SanDisk 2013 Annual Report Download - page 135

Non-compliance with these standards could cause us to lose sales to these customers and compliance with
these standards could increase our costs, which may harm our operating results.
New conflict minerals regulations are causing us to incur additional expenses and could limit the supply
and increase the cost of certain metals used in manufacturing our products. In August 2012, the SEC adopted
new rules establishing additional disclosure and reporting requirements regarding the use of specified
minerals, or conflict minerals, that are necessary to the functionality or production of products
manufactured or contracted to be manufactured. These new rules will require us to determine, disclose
and report whether or not such conflict minerals originate from the Democratic Republic of the Congo or
any adjoining country. These new rules could affect our ability to source certain materials used in our
products at competitive prices and could impact the availability of certain minerals used in the
manufacture of our products, including gold, tantalum, tin and tungsten. As there may be only a limited
number of suppliers of ‘‘conflict free’’ minerals, we cannot be sure that we will be able to obtain necessary
conflict free minerals in sufficient quantities or at competitive prices. Our customers, including OEM and
other customers in our commercial channel, may require that our products be free of conflict minerals, and
our revenue and margin may be harmed if we are unable to provide assurances to our customers that our
products are ‘‘conflict free’’ or to procure conflict free minerals at a reasonable price, or at all, or are
unable to pass through any increased costs associated with meeting these demands. Additionally, we may
face reputational challenges with our customers and other stakeholders if we are unable to sufficiently
verify the origins of all minerals used in our products through the due diligence procedures that we
implement. We may also face challenges with government regulators and our customers and suppliers if we
are unable to sufficiently verify that the metals used in our products are conflict free. We expect that there
may be material costs associated with complying with the disclosure requirements, such as costs related to
determining the source of certain minerals used in our products, as well as costs related to possible changes
to products, processes, or sources of supply as a consequence of such verification and disclosure
requirements.
In the event we are unable to satisfy regulatory requirements relating to internal controls, or if our internal
control over financial reporting is not effective, our business could suffer. In connection with our certification
process under Section 404 of the Sarbanes-Oxley Act, we have identified in the past and will, from
time-to-time in the future, identify deficiencies in our internal control over financial reporting. There can
be no assurance that individually or in the aggregate these deficiencies would not be deemed to be a
material weakness or significant deficiency. A material weakness or significant deficiency in internal
control over financial reporting could have a materially adverse impact on our reported financial results
and the market price of our stock could significantly decline. Additionally, adverse publicity related to the
disclosure of a material weakness in internal controls could harm our reputation, business and stock price.
Any internal control or procedure, no matter how well designed and operated, can only provide reasonable
assurance of achieving desired control objectives and cannot prevent human error, intentional misconduct
or fraud.
We have significant financial obligations related to Flash Ventures, which could impact our ability to
comply with our obligations under our 1.5% Convertible Senior Notes due 2017 and our 0.5% Convertible
Senior Notes due 2020. We have entered into agreements to guarantee or provide financial support with
respect to lease and certain other obligations of Flash Ventures in which we have a 49.9% ownership
interest. As of December 29, 2013, we had guarantee obligations for Flash Ventures’ master lease
agreements denominated in Japanese yen of approximately $492 million based on the exchange rate at
December 29, 2013. In addition, we have significant commitments for the future fixed costs of Flash
Ventures, and we will incur significant obligations with respect to Flash Forward as well as continued
investment in Flash Partners and Flash Alliance. Due to these and our other commitments, we may not
have sufficient funds to make payments under or repay the notes.
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Annual Report