Seagate Technology plc (NASDAQ: STX) today reported financial results for the quarter ended December 31, 2010. The company shipped 48.9 million disk drives and on a GAAP basis reported revenue of $2.7 billion, gross margin of 19.5%, net income of $150 million and diluted earnings per share of $0.31. On a non-GAAP basis, which excludes the net impact of purchased intangibles amortization and restructuring, Seagate reported net income of $159 million and diluted earnings per share of $0.33 for the quarter ended December 31, 2010.
For the six months ended December 31, 2010, the company reported on a GAAP basis revenue of $5.4 billion, gross margin of 19.9%, net income of $299 million and diluted earnings per share of $0.61. On a non-GAAP basis, which excludes the impact of purchased intangibles amortization and restructuring, Seagate reported net income of $339 million and diluted earnings per share of $0.70.
For reconciliation of non-GAAP to GAAP results, see accompanying financial tables.
Establishment of Revolving Credit Facility
On January 18, 2011 the company and its subsidiary Seagate HDD Cayman (“the Borrower”) entered into a Credit Agreement which provides for a $350 million senior secured revolving credit facility. The revolving credit facility is currently undrawn and provides the company with flexibility to meet its business needs. Additional details regarding the Credit Agreement can be found in the Form 8-K filed today.
Conference Call
A replay of a conference call held earlier today can be accessed at 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. 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, 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 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 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 Report on Form 10-Q as filed with the U.S. Securities and Exchange Commission on August 20, 2010, October 6, 2010 and November 3, 2010, 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 Seagate undertakes no obligation to update forward-looking statements to reflect events or circumstances after the date they were made.
SEAGATE TECHNOLOGY PLC
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions)
(Unaudited)
|
|
December 31, |
|
July 2, |
|
ASSETS |
|
|
|
|
Current assets: |
|
|
|
|
Cash and cash equivalents |
$ 2,528 |
|
$ 2,263 |
|
Short-term investments |
286 |
|
252 |
|
Restricted cash and investments |
97 |
|
114 |
|
Accounts receivable, net |
1,392 |
|
1,400 |
|
Inventories |
808 |
|
757 |
|
Deferred income taxes |
112 |
|
118 |
|
Other current assets |
603 |
|
514 |
|
Total current assets |
5,826 |
|
5,418 |
|
Property, equipment and leasehold improvements, net |
2,262 |
|
2,263 |
|
Deferred income taxes |
376 |
|
395 |
|
Other assets, net |
194 |
|
171 |
|
Total assets |
$ 8,658 |
|
$ 8,247 |
|
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
|
|
Current liabilities: |
|
|
|
|
Accounts payable |
$ 1,832 |
|
$ 1,780 |
|
Accrued employee compensation |
129 |
|
263 |
|
Accrued warranty |
194 |
|
189 |
|
Accrued expenses |
453 |
|
422 |
|
Accrued income taxes |
10 |
|
14 |
|
Current portion of long-term debt |
560 |
|
329 |
|
Total current liabilities |
3,178 |
|
2,997 |
|
Long-term accrued warranty |
173 |
|
183 |
|
Long-term accrued income taxes |
57 |
|
59 |
|
Other non-current liabilities |
109 |
|
111 |
|
Long-term debt, less current portion |
2,365 |
|
2,173 |
|
Total liabilities |
5,882 |
|
5,523 |
|
|
|
|
|
|
Shareholders’ equity: |
|
|
|
|
Total shareholders’ equity |
2,776 |
|
2,724 |
|
Total liabilities and shareholders’ equity |
$ 8,658 |
|
$ 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 PLC
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share data)
(Unaudited)
|
|
For the Three Months Ended |
|
For the Six Months Ended |
||
|
|
December 31, 2010 |
January 1, 2010 |
|
December 31, 2010 |
January 1, 2010 |
|
|
|
|
|
|
|
|
Revenue |
$ 2,719 |
$ 3,027 |
|
$ 5,417 |
$ 5,690 |
|
Cost of revenue |
2,190 |
2,104 |
|
4,338 |
4,114 |
|
Product development |
213 |
227 |
|
422 |
434 |
|
Marketing and administrative |
102 |
110 |
|
206 |
217 |
|
Amortization of intangibles |
1 |
8 |
|
2 |
16 |
|
Restructuring and other, net |
7 |
― |
|
11 |
46 |
|
Impairment of long-lived assets |
― |
― |
|
― |
64 |
|
Total operating expenses |
2,513 |
2,449 |
|
4,979 |
4,891 |
|
Income from operations |
206 |
578 |
|
438 |
799 |
|
|
|
|
|
|
|
|
Interest income |
2 |
1 |
|
4 |
2 |
|
Interest expense |
(46) |
(41) |
|
(92) |
(87) |
|
Other, net |
13 |
(11) |
|
(22) |
(7) |
|
Other expense, net |
(31) |
(51) |
|
(110) |
(92) |
|
Income before income taxes |
175 |
527 |
|
328 |
707 |
|
Provision for (benefit from) income taxes |
25 |
(6) |
|
29 |
(5) |
|
Net income |
$ 150 |
$ 533 |
|
$ 299 |
$ 712 |
|
Net income per share: |
|
|
|
|
|
|
Basic |
$ 0.32 |
$ 1.07 |
|
$ 0.64 |
$ 1.43 |
|
Diluted |
0.31 |
1.03 |
|
0.61 |
1.38 |
|
Number of shares used in per share calculations: |
|
|
|
|
|
|
Basic |
469 |
498 |
|
470 |
496 |
|
Diluted |
486 |
520 |
|
487 |
518 |
SEAGATE TECHNOLOGY PLC
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
|
|
For the Six Months Ended |
||
|
|
December 31, |
|
January 1, |
|
OPERATING ACTIVITIES |
|
|
|
|
Net income |
$ 299 |
|
$ 712 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
Depreciation and amortization |
379 |
|
396 |
|
Share-based compensation |
26 |
|
25 |
|
Loss on extinguishment of debt |
24 |
|
¾ |
|
Impairment of long-lived assets |
¾ |
|
64 |
|
Deferred income taxes |
27 |
|
6 |
|
Other non-cash operating activities, net |
(9) |
|
22 |
|
Changes in operating assets and liabilities: |
|
|
|
|
Accounts receivable, net |
9 |
|
(300) |
|
Inventories |
(51) |
|
(58) |
|
Accounts payable |
243 |
|
229 |
|
Accrued employee compensation |
(134) |
|
63 |
|
Accrued expenses, income taxes and warranty |
20 |
|
(87) |
|
Other assets and liabilities |
(81) |
|
(41) |
|
Net cash provided by operating activities |
752 |
|
1,031 |
|
INVESTING ACTIVITIES |
|
|
|
|
Acquisition of property, equipment and leasehold improvements |
(560) |
|
(192) |
|
Purchases of short-term investments |
(145) |
|
(190) |
|
Sales of short-term investments |
96 |
|
22 |
|
Maturities of short-term investments |
13 |
|
79 |
|
Change in restricted cash and investments |
17 |
|
11 |
|
Other investing activities, net |
(1) |
|
(3) |
|
Net cash used in investing activities |
(580) |
|
(273) |
|
FINANCING ACTIVITIES |
|
|
|
|
Proceeds from short-term borrowings |
― |
|
15 |
|
Repayment of short-term borrowings |
― |
|
(350) |
|
Repayments of long-term debt and capital lease obligations |
(362) |
|
(380) |
|
Net proceeds from issuance of long-term debt |
736 |
|
― |
|
Repurchases of ordinary shares |
(305) |
|
― |
|
Change in restricted cash and investments |
― |
|
379 |
|
Proceeds from issuance of ordinary shares under employee stock plans |
24 |
|
42 |
|
Net cash provided by (used in) financing activities |
93 |
|
(294) |
|
|
|
|
|
|
Increase in cash and cash equivalents |
265 |
|
464 |
|
Cash and cash equivalents at the beginning of the period |
2,263 |
|
$ 1,427 |
|
Cash and cash equivalents at the end of the period |
$ 2,528 |
|
$ 1,891 |
|
|
|
|
|
Use of non-GAAP financial information
To supplement the condensed consolidated financial statements presented in accordance with generally accepted accounting principles (GAAP), Seagate 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 our 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 we believe are not indicative of our 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 our industry.
SEAGATE TECHNOLOGY PLC
ADJUSTMENTS TO GAAP NET INCOME AND DILUTED NET INCOME PER SHARE
(In millions, except per share amounts)
(Unaudited)
|
|
|
|
||
|
|
|
For the |
|
For the |
|
|
|
|
|
|
|
GAAP net income |
|
$ 150 |
|
$ 299 |
|
Non-GAAP adjustments: |
|
|
|
|
|
Loss on extinguishment of debt |
A |
¾ |
|
24 |
|
Restructuring charges |
B |
7 |
|
11 |
|
Amortization of purchased intangible assets |
C |
2 |
|
5 |
|
Adjustments for taxes |
D |
¾ |
|
¾ |
|
|
|
|
|
|
|
Non-GAAP net income |
|
$ 159 |
|
$ 339 |
|
|
|
|
|
|
|
Diluted net income per share: |
|
|
|
|
|
GAAP |
|
$ 0.31 |
|
$ 0.61 |
|
|
|
|
|
|
|
Non-GAAP |
|
$ 0.33 |
|
$ 0.70 |
|
|
|
|
|
|
|
Shares used in diluted net income per share calculation: |
|
486 |
|
487 |
A The company incurred a 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 and six months ended December 31, 2010, the company recorded restructuring charges primarily related to the planned closure of its Ang Mo Kio manufacturing operations in Singapore.
C For the three and six months ended December 31, 2010, amortization of purchased intangible assets acquired in acquisitions was allocated as follows:
|
|
|
For the |
|
For the |
|
|
|
|
|
|
|
Cost of revenue |
|
$ 1 |
|
$ 3 |
|
Amortization of intangibles |
|
1 |
|
2 |
|
|
|
|
|
|
|
Total amortization of purchased intangible assets |
|
$ 2 |
|
$ 5 |
D To exclude the tax effects, where applicable, of adjustments to GAAP net income