SanDisk 2014 Annual Report Download - page 68

evaluate the Company’s ongoing core operations. Externally, the Company believes that these non-GAAP
measures continue to be useful to investors in their assessment of the Company’s operating performance
and their valuation of the Company.
Internally, these non-GAAP measures are significant measures used by the Company for purposes of:
• evaluating the Company’s core operating performance;
• 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 the Company’s competitors.
The Company excludes the following items from its non-GAAP measures:
•Share-based Compensation Expense. These expenses consist primarily of expenses for share-based
compensation, such as stock options, RSUs and the Company’s employee stock purchase plan.
Although share-based compensation is an important aspect of the compensation of the Company’s
employees, the Company excludes share-based compensation expenses from its 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 the Company’s control
that vary over time and may include modifications that may not occur on a predictable cycle, neither
of which is necessarily indicative of the Company’s ongoing business performance. In addition, the
share-based compensation expenses recorded are often unrelated to the actual compensation an
employee realizes. The Company believes that it is useful to exclude share-based compensation
expense for investors to better understand the long-term performance of the Company’s core
operations and to facilitate comparison of the Company’s results to the Company’s prior periods
and to the Company’s peer companies.
•Inventory Step-up. Acquired inventory in a business combination is generally recognized at fair
value less costs to sell, which is generally higher than the historical cost value of the inventory. The
Company excludes these increased or ‘‘stepped-up’’ values of inventory when sold to provide a
consistent basis for comparison across accounting periods as these costs are not representative of
ongoing future costs.
•Amortization and Impairment of Acquisition-related Intangible Assets. The Company incurs
amortization, and, occasionally, impairs intangible assets in connection with acquisitions. Since the
Company does not acquire businesses on a predictable cycle, the Company excludes these items in
order to provide investors and others with a consistent basis for comparison across accounting
periods.
From time-to-time in the future, there may be other items that the Company may exclude if it believes
that doing so is consistent with the goal of providing useful information to investors and management.
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