SanDisk 2014 Annual Report Download - page 109

are conflict free. We expect that there may be significant costs associated with complying with the ongoing
diligence and disclosure requirements, such as costs related to determining the source of certain minerals
used in our products and costs of an independent private sector audit, to the extent required, 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, as well as under our 1.5% Convertible
Senior Notes due 2017 and our 0.5% Convertible Senior Notes due 2020, which could negatively impact our
cash flows and financial position. 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 28, 2014, we had guarantee obligations for Flash Ventures’ master
lease agreements denominated in Japanese yen of approximately $551 million based on the exchange rate
at December 28, 2014. We also have significant commitments for the future fixed costs of Flash Ventures,
and we expect to continue to incur significant obligations with respect to, as well as make continued
investments in, Flash Ventures. In addition, as of December 28, 2014, the aggregate principal amount
outstanding under our 1.5% Convertible Senior Notes due 2017 (the ‘‘1.5% Notes due 2017’’) and
our 0.5% Convertible Senior Notes due 2020 (the ‘‘0.5% Notes due 2020,’’ and together with
the 1.5% Notes due 2017, the ‘‘Notes’’) was $2.5 billion. The Notes may be converted at the option of the
holders during certain periods as a result of, among other things, fluctuations in our stock price. For
example, as of the calendar quarter ended December 31, 2014, the stock price of our common stock had
met the thresholds under which the 1.5% Notes due 2017 are convertible at the holders’ option, and as a
result, the 1.5% Notes due 2017 were convertible beginning on January 1, 2015 and ending March 31, 2015.
Convertibility of the Notes based on the trading price of our common stock is assessed on a calendar-
quarter basis. Upon any conversion of the Notes, we will be required to deliver cash up to the principal
amount of the Notes that are converted and, with respect to any excess conversion value greater than the
principal amount of the Notes, shares of our common stock (plus cash in lieu of any fractional shares of
common stock), which would result in dilution to our stockholders. In connection with the issuance of the
Notes, we sold warrants to acquire shares of our common stock, which, if exercised, will result in dilution to
our stockholders. We may not have sufficient funds to make payments related to our Flash Ventures
obligations or under the Notes when converted or due. Further, these obligations could negatively impact
our cash flows and limit our ability to use our cash flow for our other liquidity needs, including working
capital, capital expenditures, acquisitions, investments and other general corporate purposes.
There can be no assurance that we will continue to declare cash dividends. Our continuation of declaring
quarterly dividends is subject to capital availability and periodic determination by our Board of Directors
that cash dividends are in the best interest of our stockholders. Future dividends may be affected by,
among other factors, our views on potential future capital requirements, acquisition transactions, stock
repurchases, changes in tax laws, and changes in our business model. A reduction in our dividend payments
or discontinuance of dividend payments could have a negative effect on our stock price, which could have a
material adverse impact on investor confidence and employee retention.
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Annual Report