msystems� (Nasdaq: FLSH), a leader in smart personal storage, today
announced financial results for the third quarter ended September
30, 2006. GAAP financial highlights for the third quarter: Revenues
totaled $217.1 million, reflecting a 41 percent increase compared
with revenues of $153.9 million in the third quarter of 2005 and a
4 percent increase compared with revenues of $209.5 million in the
second quarter of 2006. Gross margins were 25.8 percent, 250 basis
points higher than gross margins of 23.3 percent in the second
quarter of 2006. Net income was $5.8 million, or $0.14 per share on
a fully diluted basis, compared with net income of $3.1 million, or
$0.08 per share on a fully diluted basis, in the second quarter of
2006. Non GAAP financial highlights for the third quarter: Revenues
totaled $217.1 million. Non GAAP gross margins were 26.0 percent,
260 basis points higher than non GAAP gross margins of 23.4 percent
in the second quarter of 2006. Non GAAP net income was $13.6
million, or $0.32 per share on a fully diluted basis, compared with
non GAAP net income of $10.8 million, or $0.26 per share on a fully
diluted basis, in the second quarter of 2006. Non GAAP adjustments
for the third quarter of 2006 (and, to the extent applicable, the
second quarter of 2006) exclude the effects of stock-based
compensation, amortization of intangible assets related to an
acquisition, expenses attributable to the proposed merger with
SanDisk Corporation, expenses attributable to the review of prior
stock option grants and related withholding tax expenses. A
reconciliation of all non GAAP results to the comparable GAAP
results is set forth below. Commenting on the results, Dov Moran,
Chief Executive Officer of msystems said, �The third quarter of
2006 was a unique quarter for msystems, as we announced our
acquisition by SanDisk at the end of July. Nonetheless, we grew our
revenues significantly compared to the third quarter of 2005 and
also grew our revenues compared to the previous quarter. Our
results in this past quarter demonstrated the continued strength of
our OEM business model and the customer relationships we have built
as demand in the quarter from our major OEM customers remained
strong. We expect demand to continue to grow in the fourth quarter,
typical for the holiday season. �msystems has shown phenomenal
growth over the past 5 years � in the third quarter of 2001, we
sold less than $10 million compared with $217 million in the third
quarter, representing over 20 times growth. In the first nine
months of 2006, our revenues were $646 million, higher than our
full year 2005 revenues.� Mr. Moran continued, �As proud as I am of
our achievements, I am very pleased with the acquisition as I
believe that msystems and SanDisk are a great match with strong
synergies in technology, channels and products. But most important,
at SanDisk we found great people who truly share our first and
foremost value: �People First�.� Mr. Moran concluded, �I would like
to take this opportunity to thank all the employees of msystems who
helped build this company and create its innovation, technology and
tremendous success through their commitment to excellence, hard
work and loyalty. In addition to the great team at msystems, I
would like to thank our shareholders, suppliers and customers � you
are all our partners in this successful journey.� Conference call
msystems� management will host a conference call to discuss its
third quarter financial results at 10:00 a.m. EDT today, October
23, 2006. In light of the pending transaction with SanDisk, there
will be no question and answer session following management�s
prepared comments on the call. A replay of the call will be
available beginning at approximately 12:00 p.m. EDT, October�23,
2006, until October 30, 2006 at 11:59 p.m. To listen to the replay,
please call +1 (973) 341-3080; ID code: 7984983. About msystems
msystems has been transforming raw flash material into smarter
storage solutions since 1989. From embedded flash drives deployed
in millions of mobile handsets to U3 USB smart drives designed for
leading global brands, msystems creates, develops, manufactures and
markets smart personal storage solutions for a myriad of
applications targeting high growth markets. More information is
available online at www.msystems.com. msystems. made smarter. All
company and product names mentioned may be trademarks or registered
trademarks of their respective holders and are used for
identification purposes only. msystems is a trademark of msystems
Ltd.; MegaSIM is a trademark of msystems Ltd. in the United States
and other countries and registered in Israel and Japan. U3 is a
trademark of U3, LLP. This press release includes forward-looking
statements including statements regarding the proposed merger with
SanDisk Corporation, the future market for the companies� products,
as defined in the Private Securities Litigation Reform Act of 1995,
including statements about our business outlook for the future,
that our based on our current expectations. Readers are cautioned
not to place undue reliance on these forward-looking statements, as
they are subject to various risks and uncertainties which may cause
actual results to vary significantly. These risks include, but are
not limited to: that the businesses of msystems and SanDisk will
not be integrated successfully and that any synergies from the
proposed transaction may not be fully realized or may take longer
to realize than expected; all risk associated with the development
and implementation of x4 technology , including difficulties in
utilization or implementation of 4-bit/cell NAND flash, any failure
we may experience in perfecting and/or protecting our intellectual
property rights related to x4 technology, and the risk that flash
manufacturers may opt to utilize such other technologies and not
our x4 technology; the risk that msystems business may not perform
as expected, risks relating to msystems prior stock option grants,
the effect of global economic conditions in general and conditions
in msystems� industry and target markets in particular, shifts in
supply and demand, difficulty in predicting the level of sales by
our venture with a flash partner, market acceptance, the impact of
competitive products and pricing, product development,
commercialization and technological difficulties, and capacity and
supply constraints including dependence on flash component
suppliers; changes in msystems� and its customers� inventory levels
and inventory valuations; timely product and technology
development/upgrades and the ability to manage changes in market
conditions as needed; market acceptance of new products and
continuing product demand; the impact of competitive products and
pricing on msystems� and its customers� products and markets; the
development, release and sale of new products by strategic
suppliers and customers; the development and growth of anticipated
markets for msystems� and its customers� products; and other risk
factors detailed from time to time in msystems� filings with the
Securities and Exchange Commission. msystems assumes no obligation
to update the information in this press release and disclaims any
obligation to publicly update or revise any such forward-looking
statements to reflect any change in its expectations or in events,
conditions, or circumstances on which any such statements may be
based, or that may affect the likelihood that actual results will
differ from those set forth in the forward-looking statements.
Reference to msystems� website above does not constitute
incorporation of any of the information thereon into this press
release. You may register to receive msystems� future press
releases or to download a complete Digital Investor Kit� including
press releases, regulatory filings and corporate materials by
clicking on the �Digital Investor Kit�� icon at www.kcsa.com.
Condensed Consolidated Balance Sheet(U.S. Dollars in thousands) �
September 30, � June 30, 2006� 2006� ASSETS � Cash, cash
equivalents, short-term bank deposits and marketable securities
160,660� 179,044� Trade receivables, net 129,750� 106,052� Related
party trade receivables 1,061� 750� Inventories 117,871� 84,110�
Other accounts receivable and prepaid expenses 12,193� 12,608�
Severance pay funds 6,412� 5,579� Long-term investments and
long-term receivables 7,137� 5,294� Investment in equity method
affiliate 649� 615� Property and equipment, net 41,871� 35,723�
Deferred purchase credits 85,583� 89,658� Other assets, net 46,957�
42,030� Total assets 610,144� 561,463� � LIABILITIES AND
SHAREHOLDERS' EQUITY � CURRENT LIABILITIES: Trade payables 93,719�
80,768� Deferred revenues 3,214� 6,567� Other accounts payable and
accrued expenses 37,623� 32,039� Total current liabilities 134,556�
119,374� � LONG-TERM LIABILITIES: Convertible Senior Notes 71,457�
71,431� Accrued severance pay 8,372� 7,458� Other long-term
liabilities 7,418� 6,533� Total long-term liabilities 87,247�
85,422� � MINORITY INTEREST IN SUBSIDIARY 14,933� 590� �
SHAREHOLDERS' EQUITY � Share capital 10� 10� Additional paid-in
capital 350,318� 341,208� Accumulated other comprehensive income
6,656� 4,228� Retained earnings 16,424� 10,631� Total shareholders'
equity 373,408� 356,077� � Total liabilities and shareholders'
equity 610,144� 561,463� Condensed Consolidated Statements of
Operations(U.S. dollars in thousands, except share and per share
data) � Three months ended September 30, Three months ended June
30, Nine months ended September 30, 2006� 2005� 2006� 2005� 2006�
2005� � Revenues 217,076� 153,910� 209,493� 121,635� 645,679�
392,540� � Costs and expenses: � Costs of goods sold (1) (2)
161,001� 115,870� 160,779� 87,476� 496,160� 288,717� Research and
development, net (1) 13,920� 10,635� 12,996� 9,274� 38,206� 28,084�
Selling and marketing (1) 13,161� 8,186� 13,666� 8,580� 40,748�
25,250� General and administrative (1) 9,873� 2,905� 9,199� 4,037�
24,045� 9,405� � � � � � � Total costs and expenses 197,955�
137,596� 196,640� 109,367� 599,159� 351,456� � Operating income
19,121� 16,314� 12,853� 12,268� 46,520� 41,084� Financial income,
net 601� 2,373� 1,512� 2,988� 3,479� 6,923� Other income, net -� -�
-� -� 1,184� -� � Income before taxes on income (income tax
benefit) 19,722� 18,687� 14,365� 15,256� 51,183� 48,007� Taxes on
income (income tax benefit) (1,885) -� 1,112� -� 641� -� Income
after taxes on income (income tax benefit) 21,607� 18,687� 13,253�
15,256� 50,542� 48,007� � Equity in losses of an affiliate 1,471�
675� 1,334� 656� 4,013� 2,294� Minority interest in earnings of a
subsidiary 14,343� 5,204� 8,786� 7,976� 31,952� 21,264� � Net
income $5,793� $12,808� $3,133� $6,624� $14,577� $24,449� � Basic
net earnings per share $0.15� $0.35� $0.08� $0.18� $0.38� $0.68� �
Diluted net earnings per share $0.14� $0.31� $0.08� $0.17� $0.36�
$0.62� � Weighted average number of shares used in computing basic
earnings per share 38,168,586� 36,246,109� 37,957,382� 36,039,809�
37,907,373� 36,011,603� � Weighted average number of shares used in
computing diluted earnings per share 42,773,561� 41,591,548�
42,465,375� 41,070,719� 42,194,638� 40,380,426� � � (1) Stock based
compensation expense is included in the following line items: �
Cost of goods sold $329� $49� $187� $45� $720� $143� Research and
development, net 1,525� 245� 726� 225� 3,072� 715� Selling and
marketing 1,304� 320� 691� 296� 2,973� 937� General and
administrative 1,167� 172� 710� 156� 2,891� 500� � Total $4,325�
$786� $2,314� $722� $9,656� $2,295� � � (2) Costs of goods sold for
the three months and nine months ended September 30, 2006, include
an extraordinary credit for flash components which were purchased
in Q3 and prior periods. Reconciliation of GAAP to Non GAAP
Operating Results(U.S. dollars in thousands, except share and per
share data) � Three months ended September 30, Three months ended
June 30, Nine months ended September 30, 2006� 2005� 2006� 2005�
2006� 2005� � GAAP costs of goods sold $161,001� $115,870�
$160,779� $87,476� $496,160� $288,717� Stock based compensation
(329) (49) (187) (45) (720) (143) Amortization of intangible assets
(93) -� (92) -� (275) -� Withholding taxes related to stock option
grants (10) -� (104) -� (131) -� Non GAAP costs of goods sold
$160,569� $115,821� $160,396� $87,431� $495,034� $288,574� � GAAP
research and development, net $13,920� $10,635� $12,996� $9,274�
$38,206� $28,084� Stock based compensation (1,525) (245) (726)
(225) (3,072) (715) Withholding taxes related to stock option
grants (43) -� (417) -� (529) -� Non GAAP research and development,
net $12,352� $10,390� $11,853� $9,049� $34,605� $27,369� � GAAP
selling and marketing $13,161� $8,186� $13,666� $8,580� $40,748�
$25,250� Stock based compensation (1,304) (320) (691) (296) (2,973)
(937) Amortization of intangible assets (333) -� (329) -� (983) -�
Withholding taxes related to stock option grants (21) (296) (856)
(296) (1,317) (888) Non GAAP selling and marketing $11,503� $7,570�
$11,790� $7,988� $35,475� $23,425� � GAAP general and
administrative $9,873� $2,905� $9,199� $4,037� $24,045� $9,405�
Stock based compensation (1,167) (172) (710) (156) (2,891) (500)
Certain G&A expenses* (3,039) -� (3,176) -� (6,215) -�
Withholding taxes related to stock option grants (52) -� (515) -�
(652) -� Non GAAP general and administrative $5,615� $2,733�
$4,798� $3,881� $14,287� $8,905� � GAAP operating income $19,121�
$16,314� $12,853� $12,268� $46,520� $41,084� Stock based
compensation 4,325� 786� 2,314� 722� 9,656� 2,295� Amortization of
intangible assets 426� -� 421� -� 1,259� -� Certain G&A
expenses* 3,039� -� 3,176� -� 6,215� -� Withholding taxes related
to stock option grants 126� 296� 1,892� 296� 2,629� 888� Non GAAP
operating income $27,037� $17,396� $20,656� $13,286� $66,279�
$44,267� � GAAP other income, net $0� $0� $0� $0� $1,184� $0� Other
income -� -� -� -� (1,184) -� Non GAAP other income, net $0� $0�
$0� $0� $0� $0� � GAAP taxes on income (income tax benefit)
($1,885) $0� $1,112� $0� $641� $0� Amortization of intangible
assets 149� -� 144� -� 293� -� Other income -� -� -� -� (367) -�
Non GAAP taxes on income (income tax benefit) ($1,736) $0� $1,256�
$0� $567� $0� � GAAP net income $5,793� $12,808� $3,133� $6,624�
$14,577� $24,449� Stock based compensation 4,325� 786� 2,314� 722�
9,656� 2,295� Amortization of intangible assets 277� -� 277� -�
966� -� Certain G&A expenses* 3,039� -� 3,176� -� 6,215� -�
Withholding taxes related to stock option grants 126� 296� 1,892�
296� 2,629� 888� Other income -� -� -� -� (817) -� Non GAAP net
income $13,560� $13,890� $10,792� $7,642� $33,226� $27,632� � Basic
earnings per share GAAP $0.15� $0.35� $0.08� $0.18� $0.38� $0.68�
Non GAAP $0.36� $0.38� $0.28� $0.21� $0.88� $0.77� � Diluted
earnings per share GAAP $0.14� $0.31� $0.08� $0.17� $0.36� $0.62�
Non GAAP $0.32� $0.34� $0.26� $0.19� $0.79� $0.69� � Weighted
average number of shares used in computing basic earnings per share
GAAP 38,168,586� 36,246,109� 37,957,382� 36,039,809� 37,907,373�
36,011,603� Non GAAP 38,168,586� 36,246,109� 37,957,382�
36,039,809� 37,907,373� 36,011,603� � Weighted average number of
shares used in computing diluted earnings per share GAAP
42,773,561� 41,591,548� 42,465,375� 41,070,719� 42,194,638�
40,380,426� Non GAAP 43,300,709� 41,898,049� 42,842,218�
41,262,582� 42,914,699� 40,692,177� � * Certain G&A expenses
include expenses attributable to proposed merger with SanDisk
Corporation and the review of prior stock option grants.
msystems(TM) (Nasdaq: FLSH), a leader in smart personal storage,
today announced financial results for the third quarter ended
September 30, 2006. GAAP financial highlights for the third
quarter: -- Revenues totaled $217.1 million, reflecting a 41
percent increase compared with revenues of $153.9 million in the
third quarter of 2005 and a 4 percent increase compared with
revenues of $209.5 million in the second quarter of 2006. -- Gross
margins were 25.8 percent, 250 basis points higher than gross
margins of 23.3 percent in the second quarter of 2006. -- Net
income was $5.8 million, or $0.14 per share on a fully diluted
basis, compared with net income of $3.1 million, or $0.08 per share
on a fully diluted basis, in the second quarter of 2006. Non GAAP
financial highlights for the third quarter: -- Revenues totaled
$217.1 million. -- Non GAAP gross margins were 26.0 percent, 260
basis points higher than non GAAP gross margins of 23.4 percent in
the second quarter of 2006. -- Non GAAP net income was $13.6
million, or $0.32 per share on a fully diluted basis, compared with
non GAAP net income of $10.8 million, or $0.26 per share on a fully
diluted basis, in the second quarter of 2006. Non GAAP adjustments
for the third quarter of 2006 (and, to the extent applicable, the
second quarter of 2006) exclude the effects of stock-based
compensation, amortization of intangible assets related to an
acquisition, expenses attributable to the proposed merger with
SanDisk Corporation, expenses attributable to the review of prior
stock option grants and related withholding tax expenses. A
reconciliation of all non GAAP results to the comparable GAAP
results is set forth below. Commenting on the results, Dov Moran,
Chief Executive Officer of msystems said, "The third quarter of
2006 was a unique quarter for msystems, as we announced our
acquisition by SanDisk at the end of July. Nonetheless, we grew our
revenues significantly compared to the third quarter of 2005 and
also grew our revenues compared to the previous quarter. Our
results in this past quarter demonstrated the continued strength of
our OEM business model and the customer relationships we have built
as demand in the quarter from our major OEM customers remained
strong. We expect demand to continue to grow in the fourth quarter,
typical for the holiday season. "msystems has shown phenomenal
growth over the past 5 years - in the third quarter of 2001, we
sold less than $10 million compared with $217 million in the third
quarter, representing over 20 times growth. In the first nine
months of 2006, our revenues were $646 million, higher than our
full year 2005 revenues." Mr. Moran continued, "As proud as I am of
our achievements, I am very pleased with the acquisition as I
believe that msystems and SanDisk are a great match with strong
synergies in technology, channels and products. But most important,
at SanDisk we found great people who truly share our first and
foremost value: 'People First'." Mr. Moran concluded, "I would like
to take this opportunity to thank all the employees of msystems who
helped build this company and create its innovation, technology and
tremendous success through their commitment to excellence, hard
work and loyalty. In addition to the great team at msystems, I
would like to thank our shareholders, suppliers and customers - you
are all our partners in this successful journey." Conference call
msystems' management will host a conference call to discuss its
third quarter financial results at 10:00 a.m. EDT today, October
23, 2006. In light of the pending transaction with SanDisk, there
will be no question and answer session following management's
prepared comments on the call. A replay of the call will be
available beginning at approximately 12:00 p.m. EDT, October 23,
2006, until October 30, 2006 at 11:59 p.m. To listen to the replay,
please call +1 (973) 341-3080; ID code: 7984983. About msystems
msystems has been transforming raw flash material into smarter
storage solutions since 1989. From embedded flash drives deployed
in millions of mobile handsets to U3 USB smart drives designed for
leading global brands, msystems creates, develops, manufactures and
markets smart personal storage solutions for a myriad of
applications targeting high growth markets. More information is
available online at www.msystems.com. msystems. made smarter. All
company and product names mentioned may be trademarks or registered
trademarks of their respective holders and are used for
identification purposes only. msystems is a trademark of msystems
Ltd.; MegaSIM is a trademark of msystems Ltd. in the United States
and other countries and registered in Israel and Japan. U3 is a
trademark of U3, LLP. This press release includes forward-looking
statements including statements regarding the proposed merger with
SanDisk Corporation, the future market for the companies' products,
as defined in the Private Securities Litigation Reform Act of 1995,
including statements about our business outlook for the future,
that our based on our current expectations. Readers are cautioned
not to place undue reliance on these forward-looking statements, as
they are subject to various risks and uncertainties which may cause
actual results to vary significantly. These risks include, but are
not limited to: that the businesses of msystems and SanDisk will
not be integrated successfully and that any synergies from the
proposed transaction may not be fully realized or may take longer
to realize than expected; all risk associated with the development
and implementation of x4 technology , including difficulties in
utilization or implementation of 4-bit/cell NAND flash, any failure
we may experience in perfecting and/or protecting our intellectual
property rights related to x4 technology, and the risk that flash
manufacturers may opt to utilize such other technologies and not
our x4 technology; the risk that msystems business may not perform
as expected, risks relating to msystems prior stock option grants,
the effect of global economic conditions in general and conditions
in msystems' industry and target markets in particular, shifts in
supply and demand, difficulty in predicting the level of sales by
our venture with a flash partner, market acceptance, the impact of
competitive products and pricing, product development,
commercialization and technological difficulties, and capacity and
supply constraints including dependence on flash component
suppliers; changes in msystems' and its customers' inventory levels
and inventory valuations; timely product and technology
development/upgrades and the ability to manage changes in market
conditions as needed; market acceptance of new products and
continuing product demand; the impact of competitive products and
pricing on msystems' and its customers' products and markets; the
development, release and sale of new products by strategic
suppliers and customers; the development and growth of anticipated
markets for msystems' and its customers' products; and other risk
factors detailed from time to time in msystems' filings with the
Securities and Exchange Commission. msystems assumes no obligation
to update the information in this press release and disclaims any
obligation to publicly update or revise any such forward-looking
statements to reflect any change in its expectations or in events,
conditions, or circumstances on which any such statements may be
based, or that may affect the likelihood that actual results will
differ from those set forth in the forward-looking statements.
Reference to msystems' website above does not constitute
incorporation of any of the information thereon into this press
release. You may register to receive msystems' future press
releases or to download a complete Digital Investor Kit(TM)
including press releases, regulatory filings and corporate
materials by clicking on the "Digital Investor Kit(TM)" icon at
www.kcsa.com. -0- *T Condensed Consolidated Balance Sheet (U.S.
Dollars in thousands) September 30, June 30,
------------------------- 2006 2006 ------------- -----------
ASSETS Cash, cash equivalents, short-term bank deposits and
marketable securities 160,660 179,044 Trade receivables, net
129,750 106,052 Related party trade receivables 1,061 750
Inventories 117,871 84,110 Other accounts receivable and prepaid
expenses 12,193 12,608 Severance pay funds 6,412 5,579 Long-term
investments and long-term receivables 7,137 5,294 Investment in
equity method affiliate 649 615 Property and equipment, net 41,871
35,723 Deferred purchase credits 85,583 89,658 Other assets, net
46,957 42,030 ------------- ----------- Total assets 610,144
561,463 ============= =========== LIABILITIES AND SHAREHOLDERS'
EQUITY CURRENT LIABILITIES: Trade payables 93,719 80,768 Deferred
revenues 3,214 6,567 Other accounts payable and accrued expenses
37,623 32,039 ------------- ----------- Total current liabilities
134,556 119,374 ------------- ----------- LONG-TERM LIABILITIES:
Convertible Senior Notes 71,457 71,431 Accrued severance pay 8,372
7,458 Other long-term liabilities 7,418 6,533 -------------
----------- Total long-term liabilities 87,247 85,422 -------------
----------- MINORITY INTEREST IN SUBSIDIARY 14,933 590
------------- ----------- SHAREHOLDERS' EQUITY Share capital 10 10
Additional paid-in capital 350,318 341,208 Accumulated other
comprehensive income 6,656 4,228 Retained earnings 16,424 10,631
------------- ----------- Total shareholders' equity 373,408
356,077 ------------- ----------- Total liabilities and
shareholders' equity 610,144 561,463 ============= =========== *T
-0- *T Condensed Consolidated Statements of Operations (U.S.
dollars in thousands, except share and per share data) Three months
ended September 30, ------------------------- 2006 2005 -----------
----------- Revenues 217,076 153,910 ----------- ----------- Costs
and expenses: Costs of goods sold (1) (2) 161,001 115,870 Research
and development, net (1) 13,920 10,635 Selling and marketing (1)
13,161 8,186 General and administrative (1) 9,873 2,905 -----------
----------- Total costs and expenses 197,955 137,596 -----------
----------- Operating income 19,121 16,314 Financial income, net
601 2,373 Other income, net - - ----------- ----------- Income
before taxes on income (income tax benefit) 19,722 18,687 Taxes on
income (income tax benefit) (1,885) - ----------- -----------
Income after taxes on income (income tax benefit) 21,607 18,687
Equity in losses of an affiliate 1,471 675 Minority interest in
earnings of a subsidiary 14,343 5,204 ----------- ----------- Net
income $5,793 $12,808 =========== =========== Basic net earnings
per share $0.15 $0.35 =========== =========== Diluted net earnings
per share $0.14 $0.31 =========== =========== Weighted average
number of shares used in computing basic earnings per share
38,168,586 36,246,109 =========== =========== Weighted average
number of shares used in computing diluted earnings per
share42,773,561 41,591,548 =========== =========== (1) Stock based
compensation expense is included in the following line items: Cost
of goods sold $329 $49 Research and development, net 1,525 245
Selling and marketing 1,304 320 General and administrative 1,167
172 ----------- ----------- Total $4,325 $786 ===========
=========== Three months ended June Nine months ended 30, September
30, ------------------------------------------------ 2006 2005 2006
2005 ------------ ----------- ----------- ----------- Revenues
209,493 121,635 645,679 392,540 ------------ -----------
----------- ----------- Costs and expenses: Costs of goods sold (1)
(2) 160,779 87,476 496,160 288,717 Research and development, net
(1) 12,996 9,274 38,206 28,084 Selling and marketing (1) 13,666
8,580 40,748 25,250 General and administrative (1) 9,199 4,037
24,045 9,405 ------------ ----------- ----------- ----------- Total
costs and expenses 196,640 109,367 599,159 351,456 ------------
----------- ----------- ----------- Operating income 12,853 12,268
46,520 41,084 Financial income, net 1,512 2,988 3,479 6,923 Other
income, net - - 1,184 - ------------ ----------- -----------
----------- Income before taxes on income (income tax benefit)
14,365 15,256 51,183 48,007 Taxes on income (income tax benefit)
1,112 - 641 - ------------ ----------- ----------- -----------
Income after taxes on income (income tax benefit) 13,253 15,256
50,542 48,007 Equity in losses of an affiliate 1,334 656 4,013
2,294 Minority interest in earnings of a subsidiary 8,786 7,976
31,952 21,264 ------------ ----------- ----------- ----------- Net
income $3,133 $6,624 $14,577 $24,449 ============ ===========
=========== =========== Basic net earnings per share $0.08 $0.18
$0.38 $0.68 ============ =========== =========== ===========
Diluted net earnings per share $0.08 $0.17 $0.36 $0.62 ============
=========== =========== =========== Weighted average number of
shares used in computing basic earnings per share 37,957,382
36,039,809 37,907,373 36,011,603 ============ ===========
=========== =========== Weighted average number of shares used in
computing diluted earnings per share 42,465,375 41,070,719
42,194,638 40,380,426 ============ =========== ===========
=========== (1) Stock based compensation expense is included in the
following line items: Cost of goods sold $187 $45 $720 $143
Research and development, net 726 225 3,072 715 Selling and
marketing 691 296 2,973 937 General and administrative 710 156
2,891 500 ------------ ----------- ----------- ----------- Total
$2,314 $722 $9,656 $2,295 ============ =========== ===========
=========== (2) Costs of goods sold for the three months and nine
months ended September 30, 2006, include an extraordinary credit
for flash components which were purchased in Q3 and prior periods.
*T -0- *T Reconciliation of GAAP to Non GAAP Operating Results
(U.S. dollars in thousands, except share and per share data) Three
months ended September 30, ------------------------- 2006 2005
----------- ----------- GAAP costs of goods sold $161,001 $115,870
Stock based compensation (329) (49) Amortization of intangible
assets (93) - Withholding taxes related to stock option grants (10)
- ----------- ----------- Non GAAP costs of goods sold $160,569
$115,821 =========== =========== GAAP research and development, net
$13,920 $10,635 Stock based compensation (1,525) (245) Withholding
taxes related to stock option grants (43) - ----------- -----------
Non GAAP research and development, net $12,352 $10,390 ===========
=========== GAAP selling and marketing $13,161 $8,186 Stock based
compensation (1,304) (320) Amortization of intangible assets (333)
- Withholding taxes related to stock option grants (21) (296)
----------- ----------- Non GAAP selling and marketing $11,503
$7,570 =========== =========== GAAP general and administrative
$9,873 $2,905 Stock based compensation (1,167) (172) Certain
G&A expenses* (3,039) - Withholding taxes related to stock
option grants (52) - ----------- ----------- Non GAAP general and
administrative $5,615 $2,733 =========== =========== GAAP operating
income $19,121 $16,314 Stock based compensation 4,325 786
Amortization of intangible assets 426 - Certain G&A expenses*
3,039 - Withholding taxes related to stock option grants 126 296
----------- ----------- Non GAAP operating income $27,037 $17,396
=========== =========== GAAP other income, net $0 $0 Other income -
- ----------- ----------- Non GAAP other income, net $0 $0
=========== =========== GAAP taxes on income (income tax benefit)
($1,885) $0 Amortization of intangible assets 149 - Other income -
- ----------- ----------- Non GAAP taxes on income (income tax
benefit) ($1,736) $0 =========== =========== GAAP net income $5,793
$12,808 Stock based compensation 4,325 786 Amortization of
intangible assets 277 - Certain G&A expenses* 3,039 -
Withholding taxes related to stock option grants 126 296 Other
income - - ----------- ----------- Non GAAP net income $13,560
$13,890 =========== =========== Basic earnings per share GAAP $0.15
$0.35 =========== =========== Non GAAP $0.36 $0.38 ===========
=========== Diluted earnings per share GAAP $0.14 $0.31 ===========
=========== Non GAAP $0.32 $0.34 =========== =========== Weighted
average number of shares used in computing basic earnings per share
GAAP 38,168,586 36,246,109 =========== =========== Non GAAP
38,168,586 36,246,109 =========== =========== Weighted average
number of shares used in computing diluted earnings per share GAAP
42,773,561 41,591,548 =========== =========== Non GAAP 43,300,709
41,898,049 =========== =========== Three months ended June Nine
months ended 30, September 30,
------------------------------------------------ 2006 2005 2006
2005 ------------ ----------- ----------- ----------- GAAP costs of
goods sold $160,779 $87,476 $496,160 $288,717 Stock based
compensation (187) (45) (720) (143) Amortization of intangible
assets (92) - (275) - Withholding taxes related to stock option
grants (104) - (131) - ------------ ----------- -----------
----------- Non GAAP costs of goods sold $160,396 $87,431 $495,034
$288,574 ============ =========== =========== =========== GAAP
research and development, net $12,996 $9,274 $38,206 $28,084 Stock
based compensation (726) (225) (3,072) (715) Withholding taxes
related to stock option grants (417) - (529) - ------------
----------- ----------- ----------- Non GAAP research and
development, net $11,853 $9,049 $34,605 $27,369 ============
=========== =========== =========== GAAP selling and marketing
$13,666 $8,580 $40,748 $25,250 Stock based compensation (691) (296)
(2,973) (937) Amortization of intangible assets (329) - (983) -
Withholding taxes related to stock option grants (856) (296)
(1,317) (888) ------------ ----------- ----------- ----------- Non
GAAP selling and marketing $11,790 $7,988 $35,475 $23,425
============ =========== =========== =========== GAAP general and
administrative $9,199 $4,037 $24,045 $9,405 Stock based
compensation (710) (156) (2,891) (500) Certain G&A expenses*
(3,176) - (6,215) - Withholding taxes related to stock option
grants (515) - (652) - ------------ ----------- -----------
----------- Non GAAP general and administrative $4,798 $3,881
$14,287 $8,905 ============ =========== =========== ===========
GAAP operating income $12,853 $12,268 $46,520 $41,084 Stock based
compensation 2,314 722 9,656 2,295 Amortization of intangible
assets 421 - 1,259 - Certain G&A expenses* 3,176 - 6,215 -
Withholding taxes related to stock option grants 1,892 296 2,629
888 ------------ ----------- ----------- ----------- Non GAAP
operating income $20,656 $13,286 $66,279 $44,267 ============
=========== =========== =========== GAAP other income, net $0 $0
$1,184 $0 Other income - - (1,184) - ------------ -----------
----------- ----------- Non GAAP other income, net $0 $0 $0 $0
============ =========== =========== =========== GAAP taxes on
income (income tax benefit) $1,112 $0 $641 $0 Amortization of
intangible assets 144 - 293 - Other income - - (367) - ------------
----------- ----------- ----------- Non GAAP taxes on income
(income tax benefit) $1,256 $0 $567 $0 ============ ===========
=========== =========== GAAP net income $3,133 $6,624 $14,577
$24,449 Stock based compensation 2,314 722 9,656 2,295 Amortization
of intangible assets 277 - 966 - Certain G&A expenses* 3,176 -
6,215 - Withholding taxes related to stock option grants 1,892 296
2,629 888 Other income - - (817) - ------------ -----------
----------- ----------- Non GAAP net income $10,792 $7,642 $33,226
$27,632 ============ =========== =========== =========== Basic
earnings per share GAAP $0.08 $0.18 $0.38 $0.68 ============
=========== =========== =========== Non GAAP $0.28 $0.21 $0.88
$0.77 ============ =========== =========== =========== Diluted
earnings per share GAAP $0.08 $0.17 $0.36 $0.62 ============
=========== =========== =========== Non GAAP $0.26 $0.19 $0.79
$0.69 ============ =========== =========== =========== Weighted
average number of shares used in computing basic earnings per share
GAAP 37,957,382 36,039,809 37,907,373 36,011,603 ============
=========== =========== =========== Non GAAP 37,957,382 36,039,809
37,907,373 36,011,603 ============ =========== ===========
=========== Weighted average number of shares used in computing
diluted earnings per share GAAP 42,465,375 41,070,719 42,194,638
40,380,426 ============ =========== =========== =========== Non
GAAP 42,842,218 41,262,582 42,914,699 40,692,177 ============
=========== =========== =========== * Certain G&A expenses
include expenses attributable to proposed merger with SanDisk
Corporation and the review of prior stock option grants. *T
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