SanDisk 2003 Annual Report Download - page 76

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
amortizes the deferred stock-based compensation on the straight-line method over the vesting periods of the
applicable options, generally four years. Had compensation expense been determined based on the fair value at
the grant dates for awards, the Company's pro forma net income (loss) and net income (loss) per share would
have been as follows (in thousands, except per share amounts):
Years Ended
December 28, December 29, December 30,
2003 2002 2001
Net income (loss) as reported ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $168,859 $ 36,240 $(297,944)
Fair value method expense, net of related tax ÏÏÏÏÏÏÏÏ $(29,793) $(22,990) $ (30,928)
Pro forma net income (loss) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $139,066 $ 13,250 $(328,872)
Pro forma basic income (loss) per share ÏÏÏÏÏÏÏÏÏÏÏÏ $ 0.96 $ 0.10 $ (2.42)
Pro forma diluted income (loss) per shareÏÏÏÏÏÏÏÏÏÏÏ $ 0.84 $ 0.10 $ (2.42)
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-
pricing model, with the following weighted-average assumptions for grants made in 2003, 2002 and 2001:
December 28, December 29, December 30,
2003 2002 2001
Dividend yield ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ None None None
Expected volatility ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 0.947 0.972 0.955
Risk free interest rate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 3.39% 3.84% 4.68%
Expected livesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 5 years 5 years 5 years
The weighted-average fair value of options granted during the year was $8.71, $4.95 and $7.24 for 2003,
2002 and 2001, respectively.
The eÅect of applying SFAS 148 on pro forma disclosures is not likely to be representative of the eÅects
on pro forma disclosures of future years.
The pro forma net income (loss) and net income (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
estimated on the date of issuance using the Black-Scholes model, with the following weighted-average
assumptions for issuances made in 2003, 2002 and 2001:
December 28, December 29, December 30,
2003 2002 2001
Dividend yield ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ None None None
Expected volatility ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 0.565 0.857 0.870
Risk free interest rate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2.94% 3.68% 4.65%
Expected livesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
1
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year
1
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2
year
1
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year
Recent Accounting Pronouncement
In December 2003, the Financial Accounting Standards Board (FASB) issued a revision to Interpreta-
tion No. 46, ""Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51'' (""FIN 46R'').
FIN 46R clariÑes the application of ARB No. 51, ""Consolidated Financial Statements,'' to certain entities in
which equity investors do not have the characteristics of a controlling Ñnancial interest or do not have
suÇcient equity at risk for the entity to Ñnance its activities without additional subordinated Ñnancial support
provided by any parties, including the equity holders. FIN 46R requires the consolidation of these entities,
known as variable interest entities (""VIEs''), by the primary beneÑciary of the entity. The primary beneÑciary
is the entity, if any, that will absorb a majority of the entity's expected losses, receive a majority of the entity's
expected residual returns, or both.
72