SanDisk 2000 Annual Report Download - page 40

3 8 . Sa n D is k C o rp o ra t io n . 2 0 0 0 A n n u a l Re p o rt
the optio n o f ap p ro xim ate ly 5 years . The w eig hted
averag e fair value o f tho se o p tions g ranted w e re
$39 .8 2 , $22 .38 and $3 .32 5 for 2 000 , 19 99 and 19 9 8,
re sp e c tively.
The B lac k - Sc holes o p tion valuatio n m o d el w as
d eve lo p e d fo r use in estim ating the fair value of trad e d
o p tio ns that have no vesting restric tio ns and are fully
transfe rab le . In ad d ition, o p tio n m o d e ls require the
inp ut o f highly sub je c tive assum ptio ns inc lud ing the
exp ected sto c k price vo latility. Bec ause the Com pany’s
em ployee sto c k o p tio n s have c harac teristic s sig nifi-
c antly d iffe rent fro m tho se o f traded o p tio ns, and
b ecause c hang es in the subjec tive assum p tions c an
m aterially affe c t the fair value estim ate, in m anag e -
m ent’s o p inio n, the existing m o d e ls d o not necessarily
p ro vid e a reliable single m easure o f the fair value of its
em ployee sto c k o p tio n s.
Und e r the 19 95 Em p lo ye e Sto c k Purc hase Plan
p artic ip ating em p lo yee s c an c hoose to have up to 10%
o f their annual base earning s w ithheld to p urc hase the
Co m p any’s co m m o n stock. The purc hase p ric e o f the
sto c k is 8 5% of the low er o f the sub sc riptio n d ate fair
m arket value and the p urc hase d ate fair m arket value.
Ap p ro xim ate ly 78 % o f e lig ib le e m p lo ye es p artic ip ated in
the plan in 20 0 0 and 79 % an d 6 5% in 19 99 and 19 98,
resp ectively. Und er the Plan, the Co m p any sold 6 9,423 ,
269 ,0 9 2 and 2 59,484 share s to em ploye e s in 2 0 00,
19 99 and 19 98, re sp e c tive ly. Pursuant to APB 25 and
related interp re tatio ns, the Com p any d o es no t rec o g -
nize co m p ensatio n c o st relate d to e m p lo yee p urc hase
rig hts und er the Plan. To c om ply w ith the p ro fo rm a
rep orting re q uire m e nts o f SFAS 12 3 , c o m p e nsatio n
c o st is estim ated for the fair value o f the em ployee s’
p urc hase rig hts using the Blac k- Scho le s m o d el w ith the
fo llo w ing assum ptio ns for tho se rig hts granted in 20 0 0,
19 99 and 19 98: d ivid e nd yield o f 0 .0 %; and exp ected
life of 6 m o nths; e xp e c te d volatility fac to r of 1.5 6 and
1.18 in 200 0 , .9 8 and 1.16 in 19 99, and .65 and 1.02 in
19 98; and a risk free inte rest rate rang ing fro m 5.3 5%
to 6.43% . The w eighte d average fair value o f tho se
p urc hase rig hts granted in February 1998 , August 19 98,
February 1999 , August 19 9 9, Fe b ruary 200 0 and
Aug ust 200 0 w e re $ 3.50, $ 2 .2 5, $6.01, $17.72 , $ 38.69
and $29 .24 , resp ectively.
H ad c o m p ensatio n c o st for the Co m p any’s sto c k-
b ased c o m p ensatio n p lans b e en determ ined b ased o n
the fair value at the grant d ates for aw ards und e r tho se
p lans c o nsistent w ith the m etho d o f SFAS 123, the
Co m p any’s net in c o m e an d e arning s p er share w o uld
have bee n red uc ed to the p ro fo rm a am o un ts ind ic ated
b elow (in thousand s, e xc e p t p er share am ounts):
Years e nd ed Dec em b er 3 1, 2 0 0 0 199 9 199 8
Pro fo rm a net inc om e $ 2 7 6 ,4 2 1 $ 19 ,6 25 $ 7,5 75
Pro fo rm a net inc om e
p er share
Basic $ 4.13 $ 0.35 $ 0.14
Diluted $ 3 .80 $ 0.32 $ 0 .14
Bec ause SFAS 12 3 is ap plic ab le o nly to optio ns g ran ted
sub seq uent to De c em b er 31, 19 94, its pro form a effe c t
w as no t fully re flec ted until 199 9 .
S h a r e h o ld e r R ig ht s P la n
On Ap ril 21, 19 97, the Co m pany ad o p te d a share ho ld e r
rig hts p lan (the Rig hts Ag reem e nt). Und er the Rig hts
Ag re em ent, rig hts w e re d istrib ute d as a dividend at
the rate o f o ne rig ht for eac h share o f c o m m o n sto c k
o f the Co m p any held b y sto c kholders o f re c o rd as o f
the close o f b usine ss o n Ap ril 28, 199 7. The rig hts w ill
exp ire o n Ap ril 28 , 2 007 unless re d eem e d o r
exc hang ed. Und er the Rig hts Agree m e nt, each rig ht
w ill initially entitle the re g istere d ho ld er to b uy o ne
o ne - fiftieth o f a share o f Se ries A Junior Partic ip ating
Pre fe rred Sto c k fo r $ 250 .00 . The rights w ill b ecom e
exerc isab le o nly if a p erso n o r g ro up ac q uires b e ne fi-
c ial o w ne rship o f 15 p erc e nt o r m ore of the
Co m p any’s co m m o n stock o r c o m m e nc e s a tend er
o ffer o r e xc hang e offer up o n c o nsum m atio n o f w hic h
suc h p e rso n o r group w ould b ene ficially o w n 15 p er-
c ent or m o re o f the Com p any’s c o m m on sto c k.
S t o c k S p lit
On January 2 6 , 200 0, the Co m p any’s b o ard o f d ire c -
to rs ap p ro ve d a 2 - fo r- 1 sto c k sp lit, in the fo rm of a
10 0% sto c k d ivid e nd , p ayab le to stockho ld e rs o f rec ord
as o f Fe b ruary 8, 20 00. The d ivid end w as p aid and the
sp lit w as e ffected o n Fe b ruary 22 , 2 000 . Shares, per
share am o unts, com m o n sto ck at p ar value and c ap ital
in excess of par value have b een restated to reflec t the
sto c k split fo r all p e rio d s p resented.
Note 5:
R e t ir e m e n t P la n
Effective January 1, 19 92, the Com pany ad o p ted a tax-
d eferred savings plan, the SanDisk 40 1(k) Plan, fo r the
b enefit o f q ualified e m p lo ye es . The p lan is d esig ned to
p ro vid e em p lo yees w ith an acc um ulatio n o f fund s at
retirem e nt. Qualifie d e m p lo ye es m ay e lect to m ake
c o ntrib utio ns to the p lan o n a m o nthly b asis. The
Co m p any m ay m ake annual c o ntrib utio ns to the p lan at
the disc retio n o f the Bo ard o f Direc to rs. The Co m pany
c o ntrib uted $ 10 5,0 00 fo r the plan year e nd e d
Dec em b e r 3 1, 1999 . N o co ntrib utio ns w e re m ad e by
the Co m p any for the years ended Decem ber 31, 200 0
and 19 98.
Note 6:
I n c o m e Ta x e s
The p ro vision fo r incom e taxes c onsists of the fo llo w ing
(in tho usand s):
Dec em b e r 31, 2 0 0 0 1999 1998
Curre nt:
Fe d e ra l $ 53,683 $ 10 ,35 4 $ 1,413
State 13 ,2 9 6 2,117 6 51
Fo re ig n 10 ,2 11 4,10 5 2 ,9 36
77 ,19 0 16,576 5,000
De fe rre d :
Fe d e ra l 9 4 ,14 7 (2,60 0) 1,30 5
State 2 1,6 8 3 (4 00) 3 50
Fo re ig n 5 0 0 (500 ) –
116 ,3 3 0 (3,500 ) 1,65 5
Pro visio n fo r inc o m e taxes $ 19 3 ,5 2 0 $ 13,0 76 $ 6 ,65 5