SANDISK CORP - FORM 8-K - EX-99.1 - EXHIBIT 99.1 PRESS RELEASE AND FINANCIALS - July 19, 2012

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EXHIBIT 99.1

    
    
SanDisk Corporation
601 McCarthy Boulevard
Milpitas, CA 95035-7932
Phone: 408-801-1000
Fax: 408-801-8657



SANDISK ANNOUNCES SECOND QUARTER 2012 FINANCIAL RESULTS

Milpitas, CA, July 19, 2012 - SanDisk Corporation (NASDAQ:SNDK), a global leader in flash memory storage solutions, announced today results for the second quarter ended July 1, 2012. Total second quarter revenue of $1.03 billion declined 25% on a year-over-year basis and declined 14% on a sequential basis.

On a GAAP(1) basis, second quarter net income was $13 million, or $0.05 per diluted share, compared to net income of $248 million, or $1.02 per diluted share, in the second quarter of fiscal 2011 and $114 million, or $0.46 per diluted share, in the first quarter of fiscal 2012.

On a non-GAAP(2) basis, second quarter net income was $51 million, or $0.21 per diluted share, compared to net income of $278 million, or $1.14 per diluted share, in the second quarter of fiscal 2011 and net income of $156 million, or $0.63 per diluted share, in the first quarter of fiscal 2012. For reconciliation of non-GAAP to GAAP results, see accompanying financial tables and footnotes.

“We delivered second quarter results in line with our forecast, reflecting short-term weakness in our mobile OEM sales, strength in retail, especially in international markets, and growth in our enterprise and client SSD products,” said Sanjay Mehrotra, president and chief executive officer of SanDisk. “I am pleased to report that our SSD revenues achieved 10% of second quarter sales with growing adoption of our solutions by major OEMs. We also made good progress on our embedded product roadmap for mobile customers. We believe that strengthening industry fundamentals and our expanding portfolio of solutions will contribute to improving financial results in the second half of 2012.”
 
SECOND QUARTER 2012 KEY FINANCIAL METRICS
Metric
in millions of US$, except %
GAAP
Non-GAAP
Q212
Q211
Q112
Q212
Q211
Q112
Revenue

$1,032


$1,375


$1,206


$1,032


$1,375


$1,206

Gross Profit
% of revenue
$281
27.2% 

$613
44.6%

$417
34.5% 

$292
28.3% 

$623
45.3% 

$432
35.8% 

Operating Income
% of revenue
$36
3.5%

$379
27.6%

$192
15.9%

$68
6.6%

$402
29.3%

$227
18.8%







CONFERENCE CALL
SanDisk’s second quarter of fiscal 2012 conference call is scheduled for 2:00 P.M., Pacific Time, Thursday, July 19, 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 647-438-1131 and the dial-in password is 1091224. 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 and our expectations regarding our business, our belief that our OEM sales will improve and our industry will strengthen in the second half of 2012, our belief that industry supply/demand fundamentals are improving, our expanded product portfolio, expected financial results, and pricing and demand trends 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 form factors, capacities and underlying memory technologies;
•
excess 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 April 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 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).

CONTACT:
Investor Contact:
Media Contact:
 
Jay Iyer
Lee Flanagin
 
(408) 801-2067
(408) 801-2463





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


 
 
Three months ended
 
Six months ended
 
 
July 1, 2012
 
July 3, 2011
 
July 1, 2012
 
July 3, 2011
Revenues:
 
 
 
 
 
 
 
 
   Product
 
$
945,204

 
$
1,281,960

 
$
2,051,626

 
$
2,492,207

   License and royalty
 
87,051

 
93,033

 
186,190

 
176,986

Total revenues
 
1,032,255

 
1,374,993

 
2,237,816

 
2,669,193

 
 
 
 
 
 
 
 
 
Cost of product revenues
 
742,297

 
753,307

 
1,517,617

 
1,490,799

Amortization of acquisition-related intangible assets
 
9,181

 
8,254

 
22,912

 
13,370

Total cost of product revenues
 
751,478

 
761,561

 
1,540,529

 
1,504,169

Gross profit
 
280,777

 
613,432

 
697,287

 
1,165,024

 
 
 
 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
 
 
 
   Research and development
 
152,397

 
145,332

 
293,354

 
264,874

   Sales and marketing
 
52,261

 
48,200

 
101,296

 
95,657

   General and administrative
 
37,692

 
40,154

 
70,283

 
75,453

   Amortization of acquisition-related intangible assets
 
2,244

 
730

 
4,307

 
730

Total operating expenses
 
244,594

 
234,416

 
469,240

 
436,714

Operating income
 
36,183

 
379,016

 
228,047

 
728,310

Other income (expense), net
 
(17,197
)
 
(14,273
)
 
(42,513
)
 
(32,639
)
Income before income taxes
 
18,986

 
364,743

 
185,534

 
695,671

Provision for income taxes
 
6,017

 
116,353

 
58,180

 
223,157

Net income
 
$
12,969

 
$
248,390

 
$
127,354

 
$
472,514

 
 
 
 
 
 
 
 
 
Net income per share:
 
 
 
 
 
 
 
 
   Basic
 
$
0.05

 
$
1.04

 
$
0.53

 
$
1.98

   Diluted
 
$
0.05

 
$
1.02

 
$
0.52

 
$
1.94

 
 
 
 
 
 
 
 
 
Shares used in computing net income per share:
 
 
 
 
 
 
 
 
   Basic
 
242,276

 
238,851

 
242,579

 
238,162

   Diluted
 
244,570

 
243,862

 
246,026

 
243,718






SanDisk Corporation
Reconciliation of Preliminary GAAP to Non-GAAP Operating Results (1)
(in thousands, except per share data, unaudited)
 
Three months ended
 
Six months ended
 
July 1, 2012
 
July 3, 2011
 
July 1, 2012
 
July 3, 2011
SUMMARY RECONCILIATION OF NET INCOME
 
 
 
 
 
 
 
GAAP NET INCOME
$
12,969

 
$
248,390

 
$
127,354

 
$
472,514

    Share-based compensation (a)
20,253

 
14,358

 
39,333

 
28,949

    Amortization of acquisition-related intangible assets (b)
11,425

 
8,984

 
27,219

 
14,100

    Convertible debt interest (c)
22,355

 
23,833

 
44,242

 
47,198

    Income tax adjustments (d)
(15,889
)
 
(17,520
)
 
(30,719
)
 
(34,136
)
NON-GAAP NET INCOME
$
51,113

 
$
278,045

 
$
207,429

 
$
528,625

 
 
 
 
 
 
 
 
GAAP COST OF PRODUCT REVENUES
$
751,478

 
$
761,561

 
$
1,540,529

 
$
1,504,169

   Share-based compensation (a)
(1,923
)
 
(1,089
)
 
(3,460
)
 
(2,032
)
   Amortization of acquisition-related intangible assets (b)
(9,181
)
 
(8,254
)
 
(22,912
)
 
(13,370
)
NON-GAAP COST OF PRODUCT REVENUES
$
740,374

 
$
752,218

 
$
1,514,157

 
$
1,488,767

 
 
 
 
 
 
 
 
GAAP GROSS PROFIT
$
280,777

 
$
613,432

 
$
697,287

 
$
1,165,024

  Share-based compensation (a)
1,923

 
1,089

 
3,460

 
2,032

  Amortization of acquisition-related intangible assets (b)
9,181

 
8,254

 
22,912

 
13,370

NON-GAAP GROSS PROFIT
$
291,881

 
$
622,775

 
$
723,659

 
$
1,180,426

 
 
 
 
 
 
 
 
GAAP RESEARCH AND DEVELOPMENT EXPENSES
$
152,397

 
$
145,332

 
$
293,354

 
$
264,874

  Share-based compensation (a)
(10,623
)
 
(7,684
)
 
(20,650
)
 
(14,928
)
NON-GAAP RESEARCH AND DEVELOPMENT EXPENSES
$
141,774

 
$
137,648

 
$
272,704

 
$
249,946

 
 
 
 
 
 
 
 
GAAP SALES AND MARKETING EXPENSES
$
52,261

 
$
48,200

 
$
101,296

 
$
95,657

  Share-based compensation (a)
(3,634
)
 
(2,868
)
 
(7,263
)
 
(5,042
)
NON-GAAP SALES AND MARKETING EXPENSES
$
48,627

 
$
45,332

 
$
94,033

 
$
90,615

 
 
 
 
 
 
 
 
GAAP GENERAL AND ADMINISTRATIVE EXPENSES
$
37,692

 
$
40,154

 
$
70,283

 
$
75,453

  Share-based compensation (a)
(4,073
)
 
(2,717
)
 
(7,960
)
 
(6,947
)
NON-GAAP GENERAL AND ADMINISTRATIVE EXPENSES
$
33,619

 
$
37,437

 
$
62,323

 
$
68,506

 
 
 
 
 
 
 
 
GAAP TOTAL OPERATING EXPENSES
$
244,594

 
$
234,416

 
$
469,240

 
$
436,714

  Share-based compensation (a)
(18,330
)
 
(13,269
)
 
(35,873
)
 
(26,917
)
  Amortization of acquisition-related intangible assets (b)
(2,244
)
 
(730
)
 
(4,307
)
 
(730
)
NON-GAAP TOTAL OPERATING EXPENSES
$
224,020

 
$
220,417

 
$
429,060

 
$
409,067

 
 
 
 
 
 
 
 
GAAP OPERATING INCOME
$
36,183

 
$
379,016

 
$
228,047

 
$
728,310

  Cost of product revenues adjustments (a) (b)
11,104

 
9,343

 
26,372

 
15,402

  Operating expense adjustments (a) (b)
20,574

 
13,999

 
40,180

 
27,647

NON-GAAP OPERATING INCOME
$
67,861

 
$
402,358

 
$
294,599

 
$
771,359

 
 
 
 
 
 
 
 
GAAP OTHER INCOME (EXPENSE), NET
$
(17,197
)
 
$
(14,273
)
 
$
(42,513
)
 
$
(32,639
)
    Convertible debt interest (c)
22,355

 
23,833

 
44,242

 
47,198

NON-GAAP OTHER INCOME (EXPENSE), NET
$
5,158

 
$
9,560

 
$
1,729

 
$
14,559

 
 
 
 
 
 
 
 
GAAP NET INCOME
$
12,969

 
$
248,390

 
$
127,354

 
$
472,514

  Cost of product revenues adjustments (a) (b)
11,104

 
9,343

 
26,372

 
15,402

  Operating expense adjustments (a) (b)
20,574

 
13,999

 
40,180

 
27,647

  Convertible debt interest (c)
22,355

 
23,833

 
44,242

 
47,198

  Income tax adjustments (d)
(15,889
)
 
(17,520
)
 
(30,719
)
 
(34,136
)
NON-GAAP NET INCOME
$
51,113

 
$
278,045

 
$
207,429

 
$
528,625

 
 
 
 
 
 
 
 
Diluted net income per share:
 
 
 
 
 
 
 
  GAAP
$
0.05

 
$
1.02

 
$
0.52

 
$
1.94

  Non-GAAP
$
0.21

 
$
1.14

 
$
0.84

 
$
2.17

 
 
 
 
 
 
 
 
Shares used in computing diluted net income per share:
 
 
 
 
 
 
 
  GAAP
244,570

 
243,862

 
246,026

 
243,718

  Non-GAAP
244,701

 
243,889

 
246,026

 
243,727





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





SanDisk Corporation
Preliminary Condensed Consolidated Balance Sheets
(in thousands, unaudited)
 
July 1, 2012
 
January 1, 2012
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
1,070,454

 
$
1,167,496

Short-term marketable securities
1,468,206

 
1,681,492

Accounts receivable from product revenues, net
281,822

 
521,763

Inventory
862,518

 
678,382

Deferred taxes
97,733

 
100,409

Other current assets
356,146

 
206,419

Total current assets
4,136,879

 
4,355,961

Long-term marketable securities
2,724,382

 
2,766,263

Property, land and equipment, net
512,734

 
344,897

Notes receivable and investments in Flash Ventures
1,871,148

 
1,943,295

Deferred taxes
186,925

 
199,027

Goodwill
197,878

 
154,899

Intangible assets, net
284,181

 
287,691

Other non-current assets
161,622

 
122,615

Total assets
$
10,075,749

 
$
10,174,648

 
 
 
 
LIABILITIES
 
 
 
Current liabilities:
 
 
 
Accounts payable trade
$
255,173

 
$
258,583

Accounts payable to related parties
234,843

 
276,275

Convertible short-term debt
878,929

 
—

Other current accrued liabilities
237,237

 
337,517

Deferred income on shipments to distributors and retailers and deferred revenue
218,213

 
220,999

Total current liabilities
1,824,395

 
1,093,374

Convertible long-term debt
771,098

 
1,604,911

Non-current liabilities
442,375

 
415,524

Total liabilities
3,037,868

 
3,113,809

 
 
 
 
EQUITY
 
 
 
Stockholders’ equity:
 
 
 
Common stock
4,956,959

 
4,934,808

Retained earnings
1,829,364

 
1,796,849

Accumulated other comprehensive income
255,521

 
332,701

Total stockholders’ equity
7,041,844

 
7,064,358

Non-controlling interests
(3,963
)
 
(3,519
)
Total equity
7,037,881

 
7,060,839

Total liabilities and equity
$
10,075,749

 
$
10,174,648






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


 
Three months ended
 
Six months ended
 
July 1, 2012
 
July 3, 2011
 
July 1, 2012
 
July 3, 2011
Cash flows from operating activities:
 
 
 
 
 
 
 
Net income
$
12,969

 
$
248,390

 
$
127,354

 
$
472,514

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
 
 
 
Deferred taxes
460

 
(13,398
)
 
5,963

 
(7,224
)
Depreciation
36,525

 
27,862

 
69,703

 
57,637

Amortization
41,303

 
40,511

 
86,449

 
73,350

Provision for doubtful accounts
(439
)
 
(209
)
 
(1,724
)
 
(2,954
)
Share-based compensation expense
20,253

 
14,358

 
39,333

 
28,949

Excess tax benefit from share-based compensation
(2,424
)
 
(5,399
)
 
(11,021
)
 
(11,811
)
Impairment, restructuring and other
(1,333
)
 
(6,268
)
 
(6,787
)
 
(19,445
)
Other non-operating
22,525

 
21,235

 
52,187

 
41,683

Changes in operating assets and liabilities:
 
 
 
 
 
 
 
Accounts receivable from product revenues, net
81,197

 
(132,051
)
 
241,671

 
(587
)
Inventory
(98,503
)
 
(50,380
)
 
(183,715
)
 
(34,001
)
Other assets
(52,594
)
 
(47,620
)
 
13,112

 
(71,369
)
Accounts payable trade
30,883

 
32,852

 
(3,410
)
 
(3,457
)
Accounts payable to related parties
33,771

 
64,363

 
(41,432
)
 
33,867

Other liabilities
(105,478
)
 
75,000

 
(301,394
)
 
110,733

Total adjustments
6,146

 
20,856

 
(41,065
)
 
195,371

Net cash provided by operating activities
19,115

 
269,246

 
86,289

 
667,885

 
 
 
 
 
 
 
 
Cash flows from investing activities:
 
 
 
 
 
 
 
Purchases of short and long-term marketable securities
(605,709
)
 
(972,067
)
 
(1,362,066
)
 
(1,609,568
)
Proceeds from sale of short and long-term marketable securities
547,444

 
974,177

 
1,173,180

 
1,471,780

Proceeds from maturities of short and long-term marketable securities
214,588

 
206,570

 
407,430

 
323,810

Acquisition of property, land and equipment
(96,076
)
 
(27,608
)
 
(240,294
)
 
(61,353
)
Investment in Flash Ventures
(37,913
)
 
(18,272
)
 
(50,439
)
 
(18,333
)
Notes receivable issuances to Flash Ventures
(91,186
)
 
(152,811
)
 
(142,316
)
 
(366,762
)
Notes receivable proceeds from Flash Ventures
147,953

 
—

 
211,786

 
85,096

Purchased technology and other assets
(194
)
 
—

 
(222
)
 
(100,000
)
Acquisitions, net of cash acquired
(14,666
)
 
(302,649
)
 
(69,204
)
 
(317,649
)
Net cash provided by (used in) investing activities
64,241

 
(292,660
)
 
(72,145
)
 
(592,979
)
 
 
 
 
 
 
 
 
Cash flows from financing activities:
 
 
 
 
 
 
 
Proceeds from employee stock programs
5,354

 
16,458

 
50,672

 
58,606

Excess tax benefit from share-based compensation
2,424

 
5,399

 
11,021

 
11,811

Share repurchase program
(93,164
)
 
—

 
(154,075
)
 
—

Net cash received (paid) for share repurchase contracts
(20,000
)
 
—

 
(18,858
)
 
—

Net cash provided by (used in) financing activities
(105,386
)
 
21,857

 
(111,240
)
 
70,417

Effect of changes in foreign currency exchange rates on cash
(779
)
 
1,961

 
54

 
382

Net increase (decrease) in cash and cash equivalents
(22,809
)
 
404

 
(97,042
)
 
145,705

Cash and cash equivalents at beginning of period
1,093,263

 
974,450

 
1,167,496

 
829,149

Cash and cash equivalents at end of period
$
1,070,454

 
$
974,854

 
$
1,070,454

 
$
974,854




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