SanDisk 2008 Annual Report Download - page 74

Notes To Consolidated Financial Statements
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).
Accounts Receivable and Allowance for Doubtful Accounts. Accounts receivable include amounts owed
by geographically dispersed distributors, retailers and OEM customers. No collateral is required. Provisions are
provided for sales returns and credit losses.
The Company estimates the collectibility of its accounts receivable based on a combination of factors. In
circumstances where the Company is aware of a specific customer’s inability to meet its financial obligations to
the Company (e.g., bankruptcy filings or substantial down-grading of credit ratings), the Company provides
allowance for bad debts against amounts due to reduce the net recognized receivable to the amount it reasonably
believes will be collected.
Income Taxes. The Company accounts for income taxes using an asset and liability approach, which
requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that
have been recognized in the Company’s Consolidated Financial Statements, but have not been reflected in the
Company’s taxable income. A valuation allowance has been established to reduce deferred tax assets to their
estimated realizable value. Therefore, the Company provides a valuation allowance to the extent that the
Company does not believe it is more likely than not that it will generate sufficient taxable income in future
periods to realize the benefit of its deferred tax assets. The Company recognizes interest and penalties related to
unrecognized tax benefits in income tax expense.
Foreign Currency. The Company determines the functional currency for its parent company and each of its
subsidiaries by reviewing the currencies in which their respective operating activities occur. Transaction gains and
losses arising from activities in other than the applicable functional currency are calculated using average exchange
rates for the applicable period and reported in Net Income (Loss) as a non-operating item in each period.
Non-monetary balance sheet items denominated in a currency other than the applicable functional currency are
translated using the exchange rate in effect on the balance sheet date and any gains and losses are included in
cumulative translation adjustment. The Company continuously evaluates its foreign currency exposures and may
continue to enter into hedges or other risk mitigating arrangements in the future. Aggregate gross foreign currency
transaction gain (loss) prior to corresponding foreign exchange hedge offset recorded to Net Income (Loss) was
$181.3 million, $15.6 million and ($2.5) million in fiscal years 2008, 2007 and 2006, respectively.
Cash Equivalents, Short and Long-Term Investments. Cash equivalents consist of short-term, highly liquid
financial instruments with insignificant interest rate risk that are readily convertible to cash and have maturities
of three months or less from the date of purchase. Investments with original maturities greater than three months
and remaining maturities less than one year are classified as short-term investments. Investments with remaining
maturities greater than one year as of the balance sheet date are classified as long-term investments. Short and
long-term fixed income investments consist of commercial paper, United States (“U.S.”) government and agency
obligations, corporate/municipal notes and bonds, and variable rate demand notes. Both short and long-term
investments also include investments in certain equity securities. The fair market value, based on quoted market
prices, of cash equivalents, and short and long-term investments at December 28, 2008, approximated their
carrying value. Cost of securities sold is based on a first-in, first-out method.
In determining if and when a decline in market value below cost of these investments is other-than-
temporary, the Company evaluates both quantitative and qualitative information including the market conditions,
offering prices, trends of earnings, price multiples and other key measures. When such a decline in value is
deemed to be other-than-temporary, the Company recognizes an impairment loss in the current period operating
results to the extent of the decline.
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