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Western Digital Announces Financial Results for Third Fiscal Quarter 2018
In the year-ago quarter, the company reported revenue of
The company generated
"The power and agility of our platform and our global team's sustained
focus on operational execution drove another quarter of strong financial
performance for Western Digital," said
The investment community conference call to discuss these results, the
company's guidance for the fourth fiscal quarter 2018 and an
accompanying presentation will be broadcast live online today at
About
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 third fiscal quarter ended
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PRELIMINARY CONDENSED CONSOLIDATED BALANCE SHEETS | ||||||
(in millions; unaudited; on a US GAAP basis) | ||||||
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2018 | 2017 | |||||
ASSETS | ||||||
Current assets: | ||||||
Cash and cash equivalents | $ | 4,963 | $ | 6,354 | ||
Short-term investments | 20 | 24 | ||||
Accounts receivable, net | 2,011 | 1,948 | ||||
Inventories | 2,670 | 2,341 | ||||
Other current assets | 500 | 389 | ||||
Total current assets | 10,164 | 11,056 | ||||
Property, plant and equipment, net | 3,011 | 3,033 | ||||
Notes receivable and investments in |
2,160 | 1,340 | ||||
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10,079 | 10,014 | ||||
Other intangible assets, net | 2,956 | 3,823 | ||||
Other non-current assets | 634 | 594 | ||||
Total assets | $ | 29,004 | $ | 29,860 | ||
LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||
Current liabilities: | ||||||
Accounts payable | $ | 2,134 | $ | 2,144 | ||
Accounts payable to related parties | 282 | 206 | ||||
Accrued expenses | 1,015 | 1,069 | ||||
Accrued compensation | 509 | 506 | ||||
Accrued warranty | 195 | 186 | ||||
Current portion of long-term debt | 124 | 233 | ||||
Total current liabilities | 4,259 | 4,344 | ||||
Long-term debt | 11,076 | 12,918 | ||||
Other liabilities | 2,369 | 1,180 | ||||
Total liabilities | 17,704 | 18,442 | ||||
Total shareholders' equity | 11,300 | 11,418 | ||||
Total liabilities and shareholders' equity | $ | 29,004 | $ | 29,860 | ||
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PRELIMINARY CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||||||||||
(in millions, except per share amounts; unaudited; on a US GAAP basis) | ||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
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2018 | 2017 | 2018 | 2017 | |||||||||||||
Revenue, net | $ | 5,013 | $ | 4,649 | $ | 15,530 | $ | 14,251 | ||||||||
Cost of revenue | 3,086 | 3,126 | 9,677 | 9,860 | ||||||||||||
Gross profit | 1,927 | 1,523 | 5,853 | 4,391 | ||||||||||||
Operating expenses: | ||||||||||||||||
Research and development | 602 | 613 | 1,823 | 1,837 | ||||||||||||
Selling, general and administrative | 376 | 346 | 1,121 | 1,100 | ||||||||||||
Employee termination, asset impairment and other charges | 35 | 39 | 135 | 152 | ||||||||||||
Total operating expenses | 1,013 | 998 | 3,079 | 3,089 | ||||||||||||
Operating income | 914 | 525 | 2,774 | 1,302 | ||||||||||||
Interest and other expense, net | (1,042 | ) | (221 | ) | (1,418 | ) | (948 | ) | ||||||||
Income (loss) before taxes | (128 | ) | 304 | 1,356 | 354 | |||||||||||
Income tax expense (benefit) | (189 | ) | 56 | 1,437 | 237 | |||||||||||
Net income (loss) | $ | 61 | $ | 248 | $ | (81 | ) | $ | 117 | |||||||
Income (loss) per common share: | ||||||||||||||||
Basic | $ | 0.20 | $ | 0.86 | $ | (0.27 | ) | $ | 0.41 | |||||||
Diluted | $ | 0.20 | $ | 0.83 | $ | (0.27 | ) | $ | 0.40 | |||||||
Weighted average shares outstanding: | ||||||||||||||||
Basic | 298 | 289 | 296 | 287 | ||||||||||||
Diluted | 308 | 299 | 296 | 295 | ||||||||||||
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PRELIMINARY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||||||||||
(in millions; unaudited; on a US GAAP basis) | ||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
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2018 | 2017 | 2018 | 2017 | |||||||||||||
Operating Activities | ||||||||||||||||
Net income (loss) | $ | 61 | $ | 248 | $ | (81 | ) | $ | 117 | |||||||
Adjustments to reconcile net income (loss) | ||||||||||||||||
to net cash provided by operations: | ||||||||||||||||
Depreciation and amortization | 499 | 560 | 1,567 | 1,582 | ||||||||||||
Stock-based compensation | 103 | 102 | 299 | 303 | ||||||||||||
Deferred income taxes | (207 | ) | (56 | ) | (336 | ) | 61 | |||||||||
Loss on disposal of assets | 4 | 2 | 16 | 12 | ||||||||||||
Write-off of issuance costs and amortization of debt discounts | 185 | 17 | 208 | 275 | ||||||||||||
Cash premium on extinguishment of debt | 720 | - | 720 | - | ||||||||||||
Non-cash portion of employee termination, asset impairment, and other charges | 16 | - | 16 | 13 | ||||||||||||
Other non-cash operating activities, net | (31 | ) | 17 | (15 | ) | 64 | ||||||||||
Changes in operating assets and liabilities, net | (323 | ) | 108 | 948 | 71 | |||||||||||
Net cash provided by operating activities | 1,027 | 998 | 3,342 | 2,498 | ||||||||||||
Investing Activities | ||||||||||||||||
Purchases of property, plant and equipment, net | (213 | ) | (103 | ) | (619 | ) | (432 | ) | ||||||||
Activity related to |
(198 | ) | (154 | ) | (707 | ) | (224 | ) | ||||||||
Acquisitions, net of cash acquired | - | - | (99 | ) | - | |||||||||||
Other | 12 | 127 | 19 | 210 | ||||||||||||
Net cash used in investing activities | (399 | ) | (130 | ) | (1,406 | ) | (446 | ) | ||||||||
Financing Activities | ||||||||||||||||
Employee stock plans, net | (50 | ) | (4 | ) | (18 | ) | 102 | |||||||||
Repurchases of common stock | (155 | ) | - | (155 | ) | - | ||||||||||
Proceeds from acquired call option | - | - | - | 61 | ||||||||||||
Dividends paid to shareholders | (148 | ) | (144 | ) | (443 | ) | (428 | ) | ||||||||
Settlement of debt hedge contracts | - | - | 28 | - | ||||||||||||
Proceeds from debt, net of issuance costs | 8,874 | 3,913 | 11,832 | 7,898 | ||||||||||||
Repayment of debt and premiums | (10,467 | ) | (3,925 | ) | (14,581 | ) | (12,179 | ) | ||||||||
Net cash used in financing activities | (1,946 | ) | (160 | ) | (3,337 | ) | (4,546 | ) | ||||||||
Effect of exchange rate changes on cash | 9 | 4 | 10 | (5 | ) | |||||||||||
Net increase (decrease) in cash and cash equivalents | (1,309 | ) | 712 | (1,391 | ) | (2,499 | ) | |||||||||
Cash and cash equivalents, beginning of period | 6,272 | 4,940 | 6,354 | 8,151 | ||||||||||||
Cash and cash equivalents, end of period | $ | 4,963 | $ | 5,652 | $ | 4,963 | $ | 5,652 | ||||||||
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PRELIMINARY RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES | ||||||||||||||||
(in millions, except per share amounts; unaudited) | ||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
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2018 | 2017 | 2018 | 2017 | |||||||||||||
GAAP cost of revenue | $ | 3,086 | $ | 3,126 | $ | 9,677 | $ | 9,860 | ||||||||
Amortization of acquired intangible assets | (235 | ) | (284 | ) | (788 | ) | (724 | ) | ||||||||
Stock-based compensation expense | (11 | ) | (13 | ) | (37 | ) | (37 | ) | ||||||||
Acquisition-related charges | - | - | - | (18 | ) | |||||||||||
Charges related to cost saving initiatives | (1 | ) | (6 | ) | 6 | (44 | ) | |||||||||
Other | - | - | - | (3 | ) | |||||||||||
Non-GAAP cost of revenue | $ | 2,839 | $ | 2,823 | $ | 8,858 | $ | 9,034 | ||||||||
GAAP gross profit | $ | 1,927 | $ | 1,523 | $ | 5,853 | $ | 4,391 | ||||||||
Amortization of acquired intangible assets | 235 | 284 | 788 | 724 | ||||||||||||
Stock-based compensation expense | 11 | 13 | 37 | 37 | ||||||||||||
Acquisition-related charges | - | - | - | 18 | ||||||||||||
Charges related to cost saving initiatives | 1 | 6 | (6 | ) | 44 | |||||||||||
Other | - | - | - | 3 | ||||||||||||
Non-GAAP gross profit | $ | 2,174 | $ | 1,826 | $ | 6,672 | $ | 5,217 | ||||||||
GAAP operating expenses | $ | 1,013 | $ | 998 | $ | 3,079 | $ | 3,089 | ||||||||
Amortization of acquired intangible assets | (41 | ) | (40 | ) | (122 | ) | (119 | ) | ||||||||
Stock-based compensation expense | (91 | ) | (85 | ) | (261 | ) | (256 | ) | ||||||||
Employee termination, asset impairment and other charges | (35 | ) | (39 | ) | (135 | ) | (152 | ) | ||||||||
Acquisition-related charges | (2 | ) | (2 | ) | (12 | ) | (17 | ) | ||||||||
Charges related to cost saving initiatives | 3 | (22 | ) | (18 | ) | (70 | ) | |||||||||
Other | 3 | 1 | 3 | (4 | ) | |||||||||||
Non-GAAP operating expenses | $ | 850 | $ | 811 | $ | 2,534 | $ | 2,471 | ||||||||
GAAP operating income | $ | 914 | $ | 525 | $ | 2,774 | $ | 1,302 | ||||||||
Cost of revenue adjustments | 247 | 303 | 819 | 826 | ||||||||||||
Operating expense adjustments | 163 | 187 | 545 | 618 | ||||||||||||
Non-GAAP operating income | $ | 1,324 | $ | 1,015 | $ | 4,138 | $ | 2,746 | ||||||||
GAAP interest and other expense, net | $ | (1,042 | ) | $ | (221 | ) | $ | (1,418 | ) | $ | (948 | ) | ||||
Convertible debt activity, net | 3 | 1 | 3 | 7 | ||||||||||||
Debt extinguishment costs | 894 | 7 | 896 | 274 | ||||||||||||
Other | 8 | 7 | 2 | 13 | ||||||||||||
Non-GAAP interest and other expense, net | $ | (137 | ) | $ | (206 | ) | $ | (517 | ) | $ | (654 | ) | ||||
GAAP income tax expense (benefit) | $ | (189 | ) | $ | 56 | $ | 1,437 | $ | 237 | |||||||
Income tax adjustments | 259 | 37 | (1,230 | ) | 16 | |||||||||||
Non-GAAP income tax expense | $ | 70 | $ | 93 | $ | 207 | $ | 253 | ||||||||
GAAP net income (loss) | $ | 61 | $ | 248 | $ | (81 | ) | $ | 117 | |||||||
Amortization of acquired intangible assets | 276 | 324 | 910 | 843 | ||||||||||||
Stock-based compensation expense | 102 | 98 | 298 | 293 | ||||||||||||
Employee termination, asset impairment and other charges | 35 | 39 | 135 | 152 | ||||||||||||
Acquisition-related charges | 2 | 2 | 12 | 35 | ||||||||||||
Charges related to cost saving initiatives | (2 | ) | 28 | 12 | 114 | |||||||||||
Convertible debt activity, net | 3 | 1 | 3 | 7 | ||||||||||||
Debt extinguishment costs | 894 | 7 | 896 | 274 | ||||||||||||
Other | 5 | 6 | (1 | ) | 20 | |||||||||||
Income tax adjustments | (259 | ) | (37 | ) | 1,230 | (16 | ) | |||||||||
Non-GAAP net income | $ | 1,117 | $ | 716 | $ | 3,414 | $ | 1,839 | ||||||||
Diluted income (loss) per common share: | ||||||||||||||||
GAAP | $ | 0.20 | $ | 0.83 | $ | (0.27 | ) | $ | 0.40 | |||||||
Non-GAAP | $ | 3.63 | $ | 2.39 | $ | 11.12 | $ | 6.23 | ||||||||
Diluted weighted average shares outstanding: | ||||||||||||||||
GAAP | 308 | 299 | 296 | 295 | ||||||||||||
Non-GAAP | 308 | 299 | 307 | 295 | ||||||||||||
To supplement the condensed consolidated financial statements presented
in accordance with
As described above, the company excludes the following items from its Non-GAAP measures:
Amortization of acquired intangible assets. The company incurs expenses from the amortization of acquired intangible assets over their economic lives. Such charges are significantly impacted by the timing and magnitude of the company's acquisitions and any related impairment charges.
Stock-based compensation expense. Because of the variety of equity awards used by companies, the varying methodologies for determining stock-based compensation expense, the subjective assumptions involved in those determinations, and the volatility in valuations that can be driven by market conditions outside the company's control, the company believes excluding stock-based compensation expense enhances the ability of management and investors to understand and assess the underlying performance of its business over time and compare it against the company's peers, a majority of whom also exclude stock-based compensation expense from their non-GAAP results.
Employee termination, asset impairment and other charges. From time-to-time, in order to realign the company's operations with anticipated market demand or to achieve cost synergies from the integration of acquisitions, the company may terminate employees and/or restructure its operations. From time-to-time, the company may also incur charges from the impairment of intangible assets and other long-lived assets. These charges (including any reversals of charges recorded in prior periods) are inconsistent in amount and frequency, and the company believes are not indicative of the underlying performance of its business.
Acquisition-related charges. In connection with the company's business combinations, the company incurs expenses which it would not have otherwise incurred as part of its business operations. These expenses include third-party professional service and legal fees, third-party integration services, severance costs, non-cash adjustments to the fair value of acquired inventory, contract termination costs, and retention bonuses. The company may also experience other accounting impacts in connection with these transactions. These charges and impacts are related to acquisitions, are inconsistent in amount and frequency, and the company believes are not indicative of the underlying performance of its business.
Charges related to cost saving initiatives. In connection with the transformation of the company's business, the company has incurred charges related to cost saving initiatives which do not qualify for special accounting treatment as exit or disposal activities. These charges, which the company believes are not indicative of the underlying performance of its business, primarily relate to costs associated with rationalizing the company's channel partners or vendors, transforming the company's information systems infrastructure, integrating the company's product roadmap, and accelerated depreciation on assets.
Convertible debt activity, net. The company excludes non-cash economic interest expense associated with its convertible notes, the gains and losses on the conversion of its convertible senior notes and call option, and unrealized gains and losses related to the change in fair value of the exercise option and call option. These charges and gains and losses do not reflect the company's operating results, and the company believes are not indicative of the underlying performance of its business.
Debt extinguishment costs. From time-to-time, the company replaces its existing debt with new financing at more favorable interest rates or utilizes available capital to settle debt early, both of which generate interest savings in future periods. The company incurs debt extinguishment charges consisting of the costs to call the existing debt and/or the write-off of any related unamortized debt issuance costs. These gains and losses do not reflect the company's operating results, and the company believes are not indicative of the underlying performance of its business.
Other charges. From time-to-time, the company sells or impairs investments or other assets which are not considered necessary to its business operations; is a party to legal or arbitration proceedings, which could result in an expense or benefit due to settlements, final judgments, or accruals for loss contingencies; or incurs other charges or gains that the company believes are not a part of the ongoing operation of its business. The resulting expense or benefit is inconsistent in amount and frequency.
Income tax adjustments. Income tax
adjustments include the difference between income taxes based on a
forecasted annual non-GAAP tax rate and a forecasted annual GAAP tax
rate as a result of the timing of certain non-GAAP pre-tax adjustments.
Additionally, as a result of the Tax Cuts and Jobs Act, the nine months
ended
View source version on businesswire.com: https://www.businesswire.com/news/home/20180426006693/en/
Investor Contact:
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