SanDisk 2008 Annual Report Download - page 79

Notes To Consolidated Financial Statements
Note 3: Investments and Fair Value Measurements
Effective December 31, 2007, the Company adopted the fair value measurement and disclosure provisions
of Statement of Financial Accounting Standards No. 157 (“SFAS 157”), Fair Value Measurements, which
establishes specific criteria for the fair value measurements of financial and nonfinancial assets and liabilities that
are already subject to fair value measurements under current accounting rules. SFAS 157 also requires expanded
disclosures related to fair value measurements. In February 2008, the FASB approved FSP Statement of
Financial Accounting Standards No. 157-2 (“FSP SFAS 157-2”), Effective Date of FASB Statement No. 157,
which allows companies to elect a one-year delay in applying SFAS 157 to certain fair value measurements,
primarily related to nonfinancial instruments. The Company elected the delayed adoption date for the portions of
SFAS 157 impacted by FSP SFAS 157-2. The partial adoption of SFAS 157 was prospective and did not have a
significant effect on the Company’s Consolidated Financial Statements. The Company is currently evaluating the
impact of applying the deferred portion of SFAS 157 to the nonrecurring fair value measurements of its
nonfinancial assets and liabilities. In accordance with FSP SFAS 157-2, the fair value measurements for
nonfinancial assets and liabilities will be adopted effective for fiscal years beginning after November 15, 2008.
Concurrently with the adoption of SFAS 157, the Company adopted Statement of Financial Accounting
Standards No. 159 (“SFAS 159”), Establishing the Fair Value Option for Financial Assets and Liabilities, which
permits entities to elect, at specified election dates, to measure eligible financial instruments at fair value. As of
December 28, 2008, the Company did not elect the fair value option under SFAS 159 for any financial assets and
liabilities that were not previously measured at fair value.
Fair Value Hierarchy. SFAS 157 establishes a fair value hierarchy that prioritizes the inputs to valuation
techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in
active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable
inputs (Level 3 measurements). The three levels of the fair value hierarchy under SFAS 157 are described below:
Level 1 Valuations based on quoted prices in active markets for identical assets or liabilities that the
Company has the ability to directly access.
Level 2 Valuations based on quoted prices for similar assets or liabilities; valuations for interest-bearing
securities based on non-daily quoted prices in active markets; quoted prices in markets that are
not active; or other inputs that are observable or can be corroborated by observable data for
substantially the full term of the assets or liabilities.
Level 3 Valuations based on inputs that are supported by little or no market activity and that are
significant to the fair value of the assets or liabilities.
A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is
significant to the fair value measurement.
The Company’s financial assets are measured at fair value on a recurring basis. Instruments that are
classified within Level 1 of the fair value hierarchy generally include most money market securities,
U.S. Treasury securities and equity investments. Instruments that are classified within Level 2 of the fair value
hierarchy generally include U.S. agency securities, commercial paper, U.S. corporate bonds and municipal
obligations.
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