SanDisk 2004 Annual Report Download - page 62

Table of Contents
Notes to Consolidated Financial Statements — (Continued)
the fair value of stock based compensation awarded during the fourth quarter of the year ended January 2, 2005 to be based on
historical volatilities and implied forward volatilities. Prior to the fourth quarter of the year ended January 2, 2005, the Company
estimated future volatility solely based on historical stock volatility. Estimated volatility is one of the inputs used in the
Black−Scholes−Merten model currently used by the Company to make a reasonable estimate of the fair value of options granted under
the Company’s stock plans and the rights to purchase shares under the Company’s employee stock purchase plan.
The fair value of each option grant is estimated on the date of grant using the Black−Scholes−Merton option−pricing model, with
the following weighted−average assumptions for grants made in 2004, 2003 and 2002, respectively:
Years Ended
January 2, December 28, December 29,
2005 2003 2002
Dividend yield None None None
Expected volatility 0.92 0.95 0.97
Risk free interest rate 3.07% 3.39% 3.84%
Expected lives 5 years 5 years 5 years
The weighted−average fair value of options granted during the year was $22.64, $8.71 and $4.95 for 2004, 2003 and 2002,
respectively.
The fair value of issuance under the employee stock purchase plans is estimated on the date of issuance using the
Black−Scholes−Merton model, with the following weighted−average assumptions for issuances made in 2004, 2003 and 2002,
respectively: Years Ended
January 2, December 28, December 29,
2005 2003 2002
Dividend yield None None None
Expected volatility 0.57 0.57 0.86
Risk free interest rate 2.69% 2.94% 3.68%
Expected lives 1/2 year 1/2 year 1/2 year
The weighted−average fair value of employee stock purchases for the year was $8.12, $3.36 and $3.19 for 2004, 2003 and 2002,
respectively.
Stock Benefit Plan. The 1989 Stock Benefit Plan, in effect through August 1995, comprised two separate programs, the Stock
Issuance Program and the Option Grant Program. The Stock Issuance Program allowed eligible individuals to immediately purchase
the Company’s common stock at a fair value as determined by the Company’s Board of Directors. Under the Option Grant Program,
eligible individuals were granted options to purchase shares of the Company’s common stock at a fair value, as determined by the
Company’s Board of Directors, of such shares on the date of grant. The options generally vest over a four−year period, expiring no
later than ten years from the date of grant. Unexercised options are canceled upon the termination of employment or services. Options
that are canceled under this plan become available for future grants under the 1995 Stock Option Plan. There were no shares available
for option grants under the 1989 Stock Benefit Plan at January 2, 2005.
1995 Stock Option Plan. The 1995 Stock Option Plan provides for the issuance of incentive stock options and nonqualified stock
options. Under this plan, the Company’s Board of Directors determines the vesting and exercise provisions of option grants. The
options generally vest over a four−year period, expiring no later than ten years from the date of grant. In May 1999, the Company’s
stockholders increased the shares available for future issuance under the 1995 Stock Option Plan by 14,000,000 shares and approved
an automatic share increase feature pursuant to which the number of shares available for issuance under the plan automatically
F−16