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): April 30, 2014
Western Digital Corporation
(Exact Name of Registrant as Specified in its Charter)
| Delaware | 001-08703 | 33-0956711 | ||
| (State or Other Jurisdiction of Incorporation or Organization) |
(Commission File Number) |
(I.R.S. Employer Identification No.) |
| 3355 Michelson Drive, Suite 100 Irvine, California |
92612 | |
| (Address of Principal Executive Offices) | (Zip Code) |
(949) 672-7000
(Registrant’s Telephone Number, Including Area Code)
Not applicable
(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:
| ¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 240.425) |
| ¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ¨ | 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 April 30, 2014, Western Digital Corporation (“Western Digital”) announced financial results for the third fiscal quarter ended March 28, 2014. A copy of the press release making this announcement is attached hereto as Exhibit 99.1 and is incorporated herein by reference. A copy of Western Digital’s Quarterly Fact Sheet for the third fiscal quarter ended March 28, 2014 is attached hereto as Exhibit 99.2 and is incorporated herein by reference.
In accordance with General Instruction B.2 of Form 8-K, the information in this Item 2.02, including Exhibit 99.1 and Exhibit 99.2, shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended (the “Securities Act”), or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.
Item 9.01 Financial Statements and Exhibits.
| (d) | Exhibits |
| 99.1 | Press Release issued by Western Digital Corporation on April 30, 2014 announcing financial results for the third fiscal quarter ended March 28, 2014. | |
| 99.2 | Third Quarter Fiscal Year 2014 Western Digital Corporation Quarterly Fact Sheet. | |
2
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, thereunto duly authorized.
| Western Digital Corporation | ||||||
| (Registrant) | ||||||
| By: | /s/ Michael C. Ray | |||||
| Date: April 30, 2014 | Michael C. Ray | |||||
| Senior Vice President, General Counsel and Secretary | ||||||
Exhibit 99.1
Company contacts:
Bob Blair
Western Digital Investor Relations
949.672.7834
robert.blair@wdc.com
Steve Shattuck
Western Digital Public Relations
949.672.7817
steve.shattuck@wdc.com
FOR IMMEDIATE RELEASE:
WESTERN DIGITAL ANNOUNCES Q3 REVENUE OF $3.7 BILLION AND
NON-GAAP NET INCOME OF $470 MILLION, OR $1.94 PER SHARE1
IRVINE, Calif. — Apr. 30, 2014 — Western Digital® Corp. (NASDAQ: WDC) today reported revenue of $3.7 billion and net income of $375 million, or $1.55 per share for its third fiscal quarter ended Mar. 28, 2014. On a non-GAAP basis, net income was $470 million or $1.94 per share.1 In the year-ago quarter, the company reported revenue of $3.8 billion, net income of $391 million, or $1.60 per share. Non-GAAP net income in the year-ago quarter was $514 million, or $2.10 per share.2
The company generated $697 million in cash from operations during the March quarter. During the quarter, the company utilized $244 million to buy back 2.8 million shares of common stock. It ended the quarter with total cash, cash equivalents and investments of $5.0 billion. On Feb. 6, the company declared a $0.30 per common-share dividend, which was paid on Apr. 15.
“We achieved solid financial results for the March quarter as we continue to participate in the ongoing growth of data, with an intense focus on helping our customers succeed in a rapidly changing environment,” said Steve Milligan, president and chief executive officer. “Cash generation remained strong. Our steady financial performance continues to demonstrate an ability to manage the business and deliver ongoing value to our customers and shareholders.”
Western Digital Announces Q3 Revenue of $3.7 Billion and
Non-GAAP Net Income of $470 Million, or $1.94 Per Share1
Page 2
The investment community conference call to discuss these results will be broadcast live over the Internet today at 2 p.m. Pacific/5 p.m. Eastern. The live and archived conference call webcast can be accessed online at investor.wdc.com. The telephone replay number is 1-866-513-1237 in the U.S. or +1-203-369-1979 for international callers.
About Western Digital
Western Digital Corp. (NASDAQ: WDC), Irvine, Calif., is a global provider of products and services that empower people to create, manage, experience and preserve digital content. Its subsidiaries design and manufacture storage devices, networking equipment and home entertainment products under the WD®, HGST and G-Technology brands. Visit the Investor section of the company’s website (www.westerndigital.com) to access a variety of financial and investor information.
Western Digital Announces Q3 Revenue of $3.7 Billion and
Non-GAAP Net Income of $470 Million, or $1.94 Per Share1
Page 3
This press release contains a forward-looking statement within the meaning of the Private Securities Litigation Reform Act of 1995 concerning our position in the growth of data. This forward-looking statement is based on management’s current expectations and is subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied in the forward-looking statement, including the impact of continued uncertainty and volatility in global economic conditions; supply and demand conditions in the hard drive industry; uncertainties concerning the availability and cost of commodity materials and specialized product components; actions by competitors; unexpected advances in competing technologies; uncertainties related to the development and introduction of products based on new technologies and expansion into new data storage opportunities; business conditions and growth in the various hard drive segments; pricing trends and fluctuations in average selling prices; and other risks and uncertainties listed in the company’s filings with the Securities and Exchange Commission (the “SEC”), including the company’s recent Form 10-Q filed with the SEC on Jan. 31, 2014, to which your attention is directed. Readers are cautioned not to place undue reliance on this forward-looking statement, which speaks only as of the date hereof, and the company undertakes no obligation to update this forward-looking statement to reflect subsequent events or circumstances.
###
Western Digital, WD and the WD logo are registered trademarks in the U.S. and other countries. HGST trademarks are intended and authorized for use only in countries and jurisdictions in which HGST has obtained the rights to use, market and advertise the brand. Other marks may be mentioned herein that belong to other companies.
| 1 | Non-GAAP net income for the third quarter fiscal 2014 consists of GAAP net income of $375 million plus $50 million of amortization of intangibles related to the acquisitions of HGST, sTec, VeloBit and Virident, $28 million related to asset impairment and other charges, $13 million of charges related to litigation and $4 million of expense due to the write-off of debt issuance costs. Non-GAAP earnings per share of $1.94 for the third quarter is calculated by using the same 242 million diluted shares as is used for GAAP earnings per share. The tax effect of the non-GAAP charges was not material. |
| 2 | Non-GAAP net income for the third quarter fiscal 2013 consists of GAAP net income of $391 million plus $49 million of amortization of intangibles related to the acquisition of HGST and $74 million related to employee termination benefits and other unrelated charges. Non-GAAP earnings per share of $2.10 for the third quarter is calculated by using the same 245 million diluted shares as is used for GAAP earnings per share. The tax effect of the non-GAAP charges was not material. |
WESTERN DIGITAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions; unaudited)
| Mar. 28, | June 28, | |||||||
| 2014 | 2013 | |||||||
| ASSETS | ||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 4,569 | $ | 4,309 | ||||
| Short-term investments |
296 | — | ||||||
| Accounts receivable, net |
1,802 | 1,793 | ||||||
| Inventories |
1,277 | 1,188 | ||||||
| Other current assets |
362 | 308 | ||||||
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| Total current assets |
8,306 | 7,598 | ||||||
| Property, plant and equipment, net |
3,406 | 3,700 | ||||||
| Goodwill |
2,558 | 1,954 | ||||||
| Other intangible assets, net |
539 | 605 | ||||||
| Other non-current assets |
523 | 179 | ||||||
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| Total assets |
$ | 15,332 | $ | 14,036 | ||||
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| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| Current liabilities: |
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| Accounts payable |
$ | 1,902 | $ | 1,990 | ||||
| Accrued arbitration award |
745 | 706 | ||||||
| Accrued expenses |
455 | 480 | ||||||
| Accrued compensation |
409 | 453 | ||||||
| Accrued warranty |
111 | 114 | ||||||
| Current portion of long-term debt |
125 | 230 | ||||||
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| Total current liabilities |
3,747 | 3,973 | ||||||
| Long-term debt |
2,344 | 1,725 | ||||||
| Other liabilities |
473 | 445 | ||||||
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| Total liabilities |
6,564 | 6,143 | ||||||
| Total shareholders’ equity |
8,768 | 7,893 | ||||||
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| Total liabilities and shareholders’ equity |
$ | 15,332 | $ | 14,036 | ||||
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WESTERN DIGITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in millions, except per share amounts; unaudited)
| Three Months Ended | Nine Months Ended | |||||||||||||||
| Mar. 28, | Mar. 29, | Mar. 28, | Mar. 29, | |||||||||||||
| 2014 | 2013 | 2014 | 2013 | |||||||||||||
| Revenue, net |
$ | 3,703 | $ | 3,764 | $ | 11,479 | $ | 11,623 | ||||||||
| Cost of revenue |
2,643 | 2,703 | 8,190 | 8,310 | ||||||||||||
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| Gross profit |
1,060 | 1,061 | 3,289 | 3,313 | ||||||||||||
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| Operating expenses: |
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| Research and development |
426 | 396 | 1,248 | 1,170 | ||||||||||||
| Selling, general and administrative |
202 | 185 | 563 | 526 | ||||||||||||
| Charges related to arbitration award |
13 | — | 39 | — | ||||||||||||
| Employee termination benefits and other charges |
— | 63 | — | 130 | ||||||||||||
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| Total operating expenses |
641 | 644 | 1,850 | 1,826 | ||||||||||||
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| Operating income |
419 | 417 | 1,439 | 1,487 | ||||||||||||
| Net interest and other |
(13 | ) | (11 | ) | (34 | ) | (35 | ) | ||||||||
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| Income before income taxes |
406 | 406 | 1,405 | 1,452 | ||||||||||||
| Income tax provision |
31 | 15 | 105 | 207 | ||||||||||||
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| Net income |
$ | 375 | $ | 391 | $ | 1,300 | $ | 1,245 | ||||||||
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| Income per common share: |
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| Basic |
$ | 1.60 | $ | 1.64 | $ | 5.51 | $ | 5.14 | ||||||||
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| Diluted |
$ | 1.55 | $ | 1.60 | $ | 5.37 | $ | 5.02 | ||||||||
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| Weighted average shares outstanding: |
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| Basic |
235 | 239 | 236 | 242 | ||||||||||||
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| Diluted |
242 | 245 | 242 | 248 | ||||||||||||
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WESTERN DIGITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions; unaudited)
| Three Months Ended | Nine Months Ended | |||||||||||||||
| Mar. 28, | Mar. 29, | Mar. 28, | Mar. 29, | |||||||||||||
| 2014 | 2013 | 2014 | 2013 | |||||||||||||
| Cash flows from operating activities |
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| Net income |
$ | 375 | $ | 391 | $ | 1,300 | $ | 1,245 | ||||||||
| Adjustments to reconcile net income to net cash provided by operations: |
||||||||||||||||
| Depreciation and amortization |
307 | 309 | 936 | 931 | ||||||||||||
| Stock-based compensation |
41 | 36 | 125 | 107 | ||||||||||||
| Deferred income taxes |
(27 | ) | (9 | ) | (66 | ) | 59 | |||||||||
| Gain from insurance recovery |
— | — | (65 | ) | — | |||||||||||
| Loss on disposal of assets |
4 | — | 33 | — | ||||||||||||
| Non-cash portion of employee termination benefit and other charges |
— | 1 | — | 16 | ||||||||||||
| Other non-cash operating activities, net |
21 | — | 21 | — | ||||||||||||
| Changes in operating assets and liabilities, net |
(24 | ) | (1 | ) | (180 | ) | 77 | |||||||||
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| Net cash provided by operating activities |
697 | 727 | 2,104 | 2,435 | ||||||||||||
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| Cash flows from investing activities |
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| Purchases of property, plant and equipment |
(161 | ) | (188 | ) | (467 | ) | (816 | ) | ||||||||
| Acquisitions, net of cash acquired |
— | 26 | (823 | ) | (1 | ) | ||||||||||
| Purchase of investments |
(470 | ) | (2 | ) | (470 | ) | (17 | ) | ||||||||
| Other investing activities, net |
— | — | 4 | — | ||||||||||||
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| Net cash used in investing activities |
(631 | ) | (164 | ) | (1,756 | ) | (834 | ) | ||||||||
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| Cash flows from financing activities |
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| Employee stock plans, net |
42 | 39 | 139 | 152 | ||||||||||||
| Repurchases of common stock |
(244 | ) | (243 | ) | (544 | ) | (607 | ) | ||||||||
| Dividends to shareholders |
(71 | ) | — | (189 | ) | (121 | ) | |||||||||
| Proceeds from debt, net of issuance costs |
2,492 | — | 2,992 | — | ||||||||||||
| Repayment of debt |
(2,371 | ) | (115 | ) | (2,486 | ) | (173 | ) | ||||||||
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| Net cash used in financing activities |
(152 | ) | (319 | ) | (88 | ) | (749 | ) | ||||||||
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| Net increase (decrease) in cash and cash equivalents |
(86 | ) | 244 | 260 | 852 | |||||||||||
| Cash and cash equivalents, beginning of period |
4,655 | 3,816 | 4,309 | 3,208 | ||||||||||||
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| Cash and cash equivalents, end of period |
$ | 4,569 | $ | 4,060 | $ | 4,569 | $ | 4,060 | ||||||||
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Exhibit 99.2
TAM 156.2 164.0 167.5 159.5 165.8 176.3 119.1 146.4 156.7 139.1 135.8 135.9 133.3 140.2 142.2 137.0
HDD Share 31.8% 30.9% 31.2% 31.2% 32.5% 32.8% 23.9% 30.2% 45.3% 44.9% 43.6% 44.3% 44.9% 44.7% 44.4% 44.1%
Units (HDD)2 49.7 50.7 52.2 49.8 53.8 57.8 28.5 44.2 71.0 62.5 59.2 60.2 59.9 62.6 63.1 60.4
ASP (HDD) $47 $46 $47 $45 $44 $46 $69 $68 $65 $62 $62 $61 $60 $58 $60 $58
Revenue $2,382 $2,396 $2,475 $2,252 $2,403 $2,694 $1,995 $3,035 $4,754 $4,035 $3,824 $3,764 $3,728 $3,804 $3,972 $3,703
Gross Profit $535 $437 $475 $410 $469 $541 $648 $977 $1,472 $1,193 $1,059 $1,061 $1,050 $1,088 $1,141 $1,060
Gross Margin 22.5% 18.2% 19.2% 18.2% 19.5% 20.1% 32.5% 32.2% 31.0% 29.6% 27.7% 28.2% 28.2% 28.6% 28.7% 28.6%
R&D $154 $167 $169 $179 $188 $193 $191 $265 $406 $396 $378 $396 $402 $401 $421 $426
SG&A 61 59 66 63 77 71 85 122 178 179 162 185 180 132 229 202
Other 27
— 10 32 18 210 48 80 26 41 63 689 13 13 13
Total Operating Expenses $242 $226 $235 $252 $297 $282 $486 $435 $664 $601 $581 $644 $1,271 $546 $663 $641
Operating Income (Loss) $293 $211 $240 $158 $172 $259 $162 $542 $808 $592 $478 $417 $(221) $542 $478 $419
Net Income (Loss) $265 $197 $225 $146 $158 $239 $145 $483 $745 $519 $335 $391 $(265) $495 $430 $375
EPS $1.13 $0.84 $0.96 $0.62 $0.67 $1.01 $0.61 $1.96 $2.87 $2.06 $1.36 $1.60 $(1.12) $2.05 $1.77 $1.55
Diluted Shares Outstanding 235 234 235 236 237 237 237 246 260 252 246 245 236 242 243 242
Non-GAAP Results Gross Profit $535 $437 $475 $410 $469 $541 $648 $1,077 $1,511 $1,231 $1,097 $1,099 $1,085 $1,135 $1,196 $1,115
Gross Margin 22.5% 18.2% 19.2% 18.2% 19.5% 20.1% 32.5% 35.5% 31.8% 30.5% 28.7% 29.2% 29.1% 29.8% 30.1% 30.1%
Net Income $292 $197 $225 $156 $193 $260 $358 $619 $872 $594 $513 $514 $477 $514 $532 $470
EPS6 $1.24 $0.84 $0.96 $0.66 $0.81 $1.10 $1.51 $2.52 $3.35 $2.36 $2.09 $2.10 $1.96 $2.12 $2.19 $1.94
Revenue By Channel OEM 54% 50% 45% 47% 55% 53% 59% 64% 69% 63% 61% 60% 66% 64% 62% 62%
Distributors 29% 32% 33% 33% 29% 29% 25% 28% 21% 24% 24% 26% 23% 24% 24% 25%
Retail 17% 18% 22% 20% 16% 18% 16% 8% 10% 13% 15% 14% 11% 12% 14% 13%
Revenue
by Geography Americas 25% 23% 22% 22% 20% 19% 22% 21% 27% 23% 27% 27% 28% 26% 25% 25%
EMEA 21% 23% 25% 24% 20% 22% 21% 18% 18% 18% 23% 22% 19% 20% 23% 21%
Asia/ANZ 54% 54% 53% 54% 60% 59% 57% 61% 55% 59% 50% 51% 53% 54% 52% 54%
Top
10 Customers Revenue 52% 50% 48% 49% 53% 49% 51% 53% 53% 44% 45% 45% 48% 48% 42% 44%
Enterprise SSD Revenue $—$—$—$—$—$—$—$11
$54 $70 $89 $92 $104 $106 $155 $134
PC Units5 Notebook 16.802 16.582 17.385 16.227 16.867 19.622 9.814 18.067 32.773 25.887 21.300 21.547 23.989 22.912 22.662
21.814
Desktop 20.282 20.918 20.411 20.118 22.348 21.588 11.391 15.975 21.211 16.819 17.717 18.383 16.185 17.307 16.825 16.635
Non-PC Units Consumer Electronics4 5.306 5.239 4.709 4.765 6.459 7.188 2.352 3.643 4.155 8.019 6.452 6.517 6.544 8.474 8.794 8.573
Branded 5.005 5.678 7.427 6.404 5.672 7.060 3.191 2.926 4.986 5.767 7.139 6.517 5.281 6.146 7.018 6.272
Enterprise 2.346 2.319 2.284 2.318 2.463 2.369 1.724 3.616 7.913 5.988 6.633 7.211 7.897 7.771 7.783 7.129
Total HDD 49.741 50.736 52.216 49.832 53.809 57.827 28.472 44.227 71.038 62.480 59.241 60.175 59.896 62.610 63.082 60.423
Average GB Shipped 453 512 581 578 608 634 578 581 668 708 804 805 797 811 874 888
EB Shipped
22.5 26.0 30.3 28.8 32.7 36.7 16.5 25.7 47.4 44.3 47.6 48.4 47.7 50.8 55.1 53.6
R4Q EB Shipped 85.1 94.1 102.5 107.7 117.8 128.5 114.6 111.5 126.3 133.9 165.1
187.8 188.0 194.5 202.0 207.2
Cash and Cash Equivalents $2,734 $2,858 $3,110 $3,230 $3,490 $3,675 $3,924 $3,377 $3,208 $3,537 $3,816 $4,060 $4,309 $4,869 $4,655 $4,569 Short Term & Long Term Investments — — — — — — ——470 Debt (400) (375) (350) (325) (294) (263) (231) (2,743) (2,185) (2,128) (2,128) (2,013) (1,955) (2,398) (2,340) (2,469) Net Cash, Cash Equivalents & Investments $2,334 $2,483 $2,760 $2,905 $3,196 $3,412 $3,693 $634 $1,023 $1,409 $1,688 $2,047 $2,354 $2,471 $2,315 $2,570 Cash Flow From Operations $363 $390 $505 $313 $447 $352 $378 $1,208 $1,128 $936 $772 $727 $684 $680 $727 $697 Free Cash Flow $178 $190 $255 $138 $294 $218 $258 $1,069 $804 $554 $526 $539 $548 $544 $557 $536 Capital Expenditures $185 $200 $250 $175 $153 $134 $120 $139 $324 $382 $246 $188 $136 $136 $170 $161 Depreciation and Amortization $134 $150 $151 $151 $150 $158 $140 $188 $339 $313 $309 $309 $302 $312 $317 $307 EBITDA $427 $361 $391 $309 $322 $417 $302 $730 $1,147 $905 $787 $726 $81 $854 $795 $726 Accounts Receivable, Net $1,256 $1,325 $1,250 $1,171 $1,206 $1,356 $747 $2,377 $2,364 $1,951 $1,732 $1,700 $1,793 $1,791 $1,959 $1,802 Inventory Raw Materials $159 $155 $141 $151 $172 $170 $191 $329 $245 $237 $193 $191 $167 $208 $201 $204 Work in Process 255 266 274 260 263 275 185 667 552 559 581 583 575 579 581 519 Finished Goods 146 140 153 163 142 200 90 286 413 508 430 423 446 457 511 554 Total Inventory $560 $561 $568 $574 $577 $645 $466 $1,282 $1,210 $1,304 $1,204 $1,197 $1,188 $1,244 $1,293 $1,277 Property, Plant and Equipment, Net $2,159 $2,245 $2,277 $2,249 $2,224 $2,209 $2,091 $4,171 $4,067 $4,027 $3,938 $3,803 $3,700 $3,638 $3,509 $3,406 Accounts Payable $1,507 $1,703 $1,628 $1,486 $1,545 $1,708 $883 $2,774 $2,773 $2,545 $2,185 $2,037 $1,990 $2,061 $2,106 $1,902 Days Sales Outstanding 48 50 46 47 46 46 34 71 45 44 41 41 44 43 45 44 Days Inventory Outstanding 28 26 26 28 27 27 31 57 34 42 40 40 40 42 42 44 Days Payables Outstanding 74 79 74 73 73 72 60 123 77 82 72 69 67 69 68 65 Cash Conversion Cycle 2 (3) (2) 2—1 5 5 2 4 9 12 17 16 19 23 Inventory Turns 13 14 14 13 13 13 12 6 11 9 9 9 9 9 9 8 Dividends Paid $—$—$—$—$—$—$—$—$—$—$121 $—$60 $59 $59 $71 Shares Repurchased—1.8 — — — 16.4 5.2 4.2 5.2 4.4 2.3 2.0 2.8 Shares Repurchased $—$50 $—$—$—$—$—$—$604 $218 $146 $243 $235 $150 $150 $244 Remaining Amount Authorized $466 $416 $416 $416 $416 $416 $416 $416 $1,312 $2,594 $2,448 $2,205 $1,970 $1,820 $1,670 $1,426 R4Q Economic Profit8 $826 $714 $484 $213 $92 $113 $15 $(83) $542 $801 $976 $884 $(59) $(176) $(109) $(158) R4Q ROIC8 30.2% 26.4% 21.1% 15.6% 13.2% 13.6% 11.9% 14.8% 20.4% 21.3% 21.0% 20.0% 10.1% 9.7% 10.5% 10.2% R4Q ROA8 20.7% 18.1% 14.6% 10.9% 9.2% 9.5% 8.5% 10.5% 14.3% 14.9% 14.7% 14.2% 7.0% 6.7% 7.2% 7.0% Worldwide Headcount3 62,500 62,817 62,991 61,349 65,431 67,799 67,121 106,604 103,111 96,002 93,820 87,565 85,777 87,586 87,976 84,556
Non-GAAP Financial Measures Free Cash Flow: Free cash flow is a non-GAAP financial measure defined as cash flows from operations less capital expenditures. We consider free cash flow to be useful as an indicator of our overall liquidity, as the amount of free cash flow generated in any period is representative of cash that is available for strategic opportunities including, among others, investing in the Company’s business, making strategic acquisitions, strengthening the balance sheet, repaying debt, paying dividends and repurchasing stock. We also believe that free cash flow is one of several benchmarks used by investors for comparison of our liquidity with other companies in our industry, although our measure of free cash flow may not be directly comparable to similar measures reported by other companies. Free cash flow should not be construed as an alternative to cash flows from operations or other cash flow measurements determined in accordance with GAAP. EBITDA: EBITDA is a non-GAAP financial measure defined as net income before interest, income tax expense, depreciation and amortization. We include information concerning EBITDA because we believe it is a useful measure to evaluate our operating performance. As a measure of our operating performance, we believe EBITDA provides a measure of operating results unaffected by differences in capital structures, capital investment cycles and ages of related assets among otherwise comparable companies. While EBITDA is a relevant and widely used measure of operating performance, it does not represent net income as defined by GAAP and it should not be considered as an alternative to that measure in evaluating operating performance. Non-GAAP Gross Margin and Non-GAAP Gross Profit: Non-GAAP gross margin is a non-GAAP measure defined as non-GAAP gross profit divided by revenue. Non-GAAP gross profit is a non-GAAP measure defined as gross profit before any charges to cost of goods sold that are unusual, non-recurring, or may not be indicative of ongoing operations. Because we believe some charges may not be indicative of ongoing operations, we believe that non-GAAP gross profit is a useful measure to investors as an alternative method for measuring our operating performance and comparing it against prior periods’ performance. Non-GAAP Net Income and Non-GAAP EPS: Non-GAAP net income and non-GAAP EPS are non-GAAP measures defined as net income and EPS, respectively, before any charges that are unusual, non-recurring, or may not be indicative of ongoing operations, or any tax impact related to those charges. Reconciliation of Cash Flows from Operations to Free Cash Flow Cash Flows from Operations $363 $390 $505 $313 $447 $352 $378 $1,208 $1,128 $936 $772 $727 $684 $680 $727 $697 CapitalExpenditures(185) (200) (250) (175) (153) (134) (120) (139) (324) (382) (246) (188) (136) (136) (170) (161) Free Cash Flow $178 $190 $255 $138 $294 $218 $258 $1,069 $804 $554 $526 $539 $548 $544 $557 $536 Reconciliation of Net Income to EBITDA Net Income (Loss) $265 $197 $225 $146 $158 $239 $145 $483 $745 $519 $335 $391 $(265) $495 $430 $375 Interest 1—1 (1) 2 1 2 4 7 14 10 11 9 10 11 13 Income Tax Expense 27 14 14 13 12 19 15 55 56 59 133 15 35 37 37 31 Depreciation and Amortization 134 150 151 151 150 158 140 188 339 313 309 309 302 312 317 307 EBITDA $427 $361 $391 $309 $322 $417 $302 $730 $1,147 $905 $787 $726 $81 $854 $795 $726 Reconciliation of Gross Margin to Non-GAAP Gross Margin & Gross Profit to Non-GAAP Gross Profit Gross Profit $535 $437 $475 $410 $469 $541 $648 $977 $1,472 $1,193 $1,059 $1,061 $1,050 $1,088 $1,141 $1,060 Acquisition-Related Fair Value Adjustments — — ——91 — — — — Restucturing — — — — — ——11 15 16 Amortization of Intangibles — — ——9 39 38 38 38 35 36 40 39 Non-GAAP Gross Profit $535 $437 $475 $410 $469 $541 $648 $1,077 $1,511 $1,231 $1,097 $1,099 $1,085 $1,135 $1,196 $1,115 Revenue $2,382 $2,396 $2,475 $2,252 $2,403 $2,694 $1,995 $3,035 $4,754 $4,035 $3,824 $3,764 $3,728 $3,804 $3,972 $3,703 Gross Margin 22.5% 18.2% 19.2% 18.2% 19.5% 20.1% 32.5% 32.2% 31.0% 29.6% 27.7% 28.2% 28.2% 28.6% 28.7% 28.6% Non-GAAP Gross Margin 22.5% 18.2% 19.2% 18.2% 19.5% 20.1% 32.5% 35.5% 31.8% 30.5% 28.7% 29.2% 29.1% 29.8% 30.1% 30.1% Reconciliation of Net Income (Loss) to Non-GAAP Net Income Net Income (Loss) $265 $197 $225 $146 $158 $239 $145 $483 $745 $519 $335 $391 $(265) $495 $430 $375 Acquisition-Related Expense ——10 10 14 14 34 — — 7 13 — Litigation 27 ——25 7 — — — 681 13 25 15 Charges Related to Flooding, Net — — — 199 15 — — — — Acquisition-Related Fair Value Adjustments — — ——91 — — — — Amortization of Intangibles — — ——12 51 49 49 49 46 47 51 50 Restructuring and other — — — — 80 26 41 74 8 11 26 26 Insurance Recovery — — — — — ——(65) — Extinguishment of debt issuance costs — — — — — — ——4 Tax Impact — — ——(16) (4)—88 — — - Non-GAAP Net Income $292 $197 $225 $156 $193 $260 $358 $619 $872 $594 $513 $514 $477 $514 $532 $470 EPS $1.13 $0.84 $0.96 $0.62 $0.67 $1.01 $0.61 $1.96 $2.87 $2.06 $1.36 $1.60 $(1.12) $2.05 $1.77 $1.55 Non-GAAP EPS $1.24 $0.84 $0.96 $0.66 $0.81 $1.10 $1.51 $2.52 $3.35 $2.36 $2.09 $2.10 $1.96 $2.12 $2.19 $1.94 Diluted Shares Outstanding 235 234 235 236 237 237 237 246 260 252 246 245 236 242 243 242 Non-GAAP Diluted Shares Outstanding6 235 234 235 236 237 237 237 246 260 252 246 245 243 242 243 242
Non-GAAP Financial Measures Economic Profit: Economic profit (EP) is a non-GAAP financial measure defined as net operating profit after taxes less the value of invested capital multiplied by the weighted average cost of capital, where net operating profit after taxes is defined as income from operations minus tax expense and invested capital is defined as the sum of current debt, long-term debt and equity. Management uses EP to evaluate business performance and allocate resources, and it is a component in determining management’s incentive compensation. Management believes EP provides additional perspective to investors about financial returns generated by the business and represents profit generated over and above the cost of capital used by the business to generate that profit. 14 Reconciliation of Operating Income (Loss) to R4Q Economic Profit Operating Income (Loss) $209 $319 $473 $441 $293 $211 $240 $158 $172 $259 $162 $542 $808 $592 $478 $417 $(221) $542 $478 $419 Income Tax Provision (11) (29) (42) (40) (27) (14) (14) (13) (12) (19) (15) (55) (56) (59) (133) (15) (35) (37) (37) (31) Net Operating Profit After Taxes 198 290 431 401 266 197 226 145 160 240 147 487 752 533 345 402 (256) 505 441 388 R4Q Net Operating Profit After Taxes 972 1,320 1,388 1,295 1,090 834 728 771 692 1,034 1,626 1,919 2,117 2,032 1,024 996 1,092 1,078 Invested Capital x WACC(488) (534) (562) (581) (606) (621) (636) (658) (677) (1,117) (1,084) (1,118) (1,141) (1,148) (1,083) (1,172) (1,201) (1,236) R4Q Economic Profit $484 $786 $826 $714 $484 $213 $92 $113 $15 $(83) $542 $801 $976 $884 $(59) $(176) $(109) $(158) Free Cash Flow = Cash Flow from Operations – Capital Expenditures EBITDA = Net Income (Loss) + Interest + Income Tax Expense + Depreciation and Amortization Days Sales Outstanding (DSO) = Accounts Receivable / (Revenue / 91 days) Days Inventory Outstanding (DIO) = Inventory / (Cost of Revenue / 91 days) Days Payables Outstanding (DPO) = Accounts Payable / (Cost of Revenue / 91 days) Cash Conversion Cycle = DSO + DIO – DPO Inventory Turns = 364 days / DIO R4Q Economic Profit = R4Q Net Operating Profit After Taxes – (Invested Capital x WACC) ? Invested Capital = Short-term debt + Current portion of long-term debt + Long-term debt + Total shareholders’ equity ? WACC7 = 11% R4Q ROIC = R4Q (Operating Income (Loss) + Interest Expense) / R4Q Average (Short-term debt + Current portion of long-term debt + Long-term debt + Total shareholders’ equity) R4Q ROA = R4Q Operating Income (Loss) / R4Q Average Total Assets