SanDisk Reports Second Quarter 2006 Results


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SanDisk and SanDisk Extreme are trademarks of SanDisk Corporation, registered in the United States and other countries. Memory Stick PRO is a trademark of Sony Corporation.
                         SanDisk Corporation
             Condensed Consolidated Statements of Income
           (In thousands, except per share data, unaudited)

                           Three months ended      Six months ended
                          --------------------- ----------------------
                           July 2,    July 3,     July 2,    July 3,
                             2006       2005       2006        2005
                          ---------- ---------- ----------- ----------
Revenues:
   Product                $ 636,675  $ 453,762  $1,174,403  $ 853,441
   License and royalty       82,510     61,134     168,042    112,430
                           ---------  ---------  ----------  ---------
Total revenue               719,185    514,896   1,342,445    965,871

Cost of product revenues    430,177    300,797     815,044    551,985
                           ---------  ---------  ----------  ---------
Gross profits               289,008    214,099     527,401    413,886

Operating expenses:
  Research and development   73,785     61,404     137,547    107,351
  Sales and marketing        45,067     27,034      88,442     51,631
  General and
   administrative            37,182     19,617      67,198     35,341
  Write-off of acquired
   in-process technology          -          -      39,600          -
  Amortization of
   acquisition related
   intangible assets          4,432          -       8,147          -
                           ---------  ---------  ----------  ---------
Total operating expenses    160,466    108,055     340,934    194,323
                           ---------  ---------  ----------  ---------

Operating income            128,542    106,044     186,467    219,563

Total other income           22,013      5,854      40,477     10,615
                           ---------  ---------  ----------  ---------

Income before taxes         150,555    111,898     226,944    230,178

Provision for income taxes   54,914     41,402      96,188     85,166
                           ---------  ---------  ----------  ---------
Net income                $  95,641  $  70,496  $  130,756  $ 145,012
                           =========  =========  ==========  =========

Shares used in computing
 net income per share
      Basic                 195,527    181,469     194,302    181,050
      Diluted               202,980    190,256     202,522    190,127

Net income per share
      Basic               $    0.49  $    0.39  $     0.67  $    0.80
      Diluted             $    0.47  $    0.37  $     0.65  $    0.76


                         SanDisk Corporation
       Reconciliation of GAAP to Non-GAAP Operating Results (1)
           (In thousands, except per share data, unaudited)

                               Three months ended   Six months ended
                               ------------------- -------------------
                                July 2,   July 3,   July 2,   July 3,
                                 2006      2005      2006      2005
                               --------- --------- --------- ---------

GAAP gross profit              $289,008  $214,099  $527,401  $413,886
  Equity-based compensation (a)   2,478         -     2,478         -
                                --------  --------  --------  --------
Non-GAAP gross profit                $291,486    $214,099    $529,879    $413,886
                                                                ========    ========    ========    ========

GAAP  total  operating  expenses    $160,466    $108,055    $340,934    $194,323
    Equity-based  compensation  (a)  (23,392)                -      (42,178)                -
    Write-off  of  acquired  in-
      process  technology  (b)                          -                  -      (39,600)                -
    Amortization  of  acquisition-
      related  intangible  assets
      (c)                                                      (4,432)                -        (8,147)                -
                                                                --------    --------    --------    --------
Non-GAAP  total  operating
  expenses                                            $132,642    $108,055    $251,009    $194,323
                                                                ========    ========    ========    ========

GAAP  operating  income                    $128,542    $106,044    $186,467    $219,563
    Cost  of  goods  sold
      adjustments  (a)                                2,478                  -          2,478                  -
    Operating  expense  adjustments
      (a-c)                                                  27,824                  -        89,925                  -
                                                                --------    --------    --------    --------
Non-GAAP  operating  income            $158,844    $106,044    $278,870    $219,563
                                                                ========    ========    ========    ========

GAAP  net  income                                $  95,641    $  70,496    $130,756    $145,012
    Cost  of  goods  sold
      adjustments  (a)                                2,478                  -          2,478                  -
    Operating  expense  adjustments
      (a-c)                                                  27,824                  -        89,925                  -
    Income  tax  adjustments  (d)          (8,385)                -      (15,583)                -
                                                                --------    --------    --------    --------
Non-GAAP  net  income                        $117,558    $  70,496    $207,576    $145,012
                                                                ========    ========    ========    ========

Basic  net  income  per  share:
    GAAP                                                  $      0.49    $      0.39    $      0.67    $      0.80
    Non-GAAP                                          $      0.60    $      0.39    $      1.07    $      0.80

Diluted  net  income  per  share:
    GAAP                                                  $      0.47    $      0.37    $      0.65    $      0.76
    Non-GAAP                                          $      0.58    $      0.37    $      1.02    $      0.76

Shares  used  in  computing  basic
  net  income  per  share:
    GAAP                                                    195,527      181,469      194,302      181,050
    Non-GAAP                                            195,527      181,469      194,302      181,050

Shares  used  in  computing
  diluted  net  income  per  share:
    GAAP                                                    202,980      190,256      202,522      190,127
    Non-GAAP                                            204,126      190,256      203,716      190,127

(1)  To  supplement  our  consolidated  financial  statements  presented  in
  accordance  with  generally  accepted  accounting  principles  (GAAP),  we
  use  non-GAAP  measures  of  operating  results,  net  income  and  earnings
  per  share,  which  are  adjusted  from  results  based  on  GAAP  to  exclude
  certain  expenses,  gains  and  losses.  These  non-GAAP  financial
  measures  are  provided  to  enhance  the  user's  overall  understanding
  of  our  current  financial  performance  and  our  prospects  for  the
  future.  Specifically,  we  believe  the  non-GAAP  results  provide
  useful  information  to  both  management,  and  investors  as  these  non-
  GAAP  results  exclude  certain  expenses,  gains  and  losses  that  we
  believe  are  not  indicative  of  our  core  operating  results  and
  because  it  is  consistent  with  the  financial  models  and  estimates
  published  by  many  analysts  who  follow  the  Company.  For  example,
  because  the  non-GAAP  results  exclude  the  expenses  we  recorded  for
  stock  compensation  in  accordance  with  SFAS  123R  effective  January
  2,  2006  and  the  acquisition  of  Matrix  Semiconductor,  Inc.  in
  January  2006,  we  believe  the  inclusion  of  non-GAAP  financial
  measures  provide  consistency  in  our  financial  reporting.  These  non-
  GAAP  results  are  one  of  the  primary  indicators  management  uses  for
  assessing  our  performance,  allocating  resources  and  planning  and
  forecasting  future  periods.  Further,  management  uses  non-GAAP
  information  as  certain  non-cash  charges  such  as  amortization  of
  purchased  intangibles  and  stock  based  compensation  do  not  reflect
  the  cash  operating  results  of  the  business  and  certain  one-time
  expenses  such  as  write-off  of  acquired  in-process  technology  that
  do  not  reflect  the  ongoing  results.  These  measures  should  be
  considered  in  addition  to  results  prepared  in  accordance  with  GAAP,
  but  should  not  be  considered  a  substitute  for  or  superior  to  GAAP
  results.  These  non-GAAP  measures  may  be  different  than  the  non-GAAP
  measures  used  by  other  companies.

(a)  Equity  based  compensation  expense.
(b)  Write-off  of  acquired  in-process  technology  associated  with  the
        Matrix  acquisition  (January  2006).
(c)  Amortization  of  acquisition-related  intangible  assets,  primarily
        core  and  developed  technology,  related  to  the  acquisition  of
        Matrix.
(d)  Income  taxes  associated  with  certain  non-GAAP  adjustments.

                                                  SanDisk  Corporation
                                Condensed  Consolidated  Balance  Sheets
                                                        (In  thousands)


                                                                              July  2,  2006  January  1,  2006(1)
                                ASSETS                                  (unaudited)
                                                                            -------------  ------------------

Current  Assets:
  Cash  and  cash  equivalents                        $    1,318,479                $      762,058
  Short-term  investments                                        960,995                        935,639
  Investment  in  foundries                                        18,990                          18,338
  Accounts  receivable,  net                                    311,921                        329,014
  Inventories                                                              378,196                        331,584
  Deferred  taxes                                                        107,283                          95,518
  Other  current  assets                                            121,164                        103,584
                                                                              ------------                -----------
  Total  current  assets                                        3,217,028                    2,575,735

  Long-term  investments                                          405,714                                    -
  Property  and  equipment,  net                              254,695                        211,092
  Notes  receivable,  FlashVision                            63,750                          61,927
  Notes  receivable,  Flash  Partners                      96,061                                    -
  Investment  in  foundries                                        16,364                          11,013
  Investment  in  FlashVision                                  164,888                        161,080
  Investment  in  Flash  Partners                            174,325                          42,067
  Deferred  taxes                                                        143,630                                    -
  Goodwill                                                                    167,248                            5,415
  Intangible,  net                                                        97,232                            4,608
  Deposits  and  other  non-current  assets            39,674                          47,250
                                                                              ------------                -----------

                Total  Assets                                    $    4,840,609                $  3,120,187
                                                                              ============                ===========

  LIABILITIES  AND  STOCKHOLDERS'  EQUITY

Current  Liabilities:
  Accounts  payable                                          $        110,864                $      231,208
  Accounts  payable  to  related  parties                86,153                          74,121
  Accrued  payroll  and  related  expenses              45,035                          55,614
  Income  taxes  payable                                              12,994                            2,165
  Research  and  development  liability,
    related  party                                                            5,984                            4,200
  Other  current  accrued  liabilities                    75,934                          53,546
  Deferred  income  on  shipments  to
    distributors  and  retailers  and
    deferred  revenue                                                  143,678                        150,283
                                                                              ------------                -----------
  Total  current  liabilities                                  480,642                        571,137

  Convertible  senior  notes                                1,150,000                                    -
  Deferred  revenue  and  non-current
    liabilities                                                              40,850                          25,259
                                                                              ------------                -----------
  Total  Liabilities                                              1,671,492                        596,396

  Commitments  and  contingencies

Stockholders'  Equity:
  Common  stock                                                        2,120,763                    1,622,007
  Retained  earnings                                              1,037,380                        906,624
  Accumulated  other  comprehensive
    income                                                                        10,974                            2,635
  Deferred  compensation                                                      -                          (7,475)
                                                                              ------------                -----------
  Total  stockholders'  equity                            3,169,117                    2,523,791
                                                                              ------------                -----------

                  Total  Liabilities  and
                    Stockholders'  Equity                $    4,840,609                $  3,120,187
                                                                              ============                ===========

(1)  Information  derived  from  the  audited  Condensed  Consolidated
        Financial  Statements.

                                                  SanDisk  Corporation
          Condensed  Consolidated  Comparative  Statement  of  Cash  Flows
                                            (In  thousands,  unaudited)

                                                      Three  months  ended            Six  months  ended
                                                  ----------------------  ----------------------
                                                      July  2,        July  3,          July  2,        July  3,
                                                        2006                2005              2006                2005
                                                  -----------  ----------  -----------  ----------
  Cash  flows  from
    operating  activities:
  Net  income                            $      95,641    $    70,496    $    130,756    $  145,012
  Adjustments  to  reconcile
    net  income  to  net  cash
    provided  by  operating
    activities:
  Deferred  taxes                            (3,939)              (12)        (17,395)          1,076
  Loss  (gain)  on
    investments                                    (602)          5,224            (1,195)          9,253
  Depreciation  and
    amortization                              31,269          14,951            57,666          29,413
  Provision  for  doubtful
    accounts                                        1,527              (163)            1,001              (163)
  Deferred  stock-based
    compensation                              25,903                550            44,688            1,069
  Write-off  of  acquired
    in-process  technology                      -                    -            39,600                    -
  Other  non-cash  charges            (3,536)          3,492            (4,744)          2,274
  Changes  in  operating
    assets  and  liabilities:
  Accounts  receivable                (67,498)      (33,525)          23,048        (47,800)
  Inventories                                  35,508          (5,810)        (39,976)      (33,171)
  Other  assets                              (68,324)      (59,213)          (8,743)      (15,241)
  Accounts  payable  trade          (65,623)        18,624        (123,758)        30,132
  Accounts  payable,
    related  party                              6,857          (1,038)          13,065          15,947
  Other  liabilities                      72,156          45,625            (2,225)        55,676
                                                    ----------    ---------    ----------    ---------
  Total  adjustments                    (36,302)      (11,295)        (18,968)        48,465
                                                    ----------    ---------    ----------    ---------

  Net  cash  provided  by
    operating  activities              59,339          59,201          111,788        193,477
                                                    ----------    ---------    ----------    ---------

  Cash  flows  from
    investing  activities:
  Purchases  of  short  and
    long  term  investments        (685,531)    (156,384)      (805,300)    (295,582)
  Proceeds  from  sale  and
    maturities  of  short  and
    long  term  investments          220,782        128,158          375,446        281,608
  Investment  in  Flash
    Partners                                    (84,338)                  -        (127,919)                  -
  Acquisition  of  capital
    equipment,  net                        (37,125)      (26,067)        (89,722)      (56,218)
  Notes  receivable  from
    FlashVision                                          -                    -                      -        (22,222)
  Notes  receivable  from
    Flash  Partners                        (95,445)                  -          (95,445)                  -
  Cash  acquired  in
    business  combination
    with  Matrix,  net  of
    acquisition  costs                              -                    -              9,432                    -
                                                    ----------    ---------    ----------    ---------
  Net  cash  used  in
    investing  activities          (681,657)      (54,293)      (733,508)      (92,414)
                                                    ----------    ---------    ----------    ---------

  Cash  flows  from
    financing  activities:
  Proceeds  from  issuance
    of  convertible  notes,
    net  of  issuance  costs      1,125,500                    -      1,125,500                    -
  Purchase  of  convertible
    bond  hedge                              (386,090)                  -        (386,090)                  -
  Proceeds  from  issuance
    of  warrants                              308,672                    -          308,672                    -
  Proceeds  from  employee
    stock  programs                          22,789            4,581            68,850          15,853
  Tax  benefit  on  employee
    stock  programs                          19,114                    -            61,023                    -
                                                    ----------    ---------    ----------    ---------
  Net  cash  provided  by
    financing  activities        1,089,985            4,581      1,177,955          15,853
                                                    ----------    ---------    ----------    ---------

  Effect  of  changes  in
    foreign  currency
    exchange  rates  on  cash                247              (205)                186                378
                                                    ----------    ---------    ----------    ---------

  Net  increase  in  cash  and
    cash  equivalents                    467,914            9,284          556,421        117,294

  Cash  and  cash
    equivalents  at
    beginning  of  period              850,565        571,805          762,058        463,795

                                                  -----------  ---------  -----------  ---------
  Cash  and  cash
    equivalents  at  end  of
    period                                  $1,318,479    $  581,089    $1,318,479    $  581,089
                                                    ==========    =========    ==========    =========
 





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