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Apr 21, 2009

Seagate Technology Reports Fiscal Third Quarter 2009 Results

Seagate Technology (NASDAQ: STX) today reported results for the quarter ended April 3, 2009 of 38 million disk drive unit shipments, revenue of $2.1 billion, a net loss of $273 million and net loss per share of $0.56. Net loss and net loss per share for the quarter include $18 million of purchased intangibles amortization and other charges associated with acquisitions, and restructuring and related accelerated depreciation charges of $36 million. The aggregate impact of these items is a $54 million loss or approximately $0.11 per share loss. Of the $36 million for restructuring and related accelerated depreciation charges, $11 million was for accelerated depreciation charges recorded in product development expense and $25 million was restructuring and substantially relates to global headcount reductions.

For the nine months ended April 3, 2009 the company reported results of disk drive unit shipments of 123 million, revenue of $7.5 billion, a net loss of $3.0 billion, and net loss per share of $6.17. Net loss and net loss per share include $56 million of purchased intangibles amortization and other charges associated with acquisitions, charges related to restructuring activities of $181 million, a charge of $271 million that reflects an unfavorable adjustment to the valuation allowance related to the company’s deferred tax assets and a $2.3 billion charge relating to the write-off of goodwill and other long-lived assets. The aggregate impact of these items is a $2.8 billion reduction in earnings, or a decrease of approximately $5.75 per share. Of the $181 million in restructuring related charges, $55 million was for accelerated depreciation charges, with $30 million recorded in cost of revenue and $25 million in product development expense. The majority of the remaining balance of the restructuring charges relate to global headcount reductions.

“I am encouraged by the progress we’re making in improving our operational performance,” said Steve Luczo, Seagate chairman and chief executive officer. “As a result, assuming a relatively stable business environment, we believe we can improve margins and reach profitability within fiscal year 2010.”

Business Outlook
While there are signs of improved visibility, the ongoing uncertainty in global economic conditions makes it difficult to predict product demand and other related matters, which makes it more likely that Seagate’s actual results could differ materially from current expectations.

For the June quarter, in light of the company’s view of the current market environment, the company is planning for the overall demand for disk drives to be relatively flat as compared to the March quarter. Consequently, the company expects revenue to be approximately $1.9 - $2.2 billion and gross margin as a percent of revenue to improve by 300-400 basis points as compared to the March quarter. Product development and marketing/administrative costs are expected to decrease to approximately $340 million while other income and expense is expected to be an expense of approximately $40 million. Net loss per share is expected to be between $0.37 - $0.47, which includes approximately $41 million or $0.08 per share for restructuring, purchased intangibles amortization and other charges associated with acquisitions.

The fiscal fourth quarter 2009 outlook does not include the impact of any future mergers, acquisitions, dispositions or other business combinations, financing or potential new restructuring activities the company may undertake.

As part of the company’s ongoing cost structure alignment, additional restructuring actions are currently being addressed. The company believes opportunities exist to reduce operating costs in product development, marketing/administrative and manufacturing areas to target a cost structure that generates positive cash flow and earnings within its fiscal year 2010. Consequently, the company expects to incur restructuring charges in the June quarter of an undetermined amount.  

Cash and Liquidity
The company remains focused on building liquidity and strengthening its balance sheet over the long-term. To that end, Seagate has taken actions and obtained sources of liquidity to support the business while the current negative economic condition persists. The results of these decisions and actions include:

  • On April 3, 2009, Seagate entered into a Second Amended and Restated Credit Agreement the purpose of which is to increase the company’s flexibility in meeting its obligations under its existing credit agreement, executed on September 19, 2006.
  • On April 16, 2009, Seagate priced $430 million of 10% senior secured second-priority notes due 2014. The net proceeds are expected to be used for general corporate purposes, including the repayment or repurchase of all or some of the company’s $300 million aggregate principal amount of floating rate senior notes due October 1, 2009 and other indebtedness.
  • Cash, cash equivalents and short-term investments increased $172 million quarter-over-quarter, to $1.5 billion.
  • Compared to the prior quarter, days sales outstanding (DSO) was down five days to 37 days, days payable outstanding (DPO) decreased by one day to 63 days and days of inventory outstanding (DIO) decreased by 11 days to 26. In aggregate, our cash conversion cycle decreased by 15 days to zero. Improvement in DSO reflects the linearity of shipments during the quarter, while the improvement in DIO is a result of reducing inventory by roughly 28%.
  • Investment in capital equipment during the March quarter was $59 million and for the first nine months of the company’s fiscal year 2009 was approximately $553 million. The company currently expects fiscal 2009 investment in capital equipment to be approximately $650 million. Based on the company’s current macroeconomic view it expects fiscal year 2010 capital investment to be approximately $450 million.
  • Management has recommended and the board has adopted a policy of not paying a quarterly dividend. This action coupled with the reduction of the dividend in January 2009 reduces cash obligations by about $230 million annually.

Additional information relating to the financial results for the third fiscal quarter of 2009 can be found online at seagate.com.

Conference Call
Seagate will hold a conference call to review the fiscal third quarter results at 2:00 p.m. Pacific Time today. The conference call can be accessed online at seagate.com or by phone as follows:
USA: (877) 223-6202
International: (706) 679-3742
Conference ID: 90458329

Replay
A replay will be available beginning today at 6:00 p.m. Pacific Time through April 28 at 8:59 p.m. Pacific Time. The replay can be accessed from seagate.com or by phone as follows:
USA: (800) 642-1687
International: (706) 645-9291
Conference ID: 90458329

About Seagate
Seagate is the worldwide leader in the design, manufacture and marketing of hard disk drives and storage solutions, providing products for a wide-range of applications, including Enterprise, Desktop, Mobile Computing, Consumer Electronics and Branded Solutions. Seagate's business model leverages technology leadership and world-class manufacturing to deliver industry-leading innovation and quality to its global customers, with the goal of being the time-to-market leader in all markets in which it participates. The company is committed to providing award-winning products, customer support and reliability to meet the world's growing demand for information storage. Seagate can be found around the globe and at http://www.seagate.com.

Cautionary Note Regarding Forward-Looking Statements
This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements include, but are not limited to, statements related to the company’s future operating and financial performance, including expected revenue, net loss and product competition, customer demand for our products, the impact of our recent and anticipated cost reduction efforts and general market conditions. These forward-looking statements are based on information available to Seagate as of the date of this press release. Current expectations, forecasts and assumptions involve a number of risks, uncertainties, and other factors that could cause actual results to differ materially from those anticipated by these forward-looking statements. Such risks, uncertainties, and other factors may be beyond the company's control. In particular, uncertainty in global economic conditions pose a risk to the overall economy as consumers and businesses may defer purchases in response to tighter credit and negative financial news. Such risks and uncertainties also include the impact of the variable demand and the aggressive pricing environment for disk drives, particularly in view of current business and economic conditions; dependence on Seagate’s ability to successfully qualify, manufacture and sell its disk drive products in increasing volumes on a cost-effective basis and with acceptable quality, particularly the new disk drive products with lower cost structures; the impact of competitive product announcements and possible excess industry supply with respect to particular disk drive products; and our ability to achieve projected cost savings in connection with our anticipated and announced restructuring plans. Information concerning risk, uncertainties and other factors that could cause results to differ materially from those projected in the forward-looking statements is contained in the company's Annual Report on Form 10-K as filed with the U.S. Securities and Exchange Commission on August 13, 2008, and in the company’s Quarterly Report on Form 10-Q as filed with the U.S. Securities and Exchange Commission on February 10, 2009, which statements are incorporated into this press release by reference. These forward-looking statements should not be relied upon as representing the company's views as of any subsequent date and Seagate undertakes no obligation to update forward-looking statements to reflect events or circumstances after the date they were made.

#  #  #

 

Seagate Technology
Condensed Consolidated Balance Sheets
(In millions)
(Unaudited)

 
April 3,
2009
   
June 27,
2008(a)
Assets              
Cash and cash equivalents
$
1,352
 
$
990
  Short-term investments  
129
     
151
 
  Accounts receivable, net  
872
     
1,410
 
  Inventories  
577
     
945
 
  Deferred income taxes  
150
     
274
 
  Other current assets  
464
     
502
 
   
 
  Total Current Assets  
3,544
     
4,272
 
               
Property, equipment and leasehold  improvements, net  
2,355
     
2,464
 
  Goodwill  
31
     
2,352
 
  Other intangible assets, net  
62
     
111
 
  Deferred income taxes  
453
     
616
 
  Other assets, net  
181
     
305
 
   
 
  Total Assets
$
6,626
   
$
10,120
 
Liabilities and Shareholders' Equity              
  Short-term borrowings
$
350
   
$
space  
  Accounts payable  
1,389
     
1,652
 
  Accrued employee compensation  
117
     
440
 
  Accrued warranty  
216
     
226
 
  Accrued expenses  
448
     
599
 
  Accrued income taxes  
9
     
10
 
  Current portion of long-term debt  
320
     
360
 
   
 
  Total Current Liabilities
 
2,849
     
3,287
 
               
  Long-term accrued warranty  
230
     
219
 
  Long-term accrued income taxes  
167
     
210
 
  Other non-current liabilities  
116
      148  
  Long-term debt, less current portion  
1,680
      1,670  
   
 
  Total Liabilities
 
5,042
     
5,534
 
             
  Shareholders' Equity  
1,584
     
4,586
 
 
 
  Total Liabilities and Shareholders'  Equity
$
6,626
   
$
10,120
 
 
(a)
The information in this column was derived from the Company’s audited consolidated balance sheet as of June 27, 2008.





 

Seagate Technology
Condensed Consolidated Statements of Operations
(In millions, except per share data)
(Unaudited)
       
For the Three Months Ended
 
For the Nine Months Ended
 
April 3,
2009
March 28,
2008
April 3,
2009
March 28,
2008
Revenue
$
2,150
 
$
3,104
 
$
7,452
 
$
9,809
 
                       
Cost of revenue  
1,993
   
2,288
   
6,448
   
7,295
 
Product development  
243
   
254
   
738
   
758
 
Marketing and administrative  
134
   
164
   
424
   
484
 
Amortization of intangibles   13     15     41     41  
Restructuring and other, net  
25
    20    
126
   
52
 
Impairment of goodwill and other                        
  long-lived assets   blank space     blank space     2,290     blank space  
  Total operating expenses  
2,408
   
2,741
   
10,067
   
8,630
 
   
       
Income (loss) from operations  
(258)
   
363
   
(2,615)
   
1,179
 
       
Interest income  
3
   
16
   
15
   
51
 
Interest expense   (35)     (30)     (95)     (96)  
Other, net  
1
    blank space     (26)    
13
 
  Other income (expense), net   (31)     (14)     (106)     (32)  
   
       
Income (loss) before income taxes  
(289)
   
349
   
(2,721)
   
1,147
 
Provision for (benefit from) income taxes  
(16)
   
5
    284     45  
 
Net income (loss)
$
(273)
 
$
344
 
$
(3,005)
 
$
1,102
 
 
Net income (loss) per share:        
  Basic
$
(0.56)
 
$
0.68
 
$
(6.17)
 
$
2.11
 
  Diluted  
(0.56)
   
0.65
   
(6.17)
   
2.02
 
Number of shares used in per share calculations:        
  Basic  
489
   
507
   
487
   
522
 
  Diluted  
489
   
530
   
487
   
549
 
           


 

 

Seagate Technology
Condensed Consolidated Statements of Cash Flows
(In millions)
(Unaudited)
 
For the Nine Months Ended
null

April 3,
2009
March 28,
2008
Operating Activities              
Net income (loss)
$
(3,005)
   
$
1,102
 
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:              
Depreciation and amortization  
707
     
631
 
  Stock-based compensation   70       86  
  Impairment of goodwill and other long-lived              
    assets   2,290       blank space  
  Deferred income taxes   295       17  
Other non-cash operating activities, net  
(8)
     
(10)
 
Changes in operating assets and liabilities:              
    Accounts receivable  
534
     
(8)
 
    Inventories  
368
     
(279)
 
    Accounts payable  
(263)
     
614
 
    Accrued expenses, employee compensation and warranty   (590)       147  
  Other assets and liabilities  
233
     
(157)
 
   
 
  Net cash provided by (used in) operating  activities
 
631
     
2,143
 
   
 
 
Investing Activities              
Acquisition of property, equipment and  leasehold improvements  
(553)
     
(637)
 
Proceeds from sale of fixed assets   4       29  
Purchases of short-term investments  
(124)
     
(439)
 
Maturities and sales of short-term investments  
146
     
425
 
Proceeds from sale of investment in equity  securities   11        
Acquisitions, net of cash acquired         (78)  
Other investing activities, net  
4
     
15
 
   
 
Net cash provided by (used in) investing activities  
(512)
     
(685)
 
   
 
               
Financing Activities              
Proceeds from short-term borrowings   350       space  
Repayment of long-term debt   (20)       (34)  
Proceeds from exercise of employee stock  options and employee stock purchase plan   45       172  
Dividends to shareholders   (132)       (159)  
Repurchases of common shares         (1,284)  
Other financing activities, net   dash       2  
   
 
Net cash provided by (used in) financing activities  
243
     
(1,303)
 
   
 
               
Increase (decrease) in cash and cash equivalents
 
362
     
155
 
Cash and cash equivalents at the beginning of  the period  
990
     
988
 
 
 
Cash and cash equivalents at the end of the  period
$
1,352
   
$
1,143
 
   

 





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