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Financial Analysis Chapter 3 Page 1 of 6
Financial Analysis: A User Approach
Chapter 3
The Financial Statements
Basic Financial Statements
Balance Sheet
Income Statements
Statement of Cash Flows
Statement of Changes in Stockholders’ Equity
FASB Conceptual Framework
SFAC No 6 – Elements of Financial Statements
The Balance Sheet
Assets – Probable future economic benefits obtained or
controlled by a particular entity as a results of past
transactions or events
Liabilities – Probable future sacrifices of economic benefits
arising from present obligations of a particular entity to
transfer assets or provide services to another entity in the
future as a result of past transactions or events
Equity – Residual interest in the assets of an entity that
remains after deducting its liabilities, the ownership
interest of a business – ([Assets – Liabilities] or Net Assets)
Financial Analysis Chapter 3 Page 2 of 6
Assets
o Current accounting model favors the use historical
costs to value assets
o Current accounting model also uses other attributes
such as:
Fair Market Value – Securities and Derivatives
Lower of Cost or Market – Inventories
Net Realizable Value – Accounts Receivable
Present Value – Non-interest Bearing Notes
Allocated Costs – Goodwill
o Problems with the current balance sheet model
Mixed attribute issues
Assets that don’t necessarily meet the definition
included
Goodwill
Assets that do meet the definition not included
Research and Development
Human Resource Expenditures
o Balance Sheet Classification
Current Assets
When presented generally in order by
decreasing liquidity
Other Categories
o STX Balance Sheet – Asset Section
Financial Analysis Chapter 3 Page 4 of 6
Market to Book Ratio
o For STX
Market Value – 1/30/09 – 1.87B
Book Value – 6/30/08 - 4.65B
Market to Book Ratio.
o Others
WDC – 1.
EMC – 1.
The Income Statement
Revenues – Inflows or other enhancements of assets of an
entity or settlement of its liabilities from delivering or
producing goods, rendering services, or other activities
that constitute the entity’s ongoing major or central
operations
Expenses – Outflows or other using up of assets or
incurrence of liabilities from delivering or producing goods,
rendering services, or carrying out other activities that
constitute the entity’s ongoing major or central operations
Gains [Losses] – Increases [Decreases] in equity from
peripheral or incidental transactions of an entity and from
all other transactions and other events and circumstances
affecting the entity except those that result from revenues
and expenses
Income Statement Categories
Financial Analysis Chapter 3 Page 5 of 6
o Net Revenues (Net Sales)
o Cost of Goods Sold
o Gross Profit (Gross Margin)
o Operating Expenses (Selling, General, and
Administrative Expenses – SG&A)
o Operating Income
o Non-Operating Items
o Net Income before Tax
o Income Tax Expense (Provision for Income Taxes)
o Net Income
o Special Items, Shown Net of Tax
Discontinued Operations
Extraordinary Items
Cumulative Change in Accounting Principle
Earnings per Share
o Net Income Divided by the Number of Shares Issued
and Outstanding
o Basic and Fully Diluted
o Includes EPS Impact of any Special Items
STX Income Statement
SEAGATE TECHNOLOGY
CONSOLIDATED BALANCE SHEETS
(In millions, except share and per share data) June 27, 2008 June 29, 2007 ASSETS Current assets: Cash and cash equivalents (^) $ 990 $ 988 Short-term investments (^151 ) Accounts receivable, net (^) 1,410 1, Inventories (^945 ) Deferred income taxes (^274 ) Other current assets (^502 ) Total current assets (^) 4,272 3, Property, equipment and leasehold improvements, net (^) 2,464 2, Goodwill (^) 2,352 2, Other intangible assets, net (^111 ) Deferred income taxes (^616 ) Other assets, net (^305 ) Total Assets (^) $ 10,120 $ 9, LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities: Accounts payable (^) $ 1,652 $ 1, Accrued employee compensation (^440 ) Accrued restructuring (^80 ) Accrued expenses (^519 ) Accrued warranty (^226 ) Accrued income taxes (^10 ) Current portion of long-term debt (^360 ) Total current liabilities (^) 3,287 2, Accrued restructuring (^7 ) Accrued warranty (^219 ) Other non-current liabilities (^351 ) Long-term debt, less current portion (^) 1,670 1, Total Liabilities (^) 5,534 4, Commitments and contingencies (See Notes 8 and 9) Shareholders’ equity: Preferred shares, $0.00001 par value per share— 100 million authorized; no shares issued or outstanding (^) — — Common shares, $0.00001 par value per share—1,250 million authorized; 485,127,434 issued and outstanding at June 27, 2008 and 534,981,463 issued and outstanding at June 29, (^2007) — — Additional paid-in capital (^) 3,501 3, Accumulated other comprehensive income (loss) (^) (16) (4) Retained earnings (^) 1,101 1, Total Shareholders’ Equity (^) 4,586 4, Total Liabilities and Shareholders’ Equity (^) $ 10,120 $ 9, See notes to consolidated financial statements.
SEAGATE TECHNOLOGY
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share data) Fiscal Year Ended June 27, 2008 June 29, 2007 June 30, 2006 Revenue $ 12,708 $ 11,360 $ 9, Cost of revenue (^) 9,503 9,175 7, Product development (^) 1,028 904 805 Marketing and administrative (^659 589 ) Amortization of intangibles (^54 49 ) Restructuring and other (^88 29 ) Total operating expenses (^) 11,332 10,746 8, Income from operations (^) 1,376 614 874 Interest income (^57 73 ) Interest expense (^) (126) (141) (41) Other, net (^22 15 ) Other income (expense), net (^) (47) (53) 50 Income before income taxes (^) 1,329 561 924 Provision for (benefit from) income taxes (^67) (352) 84 Net income (^) $ 1,262 $ 913 $ 840 Net income per share: Basic (^) $ 2.46 $ 1.64 $ 1. Diluted (^) 2.36 1.56 1. Number of shares used in per share calculations: Basic (^512 558 ) Diluted (^538 587 ) Cash dividends declared per share (^) $ 0.42 $ 0.38 $ 0. See notes to consolidated financial statements.
SEAGATE TECHNOLOGY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
For Fiscal Years Ended June 27, 2008, June 29, 2007 and June 30, 2006 (In millions) Number of Common Shares Par Value of Shares Additional Paid-in Capital Deferred Stock Compensation Accumulated Other Comprehensive Income (Loss) Retained Earnings Total Balance at July 1, 2005 477 $ — $ 632 $ (3 ) $ (9) $ 1,921 $ 2, Comprehensive income, net of tax: Change in unrealized gain (loss) on marketable securities, net (^) (2) (2) Change in unrealized gain (loss) on cash flow hedges, net 4 4 Net income (^840 ) Comprehensive income (^842) Issuance of common shares related to employee stock options and employee stock purchase plan (^18 118 ) Issuance of common shares, assumption of options and nonvested shares in connection with the acquisition of Maxtor (^98) 1,956 1, Substantial premium on convertible debt assumed (^175 ) Dividends to shareholders (^) (155) (155) Tax benefit from stock options (^44 ) Repurchases of common shares (^) (17) (399) (399) Stock-based compensation (^88 2 ) Balance at June 30, 2006 (^576) — 2,858 (1 ) (7) 2,362 5, Comprehensive income, net of tax: Change in unrealized gain (loss) on marketable securities, net (^7 ) Change in unrealized gain (loss) on cash flow hedges, net (4) (4) Net income (^913 ) Comprehensive income (^916) Issuance of common shares related to employee stock options and employee stock purchase plan (^21 219 ) Dividends to shareholders (^) (212) (212) Repurchases of common shares (^) (24) (576) (576) Payments made under prepaid forward agreements (^) (950) (950) Shares received under prepaid forward agreements (^) (38) Stock-based compensation (^127 1 ) Balance at June 29, 2007 (^535) — 3,204 — (4) 1,537 4, Cumulative effect adjustment to adopt recognition and measurement provisions of FASB Interpretation No. 48 (See Note 4) (^) (3) (3) Comprehensive income, net of tax: Change in unrealized gain (loss) on cash flow hedges, net (9) (9) Change in unrealized gain (loss) on auction rate securities, net (^) (3) (3) Net income (^) 1,262 1, Comprehensive income (^) 1, Issuance of common shares related to employee stock options and employee stock purchase plan (^15 178 ) Dividends to shareholders (^) (216) (216) Tax benefit from stock options (^6 ) Repurchases of common shares (^) (65) (1,479) (1,479) Stock-based compensation (^113 ) Balance at June 27, 2008 (^485) $ — $ 3,501 $ — $ (16) $ 1,101 $ 4, See notes to consolidated financial statements.
