Current Report
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of report (date of earliest event reported): January 18, 2011
SEAGATE TECHNOLOGY PUBLIC LIMITED COMPANY
(Exact name of Registrant as specified in its charter)
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Ireland |
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001-31560 |
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98-0648577 |
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(State or other jurisdiction
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(Commission File Number) |
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(IRS Employer
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Arthur Cox Building
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NA |
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(Address of principal executive office) |
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(Zip Code) |
Registrant’s telephone number, including area code: (353) (1) 618-0517
NA
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Item 1.01 Entry into a Material Definitive Agreement.
Credit Agreement
Overview
On January 18, 2011, Seagate Technology public limited company (“STX” or the “Company”) and its subsidiary Seagate HDD Cayman (“the Borrower”) entered into a Credit Agreement (the “Credit Agreement”) by and among the Company, the Borrower, the lenders party thereto (the “Lenders”), The Bank of Nova Scotia, as Administrative Agent (the “Administrative Agent”), Morgan Stanley Senior Funding, Inc., Merrill Lynch Pierce Fenner and Smith Incorporated and BNP Paribas as syndication agents and Wells Fargo Bank National Association, as documentation agent.
The Credit Agreement provides for a $350 million senior secured revolving credit facility, under which the Borrower may borrow at any time until the earlier of January 18, 2015 and the date of termination of the commitments under the Credit Agreement. An aggregate amount of up to $75 million of the facility shall also be available for the issuance of letters of credit. The loans made under the Credit Agreement will bear interest at a rate of LIBOR plus a variable margin that will be determined based on the corporate credit rating of the Borrower or one of its parent entities. The Borrower’s obligations under the Credit Agreement will be guaranteed by the Company and certain material subsidiaries of the Company. All obligations of the Borrower and the guarantors will be secured by a lien on substantially all of their tangible and intangible assets, subject to certain exceptions.
The Credit Agreement contains customary representations and warranties, affirmative and negative covenants, and customary events of default, including among others, non-payment of principal, interest or other amounts when due, inaccuracy of representations and warranties, breach of covenants, insolvency or inability to pay debts, bankruptcy, or a change in control (as defined in the Credit Agreement). The Company must meet a fixed charge coverage ratio and a leverage ratio and maintain a minimum liquidity amount.
In connection with the Credit Agreement, the Borrower, the Company and certain other material subsidiaries of the Company (the Company, the Borrower and such other subsidiaries, collectively, the “Initial Loan Guarantors”) entered into the U.S. Guarantee Agreement with the Administrative Agent, pursuant to which the obligations of the Loan Parties (as defined in the Credit Agreement) under the Credit Agreement became guaranteed by the Initial Loan Guarantors. In addition, the Company, the Borrower and/or certain of the other Initial Loan Guarantors entered into, among others, the following agreements with the Administrative Agent:
· the U.S. Security Agreement;
· the U.S. Pledge Agreement;
· the Indemnity, Subrogation and Contribution Agreement;
· five Equitable Share Mortgages; and
· the Omnibus Debenture
The agreements listed above are collectively referred to as the “Loan Security Agreements”.
Security
The Credit Agreement provides that, subject to the provisions below, the Borrower’s and the other Loan Parties’ (as defined in the Credit Agreement) obligations under the Credit Agreement must be secured by first-priority liens granted by the Borrower, the other Initial Loan Guarantors organized, or with material assets located, in the United States of America (including any State thereof and the District of Columbia), the Cayman Islands, Northern Ireland, Singapore, The Netherlands and, only in the case of the Company, Ireland (such Initial Loan Guarantors, the “Initial Loan Grantors,” and such jurisdictions collectively referred to herein as the “Collateral Jurisdictions”), and future material Loan Guarantors organized, or with material assets located, in the Collateral Jurisdictions (such future guarantors, together with the Initial Loan Grantors, the “Loan Grantors”) on substantially all assets of the Borrower and the other Loan Grantors (whether now owned or hereafter arising or acquired) and subject to certain permitted liens, including without limitation:
· a perfected first-priority pledge of (1) all the equity interests of the Borrower, (2) all the equity interests of each existing and subsequently acquired subsidiary that is organized under the laws of the Collateral
Jurisdictions, which equity interests are held by the Borrower, the Company or any other Loan Guarantor and (3) all the equity interests of any other subsidiary, which equity interests are held by the Borrower, the Company or any other Loan Guarantor organized under the laws of any of the Collateral Jurisdictions;
· perfected first-priority security interests in, and mortgages on, substantially all tangible and intangible assets of the Borrower, the Company and each other Loan Guarantor organized under the laws of the Collateral Jurisdictions and any material assets located in the Collateral Jurisdictions and owned by any other Loan Guarantor (to the extent legally available in the Collateral Jurisdictions and subject to the next succeeding paragraph), including but not limited to accounts, inventory, equipment, investment property, intellectual property, intercompany debt, general intangibles, licensing agreements (it being understood that the Borrower, the Company and the other Loan Guarantors will not be required to obtain third-party consents (other than from the Borrower, the Company or any subsidiary of the Company) in order to perfect security interests in any such licensing agreements), real property, cash deposit and security accounts (collectively, the “Mortgaged Assets”); and
· proceeds of the foregoing.
Notwithstanding the foregoing:
· local law documentation, and steps to ensure perfection, with respect to the pledges and security interests contemplated by the immediately preceding paragraph are only required in the Collateral Jurisdictions; and
· assets need only be pledged to the extent that (1) the pledge is permitted by applicable law and contracts binding on the Borrower, the Company and the other Loan Guarantors (but only to the extent that the restrictions in such contracts, taken as a whole, do not materially limit the collateral that would otherwise be pledged), (2) no material adverse tax consequence would result therefrom (as determined by the Administrative Agent after consultation with the Borrower) and (3) the cost to the Company or any subsidiary of providing such pledge (or perfection thereof) would not be excessive in view of the related benefits to be received by the Lenders (as determined by the Administrative Agent after consultation with the Borrower).
As required by the Credit Agreement, pursuant to the Loan Security Agreements, the Loan Parties’ obligations under the Credit Agreement are secured by first-priority liens granted by the Borrower and the Initial Loan Guarantors organized, or with material assets located, in the Cayman Islands and the United States of America (including any State thereof and the District of Columbia) on substantially all of their tangible and intangible assets, subject to certain permitted liens and other exceptions. Pursuant to the Credit Agreement, the Borrower has a 60-day period from the Effective Date (which period may be extended by the Administrative Agent by up to 60 days) to secure the Loan Parties’ obligations under the Credit Agreement with first priority liens granted by the Initial Loan Guarantors organized, or with material assets located, in The Netherlands, Northern Ireland, Singapore and, only in the case of the Company, Ireland on substantially all of their tangible and intangible assets, subject to certain permitted liens and other exceptions.
Intercreditor Agreement
In connection with the execution of the Credit Agreement, the Borrower, Seagate Technology International, as issuer of the 10.00% Senior Secured Second-Priority Notes due 2014 (the “Notes”), the Initial Loan Grantors, Wells Fargo Bank, National Association, as Collateral Agent with respect to the Notes (the “Collateral Agent”), and the Administrative Agent entered into an Intercreditor Agreement, dated as of January 18, 2011, which set forth agreements with respect to the priority status of the liens contemplated in the Credit Agreement and the indenture governing the Notes (the “Indenture”).
Pursuant to the terms of the Intercreditor Agreement, prior to the discharge of the obligations under the Credit Agreement, the Administrative Agent will determine the time and method by which the security interests in the collateral will be enforced and has the sole and exclusive right to manage, perform and enforce the terms of the security documents relating to the collateral and to exercise and enforce all privileges, rights and remedies thereunder according to its direction, including to take or retake control or possession of such collateral and to hold, prepare for sale, marshall, process, sell, lease, dispose of or liquidate such collateral, including, without limitation, following the occurrence of a default or event of default under the Indenture. The Collateral Agent is not permitted to enforce the security interests even
if any event of default under the Indenture has occurred and the Notes have been accelerated, with limited exceptions. The holders of the first-priority liens will receive all proceeds from any realization on the collateral or from the collateral or proceeds thereof in any insolvency or liquidation proceeding, until the obligations secured by the first-priority liens are paid in full.
Item 2.02 Results of Operations and Financial Condition.
On January 19, 2011, the Company issued a press release and supplemental commentary reporting its financial results for the fiscal quarter ended December 31, 2010. The press release and supplemental commentary are attached to this Current Report on Form 8-K as Exhibit 99.1 and 99.2, respectively.
The information contained in this report and the attached press release is “furnished” but not “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.
Item 2.03 Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant.
The information set forth above under Item 1.01 of this Current Report on Form 8-K is hereby incorporated by reference into this Item 2.03.
Item 5.07 Submission of Matters to a Vote of Security Holders.
At the Company’s 2010 Annual General Meeting of Shareholders (“AGM”) held on January 18, 2011, the shareholders (1) elected all eight of the Company’s nominees for director; (2) received and considered the Company’s Irish Statutory Accounts and the reports of the Directors and the auditors thereon; (3) authorized the 2011 Annual General Meeting of Shareholders to be held at a location outside of Ireland; (4) authorized the Company and/or any subsidiary of the Company to make open-market purchases of the Company’s ordinary shares; (5) did not pass a special resolution authorizing the reissue price range of treasury shares; and (6) appointed Ernst & Young to serve as the Company’s independent auditors for the fiscal year ending July 1, 2011 and authorized the Audit Committee to set the auditors’ remuneration. While Proposal 5 received the approval of 53.96% of the shares voted at the AGM, the Irish Companies Act 1990 requires that it receive the approval of 75% or more of the shares voted at the AGM to be approved.
Shares were voted on these proposals as follows:
Proposal 1(a) - (h). To re-elect eight (8) directors to hold office until the Company’s next Annual General Meeting of Shareholders:
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Nominees |
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For |
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Against |
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Abstain |
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Broker Non
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(a) |
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Stephen J. Luczo |
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328,148,154 |
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5,740,923 |
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106,711 |
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59,271,420 |
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(b) |
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Frank J. Biondi, Jr. |
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330,431,571 |
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3,435,059 |
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129,158 |
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59,271,420 |
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(c) |
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Lydia M. Marshall |
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332,168,188 |
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1,540,842 |
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286,758 |
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59,271,420 |
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(d) |
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Chong Sup Park |
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331,411,922 |
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1,688,538 |
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895,328 |
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59,271,420 |
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(e) |
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Albert A. Pimentel |
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332,173,165 |
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1,536,038 |
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286,585 |
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59,271,420 |
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(f) |
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Gregorio Reyes |
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330,976,836 |
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2,277,770 |
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741,182 |
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59,271,420 |
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(g) |
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John W. Thompson |
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323,120,856 |
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10,748,476 |
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126,456 |
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59,271,420 |
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(h) |
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Edward J. Zander |
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331,915,857 |
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1,957,549 |
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122,382 |
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59,271,420 |
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Proposal 2. To receive and consider the Company’s Irish Statutory Accounts for the fiscal year ended July 2, 2010 and the reports of the Directors and the auditors thereon:
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For |
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Against |
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Abstain |
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Broker Non Vote |
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390,184,080 |
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746,278 |
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2,336,850 |
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0 |
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Proposal 3 . Authorized the 2011 Annual General Meeting of Shareholders to be held at a location outside of Ireland.
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For |
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Against |
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Abstain |
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Broker Non Vote |
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391,953,858 |
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1,004,586 |
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218,764 |
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0 |
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Proposal 4. To authorize the Company and/or any subsidiary of the Company to make market purchases of Company shares:
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For |
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Against |
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Abstain |
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Broker Non Vote |
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253,806,064 |
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138,056,946 |
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1,404,198 |
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0 |
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Proposal 5. To authorize the reissue price range of treasury shares via special resolution:
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For |
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Against |
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Abstain |
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Broker Non Vote |
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212,227,211 |
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174,933,582 |
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6,106,415 |
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0 |
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Proposal 6. Appointment of Ernst & Young as the independent auditors of the Company for the fiscal year ending July 1, 2011 and authorization of the Audit Committee to set the auditors’ remuneration:
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For |
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Against |
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Abstain |
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Broker Non Vote |
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388,568,674 |
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2,266,450 |
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2,432,084 |
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0 |
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Item 9.01 Financial Statements and Exhibits.
(d) Exhibits.
The following exhibits are attached to this Current Report on Form 8-K:
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Exhibit No. |
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Description |
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99.1 |
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Press release, dated January 19, 2011, of Seagate Technology plc entitled “Seagate Technology Reports Fiscal Second Quarter 2011 Financial Results.” |
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99.2 |
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Supplemental Commentary, dated January 19, 2011, of Seagate Technology plc entitled “Seagate Technology Fiscal Second Quarter 2011 Financial Results.” |
Cautionary Note Regarding Forward-Looking Statements
This Current Report 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 Current Report. 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 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 Current Report 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.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereto duly authorized.
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SEAGATE TECHNOLOGY PUBLIC LIMITED COMPANY |
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By: |
/s/ PATRICK J. O’MALLEY |
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Name: |
Patrick J. O’Malley |
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Title: |
Executive Vice President and Chief Financial Officer |
Date: January 19, 2011
Exhibit 99.1
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Media Relations Contact: |
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Brian Ziel (831.439.5429) |
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brian.ziel@seagate.com |
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Investor Relations Contact: |
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Rod Cooper (831.439.2371) |
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rod.j.cooper@seagate.com |
SEAGATE TECHNOLOGY REPORTS FISCAL SECOND QUARTER
2011 FINANCIAL RESULTS
SCOTTS VALLEY, CA — January 19, 2011 — 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.
Seagate Technology Reports Fiscal Second Quarter 2011 Results
Investor Communications
Seagate will hold a conference call to review its second fiscal quarter 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 third fiscal quarter of 2011, 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.
Conference Call
The conference call can be accessed online at seagate.com or by phone as follows:
USA: (866) 770-7051
International: (617) 213-8064
Participant Passcode: 69764926
Replay
A replay will be available beginning today at 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. 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 Reports Fiscal Second Quarter 2011 Results
SEAGATE TECHNOLOGY PLC
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions)
(Unaudited)
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December 31,
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July 2,
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
2,528 |
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$ |
2,263 |
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Short-term investments |
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286 |
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252 |
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Restricted cash and investments |
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97 |
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114 |
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Accounts receivable, net |
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1,392 |
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1,400 |
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Inventories |
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808 |
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757 |
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Deferred income taxes |
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112 |
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118 |
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Other current assets |
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603 |
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514 |
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Total current assets |
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5,826 |
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5,418 |
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||
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Property, equipment and leasehold improvements, net |
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2,262 |
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2,263 |
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Deferred income taxes |
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376 |
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395 |
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Other assets, net |
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194 |
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171 |
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Total assets |
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$ |
8,658 |
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$ |
8,247 |
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LIABILITIES AND SHAREHOLDERS’ EQUITY |
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Current liabilities: |
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Accounts payable |
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$ |
1,832 |
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$ |
1,780 |
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Accrued employee compensation |
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129 |
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263 |
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Accrued warranty |
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194 |
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189 |
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Accrued expenses |
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453 |
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422 |
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Accrued income taxes |
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10 |
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14 |
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Current portion of long-term debt |
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560 |
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329 |
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Total current liabilities |
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3,178 |
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2,997 |
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Long-term accrued warranty |
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173 |
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183 |
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Long-term accrued income taxes |
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57 |
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59 |
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Other non-current liabilities |
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109 |
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111 |
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Long-term debt, less current portion |
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2,365 |
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2,173 |
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Total liabilities |
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5,882 |
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5,523 |
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Shareholders’ equity: |
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Total shareholders’ equity |
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2,776 |
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2,724 |
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Total liabilities and shareholders’ equity |
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$ |
8,658 |
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$ |
8,247 |
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(a) The information in this column was derived from the company’s audited Consolidated Balance Sheet as of July 2, 2010.
Seagate Technology Reports Fiscal Second Quarter 2011 Results
SEAGATE TECHNOLOGY PLC
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share data)
(Unaudited)
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For the Three Months Ended |
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For the Six Months Ended |
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December 31,
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January 1,
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December 31,
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January 1,
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Revenue |
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$ |
2,719 |
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$ |
3,027 |
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$ |
5,417 |
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$ |
5,690 |
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Cost of revenue |
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2,190 |
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2,104 |
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4,338 |
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4,114 |
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Product development |
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213 |
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227 |
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422 |
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434 |
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Marketing and administrative |
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102 |
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110 |
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206 |
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217 |
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Amortization of intangibles |
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1 |
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8 |
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2 |
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16 |
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Restructuring and other, net |
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7 |
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— |
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11 |
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46 |
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Impairment of long-lived assets |
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— |
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— |
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— |
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64 |
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Total operating expenses |
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2,513 |
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2,449 |
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4,979 |
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4,891 |
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Income from operations |
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206 |
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578 |
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438 |
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799 |
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Interest income |
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2 |
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1 |
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4 |
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2 |
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Interest expense |
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(46 |
) |
(41 |
) |
(92 |
) |
(87 |
) |
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Other, net |
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13 |
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(11 |
) |
(22 |
) |
(7 |
) |
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Other expense, net |
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(31 |
) |
(51 |
) |
(110 |
) |
(92 |
) |
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Income before income taxes |
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175 |
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527 |
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328 |
|
707 |
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Provision for (benefit from) income taxes |
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25 |
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(6 |
) |
29 |
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(5 |
) |
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Net income |
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$ |
150 |
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$ |
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 Reports Fiscal Second Quarter 2011 Results
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 |
|
Seagate Technology Reports Fiscal Second Quarter 2011 Results
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 Reports Fiscal Second Quarter 2011 Results
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 |
Exhibit 99.2
Seagate Technology Fiscal Second Quarter 2011 Financial Results
Supplemental Commentary
January 19, 2011
The information in this written commentary, which was historically presented during our live conference call, is now being provided to the investment community concurrently with our press release to allow additional time for review and analysis prior to commencement of the live call. Please note that these remarks will not be read during the call. The live call will consist of opening comments from Steve Luczo, Chairman, President and CEO, followed by a Q&A session with the executive management team.
Cautionary Note Regarding Forward-Looking Statements
This document 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 regarding customer demand for disk drives and general market conditions. These forward-looking statements are based on information available to Seagate as of the date of this document. 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 document 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.
Fiscal Second Quarter 2011 Financial Highlights
Seagate’s second fiscal quarter of 2011 reflected a less than normal seasonal increase in demand for hard disk drives. While demand increased due to the on-going corporate PC refresh cycle and continued healthy demand for hard disk drives used in enterprise class applications, the global macro-economic environment continues to dampen consumer demand for personal computers.
The Total Available Market (“TAM”) for hard disk drives in the December quarter is estimated to be approximately 168 million units. This represents an increase of approximately 2% compared to the prior quarter and 4% compared to the year-ago quarter.
Units Shipped, Revenue and Gross Margin
Seagate shipped 48.9 million units, down less than 1% as compared to the prior quarter and 2% compared to the year-ago quarter. Revenue was $2.7 billion and Gross Margin as a percent of revenue was 19.5%. The December quarter results include the impact of additional customer support costs associated with the company’s long-term supply arrangements. The negative impact to gross margin percentage was approximately 170 basis points and the company is confident that the impact is fully reflected and contained within the December quarter results.
Gross margin as a percent of revenue continues to be impacted by the intense price competition the industry endured during the middle of calendar 2010 and by costs of many upstream components not declining at rates approaching HDD price erosion. Until component costs decline at approximately the rate of price erosion for disk drives and until Seagate transitions to new products later this calendar year, gross margins will remain under pressure.
Operating Expenses
R&D and SG&A on a GAAP basis totaled $315 million for the December quarter, essentially flat compared to the previous quarter and down approximately 7% compared to the year-ago quarter due primarily to lower costs related to performance based variable compensation.
Restructuring
Restructuring expense of $7 million in the December quarter reflects costs associated with previously announced restructuring activities.
Other Expense, Net
Other income and expense on a GAAP basis was an expense of $31 million, down considerably from the prior quarter as significant costs related to the retirement of the Maxtor convertible notes were incurred in the September quarter. For the March quarter, other income and expense is expected to be an expense of approximately $55 million reflecting a full quarter of interest expense related to the senior unsecured notes issued in December.
Provision for Income Taxes
The provision for income taxes in the December quarter was $25 million or 14% of income before taxes and the year-to-date provision for income taxes was $29 million or 12% of year-to-date income before taxes. The company’s corporate structure generally results in an annual tax provision within an expected dollar range, exclusive of discrete items, regardless of profitability levels. The December quarter reflects this amount, and also a year to date true-up. For the March 2011 quarter, we expect to record an income tax provision of approximately $10 million, excluding the impact of any discrete items that may be recognized.
Selected Balance Sheet Items
Cash, cash equivalents, restricted cash, and short-term investments totaled $2.9 billion at the end of the December quarter, up approximately $743 million as compared to the September quarter. Long-term debt (including current portion) increased by $750 million to $2.9 billion at the end of the quarter.
Cash Flow from Operations was $507 million, Capital Investments were $202 million and free cash flow (Cash Flow from Operations less Capital Investments) was $305 million. Additionally, the company repurchased approximately $305 million of its ordinary shares (21 million) during the December quarter.
Days Sales Outstanding (“DSO”) decreased by 4 days from the prior quarter to 47 days reflecting improved linearity of unit shipments. The improvement in DSO was largely responsible for the 3 day improvement in the cash conversion cycle.
Seagate’s inventory at the end of the December quarter was $808 million, an increase of $65 million from the prior quarter. In aggregate, work in progress (“WIP”) and raw materials increased by $29 million while finished goods increased by $36 million. The increase reflects a greater than seasonal slowdown in the last two weeks of the quarter and an increased use of ocean transportation. Inventory turns of 11 are within our targeted operating range.
Disk Drive Market Commentary
Seagate provides data and commentary for the following major market categories 1] Enterprise, 2] Client Compute, and 3] Client non-Compute. A disk drive is associated with one of these three market categories based on how it is configured. For example, if a customer buys a standard 2.5-inch ATA drive from Seagate, this would be included in the Client Compute category regardless of the application into which the drive is ultimately integrated. The Client non-Compute category only contains drives specifically designed or configured for non-compute applications.
All references to unit TAM’s by market is Seagate’s best estimate based on preliminary shipment information and is subject to change.
Enterprise Market
The TAM for enterprise class disk drives, which includes disk drives for both mission critical and business critical applications, was approximately 13.6 million units up 12% over the year ago quarter. Mission critical products continue to represent the bulk of the TAM at just over 8 million units. Seagate shipped 4.8 million drives for mission critical server and storage applications and 2.3 million drives for business critical applications, representing a 7% and 21% increase year-over-year, respectively.
Client Compute Market
The TAM for client compute disk drives, which includes disk drives designed for use in mobile and desktop computers, was approximately 123 million units, flat year-over-year. The mobile TAM was approximately 68 million units, and the desktop TAM was approximately 55 million units.
Seagate shipped in total 31.5 million client compute disk drives in the December quarter. Mobile drives accounted for 11.8 million units, down 12% year-over-year and desktop drives for 19.8 million units, down 8% year-over-year.
Inventory of Seagate 3.5-inch ATA (desktop) disk drives in the distribution channel at the end of the quarter was within Seagate’s targeted range of 4-6 weeks.
Non-Compute Market
The non-compute market consists of disk drives specifically configured for consumer electronic (“CE”) applications plus Seagate branded products sold at retail. The December quarter TAM for the non-compute market was approximately 32 million disk drives, comprised of 17 million CE drives and 15 million for branded products .
In the December quarter, Seagate shipped 6.2 million CE disk drives, an increase of 18% year-over-year and 4.1 million Seagate branded storage products, up 24% year-over-year.
Operations, Products/Technology
The focus in R&D and operations continues to be on executing time-to-market product introductions and supplying customers with high-quality products.
Products and Technology
Seagate continues to make progress on new product execution and time-to-market delivery for the broadest portfolio in the industry. Some new product and technology highlights include:
· Enterprise market — Seagate continues to be the leader in this market and we are starting the qualification process with our customers for the following new products: Constellation® (2.5”/7200rpm/1TB) for business critical applications, and the new Savvio®10k and new Savvio®15K products for mission critical environments that deliver industry-leading capacity points and reliability. Additionally, Seagate has delivered its second generation SSD product to major OEMs. This new product delivers a significant capacity increase over Seagate’s previous generation, an enterprise interface, as well as best-in-class IOPs.
· Client compute market — Seagate’s Momentus® XT 2.5-inch, solid-state hybrid product line continues the qualification process with OEM customers and ramping to volume. Seagate is the leader in hybrid drives with approximately 350,000 units shipped to date.
· Client non-compute market — Seagate previewed and launched multiple new products at CES 2011, including a new line of GoFlex external drives specifically designed for the Mac market. These products will be available through Seagate.com, Apple stores and a number of Seagate’s key retail partners. Also, Seagate unveiled a new program to allow third-party companies to incorporate slots on their products to support removable GoFlex™ external hard drives. The Certified GoFlex™ Storage System concept products displayed ranged from media players and set-top boxes to computers and televisions, and incorporated a slot to accept an ultra-portable drive compatible with the Certified GoFlex™ Storage System. Seagate also showed the world’s thinnest external hard drive; a 9mm high package that is significantly thinner than the industry standard external drives on the market today.