EXHIBIT 99.1
MSYSTEMS
msystems Contact: Investor Relations Contacts:
Elana Holzman Jeff Corbin / Lee Roth
Director of Investor Relations KCSA
+972 (9) 764-5000 +1 (212) 682-6300
elana.holzman@m-systems.com jcorbin@kcsa.com / lroth@kcsa.com
MSYSTEMS CONSOLIDATES ACTIVITY OF ITS VENTURE WITH A FLASH PARTNER,
RESULTING IN INCREASED HISTORICAL REVENUES, GROSS MARGINS AND
OPERATING INCOME WITH NO CHANGE TO EPS
KFAR SABA, ISRAEL - April 20, 2006 - msystems(TM) (NASDAQ:FLSH) today announced
its decision to change the accounting treatment of its venture with a flash
partner to consolidate the activities of the venture into the Company's
financial statements. Previously, the Company accounted for its investment in
the venture under the equity method. The Company's decision was made in
connection with a review by the staff of the U.S. Securities and Exchange
Commission ("SEC") of the Company's annual report on Form 20-F for 2004. As a
result of this decision, the Company will restate its financial statements to
consolidate the results of the venture in the Company's statement of operations,
resulting in increased revenues, gross margins and operating income as compared
to previously reported results. The increased operating income is offset by the
minority interest of the flash partner, and therefore there is no impact to
previously reported net income or earnings per share. The Company is also
reclassifying its equity interest in another affiliate, which previously was
included within operating expenses, to be presented within non-operating
expenses.
The change in the accounting treatment of the venture will cover the quarterly
and annual periods in 2004 and 2005. Accordingly, the Company's prior financial
statements previously filed or furnished with the SEC for such periods should no
longer be relied upon, including all financial statements filed or furnished on
Form 6-K in 2004 and 2005.
The tables below set forth the Company's results as previously reported and as
revised for the years ended December 31, 2004 and 2005. The Company is filing
with the SEC today an amended annual report on Form 20-F/A for 2004, and is
furnishing its financial statements for 2005. For additional information,
including quarterly results as previously reported and as revised, please refer
to our reports on Forms 6-K and 6-K/A furnished today to the SEC or to our
website at www.m-systems.com.
The Company's updated guidance issued on April 5, 2006 for the first quarter of
2006 did not include the effects of the consolidation and the reclassification.
Consolidating the venture is expected to affect 2006 first quarter results by
adding approximately $24 million to revenues, $15 million to cost of goods sold
and $9 million to operating income. The reclassification is expected to affect
2006 first quarter results by moving approximately $1.3 million from operating
expenses to non-operating expenses. As with 2004 and 2005 results, the
consolidation and the reclassification will have no impact on net income or
earnings per share for the first quarter.
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. msystems' product lines include:
o MDRIVE (formerly DiskOnKey(R)) U3 USB smart drives for personal,
portable computing
o MDOC embedded flash drives for mobile handsets and consumer
electronics devices
o MSIM MEGASIM(R) SERIES high-density SIM cards and MSIM M.MAR(R) SERIES
SIM cards and highly secure cards (available both from msystems and
its subsidiary Microelectronica)
o MCARD, high-quality memory cards for mobile handsets and digital
cameras
o MTRUST (formerly Xkey(R)) end-to-end enterprise access, control and
management solution for USB flash drives and other removable media
o MSSD (formerly FFD(TM)) rugged solid state disks for mission-critical
applications
o MMODULE (formerly DiskOnChip(R) modular family) modular flash storage
for embedded systems
o MSAFE (formerly SuperMAP(R) family) secure hardware and software
crypto cores
More information is available online at www.m-systems.com.
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 incorporated as M-Systems Flash Disk Pioneers Ltd.
This press release includes forward-looking statements as defined in the Private
Securities Litigation Reform Act of 1995. 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: the effect of global
economic conditions in general and conditions in M-Systems' industry and target
markets in particular, shifts in supply and demand, 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
M-Systems' and its customers' inventory levels and inventory valuations; any
decline in sales or other adverse operating results of the venture with the
flash partner; 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 M-Systems' 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 M-Systems' and
its customers' products; and other risk factors detailed from time to time in
M-Systems' filings with the Securities and Exchange Commission. M-Systems
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 M-Systems' website above does not
constitute incorporation of any of the information thereon into this press
release.
(Tables to Follow)
M-SYSTEMS FLASH DISK PIONEERS LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
U.S. dollars in thousands, except share and per share data
AS PREVIOUSLY AS
REPORTED RESTATED
------------------- ------------------
YEAR ENDED
------------------------------------------
DECEMBER 31, 2004
------------------------------------------
Revenues $ 347,551 $ 416,560
------------------- ------------------
Costs and expenses:
Cost of goods sold 264,799 303,320
Research and development, net 24,834 24,834
Selling and marketing 31,077 31,077
General and administrative 6,771 6,904
------------------- ------------------
Total costs and expenses 327,481 366,135
------------------- ------------------
Operating income 20,070 50,425
Financial income, net 3,897 3,920
Other income, net 183 183
------------------- ------------------
Income before minority interest in earnings of a subsidiary 24,150 54,528
Minority interest in earnings of a subsidiary - (30,378)
------------------- ------------------
Net income $ 24,150 $ 24,150
=================== ==================
Basic net earnings per share $ 0.71 $ 0.71
=================== ==================
Diluted net earnings per share $ 0.66 $ 0.66
=================== ==================
Weighted average number of shares used in computing basic net
earnings per share 34,195,642 34,195,642
=================== ==================
Weighted average number of shares used in computing diluted
net earnings per share 36,823,118 36,823,118
=================== ==================
M-SYSTEMS FLASH DISK PIONEERS LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
U.S. dollars in thousands, except share and per share data
AS PREVIOUSLY AS
REPORTED REVISED
-------------------- -------------------
YEAR ENDED
-------------------------------------------
DECEMBER 31, 2005
-------------------- -------------------
Revenues $ 539,891 $ 614,983
-------------------- -------------------
Costs and expenses:
Cost of goods sold 413,474 462,236
Research and development, net 38,060 37,456
Selling and marketing 36,043 33,523
General and administrative 11,812 12,143
In-process research and development write off 2,482 2,460
-------------------- -------------------
Total costs and expenses 501,871 547,818
-------------------- -------------------
Operating income 38,020 67,165
Financial income, net 8,451 8,688
Other income, net 6,325 6,325
-------------------- -------------------
Income before taxes on income 52,796 82,178
Taxes on income 156 156
-------------------- -------------------
Income after taxes on income 52,640 82,022
Equity in losses of an affiliate (*) - (3,146)
Minority interest in earnings of a subsidiary - (26,236)
-------------------- -------------------
Net income $ 52,640 $ 52,640
==================== ===================
Basic net earnings per share $ 1.46 $ 1.46
==================== ===================
Diluted net earnings per share $ 1.30 $ 1.30
==================== ===================
Weighted average number of shares used in computing basic net
earnings per share 36,164,979 36,164,979
==================== ===================
Weighted average number of shares used in computing diluted
net earnings per share 41,156,678 41,156,678
==================== ===================
(*) Equity in losses of an affiliate relate to U3 which was previously reported
as part of operating expenses.