Seagate Technology Reports Fiscal Fourth Quarter And Year-End 2007 Results

2007-07-19 00:00:00.0

SCOTTS VALLEY, Calif. - Seagate Technology (NYSE: STX) today reported disc drive unit shipments of 39.2 million, revenue of $2.74 billion, GAAP net income of $541 million, and diluted net income per share of $0.96 for the quarter ended June 29, 2007. Net income and diluted net income per share includes approximately $27 million of purchased intangibles amortization and other charges associated with the Maxtor and EVault acquisitions. Excluding these charges, non-GAAP net income and diluted net income per share were $568 million and $1.01.

For the twelve months ended June 29, 2007 Seagate reported disc drive unit shipments of 159.2 million, revenue of $11.4 billion, GAAP net income of $913 million and diluted net income per share of $1.56. GAAP net income and diluted net income per share includes approximately $241 million of purchased intangibles amortization and other charges associated with the Maxtor and EVault acquisitions and $19 million for the early retirement of the 8% notes. Excluding these charges, non-GAAP net income and diluted net income per share were $1.17 billion and $2.00.

Included in both the GAAP and non-GAAP net income for the June quarter and fiscal year 2007 are the following non-operating items: a benefit of $359 million that reflects a favorable adjustment to the valuation allowance related to Seagate’s deferred tax assets; a charge of $29 million associated with ongoing restructuring; and a $4 million write-off of an equity investment that is reflected in other income and expense.

“Our results for the year as a whole as well as for this quarter demonstrate the continued strength of the digital storage industry and the positive impact of several important strategic steps we have taken to secure and extend our industry leadership,” said Bill Watkins, Seagate chief executive officer. “We continue to lead the industry in technology and launch innovative new products into all markets, including industry-leading high capacity products. Our market share is growing, our revenue and shipment numbers are unmatched in the industry, and we remain excited about the growth opportunities ahead of us.”

Adjustments made to GAAP net income and diluted net income per share can be found with the financial statements included with this press release. Additional information relating to the financial results for the fourth fiscal quarter of 2007 can be found online at seagate.com.

Business Outlook
For the September quarter, Seagate expects to report revenue of $2.9 - $3.0 billion, and GAAP diluted net income per share of $0.35 - $0.39.  Excluding approximately $27 million of purchased intangibles amortization and other charges associated with the Maxtor and EVault acquisitions, non-GAAP diluted net income per share for the September quarter is expected to fall within the range of $0.40 - $0.44.

This guidance does not include the impact of any future acquisitions, stock repurchases or restructuring activities the company may undertake.

Dividend and Stock Repurchase
The company has declared a quarterly dividend of $0.10 per share to be paid on or before August 17, 2007 to all common shareholders of record as of August 3, 2007.

During the quarter ended June 29, 2007, the company took delivery of approximately 9.7 million of its common shares related to its share repurchase plan. The average price of the shares delivered to the company in the June quarter was $20.76. The company has authorization to purchase approximately $975 million of additional shares under the current stock repurchase program.

Conference Call

Seagate will hold a conference call to review the fiscal fourth quarter and year-end 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: 4752922

Replay
A replay will be available beginning today at 6:00 p.m. Pacific Time through July 26 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: 4752922

Podcast
A podcast featuring Bill Watkins discussing Seagate’s performance during the quarter and the outlook going forward can be heard and downloaded from http://www.podtech.net/seagate  beginning at 2:00 p.m. Pacific Time.

About Seagate
Seagate is the worldwide leader in the design, manufacture and marketing of hard disc drives, 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, and to be the low cost producer 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 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 income and diluted earnings per share (presented on a GAAP basis as well as on a non-GAAP adjusted basis), price and product competition, customer demand for our products, 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 and uncertainties that could cause actual results to differ materially from those anticipated by these forward-looking statements. Such risks and uncertainties include a variety of factors, some of which are beyond the company's control. In particular, such risks and uncertainties include the impact of the variable demand and the aggressive pricing environment for disc drives; dependence on Seagate’s ability to successfully qualify, manufacture and sell its disc drive products in increasing volumes on a cost-effective basis and with acceptable quality, particularly the new disc drive products with lower cost structures; and the impact of competitive product announcements and possible excess industry supply with respect to particular disc drive products, particularly now that there are no material limitations on disc drive component supply for our competitors. Information concerning additional 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 September 11, 2006 and in the company’s Quarterly Report on Form 10-Q as filed with the U.S. Securities and Exchange Commission on May 3, 2007. 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)

 
June
29,
2007
   
June
30,
2006(a)
Assets        
Cash and cash equivalents
$
988
 
$
910
  Short-term investments
156
 
823
 
  Accounts receivable, net
1,383
 
1,445
 
  Inventories
794
 
891
 
  Deferred income taxes
196
48
 
  Other current assets
284
 
216
 
   
 
  Total Current Assets
3,801
 
4,333
 
               
Property, equipment and leasehold improvements, net
2,278
 
2,106
 
  Goodwill
2,300
 
2,475
 
  Other intangible assets
188
 
307
 
  Deferred income taxes
574
33
 
  Other assets, net
331
 
290
 
   
 
  Total Assets
$
9,472
   
$
9,544
 
Liabilities and Shareholders' Equity        
  Accounts payable
$
1,301
   
$
1,692
 
  Accrued employee compensation
157
 
385
 
  Accrued restructuring
21
 
210
 
  Accrued expenses, other
765
 
648
 
  Accrued income taxes
75
 
72
 
  Current portion of long-term debt
330
 
330
 
   
 
  Total Current Liabilities
2,649
 
3,337
 
         
  Accrued restructuring
21
 
23
 
  Other non-current liabilities
332
 
332
 
  Long-term debt, less current portion
1,733
 
640
 
   
 
  Total Liabilities
4,735
 
4,332
 
       
  Shareholders' Equity
4,737
 
5,212
 
 
 
  Total Liabilities and Shareholders' Equity
$
9,472
   
$
9,544
 
 
(a)
The information in this column was derived from the Company’s audited consolidated balance sheet as of June 30, 2006.




 

Seagate Technology
Condensed Consolidated Statements of Operations
(In millions, except per share data)
(Unaudited)
       
Three Months Ended
 
Fiscal Year Ended
 
June 29, 2007
June 30,
2006
June 29, 2007
June 30, 2006
Revenue
$
2,744
$
2,529
$
11,360
$
9,206
               
Cost of revenue
2,150
2,075
9,175
7,069
Product development
221
231
904
805
Marketing and administrative
143
144
589
447
Amortization of intangibles 13 7 49 7
Restructuring and other, net
29
29
4
  Total operating expenses
2,556
 
2,457
 
10,746
 
8,332
 
   
       
Income from operations
188
72
614
874
       
Interest income
14
21
73
69
Interest expense (33)   (10)   (141)   (41)  
Other, net
2
    15  
22
 
  Other income (expense), net (17)   11   (53)   50  
   
       
Income before income taxes
171
83
561
924
Provision for (benefit from) income taxes
(370)
76
(352)
84
 
Net income
$
541
$
7
$
913
$
840
 
Net income per share:  
  Basic
$
1.00
$
0.01
$
1.64
$
1.70
  Diluted
0.96
   
0.01
 
1.56
 
1.60
 
Number of shares used in per share calculations:  
  Basic
539
   
532
 
558
 
495
 
  Diluted
564
563
587
524
           



 

Seagate Technology
Condensed Consolidated Statements of Cash Flows
(In millions)
(Unaudited)
 
Fiscal Year Ended

June 29,
2007
June 30,
2006
Operating Activities        
Net income
$
913
   
$
840
 
Adjustments to reconcile net income to net cash from operating activities:            
Depreciation and amortization
851
 
612
 
  Stock-based compensation 128   90  
  Deferred income taxes (365)   23  
  Allowance for doubtful accounts receivable 40    
  Redemption charges on 8% Senior Notes due 2009 19    
  In-process research and development 4    
  Tax benefit from stock options   (44)  
Other non-cash operating activities, net
36
 
12
 
Changes in operating assets and liabilities:    
    Current assets and liabilities  
(781)
     
(61)
 
  Other assets and liabilities  
98
     
(15)
 
   
 
  Net cash provided by operating activities
943
 
1,457
 
   
 
 
Investing Activities        
Acquisition of property, equipment and leasehold improvements  
(906)
     
(1,008)
 
Proceeds from sale of fixed assets 55    
Purchases of short-term investments
(322)
 
(3,220)
 
Maturities and sales of short-term investments  
997
     
3,528
 
Net cash and cash equivalents acquired from Maxtor Corporation  
297
 
Acquisitions, net of cash acquired   (178)       (28)  
Other investing activities, net
(48)
 
(130)
 
   
 
Net cash used in investing activities
(402)
 
(561)
 
   
 
               
Financing Activities        
Net proceeds from issuance of long-term debt   1,477        
Repayment of long-term debt   (405)      
(340)
 
Redemption premium on 8% Senior Notes due 2009   (16)        
Issuance of common shares for employee stock plans
219
   
118
 
Dividends to shareholders
(212)
 
(155)
 
Tax benefit from stock options         44  
Repurchases of common stock   (1,526)       (399)  
   
 
Net cash used in financing activities
(463)
 
(732)
 
   
 
               
Increase in cash and cash equivalents
78
 
164
 
Cash and cash equivalents at the beginning of the period
910
 
746
 
 
 
Cash and cash equivalents at the end of the period
$
988
 
$
910
 





Use of non-GAAP financial information

Our results of operations have undergone significant change in the past year, most significantly in connection with our acquisition of Maxtor. To help the readers of our condensed consolidated financial statements prepared on a GAAP basis better understand our past financial performance and our expectations of our future results, we supplementally disclose, after making certain non-GAAP adjustments, non-GAAP net income and non-GAAP diluted net income per share. We also provide forecasts of these non-GAAP financial measures. A reconciliation of the adjustments to GAAP net income and diluted net income per share for the quarter and year-to-date periods are presented in the tables below. In addition, an explanation of the ways in which our board of directors and management use these non-GAAP financial measures to evaluate the business, the substance behind our management’s decision to use these non-GAAP financial measures, the material limitations associated with the use of these non-GAAP financial measures, the manner in which Seagate management compensates for those limitations, and the substantive reasons why we believe that these non-GAAP financial measures provide useful information to investors is included under the caption “Use of Non-GAAP Financial Measures” in the Form 8-K furnished today with the U.S. Securities and Exchange Commission. This additional non-GAAP financial information is not meant to be considered in isolation or as a substitute for net income or diluted net income per share prepared in accordance with GAAP. You should not compare our non-GAAP net income or non-GAAP diluted net income per share results with those of other companies, as the adjustments made to our GAAP results are unique to Seagate.




                             
Seagate Technology
Adjustments to GAAP Net Income and Diluted Net Income Per Share
(In millions, except per share amounts)
(Unaudited)
                             
              Three Months
Ended June 29,
2007
line
  Fiscal Year
Ended June 29,
2007
line
 
                         
  GAAP net income       $ 541     $ 913    
  Non-GAAP adjustments:                      
    Redemption charges on  8% Senior Notes due 2009   A           19    
    Maxtor and EVault acquisition related adjustments:                      
      - Amortization of purchased intangible assets   B     23       150    
      - Write-off of in-process research and development   C           4    
      - Stock-based compensation   D     3       27    
      - Integration and retention costs   E     1       54    
      - Customer compensatory claims   F           18    
    Adjustments for taxes   G           (12)    
                   
  Non-GAAP net income         568       1,173    
                         
  Diluted net income per share:                      
    GAAP       $ 0.96     $ 1.56    
                         
    Non-GAAP       $ 1.01     $ 2.00    
                         
  Shares used in diluted net income per share calculation:         564       587    
                         
                             
A   To exclude charges of $19 million related to the redemption of Seagate’s $400 million 8% Senior Notes due 2009 (allocated to Interest expense)
                             
B   For the three months and fiscal year ended June 29, 2007, amortization of purchased intangible assets acquired in the Maxtor and EVault acquisitions was allocated as follows
                             
              Three Months
Ended June 29,
2007
line
  Fiscal Year
Ended June29,
2007
line
 
                         
  Cost of revenue       $ 10     $ 102    
  Amortization of intangibles         13       48    
                         
    Total amortization of purchased intangible assets       $ 23     $ 150    
                     
                             
C   To exclude the write-off of in-process research and development related to the EVault acquisition (allocated to Product development)
                             
D   For the three months and fiscal year ended June 29, 2007, stock-based compensation expense related to the Maxtor acquisition was allocated as follows:
                             
              Three Months
Ended June 29,
2007
line
  Fiscal Year
Ended June 29,
2007
line
 
                         
  Cost of revenue       $ 1     $ 4    
  Product development         2       17    
  Marketing and administrative               6    
                         
    Total stock-based compensation expense       $ 3     $ 27    
                         
                             
E   For the three months and fiscal year ended June 29, 2007, integration and retention costs related to the Maxtor acquisition were allocated as follows:
                             
              Three Months
Ended June 29,
2007
line
  Fiscal Year
Ended June 29,
2007
line
 
                         
  Cost of revenue       $     $ 18    
  Product development               20    
  Marketing and administrative         1       16    
                         
    Total integration and retention costs       $ 1     $ 54    
                         
                             
F   To exclude the settlement of $18 million in customer compensatory claims relating to legacy Maxtor products (allocated to Cost of revenue)
                             
G   To exclude the tax effects, where applicable, of adjustments to GAAP net income