SanDisk Announces Fourth Quarter and Fiscal 2013 Results

OTHER HIGHLIGHTS

Fourth quarter and fiscal 2013 cash flow from operations set quarterly and annual records of $617 million and $1.86 billion, respectively.
SanDisk issued $1.50 billion of 0.5% senior convertible notes during the fourth quarter and repurchased a total of $150 million of stock in conjunction with the offering.
SanDisk announced today its first-quarter dividend of $0.225 per share of common stock, payable on February 24, 2014 to shareholders of record as of the close of business on February 3, 2014.

CONFERENCE CALL

SanDisk’s fourth quarter of fiscal 2013 conference call is scheduled for 2:00 P.M., Pacific Time, Wednesday, January 22, 2014. 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 719-325-4835 and the dial-in password is 8002130. 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), 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 smart phones, tablets and PCs. SanDisk’s consumer products are available at hundreds of thousands of retail stores worldwide. For more information, visit www.sandisk.com.

This press release contains certain forward-looking statements, including statements about our business prospects in 2014 and continued favorable portfolio mix shift, 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, lower revenues and lower gross margins;
inability to continue to penetrate the client and enterprise SSD markets, the failure of existing markets for flash memory to grow, or failure to maintain or improve our position in any of these markets;
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;
delays in the 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; 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 third fiscal quarter ended September 29, 2013.

(1)		GAAP represents U.S. Generally Accepted Accounting Principles.
(2)		Non-GAAP represents GAAP excluding the impact of share-based compensation, amortization of acquisition-related intangible assets, impairment of acquisition-related intangible assets, non-cash economic interest expense associated with our convertible debt and related tax adjustments.
(3)		Non-GAAP diluted shares include the impact of offsetting shares from the call option related to the 1.5% Sr. Convertible Notes due 2017 and the impact of share-based compensation.

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


	Three months ended						Twelve months ended
	December 29, 2013			December 30, 2012			December 29, 2013			December 30, 2012

Revenues	$	1,727,858		$	1,541,503		$	6,170,003		$	5,052,509

Cost of revenues		851,087			928,661			3,252,988			3,326,747
Amortization of acquisition-related intangible assets		19,616			9,830			49,532			42,542
Total cost of revenues		870,703			938,491			3,302,520			3,369,289

Gross profit		857,155			603,012			2,867,483			1,683,220

Operating expenses:
Research and development		215,281			159,075			742,268			602,765
Sales and marketing		81,347			64,820			276,312			224,054
General and administrative		51,158			39,913			192,310			150,401
Amortization of acquisition-related intangible assets		1,956			2,369			11,155			9,045
Impairment of acquisition-related intangible assets	―				860			83,228			860
Total operating expenses		349,742			267,037			1,305,273			987,125

Operating income		507,413			335,975			1,562,210			696,095

Other income (expense), net		(12,171	)		(12,971	)		(46,061	)		(69,179	)
Income before income taxes		495,242			323,004			1,516,149			626,916

Provision for income taxes		157,462			109,461			473,492			209,512
Net income	$	337,780		$	213,543		$	1,042,657		$	417,404

Net income per share:
Basic	$	1.50		$	0.88		$	4.44		$	1.72
Diluted	$	1.45		$	0.87		$	4.34		$	1.70

Shares used in computing net income per share:
Basic		225,252			241,451			234,886			242,076
Diluted		232,812			244,161			240,236			245,253

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
	December 29, 2013			December 30, 2012			December 29, 2013			December 30, 2012

SUMMARY RECONCILIATION OF NET INCOME
GAAP NET INCOME	$	337,780		$	213,543		$	1,042,657		$	417,404
Share-based compensation (a)		27,431			19,160			99,756			78,443
Amortization of acquisition-related intangible assets (b)		21,572			12,199			60,687			51,587
Impairment of acquisition-related intangible assets (c)		-			860			83,228			860
Convertible debt interest (d)		17,402			23,036			67,604			89,963
Income tax adjustments (e)		(13,840	)		(11,582	)		(86,971	)		(55,848	)
NON-GAAP NET INCOME	$	390,345		$	257,216		$	1,266,961		$	582,409


GAAP COST OF REVENUES	$	870,703		$	938,491		$	3,302,520		$	3,369,289
Share-based compensation (a)		(2,940	)		(2,070	)		(9,820	)		(7,459	)
Amortization of acquisition-related intangible assets (b)		(19,616	)		(9,830	)		(49,532	)		(42,542	)
NON-GAAP COST OF REVENUES	$	848,147		$	926,591		$	3,243,168		$	3,319,288

GAAP GROSS PROFIT	$	857,155		$	603,012		$	2,867,483		$	1,683,220
Share-based compensation (a)		2,940			2,070			9,820			7,459
Amortization of acquisition-related intangible assets (b)		19,616			9,830			49,532			42,542
NON-GAAP GROSS PROFIT	$	879,711		$	614,912		$	2,926,835		$	1,733,221

GAAP RESEARCH AND DEVELOPMENT EXPENSES	$	215,281		$	159,075		$	742,268		$	602,765
Share-based compensation (a)		(14,035	)		(9,981	)		(51,521	)		(41,010	)
NON-GAAP RESEARCH AND DEVELOPMENT EXPENSES	$	201,246		$	149,094		$	690,747		$	561,755

GAAP SALES AND MARKETING EXPENSES	$	81,347		$	64,820		$	276,312		$	224,054
Share-based compensation (a)		(5,380	)		(3,528	)		(19,193	)		(14,585	)
NON-GAAP SALES AND MARKETING EXPENSES	$	75,967		$	61,292		$	257,119		$	209,469

GAAP GENERAL AND ADMINISTRATIVE EXPENSES	$	51,158		$	39,913		$	192,310		$	150,401
Share-based compensation (a)		(5,076	)		(3,581	)		(19,222	)		(15,389	)
NON-GAAP GENERAL AND ADMINISTRATIVE EXPENSES	$	46,082		$	36,332		$	173,088		$	135,012

GAAP TOTAL OPERATING EXPENSES	$	349,742		$	267,037		$	1,305,273		$	987,125
Share-based compensation (a)		(24,491	)		(17,090	)		(89,936	)		(70,984	)
Amortization of acquisition-related intangible assets (b)		(1,956	)		(2,369	)		(11,155	)		(9,045	)
Impairment of acquisition-related intangible assets (c)		-			(860	)		(83,228	)		(860	)
NON-GAAP TOTAL OPERATING EXPENSES	$	323,295		$	246,718		$	1,120,954		$	906,236

GAAP OPERATING INCOME	$	507,413		$	335,975		$	1,562,210		$	696,095
Cost of revenues adjustments (a) (b)		22,556			11,900			59,352			50,001
Operating expense adjustments (a) (b) (c)		26,447			20,319			184,319			80,889
NON-GAAP OPERATING INCOME	$	556,416		$	368,194		$	1,805,881		$	826,985

GAAP OTHER INCOME (EXPENSE), NET	$	(12,171	)	$	(12,971	)	$	(46,061	)	$	(69,179	)
Convertible debt interest (d)		17,402			23,036			67,604			89,963
NON-GAAP OTHER INCOME (EXPENSE), NET	$	5,231		$	10,065		$	21,543		$	20,784

GAAP NET INCOME	$	337,780		$	213,543		$	1,042,657		$	417,404
Cost of revenues adjustments (a) (b)		22,556			11,900			59,352			50,001
Operating expense adjustments (a) (b) (c)		26,447			20,319			184,319			80,889
Other income (expense) adjustments (d)		17,402			23,036			67,604			89,963
Income tax adjustments (e)		(13,840	)		(11,582	)		(86,971	)		(55,848	)
NON-GAAP NET INCOME	$	390,345		$	257,216		$	1,266,961		$	582,409

Diluted net income per share:
GAAP	$	1.45		$	0.87		$	4.34		$	1.70
Non-GAAP	$	1.71		$	1.05		$	5.31		$	2.38

Shares used in computing diluted net income per share:
GAAP		232,812			244,161			240,236			245,253
Non-GAAP (f)		228,829			244,081			238,419			245,199

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

	Three months ended				Twelve months ended
	December 29, 2013		December 30, 2012		December 29, 2013		December 30, 2012

SUMMARY RECONCILIATION OF DILUTED SHARES

GAAP	232,812		244,161		240,236		245,253
Adjustments for share-based compensation	358		(80	)	271		(54	)
Offsetting shares from call option	(4,341	)	-		(2,088	)	-
Non-GAAP (f)	228,829		244,081		238,419		245,199

(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 Matrix Semiconductor, Inc. in January 2006, Pliant Technology, Inc. in May 2011, FlashSoft Corporation in February 2012, Schooner Information Technology, Inc. in June 2012 and SMART Storage Systems in August 2013, impairment of acquisition-related intangible assets, 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. In addition, our non-GAAP diluted shares include the impact of the call option which, when exercised, will offset the issuance of dilutive shares from the 1.5% Sr. Convertible Notes due 2017, while the GAAP diluted shares exclude the anti-dilutive impact of this call option. 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 acquisition-related intangible assets, impairment 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 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), Schooner Information Technology, Inc. (June 2012) and SMART Storage Systems (August 2013).

(c)		Impairment of acquisition-related intangible assets and in-process research and development related to the Schooner Information Technology, Inc. and Pliant Technology, Inc. acquisitions.

(d)		Incremental interest expense relating to the non-cash economic interest expense associated with the 1% Sr. Convertible Notes due 2013, 1.5% Sr. Convertible Notes due 2017, and 0.5% Sr. Convertible Notes due 2020.

(e)		Income taxes associated with certain non-GAAP to GAAP adjustments.

(f)		Non-GAAP diluted shares include the impact of offsetting shares from the call option related to the 1.5% Sr. Convertible Notes due 2017 and the impact of share-based compensation.

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


	December 29, 2013			December 30, 2012

ASSETS
Current assets:
Cash and cash equivalents	$	986,246		$	995,470
Short-term marketable securities		1,919,611			1,880,034
Accounts receivable, net		682,809			626,025
Inventory		756,975			750,075
Deferred taxes		138,192			93,877
Other current assets		166,885			260,879
Total current assets		4,650,718			4,606,360

Long-term marketable securities		3,179,471			2,835,931
Property and equipment, net		655,794			665,542
Notes receivable and investments in Flash Ventures		1,134,620			1,460,112
Deferred taxes		134,669			168,718
Goodwill		318,111			201,735
Intangible assets, net		247,904			246,919
Other non-current assets		167,430			153,810
Total assets	$	10,488,717		$	10,339,127

LIABILITIES
Current liabilities:
Accounts payable trade	$	282,582		$	254,459
Accounts payable to related parties		146,964			214,806
Convertible short-term debt		-			906,708
Other current accrued liabilities		509,732			257,539
Deferred income on shipments to distributors and retailers and deferred revenue		291,302			248,155
Total current liabilities		1,230,580			1,881,667

Convertible long-term debt		1,985,363			789,913
Non-current liabilities		307,083			407,947
Total liabilities		3,523,026			3,079,527

EQUITY
Stockholders' equity:
Common stock		5,040,242			5,027,512
Retained earnings		2,004,089			2,071,268
Accumulated other comprehensive income (loss)		(76,459	)		165,121
Total stockholders' equity		6,967,872			7,263,901
Non-controlling interests		(2,181	)		(4,301	)
Total equity		6,965,691			7,259,600
Total liabilities and equity	$	10,488,717		$	10,339,127

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


	Three months ended						Twelve months ended
	December 29, 2013			December 30, 2012			December 29, 2013			December 30, 2012
Cash flows from operating activities:
Net income	$	337,780		$	213,543		$	1,042,657		$	417,404

Adjustments to reconcile net income to net cash provided by operating activities:
Deferred taxes		(52,727	)		24,814			527			34,368
Depreciation		60,472			49,478			226,334			161,949
Amortization		65,775			64,273			237,731			254,352
Provision for doubtful accounts		1,669			1,382			2,167			1,452
Share-based compensation expense		27,431			19,160			99,756			78,443
Excess tax benefit from share-based plans		(7,299	)		(1,899	)		(27,198	)		(16,015	)
Impairment and other		(697	)		(3,094	)		75,561			(17,350	)
Other non-operating		(1,566	)		528			(792	)		9,424
Changes in operating assets and liabilities:
Accounts receivable, net		624			(124,151	)		(51,125	)		(68,070	)
Inventory		19,214			102,534			23,310			(71,260	)
Other assets		170,806			(119,966	)		147,713			(84,579	)
Accounts payable trade		(65,817	)		(63,888	)		16,377			(4,124	)
Accounts payable to related parties		(16,867	)		(11,330	)		(67,842	)		(61,469	)
Other liabilities		78,017			164,242			138,496			(104,671	)
Total adjustments		279,035			102,083			821,015			112,450

Net cash provided by operating activities		616,815			315,626			1,863,672			529,854

Cash flows from investing activities:
Purchases of short and long-term marketable securities		(2,421,041	)		(1,228,496	)		(4,925,520	)		(3,178,660	)
Proceeds from sales of short and long-term marketable securities		576,178			613,799			3,701,528			2,197,302
Proceeds from maturities of short and long-term marketable securities		117,300			171,585			751,900			650,060
Acquisition of property and equipment, net		(42,700	)		(105,341	)		(213,415	)		(487,973	)
Investment in Flash Ventures		(12,342	)	―				(12,342	)		(50,439	)
Notes receivable issuances to Flash Ventures		(37,099	)	―				(37,099	)		(142,316	)
Notes receivable proceeds from Flash Ventures		51,377			153,413			124,765			511,289
Purchased technology and other assets		884			(3,755	)		(8,377	)		(4,000	)
Acquisitions, net of cash acquired	―				(212	)		(304,320	)		(69,629	)
Net cash used in investing activities		(1,767,443	)		(399,007	)		(922,880	)		(574,366	)

Cash flows from financing activities:
Proceeds from issuance of convertible senior notes, net of issuance costs		1,483,125		―				1,483,125		―
Purchase of convertible bond hedge		(331,650	)	―				(331,650	)	―
Proceeds from sale of warrants		217,800		―				217,800		―
Repayment of debt financing	―			―				(928,061	)	―
Distribution to non-controlling interests	―			―				(87	)	―
Proceeds from employee stock programs		59,992			8,532			266,044			86,302
Excess tax benefit from share-based plans		7,299			1,899			27,198			16,015
Dividends paid		(50,553	)	―				(101,191	)	―
Share repurchase program		(150,000	)		(38,577	)		(1,589,539	)		(230,081	)
Net cash received for share repurchase contracts	―			―			―				2,675
Net cash provided by (used in) financing activities		1,236,013			(28,146	)		(956,361	)		(125,089	)

Effect of changes in foreign currency exchange rates on cash		(1,904	)		(3,488	)		6,345			(2,425	)

Net increase (decrease) in cash and cash equivalents		83,481			(115,015	)		(9,224	)		(172,026	)

Cash and cash equivalents at beginning of period		902,765			1,110,485			995,470			1,167,496

Cash and cash equivalents at end of period	$	986,246		$	995,470		$	986,246		$	995,470

« Previous Page 1 | 2 | 3 Next Page »