Non-GAAP Financial Measures

Non-GAAP Financial Measures

In addition to disclosing financial results in accordance with U.S. GAAP, this document contains references to the non-GAAP financial measures below. We believe these non-GAAP financial measures provide investors with useful supplemental information about our operating performance, enable comparison of financial trends and results between periods where certain items may vary independent of business performance, and allow for greater transparency with respect to key metrics used by management in operating our business and measuring our performance.

Our non-GAAP financial measures reflect adjustments based on one or more of the following items, as well as the related income tax effects where applicable. Income tax effects have been calculated using an appropriate tax rate for each adjustment. These non-GAAP financial measures should not be considered a substitute for, or superior to, financial measures calculated in accordance with U.S. GAAP, and the financial results calculated in accordance with U.S. GAAP and reconciliations from these results should be carefully evaluated.

Non-GAAP adjustments or measures

Acquisition-related adjustments

Definition

Amortization of acquisition-related intangible assets consists of amortization of intangible assets such as developed technology, brands, and customer relationships acquired in connection with business combinations. Charges related to the amortization of these intangibles are recorded within both cost of sales and MG&A in our U.S. GAAP financial statements. Amortization charges are recorded over the estimated useful life of the related acquired intangible asset, and thus are generally recorded over multiple years.

Usefulness to management and investors

We exclude amortization charges for our acquisition- related intangible assets for purposes of calculating certain non-GAAP measures because these charges are inconsistent in size and are significantly impacted by the timing and valuation of our acquisitions. These adjustments facilitate a useful evaluation of our current operating performance and comparison to our past operating performance and provide investors with additional means to evaluate cost and expense trends.


Restructuring and other charges

Definition

Restructuring charges are costs associated with a formal restructuring plan and are primarily related to employee severance and benefit arrangements. Other charges include asset impairments, pension charges, and costs associated with restructuring activity.

Usefulness to management and investors

We exclude restructuring and other charges, including any adjustments to charges recorded in prior periods, for purposes of calculating certain non-GAAP measures because these costs do not reflect our current operating performance. These adjustments facilitate a useful evaluation of our current operating performance and comparisons to past operating results and provide investors with additional means to evaluate expense trends.


Gains (losses) from divestiture

Definition

Gains or losses are recognized at the close of a divestiture.

Usefulness to management and investors

We exclude gains or losses resulting from divestitures for purposes of calculating certain non-GAAP measures because they do not reflect our current operating performance. These adjustments facilitate a useful evaluation of our current operating performance and comparisons to past operating results.


Ongoing mark-to- market on marketable equity securities

Definition

We made adjustments to the original estimate of income tax expense resulting from Tax Reform.

Usefulness to management and investors

We exclude adjustments to the provisional tax estimate for purposes of calculating certain non-GAAP measures because they are the result of regulatory change and do not reflect our current operating performance. These adjustments facilitate a useful evaluation of our current operating performance and comparisons to past operating results.


Tax Reform

Definition

We made adjustments to the original estimate of income tax expense resulting from Tax Reform.

Usefulness to management and investors

We exclude adjustments to the provisional tax estimate for purposes of calculating certain non-GAAP measures because they are the result of regulatory change and do not reflect our current operating performance. These adjustments facilitate a useful evaluation of our current operating performance and comparisons to past operating results.


Free cash flow

Definition

We reference a non-GAAP financial measure of free cash flow, which is used by management when assessing our sources of liquidity, capital resources, and quality of earnings. Free cash flow is operating cash flow adjusted to exclude additions to property, plant and equipment. We also reference a ratio of free cash flow to non-GAAP net income.

Usefulness to management and investors

This non-GAAP financial measure is helpful in understanding our capital requirements and provides an additional means to evaluate the cash flow trends of our business. We excluded additions to held for sale NAND property, plant and equipment because the additions are not representative of our long-term capital requirements and we expect these assets to be sold. The ratio of free cash flow to non-GAAP net income is helpful in comparing the results and trends of our adjusted cash flow to income.

Following are the reconciliations of our most comparable U.S. GAAP measures to our non-GAAP measures presented:

Years Ended (In Millions, Except Per Share Amounts) Dec 26, 2020 Dec 28, 2019 Dec 29, 2018
Operating income $23,678 $22,035 $23,316
Acquisition-related adjustments 1,416 1,324 1,305
Restructuring and other charges 198 393 (72)
Non-GAAP operating income $25,292 $23,752 $24,549
Operating margin 30.4% 30.6% 32.9%
Acquisition-related adjustments 1.8% 1.8% 1.8%
Restructuring and other charges 0.3% 0.5% (0.1)%
Non-GAAP operating margin 32.5% 33.0% 34.7%
Net income $20,899 $21,048 $21,053
Acquisition-related adjustments 1,416 1,324 1,305
Restructuring and other charges 198 393 (72)
(Gains) losses from divestiture (6) (690) (494)
Ongoing mark-to-market on marketable equity securities 133 (277) 129
Tax Reform -- -- (294)
Income tax effects (209) (14) (102)
Non-GAAP net income $22,431 $21,784 $21,525
Earnings per share - diluted $4.94 $4.71 $4.48
Acquisition-related adjustments 0.33 0.29 0.28
Restructuring and other charges 0.05 0.09 (0.02)
(Gains) losses from divestiture -- (0.16) (0.11)
Ongoing mark-to-market on marketable equity securities 0.03 (0.06) 0.03
Tax Reform -- -- (0.06)
Income tax effects (0.05) -- (0.02)
Non-GAAP earnings per share - diluted $5.30 $4.87 $4.58
Years Ended (In Millions) Dec 26, 2020 Dec 28, 2019 Dec 29, 2018 Dec 30, 2017 Dec 31, 2016
Net cash provided by operating activities $35,384 $33,145 $29,432 $22,110 $21,808
Additions to property, plant and equipment (14,259) (16,213) (15,181) (11,778) (9,625)
Free cash flow $21,125 $16,932 $14,251 $10,332 $12,183
Net cash used for investing activities $(20,796) $(14,405) $(11,239) $(15,762) $(25,817)
Net cash provided by (used for) financing activities $(12,917) $(17,565) $(18,607) $(8,475) $(5,739)