SanDisk 2012 Annual Report Download - page 181

This is a TAB type table. Insert
conts here. Annual Report
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
quantitative disclosures about fair value amounts of gains and losses on derivative instruments, and disclosures
about credit-risk-related contingent features in derivative agreements. Changes in fair value (i.e., gains or losses)
of the derivatives are recorded as cost of product revenues or other income (expense), or as accumulated OCI.
The Company does not offset or net the fair value amounts of derivative instruments and separately discloses the
fair value amounts of the derivative instruments as either assets or liabilities.
Cash Flow Hedges. The Company uses forward contracts designated as cash flow hedges to hedge a portion
of future forecasted purchases in Japanese yen. The gain or loss on the effective portion of a cash flow hedge is
initially reported as a component of accumulated OCI and subsequently reclassified into cost of product revenues
in the same period or periods in which the cost of product revenues is recognized, or reclassified into other
income (expense) if the hedged transaction becomes probable of not occurring. Any gain or loss after a hedge is
no longer designated because it is no longer probable of occurring or it is related to an ineffective portion of a
cash flow hedge, as well as any amount excluded from the Company’s hedge effectiveness, is recognized as other
income (expense) immediately. As of December 30, 2012, the Company had forward contracts in place to hedge
future purchases over the next twelve months of 38.1 billion Japanese yen, or approximately $444 million based
upon the exchange rate as of December 30, 2012, and the net unrealized loss on the effective portion of these
cash flow hedges was ($7.1) million. As of December 30, 2012, the Company had no forward contracts in place
to hedge future purchases beyond the next twelve months.
Other Derivatives. Other derivatives that are non-designated consist primarily of forward and cross currency
swap contracts to minimize the risk associated with the foreign exchange effects of revaluing monetary assets and
liabilities. Monetary assets and liabilities denominated in foreign currencies and the associated outstanding forward
and cross currency swap contracts were marked-to-market at December 30, 2012 with realized and unrealized gains
and losses included in other income (expense). As of December 30, 2012, the Company had foreign currency
forward contracts hedging exposures in European euros, British pounds and Japanese yen. Foreign currency forward
contracts were outstanding to buy and sell U.S. dollar equivalents of approximately $307 million and $177 million
in foreign currencies, respectively, based upon the exchange rates at December 30, 2012.
The Company currently has cross currency swap contracts with various counterparties to exchange Japanese
yen for U.S. dollars that require the Company to comply with certain covenants, the strictest of which is to
maintain a minimum liquidity of $1.0 billion. Liquidity is defined as the sum of the Company’s cash and cash
equivalents and short and long-term marketable securities. These cross currency swap contracts were outstanding
to sell U.S. dollar equivalents of approximately $168 million based upon the exchange rate at December 30,
2012. Should the Company fail to comply with these covenants, the Company may be required to settle the
unrealized gain or loss on the foreign exchange contracts prior to the original maturity date. The Company was in
compliance with these covenants as of December 30, 2012.
The amounts in the tables below include fair value adjustments related to the Company’s own credit risk and
counterparty credit risk.
Fair Value of Derivative Contracts. Fair value of derivative contracts as of December 30, 2012 and
January 1, 2012 were as follows (in thousands):
Derivative assets reported in
Other Current Assets Other Non-current Assets
December 30,
2012
January 1,
2012
December 30,
2012
January 1,
2012
Foreign exchange contracts designated ..................... $ — $ 14,890 $ — $ —
Foreign exchange contracts not designated .................. 19,064 6,203 994 —
Total derivatives .................................. $ 19,064 $ 21,093 $ 994 $ —
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