SanDisk 2012 Annual Report Download - page 53

Proxy Statement
Fiscal Year 2012 Business and Compensation Highlights. During fiscal year 2012, the Company and its
Named Executive Officers exceeded expectations in their achievement of key strategic objectives, including,
among others, those established by the Compensation Committee for the fiscal year 2012 performance-based
cash incentive program discussed below. Key achievements for the Company for fiscal year 2012 included the
following:
• The Company outperformed in its transition to 19-nanometer technology, which accounted for the vast
majority of the production output for the fourth quarter of the fiscal year and provided the Company
with an industry-leading flash memory cost structure.
• The Company made progress in developing future memory technologies, including both future NAND
technology nodes and future 3-Dimensional memory technologies.
• On a year-over-year basis, the Company’s full-year solid state drive (“SSD”) sales almost tripled and
represented 9% of the Company’s fiscal year 2012 revenue.
• In the fourth quarter, the Company began revenue shipments of its SAS SSDs to a fourth storage
original equipment manufacturer (“OEM”).
• The Company achieved multiple design wins in client SSDs with existing and new customers, and the
Company now supplies client SSDs to ten leading PC OEMs.
• The Company made progress in expanding its OEM embedded solutions offering, achieving record
revenues from OEM embedded products in the fourth quarter of fiscal year 2012.
• In its retail channel, the Company achieved record unit sales of USB drives and increased sales in
emerging markets.
As discussed in more detail below, a significant portion of the compensation for the Company’s Named
Executive Officers in fiscal year 2012 was based on the performance-based cash incentive program, which is tied
to the achievement of certain strategic and financial objectives established by the Compensation Committee at
the beginning of the year. In terms of the financial objectives, while the Company and its Named Executive
Officers executed very well to drive significant sequential growth in the second half of the year, the Company’s
results in first half of the year were impacted by weak industry pricing, card de-bundling among handset OEMs
and embedded product transitions. The Company’s diluted non-GAAP earnings per share (“EPS”) for fiscal year
2012 was $2.38 per share, below the minimum EPS target that drove the financial objectives portion of the cash
incentive program, as established by the Compensation Committee. However, in the aggregate, the Company
exceeded the target performance levels for the multiple strategic objectives established by the Compensation
Committee. As discussed in more detail below, upon considering the achievement and weighting of the financial
and strategic objectives, as well as individual performance factors for each Named Executive Officer, the
Compensation Committee approved cash incentive award payouts to the Named Executive Officers at a rate
below their target cash incentive compensation.
The Company uses non-GAAP measures to establish financial and strategic goals and to measure
performance for executive officer compensation because the Company believes that non-GAAP measures allow
management to better evaluate the core operating performance of the Company especially when comparing to the
results of previous periods and to the Company’s business model objectives. For reconciliation of non-GAAP to
GAAP financial measures, see Item 7, “Management’s Discussion and Analysis of Financial Condition and
Results of Operations—Non-GAAP Financial Measures,” of the Company’s Form 10-K for the fiscal year ended
December 30, 2012.
Executive Compensation Program Objectives and Overview
Objectives of Compensation Program. In structuring the Company’s current executive officer
compensation programs, the Company is guided by the following basic philosophies and objectives:
•Alignment with Stockholder Interests. A substantial portion of compensation should be contingent on
the Company’s performance. As an executive officer’s level of responsibility increases, a greater
portion of the executive officer’s total compensation should be dependent on the Company’s
performance and stock price appreciation.
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