Achieves Record Quarterly Revenue of $5.3
Billion
Western Digital Corp. (NASDAQ: WDC) today reported record
revenue of $5.3 billion for its second fiscal quarter ended Dec.
29, 2017. Operating income was $955 million with a net loss of $823
million, or ($2.78) per share. The GAAP net loss for the period
includes a provisional net tax charge of $1.6 billion primarily due
to the repatriation tax as a result of the Tax Cuts and Jobs Act.
Excluding this charge and after other non-GAAP adjustments, the
company achieved record non-GAAP operating income of $1.4 billion
and non-GAAP net income of $1.2 billion, or $3.95 per share.
In the year-ago quarter, the company reported revenue of $4.9
billion, operating income of $545 million and net income of $235
million, or $0.80 per share. Non-GAAP operating income in the
year-ago quarter was $995 million and non-GAAP net income was $675
million, or $2.30 per share.
The company generated approximately $1.2 billion in cash from
operations during the second fiscal quarter of 2018, ending with
$6.4 billion of total cash, cash equivalents and available-for-sale
securities. On Nov. 1, 2017, the company declared a cash dividend
of $0.50 per share of its common stock, which was paid to
shareholders on Jan. 16, 2018.
“We continued our strong financial performance in the December
quarter, with nine percent year-over-year revenue growth, driven by
each of our major end-market categories and solid execution by our
team,” said Steve Milligan, chief executive officer. “We once again
generated strong operating cash flow, reflecting continued healthy
demand in our end markets, most notably for our capacity enterprise
hard drives and flash-based products.
“I am very pleased with our technology and product development
execution. The deployment of our 64-layer 3D flash technology
continued across our product portfolio and we will be ramping our
96-layer technology later this calendar year. We continue to lead
the industry with our high-capacity helium HDD platform in 10, 12
and 14 terabyte capacities and we remain on plan to sample our
MAMR-based capacity enterprise drives in the second half of
calendar 2018. I am also pleased that we resolved our negotiations
with our JV partner Toshiba in December and ensured our long-term
access to flash.”
The investment community conference call to discuss these
results, the company’s guidance for the third fiscal quarter 2018
and an accompanying presentation will be webcast live over the
Internet today at 2:30 p.m. Pacific/5:30 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 third fiscal quarter and the earnings
presentation 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 9563377.
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. Financial and investor information is
available on the company's Investor Relations website at
investor.wdc.com.
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 second fiscal quarter ended Dec. 29,
2017; technology and product development; market positioning;
product portfolio; growth strategy; market demand for our products;
and our long-term access to flash. 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
second fiscal quarter ended Dec. 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: volatility in global economic conditions;
uncertainties with respect to the company’s business ventures with
Toshiba; 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; impacts of new tax
legislation; 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-Q filed with the SEC on
Nov. 7, 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
PRELIMINARY CONDENSED CONSOLIDATED BALANCE
SHEETS (in millions; unaudited; on a US GAAP
basis) Dec. 29, June 30, 2017
2017 ASSETS Current assets: Cash and
cash equivalents $ 6,272 $ 6,354 Short-term investments 23 24
Accounts receivable, net 2,052 1,948 Inventories 2,281 2,341 Other
current assets 485 389 Total current assets 11,113
11,056 Property, plant and equipment, net 3,054 3,033 Notes
receivable and investments in Flash Ventures 1,845 1,340 Goodwill
10,076 10,014 Other intangible assets, net 3,230 3,823 Other
non-current assets 522 594 Total assets $ 29,840 $
29,860
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities: Accounts payable $ 1,921 $ 2,144
Accounts payable to related parties 250 206 Accrued expenses 1,191
1,069 Accrued compensation 523 506 Accrued warranty 194 186 Current
portion of long-term debt 274 233 Total current
liabilities 4,353 4,344 Long-term debt 11,777 12,918 Other
liabilities 2,438 1,180 Total liabilities 18,568
18,442 Total shareholders' equity 11,272 11,418 Total
liabilities and shareholders' equity $ 29,840 $ 29,860
WESTERN DIGITAL CORPORATION
PRELIMINARY CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS (in millions,
except per share amounts; unaudited; on a US GAAP basis)
Three Months Ended Six Months Ended
Dec. 29, Dec. 30, Dec. 29, Dec. 30,
2017 2016 2017 2016 Revenue, net
$ 5,336 $ 4,888 $ 10,517 $ 9,602 Cost of revenue 3,323
3,355 6,591 6,734
Gross profit 2,013 1,533 3,926
2,868 Operating expenses: Research and
development 629 585 1,221 1,224 Selling, general and administrative
381 358 745 754 Employee termination, asset impairment and other
charges 48 45 100
113 Total operating expenses 1,058 988
2,066 2,091 Operating income 955
545 1,860 777 Interest and other expense, net (181 )
(224 ) (376 ) (727 ) Income before taxes 774 321
1,484 50 Income tax expense 1,597 86
1,626 181 Net income (loss) $ (823 ) $
235 $ (142 ) $ (131 ) Income (loss) per common share:
Basic $ (2.78 ) $ 0.82 $ (0.48 ) $ (0.46 ) Diluted $ (2.78 )
$ 0.80 $ (0.48 ) $ (0.46 ) Weighted average shares
outstanding: Basic 296 286 295
285 Diluted 296 294
295 285
WESTERN
DIGITAL CORPORATION
PRELIMINARY CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS (in millions; unaudited; on a US GAAP
basis) Three Months Ended Six Months
Ended Dec. 29, Dec. 30, Dec. 29, Dec.
30, 2017 2016 2017 2016
Operating Activities Net income (loss) $ (823 ) $ 235 $ (142
) $ (131 )
Adjustments to reconcile net income (loss)
to net cash provided by operations:
Depreciation and amortization 535 514 1,068 1,022 Stock-based
compensation 99 102 196 201 Deferred income taxes 129 (30 ) 165 117
Loss on disposal of assets 11 6 12 10 Write-off of issuance costs
and amortization of debt discounts 13 11 23 258 Other non-cash
operating activities, net 5 54 16 60 Changes in operating assets
and liabilities, net 1,213 168
977 (37 ) Net cash provided by operating activities
1,182 1,060 2,315
1,500
Investing Activities Purchases of
property, plant and equipment, net (251 ) (146 ) (406 ) (329 )
Activity related to Flash Ventures, net (378 ) (43 ) (509 ) (70 )
Acquisitions, net of cash acquired (6 ) - (99 ) - Other 6
75 7 83 Net cash
used in investing activities (629 ) (114 )
(1,007 ) (316 )
Financing Activities Employee
stock plans, net 73 80 32 106 Proceeds from acquired call option -
- - 61 Dividends paid to shareholders (148 ) (142 ) (295 ) (284 )
Settlement of debt hedge contracts 2 - 28 - Proceeds from debt, net
of issuance costs 2,958 - 2,958 3,985 Repayment of debt
(4,052 ) (12 ) (4,114 ) (8,254 ) Net cash used
in financing activities (1,167 ) (74 ) (1,391
) (4,386 ) Effect of exchange rate changes on cash -
(9 ) 1 (9 ) Net increase
(decrease) in cash and cash equivalents (614 ) 863 (82 ) (3,211 )
Cash and cash equivalents, beginning of period 6,886
4,077 6,354 8,151 Cash
and cash equivalents, end of period $ 6,272 $ 4,940 $
6,272 $ 4,940
WESTERN DIGITAL
CORPORATION
PRELIMINARY RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL
MEASURES (in millions, except per share amounts;
unaudited) Three Months Ended Six Months
Ended Dec. 29, Dec. 30, Dec. 29, Dec.
30, 2017 2016 2017 2016
GAAP cost of revenue $ 3,323 $ 3,355 $ 6,591 $ 6,734
Amortization of acquired intangible assets (274 ) (238 ) (553 )
(440 ) Stock-based compensation expense (13 ) (11 ) (26 ) (24 )
Acquisition-related charges - (1 ) - (18 ) Charges related to cost
saving initiatives (6 ) (8 ) 7 (38 ) Other -
(1 ) - (3 )
Non-GAAP cost of revenue $
3,030 $ 3,096 $ 6,019 $ 6,211
GAAP gross profit $ 2,013 $ 1,533 $ 3,926 $ 2,868
Amortization of acquired intangible assets 274 238 553 440
Stock-based compensation expense 13 11 26 24 Acquisition-related
charges - 1 - 18 Charges related to cost saving initiatives 6 8 (7
) 38 Other - 1 - 3
Non-GAAP gross profit $ 2,306 $ 1,792 $
4,498 $ 3,391
GAAP operating expenses $
1,058 $ 988 $ 2,066 $ 2,091 Amortization of acquired intangible
assets (41 ) (39 ) (81 ) (79 ) Stock-based compensation expense (86
) (85 ) (170 ) (171 ) Employee termination, asset impairment and
other charges (48 ) (45 ) (100 ) (113 ) Acquisition-related charges
(6 ) (5 ) (10 ) (15 ) Charges related to cost saving initiatives
(12 ) (15 ) (21 ) (48 ) Other - (2 ) -
(5 )
Non-GAAP operating expenses $ 865
$ 797 $ 1,684 $ 1,660
GAAP operating
income $ 955 $ 545 $ 1,860 $ 777 Cost of revenue adjustments
293 259 572 523 Operating expense adjustments 193
191 382 431
Non-GAAP
operating income $ 1,441 $ 995 $ 2,814 $
1,731
GAAP interest and other expense, net $
(181 ) $ (224 ) $ (376 ) $ (727 ) Convertible debt activity, net -
1 - 6 Debt extinguishment costs 2 - 2 267 Other (1 )
2 (6 ) 6
Non-GAAP interest and other
expense, net $ (180 ) $ (221 ) $ (380 ) $ (448 )
GAAP
income tax expense $ 1,597 $ 86 $ 1,626 $ 181 Income tax
adjustments (1,544 ) 13 (1,489 )
(21 )
Non-GAAP income tax expense $ 53 $ 99 $
137 $ 160
GAAP net income (loss) $ (823
) $ 235 $ (142 ) $ (131 ) Amortization of acquired intangible
assets 315 277 634 519 Stock-based compensation expense 99 96 196
195 Employee termination, asset impairment and other charges 48 45
100 113 Acquisition-related charges 6 6 10 33 Charges related to
cost saving initiatives 18 23 14 86 Convertible debt activity, net
- 1 - 6 Debt extinguishment costs 2 - 2 267 Other (1 ) 5 (6 ) 14
Income tax adjustments 1,544 (13 )
1,489 21
Non-GAAP net income $ 1,208
$ 675 $ 2,297 $ 1,123
Diluted
income (loss) per common share: GAAP $ (2.78 ) $ 0.80 $
(0.48 ) $ (0.46 ) Non-GAAP $ 3.95 $ 2.30 $ 7.51
$ 3.85
Diluted weighted average shares
outstanding: GAAP 296 294
295 285 Non-GAAP 306 294
306 292
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; is 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 incurs 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 include 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. Additionally, as a result of the Tax Cuts and Jobs
Act, the three and six months ended December 29, 2017 income tax
adjustments include a provisional income tax expense of $1.66
billion for the one-time mandatory deemed repatriation tax and a
provisional income tax benefit of $88 million related to the
re-measurement of deferred tax assets and liabilities.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20180125006260/en/
Company contacts:Western Digital Corp.Investor Contact:Bob
Blair949.672.7834robert.blair@wdc.comorMedia Contact:Jim
Pascoe408.717.6999jim.pascoe@wdc.com
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