SanDisk 2012 Annual Report Download - page 136

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 may cause 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 an 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 our OEM customers, may require that our products be free of
conflict minerals, and our revenues and margins may be harmed if we are unable 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% 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
December 30, 2012, we had guarantee obligations for Flash Ventures’ master lease agreements denominated
in Japanese yen of approximately $926 million based on the exchange rate at December 30, 2012. 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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