SanDisk 2012 Annual Report Download

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Table of contents

  • Page 1

  • Page 2

  • Page 3
    Stockholders Letter Proxy Statement Annual Report

  • Page 4

  • Page 5
    ...Recap of 2012 In 2012, the mobile market remained the largest driver of our business accounting for 46% of our revenue. Our mobile products are used in smartphones, feature phones, tablets, eReaders and other portable devices. Our consumer electronics offerings including cards, USB flash drives and...

  • Page 6
    ... enterprise storage OEMs. In 2012, we made two software related acquisitions, FlashSoft and Schooner, to further enhance our enterprise SSD capabilities. The FlashSoft team designs and develops high-performance data caching solutions that significantly boost the input-output speed of data traversing...

  • Page 7
    ...-pronged technology strategy positions us well for continued leadership in solid-state technology. Vertical Integration: A Key SanDisk Advantage Our vertically integrated business model, which includes high-volume NAND-flash manufacturing facilities in ventures with Toshiba Corporation, provides...

  • Page 8

  • Page 9
    ... the SanDisk Corporation 2013 Incentive Plan. 3. To ratify the appointment of Ernst & Young LLP as the Company's independent registered public accounting firm for the fiscal year ending December 29, 2013. 4. To pass an advisory resolution to approve the compensation of the Company's Named Executive...

  • Page 10
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  • Page 11
    ... ...Stock Ownership Guidelines ...Insider Trading Policy ...Section 162(m) Policy ...Say-on-Pay ...COMPENSATION COMMITTEE REPORT ...EXECUTIVE COMPENSATION ...Summary Compensation Table-Fiscal 2010-2012 ...Grants of Plan-Based Awards in Fiscal 2012 ...Outstanding Equity Awards at Fiscal 2012 Year-End...

  • Page 12
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  • Page 13
    ... of record at the close of business on April 15, 2013 (the "Record Date") will be entitled to vote at the Annual Meeting. The Annual Meeting will be held at 8:00 a.m., local time, on June 12, 2013, at the Company's headquarters, 951 SanDisk Drive, Milpitas, California 95035. These materials were...

  • Page 14
    ...the SanDisk Corporation 2013 Incentive Plan (the "2013 Plan"), the ratification of the appointment of Ernst & Young LLP as the Company's independent registered public accounting firm and the advisory resolution to approve the compensation of the Company's Named Executive Officers (who are identified...

  • Page 15
    ... Investor Relations department at 951 SanDisk Drive, Milpitas, California 95035 or call the Company's Investor Relations department at (408) 801-1000, and the Company will promptly comply with such request. Stockholders may contact the Company's Investor Relations representative at the phone number...

  • Page 16
    ... at the 2014 Annual Meeting of Stockholders must be received by the Company no later than December 27, 2013 in order that they may be included in the Proxy Statement and form of proxy relating to that meeting. If the stockholder proposal is to be presented at the 2014 Annual Meeting of Stockholders...

  • Page 17
    ... architectures, from February 2010 to July 2012. Mr. DeNuccio was President and Chief Executive Officer of Redback Networks Inc., a provider of advanced communications networking equipment, from August 2001 to January 2008, during which time it filed for Chapter 11 bankruptcy protection in 2003 and...

  • Page 18
    ...experience serving as the chief executive officer and chief financial officer of a large, complex, publicly-held technology company, his venture capital experience, which is important to the Board's understanding of business development, financing, strategic alternatives and industry trends, and his...

  • Page 19
    ... ability 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-held technology companies. Ms. Lego served as a Director of the Company from 1989 to 2002 and returned to the Board in...

  • Page 20
    ... Chief Operating Officer, Executive Vice 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...

  • Page 21
    ... following address: Board of Directors, c/o Investor Relations, SanDisk Corporation, 951 SanDisk Drive, Milpitas, CA 95035. Communications that are intended specifically for non-management Directors should be sent to the attention of the Chair of the Nominating and Governance Committee. The Company...

  • Page 22
    ... 2012), has authority for establishing the general compensation policies of the Company, reviewing and setting the compensation of the Company's executive officers, as defined by NASDAQ listing standards and Rule 16a-1(f) of the Exchange Act (the "Section 16 Officers"), evaluating the performance...

  • Page 23
    ... management with information on compensation-related trends and developments in the Company's industry and fiscal year 2012 peer companies, including equity award practices. Compensia did not provide any other services to the Company. Compensation Committee Interlocks and Insider Participation...

  • Page 24
    ... the periodic review of the Company's compensation plans to ensure compliance with applicable laws and regulations. Nominating and Governance Committee The Nominating and Governance Committee of the Board held four meetings and did not act by unanimous written consent during fiscal year 2012. During...

  • Page 25
    ... SanDisk Corporation, 951 SanDisk Drive, Milpitas, CA 95035. The recommendation must include the following written materials: (1) all information relating to the Recommended Candidate that is required to be disclosed pursuant to applicable Exchange Act rules and regulations, NASDAQ listing standards...

  • Page 26
    ... financial information pertaining to the Company; Commitment to understand the Company and its business, industry and strategic objectives; Commitment and ability to regularly attend and participate in meetings of the Board, Board Committees and stockholders, the number of other company boards on...

  • Page 27
    ... general accounting principles, compensation expense with respect to stock awards and option awards granted to the Directors is generally recognized over the vesting periods applicable to the awards. In fiscal year 2012, the Company granted each of the Non-Employee Directors an annual stock option...

  • Page 28
    .... In such review, the Compensation Committee may review and consider data regarding the competitiveness of the Company's Non-Employee Director compensation program relative to the Company's peer companies and general industry trends, which data may be compiled by the Company's management and/or with...

  • Page 29
    ... to the time that the underlying shares vest. Subject to the Non-Employee Director's continued service, the shares subject to the Initial Option Grant vest, and the Company's repurchase right lapses, in four substantially equal annual installments on each of the first through fourth anniversaries of...

  • Page 30
    ...If the Company pays a cash dividend on its Common Stock and the dividend record date occurs after the grant date and before all of the RSUs have either been paid or terminated, then the Company will credit the Non-Employee Director's bookkeeping account with an amount equal to (i) the per-share cash...

  • Page 31
    ...than automatic Non-Employee Director grants under the 2005 Plan, which will take effect immediately upon the election of the Non-Employee Directors to the Board at the Annual Meeting, and other than awards established under the Company's annual cash incentive program for fiscal year 2013, no further...

  • Page 32
    ... Board have structured the 2013 Plan to provide the Company with more flexibility, compared to the 2005 Plan, in designing equity incentives in an environment where a number of companies have continued to transition from traditional option grants to other stock or share-based awards, such as stock...

  • Page 33
    ...-term interests; and Link employee compensation with Company performance. Proxy Statement If the stockholders do not approve the 2013 Plan, the Company's plans to operate its business could be adversely affected. Additionally, the Company may need to instead offer material cash-based incentives to...

  • Page 34
    .... The Company Has Historically Maintained a Low Burn Rate and Overhang Percentage The Company is committed to effectively managing its equity compensation programs while minimizing stockholder dilution. For this reason, in evaluating the advisability of the 2013 Plan, the Compensation Committee...

  • Page 35
    ...a change in control if such equity awards are assumed by the successor corporation. • The Company Has an Active Stock Repurchase Program On October 27, 2011, the Company announced a Board-approved plan authorizing the Company to repurchase up to $500 million of Common Stock in the open market or...

  • Page 36
    ...certain awards granted under the Incentive Plan. Section 162(m) of the Code generally denies a corporate tax deduction for annual compensation exceeding $1 million paid to the chief executive officer and other "covered employees" as determined under Section 162(m) of the Code and applicable guidance...

  • Page 37
    ... Grant Program with respect to employees other than Section 16 Officers may, at the Board's discretion, be vested in a Secondary Executive Committee to the extent permitted by Section 157(c) of the Delaware General Corporation Law. The term "plan administrator," as used in this summary, will mean...

  • Page 38
    ... rights granted under the Discretionary Grant Program will not be subject to the $1 million limitation on the income tax deductibility of compensation paid per executive officer imposed under Section 162(m). In addition, one or more shares issued under the Stock Issuance and Cash Bonus Program...

  • Page 39
    ... Grant Program, eligible persons may be granted options to purchase shares of the Company's Common Stock or stock appreciation rights tied to the value of the Common Stock. Other than as will be provided in the written policy adopted by the Company regarding the compensation of Non-Employee...

  • Page 40
    ... of other corporate transactions intended to increase the Company's revenue or profitability or enhance the Company's customer base; (17) measures of employee satisfaction; (18) measures of improvements in product quality; (19) price of Common Stock; (20) design wins; (21) on-time delivery metrics...

  • Page 41
    ...optionee cease service while such shares are unvested, the Company shall have the right to repurchase any or all of those unvested shares at a price per share equal to the lower of (i) the exercise price paid per share or (ii) the fair market value per share of Common Stock at the time of repurchase...

  • Page 42
    ...) All unvested shares outstanding under the Discretionary Grant and Stock Issuance and Cash Bonus Programs will immediately vest upon a change in control subject to compliance with Section 409A of the Code, except to the extent the Company's repurchase rights with respect to those shares are to be...

  • Page 43
    ... the Stock Issuance and Cash Bonus Program; (iv) the maximum number and/or class of securities for which any one person, including any Non-Employee Director, may be granted stock options, stand-alone stock appreciation rights, direct stock issuances (whether vested or unvested) and other share-based...

  • Page 44
    ... required under applicable law or regulation or pursuant to the listing standards of the stock exchange on which shares of Common Stock are at the time primarily traded. Unless sooner terminated by the Board, the 2013 Plan will terminate on the earliest of (i) March 14, 2023, (ii) the date on which...

  • Page 45
    ... 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 46
    ... a compensation cost equal to the fair market value of the underlying shares on the date of the award. If any shares are unvested at the time of their direct issuance and vesting is based upon services provided, then the fair market value of those shares will be charged to the Company's reported...

  • Page 47
    ... Board at the Annual Meeting: (i) an option grant to purchase 6,250 shares of Common Stock and (ii) an RSU grant for a number of units determined by dividing $80,000 by the average closing price per share of Common Stock on NASDAQ for the five (5) trading days ended on, and including, the grant date...

  • Page 48
    ... provided in connection with the integrated audit of the Company's financial statements, including services provided in connection 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 included...

  • Page 49
    ...of the audit-related services, tax services and other non-audit services identified above is compatible with Ernst & Young LLP's independence. Required Vote The affirmative vote of the holders of a majority of the shares present in person or represented by proxy at the Annual Meeting and entitled to...

  • Page 50
    ...the Company's Investor Relations department at 951 SanDisk Drive, Milpitas, California 95035. The Annual Report on Form 10-K is also available at www.sandisk.com/IR. AUDIT COMMITTEE REPORT The information contained in this report shall not be deemed to be "soliciting material" or to be "filed" with...

  • Page 51
    ... THE COMPENSATION OF THE NAMED EXECUTIVE OFFICERS OF SANDISK CORPORATION At the Company's 2011 Annual Meeting of Stockholders, the Company's stockholders voted in favor of holding an advisory vote to approve the compensation of the Company's named executive officers every year. The Board considered...

  • Page 52
    ... the market price of Common Stock. During fiscal year 2012, a significant percentage of each Named Executive Officer's total compensation (as reported in the Summary Compensation Table) was at-risk, having included (1) annual performance-based cash bonus opportunities, which become payable only upon...

  • Page 53
    ...now supplies client SSDs to ten leading PC OEMs. The Company made progress in expanding its OEM embedded solutions offering, achieving record revenues from OEM embedded products in the fourth quarter of fiscal year 2012. In its retail channel, the Company achieved record unit sales of USB drives and...

  • Page 54
    ...material elements of the Company's current executive compensation program for the executive officers include the following: a base salary, an annual cash incentive opportunity, a long-term share-based incentive opportunity, 401(k) retirement benefits and severance protection for certain terminations...

  • Page 55
    ... be peer companies of the Company. The Compensation Committee reviewed and approved the following selected peer companies for fiscal year 2012 Adobe Systems Incorporated Advanced Micro Devices, Inc. Analog Devices, Inc. Broadcom Corporation CA, Inc. Electronic Arts, Inc. Juniper Networks, Inc. LSI...

  • Page 56
    ... situated executive officer. The Company's Executive Vice President, Administration and Chief Financial Officer provides financial information to the Compensation Committee, as requested from time to time, and during fiscal year 2012, provided input to the Company's Chief Executive Officer for...

  • Page 57
    ... addition, the Company's insider trading policy prohibits the Company's executive officers from short-selling the Company's Common Stock, trading in derivative securities related to the Company's securities, including the Company's Common Stock, or otherwise engaging in activities designed to hedge...

  • Page 58
    ... Mr. Sadana's promotion to Executive Vice President and Chief Strategy Officer, the Compensation Committee increased the target bonus percentage for Mr. Sadana from 75% to 90% of base salary. The Named Executive Officer target bonus percentages for fiscal year 2012 were higher than those set for the...

  • Page 59
    ... bonus program. The strategic objectives approved by the Compensation Committee related to (1) research and development projects relating to future NAND technology nodes and future 3-dimensional memory technologies, (2) customer acceptance and revenue objectives with respect to client SSD products...

  • Page 60
    ..., there is no formal program, plan or policy in place at the Company or in the Compensation Committee's charter with respect to the timing of long-term share-based incentive award grants, except as set forth below with respect to grants to new employees and related to promotions and retention. The...

  • Page 61
    ... the grant date. In fiscal year 2012, the Compensation Committee granted RSUs subject to such time-based vesting to each of the Named Executive Officers. The material terms of these RSUs granted in fiscal year 2012 to the Named Executive Officers are described below under "Grants of Plan-Based...

  • Page 62
    ... Mr. Sadana's unvested share-based incentive awards in comparison to the other Named Executive Officers. In addition, in September 2012, the Compensation Committee granted RSUs in connection with Mr. Sadana's promotion to Executive Vice President and Chief Strategy Officer, effective as of September...

  • Page 63
    ..., reduce significantly his or her salary and/or eliminate his or her annual bonus opportunity to force the Named Executive Officer to terminate his or her own employment and thereby avoid paying severance. Since the Company believes that constructive terminations in connection with a change in...

  • Page 64
    ... 2013 annual cash incentive program for the Named Executive Officers who are currently employees of the Company which are intended to comply with Section 162(m) of the Code. The performance targets under the fiscal year 2013 annual cash incentive program relate to an EPS goal and certain strategic...

  • Page 65
    ... Company's insider trading policy prohibits the Company's employees, including executive officers, from short-selling the Company's Common Stock, trading in derivative securities related to the Company's securities, including the Company's Common Stock, or otherwise engaging in activities designed...

  • Page 66
    ... liabilities of Section 18 of the Exchange Act, except to the extent that the Company specifically incorporates it by reference into a document filed under the Securities Act or the Exchange Act. The Compensation Committee has reviewed and discussed with management the disclosures contained in the...

  • Page 67
    ... 430,769(8) Executive Vice President 2011 378,269 and Chief Strategy Officer (5) 2010 249,038 Dr. Khandker Quader, ...2012 346,031 Senior Vice President, Memory Technology, Design and Product Development (6) James F. Brelsford ...2012 406,471 Chief Legal Officer and Senior Vice President of 2011 376...

  • Page 68
    ... to the Named Executive Officers in fiscal years 2012, 2011 and 2010. The primary elements of each Named Executive Officer's total compensation reported in the table are base salary, an annual cash incentive award in the form of either a bonus or a non-equity incentive plan compensation award and...

  • Page 69
    ... Plan Number Shares of Securities Base Price of Stock and Awards Stock or Underlying Option Option Threshold Target Maximum Units Options Awards Awards ($) (1) ($) (1) ($) (1 Sh) ($) (2) Name Grant Date Proxy Statement Sanjay Mehrotra ...2/17/2012 2/17/2012 2/17/2012 Judy Bruner ...2/17/2012...

  • Page 70
    ... comply with applicable securities laws and, with limited exceptions set forth in the plan document, are not made for value. Under the terms of the 2005 Plan, if there is a change in control of the Company, each Named Executive Officer's outstanding share-based awards granted under the plan will...

  • Page 71
    ... 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 year 2012 is subject to a four (4) year vesting schedule...

  • Page 72
    ... granted to the Named Executive Officers during fiscal year 2012 do not include any dividend or dividend equivalent rights. Outstanding Equity Awards at Fiscal 2012 Year-End The following table presents information regarding the outstanding share-based awards held by each Named Executive Officer...

  • Page 73
    ...Number of Market Value Securities Securities Shares or of Shares or Underlying Underlying Units of Units of Unexercised Unexercised Option Option Stock That Stock That Option Options (#) Options (#) Exercise Expiration Stock Award Have Not Have Not Grant Date Exercisable Unexercisable Price ($) Date...

  • Page 74
    ... stock reported by $42.68, the closing market price of our Common Stock on December 30, 2012, the last trading day in fiscal year 2012. The unvested portion of these stock options vested on March 5, 2013. The unvested portions of these stock options vest in four (4) substantially equal installments...

  • Page 75
    ... per share of Common Stock is equal to $42.68, the closing price per share on December 28, 2012 (the last trading day in fiscal year 2012). 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 76
    ... based on the number of shares of Common Stock that would have been subject to acceleration multiplied by the closing price of the Common Stock on December 28, 2012 of $42.68 per share. Dr. Quader resigned as Senior Vice President, Memory Technology, Design and Product Development, effective as of...

  • Page 77
    Severance Benefits-Termination of Employment Not in Connection with Change in Control. In connection with his promotion to Chief Executive Officer in January 2011, Mr. Mehrotra and the Company entered into a severance agreement pursuant to which Mr. Mehrotra is entitled to severance benefits upon ...

  • Page 78
    .... Mr. Brelsford resigned as Chief Legal Officer and Senior Vice President of IP Licensing, effective as of December 14, 2012. Each of his outstanding options will terminate on April 27, 2013 to the extent not exercised prior to such date. Includes 36,645 shares held in the name of a trust for the...

  • Page 79
    ... or within 60 days after March 15, 2013. Dr. Quader resigned as Senior Vice President, Memory Technology, Design and Product Development, effective as of April 12, 2013. Includes 21,775 shares subject to outstanding options granted to Mr. Sadana that were exercisable on or within 60 days after March...

  • Page 80
    ...power with respect to 13,748,315 shares of Common Stock and shared dispositive power with respect to 396,435 shares of Common Stock. Number of shares beneficially owned is reported as of December 31, 2012 and based on the Schedule 13G filed by T. Rowe Price Associates, Inc. on February 13, 2013 with...

  • Page 81
    ... were reported. Based solely on that review, the Company believes that during the fiscal year ended December 30, 2012 all required filings were timely made in accordance with the Exchange Act's requirements. EQUITY COMPENSATION INFORMATION FOR PLANS OR INDIVIDUAL ARRANGEMENTS WITH EMPLOYEES AND...

  • Page 82
    ..."), Pliant Technology, Inc. ("Pliant") and FlashSoft Corporation ("FlashSoft") prior to their acquisition by the Company, as set forth in this table: Acquired Company Award Category Number of Weighted Average Securities Subject to Weighted Average Estimated Applicable Plan Exercise Price Remaining...

  • Page 83
    ... a related person's only relationship is as an employee (other than an executive officer), director, or beneficial owner of less than 5% of that company's shares, if the amount involved does not exceed the greater of $200,000, or 2% of that company's total annual revenue; compensation to executive...

  • Page 84
    ... 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 represented thereby on such matters in accordance with their best judgment. By Order of The Board of Directors...

  • Page 85
    ... rights, stock issuances or other share-based awards for members of the Compensation Committee must be authorized by a disinterested majority of the Board. Furthermore, the authority to grant options pursuant to the Discretionary Grant Program with respect to Employees other than Section 16 Insiders...

  • Page 86
    ... made in good faith with respect to the Plan or any option grant, stock appreciation right, stock issuance or other award under the Plan. E. Non-employee members of the Board shall be granted awards pursuant to the Discretionary Grant Program and/or the Stock Issuance and Cash Bonus Program and in...

  • Page 87
    ... aggregate per calendar year. In addition, the aggregate amount of compensation to be paid to any one participant in respect of all performance-based awards under the Stock Issuance and Cash Bonus Program payable only in cash and not related to shares of Common Stock and granted to that participant...

  • Page 88
    ... and Cash Bonus Program, (iv) the maximum number and/or class of securities for which any one person, including any non-employee members of the Board, may be granted stock options, stand-alone stock appreciation rights, direct stock issuances and other share-based awards under the Plan per calendar...

  • Page 89
    ...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 Termination of Service...

  • 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
    ... Market Value of the shares of Common Stock (determined as of the respective date or dates of grant) for which one or more options granted to any Employee under the Plan (or any other option plan of the Corporation or any Parent or Subsidiary) may for the first time become exercisable as Incentive...

  • 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
    ... Bonus Program and (v) the 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 share-based awards under the Plan per calendar year. To the extent the actual holders of the Corporation...

  • Page 94
    ... structure one or more outstanding options or stock appreciation rights under the Discretionary Grant Program so that those options or stock appreciation rights shall, immediately prior to the effective date of a Change in Control, become exercisable as to all the shares of Common Stock at the time...

  • Page 95
    ... Corporation Law. B. Vesting Provisions. 1. Shares of Common Stock issued under the Stock Issuance and Cash Bonus Program may, in the discretion of the Plan Administrator, be fully and immediately vested upon issuance or may vest in one or more installments over the Participant's period of Service...

  • Page 96
    ... transactions intended to increase the Corporation's revenue or profitability or enhance its customer base; (17) measures of employee satisfaction; (18) measures of improvements in product quality; (19) price of Common Stock; (20) design wins; (21) on-time delivery metrics; and (22) any combination...

  • Page 97
    ... at the time of grant by language to this effect in its authorizing resolutions or otherwise. II. CHANGE IN CONTROL/HOSTILE TAKE-OVER A. All of the Corporation's outstanding repurchase rights under the Stock Issuance and Cash Bonus Program shall terminate automatically, and all the shares of Common...

  • Page 98
    ... 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 or more cash bonus...

  • Page 99
    ... grant new awards under the Stock Issuance and Cash Bonus Program that are intended to qualify as performance-based compensation within the meaning of Section 162(m) of the Code shall terminate upon the first meeting of the Corporation's stockholders that occurs in the fifth year following the year...

  • Page 100
    ... been compliance with all applicable requirements of applicable securities laws, including the filing and effectiveness of 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...

  • Page 101
    ... such person's Service at any time for any reason, with or without cause. APPENDIX The following definitions shall be in effect under the Plan: Proxy Statement A. Annual Meeting shall mean the annual meeting of the Corporation's stockholders. B. Board shall mean the Corporation's Board of...

  • Page 102
    ... 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 Plan Administrator to...

  • Page 103
    .... Q. 1934 Act shall mean the Securities Exchange Act of 1934, as amended. R. Non-Employee Director Compensation Policy shall mean the written policy adopted by the Corporation regarding the compensation of non-employee members of the Board, as may be amended from time to time. S. Non-Statutory...

  • Page 104
    ...Corporation's 2013 Annual Meeting of Stockholders. 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 and Cash Bonus Programs with respect to eligible persons other than Section 16 Insiders...

  • Page 105
    ... time of issuance of shares of Common Stock under the Stock Issuance and Cash Bonus Program. HH. Stock Issuance and Cash Bonus Program shall mean the stock issuance and cash bonus program in effect under Article Three of the Plan. II. Subsidiary shall mean any corporation (other than the Corporation...

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  • Page 107
    ... SanDisk Drive Milpitas, California (Address of principal executive offices) 95035 (Zip Code) (408) 801-1000 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered Common Stock...

  • Page 108
    ... 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 109
    ... 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 SSDs, removable cards, embedded products, universal serial bus, or USB, drives, digital media...

  • Page 110
    ... order to produce leading-edge, high-quality, low-cost products that our customers can count on to store and gain reliable access to their data. Drive profitable growth across diversified markets, customers and channels. We create new markets for NAND flash memory through our design and development...

  • Page 111
    ... a hard drive. Our client SSDs include removable and embedded drives and custom form factors. Our enterprise SSDs are used for high-performance data storage and to accelerate enterprise application performance. We also provide enterprise software solutions designed to improve performance of SSDs in...

  • Page 112
    ... variety of applications, including mobile phones, tablets, notebooks, gaming devices, enterprise storage solutions, servers and other computing devices. We also sell our data storage solutions to OEMs that offer our products under their own brand name in retail channels. We sell to our OEM channel...

  • Page 113
    ... conts here. controller design; firmware and software development; system-level integration; multi-die stacking and packaging technology; and low-cost system testing. To achieve compatibility with various electronic platforms regardless of the host processors or operating systems used, we...

  • Page 114
    ...for flash memory; our IP ownership, in particular our patents, and multi-level cell, or MLC, manufacturing know-how, which provides us with license and royalty revenue as well as cost advantages; Flash Ventures, which provides us with leading-edge, low-cost flash memory; our flexible supply chain; 8

  • Page 115
    ... LLC, or Verbatim. We sell flash memory, in the form of white label cards, wafers or components, to certain companies who sell flash products that may ultimately compete with our branded products in the retail or OEM channels. Client Storage Solution Manufacturers. In the market for client SSDs...

  • Page 116
    ...address is www.sandisk.com. Information on our website is not incorporated by reference nor otherwise included in this report. Our principal executive offices are located at 951 SanDisk Drive, Milpitas, CA 95035, and our telephone number is (408) 801-1000. SanDisk is our trademark, and is registered...

  • Page 117
    ...Financial Officer 44 Executive Vice President and Chief Strategy Officer 54 Senior Vice President, Memory Technology, Design and Product Development Sanjay Mehrotra co-founded SanDisk in 1988 and has been our President and Chief Executive Officer since January 2011. He was appointed to our board of...

  • Page 118
    ... design, qualification and sales processes for a limited number of customers in the enterprise SSD market; increased costs and lower gross margins due to more frequent product updates, returns of obsolete products and warranty claims from our more complex SSD solutions and firmware; excess...

  • Page 119
    ... or a shift in product mix towards products with higher average selling prices, our revenues and operating results may be harmed. If we are unable to reduce our manufacturing costs to keep pace with reductions in average selling prices, our gross margins may be harmed. Because of the historical and...

  • Page 120
    ... of our business depends on the development and performance of new and growing markets and products for flash memory, including the client computing and enterprise SSD markets, and on our ability to gain market share in these markets. Historically, removable flash memory cards and USB drives, both...

  • Page 121
    ... gross margins due to more frequent product updates, returns of obsolete products and warranty claims. Our SSD solutions in the client computing and enterprise data center markets are more complex than our traditional products due to, among other things, an increased dependence on 15 Annual Report

  • Page 122
    ... for manufacturing tools in Flash Ventures often need to be made several months in advance in order to ensure that the tools can be integrated into the manufacturing process when increased capacity is needed. These purchasing arrangements increase the risk of excess inventory or loss of sales in...

  • Page 123
    ... not have access to those new technologies on a cost-effective basis, or at all, or new technologies could reduce the demand for flash memory in a variety of applications or devices, any of which could harm our operating results and financial condition. We have a three-pronged strategy towards our...

  • Page 124
    ... margins and profitability to invest in our business is influenced by supply/ demand balance in the flash memory industry, our ability to reduce our cost per gigabyte at an equal or higher rate than the price decline per gigabyte, our ability to develop new products and technologies, the rate of...

  • Page 125
    ...of products, product performance, availability and differentiation, and the development of industry standards and formats. The success of our competitors may harm our future revenues or margins and may result in the loss of our key customers. • NAND Manufacturers. We compete with NAND flash memory...

  • Page 126
    ... technology in creating hybrid drive products. Our failure to compete effectively against these industry players could harm our business and results of operations. Enterprise Storage Solution Manufacturers. In the market for enterprise data center SSDs, we face competition from large NAND flash...

  • Page 127
    ... a majority of our assembly and test requirements, to produce products with leading-edge technologies such as multi-stack die packages and to provide order fulfillment. In addition, our Shanghai, China facility is responsible for packaging and shipping our retail products within Asia and Europe. Any...

  • Page 128
    ...supply could be harmed. These factors could result in the rejection of our products, damage to our reputation, lost revenues, diverted development resources, increased customer service and support costs, indemnification of our customers' product recall and other costs, warranty claims and litigation...

  • Page 129
    ..., could impact our ability to effectively manage our foreign currency exchange rate risk, which could harm our business, operating results and financial condition. Our global operations and operations at Flash Ventures and third-party subcontractors are subject to risks for which we may not be...

  • Page 130
    ... develop or enhance our technology or products, fulfill our obligations to Flash Ventures, take advantage of future opportunities, grow our business or respond to competitive pressures or unanticipated industry changes, any of which could harm our business. We may be unable to protect our IP rights...

  • Page 131
    ...from selling our products, or if we are required to develop new technologies or pay significant monetary damages or are required to make substantial royalty payments, our business and results of operations would be harmed. We and certain of our officers are at times involved in litigation, including...

  • Page 132
    ... in our stock price and the need for significant working capital investments in receivables and inventory, including the need to build inventory levels in advance of our projected high volume selling seasons. We are vulnerable to numerous risks related to our international operations, including...

  • Page 133
    ...• • weak protection of our IP 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 common stock and convertible notes prices have been, and...

  • Page 134
    ... in, or ship finished product from, our Shanghai, China facility or our Asiabased contract manufacturers. As a result, our business and operating results may be harmed. We rely on information systems to run our business and any prolonged down time could harm our business operations and/or financial...

  • Page 135
    ... income in the U.S. We may be subject to risks associated with laws, regulations and customer initiatives relating to the environment or other social responsibility issues. Production and marketing of products in certain states and countries may subject us to environmental and other regulations...

  • Page 136
    ... the market price of our stock could significantly decline. Additionally, adverse publicity related to the disclosure of a material weakness in internal controls could harm our reputation, business and stock price. Any internal control or procedure, no matter how well designed and operated, can only...

  • Page 137
    ...warrant transactions with the dealers or their affiliates, relating to the same number of shares of our common stock, subject to customary anti-dilution adjustments. The 1% Notes due 2013 and the 1.5% Notes due 2017 have a conversion feature with a strike price of $82.36 and $52.37, respectively. If...

  • Page 138
    ... 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 affiliates are likely to modify their hedge positions, from time...

  • Page 139
    ... and will house administrative offices and research and development facilities. The construction of this building is located on a 50-year land lease, of which 45 years remain. We also lease offices supporting our sales, operations, administration and design in the U.S., China, France, Germany, India...

  • Page 140
    ... EQUITY SECURITIES Market For Our Common Stock. Our common stock is traded on the NASDAQ Global Select Market, or NASDAQ, under the symbol "SNDK." The following table summarizes the high and low sale prices for our common stock as reported by the NASDAQ for our two most recent fiscal years. High Low...

  • Page 141
    ... 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). $200 $150 $100 $50 $0 2007 2008 2009 2010 2011 2012 SanDisk Corporation...

  • Page 142
    ... million related to the sale of our investment in certain equity securities. Includes share-based compensation of ($77.6) million, which includes ($17.3) million due to a non-cash modification of outstanding stock awards pursuant to the retirement of our former Chief Executive Officer, amortization...

  • Page 143
    ... variety of formats and devices. We sell our products globally to OEM and retail customers. We design, develop and manufacture data storage solutions in a variety of form factors using our flash memory, proprietary controller and firmware technologies. Our flash-based products enable businesses and...

  • Page 144
    ... test operations located in Shanghai, China. While we do not unilaterally control the operations of Flash Ventures, we believe that our vertically integrated business model helps us to reduce the costs of producing our products, increases our ability to control the quality of our products and speeds...

  • Page 145
    .... 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 146
    ... market growth and our market share and costs are based on historical data, various internal estimates and certain external sources, and are based on assumptions that are consistent with the plans and estimates we are using to manage the underlying business. Our business consists of both established...

  • Page 147
    ...long-term marketable securities. We currently do not have any investments that use Level 3 inputs. Results of Operations Annual Report Product Revenues. FY 2012 Percent Percent Change FY 2011 Change (In millions, except percentages) FY 2010 OEM ...Retail ...Product revenues ... $ $ 2,831.5 1,847...

  • Page 148
    ... year 2010, was due primarily to higher OEM sales of memory products for mobile devices, such as phones and tablets, and for gaming devices. Our retail product revenue growth was driven primarily by increased sales of cards for mobile phones and USB drives. Geographical Product Revenues. FY 2012...

  • Page 149
    ...) FY 2010 Annual Report Research and development ...Percent of revenue ... $ 602.7 11.9% 10% $ 547.4 9.7% 30% $ 422.6 8.7% Our fiscal year 2012 research and development expense increased from fiscal year 2011 primarily due to a net compensation expense increase of $27 million driven by higher...

  • Page 150
    ... research and development expense increased from fiscal year 2010 primarily due to higher third-party engineering costs of $69 million, employee-related costs of $39 million related to increased headcount and compensation expense, and technology license amortization expense of $17 million. Sales and...

  • Page 151
    ...of the repurchased portion of the 1% Notes due 2013. "Other income (expense), net" for fiscal year 2010 was primarily comprised of a non-recurring gain of $13 million related to the sale of the net assets of our SIM business and a gain on sales of equity securities of $16 million. Annual Report 45

  • Page 152
    ... tax returns for the years 2005 through 2008 and issued the Revenue Agent's Report. The most significant proposed adjustments are comprised of related party transactions between SanDisk Corporation and its foreign subsidiaries. We are contesting these adjustments through the IRS Appeals Office and...

  • Page 153
    ... of our operating performance and their valuation of our company. Internally, these non-GAAP measures are significant measures used by us for purposes of evaluating our core operating performance; establishing internal budgets; setting and determining variable compensation levels; 47 Annual Report

  • Page 154
    ... return on investment for development programs and growth initiatives; comparing performance with internal forecasts and targeted business models; strategic planning; and benchmarking performance externally against our competitors. We exclude the following items from our non-GAAP measures: Share...

  • Page 155
    ... prior year, due to increased revenue in fiscal year 2011. Cash flow from other assets decreased compared to the prior year primarily due to a decrease in tax-related receivables compared to the prior year and a prepayment of building-related costs for Flash Forward. Accounts payable trade increased...

  • Page 156
    ...from funding Flash Ventures, increasing our wafer supply, developing or enhancing our products, engaging in investments in or acquisitions of companies, growing our business, responding to competitive pressures or unanticipated industry changes, or taking advantage of other future opportunities, any...

  • Page 157
    ... us from funding Flash 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...

  • Page 158
    ...1.5% Notes due 2017. As of December 30, 2012, we had not purchased any shares under this convertible bond hedge agreement. Ventures with Toshiba. We are a 49.9% owner in each entity within Flash Ventures, our business ventures with Toshiba to develop and manufacture NAND flash memory products. These...

  • Page 159
    ...," in the Notes to Consolidated Financial Statements of this Form 10-K included in Item 8 of this report. Because we purchase the vast majority of our flash memory wafers from Flash Ventures, our flash memory costs, which represent the largest portion of our cost of product revenues, are based...

  • Page 160
    ... in cost of product revenues in the same period the hedged cost of product revenues is recognized. At December 30, 2012, we had both foreign currency forward contracts and cross currency swap contracts in place that amounted to a net sale in U.S. dollar equivalents of $4 million and $34 million...

  • Page 161
    ... (ii) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure. There were no changes in our internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f)) during...

  • Page 162
    ... that our internal control over financial reporting was effective at the reasonable assurance level as of December 30, 2012. However, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in our business or...

  • Page 163
    ..., EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE The information required by this item is set forth under "Business-Executive Officers" in this report and under "Election of Directors" and "Compliance with Section 16(a) of the Securities Exchange Act of 1934" in our Proxy Statement for our 2013 Annual...

  • Page 164
    ... 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 Comprehensive...

  • Page 165
    ...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 Comprehensive Income ...Consolidated Statements...

  • Page 166
    ..., in accordance with the standards of the Public Company Accounting Oversight Board (United States), SanDisk Corporation's internal control over financial reporting as of December 30, 2012, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring...

  • Page 167
    ... OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors and Stockholders of SanDisk Corporation We have audited SanDisk Corporation's internal control over financial reporting as of December 30, 2012, based on criteria established in Internal Control-Integrated Framework issued...

  • Page 168
    SANDISK CORPORATION CONSOLIDATED BALANCE SHEETS December 30, January 1, 2012 2012 (In thousands, except for share and per share amounts) ASSETS Current assets: Cash and cash equivalents ...Short-term marketable securities ...Accounts receivable from product revenues, net ...Inventory ...Deferred ...

  • Page 169
    ..., except per share amounts) Revenues: Product ...License and royalty ...Total revenues ...Cost of product revenues ...Amortization of acquisition-related intangible assets ...Total cost of product revenues ...Gross profit ...Operating expenses: Research and development ...Sales and marketing...

  • Page 170
    SANDISK CORPORATION CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME December 30, 2012 Fiscal years ended January 1, January 2, 2012 2011 (In thousands) Net income ...Other comprehensive income (loss), before tax: Unrealized holding gain on marketable securities ...Reclassification adjustment for ...

  • Page 171
    ...-controlling interest ...Issuance of shares pursuant to equity plans ...Issuance of stock pursuant to employee stock purchase plan ...Share-based compensation expense ...Income tax benefit from share-based plans ...Convertible debt redemption ...Stock repurchases ...Balance at January 1, 2012 ...Net...

  • Page 172
    ... tax benefit from share-based plans ...Impairments, restructuring and other ...Other non-operating ...Changes in operating assets and liabilities: Accounts receivable from product revenues, net ...Inventory ...Other assets ...Accounts payable trade ...Accounts payable to related parties ...Other...

  • Page 173
    ... 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 a right of return and, therefore, the revenues and related costs...

  • Page 174
    ... 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 programs are recorded as an offset to product revenues...

  • Page 175
    ...and $41.9 million in fiscal years 2012, 2011 and 2010, respectively. Cash Equivalents, Short and Long-Term Marketable Securities. Cash equivalents consist of short-term, highly liquid financial instruments with insignificant interest rate risk that are readily convertible to cash and have maturities...

  • Page 176
    ... and $4.0 million in fiscal years 2012, 2011 and 2010, respectively. Research and Development Expenses. Research and development expenditures are expensed as incurred. Note 2: Recent Accounting Pronouncements In February 2013, the Financial Accounting Standards Board ("FASB") issued authoritative...

  • Page 177
    ... therefore do not require significant management judgment. Instruments that are classified within Level 2 of the fair value hierarchy primarily include U.S. governmentsponsored agency securities, international government securities, corporate notes and bonds, municipal notes and F-13 Annual Report

  • Page 178
    ... and mortgage-backed securities. The Company's Level 2 securities are primarily valued using quoted market prices for similar instruments and nonbinding market prices that are corroborated by observable market data. The Company uses inputs such as actual trade data, benchmark yields, broker/dealer...

  • Page 179
    ...) (28) Annual Report The gross unrealized loss related to U.S. government-sponsored agency securities, corporate and municipal notes and bonds, and mortgage-backed securities was primarily due to changes in interest rates. The gross unrealized loss related to international government securities is...

  • Page 180
    ... 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). December 30, 2012 Fiscal years ended January 1, January 2, 2012 2011 Gross...

  • Page 181
    ... instruments, and disclosures about credit-risk-related contingent features in derivative agreements. Changes in fair value (i.e., gains or losses) of the derivatives are recorded as cost of product revenues or other income (expense), or as accumulated OCI. The Company does not offset or net the...

  • Page 182
    ... on the Consolidated Statements of Operations. The effect of non-designated derivative contracts on the Company's results of operations recognized in other income (expense) was as follows (in thousands): December 30, 2012 Fiscal years ended January 1, January 2, 2012 2011 Gain (loss) on foreign...

  • Page 183
    ...STATEMENTS Note 5: Balance Sheet Information Accounts Receivable from Product Revenues, net. Accounts receivable from product revenues, net, were as follows (in thousands): December 30, 2012 January 1, 2012 Trade accounts receivable ...Allowance for doubtful accounts ...Price protection, promotions...

  • Page 184
    ... to Flash Ventures to fund new process technologies and additional wafer capacities. The Company aggregates its Flash Ventures notes receivable into one class of financing receivables due to the similar ownership interest and common structure in each Flash Ventures entity. For all reporting periods...

  • Page 185
    ... the estimated future cost related to warranty expense is recorded at the time of customer invoice. The Company's warranty liability is affected by customer and consumer returns, product failures, number of units sold and repair or replacement costs incurred. Should actual product failure rates, or...

  • Page 186
    ...the Company obtains additional information related to certain legal contingency matters during the measurement period (up to one year from the acquisition date). Schooner is an enterprise software company that develops flash-optimized database and data store solutions. Schooner's products complement...

  • Page 187
    ... considered an amortizable finite-lived intangible asset. Amortization expense of technology licenses and patents is recorded to cost of product revenues or research and development based upon the use of the technology. In fiscal year 2012, the Company discontinued a project related to an in-process...

  • Page 188
    ... conversion price of approximately $82.36 per share). The net proceeds to the Company from the offering of the 1% Notes due 2013 were $1.13 billion. As of December 30, 2012, the Company had $928.1 million outstanding in aggregate principal amount at par. The Company separately accounts for the...

  • Page 189
    ... 30, 2012 will be amortized over the remaining life of the 1% Notes due 2013, which is approximately 0.4 years. On and after February 15, 2013 until the close of business on the scheduled trading day immediately preceding the maturity date of May 15, 2013, holders may convert their notes at any time...

  • Page 190
    ... transaction, the number of net shares potentially received by the Company will depend upon 1) the then existing overall market conditions, 2) the Company's stock price, 3) the volatility of the Company's stock, and 4) the amount of time remaining before expiration of the convertible bond hedge. The...

  • Page 191
    ... component of the 1.5% Notes due 2017 (in thousands): December 30, 2012 Fiscal years ended January 1, January 2, 2012 2011 Annual Report Contractual interest coupon ...Amortization of bond issuance costs ...Amortization of bond discount ...Total interest cost recognized ... $ 15,000 2,667...

  • Page 192
    ... during the five business-day period after any five consecutive trading-day period (the "measurement period") in which the trading price per note for each day of such measurement period was less than 98% of the product of the last reported sale price of the Company's common stock and the conversion...

  • Page 193
    ... 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, its President and Chief Executive Officer, evaluates performance of...

  • Page 194
    ...fiscal year 2012, Apple Inc. accounted for 13% of the Company's total revenues. In fiscal year 2011, Samsung Electronics Co., Ltd. accounted for 10% of the Company's total revenues. In fiscal year 2010, no customer accounted for 10% or more of the Company's total revenues. All of the Company's flash...

  • Page 195
    ... as a stock bonus for services rendered to the Company, and (iii) an automatic grant program for the non-employee board members pursuant to which such individuals will receive option grants or other stock awards at designated intervals over their period of board service. The 2005 Plan also includes...

  • Page 196
    ... Option Plan Shares. The fair value of the Company's stock options granted to employees, officers and nonemployee board members, excluding unvested stock options assumed through acquisitions, was estimated using the following annual weighted average assumptions: December 30, 2012 Fiscal years ended...

  • Page 197
    ...393,996 126,929 3.4 257,251 81,622 Annual Report 3.2 3.1 2.1 109,411 108,480 89,646 At December 30, 2012, the total compensation cost related to stock options granted to employees under the Company's share-based compensation plans but not yet recognized was approximately $87.1 million, net of...

  • Page 198
    ...The following tables set forth the detailed allocation of the sharebased compensation expense (in thousands): December 30, 2012 Fiscal years ended January 1, 2012 January 2, 2011 Share-based compensation expense by caption: Cost of product revenues ...Research and development ...Sales and marketing...

  • Page 199
    ... year 2010, the Company recognized $17.3 million of expense related to the modification of share-based awards, pursuant to the retirement agreement with the Company's former Chief Executive Officer. There were no material modifications of share-based awards during fiscal years 2012 and 2011. Note...

  • Page 200
    ... income tax return reporting purposes. Significant components of the Company's net deferred tax assets were as follows (in thousands): December 30, 2012 January 1, 2012 Deferred tax assets: Deferred income on shipments to distributors and retailers and deferred revenue recognized for tax purposes...

  • Page 201
    ...) 185,826 1,943 942 (7,186) (2,003) $ 179,522 Annual Report The total amount of unrecognized tax benefits that would impact the effective tax rate, if recognized, is $83.1 million at December 30, 2012. The Company recognizes interest and penalties related to unrecognized tax benefits in income tax...

  • Page 202
    ... 2012, the Internal Revenue Service ("IRS") completed its field audit of the Company's federal income tax returns for the years 2005 through 2008 and issued the Revenue Agent's Report. The most significant proposed adjustments are comprised of related party transactions between SanDisk Corporation...

  • Page 203
    ...Company is committed to fund 49.9% of Flash Ventures' costs to the extent that Flash Ventures' revenues from wafer sales to the Company and Toshiba are insufficient to cover these costs. Flash Partners. Flash Partners Ltd. ("Flash Partners") was formed in fiscal year 2004. NAND flash memory products...

  • Page 204
    ... formed in fiscal year 2010. NAND flash memory products provided to the Company by this venture are manufactured by Toshiba at its 300-millimeter wafer fabrication facility ("Fab 5") located in Yokkaichi, Japan. Fab 5 is to be built in two phases. As of December 30, 2012, the Phase 1 build-out had...

  • Page 205
    ... of the leases, the Company's failure to maintain a minimum corporate rating of BB-from Standard & Poors ("S&P") or Moody's Corporation ("Moody's"), or a minimum corporate rating of BB+ from Rating & Investment Information, Inc. ("R&I"). As of December 30, 2012, Flash Ventures was in compliance with...

  • Page 206
    ... remaining guarantee obligations under each of Flash Ventures' master lease facilities (both original and refinanced leases) in both Japanese yen and U.S. dollar equivalent based upon the exchange rate at December 30, 2012. Master Lease Agreements by Execution Date Lease Type Lease Amounts (Yen in...

  • Page 207
    ...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 infringe...

  • Page 208
    ... in aggregate principal amount of 1.5% Notes due 2017. The Company will pay cash interest on the outstanding notes at an annual rate of 1.5%, payable semiannually on August 15 and February 15 of each year until August 15, 2017. Includes Flash Ventures, related party vendors and other silicon source...

  • Page 209
    ... method of accounting. The Company's obligations with respect to the Flash Ventures master lease agreements, take-or-pay supply arrangements and research and development cost sharing are described in Note 13, "Commitments, Contingencies and Guarantees." The financial and other support provided by...

  • Page 210
    ... Company's stock dividend effected on February 18, 2004, each right will, under the circumstances described below, entitle the registered holder to buy one (1) two-hundredths of a share of Series A Junior Participating Preferred Stock for $225.00. The rights will become exercisable only if a person...

  • Page 211
    ...of the original defendants, except for Kingston Technology Corporation ("Kingston"). On December 20, 2012, the Company and Kingston settled all litigation between them. All litigation between the Company and Kingston has now been dismissed. Patent Infringement Litigation Initiated by SanDisk. On May...

  • Page 212
    ... between the Company and Kingston. Patent Infringement Litigation Initiated by SanDisk (United Kingdom). On April 4, 2011, following the detention by Customs Authorities in the United Kingdom of several consignments of Universal Serial Bus ("USB") flash drive products imported by Kingston Digital...

  • Page 213
    ... that the Company (along with the other members of SD-3C) conspired to artificially inflate the royalty costs associated with manufacturing SD cards in violation of federal and California antitrust and unfair competition laws, which in turn allegedly caused plaintiffs to pay higher prices for SD...

  • Page 214
    ... FINANCIAL STATEMENTS Note 17: Supplementary Financial Data (Unaudited) April 1, 2012 Fiscal quarters ended July 1, September 30, December 30, 2012 2012 2012 (In thousands, except per share data) 2012 Revenues Product ...License and royalty ...Total revenues ...Gross profit ...Operating income...

  • Page 215
    ... 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 (Registrant) Dated: February 19, 2013 By: /S/ JUDY BRUNER Judy Bruner Executive Vice President, Administration and Chief...

  • Page 216
    ... P. Lego President and Chief Executive Officer and Director (Principal Executive Officer) Executive Vice President, Administration and Chief Financial Officer (Principal Financial Officer) Vice President, Chief Accounting Officer (Principal Accounting Officer) Chairman of the Board February 19...

  • Page 217
    ... Certificate of Amendment to Certificate of Designations for the Series A Junior Participating Preferred Stock, as filed with the Delaware Secretary of State on September 24, 2003. Amended and Restated Bylaws of the Registrant dated December 20, 2012. Rights Agreement, dated as of September 15, 2003...

  • Page 218
    ... Registrant's 1.5% Convertible Senior Notes due 2017, dated as of August 25, 2010, by and between the Registrant and The Bank of New York Mellon Trust Company, N.A. License Agreement, dated September 6, 1988, between the Registrant and Dr. Eli Harari. The Registrant's 1995 Stock Option Plan, amended...

  • Page 219
    ... September 10, 2004, by and among the Registrant and the other parties thereto.± Operating Agreement of Flash Partners Ltd., dated as of September 10, 2004, by and between SanDisk International Limited and Toshiba Corporation.± 8-K 000-26734 10.10 6/3/2005 10.15 10.16 10.17 10-K 8-K 8-K 000...

  • Page 220
    ....± Patent Indemnification Agreement, dated as of September 10, 2004, by and among the Registrant and the other parties thereto.± Flash Alliance Master Agreement, dated as of July 7, 2006, by and among the Registrant, Toshiba Corporation and SanDisk (Ireland) Limited.± Operating Agreement of Flash...

  • Page 221
    ... and SanDisk Flash B.V.± Patent Indemnification Agreement, dated as of July 13, 2010, by and among Toshiba Corporation, the Registrant and SanDisk Flash B.V.± Operating Agreement of Flash Forward, Ltd. by and between Toshiba Corporation and SanDisk Flash B.V.± Guarantee Agreement, dated as...

  • Page 222
    ... FlashSoft Corporation Amended and Restated 2011 Equity Plan.†Computation of ratio of earnings to fixed charges. Subsidiaries of the Registrant. Consent of Independent Registered Public Accounting Firm. Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of...

  • Page 223
    .... Insert conts here. Exhibit Number Exhibit Title Form Incorporated by Reference Exhibit File No. No. Filing Date Provided Herewith 31.2 Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Certification of Chief Executive Officer Pursuant to 18...

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