SanDisk 2007 Annual Report Download - page 93

For a discussion of foreign operating risks and foreign currency risks, see Item 1A, “Risk Factors.”
Recent Accounting Pronouncements
See Note 2, “Recent Accounting Pronouncements” to our consolidated financial statements included in Item 8
of this report.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to financial market risks, including changes in interest rates, foreign currency exchange rates
and marketable equity security prices.
Interest Rate Risk. Our exposure to market risk for changes in interest rates relates primarily to our
investment portfolio. The primary objective of our investment activities is to preserve principal while maximizing
yields without significantly increasing risk. This is accomplished by investing in widely diversified marketable
securities, consisting primarily of investment grade securities. As of December 30, 2007, a hypothetical 50 basis
point increase in interest rates would result in an approximate $12.7 million decline (less than 0.49%) in the fair
value of our available-for-sale debt securities.
Foreign Currency Risk. A substantial majority of our revenue, expense and capital purchasing activity is
transacted in U.S. dollars. However, we do enter into transactions in other currencies, primarily the Japanese yen.
Movements in currency exchange rates, especially the Japanese yen, could cause variability in our revenues,
expenses, or other income (expense), net. We had net forward exchange contracts in place to sell the U.S. dollar
equivalent of approximately $538 million in foreign currencies based upon the exchange rate at December 30, 2007
and approximately $72 million as of December 31, 2006. The effect of an immediate 10% adverse change in
exchange rates on forward exchange contracts would result in an approximate $64 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 functional currency value of the underlying non-functional
currency-denominated monetary assets and liabilities. See Item 1A, “Risk Factors” and Note 12, “Commitments,
Contingencies and Guarantees,” 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 30, 2007, 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 $2 million.
All of the potential changes noted above are based on sensitivity analysis performed on our financial position at
December 30, 2007. 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
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