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

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8-K - FORM 8-K Q2 '11 EARNINGS RELEASE - SANDISK CORP	form_8-ke.htm

SanDisk Corporation

601 McCarthy Boulevard

Milpitas, CA 95035-7932

Phone: 408-801-1000

Fax: 408-801-8657

CONTACT:	Investor Contact:	Media Contact:
	Jay Iyer	Lee Flanagin
	(408) 801-2067	(408) 801-2463

SANDISK ANNOUNCES SECOND QUARTER 2011 FINANCIAL RESULTS

Reports best quarterly revenue in SanDisk’s history

Milpitas, CA, July 21, 2011 - SanDisk Corporation (NASDAQ:SNDK), a global leader in flash memory storage solutions, today announced results for the second fiscal quarter ending July 3, 2011. Total second quarter revenue of $1.375 billion increased 17% on a year-over-year basis and increased 6% on a sequential basis. Second quarter net income, in accordance with U.S. Generally Accepted Accounting Principles (GAAP), was $248 million, or $1.02 per diluted share, compared to net income of $258 million, or $1.08 per diluted share in the second quarter of fiscal 2010 and $224 million, or $0.92 per diluted share, in the first quarter of fiscal 2011.

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 convertible debts and related tax adjustments, second-quarter net income was $278 million, or $1.14 per diluted share, compared to net income of $258 million, or $1.08 per diluted share, in the second quarter of fiscal 2010 and net income of $251 million, or $1.03 per diluted share, in the first quarter of fiscal 2011. For reconciliation of non-GAAP to GAAP results, see accompanying financial tables and footnotes.

“We delivered record quarterly revenue, driven by our broad product offerings and our well diversified Retail and OEM channels,” said Sanjay Mehrotra, President and CEO, SanDisk. “Solid execution on product cost reductions enabled strong profitability. Our integration of Pliant Technology is progressing well and we are excited by our business prospects in the enterprise storage segment.”

SECOND QUARTER 2011 KEY FINANCIAL METRICS

Total second quarter revenue was $1.375 billion, up 17% year-over-year and up 6% sequentially.
Total second quarter 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 %	Q211	Q210	Q111	Q211	Q210	Q111
Total gross profit % of total revenue	$613 44.6%	$546 46.3%	$552 42.6%	$623 45.3%	$551 46.7%	$558 43.1%
Product gross profit % of product revenue	$520 40.6%	$459 42.0%	$468 38.6%	$530 41.3%	$463 42.4%	$474 39.1%
Operating income % of total revenue	$379 27.6%	$359 30.4%	$349 27.0%	$402 29.3%	$377 32%	$369 28.5%

Cash flow from operations in the second quarter was $269 million and free cash flow(1) was ($232) million.
Total cash and cash equivalents and short and long-term marketable securities at the end of the second quarter of fiscal 2011 was $5.28 billion compared to $3.72 billion at the end of the second quarter of fiscal 2010 and $5.51 billion at the end of the first quarter of fiscal 2011.

OTHER HIGHLIGHTS

SanDisk, along with its manufacturing partner Toshiba, announced the opening of Fab 5, their third 300-millimeter joint venture wafer fab in Yokkaichi, Japan.
SanDisk completed the acquisition of Pliant Technology, Inc., a leading developer of enterprise solid state drives. With the completion of the transaction, Pliant became SanDisk’s Enterprise Storage Solutions business.
SanDisk expanded its Lightning® Enterprise Flash Drive family with six new 2.5-inch 6GB SAS (6 gigabits per second Serial Attached SCSI) models.
SanDisk augmented its embedded product line up with the announcement of the SanDisk iNAND Extreme™ embedded flash drives. Combined with the iNAND™ and iNAND Ultra™ products, the iNAND family of products now cover the needs of all mobile market segments, from feature phones to high-end tablets.

CONFERENCE CALL

SanDisk’s second quarter of fiscal 2011 conference call is scheduled for 2:00 P.M., Pacific Time, Thursday, July 21, 2011. 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 719-325-2437 and the dial-in password is 3644989. 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 President and CEO, Sanjay Mehrotra, is scheduled to appear on CNBC’s “Closing Bell with Maria Bartiromo,” on Thursday, July 21, 2011, at approximately 1:15 P.M., Pacific Time.

FORWARD LOOKING STATEMENTS

This news release contains certain forward-looking statements, including statements about our business prospects and outlook in fiscal 2011, the integration of Pliant Technology, the expected benefits of the enterprise storage segment and our expectations regarding our business, 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:

we may not be able to effectively assimilate and integrate Pliant’s operations, personnel, technologies, products and information systems on a timely basis or at all;
the integration of Pliant’s business, personnel and operations may disrupt our ongoing business, distract our management and employees, harm our reputation and increase our expenses;
we may not be able to maintain and grow our enterprise storage customer relationships required to achieve our anticipated revenue and margins;
competitive pricing pressures, resulting in lower average selling prices and lower or negative product gross margins;
unpredictable or changing demand for our products, particularly for certain form factors, such as embedded flash memory, or capacities, or the mix of X2 and X3;
insufficient supply from captive flash memory sources, inability to obtain non-captive flash memory supply of the right product mix with adequate margins and quality in the time frame necessary to meet demand, or inability to realize a positive margin on non-captive purchases;
expansion of industry supply, including low grade supply useable in limited markets, creating excess market supply, causing our average selling prices to decline faster than our costs;
excess captive memory output or capacity which could result in write-downs for excess inventory, lower of cost or market charges, fixed costs associated with under-utilized capacity, or other consequences;
increased memory component and other costs as a result of currency exchange rate fluctuations to the U.S. dollar, particularly with respect to the Japanese yen;
lower than anticipated demand, including due to general economic weakness in our markets; 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 fiscal quarter ended April 3, 2011.

(1) Free cash flow represents net cash provided by operating activities plus net cash used in investing activities less net purchases, sales and maturities of short- and long-term marketable securities.

ABOUT SANDISK

SanDisk Corporation is a global leader in flash memory storage solutions, from research and development, product design and manufacturing to branding and distribution for OEM and retail channels. Since 1988, SanDisk’s innovations in flash memory and storage system technologies have provided customers with new and transformational digital experiences. SanDisk’s diverse product portfolio includes flash memory cards and embedded solutions used in smart phones, tablets, digital cameras, camcorders, digital media players and other consumer electronic devices, as well as USB flash drives and solid-state drives (SSD) for the computing market. SanDisk’s products are used by consumers and enterprise customers around the world.

SanDisk is a Silicon Valley-based S&P 500 and Fortune 500 company, with more than half its sales outside the United States. For more information, visit www.sandisk.com.

SanDisk and the SanDisk logo are trademarks of SanDisk Corporation, registered in the United States and other countries. Lightning is a U.S. registered trademark of SanDisk Corporation. iNAND, iNAND Ultra and iNAND Extreme 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).

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


	Three months ended						Six months ended
	July 3, 2011			July 4, 2010			July 3, 2011			July 4, 2010
Revenues:
Product	$	1,281,960		$	1,091,315		$	2,492,207		$	2,084,510
License and royalty		93,033			87,753			176,986			181,221
Total revenues		1,374,993			1,179,068			2,669,193			2,265,731

Cost of product revenues		753,307			629,554			1,490,799			1,212,907
Amortization of acquisition-related intangible assets		8,254			3,132			13,370			6,264
Total cost of product revenues		761,561			632,686			1,504,169			1,219,171

Gross profit		613,432			546,382			1,165,024			1,046,560

Operating expenses:
Research and development		145,332			99,799			264,874			198,452
Sales and marketing		48,200			52,094			95,657			100,595
General and administrative		40,154			35,399			75,453			74,123
Amortization of acquisition-related intangible assets		730			291			730			583
Total operating expenses		234,416			187,583			436,714			373,753

Operating income		379,016			358,799			728,310			672,807

Other income (expense)		(14,273	)		(24	)		(32,639	)		8,962

Income before income taxes		364,743			358,775			695,671			681,769

Provision for income taxes		116,353			100,881			223,157			189,184
Net income	$	248,390		$	257,894		$	472,514		$	492,585

Net income per share:
Basic	$	1.04		$	1.11		$	1.98		$	2.14
Diluted	$	1.02		$	1.08		$	1.94		$	2.07

Shares used in computing net income per share:
Basic		238,851			231,673			238,162			230,487
Diluted		243,862			239,801			243,718			238,566

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

	Three months ended						Six months ended
	July 3, 2011			July 4, 2010			July 3, 2011			July 4, 2010

SUMMARY RECONCILIATION OF NET INCOME
GAAP NET INCOME	$	248,390		$	257,894		$	472,514		$	492,585
Share-based compensation (a)		14,358			14,977			28,949			31,847
Amortization of acquisition-related intangible assets (b)		8,984			3,423			14,100			6,847
Convertible debt interest (c)		23,833			14,208			47,198			28,129
Income tax adjustments (d)		(17,520	)		(32,702	)		(34,136	)		(76,566	)
NON-GAAP NET INCOME	$	278,045		$	257,800		$	528,625		$	482,842


GAAP COST OF PRODUCT REVENUES	$	761,561		$	632,686		$	1,504,169		$	1,219,171
Share-based compensation (a)		(1,089	)		(1,309	)		(2,032	)		(3,767	)
Amortization of acquisition-related intangible assets (b)		(8,254	)		(3,132	)		(13,370	)		(6,264	)
NON-GAAP COST OF PRODUCT REVENUES	$	752,218		$	628,245		$	1,488,767		$	1,209,140

GAAP GROSS PROFIT	$	613,432		$	546,382		$	1,165,024		$	1,046,560
Share-based compensation (a)		1,089			1,309			2,032			3,767
Amortization of acquisition-related intangible assets (b)		8,254			3,132			13,370			6,264
NON-GAAP GROSS PROFIT	$	622,775		$	550,823		$	1,180,426		$	1,056,591

GAAP RESEARCH AND DEVELOPMENT EXPENSES	$	145,332		$	99,799		$	264,874		$	198,452
Share-based compensation (a)		(7,684	)		(6,544	)		(14,928	)		(13,346	)
NON-GAAP RESEARCH AND DEVELOPMENT EXPENSES	$	137,648		$	93,255		$	249,946		$	185,106

GAAP SALES AND MARKETING EXPENSES	$	48,200		$	52,094		$	95,657		$	100,595
Share-based compensation (a)		(2,868	)		(3,153	)		(5,042	)		(5,341	)
NON-GAAP SALES AND MARKETING EXPENSES	$	45,332		$	48,941		$	90,615		$	95,254

GAAP GENERAL AND ADMINISTRATIVE EXPENSES	$	40,154		$	35,399		$	75,453		$	74,123
Share-based compensation (a)		(2,717	)		(3,971	)		(6,947	)		(9,393	)
NON-GAAP GENERAL AND ADMINISTRATIVE EXPENSES	$	37,437		$	31,428		$	68,506		$	64,730

GAAP TOTAL OPERATING EXPENSES	$	234,416		$	187,583		$	436,714		$	373,753
Share-based compensation (a)		(13,269	)		(13,668	)		(26,917	)		(28,080	)
Amortization of acquisition-related intangible assets (b)		(730	)		(291	)		(730	)		(583	)
NON-GAAP TOTAL OPERATING EXPENSES	$	220,417		$	173,624		$	409,067		$	345,090

GAAP OPERATING INCOME	$	379,016		$	358,799		$	728,310		$	672,807
Cost of product revenues adjustments (a) (b)		9,343			4,441			15,402			10,031
Operating expense adjustments (a) (b)		13,999			13,959			27,647			28,663
NON-GAAP OPERATING INCOME	$	402,358		$	377,199		$	771,359		$	711,501

GAAP OTHER INCOME (EXPENSE)	$	(14,273	)	$	(24	)	$	(32,639	)	$	8,962
Convertible debt interest (c)		23,833			14,208			47,198			28,129
NON-GAAP OTHER INCOME (EXPENSE)	$	9,560		$	14,184		$	14,559		$	37,091

GAAP NET INCOME	$	248,390		$	257,894		$	472,514		$	492,585
Cost of product revenues adjustments (a) (b)		9,343			4,441			15,402			10,031
Operating expense adjustments (a) (b)		13,999			13,959			27,647			28,663
Convertible debt interest (c)		23,833			14,208			47,198			28,129
Income tax adjustments (d)		(17,520	)		(32,702	)		(34,136	)		(76,566	)
NON-GAAP NET INCOME	$	278,045		$	257,800		$	528,625		$	482,842

Diluted net income per share:
GAAP	$	1.02		$	1.08		$	1.94		$	2.07
Non-GAAP	$	1.14		$	1.08		$	2.17		$	2.03

Shares used in computing diluted net income per share:
GAAP		243,862			239,801			243,718			238,566
Non-GAAP		243,889			238,807			243,727			237,652

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, MusicGremlin, Inc. in June 2008 and Pliant Technology, Inc. in May 2011, non-cash economic interest expense associated with our convertible debt and tax valuation allowances, 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, non-cash economic interest expense associated with our convertible debt and tax valuation allowances, 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 technology, developed technology, customer relationships and trademarks related to the acquisitions of Matrix Semiconductor, Inc. (January 2006), MusicGremlin, Inc. (June 2008) and Pliant Technology, Inc. (May 2011).

(c)	Incremental interest expense relating to the non-cash economic interest expense associated with the Company's 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 valuation allowances on deferred taxes.

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


	July 3, 2011			January 2, 2011


ASSETS
Current assets:
Cash and cash equivalents	$	974,854		$	829,149
Short-term marketable securities		1,719,354			2,018,565
Accounts receivable from product revenues, net		377,102			367,784
Inventory		553,753			509,585
Deferred taxes		138,460			104,582
Other current assets		143,956			203,027
Total current assets		3,907,479			4,032,692

Long-term marketable securities		2,584,332			2,494,972
Property and equipment, net		271,166			266,721
Notes receivable and investments in the flash ventures with Toshiba		2,062,429			1,733,491
Deferred taxes		85,934			149,486
Goodwill		154,899			-
Intangible assets, net		330,127			37,404
Other non-current assets		91,441			61,944
Total assets	$	9,487,807		$	8,776,710

LIABILITIES
Current liabilities:
Accounts payable trade	$	181,377		$	173,259
Accounts payable to related parties		275,611			241,744
Other current accrued liabilities		315,560			284,709
Deferred income on shipments to distributors and retailers and deferred revenue		254,152			260,395
Total current liabilities		1,026,700			960,107

Convertible long-term debt		1,759,217			1,711,032
Non-current liabilities		341,576			326,176
Total liabilities		3,127,493			2,997,315

EQUITY
Stockholders' equity:
Common stock		4,808,640			4,709,743
Retained earnings		1,285,167			812,653
Accumulated other comprehensive income		269,927			260,228
Total stockholders' equity		6,363,734			5,782,624
Non-controlling interests		(3,420	)		(3,229	)
Total equity		6,360,314			5,779,395
Total liabilities and equity	$	9,487,807		$	8,776,710

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


	Three months ended						Six months ended
	July 3, 2011			July 4, 2010			July 3, 2011 (1)			July 4, 2010

Cash flows from operating activities:
Net income	$	248,390		$	257,894		$	472,514		$	492,585
Adjustments to reconcile net income to net cash flows from operating activities:
Deferred taxes		(13,398	)		(18,287	)		(7,224	)		(78,909	)
Depreciation		27,862			34,040			57,637			69,105
Amortization		40,511			20,437			73,350			40,588
Provision for doubtful accounts		(209	)		(977	)		(2,954	)		(2,599	)
Share-based compensation expense		14,358			14,977			28,949			31,847
Excess tax benefit from share-based compensation		(5,399	)		(11,561	)		(11,811	)		(13,728	)
Impairments, restructuring and other		(6,268	)		4,085			(19,445	)		(16,238	)
Other non-operating		21,235			9,674			41,683			18,939
Changes in operating assets and liabilities:
Accounts receivable from product revenues		(132,051	)		(109,829	)		(587	)		(109,935	)
Inventory		(50,380	)		73,742			(34,001	)		100,230
Other assets		(47,620	)		2,292			(71,369	)		23,577
Accounts payable trade		32,852			19,836			(3,457	)		(19,072	)
Accounts payable to related parties		64,363			53,996			33,867			14,953
Other liabilities		75,000			34,747			110,733			162,002
Total adjustments		20,856			127,172			195,371			220,760
Net cash provided by operating activities		269,246			385,066			667,885			713,345

Cash flows from investing activities:
Purchases of short and long-term marketable securities		(972,067	)		(831,546	)		(1,609,568	)		(1,442,959	)
Proceeds from sale of short and long-term marketable securities		974,177			474,434			1,471,780			691,711
Proceeds from maturities of short and long-term marketable securities		206,570			125,295			323,810			169,015
Acquisition of property and equipment		(27,608	)		(22,486	)		(61,353	)		(37,414	)
Investment in Flash Forward Ltd.		(18,272	)		-			(18,333	)		-
Distribution from FlashVision Ltd.		-			-			-			122
Notes receivable issuance, Flash Partners Ltd. and Flash Alliance Ltd.		(152,811	)		-			(366,762	)		-
Notes receivable proceeds, Flash Partners Ltd. and Flash Alliance Ltd.		-			-			85,096			-
Proceeds from sale of assets		-			-			-			17,767
Purchased technology and other assets		-			-			(100,000	)		(1,982	)
Acquisition of Pliant Technology, Inc., net of cash acquired		(302,649	)		-			(317,649	)		-
Net cash used in investing activities		(292,660	)		(254,303	)		(592,979	)		(603,740	)

Cash flows from financing activities:
Repayment of debt financing		-			-			-			(75,000	)
Proceeds from employee stock programs		16,458			66,401			58,606			84,356
Excess tax benefit from share-based compensation		5,399			11,561			11,811			13,728
Net cash provided by financing activities		21,857			77,962			70,417			23,084
Effect of changes in foreign currency exchange rates on cash		1,961			5,775			382			3,958
Net increase in cash and cash equivalents		404			214,500			145,705			136,647
Cash and cash equivalents at beginning of period		974,450			1,022,511			829,149			1,100,364
Cash and cash equivalents at end of period	$	974,854		$	1,237,011		$	974,854		$	1,237,011

__________________

(1) $15 million of cash used during the first quarter of fiscal year 2011 for the Pliant acquisition has been reclassified from ‘Purchased technology and other assets’ to ‘Acquisition of Pliant Technology, Inc., net of cash acquired.’

SANDISK CORP - FORM 8-K - EX-99.1 - EXHIBIT 99.1 - July 21, 2011

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