SanDisk 2006 Annual Report Download - page 121

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remaining life of 2.9 years. Restricted stock unit valuation assumptions related to Matrix acquisition is discussed in
Note 10, “Business Acquisitions.”
Employee Stock Purchase Plans (ESPP). The fair value of grants under the employee stock purchase plans
was estimated on the first date of the purchase period, with the following weighted average assumptions:
December 31,
2006
January 1,
2006
January 2,
2005
Dividend yield ................................... None None None
Expected volatility . . .............................. 0.52 0.47 0.57
Risk-free interest rate . ............................. 4.96% 2.69% 2.69%
Expected lives.................................... 1/2year 1/2 year 1/2 year
Weightedaveragefairvalueatexercisedate ............. $16.73 $7.60 $8.12
At December 31, 2006, there was $0.3 million of total unrecognized compensation cost related to the ESPP
that is expected to be recognized over a period of approximately 0.1 years.
Share-Based Compensation Expense. The Company recorded $100.6 million of share-based compensation
for the year ended December 31, 2006 that included the following:
December 31, 2006
(In thousands)
Share-based compensation expense by caption:
Cost of product sales ............................................ $ 7,991
Research and development ........................................ 40,999
Sales and marketing ............................................. 21,617
General and administrative ........................................ 30,034
Total share-based compensation expense ............................ $100,641
Share-based compensation expense by type of award:
Stock options and SARs .......................................... $ 85,862
Restricted stock ................................................ 11,181
ESPP ........................................................ 3,598
Total share-based compensation expense ............................ $100,641
Share-based compensation expense of $3.2 million related to manufacturing personnel was capitalized into
inventory as of December 31, 2006.
Pro Forma Disclosures
Prior to fiscal 2006, the Company followed the disclosure-only provisions of Statement of Financial
Accounting Standards No. 123, or SFAS 123, Accounting for Stock-Based Compensation, as amended. The
following table illustrates the effect on net income and earnings per share for the years ended January 1, 2006 and
January 2, 2005, if the fair value recognition provisions of SFAS 123, as amended, had been applied to options
granted under the Company’s share-based compensation plans. For purposes of this pro forma disclosure, the
estimated value of the share-based compensation is recognized over the vesting periods. If the Company had
F-22
Notes to Consolidated Financial Statements — (Continued)