SanDisk 2014 Annual Report Download - page 105

If our stockholders’ equity were to fall below $1.51 billion, Flash Ventures would become
non-compliant with certain covenants under its master equipment lease agreements and would be required
to negotiate a resolution to the non-compliance to avoid acceleration of the obligations under such
agreements. Such resolution could include, among other things, supplementary security to be supplied by
us, as guarantor, or increased interest rates or waiver fees, should the lessors decide they need additional
collateral or financial consideration. If an event of default occurs and if we fail to reach a resolution, we
may be required to pay a portion or the entire outstanding lease obligations up to approximately
$551 million based upon the exchange rate at December 28, 2014, covered by our guarantee under Flash
Ventures’ master lease agreements, which would significantly reduce our cash position and may force us to
seek additional financing, which may not be available.
We are vulnerable to numerous risks related to our international operations, including political instability,
and we must comply with numerous laws and regulations, many of which are complex. Currently, a large
portion of our revenue is derived from our international operations, and all of our products and many of
our components are produced overseas in China, Japan, Malaysia and Taiwan. Our revenue and future
growth is also significantly dependent on international markets, and we may face difficulties entering or
maintaining sales in some international markets. We are, therefore, affected by the political, economic,
labor, environmental, public health and military conditions in these countries. For example, China does not
currently have a comprehensive and highly developed legal system, particularly with respect to the
protection of IP rights, which results in the prevalence of counterfeit goods in China, among other things,
as well as piracy and degradation of our IP protection. Our efforts to prevent counterfeit products from
entering the market may not be successful, and the sale of counterfeit products could harm our operating
results and financial condition. In addition, customs regulations in China are complex and subject to
frequent changes and, in the event of a customs compliance issue, our ability to import to, and export from,
our factory in Shanghai, China could be adversely affected, which could harm our operating results and
financial condition.
Our international business activities could also be limited or disrupted by any of the following factors:
• the need to comply with foreign government regulation;
• the need to comply with U.S. regulations on international business, including the Foreign Corrupt
Practices Act, the United Kingdom Bribery Act 2010 and rules regarding conflict minerals;
• changes in diplomatic and trade relationships or government intervention, which may impact our
ability to sell to certain customers;
• reduced sales to our customers or interruption to our manufacturing processes in the Pacific Rim
that may arise from regional issues in Asia, including natural disasters or labor strikes;
• imposition of regulatory requirements, tariffs, import and export restrictions and other barriers and
restrictions;
• a higher degree of commodity pricing than in the U.S.;
• changes in, or the particular application of, government regulations;
• import or export restrictions that could affect some of our products, including those with encryption
technology;
• duties and/or fees related to customs entries for our products, which are all manufactured offshore;
• longer payment cycles and greater difficulty in accounts receivable collection;
• adverse tax rules and regulations;
• weak protection of our IP rights;
• delays in product shipments due to local customs restrictions; and
• delays in research and development that may arise from political unrest at our development centers
in Israel or other countries.
35
Annual Report