SanDisk 2013 Annual Report Download - page 154

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 purposes of:
• evaluating our 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 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,
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 is 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 Impairment of Acquisition-related Intangible Assets. We incur amortization, and,
occasionally, impair 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 our 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.
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