SanDisk 2012 Annual Report Download - page 195

This is a TAB type table. Insert
conts here. Annual Report
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In addition, key components are purchased from single source vendors for which alternative sources are
currently not available. Shortages could occur in these essential materials due to an interruption of supply or
increased demand in the industry. If the Company were unable to procure certain of such materials, it would be
required to reduce its manufacturing operations, which could have a material adverse effect upon its results of
operations. The Company also relies on third-party subcontractors to assemble and test a portion of its products.
The Company has no long-term contracts with some of these subcontractors and cannot directly control product
delivery schedules or manufacturing processes. This could lead to product shortages or quality assurance
problems that could increase the manufacturing costs of its products and have material adverse effects on the
Company’s operating results.
Concentration of Credit Risk. The Company’s concentration of credit risk consists principally of cash, cash
equivalents, short and long-term marketable securities and trade receivables. The Company’s investment policy
restricts investments to high-credit quality investments and limits the amounts invested with any one issuer. The
Company sells to OEMs, retailers and distributors in the Americas, Europe, Middle East and Africa (“EMEA”)
and Asia-Pacific, and performs ongoing credit evaluations of its customers’ financial condition, and generally
requires no collateral.
Off-Balance Sheet Risk. The Company has off-balance sheet financial obligations. See Note 13,
“Commitments, Contingencies and Guarantees.”
Note 10: Share-based Compensation
Share-based Benefit Plans
2005 Incentive Plan.On May 27, 2005, the Company’s stockholders approved the 2005 Stock Incentive
Plan, which was amended in May 2006 and renamed the 2005 Incentive Plan (“2005 Plan”). Shares of the
Company’s common stock may be issued under the 2005 Plan pursuant to three separate equity incentive
programs: (i) the discretionary grant program under which stock options and stock appreciation rights may be
granted to officers and other employees, non-employee board members and independent consultants, (ii) the
stock issuance program under which shares may be awarded to such individuals through restricted stock or
restricted stock unit awards or as a stock bonus for services rendered to the Company, and (iii) an automatic grant
program for the non-employee board members pursuant to which such individuals will receive option grants or
other stock awards at designated intervals over their period of board service. The 2005 Plan also includes a
performance-based cash bonus awards program for executive officers classified under Section 16 of the
Securities Exchange Act of 1934, as amended. Grants and awards under the discretionary grant program
generally vest as follows: 25% of the shares will vest on the first anniversary of the vesting commencement date
and the remaining 75% will vest proportionately each quarter over the next 12 quarters of continued service.
Awards under the stock issuance program generally vest in equal annual installments over a 4-year period. Grants
under the automatic grant program vest in accordance with the specific vesting provisions set forth in that
program. A total of 37,045,436 shares of the Company’s common stock has been reserved for issuance under this
plan. The share reserve may increase by up to 10,000,000 shares of common stock to the extent that outstanding
options under the 1995 Stock Option Plan and the 1995 Non-Employee Directors Stock Option Plan expire or
terminate unexercised, of which 2,345,449 shares of common stock as of December 30, 2012 had been added to
the 2005 Plan reserve. All options granted under the 2005 Plan were granted with an exercise price equal to the
fair market value of the common stock on the date of grant and will expire seven years from the date of grant.
1995 Stock Option Plan and 1995 Non-Employee Directors Stock Option Plan. Both of these plans
terminated on May 27, 2005, and no further option grants were made under the plans after that date. However,
options that were outstanding under these plans on May 27, 2005 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-
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