SanDisk 2007 Annual Report Download - page 104

Notes to Consolidated Financial Statements
Note 1: Organization and Summary of Significant Accounting Policies
Organization and Nature of Operations. SanDisk Corporation (together with its subsidiaries, the “Com-
pany”) was incorporated in Delaware on June 1, 1988. The Company designs, develops, markets and manufactures
flash storage card products used in a wide variety of consumer electronics products. The Company operates in one
segment, flash memory storage products.
Basis of Presentation. The Company’s fiscal year ends on the Sunday closest to December 31. Fiscal years
2007, 2006 and 2005 each consisted of 52 weeks.
Principles of Consolidation. The consolidated financial statements include the accounts of the Company and
its majority-owned subsidiaries. All intercompany balances and transactions have been eliminated. Minority
interest represents the minority shareholders’ proportionate share of the net assets and results of operations of the
Company’s majority-owned subsidiaries. The consolidated financial statements also include the results of com-
panies acquired by the Company from the date of each acquisition.
Reclassification. Certain prior period amounts have been reclassified to conform to the current period
presentation, including the reclassification of publicly traded unrestricted equity securities from other current assets
to short-term investments.
Use of Estimates. The preparation of financial statements in conformity with generally accepted accounting
principles in the United States (“U.S. GAAP”), requires management to make estimates and assumptions that affect
the amounts reported in the financial statements and accompanying notes. The estimates and judgments affect the
reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent liabilities. On an
ongoing basis, the Company evaluates its estimates, including those related to customer programs and incentives,
product returns, bad debts, inventories and related impairment, investments, income taxes, warranty obligations,
restructuring and contingencies, share-based compensation and litigation. The Company bases estimates on
historical experience and on other assumptions that its management believes are reasonable under the circum-
stances. These estimates form the basis for making judgments about the carrying values of assets and liabilities
when those values are not readily apparent from other sources. Actual results could differ from these estimates.
Revenue Recognition, Sales Returns and Allowances and Sales Incentive Programs. The Company recog-
nizes revenues when the earnings process is complete, as evidenced by an agreement with the customer, transfer of
title and acceptance, if applicable, fixed or determinable pricing and reasonable assurance of realization. Sales
made to distributors and retailers are generally under agreements allowing price protection and/or a right of return
and, therefore, the revenues and related costs of these transactions are deferred until the retailers or distributors sell-
through the merchandise to their end customer, or the rights of return expire. Estimated sales returns are provided
for as a reduction to product revenue and were not material for any period presented in the accompanying
consolidated financial statements. The cost of shipping products to customers is included in cost of product
revenues. The Company recognizes expenses related to sales commissions in the period in which they are earned.
Revenue from patent licensing arrangements is recognized when earned and estimable. The timing of revenue
recognition is dependent on the terms of each license agreement and on the timing of sales of licensed products. The
Company generally recognizes royalty revenue when it is reported to the Company by its licensees, which is
generally one quarter in arrears from the licensees’ sales. For licensing fees that are not determined by the number of
licensed units sold, the Company recognizes license fee revenue on a straight-line basis over the life of the license.
The Company records estimated reductions of revenue for customer and distributor incentive programs and
offerings, including price protection, promotions, co-op advertising and other volume-based incentives and
expected returns. Additionally, the Company has incentive programs that require it to estimate, based on historical
experience, the number of customers who will actually redeem the incentive. All sales incentive programs are
recorded as an offset to product revenues or deferred revenues. Marketing development programs are recorded as a
reduction to revenue in compliance with Emerging Issues Task Force No. 01-9, (“EITF 01-9”), Accounting for
Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor’s Products).
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