SanDisk 2009 Annual Report Download - page 124

Notes To Consolidated Financial Statements
In October 2009, the FASB issued authoritative guidance to update the accounting and reporting
requirements for revenue arrangements with multiple deliverables. This guidance established a selling price
hierarchy, which allows the use of an estimated selling price to determine the selling price of a deliverable in
cases where neither vendor-specific objective evidence nor third-party evidence is available. The Company will
early adopt this standard beginning on January 4, 2010 and believes the impact of the adoption on its financial
condition and results of operations is immaterial.
In October 2009, the FASB issued authoritative guidance that clarifies which revenue allocation and
measurement guidance should be used for arrangements that contain both tangible products and software, in
cases where the software is more than incidental to the tangible product as a whole. More specifically, if the
software sold with or embedded within the tangible product is essential to the functionality of the tangible
product, then this software as well as undelivered software elements that relate to this software is excluded from
the scope of existing software revenue guidance. The Company will early adopt this standard beginning on
January 4, 2010 and believes the impact of the adoption on its financial condition and results of operations is
immaterial.
Note 3: Investments and Fair Value Measurements
Fair Value Hierarchy. The Company categorizes the fair value of its financial assets and liabilities
according to the hierarchy established by the FASB, which 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 are described as follows:
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.
In circumstances in which a quoted price in an active market for the identical liability is not available, the
Company is required to use the quoted price of the identical liability when traded as an asset, quoted prices for
similar liabilities, or quoted prices for similar liabilities when traded as assets. If these quoted prices are not
available, the Company is required to use another valuation technique, such as an income approach or a market
approach.
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 money market funds, U.S. Treasury
securities and equity securities. Instruments that are classified within Level 2 of the fair value hierarchy generally
include government agency securities, asset-backed securities, mortgage-backed securities, commercial paper,
U.S. corporate notes and bonds, and municipal obligations.
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