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SanDisk: Usb Type-C™ Flash Drive Designed Specifically For Next-Generation Devices With Usb Type-C Connectors

The following excerpt is from the company's SEC filing.

In light of the pending acquisition of SanDisk by Western Digital Corporation (“Western Digital”), SanDisk will not hold a conference call to discuss its financial results. Concurrent with this press release, SanDisk has published business and financial commentary along with earnings presentation materials on its website at www.sandisk.com/ir.

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.

2016 SanDisk Corporation. All rights reserved. SanDisk and SanDisk Ultra are trademarks of SanDisk Corporation, registered in the United States and other countries. InfiniFlash is a trademark of SanDisk Corporation.

SD is a trademark of SD-3C, LLC. USB Type-C is a trademark of USB Implementers Forum

Other brand names mentioned herein are for identification purposes only and may be the trademarks of their respective holder(s).

Up to 275 MB/s read; up to 100 MB/s write. Based on internal testing; performance may be lower depending upon host device, interface, usage conditions and other factors. 1 MB = 1,000,000 bytes.

GAAP represents U.S. Generally Accepted Accounting Principles.

Non-GAAP represents GAAP excluding the impact of share-based compensation, inventory step-up expense, amortization and impairment of acquisition-related intangible assets, Western Digital acquisition-related expenses, gains and losses related to the shortened duration and expected liquidation prior to their effective maturity of marketable securities due to the pending acquisition of SanDisk by Western Digital, gains and losses due to the modifications and terminations of warrants, non-cash economic interest expense associated with the convertible senior notes, non-cash change in fair value of the liability component of the convertible senior notes due to the conversion of a portion of the 1.5% Convertible Senior Notes due 2017 and related tax adjustments.

Non-GAAP diluted shares are adjusted for the impact of expensing share-based compensation and include the impact of offsetting shares from the call options related to the convertible senior notes.

Net cash is defined as cash, cash equivalents, short and long-term marketable securities, minus the aggregate principal amount of the outstanding convertible senior notes.

Free cash flow is defined as net cash provided by operating activities less (a) acquisition of property and equipment, net, and (b) net investment and notes receivables activity with Flash Ventures. Calculation of free cash flow may not agree to the sum of the components presented due to rounding.

This news release contains certain forward-looking statements, including those regarding our pending acquisition by Western Digital, industry environment, our business prospects, our intended financial, operational and strategic plans and priorities, our future financial performance and market share, our customer base, customer qualifications and product mix, technology trends and adoption, strategic relationships, and new products and technologies, 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:

the announcement and pendency of our agreement to be acquired by Western Digital or the failure of our pending acquisition by Western Digital to be completed on a timely basis, or at all, or any materially burdensome conditions that may be imposed, or inability to achieve the expected benefits from the acquisition;

failure to effectively or efficiently execute on our financial, operational or strategic plans or priorities, which may change, may not have the effects that we anticipate or otherwise be successful on the timeline that we expect or at all or may have unanticipated consequences;

changes in industry supply and demand environment, and production and pricing levels being different than what we anticipate;

competitive pricing pressures or product mix changes, resulting in lower average selling prices, lower revenues and reduced margins;

excess or mismatched captive memory output, capacity or inventory, resulting in lower average selling prices, financial charges and impairments, lower gross margin or other consequences, or insufficient or mismatched captive memory output, capacity or inventory, resulting in lost revenue and growth opportunities;

inability to develop, or unexpected difficulties or delays in developing or ramping with acceptable yields, new technologies, such as 3D NAND technology, 3D ReRAM, or the failure of new technologies to effectively compete with those of our competitors;

inability to reduce product costs to keep pace with reductions in average selling prices, resulting in lower or negative product gross margin;

potential delays in product development or lack of customer acceptance and qualification of our solutions, including on new technologies, particularly our 3D NAND technology, enterprise solutions, client SSDs and embedded flash storage solutions;

slower than anticipated growth, lower than anticipated demand or weakness in demand in one or more of our product categories, such as enterprise, embedded products or SSDs, or adverse changes in our product or customer mix;

failure to successfully sell enterprise solutions on the timelines or in the quantities we expect or transition our enterprise customers to our leading edge solutions;

failure or delays in making new products or technologies available in the manner and capacities we anticipate, whether due to technology or supply chain difficulties or other factors;

our 15-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, in the capacities that we expect or perform as expected;

failure to continue to expand or manage the risks associated with our ventures, strategic partnerships and commercial relationships, such as with Toshiba, including the risk of early termination;

inability to achieve the expected benefits from acquisitions and strategic relationships in a timely manner, or at all;

industry and technology trends not occurring in the timeline we anticipate or at all;

capital investments requiring additional cash or the unavailability of lease financing on terms acceptable to us;

the failure of all-flash storage systems to achieve the various functionality, performance and cost benefits currently anticipated, potential delays in product development or lack of customer acceptance of all-flash storage systems, and failure to manage and continue the collaboration with IBM; 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 Annual Report on Form 10-K for the year ended January 3, 2016.

All statements made in this news release are made only as of the date of this release. We undertake no obligation to update the information in this release in the event facts or circumstances change after the date of this release.

All references to annual and quarterly periods refer to our fiscal year and fiscal quarters.

Forward-Looking Statements

All statements included or incorporated by reference in this document, other than statements or characterizations of historical fact, are forward-looking statements within the meaning of the federal securities laws, including Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements are based on SanDisk Corporation’s (“SanDisk”) current expectations, estimates and projections about the proposed merger, its business and industry, management’s beliefs, and certain assumptions made by SanDisk and Western Digital, all of which are subject to change. Forward-looking statements can often be identified by words such as “anticipates,” “expects,” “intends,” “plans,” “predicts,” “believes,” “seeks,” “estimates,” “may,” “will,” “should,” “would,” “could,” “potential,” “continue,” “ongoing,” similar expressions, and variations or negatives of these words. Examples of such forward-looking statements include, but are not limited to, references to the anticipated benefits of the proposed merger and the expected date of closing of the merger with Western Digital’s wholly-owned subsidiary, Schrader Acquisition Corporation. These forward-looking statements are not guarantees of future results and are subject to risks, uncertainties and assumptions that could cause actual results to differ materially and adversely from those expressed in any forward-looking statement.

Important risk factors that may cause such a difference in connection with the proposed merger include, but are not limited to, the following factors: (1) the failure to satisfy conditions to completion of the merger, including the receipt of all regulatory approvals related to the merger; (2) uncertainties as to the timing of the consummation of the merger and the ability of each party to consummate the merger; (3) risks that the proposed merger disrupts the current plans and operations of Western Digital or SanDisk; (4) the ability of Western Digital and SanDisk to retain and hire key personnel; (5) competitive responses to the proposed merger; (6) unexpected costs, charges or expenses resulting from the merger; (7) the outcome of any legal proceedings that could be instituted against Western Digital, SanDisk or their respective directors related to the merger agreement; (8) potential adverse reactions or changes to business relationships resulting from the announcement or completion of the merger; (9) the inability to obtain, or delays in obtaining, cost savings and synergies from the merger; (10) delays, challenges and expenses associated with integrating the combined companies’ existing businesses and the indebtedness planned to be incurred in connection with the merger; and (11) legislative, regulatory and economic developments. These risks, as well as other risks associated with the proposed merger, are more fully discussed in the joint proxy statement/prospectus that is included in the Registration Statement on Form S-4 filed with the Securities and Exchange Commission (“SEC”) in connection with the proposed merger. The forward-looking statements in this document speak only as of the date of the particular statement. Neither SanDisk nor Western Digital undertakes any obligation to revise or update publicly any forward-looking statement to reflect future events or circumstances.

In addition, actual results are subject to other risks and uncertainties that relate more broadly to SanDisk’s overall business, including those more fully described in SanDisk’s filings with the SEC including its annual report on Form 10-K for the fiscal year ended January 3, 2016, and its quarterly reports filed on Form 10-Q for fiscal year 2015, and Western Digital’s overall business and financial condition, including those more fully described in Western Digital’s filings with the SEC including its annual report on Form 10-K for the fiscal year ended July 3, 2015 and its quarterly reports filed on Form 10-Q for the current fiscal year.

Additional Information and Where to Find It

This communication does not constitute an offer to sell or the solicitation of an offer to buy any securities or a solicitation of any vote or approval. Western Digital filed with the SEC a Registration Statement on Form S-4 which includes a joint proxy statement/prospectus of SanDisk and Western Digital. The Registration Statement on Form S-4 was declared effective on February 5, 2016. Each of SanDisk and Western Digital are providing the joint proxy statement/prospectus to their respective stockholders. SanDisk and Western Digital also plan to file other documents with the SEC regarding the proposed merger. This document is not a substitute for the joint proxy statement/prospectus or registration statement or any other document which SanDisk or Western Digital may file with the SEC in connection with the proposed merger. INVESTORS AND SECURITY HOLDERS OF SANDISK AND WESTERN DIGITAL ARE URGED TO READ THE JOINT PROXY STATEMENT/PROSPECTUS AND ANY OTHER RELEVANT DOCUMENTS THAT WILL BE FILED WITH THE SEC CAREFULLY AND IN THEIR ENTIRETY WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED MERGER. You may obtain copies of all documents filed with the SEC regarding this merger, free of charge, at the SEC’s website (www.sec.gov). In addition, copies of the documents filed with the SEC by SanDisk will be available free of charge on SanDisk’s website at http://www.sandisk.com. Copies of the documents filed with the SEC by Western Digital will be available free of charge on Western Digital’s website at http://www.westerndigital.com.

Source: SanDisk Corporation

Investor Contacts:

Jay Iyer

408-801-2067, jay.iyer@sandisk.com

Brendan Lahiff

408-801-1732, brendan.lahiff@sandisk.com

Media Contact:

Laura Bakken

408-801-7653, laura.bakken@sandisk.com

Preliminary Condensed Consolidated Statements of Operations

(in thousands, except per share amounts, unaudited)

Three months ended

April 3, 2016

March 29, 2015

Revenue

1,365,736

1,332,241

Cost of revenue

794,135

762,483

Amortization of acquisition-related intangible assets

28,276

24,756

Total cost of revenue

822,411

787,239

Gross profit

543,325

545,002

Operating expenses:

Research and development

244,187

222,726

Sales and marketing

96,030

101,820

General and administrative

40,590

48,047

13,681

Impairment of acquisition-related intangible assets

61,000

Restructuring and other

40,541

18,963

Total operating expenses

406,214

487,815

Operating income

137,111

57,187

Other income (expense), net

(15,350

(23,570

Income before income taxes

121,761

33,617

Provision for (benefit from) income taxes

43,408

(5,408

Net income

78,353

39,025

Net income per share:

Diluted

Shares used in computing net income per share:

201,928

211,428

209,923

224,049

Reconciliation of Preliminary GAAP to Non-GAAP Operating Results

(in thousands, except per share data, unaudited)

SUMMARY RECONCILIATION OF NET INCOME:

GAAP NET INCOME

Share-based compensation

43,699

41,410

Amortization of acquisition-related intangible assets

34,673

38,437

Impairment of acquisition-related intangible assets

Western Digital acquisition-related expenses

18,987

Convertible debt interest

23,333

22,134

Income tax adjustments

(31,753

(68,319

NON-GAAP NET INCOME

167,292

133,687

GAAP COST OF REVENUE

(5,376

(4,062

(28,276

(24,756

NON-GAAP COST OF REVENUE

788,759

758,421

GAAP GROSS PROFIT

NON-GAAP GROSS PROFIT

576,977

573,820

GAAP RESEARCH AND DEVELOPMENT EXPENSES

(21,960

(21,043

NON-GAAP RESEARCH AND DEVELOPMENT EXPENSES

222,227

201,683

GAAP SALES AND MARKETING EXPENSES

(9,355

(9,535

NON-GAAP SALES AND MARKETING EXPENSES

86,675

92,285

GAAP GENERAL AND ADMINISTRATIVE EXPENSES

(7,008

(6,770

NON-GAAP GENERAL AND ADMINISTRATIVE EXPENSES

33,582

41,277

GAAP TOTAL OPERATING EXPENSES

(38,323

(37,348

(6,397

(13,681

(61,000

(18,963

NON-GAAP TOTAL OPERATING EXPENSES

342,531

375,786

GAAP OPERATING INCOME

Cost of revenue adjustments

(a) (b)

33,652

28,818

Operating expense adjustments

(a) (b) (c) (d)

63,683

112,029

NON-GAAP OPERATING INCOME

234,446

198,034

GAAP OTHER INCOME (EXPENSE), NET

NON-GAAP OTHER INCOME (EXPENSE), NET

(1,436

Other income (expense) adjustments

(d) (e)

23,357

Diluted net income per share:

Shares used in computing diluted net income per share:

204,001

216,842

(in thousands, unaudited)

SUMMARY RECONCILIATION OF DILUTED SHARES:

Adjustments for share-based compensation

Offsetting shares from call options

(5,858

(7,427

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 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, impairment of acquisition-related in-process research and development intangible assets, Western Digital Corporation acquisition-related expenses, gains and losses related to the shortened duration or liquidation prior to their effective maturity of marketable securities due to the pending acquisition of SanDisk by Western Digital, non-cash economic interest expense associated with the convertible senior notes, non-cash change in fair value of the liability component of the convertible senior notes due to the conversion of a portion of the 1.5% Convertible Senior Notes due 2017, gains and losses related to modifications and terminations of warrants 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 are adjusted for the impact of expensing share-based compensation and include the impact of the call options which, when exercised, will offset the issuance of dilutive shares from the convertible senior notes, while our 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 charges, such as share-based compensation, amortization of acquisition-related intangible assets, inventory step-up expense, impairment of acquisition-related in-process research and development intangible assets, Western Digital acquisition-related expenses, gains and losses related to the shortened duration or liquidation prior to their effective maturity of marketable securities due to the pending acquisition of SanDisk by Western Digital, non-cash economic interest expense associated with the convertible senior notes, non-cash change in fair value of the liability component of the convertible senior notes due to the conversion of a portion of the 1.5% Convertible Senior Notes due 2017, gains and losses related to modifications and terminations of warrants 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.

Share-based compensation expense.

Amortization of acquisition-related intangible assets, primarily developed technology, customer relationships, and trademarks and trade names related to the acquisitions of FlashSoft Corporation, Schooner Information Technology, Inc., SMART Storage Systems and Fusion-io, Inc.

Impairment of acquisition-related in-process research and development intangible assets related to the acquisition of Fusion-io, Inc.

Incremental expense related to the pending acquisition of SanDisk by Western Digital, primarily for transaction, legal, employee-related and other costs, gains and losses related to the shortened duration and expected liquidation prior to their effective maturity date of marketable securities, and gains and losses related to modifications and terminations of warrants.

Incremental interest expense related to the non-cash economic interest expense associated with the convertible senior notes and the non-cash change in fair value of the liability component of the convertible senior notes due to the conversion of a portion of the 1.5% Convertible Senior Notes due 2017.

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 the non-GAAP tax rate but not in the forecasted GAAP tax rate.

Preliminary Condensed Consolidated Balance Sheets

January 3, 2016

ASSETS

Current assets:

Cash and cash equivalents

3,271,927

1,478,948

Short-term marketable securities

1,249,367

2,527,245

Accounts receivable, net

497,183

618,191

Inventory

881,056

809,395

Other current assets

253,847

226,007

Total current assets

6,153,380

5,659,786

Long-term marketable securities

112,195

117,142

Property and equipment, net

790,402

817,130

Notes receivable and investments in Flash Ventures

899,419

1,009,989

Deferred taxes

310,724

325,033

Goodwill

831,328

Intangible assets, net

266,644

296,726

Other non-current assets

147,764

173,627

Total assets

9,511,856

9,230,761

LIABILITIES, CONVERTIBLE SHORT-TERM DEBT CONVERSION OBLIGATION AND STOCKHOLDERS’ EQUITY

Current liabilities:

Accounts payable trade

292,797

323,280

Accounts payable to related parties

194,580

177,510

Convertible short-term debt

2,175,578

913,178

Terminated warrant liability

417,934

Other current accrued liabilities

405,922

353,940

Deferred income on shipments to distributors and retailers and deferred revenue

205,798

235,572

Total current liabilities

3,692,609

2,003,480

Convertible long-term debt

1,237,776

Non-current liabilities

179,419

170,093

Total liabilities

3,872,028

3,411,349

Convertible short-term debt conversion obligation

309,753

80,488

Stockholders' equity:

Common stock

4,612,183

5,203,926

Retained earnings

812,225

733,937

Accumulated other comprehensive loss

(94,333

(198,939

Total stockholders' equity

5,330,075

5,738,924

Total liabilities, convertible short-term debt conversion obligation and stockholders

As of April 3, 2016, the convertible debt is convertible due to the pending acquisition of SanDisk by Western Digital Corporation and as a result is classified as short term. The convertible short-term debt conversion obligation represents the difference between the carrying values prior to debt issuance costs and the principal amounts of the convertible debt due in cash upon conversion.

Preliminary Condensed Consolidated Statements of Cash Flows

Cash flows from operating activities:

Adjustments to reconcile net income to net cash provided by operating activities:

14,553

Depreciation

68,356

69,081

70,991

83,374

Provision for doubtful accounts

Excess tax benefit from share-based plans

(5,743

(8,865

Impairment and other

63,709

Other non-operating

(23,733

(4,187

Changes in operating assets and liabilities:

121,451

252,899

(71,799

(13,945

Other assets

(5,294

(94,673

(16,209

(26,090

17,070

11,819

Other liabilities

63,250

(104,057

Total adjustments

276,790

269,840

Net cash provided by operating activities

355,143

308,865

Cash flows from investing activities:

Purchases of short and long-term marketable securities

(299,154

(692,656

Proceeds from sales of short and long-term marketable securities

1,361,719

1,045,097

Proceeds from maturities of short and long-term marketable securities

207,896

99,881

Acquisition of property and equipment, net

(59,458

(98,287

Notes receivable issuances to Flash Ventures

(45,723

(100,499

Notes receivable proceeds from Flash Ventures

234,524

89,693

Purchased technology and other assets

16,628

(1,500

Net cash provided by investing activities

1,416,432

341,729

Cash flows from financing activities:

Repayment of debt financing

Proceeds from employee stock programs

39,344

30,844

Dividends paid

(2,574

(64,503

Repurchase of common stock

(750,140

Taxes paid related to net share settlement of equity awards

(30,525

(33,759

Net cash provided by (used in) financing activities

11,988

(808,761

Effect of changes in foreign currency exchange rates on cash

Net increase (decrease) in cash and cash equivalents

1,792,979

(159,063

Cash and cash equivalents at beginning of period

809,003

Cash and cash equivalents at end of period

649,940

Preliminary Quarterly Metrics

(unaudited)

Revenue Mix by Category

% of revenue

Percentages may not add to 100% due to rounding

Removable

Embedded

Enterprise Solutions

Client SSD Solutions

Total Revenue

Revenue is estimated based on analysis of the information the company collects in its sales reporting processes.

Removable includes products such as cards, USB flash drives and audio/video players.

Embedded includes products that attach to a host system board.

Enterprise Solutions includes SSDs, system solutions and software used in data center applications.

Client SSD Solutions includes SSDs used in client devices and associated software.

Other includes wafers, components, accessories, and license and royalties.

Revenue Mix by Channel

Commercial

Retail

Commercial includes revenue from OEMs, system integrators, value-added resellers, direct sales, and license and royalties.

Preliminary Quarterly and Annual Metrics

Q/Q Change in Gigabytes Sold

Y/Y Change in Gigabytes Sold

Q/Q Change in ASP/Gigabyte

Y/Y Change in ASP/Gigabyte

Q/Q Change in Cost/Gigabyte

Y/Y Change in Cost/Gigabyte

Average Gigabyte/Unit Capacity

As of end of period:

Factory Headcount

(2)(3)

Non-Factory Headcount

Total Headcount

Cost per gigabyte and cost reduction are non-GAAP and are computed from non-GAAP cost of revenue.

Reflects SanDisk China and Malaysia factory employees, excluding temporary and contract workers.

During 2014, 1,505 employees were converted from contractor to employee status in SanDisk’s assembly and test facility in China.

Reflects SanDisk non-factory employees, excluding temporary and contract workers.

The above information was disclosed in a filing to the SEC. To see the filing, click here.

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Other recent filings from the company include the following:

Prospectuses and communications, business combinations - April 27, 2016
just provided an update on share ownership of SanDisk Corporation - April 25, 2016
Prospectuses and communications, business combinations - April 14, 2016
SanDisk: None - April 7, 2016