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TMCNet:  SanDisk Announces Fourth Quarter and Fiscal 2013 Results

[January 22, 2014]

SanDisk Announces Fourth Quarter and Fiscal 2013 Results

MILPITAS, Calif. --(Business Wire)--

SanDisk Corporation (NASDAQ: SNDK), a global leader in flash storage solutions, today announced results for the fourth quarter and fiscal year ended December�29, 2013. Fourth quarter revenue of $1.73 billion increased 12�percent on a year-over-year basis and increased 6�percent sequentially. Total revenue for fiscal 2013 of $6.17 billion increased 22 percent from $5.05 billion in fiscal 2012.

On a GAAP(1) basis, fourth quarter net income was $338 million, or $1.45 per diluted share, compared to net income of $214�million, or $0.87�per diluted share, in the fourth quarter of fiscal 2012 and $277�million, or $1.18�per diluted share, in the third quarter of fiscal 2013. Net income for fiscal 2013 was $1.04 billion, or $4.34 per diluted share, compared to $417 million, or $1.70 per diluted share in fiscal 2012.

On a non-GAAP(2)(3) basis, fourth quarter net income was $390�million, or $1.71�per diluted share, compared to net income of $257�million, or $1.05�per diluted share, in the fourth quarter of fiscal 2012 and net income of $371�million, or $1.59�per diluted share, in the third quarter of fiscal 2013. Net income for fiscal 2013 was $1.27 billion, or $5.31 per diluted share, compared to $582 million, or $2.38 per diluted share in fiscal 2012. For reconciliation of non-GAAP to GAAP results, see accompanying financial tables and footnotes.

"We delivered outstanding results in the fourth quarter and full year 2013 driven by strong execution and continued favorable portfolio mix shift," said Sanjay Mehrotra, president and chief executive officer of SanDisk. "Our SSD product revenue set another quarterly record and represented 19 percent of our annual revenue, and we also set a record for annual retail product revenue. SanDisk is enabling the next generation of mobile and enterprise data storage solutions, and we are excited about our prospects for 2014."



FOURTH QUARTER KEY FINANCIAL METRICS

Metric GAAP Non-GAAP
in millions, except percentages and per share amounts Q413 Q412 Q313 Q413 Q412 Q313
Revenue $1,728 $1,542 $1,625 $1,728 $1,542 $1,625
Gross Profit $857 $603 $802 $880 $615 $815
percent of revenue 49.6% 39.1% 49.3% 50.9% 39.9% 50.1%
Operating Income $507 $336 $408 $556 $368 $533
percent of revenue 29.4% 21.8% 25.1% 32.2% 23.9% 32.8%
Diluted EPS(3) $1.45 $0.87 $1.18 $1.71 $1.05 $1.59

FISCAL 2013 KEY FINANCIAL METRICS

MetricGAAPNon-GAAP in millions, except percentages and per share amounts FY13FY12 FY13FY12 Revenue $6,170 $5,053 $6,170 $5,053 Gross Profit $2,867 $1,683 $2,927 $1,733 percent of revenue 46.5% 33.3% 47.4% 34.3% Operating Income $1,562 $696 $1,806 $827 percent of revenue 25.3% 13.8% 29.3% 16.4% Diluted EPS(3) $4.34 $1.70 $5.31 $2.38 �

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.

© 2014 SanDisk Corporation. All rights reserved. SanDisk is a trademark of SanDisk Corporation, registered in the United States and other countries.

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, 2012SUMMARY 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, 2012SUMMARY RECONCILIATION OF DILUTED SHARESGAAP 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, 2012ASSETS 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 �


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