SanDisk 2005 Annual Report Download - page 131

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Research and Development Expenses. Research and development expenditures are expensed as incurred.
Recently Issued Accounting Standards. The Financial Accounting Standards Board, or FASB, adopted a
revised Statement of Financial Accounting Standards No. 123, or FAS 123R, Share Based Payments, with an
effective date of June 15, 2005. In April 2005, the SEC amended the effective date of FAS 123R, and the Company is
now required to adopt this standard for the Company’s first fiscal year beginning after June 15, 2005. The Company
has adopted FAS 123R in January 2006 and currently does not expect to restate prior periods to conform to the new
accounting standard as the Company will use the modified prospective method. FAS 123R requires the Company to
recognize an expense based on the fair value of all share based payments to employees, including grants of options
to buy shares of the Company’s common stock. Share based awards to employees is calculated through the use of
option pricing models. These models require subjective assumptions, including future stock price volatility and
expected time to exercise, which greatly affect the calculated values. The Company’s calculation is made using the
Black-Scholes-Merton option pricing model. See Note 3, “Compensation and Benefits” for assumption incorpo-
rated in this model. See “Share Based Compensation” above for information related to the pro forma effect on
reported net income and net earnings per share of applying the fair value provisions of FAS 123. Adoption of
FAS 123R is expected to increase the Company’s operating expenses.
In May 2005, the FASB issued Financial Accounting Standards No. 154, or FAS 154, Accounting Changes and
Error Corrections. FAS 154 replaced Accounting Pronouncement Board Opinion No. 20, or APB 20, Accounting
Changes, and Financial Accounting Standards No. 3, or FAS 3, Reporting Accounting Changes in Interim Financial
Statements. FAS 154 requires that a voluntary change in accounting principle be applied retrospectively with all
prior period financial statements presented based on the application of the new accounting principle. The statement
will require the retrospective application of the impact of the direct effect of changes in accounting principles unless
it is impracticable to determine either the period-specific effects or the cumulative effect of the change. FAS 154
carries forward without change the guidance contained in APB 20 for reporting the correction of an error in
previously issued financial statements and changes in accounting estimates. FAS 154 is effective for accounting
changes and corrections of errors made in fiscal years beginning after December 15, 2005 and requires prospective
application. The Company will adopt this standard on January 2, 2006 and currently does not anticipate that it will
have a material effect on its financial statements or disclosures.
NOTE 2: BALANCE SHEET INFORMATION
Available-for-Sale Investments.
Available-for-sale investments at January 1, 2006 was as follows:
Book
Value
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Market
Value
(In thousands)
Money market funds ............... $ 300,833 $ — $ — $ 300,833
Commercial paper ................. 284,455 — — 284,455
U.S. government agency............. 587,352 — (3,691) 583,661
Municipal notes/bonds .............. 126,993 — (219) 126,774
Corporate notes/bonds .............. 59,033 — (322) 58,711
Auction instruments ................ 308,040 — (1) 308,039
Total available-for-sale investments .... $1,666,706 $ — $ (4,233) $1,662,473
F-12
Notes to Consolidated Financial Statements — (Continued)