SanDisk 2012 Annual Report Download - page 160

dollar. Our flash memory costs, which represent the largest portion of our cost of product revenues, are
denominated in Japanese yen. We also have some cost of product revenues denominated in the Chinese renminbi.
The majority of our operating expenses are denominated in the U.S. dollar; however, we have expenses
denominated in Japanese yen, the Chinese renminbi, 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 balances with 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 other comprehensive income and subsequently
recognized in cost of product revenues in the same period the hedged cost of product revenues is recognized.
At December 30, 2012, we had both foreign currency forward contracts and cross currency swap contracts
in place that amounted to a net sale in U.S. dollar equivalents of $4 million and $34 million in foreign currencies
to hedge our foreign currency denominated monetary net asset position over the next twelve months and on
December 31, 2013, respectively. 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
December 30, 2012 are 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)
Change in Fair
Value Due to
10% Adverse
Rate Movement
(In millions)
Balance sheet hedges:
Cross currency swap contracts sold ................. $ (167.5) $ 16.9 $ 15.2
Forward contracts sold ........................... (177.3) 2.2 2.5
Forward contracts purchased ...................... 307.2 (5.6) (21.7)
Total net outstanding contracts ......................... $ (37.6) $ 13.5 $ (4.0)
At December 30, 2012, we had foreign currency forward contracts in place that amounted to a net purchase
in U.S. dollar equivalents of approximately $444 million to partially hedge our expected future wafer purchases
in Japanese yen. The maturities of these contracts were eight months or less. The notional amount and fair value
of our outstanding forward contracts that are designated as cash flow hedges as of December 30, 2012 is shown
in the table below. In addition, this table shows the change in fair value of these cash flow hedges assuming a
hypothetical adverse foreign currency exchange rate movement of 10 percent.
Notional
Amount
Fair
Value
Change in Fair
Value Due to
10% Adverse
Rate Movement
(In millions)
Cash flow hedges:
Forward contracts purchased ...................... $ 443.6 $ (7.1) $ (40.0)
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