SanDisk 2011 Annual Report Download - page 141

This is a TAB type table. Insert
conts here. Annual Report
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Cash Flow Hedges. The Company uses forward contracts designated as cash flow hedges to hedge a portion
of future forecasted purchases in Japanese yen. The gain or loss on the effective portion of a cash flow hedge is
initially reported 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, or reclassified into other
income (expense) if the hedged transaction becomes probable of not occurring. Any gain or loss after a hedge is
no longer designated because it is no longer probable of occurring or it is related to an ineffective portion of a
hedge, as well as any amount excluded from the Company’s hedge effectiveness, is recognized as other income
(expense) immediately. As of January 1, 2012, the Company had forward contracts in place to hedge future
purchases of approximately 102.6 billion Japanese yen, or approximately $1.3 billion based upon the exchange
rate as of January 1, 2012, and the net unrealized gain on the effective portion of these cash flow hedges was
$11.6 million. The forward contracts cover a portion of the Company’s future Japanese yen purchases that are
expected to occur during fiscal year 2012.
In the fourth quarter of fiscal year 2011, the Company sold certain available-for-sale investments in equity
securities. In connection with the sale, the Company settled the cash flow hedge designated to mitigate the equity
risk associated with these securities. The Company received net proceeds of $87.0 million and realized a $28.7
million gain, which was offset by the settlement of the cash flow hedge that resulted in a loss of ($9.9) million.
Other Derivatives. Other derivatives that are non-designated consist primarily of forward and cross currency
swap contracts to minimize the risk associated with the foreign exchange effects of revaluing monetary assets
and liabilities. Monetary assets and liabilities denominated in foreign currencies and the associated outstanding
forward and cross currency swap contracts were marked-to-market at January 1, 2012 with realized and
unrealized gains and losses included in other income (expense). As of January 1, 2012, the Company had foreign
currency forward contracts hedging exposures in European euros, British pounds and Japanese yen. Foreign
currency forward contracts were outstanding to buy and (sell) U.S. dollar equivalents of approximately
$340.7 million and ($177.7) million in foreign currencies, respectively, based upon the exchange rates at
January 1, 2012.
The Company currently has currency swap transactions with various counterparties to exchange Japanese
yen for U.S. dollars that require the Company to comply with certain covenants, the strictest of which is to
maintain a minimum liquidity of $1.5 billion on or prior to June 24, 2012 and $1.0 billion thereafter. These
currency swap transactions have a combined notional amount of ($221.6) million. Currency swap transactions
contracts were outstanding to buy and (sell) U.S. dollar equivalents of approximately $168.4 million and
($390.0) million in foreign currencies, respectively, based upon the exchange rates at January 1, 2012. Liquidity
is defined as the sum of the Company’s cash and cash equivalents and short and long-term marketable securities.
Should the Company fail to comply with these covenants, the Company may be required to settle the unrealized
gain or loss on the foreign exchange contracts prior to the original maturity. The Company was in compliance
with these covenants as of January 1, 2012.
The amounts in the tables below include fair value adjustments related to the Company’s own credit risk and
counterparty credit risk.
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