Attached files
| file | filename |
|---|---|
| 8-K - FORM 8-K Q4'15 AND FY15 EARNINGS RELEASE - SANDISK CORP | form8-kxq415earningsrelease.htm |
| EX-99.2 - EXHIBIT 99.2 PREPARED REMARKS FOR INVESTORS - SANDISK CORP | exhibit992-q415earningspre.htm |
EXHIBIT 99.1
NEWS RELEASE
SanDisk Corporation
951 SanDisk Drive
Milpitas, CA 95035-7932
Phone: 408-801-1000
SanDisk Announces Fourth Quarter and Fiscal 2015 Results
MILPITAS, Calif., January 27, 2016 - 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
GAAP (1) | Non-GAAP (2) | ||||||||||||
(in millions, except percentages and per share amounts) | 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. |
Source: SanDisk Corporation
Investor Contacts:
Jay Iyer
408-801-2067, jay.iyer@sandisk.com
Brendan Lahiff
408-801-1732, brendan.lahiff@sandisk.com
Media Contact:
Carol Kurimsky
408-801-1390, carol.kurimsky@sandisk.com
# # # # #
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. |