Sandisk Corporation(SNDK) - 2025 Q4 - Annual Report

PART I Item 1. Business Sandisk Corporation, a leading NAND flash technology provider, separated from Western Digital Corporation on February 21, 2025, becoming a standalone public company serving Cloud, Client, and Consumer markets - Sandisk Corporation separated from Western Digital Corporation (WDC) on February 21, 2025, becoming a standalone publicly traded company under the symbol "SNDK" on Nasdaq[18] - The company is a leading developer, manufacturer, and provider of data storage devices and solutions based on NAND flash technology, serving Cloud, Client, and Consumer end markets[19] - Sandisk holds approximately 7,900 granted patents and 3,200 pending patent applications worldwide, emphasizing innovation and operational excellence[20][34] - The business strategy focuses on innovation and cost leadership, a broad product portfolio, and operational excellence to create long-term value[30][31] - Substantially all flash-based memory is obtained from joint ventures with Kioxia (Flash Ventures) in Japan, providing leading-edge, high-quality, and low-cost flash memory wafers[40][41] - International sales represented 80%, 86%, and 81% of net revenue for 2025, 2024, and 2023, respectively, indicating significant global market presence[51] - As of June 2025, the global team includes approximately 11,000 employees across 33 countries, with 73% in Asia Pacific, 19% in the Americas, and 8% in EMEA[56] Item 1A. Risk Factors Sandisk faces a range of significant risks, including operational challenges, intense competition, substantial debt, currency fluctuations, and risks related to its spin-off from WDC - Adverse global or regional conditions, including trade policies and geopolitical tensions, could harm business by impacting demand, increasing costs, and reducing profitability[75][78] - Dependence on a limited number of qualified suppliers for critical components and services, including Flash Ventures, poses risks of supply chain disruptions, increased costs, and inability to meet demand[80][81] - The increasing use of AI technologies elevates cybersecurity risks, as threat actors can leverage AI to automate and scale attacks, generate sophisticated phishing content, and exploit vulnerabilities more efficiently[95] - The industry is highly competitive, characterized by declining average selling prices, volatile demand, rapid technological change, and industry consolidation, which can negatively impact Sandisk's market share and profitability[104][105] - Substantial debt incurred post-separation may limit liquidity, restrict operations, and increase vulnerability to adverse economic conditions, with potential for increased interest expense due to variable rates[124][126] - Fluctuations in currency exchange rates, particularly a strengthening U.S. dollar, can negatively affect revenue, cost of revenue, margins, and operating costs, as a significant portion of production costs are foreign-currency denominated[129][130] - The spin-off from WDC may not achieve all expected benefits, could result in ongoing material costs and expenses, and historical financial information may not be representative of future standalone performance[149][150][152] - Provisions in joint venture agreements with Kioxia, such as restrictions on manufacturing flash memory outside Flash Ventures, may deter or delay third-party acquisitions of Sandisk, potentially decreasing common stock market price[188][190] Item 1B. Unresolved Staff Comments This section indicates that there are no unresolved staff comments applicable to the company Item 1C. Cybersecurity Sandisk has a robust cybersecurity program, guided by frameworks like NIST-CSF, to manage and mitigate risks to its technology infrastructure and products - Sandisk's cybersecurity strategy is dynamic and adaptive, influenced by frameworks like NIST-CSF, and includes endpoint protection, network security, vulnerability management, and third-party risk management[194] - A dedicated 24x7 Security Operations Center handles security incidents, determining severity, initiating notification protocols, and beginning triage based on a pre-established incident severity matrix[195] - The Board of Directors, through its Audit Committee, oversees cybersecurity risk management, receiving regular reports from the Chief Information Security Officer[202][203] - As of the report date, known cybersecurity incidents have not materially affected Sandisk's business strategy, results of operations, or financial condition[199] Item 2. Properties Sandisk's principal executive offices are in Milpitas, California, with significant manufacturing, R&D, marketing, and administrative facilities globally - Principal executive offices are located at 951 Sandisk Drive, Milpitas, California[205] Principal Facilities by Location (Owned or Leased) | Location | Buildings Owned or Leased | Approximate Square Footage | Description | |:---|:---|:---|:---| | United States |||| | California (Irvine) | Leased | 105,000 | Flash R&D, marketing and sales, and administrative | | California (Milpitas) | Leased | 578,000 | Flash R&D, marketing and sales, and administrative | | Colorado (Longmont) | Leased | 31,000 | Flash R&D | | Minnesota (Rochester) | Leased | 45,000 | Flash product development | | Asia |||| | Japan (Fujisawa) | Owned | 23,000 | Flash R&D, Sales | | Malaysia (Penang) | Owned | 1,177,000 | Flash R&D, manufacturing of media | | China (Shanghai) | Leased | 5,000 | Flash assembly and testing | | Middle East |||| | Israel (Kfar Saba) | Owned | 204,000 | Flash R&D | - Substantially all flash-based memory wafers are manufactured by Flash Ventures in leased facilities in Yokkaichi and Kitakami, Japan[206] Item 3. Legal Proceedings Sandisk is not currently involved in any material legal proceedings beyond routine litigation incidental to its business - There are no material legal proceedings, other than ordinary routine litigation incidental to the company, to which Sandisk or its subsidiaries are a party[207] Item 4. Mine Safety Disclosures This section states that mine safety disclosures are not applicable to Sandisk Corporation PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Sandisk's common stock began trading on the Nasdaq Global Select Market under the symbol "SDNK" on February 24, 2025, with no current intention to pay cash dividends - Sandisk's common stock is listed on the Nasdaq Global Select Market under the symbol "SDNK" and began trading on February 24, 2025[4][210][222] - As of August 13, 2025, there were approximately 685 holders of record for the common stock[210] - The company does not currently intend to pay cash dividends, opting to retain funds for business operations and to strengthen its financial position[211] Cumulative Total Return to Stockholders (February 12, 2025 - June 27, 2025) | | February 12, 2025 | June 27, 2025 | |:---|:---|:---| | Sandisk Corporation | $100.00 | $130.97 | | S&P 500 Index | $100.00 | $101.49 | | PHLX Semiconductor Sector (SOX) Index | $100.00 | $108.01 | Item 6. [Reserved] This section is reserved and contains no information Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Sandisk completed its spin-off from WDC on February 21, 2025, becoming an independent public company focused on NAND flash technology solutions for Cloud, Client, and Consumer markets Overview Sandisk completed its spin-off from WDC in February 2025, becoming an independent NAND flash technology provider, and recorded a $1.8 billion goodwill impairment charge - Sandisk completed its spin-off from Western Digital Corporation (WDC) on February 21, 2025, distributing 80.1% of its common stock to WDC stockholders[221][222] - The company is a leading developer, manufacturer, and provider of NAND flash technology solutions for AI workloads in datacenters, edge devices, and consumers, addressing Cloud, Client, and Consumer end markets[224] - In September 2023, WDC completed a sale and leaseback of its Milpitas, California facility, with $134 million of net proceeds allocated to Sandisk[226] - SanDisk China Limited sold 80% of its equity interest in SanDisk Semiconductor (Shanghai) Co. Ltd. (SDSS) to JCET Management Co., Ltd. on September 28, 2024, forming the SDSS Venture[227] - A goodwill impairment charge of $1.8 billion was recorded during the third quarter of fiscal year 2025 due to the carrying value of the reporting unit exceeding its fair value[229] - On February 21, 2025, Sandisk entered into a $2.0 billion Term Loan Facility and a $1.5 billion Revolving Credit Facility, using a portion of the Term Loan proceeds for a $1.5 billion net distribution payment to WDC[232][233] - Fiscal year 2025 saw an improvement in supply and demand dynamics, leading to improved revenues and gross margin, though $75 million in charges were incurred for manufacturing underutilization[234] Basis of Presentation Post-separation, Sandisk's financial statements are consolidated under U.S. GAAP, with historical data derived from WDC's consolidated statements - Post-separation (February 21, 2025), Sandisk's financial statements are presented on a consolidated basis in accordance with U.S. GAAP[237] - Prior to separation, historical financial statements were derived from WDC's consolidated statements, with certain corporate overhead and shared costs allocated to Sandisk based on direct usage or other reasonable methods[239] Results of Operations Net revenue increased 10% in 2025, driven by higher exabytes sold and improved pricing, leading to a significant rise in gross profit Selected Summary Information from Consolidated Statements of Operations (2023-2025) | Metric | 2025 (in millions) | 2025 (%) | 2024 (in millions) | 2024 (%) | 2023 (in millions) | 2023 (%) | |:---|:---|:---|:---|:---|:---|:---| | Revenue, net | $7,355 | 100.0% | $6,663 | 100.0% | $6,086 | 100.0% | | Cost of revenue | 5,143 | 69.9 | 5,591 | 83.9 | 5,656 | 92.9 | | Gross profit | 2,212 | 30.1 | 1,072 | 16.1 | 430 | 7.1 | | Research and development | 1,132 | 15.4 | 1,061 | 15.9 | 1,167 | 19.2 | | Selling, general and administrative | 573 | 7.8 | 455 | 6.8 | 558 | 9.2 | | Goodwill impairment | 1,830 | 24.9 | — | — | 671 | 11.0 | | Total operating expenses | 3,589 | 48.8 | 1,540 | 23.1 | 2,465 | 40.5 | | Operating income (loss) | (1,377) | (18.7) | (468) | (7.0) | (2,035) | (33.4) | | Net income (loss) | $(1,641) | (22.3)% | $(672) | (10.0)% | $(2,143) | (35.2)% | Disaggregated Revenue by End Market (2023-2025) | Revenue by end market | 2025 (in millions) | 2024 (in millions) | 2023 (in millions) | |:---|:---|:---|:---|\ | Cloud | $960 | $325 | $500 | | Client | 4,127 | 4,069 | 3,637 | | Consumer | 2,268 | 2,269 | 1,949 | | Total revenue | $7,355 | $6,663 | $6,086 | Disaggregated Revenue by Geography (2023-2025) | Revenue by geography | 2025 (in millions) | 2024 (in millions) | 2023 (in millions) | |:---|:---|:---|:---|\ | Asia | $4,457 | $4,510 | $3,890 | | Americas | 1,618 | 1,095 | 1,266 | | Europe, Middle East and Africa | 1,280 | 1,058 | 930 | | Total revenue | $7,355 | $6,663 | $6,086 | - Net revenue increased 10% ($692 million) in 2025 compared to 2024, driven by a 6% increase in exabytes sold and a 4% increase in average selling prices (ASP) per gigabyte[242] - Cloud revenue surged 195% ($635 million) in 2025, primarily due to a 153% increase in exabytes sold and a 17% increase in ASP per gigabyte[243] - Gross profit increased by $1,140 million in 2025 compared to 2024, and gross profit margin increased by 14%, primarily due to improved pricing, favorable product mix, and decreased manufacturing underutilization charges[246][247] - Research and development (R&D) expenses increased by $71 million in 2025, mainly due to higher compensation and benefits, increased R&D project spending, and material purchases[248] - Selling, general and administrative expenses increased by $118 million in 2025, driven by higher variable compensation, increased materials, and legal service fees[249] - Interest and other expense, net, increased by $67 million in 2025, primarily due to a $56 million increase in interest expense from the Loan Agreement and a $37 million increase in equity method investment losses[254] Income Tax Expense and Effective Tax Rate (2023-2025) | Metric | 2025 (in millions) | 2024 (in millions) | 2023 (in millions) | |:---|:---|:---|:---|\ | Income (loss) before taxes | $(1,479) | $(503) | $(2,002) | | Income tax expense | $162 | $169 | $141 | | Effective tax rate | (11)% | (34)% | (7)% | Financial condition, liquidity and capital resources Sandisk's liquidity is supported by cash and credit facilities, with anticipated capital investments and significant commitments related to Flash Ventures Consolidated Statements of Cash Flows Summary (2023-2025) | Cash Flow Activity | 2025 (in millions) | 2024 (in millions) | 2023 (in millions) | |:---|:---|:---|:---|\ | Operating activities | $84 | $(309) | $(713) | | Investing activities | $556 | $210 | $(189) | | Financing activities | $518 | $136 | $860 | | Net increase (decrease) in cash and cash equivalents | $1,153 | $36 | $(43) | - Sandisk anticipates increased capital investments in fiscal year 2026 to transition to newer technology nodes and meet product portfolio demand[260] - Net cash provided by operating activities was $84 million in 2025, a significant improvement from negative cash flows in 2024 and 2023[260][263] Cash Conversion Cycle (Days) (2023-2025) | Metric | 2025 | 2024 | 2023 | |:---|:---|:---|:---|\ | Days sales outstanding (DSO) | 51 | 48 | 35 | | Days in inventory (DIO) | 135 | 158 | 134 | | Days payable outstanding (DPO) | (50) | (54) | (37) | | Cash conversion cycle | 136 | 152 | 132 | - Net cash provided by investing activities was $556 million in 2025, primarily from the sale of a majority interest in a subsidiary ($401 million) and Flash Ventures activities ($358 million), partially offset by capital expenditures[266] - Net cash provided by financing activities was $518 million in 2025, including $1,970 million from the Term Loan Facility, partially offset by a $1,887 million transfer to WDC[267] Material Cash Requirements as of June 27, 2025 (in millions) | Category | Total | 1 year (2026) | 2-3 Years (2027-2028) | 4-5 Years (2029-2030) | More than 5 Years (Beyond 2030) | |:---|:---|:---|:---|:---|:---|\ | Long-term debt, including current portion | $1,900 | $20 | $40 | $40 | $1,800 | | Interest on debt | 905 | 143 | 276 | 267 | 219 | | Flash Ventures related commitments | 4,539 | 2,226 | 1,583 | 667 | 63 | | Operating leases | 331 | 41 | 63 | 44 | 183 | | Purchase obligations and other commitments | 2,633 | 250 | 1,153 | 1,140 | 90 | | Total | $10,308 | $2,680 | $3,115 | $2,158 | $2,355 | - As of June 27, 2025, Sandisk was in compliance with the Loan Agreement's financial covenant requiring a maximum Leverage Ratio[273] - The company guarantees half of all outstanding obligations under Flash Ventures' equipment lease agreements, with a maximum estimable loss exposure of $3,384 million as of June 27, 2025[274][476] - A tax indemnification liability of $110 million was recorded as of June 27, 2025, related to the Tax Matters Agreement with WDC[278][427] Recent Accounting Pronouncements Sandisk adopted ASU 2023-07 retrospectively in Q4 2025 and will implement ASU 2023-09 and ASU 2024-03 in future fiscal years - Sandisk adopted ASU 2023-07, "Segment Reporting," retrospectively in Q4 fiscal 2025, expanding segment expense disclosures[390] - ASU 2023-09, "Income Taxes," requiring enhanced income tax disclosures, will be effective for Sandisk's fiscal year ending July 3, 2026[281][391] - ASU 2024-03, "Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures," requiring more detailed expense information, will be effective for fiscal years beginning after December 15, 2026[282][392] Critical Accounting Estimates Key estimates include revenue recognition, inventory valuation, and goodwill impairment, all requiring significant judgment and impacting financial results - Revenue recognition involves significant judgment in assessing variable consideration (e.g., price protection, sales incentives) using the expected value method, with potential for material differences between estimates and actuals[284][285] - Inventory valuation at the lower of cost or net realizable value requires significant judgment in estimating average selling prices, future demand, and assessing for excess or obsolescence, which can materially impact gross margin[286][287] - Goodwill impairment testing involves significant judgment in evaluating macroeconomic conditions, determining fair value of reporting units, and using estimates like revenue forecasts and discount rates, with a $1.8 billion impairment charge recognized in fiscal 2025[289][290][292][294] Item 7A. Quantitative and Qualitative Disclosures About Market Risk Sandisk is exposed to market risks primarily from foreign currency fluctuations and interest rate changes, which it manages through hedging and monitoring variable rate debt - Sandisk uses short-term foreign exchange contracts to hedge foreign currency risk, primarily for operating expenses and product costs denominated in foreign currencies[295] - A hypothetical 10% adverse movement in foreign currency exchange rates relative to the U.S. dollar would result in an $85 million foreign exchange fair value loss as of June 27, 2025[296] - Total net realized and unrealized transaction and foreign exchange contract currency losses were $29 million in 2025, compared to $4 million in 2024 and $5 million in 2023[297] - As of June 27, 2025, Sandisk had approximately $1.9 billion in variable rate debt (Term Loan Facility), and a one percent increase in the variable interest rate would increase annual interest expense by $19 million[299] Item 8. Financial Statements and Supplementary Data This section presents Sandisk Corporation's audited consolidated financial statements for the fiscal years ended June 27, 2025, June 28, 2024, and June 30, 2023, along with detailed notes Report of Independent Registered Public Accounting Firm KPMG LLP issued an unqualified opinion on Sandisk's financial statements, highlighting variable consideration for sales to resellers as a critical audit matter - KPMG LLP, the independent registered public accounting firm, issued an unqualified opinion on Sandisk's consolidated financial statements for the three-year period ended June 27, 2025[303] - The assessment of variable consideration for sales to resellers was identified as a critical audit matter due to the high degree of subjective auditor judgment required for evaluating assumptions related to historical pricing and channel inventory levels[307][308] Consolidated Financial Statements This section presents Sandisk's audited consolidated balance sheets, statements of operations, comprehensive loss, cash flows, and shareholders' equity Consolidated Balance Sheets (June 27, 2025 vs. June 28, 2024) | ASSETS (in millions) | June 27, 2025 | June 28, 2024 | |:---|:---|:---|\ | Cash and cash equivalents | $1,481 | $328 | | Accounts receivable, net | 1,068 | 935 | | Inventories | 2,079 | 1,955 | | Total current assets | 5,086 | 3,548 | | Property, plant and equipment, net | 619 | 791 | | Goodwill | 4,999 | 7,207 | | Total assets | $12,985 | $13,506 | | LIABILITIES AND SHAREHOLDERS' EQUITY (in millions) | | | | Accounts payable | $366 | $357 | | Accounts payable to related parties | 400 | 313 | | Current portion of long-term debt | 20 | — | | Total current liabilities | 1,427 | 2,123 | | Long-term debt | 1,829 | — | | Total liabilities | 3,769 | 2,424 | | Total shareholders' equity | 9,216 | 11,082 | | Total liabilities and shareholders' equity | $12,985 | $13,506 | Consolidated Statements of Operations (Three Years Ended June 27, 2025) | (in millions, except per share amounts) | June 27, 2025 | June 28, 2024 | June 30, 2023 | |:---|:---|:---|:---|\ | Revenue, net | $7,355 | $6,663 | $6,086 | | Gross profit | 2,212 | 1,072 | 430 | | Operating loss | (1,377) | (468) | (2,035) | | Net loss | $(1,641) | $(672) | $(2,143) | | Net loss per common share: Basic and diluted | $(11.32) | $(4.63) | $(14.78) | | Weighted average shares outstanding: Basic and diluted | 145 | 145 | 145 | Consolidated Statements of Comprehensive Loss (Three Years Ended June 27, 2025) | (in millions) | June 27, 2025 | June 28, 2024 | June 30, 2023 | |:---|:---|:---|:---|\ | Net loss | $(1,641) | $(672) | $(2,143) | | Other comprehensive income (loss), net of tax | 213 | (109) | 64 | | Total comprehensive loss | $(1,428) | $(781) | $(2,079) | Consolidated Statements of Cash Flows (Three Years Ended June 27, 2025) | (in millions) | June 27, 2025 | June 28, 2024 | June 30, 2023 | |:---|:---|:---|:---|\ | Net cash provided by (used in) operating activities | $84 | $(309) | $(713) | | Net cash provided by (used in) investing activities | 556 | 210 | (189) | | Net cash provided by financing activities | 518 | 136 | 860 | | Net increase (decrease) in cash and cash equivalents | 1,153 | 36 | (43) | | Cash and cash equivalents, end of year | $1,481 | $328 | $292 | Consolidated Statements of Shareholders' Equity (Three Years Ended June 27, 2025) | (in millions) | Common Stock | Additional Paid in Capital | Accumulated Deficit | Accumulated Other Comprehensive Loss | Net Investment from Western Digital Corporation | Total | |:---|:---|:---|:---|:---|:---|:---|\ | Balance at July 01, 2022 | $0 | $0 | $0 | $(407) | $13,384 | $12,977 | | Balance at June 30, 2023 | $0 | $0 | $0 | $(343) | $11,782 | $11,439 | | Balance at June 28, 2024 | $0 | $0 | $0 | $(452) | $11,534 | $11,082 | | Balance at June 27, 2025 | $1 | $11,248 | $(1,784) | $(249) | $0 | $9,216 | Note 1. Organization, Basis of Presentation and Summary of Significant Accounting Policies Sandisk Corporation became an independent public company on February 21, 2025, following a spin-off from WDC, and operates as a single reportable segment - Sandisk Corporation became an independent public company on February 21, 2025, following a spin-off from WDC, with its common stock trading on Nasdaq under "SNDK"[325] - WDC distributed 80.1% of Sandisk's outstanding common stock to its stockholders, retaining 19.9% initially, which was further reduced to 5.3% by June 6, 2025[326] - In connection with the separation, Sandisk entered into a $1.5 billion revolving credit facility (undrawn) and a $2.0 billion term loan facility, using proceeds for a $1.5 billion net distribution to WDC[328] - Prior to separation, Sandisk's financial statements were derived from WDC's consolidated statements, with allocated corporate expenses, and are now presented on a consolidated basis in accordance with U.S. GAAP[331][334][339] - The company operates as a single reportable operating segment, with the CEO as the Chief Operating Decision Maker (CODM) evaluating performance based on consolidated net income (loss)[345][346] - Revenue is recognized when control over a product or service is transferred to the customer, adjusted for variable consideration like sales incentives and price protection, estimated using the expected value method[364][368] - Goodwill is tested for impairment annually or more frequently if indicators exist, using qualitative and quantitative assessments, with a $1.8 billion impairment recorded in 2025[361][363] - Stock-based compensation expense is recognized on a straight-line basis over the service period, with RSU and PSU awards adjusted post-separation to maintain economic value[382] - Sandisk uses foreign exchange contracts to hedge currency risk, with changes in fair value for designated cash flow hedges deferred in Other comprehensive income (loss) and recognized in earnings when the underlying cash flow is realized[385][386] Note 2. Recent Accounting Pronouncements Sandisk adopted ASU 2023-07 retrospectively in Q4 2025 and will implement ASU 2023-09 and ASU 2024-03 in future fiscal years - Sandisk adopted ASU 2023-07, "Segment Reporting," retrospectively in the fourth quarter of fiscal 2025, expanding disclosures on significant segment expenses[390] - ASU 2023-09, "Income Taxes," requiring enhanced income tax disclosures, will be effective for Sandisk's fiscal year ending July 3, 2026[391] - ASU 2024-03, "Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures," requiring more detailed expense information, will be effective for fiscal years beginning after December 15, 2026[392] Note 3. Geographic Information and Concentrations of Risk This note details disaggregated revenue by end market and geographic region, highlighting supplier concentration risk with Flash Ventures Disaggregated Revenue by End Market (2023-2025) | Revenue by end market | 2025 (in millions) | 2024 (in millions) | 2023 (in millions) | |:---|:---|:---|:---|\ | Cloud | $960 | $325 | $500 | | Client | 4,127 | 4,069 | 3,637 | | Consumer | 2,268 | 2,269 | 1,949 | | Total revenue | $7,355 | $6,663 | $6,086 | Net Revenue by Geographic Region (2023-2025) | Geographic Region | 2025 (in millions) | 2024 (in millions) | 2023 (in millions) | |:---|:---|:---|:---|\ | United States | $1,447 | $933 | $1,133 | | China | 2,040 | 2,549 | 2,302 | | Hong Kong | 1,301 | 1,044 | 690 | | Europe, Middle East and Africa | 1,280 | 1,058 | 930 | | Rest of Asia | 1,116 | 917 | 898 | | Other | 171 | 162 | 133 | | Total revenue | $7,355 | $6,663 | $6,086 | Long-lived Assets by Geographic Area (2025 vs. 2024) | Geographic Area | 2025 (in millions) | 2024 (in millions) | |:---|:---|:---|\ | United States | $93 | $77 | | China | 14 | 249 | | Malaysia | 398 | 388 | | Rest of Asia | 67 | 4 | | Europe, Middle East and Africa | 47 | 73 | | Total Long-lived assets | $619 | $791 | - For 2025 and 2024, no single customer accounted for more than 10% of net revenue; in 2023, one customer accounted for 15% The top 10 customers accounted for 40%, 41%, and 47% of net revenue in 2025, 2024, and 2023, respectively[398] - Substantially all flash memory wafers are supplied by Flash Ventures, and controller wafers are from third-party sources, creating supplier concentration risk[402] Note 4. Revenues Sandisk applies practical expedients for revenue recognition, not disclosing transaction prices for short-term performance obligations or sales-based royalties - Sandisk applies practical expedients, not disclosing transaction price for remaining performance obligations with expected durations of one year or less, or for variable consideration from sales-based/usage-based royalties[404] - Contract assets were immaterial for all periods presented, and contract liabilities, primarily for professional service, support, and maintenance contracts, were also immaterial[405] - Sales commissions are expensed as incurred if the amortization period is one year or less or the amount is immaterial, charged to Selling, general and administrative expenses[406] Note 5. Supplemental Financial Statement Data This note provides details on goodwill activity, inventories, property, plant and equipment, warranty accruals, and accumulated other comprehensive loss Goodwill Activity (2025) | (in millions) | Amount | |:---|:---|\ | Balance at June 28, 2024 | $7,207 | | Divestiture | (382) | | Impairment charges | (1,830) | | Foreign currency translation adjustment | 4 | | Balance at June 27, 2025 | $4,999 | - A $1.8 billion goodwill impairment charge was recognized in the third quarter of fiscal 2025 due to the carrying value of the reporting unit exceeding its estimated fair value, following the separation and related market indicators[411][416] - No write-down of long-lived assets was recognized as of June 27, 2025, as estimated undiscounted net cash flows exceeded net carrying value[412] - No trade accounts receivable were sold by WDC or Sandisk in 2025; $339 million and $370 million were sold in 2024 and 2023, respectively[420] Inventories (2025 vs. 2024) | Inventories (in millions) | 2025 | 2024 | |:---|:---|:---|\ | Raw materials and component parts | $1,517 | $1,398 | | Work-in-process | 262 | 237 | | Finished goods | 300 | 320 | | Total inventories | $2,079 | $1,955 | Property, Plant and Equipment, net (2025 vs. 2024) | Property, plant and equipment (in millions) | 2025 | 2024 | |:---|:---|:---|\ | Property, plant and equipment, gross | $2,125 | $2,994 | | Accumulated depreciation | (1,506) | (2,203) | | Property, plant and equipment, net | $619 | $791 | - All finite-lived intangible assets were fully amortized as of June 27, 2025, with $133 million in amortization charges recognized in 2023[424] Product Warranty Accrual Activity (2023-2025) | (in millions) | 2025 | 2024 | 2023 | |:---|:---|:---|:---|\ | Warranty accrual, beginning of period | $48 | $42 | $52 | | Charges to operations | 27 | 28 | 30 | | Utilization | (35) | (34) | (26) | | Changes in estimate related to pre-existing warranties | 4 | 12 | (14) | | Warranty accrual, end of period | $44 | $48 | $42 | Other Liabilities (2025 vs. 2024) | Other liabilities (in millions) | 2025 | 2024 | |:---|:---|:---|\ | Non-current lease liability | $193 | $171 | | Non-current net tax payable | 131 | 56 | | Tax indemnification liability | 110 | — | | Other non-current liabilities | 62 | 59 | | Total other liabilities | $496 | $286 | Accumulated Other Comprehensive Loss (AOCL) (2023-2025) | (in millions) | Foreign Currency Translation Adjustment | Unrealized (Losses) on Derivative Contracts | Total Accumulated Comprehensive Loss | |:---|:---|:---|:---|\ | Balance at June 30, 2023 | $(165) | $(178) | $(343) | | Balance at June 28, 2024 | $(208) | $(244) | $(452) | | Balance at June 27, 2025 | $(202) | $(47) | $(249) | Note 6. Fair Value Measurements and Investments This note details financial instruments measured at fair value, including cash equivalents and foreign exchange contracts, and the fair value of debt Financial Instruments Measured at Fair Value (June 27, 2025) | (in millions) | Level 1 | Level 2 | Level 3 | Total | |:---|:---|:---|:---|:---|\ | Assets: ||||| | Cash equivalents - Money market funds | $751 | — | — | $751 | | Foreign exchange contracts | — | 17 | — | 17 | | Total assets at fair value | $751 | $17 | $— | $768 | | Liabilities: ||||| | Foreign exchange contracts | — | 22 | — | 22 | | Total liabilities at fair value | $— | $22 | $— | $22 | Financial Instruments Measured at Fair Value (June 28, 2024) | (in millions) | Level 1 | Level 2 | Level 3 | Total | |:---|:---|:---|:---|:---|\ | Assets: ||||| | Cash equivalents - Money market funds | $28 | — | — | $28 | | Foreign exchange contracts | — | 7 | — | 7 | | Total assets at fair value | $28 | $7 | $— | $35 | | Liabilities: ||||| | Foreign exchange contracts | — | 179 | — | 179 | | Total liabilities at fair value | $— | $179 | $— | $179 | - The fair value of debt not recorded at fair value on a recurring basis was estimated at $1.9 billion as of June 27, 2025, based on observable market prices in less active markets[437] Note 7. Derivative Instruments and Hedging Activities Sandisk uses short-term foreign exchange forward contracts, primarily as cash flow hedges, to manage currency risk - As of June 27, 2025, Sandisk had outstanding foreign exchange forward contracts with an aggregate notional amount of $2.5 billion, primarily designated as cash flow hedges or non-designated hedges, with maturity dates generally not exceeding 12 months[385][438] - Total net realized and unrealized transaction and foreign exchange contract currency losses were $29 million in 2025, $4 million in 2024, and $5 million in 2023[439] Note 8. Debt Sandisk's debt primarily consists of a $1.9 billion variable interest rate Term Loan Facility, with a $1.5 billion Revolving Credit Facility remaining undrawn Debt Composition (2025 vs. 2024) | (in millions) | June 27, 2025 | June 28, 2024 | |:---|:---|:---|\ | Variable interest rate Term Loan Facility maturing 2032 | $1,900 | $— | | $1.5B Revolving Credit Facility maturing 2030 | — | — | | Total Debt | 1,900 | — | | Unamortized Issuance Costs | 51 | — | | Subtotal | 1,849 | — | | Less: current portion of long-term debt | 20 | — | | Long term debt | $1,829 | $— | - On February 21, 2025, Sandisk borrowed $2.0 billion under its Term Loan Facility, using a portion to make a $1.5 billion net distribution payment to WDC[445] - The Term Loan Facility bears interest at a variable rate (Adjusted Term SOFR Rate + 3.00% or base rate + 2.00%), with an annualized interest rate of 7% as of June 27, 2025[448][450] - The Revolving Credit Facility, with an aggregate principal amount of $1.5 billion, remains undrawn as of June 27, 2025, with $1.5 billion available capacity[441][453] Maturity of Debt as of June 27, 2025 (in millions) | Fiscal year | Contractual Maturity | |:---|:---|\ | 2026 | $20 | | 2027 | 20 | | 2028 | 20 | | 2029 | 20 | | 2030 | 20 | | 2031 and thereafter | 1,800 | | Total debt maturities | $1,900 | Note 9. Segment Reporting Sandisk manages and reports its business operations as a single reportable operating segment, with the CEO as the Chief Operating Decision Maker - Sandisk manages and reports its business operations under a single reportable operating segment, with the Chief Executive Officer as the CODM[345][346] Segment Reporting Summary (Three Years Ended June 27, 2025) | (in millions) | June 27, 2025 | June 28, 2024 | June 30, 2023 | |:---|:---|:---|:---|\ | Revenue | $7,355 | $6,663 | $6,086 | | Costs of revenue (1) | (5,127) | (5,607) | (5,637) | | Operating expenses (1) | (1,539) | (1,365) | (1,425) | | Stock-based compensation expenses | (182) | (149) | (165) | | Goodwill impairment | (1,830) | — | (671) | | Business separation costs | (67) | (64) | — | | Net loss | $(1,641) | $(672) | $(2,143) | Note 10. Related Parties and Related Commitments and Contingencies Sandisk procures substantially all flash memory from Flash Ventures, in which it holds a 49.9% ownership interest, and has related guarantees - Sandisk procures substantially all flash-based memory wafers from Flash Ventures, joint ventures with Kioxia, in which Sandisk holds a 49.9% ownership interest[460] - Flash Ventures operates seven manufacturing facilities in Japan (Yokkaichi and Kitakami), with an eighth facility expected to begin operations in calendar year 2025[41] - Sandisk accounts for its Flash Ventures ownership under the equity method and is not deemed the primary beneficiary[470] Notes Receivable and Equity Investments in Flash Ventures (2025 vs. 2024) | (in millions) | June 27, 2025 | June 28, 2024 | |:---|:---|:---|\ | Notes receivable, Flash Partners | $7 | $1 | | Notes receivable, Flash Alliance | 36 | 5 | | Notes receivable, Flash Forward | 316 | 485 | | Investment in Flash Partners | 55 | 148 | | Investment in Flash Alliance | 115 | 219 | | Investment in Flash Forward | 125 | 143 | | Total notes receivable and investments in Flash Ventures | $654 | $1,001 | - Sandisk incurred $75 million and $249 million in 2025 and 2024, respectively, for manufacturing underutilization charges related to Flash Ventures due to reduced capacity utilization[479] Sandisk's Portion of Flash Ventures' Lease Guarantee Obligations (June 27, 2025) | Annual Installments (in millions) | Payment of Principal Amortization | Purchase Option Exercise Price at Final Lease Terms | Guarantee Amount | |:---|:---|:---|:---|\ | 2026 | $507 | $124 | $631 | | 2027 | 259 | 106 | 365 | | 2028 | 124 | 102 | 226 | | 2029 | 48 | 55 | 103 | | 2030 | 16 | 63 | 79 | | Total guarantee obligations | $954 | $450 | $1,404 | - On September 28, 2024, Sandisk China sold 80% of its equity interest in SDSS, resulting in a pre-tax gain of $34 million and a retained 20% equity method investment valued at $161 million as of June 27, 2025[485][487][488] - On January 24, 2025, WDC transferred its entire equity interest in the Unis Venture (48% owned by Sandisk) to Sandisk, which markets and sells Sandisk's products in China[491] Allocation of Corporate Expenses from WDC (2023-2025) | (in millions) | June 27, 2025 | June 28, 2024 | June 30, 2023 | |:---|:---|:---|:---|\ | Research and development | $189 | $723 | $750 | | Selling general, and administrative | 158 | 418 | 452 | | Business separation costs | 50 | (40) | 61 | | Employee termination and other charges | 5 | 64 | — | | Total allocation of Corporate Expenses | $402 | $1,165 | $1,263 | Note 11. Leases and Other Commitments This note details operating lease assets and liabilities, weighted average lease terms, and long-term purchase commitments Operating Lease Assets and Liabilities (2025 vs. 2024) | (in millions) | June 27, 2025 | June 28, 2024 | |:---|:---|:---|\ | Operating lease right-of-use assets | $214 | $179 | | Current portion of long-term operating lease liabilities | 26 | 11 | | Long-term operating lease liabilities | 193 | 171 | | Total operating lease liabilities | $219 | $182 | - The weighted average remaining lease term for operating leases was 11.00 years in 2025 (13.7 years in 2024), with a weighted average discount rate of 7.3% (7.5% in 2024)[511] Minimum Lease Payments by Fiscal Year (as of June 27, 2025) | Fiscal year (in millions) | Lease Amounts | |:---|:---|\ | 2026 | $41 | | 2027 | 35 | | 2028 | 28 | | 2029 | 24 | | 2030 | 20 | | Thereafter | 183 | | Total future minimum lease payments | $331 | - In September 2023, a sale-leaseback of the Milpitas, California facility resulted in a $60 million gain for Sandisk[512] Long-term Purchase Commitments (as of June 27, 2025) | Fiscal year (in millions) | Long-term commitments | |:---|:---|\ | 2026 | $250 | | 2027 | 583 | | 2028 | 570 | | 2029 | 570 | | 2030 | 570 | | Thereafter | 90 | | Total | $2,633 | Note 12. Shareholders' Equity Post-separation, WDC stock awards were adjusted, and Sandisk adopted new long-term incentive and employee stock purchase plans - Post-separation, WDC stock awards held by Sandisk employees were adjusted into Sandisk or a combination of Sandisk and WDC awards, resulting in approximately $41 million of incremental stock-based compensation expense over the remaining service period[517] - Sandisk adopted the 2025 Long-Term Incentive Plan, authorizing 23.8 million shares for awards, and the 2025 Employee Stock Purchase Plan (ESPP), authorizing 4.3 million shares[518][521][522] Stock-based Compensation Expense by Type (2023-2025) | (in millions) | 2025 | 2024 | 2023 | |:---|:---|:---|:---|\ | RSUs and PSUs | $171 | $133 | $148 | | ESPP | 11 | 16 | 17 | | Total | $182 | $149 | $165 | Stock-based Compensation Expense by Financial Statement Line (2023-2025) | (in millions) | 2025 | 2024 | 2023 | |:---|:---|:---|:---|\ | Cost of revenue | $16 | $20 | $19 | | Research and development | 81 | 71 | 88 | | Selling general, and administrative | 85 | 58 | 58 | | Subtotal | $182 | $149 | $165 | | Tax benefit | (22) | (21) | (22) | | Total | $160 | $128 | $143 | Unamortized Compensation Cost (as of June 27, 2025) | | Unamortized Compensation Costs (in millions) | Weighted average service period (years) | |:---|:---|:---|\ | RSUs and PSUs | $315 | 2.27 | | ESPP | 16 | 1.81 | | Total unamortized compensation cost | $331 | | RSU and PSU Award Activity (Year Ended June 27, 2025) | (in millions) | Number of Shares | Weighted Average Grant Date Fair Value | |:---|:---|:---|\ | RSUs and PSUs outstanding at June 28, 2024 | — | $— | | Awards converted from Western Digital Corporation Plans | 6.4 | 35.32 | | Granted | 1.5 | 50.47 | | Vested | (1.1) | 34.07 | | Canceled/forfeited | (0.2) | 36.14 | | RSUs and PSUs outstanding at June 27, 2025 | 6.6 | $38.98 | Note 13. Net Income (loss) per Common Share Basic and diluted EPS calculations for all periods assume 145 million common shares were outstanding historically - On the separation date, Sandisk issued 145 million shares of common stock, which are used for basic and diluted EPS calculations for all periods presented, assuming they were outstanding historically[531] Computation of Basic and Diluted Net Income (Loss) Per Common Share (2023-2025) | (in millions, except per share amounts) | 2025 | 2024 | 2023 | |:---|:---|:---|:---|\ | Net income (loss) | $(1,641) | $(672) | $(2,143) | | Weighted average shares outstanding: Basic and diluted | 145 | 145 | 145 | | Net loss per common share: Basic and diluted | $(11.32) | $(4.63) | $(14.78) | | Dilutive weighted-average shares | 2 | — | — | - Potentially dilutive securities were excluded from diluted EPS calculations for periods with net losses as their effect would have been anti-dilutive[534] Note 14. Income Tax Expense This note details domestic and foreign components of income before taxes, income tax expense, and the reconciliation of the effective tax rate Domestic and Foreign Components of Income (Loss) Before Taxes (2023-2025) | (in millions) | 2025 | 2024 | 2023 | |:---|:---|:---|:---|\ | Foreign | $(1,348) | $(543) | $(2,253) | | Domestic | (131) | 40 | 251 | | Income (loss) before taxes | $(1,479) | $(503) | $(2,002) | Components of Income Tax Expense (2023-2025) | (in millions) | 2025 | 2024 | 2023 | |:---|:---|:---|:---|\ | Current: Foreign | $165 | $158 | $138 | | Current: U.S. - Federal | 7 | 20 | 76 | | Current: U.S. - State | 2 | 7 | 8 | | Deferred: Foreign | (13) | 7 | (15) | | Deferred: U.S. - Federal | 1 | (19) | (65) | | Deferred: U.S. - State | — | (4) | (1) | | Income tax expense | $162 | $169 | $141 | - H.R.1 (One Big Beautiful Bill Act), signed July 4, 2025, reversed U.S. R&D capitalization but retained foreign R&D capitalization, and will change tax rates for foreign subsidiaries, impacting fiscal year 2026[538] - Sandisk does not expect to be subject to the 15% Corporate Alternative Minimum Tax (CAMT) for 2025[539] - Pillar Two global minimum tax rules, effective in some non-U.S. jurisdictions in 2025, are not expected to result in material taxes for Sandisk in 2025 due to transitional safe harbors, but may increase in 2026[540] Income Tax Expense and Effective Tax Rate (2023-2025) | (in millions) | 2025 | 2024 | 2023 | |:---|:---|:---|:---|\ | Income (loss) before taxes | $(1,479) | $(503) | $(2,002) | | Income tax expense | $162 | $169 | $141 | | Effective tax rate | (11)% | (34)% | (7)% | Deferred Tax Assets and Liabilities (2025 vs. 2024) | (in millions) | June 27, 2025 | June 28, 2024 | |:---|:---|:---|\ | Total deferred tax assets | $204 | $207 | | Total deferred tax liabilities | (102) | (99) | | Valuation allowances | (61) | (27) | | Deferred tax assets, net | $41 | $81 | Reconciliation of U.S. Federal Statutory Rate to Effective Tax Rate (2023-2025) | (in millions) | 2025 | 2024 | 2023 | |:---|:---|:---|:---|\ | U.S. federal statutory rate | 21% | 21% | 21% | | Tax rate differential on international incomes | (1) | (42) | (29) | | Tax effect of goodwill impairment | (26) | — | (7) | | Effective income tax rate | (11)% | (34)% | (7)% | - Tax holidays in Malaysia, expiring between 2028 and 2031, increased net earnings by $82 million ($0.56 per share) in 2025[548] - As of June 27, 2025, Sandisk had $38 million in state tax credit carryforwards (no expiration) and $2.1 billion in NOL carryforwards (expiring from 2028 onwards, mostly in Malaysia)[549][550] Unrecognized Tax Benefits Reconciliation (2023-2025) | (in millions) | 2025 | 2024 | 2023 | |:---|:---|:---|:---|\ | Unrecognized tax benefit, beginning balance | $47 | $25 | $17 | | Gross increases related to prior year tax positions | 6 | 10 | 1 | | Gross increases related to current year tax positions | 17 | 15 | 10 | | Gross decrease related to prior year tax positions | (1) | (3) | (3) | | Gross increase related to transfer from Western Digital Corporation | 78 | — | — | | Gross decrease related to settlement | (7) | — | — | | Unrecognized tax benefit, ending balance | $140 | $47 | $25 | Note 15. Employee Termination and Other Charges This note details net charges related to business realignment, including employee termination benefits and other charges Net Charges Related to Business Realignment (2023-2025) | (in millions) | 2025 | 2024 | 2023 | |:---|:---|:---|:---|\ | Employee termination benefits | $18 | $15 | $68 | | Other charges (gains): Asset impairments and other charges (gains) | — | 5 | 1 | | Other charges (gains): Contract termination and other | 3 | — | — | | Other charges (gains): Gain on sale-leaseback of facility | — | (60) | — | | Total employee termination and other charges | $21 | $(40) | $69 | Employee Termination Benefits Accrual Activity (2024-2025) | (in millions) | Employee Termination Benefits | |:---|:---|\ | Accrual balance at June 30, 2023 | $3 | | Charges | 15 | | Cash payments | (18) | | Accrual balance at June 28, 2024 | — | | Charges | 18 | | Cash payments | (3) | | Accrual balance at June 27, 2025 | $15 | Note 16. Legal Proceedings Sandisk is subject to routine legal proceedings, but management believes any financial impact would not be material - Sandisk is subject to routine legal proceedings and claims in the normal course of business, but management believes any resulting monetary liability or financial impact would not be material[560] Note 17. Summarized Financial Information This note presents combined summarized financial information for non-consolidated joint ventures, including Flash Ventures - Summarized financial information is presented for non-consolidated joint ventures, including Flash Ventures (all periods), SDSS (from September 28, 2024), and Unis Venture (from January 24, 2025)[561][562] Combined Summarized Financial Information for Joint Ventures (2025 vs. 2024) | (in millions) | 2025 | 2024 | |:---|:---|:---|\ | Current assets | $1,423 | $777 | | Non-current assets | 6,185 | 5,783 | | Total Assets | $7,608 | $6,560 | | Current Liabilities | $2,797 | $2,225 | | Non-current Liabilities | 3,701 | 3,312 | | Total Liabilities | $6,498 | $5,537 | | Total net equity of investees | $1,110 | $1,023 | Combined Summarized Financial Performance for Joint Ventures (2023-2025) | (in millions) | 2025 | 2024 | 2023 | |:---|:---|:---|:---|\ | Net sales | $2,315 | $2,252 | $2,788 | | Gross profit (loss) | $(101) | $(51) | $138 | | Net income (loss) | $(63) | $(9) | $89 | Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure This section states that there are no changes in or disagreements with accountants on accounting and financial disclosure applicable to the company Item 9A. Controls and Procedures Sandisk's management evaluated the effectiveness of its disclosure controls and procedures as effective, with no management assessment or attestation report on internal control over financial reporting due to a transition period - Sandisk's disclosure controls and procedures were evaluated as effective by management, including the CEO and CFO, as of the end of the reporting period[567] - Due to SEC rules for newly public companies, this 10-K does not include management's assessment or an independent auditor's attestation report on internal control over financial reporting[568][569] Item 9B. Other Information This section indicates that there is no other information to report, specifically mentioning no insider trading arrangements - No insider trading arrangements are reported[570] Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This section states that disclosures regarding foreign jurisdictions that prevent inspections are not applicable to Sandisk Corporation PART III Item 10. Directors, Executive Officers and Corporate Governance Information regarding directors, executive officers, and corporate governance, including the Code of Business Ethics, is incorporated by reference from Sandisk's definitive proxy statement - Information on directors, executive officers, and corporate governance is incorporated by reference from the 2025 Annual Meeting of Stockholders Proxy Statement[573] - Sandisk has adopted a Code of Business Ethics applicable to all directors, employees, and officers, available on its website[573] Item 11. Executive Compensation Information concerning executive compensation is incorporated by reference from Sandisk's definitive proxy statement for the 2025 Annual Meeting of Stockholders - Executive compensation information is incorporated by reference from the 2025 Annual Meeting of Stockholders Proxy Statement[574] Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information regarding security ownership of certain beneficial owners and management, as well as related stockholder matters, is incorporated by reference from Sandisk's definitive proxy statement - Security ownership information is incorporated by reference from the 2025 Annual Meeting of Stockholders Proxy Statement[575] Item 13. Certain Relationships and Related Transactions, and Director Independence Information on certain relationships, related transactions, and director independence is incorporated by reference from Sandisk's definitive proxy statement for the 2025 Annual Meeting of Stockholders - Information on certain relationships, related transactions, and director independence is incorporated by reference from the 2025 Annual Meeting of Stockholders Proxy Statement[576] Item 14. Principal Accountant Fees and Services Information regarding principal accountant fees and services is incorporated by reference from Sandisk's definitive proxy statement for the 2025 Annual Meeting of Stockholders - Principal accountant fees and services information is incorporated by reference from the 2025 Annual Meeting of Stockholders Proxy Statement[577] PART IV Item 15. Exhibits and Financial Statement Schedules This section lists the financial statements and exhibits filed as part of the Annual Report on Form 10-K, including key agreements related to the spin-off from WDC - Financial statements included in Part II, Item 8 are filed as part of this Annual Report on Form 10-K[582] - All financial statement schedules are omitted due to immateriality, inapplicability, or presentation within the consolidated financial statements or notes[579] - Key exhibits include the Separation and Distribution Agreement, Tax Matters Agreement, Loan Agreement, and various Flash Ventures and compensation plan agreements[581] Item 16. Form 10-K Summary This section indicates that there is no Form 10-K Summary provided