Western Digital Corp. (NASDAQ: WDC) today reported revenue of
$4.9 billion, operating income of $545 million and net income of
$235 million, or $0.80 per share, for its second fiscal quarter
ended Dec. 30, 2016. The GAAP net income for the period includes
charges associated with the company’s recent acquisitions.
Excluding these charges and after other non-GAAP adjustments,
second quarter non-GAAP operating income was $995 million and
non-GAAP net income was $675 million, or $2.30 per share.
In the year-ago quarter, the company reported revenue of $3.3
billion, operating income of $251 million and net income of $251
million, or $1.07 per share. Non-GAAP operating income in the
year-ago quarter was $427 million and non-GAAP net income was $403
million, or $1.72 per share.
The company generated $1.1 billion in cash from operations
during the second fiscal quarter of 2017, ending with approximately
$5.2 billion of total cash and cash equivalents, and
available-for-sale securities. On Nov. 3, 2016, the company
declared a cash dividend of $0.50 per share of its common stock,
which was paid to shareholders on Jan. 17, 2017.
“We reported strong financial performance in the December
quarter enabled by excellent operational execution by our team in a
favorable market environment,” said Steve Milligan, chief executive
officer. “We saw healthy demand for capacity enterprise hard
drives, all NAND based products and hard drives in client
applications. We also achieved targeted cost and efficiency
improvements and improved our liquidity position with continued
strong cash flow performance.
“We continue to execute well on key strategic priorities,
including the integration of HGST, SanDisk and WD, and the ramp of
3D NAND technology. We are achieving our planned synergy targets
and are progressing with our transition to 3D NAND technology with
the ramp of our 64 layer architecture.”
The investment community conference call to discuss these
results and the company’s guidance for the third fiscal quarter
2017 will be broadcast live over the Internet today at 2 p.m.
Pacific/5 p.m. Eastern. The live and archived conference
call/webcast can be accessed online at investor.wdc.com.
Supplemental financial information, including the company’s
guidance for the third fiscal quarter 2017, will also be posted on
the same website. The telephone replay number in the U.S. is
1-(855) 859-2056 or +1-(404) 537-3406 for international callers.
The required passcode is 48613052.
About Western Digital
Western Digital is an industry-leading provider of storage
technologies and solutions that enable people to create, leverage,
experience and preserve data. The company addresses ever-changing
market needs by providing a full portfolio of compelling,
high-quality storage solutions with customer-focused innovation,
high efficiency, flexibility and speed. Our products are marketed
under the HGST, SanDisk and WD brands to OEMs, distributors,
resellers, cloud infrastructure providers and consumers. Financial
and investor information is available on the company's Investor
Relations website at investor.wdc.com.
Forward-Looking Statements
This press release contains forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of
1995, including statements concerning the company’s preliminary
financial results for its second fiscal quarter ended Dec. 30,
2016; market and demand trends; integration activities from the
company’s acquisitions; achievement of our synergy goals associated
with those acquisitions; and our transition to 3D NAND technology.
These forward-looking statements are based on management’s current
expectations and are subject to risks and uncertainties that could
cause actual results to differ materially from those expressed or
implied in the forward-looking statements. The preliminary
financial results for the company’s second fiscal quarter ended
Dec. 30, 2016 included in this press release represent the most
current information available to management. The company’s actual
results when disclosed in its quarterly report on Form 10-Q may
differ from these preliminary results as a result of the completion
of the company’s financial closing procedures; final adjustments;
completion of the review by the company’s independent registered
accounting firm and other developments that may arise between now
and the disclosure of the final results. Other risks and
uncertainties that could cause actual results to differ materially
from those expressed or implied in the forward-looking statements
include: volatility in global economic conditions; business
conditions and growth in the storage ecosystem; impact of
competitive products and pricing; market acceptance and cost of
commodity materials and specialized product components; actions by
competitors; unexpected advances in competing technologies; our
development and introduction of products based on new technologies
and expansion into new data storage markets; risks associated with
acquisitions, mergers and joint ventures; difficulties or delays in
manufacturing; and other risks and uncertainties listed in the
company’s filings with the Securities and Exchange Commission (the
“SEC”), including the company’s Form 10-Q filed with the SEC on
Nov. 8, 2016, to which your attention is directed. You should not
place undue reliance on these forward-looking statements, which
speak only as of the date hereof, and the company undertakes no
obligation to update these forward-looking statements to reflect
new information or events.
Western Digital, WD and SanDisk are registered trademarks or
trademarks of Western Digital Corporation or its affiliates in the
U.S. and/or other countries. Other trademarks, registered
trademarks, and/or service marks, indicated or otherwise, are the
property of their respective owners.
WESTERN DIGITAL CORPORATION CONDENSED CONSOLIDATED
BALANCE SHEETS (in millions; unaudited)
Dec. 30, July 1, 2016
2016 ASSETS Current assets: Cash and
cash equivalents $ 4,940 $ 8,151 Short-term investments 161 227
Accounts receivable, net 2,004 1,461 Inventories 2,085 2,129 Other
current assets 416 616 Total current assets 9,606
12,584 Property, plant and equipment, net 3,238 3,503 Notes
receivable and investments in Flash Ventures 1,082 1,171 Goodwill
10,005 9,951 Other intangible assets, net 4,469 5,034 Other
non-current assets 575 619 Total assets $ 28,975 $
32,862
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities: Accounts payable $ 2,012 $ 1,888
Accounts payable to related parties 175 168 Accrued expenses 1,001
995 Accrued compensation 581 392 Accrued warranty 190 172 Bridge
loan - 2,995 Current portion of long-term debt 129
339 Total current liabilities 4,088 6,949 Long-term debt 12,944
13,660 Other liabilities 1,211 1,108 Total
liabilities 18,243 21,717 Total shareholders' equity 10,732
11,145 Total liabilities and shareholders' equity $ 28,975 $
32,862
WESTERN DIGITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share amounts; unaudited)
Three Months Ended Six Months Ended
Dec. 30, Jan. 1, Dec. 30,
Jan. 1, 2016 2016
2016 2016 Revenue,
net $ 4,888 $ 3,317 $ 9,602 $ 6,677 Cost of revenue 3,355
2,411 6,734 4,816
Gross profit 1,533 906 2,868
1,861 Operating expenses: Research and
development 585 389 1,224 774 Selling, general and administrative
358 239 754 431 Employee termination, asset impairment and other
charges 45 27 113
83 Total operating expenses 988 655
2,091 1,288 Operating income 545
251 777 573 Interest and other expense, net (224 ) (7
) (727 ) (15 ) Income before taxes 321 244 50 558
Income tax expense (benefit) 86 (7 )
181 24 Net income (loss) $ 235 $ 251
$ (131 ) $ 534 Income (loss) per common share:
Basic $ 0.82 $ 1.08 $ (0.46 ) $ 2.31 Diluted $
0.80 $ 1.07 $ (0.46 ) $ 2.28 Weighted
average shares outstanding: Basic 286 232
285 231 Diluted 294
234 285 234
WESTERN DIGITAL CORPORATION CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS (in millions; unaudited)
Three Months Ended Six Months
Ended Dec. 30, Jan. 1 Dec. 30,
Jan. 1 2016 2016
2016 2016
Operating Activities Net income (loss) $ 235 $ 251 $ (131 )
$ 534
Adjustments to reconcile net income (loss)
to net cash provided by operations:
Depreciation and amortization 514 252 1,022 488 Stock-based
compensation 102 37 201 79 Deferred income taxes (30 ) 22 117 15
Loss on disposal of assets 6 6 10 6 Write-off of issuance costs and
amortization of debt discounts 11 1 258 2 Loss on settlement of
convertible debt - - 5 -
Non-cash portion of employee termination,
asset impairment and other charges
13 - 13 18 Other non-cash operating activities, net 41 - 42 -
Changes in operating assets and liabilities, net 168
29 (37 ) 1 Net cash provided by
operating activities 1,060 598
1,500 1,143
Investing Activities
Purchases of property, plant and equipment, net (146 ) (149 ) (329
) (300 ) Activity related to Flash Ventures, net (43 ) - (70 ) -
Investment activity, net 86 (30 ) 95 (142 ) Strategic investments
and other, net (11 ) (2 ) (12 ) (12 )
Net cash used in investing activities (114 ) (181 )
(316 ) (454 )
Financing Activities
Employee stock plans, net 80 12 106 4 Proceeds from acquired call
option - - 61 - Repurchases of common stock - - - (60 ) Dividends
paid to shareholders (142 ) (116 ) (284 ) (231 ) Proceeds from
debt, net of issuance costs - - 3,985 - Repayment of debt
(12 ) (31 ) (8,254 ) (63 ) Net cash used in
financing activities (74 ) (135 ) (4,386 )
(350 ) Effect of exchange rate changes on cash (9 )
- (9 ) - Net increase (decrease)
in cash and cash equivalents 863 282 (3,211 ) 339 Cash and cash
equivalents, beginning of period 4,077 5,081
8,151 5,024 Cash and cash
equivalents, end of period $ 4,940 $ 5,363 $ 4,940
$ 5,363
WESTERN DIGITAL CORPORATION
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES
(in millions, except per share amounts; unaudited)
Three Months Ended Six Months
Ended Dec. 30, Jan. 1, Dec. 30,
Jan. 1, 2016 2016
2016 2016
Summary
Reconciliation of Net Income:
GAAP net income (loss) $ 235 $ 251 $ (131 ) $ 534
Amortization of acquired intangible assets 277 24 519 49
Stock-based compensation expense 96 35 195 76 Employee termination,
asset impairment and other charges 45 27 113 83 Acquisition-related
charges 6 27 33 27 Charges related to cost saving initiatives 23 37
86 37 Charges related to arbitration award - 32 - 32 Convertible
debt activity, net 1 - 6 - Debt extinguishment costs - - 267 -
Other 5 (6 ) 14 (4 ) Income tax adjustments (13 ) (24
) 21 (19 )
Non-GAAP net income $ 675
$ 403 $ 1,123 $ 815
GAAP cost
of revenue $ 3,355 $ 2,411 $ 6,734 $ 4,816 Amortization of
acquired intangible assets (238 ) (16 ) (440 ) (33 ) Stock-based
compensation expense (11 ) (4 ) (24 ) (9 ) Acquisition-related
charges (1 ) - (18 ) - Charges related to cost saving initiatives
(8 ) (22 ) (38 ) (22 ) Other (1 ) 3 (3
) 3
Non-GAAP cost of revenue $ 3,096 $
2,372 $ 6,211 $ 4,755
GAAP gross
profit $ 1,533 $ 906 $ 2,868 $ 1,861 Amortization of acquired
intangible assets 238 16 440 33 Stock-based compensation expense 11
4 24 9 Acquisition-related charges 1 - 18 - Charges related to cost
saving initiatives 8 22 38 22 Other 1 (3 )
3 (3 )
Non-GAAP gross profit $ 1,792
$ 945 $ 3,391 $ 1,922
GAAP
operating expense $ 988 $ 655 $ 2,091 $ 1,288 Amortization of
acquired intangible assets (39 ) (8 ) (79 ) (16 ) Stock-based
compensation expense (85 ) (31 ) (171 ) (67 ) Employee termination,
asset impairment and other charges (45 ) (27 ) (113 ) (83 )
Acquisition-related charges (5 ) (27 ) (15 ) (27 ) Charges related
to arbitration award - (32 ) - (32 ) Charges related to cost saving
initiatives (15 ) (15 ) (48 ) (15 ) Other (2 ) 3
(5 ) 1
Non-GAAP operating
expense $ 797 $ 518 $ 1,660 $ 1,049
GAAP operating income $ 545 $ 251 $ 777 $ 573 Cost of
revenue adjustments 259 39 523 61 Operating expense adjustments
191 137 431 239
Non-GAAP operating income $ 995 $ 427 $
1,731 $ 873
GAAP interest and other
expense, net $ (224 ) $ (7 ) $ (727 ) $ (15 ) Convertible debt
activity, net 1 - 6 - Debt extinguishment costs - - 267 - Other
2 - 6 -
Non-GAAP interest and other expense, net $ (221 ) $ (7 ) $
(448 ) $ (15 )
GAAP income tax expense (benefit) $ 86
$ (7 ) $ 181 $ 24 Income tax adjustments 13 24
(21 ) 19
Non-GAAP income tax
expense $ 99 $ 17 $ 160 $ 43
GAAP net income (loss) $ 235 $ 251 $ (131 ) $ 534 Cost of
revenue adjustments 259 39 523 61 Operating expense adjustments 191
137 431 239 Interest and other expense, net adjustments 3 - 279 -
Income tax adjustments (13 ) (24 ) 21
(19 )
Non-GAAP net income $ 675 $ 403 $
1,123 $ 815
Diluted net income (loss) per
common share: GAAP $ 0.80 $ 1.07 $ (0.46 ) $ 2.28
Non-GAAP $ 2.30 $ 1.72 $ 3.85 $ 3.48
Diluted weighted average shares outstanding:
GAAP 294 234 285
234 Non-GAAP 294 234 292
234
To supplement the condensed consolidated financial statements
presented in accordance with U.S. generally accepted accounting
principles (“GAAP”), the table above sets forth non-GAAP cost of
revenue; non-GAAP gross profit; non-GAAP operating expenses;
non-GAAP operating income; non-GAAP interest and other expense,
net; non-GAAP income tax expense; non-GAAP net income and non-GAAP
diluted net income per common share (“Non-GAAP measures”). These
Non-GAAP measures are not in accordance with, or an alternative
for, measures prepared in accordance with GAAP and may be different
from Non-GAAP measures used by other companies. Western Digital
Corporation believes the presentation of these Non-GAAP measures,
when shown in conjunction with the corresponding GAAP measures,
provides useful information to investors for measuring the
Company’s earnings performance and comparing it against prior
periods. Specifically, we believe these Non-GAAP measures provide
useful information to both management and investors as they exclude
certain expenses, gains and losses that we believe are not
indicative of our core operating results or because they are
consistent with the financial models and estimates published by
many analysts who follow us and our peers. As discussed further
below, these Non-GAAP measures exclude the amortization of acquired
intangible assets, stock-based compensation expense, employee
termination, asset impairment and other charges,
acquisition-related charges, charges related to arbitration award,
charges related to cost saving initiatives, convertible debt
activity, debt extinguishment costs, other charges, and income tax
adjustments, and we believe these measures along with the related
reconciliations to the GAAP measures provide additional detail and
comparability for assessing our results. These Non-GAAP measures
are some of the primary indicators management uses for assessing
our performance and planning and forecasting future periods. 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.
As described above, we exclude the following items from our
Non-GAAP measures:
Amortization of acquired intangible
assets. We incur expenses from the amortization of acquired
intangible assets over their economic lives. Such charges are
significantly impacted by the timing and magnitude of our
acquisitions and any related impairment charges.
Stock-based compensation expense.
Because of the variety of equity awards used by companies, the
varying methodologies for determining stock-based compensation
expense, the subjective assumptions involved in those
determinations, and the volatility in valuations that can be driven
by market conditions outside our control, we believe excluding
stock-based compensation expense enhances the ability of management
and investors to understand and assess the underlying performance
of our business over time and compare it against our peers, a
majority of whom also exclude stock-based compensation expense from
their non-GAAP results.
Employee termination, asset impairment and
other charges. From time-to-time, in order to realign our
operations with anticipated market demand or to achieve cost
synergies from the integration of acquisitions, we may terminate
employees and/or restructure our operations. From time-to-time, we
may also incur charges from the impairment of intangible assets and
other long-lived assets. These charges (including any reversals of
charges recorded in prior periods) are inconsistent in amount and
frequency and are not indicative of the underlying performance of
our business.
Acquisition-related charges. In
connection with our business combinations, we incur expenses which
we would not have otherwise incurred as part of our business
operations. These expenses include third-party professional service
and legal fees, third-party integration services, severance costs,
non-cash adjustments to the fair value of acquired inventory,
contract termination costs, and retention bonuses. We may also
experience other accounting impacts in connection with these
transactions. These charges and impacts are related to
acquisitions, are inconsistent in amount and frequency, and are not
indicative of the underlying performance of our business.
Charges related to arbitration
award. In relation to an arbitration award for claims
brought against the Company by Seagate Technology LLC, which was
satisfied in October 2014, and the related dispute over the
calculation of post-award interest, we have recorded loss
contingencies. The resulting expense is inconsistent in amount and
frequency.
Charges related to cost saving
initiatives. In connection with the transformation of our
business, we have incurred charges related to cost saving
initiatives which do not qualify for special accounting treatment
as exit or disposal activities. These charges, which are not
indicative of the underlying performance of our business, primarily
relate to costs associated with rationalizing our channel partners
or vendors, transforming our information systems infrastructure,
integrating our product roadmap, and accelerated depreciation on
assets.
Convertible debt activity, net. We
exclude non-cash economic interest expense associated with the
convertible senior notes, the gains and losses on the conversion of
the convertible senior notes and call option, and unrealized gains
and losses related to the change in fair value of the exercise
option and call option. These charges and gains and losses do not
reflect our cash operating results and are not indicative of the
underlying performance of our business.
Debt extinguishment costs. From
time-to-time, we replace our existing debt with new financing at
more favorable interest rates or utilize available capital to
settle debt early, both of which generate interest savings in
future periods. We incur debt extinguishment charges consisting of
the costs to call the existing debt and/or the write-off of any
related unamortized debt issuance costs. These gains and losses
related to our debt activity occur infrequently and are not
indicative of the underlying performance of our business.
Other charges. From time-to-time,
we sell investments or other assets which are not considered
strategic or necessary to our business; are a party to legal or
arbitration proceedings, which could result in an expense or
benefit due to settlements, final judgments, or accruals for loss
contingencies; or incur other charges or gains which are not a part
of the ongoing operation of our business. The resulting expense or
benefit is inconsistent in amount and frequency.
Income tax adjustments. Income tax
adjustments reflect the difference between income taxes based on a
forecasted annual non-GAAP tax rate and a forecasted annual GAAP
tax rate as a result of the timing of certain non-GAAP pre-tax
adjustments.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20170125006145/en/
Western Digital Corp.Media Contact:Jim
Pascoe408.717.6999jim.pascoe@wdc.comorInvestor Contact:Bob
Blair949.672.7834robert.blair@wdc.com
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