SanDisk 2014 Annual Report Download - page 108

this examination will be reached or what the outcome will be. While we regularly assess the likely outcomes
of these audits in order to determine the appropriateness of our tax provision, tax audits are inherently
uncertain and an unfavorable outcome could occur. An unanticipated unfavorable outcome in any specific
period could harm our operating results for that period or future periods. The financial cost and
management attention and time devoted to defending income tax positions may divert resources from our
business operations, which could harm our business and profitability. IRS audits may also impact the
timing and/or amount of any refund claims. In addition, our effective tax rate in the future could be
adversely affected by changes in the mix of earnings in countries with differing statutory tax rates, changes
in the valuation of deferred tax assets and liabilities, changes in tax laws and the discovery of new
information in the course of our tax return preparation process. In particular, the carrying value of
deferred tax assets, which are predominantly in the U.S., is dependent on our ability to generate future
taxable income in the U.S.
We may be subject to risks associated with laws, regulations and customer initiatives relating to the
environment or other social responsibility issues. Production and marketing of products in certain states and
countries may subject us to environmental and other regulations including, in some instances, the
responsibility for environmentally safe disposal or recycling. Such laws and regulations have been enacted
in several jurisdictions in which we operate, including Japan and certain states within the U.S. In addition,
climate change issues, energy usage and emissions controls may result in new environmental legislation and
regulations, at the international, federal or state level, that may make it more difficult or expensive for us,
our suppliers and our customers to conduct business. Any of these regulations could cause us to incur
additional direct costs, as well as increased indirect costs related to our relationships with our customers
and suppliers, and otherwise harm our operations and financial condition.
Government regulators or our customers may require us to comply with product or manufacturing
standards that are more restrictive than current laws and regulations related to environmental matters,
conflict minerals or other social responsibility initiatives. The implementation of these standards could
affect the sourcing, cost and availability of materials used in the manufacture of our products.
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 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. During the course of our diligence procedures, we
could find that the minerals procured by one or more of our suppliers are not ‘‘conflict free’’ or discover
violations of other rules, regulations or laws. 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. Some customers have notified us that they will 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
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