Seagate Technology Reports Fiscal Second Quarter 2007 Results
Tuesday January 23, 4:01 pm ET
-- Revenue grows 30% -- Maxtor transition complete -- Ships record 41 million units, 10 million based on perpendicular recording
SCOTTS VALLEY, Calif., Jan. 23 /PRNewswire-FirstCall/ -- Seagate Technology (NYSE: STX - News) today reported revenue of $3.0 billion, GAAP net income of $140 million, and diluted earnings per share of $0.23 for the quarter ended December 29, 2006. Included in the $3.0 billion of revenue is approximately $200 million from legacy Maxtor designed products. Net income and diluted earnings per share includes approximately $76 million of charges directly associated with the Maxtor acquisition and $19 million for the early retirement of the 8% notes. Excluding these charges, non-GAAP net income and diluted earnings per share were $236 million and $0.39.
For the six months ended December 29, 2006 Seagate reported revenue of $5.8 billion, GAAP net income of $159 million and diluted earnings per share of $0.27. Net income and diluted earnings per share includes charges of approximately $158 million directly associated with the Maxtor acquisition, $19 million for the early retirement of the 8% notes and a $3 million favorable adjustment to the restructuring reserve. Excluding these charges, non-GAAP net income and diluted earnings per share were $333 million and $0.56.
Adjustments made to GAAP net income and diluted earnings per share can be found with the financial statements included with this press release.
"Seagate just delivered the industry's first $3 billion quarter, and 30% growth over our year-ago quarter," said Bill Watkins, Seagate's chief executive officer. "These results are driven by the explosive growth in digital content and the resulting growth in demand for storage, as well as by our ability to deliver a broadening suite of products to a growing set of customers. This solid quarter reflects better than expected desktop pricing during the quarter, the successful transition of Maxtor customers to more cost-effective, higher margin Seagate products, and continued operational excellence. With the Maxtor integration substantially complete and exciting new products hitting the market in the current quarter, Seagate is on a path to further increase profitability in the traditionally slower back half of the fiscal year.
"During the December quarter, we shipped a record 7 million disc drives for consumer electronics applications, increased our shipments into the mobile compute market by 52% year-over-year, and continued to solidify our substantial lead in the enterprise and desktop markets. Additional highlights of the quarter include the start of OEM qualification of Seagate's 1.8-inch products; the successful launch of the re-branded Seagate and Maxtor external storage products which included four new Seagate external storage solutions; and the expansion of Seagate's services business with the announced acquisition of EVault, Inc. Our employees have much to be proud of as I believe Seagate's product and operational execution, as well as the company's market presence and visibility, have never been stronger. We have laid the foundation for continued success and growing profitability in 2007."
Additional information relating to the financial results for the second fiscal quarter of 2007 can be found online at seagate.com.
Business Outlook
For fiscal year 2007, excluding acquisition related costs but including Maxtor's operating results, Seagate expects $11.5-11.7 billion in revenue and $1.70-1.75 for Non-GAAP diluted earnings per share. Including approximately $234 million of expected acquisition related costs, $19 million of fees associated with the early redemption of the 8% notes and a favorable adjustment to restructuring reserves of $3 million, GAAP diluted earnings per share would be $1.27-$1.32.
For the March quarter, Seagate expects to report revenue of $2.9-3.0 billion, and diluted earnings per share of $0.56-0.60, excluding acquisition and restructuring related costs. GAAP diluted earnings per share for the March quarter, including approximately $40 million of expected acquisition related costs would be $0.49-0.53.
Dividend and Stock Repurchase
The company has declared a quarterly dividend of $0.10 per share to be paid on or before February 16, 2007 to all common shareholders of record as of February 2, 2007.
During the quarter ended December 29, 2006, the company purchased and took delivery of approximately 23 million of its common shares. Most of these shares were purchased late in the quarter and had a minimal affect on the average outstanding share calculation. Subsequent to December 29, 2006, the company took delivery of an additional 13 million common shares, which were paid for in the second fiscal quarter. The company has authorization to purchase approximately $1.4 billion of additional shares under the current stock repurchase program.
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 January 23 at 5 p.m. Pacific Time through January 30 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: 5770893
Podcast
A podcast featuring Bill Watkins discussing Seagate's performance during the quarter and the outlook going forward can be heard and downloaded from podtech.net beginning at 2:00 p.m. Pacific Time.
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SEAGATE TECHNOLOGY
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions)
(Unaudited)
December 29, June 30,
2006 2006 (a)
ASSETS
Cash and cash equivalents $1,096 $910
Short-term investments 464 823
Accounts receivable, net 1,251 1,445
Inventories 771 891
Other current assets 410 264
Total Current Assets 3,992 4,333
Property, equipment and
leasehold improvements, net 2,240 2,106
Goodwill 2,317 2,475
Other intangible assets 231 307
Other assets, net 498 323
Total Assets $9,278 $9,544
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $1,425 $1,692
Accrued employee compensation 188 385
Accrued restructuring 52 210
Accrued expenses, other 744 648
Accrued income taxes 76 72
Current portion of long-term debt 330 330
Total Current Liabilities 2,815 3,337
Accrued restructuring 21 23
Other liabilities 327 332
Long-term debt, less current portion 1,738 640
Total Liabilities 4,901 4,332
Shareholders' Equity 4,377 5,212
Total Liabilities and Shareholders' Equity $9,278 $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 Six Months Ended
December 29, December 30, December 29, December 30,
2006 2005 2006 2005
Revenue $2,996 $2,300 $5,788 $4,388
Cost of revenue 2,450 1,709 4,800 3,262
Product development 226 199 470 378
Marketing and
administrative 141 108 320 195
Amortization of
intangibles 12 -- 23 --
Restructuring, net 1 -- (3) 4
Total operating
expenses 2,830 2,016 5,610 3,839
Income from operations 166 284 178 549
Interest income 25 14 44 29
Interest expense (55) (11) (74) (24)
Other, net 9 4 11 9
Other income
(expense), net (21) 7 (19) 14
Income before
income taxes 145 291 159 563
Provision for
income taxes 5 4 -- 4
Net income $140 $287 $159 $559
Net income per share:
Basic $0.25 $0.60 $0.28 $1.16
Diluted 0.23 0.57 0.27 1.10
Number of shares used in
per share calculations:
Basic 571 482 573 480
Diluted 598 507 600 506
SEAGATE TECHNOLOGY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
RECONCILIATION OF GAAP TO NON-GAAP INFORMATION
(In millions, except per share data)
(Unaudited)
Three Months Ended December 29, 2006
Non-GAAP
GAAP Adjustments Notes Non-GAAP
Revenue $2,996 $-- $2,996
Cost of revenue 2,450 (49) A,B,C,D 2,401
Product development 226 (10) B,C 216
Marketing and
administrative 141 (7) B,C 134
Amortization of
intangibles 12 (12) A --
Restructuring, net 1 (1) E --
Total operating
expenses 2,830 (79) 2,751
Income from operations 166 79 245
Interest income 25 -- 25
Interest expense (55) 20 F,G (35)
Other, net 9 -- 9
Other income
(expense), net (21) 20 (1)
Income before
income taxes 145 99 244
Provision for
income taxes 5 3 H 8
Net income $140 $96 $236
Net income per share:
Basic $0.25 $0.41
Diluted 0.23 0.39
Number of shares used in
per share calculations:
Basic 571 571
Diluted 598 0 I 598
The non-GAAP financial measures provided herein exclude the impact of the
following:
-- amortization of intangibles acquired in the Maxtor acquisition;
-- amortization of unearned stock-based compensation related to the
Maxtor acquisition;
-- integration and retention costs related to the Maxtor acquisition;
-- settlement of customer compensatory claims relating to legacy
Maxtor products;
-- restructuring charges;
-- charges related to the redemption of Seagate's $400 million 8%
Notes;
-- interest expense related to purchase accounting treatment for fair
market value lease amortization
-- and the related tax effects of these items.
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 business and for enhancing comparability to prior
periods, excluding the impact of the factors identified above. These
non-GAAP financial measures are not prepared in accordance with generally
accepted accounting principles and may be different from non-GAAP 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
A To exclude amortization of intangibles acquired in the Maxtor
acquisition ($28 million in Cost of revenue and $12 million in
Amortization of intangibles)
B To exclude unearned stock-based compensation expense related to the
acquisition of Maxtor ($1 million in Cost of revenue; $4 million in
Product development and $2 million in Marketing and administrative)
C To exclude integration and retention costs related to the Maxtor
acquisition ($2 million in Cost of revenue; $6 million in Product
development and $5 million in Marketing and administrative)
D To exclude the settlement of $18 million in customer compensatory
claims relating to legacy Maxtor products
E To exclude restructuring charges
F To exclude charges of $19 million related to the redemption of
Seagate's $400 million 8% Notes
G To exclude interest expense related to purchase accounting treatment
for fair market value lease amortization
H To exclude the tax effects of footnote C
I To adjust dilutive shares calculated using the treasury stock method
SEAGATE TECHNOLOGY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
RECONCILIATION OF GAAP TO NON-GAAP INFORMATION
(In millions, except per share data)
(Unaudited)
Six Months Ended December 29, 2006
Non-GAAP
GAAP Adjustments Notes Non-GAAP
Revenue $5,788 $-- $5,788
Cost of revenue 4,800 (91) J,K,L,M 4,709
Product development 470 (32) K,L 438
Marketing and
administrative 320 (20) K,L 300
Amortization of
intangibles 23 (23) J --
Restructuring, net (3) 3 N --
Total operating
expenses 5,610 (163) 5,447
Income from operations 178 163 341
Interest income 44 -- 44
Interest expense (74) 22 O,P (52)
Other, net 11 -- 11
Other income
(expense), net (19) 22 3
Income before
income taxes 159 185 344
Provision for
income taxes -- 11 Q 11
Net income $159 $174 $333
Net income per share:
Basic $0.28 $0.58
Diluted 0.27 0.56
Number of shares used in
per share calculations:
Basic 573 573
Diluted 600 0 R 600
The non-GAAP financial measures provided herein exclude the impact of the
following:
-- amortization of intangibles acquired in the Maxtor acquisition;
-- amortization of unearned stock-based compensation related to the
Maxtor acquisition;
-- integration and retention costs related to the Maxtor acquisition;
-- settlement of customer compensatory claims relating to legacy
Maxtor products;
-- restructuring charges;
-- charges related to the redemption of Seagate's $400 million 8%
Notes;
-- interest expense related to purchase accounting treatment for fair
market value lease amortization
-- and the related tax effects of these items.
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 business and for enhancing comparability to prior
periods, excluding the impact of the factors identified above. These
non-GAAP financial measures are not prepared in accordance with generally
accepted accounting principles and may be different from non-GAAP 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
J To exclude amortization of intangibles acquired in the Maxtor
acquisition ($52 million in Cost of revenue and $23 million in
Amortization of intangibles)
K To exclude unearned stock-based compensation expense related to the
acquisition of Maxtor ($3 million in Cost of revenue; $12 million in
Product development and $6 million in Marketing and administrative)
L To exclude integration and retention costs related to the Maxtor
acquisition ($18 million in Cost of revenue; $20 million in Product
development and $14 million in Marketing and administrative)
M To exclude the settlement of $18 million in customer compensatory
claims related to legacy Maxtor products
N To exclude restructuring charges
O To exclude charges of $19 million related to the redemption of
Seagate's $400 million 8% Notes
P To exclude interest expense related to purchase accounting treatment
for fair market value lease amortization
Q To exclude the tax effects of footnote L
R To adjust dilutive shares calculated using the treasury stock method
SEAGATE TECHNOLOGY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
Six Months Ended
December 29, December 30,
2006 2005
OPERATING ACTIVITIES
Net income $159 $559
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation and amortization 414 286
Stock-based compensation 69 36
Allowance for doubtful accounts receivable 42 --
Redemption charges on 8% Notes 19 --
Tax benefit from stock options -- (14)
Other non-cash operating activities, net 1 4
Changes in operating assets and liabilities:
Current assets and liabilities (431) (70)
Other assets and liabilities 28 (33)
Net cash provided by operating activities 301 768
INVESTING ACTIVITIES
Acquisition of property, equipment and
leasehold improvements (466) (353)
Proceeds from sale of fixed assets 28 --
Purchases of short-term investments (322) (1,911)
Maturities and sales of short-term investments 687 2,015
Other acquisitions, net of cash acquired -- (28)
Other investing activities, net (29) (105)
Net cash used in investing activities (102) (382)
FINANCING ACTIVITIES
Net proceeds from issuance of long-term debt 1,477 --
Repayment of long-term debt (400) (340)
Redemption premium on 8% Notes (16) --
Issuance of common shares for employee stock plans 104 38
Dividends to shareholders (104) (76)
Tax benefit from stock options -- 14
Repurchases of common stock (1,075) --
Other financing activities, net 1 --
Net cash used in financing activities (13) (364)
Increase in cash and cash equivalents 186 22
Cash and cash equivalents at the
beginning of the period 910 746
Cash and cash equivalents at the
end of the period $1,096 $768
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