Market Overview

SanDisk Announces Third Quarter 2012 Financial Results

MILPITAS, Calif.--(BUSINESS WIRE)--

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).

 
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  

SanDisk Corporation
Investor Contact:
Jay Iyer, 408-801-2067
Media Contact:
Lee Flanagin, 408-801-2463

 

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