SanDisk 2009 Annual Report Download - page 78

assurance can be given that we will not incur losses beyond the limits of, or outside the scope of, coverage of our
insurance policies. From time-to-time, various types of insurance have not been available on commercially
acceptable terms or, in some cases at all. We cannot assure you that in the future we will be able to maintain
existing insurance coverage or that premiums will not increase substantially. We maintain limited insurance
coverage and in some cases no coverage for natural disasters and sudden and accidental environmental damages
as these types of insurance are sometimes not available or available only at a prohibitive cost. For example, our
test and assembly facility in Shanghai, China, on which we have significant dependence, may not be adequately
insured against all potential losses. Accordingly, we may be subject to an uninsured or under-insured loss in such
situations. We depend upon Toshiba to obtain and maintain sufficient property, business interruption and other
insurance for Flash Ventures. If Toshiba fails to do so, we could suffer significant unreimbursable losses, and
such failure could also cause Flash Ventures to breach various financing covenants. In addition, we insure against
property loss and business interruption resulting from the risks incurred at our third-party subcontractors;
however, we have limited control as to how those sub-contractors run their operations and manage their risks,
and as a result, we may not be adequately insured.
We are exposed to foreign currency exchange rate fluctuations that could negatively impact our business,
results of operations and financial condition. A significant portion of our business is conducted in currencies
other than the U.S. dollar, which exposes us to adverse changes in foreign currency exchange rates. These
exposures may change over time as our business and business practices evolve, and they could harm our financial
results and cash flows. Our most significant exposure is related to our purchases of NAND flash memory from
Flash Ventures, which are denominated in Japanese yen. For example, in the last year, the Japanese yen has
significantly appreciated relative to the U.S. dollar and this has increased our costs of NAND flash wafers,
negatively impacting our gross margins and results of operations. In addition, our investments in Flash Ventures
are denominated in Japanese yen and adverse changes in the exchange rate could increase the cost to us of future
funding or increase our exposure to asset impairments. We also have foreign currency exposures related to
certain non-U.S. dollar-denominated revenue and operating expenses in Europe and Asia. Additionally, we have
exposures to emerging market currencies, which can be extremely volatile. An increase in the value of the U.S.
dollar could increase the real cost to our customers of our products in those markets outside the U.S. where we
sell in dollars, and a weakened U.S. dollar could increase local operating expenses and the cost of raw materials
to the extent purchased in foreign currencies. We also have significant monetary assets and liabilities that are
denominated in non-functional currencies.
We enter into foreign exchange forward and cross currency swap contracts to reduce the impact of foreign
currency fluctuations on certain foreign currency assets and liabilities. In addition, we hedge certain anticipated
foreign currency cash flows with foreign exchange forward and option contracts. We generally have not hedged
our future investments and distributions denominated in Japanese yen related to Flash Ventures.
Our attempts to hedge against currency risks may not be successful, resulting in an adverse impact on our
results of operations. In addition, if we do not successfully manage our hedging program in accordance with
current accounting guidelines, we may be subject to adverse accounting treatment of our hedging program, which
could harm our results of operations. There can be no assurance that this hedging program will be economically
beneficial to us. Further, the ability to enter into foreign exchange contracts with financial institutions is based
upon our available credit from such institutions and compliance with covenants and/or other restrictions.
Operating losses, third party downgrades of our credit rating or instability in the worldwide financial markets
could impact our ability to effectively manage our foreign currency exchange rate fluctuation risk, which could
negatively impact our business, results of operations and financial condition.
We may need to raise additional financing, which could be difficult to obtain, and which if not obtained in
satisfactory amounts may prevent us from funding Flash Ventures, developing or enhancing our products, taking
advantage of future opportunities, growing our business or responding to competitive pressures or unanticipated
industry changes, any of which could harm our business. We currently believe that we have sufficient cash
resources to fund our operations as well as our anticipated investments in Flash Ventures for at least the next
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