8-K

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 8-K

 

 

CURRENT REPORT

Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): July 29, 2015

 

 

Western Digital Corporation

(Exact Name of Registrant as Specified in its Charter)

 

 

 

Delaware   001-08703   33-0956711
(State or Other Jurisdiction
of Incorporation or Organization)
  (Commission
File Number)
  (I.R.S. Employer
Identification No.)

3355 Michelson Drive, Suite 100

Irvine, California

  92612
(Address of Principal Executive Offices)   (Zip Code)

(949) 672-7000

(Registrant’s Telephone Number, Including Area Code)

Not applicable

(Former name or former address, if changed since last report.)

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 240.425)

 

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

 


Item 2.02 Results of Operations and Financial Condition.

On July 29, 2015, Western Digital Corporation (“Western Digital”) announced financial results for the fourth fiscal quarter and fiscal year ended July 3, 2015. A copy of the press release making this announcement is attached hereto as Exhibit 99.1 and is incorporated herein by reference. A copy of Western Digital’s Quarterly Fact Sheet for the fourth fiscal quarter ended July 3, 2015 is attached hereto as Exhibit 99.2 and is incorporated herein by reference.

In accordance with General Instruction B.2 of Form 8-K, the information in this Item 2.02, including Exhibit 99.1 and Exhibit 99.2, shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

 

Item 9.01 Financial Statements and Exhibits.

 

(d) Exhibits

 

99.1    Press Release issued by Western Digital Corporation on July 29, 2015 announcing financial results for the fourth fiscal quarter and fiscal year ended July 3, 2015.
99.2    Fourth Quarter Fiscal Year 2015 Western Digital Corporation Quarterly Fact Sheet.

 

2


SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

      Western Digital Corporation
      (Registrant)
    By:  

/s/ Michael C. Ray

Date: July 29, 2015

      Michael C. Ray
     

Senior Vice President, General Counsel

and Secretary

EX-99.1

Exhibit 99.1

 

LOGO

Company contacts:

Bob Blair

Western Digital Investor Relations

949.672.7834

robert.blair@wdc.com

Steve Shattuck

Western Digital Public Relations

949.672.7817

steve.shattuck@wdc.com

FOR IMMEDIATE RELEASE:

WESTERN DIGITAL ANNOUNCES FINANCIAL RESULTS FOR

FOURTH QUARTER AND FISCAL YEAR 2015

IRVINE, Calif. — July 29, 2015 — Western Digital® Corp. (NASDAQ: WDC) today reported revenue of $3.2 billion and net income of $220 million, or $0.94 per share, for its fourth fiscal quarter ended July 3, 2015. On a non-GAAP basis, net income was $356 million, or $1.51 per share. In the year-ago quarter, the company reported revenue of $3.7 billion and net income of $317 million, or $1.32 per share. Non-GAAP net income in the year-ago quarter was $445 million, or $1.85 per share.

The company generated $488 million in cash from operations during the fourth fiscal quarter, ending with total cash and cash equivalents of $5.0 billion. It utilized $198 million to repurchase 2.0 million shares of its common stock. On May 5, the company declared a cash dividend of $0.50 per share of its common stock, which was paid on July 15.

For the 2015 fiscal year, the company achieved revenue of $14.6 billion and net income of $1.5 billion, or $6.18 per share, compared to fiscal year 2014 revenue of $15.1 billion and net income of $1.6 billion, or $6.68 per share. On a non-GAAP basis, fiscal year 2015 net income was $1.8 billion, or $7.76 per share, compared to fiscal year 2014 net income of $2.0 billion, or $8.10 per share. The company generated $2.2 billion in cash from operations during the 2015 fiscal year and it utilized $1.4 billion for dividends and share repurchases.


Western Digital Announces Financial Results for Fourth Quarter and Fiscal Year 2015

Page 2

 

“I am satisfied with our execution and performance in the fourth fiscal quarter in light of the weak PC market,” said Steve Milligan, president and chief executive officer. “Our financial performance reflects our strong product and technology positioning coupled with solid execution. We remain positive about the opportunity to create long term value in the evolving storage ecosystem.”

The investment community conference call to discuss these results 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. The telephone replay number is 1-800-348-3536 in the U.S. or +1-203-369-3257 for international callers.

About Western Digital

Founded in 1970, Western Digital Corp. (NASDAQ: WDC), Irvine, Calif., is an industry-leading developer and manufacturer of storage solutions that enable people to create, manage, experience and preserve digital content. Its HGST and WD® subsidiaries are long-time innovators in the storage industry. Western Digital Corporation is responding to changing market needs by providing a full portfolio of compelling, high-quality storage products with effective technology deployment, high efficiency, flexibility and speed. Our products are marketed under the HGST, WD and G-Technology™ 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.

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 concerning its product and technology positioning, execution and market opportunities. 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, including: volatility in global economic conditions; business conditions and growth in the storage ecosystem; pricing trends and fluctuations in average selling prices; the availability and cost of commodity materials and specialized product components; actions by competitors;


Western Digital Announces Financial Results for Fourth Quarter and Fiscal Year 2015

Page 3

 

unexpected advances in competing technologies; the development and introduction of products based on new technologies and expansion into new data storage markets; 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 May 12, 2015, 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 and the WD logo are registered trademarks in the U.S. and other countries. HGST trademarks are intended and authorized for use only in countries and jurisdictions in which HGST has obtained the rights to use, market and advertise the brand. Other marks may be mentioned herein that belong to other companies.


WESTERN DIGITAL CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(in millions; unaudited)

 

     Jul. 3,
2015
     Jun. 27,
2014
 
ASSETS   

Current assets:

     

Cash and cash equivalents

   $ 5,024       $ 4,804   

Short-term investments

     262         284   

Accounts receivable, net

     1,532         1,989   

Inventories

     1,368         1,226   

Other current assets

     331         417   
  

 

 

    

 

 

 

Total current assets

     8,517         8,720   

Property, plant and equipment, net

     2,965         3,293   

Goodwill

     2,766         2,559   

Other intangible assets, net

     332         454   

Other non-current assets

     601         473   
  

 

 

    

 

 

 

Total assets

   $ 15,181       $ 15,499   
  

 

 

    

 

 

 
LIABILITIES AND SHAREHOLDERS’ EQUITY   

Current liabilities:

     

Accounts payable

   $ 1,881       $ 1,971   

Accrued arbitration award

     —           758   

Accrued expenses

     470         412   

Accrued compensation

     330         460   

Accrued warranty

     150         119   

Short-term debt

     255         —     

Current portion of long-term debt

     156         125   
  

 

 

    

 

 

 

Total current liabilities

     3,242         3,845   

Long-term debt

     2,156         2,313   

Other liabilities

     564         499   
  

 

 

    

 

 

 

Total liabilities

     5,962         6,657   

Total shareholders’ equity

     9,219         8,842   
  

 

 

    

 

 

 

Total liabilities and shareholders’ equity

   $ 15,181       $ 15,499   
  

 

 

    

 

 

 


WESTERN DIGITAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(in millions, except per share amounts; unaudited)

 

     Three Months Ended     Years Ended  
     Jul. 3,
2015
    Jun. 27,
2014
    Jul. 3,
2015
    Jun. 27,
2014
 

Revenue, net

   $ 3,191      $ 3,651     $ 14,572      $ 15,130   

Cost of revenue

     2,261        2,622       10,351        10,770   
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     930        1,029       4,221        4,360   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses:

        

Research and development

     381        426       1,646        1,661   

Selling, general and administrative

     190        202       773        761   

Charges related to arbitration award

     —          13       15        52   

Employee termination, asset impairment and other charges

     104        36       176        95   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     675        677       2,610        2,569   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     255        352       1,611        1,791   

Net interest and other

     (8     (5 )     (34     (39
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     247        347       1,577        1,752   

Income tax provision

     27        30       112        135   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 220      $ 317     $ 1,465      $ 1,617   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income per common share:

        

Basic

   $ 0.95      $ 1.35     $ 6.31      $ 6.88   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

   $ 0.94      $ 1.32     $ 6.18      $ 6.68   
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average shares outstanding:

        

Basic

     231        234       232        235   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

     235        241       237        242   
  

 

 

   

 

 

   

 

 

   

 

 

 


WESTERN DIGITAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions; unaudited)

 

     Three Months Ended     Years Ended  
     Jul. 3,
2015
    Jun. 27,
2014
    Jul. 3,
2015
    Jun. 27,
2014
 

Operating Activities

        

Net income

   $ 220      $ 317     $ 1,465      $ 1,617   

Adjustments to reconcile net income to net cash provided by operations:

        

Depreciation and amortization

     250        308       1,114        1,244   

Stock-based compensation

     45        31       162        156   

Deferred income taxes

     19        53       28        (13

Gain from insurance recovery

     —           —           (37     (65

Loss on disposal of assets

     3        7       17        40   

Non-cash portion of employee termination, asset impairment and other charges

     74        36       86        62   

Other non-cash operating activities, net

     —           5       —           9   

Changes in operating assets and liabilities, net

     (123     (44 )     (593     (234
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by operating activities

  488      713     2,242      2,816   
  

 

 

   

 

 

   

 

 

   

 

 

 

Investing Activities

Purchases of property, plant and equipment

  (156   (161 )   (612   (628

Acquisitions, net of cash acquired

  (10   —         (257   (823

Purchases of investments

  (170   (91 )   (857   (561

Proceeds from sales and maturities of investments

  103      72     768      72   

Proceeds from sale of property, plant and equipment

  —         —         7      —      

Other investing activities, net

  (8   —         (2   4   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in investing activities

  (241   (180 )   (953   (1,936
  

 

 

   

 

 

   

 

 

   

 

 

 

Financing Activities

Employee stock plans, net

  55      75     167      215   

Repurchases of common stock

  (198   (272 )   (970   (816

Dividends paid to shareholders

  (116   (70 )   (396   (259

Proceeds from debt, net of issuance costs

  255      —         255      2,992   

Repayment of debt

  (31   (31 )   (125   (2,517
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in financing activities

  (35   (298 )   (1,069   (385
  

 

 

   

 

 

   

 

 

   

 

 

 

Net increase in cash and cash equivalents

  212      235     220      495   

Cash and cash equivalents, beginning of period

  4,812      4,569     4,804      4,309   
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash and cash equivalents, end of period

$ 5,024    $ 4,804   $ 5,024    $ 4,804   
  

 

 

   

 

 

   

 

 

   

 

 

 


WESTERN DIGITAL CORPORATION

GAAP TO NON-GAAP NET INCOME RECONCILIATION

(in millions, except per share amounts; unaudited)

 

     Three Months Ended      Years Ended  
     Jul. 3,
2015
     Jun. 27,
2014
     Jul. 3,
2015
    Jun. 27,
2014
 

GAAP net income

   $ 220       $ 317      $ 1,465      $ 1,617   

Non-GAAP adjustments:

          

Amortization of intangible assets

     28         47        163        195   

Employee termination, asset impairment and other charges

     104         36        176        95   

Charges related to arbitration award

     —           13        15        52   

Acquisition-related adjustments

     —           —           3        13   

Flood-related insurance recovery

     —           —           (37     (65

Other

     4         32        55        54   
  

 

 

    

 

 

    

 

 

   

 

 

 

Non-GAAP net income

   $ 356       $ 445      $ 1,840      $ 1,961   
  

 

 

    

 

 

    

 

 

   

 

 

 

Diluted net income per common share:

          

GAAP

   $ 0.94       $ 1.32       $ 6.18      $ 6.68   
  

 

 

    

 

 

    

 

 

   

 

 

 

Non-GAAP

   $ 1.51       $ 1.85       $ 7.76      $ 8.10   
  

 

 

    

 

 

    

 

 

   

 

 

 

Weighted average shares outstanding:

          

Diluted

     235         241         237        242   
  

 

 

    

 

 

    

 

 

   

 

 

 
          

The table above sets forth non-GAAP net income and non-GAAP diluted net income per common share. These non-GAAP net income and diluted net income per common share measures exclude amortization of intangible assets related to acquisitions, certain employee termination, asset impairment and other charges, certain charges related to an arbitration award and other charges that are unusual, non-recurring or may not be indicative of ongoing operations. The Company believes that non-GAAP net income and non-GAAP earnings per share are useful measures to investors as an alternative method for measuring the Company’s earnings performance and comparing it against prior periods. The presentation of these adjusted amounts vary from numbers presented in accordance with U.S. GAAP and therefore may not be comparable to amounts reported by other companies. The tax effect of the aforementioned items was not material to the condensed consolidated statements of income for the three and twelve month periods ended July 3, 2015 and June 27, 2014.

EX-99.2

Exhibit 99.2

 

Amounts in millions, except
per share amounts, ASP,
percentages

  Q1
FY12
    Q2
FY12
    Q3
FY12
    Q4
FY12
    Q1
FY13
    Q2
FY13
    Q3
FY13
    Q4
FY13
    Q1
FY14
    Q2
FY14
    Q3
FY14
    Q4
FY14
    Q1
FY15
    Q2
FY15
    Q3
FY15
    Q4
FY159
   

 

Revenue by Channel

R4Q Ending

Q4 FY15

 

   LOGO

 

Revenue by Geography

R4Q Ending

Q4 FY15

 

   LOGO

TAM

    176.3        119.1        146.4        156.7        139.1        135.8        135.9        133.3        140.2        142.2        138.1        138.0        147.3        140.8        125.0        111.0     

HDD Share

    32.8     23.9     30.2     45.3     44.9     43.6     44.3     44.9     44.7     44.4     43.8     45.7     44.0     43.4     43.6     43.7  

Units (HDD)2

    57.8        28.5        44.2        71.0        62.5        59.2        60.2        59.9        62.6        63.1        60.4        63.1        64.7        61.0        54.5        48.5     

ASP (HDD)

  $ 46      $ 69      $ 68      $ 65      $ 62      $ 62      $ 61      $ 60      $ 58      $ 60      $ 58      $ 56      $ 58      $ 60      $ 61      $ 60     

Revenue

  $ 2,694      $ 1,995      $ 3,035      $ 4,754      $ 4,035      $ 3,824      $ 3,764      $ 3,728      $ 3,804      $ 3,972      $ 3,703      $ 3,651      $ 3,943      $ 3,888      $ 3,550      $ 3,191     

Gross Profit

  $ 541      $ 648      $ 977      $ 1,472      $ 1,193      $ 1,059      $ 1,061      $ 1,050      $ 1,099      $ 1,156      $ 1,076      $ 1,029      $ 1,149      $ 1,110      $ 1,032      $ 930     

Gross Margin

    20.1     32.5     32.2     31.0     29.6     27.7     28.2     28.2     28.9     29.1     29.1     28.2     29.1     28.5     29.1     29.1  

R&D

  $ 193      $ 191      $ 265      $ 406      $ 396      $ 378      $ 396      $ 402      $ 401      $ 416      $ 418      $ 426      $ 437      $ 426      $ 402      $ 381     

SG&A

    71        85        122        178        179        162        185        180        132        226        201        202        220        164        199        190     

Other

    18        210        48        80        26        41        63        689        24        36        38        49        23        54        10        104     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Total Operating Expenses

  $ 282      $ 486      $ 435      $ 664      $ 601      $ 581      $ 644      $ 1,271      $ 557      $ 678      $ 657      $ 677      $ 680      $ 644      $ 611      $ 675     

Operating Income (Loss)

  $ 259      $ 162      $ 542      $ 808      $ 592      $ 478      $ 417      $ (221   $ 542      $ 478      $ 419      $ 352      $ 469      $ 466      $ 421      $ 255     

Net Income (Loss)

  $ 239      $ 145      $ 483      $ 745      $ 519      $ 335      $ 391      $ (265   $ 495      $ 430      $ 375      $ 317      $ 423      $ 438      $ 384      $ 220     

EPS

  $ 1.01      $ 0.61      $ 1.96      $ 2.87      $ 2.06      $ 1.36      $ 1.60      $ (1.12   $ 2.05      $ 1.77      $ 1.55      $ 1.32      $ 1.76      $ 1.84      $ 1.63      $ 0.94     

Diluted Shares Outstanding

    237        237        246        260        252        246        245        236        242        243        242        241        240        238        236        235     

Non-GAAP Results

                                 

Gross Profit10

  $ 541      $ 648      $ 1,077      $ 1,511      $ 1,231      $ 1,097      $ 1,099      $ 1,085      $ 1,135      $ 1,196      $ 1,115      $ 1,078      $ 1,188      $ 1,187      $ 1,069      $ 951     

Gross Margin10

    20.1     32.5     35.5     31.8     30.5     28.7     29.2     29.1     29.8     30.1     30.1     29.5     30.1     30.5     30.1     29.8  

Operating Expenses 10

  $ 261      $ 273      $ 383      $ 572      $ 564      $ 529      $ 559      $ 564      $ 574      $ 616      $ 605      $ 598      $ 638      $ 620      $ 591      $ 560     

Net Income

  $ 260      $ 358      $ 619      $ 872      $ 594      $ 513      $ 514      $ 477      $ 514      $ 532      $ 470      $ 445      $ 504      $ 539      $ 441      $ 356     

EPS6

  $ 1.10      $ 1.51      $ 2.52      $ 3.35      $ 2.36      $ 2.09      $ 2.10      $ 1.96      $ 2.12      $ 2.19      $ 1.94      $ 1.85      $ 2.10      $ 2.26      $ 1.87      $ 1.51     

Revenue By Channel

                                 

OEM

    53     59     64     69     63     61     60     66     64     62     62     65     63     63     64     67  

Distributors

    29     25     28     21     24     24     26     23     24     24     25     23     24     23     23     21  

Retail

    18     16     8     10     13     15     14     11     12     14     13     12     13     14     13     12  

Revenue by Geography

                                 

Americas

    19     22     21     27     23     27     27     28     26     25     25     24     27     27     29     32  

EMEA

    22     21     18     18     18     23     22     19     20     23     21     20     21     24     21     21  

Asia/ANZ

    59     57     61     55     59     50     51     53     54     52     54     56     52     49     50     47  

Top 10 Customers Revenue

    49     51     53     53     44     45     45     48     48     42     44     45     45     44     43     44  

Enterprise SSD Revenue

  $ —        $ —        $ 11      $ 54      $ 70      $ 89      $ 92      $ 104      $ 106      $ 155      $ 134      $ 113      $ 156      $ 187      $ 224      $ 244     

Non-PC Revenue12

    36     34     31     45     46     51     51     52     53     54     53     54     55     58     60     65  

PC Units5

                                 

Notebook

    19.622        9.814        18.067        32.773        25.887        21.300        21.547        23.989        22.912        22.662        21.814        22.899        23.396        21.178        18.785        15.513     

Desktop

    21.588        11.391        15.975        21.211        16.819        17.717        18.383        16.185        17.307        16.825        16.635        16.182        16.320        15.375        13.523        11.601     

Non-PC Units

                                 

Consumer Electronics4

    7.188        2.352        3.643        4.155        8.019        6.452        6.517        6.544        8.474        8.794        8.573        10.906        10.485        9.295        8.610        9.056     

Branded

    7.060        3.191        2.926        4.986        5.767        7.139        6.517        5.281        6.146        7.018        6.272        6.012        6.780        7.156        6.090        5.151     

Enterprise

    2.369        1.724        3.616        7.913        5.988        6.633        7.211        7.897        7.771        7.783        7.129        7.098        7.763        8.041        7.519        7.199     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Total HDD

    57.827        28.472        44.227        71.038        62.480        59.241        60.175        59.896        62.610        63.082        60.423        63.097        64.744        61.045        54.527        48.520     

Average GB Shipped

    634        578        581        668        708        804        805        797        811        874        888        875        1,001        1,088        1,123        1,159     

EB Shipped

    36.7        16.5        25.7        47.4        44.3        47.6        48.4        47.7        50.8        55.1        53.6        55.2        64.8        66.4        61.3        56.2     

R4Q EB Shipped

    128.5        114.6        111.5        126.3        133.9        165.1        187.8        188.0        194.5        202.0        207.2        214.7        228.7        240.0        247.7        248.7     

 

Volume and HDD Share2

   Revenue and Non-GAAP Gross Margin10    Non-GAAP EPS Analysis
   LOGO       LOGO       LOGO

Note: Refer to “Non-GAAP Financial Measures” for information about non-GAAP financial measures included in this quarterly fact sheet.

 

LOGO


Balance sheet, cash flows,

earnings, dividends and share

repurchase amounts in millions

  Q1
FY12
    Q2
FY12
    Q3
FY12
    Q4
FY12
    Q1
FY13
    Q2
FY13
    Q3
FY13
    Q4
FY13
    Q1
FY14
    Q2
FY14
    Q3
FY14
    Q4
FY14
    Q1
FY15
    Q2
FY15
    Q3
FY15
    Q4
FY15’
   

Business Model

(Non-GAAP)

 

Gross Margin*

27%-32%

 

Operating Expense*

10%-12%

 

Operating Income*

15%-22%

 

Tax

7%-10% of Income

Before Tax

 

Capital Expenditures*

5%-7%

 

Conversion Cycle

4-8 Days

 

*Percent of Revenue

Cash and Cash Equivalents

  $ 3,675      $ 3,924      $ 3,377      $ 3,208      $ 3,537      $ 3,816      $ 4,060      $ 4,309      $ 4,869      $ 4,655      $ 4,569      $ 4,804      $ 5,159      $ 4,902      $ 4,812      $ 5,024     

Available-for-Sale (AFS) Securities

    —          —          —          —          —          —          —          —          —          —          470        499        454        465        523        590     

Debt

    (263     (231     (2,743     (2,185     (2,128     (2,128     (2,013     (1,955     (2,398     (2,340     (2,469     (2,438     (2,406     (2,375     (2,344     (2,567  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Net Cash, Cash Equivalents & AFS Securities

  $ 3,412      $ 3,693      $ 634      $ 1,023      $ 1,409      $ 1,688      $ 2,047      $ 2,354      $ 2,471      $ 2,315      $ 2,570      $ 2,865      $ 3,207      $ 2,992      $ 2,991      $ 3,047     

Cash Flow From Operations

  $ 352      $ 378      $ 1,208      $ 1,128      $ 936      $ 772      $ 727      $ 684      $ 680      $ 727      $ 697      $ 713      $ 827      $ 243      $ 684      $ 488     

Free Cash Flow

  $ 218      $ 258      $ 1,069      $ 804      $ 554      $ 526      $ 539      $ 548      $ 544      $ 557      $ 536      $ 552      $ 667      $ 97      $ 534      $ 332     

Capital Expenditures

  $ 134      $ 120      $ 139      $ 324      $ 382      $ 246      $ 188      $ 136      $ 136      $ 170      $ 161      $ 161      $ 160      $ 146      $ 150      $ 156     

Depreciation and Amortization

  $ 158      $ 140      $ 188      $ 339      $ 313      $ 309      $ 309      $ 302      $ 312      $ 317      $ 307      $ 308      $ 289      $ 290      $ 285      $ 250     

EBITDA

  $ 417      $ 302      $ 730      $ 1,147      $ 905      $ 787      $ 726      $ 81      $ 854      $ 795      $ 726      $ 660      $ 758      $ 756      $ 706      $ 505     

Accounts Receivable, Net

  $ 1,356      $ 747      $ 2,377      $ 2,364      $ 1,951      $ 1,732      $ 1,700      $ 1,793      $ 1,791      $ 1,959      $ 1,802      $ 1,989      $ 1,915      $ 1,880      $ 1,696      $ 1,532     

Inventory

                                 

Raw Materials

  $ 170      $ 191      $ 329      $ 245      $ 237      $ 193      $ 191      $ 167      $ 208      $ 201      $ 204      $ 168      $ 178      $ 154      $ 173      $ 168     

Work in Process

    275        185        667        552        559        581        583        575        579        581        519        493        509        510        498        500     

Finished Goods

    200        90        286        413        508        430        423        446        457        511        554        565        585        618        651        700     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Total Inventory

  $ 645      $ 466      $ 1,282      $ 1,210      $ 1,304      $ 1,204      $ 1,197      $ 1,188      $ 1,244      $ 1,293      $ 1,277      $ 1,226      $ 1,272      $ 1,282      $ 1,322      $ 1,368     

Property, Plant and Equipment, Net

  $ 2,209      $ 2,091      $ 4,171      $ 4,067      $ 4,027      $ 3,938      $ 3,803      $ 3,700      $ 3,638      $ 3,509      $ 3,406      $ 3,293      $ 3,202      $ 3,099      $ 3,051      $ 2,965     

Accounts Payable

  $ 1,708      $ 883      $ 2,774      $ 2,773      $ 2,545      $ 2,185      $ 2,037      $ 1,990      $ 2,061      $ 2,106      $ 1,902      $ 1,971      $ 2,016      $ 2,071      $ 2,020      $ 1,881     

Days Sales Outstanding11

    46        34        71        45        44        41        41        44        43        45        44        50        48        44        44        44     

Days Inventory Outstanding11

    27        31        57        34        42        40        40        40        42        42        44        42        45        42        48        55     

Days Payables Outstanding11

    72        60        123        77        82        72        69        67        69        68        65        68        71        68        73        76     

Cash Conversion Cycle11

    1        5        5        2        4        9        12        17        16        19        23        24        22        18        19        23     

Inventory Turns11

    13        12        6        11        9        9        9        9        9        9        8        9        8        9        8        7     

Dividends Paid

  $ —        $ —        $ —        $ —        $ —        $ 121      $ —        $ 60      $ 59      $ 59      $ 71      $ 70      $ 94      $ 94      $ 93      $ 116     

Shares Repurchased

    —          —          —          16.4        5.2        4.2        5.2        4.4        2.3        2.0        2.8        3.2        2.2        3.2        2.2        2.0     

Shares Repurchased

  $ —        $ —        $ —        $ 604      $ 218      $ 146      $ 243      $ 235      $ 150      $ 150      $ 244      $ 272      $ 223      $ 309      $ 240      $ 198     

Remaining Amount Authorized

  $ 416      $ 416      $ 416      $ 1,312      $ 2,594      $ 2,448      $ 2,205      $ 1,970      $ 1,820      $ 1,670      $ 1,426      $ 1,154      $ 931      $ 622      $ 2,382      $ 2,184     

R4Q Economic Profit8

  $ 113      $ 15      $ (83   $ 542      $ 801      $ 976      $ 884      $ (59   $ (176   $ (109   $ (158   $ 415      $ 332      $ 328      $ 320      $ 203     

R4Q ROIC8

    13.6     11.9     14.8     20.4     21.3     21.0     20.0     10.1     9.7     10.5     10.2     15.1     14.2     14.1     14.1     13.1  

R4Q ROA8

    9.5     8.5     10.5     14.3     14.9     14.7     14.2     7.0     6.7     7.2     7.0     10.6     10.0     10.1     10.2     9.6  

Worldwide Headcount3

    67,799        67,121        106,604        103,111        96,002        93,820        87,565        85,777        87,586        87,976        84,556        84,072        83,277        83,993        80,767        76,449     

 

Gross vs. Net Cash, Cash Equivalents & AFS Securities

  R&D10 and Capital Expenditures   Free Cash Flow   R4Q ROIC & R4Q Economic Profit8
LOGO      LOGO      LOGO   LOGO

Note: Refer to “Non-GAAP Financial Measures” for information about non-GAAP financial measures included in this quarterly fact sheet.

 

LOGO


Non-GAAP Financial Measures

Free Cash Flow: Free cash flow is a non-GAAP financial measure defined as cash flows from operations less capital expenditures. We consider free cash flow to be useful as an indicator of our overall liquidity, as the amount of free cash flow generated in any period is representative of cash that is available for strategic opportunities including, among others, investing in the Company’s business, making strategic acquisitions, strengthening the balance sheet, repaying debt, paying dividends and repurchasing stock. We also believe that free cash flow is one of several benchmarks used by investors for comparison of our liquidity with other companies in our industry, although our measure of free cash flow may not be directly comparable to similar measures reported by other companies. Free cash flow should not be construed as an alternative to cash flows from operations or other cash flow measurements determined in accordance with GAAP.

EBITDA: EBITDA is a non-GAAP financial measure defined as net income before interest, income tax expense, depreciation and amortization. We include information concerning EBITDA because we believe it is a useful measure to evaluate our operating performance. As a measure of our operating performance, we believe EBITDA provides a measure of operating results unaffected by differences in capital structures, capital investment cycles and ages of related assets among otherwise comparable companies. While EBITDA is a relevant and widely used measure of operating performance, it does not represent net income as defined by GAAP and it should not be considered as an alternative to that measure in evaluating operating performance.

Non-GAAP Gross Margin and Non-GAAP Gross Profit: Non-GAAP gross margin is a non-GAAP measure defined as non-GAAP gross profit divided by revenue. Non-GAAP gross profit is a non-GAAP measure defined as gross profit before any charges to cost of goods sold that are unusual, non-recurring, or may not be indicative of ongoing operations. Because we believe some charges may not be indicative of ongoing operations, we believe that non-GAAP gross profit is a useful measure to investors as an alternative method for measuring our operating performance and comparing it against prior periods’ performance.

Non-GAAP Operating Expenses: Non-GAAP operating expenses is a non-GAAP measure defined as operating expenses before any charges that are unusual, non-recurring, or may not be indicative of ongoing operations. Because we believe some charges may not be indicative of ongoing operations, we believe that non-GAAP operating expenses is a useful measure to investors as an alternative method for measuring our expense management and comparing it against prior periods’ performance.

Non-GAAP Net Income and Non-GAAP EPS: Non-GAAP net income and non-GAAP EPS are non-GAAP measures defined as net income and EPS, respectively, before any charges that are unusual, non-recurring, or may not be indicative of ongoing operations, or any tax impact related to those charges. Because we believe some charges may not be indicative of ongoing operations, we believe that non-GAAP net income and non-GAAP EPS are useful measures to investors as an alternative method for measuring our earnings performance and comparing it against prior periods’ performance.

 

In millions, except gross margin and per share amounts

  Q1
FY12
    Q2
FY12
    Q3
FY12
    Q4
FY12
    Q1
FY13
    Q2
FY13
    Q3
FY13
    Q4
FY13
    Q1
FY14
    Q2
FY14
    Q3
FY14
    Q4
FY14
    Q1
FY15
    Q2
FY15
    Q3
FY15
    Q4
FY15
 

Reconciliation of Cash Flows from Operations to Free Cash Flow

                               

Cash Flows from Operations

  $ 352      $ 378      $ 1,208      $ 1,128      $ 936      $ 772      $ 727      $ 684      $ 680      $ 727      $ 697      $ 713      $ 827      $ 243      $ 684      $ 488   

Capital Expenditures

    (134     (120     (139     (324     (382     (246     (188     (136     (136     (170     (161     (161     (160     (146     (150     (156
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Free Cash Flow

  $ 218      $ 258      $ 1,069      $ 804      $ 554      $ 526      $ 539      $ 548      $ 544      $ 557      $ 536      $ 552      $ 667      $ 97      $ 534      $ 332   

Reconciliation of Net Income to EBITDA

                               

Net Income (Loss)

  $ 239      $ 145      $ 483      $ 745      $ 519      $ 335      $ 391      $ (265   $ 495      $ 430      $ 375      $ 317      $ 423      $ 438      $ 384      $ 220   

Interest

    1        2        4        7        14        10        11        9        10        11        13        5        9        8        9        8   

Income Tax Expense

    19        15        55        56        59        133        15        35        37        37        31        30        37        20        28        27   

Depreciation and Amortization

    158        140        188        339        313        309        309        302        312        317        307        308        289        290        285        250   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

  $ 417      $ 302      $ 730      $ 1,147      $ 905      $ 787      $ 726      $ 81      $ 854      $ 795      $ 726      $ 660      $ 758      $ 756      $ 706      $ 505   

Reconciliation of Gross Margin to Non-GAAP Gross Margin & Gross Profit to Non-GAAP Gross Profit

                               

Gross Profit10

  $ 541      $ 648      $ 977      $ 1,472      $ 1,193      $ 1,059      $ 1,061      $ 1,050      $ 1,099      $ 1,156      $ 1,076      $ 1,029      $ 1,149      $ 1,110      $ 1,032      $ 930   

Acquisition-related adjustments

    —          —          91        —          —          —          —          —          —          —          —          —          —          —          —          —     

Other

    —          —          —          —          —          —          —          —          —          —          —          10        —          39        —          1   

Amortization of Intangibles

    —          —          9        39        38        38        38        35        36        40        39        39        39        38        37        20   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP Gross Profit10

  $ 541      $ 648      $ 1,077      $ 1,511      $ 1,231      $ 1,097      $ 1,099      $ 1,085      $ 1,135      $ 1,196      $ 1,115      $ 1,078      $ 1,188      $ 1,187      $ 1,069      $ 951   

Revenue

  $ 2,694      $ 1,995      $ 3,035      $ 4,754      $ 4,035      $ 3,824      $ 3,764      $ 3,728      $ 3,804      $ 3,972      $ 3,703      $ 3,651      $ 3,943      $ 3,888      $ 3,550      $ 3,191   

Gross Margin10

    20.1     32.5     32.2     31.0     29.6     27.7     28.2     28.2     28.9     29.1     29.1     28.2     29.1     28.5     29.1     29.1

Non-GAAP Gross Margin10

    20.1     32.5     35.5     31.8     30.5     28.7     29.2     29.1     29.8     30.1     30.1     29.5     30.1     30.5     30.1     29.8

Reconciliation of Operating Expenses to Non-GAAP Operating Expenses

                               

Total Operating Expenses

  $ 282      $ 486      $ 435      $ 664      $ 601      $ 581      $ 644      $ 1,271      $ 557      $ 678      $ 657      $ 677      $ 680      $ 644      $ 611      $ 675   

Less:

                               

Amortization of Intangibles

    —          —          (3     (12     (11     (11     (11     (11     (11     (11     (11     (8     (7     (7     (7     (8

Employee termination, asset impairment and other charges

    —          —          —          (80     (26     (41     (63     (8     (11     (23     (25     (26     (9     (36     (10     (104

Charges related to arbitration award

    —          —          —          —          —          —          —          (681     (13     (13     (13     (13     (14     (1     —          —     

Acquisition-related adjustments

    (14     (14     (34     —          —          —          —          (7     (13     —          —          —          —          —          (3     —     

Charges and Insurance Recoveries Related to Flooding, Net

    —          (199     (15     —          —          —          —          —          65        —          —          —          —          37        —          —     

Other

    (7     —          —          —          —          —          (11     —          —          (15     (3     (32     (12     (17     —          (3
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP Operating Expenses

    261        273        383        572        564        529        559        564        574        616        605        598        638        620        591        560   

Reconciliation of Net Income (Loss) to Non-GAAP Net Income

                               

Net Income (Loss)

  $ 239      $ 145      $ 483      $ 745      $ 519      $ 335      $ 391      $ (265   $ 495      $ 430      $ 375      $ 317      $ 423      $ 438      $ 384      $ 220   

Amortization of Intangibles

    —          —          12        51        49        49        49        46        47        51        50        47        46        45        44        28   

Employee termination, asset impairment and other charges

    —          —          —          80        26        41        63        8        11        23        25        36        9        53        10        104   

Charges related to arbitration award

    —          —          —          —          —          —          —          681        13        13        13        13        14        1        —          —     

Acquisition-related adjustments

    14        14        125        —          —          —          —          7        13        —          —          —          —          —          3        —     

Charges and Insurance Recoveries Related to Flooding, Net

    —          199        15        —          —          —          —          —          (65     —          —          —          —          (37     —          —     

Other

    7        —          —          —          —          —          11        —          —          15        7        32        12        39        —          4   

Tax Impact

    —          —          (16     (4     —          88        —          —          —          —          —          —          —          —          —          —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP Net Income

  $ 260      $ 358      $ 619      $ 872      $ 594      $ 513      $ 514      $ 477      $ 514      $ 532      $ 470      $ 445      $ 504      $ 539      $ 441      $ 356   

EPS

  $ 1.01      $ 0.61      $ 1.96      $ 2.87      $ 2.06      $ 1.36      $ 1.60      $ (1.12   $ 2.05      $ 1.77      $ 1.55      $ 1.32      $ 1.76      $ 1.84      $ 1.63      $ 0.94   

Non-GAAP EPS

  $ 1.10      $ 1.51      $ 2.52      $ 3.35      $ 2.36      $ 2.09      $ 2.10      $ 1.96      $ 2.12      $ 2.19      $ 1.94      $ 1.85      $ 2.10      $ 2.26      $ 1.87      $ 1.51   

Diluted Shares Outstanding

    237        237        246        260        252        246        245        236        242        243        242        241        240        238        236        235   

Non-GAAP Diluted Shares Outstanding6

    237        237        246        260        252        246        245        243        242        243        242        241        240        238        236        235   

 

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Non-GAAP Financial Measures

Economic Profit: Economic profit (EP) is a non-GAAP financial measure defined as net operating profit after taxes less the value of invested capital multiplied by the weighted average cost of capital, where net operating profit after taxes is defined as income from operations minus tax expense and invested capital is defined as the sum of current debt, long-term debt and equity. Management uses EP to evaluate business performance and allocate resources, and it is a component in determining management’s incentive compensation. Management believes EP provides additional perspective to investors about financial returns generated by the business and represents profit generated over and above the cost of capital used by the business to generate that profit.

 

In millions

  Q3
FY10
    Q4
FY10
    Q1
FY11
    Q2
FY11
    Q3
FY11
    Q4
FY11
    Q1
FY12
    Q2
FY12
    Q3
FY12
    Q4
FY12
    Q1
FY13
    Q2
FY13
    Q3
FY13
    Q4
FY13
    Q1
FY14
    Q2
FY14
    Q3
FY14
    Q4
FY14
    Q1
FY15
    Q2
FY15
    Q3
FY15
    Q4
FY15
 

Reconciliation of Operating Income (Loss) to R4Q Economic Profit

                                           

Operating Income (Loss)

  $ 441      $ 293      $ 211      $ 240      $ 158      $ 172      $ 259      $ 162      $ 542      $ 808      $ 592      $ 478      $ 417      $ (221   $ 542      $ 478      $ 419      $ 352      $ 469      $ 466      $ 421      $ 255   

Income Tax Provision

    (40     (27     (14     (14     (13     (12     (19     (15     (55     (56     (59     (133     (15     (35     (37     (37     (31     (30     (37     (20     (28     (27
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net Operating Profit After Taxes

    401        266        197        226        145        160        240        147        487        752        533        345        402        (256     505        441        388        322        432        446        393        228   

R4Q Net Operating Profit After Taxes

    1,320        1,388        1,295        1,090        834        728        771        692        1,034        1,626        1,919        2,117        2,032        1,024        996        1,092        1,078        1,656        1,583        1,588        1,593        1,499   

Invested Capital x WACC

    (534     (562     (581     (606     (621     (636     (658     (677     (1,117     (1,084     (1,118     (1,141     (1,148     (1,083     (1,172     (1,201     (1,236     (1,241     (1,251     (1,260     (1,273     (1,296
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

R4Q Economic Profit

  $ 786      $ 826      $ 714      $ 484      $ 213      $ 92      $ 113      $ 15      $ (83   $ 542      $ 801      $ 976      $ 884      $ (59   $ (176   $ (109   $ (158   $ 415      $ 332      $ 328      $ 320      $ 203   

Formulas

Share = Units (HDD) / TAM

ASP = Revenue / Units (HDD)

Free Cash Flow = Cash Flow from Operations – Capital Expenditures

EBITDA = Net Income (Loss) + Interest + Income Tax Expense + Depreciation and Amortization

Days Sales Outstanding (DSO) = Accounts Receivable / (Revenue / 91 days)

Days Inventory Outstanding (DIO) = Inventory / (Cost of Revenue / 91 days)

Days Payables Outstanding (DPO) = Accounts Payable / (Cost of Revenue / 91 days)

Cash Conversion Cycle = DSO + DIO – DPO

Inventory Turns = 364 days / DIO

R4Q Economic Profit = R4Q Net Operating Profit After Taxes – (Invested Capital x WACC)

 

    Invested Capital = Short-term debt + Current portion of long-term debt + Long-term debt + Total shareholders’ equity
    WACC7 = 11%

R4Q ROIC = R4Q (Net Income (Loss) + Interest Expense) / R4Q Average (Short-term debt + Current portion of long-term debt + Long-term debt + Total shareholders’ equity)

R4Q ROA = R4Q Net Income (Loss) / R4Q Average Total Assets

Footnotes

 

1. ASP, Revenue by Channel and Revenue by Geography exclude external sales of media/substrates.
2. Unit volume excludes WD TV Media Players without hard drives, WD Livewire, SSD and media.
3. Worldwide Headcount excludes temporary and contracted employees.
4. Consumer Electronics includes gaming.
5. PC includes shipments to distributors, second/third tier external HDD manufacturers, and white box manufacturers.
6. Q4 FY13 non-GAAP EPS is calculated using the same number of shares used for Q4 FY13 GAAP EPS plus 7 million dilutive shares. Dilutive shares are not included in the Q4 FY13 GAAP EPS calculation as Q4 FY13 resulted in a net loss.
7. WACC of 11% is an internal assumption.
8. Q2 FY12 includes charges related to the flooding. Q4 FY13 includes charges related to the arbitration award.
9. TAM is preliminary and based on internal information.
10. Certain FY14 prior quarter amounts have been reclassified from gross profit, R&D and SG&A to the other charges line within operating expenses to conform to the annual presentation of FY14 in Part II, Item 8, Note 18 in the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K.
11. Q1 FY15 cash conversion cycle calculated using 98 days due to a 14 week quarter. Q1 FY15 inventory turns calculated using 371 days due to a 53 week year.
12. Non-PC revenue percentage includes consumer electronics, enterprise applications, branded products, and SSD.

 

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