Seagate Technology (STX) filed Quarterly Report for the period ended 2009-10-02.
Seagate Technology is the worldwide leader in the design manufacture and marketing of hard disc drives providing products for a wide-range of applications including Enterprise Desktop Mobile Computing Consumer Electronics and Branded Solutions. Seagate's business model leverages technology leadership and world-class manufacturing to deliver industry-leading innovation and quality to its global customers and to be the low cost producer in all markets in which it participates. The company is committed to providing award- winning products customer support and reliability to meet the world's growing demand for information storage. Seagate Technology has a market cap of $7.11 billion; its shares were traded at around $14.34 with and P/S ratio of 0.7. Seagate Technology had an annual average earning growth of 21.1% over the past 5 years.
Highlight of Business Operations:
Industry Constraints. During the September 2009 quarter, we and the industry operated near maximum capacity and expect to continue to operate at or near maximum capacity over the short term. As a result, in the September 2009 quarter we optimized our production volumes and product mix to pursue our higher margin products as opposed to simply pursuing unit volume share. We require capital investments in fiscal year 2010 of $450 million to primarily fund necessary investments in our core technologies. As the demand for hard drives increases, additional capital investments will be required to meet this demand. If the quarterly demand remains strong through our December 2009 quarter, which gives us more confidence in assessing future demand, we may be required to increase capital investments in fiscal year 2010 to $650 million to meet our customer needs by the seasonal peak of the second half of calendar year 2010. We anticipate making our capital investments in stages over the coming quarters as we continue to evaluate the long term demand environment.
Debt. During the September 2009 quarter, we reduced short-term borrowings and long-term debt by approximately $465 million. This included the retirement of our $300 million floating rate senior notes at maturity and a $150 million partial repayment of our amended credit facility. Subsequent to the end of the September 2009 quarter, we repaid the remaining $200 million outstanding on our amended credit facility and made open market purchases of $47 million of other indebtedness, which substantially depleted the remaining proceeds from the issuance of our 10% Senior Secured Second-Priority Notes due May 2014 held in escrow. The total debt reduction during fiscal year 2010 was approximately $712 million.
On July 4, 2009, we implemented a change in the accounting for our convertible debt instruments, applied on a retrospective basis to separately account for our convertible debt in two parts, (i) a debt component that is 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 is 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 retrospective impact on our Condensed Consolidated Balance Sheet as of July 3, 2009 was a reduction of Long-term debt of $30 million, an increase to Additional paid-in-capital of $61 million, and an increase to the Accumulated deficit of $31 million. In addition, we reflected additional interest expense of $3 million for each of the three months ended October 2, 2009 and October 3, 2008 in our Condensed Consolidated Statements of Operations.
STX is in the portfolios of Arnold Van Den Berg of Century Management, Charles Brandes of Brandes Investment.
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