SanDisk 10-Q 2009
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
For the quarterly period endedMarch 29, 2009
For the transition period from ________________ to ________________
Commission file number: 000-26734
(Exact name of registrant as specified in its charter)
Registrant’s telephone number, including area code
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Number of shares outstanding of the issuer’s common stock $0.001 par value, as of March 29, 2009: 226,855,067.
PART I. FINANCIAL INFORMATION
CONDENSED CONSOLIDATED BALANCE SHEETS
The accompanying notes are an integral part of these condensed consolidated financial statements.
- 3 -
The accompanying notes are an integral part of these condensed consolidated financial statements.
- 4 -
CONDENSED CONSOLIDATED> STATEMENT OF EQUITY
The accompanying notes are an integral part of these condensed consolidated financial statements.
- 5 -
The accompanying notes are an integral part of these condensed consolidated financial statements.
- 6 -
These interim Condensed Consolidated Financial Statements are unaudited but reflect, in the opinion of management, all adjustments, consisting of normal recurring adjustments and accruals, necessary to present fairly the financial position of SanDisk Corporation and its subsidiaries (the “Company”) as of March 29, 2009, the Condensed Consolidated Statements of Operations and the Condensed Consolidated Statements of Cash Flows for the three months ended March 29, 2009 and March 30, 2008, and the Condensed Consolidated Statement of Equity for the three months ended March 29, 2009. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been omitted in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”). These Condensed Consolidated Financial Statements should be read in conjunction with the audited consolidated financial statements and accompanying notes included in the Company’s most recent Annual Report on Form 10-K/A. Certain prior period amounts have been reclassified to conform to the current period presentation. The results of operations for the three months ended March 29, 2009 are not necessarily indicative of the results to be expected for the entire fiscal year.
The Company’s fiscal year ends on the Sunday closest to December 31, and its fiscal quarters end on the Sunday closest to March 31, June 30, and September 30, respectively. The first quarter of fiscal years 2009 and 2008 ended on March 29, 2009 and March 30, 2008, respectively. Fiscal year 2009 ends on January 3, 2010 and fiscal year 2008 ended on December 28, 2008.
Basis of Presentation.> Effective December 29, 2008, the Company adopted the following pronouncements which require retrospective adoption to previously disclosed consolidated financial statements. As such, certain prior period amounts have been reclassified in the unaudited Condensed Consolidated Financial Statements to conform to the current period presentation.
SFAS 160. The Company adopted Statement of Financial Accounting Standards No. 160 (“SFAS 160”), Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51. As a result of the adoption of SFAS 160, the Company has reclassified for all periods presented non-controlling interests, formerly called a minority interest, to a component of equity in the Condensed Consolidated Balance Sheets and the Condensed Consolidated Statement of Equity. SFAS 160 applies prospectively, except for presentation and disclosure requirements, which are applied retrospectively.
FSP APB 14-1. The Company adopted Financial Accounting Standards Board (“FASB”) Staff Position (“FSP”) No. APB 14-1 (“FSP APB 14-1”), Accounting for Convertible Debt Instruments That May Be Settled in Cash Upon Conversion (Including Partial Cash Settlement). FSP APB 14-1 is effective for the Company’s $1.15 billion aggregate principal amount of 1% Senior Convertible Notes due 2013 (the “1% Notes due 2013”) and requires retrospective application for all periods presented. FSP APB 14-1 requires the issuer of convertible debt instruments with cash settlement features to separately account for the liability and equity components of the instrument.
As a result of the adoption of FSP APB 14-1, the Company has separately accounted for the liability and equity components of its 1% Notes due 2013. The Company calculated the value of the conversion component of the debt and recorded this value as a component of equity and a corresponding debt discount. The debt discount, which is a reduction to the carrying value of the debt, will be amortized as additional non-cash interest expense over the term of the original note. The retrospective application of this pronouncement affects years 2006 through 2013. Income taxes have been recorded on the foregoing adjustments to the extent tax benefits were available. See Note 2, “Financing Arrangements.”
- 7 -
The following table reflects the results of the adoption of FSP APB 14-1 in the Company’s Condensed Consolidated Statement of Operations for the three months ended March 30, 2008 (in thousands, except for per share amounts):
The cumulative effect of the retrospective change in accounting principle of $23.9 million was applied to the opening balance of accumulated deficit at December 29, 2008.
Organization and Nature of Operations.> The Company was incorporated in Delaware on June 1, 1988. The Company designs, develops and markets flash storage products used in a wide variety of consumer electronics products. The Company operates in one segment, flash memory storage products.
Principles of Consolidation.> The Condensed Consolidated Financial Statements include the accounts of the Company and its majority-owned subsidiaries. All intercompany balances and transactions have been eliminated. Non-controlling interest represents the minority shareholders’ proportionate share of the net assets and results of operations of the Company’s majority-owned subsidiaries. The Condensed Consolidated Financial Statements also include the results of companies acquired by the Company from the date of each acquisition.
Use of Estimates.> The preparation of Condensed Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the Condensed Consolidated Financial Statements and accompanying notes. The estimates and judgments affect the reported amounts of assets, liabilities, revenues, expenses and related disclosure of contingent liabilities. On an ongoing basis, the Company evaluates its estimates, including those related to customer programs and incentives, intellectual property claims, product returns, bad debts, inventories and related reserves, investments, income taxes, warranty obligations, restructuring, contingencies, share-based compensation and litigation. The Company bases estimates on historical experience and on other assumptions that its management believes are reasonable under the circumstances. These estimates form the basis for making judgments about the carrying value of assets and liabilities when those values are not readily apparent from other sources. Actual results could materially differ from these estimates.
- 8 -
Recent Accounting Pronouncements
In April 2009, the FASB issued the following three FASB Staff Positions (“FSP”) intended to provide additional application guidance and enhance disclosures regarding fair value measurements and impairments of securities.
FSP FAS 107-1 and APB 28-1. >FSP FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments, requires disclosures about fair value of financial instruments in interim reporting periods of publicly traded companies that were previously only required to be disclosed in annual financial statements. The provisions of FSP FAS 107-1 and APB 28-1 are effective for the Company’s interim period ending on June 28, 2009. As FSP FAS 107-1 and APB 28-1 amends only the disclosure requirements about fair value of financial instruments in interim periods, the adoption of FSP FAS 107-1 and APB 28-1 is not expected to affect the Company’s Condensed Consolidated Financial Statements.
FSP FAS 115-2 and FAS 124-2. >FSP FAS 115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments, amends current other-than-temporary impairment guidance in GAAP for debt securities to make the guidance more operational and to improve the presentation and disclosure of other-than-temporary impairments on debt and equity securities in the financial statements. This FSP does not amend existing recognition and measurement guidance related to other-than-temporary impairments of equity securities. The provisions of FSP FAS 115-2 and FAS 124-2 are effective for the Company’s interim period ending on June 28, 2009. Management is currently evaluating the effect that the provisions of FSP FAS 115-2 and FAS 124-2 may have on the Company’s Condensed Consolidated Financial Statements.
FSP FAS 157-4.> FSP FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly, provides additional guidance for estimating fair value in accordance with Statement of Financial Accounting Standards No. 157, Fair Value Measurements, when the volume and level of activity for the asset or liability have decreased significantly. FSP FAS 157-4 also provides guidance on identifying circumstances that indicate a transaction is not orderly. The provisions of FSP FAS 157-4 are effective for the Company’s interim period ending on June 28, 2009. Management is currently evaluating the effect that the provisions of FSP FAS 157-4 may have on the Company’s Condensed Consolidated Financial Statements.
- 9 -
The following table reflects the carrying value of the Company’s convertible debt as of March 29, 2009 and December 28, 2008 (in millions):
1% Convertible Senior Notes Due 2013. >In May 2006, the Company issued and sold $1.15 billion in aggregate principal amount of the 1% Notes due 2013 at par. The 1% Notes due 2013 may be converted, under certain circumstances, based on an initial conversion rate of 12.1426 shares of common stock per $1,000 principal amount of notes (which represents an initial conversion price of approximately $82.36 per share). The net proceeds to the Company from the offering of the 1% Notes due 2013 were $1.13 billion.
As discussed in Note 1, “Basis of Presentation — FSP APB 14-1,” the Company separately accounts for the liability and equity components of the 1% Notes due 2013. The principal amount of the liability component ($753.5 million as of the date of issuance) was recognized at the present value of its cash flows using a discount rate of 7.4%, the Company’s borrowing rate at the date of the issuance for a similar debt instrument without the conversion feature. The carrying value of the equity component was $241.9 million as of March 29, 2009 and December 28, 2008.
The following table presents the amount of interest cost recognized for the periods relating to both the contractual interest coupon and amortization of the discount on the liability component (in millions):
The remaining interest discount (equity component) of $257.7 million as of March 29, 2009 will be amortized over the remaining life of the 1% Notes due 2013 which is approximately 4.1 years.
Concurrent with the issuance of the 1% Notes due 2013, the Company sold warrants to acquire shares of its common stock at an exercise price of $95.03 per share. As of March 29, 2009, the warrants had an expected life of approximately 4.4 years and expire in August 2013. At expiration, the Company may, at its option, elect to settle the warrants on a net share basis. As of March 29, 2009, the warrants had not been exercised and remain outstanding. In addition, counterparties agreed to sell to the Company up to approximately 14.0 million shares of its common stock, which is the number of shares initially issuable upon conversion of the 1% Notes due 2013 in full, at a conversion price of $82.36 per share. The convertible bond hedge transaction will be settled in net shares and will terminate upon the earlier of the maturity date of the 1% Notes due 2013 or the first day that none of the 1% Notes due 2013 remain outstanding due to conversion or otherwise. Settlement of the convertible bond hedge in net shares on the expiration date would result in the Company receiving net shares equivalent to the number of shares issuable by it upon conversion of the 1% Notes due 2013. As of March 29, 2009, the Company had not purchased any shares under this convertible bond hedge agreement.
- 10 -
1% Convertible Notes Due 2035. >In November 2006, the Company assumed the aggregate principal amount of $75.0 million 1% Convertible Senior Notes due March 2035 (the “1% Notes due 2035”) from msystems Ltd. (“msystems”). The Company is obligated to pay interest on the 1% Notes due 2035 semi-annually on March 15 and September 15 commencing March 15, 2007.
Holders of the notes have the right to require the Company to purchase all or a portion of their notes on March 15, 2010, March 15, 2015, March 15, 2020, March 15, 2025 and March 15, 2030. The purchase price payable will be equal to 100% of the principal amount of the notes to be purchased, plus accrued and unpaid interest, if any, to but excluding the purchase date. Due to the short-term nature of the conversion rights, the Company has reclassified the entire value of the 1% Notes due 2035 to Convertible Short-term Debt in the Condensed Consolidated Balance Sheet as of March 29, 2009.
- 11 -
Fair Value Hierarchy. >The Statement of Financial Accounting Standards No. 157 (“SFAS 157”), Fair Value Measurements, establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.
The Company’s financial assets are measured at fair value on a recurring basis. Instruments that are classified within Level 1 of the fair value hierarchy generally include most money market securities, U.S. agency securities and equity investments. Instruments that are classified within Level 2 of the fair value hierarchy generally include U.S. agency securities, commercial paper, U.S. corporate notes and bonds, and municipal obligations.
Financial assets and liabilities measured at fair value under SFAS 157 on a recurring basis as of March 29, 2009 were as follows (in thousands):
Financial assets and liabilities measured at fair value under SFAS 157 on a recurring basis as December 28, 2008 were as follows (in thousands):
On December 29, 2008, the Company adopted FSP SFAS 157-2, Effective Date of FASB Statement No. 157, which allows companies to delay the application of SFAS 157 until fiscal years beginning after November 15, 2008, to certain fair value measurements, primarily non-financial assets and liabilities. The Company has reviewed its non-financial assets and liabilities and has concluded that there were no non-financial assets or liabilities which qualified under the provisions of FSP SFAS 157-2 as of March 29, 2009.
- 12 -
Assets and liabilities measured at fair value under SFAS 157 on a recurring basis as of March 29, 2009, were presented on the Company’s Condensed Consolidated Balance Sheet as follows (in thousands):
As of March 29, 2009, the Company did not elect the fair value option under Statement of Financial Accounting Standards No. 159 (“SFAS 159”), Establishing the Fair Value Option for Financial Assets and Liabilities, for any financial assets and liabilities that were not required to be measured at fair value.
Available-for-Sale Investments. >Available-for-sale investments as of March 29, 2009 and December 28, 2008 were as follows (in thousands):
- 13 -
Securities that have been in an unrealized loss position, the fair value and gross unrealized losses on the available-for-sale investments aggregated by type of investment instrument, and the length of time that individual securities have been in a continuous unrealized loss position as of March 29, 2009 are summarized in the following table (in thousands). Available-for-sale securities that were in an unrealized gain position have been excluded from the table and all unrealized losses have been in a continuous unrealized loss position for less than 12 months.
The gross unrealized loss related to publicly traded equity investments were due to changes in market prices. The Company has cash flow hedges designated to substantially mitigate risk from these equity investments as of March 29, 2009, as discussed in Note 4, “Derivatives and Hedging Activities.” The gross unrealized loss related to U.S. agency securities, U.S. corporate and municipal notes and bonds were primarily due to changes in interest rates. Gross unrealized losses on all available-for-sale fixed income securities at March 29, 2009 are considered temporary in nature. Factors considered in determining whether a loss is temporary include the length of time and extent to which fair value has been less than the cost basis, the financial condition and near-term prospects of the investee, and the Company’s intent and ability to hold an investment for a period of time sufficient to allow for any anticipated recovery in market value.
Gross realized gains and losses on sales of available-for-sale securities for the fiscal quarter ended March 29, 2009 totaled $5.8 million and ($0.6) million, respectively.
Fixed income securities by contractual maturity as of March 29, 2009 are shown below (in thousands). Actual maturities may differ from contractual maturities because issuers of the securities may have the right to prepay obligations.
- 14 -
The Company uses derivative instruments primarily to manage exposures to foreign currency and equity security price risks. The Company’s primary objective in holding derivatives is to reduce the volatility of earnings and cash flows associated with changes in foreign currency and equity security prices. The program is not designated for trading or speculative purposes. The Company’s derivatives expose the Company to credit risk to the extent that the counterparties may be unable to meet the terms of the agreement. The Company seeks to mitigate such risk by limiting its counterparties to major financial institutions and by spreading the risk across several major financial institutions. In addition, the potential risk of loss with any one counterparty resulting from this type of credit risk is monitored on an ongoing basis.
In accordance with Statement of Financial Accounting Standards No. 133 (“SFAS 133”), Accounting for Derivative Instruments and Hedging Activities, and Statement of Accounting Standards No. 161 (“SFAS 161”), Disclosures about Derivative Instruments and Hedging Activities, the Company recognizes derivative instruments as either assets or liabilities on the balance sheet at fair value and provides qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of and gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements. Changes in fair value (i.e., gains or losses) of the derivatives are recorded as Cost of Product Revenues or Other Income (Expense), or as accumulated Other Comprehensive Income (“OCI”).
Cash Flow Hedges. >The Company uses a combination of forward contracts and options designated as cash flow hedges to hedge a portion of future forecasted purchases in Japanese yen. The gain or loss on the effective portion of a cash flow hedge is initially reported as a component of accumulated OCI and subsequently reclassified into Cost of Product Revenues in the same period or periods in which the cost of product revenues is recognized, or reclassified into Other Income (Expense) if the hedged transaction becomes probable of not occurring. Any gain or loss after a hedge is de-designated because it is no longer probable of occurring or related to an ineffective portion of a hedge, as well as any amount excluded from the Company’s hedge effectiveness, is recognized as other income (expense) immediately, and was a net loss of $1.0 million for the three months ended March 29, 2009. As of March 29, 2009, the Company had forward contracts and options in place that hedged future purchases of approximately 16.5 billion Japanese yen, or approximately $169 million, based upon the exchange rate as of March 29, 2009, and the net unrealized gain on the effective portion of these cash flow hedges was $12.2 million. The forward and option contracts cover future Japanese yen purchases expected to occur over the next twelve months.
The Company has an outstanding cash flow hedge designated to mitigate equity risk associated with certain available-for-sale investments in equity securities. The gain or loss on the cash flow hedge is reported as a component of accumulated OCI and will be reclassified into Other Income (Expense) in the same period that the equity securities are sold. The securities had a fair value of $43.6 million and $35.2 million as of March 29, 2009 and December 28, 2008, respectively. The cash flow hedge designated to mitigate equity risk of these securities had a fair value of $22.2 million and $32.0 million as of March 29, 2009 and December 28, 2008, respectively.
Other Derivatives. >Other derivatives not designated as hedging instruments under SFAS 133 consist primarily of forward contracts to minimize the risk associated with the foreign exchange effects of revaluing monetary assets and liabilities. Monetary assets and liabilities denominated in foreign currencies and the associated outstanding forward contracts were marked-to-market at March 29, 2009 with realized and unrealized gains and losses included in Other Income (Expense). As of March 29, 2009, the Company had foreign currency forward contracts in place hedging exposures in European euros, Israeli new shekels, Japanese yen and Taiwanese dollars. Foreign currency forward contracts were outstanding to buy and (sell) U.S. dollar equivalent of approximately $262 million and ($1.6) billion in foreign currencies, respectively, based upon the exchange rates at March 29, 2009.
For the three months ended March 29, 2009, non-designated foreign currency forward contracts resulted in a gain of $100.1 million including forward-point income. For the three months ended March 29, 2009, the revaluation of the foreign currency exposures hedged by these forward contracts resulted in a loss of $100.2 million. All of the above noted gains and losses are included in Interest (Expense) and Other Income (Expense), net, in the Company’s Condensed Consolidated Statements of Operations.
- 15 -
The amounts in the tables below include fair value adjustments related to the Company’s own credit risk and counterparty credit risk.
Fair Value of Derivative Contracts. >Fair value of derivative contracts under SFAS 133 were as follows (in thousands):
Foreign Exchange Contracts Designated as Cash Flow Hedges. >The effective portion of designated cash flow derivative contracts under SFAS 133 on the results of operations were as follows (in thousands):
Foreign exchange contracts designated as cash flow hedges relate primarily to wafer purchases and the associated gains (losses) are expected to be recorded in Cost of Product Revenues when reclassified out of accumulated OCI. Gains (losses) from the equity market risk contract are expected to be recorded in Other Income (Expense) when reclassified out of accumulated OCI.
The Company expects to realize the accumulated OCI balance related to foreign exchange contracts within the next twelve months and realize the accumulated OCI balance related to the equity market risk contract in fiscal year 2011.
The ineffective portion and amount excluded from effectiveness testing on designated cash flow derivative contracts under SFAS 133 on the Company’s results of operations recognized in Other Income (Expense) were as follows (in thousands):
Effect of Non-Designated Derivative Contracts on the Condensed Consolidated Statements of Operations. >The effect of non-designated derivative contracts on the Company’s results of operations recognized in Other Income (Expense) was as follows (in thousands):
- 16 -
Accounts Receivable from Product Revenues, net. >Accounts receivable from product revenues, net, were as follows (in thousands):
Notes Receivable and Investments in the Flash Ventures with Toshiba. >Notes receivable and investments in the flash ventures with Toshiba Corporation (“Toshiba”) were as follows (in thousands):
In the first quarter of fiscal year 2009, the Company completed the wind-down of FlashVision Ltd. (“FlashVision”) and received cash distributions of $12.7 million, released $34.0 million of cumulative translation adjustments recorded in accumulated OCI and recorded an impairment charge of $7.9 million in Other Income (Expense) related to FlashVision.
See Note 12, “Commitments, Contingencies and Guarantees – FlashVision, Flash Partners and Flash Alliance,” regarding equity method investments in the three months ended March 29, 2009 and Note 13, “Related Parties,” for the Company’s maximum loss exposure related to these variable interest entities.
- 17 -
Other Current Accrued Liabilities. >Other current accrued liabilities were as follows (in thousands):
As of March 29, 2009 and December 28, 2008, the total current accrued restructuring liability was primarily comprised of contract termination costs related to the 2008 Restructuring Plans and the current portion of excess lease obligations. See Note 9, “Restructuring Plans.” The non-current accrued restructuring balance and activity from the prior year end was primarily related to excess lease obligations and cash lease obligation payments, respectively. The lease obligations extend through the end of the lease term in fiscal year 2016.
- 18 -
Intangible asset balances are presented below (in thousands):
The annual expected amortization expense of intangible assets that existed as of March 29, 2009, is presented below (in thousands):
- 19 -
Liability for warranty expense is included in Other Current Accrued Liabilities and Non-current Liabilities in the accompanying Condensed Consolidated Balance Sheets and the activity was as follows (in thousands):
The majority of the Company’s products have a warranty ranging from one to five years. A provision for the estimated future cost related to warranty expense is recorded at the time of customer invoice. The Company’s warranty liability is affected by customer and consumer returns, product failures, number of units sold, and repair or replacement costs incurred. Should actual product failure rates, or repair or replacement costs differ from the Company’s estimates, increases or decreases to its warranty liability would be required. Prior year’s additions to and usage of warranty reserve has been adjusted to conform to the current presentation format.
- 20 -
Accumulated other comprehensive income, net of tax, presented in the accompanying Condensed Consolidated Balance Sheets consists of the accumulated unrealized gains and losses on available-for-sale investments, including the Company’s investments in equity securities, as well as currency translation adjustments relating to local currency denominated subsidiaries and equity investees, and the accumulated unrealized gains and losses related to derivative instruments accounted for under hedge accounting (in thousands).
Comprehensive income (loss) is presented below (in thousands):
Non-controlling interest is included in Other Income (Expense) on the Condensed Consolidated Statements of Operations.
The amount of income tax expense allocated to accumulated unrealized gain (loss) on available-for-sale investments and hedging activities was $8.2 million and $7.1 million at March 29, 2009 and December 28, 2008, respectively.
- 21 -
In the three months ended March 29, 2009, the Company recorded restructuring expense of $0.8 million, net, related to employee severance costs in Restructuring and Other in the Condensed Consolidated Statements of Operations.
Second Quarter of Fiscal 2008 Restructuring Plan>. In the second quarter ended June 28, 2008, the Company initiated restructuring actions in an effort to better align its cost structure with its anticipated revenue stream and to improve the Company’s results of operations and cash flows (“Second Quarter of Fiscal 2008 Restructuring Plan”). The following table sets forth the activity in the accrued restructuring balances related to the Second Quarter of Fiscal 2008 Restructuring Plan (in millions):
The remaining restructuring accrual balance is reflected in Other Current Accrued Liabilities in the Condensed Consolidated Balance Sheets and is expected to be utilized in fiscal year 2009.
Fourth Quarter of Fiscal 2008 Restructuring Plan and Other>. In the fourth quarter ended December 28, 2008, the Company initiated additional restructuring actions in an effort to better align its cost structure with business operation levels (“Fourth Quarter of Fiscal 2008 Restructuring Plan and Other”). Under this plan, the Company involuntarily terminated an additional 51 employees in the first quarter of fiscal year 2009, in all functions, primarily in the U.S. and Israel. The following table sets forth the activity in the accrued restructuring balances related to the Fourth Quarter of Fiscal 2008 Restructuring Plan and Other (in millions):
The Company anticipates that the remaining restructuring accrual balance of $14.2 million will be substantially paid out or utilized in fiscal year 2009. The remaining restructuring accrual balance is reflected in Other Current Accrued Liabilities in the Condensed Consolidated Balance Sheets.
- 22 -
Share-Based Plans.> The Company has a share-based compensation program that provides its Board of Directors with broad discretion in creating equity incentives for employees, officers, non-employee board members and non-employee service providers. This program includes incentive and non-statutory stock option awards, stock appreciation right awards, restricted stock awards, performance-based cash bonus awards for Section 16 executive officers and an automatic grant program for 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. These awards are granted under various plans, all of which are stockholder approved. Stock option awards generally vest as follows: 25% of the shares vest on the first anniversary of the vesting commencement date and the remaining 75% vest proportionately each quarter over the next 3 years of continued service. Restricted stock awards generally vest in equal annual installments over a 2 or 4-year period. Initial grants under the automatic grant program vest over a 4-year period and subsequent grants vest over a 1-year period in accordance with the specific vesting provisions set forth in that program. Additionally, the Company has an Employee Stock Purchase Plan (“ESPP”) that allows employees to purchase shares of common stock at 85% of the fair market value at the subscription date or the date of purchase, whichever is lower.
Valuation Assumptions.> The fair value of the Company’s stock options granted to employees, officers and non-employee board members and ESPP shares granted to employees for the three months ended March 29, 2009 and March 30, 2008 was estimated using the following weighted average assumptions: