SanDisk 2013 Annual Report Download - page 146

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. We recognize liabilities for uncertain tax positions based on a two-step process. The first
step is to evaluate the tax position for recognition by determining whether the weight of available evidence
indicates that it is more likely than not that the position will be sustained on audit, including resolution of
related appeals or litigation processes, if any. If we determine that a tax position will more likely than not
be sustained on audit, the second step requires us to estimate and measure the tax benefit as the largest
amount that is more than 50% likely to be realized upon ultimate settlement. Although we believe we have
adequately reserved for our uncertain tax positions, no assurance can be given with respect to the final
outcome of these matters. To the extent that the final outcome of these matters is different than the
amounts recorded, such differences generally will impact our provision for income taxes in the period in
which such a determination is made.
Valuation of Long-Lived Assets, Intangible Assets and Goodwill. We perform tests for impairment of
long-lived assets whenever events or circumstances suggest that long-lived assets may not be recoverable.
An impairment is 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 undiscounted cash flows are less than the carrying value, then we must determine the fair value
of the long-lived asset or group of long-lived assets and recognize an impairment loss if the carrying
amount of the long-lived asset or group of long-lived assets exceeds its fair value which is based primarily
upon forecasted discounted cash flows. 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 growth and our market 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.
We perform our annual impairment analysis of goodwill and indefinite-lived intangible assets (such as
in-process research and development) on the first day of the fourth quarter of each fiscal year, or more
often if there are indicators of impairment. We allocate goodwill to reporting units based on the reporting
unit expected to benefit from the business combination. We evaluate our reporting units on an annual basis
and, if necessary, reassign goodwill using a relative fair value allocation approach. As of December 29,
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