SANDISK CORP - FORM 8-K - EX-99.1 - EXHIBIT 99.1

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8-K - FORM 8-K Q3 '10 EARNINGS RELEASE - SANDISK CORP	form_8-ke.htm

Exhibit 99.1

SanDisk Corporation

601 McCarthy Boulevard

Milpitas, CA 95035-7932

Phone: 408-801-1000

Fax: 408-801-8657

CONTACT:	Investor Contact:	Media Contact:
	Jay Iyer	Ryan Donovan
	(408) 801-2067	(408) 801-2857

SANDISK ANNOUNCES THIRD QUARTER 2010 FINANCIAL RESULTS

Milpitas, CA, October 21, 2010 - SanDisk Corporation (NASDAQ:SNDK), the global leader in flash memory cards, today announced results for the third quarter ended October 3, 2010. Total third quarter revenue of $1.23 billion increased 32% on a year-over-year basis and increased 5% on a sequential basis. Net income, in accordance with U.S. Generally Accepted Accounting Principles (GAAP), was $322 million, or $1.34 per diluted share, compared to GAAP net income of $231 million, or $0.99 per diluted share, in the third quarter of 2009 and GAAP net income of $258 million, or $1.08 per diluted share, in the second quarter of 2010.

On a non-GAAP basis, which excludes the impact of share-based compensation expense, amortization of acquisition-related intangible assets, non-cash economic interest expense associated with the cash-settled convertible notes, and related tax adjustments and valuation allowance, third-quarter net income was $311 million, or $1.30 per diluted share, compared to net income of $176 million, or $0.75 per diluted share, in the third quarter of 2009 and net income of $258 million, or $1.08 per diluted share, in the second quarter of 2010. For reconciliation of non-GAAP to GAAP results, see accompanying financial tables and footnotes.

“SanDisk delivered outstanding results for the third quarter, driven by continued strength in our OEM and retail businesses. Solid execution, stable pricing and substantial cost reductions led to record high operating and net income and our highest ever total gross margin of 52%. For 2011, we are bullish about continuing growth in our diversified channels, including further substantial inroads for our embedded storage products in smartphones, tablet PC’s and other mobile devices,” said Eli Harari, Chairman and CEO of SanDisk.

THIRD QUARTER 2010 METRICS & HIGHLIGHTS

Total revenue was $1.23 billion, up 32% year-over-year and up 5% sequentially.
Product revenue was $1.14 billion, up 40% year-over-year and up 4% sequentially.
License and royalty revenue was $96 million, down 21% year-over-year and up 9% sequentially.
Total gross profit, product gross profit and operating income compared on a year-over-year and sequential basis are shown in the table below:

Metric in millions of US$, except %	GAAP			Non-GAAP
Metric in millions of US$, except %	Q310	Q309	Q210	Q310	Q309	Q210
Total gross profit % of total revenue	$639 51.8%	$436 46.7%	$546 46.3%	$644 52.2%	$442 47.2%	$551 46.7%
Product gross profit % of product revenue	$543 47.7%	$315 38.7%	$459 42.0%	$548 48.1%	$320 39.4%	$463 42.4%
Operating income % of total revenue	$432 35.0%	$240 25.7%	$359 30.4%	$457 37.0%	$263 28.1%	$377 32.0%

Cash flow from operations was $379 million and free cash flow was $416 million.
Total cash and equivalents, short and long-term marketable securities at the end of the third quarter were $5.1 billion compared to $2.6 billion at the end of the third quarter of 2009 and $3.7 billion at the end of the second quarter of 2010.
SanDisk completed a $1.0 billion senior unsecured convertible notes offering due 2017. The notes will pay interest semi-annually at a rate of 1.5% per annum.
Average price per gigabyte sold declined 20% on a year-over-year basis and declined 5% sequentially.

OTHER RECENT KEY ANNOUNCEMENTS

SanDisk introduced the industry’s first embedded solid state drive (SSD), the SanDisk® integrated SSD (iSSD), a high-capacity storage solution for use in fast-growing mobile computing platforms such as tablet PCs and ultra-thin notebooks, in capacities ranging from 4 gigabytes to 64 gigabytes.
SanDisk launched a new sub-$100 media player, Sansa® Fuze™+, with a microSDHC™ card slot that is compatible with the SanDisk® slotRadio™ pre-loaded music card or with any other microSD card containing music, videos and photos.

CONFERENCE CALL

SanDisk’s third quarter 2010 conference call is scheduled for 2:00 P.M., Pacific Daylight Time, Thursday, October 21, 2010. The conference call will be webcast and can be accessed live, and throughout the quarter, at SanDisk's website at http://www.sandisk.com/IR. To participate in the call via telephone, the dial-in number is 719-325-4827 and the dial-in password is 9488738. A copy of this press release will be furnished to the Securities and Exchange Commission on a current report on Form 8-K and will be posted to our website prior to the conference call.

SCHEDULED INTERVIEW

SanDisk Corporation Chairman and Chief Executive Officer, Eli Harari, is scheduled to appear on CNBC’s “Closing Bell with Maria Bartiromo,” on Thursday, October 21, 2010, at approximately 1:20 P.M., Pacific Daylight Time.

FORWARD LOOKING STATEMENTS

This news release contains certain forward-looking statements, including statements about our business prospects and outlook, and our expectations regarding our business, including expected growth in flash memory demand, including overall growth in our diversified sales channels and growth in the demand for embedded storage products in smartphones, tablets and other mobile devices, that are based on our current expectations and are subject to numerous risks and uncertainties that may cause these forward-looking statements to be inaccurate and may significantly harm our business, financial condition and results of operations. Risks that may cause these forward-looking statements to be inaccurate include among others:

competitive pricing pressures, resulting in lower average selling prices and lower or negative product gross margins;
less than anticipated demand, including due to economic weakness in our markets and among consumers generally;
unpredictable or changing demand for our products, particularly for certain form factors or capacities;
excess captive memory output or capacity which could result in write-downs for excess inventory, lower of cost or market reserves, fixed costs associated with under-utilized capacity, or other consequences;
insufficient captive and non-captive memory supply to meet demand;
insufficient non-memory materials or capacity from our suppliers and contract manufacturers to meet demand; or increases in cost of non-memory materials or capacity;
our products may not perform as expected; and
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 second quarter of fiscal 2010.

ABOUT SANDISK

SanDisk Corporation is the global leader in flash memory cards, from research, manufacturing and product design to consumer branding and retail distribution. SanDisk’s product portfolio includes flash memory cards for mobile phones, digital cameras and camcorders; digital audio/video players; USB flash drives for consumers and the enterprise; embedded memory for mobile devices; and solid state drives for computers. SanDisk is a Silicon Valley-based S&P 500 company, with more than half its sales outside the United States.

SanDisk, the SanDisk logo and Sansa Fuze are trademarks of SanDisk Corporation, registered in the United States and other countries. SDHC is a trademark of SD-3C LLC. Other brand names mentioned herein are for identification purposes only and may be the trademarks of their respective holder(s).

SanDisk Corporation
Preliminary Condensed Consolidated Statements of Operations
(in thousands, except per share amounts, unaudited)


	Three months ended						Nine months ended
	October 3, 2010			September 27, 2009			October 3, 2010		September 27, 2009
Revenues:
Product	$	1,137,593		$	813,811		$	3,222,103	$	2,012,342
License and royalty		96,080			121,360			277,301		312,873
Total revenues		1,233,673			935,171			3,499,404		2,325,215

Cost of product revenues		591,296			495,769			1,804,203		1,631,691
Amortization of acquisition-related intangible assets		3,132			3,132			9,396		9,396
Total cost of product revenues		594,428			498,901			1,813,599		1,641,087
Gross profit		639,245			436,270			1,685,805		684,128

Operating expenses:
Research and development		111,518			94,925			309,970		273,080
Sales and marketing		50,390			55,750			150,985		144,037
General and administrative		44,524			45,350			118,647		122,311
Amortization of acquisition-related intangible assets		1,089			292			1,672		875
Restructuring and other		-			-			-		765
Total operating expenses		207,521			196,317			581,274		541,068
Operating income		431,724			239,953			1,104,531		143,060
Other income (expense)		(3,168	)		(2,538	)		5,794		(16,515	)
Income before provision for income taxes		428,556			237,415			1,110,325		126,545
Provision for income taxes		106,464			6,122			295,648		50,740
Net income	$	322,092		$	231,293		$	814,677	$	75,805

Net income per share:
Basic	$	1.38		$	1.02		$	3.52	$	0.33
Diluted	$	1.34		$	0.99		$	3.41	$	0.33

Shares used in computing net income per share:
Basic		233,918			227,771			231,631		227,092
Diluted		240,717			232,724			239,249		230,936

SanDisk Corporation
Reconciliation of Preliminary GAAP to Non-GAAP Operating Results (1)
(in thousands, except per share data, unaudited)

	Three months ended						Nine months ended
	October 3, 2010			September 27, 2009			October 3, 2010			September 27, 2009

SUMMARY RECONCILIATION OF NET INCOME
GAAP NET INCOME	$	322,092		$	231,293		$	814,677		$	75,805
Share-based compensation (a)		20,944			19,374			52,791			58,058
Amortization of acquisition-related intangible assets (b)		4,221			3,424			11,068			10,271
Convertible debt interest (c)		17,983			13,410			46,112			39,495
Income tax adjustments (d)		(54,387	)		(91,990	)		(130,953	)		(33,633	)
NON-GAAP NET INCOME	$	310,853		$	175,511		$	793,695		$	149,996

GAAP COST OF PRODUCT REVENUES	$	594,428		$	498,901		$	1,813,599		$	1,641,087
Share-based compensation (a)		(1,205	)		(2,347	)		(4,972	)		(7,167	)
Amortization of acquisition-related intangible assets (b)		(3,132	)		(3,132	)		(9,396	)		(9,396	)
NON-GAAP COST OF PRODUCT REVENUES	$	590,091		$	493,422		$	1,799,231		$	1,624,524

GAAP GROSS PROFIT	$	639,245		$	436,270		$	1,685,805		$	684,128
Share-based compensation (a)		1,205			2,347			4,972			7,167
Amortization of acquisition-related intangible assets (b)		3,132			3,132			9,396			9,396
NON-GAAP GROSS PROFIT	$	643,582		$	441,749		$	1,700,173		$	700,691

GAAP RESEARCH AND DEVELOPMENT EXPENSES	$	111,518		$	94,925		$	309,970		$	273,080
Share-based compensation (a)		(6,629	)		(7,137	)		(19,975	)		(22,341	)
NON-GAAP RESEARCH AND DEVELOPMENT EXPENSES	$	104,889		$	87,788		$	289,995		$	250,739

GAAP SALES AND MARKETING EXPENSES	$	50,390		$	55,750		$	150,985		$	144,037
Share-based compensation (a)		(2,959	)		(3,918	)		(8,300	)		(11,153	)
NON-GAAP SALES AND MARKETING EXPENSES	$	47,431		$	51,832		$	142,685		$	132,884

GAAP GENERAL AND ADMINISTRATIVE EXPENSES	$	44,524		$	45,350		$	118,647		$	122,311
Share-based compensation (a)		(10,151	)		(5,972	)		(19,544	)		(17,397	)
NON-GAAP GENERAL AND ADMINISTRATIVE EXPENSES	$	34,373		$	39,378		$	99,103		$	104,914

GAAP TOTAL OPERATING EXPENSES	$	207,521		$	196,317		$	581,274		$	541,068
Share-based compensation (a)		(19,739	)		(17,027	)		(47,819	)		(50,891	)
Amortization of acquisition-related intangible assets (b)		(1,089	)		(292	)		(1,672	)		(875	)
NON-GAAP TOTAL OPERATING EXPENSES	$	186,693		$	178,998		$	531,783		$	489,302

GAAP OPERATING INCOME	$	431,724		$	239,953		$	1,104,531		$	143,060
Cost of product revenues adjustments (a) (b)		4,337			5,479			14,368			16,563
Operating expense adjustments (a) (b)		20,828			17,319			49,491			51,766
NON-GAAP OPERATING INCOME	$	456,889		$	262,751		$	1,168,390		$	211,389

GAAP OTHER INCOME (EXPENSE)	$	(3,168	)	$	(2,538	)	$	5,794		$	(16,515	)
Convertible debt interest (c)		17,983			13,410			46,112			39,495
NON-GAAP OTHER INCOME (EXPENSE)	$	14,815		$	10,872		$	51,906		$	22,980

GAAP NET INCOME	$	322,092		$	231,293		$	814,677		$	75,805
Cost of product revenues adjustments (a) (b)		4,337			5,479			14,368			16,563
Operating expense adjustments (a) (b)		20,828			17,319			49,491			51,766
Convertible debt interest (c)		17,983			13,410			46,112			39,495
Income tax adjustments (d)		(54,387	)		(91,990	)		(130,953	)		(33,633	)
NON-GAAP NET INCOME	$	310,853		$	175,511		$	793,695		$	149,996

Diluted net income per share:
GAAP	$	1.34		$	0.99		$	3.41		$	0.33
Non-GAAP	$	1.30		$	0.75		$	3.33		$	0.65

Shares used in computing diluted net income per share:
GAAP		240,717			232,724			239,249			230,936
Non-GAAP		239,798			232,961			238,302			231,424

SanDisk Corporation

Reconciliation of Preliminary GAAP to Non-GAAP Operating Results (1)

(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 it is consistent with the financial models and estimates published by many analysts who follow the Company. For example, because the non-GAAP results exclude the expenses we recorded for share-based compensation, the amortization of acquisition-related intangible assets related to acquisitions of Matrix Semiconductor, Inc. in January 2006 and MusicGremlin, Inc. in June 2008, and non-cash economic interest expense associated with our cash-settled convertible notes, we believe the inclusion of non-GAAP financial measures provide consistency in our financial reporting. 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 non-cash charges, such as amortization of purchased intangible assets, share-based compensation and non-cash economic interest expense associated with our cash-settled convertible notes, 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 core and developed technology, related to the acquisitions of Matrix Semiconductor, Inc. (January 2006) and MusicGremlin, Inc. (June 2008).

(c)	Incremental interest expense relating to the non-cash economic interest expense associated with the Company's cash-settled 1% Sr. Convertible Notes due 2013 and 1.5% Sr. Convertible Notes due 2017.

(d)	Income taxes associated with certain non-GAAP to GAAP adjustments and a valuation allowance on deferred taxes.


SanDisk Corporation
Preliminary Condensed Consolidated Balance Sheets
(in thousands, unaudited)


	October 3, 2010			January 3, 2010

ASSETS
Current assets:
Cash and cash equivalents	$	865,388		$	1,100,364
Short-term marketable securities		2,038,430			819,002
Accounts receivable from product revenues, net		339,806			234,407
Inventory		526,861			596,493
Deferred taxes		94,204			66,869
Other current assets		63,406			97,639
Total current assets		3,928,095			2,914,774

Long-term marketable securities		2,147,227			1,097,095
Property and equipment, net		248,995			300,997
Notes receivable and investments in the flash ventures with Toshiba		1,619,551			1,507,550
Deferred taxes		76,400			21,210
Intangible assets, net		41,690			58,076
Other non-current assets		54,180			102,017
Total assets	$	8,116,138		$	6,001,719

LIABILITIES
Current liabilities:
Accounts payable trade	$	151,677		$	134,427
Accounts payable to related parties		163,907			182,091
Convertible short-term debt		-			75,000
Other current accrued liabilities		332,713			234,079
Deferred income on shipments to distributors and retailers and deferred revenue		253,480			245,513
Total current liabilities		901,777			871,110

Convertible long-term debt		1,687,752			934,722
Non-current liabilities		344,334			287,478
Total liabilities		2,933,863			2,093,310

EQUITY
Stockholders' equity:
Common stock		4,630,513			4,269,074
Retained earnings (accumulated deficit)		327,188			(487,489	)
Accumulated other comprehensive income		227,732			128,713
Total stockholders' equity		5,185,433			3,910,298
Non-controlling interests		(3,158	)		(1,889	)
Total equity		5,182,275			3,908,409
Total liabilities and equity	$	8,116,138		$	6,001,719

Preliminary Condensed Consolidated Statements of Cash Flows
(in thousands, unaudited)


	Three months ended						Nine months ended
	October 3, 2010			September 27, 2009			October 3, 2010			September 27, 2009
Cash flows from operating activities:
Net income	$	322,092		$	231,293		$	814,677		$	75,805
Adjustments to reconcile net income to net cash flows from operating activities:
Deferred taxes		(16,940	)		218			(95,849	)		2,521
Depreciation		32,970			37,943			102,075			114,595
Amortization		24,761			19,576			65,349			56,686
Provision for doubtful accounts		(205	)		2,454			(2,804	)		1,675
Share-based compensation expense		20,944			19,374			52,791			58,058
Excess tax benefit from share-based compensation		(6,232	)		-			(19,960	)		-
Impairments, restructuring and other		(11,349	)		(1,432	)		(27,587	)		5,701
Other non-operating		6,769			1,950			25,708			983
Changes in operating assets and liabilities:
Accounts receivable from product revenues		5,663			(131,300	)		(104,272	)		(159,260	)
Inventory		(33,256	)		(98,699	)		66,974			(37,151	)
Other assets		(21,928	)		68,467			1,649			339,275
Accounts payable trade		36,431			7,061			17,359			(117,625	)
Accounts payable to related parties		(33,137	)		45,994			(18,184	)		(77,269	)
Other liabilities		52,567			35,473			214,569			(164,170	)
Total adjustments		57,058			7,079			277,818			24,019

Net cash provided by operating activities		379,150			238,372			1,092,495			99,824

Cash flows from investing activities:
Purchases of short and long-term marketable securities		(2,788,994	)		(701,768	)		(4,231,953	)		(1,237,877	)
Proceeds from sale of short and long-term marketable securities		944,838			285,088			1,636,549			857,718
Proceeds from maturities of short and long-term marketable securities		148,790			55,477			317,805			143,117
Proceeds from sale of assets		-			-			17,767			-
Acquisition of property and equipment		(22,314	)		(10,687	)		(59,728	)		(43,354	)
Distribution from FlashVision Ltd.		-			-			122			12,713
Notes receivable issuance, Flash Partners Ltd. and Flash Alliance Ltd.		-			-			-			(377,923	)
Notes receivable proceeds, Flash Partners Ltd. and Flash Alliance Ltd.		59,664			-			59,664			330,149
Purchased technology and other assets		-			(7,500	)		(1,982	)		(10,653	)
Net cash used in investing activities		(1,658,016	)		(379,390	)		(2,261,756	)		(326,110	)

Cash flows from financing activities:
Proceeds from issuance of convertible senior notes, net of issuance costs		982,500			-			982,500			-
Purchase of convertible bond hedge		(292,900	)		-			(292,900	)		-
Proceeds from issuance of warrants		188,100			-			188,100			-
Repayment of debt financing		-			-			(75,000	)		-
Proceeds from employee stock programs		23,615			7,723			107,971			13,998
Excess tax benefit from share-based compensation		6,232			-			19,960			-
Net cash provided by financing activities		907,547			7,723			930,631			13,998

Effect of changes in foreign currency exchange rates on cash		(304	)		1,251			3,654			2,710

Net decrease in cash and cash equivalents		(371,623	)		(132,044	)		(234,976	)		(209,578	)

Cash and cash equivalents at beginning of period		1,237,011			884,527			1,100,364			962,061

Cash and cash equivalents at end of period	$	865,388		$	752,483		$	865,388		$	752,483

SANDISK CORP - FORM 8-K - EX-99.1 - EXHIBIT 99.1 - October 21, 2010

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