SanDisk 2009 Annual Report Download - page 92

Our results are primarily driven by worldwide demand for flash storage devices, which in turn depends on
end-user demand for electronic products. We believe the market for flash storage is generally price elastic.
Accordingly, we expect that as we reduce the price of our flash devices, consumers will demand an increasing
number of gigabytes and/or units of memory and that over time, new markets will emerge. In order to profitably
capitalize on price elasticity of demand in the market for flash storage products, we must reduce our cost per
gigabyte at a rate similar to the change in selling price per gigabyte, and the average capacity and/or the number
of units of our products must grow enough to offset price declines. We seek to achieve these cost reductions
through technology improvements, primarily by increasing the amount of memory stored in a given area of
silicon.
Effective December 29, 2008, we implemented a change in accounting and have separately accounted for
the liability and equity components of our 1% Senior Convertible Note due 2013 that may be settled in cash upon
conversion (including partial cash settlement) in a manner that reflects our economic interest cost. Accordingly,
we bifurcated the debt into debt and equity components and are amortizing the debt discount (the “economic
interest cost”) in our Consolidated Statements of Operations. We have retrospectively applied the change in
accounting to all periods presented, and have recast the Consolidated Financial Statements for fiscal years 2008
and 2007 presented in this report.
Effective December 29, 2008, we implemented a change in accounting and have reclassified for all periods
presented non-controlling interests, formerly called a minority interest, to a component of equity in the
Consolidated Balance Sheets, and the net income (loss) attributable to non-controlling interests has been
separately identified in the Consolidated Statements of Operations and the Consolidated Statements of Equity.
The Company has also reclassified certain distributions to non-controlling interests from cash flows from
operating activities to cash flows from investing activities for fiscal years ended December 28, 2008 and
December 30, 2007.
In the fourth quarter of fiscal year 2009, we identified that our third party equity software contained a
feature that resulted in incorrect share-based compensation expense. This software feature affected our share-
based compensation expense reported for the nine months ended September 27, 2009 and the three fiscal years
ended December 28, 2008. We determined that the impact of the underreported share-based compensation
expense was not material to any of the previously issued annual or interim financial statements. Accordingly, the
fourth quarter and full fiscal year 2009 include a cumulative non-cash adjustment of $16.2 million to increase
share-based compensation, allocated to multiple expense categories.
Fiscal year 2009 included 53 weeks as compared to 52 weeks in fiscal years 2008 and 2007.
Critical Accounting Policies & Estimates
Our discussion and analysis of our financial condition and results of operations is based upon our
Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally
accepted in the United States, or U.S. GAAP.
Use of Estimates. The preparation of these financial statements requires us to make estimates and judgments
that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent
liabilities. On an ongoing basis, we evaluate our estimates, including, among others, those related to customer
programs and incentives, product returns, bad debts, inventories and related reserves, investments, long-lived
assets, income taxes, warranty obligations, restructuring, contingencies, share-based compensation, and
litigation. We base our estimates on historical experience and on other assumptions that we believe are
reasonable under the circumstances, the results of which form the basis for our judgments about the carrying
values of assets and liabilities when those values are not readily apparent from other sources. Estimates have
historically approximated actual results. However, future results will differ from these estimates under different
assumptions and conditions.
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