SanDisk 2012 Annual Report Download - page 154

• 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 share-based
compensation, such as stock options, restricted stock units and our 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. Further, share-based compensation expenses are based on valuations with many underlying
assumptions not in our control that vary over time and may include modifications that may not occur on a
predictable cycle, neither of which are necessarily indicative of our ongoing business performance. In addition,
the share-based compensation expenses recorded are often unrelated to the actual compensation an employee
realizes. We believe that it is useful to exclude share-based compensation expense for investors to better
understand the long-term performance of our core operations and to facilitate comparison of our results to our
prior periods and to our peer companies.
Amortization and Write-off of Acquisition-related Intangible Assets. We incur amortization, and,
occasionally, write-offs 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.
Convertible Debt Interest. We incur non-cash economic interest expense relating to the implied value of the
equity conversion component of the convertible debt. The value of the equity conversion component is treated as
a debt discount and amortized to interest expense over the life of the notes using the effective interest rate
method. We also incur interest expense equal to the change in fair value of the liability component of the
convertible debt when we repurchase a portion of the convertible debt. We exclude these non-cash interest
expenses that do not represent cash interest payments made to our note holders.
Income Tax Adjustments. This amount is used to present each of the amounts described above on an after-
tax basis, considering jurisdictional tax rates, consistent with the presentation of non-GAAP net income.
From time-to-time in the future, there may be other items that we may exclude if we believe that doing so is
consistent with the goal of providing useful information to investors and management.
Limitations of Relying on Non-GAAP Financial Measures. We have incurred and will incur in the future,
many of the costs that we exclude from the non-GAAP measures, including share-based compensation expense,
impairment of goodwill and acquisition-related intangible assets, amortization and write-off of acquisition-
related intangible assets and other acquisition-related costs, non-cash economic interest expense associated with
our convertible debt and income tax adjustments. These measures should be considered in addition to results
prepared in accordance with GAAP, but should not be considered a substitute for, or superior to, GAAP results.
These non-GAAP measures may be different than the non-GAAP measures used by other companies.
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