SanDisk 2009 Annual Report Download - page 121

This is a TAB type table. Insert
conts here. Annual Report
Notes To Consolidated Financial Statements
licensees, which is generally one quarter in arrears from the licensees’ sales. For licensing fees that are not
determined by the number of licensed units sold, the Company recognizes license fee revenue on a straight-line
basis over the life of the license.
The Company records estimated reductions of revenue for customer and distributor incentive programs and
offerings, including price protection, promotions, co-op advertising and other volume-based incentives and
expected returns. Additionally, the Company has incentive programs that require it to estimate, the number of
customers who will actually redeem the incentive. All sales incentive programs are recorded as an offset to
product revenues or deferred revenues. Marketing development programs are recorded as a reduction to revenue.
Accounts Receivable and Allowance for Doubtful Accounts. Accounts receivable include amounts owed
by geographically dispersed distributors, retailers and original equipment manufacturer (“OEM”) customers. No
collateral is required. Provisions are provided for sales returns and credit losses.
The Company estimates the collectibility of its accounts receivable based on a combination of factors. In
circumstances where the Company is aware of a specific customer’s inability to meet its financial obligations to
the Company (e.g., bankruptcy filings or substantial downgrading of credit ratings), the Company provides
allowance for bad debts against amounts due to reduce the net recognized receivable to the amount it reasonably
believes will be collected.
Income Taxes. The Company accounts for income taxes using an asset and liability approach, which
requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that
have been recognized in the Company’s Consolidated Financial Statements, but have not been reflected in the
Company’s taxable income. A valuation allowance has been established to reduce deferred tax assets to their
estimated realizable value. Therefore, the Company provides a valuation allowance to the extent that the
Company does not believe it is more likely than not that it will generate sufficient taxable income in future
periods to realize the benefit of its deferred tax assets. The Company recognizes interest and penalties related to
unrecognized tax benefits in income tax expense.
Foreign Currency. The Company determines the functional currency for its parent company and each of its
subsidiaries by reviewing the currencies in which their respective operating activities occur. Transaction gains
and losses arising from activities in other than the applicable functional currency are calculated using average
exchange rates for the applicable period and reported in net income (loss) as a non-operating item in each period.
Non-monetary balance sheet items denominated in a currency other than the applicable functional currency are
translated using the exchange rate in effect on the balance sheet date and any gains and losses are included in
cumulative translation adjustment. The Company continuously evaluates its foreign currency exposures and may
continue to enter into hedges or other risk mitigating arrangements in the future. Aggregate gross foreign
currency transaction gain (loss) prior to consideration of the offsetting hedges recorded to net income (loss) was
($90.0) million, $181.3 million and $15.6 million in fiscal years 2009, 2008 and 2007, respectively.
Cash Equivalents, Short and Long-Term Marketable Securities. 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. Marketable securities with original maturities
greater than three months and remaining maturities less than one year are classified as short-term marketable
securities. Marketable securities with remaining maturities greater than one year as of the balance sheet date are
classified as long-term marketable securities. Short and long-term fixed income investments consist of
commercial paper, United States (“U.S.”) treasuries, government agency and government-sponsored agency
obligations, corporate/municipal notes and bonds, and variable rate demand notes. Both short and long-term
marketable securities also include investments in certain equity securities. The fair market value, based on quoted
market prices, of cash equivalents, and short and long-term marketable securities at January 3, 2010
approximated their carrying value. Cost of securities sold is based on specific identification.
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