SanDisk 2002 Annual Report Download - page 42

4 0 S a nD isk C o rp o ra tio n
Ad ve rtising Exp e nse
Advertising expenses, w hich are predom inantly m arketing
co-op development program s w hich meet certain conditions
are recorded, w hen granted, as m arketing expense. Any
other advertising expenses not m eeting these conditions
are expensed as incurred. Advertising expenses w ere $3.4
m illion, $8.8 m illion, and $8.2 m illion in 2002, 2001, and
2000 respectively.
N e t Inc o m e (Lo ss) P e r Sha re
The follow ing table sets forth the com putation of basic and
diluted net incom e per share (in thousands, except per
share am ounts):
2002 2001 2000
Num erato r:
Num erator for basic and
diluted net incom e (loss)
per share–net incom e (loss) $ 3 6 ,2 4 0 $(297,944) $298,672
Denom inator for basic net
income (loss) per share:
Weighted average com m on
shares outstanding 6 8 ,8 0 5 68,148 66,861
Basic net incom e (loss) per share $ 0 .5 3 $ (4.37) $ 4.47
Denom inator for diluted net
income (loss) per share:
Weighted average com m on
shares 6 8 ,8 0 5 68,148 66,861
Incremental com m on shares
attributable to exercise of
outstanding em ployee
stock options and w arrants
(assum ing proceeds w ould
be used to purchase
com m on stock) 2 ,4 2 5 – 5,790
Shares used in com puting diluted
net incom e (loss) per share 71,2 3 0 68,148 72,651
Diluted net incom e (loss) per share $ 0 .5 1 $ (4.37) $ 4.11
Basic earnings (loss) per share excludes any dilutive
effects of options, w arrants, and convertible securities.
Diluted earnings (loss) per share includes the dilutive effects
of stock options, w arrants, and convertible securities.
Options and warrants to purchase 4,015,945; 4,892,912; and
907,380 shares of com m on stock w ere outstanding during
2002, 2001, and 2000, respectively, but have been om itted
from the diluted earnings per share calculation because the
options’ exercise price w as greater than the average m arket
price of the com m on shares and, therefore the effect w ould
be antidilutive. All options are antidilutive in fiscal year 2001
due to the net loss for the year and w ere om itted from the
diluted net loss per share calculation. Increm ental com mon
shares attributable to the assum ed conversion of the
Com pany’s convertible subordinated debentures w ere not
included in the per share com putation as the effect w ould
be antidilutive for fiscal years 2002 and 2001.
Sto c k B as ed Com p e nsation. The Com pany accounts
for em ployee stock based com pensation using the intrinsic
value m ethod and accordingly, no expense has been recog-
nized for options granted to em ployees under the plans as
the grant price is set at the fair m arket value of the stock on
the day of grant. The Com pany am ortizes the deferred
stock-based com pensation on the straight- line m ethod over
the vesting periods of the applicable options, generally four
years. Had com pensation expense been determ ined based
on the fair value at the grant dates for aw ards, the
Com pany’s pro form a net incom e (loss) and net incom e
(loss) per share w ould have been as follow s (in thousands,
except per share am ounts):
Years ended Decem ber 31, 2 0 0 2 2001 2000
Net incom e (loss) as reported $ 3 6 ,2 4 0 $(297,944) $298,672
Fair value method expense, net
of related tax (2 2 ,9 9 0 ) (30,928) (21,790)
Pro form a net incom e (loss) 13 ,2 5 0 (328,872) 276,882
Pro form a basic incom e (loss)
per share $ 0 .19 $ (4.83) $ 4.14
Pro form a diluted income (loss)
per share $ 0 .19 $ (4.83) $ 3.81
The fair value of each option grant is estimated on the
date of grant using the Black-Scholes option-pricing m odel,
w ith the follow ing w eighted-average assumptions for grants
m ade in 2002, 2001 and 2000:
Decem ber 31, 2 0 0 2 2001 2000
Dividend yield No ne None None
Expected volatility 0 .9 72 0.955 0.951
Risk free interest rate 3 .8 4 % 4.68% 6.16%
Expected lives 5 yrs 5 yrs 5 yrs
The w eighted- average fair value of options granted during
the year w as $9.90, $14.47 and $39.82 for 2002, 2001, and
2000, respectively.
The effect of applying SFAS 148 on pro form a disclosures
are not likely to be representative of the effects on pro form a
disclosures of future years.
The pro form a net incom e (loss) and net incom e (loss)
per share listed above include expense related to our
Employee Stock Purchase Plans. The fair value of issuance
under the employee stock purchase plans is estim ated on
the date of issuance using the Black- Scholes m odel, w ith the
following w eighted- average assumptions for issuances m ade
in 2002, 2001, and 2000:
Decem ber 31, 2 0 0 2 2001 2000
Dividend yield No ne None None
Expected volatility 0 .8 5 7 0.870 1.369
Risk free interest rate 3 .6 8 % 4.65% 6.09%
Expected lives 1/2 yr 1/2 yr 1/2 yr
Re c e nt Ac c o unting P ro no unc e m e nts
In July 2002, the Financial Accounting Standards Board
(“FASB”) issued Statem ent of Financial Accounting
Standards (“SFAS” ) No. 145, “Rescission of FASB
Statem ents No. 4, 44, and 64, Am endm ent of FASB
Statem ent No. 13, and Technical Corrections,” and SFAS No.
146, “Obligations Associated w ith Disposal Activities.” SFAS
145 rescinds SFAS 4 “Reporting Gains and Losses from
Extinguishm ent of Debt, an am endm ent of APB Opinion 30,”
and SFAS 44 “Accounting for Intangible Assets of M otor
Carriers,” and SFAS 64 “Extinguishm ent of Debt M ade to
Satisfy Sinking Fund Requirements,” and am ends SFAS 13
“Accounting for Leases.” SFAS 145 requires that gains or
losses on extinguishment of debt that w ere classified as an
extraordinary item in prior periods w hich do not meet the
criteria in APB 30 for classification as an extraordinary item
should be reclassified. In addition, lease m odifications having
the econom ic effects similar to sale-leaseback transactions
should be accounted for in the same m anner as sale-lease-
back transactions. The provisions of this statem ent are
effective for fiscal years beginning after M ay 15, 2002, and