Table
of Contents
UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
x
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the quarterly period ended April 2, 2010
o
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the transition period from:
to
Commission File Number 001-31560
SEAGATE TECHNOLOGY
(Exact name of registrant as specified in its charter)
Cayman Islands
|
|
98-0355609
|
(State or other jurisdiction of
|
|
(I.R.S. Employer
|
incorporation or organization)
|
|
Identification Number)
|
P.O. Box 309, Ugland House
Grand Cayman KY1-1104, Cayman Islands
(Address of Principal Executive Offices)
Telephone: (345) 949-8066
(Registrants Telephone Number, Including Area Code)
Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes
x
No
o
Indicate by check
mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of
this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files).
Yes
o
No
o
Indicate by check mark
whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See definitions of large
accelerated filer, and accelerated filer and smaller reporting company in Rule 12b-2
of the Exchange Act. (Check one):
Large accelerated filer:
x
|
|
Accelerated
filer:
o
|
|
|
|
Non-accelerated filer:
o
|
|
Smaller
reporting company:
o
|
(Do not check if a smaller reporting company)
|
|
|
Indicate by check mark
whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes
o
No
x
As
of April 29, 2010, 487,436,503 shares of the registrants common shares,
par value $0.00001 per share, were issued and outstanding.
Table
of Contents
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SEAGATE TECHNOLOGY
CONDENSED
CONSOLIDATED BALANCE SHEETS
(In
millions)
(Unaudited)
|
|
April 2,
2010
|
|
July 3,
2009
(a)
|
|
ASSETS
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
Cash and cash
equivalents
|
|
$
|
2,062
|
|
$
|
1,427
|
|
Short-term investments
|
|
214
|
|
114
|
|
Restricted cash and
investments
|
|
103
|
|
508
|
|
Accounts receivable,
net
|
|
1,451
|
|
1,033
|
|
Inventories
|
|
685
|
|
587
|
|
Deferred income taxes
|
|
81
|
|
97
|
|
Other current assets
|
|
560
|
|
528
|
|
Total current assets
|
|
5,156
|
|
4,294
|
|
Property, equipment and
leasehold improvements, net
|
|
2,054
|
|
2,229
|
|
Deferred income taxes
|
|
384
|
|
372
|
|
Other assets, net
|
|
153
|
|
192
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
7,747
|
|
$
|
7,087
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
Short-term borrowings
|
|
$
|
¾
|
|
$
|
350
|
|
Accounts payable
|
|
1,895
|
|
1,573
|
|
Accrued
employee compensation
|
|
214
|
|
144
|
|
Accrued
warranty
|
|
193
|
|
213
|
|
Accrued
expenses
|
|
445
|
|
483
|
|
Accrued
income taxes
|
|
12
|
|
10
|
|
Current portion of
long-term debt
|
|
377
|
|
421
|
|
Total
current liabilities
|
|
3,136
|
|
3,194
|
|
Long-term
accrued warranty
|
|
201
|
|
224
|
|
Long-term
accrued income taxes
|
|
60
|
|
69
|
|
Other
non-current liabilities
|
|
95
|
|
120
|
|
Long-term debt, less
current portion
|
|
1,598
|
|
1,926
|
|
|
|
|
|
|
|
Total
Liabilities
|
|
5,090
|
|
5,533
|
|
|
|
|
|
|
|
Commitments
and contingencies (See Notes 10 and 12)
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders
equity:
|
|
|
|
|
|
Common
shares and additional paid-in capital
|
|
3,827
|
|
3,708
|
|
Accumulated
other comprehensive income (loss)
|
|
(1
|
)
|
(6
|
)
|
Retained
earnings (accumulated deficit)
|
|
(1,169
|
)
|
(2,148
|
)
|
Total
Shareholders Equity
|
|
2,657
|
|
1,554
|
|
|
|
|
|
|
|
Total Liabilities and
Shareholders Equity
|
|
$
|
7,747
|
|
$
|
7,087
|
|
(a) The information in this column was derived
from the Companys audited Consolidated Balance Sheet as of July 3, 2009,
as
adjusted due to a required change in the
accounting for convertible debt instruments implemented in the first quarter of
fiscal year 2010, applied on a retrospective basis.
See
Notes to Condensed Consolidated Financial Statements.
3
Table
of Contents
SEAGATE TECHNOLOGY
CONDENSED CONSOLIDATED STATEMENTS
OF OPERATIONS
(In
millions, except per share data)
(Unaudited)
|
|
For the Three Months Ended
|
|
For the Nine Months Ended
|
|
|
|
April 2,
2010
|
|
April 3,
2009
(a)
|
|
April 2,
2010
|
|
April 3,
2009
(a)
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
3,049
|
|
$
|
2,150
|
|
$
|
8,738
|
|
$
|
7,452
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of revenue
|
|
2,148
|
|
1,997
|
|
6,261
|
|
6,457
|
|
Product
development
|
|
224
|
|
243
|
|
658
|
|
738
|
|
Marketing
and administrative
|
|
105
|
|
134
|
|
323
|
|
424
|
|
Amortization
of intangibles
|
|
8
|
|
13
|
|
23
|
|
41
|
|
Restructuring
and other, net
|
|
4
|
|
25
|
|
50
|
|
126
|
|
Impairment
of goodwill and long-lived assets
|
|
¾
|
|
¾
|
|
64
|
|
2,320
|
|
Total
operating expenses
|
|
2,489
|
|
2,412
|
|
7,379
|
|
10,106
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from operations
|
|
560
|
|
(262
|
)
|
1,359
|
|
(2,654
|
)
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
2
|
|
3
|
|
4
|
|
15
|
|
Interest
expense
|
|
(41
|
)
|
(37
|
)
|
(127
|
)
|
(102
|
)
|
Other,
net
|
|
1
|
|
5
|
|
(7
|
)
|
(17
|
)
|
Other
income (expense), net
|
|
(38
|
)
|
(29
|
)
|
(130
|
)
|
(104
|
)
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) before income taxes
|
|
522
|
|
(291
|
)
|
1,229
|
|
(2,758
|
)
|
Provision
for (benefit from) income taxes
|
|
4
|
|
(16
|
)
|
(1
|
)
|
284
|
|
Net
income (loss)
|
|
$
|
518
|
|
$
|
(275
|
)
|
$
|
1,230
|
|
$
|
(3,042
|
)
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) per share:
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.05
|
|
$
|
(0.56
|
)
|
$
|
2.48
|
|
$
|
(6.25
|
)
|
Diluted
|
|
1.00
|
|
(0.56
|
)
|
2.38
|
|
(6.25
|
)
|
Number
of shares used in per share calculations:
|
|
|
|
|
|
|
|
|
|
Basic
|
|
493
|
|
489
|
|
495
|
|
487
|
|
Diluted
|
|
520
|
|
489
|
|
519
|
|
487
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
declared per share
|
|
$
|
¾
|
|
$
|
0.03
|
|
$
|
¾
|
|
$
|
0.27
|
|
(a) As adjusted due to a required change in the accounting for
convertible debt instruments implemented in the first quarter of fiscal year
2010, applied on a retrospective basis.
See Notes to Condensed Consolidated
Financial Statements.
4
Table
of Contents
SEAGATE
TECHNOLOGY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In
millions)
(Unaudited)
|
|
For the Nine Months Ended
|
|
|
|
April 2,
2010
|
|
April 3,
2009
(a)
|
|
OPERATING ACTIVITIES
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
1,230
|
|
$
|
(3,042
|
)
|
Adjustments
to reconcile net income (loss) to net cash provided by (used in) operating
activities:
|
|
|
|
|
|
Depreciation
and amortization
|
|
584
|
|
707
|
|
Stock-based
compensation
|
|
38
|
|
70
|
|
Impairment
of goodwill and long-lived assets
|
|
64
|
|
2,320
|
|
Deferred
income taxes
|
|
10
|
|
295
|
|
Other
non-cash operating activities, net
|
|
22
|
|
(1
|
)
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
Accounts
receivable
|
|
(418
|
)
|
534
|
|
Inventories
|
|
(98
|
)
|
368
|
|
Accounts
payable
|
|
242
|
|
(263
|
)
|
Accrued
employee compensation
|
|
70
|
|
(323
|
)
|
Accrued
expenses and warranty
|
|
(124
|
)
|
(150
|
)
|
Other
assets and liabilities
|
|
(12
|
)
|
116
|
|
Net
cash provided by (used in) operating activities
|
|
1,608
|
|
631
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES
|
|
|
|
|
|
Acquisition
of property, equipment and leasehold improvements
|
|
(372
|
)
|
(553
|
)
|
Purchases
of short-term investments
|
|
(278
|
)
|
(124
|
)
|
Maturities
and sales of short-term investments
|
|
176
|
|
146
|
|
Decrease
in restricted cash and investments
|
|
26
|
|
|
|
Proceeds
from sale of investment in equity securities
|
|
|
|
11
|
|
Other
investing activities, net
|
|
1
|
|
8
|
|
Net
cash provided by (used in) investing activities
|
|
(447
|
)
|
(512
|
)
|
|
|
|
|
|
|
FINANCING ACTIVITIES
|
|
|
|
|
|
Proceeds
from short-term borrowings
|
|
15
|
|
350
|
|
Repayment
of short-term borrowings
|
|
(365
|
)
|
|
|
Repayment
of long-term debt
|
|
(385
|
)
|
(20
|
)
|
Decrease
in restricted cash and investments
|
|
379
|
|
|
|
Proceeds
from exercise of employee stock options and employee stock purchase plan
|
|
81
|
|
45
|
|
Repurchases
of common shares
|
|
(251
|
)
|
|
|
Dividends
to shareholders
|
|
|
|
(132
|
)
|
Net
cash provided by (used in) financing activities
|
|
(526
|
)
|
243
|
|
Increase
(decrease) in cash and cash equivalents
|
|
635
|
|
362
|
|
Cash
and cash equivalents at the beginning of the period
|
|
1,427
|
|
990
|
|
Cash
and cash equivalents at the end of the period
|
|
$
|
2,062
|
|
$
|
1,352
|
|
|
|
|
|
|
|
Supplemental Disclosure of Cash Flow Information
|
|
|
|
|
|
Cash
paid for interest
|
|
$
|
114
|
|
$
|
108
|
|
Cash
paid for income taxes, net of refunds
|
|
7
|
|
9
|
|
(a) As adjusted due to a required change in the accounting for
convertible debt instruments implemented in the first quarter of fiscal year
2010, applied on a retrospective basis.
See
Notes to Condensed Consolidated Financial Statements.
5
Table
of Contents
SEAGATE
TECHNOLOGY
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS
EQUITY
For the
Nine Months Ended April 2, 2010
(In
millions)
(Unaudited)
|
|
Number
of
Common
Shares
|
|
Par
Value
of
Shares
|
|
Additional
Paid-in
Capital
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
|
Retained
Earnings
(Accumulated
Deficit)
|
|
Total
|
|
Balance
at July 3, 2009
(a)
|
|
493
|
|
$
|
|
|
$
|
3,708
|
|
$
|
(6
|
)
|
$
|
(2,148
|
)
|
$
|
1,554
|
|
Comprehensive income, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unrealized gain (loss) on cash flow
hedges, net
|
|
|
|
|
|
|
|
5
|
|
|
|
5
|
|
Net income
|
|
|
|
|
|
|
|
|
|
1,230
|
|
1,230
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
1,235
|
|
Issuance of common shares related to
employee stock options and
employee stock purchase
plan
|
|
9
|
|
|
|
81
|
|
|
|
|
|
81
|
|
Repurchases of common shares
|
|
(13
|
)
|
|
|
|
|
|
|
(251
|
)
|
(251
|
)
|
Stock-based compensation
|
|
|
|
|
|
38
|
|
|
|
|
|
38
|
|
Balance
at April 2, 2010
|
|
489
|
|
$
|
|
|
$
|
3,827
|
|
$
|
(1
|
)
|
$
|
(1,169
|
)
|
$
|
2,657
|
|
(a) The information in this row was derived from the Companys
audited Consolidated Statement of Shareholders Equity as of July 3, 2009,
as adjusted due to a required change in the accounting for convertible debt
instruments implemented in the first quarter of fiscal year 2010, applied on a
retrospective basis.
See
Notes to
Condensed Consolidated Financial Statements
.
6
Table of Contents
SEAGATE TECHNOLOGY
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Summary
of Significant Accounting Policies
Basis of Presentation and Consolidation
The Condensed Consolidated
Financial Statements include the accounts of Seagate Technology (Seagate or
the Company) and all its wholly-owned subsidiaries, after elimination of
intercompany transactions and balances. The Condensed Consolidated Financial
Statements have been prepared by the Company and have not been audited. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with
accounting principles generally accepted in the United States (GAAP) have been
condensed or omitted pursuant to such rules and regulations. The Condensed Consolidated Financial
Statements reflect, in the opinion of management, all adjustments necessary to
summarize fairly the consolidated financial position, results of operations,
cash flows and shareholders equity for the periods presented. Such adjustments are of a normal and
recurring nature. The Companys
Consolidated Financial Statements for the fiscal year ended July 3, 2009
are included in its Annual Report on Form 10-K as filed with the United
States Securities and Exchange Commission (SEC) on August 19, 2009. The Company believes that the disclosures
included in the unaudited Condensed Consolidated Financial Statements, when
read in conjunction with its Consolidated Financial Statements as of July 3,
2009 and the notes thereto, are adequate to make the information presented not
misleading.
The results of operations for the three and
nine months ended April 2, 2010, are not necessarily indicative of the
results of operations to be expected for any subsequent interim period in the
Companys fiscal year ending July 2, 2010.
The
Company operates and reports financial results on a fiscal year of 52 or 53
weeks ending on the Friday closest to June 30. The three and nine months
ended April 2, 2010 consisted of 13 weeks and 39 weeks, respectively. The three and nine months ended April 3,
2009 consisted of 13 weeks and 40 weeks, respectively. Fiscal year 2010 will be
comprised of 52 weeks and will end on July 2, 2010.
Critical
Accounting Policies and Use of Estimates
The preparation of financial
statements in accordance with accounting principles generally accepted in the
United States requires management to make estimates and assumptions that affect
the amounts reported in the Companys Condensed Consolidated Financial
Statements and accompanying notes. Actual results could differ materially from
those estimates. The methods, estimates and judgments the Company uses in
applying its most critical accounting policies have a significant impact on the
results the Company reports in its Condensed Consolidated Financial Statements.
The SEC has defined the most critical accounting policies as the ones that are
most important to the portrayal of the Companys financial condition and
results of operations, and require the Company to make its most difficult and
subjective judgments, often as a result of the need to make estimates of
matters that are highly uncertain at the time of estimation. Based on this
definition, the Companys most critical policies include: establishment of
sales program accruals, establishment of warranty accruals, valuation of
deferred tax assets as well as the valuation of intangibles and goodwill. The
Company also has other key accounting policies and accounting estimates
relating to uncollectible customer accounts, valuation of inventory, and
valuation of share-based payments. The Company believes that these other
accounting policies and accounting estimates either do not generally require it
to make estimates and judgments that are as difficult or as subjective, or it
is less likely that they would have a material impact on the Companys reported
results of operations for a given period.
Since the Companys fiscal year ended July 3, 2009, there have
been no significant changes in the Companys critical accounting policies and
estimates. Please refer to Note 1 of
Financial Statements and Supplementary Data contained in Part II,
Item 8 of the Companys Annual Report on Form 10-K for the fiscal
year ended July 3, 2009, as filed with the SEC on August 19, 2009,
for a discussion of the Companys critical accounting policies and estimates.
Change
in Method of Accounting for Convertible Debt Instruments
On
July 4, 2009, the Company implemented changes to the accounting for its
convertible debt instruments on a retrospective basis. See Note 4 for further details.
7
Table of Contents
SEAGATE TECHNOLOGY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Unaudited)
1. Summary
of Significant Accounting Policies (continued)
Recently
Issued Accounting Pronouncements
In October 2009, the
FASB issued Accounting Standards Update (ASU) No. 2009-14,
Software (Accounting Standards Codification (ASC) Topic 985) - Certain
Revenue Arrangements That Include Software Elements
, a consensus of
the FASB Emerging Issues Task Force.
This guidance modifies the scope of ASC subtopic 965-605,
Software-Revenue Recognition
to exclude from its
requirements (a) non-software components of tangible products and (b) software
components of tangible products that are sold, licensed, or leased with
tangible products when the software components and non-software components of
the tangible product function together to deliver the tangible products
essential functionality. This update
requires expanded qualitative and quantitative disclosures and is effective for
the Companys first quarter of fiscal year 2011. However, early adoption is
allowed. The Company is currently
evaluating the impact of adopting this update on its consolidated results of operations and financial position.
In October 2009, the
FASB issued ASU No. 2009-13,
Revenue Recognition (ASC
Topic 605) - Multiple-Deliverable Revenue Arrangements
, a consensus
of the FASB Emerging Issues Task Force.
This guidance modifies the fair value requirements of ASC subtopic
605-25,
Revenue Recognition-Multiple Element Arrangements
by allowing the use of the best estimate of selling price in addition to
vendor-specific objective evidence (VSOE) and verifiable objective evidence
(VOE) (now referred to as TPE standing for third-party evidence) for
determining the selling price of a deliverable. A vendor is now required to use
its best estimate of the selling price when VSOE or TPE of the selling price
cannot be determined. In addition, the residual method of allocating
arrangement consideration is no longer permitted. This update requires expanded qualitative and
quantitative disclosures and is effective for the Companys first quarter of
fiscal year 2011. However, early adoption is allowed. The Company is currently evaluating the
impact of adopting this update on its consolidated results of operations and financial position.
In August 2009, FASB
issued ASU No. 2009-05,
Fair Value
Measurements and Disclosures (ASC Topic 820) Measuring Liabilities at Fair
Value
. This update requires clarification for circumstances in which
a quoted price in an active market for the identical liability is not
available, a reporting entity is required to measure fair value using one or
more of the following techniques: 1) a valuation technique that uses either the
quoted price of the identical liability when traded as an asset or quoted
prices for similar liabilities or similar liabilities when traded as an asset;
or 2) another valuation technique that is consistent with the principles in ASC
Topic 820 such as the income and market approach to valuation. The amendments
in this update also clarify that when estimating the fair value of a liability,
a reporting entity is not required to include a separate input or adjustment to
other inputs relating to the existence of a restriction that prevents the
transfer of the liability. This update further clarifies that if the fair value
of a liability is determined by reference to a quoted price in an active market
for an identical liability, that price would be considered a Level 1
measurement in the fair value hierarchy. Similarly, if the identical liability
has a quoted price when traded as an asset in an active market, it is also a
Level 1 fair value measurement if no adjustments to the quoted price of the
asset are required. This update was effective for the Companys second quarter
of fiscal year 2010. The adoption
of ASU No. 2009-05 did not have a material impact on the Companys
consolidated results of operations and financial position.
In January 2010, FASB issued ASU No. 2010-06,
Fair Value Measurements and Disclosures (ASC Topic
820)
Improving Disclosures About Fair Value
Measurements
. The ASU requires new disclosures about transfers into
and out of Levels 1 and 2 and separate disclosures about purchases, sales,
issuances, and settlements relating to Level 3 measurements. It also clarifies
existing fair value disclosures about the level of disaggregation and about
inputs and valuation techniques used to measure fair value. The new disclosures and clarifications of existing
disclosures are effective for the Companys third quarter of fiscal year 2010,
except for the disclosures about purchases, sales, issuances, and settlements
relating to Level 3 measurements, which are effective for the Companys first
quarter of fiscal year 2012. Other than
requiring additional disclosures, the adoption of this new guidance will not
have a material impact on the Companys consolidated results of operations and
financial position.
8
Table of Contents
SEAGATE TECHNOLOGY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Unaudited)
2. Balance
Sheet Information
Investments
The
Company has classified its entire investment portfolio as available-for-sale.
Available-for-sale securities are classified as cash equivalents or short-term
investments and are stated at fair value with unrealized gains and losses
included in Accumulated other comprehensive income (loss), which is a component
of shareholders' equity. Realized gains and losses are included in other income
(expense). The cost of securities sold is based on the specific identification
method.
The
following is a summary of the fair value of available-for-sale securities at April 2,
2010:
(Dollars
in millions)
|
|
Amortized
Cost
|
|
Unrealized
Gain/
(Loss)
|
|
Fair
Value
|
|
Money market funds
|
|
$
|
756
|
|
$
|
|
|
$
|
756
|
|
Commercial paper
|
|
1,087
|
|
|
|
1,087
|
|
U.S. treasuries and agency bonds
|
|
140
|
|
1
|
|
141
|
|
Corporate bonds
|
|
78
|
|
|
|
78
|
|
International treasuries
|
|
10
|
|
|
|
10
|
|
Certificates of deposit
|
|
25
|
|
|
|
25
|
|
Auction rate securities
|
|
20
|
|
(2
|
)
|
18
|
|
Municipal bonds
|
|
4
|
|
|
|
4
|
|
Total
|
|
$
|
2,120
|
|
$
|
(1
|
)
|
$
|
2,119
|
|
Included in cash and cash equivalents
|
|
|
|
|
|
$
|
1,887
|
|
Included in short term investments
|
|
|
|
|
|
214
|
|
Included in other assets, net
|
|
|
|
|
|
18
|
|
Total
|
|
|
|
|
|
$
|
2,119
|
|
As
of April 2, 2010, with the exception of the Companys auction rate
securities, the Company had no marketable securities that had been in a
continuous unrealized loss position for a period greater than 12 months and
determined no marketable securities were other-than-temporarily impaired (see
Note 7).
The
fair value of the Companys investment in debt securities at April 2,
2010, by remaining contractual maturity, was as follows:
(Dollars
in millions)
|
|
Amortized
Cost
|
|
Unrealized
Gain/
(Loss)
|
|
Fair
Value
|
|
Due in less than 1 year
|
|
$
|
2,035
|
|
$
|
|
|
$
|
2,035
|
|
Due in 1 to 3 years
|
|
65
|
|
1
|
|
66
|
|
Thereafter
|
|
20
|
|
(2
|
)
|
18
|
|
Total
|
|
$
|
2,120
|
|
$
|
(1
|
)
|
$
|
2,119
|
|
The
following is a summary of the fair value of available-for-sale securities at July 3,
2009:
(Dollars
in millions)
|
|
Amortized
Cost
|
|
Unrealized
Gain/
(Loss)
|
|
Fair
Value
|
|
Money market funds
|
|
$
|
914
|
|
$
|
|
|
$
|
914
|
|
Commercial paper
|
|
348
|
|
|
|
348
|
|
U.S. treasuries and agency bonds
|
|
52
|
|
1
|
|
53
|
|
Certificates of deposit
|
|
50
|
|
|
|
50
|
|
Auction rate securities
|
|
21
|
|
(3
|
)
|
18
|
|
Corporate bonds
|
|
16
|
|
|
|
16
|
|
Municipal bonds
|
|
14
|
|
|
|
14
|
|
Total
|
|
$
|
1,415
|
|
$
|
(2
|
)
|
$
|
1,413
|
|
Included in cash and cash equivalents
|
|
|
|
|
|
$
|
1,281
|
|
Included in short term investments
|
|
|
|
|
|
114
|
|
Included in other assets, net
|
|
|
|
|
|
18
|
|
Total
|
|
|
|
|
|
$
|
1,413
|
|
9
Table of Contents
SEAGATE TECHNOLOGY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Unaudited)
2. Balance Sheet Information (continued)
The
fair value of the Companys investment in debt securities at July 3, 2009,
by remaining contractual maturity, was as follows:
(Dollars
in millions)
|
|
Amortized
Cost
|
|
Unrealized
Gain/
(Loss)
|
|
Fair
Value
|
|
Due in less than 1 year
|
|
$
|
1,364
|
|
$
|
|
|
$
|
1,364
|
|
Due in 1 to 3 years
|
|
30
|
|
1
|
|
31
|
|
Thereafter
|
|
21
|
|
(3
|
)
|
18
|
|
Total
|
|
$
|
1,415
|
|
$
|
(2
|
)
|
$
|
1,413
|
|
As
of July 3, 2009, with the exception of the Companys auction rate
securities, the Company had no marketable securities that had been in a
continuous unrealized loss position for a period greater than 12 months and
determined no marketable securities were other-than-temporarily impaired (see
Note 7).
Restricted Cash and
Investments
As of April 2, 2010, the Companys restricted
cash and investments of $103 million consisted of $74 million cash held in
trust for payment of its deferred compensation plan liabilities and $29 million
in cash collateral held at banks for various performance obligations. As of July 3,
2009, the Companys restricted cash and investments of $508 million consisted
primarily of $380 million of proceeds from the issuance of the Companys 10%
Senior Secured Second-Priority Notes due May 2014 held in escrow for
repayment or repurchase of debt, $85 million of cash held in trust for payment
of its deferred compensation plan liabilities, and $43 million in cash
collateral held at banks for various performance obligations.
Accounts Receivable, net
(Dollars
in millions)
|
|
April 2,
2010
|
|
July 3,
2009
|
|
Accounts receivable
|
|
$
|
1,461
|
|
$
|
1,043
|
|
Allowance for doubtful
accounts
|
|
(10
|
)
|
(10
|
)
|
|
|
$
|
1,451
|
|
$
|
1,033
|
|
Inventories
(Dollars
in millions)
|
|
April 2,
2010
|
|
July 3,
2009
|
|
Raw materials and
components
|
|
$
|
241
|
|
$
|
201
|
|
Work-in-process
|
|
159
|
|
120
|
|
Finished goods
|
|
285
|
|
266
|
|
|
|
$
|
685
|
|
$
|
587
|
|
Other
Current Assets
(Dollars
in millions)
|
|
April 2,
2010
|
|
July 3,
2009
|
|
Vendor non-trade
receivables
|
|
$
|
367
|
|
$
|
326
|
|
Other
|
|
193
|
|
202
|
|
|
|
$
|
560
|
|
$
|
528
|
|
Other current assets include vendor non-trade receivables from certain
manufacturing vendors resulting from the sale of components to these vendors
who manufacture and sell completed sub-assemblies back to the Company. The
Company does not reflect the sale of these components as revenue and does not
recognize any profits on these sales. The costs of the completed sub-assemblies
are included in inventory upon purchase from the vendors.
10
Table of Contents
SEAGATE TECHNOLOGY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Unaudited)
2. Balance Sheet Information (continued)
Property, Equipment and Leasehold
Improvements, net
(Dollars
in millions)
|
|
April 2,
2010
|
|
July 3,
2009
|
|
Property, equipment and
leasehold improvements
|
|
$
|
6,516
|
|
$
|
6,267
|
|
Accumulated depreciation
and amortization
|
|
(4,462
|
)
|
(4,038
|
)
|
|
|
$
|
2,054
|
|
$
|
2,229
|
|
3.
Restructuring and Exit Costs
The
following table summarizes the Companys restructuring activities for the nine
months ended April 2, 2010:
(Dollars in millions)
|
|
Employee
Benefits
|
|
Operating
Leases
|
|
Other
Exit
Costs
|
|
Total
|
|
All Restructuring Activities
|
|
|
|
|
|
|
|
|
|
Accrual balances at July 3, 2009
|
|
$
|
61
|
|
$
|
40
|
|
$
|
¾
|
|
$
|
101
|
|
Restructuring charges
|
|
37
|
|
6
|
|
3
|
|
46
|
|
Cash payments
|
|
(52
|
)
|
(4
|
)
|
(2
|
)
|
(58
|
)
|
Accrual balances at October 2, 2009
|
|
46
|
|
42
|
|
1
|
|
89
|
|
Restructuring charges
|
|
1
|
|
1
|
|
1
|
|
3
|
|
Cash payments
|
|
(2
|
)
|
(4
|
)
|
(1
|
)
|
(7
|
)
|
Adjustments
|
|
(3
|
)
|
¾
|
|
¾
|
|
(3
|
)
|
Accrual balances at January 1, 2010
|
|
42
|
|
39
|
|
1
|
|
82
|
|
Restructuring charges
|
|
3
|
|
|
|
1
|
|
4
|
|
Cash payments
|
|
(3
|
)
|
(4
|
)
|
(2
|
)
|
(9
|
)
|
Accrual balances at April 2, 2010
|
|
$
|
42
|
|
$
|
35
|
|
$
|
|
|
$
|
77
|
|
Of
the $77 million accrued restructuring balance at April 2, 2010, $55
million is included in Accrued expenses and $22 million is included in Other
non-current liabilities on the accompanying Condensed Consolidated Balance
Sheet. All restructuring charges are reported in Restructuring and other, net
on the Condensed Consolidated Statements of Operations. The Companys significant restructuring plans
are described below.
2010 Plan
. During the
three months ended April 2, 2010, the Company recorded $3 million related
to employee termination costs for a new plan as a result of the Companys ongoing
focus on cost efficiencies in all areas of its business.
AMK Plan.
In August 2009, the
Company
announced that it will close its AMK facility in Singapore by the end of
calendar year 2010. The hard drive manufacturing operations will be relocated
to other existing Seagate facilities and the Companys Asia International
Headquarters (IHQ) will remain in Singapore. This closure and relocation is
part of the Companys ongoing focus on cost efficiencies in all areas of its
business and is intended to facilitate leveraging manufacturing investments
across fewer sites. The Company does not expect the closure to meaningfully
change production capacity. The Company
currently estimates total restructuring charges of approximately $80 million,
all in cash, including approximately $60 million for severance, approximately
$10 million for the relocation of manufacturing equipment, and approximately
$10 million for other plant closure and relocation costs. During the nine months ended April 2,
2010, the Company accrued total restructuring charges of $38 million related to
estimated post-employment benefits for the AMK Plan. No cash payments were made relating to this
plan during the nine months ended April 2, 2010.
January and May 2009 Plans
. From
inception of the Companys restructuring plans announced in January and May of
2009 through April 2, 2010, the Company has recorded restructuring charges
of approximately $167 million primarily related to post employment benefits.
These plans are expected to result in total restructuring charges of
approximately $170 million. The Company made cash payments of $4 million and
$59 million relating to these plans during the three and nine months ended April 2,
2010, respectively. The January and May 2009 Plans were substantially
complete by April 2, 2010.
11
Table of Contents
SEAGATE TECHNOLOGY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Unaudited)
3. Restructuring and Exit Costs (continued)
Pittsburgh and Milpitas Closures.
The Company
announced the closure of its research facility in Pittsburgh, Pennsylvania and
its media manufacturing facility in Milpitas, California in September 2008
and July 2008, respectively. Operations at these facilities ceased during
fiscal year 2009. From the inception of these plans through April 2, 2010,
the Company has recorded restructuring related charges of approximately $108
million, including $1 million and $9 million of restructuring costs recorded in
the three and nine months ended April 2, 2010, respectively. These
closures are expected to result in total charges of approximately $110 million.
The Company made cash payments of $2 million and $7 million relating to these
plans during the three and nine months ended April 2, 2010,
respectively. The remaining balance of
$11 million as of April 2, 2010 is associated with facility lease
obligations. Payment of these exit costs are expected to continue through the
end of fiscal year 2017.
Maxtor and Other.
The Company recorded
certain exit costs aggregating $265 million through April 2, 2010 related
to its acquisition of Maxtor Corporation (Maxtor). During the three and nine
months ended April 2, 2010, the Company made cash payments on these
restructuring plans of $3 million and $8 million, respectively. The remaining balance of $23 million, as of April 2,
2010, is primarily associated with the exit of certain facilities. Payment of
these exit costs are expected to continue through the end of fiscal year 2016.
4. Debt and
Convertible Notes
Short-term Borrowings
During the nine months ended
April 2, 2010, the Company entered into $15 million of short-term
borrowings, which were repaid in the three months ended April 2, 2010.
Convertible Notes
On July 4, 2009, the
Company implemented a change in accounting in accordance with ASC 470-20,
Debt with Conversion and Other Options
(formerly FSP APB 14-1,
Accounting
for Convertible Debt Instruments That May Be Settled in Cash upon
Conversion (Including Partial Cash Settlement)
), for its convertible
debt instruments on a retrospective basis to separately account for its
convertible debt in two parts, (i) a debt component which was recorded
upon acquisition at the estimated fair value of a similar debt instrument
without the debt-for-equity conversion feature; and (ii) an equity
component that was included in paid-in capital and represents the estimated
fair value of the conversion feature at issuance. The bifurcation of the
debt and equity components resulted in a discounted carrying value of the debt
component compared to the principal amount. The discount is accreted to
the carrying value of the debt component through interest expense over the
expected life of the debt using the effective interest method.
The
6.8% Convertible Senior Notes due April 2010 (the 6.8% Notes) require
semi-annual interest payments payable on April 30 and October 30.
The 6.8% Notes were originally assumed in the business combination with Maxtor
on May 19, 2006 and were recorded as long-term debt at par value of $136
million and a substantial premium of $17 million, which was recorded to
Additional paid-in capital. The debt component of the 6.8% Notes at
acquisition was determined to be $136 million, based on the contractual cash
flows discounted at 6.8%, which was the estimated rate of a comparable
non-convertible debt instrument as of May 19, 2006. As a result,
implementation of the new requirements had no effect on the accounting for the
6.8% Notes. On April 30, 2010, the
Company repaid the remaining balance of $77 million in cash for its 6.8% Notes
upon maturity.
The 2.375% Convertible
Senior Notes due August 2012 (the 2.375% Notes) require semi-annual
interest payments payable on February 15 and August 15. The
2.375% Notes were originally assumed in the business combination with Maxtor on
May 19, 2006 and were recorded as Current portion of long-term debt at par
value of $326 million and a substantial premium of $157 million, which was
recorded to Additional paid-in capital. The debt component of the 2.375%
Notes at acquisition was determined to be $252 million, based on the
contractual cash flows discounted at 6.9%, which was the estimated rate of a
comparable non-convertible debt instrument as of May 19, 2006. As a
result of implementing the new standard, $74 million was recorded as an
increase to Additional paid-in capital and a corresponding debt discount as of
the date of acquisition.
12
Table of Contents
SEAGATE TECHNOLOGY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Unaudited)
4. Debt and
Convertible Notes (continued)
The
following illustrates the retrospective impact of implementing the provisions
of the change in accounting for convertible debt on the previously stated
Condensed Consolidated Statement of Operations for the three and nine months
ended April 3, 2009:
Retrospective Impact on the Condensed Consolidated Statement of
Operations
|
|
Three Months Ended April 3, 2009
|
|
Nine Months Ended April 3, 2009
|
|
(Dollars in millions)
|
|
As
Originally
Stated
|
|
Effect of
Change in
Accounting
|
|
Restated
|
|
As
Originally
Stated
|
|
Effect of
Change in
Accounting
|
|
Restated
|
|
Impairment of goodwill
and long-lived assets
|
|
$
|
¾
|
|
$
|
¾
|
|
$
|
¾
|
|
$
|
2,290
|
|
$
|
30
|
|
$
|
2,320
|
|
Interest expense
|
|
(35
|
)
|
(2
|
)
|
(37
|
)
|
(95
|
)
|
(7
|
)
|
(102
|
)
|
Net income (loss)
|
|
(273
|
)
|
(2
|
)
|
(275
|
)
|
(3,005
|
)
|
(37
|
)
|
(3,042
|
)
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.56
|
)
|
$
|
|
|
$
|
(0.56
|
)
|
$
|
(6.17
|
)
|
$
|
(0.08
|
)
|
$
|
(6.25
|
)
|
Diluted
|
|
(0.56
|
)
|
|
|
(0.56
|
)
|
(6.17
|
)
|
(0.08
|
)
|
(6.25
|
)
|
There
was no net impact resulting from this accounting change on the Companys cash
flows from operating activities, investing activities or financing activities
as reflected in the Condensed Consolidated Statements of Cash Flows.
The following table presents information regarding the equity and
liability components of the 2.375% and 6.8% Notes as of April 2, 2010 and July 3,
2009:
|
|
As of
|
|
(Dollars in millions)
|
|
April 2,
2010
|
|
July 3,
2009
Restated
|
|
|
|
|
|
|
|
2.375% Notes
|
|
|
|
|
|
Principal amount
|
|
$
|
326
|
|
$
|
326
|
|
Unamortized discount
|
|
(32
|
)
|
(40
|
)
|
Liability component
|
|
$
|
294
|
|
$
|
286
|
|
Equity component
|
|
$
|
231
|
|
$
|
231
|
|
6.8% Notes
|
|
|
|
|
|
Principal amount and liability component
|
|
$
|
77
|
|
$
|
116
|
|
Equity component
|
|
$
|
17
|
|
$
|
17
|
|
The remaining discount on the 2.375% Notes will continue to be
amortized until maturity of the 2.375% Notes in August 2012. The effective interest rate, contractual
interest expense and amortization of debt discount for the 2.375% Notes for the
three and nine months ended April 2, 2010 and April 3, 2009 were as
follows:
|
|
The Three Months Ended
|
|
The Nine Months Ended
|
|
(Dollars in millions, except
for percentages)
|
|
April 2,
2010
|
|
April 3, 2009
Restated
|
|
April 2,
2010
|
|
April 3,
2009
Restated
|
|
|
|
|
|
|
|
|
|
|
|
Effective interest rate
|
|
6.9
|
%
|
6.9
|
%
|
6.9
|
%
|
6.9
|
%
|
Interest expense contractual
|
|
$
|
2
|
|
$
|
2
|
|
$
|
6
|
|
$
|
6
|
|
Interest expense amortization of debt discount
due to change in accounting
|
|
$
|
3
|
|
$
|
3
|
|
$
|
9
|
|
$
|
9
|
|
13
Table
of Contents
SEAGATE TECHNOLOGY
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
(Unaudited)
4. Debt and
Convertible Notes (continued)
The 2.375% and 6.8% Notes
may, subject to certain conditions, be converted into the Companys common
shares based on a conversion rate of 60.2074 and 30.1733 shares, respectively,
per $1,000 principal amount of notes, which represents a conversion price of
approximately $16.61 and $33.14 per share, respectively. As of April 2, 2010, the conversion
value exceeded the principal value on the 2.375% Notes by approximately $47
million. The 2.375% Notes are convertible as of April 3, 2010, as the
Companys shares traded above 110% of the conversion price for at least 20
consecutive trading days of the last 30 trading days of the third quarter of
fiscal year 2010. As a result, the 2.375% Notes have been reclassified as
Current portion of long-term debt on the Companys Condensed Consolidated
Balance Sheet at April 2, 2010. As of April 2, 2010, the principal
value exceeded the conversion value on the 6.8% Notes.
5. Income Taxes
The income tax provision for the three months ended April 2,
2010 included approximately $11 million of discrete tax benefits primarily for
reversal of valuation allowance previously recorded for certain non-U.S.
deferred tax assets and release of tax reserves as a result of the U.S. 9
th
Circuit Court
of Appeals affirmation of the Tax Court decision in
Xilinx v
Commissioner
. The income tax benefit recognized for the nine months
ended April 2, 2010 included approximately $39 million of discrete tax
benefits primarily for the release of tax reserves associated with settlements,
expiration of certain statutes of limitations, and the U.S. 9
th
Circuit Court
decision, as described above, the reversal of valuation allowance previously
recorded for certain non-U.S. deferred tax assets, and U.S. federal income tax
legislative changes.
The Companys income tax provision and benefit
recorded for the three and nine months ended April 2, 2010 differed from
the provision for income taxes that would be derived by applying a notional
U.S. 35% rate to income before income taxes primarily due to the net effect of (i) tax
benefits related to tax holiday and tax incentive programs, (ii) a
decrease in valuation allowance for certain non-U.S. deferred tax assets, (iii) tax
expense related to intercompany transactions, and (iv) release of certain
tax reserves as described above.
During the three months ended April 2, 2010, the
Companys unrecognized tax benefits excluding interest and penalties decreased
by $2 million to $114 million. The unrecognized tax benefits that, if
recognized, would impact the effective tax rate was $114 million as of April 2,
2010, subject to certain future valuation allowance reversals. During the 12 months beginning April 3,
2010, the Company expects to reduce its unrecognized tax benefits by
approximately $5 million primarily as a result of the expiration of certain
statutes of limitations.
The income tax benefit recognized for the comparative
three months ended April 3, 2009 resulted primarily from the reversal of a
portion of the income tax expense the Company previously recorded in the six
months ended January 2, 2009 as a result of reductions in forecasted
income from operations conducted in certain jurisdictions. The income tax
provision for the comparative nine months ended April 3, 2009 included a
deferred tax charge of $271 million associated with increased valuation
allowance recorded for U.S. federal and state deferred tax assets associated
with reductions in the Companys forecasted U.S. taxable income. The goodwill
impairment charges recorded in the comparative nine months ended April 3,
2009 resulted in no tax benefits. As of the close of the period ended April 3,
2009, the Company was forecasting losses in certain jurisdictions, including
the U.S., for which tax benefits for the losses could not be recognized. Pursuant to the accounting guidance provided
in ASC 740-270-30-36a,
Income Taxes, Interim
Reporting
(formerly FASB Interpretation No. 18,
Accounting for Income Taxes in Interim Periods
), the Company
was required to exclude these loss jurisdictions from its overall estimated
annual effective rate calculation and determine a separately computed effective
tax rate for each loss jurisdiction.
The income tax benefit recognized for the comparative
three months ended April 3, 2009 differed from the provision for income
taxes that would be derived by applying a notional U.S. 35% rate to losses
before income taxes primarily due to the net effect of (i) applying the
provisions of ASC 740-270-30-36a as described above, (ii) the tax benefit
related to tax holiday and tax incentive programs, (iii) tax expense
related to intercompany transactions, and (iv) an increase in the Companys
valuation allowance for certain deferred tax assets. The income tax provision
recorded for the comparative nine months ended April 3, 2009 differed from
the provision for income taxes that would be derived by applying a notional
U.S. 35% rate to income before income taxes primarily due to the net effect of (i) goodwill
impairment charges with no associated tax benefit, (ii) an increase in the
Companys valuation allowance for certain deferred tax assets, (iii) the
tax benefit related to the tax holidays and tax incentive programs, and (iv) tax
expense related to intercompany transactions.
14
Table
of Contents
SEAGATE
TECHNOLOGY
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
6. Derivative Financial Instruments
The Company is exposed to foreign currency exchange
rate, interest rate, and to a lesser extent, equity price risks relating to its
ongoing business operations. The Company enters into foreign currency forward
exchange contracts in order to manage the foreign currency exchange rate risk
on forecasted expenses denominated in foreign currencies and to mitigate the
remeasurement risk of certain foreign currency denominated liabilities. The Companys unrealized net losses on cash
flow hedges included in Other comprehensive income (loss) (OCI) as of April 2,
2010 and July 3, 2009, respectively, were not material.
The Company dedesignates its cash flow hedges when the
forecasted hedged transactions are realized or it is probable the forecasted
hedged transaction will not occur in the initially identified time period. At
such time, the associated gains and losses deferred in OCI are reclassified
into earnings in the same period that the underlying hedged transaction is
included in earnings. Any subsequent changes in the fair value of such
derivative instruments are immediately reflected in earnings. As of April 2,
2010, the Companys existing foreign currency forward exchange contracts are
expected to mature within 12 months. The deferred amount currently
recorded in OCI and expected to be recognized into earnings is not material.
As of April 2, 2010, the total notional value of
the Companys outstanding foreign currency forward exchange contracts was:
(Dollars in millions)
|
|
Contracts
Qualifying as Hedges
Under ASC 815
|
|
Contracts
Not Qualifying as Hedges
Under ASC 815
|
|
Thai
baht
|
|
$
|
260
|
|
$
|
193
|
|
Singapore
dollars
|
|
65
|
|
12
|
|
Euro
|
|
10
|
|
|
|
Yen
|
|
6
|
|
|
|
Czech
koruna
|
|
|
|
11
|
|
British
pounds
|
|
1
|
|
|
|
|
|
$
|
342
|
|
$
|
216
|
|
The Company is subject to equity market risks due to
changes in the fair value of the notional investments selected by its employees
as part of its non-qualified deferred compensation (NQDC) plan. In the quarter
ended July 3, 2009, the Company entered into a Total Return Swap (TRS) in
order to manage the equity market risks associated with the NQDC plan
liabilities. The Company pays a floating rate, based on LIBOR plus an interest
rate spread, on the notional amount of the TRS. The TRS is designed to
substantially offset changes in the NQDC plan liability due to changes in the
value of the investment options made by employees. As of April 2, 2010,
the notional investments underlying the TRS amounted to $80 million. The
contract term of the TRS is one year and is settled on a monthly basis
therefore limiting counterparty performance risk. The terms of the TRS required
the Company to pledge initial collateral of $18 million to the
counterparty for the term of the contract. During the quarter ended April 2,
2010, the amount required to be pledged on an ongoing basis was decreased to $9
million. Additional collateral may be posted contingent on the counterpartys
exposure to the market value of the TRS.
The cash pledged is recorded as restricted cash. The Company did not
designate the TRS as a hedge in accordance with ASC 815,
Derivatives
and Hedging
(previously SFAS 161,
Disclosures
About Derivative Instruments and Hedging Activities
). Rather, the
Company records all changes in the fair value of the TRS to earnings to offset
the market value changes of the NQDC plan liabilities.
15
Table
of Contents
SEAGATE
TECHNOLOGY
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
6. Derivative Financial Instruments
(continued)
The following table shows
the Companys derivative instruments measured at gross fair value as reflected
in the Condensed Consolidated Balance Sheet as of April 2, 2010:
Fair
Values of Derivative Instruments
|
|
Asset Derivatives
|
|
Liability Derivatives
|
|
(Dollars in millions)
|
|
Balance
Sheet
Location
|
|
Fair
Value
|
|
Balance
Sheet
Location
|
|
Fair
Value
|
|
Derivatives designated as hedging instruments under ASC
815:
|
|
|
|
|
|
|
|
|
|
Foreign
currency forward exchange contracts
|
|
Other current
assets
|
|
$
|
5
|
|
Accrued expenses
|
|
$
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments under ASC
815:
|
|
|
|
|
|
|
|
|
|
Foreign
currency forward exchange contracts
|
|
Other current
assets
|
|
$
|
6
|
|
Accrued expenses
|
|
$
|
|
|
Total
return swap
|
|
Other current
liabilities
|
|
1
|
|
Accrued expenses
|
|
|
|
Total derivatives
|
|
|
|
$
|
12
|
|
|
|
$
|
(1
|
)
|
The following tables show the effect of the Companys
derivative instruments on OCI and the Condensed Consolidated Statement of
Operations for the three and nine months ended April 2, 2010:
The Effect
of Derivative Instruments on the Statement of Operations
for the
Three and Nine Months Ended April 2, 2010
|
|
|
|
|
|
|
|
|
|
|
|
Location of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain or (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
Location of
|
|
|
|
|
|
Recognized in
|
|
Amount of Gain or
|
|
|
|
|
|
|
|
Gain or (Loss)
|
|
Amount of Gain or
|
|
Income on
|
|
(Loss) Recognized in
|
|
|
|
Amount of Gain or
|
|
Reclassified
|
|
(Loss) Reclassified from
|
|
Derivative
|
|
Income (Ineffective
|
|
|
|
(Loss) Recognized in
|
|
from
|
|
Accumulated OCI into
|
|
(Ineffective
|
|
Portion and Amount
|
|
|
|
OCI on Derivatives
|
|
Accumulated
|
|
Income (Effective
|
|
Portion and
|
|
Excluded from
|
|
|
|
(Effective Portion)
|
|
OCI into
|
|
Portion)
|
|
Amount
|
|
Effectiveness Testing)
(a)
|
|
|
|
For the
|
|
For the
|
|
Income
|
|
For the
|
|
For the
|
|
Excluded from
|
|
For the
|
|
For the
|
|
Derivatives
Designated as Cash
|
|
Three
|
|
Nine
|
|
(Effective
|
|
Three
|
|
Nine
|
|
Effectiveness
|
|
Three
|
|
Nine
|
|
Flow
Hedges under ASC 815
|
|
Months
|
|
Months
|
|
Portion)
|
|
Months
|
|
Months
|
|
Testing)
|
|
Months
|
|
Months
|
|
(Dollars
in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange forward
contracts
|
|
$
|
6
|
|
$
|
11
|
|
Cost of revenue
|
|
$
|
2
|
|
$
|
6
|
|
Cost of revenue
|
|
$
|
|
|
$
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
Table
of Contents
SEAGATE
TECHNOLOGY
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
6. Derivative Financial Instruments (continued)
|
|
|
|
Amount of Gain or (Loss) Recognized
in Income on
|
|
|
|
Location of Gain or (Loss)
|
|
Derivatives
|
|
Derivatives
Not Designated as Hedging Instruments
|
|
Recognized in Income on
|
|
For the Three
|
|
For the Nine
|
|
under
ASC 815
|
|
Derivatives
|
|
Months
|
|
Months
|
|
(Dollars
in millions)
|
|
|
|
|
|
|
|
Foreign exchange forward
contracts
|
|
Other, net
|
|
$
|
8
|
|
$
|
12
|
|
Total return swap
|
|
Operating expenses
|
|
4
|
|
17
|
|
|
|
|
|
$
|
12
|
|
$
|
29
|
|
(a) The amount
of gain or (loss) recognized in income represents $0 million related to the
ineffective portion of the hedging relationships and $1 million related to the
amount excluded from the assessment of hedge effectiveness, for the three and nine
months ended April 2, 2010, respectively.
Net foreign currency losses included in the
determination of consolidated net income (loss) were approximately $2 million
for the three months ended April 2, 2010. Net foreign currency gains
included in the determination of consolidated net income (loss) were
approximately $4 million for the nine months ended April 2, 2010.
The following tables show the effect of the Companys
derivative instruments on OCI and the Condensed Consolidated Statement of
Operations for the three and nine months ended April 3, 2009:
The Effect
of Derivative Instruments on the Statement of Operations
for the
Three and Nine Months Ended April 3, 2009
|
|
|
|
|
|
|
|
|
|
|
|
Location of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain or (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
Location of
|
|
|
|
|
|
Recognized in
|
|
Amount of Gain or
|
|
|
|
|
|
|
|
Gain or (Loss)
|
|
Amount of Gain or
|
|
Income on
|
|
(Loss) Recognized in
|
|
|
|
Amount of Gain or
|
|
Reclassified
|
|
(Loss) Reclassified from
|
|
Derivative
|
|
Income (Ineffective
|
|
|
|
(Loss) Recognized in
|
|
from
|
|
Accumulated OCI into
|
|
(Ineffective
|
|
Portion and Amount
|
|
|
|
OCI on Derivatives
|
|
Accumulated
|
|
Income (Effective
|
|
Portion and
|
|
Excluded from
|
|
|
|
(Effective Portion)
|
|
OCI into
|
|
Portion)
|
|
Amount
|
|
Effectiveness Testing)
(a)
|
|
Derivatives
Designated as Cash
|
|
For the
|
|
For the
|
|
Income
|
|
For the
|
|
For the
|
|
Excluded from
|
|
For the
|
|
For the
|
|
Flow
Hedges under ASC 815
|
|
Three
|
|
Nine
|
|
(Effective
|
|
Three
|
|
Nine
|
|
Effectiveness
|
|
Three
|
|
Nine
|
|
(formerly
FAS 133)
|
|
Months
|
|
Months
|
|
Portion)
|
|
Months
|
|
Months
|
|
Testing)
|
|
Months
|
|
Months
|
|
(Dollars
in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange forward
contracts
|
|
$
|
(4
|
)
|
$
|
(27
|
)
|
Cost of revenue
|
|
$
|
(11
|
)
|
$
|
(32
|
)
|
Cost of revenue
|
|
$
|
|
|
$
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
Table
of Contents
SEAGATE
TECHNOLOGY
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
6. Derivative Financial Instruments (continued)
Derivatives
Not Designated as
|
|
Location of Gain or (Loss)
|
|
Amount of Gain or (Loss) Recognized
in Income on
Derivatives
|
|
Hedging
Instruments under ASC
815 (formerly FAS 133)
|
|
Recognized in Income on
Derivatives
|
|
For the Three
Months
|
|
For the Nine
Months
|
|
(Dollars
in millions)
|
|
|
|
|
|
|
|
Foreign exchange forward
contracts
|
|
Other, net
|
|
$
|
|
|
$
|
(25
|
)
|
|
|
|
|
|
|
|
|
|
|
(a) The amount
of gain or (loss) recognized in income represents $0 million related to the
ineffective portion of the hedging relationships and $0 million and $1 million
related to the amount excluded from the assessment of hedge effectiveness, for
the three and nine months ended April 3, 2009, respectively.
Net foreign currency losses included in the
determination of consolidated net income (loss) were approximately $1 million
and $8 million for the three and nine months ended April 3, 2009,
respectively.
As of July 3, 2009, the total notional value of
the Companys outstanding foreign currency forward exchange contracts was:
(Dollars in millions)
|
|
Contracts
Qualifying as Hedges
Under ASC 815
|
|
Contracts
Not Qualifying as Hedges
Under ASC 815
|
|
Thai
baht
|
|
$
|
104
|
|
$
|
64
|
|
Singapore
dollars
|
|
24
|
|
3
|
|
Czech
koruna
|
|
|
|
8
|
|
|
|
$
|
128
|
|
$
|
75
|
|
The following table shows
the Companys derivative instruments measured at gross fair value as reflected
in the Condensed Consolidated Balance Sheet as of July 3, 2009:
Fair
Values of Derivative Instruments
|
|
Asset Derivatives
|
|
Liability Derivatives
|
|
(Dollars in millions)
|
|
Balance
Sheet
Location
|
|
Fair
Value
|
|
Balance
Sheet
Location
|
|
Fair
Value
|
|
Derivatives designated as hedging instruments under
ASC
815
:
|
|
|
|
|
|
|
|
|
|
Foreign
currency forward exchange contracts
|
|
Other current assets
|
|
$
|
1
|
|
Accrued expenses
|
|
$
|
¾
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments under
ASC
815
:
|
|
|
|
|
|
|
|
|
|
Foreign
currency forward exchange contracts
|
|
Other current
assets
|
|
$
|
¾
|
|
Accrued expenses
|
|
$
|
¾
|
|
Total
return swap
|
|
Other current
liabilities
|
|
¾
|
|
Accrued expenses
|
|
(1
|
)
|
Total derivatives
|
|
|
|
$
|
1
|
|
|
|
$
|
(1
|
)
|
18
Table
of Contents
SEAGATE
TECHNOLOGY
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
7. Fair
Value
For assets and liabilities recorded at fair value, the
Company bases the determination of fair value upon exit price, representing the
amount that would be received on the sale of an asset or paid to transfer a
liability in an orderly transaction between market participants. The Company considers the principal or most
advantageous market in which it would transact and it considers assumptions
that market participants would use when pricing the asset or liability.
As of July 4, 2009, the Company adopted the
provisions of ASC 820,
Fair Value Measurements
and Disclosures
(previously SFAS 157,
Fair Value
)
that apply to non-financial assets and liabilities measured at fair value on a
non-recurring basis, thereby applying the fair value disclosure requirements to
both the financial and non-financial assets and liabilities of the Company. The adoption of these provisions did not have
a material impact on the Companys consolidated results of operations and
financial condition.
ASC 820 establishes a
consistent framework for measuring fair value whereby inputs used in valuation
techniques are assigned a hierarchical level.
The assignment to a level is based on whether the market participant
assumptions used in determining fair value are obtained from independent
sources (observable inputs) or reflect the Companys own assumptions of market
participant valuation (unobservable inputs).
Categorization within the fair value hierarchy is determined by the
lowest level of input that is significant to the fair value measurement. The
following are the hierarchical levels of inputs to measure fair value:
Level
1
|
Quoted prices in active
markets that are unadjusted and accessible at the measurement date for
identical, unrestricted assets or liabilities;
|
|
|
Level
2
|
Quoted prices for
identical assets and liabilities in markets that are inactive; quoted prices
for similar assets and liabilities in active markets; or significant inputs
that are observable, either directly or indirectly; or
|
|
|
Level
3
|
Prices or valuations
that require inputs that are both unobservable and significant to the fair
value measurement.
|
The Company considers an
active market to be one in which transactions for the asset or liability occur
with sufficient frequency and volume to provide pricing information on an
ongoing basis, and views an inactive market as one in which there are few
transactions for the asset or liability, the prices are not current, or price
quotations vary substantially either over time or among market makers. Where appropriate, the Companys or the
counterpartys non-performance risk is considered in determining the fair
values of liabilities and assets, respectively.
19
Table
of Contents
SEAGATE
TECHNOLOGY
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
7. Fair Value (continued)
Items
Measured at Fair Value on a Recurring Basis
The following table
presents the Companys assets and liabilities that are measured at fair value
on a recurring basis, excluding accrued interest components, as of April 2,
2010:
|
|
Fair Value Measurements at Reporting Date Using
|
|
(Dollars in millions)
|
|
Quoted
Prices in
Active
Markets for
Identical
Instruments
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Total
Balance
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
756
|
|
$
|
|
|
$
|
|
|
$
|
756
|
|
Commercial paper
|
|
|
|
1,087
|
|
|
|
1,087
|
|
U.S. treasuries and agency bonds
|
|
|
|
141
|
|
|
|
141
|
|
Corporate bonds
|
|
|
|
78
|
|
|
|
78
|
|
International treasuries
|
|
|
|
10
|
|
|
|
10
|
|
Municipal bonds
|
|
|
|
4
|
|
|
|
4
|
|
Total Cash Equivalents and Marketable Securities
|
|
756
|
|
1,320
|
|
|
|
2,076
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Cash and Investments:
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
83
|
|
|
|
|
|
83
|
|
Certificates of deposit
|
|
|
|
6
|
|
|
|
6
|
|
Auction rate securities
|
|
|
|
|
|
18
|
|
18
|
|
Derivative assets
|
|
|
|
12
|
|
|
|
12
|
|
Total Assets
|
|
$
|
839
|
|
$
|
1,338
|
|
$
|
18
|
|
$
|
2,195
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
Derivative liabilities
|
|
$
|
|
|
$
|
(1
|
)
|
$
|
|
|
$
|
(1
|
)
|
Total Liabilities
|
|
$
|
|
|
$
|
(1
|
)
|
$
|
|
|
$
|
(1
|
)
|
|
|
Fair Value Measurements at Reporting Date Using
|
|
(Dollars in millions)
|
|
Quoted
Prices in
Active
Markets for
Identical
Instruments
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Total
Balance
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
756
|
|
$
|
1,106
|
|
$
|
|
|
$
|
1,862
|
|
Short-term investments
|
|
|
|
214
|
|
|
|
214
|
|
Restricted cash and investments
|
|
83
|
|
6
|
|
|
|
89
|
|
Other current assets
|
|
|
|
12
|
|
|
|
12
|
|
Other assets, net
|
|
|
|
|
|
18
|
|
18
|
|
Total Assets
|
|
$
|
839
|
|
$
|
1,338
|
|
$
|
18
|
|
$
|
2,195
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
Accrued expenses
|
|
$
|
|
|
$
|
(1
|
)
|
$
|
|
|
$
|
(1
|
)
|
Total Liabilities
|
|
$
|
|
|
$
|
(1
|
)
|
$
|
|
|
$
|
(1
|
)
|
20
Table
of Contents
SEAGATE TECHNOLOGY
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
(Unaudited)
7. Fair Value (continued)
Level 1 assets
consist of money market funds for which quoted prices are available in an
active market.
The Company classifies items in Level 2 if the
financial asset or liability is valued using observable inputs. The Company
uses observable inputs including quoted prices in active markets for similar
assets or liabilities. Level 2 assets
include: agency bonds, corporate bonds, commercial paper, municipal bonds, and
U.S. Treasuries. These debt investments are priced using observable inputs and
valuation models which vary by asset class.
The Company uses a pricing service to assist in determining the fair
values of all of its cash equivalents and marketable securities. For the cash equivalents and marketable
securities in the Companys portfolio, multiple pricing sources are generally
available. The pricing service uses
inputs from multiple industry standard data providers or other third party
sources and various methodologies, such as weighting and models, to determine
the appropriate price at the measurement date.
The Company corroborates the prices obtained from the pricing service
against other independent sources and, as of April 2, 2010, has not found
it necessary to make any adjustments to the prices obtained. The Companys
derivative financial instruments are also classified within Level 2. The Companys derivative financial
instruments consist of foreign currency forward exchange contracts and a total
return swap. The Company recognizes
derivative financial instruments in its consolidated financial statements at fair
value in accordance with
ASC 815
. The Company
determines the fair value of these instruments by considering the estimated
amount it would pay or receive to terminate these agreements at the reporting
date.
The
Companys Level 3 assets consist of auction rate securities with a par
value of approximately $20 million, all of which are collateralized by
student loans guaranteed by the Federal Family Education Loan Program.
Beginning in the fiscal quarter ended March 28, 2008, these securities
failed to settle at auction and have continued to fail through April 2,
2010. Since there is no active market for these securities, the Company valued
them using a pricing model provided by a third party valuation firm. The
valuation model is based on the income approach and reflects both observable
and significant unobservable inputs.
Since the Company continues to earn interest on its auction rate
securities at the maximum contractual rate, there have been no payment defaults
with respect to such securities, and they are all collateralized, the Company
expects to recover the entire amortized cost basis of these auction rate
securities. The Company does not intend to sell these securities and has
concluded it is not more likely than not that the Company will be required to
sell the securities before the recovery of their amortized cost basis. As such,
the Company believes the impairments totaling $2 million are not
other-than-temporary and therefore have been recorded in Accumulated other
comprehensive income (loss). Given the uncertainty as to when the liquidity
issues associated with these securities will improve, these securities were
classified as long-term investments in the Companys Condensed Consolidated
Balance Sheets.
21
Table
of Contents
SEAGATE TECHNOLOGY
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
(Unaudited)
7. Fair Value
(continued)
The table below presents a reconciliation of all
assets and liabilities measured at fair value on a recurring basis, excluding
accrued interest components, using significant unobservable inputs (Level 3)
for the nine months ended April 2, 2010:
|
|
Fair Value Measurements
Using Significant
Unobservable Inputs
(Level 3)
|
|
(Dollars in millions)
|
|
Auction Rate Securities
|
|
Balance at July 3, 2009
|
|
$
|
18
|
|
Total net gains (losses) (realized and unrealized):
|
|
|
|
Realized gains (losses)
(1)
|
|
|
|
Unrealized gains (losses)
(2)
|
|
|
|
Balance at April 2, 2010
|
|
$
|
18
|
|
(1)
|
|
Realized gains (losses)
on auction rate securities are recorded in Other, net on the Condensed
Consolidated Statements of Operations.
|
(2)
|
|
Unrealized gains
(losses) on auction rate securities are recorded as a separate component of
Other comprehensive income (loss) in Accumulated other comprehensive income
(loss), which is a component of Shareholders Equity.
|
Items
Measured at Fair Value on a Non-Recurring Basis
The following table
presents the Companys assets and liabilities that are measured at fair value
on a non-recurring basis as of April 2, 2010.
|
|
Fair Value Measurements at Reporting Date Using
|
|
(Dollars in millions)
|
|
Quoted
Prices in
Active
Markets for
Identical
Instruments
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Total
Balance
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
Assets held for sale
|
|
$
|
|
|
$
|
|
|
$
|
11
|
|
$
|
11
|
|
Equity investment
|
|
$
|
|
|
$
|
|
|
$
|
4
|
|
$
|
4
|
|
On September 29,
2009, the Company committed to a plan to sell certain equipment related to
certain research activities that have ceased. The Company expects the
sale of these assets to be completed no later than the end of its first quarter
of fiscal year 2011. The Company recognized a charge of $64 million in
Impairment of long-lived assets in its Condensed Consolidated Statement of
Operations for the nine months ended April 2, 2010 in order to write down
the carrying amount of these assets to estimated fair value less costs to
sell. The Company used a combination of the market and cost approaches in
order to determine the fair value of assets held for sale. The
methodology employed involved applying market derived factors, which
represented the discount that a market participant would expect to pay for a
used asset based on estimated replacement cost. The discounts applied to
replacement costs, which consider all forms of physical, functional and
economic obsolescence, were obtained from discussions with brokers and other
market participants. As the valuation of the Companys assets held for
sale contain unobservable inputs, they have been classified as Level 3.
These Assets held for sale are included in Other current assets on the
Condensed Consolidated Balance Sheet as of April 2, 2010.
As of January 1,
2010, the Company determined that one of its equity investments accounted for
under the cost method was other-than-temporarily impaired. As such, the Company recognized a charge of
$13 million in Other, net in its Condensed Consolidated Statements of
Operations for the nine months ended April 2, 2010 in order to write down
the carrying amount of the investment to estimated fair value. Since there is no active market for the
equity securities of the investee, the Company estimated fair value of the
investee by using the market approach to estimate the fair value of its
underlying intellectual property assets.
22
Table
of Contents
SEAGATE TECHNOLOGY
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
(Unaudited)
7. Fair Value
(continued)
Other Fair
Value Disclosures
The Companys debt
is carried at cost. The following table
represents the fair value of the Companys debt:
|
|
April 2, 2010
|
|
July 3, 2009
(a)
|
|
(Dollars in millions)
|
|
Carrying
Amount
|
|
Estimated
Fair Value
|
|
Carrying
Amount
|
|
Estimated
Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
LIBOR Based Credit Facility
|
|
$
|
|
|
$
|
|
|
$
|
350
|
|
$
|
350
|
|
Capital Leases
|
|
2
|
|
2
|
|
|
|
|
|
10.0% Senior Secured Second-Priority Notes due
May 2014
|
|
413
|
|
489
|
|
410
|
|
445
|
|
Floating Rate Senior Notes due October 2009
|
|
|
|
|
|
300
|
|
299
|
|
6.8% Convertible Senior Notes due April 2010
|
|
77
|
|
77
|
|
116
|
|
116
|
|
6.375% Senior Notes due October 2011
|
|
559
|
|
580
|
|
599
|
|
581
|
|
5.75% Subordinated Debentures due March 2012
|
|
31
|
|
32
|
|
37
|
|
35
|
|
2.375% Convertible Senior Notes due
August 2012
|
|
294
|
|
376
|
|
286
|
|
283
|
|
6.8% Senior Notes due October 2016
|
|
599
|
|
606
|
|
599
|
|
550
|
|
|
|
1,975
|
|
2,162
|
|
2,697
|
|
2,659
|
|
Less short-term borrowings and current portion of
long-term debt
|
|
(377
|
)
|
(458
|
)
|
(771
|
)
|
(769
|
)
|
Long-term debt, less current portion
|
|
$
|
1,598
|
|
$
|
1,704
|
|
$
|
1,926
|
|
$
|
1,890
|
|
(a)
As adjusted due to a
required change in the accounting for convertible debt instruments implemented
in the first quarter of fiscal year 2010, applied on a retrospective basis.
8.
Shareholders Equity
Issuance of Common Shares
During the nine months ended April 2, 2010, the
Company issued approximately 5 million of its common shares from the
exercise of stock options and approximately 4 million of its common shares
related to the Companys Employee Stock Purchase Plan (ESPP).
Seagate
Technology 2001 Share Option Plan
As of April 2, 2010, there were
approximately 3 million common shares available for issuance under the
Seagate Technology 2001 Share Option Plan.
Seagate
Technology 2004 Stock Compensation Plan
As of April 2, 2010, there were
approximately 17 million common shares available for issuance under the
Seagate Technology 2004 Stock Compensation Plan.
Stock Purchase Plan
As of April 2, 2010, there were
approximately 10 million common shares available for issuance under the ESPP.
23
Table of Contents
SEAGATE TECHNOLOGY
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
(Unaudited)
8. Shareholders Equity (continued)
Repurchases of Equity Securities
The Companys February 2008 stock repurchase plan
expired on January 31, 2010.
On January 27, 2010, the Companys Board of
Directors authorized an Anti-Dilution Share Repurchase Program, which was
publicly announced on February 1, 2010.
The repurchase program authorizes the Company to repurchase its common
shares to offset increases in diluted shares, such as those caused by employee
stock plans and convertible debt, used in the determination of diluted net
income per share. The timing and number
of shares to be repurchased by the Company will be dependent on general
business and market conditions, cash flows generated by future operations, the
price of its common shares, cash requirements for other investing and financing
activities, and maintaining compliance with its debt covenants. Repurchases may
be made through open market or in privately negotiated transactions, pursuant
to Rule 10b5-1 trading plans or other available means, such as by way of
an accelerated share repurchase program, through block trades or through the
purchase of call options or the sale of put options. Additionally, there is no minimum or maximum
number of shares to be repurchased under the program and the authority for the
Anti-Dilution Share Repurchase Program will continue until terminated by the
Companys Board of Directors.
Share repurchases
during the three months ended April 2, 2010, were as follows:
January 2010 Anti-Dilution Share Repurchase Program
(In millions, except average
price paid per share)
|
|
Total
Number of
Shares
Purchased
|
|
Average
Price
Paid per
Share
|
|
Total
Number of
Shares Purchased
Under Publicly
Announced Plans
or Programs
|
|
Approximate
Dollar Value
of Shares
Purchased Under
the Plans
or Programs
|
|
January 2, 2010
through January 29, 2010
|
|
|
|
$
|
|
|
|
|
$
|
|
|
January 30, 2010
through February 26, 2010
|
|
13.5
|
|
18.53
|
|
13.5
|
|
251
|
|
February 27,
2010 through April 2, 2010
|
|
|
|
|
|
|
|
|
|
Total Through 3
rd
Quarter of
Fiscal Year 2010
|
|
13.5
|
|
$
|
18.53
|
|
13.5
|
|
$
|
251
|
|
9. Compensation
The Company recorded approximately $13 million and $38
million of stock-based compensation during the three and nine months ended April 2,
2010, respectively. The Company recorded
approximately $17 million and $70 million of stock-based compensation during
the three and nine months ended April 3, 2009, respectively.
24
Table of Contents
SEAGATE TECHNOLOGY
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
(Unaudited)
10. Guarantees
Indemnifications of Officers and Directors
The Company has entered into indemnification agreements with the
members of its board of directors to indemnify them to the extent permitted by
law against any and all liabilities, costs, expenses, amounts paid in
settlement and damages incurred by any director as a result of any lawsuit or
any judicial, administrative or investigative proceeding brought against such
director as a result of their service as a member of the Companys board of
directors.
Intellectual Property Indemnification Obligations
The Company has entered into agreements
with customers and suppliers that include limited intellectual property
indemnification obligations that are customary in the industry. These
guarantees generally require the Company to compensate the other party for
certain damages and costs incurred as a result of third party intellectual
property claims arising from these transactions. The nature of the intellectual
property indemnification obligations prevents the Company from making a
reasonable estimate of the maximum potential amount it could be required to pay
to its customers and suppliers. Historically, the Company has not made any
significant indemnification payments under such agreements and no amount has
been accrued in the accompanying Condensed Consolidated Financial Statements
with respect to these indemnification obligations.
Product Warranty
The Company estimates and accrues product
warranty costs at the time revenue is recognized. The Company generally
warrants its products for periods from one to five years. The Company uses estimated
repair or replacement costs and uses statistical modeling to estimate product
return rates in order to determine its warranty obligations. In addition,
estimated settlements for customer compensatory claims relating to product
quality issues, if any, are accrued as warranty expense. Changes in the Companys
product warranty liability during the three and nine months ended April 2,
2010 and April 3, 2009 were as follows:
|
|
For the Three Months Ended
|
|
For the Nine Months Ended
|
|
(Dollars in millions)
|
|
April 2,
2010
|
|
April 3,
2009
|
|
April 2,
2010
|
|
April 3,
2009
|
|
Balance, beginning of
period
|
|
$
|
401
|
|
$
|
441
|
|
$
|
437
|
|
$
|
445
|
|
Warranties issued
|
|
56
|
|
58
|
|
167
|
|
208
|
|
Repairs and replacements
|
|
(53
|
)
|
(60
|
)
|
(167
|
)
|
(185
|
)
|
Changes in liability for
pre-existing warranties,
including expirations
|
|
(10
|
)
|
7
|
|
(43
|
)
|
(22
|
)
|
Balance, end of period
|
|
$
|
394
|
|
$
|
446
|
|
$
|
394
|
|
$
|
446
|
|
25
Table of Contents
SEAGATE TECHNOLOGY
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
(Unaudited)
11.
Earnings Per Share
In
accordance with ASC 260,
Earnings per Share
(previously SFAS 128,
Earnings per Share
)
,
the following table sets forth
the computation of basic and diluted net income (loss) per share:
|
|
For the Three Months Ended
|
|
For the Nine Months Ended
|
|
(Dollars
in millions, except per share data)
|
|
April 2,
2010
|
|
April 3,
2009
(1)
|
|
April 2,
2010
|
|
April 3,
2009
(1)
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
518
|
|
$
|
(275
|
)
|
$
|
1,230
|
|
$
|
(3,042
|
)
|
Adjustment for interest
expense on 6.8% Convertible Senior Notes due April 2010
|
|
2
|
|
|
|
4
|
|
|
|
Net income (loss), adjusted
|
|
$
|
520
|
|
$
|
(275
|
)
|
$
|
1,234
|
|
$
|
(3,042
|
)
|
Denominator:
|
|
|
|
|
|
|
|
|
|
Weighted-average common
shares outstanding
|
|
493
|
|
491
|
|
496
|
|
489
|
|
Weighted-average nonvested
shares
|
|
|
|
(2
|
)
|
(1
|
)
|
(2
|
)
|
Total shares for purpose of
calculating basic net income
(loss) per share
|
|
493
|
|
489
|
|
495
|
|
487
|
|
Weighted-average effect of
dilutive securities:
|
|
|
|
|
|
|
|
|
|
Nonvested shares
|
|
1
|
|
|
|
|
|
|
|
Dilution from employee
stock options
|
|
22
|
|
|
|
20
|
|
|
|
2.375% Convertible Senior
Notes due August 2012
|
|
2
|
|
|
|
1
|
|
|
|
6.8% Convertible Senior
Notes due April 2010
|
|
2
|
|
|
|
3
|
|
|
|
Dilutive potential common
shares:
|
|
27
|
|
|
|
24
|
|
|
|
Total shares for purpose of calculating diluted net
income
(loss) per
share
|
|
520
|
|
489
|
|
519
|
|
487
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
(loss) per share:
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per
share
|
|
$
|
1.05
|
|
$
|
(0.56
|
)
|
$
|
2.48
|
|
$
|
(6.25
|
)
|
Diluted net income (loss)
per share
|
|
$
|
1.00
|
|
$
|
(0.56
|
)
|
$
|
2.38
|
|
$
|
(6.25
|
)
|
(1) As adjusted due to a required change in the
accounting for convertible debt instruments implemented in the first quarter of
2010, applied on a retrospective basis.
The following
potential common shares were excluded from the computation of diluted net
income (loss) per share, as their effect would have been anti-dilutive:
|
|
For the Three Months Ended
|
|
For the Nine Months Ended
|
|
(In
millions)
|
|
April 2,
2010
|
|
April 3,
2009
|
|
April 2,
2010
|
|
April 3,
2009
|
|
Stock options
|
|
10
|
|
59
|
|
23
|
|
54
|
|
Nonvested shares
|
|
|
|
2
|
|
|
|
2
|
|
6.8%
Convertible Senior Notes due April 2010
|
|
|
|
4
|
|
|
|
4
|
|
26
Table
of Contents
SEAGATE TECHNOLOGY
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
(Unaudited)
12.
Legal, Environmental and Other
Contingencies
In accordance with ASC 450,
Contingencies
(previously SFAS No. 5,
Accounting for
Contingencies),
the Company assesses the probability of an
unfavorable outcome of all its material litigation, claims, or assessments to
determine whether a liability had been incurred and whether it is probable that
one or more future events will occur confirming the fact of the loss. In the
event that an unfavorable outcome is determined to be probable and the amount
of the loss can be reasonably estimated, the Company establishes an accrual for
the litigation, claim or assessment. Litigation is inherently uncertain and may
result in adverse rulings or decisions. Additionally, the Company may enter
into settlements or be subject to judgments that may, individually or in the
aggregate, have a material adverse effect on its results of operations.
Accordingly, actual results could differ materially.
Intellectual Property Litigation
Convolve, Inc. and
Massachusetts Institute of Technology (MIT) v. Seagate Technology LLC,
et al.
On July 13,
2000, Convolve and MIT filed suit against Compaq Computer Corporation and the
Company in the U.S. District Court for the Southern District of New York,
alleging infringement of U.S. Patent Nos. 4,916,635, Shaping Command
Inputs to Minimize Unwanted Dynamics (the 635 patent) and U.S. Patent No. 5,638,267,
Method and Apparatus for Minimizing Unwanted Dynamics in a Physical System
(the 267 patent), misappropriation of trade secrets, breach of contract,
tortious interference with contract and fraud relating to Convolve and MITs
Input Shaping® and Convolves Quick and Quiet technology. The plaintiffs
claimed their technology is incorporated in Seagates sound barrier technology,
which was publicly announced on June 6, 2000. The complaint seeks
injunctive relief, $800 million in compensatory damages and unspecified
punitive damages, including willful infringement.
On November 6, 2001, the U.S. Patent and
Trademark Office (USPTO) issued US Patent No. 6,314,473, System for
Removing Selected Unwanted Frequencies in Accordance with Altered Settings in a
User Interface of a Data Storage Device. (the 473 patent) to Convolve.
Convolve filed an amended complaint on January 16, 2002, alleging
defendants infringement of this patent.
Plaintiffs eventually indicated they would not
prosecute the 267 patent in this case. On March 29, 2006, the court
granted summary judgment for Seagate that Convolves fraud, tortious
interference with contract, unfair competition and breach of confidence claims
are preempted by the California Uniform Trade Secrets Act (CUTSA). The court
also held that while Convolves claim for breach of the covenant of good faith
and fair dealing is not preempted by the CUTSA, no tort damages are available.
The court entered an order on July 14, 2006, that Convolve has no evidence
to prove its claims regarding 10 alleged trade secrets, precluding Convolve
from proceeding at trial on those claims, and precluding Convolve from alleging
violations of the 10 alleged trade secrets by either defendant prior to December 7,
2005.
At Seagates request, the USPTO determined that both
patents in suit had substantial new issues of patentability and ordered
reexamination of the patents. The court denied the Companys motion to stay the
federal case pending patent reexamination. On December 2, 2008, the USPTO
issued a reexamination certificate for the 473 patent in which nine of the
claims asserted in this litigation were determined to be patentable as amended
and three asserted claims were confirmed. On January 4, 2010, the USPTO
issued a final office action in a second reexamination proceeding on the 473
patent, finally rejecting two claims and confirming 10 claims that are asserted
in the litigation. A final office action issued in the 635 reexamination in
which five asserted claims were confirmed as patentable and three asserted
claims were finally rejected. On September 21, 2009, the USPTO ordered
another reexamination of the asserted claims of the 635 patent on grounds that
there are substantial new questions of patentability. The 635 patent expired on September 12,
2008. No trial date has been set in the litigation. The Company believes the
claims are without merit, and intends to defend against them vigorously.
27
Table of Contents
SEAGATE TECHNOLOGY
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
(Unaudited)
12.
Legal, Environmental and Other
Contingencies (Continued)
Siemens, AG v. Seagate Technology
On August 23, 2006, Siemens, AG, a
German corporation, filed a complaint against Seagate Technology in the U.S.
District Court for the Central District of California alleging infringement of
U.S. Patent No. 5,686,838 (the 838 patent) entitled Magnetoresistive
Sensor Having at Least a Layer System and a Plurality of Measuring Contacts
Disposed Thereon, and a Method of Producing the Sensor. The suit alleged that
Seagate drives incorporating Giant Magnetic Resistive (GMR) sensors infringe
the 838 patent. The complaint sought damages in an unstated amount, an
accounting, preliminary and permanent injunctions, prejudgment interest,
enhanced damages for alleged willful infringement and attorney fees and costs.
Siemens amended its complaint to add Tunnel Magnetic Resistive (TMR) sensors to
the case. On May 9, 2008, the court entered summary judgment that TMR
sensors are not covered by the 838 patent, thus eliminating TMR products from
the case. On September 23, 2008, the court entered summary judgment that
Seagate drives incorporating GMR sensors are covered by the 838 patent. Trial
began on November 12, 2008, and a jury returned a verdict in favor of
Seagate on December 23, 2008, finding the 838 patent invalid on grounds
of both anticipation and obviousness. Judgment was entered by the court in
Seagates favor on January 30, 2009, and Siemens post-trial motions were
all denied. Siemens appealed to the Federal Circuit Court of Appeals, which
entered an order on March 9, 2010, affirming the jurys verdict invalidating
the Siemens patent and denying Siemens any relief.
Siemens, AG v. Seagate Technology (Ireland)
On December 2, 2008, Siemens served
Seagate Technology (Ireland), an indirect wholly-owned subsidiary of Seagate
Technology, with a writ of summons alleging infringement of European Patent
(UK) No. 0 674 769 (the EU 769 patent), which is the European
counterpart to US Patent No. 5,686,838 upon which Siemens had sued Seagate
Technology in the United States. The suit was filed in the High Court of
Justice in Northern Ireland, Chancery Division. Siemens alleges that giant
magnetoresistive (GMR), tunnel magnetoresistive (TMR), and tunnel giant
magnetoresistive (TGMR) products designed and manufactured by Seagate
Technology (Ireland) infringe the EU769 patent. Trial is set for May 2010.
The Company believes the claims are without merit and intends to defend against
them vigorously.
Qimonda AG v. LSI Corporation, et al.
On December 19, 2008, the US
International Trade Commission (ITC) instituted an investigation under
section 337 of the Tariff Act of 1930, as amended, at the request of
complainant Qimonda AG, naming LSI Corporation and six Seagate Technology
entities as respondents. The complaint alleges that LSI and Seagate import
products into the US that infringe seven Qimonda patents relating to the design
and manufacture of semiconductor integrated chips. The ITC trial was held in June 2009.
On October 14, 2009, the Administrative Law Judge issued an Initial
Determination finding the Qimonda patents either invalid, not infringed, or
both. Qimonda appealed to the ITC
Commission, who ruled on January 29, 2010, that the patents were either
invalid, not infringed, or both. On March 31, 2010, Qimonda noticed an
appeal of the Commisions ruling to the Court of Appeals for the Federal
Circuit. The Company intends to vigorously oppose the appeal.
Collins, et al. v. Seagate technology, et al.
On July 15, 2009, Carl Collins and
Farzin Davanloo filed a complaint against Seagate Technology, Seagate
Technology LLC and 19 other hard drive, computer, and retail companies.
The complaint alleges that unspecified hard disk drives and components thereof
infringe US patent Nos. 5,411,797 (the 797 patent) and 5,478,650 (the 650
patent), both entitled Nanophase Diamond Films. The case is pending in the US
District Court for the Eastern District of Texas, Marshall Division. The
complaint seeks unspecified damages and an injunction. The Company filed an
answer to the complaint on September 8, 2009, denying all material
allegations and asserting affirmative defenses.
Alexander Shukh v. Seagate Technology
Former Seagate engineer Alexander Shukh
filed a complaint and an amended complaint against Seagate in Minnesota federal
court, alleging, among other things, employment discrimination based on his
Belarusian national origin and wrongful failure to name him as an inventor on
several patents and patent applications. Mr. Shukhs employment was
terminated as part of a company-wide reduction in force in 2009. He seeks
damages in excess of $75 million. The Company believes the claims are
without merit and intends to vigorously defend this case.
Siemens GmbH v. Seagate Technology (Germany)
On
March 26, 2010,
Siemens commenced proceedings against Seagate Technology GmbH, the Netherlands
branch office of Seagate Technology International, and Seagate Technology LLC
in the Dusseldorf District Court in Germany.
The complaint alleges infringement of European Patent Number 0 674 769
(the EU 769 Patent), which corresponds to the patent in suit in the U.S. and
Northern Ireland litigations. Siemens
seeks a declaration that the EU 769 Patent is infringed by GMR and TMR
products, removal of all infringing inventory, damages in an unstated amount,
and costs. The Company intends to vigorously oppose this action.
28
Table
of Contents
SEAGATE TECHNOLOGY
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
(Unaudited)
12.
Legal, Environmental and
Other Contingencies (Continued)
Other Matters
The Company is involved
in a number of other judicial and administrative proceedings incidental to its
business, and the Company may be involved in various legal proceedings arising
in the normal course of its business in the future. Although occasional adverse
decisions or settlements may occur, the Company believes that the final
disposition of such matters will not have a material adverse effect on its
financial position or results of operations.
13. Condensed
Consolidating Financial Information
On June 1,
2009, Maxtor, an indirect wholly-owned subsidiary of the Company incorporated
in Delaware, merged with Seagate Technology U.S. Holdings, Inc. (STUS)
(the Merger), also an indirect wholly-owned subsidiary of the Company
incorporated in Delaware. On June 1, 2009, in connection with the
consummation of the Merger, the Company entered into second supplemental
indentures (collectively, the Supplemental Indentures) with Maxtor, STUS and
U.S. Bank National Association, as trustee, amending and supplementing the
indentures (collectively, the Indentures)
governing: (i) the 2.375% Notes; (ii) the 6.8% Notes; and (iii) the
5.75% Debentures (together with the 2.375% Notes and the 6.8% Notes, the Notes).
Pursuant to the Supplemental Indentures, STUS succeeded to, and assumed all of
the obligations of, Maxtor under the Indentures and the Notes. As a result,
Maxtor was discharged and released from all of its obligations under the
Indentures and the Notes and the Company agreed to fully and unconditionally
guarantee all of the obligations of STUS under the Indentures and the Notes,
including the due and punctual payment of principal and interest.
The
following tables present parent guarantor, subsidiary issuer and combined
non-guarantors Condensed Consolidating Balance Sheets of the Company and its
subsidiaries at April 2, 2010 and July 3, 2009, the Condensed
Consolidating Statements of Operations for the three and nine months ended
April 2, 2010 and April 3, 2009 and the Condensed Consolidating
Statements of Cash Flows for the nine months ended April 2, 2010 and
April 3, 2009. The information
classifies the Companys subsidiaries into Seagate Technology-parent company
guarantor, STUS-subsidiary issuer (or in the case of the three and nine months
ended April 3, 2009, Maxtor-subsidiary issuer) and the Combined
Non-Guarantors based on the classification of those subsidiaries under the
terms of the Notes.
29
Table
of Contents
SEAGATE TECHNOLOGY
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
(Unaudited)
13. Condensed Consolidating Financial Information
(continued)
Consolidating
Balance Sheet
April 2,
2010
(In
millions)
|
|
Seagate
Technology
Parent
Company
Guarantor
|
|
STUS
Subsidiary
Issuer
|
|
Combined
Non-
Guarantors
|
|
Eliminations
|
|
Seagate
Technology
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents
|
|
$
|
16
|
|
$
|
112
|
|
$
|
1,934
|
|
$
|
|
|
$
|
2,062
|
|
Short-term investments
|
|
|
|
|
|
214
|
|
|
|
214
|
|
Restricted cash and
investments
|
|
|
|
|
|
103
|
|
|
|
103
|
|
Accounts receivable,
net
|
|
|
|
|
|
1,451
|
|
|
|
1,451
|
|
Intercompany receivable
|
|
|
|
5
|
|
15
|
|
(20
|
)
|
|
|
Inventories
|
|
|
|
|
|
685
|
|
|
|
685
|
|
Other current assets
|
|
|
|
97
|
|
544
|
|
|
|
641
|
|
Total Current Assets
|
|
16
|
|
214
|
|
4,946
|
|
(20
|
)
|
5,156
|
|
Property, equipment and
leasehold improvements, net
|
|
|
|
|
|
2,054
|
|
|
|
2,054
|
|
Equity investments in
Non-Guarantors
|
|
2,812
|
|
|
|
|
|
(2,812
|
)
|
|
|
Intercompany note
receivable
|
|
|
|
|
|
167
|
|
(167
|
)
|
|
|
Other assets, net
|
|
|
|
366
|
|
171
|
|
|
|
537
|
|
Total Assets
|
|
$
|
2,828
|
|
$
|
580
|
|
$
|
7,338
|
|
$
|
(2,999
|
)
|
$
|
7,747
|
|
Accounts payable
|
|
$
|
|
|
$
|
|
|
$
|
1,895
|
|
$
|
|
|
$
|
1,895
|
|
Intercompany payable
|
|
2
|
|
13
|
|
5
|
|
(20
|
)
|
|
|
Accrued employee
compensation
|
|
|
|
2
|
|
212
|
|
|
|
214
|
|
Accrued expenses
|
|
2
|
|
29
|
|
607
|
|
|
|
638
|
|
Accrued income taxes
|
|
|
|
8
|
|
4
|
|
|
|
12
|
|
Current portion of
long-term debt
|
|
|
|
376
|
|
1
|
|
|
|
377
|
|
Total Current
Liabilities
|
|
4
|
|
428
|
|
2,724
|
|
(20
|
)
|
3,136
|
|
Other non-current
liabilities
|
|
|
|
35
|
|
261
|
|
|
|
296
|
|
Long-term accrued
income taxes
|
|
|
|
25
|
|
35
|
|
|
|
60
|
|
Intercompany note
payable
|
|
167
|
|
|
|
|
|
(167
|
)
|
|
|
Long-term debt, less
current portion
|
|
|
|
26
|
|
1,572
|
|
|
|
1,598
|
|
Liability for deficit
of STUS
|
|
|
|
|
|
18
|
|
(18
|
)
|
|
|
Liability for deficit
of Non-Guarantor
|
|
|
|
84
|
|
|
|
(84
|
)
|
|
|
Total Liabilities
|
|
171
|
|
598
|
|
4,610
|
|
(289
|
)
|
5,090
|
|
Shareholders Equity
(Deficit)
|
|
2,657
|
|
(18
|
)
|
2,728
|
|
(2,710
|
)
|
2,657
|
|
Total Liabilities and
Shareholders Equity (Deficit)
|
|
$
|
2,828
|
|
$
|
580
|
|
$
|
7,338
|
|
$
|
(2,999
|
)
|
$
|
7,747
|
|
30
Table of Contents
SEAGATE TECHNOLOGY
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
(Unaudited)
13. Condensed
Consolidating Financial Information (continued)
Consolidating
Balance Sheet
July 3,
2009
(a)
(In
millions)
|
|
Seagate
Technology
Parent
Company
Guarantor
|
|
STUS
Subsidiary
Issuer
|
|
Combined
Non-
Guarantors
|
|
Eliminations
|
|
Seagate
Technology
Consolidated
|
|
Cash
and cash equivalents
|
|
$
|
18
|
|
$
|
180
|
|
$
|
1,229
|
|
$
|
|
|
$
|
1,427
|
|
Short-term
investments
|
|
|
|
|
|
114
|
|
|
|
114
|
|
Restricted
cash and investments
|
|
|
|
|
|
508
|
|
|
|
508
|
|
Accounts
receivable, net
|
|
|
|
|
|
1,033
|
|
|
|
1,033
|
|
Intercompany
receivable
|
|
|
|
1
|
|
2
|
|
(3
|
)
|
|
|
Inventories
|
|
|
|
|
|
587
|
|
|
|
587
|
|
Other
current assets
|
|
|
|
117
|
|
508
|
|
|
|
625
|
|
Total
Current Assets
|
|
18
|
|
298
|
|
3,981
|
|
(3
|
)
|
4,294
|
|
Property,
equipment and leasehold improvements, net
|
|
|
|
1
|
|
2,228
|
|
|
|
2,229
|
|
Equity
investments in Non-Guarantors
|
|
4,814
|
|
|
|
|
|
(4,814
|
)
|
|
|
Intercompany
note receivable
|
|
|
|
|
|
3,277
|
|
(3,277
|
)
|
|
|
Other
assets, net
|
|
|
|
363
|
|
201
|
|
|
|
564
|
|
Total
Assets
|
|
$
|
4,832
|
|
$
|
662
|
|
$
|
9,687
|
|
$
|
(8,094
|
)
|
$
|
7,087
|
|
Short-term borrowings
|
|
$
|
|
|
$
|
|
|
$
|
350
|
|
$
|
|
|
$
|
350
|
|
Accounts
payable
|
|
|
|
|
|
1,573
|
|
|
|
1,573
|
|
Intercompany
payable
|
|
|
|
2
|
|
1
|
|
(3
|
)
|
|
|
Accrued
employee compensation
|
|
|
|
3
|
|
141
|
|
|
|
144
|
|
Accrued
expenses
|
|
1
|
|
30
|
|
665
|
|
|
|
696
|
|
Accrued
income taxes
|
|
|
|
10
|
|
|
|
|
|
10
|
|
Current
portion of long-term debt
|
|
|
|
121
|
|
300
|
|
|
|
421
|
|
Total
Current Liabilities
|
|
1
|
|
166
|
|
3,030
|
|
(3
|
)
|
3,194
|
|
Other
liabilities
|
|
|
|
56
|
|
288
|
|
|
|
344
|
|
Intercompany
note payable
|
|
3,277
|
|
|
|
|
|
(3,277
|
)
|
|
|
Long-term
accrued income taxes
|
|
|
|
31
|
|
38
|
|
|
|
69
|
|
Long-term
debt, less current portion
|
|
|
|
318
|
|
1,608
|
|
|
|
1,926
|
|
Liability
for deficit of STUS
|
|
|
|
|
|
27
|
|
(27
|
)
|
|
|
Liability
for deficit of Non-Guarantors
|
|
|
|
118
|
|
|
|
(118
|
)
|
|
|
Total
Liabilities
|
|
3,278
|
|
689
|
|
4,991
|
|
(3,425
|
)
|
5,533
|
|
Shareholders
Equity (Deficit)
|
|
1,554
|
|
(27
|
)
|
4,696
|
|
(4,669
|
)
|
1,554
|
|
Total
Liabilities and Shareholders Equity (Deficit)
|
|
$
|
4,832
|
|
$
|
662
|
|
$
|
9,687
|
|
$
|
(8,094
|
)
|
$
|
7,087
|
|
(a) As adjusted due to a required change in the accounting for
convertible debt instruments implemented in the first quarter of fiscal year
2010, applied on a retrospective basis.
31
Table of Contents
SEAGATE TECHNOLOGY
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
(Unaudited)
13. Condensed
Consolidating Financial Information (continued)
Consolidating
Statement of Operations
Three
Months Ended April 2, 2010
(In
millions)
|
|
Seagate
Technology
Parent
Company
Guarantor
|
|
STUS
Subsidiary
Issuer
|
|
Combined
Non-
Guarantors
|
|
Eliminations
|
|
Seagate
Technology
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
|
|
$
|
|
|
$
|
3,049
|
|
$
|
|
|
$
|
3,049
|
|
Cost of revenue
|
|
|
|
(5
|
)
|
2,153
|
|
|
|
2,148
|
|
Product development
|
|
|
|
|
|
224
|
|
|
|
224
|
|
Marketing and administrative
|
|
3
|
|
3
|
|
99
|
|
|
|
105
|
|
Amortization of
intangibles
|
|
|
|
|
|
8
|
|
|
|
8
|
|
Restructuring
|
|
|
|
|
|
4
|
|
|
|
4
|
|
Total operating
expenses
|
|
3
|
|
(2
|
)
|
2,488
|
|
|
|
2,489
|
|
Income (loss) from
operations
|
|
(3
|
)
|
2
|
|
561
|
|
|
|
560
|
|
Interest income
|
|
|
|
|
|
2
|
|
|
|
2
|
|
Interest expense
|
|
|
|
(8
|
)
|
(33
|
)
|
|
|
(41
|
)
|
Equity in loss of STUS
|
|
|
|
|
|
(1
|
)
|
1
|
|
|
|
Equity in income of
Non-Guarantors
|
|
521
|
|
6
|
|
|
|
(527
|
)
|
|
|
Other, net
|
|
|
|
|
|
1
|
|
|
|
1
|
|
Other income (expense),
net
|
|
521
|
|
(2
|
)
|
(31
|
)
|
(526
|
)
|
(38
|
)
|
Income (loss) before
income taxes
|
|
518
|
|
|
|
530
|
|
(526
|
)
|
522
|
|
Provision for (benefit
from) income taxes
|
|
|
|
1
|
|
3
|
|
|
|
4
|
|
Net income (loss)
|
|
$
|
518
|
|
$
|
(1
|
)
|
$
|
527
|
|
$
|
(526
|
)
|
$
|
518
|
|
32
Table of Contents
SEAGATE TECHNOLOGY
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
(Unaudited)
13. Condensed
Consolidating Financial Information (continued)
Consolidating
Statement of Operations
Nine
Months Ended April 2, 2010
(In
millions)
|
|
Seagate
Technology
Parent
Company
Guarantor
|
|
STUS
Subsidiary
Issuer
|
|
Combined
Non-
Guarantors
|
|
Eliminations
|
|
Seagate
Technology
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
|
|
$
|
|
|
$
|
8,738
|
|
$
|
|
|
$
|
8,738
|
|
Cost of revenue
|
|
|
|
(9
|
)
|
6,270
|
|
|
|
6,261
|
|
Product development
|
|
|
|
|
|
658
|
|
|
|
658
|
|
Marketing and administrative
|
|
3
|
|
6
|
|
314
|
|
|
|
323
|
|
Amortization of intangibles
|
|
|
|
|
|
23
|
|
|
|
23
|
|
Restructuring
|
|
|
|
|
|
50
|
|
|
|
50
|
|
Impairment of long-lived assets
|
|
|
|
|
|
64
|
|
|
|
64
|
|
Total operating expenses
|
|
3
|
|
(3
|
)
|
7,379
|
|
|
|
7,379
|
|
Income (loss) from operations
|
|
(3
|
)
|
3
|
|
1,359
|
|
|
|
1,359
|
|
Interest income
|
|
|
|
|
|
4
|
|
|
|
4
|
|
Interest expense
|
|
|
|
(24
|
)
|
(103
|
)
|
|
|
(127
|
)
|
Equity in loss of STUS
|
|
|
|
|
|
(21
|
)
|
21
|
|
|
|
Equity in income of Non-Guarantors
|
|
1,233
|
|
5
|
|
|
|
(1,238
|
)
|
|
|
Other, net
|
|
|
|
(1
|
)
|
(6
|
)
|
|
|
(7
|
)
|
Other income (expense), net
|
|
1,233
|
|
(20
|
)
|
(126
|
)
|
(1,217
|
)
|
(130
|
)
|
Income (loss) before income taxes
|
|
1,230
|
|
(17
|
)
|
1,233
|
|
(1,217
|
)
|
1,229
|
|
Provision for (benefit from) income taxes
|
|
|
|
4
|
|
(5
|
)
|
|
|
(1
|
)
|
Net income (loss)
|
|
$
|
1,230
|
|
$
|
(21
|
)
|
$
|
1,238
|
|
$
|
(1,217
|
)
|
$
|
1,230
|
|
33
Table of Contents
SEAGATE TECHNOLOGY
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
(Unaudited)
13. Condensed
Consolidating Financial Information (continued)
Consolidating
Statement of Cash Flows
Nine
Months Ended April 2, 2010
(In
millions)
|
|
Seagate
Technology
Parent
Company
Guarantor
|
|
STUS
Subsidiary
Issuer
|
|
Combined
Non-
Guarantors
|
|
Eliminations
|
|
Seagate
Technology
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING
ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
1,230
|
|
$
|
(21
|
)
|
$
|
1,238
|
|
$
|
(1,217
|
)
|
$
|
1,230
|
|
Adjustments to
reconcile net income to net cash (used in) provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and
amortization
|
|
|
|
1
|
|
583
|
|
|
|
584
|
|
Stock-based
compensation
|
|
|
|
1
|
|
37
|
|
|
|
38
|
|
Impairment of
long-lived assets
|
|
|
|
|
|
64
|
|
|
|
64
|
|
Equity in (income) of
STUS
|
|
|
|
|
|
21
|
|
(21
|
)
|
|
|
Equity in (income) loss
of Non-Guarantors
|
|
(1,233
|
)
|
(5
|
)
|
|
|
1,238
|
|
|
|
Other non-cash
operating activities, net
|
|
1
|
|
26
|
|
5
|
|
|
|
32
|
|
Changes in operating
assets and liabilities, net
|
|
3
|
|
(25
|
)
|
(318
|
)
|
|
|
(340
|
)
|
Net cash (used in)
provided by operating activities
|
|
1
|
|
(23
|
)
|
1,630
|
|
|
|
1,608
|
|
INVESTING
ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of
property, equipment and leasehold improvements
|
|
|
|
|
|
(372
|
)
|
|
|
(372
|
)
|
Purchase of short-term
investments
|
|
|
|
|
|
(278
|
)
|
|
|
(278
|
)
|
Maturities and sales of
short-term investments
|
|
|
|
|
|
176
|
|
|
|
176
|
|
Decrease in restricted
cash and investments
|
|
|
|
|
|
26
|
|
|
|
26
|
|
Other investing
activities, net
|
|
|
|
|
|
1
|
|
|
|
1
|
|
Net cash provided by
(used in) investing activities
|
|
|
|
|
|
(447
|
)
|
|
|
(447
|
)
|
FINANCING
ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from
short-term borrowings
|
|
|
|
|
|
15
|
|
|
|
15
|
|
Repayment of short-term
borrowings
|
|
|
|
|
|
(365
|
)
|
|
|
(365
|
)
|
Retirements and
maturities of long-term debt
|
|
|
|
(45
|
)
|
(340
|
)
|
|
|
(385
|
)
|
Decrease in restricted
cash and investments
|
|
|
|
|
|
379
|
|
|
|
379
|
|
Loan from HDD to Parent
|
|
167
|
|
|
|
(167
|
)
|
|
|
|
|
Repurchase of common
shares
|
|
(251
|
)
|
|
|
|
|
|
|
(251
|
)
|
Proceeds from exercise
of employee stock options and employee stock purchase plan
|
|
81
|
|
|
|
|
|
|
|
81
|
|
Net cash provided by
(used in) financing activities
|
|
(3
|
)
|
(45
|
)
|
(478
|
)
|
|
|
(526
|
)
|
Increase in (decrease)
cash and cash equivalents
|
|
(2
|
)
|
(68
|
)
|
705
|
|
|
|
635
|
|
Cash and cash
equivalents at the beginning of the period
|
|
18
|
|
180
|
|
1,229
|
|
|
|
1,427
|
|
Cash and cash
equivalents at the end of the period
|
|
$
|
16
|
|
$
|
112
|
|
$
|
1,934
|
|
$
|
|
|
$
|
2,062
|
|
Supplemental noncash financing
activities
During the nine months ended April 2, 2010,
the $3,277 million inter-company note that was payable by Seagate Technology
Parent Company Guarantor to a Non-Guarantor subsidiary was distributed to
Seagate Technology Parent Company Guarantor and subsequently cancelled.
34
Table of Contents
SEAGATE TECHNOLOGY
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
(Unaudited)
13. Condensed
Consolidating Financial Information (continued)
Consolidating
Statement of Operations
Three
Months Ended April 3, 2009
(a)
(In
millions)
|
|
Seagate
Technology
Parent
Company
Guarantor
|
|
Maxtor
Subsidiary
Issuer
|
|
Combined
Non-
Guarantors
|
|
Eliminations
|
|
Seagate
Technology
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
|
|
$
|
|
|
$
|
2,150
|
|
$
|
|
|
$
|
2,150
|
|
Cost of revenue
|
|
|
|
1
|
|
1,996
|
|
|
|
1,997
|
|
Product development
|
|
|
|
|
|
243
|
|
|
|
243
|
|
Marketing and
administrative
|
|
|
|
|
|
134
|
|
|
|
134
|
|
Amortization of
intangibles
|
|
|
|
|
|
13
|
|
|
|
13
|
|
Restructuring
|
|
|
|
|
|
25
|
|
|
|
25
|
|
Total operating
expenses
|
|
|
|
1
|
|
2,411
|
|
|
|
2,412
|
|
Income (loss) from
operations
|
|
|
|
(1
|
)
|
(261
|
)
|
|
|
(262
|
)
|
Interest income
|
|
|
|
|
|
9
|
|
(6
|
)
|
3
|
|
Interest expense
|
|
|
|
(14
|
)
|
(29
|
)
|
6
|
|
(37
|
)
|
Equity in loss of
Maxtor
|
|
|
|
|
|
(28
|
)
|
28
|
|
|
|
Equity in income (loss)
of Non-Guarantors
|
|
(275
|
)
|
2
|
|
(235
|
)
|
508
|
|
|
|
Other, net
|
|
|
|
|
|
5
|
|
|
|
5
|
|
Other income (expense),
net
|
|
(275
|
)
|
(12
|
)
|
(278
|
)
|
536
|
|
(29
|
)
|
Income (loss) before
income taxes
|
|
(275
|
)
|
(13
|
)
|
(539
|
)
|
536
|
|
(291
|
)
|
Provision for (benefit
from) income taxes
|
|
|
|
|
|
(16
|
)
|
|
|
(16
|
)
|
Net income (loss)
|
|
$
|
(275
|
)
|
$
|
(13
|
)
|
$
|
(523
|
)
|
$
|
536
|
|
$
|
(275
|
)
|
(a)
As adjusted due to a
required change in the accounting for convertible debt instruments implemented
in the first quarter of fiscal year 2010, applied on a retrospective basis.
35
Table of Contents
SEAGATE TECHNOLOGY
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
(Unaudited)
13. Condensed Consolidating
Financial Information (continued)
Consolidating
Statement of Operations
Nine
Months Ended April 3, 2009
(a)
(In
millions)
|
|
Seagate
Technology
Parent
Company
Guarantor
|
|
Maxtor
Subsidiary
Issuer
|
|
Combined
Non-
Guarantors
|
|
Eliminations
|
|
Seagate
Technology
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
|
|
$
|
|
|
$
|
7,452
|
|
$
|
|
|
$
|
7,452
|
|
Cost of revenue
|
|
|
|
2
|
|
6,455
|
|
|
|
6,457
|
|
Product development
|
|
|
|
2
|
|
736
|
|
|
|
738
|
|
Marketing and
administrative
|
|
|
|
(5
|
)
|
429
|
|
|
|
424
|
|
Amortization of
intangibles
|
|
|
|
|
|
41
|
|
|
|
41
|
|
Restructuring
|
|
|
|
10
|
|
116
|
|
|
|
126
|
|
Impairment of goodwill
and long-lived assets
|
|
|
|
|
|
2,320
|
|
|
|
2,320
|
|
Total operating
expenses
|
|
|
|
9
|
|
10,097
|
|
|
|
10,106
|
|
Income (loss) from
operations
|
|
|
|
(9
|
)
|
(2,645
|
)
|
|
|
(2,654
|
)
|
Interest income
|
|
|
|
|
|
38
|
|
(23
|
)
|
15
|
|
Interest expense
|
|
|
|
(49
|
)
|
(76
|
)
|
23
|
|
(102
|
)
|
Equity in loss of
Maxtor
|
|
|
|
|
|
(88
|
)
|
88
|
|
|
|
Equity in loss of
Non-Guarantors
|
|
(3,042
|
)
|
(16
|
)
|
(2,957
|
)
|
6,015
|
|
|
|
Other, net
|
|
|
|
|
|
(17
|
)
|
|
|
(17
|
)
|
Other income (expense),
net
|
|
(3,042
|
)
|
(65
|
)
|
(3,100
|
)
|
6,103
|
|
(104
|
)
|
Income (loss) before
income taxes
|
|
(3,042
|
)
|
(74
|
)
|
(5,745
|
)
|
6,103
|
|
(2,758
|
)
|
Provision for (benefit
from) income taxes
|
|
|
|
(1
|
)
|
285
|
|
|
|
284
|
|
Net income (loss)
|
|
$
|
(3,042
|
)
|
$
|
(73
|
)
|
$
|
(6,030
|
)
|
$
|
6,103
|
|
$
|
(3,042
|
)
|
(a)
As adjusted due to a
required change in the accounting for convertible debt instruments implemented
in the first quarter of fiscal year 2010, applied on a retrospective basis.
36
Table of Contents
SEAGATE TECHNOLOGY
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
(Unaudited)
13. Condensed
Consolidating Financial Information (continued)
Consolidating
Statement of Cash Flows
Nine
Months Ended April 3, 2009
(a)
(In
millions)
|
|
Seagate
Technology
Parent
Company
Guarantor
|
|
Maxtor
Subsidiary
Issuer
|
|
Combined
Non-
Guarantors
|
|
Eliminations
|
|
Seagate
Technology
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING
ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(3,042
|
)
|
$
|
(73
|
)
|
$
|
(6,030
|
)
|
$
|
6,103
|
|
$
|
(3,042
|
)
|
Adjustments to
reconcile net income (loss) to net cash provided by (used in) operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and
amortization
|
|
|
|
2
|
|
705
|
|
|
|
707
|
|
Stock-based
compensation
|
|
|
|
3
|
|
67
|
|
|
|
70
|
|
Impairment of goodwill
and long-lived assets
|
|
|
|
|
|
2,320
|
|
|
|
2,320
|
|
Deferred income taxes
|
|
|
|
|
|
295
|
|
|
|
295
|
|
Equity in (income) loss
of Maxtor
|
|
|
|
|
|
73
|
|
(73
|
)
|
|
|
Equity in (income) loss
of Non-Guarantors
|
|
3,042
|
|
16
|
|
2,972
|
|
(6,030
|
)
|
|
|
Other non-cash
operating activities, net
|
|
|
|
8
|
|
(9
|
)
|
|
|
(1
|
)
|
Changes in operating
assets and liabilities, net
|
|
(2
|
)
|
(6
|
)
|
290
|
|
|
|
282
|
|
Net cash provided by
(used in) operating activities
|
|
(2
|
)
|
(50
|
)
|
683
|
|
|
|
631
|
|
INVESTING
ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of
property, equipment and leasehold improvements
|
|
|
|
|
|
(553
|
)
|
|
|
(553
|
)
|
Purchase of short-term
investments
|
|
|
|
|
|
(124
|
)
|
|
|
(124
|
)
|
Maturities and sales of
short-term investments
|
|
|
|
|
|
146
|
|
|
|
146
|
|
Other investing
activities, net
|
|
|
|
|
|
19
|
|
|
|
19
|
|
Net cash provided by
(used in) investing activities
|
|
|
|
|
|
(512
|
)
|
|
|
(512
|
)
|
FINANCING
ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from
short-term borrowings
|
|
|
|
|
|
350
|
|
|
|
350
|
|
Repayment of long-term
debt
|
|
|
|
(5
|
)
|
(15
|
)
|
|
|
(20
|
)
|
Loan from Non-Guarantor
to Parent
|
|
94
|
|
|
|
(94
|
)
|
|
|
|
|
Loan from Non-Guarantor
to Maxtor
|
|
|
|
48
|
|
(48
|
)
|
|
|
|
|
Distribution from
Non-Guarantor to Maxtor
|
|
|
|
7
|
|
(7
|
)
|
|
|
|
|
Proceeds from exercise
of employee stock options and employee stock purchase plan
|
|
45
|
|
|
|
|
|
|
|
45
|
|
Dividends to
shareholders
|
|
(132
|
)
|
|
|
|
|
|
|
(132
|
)
|
Net cash provided by
(used in) financing activities
|
|
7
|
|
50
|
|
186
|
|
|
|
243
|
|
Increase (decrease) in
cash and cash equivalents
|
|
5
|
|
|
|
357
|
|
|
|
362
|
|
Cash and cash
equivalents at the beginning of the period
|
|
3
|
|
1
|
|
986
|
|
|
|
990
|
|
Cash and cash
equivalents at the end of the period
|
|
$
|
8
|
|
$
|
1
|
|
$
|
1,343
|
|
$
|
|
|
$
|
1,352
|
|
(a)
As adjusted due to a
required change in the accounting for convertible debt instruments implemented
in the first quarter of fiscal year 2010, applied on a retrospective basis.
37
Table of Contents
SEAGATE TECHNOLOGY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Unaudited)
14.
Subsequent Events
On April 29, 2010, the Company terminated its
$350 million senior credit facility.
On April 29, 2010, the Company announced the
offering of $600 million aggregate principal amount of 6.875% Senior Notes due
2020 (the 6.875% Notes). The 6.875% Notes were offered in a private placement
exempt from the registration requirements of the Securities Act of 1933, as
amended. The 6.875% Notes were issued by Seagate HDD Cayman, an indirect
wholly-owned subsidiary of Seagate Technology, and guaranteed by Seagate
Technology on a full and unconditional basis. The sale of the 6.875% Notes is
expected to close on May 13, 2010, subject to customary closing
conditions.
On April 30, 2010, the Company repaid the
remaining balance of $77 million in cash for its 6.8% Convertible Senior Notes
due April 2010.
38
Table of Contents
ITEM 2.
MANAGEMENTS DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The
following is a discussion of the financial condition and results of operations
for our fiscal quarter ended April 2, 2010, herein referred to as the March 2010
quarter. Unless the context indicates otherwise, as used herein, the terms we,
us, Seagate, the Company and our refer to Seagate Technology, an
exempted company incorporated with limited liability under the laws of the
Cayman Islands, and its subsidiaries. References to $ are to United States
dollars
.
You
should read this discussion in conjunction with financial information and
related notes included elsewhere in this report. We operate and report
financial results on a fiscal year of 52 or 53 weeks ending on the Friday
closest to June 30. The quarters ended April 2, 2010, January 1,
2010, and April 3, 2009 were all 13 weeks.
The nine months ended April 2, 2010 was 39 weeks as compared to the
nine months ended April 3, 2009, which was 40 weeks. Except as noted, references to any fiscal
year mean the twelve-month period ending on the Friday closest to June 30
of that year.
Some
of the statements and assumptions included in this Quarterly Report on Form 10-Q
are forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 or Section 21E of the Securities Exchange Act of 1934,
each as amended, including, in particular, statements about our plans,
strategies and prospects and estimates of industry growth for the fiscal
quarter ending July 2, 2010 and beyond. These statements identify
prospective information and include words such as expects, plans, anticipates,
believes, estimates, predicts, projects and similar expressions. These
forward-looking statements are based on information available to us as of the
date of this 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 our control.
In particular, the decline in global economic conditions pose a risk to our
operating and financial performance as consumers and businesses have, and may
continue to, defer purchases in response to tighter credit and negative
financial conditions. Such risks and uncertainties also include the impact of
the variable demand, particularly in view of current business and economic
conditions; dependence on our ability to successfully qualify, manufacture and
sell our disk drive products in increasing volumes on a cost-effective basis
and with acceptable quality, particularly our new disk drive products with
lower cost structures; the impact of competitive product announcements; our
ability to achieve projected cost savings; and our ability to rapidly increase
our manufacturing capacity in pace with our competitors if demand for disk
drives increases. We also encourage you
to read our Annual Report on Form 10-K as filed with the U.S. Securities
and Exchange Commission (SEC) on August 19, 2009, as it contains information
concerning risk, uncertainties and other factors that could cause results to
differ materially from those projected in the forward-looking statements. These
forward-looking statements should not be relied upon as representing our views
as of any subsequent date and we undertake no obligation to update
forward-looking statements to reflect events or circumstances after the date
they were made.
Our Managements
Discussion and Analysis of Financial Condition and Results of Operations
(MD&A) is provided in addition to the accompanying condensed consolidated
financial statements and notes to assist readers in understanding our results
of operations, financial condition and cash flows. Our MD&A is organized as follows:
·
Our Company.
Overview of our business.
·
Overview of the March 2010 quarter.
The March 2010 quarter summary and
trends.
·
Results of Operations.
Analysis of our financial results
comparing the March 2010 quarter to the December 2009 quarter and the
March 2009 quarter. Also comparing the first nine months of fiscal year
2010 to the corresponding period in the prior year.
·
Liquidity and Capital Resources.
An analysis of changes in our
balance sheets and cash flows, and discussion of our financial condition
including the credit quality of our investment portfolio and potential sources
of liquidity.
·
Contractual Obligations and
Off-Balance-Sheet Arrangements.
Overview of contractual obligations and
contingent liabilities and commitments outstanding as of April 2, 2010 and
an explanation of off-balance-sheet arrangements.
·
Critical Accounting Policies.
Accounting policies and estimates
that we believe are important to understanding the assumptions and judgments
incorporated in our reported financial results.
39
Table
of Contents
Our
Company
We are the worlds leading provider of hard disk
drives based on revenue. We design, manufacture, market and sell hard disk
drives. We produce a broad range of disk drive products addressing enterprise
applications, where our products are used in enterprise servers, mainframes and
workstations; desktop applications, where our products are used in desktop
computers; mobile compute applications, where our products are used in notebook
computers; and consumer electronics applications, where our products are used
in a wide variety of devices such as digital video recorders (DVRs) and other
consumer electronic devices that require storage. We also sell our branded
storage solutions under both the Seagate and Maxtor brands. In addition to
manufacturing and selling disk drives, we provide data storage services for
small- to medium-sized businesses, including online backup, data protection and
recovery solutions.
Overview
of the March 2010 Quarter
Revenue in the March 2010 quarter reached $3.05
billion, a 42% increase from the same period in fiscal year 2009, which
reflected the hard disk drive (HDD) industrys continued recovery from the
global economic downturn and a muted seasonal pattern. Net income was $518 million, resulting in
$1.00 of diluted earnings per share. We continued to strengthen our balance
sheet in the March 2010 quarter. We
generated operating cash flow of $577 million in the quarter and used approximately
$251 million to repurchase 13.5 million of our common shares and $180 million
for capital expenditures.
The following table sets forth revenue, gross margin,
income (loss) from operations, net income (loss) and net income (loss) per
share for the periods indicated:
|
|
For the Three Months Ended
|
|
(Dollars in millions, except per share data)
|
|
April 2, 2010
|
|
January 1, 2010
|
|
April 3, 2009
(1)
|
|
Revenue
|
|
$
|
3,049
|
|
$
|
3,027
|
|
$
|
2,150
|
|
Gross margin
|
|
901
|
|
923
|
|
153
|
|
Income (loss) from operations
|
|
560
|
|
578
|
|
(262
|
)
|
Net income (loss)
|
|
518
|
|
533
|
|
(275
|
)
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.05
|
|
$
|
1.07
|
|
$
|
(0.56
|
)
|
Diluted
|
|
1.00
|
|
1.03
|
|
(0.56
|
)
|
(1)
As adjusted due to a required change in
the accounting for convertible debt instruments implemented in the first
quarter of 2010, applied on a retrospective basis.
Revenue and Gross Margin
Revenue for the
March 2010 quarter of $3.05 billion was flat compared to the immediately preceding quarter
and increased approximately 42% compared to the same period in fiscal
year 2009. We shipped 50.3 million units
during the quarter, an increase of 1% and 31% when compared to the immediately preceding quarter
and the same period in fiscal year 2009, respectively. We believe the
overall industry shipped approximately 163 million units in the March 2010
quarter, compared to 160 million units and 113 million units in the immediately
preceding quarter and the same period in fiscal year 2009, respectively. In the March 2010 quarter, we
experienced price erosion that was more favorable than the historical norms for
a March quarter.
Gross margin, as a percentage of revenue, was
approximately 29.6% in the March 2010 quarter, representing a decrease of
approximately 90 basis points as compared to the immediately preceding
quarter. Early in the quarter we
experienced internal supply constraints that impacted our ability to deliver
higher margin desktop market products, the effects of which were offset by
strong demand for our enterprise class products.
Gross margin, as a percentage of revenue, increased to
29.6% in the March 2010 quarter from 7.1% in the same period in fiscal
year 2009 as a result of a 31% increase in drive shipments, a substantial
improvement in manufacturing capacity utilization combined with a stable
pricing environment and a more cost-effective product mix.
40
Table of Contents
Demand Trends for Disk Drives
Desktop.
We shipped 24.6
million units, down approximately 2% from the immediately preceding quarter and
up approximately 11% from the same period in fiscal year 2009. We believe the
total available market (TAM) in the desktop market increased approximately 4%
and 24% compared to the immediately preceding quarter and the same period in
fiscal year 2009, respectively. We
experienced continued strength in demand for our 500GB per disk desktop
products. Demand for 3.5-inch disk
drives outpaced 2.5-inch disk drives in the March 2010 quarter, which
represents a deviation from the recent trend of demand shifting from desktop to
mobile products. We believe this
deviation reflects early signs of a commercial refresh cycle. If this deviation does reflect the beginning
of a commercial refresh cycle, we believe that the long-term shift in demand
from desktop to mobile products could be muted in the near future. We exited the March 2010 quarter with
close to three weeks of distribution channel inventory, which is at the low end
of historical levels.
Mobile.
During the March 2010
quarter, we shipped a total of 13.7 million units in the mobile compute
market, representing a decrease of approximately 7% from the immediately
preceding quarter and an increase of approximately 54% from the same period in
fiscal year 2009. We believe the overall
mobile compute market was essentially flat compared to the immediately
preceding quarter and grew 65% compared to same period in fiscal year 2009.
Enterprise.
During the March 2010
quarter, we extended our market leadership position in the enterprise market,
shipping 5.1 million units, representing an increase of approximately 11%
and 50% from the immediately preceding quarter and the same period in fiscal
year 2009, respectively. We believe our
ability to maintain a flexible supply chain allowed us to meet incremental
demand for our products created by competitor execution issues. We believe the enterprise market was
relatively flat as compared to the immediately preceding quarter and grew
approximately 34% compared to the same period in fiscal year 2009.
Consumer Electronics.
During the March 2010
quarter, we shipped a total of 6.9 million units in the consumer
electronics market, an increase of 28% and 77% compared to the immediately
preceding quarter and the same period in fiscal year 2009, respectively. The increase in shipments from the
immediately preceding quarter was largely a result of increased shipments into
the gaming market.
Industry Constraints
. Similar to the previous quarter, the supply
chain was generally tight for Seagate and the industry during the March 2010
quarter. We expect our supply chain to
continue to be tight through the June 2010 quarter and for the remainder
of the calendar year. Critical
components for which supply is tight continue to be glass substrates, finished
media and heads. Despite having this
pressure in the supply chain, we believe we have access to adequate supply to
support the anticipated demand through the end of the calendar year.
Other Significant Events
Change of Incorporation.
On January 27, 2010, our Board of
Directors approved a proposed transaction that will change the jurisdiction of
incorporation of the parent company of Seagate from the Cayman Islands to
Ireland. At a special court-ordered
meeting of shareholders on April 14, 2010, Seagate Technology shareholders
voted in favor of a reorganization proposal pursuant to which all Seagate
Technology common shares would be cancelled and all holders of such shares
would receive ordinary shares of Seagate Technology plc, a newly formed Irish
public limited company, on a one-to-one basis. We expect that the change of
incorporation will take effect in early fiscal year 2011, subject to approval
at a Cayman Court hearing on May 14, 2010. We will remain subject to SEC
reporting requirements, the mandates of the Sarbanes-Oxley Act of 2002 and the
corporate governance rules of NASDAQ. We do not expect the change in
incorporation to have a material impact on our results of operations or
financial condition and we will continue to report our consolidated financial
results in U.S. dollars and under U.S. GAAP.
41
Table
of Contents
Results
of Operations
We list in the tables
below the historical Condensed Consolidated Statements of Operations in dollars
and as a percentage of revenue for the periods indicated.
|
|
For the
Three Months Ended
|
|
For the
Nine Months Ended
|
|
(Dollars
in millions)
|
|
April 2,
2010
|
|
April 3,
2009
(1)
|
|
April 2,
2010
|
|
April 3,
2009
(1)
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
3,049
|
|
$
|
2,150
|
|
$
|
8,738
|
|
$
|
7,452
|
|
Cost of revenue
|
|
2,148
|
|
1,997
|
|
6,261
|
|
6,457
|
|
Gross margin
|
|
901
|
|
153
|
|
2,477
|
|
995
|
|
Product development
|
|
224
|
|
243
|
|
658
|
|
738
|
|
Marketing and
administrative
|
|
105
|
|
134
|
|
323
|
|
424
|
|
Amortization of
intangibles
|
|
8
|
|
13
|
|
23
|
|
41
|
|
Restructuring and
other, net
|
|
4
|
|
25
|
|
50
|
|
126
|
|
Impairment of goodwill
and long-lived assets
|
|
|
|
|
|
64
|
|
2,320
|
|
Income (loss) from
operations
|
|
560
|
|
(262
|
)
|
1,359
|
|
(2,654
|
)
|
Other income (expense),
net
|
|
(38
|
)
|
(29
|
)
|
(130
|
)
|
(104
|
)
|
Income (loss) before
income taxes
|
|
522
|
|
(291
|
)
|
1,229
|
|
(2,758
|
)
|
Provision for (benefit
from) income taxes
|
|
4
|
|
(16
|
)
|
(1
|
)
|
284
|
|
Net income (loss)
|
|
$
|
518
|
|
$
|
(275
|
)
|
$
|
1,230
|
|
$
|
(3,042
|
)
|
(1)
As adjusted due
to a required change in the accounting for convertible debt instruments
implemented in the first quarter of 2010, applied on a retrospective basis.
|
|
For the
Three Months Ended
|
|
For the
Nine Months Ended
|
|
(as a percentage of revenue)
|
|
April 2,
2010
|
|
April 3,
2009
(1)
|
|
April 2,
2010
|
|
April 3,
2009
(1)
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
100
|
%
|
100
|
%
|
100
|
%
|
100
|
%
|
Cost of revenue
|
|
70
|
|
93
|
|
72
|
|
87
|
|
Gross margin
|
|
30
|
|
7
|
|
28
|
|
13
|
|
Product development
|
|
7
|
|
11
|
|
8
|
|
10
|
|
Marketing and
administrative
|
|
4
|
|
6
|
|
4
|
|
6
|
|
Amortization of
intangibles
|
|
1
|
|
1
|
|
|
|
|
|
Restructuring and
other, net
|
|
|
|
1
|
|
|
|
2
|
|
Impairment of goodwill
and long-lived assets
|
|
|
|
|
|
1
|
|
31
|
|
Income (loss) from
operations
|
|
18
|
|
(12
|
)
|
15
|
|
(36
|
)
|
Other income (expense),
net
|
|
(1
|
)
|
(2
|
)
|
(1
|
)
|
(1
|
)
|
Income (loss) before
income taxes
|
|
17
|
|
(14
|
)
|
14
|
|
(37
|
)
|
Provision for (benefit
from) income taxes
|
|
|
|
(1
|
)
|
|
|
4
|
|
Net income (loss)
|
|
17
|
%
|
(13
|
)%
|
14
|
%
|
(41
|
)%
|
(1)
As adjusted due
to a required change in the accounting for convertible debt instruments
implemented in the first quarter of 2010, applied on a retrospective basis.
42
Table
of Contents
The following table summarizes information regarding
volume shipments, average selling prices (ASPs) and revenues by channel and
geography
:
|
|
For the Three Months Ended
|
|
For the Nine Months Ended
|
|
(In millions, except percentages and
ASPs)
|
|
April 2,
2010
|
|
January 1,
2010
|
|
April 3,
2009
|
|
April 2,
2010
|
|
April 3,
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Revenue
|
|
$
|
3,049
|
|
$
|
3,027
|
|
$
|
2,150
|
|
$
|
8,738
|
|
$
|
7,452
|
|
Unit Shipments:
|
|
|
|
|
|
|
|
|
|
|
|
Desktop
|
|
24.6
|
|
25.1
|
|
22.2
|
|
73.0
|
|
71.4
|
|
Mobile
|
|
13.7
|
|
14.8
|
|
8.9
|
|
42.4
|
|
26.3
|
|
Enterprise
|
|
5.1
|
|
4.6
|
|
3.4
|
|
13.7
|
|
12.9
|
|
Consumer Electronics
|
|
6.9
|
|
5.4
|
|
3.9
|
|
17.4
|
|
12.6
|
|
Total Units Shipped
|
|
50.3
|
|
49.9
|
|
38.4
|
|
146.5
|
|
123.2
|
|
ASPs (per unit)
|
|
$
|
60
|
|
$
|
60
|
|
$
|
55
|
|
$
|
59
|
|
$
|
59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues by Channel (%)
|
|
|
|
|
|
|
|
|
|
|
|
OEM
|
|
72
|
%
|
69
|
%
|
61
|
%
|
70
|
%
|
65
|
%
|
Distributors
|
|
21
|
%
|
22
|
%
|
29
|
%
|
22
|
%
|
27
|
%
|
Retailers
|
|
7
|
%
|
9
|
%
|
10
|
%
|
8
|
%
|
8
|
%
|
Revenues by Geography (%)
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
26
|
%
|
26
|
%
|
27
|
%
|
26
|
%
|
27
|
%
|
Europe
|
|
23
|
%
|
24
|
%
|
28
|
%
|
23
|
%
|
28
|
%
|
Far East
|
|
51
|
%
|
50
|
%
|
45
|
%
|
51
|
%
|
45
|
%
|
Revenue
|
|
For the Three Months Ended
|
|
For the Nine Months Ended
|
|
(Dollars in millions)
|
|
April 2,
2010
|
|
January 1,
2010
|
|
April 3,
2009
|
|
April 2,
2010
|
|
April 3,
2009
|
|
Revenue
|
|
$
|
3,049
|
|
$
|
3,027
|
|
$
|
2,150
|
|
$
|
8,738
|
|
$
|
7,452
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
for the March 2010 quarter was flat compared to the immediately preceding
quarter. In addition, we shipped a record 50.3 million units in the March 2010
quarter. Continued growth in demand for
disk drives muted the effects of historical seasonal patterns, which have
typically resulted in a sequential decline in revenue in the March quarter.
Revenue
for the March 2010 quarter increased approximately 42% compared to the
same period
in fiscal
year 2009 primarily due to a 31% increase in the total number of disk drives
shipped, which reflected the HDD industrys continued recovery from the
global economic downturn.
Revenue for the first nine months of fiscal year 2010
increased approximately 17% compared to the same period in fiscal year 2009, primarily due to
a 19%
increase in the total number of disk drives shipped. In contrast to the year-ago period, which was
significantly affected by the global economic downturn, demand remained strong
throughout the first nine months of fiscal year 2010.
We maintain various sales programs such as
point-of-sale rebates, sales price adjustments and price protection, aimed at
increasing customer demand. We exercise judgment in formulating the underlying
estimates related to distributor and retail inventory levels, sales program
participation and customer claims submittals in determining the provision for
such programs. Due to the continuing
strength in demand and the constrained supply for disk drives, sales programs
recorded as contra revenue were approximately 6% and 5% of our gross revenue
for the March 2010 and December 2009 quarters, respectively,
compared to 14% for the March 2009 quarter.
Cost of
Revenue and Gross Margin
|
|
For the Three Months Ended
|
|
For the Nine Months Ended
|
|
(Dollars in
millions)
|
|
April 2,
2010
|
|
January 1,
2010
|
|
April 3,
2009
|
|
April 2,
2010
|
|
April 3,
2009
|
|
Cost of revenue
|
|
$
|
2,148
|
|
$
|
2,104
|
|
$
|
1,997
|
|
$
|
6,261
|
|
$
|
6,457
|
|
Gross margin
|
|
901
|
|
923
|
|
153
|
|
2,477
|
|
995
|
|
Gross margin percentage
|
|
29.6
|
%
|
30.5
|
%
|
7.1
|
%
|
28.3
|
%
|
13.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43
Table of
Contents
Gross margin, as a percentage of revenue, was
approximately 29.6% in the March 2010 quarter, representing a decrease of
approximately 90 basis points as compared to the immediately preceding
quarter. Early in the quarter we
experienced internal supply constraints that impacted our ability to deliver
higher margin desktop market products, the effects of which were offset by
strong demand for our enterprise class products.
Gross margin, as a percentage of revenue, increased to
29.6% in the March 2010 quarter from 7.1% in the same period in fiscal
year 2009 as a result of a 31% increase in drive shipments, a substantial
improvement in manufacturing capacity utilization combined with a stable
pricing environment and a more cost-effective product mix.
Operating Expenses
|
|
For the Three Months Ended
|
|
For the Nine Months Ended
|
|
(Dollars in millions)
|
|
April 2,
2010
|
|
January 1,
2010
|
|
April 3,
2009
|
|
April 2,
2010
|
|
April 3,
2009
(1)
|
|
Product development
|
|
$
|
224
|
|
$
|
227
|
|
$
|
243
|
|
$
|
658
|
|
$
|
738
|
|
Marketing and administrative
|
|
105
|
|
110
|
|
134
|
|
323
|
|
424
|
|
Amortization of intangibles
|
|
8
|
|
8
|
|
13
|
|
23
|
|
41
|
|
Restructuring and other, net
|
|
4
|
|
|
|
25
|
|
50
|
|
126
|
|
Impairment of goodwill and long-lived assets
|
|
|
|
|
|
|
|
64
|
|
2,320
|
|
Operating expenses
|
|
$
|
341
|
|
$
|
345
|
|
$
|
415
|
|
$
|
1,118
|
|
$
|
3,649
|
|
(1)
As adjusted due to a required change in
the accounting for convertible debt instruments implemented in the first
quarter of 2010, applied on a retrospective basis.
Product
Development Expense.
Product
development expense did not materially change from the immediately preceding
quarter.
Product development expense for the March 2010
quarter decreased approximately 8% from the same period in fiscal year 2009,
primarily due to restructuring and other cost reduction efforts, which resulted
in decreases of $12 million in headcount related expenses. In addition, the March 2009 quarter
included the non-recurrence of accelerated depreciation expense of $12 million
related to the closure of our Pittsburgh facility as well as an $11 million
decrease due to the cessation of certain product development activities.
Partially offsetting these cost reductions were $13 million for variable
performance-based compensation expense recorded in the March 2010 quarter
compared to none in the same period in fiscal year 2009.
Product development expense for the first nine months
of fiscal year 2010 decreased approximately 11% from the same period in fiscal
year 2009 primarily due to restructuring and other cost reduction efforts, and
the effect of an additional week of compensation expenses in the same period in
fiscal year 2009, which included a 14-week September 2008 quarter. These cost reduction efforts resulted in an
$88 million decrease in headcount related expenses in the first nine months of
fiscal year 2010. Additionally, product
development expenses decreased by $26 million due to the non-recurrence of
accelerated depreciation expense related to the closure of our Pittsburgh
facility as well as a $29 million decrease due to the cessation of certain
product development activities. These
decreases were partially offset by increases of $36 million for variable
performance-based compensation expense recorded in the first nine months of
fiscal year 2010 compared to none in the same period in fiscal year 2009 and
$20 million of expenses related to deferred compensation liabilities recorded
in the first nine months of fiscal year 2009 compared to none in the first nine
months of fiscal year 2010.
Marketing
and Administrative Expenses.
Marketing and administrative
expenses for the March 2010 quarter decreased approximately 5% from the
immediately preceding quarter primarily due to a $5 million reduction in legal
expenses.
Marketing and administrative expenses for the March 2010
quarter decreased approximately 22% from the same period in fiscal year 2009
primarily due to restructuring and other cost reduction efforts, which resulted
in decreases of approximately $15 million in headcount related expenses, $15
million in legal expenses and $3 million in advertising costs. These decreases were partially offset by an
increase of $8 million for variable performance-based compensation expense
recorded in the March 2010 quarter compared to none in the same period in
fiscal year 2009.
Marketing and administrative expenses for the first
nine months of fiscal year 2010 decreased approximately
44
Table
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24% from the same period in fiscal year 2009 primarily due to
restructuring and other cost reduction efforts, and the effect of an additional
week of compensation expenses in the same period in fiscal year 2009, which
included a 14-week September quarter. These cost reduction efforts
resulted in decreases of $76 million in headcount related expenses and $24
million in advertising costs in the first nine months of fiscal year 2010
compared to the same period in fiscal year 2009. Additionally, legal expenses decreased by $29
million. These decreases were partially
offset by increases of $21 million for variable performance-based compensation
expense recorded in the first nine months of fiscal year 2010 compared to none
in the same period in fiscal year 2009 and $12 million of expenses related to
deferred compensation liabilities recorded in the first nine months of fiscal
year 2009 compared to none in the first nine months of fiscal year 2010.
Amortization
of Intangibles.
Amortization
of intangibles for the March 2010 quarter was unchanged from the
immediately preceding quarter and decreased approximately 38% when compared to
the same period in fiscal year 2009 as certain customer relationship
intangibles were fully amortized by the end of the prior fiscal year.
Amortization of intangibles for the first nine months
of fiscal year 2010 decreased approximately 44% from the same period in fiscal
year 2009 as certain customer relationship intangibles were fully amortized by
the end of the prior fiscal year.
Restructuring
and Other, Net
. During
the March 2010 quarter, we recorded restructuring and other charges of $4
million mainly comprised of employee terminations as a result of our ongoing
focus on cost efficiencies in all areas of our business. During the first nine
months of fiscal year 2010, we recorded restructuring and other charges of
$50 million mainly comprised of charges related to the AMK restructuring
plan announced in August 2009. We estimate total restructuring
charges for the AMK restructuring plan to be approximately $80 million, all in
cash, including approximately $60 million for severance, approximately $10
million for the relocation of manufacturing equipment, and approximately $10
million for other plant closure and relocation costs. This closure and
relocation, which is expected to be complete by the end of calendar year 2010,
is part of our ongoing focus on cost efficiencies in all areas of our business
and is intended to facilitate leveraging manufacturing investments across fewer
sites.
During the March 2009 quarter we recorded $25
million of restructuring charges primarily related to the workforce reductions
associated with our January 2009 Plan, as part of our overall efforts to
realign our cost structure with the current macroeconomic business environment.
The remaining $101 million recorded during the nine months ended April 3,
2009 was primarily due to $79 million related to the January 2009 plan
accrued in the December 2008 quarter, a $10 million adjustment related to
revised sub-lease expectations for our Maxtor facilities closures, and an
additional $12 million related to other on-going restructuring activities.
Impairment
of Goodwill and Long-lived Assets.
During the September 2009
quarter, we committed to a plan to sell certain equipment related to certain
research activities that had ceased. In connection with this plan, we
reclassified these assets as held for sale and recorded an impairment charge of
approximately $64 million to adjust the carrying value of these assets to the
estimated fair value, less cost to sell.
During the December 2008 quarter, we reduced our
near-term and long-term financial projections as a result of a substantial
deterioration in the general business environment. Accordingly, we performed an analysis of the
carrying value of our goodwill and long-lived assets, principally intangible
assets and property, equipment and leasehold improvements, for impairment.
Consequently, we recorded impairment charges of $2.3 billion for goodwill and
$3 million for long-lived assets.
Other
expense, net
|
|
For the Three Months Ended
|
|
For the Nine Months Ended
|
|
(Dollars in millions)
|
|
April 2,
2010
|
|
January 1, 2010
|
|
April 3,
2009
(1)
|
|
April 2,
2010
|
|
April 3,
2009
(1)
|
|
Other expense, net
|
|
$
|
(38
|
)
|
$
|
(51
|
)
|
$
|
(29
|
)
|
$
|
(130
|
)
|
$
|
(104
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) As adjusted
due to a required change in the accounting for convertible debt instruments
implemented in the first quarter of 2010, applied on a retrospective basis.
The change in Net other expense for the March 2010
quarter from the immediately preceding quarter was primarily due to the
non-recurrence of a $13 million write-down of an equity investment recorded in
the December 2009 quarter.
The change in Net other expense for the March 2010
quarter compared to the same period in fiscal year 2009 was primarily due to
a $12 million decrease in gains from
foreign currency remeasurements and a $4 million increase in interest expense
resulting from higher average borrowing costs.
These changes were partially offset by the non-recurrence of a $2
million loss on sale of available for sale securities recorded in the March 2009
quarter.
45
Table
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The change in Net other expense for the first nine
months of fiscal year 2010 compared to the same period in fiscal year 2009 was
primarily due to a $25 million increase in interest expense resulting from
higher average borrowing costs, a $13 million write-down of an equity
investment, an $11 million decrease in interest income as a result of lower
yields on cash, cash equivalents and short-term investments and an $8 million
non-recurring gain recognized on the sale of an equity investment in the first
half of fiscal year 2009. Additionally,
Net other expense included a decrease in gains from foreign currency
remeasurements of $22 million. These
increases were partially offset by a $47 million loss related to our deferred
compensation plan assets recorded in the same period in fiscal year 2009 and
the non-recurrence of a $2 million loss on sale of available for sale
securities recorded in the March 2009 quarter.
Income
Taxes
|
|
For the Three Months Ended
|
|
For the Nine Months Ended
|
|
(Dollars in millions)
|
|
April 2,
2010
|
|
January 1,
2010
|
|
April 3,
2009
|
|
April 2,
2010
|
|
April 3,
2009
|
|
Provision for (benefit from) income taxes
|
|
$
|
4
|
|
$
|
(6
|
)
|
$
|
(16
|
)
|
$
|
(1
|
)
|
$
|
284
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our income tax provision for the March 2010
quarter included approximately $11 million of discrete tax benefits primarily
for reversal of valuation allowance previously recorded for certain non-U.S.
deferred tax assets and release of tax reserves as a result of the U.S. 9
th
Circuit Court
of Appeals affirmation of the Tax Court decision in
Xilinx v
Commissioner
. Our income tax benefit recognized for the first nine
months of fiscal year 2010 included approximately $39 million of discrete tax
benefits primarily for release of tax reserves associated with settlements,
expiration of certain statutes of limitations, and the U.S. 9
th
Circuit Court
decision, as mentioned above, for reversal of valuation allowance previously recorded
for certain non-U.S. deferred tax assets, and U.S. federal income tax
legislative changes. Our income tax benefit recognized for the December 2009
quarter included approximately $16 million of discrete tax benefits primarily
for U.S. federal income tax legislative changes and release of tax reserves for
settlements and expiration of certain statutes of limitations.
Our income tax provision and benefit recorded for the March 2010
quarter and for the nine months ended April 2, 2010, respectively, differed
from the provision (benefit) for income taxes that would be derived by applying
a notional U.S. 35% rate to income before income taxes primarily due to the net
effect of (i) tax benefits related to tax holiday and tax incentive
programs, (ii) decrease in valuation allowance for certain non-U.S.
deferred tax assets, (iii) tax expense related to intercompany
transactions, and (iv) release of certain tax reserves as described above.
During the March 2010 quarter, our unrecognized
tax benefits excluding interest and penalties decreased by $2 million to $114
million. The unrecognized tax benefits that, if recognized, would impact the
effective tax rate was $114 million as of the March 2010 quarter, subject
to certain future valuation allowance reversals. During the 12 months beginning
April 3, 2010, we expect to reduce our unrecognized tax benefits by
approximately $5 million primarily as a result of the expiration of certain
statutes of limitations.
Our income tax benefit recognized for the comparative March 2009
quarter resulted primarily from the reversal of a portion of our income tax
expense we previously recorded in the first half of fiscal year 2009 as a
result of reductions in forecasted income from operations conducted in certain
jurisdictions. Our income tax provision for the first nine months of fiscal
year 2009 included a deferred tax charge of $271 million associated with
increased valuation allowance recorded for U.S. federal and state deferred tax
assets associated with reductions in our forecasted U.S. taxable income. The
goodwill impairment charges recorded in the first nine months of fiscal year
2009 resulted in no tax benefits. As of the close of March 2009 quarter,
we were forecasting losses in certain jurisdictions, including the U.S., for
which tax benefits for the losses could not be recognized. Pursuant to the accounting guidance provided
in ASC 740-270-30-36a,
Income Taxes, Interim
Reporting
(formerly FASB Interpretation No. 18,
Accounting for Income Taxes in Interim Periods
),
we were required to exclude these loss
jurisdictions from our overall estimated annual effective rate calculation and
determine a separately computed effective tax rate for each loss jurisdiction.
Our income tax benefit
recorded for the comparative March 2009 quarter differed from the
provision for income taxes that would be derived by applying a notional U.S.
35% rate to losses before income taxes primarily due to the net effect of (i)
applying the provisions of ASC 740-270-30-36a,
as
described above, (ii) the tax benefit related to tax holiday and tax
incentive programs, (iii) tax expense related to intercompany
transactions, and (iv) an increase in our valuation allowance for certain
deferred tax assets. Our income tax provision recorded for the first nine months
of fiscal year 2009 differed from the provision for income taxes that would be
derived by applying a
46
Table
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notional U.S. 35% rate to income before income taxes primarily due to
the net effect of (i) goodwill impairment charges with no associated tax
benefit, (ii) an increase in our valuation allowance for certain deferred
tax assets, (iii) the tax benefit related to tax holidays and tax
incentive programs, and (iv) tax expense related to intercompany
transactions.
Liquidity and Capital Resources
The following sections discuss the effects of changes
in our balance sheet and cash flows, contractual obligations, and other
commitments on our liquidity and capital resources
.
Cash and Cash Equivalents, Short-term Investments,
and Restricted Cash and Investments
(Dollars in
millions)
|
|
April 2,
2010
|
|
July 3,
2009
|
|
Change
|
|
Cash and cash equivalents
|
|
$
|
2,062
|
|
$
|
1,427
|
|
$
|
635
|
|
Short-term investments
|
|
214
|
|
114
|
|
100
|
|
Restricted cash and investments
|
|
103
|
|
508
|
|
(405
|
)
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,379
|
|
$
|
2,049
|
|
$
|
330
|
|
The increase in cash and cash equivalents was
primarily a result of cash provided by operating activities of $1,608 million
and $81 million in proceeds from employee stock option exercises and employee
stock purchases, partially offset by the repayment of $350 million of our
amended credit facility, $372 million in capital expenditures, $100
million net increase in short-term investments and approximately $251 million
to repurchase 13.5 million of our common shares.
The change in restricted cash and investments from the
fiscal year ended July 3, 2009, was primarily due to the repayment of our
$300 million floating rate senior notes at maturity and approximately $80
million of open market purchases of our 6.8% Convertible Senior Notes due April 2010
(the 6.8% Notes) and 6.375% Senior Notes due October 2011 (the 6.375%
Notes).
We are not aware of any downgrades, losses or other
significant deterioration in the fair value of our cash equivalents or
short-term investments and, accordingly, we do not believe the fair value of
our short-term investments has significantly changed from the values reported
as of April 2, 2010.
The following table summarizes our statement of cash
flows for the periods indicated:
|
|
For the Nine Months Ended
|
|
(Dollars in
millions)
|
|
April 2, 2010
|
|
April 3, 2009
|
|
|
|
|
|
|
|
Net cash provided by (used in):
|
|
|
|
|
|
Operating activities
|
|
$
|
1,608
|
|
$
|
631
|
|
Investing activities
|
|
$
|
(447
|
)
|
$
|
(512
|
)
|
Financing activities
|
|
$
|
(526
|
)
|
$
|
243
|
|
Net increase in cash and cash equivalents
|
|
$
|
635
|
|
$
|
362
|
|
Cash
Provided by Operating Activities
Cash provided by operating activities for the nine
months ended April 2, 2010 was $1,608 million and includes the
effects of net income adjusted for non-cash items including depreciation,
amortization, stock-based compensation, impairment of long-lived assets, and:
·
an increase of $418 million in
accounts receivable due to an increase in revenue;
·
an increase of $242 million in accounts
payable mainly due to increased vendor purchases related to increased
production; and
·
an increase of $98 million in inventories
due to an increase in production requirements.
Cash Used
in Investing Activities
During the nine months ended April 2, 2010, we
used $447 million for net cash investing activities, which was primarily
attributable to payments for property, equipment and leasehold improvements of
approximately $372 million and a net increase in short-term investments of $100
million, partially offset by a decrease in restricted cash of $26 million.
47
Table
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Cash Used
in Financing Activities
Net cash used in financing activities of
$526 million for the nine months ended April 2, 2010 was primarily
attributable to the repayment of $350 million of our amended credit facility,
and approximately $251 million in repurchases of our common shares, offset by
approximately $81 million in cash received from employee stock option exercises
and employee stock purchases.
Liquidity Sources,
Cash Requirements and Commitments
Our primary sources of
liquidity as of April 2, 2010, consisted of: (1) approximately
$2.3 billion in cash, cash equivalents and short-term investments, (2) cash
we expect to generate from operations and (3) a $350 million credit
facility, which, at the time, was fully available for borrowing. We also had
$103 million in restricted cash and investments of which $74 million was related
to our employee deferred compensation liabilities under our non-qualified
deferred compensation plan.
Our liquidity requirements are primarily to meet our
working capital, research and development and capital expenditure needs, and to
fund scheduled payments of principal and interest on our indebtedness. Our ability to fund these requirements will
depend on our future cash flows, which are determined by future operating
performance and therefore, subject to prevailing global macroeconomic
conditions and financial, business and other factors, some of which are beyond
our control.
Included in the current portion of long-term debt on
our Condensed Consolidated Balance Sheet as of April 2, 2010 were
$77 million of our 6.8% Convertible Senior Notes, which have since been
repaid, and $294 million ($326 million principal balance) of our 2.375% Notes,
but which are convertible and could be exchanged for our common shares as of April 3,
2010. On April 29, 2010, we terminated
our $350 million senior credit facilty.
In the nine months ended April 2, 2010, we repaid
the $350 million previously drawn on our credit facility. In addition, our $300 million floating rate
senior notes were due and paid on October 1, 2009. We also repurchased approximately $80 million
of various debt issuances on the open market to reduce our outstanding debt
obligations.
On April 29, 2010, the Company announced the
offering of $600 million aggregate principal amount of 6.875% Senior Notes due
2020 (the 6.875% Notes). The 6.875% Notes were offered in a private placement
exempt from the registration requirements of the Securities Act of 1933, as
amended. The 6.875% Notes were issued by Seagate HDD Cayman, an indirect
wholly-owned subsidiary of Seagate Technology, and guaranteed by Seagate
Technology on a full and unconditional basis. The sale of the 6.875% Notes is
expected to close on May 13, 2010, subject to customary closing
conditions. We intend to use the proceeds from the debt issuance to redeem,
repay or repurchase existing debt and for general corporate purposes.
We will continue to evaluate and manage the retirement
and replacement of existing debt and associated obligations, including the issuance
of new debt securities, exchanging existing debt securities for other debt
securities and retiring debt pursuant to privately negotiated transactions,
open market purchases or otherwise. In addition, we may selectively pursue
strategic alliances, acquisitions and investments, which may require additional
capital.
On January 27, 2010, our Board of Directors
authorized an Anti-Dilution Share Repurchase Program, which was publicly
announced on February 1, 2010. The
repurchase program authorizes us to repurchase our common shares to offset
increases in diluted shares, such as those caused by employee stock plans and
convertible debt, used in the determination of diluted net income per
share. The timing and number of shares
to be repurchased by us will be dependent on general business and market
conditions, cash flows generated by future operations, the price of our common
shares, cash requirements for other investing and financing activities, and
maintaining compliance with our debt covenants. Repurchases may be made through
open market or in privately negotiated transactions, pursuant to Rule 10b5-1
trading plans or other available means, such as by way of an accelerated share
repurchase program, through block trades or through the purchase of call options
or the sale of put options.
Additionally, there is no minimum or maximum number of shares to be
repurchased under the program and the authority for the Anti-Dilution Share
Repurchase Program will continue until terminated by our Board of Directors.
48
Table
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As of April 2, 2010, we were in compliance with
all of the covenants under our credit facility and debt agreements. Based on
our current outlook, we expect to be in compliance with the covenants of our
remaining debt agreements over the next 12 months. In addition, we believe that our sources of
cash will be sufficient to fund our operations and meet our cash requirements
for at least the next 12 months.
Contractual Obligations and
Commitments
Our contractual cash obligations and commitments as of
April 2, 2010 have been summarized in the table below:
|
|
|
|
Fiscal
Year(s)
|
|
(Dollars
in millions)
|
|
Total
|
|
2010
|
|
2011-
2012
|
|
2013-
2014
|
|
Thereafter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual Cash
Obligations:
|
|
|
|
|
|
|
|
|
|
|
|
Long term debt
(1)
|
|
$
|
2,026
|
|
$
|
403
|
|
$
|
593
|
|
$
|
430
|
|
$
|
600
|
|
Interest payments on
long-term debt
|
|
539
|
|
26
|
|
239
|
|
172
|
|
102
|
|
Capital expenditures
|
|
397
|
|
256
|
|
141
|
|
|
|
|
|
Operating leases
(2)
|
|
237
|
|
11
|
|
88
|
|
45
|
|
93
|
|
Purchase obligations
(3)
|
|
657
|
|
144
|
|
513
|
|
|
|
|
|
Subtotal
|
|
3,856
|
|
840
|
|
1,574
|
|
647
|
|
795
|
|
Commitments:
|
|
|
|
|
|
|
|
|
|
|
|
Letters of credit or bank
guarantees
|
|
28
|
|
12
|
|
16
|
|
|
|
|
|
Total
|
|
$
|
3,884
|
|
$
|
852
|
|
$
|
1,590
|
|
$
|
647
|
|
$
|
795
|
|
(1)
|
Included in debt
for fiscal year 2010 is the principal amount of $326 million related to
our 2.375% Notes due August 2012 which is payable upon the conversion of
the 2.375% Notes. The 2.375% Notes are convertible effective April 3,
2010 and have been reclassified as Current portion of long-term debt on our
Condensed Consolidated Balance Sheet at April 2, 2010.
|
|
|
(2)
|
Includes total
future minimum rent expense under non-cancelable leases for both occupied and
abandoned facilities (rent expense is shown net of sublease income).
|
|
|
(3)
|
Purchase
obligations are defined as contractual obligations for purchase of goods or
services, which are enforceable and legally binding on us, and that specify
all significant terms.
|
As of April 2, 2010, we had a liability for
unrecognized tax benefits and an accrual for the payment of related interest
totaling $60 million, none of which is expected to be paid within twelve
months. We are unable to make a reasonably reliable estimate of when cash
settlement with a taxing authority will occur.
Off-Balance
Sheet Arrangements
As of April 2, 2010, we did not have any material
off-balance sheet arrangements (as defined in Item 303(a)(4)(ii) of Regulation S-K).
49
Table of Contents
Critical Accounting Policies
Our discussion and
analysis of financial condition and results of operations are based upon our
Condensed Consolidated Financial Statements, which have been prepared in
accordance with accounting principles generally accepted in the United States
of America. The preparation of such statements requires us to make estimates
and assumptions that affect the reported amounts of revenues and expenses
during the reporting period and the reported amounts of assets and liabilities
as of the date of the financial statements. Our estimates are based on
historical experience and other assumptions that we consider to be appropriate
in the circumstances. However, actual future results may vary from our
estimates.
Since our fiscal
year ended July 3, 2009, there have been no significant changes in our
critical accounting policies and estimates.
Please refer to Managements Discussion and Analysis of Financial
Condition and Results of Operations contained in Part II, Item 7 of
our Annual Report on Form 10-K for the fiscal year ended July 3,
2009, as filed with the SEC on August 19, 2009, for a discussion of our
critical accounting policies and estimates.
We have updated
the following critical accounting policies to describe current activity.
Establishment of Sales Program
Accruals.
We
establish certain distributor and OEM sales programs aimed at increasing
customer demand. For the distribution channel, these programs typically involve
rebates related to a distributors level of sales, order size, advertising or
point of sale activity and price protection adjustments. For OEM sales, rebates
are typically based on an OEM customers volume of purchases from Seagate or
other agreed upon rebate programs. We provide for these obligations at the time
that revenue is recorded based on estimated requirements. We estimate these
contra-revenue rebates and adjustments based on various factors, including
price reductions during the period reported, estimated future price erosion,
customer orders, distributor sell-through and inventory levels, program
participation, customer claim submittals and sales returns. Our estimates
reflect contractual arrangements but also our judgment relating to variables
such as customer claim rates and attainment of program goals, and inventory and
sell-through levels reported by our distribution customers.
While we believe we have sufficient experience and
knowledge of the market and customer buying patterns to reasonably estimate
such rebates and adjustments, actual market conditions or customer behavior
could differ from our expectations. As a result, actual payments under these
programs, which may spread over several months after the related sale, may vary
from the amount accrued. Accordingly, revenues and margins in the period in
which the adjustment occurs may be affected. For example, if the pricing
environment is more competitive than we anticipated, accruals for forward price
protection rebates may be inadequate. In periods when pricing is less
competitive, accruals for forward price protection rebates may exceed actual
payments. In addition, during periods in
which our distributors inventories of our products are at higher than
historical levels, our contra-revenue estimates are subject to a greater degree
of subjectivity and the potential for actual results to vary is accordingly
higher. Currently, our distributors inventories are at the low end of the
historical range.
Significant actual variations in any of the factors
upon which we base our contra-revenue estimates could have a material effect on
our operating results. For fiscal years 2007 through 2009, total sales programs
have ranged from 9% to 12% of gross revenues. In the first nine months of
fiscal year 2010, sales programs dropped to approximately 6% of gross revenue,
reflecting a more stable pricing environment resulting primarily from
constrained industry supply. This better
than anticipated pricing environment resulted in a 0.7% favorable adjustment to
revenue as estimated contra-revenue rebates (such as forward price protection)
accrued in prior periods for the sell through of channel inventory were higher
than actual payments. Adjustments to
revenues due to under or over accruals for sales programs related to revenues
reported in prior quarterly periods have averaged 0.5% of quarterly gross
revenue for fiscal years 2007 through 2009. Any future shifts in the industry
supply-demand balance as well as other factors may result in a return to a more
competitive pricing environment and may cause sales programs as a percentage of
gross revenue to increase from the current or historical levels. If such
rebates and incentives trend upwards, revenues and margins will be reduced.
Establishment of Warranty Accruals.
We estimate
probable product warranty costs at the time revenue is recognized. We generally
warrant our products for a period of one to five years. Our warranty provision
considers estimated product failure rates and trends (including the timing of
product returns during the warranty periods), estimated repair or replacement
costs and estimated costs for customer compensatory claims related to product
quality issues, if any. We use a statistical model to help with our estimates
and we exercise considerable judgment in determining the underlying estimates.
Should actual experience in any future period differ significantly from our
estimates, or should the rate of future product technological advancements fail
to keep pace with the past, our future results of operations could be
materially affected. Our judgment is subject to a greater degree of
subjectivity with
50
Table of Contents
respect to newly introduced products and legacy Maxtor
designed products because of limited experience with those products upon which
to base our warranty estimates.
The actual results with regard to warranty
expenditures could have a material effect on our results of operations if the
actual rate of unit failure, the cost to repair a unit, or the actual cost
required to satisfy customer compensatory claims are greater or less than that
which we have used in estimating the warranty accrual. Since we typically
outsource our warranty repairs, our repair cost is subject to periodic
negotiations with vendors and may vary from our estimates. We also exercise
judgment in estimating our ability to sell certain repaired disk drives. To the
extent such sales fall below or exceed our forecast, warranty cost will
respectively, be adversely or favorably impacted.
Our warranty cost has ranged from approximately 2% to
2.5% of revenue during fiscal years 2007 through 2009. We review our warranty
accrual quarterly for products shipped in prior periods and which are still
under warranty. Any changes in the estimates underlying the accrual may result
in adjustments that impact the current period gross margins and income. Since
fiscal year 2007, changes in estimates of prior warranty accruals have
approximated 0.5% or less of revenue. Changes in anticipated failure rates of
specific products and significant changes in repair or replacement costs have
historically been the major reasons for significant changes in prior
estimates. In the first nine months of
fiscal year 2010, the cost of new warranties issued (exclusive of the impact of
re-estimates of prior warranty liabilities) was close to the historical range
and amounted to approximately 1.9% of revenue.
In the first nine months of fiscal year 2010, total warranty cost
decreased to 1.4% of revenue due to a favorable re-estimate of pre-existing
liabilities related to a change to a lower cost repair vendor and other efforts
to better leverage our warranty service infrastructure.
Recent Accounting Pronouncements
See Note 1 of the Notes to Condensed Consolidated
Financial Statements for a description of recent accounting pronouncements,
including the respective expected dates of adoption and the expected effects on
our results of operations and financial condition.
51
Table of Contents
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information in this
section should be read in connection with the information on financial market
risk in Part II, Item 7A, Quantitative and Qualitative Disclosures About
Market Risk, in our Annual Report on Form 10-K for the year ended July 3,
2009.
We have exposure to
market risks due to the volatility of interest rates, foreign currency exchange
rates and equity and bond markets. A portion of these risks are hedged, but
fluctuations could impact our results of operations, financial position and
cash flows. Additionally, we have exposure to downgrades in the credit ratings
of our counterparties as well as exposure related to our credit rating changes.
Our exposure to market
risk for changes in interest rates relates primarily to our investment
portfolio and our credit facility. At April 2, 2010, with the exception of
our auction rate securities, we had no marketable securities that had been in a
continuous unrealized loss position for a period greater than 12 months
and determined that no marketable securities were other-than-temporarily
impaired. We currently do not use derivative financial instruments in our
investment portfolio.
We have fixed rate debt
obligations. We enter into debt obligations to support general corporate
purposes including capital expenditures and working capital needs. We currently
do not use interest rate derivatives to hedge interest rate exposure on our
outstanding debt.
The table below presents
principal amounts and related weighted average interest rates by year of
maturity for our investment portfolio and debt obligations as of April 2,
2010. All short-term investments mature in three years or less. Included in
debt for fiscal year 2010 is the principal amount of $326 million related
to our 2.375% Notes due August 2012 which is payable upon the conversion
of the 2.375% Notes. The 2.375% Notes are convertible as of April 3, 2010,
as our shares traded above 110% of the conversion price for at least 20
consecutive trading days of the last 30 trading days of the third quarter of
fiscal year 2010. As a result, the 2.375% Notes have been reclassified to
Current portion of long-term debt on our Condensed Consolidated Balance Sheet
at April 2, 2010.
Fiscal Years Ended
|
|
2010
|
|
2011
|
|
2012
|
|
2013
|
|
2014
|
|
Thereafter
|
|
Total
|
|
Fair Value
April 2,
2010
|
|
|
|
(in millions, except percentages)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
rate
|
|
$
|
1,887
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
1,887
|
|
$
|
1,887
|
|
Average
interest rate
|
|
0.14
|
%
|
|
|
|
|
|
|
|
|
|
|
0.14
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term
investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
rate
|
|
$
|
57
|
|
$
|
127
|
|
$
|
25
|
|
$
|
2
|
|
$
|
|
|
$
|
|
|
$
|
211
|
|
$
|
214
|
|
Average
interest rate
|
|
1.62
|
%
|
2.37
|
%
|
2.93
|
%
|
5.25
|
%
|
|
|
|
|
2.26
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable
rate
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
20
|
|
$
|
20
|
|
$
|
18
|
|
Average
interest rate
|
|
|
|
|
|
|
|
|
|
|
|
9.46
|
%
|
9.46
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
investment securities
|
|
$
|
1,944
|
|
$
|
127
|
|
$
|
25
|
|
$
|
2
|
|
$
|
|
|
$
|
20
|
|
$
|
2,118
|
|
$
|
2,119
|
|
Average
interest rate
|
|
0.18
|
%
|
2.37
|
%
|
2.93
|
%
|
5.25
|
%
|
|
|
9.46
|
%
|
0.44
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term Debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed rate
|
|
$
|
403
|
|
$
|
5
|
|
$
|
588
|
|
$
|
|
|
$
|
430
|
|
$
|
600
|
|
$
|
2,026
|
|
$
|
2,160
|
|
Average interest rate
|
|
3.22
|
%
|
5.75
|
%
|
6.35
|
%
|
|
|
10.00
|
%
|
6.80
|
%
|
6.63
|
%
|
|
|
52
Table of Contents
Foreign
Currency Exchange Risk
. We may enter into foreign
currency forward exchange contracts to manage exposure related to certain foreign
currency commitments and anticipated foreign currency denominated expenditures.
Our policy prohibits us from entering into derivative financial instruments for
speculative or trading purposes. During the nine months ended April 2,
2010 and fiscal years 2009 and 2008, we did not enter into any hedges of net
investments in foreign operations.
We also hedge a portion
of our foreign currency denominated balance sheet positions with foreign
currency forward exchange contracts to reduce the risk that our earnings will
be adversely affected by changes in currency exchange rates. The changes in
fair value of these hedges are recognized in earnings in the same period as the
gains and losses from the remeasurement of the assets and liabilities. These
foreign currency forward exchange contracts are not designated as hedging
instruments under ASC 815,
Derivatives and
Hedging
(previously SFAS
161,
Disclosures About Derivative
Instruments and Hedging Activities
)
.
All these forward contracts mature within 12 months.
We evaluate hedging
effectiveness prospectively and retrospectively and record any ineffective
portion of the hedging instruments in Other income (expense) on the Statements
of Operations. We did not have any net gains (losses) recognized in Other
income (expense) for cash flow hedges due to hedge ineffectiveness during the
nine months ended April 2, 2010, nor did we discontinue any material cash
flow hedges for a forecasted transaction in the same period.
The table below provides
information as of April 2, 2010 about our foreign currency forward
exchange contracts. The table is provided in U.S. dollar equivalent amounts and
presents the notional amounts (at the contract exchange rates) and the weighted
average contractual foreign currency exchange rates.
(Dollars
in millions, except average contract rate)
|
|
Notional
Amount
|
|
Average
Contract
Rate
|
|
Estimated
Fair
Value
(1)
|
|
Foreign currency forward exchange contracts:
|
|
|
|
|
|
|
|
Thai
baht
|
|
$
|
453
|
|
33.20
|
|
$
|
11
|
|
Singapore
dollar
|
|
77
|
|
1.40
|
|
|
|
Euro
dollar
|
|
10
|
|
1.46
|
|
|
|
Czech
koruna
|
|
11
|
|
19.12
|
|
|
|
Japanese
yen
|
|
6
|
|
93.34
|
|
|
|
British
pound
|
|
1
|
|
1.62
|
|
|
|
Total
|
|
$
|
558
|
|
|
|
$
|
11
|
|
(1) Equivalent to the unrealized net gain (loss)
on existing contracts.
ITEM
4. CONTROLS AND PROCEDURES
An evaluation was
performed under the supervision and with the participation of our management,
including our chief executive officer and chief financial officer, of the
effectiveness of the design and operation of our disclosure controls and
procedures as of the end of the period covered by this quarterly report. Based on that evaluation, our management,
including our chief executive officer and chief financial officer, concluded
that, as of April 2, 2010, our disclosure controls and procedures were
effective. During the quarter ended April 2,
2010, there were no changes in our internal control over financial reporting
that materially affected, or were reasonably likely to materially affect our
internal control over financial reporting.
53
Table of
Contents
PART II
OTHER INFORMATION
ITEM 1.
LEGAL PROCEEDINGS
For a discussion of legal
proceedings, see Item 1, Note 12, of the Notes to Condensed Consolidated
Financial Statements of this Report on Form 10-Q.
ITEM 1A. RISK FACTORS
There
have been no material changes to the description of the risk factors associated
with our business previously disclosed in Part I, Item 1A Risk Factors
in our Annual Report on Form 10-K for the year ended July 3,
2009. In addition to the other
information set forth in this report, you should carefully consider the risk
factors discussed in our Annual Report on Form 10-K as they could
materially affect our business, financial condition and future results.
The
risks described in our Annual Report on Form 10-K are not the only risks
facing us. Additional risks and uncertainties not currently known to us or that
we currently deem to be immaterial also may materially and adversely affect our
business, financial condition or operating results.
54
Table of Contents
ITEM
2. UNREGISTERED SALES OF EQUITY
SECURITIES AND USE OF PROCEEDS
Recent
Sales of Unregistered Securities
We did not sell any
securities during the three months ended April 2, 2010 that were not
registered under the Securities Act of 1933, as amended.
Repurchases
of Equity Securities
Our February 2008 stock repurchase plan expired
on January 31, 2010.
On January 27,
2010, our Board of Directors authorized an Anti-Dilution Share Repurchase
Program, which was publicly announced on February 1, 2010. The repurchase program authorizes us to
repurchase our common shares to offset increases in diluted shares, such as
those caused by employee stock plans and convertible debt, used in the
determination of diluted net income per share.
The timing and number of shares to be repurchased by us will be dependent
on general business and market conditions, cash flows generated by future
operations, the price of our common shares, cash requirements for other
investing and financing activities, and maintaining compliance with our debt
covenants. Repurchases may be made through open market or in privately
negotiated transactions, pursuant to Rule 10b5-1 trading plans or other
available means, such as by way of an accelerated share repurchase program,
through block trades or through the purchase of call options or the sale of put
options. Additionally, there is no
minimum or maximum number of shares to be repurchased under the program and the
authority for the Anti-Dilution Share Repurchase Program will continue until
terminated by our Board of Directors.
Share repurchases
during the three months ended April 2, 2010, were as follows:
January
2010 Anti-Dilution Share Repurchase Program
(In millions, except average
price paid per share)
|
|
Total
Number of
Shares
Purchased
|
|
Average
Price
Paid per
Share
|
|
Total
Number of
Shares Purchased
Under Publicly
Announced Plans
or Programs
|
|
Approximate
Dollar Value
of Shares
Purchased Under
the Plans
or Programs
|
|
|
|
|
|
|
|
|
|
|
|
January 2, 2010
through January 29, 2010
|
|
|
|
$
|
|
|
|
|
$
|
|
|
January 30, 2010
through February 26, 2010
|
|
13.5
|
|
18.53
|
|
13.5
|
|
251
|
|
February 27,
2010 through April 2, 2010
|
|
|
|
|
|
|
|
|
|
Total Through 3
rd
Quarter of
Fiscal Year 2010
|
|
13.5
|
|
$
|
18.53
|
|
13.5
|
|
$
|
251
|
|
ITEM
3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITYHOLDERS
None.
ITEM
5. OTHER INFORMATION
None.
55
Table of Contents
ITEM 6.
EXHIBITS
|
|
|
|
Incorporated by Reference
|
|
|
Exhibit
No.
|
|
Exhibit Description
|
|
Form
|
|
File No.
|
|
Exhibit
|
|
Filing
Date
|
|
Filed
Herewith
|
2.1
|
|
Stock Purchase Agreement,
dated as of March 29, 2000, by and among Suez Acquisition Company
(Cayman) Limited, Seagate Technology, Inc. and Seagate Software
Holdings, Inc.
|
|
S-4
|
|
333-88388
|
|
2.1
|
|
05/16/02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.2
|
|
Agreement and Plan of
Merger and Reorganization, dated as of March 29, 2000, by and among
VERITAS Software Corporation, Victory Merger Sub, Inc. and Seagate
Technology, Inc.
|
|
S-4
|
|
333-88388
|
|
2.2
|
|
05/16/02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.3
|
|
Indemnification
Agreement, dated as of March 29, 2000, by and among VERITAS Software
Corporation, Seagate Technology, Inc. and Suez Acquisition Company
(Cayman) Limited
|
|
S-4
|
|
333-88388
|
|
2.3
|
|
05/16/02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.4
|
|
Joinder
Agreement to the Indemnification Agreement, dated as of November 22,
2000, by and among VERITAS Software Corporation, Seagate
Technology, Inc. and the SAC Indemnitors listed therein
|
|
S-4
|
|
333-88388
|
|
2.4
|
|
05/16/02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.5
|
|
Consolidated Amendment
to Stock Purchase Agreement, Agreement and Plan of Merger and Reorganization,
and Indemnification Agreement, and Consent, dated as of August 29, 2000,
by and among Suez Acquisition Company (Cayman) Limited, Seagate
Technology, Inc., Seagate Software Holdings, Inc., VERITAS Software
Corporation and Victory Merger Sub, Inc.
|
|
S-4
|
|
333-88388
|
|
2.5
|
|
05/16/02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.6
|
|
Consolidated
Amendment No. 2 to Stock Purchase Agreement, Agreement and Plan of
Merger and Reorganization, and Indemnification Agreement, and Consent, dated
as of October 18, 2000, by and among Suez Acquisition Company (Cayman)
Limited, Seagate Technology, Inc., Seagate Software Holdings, Inc.,
VERITAS Software Corporation and Victory Merger Sub, Inc.
|
|
S-4
|
|
333-88388
|
|
2.6
|
|
05/16/02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.7
|
|
Agreement
and Plan of Merger, dated as of December 20, 2005, by and among Seagate
Technology, MD Merger Corporation and Maxtor Corporation
|
|
8-K
|
|
001-31560
|
|
2.1
|
|
12/22/05
|
|
|
56
Table
of Contents
|
|
|
|
Incorporated by Reference
|
|
|
Exhibit
No.
|
|
Exhibit Description
|
|
Form
|
|
File No.
|
|
Exhibit
|
|
Filing
Date
|
|
Filed
Herewith
|
3.1
|
|
Third Amended and
Restated Memorandum of Association of Seagate Technology (formerly known as
Seagate Technology Holdings)
|
|
10-Q
|
|
001-31560
|
|
3.1
|
|
10/29/04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.2
|
|
Third Amended and
Restated Articles of Association of Seagate Technology (formerly known as
Seagate Technology Holdings)
|
|
10-Q
|
|
001-31560
|
|
3.2
|
|
10/29/04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.1
|
|
Specimen
Common Share Certificate
|
|
S-1/A
|
|
333-100513
|
|
4.4
|
|
11/08/02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.2
|
|
Indenture
dated September 20, 2006 among Seagate Technology, Seagate Technology
HDD Holdings and U.S. Bank National Association
|
|
8-K
|
|
001-31560
|
|
4.1
|
|
09/21/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.3
|
|
Forms
of Global Note for the Floating Rate Senior Notes due 2009, Senior Notes due
2011 and Senior Notes due 2016 of Seagate Technology HDD Holdings issued
pursuant to the Indenture
|
|
8-K
|
|
001-31560
|
|
4.1
|
|
09/21/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.4
|
|
Indenture
dated as of May 1, 2009, among Seagate Technology International, as
Issuer, Seagate Technology, Seagate Technology HDD Holdings, Maxtor Global
Ltd., Seagate Technology (Ireland), Seagate Technology Media (Ireland),
Seagate International (Johor) Sdn. Bhd., Penang Seagate Industries
(M) Sdn. Bhd., Seagate Singapore International Headquarters Pte. Ltd.,
Seagate Technology (Thailand) Limited, Seagate Technology (US)
Holdings, Inc., Maxtor Corporation, i365 Inc. and Seagate Technology
LLC, as Guarantors, and Wells Fargo Bank, National Association, as Trustee
|
|
8-K
|
|
001-31560
|
|
4.1
|
|
05/05/09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.5
|
|
Form of
10.0% Senior Secured Second-Priority Note due 2014
|
|
8-K
|
|
001-31560
|
|
4.1
|
|
05/05/09
|
|
|
57
Table
of Contents
|
|
|
|
Incorporated by Reference
|
|
|
Exhibit
No.
|
|
Exhibit Description
|
|
Form
|
|
File No.
|
|
Exhibit
|
|
Filing
Date
|
|
Filed
Herewith
|
10.1+
|
|
Amended and Restated
Seagate Technology Executive Officer Severance and Change in Control Plan
|
|
10-Q
|
|
001-31560
|
|
10.2
|
|
02/01/10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.2+
|
|
Seagate Technology
2001 Share Option Plan
|
|
S-8
|
|
333-101848
|
|
10
|
|
12/13/02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.3(a)+
|
|
Form of
Indemnification Agreement between Seagate Technology Holdings and the
director or officer named therein
|
|
S-4/A
|
|
333-88388
|
|
10.17
|
|
07/05/02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.3(b)+
|
|
Form of Revised
Indemnification Agreement between Seagate Technology and the director or
officer named therein
|
|
10-Q
|
|
001-31560
|
|
10.4(b)
|
|
05/06/09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.4+
|
|
Seagate Technology
Executive Officer Performance Bonus Plan
|
|
10-Q
|
|
001-31560
|
|
10.6
|
|
10/30/08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.5+
|
|
Amended
Seagate Technology 2004 Stock Compensation Plan
|
|
10-Q
|
|
001-31560
|
|
10.6
|
|
02/01/10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.6+
|
|
Seagate
Technology 2004 Stock Compensation Plan Form of Option Agreement (For
Outside Directors)
|
|
10-Q
|
|
001-31560
|
|
10.7
|
|
11/04/09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.7+
|
|
Seagate
Technology 2004 Stock Compensation Plan Form of Option Agreement (For
Officers and Non-Officer employees)
|
|
S-8
|
|
333-128654
|
|
99.3
|
|
09/28/05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.8+
|
|
Seagate
Technology 2004 Stock Compensation Plan Form of Restricted Stock Bonus
Agreement
|
|
10-K
|
|
001-31560
|
|
10.11
|
|
08/13/08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.9+
|
|
Seagate
Technology 2004 Stock Compensation Plan Notice of Restricted Stock Bonus
Grant (For Outside Directors)
|
|
10-Q
|
|
001-31560
|
|
10.10
|
|
11/04/09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.10+
|
|
Seagate
Technology 2004 Stock Compensation Plan Form of Restricted Stock Unit
Agreement
|
|
10-Q
|
|
001-31560
|
|
10.11
|
|
10/30/08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.11
|
|
Seagate Technology
Employee Stock Purchase Plan (as amended and restated)
|
|
10-Q
|
|
001-31560
|
|
10.12
|
|
11/04/09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.12+
|
|
Summary
description of Seagate Technologys Compensation Policy for Non-Management
Members of the Board of Directors
|
|
10-Q
|
|
001-31560
|
|
10.13
|
|
02/01/10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.13*
|
|
Indenture
between Maxtor Corporation and U.S. Bank National Association, dated as of
August 15, 2005
|
|
10-Q
|
|
001-16447
|
|
4.1
|
|
11/04/05
|
|
|
58
Table
of Contents
|
|
|
|
Incorporated by Reference
|
|
|
Exhibit
No.
|
|
Exhibit Description
|
|
Form
|
|
File No.
|
|
Exhibit
|
|
Filing
Date
|
|
Filed
Herewith
|
10.14
|
|
First
Supplemental Indenture, dated as of May 19, 2006, among Seagate
Technology, Maxtor Corporation and U.S. Bank National Association, amending
and supplementing the Indenture dated as of August 15, 2005
|
|
8-K
|
|
001-31560
|
|
10.2
|
|
05/25/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.15+
|
|
Seagate
Technology 2004 Stock Compensation Plan Form of Performance Share Bonus
Agreement (includes Compensation Recovery Policy)
|
|
10-Q
|
|
001-31560
|
|
10.17
|
|
02/10/09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.16+
|
|
Form of
Separation and Release Agreement by and between David A. Wickersham and
Seagate US LLC and Seagate Technology
|
|
10-Q
|
|
001-31560
|
|
10.18
|
|
02/10/09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.16(a)+
|
|
Restricted
Covenants Agreement by and between David A. Wickersham and Seagate US LLC and
Seagate Technology (contained in Exhibit 10.18 as Exhibit A)
|
|
10-Q
|
|
001-31560
|
|
10.18(a)
|
|
02/10/09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.17+
|
|
Form of
Separation and Release Agreement by and between William D. Watkins and
Seagate (US) Holdings, Inc. and Seagate Technology
|
|
10-Q
|
|
001-31560
|
|
10.19
|
|
02/10/09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.17(a)+
|
|
Restricted
Covenants Agreement by and between William D. Watkins and Seagate (US)
Holdings, Inc. and Seagate Technology
|
|
10-Q
|
|
001-31560
|
|
10.19(a)
|
|
02/10/09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.18+
|
|
Offer
Letter, dated as of January 29, 2009, by and between Seagate Technology
and Stephen J. Luczo
|
|
10-Q
|
|
001-31560
|
|
10.20
|
|
02/10/09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.19+
|
|
Seagate
Technology 2004 Stock Compensation Plan Form of Option Agreement
(includes Compensation Recovery Policy)
|
|
10-Q
|
|
001-31560
|
|
10.21
|
|
02/10/09
|
|
|
59
Table of Contents
|
|
|
|
Incorporated by Reference
|
|
|
Exhibit
No.
|
|
Exhibit Description
|
|
Form
|
|
File No.
|
|
Exhibit
|
|
Filing
Date
|
|
Filed
Herewith
|
10.20+
|
|
Seagate
Technology 2004 Stock Compensation Plan Form of Restricted Stock Bonus
Agreement (includes Compensation Recovery Policy)
|
|
10-Q
|
|
001-31560
|
|
10.22
|
|
02/10/09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.21+
|
|
Seagate
Technology 2004 Stock Compensation Plan Form of Restricted Stock Unit
Agreement (includes Compensation Recovery Policy)
|
|
10-Q
|
|
001-31560
|
|
10.23
|
|
02/10/09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.22+
|
|
Offer
Letter, dated as of November 6, 2008, by and between Seagate Technology
and Charles C. Pope
|
|
10-Q
|
|
001-31560
|
|
10.24
|
|
02/10/09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.23+
|
|
Summary
of Compensation Arrangements for Patrick J. OMalley
|
|
10-Q
|
|
001-31560
|
|
10.25
|
|
02/10/09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.24+
|
|
Form of
Separation and Release Agreement for Brian Dexheimer
|
|
10-K
|
|
001-31560
|
|
10.26
|
|
08/19/09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.25+
|
|
Summary
of Compensation Arrangements for Robert Whitmore
|
|
10-Q
|
|
001-31560
|
|
10.27
|
|
02/10/09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.26+
|
|
First Amendment to
Seagate Deferred Compensation Plan
|
|
|
|
|
|
|
|
|
|
X
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.27+
|
|
Restated Seagate
Deferred Compensation Plan
|
|
|
|
|
|
|
|
|
|
X
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.28+
|
|
Seagate Deferred
Compensation Sub-Plan
|
|
|
|
|
|
|
|
|
|
X
|
60
Table
of Contents
|
|
|
|
Incorporated by Reference
|
|
|
Exhibit
No.
|
|
Exhibit Description
|
|
Form
|
|
File No.
|
|
Exhibit
|
|
Filing
Date
|
|
Filed
Herewith
|
10.29
|
|
Second Lien U.S. Security Agreement dated as of
May 1, 2009, among Seagate Technology International, Seagate Technology,
Seagate Technology (US) Holdings, Inc., Maxtor Corporation, i365 Inc.,
Seagate Technology LLC and Seagate Technology HDD Holdings, as Grantors, and
Wells Fargo Bank, National Association, as Collateral Agent for the Secured
Parties (as defined therein)
|
|
8-K
|
|
001-31560
|
|
10.7
|
|
05/05/09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.30
|
|
Second Lien U.S. Pledge Agreement dated as of
May 1, 2009, among Seagate Technology, Seagate Technology (US)
Holdings, Inc., Maxtor Corporation, i365 Inc., Seagate Technology LLC
and Seagate Technology HDD Holdings, as Pledgors, and Wells Fargo Bank, National
Association, as Collateral Agent for the Secured Parties (as defined therein)
|
|
8-K
|
|
001-31560
|
|
10.8
|
|
05/05/09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.31
|
|
Second Priority Omnibus Debenture dated May 1,
2009, between Seagate Technology, Seagate Technology HDD Holdings, Seagate
Technology International, Seagate Technology (Ireland) and Seagate Technology
Media (Ireland), as Chargors, and Wells Fargo Bank, National Association, as
Collateral Agent or Chargee
|
|
8-K
|
|
001-31560
|
|
10.9
|
|
05/05/09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.32
|
|
Form of Second Priority Equitable Share
Mortgage in respect of shares dated May 1, 2009, between [Seagate
entity], as Mortgagor, and Wells Fargo Bank, National Association, as
Collateral Agent
|
|
8-K
|
|
001-31560
|
|
10.10
|
|
05/05/09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.33
|
|
Intercreditor Agreement dated as of May 1,
2009, among JPMorgan Chase Bank, N.A., as Administrative Agent and First
Priority Representative for the First Priority Secured Parties (as defined
therein), Wells Fargo Bank, National Association, as Collateral Agent and
Second Priority Representative for the Second Priority Secured Parties (as
defined therein), Seagate Technology HDD Holdings, as Borrower, Seagate
Technology International, as the Second Lien Issuer, and each of the other
Loan Parties (as defined therein) party thereto
|
|
8-K
|
|
001-31560
|
|
10.11
|
|
05/05/09
|
|
|
61
Table
of Contents
|
|
|
|
Incorporated by Reference
|
|
|
Exhibit
No.
|
|
Exhibit Description
|
|
Form
|
|
File No.
|
|
Exhibit
|
|
Filing
Date
|
|
Filed
Herewith
|
10.34
|
|
Second Supplemental
Indenture, dated as of June 1, 2009, among Seagate Technology, Maxtor
Corporation, Seagate Technology (US) Holdings, Inc. and U.S. Bank
National Association, amending and supplementing the Indenture dated as of
August 15, 2005, as amended and supplemented by that First Supplemental
Indenture dated as of May 19, 2006
|
|
8-K
|
|
001-31560
|
|
10.1
|
|
06/01/09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.35
|
|
Second Supplemental
Indenture, dated as of June 1, 2009, among Seagate Technology, Maxtor
Corporation, Seagate Technology (US) Holdings, Inc. and U.S. Bank
National Association, amending and supplementing the Indenture dated as of
March 1, 1987, as amended and supplemented by that First Supplemental
Indenture dated as of January 11, 1996
|
|
8-K
|
|
001-31560
|
|
10.3
|
|
06/01/09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.36
|
|
Indenture between
Maxtor Corporation (a Delaware Corporation), Maxtor Corporation (a California
Corporation) and Security Pacific National Bank, as Trustee, dated as of
March 1, 1987
|
|
S-1
|
|
033-12123
|
|
4.1
|
|
02/20/87
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.37§
|
|
First Supplemental
Indenture, dated as of January 11, 1996, between Maxtor Corporation and
State Street Bank and Trust Company, as successor Trustee, supplementing the
Indenture dated as of March 1, 1987
|
|
10-Q
|
|
033-63295
|
|
10.146
|
|
02/14/96
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.38
|
|
Second Priority Share
Charge, dated September 25, 2009, between Seagate Technology
International, as chargor and Wells Fargo Bank, National Association, as
collateral agent
|
|
8-K
|
|
001-31560
|
|
10.2
|
|
10/01/09
|
|
|
62
Table
of Contents
|
|
|
|
Incorporated by Reference
|
|
|
Exhibit
No.
|
|
Exhibit Description
|
|
Form
|
|
File No.
|
|
Exhibit
|
|
Filing
Date
|
|
Filed
Herewith
|
10.39
|
|
Second Priority
Debenture, dated September 25, 2009, between Seagate Singapore
International Headquarters Pte. Ltd., as chargor and Wells Fargo Bank,
National Association, as collateral agent
|
|
8-K
|
|
001-31560
|
|
10.4
|
|
10/01/09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.40
|
|
First Supplemental
Indenture, dated as of March 1, 2010, among Seagate Technology
International, Seagate HDD Cayman and Wells Fargo Bank, National Association,
as trustee, amending and supplementing the Indenture, dated as of May 1,
2009, among Seagate Technology International, as issuer, Seagate Technology
and the other guarantors party thereto and Wells Fargo Bank, National
Association, as trustee
|
|
8-K
|
|
001-31560
|
|
10.2
|
|
03/03/10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.41
|
|
Second Supplemental
Indenture, dated as of March 1, 2010, among Seagate Technology
International, Seagate Technology plc and Wells Fargo Bank, National
Association, as trustee, amending and supplementing the Indenture, dated as
of May 1, 2009, among Seagate Technology International, as issuer,
Seagate Technology and the other guarantors party thereto and Wells Fargo
Bank, National Association, as trustee
|
|
8-K
|
|
001-31560
|
|
10.3
|
|
03/03/10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.42
|
|
Supplement No. 1,
dated as of March 1, 2010, to the Second Lien U.S. Security Agreement,
dated as of May 1, 2009, among Seagate Technology International, Seagate
Technology and the other guarantors from time to time party thereto and Wells
Fargo Bank, National Association, as trustee
|
|
8-K
|
|
001-31560
|
|
10.7
|
|
03/03/10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.43
|
|
Supplement No. 1,
dated as of March 1, 2010, to the Second Lien U.S. Pledge Agreement,
dated as of May 1, 2009, among Seagate Technology and each of the other
guarantors from time to time party thereto and Wells Fargo Bank, National
Association, as collateral agent
|
|
8-K
|
|
001-31560
|
|
10.11
|
|
03/03/10
|
|
|
63
Table
of Contents
|
|
|
|
Incorporated by Reference
|
|
|
Exhibit
No.
|
|
Exhibit Description
|
|
Form
|
|
File No.
|
|
Exhibit
|
|
Filing
Date
|
|
Filed
Herewith
|
10.44
|
|
Supplement No. 1,
dated as of March 1, 2010, to the Intercreditor Agreement, dated as of
May 1, 2009, among JPMorgan Chase Bank, N.A., as administrative agent,
Wells Fargo Bank, National Association, as Collateral Agent, Seagate
Technology HDD Holdings, Seagate Technology International and each of the
other loan parties from time to time party thereto
|
|
8-K
|
|
001-31560
|
|
10.12
|
|
03/03/10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.45
|
|
Supplement No. 2,
dated as of March 1, 2010, to the Intercreditor Agreement, dated as of
May 1, 2009, among JPMorgan Chase Bank, N.A., as administrative agent,
Wells Fargo Bank, National Association, as Collateral Agent, Seagate
Technology HDD Holdings, Seagate Technology International and each of the
other loan parties from time to time party thereto
|
|
8-K
|
|
001-31560
|
|
10.13
|
|
03/03/10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.46
|
|
Second Priority
Mortgage of Shares in Seagate HDD Cayman, dated March 1, 2010, between
Seagate Technology HDD Holdings, as mortgagor, and Wells Fargo Bank, National
Association, as mortgagee
|
|
8-K
|
|
001-31560
|
|
10.15
|
|
03/03/10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.47
|
|
Second Priority
Mortgage of Shares in Seagate Technology International, dated March 1,
2010, between Seagate HDD Cayman, as mortgagor, and Wells Fargo Bank,
National Association, as mortgagee
|
|
8-K
|
|
001-31560
|
|
10.17
|
|
03/03/10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.48
|
|
Second Lien Debenture,
dated March 1, 2010, between Seagate HDD Cayman, as chargor, and Wells
Fargo Bank, National Association, as chargee
|
|
8-K
|
|
001-31560
|
|
10.19
|
|
03/03/10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.49
|
|
Second Priority
Debenture, dated March 1, 2010, between Seagate Technology plc, as
chargor, and Wells Fargo Bank, National Association, as collateral agent
|
|
8-K
|
|
001-31560
|
|
10.21
|
|
03/03/10
|
|
|
64
Table
of Contents
|
|
|
|
Incorporated by Reference
|
|
|
Exhibit
No.
|
|
Exhibit Description
|
|
Form
|
|
File No.
|
|
Exhibit
|
|
Filing
Date
|
|
Filed
Herewith
|
10.50
|
|
Second Priority
Mortgage of Shares in Seagate Technology, dated March 1, 2010, between
Seagate Technology plc, as mortgagor, and Wells Fargo Bank, National
Association, as mortgagee
|
|
8-K
|
|
001-31560
|
|
10.23
|
|
03/03/10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.51
|
|
First Supplemental
Indenture, dated as of March 1, 2010, among Seagate Technology HDD
Holdings, Seagate HDD Cayman, Seagate Technology and U.S. Bank National
Association, as trustee, amending and supplementing the Indenture, dated as
of September 20, 2006, among Seagate Technology HDD Holdings, Seagate
Technology and U.S. Bank National Association, as trustee
|
|
8-K
|
|
001-31560
|
|
10.24
|
|
03/03/10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.52
|
|
Third Supplemental
Indenture, dated as of March 19, 2010, among Seagate Technology
International, as issuer, Seagate Technology and the other guarantors party
thereto and Wells Fargo Bank, National Association, as trustee, amending and
supplementing the Indenture, dated as of May 1, 2009, among Seagate
Technology International, as issuer, Seagate Technology and the other
guarantors party thereto and Wells Fargo Bank, National Association, as
trustee
|
|
8-K
|
|
001-31560
|
|
10.1
|
|
3/22/10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14.1
|
|
Code
of Business Conduct and Ethics
|
|
10-K
|
|
001-31560
|
|
14.1
|
|
08/13/08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31.1
|
|
Certification of the
Chief Executive Officer pursuant to rules 13a-14(a) and
15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
|
|
|
|
|
|
|
X
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31.2
|
|
Certification of the
Chief Financial Officer pursuant to rules 13a-14(a) and
15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
|
|
|
|
|
|
|
X
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32.1
|
|
Certification of the
Chief Executive Officer and Chief Financial Officer pursuant to
Rule 13a-14(b) and 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002
|
|
|
|
|
|
|
|
|
|
X
|
+
|
Management contract or
compensatory plan or arrangement
|
*
|
Incorporated by
reference to Maxtor Corps quarterly report on Form 10-Q (001-16447)
filed with the SEC on 11/04/2005.
|
|
Incorporated by
reference to Maxtor Corps quarterly report on Form 10-Q (001-16447)
filed with the SEC on 05/13/2003.
|
|
Incorporated by
reference to Maxtor Corps registration statement on Form S-1
(033-12123) filed with the SEC on 02/20/1987.
|
§
|
Incorporated by
reference to Maxtor Corps quarterly report on Form 10-Q (033-63295)
filed with the SEC on 02/14/1996.
|
65
Table of Contents
SIGNATURES
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 thereunto duly authorized.
|
|
SEAGATE
TECHNOLOGY
|
|
|
|
|
|
|
|
|
DATE:
|
May 5, 2010
|
BY:
|
/s/ STEPHEN J. LUCZO
|
|
|
|
Stephen J. Luczo
|
|
|
|
Chairman, President and
Chief Executive Officer
|
|
|
|
(Principal Executive
Officer)
|
|
|
|
|
|
|
|
|
DATE:
|
May 5, 2010
|
BY:
|
/s/ PATRICK J. OMALLEY
|
|
|
|
Patrick J. OMalley
|
|
|
|
Executive Vice
President and
|
|
|
|
Chief Financial Officer
|
|
|
|
(Principal Financial
Officer)
|
66
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