Aug 08, 2006

Seagate Technology Reports Fiscal Fourth Quarter and Year-End 2006 Results

Seagate Technology (NYSE: STX) today reported financial results for its fiscal fourth quarter and full year 2006, which includes both accounting charges related to the Maxtor acquisition of $146 million and a loss from Maxtor’s operating results of approximately $72 million. The acquisition of Maxtor was completed on May 19, 2006, and the financial results announced today include the results of Maxtor operations from May 19 through June 30, 2006.

For the fiscal fourth quarter, Seagate reported revenue of $2.53 billion – of which $279 million was Maxtor product based – GAAP net income of $7 million, and diluted earnings per share of $0.01 for the quarter ended June 30, 2006. On a pro-forma Seagate standalone basis, excluding accounting charges, costs and tax effects directly related to the Maxtor acquisition of $146 million, Seagate’s non-cash stock-based compensation of $17 million and the $72 million loss from Maxtor operations, non-GAAP net income was $241 million for the quarter ended June 30, 2006.

In the year-ago quarter, Seagate reported revenue of $2.18 billion, GAAP net income of $280 million and diluted earnings per share of $0.55. The year-ago results did not reflect costs associated with non-cash stock based compensation.  

For the fiscal year ended June 30, 2006, Seagate reported revenue of $9.2 billion – of which $279 million was from Maxtor based products – GAAP net income of $840 million and diluted earnings per share of $1.60. These full year results include accounting charges, other costs and related tax effects directly associated with the Maxtor acquisition of $146 million, $74 million for Seagate’s non-cash stock based compensation, and $5 million of other non-operating charges. Non-GAAP net income and diluted earnings per share, excluding these charges and costs and the associated tax impact, would be $1.06 billion and $2.03.

For fiscal year ended July 1, 2005, Seagate reported revenue of $7.55 billion, GAAP net income of $707 million and diluted earnings per share of $1.41.

“Fiscal 2006 was an exceptional year for Seagate. Our ongoing product leadership and highly-efficient operational execution allowed us to capitalize on the increased demand across all markets and drive substantial growth,” said Bill Watkins, Seagate chief executive officer. “We achieved many milestones during the year, including transitioning to perpendicular recording, and delivering 10 new products. This quarter in particular was transitional as we closed the Maxtor acquisition and accelerated the integration activities that are bringing us closer to achieving the earnings model that will allow us to maximize value for our shareholders. Charges in connection with the acquisition included the result of under-utilized manufacturing capacity during the ramp down of Maxtor products and the corresponding ramp up of Seagate products, unearned compensation and other integration expenses. Our consistent year-over-year growth in revenue and profitability is a testament to our solid execution in an industry that is critical to a world increasingly reliant on mass storage.”

More detailed information about Seagate and Maxtor unit shipments by market, and supplemental financial information relating to the acquisition of Maxtor can be found online at http://www.seagate.com/newsinfo/invest .

Pricing
The average selling price for Seagate designed products, on a blended basis, decreased approximately $1.00 from the March quarter. In aggregate, price decreases on a “like for like” product basis during the June quarter for Seagate designed products was approximately 7%, which was at the high end of the normal range for price erosion and slightly higher than the company’s expectations at the beginning of the quarter, especially for the desktop markets.

Business Outlook
For fiscal year 2007, excluding accounting charges and other costs associated with the Maxtor acquisition but including Maxtor’s operations, Seagate expects financial results of $11.8-12.3 billion in revenue and $1.90-2.00 for Non-GAAP diluted earnings per share. Including approximately $200 million of expected acquisition related costs, GAAP diluted earnings per share would be $1.58-$1.68.

For the September quarter, Seagate expects to report revenue of $2.65-2.80 billion, and diluted earnings per share of $0.16-0.20, excluding accounting charges and other costs associated with the Maxtor acquisition but including Maxtor’s operations. Including approximately $75 million of expected acquisition related costs, GAAP diluted earnings per share would be $0.04-0.08.

Dividend and Stock Repurchase
The company has declared a quarterly cash distribution of $0.08 per share to be paid on or before September 1, 2006 to all common shareholders of record as of August 18, 2006.

During the quarter ended June 30, 2006, the company repurchased approximately 16.7 million common shares worth approximately $400 million. Also today the company announced its board of directors has approved an additional share repurchase of up to $2.5 billion of the company’s common shares over the next two years.

Conference Call

Seagate will hold a conference call to review the fiscal second 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 & Canada: (877) 223-6202
International: (706) 679-3742

Replay
A replay will be available beginning August 8 at 5 p.m. Pacific Time through August 15 at 8:59 p.m. Pacific Time. The replay can be accessed from www.seagate.com/newsinfo/invest or by phone as follows:

USA: (800) 642-1687
International: (706) 645-9291
Conference ID: 2505938

For more information please visit: http://www.seagate.com/newsinfo/invest/financial_info

A podcast featuring Bill Watkins discussing Seagate’s performance during the year 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 Enterprise, Desktop, Mobile Computing, and Consumer Electronics applications. 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.

Safe Harbor
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 financial performance, including expected revenue and earnings and estimated restructuring, integration and retention expenses resulting from the acquisition and integration of Maxtor, the timeline for the integration of the former Maxtor operations into Seagate, 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 Seagate’s ability to integrate the Maxtor acquisition into its operations successfully and on a timely basis; the impact of the acquisition of Maxtor on the company’s financial results, including without limitation due to charges associated with restructuring, purchase accounting and other related transaction costs, and due to shifting of customer demand to the company's competitors or aggressive competitive pricing specially targeted to encourage such shifting; the impact of the variable demand and the aggressive pricing environment for disc drives, particularly in the near term as that may be impacted by delays in new operating system software and new gaming platform hardware systems; dependence on the company’s ability to successfully manufacture in increasing volumes on a cost-effective basis and with acceptable quality its current and new disc drive products, particularly in the near term as the company transitions Maxtor demand to Seagate product offerings; the adverse impact of competitive product announcements and possible excess industry supply with respect to particular disc drive products; and the possibility that the combination of Seagate and Maxtor will not provide the anticipated benefits to the combined company on the projected timeline, if at all. 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 August 1, 2005; in the company’s Quarterly Report on Form 10-Q as filed with the U.S. Securities and Exchange Commission on April 28, 2006; and in the company’s Form 8-K, as originally filed with the U.S. Securities and Exchange Commission on June 1, 2006.  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
30,
2006
   
July
1,
2005 (a)
Assets        
Cash and cash equivalents
$
910
 
$
746
  Short-term investments
823
 
1,090
 
  Accounts receivable, net
1,445
 
1,094
 
  Inventories
891
 
431
 
  Other current assets
264
 
141
 
   
 
  Total Current Assets
4,333
 
3,502
 
               
Property, equipment and leasehold improvements, net
2,106
 
1,529
 
  Goodwill
2,475
   
  Other intagibles
307
 
3
 
  Other non-current assets
323
 
210
 
   
 
  Total Assets
$
9,544
   
$
5,244
 
Liabilities and Shareholders' Equity        
  Accounts payable
$
1,692
   
$
1,108
 
  Accrued employee compensation
385
 
266
 
  Accrued restructuring
210
 
2
 
  Accrued expenses, other
648
 
354
 
  Accrued income taxes
72
 
46
 
  Current portion of long-term debt
330
 
4
 
   
 
  Total Current Liabilities
3,337
 
1,780
 
         
  Non-current accrued restructuring
23
   
  Other non-current liabilities
332
 
187
 
  Long-term debt, less current portion
640
 
736
 
   
 
  Total Liabilities
4,332
 
2,703
 
       
  Shareholders' Equity
5,212
 
2,541
 
 
 
  Total Liabilities and Shareholders' Equity
$
9,544
   
$
5,244
 
 
(a)
The information in this column was derived from the Company’s audited consolidated balance sheet as of July 1, 2005.



Seagate Technology
Condensed Consolidated Statements of Operations

(In millions, except per share data)
(Unaudited)

       
Three Months Ended
 
Fiscal Years Ended
 
June
30,
2006
July
1,
2005
June
30,
2006
July
1,
2005
Revenue
$
2,529
$
2,179
$
9,206
$
7,553
               
Cost of revenue
2,075
1,639
7,069
5,880
Product development
231
171
805
645
Marketing and administrative
144
87
447
306
Amortization of intagibles
7
-
7
-
Restructuring, net e
1
4
  Total operating expenses
2,457
 
1,898
 
8,332
 
6,831
 
   
       
Income from Operations
72
281
874
722
       
Interest income
21
13
69
36
Interest expense (10)   (13)   (41)   (48)  
Other, net   10   22  
22
 
  Other income (expense), net 11   10   50   10  
   
       
Income before income taxes
83
291
924
732
Provision for income taxes
76
11
84
25
 
Net income
$
7
$
280
$
840
$
707
 
Net income per share:  
  Basic
$
0.01
$
0.59
$
1.70
$
1.51
  Diluted
0.01
   
0.55
 
1.60
 
1.41
 
Number of shares used in per share calculations:  
  Basic
532
   
475
 
495
 
468
 
  Diluted
563
510
524
502
           




Seagate Technology
Condensed Consolidated Statements of Operations
Reconciliation of GAAP to Non-GAAP Information
(In millions, except per share data)
(Unaudited)
                                     
spacer Three Months Ended June 30, 2006
line
 
GAAP
line
Non-GAAP Adjustment
line
Note
line

Non-GAAP
Consolidate
Operating
Results
line
Non-GAAP
Maxtor
Operating
Results
line
Non-GAAP
Seagate
Stand-alone
Operating
Results
line
Revenue
$
2,529
$
  $ 2,529   $ 279   $ 2,250  
           
Cost of revenue 2,075   (36)  
A,B,C,D
2,039 315 1,724
Product development 231   (33)    
A,C,D
198 20 178
Marketing and administration 144   (24)  
A,C,D
120 15 105
Amortization of intangibles 7   (7)  
B
Restructuring, net      
        line line line
   Total operating expenses 2,457   (100)     2,357 350 2,007
                  line     line     line  
   Income from operations   72     100           172     (71)     243  
                                     
Interest income   21               21     1     20  
Interest expense   (10)               (10)     (2)     (8)  
Other, net                          
                  line     line     line  
   Other income (expense), net   11               11     (1)     12  
                  line     line     line  
Income before income taxes
83     100           183     (72)     255  
Provision for income taxes   76     (62)     E,F     14         14  
                  line     line     line  
Net income
$
7
$
162  
$ 169 $ (72) $ 241
Net income per share:                                    
  Basic
$
0.01
     
$ 0.32
  Diluted
0.01
       
    0.30              
Number of shares used in per share calculations:                                    
  Basic   532                 532              
Diluted
563     5   G     568              
                                       
The non-GAAP financial measures provided herein exclude the impact of the following:
- non-cash charges related to stock-based compensation expense;
- amortization of unearned stock-based compensation related to the Maxtor acquisition;
- amortization of intangibles acquired in the Maxtor acquisition;
- integration and retention costs related to the Maxtor acquisition;
- the write-off of deferred tax assets as a result of the Maxtor acquisition
and the related tax effects of these items,as well as Maxtor’s operating results from May 19, 2006 through June 30, 2006.

We believe these non-GAAP measures are useful to investors because they provide an alternative method for measuring the operating performance of the Company's and Seagate's stand-alone business, excluding the impact of the factors identified above, as well as the operating results of Maxtor, respectively. These non-GAAP financial measures are not prepared in accordance with generally accepted accounting principles and may be different from non-GAAP financial measures used by other companies. Non-GAAP financial measures should not be considered a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP.
                                       
Footnotes - for the three months ended June 30, 2006
A To exclude stock-based compensation expense ($6 million in Cost of revenue, $5 million in Product development and $6 million in Marketing and administrative)
B To exclude amortization of intangibles acquired in the Maxtor acquisition ($17 million in Cost of revenue and $7 million in Amortization of intangibles)
C To exclude unearned stock-based compensation expense related to the acquisition of Maxtor ($2 million in Cost of revenue, $7 million in Product development and $7 million in Marketing and administrative)
D To exclude integration and retention costs related to the Maxtor acquisition ($11 million in Cost of revenue, $21 million in Product development and $11 million in Marketing and administrative)
E To exclude a $68 million write-off of certain deferred tax assets as a result of the Maxtor acquisition
F To exclude the tax effects of footnotes A and D
G To adjust dilutive shares calculated using the treasury stock method
                                       
                                       
spacer Fiscal Year Ended June 30, 2006
line
 
GAAP
line
Non-GAAP Adjustment
line
Note
line
Non-GAAP
Consolidate
Operating
Results
line
Non-GAAP
MXO
Operating
Results
line
Non-GAAP
STX
Operating
Results
line
Revenue
$
9,206
$
  $ 9,206   $ 279   $ 8,927  
           
Cost of revenue 7,069   (56)  
H,I,J,K
7,013 315 6,698
Product development 805   (58)    
H,J,K,L
747 20 727
Marketing and administration 447   (42)  
H,J,K
405 15 390
Amortization of intangibles 7   (7)  
I
Restructuring, net 4   (4)  
M
        line line line
   Total operating expenses 8,332   (167)     8,165 350 7,815
                  line     line     line  
   Income from operations   874     167           1,041     (71)     1,112  
                                     
Interest income   69               69     1     68  
Interest expense   (41)     2    
N
    (39)     (2)     (37)  
Other, net   22     (7)    
O
    15         15  
                  line     line     line  
   Other income (expense), net   50     (5)           45     (1)     46  
                  line     line     line  
Income before income taxes
924     162           1,086     (72)     1,158  
Provision for income taxes   84     (62)     P,Q     22         22  
                  line     line     line  
Net income
$
840
$
224  
$ 1,064 $ (72) $ 1,136
Net income per share:                                    
  Basic
$
1.70
     
$ 2.15
  Diluted
1.60
       
    2.03              
Number of shares used in per share calculations:                                    
  Basic   495                 495              
Diluted
524     1   R     525              
                                       
The non-GAAP financial measures provided herein exclude the impact of the following:
- non-cash charges related to stock-based compensation expense;
- amortization of unearned stock-based compensation related to the Maxtor acquisition;
- one-time charge associated with a licensing arrangement Seagate entered into;
- the impact of restructuring costs;
- costs associated with early repayment of a term loan;
- a gain on an investment in equity securities;
- amortization of intangibles acquired in the Maxtor acquisition;
- integration and retention costs related to the Maxtor acquisition;
- the write-off of deferred tax assets as a result of the Maxtor acquisition
and the related tax effects of these items, as well as Maxtor’s operating results from May 19, 2006 through June 30, 2006.

We believe these non-GAAP measures are useful to investors because they provide an alternative method for measuring the operating performance of the Company's and Seagate's business, excluding the impact of the factors identified above, as well as the operating results of Maxtor, respectively. These non-GAAP financial measures are not prepared in accordance with generally accepted accounting principles and may be different from non-GAAP financial measures used by other companies. Non-GAAP financial measures should not be considered a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP.
                                       
Footnotes - for the fiscal year ended June 30, 2006
H To exclude stock-based compensation expense ($26 million in Cost of revenue; $24 million in Product development and $24 million in Marketing and administrative)
I To exclude amortization of intangibles acquired in the Maxtor acquisition ($17 million in Cost of revenue and $7 million in Amortization of intangibles)
J To exclude unearned stock-based compensation expense related to the acquisition of Maxtor ($2 million in Cost of revenue, $7 million in Product development and $7 million in Marketing and administrative)
K To exclude integration and retention costs related to the Maxtor acquisition ($11 million in Cost of revenue, $21 million in Product development and $11 million in Marketing and administrative)
L To exclude a $6 million one-time charge associated with a licensing arrangement Seagate entered into
M To exclude restructuring costs of $4 million
N To exclude costs of $2 million associated with early repayment of a term loan
O To exclude a $7 million gain on equity securities
P To exclude a $68 million write-off of certain deferred tax assets as a result of the Maxtor acquisition
Q To exclude the tax effects of footnotes H, K, L and O
R To adjust dilutive shares calculated using the treasury stock method
                                       


line bar

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

June
30,
2006
July
1,
2005
Operating Activities        
Net income
$
840
   
$
707
 
Adjustments to reconcile net income to net cash from operating activities:            
Depreciation and amortization
612
 
466
 
  Stock-based compensation 90   2  
  Tax benefit from stock options (44)    
Other non-cash operating activities, net
35
 
17
 
Changes in operating assets and liabilities:    
    Current assets and liabilities  
(61)
     
132
 
  Other assets and liabilities  
(15)
     
104
 
   
 
  Net cash provided by operating activities
1,457
 
1,428
 
   
 
 
Investing Activities        
Acquisition of property, equipment and leasehold improvements  
(1,008)
     
(691)
 
Purchases of short-term investments
(3,220)
 
(4,796)
 
Maturities and sales of short-term investments  
3,528
     
4,465
 
Net cash acquired from Maxtor Corporation   297        
Other acquisitions, net of cash acquired   (28)        
Other investing activities, net
(130)
 
(47)
 
   
 
Net cash used in investing activities
(561)
 
(1,069)
 
   
 
               
Financing Activities        
Repayment of long-term debt   (340)      
(3)
 
Proceeds from exercise of employee stock options and employee stock purchase plan
118
   
90
 
Dividends to shareholders
(155)
 
(122)
 
Tax benefit from stock options  
44
     
 
Repurchases of common stock  
(399)
       
   
 
Net cash used in financing activities
(732)
 
(35)
 
   
 
               
Increase in cash and cash equivalents
164
 
324
 
Cash and cash equivalents at the beginning of the period
746
 
422
 
 
 
Cash and cash equivalents at the end of the period
$
910
 
$
746