SanDisk 2008 Annual Report Download - page 60

translation adjustments recorded in accumulated OCI within Stockholder’s Equity of the Consolidated Balance
Sheets.
Contractual Obligations and Off-Balance Sheet Arrangements
Our contractual obligations and off-balance sheet arrangements at December 28, 2008, and the effect those
contractual obligations are expected to have on our liquidity and cash flow over the next five years are presented
in textual and tabular format in Note 13, “Commitments, Contingencies and Guarantees,” of the Notes to
Consolidated Financial Statements of this Form 10-K included in Item 8 of this report.
Impact of Currency Exchange Rates
Exchange rate fluctuations could have a material adverse effect on our business, financial condition and
results of operations. Our most significant foreign currency exposure is to the Japanese yen in which we purchase
the vast majority of our NAND flash wafers. In addition, we also have significant costs denominated in the
Chinese renminbi, or RMB, and the Israeli New shekel, or ILS. We do not enter into derivatives for speculative
or trading purposes. In fiscal years 2008 and 2007, we used foreign currency forward contracts to mitigate
transaction gains and losses generated by certain monetary assets and liabilities denominated in currencies other
than the U.S. dollar. In addition, in fiscal year 2008, we used foreign currency forward contracts and options to
partially hedge our future Japanese yen costs for NAND flash wafers. Our derivative instruments are recorded at
fair value in assets or liabilities with final gains or losses recorded in other income (expense) or 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. See Note 6, “Derivatives and Hedging Activities,” of the Notes
to Consolidated Financial Statements of this Form 10-K included in Item 8 of this report.
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,” of the Notes to Consolidated Financial Statements of
this Form 10-K 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
investment grade marketable securities. As of December 28, 2008, a hypothetical 50 basis point increase in
interest rates would result in an approximate $11 million decline (less than 0.71%) in the fair value of our
available-for-sale debt securities.
Foreign Currency Risk. The majority of our revenues are transacted in the U.S. dollar, with some revenues
transacted in the Euro, the Great British pound, and the Japanese yen. Our flash memory costs, which represent
the largest portion of our cost of revenues, are denominated in the Japanese yen. We also have some cost of
revenues denominated in RMB. The majority of our operating expenses are denominated in the U.S. dollar,
however, we have expenses denominated in ILS and numerous other currencies. On the balance sheet, we have
numerous foreign currency denominated monetary assets and liabilities, with the largest monetary exposure
being our notes receivable from the Flash Ventures, which are denominated in the Japanese yen.
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