SanDisk 2014 Annual Report Download - page 107

Natural disasters or epidemics in the countries in which we or our suppliers or subcontractors operate
could harm our operations. Our supply chain operations, including those of our suppliers and
subcontractors, are concentrated in the U.S., China, Japan, Malaysia, Singapore and Taiwan. In the past,
certain of these areas have been affected by natural disasters such as earthquakes, tsunamis, floods and
typhoons, and some areas have been affected by epidemics. In addition, our headquarters, which house a
significant concentration of our research and development and engineering staff, are located in the San
Francisco Bay Area, an area that is prone to earthquakes. If a natural disaster or epidemic were to occur in
one or more of these areas, we could incur a significant work or production stoppage. The impact of these
potential events is magnified by the fact that we do not have insurance for most natural disasters or
epidemics, including earthquakes and tsunamis. The impact of a natural disaster or epidemic could harm
our business and operating results.
Disruptions in global transportation could impair our ability to deliver or receive product on a timely basis,
or at all, causing harm to our financial results. Our raw materials, work-in-process and finished products are
primarily distributed via air transport. If there are significant disruptions in air transport, we may not be
able to deliver our products or receive raw materials. Any natural disaster or other event that affects air
transport in Asia could disrupt our ability to receive raw materials in, or ship finished product from, our
Shanghai, China facilities or our Asia-based 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 results. We rely on an enterprise resource planning system, as well as multiple
other systems, databases, and data centers to operate and manage our business. Any information system
problems, programming errors or unanticipated system or data center interruptions could impact our
continued ability 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 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, without certain conditions being satisfied. 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, the Internal Revenue Service, or IRS, is currently conducting an examination of our federal
income tax returns for fiscal years 2009 through 2011, and we cannot be certain as to when a resolution of
37
Annual Report