SanDisk 2012 Annual Report Download - page 146

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. From
time-to-time, we must evaluate the expected realization of our deferred tax assets and determine whether a
valuation allowance needs to be established or released. 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. We also consider the jurisdictional mix of income and loss,
changes in tax regulations in the period the changes are enacted and the type of deferred tax assets and liabilities.
In assessing whether a valuation allowance needs to be established or released, we use judgment in considering
the cumulative effect of negative and positive evidence and the weight given to the potential effect of the
evidence. Recent historical income or loss and future projected operational results have the most influence on our
determinations of whether a deferred tax valuation allowance is required or not.
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 Goodwill. We perform tests for impairment of long-
lived assets whenever events or circumstances suggest that long-lived assets may not be recoverable. An
impairment is 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
undiscounted cash flows are less than the carrying value, then we must determine the fair value of the long-lived
asset or group of long-lived assets and recognize an impairment loss if the carrying amount of the long-lived
asset or group of long-lived assets exceeds its fair value which is based primarily upon forecasted discounted
cash flows. These forecasted discounted cash flows include estimates and assumptions related to revenue growth
rates and operating margins, risk-adjusted discount rates based on our weighted average cost of capital, future
economic and market conditions and determination of appropriate market comparables. Our estimates of market
growth and our market share and costs are based on historical data, various internal estimates and certain external
sources, and are based on assumptions that are consistent with the plans and estimates we are using to manage
the underlying business. Our business consists of both established and emerging technologies and our forecasts
for emerging technologies are based upon internal estimates and external sources rather than historical
information. If future forecasts are revised, they may indicate or require future impairment charges. We base our
fair value estimates on assumptions we believe to be reasonable but that are unpredictable and inherently
uncertain. Actual future results may differ from those estimates.
We perform our annual impairment analysis of goodwill and indefinite-lived intangible assets (such as in-
process research and development) on the first day of the fourth quarter of each fiscal year, or more often if there
are indicators of impairment. We allocate goodwill to reporting units based on the reporting unit expected to
benefit from the business combination. We evaluate our reporting units on an annual basis and, if necessary,
reassign goodwill using a relative fair value allocation approach. As of December 30, 2012, we had one reporting
unit. We may first assess qualitative factors to determine whether the existence of events or circumstances leads
to a determination that it is “more likely than not” that the fair value of the reporting unit is less than its carrying
amount and whether the two-step impairment test on goodwill is required. If based upon qualitative factors it is
“more likely than not” that the fair value of a reporting unit is greater than its carrying amount, we will not be
required to proceed to a two-step impairment test on goodwill. However, we also have the option to proceed
directly to a two-step impairment test on goodwill. In the first step, or Step 1, of the two-step impairment test, we
compare the fair value of each reporting unit to its carrying value. If the fair value exceeds the carrying value of
the net assets, goodwill is considered not impaired and we are not required to perform further testing. If the
carrying value of the net assets exceeds the fair value, then we must perform the second step, or Step 2, of the
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