SanDisk 2014 Annual Report Download - page 117

$513 million was allocated to goodwill. In addition, $61 million of the Fusion-io purchase price was
allocated to acquired in-process research and development, or IPR&D, which we estimate will be
completed by the first quarter of fiscal year 2016 at an estimated cost of $12 million. See Note 17,
‘‘Business Acquisitions,’’ in the Notes to Consolidated Financial Statements of this Form 10-K included in
Item 8, ‘‘Financial Statement and Supplementary Data’’ of this report.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations is based upon our
Consolidated Financial Statements, which have been prepared in accordance with U.S. Generally
Accepted Accounting Principles, or GAAP.
Use of Estimates. The preparation of these financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related
disclosure of contingent liabilities. On an ongoing basis, we evaluate our estimates, including, among
others, those related to customer programs and incentives, product returns, allowance for doubtful
accounts, inventories and inventory valuation, valuation and impairments of marketable securities and
investments, valuation and impairments of goodwill and long-lived assets, income taxes, warranty
obligations, restructurings, contingencies, share-based compensation, IP claims and litigation. We base our
estimates on historical experience and on other assumptions that we believe are reasonable under the
circumstances, the results of which form the basis for our judgments about the carrying values of assets and
liabilities when those values are not readily apparent from other sources. Estimates have historically
approximated actual results. However, future results will differ from these estimates under different
assumptions and conditions.
Revenue Recognition, Sales Returns and Allowances and Sales Incentive Programs. Sales made to
distributors and retailers are generally under agreements allowing price protection and/or right of return
and, therefore, the revenue and related costs of these transactions are deferred until the distributors or
retailers sell the merchandise to their end customer, or the rights of return expire. As of December 28,
2014 and December 29, 2013, deferred income from sales to distributors and retailers were $237 million
and $254 million, respectively. Estimated sales returns are recorded as a reduction to revenue and deferred
revenue and were not material for any period presented in our Consolidated Financial Statements.
We record estimated reductions to revenue or to deferred revenue for customer and distributor
incentive programs and offerings, including price protection, promotions, co-op advertising, and other
volume-based incentives and expected returns. All sales incentive programs are recorded as an offset to
revenue or deferred revenue. In calculating the value of sales incentive programs, actual and estimated
activity is used based upon reported weekly sell-through data from our customers and historical activity.
The resolution of these claims is generally within 12 months and could materially impact revenue or
deferred revenue. In addition, actual returns and rebates in any future period could differ from our
estimates, which could impact the revenue we report. Our actual returns and rebates have not been
materially different from our estimates.
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 appropriate time horizons, generally six
47
Annual Report