SanDisk 2004 Annual Report Download - page 56

Table of Contents
Notes to Consolidated Financial Statements — (Continued)
Foreign Currency. Foreign operations (except equity investees) are measured using the United States dollar as the functional
currency. Transactions between customers or vendors and the Company’s foreign operations are remeasured using the foreign
exchange rate in effect at the time of the transaction and transaction gain or loss is included in other income (loss) in the
accompanying consolidated income statements. Aggregate foreign currency transaction gains were $1.8 million, $2.1 million and
$2.1 million, in 2004, 2003 and 2002, respectively. For those equity method investments where the investee’s functional currency is
not the United States dollar, the investment amounts are translated using the foreign exchange rate at each balance sheet date. (See
Note 2− Accumulated Other Comprehensive Income (Loss).)
Cash Equivalents and Short−Term Investments. Cash equivalents consist of short−term, highly liquid financial instruments with
insignificant interest rate risk that are readily convertible to cash and have maturities of three months or less from the date of purchase.
Short−term investments consist of taxable commercial paper, United States government agency obligations, corporate/ municipal
notes and bonds with high−credit quality, money market preferred stock and auction rate preferred stock. Short−term investments also
include the unrestricted portion of the Company’s investment in foundries and investments for which trading restrictions expire within
one year. The fair market value, based on quoted market prices, of cash equivalents and short−term investments excluding the
Company’s short−term investment in foundries at January 2, 2005 and December 28, 2003 approximated their carrying value.
Management classifies the Company’s entire investment portfolio as available−for−sale at the time of purchase and periodically
reevaluates such designation. Debt securities classified as available−for−sale are reported at fair value. Unrecognized gains or losses
on available−for−sale securities are included in the other comprehensive income component of stockholders’ equity until their
disposition. The cost of securities sold is based on the specific identification method.
In determining if and when a decline in market value below cost of these investments is other−than−temporary, the Company
evaluates the market conditions, offering prices, trends of earnings, price multiples and other key measures. When such a decline in
value is deemed to be other−than−temporary, the Company recognizes an impairment loss in the current period operating results to the
extent of the decline.
Property and Equipment. Property, plant and equipment are carried at cost less accumulated depreciation, estimated residual value,
if any, and amortization. Depreciation and amortization are computed using the straight−line method over the estimated useful lives of
the assets or the remaining lease term, whichever is shorter, ranging from two to five years.
Equity Investments. The Company accounts for investments in equity securities of other entities under the cost method of
accounting if its investment in voting equity interests 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 a majority. In considering the
accounting method for investments less than 20%, the Company considers other factors such as its ability to exercise significant
influence over operating and financial 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. Certain of the Company’s investments
carry restrictions on immediate disposition. Investments in public companies with restrictions of less than one year are classified as
available−for−sale and are adjusted to their fair market value with unrealized gains and losses recorded as a component of
accumulated other comprehensive income. Investments in public and non−public companies are reviewed on a quarterly basis to
determine if their value has been impaired and adjustments are recorded as necessary. Upon disposition of these investments, the
specific identification method is used to determine the cost basis in computing realized gains or losses. Declines in value that are
judged to be other than temporary are reported in other income (expense).
The Company evaluates its equity method investments to determine whether any investee is a variable interest entity within the
meaning of Financial Interpretation No. 46, Accounting for Variable Interest Entities, of the Financial Accounting Standards Board. If
the Company concludes that an investee is a variable interest entity, the Company evaluates its interest in residual gains and residual
losses of such investee
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