SanDisk 2006 Annual Report Download - page 96

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on forward exchange contracts would result in an approximate $8 million loss. However, as we utilize foreign
currency instruments, for mitigating anticipated balance sheet exposures, a loss in fair value for those instruments is
generally offset by increases in the value of the underlying exposure. See Item 1A, “Risk Factors” and Note 8 to our
consolidated financial statements included in Item 8 of this report.
Market Risk. We also hold available-for-sale equity securities in semiconductor wafer manufacturing
companies. As of December 31, 2006, a reduction in prices of 10% of these marketable equity securities would
result in a decrease in the fair value of our investments in marketable equity securities of approximately $9 million.
All of the potential changes noted above are based on sensitivity analysis performed on our financial position at
December 31, 2006. Actual results may differ materially.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is set forth beginning at page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures. Under the supervision and with the participation of our
management, including our principal executive officer and principal financial officer, we conducted an evaluation
of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in
Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 as of the end of the period covered
by this report (the “Evaluation Date”). Based upon the evaluation, our principal executive officer and principal
financial officer concluded as of the Evaluation Date that our disclosure controls and procedures were effective.
Disclosure controls are controls and procedures designed to reasonably ensure that information required to be
disclosed in our reports filed under the Exchange Act, such as this report, is recorded, processed, summarized and
reported within the time periods specified in the SEC’s rules and forms. Disclosure controls include controls and
procedures designed to reasonably ensure that such information is accumulated and communicated to our
management, including our chief executive officer and chief financial officer, as appropriate to allow timely
decisions regarding required disclosure. Our quarterly evaluation of disclosure controls includes an evaluation of
some components of our internal control over financial reporting, and internal control over financial reporting is
also separately evaluated on an annual basis for purposes of providing the management report which is set forth
below.
Report of Management on Internal Control Over Financial Reporting. Our management is responsible for
establishing and maintaining a comprehensive system of internal control over financial reporting to provide
reasonable assurance of the proper authorization of transactions, the safeguarding of assets and the reliability of the
financial records. Our internal control system was designed to provide reasonable assurance to our management and
board of directors regarding the preparation and fair presentation of published financial statements. The system of
internal control over financial reporting provides for appropriate division of responsibility and is documented by
written policies and procedures that are communicated to employees. The framework upon which management
relied in evaluating the effectiveness of our internal control over financial reporting was set forth in Internal
Controls — Integrated Framework published by the Committee of Sponsoring Organizations of the Treadway
Commission.
The Company acquired msystems Ltd., or msystems, through a purchase business combination in fiscal 2006.
Management has excluded msystems from its assessment of internal control over financial reporting as of
December 31, 2006. msystems’ total assets and net assets constituted approximately 7% and 5%, respectively,
of the related consolidated financial statement amounts as of December 31, 2006, and total revenues and net loss of
approximately 4% and 5%, respectively, of the related consolidated financial statement amounts as of and for the
fiscal year ended December 31, 2006.
47
Annual Report