SanDisk 2003 Annual Report Download - page 69

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
products. The Company has no long-term contracts with these subcontractors and cannot directly control
product delivery schedules. This could lead to product shortages or quality assurance problems that could
increase the manufacturing costs of its products and have adverse eÅects on its operating results.
Basis of Presentation
The Company's Ñscal year ends on the Sunday closest to December 31.
Principles of Consolidation
The consolidated Ñnancial statements include the accounts of the Company and its wholly owned
subsidiaries. All intercompany balances and transactions have been eliminated.
Strategic Equity Investments
From time to time, the Company invests in common stock of other companies. The Company generally
accounts for strategic equity investments under the cost method of accounting if its investment in voting stock
of the investee is less than 20%. The Company accounts for these investments under the equity method of
accounting if its investment in voting stock is greater than 20% but less than 50%. In considering the
accounting method for investments less than 20%, the Company considers other factors such as its ability to
exercise signiÑcant inÖuence over operating and Ñnancial policies of the investee. If certain factors are present,
the Company could account for investments for which it has less than a 20% ownership, under the equity
method of accounting.
Use of Estimates
The preparation of Ñnancial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that aÅect the amounts reported in the Ñnancial
statements and accompanying notes. The estimates and judgments aÅect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent liabilities. On an on-going basis, the
Company evaluates its estimates, including those related to customer programs and incentives, product
returns, bad debts, inventories, investments, income taxes, warranty obligations, restructuring, and contingen-
cies and litigation. The Company bases estimates on historical experience and on various other assumptions
that it believes are reasonable under the circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.
Actual results may diÅer from these estimates under diÅerent assumptions or conditions.
Revenue Recognition, Sales Returns and Allowances and Sales Incentive Programs. The Company
recognizes net revenues when the earnings process is complete, as evidenced by an agreement with the
customer, transfer of title and acceptance, if applicable, Ñxed pricing and reasonable assurance of realization.
Because of frequent sales price reductions and rapid technology obsolescence in the industry, sales made to
distributors and retailers are generally under agreements allowing price protection and/or right of return and,
therefore, the income on these sales is deferred until the retailers or distributors sell the merchandise to their
end customer, or the rights of return expire. At December 28, 2003 and December 29, 2002, deferred income,
from sales to distributors and retailers was $90.1 million and $34.8 million, respectively. Estimated product
returns related to end-users are provided for and were not material for any period presented in the consolidated
Ñnancial statements.
The Company earns patent license and royalty revenue under patent cross-license agreements with
several companies including Renesas, Lexar Media, Inc., Samsung Electronics Company Ltd., Sharp
Electronics Corporation, Silicon Storage Technology, Inc., SmartDisk Corporation, Sony Corporation,
Olympus, and TDK. The Company's current license agreements provide for the payment of license fees or
royalties, or a combination thereof, to the Company. The timing and amount of these payments can vary
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