SanDisk 2009 Annual Report Download - page 106

Contractual Obligations and Off-Balance Sheet Arrangements
Our contractual obligations and off-balance sheet arrangements at January 3, 2010, 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 and the Israeli new shekel, and we have revenue denominated in the European euro and the
British pound. We do not enter into derivatives for speculative or trading purposes. We use foreign currency
forward and cross currency swap contracts to mitigate transaction gains and losses generated by certain monetary
assets and liabilities denominated in currencies other than the U.S. dollar. We use 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. These foreign currency exchange
exposures may change over time as our business and business practices evolve, and they could harm our financial
results and cash flows. See Note 4, “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 January 3, 2010, a hypothetical 50 basis point increase in interest
rates would result in an approximate $12 million decline (less than 0.68%) 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 European euro, the 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 Chinese renminbi. The majority of our operating expenses are denominated in
the U.S. dollar; however, we have expenses denominated in the Israeli new shekel 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 Flash Ventures, which are
denominated in Japanese yen.
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