SanDisk 2008 Annual Report Download - page 94

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Notes To Consolidated Financial Statements
of estimated forfeitures. Prior to the implementation of SFAS 123(R), the Company accounted for stock awards
and ESPP shares under the provisions of Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees.
The Company estimates the fair value of stock options granted using the Black-Scholes-Merton option-
pricing formula and a single-option award approach. The Company’s expected term represents the period that the
Company’s share-based awards are expected to be outstanding and was determined based on historical
experience regarding similar awards, giving consideration to the contractual terms of the share-based awards.
The Company’s expected volatility is based on the implied volatility of its traded options in accordance with the
guidance provided by the United States Securities and Exchange Commission’s Staff Accounting Bulletin
No. 107 to place exclusive reliance on implied volatilities to estimate the Company’s stock volatility over the
expected term of its awards. The Company has historically not paid dividends and has no foreseeable plans to
issue dividends. The risk-free interest rate is based on the yield from U.S. Treasury zero-coupon bonds with an
equivalent term.
Valuation Assumptions. The fair value of the Company’s stock options granted to employees, officers and
non-employee board members and Employee Stock Purchase Plans (“ESPP”) shares granted to employees for the
years ended December 28, 2008, December 30, 2007 and December 31, 2006 was estimated using the following
weighted average assumptions:
December 28,
2008
December 30,
2007
December 31,
2006
Option Plan Shares
Dividend yield ......................................... None None None
Expected volatility ...................................... 0.52 0.44 0.52
Risk-free interest rate ................................... 2.50% 4.44% 4.63%
Expected lives ......................................... 3.5years 3.4 years 3.7 years
Estimated annual forfeiture rate ........................... 8.31% 7.59% 7.74%
Weighted average fair value at grant date .................... $8.40 $15.84 $25.44
Employee Stock Purchase Plan Shares
Dividend yield ......................................... None None None
Expected volatility ...................................... 0.60 0.43 0.52
Risk-free interest rate ................................... 1.97% 5.08% 4.96%
Expected lives .........................................
1
⁄
2
year
1
⁄
2
year
1
⁄
2
year
Weighted average fair value at exercise date ................. $6.00 $12.75 $16.73
F-29