##### 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 July 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




---



##### 



SanDisk Corporation
 Index
 Page No.PART I. FINANCIAL INFORMATIONItem 1.
    
    Condensed Consolidated Financial Statements:Condensed Consolidated Balance Sheets as of July 1, 2007 and December 31, 2006
    
    
    3Condensed Consolidated Statements of Operations for the three months and six months
ended July 1, 2007 and July 2, 2006
    
    
    4Condensed Consolidated Statements of Cash Flows for the six months ended July 1, 2007
and July 2, 2006
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    42Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    51Item 4.
    
    Controls and Procedures
    
    
    51PART II. OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    52Item 1A.
    
    Risk Factors
    
    
    55Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    71Item 3.
    
    Defaults upon Senior Securities
    
    
    71Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    71Item 5.
    
    Other Information
    
    
    72Item 6.
    
    Exhibits
    
    
    73Signatures
    
    
    74Exhibit Index
    
    
    75EXHIBIT 10.1EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2




---



##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Condensed Consolidated Financial Statements (in thousands)
 SANDISK CORPORATION
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 July 1, 2007
    
    
    December 31, 2006*(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    1,124,213
    
    
    $
    1,580,700Short-term investments
    
    
    1,787,022
    
    
    
    1,251,493Accounts receivable from product revenues, net
    
    
    311,705
    
    
    
    611,740Inventory
    
    
    601,372
    
    
    
    495,984Deferred taxes
    
    
    176,480
    
    
    
    176,007Other current assets
    
    
    246,745
    
    
    
    125,937Total current assets
    
    
    4,247,537
    
    
    
    4,241,861Long-term investments
    
    
    330,020
    
    
    
    457,184Property and equipment, net
    
    
    341,829
    
    
    
    317,965Notes receivable and investments in flash ventures
    
    
    531,684
    
    
    
    462,307Deferred taxes
    
    
    113,788
    
    
    
    102,100Goodwill
    
    
    849,907
    
    
    
    910,254Intangibles, net
    
    
    354,079
    
    
    
    389,078Other non-current assets
    
    
    59,855
    
    
    
    87,034Total assets
    
    $
    6,828,699
    
    
    $
    6,967,783LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable trade
    
    $
    190,240
    
    
    $
    261,870Accounts payable to related parties
    
    
    141,041
    
    
    
    139,627Other accrued liabilities
    
    
    189,130
    
    
    
    311,000Deferred income on shipments to distributors and retailers and deferred revenue
    
    
    143,587
    
    
    
    183,950Total current liabilities
    
    
    663,998
    
    
    
    896,447Convertible long-term debt
    
    
    1,225,000
    
    
    
    1,225,000Deferred taxes and other non-current liabilities
    
    
    130,552
    
    
    
    72,226Total liabilities
    
    
    2,019,550
    
    
    
    2,193,673Minority interest
    
    
    1,207
    
    
    
    5,976Commitments and contingenciesStockholders equity:Preferred stock
    
    
    
    
    
    
    Common stock
    
    
    228
    
    
    
    226Capital in excess of par value
    
    
    3,722,172
    
    
    
    3,656,895Retained earnings
    
    
    1,091,752
    
    
    
    1,105,520Accumulated other comprehensive income (loss)
    
    
    (6,210
    )
    
    
    5,493Total stockholders equity
    
    
    4,807,942
    
    
    
    4,768,134Total liabilities and stockholders equity
    
    $
    6,828,699
    
    
    $
    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




---



##### Table of Contents



SANDISK CORPORATION
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (Unaudited)
 Three months ended
    
    
    Six months endedJuly 1, 2007
    
    
    July 2, 2006
    
    
    July 1, 2007
    
    
    July 2, 2006(In thousands, except per share amounts)Revenues:Product
    
    $
    719,991
    
    
    $
    636,675
    
    
    $
    1,409,348
    
    
    $
    1,174,403License and royalty
    
    
    107,041
    
    
    
    82,510
    
    
    
    203,770
    
    
    
    168,042Total revenues
    
    
    827,032
    
    
    
    719,185
    
    
    
    1,613,118
    
    
    
    1,342,445Cost of product revenues
    
    
    588,736
    
    
    
    430,177
    
    
    
    1,158,824
    
    
    
    815,044Amortization of acquisition-related
intangible assets
    
    
    14,583
    
    
    
    
    
    
    
    35,645
    
    
    
    Total cost of product revenues
    
    
    603,319
    
    
    
    430,177
    
    
    
    1,194,469
    
    
    
    815,044Gross profit
    
    
    223,713
    
    
    
    289,008
    
    
    
    418,649
    
    
    
    527,401Operating expenses:Research and development
    
    
    101,185
    
    
    
    73,785
    
    
    
    196,825
    
    
    
    137,547Sales and marketing
    
    
    60,517
    
    
    
    45,067
    
    
    
    116,723
    
    
    
    88,442General and administrative
    
    
    41,165
    
    
    
    37,182
    
    
    
    88,156
    
    
    
    67,198Write-off of acquired in-process technology
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    39,600Amortization of acquisition-related
intangible assets
    
    
    7,050
    
    
    
    4,432
    
    
    
    16,150
    
    
    
    8,147Restructuring
    
    
    212
    
    
    
    
    
    
    
    6,728
    
    
    
    Total operating expenses
    
    
    210,129
    
    
    
    160,466
    
    
    
    424,582
    
    
    
    340,934Operating income (loss)
    
    
    13,584
    
    
    
    128,542
    
    
    
    (5,933
    )
    
    
    186,467Interest income
    
    
    34,727
    
    
    
    22,670
    
    
    
    72,215
    
    
    
    38,527Interest (expense) and other income
(expense), net
    
    
    3,829
    
    
    
    (657
    )
    
    
    2,600
    
    
    
    1,950Total other income
    
    
    38,556
    
    
    
    22,013
    
    
    
    74,815
    
    
    
    40,477Income before taxes
    
    
    52,140
    
    
    
    150,555
    
    
    
    68,882
    
    
    
    226,944Provision for income taxes
    
    
    23,605
    
    
    
    54,914
    
    
    
    35,762
    
    
    
    96,188Income after taxes
    
    
    28,535
    
    
    
    95,641
    
    
    
    33,120
    
    
    
    130,756Minority interest
    
    
    51
    
    
    
    
    
    
    
    5,211
    
    
    
    Net income
    
    $
    28,484
    
    
    $
    95,641
    
    
    $
    27,909
    
    
    $
    130,756Net income per share:Basic
    
    $
    0.12
    
    
    $
    0.49
    
    
    $
    0.12
    
    
    $
    0.67Diluted
    
    $
    0.12
    
    
    $
    0.47
    
    
    $
    0.12
    
    
    $
    0.65Shares used in computing net income per share:Basic
    
    
    227,959
    
    
    
    195,527
    
    
    
    227,707
    
    
    
    194,302Diluted
    
    
    236,036
    
    
    
    202,980
    
    
    
    235,951
    
    
    
    202,522
 The accompanying notes are an integral part of these condensed consolidated financial statements.
 4




---



##### Table of Contents



SANDISK CORPORATION
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
 Six months endedJuly 1, 2007
    
    
    July 2, 2006( In thousands)Cash flows from operating activities:Net income
    
    $
    27,909
    
    
    $
    130,756Adjustments to reconcile net income to net cash provided by operating activities:Deferred taxes
    
    
    35,760
    
    
    
    (17,395
    )Gain on investment in foundries
    
    
    (567
    )
    
    
    (1,195
    )Depreciation and amortization
    
    
    129,233
    
    
    
    57,666Provision for doubtful accounts
    
    
    1,538
    
    
    
    1,001Share-based compensation expense
    
    
    68,190
    
    
    
    44,656Excess tax benefit from share-based compensation
    
    
    (11,508
    )
    
    
    (61,023
    )Write-off of acquired in-process technology
    
    
    
    
    
    
    39,600Other non-cash charges (income)
    
    
    8,576
    
    
    
    (4,744
    )Changes in operating assets and liabilities:Accounts receivable from product revenues
    
    
    298,927
    
    
    
    23,048Inventories
    
    
    (104,563
    )
    
    
    (39,976
    )Other assets
    
    
    (30,176
    )
    
    
    (8,743
    )Accounts payable trade
    
    
    (71,698
    )
    
    
    (123,758
    )Accounts payable to related parties
    
    
    10,879
    
    
    
    13,065Other liabilities
    
    
    (197,702
    )
    
    
    58,830Total adjustments
    
    
    136,889
    
    
    
    (18,968
    )Net cash provided by operating activities
    
    
    164,798
    
    
    
    111,788Cash flows from investing activities:Purchases of short and long-term investments
    
    
    (1,591,857
    )
    
    
    (805,300
    )Proceeds from sale and maturities of short and long-term investments
    
    
    1,204,682
    
    
    
    375,446Investment in Flash Partners and Flash Alliance
    
    
    
    
    
    
    (127,919
    )Acquisition of property and equipment, net
    
    
    (97,801
    )
    
    
    (89,722
    )Proceeds from notes receivable from FlashVision
    
    
    37,512
    
    
    
    Issuance of notes receivable to Flash Partners
    
    
    (123,305
    )
    
    
    (95,445
    )Purchased technology and other assets
    
    
    (13,240
    )
    
    
    Cash acquired in business combination, net of acquisition costs
    
    
    
    
    
    
    9,432Net cash used in investing activities
    
    
    (584,009
    )
    
    
    (733,508
    )Cash flows from financing activities:Proceeds from issuance of convertible senior notes, net of issuance costs
    
    
    
    
    
    
    1,125,500Purchase of convertible bond hedge
    
    
    
    
    
    
    (386,090
    )Proceeds from issuance of warrants
    
    
    
    
    
    
    308,672Proceeds from debt financing
    
    
    3,791
    
    
    
    Proceeds from employee stock programs
    
    
    54,102
    
    
    
    68,850Distribution to minority interest
    
    
    (9,880
    )
    
    
    Excess tax benefit from share-based compensation
    
    
    11,508
    
    
    
    61,023Share repurchase programs
    
    
    (97,417
    )
    
    
    Net cash provided by (used in) financing activities
    
    
    (37,896
    )
    
    
    1,177,955Effect of changes in foreign currency exchange rates on cash
    
    
    620
    
    
    
    186Net increase (decrease) in cash and cash equivalents
    
    
    (456,487
    )
    
    
    556,421Cash and cash equivalents at beginning of the period
    
    
    1,580,700
    
    
    
    762,058Cash and cash equivalents at end of the period
    
    $
    1,124,213
    
    
    $
    1,318,479Supplemental 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




---



##### Table of Contents



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. 157. Fair Value Measurements
 6




---



##### Table of Contents



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
 SFAS No. 159 . Establishing the Fair Value Option for Financial Assets and Liabilities
 EITF
Issue No. 07-3 .  Accounting for Advance Payments for
Goods or Services to be Received for Use in Future Research and Development Activities.
 
 7




---



##### Table of Contents



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
 2. Balance Sheet Detail
 Accounts Receivable from Product Revenues, net.
 July 1, 2007
    
    
    December 31, 2006Trade accounts receivable
    
    $
    705,132
    
    
    $
    1,056,616Related party accounts receivable
    
    
    15,584
    
    
    
    41,708Allowance for doubtful accounts
    
    
    (12,835
    )
    
    
    (11,452
    )Price protection, promotions and other activities
    
    
    (396,176
    )
    
    
    (475,132
    )Total accounts receivable from product revenues, net
    
    $
    311,705
    
    
    $
    611,740
 Inventory.
 July 1, 2007
    
    
    December 31, 2006Raw material
    
    $
    253,322
    
    
    $
    157,163Work-in-process
    
    
    97,302
    
    
    
    64,009Finished goods
    
    
    250,747
    
    
    
    274,812Total inventories
    
    $
    601,371
    
    
    $
    495,984
 Other Current Assets.
 July 1, 2007
    
    
    December 31, 2006Royalty and other receivables
    
    $
    170,686
    
    
    $
    82,569Prepaid expenses
    
    
    40,072
    
    
    
    22,276Other current assets
    
    
    35,987
    
    
    
    21,092Total other current assets
    
    $
    246,745
    
    
    $
    125,937
 Notes Receivable and Investments in Flash Ventures.
 July 1, 2007
    
    
    December 31, 2006Notes receivable, FlashVision
    
    $
    
    
    
    $
    38,229Notes receivable, Flash Partners
    
    
    210,782
    
    
    
    92,421Investment in FlashVision
    
    
    154,456
    
    
    
    159,144Investment in Flash Partners
    
    
    162,483
    
    
    
    168,210Investment in Flash Alliance
    
    
    3,963
    
    
    
    4,303Total notes receivable and investments in flash ventures
    
    $
    531,684
    
    
    $
    462,307
 8




---



##### Table of Contents



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
 Other Accrued Liabilities.
 July 1, 2007
    
    
    December 31, 2006Accrued payroll and related expenses
    
    $
    58,158
    
    
    $
    61,050Taxes payable and deferred tax liability
    
    
    6,247
    
    
    
    119,502Research and development liability, related party
    
    
    15,315
    
    
    
    5,850Other accrued liabilities
    
    
    109,410
    
    
    
    124,598Total other accrued liabilities
    
    $
    189,130
    
    
    $
    311,000
 Convertible Long-term Debt .
 July 1, 2007
    
    
    December 31, 20061% 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
 
 9




---



##### Table of Contents



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
 3. Share-Based Compensation
 Share-Based Plans.
 Valuation Assumptions.
 Three months ended
    
    Six months endedJuly 1, 2007
    
    July 2, 2006
    
    July 1, 2007
    
    July 2, 2006Option Plan SharesDividend yield
    
    None
    
    None
    
    None
    
    NoneExpected volatility
    
    
    0.38
    
    
    
    0.53
    
    
    
    0.44
    
    
    
    0.53Risk free interest rate
    
    
    4.81
    %
    
    
    4.99
    %
    
    
    4.58
    %
    
    
    4.61
    %Expected lives
    
    3.3 years
    
    3.6 years
    
    3.4 years
    
    3.7 yearsEstimated annual forfeitures rate
    
    
    7.59
    %
    
    
    7.74
    %
    
    
    7.59
    %
    
    
    7.74
    %Weighted average fair value at grant date
    
    $
    14.66
    
    
    $
    28.14
    
    
    $
    15.55
    
    
    $
    27.50Employee Stock Purchase Plan SharesDividend yield
    
    None
    
    None
    
    None
    
    NoneExpected volatility
    
    
    0.44
    
    
    
    0.54
    
    
    
    0.44
    
    
    
    0.54Risk free interest rate
    
    
    5.16
    %
    
    
    4.69
    %
    
    
    5.16
    %
    
    
    4.69
    %Expected lives
    
    1/2 year
    
    1/2 year
    
    1/2 year
    
    1/2 yearWeighted average fair value for grant period
    
    $
    11.44
    
    
    $
    20.45
    
    
    $
    11.44
    
    
    $
    20.45
 10




---



##### Table of Contents



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
 Share-Based Compensation Plan Activities
 Stock Option and SAR.
 WeightedAverageWeighted
    
    
    RemainingAverage
    
    
    Contractual
    
    
    AggregateShares
    
    
    Exercise Price
    
    
    Term (Years)
    
    
    Intrinsic ValueOptions and SARs outstanding at December 31, 2006
    
    
    26,392
    
    
    $
    31.97Granted
    
    
    4,360
    
    
    
    42.26Exercised
    
    
    (2,640
    )
    
    
    20.31Forfeited
    
    
    (1,079
    )
    
    
    46.62Expired
    
    
    (116
    )
    
    
    55.44Options and SARs outstanding at July 1, 2007
    
    
    26,917
    
    
    
    34.10
    
    
    
    6.2
    
    
    $
    451,641Options and SARs vested and expected to vest after
July 1, 2007
    
    
    25,407
    
    
    
    33.44
    
    
    
    6.2
    
    
    
    442,204Options and SARs exercisable at July 1, 2007
    
    
    12,476
    
    
    $
    23.56
    
    
    
    5.5
    
    
    $
    333,078
  Restricted Stock and
Restricted Stock Unit.
  WeightedAverage Grant
    
    
    AggregateShares
    
    
    Date Fair Value
    
    
    Intrinsic ValueNon-vested RSUs at December 31, 2006
    
    
    598
    
    
    $
    58.71Granted
    
    
    97
    
    
    
    41.34Vested
    
    
    (130
    )
    
    
    60.56Forfeited
    
    
    (29
    )
    
    
    68.90Non-vested RSUs at July 1, 2007
    
    
    536
    
    
    $
    54.57
    
    
    $
    26,217
  Employee
Stock Purchase Plan.
 11




---



##### Table of Contents



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
 Share-Based Compensation Expense.
 Three months ended
    
    
    Six months endedJuly 1, 2007
    
    
    July 2, 2006
    
    
    July 1, 2007
    
    
    July 2, 2006Share-based compensation expense by caption:Cost of product sales
    
    $
    3,306
    
    
    $
    2,478
    
    
    $
    6,521
    
    
    $
    2,478Research and development
    
    
    13,013
    
    
    
    10,421
    
    
    
    25,700
    
    
    
    19,206Sales and marketing
    
    
    10,361
    
    
    
    5,125
    
    
    
    17,284
    
    
    
    9,165General and administrative
    
    
    10,290
    
    
    
    7,846
    
    
    
    18,685
    
    
    
    13,807Total share-based compensation expense
    
    $
    36,970
    
    
    $
    25,870
    
    
    $
    68,190
    
    
    $
    44,656Share-based compensation expense by type of
award:Stock options and SARs
    
    $
    30,018
    
    
    $
    21,694
    
    
    $
    56,663
    
    
    $
    37,748Restricted stock and RSUs
    
    
    5,714
    
    
    
    3,202
    
    
    
    9,181
    
    
    
    5,239ESPP
    
    
    1,238
    
    
    
    974
    
    
    
    2,346
    
    
    
    1,669Total share-based compensation expense
    
    $
    36,970
    
    
    $
    25,870
    
    
    $
    68,190
    
    
    $
    44,656
  
 12




---



##### Table of Contents



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
 4. Restructuring
   LeaseObligationsSeverance and
    
    
    and OtherBenefits
    
    
    Charges
    
    
    TotalRestructuring provision
    
    $
    5,970
    
    
    $
    758
    
    
    $
    6,728Cash paid
    
    
    (5,842
    )
    
    
    (227
    )
    
    
    (6,069
    )Reserve balance at July 1, 2007
    
    $
    128
    
    
    $
    531
    
    
    $
    659
  
 13




---



##### Table of Contents



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
 5. Warranty
  Three months ended
    
    
    Six months endedJuly 1, 2007
    
    
    July 2, 2006
    
    
    July 1, 2007
    
    
    July 2, 2006Balance, beginning of period
    
    $
    10,732
    
    
    $
    8,423
    
    
    $
    15,338
    
    
    $
    11,258Additions and adjustments to
costs of product revenue
    
    
    6,283
    
    
    
    4,599
    
    
    
    4,787
    
    
    
    1,992Usage
    
    
    (3,851
    )
    
    
    (3,361
    )
    
    
    (6,961
    )
    
    
    (3,589
    )Balance, end of period
    
    $
    13,164
    
    
    $
    9,661
    
    
    $
    13,164
    
    
    $
    9,661
  
 14




---



##### Table of Contents



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
 6. Goodwill and Other Intangible Assets
 Goodwill.
 Balance at December 31, 2006
    
    $
    910,254Goodwill adjustment
    
    
    (60,347
    )Balance at July 1, 2007
    
    $
    849,907
  Intangible Assets.
 July 1, 2007
    
    
    December 31, 2006Gross
    
    
    
    
    
    
    Net
    
    
    Gross
    
    
    
    
    
    
    NetCarrying
    
    
    Accumulated
    
    
    Carrying
    
    
    Carrying
    
    
    Accumulated
    
    
    CarryingAmount
    
    
    Amortization
    
    
    Amount
    
    
    Amount
    
    
    Amortization
    
    
    AmountCore technology
    
    $
    311,801
    
    
    $
    (50,512
    )
    
    $
    261,289
    
    
    $
    311,801
    
    
    $
    (18,135
    )
    
    $
    293,666Developed product technology
    
    
    12,900
    
    
    
    (3,667
    )
    
    
    9,233
    
    
    
    12,900
    
    
    
    (2,103
    )
    
    
    10,797Trademarks
    
    
    4,000
    
    
    
    (4,000
    )
    
    
    
    
    
    
    4,000
    
    
    
    (911
    )
    
    
    3,089Backlog
    
    
    5,000
    
    
    
    (5,000
    )
    
    
    
    
    
    
    5,000
    
    
    
    (1,139
    )
    
    
    3,861Supply agreement
    
    
    2,000
    
    
    
    (2,000
    )
    
    
    
    
    
    
    2,000
    
    
    
    (46
    )
    
    
    1,954Customer relationships
    
    
    80,100
    
    
    
    (14,957
    )
    
    
    65,143
    
    
    
    80,100
    
    
    
    (6,008
    )
    
    
    74,092Acquisition-related intangible assets
    
    
    415,801
    
    
    
    (80,136
    )
    
    
    335,665
    
    
    
    415,801
    
    
    
    (28,342
    )
    
    
    387,459Technology licenses
    
    
    29,243
    
    
    
    (10,829
    )
    
    
    18,414
    
    
    
    7,388
    
    
    
    (5,769
    )
    
    
    1,619Total
    
    $
    445,044
    
    
    $
    (90,965
    )
    
    $
    354,079
    
    
    $
    423,189
    
    
    $
    (34,111
    )
    
    $
    389,078
   Estimated Amortization ExpensesAcquisition-Related
    
    
    TechnologyFiscal periods:
    
    Intangible Assets
    
    
    Licenses2007 (remaining six months)
    
    $
    38,323
    
    
    $
    1,9372008
    
    
    76,229
    
    
    
    3,6482009
    
    
    71,724
    
    
    
    3,0232010
    
    
    71,529
    
    
    
    3,0232011
    
    
    64,809
    
    
    
    3,0232012 and thereafter
    
    
    13,051
    
    
    
    3,760Total
    
    $
    335,665
    
    
    $
    18,414
 15




---



##### Table of Contents



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
 7. Accumulated Other Comprehensive Income (Loss)
  July 1, 2007
    
    
    December 31, 2006Accumulated net unrealized gain (loss) on:Available-for-sale investments
    
    $
    955
    
    
    $
    (1,918
    )Available-for-sale investments in foundries
    
    
    (1,504
    )
    
    
    (610
    )Foreign currency translation
    
    
    (5,661
    )
    
    
    8,021Total accumulated other comprehensive income (loss)
    
    $
    (6,210
    )
    
    $
    5,493
  Three months ended
    
    
    Six months endedJuly 1, 2007
    
    
    July 2, 2006
    
    
    July 1, 2007
    
    
    July 2, 2006Net income
    
    $
    28,484
    
    
    $
    95,641
    
    
    $
    27,909
    
    
    $
    130,756Unrealized income (loss) on
available-for-sale investment in
foundries
    
    
    (1,220
    )
    
    
    238
    
    
    
    (894
    )
    
    
    2,215Unrealized income (loss) on
available-for-sale investments
    
    
    3,128
    
    
    
    (412
    )
    
    
    2,873
    
    
    
    1,325Currency translation income (loss)
    
    
    (17,916
    )
    
    
    6,164
    
    
    
    (13,682
    )
    
    
    4,799Comprehensive net income
    
    $
    12,476
    
    
    $
    101,631
    
    
    $
    16,206
    
    
    $
    139,095
 
 16




---



##### Table of Contents



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
 8. Net Income Per Share
  Three months ended
    
    
    Six months endedJuly 1, 2007
    
    
    July 2, 2006
    
    
    July 1, 2007
    
    
    July 2, 2006Numerator for basic net income per share:Net income, as reported
    
    $
    28,484
    
    
    $
    95,641
    
    
    $
    27,909
    
    
    $
    130,756Denominator for basic net income per share:Weighted average common shares outstanding
    
    
    227,959
    
    
    
    195,527
    
    
    
    227,707
    
    
    
    194,302Basic net income per share
    
    $
    0.12
    
    
    $
    0.49
    
    
    $
    0.12
    
    
    $
    0.67Numerator for diluted net income per share:Net income, as reported
    
    $
    28,484
    
    
    $
    95,641
    
    
    $
    27,909
    
    
    $
    130,756Interest on the 1% Convertible Notes due 2035,
net of tax
    
    
    116
    
    
    
    
    
    
    
    232
    
    
    
    Net income used in computing diluted net income
per share
    
    $
    28,600
    
    
    $
    95,641
    
    
    $
    28,141
    
    
    $
    130,756Denominator for diluted net income per share:Weighted average common shares outstanding
    
    
    227,959
    
    
    
    195,527
    
    
    
    227,707
    
    
    
    194,302Effect of dilutive 1% Convertible Notes due 2035
    
    
    2,012
    
    
    
    
    
    
    
    2,012
    
    
    
    Effect of dilutive options and restricted stock
    
    
    6,065
    
    
    
    7,453
    
    
    
    6,232
    
    
    
    8,220Shares used in computing diluted net income per
share
    
    
    236,036
    
    
    
    202,980
    
    
    
    235,951
    
    
    
    202,522Diluted net income per share
    
    $
    0.12
    
    
    $
    0.47
    
    
    $
    0.12
    
    
    $
    0.65Anti-dilutive shares excluded from net income
per share calculation
    
    
    41,158
    
    
    
    33,189
    
    
    
    39,798
    
    
    
    31,922
  
 17




---



##### Table of Contents



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




---



##### Table of Contents



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




---



##### 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.
 Off Balance Sheet Liabilities
  Master Lease Agreements by Execution Date
    
    Lease Amounts(1)
    
    
    Expiration(Yen in billions)
    
    
    (Dollars in millions)FlashVisionJune 2006
    
    ¥
    4.2
    
    
    $
    34
    
    
    
    2009Flash PartnersDecember 2004
    
    
    17.9
    
    
    
    145
    
    
    
    2010December 2005
    
    
    13.6
    
    
    
    110
    
    
    
    2011June 2006
    
    
    12.9
    
    
    
    104
    
    
    
    2011September 2006
    
    
    45.9
    
    
    
    373
    
    
    
    2011March 2007
    
    
    15.0
    
    
    
    122
    
    
    
    2012Total Flash Partners
    
    
    105.3
    
    
    
    854Total indemnification and guarantee obligations
    
    ¥
    109.5
    
    
    $
    888
 
 (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 July 1, 2007. 20




---



##### Table of Contents



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
 FlashVision.
 Flash Partners.
 Guarantees
 Indemnification Agreements.
  21




---



##### Table of Contents



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
   22




---



##### Table of Contents



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
    
    
    Years1 Year
    
    
    (Fiscal 2008
    
    
    (Fiscal 2010
    
    
    (BeyondTotal
    
    
    (6 months)
    
    
    and 2009)
    
    
    and 2011)
    
    
    Fiscal 2011)
    
    
    OtherOperating leases
    
    $
    48,527
    
    
    $
    4,347
    
    
    $
    16,698
    
    
    $
    14,264
    
    
    $
    13,218
    
    
    $
    FlashVision fabrication capacity
expansion costs, and reimbursement
for certain other costs including
depreciation
    
    
    156,261
    (6)
    
    
    32,019
    
    
    
    108,251
    
    
    
    15,749
    
    
    
    242
    
    
    
    Flash Partners fabrication
capacity expansion and
reimbursement for certain other
costs including depreciation
(1)
    
    
    2,610,140
    (6)
    
    
    812,098
    
    
    
    974,021
    
    
    
    684,790
    
    
    
    139,231
    
    
    
    Flash Alliance fabrication
capacity expansion and
reimbursement for certain other
costs including depreciation and
start-up
    
    
    1,750,357
    (6)
    
    
    134,609
    
    
    
    1,076,125
    
    
    
    359,285
    
    
    
    180,338
    
    
    
    Toshiba research and development
    
    
    50,000
    (6)
    
    
    15,000
    
    
    
    35,000
    
    
    
    
    
    
    
    
    
    
    
    Capital equipment purchases
commitments
    
    
    97,804
    
    
    
    97,804
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Convertible notes principal and
interest (2)
    
    
    1,316,381
    
    
    
    9,188
    
    
    
    24,500
    
    
    
    24,500
    
    
    
    1,258,193
    
    
    
    Income taxes payable (3)
    
    
    48,779
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    48,779Technology license acquisition and
capital investment commitments (4)
    
    
    47,638
    (7)
    
    
    15,138
    
    
    
    
    
    
    
    32,500
    
    
    
    Operating expense commitments
    
    
    11,088
    
    
    
    11,088
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Noncancelable production purchase
commitments (5)
    
    
    318,338
    (6)
    
    
    318,338
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total contractual cash obligations
    
    $
    6,455,313
    
    
    $
    1,449,629
    
    
    $
    2,234,595
    
    
    $
    1,131,088
    
    
    $
    1,591,222
    
    
    $
    48,779
 23




---



##### Table of Contents



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
 Off Balance Sheet Arrangements.
 As ofJuly 1, 2007Indemnification of FlashVision foundry equipment lease (8)
    
    $
    34,258Guarantee of Flash Partners equipment leases (9)
    
    $
    853,628
 
 (1)
    
    As of July 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% 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, 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 liability of $9.0 million related to uncertain tax positions subject to
an ongoing examination and unrecognized tax benefits of $39.8 million on issues not
currently under examination.(4)
    
    In July 2007, the Companys subsidiary incurred a liability of $42.5 million
related to purchase of technology licenses, of which, $10.0 million was paid on July 31,
2007. See Note 11, Related Parties and Note 16, Subsequent Events. In addition, the
Company has a definitive agreement to establish a venture with Qimonda AG, and has
committed to contribute supplemental capital of 3.8 million European euros, or
approximately $5 million based upon the exchange rate as of July 1, 2007.(5)
    
    Includes Toshiba foundries, FlashVision, Flash Partners, related parties vendors
and other silicon source vendor purchase commitments.(6)
    
    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 July 1,
2007.(7)
    
    Includes amounts denominated in European euro which are
subject to fluctuation in exchange rates prior to payment and have been translated using the exchange rate at July 1, 2007.(8)
    
    The Companys contingent indemnification obligation is 4.2 billion Japanese yen,
or approximately $34 million based upon the exchange rate at July 1, 2007.(9)
    
    The Companys guarantee obligation, net of cumulative lease payments, is 105.3
billion Japanese yen, or approximately $854 million based upon the exchange rate at July 1,
2007. 
 24




---



##### Table of Contents



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
  Fiscal Year Ending:2007 (six months)
    
    $
    4,4352008
    
    
    8,7992009
    
    
    8,8772010
    
    
    8,0032011
    
    
    6,3912012 and beyond
    
    
    13,218Total operating leases
    
    
    49,723Sublease income
    
    
    1,196$
    48,527
 Foreign Currency Exchange and Other Contracts.
 25




---



##### Table of Contents



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
 11. Related Parties and Strategic Investments
 Toshiba .
 Flash Ventures with Toshiba . Consolidation of Variable Interest Entities,
 TwinSys.
 Tower Semiconductor.
 Flextronics.
 26




---



##### Table of Contents



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
 Solid State Storage Solutions LLC
 27




---



##### 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
    
    
    36,778Other assets
    
    
    108,819Total assets acquired
    
    
    584,812Accounts payable
    
    
    (133,263
    )Other liabilities
    
    
    (177,192
    )Total liabilities assumed
    
    
    (310,455
    )Net tangible assets acquired
    
    $
    274,357
 Purchase Price Allocation
 28




---



##### Table of Contents



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
  Net tangible assets acquired
    
    $
    274,357Goodwill
    
    
    698,881Other 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.
  29




---



##### Table of Contents



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 purchase price
    
    $
    296,379
 Acquisition-Related Restructuring
 In-process Technology.
   30




---



##### Table of Contents



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
 Pro Forma Results.
 Three months
    
    
    Six monthsended
    
    
    endedJuly 2, 2006
    
    
    July 2, 2006Net revenues
    
    $
    928,678
    
    
    $
    1,771,890Net income
    
    $
    78,274
    
    
    $
    126,107Net income per share:Basic
    
    $
    0.35
    
    
    $
    0.56Diluted
    
    $
    0.33
    
    
    $
    0.53
  31




---



##### Table of Contents



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
 13. Income Taxes
  Accounting for Uncertainty in
Income Taxes, an interpretation of FASB Statement No. 109,
    32




---



##### Table of Contents



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




---



##### Table of Contents



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




---



##### Table of Contents



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




---



##### Table of Contents



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
 15. Condensed Consolidating Financial Statements
   36




---



##### Table of Contents



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
    
    $
    530,353
    
    
    $
    
    
    
    $
    61,547
    
    
    $
    1,032,172
    
    
    $
    (797,040
    )
    
    $
    827,032Total cost of revenues
    
    
    307,074
    
    
    
    
    
    
    
    59,128
    
    
    
    1,004,976
    
    
    
    (767,859
    )
    
    
    603,319Gross margin
    
    
    223,279
    
    
    
    
    
    
    
    2,419
    
    
    
    27,196
    
    
    
    (29,181
    )
    
    
    223,713Total operating expenses
    
    
    131,054
    
    
    
    
    
    
    
    27,819
    
    
    
    82,130
    
    
    
    (30,874
    )
    
    
    210,129Operating income (loss)
    
    
    92,225
    
    
    
    
    
    
    
    (25,400
    )
    
    
    (54,934
    )
    
    
    1,693
    
    
    
    13,584Total other income (expense)
    
    
    21,261
    
    
    
    180
    
    
    
    22,861
    
    
    
    (11,376
    )
    
    
    5,630
    
    
    
    38,556Income (loss) before taxes
    
    
    113,486
    
    
    
    180
    
    
    
    (2,539
    )
    
    
    (66,310
    )
    
    
    7,323
    
    
    
    52,140Provision (benefit) for income taxes
    
    
    19,198
    
    
    
    
    
    
    
    5,035
    
    
    
    548
    
    
    
    (1,176
    )
    
    
    23,605Minority interest
    
    
    
    
    
    
    
    
    
    
    51
    
    
    
    
    
    
    
    
    
    
    
    51Equity in net income (loss) of
consolidated subsidiaries
    
    
    (46,334
    )
    
    
    
    
    
    
    3,929
    
    
    
    (6,331
    )
    
    
    48,736
    
    
    
    Net income (loss)
    
    $
    47,954
    
    
    $
    180
    
    
    $
    (3,696
    )
    
    $
    (73,189
    )
    
    $
    57,235
    
    
    $
    28,484
 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
    
    $
    951,846
    
    
    $
    
    
    
    $
    153,942
    
    
    $
    1,974,013
    
    
    $
    (1,466,683
    )
    
    $
    1,613,118Total cost of revenues
    
    
    533,860
    
    
    
    
    
    
    
    158,725
    
    
    
    1,912,810
    
    
    
    (1,410,926
    )
    
    
    1,194,469Gross margin
    
    
    417,986
    
    
    
    
    
    
    
    (4,783
    )
    
    
    61,203
    
    
    
    (55,757
    )
    
    
    418,649Total operating expenses
    
    
    260,642
    
    
    
    
    
    
    
    66,305
    
    
    
    151,246
    
    
    
    (53,611
    )
    
    
    424,582Operating income (loss)
    
    
    157,344
    
    
    
    
    
    
    
    (71,088
    )
    
    
    (90,043
    )
    
    
    (2,146
    )
    
    
    (5,933
    )Total other income (expense)
    
    
    59,616
    
    
    
    (7
    )
    
    
    26,114
    
    
    
    (13,708
    )
    
    
    2,800
    
    
    
    74,815Income (loss) before taxes
    
    
    216,960
    
    
    
    (7
    )
    
    
    (44,974
    )
    
    
    (103,751
    )
    
    
    654
    
    
    
    68,882Provision for income taxes
    
    
    31,479
    
    
    
    
    
    
    
    4,063
    
    
    
    219
    
    
    
    1
    
    
    
    35,762Minority interest
    
    
    
    
    
    
    
    
    
    
    5,211
    
    
    
    
    
    
    
    
    
    
    
    5,211Equity in net income (loss)
of consolidated
subsidiaries
    
    
    (81,890
    )
    
    
    
    
    
    
    9,140
    
    
    
    (7,370
    )
    
    
    80,120
    
    
    
    Net income (loss)
    
    $
    103,591
    
    
    $
    (7
    )
    
    $
    (45,108
    )
    
    $
    (111,340
    )
    
    $
    80,773
    
    
    $
    27,909
 
 (1)
    
    This represents legal entity results which exclude any subsidiaries required to
be consolidated under GAAP.(2)
    
    This represents all other legal subsidiaries. 37




---



##### 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
    
    $
    744,177
    
    
    $
    216
    
    
    $
    184,492
    
    
    $
    194,188
    
    
    $
    1,140
    
    
    $
    1,124,213Short-term investments
    
    
    1,750,754
    
    
    
    
    
    
    
    170
    
    
    
    1,260
    
    
    
    34,838
    
    
    
    1,787,022Accounts receivable, net
    
    
    114,729
    
    
    
    
    
    
    
    19,666
    
    
    
    175,814
    
    
    
    1,496
    
    
    
    311,705Inventory
    
    
    105,637
    
    
    
    
    
    
    
    33,807
    
    
    
    462,389
    
    
    
    (461
    )
    
    
    601,372Deferred taxes
    
    
    153,458
    
    
    
    
    
    
    
    
    
    
    
    23,022
    
    
    
    
    
    
    
    176,480Other current assets
    
    
    487,993
    
    
    
    
    
    
    
    11,006
    
    
    
    429,003
    
    
    
    (681,257
    )
    
    
    246,745Total current assets
    
    
    3,356,748
    
    
    
    216
    
    
    
    249,141
    
    
    
    1,285,676
    
    
    
    (644,244
    )
    
    
    4,247,537Property and equipment, net
    
    
    171,673
    
    
    
    
    
    
    
    33,964
    
    
    
    136,238
    
    
    
    (46
    )
    
    
    341,829Goodwill
    
    
    
    
    
    
    
    
    
    
    699,360
    
    
    
    150,491
    
    
    
    56
    
    
    
    849,907Intangibles, net
    
    
    
    
    
    
    
    
    
    
    258,963
    
    
    
    95,117
    
    
    
    (1
    )
    
    
    354,079Other non-current assets
    
    
    1,414,042
    
    
    
    71,615
    
    
    
    101,955
    
    
    
    424,563
    
    
    
    (976,828
    )
    
    
    1,035,347Total assets
    
    $
    4,942,463
    
    
    $
    71,831
    
    
    $
    1,343,383
    
    
    $
    2,092,085
    
    
    $
    (1,621,063
    )
    
    $
    6,828,699LIABILITIES AND 
STOCKHOLDERS EQUITYCurrent Liabilities:Accounts payable
    
    $
    33,534
    
    
    $
    
    
    
    $
    14,126
    
    
    $
    283,483
    
    
    $
    138
    
    
    $
    331,281Other current accrued liabilities
    
    
    355,775
    
    
    
    226
    
    
    
    30,542
    
    
    
    734,742
    
    
    
    (788,568
    )
    
    
    332,717Total current liabilities
    
    
    389,309
    
    
    
    226
    
    
    
    44,668
    
    
    
    1,018,225
    
    
    
    (788,430
    )
    
    
    663,998Convertible long-term debt
    
    
    1,150,000
    
    
    
    75,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,225,000Deferred taxes and other non-current
liabilities
    
    
    41,710
    
    
    
    
    
    
    
    35,834
    
    
    
    53,209
    
    
    
    (201
    )
    
    
    130,552Total liabilities
    
    
    1,581,019
    
    
    
    75,226
    
    
    
    80,502
    
    
    
    1,071,434
    
    
    
    (788,631
    )
    
    
    2,019,550Minority interest
    
    
    
    
    
    
    
    
    
    
    1,207
    
    
    
    
    
    
    
    
    
    
    
    1,207Stockholders Equity:Common stock
    
    
    2,557,737
    
    
    
    
    
    
    
    1,022,911
    
    
    
    1,004,421
    
    
    
    (862,669
    )
    
    
    3,722,400Retained earnings
    
    
    803,587
    
    
    
    (3,395
    )
    
    
    240,213
    
    
    
    16,544
    
    
    
    34,803
    
    
    
    1,091,752Accumulated other comprehensive income
(loss)
    
    
    120
    
    
    
    
    
    
    
    (1,450
    )
    
    
    (314
    )
    
    
    (4,566
    )
    
    
    (6,210
    )Total stockholders equity
    
    
    3,361,444
    
    
    
    (3,395
    )
    
    
    1,261,674
    
    
    
    1,020,651
    
    
    
    (832,432
    )
    
    
    4,807,942Total liabilities and stockholders equity
    
    $
    4,942,463
    
    
    $
    71,831
    
    
    $
    1,343,383
    
    
    $
    2,092,085
    
    
    $
    (1,621,063
    )
    
    $
    6,828,699
 
 (1)
    
    This represents legal entity results which exclude any subsidiaries required to
be consolidated under GAAP.(2)
    
    This represents all other legal subsidiaries. 38




---



##### 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
    
    $
    1,165,473
    
    
    $
    48
    
    
    $
    71,839
    
    
    $
    340,291
    
    
    $
    3,049
    
    
    $
    1,580,700Short-term investments
    
    
    1,192,084
    
    
    
    
    
    
    
    26,294
    
    
    
    2,681
    
    
    
    30,434
    
    
    
    1,251,493Accounts 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
    
    
    
    (523,131
    )
    
    
    125,937Total 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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,225,000Deferred taxes and other non-current
liabilities
    
    
    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
    
    
    
    
    
    
    
    1,085,277
    
    
    
    675,218
    
    
    
    (491,193
    )
    
    
    3,657,121Retained earnings
    
    
    1,018,566
    
    
    
    (3,389
    )
    
    
    284,414
    
    
    
    384,471
    
    
    
    (578,542
    )
    
    
    1,105,520Accumulated other comprehensive income
(loss)
    
    
    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




---



##### 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 (used in)
operating activities
    
    $
    153,499
    
    
    $
    168
    
    
    $
    78,621
    
    
    $
    (65,582
    )
    
    $
    (1,908
    )
    
    $
    164,798Net cash provided by (used in) investing
activities
    
    
    (543,608
    )
    
    
    
    
    
    
    39,951
    
    
    
    (80,352
    )
    
    
    
    
    
    
    (584,009
    )Net cash used in financing activities
    
    
    (31,807
    )
    
    
    
    
    
    
    (6,089
    )
    
    
    
    
    
    
    
    
    
    
    (37,896
    )Effect of changes in foreign currency
exchange rates on cash
    
    
    620
    
    
    
    
    
    
    
    170
    
    
    
    (170
    )
    
    
    
    
    
    
    620Net increase (decrease) in cash and cash
equivalents
    
    
    (421,296
    )
    
    
    168
    
    
    
    112,653
    
    
    
    (146,104
    )
    
    
    (1,908
    )
    
    
    (456,487
    )Cash 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
    
    $
    744,177
    
    
    $
    216
    
    
    $
    184,492
    
    
    $
    194,188
    
    
    $
    1,140
    
    
    $
    1,124,213
 
 (1)
    
    This represents legal entity results which exclude any subsidiaries required to
be consolidated under GAAP.(2)
    
    This represents all other legal subsidiaries. 40




---



##### Table of Contents



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
 16. Subsequent Event
   
 41




---



##### 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
    Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109
 42




---



##### Table of Contents



Results
of Operations.
 Three months ended
    
    
    Six months endedJuly 1,
    
    
    % of
    
    
    July 2,
    
    
    % of
    
    
    July 1,
    
    
    % of
    
    
    July 2,
    
    
    % of2007
    
    
    Revenues
    
    
    2006
    
    
    Revenues
    
    
    2007
    
    
    Revenues
    
    
    2006
    
    
    Revenues(In millions, except percentages)Product revenues
    
    $
    720.0
    
    
    
    87.1%
    
    
    $
    636.7
    
    
    
    88.5%
    
    
    $
    1,409.3
    
    
    
    87.4%
    
    
    $
    1,174.4
    
    
    
    87.5%License and royalty revenues
    
    
    107.0
    
    
    
    12.9%
    
    
    
    82.5
    
    
    
    11.5%
    
    
    
    203.8
    
    
    
    12.6%
    
    
    
    168.0
    
    
    
    12.5%Total revenues
    
    
    827.0
    
    
    
    100.0%
    
    
    
    719.2
    
    
    
    100.0%
    
    
    
    1,613.1
    
    
    
    100.0%
    
    
    
    1,342.4
    
    
    
    100.0%Cost of product revenues
    
    
    588.7
    
    
    
    71.2%
    
    
    
    430.2
    
    
    
    59.8%
    
    
    
    1,158.8
    
    
    
    71.8%
    
    
    
    815.0
    
    
    
    60.7%Amortization of
acquisition-related
intangible assets
    
    
    14.6
    
    
    
    1.8%
    
    
    
    
    
    
    
    
    
    
    
    35.7
    
    
    
    2.2%
    
    
    
    
    
    
    
    Total cost of product
revenues
    
    
    603.3
    
    
    
    73.0%
    
    
    
    430.2
    
    
    
    59.8%
    
    
    
    1,194.5
    
    
    
    74.0%
    
    
    
    815.0
    
    
    
    60.7%Gross margins
    
    
    223.7
    
    
    
    27.0%
    
    
    
    289.0
    
    
    
    40.2%
    
    
    
    418.6
    
    
    
    26.0%
    
    
    
    527.4
    
    
    
    39.3%Operating expensesResearch and development
    
    
    101.2
    
    
    
    12.2%
    
    
    
    73.8
    
    
    
    10.3%
    
    
    
    196.8
    
    
    
    12.2%
    
    
    
    137.5
    
    
    
    10.2%Sales and marketing
    
    
    60.5
    
    
    
    7.3%
    
    
    
    45.1
    
    
    
    6.3%
    
    
    
    116.7
    
    
    
    7.3%
    
    
    
    88.4
    
    
    
    6.6%General and administrative
    
    
    41.2
    
    
    
    5.0%
    
    
    
    37.2
    
    
    
    5.2%
    
    
    
    88.2
    
    
    
    5.5%
    
    
    
    67.2
    
    
    
    5.0%Write-off of acquired
in-process technology
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    39.6
    
    
    
    3.0%Amortization of
acquisition-related
intangible assets
    
    
    7.0
    
    
    
    0.9%
    
    
    
    4.4
    
    
    
    0.5%
    
    
    
    16.1
    
    
    
    1.0%
    
    
    
    8.2
    
    
    
    0.6%Restructuring
    
    
    0.2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6.7
    
    
    
    0.4%
    
    
    
    
    
    
    
    Total operating expenses
    
    
    210.1
    
    
    
    25.4%
    
    
    
    160.5
    
    
    
    22.3%
    
    
    
    424.5
    
    
    
    26.4%
    
    
    
    340.9
    
    
    
    25.4%Operating income (loss)
    
    
    13.6
    
    
    
    1.6%
    
    
    
    128.5
    
    
    
    17.9%
    
    
    
    (5.9
    )
    
    
    (0.4%)
    
    
    
    186.5
    
    
    
    13.9%Other income
    
    
    38.5
    
    
    
    4.7%
    
    
    
    22.0
    
    
    
    3.0%
    
    
    
    74.8
    
    
    
    4.7%
    
    
    
    40.5
    
    
    
    3.0%Income before taxes
    
    
    52.1
    
    
    
    6.3%
    
    
    
    150.5
    
    
    
    20.9%
    
    
    
    68.9
    
    
    
    4.3%
    
    
    
    227.0
    
    
    
    16.9%Provision for income taxes
    
    
    23.6
    
    
    
    2.9%
    
    
    
    54.9
    
    
    
    7.6%
    
    
    
    35.8
    
    
    
    2.3%
    
    
    
    96.2
    
    
    
    7.2%Minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5.2
    
    
    
    0.3%
    
    
    
    
    
    
    
    Net income
    
    $
    28.5
    
    
    
    3.4%
    
    
    $
    95.6
    
    
    
    13.3%
    
    
    $
    27.9
    
    
    
    1.7%
    
    
    $
    130.8
    
    
    
    9.7%
 Product
Revenues.
 Three months ended
    
    
    Six months endedJuly 1,
    
    
    July 2,
    
    
    Percent
    
    
    July 1,
    
    
    July 2,
    
    
    Percent2007
    
    
    2006
    
    
    Change
    
    
    2007
    
    
    2006
    
    
    Change(In millions, except percentages)Retail
    
    $
    486.0
    
    
    $
    446.2
    
    
    
    8.9%
    
    
    $
    829.9
    
    
    $
    818.2
    
    
    
    1.4%OEM
    
    
    234.0
    
    
    
    190.5
    
    
    
    22.8%
    
    
    
    579.4
    
    
    
    356.2
    
    
    
    62.7%Product revenues
    
    $
    720.0
    
    
    $
    636.7
    
    
    
    13.1%
    
    
    $
    1,409.3
    
    
    $
    1,174.4
    
    
    
    20.0%
    43




---



##### Table of Contents



Geographical Product Revenues.
 Three months ended
    
    Six months endedJuly 1,
    
    
    % of Product
    
    
    July 2,
    
    
    % of Product
    
    
    Percent
    
    
    July 1,
    
    
    % of Product
    
    
    July 2,
    
    
    % of Product
    
    
    Percent2007
    
    
    Revenues
    
    
    2006
    
    
    Revenues
    
    
    Change
    
    
    2007
    
    
    Revenues
    
    
    2006
    
    
    Revenues
    
    
    Change(In millions, except percentages)North America
    
    $
    293.1
    
    
    
    40.7%
    
    
    $
    276.2
    
    
    
    43.4%
    
    
    
    6.1%
    
    
    $
    534.9
    
    
    
    38.0%
    
    
    $
    493.4
    
    
    
    42.0%
    
    
    
    8.4%Japan
    
    
    42.7
    
    
    
    5.9%
    
    
    
    30.4
    
    
    
    4.8%
    
    
    
    40.5%
    
    
    
    144.1
    
    
    
    10.2%
    
    
    
    56.2
    
    
    
    4.8%
    
    
    
    156.4%Europe and Middle
East
    
    
    195.8
    
    
    
    27.2%
    
    
    
    153.3
    
    
    
    24.0%
    
    
    
    27.7%
    
    
    
    330.3
    
    
    
    23.4%
    
    
    
    293.6
    
    
    
    25.0%
    
    
    
    12.5%Asia-Pacific
    
    
    177.7
    
    
    
    24.7%
    
    
    
    175.8
    
    
    
    27.6%
    
    
    
    1.1%
    
    
    
    379.4
    
    
    
    26.9%
    
    
    
    329.6
    
    
    
    28.1%
    
    
    
    15.1%Other foreign
countries
    
    
    10.7
    
    
    
    1.5%
    
    
    
    1.0
    
    
    
    0.2%
    
    
    
    970.0%
    
    
    
    20.6
    
    
    
    1.5%
    
    
    
    1.6
    
    
    
    0.1%
    
    
    
    1187.5%Product revenues
    
    $
    720.0
    
    
    
    100.0%
    
    
    $
    636.7
    
    
    
    100.0%
    
    
    
    13.1%
    
    
    $
    1,409.3
    
    
    
    100.0%
    
    
    $
    1,174.4
    
    
    
    100.0%
    
    
    
    20.0%
   License and Royalty Revenues.
 Three months ended
    
    Six months endedJuly 1,
    
    July 2,
    
    Percent
    
    July 1,
    
    July 2,
    
    Percent2007
    
    2006
    
    Change
    
    2007
    
    2006
    
    Change(In millions, except percentages)License and royalty revenues
    
    $
    107.0
    
    
    $
    82.5
    
    
    
    29.7
    %
    
    $
    203.8
    
    
    $
    168.0
    
    
    
    21.3
    %
  Gross Margin.
 Three months ended
    
    Six months endedJuly 1,
    
    July 2,
    
    Percent
    
    July 1,
    
    July 2,
    
    Percent2007
    
    2006
    
    Change
    
    2007
    
    2006
    
    Change(In millions, except percentages)Product gross margin
    
    $
    116.7
    
    
    $
    206.5
    
    
    
    (43.5
    %)
    
    $
    214.9
    
    
    $
    359.4
    
    
    
    (40.2
    %)Product gross margin
(as a percent of
product revenues)
    
    
    16.2
    %
    
    
    32.4
    %
    
    
    
    
    
    
    15.2
    %
    
    
    30.6
    %Total gross margin (as
a percent of total
revenues)
    
    
    27.0
    %
    
    
    40.2
    %
    
    
    
    
    
    
    26.0
    %
    
    
    39.3
    %
  44




---



##### Table of Contents



Research and Development.
 Three months ended
    
    Six months endedJuly 1,
    
    July 2,
    
    Percent
    
    July 1,
    
    July 2,
    
    Percent2007
    
    2006
    
    Change
    
    2007
    
    2006
    
    Change(In millions, except percentages)Research and development
    
    $
    101.2
    
    
    $
    73.8
    
    
    
    37.1
    %
    
    $
    196.8
    
    
    $
    137.5
    
    
    
    43.1
    %Percent of revenue
    
    
    12.2
    %
    
    
    10.3
    %
    
    
    
    
    
    
    12.2
    %
    
    
    10.2
    %
  Sales and Marketing.
 Three months ended
    
    Six months endedJuly 1,
    
    July 2,
    
    Percent
    
    July 1,
    
    July 2,
    
    Percent2007
    
    2006
    
    Change
    
    2007
    
    2006
    
    Change(In millions, except percentages)Sales and marketing
    
    $
    60.5
    
    
    $
    45.1
    
    
    
    34.3
    %
    
    $
    116.7
    
    
    $
    88.4
    
    
    
    32.0
    %Percent of revenue
    
    
    7.3
    %
    
    
    6.3
    %
    
    
    
    
    
    
    7.3
    %
    
    
    6.6
    %
  General and Administrative.
 Three months ended
    
    Six months endedJuly 1,
    
    July 2,
    
    Percent
    
    July 1,
    
    July 2,
    
    Percent2007
    
    2006
    
    Change
    
    2007
    
    2006
    
    Change(In millions, except percentages)General and administrative
    
    $
    41.2
    
    
    $
    37.2
    
    
    
    10.7
    %
    
    $
    88.2
    
    
    $
    67.2
    
    
    
    31.2
    %Percent of revenue
    
    
    5.0
    %
    
    
    5.2
    %
    
    
    
    
    
    
    5.5
    %
    
    
    5.0
    %
  45




---



##### Table of Contents



Write-off of Acquired In-process Technology.
 Three months ended
    
    Six months endedJuly 1,
    
    July 2,
    
    Percent
    
    July 1,
    
    July 2,
    
    Percent2007
    
    2006
    
    Change
    
    2007
    
    2006
    
    Change(In millions, except percentages)Write-off of
acquired in-process
technology
    
    $
    
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    $
    39.6
    
    
    
    (100.0
    %)Percent of revenue
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3.0
    %
  Amortization of Acquisition-Related Intangible Assets.
 Three months ended
    
    Six months endedJuly 1,
    
    July 2,
    
    Percent
    
    July 1,
    
    July 2,
    
    Percent2007
    
    2006
    
    Change
    
    2007
    
    2006
    
    Change(In millions, except percentages)Amortization of
acquisition-related
intangible assets
    
    $
    7.0
    
    
    $
    4.4
    
    
    
    59.1
    %
    
    $
    16.1
    
    
    $
    8.2
    
    
    
    98.2
    %Percent of revenue
    
    
    0.9
    %
    
    
    0.5
    %
    
    
    
    
    
    
    1.0
    %
    
    
    0.6
    %
  Restructuring.
 Three months ended
    
    Six months endedJuly 1,
    
    July 2,
    
    Percent
    
    July 1,
    
    July 2,
    
    Percent2007
    
    2006
    
    Change
    
    2007
    
    2006
    
    Change(In millions, except percentages)Restructuring
    
    $
    0.2
    
    
    $
    
    
    
    
    100.0
    %
    
    $
    6.7
    
    
    $
    
    
    
    
    100.0
    %Percent of revenue
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.4
    %
    
    
    
   46




---



##### Table of Contents



Other Income.
 Three months ended
    
    
    Six months endedJuly 1,
    
    
    July 2,
    
    
    Percent
    
    
    July 1,
    
    
    July 2,
    
    
    Percent2007
    
    
    2006
    
    
    Change
    
    
    2007
    
    
    2006
    
    
    Change(In millions, except percentages)Interest income
    
    $
    35.9
    
    
    $
    22.7
    
    
    
    58.1%
    
    
    $
    73.4
    
    
    $
    38.5
    
    
    
    90.6%Interest (expense)
and other income
(expense), net
    
    
    2.6
    
    
    
    (0.9
    )
    
    
    388.9%
    
    
    
    1.4
    
    
    
    1.6
    
    
    
    (12.5%)Equity in income of
business ventures
    
    
    
    
    
    
    0.2
    
    
    
    (100.0%)
    
    
    
    
    
    
    
    0.4
    
    
    
    (100.0%)Total other income
    
    $
    38.5
    
    
    $
    22.0
    
    
    
    75.0%
    
    
    $
    74.8
    
    
    $
    40.5
    
    
    
    84.7%
  Provision for Income Taxes.
 Three months ended
    
    Six months endedJuly 1,
    
    July 2,
    
    July 1,
    
    July 2,2007
    
    2006
    
    2007
    
    2006(In millions, except for percentages)Provision for income taxes
    
    $
    23.6
    
    
    $
    54.9
    
    
    $
    35.8
    
    
    $
    96.2Effective tax rates
    
    
    45.3
    %
    
    
    36.5
    %
    
    
    51.9
    %
    
    
    42.4
    %
      47




---



##### Table of Contents



Liquidity
and Capital Resources.
  Six months endedJuly 1,

    
    July 2,

    
    Percent2007
    
    2006

    
    Change(In millions, except percentages)Net cash provided by operating activities
    
    $
    164.8
    
    
    $
    111.8
    
    
    
    47.4
    %Net cash used in investing activities
    
    
    (584.0
    )
    
    
    (733.5
    )
    
    
    20.4
    %Net cash provided by (used in) financing activities
    
    
    (37.9
    )
    
    
    1,178.0
    
    
    
    (103.2
    %)Effect of changes in foreign currency exchange rates on cash
    
    
    0.6
    
    
    
    0.1
    
    
    
    233.3
    %Net increase (decrease) in cash and cash equivalents
    
    $
    (456.5
    )
    
    $
    556.4
    
    
    
    (182.0
    %)
 Operating Activities.
 Investing Activities.
 Financing Activities.
 Liquid Assets.
 Short-Term Liquidity.
 Long-Term Requirements.
 48




---



##### Table of Contents



Financing Arrangements.
  Toshiba Ventures.
    49




---



##### Table of Contents



Contractual Obligations and Off Balance Sheet Arrangements
  Critical Accounting Policies
   Recent Accounting Pronouncements
 SFAS No. 157. Fair Value Measurements
 SFAS No. 159. Establishing the Fair Value Option for Financial Assets and Liabilities
 50




---



##### Table of Contents



EITF Issue No. 07-3  Accounting for Advance Payments for
Goods or Services to be Received for Use in Future Research and Development Activities.
 FSP on Convertible Debt Instruments. Accounting for Convertible Debt Instruments That Require
or Permit Partial Cash Settlement upon Conversion
 
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
  
 Item 4. Controls and Procedures
   51




---



##### Table of Contents



PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
      52




---



##### Table of Contents



53




---



##### Table of Contents



54




---



##### Table of Contents



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 and our most recent Quarterly Report on Form 10-Q .
 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;
    
    excess supply from captive sources due to output increasing faster than the growth in
demand resulting in excess inventory;
    
    our license and royalty revenues may decline significantly in the future as our existing
license agreements and key patents expire, which may also lead to increased patent
litigation costs;
    
    insufficient supply from captive and non-captive silicon
sources;
    
    insufficient capacity or yields from our assembly and test subcontractors or captive
assembly and test facility to meet demand;
    
    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;
    
    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;
    
    difficulty in forecasting and managing inventory levels, particularly due to
non-cancelable 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 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;
    
    increased memory component and other costs as a result of foreign currency fluctuations
to the United States dollar, particularly the Japanese yen;
    
    increased purchases of flash memory products from our non-captive sources, which
typically cost more than products from our captive sources;
    
    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 of our investments in fabrication capacity, equity investments and other
assets;
    
    impairment of goodwill, business integration and other challenges related to our
acquisitions of msystems and Matrix;
    
    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.
 55




---



##### Table of Contents



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 price elasticity in our existing markets.
 56




---



##### Table of Contents



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.
 57




---



##### Table of Contents




    
    
    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.
 58




---



##### Table of Contents



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.
 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.
  59




---



##### Table of Contents



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.
 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.
 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.
 60




---



##### Table of Contents



We and Toshiba plan to continue to expand the wafer fabrication capacity of the Flash Partners
business venture and have formed a 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 an investment of approximately $154 million in 200-millimeter wafer manufacturing
assets that we expect will no longer be competitive in fiscal 2008.
 We have a contingent indemnification obligation and guarantee obligations related to the
ventures with Toshiba.
  .
 61




---



##### Table of Contents



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, 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.
 62




---



##### Table of Contents



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.
   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.
 63




---



##### Table of Contents



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.
 64




---



##### Table of Contents



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.
 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.
  65




---



##### Table of Contents



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.
 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 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.
 66




---



##### Table of Contents



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
controls over financial reporting is not effective, our business could suffer.
 67




---



##### Table of Contents



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, such as our
1% Senior Convertible Notes due 2013 may be subject to change. Accounting for Derivative Financial Instruments Indexed to, and Potentially
Settled in, a Companys Own Stock
  68




---



##### Table of Contents



We have significant financial obligations related to our 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
    
    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.
   69




---



##### Table of Contents



There are numerous risks associated with our acquisition of msystems Ltd.
 
    
    maintaining employee morale and retaining key employees;
    
    retaining key sources of supply;
    
    incorporating msystems technology and products into our business and future product lines;
    
    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.
  70




---



##### Table of Contents



Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
 (c)
    
    Issuer Repurchases of Equity Securities.The table below summarizes information about the
Companys repurchases of its equity securities registered pursuant to Section 12 of the
Exchange Act during the six months ended July 1, 2007.
 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(1)
    
    
    Plans or ProgramsJanuary 1, 2007 to January 28, 2007
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    January 29, 2007 to February 25, 2007
    
    
    18,000
    
    
    
    39.98
    
    
    
    18,000
    
    
    
    299,280,293February 26, 2007 to April 1, 2007
    
    
    172,184
    
    
    
    37.01
    
    
    
    172,184
    
    
    
    292,908,146April 2, 2007 to April 29, 2007
    
    
    5,000
    
    
    
    42.26
    
    
    
    5,000
    
    
    
    292,696,862April 30, 2007 to May 27, 2007
    
    
    1,322,769
    
    
    
    41.66
    
    
    
    1,322,769
    
    
    
    237,596,251May 28, 2007 to July 1, 2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    237,596,251Total
    
    
    1,517,953
    
    
    $
    41.11
    
    
    
    1,517,953
    
    
    $
    237,596,251
 
 (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 without commissions. 
 Item 3. Defaults upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
  Votes For
    
    Votes WithheldIrwin Federman
    
    
    134,434,007
    
    
    
    66,938,431Steven J. Gomo
    
    
    135,181,952
    
    
    
    66,190,486Dr. Eli Harari
    
    
    135,918,752
    
    
    
    65,453,686Eddy W. Hartenstein
    
    
    135,122,886
    
    
    
    66,249,552Catherine P. Lego
    
    
    134,988,440
    
    
    
    66,383,998Michael E. Marks
    
    
    133,513,048
    
    
    
    67,859,390Dr. James D. Meindl
    
    
    134,953,899
    
    
    
    66,418,539
  VotesVotes For
    
    Votes Against
    
    Abstained
    
    Non-votesRatify the
appointment of
Ernst & Young LLP
as the Companys
independent
registered public
accounting firm for
the fiscal year
ending December 30,
2007
    
    
    195,804,769
    
    
    
    4,210,667
    
    
    
    1,357,002
    
    
    
    
  VotesVotes For
    
    Votes Against
    
    Abstained
    
    Non-votesTo consider a
stockholder
proposal regarding
performance-vesting
shares
    
    
    67,277,584
    
    
    
    83,246,748
    
    
    
    1,634,700
    
    
    
    49,213,406
 71




---



##### Table of Contents



Item 5. Other Information
  New AnnualizedName
    
    Title
    
    Base Salary LevelDr. Eli Harari
    
    Chief Executive Officer & Chairman of the Board
    
    $
    848,000Sanjay Mehrotra
    
    President & Chief Operating Officer
    
    $
    510,000Judy Bruner
    
    Executive Vice President, Administration & Chief Financial Officer
    
    $
    450,000Yoram Cedar
    
    Executive Vice President, Mobile Business Unit & Corporate
Engineering
    
    $
    385,422Dr. Randhir Thakur
    
    Executive Vice President, Technology & Worldwide Operations
    
    $
    385,422
  72




---



##### Table of Contents



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
    
    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
    
    Form of Second Amendment to Change of Control Agreement for those officers of the Registrant who are
party to such Agreement.(*)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 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. 73




---



##### Table of Contents



SIGNATURES
  SANDISK CORPORATION
(Registrant)Dated: August 7, 2007By:
    /s/ Judy BrunerJudy BrunerExecutive Vice President, Administration
and Chief Financial Officer
(On behalf of the Registrant and as
Principal Financial and Accounting Officer) 74




---



##### Table of Contents



EXHIBIT INDEX
 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
    
    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
    
    Form of Second Amendment to Change of Control Agreement for those officers of the Registrant who are
party to such Agreement.(*)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 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. 75