Western Digital Corp. (NASDAQ: WDC) today reported revenue of
$4.7 billion, operating income of $232 million and a net loss of
$366 million, or $1.28 per share, for its first fiscal quarter
ended Sept. 30, 2016. The GAAP net loss for the period includes
charges associated with the company’s recent acquisitions and debt
extinguishment charges related to its repricing and repayment of
outstanding debt. Excluding these charges and other non-GAAP
adjustments, first quarter non-GAAP operating income was $632
million and non-GAAP net income was $341 million, or $1.18 per
share.
In the year-ago quarter, the company reported revenue of $3.4
billion, operating income of $322 million and net income of $283
million, or $1.21 per share. Non-GAAP operating income in the
year-ago quarter was $405 million and non-GAAP net income was $366
million, or $1.56 per share.
The company generated $440 million in cash from operations
during the first fiscal quarter of 2017, ending with total cash and
cash equivalents of $4.1 billion. On Aug. 3, 2016, the company
declared a cash dividend of $0.50 per share of its common stock,
which was paid to shareholders on Oct. 17, 2016.
“We are pleased with our performance in the September quarter,
the first full quarter as an integrated company following the
SanDisk acquisition in May,” said Steve Milligan, chief executive
officer. “Demand for both hard drive and flash-based products was
strong across all customer categories, driven by cloud and mobile
applications, as well as better-than-expected PC market trends. We
are encouraged by the uniformly positive response to the new
Western Digital platform from our broadened customer base.
“The Western Digital team is executing very well against our top
business objectives, including the integrations of the legacy HGST,
SanDisk and WD operations, and our transition to next-generation
NAND technology. We are on track to achieve our synergy goals
associated with these integrations and our transition to 3D NAND
continues to progress as planned.”
The investment community conference call to discuss these
results and the company’s guidance for the second fiscal quarter
2017 will be broadcast live over the Internet today at 2 p.m.
Pacific/5 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 2017, 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 87154641.
About Western Digital
Western Digital is an industry-leading provider of storage
technologies and solutions that enable people to create, leverage,
experience and preserve data. The company addresses ever-changing
market needs by providing a full portfolio of compelling,
high-quality storage solutions with customer-focused innovation,
high efficiency, flexibility and speed. Our products are marketed
under the HGST, SanDisk and WD brands to OEMs, distributors,
resellers, cloud infrastructure providers and consumers. 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 first fiscal quarter ended Sept. 30,
2016, integration activities from the company’s acquisitions;
achievement of our synergy goals associated with those
acquisitions; and our transition to 3D NAND technology. 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. 30, 2016 included in this press release represent the most
current information available to management. The company’s actual
results when disclosed in its quarterly report on 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; 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, 2016, 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, WD, the HGST logo, SanDisk and G-Technology are
registered trademarks or trademarks of Western Digital Corporation
or its affiliates in the U.S. and/or other countries. Other
trademarks, registered trademarks, and/or service marks, indicated
or otherwise, are the property of their respective owners.
WESTERN DIGITAL CORPORATION CONDENSED CONSOLIDATED
BALANCE SHEETS (in millions; unaudited)
Sep. 30, July 1, 2016
2016 ASSETS Current assets: Cash and
cash equivalents $ 4,077 $ 8,151 Short-term investments 248 227
Accounts receivable, net 2,023 1,461 Inventories 2,109 2,129 Other
current assets 666 616 Total current assets 9,123
12,584 Property, plant and equipment, net 3,359 3,503 Notes
receivable and investments in Flash Ventures 1,217 1,171 Goodwill
9,967 9,951 Other intangible assets, net 4,791 5,034 Other
non-current assets 553 619 Total assets $ 29,010 $
32,862
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities: Accounts payable $ 1,946 $ 1,888
Accounts payable to related parties 190 168 Accrued expenses 983
995 Accrued compensation 552 392 Accrued warranty 170 172 Bridge
loan - 2,995 Current portion of long-term debt 78 339
Total current liabilities 3,919 6,949 Long-term debt 13,055 13,660
Other liabilities 1,261 1,108 Total liabilities
18,235 21,717 Total shareholders' equity 10,775
11,145 Total liabilities and shareholders' equity $ 29,010 $ 32,862
WESTERN DIGITAL CORPORATION CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS (in millions,
except per share amounts; unaudited) Three
Months Ended Sep. 30, Oct. 2,
2016 2015 Revenue, net $
4,714 $ 3,360 Cost of revenue 3,379 2,405
Gross profit 1,335 955 Operating
expenses: Research and development 639 385 Selling, general and
administrative 396 192 Employee termination, asset impairment and
other charges 68 56 Total operating
expenses 1,103 633 Operating income 232
322 Interest and other expense, net (503 ) (8 )
Income (loss) before income taxes (271 ) 314 Income tax expense
95 31 Net income (loss) $ (366 ) $ 283
Income (loss) per common share: Basic $ (1.28 ) $
1.23 Diluted $ (1.28 ) $ 1.21 Weighted average
shares outstanding: Basic 285 231
Diluted 285 234
WESTERN DIGITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS
(in millions; unaudited)
Three Months Ended Sep. 30,
Oct. 2, 2016 2015
Operating Activities Net income (loss) $ (366 ) $ 283
Adjustments to reconcile net income (loss)
to net cash provided by operations:
Depreciation and amortization 508 236 Stock-based compensation 99
42 Deferred income taxes 147 (7 ) Loss on disposal of assets 4 -
Amortization and write-off of debt discount and issuance costs 247
1 Loss on settlement of convertible debt 5 -
Non-cash portion of employee termination,
asset impairment and other charges
- 18 Other non-cash operating activities, net 1 - Changes in
operating assets and liabilities, net (205 ) (28 )
Net cash provided by operating activities 440
545
Investing Activities Purchases of
property, plant and equipment, net (183 ) (151 ) Activity related
to Flash Ventures, net (27 ) - Investment activity, net 9 (112 )
Strategic investments and other, net (1 ) (10 ) Net
cash used in investing activities (202 ) (273 )
Financing Activities Employee stock plans, net 26 (9
) Proceeds from acquired call option 61 - Repurchases of common
stock - (60 ) Dividends paid to shareholders (142 ) (115 ) Proceeds
from debt, net of issuance costs 3,985 - Repayment of debt
(8,242 ) (31 ) Net cash used in financing activities
(4,312 ) (215 ) Net increase (decrease) in cash and cash
equivalents (4,074 ) 57 Cash and cash equivalents, beginning of
period 8,151 5,024 Cash and cash
equivalents, end of period $ 4,077 $ 5,081
WESTERN DIGITAL CORPORATION RECONCILIATION OF GAAP
TO NON-GAAP FINANCIAL MEASURES (in millions, except
per share amounts; unaudited) Three Months
Ended Sep. 30, Oct. 2, 2016
2015 Reconciliation of GAAP to Non-GAAP Operating
Income GAAP operating income $ 232 $ 322 Non-GAAP adjustments:
Amortization of acquired intangible assets 242 25 Employee
termination, asset impairment and other charges 68 56
Acquisition-related charges 27 - Charges related to cost saving
initiatives 63 - Other - 2 Non-GAAP operating
income $ 632 $ 405
Reconciliation of GAAP
to Non-GAAP Net Income (Loss) GAAP net income (loss) $ (366 ) $
283 Non-GAAP adjustments: Amortization of acquired intangible
assets 242 25 Employee termination, asset impairment and other
charges 68 56 Acquisition-related charges 27 - Charges related to
cost saving initiatives 63 - Convertible debt activity, net 5 -
Debt extinguishment costs 267 - Other 4 2 Income tax adjustments
31 - Non-GAAP net income $ 341 $ 366
Diluted net income (loss) per common share: GAAP $ (1.28 ) $
1.21 Non-GAAP $ 1.18 $ 1.56 Diluted weighted average
shares outstanding: GAAP 285 234 Non-GAAP
290 234
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 operating
income, non-GAAP net income and non-GAAP diluted net 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. Western Digital Corporation 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.
Non-GAAP operating income, non-GAAP net income and non-GAAP
diluted net income per common share are Non-GAAP measures defined
as operating income, net income and diluted net income per common
share, respectively, before any charges that may not be indicative
of ongoing operations, or any tax impact related to those charges.
These Non-GAAP measures exclude: amortization of acquired
intangible assets; employee termination, asset impairment and other
charges; convertible debt activity, net; charges related to cost
saving initiatives; acquisition-related charges; debt
extinguishments; other charges; and income tax adjustments.
As described above, we exclude the following items from our
Non-GAAP measures:
Amortization of acquired intangible
assets. We incur expenses from the amortization of acquired
intangible assets over their economic lives. Such charges are
significantly impacted by the timing and magnitude of our
acquisitions and any related impairment charges.
Employee termination, asset impairment and
other charges. From time-to-time, in order to realign our
operations with anticipated market demand or to achieve cost
synergies from the integration of acquisitions, we may terminate
employees and/or restructure our operations. From time-to-time, we
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 are not indicative of the underlying performance of
our business.
Acquisition-related charges. In
connection with our business combinations, we incur expenses which
we would not have otherwise incurred as part of our 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. We 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 are not
indicative of the underlying performance of our business.
Charges related to cost saving
initiatives. In connection with the transformation of our
business, we have incurred charges related to cost saving
initiatives which do not qualify for special accounting treatment
as exit or disposal activities. These charges, which are not
indicative of the underlying performance of our business, primarily
relate to costs associated with rationalizing our channel partners
or vendors, transforming our information systems infrastructure,
integrating our product roadmap, and accelerated depreciation on
assets.
Convertible debt activity, net. We
exclude 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 our cash operating results and are not indicative of the
underlying performance of our business.
Debt extinguishment costs. From
time-to-time, we replace our 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. We incur 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
related to our debt activity occur infrequently and are not
indicative of the underlying performance of our business.
Other charges. From time-to-time,
we sell investments or other assets which are not considered
strategic or necessary to our business; 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 are not a part
of the ongoing operation of our 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/20161026006770/en/
Western Digital Corp.Media Contact:Jim
Pascoe408.717.6999jim.pascoe@wdc.comorInvestor Contact:Bob
Blair949.672.7834robert.blair@wdc.com
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