SanDisk 2010 Annual Report Download - page 169

This is a TAB type table. Insert
conts here. Annual Report
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.
The determination of market value involves numerous judgments including estimating average selling prices
based upon recent sales, industry trends, existing customer orders, current contract prices, industry analysis of
supply and demand and seasonal factors. Should actual market conditions differ from our estimates, our future
results of operations could be materially affected. The valuation of inventory also requires us to estimate obsolete
or excess inventory. The determination of obsolete or excess inventory requires us to estimate the future demand
for our products within specific time horizons, generally six to twelve months. To the extent our demand forecast
for specific products is less than both our product on-hand and on noncancelable orders, we could be required to
record additional inventory reserves, which would have a negative impact on our gross margin.
Deferred Tax Assets. We must make certain estimates in determining income tax expense for financial
statement purposes. These estimates occur in the calculation of certain tax assets and liabilities, which arise from
differences in the timing of recognition of revenue and expense for tax and financial statement purposes. From
time-to-time, we must evaluate the expected realization of our deferred tax assets and determine whether a
valuation allowance needs to be established or released. In determining the need for and amount of our valuation
allowance, we assess the likelihood that we will be able to recover our deferred tax assets using historical levels
of income, estimates of future income and tax planning strategies. Our estimates of future income include our
internal projections and various internal estimates and certain external sources which we believe to be reasonable
but that are unpredictable and inherently uncertain. We also consider the jurisdictional mix of income and loss,
changes in tax regulations in the period the changes are enacted and the type of deferred tax assets and liabilities.
In assessing whether a valuation allowance needs to be established or released, we use judgment in considering
the cumulative effect of negative and positive evidence and the weight given to the potential effect of the
evidence. Recent historical income or loss and future projected operational results have the most influence on our
determinations of whether a deferred tax valuation allowance is required or not.
Our estimates for tax uncertainties require substantial judgment based upon the period of occurrence,
complexity of the matter, available federal tax case law, interpretation of foreign laws and regulations and other
estimates. There is no assurance that domestic or international tax authorities will agree with the tax positions we
have taken which could materially impact future results.
Valuation of Long-Lived Assets, Intangible Assets and Equity Method Investments. We perform tests for
impairment of long-lived and intangible assets and equity method investments whenever events or circumstances
suggest that other long-lived assets may not be recoverable. An impairment of long-lived and intangible assets
are only deemed to have occurred if the sum of the forecasted undiscounted future cash flows related to the assets
are less than the carrying value of the asset we are testing for impairment. If the forecasted cash flows are less
than the carrying value, then we must write down the carrying value to its estimated fair value based primarily
upon forecasted discounted cash flows. An impairment of an equity method investment is deemed to occur if the
fair value, based upon quoted market prices if available or forecasted discounted cash flows, is less than the
carrying value. Substantially all of our equity method investments are not actively traded and we rely on
discounted cash flows to estimate fair value. These forecasted discounted cash flows include estimates and
assumptions related to revenue growth rates and operating margins, risk-adjusted discount rates based on our
weighted average cost of capital, future economic and market conditions and determination of appropriate market
comparables. Our estimates of market segment growth and our market segment share and costs are based on
historical data, various internal estimates and certain external sources, and are based on assumptions that are
consistent with the plans and estimates we are using to manage the underlying business. Our business consists of
both established and emerging technologies and our forecasts for emerging technologies are based upon internal
estimates and external sources rather than historical information. If future forecasts are revised, they may indicate
or require future impairment charges. We base our fair value estimates on assumptions we believe to be
reasonable but that are unpredictable and inherently uncertain. Actual future results may differ from those
estimates.
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