Western Digital Corp. (NASDAQ: WDC) today reported revenue of
$4.8 billion, operating income of $652 million and net income of
$280 million, or $0.93 per share, for its fourth fiscal quarter
ended June 30, 2017. 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,
fourth quarter non-GAAP operating income was $1.2 billion and
non-GAAP net income was $881 million, or $2.93 per share.
In the year-ago quarter, the company reported revenue of $3.5
billion, operating loss of $195 million and net loss of $366
million, or $(1.40) per share. Non-GAAP operating income in the
year-ago quarter was $451 million and non-GAAP net income was $269
million, or $1.02 per share.
The company generated approximately $1.0 billion in cash from
operations during the fourth fiscal quarter of 2017, ending with
$6.5 billion of total cash, cash equivalents and available-for-sale
securities. On May 3, 2017, the company declared a cash dividend of
$0.50 per share of its common stock, which was paid to shareholders
on July 17, 2017.
For fiscal 2017, the company achieved revenue of $19.1 billion,
operating income of $2.0 billion and net income of $397 million, or
$1.34 per share, compared to fiscal 2016 revenue of $13.0 billion,
operating income of $466 million and net income of $242 million, or
$1.00 per share. On a non-GAAP basis, fiscal 2017 operating income
was $3.9 billion and net income was $2.7 billion, or $9.19 per
share, compared to fiscal 2016 operating income of $1.7 billion and
net income of $1.4 billion, or $5.79 per share. The company
generated $3.4 billion in cash from operations during the 2017
fiscal year and it returned to shareholders $574 million in
dividends.
“We reported strong financial performance in the June quarter to
complete an outstanding fiscal 2017, demonstrating the
differentiated value that we can deliver as a comprehensive data
solutions provider,” said Steve Milligan, chief executive officer.
“Our unique platform of diverse storage technologies and
value-added products helped drive this performance as we addressed
a broader set of markets following the SanDisk acquisition. We
operated near the top of our revenue growth model with 7 percent
year-over-year top-line growth on a pro-forma basis, and we
delivered very healthy margins.”
The investment community conference call to discuss these
results and the company’s guidance for the first fiscal quarter
2018 will be broadcast live over the Internet today at 2:30 p.m.
Pacific/5:30 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 first fiscal quarter 2018, 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 54295696.
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 fourth fiscal quarter ended June 30, 2017
and fiscal 2017; product portfolio and market position;
acquisitions and growth strategy; and market and demand trends.
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 fourth fiscal quarter ended
June 30, 2017 and fiscal 2017 included in this press release
represent the most current information available to management. The
company’s actual results when disclosed in its Annual Report on
Form 10-K 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: uncertainties with respect to the company’s
business ventures with Toshiba; 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 May 8, 2017, 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. © 2017 Western Digital
Corporation or its affiliates. All rights reserved.
WESTERN DIGITAL CORPORATION CONDENSED
CONSOLIDATED BALANCE SHEETS (in millions;
unaudited) June 30,
July 1, 2017 2016
ASSETS Current assets: Cash and cash equivalents $
6,354 $ 8,151 Short-term investments 24 227 Accounts receivable,
net 1,948 1,461 Inventories 2,341 2,129 Other current assets
389 616 Total current assets 11,056 12,584 Property, plant
and equipment, net 3,033 3,503 Notes receivable and investments in
Flash Ventures 1,340 1,171 Goodwill 10,014 9,951 Other intangible
assets, net 3,823 5,034 Other non-current assets 594
619 Total assets $ 29,860 $ 32,862
LIABILITIES AND
SHAREHOLDERS' EQUITY Current liabilities: Accounts
payable $ 2,144 $ 1,888 Accounts payable to related parties 206 168
Accrued expenses 1,069 995 Accrued compensation 506 392 Accrued
warranty 186 172 Bridge loan - 2,995 Current portion of long-term
debt 233 339 Total current liabilities 4,344 6,949
Long-term debt 12,918 13,660 Other liabilities 1,180
1,108 Total liabilities 18,442 21,717 Total shareholders' equity
11,418 11,145 Total liabilities and shareholders'
equity $ 29,860 $ 32,862
WESTERN DIGITAL
CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS (in millions, except per share amounts;
unaudited) Three Months
Ended Years Ended June 30,
July 1, June 30,
July 1, 2017 2016 2017
2016 Revenue, net $ 4,842 $ 3,495 $ 19,093 $ 12,994
Cost of revenue 3,161 2,674
13,021 9,559 Gross profit 1,681
821 6,072 3,435 Operating
expenses: Research and development 604 494 2,441 1,627 Selling,
general and administrative 345 400 1,445 997 Employee termination,
asset impairment and other charges 80 122
232 345 Total operating expenses
1,029 1,016 4,118
2,969 Operating income (loss) 652 (195 ) 1,954 466 Interest
and other expense, net (237 ) (290 ) (1,185 )
(313 ) Income (loss) before taxes 415 (485 ) 769 153 Income
tax expense (benefit) 135 (119 ) 372
(89 ) Net income (loss) $ 280 $ (366 ) $ 397
$ 242 Income (loss) per common share: Basic $
0.96 $ (1.40 ) $ 1.38 $ 1.01 Diluted $ 0.93
$ (1.40 ) $ 1.34 $ 1.00 Weighted
average shares outstanding: Basic 292 261
288 239 Diluted 301
261 296 242
WESTERN DIGITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS
(in millions; unaudited)
Three Months Ended
Years Ended
June 30,
July 1,
June 30,
July 1,
2017
2016
2017
2016
Operating Activities
Net income (loss) $ 280 $ (366 ) $ 397 $ 242
Adjustments to reconcile net income (loss)
to net cash provided by operations:
Depreciation and amortization 546 420 2,128 1,154 Stock-based
compensation 91 70 394 191 Deferred income taxes (49 ) (132 ) 12
(149 ) Loss on disposal of assets 6 9 18 22 Write-off of issuance
costs and amortization of debt discounts 10 36 285 39 Loss (gain)
on convertible debt and related instruments (1 ) 58 5 58
Non-cash portion of employee termination,
asset impairment and other charges
- 5 13 41 Other non-cash operating activities, net 36 11 94 11
Changes in operating assets and liabilities, net 20
244 91 374 Net cash
provided by operating activities 939 355
3,437 1,983
Investing
Activities Purchases of property, plant and equipment, net (125
) (151 ) (557 ) (584 ) Activity related to Flash Ventures, net (53
) (90 ) (277 ) (90 ) Acquisitions, net of cash acquired - (9,835 )
- (9,835 ) Investment activity, net (1 ) 532 230 977 Strategic
investments and other, net (11 ) (53 ) (32 )
(76 ) Net cash used in investing activities (190 )
(9,597 ) (636 ) (9,608 )
Financing
Activities Employee stock plans, net 128 57 230 74 Payment upon
settlement of acquired warrants - (613 ) - (613 ) Settlement of
convertible debt - (2,611 ) (492 ) (2,611 ) Proceeds from acquired
call option - 409 61 409 Repurchases of common stock - - - (60 )
Dividends paid to shareholders (146 ) (117 ) (574 ) (464 )
Settlement of debt hedge (21 ) - (21 ) - Proceeds from debt, net of
issuance costs - 16,709 7,898 16,709 Repayment of debt (10 )
(2,329 ) (11,697 ) (2,693 ) Net cash provided
by (used in) financing activities (49 ) 11,505
(4,595 ) 10,751 Effect of exchange rate
changes on cash 2 1 (3 )
1 Net increase (decrease) in cash and cash equivalents 702
2,264 (1,797 ) 3,127 Cash and cash equivalents, beginning of period
5,652 5,887 8,151
5,024 Cash and cash equivalents, end of period $ 6,354
$ 8,151 $ 6,354 $ 8,151
WESTERN DIGITAL CORPORATION RECONCILIATION OF GAAP
TO NON-GAAP FINANCIAL MEASURES (in millions, except
per share amounts; unaudited)
Three Months Ended Years
Ended June 30, July 1,
June 30, July 1, 2017
2016 2017 2016
Summary
Reconciliation of Net Income (Loss):
GAAP net income (loss) $ 280 $ (366 ) $ 397 $ 242
Amortization of acquired intangible assets 319 187 1,162 258
Stock-based compensation expense 89 68 382 180 Employee
termination, asset impairment and other charges 80 122 232 345
Acquisition-related charges - 238 35 281 Charges related to cost
saving initiatives 40 57 154 143 Charges related to arbitration
award - - - 32 Convertible debt activity, net (1 ) 58 6 58 Debt
extinguishment costs - 18 274 18 Other 47 (21 ) 67 (29 ) Income tax
adjustments 27 (92 ) 11
(127 )
Non-GAAP net income $ 881 $ 269 $ 2,720
$ 1,401
GAAP cost of revenue $ 3,161 $
2,674 $ 13,021 $ 9,559 Amortization of acquired intangible assets
(279 ) (114 ) (1,003 ) (163 ) Stock-based compensation expense (12
) (8 ) (49 ) (21 ) Acquisition-related charges - (122 ) (18 ) (122
) Charges related to cost saving initiatives (24 ) (27 ) (68 ) (74
) Other (2 ) - (5 ) 5
Non-GAAP cost of revenue $ 2,844 $ 2,403 $
11,878 $ 9,184
GAAP gross profit $
1,681 $ 821 $ 6,072 $ 3,435 Amortization of acquired intangible
assets 279 114 1,003 163 Stock-based compensation expense 12 8 49
21 Acquisition-related charges - 122 18 122 Charges related to cost
saving initiatives 24 27 68 74 Other 2 -
5 (5 )
Non-GAAP gross profit $
1,998 $ 1,092 $ 7,215 $ 3,810
GAAP operating expenses $ 1,029 $ 1,016 $ 4,118 $ 2,969
Amortization of acquired intangible assets (40 ) (73 ) (159 ) (95 )
Stock-based compensation expense (77 ) (60 ) (333 ) (159 ) Employee
termination, asset impairment and other charges (80 ) (122 ) (232 )
(345 ) Acquisition-related charges - (116 ) (17 ) (159 ) Charges
related to arbitration award - - - (32 ) Charges related to cost
saving initiatives (16 ) (30 ) (86 ) (69 ) Other (4 )
26 (8 ) 29
Non-GAAP operating
expenses $ 812 $ 641 $ 3,283 $ 2,139
GAAP operating income (loss) $ 652 $ (195 ) $
1,954 $ 466 Cost of revenue adjustments 317 271 1,143 375 Operating
expense adjustments 217 375 835
830
Non-GAAP operating income $ 1,186
$ 451 $ 3,932 $ 1,671
GAAP
interest and other expense, net $ (237 ) $ (290 ) $ (1,185 ) $
(313 ) Convertible debt activity, net (1 ) 58 6 58 Debt
extinguishment costs - 18 274 18 Other 41 5
54 5
Non-GAAP interest and
other expense, net $ (197 ) $ (209 ) $ (851 ) $ (232 )
GAAP income tax expense (benefit) $ 135 $ (119 ) $ 372 $ (89
) Income tax adjustments (27 ) 92 (11 )
127
Non-GAAP income tax expense (benefit) $
108 $ (27 ) $ 361 $ 38
Diluted
income (loss) per common share: GAAP $ 0.93 $ (1.40 ) $
1.34 $ 1.00 Non-GAAP $ 2.93 $ 1.02 $
9.19 $ 5.79
Diluted weighted average shares
outstanding: GAAP 301 261
296 242 Non-GAAP 301 263
296 242
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 (benefit); non-GAAP net income and
non-GAAP diluted 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 cost
saving initiatives, charges related to arbitration award,
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 we believe 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 we
believe 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 we believe 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 operating results, and we believe 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 we believe are
not indicative of the underlying performance of our business.
Other charges. From time-to-time,
we sell or impair investments or other assets which are not
considered necessary to our business operations; 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 we
believe 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/20170727006489/en/
Western Digital Corp.Investor Contact:Bob
Blair949.672.7834robert.blair@wdc.comorMedia Contact:Jim
Pascoe408.717.6999jim.pascoe@wdc.com
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