SanDisk 2010 Annual Report Download - page 176

We believe that providing this additional information is useful in enabling investors to better assess and
understand our operating performance, especially when comparing results with previous periods or forecasting
performance for future periods, primarily because our management typically monitors our business excluding
these items. We also use these non-GAAP measures to establish operational goals and for measuring
performance for compensation purposes. However, analysis of results on a non-GAAP basis should be used as a
complement to, and in conjunction with, and not as a replacement for, results presented in accordance with
GAAP.
We believe that the presentation of non-GAAP measures, including net income (loss) and non-GAAP net
income (loss) per diluted share, provides important supplemental information to management and investors
regarding financial and business trends relating to our results of operations. We believe that the use of these
non-GAAP financial measures also provides consistency and comparability with our past financial reports.
We have historically used these non-GAAP measures when evaluating operating performance because we
believe that the inclusion or exclusion of the items described below provides an additional measure of our core
operating results and facilitates comparisons of our core operating performance against prior periods and our
business model objectives. We have chosen to provide this information to investors to enable them to perform
additional analyses of past, present and future operating performance and as a supplemental means to evaluate
our ongoing core operations. Externally, we believe that these non-GAAP measures continue to be useful to
investors in their assessment of our operating performance and their valuation of our company.
Internally, these non-GAAP measures are significant measures used by us for:
• evaluating the core operating performance of the company;
• establishing internal budgets;
• setting and determining variable compensation levels;
• calculating return on investment for development programs and growth initiatives;
• comparing performance with internal forecasts and targeted business models;
• strategic planning; and
• benchmarking performance externally against our competitors.
We exclude the following items from our non-GAAP measures:
Share-based Compensation Expense. These expenses consist primarily of expenses for employee stock
options, employee restricted stock units, modifications of employee stock options and restricted stock units and
the employee stock purchase plan. Although share-based compensation is an important aspect of the
compensation of our employees and executives, we exclude share-based compensation expenses from our
non-GAAP measures primarily because they are non-cash expenses that we do not believe are reflective of
ongoing operating results. Further, we believe that it is useful to exclude share-based compensation expense for
investors to better understand the long-term performance of our core business and to facilitate comparison of our
results to those of our peer companies.
Impairment of Goodwill and Acquisition-related Intangible Assets. This item reflects the write-down of
goodwill and other intangible assets to their fair values. Because of the infrequent nature of this charge,
management does not include this type of item in internal operating forecasts and models. Excluding this data
provides investors with a basis to compare our core operating results in different periods without this variability.
Amortization of Acquisition-related Intangible Assets. We incur amortization of intangible assets in
connection with acquisitions. Since we do not acquire businesses on a predictable cycle, we exclude these items
in order to provide investors and others with a consistent basis for comparison across accounting periods.
48