SanDisk 2012 Annual Report Download - page 196

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
year option term or any earlier termination of those options in connection with the optionee’s cessation of service
with the Company.
2005 Employee Stock Purchase Plan. The 2005 Employee Stock Purchase Plan (“ESPP”) was approved by
the stockholders on May 27, 2005. The ESPP consists of two components: a component for employees residing
in the U.S. and an international component for employees who are non-U.S. residents. The ESPP allows eligible
employees to purchase shares of the Company’s common stock at the end of each six-month offering period at a
purchase price equal to 85% of the lower of the fair market value per share on the start date of the offering period
or the fair market value per share on the purchase date. The ESPP has 10,000,000 shares reserved for issuance, of
which 4,969,553 shares were available to be issued as of December 30, 2012. In fiscal years 2012, 2011 and
2010, a total of 684,646 shares, 613,452 shares and 966,288 shares of common stock, respectively, had been
issued under this plan.
Acquired Plans. In connection with the Company’s acquisitions of FlashSoft, Pliant Technology, Inc.
(“Pliant”), msystems Ltd. (“msystems”) and Matrix Semiconductor, Inc. (“Matrix”), the Company adopted
various equity incentive plans, which were effective upon completion of the applicable acquisition. Each of these
plans was terminated as of the date of acquisition and no further grants were made under any of these plans after
their termination. However, any unvested option grants that were outstanding under these plans at the date of
acquisition continue to be governed by their existing terms and may be exercised for shares of the Company’s
common stock.
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
Option Plan Shares. The fair value of the Company’s stock options granted to employees, officers and non-
employee board members, excluding unvested stock options assumed through acquisitions, was estimated using
the following annual weighted average assumptions:
Fiscal years ended
December 30,
2012
January 1,
2012
January 2,
2011
Dividend yield .................................................... None None None
Expected volatility ................................................. 0.43 0.43 0.50
Risk-free interest rate ............................................... 0.60% 1.49% 1.53%
Expected term ..................................................... 4.3years 4.3 years 3.9 years
Estimated annual forfeiture rate ....................................... 8.59% 8.57% 7.32%
Weighted average fair value at grant date ............................... $16.45 $17.37 $12.58
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