SANDISK CORP - FORM 8-K - EX-99.1 - EXHIBIT 99.1 PRESS RELEASE AND FINANCIALS - July 17, 2013

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EXHIBIT 99.1

         
NEWS RELEASE
SanDisk Corporation
951 SanDisk Drive
Milpitas, CA 95035-7932
Phone: 408-801-1000

SANDISK ANNOUNCES SECOND QUARTER RESULTS

Delivers Record Second Quarter Revenue


MILPITAS, Calif., July 17, 2013 - SanDisk Corporation (NASDAQ: SNDK), a global leader in flash memory storage solutions, today announced results for the second quarter ended June 30, 2013. Second quarter revenue of $1.48 billion increased 43 percent on a year-over-year basis and increased 10 percent sequentially.

On a GAAP(1) basis, second quarter net income was $262 million, or $1.06 per diluted share, compared to net income of $13 million, or $0.05 per diluted share, in the second quarter of fiscal 2012 and $166 million, or $0.68 per diluted share, in the first quarter of fiscal 2013.

On a non-GAAP(2) basis, second quarter net income was $299 million, or $1.21 per diluted share, compared to net income of $51 million, or $0.21 per diluted share, in the second quarter of fiscal 2012 and net income of $207 million, or $0.84 per diluted share, in the first quarter of fiscal 2013. For reconciliation of non-GAAP to GAAP results, see accompanying financial tables and footnotes.

“We delivered record second quarter results driven by increasing momentum across our business. We achieved solid revenue growth in our embedded solutions portfolio with many design wins ramping into production,” said Sanjay Mehrotra, president and chief executive officer of SanDisk. “We are excited about our pending acquisition of SMART Storage Systems, as it accelerates our growth in enterprise storage. The growth drivers of our business are vibrant and SanDisk is poised for further gains.”
 
SECOND QUARTER 2013 KEY FINANCIAL METRICS
Metric
GAAP
 
Non-GAAP
in millions, except percentages and per share amounts
Q213
Q212
Q113
 
Q213
Q212
Q113
Revenue
$1,476
$1,032
$1,341
 
$1,476
$1,032
$1,341
Gross Profit
$677
$281
$532
 
$689
$292
$543
percent of revenue
45.8
%
27.2
%
39.6
%
 
46.7
%
28.3
%
40.5
%
Operating Income
$393
$36
$254
 
$429
$68
$288
percent of revenue
26.6
%
3.5
%
18.9
%
 
29.0
%
6.6
%
21.5
%
Diluted EPS
$1.06
$0.05
$0.68
 
$1.21
$0.21
$0.84

At the end of the second quarter of fiscal 2013, SanDisk’s cash and short and long-term marketable investments totaled $5.4 billion. Cash flow from operations in the second quarter of fiscal 2013 totaled $391 million.





CONFERENCE CALL
SanDisk’s second quarter of fiscal 2013 conference call is scheduled for 2:00 P.M., Pacific Time, Wednesday, July 17, 2013. The conference call will be webcast and can be accessed live, and throughout the quarter, at SanDisk’s website at www.sandisk.com/IR. To participate in the call via telephone, the dial-in number is 719-325-4838 and the dial-in password is 5031920. 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.

ABOUT SANDISK
SanDisk Corporation (NASDAQ: SNDK) is a global leader in flash memory storage solutions, from research and development, product design and manufacturing to branding and distribution for commercial 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.
© 2013 SanDisk Corporation. All rights reserved. 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).

This press release contains certain forward-looking statements, including statements about our business prospects, our pending acquisition of SMART Storage Systems, our growth in the enterprise solutions space, and our anticipated momentum for continued gains in 2013 and across our business, that are based on our current expectations and subject to numerous risks and uncertainties that may cause these forward-looking statements to be inaccurate and significantly harm our business, financial condition and results of operations. We undertake no obligation to update the information contained in this press release. 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;
•
inability to reduce our manufacturing costs to keep pace with reductions in average selling prices;
•
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;
•
inability to continue to penetrate the client and enterprise SSD markets, or the failure of existing markets for flash memory to grow;
•
delays in the timing of the acquisition or successful integration of SMART Storage Systems and our inability to achieve the expected benefits from the acquisition in a timely manner, or at all;
•
inability to enhance current products or develop new products on a timely basis or in advance of our competitors;
•
excess inventory or lost sales resulting from unpredictable or changing demand for our products;
•
excess, insufficient or mismatched captive memory output or capacity, which could result in lower average selling-prices, financial charges and impairments, lost sales and market growth opportunities, lower gross margins or other consequences; 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 first fiscal quarter ended March 31, 2013.

(1)
GAAP represents U.S. Generally Accepted Accounting Principles.
(2)
Non-GAAP represents GAAP excluding the impact of share-based compensation expense, amortization and write-off of acquisition-related intangible assets, non-cash economic interest expense associated with our convertible debt and related tax adjustments.






# # # # #

Investor Contacts:
Brendan Lahiff
408-801-1732
brendan.lahiff@sandisk.com

Jay Iyer
408-801-2067
jay.iyer@sandisk.com

Media Contact:
Tom Beermann
408-801-1443
tom.beermann@sandisk.com








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

 
Three months ended
 
Six months ended
 
June 30, 2013
 
July 1, 2012
 
June 30, 2013
 
July 1, 2012
 
 
 
 
 
 
 
 
Revenues
$
1,476,263

 
$
1,032,255

 
$
2,816,992

 
$
2,237,816

 
 
 
 
 
 
 
 
Cost of revenues
789,614

 
742,297

 
1,588,997

 
1,517,617

Amortization of acquisition-related intangible assets
9,830

 
9,181

 
19,660

 
22,912

Total cost of revenues
799,444

 
751,478

 
1,608,657

 
1,540,529

Gross profit
676,819

 
280,777

 
1,208,335

 
697,287

 
 
 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
 
 
   Research and development
172,041

 
152,397

 
343,166

 
293,354

   Sales and marketing
63,601

 
52,261

 
122,728

 
101,296

   General and administrative
46,877

 
37,692

 
91,981

 
70,283

   Amortization and write-off of acquisition-related intangible assets
1,742

 
2,244

 
4,111

 
4,307

Total operating expenses
284,261

 
244,594

 
561,986

 
469,240

Operating income
392,558

 
36,183

 
646,349

 
228,047

Other income (expense), net
(9,101
)
 
(17,197
)
 
(28,998
)
 
(42,513
)
Income before income taxes
383,457

 
18,986

 
617,351

 
185,534

Provision for income taxes
121,668

 
6,017

 
189,333

 
58,180

Net income
$
261,789

 
$
12,969

 
$
428,018

 
$
127,354

 
 
 
 
 
 
 
 
Net income per share:
 
 
 
 
 
 
 
   Basic
$
1.08

 
$
0.05

 
$
1.77

 
$
0.53

   Diluted
$
1.06

 
$
0.05

 
$
1.74

 
$
0.52

 
 
 
 
 
 
 
 
Shares used in computing net income per share:
 
 
 
 
 
 
 
   Basic
241,519

 
242,276

 
242,019

 
242,579

   Diluted
245,815

 
244,570

 
245,569

 
246,026







SanDisk Corporation
Reconciliation of Preliminary GAAP to Non-GAAP Operating Results (1)
(in thousands, except per share data, unaudited)
 
Three months ended
 
Six months ended
 
June 30, 2013
 
July 1, 2012
 
June 30, 2013
 
July 1, 2012
SUMMARY RECONCILIATION OF NET INCOME
 
 
 
 
 
 
 
GAAP NET INCOME
$
261,789

 
$
12,969

 
$
428,018

 
$
127,354

    Share-based compensation (a)
24,661

 
20,253

 
46,395

 
39,333

    Amortization and write-off of acquisition-related intangible assets (b)
11,572

 
11,425

 
23,771

 
27,219

    Convertible debt interest (c)
16,766

 
22,355

 
40,343

 
44,242

    Income tax adjustments (d)
(15,816
)
 
(15,889
)
 
(32,658
)
 
(30,719
)
NON-GAAP NET INCOME
$
298,972

 
$
51,113

 
$
505,869

 
$
207,429

 
 
 
 
 
 
 
 
GAAP COST OF REVENUES
$
799,444

 
$
751,478

 
$
1,608,657

 
$
1,540,529

   Share-based compensation (a)
(2,447
)
 
(1,923
)
 
(4,164
)
 
(3,460
)
   Amortization of acquisition-related intangible assets (b)
(9,830
)
 
(9,181
)
 
(19,660
)
 
(22,912
)
NON-GAAP COST OF REVENUES
$
787,167

 
$
740,374

 
$
1,584,833

 
$
1,514,157

 
 
 
 
 
 
 
 
GAAP GROSS PROFIT
$
676,819

 
$
280,777

 
$
1,208,335

 
$
697,287

  Share-based compensation (a)
2,447

 
1,923

 
4,164

 
3,460

  Amortization of acquisition-related intangible assets (b)
9,830

 
9,181

 
19,660

 
22,912

NON-GAAP GROSS PROFIT
$
689,096

 
$
291,881

 
$
1,232,159

 
$
723,659

 
 
 
 
 
 
 
 
GAAP RESEARCH AND DEVELOPMENT EXPENSES
$
172,041

 
$
152,397

 
$
343,166

 
$
293,354

  Share-based compensation (a)
(12,704
)
 
(10,623
)
 
(24,344
)
 
(20,650
)
NON-GAAP RESEARCH AND DEVELOPMENT EXPENSES
$
159,337

 
$
141,774

 
$
318,822

 
$
272,704

 
 
 
 
 
 
 
 
GAAP SALES AND MARKETING EXPENSES
$
63,601

 
$
52,261

 
$
122,728

 
$
101,296

  Share-based compensation (a)
(4,701
)
 
(3,634
)
 
(8,572
)
 
(7,263
)
NON-GAAP SALES AND MARKETING EXPENSES
$
58,900

 
$
48,627

 
$
114,156

 
$
94,033

 
 
 
 
 
 
 
 
GAAP GENERAL AND ADMINISTRATIVE EXPENSES
$
46,877

 
$
37,692

 
$
91,981

 
$
70,283

  Share-based compensation (a)
(4,809
)
 
(4,073
)
 
(9,315
)
 
(7,960
)
NON-GAAP GENERAL AND ADMINISTRATIVE EXPENSES
$
42,068

 
$
33,619

 
$
82,666

 
$
62,323

 
 
 
 
 
 
 


GAAP TOTAL OPERATING EXPENSES
$
284,261

 
$
244,594

 
$
561,986

 
$
469,240

  Share-based compensation (a)
(22,214
)
 
(18,330
)
 
(42,231
)
 
(35,873
)
  Amortization and write-off of acquisition-related intangible assets (b)
(1,742
)
 
(2,244
)
 
(4,111
)
 
(4,307
)
NON-GAAP TOTAL OPERATING EXPENSES
$
260,305

 
$
224,020

 
$
515,644

 
$
429,060

 
 
 
 
 
 
 
 
GAAP OPERATING INCOME
$
392,558

 
$
36,183

 
$
646,349

 
$
228,047

  Cost of revenues adjustments (a) (b)
12,277

 
11,104

 
23,824

 
26,372

  Operating expense adjustments (a) (b)
23,956

 
20,574

 
46,342

 
40,180

NON-GAAP OPERATING INCOME
$
428,791

 
$
67,861

 
$
716,515

 
$
294,599

 
 
 
 
 
 
 
 
GAAP OTHER INCOME (EXPENSE), NET
$
(9,101
)
 
$
(17,197
)
 
$
(28,998
)
 
$
(42,513
)
    Convertible debt interest (c)
16,766

 
22,355

 
40,343

 
44,242

NON-GAAP OTHER INCOME (EXPENSE), NET
$
7,665

 
$
5,158

 
$
11,345

 
$
1,729

 
 
 
 
 
 
 
 
GAAP NET INCOME
$
261,789

 
$
12,969

 
$
428,018

 
$
127,354

  Cost of revenues adjustments (a) (b)
12,277

 
11,104

 
23,824

 
26,372

  Operating expense adjustments (a) (b)
23,956

 
20,574

 
46,342

 
40,180

  Convertible debt interest (c)
16,766

 
22,355

 
40,343

 
44,242

  Income tax adjustments (d)
(15,816
)
 
(15,889
)
 
(32,658
)
 
(30,719
)
NON-GAAP NET INCOME
$
298,972

 
$
51,113

 
$
505,869

 
$
207,429

 
 
 
 
 
 
 
 
Diluted net income per share:
 
 
 
 
 
 
 
  GAAP
$
1.06

 
$
0.05

 
$
1.74

 
$
0.52

  Non-GAAP
$
1.21

 
$
0.21

 
$
2.06

 
$
0.84

 
 
 
 
 
 
 
 
Shares used in computing diluted net income per share:
 
 
 
 
 
 
 
  GAAP
245,815

 
244,570

 
245,569

 
246,026

  Non-GAAP
246,149

 
244,701

 
245,767

 
246,026






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 they are 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 and write-off 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 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 and write-off of acquisition-related intangible assets, share-based compensation, non-cash economic interest expense associated with 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 and write-off 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.
(d)
Income taxes associated with certain non-GAAP to GAAP adjustments.





SanDisk Corporation
Preliminary Condensed Consolidated Balance Sheets
(in thousands, unaudited)
 
June 30, 2013
 
December 30, 2012
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
1,054,131

 
$
995,470

Short-term marketable securities
1,533,898

 
1,880,034

Accounts receivable, net
636,093

 
626,025

Inventory
723,403

 
750,075

Deferred taxes
95,423

 
93,877

Other current assets
251,931

 
260,879

Total current assets
4,294,879

 
4,606,360

Long-term marketable securities
2,766,474

 
2,835,931

Property and equipment, net
674,249

 
665,542

Notes receivable and investments in Flash Ventures
1,204,740

 
1,460,112

Deferred taxes
115,789

 
168,718

Goodwill
202,336

 
201,735

Intangible assets, net
210,883

 
246,919

Other non-current assets
149,646

 
153,810

Total assets
$
9,618,996

 
$
10,339,127

 
 
 
 
LIABILITIES
 
 
 
Current liabilities:
 
 
 
Accounts payable trade
$
269,829

 
$
254,459

Accounts payable to related parties
168,019

 
214,806

Convertible short-term debt
—

 
906,708

Other current accrued liabilities
413,471

 
257,539

Deferred income on shipments to distributors and retailers and deferred revenue
256,664

 
248,155

Total current liabilities
1,107,983

 
1,881,667

Convertible long-term debt
809,626

 
789,913

Non-current liabilities
356,581

 
407,947

Total liabilities
2,274,190

 
3,079,527

 
 
 
 
EQUITY
 
 
 
Stockholders’ equity:
 
 
 
Common stock
5,124,529

 
5,027,512

Retained earnings
2,235,001

 
2,071,268

Accumulated other comprehensive income (loss)
(11,686
)
 
165,121

Total stockholders’ equity
7,347,844

 
7,263,901

Non-controlling interests
(3,038
)
 
(4,301
)
Total equity
7,344,806

 
7,259,600

Total liabilities and equity
$
9,618,996

 
$
10,339,127






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

 
Three months ended
 
Six months ended
 
June 30, 2013
 
July 1, 2012
 
June 30, 2013
 
July 1, 2012
Cash flows from operating activities:
 
 
 
 
 
 
 
Net income
$
261,789

 
$
12,969

 
$
428,018

 
$
127,354

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
 
 
 
Deferred taxes
12,343

 
460

 
65,494

 
5,963

Depreciation
55,195

 
36,525

 
108,212

 
69,703

Amortization
56,095

 
65,124

 
121,246

 
132,280

Provision for doubtful accounts
1,339

 
(439
)
 
1,142

 
(1,724
)
Share-based compensation expense
24,661

 
20,253

 
46,395

 
39,333

Excess tax benefit from share-based plans
(7,211
)
 
(2,424
)
 
(15,661
)
 
(11,021
)
Impairment and other
(2,343
)
 
(4,417
)
 
(5,516
)
 
(9,871
)
Other non-operating
(496
)
 
1,788

 
(360
)
 
9,440

Changes in operating assets and liabilities:
 
 
 
 
 
 
 
Accounts receivable, net
(197,936
)
 
(4,928
)
 
(11,210
)
 
194,509

Inventory
10,731

 
(98,503
)
 
27,507

 
(183,715
)
Other assets
41,729

 
33,531

 
21,573

 
60,274

Accounts payable trade
12,472

 
30,883

 
15,370

 
(3,410
)
Accounts payable to related parties
(8,886
)
 
33,771

 
(46,787
)
 
(41,432
)
Other liabilities
131,311

 
(105,478
)
 
109,021

 
(301,394
)
Total adjustments
129,004

 
6,146

 
436,426

 
(41,065
)
Net cash provided by operating activities
390,793

 
19,115

 
864,444

 
86,289

 
 
 
 
 
 
 
 
Cash flows from investing activities:
 
 
 
 
 
 
 
Purchases of short and long-term marketable securities
(846,740
)
 
(605,709
)
 
(1,997,087
)
 
(1,362,066
)
Proceeds from sales of short and long-term marketable securities
1,334,305

 
547,444

 
1,847,659

 
1,173,180

Proceeds from maturities of short and long-term marketable securities
213,700

 
214,588

 
506,905

 
407,430

Acquisition of property and equipment, net
(71,497
)
 
(96,076
)
 
(119,849
)
 
(240,294
)
Investment in Flash Ventures
—

 
(37,913
)
 
—

 
(50,439
)
Notes receivable issuances to Flash Ventures
—

 
(91,186
)
 
—

 
(142,316
)
Notes receivable proceeds from Flash Ventures
19,802

 
147,953

 
73,388

 
211,786

Purchased technology and other assets
(3,671
)
 
(194
)
 
(3,908
)
 
(222
)
Acquisitions, net of cash acquired
—

 
(14,666
)
 
(142
)
 
(69,204
)
Net cash provided by (used in) investing activities
645,899

 
64,241

 
306,966

 
(72,145
)
 
 
 
 
 
 
 
 
Cash flows from financing activities:
 
 
 
 
 
 
 
Repayment of debt financing
(928,061
)
 
—

 
(928,061
)
 
—

Proceeds from employee stock programs
69,941

 
5,354

 
163,016

 
50,672

Distribution to non-controlling interests
—

 
—

 
(87
)
 
—

Excess tax benefit from share-based plans
7,211

 
2,424

 
15,661

 
11,021

Share repurchase program
(280,373
)
 
(93,164
)
 
(369,994
)
 
(154,075
)
Net cash received (paid) for share repurchase contracts
—

 
(20,000
)
 
—

 
(18,858
)
Net cash used in financing activities
(1,131,282
)
 
(105,386
)
 
(1,119,465
)
 
(111,240
)
Effect of changes in foreign currency exchange rates on cash
611

 
(779
)
 
6,716

 
54

Net increase (decrease) in cash and cash equivalents
(93,979
)
 
(22,809
)
 
58,661

 
(97,042
)
Cash and cash equivalents at beginning of period
1,148,110

 
1,093,263

 
995,470

 
1,167,496

Cash and cash equivalents at end of period
$
1,054,131

 
$
1,070,454

 
$
1,054,131

 
$
1,070,454




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