SanDisk 2008 Annual Report Download - page 61

We enter into foreign currency forward contracts to hedge the gains or losses generated by the
remeasurement of our significant foreign currency denominated monetary assets and liabilities. The fair value of
these contracts is reflected as other current assets or other current liabilities and the change in fair value of these
balance sheet hedge contracts is recorded into earnings as a component of other income (expense) to largely
offset the change in fair value of the foreign currency denominated monetary assets and liabilities which is also
recorded in other income (expense).
We use foreign currency forward contracts and option contracts to partially hedge our future Japanese yen
flash memory costs. These contracts are designated as cash flow hedges and are carried on our balance sheet at fair
value with the effective portion of the contracts’ gains or losses included in accumulated OCI and subsequently
recognized in cost of product revenues in the same period the hedged cost of product revenues is recognized.
At December 28, 2008 we had foreign currency forward exchange contracts in place that amounted to a net
sale in U.S. dollar equivalent of approximately $577 million in foreign currencies to hedge our foreign currency
denominated monetary net asset position. The maturities of these contracts were 3 months or less.
At December 28, 2008 we had foreign currency forward exchange contracts and option contracts in place
that amounted to a net purchase in U.S. dollar equivalent of approximately $352 million to partially hedge our
expected future wafer purchases in Japanese yen. The maturities of these contracts were 12 months or less.
The notional amount and unrealized loss of our outstanding foreign currency forward contracts that are
designated as balance sheet hedges as of December 28, 2008 is shown in the table below. This table also shows
the change in fair value of these balance sheet hedges assuming a hypothetical adverse foreign currency
exchange rate movement of 10 percent. These changes in fair values would be largely offset in other income
(expense) by corresponding changes in the fair values of the foreign currency denominated monetary assets and
liabilities.
Notional Amount
Unrealized
Gain/(Loss) as of
December 28,
2008
Change in Fair
Value Due to
10% Adverse
Rate Movement
(In thousands)
Balance sheet hedge forward contracts sold ................ $(2,583,096) $ (144,041) $ (282,559)
Balance sheet hedge forward contracts purchased ........... 2,005,976 12,088 204,553
Total net forward contracts sold ..................... $ (577,120) $ (131,953) $ (78,006)
The notional amount and unrealized gain of our outstanding forward and option contracts that are designated
as cash flow hedges as of December 28, 2008 is shown in the table below. This table also shows the change in
fair value of these cash flow hedges assuming a hypothetical adverse foreign currency exchange rate movement
of 10 percent.
Notional Amount
Unrealized
Gain/(Loss) as of
December 28,
2008
Change in Fair
Value Due to
10% Adverse
Rate Movement
(In thousands)
Cash flow hedge forward contracts purchased .............. $ 259,563 $ 40,182 $ (23,373)
Cash flow hedge option contracts purchased ............... 91,946 11,394 (7,334)
Total cash flow hedge contracts purchased ............ $ 351,509 $ 51,576 $ (30,707)
Notwithstanding our efforts to mitigate some foreign exchange risks, we do not hedge all of our foreign
currency exposures, and there can be no assurances that our mitigating activities related to the exposures that we
do hedge will adequately protect us against risks associated with foreign currency fluctuations.
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