SanDisk 2010 Annual Report Download - page 197

This is a TAB type table. Insert
conts here. Annual Report
Notes To Consolidated Financial Statements
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.
Should actual market conditions differ from the Company’s estimates, the Company’s future results of operations
could be materially affected. Reductions in inventory valuation are included in Cost of product revenues in the
accompanying Consolidated Statements of Operations. Inventory impairment charges, when taken, permanently
establish a new cost basis and are not subsequently reversed to income even if circumstances later suggest that
increased carrying amounts are recoverable. Rather these amounts are recognized in income only if, as and when
the inventory is sold.
The Company reduces the carrying value of its inventory to a new basis for estimated obsolescence or
unmarketable inventory by an amount equal to the difference between the cost of the inventory and the estimated
market value based upon assumptions about future demand and market conditions, including assumptions about
changes in average selling prices. If actual market conditions are less favorable than those projected by
management, additional reductions in inventory valuation may be required.
The Company’s finished goods inventory includes consigned inventory held at customer locations as well as
at third-party fulfillment centers and subcontractors.
Other Long-Lived Assets.Intangible assets with finite useful lives and other long-lived assets are tested for
impairment if certain impairment indicators are identified.The Company assesses the carrying value of long-
lived assets, whenever events or changes in circumstances indicate that the carrying value of these long-lived
assets may not be recoverable. Factors the Company considers important which could result in an impairment
review include: (1) significant under-performance relative to the historical or projected future operating results;
(2) significant changes in the manner of use of assets; (3) significant negative industry or economic trends; and
(4) significant changes in the Company’s market capitalization relative to net book value. Any changes in key
assumptions used by the Company including those set forth above, could result in an impairment charge and such
a charge could have a material adverse effect on the Company’s consolidated results of operations.
Fair Value of Financial Instruments. For certain of the Company’s financial instruments, including
accounts receivable, short-term marketable securities and accounts payable, the carrying amounts approximate
fair value due to their short maturities.
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.
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