SanDisk 2008 Annual Report Download - page 75

Notes To Consolidated Financial Statements
Property and Equipment. Property 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 twenty-five years.
Variable Interest Entities. The Company evaluates its equity method investments to determine whether any
investee is a variable interest entity within the meaning of the Financial Accounting Standards Board (“FASB”),
Interpretation No. 46R (“FIN 46R”), Accounting for Variable Interest Entities. If the Company concludes that an
investee is a variable interest entity, the Company evaluates its expected gains and losses of such investee to
determine whether the Company is the primary beneficiary of the investee. If the Company is the primary
beneficiary of a variable interest entity, the Company consolidates such entity and reflects the minority interest of
other beneficiaries of that entity. If the Company concludes that an investee is not a variable interest entity, the
Company does not consolidate the investee.
Equity Investments. The Company accounts for investments in equity securities of other entities, including
variable interest entities that are not consolidated, under the cost method of accounting if investments in voting
equity interests of the investee is less than 20%. The equity method of accounting is used if the Company’s
investment in voting stock is greater than or equal to 20% but less than a majority. In considering the accounting
method for investments less than 20%, the Company also 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. 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 companies with restrictions
greater than one year are carried at cost. 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) or Cost of Product Revenues in the accompanying Consolidated Statements of
Operations. See Note 4, “Balance Sheet Information—Notes Receivable and Investments in Flash Ventures with
Toshiba,” regarding impairment of equity method investments in fiscal year 2008.
Inventories and Inventory Valuation. Inventories are stated at the lower of cost (first-in, first-out) or
market. Market value is based upon an estimated average selling price reduced by estimated costs of disposal.
Should actual market conditions differ from the Company’s estimates, the Company’s future results of operations
could be materially affected. Reductions in inventory valuation are included in Cost of Product Revenues in the
accompanying Consolidated Statements of Operations. The Company’s inventory impairment charges
permanently establish a new cost basis and are not subsequently reversed to income even if circumstances later
suggest that increased carrying amounts are recoverable. Rather these amounts are reversed into income only if,
as and when the inventory is sold.
The Company reduces the carrying value of its inventory to a new basis for estimated obsolescence or
unmarketable inventory by an amount equal to the difference between the cost of the inventory and the estimated
market value based upon assumptions about future demand and market conditions, including assumptions about
changes in average selling prices. If actual market conditions are less favorable than those projected by
management, additional reductions in inventory valuation may be required.
The Company’s finished goods inventory includes consigned inventory held at customer locations as well as
at third-party fulfillment centers and subcontractors.
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