##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended April 1, 2007
 OR
 o
    
    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: 000-26734
 SANDISK CORPORATION
 (Exact name of registrant as specified in its charter)
 DELAWARE
    
    77-0191793(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)601 McCarthy Blvd.Milpitas, California
    
    95035(Address of principal executive offices)
    
    (Zip Code)
 (408) 801-1000
  þ o
  þ o o
  o þ




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##### 



SanDisk Corporation
 Index
 Page No.PART I. FINANCIAL INFORMATIONItem 1.Condensed Consolidated Financial Statements:Condensed Consolidated Balance Sheets as of April 1, 2007 and December 31, 2006
    
    3Condensed Consolidated Statements of Operations for the three months ended April 1,
2007 and April 2, 2006
    
    4Condensed Consolidated Statements of Cash Flows for the three months ended April 1,
2007 and April 2, 2006
    
    5Notes to Condensed Consolidated Financial Statements
    
    6Item 2.Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    41Item 3.Quantitative and Qualitative Disclosures About Market Risk
    
    52Item 4.Controls and Procedures
    
    52PART II. OTHER INFORMATIONItem 1.Legal Proceedings
    
    53Item 1A.Risk Factors
    
    57Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
    
    73Item 3.Defaults upon Senior Securities
    
    73Item 4.Submission of Matters to a Vote of Security Holders
    
    73Item 5.Other Information
    
    73Item 6.Exhibits
    
    74Signatures
    
    75Exhibit Index
    
    76EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2




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PART I. FINANCIAL INFORMATION
 
 Item 1. Condensed Consolidated Financial Statements (in thousands)
 SANDISK CORPORATION
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 April
1, 2007
    
    
    December 31, 2006*(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    1,811,109
    
    
    $
    1,580,700Short-term investments
    
    
    1,144,838
    
    
    
    1,228,773Accounts receivable from product revenues, net
    
    
    144,228
    
    
    
    611,740Inventory
    
    
    594,156
    
    
    
    495,984Deferred taxes
    
    
    175,770
    
    
    
    176,007Other current assets
    
    
    187,379
    
    
    
    148,657Total current assets
    
    
    4,057,480
    
    
    
    4,241,861Long-term investments
    
    
    527,363
    
    
    
    457,184Property and equipment, net
    
    
    328,645
    
    
    
    317,965Notes receivable and investments in flash ventures
    
    
    442,884
    
    
    
    462,307Deferred taxes
    
    
    95,366
    
    
    
    102,100Goodwill
    
    
    852,862
    
    
    
    910,254Intangibles, net
    
    
    376,827
    
    
    
    389,078Other non-current assets
    
    
    68,783
    
    
    
    87,034Total assets
    
    $
    6,750,210
    
    
    $
    6,967,783LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable trade
    
    $
    188,680
    
    
    $
    261,870Accounts payable to related parties
    
    
    159,710
    
    
    
    139,627Other accrued liabilities
    
    
    162,687
    
    
    
    311,000Deferred income on shipments to distributors
and retailers and deferred revenue
    
    
    99,273
    
    
    
    183,950Total current liabilities
    
    
    610,350
    
    
    
    896,447Convertible long-term debt
    
    
    1,225,000
    
    
    
    1,225,000Deferred taxes and other non-current liabilities
    
    
    115,269
    
    
    
    72,226Total liabilities
    
    
    1,950,619
    
    
    
    2,193,673Minority interest
    
    
    3,651
    
    
    
    5,976Commitments and contingenciesStockholders equity:Preferred stock
    
    
    
    
    
    
    Common stock
    
    
    228
    
    
    
    226Capital in excess of par value
    
    
    3,686,334
    
    
    
    3,656,895Retained earnings
    
    
    1,099,580
    
    
    
    1,105,520Accumulated other comprehensive income
    
    
    9,798
    
    
    
    5,493Total stockholders equity
    
    
    4,795,940
    
    
    
    4,768,134Total liabilities and stockholders equity
    
    $
    6,750,210
    
    
    $
    6,967,783
 
 *Information derived from the audited Consolidated Financial Statements.
 The accompanying notes are an integral part of these condensed consolidated financial
statements.
 3




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SANDISK CORPORATION
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 Three months endedApril 1, 2007
    
    
    April 2, 2006(In thousands, except per share amounts)Revenues:Product
    
    $
    689,357
    
    
    $
    537,728License and royalty
    
    
    96,729
    
    
    
    85,532Total revenues
    
    
    786,086
    
    
    
    623,260Cost of product revenues
    
    
    570,088
    
    
    
    384,867Amortization of acquisition-related intangible assets
    
    
    21,062
    
    
    
    Total cost of product revenues
    
    
    591,150
    
    
    
    384,867Gross profit
    
    
    194,936
    
    
    
    238,393Operating expenses:Research and development
    
    
    95,640
    
    
    
    63,762Sales and marketing
    
    
    56,206
    
    
    
    43,375General and administrative
    
    
    46,991
    
    
    
    30,016Write-off of acquired in-process technology
    
    
    
    
    
    
    39,600Amortization of acquisition-related intangible assets
    
    
    9,100
    
    
    
    3,715Restructuring
    
    
    6,516
    
    
    
    Total operating expenses
    
    
    214,453
    
    
    
    180,468Operating income (loss)
    
    
    (19,517
    )
    
    
    57,925Interest income
    
    
    37,488
    
    
    
    15,277Interest
expense and other income (expense), net
    
    
    (1,229
    )
    
    
    3,187Total other income
    
    
    36,259
    
    
    
    18,464Income before taxes
    
    
    16,742
    
    
    
    76,389Provision for income taxes
    
    
    12,157
    
    
    
    41,274Income after taxes
    
    
    4,585
    
    
    
    35,115Minority interest
    
    
    5,160
    
    
    
    Net income (loss)
    
    $
    (575
    )
    
    $
    35,115Net income (loss) per share:Basic
    
    $
    (0.00
    )
    
    $
    0.18Diluted
    
    $
    (0.00
    )
    
    $
    0.17Shares used in computing net income (loss) per share:Basic
    
    
    227,455
    
    
    
    193,077Diluted
    
    
    227,455
    
    
    
    201,892
 The accompanying notes are an integral part of these condensed consolidated financial statements.
 4




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SANDISK CORPORATION
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 Three months endedApril 1, 2007
    
    
    April 2, 2006(In thousands)Cash flows from operating activities:Net income (loss)
    
    $
    (575
    )
    
    $
    35,115Adjustments to reconcile net income (loss) to net cash provided by
operating activities:Deferred taxes
    
    
    11,431
    
    
    
    (13,456
    )Gain on investment in foundries
    
    
    (2,204
    )
    
    
    (593
    )Depreciation and amortization
    
    
    65,096
    
    
    
    26,397Provision for doubtful accounts
    
    
    913
    
    
    
    (526
    )Share-based compensation expense
    
    
    31,219
    
    
    
    18,785Tax benefit from share-based compensation
    
    
    (6,261
    )
    
    
    (41,909
    )Write-off of acquired in-process technology
    
    
    
    
    
    
    39,600Other non-cash charges (income)
    
    
    4,749
    
    
    
    (1,208
    )Changes in operating assets and liabilities:Accounts receivable from product revenues
    
    
    467,030
    
    
    
    90,546Inventories
    
    
    (98,109
    )
    
    
    (75,484
    )Other assets
    
    
    63,426
    
    
    
    59,581Accounts payable trade
    
    
    (73,234
    )
    
    
    (58,135
    )Accounts payable to related parties
    
    
    22,547
    
    
    
    6,208Other liabilities
    
    
    (230,779
    )
    
    
    (32,472
    )Total adjustments
    
    
    255,824
    
    
    
    17,334Net cash provided by operating activities
    
    
    255,249
    
    
    
    52,449Cash flows from investing activities:Purchases of short and long-term investments
    
    
    (537,162
    )
    
    
    (119,769
    )Proceeds from sale and maturities of short and long-term investments
    
    
    549,146
    
    
    
    154,664Investment in Flash Partners and Flash Alliance
    
    
    
    
    
    
    (43,581
    )Acquisition of property and equipment, net
    
    
    (43,799
    )
    
    
    (52,597
    )Notes receivable from FlashVision
    
    
    24,777
    
    
    
    Purchased technology and other assets
    
    
    (13,240
    )
    
    
    Cash acquired in business combination, net of acquisition costs
    
    
    
    
    
    
    9,432Net cash used in investing activities
    
    
    (20,278
    )
    
    
    (51,851
    )Cash flows from financing activities:Proceeds from employee stock programs
    
    
    38,370
    
    
    
    46,061Distribution to minority interest
    
    
    (7,485
    )
    
    
    Tax benefit from share-based compensation
    
    
    6,261
    
    
    
    41,909Share repurchase programs
    
    
    (42,096
    )
    
    
    Net cash provided by (used in) financing activities
    
    
    (4,950
    )
    
    
    87,970Effect of changes in foreign currency exchange rates on cash
    
    
    388
    
    
    
    (61
    )Net increase in cash and cash equivalents
    
    
    230,409
    
    
    
    88,507Cash and cash equivalents at beginning of the period
    
    
    1,580,700
    
    
    
    762,058Cash and cash equivalents at end of the period
    
    $
    1,811,109
    
    
    $
    850,565Supplemental disclosures of cash flow information:Issuance of stock for acquisition
    
    $
    
    
    
    $
    260,908
 The accompanying notes are an integral part of these condensed consolidated financial statements.
 5




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SANDISK CORPORATION
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 1. Organization and Summary of Significant Accounting Policies
 Organization
   Organization and Nature of Operations.
 Principles
of Consolidation.
 Use of Estimates.
 Recent Accounting Pronouncements
 SFAS
No. 159 . Establishing the Fair Value Option for Financial Assets and Liabilities Fair Value Measurements
 EITF Issue No. 07-2 . Accounting for Convertible Debt
Instruments That Require or Permit Partial Cash
 6




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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
 Settlement upon Conversion. Accounting for Derivative Instruments and Hedging Activities Accounting for Convertible Debt and Debt Issued
with Stock Purchase Warrants Convertible Bonds with Issuer Option to Settle for Cash upon
Conversion
 7




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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
 2. Balance Sheet Detail
 Accounts Receivable from Product Revenues, net.
 April 1, 2007
    
    
    December 31, 2006Trade accounts receivable
    
    $
    605,310
    
    
    $
    1,056,616Related party accounts receivable
    
    
    86,446
    
    
    
    41,708Allowance
for doubtful accounts
    
    
    (12,152
    )
    
    
    (11,452
    )Price
protection, promotions and other reserves
    
    
    (535,376
    )
    
    
    (475,132
    )Total accounts receivable from product revenues, net
    
    $
    144,228
    
    
    $
    611,740
  Inventory.
 April 1, 2007
    
    
    December 31, 2006Raw material
    
    $
    200,834
    
    
    $
    157,163Work-in-process
    
    
    59,201
    
    
    
    64,009Finished goods
    
    
    334,121
    
    
    
    274,812Total inventories
    
    $
    594,156
    
    
    $
    495,984
 Other Current Assets.
 April 1, 2007
    
    
    December 31, 2006Royalty and other receivables
    
    $
    89,736
    
    
    $
    82,569Interest receivable
    
    
    15,542
    
    
    
    14,561Prepaid expenses
    
    
    27,395
    
    
    
    22,276Investment in foundries
    
    
    24,957
    
    
    
    22,720Other current assets
    
    
    29,749
    
    
    
    6,531Total other current assets
    
    $
    187,379
    
    
    $
    148,657
 Notes Receivables and Investments in Flash Ventures.
 April 1, 2007
    
    
    December 31, 2006Notes receivable, FlashVision
    
    $
    13,192
    
    
    $
    38,229Notes receivable, Flash Partners
    
    
    93,625
    
    
    
    92,421Investment in FlashVision
    
    
    161,640
    
    
    
    159,144Investment in Flash Partners
    
    
    170,164
    
    
    
    168,210Investment in Flash Alliance
    
    
    4,263
    
    
    
    4,303Total notes receivable and investments in flash ventures
    
    $
    442,884
    
    
    $
    462,307
 Other Non-current Assets.
 April 1, 2007
    
    
    December 31, 2006Investment in foundries
    
    $
    10,925
    
    
    $
    17,071Deposits
    
    
    6,253
    
    
    
    6,381Other non-current assets
    
    
    51,605
    
    
    
    63,582Total other non-current assets
    
    $
    68,783
    
    
    $
    87,034
 8




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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
 Other Accrued Liabilities.
 April 1, 2007
    
    
    December 31, 2006Accrued payroll and related expenses
    
    $
    48,827
    
    
    $
    61,050Taxes payable and deferred tax liability
    
    
    9,317
    
    
    
    119,502Research and development liability, related party
    
    
    8,314
    
    
    
    5,850Other accrued liabilities
    
    
    96,229
    
    
    
    124,598Total other accrued liabilities
    
    $
    162,687
    
    
    $
    311,000
 Convertible Long-term Debt .
 April 1, 2007
    
    
    December 31, 20061% Convertible Senior Notes due 2013
    
    $
    1,150,000
    
    
    $
    1,150,0001% Convertible Notes due 2035
    
    
    75,000
    
    
    
    75,000Total
long-term debt
    
    $
    1,225,000
    
    
    $
    1,225,000
 9




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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
 3. Share-Based Compensation
 Share-Based Plans
  Valuation Assumptions
  Three months endedApril 1, 2007
    
    April 2, 2006Option Plan SharesDividend yield
    
    None
    
    NoneExpected volatility
    
    
    0.46
    
    
    
    0.51Risk-free interest rate
    
    
    4.55
    %
    
    
    4.39
    %Expected lives
    
    3.5 years
    
    3.6 yearsEstimated annual forfeitures rate
    
    
    7.74
    %
    
    
    8.20
    %Weighted average fair value at grant date
    
    $
    15.64
    
    
    $
    27.17Employee Stock Purchase Plan SharesDividend yield
    
    None
    
    NoneExpected volatility
    
    
    0.44
    
    
    
    0.54Risk-free interest rate
    
    
    5.16
    %
    
    
    4.69
    %Expected lives
    
    1/2 year
    
    1/2 yearWeighted average fair value at exercise date
    
    $
    11.44
    
    
    $
    20.45
 10




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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
 Share-Based Compensation Plan Activities
 Stock Option and SARs .
 WeightedAverageWeighted
    
    
    RemainingAverage
    
    
    Contractual
    
    
    AggregateShares
    
    
    Exercise Price
    
    
    Term (Years)
    
    
    Intrinsic ValueOptions and SARs outstanding at December 31, 2006
    
    
    26,392
    
    
    $
    31.97Granted
    
    
    3,952
    
    
    
    42.02Exercised
    
    
    (1,671
    )
    
    
    21.13Forfeited
    
    
    (457
    )
    
    
    45.21Expired
    
    
    (44
    )
    
    
    55.92Options and SARs outstanding at April 1, 2007
    
    
    28,172
    
    
    
    33.78
    
    
    
    6.5
    
    
    $
    372,452Options and SARs vested and expected to vest after
April 1, 2007
    
    
    26,312
    
    
    
    33.00
    
    
    
    6.4
    
    
    $
    365,847Options and SARs exercisable at April 1, 2007
    
    
    12,239
    
    
    $
    21.85
    
    
    
    5.7
    
    
    $
    287,838
  Restricted Stock and Restricted Stock Units.
  Weighted AverageGrant Date Fair
    
    
    AggregateShares
    
    
    Value
    
    
    Intrinsic ValueNon-vested share units at December 31, 2006
    
    
    598
    
    
    $
    58.71Granted
    
    
    86
    
    
    
    41.21Vested
    
    
    (119
    )
    
    
    61.47Forfeited
    
    
    (29
    )
    
    
    68.90Non-vested share units at April 1, 2007
    
    
    536
    
    
    $
    54.73
    
    
    $
    23,457
  Employee Stock Purchase Plans .
 11




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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
 Share-Based Compensation Expense.
 Three months endedApril 1, 2007
    
    
    April 2, 2006Share-based compensation expense by caption:Cost of product sales
    
    $
    3,214
    
    
    $
    Research and development
    
    
    12,687
    
    
    
    8,785Sales and marketing
    
    
    6,923
    
    
    
    4,041General and administrative
    
    
    8,395
    
    
    
    5,959Total share-based compensation expense
    
    $
    31,219
    
    
    $
    18,785Share-based compensation expense by type of award:Stock options and SARs
    
    $
    26,645
    
    
    $
    16,054Restricted stock
    
    
    3,466
    
    
    
    2,036ESPP
    
    
    1,108
    
    
    
    695Total share-based compensation expense
    
    $
    31,219
    
    
    $
    18,785
  12




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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
 4. Restructuring
   LeaseObligationsSeverance
    
    
    and OtherAnd Benefits
    
    
    Charges
    
    
    TotalRestructuring provision
    
    $
    5,947
    
    
    $
    569
    
    
    $
    6,516Cash paid
    
    
    (969
    )
    
    
    
    
    
    
    (969
    )Reserve balance at April 1, 2007
    
    $
    4,978
    
    
    $
    569
    
    
    $
    5,547
  13




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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
 5. Warranty
  Three months endedApril 1, 2007
    
    
    April 2, 2006Balance, beginning of period
    
    $
    15,338
    
    
    $
    11,258Reductions to costs of product revenue
    
    
    (1,496
    )
    
    
    (2,607
    )Usage
    
    
    (3,110
    )
    
    
    (228
    )Balance, end of period
    
    $
    10,732
    
    
    $
    8,423
  14




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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
 6. Goodwill and Other Intangible Assets
 Goodwill .
 Balance at December 31, 2006
    
    $
    910,254Goodwill adjustment
    
    
    (57,392
    )Balance at April 1, 2007
    
    $
    852,862
  Intangible Assets.
 April 1, 2007
    
    
    December 31, 2006Gross Carrying
    
    
    Accumulated
    
    
    Net Carrying
    
    
    Gross Carrying
    
    
    Accumulated
    
    
    Net CarryingAmount
    
    
    Amortization
    
    
    Amount
    
    
    Amount
    
    
    Amortization
    
    
    AmountCore technology
    
    $
    311,801
    
    
    $
    (36,337
    )
    
    $
    275,464
    
    
    $
    311,801
    
    
    $
    (18,135
    )
    
    $
    293,666Developed product
technology
    
    
    12,900
    
    
    
    (3,135
    )
    
    
    9,765
    
    
    
    12,900
    
    
    
    (2,103
    )
    
    
    10,797Trademarks
    
    
    4,000
    
    
    
    (2,911
    )
    
    
    1,089
    
    
    
    4,000
    
    
    
    (911
    )
    
    
    3,089Backlog
    
    
    5,000
    
    
    
    (3,639
    )
    
    
    1,361
    
    
    
    5,000
    
    
    
    (1,139
    )
    
    
    3,861Supply agreement
    
    
    2,000
    
    
    
    (2,000
    )
    
    
    
    
    
    
    2,000
    
    
    
    (46
    )
    
    
    1,954Customer relationships
    
    
    80,100
    
    
    
    (10,482
    )
    
    
    69,618
    
    
    
    80,100
    
    
    
    (6,008
    )
    
    
    74,092Acquisition-related
intangible assets
    
    
    415,801
    
    
    
    (58,504
    )
    
    
    357,297
    
    
    
    415,801
    
    
    
    (28,342
    )
    
    
    387,459Technology licenses
    
    
    29,243
    
    
    
    (9,713
    )
    
    
    19,530
    
    
    
    7,388
    
    
    
    (5,769
    )
    
    
    1,619Total
    
    $
    445,044
    
    
    $
    (68,217
    )
    
    $
    376,827
    
    
    $
    423,189
    
    
    $
    (34,111
    )
    
    $
    389,078
   Estimated Amortization ExpensesAcquisition-RelatedFiscal periods:
    
    Intangible Assets
    
    
    Technology License2007 (remaining nine months)
    
    $
    59,955
    
    
    $
    3,0532008
    
    
    76,229
    
    
    
    3,6482009
    
    
    71,724
    
    
    
    3,0232010
    
    
    71,529
    
    
    
    3,0232011
    
    
    64,809
    
    
    
    3,0232012 and thereafter
    
    
    13,051
    
    
    
    3,760Total
    
    $
    357,297
    
    
    $
    19,530
 15




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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
 7. Accumulated Other Comprehensive Income
  April 1, 2007
    
    
    December 31, 2006(In thousands)Accumulated net unrealized gain (loss) on:Available-for-sale investments
    
    $
    (2,173
    )
    
    $
    (1,918
    )Available-for-sale investments in foundries
    
    
    (284
    )
    
    
    (610
    )Foreign currency translation
    
    
    12,255
    
    
    
    8,021Total accumulated other comprehensive income
    
    $
    9,798
    
    
    $
    5,493
  Three months endedApril 1, 2007
    
    

April
2, 2006(In thousands)Net income (loss)
    
    $
    (575
    )
    
    $
    35,115Unrealized income on available-for-sale investment in foundries
    
    
    326
    
    
    
    1,977Unrealized income (loss) on available-for-sale investments
    
    
    (255
    )
    
    
    1,737Currency translation income (loss)
    
    
    4,234
    
    
    
    (1,365
    )Comprehensive net income
    
    $
    3,730
    
    
    $
    37,464
 16




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##### Table of Contents



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
 8. Net Income Per Share
  Three months endedApril 1, 2007
    
    
    April 2, 2006Numerator for basic net income (loss) per share:Net income (loss), as reported
    
    $
    (575
    )
    
    $
    35,115Denominator for basic net income (loss) per share:Weighted average common shares outstanding
    
    
    227,455
    
    
    
    193,077Basic net income (loss) per share
    
    $
    (0.00
    )
    
    $
    0.18Numerator for diluted net income (loss) per share:Net income (loss), as reported
    
    $
    (575
    )
    
    $
    35,115Denominator for diluted net income (loss) per share:Weighted average common shares outstanding
    
    
    227,455
    
    
    
    193,077Effect of dilutive options and restricted stock
    
    
    
    
    
    
    8,815Shares used in computing diluted net income (loss) per share
    
    
    227,455
    
    
    
    201,892Diluted net income (loss) per share
    
    $
    (0.00
    )
    
    $
    0.17Anti-dilutive shares excluded from net income per share calculation
    
    
    39,156
    
    
    
    2,893
  17




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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
 9. Share Repurchase Program
  18




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##### Table of Contents



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
 10. Commitments, Contingencies and Guarantees
 FlashVision.
  Flash Partners .
  Flash Alliance.
 19




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##### Table of Contents



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
  Toshiba Foundry.
 TwinSys.
 Business Ventures and Foundry Arrangement with Toshiba.
 Other Silicon Sources.
 Subcontractors.
 20




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##### Table of Contents



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
 Off Balance Sheet Liabilities
  Master Lease Agreements by Execution Date
    
    Lease Amounts(1)
    
    
    Expiration(Yen in billions)
    
    
    (Dollars in millions)FlashVisionJune 2006
    
    ¥
    5.0
    
    
    $
    43
    
    
    
    2009Flash PartnersDecember 2004
    
    
    18.7
    
    
    
    159
    
    
    
    2010December 2005
    
    
    14.2
    
    
    
    121
    
    
    
    2011June 2006
    
    
    13.6
    
    
    
    116
    
    
    
    2011September 2006
    
    
    45.9
    
    
    
    391
    
    
    
    2011March 2007
    
    
    15.0
    
    
    
    128
    
    
    
    2012Total Flash Partners
    
    
    107.4
    
    
    
    915Total indemnification or guarantee obligation
    
    ¥
    112.4
    
    
    $
    958
 
 (1)
    
    The maximum amount of the Companys contingent indemnification or
guarantee obligation, net of payments and any lease adjustments based upon the exchange rate
at April 1, 2007. FlashVision.
 Flash Partners.
 21




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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
  Guarantees
 Indemnification Agreements.
   22




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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
 Contractual Obligations and Off Balance Sheet Arrangements
 Contractual Obligations.
 More than 5Less than
    
    
    2 - 3 Years
    
    
    4 5 Years (Fiscal
    
    
    Years1 Year
    
    
    (Fiscal 2008
    
    
    2010
    
    
    (BeyondTotal
    
    
    (9 months)
    
    
    and 2009)
    
    
    and 2011)
    
    
    Fiscal 2011)
    
    
    OtherOperating leases
    
    $
    51,522
    
    
    $
    7,051
    
    
    $
    17,132
    
    
    $
    14,136
    
    
    $
    13,203
    
    
    $
    FlashVision fabrication capacity
expansion costs, and reimbursement
for certain other costs including
depreciation
    
    
    184,617
    (5)
    
    
    55,082
    
    
    
    113,256
    
    
    
    16,139
    
    
    
    140
    
    
    
    Flash Partners fabrication
capacity expansion and
reimbursement for certain other
costs including depreciation
(1)
    
    
    2,533,460
    (5)
    
    
    907,143
    
    
    
    914,913
    
    
    
    616,376
    
    
    
    95,028
    
    
    
    Flash Alliance fabrication
capacity expansion and
reimbursement for certain other
costs including depreciation and
start-up
    
    
    1,080,906
    (5)
    
    
    135,916
    
    
    
    621,768
    
    
    
    216,686
    
    
    
    106,536
    
    
    
    Toshiba research and development
    
    
    58,250
    (5)
    
    
    23,250
    
    
    
    35,000
    
    
    
    
    
    
    
    
    
    
    
    Capital equipment purchases
commitments
    
    
    207,233
    
    
    
    207,233
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Convertible notes principal and
interest (2)
    
    
    1,316,381
    
    
    
    9,188
    
    
    
    24,500
    
    
    
    24,500
    
    
    
    1,258,193
    
    
    
    Income taxes payable (3)
    
    
    44,646
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    44,646Operating expense commitments
    
    
    10,147
    
    
    
    10,147
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Noncancelable production purchase
commitments (4)
    
    
    212,701
    (5)
    
    
    212,701
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total contractual cash obligations.
    
    $
    5,699,863
    
    
    $
    1,567,711
    
    
    $
    1,726,569
    
    
    $
    887,837
    
    
    $
    1,473,100
    
    
    $
    44,646
 Off Balance Sheet Arrangements.
 As ofApril 1, 2007Indemnification of FlashVision foundry equipment lease (6)
    
    $
    42,638Guarantee of Flash Partners lease(7)
    
    $
    914,873
 
 (1)
    
    As of April 1, 2007, the Company and Toshiba have agreed to expand Fab 3 to
150,000 wafers per month.(2)
    
    In May 2006, the Company issued and sold $1.15 billion in aggregate principal amount
of 1% Convertible Senior Notes due May 15, 2013. The Company will pay cash interest at an
annual rate of 1%, payable semi-annually on May 15 and
November 15 of each year until calendar year 2013. In November 2006, through its acquisition of msystems, the Company assumed
msystems $75 million in aggregate principal amount of 1% Convertible Notes due March 15,
2035. The Company will pay cash interest at an annual rate of 1%, payable semi-annually on
March 15 and September 15 of each year until calendar year 2035.(3)
    
    Includes payment liability of $8.7 million related to uncertain tax positions
subject to an ongoing examination and unrecognized tax benefits of $35.9 million for which the
statute of limitations might expire without examination by the respective taxing authorities.(4)
    
    Includes Toshiba foundries, FlashVision, Flash Partners, related parties vendors and
other silicon sources vendors purchase commitments.(5)
    
    Includes amounts denominated in Japanese yen which are subject to fluctuation in
exchange rates prior to payment and have been translated using the exchange rate at April 1,
2007.(6)
    
    The Companys contingent indemnification obligation is 5.0 billion Japanese yen, or
approximately $43 million based upon the exchange rate at April 1, 2007.(7)
    
    The Companys guarantee obligation, net of cumulative lease payments, is 107.4
billion Japanese yen, or approximately $915 million based upon the exchange rate at April 1,
2007. 23




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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
  Fiscal Year Ending2007
    
    $
    6,4302008
    
    
    8,0682009
    
    
    7,8482010
    
    
    7,7132011
    
    
    6,3672012 and beyond
    
    
    13,202Total real
estate operating leases
    
    $
    49,628
 Foreign Currency Exchange and Other Contracts.
 24




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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
 11. Related Parties and Strategic Investments
 Toshiba .
 Ventures with Toshiba .
 TwinSys. Accounting for Variable Interest Entities
 Tower Semiconductor.
 25




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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
 Flextronics.
 UMC.
 26




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##### Table of Contents



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
 12. Business Acquisition
 msystems Ltd. Business Combinations
  Fair value of SanDisk common stock issued
    
    $
    1,365,150Estimated fair value of options and stock appreciation rights assumed
    
    
    115,670Direct transaction costs
    
    
    14,918Total estimated purchase price
    
    $
    1,495,738
  Net Tangible Assets
 Cash
    
    $
    41,657Short-term investments
    
    
    100,341Accounts receivable
    
    
    163,705Inventory
    
    
    133,512Property and equipment, net
    
    
    37,060Other assets
    
    
    108,819Total assets acquired
    
    
    585,094Accounts payable
    
    
    (133,263
    )Other liabilities
    
    
    (180,429
    )Total liabilities assumed
    
    
    (313,692
    )Net tangible assets acquired
    
    $
    271,402
 Purchase Price Allocation
 27




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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
  Net tangible assets acquired
    
    $
    271,402Goodwill
    
    
    701,836Other identifiable intangible assets:Core technology
    
    
    235,500Trademarks
    
    
    4,000Customer relationships
    
    
    66,000Backlog
    
    
    5,000Supply agreement
    
    
    2,000Total other identifiable intangible assets
    
    
    312,500Acquired in-process technology
    
    
    186,000Deferred tax liability
    
    
    (31,339
    )Assumed unvested share-based awards to be expensed
    
    
    55,339Total preliminary estimated purchase price
    
    $
    1,495,738
 Acquisition-Related Restructuring
 In-process Technology.
  28




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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
 Matrix Semiconductor, Inc. ®
  Fair value of SanDisk common stock issued
    
    $
    242,303Estimated fair value of options assumed
    
    
    33,169Cash consideration
    
    
    20,000Direct transaction costs
    
    
    907Total estimated purchase price
    
    $
    296,379
 Acquisition-Related Restructuring
 In-process Technology.
   29




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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
 Pro Forma Results.
 April 2, 2006Net revenues
    
    $
    843,212Net income
    
    $
    47,834Net income per share:Basic
    
    $
    0.21Diluted
    
    $
    0.20
  30




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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
 13. Income Taxes
 Share Based Payments,
 Accounting for Uncertainty in
Income Taxes, an interpretation of FASB Statement No. 109
   31




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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
 14. Litigation
      32




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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
    33




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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
     34




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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
      35




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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
  36




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##### Table of Contents



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
 15. Condensed Consolidating Financial Statements
   Condensed Consolidating Statements of Operations
For the three months ended April 1, 2007
 Other
    
    
    CombinedParent
    
    
    Subsidiary
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    Consolidating
    
    
    TotalCompany (1)
    
    
    Issuer (1)
    
    
    Subsidiary (1)
    
    
    Subsidiaries (2)
    
    
    Adjustments
    
    
    Company(In thousands)Total revenues
    
    $
    421,493
    
    
    $
    
    
    
    $
    92,395
    
    
    $
    941,841
    
    
    $
    (669,643
    )
    
    $
    786,086Total cost of revenues
    
    
    226,786
    
    
    
    
    
    
    
    99,596
    
    
    
    907,834
    
    
    
    (643,066
    )
    
    
    591,150Gross margin
    
    
    194,707
    
    
    
    
    
    
    
    (7,201
    )
    
    
    34,007
    
    
    
    (26,577
    )
    
    
    194,936Total operating expenses
    
    
    129,588
    
    
    
    
    
    
    
    38,487
    
    
    
    69,116
    
    
    
    (22,738
    )
    
    
    214,453Operating income (loss)
    
    
    65,119
    
    
    
    
    
    
    
    (45,688
    )
    
    
    (35,109
    )
    
    
    (3,839
    )
    
    
    (19,517
    )Total other income (expense)
    
    
    38,354
    
    
    
    (187
    )
    
    
    3,252
    
    
    
    (2,332
    )
    
    
    (2,828
    )
    
    
    36,259Income (loss) before taxes
    
    
    103,473
    
    
    
    (187
    )
    
    
    (42,436
    )
    
    
    (37,441
    )
    
    
    (6,667
    )
    
    
    16,742Provision (benefit) for income taxes
    
    
    12,281
    
    
    
    
    
    
    
    (972
    )
    
    
    (331
    )
    
    
    1,179
    
    
    
    12,157Minority interest
    
    
    
    
    
    
    
    
    
    
    5,160
    
    
    
    
    
    
    
    
    
    
    
    5,160Equity in net income (loss) of
consolidated subsidiaries
    
    
    (35,556
    )
    
    
    
    
    
    
    5,212
    
    
    
    (1,040
    )
    
    
    31,384
    
    
    
    Net income (loss)
    
    $
    55,636
    
    
    $
    (187
    )
    
    $
    (41,412
    )
    
    $
    (38,150
    )
    
    $
    23,538
    
    
    $
    (575
    )
 
 (1)
    
    This represents legal entity results which exclude any subsidiaries required to
be consolidated under GAAP.(2)
    
    This represents all other legal subsidiaries. 37




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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
 Condensed Consolidating Balance Sheets
As of April 1, 2007
 CombinedNon-Other
    
    
    GuarantorParent
    
    
    Subsidiary
    
    
    Guarantor
    
    
    Subsidiaries
    
    
    Consolidating
    
    
    TotalCompany (1)
    
    
    Issuer (1)
    
    
    Subsidiary (1)
    
    
    (2)
    
    
    Adjustments
    
    
    Company(In thousands)ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    1,378,691
    
    
    $
    49
    
    
    $
    138,407
    
    
    $
    292,985
    
    
    $
    977
    
    
    $
    1,811,109Short-term investments
    
    
    1,135,057
    
    
    
    
    
    
    
    264
    
    
    
    1,352
    
    
    
    8,165
    
    
    
    1,144,838Accounts receivable, net
    
    
    (11,640
    )
    
    
    
    
    
    
    34,950
    
    
    
    129,204
    
    
    
    (8,286
    )
    
    
    144,228Inventory
    
    
    146,301
    
    
    
    
    
    
    
    47,486
    
    
    
    403,130
    
    
    
    (2,761
    )
    
    
    594,156Deferred taxes
    
    
    153,790
    
    
    
    
    
    
    
    
    
    
    
    23,392
    
    
    
    (1,412
    )
    
    
    175,770Other current assets
    
    
    299,359
    
    
    
    
    
    
    
    13,277
    
    
    
    381,772
    
    
    
    (507,029
    )
    
    
    187,379Total current assets
    
    
    3,101,558
    
    
    
    49
    
    
    
    234,384
    
    
    
    1,231,835
    
    
    
    (510,346
    )
    
    
    4,057,480Property and equipment, net
    
    
    178,747
    
    
    
    
    
    
    
    33,912
    
    
    
    115,986
    
    
    
    198,718
    
    
    
    527,363Goodwill
    
    
    
    
    
    
    
    
    
    
    702,316
    
    
    
    132,405
    
    
    
    (506,076
    )
    
    
    328,645Intangibles, net
    
    
    
    
    
    
    
    
    
    
    276,163
    
    
    
    100,664
    
    
    
    66,057
    
    
    
    442,884Other non-current assets
    
    
    1,565,528
    
    
    
    71,977
    
    
    
    112,157
    
    
    
    337,121
    
    
    
    (692,945
    )
    
    
    1,393,838Total assets
    
    $
    4,845,833
    
    
    $
    72,026
    
    
    $
    1,358,932
    
    
    $
    1,918,011
    
    
    $
    (1,444,592
    )
    
    $
    6,750,210LIABILITIES AND STOCKHOLDERS EQUITYCurrent Liabilities:Accounts payable
    
    $
    43,860
    
    
    $
    
    
    
    $
    21,846
    
    
    $
    284,923
    
    
    $
    (2,239
    )
    
    $
    348,390Other current accrued liabilities
    
    
    292,905
    
    
    
    602
    
    
    
    22,777
    
    
    
    535,294
    
    
    
    (589,618
    )
    
    
    261,960Total current liabilities
    
    
    336,765
    
    
    
    602
    
    
    
    44,623
    
    
    
    820,217
    
    
    
    (591,857
    )
    
    
    610,350Convertible long-term debt
    
    
    1,150,000
    
    
    
    75,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,225,000Non-current liabilities and deferred revenue
    
    
    31,538
    
    
    
    
    
    
    
    31,629
    
    
    
    10,264
    
    
    
    41,838
    
    
    
    115,269Total liabilities
    
    
    1,518,303
    
    
    
    75,602
    
    
    
    76,252
    
    
    
    830,481
    
    
    
    (550,019
    )
    
    
    1,950,619Minority interest
    
    
    
    
    
    
    
    
    
    
    3,651
    
    
    
    
    
    
    
    
    
    
    
    3,651Stockholders Equity:Common stock
    
    
    2,500,240
    
    
    
    (4,614
    )
    
    
    1,028,024
    
    
    
    993,378
    
    
    
    (830,466
    )
    
    
    3,686,562Retained earnings
    
    
    821,325
    
    
    
    1,038
    
    
    
    245,677
    
    
    
    85,209
    
    
    
    (53,669
    )
    
    
    1,099,580Accumulated other comprehensive income
    
    
    5,965
    
    
    
    
    
    
    
    5,328
    
    
    
    8,943
    
    
    
    (10,438
    )
    
    
    9,798Total stockholders equity
    
    
    3,327,530
    
    
    
    (3,576
    )
    
    
    1,279,029
    
    
    
    1,087,530
    
    
    
    (894,573
    )
    
    
    4,795,940Total liabilities and stockholders equity
    
    $
    4,845,833
    
    
    $
    72,026
    
    
    $
    1,358,932
    
    
    $
    1,918,011
    
    
    $
    (1,444,592
    )
    
    $
    6,750,210
 
 (1)
    
    This represents legal entity results which exclude any subsidiaries required to
be consolidated under GAAP.(2)
    
    This represents all other legal subsidiaries. 38




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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
 Condensed Consolidating Balance Sheets
As of December 31, 2006
 CombinedOther
    
    
    Non-Guarantor
    
    
    GuarantorParent
    
    
    Subsidiary
    
    
    Subsidiary
    
    
    Subsidiaries
    
    
    Consolidating
    
    
    TotalCompany (1)
    
    
    Issuer (1)
    
    
    (1)
    
    
    (2)
    
    
    Adjustments
    
    
    Company(In thousands)ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    1,165,473
    
    
    $
    48
    
    
    $
    71,839
    
    
    $
    340,291
    
    
    $
    3,049
    
    
    $
    1,580,700Short-term investments
    
    
    1,192,084
    
    
    
    
    
    
    
    26,294
    
    
    
    2,681
    
    
    
    7,714
    
    
    
    1,228,773Accounts receivable, net
    
    
    256,801
    
    
    
    
    
    
    
    55,864
    
    
    
    313,407
    
    
    
    (14,332
    )
    
    
    611,740Inventory
    
    
    106,772
    
    
    
    
    
    
    
    71,839
    
    
    
    318,154
    
    
    
    (781
    )
    
    
    495,984Deferred taxes
    
    
    152,791
    
    
    
    
    
    
    
    
    
    
    
    23,217
    
    
    
    (1
    )
    
    
    176,007Other current assets
    
    
    344,722
    
    
    
    
    
    
    
    74,434
    
    
    
    229,912
    
    
    
    (500,411
    )
    
    
    148,657Total current assets
    
    
    3,218,643
    
    
    
    48
    
    
    
    300,270
    
    
    
    1,227,662
    
    
    
    (504,762
    )
    
    
    4,241,861Property and equipment, net
    
    
    182,750
    
    
    
    
    
    
    
    34,870
    
    
    
    100,345
    
    
    
    
    
    
    
    317,965Goodwill
    
    
    
    
    
    
    
    
    
    
    759,729
    
    
    
    150,470
    
    
    
    55
    
    
    
    910,254Intangibles, net
    
    
    
    
    
    
    
    
    
    
    312,682
    
    
    
    76,396
    
    
    
    
    
    
    
    389,078Other non-current assets
    
    
    1,735,998
    
    
    
    71,789
    
    
    
    111,754
    
    
    
    368,467
    
    
    
    (1,179,383
    )
    
    
    1,108,625Total assets
    
    $
    5,137,391
    
    
    $
    71,837
    
    
    $
    1,519,305
    
    
    $
    1,923,340
    
    
    $
    (1,684,090
    )
    
    $
    6,967,783LIABILITIES AND STOCKHOLDERS EQUITYCurrent Liabilities:Accounts payable
    
    $
    43,910
    
    
    $
    
    
    
    $
    46,349
    
    
    $
    312,219
    
    
    $
    (981
    )
    
    $
    401,497Other current accrued liabilities
    
    
    515,042
    
    
    
    226
    
    
    
    59,287
    
    
    
    512,525
    
    
    
    (592,130
    )
    
    
    494,950Total current liabilities
    
    
    558,952
    
    
    
    226
    
    
    
    105,636
    
    
    
    824,744
    
    
    
    (593,111
    )
    
    
    896,447Convertible long-term debt
    
    
    1,150,000
    
    
    
    75,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,225,000Non-current liabilities and deferred revenue
    
    
    18,029
    
    
    
    
    
    
    
    32,229
    
    
    
    29,770
    
    
    
    (7,802
    )
    
    
    72,226Total liabilities
    
    
    1,726,981
    
    
    
    75,226
    
    
    
    137,865
    
    
    
    854,514
    
    
    
    (600,913
    )
    
    
    2,193,673Minority interest
    
    
    
    
    
    
    
    
    
    
    5,976
    
    
    
    
    
    
    
    
    
    
    
    5,976Stockholders Equity:Common stock
    
    
    2,387,819
    
    
    
    (4,614
    )
    
    
    1,085,277
    
    
    
    679,832
    
    
    
    (491,193
    )
    
    
    3,657,121Retained earnings
    
    
    1,018,566
    
    
    
    1,225
    
    
    
    284,414
    
    
    
    379,857
    
    
    
    (578,542
    )
    
    
    1,105,520Accumulated other comprehensive income
    
    
    4,025
    
    
    
    
    
    
    
    5,773
    
    
    
    9,137
    
    
    
    (13,442
    )
    
    
    5,493Total stockholders equity
    
    
    3,410,410
    
    
    
    (3,389
    )
    
    
    1,375,464
    
    
    
    1,068,826
    
    
    
    (1,083,177
    )
    
    
    4,768,134Total liabilities and stockholders equity
    
    $
    5,137,391
    
    
    $
    71,837
    
    
    $
    1,519,305
    
    
    $
    1,923,340
    
    
    $
    (1,684,090
    )
    
    $
    6,967,783
 
 (1)
    
    This represents legal entity results which exclude any subsidiaries required to
be consolidated under GAAP.(2)
    
    This represents all other legal subsidiaries. 39




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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
 Condensed Consolidating Statements of Cash Flows
For the three months ended April 1, 2007
 CombinedNon-Other
    
    
    GuarantorParent
    
    
    Subsidiary
    
    
    Guarantor
    
    
    Subsidiaries
    
    
    Consolidating
    
    
    TotalCompany (1)
    
    
    Issuer (1)
    
    
    Subsidiary (1)
    
    
    (2)
    
    
    Adjustments
    
    
    Company(In thousands)Net cash provided by (used in) operating activities
    
    $
    230,350
    
    
    $
    1
    
    
    $
    44,627
    
    
    $
    30,700
    
    
    $
    (50,429
    )
    
    $
    255,249Net cash provided by (used in) investing activities
    
    
    (20,055
    )
    
    
    
    
    
    
    29,142
    
    
    
    (29,365
    )
    
    
    
    
    
    
    (20,278
    )Net cash provided by (used in) financing activities
    
    
    2,535
    
    
    
    
    
    
    
    (7,485
    )
    
    
    (48,357
    )
    
    
    48,357
    
    
    
    (4,950
    )Effect of changes in foreign currency exchange
rates on cash
    
    
    388
    
    
    
    
    
    
    
    284
    
    
    
    (284
    )
    
    
    
    
    
    
    388Net increase (decrease) in cash and cash
equivalents
    
    
    213,218
    
    
    
    1
    
    
    
    66,568
    
    
    
    (47,306
    )
    
    
    (2,072
    )
    
    
    230,409Cash and cash equivalents at beginning of period
    
    
    1,165,473
    
    
    
    48
    
    
    
    71,839
    
    
    
    340,292
    
    
    
    3,048
    
    
    
    1,580,700Cash and cash equivalents at end of period
    
    $
    1,378,691
    
    
    $
    49
    
    
    $
    138,407
    
    
    $
    292,986
    
    
    $
    976
    
    
    $
    1,811,109
 
 (1)
    
    This represents legal entity results which exclude any subsidiaries required to
be consolidated under GAAP.(2)
    
    This represents all other legal subsidiaries. 40




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Statements in this report, which are not historical facts, are forward-looking statements
within the meaning of the federal securities laws. These statements may contain words such as
expects, anticipates, intends, plans, believes, seeks, estimates or other wording
indicating future results or expectations. Forward-looking statements are subject to significant
risks and uncertainties. Our actual results may differ materially from the results discussed in
these forward-looking statements. Factors that could cause our actual results to differ materially
include, but are not limited to, those discussed under Risk Factors and elsewhere in this report.
Our business, financial condition or results of operations could be materially adversely affected
by any of these factors. We undertake no obligation to revise or update any forward-looking
statements to reflect any event or circumstance that arises after the date of this report, except
as required by law. References in this report to SanDisk ® , we, our, and
us
refer collectively to SanDisk Corporation, a Delaware corporation, and its subsidiaries.
 Overview
     Accounting for Uncertainty in Income Taxes,
an interpretation of FASB Statement No. 109
 41




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Results of Operations
 Three months ended% of
    
    
    
    
    
    
    % ofApril 1, 2007
    
    
    Revenue
    
    
    April 2, 2006
    
    
    Revenue(In millions, except percentages)Product revenues
    
    $
    689.4
    
    
    
    87.7
    %
    
    $
    537.7
    
    
    
    86.3
    %License and royalty revenues
    
    
    96.7
    
    
    
    12.3
    %
    
    
    85.6
    
    
    
    13.7
    %Total revenues
    
    
    786.1
    
    
    
    100.0
    %
    
    
    623.3
    
    
    
    100.0
    %Cost of product revenues
    
    
    570.1
    
    
    
    72.5
    %
    
    
    384.9
    
    
    
    61.8
    %Amortization of acquisition-related intangible assets
    
    
    21.1
    
    
    
    2.7
    %
    
    
    
    
    
    
    n/aTotal cost of product revenues
    
    
    591.2
    
    
    
    75.2
    %
    
    
    384.9
    
    
    
    61.8
    %Gross margins
    
    
    194.9
    
    
    
    24.8
    %
    
    
    238.4
    
    
    
    38.2
    %Operating expensesResearch and development
    
    
    95.6
    
    
    
    12.2
    %
    
    
    63.8
    
    
    
    10.2
    %Sales and marketing
    
    
    56.2
    
    
    
    7.1
    %
    
    
    43.4
    
    
    
    6.9
    %General and administrative
    
    
    47.0
    
    
    
    6.0
    %
    
    
    30.0
    
    
    
    4.8
    %Write-off of acquired in-process technology
    
    
    
    
    
    
    
    
    
    
    39.6
    
    
    
    6.4
    %Amortization of acquisition-related intangible assets
    
    
    9.1
    
    
    
    1.2
    %
    
    
    3.7
    
    
    
    0.6
    %Restructuring
    
    
    6.5
    
    
    
    0.8
    %
    
    
    
    
    
    
    Total operating expenses
    
    
    214.4
    
    
    
    27.3
    %
    
    
    180.5
    
    
    
    28.9
    %Operating income (loss)
    
    
    (19.5
    )
    
    
    (2.5
    )%
    
    
    57.9
    
    
    
    9.3
    %Other income
    
    
    36.3
    
    
    
    4.6
    %
    
    
    18.5
    
    
    
    3.0
    %Income before taxes
    
    
    16.8
    
    
    
    2.1
    %
    
    
    76.4
    
    
    
    12.3
    %Provision for income taxes
    
    
    12.2
    
    
    
    1.6
    %
    
    
    41.3
    
    
    
    6.7
    %Minority interest
    
    
    5.2
    
    
    
    0.6
    %
    
    
    
    
    
    
    Net income (loss)
    
    $
    (0.6
    )
    
    
    (0.1
    )%
    
    $
    35.1
    
    
    
    5.6
    %
 Product Revenues.
 Three months endedPercentApril 1, 2007
    
    
    April 2, 2006
    
    
    Change(In millions, except percentages)Retail
    
    $
    343.9
    
    
    $
    372.1
    
    
    
    (8
    )%OEM
    
    
    345.5
    
    
    
    165.6
    
    
    
    109
    %Product revenues
    
    $
    689.4
    
    
    $
    537.7
    
    
    
    28
    %
  42




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Geographical Product Revenues.
 Three months endedApril 1, 2007
    
    
    April 2, 2006Pct of Product
    
    
    
    
    
    
    Pct of Product
    
    
    PercentRevenues
    
    
    Revenue
    
    
    Revenues
    
    
    Revenue
    
    
    Change(In millions, except percentages)North America
    
    $
    241.8
    
    
    
    35
    %
    
    $
    217.2
    
    
    
    40
    %
    
    
    11
    %Japan
    
    
    109.5
    
    
    
    16
    %
    
    
    25.9
    
    
    
    5
    %
    
    
    323
    %Europe and Middle East
    
    
    134.5
    
    
    
    20
    %
    
    
    140.3
    
    
    
    26
    %
    
    
    (4
    )%Asia-Pacific
    
    
    201.8
    
    
    
    29
    %
    
    
    153.8
    
    
    
    29
    %
    
    
    31
    %Other foreign countries
    
    
    1.8
    
    
    
    0
    %
    
    
    0.5
    
    
    
    0
    %
    
    
    260
    %$
    689.4
    
    
    
    100
    %
    
    $
    537.7
    
    
    
    100
    %
    
    
    28
    %
  License and Royalty Revenues.
 Three months endedPercentApril 1, 2007
    
    April 2, 2006
    
    Change(In millions, except percentages)License and royalty revenues
    
    $
    96.7
    
    
    $
    85.6
    
    
    
    13
    %
  Gross Margin.
 Three months endedPercentApril 1, 2007
    
    April 2, 2006
    
    Change(In millions, except percentages)Product gross margin
    
    $
    98.2
    
    
    $
    152.9
    
    
    
    (36
    )%Product gross margin (as a percent of product revenues)
    
    
    14.2
    %
    
    
    28.4
    %Total gross margin (as a percent of total revenues)
    
    
    24.8
    %
    
    
    38.2
    %
 Share Based Payments,
 43




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Research and Development.
 Three months endedPercentApril 1, 2007
    
    April 2, 2006
    
    Change(In millions, except percentages)Research and development
    
    $
    95.6
    
    
    $
    63.8
    
    
    
    50
    %Percent of revenue
    
    
    12.2
    %
    
    
    10.2
    %
  Sales and Marketing.
 Three months endedPercentApril 1, 2007
    
    April 2, 2006
    
    Change(In millions, except percentages)Sales and marketing
    
    $
    56.2
    
    
    $
    43.4
    
    
    
    29
    %Percent of revenue
    
    
    7.2
    %
    
    
    7.0
    %
  General and Administrative.
 Three months endedPercentApril 1, 2007
    
    April 2, 2006
    
    Change(In millions, except percentages)General and administrative
    
    $
    47.0
    
    
    $
    30.0
    
    
    
    57
    %Percent of revenue
    
    
    6.0
    %
    
    
    4.8
    %
  Write-off of Acquired In-process Technology.
 Three months endedPercentApril 1, 2007
    
    April 2, 2006
    
    Change(In millions, except percentages)Write-off of acquired in-process technology
    
    $ 
    
    $
    39.6
    
    
    n/aPercent of revenue.
    
    
    
    
    6.3
    %
  44




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Amortization of Acquisition-Related Intangible Assets.
 Three months endedPercentApril 1, 2007
    
    April 2, 2006
    
    Change(In millions, except percentages)Amortization of acquisition-related intangible assets
    
    $
    9.1
    
    
    $
    3.7
    
    
    
    146
    %Percent of revenue
    
    
    1.2
    %
    
    
    0.6
    %
  Restructuring.
 Three months endedPercentApril 1, 2007
    
    April 2, 2006
    
    Change(In thousands, except percentages)Restructuring
    
    $
    6.5
    
    
    $
    n/a
    
    
    
    n/aPercent of revenue
    
    
    0.8
    %
    
    
    
   Other Income.
 Three months endedPercentApril 1, 2007
    
    
    April 2, 2006
    
    
    Change(In millions, except percentages)Equity in income of business ventures
    
    $
    
    
    
    $
    0.2
    
    
    
    n/aInterest income
    
    
    37.5
    
    
    
    15.3
    
    
    
    145
    %Gain on investment in foundries
    
    
    2.2
    
    
    
    0.6
    
    
    
    267
    %Interest expense and other income (expense), net
    
    
    (3.4
    )
    
    
    2.4
    
    
    
    (242
    )%Total other income
    
    $
    36.3
    
    
    $
    18.5
    
    
    
    96
    %
  45




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##### Table of Contents



Provision for Income Taxes.
 Three months endedApril 1, 2007
    
    April 2, 2006Provision for income taxes
    
    
    72.6
    %
    
    
    54.0
    %
  Accounting for Uncertainty in Income Taxes,
an interpretation of FASB Statement No. 109
   46




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Liquidity and Capital Resources
  Three months endedApril 1, 2007
    
    
    April 2, 2006Net cash provided by operating activities
    
    $
    255,249
    
    
    $
    52,449Net cash used for investing activities
    
    
    (20,278
    )
    
    
    (51,851
    )Net cash used for financing activities
    
    
    (4,950
    )
    
    
    87,970Effect of changes in foreign currency exchange rates on cash
    
    
    388
    
    
    
    (61
    )Net increase (decrease) in cash and cash equivalents
    
    $
    230,409
    
    
    $
    88,507
 Operating Activities.
 Investing Activities.
 Financing Activities.
 Liquid Assets.
 Short-Term Liquidity.
 Long-Term Requirements.
 Financing Arrangements.
 47




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48




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Toshiba Ventures.
    49




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Contractual Obligations and Off Balance Sheet Arrangements
  50




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Critical Accounting Policies
   Recent Accounting Pronouncements
 SFAS No. 159 . Establishing the Fair Value Option for Financial Assets and Liabilities Fair Value Measurements
 EITF Issue No. 07-2 . Accounting for Convertible
Debt Instruments That Require or Permit Partial Cash Settlement upon Conversion. Accounting for Derivative Instruments and Hedging Activities Accounting for Convertible Debt and Debt
Issued with Stock Purchase Warrants Convertible Bonds with Issuer Option
to Settle for Cash upon Conversion
 51




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Item 3. Quantitative and Qualitative Disclosures About Market Risk
  
 Item 4. Controls and Procedures
   52




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PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
      53




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54




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55




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56




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Item 1A. Risk Factors
 The following description of the risk factors associated with our business includes any
material changes to and supersedes the description of the risk factors associated with our business
previously disclosed in Part 1, Item 1A of our Annual Report on Form 10-K for the fiscal year ended
December 31, 2006.
 Our operating results may fluctuate significantly, which may adversely affect our operations
and our stock price
 
    
    average selling prices, net of promotions, declining at a faster rate than cost
reductions for our products due to industry or SanDisk excess supply and competitive
pricing pressures;
    
    addition of new competitors, expansion of supply from existing competitors and
ourselves creating excess market supply, which could cause our average selling prices to
decline faster than our costs decline;
    
    unpredictable or changing demand for our products, particularly demand for
certain types or capacities of our products or demand for our products in certain markets
or geographies;
    
    excess supply from captive sources due to output increasing faster than the
growth in demand resulting in excess inventory;
    
    reduction in price elasticity of demand related to pricing changes for some of
our markets and products;
    
    impairment of goodwill, business integration and other challenges related to
our acquisition of msystems and Matrix;
    
    timing, volume and cost of wafer production from the FlashVision, Flash
Partners and Flash Alliance ventures as impacted by Fab start-up delays and costs,
technology transitions, yields or production interruptions;
    
    disruption in the manufacturing operations of suppliers, including suppliers of
sole-sourced components;
    
    potential delays in the emergence of new markets and products for NAND flash
memory and acceptance of our products in these markets;
    
    our license and royalty revenues may decline significantly in the future as our
existing license agreements and key patents expire;
    
    timing of sell-through by our distributors and retail customers;
    
    increased purchases of flash memory products from our non-captive sources,
which typically cost more than products from our captive sources;
    
    difficulty in forecasting and managing inventory levels, particularly due to
noncancelable contractual obligations to purchase materials such as flash memory and
controllers, and the need to build finished product in advance of customer purchase orders;
    
    insufficient supply from captive and non-captive sources or insufficient
capacity from our test and assembly subcontractors to meet demand;
    
    errors or defects in our products caused by, among other things, errors or
defects in the memory or controller components, including memory and non-memory components
we procure from third-party suppliers;
    
    write-downs of our investments in fabrication capacity, equity investments and other assets;
 57




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
    
    estimates used in calculating share-based compensation expense; and
    
    the other factors described under Risk Factors and elsewhere in this report.
 Our average selling prices, net of promotions, may decline faster than cost reductions due to
industry or SanDisk excess supply, competitive pricing pressures or strategic price reductions
initiated by us or our competitors.
 Sales to a small number of customers represent a significant portion of our revenues and, if
we were to lose one of our major licensees or customers or experience any material reduction in
orders from any of our customers, our revenues and operating results would suffer
 Our business depends significantly upon sales of products in the highly competitive consumer
market, a significant portion of which are made to retailers and through distributors, and if our
distributors and retailers are not successful in this market, we could experience substantial
product returns, which would negatively impact our business, financial condition and results of
operations.
 Our revenue depends in part on the success of products sold by our OEM customers.
 The continued growth of our business depends on the development of new markets and products
for NAND flash memory and continued elasticity in our existing markets
 58




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Our strategy of investing in captive manufacturing sources could harm us if our competitors are
able to produce products more cheaply or if industry supply continues to exceed demand.
 We continually seek to develop new applications, products, technologies and standards, which
may not be widely adopted by consumers or, if adopted, may reduce demand by consumers for our older
products ® ® 
 We face competition from numerous manufacturers and marketers of products using flash memory,
as well as from manufacturers of new and alternative technologies, and if we cannot compete
effectively, our results of operations and financial condition will suffer
 59




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
    
    price, quality and on-time delivery to our customers;
    
    product performance, availability and differentiation;
    
    success in developing new applications and new market segments;
    
    sufficient availability of supply;
    
    efficiency of production;
    
    timing of new product announcements or introductions by us, our customers and our competitors;
    
    the ability of our competitors to incorporate standards or develop formats which we do not offer;
    
    the number and nature of our competitors in a given market;
    
    successful protection of intellectual property rights; and
    
    general market and economic conditions.
  The semiconductor industry is subject to significant downturns that have harmed our business,
financial condition and results of operations in the past and may do so in the future
 60




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Our business and the markets we address are subject to significant fluctuations in supply and
demand and our commitments to our ventures with Toshiba may result in periods of significant excess
inventory
 We depend on third-party foundries for silicon supply and any disruption or shortage in our
supply from these sources will reduce our revenues, earnings and gross margins.
  If actual manufacturing yields are lower than our expectations, this may result in increased
costs and product shortages
 61




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We depend on our third-party subcontractors and our business could be harmed if our
subcontractors do not perform as planned
 We are constructing a captive assembly and test manufacturing facility in China.
 In transitioning to new processes, products and silicon sources, we face production and market
acceptance risks that may cause significant product delays, cost overruns or performance issues
that could harm our business Fab
 Our products may contain errors or defects, which could result in the rejection of our
products, product recalls, damage to our reputation, lost revenues, diverted development resources
and increased service costs and warranty claims and litigation.
 62




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We and Toshiba plan to continue to expand the wafer fabrication capacity of the Flash Partners
business venture and have formed a new venture, Flash Alliance, for which we will make substantial
capital investments and incur substantial start-up and tool relocation costs, which could adversely
impact our operating results.
 We have a contingent indemnification obligation and guarantee obligations related to the
ventures with Toshiba.
    Seasonality in our business may result in our inability to accurately forecast our product
purchase requirements
 63




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From time-to-time, we overestimate our requirements and build excess inventory, and
underestimate our requirements and have a shortage of supply, both of which harm our financial
results
   We are sole-sourced for a number of our critical components and the absence of a back-up
supplier exposes our supply chain to unanticipated disruptions.
 We are exposed to foreign currency risks.
 We may be unable to protect our intellectual property rights, which would harm our business,
financial condition and results of operations.
 
    
    any of our existing patents will not be invalidated;
    
    patents will be issued for any of our pending applications;
    
    any claims allowed from existing or pending patents will have sufficient scope or strength;
    
    our patents will be issued in the primary countries where our products are sold
in order to protect our rights and potential commercial advantage; or
    
    any of our products or technologies do not infringe on the patents of other
companies.
 64




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We may be unable to license intellectual property to or from third-parties as needed, or renew
existing licenses, which could expose us to liability for damages, reduce our royalty revenues,
increase our costs or limit or prohibit us from selling products.
 We are currently and may in the future be involved in litigation, including litigation
regarding our intellectual property rights or those of third parties, which may be costly, may
divert the efforts of our key personnel and could result in adverse court rulings, which could
materially harm our business
   65




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Because of our international business and operations, we must comply with numerous
international laws and regulations, and we are vulnerable to political instability, currency
fluctuations and other risks related to international operations.
   
    
    the need to comply with foreign government regulation;
    
    changes in diplomatic and trade relationships;
    
    reduced sales to our customers or interruption to our manufacturing processes
in the Pacific Rim that may arise from regional issues in Asia;
    
    imposition of regulatory requirements, tariffs, import and export restrictions and other barriers and restrictions;
    
    duties and/or fees related to customs entries for our products, which are all manufactured offshore;
    
    longer payment cycles and greater difficulty in accounts receivable collection;
    
    adverse tax rules and regulations;
    
    weak protection of our intellectual property rights; and
    
    delays in product shipments due to local customs restrictions.
 Tower Semiconductors Financial Situation is Challenging.
 66




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Our stock price has been, and may continue to be, volatile, which could result in investors
losing all or part of their investments
 We may make acquisitions that are dilutive to existing stockholders, result in unanticipated
accounting charges or otherwise adversely affect our results of operations, and result in
difficulties in assimilating and integrating the operations, personnel, technologies, products and
information systems of acquired companies or businesses.
   Our success depends on our key personnel, including our executive officers, the loss of whom
could disrupt our business
 67




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Terrorist attacks, war, threats of war and government responses thereto may negatively impact
our operations, revenues, costs and stock price
 Natural disasters or epidemics in the countries in which we or our suppliers or subcontractors
operate could negatively impact our operations.
 To manage our growth, we may need to improve our systems, controls, processes and procedures.
 We may need to raise additional financing, which could be difficult to obtain, and which if
not obtained in satisfactory amounts may prevent us from funding the ventures with Toshiba,
increasing our wafer supply, developing or enhancing our products, taking advantage of future
opportunities, growing our business or responding to competitive pressures or unanticipated
industry changes, any of which could harm our business
 68




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Anti-takeover provisions in our charter documents, stockholder rights plan and in Delaware law
could discourage or delay a change in control and, as a result, negatively impact our stockholders.
 Unanticipated changes in our tax provisions or exposure to additional income tax liabilities
could affect our profitability.
 We may be subject to risks associated with environmental regulations.
 Changes in securities laws and regulations have increased our costs; further, in the event we
are unable to satisfy regulatory requirements relating to internal control, or if our internal
control over financial reporting is not effective, our business could suffer
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Our debt service obligations may adversely affect our cash flow.
  
    
    increase our vulnerability to general adverse economic and industry conditions;
    
    limit our ability to obtain additional financing;
    
    require the dedication of a substantial portion of any cash flow from
operations to the payment of principal of, and interest on, our indebtedness, thereby
reducing the availability of such cash flow to fund our growth strategy, working capital,
capital expenditures and other general corporate purposes;
    
    limit our flexibility in planning for, or reacting to, changes in our business and our industry; and
    
    place us at a competitive disadvantage relative to our competitors with less debt.
 The accounting method for convertible debt securities with net share settlement, like our 1%
notes due 2013 (the notes), may be subject to change. Accounting for Derivative Financial Instruments Indexed to, and Potentially
Settled in, a Companys Own Stock
 We have significant financial obligations related to our ventures with Toshiba, which could
impact our ability to comply with our obligations under our 1% Notes due 2013 and our 1% Notes due
2035
 The net share settlement feature of the 1% Notes due 2013 may have adverse consequences.
 70




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The convertible note hedge transactions and the warrant option transactions may affect the
value of the notes and our common stock
 
    
    have entered into various over-the-counter cash-settled derivative transactions
with respect to our common stock, concurrently with, and shortly after, the pricing of the
notes; and
    
    may enter into, or may unwind, various over-the-counter derivatives and/or
purchase or sell our common stock in secondary market transactions following the pricing of
the notes, including during any observation period related to a conversion of notes.
   There are numerous risks associated with our acquisition of msystems Ltd.
 
    
    retaining the customers and sales distribution channels of both companies;
    
    maintaining employee morale and retaining key employees;
    
    retaining key sources of supply;
    
    incorporating msystems technology and products into our business and future product lines;
 71




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
    
    integrating msystems sales force into our worldwide product sales network;
    
    demonstrating to msystems customers that the merger will not result in adverse
changes in pricing, customer service standards or product support;
    
    coordinating research and development activities to enhance introduction of new products and technologies;
    
    integrating msystems internal control over financial reporting with our internal control over financial reporting;
    
    migrating both companies to a common enterprise resource planning information
system to integrate all operations, sales and administrative activities for the combined
companies in a timely and cost effective way;
    
    integrating msystems international operations with ours;
    
    integrating the business cultures of both companies; and
    
    ensuring there are no delays in releasing new products to market.
  There is pending litigation
 There are risks related to msystems prior option grant practices.
  72




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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
 Issuer
Repurchases of Equity Securities.
 Total Number of
    
    
    Approximate DollarShares Purchased as
    
    
    Value of Shares thatPart of Publicly
    
    
    May Yet BeTotal Number of
    
    
    Average Price Paid
    
    
    Announced Plans of
    
    
    Purchased Under thePeriod
    
    Shares Purchased (1)
    
    
    per Share(2)
    
    
    Programs(3)
    
    
    Plans or ProgramsJanuary 1, 2007 to January 28, 2007
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    January 29, 2007 to February 25, 2007
    
    
    18,000
    
    
    
    39.98
    
    
    
    18,000
    
    
    
    299,280,288February 26, 2007 to April 1, 2007
    
    
    172,184
    
    
    
    37.01
    
    
    
    172,184
    
    
    
    292,908,103Total
    
    
    190,184
    
    
    $
    33.51
    
    
    
    190,184
    
    
    $
    292,908,103
 
 (1)
    
    In December 2006, the Company announced its intention to repurchase up to $300
million in the open market of its common stock over the two years following the date of authorization.(2)
    
    Represents the weighted average price paid per share. 
 Item 3. Defaults upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
  
 Item 5. Other Information
  73




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Item 6. Exhibits
 ExhibitNumber
    
    Exhibit Title2.1
    
    Agreement and Plan of Merger, dated as of October 20, 2005, by and among SanDisk Corporation, Mike
Acquisition Company LLC, Matrix Semiconductor, Inc. and Bruce Dunlevie as the stockholder
representative for the stockholders of Matrix Semiconductor, Inc.(1)2.2
    
    Agreement and Plan of Merger, dated as of July 30, 2006, by and among SanDisk Corporation, Project
Desert, Ltd. and msystems Ltd.(2)3.1
    
    Restated Certificate of Incorporation of the Registrant.(3)3.2
    
    Certificate of Amendment of the Restated Certificate of Incorporation of the Registrant dated December
9, 1999.(4)3.3
    
    Certificate of Amendment of the Restated Certificate of Incorporation of the Registrant dated May 11,
2000.(5)3.4
    
    Certificate of Amendment to the Amended and Restated Certificate of Incorporation of the Registrant
dated May 26, 2006.(6)3.5
    
    Restated Bylaws of the Registrant,
as amended to date.(7)3.6
    
    Certificate of Designations for the Series A Junior Participating Preferred Stock, as filed with the
Delaware Secretary of State on October 14, 1997.(8)3.7
    
    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.(9)4.1
    
    Reference is made to Exhibits 3.1, 3.2, 3.3, and 3.4.(3), (4), (5), (6)4.2
    
    Rights Agreement, dated as of September 15, 2003, between the Registrant and Computershare Trust
Company, Inc.(9)4.3
    
    Amendment No. 1 to Rights Agreement, dated as of November 6, 2006, by and between the Registrant and
Computershare Trust Company, Inc.(10)31.1
    
    Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.(*)31.2
    
    Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.(*)32.1
    
    Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.(*)32.2
    
    Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.(*)
 
 *
    
    Furnished herewith.(1)
    
    Previously filed as an Exhibit to the Registrants Current Report on Form 8-K filed with
the SEC on January 20, 2006.(2)
    
    Previously filed as an Exhibit to the Registrants Current Report on Form 8-K/A filed
with the SEC on August 1, 2006.(3)
    
    Previously filed as an Exhibit to the Registrants Registration Statement on Form S-1
(No. 33-96298).(4)
    
    Previously filed as an Exhibit to the Registrants Form 10-Q for the quarter ended June
30, 2000.(5)
    
    Previously filed as an Exhibit to the Registrants Registration Statement on Form S-3
(No. 333-85686).(6)
    
    Previously filed as an Exhibit to the Registrants Current Report on Form 8-K filed with
the SEC on June 1, 2006.(7)
    
    Previously filed as an Exhibit to the Registrants Current Report on Form 8-K filed with
the SEC on April 10, 2006.(8)
    
    Previously filed as an Exhibit to the Registrants Current Report on Form 8-K/A dated
April 18, 1997.(9)
    
    Previously filed as an Exhibit to the Registrants Registration Statement on Form 8-A
dated September 25, 2003.(10)
    
    Previously filed as an Exhibit to the Registrants Registration Statement on Form 8-A/A
dated November 8, 2006. 74




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##### Table of Contents



SIGNATURES
  SANDISK CORPORATION
(Registrant)Dated: May 9, 2007
    By:
    /s/  Judy BrunerJudy BrunerExecutive Vice President, Administration and
Chief Financial Officer
(On behalf of the Registrant and as Principal
Financial and Accounting Officer) 75




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ExhibitNumber
    
    Exhibit Title2.1
    
    Agreement and Plan of Merger, dated as of October 20, 2005, by and among SanDisk Corporation, Mike
Acquisition Company LLC, Matrix Semiconductor, Inc. and Bruce Dunlevie as the stockholder
representative for the stockholders of Matrix Semiconductor, Inc.(1)2.2
    
    Agreement and Plan of Merger, dated as of July 30, 2006, by and among SanDisk Corporation, Project
Desert, Ltd. and msystems Ltd.(2)3.1
    
    Restated Certificate of Incorporation of the Registrant.(3)3.2
    
    Certificate of Amendment of the Restated Certificate of Incorporation of the Registrant dated December
9, 1999.(4)3.3
    
    Certificate of Amendment of the Restated Certificate of Incorporation of the Registrant dated May 11,
2000.(5)3.4
    
    Certificate of Amendment to the Amended and Restated Certificate of Incorporation of the Registrant
dated May 26, 2006.(6)3.5
    
    Restated Bylaws of the Registrant,
as amended to date.(7)3.6
    
    Certificate of Designations for the Series A Junior Participating Preferred Stock, as filed with the
Delaware Secretary of State on October 14, 1997.(8)3.7
    
    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.(9)4.1
    
    Reference is made to Exhibits 3.1, 3.2, 3.3, and 3.4.(3), (4), (5), (6)4.2
    
    Rights Agreement, dated as of September 15, 2003, between the Registrant and Computershare Trust
Company, Inc.(9)4.3
    
    Amendment No. 1 to Rights Agreement, dated as of November 6, 2006, by and between the Registrant and
Computershare Trust Company, Inc.(10)31.1
    
    Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.(*)31.2
    
    Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.(*)32.1
    
    Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.(*)32.2
    
    Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.(*)
 
 *
    
    Furnished herewith.(1)
    
    Previously filed as an Exhibit to the Registrants Current Report on Form 8-K filed with
the SEC on January 20, 2006.(2)
    
    Previously filed as an Exhibit to the Registrants Current Report on Form 8-K/A filed
with the SEC on August 1, 2006.(3)
    
    Previously filed as an Exhibit to the Registrants Registration Statement on Form S-1
(No. 33-96298).(4)
    
    Previously filed as an Exhibit to the Registrants Form 10-Q for the quarter ended June
30, 2000.(5)
    
    Previously filed as an Exhibit to the Registrants Registration Statement on Form S-3
(No. 333-85686).(6)
    
    Previously filed as an Exhibit to the Registrants Current Report on Form 8-K filed with
the SEC on June 1, 2006.(7)
    
    Previously filed as an Exhibit to the Registrants Current Report on Form 8-K filed with
the SEC on April 10, 2006.(8)
    
    Previously filed as an Exhibit to the Registrants Current Report on Form 8-K/A dated
April 18, 1997.(9)
    
    Previously filed as an Exhibit to the Registrants Registration Statement on Form 8-A
dated September 25, 2003.(10)
    
    Previously filed as an Exhibit to the Registrants Registration Statement on Form 8-A/A
dated November 8, 2006. 76