SanDisk 2011 Annual Report Download - page 96

Anti-takeover provisions in our charter documents, stockholder rights plan and Delaware law could
discourage or delay a change in control and 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 shares of preferred stock 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 harm 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 delay or discourage 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 and other taxes 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 U.S. 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, tax audits are inherently uncertain and an unfavorable outcome could occur.
An unanticipated unfavorable outcome in any specific period could harm our operating results 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 harm our profitability.
We may be subject to risks associated with laws, regulations and customer initiatives relating to the
environment, conflict minerals or other social responsibility issues. 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. In addition,
climate change issues, energy usage and emissions controls may result in new environmental legislation and
regulations, at the international, federal or state level, that may make it more difficult or expensive for us, our
suppliers and our customers to conduct business. Any of these regulations could cause us to incur additional
direct costs, as well as increased indirect costs related to our relationships with our customers and suppliers, and
otherwise harm our operations and financial condition.
Government regulators, or our customers may require us to comply with product or manufacturing standards
that are more restrictive than current laws and regulations related to environmental matters, conflict minerals or
other social responsibility initiatives. The implementation of these standards could affect the sourcing, cost and
availability of materials used in the manufacture of our products. For example, there may be only a limited
number of suppliers offering “conflict free” metals used in our products, and there can be no assurance that we
will be able to obtain such metals in sufficient quantities or at competitive prices. Also, we may face challenges
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