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SanDisk Announces Fourth Quarter and 2012 Year-End Results

  SanDisk Announces Fourth Quarter and 2012 Year-End Results

  *Delivers fourth quarter revenue of $1.54 billion with record SSD &
    Embedded sales
  *Gross margin improvements drive substantial sequential earnings growth

Business Wire

MILPITAS, Calif. -- January 23, 2013

SanDisk Corporation (NASDAQ: SNDK), a global leader in flash memory storage
solutions, announced today results for the fourth quarter and fiscal year
ended December 30, 2012. Total fourth quarter revenue of $1.54billion
decreased 2% on a year-over-year basis and increased 21% on a sequential
basis. Total revenue for fiscal 2012 of $5.05billion decreased 11% from $5.66
billion in fiscal 2011.

On a GAAP^(1) basis, fourth quarter net income was $214million, or $0.87 per
diluted share, compared to net income of $281million, or $1.14per diluted
share, in the fourth quarter of fiscal 2011 and $77million, or $0.31per
diluted share, in the third quarter of fiscal 2012. Net income for fiscal 2012
was $417million, or $1.70 per diluted share compared to $987million, or
$4.04 per diluted share in fiscal 2011.

On a non-GAAP^(2) basis, fourth quarter net income was $257million, or
$1.05per diluted share, compared to net income of $317million, or $1.29per
diluted share, in the fourth quarter of fiscal 2011 and net income of
$118million, or $0.48per diluted share, in the third quarter of fiscal 2012.
Net income for fiscal 2012 was $582million, or $2.38 per diluted share
compared to $1.14billion, or $4.65 per diluted share in fiscal 2011. For
reconciliation of non-GAAP to GAAP results, see accompanying financial tables
and footnotes.

“SanDisk ended 2012 with strong momentum in our SSD business, which
contributed 10% of our Q4 revenue. We are now supplying client SSDs to ten
leading PC OEMs and our enterprise SSDs are qualified at a fourth storage
OEM,” said Sanjay Mehrotra, president and chief executive officer of SanDisk.
“We drove solid sequential growth in our embedded mobile products and
continued to execute well in our retail business. We believe that our
broadening customer engagements and expanding product portfolio position us
well for strong profitability in 2013.”

FOURTH QUARTER 2012 KEY FINANCIAL METRICS

Metric                    GAAP                      Non-GAAP
in millions of US$,       Q412    Q411    Q312     Q412    Q411    Q312
except %
Revenue                   $1,542  $1,577  $1,273   $1,542  $1,577  $1,273
Gross Profit               $603    $662    $383     $615    $676    $395
% of revenue              39.1%   42.0%   30.1%    39.9%   42.9%   31.0%
Operating Income           $336     $416     $132     $368     $449     $164
% of revenue              21.8%   26.4%   10.4%    23.9%   28.5%   12.9%

At the end of the fourth quarter, SanDisk’s cash and short and long-term
marketable investments totaled $5.71billion.

CONFERENCE CALL

SanDisk’s fourth quarter of fiscal 2012 conference call is scheduled for
2:00P.M., Pacific Time, Wednesday, January 23, 2013. 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 719-457-2679 and the dial-in password is 5242141. 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.

ABOUT SANDISK

SanDisk Corporation (NASDAQ: SNDK) 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 market. 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.

© 2013 SanDisk Corporation. All rights reserved. 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).

This press release contains certain forward-looking statements, including
statements about our business prospects, including our expectations regarding
strong profitability in 2013, continued growth of our SSD business as a result
of increased customer engagements, our expanding product portfolio, our
business and expected financial performance in fiscal 2013, 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. We undertake no obligation to update the information contained in
this press release. 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;
  *inability to reduce our manufacturing costs to keep pace with reductions
    in average selling prices;
  *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;
  *inability to maintain or gain market share in client and enterprise SSD
    markets;
  *unpredictable or changing demand for our products, including for different
    form factors, capacities and underlying memory technologies;
  *excess or mismatched 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; 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 third fiscal quarter ended September 30, 2012.

(1)  GAAP represents U.S. Generally Accepted Accounting Principles.
      Non-GAAP represents GAAP excluding the impact of share-based
      compensation expense, amortization and write-off of acquisition-related
(2)   intangible assets, non-cash economic interest expense associated with
      the Company’s convertible debt, the non-cash change in fair value of the
      liability component associated with the repurchased portion of SanDisk’s
      convertible debt and related tax adjustments.
      

SanDisk Corporation
Preliminary Condensed Consolidated Statements of Operations
(in thousands, except per share amounts, unaudited)
                                                               
                                                                    
                      Three months ended            Twelve months ended
                      December 30,    January 1,    December 30,    January 1,
                      2012            2012          2012            2012
Revenues:
Product               $ 1,444,719     $ 1,473,444   $ 4,678,504     $ 5,287,555
License and royalty    96,784        103,476      374,005       374,590   
Total revenues          1,541,503       1,576,920     5,052,509       5,662,145
                                                                    
Cost of product         928,661         901,993       3,326,747       3,183,257
revenues
Amortization of
acquisition-related    9,830         13,186       42,542        39,742    
intangible assets
Total cost of           938,491         915,179       3,369,289       3,222,999
product revenues
                                                                 
Gross profit            603,012         661,741       1,683,220       2,439,146
                                                                    
Operating expenses:
Research and            159,075         147,228       602,765         547,373
development
Sales and marketing     64,820          55,227        224,054         199,422
General and             39,913          41,746        150,401         157,766
administrative
Amortization and
write-off of           3,229         1,877        9,905         4,485     
acquisition-related
intangible assets
Total operating        267,037       246,078      987,125       909,046   
expenses
                                                                    
Operating income        335,975         415,663       696,095         1,530,100
                                                                    
Other income           (12,971   )    2,871        (69,179   )    (53,346   )
(expense), net
                                                                    
Income before           323,004         418,534       626,916         1,476,754
income taxes
                                                                    
Provision for           109,461         137,311       209,512         489,764
income taxes
                                                                 
Net income            $ 213,543      $ 281,223     $ 417,404      $ 986,990   
                                                                    
Net income per
share:
Basic                 $ 0.88          $ 1.16        $ 1.72          $ 4.12
Diluted               $ 0.87          $ 1.14        $ 1.70          $ 4.04
                                                                    
Shares used in
computing net
income per share:
Basic                   241,451         241,775       242,076         239,484
Diluted                 244,161         246,543       245,253         244,553
                                                                                

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      January 1,    December 30,    January 1,
                      30, 2012      2012          2012            2012
                                                                  
SUMMARY
RECONCILIATION OF
NET INCOME
GAAP NET INCOME       $ 213,543     $ 281,223     $ 417,404       $ 986,990
Share-based             19,160        18,432        78,443          63,110
compensation (a)
Amortization and
write-off of
acquisition-related     13,059        15,063        52,447          44,227
intangible assets
(b)
Convertible debt        23,036        21,316        89,963          111,354
interest (c)
Income tax             (11,582 )    (18,893 )    (55,848   )    (67,673   )
adjustments (d)
NON-GAAP NET INCOME   $ 257,216    $ 317,141    $ 582,409      $ 1,138,008 
                                                                  
                                                                  
GAAP COST OF          $ 938,491     $ 915,179     $ 3,369,289     $ 3,222,999
PRODUCT REVENUES
Share-based             (2,070  )     (1,358  )     (7,459    )     (4,674    )
compensation (a)
Amortization of
acquisition-related    (9,830  )    (13,186 )    (42,542   )    (39,742   )
intangible assets
(b)
NON-GAAP COST OF      $ 926,591    $ 900,635    $ 3,319,288    $ 3,178,583 
PRODUCT REVENUES
                                                                  
GAAP GROSS PROFIT     $ 603,012     $ 661,741     $ 1,683,220     $ 2,439,146
Share-based             2,070         1,358         7,459           4,674
compensation (a)
Amortization of
acquisition-related    9,830       13,186      42,542        39,742    
intangible assets
(b)
NON-GAAP GROSS        $ 614,912    $ 676,285    $ 1,733,221    $ 2,483,562 
PROFIT
                                                                  
GAAP RESEARCH AND
DEVELOPMENT           $ 159,075     $ 147,228     $ 602,765       $ 547,373
EXPENSES
Share-based            (9,981  )    (10,929 )    (41,010   )    (34,177   )
compensation (a)
NON-GAAP RESEARCH
AND DEVELOPMENT       $ 149,094    $ 136,299    $ 561,755      $ 513,196   
EXPENSES
                                                                  
GAAP SALES AND        $ 64,820      $ 55,227      $ 224,054       $ 199,422
MARKETING EXPENSES
Share-based            (3,528  )    (2,847  )    (14,585   )    (10,593   )
compensation (a)
NON-GAAP SALES AND    $ 61,292     $ 52,380     $ 209,469      $ 188,829   
MARKETING EXPENSES
                                                                  
GAAP GENERAL AND
ADMINISTRATIVE        $ 39,913      $ 41,746      $ 150,401       $ 157,766
EXPENSES
Share-based            (3,581  )    (3,298  )    (15,389   )    (13,666   )
compensation (a)
NON-GAAP GENERAL
AND ADMINISTRATIVE    $ 36,332     $ 38,448     $ 135,012      $ 144,100   
EXPENSES
                                                                  
GAAP TOTAL            $ 267,037     $ 246,078     $ 987,125       $ 909,046
OPERATING EXPENSES
Share-based             (17,090 )     (17,074 )     (70,984   )     (58,436   )
compensation (a)
Amortization and
write-off of
acquisition-related    (3,229  )    (1,877  )    (9,905    )    (4,485    )
intangible assets
(b)
NON-GAAP TOTAL        $ 246,718    $ 227,127    $ 906,236      $ 846,125   
OPERATING EXPENSES
                                                                  
GAAP OPERATING        $ 335,975     $ 415,663     $ 696,095       $ 1,530,100
INCOME
Cost of product
revenues                11,900        14,544        50,001          44,416
adjustments (a) (b)
Operating expense      20,319      18,951      80,889        62,921    
adjustments (a) (b)
NON-GAAP OPERATING    $ 368,194    $ 449,158    $ 826,985      $ 1,637,437 
INCOME
                                                                  
GAAP OTHER INCOME     $ (12,971 )   $ 2,871       $ (69,179   )   $ (53,346   )
(EXPENSE), NET
Convertible debt       23,036      21,316      89,963        111,354   
interest (c)
NON-GAAP OTHER
INCOME (EXPENSE),     $ 10,065     $ 24,187     $ 20,784       $ 58,008    
NET
                                                                  
GAAP NET INCOME       $ 213,543     $ 281,223     $ 417,404       $ 986,990
Cost of product
revenues                11,900        14,544        50,001          44,416
adjustments (a) (b)
Operating expense       20,319        18,951        80,889          62,921
adjustments (a) (b)
Convertible debt        23,036        21,316        89,963          111,354
interest (c)
Income tax             (11,582 )    (18,893 )    (55,848   )    (67,673   )
adjustments (d)
NON-GAAP NET INCOME   $ 257,216    $ 317,141    $ 582,409      $ 1,138,008 
                                                                  
Diluted net income
per share:
GAAP                  $ 0.87        $ 1.14        $ 1.70          $ 4.04
Non-GAAP              $ 1.05        $ 1.29        $ 2.38          $ 4.65
                                                                  
Shares used in
computing diluted
net income per
share:
GAAP                    244,161       246,543       245,253         244,553
Non-GAAP                244,081       246,595       245,199         244,568
                                                                  

SanDisk Corporation
Reconciliation of Preliminary GAAP to Non-GAAP Operating Results (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 and write-off 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
(1)   Technology, Inc. in June 2012, non-cash economic interest expense
      associated with the convertible debt, non-cash change in fair value of
      the liability component of the repurchased portion of 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
      and write-off of acquisition-related intangible assets, share-based
      compensation, non-cash economic interest expense associated with the
      convertible debt, non-cash change in fair value of the liability
      component of the repurchased portion of 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.
      
      Amortization and write-off of acquisition-related intangible assets,
      primarily core technology, developed technology, customer relationships
(b)   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).
      
      Incremental interest expense relating to the non-cash economic interest
      expense associated with the Company's 1% Sr. Convertible Notes due 2013
(c)   and 1.5% Sr. Convertible Notes due 2017 and the non-cash change in fair
      value of the liability component of the repurchased portion of the 1%
      Sr. Convertible Notes due 2013.
      
(d)   Income taxes associated with certain non-GAAP to GAAP adjustments.
      

SanDisk Corporation
Preliminary Condensed Consolidated Balance Sheets
(in thousands, unaudited)
                                                            
                                                                             
                                           December 30, 2012   January 1, 2012
                                                                             
ASSETS
Current assets:
Cash and cash equivalents                  $  995,470          $  1,167,496
Short-term marketable securities              1,880,034           1,681,492
Accounts receivable from product              588,387             521,763
revenues, net
Inventory                                     750,075             678,382
Deferred taxes                                93,877              100,409
Other current assets                         298,517           206,419    
Total current assets                          4,606,360           4,355,961
                                                                             
Long-term marketable securities               2,835,931           2,766,263
Property and equipment, net                   665,542             344,897
Notes receivable and investments in           1,460,112           1,943,295
Flash Ventures
Deferred taxes                                168,718             199,027
Goodwill                                      201,735             154,899
Intangible assets, net                        246,919             287,691
Other non-current assets                     153,810           122,615    
                                                                             
Total assets                               $  10,339,127      $  10,174,648 
                                                                             
LIABILITIES
Current liabilities:
Accounts payable trade                     $  254,459          $  258,583
Accounts payable to related parties           214,806             276,275
Convertible short-term debt                   906,708          ―
Other current accrued liabilities             257,539             337,517
Deferred income on shipments to
distributors and retailers and deferred      248,155           220,999    
revenue
Total current liabilities                     1,881,667           1,093,374
                                                                             
Convertible long-term debt                    789,913             1,604,911
Non-current liabilities                      407,947           415,524    
Total liabilities                            3,079,527         3,113,809  
                                                                             
EQUITY
Stockholders' equity:
Common stock                                  5,027,512           4,934,808
Retained earnings                             2,071,268           1,796,849
Accumulated other comprehensive income       165,121           332,701    
Total stockholders' equity                    7,263,901           7,064,358
Non-controlling interests                    (4,301      )      (3,519     )
Total equity                                 7,259,600         7,060,839  
                                                                             
Total liabilities and equity               $  10,339,127      $  10,174,648 
                                                                             

SanDisk Corporation
Preliminary Condensed Consolidated Statements of Cash Flows
(in thousands, unaudited)
                                                             
                                                                               
                Three months ended               Twelve months ended
                December 30,     January 1,      December 30,     January 1,
                2012             2012            2012             2012
Cash flows
from
operating
activities:
Net income      $ 213,543        $ 281,223       $ 417,404        $ 986,990
Adjustments
to reconcile
net income to
net cash
provided by
operating
activities:
                                                                               
Deferred          24,814           3,013           34,368           (74,829    )
taxes
Depreciation      49,478           30,025          161,949          114,984
Amortization      43,924           43,895          172,749          161,930
Provision for
doubtful          1,382            453             1,452            (1,476     )
accounts
Share-based
compensation      19,160           18,432          78,443           63,110
expense
Excess tax
benefit from      (1,899     )     (9,075    )     (16,015    )     (24,895    )
share-based
compensation
Impairment,
restructuring     (3,954     )     (24,320   )     (18,366    )     (49,438    )
and other
Other             21,737           22,889          92,043           86,660
non-operating
Changes in
operating
assets and
liabilities:
Accounts
receivable        (124,151   )     (57,569   )     (68,070    )     (146,726   )
from product
revenues, net
Inventory         102,534          6,264           (71,260    )     (158,534   )
Other assets      (30,069    )     (43,134   )     5,318            (112,577   )
Accounts          (63,888    )     35,343          (4,124     )     73,711
payable trade
Accounts
payable to        (11,330    )     17,454          (61,469    )     34,531
related
parties
Other            74,345         (115,341  )    (194,568   )    100,331    
liabilities
Total            102,083        (71,671   )    112,450        66,782     
adjustments
                                                                               
Net cash
provided by      315,626        209,552       529,854        1,053,772  
operating
activities
                                                                               
Cash flows
from
investing
activities:
Purchases of
short and
long-term         (1,228,496 )     (973,002  )     (3,178,660 )     (3,473,915 )
marketable
securities
Proceeds from
sales of
short and         613,799          572,876         2,197,302        2,849,232
long-term
marketable
securities
Proceeds from
maturities of
short and         171,585          128,470         650,060          634,390
long-term
marketable
securities
Acquisition
of property
and               (105,341   )     (78,609   )     (487,973   )     (192,876   )
equipment,
net
Investment in
Flash           ―                ―                 (50,439    )     (83,316    )
Ventures
Notes
receivable
issuances to    ―                ―                 (142,316   )     (399,281   )
Flash
Ventures
Notes
receivable
proceeds from     153,413          167,872         511,289          416,388
Flash
Ventures
Purchased
technology        (3,755     )   ―                 (4,000     )     (100,000   )
and other
assets
Acquisitions,
net of cash      (212       )   ―               (69,629    )    (317,649   )
acquired
Net cash used
in investing     (399,007   )    (182,393  )    (574,366   )    (667,027   )
activities
                                                                               
Cash flows
from
financing
activities:
Proceeds from
sale of         ―                ―               ―                  1,494
convertible
bond hedge
Purchase of     ―                ―               ―                  (1,158     )
warrants
Repayment of
debt            ―                ―               ―                  (211,441   )
financing
Proceeds from
employee          8,532            61,349          86,302           143,140
stock
programs
Excess tax
benefit from      1,899            9,075           16,015           24,895
share-based
compensation
Share
repurchase        (38,577    )     (4,039    )     (230,081   )     (4,039     )
program
Net cash
received for
share           ―               ―               2,675         ―            
repurchase
contracts
Net cash
provided by
(used in)        (28,146    )    66,385        (125,089   )    (47,109    )
financing
activities
                                                                               
Effect of
changes in
foreign          (3,488     )    (898      )    (2,425     )    (1,289     )
currency
exchange
rates on cash
                                                                               
Net increase
(decrease) in     (115,015   )     92,646          (172,026   )     338,347
cash and cash
equivalents
                                                                               
Cash and cash
equivalents       1,110,485        1,074,850       1,167,496        829,149
at beginning
of period
                                                                        
Cash and cash
equivalents     $ 995,470       $ 1,167,496    $ 995,470       $ 1,167,496  
at end of
period

Contact:

SanDisk Corporation
Investor Contacts:
Jay Iyer, 408-801-2067
jay.iyer@sandisk.com
Brendan Lahiff, 408-801-1732
brendan.lahiff@sandisk.com
or
Media Contact:
Lee Flanagin, 408-801-2463
lee.flanagin@sandisk.com