SanDisk 2011 Annual Report Download - page 156

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
msystems Ltd. 1996 Section 102 Stock Option/Stock Purchase Plan and 2003 Stock Option and Restricted
Stock Incentive Plan. The msystems Ltd. 1996 Section 102 Stock Option/Stock Purchase Plan and 2003 Stock
Option and Restricted Stock Incentive Plan assumed through the Company’s acquisition of msystems Ltd., were
terminated on November 19, 2006, and no further grants were made under these plans after that date. However,
award grants that were outstanding under these plans on November 19, 2006 continue to be governed by their
existing terms and may be exercised for shares of the Company’s common stock at any time prior to the
expiration of the ten-year option term or any earlier termination of those options in connection with the
optionee’s cessation of service with the Company.
Matrix Semiconductor, Inc. 2005 Stock Incentive Plan, 1999 Stock Plan and 1998 Long-term Incentive
Plan. The Matrix Semiconductor, Inc. 2005 Stock Incentive Plan, 1999 Stock Plan and the Rhombus, Inc. 1998
Long-term Incentive Plan (“Matrix Stock Plans”), assumed through the Company’s acquisition of Matrix
Semiconductor, Inc., were terminated on January 13, 2006, and no further option grants were made under these
plans after that date. However, award grants that were outstanding under these plans on January 13, 2006
continue to be governed by their existing terms and may be exercised for shares of the Company’s common stock
at any time prior to the expiration of the ten-year option term or any earlier termination of those options in
connection with the optionee’s cessation of service with the Company.
Accounting for Share-based Compensation Expense
For share-based awards expected to vest, compensation cost is based on the grant-date fair value. The
Company recognizes compensation expense for the fair values of these awards, which have graded vesting, on a
straight-line basis over the requisite service period of each of these awards, net of estimated forfeitures.
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. 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 ESPP shares issued to employees, excluding unvested stock options assumed
through the acquisition of Pliant, was estimated using the following annual weighted average assumptions:
Fiscal years ended
January 1,
2012
January 2,
2011
January 3,
2010
Option Plan Shares
Dividend yield ................................................ None None None
Expected volatility ............................................. 0.43 0.50 0.85
Risk-free interest rate ........................................... 1.49% 1.53% 1.41%
Expected term ................................................. 4.3years 3.9 years 3.6 years
Estimated annual forfeiture rate ................................... 8.57% 7.32% 9.07%
Weighted average fair value at grant date ........................... $17.37 $12.58 $5.36
Employee Stock Purchase Plan Shares
Dividend yield ................................................ None None None
Expected volatility ............................................. 0.43 0.56 0.73
Risk-free interest rate ........................................... 0.13% 0.18% 0.35%
Expected term .................................................
1
⁄ 2 year
1
⁄ 2 year
1
⁄ 2 year
Weighted average fair value at purchase date ........................ $12.17 $9.95 $4.82
F-32