SanDisk 2002 Annual Report Download - page 43

4 1 2 0 0 2 Annua l Re port
interim periods w ithin those fiscal years, w ith early applica-
tion encouraged. The Com pany is evaluating the im pact of
SFAS 145 on the Com pany’s results of operations and finan-
cial position.
SFAS 146 nullifies EITF Issue No. 94-3 “Liability Recognition
for Certain Em ployee Term ination Benefits and Other Costs
to Exit an Activity” (including Certain Costs Incurred in
Restructuring) and substantially nullifies EITF Issue No. 88-10
“Costs Associated w ith Lease M odification or Term ination.”
SFAS 146 establishes an accounting m odel for changes in the
recognition of and tim ing of such costs. The liability for costs
associated w ith exit or disposal activities should be m eas-
ured at fair value and in the period in w hich those costs are
incurred. The provisions of SFAS 146 apply to exit or disposal
activities initiated after Decem ber 31, 2002. Earlier application
of the Statem ent is encouraged. SanDisk w ill adopt SFAS 146
effective January 1, 2003. The adoption of SFAS 146 is not
expected to have a m aterial im pact on the Com pany’s
results of operations and financial position in 2003.
On Decem ber 31, 2002 the FASB issued SFAS No. 148,
“Accounting for Stock-Based Com pensation- Transition and
Disclosure.” SFAS 148 amends SFAS 123 “Accounting of
Stock-Based Com pensation” and APB Opinion No. 28
“Interim Financial Reporting.” SFAS 148 provides alternative
transition m ethods for a voluntary change to the fair value
based m ethod of accounting for stock- based em ployee
compensation, and requires disclosure in both the interim
and annual financial statem ents about the m ethod of
accounting for stock-based em ployee com pensation and it’s
effect on reported net incom e and earnings per share. The
recognition provisions of SFAS 148 are applied as of the
beginning of a com pany’s fiscal year for financial statem ent
periods and interim periods w ithin those fiscal years ending
after Decem ber 15, 2002, and SFAS 148’s am endm ent of dis-
closure requirements of APB No. 28 is effective for financial
statem ents ending after Decem ber 15, 2002. SanDisk has
elected not to adopt the recognition provisions of SFAS 148.
However, SanDisk elected to follow APB 25, and related
interpretations, in accounting for its em ployee stock options.
Under APB 25, if the exercise price of the Com pany’s stock
options equals the m arket price of the underlying stock on
the date of grant, no compensation expense is recognized.
The disclosure requirem ents of SFAS 148 for pro form a infor-
m ation regarding reported net incom e and earnings per
share has been adopted for the fiscal year ending Decem ber
31, 2002 and w ill be applied to interim periods in 2003. The
adoption of the disclosure provisions of SFAS 148 did not
have a m aterial im pact on the Com pany’s results of opera-
tions and financial position in 2002, nor is it expected to have
a m aterial im pact in 2003.
In July 2002, the FASB issued FASB Interpretation No. 45,
or FIN 45, “Guarantor’s Accounting and Disclosure
Requirem ents for Guarantees, Including Indirect Guarantees
of Indebtedness of Others” – an interpretation of SFAS No 5
“Accounting for Contingencies,” SFAS No. 57 “Related Party
Disclosures,” SFAS No. 107 “Disclosures about Fair Value of
Financial Instrum ents,” and rescission of FIN 34 “Disclosure
of Indirect Guarantees of Indebtedness of Others.” FIN 45
provides disclosures to be m ade by a guarantor in its finan-
cial statem ents about its obligations under certain guaran-
tees that it has issued. FIN 45 establishes recognition and
m easurement provisions of a liability to be recognized at the
inception of a guarantee for fair value based on agreem ents
w hich contingently requires the guarantor to m ake paym ents
to the guaranteed party based on changes in an underlying
contingent liability related to the guaranteed party. The dis-
closure provisions of FIN 45 are effective for financial state-
m ent periods and interim periods w ithin those fiscal years
ending after Decem ber 15, 2002, and the requirement for
recognition and m easurement provisions are effective for
guarantees issued or m odified on a prospective basis after
Decem ber 31, 2002. The Com pany has adopted the disclo-
sure provisions for fiscal year ending Decem ber 31, 2002 and
is evaluating the future impact of the adoption of FIN 45
recognition and m easurement provisions on its consolidated
results of operations, financial position and cash flow s.
In January 2003, the FASB issued Interpretation No. 46, or
FIN 46, “Consolidation of Variable Interest Entities.” FIN 46
requires an investor w ith a m ajority of the variable interests in
a variable interest entity to consolidate the entity and also
requires m ajority and significant variable interest investors to
provide certain disclosures. A variable interest entity is an
entity in w hich the equity investors do not have a controlling
interest or the equity investment at risk is insufficient to
finance the entity’s activities w ithout receiving additional sub-
ordinated financial support from the other parties. SanDisk is
currently review ing its investm ent portfolio to determ ine
w hether any of its equity investments are considered variable
interest entities. The Com pany does not expect to identify
any variable interest entities that m ust be consolidated, but
m ay be required to m ake additional disclosures. The m axi-
m um exposure of any investment that m ay be determ ined to
be in a variable interest entity is lim ited to the am ount
invested.
In Novem ber 2002, the Financial Accounting Standards
Board issued Em erging Issues Task Force (referred to as
EITF) Issue No. 00-21, “Revenue Arrangem ents w ith M ultiple
Deliverables.” EITF Issue No. 00-21 addresses certain
aspects of the accounting by a com pany for arrangem ents
under w hich it will perform m ultiple revenue-generating activ-
ities. EITF Issue No. 00-21 addresses w hen and how an
arrangem ent involving multiple deliverables should be divided
into separate units of accounting. EITF Issue No. 00-21 pro-
vides guidance with respect to the effect of certain custom er
rights due to com pany nonperform ance on the recognition of
revenue allocated to delivered units of accounting. EITF Issue
No. 00-21 also addresses the im pact on the m easurem ent
and/or allocation of arrangem ent consideration of custom er
cancellation provisions and consideration that varies as a
result of future actions of the custom er or the company.
Finally, EITF Issue No. 00-21 provides guidance w ith respect
to the recognition of the cost of certain deliverables that are
excluded from the revenue accounting for an arrangem ent.
The provisions of EITF Issue No. 00-21 w ill apply to revenue
arrangem ents entered into in fiscal periods beginning after
June 15, 2003. SanDisk is currently evaluating the effect that
the adoption of EITF Issue No. 00-21 w ill have on its
Consolidated Financial Statem ents.