SanDisk Corporation (NASDAQ:SNDK), a global leader in flash
storage solutions, today announced results for the fourth quarter
and fiscal 2015 ended January 3, 2016. Fourth quarter revenue of
$1.54 billion decreased 11 percent on a year-over-year
basis and increased 6 percent sequentially. Annual revenue for
2015 was $5.56 billion, a decrease of 16 percent from 2014.
On a GAAP(1) basis, fourth quarter net income was
$135 million, or $0.65 per share, compared to net income
of $202 million, or $0.86 per share, in the fourth
quarter of 2014 and net income of $133 million, or
$0.65 per share, in the third quarter of 2015. Annual net
income for 2015 was $388 million, or $1.82 per share, compared
to $1.01 billion, or $4.23 per share, in 2014.
On a non-GAAP(2)(3) basis, fourth quarter net income was
$257 million, or $1.26 per share, compared to net income
of $294 million, or $1.30 per share, in the fourth
quarter of 2014 and net income of $223 million, or
$1.09 per share, in the third quarter of 2015. Annual net
income for 2015 was $750 million, or $3.61 per share, compared
to $1.29 billion, or $5.60 per share, in 2014. For a
reconciliation of non-GAAP to GAAP results, see accompanying
financial tables and footnotes.
“I am pleased to report an excellent fourth quarter finish to
2015 driven by strong performance in enterprise and retail,” said
Sanjay Mehrotra, president and chief executive officer, SanDisk.
“We made substantial progress in the second half of 2015 in
reinvigorating our portfolio, improving our product execution and
expanding our customer engagements. We also achieved an important
milestone in beginning our multi-year conversion to 3D NAND, with
first retail product shipments and initial OEM customer sampling in
the fourth quarter.”
QUARTERLY KEY FINANCIAL RESULTS
(in millions, except percentages and per
share amounts)
GAAP (1)
Non-GAAP (2)
Q4’15 Q4’14 Q3’15
Q4’15 Q4’14 Q3’15 Revenue
$1,543 $1,735 $1,452 $1,543
$1,735 $1,452 Gross profit $625 $740
$603 $658 $780 $637 percent of revenue
41% 43% 42% 43% 45%
44% Operating income $218 $328 $237 $333 $419 $321 percent
of revenue 14% 19% 16% 22%
24% 22% EPS (3) $0.65 $0.86
$0.65 $1.26 $1.30 $1.09
ANNUAL KEY FINANCIAL RESULTS
GAAP(1)
Non-GAAP(2)
(in millions, except percentages and per
share amounts)
FY’15 FY’14 FY’15
FY’14 Revenue $5,565 $6,628
$5,565 $6,628 Gross profit $2,257 $3,068
$2,388 $3,191 percent of revenue 41%
46% 43% 48% Operating income $617
$1,558 $1,043 $1,848 percent of revenue 11% 24%
19% 28% EPS(3) $1.82 $4.23
$3.61 $5.60
OTHER FINANCIAL INFORMATION
(in millions)
Q4’15 Q4’14
Q3’15 Cash, cash equivalents, short and long-term marketable
securities $ 4,123 $ 5,023 $ 3,875 Less
aggregate principal amount of convertible senior notes outstanding
(2,497 ) (2,497 ) (2,497
) Net cash (4) $ 1,626 $ 2,526 $
1,378 Net cash provided by operating activities $ 434 $ 488
$ 275 Less acquisition of property and equipment, net (131 ) (67 )
(89 ) Change in investment and notes receivable activity with Flash
Ventures (27 ) 55
(16 ) Free cash flow (5) $ 276 $ 476
$ 171
NEWS HIGHLIGHTS
- SanDisk announced two ecosystem
partnerships that leverage the SanDisk InfiniFlash™ System; one
with Super Micro Computer, Inc. and Nexenta Systems, Inc. and
another with Quanta Cloud Technology.
- At the Las Vegas Consumer Electronics
Show (CES), SanDisk launched the SanDisk X400® client SSD, a
15-nanometer X3-based SSD which is the world’s thinnest
one-terabyte M.2 SSD and the industry’s first single-sided
one-terabyte SATA M.2 form factor with a mere 1.5mm height.
- Also at CES, SanDisk introduced new
retail products including the SanDisk Extreme® 510 Portable
SSD, a high-performance “all-terrain” portable SSD which is both
durable and water-resistant, as well as the 200 gigabyte (GB)
SanDisk Connect™ Wireless Stick and the 128GB SanDisk Ultra®
Dual USB Drive 3.0.
In light of the pending acquisition of SanDisk by Western
Digital Corporation (Western Digital), SanDisk will not hold a
conference call to discuss its financial results. Concurrent with
this press release, SanDisk has published prepared remarks from the
CEO and CFO along with earnings presentation materials on its
website at www.sandisk.com/ir.
ABOUT SANDISK
SanDisk Corporation (NASDAQ: SNDK), a Fortune 500 and S&P
500 company, is a global leader in flash storage solutions. For
more than 25 years, SanDisk has expanded the possibilities of
storage, providing trusted and innovative products that have
transformed the electronics industry. Today, SanDisk’s quality,
state-of-the-art solutions are at the heart of many of the world's
largest data centers, and embedded in advanced smartphones, tablets
and PCs. SanDisk’s consumer products are available at hundreds of
thousands of retail stores worldwide. For more information, visit
www.sandisk.com.
©2016 SanDisk Corporation. All rights reserved. SanDisk, SanDisk
Ultra and SanDisk Extreme are trademarks of SanDisk Corporation,
registered in the United States and other countries. InfiniFlash
and SanDisk Connect are trademarks of SanDisk Corporation. Other
brand names mentioned herein are for identification purposes only
and may be the trademarks of their respective holder(s).
This news release contains certain forward-looking statements,
including those regarding industry environment, our business
prospects, our intended financial, operational and strategic plans
and priorities, our future financial performance and market share,
our customer base, customer qualifications and product mix,
technology trends and adoption, strategic relationships, and new
products and technologies, that are based on our current
expectations and involve numerous risks and uncertainties that may
cause these forward-looking statements to be inaccurate.
Risks that may cause these forward-looking statements to be
inaccurate include, among others:
- the announcement and pendency of our
agreement to be acquired by Western Digital or the failure of our
pending acquisition by Western Digital to be completed on a timely
basis, or at all, or any materially burdensome conditions that may
be imposed;
- failure to effectively or efficiently
execute on our financial, operational or strategic plans or
priorities, which may change, may not have the effects that we
anticipate or otherwise be successful on the timeline that we
expect or at all or may have unanticipated consequences;
- changes in industry supply and demand
environment, and production and pricing levels being different than
what we anticipate;
- competitive pricing pressures or
product mix changes, resulting in lower average selling prices,
lower revenues and reduced margins;
- excess or mismatched captive memory
output, capacity or inventory, resulting in lower average selling
prices, financial charges and impairments, lower gross margin or
other consequences, or insufficient or mismatched captive memory
output, capacity or inventory, resulting in lost revenue and growth
opportunities;
- inability to reduce product costs to
keep pace with reductions in average selling prices, resulting in
lower or negative product gross margin;
- potential delays in product development
or lack of customer acceptance and qualification of our solutions,
including on new technologies, particularly enterprise solutions,
client SSDs and embedded flash storage solutions;
- weakness in demand in one or more of
our product categories, such as embedded products or SSDs, or
adverse changes in our product or customer mix;
- failure to successfully sell enterprise
solutions on the timelines or in the quantities we expect or
transition our enterprise customers to our leading edge
solutions;
- failure or delays in making new
products or technologies available in the manner and capacities we
anticipate, whether due to technology or supply chain difficulties
or other factors;
- inability to develop, or unexpected
difficulties or delays in developing or ramping with acceptable
yields, new technologies, such as 3D NAND technology, or the
failure of new technologies to effectively compete with those of
our competitors;
- our 15-nanometer process technology,
our X3 NAND memory architecture, our 3D NAND technology or our
solutions utilizing these new technologies may not be available
when we expect, in the capacities that we expect or perform as
expected;
- failure to manage the risks associated
with our ventures, strategic partnerships and commercial
relationships, such as with Toshiba, including the risk of early
termination;
- inability to achieve the expected
benefits from acquisitions and strategic relationships in a timely
manner, or at all;
- industry and technology trends not
occurring in the timeline we anticipate or at all; and
- the other risks detailed from
time-to-time under the caption “Risk Factors” and elsewhere in our
Securities and Exchange Commission filings and reports, including,
but not limited to, our Quarterly Report on Form 10-Q for the
quarter ended September 27, 2015.
All statements made in this news release are made only as of the
date of this release. We undertake no obligation to update the
information in this release in the event facts or circumstances
change after the date of this release.
All references to annual and quarterly periods refer to our
fiscal year and fiscal quarters.
Forward Looking Statements
All statements included or incorporated by reference in this
document, other than statements or characterizations of historical
fact, are forward-looking statements within the meaning of the
federal securities laws, including Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. These forward-looking statements are based
on SanDisk Corporation’s (“SanDisk”) current expectations,
estimates and projections about its business and industry,
management’s beliefs, and certain assumptions made by SanDisk and
Western Digital, all of which are subject to change.
Forward-looking statements can often be identified by words such as
“anticipates,” “expects,” “intends,” “plans,” “predicts,”
“believes,” “seeks,” “estimates,” “may,” “will,” “should,” “would,”
“could,” “potential,” “continue,” “ongoing,” similar expressions,
and variations or negatives of these words. Examples of such
forward-looking statements include, but are not limited to,
references to the anticipated benefits of the proposed merger and
the expected date of closing of the merger with Western Digital’s
wholly-owned subsidiary, Schrader Acquisition Corporation. These
forward-looking statements are not guarantees of future results and
are subject to risks, uncertainties and assumptions that could
cause actual results to differ materially and adversely from those
expressed in any forward-looking statement.
Important risk factors that may cause such a difference in
connection with the proposed merger include, but are not limited
to, the following factors: (1) the inability to complete the merger
due to the failure to obtain stockholder approval for the merger or
the failure to satisfy other conditions to completion of the
merger, including the receipt of all regulatory approvals related
to the merger; (2) uncertainties as to the timing of the
consummation of the merger and the ability of each party to
consummate the merger; (3) risks that the proposed merger disrupts
the current plans and operations of Western Digital or SanDisk; (4)
the ability of Western Digital and SanDisk to retain and hire key
personnel; (5) competitive responses to the proposed merger; (6)
unexpected costs, charges or expenses resulting from the merger;
(7) the outcome of any legal proceedings that could be instituted
against Western Digital, SanDisk or their respective directors
related to the merger agreement; (8) potential adverse reactions or
changes to business relationships resulting from the announcement
or completion of the merger; (9) the inability to obtain, or delays
in obtaining, cost savings and synergies from the merger; (10)
delays, challenges and expenses associated with integrating the
combined companies’ existing businesses and the indebtedness
planned to be incurred in connection with the merger; and (11)
legislative, regulatory and economic developments. These risks, as
well as other risks associated with the proposed merger, are more
fully discussed in the preliminary joint proxy statement/prospectus
that is included in the Registration Statement on Form S-4 filed
with the Securities and Exchange Commission (“SEC”) in connection
with the proposed merger on December 11, 2015, as amended by
Amendment No.1 filed with the SEC on January 27, 2016. The
forward-looking statements in this document speak only as of the
date of the particular statement. Neither SanDisk nor Western
Digital undertakes any obligation to revise or update publicly any
forward-looking statement to reflect future events or
circumstances.
In addition, actual results are subject to other risks and
uncertainties that relate more broadly to SanDisk’s overall
business, including those more fully described in SanDisk’s filings
with the SEC including its annual report on Form 10-K for the
fiscal year ended December 28, 2014, and its quarterly reports
filed on Form 10-Q for fiscal year 2015, and Western Digital’s
overall business and financial condition, including those more
fully described in Western Digital’s filings with the SEC including
its annual report on Form 10-K for the fiscal year ended July 3,
2015 and its quarterly reports filed on Form 10-Q for the current
fiscal year.
Additional Information And Where To Find It
This communication does not constitute an offer to sell or the
solicitation of an offer to buy any securities or a solicitation of
any vote or approval nor shall there be any sale of securities in
any jurisdiction in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the
securities laws of any such jurisdiction. Western Digital filed
with the SEC a Registration Statement on Form S-4 on December 11,
2015, as amended by Amendment No.1 filed with the SEC on January
27, 2016, that included a preliminary joint proxy
statement/prospectus of SanDisk and Western Digital. Each of
SanDisk and Western Digital will provide the joint proxy
statement/prospectus to their respective stockholders. These
materials are not yet final and will be amended. SanDisk and
Western Digital also plan to file other documents with the SEC
regarding the proposed merger. This document is not a substitute
for the joint proxy statement/prospectus or registration statement
or any other document which SanDisk or Western Digital may file
with the SEC in connection with the proposed merger. INVESTORS AND
SECURITY HOLDERS OF SANDISK AND WESTERN DIGITAL ARE URGED TO READ
THE JOINT PROXY STATEMENT/PROSPECTUS AND ANY OTHER RELEVANT
DOCUMENTS THAT WILL BE FILED WITH THE SEC CAREFULLY AND IN THEIR
ENTIRETY WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN
IMPORTANT INFORMATION ABOUT THE PROPOSED MERGER. You may obtain
copies of all documents filed with the SEC regarding this merger,
free of charge, at the SEC’s website (www.sec.gov). In addition,
copies of the documents filed with the SEC by SanDisk will be
available free of charge on SanDisk’s website at
http://www.sandisk.com. Copies of the documents filed with the SEC
by Western Digital will be available free of charge on Western
Digital’s website at http://www.westerndigital.com.
Participants in the Solicitation
SanDisk, Western Digital, and certain of their respective
directors, executive officers and other members of management and
employees, under SEC rules may be deemed to be participants in the
solicitation of proxies from SanDisk and Western Digital
stockholders in connection with the proposed merger. You can find
more detailed information about SanDisk’s executive officers and
directors in its definitive proxy statement filed with the SEC on
April 27, 2015. You can find more detailed information about
Western Digital’s executive officers and directors in its
definitive proxy statement filed with the SEC on September 23,
2015. Information regarding the persons who may, under the rules of
the SEC, be deemed participants in the solicitation of stockholders
in connection with the proposed merger is set forth in the
preliminary joint proxy statement/prospectus filed with the SEC on
December 11, 2015, as amended by Amendment No.1 filed with the SEC
on January 27, 2016, by Western Digital. Additional information
about SanDisk’s executive officers and directors and Western
Digital’s executive officers and directors can be found in the
preliminary joint proxy statement/prospectus regarding the proposed
merger filed with the SEC.
(1) GAAP represents U.S. Generally Accepted Accounting
Principles.
(2) Non-GAAP represents GAAP excluding the impact of share-based
compensation, inventory step-up expense, amortization and
impairment of acquisition-related intangible assets, Western
Digital acquisition-related expenses, gains and losses related to
the shortened duration and expected liquidation prior to their
effective maturity of marketable securities due to the pending
acquisition of SanDisk by Western Digital, non-cash economic
interest expense associated with the convertible senior notes,
non-cash change in fair value of the liability component of the
convertible senior notes due to the conversion of a portion of the
1.5% Convertible Senior Notes due 2017 and related tax
adjustments.
(3) Non-GAAP diluted shares are adjusted for the impact of
expensing share-based compensation and include the impact of
offsetting shares from the call options related to the convertible
senior notes.
(4) Net cash is defined as cash, cash equivalents, short and
long-term marketable securities, minus the aggregate principal
amount of the outstanding convertible senior notes.
(5) Free cash flow is defined as net cash provided by operating
activities less (a) acquisition of property and equipment, net, and
(b) net investment and notes receivables activity with Flash
Ventures. Calculation of free cash flow may not agree to the sum of
the components presented due to rounding.
* 1Gb=125,000,000 bits. Actual user storage may be less.
SanDisk Corporation Preliminary Condensed
Consolidated Statements of Operations (in thousands, except
per share amounts, unaudited)
Three months ended Twelve months ended
January 3, 2016 December 28, 2014 January 3,
2016 December 28, 2014 Revenue $ 1,543,150 $
1,735,254 $ 5,564,872 $ 6,627,701 Cost of revenue 889,472
962,445 3,196,583 3,458,954 Amortization of acquisition-related
intangible assets 28,820 33,039 111,220 100,899 Total cost of
revenue 918,292 995,484 3,307,803 3,559,853 Gross profit 624,858
739,770 2,257,069 3,067,848 Operating expenses: Research and
development 230,463 226,142 883,242 852,310 Sales and marketing
92,851 111,526 387,394 383,288 General and administrative 40,549
52,104 174,142 214,902 Amortization of acquisition-related
intangible assets 12,731 13,681 53,349 26,423 Impairment of
acquisition-related intangible assets ― ― 61,000
―
Restructuring and other 2,090 8,007 53,252 32,991 Western Digital
acquisition-related expenses 28,065 ― 28,065 ― Total operating
expenses 406,749 411,460 1,640,444 1,509,914 Operating income
218,109 328,310 616,625 1,557,934 Other income (expense),
net (27,462) (24,815) (87,001) (68,904) Income before income taxes
190,647 303,495 529,624 1,489,030 Provision for income taxes
55,178 101,604 141,146 481,584 Net income $ 135,469 $ 201,891 $
388,478 $ 1,007,446 Net income per share: Basic $ 0.67 $
0.93 $ 1.89 $ 4.52 Diluted $ 0.65 $ 0.86 $ 1.82 $ 4.23
Shares used in computing net income per share: Basic 200,845
217,264 205,443 222,714 Diluted 209,101 234,794 212,900 238,209
SanDisk Corporation
Reconciliation of Preliminary GAAP to Non-GAAP Operating
Results (1) (in thousands, except per share data,
unaudited) Three months ended Twelve months
ended January 3, 2016 December 28, 2014
January 3, 2016 December 28, 2014 SUMMARY
RECONCILIATION OF NET INCOME: GAAP NET INCOME $
135,469 $ 201,891 $ 388,478 $ 1,007,446 Share-based compensation
(a) 45,208 40,639 172,396 155,313 Amortization of
acquisition-related intangible assets (b) 41,551 46,720 164,569
127,322 Inventory step-up expense (c) ― 2,931 ― 7,834 Impairment of
acquisition-related intangible assets (d) ― ― 61,000 ― Western
Digital acquisition-related expenses (e) 28,985 ― 28,985 ―
Convertible debt interest (f) 25,207 22,152 92,648 85,734 Income
tax adjustments (g) (19,501) (20,388) (157,954) (95,474)
NON-GAAP NET INCOME $ 256,919 $ 293,945 $ 750,122 $
1,288,175
GAAP COST OF REVENUE $ 918,292 $ 995,484 $
3,307,803 $ 3,559,853 Share-based compensation (a) (4,743) (4,601)
(19,306) (14,719) Amortization of acquisition-related intangible
assets (b) (28,820) (33,039) (111,220) (100,899) Inventory step-up
expense (c) ― (2,931) ― (7,834)
NON-GAAP COST OF REVENUE $
884,729 $ 954,913 $ 3,177,277 $ 3,436,401
GAAP GROSS
PROFIT $ 624,858 $ 739,770 $ 2,257,069 $ 3,067,848 Share-based
compensation (a) 4,743 4,601 19,306 14,719 Amortization of
acquisition-related intangible assets (b) 28,820 33,039 111,220
100,899 Inventory step-up expense (c) ― 2,931 ― 7,834
NON-GAAP
GROSS PROFIT $ 658,421 $ 780,341 $ 2,387,595 $ 3,191,300
GAAP RESEARCH AND DEVELOPMENT EXPENSES $ 230,463 $ 226,142 $
883,242 $ 852,310 Share-based compensation (a) (23,674) (20,198)
(87,626) (74,842)
NON-GAAP RESEARCH AND DEVELOPMENT EXPENSES
$ 206,789 $ 205,944 $ 795,616 $ 777,468
GAAP SALES AND
MARKETING EXPENSES $ 92,851 $ 111,526 $ 387,394 $ 383,288
Share-based compensation (a) (9,416) (8,953) (37,600) (36,214)
NON-GAAP SALES AND MARKETING EXPENSES $ 83,435 $ 102,573 $
349,794 $ 347,074
GAAP GENERAL AND ADMINISTRATIVE
EXPENSES $ 40,549 $ 52,104 $ 174,142 $ 214,902 Share-based
compensation (a) (7,375) (6,887) (27,864) (29,538)
NON-GAAP
GENERAL AND ADMINISTRATIVE EXPENSES $ 33,174 $ 45,217 $ 146,278
$ 185,364
GAAP TOTAL OPERATING EXPENSES $ 406,749 $
411,460 $ 1,640,444 $ 1,509,914 Share-based compensation (a)
(40,465) (36,038) (153,090) (140,594) Amortization of
acquisition-related intangible assets (b) (12,731) (13,681)
(53,349) (26,423) Impairment of acquisition-related intangible
assets (d) ― ― (61,000) ― Western Digital acquisition-related
expenses (e) (28,065) ― (28,065) ―
NON-GAAP TOTAL OPERATING
EXPENSES $ 325,488 $ 361,741 $ 1,344,940 $ 1,342,897
GAAP OPERATING INCOME $ 218,109 $ 328,310 $ 616,625 $
1,557,934 Cost of revenue adjustments (a) (b) (c) 33,563 40,571
130,526 123,452 Operating expense adjustments (a) (b) (d) (e)
81,261 49,719 295,504 167,017
NON-GAAP OPERATING INCOME $
332,933 $ 418,600 $ 1,042,655 $ 1,848,403
GAAP OTHER
INCOME (EXPENSE), NET $ (27,462) $ (24,815) $ (87,001) $
(68,904) Western Digital acquisition-related expenses (e) 920 ― 920
― Convertible debt interest (f) 25,207 22,152 92,648 85,734
NON-GAAP OTHER INCOME (EXPENSE), NET $ (1,335) $ (2,663) $
6,567 $ 16,830
GAAP NET INCOME $ 135,469 $ 201,891 $
388,478 $ 1,007,446 Cost of revenue adjustments (a) (b) (c) 33,563
40,571 130,526 123,452 Operating expense adjustments (a) (b) (d)
(e) 81,261 49,719 295,504 167,017 Other income (expense)
adjustments (e) (f) 26,127 22,152 93,568 85,734 Income tax
adjustments (g) (19,501) (20,388) (157,954) (95,474)
NON-GAAP
NET INCOME $ 256,919 $ 293,945 $ 750,122 $ 1,288,175
Diluted net income per share: GAAP $ 0.65 $ 0.86 $ 1.82 $ 4.23
Non-GAAP $ 1.26 $ 1.30 $ 3.61 $ 5.60 Shares used in
computing diluted net income per share: GAAP 209,101 234,794
212,900 238,209 Non-GAAP (h) 203,228 225,482 207,653 230,194
SanDisk Corporation Reconciliation of Preliminary
GAAP to Non-GAAP Operating Results (1) (in thousands,
unaudited) Three
months ended Twelve months ended January 3, 2016
December 28, 2014 January 3, 2016 December 28,
2014 SUMMARY RECONCILIATION OF DILUTED SHARES:
GAAP 209,101 234,794 212,900 238,209 Adjustments for
share-based compensation (10) 260 53 246 Offsetting shares from
call options (5,863) (9,572) (5,300) (8,261)
Non-GAAP (h)
203,228 225,482 207,653 230,194 ––––––––––––––– (1)
To supplement our condensed consolidated financial statements
presented in accordance with generally accepted accounting
principles (GAAP), we use non-GAAP measures of operating results,
net income and net income per share, which are adjusted from
results based on GAAP to exclude certain expenses, gains and
losses. These non-GAAP financial measures are provided to enhance
the user's overall understanding of our current financial
performance and our prospects for the future. Specifically, we
believe the non-GAAP results provide useful information to both
management and investors as these non-GAAP results exclude certain
expenses, gains and losses that we believe are not indicative of
our core operating results and because they are consistent with the
financial models and estimates published by many analysts who
follow us. For example, because the non-GAAP results exclude the
expenses we recorded for share-based compensation, amortization of
acquisition-related intangible assets related to acquisitions of
Pliant Technology, Inc. in May 2011, FlashSoft Corporation in
February 2012, Schooner Information Technology, Inc. in June 2012,
SMART Storage Systems in August 2013 and Fusion-io, Inc. in July
2014, inventory step-up expense, impairment of acquisition-related
in-process research and development intangible assets, Western
Digital Corporation acquisition-related expenses, gains and losses
related to the shortened duration or liquidation prior to their
effective maturity of marketable securities due to the pending
acquisition of SanDisk by Western Digital, non-cash economic
interest expense associated with the convertible senior notes,
non-cash change in fair value of the liability component of the
convertible senior notes due to the conversion of a portion of the
1.5% Convertible Senior Notes due 2017 and related tax adjustments,
we believe the inclusion of non-GAAP financial measures provides
consistency in our financial reporting. In addition, our non-GAAP
diluted shares are adjusted for the impact of expensing share-based
compensation and include the impact of the call options which, when
exercised, will offset the issuance of dilutive shares from the
convertible senior notes, while our GAAP diluted shares exclude the
anti-dilutive impact of these call options. These non-GAAP results
are some of the primary indicators management uses for assessing
our performance, allocating resources, and planning and forecasting
future periods. Further, management uses non-GAAP information that
excludes certain charges, such as share-based compensation,
amortization of acquisition-related intangible assets, inventory
step-up expense, impairment of acquisition-related in-process
research and development intangible assets, Western Digital
acquisition-related expenses, gains and losses related to the
shortened duration or liquidation prior to their effective maturity
of marketable securities due to the pending acquisition of SanDisk
by Western Digital, non-cash economic interest expense associated
with the convertible senior notes, non-cash change in fair value of
the liability component of the convertible senior notes due to the
conversion of a portion of the 1.5% Convertible Senior Notes due
2017 and related tax adjustments, as these non-GAAP charges do not
reflect the cash operating results of the business or the ongoing
results. 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. These non-GAAP
measures may be different than the non-GAAP measures used by other
companies. (a) Share-based compensation expense. (b)
Amortization of acquisition-related intangible assets, primarily
developed technology, customer relationships, and trademarks and
trade names related to the acquisitions of Pliant Technology, Inc.,
FlashSoft Corporation, Schooner Information Technology, Inc., SMART
Storage Systems and Fusion-io, Inc. (c) Inventory step-up
expense related to the acquisition of Fusion-io, Inc. (d)
Impairment of acquisition-related in-process research and
development intangible assets related to the acquisition of
Fusion-io, Inc. (e) Incremental expense related to the
pending acquisition of SanDisk by Western Digital, primarily for
transaction, legal, employee-related and other costs, and gains and
losses related to the shortened duration and expected liquidation
prior to their effective maturity date of marketable securities.
(f) Incremental interest expense related to the non-cash
economic interest expense associated with the convertible senior
notes and the non-cash change in fair value of the liability
component of the convertible senior notes due to the conversion of
a portion of the 1.5% Convertible Senior Notes due 2017. (g)
Income taxes associated with certain non-GAAP to GAAP adjustments
and the effects of one-time income tax adjustments recorded in a
specific quarter for GAAP purposes are reflected on a forecast
basis in the non-GAAP tax rate but not in the forecasted GAAP tax
rate, and there are no differences for the effects of one-time
income tax adjustments on an annual basis for both the non-GAAP and
GAAP tax rate. (h) Non-GAAP diluted shares are adjusted for
the impact of expensing share-based compensation and include the
impact of offsetting shares from the call options related to the
convertible senior notes.
SanDisk Corporation
Preliminary Condensed Consolidated Balance Sheets
(in thousands, unaudited)
January 3, 2016 December 28,
2014 ASSETS Current assets: Cash and cash
equivalents $ 1,478,948 $ 809,003 Short-term marketable securities
2,527,245 1,455,509 Accounts receivable, net 618,191 842,476
Inventory 809,395 698,011 Deferred taxes (1) ― 180,134 Other
current assets (2) 226,007 210,065 Total current assets 5,659,786
4,195,198 Long-term marketable securities 117,142 2,758,475
Property and equipment, net 817,130 724,357 Notes receivable and
investments in Flash Ventures 1,009,989 962,817 Deferred taxes (1)
325,033 161,827 Goodwill 831,328 831,328 Intangible assets, net
296,726 542,351 Other non-current assets (2) 173,627 97,472 Total
assets $ 9,230,761 $ 10,273,825
LIABILITIES, CONVERTIBLE
SHORT-TERM DEBT CONVERSION OBLIGATION AND EQUITY Current
liabilities: Accounts payable trade $ 323,280 $ 404,237 Accounts
payable to related parties 177,510 136,051 Convertible short-term
debt (2)(3) 913,178 864,718 Other current accrued liabilities (1)
353,940 506,293 Deferred income on shipments to distributors and
retailers and deferred revenue 235,572 274,657 Total current
liabilities 2,003,480 2,185,956 Convertible long-term debt
(2) 1,237,776 1,188,491 Non-current liabilities (1) 170,093 245,554
Total liabilities 3,411,349 3,620,001 Convertible short-term
debt conversion obligation (3) 80,488 127,143 Stockholders'
equity: Common stock 5,203,926 5,236,982 Retained earnings 733,937
1,499,149 Accumulated other comprehensive loss (198,939) (208,072)
Total stockholders' equity 5,738,924 6,528,059 Non-controlling
interests
―
(1,378) Total equity 5,738,924 6,526,681 Total liabilities,
convertible short-term debt conversion obligation and equity $
9,230,761 $ 10,273,825 ––––––––––––––– (1) Reflects
the prospective adoption of a new FASB accounting standard
requiring the classification of all deferred tax assets and
liabilities as non-current. Only the January 3, 2016 balances are
required to be, and have been, adjusted. (2) Reflects the
retrospective adoption of a new FASB accounting standard requiring
the presentation of debt issuance costs as a direct deduction from
the carrying amount of the related debt liability. The January 3,
2016 and December 28, 2014 balances have been adjusted. (3)
The 1.5% Convertible Senior Notes due 2017 are convertible through
March 31, 2016 as a result of the Company’s common stock price
exceeding the trigger price for the specified period of time during
the prior calendar quarter, as set forth in the indenture.
Accordingly, the carrying value of the notes is reported as
short-term debt as of January 3, 2016 and will remain so while the
notes are convertible. The Convertible short-term debt conversion
obligation represents the difference between the carrying value of
the convertible debt and the principal amount due in cash upon
conversion.
SanDisk Corporation Preliminary
Condensed Consolidated Statements of Cash Flows (in
thousands, unaudited)
Three months ended Twelve months ended January 3,
2016 December 28, 2014 January 3, 2016
December 28, 2014 Cash flows from operating
activities: Net income $ 135,469 $ 201,891 $ 388,478 $
1,007,446 Adjustments to reconcile net income to net cash
provided by operating activities: Deferred taxes 26,209 (14,699 )
(4,891 ) (7,915 ) Depreciation 68,979 66,620 280,170 254,271
Amortization 86,392 93,244 340,925 324,231 Provision for doubtful
accounts (504 ) 180 709 857 Share-based compensation expense 45,208
40,639 172,396 155,313 Excess tax benefit from share-based plans
(1,063 ) (6,143 ) (12,232 ) (44,919 ) Impairment and other 3,480
6,270 67,599 6,790 Other non-operating (462 ) 293 (9,620 ) 636
Changes in operating assets and liabilities: Accounts receivable,
net 122,950 27,391 224,915 (118,606 ) Inventory (23,489 ) 83,886
(110,250 ) 136,442 Other assets (60,618 ) 27,357 (70,636 ) 37,738
Accounts payable trade (26,808 ) (24,738 ) (47,690 ) 37,380
Accounts payable to related parties 34,209 1,234 41,459 (10,913 )
Other liabilities 24,027 (15,612 )
(214,652 ) (80,303 ) Total adjustments 298,510
285,922 658,202 691,002
Net cash provided by operating activities 433,979
487,813 1,046,680 1,698,448
Cash flows from investing activities:
Purchases of short and long-term marketable securities (1,194,583 )
(730,244 ) (3,073,012 ) (4,106,494 ) Proceeds from sales of short
and long-term marketable securities 1,547,835 493,294 4,105,992
4,114,712 Proceeds from maturities of short and long-term
marketable securities 150,317 208,992 456,653 772,882 Acquisition
of property and equipment, net (131,385 ) (67,145 ) (413,828 )
(232,786 ) Investment in Flash Ventures ― ― ― (24,296 ) Notes
receivable issuances to Flash Ventures (95,008 ) (49,789 ) (323,382
) (181,481 ) Notes receivable proceeds from Flash Ventures 68,110
104,654 285,070 231,409 Purchased technology and other assets
(3,232 ) (20,248 ) (8,959 ) (24,837 ) Acquisitions, net of cash
acquired ― ― ― (1,063,798 ) Other ― ― (866 ) ― Net cash
provided by (used in) investing activities 342,054
(60,486 ) 1,027,668 (514,689 )
Cash flows from financing activities: Repayment of debt
financing ― (3,212 ) (73 ) (3,212 ) Proceeds from employee stock
programs 7,355 22,442 68,514 181,486 Excess tax benefit from
share-based plans 1,063 6,143 12,232 44,919 Dividends paid (212 )
(65,122 ) (188,911 ) (234,565 ) Repurchase of common stock ―
(500,551 ) (1,250,263 ) (1,300,212 ) Taxes paid related to net
share settlement of equity awards (2,520 ) (2,855 )
(44,695 ) (41,264 ) Net cash provided by (used in)
financing activities 5,686 (543,155 )
(1,403,196 ) (1,352,848 ) Effect of changes in
foreign currency exchange rates on cash (844 ) (6,004
) (1,207 ) (8,154 ) Net increase (decrease) in
cash and cash equivalents 780,875 (121,832 ) 669,945 (177,243 )
Cash and cash equivalents at beginning of period 698,073
930,835 809,003 986,246 Cash and cash
equivalents at end of period $ 1,478,948 $ 809,003 $
1,478,948 $ 809,003
SanDisk
Corporation Preliminary Quarterly Metrics
(unaudited)
Revenue Mix by Category (1)
% of revenue Percentages may not add to 100%
due to rounding
Q1'14
Q2'14 Q3'14
Q4'14 Q1'15
Q2'15 Q3'15
Q4'15 FY'14
FY'15 Removable (2) 40 % 40 % 38 % 33 % 38 % 44
% 37 % 41 % 38 % 40 % Embedded (3) 20 % 19 % 24 % 26 % 25 %
20 % 27 % 22 % 23 % 24 % Enterprise Solutions (4) 6 % 8 % 10
% 15 % 14 % 14 % 11 % 13 % 10 % 13 % Client SSD Solutions
(5) 22 % 21 % 17 % 16 % 13 % 10 % 10 % 12 % 19 % 11 % Other
(6) 11 % 12 % 11 % 10 % 10 % 11 % 15 % 12 % 11 % 12 % Total
Revenue 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 %
–––––––––––––––
(1) Revenue is estimated based on analysis
of the information the company collects in its sales reporting
processes.
(2) Removable includes products such as
cards, USB flash drives and audio/video players.
(3) Embedded includes products that attach
to a host system board.
(4) Enterprise Solutions includes SSDs,
system solutions and software used in data center applications.
(5) Client SSD Solutions includes SSDs
used in client devices and associated software.
(6) Other includes wafers, components,
accessories, and license and royalties.
Revenue Mix by Channel (1)
% of revenue
Q1'14
Q2'14 Q3'14
Q4'14 Q1'15
Q2'15 Q3'15
Q4'15 FY'14
FY'15 Commercial (2) 65 % 67 % 68 % 69 %
65 % 61 % 67 % 61 % 67 % 64 % Retail 35 % 33 % 32 % 31 % 35
% 39 % 33 % 39 % 33 % 36 % Total Revenue 100 % 100 % 100 %
100 % 100 % 100 % 100 % 100 % 100 % 100 % –––––––––––––––
(1) Revenue is estimated based on analysis
of the information the company collects in its sales reporting
processes.
(2) Commercial includes revenue from OEMs,
system integrators, value-added resellers, direct sales, and
license and royalties.
SanDisk Corporation
Preliminary Quarterly and Annual Metrics (unaudited)
Q1'14
Q2'14 Q3'14
Q4'14 Q1'15
Q2'15 Q3'15
Q4'15 FY'14
FY'15 Q/Q Change in Gigabytes Sold -10 %
+31 % +9 % +4 % -15 % -1 % +49 % +23 % Y/Y Change in
Gigabytes Sold +20 % +51 % +43 % +32 % +24 % -6 % +30 % +53 % +36 %
+26 % Q/Q Change in ASP/Gigabyte -3 % -16 % -3 % -4 % -10 %
-6 % -22 % -10 % Y/Y Change in ASP/Gigabyte -7 % -26 % -26 %
-24 % -29 % -21 % -37 % -41 % -22 % -34 % Q/Q Change in
Cost/Gigabyte(1) -3 % -12 % -3 % +3 % -6 % -4 % -24 % -12 %
Y/Y Change in Cost/Gigabyte(1) -23 % -28 % -23 % -15 % -17 % -10 %
-29 % -40 % -22 % -27 % Average Gigabyte/Unit Capacity 13.9
14.1 16.5 22.3 20.8 19.2 23.5 23.9 16.4 22.2 As of end of
period: Factory Headcount(2)(3) 1,366 2,874 3,276 3,284 3,149 3,149
3,322 3,456 3,284 3,456 Non-Factory Headcount(4)
4,490
4,664 5,461
5,412 5,490
5,371 5,292
5,334 5,412
5,334 Total Headcount 5,856 7,538 8,737 8,696
8,639 8,520 8,614 8,790 8,696 8,790 –––––––––––––––
(1) Cost per gigabyte and cost reduction
are non-GAAP and are computed from non-GAAP cost of revenue.
(2) Reflects SanDisk China and Malaysia
factory employees, excluding temporary and contract workers.
(3) During 2014, 1,505 employees were
converted from contractor to employee status in SanDisk's assembly
and test facility in China.
(4) Reflects SanDisk non-factory
employees, excluding temporary and contract workers.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20160127006337/en/
SanDisk CorporationInvestor Contacts:Jay Iyer,
408-801-2067jay.iyer@sandisk.comorBrendan Lahiff,
408-801-1732brendan.lahiff@sandisk.comorMedia Contact:Carol
Kurimsky, 408-801-1390carol.kurimsky@sandisk.com
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