SanDisk 2007 Annual Report Download - page 106

Property and Equipment. Property, plant and equipment are carried at cost less accumulated depreciation,
estimated residual value, if any, and amortization. Depreciation and amortization are computed using the straight-
line method over the estimated useful lives of the assets or the remaining lease term, whichever is shorter, ranging
from two to twenty-five years.
Variable Interest Entities. The Company evaluates its equity method investments to determine whether any
investee is a variable interest entity within the meaning of the FASB Interpretation No. 46R, (“FIN 46R”),
Accounting for Variable Interest Entities. If the Company concludes that an investee is a variable interest entity, the
Company evaluates its expected gains and losses of such investee to determine whether the Company is the primary
beneficiary of the investee. If the Company is the primary beneficiary of a variable interest entity, the Company
consolidates such entity and reflects the minority interest of other beneficiaries of that entity. If the Company
concludes that an investee is not a variable interest entity, the Company does not consolidate the investee.
Equity Investments. The Company accounts for investments in equity securities of other entities, including
variable interest entities that are not consolidated, under the cost method of accounting if investments in voting
equity interests of the investee is less than 20%. The equity method of accounting is used if its investment in voting
stock is greater than or equal to 20% but less than a majority. In considering the accounting method for investments
less than 20%, the Company also considers other factors such as its ability to exercise significant influence over
operating and financial policies of the investee. If certain factors are present, the Company could account for
investments for which it has less than a 20% ownership under the equity method of accounting. Certain of the
Company’s investments carry restrictions on immediate disposition. Investments in public companies with
restrictions of less than one year are classified as available-for-sale and are adjusted to their fair market value
with unrealized gains and losses recorded as a component of accumulated other comprehensive income. Invest-
ments in public companies with restrictions greater than one year are carried at cost. Investments in public and non-
public companies are reviewed on a quarterly basis to determine if their value has been impaired and adjustments
are recorded as necessary. Upon disposition of these investments, the specific identification method is used to
determine the cost basis in computing realized gains or losses. Declines in value that are judged to be other-than-
temporary are reported in other income (expense) in the accompanying Consolidated Statements of Income.
Inventories and Inventory Valuation. Inventories are stated at the lower of cost (first-in, first-out) or market.
Market value is based upon an estimated average selling price reduced by estimated costs of disposal. Should actual
market conditions differ from the Company’s estimates, the Company’s future results of operations could be
materially affected. Reductions in inventory valuation are included in cost of product revenues in the accompanying
Consolidated Statements of Income. The Company’s inventory impairment charges permanently establish a new
cost basis and are not subsequently reversed to income even if circumstances later suggest that increased carrying
amounts are recoverable. Rather these amounts are reversed into income only if, as and when the inventory is sold.
The Company reduces the carrying value of its inventory to a new basis for estimated obsolescence or
unmarketable inventory by an amount equal to the difference between the cost of the inventory and the estimated
market value based upon assumptions about future demand and market conditions, including assumptions about
changes in average selling prices. If actual market conditions are less favorable than those projected by manage-
ment, additional reductions in inventory valuation may be required.
The Company’s finished goods inventory includes consigned inventory held at customer locations as well as at
third-party fulfillment centers and subcontractors.
Other Long-Lived Assets. Intangible assets with definite useful lives and other long-lived assets are tested for
impairment in accordance with Statement of Financial Accounting Standards No. 144 (“SFAS 144”), Accounting
for Impairment of Disposal of Long-Lived Assets. The Company assesses the carrying value of long-lived assets,
whenever events or changes in circumstances indicate that the carrying value of these long-lived assets may not be
recoverable. Factors the Company considers important which could result in an impairment review include
(1) significant under-performance relative to the historical or projected future operating results, (2) significant
changes in the manner of use of assets, (3) significant negative industry or economic trends, and (4) significant
changes in the Company’s market capitalization relative to net book value. Any changes in key assumptions about
F-10
Notes to Consolidated Financial Statements — (Continued)