EX-99.1 2 f22251exv99w1.htm EXHIBIT 99.1 exv99w1
 

Exhibit 99.1
         
CONTACT:
  Investor Contact:   Media Contact:
 
  Lori Barker Padon   Mike Wong
 
  (408) 801-1384   (408) 801-1240
SANDISK REPORTS SECOND QUARTER 2006 RESULTS
•   Revenues of $719 million, up 40% year-over-year
•   GAAP EPS $0.47; Non-GAAP EPS $0.58
     SUNNYVALE, CA, July 24, 2006 – SanDisk® Corporation (NASDAQ:SNDK), the world’s largest supplier of flash storage card products, today announced results for the second quarter ended July 2, 2006. Total second quarter revenues increased 40% on a year-over-year basis to $719 million. Second quarter net income as reported in accordance with U.S. Generally Accepted Accounting Principles (GAAP) was $96 million, or $0.47 per diluted share.
     Excluding the impact of stock compensation expense and amortization of acquisition related intangible assets and the related tax effect, second quarter non-GAAP net income grew 67% to $118 million, or $0.58 per diluted share, which compares to the second quarter 2005 GAAP results of $70 million, or $0.37 per diluted share.
     “The second quarter was an excellent quarter for both our OEM and our retail business. Mobile cards sold into handsets were the star performer with more than 15 million cards sold in the quarter. Our microSDTM card has become our number one product in units and our second largest product by revenue. Our SansaTM e200 audio players have been well received, solidifying our clear #2 share for flash players in U.S. retail in the second quarter. Our SanDisk ExtremeTM high performance cards for professional photographers were our fastest growing product line in the quarter. Solid execution of the 300-millimeter fab ramp and 8 gigabit 70-nanometer MLC shipments contributed to improved product margins despite a challenging industry-wide pricing environment. The cumulative pricing reductions implemented over the past two quarters are showing positive demand elasticity as evidenced by 20% growth in average capacity and 46% more megabytes sold compared to the first quarter,” said Eli Harari, chairman and chief executive officer of SanDisk Corporation. “We are optimistic about growth in demand in our target markets in the second half and with Fab 3 costs steadily declining and our captive capacity ramping, we believe we are well positioned for the anticipated demand upswing in the back half of this year.”
Metrics and Highlights
•   Product revenues grew 40% and license and royalty revenue grew 35% year-over-year.
•   Megabytes sold in the second quarter increased 178% year-over-year and 46% from the first quarter of 2006.
•   Average density per card sold in retail grew 15% sequentially to 758 megabytes. Average density per card sold across all channels grew 20% sequentially.
•   Average price per megabyte sold declined 19% sequentially and 49% from the second quarter of 2005.
•   Total GAAP gross margin was 40% of revenues compared to 42% in the second quarter of 2005 and 38% in the first quarter of 2006.
•   GAAP product gross margin for the second quarter of 2006 was 32% of revenues compared to 34% in

 

 

    the second quarter of 2005 and 28% in the first quarter of 2006.
•   GAAP operating income for the second quarter of 2006 was $129 million or 18% of revenues. Non-GAAP operating income was $159 million or 22% of revenue compared to $106 million or 21% of revenue in the second quarter of 2005.
•   Cash flow from operations was $59 million, and total cash and investments increased sequentially by $933 million to $2.7 billion.
•   SanDisk sold $1.15 billion aggregate principal amount of Convertible Senior Notes due in 2013.
•   SanDisk introduced high capacity new products including the 4 gigabyte (GB) SD High Capacity card and the 4GB Memory Stick PRO DuoTM game card.
•   Retail presence grew to more than 187,000 storefronts including 54,000 in the mobile channel.
•   SanDisk and Toshiba signed a definitive agreement to build a new 300-millimeter NAND wafer fabrication facility in Yokkaichi, Japan with initial production expected to begin in the fourth quarter of 2007.
Scheduled Interviews
SanDisk Corporation Chairman and Chief Executive Officer, Eli Harari, is scheduled to appear on CNBC’s “Closing Bell with Maria Bartiromo,” on July 24, 2006 at approximately 1:10 p.m. PDT. Judy Bruner, SanDisk’s Executive Vice President, Administration and CFO is scheduled to appear on Bloomberg Radio’s “Bloomberg Radio Report,” July 25, 2006 at approximately 3:20 a.m. PDT.
Conference Call
SanDisk’s second quarter 2006 conference call is scheduled for 2:00 p.m. PDT, Monday, July 24, 2006. The conference call will be webcast by CCBN and can be accessed live, and throughout the quarter, at SanDisk’s website at www.sandisk.com/IR and at www.streetevents.com for registered streetevents.com users. To participate in the call via telephone, the dial-in number is (913) 981-4901. A copy of this press release will be filed with 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 outlook for the second half of 2006, including anticipated increased demand for our products, market supply and demand, expected captive manufacturing cost reductions and scheduled appearances by our CEO and CFO that are based on our current expectations and involve numerous risks and uncertainties that may cause these forward-looking statements to be inaccurate and may significantly and adversely affect our business, financial condition and results of operations. Risks that may cause these forward-looking statements to be inaccurate include among others: slower than expected growth in market demand for our products or a slower adoption rate for these products in current and new markets that we are targeting, any interruption of or delay in supply from any of the semiconductor manufacturing or subcontracting facilities, including test and assembly facilities that supply products to us, slower than expected expansion of our global sales channels, fluctuations in operating results, unexpected yield variances related to our conversion to 70-nanometer NAND flash technology or the ramp-up of the 300mm flash fabrication facility, our inability to make additional planned smaller geometry conversions in a timely manner, future average selling price erosion that may be more severe than our expectations due to decreased demand or possible excess industry capacity of flash memory from ourselves as well as from existing suppliers or from new competitors, less than expected growth in the average megabyte capacity per card, price increases from non-captive flash memory sources and third-party subcontractors, higher than expected operating expenses, higher than anticipated capital equipment

 

 

expenditures, adverse global economic and geo-political conditions, including adverse currency exchange rates and acts of terror and war, the timely development, internal qualification and customer acceptance of new products that are based on 70-nanometer NAND technology, fluctuations in license and royalty revenues, business interruption due to earthquakes, hurricanes, pandemics, power outages or other natural disasters, particularly in areas in the Pacific Rim and Japan where we manufacture and assemble products, potential impact of high energy prices and other global events outside of our control which could adversely impact consumer confidence and hence reduce demand for our products, scheduled appearances by our executives could be cancelled or delayed by us or the network, 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 Form 10-K for the fiscal year ended January 1, 2006 and our quarterly reports on Form 10-Q. Future results may differ materially from those previously reported. We do not intend to update the information contained in this release.
About SanDisk
SanDisk is the original inventor of flash storage cards and is the world’s largest supplier of flash data storage card products using its patented, high-density flash memory and controller technology. SanDisk is headquartered in Milpitas, CA and has operations worldwide with more than half its sales outside the U.S.
www.sandisk.com
SanDisk and SanDisk Extreme are trademarks of SanDisk Corporation, registered in the United States and other countries. Memory Stick PRO is a trademark of Sony Corporation.

 

 

SanDisk Corporation
Condensed Consolidated Statements of Income
(In thousands, except per share data, unaudited)
                                 
    Three months ended     Six months ended  
    July 2, 2006     July 3, 2005     July 2, 2006     July 3, 2005  
Revenues:
                                
Product
   $ 636,675     $ 453,762     $ 1,174,403     $ 853,441  
License and royalty
     82,510       61,134       168,042       112,430  
 
                        
Total revenue
     719,185       514,896       1,342,445       965,871  
 
                                
Cost of product revenues
     430,177       300,797       815,044       551,985  
 
                        
Gross profits
     289,008       214,099       527,401       413,886  
 
                                
Operating expenses:
                                
Research and development
     73,785       61,404       137,547       107,351  
Sales and marketing
     45,067       27,034       88,442       51,631  
General and administrative
     37,182       19,617       67,198       35,341  
Write-off of acquired in-process technology
     —       —       39,600       —  
Amortization of acquisition related intangible assets
     4,432       —       8,147       —  
 
                        
Total operating expenses
     160,466       108,055       340,934       194,323  
 
                        
 
                                
Operating income
     128,542       106,044       186,467       219,563  
 
                                
Total other income
     22,013       5,854       40,477       10,615  
 
                        
 
                                
Income before taxes
     150,555       111,898       226,944       230,178  
 
                                
Provision for income taxes
     54,914       41,402       96,188       85,166  
 
                        
Net income
   $ 95,641     $ 70,496     $ 130,756     $ 145,012  
 
                        
 
                                
Shares used in computing net income per share
                                
Basic
     195,527       181,469       194,302       181,050  
Diluted
     202,980       190,256       202,522       190,127  
 
                                
Net income per share
                                
Basic
   $ 0.49     $ 0.39     $ 0.67     $ 0.80  
Diluted
   $ 0.47     $ 0.37     $ 0.65     $ 0.76  

 

 

SanDisk Corporation
Reconciliation of GAAP to Non-GAAP Operating Results (*)
(In thousands, except per share data, unaudited)
                                 
    Three months ended     Six months ended  
    July 2, 2006     July 3, 2005     July 2, 2006     July 3, 2005  
GAAP gross profit
   $ 289,008     $ 214,099     $ 527,401     $ 413,886  
Stock compensation (a)
     2,478       —       2,478       —  
 
                        
Non-GAAP gross profit
   $ 291,486     $ 214,099     $ 529,879     $ 413,886  
 
                        
 
                                
GAAP total operating expenses
   $ 160,466     $ 108,055     $ 340,934     $ 194,323  
Stock compensation (a)
     (23,392 )     —       (42,178 )     —  
Write-off of acquired in-process technology (b)
     —       —       (39,600 )     —  
Amortization of acquisition-related intangible assets (c)
     (4,432 )     —       (8,147 )     —  
 
                        
Non-GAAP total operating expenses
   $ 132,642     $ 108,055     $ 251,009     $ 194,323  
 
                        
 
                                
GAAP operating income
   $ 128,542     $ 106,044     $ 186,467     $ 219,563  
Cost of goods sold adjustments (a)
     2,478       —       2,478       —  
Operating expense adjustments (a-c)
     27,824       —       89,925       —  
 
                        
Non-GAAP operating income
   $ 158,844     $ 106,044     $ 278,870     $ 219,563  
 
                        
 
                                
GAAP net income
   $ 95,641     $ 70,496     $ 130,756     $ 145,012  
Cost of goods sold adjustments (a)
     2,478       —       2,478       —  
Operating expense adjustments (a-c)
     27,824       —       89,925       —  
Income tax adjustments (d)
     (8,385 )     —       (15,583 )     —  
 
                        
Non-GAAP net income
   $ 117,558     $ 70,496     $ 207,576     $ 145,012  
 
                        
 
                                
Basic net income per share:
                                
GAAP
   $ 0.49     $ 0.39     $ 0.67     $ 0.80  
Non-GAAP
   $ 0.60     $ 0.39     $ 1.07     $ 0.80  
 
                                
Diluted net income per share:
                                
GAAP
   $ 0.47     $ 0.37     $ 0.65     $ 0.76  
Non-GAAP
   $ 0.58     $ 0.37     $ 1.02     $ 0.76  
 
                                
Shares used in computing basic net income per share:
                                
GAAP
     195,527       181,469       194,302       181,050  
Non-GAAP
     195,527       181,469       194,302       181,050  
 
                                
Shares used in computing diluted net income per share:
                                
GAAP
     202,980       190,256       202,522       190,127  
Non-GAAP
     204,126       190,256       203,716       190,127  
 
(*)   To supplement our consolidated financial statements presented in accordance with generally accepted accounting principles (GAAP), we use non-GAAP measures of operating results, net income and earnings 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 stock compensation in accordance with SFAS 123(R) effective January 2, 2006 and the acquisition of Matrix Semiconductor, Inc. in January 2006, we believe the inclusion of non-GAAP financial measures provide consistency in our financial reporting. These non-GAAP results are one of the primary indicators management uses for assessing our performance, allocating resources and planning and forecasting future periods. Further, management uses non-GAAP information as certain non-cash charges such as amortization of purchased intangibles and stock based compensation do not reflect the cash operating results of the business and certain one-time expenses such as write-off of acquired in-process technology that do not reflect 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)   Equity based compensation expense.
 
(b)   Write-off of acquired in-process technology associated with the Matrix acquisition (January 2006).
 
(c)   Amortization of acquisition-related intangible assets, primarily core and developed technology, related to the acquisition of Matrix.
 
(d)   Income taxes associated with certain non-GAAP adjustments.

 

 

SanDisk Corporation
Condensed Consolidated Balance Sheets
(In thousands)
                 
    July 2, 2006     January 1, 2006*  
    (unaudited)        
ASSETS
                
Current Assets:
                
Cash and cash equivalents
   $ 1,318,479     $ 762,058  
Short-term investments
     960,995       935,639  
Investment in foundries
     18,990       18,338  
Accounts receivable, net
     311,921       329,014  
Inventories
     378,196       331,584  
Deferred taxes
     107,283       95,518  
Other current assets
     121,164       103,584  
 
            
Total current assets
     3,217,028       2,575,735  
 
                
Long-term investments
     405,714       —  
Property and equipment, net
     254,695       211,092  
Notes receivable, FlashVision
     63,750       61,927  
Notes receivable, Flash Partners
     96,061       —  
Investment in foundries
     16,364       11,013  
Investment in FlashVision
     164,888       161,080  
Investment in Flash Partners
     174,325       42,067  
Deferred taxes
     143,630       —  
Goodwill
     167,248       5,415  
Intangible, net
     97,232       4,608  
Deposits and other non-current assets
     39,674       47,250  
 
            
 
                
Total Assets
   $ 4,840,609     $ 3,120,187  
 
            
 
                
LIABILITIES AND STOCKHOLDERS’ EQUITY
                
 
                
Current Liabilities:
                
Accounts payable
   $ 110,864     $ 231,208  
Accounts payable to related parties
     86,153       74,121  
Accrued payroll and related expenses
     45,035       55,614  
Income taxes payable
     12,994       2,165  
Research and development liability, related party
     5,984       4,200  
Other current accrued liabilities
     75,934       53,546  
Deferred income on shipments to distributors and retailers and deferred revenue
     143,678       150,283  
 
            
Total current liabilities
     480,642       571,137  
 
                
Convertible senior notes
     1,150,000       —  
Deferred revenue and non-current liabilities
     40,850       25,259  
 
            
Total Liabilities
     1,671,492       596,396  
 
                
Commitments and contingencies
                
 
                
Stockholders’ Equity:
                
Common stock
     2,120,763       1,622,007  
Retained earnings
     1,037,380       906,624  
Accumulated other comprehensive income
     10,974       2,635  
Deferred compensation
     —       (7,475 )
 
            
Total stockholders’ equity
     3,169,117       2,523,791  
 
            
 
                
Total Liabilities and Stockholders’ Equity
   $ 4,840,609     $ 3,120,187  
 
            
 
*   Information derived from the audited Condensed Consolidated Financial Statements.

 

 

SanDisk Corporation
Condensed Consolidated Comparative Statement of Cash Flows
(In thousands, unaudited)
                                 
    Three months ended     Six months ended  
    July 2, 2006     July 3, 2005     July 2, 2006     July 3, 2005  
Cash flows from operating activities:
                                
Net income
   $ 95,641     $ 70,496     $ 130,756     $ 145,012  
Adjustments to reconcile net income to net cash
                                
provided by operating activities:
                                
Deferred taxes
     (3,939 )     (12 )     (17,395 )     1,076  
Loss (gain) on investments
     (602 )     5,224       (1,195 )     9,253  
Depreciation and amortization
     31,269       14,951       57,666       29,413  
Provision for doubtful accounts
     1,527       (163 )     1,001       (163 )
Deferred stock-based compensation
     25,903       550       44,688       1,069  
Write-off of acquired in-process technology
     —       —       39,600       —  
Other non-cash charges
     (3,536 )     3,492       (4,744 )     2,274  
Changes in operating assets and liabilities:
                                
Accounts receivable
     (67,498 )     (33,525 )     23,048       (47,800 )
Inventories
     35,508       (5,810 )     (39,976 )     (33,171 )
Other assets
     (68,324 )     (59,213 )     (8,743 )     (15,241 )
Accounts payable trade
     (65,623 )     18,624       (123,758 )     30,132  
Accounts payable, related party
     6,857       (1,038 )     13,065       15,947  
Other liabilities
     72,156       45,625       (2,225 )     55,676  
 
                        
Total adjustments
     (36,302 )     (11,295 )     (18,968 )     48,465  
 
                        
 
                                
Net cash provided by operating activities
     59,339       59,201       111,788       193,477  
 
                        
 
                                
Cash flows from investing activities:
                                
Purchases of short and long term investments
     (685,531 )     (156,384 )     (805,300 )     (295,582 )
Proceeds from sale and maturities of short and long term investments
     220,782       128,158       375,446       281,608  
Investment in Flash Partners
     (84,338 )     —       (127,919 )     —  
Acquisition of capital equipment, net
     (37,125 )     (26,067 )     (89,722 )     (56,218 )
Notes receivable from FlashVision
     —       —       —       (22,222 )
Notes receivable from Flash Partners
     (95,445 )     —       (95,445 )     —  
Cash acquired in business combination with Matrix, net of acquisition costs
     —       —       9,432       —  
 
                        
Net cash used in investing activities
     (681,657 )     (54,293 )     (733,508 )     (92,414 )
 
                        
 
                                
Cash flows from financing activities:
                                
Proceeds from issuance of convertible notes, net of issuance costs
     1,125,500       —       1,125,500       —  
Purchase of convertible bond hedge
     (386,090 )     —       (386,090 )     —  
Proceeds from issuance of warrants
     308,672       —       308,672       —  
Proceeds from employee stock programs
     22,789       4,581       68,850       15,853  
Tax benefit on employee stock programs
     19,114       —       61,023       —  
 
                        
Net cash provided by financing activities
     1,089,985       4,581       1,177,955       15,853  
 
                        
 
                                
Effect of changes in foreign currency exchange rates on cash
     247       (205 )     186       378  
 
                        
 
                                
Net increase in cash and cash equivalents
     467,914       9,284       556,421       117,294  
 
                                
Cash and cash equivalents at beginning of period
     850,565       571,805       762,058       463,795  
 
                                
 
                        
Cash and cash equivalents at end of period
   $ 1,318,479     $ 581,089     $ 1,318,479     $ 581,089