SanDisk 2013 Annual Report Download - page 176

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
recorded as a reduction to revenue and deferred revenue and were not material for any period presented
in the accompanying Consolidated Financial Statements. The cost of shipping products to customers is
included in cost of revenue. The Company recognizes expenses related to sales commissions in the period
in which the commissions are earned.
For multiple element arrangements and revenue arrangements that include software elements, the
Company allocates revenue to each element based on its relative selling price in accordance with the
Company’s normal pricing and discounting practices for the specific product or maintenance when sold
separately for all multiple element products. In addition, the Company analyzes whether tangible products
containing software and non-software components that function together should be excluded from
industry-specific software revenue recognition guidance. Multiple element arrangements and
arrangements that include software have been immaterial to the Company’s revenue and operating results.
Revenue from patent licensing arrangements is recognized when earned, estimable and realizable.
The timing of revenue recognition is dependent on the terms of each license agreement and on the timing
of sales of licensed products. The Company generally recognizes royalty revenue when it is reported to the
Company by its licensees, which is generally one quarter in arrears from the licensees’ sales of licensed
products. For licensing fees that are not determined by the number of licensed units sold, the Company
recognizes license fee revenue on a straight-line basis over the life of the license.
The Company records estimated reductions of revenue for customer and distributor incentive
programs and offerings, including price protection, promotions, co-op advertising and other volume-based
incentives and expected returns. All sales incentive programs are recorded as an offset to revenue or
deferred revenue. Marketing development programs are recorded as a reduction to revenue.
Accounts Receivable and Allowance for Doubtful Accounts. Accounts receivable include amounts owed by
geographically dispersed distributors, retailers and original equipment manufacturer (‘‘OEM’’) customers.
No collateral is required. Provisions are provided for sales returns and credit losses.
The Company estimates the collectability of its accounts receivable based on a combination of factors,
including but not limited to, customer credit ratings and historical experience. 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 downgrading of credit ratings), the Company provides allowances 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. The Company must evaluate the expected realization of its
deferred tax assets and determine whether a valuation allowance needs to be established or released. In
determining the need for and amount of a valuation allowance, the Company assesses the likelihood that it
will be able to recover its deferred tax assets using historical levels of income, estimates of future income
and tax planning strategies. A valuation allowance is established 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. The Company recognizes the tax benefit from an uncertain tax position only if it is ‘‘more likely
than not’’ the tax position will be sustained on examination by the taxing authorities, based on the technical
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