SanDisk 2014 Annual Report Download - page 152

SANDISK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
equity interests of the investee are less than 20%. The equity method of accounting is used if the
Company’s investment in voting stock is greater than or equal to 20% but less than a majority. In
considering the accounting method for investments less than 20%, the Company also considers other
factors such as its ability to exercise significant influence over operating and financial policies of the
investee. If certain factors are present, the Company could account for investments for which it has less
than a 20% ownership under the equity method of accounting.
Investments in public companies with restrictions of less than one year are classified as
available-for-sale and are adjusted to their fair market value with unrealized gains and losses recorded as a
component of accumulated other comprehensive income (‘‘AOCI’’). Investments in public and non-public
companies are reviewed on a quarterly basis to determine if their value has been impaired and adjustments
are recorded as necessary. Upon disposition of these investments, the specific identification method is used
to determine the cost basis in computing realized 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
revenue 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 revenue 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
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