Western Digital Corp. (NASDAQ: WDC) today reported revenue of
$5.2 billion, operating income of $905 million and net income of
$681 million, or $2.23 per share, for its first fiscal quarter
ended Sept. 29, 2017. The GAAP net income for the period includes
charges associated with the company’s acquisitions. Excluding these
charges and after other non-GAAP adjustments, first quarter
non-GAAP operating income was $1.4 billion and non-GAAP net income
was $1.1 billion, or $3.56 per share.
In the year-ago quarter, the company reported revenue of $4.7
billion, operating income of $232 million and net loss of $366
million, or $(1.28) per share. Non-GAAP operating income in the
year-ago quarter was $736 million and non-GAAP net income was $448
million, or $1.54 per share.
The company generated approximately $1.1 billion in cash from
operations during the first fiscal quarter of 2018, ending with
$7.0 billion of total cash, cash equivalents and available-for-sale
securities. On Aug. 2, 2017, the company declared a cash dividend
of $0.50 per share of its common stock, which was paid to
shareholders on Oct. 16, 2017.
“We continued our strong financial performance in the September
quarter, demonstrating the power of our platform and underscoring
the differentiated value we can deliver as a comprehensive data
storage solutions leader,” said Steve Milligan, chief executive
officer. “We generated strong operating cash flow, reflecting
continued healthy demand in many of our end markets, most notably
in our flash-based businesses. With unabated growth in data
creation leading to new challenges and opportunities for our
customers, our transformation continues to resonate in the
marketplace.”
The investment community conference call to discuss these
results and the company’s guidance for the second fiscal quarter
2018 will be broadcast live over the Internet today at 2:00 p.m.
Pacific/5:00 p.m. Eastern. The live and archived conference
call/webcast can be accessed online at investor.wdc.com.
Supplemental financial information, including the company’s
guidance for the second fiscal quarter, will also be posted on the
same website. The telephone replay number in the U.S. is 1(855)
859-2056 or +1(404) 537-3406 for international callers. The
required passcode is 96840040.
About Western Digital®
Western Digital creates environments for data to thrive. The
company is driving the innovation needed to help customers capture,
preserve, access and transform an ever-increasing diversity of
data. Everywhere data lives, from advanced data centers to mobile
sensors to personal devices, our industry-leading solutions deliver
the possibilities of data.
Western Digital® data-centric solutions are marketed under the
G-Technology™, HGST, SanDisk®, Tegile™, Upthere™ and WD®
brands.
Forward-Looking Statements
This press release contains forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of
1995, including statements concerning the company’s preliminary
financial results for its first fiscal quarter ended Sept. 29,
2017; market positioning; product portfolio; growth strategy; and
market and demand trends. These forward-looking statements are
based on management’s current expectations and are subject to risks
and uncertainties that could cause actual results to differ
materially from those expressed or implied in the forward-looking
statements. The preliminary financial results for the company’s
first fiscal quarter ended Sept. 29, 2017, included in this press
release represent the most current information available to
management. The company’s actual results when disclosed in its Form
10-Q may differ from these preliminary results as a result of the
completion of the company’s financial closing procedures; final
adjustments; completion of the review by the company’s independent
registered accounting firm and other developments that may arise
between now and the disclosure of the final results. Other risks
and uncertainties that could cause actual results to differ
materially from those expressed or implied in the forward-looking
statements include: uncertainties with respect to the company’s
business ventures with Toshiba; volatility in global economic
conditions; business conditions and growth in the storage
ecosystem; impact of competitive products and pricing; market
acceptance and cost of commodity materials and specialized product
components; actions by competitors; unexpected advances in
competing technologies; our development and introduction of
products based on new technologies and expansion into new data
storage markets; risks associated with acquisitions, mergers and
joint ventures; difficulties or delays in manufacturing; and other
risks and uncertainties listed in the company’s filings with the
Securities and Exchange Commission (the “SEC”), including the
company’s Form 10-K filed with the SEC on Aug. 29, 2017, to which
your attention is directed. You should not place undue reliance on
these forward-looking statements, which speak only as of the date
hereof, and the company undertakes no obligation to update these
forward-looking statements to reflect new information or
events.
Western Digital, the Western Digital logo, G-Technology, HGST,
SanDisk, Tegile, Upthere and WD are registered trademarks or
trademarks of Western Digital Corporation or its affiliates in the
US and/or other countries.
WESTERN DIGITAL CORPORATION CONDENSED
CONSOLIDATED BALANCE SHEETS (in millions;
unaudited) Sep. 29,
June 30, 2017 2017 ASSETS
Current assets: Cash and cash equivalents $ 6,886 $ 6,354
Short-term investments 35 24 Accounts receivable, net 2,101 1,948
Inventories 2,302 2,341 Other current assets 496 389
Total current assets 11,820 11,056 Property, plant and equipment,
net 3,048 3,033 Notes receivable and investments in Flash Ventures
1,462 1,340 Goodwill 10,073 10,014 Other intangible assets, net
3,545 3,823 Other non-current assets 557 594 Total
assets $ 30,505 $ 29,860
LIABILITIES AND
SHAREHOLDERS' EQUITY Current liabilities: Accounts
payable $ 2,066 $ 2,144 Accounts payable to related parties 226 206
Accrued expenses 1,271 1,069 Accrued compensation 468 506 Accrued
warranty 180 186 Current portion of long-term debt 258
233 Total current liabilities 4,469 4,344 Long-term debt
12,873 12,918 Other liabilities 1,104 1,180 Total
liabilities 18,446 18,442 Total shareholders' equity 12,059
11,418 Total liabilities and shareholders' equity $ 30,505 $
29,860
WESTERN DIGITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share amounts; unaudited)
Three Months Ended
Sep. 29, Sep. 30, 2017 2016
Revenue, net $ 5,181 $ 4,714 Cost of revenue 3,268
3,379 Gross profit 1,913 1,335
Operating expenses: Research and development 592 639
Selling, general and administrative 364 396 Employee termination,
asset impairment and other charges 52 68
Total operating expenses 1,008 1,103
Operating income 905 232 Interest and other expense, net
(195 ) (503 ) Income (loss) before taxes 710 (271 )
Income tax expense 29 95 Net income
(loss) $ 681 $ (366 ) Income (loss) per common share:
Basic $ 2.31 $ (1.28 ) Diluted $ 2.23 $ (1.28 )
Weighted average shares outstanding: Basic 295
285 Diluted 306 285
WESTERN DIGITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions; unaudited)
Three Months Ended Sep. 29, Sep. 30,
2017 2016 Operating Activities Net
income (loss) $ 681 $ (366 )
Adjustments to reconcile net income (loss)
to net cash provided by operations:
Depreciation and amortization 533 508 Stock-based compensation 97
99 Deferred income taxes 36 147 Loss on disposal of assets 1 4
Write-off of issuance costs and amortization of debt discounts 10
247 Loss on convertible debt and related instruments - 5 Other
non-cash operating activities, net 11 1 Changes in operating assets
and liabilities, net (236 ) (205 ) Net cash provided
by operating activities 1,133 440
Investing Activities Purchases of property, plant and
equipment, net (155 ) (183 ) Activity related to Flash Ventures,
net (131 ) (27 ) Acquisitions, net of cash acquired (93 ) -
Investment activity, net (22 ) 9 Strategic investments and other,
net 23 (1 ) Net cash used in investing
activities (378 ) (202 )
Financing
Activities Employee stock plans, net (41 ) 26 Proceeds from
acquired call option - 61 Dividends paid to shareholders (147 )
(142 ) Proceeds from debt, net of issuance costs - 3,985 Settlement
of debt hedge contracts 26 - Repayment of debt (62 )
(8,242 ) Net cash used in financing activities (224 )
(4,312 ) Effect of exchange rate changes on cash 1
- Net increase (decrease) in cash and cash
equivalents 532 (4,074 ) Cash and cash equivalents, beginning of
period 6,354 8,151 Cash and cash
equivalents, end of period $ 6,886 $ 4,077
WESTERN DIGITAL CORPORATION RECONCILIATION
OF GAAP TO NON-GAAP FINANCIAL MEASURES (in millions,
except per share amounts; unaudited)
Three Months Ended Sep. 29, Sep. 30,
2017 2016 GAAP cost of revenue $ 3,268
$ 3,379 Amortization of acquired intangible assets (279 ) (202 )
Stock-based compensation expense (13 ) (13 ) Acquisition-related
charges - (17 ) Charges related to cost saving initiatives 13 (30 )
Other - (2 )
Non-GAAP cost of revenue $
2,989 $ 3,115
GAAP gross profit $ 1,913
$ 1,335 Amortization of acquired intangible assets 279 202
Stock-based compensation expense 13 13 Acquisition-related charges
- 17 Charges related to cost saving initiatives (13 ) 30 Other
- 2
Non-GAAP gross profit $
2,192 $ 1,599
GAAP operating expenses $
1,008 $ 1,103 Amortization of acquired intangible assets (40 ) (40
) Stock-based compensation expense (84 ) (86 ) Employee
termination, asset impairment and other charges (52 ) (68 )
Acquisition-related charges (4 ) (10 ) Charges related to cost
saving initiatives (9 ) (33 ) Other - (3 )
Non-GAAP operating expenses $ 819 $ 863
GAAP operating income $ 905 $ 232 Cost of revenue
adjustments 279 264 Operating expense adjustments 189
240
Non-GAAP operating income $ 1,373 $
736
GAAP interest and other expense, net $
(195 ) $ (503 ) Convertible debt activity, net - 5 Debt
extinguishment costs - 267 Other (5 ) 4
Non-GAAP interest and other expense, net $ (200 ) $ (227 )
GAAP income tax expense $ 29 $ 95 Income tax
adjustments 55 (34 )
Non-GAAP income tax
expense $ 84 $ 61
GAAP net income
(loss) $ 681 $ (366 ) Amortization of acquired intangible
assets 319 242 Stock-based compensation expense 97 99 Employee
termination, asset impairment and other charges 52 68
Acquisition-related charges 4 27 Charges related to cost saving
initiatives (4 ) 63 Convertible debt activity, net - 5 Debt
extinguishment costs - 267 Other (5 ) 9 Income tax adjustments
(55 ) 34
Non-GAAP net income $ 1,089
$ 448
Diluted income (loss) per common
share: GAAP $ 2.23 $ (1.28 ) Non-GAAP $ 3.56 $
1.54
Diluted weighted average shares
outstanding: GAAP 306 285 Non-GAAP
306 290
To supplement the condensed consolidated financial statements
presented in accordance with U.S. generally accepted accounting
principles (“GAAP”), the table above sets forth non-GAAP cost of
revenue; non-GAAP gross profit; non-GAAP operating expenses;
non-GAAP operating income; non-GAAP interest and other expense,
net; non-GAAP income tax expense; non-GAAP net income and non-GAAP
diluted income per common share (“Non-GAAP measures”). These
Non-GAAP measures are not in accordance with, or an alternative
for, measures prepared in accordance with GAAP and may be different
from Non-GAAP measures used by other companies. The company
believes the presentation of these Non-GAAP measures, when shown in
conjunction with the corresponding GAAP measures, provides useful
information to investors for measuring the company’s earnings
performance and comparing it against prior periods. Specifically,
the company believes these Non-GAAP measures provide useful
information to both management and investors as they exclude
certain expenses, gains and losses that the company believes are
not indicative of its core operating results or because they are
consistent with the financial models and estimates published by
many analysts who follow the company and its peers. As discussed
further below, these Non-GAAP measures exclude the amortization of
acquired intangible assets, stock-based compensation expense,
employee termination, asset impairment and other charges,
acquisition-related charges, charges related to cost saving
initiatives, convertible debt activity, debt extinguishment costs,
other charges, and income tax adjustments, and the company believes
these measures along with the related reconciliations to the GAAP
measures provide additional detail and comparability for assessing
the company's results. These Non-GAAP measures are some of the
primary indicators management uses for assessing the company's
performance and planning and forecasting future periods. 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.
As described above, the company excludes the following items
from its Non-GAAP measures:
Amortization of acquired intangible
assets. The company incurs expenses from the amortization of
acquired intangible assets over their economic lives. Such charges
are significantly impacted by the timing and magnitude of the
company's acquisitions and any related impairment charges.
Stock-based compensation expense.
Because of the variety of equity awards used by companies, the
varying methodologies for determining stock-based compensation
expense, the subjective assumptions involved in those
determinations, and the volatility in valuations that can be driven
by market conditions outside the company's control, the company
believes excluding stock-based compensation expense enhances the
ability of management and investors to understand and assess the
underlying performance of its business over time and compare it
against the company's peers, a majority of whom also exclude
stock-based compensation expense from their non-GAAP results.
Employee termination, asset impairment and
other charges. From time-to-time, in order to realign the
company's operations with anticipated market demand or to achieve
cost synergies from the integration of acquisitions, the company
may terminate employees and/or restructure its operations. From
time-to-time, the company may also incur charges from the
impairment of intangible assets and other long-lived assets. These
charges (including any reversals of charges recorded in prior
periods) are inconsistent in amount and frequency, and the company
believes are not indicative of the underlying performance of its
business.
Acquisition-related charges. In
connection with the company's business combinations, the company
incurs expenses which it would not have otherwise incurred as part
of its business operations. These expenses include third-party
professional service and legal fees, third-party integration
services, severance costs, non-cash adjustments to the fair value
of acquired inventory, contract termination costs, and retention
bonuses. The company may also experience other accounting impacts
in connection with these transactions. These charges and impacts
are related to acquisitions, are inconsistent in amount and
frequency, and the company believes are not indicative of the
underlying performance of its business.
Charges related to cost saving
initiatives. In connection with the transformation of the
company's business, the company has incurred charges related to
cost saving initiatives which do not qualify for special accounting
treatment as exit or disposal activities. These charges, which the
company believes are not indicative of the underlying performance
of its business, primarily relate to costs associated with
rationalizing the company's channel partners or vendors,
transforming the company's information systems infrastructure,
integrating the company's product roadmap, and accelerated
depreciation on assets.
Convertible debt activity, net. The
company excludes non-cash economic interest expense associated with
the convertible senior notes, the gains and losses on the
conversion of the convertible senior notes and call option, and
unrealized gains and losses related to the change in fair value of
the exercise option and call option. These charges and gains and
losses do not reflect the company's operating results, and the
company believes are not indicative of the underlying performance
of its business.
Debt extinguishment costs. From
time-to-time, the company replaces its existing debt with new
financing at more favorable interest rates or utilize available
capital to settle debt early, both of which generate interest
savings in future periods. The company incurs debt extinguishment
charges consisting of the costs to call the existing debt and/or
the write-off of any related unamortized debt issuance costs. These
gains and losses do not reflect the company's operating results,
and the company believes are not indicative of the underlying
performance of its business.
Other charges. From time-to-time,
the company sells or impairs investments or other assets which are
not considered necessary to its business operations; are a party to
legal or arbitration proceedings, which could result in an expense
or benefit due to settlements, final judgments, or accruals for
loss contingencies; or incur other charges or gains which the
company believes are not a part of the ongoing operation of its
business. The resulting expense or benefit is inconsistent in
amount and frequency.
Income tax adjustments. Income tax
adjustments reflect the difference between income taxes based on a
forecasted annual non-GAAP tax rate and a forecasted annual GAAP
tax rate as a result of the timing of certain non-GAAP pre-tax
adjustments.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20171026006498/en/
Western Digital Corp.Investor Contact:Bob
Blair949.672.7834robert.blair@wdc.comorMedia Contact:Jim
Pascoe408.717.6999jim.pascoe@wdc.com
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