SANDISK CORP - FORM 8-K - EX-99.1 - EXHIBIT 99.1 PRESS RELEASE AND FINANCIALS - October 18, 2012

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8-K - FORM 8-K Q3 '12 EARNINGS RELEASE - SANDISK CORPform8-kxq312earningsrelease.htm


EXHIBIT 99.1

    
SanDisk Corporation
601 McCarthy Boulevard
Milpitas, CA 95035-7932
Phone: 408-801-1000
Fax: 408-801-8657



SANDISK ANNOUNCES THIRD QUARTER 2012 FINANCIAL RESULTS

Milpitas, CA, October 18, 2012 - SanDisk Corporation (NASDAQ:SNDK), a global leader in flash memory storage solutions, announced today results for the third quarter ended September 30, 2012. Total third quarter revenue of $1.27 billion declined 10% on a year-over-year basis and increased 23% on a sequential basis.

On a GAAP(1) basis, third quarter net income was $77 million, or $0.31 per diluted share, compared to net income of $233 million, or $0.96 per diluted share, in the third quarter of fiscal 2011 and $13 million, or $0.05 per diluted share, in the second quarter of fiscal 2012.

On a non-GAAP(2) basis, third quarter net income was $118 million, or $0.48 per diluted share, compared to net income of $292 million, or $1.20 per diluted share, in the third quarter of fiscal 2011 and net income of $51 million, or $0.21 per diluted share, in the second quarter of fiscal 2012. For reconciliation of non-GAAP to GAAP results, see accompanying financial tables and footnotes.

“Our retail business delivered strong results in Q3 and we believe we gained share across all major geographies worldwide on the strength of the SanDisk brand,” said Sanjay Mehrotra, president and chief executive officer of SanDisk. “Our results also reflect a solid recovery in our mobile embedded business and we made good progress toward expanding our SSD product roadmap. We believe we are well positioned to build on our business momentum and improved industry fundamentals to deliver strong sequential growth in the fourth quarter.”
 
THIRD QUARTER 2012 KEY FINANCIAL METRICS
Metric
GAAP
 
Non-GAAP
in millions of US$, except %
Q312
Q311
Q212
 
Q312
Q311
Q212
Revenue
$1,273
$1,416
$1,032
 
$1,273
$1,416
$1,032
Gross Profit
$383
$612
$281
 
$395
$627
$292
% of revenue
30.1
%
43.2
%
27.2
%
 
31.0
%
44.3
%
28.3
%
Operating Income
$132
$386
$36
 
$164
$417
$68
% of revenue
10.4
%
27.3
%
3.5
%
 
12.9
%
29.4
%
6.6
%






CONFERENCE CALL
SanDisk’s third quarter of fiscal 2012 conference call is scheduled for 2:00 P.M., Pacific Time, Thursday, October 18, 2012. 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 719-457-2086 and the dial-in password is 1746867. 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.

FORWARD-LOOKING STATEMENTS
This news release contains certain forward-looking statements, including statements about our business prospects, including our expectations regarding our business, industry fundamentals and expected financial performance in the fourth quarter of fiscal 2012, supply/demand balance, and our expectations for our SSD products, 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;
•
potential delays in product development or lack of customer acceptance of our solutions, particularly OEM products such as our embedded flash storage solutions, and client and enterprise SSD solutions;
•
unpredictable or changing demand for our products, including for different form factors, capacities and underlying memory technologies;
•
excess or mismatched captive memory output or capacity, which could result in write-downs for excess inventory, lower of cost or market charges, lower average selling prices, fixed costs associated with under-utilized capacity or other consequences;
•
inability to maintain or gain market share in client and enterprise SSD 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 July 1, 2012.

(1)
GAAP represents U.S. Generally Accepted Accounting Principles.
(2)
Non-GAAP represents GAAP excluding the impact of share-based compensation expense, amortization of acquisition-related intangible assets, non-cash economic interest expense associated with the Company’s convertible debt, the non-cash change in fair value of the liability component associated with the repurchased portion of SanDisk’s convertible debt and related tax adjustments.





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 and enterprise markets. 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. Other brand names mentioned herein are for identification purposes only and may be the trademarks of their respective holder(s).

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





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

 
Three months ended
 
Nine months ended
 
September 30, 2012
 
October 2, 2011
 
September 30, 2012
 
October 2, 2011
Revenues:
 
 
 
 
 
 
 
   Product
$
1,182,159

 
$
1,321,904

 
$
3,233,785

 
$
3,814,111

   License and royalty
91,031

 
94,128

 
277,221

 
271,114

Total revenues
1,273,190

 
1,416,032

 
3,511,006

 
4,085,225

 
 
 
 
 
 
 
 
Cost of product revenues
880,469

 
790,465

 
2,398,086

 
2,281,264

Amortization of acquisition-related intangible assets
9,800

 
13,186

 
32,712

 
26,556

Total cost of product revenues
890,269

 
803,651

 
2,430,798

 
2,307,820

Gross profit
382,921

 
612,381

 
1,080,208

 
1,777,405

 
 
 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
 
 
   Research and development
150,336

 
135,271

 
443,690

 
400,145

   Sales and marketing
57,938

 
48,538

 
159,234

 
144,195

   General and administrative
40,205

 
40,567

 
110,488

 
116,020

   Amortization of acquisition-related intangible assets
2,369

 
1,878

 
6,676

 
2,608

Total operating expenses
250,848

 
226,254

 
720,088

 
662,968

Operating income
132,073

 
386,127

 
360,120

 
1,114,437

Other income (expense), net
(13,695
)
 
(23,578
)
 
(56,208
)
 
(56,217
)
Income before income taxes
118,378

 
362,549

 
303,912

 
1,058,220

Provision for income taxes
41,871

 
129,296

 
100,051

 
352,453

Net income
$
76,507

 
$
233,253

 
$
203,861

 
$
705,767

 
 
 
 
 
 
 
 
Net income per share:
 
 
 
 
 
 
 
   Basic
$
0.32

 
$
0.97

 
$
0.84

 
$
2.96

   Diluted
$
0.31

 
$
0.96

 
$
0.83

 
$
2.90

 
 
 
 
 
 
 
 
Shares used in computing net income per share:
 
 
 
 
 
 
 
   Basic
241,694

 
239,836

 
242,284

 
238,720

   Diluted
244,221

 
243,680

 
245,502

 
243,782







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
 
September 30, 2012
 
October 2, 2011
 
September 30, 2012
 
October 2, 2011
SUMMARY RECONCILIATION OF NET INCOME
 
 
 
 
 
 
 
GAAP NET INCOME
$
76,507

 
$
233,253

 
$
203,861

 
$
705,767

    Share-based compensation (a)
19,950

 
15,729

 
59,283

 
44,678

    Amortization of acquisition-related intangible assets (b)
12,169

 
15,064

 
39,388

 
29,164

    Convertible debt interest (c)
22,685

 
42,840

 
66,927

 
90,038

    Income tax adjustments (d)
(13,547
)
 
(14,644
)
 
(44,266
)
 
(48,780
)
NON-GAAP NET INCOME
$
117,764

 
$
292,242

 
$
325,193

 
$
820,867

 
 
 
 
 
 
 
 
GAAP COST OF PRODUCT REVENUES
$
890,269

 
$
803,651

 
$
2,430,798

 
$
2,307,820

   Share-based compensation (a)
(1,929
)
 
(1,284
)
 
(5,389
)
 
(3,316
)
   Amortization of acquisition-related intangible assets (b)
(9,800
)
 
(13,186
)
 
(32,712
)
 
(26,556
)
NON-GAAP COST OF PRODUCT REVENUES
$
878,540

 
$
789,181

 
$
2,392,697

 
$
2,277,948

 
 
 
 
 
 
 
 
GAAP GROSS PROFIT
$
382,921

 
$
612,381

 
$
1,080,208

 
$
1,777,405

  Share-based compensation (a)
1,929

 
1,284

 
5,389

 
3,316

  Amortization of acquisition-related intangible assets (b)
9,800

 
13,186

 
32,712

 
26,556

NON-GAAP GROSS PROFIT
$
394,650

 
$
626,851

 
$
1,118,309

 
$
1,807,277

 
 
 
 
 
 
 
 
GAAP RESEARCH AND DEVELOPMENT EXPENSES
$
150,336

 
$
135,271

 
$
443,690

 
$
400,145

  Share-based compensation (a)
(10,379
)
 
(8,320
)
 
(31,029
)
 
(23,248
)
NON-GAAP RESEARCH AND DEVELOPMENT EXPENSES
$
139,957

 
$
126,951

 
$
412,661

 
$
376,897

 
 
 
 
 
 
 
 
GAAP SALES AND MARKETING EXPENSES
$
57,938

 
$
48,538

 
$
159,234

 
$
144,195

  Share-based compensation (a)
(3,794
)
 
(2,704
)
 
(11,057
)
 
(7,746
)
NON-GAAP SALES AND MARKETING EXPENSES
$
54,144

 
$
45,834

 
$
148,177

 
$
136,449

 
 
 
 
 
 
 
 
GAAP GENERAL AND ADMINISTRATIVE EXPENSES
$
40,205

 
$
40,567

 
$
110,488

 
$
116,020

  Share-based compensation (a)
(3,848
)
 
(3,421
)
 
(11,808
)
 
(10,368
)
NON-GAAP GENERAL AND ADMINISTRATIVE EXPENSES
$
36,357

 
$
37,146

 
$
98,680

 
$
105,652

 
 
 
 
 
 
 


GAAP TOTAL OPERATING EXPENSES
$
250,848

 
$
226,254

 
$
720,088

 
$
662,968

  Share-based compensation (a)
(18,021
)
 
(14,445
)
 
(53,894
)
 
(41,362
)
  Amortization of acquisition-related intangible assets (b)
(2,369
)
 
(1,878
)
 
(6,676
)
 
(2,608
)
NON-GAAP TOTAL OPERATING EXPENSES
$
230,458

 
$
209,931

 
$
659,518

 
$
618,998

 
 
 
 
 
 
 
 
GAAP OPERATING INCOME
$
132,073

 
$
386,127

 
$
360,120

 
$
1,114,437

  Cost of product revenues adjustments (a) (b)
11,729

 
14,470

 
38,101

 
29,872

  Operating expense adjustments (a) (b)
20,390

 
16,323

 
60,570

 
43,970

NON-GAAP OPERATING INCOME
$
164,192

 
$
416,920

 
$
458,791

 
$
1,188,279

 
 
 
 
 
 
 
 
GAAP OTHER INCOME (EXPENSE), NET
$
(13,695
)
 
$
(23,578
)
 
$
(56,208
)
 
$
(56,217
)
    Convertible debt interest (c)
22,685

 
42,840

 
66,927

 
90,038

NON-GAAP OTHER INCOME (EXPENSE), NET
$
8,990

 
$
19,262

 
$
10,719

 
$
33,821

 
 
 
 
 
 
 
 
GAAP NET INCOME
$
76,507

 
$
233,253

 
$
203,861

 
$
705,767

  Cost of product revenues adjustments (a) (b)
11,729

 
14,470

 
38,101

 
29,872

  Operating expense adjustments (a) (b)
20,390

 
16,323

 
60,570

 
43,970

  Convertible debt interest (c)
22,685

 
42,840

 
66,927

 
90,038

  Income tax adjustments (d)
(13,547
)
 
(14,644
)
 
(44,266
)
 
(48,780
)
NON-GAAP NET INCOME
$
117,764

 
$
292,242

 
$
325,193

 
$
820,867

 
 
 
 
 
 
 
 
Diluted net income per share:
 
 
 
 
 
 
 
  GAAP
$
0.31

 
$
0.96

 
$
0.83

 
$
2.90

  Non-GAAP
$
0.48

 
$
1.20

 
$
1.32

 
$
3.37

 
 
 
 
 
 
 
 
Shares used in computing diluted net income per share:
 
 
 
 
 
 
 
  GAAP
244,221

 
243,680

 
245,502

 
243,782

  Non-GAAP
244,287

 
243,947

 
245,472

 
243,828






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, amortization of acquisition-related intangible assets related to acquisitions of Matrix Semiconductor, Inc. in January 2006, Pliant Technology, Inc. in May 2011, FlashSoft Corporation in February 2012 and Schooner Information Technology, Inc. in June 2012, non-cash economic interest expense associated with the convertible debt, non-cash change in fair value of the liability component of the repurchased portion of the convertible debt and related tax adjustments, we believe the inclusion of non-GAAP financial measures provides 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 the convertible debt, non-cash change in fair value of the liability component of the repurchased portion of the convertible debt 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 core technology, developed technology, customer relationships and trademarks related to the acquisitions of Matrix Semiconductor, Inc. (January 2006), Pliant Technology, Inc. (May 2011), FlashSoft Corporation (February 2012) and Schooner Information Technology, Inc. (June 2012).
(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 and the non-cash change in fair value of the liability component of the repurchased portion of the 1% Sr. Convertible Notes due 2013.
(d)
Income taxes associated with certain non-GAAP to GAAP adjustments.





SanDisk Corporation
Preliminary Condensed Consolidated Balance Sheets
(in thousands, unaudited)
 
September 30, 2012
 
January 1, 2012
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
1,110,485

 
$
1,167,496

Short-term marketable securities
1,485,584

 
1,681,492

Accounts receivable from product revenues, net
465,618

 
521,763

Inventory
852,725

 
678,382

Deferred taxes
100,328

 
100,409

Other current assets
303,888

 
206,419

Total current assets
4,318,628

 
4,355,961

Long-term marketable securities
2,818,969

 
2,766,263

Property and equipment, net
612,633

 
344,897

Notes receivable and investments in Flash Ventures
1,770,355

 
1,943,295

Deferred taxes
178,149

 
199,027

Goodwill
201,735

 
154,899

Intangible assets, net
265,876

 
287,691

Other non-current assets
155,166

 
122,615

Total assets
$
10,321,511

 
$
10,174,648

 
 
 
 
LIABILITIES
 
 
 
Current liabilities:
 
 
 
Accounts payable trade
$
318,347

 
$
258,583

Accounts payable to related parties
226,136

 
276,275

Convertible short-term debt
892,684

 
—

Other current accrued liabilities
199,183

 
337,517

Deferred income on shipments to distributors and retailers and deferred revenue
260,564

 
220,999

Total current liabilities
1,896,914

 
1,093,374

Convertible long-term debt
780,464

 
1,604,911

Non-current liabilities
436,122

 
415,524

Total liabilities
3,113,500

 
3,113,809

 
 
 
 
EQUITY
 
 
 
Stockholders’ equity:
 
 
 
Common stock
5,014,573

 
4,934,808

Retained earnings
1,882,265

 
1,796,849

Accumulated other comprehensive income
315,520

 
332,701

Total stockholders’ equity
7,212,358

 
7,064,358

Non-controlling interests
(4,347
)
 
(3,519
)
Total equity
7,208,011

 
7,060,839

Total liabilities and equity
$
10,321,511

 
$
10,174,648






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

 
Three months ended
 
Nine months ended
 
September 30, 2012
 
October 2, 2011
 
September 30, 2012
 
October 2, 2011
Cash flows from operating activities:
 
 
 
 
 
 
 
Net income
$
76,507

 
$
233,253

 
$
203,861

 
$
705,767

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
 
 
 
Deferred taxes
3,591

 
(70,618
)
 
9,554

 
(77,842
)
Depreciation
42,768

 
27,322

 
112,471

 
84,959

Amortization
42,376

 
44,685

 
128,825

 
118,035

Provision for doubtful accounts
1,794

 
1,025

 
70

 
(1,929
)
Share-based compensation expense
19,950

 
15,729

 
59,283

 
44,678

Excess tax benefit from share-based compensation
(3,095
)
 
(4,009
)
 
(14,116
)
 
(15,820
)
Impairment, restructuring and other
(4,385
)
 
(5,673
)
 
(11,172
)
 
(25,118
)
Other non-operating
14,879

 
22,088

 
67,066

 
63,771

Changes in operating assets and liabilities:
 
 
 
 
 
 
 
Accounts receivable from product revenues, net
(185,590
)
 
(88,570
)
 
56,081

 
(89,157
)
Inventory
9,921

 
(130,797
)
 
(173,794
)
 
(164,798
)
Other assets
22,275

 
1,926

 
35,387

 
(69,443
)
Accounts payable trade
63,174

 
41,825

 
59,764

 
38,368

Accounts payable to related parties
(8,707
)
 
(16,790
)
 
(50,139
)
 
17,077

Other liabilities
32,481

 
104,939

 
(268,913
)
 
215,672

Total adjustments
51,432

 
(56,918
)
 
10,367

 
138,453

Net cash provided by operating activities
127,939

 
176,335

 
214,228

 
844,220

 
 
 
 
 
 
 
 
Cash flows from investing activities:
 
 
 
 
 
 
 
Purchases of short and long-term marketable securities
(588,098
)
 
(891,345
)
 
(1,950,164
)
 
(2,500,913
)
Proceeds from sales of short and long-term marketable securities
410,323

 
804,576

 
1,583,503

 
2,276,356

Proceeds from maturities of short and long-term marketable securities
71,045

 
182,110

 
478,475

 
505,920

Acquisition of property and equipment, net
(142,361
)
 
(52,914
)
 
(382,632
)
 
(114,267
)
Investment in Flash Ventures
—

 
(64,983
)
 
(50,439
)
 
(83,316
)
Notes receivable issuances to Flash Ventures
—

 
(32,519
)
 
(142,316
)
 
(399,281
)
Notes receivable proceeds from Flash Ventures
146,090

 
163,420

 
357,876

 
248,516

Purchased technology and other assets
—

 
—

 
(245
)
 
(100,000
)
Acquisitions, net of cash acquired
(213
)
 
—

 
(69,417
)
 
(317,649
)
Net cash provided by (used in) investing activities
(103,214
)
 
108,345

 
(175,359
)
 
(484,634
)
 
 
 
 
 
 
 
 
Cash flows from financing activities:
 
 
 
 
 
 
 
Proceeds from sale (purchase) of convertible bond hedge
—

 
1,494

 
—

 
1,494

Proceeds from sale (purchase) of warrants
—

 
(1,158
)
 
—

 
(1,158
)
Repayment of debt financing
—

 
(211,441
)
 
—

 
(211,441
)
Proceeds from employee stock programs
27,098

 
23,185

 
77,770

 
81,791

Excess tax benefit from share-based compensation
3,095

 
4,009

 
14,116

 
15,820

Share repurchase program
(37,429
)
 
—

 
(191,504
)
 
—

Net cash received (paid) for share repurchase contracts
21,533

 
—

 
2,675

 
—

Net cash provided by (used in) financing activities
14,297

 
(183,911
)
 
(96,943
)
 
(113,494
)
Effect of changes in foreign currency exchange rates on cash
1,009

 
(773
)
 
1,063

 
(391
)
Net increase (decrease) in cash and cash equivalents
40,031

 
99,996

 
(57,011
)
 
245,701

Cash and cash equivalents at beginning of period
1,070,454

 
974,854

 
1,167,496

 
829,149

Cash and cash equivalents at end of period
$
1,110,485

 
$
1,074,850

 
$
1,110,485

 
$
1,074,850




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