SNDK Sandisk Corp.

SanDisk Corporation (NASDAQ: SNDK), a global leader in flash storage solutions, today announced results for the fourth quarter and fiscal year ended December 28, 2014. Fourth quarter revenue of $1.74 billion was slightly higher on a year-over-year basis and decreased 1 percent sequentially. Total revenue for fiscal 2014 was a record $6.63 billion, a 7 percent increase from $6.17 billion in fiscal 2013.

On a GAAP(1) basis, fourth quarter net income was $202 million, or $0.86 per share, compared to net income of $338 million, or $1.45 per share, in the fourth quarter of fiscal 2013 and $263 million, or $1.09 per share, in the third quarter of fiscal 2014. Net income for fiscal 2014 was $1.01 billion, or $4.23 per share, compared to $1.04 billion, or $4.34 per share, in fiscal 2013.

On a non-GAAP(2)(3) basis, fourth quarter net income was $294 million, or $1.30 per share, compared to net income of $390 million, or $1.71 per share, in the fourth quarter of fiscal 2013 and net income of $336 million, or $1.45 per share, in the third quarter of fiscal 2014. Net income for fiscal 2014 was $1.29 billion, or $5.60 per share, compared to $1.27 billion, or $5.31 per share, in fiscal 2013. For a reconciliation of non-GAAP to GAAP results, see accompanying financial tables and footnotes.

“We delivered record revenue in 2014 with continued progress in shifting our portfolio towards high value solutions,” said Sanjay Mehrotra, president and chief executive officer of SanDisk. “Our SSD solutions reached 29 percent of revenue in 2014, with strong growth from both client and enterprise SSDs. We are disappointed with our fourth quarter results, which were impacted primarily by supply constraints. We believe that NAND flash industry fundamentals are healthy, and we expect our financial results to improve as we move through 2015.”

FOURTH QUARTER KEY FINANCIAL METRICS

Metrics     GAAP(1)     Non-GAAP(2) (in millions, except percentages and per share amounts)     Q4’14   Q4’13   Q3’14     Q4’14   Q4’13   Q3’14 Revenue     $1,735   $1,728   $1,746     $1,735   $1,728   $1,746 Gross profit $740   $857   $817     $780   $880   $855 percent of revenue     43%   50%   47%     45%   51%   49% Operating income $328 $507 $388 $419 $556 $481 percent of revenue     19%   29%   22%     24%   32%   28% EPS(3)     $0.86   $1.45   $1.09     $1.30   $1.71   $1.45  

FISCAL 2014 KEY FINANCIAL METRICS

Metrics     GAAP(1)     Non-GAAP(2) (in millions, except percentages and per share amounts)     FY’14   FY’13     FY’14   FY’13 Revenue     $6,628   $6,170     $6,628   $6,170 Gross profit $3,068   $2,867     $3,191   $2,927 percent of revenue     46%   46%     48%   47% Operating income $1,558 $1,562 $1,848 $1,806 percent of revenue     24%   25%     28%   29% EPS(3)     $4.23   $4.34     $5.60   $5.31  

OTHER HIGHLIGHTS

• SanDisk announced today that its Board of Directors has authorized a $2.5 billion increase in the company’s existing share repurchase program. With the additional authorization, the company has approximately $3.0 billion remaining available for stock repurchases under the program.
• SanDisk announced today a first quarter 2015 dividend of $0.30 per share of common stock, payable on March 23, 2015 to shareholders of record as of the close of business on March 2, 2015.
• SanDisk celebrated the receipt of its 5,000th patent and was named a Thomson Reuters 2014 Top 100 Global Innovator for the fourth consecutive year.
• SanDisk introduced the iXpand™ Flash Drive, the company's first USB Flash Drive designed specifically for iPhone and iPad, allowing quick photo and video transfers from an iPhone or iPad to a Mac or PC.

CONFERENCE CALL

SanDisk’s fourth quarter of fiscal 2014 conference call is scheduled for 2:00 P.M., Pacific Standard Time, Wednesday, January 21, 2015. 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 785-830-7989 and the password is 9225981. Participants are encouraged to dial in at least 10 minutes before the call commences. 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 SanDisk’s 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 smartphones, tablets and PCs. SanDisk’s consumer products are available at hundreds of thousands of retail stores worldwide. For more information, visit www.sandisk.com.

©2015 SanDisk Corporation. All rights reserved. SanDisk is a trademark of SanDisk Corporation, registered in the United States and other countries. iXpand is a trademark of SanDisk Corporation. iPhone, iPad and Mac are trademarks of Apple Inc., registered in the US and other countries.

This news release contains certain forward-looking statements, including those regarding our business prospects, continued favorable portfolio mix shift, market growth, industry supply-demand environment, product introductions, our intended financial plans and our performance for 2015, that are based on our current expectations and involve numerous risks and uncertainties that may cause these forward-looking statements to be inaccurate.

Risks that may cause these forward-looking statements to be inaccurate include, among others:

• competitive pricing pressures or product mix changes, resulting in lower average selling prices, lower revenues and reduced gross margins;
• insufficient or mismatched captive memory output, capacity, or inventory, resulting in lost revenue and growth opportunities, or excess or mismatched captive memory output or capacity, resulting in lower average selling prices, financial charges and impairments, lower gross margin or other consequences;
• weakness in demand in one or more of our product categories, such as embedded products or SSDs, or adverse changes in our product or customer mix;
• potential delays in product development or lack of customer acceptance and qualification of our solutions, including on new technology nodes, particularly OEM products such as our embedded flash storage and SSD solutions;
• inability to develop, or unexpected difficulties or delays in developing or ramping with acceptable yields, new technologies or the failure of new technologies to effectively compete with those of our competitors;
• our 1Z-nanometer process technology, our X3 NAND memory architecture, our 3D NAND technology or our solutions utilizing these new technologies may not be available when we expect;
• delays in the successful integration of Fusion-io or our inability to achieve the expected benefits from the acquisition in a timely manner, or at all; 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 September 28, 2014.

(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, inventory step-up expense, non-cash economic interest expense associated with our convertible debt, non-cash change in fair value of the liability component of the convertible debt due to the conversion of a portion of the 1.5% Convertible Senior Notes due 2017 and related tax adjustments.

(3) Non-GAAP shares include the impact of offsetting shares from the call options related to the 1.5% Convertible Senior Notes due 2017 and 0.5% Convertible Senior Notes due 2020, 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 28, 2014 December 29, 2013 December 28, 2014 December 29, 2013   Revenue $ 1,735,254 $ 1,727,858 $ 6,627,701 $ 6,170,003   Cost of revenue 962,445 851,087 3,458,954 3,252,988 Amortization of acquisition-related intangible assets   33,039     19,616     100,899     49,532   Total cost of revenue   995,484     870,703     3,559,853     3,302,520   Gross profit 739,770 857,155 3,067,848 2,867,483   Operating expenses: Research and development 226,142 215,281 852,310 742,268 Sales and marketing 111,526 81,347 383,288 276,312 General and administrative 52,104 51,158 214,902 192,310 Amortization of acquisition-related intangible assets 13,681 1,956 26,423 11,155 Impairment of acquisition-related intangible assets ― ― ― 83,228 Restructuring and other   8,007   ―   32,991   ― Total operating expenses   411,460     349,742     1,509,914     1,305,273   Operating income 328,310 507,413 1,557,934 1,562,210   Other income (expense), net   (24,815 )   (12,171 )   (68,904 )   (46,061 ) Income before income taxes 303,495 495,242 1,489,030 1,516,149   Provision for income taxes   101,604     157,462     481,584     473,492   Net income $ 201,891   $ 337,780   $ 1,007,446   $ 1,042,657     Net income per share: Basic $ 0.93 $ 1.50 $ 4.52 $ 4.44 Diluted $ 0.86 $ 1.45 $ 4.23 $ 4.34   Shares used in computing net income per share: Basic 217,264 225,252 222,714 234,886 Diluted 234,794 232,812 238,209 240,236     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 28, 2014   December 29, 2013 December 28, 2014   December 29, 2013   SUMMARY RECONCILIATION OF NET INCOME:   GAAP NET INCOME $ 201,891 $ 337,780 $ 1,007,446 $ 1,042,657 Share-based compensation (a) 40,639 27,431 155,313 99,756 Amortization of acquisition-related intangible assets (b) 46,720 21,572 127,322 60,687 Inventory step-up expense (c) 2,931 ― 7,834 ― Impairment of acquisition-related intangible assets (d) ― ― ― 83,228 Convertible debt interest (e) 22,152 17,402 85,734 67,604 Income tax adjustments (f)   (20,388 )   (13,840 )   (95,474 )   (86,971 ) NON-GAAP NET INCOME $ 293,945   $ 390,345   $ 1,288,175   $ 1,266,961     GAAP COST OF REVENUE $ 995,484 $ 870,703 $ 3,559,853 $ 3,302,520 Share-based compensation (a) (4,601 ) (2,940 ) (14,719 ) (9,820 ) Amortization of acquisition-related intangible assets (b) (33,039 ) (19,616 ) (100,899 ) (49,532 ) Inventory step-up expense (c)   (2,931 ) ―   (7,834 ) ― NON-GAAP COST OF REVENUE $ 954,913   $ 848,147   $ 3,436,401   $ 3,243,168     GAAP GROSS PROFIT $ 739,770 $ 857,155 $ 3,067,848 $ 2,867,483 Share-based compensation (a) 4,601 2,940 14,719 9,820 Amortization of acquisition-related intangible assets (b) 33,039 19,616 100,899 49,532 Inventory step-up expense (c)   2,931   ―   7,834   ― NON-GAAP GROSS PROFIT $ 780,341   $ 879,711   $ 3,191,300   $ 2,926,835     GAAP RESEARCH AND DEVELOPMENT EXPENSES $ 226,142 $ 215,281 $ 852,310 $ 742,268 Share-based compensation (a)   (20,198 )   (14,035 )   (74,842 )   (51,521 ) NON-GAAP RESEARCH AND DEVELOPMENT EXPENSES $ 205,944   $ 201,246   $ 777,468   $ 690,747     GAAP SALES AND MARKETING EXPENSES $ 111,526 $ 81,347 $ 383,288 $ 276,312 Share-based compensation (a)   (8,953 )   (5,380 )   (36,214 )   (19,193 ) NON-GAAP SALES AND MARKETING EXPENSES $ 102,573   $ 75,967   $ 347,074   $ 257,119     GAAP GENERAL AND ADMINISTRATIVE EXPENSES $ 52,104 $ 51,158 $ 214,902 $ 192,310 Share-based compensation (a)   (6,887 )   (5,076 )   (29,538 )   (19,222 ) NON-GAAP GENERAL AND ADMINISTRATIVE EXPENSES $ 45,217   $ 46,082   $ 185,364   $ 173,088     GAAP TOTAL OPERATING EXPENSES $ 411,460 $ 349,742 $ 1,509,914 $ 1,305,273 Share-based compensation (a) (36,038 ) (24,491 ) (140,594 ) (89,936 ) Amortization of acquisition-related intangible assets (b) (13,681 ) (1,956 ) (26,423 ) (11,155 ) Impairment of acquisition-related intangible assets (d) ― ― ―   (83,228 ) NON-GAAP TOTAL OPERATING EXPENSES $ 361,741   $ 323,295   $ 1,342,897   $ 1,120,954     GAAP OPERATING INCOME $ 328,310 $ 507,413 $ 1,557,934 $ 1,562,210 Cost of revenue adjustments (a) (b) (c) 40,571 22,556 123,452 59,352 Operating expense adjustments (a) (b) (d)   49,719     26,447     167,017     184,319   NON-GAAP OPERATING INCOME $ 418,600   $ 556,416   $ 1,848,403   $ 1,805,881     GAAP OTHER INCOME (EXPENSE), NET $ (24,815 ) $ (12,171 ) $ (68,904 ) $ (46,061 ) Convertible debt interest (e)   22,152     17,402     85,734     67,604   NON-GAAP OTHER INCOME (EXPENSE), NET $ (2,663 ) $ 5,231   $ 16,830   $ 21,543     GAAP NET INCOME $ 201,891 $ 337,780 $ 1,007,446 $ 1,042,657 Cost of revenue adjustments (a) (b) (c) 40,571 22,556 123,452 59,352 Operating expense adjustments (a) (b) (d) 49,719 26,447 167,017 184,319 Other income (expense) adjustments (e) 22,152 17,402 85,734 67,604 Income tax adjustments (f)   (20,388 )   (13,840 )   (95,474 )   (86,971 ) NON-GAAP NET INCOME $ 293,945   $ 390,345   $ 1,288,175   $ 1,266,961     Diluted net income per share: GAAP $ 0.86 $ 1.45 $ 4.23 $ 4.34 Non-GAAP $ 1.30 $ 1.71 $ 5.60 $ 5.31   Shares used in computing diluted net income per share: GAAP 234,794 232,812 238,209 240,236 Non-GAAP (g) 225,482 228,829 230,194 238,419   SanDisk Corporation Reconciliation of Preliminary GAAP to Non-GAAP Operating Results (1) (in thousands, unaudited)         Three months ended Twelve months ended December 28, 2014 December 29, 2013 December 28, 2014 December 29, 2013   SUMMARY RECONCILIATION OF DILUTED SHARES:   GAAP 234,794 232,812 238,209 240,236 Adjustments for share-based compensation 260 358 246 271 Offsetting shares from call options (9,572) (4,341) (8,261) (2,088) Non-GAAP (g) 225,482 228,829 230,194 238,419  

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(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 Pliant Technology, Inc. in May 2011, FlashSoft Corporation in February 2012, Schooner Information Technology, Inc. in June 2012, SMART Storage Systems in August 2013 and Fusion-io, Inc. in July 2014, inventory step-up expense, non-cash economic interest expense associated with the convertible debt, non-cash change in fair value of the liability component of the convertible debt due to the conversion of a portion of the 1.5% Convertible Senior Notes due 2017 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 options which, when exercised, will offset the issuance of dilutive shares from the 1.5% Convertible Senior Notes due 2017 and 0.5% Convertible Senior Notes due 2020, while the GAAP diluted shares exclude the anti-dilutive impact of these call options. 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 share-based compensation, amortization of acquisition-related intangible assets, inventory step-up expense, non-cash economic interest expense associated with the convertible debt, non-cash change in fair value of the liability component of the convertible debt due to the conversion of a portion of the 1.5% Convertible Senior Notes due 2017 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 developed technology, customer relationships, and trademarks and trade names related to the acquisitions of Pliant Technology, Inc., FlashSoft Corporation, Schooner Information Technology, Inc., SMART Storage Systems and Fusion-io, Inc. (c) Inventory step-up expense related to the acquisition of Fusion-io, Inc. (d) Impairment of acquisition-related intangible assets and in-process research and development related to the acquisitions of Schooner Information Technology, Inc. and Pliant Technology, Inc. (e) Incremental interest expense related to the non-cash economic interest expense associated with the 1% Convertible Senior Notes due 2013, 1.5% Convertible Senior Notes due 2017 and 0.5% Convertible Senior Notes due 2020, and the non-cash change in fair value of the liability component of the convertible debt due to the conversion of a portion of the 1.5% Convertible Senior Notes due 2017. (f) Income taxes associated with certain non-GAAP to GAAP adjustments and the effects of one-time income tax adjustments recorded in a specific quarter for GAAP purposes are reflected on a forecast basis in our non-GAAP tax rate but not in our forecasted GAAP tax rate. (g) Non-GAAP diluted shares include the impact of offsetting shares from the call options related to the 1.5% Convertible Senior Notes due 2017 and 0.5% Convertible Senior Notes due 2020, and the impact of share-based compensation.   SanDisk Corporation Preliminary Condensed Consolidated Balance Sheets (in thousands, unaudited)                 December 28, 2014 December 29, 2013   ASSETS Current assets: Cash and cash equivalents $ 809,003 $ 986,246 Short-term marketable securities 1,455,509 1,919,611 Accounts receivable, net 842,476 682,809 Inventory 698,011 756,975 Deferred taxes 180,134 138,192 Other current assets   214,992     166,885   Total current assets 4,200,125 4,650,718   Long-term marketable securities 2,758,475 3,179,471 Property and equipment, net 724,357 655,794 Notes receivable and investments in Flash Ventures 962,817 1,134,620 Deferred taxes 161,827 134,669 Goodwill 831,328 318,111 Intangible assets, net 542,351 247,904 Other non-current assets   108,677     167,430   Total assets $ 10,289,957   $ 10,488,717     LIABILITIES, CONVERTIBLE SHORT-TERM DEBT CONVERSION OBLIGATION AND EQUITY Current liabilities: Accounts payable trade $ 404,237 $ 282,582 Accounts payable to related parties 136,051 146,964 Convertible short-term debt (1) 869,645 ― Other current accrued liabilities 506,293 509,732 Deferred income on shipments to distributors and retailers and deferred revenue   274,657     291,302   Total current liabilities 2,190,883 1,230,580   Convertible long-term debt 1,199,696 1,985,363 Non-current liabilities   245,554     307,083   Total liabilities   3,636,133     3,523,026     Convertible short-term debt conversion obligation (1) 127,143 ―   Stockholders' equity: Common stock 5,236,982 5,040,242 Retained earnings 1,499,149 2,004,089 Accumulated other comprehensive loss   (208,072 )   (76,459 ) Total stockholders' equity 6,528,059 6,967,872 Non-controlling interests   (1,378 )   (2,181 ) Total equity   6,526,681     6,965,691   Total liabilities, convertible short-term debt conversion obligation and equity $ 10,289,957   $ 10,488,717   --------------- (1) The 1.5% Convertible Senior Notes due 2017 are convertible through March 31, 2015 as a result of the Company’s common stock price exceeding the trigger price set forth in the indenture. Accordingly, the carrying value of the notes is reported as short-term debt as of December 28, 2014 and will remain so while the notes are convertible. The Convertible short-term debt conversion obligation represents the difference between the carrying value of the convertible debt and the principal amount due in cash upon conversion.  

SanDisk Corporation

Preliminary Condensed Consolidated Statements of Cash Flows

(in thousands, unaudited)

                    Three months ended Twelve months ended December 28, 2014 December 29, 2013 December 28, 2014 December 29, 2013 Cash flows from operating activities: Net income $ 201,891 $ 337,780 $ 1,007,446 $ 1,042,657   Adjustments to reconcile net income to net cash provided by operating activities: Deferred taxes (14,699 ) (52,727 ) (7,915 ) 527 Depreciation 66,620 60,472 254,271 226,334 Amortization 93,244 65,775 324,231 237,731 Provision for doubtful accounts 180 1,669 857 2,167 Share-based compensation expense 40,639 27,431 155,313 99,756 Excess tax benefit from share-based plans (6,143 ) (7,299 ) (44,919 ) (27,198 ) Impairment and other 6,270 (697 ) 6,790 75,561 Other non-operating 293 (1,566 ) 636 (792 ) Changes in operating assets and liabilities: Accounts receivable, net 27,391 624 (118,606 ) (51,125 ) Inventory 83,886 19,214 136,442 23,310 Other assets 27,357 170,806 37,738 147,713 Accounts payable trade (24,738 ) (65,817 ) 37,380 16,377 Accounts payable to related parties 1,234 (16,867 ) (10,913 ) (67,842 ) Other liabilities   (15,612 )   78,017     (80,303 )   138,496   Total adjustments   285,922     279,035     691,002     821,015   Net cash provided by operating activities   487,813     616,815     1,698,448     1,863,672     Cash flows from investing activities: Purchases of short and long-term marketable securities (730,244 ) (2,421,041 ) (4,106,494 ) (4,925,520 ) Proceeds from sales of short and long-term marketable securities 493,294 576,178 4,114,712 3,701,528 Proceeds from maturities of short and long-term marketable securities 208,992 117,300 772,882 751,900 Acquisition of property and equipment, net (67,145 ) (42,700 ) (232,786 ) (213,415 ) Investment in Flash Ventures ― (12,342 ) (24,296 ) (12,342 ) Notes receivable issuances to Flash Ventures (49,789 ) (37,099 ) (181,481 ) (37,099 ) Notes receivable proceeds from Flash Ventures 104,654 51,377 231,409 124,765 Purchased technology and other assets (20,248 ) 884 (24,837 ) (8,377 ) Acquisitions, net of cash acquired ― ―   (1,063,798 )   (304,320 ) Net cash used in investing activities   (60,486 )   (1,767,443 )   (514,689 )   (922,880 )   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 (3,212 ) ― (3,212 ) (928,061 ) Distribution to non-controlling interests ― ― ― (87 ) Proceeds from employee stock programs 22,442 59,992 181,486 266,044 Excess tax benefit from share-based plans 6,143 7,299 44,919 27,198 Dividends paid (65,122 ) (50,553 ) (234,565 ) (101,191 ) Share repurchases (1)   (503,406 )   (150,000 )   (1,341,476 )   (1,589,539 ) Net cash provided by (used in) financing activities   (543,155 )   1,236,013     (1,352,848 )   (956,361 ) Effect of changes in foreign currency exchange rates on cash   (6,004 )   (1,904 )   (8,154 )   6,345     Net increase (decrease) in cash and cash equivalents (121,832 ) 83,481 (177,243 ) (9,224 )   Cash and cash equivalents at beginning of period 930,835 902,765 986,246 995,470         Cash and cash equivalents at end of period $ 809,003   $ 986,246   $ 809,003   $ 986,246   --------------- (1) Share repurchases include cash used to repurchase common stock and cash used to settle employee tax withholding obligations due upon the vesting of restricted stock units.

SanDisk CorporationInvestor Contacts:Jay Iyer408-801-2067jay.iyer@sandisk.comBrendan Lahiff408-801-1732brendan.lahiff@sandisk.comorMedia Contact:Michael Diamond408-801-1108michael.diamond@sandisk.com