SanDisk 2010 Annual Report Download - page 198

Notes To Consolidated Financial Statements
In circumstances in which a quoted price in an active market for the identical liability is not available, the
Company is required to use the quoted price of the identical liability when traded as an asset, quoted prices for
similar liabilities, or quoted prices for similar liabilities when traded as assets. If these quoted prices are not
available, the Company is required to use another valuation technique, such as an income approach or a market
approach.
The Company’s financial assets are measured at fair value on a recurring basis. Instruments that are
classified within Level 1 of the fair value hierarchy generally include money market funds, U.S. Treasury
securities and equity securities. Level 1 securities represent quoted prices in active markets, and therefore do not
require significant management judgment.
Instruments that are classified within Level 2 of the fair value hierarchy primarily include government
agency securities, asset-backed securities, mortgage-backed securities, commercial paper, U.S. government-
sponsored agency securities, and corporate/municipal notes and bonds. The Company’s Level 2 securities are
primarily valued using quoted market prices for similar instruments and nonbinding market prices that are
corroborated by observable market data. The Company uses inputs such as actual trade data, benchmark yields,
broker/dealer quotes, and other similar data, which are obtained from independent pricing vendors, quoted
market prices, or other sources to determine the ultimate fair value of the Company’s assets and liabilities. The
inputs and fair value are reviewed for reasonableness and may be further validated by comparison to publicly
available information or compared to multiple independent valuation sources.
Advertising Expenses. Marketing co-op development programs, where the Company receives, or will
receive, an identifiable benefit (e.g., goods or services) in exchange for the amount paid to its customer and the
Company can reasonably estimate the fair value of the benefit it receives for the customer incentive payment, are
classified, when granted, as a marketing expense. Advertising expenses not meeting this criteria are classified as
a reduction to product revenue when the expense is incurred. Advertising expenses recorded as marketing
expense were $4.0 million, $7.0 million and $39.9 million in fiscal years 2010, 2009 and 2008, respectively.
Research and Development Expenses. Research and development expenditures are expensed as incurred.
Note 2: Investments and Fair Value Measurements
Financial assets and liabilities measured at fair value on a recurring basis as of January 2, 2011 were as
follows (in thousands):
Total
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable Inputs
(Level 3)
Money market funds ......... $ 587,973 $ 587,973 $ — $ —
Fixed income securities ....... 4,448,837 30,803 4,418,034 —
Equity securities ............ 90,425 90,425 — —
Derivative assets ............ 19,462 — 19,462 —
Other ..................... 4,379 — 4,379 —
Total financial assets ..... $ 5,151,076 $ 709,201 $ 4,441,875 $ —
Derivative liabilities ......... $ 76,762 $ — $ 76,762 $ —
Total financial
liabilities ............ $ 76,762 $ — $ 76,762 $ —
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