SanDisk 1999 Annual Report Download - page 39

36 Annual Report 1999
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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):
Options and warrants to purchase 190,807; 1,802,886 and
514,016 shares of common stock in 1999, 1998 and 1997,
respectively, have been omitted from the earnings per share calcu-
lation, as their effect is antidilutive.
STOCK BASED COMPENSATION
The Company accounts for employee stock based compensation
under APB Opinion No. 25, “Accounting for Stock Issued to
Employees” and related interpretations. Pro forma net income and
net income per share disclosures are required by Statement of
Financial Accounting Standards No. 123, “Accounting for Stock
Based Compensation,” and are included in Note 4.
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 fiscal years beginning
after June 15, 2000. 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, however, the Company is in the
process of studying the impact.
NOTE 2:
Financial Instruments
CONCENTRATION OF CREDIT RISK
The Company’s concentration of credit risk consists principally of
cash, cash equivalents, short-term investments and trade receiv-
ables. The Company’s investment policy restricts investments to
high-credit quality investments and limits the amounts invested
with any one issuer. The Company sells to original equipment man-
ufacturers, retailers and distributors in the United States, Japan,
Europe and the Far East, performs ongoing credit evaluations of its
customers’ financial condition, and generally requires no collateral.
Reserves are maintained for potential credit losses.
OFF BALANCE SHEET RISK
Certain of the Company’s balance sheet accounts are denominated in
Japanese Yen. The Company enters into foreign exchange contracts
to hedge against changes in foreign currency exchange rates. The
effects of movements in currency exchange rates on these instru-
ments are recognized when the related operating revenues and
expenses are recognized. The Company has a foreign exchange con-
tract line in the amount of $15.0 million at December 31, 1999.
Under this line, the Company may enter into forward exchange con-
tracts which require the Company to sell or purchase foreign
currencies. Two forward exchange contracts in the notional amount
of $8.2 million were outstanding at December 31, 1999. Foreign
currency translation gains of $122,000 were deferred at December
31, 1999 in connection with these contracts as the contracts have
been identified as hedging contracts. One forward exchange contract
in the amount of $4.3 million was outstanding at December 31,
1998. Foreign currency translation losses of $34,000 were deferred
at December 31, 1998 in connection with this forward contract.
The impact of movements in currency exchange rates on foreign
exchange contracts substantially mitigates the related impact on the
underlying items hedged. The Company had net transaction gains
(losses) of approximately $1,467,000, $412,000 and ($7,000) for
December 31, 1999 1998 1997
Numerator:
Numerator for basic
and diluted
net income per share
— net income $ 26 ,550 $ 11,836 $ 19,839
Denominator for basic net
income per share:
Weighted average
common shares 55,834 52,596 45,760
Shares used in computing
basic net income
per share 55,834 52,596 45,760
Basic net income
per share $ 0.48 $ 0.23 $ 0.43
Denominator for diluted
net income per share:
Weighted average
common shares 55,834 52,596 45,760
Employee stock options
and warrants to purchase
common stock 5,59 9 2,748 4,180
Shares used in computing
diluted net income
per share 61,433 55,344 49,940
Diluted net income
per share $ 0.43 $ 0.21 $ 0.40