8-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported): July 24, 2006

SanDisk Corporation

(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction
of incorporation) 000-26734
(Commission File No.) 77-0191793
(I.R.S. Employer
Identification Number

601 McCarthy Boulevard, Milpitas, California 95035

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code: (408) 801-1000

N/A

(Former name or former address, if changed since last report.)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provision (see General Instruction A.2. below):

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

TABLE OF CONTENTS

	Item 2.02 Results of Operations and Financial Condition
	Item 9.01 Financial Statements and Exhibits
SIGNATURES
EXHIBIT INDEX
EXHIBIT 99.1

Item 2.02 Results of Operations and Financial Condition

     On July 24, 2006, SanDisk Corporation (the “Registrant”) issued a press release to report its financial results for its second quarter ended July 2, 2006. The press release is attached hereto as Exhibit 99.1 and is incorporated herein in its entirety by reference.

     In addition to the consolidated financial statements presented in accordance with generally accepted accounting principles (GAAP), the attached press release contains non-GAAP measures of operating results, net income and earnings per share, which are adjusted from results based on GAAP to exclude certain expenses, gains and losses. These non-GAAP financial measures are provided to enhance the user’s overall understanding of the Registrant’s current financial performance and its prospects for the future. Specifically, the Registrant believes the non-GAAP results provide useful information to both management and investors as these non-GAAP results exclude certain expenses, gains and losses that it believes are not indicative of its core operating results and because it is consistent with the financial models and estimates published by many analysts who follow the Registrant. For example, because the non-GAAP results exclude the expenses the Registrant recorded for stock compensation in accordance with SFAS 123(R) effective January 2, 2006 and the acquisition of Matrix Semiconductor in January 2006, the Registrant believes the inclusion of non-GAAP financial measures provide consistency in its financial reporting. These non-GAAP results are one of the primary indicators management uses for assessing performance, allocating resources and planning and forecasting future periods. Further, management uses non-GAAP information as certain non-cash charges such as amortization of purchased intangibles and stock based compensation do not reflect the cash operating results of the business and certain one-time expenses such as write-off of acquired in-process technology that do not reflect the ongoing results. These measures should be considered in addition to results prepared in accordance with GAAP, but should not be considered a substitute for, or superior to, GAAP results. These non-GAAP measures may be different than the non-GAAP measures used by other companies.

     The information contained herein and in the accompanying exhibit shall not be incorporated by reference into any filing of the Registrant, whether made before or after the date hereof, regardless of any general incorporation language in such filing, unless expressly incorporated by specific reference to such filing. The information in this report, including the exhibit hereto, shall be deemed to be “furnished” and therefore shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section or Sections 11 and 12(a)(2) of the Securities Act of 1933, as amended.

Item 9.01 Financial Statements and Exhibits

      (c) Exhibits

Number	Description of Document
99.1	Press Release of SanDisk Corporation dated July 24, 2006 to report its financial results for its second quarter ended July 2, 2006.

SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Date: July 24, 2006

SANDISK CORPORATION
By:	/s/ Judy Bruner
Name:	Judy Bruner
Title:	Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)

EXHIBIT INDEX

Exhibit Number	Description of Document
99.1	Press Release of SanDisk Corporation dated July 24, 2006 to report its financial results for its second quarter ended July 2, 2006.

EX-99.1

Exhibit 99.1

CONTACT:	Investor Contact:	Media Contact:
	Lori Barker Padon	Mike Wong
	(408) 801-1384	(408) 801-1240

SANDISK REPORTS SECOND QUARTER 2006 RESULTS

• Revenues of $719 million, up 40% year-over-year

• GAAP EPS $0.47; Non-GAAP EPS $0.58

     SUNNYVALE, CA, July 24, 2006 – SanDisk^® Corporation (NASDAQ:SNDK), the world’s largest supplier of flash storage card products, today announced results for the second quarter ended July 2, 2006. Total second quarter revenues increased 40% on a year-over-year basis to $719 million. Second quarter net income as reported in accordance with U.S. Generally Accepted Accounting Principles (GAAP) was $96 million, or $0.47 per diluted share.

     Excluding the impact of stock compensation expense and amortization of acquisition related intangible assets and the related tax effect, second quarter non-GAAP net income grew 67% to $118 million, or $0.58 per diluted share, which compares to the second quarter 2005 GAAP results of $70 million, or $0.37 per diluted share.

     “The second quarter was an excellent quarter for both our OEM and our retail business. Mobile cards sold into handsets were the star performer with more than 15 million cards sold in the quarter. Our microSD^TM card has become our number one product in units and our second largest product by revenue. Our Sansa^TM e200 audio players have been well received, solidifying our clear #2 share for flash players in U.S. retail in the second quarter. Our SanDisk Extreme^TM high performance cards for professional photographers were our fastest growing product line in the quarter. Solid execution of the 300-millimeter fab ramp and 8 gigabit 70-nanometer MLC shipments contributed to improved product margins despite a challenging industry-wide pricing environment. The cumulative pricing reductions implemented over the past two quarters are showing positive demand elasticity as evidenced by 20% growth in average capacity and 46% more megabytes sold compared to the first quarter,” said Eli Harari, chairman and chief executive officer of SanDisk Corporation. “We are optimistic about growth in demand in our target markets in the second half and with Fab 3 costs steadily declining and our captive capacity ramping, we believe we are well positioned for the anticipated demand upswing in the back half of this year.”

Metrics and Highlights

• Product revenues grew 40% and license and royalty revenue grew 35% year-over-year.

• Megabytes sold in the second quarter increased 178% year-over-year and 46% from the first quarter of 2006.

• Average density per card sold in retail grew 15% sequentially to 758 megabytes. Average density per card sold across all channels grew 20% sequentially.

• Average price per megabyte sold declined 19% sequentially and 49% from the second quarter of 2005.

• Total GAAP gross margin was 40% of revenues compared to 42% in the second quarter of 2005 and 38% in the first quarter of 2006.

• GAAP product gross margin for the second quarter of 2006 was 32% of revenues compared to 34% in

the second quarter of 2005 and 28% in the first quarter of 2006.

• GAAP operating income for the second quarter of 2006 was $129 million or 18% of revenues. Non-GAAP operating income was $159 million or 22% of revenue compared to $106 million or 21% of revenue in the second quarter of 2005.

• Cash flow from operations was $59 million, and total cash and investments increased sequentially by $933 million to $2.7 billion.

• SanDisk sold $1.15 billion aggregate principal amount of Convertible Senior Notes due in 2013.

• SanDisk introduced high capacity new products including the 4 gigabyte (GB) SD High Capacity card and the 4GB Memory Stick PRO Duo^TM game card.

• Retail presence grew to more than 187,000 storefronts including 54,000 in the mobile channel.

• SanDisk and Toshiba signed a definitive agreement to build a new 300-millimeter NAND wafer fabrication facility in Yokkaichi, Japan with initial production expected to begin in the fourth quarter of 2007.

Scheduled Interviews
SanDisk Corporation Chairman and Chief Executive Officer, Eli Harari, is scheduled to appear on CNBC’s “Closing Bell with Maria Bartiromo,” on July 24, 2006 at approximately 1:10 p.m. PDT. Judy Bruner, SanDisk’s Executive Vice President, Administration and CFO is scheduled to appear on Bloomberg Radio’s “Bloomberg Radio Report,” July 25, 2006 at approximately 3:20 a.m. PDT.

Conference Call
SanDisk’s second quarter 2006 conference call is scheduled for 2:00 p.m. PDT, Monday, July 24, 2006. The conference call will be webcast by CCBN and can be accessed live, and throughout the quarter, at SanDisk’s website at www.sandisk.com/IR and at www.streetevents.com for registered streetevents.com users. To participate in the call via telephone, the dial-in number is (913) 981-4901. A copy of this press release will be filed with the Securities and Exchange Commission on a current report on Form 8-K and will be posted to our website prior to the conference call.

Forward-Looking Statements
This news release contains certain forward-looking statements, including statements about our business prospects and outlook for the second half of 2006, including anticipated increased demand for our products, market supply and demand, expected captive manufacturing cost reductions and scheduled appearances by our CEO and CFO that are based on our current expectations and involve numerous risks and uncertainties that may cause these forward-looking statements to be inaccurate and may significantly and adversely affect our business, financial condition and results of operations. Risks that may cause these forward-looking statements to be inaccurate include among others: slower than expected growth in market demand for our products or a slower adoption rate for these products in current and new markets that we are targeting, any interruption of or delay in supply from any of the semiconductor manufacturing or subcontracting facilities, including test and assembly facilities that supply products to us, slower than expected expansion of our global sales channels, fluctuations in operating results, unexpected yield variances related to our conversion to 70-nanometer NAND flash technology or the ramp-up of the 300mm flash fabrication facility, our inability to make additional planned smaller geometry conversions in a timely manner, future average selling price erosion that may be more severe than our expectations due to decreased demand or possible excess industry capacity of flash memory from ourselves as well as from existing suppliers or from new competitors, less than expected growth in the average megabyte capacity per card, price increases from non-captive flash memory sources and third-party subcontractors, higher than expected operating expenses, higher than anticipated capital equipment

expenditures, adverse global economic and geo-political conditions, including adverse currency exchange rates and acts of terror and war, the timely development, internal qualification and customer acceptance of new products that are based on 70-nanometer NAND technology, fluctuations in license and royalty revenues, business interruption due to earthquakes, hurricanes, pandemics, power outages or other natural disasters, particularly in areas in the Pacific Rim and Japan where we manufacture and assemble products, potential impact of high energy prices and other global events outside of our control which could adversely impact consumer confidence and hence reduce demand for our products, scheduled appearances by our executives could be cancelled or delayed by us or the network, and the other risks detailed from time-to-time under the caption “Risk Factors” and elsewhere in our Securities and Exchange Commission filings and reports, including, but not limited to, our Form 10-K for the fiscal year ended January 1, 2006 and our quarterly reports on Form 10-Q. Future results may differ materially from those previously reported. We do not intend to update the information contained in this release.

About SanDisk
SanDisk is the original inventor of flash storage cards and is the world’s largest supplier of flash data storage card products using its patented, high-density flash memory and controller technology. SanDisk is headquartered in Milpitas, CA and has operations worldwide with more than half its sales outside the U.S.

www.sandisk.com

SanDisk and SanDisk Extreme are trademarks of SanDisk Corporation, registered in the United States and other countries. Memory Stick PRO is a trademark of Sony Corporation.

SanDisk Corporation
Condensed Consolidated Statements of Income
(In thousands, except per share data, unaudited)

	Three months ended				Six months ended
	July 2, 2006		July 3, 2005		July 2, 2006		July 3, 2005
Revenues:
Product	$	636,675	$	453,762	$	1,174,403	$	853,441
License and royalty		82,510		61,134		168,042		112,430
Total revenue		719,185		514,896		1,342,445		965,871
Cost of product revenues		430,177		300,797		815,044		551,985
Gross profits		289,008		214,099		527,401		413,886
Operating expenses:
Research and development		73,785		61,404		137,547		107,351
Sales and marketing		45,067		27,034		88,442		51,631
General and administrative		37,182		19,617		67,198		35,341
Write-off of acquired in-process technology		—		—		39,600		—
Amortization of acquisition related intangible assets		4,432		—		8,147		—
Total operating expenses		160,466		108,055		340,934		194,323
Operating income		128,542		106,044		186,467		219,563
Total other income		22,013		5,854		40,477		10,615
Income before taxes		150,555		111,898		226,944		230,178
Provision for income taxes		54,914		41,402		96,188		85,166
Net income	$	95,641	$	70,496	$	130,756	$	145,012
Shares used in computing net income per share
Basic		195,527		181,469		194,302		181,050
Diluted		202,980		190,256		202,522		190,127
Net income per share
Basic	$	0.49	$	0.39	$	0.67	$	0.80
Diluted	$	0.47	$	0.37	$	0.65	$	0.76

SanDisk Corporation
Reconciliation of GAAP to Non-GAAP Operating Results (*)
(In thousands, except per share data, unaudited)

	Three months ended					Six months ended
	July 2, 2006			July 3, 2005		July 2, 2006			July 3, 2005
GAAP gross profit	$	289,008		$	214,099	$	527,401		$	413,886
Stock compensation (a)		2,478			—		2,478			—
Non-GAAP gross profit	$	291,486		$	214,099	$	529,879		$	413,886
GAAP total operating expenses	$	160,466		$	108,055	$	340,934		$	194,323
Stock compensation (a)		(23,392	)		—		(42,178	)		—
Write-off of acquired in-process technology (b)		—			—		(39,600	)		—
Amortization of acquisition-related intangible assets (c)		(4,432	)		—		(8,147	)		—
Non-GAAP total operating expenses	$	132,642		$	108,055	$	251,009		$	194,323
GAAP operating income	$	128,542		$	106,044	$	186,467		$	219,563
Cost of goods sold adjustments (a)		2,478			—		2,478			—
Operating expense adjustments (a-c)		27,824			—		89,925			—
Non-GAAP operating income	$	158,844		$	106,044	$	278,870		$	219,563
GAAP net income	$	95,641		$	70,496	$	130,756		$	145,012
Cost of goods sold adjustments (a)		2,478			—		2,478			—
Operating expense adjustments (a-c)		27,824			—		89,925			—
Income tax adjustments (d)		(8,385	)		—		(15,583	)		—
Non-GAAP net income	$	117,558		$	70,496	$	207,576		$	145,012
Basic net income per share:
GAAP	$	0.49		$	0.39	$	0.67		$	0.80
Non-GAAP	$	0.60		$	0.39	$	1.07		$	0.80
Diluted net income per share:
GAAP	$	0.47		$	0.37	$	0.65		$	0.76
Non-GAAP	$	0.58		$	0.37	$	1.02		$	0.76
Shares used in computing basic net income per share:
GAAP		195,527			181,469		194,302			181,050
Non-GAAP		195,527			181,469		194,302			181,050
Shares used in computing diluted net income per share:
GAAP		202,980			190,256		202,522			190,127
Non-GAAP		204,126			190,256		203,716			190,127

(*)	To supplement our consolidated financial statements presented in accordance with generally accepted accounting principles (GAAP), we use non-GAAP measures of operating results, net income and earnings per share, which are adjusted from results based on GAAP to exclude certain expenses, gains and losses. These non-GAAP financial measures are provided to enhance the user’s overall understanding of our current financial performance and our prospects for the future. Specifically, we believe the non-GAAP results provide useful information to both management, and investors as these non-GAAP results exclude certain expenses, gains and losses that we believe are not indicative of our core operating results and because it is consistent with the financial models and estimates published by many analysts who follow the Company. For example, because the non-GAAP results exclude the expenses we recorded for stock compensation in accordance with SFAS 123(R) effective January 2, 2006 and the acquisition of Matrix Semiconductor, Inc. in January 2006, we believe the inclusion of non-GAAP financial measures provide consistency in our financial reporting. These non-GAAP results are one of the primary indicators management uses for assessing our performance, allocating resources and planning and forecasting future periods. Further, management uses non-GAAP information as certain non-cash charges such as amortization of purchased intangibles and stock based compensation do not reflect the cash operating results of the business and certain one-time expenses such as write-off of acquired in-process technology that do not reflect the ongoing results. These measures should be considered in addition to results prepared in accordance with GAAP, but should not be considered a substitute for or superior to GAAP results. These non-GAAP measures may be different than the non-GAAP measures used by other companies.
(a)	Equity based compensation expense.
(b)	Write-off of acquired in-process technology associated with the Matrix acquisition (January 2006).
(c)	Amortization of acquisition-related intangible assets, primarily core and developed technology, related to the acquisition of Matrix.
(d)	Income taxes associated with certain non-GAAP adjustments.

SanDisk Corporation
Condensed Consolidated Balance Sheets
(In thousands)

	July 2, 2006		January 1, 2006*
	(unaudited)
ASSETS
Current Assets:
Cash and cash equivalents	$	1,318,479	$	762,058
Short-term investments		960,995		935,639
Investment in foundries		18,990		18,338
Accounts receivable, net		311,921		329,014
Inventories		378,196		331,584
Deferred taxes		107,283		95,518
Other current assets		121,164		103,584
Total current assets		3,217,028		2,575,735
Long-term investments		405,714		—
Property and equipment, net		254,695		211,092
Notes receivable, FlashVision		63,750		61,927
Notes receivable, Flash Partners		96,061		—
Investment in foundries		16,364		11,013
Investment in FlashVision		164,888		161,080
Investment in Flash Partners		174,325		42,067
Deferred taxes		143,630		—
Goodwill		167,248		5,415
Intangible, net		97,232		4,608
Deposits and other non-current assets		39,674		47,250
Total Assets	$	4,840,609	$	3,120,187
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	110,864	$	231,208
Accounts payable to related parties		86,153		74,121
Accrued payroll and related expenses		45,035		55,614
Income taxes payable		12,994		2,165
Research and development liability, related party		5,984		4,200
Other current accrued liabilities		75,934		53,546
Deferred income on shipments to distributors and retailers and deferred revenue		143,678		150,283
Total current liabilities		480,642		571,137
Convertible senior notes		1,150,000		—
Deferred revenue and non-current liabilities		40,850		25,259
Total Liabilities		1,671,492		596,396
Commitments and contingencies
Stockholders’ Equity:
Common stock		2,120,763		1,622,007
Retained earnings		1,037,380		906,624
Accumulated other comprehensive income		10,974		2,635
Deferred compensation		—		(7,475	)
Total stockholders’ equity		3,169,117		2,523,791
Total Liabilities and Stockholders’ Equity	$	4,840,609	$	3,120,187

* Information derived from the audited Condensed Consolidated Financial Statements.

SanDisk Corporation
Condensed Consolidated Comparative Statement of Cash Flows
(In thousands, unaudited)

	Three months ended						Six months ended
	July 2, 2006			July 3, 2005			July 2, 2006			July 3, 2005
Cash flows from operating activities:
Net income	$	95,641		$	70,496		$	130,756		$	145,012
Adjustments to reconcile net income to net cash
provided by operating activities:
Deferred taxes		(3,939	)		(12	)		(17,395	)		1,076
Loss (gain) on investments		(602	)		5,224			(1,195	)		9,253
Depreciation and amortization		31,269			14,951			57,666			29,413
Provision for doubtful accounts		1,527			(163	)		1,001			(163	)
Deferred stock-based compensation		25,903			550			44,688			1,069
Write-off of acquired in-process technology		—			—			39,600			—
Other non-cash charges		(3,536	)		3,492			(4,744	)		2,274
Changes in operating assets and liabilities:
Accounts receivable		(67,498	)		(33,525	)		23,048			(47,800	)
Inventories		35,508			(5,810	)		(39,976	)		(33,171	)
Other assets		(68,324	)		(59,213	)		(8,743	)		(15,241	)
Accounts payable trade		(65,623	)		18,624			(123,758	)		30,132
Accounts payable, related party		6,857			(1,038	)		13,065			15,947
Other liabilities		72,156			45,625			(2,225	)		55,676
Total adjustments		(36,302	)		(11,295	)		(18,968	)		48,465
Net cash provided by operating activities		59,339			59,201			111,788			193,477
Cash flows from investing activities:
Purchases of short and long term investments		(685,531	)		(156,384	)		(805,300	)		(295,582	)
Proceeds from sale and maturities of short and long term investments		220,782			128,158			375,446			281,608
Investment in Flash Partners		(84,338	)		—			(127,919	)		—
Acquisition of capital equipment, net		(37,125	)		(26,067	)		(89,722	)		(56,218	)
Notes receivable from FlashVision		—			—			—			(22,222	)
Notes receivable from Flash Partners		(95,445	)		—			(95,445	)		—
Cash acquired in business combination with Matrix, net of acquisition costs		—			—			9,432			—
Net cash used in investing activities		(681,657	)		(54,293	)		(733,508	)		(92,414	)
Cash flows from financing activities:
Proceeds from issuance of convertible notes, net of issuance costs		1,125,500			—			1,125,500			—
Purchase of convertible bond hedge		(386,090	)		—			(386,090	)		—
Proceeds from issuance of warrants		308,672			—			308,672			—
Proceeds from employee stock programs		22,789			4,581			68,850			15,853
Tax benefit on employee stock programs		19,114			—			61,023			—
Net cash provided by financing activities		1,089,985			4,581			1,177,955			15,853
Effect of changes in foreign currency exchange rates on cash		247			(205	)		186			378
Net increase in cash and cash equivalents		467,914			9,284			556,421			117,294
Cash and cash equivalents at beginning of period		850,565			571,805			762,058			463,795
Cash and cash equivalents at end of period	$	1,318,479		$	581,089		$	1,318,479		$	581,089