SanDisk 2000 Annual Report Download - page 28

2 6 . Sa n D is k C o rp o ra t io n . 2 0 0 0 A n n u a l Re p o rt
o f $169.63, and has recently trad ed as lo w as $18.6 3.
W e b e lieve that suc h fluctuatio ns w ill c o ntinue as a
result o f future anno unc em ents c o nc e rning us, o ur
c o m p e tito rs o r princ ip al c usto m ers re g ard ing tec hno -
lo g ic al inno vatio ns, new p ro d uct intro d uc tions, g o v-
ernm ental regulations, litigatio n o r c hang e s in earning s
estim ates b y analysts. In add itio n, in re c ent years the
sto c k m arket has exp erie nc ed sig nific ant p ric e and
vo lum e fluc tuations and the m arke t p ric es o f the
se c uritie s o f hig h tec hno lo g y c o m panie s have b ee n
esp ecially vo latile, ofte n fo r reaso ns o utsid e the c o n-
tro l of the p artic ular c o m p anies. The se fluc tuations as
w ell as g e ne ral ec ono m ic , p o litic al and m arket cond i-
tio ns m ay have an ad ve rse affec t o n the m arket p ric e
o f o ur c o m m o n stock.
M a r k e t R is k D is c lo s u r e I n f o r m a t io n
Inte re st Rate Risk. Our e xp o s ure to m arket risk for
c hang es in intere st rates relate s p rim arily to o ur inve st-
m ent p o rtfolio. The p rim ary o b je c tive o f o ur inve stm ent
ac tivities is to p reserve princ ip al w hile m axim izing
yield s w itho ut sig nific antly inc reasing risk. Th is is
ac c o m p lished b y investing in w id e ly d ive rsified short-
te rm investm ents, consisting p rim arily of investm e nt
g rad e sec urities, substantially all of w hic h e ithe r
m ature w ithin the next tw elve m o nths or have c harac-
te ristic s o f sho rt- term inve stm ents. A hyp o thetic al 50
b asis p o int in c rease in intere st rates w o uld result in an
ap p ro xim ate $ 73 1,00 0 d e c line (less than 0 .2 8%) in the
fair value o f o ur availab le- fo r- sale deb t se c urities.
Foreig n Curre nc y Risk. A su b stantial m ajority o f o ur
reve nue, e xp e nse and c apital purc hasing ac tivity are
transac ted in U.S. d o llars. H o w ever, w e d o e nter into
transac tions in othe r c urrencies, prim arily the
Jap anese Yen. To p ro tec t ag ainst red uc tio ns in value
and the volatility o f future cash flow s caused b y
c hang es in foreig n e xc hang e rates, w e have estab-
lishe d a hedging program . Curre nc y fo rw ard c o ntrac ts
are utilize d in th ese he d g ing p ro g ram s. Our he d g ing
p ro g ram s reduc e, b ut d o no t alw ays e ntire ly e lim inate ,
the im p ac t o f foreig n c urre nc y exc hang e rate m o ve-
m ents. An ad verse c hang e o f 10% in exchange rate s
w o uld result in a dec line in inc o m e befo re taxes o f
ap p ro xim ate ly $ 294 ,00 0.
All of the potential c hang es no te d ab o ve are
b ased o n sensitivity analyse s p erfo rm ed o n o ur finan-
c ial p o sitio n s at Dec e m b e r 3 1, 2 0 00.
The B o ard o f Directo rs and Sto c kho ld ers
SanDisk C o rp o ratio n
W e have aud ited the ac c o m p anying c o nsolidate d b al-
anc e she ets o f SanDisk Co rp o ratio n as o f De c em b er
31, 200 0 an d 199 9 , and the related c o nso lid ated state -
m ents o f inc om e, sto c kholders' e q uity, and c ash flo w s
fo r eac h of the thre e years in the p e rio d ended
Dec em b e r 3 1, 2 0 00. These financ ial state m e nts are
the responsib ility o f the Co m p any' s m anag e m ent. Our
resp o nsib ility is to exp ress an o p inio n o n these finan-
c ial statem ents b ased o n our aud its.
W e c o nduc te d o ur aud its in ac c o rd anc e w ith
aud iting stand ard s g enerally acc ep ted in the Unite d
States. Tho se stand ard s require that w e p lan and p er-
fo rm the aud it to o b tain re asonab le assuranc e ab o ut
w he ther the financ ial statem ents are free of m aterial
m isstate m e nt. An aud it includ es e xam ining , o n a te st
b asis, evid e nc e sup p o rting the am o unts and d isc lo -
sure s in the financ ial state m ents. An aud it also
inc ludes assessing the ac c o unting p rinciples used and
sig nific ant e stim ate s m ad e by m anag e m ent, as w ell as
evaluating the o ve rall financ ial statem ent p resentation.
W e b e lieve that o ur audits p ro vid e a reaso nable b asis
fo r o ur opinio n.
In our o pin io n, the c o nsolid ate d financ ial state -
m ents refe rred to ab o ve p re se nt fairly, in all m ate rial
resp ects, the c o nsolid ate d financ ial p o sition o f SanDisk
Co rp o ration at Dec e m b e r 3 1, 2 0 00 and 19 99 and the
c o nsolidate d re sults o f its o p eratio ns and its c ash
flo w s fo r e ac h o f the thre e ye ars in the perio d end ed
Dec em b e r 3 1, 2 0 00, in c o nfo rm ity w ith ac c ounting
p rinc ip le s g enerally ac c ep te d in the United States.
San Jo se , Califo rnia
January 2 3, 20 0 1
Report of
Independent Auditors