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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 March 30, 2008
 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
  Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer   o
(Do not check if a smaller reporting company)
    
    Smaller Reporting Company 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 March 30, 2008 and December 30, 2007
    
    
    3Condensed Consolidated Statements of Operations for the three months ended March 30,
2008 and 
April 1, 2007
    
    
    3Condensed Consolidated Statements of Cash Flows for the three months ended March 30,
2008 and 
April 1, 2007
    
    
    3Notes to Condensed Consolidated Financial Statements
    
    
    3Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    3Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    3Item 4.
    
    Controls and Procedures
    
    
    3PART II. OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    3Item 1A.
    
    Risk Factors
    
    
    3Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    3Item 3.
    
    Defaults Upon Senior Securities
    
    
    3Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    3Item 5.
    
    Other Information
    
    
    3Item 6.
    
    Exhibits
    
    
    3Signatures
    
    
    3Exhibit Index
    
    
    3EXHIBIT 10.1EXHIBIT 10.2EXHIBIT 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
 March 30, 2008
    
    
    December 30, 2007*(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    1,225,285
    
    
    $
    833,749Short-term investments
    
    
    628,416
    
    
    
    1,001,641Accounts receivable from product revenues, net
    
    
    180,273
    
    
    
    462,983Inventory
    
    
    694,823
    
    
    
    555,077Deferred taxes
    
    
    190,839
    
    
    
    212,255Other current assets
    
    
    117,570
    
    
    
    233,952Total current assets
    
    
    3,037,206
    
    
    
    3,299,657Long-term investments
    
    
    1,169,993
    
    
    
    1,060,393Property and equipment, net
    
    
    457,666
    
    
    
    422,895Notes receivable and investments in the flash ventures with Toshiba
    
    
    1,299,225
    
    
    
    1,108,905Deferred taxes
    
    
    123,666
    
    
    
    117,130Goodwill
    
    
    840,853
    
    
    
    840,870Intangibles, net
    
    
    301,208
    
    
    
    322,023Other non-current assets
    
    
    57,115
    
    
    
    62,946Total assets
    
    $
    7,286,932
    
    
    $
    7,234,819LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable trade
    
    $
    232,697
    
    
    $
    285,711Accounts payable to related parties
    
    
    162,164
    
    
    
    158,443Other current accrued liabilities
    
    
    277,581
    
    
    
    286,850Deferred income on shipments to distributors and retailers and deferred revenue
    
    
    158,478
    
    
    
    182,879Total current liabilities
    
    
    830,920
    
    
    
    913,883Convertible long-term debt
    
    
    1,225,000
    
    
    
    1,225,000Non-current liabilities
    
    
    179,894
    
    
    
    135,252Total liabilities
    
    
    2,235,814
    
    
    
    2,274,135Minority interest
    
    
    151
    
    
    
    1,067Commitments and contingenciesStockholders equity:Preferred stock
    
    
    
    
    
    
    Common stock
    
    
    225
    
    
    
    224Capital in excess of par value
    
    
    3,825,602
    
    
    
    3,796,849Retained earnings
    
    
    1,147,949
    
    
    
    1,130,069Accumulated other comprehensive income
    
    
    77,191
    
    
    
    32,475Total stockholders equity
    
    
    5,050,967
    
    
    
    4,959,617Total liabilities and stockholders equity
    
    $
    7,286,932
    
    
    $
    7,234,819
 
 *
    
    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 endedMarch 30, 2008
    
    
    April 1, 2007(In thousands, except per share amounts)Revenues:Product
    
    $
    724,051
    
    
    $
    689,357License and royalty
    
    
    125,916
    
    
    
    96,729Total revenues
    
    
    849,967
    
    
    
    786,086Cost of product revenues
    
    
    576,604
    
    
    
    570,088Amortization of acquisition-related
intangible assets
    
    
    14,582
    
    
    
    21,062Total cost of product revenues
    
    
    591,186
    
    
    
    591,150Gross profit
    
    
    258,781
    
    
    
    194,936Operating expenses:Research and development
    
    
    111,434
    
    
    
    95,640Sales and marketing
    
    
    80,156
    
    
    
    56,206General and administrative
    
    
    57,804
    
    
    
    46,991Amortization of acquisition-related
intangible assets
    
    
    4,475
    
    
    
    9,100Restructuring
    
    
    
    
    
    
    6,516Total operating expenses
    
    
    253,869
    
    
    
    214,453Operating income (loss)
    
    
    4,912
    
    
    
    (19,517
    )Interest income
    
    
    25,756
    
    
    
    37,488Interest (expense) and other income
(expense), net
    
    
    126
    
    
    
    (1,229
    )Total other income
    
    
    25,882
    
    
    
    36,259Income before provision for income taxes
    
    
    30,794
    
    
    
    16,742Provision for income taxes
    
    
    12,914
    
    
    
    12,157Income after taxes
    
    
    17,880
    
    
    
    4,585Minority interest
    
    
    
    
    
    
    5,160Net income (loss)
    
    $
    17,880
    
    
    $
    (575
    )Net income (loss) per share:Basic
    
    $
    0.08
    
    
    $
    (0.00
    )Diluted
    
    $
    0.08
    
    
    $
    (0.00
    )Shares used in computing net income
(loss) per share:Basic
    
    
    224,518
    
    
    
    227,455Diluted
    
    
    229,480
    
    
    
    227,455
 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 endedMarch 30, 2008
    
    
    April 1, 2007( In thousands)Cash flows from operating activities:Net income (loss)
    
    $
    17,880
    
    
    $
    (575
    )Adjustments to reconcile net income (loss) to net cash provided by operating activities:Deferred and other taxes
    
    
    (4,369
    )
    
    
    11,431(Gain) loss on equity investments
    
    
    3,934
    
    
    
    (2,204
    )Depreciation and amortization
    
    
    62,883
    
    
    
    65,096Provision for doubtful accounts
    
    
    5,774
    
    
    
    913Share-based compensation expense
    
    
    23,226
    
    
    
    31,219Excess tax benefit from share-based compensation
    
    
    (794
    )
    
    
    (6,261
    )Other non-cash charges
    
    
    5,392
    
    
    
    5,693Changes in operating assets and liabilities:Accounts receivable from product revenues
    
    
    276,937
    
    
    
    467,030Inventory
    
    
    (140,362
    )
    
    
    (98,109
    )Other assets
    
    
    109,981
    
    
    
    63,426Accounts payable trade
    
    
    (53,014
    )
    
    
    (73,234
    )Accounts payable to related parties
    
    
    3,721
    
    
    
    22,547Other liabilities
    
    
    (92,556
    )
    
    
    (231,723
    )Total adjustments
    
    
    200,753
    
    
    
    255,824Net cash provided by operating activities
    
    
    218,633
    
    
    
    255,249Cash flows from investing activities:Purchases of short and long-term investments
    
    
    (354,955
    )
    
    
    (537,162
    )Proceeds from sale and maturities of short and long-term investments
    
    
    624,413
    
    
    
    549,146Notes receivable from Flash Partners Ltd.
    
    
    (37,418
    )
    
    
    Acquisition of property and equipment, net
    
    
    (56,774
    )
    
    
    (43,799
    )Notes receivable from FlashVision Ltd.
    
    
    
    
    
    
    24,777Purchased technology and other assets
    
    
    1,125
    
    
    
    (13,240
    )Net cash provided by (used in) investing activities
    
    
    176,391
    
    
    
    (20,278
    )Cash flows from financing activities:Repayment from debt financing
    
    
    (9,785
    )
    
    
    Proceeds from employee stock programs
    
    
    6,437
    
    
    
    38,370Distribution to minority interest
    
    
    
    
    
    
    (7,485
    )Excess tax benefit from share-based compensation
    
    
    794
    
    
    
    6,261Share repurchase programs
    
    
    
    
    
    
    (42,096
    )Net cash used in financing activities
    
    
    (2,554
    )
    
    
    (4,950
    )Effect of changes in foreign currency exchange rates on cash
    
    
    (934
    )
    
    
    388Net increase in cash and cash equivalents
    
    
    391,536
    
    
    
    230,409Cash and cash equivalents at beginning of the period
    
    
    833,749
    
    
    
    1,580,700Cash and cash equivalents at end of the period
    
    $
    1,225,285
    
    
    $
    1,811,109
 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. 161. Disclosures about Derivative
Instruments and Hedging Activities Accounting for Derivative Instruments and
Hedging Activities
 6




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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
  SFAS No. 160. Noncontrolling Interests in Consolidated Financial Statements, an amendment
of ARB No. 51
 SFAS No. 141 (revised  Business Combinations
 FSP No. APB 14-a. Accounting for Convertible Debt Instruments That May Be Settled in Cash Upon Conversion (Including
Partial Cash Settlement)
 7




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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
 2. Fair Value Measurements
 Fair Value
Measurements Effective Date of
FASB Statement No. 157,
 Establishing the Fair Value Option for Financial Assets
and Liabilities,
 Fair Value Hierarchy.
 Level 1
    
    Valuations based on quoted prices in active markets for identical
assets or liabilities that the entity has the ability to access.Level 2
    
    Valuations based on quoted prices for similar assets or
liabilities, quoted prices in markets that are not active, or
other inputs that are observable or can be corroborated by
observable data for substantially the full term of the assets or
liabilities.Level 3
    
    Valuations based on inputs that are supported by little or no
market activity and that are significant to the fair value of the
assets or liabilities.
   8




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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
  Quoted Prices inActive Markets for
    
    
    Significant Other
    
    
    SignificantIdentical Assets
    
    
    Observable Inputs
    
    
    Unobservable InputsTotal
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Fixed income securities
    
    $
    2,714,217
    
    
    $
    525,642
    
    
    $
    2,188,575
    
    
    $
    Equity securities
    
    
    78,958
    
    
    
    78,958
    
    
    
    
    
    
    
    Derivative assets
    
    
    3,501
    
    
    
    
    
    
    
    3,501
    
    
    
    Other
    
    
    3,611
    
    
    
    
    
    
    
    3,611
    
    
    
    Total Assets
    
    $
    2,800,287
    
    
    $
    604,600
    
    
    $
    2,195,687
    
    
    $
    Derivative Liabilities
    
    $
    80
    
    
    $
    
    
    
    $
    80
    
    
    $
    Total Liabilities
    
    $
    80
    
    
    $
    
    
    
    $
    80
    
    
    $
    
  Quoted Prices inActive Markets for
    
    
    Significant Other
    
    
    SignificantIdentical Assets
    
    
    Observable Inputs
    
    
    Unobservable InputsTotal
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Cash equivalents
    
    $
    997,546
    
    
    $
    525,642
    
    
    $
    471,904
    
    
    $
    Short-term investments
    
    
    628,416
    
    
    
    14,779
    
    
    
    613,637
    
    
    
    Long-term investments
    
    
    1,169,993
    
    
    
    64,179
    
    
    
    1,105,814
    
    
    
    Other assets
    
    
    4,332
    
    
    
    
    
    
    
    4,332
    
    
    
    Total Assets
    
    $
    2,800,287
    
    
    $
    604,600
    
    
    $
    2,195,687
    
    
    $
    Other current accrued liabilities
    
    $
    80
    
    
    $
    
    
    
    $
    80
    
    
    $
    Total Liabilities
    
    $
    80
    
    
    $
    
    
    
    $
    80
    
    
    $
    
 9




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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
 3. Balance Sheet Detail
 Accounts Receivable from Product Revenues, net.
 March 30, 2008
    
    
    December 30, 2007Trade accounts receivable
    
    $
    655,677
    
    
    $
    1,027,588Related party accounts receivable
    
    
    6,504
    
    
    
    4,725Allowance for doubtful accounts
    
    
    (19,424
    )
    
    
    (13,790
    )Price protection, promotions and other activities
    
    
    (462,484
    )
    
    
    (555,540
    )Total accounts receivable from product revenues, net
    
    $
    180,273
    
    
    $
    462,983
  Inventory.
 March 30, 2008
    
    
    December 30, 2007Raw material
    
    $
    294,928
    
    
    $
    197,077Work-in-process
    
    
    108,535
    
    
    
    94,283Finished goods
    
    
    291,360
    
    
    
    263,717Total inventory
    
    $
    694,823
    
    
    $
    555,077
 Other Current Assets.
 March 30, 2008
    
    
    December 30, 2007Royalty and other receivables
    
    $
    21,980
    
    
    $
    103,802Prepaid expenses
    
    
    58,404
    
    
    
    21,874Tax related receivables
    
    
    37,186
    
    
    
    33,589Other current assets
    
    
    
    
    
    
    74,687Total other current assets
    
    $
    117,570
    
    
    $
    233,952
 Notes Receivable and Investments in the Flash Ventures with Toshiba.
 March 30, 2008
    
    
    December 30, 2007Notes receivable, Flash Partners Ltd.
    
    $
    765,101
    
    
    $
    639,834Investment in FlashVision Ltd.
    
    
    181,889
    
    
    
    159,146Investment in Flash Partners Ltd.
    
    
    201,816
    
    
    
    177,529Investment in Flash Alliance Ltd.
    
    
    150,419
    
    
    
    132,396Total notes receivable and investments in the flash ventures with Toshiba
    
    $
    1,299,225
    
    
    $
    1,108,905
 10




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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
 Other Current Accrued Liabilities.
 March 30, 2008
    
    
    December 30, 2007Accrued payroll and related expenses
    
    $
    69,797
    
    
    $
    94,220Taxes payable
    
    
    2,706
    
    
    
    56,945Accrued restructuring
    
    
    2,071
    
    
    
    2,071Research and development liability, related party
    
    
    8,000
    
    
    
    8,000Foreign currency forward contract payables
    
    
    76,345
    
    
    
    5,714Other accrued liabilities
    
    
    118,662
    
    
    
    119,900Total other current accrued liabilities
    
    $
    277,581
    
    
    $
    286,850
 Convertible
Long-term Debt .
 March 30, 2008
    
    
    December 30, 20071% Senior Convertible Notes due 2013
    
    $
    1,150,000
    
    
    $
    1,150,0001% Convertible Notes due 2035
    
    
    75,000
    
    
    
    75,000Total convertible long-term debt
    
    $
    1,225,000
    
    
    $
    1,225,000
 Non-current liabilities.
 March 30, 2008
    
    
    December 30, 2007Deferred tax liability
    
    $
    26,286
    
    
    $
    14,479Income taxes payable
    
    
    91,106
    
    
    
    79,608Accrued restructuring
    
    
    11,447
    
    
    
    11,891Other non-current liabilities
    
    
    51,055
    
    
    
    29,274Total non-current liabilities
    
    $
    179,894
    
    
    $
    135,252
  
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
 4. Goodwill and Other Intangible Assets
 Goodwill.
 Balance at December 30, 2007
    
    $
    840,870Goodwill adjustment
    
    
    (17
    )Balance at March 30, 2008
    
    $
    840,853
 Goodwill and Other Intangible
Assets
 Intangible Assets.
 March 30, 2008
    
    
    December 30, 2007Gross
    
    
    
    
    
    
    
    
    
    
    Gross
    
    
    
    
    
    
    NetCarrying
    
    
    Accumulated
    
    
    Net Carrying
    
    
    Carrying
    
    
    Accumulated
    
    
    CarryingAmount
    
    
    Amortization
    
    
    Amount
    
    
    Amount
    
    
    Amortization
    
    
    AmountCore technology
    
    $
    311,801
    
    
    $
    (93,037
    )
    
    $
    218,764
    
    
    $
    311,801
    
    
    $
    (78,863
    )
    
    $
    232,938Developed product technology
    
    
    12,900
    
    
    
    (5,096
    )
    
    
    7,804
    
    
    
    12,900
    
    
    
    (4,689
    )
    
    
    8,211Trademarks
    
    
    4,000
    
    
    
    (4,000
    )
    
    
    
    
    
    
    4,000
    
    
    
    (4,000
    )
    
    
    Backlog
    
    
    5,000
    
    
    
    (5,000
    )
    
    
    
    
    
    
    5,000
    
    
    
    (5,000
    )
    
    
    Supply agreement
    
    
    2,000
    
    
    
    (2,000
    )
    
    
    
    
    
    
    2,000
    
    
    
    (2,000
    )
    
    
    Customer relationships
    
    
    80,100
    
    
    
    (28,383
    )
    
    
    51,717
    
    
    
    80,100
    
    
    
    (23,907
    )
    
    
    56,193Acquisition-related intangible assets
    
    
    415,801
    
    
    
    (137,516
    )
    
    
    278,285
    
    
    
    415,801
    
    
    
    (118,459
    )
    
    
    297,342Technology licenses and patents
    
    
    39,243
    
    
    
    (16,320
    )
    
    
    22,923
    
    
    
    39,243
    
    
    
    (14,562
    )
    
    
    24,681Total
    
    $
    455,044
    
    
    $
    (153,836
    )
    
    $
    301,208
    
    
    $
    455,044
    
    
    $
    (133,021
    )
    
    $
    322,023
  Estimated Amortization ExpensesTechnologyAcquisition-Related
    
    
    Licenses andFiscal year ending:
    
    Intangible Assets
    
    
    Patents2008 (remaining nine months)
    
    $
    57,172
    
    
    $
    5,0662009
    
    
    71,724
    
    
    
    6,1992010
    
    
    71,529
    
    
    
    4,8752011
    
    
    64,809
    
    
    
    3,0232012
    
    
    12,529
    
    
    
    2,3752013 and thereafter
    
    
    522
    
    
    
    1,385Total
    
    $
    278,285
    
    
    $
    22,923
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
 5. Warranty
  Three months endedMarch 30, 2008
    
    
    April 1, 2007Balance, beginning of period
    
    $
    18,662
    
    
    $
    15,338Reductions and adjustments to costs of
product revenue
    
    
    (3,398
    )
    
    
    (1,503
    )Usage
    
    
    (1,571
    )
    
    
    (3,103
    )Balance, end of period
    
    $
    13,693
    
    
    $
    10,732
  13




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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
 6. Accumulated Other Comprehensive Income
  March 30, 2008
    
    
    December 30, 2007Accumulated net unrealized gain on:Available-for-sale investments
    
    $
    14,815
    
    
    $
    8,657Foreign currency translation
    
    
    62,376
    
    
    
    23,818Total accumulated other comprehensive income
    
    $
    77,191
    
    
    $
    32,475
  Three months endedMarch 30, 2008
    
    
    April 1, 2007Net income (loss)
    
    $
    17,880
    
    
    $
    (575
    )Unrealized income on available-for-sale
investments
    
    
    6,158
    
    
    
    71Foreign currency translation income
    
    
    38,558
    
    
    
    4,234Comprehensive net income
    
    $
    62,596
    
    
    $
    3,730
 14




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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
 7. Share-Based Compensation
 Share-Based Plans.
 Valuation Assumptions.
 Three months endedMarch 30, 2008
    
    April 1, 2007Option Plan SharesDividend yield
    
    None
    
    NoneExpected volatility
    
    0.50
    
    0.46Risk free interest rate
    
    2.28%
    
    4.55%Expected lives
    
    3.6 years
    
    3.5 yearsEstimated annual forfeiture rate
    
    8.31%
    
    7.74%Weighted average fair value at grant date
    
    $9.76
    
    $15.64Employee Stock Purchase Plan SharesDividend yield
    
    None
    
    NoneExpected volatility
    
    0.53
    
    0.44Risk free interest rate
    
    2.15%
    
    5.16%Expected lives
    
    1/2 year
    
    1/2 yearWeighted average fair value for grant period
    
    $8.34
    
    $11.44
 15




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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
 Share-Based Compensation Plan Activities
 Stock Options and SARs.
 WeightedAverageWeighted
    
    RemainingAverage
    
    Contractual
    
    AggregateShares
    
    Exercise Price
    
    Term (Years)
    
    Intrinsic ValueOptions and SARs outstanding at December 30, 2007
    
    
    25,557
    
    
    $
    35.59
    
    
    
    5.8
    
    
    $
    165,185Granted
    
    
    1,884
    
    
    
    25.26Exercised
    
    
    (199
    )
    
    
    4.99
    
    
    
    
    
    
    
    4,365Forfeited
    
    
    (315
    )
    
    
    46.36Expired
    
    
    (79
    )
    
    
    51.81Options and SARs outstanding at March 30, 2008
    
    
    26,848
    
    
    
    34.92
    
    
    
    5.6
    
    
    
    57,135Options and SARs vested and expected to vest
after March 30, 2008, net of forfeitures
    
    
    25,117
    
    
    
    34.43
    
    
    
    5.6
    
    
    
    57,119Options and SARs exercisable at March 30, 2008
    
    
    14,731
    
    
    
    29.09
    
    
    
    5.1
    
    
    
    56,863
  Restricted Stock Units.
  WeightedAverage Grant
    
    AggregateShares
    
    Date Fair Value
    
    Intrinsic ValueNon-vested share units at December 30, 2007
    
    
    499
    
    
    $
    55.20
    
    
    $
    16,735Granted
    
    
    510
    
    
    
    25.07Vested
    
    
    (137
    )
    
    
    56.02
    
    
    
    3,386Forfeited
    
    
    (10
    )
    
    
    53.77Non-vested share units at March 30, 2008
    
    
    862
    
    
    
    25.18
    
    
    
    18,335
  Employee Stock Purchase Plan.
 16




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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
 Share-Based Compensation Expense.
 Three months endedMarch 30, 2008
    
    
    April 1, 2007Share-based compensation expense by caption:Cost of product sales
    
    $
    3,629
    
    
    $
    3,214Research and development
    
    
    8,826
    
    
    
    12,687Sales and marketing
    
    
    3,511
    
    
    
    6,923General and administrative
    
    
    7,260
    
    
    
    8,395Total share-based compensation expense
    
    $
    23,226
    
    
    $
    31,219Share-based compensation expense by type of
award:Stock options and SARs
    
    $
    20,634
    
    
    $
    26,645Restricted stock
    
    
    1,487
    
    
    
    3,466ESPP
    
    
    1,105
    
    
    
    1,108Total share-based compensation expense
    
    $
    23,226
    
    
    $
    31,219
  17




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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
 8. Net Income Per Share
  Three months endedMarch 30, 2008
    
    
    April 1, 2007Numerator for basic net income (loss) per share:Net income (loss), as reported
    
    $
    17,880
    
    
    $
    (575
    )Denominator for basic net income (loss) per share:Weighted average common shares outstanding
    
    
    224,518
    
    
    
    227,455Basic net income (loss) per share
    
    $
    0.08
    
    
    $
    (0.00
    )Numerator for diluted net income (loss) per share:Net income (loss), as reported
    
    $
    17,880
    
    
    $
    (575
    )Interest on the 1% Convertible Notes due 2035,
net of tax
    
    
    117
    
    
    
    Net income (loss) used in computing diluted net
income per share
    
    $
    17,997
    
    
    $
    (575
    )Denominator for diluted net income (loss) per
share:Weighted average common shares outstanding
    
    
    224,518
    
    
    
    227,455Effect of dilutive 1% Convertible Notes due 2035
    
    
    2,012
    
    
    
    Effect of dilutive options and restricted stock
    
    
    2,950
    
    
    
    Shares used in computing diluted net income
(loss) per share
    
    
    229,480
    
    
    
    227,455Diluted net income (loss) per share
    
    $
    0.08
    
    
    $
    (0.00
    )Anti-dilutive shares excluded from net income per
share calculation
    
    
    47,631
    
    
    
    39,156
  18




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




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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
   Toshiba Foundry.
 Business Ventures and Foundry Arrangement with Toshiba.
 Other Silicon Sources.
 Subcontractors.
 Off-Balance Sheet Liabilities
  Master Lease Agreements by Execution Date
    
    Lease Amounts
    
    
    Expiration(Yen in billions)
    
    
    (Dollars in millions)FlashVisionJune 2006
    
    ¥
    3.4
    
    
    $
    34
    
    
    
    2009Flash PartnersDecember 2004
    
    ¥
    15.1
    
    
    $
    151
    
    
    
    2010December 2005
    
    
    11.8
    
    
    
    119
    
    
    
    2011June 2006
    
    
    11.8
    
    
    
    119
    
    
    
    2011September 2006
    
    
    37.3
    
    
    
    374
    
    
    
    2011March 2007
    
    
    25.5
    
    
    
    256
    
    
    
    2012February 2008
    
    
    12.5
    
    
    
    125
    
    
    
    2013¥
    114.0
    
    
    $
    1,144Flash AllianceNovember 2007
    
    ¥
    43.5
    
    
    $
    437
    
    
    
    2013Total indemnification or guarantee obligations
    
    ¥
    160.9
    
    
    $
    1,615
 20




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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
  PurchaseOptionPayment of
    
    
    Exercise Price
    
    
    IndemnificationPrincipal
    
    
    at Final Lease
    
    
    or GuaranteeAnnual Installments
    
    Amortization
    
    
    Terms
    
    
    Amount(In millions)Year 1
    
    $
    353
    
    
    $
    
    
    
    $
    353Year 2
    
    
    332
    
    
    
    15
    
    
    
    347Year 3
    
    
    268
    
    
    
    102
    
    
    
    370Year 4
    
    
    150
    
    
    
    192
    
    
    
    342Year 5
    
    
    48
    
    
    
    155
    
    
    
    203Total indemnification or guarantee obligations
    
    $
    1,151
    
    
    $
    464
    
    
    $
    1,615
 FlashVision.
  Flash Partners.
 21




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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
 Flash Alliance.
  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 52 - 3 Years
    
    
    4 5 Years
    
    
    Years1 Year or Less
    
    
    (Fiscal 2009
    
    
    (Fiscal 2011
    
    
    (BeyondTotal
    
    
    (9 months)
    
    
    and 2010)
    
    
    and 2012)
    
    
    Fiscal 2012)Operating leases
    
    $
    42,178
    
    
    $
    7,021
    
    
    $
    17,734
    
    
    $
    9,241
    
    
    $
    8,182FlashVision reimbursement for certain other costs
including depreciation
    
    
    133,276
    (3)
    
    
    50,905
    
    
    
    79,010
    
    
    
    3,361
    
    
    
    Flash Partners reimbursement for certain other costs
including depreciation
    
    
    2,268,118
    (3)
    
    
    443,568
    
    
    
    1,200,690
    
    
    
    530,919
    
    
    
    92,941Flash Alliance fabrication capacity expansion and
reimbursement for certain other costs including
depreciation and start-up
    
    
    3,239,425
    (3)
    
    
    1,239,803
    
    
    
    1,101,305
    
    
    
    780,133
    
    
    
    118,184Toshiba research and development
    
    
    16,982
    (3)
    
    
    16,982
    
    
    
    
    
    
    
    
    
    
    
    Capital equipment purchases commitments
    
    
    64,531
    
    
    
    64,531
    
    
    
    
    
    
    
    
    
    
    
    Convertible notes principal and interest (1)
    
    
    1,304,108
    
    
    
    9,188
    
    
    
    24,500
    
    
    
    24,500
    
    
    
    1,245,920Operating expense commitments
    
    
    36,593
    
    
    
    36,593
    
    
    
    
    
    
    
    
    
    
    
    Noncancelable production purchase commitments
(2)
    
    
    386,415
    (3)
    
    
    386,415
    
    
    
    
    
    
    
    
    
    
    
    Total contractual cash obligations
    
    $
    7,491,626
    
    
    $
    2,255,006
    
    
    $
    2,423,239
    
    
    $
    1,348,154
    
    
    $
    1,465,227
 Off-Balance Sheet Arrangements.
 As ofMarch 30, 2008Indemnification of FlashVision equipment lease (4)
    
    $
    33,786Guarantee of Flash Partners equipment leases (5)
    
    
    1,144,238Guarantee of Flash Alliance equipment lease (5)
    
    
    436,850
 
 (1)
    
    In May 2006, the Company issued and sold $1.15 billion in aggregate principal amount
of 1% Senior Convertible 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 Ltd. (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.(2)
    
    Includes Toshiba foundries, FlashVision, Flash Partners, Flash Alliance, related
party vendors and other silicon source vendor purchase commitments.(3)
    
    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 March 30,
2008.(4)
    
    The Companys contingent indemnification obligation is 3.4 billion Japanese yen, or
approximately $34 million based upon the exchange rate at March 30, 2008.(5)
    
    The Companys guarantee obligation, net of cumulative lease payments, is
157.6 billion Japanese yen, or approximately $1.58 billion based upon the exchange rate at
March 30, 2008. 23




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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
   Fiscal Year Ending:2008 (remaining nine months)
    
    $
    7,6602009
    
    
    10,0692010
    
    
    9,1082011
    
    
    6,9472012
    
    
    5,0132013 and thereafter
    
    
    8,18246,979Sublease income to be received in the future under noncancelable subleases
    
    
    (4,801
    )Net operating leases
    
    $
    42,178
 Foreign Currency Exchange and Other Contracts.
      24




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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
 10. Related Parties and Strategic Investments
 Toshiba .
 Flash Ventures with Toshiba . Consolidation of Variable Interest Entities,
 Tower Semiconductor.
 Flextronics.
 25




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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
 11. Litigation
     26




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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
     27




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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
       28




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##### Table of Contents



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
   29




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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
    30




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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
 12. Condensed Consolidating Financial Statements
   Condensed Consolidating Statements of Operations
 Other
    
    
    Combined Non-Parent
    
    
    Subsidiary
    
    
    Guarantor
    
    
    Guarantor
    
    
    Consolidating
    
    
    TotalCompany (1)
    
    
    Issuer (1)
    
    
    Subsidiary (1)
    
    
    Subsidiaries (2)
    
    
    Adjustments
    
    
    Company(In thousands)Total revenues
    
    $
    473,229
    
    
    $
    
    
    
    $
    88,373
    
    
    $
    1,097,814
    
    
    $
    (809,449
    )
    
    $
    849,967Total cost of revenues
    
    
    258,598
    
    
    
    
    
    
    
    48,959
    
    
    
    1,029,006
    
    
    
    (745,377
    )
    
    
    591,186Gross margin
    
    
    214,631
    
    
    
    
    
    
    
    39,414
    
    
    
    68,808
    
    
    
    (64,072
    )
    
    
    258,781Total operating expenses
    
    
    146,304
    
    
    
    
    
    
    
    43,859
    
    
    
    127,755
    
    
    
    (64,049
    )
    
    
    253,869Operating income (loss)
    
    
    68,327
    
    
    
    
    
    
    
    (4,445
    )
    
    
    (58,947
    )
    
    
    (23
    )
    
    
    4,912Total other income (expense)
    
    
    16,683
    
    
    
    9
    
    
    
    3,075
    
    
    
    6,548
    
    
    
    (433
    )
    
    
    25,882Income (loss) before taxes
    
    
    85,010
    
    
    
    9
    
    
    
    (1,370
    )
    
    
    (52,399
    )
    
    
    (456
    )
    
    
    30,794Provision for income taxes
    
    
    4,105
    
    
    
    
    
    
    
    3,346
    
    
    
    5,462
    
    
    
    1
    
    
    
    12,914Equity in net income (loss)
of consolidated
subsidiaries
    
    
    (72,850
    )
    
    
    
    
    
    
    (1,404
    )
    
    
    13,973
    
    
    
    60,281
    
    
    
    Net income (loss)
    
    $
    8,055
    
    
    $
    9
    
    
    $
    (6,120
    )
    
    $
    (43,888
    )
    
    $
    59,824
    
    
    $
    17,880
 
 (1)
    
    This represents legal entity results which exclude any subsidiaries required to be
consolidated under GAAP.(2)
    
    This represents all other legal subsidiaries. 31




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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
 Condensed Consolidating Statements of Operations
 Other
    
    
    Combined Non-Parent
    
    
    Subsidiary
    
    
    Guarantor
    
    
    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
    
    
    
    1
    
    
    
    3,252
    
    
    
    (2,332
    )
    
    
    (3,016
    )
    
    
    36,259Income (loss) before taxes
    
    
    103,473
    
    
    
    1
    
    
    
    (42,436
    )
    
    
    (37,441
    )
    
    
    (6,855
    )
    
    
    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
    
    
    $
    1
    
    
    $
    (41,412
    )
    
    $
    (38,150
    )
    
    $
    23,350
    
    
    $
    (575
    )
 
 (1)
    
    This represents legal entity results which exclude any subsidiaries required to be
consolidated under GAAP.(2)
    
    This represents all other legal subsidiaries. 32




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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
 Condensed Consolidating Balance Sheets
 CombinedOther
    
    
    Non-Parent
    
    
    Subsidiary
    
    
    Guarantor
    
    
    Guarantor
    
    
    Consolidating
    
    
    TotalCompany (1)
    
    
    Issuer (1)
    
    
    Subsidiary (1)
    
    
    Subsidiary (2)
    
    
    Adjustments
    
    
    Company(In thousands)ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    921,208
    
    
    $
    65
    
    
    $
    86,649
    
    
    $
    217,363
    
    
    $
    
    
    
    $
    1,225,285Short-term investments
    
    
    628,416
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    628,416Accounts receivable, net
    
    
    16,891
    
    
    
    
    
    
    
    26,501
    
    
    
    150,474
    
    
    
    (13,593
    )
    
    
    180,273Inventory
    
    
    102,620
    
    
    
    
    
    
    
    24,428
    
    
    
    572,257
    
    
    
    (4,482
    )
    
    
    694,823Other current assets
    
    
    804,041
    
    
    
    
    
    
    
    247,247
    
    
    
    803,466
    
    
    
    (1,546,345
    )
    
    
    308,409Total current assets
    
    
    2,473,176
    
    
    
    65
    
    
    
    384,825
    
    
    
    1,743,560
    
    
    
    (1,564,420
    )
    
    
    3,037,206Property and equipment, net
    
    
    238,976
    
    
    
    
    
    
    
    35,043
    
    
    
    183,647
    
    
    
    
    
    
    
    457,666Other non-current assets
    
    
    2,738,606
    
    
    
    71,588
    
    
    
    913,653
    
    
    
    1,394,454
    
    
    
    (1,326,241
    )
    
    
    3,792,060Total assets
    
    $
    5,450,758
    
    
    $
    71,653
    
    
    $
    1,333,521
    
    
    $
    3,321,661
    
    
    $
    (2,890,661
    )
    
    $
    7,286,932LIABILITIES AND STOCKHOLDERS EQUITYCurrent Liabilities:Accounts payable
    
    $
    40,387
    
    
    $
    
    
    
    $
    14,657
    
    
    $
    340,709
    
    
    $
    (892
    )
    
    $
    394,861Other current accrued liabilities
    
    
    603,329
    
    
    
    31
    
    
    
    76,257
    
    
    
    1,262,930
    
    
    
    (1,506,488
    )
    
    
    436,059Total current liabilities
    
    
    643,716
    
    
    
    31
    
    
    
    90,914
    
    
    
    1,603,639
    
    
    
    (1,507,380
    )
    
    
    830,920Convertible long-term debt
    
    
    1,150,000
    
    
    
    75,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,225,000Non-current liabilities and deferred taxes
    
    
    99,095
    
    
    
    
    
    
    
    13,972
    
    
    
    74,977
    
    
    
    (8,150
    )
    
    
    179,894Total liabilities
    
    
    1,892,811
    
    
    
    75,031
    
    
    
    104,886
    
    
    
    1,678,616
    
    
    
    (1,515,530
    )
    
    
    2,235,814Minority interest
    
    
    
    
    
    
    
    
    
    
    151
    
    
    
    
    
    
    
    
    
    
    
    151Total stockholders equity
    
    
    3,557,947
    
    
    
    (3,378
    )
    
    
    1,228,484
    
    
    
    1,643,045
    
    
    
    (1,375,131
    )
    
    
    5,050,967Total liabilities and stockholders equity
    
    $
    5,450,758
    
    
    $
    71,653
    
    
    $
    1,333,521
    
    
    $
    3,321,661
    
    
    $
    (2,890,661
    )
    
    $
    7,286,932
 
 (1)
    
    This represents legal entity results which exclude any subsidiaries required to be
consolidated under GAAP.(2)
    
    This represents all other legal subsidiaries. 33




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##### Table of Contents



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
 Condensed Consolidating Balance Sheets
 CombinedOther
    
    
    Non-Parent
    
    
    Subsidiary
    
    
    Guarantor
    
    
    Guarantor
    
    
    Consolidating
    
    
    TotalCompany (1)
    
    
    Issuer (1)
    
    
    Subsidiary (1)
    
    
    Subsidiaries (2)
    
    
    Adjustments
    
    
    Company(In thousands)ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    389,337
    
    
    $
    215
    
    
    $
    90,639
    
    
    $
    353,558
    
    
    $
    
    
    
    $
    833,749Short-term investments
    
    
    1,001,641
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,001,641Accounts receivable, net
    
    
    215,049
    
    
    
    
    
    
    
    32,497
    
    
    
    223,624
    
    
    
    (8,187
    )
    
    
    462,983Inventory
    
    
    104,626
    
    
    
    
    
    
    
    30,238
    
    
    
    423,850
    
    
    
    (3,637
    )
    
    
    555,077Other current assets
    
    
    759,872
    
    
    
    
    
    
    
    221,932
    
    
    
    823,387
    
    
    
    (1,358,984
    )
    
    
    446,207Total current assets
    
    
    2,470,525
    
    
    
    215
    
    
    
    375,306
    
    
    
    1,824,419
    
    
    
    (1,370,808
    )
    
    
    3,299,657Property and equipment, net
    
    
    222,038
    
    
    
    
    
    
    
    34,975
    
    
    
    165,882
    
    
    
    
    
    
    
    422,895Other non-current assets
    
    
    2,684,232
    
    
    
    71,998
    
    
    
    925,424
    
    
    
    1,350,985
    
    
    
    (1,520,372
    )
    
    
    3,512,267Total assets
    
    $
    5,376,795
    
    
    $
    72,213
    
    
    $
    1,335,705
    
    
    $
    3,341,286
    
    
    $
    (2,891,180
    )
    
    $
    7,234,819LIABILITIES AND STOCKHOLDERS EQUITYCurrent Liabilities:Accounts payable
    
    $
    48,386
    
    
    $
    
    
    
    $
    34,462
    
    
    $
    362,138
    
    
    $
    (832
    )
    
    $
    444,154Other current accrued liabilities
    
    
    587,129
    
    
    
    601
    
    
    
    66,353
    
    
    
    1,253,114
    
    
    
    (1,437,468
    )
    
    
    469,729Total current liabilities
    
    
    635,515
    
    
    
    601
    
    
    
    100,815
    
    
    
    1,615,252
    
    
    
    (1,438,300
    )
    
    
    913,883Convertible long-term debt
    
    
    1,150,000
    
    
    
    75,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,225,000Non-current liabilities
    
    
    67,895
    
    
    
    
    
    
    
    11,428
    
    
    
    60,839
    
    
    
    (4,910
    )
    
    
    135,252Total liabilities
    
    
    1,853,410
    
    
    
    75,601
    
    
    
    112,243
    
    
    
    1,676,091
    
    
    
    (1,443,210
    )
    
    
    2,274,135Minority interest
    
    
    
    
    
    
    
    
    
    
    1,067
    
    
    
    
    
    
    
    
    
    
    
    1,067Total stockholders equity
    
    
    3,523,385
    
    
    
    (3,388
    )
    
    
    1,222,395
    
    
    
    1,665,195
    
    
    
    (1,447,970
    )
    
    
    4,959,617Total liabilities and stockholders equity
    
    $
    5,376,795
    
    
    $
    72,213
    
    
    $
    1,335,705
    
    
    $
    3,341,286
    
    
    $
    (2,891,180
    )
    
    $
    7,234,819
 
 (1)
    
    This represents legal entity results which exclude any subsidiaries required to be
consolidated under GAAP.(2)
    
    This represents all other legal subsidiaries. 34




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##### Table of Contents



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
 Condensed Consolidating Statements of Cash Flows
 CombinedOther
    
    
    Non-Parent
    
    
    Subsidiary
    
    
    Guarantor
    
    
    Guarantor
    
    
    Consolidating
    
    
    TotalCompany (1)
    
    
    Issuer (1)
    
    
    Subsidiary (1)
    
    
    Subsidiaries (2)
    
    
    Adjustments
    
    
    Company(In thousands)Net cash provided by operating activities
    
    $
    298,945
    
    
    $
    (150
    )
    
    $
    (1,587
    )
    
    $
    (78,575
    )
    
    $
    
    
    
    $
    218,633Net cash provided by (used in) investing
activities
    
    
    226,094
    
    
    
    
    
    
    
    (2,403
    )
    
    
    (47,300
    )
    
    
    
    
    
    
    176,391Net cash provided by (used in) financing
activities
    
    
    7,231
    
    
    
    
    
    
    
    
    
    
    
    (9,785
    )
    
    
    
    
    
    
    (2,554
    )Effect of changes in foreign currency
exchange rates on cash
    
    
    (399
    )
    
    
    
    
    
    
    
    
    
    
    (535
    )
    
    
    
    
    
    
    (934
    )Net increase (decrease) in cash and cash
equivalents
    
    
    531,871
    
    
    
    (150
    )
    
    
    (3,990
    )
    
    
    (136,195
    )
    
    
    
    
    
    
    391,536Cash and cash equivalents at beginning of
period
    
    
    389,337
    
    
    
    215
    
    
    
    90,639
    
    
    
    353,558
    
    
    
    
    
    
    
    833,749Cash and cash equivalents at end of period
    
    $
    921,208
    
    
    $
    65
    
    
    $
    86,649
    
    
    $
    217,363
    
    
    $
    
    
    
    $
    1,225,285
 Condensed Consolidating Statements of Cash Flows
 CombinedOther
    
    
    Non-Parent
    
    
    Subsidiary
    
    
    Guarantor
    
    
    Guarantor
    
    
    Consolidating
    
    
    TotalCompany (1)
    
    
    Issuer (1)
    
    
    Subsidiary (1)
    
    
    Subsidiaries (2)
    
    
    Adjustments
    
    
    Company(In thousands)Net cash provided
by (used in)
operating
activities
    
    $
    230,634
    
    
    $
    1
    
    
    $
    44,627
    
    
    $
    (17,941
    )
    
    $
    (2,072
    )
    
    $
    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
    )
    
    
    
    
    
    
    
    
    
    
    (4,950
    )Effect of changes
in foreign currency
exchange rates on
cash
    
    
    104
    
    
    
    
    
    
    
    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. 35




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##### Table of Contents



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
 13. Subsequent Events
  36




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##### Table of Contents



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
    Fair Value
Measurements Effective Date of FASB
Statement No. 157
 Establishing the
Fair Value Option for Financial Assets and Liabilities
 37




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##### Table of Contents



Results of Operations.
 Three months endedMarch 30,
    
    
    % of
    
    
    April 1,
    
    
    % of2008
    
    
    Revenues
    
    
    2007
    
    
    Revenues(In millions, except percentages)Product revenues
    
    $
    724.1
    
    
    
    85.2
    %
    
    $
    689.4
    
    
    
    87.7
    %License and royalty
revenues
    
    
    125.9
    
    
    
    14.8
    %
    
    
    96.7
    
    
    
    12.3
    %Total revenues
    
    
    850.0
    
    
    
    100.0
    %
    
    
    786.1
    
    
    
    100.0
    %Cost of product revenues
    
    
    576.6
    
    
    
    67.8
    %
    
    
    570.1
    
    
    
    72.5
    %Amortization of
acquisition-related
intangible assets
    
    
    14.6
    
    
    
    1.7
    %
    
    
    21.1
    
    
    
    2.7
    %Total cost of product
revenues
    
    
    591.2
    
    
    
    69.5
    %
    
    
    591.2
    
    
    
    75.2
    %Gross margin
    
    
    258.8
    
    
    
    30.5
    %
    
    
    194.9
    
    
    
    24.8
    %Operating expensesResearch and development
    
    
    111.4
    
    
    
    13.1
    %
    
    
    95.6
    
    
    
    12.2
    %Sales and marketing
    
    
    80.2
    
    
    
    9.5
    %
    
    
    56.2
    
    
    
    7.1
    %General and
administrative
    
    
    57.8
    
    
    
    6.8
    %
    
    
    47.0
    
    
    
    6.0
    %Amortization of
acquisition-related
intangible assets
    
    
    4.5
    
    
    
    0.5
    %
    
    
    9.1
    
    
    
    1.2
    %Restructuring
    
    
    
    
    
    
    
    
    
    
    6.5
    
    
    
    0.8
    %Total operating
expenses
    
    
    253.9
    
    
    
    29.9
    %
    
    
    214.4
    
    
    
    27.3
    %Operating income (loss)
    
    
    4.9
    
    
    
    0.6
    %
    
    
    (19.5
    )
    
    
    (2.5
    %)Other income
    
    
    25.9
    
    
    
    3.0
    %
    
    
    36.3
    
    
    
    4.6
    %Income before taxes
    
    
    30.8
    
    
    
    3.6
    %
    
    
    16.8
    
    
    
    2.1
    %Provision for income taxes
    
    
    12.9
    
    
    
    1.5
    %
    
    
    12.2
    
    
    
    1.5
    %Minority interest
    
    
    
    
    
    
    
    
    
    
    5.2
    
    
    
    0.7
    %Net income (loss)
    
    $
    17.9
    
    
    
    2.1
    %
    
    $
    (0.6
    )
    
    
    (0.1
    %)
 Product Revenues.
 Three months endedMarch 30,
    
    
    April 1,
    
    
    Percent2008
    
    
    2007
    
    
    Change(In millions, except percentages)Retail
    
    $
    418.3
    
    
    $
    343.9
    
    
    
    21.6
    %OEM
    
    
    305.8
    
    
    
    345.5
    
    
    
    (11.4
    %)Product revenues
    
    $
    724.1
    
    
    $
    689.4
    
    
    
    5.0
    %
   38




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##### Table of Contents



Geographical Product Revenues.
 Three months ended% of
    
    
    
    
    
    
    % ofMarch 30,
    
    
    Product
    
    
    April 1,
    
    
    Product
    
    
    Percent2008
    
    
    Revenues
    
    
    2007
    
    
    Revenues
    
    
    Change(In millions, except percentages)United States
    
    $
    253.1
    
    
    
    35.0
    %
    
    $
    193.5
    
    
    
    28.1
    %
    
    
    30.9
    %Japan
    
    
    49.5
    
    
    
    6.8
    %
    
    
    109.5
    
    
    
    15.9
    %
    
    
    (54.8
    %)Europe and Middle East
    
    
    176.3
    
    
    
    24.4
    %
    
    
    134.5
    
    
    
    19.5
    %
    
    
    31.1
    %Asia-Pacific
    
    
    229.2
    
    
    
    31.7
    %
    
    
    201.8
    
    
    
    29.3
    %
    
    
    13.6
    %Other foreign countries
    
    
    16.0
    
    
    
    2.1
    %
    
    
    50.1
    
    
    
    7.2
    %
    
    
    (68.3
    %)Product revenues
    
    $
    724.1
    
    
    
    100.0
    %
    
    $
    689.4
    
    
    
    100.0
    %
    
    
    5.0
    %
  License and Royalty Revenues.
 Three months endedMarch 30,
    
    April 1,
    
    Percent2008
    
    2007
    
    Change(In millions, except percentages)License and royalty revenues
    
    $
    125.9
    
    
    $
    96.7
    
    
    
    30.2
    %
  Gross Margin.
 Three months endedMarch 30,
    
    April 1,
    
    Percent2008
    
    2007
    
    Change(In millions, except percentages)Product gross margin
    
    $
    132.9
    
    
    $
    98.2
    
    
    
    35.3
    %Product gross margin (as a
percent of product revenues)
    
    
    18.4
    %
    
    
    14.2
    %Total gross margin (as a
percent of total revenues)
    
    
    30.5
    %
    
    
    24.8
    %
   Research and Development.
 Three months endedMarch 30,
    
    April 1,
    
    Percent2008
    
    2007
    
    Change(In millions, except percentages)Research and development
    
    $
    111.4
    
    
    $
    95.6
    
    
    
    16.5
    %Percent of revenue
    
    
    13.1
    %
    
    
    12.2
    %
 39




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##### Table of Contents



Sales and Marketing.
 Three months endedMarch 30,
    
    April 1,
    
    Percent2008
    
    2007
    
    Change(In millions, except percentages)Sales and marketing
    
    $
    80.2
    
    
    $
    56.2
    
    
    
    42.6
    %Percent of revenue
    
    
    9.5
    %
    
    
    7.1
    %
  General and Administrative.
 Three months endedMarch 30,
    
    April 1,
    
    Percent2008
    
    2007
    
    Change(In millions, except percentages)General and administrative
    
    $
    57.8
    
    
    $
    47.0
    
    
    
    23.0
    %Percent of revenue
    
    
    6.8
    %
    
    
    6.0
    %
  Amortization of Acquisition-Related Intangible Assets.
 Three months endedMarch 30,
    
    April 1,
    
    Percent2008
    
    2007
    
    Change(In millions, except percentages)Amortization of
acquisition-related
intangible assets
    
    $
    4.5
    
    
    $
    9.1
    
    
    
    (50.8
    %)Percent of revenue
    
    
    0.5
    %
    
    
    1.2
    %
  Restructuring.
 Three months endedMarch 30,
    
    April 1,
    
    Percent2008
    
    2007
    
    Change(In millions, except percentages)Restructuring
    
    $
    n/a
    
    
    $
    6.5
    
    
    
    Percent of revenue
    
    
    n/a
    
    
    
    0.8
    %
  40




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Other Income.
 Three months endedMarch 30,
    
    
    April 1,
    
    
    Percent2008
    
    
    2007
    
    
    Change(In millions, except percentages)Interest income
    
    $
    25.8
    
    
    $
    37.5
    
    
    
    (31.2
    %)Interest (expense) and other income (expense), net
    
    
    (0.6
    )
    
    
    (1.2
    )
    
    
    (50.0
    %)Equity in income of business ventures
    
    
    0.7
    
    
    
    
    
    
    
    Total other income
    
    $
    25.9
    
    
    $
    36.3
    
    
    
    (28.6
    %)
  Provision for Income Taxes.
 Three months endedMarch 30,
    
    April 1,2008
    
    2007(In millions, except for percentages)Provision for income taxes
    
    $
    12.9
    
    
    $
    12.2Effective tax rate
    
    
    41.9
    %
    
    
    72.6
    %
   41




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Liquidity and Capital Resources.
  Three months endedMarch 30,
    
    
    April 1,
    
    
    Percent2008
    
    
    2007
    
    
    Change(In millions, except percentages)Net cash provided by operating activities
    
    $
    218.6
    
    
    $
    255.3
    
    
    
    (14.4
    %)Net cash provided by (used in) investing activities
    
    
    176.4
    
    
    
    (20.3
    )
    
    
    969.0
    %Net cash used in financing activities
    
    
    (2.6
    )
    
    
    (5.0
    )
    
    
    48.0
    %Effect of changes in foreign currency exchange rates on cash
    
    
    (0.9
    )
    
    
    0.4
    
    
    
    (325.0
    %)Net increase in cash and cash equivalents
    
    $
    391.5
    
    
    $
    230.4
    
    
    
    69.9
    %
 Operating Activities.
 Investing Activities.
 Financing Activities.
 Short-Term Liquidity.
 Long-Term Requirements.
 42




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Financing Arrangements.
  Toshiba Ventures.
    43




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Contractual Obligations and Off-Balance Sheet Arrangements
  Critical Accounting Policies
   Recent Accounting Pronouncements
 SFAS No. 161. Disclosures about Derivative
Instruments and Hedging Activities Accounting for Derivative Instruments and
Hedging Activities,
 SFAS No. 160. Noncontrolling Interests in Consolidated Financial Statements, an amendment
of ARB No. 51
 44




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##### Table of Contents



SFAS No. 141 (revised Business Combinations
 FSP No. APB 14-a. Accounting for Convertible Debt Instruments That May Be Settled in Cash Upon Conversion (Including
Partial Cash Settlement)
 45




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Item 3. Quantitative and Qualitative Disclosures About Market Risk
 Foreign Currency Risk.
 46




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Item 4. Controls and Procedures
   47




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PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
     48




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49




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50




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51




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52




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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 30, 2007.
 Our operating results may fluctuate significantly, which may adversely affect our financial
condition 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;
    
    reduction in price elasticity of demand related to pricing changes for some of
our markets and products;
    
    our license and royalty revenues may decline significantly in the future as our
existing license agreements and key patents expire or if licensees fail to perform
on a portion or all of their contractual obligations, which may also lead to
increased patent litigation costs;
    
    unexpected difficulties in developing, inability to develop, or manufacture with
acceptable yields, X3, X4, 3D, or other advanced, alternative technologies or
difficulty in bringing advanced technologies into volume production at cost
competitive levels;
    
    increased memory component and other costs as a result of currency exchange rate
fluctuations to the U.S. dollar, particularly with respect to the Japanese yen;
    
    increased purchases of non-captive flash memory, which typically costs more than
captive flash memory and may be of less consistent quality;
    
    insufficient assembly and test capacity from our contract manufacturers or our
Shanghai facility;
    
    excess supply from captive sources due to output increasing faster than the
growth in demand resulting in excess inventory;
    
    write-down of inventory values due to certain products being sold below cost;
    
    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;
    
    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;
    
    difficulty in forecasting and managing inventory levels, particularly due to
noncancelable contractual obligations to purchase materials such as custom
non-memory materials, and the need to build finished product in advance of customer
purchase orders;
    
    timing, volume and cost of wafer production from Flash 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;
    
    timing of sell-through by our distributors and retail customers;
    
    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 or impairments of our investments in fabrication capacity, equity
investments and other assets;
    
    impairment of goodwill and other challenges related to our acquisitions of
msystems Ltd. and Matrix Semiconductor, Inc.;
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
    
    estimates used in calculating share-based compensation expense;
    
    reduced sales to our retail customers if consumer confidence declines or due to
economic declines in the United States, Europe or other geographies; and
    
    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 through retailers and distributors, and if our
retailers and distributors are not successful, we could experience substantial product returns,
which would negatively impact our business, financial condition and results of operations.
 Our revenues depend in part on the success of products sold by our OEM customers.
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The continued growth of our business depends on development and performance of new markets and
products for NAND flash.
  Our strategy of investing in captive manufacturing sources could harm us if our competitors
are able to produce products at lower costs or if industry supply exceeds 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; and our competitors seek to develop new standards which could reduce demand for our
products. ® 
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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.
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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, the absence of which could lead to loss of market
share;
    
    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.
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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 flash 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.
 We depend on our third-party subcontractors and our business could be harmed if our
subcontractors do not perform as planned.
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We have commenced production at 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.
 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.
  We and Toshiba plan to continue to expand the wafer fabrication capacity of the Flash Alliance
business venture as well as form a new venture, for which we will make substantial capital
investments, which could adversely impact our operating results.
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We have an investment of approximately $182 million in 200-millimeter wafer manufacturing
assets that we expect will no longer be cost effective in fiscal year 2008.
 Seasonality in our business may result in our inability to accurately forecast our product
purchase requirements.
 From time-to-time, we overestimate our requirements and build excess inventory, or
underestimate our requirements and have a shortage of supply, either of which harm our financial
results.
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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. ®
 Our global operations and operations at Flash Ventures and third-party subcontractors are
subject to risks for which we may not be adequately insured.
 We are exposed to significant risk from foreign currency fluctuations.
 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.
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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.
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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 and other risks
related to international operations.
   
    
    the need to comply with foreign government regulation;
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
    
    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;
    
    changes in, or the particular application of, government regulations;
    
    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;
    
    delays in product shipments due to local customs restrictions; and
    
    delays in research and development that may arise from political unrest at our
development centers in Israel.
 Tower Semiconductors financial situation is challenging.
  Our stock price has been, and may continue to be, volatile, which could result in investors
losing all or part of their investments.
 Our goodwill and other intangible assets could become impaired, which may require us to take
significant non-cash charges against earnings.
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We may engage in business combinations 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.
 Terrorist attacks, war, threats of war and government responses thereto may negatively impact
our operations, revenues, costs and stock price.
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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 have experienced and may continue to experience rapid growth, which has placed, and could
continue to place a significant strain on our managerial, financial and operations resources and
personnel.
 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 flash ventures with Toshiba or
other third parties, 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.
 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.
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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.
 In the event we are unable to satisfy regulatory requirements relating to internal controls,
or if our internal controls over financial reporting are not effective, our business could suffer.
 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.
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The accounting method for convertible debt securities with net share settlement, such as our
1% Senior Convertible Notes due 2013 may be subject to change. Accounting for Convertible Debt Instruments That May Be
Settled in Cash Upon Conversion (Including Partial Cash Settlement)
 We have significant financial obligations related to our flash ventures with Toshiba, which
could impact our ability to comply with our obligations under our 1% Senior Convertible Notes due
2013 and our 1% Convertible Notes due 2035.
 The net share settlement feature of the 1% Senior Convertible Notes due 2013 may have adverse
consequences.
  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
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
    
    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.
   
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3. Defaults upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
  
 Item 5. Other Information
  
 Item 6. Exhibits
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SIGNATURES
  SANDISK CORPORATION
(Registrant)Dated: May 8, 2008By:
    /s/          Judy BrunerJudy BrunerExecutive Vice President, Administration
and
Chief Financial Officer
(On behalf of the Registrant and as
Principal
Financial and Accounting Officer) 71




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EXHIBIT INDEX
 ExhibitNumber
    
    Exhibit Title2.1
    
    Agreement and Plan of Merger and Reorganization, dated as of October 20, 2005, by and among the
Registrant, 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 the Registrant, 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
    
    Amended and 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)10.1
    
    Restricted Stock Unit Issuance Agreement. (*)10.2
    
    Confidential Separation Agreement
and General Release of Claims. (*)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.(**)
 
 *
    
    Filed herewith.**
    
    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 July 27, 2007.(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. 72