STX Seagate Technology Holdings PLC

Seagate Technology plc (NASDAQ: STX) (the “Company”) today reported financial results for the quarter and fiscal year ended June 28, 2013. During the fourth quarter, the Company reported revenue of approximately $3.4 billion, gross margin of 27.4%, net income of $348 million and diluted earnings per share of $0.94. On a non-GAAP basis, which excludes the net impact of certain items, Seagate reported gross margin of 28.0%, net income of $447 million and diluted earnings per share of $1.20.

During the fourth quarter, the Company generated approximately $394 million in operating cash flow, paid cash dividends of $137 million and repurchased 1 million of ordinary shares for approximately $42 million. The Company issued long-term debt of approximately $1 billion, and repurchased approximately $700 million total par value of its 2016 Notes and 2018 Notes.

For the fiscal year ended June 28, 2013, on a GAAP basis the Company reported revenue of $14.4 billion, gross margin of 27.5%, net income of $1.8 billion and diluted earnings per share of $4.81. On a non-GAAP basis, the Company reported gross margin of 28.0% and diluted earnings per share of $5.31. In fiscal year 2013, the Company returned 71% of its operating cash flow, or 96% of free cash flow, to shareholders in dividends and share redemptions. Cash, cash equivalents, restricted cash, and short-term investments totaled approximately $2.3 billion at the end of the fiscal year.

“Seagate’s financial results reflect strong execution in a time of change, uncertainty and opportunity,” said Steve Luczo, Seagate’s chairman, president and chief executive officer. “Looking ahead, we believe the market trends of data growth driven by cloud, mobile and open source advancement will present new and significant opportunities for Seagate. We will continue to balance near-term financial performance and long term strategic development while maximizing shareholder value.”

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

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

Quarterly Cash Dividend

The Board of Directors has approved a quarterly cash dividend of $0.38 per share, which will be payable on August 21, 2013 to shareholders of record as of the close of business on August 7, 2013. The payment of any future quarterly dividends will be at the discretion of the Board and will be dependent upon Seagate's financial position, results of operations, available cash, cash flow, capital requirements and other factors deemed relevant by the Board.

July 2013 Stock Repurchase Program

The Board of Directors has authorized the Company to repurchase up to $2.5 billion of its outstanding ordinary shares (the “July 2013 Authorization”). Seagate, as a result of the July 2013 Authorization and other current repurchase authorizations, currently has a total authorized unutilized capacity for repurchases of approximately $3.3 billion under these authorizations.

Investor Communications

Seagate management will hold a public webcast today at 5:15 a.m. Pacific Daylight Time that can be accessed on its Investor Relations website at www.seagate.com/investors. During today's webcast, the Company will provide an outlook for its first fiscal quarters of 2014 including key underlying assumptions. Seagate is planning an investor and analyst meeting on September 10, 2013 to discuss the Company’s longer-term strategic plan.

Replay

A replay will be available beginning today at approximately 9:00 a.m. Pacific Daylight Time at www.seagate.com/investors.

About Seagate

Seagate is a world leader in hard disk drives and storage solutions. Learn more at www.seagate.com.

Cautionary Note Regarding Forward-Looking Statements

This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and 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 September 27, 2013 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 the Company as of the date of this press release and are based on management's current views and assumptions. These forward-looking statements are conditioned upon and also involve a number of known and unknown risks, uncertainties, and other factors that could cause actual results, performance or events to differ materially from those anticipated by these forward-looking statements. Such risks, uncertainties, and other factors may be beyond the Company’s control and may pose a risk to the Company’s operating and financial condition. Such risks and uncertainties include, but are not limited to: the uncertainty in global economic conditions, as consumers and businesses may defer purchases in response to tighter credit and financial news; the impact of the variable demand and adverse pricing environment for disk drives, particularly in view of current business and economic conditions; dependence on the Company’s ability to successfully qualify, manufacture and sell its disk drive products in increasing volumes on a cost-effective basis and with acceptable quality, particularly the new disk drive products with lower cost structures; the impact of competitive product announcements; possible excess industry supply with respect to particular disk drive products; and the Company’s ability to achieve projected cost savings in connection with restructuring plans. Information concerning risks, uncertainties and other factors that could cause results to differ materially from those projected in the forward-looking statements is contained in the Company's Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission on August 8, 2012, which statements are incorporated into this press release by reference. These forward-looking statements should not be relied upon as representing the Company’s views as of any subsequent date and the Company undertakes no obligation to update forward-looking statements to reflect events or circumstances after the date they were made.

   

SEAGATE TECHNOLOGY PLC

CONDENSED CONSOLIDATED BALANCE SHEETS (In millions) (Unaudited)   June 28, June 29, 2013 2012 (a) ASSETS Current assets: Cash and cash equivalents $ 1,708 $ 1,707 Short-term investments 480 411 Restricted cash and investments 101 93 Accounts receivable, net 1,670 2,319 Inventories 854 909 Deferred income taxes 115 104 Other current assets   484   767 Total current assets 5,412 6,310 Property, equipment and leasehold improvements, net 2,269 2,284 Goodwill 476 463 Other intangible assets 405 506 Deferred income taxes 456 396 Other assets, net   225   147 Total Assets $ 9,243 $ 10,106 LIABILITIES AND EQUITY Current liabilities: Accounts payable $ 1,690 $ 2,286 Accrued employee compensation 335 344 Accrued warranty 176 235 Accrued expenses 407 531 Current portion of long-term debt   3   — Total current liabilities 2,611 3,396 Long-term accrued warranty 144 128 Long-term accrued income taxes 87 84 Other non-current liabilities 121 138 Long-term debt, less current portion   2,774   2,863 Total Liabilities 5,737 6,609   Equity:     Total Equity   3,506   3,497 Total Liabilities and Equity $ 9,243 $ 10,106  

(a) The information in this column was derived from the Company’s audited Consolidated Balance Sheet as of June 29, 2012.

    SEAGATE TECHNOLOGY PLC CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In millions, except per share data) (Unaudited)         For the Three Months Ended For the Fiscal Years Ended June 28, June 29, June 28, June 29, 2013 2012 2013

2012 (a)

Revenue $ 3,425 $ 4,482 $ 14,351 $ 14,939   Cost of revenue 2,486 2,998 10,411 10,255 Product development 294 269 1,133 1,006 Marketing and administrative 176 140 635 528 Amortization of intangibles 20 18 79 38 Restructuring and other, net   1     —     2     4   Total operating expenses   2,977     3,425     12,260     11,831     Income from operations 448 1,057 2,091 3,108   Interest income 2 2 8 8 Interest expense (50 ) (55 ) (214 ) (241 ) Other, net   (97 )   9     (54 )   7   Other expense, net   (145 )   (44 )   (260 )   (226 )   Income before income taxes 303 1,013 1,831 2,882 Provision for (benefit from) income taxes   (45 )   —     (7 )   20   Net income attributable to Seagate Technology plc $ 348   $ 1,013   $ 1,838   $ 2,862     Net income per share attributable to Seagate Technology plc ordinary shareholders: Basic $ 0.97 $ 2.46 $ 4.97 $ 6.72 Diluted 0.94 2.37 4.81 6.49 Number of shares used in per share calculations: Basic 359 411 370 426 Diluted 371 427 382 441   Cash dividends declared per Seagate Technology plc ordinary share $ 0.38 $ 0.25 $ 1.40 $ 0.86  

(a) The information in this column was derived from the Company’s audited Consolidated Statement of Operations for the year ended June 29, 2012.

      SEAGATE TECHNOLOGY PLC CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In millions) (Unaudited)   For the Fiscal Years Ended June 28, June 29, 2013

2012 (a)

OPERATING ACTIVITIES Net income $ 1,838 $ 2,862 Adjustments to reconcile net income to net cash from operating activities: Depreciation and amortization 873 814 Share-based compensation 76 51 Loss on redemption of debt 141 17 Gain on sale of investments (61 ) (12 ) Gain on sale of property and equipment (36 ) (25 ) Deferred income taxes (70 ) (28 ) Other non-cash operating activities, net 12 7 Changes in operating assets and liabilities: Accounts receivable, net 661 (824 ) Inventories 102 99 Accounts payable (538 ) 157 Accrued employee compensation (14 ) 145 Accrued expenses, income taxes and warranty (170 ) 54 Vendor Receivables 272 (82 ) Other assets and liabilities   (39 )   27   Net cash provided by operating activities   3,047     3,262   INVESTING ACTIVITIES Acquisition of property, equipment and leasehold improvements (786 ) (636 ) Proceeds from the sale of property and equipment 29 20 Purchases of short-term investments (351 ) (454 ) Sales of short-term investments 296 397 Maturities of short-term investments 38 119 Cash used in acquisition of LaCie S.A., net of cash acquired (36 ) — Cash used in acquisition of Samsung HDD assets and liabilities — (561 ) Other investing activities, net   (15 )   1   Net cash used in investing activities   (825 )   (1,114 ) FINANCING ACTIVITIES Net proceeds from issuance of long-term debt 986 — Repayments of long-term debt and capital lease obligations (1,224 ) (670 ) Proceeds from issuance of ordinary shares under employee stock plans 259 344 Dividends to shareholders (518 ) (372 ) Repurchases of ordinary shares (1,654 ) (2,426 ) Escrow deposit for acquisition of noncontrolling shares of LaCie S.A. (72 ) — Other financing activities, net   1     6   Net cash (used in) provided by financing activities   (2,222 )   (3,118 ) Effects of foreign currency exchange rate changes on cash and cash equivalents   1     —   (Decrease) increase in cash and cash equivalents 1 (970 ) Cash and cash equivalents at the beginning of the year   1,707     2,677   Cash and cash equivalents at the end of the year $ 1,708   $ 1,707    

(a) The information in this column was derived from the Company’s audited Consolidated Statement of Cash Flows for the year ended June 29, 2012.

 

Use of non-GAAP financial information

To supplement the preliminary financial information presented in accordance with generally accepted accounting principles (GAAP), the Company provides non-GAAP measures of gross margin which are adjusted from results based on GAAP to exclude certain expenses. These non-GAAP financial measures are provided to enhance the user's overall understanding of the Company's current financial performance and its prospects for the future. Specifically, the Company believes non-GAAP results provide useful information to both management and investors as these non-GAAP results exclude certain expenses that the Company believes are not indicative of its core operating results and because it is consistent with the financial models and estimates published by financial analysts who follow the Company.

These non-GAAP results are some of the primary measurements management uses to assess the Company's performance, allocate resources and plan for future periods. Reported non-GAAP results should only be considered as supplemental to results prepared in accordance with GAAP, and not considered as a substitute for, or superior to, GAAP results. These non-GAAP measures may differ from the non-GAAP measures reported by other companies in the Company's industry.

      SEAGATE TECHNOLOGY PLC ADJUSTMENTS TO GAAP NET INCOME, DILUTED NET INCOME PER SHARE AND FREE CASH FLOW (In millions, except per share amounts) (Unaudited)  

For the Three

For the Fiscal

Months Ended

Year Ended June 28, 2013 June 28, 2013   Reconciliation of GAAP Net Income: GAAP Net Income $ 348 $ 1,838 Non-GAAP adjustments: Cost of revenue A 19 82 Product development B 2 20 Marketing and administrative C 4 (4 ) Amortization of intangibles D 20 79 Restructuring and other, net D 1 3 Other expense, net E 106 63 Provision for (benefit from) income taxes

F

  (53 )   (53 ) Non-GAAP net income $ 447   $ 2,028     Reconciliation of GAAP Diluted Net Income Per Share: GAAP $ 0.94 $ 4.81 Non-GAAP $ 1.20 $ 5.31 Shares used in diluted net income per share calculation 371 382   Reconciliation of Free Cash Flow: GAAP operating cash flow $ 394 $ 3,047 Less: acquisition of property, equipment and leasehold improvements   (128 )   (786 ) Free cash flow $ 266   $ 2,261    

A

  For the three months ended June 28, 2013, Cost of revenue on a GAAP basis totaled $2,486 million, while non-GAAP Cost of revenue, which excludes the impact of certain adjustments, was $2,467 million. These non-GAAP adjustments include amortization of intangibles and other acquisition related expenses associated with the December 2011 acquisition of Samsung Electronics Co., Ltd's hard disk drive business (the "Samsung HDD business").   For the fiscal year ended June 28, 2013, Cost of revenue on a GAAP basis totaled $10,411 million, while non-GAAP Cost of revenue, which excludes the impact of certain adjustments, was $10,329 million. These non-GAAP adjustments include amortization of intangibles, other acquisition related expenses associated with the Samsung HDD business and the August 2012 acquisition of LaCie S.A. ("LaCie") as well as the impact of the 2013 voluntary early retirement program ("2013 VERP") offered by the Company to certain of its employees in the U.S. in January 2013.  

B

For the three months and fiscal year ended June 28, 2013, Product development expense has been adjusted on a non-GAAP basis to exclude the impact of acquisition and integration costs associated with the Samsung HDD business. For the fiscal year ended June 28, 2013, Product development expense has also been adjusted on a non-GAAP basis to exclude the impact of the 2013 VERP.  

C

For the three months and fiscal year ended June 28, 2013, Marketing and administrative expense has been adjusted on a non-GAAP basis to exclude the impact of acquisition and integration costs associated with the Samsung HDD business and LaCie. For the fiscal year ended June 28, 2013, Marketing and administrative expense has also been adjusted on a non-GAAP basis to exclude the net impact of legal cost reimbursements and the 2013 VERP.  

D

For the three months and fiscal year ended June 28, 2013, Amortization of intangibles related to our Samsung HDD business and LaCie acquisitions and Restructuring and other, net, primarily related to prior year restructuring plans, have been excluded on a non-GAAP basis.  

E

For the three months and fiscal year ended June 28, 2013, Other expense has been adjusted on a non-GAAP basis primarily to exclude the net impact of losses recognized on the early redemption and repurchase of debt, partially offset by gains recognized upon sales of investments. For the fiscal year ended June 28, 2013, Other expense has also been adjusted on a non-GAAP basis primarily to exclude a gain recognized from an insurance reimbursement related to the severe flooding in Thailand.  

F

For the three months and fiscal year ended June 28, 2013, non-GAAP net income excludes tax items related to the release of valuation allowance on U.S. deferred tax assets associated with increases in the Company's forecasted U.S. taxable income.

SEAGATEBrian Ziel, 408-658-1540brian.ziel@seagate.com