SanDisk 2012 Annual Report Download - page 176

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
gains or losses. Declines in value that are judged to be other-than-temporary are reported in Interest (expense)
and other income (expense), net or Cost of product revenues in the accompanying Consolidated Statements of
Operations.
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.
Advertising Expenses. Marketing co-op development programs, where the Company receives, or will
receive, an identifiable benefit (e.g., goods or services) in exchange for the amount paid to its customer and the
Company can reasonably estimate the fair value of the benefit it receives for the customer incentive payment, are
classified, when granted, as a marketing expense. Advertising expenses not meeting this criteria are classified as
a reduction to product revenue when the expense is incurred. Advertising expenses recorded as marketing
expense were $16.2 million, $11.4 million and $4.0 million in fiscal years 2012, 2011 and 2010, respectively.
Research and Development Expenses. Research and development expenditures are expensed as incurred.
Note 2: Recent Accounting Pronouncements
In February 2013, the Financial Accounting Standards Board (“FASB”) issued authoritative guidance
related to reclassifications out of accumulated OCI. Under the amendments in this update, an entity is required to
report, in one place, information about reclassifications out of accumulated OCI and to report changes in its
accumulated OCI balances. For significant items reclassified out of accumulated OCI to net income in their
entirety in the same reporting period, reporting is required about the effect of the reclassifications on the
respective line items in the statement where net income is presented. For items that are not reclassified to net
income in their entirety in the same reporting period, a cross reference to other disclosures currently required
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