order to reduce memory costs. These potential competitive technologies include several types of 3D memory, a version of which we are jointly developing with Toshiba, phase-change...

  • Page 139
    ... SanDisk board of directors in July 2010. He has previously served as our Chief Operating Officer, Executive Vice President, Vice President of Engineering, Vice President of Product Development, and Director of Memory Design and Product Engineering. Mr. Mehrotra has more than 30 years of experience...

  • Page 140
    ...and Chief Technology Officer since October 2010. He has previously served as our Executive Vice President of OEM Business and Corporate Engineering, Executive Vice President of Mobile Business and Corporate Engineering and Senior Vice President of Engineering and Emerging Market Business Development...

  • Page 141
    ... emergence of new markets and products for NAND-based flash memory, such as SSDs, or lack of acceptance of our products by our OEM customers or consumers; inability to enhance current products or develop new products on a timely basis; timing of sell-through and the financial liquidity and strength...

  • Page 142
    ...of our total revenues in fiscal years 2010 and 2009. In fiscal year 2008, Samsung accounted for 13% of our total revenues through a combination of license and royalty and product revenues. The composition of our major customer base has changed over time, including shifts between OEM and retail-based...

  • Page 143
    ...TAB type table. Insert conts here. should they decide not to use our products, our results of operations and financial condition could be harmed. OEM manufacturers of consumer devices, including mobile phones and tablets continue to increase their usage of embedded flash storage. Our OEM revenue is...

  • Page 144
    ...growth of our business depends on the development and performance of new markets and products for NAND-based flash memory. Our future growth is dependent on development of new markets, new applications and new products for NAND-based flash memory. Historically, the digital camera market provided the...

  • Page 145
    ... products. For example, certain handset manufacturers and flash memory chip producers are currently advocating and developing a new standard, referred to as Universal Flash Storage, commonly referred to as UFS, for flash memory cards used in mobile phones. Intel and Micron have also developed a new...

  • Page 146
    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. Such practices occurred ...

  • Page 147
    ... in signing new licensees in the future, our license revenue, profitability, and cash provided by operating activities would be harmed. For example, in the first quarter of fiscal year 2010, our license and royalty revenues decreased sequentially primarily due to a new license agreement with Samsung...

  • Page 148
    ... companies and their customers' products and declines in general economic conditions. The flash memory industry has recently experienced significant excess supply, reduced demand, high inventory levels, and accelerated declines in selling prices. If we again experience oversupply of NAND flash...

  • Page 149
    ... have transitioned to new generations of products. If actual yields are low, we will experience higher costs and reduced product supply, which could harm our business, financial condition and results of operations. For example, if the production ramp and/or yield of X2 and X3 NAND technology on the...

  • Page 150
    ... any manufacturing processes, as well as extensive qualification of the new products by our OEM customers and us. If we fail to achieve OEM design wins with new technologies such as the use of X3 in embedded mobile applications, we may be unable to achieve the cost structure required to support our...

  • Page 151
    ... 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 market share to...

  • Page 152
    ... related to certain non-U.S. dollar-denominated revenue and operating expenses in Europe and Asia. Additionally, we have exposures to emerging market currencies, which can be extremely volatile. An increase in the value of the U.S. dollar could increase the real cost to our customers of our products...

  • Page 153
    ... District of Wisconsin and one action in the United States International Trade Commission, or ITC, against certain companies that manufacture, sell and import USB flash drives, CF cards, multimedia cards, MP3/media players and/or other removable flash storage products. In this ITC action, an Initial...

  • Page 154
    ... not be able to develop such technology or acquire such licenses on terms acceptable to us, or at all. We may also be required to pay significant damages and/or discontinue the use of certain manufacturing or design processes. In addition, we or our suppliers could be enjoined from selling some or...

  • Page 155
    ... effect on our business, financial condition and results of operations. For additional information concerning legal proceedings, including the examples set forth above, see Part I, Item 3, "Legal Proceedings." We may be unable to license, or license at a reasonable cost, intellectual property to or...

  • Page 156
    ... and regulations; weak protection of our intellectual property rights; delays in product shipments due to local customs restrictions; and delays in research and development that may arise from political unrest at our development centers in Israel or other countries. Our stock price and convertible...

  • Page 157
    ... companies. We may experience delays in the timing and successful integration of acquired technologies and product development through volume production, unanticipated costs and expenditures, changing relationships with customers, suppliers and strategic partners, or contractual, intellectual...

  • Page 158
    ... to successfully operate our business and could harm our financial results or our ability to accurately report our financial results on a timely basis. Anti-takeover provisions in our charter documents, stockholder rights plan and in Delaware law could discourage or delay a change in control and, as...

  • Page 159
    ... related to our relationships with our customers and suppliers. These costs may harm our operations and financial condition. In the event we are unable to satisfy regulatory requirements relating to internal controls, or if our internal control over financial reporting is not effective, our business...

  • Page 160
    ...combination of cash and common stock upon exercise of a holder's conversion right in accordance with the provisions of the applicable indenture would constitute a default under that indenture. We may not have the financial resources or be able to arrange for financing to pay such principal amount in...

  • Page 161
    ...-the-counter cash-settled derivative transactions and/or purchase or sell shares of our common stock in open market and/or privately negotiated transactions following the pricing of the notes, including during any observation period related to a conversion of notes. The dealers or their respective...

  • Page 162
    ... 2. PROPERTIES Our corporate headquarters are located in Milpitas, California. We lease four adjacent buildings comprising approximately 444,000 square feet. These facilities house our corporate offices, the majority of our engineering team, as well as a portion of our sales, marketing, operations...

  • Page 163
    ... table summarizes the high and low sale prices for our common stock as reported by the NASDAQ. High Low 2009 First quarter ...Second quarter ...Third quarter ...Fourth quarter ...2010 First quarter ...Second quarter ...Third quarter ...Fourth quarter ...Holders. As of February 1, 2011, we had...

  • Page 164
    ...reported year, the reported dates are the last trading dates of our fiscal quarters (which end on the Sunday closest to March 31, June 30 and September 30, respectively) and year (which ends on the Sunday closest to December 31). $150 $100 $50 $0 2005 2006 2007 2008 2009 2010 SanDisk Corporation...

  • Page 165
    ... SELECTED FINANCIAL DATA Fiscal Years Ended January 3, December 28, December 30, 2010(2) 2008(3) 2007(4) (In thousands, except per share data) January 2, 2011(1) December 31, 2006(5) Revenues Product ...License and royalty ...Total revenues ...Cost of product revenues ...Gross profit ...Operating...

  • Page 166
    ... of formats and devices. We sell our products globally to retail and OEM customers. We design, develop and manufacture data storage solutions in a variety of form factors using our flash memory, proprietary controller and firmware technologies. We purchase the vast majority of our NAND flash memory...

  • Page 167
    .... Insert conts here. NAND memory for use in a variety of end-products, including consumer, mobile phone and computing devices. We are a one-stop-shop for our retail and OEM customers, selling in high volumes all major NAND flash storage card formats for our target markets. Our results are primarily...

  • Page 168
    .... Revenue is generally recognized at the time of shipment for customers not eligible for price protection and/or a right of return. Sales made to distributors and retailers are generally under agreements allowing price protection and/or right of return and, therefore, the sales and related costs of...

  • Page 169
    ... average selling price reduced by estimated costs of disposal. The determination of market value involves numerous judgments including estimating average selling prices based upon recent sales, industry trends, existing customer orders, current contract prices, industry analysis of supply and...

  • Page 170
    ... to a weak worldwide consumer spending environment through all of 2009. The increase in OEM product revenues in fiscal year 2009 compared to fiscal year 2008 was due to increased sales of cards and embedded products primarily in the mobile phone markets and increased sales to new OEM channels...

  • Page 171
    ... phone market and growth in the sale of private label cards, wafers and components. Product revenues in fiscal year 2009 compared to fiscal year 2008 decreased in the U.S. and EMEA, primarily due to a weak consumer spending environment. License and Royalty Revenues. FY 2010 Percent Percent Change...

  • Page 172
    ...million charge related to a power outage experienced at Fab 3 and Fab 4 in the fourth quarter of fiscal year 2010. Product gross margins in fiscal year 2009 increased 43.3 percentage points compared to fiscal year 2008 due to manufacturing costs declining faster than prices and a net benefit of $364...

  • Page 173
    ... of revenue ... n/a n/a n/a n/a n/a n/a $ 845.5 25.2% In the fourth quarter of fiscal year 2008, we concluded that there were sufficient indicators based on a combination of factors, including the economic environment, current and forecasted operating results, NAND flash memory industry pricing...

  • Page 174
    ... "Other income (expense), net" in fiscal year 2010 included a gain of $13 million related to the sale of the net assets of our mobile phone SIM card business and the sale of certain public equity securities. "Other income (expense), net" was a net expense for fiscal year 2009 due to bank charges and...

  • Page 175
    ... of operations or liquidity. Non-GAAP Financial Measures Reconciliation of Net Income (Loss). Twelve months ended January 2, January 3, December 28, 2011 2010 2008 (In thousands except per share amounts) Net income (loss) ...Share-based compensation ...Impairment of goodwill and acquisition-related...

  • Page 176
    ... the core operating performance of the company; establishing internal budgets; setting and determining variable compensation levels; calculating return on investment for development programs and growth initiatives; comparing performance with internal forecasts and targeted business models; strategic...

  • Page 177
    ... primarily due to an increase in tax-related receivables in fiscal year 2010 and a tax refund received in the first quarter of fiscal year 2009. Accounts payable trade and accounts payable from related parties increased primarily due to the timing of Flash Ventures payments as compared to the prior...

  • Page 178
    ... from Flash Ventures of $9 million in fiscal year 2009. In addition, in fiscal year 2010, we received proceeds of $18 million related to the sale of the net assets of our mobile phone SIM card business. The increase in cash used in investing activities in fiscal year 2009 was primarily related to...

  • Page 179
    ... Ventures, increasing our wafer supply, developing or enhancing our products, taking advantage of future opportunities, engaging in investments in or acquisitions of companies, growing our business, responding to competitive pressures or unanticipated industry changes, any of which could harm our...

  • Page 180
    ...in both Flash Partners and Flash Alliance, our business ventures with Toshiba to develop and manufacture NAND flash memory products. In July 2010, we and Toshiba entered into an agreement to create Flash Forward to operate in Fab 5, of which we will own 49.9% and Toshiba will own 50.1%. Toshiba will...

  • Page 181
    ... with this direct design and development of flash memory. In the fourth quarter of fiscal year 2008, our requirement to fund common research and development activities ended and final funding was completed in the second quarter of fiscal year 2009. As of January 2, 2011 and January 3, 2010, we had...

  • Page 182
    into cost of product revenues in the same period or periods in which the cost of product revenues is recognized. These foreign currency exchange exposures may change over time as our business and business practices evolve, and they could harm our financial results and cash flows. See Note 3, "...

  • Page 183
    ...All of the potential changes noted above are based on sensitivity analysis performed on our financial position at January 2, 2011. Actual results may differ materially. Annual Report ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information required by this item is set forth beginning at...

  • Page 184
    ... reported within the time periods specified in the SEC's rules and regulations and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure. Report of Management on Internal Control...

  • Page 185
    ...," "Compensation Committee Report on Executive Compensation," "Compensation Discussion and Analysis," "Summary Compensation Table - Fiscal 2008-2010," "Outstanding Equity Awards at Fiscal 2010 Year-End" and "Option Exercises and Stock Vested in Fiscal 2010" in our Proxy Statement for our 2011 Annual...

  • Page 186
    ... AND FINANCIAL STATEMENT SCHEDULES (a) Documents filed as part of this report 1) All financial statements Index to Financial Statements Page Reports of Independent Registered Public Accounting Firm ...Consolidated Balance Sheets ...Consolidated Statements of Operations ...Consolidated Statements of...

  • Page 187
    ... is a TAB type table. Insert conts here. SANDISK CORPORATION INDEX TO FINANCIAL STATEMENTS Page Reports of Independent Registered Public Accounting Firm ...Consolidated Balance Sheets ...Consolidated Statements of Operations ...Consolidated Statements of Equity ...Consolidated Statements of Cash...

  • Page 188
    ... Sheets of SanDisk Corporation as of January 2, 2011 and January 3, 2010, and the related Consolidated Statements of Operations, Equity, and Cash Flows for each of the three years in the period ended January 2, 2011. These financial statements are the responsibility of the company's management. Our...

  • Page 189
    ... Public Company Accounting Oversight Board (United States), the Consolidated Balance Sheets of SanDisk Corporation as of January 2, 2011 and January 3, 2010, and the related Consolidated Statements of Operations, Equity, and Cash Flows for each of the three years in the period ended January 2, 2011...

  • Page 190
    ... shares: 800,000,000; Issued and outstanding: 236,501,736 in fiscal year 2010 and 228,656,504 in fiscal year 2009 ...Capital in excess of par value ...Retained earnings (accumulated deficit) ...Accumulated other comprehensive income ...Total stockholders' equity ...Non-controlling interests...

  • Page 191
    This is a TAB type table. Insert conts here. SANDISK CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS Fiscal Years Ended January 2, January 3, December 28, 2011 2010 2008 (In thousands, except per share amounts) Revenues Product ...License and royalty ...Total revenues ...Cost of product revenues...

  • Page 192
    ... loss ...Distribution to non-controlling interests ...Issuance of shares pursuant to equity plans ...Issuance of stock pursuant to employee stock purchase plan ...Income tax charge from stock options exercised ...Share-based compensation expense ...Change in unrecognized tax benefits as a result of...

  • Page 193
    This is a TAB type table. Insert conts here. SANDISK CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS January 2, 2011 Fiscal Years Ended January 3, December 28, 2010 2008 (In thousands) Cash flows from operating activities: Net income (loss) ...Adjustments to reconcile net income (loss) to net ...

  • Page 194
    ... June 1, 1988. The Company designs, develops, markets and manufactures flash storage card products used in a wide variety of consumer electronics products. The Company operates in one segment, flash memory storage products. Basis of Presentation. The Company's fiscal year ends on the Sunday closest...

  • Page 195
    ...a straight-line basis over the life of the license. The Company records estimated reductions of revenue for customer and distributor incentive programs and offerings, including price protection, promotions, co-op advertising and other volume-based incentives and expected returns. All sales incentive...

  • Page 196
    ... Statement of Operations, unless the Company intends, or more likely than not will be forced, to sell the security. Property and Equipment. Property and equipment are carried at cost less accumulated depreciation and amortization. Depreciation and amortization are computed using the straight-line...

  • Page 197
    ...under-performance relative to the historical or projected future operating results; (2) significant changes in the manner of use of assets; (3) significant negative industry or economic trends; and (4) significant changes in the Company's market capitalization relative to net book value. Any changes...

  • Page 198
    ... to publicly available information or compared to multiple independent valuation sources. Advertising Expenses. Marketing co-op development programs, where the Company receives, or will receive, an identifiable benefit (e.g., goods or services) in exchange for the amount paid to its customer and...

  • Page 199
    ...as of January 3, 2010, were presented on the Company's Consolidated Balance Sheets as follows (in thousands): Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Annual Report Total Cash equivalents...

  • Page 200
    .... Available-for-sale investments as of January 2, 2011 were as follows (in thousands): Amortized Cost Gross Unrealized Gain Gross Unrealized Loss Fair Value Fixed income securities: U.S. Treasury and government agency securities ...U.S. government-sponsored agency securities ...Corporate notes and...

  • Page 201
    ... not the Company will be required to sell the investments before the recovery of its amortized cost. The following table shows the gross realized gains and (losses) on sales of available-for-sale securities (in thousands). January 2, 2011 Year ended January 3, 2010 December 28, 2008 Gross realized...

  • Page 202
    ...that are expected to occur during fiscal year 2011. The Company has an outstanding cash flow hedge designated to mitigate equity risk associated with certain available-for-sale investments in equity securities. The gain or loss on the cash flow hedge is reported as a component of accumulated OCI and...

  • Page 203
    ...): Amount of gain (loss) recognized in OCI January 2, January 3, 2011 2010 Amount of gain (loss) reclassified from OCI to the Statements of Operations during the year ended January 2, January 3, 2011 2010 Annual Report Foreign exchange contracts ...Equity market risk contract ... $ 27,826 (7,585...

  • Page 204
    ...13,881 During 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. Inventory was...

  • Page 205
    ... and investments in the flash ventures with Toshiba ... $ 578,604 653,699 238,601 262,587 $ 562,946 520,225 199,106 225,273 Annual Report $ 1,733,491 $ 1,507,550 In the third quarter of fiscal year 2008, the Company recorded a $10.4 million impairment charge related to its equity investment...

  • Page 206
    ... and the use of significant estimates related to valuation such as discount rates, long-term growth rates, foreign currency rates, and the level and timing of future cash flows. The Flash Partners and Flash Alliance impairments were recorded in cost of product revenues due to the operational nature...

  • Page 207
    ... income tax (benefit) expense allocated to unrealized gain on available-for-sale investments, hedging activities and foreign currency translation for each of the three fiscal years ended was as follows (in thousands): Annual Report January 2, 2011 January 3, 2010 December 28, 2008 Available-for...

  • Page 208
    ... NAND flash memory industry pricing conditions. The annual expected amortization expense of intangible assets as of January 2, 2011 is presented below (in thousands): Estimated Amortization Expense Acquisition-related Technology Licenses Intangible Assets and Patents Fiscal periods 2011 2012 2013...

  • Page 209
    ... 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 flash memory industry pricing conditions and a sustained decline in the Company's market...

  • Page 210
    ...the product of the last reported sale price of the Company's common stock and the conversion rate on each such day; 2) during any calendar quarter after the calendar quarter ending June 30, 2006, if the last reported sale price of the Company's common stock for 20 or more trading days in a period of...

  • Page 211
    ...presents the amount of interest cost recognized for the period relating to both the contractual interest coupon and amortization of the discount on the liability component of the 1.5% Notes due 2017 (in millions): Year ended January 2, 2011 Annual Report Contractual interest coupon ...Amortization...

  • Page 212
    ... product of the last reported sale price of the Company's common stock and the conversion rate on each such day; 2) during any calendar quarter after the calendar quarter ending September 30, 2010, if the last reported sale price of the Company's common stock for 20 or more trading days in a period...

  • Page 213
    ... 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 Executive Officer, evaluates performance of...

  • Page 214
    ... 46%, 42% and 48% of the Company's revenues for the fiscal years ended January 2, 2011, January 3, 2010 and December 28, 2008, respectively. All customers were individually less than 10% of the Company's total revenues in fiscal years 2010 and 2009. In fiscal year 2008, Samsung Electronics Co., Ltd...

  • Page 215
    ... start date of the offering period or the fair market value per share on the purchase date. The ESPP had an original authorization of 5,000,000 shares to be issued, of which 1,267,651 shares were available to be issued as of January 2, 2011. In the fiscal years ended January 2, 2011, January 3, 2010...

  • Page 216
    .... The fair value of the Company's stock options granted to employees, officers and non-employee board members and ESPP shares granted to employees for the years ended January 2, 2011, January 3, 2010 and December 28, 2008 was estimated using the following weighted average assumptions: January...

  • Page 217
    ... Notes 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 January 2, 2011 and changes during the three fiscal years ended January 2, 2011 is presented...

  • Page 218
    ... cost related to ESPP that is expected to be recognized over a period of approximately 0.1 years. Share-Based Compensation Expense. The Company recorded $77.6 million, $95.6 million and $97.8 million of share-based compensation expense for the fiscal years ended January 2, 2011, January 3, 2010...

  • Page 219
    ... fiscal year 2010, the Company recognized $17.3 million of expense related to the modification of stock awards, pursuant to the retirement agreement of the Company's former Chief Executive Officer. In the fourth quarter of fiscal year 2009, the Company identified that its third party equity software...

  • Page 220
    ...Consolidated Financial Statements employees in fiscal years 2008 and 2009, respectively, in all functions, primarily in the U.S., Israel and Spain. Contract termination fees and other charges of $21.0 million included restructuring charges for marketing contract termination costs, technology license...

  • Page 221
    ... rates to income (loss) before taxes as follows: Fiscal Years Ended January 2, 2011 January 3, 2010 December 28, 2008 U.S. federal statutory rate ...State taxes, net of federal benefit ...Non-deductible share-based compensation expense ...Impairment of goodwill ...Valuation allowance ...Tax-exempt...

  • Page 222
    ... and Job Creation Act of 2010 (the Act) enacted December 17, 2010 retroactively extended the research and development tax credit through December 2011. As a result, the Company recognized a benefit related to federal research credit of $10.0 million in its fiscal year 2010 income tax provision. The...

  • Page 223
    ... to the Company's financial results for fiscal years 2010, 2009 and 2008. Note 11: Net Income (Loss) per Share The following table sets forth the computation of basic and diluted net income (loss) per share (in thousands, except per share amounts): January 2, 2011 Fiscal Years Ended January...

  • Page 224
    ... interest in Flash Partners, a business venture with Toshiba which owns 50.1%, formed 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 its...

  • Page 225
    ...year 2009. Transaction costs of $10.9 million related to the sale and transfer of equipment and lease obligations were expensed in the first quarter of fiscal year 2009. Flash Forward. In July 2010, the Company and Toshiba entered into an agreement to create Flash Forward to operate in Toshiba's Fab...

  • Page 226
    ... based upon the exchange rate at January 2, 2011. Master Lease Agreements by Execution Date Lease Amounts (Yen in billions) (Dollars in thousands) Expiration Flash Partners December 2005 ...Â¥ June 2006 ...September 2006 ...March 2007 ...February 2008 ...April 2010 ...Flash Alliance November 2007...

  • Page 227
    ... the exchange rate at January 2, 2011. The Company and Toshiba have each guaranteed 50%, on a several basis, of Flash Partners' obligations under the refinanced lease agreement. This refinanced equipment lease, due in fiscal year 2014, is to be paid by Flash Partners in quarterly installments, with...

  • Page 228
    ...amount it could be required to pay to its suppliers and customers. Historically, the Company has not made any significant indemnification payments under any such agreements. As of January 2, 2011, no amounts had been accrued in the accompanying Consolidated Financial Statements with respect to these...

  • Page 229
    ...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 230
    ...the period of cash settlement with the respective taxing authorities. The Company leases many of its office facilities and operating equipment for various terms under longterm, noncancelable operating lease agreements. The leases expire at various dates from fiscal year 2011 through fiscal year 2016...

  • Page 231
    ...017 3,811 661 2,166 Annual Report The following summarizes the aggregated financial information for Flash Ventures for the fiscal years ended January 2, 2011, January 3, 2010 and December 28, 2008, respectively (in millions). Flash Ventures' yearends are March 31, with quarters ending on March 31...

  • Page 232
    ... Consolidated Financial Statements Solid State Storage Solutions LLC. During the second quarter of fiscal year 2007, the Company formed Solid State Storage Solutions LLC ("S4"), a venture with third parties to license intellectual property. S4 qualifies as a variable interest entity. The Company is...

  • Page 233
    ... Order. On February 17, 2011, the Company and Kingston filed a stipulated dismissal with the Court, stating that rather than proceeding to trial against Kingston products containing the Phison PS3006 controller, which represented a small amount of damages, the Company agreed to F-47 Annual Report

  • Page 234
    ... and a number of other manufacturers of flash memory and flash memory products conspired to fix, raise, maintain, and stabilize the price of NAND flash memory in violation of state and federal laws and sought an injunction, damages, restitution, fees, costs, and disgorgement of profits. The direct...

  • Page 235
    ... May, 10, 2011. IP Litigation Against SanDisk: On November 12, 2010, Main Hastings, LLC ("Main Hastings") filed a patent false marking case in the Eastern District of Texas, alleging that the Company sold and advertised the Company's G3 and G4 Solid State Drive lines of products with expired patent...

  • Page 236
    ... Chief Executive Officer. Also included is a gain related to the sale of net assets of the Company's mobile phone SIM card business in the first quarter of fiscal year 2010. April 4, 2010 Fiscal Quarters Ended July 4, October 3, 2010 2010 (In thousands) January 2, 2011 Share-based compensation...

  • Page 237
    ... Company's third-party software application incorrectly accounted for estimated forfeitures in share-based compensation calculations. March 29, 2009 Fiscal Quarters Ended June 28, September 27, 2009 2009 (In thousands) January 3, 2010 Share-based compensation ...Amortization of acquisition-related...

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    ...or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. SANDISK CORPORATION By: /s/ JUDY BRUNER Judy Bruner Executive Vice President, Administration and Chief Financial Officer (On behalf of...

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    ... and The Bank of New York Mellon, N.A. (13) License Agreement between the Registrant and Dr. Eli Harari, dated September 6, 1988.(1) SanDisk Corporation 1995 Stock Option Plan, as Amended and Restated January 2, 2002.(14), (*) SanDisk Corporation 1995 Non-Employee Directors Stock Option Plan, as...

  • Page 242
    ... the Registrant and Toshiba Corporation.(26) Form of Amended and Restated Change of Control Benefits Agreement entered into by and between the Registrant and its named executive officers.(27), (*) Form of Option Agreement Amendment.(28), (*) Flash Partners Master Agreement, dated as of September...

  • Page 243
    ... the Registrant and its directors and officers.(1) Form of Amended and Restated Change of Control Benefits Agreement entered into by and between the Registrant and its Named Executive Officers other than the Registrant's CEO.(46) Agreement by and between Registrant and Eli Harari dated as of July 30...

  • Page 244
    ... SanDisk (Cayman) Limited, Toshiba Corporation, Flash Partners Limited, and Flash Alliance Limited.(73)(+) Computation of ratio of earnings to fixed charges.(**) Subsidiaries of the Registrant.(**) Consent of Independent Registered Public Accounting Firm.(**) Certification of Chief Executive Officer...

  • Page 245
    ... quarter ended October 3, 2010 (No. 000-26734). Previously filed as Exhibit 10.3 to the Registrant's Form 10-Q for the quarter ended October 3, 2010 (No. 000-26734). Previously filed as Exhibit 10.4 to the Registrant's Form 10-Q for the quarter ended October 3, 2010 (No. 000-26734). Annual Report...

  • Page 246
    ... ended October 3, 2010 (No. 000-26734). 51. Previously filed as Annex B to the Company's Proxy Statement filed with the Commission pursuant to Section 14(a) of the Exchange Act on April 15, 2009 (Commission File No. 000-26734). 52. Previously filed as Exhibit 10.2 to the Registrant's Current Report...

  • Page 247
    ... Form 10-Q for the quarter ended March 30, 2008 (No. 000-26734). 71. Previously filed as Exhibit 10.1 to the Registrant's Current Report on Form 8-K dated June 3, 2005 (No. 000-26734). 72. Previously filed as Exhibit 10.1 to the Registrant's Form 10-Q for the quarter ended July 2, 2006 (No. 00026734...

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    ... Vice President and Chief Strategy Officer BOARD OF DIRECTORS Kevin DeNuccio Irwin Federman Steven J. Gomo Eddy W. Hartenstein Dr. Chenming Hu Catherine P. Lego Michael E. Marks Sanjay Mehrotra Dr. James D. Meindl CORPORATE OFFICES SanDisk Corporation 601 McCarthy Blvd. Milpitas, CA 95035 Phone...

  • Page 252
    ... Stick Micro and Memory Stick PRO Duo are trademarks or registered trademarks of Sony Corporation. SanDisk is an authorized licensee of the xD-Picture Card trademark. Other brand names mentioned herein are for identification purposes only and may be trademarks of their respective holder(s). © 2011...