UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of report (date of earliest event reported): January 31, 2012
SEAGATE TECHNOLOGY PUBLIC LIMITED COMPANY
(Exact name of Registrant as specified in its charter)
Ireland |
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001-31560 |
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98-0648577 |
(State or other jurisdiction of incorporation) |
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(Commission File Number) |
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(IRS Employer Identification Number) |
38/39 Fitzwilliam Square Dublin 2 Ireland |
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NA |
(Address of principal executive office) |
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(Zip Code) |
Registrants telephone number, including area code: (353) (1) 234-3136
NA
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Item 2.02 Results of Operations and Financial Condition.
On January 31, 2012, Seagate Technology plc (or the Company) issued a press release and supplemental commentary reporting its financial results for the fiscal quarter ended December 30, 2011. The press release and supplemental commentary are attached to this Current Report on Form 8-K as Exhibit 99.1 and 99.2, respectively.
The information contained in this report, the attached press release and supplemental commentary is furnished but shall not be deemed to be filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of such section.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits.
The following exhibit is attached to this Current Report on Form 8-K:
Exhibit No. |
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Description |
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99.1 |
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Press release, dated January 31, 2012, of Seagate Technology plc entitled Seagate Technology Reports Fiscal Second Quarter 2012 Financial Results. |
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99.2 |
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Supplemental Commentary, dated January 31, 2012, of Seagate Technology plc entitled Seagate Technology Fiscal Second Quarter 2012 Financial Results. |
Cautionary Note Regarding Forward-Looking Statements
This Current Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, each as amended, including, in particular, statements about future operations and cash flow, and whether or the magnitude and manner in which we pay any future dividends or make share repurchases. 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 Current Report. Current expectations, forecasts and assumptions involve a number of risks, uncertainties, and other factors that could cause actual results to differ materially from those anticipated by these forward-looking statements. Such risks, uncertainties, and other factors may be beyond the Companys control. In particular, the uncertainty in global economic conditions continues to pose a risk to the Companys operating and financial performance as consumers and businesses may defer purchases in response to tighter credit and negative financial news. Such risks and uncertainties also include, but are not limited to, the impact of the variable demand and the adverse pricing environment for disk drives, particularly in view of current business and economic conditions; dependence on the Companys ability to successfully qualify, manufacture and sell its disk drive products in increasing volumes on a cost-effective basis and with acceptable quality, particularly the new disk drive products with lower cost structures; the impact of competitive product announcements and possible excess industry supply with respect to particular disk drive products; the Companys ability to achieve projected cost savings in connection with restructuring plans; the risk that we will incur significant incremental costs in connection with our recently executed transaction with Samsung Electronics Co., Ltd. ("Samsung") or that we will not achieve the benefits expected from such transaction; and significant disruption to the industry supply chain due to the severe flooding throughout parts of Thailand. 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 Companys Annual Report on Form 10-K and Form 10-K/A as filed with the U.S. Securities and Exchange Commission on August 17, 2011 and August 24, 2011 respectively, and Quarterly Report on Form 10-Q as filed with the U.S. Securities and Exchange Commission on October 27, 2011, which statements are incorporated into this Current Report by reference. These forward-looking statements should not be relied upon as representing the Companys views as of any subsequent date and the Company undertakes no obligation to update forward-looking statements to reflect events or circumstances after the date they were made.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereto duly authorized.
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SEAGATE TECHNOLOGY PUBLIC LIMITED COMPANY | |
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By: |
/s/ PATRICK J. OMALLEY |
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Name: |
Patrick J. OMalley |
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Title: |
Executive Vice President and Chief Financial Officer |
Date: January 31, 2012
Exhibit 99.1
Media Relations Contact:
Brian Ziel (408.658.1540)
brian.ziel@seagate.com
Investor Relations Contact:
Rod Cooper (408.658.1099)
rod.j.cooper@seagate.com
SEAGATE TECHNOLOGY REPORTS FISCAL SECOND QUARTER 2012
FINANCIAL RESULTS
CUPERTINO, CA January 31, 2012 Seagate Technology plc (NASDAQ: STX) today reported financial results for the quarter ended December 30, 2011. The company shipped 47 million disk drives and reported revenue of $3.2 billion, gross margin of 31.6%, net income of $563 million and diluted earnings per share of $1.28. On a non-GAAP basis, which excludes the net impact of certain items, Seagate reported net income of $581 million and diluted earnings per share of $1.32 for the quarter ended December 30, 2011.
For the six months ended December 30, 2011, the company reported revenue of $6.0 billion, gross margin of 26.0%, net income of $703 million and diluted earnings per share of $1.61. On a non-GAAP basis, which excludes the net impact of certain items, Seagate reported net income of $727 million and diluted earnings per share of $1.67. Seagate returned $151 million to shareholders in the form of a dividend and repurchased $191 million of Seagate ordinary shares which equates to approximately 13 million ordinary shares.
For a detailed reconciliation of non-GAAP to GAAP results, see accompanying financial tables.
Acquisition of Samsungs Hard Disk Drive Assets
Seagate announced on December 19, 2011 the closing of the acquisition of the hard disk drive business of Samsung Electronics Co., Ltd. Related to this transaction, amortization of acquisition-related intangibles of $5 million (non-cash expense) is included in the GAAP basis net income for the fiscal second quarter and six months ended December 30, 2011. For Seagates third fiscal quarter, which ends on March 30, 2012, it is expected that amortization of acquisition-related intangibles will be approximately $35 million.
Investor Communications
Seagate will hold a conference call to review its second fiscal quarter today at 2:00 p.m. Pacific Time. The conference call will consist of opening comments from Steve Luczo, CEO, followed by a question and answer session with the executive management team. During todays conference call, the company will provide an outlook for its third and fourth fiscal quarters of 2012 and its view of the remainder of the calendar year, including key underlying assumptions.
Seagate has issued a Supplemental Commentary document. The Supplemental Commentary will not be read during todays call, but rather it is available in the investor relations section of seagate.com.
Conference Call
The conference call can be accessed online at http://www.seagate.com/investors or by telephone as follows:
USA: (866) 383-8108
International: (617) 597-5343
Participant Passcode: 13482450
Replay
A replay will be available beginning today at approximately 6:00 p.m. Pacific Time. The replay can be accessed from seagate.com.
About Seagate
Seagate is the world leader in hard disk drives and storage solutions. Learn more at seagate.com.
Cautionary Note Regarding Forward-Looking Statements
This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, each as amended, including, in particular, statements about our plans, strategies and prospects and estimates of industry growth for the fiscal quarter ending December 30, 2011 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. Current expectations, forecasts and assumptions involve a number of risks, uncertainties, and other factors that could cause actual results to differ materially from those anticipated by these forward-looking statements. Such risks, uncertainties, and other factors may be beyond the Companys control. In particular, the uncertainty in global economic conditions continues to pose a risk to the Companys operating and financial performance as consumers and businesses may defer purchases in response to tighter credit and financial news. Such risks and uncertainties also include, but are not limited to, 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 Companys ability to successfully qualify, manufacture and sell its disk drive products in increasing volumes on a cost-effective basis and with acceptable quality, particularly the new disk drive products with lower cost structures; the impact of competitive product announcements; and possible excess industry supply with respect to particular disk drive products; the Companys ability to achieve projected cost savings in connection with restructuring plans; the risk that we will incur significant incremental costs in connection with our recently executed transaction with Samsung Electronics Co., Ltd. ("Samsung") or that we will not achieve the benefits expected from such transaction; and significant disruption to the industry supply chain due to the severe flooding throughout parts of Thailand.
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 Companys Annual Report on Form 10-K and Form 10-K/A as filed with the U.S. Securities and Exchange Commission on August 17, 2011, and August 24, 2011 respectively, and in the Companys Quarterly Report on Form 10-Q as filed with the U.S. Securities and Exchange Commission on October 27, 2011 which statements are incorporated into this press release by reference. These forward-looking statements should not be relied upon as representing the Companys 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)
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December 30, 2011 |
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July 1, 2011 (a) |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
1,825 |
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$ |
2,677 |
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Short-term investments |
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407 |
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474 |
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Restricted cash and investments |
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93 |
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102 |
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Accounts receivable, net |
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1,627 |
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1,495 |
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Inventories |
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827 |
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872 |
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Deferred income taxes |
|
99 |
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99 |
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Other current assets |
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522 |
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706 |
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Total current assets |
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5,400 |
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6,425 |
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Property, equipment and leasehold improvements, net |
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2,210 |
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2,245 |
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Goodwill |
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468 |
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31 |
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Other intangible assets |
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576 |
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1 |
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Deferred income taxes |
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376 |
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374 |
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Other assets, net |
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141 |
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149 |
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Total Assets |
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$ |
9,171 |
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$ |
9,225 |
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LIABILITIES AND SHAREHOLDERS EQUITY |
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Current liabilities: |
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Accounts payable |
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$ |
1,461 |
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$ |
2,063 |
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Accrued employee compensation |
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255 |
|
199 |
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Accrued warranty |
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218 |
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189 |
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Accrued expenses |
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438 |
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452 |
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Current portion of long-term debt |
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560 |
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Total current liabilities |
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2,372 |
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3,463 |
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Long-term accrued warranty |
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183 |
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159 |
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Long-term accrued income taxes |
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75 |
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67 |
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Other non-current liabilities |
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151 |
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121 |
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Long-term debt, less current portion |
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2,925 |
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2,952 |
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Total Liabilities |
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5,706 |
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6,762 |
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Commitments and contingencies |
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Shareholders equity: |
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Total Shareholders Equity |
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3,465 |
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2,463 |
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Total Liabilities and Shareholders Equity |
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$ |
9,171 |
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$ |
9,225 |
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(a) The information in this column was derived from the Companys audited Consolidated Balance Sheet as of July 1, 2011.
SEAGATE TECHNOLOGY PLC
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share data)
(Unaudited)
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For the Three Months Ended |
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For the Six Months Ended |
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December 30, |
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December 31, |
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December 30, |
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December 31, |
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Revenue |
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$ |
3,195 |
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$ |
2,719 |
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$ |
6,007 |
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$ |
5,417 |
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|
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Cost of revenue |
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2,185 |
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2,190 |
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4,448 |
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4,338 |
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Product development |
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259 |
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213 |
|
467 |
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422 |
| ||||
Marketing and administrative |
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141 |
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102 |
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245 |
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206 |
| ||||
Amortization of intangibles |
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2 |
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1 |
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3 |
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2 |
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Restructuring and other, net |
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3 |
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7 |
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3 |
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11 |
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Total operating expenses |
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2,590 |
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2,513 |
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5,166 |
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4,979 |
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Income from operations |
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605 |
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206 |
|
841 |
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438 |
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Interest income |
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2 |
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2 |
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3 |
|
4 |
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Interest expense |
|
(58 |
) |
(46 |
) |
(127 |
) |
(92 |
) | ||||
Other, net |
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9 |
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13 |
|
(8 |
) |
(22 |
) | ||||
Other expense, net |
|
(47 |
) |
(31 |
) |
(132 |
) |
(110 |
) | ||||
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|
|
|
|
|
|
|
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Income before income taxes |
|
558 |
|
175 |
|
709 |
|
328 |
| ||||
Provision for (benefit from) income taxes |
|
(5 |
) |
25 |
|
6 |
|
29 |
| ||||
Net income |
|
$ |
563 |
|
$ |
150 |
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$ |
703 |
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$ |
299 |
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|
|
|
|
|
|
|
|
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Net income per share: |
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|
|
|
|
|
|
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Basic |
|
$ |
1.32 |
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$ |
0.32 |
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$ |
1.66 |
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$ |
0.64 |
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Diluted |
|
1.28 |
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0.31 |
|
1.61 |
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0.61 |
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|
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|
|
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Number of shares used in per share calculations: |
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|
|
|
|
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|
|
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Basic |
|
427 |
|
469 |
|
424 |
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470 |
| ||||
Diluted |
|
439 |
|
486 |
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436 |
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487 |
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|
|
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|
|
|
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Cash dividends declared per share |
|
$ |
0.18 |
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$ |
|
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$ |
0.36 |
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$ |
|
|
SEAGATE TECHNOLOGY PLC
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
|
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For the Six Months Ended |
| ||||
|
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December 30, |
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December 31, |
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OPERATING ACTIVITIES |
|
|
|
|
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Net income |
|
$ |
703 |
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$ |
299 |
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Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
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Depreciation and amortization |
|
373 |
|
379 |
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Share-based compensation |
|
26 |
|
26 |
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Loss on redemption of debt |
|
5 |
|
24 |
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(Gain) loss on sale of property and equipment |
|
(14 |
) |
(3 |
) | ||
Deferred income taxes |
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(4 |
) |
27 |
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Other non-cash operating activities, net |
|
10 |
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(6 |
) | ||
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Changes in operating assets and liabilities: |
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|
|
|
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Accounts receivable, net |
|
(130 |
) |
9 |
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Inventories |
|
181 |
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(51 |
) | ||
Accounts payable |
|
(500 |
) |
243 |
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Accrued employee compensation |
|
56 |
|
(134 |
) | ||
Accrued expenses, income taxes and warranty |
|
(34 |
) |
20 |
| ||
Other assets and liabilities |
|
207 |
|
(81 |
) | ||
Net cash provided by operating activities |
|
879 |
|
752 |
| ||
|
|
|
|
|
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INVESTING ACTIVITIES |
|
|
|
|
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Acquisition of property, equipment and leasehold improvements |
|
(361 |
) |
(560 |
) | ||
Purchases of short-term investments |
|
(309 |
) |
(145 |
) | ||
Sales of short-term investments |
|
260 |
|
96 |
| ||
Maturities of short-term investments |
|
115 |
|
13 |
| ||
Change in restricted cash and investments |
|
9 |
|
17 |
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Cash used in acquisition of Samsung HDD assets and liabilities |
|
(561 |
) |
|
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Other investing activities, net |
|
4 |
|
(1 |
) | ||
Net cash used in investing activities |
|
(843 |
) |
(580 |
) | ||
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|
|
|
|
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FINANCING ACTIVITIES |
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|
|
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Repayments of long-term debt and capital lease obligations |
|
(594 |
) |
(362 |
) | ||
Net proceeds from issuance of long-term debt |
|
|
|
736 |
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Repurchases of ordinary shares |
|
(191 |
) |
(305 |
) | ||
Proceeds from issuance of ordinary shares under employee stock plans |
|
51 |
|
24 |
| ||
Dividends to shareholders |
|
(154 |
) |
|
| ||
Net cash (used in) provided by financing activities |
|
(888 |
) |
93 |
| ||
|
|
|
|
|
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(Decrease) increase in cash and cash equivalents |
|
(852 |
) |
265 |
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Cash and cash equivalents at the beginning of the period |
|
2,677 |
|
2,263 |
| ||
Cash and cash equivalents at the end of the period |
|
$ |
1,825 |
|
$ |
2,528 |
|
Use of non-GAAP financial information
To supplement the condensed consolidated financial statements presented in accordance with generally accepted accounting principles (GAAP), the Company provides non-GAAP measures of net income and diluted net income per share, which are adjusted from results based on GAAP to exclude certain expenses, gains and losses. These non-GAAP financial measures are provided to enhance the users overall understanding of the Companys 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, gains and losses 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 Companys 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 Companys industry.
SEAGATE TECHNOLOGY PLC
ADJUSTMENTS TO GAAP NET INCOME AND DILUTED NET INCOME PER SHARE
(In millions, except per share amounts)
(Unaudited)
|
|
|
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For the Three |
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For the Six |
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|
|
|
|
|
|
|
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GAAP net income |
|
|
|
$ |
563 |
|
$ |
703 |
|
Non-GAAP adjustments: |
|
|
|
|
|
|
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Total operating expenses |
|
(A) |
|
25 |
|
19 |
| ||
Other expense, net |
|
(B) |
|
|
|
12 |
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Provision for (benefit from) income taxes |
|
(C) |
|
(7 |
) |
(7 |
) | ||
Non-GAAP net income |
|
|
|
$ |
581 |
|
$ |
727 |
|
|
|
|
|
|
|
|
| ||
Diluted net income per share: |
|
|
|
|
|
|
| ||
GAAP |
|
|
|
$ |
1.28 |
|
$ |
1.61 |
|
|
|
|
|
|
|
|
| ||
Non-GAAP |
|
|
|
$ |
1.32 |
|
$ |
1.67 |
|
|
|
|
|
|
|
|
| ||
Shares used in diluted net income per share calculation |
|
|
|
439 |
|
436 |
|
(A) |
For the three months ended December 30, 2011, Total operating expenses on a GAAP basis totaled $2,590 million, while Non-GAAP Total operating expenses, which excludes the net impact of certain adjustments was $2,565 million. The non-GAAP adjustments include costs associated with the Samsung acquisition completed in December 2011, amortization expense of other intangible assets, an increase in expected exit costs related to certain leased facilities exited during the three months ended December 30, 2011, and an increase in reserves related to post-employment benefits related to existing restructuring plans. |
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|
For the six months ended December 30, 2011, Total operating expenses on a GAAP basis totaled $5,166 million, while Non-GAAP Total operating expenses, which excludes the net impact of certain adjustments was $5,147 million. The non-GAAP adjustments reflect the net impact from costs associated with the Samsung acquisition completed in December 2011, amortization expense of other intangible assets, adjustments to the expected exit costs related to certain leased and sub-leased facilities and an increase in reserves related to post-employment benefits related to existing restructuring plans, offset by the reversal of previously accrued litigation costs and a gain on the sale of a building. |
|
|
(B) |
For the six months ended December 30, 2011, Non-GAAP adjustments to Other expense, net on a GAAP basis was an expense of 132 million, which includes a $5 million loss related to the early retirement of $30 million of the principal amount of our 10% secured notes and a $7 million write-down of an equity investment. Excluding these items, non-GAAP other expense, net was $120 million. |
|
|
(C) |
For the three and six months ended December 30, 2011, Non-GAAP net income excludes $7 million discrete tax item for release of valuation allowance on U.S. deferred tax assets associated with increases in the Companys forecasted U.S. taxable income. |
Exhibit 99.2
Seagate Technology plc Fiscal Second Quarter 2012 Financial Results
Supplemental Commentary
January 31, 2012
The information in this written commentary is being provided to the investment community concurrently with our press release. Please note that these remarks will not be read during the call. The live call will consist of opening comments from Steve Luczo, Chairman, President and CEO, followed by a Q&A session with the executive management team.
Cautionary Note Regarding Forward-Looking Statements
This supplemental commentary contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. When used, the words anticipates, believes, expects, may, should and similar expressions are intended to identify such forward-looking statements. Forward-looking statements included in this commentary include statements regarding the Companys ability to generate free cash flow on a sustained basis, its ability to declare future quarterly dividends, and its ability to maintain a strong balance sheet and to respond quickly to changing market dynamics. These forward-looking statements are based on information available to the Company as of the date of this press release. Current expectations, forecasts and assumptions involve a number of risks, uncertainties, and other factors that could cause actual results to differ materially from those anticipated by these forward-looking statements. Such risks, uncertainties, and other factors may be beyond the Companys control. In particular, global economic conditions may pose a risk to the Companys operating and financial performance. Such risks and uncertainties also include the impact of variable demand; dependence on the Companys ability to successfully qualify, manufacture and sell its disk drive products in increasing volumes on a cost-effective basis and with acceptable quality, particularly the new disk drive products with lower cost structures; the impact of competitive product announcements; and the Companys ability to achieve projected cost savings. Information concerning risks, uncertainties and other factors that could cause results to differ materially from those projected in the forward-looking statements is contained in the Companys Annual Report on Form 10-K and Form 10-K/A as filed with the U.S. Securities and Exchange Commission on August 17, 2011 and August 24, 2011 respectively, and in the Companys quarterly report on Form 10-Q as filed with the U.S. Securities and Exchange Commission on October 27, 2011 which statements are incorporated into this press release by reference. These forward-looking statements should not be relied upon as representing the Companys 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.
Fiscal Second Quarter 2012 Financial Highlights
The industrys ability to manufacture and ship drives has been severely disrupted by flooding in Thailand in early October and is slowly recovering. During the December 2011 quarter, the industry is estimated to have produced 105-110 million units and shipped 119 million units compared to unconstrained demand estimated to be 175 million units.
Seagate closed the acquisition of the hard disk drive business of Samsung Electronics Co., Ltd., on December 19, 2011. The financial results reported for our fiscal second quarter of 2012 (ended December 30, 2011) includes the operating results from the closing date of this transaction.
Units Shipped, Revenue and Gross Margin
Seagate shipped 47 million units, down 8% sequentially and 4% compared to the year-ago quarter due to component supply constraints related to the Thailand flooding. Included in the unit shipments for the quarter were approximately 700,000 Samsung drives. Revenue was $3.2 billion and gross margin as a percent of revenue was 31.6%. Revenue and gross margin as a percent of revenue were higher sequentially as prices were adjusted in reaction to the significant shortfall of available HDDs compared to end demand.
Operating Expenses
Product Development and Marketing and Administrative on a GAAP basis totaled $400 million for the December quarter, while non-GAAP Product Development and Marketing and Administrative costs, which excludes costs associated with the previously announced transaction with Samsung, was $383 million. The increase in Product Development and Marketing and Administrative spending for the December 2011 quarter is due primarily to higher costs associated with the companys performance based variable compensation plan.
Amortization of Acquisition Related Intangibles
As a result of the acquisition of Samsungs HDD business, Seagate recognized a non-cash, $5 million expense for amortization of acquisition-related intangibles in the December quarter with approximately half recorded in Cost of revenue and half in Amortization of intangibles. For the balance of fiscal year 2012, and all of fiscal year 2013, Seagate expects a quarterly, non-cash charge of approximately $35 million to be split evenly between Cost of revenue and Amortization of intangibles.
Other Expense, Net
Other income and expense for the quarter on a GAAP basis was an expense of $47 million down from the previous quarter due primarily to lower interest expense as debt matured and was retired in early October and a non-cash benefit related to the accounting for the employee funded deferred compensation plan.
Provision for Income Taxes
The GAAP provision for income taxes in the December quarter was a benefit of $5 million. Excluding discrete items related to the valuation of deferred tax assets, the non-GAAP provision for income taxes was a $2 million expense.
Selected Balance Sheet Items
Cash, cash equivalents, restricted cash, and short-term investments totaled $2.3 billion at the end of the December 2011 quarter, down approximately $663 million compared to the September 2011 quarter. During the quarter, cash of approximately $1.1 billion was used to retire maturing debt and to complete the closing of the Samsung hard disk drive business acquisition.
For the December quarter, Cash Flow from Operations was $719 million, Capital Investment was $143 million and free cash flow (Cash Flow from Operations less Capital Investments) was $576 million. For fiscal 2012, Capital Investment is expected to be below the low-end of the targeted range of 6-8% of revenue.
The company paid $63 million to repurchase 3.9 million of its ordinary shares and paid $76 million in dividends during the December quarter. Between January 1 and January 31, 2012 the company has paid $375 million to repurchase 19.3 million of its ordinary shares.
Seagates inventory at the end of the December quarter was $827 million, which included approximately $114 million related to the acquired Samsung inventory of finished goods ($31 million), and raw material/work in process ($83 million).
Disk Drive Market Commentary
Seagate provides data and commentary for the following major market categories 1] Enterprise, 2] Client Compute, and 3] Client non-Compute. A disk drive is associated with one of these three market categories based on how it is configured. For example, if a customer buys a standard 2.5-inch ATA drive from Seagate, this would be included in the Client Compute category regardless of the application into which the drive is ultimately integrated. The Client non-Compute category only contains drives specifically designed or configured for non-compute applications.
All references to TAMs in this document is the companys best estimate of industry unit shipments based on preliminary information and is subject to change.
The industrys ability to manufacture and ship hard disk drives was severely disrupted by flooding in Thailand and is now slowly recovering. Seagate minimized the impact to its customers during the quarter due to a geographically diversified supply-chain and manufacturing footprint. Shipments of Seagate hard disk drives (excluding Samsung unit shipments of 700,000) decreased 9% sequentially while in aggregate the industry, excluding Seagate, experienced a unit shipment decrease in excess of 40%.
Enterprise Market
The TAM for enterprise class disk drives, which includes disk drives for both mission critical and business critical applications, was down 3% over the year-ago quarter.
Seagate shipped 6.4 million enterprise class drives in the December quarter. Mission critical server and storage applications accounted for 4.3 million and business critical applications consisted of 2.1 million units.
Client Compute Market
The TAM for client compute disk drives, which includes disk drives designed for use in mobile and desktop computers, was down 30% year-over-year.
Seagate shipped 32.7 million client compute disk drives in the December quarter. Mobile drives accounted for 15.6 million units, and desktop drives accounted for 17.1 million units.
Inventory of Seagate 3.5-inch ATA (desktop) disk drives in the distribution channel at the end of the December quarter, on a unit basis, was approximately 50% lower than at the beginning of the quarter.
Client non-Compute Market
The client non-compute market consists of disk drives specifically configured for consumer electronic (CE) applications plus Seagate branded products sold at retail. The December quarter TAM for the non-compute market was down approximately 38%.
Seagate shipped 7.8 million client non-compute drives in the December quarter. CE accounted for 4.8 million and Seagate branded storage products consisted of 3.0 million units.
Operations, Products and Technology
Operations
Seagates component and drive assembly factories in Thailand were not directly impacted by the flood, and continue to be fully operational. However, this was not the case for some the HDD component suppliers with Thailand operations. Seagate continues to work with the component supply base to rebuild its supply chain. Seagate believes that while the industrys ability to supply drives is slowly improving, demand will continue to exceed supply during calendar year 2012.
The integration of acquired Samsung HDD business is well underway. The day the transaction closed, it was necessary to lift the Samsung HDD operations off the parent companys internal ERP, HR and Sales systems and transition them to Seagates global IT systems. All necessary interfaces, procedures and processes were in-place, demonstrated by our ability to ship 700,000 drives from the Seagate ERP systems in the closing weeks of December. This was a large scale, cross-functional effort and is testament to the scalability of Seagates systems and business processes.
Products
Both the 300GB/platter mission critical and the 1TB/platter desktop and business critical product line transition were accelerated due to the component supply disruption and Seagate aggressively ramped volume of these products in the December quarter. Seagate continues on track with our 500GB/platter mobile product transition targeted for mid-year.
The addition of Samsungs Spinpoint M8 product to Seagates 2.5-inch portfolio delivers industry-leading capacity for mobile platforms and strengthens Seagates position as a supplier of mobile storage products. As with many other products lines, external component shortages resulting from the Thailand floods constrained production of the M8 product line in the December quarter. The ramp of the M8 product is expected to improve during the calendar year as component availability is restored.