SanDisk 2013 Annual Report Download - page 202

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Acquired Plans. In connection with the Company’s acquisitions of SMART Storage, FlashSoft, Pliant,
msystems Ltd. and Matrix Semiconductor, Inc., the Company adopted various equity incentive plans,
which were effective upon completion of the applicable acquisition. Each of these plans was terminated as
of the date of acquisition and no further grants were made under any of these plans after their termination.
Any unvested option grants that were outstanding under these plans at December 29, 2013 continue to be
governed by their existing terms and may be exercised for shares of the Company’s common stock. Vested
options may be exercised for shares of the Company’s common stock at any time prior to the expiration of
the option term or any earlier termination of those options in connection with the optionee’s cessation of
service with the Company.
Accounting for Share-based Compensation Expense
For share-based awards expected to vest, compensation cost is based on the grant-date fair value. The
Company recognizes compensation expense for the fair values of these awards, which have graded vesting,
on a straight-line basis over the requisite service period of each of these awards, net of estimated
forfeitures.
The Company estimates the fair value of stock options and RSUs granted using the Black-Scholes-
Merton option-pricing formula and a single-option award approach. The Company’s expected term
represents the period that the Company’s share-based awards are expected to be outstanding and was
determined based on historical experience for similar awards, giving consideration to the contractual terms
of the share-based awards. The Company’s expected volatility is based on the implied volatility of its traded
options. The Company’s dividend yield is based on the annualized dividend and the share price at each
dividend record date. The risk-free interest rate is based on the yield from U.S. Treasury zero-coupon
bonds with an equivalent term.
Valuation Assumptions
Option Plan Shares. The fair value of the Company’s stock options granted, excluding unvested stock
options assumed through acquisitions, was estimated using the following weighted average assumptions:
Fiscal years ended
December 29, December 30, January 1,
2013 2012 2012
Dividend yield ...................................... 0% – 1.63% —% —%
Expected volatility .................................... 0.37 0.43 0.43
Risk-free interest rate ................................. 0.74% 0.60% 1.49%
Expected term ...................................... 4.4 years 4.3 years 4.3 years
Estimated annual forfeiture rate .......................... 8.51% 8.59% 8.57%
Weighted average fair value at grant date .................... $16.26 $16.45 $17.37
The fair value of the Company’s RSU awards granted was valued using the closing price of the
Company’s stock price on the date of grant.
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