Jul 20, 2011

Seagate Technology Reports Fiscal Fourth Quarter and Year-End 2011 Financial Results

CUPERTINO, Calif. - Seagate Technology plc (NASDAQ: STX) today reported financial results for the quarter ended July 1, 2011. The company shipped 52 million disk drives and reported revenue of $2.9 billion, gross margin of 19.3%, net income of $119 million and diluted earnings per share of $0.27. On a non-GAAP basis, which excludes the net impact of restructuring, write-down of an equity investment, gain on the sale of one of its facilities, and expenses related to the previously announced transaction with Samsung, Seagate reported net income of $126 million and diluted earnings per share of $0.28 for the quarter ended July 1, 2011.

For the fiscal year ended July 1, 2011, the company reported revenue of $11.0 billion, gross margin of 19.6%, net income of $511 million and diluted earnings per share of $1.09. On a non-GAAP basis, which excludes the net impact of loss on redemption of debt, purchased intangibles amortization, restructuring, write-down of an equity investment, gain on the sale of one of its facilities, expenses related to the previously announced transaction with Samsung and tax adjustments related to prior fiscal years, Seagate reported net income of $578 million and diluted earnings per share of $1.24. Additionally, Seagate returned $77 million to shareholders in the form of a dividend and repurchased $822 million of Seagate ordinary shares.

“Seagate and the industry are benefitting from the significant demand for storage related to new applications and architectures associated with mobile and connected devices,” said Steve Luczo, Seagate chairman, president and CEO. “Because hard disk drive storage is a fundamental technology for cloud service providers, data centers and all other network-based content providers, total industry demand grew almost 40% in fiscal year 2011 to 330 million terabytes. For the June quarter, Seagate’s average capacity per drive shipped grew to approximately 590 GB an increase of 39% year-over-year. As more online content and services become available to billions of connected mobile devices, we expect demand for storage capacity to continue to grow and Seagate to benefit from this growth.”

For reconciliation of non-GAAP to GAAP results, see accompanying financial tables.

Investor Communications 
Seagate will hold a conference call to review its fourth fiscal quarter and year-end results today at 2:00 p.m. Pacific Time. The conference call will consist of opening comments from Steve Luczo, CEO, followed by a question and answer session with the executive management team. During today’s conference call, the company will provide an outlook for its first fiscal quarter of 2012, including key underlying assumptions.

Seagate has issued a Supplemental Commentary document. The Supplemental Commentary will not be read during today’s call, but rather it is available in the investor relations section of seagate.com.

Dividend 
The Board of Directors has approved a quarterly cash dividend of $0.18 per share which will be payable on August 26, 2011 to shareholders of record as of the close of business on August 5, 2011. The payment of any future quarterly dividends will be at the discretion of the Board and will be dependent upon Seagate’s financial position, results of operations, available cash, cash flow, capital requirements and other factors deemed relevant by the Board.

Conference Call 
The conference call can be accessed online at http://www.seagate.com/investors or by telephone as follows: USA: (866) 356-3377 International: (617) 597-5392 Participant Passcode: 85406145

Replay 
A replay will be available beginning today at approximately 6:00 p.m. Pacific Time. The replay can be accessed from seagate.com.

About Seagate 
Seagate is the world leader in hard disk drives and storage solutions. Learn more at 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. When used, the words “anticipates”, “believes”, “expects”, “may”, “should” and similar expressions are intended to identify such forward-looking statements. These forward-looking statements are based on information available to the Company 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, global economic conditions may pose a risk to the Company’s operating and financial performance. Such risks and uncertainties also include the impact of variable demand; dependence on the Company’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 the Company’s ability to achieve projected cost savings. Information concerning risks, 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, Form 10-K/A and Quarterly Reports on Form 10-Q as filed with the U.S. Securities and Exchange Commission on August 20, 2010, October 6, 2010, November 3, 2010, February 3, 2011 and May 3, 2011, respectively, 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 the Company 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)

 
July 1,
2011 
   
July 2,
2010 (a)
Assets              
Cash and cash equivalents
$
2,677
 
$
2,263
  Short-term investments  
474
     
252
 
  Restricted cash and investments   102       114  
  Accounts receivable, net  
1,495
     
1,400
 
  Inventories  
872
     
757
 
  Deferred income taxes  
99
     
118
 
  Other current assets  
706
     
514
 
   
 
  Total Current Assets  
6,425
     
5,418
 
               
Property, equipment and leasehold   improvements, net  
2,245
     
2,263
 
  Deferred income taxes  
374
     
395
 
  Other assets, net  
181
     
171
 
   
 
  Total Assets
$
9,225
   
$
8,247
 
Liabilities and Shareholders' Equity              
  Short-term borrowings
$
blank space
   
$
-
 
  Accounts payable  
2,063
     
1,780
 
  Accrued employee compensation  
199
     
263
 
  Accrued warranty  
189
     
189
 
  Accrued expenses  
438
     
422
 
  Accrued income taxes  
14
     
14
 
  Current portion of long-term debt  
560
     
329
 
   
 
  Total Current Liabilities
 
3,463
     
2,997
 
               
  Long-term accrued warranty  
159
     
183
 
  Long-term accrued income taxes  
67
     
59
 
  Other non-current liabilities  
121
     
111
 
  Long-term debt, less current portion  
2,952
     
2,173
 
   
 
  Total Liabilities
 
6,762
     
5,523
 
             
  Total Shareholders' Equity  
2,463
     
2,724
 
 
 
  Total Liabilities and Shareholders'  Equity
$
9,225
   
$
8,247
 
 
(a)  The information in this column was derived from the Company’s audited Consolidated Balance Sheet as of July 2, 2010




 

Seagate Technology
Condensed Consolidated Statements of Operations
(In millions, except per share data)
(Unaudited)
     
For the Three Months Ended
For the Fiscal Year Ended
 
July 1,
2011 
July 2,
2010 
July 1,
2011 
July2,
2010 
Revenue
$
2,859
 
$
2,656
 
$
10,971
 
$
11,395
 
                       
Cost of revenue  
2,308
   
1,928
   
8,825
   
8,191
 
Product development  
229
   
219
   
875
   
877
 
Marketing and administrative  
128
   
113
   
445
   
437
 
Amortization of intangibles   -     4     2     27  
Restructuring and other, net   4     16    
18
    66  
Impairment of goodwill and other long-lived assets   -     (6)    
-
    57  
  Total operating expenses  
2,669
   
2,276
   
10,165
   
9,655
 
   
       
Income (loss) from operations  
190
   
380
   
806
   
1,740
 
       
Interest income  
1
   
2
   
7
   
6
 
Interest expense   (63)     (46)     (214)     (174)  
Other, net  
1
    4    
(20)
    (3)  
  Other income (expense), net   (61)     (40)     (227)     (171)  
   
       
Income (loss) before income taxes  
129
   
340
   
579
   
1,569
 
Provision for (benefit from) income   taxes  
10
   
(39)
   
68
   
(40)
 
 
Net income (loss)
$
119
 
$
379
 
$
511
 
$
(1,609)
 
 
Net income (loss) per share:        
  Basic
$
0.28
 
$
(0.79)
 
$
1.13
 
$
3.28
 
  Diluted  
0.27
   
(0.76)
   
1.09
   
3.14
 
Number of shares used in per share calculations:        
  Basic  
427
   
479
   
451
   
491
 
  Diluted  
444
   
500
   
467
   
514
 
Dividends declared per share
$
0.18
 
$
blank space
 
$
0.18
 
$
-
 



   

 

 

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

July 1,
2011 
July 2,
2010 
Operating Activities              
Net income (loss)
$
511
   
$
1,609
 
Adjustments to reconcile net income to net  cash provided by (used in) operating activities:              
Depreciation and amortization  
754
     
780
 
 

Share-based compensation

Loss on redemption of debt

Gain on sale of property and equipment

 

51

26

(23)

     

57

-

(4)

 
  Impairment of goodwill and other long-lived assets   -       57  
  Deferred income taxes   46       (36)  
Other non-cash operating activities, net  
15
     
38
 
Changes in operating assets and liabilities:              
    Accounts receivable  
(95)
     
(367)
 
    Inventories  
(115)
     
(170)
 
    Accounts payable  
386
     
2
 
    Accrued employee compensation   (64)       119  
    Accrued expenses and warranty   (28)       (169)  
  Other assets and liabilities  
(200)
     
16
 
   
 
  Net cash provided by (used in) operating  activities
 
1,264
     
1,932
 
   
 
 
Investing Activities              
Acquisition of property, equipment and  leasehold   improvements  
(843)
     
(639)
 
Purchases of short-term investments  
77
     
21
 
Maturities and sales of short-term investments  
(487)
     
(373)
 
Decrease (increase) in restricted cash and investments   159       119)  
Proceeds from liquidation of deferred compensation plan investments  
101
      114  
Proceeds from sale of investment in equity securities  
14
      15  
Other investing activities, net  
2
     
9
 
   
 
Net cash provided by (used in) investing activities  
(981)
     
(752)
 
   
 
               
Financing Activities              
Proceeds from short-term borrowings   -       15  
Repayment of short-term borrowings   -       (365)  
Net proceeds from issuance of long-term debt   1,324       (462)  
Repayment of long-term debt   (377)       587  
Decrease (increase) in restricted cash and investments   2       379  
Proceeds from exercise of employee stock and employee stock purchase plan   83       86  
Repurchase of common shares    (822)       (584)  
Dividends to shareholders  
(74)
      -  
Other financing activities, net  
(5)
      -  
   
 
Net cash provided by (used in) financing activities  
131
     
344
 
   
 
               
  Increase (decrease) in cash and cash              
       equivalents   414       836  
             
Cash and cash equivalents at the beginning of the period  
2,263
     
1,427
 
 
 
Cash and cash equivalents at the end of the period
$
2,677
   
$
2,263
 
 
 

 

Use of non-GAAP financial information
To supplement the condensed consolidated financial statements presented in accordance with generally accepted accounting principles (GAAP), the Company provides non-GAAP measures of net income and diluted net income per share, which are adjusted from results based on GAAP to exclude certain expenses, gains and losses. These non-GAAP financial measures are provided to enhance the user's overall understanding of the Company’s current financial performance and its prospects for the future. Specifically, the Company believes non-GAAP results provide useful information to both management and investors as these non-GAAP results exclude certain expenses, gains and losses that the Company believes are not indicative of its core operating results and because it is consistent with the financial models and estimates published by financial analysts who follow the Company.
These non-GAAP results are some of the primary measurements management uses to assess the Company’s performance, allocate resources and plan for future periods. Reported non-GAAP results should only be considered as supplemental to results prepared in accordance with GAAP, and not considered as a substitute for, or superior to, GAAP results. These non-GAAP measures may differ from the non-GAAP measures reported by other companies in the Company’s industry.



Seagate Technology 
ADJUSTMENTS TO GAAP NET INCOME AND DILUTED NET INCOME PER SHARE

(In millions, except per share amounts)

(Unaudited)

 

 

 

 

 

For the
Three Months Ended  July 1, 2011

 

For the
Fiscal Year Ended  July 1, 2011

GAAP net income

 

     $         119

 

     $         511

Non-GAAP adjustments:

 

                      

 

                      

   Loss on redemption of debt

A

                   ―

 

                   26

   Restructuring charges

B

                     4

 

                   18

   Amortization of purchased intangible assets

C

                   ―

 

                     6

   Acquisition costs

D

                   13

 

                   13

   Gain on the sale of a facility

E

                 (15)

 

                 (15)

 Write-down of investment in equity securities

F

                     5

 

                     5

   Adjustments for income taxes

G

                   ―

 

                   14

Non-GAAP net income

 

     $         126

 

     $         578

 

 

                      

 

 

Diluted net income per share:

 

                      

 

 

       GAAP

 

     $        0.27

 

     $        1.09

       Non-GAAP

 

     $        0.28

 

     $        1.24

Shares used in diluted net income per share calculation:

 

                 444

 

                 467

 

A The fiscal year ended July 1, 2011, included a loss upon the partial redemption of the Company’s 10.00% Senior Secured Second-Priority Notes due 2014, the loss upon redemption of its 5.75% Subordinated Debentures due March 2012 and its 2.375% Convertible Senior Notes due August 2012. 

B For the three months and fiscal year ended July 1, 2011, the Company recorded restructuring charges associated with previously announced restructuring activities. 

C The fiscal year ended July 1, 2011, amortization of purchased intangible assets acquired in acquisitions was allocated as follows:

 

 

For the
Three Months Ended  July 1, 2011

 

For the
Fiscal Year Ended  July 1, 2011

Cost of revenue

 

     $            -

 

     $              4

Amortization of intangibles

 

                   -

 

                     2

Total amortization of purchased intangible assets

 

     $            -

 

     $              6

 

D For the three months and fiscal year ended July 1, 2011, the Company recorded costs associated with the pending acquisition of certain assets of Samsung Electronics Co., Ltd.

E To exclude the gain on the sale of a facility, which was allocated as follows:

 

 

For the
Three Months Ended  July 1, 2011

 

For the
Fiscal Year Ended  July 1, 2011

 

 

 

 

 

Cost of revenue

 

     $            (13)

 

     $            (13)

Operating expense

 

                    (2)

 

                    (2)

 

 

 

 

 

   Total gain on the sale of a facility

 

     $             (15)

 

     $             (15)

 

F For the three months and fiscal year ended July 1, 2011, the Company recorded a write-down of investment in equity securities. 

G To exclude the tax effects, where applicable, of adjustments to GAAP net income. In the fiscal year ended July 1, 2011, the Company recorded discrete tax charges of approximately $14 million primarily as a result of information obtained during the March quarter related to ongoing negotiations with non-U.S. tax authorities on tax positions taken in prior fiscal years.