SanDisk 2011 Annual Report Download - page 119

This is a TAB type table. Insert
conts here. Annual Report
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, the Japanese yen and the Canadian dollar. Our flash memory
costs, which represent the largest portion of our cost of product revenues, are denominated in the Japanese yen.
We also have some cost of product revenues denominated in the Chinese yuan. 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.
We enter into foreign currency forward and cross currency swap 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 assets or other 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 to partially hedge 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 January 1, 2012, we had foreign currency forward contracts and cross currency swap contracts in place
that amounted to a purchase in U.S. dollar equivalent of approximately $155.2 million in foreign currencies to
hedge our foreign currency denominated monetary net liability position over the next twelve months. At
January 1, 2012, we had foreign currency forward contracts and cross currency swap contracts in place that
amounted to a sale in U.S. dollar equivalent of approximately ($213.8) million in foreign currencies to hedge our
foreign currency denominated monetary net asset position beyond the next twelve months. The notional amount
and unrealized gain or loss of our outstanding cross currency swap and foreign currency forward contracts that
are non-designated (balance sheet hedges) as of January 1, 2012 is shown in the table below. In addition, this
table 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
January 1, 2012
Change in Fair
Value Due to
10% Adverse
Rate Movement
(In millions)
Balance sheet hedges:
Cross currency swap contracts sold ................. $ (390.0) $ (40.6) $ (41.9)
Cross currency swap contracts purchased ............ 168.4 1.3 18.6
Forward contracts sold ........................... (177.7) 1.6 (18.8)
Forward contracts purchased ...................... 340.7 1.3 37.4
Total net outstanding contracts ........................ $ (58.6) $ (36.4) $ (4.7)
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