SanDisk 2010 Annual Report Download - page 159

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conts here. Annual Report
outcome in any specific period could harm our results of operations for that period or future periods. The
financial cost and our attention and time devoted to defending income tax positions may divert resources from
our business operations, which could harm our business and profitability. The IRS audit may also impact the
timing and/or amount of our refund claim. 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. Any of these
changes could affect our profitability.
We may be subject to risks associated with environmental regulations. 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
recently been passed in several jurisdictions in which we operate, including Japan and certain states within the
U.S. Although we do not anticipate any material adverse effects in the future based on the nature of our
operations and the focus of such laws, there is no assurance such existing laws or future laws will not harm our
financial condition, liquidity or results of operations.
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. 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. These
costs may harm our operations and financial condition.
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,
identify deficiencies in our internal control over financial reporting. We cannot assure you 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 materially impact
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 have a negative impact on 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% Convertible Senior Notes due 2013 and 1.5% Convertible Senior
Notes due 2017. 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 January 2,
2011, we had guarantee obligations for Flash Ventures’ master lease agreements denominated in Japanese yen of
approximately $879 million based on the exchange rate at January 2, 2011. 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.
Our debt service obligations may adversely affect our cash flow. While our 1% Convertible Senior Notes due
May 15, 2013, or 1% Notes due 2013, are outstanding, we will have debt service obligations on the 1% Notes due
2013 of approximately $11.5 million per year and while our 1.5% Convertible Senior Notes due August 15, 2017,
or 1.5% Notes due 2017, are outstanding, we will have debt service obligations on the 1.5% Notes due 2017 of
approximately $15.0 million per year. If we issue other debt securities in the future, our debt service obligations will
increase. In addition, if we are unable to generate sufficient cash to meet these obligations and must instead use our
existing cash or investments, we may have to reduce, curtail or terminate other activities of our business.
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