SanDisk 1998 Annual Report Download - page 45

SanDisk Corporation
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Depreciation and Amortization
Depreciation is computed using the straight-line method
over the estimated useful lives of the assets or the remaining
lease term, whichever is shorter, generally two to seven years.
Investment in Foundry
In 1997, the Company invested $40.3 million in United
Silicon, Inc., (“USIC”) a semiconductor manufacturing sub-
sidiary of United Microelectronics Corporation in Taiwan.
The transaction gives the Company an equity stake of
approximately 10% in the facility (which is accounted for
on the cost basis) and guarantees access to approximately
12.5% of the wafer output from the facility. In 1998, the
Company increased its investment by $10.9 million to retain
its 10% ownership interest. No changes were made to the
production agreement.
Revenue Recognition
Product revenue is generally recognized at the time of ship-
ment, less a provision for estimated sales returns. However,
revenue on shipments to distributors and retailers, subject to
certain rights of return and price protection, is deferred until
the merchandise is sold by the distributors or retailers, or the
rights expire.
The Company earns patent license and royalty revenue
under patent cross-license agreements with Hitachi Ltd.
(“Hitachi”), Intel Corporation (“Intel”), Samsung Electronics
Company Ltd. (“Samsung”), Sharp Electronics Corporation
(“Sharp”), Silicon Storage Technology, Inc. (“SST”) and
Toshiba Corporation (“Toshiba”). The Company’s current
license agreements provide for the payment of license fees,
royalties, or a combination thereof, to the Company. The
timing and amount of these payments can vary substantially
from quarter to quarter, depending on the terms of each
agreement and, in some cases, the timing of sales of products
by the other parties.
Patent license and royalty revenue is recognized when
earned. In 1998 and 1997, the Company received payments
under these cross license agreements, portions of which were
recognized as revenue and portions of which are deferred
revenue. Recognition of deferred revenue is expected to
occur in future periods as the Company meets certain obliga-
tions as provided in the various agreements.
Net Income Per Share
The Company determines net income per share in accordance
with Financial Accounting Standards Statement 128,
Earnings Per Share.
The following table sets forth the computation of basic and
diluted net income per share (in thousands, except per share
amounts):
(In thousands, December 31,
except per share amounts) 1998 1997 1996
Numerator:
Numerator for basic and
diluted net income
per share—net income $ 11,836 $ 19,839 $ 14,485
Denominator for basic
net income per share:
Weighted average
common shares 26,298 22,880 22,162
Shares used in computing
basic net income per share 26,298 22,880 22,162
Basic net income
per share $ 0.45 $ 0.87 $ 0.65
Denominator for diluted
net income per share:
Weighted average
common shares 26,298 22,880 22,162
Dilutive effect of employee
stock options and warrants
to purchase common stock 1,374 2,090 2,044
Shares used in computing
diluted net income per share 27,672 24,970 24,206
Diluted net income per share $ 0.43 $ 0.79 $ 0.60
Options and warrants to purchase 901,443; 257,008 and
64,962 shares of common stock in 1998, 1997 and 1996,
respectively, have been omitted from the earnings per share
calculation, as their effect is antidilutive.
Stock Based Compensation
The Company accounts for employee stock based compensa-
tion under APB Opinion No. 25, “Accounting for Stock
Issued to Employees” and related interpretations. Pro forma
net income and net income per share are disclosures required
by Statement of Financial Accounting Standards No. 123,
“Accounting for Stock Based Compensation,” and are
included in Note 5.
Impact of Recently Issued Accounting Standards
In June 1998, the Financial Accounting Standards Board
issued Statement 133, Accounting for Derivative Instruments
and Hedging Activities, which is required to be adopted in
years beginning after June 15, 1999. Because of the Company’s
minimal use of derivatives, management does not anticipate
that the adoption of the new Statement will have a significant
effect on earnings or the financial position of the Company.