In the year-ago quarter, the company reported revenue of $3.5 billion,
operating loss of $195 million and net loss of $366 million, or $(1.40)
per share. Non-GAAP operating income in the year-ago quarter was $451
million and non-GAAP net income was $269 million, or $1.02 per share.
The company generated approximately $1.0 billion in cash from operations
during the fourth fiscal quarter of 2017, ending with $6.5 billion of
total cash, cash equivalents and available-for-sale securities. On May
3, 2017, the company declared a cash dividend of $0.50 per share of its
common stock, which was paid to shareholders on July 17, 2017.
As described above, we exclude the following items from our Non-GAAP
measures:
Amortization of acquired intangible assets.
We incur expenses from the amortization of acquired intangible assets
over their economic lives. Such charges are significantly impacted by
the timing and magnitude of our acquisitions and any related impairment
charges.
Income tax adjustments. Income tax
adjustments reflect the difference between income taxes based on a
forecasted annual non-GAAP tax rate and a forecasted annual GAAP tax
rate as a result of the timing of certain non-GAAP pre-tax adjustments.
Western Digital Corp. (NASDAQ:WDC) today reported revenue of $4.8
billion, operating income of $652 million and net income of $280
million, or $0.93 per share, for its fourth fiscal quarter ended June
30, 2017. The GAAP net income for the period includes charges associated
with the company's recent acquisitions. Excluding these charges and
after other non-GAAP adjustments, fourth quarter non-GAAP operating
income was $1.2 billion and non-GAAP net income was $881 million, or
$2.93 per share.
For fiscal 2017, the company achieved revenue of $19.1 billion,
operating income of $2.0 billion and net income of $397 million, or
$1.34 per share, compared to fiscal 2016 revenue of $13.0 billion,
operating income of $466 million and net income of $242 million, or
$1.00 per share. On a non-GAAP basis, fiscal 2017 operating income was
$3.9 billion and net income was $2.7 billion, or $9.19 per share,
compared to fiscal 2016 operating income of $1.7 billion and net income
of $1.4 billion, or $5.79 per share. The company generated $3.4 billion
in cash from operations during the 2017 fiscal year and it returned to
shareholders $574 million in dividends.
"We reported strong financial performance in the June quarter to
complete an outstanding fiscal 2017, demonstrating the differentiated
value that we can deliver as a comprehensive data solutions provider,"
said Steve Milligan, chief executive officer. "Our unique platform of
diverse storage technologies and value-added products helped drive this
performance as we addressed a broader set of markets following the
SanDisk acquisition. We operated near the top of our revenue growth
model with 7 percent year-over-year top-line growth on a pro-forma
basis, and we delivered very healthy margins."
The investment community conference call to discuss these results and
the company's guidance for the first fiscal quarter 2018 will be
broadcast live over the Internet today at 2:30 p.m. Pacific/5:30 p.m.
Eastern. The live and archived conference call/webcast can be accessed
online at investor.wdc.com.
Supplemental financial information, including the company's guidance for
the first fiscal quarter 2018, will also be posted on the same website.
The telephone replay number in the U.S. is 1(855) 859-2056 or +1(404)
537-3406 for international callers. The required passcode is 54295696.
Western Digital is an industry-leading provider of storage technologies
and solutions that enable people to create, leverage, experience and
preserve data. The company addresses ever-changing market needs by
providing a full portfolio of compelling, high-quality storage solutions
with customer-focused innovation, high efficiency, flexibility and
speed. Our products are marketed under the HGST, SanDisk and WD brands
to OEMs, distributors, resellers, cloud infrastructure providers and
consumers. Financial and investor information is available on the
company's Investor Relations website at investor.wdc.com.
This press release contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995,
including statements concerning the company's preliminary financial
results for its fourth fiscal quarter ended June 30, 2017 and fiscal
2017; product portfolio and market position; acquisitions and growth
strategy; and market and demand trends. These forward-looking statements
are based on management's current expectations and are subject to risks
and uncertainties that could cause actual results to differ materially
from those expressed or implied in the forward-looking statements. The
preliminary financial results for the company's fourth fiscal quarter
ended June 30, 2017 and fiscal 2017 included in this press release
represent the most current information available to management. The
company's actual results when disclosed in its Annual Report on Form
10-K may differ from these preliminary results as a result of the
completion of the company's financial closing procedures; final
adjustments; completion of the review by the company's independent
registered accounting firm and other developments that may arise between
now and the disclosure of the final results. Other risks and
uncertainties that could cause actual results to differ materially from
those expressed or implied in the forward-looking statements include:
uncertainties with respect to the company's business ventures with
Toshiba; volatility in global economic conditions; business conditions
and growth in the storage ecosystem; impact of competitive products and
pricing; market acceptance and cost of commodity materials and
specialized product components; actions by competitors; unexpected
advances in competing technologies; our development and introduction of
products based on new technologies and expansion into new data storage
markets; risks associated with acquisitions, mergers and joint ventures;
difficulties or delays in manufacturing; and other risks and
uncertainties listed in the company's filings with the Securities and
Exchange Commission (the "SEC"), including the company's Form 10-Q filed
with the SEC on May 8, 2017, to which your attention is directed. You
should not place undue reliance on these forward-looking statements,
which speak only as of the date hereof, and the company undertakes no
obligation to update these forward-looking statements to reflect new
information or events.
WESTERN DIGITAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions; unaudited)
June 30,
July 1,
2017
2016
ASSETS
Current assets:
Cash and cash equivalents
$
6,354
$
8,151
Short-term investments
24
227
Accounts receivable, net
1,948
1,461
Inventories
2,341
2,129
Other current assets
389
616
Total current assets
11,056
12,584
Property, plant and equipment, net
3,033
3,503
Notes receivable and investments in Flash Ventures
1,340
1,171
Goodwill
10,014
9,951
Other intangible assets, net
3,823
5,034
Other non-current assets
594
619
Total assets
$
29,860
$
32,862
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable
$
2,144
$
1,888
Accounts payable to related parties
206
168
Accrued expenses
1,069
995
Accrued compensation
506
392
Accrued warranty
186
172
Bridge loan
-
2,995
Current portion of long-term debt
233
339
Total current liabilities
4,344
6,949
Long-term debt
12,918
13,660
Other liabilities
1,180
1,108
Total liabilities
18,442
21,717
Total shareholders' equity
11,418
11,145
Total liabilities and shareholders' equity
$
29,860
$
32,862
WESTERN DIGITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share amounts; unaudited)
Three Months Ended
Years Ended
June 30,
July 1,
June 30,
July 1,
2017
2016
2017
2016
Revenue, net
$
4,842
$
3,495
$
19,093
$
12,994
Cost of revenue
3,161
2,674
13,021
9,559
Gross profit
1,681
821
6,072
3,435
Operating expenses:
Research and development
604
494
2,441
1,627
Selling, general and administrative
345
400
1,445
997
Employee termination, asset impairment and other charges
80
122
232
345
Total operating expenses
1,029
1,016
4,118
2,969
Operating income (loss)
652
(195
)
1,954
466
Interest and other expense, net
(237
)
(290
)
(1,185
)
(313
)
Income (loss) before taxes
415
(485
)
769
153
Income tax expense (benefit)
135
(119
)
372
(89
)
Net income (loss)
$
280
$
(366
)
$
397
$
242
Income (loss) per common share:
Basic
$
0.96
$
(1.40
)
$
1.38
$
1.01
Diluted
$
0.93
$
(1.40
)
$
1.34
$
1.00
Weighted average shares outstanding:
Basic
292
261
288
239
Diluted
301
261
296
242
WESTERN DIGITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions; unaudited)
Three Months Ended
Years Ended
June 30,
July 1,
June 30,
July 1,
2017
2016
2017
2016
Operating Activities
Net income (loss)
$
280
$
(366
)
$
397
$
242
Adjustments to reconcile net income (loss) to net cash provided by
operations:
Depreciation and amortization
546
420
2,128
1,154
Stock-based compensation
91
70
394
191
Deferred income taxes
(49
)
(132
)
12
(149
)
Loss on disposal of assets
6
9
18
22
Write-off of issuance costs and amortization of debt discounts
10
36
285
39
Loss (gain) on convertible debt and related instruments
(1
)
58
5
58
Non-cash portion of employee termination, asset impairment and
other charges
-
5
13
41
Other non-cash operating activities, net
36
11
94
11
Changes in operating assets and liabilities, net
20
244
91
374
Net cash provided by operating activities
939
355
3,437
1,983
Investing Activities
Purchases of property, plant and equipment, net
(125
)
(151
)
(557
)
(584
)
Activity related to Flash Ventures, net
(53
)
(90
)
(277
)
(90
)
Acquisitions, net of cash acquired
-
(9,835
)
-
(9,835
)
Investment activity, net
(1
)
532
230
977
Strategic investments and other, net
(11
)
(53
)
(32
)
(76
)
Net cash used in investing activities
(190
)
(9,597
)
(636
)
(9,608
)
Financing Activities
Employee stock plans, net
128
57
230
74
Payment upon settlement of acquired warrants
-
(613
)
-
(613
)
Settlement of convertible debt
-
(2,611
)
(492
)
(2,611
)
Proceeds from acquired call option
-
409
61
409
Repurchases of common stock
-
-
-
(60
)
Dividends paid to shareholders
(146
)
(117
)
(574
)
(464
)
Settlement of debt hedge
(21
)
-
(21
)
-
Proceeds from debt, net of issuance costs
-
16,709
7,898
16,709
Repayment of debt
(10
)
(2,329
)
(11,697
)
(2,693
)
Net cash provided by (used in) financing activities
(49
)
11,505
(4,595
)
10,751
Effect of exchange rate changes on cash
2
1
(3
)
1
Net increase (decrease) in cash and cash equivalents
702
2,264
(1,797
)
3,127
Cash and cash equivalents, beginning of period
5,652
5,887
8,151
5,024
Cash and cash equivalents, end of period
$
6,354
$
8,151
$
6,354
$
8,151
WESTERN DIGITAL CORPORATION
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES
(in millions, except per share amounts; unaudited)
Three Months Ended
Years Ended
June 30,
July 1,
June 30,
July 1,
2017
2016
2017
2016
Summary Reconciliation of Net Income
(Loss):
GAAP net income (loss)
$
280
$
(366
)
$
397
$
242
Amortization of acquired intangible assets
319
187
1,162
258
Stock-based compensation expense
89
68
382
180
Employee termination, asset impairment and other charges
80
122
232
345
Acquisition-related charges
-
238
35
281
Charges related to cost saving initiatives
40
57
154
143
Charges related to arbitration award
-
-
-
32
Convertible debt activity, net
(1
)
58
6
58
Debt extinguishment costs
-
18
274
18
Other
47
(21
)
67
(29
)
Income tax adjustments
27
(92
)
11
(127
)
Non-GAAP net income
$
881
$
269
$
2,720
$
1,401
GAAP cost of revenue
$
3,161
$
2,674
$
13,021
$
9,559
Amortization of acquired intangible assets
(279
)
(114
)
(1,003
)
(163
)
Stock-based compensation expense
(12
)
(8
)
(49
)
(21
)
Acquisition-related charges
-
(122
)
(18
)
(122
)
Charges related to cost saving initiatives
(24
)
(27
)
(68
)
(74
)
Other
(2
)
-
(5
)
5
Non-GAAP cost of revenue
$
2,844
$
2,403
$
11,878
$
9,184
GAAP gross profit
$
1,681
$
821
$
6,072
$
3,435
Amortization of acquired intangible assets
279
114
1,003
163
Stock-based compensation expense
12
8
49
21
Acquisition-related charges
-
122
18
122
Charges related to cost saving initiatives
24
27
68
74
Other
2
-
5
(5
)
Non-GAAP gross profit
$
1,998
$
1,092
$
7,215
$
3,810
GAAP operating expenses
$
1,029
$
1,016
$
4,118
$
2,969
Amortization of acquired intangible assets
(40
)
(73
)
(159
)
(95
)
Stock-based compensation expense
(77
)
(60
)
(333
)
(159
)
Employee termination, asset impairment and other charges
(80
)
(122
)
(232
)
(345
)
Acquisition-related charges
-
(116
)
(17
)
(159
)
Charges related to arbitration award
-
-
-
(32
)
Charges related to cost saving initiatives
(16
)
(30
)
(86
)
(69
)
Other
(4
)
26
(8
)
29
Non-GAAP operating expenses
$
812
$
641
$
3,283
$
2,139
GAAP operating income (loss)
$
652
$
(195
)
$
1,954
$
466
Cost of revenue adjustments
317
271
1,143
375
Operating expense adjustments
217
375
835
830
Non-GAAP operating income
$
1,186
$
451
$
3,932
$
1,671
GAAP interest and other expense, net
$
(237
)
$
(290
)
$
(1,185
)
$
(313
)
Convertible debt activity, net
(1
)
58
6
58
Debt extinguishment costs
-
18
274
18
Other
41
5
54
5
Non-GAAP interest and other expense, net
$
(197
)
$
(209
)
$
(851
)
$
(232
)
GAAP income tax expense (benefit)
$
135
$
(119
)
$
372
$
(89
)
Income tax adjustments
(27
)
92
(11
)
127
Non-GAAP income tax expense (benefit)
$
108
$
(27
)
$
361
$
38
Diluted income (loss) per common share:
GAAP
$
0.93
$
(1.40
)
$
1.34
$
1.00
Non-GAAP
$
2.93
$
1.02
$
9.19
$
5.79
Diluted weighted average shares outstanding:
GAAP
301
261
296
242
Non-GAAP
301
263
296
242
To supplement the condensed consolidated financial statements presented
in accordance with U.S. generally accepted accounting principles
("GAAP"), the table above sets forth non-GAAP cost of revenue; non-GAAP
gross profit; non-GAAP operating expenses; non-GAAP operating income;
non-GAAP interest and other expense, net; non-GAAP income tax expense
(benefit); non-GAAP net income and non-GAAP diluted income per common
share ("Non-GAAP measures"). These Non-GAAP measures are not in
accordance with, or an alternative for, measures prepared in accordance
with GAAP and may be different from Non-GAAP measures used by other
companies. Western Digital Corporation believes the presentation of
these Non-GAAP measures, when shown in conjunction with the
corresponding GAAP measures, provides useful information to investors
for measuring the Company's earnings performance and comparing it
against prior periods. Specifically, we believe these Non-GAAP measures
provide useful information to both management and investors as they
exclude certain expenses, gains and losses that we believe are not
indicative of our core operating results or because they are consistent
with the financial models and estimates published by many analysts who
follow us and our peers. As discussed further below, these Non-GAAP
measures exclude the amortization of acquired intangible assets,
stock-based compensation expense, employee termination, asset impairment
and other charges, acquisition-related charges, charges related to cost
saving initiatives, charges related to arbitration award, convertible
debt activity, debt extinguishment costs, other charges, and income tax
adjustments, and we believe these measures along with the related
reconciliations to the GAAP measures provide additional detail and
comparability for assessing our results. These Non-GAAP measures are
some of the primary indicators management uses for assessing our
performance and planning and forecasting future periods. 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.
Stock-based compensation expense. Because
of the variety of equity awards used by companies, the varying
methodologies for determining stock-based compensation expense, the
subjective assumptions involved in those determinations, and the
volatility in valuations that can be driven by market conditions outside
our control, we believe excluding stock-based compensation expense
enhances the ability of management and investors to understand and
assess the underlying performance of our business over time and compare
it against our peers, a majority of whom also exclude stock-based
compensation expense from their non-GAAP results.
Employee termination, asset impairment and other
charges. From time-to-time, in order to realign our operations
with anticipated market demand or to achieve cost synergies from the
integration of acquisitions, we may terminate employees and/or
restructure our operations. From time-to-time, we may also incur charges
from the impairment of intangible assets and other long-lived assets.
These charges (including any reversals of charges recorded in prior
periods) are inconsistent in amount and frequency, and we believe are
not indicative of the underlying performance of our business.
Acquisition-related charges. In connection
with our business combinations, we incur expenses which we would not
have otherwise incurred as part of our business operations. These
expenses include third-party professional service and legal fees,
third-party integration services, severance costs, non-cash adjustments
to the fair value of acquired inventory, contract termination costs, and
retention bonuses. We may also experience other accounting impacts in
connection with these transactions. These charges and impacts are
related to acquisitions, are inconsistent in amount and frequency, and
we believe are not indicative of the underlying performance of our
business.
Charges related to arbitration award. In
relation to an arbitration award for claims brought against the Company
by Seagate Technology LLC, which was satisfied in October 2014, and the
related dispute over the calculation of post-award interest, we have
recorded loss contingencies. The resulting expense is inconsistent in
amount and frequency.
Charges related to cost saving initiatives.
In connection with the transformation of our business, we have incurred
charges related to cost saving initiatives which do not qualify for
special accounting treatment as exit or disposal activities. These
charges, which we believe are not indicative of the underlying
performance of our business, primarily relate to costs associated with
rationalizing our channel partners or vendors, transforming our
information systems infrastructure, integrating our product roadmap, and
accelerated depreciation on assets.
Convertible debt activity, net. We exclude
non-cash economic interest expense associated with the convertible
senior notes, the gains and losses on the conversion of the convertible
senior notes and call option, and unrealized gains and losses related to
the change in fair value of the exercise option and call option. These
charges and gains and losses do not reflect our operating results, and
we believe are not indicative of the underlying performance of our
business.
Debt extinguishment costs. From
time-to-time, we replace our existing debt with new financing at more
favorable interest rates or utilize available capital to settle debt
early, both of which generate interest savings in future periods. We
incur debt extinguishment charges consisting of the costs to call the
existing debt and/or the write-off of any related unamortized debt
issuance costs. These gains and losses related to our debt activity
occur infrequently and we believe are not indicative of the underlying
performance of our business.
Other charges. From time-to-time, we sell
or impair investments or other assets which are not considered necessary
to our business operations; are a party to legal or arbitration
proceedings, which could result in an expense or benefit due to
settlements, final judgments, or accruals for loss contingencies; or
incur other charges or gains which we believe are not a part of the
ongoing operation of our business. The resulting expense or benefit is
inconsistent in amount and frequency.
