SanDisk 2012 Annual Report Download - page 147

This is a TAB type table. Insert
conts here. Annual Report
two-step impairment test in order to determine the implied fair value of goodwill. If the carrying value of
goodwill exceeds its implied fair value, then we would record an impairment loss equal to the difference. The fair
value of each reporting unit is estimated using a discounted cash flow methodology. This analysis requires
significant judgments, including estimation of future cash flows, which is dependent on internal forecasts,
estimation of the long-term rate of growth for our business, estimation of the useful life over which cash flows
will occur, and determination of our weighted average cost of capital. We evaluate the reasonableness of the fair
value calculations of our reporting units by reconciling the total of the fair values of all of our reporting units to
our total market capitalization, taking into account an appropriate control premium. The determination of a
control premium requires the use of judgment and is based primarily on comparable industry and deal-size
transactions, related synergies and other benefits. When we are required to perform a Step 2 analysis,
determining the fair value of our net assets and our off-balance sheet intangibles used in Step 2 requires us to
make judgments and involves the use of significant estimates and assumptions. For both goodwill and indefinite-
lived intangible assets, we have the option to first assess qualitative factors to determine whether events and
circumstances indicate that it is more likely than not that the goodwill or an indefinite-lived intangible asset is
impaired and determine whether further action is needed. For the fiscal year ended December 30, 2012, we
performed a qualitative assessment on indefinite-lived intangible assets and performed a quantitative assessment
on goodwill.
Fair Value of Investments in Debt Instruments.There are three levels of inputs that may be used to
measure fair value (see Note 3, “Investments and Fair Value Measurements” in the Notes to the Consolidated
Financial Statements included in Item 8 of this report). Each level of input has different levels of subjectivity and
difficulty involved in determining fair value. Level 1 securities represent quoted prices in active markets, and
therefore do not require significant management judgment. Our Level 2 securities are primarily valued using
quoted market prices for similar instruments and nonbinding market prices that are corroborated by observable
market data. We use inputs such as actual trade data, benchmark yields, broker/dealer quotes, and other similar
data, which are obtained from independent pricing vendors, quoted market prices, or other sources to determine
the ultimate fair value of our assets and liabilities. The inputs and fair value are reviewed for reasonableness, may
be further validated by comparison to publicly available information, compared to multiple independent
valuation sources and could be adjusted based on market indices or other information. In the current market
environment, the assessment of fair value can be difficult and subjective. However, given the relative reliability
of the inputs we use to value our investment portfolio and because substantially all of our valuation inputs are
obtained using quoted market prices for similar or identical assets, we do not believe estimates and assumptions
materially impacted our valuation of our cash equivalents and short and long-term marketable securities. We
currently do not have any investments that use Level 3 inputs.
Results of Operations
Product Revenues.
FY 2012
Percent
Change FY 2011
Percent
Change FY 2010
(In millions, except percentages)
OEM ............................... $ 2,831.5 (18%) $ 3,458.5 25% $ 2,776.8
Retail ............................... 1,847.0 1% 1,829.1 8% 1,686.1
Product revenues .................. $ 4,678.5 (12%) $ 5,287.6 18% $ 4,462.9
The decrease in our fiscal year 2012 product revenues, compared to fiscal year 2011, reflected a
(45%) reduction in average selling price per gigabyte, partially offset by a 62% increase in the number of
gigabytes sold. A primary factor in the decrease in product revenues was a steep rate of price decline in the year
ended December 30, 2012 largely due to oversupply in the NAND industry in the first half of fiscal year 2012.
The increase in number of gigabytes sold was driven by an 11% increase in memory units sold with an increase
41