SanDisk Announces Fourth Quarter and Fiscal 2013 Results

Delivers Record Annual Revenue and Operating Cash Flow

MILPITAS, Calif.--()--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

Metric   GAAP   Non-GAAP
in millions, except percentages and per share amounts FY13   FY12 FY13   FY12
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, 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  

Contacts

SanDisk
Investor Contacts:
Jay Iyer, 408-801-2067
jay.iyer@sandisk.com
Brendan Lahiff, 408-801-1732
brendan.lahiff@sandisk.com
Media Contact:
Lee Garvin Flanagin, 408-801-2463
lee.flanagin@sandisk.com

Sharing

Contacts

SanDisk
Investor Contacts:
Jay Iyer, 408-801-2067
jay.iyer@sandisk.com
Brendan Lahiff, 408-801-1732
brendan.lahiff@sandisk.com
Media Contact:
Lee Garvin Flanagin, 408-801-2463
lee.flanagin@sandisk.com