SanDisk 2011 Annual Report Download - page 118

In fiscal year 2011, we made a $62 million prepayment for Flash Forward building-related costs. As of
January 1, 2012, $50 million was remaining, of which $21 million was classified as Other current assets and
$29 million was classified as Other non-current assets.
For semiconductor manufacturing equipment that is leased by Flash Ventures, we and Toshiba jointly
guarantee on an unsecured and several basis, 50% of the outstanding Flash Ventures’ lease obligations under
original master lease agreements entered into from March 2007 through November 2011 and refinanced master
lease agreements entered into from April 2010 through November 2011. These master lease obligations are
denominated in Japanese yen and are noncancelable. Our total master lease obligation guarantee as of January 1,
2012 was 56.5 billion Japanese yen, or approximately $732 million based upon the exchange rate at January 1,
2012.
From time-to-time, we and Toshiba mutually approve the purchase of equipment for the ventures in order to
convert to new process technologies or add wafer capacity. Flash Partners has previously reached full wafer
capacity. Flash Alliance reached full wafer capacity in the first quarter of fiscal year 2011.
Contractual Obligations and Off-Balance Sheet Arrangements
Our contractual obligations and off-balance sheet arrangements at January 1, 2012, 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 12, “Commitments, Contingencies and Guarantees,” in the Notes to
Consolidated Financial Statements of this Form 10-K included in Part II, 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 yuan and the Israeli new shekel, and we have revenue denominated in the European euro, the British
pound and the Canadian dollar. 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 other comprehensive income, or 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,” in the Notes to Consolidated Financial Statements of this Form 10-K included in Part II,
Item 8 of this report.
For a discussion of foreign operating risks and foreign currency risks, see Part I, Item 1A, “Risk Factors.”
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to financial market risks, including changes in interest rates and foreign currency exchange
rates.
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. As of January 1, 2012, a hypothetical 50 basis point
increase in interest rates would result in an approximate $30.5 million decline (less than 0.68%) of the fair value
of our available-for-sale debt securities.
54