SanDisk 2009 Annual Report Download - page 93

This is a TAB type table. Insert
conts here. Annual Report
Revenue Recognition, Sales Returns and Allowances and Sales Incentive Programs. We recognize
revenues when the earnings process is complete, as evidenced by an agreement with the customer, there is
transfer of title and acceptance, if applicable, fixed pricing and reasonable assurance of realization. Revenue is
generally recognized at the time of shipment for customers not eligible for price protection and/or a right of
return. Sales made to distributors and retailers are generally under agreements allowing price protection and/or
right of return and, therefore, the sales and related costs of these transactions are deferred until the retailers or
distributors sell the merchandise to their end customer, or the rights of return expire. At January 3, 2010 and
December 28, 2008, deferred income from sales to distributors and retailers was $177.7 million and
$75.7 million, respectively. Estimated sales returns are provided for as a reduction to product revenues and
deferred revenues and were not material for any period presented in our Consolidated Financial Statements.
We record estimated reductions to revenues or to deferred revenues for customer and distributor incentive
programs and offerings, including price protection, promotions, co-op advertising, and other volume-based
incentives and expected returns. Additionally, we have incentive programs that require us to estimate, based on
historical experience, 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. In calculating the value of sales
incentive programs, actual and estimated activity is used based upon reported weekly sell-through data from our
customers. The timing and resolution of these claims could materially impact product revenues or deferred
revenues. In addition, actual returns and rebates in any future period could differ from our estimates, which could
impact the revenue we report.
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.
The determination of market value involves numerous judgments including estimating average selling prices
based upon recent sales, industry trends, existing customer orders, current contract prices, industry analysis of
supply and demand and seasonal factors. Should actual market conditions differ from our estimates, our future
results of operations could be materially affected. The valuation of inventory also requires us to estimate obsolete
or excess inventory. The determination of obsolete or excess inventory requires us to estimate the future demand
for our products within specific time horizons, generally six to twelve months. To the extent our demand forecast
for specific products is less than both our product on-hand and on noncancelable orders, we could be required to
record additional inventory reserves, which would have a negative impact on our gross margin.
Deferred Tax Assets. We must make certain estimates in determining income tax expense for financial
statement purposes. These estimates occur in the calculation of certain tax assets and liabilities, which arise from
differences in the timing of recognition of revenue and expense for tax and financial statement purposes. We
have recorded a valuation allowance against a significant portion of our U.S. and certain foreign net deferred tax
assets as there was substantial uncertainty as to the realizability of the deferred tax assets in future periods. In
determining the need for and amount of our valuation allowance, we assess the likelihood that we will be able to
recover our deferred tax assets using historical levels of income, estimates of future income and tax planning
strategies. Our estimates of future income include our internal projections and various internal estimates and
certain external sources which we believe to be reasonable but that are unpredictable and inherently uncertain.
Our estimates for tax uncertainties require substantial judgment based upon the period of occurrence,
complexity of the matter, available federal tax case law, interpretation of foreign laws and regulations and other
estimates. There is no assurance that domestic or international tax authorities will agree with the tax positions we
have taken which could materially impact future results.
Valuation of Long-Lived Assets, Intangible Assets and Equity Method Investments. We perform tests for
impairment of long-lived and intangible assets and equity method investments whenever events or circumstances
suggest that other long-lived assets may not be recoverable. An impairment of long-lived and intangible assets
are only deemed to have occurred if the sum of the forecasted undiscounted future cash flows related to the assets
are less than the carrying value of the asset we are testing for impairment. If the forecasted cash flows are less
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